EXHIBIT 99.1
Media Contact: Kekst & Co. STILWELL
Michael Herley (212-521-4897) FINANCIAL INC.
Investor Contact:
Landon H. Rowland (816-218-2416)
Chairman, President and CEO 920 Main Street, 21st Floor
Kansas City, Missouri 64105
Daniel P. Connealy (816-218-2412)
Vice President and Chief Financial Officer NYSE Symbol: SV
Release No. 2001-26 October 24, 2001
{News Release}
STILWELL FINANCIAL INC. REPORTS
REDUCED THIRD QUARTER EARNINGS
- Company Maintains Ongoing EBITDA Margin of 50%-
(Page 1)
Kansas City, Missouri
Stilwell Financial Inc. ("Stilwell" or the "Company") reported ongoing
third quarter 2001 net income of $90.5 million, or 39(cent) per diluted share,
compared to net income of $170.1 million, or 73(cent) per diluted share, in
record third quarter 2000. For the nine months ended September 30, 2001,
Stilwell reported ongoing net income of $306.9 million, or $1.33 per diluted
share, versus $463.8 million, or $2.02 per diluted share, in 2000. The lower
ongoing earnings in 2001 reflect reduced revenues due to a lower level of
average assets under management and expected downward pressures on Stilwell's
operating margin, primarily as a result of amortization expense associated with
purchases of Janus Capital Corporation ("Janus") common stock during the first
half of the year and higher depreciation resulting from Janus' technology
infrastructure development over the last three years.
Landon H. Rowland, Stilwell's Chairman, President and Chief Executive
Officer, said, "Stilwell's third quarter 2001 results were consistent with our
expectations given the very difficult market conditions. Our operating results
continued to benefit from industry-leading operating and EBITDA margins, but
suffered from the decline in our revenues resulting from reduced assets under
management. Given the significance of the cash flows generated by our
subsidiaries, particularly Janus, we believe that the EBITDA margin is a strong
indicator of the financial strength of our company."
Net income and earnings per share for the three and nine months ended
September 30, 2001 exclude a one-time non-cash charge of approximately $64
million in connection with Stilwell's commitment to purchase 609,950 shares of
Janus common stock from Thomas H. Bailey, Janus' President, Chairman and Chief
Executive Officer, and one other Janus minority stockholder as described in
footnote (2) in the Earnings and Statistics Table below. Earnings for the nine
months ended September 30, 2001 also include other non-recurring items that,
together with non-recurring items during 2000, are described in the footnotes to
the tables below. Taking into consideration these non-recurring items, reported
net income totaled $26.8 million (11(cent) per diluted share) for third quarter
2001 versus $170.1 million (73(cent) per diluted share) in the same 2000 period
and $228.6 million (99(cent) per diluted share) for the nine months ended
September 30, 2001 versus $510.5 million ($2.23 per diluted share) in 2000.
Stilwell reported an ongoing operating margin of 36.3% and 39.6% for
the three and nine months ended September 30, 2001, respectively. These margins
highlight the flexibility of the Janus business model, evidenced by the savings
generated from its substantial reliance on increased electronic shareowner
servicing and earlier work force reductions. If additional amortization expense
resulting from the Janus share purchases during the first half of the year were
excluded, the ongoing operating margin for the three and nine months ended
September 30, 2001 would be 39.6% and 41.3%, respectively.
Stilwell's ongoing earnings before interest, income taxes, depreciation
and amortization ("EBITDA") as a percentage of revenues ("EBITDA margin")
totaled 49.7% for third quarter 2001 versus 50.5% in prior year's record. For
the nine months ended September 30, 2001, the ongoing EBITDA margin was 49.6%
compared to 48.9% in 2000. The strong EBITDA margin reflects Stilwell's
increased ownership of Janus, partially offset by the downward pressures on
Stilwell's operating margin.
- THIRD QUARTER -
EARNINGS AND STATISTICS TABLE
Third Quarter
-------------
2000 2001
---- ----
Net Income (in millions):
Ongoing Net income $ 170.1 $ 90.5
DST gains on sale of marketable investments (1) 0.3
Charge in connection with commitment to
purchase Janus shares (2) (64.0)
-------------------- -------------------
Reported Net income $ 170.1 $ 26.8
==================== ===================
Third Quarter
-------------
2000 2001
---- ----
Diluted Earnings Per Share:
Ongoing Operations $ 0.73 $ 0.39
Charge in connection with commitment to
purchase Janus shares (2) (0.28)
-------------------- -------------------
Reported Diluted Earnings per Share $ 0.73 $ 0.11
==================== ===================
Operating Margin 48.0% 36.3%
Ongoing EBITDA Margin 50.5% 49.7%
Average assets under management (in billions) $ 324.2 $ 198.0
(1) During the three months ended September 30, 2001, the Company recorded
equity earnings of DST representing Stilwell's proportionate share of
DST non-recurring gains in connection with the sale of marketable
securities during third quarter 2001. Note that for purposes of diluted
earnings per share computations, the impact was less than one-quarter
of one cent.
(2) Stilwell recorded a one-time non-cash increase to minority interest of
approximately $64 million in connection with its commitment to purchase
609,950 shares of Janus common stock. This commitment dates back to the
Company's 1984 initial purchase of Janus and results from put rights
held by Mr. Bailey and one other minority stockholder that use Janus'
earnings from the prior calendar year to determine the price of the
shares. Therefore, the contractual price to be paid by Stilwell is
computed using the results from Janus' record year in 2000. Based on
the decline in Janus' earnings from 2000, accounting guidelines require
an evaluation of whether the contractual price of the purchase
commitment exceeds current market value. After consultation with third
party valuation professionals, the Company recorded this charge as an
increase to minority interest at September 30, 2001. Upon completion of
the acquisition of the Janus shares expected to occur later in 2001,
the intangible assets and goodwill to be recorded will be reduced by
the amount of this charge.
Stilwell, which includes Janus, Berger LLC, Nelson Money Managers plc
and an approximate 34% equity investment in DST Systems, Inc. ("DST"), reported
$171.8 billion in assets under management as of September 30, 2001 compared to
$220.1 billion as of June 30, 2001 and $315.5 billion as of September 30, 2000.
The decrease in assets under management during the quarter resulted from the
following: i) net cash redemptions of $4.4 billion, primarily in the Janus
Investment Fund retail funds and ii) market depreciation of $43.9 billion.
Average assets under management totaled $198.0 billion during third quarter 2001
compared to $223.9 billion in second quarter 2001 and $324.2 billion in third
quarter 2000. The lower level of average assets under management in third
quarter 2001 versus 2000 resulted in a 41% decrease in revenues
quarter-to-quarter (to $361.6 million from $609.5 million).
Operating income for the three months ended September 30, 2001 was
$131.4 million versus $292.4 million in 2000. This decline is indicative of the
expected margin pressures experienced due to the lower level of assets under
management and revenues, as well as to higher depreciation and amortization and
certain components of expenses that are fixed. Although declining from the
comparable prior period, Stilwell's operating margin exceeded industry
standards. The work force reductions and facility closings by Janus during the
first half of the year contributed significantly to the continued strong
operating margin.
Operating expenses of $230.2 million for third quarter 2001 were 27%
lower than the $317.1 million in third quarter 2000. Reduced expenses occurred
in the following key categories: i) compensation, primarily due to reduced
investment performance-based incentive compensation and a decline in the average
number of employees quarter-to-quarter; ii) third party concession fees
resulting from a lower level of assets under management through these
distribution arrangements; iii) professional services (due to a lower number of
temporary employees in 2001 versus 2000); and iv) other variable costs
reflecting the decline in revenues. Offsetting these decreases, however, was a
$13.5 million increase in depreciation and amortization arising from goodwill
and identified intangibles associated with Stilwell's acquisition of 802,042
shares of Janus common stock during the first half of the year and Janus'
technology and operational infrastructure efforts over the last three years. The
increase in these expenses had the effect of reducing the operating margin by
more than two percentage points when comparing third quarter 2001 to the same
2000 period.
Exclusive of the one-time gains recorded by DST in third quarter 2001,
equity earnings from DST improved $1.2 million to $15.5 million. This
improvement was largely attributable to higher earnings in DST's financial
services segment. Consolidated DST revenues increased 25.4%, largely due to the
inclusion of revenue from EquiServe Limited Partnership ("EquiServe"), in which
DST acquired controlling ownership on March 30, 2001. Revenues also increased
due to a higher number of shareowner accounts serviced (totaling 75.2 million at
September 30, 2001 versus 74.8 million at June 30, 2001, 72.1 million at
December 31, 2000 and 65.1 million at September 30, 2000) and to increased
volumes in DST's Output Solutions segment from the financial service and video
service industries. DST's operating margin declined quarter-to-quarter,
partially due to the inclusion of EquiServe during 2001.
Stilwell's interest expense increased by $5.1 million
quarter-to-quarter, primarily as a result of accreted interest on the
zero-coupon convertible debt securities ("debt securities") and amortization of
25% of the approximately $16.4 million in debt issue costs paid in connection
with the debt securities. Other income for third quarter 2001 declined by $5.7
million from third quarter 2000 as a result of reduced interest income (from
lower average cash balances and interest rates).
The Company's effective tax rate decreased quarter-to-quarter
reflecting the larger proportionate contribution to net income from equity in
net earnings of DST and a reduction in certain state taxes.
- Year to Date -
EARNINGS AND STATISTICS TABLE
Year to Date
------------
2000 2001
---- ----
Net Income (in millions):
Ongoing Net income $ 463.8 $ 306.9
Charge in connection with commitment to
purchase Janus shares (1) (64.0)
Severance, facility closing and other costs (2) (22.1)
DST gains on sale of business unit and investments (3) 7.8
2000 gain items (4) 46.7
--------------- ------------------
Reported Net income $ 510.5 $ 228.6
=============== ==================
Year to Date
------------
2000 2001
---- ----
Diluted Earnings Per Share:
Ongoing Operations $ 2.02 $ 1.33
Charge in connection with commitment to
purchase Janus shares (1) (0.28)
Severance, facility closing and other costs (2) (0.09)
DST gains on sale of business unit and investments (3) 0.03
2000 gain items (4) 0.21
--------------- -------------------
Reported Diluted Earnings per Share $ 2.23 $ 0.99
=============== ===================
Ongoing Operating Margin 46.2% 39.6%
Ongoing EBITDA Margin 48.9% 49.6%
Average assets under management (in billions) $ 307.6 $ 222.7
Shareowner accounts (in thousands) 6,324.4 6,017.9
(1) See Note (2) to Earnings and Statistics Table in third quarter discussion
above.
(2) During the nine months ended September 30, 2001, Janus recorded
approximately $48.5 million (pretax) in severance, facility closing and
related costs associated with work force reductions in February and April
2001 and the closing of its Austin location in April 2001. Approximately
$39.4 million (pretax) of the total costs were recorded during second
quarter 2001. Partially offsetting these costs was a first quarter 2001
reduction of approximately $8.2 million (pretax) in stock bonus accruals at
Janus that were no longer payable as a result of the sale of shares of Janus
common stock by various employees to Stilwell on March 16, 2001 as
previously disclosed.
(3) The Company recorded $8.4 million in equity earnings of DST representing
Stilwell's proportionate share of DST non-recurring gains in connection with
the sale of DST's portfolio accounting business and sales of marketable
securities during 2001.
(4) Reported net income for the nine months ended September 30, 2000 included
the following: i) a first quarter after-tax gain of $27.3 million resulting
from the settlement of litigation with a former equity affiliate; ii) a
first quarter $15.1 million after-tax gain associated with Stilwell's sale
of 192,408 shares of its Janus common stock to Janus for use in the Janus
employee stock incentive programs; and iii) $3.4 and $0.9 million
(after-tax) in first and second quarter gains, respectively, representing
the Company's proportionate share of a litigation settlement and sales of
marketable securities recorded by DST.
During the nine months ended September 30, 2001, assets under
management declined $86.0 billion (from $257.8 billion as of December 31, 2000
to $171.8 billion as of September 30, 2001). Market depreciation of $80.1
billion represents approximately 93% of the decline in assets under management
since year-end. Average assets under management during the nine months ended
September 30, 2001 totaled $222.7 billion compared to $307.6 billion in the same
2000 period, resulting in a decrease in revenues from $1,717.6 million in 2000
to $1,221.6 million in 2001. This decline in revenues, together with the
expected margin pressures (as noted in the third quarter discussion), led to a
39% decline in ongoing operating income in 2001 versus 2000.
Operating expenses of $738.4 million ($778.7 million including
non-recurring costs) for year to date 2001 were $186.1 million (or 20%) lower
than the $924.5 million in comparable 2000. Reduced expenses occurred in the
same key components identified in the third quarter discussion. Compensation and
third party concession fees - the two largest components of Stilwell's operating
expenses - represented approximately 35% of revenues for the nine months ended
September 30, 2001 versus 36% in 2000. The lower current period percentage
reflects the savings associated with the Janus organizational initiatives in
first and second quarters and reduced performance-based incentive compensation.
Depreciation and amortization increased $35.0 million period-to-period,
resulting in an increase in this component as a percentage of revenues from 3.3%
in 2000 to 7.5% in 2001.
Exclusive of the one-time gains recorded by DST in 2001 and 2000,
equity earnings from DST improved to $49.6 million in 2001 versus $44.2 million
in 2000. This improvement was largely attributable to higher operating earnings
in DST's financial services segment, driven by increased revenues. During the
nine months ended September 30, 2001, DST purchased approximately 6.4 million
shares of its common stock under its previously
announced share repurchase programs, which resulted in an increase in Stilwell's
ownership interest in DST from 33% to 34%.
Stilwell's interest expense increased by $16.0 million in 2001 versus
2000 due to the items noted in the third quarter discussion above, together with
approximately $7.0 million in interest associated with the acquisition of
600,000 shares of Janus common stock from Mr. Bailey in May 2001.
Other income decreased by $14.0 million as a result of lower average
cash balances and interest rates period-to-period. The Company's effective tax
rate was lower for the nine months ended September 30, 2001 compared to the same
2000 period for the reasons discussed in the third quarter above.
BUSINESS OUTLOOK
----------------
Mr. Rowland further commented, "Stilwell's assets under management
declined by $48.3 billion during the quarter, largely due to market
depreciation. Given the declining markets during 2001, the modest outflows
during the year - less than 3% of total assets under management as of December
31, 2000 - and the relatively stable level of shareowner accounts suggest that
investors continue to appreciate the long-term investment strengths and
innovative customer service capabilities of both Janus and Berger.
"Third quarter 2001 further evidenced our ability to maintain an
extremely competitive operating margin despite distressed market and business
conditions. A key component to this operating success resulted from the focus by
Janus, Berger and Nelson on efficiencies gained from sophisticated technology.
Stilwell is committed to supporting, developing and enhancing our existing
subsidiaries and is resolute in its commitment to build the franchise value of
each of these excellent organizations.
"We express our sincerest sympathy for all the people that have
suffered directly and indirectly as a result of the devastating attack on our
country on September 11th. As difficult as it has been to focus on the business
at hand, Stilwell and each of our subsidiaries have worked to return to business
as usual. Operationally, this objective has been successfully attained. As the
rebuilding and healing continues, our commitment to maintaining and
strengthening the value of this company for our shareholders is constant."
--------------------------------------------------------------------------------
Shareholders and other interested parties are invited to listen to
Stilwell's third quarter earnings presentation by calling (800) 406-5345
(domestically) or (913) 981-5571 (internationally), code #640404, at least ten
minutes prior to the 1:00 pm EDT start time of the presentation on October 25,
2001. The accompanying slides to the presentation are expected to be available
on the updated Stilwell web site (http://www.stilwellfinancial.com) on the
morning of October 25, 2001. Additionally, a replay of the presentation will be
available by calling (719) 457-0820 or (888) 203-1112, code #640404. The replay
will be available for one week.
Stilwell is a diversified, global financial services company with
operations through its subsidiaries and affiliates in North America, Europe and
Asia. The primary entities comprising Stilwell are Janus Capital Corporation, a
91.6% owned subsidiary; Berger LLC, of which Stilwell owns 100% of the preferred
limited liability company interests and approximately 87% of the regular limited
liability company interests; Nelson Money Managers Plc, an 81% owned subsidiary;
and DST Systems, Inc., an equity investment in which Stilwell holds an
approximate 34% interest.
* * * * * * * * * *
This press release includes statements concerning potential future events
involving the Company, which could materially differ from the events that
actually occur. The differences could be caused by a number of factors including
those factors identified in Stilwell's Registration Statement on Form 10 dated
June 15, 2000 and Stilwell's Annual Report on Form 10-K for the year ended
December 31, 2000, both on file with the Securities and Exchange Commission
(Commission file no. 001-15253). The Company will not update any forward-looking
statements in this press release to reflect future events or developments.
(Financial Information Attached)
............. The End
STILWELL FINANCIAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
2000 2001 2000 2001
---- ---- ---- ----
Revenues:
Investment management fees $ 502.3 $ 296.4 $ 1,414.9 $1,002.0
Shareowner servicing fees 90.2 49.3 259.6 171.6
Other 17.0 15.9 43.1 48.0
-------- ------- --------- --------
Total 609.5 361.6 1,717.6 1,221.6
-------- ------- --------- --------
Operating expenses:
Compensation 138.3 69.8 387.3 249.6
Marketing and promotion 22.3 22.4 77.0 72.4
Third party concession fees 83.4 53.4 237.1 181.1
Depreciation and amortization 21.5 35.0 57.0 92.0
Professional services 17.0 9.9 49.0 34.7
Other 34.6 39.7 117.1 108.6
Severance, facility closing and other costs - - 40.3
-------- ------- --------- --------
Total 317.1 230.2 924.5 778.7
-------- ------- --------- --------
Operating Income 292.4 131.4 793.1 442.9
Equity in earnings of unconsolidated affiliates 14.3 15.8 48.9 58.0
Interest Expense - Kansas City
Southern Industries, Inc. - - (0.7) -
Interest Expense - third parties (1.9) (7.0) (5.1) (21.8)
Gain on litigation settlement - - 44.2 -
Gain on sale of Janus Capital Corporation common stock - - 15.1 -
Other, net 10.7 5.0 32.1 18.1
-------- ------- --------- --------
Income before taxes and minority interest 315.5 145.2 927.6 497.2
Income tax provision 114.2 47.2 330.8 170.7
Minority interest in consolidated earnings 31.2 71.2 86.3 97.9
--------- ------- --------- --------
Net Income $ 170.1 $ 26.8 $ 510.5 $ 228.6
======== ======= ========= ========
Per Share Data (1):
-------------------
Weighted Average Common
shares outstanding (in thousands) 223,407 220,462 223,163 219,685
-------- ------- --------- --------
Basic Earnings per Common Share $ 0.76 $ 0.12 $ 2.29 $ 1.04
======== ======= ========= ========
Diluted Common
shares outstanding (in thousands) 229,297 224,390 225,126 224,612
-------- ------- --------- --------
Diluted Earnings per Common Share $ 0.73 $ 0.11 $ 2.23 $ 0.99
======== ======= ========= ========
(1)Stock options are included in the respective periods for the proportionate
number of days outstanding during each period. The accumulation of Basic and
Diluted Earnings per Common Share for the three quarters in 2000 and 2001 do
not necessarily total the Basic and Diluted Earnings per Common Share for the
nine months ended September 30, 2000 and 2001, respectively.
Stilwell Financial Inc.
Consolidated Balance Sheets
(Unaudited)
(dollars in millions)
December 31, September 30,
2000 2001
--------------- ---------------
Assets
Current assets:
Cash and equivalents $ 364.3 $ 430.4
Investments in advised funds 30.2 25.2
Accounts receivable 194.4 123.2
Other current assets 52.2 61.4
--------------- ---------------
Total current assets 641.1 640.2
Investments 511.1 438.3
Properties, net 137.7 109.3
Intangibles and other assets, net 291.1 1,468.9
--------------- ---------------
Total assets $ 1,581.0 $ 2,656.7
=============== ===============
Liabilities and
stockholders' equity
Current liabilities:
Current portion of long-term debt $ - $ -
Accounts payable 27.3 24.7
Accrued compensation and benefits 98.0 65.5
Federal income taxes payable 9.7 57.5
Other accrued liabilities 61.1 49.6
--------------- ---------------
Total current liabilities 196.1 197.3
--------------- ---------------
Other liabilities:
Long-term borrowings - 692.9
Deferred income taxes 211.1 378.0
Other deferred credits 42.7 31.0
Minority interest 73.3 90.9
--------------- ---------------
Total other liabilities 327.1 1,192.8
--------------- ---------------
Stockholders' equity:
Common stock 2.2 2.2
Additional paid-in capital - -
Retained earnings 952.3 1,219.4
Accumulated other comprehensive income 103.3 45.0
--------------- ---------------
Total stockholders' equity 1,057.8 1,266.6
--------------- ---------------
Total liabilities and stockholders' equity $ 1,581.0 $ 2,656.7
=============== ===============