WADDELL & REED FINANCIAL, INC. 
By
For the fourth quarter of 2008, the Company reported a net loss of
Restructuring, Impairment and Special Charges
The last five months of 2008 were among the most difficult in the history of the financial markets. As a direct result of the financial crisis, we have experienced a severe decline in assets under management and associated revenues. Lower asset levels and forecasted revenues, and maintaining an acceptable level of profitability were largely the factors that lead to the following charges:
* $16.5 million restructuring charge consisting primarily of severance
costs associated with our voluntary separation program.
* $7.9 million of bonus accrual reversal to reflect lower bonus awards in
2008.
* $6.5 million impairment charge reducing our deferred acquisition cost
asset due to lower level of assets under management.
* $7.2 million goodwill impairment charge for our subsidiary Austin
Calvert and Flavin.
* $2.1 million charge related to the settlement of miscellaneous
litigation and other matters.
The following table provides after-tax and per-share information on each
item:
In thousands Per share
GAAP Net Loss ($730) ($0.01)
Restructuring, impairment and special
charges (net of taxes)
Restructuring 10,524 0.12
Bonus adjustment (5,052) (0.06)
Write down of DAC 4,114 0.05
Impairment charge 7,222 0.09
Miscellaneous charge 1,354 0.02
Adjusted Net Income $17,432 $0.21
Weighted average shares outstanding - diluted 82,218
Business Discussion
Management commentary
"The ongoing financial crisis provided the backdrop for an extremely
difficult quarter," said
Advisors channel
Gross sales during the quarter were
Wholesale channel
Gross sales were
Institutional channel
Gross sales during the quarter were
Management Fee Revenue Analysis
We earn management fee revenues by providing investment management services to our retail funds and institutional clients. These revenues are based on the amount of average assets under management and influenced by asset composition, sales, redemptions, and financial market conditions.
Average assets under management declined 28% on a sequential quarter basis and 23% compared to last year's fourth quarter. A lower effective management fee rate also impacted revenues. The effective management fee rate declined to 62.8 basis points in the current quarter compared to 64.2 basis points and 66.9 basis points in the third quarter of 2008 and fourth quarter of 2007, respectively. The decline in rate is due to a mix-shift in assets under management to lower fee products, including money market and fixed income products that now equate to 15.3% of average assets under management compared to 10.5% during the fourth quarter of 2007.
Underwriting and Distribution Revenue and Expense Analysis
Advisors channel
On a sequential basis, the decline in revenues was largely due to lower
asset-based fees as average assets under management declined 25% since
Compared to last year's fourth quarter, revenues declined on a combination of lower asset-based fees and lower front-load sales volume. Slightly offsetting this decline were higher asset-based fees in our asset allocation products and higher sales of insurance products. Direct expenses were lower due to a decline in sales volume and lower assets under management. Indirect expenses remained largely unchanged.
Wholesale channel
Sequentially, the decline in revenue was largely due to lower asset-based service and distribution fees. Higher contingent deferred sales charges collected on early redemptions of mutual fund assets partially offset this decline in revenues. Direct expenses declined due to lower asset-based service and distribution costs and largely offset by the write down of deferred acquisition costs in this year's fourth quarter. Indirect expenses declined due to lower meeting and travel costs.
Compared to the same period last year, revenues increased slightly as lower front-load sales commission revenues partially offset higher contingent deferred sales charges collected on early withdrawal of mutual fund assets. Direct expenses were relatively unchanged. Lower asset-based service and distribution costs were almost entirely offset by the write down of deferred acquisition costs during the current quarter. Indirect expenses were largely unchanged.
Compensation and Related Expense Analysis
Compensation and related costs were lower compared to both the third quarter of 2008 and the fourth quarter of 2007 due to a reversal of previously accrued bonuses and an overall lower bonus pool this year to reflect market and economic conditions that developed during the second half of 2008.
General and Administrative Expense Analysis
The increase in general and administrative costs, compared to both the
third quarter of 2008 and the fourth quarter of 2007, was due primarily to the
restructuring charge associated with our voluntary separation program. A
total of 169 employees accepted the voluntary separation program, which for
most was effective by
Subadvisory Fees
Subadvisory fees declined compared to both the third quarter of 2008 and
the fourth quarter of 2007 due to the decline in subadvised assets under
management. Subadvised average assets under management were
Investment and Other Income/Loss
During the current quarter, we recorded an investment and other income
loss of
Tax Rate
During the quarter, our effective tax rate increased to 121.6%, compared to 36.2% in the previous quarter, and 36.8% during last year's comparable period. This increase was primarily the result of the ACF goodwill impairment charge recorded during the quarter, which is non-deductible for tax purposes.
Balance Sheet Information
Cash and cash equivalents and investment securities were
Stockholders' equity was
Unaudited Schedule of Operating Data
(Amounts in thousands, except for per share data)
2007
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Operating Revenues:
Investment management fees $82,860 $89,383 $94,806 $105,296
Underwriting and distribution fees 84,016 88,556 92,168 106,345
Shareholder service fees 22,623 23,347 23,678 24,476
Total operating revenues 189,499 201,286 210,652 236,117
Operating Expenses:
Underwriting and distribution 94,397 99,528 105,604 122,745
Compensation and related costs 26,932 28,312 28,760 31,901
General and administrative 10,083 11,840 12,745 13,819
Subadvisory fees 9,215 10,638 11,459 12,532
Depreciation 3,043 3,062 3,167 3,140
Goodwill impairment 0 0 0 0
Total operating expenses 143,670 153,380 161,735 184,137
Operating Income: 45,829 47,906 48,917 51,980
Investment and other income 2,480 2,609 4,831 6,532
Interest expense (2,984) (2,982) (2,984) (2,974)
Income before taxes 45,325 47,533 50,764 55,538
Provision for taxes 16,598 17,827 18,797 20,441
Net Income $28,727 $29,706 $31,967 $35,097
Net income per share 0.35 0.36 0.39 0.42
Weighted average shares
outstanding - basic
Weighted average shares
outstanding - diluted 82,803 82,323 82,099 83,676
Operating margin 24.2% 23.8% 23.2% 22.0%
2008
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Operating Revenues:
Investment management fees $102,972 $112,583 $107,911 $76,397
Underwriting and distribution
fees 106,111 114,254 107,054 89,343
Shareholder service fees 24,986 25,946 26,259 25,304
Total operating revenues 234,069 252,783 241,224 191,044
Operating Expenses:
Underwriting and distribution 124,777 132,292 125,589 114,164
Compensation and related costs 34,346 32,870 30,701 21,140
General and administrative 13,833 14,731 14,912 32,894
Subadvisory fees 11,834 13,037 10,866 5,385
Depreciation 3,140 3,188 3,389 3,481
Goodwill impairment 0 0 0 7,222
Total operating expenses 187,930 196,118 185,457 184,286
Operating Income: 46,139 56,665 55,767 6,758
Investment and other income 2,186 1,817 (530) (295)
Interest expense (2,978) (2,982) (2,984) (3,143)
Income before taxes 45,347 55,500 52,253 3,320
Provision for taxes 17,006 20,313 18,888 4,050
Net Income $28,341 $35,187 $33,365 $(730)
Net income per share 0.33 0.42 0.40 (0.01)
Weighted average shares
outstanding - basic 81,320
Weighted average shares
outstanding - diluted 84,964 84,594 83,611
Operating margin 19.7% 22.4% 23.1% 3.5%
Underwriting and Distribution
(Amounts in thousands)
2007
Advisors Channel 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Revenues $56,807 $57,839 $57,728 $65,836
Expenses
Direct 39,340 40,173 39,539 44,461
Indirect 20,775 20,057 21,145 22,800
Total expenses $60,115 $60,230 $60,684 $67,261
Margin -5.8% -4.1% -5.1% -2.2%
Wholesale Channel (Third-Party)
Revenues $12,968 $15,609 $19,271 $25,343
Expenses
Direct 16,951 20,025 25,340 35,253
Indirect 5,001 6,158 6,304 6,820
Total expenses $21,952 $26,183 $31,644 $42,073
Wholesale Channel (Legend)
Revenues $14,241 $15,108 $15,169 $15,166
Expenses
Direct 9,478 10,165 10,158 10,046
Indirect 2,852 2,950 3,118 3,365
Total expenses $12,330 $13,115 $13,276 $13,411
Consolidated Total
Revenues $84,016 $88,556 $92,168 $106,345
Expenses
Direct 65,769 70,363 75,037 89,760
Indirect 28,628 29,165 30,567 32,985
Total expenses $94,397 $99,528 $105,604 $122,745
2008
Advisors Channel 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Revenues $61,677 $63,812 $57,968 $51,886
Expenses
Direct 42,712 44,872 40,106 35,493
Indirect 22,616 23,588 23,428 22,752
Total expenses $65,328 $68,460 $63,534 $58,245
Margin -5.9% -7.3% -9.6% -12.3%
Wholesale Channel (Third-Party)
Revenues $30,345 $35,905 $36,242 $26,156
Expenses
Direct 39,595 43,307 41,520 38,133
Indirect 7,252 7,372 8,539 7,011
Total expenses $46,847 $50,679 $50,059 $45,144
Wholesale Channel (Legend)
Revenues $14,089 $14,537 $12,844 $11,301
Expenses
Direct 9,423 9,695 8,526 7,623
Indirect 3,179 3,458 3,470 3,152
Total expenses $12,602 $13,153 $11,996 $10,775
Consolidated Total
Revenues $106,111 $114,254 $107,054 $89,343
Expenses
Direct 91,730 97,874 90,152 81,249
Indirect 33,047 34,418 35,437 32,915
Total expenses $124,777 $132,292 $125,589 $114,164
Adjusted Results
Reconciliation to GAAP
(Amounts in thousands except for per share data)
Three Months Ended December 31, 2008
GAAP Adjustments Adjusted
Operating Revenues:
Investment management fees $76,397 $- $76,397
Underwriting and distribution fees 89,343 - 89,343
Shareholder service fees 25,304 - 25,304
Total operating revenues 191,044 - 191,044
Operating Expenses:
Underwriting and distribution 114,164 (6,567) 107,597
Compensation and related costs 21,140 7,463 28,603
General and administrative 32,894 (18,098) 14,796
Subadvisory fees 5,385 - 5,385
Depreciation 3,481 - 3,481
Goodwill impairment 7,222 (7,222) -
Total operating expense 184,286 (24,424) 159,862
Operating Income 6,758 24,424 31,182
Investment and other income (295) - (295)
Interest expense (3,143) - (3,143)
Income before provision for income taxes 3,320 24,424 27,744
Provision for income taxes 4,050 6,262 10,312
Net Income (730) 18,162 17,432
Net income per share (0.01) 0.22 0.21
Weighted average shares
outstanding - basic 81,320
Weighted average shares
outstanding - diluted 82,218 82,218
Changes in Assets Under Management
(Amounts in millions)
2007
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Advisors Channel
Beginning assets $29,905 $30,427 $32,153 $34,069
Sales (net of commissions) 783 866 902 1,000
Redemptions (915) (1,027) (922) (965)
Net sales (132) (161) (20) 35
Net exchanges (39) (46) (67) (29)
Reinvested dividends & capital gains 65 108 80 (8)
Net flows (106) (99) (7) (2)
Market action 628 1,825 1,923 495
Ending assets $30,427 $32,153 $34,069 $34,562
Wholesale Channel
Beginning assets $10,819 $11,996 $14,247 $17,405
Sales (net of commissions) 1,300 1,703 2,500 3,967
Redemptions (596) (635) (701) (863)
Net sales 704 1,068 1,799 3,104
Net exchanges 37 45 65 27
Reinvested dividends & capital gains 12 35 18 (89)
Net flows 753 1,148 1,882 3,042
Market action 424 1,103 1,276 1,090
Ending assets $11,996 $14,247 $17,405 $21,537
Institutional Channel
Beginning assets $7,677 $7,315 $7,564 $7,908
Sales (net of commissions) 353 137 282 1,111
Redemptions (899) (319) (542) (368)
Net sales (546) (182) (260) 743
Net exchanges 0 0 0 0
Reinvested dividends & capital gains 28 28 24 25
Net flows (518) (154) (236) 768
Market action 156 403 580 93
Ending assets $7,315 $7,564 $7,908 $8,769
Consolidated Total
Beginning assets $48,401 $49,738 $53,964 $59,382
Sales (net of commissions) 2,436 2,706 3,684 6,078
Redemptions (2,410) (1,981) (2,165) (2,196)
Net sales 26 725 1,519 3,882
Net exchanges (2) (1) (2) (2)
Reinvested dividends & capital gains 105 171 122 (72)
Net flows 129 895 1,639 3,808
Market action 1,208 3,331 3,779 1,678
Ending assets $49,738 $53,964 $59,382 $64,868
2008
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Advisors Channel
Beginning assets $34,562 $32,075 $32,687 $28,505
Sales (net of commissions) 1,048 1,100 871 705
Redemptions (917) (914) (904) (1,036)
Net sales 131 186 (33) (331)
Net exchanges (67) (36) (27) (20)
Reinvested dividends & capital gains 69 93 66 97
Net flows 133 243 6 (254)
Market action (2,620) 369 (4,188) (4,779)
Ending assets $32,075 $32,687 $28,505 $23,472
Wholesale Channel
Beginning assets $21,537 $24,532 $28,948 $23,353
Sales (net of commissions) 5,413 4,574 3,743 1,869
Redemptions (1,171) (1,243) (2,714) (3,413)
Net sales 4,242 3,331 1,029 (1,544)
Net exchanges 65 35 24 21
Reinvested dividends & capital gains 6 31 (9) (299)
Net flows 4,313 3,397 1,044 (1,822)
Market action (1,318) 1,019 (6,639) (4,042)
Ending assets $24,532 $28,948 $23,353 $17,489
Institutional Channel
Beginning assets $8,769 $8,285 $8,489 $7,926
Sales (net of commissions) 696 664 560 439
Redemptions (365) (497) (303) (396)
Net sales 331 167 257 43
Net exchanges 0 0 0 0
Reinvested dividends & capital gains 27 29 26 37
Net flows 358 196 283 80
Market action (842) 8 (846) (1,483)
Ending assets $8,285 $8,489 $7,926 $6,523
Consolidated Total
Beginning assets $64,868 $64,892 $70,124 $59,784
Sales (net of commissions) 7,157 6,338 5,174 3,013
Redemptions (2,453) (2,654) (3,921) (4,845)
Net sales 4,704 3,684 1,253 (1,832)
Net exchanges (2) (1) (3) 1
Reinvested dividends & capital gains 102 153 83 (165)
Net flows 4,804 3,836 1,333 (1,996)
Market action (4,780) 1,396 (11,673) (10,304)
Ending assets $64,892 $70,124 $59,784 $47,484
Supplemental Information 2007
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Redemption rates - long term assets
Advisors 9.8% 10.0% 8.8% 8.0%
Wholesale 21.0% 18.8% 17.9% 17.3%
Institutional 48.0% 17.0% 28.4% 17.4%
Total 18.4% 13.3% 14.1% 12.2%
Sales per advisor (000s)
Total 252 305 296 334
2+ Years 371 434 439 505
0 to 2 Years 77 102 91 94
Gross production per advisor (000s) 16.1 15.9 15.2 17.4
Number of advisors 2,171 2,175 2,273 2,293
Number of shareholder accounts (000s) 2,969 3,047 3,142 3,275
Number of shareholders (000s) 663 688 696 720
2008
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Redemption rates - long term assets
Advisors 8.4% 7.7% 8.2% 12.2%
Wholesale 20.6% 18.0% 39.3% 75.2%
Institutional 17.5% 23.4% 14.3% 22.9%
Total 14.0% 13.8% 21.9% 37.7%
Sales per advisor (000s)
Total 351 357 272 199
2+ Years 548 538 412 309
0 to 2 Years 100 105 84 56
Gross production per advisor (000s) 17.2 17.4 15.0 14.6
Number of advisors 2,235 2,285 2,357 2,366
Number of shareholder accounts (000s) 3,432 3,638 3,736 3,662
Number of shareholders (000s) 757 850 878 863
Fund Rankings
Lipper
Equity funds 1 Year 3 Years 5 Years
Top quartile 52% 53% 64%
Top half 70% 87% 93%
Equity assets
Top quartile 33% 74% 78%
Top half 79% 89% 91%
Fixed income funds
Top quartile 50% 50% 38%
Top half 71% 71% 85%
Fixed income funds
Top quartile 58% 64% 32%
Top half 83% 83% 94%
All funds
Top quartile 52% 52% 58%
Top half 70% 84% 91%
All assets
Top quartile 36% 72% 72%
Top half 79% 88% 92%
MorningStar
% of funds with 4 or 5 stars
Equity funds 56% 56% 63%
All funds 49% 49% 55%
% of assets with 4 or 5 stars
Equity funds 75% 73% 78%
All funds 67% 65% 70%
Earnings Conference Call
Stockholders, members of the investment community and the general public
are invited to listen to a live Web cast of our earnings release conference
call today,
Web site Resources
We invite you to visit the "Corporate" section of our Web site at http://www.waddell.com under the caption "Data Tables" to review supplemental information schedules.
Mutual Fund Investor Contact:
Call (888) WADDELL, or visit http://www.waddell.com or http://www.ivyfunds.com. Past performance is no guarantee of future results. Please invest carefully.
About the Company
Waddell & Reed, Inc., founded in 1937, is one of the oldest mutual fund
complexes in
Through its subsidiaries, Waddell & Reed Financial, Inc. provides
investment management and financial planning services to clients throughout
Forward-Looking Statements
This press release contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which reflect the
current views and assumptions of management with respect to future events
regarding our business and industry in general. These forward-looking
statements include all statements, other than statements of historical fact,
regarding our financial position, business strategy and other plans and
objectives for future operations, including statements with respect to
revenues and earnings, the amount and composition of assets under management,
distribution sources, expense levels, redemption rates and the financial
markets and other conditions. These statements are generally identified by
the use of such words as "may," "could," "should," "would," "believe,"
"anticipate," "forecast," "estimate," "expect," "intend," "plan," "project,"
"outlook," "will," "potential" and similar statements of a future or forward-
looking nature. Readers are cautioned that any forward-looking information
provided by or on behalf of the Company is not a guarantee of future
performance. Actual results may differ materially from those contained in
these forward-looking statements as a result of various factors, including but
not limited to those discussed below. If one or more events related to these
or other risks, contingencies or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may differ
materially from those forecasted or expected. Certain important factors that
could cause actual results to differ materially from our expectations are
disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for
the year ended
* Loss of existing distribution channels or inability to access new
distribution channels;
* A reduction in assets under our management on short notice, through
increased redemptions in our distribution channels or our Funds,
particularly those Funds with a high concentration of assets, or
investors terminating their relationship with us or shifting their
funds to other types of accounts with different rate structures;
* Investors' failure to renew our investment management or subadvisory
agreements, or the terms of any such renewals being on unfavorable
terms;
* A decline in the securities markets or in the relative investment
performance of our Funds and other investment portfolios and products
as compared to competing funds;
* The unsuccessful implementation of new systems or business technology
platforms, or such implementations not being timely or cost effective;
and
* Changes in, or non-compliance with, laws, regulations or legal,
regulatory, accounting, tax or compliance requirements or governmental
policies applicable to the investment management and broker/dealer
industries.
The foregoing factors should not be construed as exhaustive and should be
read together with other cautionary statements included in this and other
reports and filings we make with the Securities and Exchange Commission,
including the information in Item 1 "Business" and Item 1A "Risk Factors" of
Part I and Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of Part II to our Annual Report on Form 10-K for
the year ended
SOURCE Waddell & Reed Financial, Inc.
