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Thursday, April 25, 2002

Stilwell Shows its Footwork

by: Sean Hanna, Editor in Chief

Stilwell Financial is continuing some fancy financial footwork. Even as the parent of Janus and Berger reported earnings in line with Wall Street estimates, it filed additional paperwork with the SEC revealing a plan to entice bond holders to not put their paper back to the firm. The filing also showed that Stilwell affiliates have 10 percent fewer shareholders than a year ago.

The price of Stilwell shares fell 3.43 percent on the open this morning, implying that earnings were somewhat of a disappointment.

First quarter earnings at Stilwell came in at $0.42 per share for the first quarter. Though that number was down from $0.48 per share a year ago, it was in line with what Wall Street expected. The 13 percent decline in earnings was not as sharp as the decline in revenues reported at the firm.

Revenues dropped 27 percent to $328.3 million from $448.5 million in 1991 as average assets under management fell 23 percent to $188.8 billion from $246.6 billion a year earlier. The firm also revealed that redemptions accounted for more lost assets ($4.0 billion) than market depreciation ($3.7 billion). In the past year the number of shareholder accounts at the firm dropped to 5.7 million from 6.3 million.

The reason why earnings did not fall as fast as revenues was that the firm reduced operating expenses. Janus has made a number of high profile cuts, including about half of its personnel. The good news for the firm is that its operating margin 1.2 points to 42.0 percent from 40.8 percent.

Stilwell also cut marketing costs by roughly half. The firm said its "promotion efforts were scaled back to reflect the current operating, market and performance environment."

While Stilwell has made moves to increase its operational efficiency it has also made moves on the financial side of its business. Last week the firm filed a registration statement to offer notes to raise $142.7 million.

Yesterday it made a second filing amending the structure of current debt to add additional interest to bondholders who restrain from exercising a put feature in outstanding notes. The notional value of the bonds that may be put is $697 million.

The amended notes would make an additional semi-annual payment of $27.9 million of interest for each of the next two years. The put feature can be exercised on Tuesday, May 1.

Stilwell by the Numbers
31-Mar-02 31-Mar-01
Reported Net Income (in millions) $97.20 $111.40
Reported Diluted Earnings per share $0.42 $0.48
Operating Margin 42.00% 40.80%
EBITDA (1) (in millions) $177.60 $213.50
EBITDA Margin 54.10% 47.60%
Average assets under management (in billions) $188.80 $246.60
Shareowner accounts (in millions) 5.70 6.30
Source: Stilwell Financial, Inc.

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