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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

OR

For the transition period from             to             

Commission File Number 001-14818

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 August 2, 2004, the Registrant had outstanding 9,000 shares of Class A Common Stock and 108,396,107 shares of Class B Common Stock.

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Special Note Regarding Forward-Looking Information

Certain statements in this report, including those related to changes in the mix of bank clients for fund administration services; the need to make additional contingent payments pursuant to acquisition agreements; the costs associated with the internal review of mutual fund trading activities and other regulatory inquiries; future cash needs; accounting for intangible assets; accounting for income taxes and loss contingencies; market risk to investments and revenue; and the impact of an increase in interest rates constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance or achievements of Federated 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. Among other risks and uncertainties, the mix of bank clients for fund administration services is subject to the decisions of the clients to internalize or change service providers and the impact of mergers in the banking industry; the costs associated with the internal review of mutual fund trading activities, other regulatory inquiries and future cash needs will be impacted by any additional information requests from or fines or penalties paid to governmental agencies and the cost associated with private litigation; the accounting for intangible assets and loss contingencies is based upon estimates and will be affected if actual results differ significantly; the accounting for income taxes will be affected by the ability to utilize capital loss carry forwards; investments will be impacted by fluctuations in the securities markets; and revenue will be affected by changes in market values of assets under management and the impact of rising interest rates on money market funds. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism and the ongoing investigation into the mutual fund industry by federal and state regulators. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither Federated nor any other person assumes responsibility for the accuracy and completeness of such statements in the future. For a discussion of 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, 2003, and other reports on file with the Securities and Exchange Commission.

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Part I, Item I. Financial Statements

Consolidated Balance Sheets

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

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Consolidated Statements of Income

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

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Consolidated Statements of Cash Flows

(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 that 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, 2003. Certain items previously reported have been reclassified to conform with the current year presentation.

(b) B-Share Deferred Sales Commissions and Nonrecourse Debt

Federated funds the payment of upfront commissions paid upon the sale of Class B shares of Federated-sponsored mutual funds through arrangements with independent third parties by selling the rights to all related future distribution fees, servicing fees and contingent deferred sales charges (CDSCs). For financial reporting purposes, these arrangements are treated as financings. As a result, Federated capitalizes all of the upfront commissions as deferred sales commissions and recognizes B-share-related distribution fees and servicing fees in the Consolidated Statements of Income even though legal title to these fees has been transferred to the third party. In addition, Federated records nonrecourse debt equal to the proceeds received on the sale of future revenue streams. The debt does not contain a contractual maturity or stated interest rate. Interest rates are imputed based on current market conditions at the time of issuance. The deferred sales commission asset and nonrecourse debt balance are amortized over the estimated life of the B-share fund asset dependent upon the level and timing of cash flows from the sold future revenue streams, not to exceed eight years. CDSCs collected on the B-share fund assets are used to reduce the deferred sales commission asset. Management accelerates the write off of these asset and debt balances when reasonably estimable future cash flows indicate that cash flows will not be sufficient to fully amortize the remaining deferred sales commission asset and nonrecourse debt balance.

Sale accounting treatment was applied to account for the sale of distribution fees and CDSCs pursuant to the B-share funding arrangements in 2003. As a result, B-share-related distribution fees and related expenses are not reflected in Federated’s Consolidated Statements of Income for 2003. In addition, the Consolidated Statement of Cash Flows for 2003 reflects sale accounting treatment while 2004 reflects financing treatment.

(c) Revenue Recognition

Revenue from providing investment advisory, administrative and other services (including distribution, shareholder servicing, clearing and recordkeeping) 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 or contractual requirements.

Federated has contractual arrangements with third parties to provide certain fund-related services. Based on the nature of Federated’s involvement and obligations under these arrangements, Federated’s revenue is recorded gross or net of third-party payments. Investment advisory fees, administrative service fees, distribution fees and certain other service fees are generally recorded gross of payments made to third parties while shareholder service fees are recorded net of certain third-party payments. Third-party payments for shareholder services recorded as an offset to revenue for the three and six months ended June 30, 2004 were $41.3 million and $84.5 million, respectively as compared to $42.0 million and $84.5 million, respectively for the three and six months ended June 30, 2003.

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(d) Employee Stock-Based Compensation

Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 123), Federated recognizes the estimated fair value of stock-based awards granted, modified or settled on or after January 1, 2003 as compensation expense on a straight-line basis over the awards’ vesting periods, which vary in length from 0 to 10 years. For all employee-related stock option awards granted prior to 2003, Federated continues to apply the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations. Under APB 25, compensation expense is not recognized for stock option awards granted with an exercise price equal to or greater than the market value of Federated’s Class B common stock on the date of grant.

With respect to restricted stock awards, the fair value of the award (the difference between the market value of Federated’s Class B common stock on the date of grant and the purchase price paid by the employee) is charged to “Employee restricted stock awards” on the Consolidated Balance Sheets when the restricted stock is awarded and recognized as compensation expense on a straight-line basis over the period of employee performance during which the awards vest, which ranges from five to ten years.

Had compensation costs for all 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 and six months ended June 30, 2004 and 2003. As allowed by SFAS 123, Federated calculates compensation as if all instruments granted are expected to vest and recognizes the effect of actual forfeitures as they occur.

(e) Marketable Securities

Marketable securities include available-for-sale and trading securities held by Federated. Federated’s available-for-sale securities are classified as current or long-term assets and are included in “Marketable securities” or “Other long-term assets,” respectively, on the Consolidated Balance Sheets based on management’s intention to sell the investment. At June 30, 2004 and December 31, 2003, Federated did not hold any available-for-sale securities that were classified as long-term assets. Federated’s trading securities held at June 30, 2004, are classified as current and are included in “Marketable securities” on the Consolidated Balance Sheets. Federated did not hold any trading securities at December

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

31, 2003. For more details regarding Federated’s policy for marketable securities, see Note (1)(g) to the Consolidated Financial Statements for the year ended December 31, 2003, included in Federated’s Annual Report on Form 10-K.

(f) Intangible Assets

Intangible assets, consisting primarily of goodwill, investment advisory contracts and employment and noncompete agreements acquired in connection with various business combinations, are recorded at fair value determined using a discounted cash flow model as of the date of acquisition. The discounted cash flow model considers various factors to project the present value of future cash flows expected to be generated from the asset. Given the investment advisory nature of Federated’s business and of the businesses acquired over the years, these factors typically include: (1) an estimated rate of change for underlying managed assets; (2) expected revenue per managed asset; (3) incremental operating expenses; (4) useful life of the acquired asset; and (5) a discount rate. Management estimates a rate of change for underlying managed assets based on a combination of an estimated rate of market appreciation or depreciation and an estimated redemption rate. Expected revenue per managed asset, incremental operating expenses and the useful life of the acquired asset are generally based on contract terms and historical experience. The discount rate is equal to Federated’s weighted-average cost of capital. After the fair value of all separately identifiable assets has been estimated, the cost of the acquisition in excess of the sum of the fair values of these assets is allocated to goodwill.

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) which Federated adopted in January 2002, Federated no longer amortizes goodwill but rather tests it for impairment at least annually or when indicators of potential impairment exist. Federated uses a two-step process to test for and measure impairment that begins with an estimation of the fair value of its reporting unit. This first step is a screen for potential impairment, and if impairment has occurred, the second step measures the amount of impairment.

Federated amortizes separately identifiable intangible assets using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. Historically, Federated has used either straight-line or an accelerated method of amortization after considering specific characteristics of the underlying shareholder base to forecast the pattern in which the economic benefits will be consumed, including shareholder behavior, demographics and persistency levels. The assets are amortized over their estimated useful lives, which range from four to 14 years. Management periodically evaluates the remaining useful lives and carrying values of the intangible assets to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decline in the level of managed assets, changes to contractual provisions underlying certain intangible assets and reductions in operating cash flows. Should there be an indication of a change in the useful life or an impairment in value, Federated compares the carrying value of the asset and its related useful life to the projected undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether an impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows. Federated reverses the cost and accumulated amortization balances for all fully amortized intangible assets.

(g) Loss Contingencies

In accordance with SFAS 5, “Accounting for Contingencies,” Federated accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that a liability has been incurred and the costs can be reasonably estimated. Accruals are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Significant differences could exist between the actual cost required to investigate, litigate and/or settle a claim or the ultimate outcome of a suit and management’s estimate. These differences could have a material impact on Federated’s results of operations, financial position or cash flows.

(h) Recent Accounting Pronouncements

In accordance with the applicable transition provisions, Management applied a two-step approach to its adoption of Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” (FIN 46). As of December 31, 2003, management adopted the provisions of FIN 46 for all special-

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

purpose entities and concluded that its relationship with the three collateralized bond obligation (CBO) products, for which Federated acts as investment manager, met the definition of significant variable interests. As of March 31, 2004, management completed its analysis of the impact of adopting FIN 46 to account for any additional variable interest entities with which Federated is involved. As a result of this analysis, management concluded that Federated was not the primary beneficiary of any variable interests as of March 31, 2004. See Note (11) Variable Interest Entities for a discussion regarding Federated’s significant variable interests as of June 30, 2004.

(2) Discontinued Operations

On June 30, 2004, Federated completed the sale of its transfer agency business to Boston Financial Data Services. Total net assets included in the transfer agency sale were approximately $1.1 million and consisted primarily of $0.7 million of goodwill, $0.7 million of fixed assets offset by $0.3 million of unamortized balances of specifically identified refurbishment allowances and deferred rent associated with the assignment of a building lease. There was no material gain or loss associated with this transaction.

The results of operations of the transfer agency business included in discontinued operations were as follows:

(3) Intangible Assets and Goodwill

Federated’s identifiable intangible assets consisted of the following at June 30, 2004 and December 31, 2003:

Amortization expense for identifiable intangible assets for the three- and six-month periods ended June 30, 2004 were $2.7 million and $5.4 million, respectively, and $2.6 million and $5.2 million, respectively, for the same periods of 2003. 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:

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

Goodwill at June 30, 2004 and December 31, 2003 was $230.5 million and $165.0 million, respectively. During the first quarter 2004, Federated recorded $66.2 million of additional goodwill to account for the contingent purchase price paid in May 2004 in connection with the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund in 2001. With this payment, 60% of the total contingent purchase price payment available to be paid over the first six years following the acquisition’s closing date has been paid. See Note (13) Commitments and Contingencies for details regarding the potential remaining payments. More than 80% of the goodwill balances at June 30, 2004 and December 31, 2003 represented goodwill resulting from this acquisition.

On June 30, 2004, Federated sold $0.7 million in goodwill in connection with the sale of the transfer agency business. See Note (2) Discontinued Operations for further discussion of this sale transaction.

(4) Other Long-term Assets

Federated’s other long-term assets consisted of the following at June 30, 2004 and December 31, 2003:

The lease-related receivable represents a refurbishment allowance associated with Federated’s recently amended operating lease for its corporate headquarters. This allowance will be payable in 2006 and was recorded as a long-term receivable as of January 1, 2004, the effective date of the amendment.

(5) Other Current Liabilities

Federated’s other current liabilities at June 30, 2004, included $11.3 million related to an insurance recovery for a claim submitted to cover costs associated with the internal review into past mutual fund trading practices (See Note (13)(c) Commitments and Contingencies – Internal Review of Mutual Fund Trading Activities for a discussion regarding the internal review). The advance payment of this insurance recovery to Federated is contingent upon approval of the claim. In the event that all or a portion of the claim is denied, Federated will be required to repay all or a portion of this advance payment. Because the outcome of this claim is unclear at this time, Federated recorded the advance payment as a liability and will evaluate the contingency until it is resolved.

(6) Recourse Debt

Federated’s total recourse debt balance of $1.1 million and $1.6 million at June 30, 2004 and December 31, 2003, 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 3.73% and 3.77% at June 30, 2004 and December 31, 2003, respectively. The four capital leases outstanding at June 30, 2004, have expiration dates that range from the first quarter 2005 to the first quarter 2006.

As of June 30, 2004, Federated had no outstanding balance under its $150.0 million Second Amended and Restated Credit Agreement as amended (Credit Facility) or under its $50.0 million discretionary line of credit agreement.

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(7) Deferred Sales Commissions and Nonrecourse Debt

Deferred sales commissions consisted of the following:

Current and long-term portions of nonrecourse debt consisted of the following (Note (1)(b)):

For B shares sold on or after January 1, 2004, Federated funds the payment of the upfront sales commission under an amended agreement with an independent financial institution, which expires in December 2006.

(8) Common Stock

(a) Cash Dividends and Stock Repurchases

Cash dividends of $0.085 and $0.102 per share or approximately $9.2 million and $11.0 million were paid in the first and second quarters of 2004, respectively, to holders of common shares.

As of June 30, 2004, under Federated’s current share buyback programs, Federated can repurchase approximately 3.1 million additional shares subject to the cash payment limit imposed by the Credit Facility.

Stock repurchases and dividend payments are subject to restrictions under the Credit Facility. These restrictions limit 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 June 30, 2004, Federated had the ability to make additional stock repurchase and dividend payments of more than $190 million under these restrictions.

(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 June 30, 2004, a total of 68,689 shares had been purchased by employees in this plan since the plan’s inception.

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Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(c) Employee Stock-Based Compensation

During the first half of 2004, Federated sold 40,000 shares of restricted Federated Class B common stock under the Stock Incentive Plan. The restricted stock was purchased out of treasury. During the same time period, restrictions lapsed on 3,579,375 shares of Federated Class B common stock. During the first half of 2004, Federated issued 16,500 employee stock options. During the same time period 233,550 employee stock options were exercised by purchasing shares out of treasury and 843,150 employee stock options were forfeited. As of June 30, 2004, 1,978,200 shares with an exercise price of $1.28 became fully vested and are exercisable from July 1, 2004 through June 30, 2005.