Federated Investors Inc. (FII) filed Quarterly Report for the period ended 2009-09-30.
Federated Investors Inc. is a provider of investment management and related financial services. Federated sponsors markets and provides investment advisory distribution and administrative services primarily to mutual funds. These funds are offered through banks broker/dealers and other financial intermediaries who use them to meet the needs of their customers; these customers include retail investors corporations and retirement plans. Federated Investors Inc. has a market cap of $2.65 billion; its shares were traded at around $26.86 with a P/E ratio of 12.4 and P/S ratio of 2.2. The dividend yield of Federated Investors Inc. stocks is 3.8%. Federated Investors Inc. had an annual average earning growth of 8.7% over the past 10 years. GuruFocus rated Federated Investors Inc. the business predictability rank of 3.5-star.
Highlight of Business Operations:
recorded $8.7 million to Noncontrolling interest in subsidiaries on Federated’s Consolidated Balance Sheets. At December 31, 2008, the aggregate assets and liabilities of such entities that Federated consolidated were $6.0 million and $0.8 million, respectively, and Federated recorded $0.8 million to Noncontrolling interest in subsidiaries on Federated’s Consolidated Balance Sheets. The assets of the products are primarily classified as Investments on Federated’s Consolidated Balance Sheets. The liabilities of the products are primarily classified as Accounts payable and accrued expenses – other on Federated’s Consolidated Balance Sheets and primarily represent unsettled trades and operating liabilities of the entities. Neither creditors nor equity investors in the products have any recourse to Federated’s general credit.
result of continued managed asset declines due to market depreciation and net outflows. Management estimated the fair value of these customer relationship intangible assets based upon expected future cash flows using an income approach valuation methodology with unobservable inputs (Level 3). Such inputs included (1) an estimated rate of change for underlying managed assets, considering market appreciation/depreciation and shareholder net sales/redemptions; (2) expected revenue per managed asset; (3) incremental operating expenses; (4) useful life of the acquired asset; and (5) a discount rate. Management estimates a rate of change for underlying managed assets based on a combination of an estimated rate of market appreciation or depreciation and an estimated net redemption or sales rate. Expected revenue per managed asset, incremental operating expenses and the useful life of the acquired asset are generally based on contract terms and historical experience. The discount rate is estimated at the current market rate of return. In addition, because of the subjective nature of the projected discounted cash flows, management created several scenarios and used probability weighting to calculate the expected future cash flows attributable to the intangible assets. As a result of this fair value analysis, Federated recorded a $16.0 million impairment charge in Intangible asset impairment and amortization on the Consolidated Statements of Income to write down these customer relationship intangible assets to $11.1 million as of March 31, 2009.
As a result of recent deterioration in the resale market for used aircraft and management’s revised estimate of the remaining useful life of Federated’s aircraft, management performed quarterly recoverability tests for the net book value of Federated’s aircraft in 2009. The recoverability tests indicated that the carrying value of the aircraft was not fully recoverable first at March 31, 2009 and again at September 30, 2009. Based upon independent valuation data for similar assets (Level 2), management estimated the value of Federated’s aircraft to be $5 million at March 31, 2009 and $4 million at September 30, 2009, which resulted in $3.7 million and $1.0 million impairment charges recorded as operating expense in Other on the Consolidated Statements of Income in the first and third quarters of 2009, respectively.
Federated’s trading securities totaled $18.4 million and $7.6 million at September 30, 2009 and December 31, 2008, respectively. Federated consolidates certain sponsored products into its Consolidated Financial Statements as a result of Federated’s controlling financial interest in the products (see Note (7)). As a result, all investments held by these sponsored products were included in Federated’s Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 as trading securities. Federated’s trading investments primarily represented stocks of large- and mid-cap U.S. and international companies and investment-grade debt securities.
Amortization expense for identifiable intangible assets for the three- and nine-month periods ended September 30, 2009 was $4.0 million and $12.6 million, respectively, and $4.4 million and $13.7 million, respectively, for the same periods of 2008. This expense was included in Intangible asset impairment and amortization on the Consolidated Statements of Income for each period.
Federated’s Other current liabilities at September 30, 2009 and December 31, 2008 included accruals of $24.3 million and $15.4 million, respectively, related to the contingent purchase price payments for the Alliance Acquisition which is payable annually in April with a final payment due in July 2010. Also included in Other current liabilities at September 30, 2009 and December 31, 2008 was $20.8 million and $17.0 million, respectively, related to an insurance recovery for claims submitted to cover costs associated with the internal review and government investigations into past mutual fund trading practices and related civil litigation (see Note (19)(c)). The retention of these advance insurance payments is contingent upon final approval of the claim by the insurance carrier. In the event that all or a portion of the claim is denied, Federated will be required to repay all or a portion of these advance payments. Because the outcome of this claim is uncertain at this time, Federated recorded the advance payments as a liability and will continue to evaluate the contingency until it is resolved.
FII is in the portfolios of Tweedy Browne of Tweedy Browne CO LLC, Tom Gayner of Markel Gayner Asset Management Corp, David Dreman of Dreman Value Management, Richard Aster Jr of Meridian Fund.
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