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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Federated Investors, Inc.

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code) 412-288-1900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X     . No             .

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes     X     No        .

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of May 9, 2003, the Registrant had outstanding 9,000 shares of Class A Common Stock and 109,025,521 shares of Class B Common Stock.

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Special Note Regarding Forward-Looking Information

Certain statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in “Liquidity and Capital Resources” and elsewhere in this report, constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance, achievements, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For a discussion of such risk factors, see the section titled Risk Factors and Cautionary Statements in Federated’s Annual Report on Form 10-K for the year ended December 31, 2002, and other reports on file with the Securities and Exchange Commission. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism. As a result of the foregoing and other factors, no assurance can be given as to future results, levels of activity, performance or achievements, and neither we nor any other person assumes responsibility for the accuracy and completeness of such statements.

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Part I, Item I. Financial Statements

Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

(The accompanying notes are an integral part of these consolidated financial statements.)

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Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

(The accompanying notes are an integral part of these consolidated financial statements.)

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Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

(The accompanying notes are an integral part of these consolidated financial statements.)

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Notes to the Consolidated Financial Statements

(Unaudited)

(1)    Summary of Significant Accounting Policies

(a)    Basis of Presentation

The interim consolidated financial statements of Federated Investors, Inc. (Federated) included herein have been prepared in accordance with accounting principles generally accepted in the United States. In the opinion of management, the financial statements reflect all adjustments which are of a normal recurring nature and necessary for a fair statement of the results for the interim periods presented.

In preparing the unaudited interim consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from such estimates and such differences may be material to the financial statements.

These financial statements should be read in conjunction with Federated’s Annual Report on Form 10-K for the year ended December 31, 2002. Certain items previously reported have been reclassified to conform with the current year’s presentation.

(b)    Revenue Recognition

Revenue from providing investment advisory, administrative and other services (including distribution, shareholder servicing and accounting) is recognized during the period in which the services are performed. Investment advisory, administrative and the majority of other service fees are based on the net asset value of the investment portfolios that are managed or administered by Federated. Federated may waive certain fees for services for competitive reasons or to meet regulatory requirements. Certain revenue is recorded net of third-party distribution and service costs. Investment advisory fees, administrative service fees and other service fees, primarily distribution and shareholder service fees, are net of third-party payments of $16.0 million, $1.0 million and $49.8 million, respectively, for the three months ended March 31, 2003 and $16.4 million, $1.1 million and $54.0 million, respectively, for the three months ended March 31, 2002.

(c)    Employee Stock-Based Compensation

During the first quarter 2003, Federated issued 40,000 shares of restricted Federated Class B common stock under the Stock Incentive Plan. During the first quarter 2003, 36,900 employee stock options were exercised and 52,800 employee stock options were forfeited.

As allowed under the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), Federated applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock-based awards granted through March 31, 2003. Had compensation costs for stock options and employee restricted stock been determined based upon fair values at the grant dates in accordance with SFAS 123, Federated would have experienced net income and earnings per share similar to the pro forma amounts indicated below for the three month periods ended March 31. For purposes

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

of pro forma results, the estimated fair values of the options and restricted stock are recognized as expense on a straight-line basis over the awards’ vesting periods.

(d)    Recent Accounting Pronouncements

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” (SFAS 148). This statement provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent annual and interim disclosures about the method used to account for stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Management is deliberating whether to adopt the expense recognition provisions of recording the fair value of stock-based compensation under the guidance of SFAS 123 and intends to reach a final decision in 2003.

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” (FIN 46). The objective of FIN 46 is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the VIE’s expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation are currently effective upon issuance for all new VIEs and for interim and annual periods beginning after June 15, 2003, for all VIEs that existed at the date of its issuance. Management is assessing the impact FIN 46 may have on Federated’s results of operations and financial position as it applies to Federated’s role in the collateralized bond obligations (CBOs) for which it acts as investment manager as well as other aspects of Federated’s business. Management is exploring all of its options relating to its relationship with the CBOs in the event that application of FIN 46 requires consolidation of one or more of the CBOs.

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(2)    Intangible Assets

Federated’s identifiable intangible assets consisted of the following at March 31, 2003 and December 31, 2002:

Amortization expense for identifiable intangible assets for the three-month periods ended March 31, 2003 and 2002, was $2.6 million and $3.1 million, respectively. Following is a schedule of expected aggregate annual amortization expense for intangible assets in each of the five succeeding years assuming no new acquisitions or impairments:

(3)    Long-Term Debt—Recourse

Federated’s total recourse debt balance of $2.4 million and $2.3 million at March 31, 2003 and December 31, 2002, respectively, represented liabilities on capital leases. The capital leases carry interest rates ranging from 2.90% to 4.55% with weighted-average interest rates of 3.79% and 3.92% at March 31, 2003 and December 31, 2002, respectively. The four capital leases outstanding at March 31, 2003, have expiration dates that range from the first quarter 2005 to first quarter 2006.

(4)    B-Share Programs and Long-Term Debt – Nonrecourse

Federated sells its rights to future cash flow streams associated with B-share deferred sales commissions (distribution and servicing fees as well as contingent deferred sales charges (CDSCs)) to an independent third party. For accounting purposes, sales of distribution fees and CDSCs are accounted for as sales and the related gains are included in “Other service fees, net – affiliates” in the Consolidated Statements of Income. Sales of Federated’s rights to future servicing fees are accounted for as financings due to Federated’s ongoing involvement in performing shareholder-servicing activities. Accordingly, various tranches of nonrecourse debt have been recorded. Total nonrecourse debt at March 31, 2003, and December 31, 2002, was $58.7 million and $57.9 million, respectively. The tranches carry interest rates ranging from 5.80% to 8.60% with weighted-average interest rates of 7.25% and 7.36% at March 31, 2003 and December 31, 2002, respectively. The current B-share program allows Federated to finance deferred sales commissions through December 2003.

(5)    Common Stock

(a)    Cash Dividends and Stock Repurchases

Cash dividends of $0.057 per share or approximately $6.4 million were paid in the first quarter of 2003 to holders of common shares. (See Note (10) Subsequent Events for details regarding the dividend declared in April 2003.)

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

As of March 31, 2003, under Federated’s current share buyback programs, Federated can repurchase approximately 1.4 million additional shares subject to the cash payment limit imposed by Federated’s Second Amended and Restated Credit Agreement, as amended, (Credit Facility). (See Note (10) Subsequent Events for details regarding the extension of this buyback program.)

Federated’s Credit Facility contains restrictions on payments of dividends and purchases of treasury stock. The Credit Facility limits cash payments for additional stock repurchases and dividends to 50% of net income earned during the period from January 1, 2000, to and including the payment date, less certain payments for dividends and stock repurchases. As of March 31, 2003, more than $208 million was available to repurchase stock or pay dividends under this restriction.

(b)    Employee Stock Purchase Plan

Federated offers an Employee Stock Purchase Plan which allows employees to purchase a maximum of 750,000 shares of Class B common stock. Employees may contribute up to 10% of their salary to purchase shares of Federated’s Class B common stock on a quarterly basis at the market price. The shares under the plan may be newly issued shares, treasury shares or shares purchased on the open market. As of March 31, 2003, a total of 59,149 shares had been purchased by employees in this plan.

(6)    Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

Federated uses the treasury stock method to reflect the dilutive effect of unvested restricted stock and unexercised stock options in diluted earnings per share. At March 31, 2003, options to purchase 3.4 million shares of common stock at an average exercise price of $30.49 per share were outstanding but not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price of Federated Class B common stock. Under the treasury stock method, if the average market price of Federated common stock increases above the option’s exercise price, the proceeds that would be assumed to be realized from the exercise of the option would be assumed to be used to acquire outstanding shares of Federated common stock. As such, the dilutive effect of the 3.4 million shares of options would result in the addition of a net number of shares to the weighted-average number of shares used in the calculation of diluted earnings per share.

(7)    Comprehensive Income

Comprehensive income was $48.8 million and $52.4 million for the three-month periods ended March 31, 2003 and 2002, respectively.

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(8)    Contingent Consideration

Pursuant to various acquisition agreements entered into by Federated in 2001 and 2002, Federated may be required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In 2001, Federated acquired substantially all of the business of Edgemont Asset Management Corporation, the former adviser of the Kaufmann Fund. In addition to the upfront purchase price paid at the date of the acquisition, the acquisition agreement provides for additional purchase price payments based upon the achievement of specified revenue growth through 2007. Pursuant to this agreement, Federated does not expect to pay any contingent purchase price in 2003 based on the level of revenue earned during the twelve-month period ended April 2003. Federated could pay an additional $132.3 million as contingent purchase price between 2004 and 2007 with as much as $66.2 million payable in the second quarter 2004 if revenue targets are met.

In 2001, Federated signed an agreement with Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc. (Rightime Acquisition) and in 2002, Federated signed an agreement with FirstMerit Advisors, Inc. and FirstMerit Corporation (FirstMerit Acquisition). As a result of these agreements, assets previously managed by Rightime Econometrics, Inc. and FirstMerit Advisors, Inc. were merged into various Federated funds. Pursuant to both agreements, Federated is required to make contingent payments on a periodic basis calculated as a percentage of average assets under management in any Federated fund shareholder account for which the seller is the named broker/dealer of record. In the case of the Rightime Acquisition, the payments occur quarterly and could continue through first quarter 2007. Contingent payments relating to the FirstMerit Acquisition occur on a monthly basis through third quarter 2005. As of March 31, 2003, Federated had recorded a liability of $0.5 million representing the present value of expected future contingent purchase price payments relating to the assets under management originally acquired in connection with these acquisitions.

(9)    Variable Interest Entities

Federated acts as the investment manager for two high-yield collateralized bond obligation (CBO) products and a mortgage-backed CBO product pursuant to the terms of an investment management agreement between Federated and each CBO. The CBOs are alternative investment products that were structured using special-purpose entities. As of March 31, 2003, aggregate total assets and aggregate total obligations of the CBOs approximated $1 billion, respectively.

The financial condition and results of operations of these CBOs are not included in Federated’s Consolidated Financial Statements as of and for the three-month period ended March 31, 2003, or for any prior period. In each case, there exists a majority owner(s) that is an independent third party from Federated owning at least three percent equity in the CBO. Federated has not guaranteed nor has any recourse related to any of the notes issued by the CBOs. As of March 31, 2003, the remaining $0.6 million carrying value of Federated’s investments in the CBOs represents Federated’s maximum exposure to loss as a result of its involvement with the CBOs.

(10)    Subsequent Events

After the close of trading on April 15, 2003, Federated was added to the S&P 500 Index.

On April 23, 2003, the board of directors declared a dividend of $0.07 per share to be paid on May 15, 2003, to shareholders of record as of May 7, 2003. The board also approved an extension of Federated’s existing share repurchase program authorizing management to purchase up to five million shares of Federated Class B common stock in addition to the 1.4 million shares remaining eligible for purchase as of March 31, 2003.

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Part I, Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Unaudited)

The discussion and analysis below should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. We have presumed that the readers of this interim financial information have read or have access to management’s discussion and analysis of financial condition and results of operations appearing in Federated’s Annual Report on Form 10-K for the year ended December 31, 2002.

General

Federated Investors, Inc. (together with its subsidiaries, “Federated”) is one of the largest investment management companies in the United States with $196 billion in managed assets as of March 31, 2003. The majority of Federated’s revenue is derived from advising and administrating Federated mutual funds, separately managed accounts and other Federated-sponsored products, in both domestic and international markets. Federated also derives revenue from administrating mutual funds sponsored by third parties and from providing various other mutual fund-related services, including distribution, shareholder, transfer agency, fund accounting, trade execution and clearing and retirement plan recordkeeping services (collectively, “Other Services”).

Investment advisory, administrative and certain Other Services fees, such as distribution and shareholder service fees, are contract-based fees that are calculated as a percentage of the net assets of the investment portfolios that are managed or administered by Federated. As such, Federated’s revenue is primarily dependent upon factors that affect the value of managed and administered assets including market conditions and the ability to attract and maintain assets. Rates for Federated’s services generally vary by asset type and investment objective and, in certain instances, decline as the average net assets of the individual portfolios exceed certain threshold levels. Generally, rates charged for services provided to equity products are higher than rates charged on money market and fixed-income products. Accordingly, revenue is also dependent upon the relative composition of average assets under management or administration. Federated pays a significant portion of its distribution and shareholder service fees to financial intermediaries who sell Federated-sponsored products to the public on its behalf. These payments are generally calculated as a percentage of net assets attributable to the party receiving the payment and are recorded as reductions to revenue earned by Federated on the Consolidated Statements of Income.

Federated’s remaining Other Services fees are based on fixed rates per fund, account, transaction or retirement plan participant. Revenue relating to these services will vary with changes in the number of mutual funds, accounts, transactions and plan participants which are impacted by sales and marketing efforts, competitive fund performance, introduction and market reception of new products and acquisitions.

Federated’s most significant operating expenses include compensation and related costs, which represent fixed and variable compensation and related employee benefits, and marketing and promotional costs.

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Management’s Discussion and Analysis (continued)

of Financial Condition and Results of Operations (Unaudited)

Asset Highlights

Managed Assets at Period End

Average Managed Assets

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Management’s Discussion and Analysis (continued)

of Financial Condition and Results of Operations (Unaudited)

Administered Assets

Components of Changes in Equity and Fixed-Income Fund Managed Assets