Exhibit 99.2
INDEX TO PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Financial Statements: | ||
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2008 | 2 | |
Unaudited Pro Forma Consolidated Statement of Income for the Nine Months Ended September 30, 2008 | 3 | |
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended December 31, 2007 | 4 | |
Notes to Unaudited Pro Forma Consolidated Financial Statements | 5 | |
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Federated Investors, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2008
(dollars in thousands)
| Combined Federated & Clover Pro Forma | Pro Forma Adjustments | Combined Federated, Clover & Prudent Bear Pro Forma | ||||||||
Current Assets: | ||||||||||
Cash and cash equivalents | $ | 14,513 | $ | — | $ | 14,513 | ||||
Investments | 15,114 | — | 15,114 | |||||||
Receivables, net | 22,795 | — | 22,795 | |||||||
Other current assets | 39,861 | — | 39,861 | |||||||
Total current assets | 92,283 | — | 92,283 | |||||||
Long-Term Assets: | ||||||||||
Goodwill and other intangible assets, net | 607,109 | 48,500 | (a) | 655,609 | ||||||
Deferred sales commissions, net | 36,960 | — | 36,960 | |||||||
Property and equipment, net | 29,260 | — | 29,260 | |||||||
Other long-term assets | 9,806 | — | 9,806 | |||||||
Total long-term assets | 683,135 | 48,500 | 731,635 | |||||||
Total assets | $ | 775,418 | $ | 48,500 | $ | 823,918 | ||||
Current Liabilities: | ||||||||||
Accrued expenses and accounts payable | $ | 112,372 | $ | — | $ | 112,372 | ||||
Short-term debt - recourse | 30,594 | 43,683 | (b) | 74,277 | ||||||
Other current liabilities | 32,944 | 171 | (c) | 33,115 | ||||||
Total current liabilities | 175,910 | 43,854 | 219,764 | |||||||
Long-Term Liabilities: | ||||||||||
Long-term debt - recourse | 129,500 | — | 129,500 | |||||||
Long-term debt - nonrecourse | 36,882 | — | 36,882 | |||||||
Long-term deferred tax liability, net | 33,658 | — | 33,658 | |||||||
Other long-term liabilities | 8,168 | 4,646 | (d) | 12,814 | ||||||
Total long-term liabilities | 208,208 | 4,646 | 212,854 | |||||||
Total liabilities | 384,118 | 48,500 | 432,618 | |||||||
Minority interest | 1,506 | — | 1,506 | |||||||
Shareholders’ Equity: | ||||||||||
Common stock | 195,343 | — | 195,343 | |||||||
Other shareholders’ equity | 194,451 | — | 194,451 | |||||||
Total shareholders’ equity | 389,794 | — | 389,794 | |||||||
Total liabilities, minority interest, and shareholders’ equity | $ | 775,418 | $ | 48,500 | $ | 823,918 | ||||
See notes to unaudited pro forma consolidated financial statements.
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Federated Investors, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Nine Months ended September 30, 2008
(dollars in thousands, except per share data)
| Combined Federated & Clover Pro Forma | Prudent Bear | Pro Forma Adjustments | Combined Federated, Clover & Prudent Bear Pro Forma | ||||||||||||
Revenue: | |||||||||||||||
Investment advisory fees, net | $ | 599,984 | $ | 13,133 | $ | — | $ | 613,117 | |||||||
Administrative service fees, net | 160,384 | — | — | 160,384 | |||||||||||
Other service fees, net | 170,438 | — | — | 170,438 | |||||||||||
Other, net | 3,422 | — | — | 3,422 | |||||||||||
Total revenue | 934,228 | 13,133 | — | 947,361 | |||||||||||
Operating Expenses: | |||||||||||||||
Marketing and distribution | 324,799 | 806 | — | 325,605 | |||||||||||
Compensation and related | 188,104 | 2,669 | 683 | (e) | 191,456 | ||||||||||
Other | 143,562 | 583 | 268 | (f) | 144,413 | ||||||||||
Total operating expenses | 656,465 | 4,058 | 951 | 661,474 | |||||||||||
Operating income | 277,763 | 9,075 | (951 | ) | 285,887 | ||||||||||
Nonoperating Income (Expenses): | |||||||||||||||
Debt expense – recourse | (961 | ) | — | (1,236 | )(g) | (2,197 | ) | ||||||||
Debt expense – nonrecourse | (2,232 | ) | — | — | (2,232 | ) | |||||||||
Other | 1,247 | — | — | 1,247 | |||||||||||
Total nonoperating expenses, net | (1,946 | ) | — | (1,236 | ) | (3,182 | ) | ||||||||
Income from continuing operations before minority interest and income taxes | 275,817 | 9,075 | (2,187 | ) | 282,705 | ||||||||||
Minority interest | 5,861 | — | — | 5,861 | |||||||||||
Income from continuing operations before income taxes | 269,956 | 9,075 | (2,187 | ) | 276,844 | ||||||||||
Income tax provision | 101,753 | — | 2,858 | (h) | 104,611 | ||||||||||
Income from continuing operations | $ | 168,203 | $ | 9,075 | $ | (5,045 | ) | $ | 172,233 | ||||||
Earnings per share from continuing operations: | |||||||||||||||
Basic | $ | 1.69 | $ | 1.73 | |||||||||||
Diluted | $ | 1.66 | $ | 1.70 | |||||||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 99,508 | 99,508 | |||||||||||||
Diluted | 101,028 | 101,028 | |||||||||||||
See notes to unaudited pro forma consolidated financial statements.
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Federated Investors, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2007
(dollars in thousands, except per share data)
| Combined Federated & Clover Pro Forma | Prudent Bear | Pro Forma Adjustments | Combined Federated, Clover & Prudent Bear Pro Forma | ||||||||||||
Revenue: | |||||||||||||||
Investment advisory fees, net | $ | 743,271 | $ | 11,671 | $ | — | $ | 754,942 | |||||||
Administrative service fees, net | 171,847 | — | — | 171,847 | |||||||||||
Other service fees, net | 223,761 | — | — | 223,761 | |||||||||||
Other, net | 5,577 | — | — | 5,577 | |||||||||||
Total revenue | 1,144,456 | 11,671 | — | 1,156,127 | |||||||||||
Operating Expenses: | |||||||||||||||
Marketing and distribution | 354,407 | 731 | — | 355,138 | |||||||||||
Compensation and related | 238,604 | 4,620 | (150 | )(e) | 243,074 | ||||||||||
Other | 190,701 | 688 | 358 | (f) | 191,747 | ||||||||||
Total operating expenses | 783,712 | 6,039 | 208 | 789,959 | |||||||||||
Operating income | 360,744 | 5,632 | (208 | ) | 366,168 | ||||||||||
Nonoperating Income (Expenses): | |||||||||||||||
Debt expense – recourse | (371 | ) | — | (1,648 | )(g) | (2,019 | ) | ||||||||
Debt expense – nonrecourse | (5,101 | ) | — | — | (5,101 | ) | |||||||||
Other | (905 | ) | — | — | (905 | ) | |||||||||
Total nonoperating expenses, net | (6,377 | ) | — | (1,648 | ) | (8,025 | ) | ||||||||
Income from continuing operations before minority interest and income taxes | 354,367 | 5,632 | (1,856 | ) | 358,143 | ||||||||||
Minority interest | 5,765 | — | — | 5,765 | |||||||||||
Income from continuing operations before income taxes | 348,602 | 5,632 | (1,856 | ) | 352,378 | ||||||||||
Income tax provision | 129,969 | — | 1,567 | (h) | 131,536 | ||||||||||
Income from continuing operations | $ | 218,633 | $ | 5,632 | $ | (3,423 | ) | $ | 220,842 | ||||||
Earnings per share from continuing operations: | |||||||||||||||
Basic | $ | 2.17 | $ | 2.19 | |||||||||||
Diluted | $ | 2.13 | $ | 2.15 | |||||||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 100,855 | 100,855 | |||||||||||||
Diluted | 102,606 | 102,606 | |||||||||||||
See notes to unaudited pro forma consolidated financial statements.
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Federated Investors, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
Year Ended December 31, 2007,
And Nine Months Ended September 30, 2008
(1) Basis of presentation
On December 9, 2008, Federated Investors, Inc. (Federated) completed the acquisition of certain assets of David W. Tice & Associates LLC that relate to the management of the Prudent Bear Fund and Prudent Global Income Fund with $1.1 billion and $0.4 billion in assets under management as of December 5, 2008, respectively (the Prudent Bear Funds) (Acquisition). The transaction included an initial purchase payment of $43.0 million and a series of contingent payments totaling as much as $99.5 million over the next four years based on certain revenue growth targets. The transaction was accounted for as a purchase under U.S. GAAP.
The unaudited pro forma consolidated balance sheet as of September 30, 2008 has been prepared to give effect to the Acquisition as if such transaction occurred on September 30, 2008. The unaudited pro forma consolidated statements of income for the nine months ended September 30, 2008, and for the year ended December 31, 2007, have been prepared to give effect to the Acquisition as if such transaction occurred at the beginning of the periods presented.
The following is a description of the individual columns included in the unaudited pro forma consolidated financial statements:
Combined Federated & Clover Pro Forma: On December 1, 2008, Federated completed the acquisition of Clover Capital Management, Inc. (Clover Capital) which was initially disclosed in the Current Report on Form 8-K dated December 2, 2008. The information presented as of and for the nine months ended September 30, 2008, represents Federated’s unaudited historical consolidated financial statements as adjusted on a pro forma basis to reflect the acquisition of Clover Capital as though it had occurred on September 30, 2008 for the balance sheet and as of the beginning of the period presented for the income statement. The income statement presented for the year ended December 31, 2007 was derived from Federated’s audited consolidated financial statements as adjusted on a pro forma basis to reflect the acquisition of Clover Capital as though it had occurred as of the beginning of the period presented. For more information on the pro forma adjustments related to the acquisition of Clover Capital, please see the Current Report on Form 8-K dated December 2, 2008 as amended on February 11, 2009.
Prudent Bear Funds: The information presented as of and for the nine months ended September 30, 2008 and for the year ended December 31, 2007 was derived from Prudent Bear Funds’ unaudited historical financial data.
Pro Forma Adjustments: The pro forma adjustments are based on available information and certain assumptions that Federated believes are reasonable under the circumstances. The adjustments represent adjustments that are directly attributable to the Acquisition. These adjustments are considered to have a continuing impact on the financial position and results of operations of Federated.
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These unaudited pro forma consolidated financial statements and notes thereto are provided for informational purposes only and do not purport to be indicative of the actual financial position or results of operations that would have been reported had such transaction been completed on the dates indicated or of future results of operations. In addition, the unaudited pro forma consolidated financial statements do not include any synergies that may be realized as a result of combining the entities.
These unaudited pro forma consolidated financial statements should be read in conjunction with Federated’s Annual Report on Form 10-K for the year ended December 31, 2007, Quarterly Reports on Form 10-Q for the periods ended March 31, 2008, June 30, 2008 and September 30, 2008 and Current Reports on Form 8-K filed December 2, 2008 (as amended February 11, 2009) and December 10, 2008.
(2) Pro forma adjustments
| (a) | To record the fair value of the assets acquired in connection with the Acquisition. For purposes of the accompanying pro forma consolidated financial statements, Federated has recorded the acquired intangible assets and liabilities assumed using preliminary estimates of fair value as of the acquisition date. A valuation is currently in progress to determine the fair value of those assets and liabilities. Preliminary valuation results indicate that the acquired assets include renewable investment advisory contracts, a noncompetition agreement, and a tradename. The final purchase price allocation may differ materially from the preliminary allocation. |
| (b) | To record the debt incurred to pay the total upfront cost of the Acquisition, which was equal to $43.7 million and included $43.0 million in upfront consideration and $0.7 million in transaction-related costs. |
| (c) | To record a liability for costs incurred in connection with relocation of employees hired in connection with the Acquisition. |
| (d) | To record the excess fair value over cost as a liability for future contingent consideration. |
| (e) | To adjust compensation expense in accordance with compensation arrangements agreed to in connection with the Acquisition agreement. |
| (f) | To increase amortization expense based on preliminary estimates of fair value and an average estimated useful life of seven years for the amortizable noncompetition agreement asset. Should the final allocation of the purchase price differ materially from the preliminary allocation as described in Note (2)(a) above, actual amortization expense could differ materially from pro forma amortization. |
| (g) | To give effect to interest expense on debt assuming the total upfront costs of the Acquisition were financed through Federated’s existing loan facilities. An |
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interest rate of 3.77% was used to calculate interest expense on debt for the nine months ended September 30, 2008 and the year ended December 31, 2007. |
| (h) | To reflect the income tax impacts of the pro forma adjustments described above and to record the tax on the Acquisition’s historical results at the statutory rate in effect during the income statement periods in accordance with Article 11 of Regulation S-X. |
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