8-K/A 1 form.txt 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.