SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): April 20, 2001
FEDERATED INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 001-14818 25-1111467
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of principal executive offices, including zip code)
(412) 288-1900
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OF ASSETS.
On April 20, 2001, Federated Investors, Inc. (Federated) completed a
transaction to acquire substantially all of the business of Edgemont Asset
Management Corp.(Edgemont), the advisor to the $3.23 billion Kaufmann Fund (the
Acquisition),. In conjunction with the Acquisition, Kaufmann Fund shareholders
approved a reorganization of the Kaufmann Fund into the Federated Kaufmann Fund.
The reorganization was approved at a shareholder meeting on April 16, 2001.
In connection with the Acquisition, Federated made an upfront cash payment
to Edgemont of $170.8 million from cash and cash equivalents held by Federated
and delivered to Edgemont 315,732 shares of Federated's Class B Common Stock
from Federated's treasury stock account valued at $8.7 million based on the
terms of the acquisition agreement. Over the next six years, Federated may also
make contingent payments aggregating to as much as $200 million based on revenue
growth targets specified in the acquisition agreement between the parties. Upon
consummation of the Acquisition, Lawrence Auriana and Hans Utsch, the
shareholders of Edgemont and the managers of The Kaufmann Fund, became employees
of Federated and the portfolio managers of the Federated Kaufmann Fund.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIALS AND EXHIBITS.
(a) Financial Statements of Business Acquired
The financial statements of Edgemont Asset Management Corporation for
the periods specified in Rule 3-05 (b) of Regulation S-X were filed
with the Securities and Exchange Commission on May 14, 2001, via
Amendment No. 1 to the Current Report on Form 8-K dated April 20,
2001.
(b) Pro Forma Financial Statements
The pro forma financial statements required pursuant to Article 11 of
Regulation S-X, which are permitted to be filed by amendment to the
Registrant's Current Report on Form 8-K dated April 20, 2001, are filed
herewith.
(c) Exhibits
The following exhibits, from which schedules have been omitted and
will be furnished supplementally to the Securities and Exchange
Commission upon its request, have been incorporated by reference to a
prior filing (on Form 8-K).
2.1 Asset Purchase Agreement dated as of October 20, 2000 by and
among Federated, Edgemont, Lawrence Auriana and Hans P.
Utsch
2.2 Amendment No. 1, dated April 11, 2001, to the Asset Purchase
Agreement dated as of October 20, 2000 by and among
Federated, Edgemont, Lawrence Auriana and Hans P. Utsch
23.1 Consent of Sanville & Company
99.1 Press Release dated April 23, 2001 regarding Federated's
acquisition of substantially all of the assets of Edgemont.
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 hereunto duly authorized.
FEDERATED INVESTORS, INC.
(REGISTRANT)
Dated: July 3, 2001 By:/s/ Denis McAuley III
--------------------------
Denis McAuley III
Vice President and Principal Accounting
Officer
INDEX TO PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Financial Statements:
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2001
Unaudited Pro Forma Consolidated Statement of Income for the quarter ended
March 31, 2001
Unaudited Pro Forma Consolidated Statement of Income for the year ended
December 31, 2000
Notes to Unaudited Pro Forma Consolidated Financial Statements
Federated Investors, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 2001
(dollars in thousands) Combined
Pro Pro Forma
Forma
Federated Adjustments Federated
--------- ---------- -----------
--------- ---------- -----------
Current Assets:
Cash and cash equivalents $ 223,032 $(172,796) (a) $50,236
Securities available for sale 31,832 - 31,832
Receivables, net 35,724 - 35,724
Other current assets 13,204 - 13,204
--------- ---------- -----------
--------- ---------- -----------
Total current assets
303,792 (172,796) 130,996
--------- ---------- -----------
--------- ---------- -----------
Long-Term Assets:
Intangible assets, net 45,003 181,938 (b) 226,941
Property and equipment, net 36,098 123 (b) 36,221
Other long-term assets 318,658 - 318,658
--------- ---------- -----------
--------- ---------- -----------
Total long-term assets
399,759 182,061 581,820
--------- ---------- -----------
--------- ---------- -----------
Total assets $ 703,551 $ 9,265 $ 712,816
========= ========== ===========
========= ========== ===========
Current Liabilities:
Accrued expenses $ 35,755 $ 346 (c) $ 36,101
Accounts payable 30,438 - 30,438
Other current liabilities 48,987 - 48,987
--------- ---------- -----------
--------- ---------- -----------
Total current liabilities
115,180 346 115,526
--------- ---------- -----------
--------- ---------- -----------
Long-Term Liabilities:
Long-term debt - recourse 70,083 - 70,083
Long-term debt - nonrecourse 304,976 - 304,976
Other long-term liabilities 45,307 - 45,307
--------- ---------- -----------
--------- ---------- -----------
Total long-term liabilities
420,366 - 420,366
--------- ---------- -----------
--------- ---------- -----------
Total liabilities
535,546 346 535,892
--------- ---------- -----------
--------- ---------- -----------
Minority interest
91 - 91
--------- ---------- -----------
--------- ---------- -----------
Shareholders' Equity :
Common stock :
Class A 189 - 189
Class B 78,334 - 78,334
Other shareholders' equity 89,391 8,919 (a) 98,310
--------- ---------- -----------
--------- ---------- -----------
Total shareholders' equity 167,914 8,919 176,833
--------- ---------- -----------
--------- ---------- -----------
Total liabilities,
minority interest, and shareholders' equity $ 703,551 $ 9,265 $ 712,816
========= ========== ===========
========= ========== ===========
See notes to pro forma consolidated
financial statements.
Federated Investors, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Quarter Ended March 31, 2001
(in thousands, except per share
data)
Combined
Pro Forma Pro
Forma
Federated Edgemont Adjustments Federated
---------- ----------- ---------- --------
Revenue:
Investment-advisory fees, net $ 97,002 $ 10,464 - $ 107,466
Administrative-service fees, net 29,822 608 - 30,430
Other service fees, net 39,155 2,210 - 41,365
Commission income 1,067 - - 1,067
Investment income, net 4,002 55 (2,530) (d),(e) 1,527
Other income, net 366 - - 366
---------- ----------- ---------- --------
Total revenue 171,414 13,337 (2,530) 182,221
---------- ----------- ---------- --------
Operating Expenses:
Compensation and related 39,645 2,766 - 42,411
General and administration 25,595 916 (13) (f) 26,498
Advertising and promotional 15,815 2,381 - 18,196
Amortization of deferred
sales commissions 12,648 - - 12,648
Amortization of intangible
assets 2,011 - 2,879 (g) 4,890
---------- ----------- ---------- --------
Total operating expenses 95,714 6,063 2,866 104,643
---------- ----------- ---------- --------
Operating income 75,700 7,274 (5,396) 77,578
---------- ----------- ---------- --------
Nonoperating Expenses:
Debt expense - recourse 1,797 - - 1,797
Debt expense - nonrecourse
6,146 - - 6,146
---------- ----------- ---------- --------
---------- ----------- ---------- --------
Total nonoperating expenses 7,943 - - 7,943
---------- ----------- ---------- --------
Income before minority interest
and income taxes 67,757 7,274 (5,396) 69,635
-
Minority interest 2,648 - - 2,648
---------- ----------- ---------- --------
Income before income taxes 65,109 7,274 (5,396) 66,987
Income tax provision 23,465 - 657 (h) 24,122
---------- ----------- ---------- --------
Net income $ 41,644 $ 7,274 $ (6,053) $42,865
========== =========== ========== ========
Earnings per share:
Basic $ 0.36 $ 0.37
Diluted $ 0.35 $ 0.36
Weighted average shares
outstanding:
Basic 115,154 115,470
Diluted 120,314 120,629
See notes to pro forma consolidated
financial statements.
Federated Investors, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 2000
(in thousands, except per share
data)
Combined
Pro Forma Pro Forma
Federated Edgemont Adjustments Federated
-------- ------------ ---------- ----------
Revenue:
Investment-advisory fees, net $ 380,234 $47,205 - $ 427,439
Administrative-service fees, net 109,870 2,721 - 112,591
Other service fees, net 166,356 9,918 - 176,274
Commission income 5,922 - - 5,922
Investment income, net 18,953 196 (11,048) (d),(e) 8,101
Other income, net (567) - - (567)
-------- ------------ ---------- ----------
Total revenue 680,768 60,040 (11,048) 729,760
-------- ------------ ---------- ----------
Operating Expenses:
Compensation and related 162,284 19,907 - 182,191
General and administration 104,811 6,362 (93) (f) 111,080
Advertising and promotional 60,162 7,750 - 67,912
Amortization of deferred
sales commissions 59,041 - - 59,041
Amortization of intangible
assets 7,560 - 11,516 (g) 19,076
-------- ------------ ---------- ----------
Total operating expenses 393,858 34,019 11,423 439,300
-------- ------------ ---------- ----------
Operating income 286,910 26,021 (22,471) 290,460
-------- ------------ ---------- ----------
Nonoperating Expenses:
Debt expense - recourse 8,317 - - 8,317
Debt expense - nonrecourse 25,863 - - 25,863
-------- ------------ ---------- ----------
-------- ------------ ---------- ----------
Total nonoperating
expenses 34,180 - - 34,180
-------- ------------ ---------- ----------
Income before minority interest
and income taxes 252,730 26,021 (22,471) 256,280
-
Minority interest 10,208 - - 10,208
-------- ------------ ---------- ----------
Income before income taxes 242,522 26,021 (22,471) 246,072
Income tax provision (h)
87,162 1,778 (536) 88,404
-------- ------------ ---------- ----------
Net income $ 155,360 $ 24,243 $ (21,935) $ 157,668
======== ============ ========== ==========
Earnings per share:
Basic $ 1.32 $ 1.34
Diluted $ 1.27 $ 1.29
Weighted average shares
outstanding:
Basic 117,557 117,873
Diluted 122,295 122,611
See notes to pro forma consolidated financial statements.
Federated Investors, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
Year Ended December 31, 2000,
And Three-Months Ended March 31, 2001
(1) Basis of presentation
On April 20, 2001, Federated Investors, Inc. (Federated) completed the
transaction to acquire substantially all of the assets (primarily unrecorded
assets) of Edgemont Asset Management Corp. (Edgemont). In connection with this
transaction, Federated purchased Edgemont's fixed assets but did not purchase
any other recorded assets or liabilities of Edgemont. The transaction was
accounted for as a purchase under U.S. GAAP.
The following unaudited pro forma consolidated balance sheet as of March 31,
2001 has been prepared to give effect to the acquisition (Acquisition) as if
such transaction occurred on March 31, 2001. The unaudited statements of income
for the three months ended March 31, 2001, and for the year ended December 31,
2000, 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:
Federated: The information presented as of and for the three months ended
March 31, 2001, was derived from Federated's unaudited historical
consolidated financial statements. The information for the year ended
December 31, 2000, was derived from Federated's audited consolidated
financial statements for 2000.
Edgemont: The information presented as of and for the three months ended
March 31, 2001, was derived from Edgemont's unaudited historical
financial statements. The information for the year ended December 31,
2000, was derived from Edgemont's audited financial statements for
2000. Information presented in this column includes certain
reclassifications to conform Edgemont's financial statements with
Federated's presentation.
Pro Forma Adjustments: The pro forma adjustments are based on available
information and certain assumptions that we believe are reasonable
under the circumstances. Actual adjustments to record the purchase
could be different. The adjustments represent adjustments that are
directly attributable to the Acquisition and are considered to have a
continuing impact on the financial position and results of operations
of Federated.
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 had such transactions
been completed on the dates indicated or of future results of operations. The
purchase price allocation and pro forma adjustments reflect current U.S. GAAP
accounting rules for business combinations and intangible assets. The Financial
Accounting Standards Board is currently considering a proposal to change these
rules and is expecting to issue final statements during the third quarter 2001.
Federated's amortization expense could change and this change could be material
upon adoption of these new rules. 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. Federated does, however, expect
cost savings to result in various areas of the combined business.
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, 2000, Quarterly Report on Form 10-Q for the period ended March 31,
2001, and Current Report on Form 8-K as amended filed May 3, 2001.
(2) Pro forma entries
(a) To record the total cost of the Acquisition, which was equal to
approximately $181,715,000 and included the following components:
Cash consideration $170,802,000
Stock consideration $ 8,919,000
Other direct costs of acquisition $ 1,994,000
The value assigned to the stock consideration represents 315,732
shares of Class B Federated Investors, Inc. Common Stock issued out of
treasury at a per share price of $28.25.
(b) To record the fair value of the assets acquired including goodwill, other
identifiable intangible assets and various fixed assets. For purposes of
the accompanying pro forma consolidated financial statements, we have
recorded the acquired assets 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. We believe that the excess purchase price
over the value of the fixed assets acquired will be allocated to various
intangible assets such as the noncompetition agreement, workforce, goodwill
and advisory contract. However, there can be no assurance that the actual
allocation will not differ significantly from the pro forma allocation.
(c) To record a liability for termination benefits resulting from an
involuntary employee termination plan that was approved in connection with
the Acquisition and pertains to certain Edgemont employees.
(d) To record a reduction in interest income for the elimination of interest
recorded by Edgemont during the period as Federated did not acquire
Edgemont's cash or investment balances.
(e) To give effect to foregone interest income from invested cash of Federated
as a result of using cash equal to approximately $172.8 million for the
acquisition. Average interest rates of 5.81% and 6.28% were used to
calculate foregone interest for the three months ended March 31, 2001, and
the year ended December 31, 2000, respectively.
(f) To adjust depreciation for the fixed assets acquired. Straight-line
depreciation was calculated based on useful lives ranging from 4 to 5
years.
(g) To give effect to the estimated amortization of costs allocated to
intangible assets including assets for the noncompetition agreement,
workforce, other identifiable intangible assets and goodwill. Amortization
expense was calculated using the straight-line method based on useful lives
ranging from 4 to 25 years. Should the actual allocation of the purchase
price differ significantly from as described in Note (2)(b) above,
amortization expense could differ significantly since the depreciable lives
of the intangible assets vary from 4 to 25 years.
(h) To reflect the income tax impacts of the pro forma adjustments described
above and to record the tax on Edgemont's historical results at the
applicable federal statutory rate. Prior to the Acquisition, Edgemont was
operating as an S corporation under the U.S. federal tax laws.