Federated Investors, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report; the supplied text does not provide a standalone fourth-quarter income statement. The registrant is identified in the filing as Federated Investors, Inc.
Business context and financial performance
Federated is an investment manager whose revenue is primarily based on assets under management (AUM). At year-end, it managed $369.7 billion, including mutual funds, separate accounts and liquidation portfolios.
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total revenue | $895.1 million | $951.9 million | Down 6% |
| Investment advisory fees, net | $586.3 million | $639.4 million | Down 8% |
| Administrative service fees, net | $220.4 million | $215.6 million | Up 2% |
| Other service fees, net | $85.4 million | $94.0 million | Down 9% |
| Year-end managed assets | $369.7 billion | $358.2 billion | Up 3% |
| Average managed assets | $354.4 billion | $347.1 billion | Up 2% |
- Year-end money market assets were $285.1 billion, fixed-income assets $44.8 billion, equity assets $30.9 billion and liquidation portfolios $8.9 billion. Average money market assets rose 1%, while fixed-income and equity averages rose 13% and 5%, respectively.
- Net income, earnings per share, operating margins, full-year cash flows, balance-sheet liquidity and debt balances are not clearly stated in the supplied filing text; detailed financial statements are incorporated by reference.
Material changes and unusual items
- Revenue declined despite higher year-end and average total AUM. Federated attributed revenue sensitivity to asset mix: equity products generally earn higher management fees than fixed-income, money market and liquidation products.
- Low short-term interest rates drove money-market-fund fee waivers. In 2011, waivers reduced revenue by $320.7 million and operating income by $88.4 million; the net pretax impact after noncontrolling interests was $81.9 million, versus $54.0 million in 2010.
- Money market assets rose 3% year over year, while liquidation portfolio assets fell 17%. The filing says 46% of 2011 revenue came from money market assets.
- In the fourth quarter, the company repurchased 561,850 shares at an average price of $15.93; 550,000 were purchased under the public program. The program had 2,159,834 shares remaining authorized at December 31, 2011.
Outlook, commentary and risks
- Management expected fee waivers and related expense-sharing effects to continue at least until late 2014. Based on then-current conditions and constant asset levels, first-quarter 2012 waivers were estimated to have an approximately $27 million net negative pretax impact.
- Management estimated that a 10-basis-point increase in gross yields on money market portfolio purchases could reduce the net pretax waiver impact by 35%–40%; a 25-basis-point increase could reduce it by 65%–70%. Actual waivers depend on yields, fund assets, expenses, asset mix, policy actions and other factors.
- The SEC was considering further money market fund reforms, potentially including floating net asset values, capital requirements or redemption restrictions. Federated warned that such changes could harm the funds’ appeal and materially adversely affect its business; the final impact could not yet be assessed.
- Revenue concentration risks included two sponsored funds, which generated approximately 12% and 11% of revenue, and one intermediary customer, Bank of New York Mellon, which generated approximately 10%.
- Other cited risks include market and asset-flow changes, prolonged low rates, regulatory and tax changes, competition, litigation and potential obligations under acquisition or employment arrangements. The supplied text refers to the incorporated annual report for detailed contingencies and risk disclosures.
Key facts for investors to verify
- Review the incorporated audited income statements, balance sheets and cash-flow statements for net income, EPS, margins, cash generation, debt and liquidity; these figures are not provided clearly in the supplied text.
- Check the detailed quarterly results and the timing and sensitivity of money market fee waivers, including actual first-quarter 2012 results versus management’s estimate.
- Assess the status and eventual terms of proposed money market fund regulation and its potential effects on AUM, yields and fee waivers.
- Monitor the disclosed fund and intermediary revenue concentrations, as well as changes in AUM and product mix.
- Review incorporated notes on debt, interest-rate swaps, litigation, commitments and contingencies for amounts and potential cash impacts.