Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2019 | Oct. 25, 2019 | |
Document and Entity Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Sep. 30, 2019 | |
Entity File Number | 001-13913 | |
Entity Registrant Name | WADDELL & REED FINANCIAL INC | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 51-0261715 | |
Entity Address, Address Line One | 6300 Lamar Avenue | |
Entity Address, City or Town | Overland Park | |
Entity Address, State or Province | KS | |
Entity Address, Postal Zip Code | 66202 | |
City Area Code | 913 | |
Local Phone Number | 236-2000 | |
Title of 12(b) Security | Class A Common Stock, $.01 par value | |
Trading Symbol | WDR | |
Security Exchange Name | NYSE | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 70,323,231 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q3 | |
Entity Central Index Key | 0001052100 | |
Amendment Flag | false |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Assets: | ||
Cash and cash equivalents | $ 162,567 | $ 231,997 |
Cash and cash equivalents - restricted | 23,350 | 59,558 |
Investment securities | 691,616 | 617,135 |
Receivables: | ||
Funds and separate accounts | 14,752 | 18,112 |
Customers and other | 98,667 | 151,515 |
Prepaid expenses and other current assets | 20,464 | 27,164 |
Total current assets | 1,011,416 | 1,105,481 |
Property and equipment, net | 49,785 | 63,429 |
Goodwill and identifiable intangible assets | 145,869 | 145,869 |
Deferred income taxes | 6,775 | 12,321 |
Other non-current assets | 41,261 | 16,979 |
Total assets | 1,255,106 | 1,344,079 |
Liabilities: | ||
Accounts payable | 17,095 | 26,253 |
Payable to investment companies for securities | 31,022 | 100,085 |
Payable to third party brokers | 18,036 | 19,891 |
Payable to customers | 49,294 | 86,184 |
Accrued compensation | 67,432 | 54,129 |
Other current liabilities | 87,946 | 51,580 |
Total current liabilities | 270,825 | 338,122 |
Long-term debt | 94,908 | 94,854 |
Accrued pension and postretirement costs | 822 | 798 |
Other non-current liabilities | 32,108 | 15,392 |
Total liabilities | 398,663 | 449,166 |
Redeemable noncontrolling interests | 16,913 | 11,463 |
Stockholders' equity: | ||
Preferred stock-$1.00 par value: 5,000 shares authorized; none issued | ||
Class A Common stock-$0.01 par value: 250,000 shares authorized; 99,701 shares issued; 71,211 shares outstanding (76,790 at December 31, 2018) | 997 | 997 |
Additional paid-in capital | 303,138 | 311,264 |
Retained earnings | 1,242,677 | 1,198,445 |
Cost of 28,490 common shares in treasury (22,911 at December 31, 2018) | (710,565) | (627,587) |
Accumulated other comprehensive income | 3,283 | 331 |
Total stockholders' equity | 839,530 | 883,450 |
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ 1,255,106 | $ 1,344,079 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Consolidated Balance Sheets | ||
Preferred stock-par value (in dollars per share) | $ 1 | $ 1 |
Preferred stock-shares authorized | 5,000 | 5,000 |
Preferred stock-shares issued | 0 | 0 |
Class A Common stock-par value (in dollars per share) | $ 0.01 | $ 0.01 |
Class A Common stock-shares authorized | 250,000 | 250,000 |
Class A Common stock-shares issued | 99,701 | 99,701 |
Class A Common stock-shares outstanding | 71,211 | 76,790 |
Common shares in treasury | 28,490 | 22,911 |
Consolidated Statements of Inco
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Revenues: | ||||
Total Revenues | $ 270,680 | $ 295,118 | $ 800,244 | $ 888,071 |
Operating expenses: | ||||
Distribution | 117,425 | 116,591 | 343,696 | 345,376 |
Compensation and benefits (including share-based compensation of $11,580, $12,856, $35,471, and $42,526, respectively) | 64,999 | 64,561 | 191,718 | 199,174 |
General and administrative | 16,680 | 17,559 | 47,421 | 56,240 |
Technology | 15,019 | 15,414 | 47,769 | 49,293 |
Occupancy | 5,684 | 7,148 | 19,100 | 21,081 |
Marketing and advertising | 2,134 | 2,461 | 6,497 | 7,638 |
Depreciation | 4,833 | 8,141 | 16,062 | 19,262 |
Subadvisory fees | 3,882 | 3,767 | 11,154 | 11,158 |
Intangible asset impairment | 1,200 | |||
Total | 230,656 | 235,642 | 683,417 | 710,422 |
Operating income | 40,024 | 59,476 | 116,827 | 177,649 |
Investment and other income | 5,212 | 1,697 | 23,690 | 5,354 |
Interest expense | (1,562) | (1,555) | (4,662) | (4,908) |
Income before provision for income taxes | 43,674 | 59,618 | 135,855 | 178,095 |
Provision for income taxes | 10,175 | 13,105 | 35,036 | 41,355 |
Net income | 33,499 | 46,513 | 100,819 | 136,740 |
Net income (loss) attributable to redeemable noncontrolling interests | 445 | 208 | 1,763 | (380) |
Net income attributable to Waddell & Reed Financial, Inc. | $ 33,054 | $ 46,305 | $ 99,056 | $ 137,120 |
Net income per share attributable to Waddell and Reed Financial, Inc. common shareholders, basic and diluted: | $ 0.46 | $ 0.58 | $ 1.33 | $ 1.69 |
Weighted average shares outstanding, basic and diluted: | 72,387 | 79,595 | 74,446 | 81,372 |
Investment management fees | ||||
Revenues: | ||||
Total Revenues | $ 111,806 | $ 129,302 | $ 334,438 | $ 393,385 |
Underwriting and distribution fees | ||||
Revenues: | ||||
Total Revenues | 135,787 | 140,308 | 395,527 | 416,222 |
Shareholder service fees | ||||
Revenues: | ||||
Total Revenues | $ 23,087 | $ 25,508 | $ 70,279 | $ 78,464 |
Consolidated Statements of In_2
Consolidated Statements of Income (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Consolidated Statements of Income | ||||
Compensation and benefits, share-based compensation | $ 11,580 | $ 12,856 | $ 35,471 | $ 42,526 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Consolidated Statements of Comprehensive Income | ||||
Net income | $ 33,499 | $ 46,513 | $ 100,819 | $ 136,740 |
Other comprehensive income: | ||||
Unrealized gain (loss) on available for sale investment securities during the period, net of income tax expense (benefit) of $92, $80, $1,011 and $(218), respectively | 296 | 262 | 3,235 | (700) |
Postretirement benefit, net of income tax benefit of $(30), $(7), $(88) and $(22), respectively | (94) | (24) | (283) | (70) |
Comprehensive income | 33,701 | 46,751 | 103,771 | 135,970 |
Comprehensive income (loss) attributable to redeemable noncontrolling interests | 445 | 208 | 1,763 | (380) |
Comprehensive income attributable to Waddell & Reed Financial, Inc. | $ 33,256 | $ 46,543 | $ 102,008 | $ 136,350 |
Consolidated Statements of Co_2
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Consolidated Statements of Comprehensive Income | ||||
Unrealized gain (loss) on available for sale investment securities during the period, income tax expense (benefit) | $ 92 | $ 80 | $ 1,011 | $ (218) |
Postretirement benefit, income tax benefit | $ (30) | $ (7) | $ (88) | $ (22) |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity and Redeemable Noncontrolling Interests - USD ($) shares in Thousands, $ in Thousands | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total |
Increase (Decrease) in Stockholders' Equity | ||||||
Adoption of new accounting principle guidance | ASU 2016-01 | $ 812 | $ (812) | ||||
Adoption of new accounting principle guidance | ASU 2018-02 | 36 | (36) | ||||
Balance at the beginning of the period at Dec. 31, 2017 | $ 997 | $ 301,410 | 1,092,394 | $ (522,441) | 524 | $ 872,884 |
Balance (in shares) at Dec. 31, 2017 | 99,701 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income (loss) | 137,120 | 137,120 | ||||
Recognition of equity compensation | 32,871 | 991 | 33,862 | |||
Net issuance/forfeiture of nonvested shares | (22,068) | 22,068 | ||||
Dividends accrued | (60,568) | (60,568) | ||||
Repurchase of common stock | (89,018) | (89,018) | ||||
Other comprehensive income (loss) | (770) | (770) | ||||
Balance at the end of the period at Sep. 30, 2018 | $ 997 | 312,213 | 1,170,785 | (589,391) | (1,094) | 893,510 |
Balance (in shares) at Sep. 30, 2018 | 99,701 | |||||
Balance at the beginning of the period at Dec. 31, 2017 | 14,509 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Net income (loss) | (380) | |||||
Net subscription of redeemable noncontrolling interests in sponsored funds | 2,004 | |||||
Balance at the end of the period at Sep. 30, 2018 | 16,133 | |||||
Balance at the beginning of the period at Jun. 30, 2018 | $ 997 | 302,144 | 1,144,090 | (560,181) | (1,332) | 885,718 |
Balance (in shares) at Jun. 30, 2018 | 99,701 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income (loss) | 46,305 | 46,305 | ||||
Recognition of equity compensation | 9,228 | 78 | 9,306 | |||
Net issuance/forfeiture of nonvested shares | 841 | (841) | ||||
Dividends accrued | (19,688) | (19,688) | ||||
Repurchase of common stock | (28,369) | (28,369) | ||||
Other comprehensive income (loss) | 238 | 238 | ||||
Balance at the end of the period at Sep. 30, 2018 | $ 997 | 312,213 | 1,170,785 | (589,391) | (1,094) | 893,510 |
Balance (in shares) at Sep. 30, 2018 | 99,701 | |||||
Balance at the beginning of the period at Jun. 30, 2018 | 17,052 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Net income (loss) | 208 | |||||
Net redemption of redeemable noncontrolling interests in sponsored funds | (1,127) | |||||
Balance at the end of the period at Sep. 30, 2018 | 16,133 | |||||
Balance at the beginning of the period at Dec. 31, 2018 | $ 997 | 311,264 | 1,198,445 | (627,587) | 331 | 883,450 |
Balance (in shares) at Dec. 31, 2018 | 99,701 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income (loss) | 99,056 | 99,056 | ||||
Recognition of equity compensation | 25,573 | 297 | 25,870 | |||
Net issuance/forfeiture of nonvested shares | (33,699) | 33,699 | ||||
Dividends accrued | (55,121) | (55,121) | ||||
Repurchase of common stock | (116,677) | (116,677) | ||||
Other comprehensive income (loss) | 2,952 | 2,952 | ||||
Balance at the end of the period at Sep. 30, 2019 | $ 997 | 303,138 | 1,242,677 | (710,565) | 3,283 | 839,530 |
Balance (in shares) at Sep. 30, 2019 | 99,701 | |||||
Balance at the beginning of the period at Dec. 31, 2018 | 11,463 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Net income (loss) | 1,763 | |||||
Net subscription of redeemable noncontrolling interests in sponsored funds | 3,687 | |||||
Balance at the end of the period at Sep. 30, 2019 | 16,913 | |||||
Balance at the beginning of the period at Jun. 30, 2019 | $ 997 | 294,487 | 1,227,314 | (669,223) | 3,081 | 856,656 |
Balance (in shares) at Jun. 30, 2019 | 99,701 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income (loss) | 33,054 | 33,054 | ||||
Recognition of equity compensation | 8,024 | 57 | 8,081 | |||
Net issuance/forfeiture of nonvested shares | 627 | (627) | ||||
Dividends accrued | (17,748) | (17,748) | ||||
Repurchase of common stock | (40,715) | (40,715) | ||||
Other comprehensive income (loss) | 202 | 202 | ||||
Balance at the end of the period at Sep. 30, 2019 | $ 997 | $ 303,138 | $ 1,242,677 | $ (710,565) | $ 3,283 | 839,530 |
Balance (in shares) at Sep. 30, 2019 | 99,701 | |||||
Balance at the beginning of the period at Jun. 30, 2019 | 15,115 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Net income (loss) | 445 | |||||
Net subscription of redeemable noncontrolling interests in sponsored funds | 1,353 | |||||
Balance at the end of the period at Sep. 30, 2019 | $ 16,913 |
Consolidated Statements of St_2
Consolidated Statements of Stockholders' Equity and Redeemable Noncontrolling Interests (Parenthetical) - $ / shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Consolidated Statements of Stockholders' Equity and Redeemable Noncontrolling Interests | ||||
Dividends accrued (in dollars per share) | $ 0.25 | $ 0.25 | $ 0.75 | $ 0.75 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Cash flows from operating activities: | ||
Net income | $ 100,819 | $ 136,740 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 16,057 | 19,262 |
Write-down of impaired assets | 1,200 | |
Amortization of deferred sales commissions | 1,492 | 2,682 |
Share-based compensation | 35,471 | 42,526 |
Investments (gain) loss, net | (25,916) | 2,521 |
Net purchases, maturities, and sales of trading and equity securities | (47,641) | (4,387) |
Deferred income taxes | 4,622 | 5,307 |
Net change in equity securities and trading debt securities held by consolidated sponsored funds | 16,697 | 71,452 |
Other | 1,273 | 2,973 |
Changes in assets and liabilities: | ||
Customer and other receivables | 74,807 | 9,286 |
Payable to investment companies for securities and payable to customers | (105,953) | (14,394) |
Receivables from funds and separate accounts | 3,360 | 3,345 |
Other assets | 19,599 | 7,650 |
Accounts payable and payable to third party brokers | (11,013) | (1,388) |
Other liabilities | 557 | (21,042) |
Net cash provided by operating activities | 84,231 | 263,733 |
Cash flows from investing activities: | ||
Purchases of available for sale and equity method securities | (149,835) | (56,840) |
Proceeds from sales of available for sale and equity method securities | 19,667 | 1,157 |
Proceeds from maturities of available for sale securities | 116,197 | 100,085 |
Additions to property and equipment | (4,189) | (1,831) |
Net cash (used in) provided by investing activities | (18,160) | 42,571 |
Cash flows from financing activities: | ||
Dividends paid | (56,560) | (61,531) |
Repurchase of common stock | (118,668) | (88,166) |
Repayment of short-term debt, net of debt issuance costs | (94,943) | |
Net subscriptions (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds | 3,687 | 2,004 |
Other | (168) | |
Net cash used in financing activities | (171,709) | (242,636) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (105,638) | 63,668 |
Cash, cash equivalents, and restricted cash at beginning of period | 291,555 | 235,985 |
Cash, cash equivalents, and restricted cash at end of period | $ 185,917 | $ 299,653 |
Description of Business and Sig
Description of Business and Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2019 | |
Description of Business and Significant Accounting Policies | |
Description of Business and Significant Accounting Policies | WADDELL & REED FINANCIAL, INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Significant Accounting Policies Waddell & Reed Financial, Inc. and Subsidiaries Waddell & Reed Financial, Inc. (hereinafter referred to as the “Company,” “we,” “our” or “us”) is a holding company, incorporated in the state of Delaware in 1981, that conducts business through its subsidiaries. Founded in 1937, we are one of the oldest mutual fund complexes in the United States, having introduced the former Waddell & Reed Advisors group of mutual funds (the “Advisors Funds”) in 1940. Over time, we added additional mutual funds: Ivy Funds (the “Ivy Funds”); Ivy Variable Insurance Portfolios, our variable product offering (“Ivy VIP”); InvestEd Portfolios, our 529 college savings plan (“InvestEd”); and the Ivy High Income Opportunities Fund, a closed-end mutual fund (“IVH”). In 2016, we introduced the Ivy NextShares ® We derive our revenues from providing investment management and advisory services, investment product underwriting and distribution, and shareholder services administration to the Funds and institutional accounts. We also provide wealth management services, primarily to retail clients through Waddell & Reed, Inc. (“W&R”), and independent financial advisors associated with W&R (“Advisors”), who provide financial planning and advice to their clients. Investment management and advisory fees and certain underwriting and distribution revenues are based on the level of AUM and assets under administration (“AUA”) and are affected by sales levels, financial market conditions, redemptions and the composition of assets. Our underwriting and distribution revenues consist of fees earned on fee-based asset allocation programs and related advisory services, asset-based service and distribution fees promulgated under Rule 12b-1 of the Investment Company Act of 1940 (“Rule 12b-1”), distribution fees on certain variable products, and commissions derived from sales of investment and insurance products. The products sold have various commission structures and the revenues received from those sales vary based on the type and dollar amount sold. Shareholder service fee revenue includes transfer agency fees, custodian fees from retirement plan accounts, portfolio accounting and administration fees, and is earned based on client AUM or number of client accounts. Our major expenses are for distribution of our products, compensation related costs, occupancy, general and administrative, and information technology. Basis of Presentation We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented. The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Form 10-K”). Certain amounts in the prior year’s financial statements have been reclassified for consistent presentation. The accompanying unaudited consolidated financial statements are prepared consistent with the accounting policies described in Note 1 to the consolidated financial statements included in our 2018 Form 10-K with the exception of the adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at September 30, 2019 and the results of operations and cash flows for the three and nine months ended September 30, 2019 and 2018 in conformity with accounting principles generally accepted in the United States. |
New Accounting Guidance
New Accounting Guidance | 9 Months Ended |
Sep. 30, 2019 | |
New Accounting Guidance | |
New Accounting Guidance | 2. New Accounting Guidance In August 2018, FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract |
Revenue Recognition
Revenue Recognition | 9 Months Ended |
Sep. 30, 2019 | |
Revenue Recognition | |
Revenue Recognition | 3. Revenue Recognition All revenue recognized in the consolidated statements of income is considered to be revenue from contracts with customers. The vast majority of revenue is determined based on average assets and is earned daily or monthly or is transactional and is earned on the trade date. As such, revenue from remaining performance obligations is not significant. The following table depicts the disaggregation of revenue by product and distribution channel: Three months ended Three months ended Nine months ended Nine months ended (in thousands) (in thousands) Investment management fees: Funds $ 107,926 123,764 322,678 376,193 Institutional 3,880 5,538 11,760 17,192 Total investment management fees $ 111,806 129,302 334,438 393,385 Underwriting and distribution fees: Unaffiliated Rule 12b-1 service and distribution fees $ 16,003 19,707 48,514 60,734 Sales commissions on front-end load mutual fund and variable annuity sales 361 441 1,287 1,418 Other revenues 67 126 242 459 Total unaffiliated distribution fees $ 16,431 20,274 50,043 62,611 Wealth Management Fee-based asset allocation product revenues $ 73,356 69,468 208,806 201,565 Rule 12b-1 service and distribution fees 16,426 18,106 48,441 54,591 Sales commissions on front-end load mutual fund and variable annuity sales 12,523 13,651 36,845 41,900 Sales commissions on other products 8,024 9,111 24,127 26,632 Other revenues 9,027 9,698 27,265 28,923 Total wealth management distribution fees 119,356 120,034 345,484 353,611 Total distribution fees $ 135,787 140,308 395,527 416,222 Shareholder service fees: Total shareholder service fees $ 23,087 25,508 70,279 78,464 Total revenues $ 270,680 295,118 800,244 888,071 |
Investment Securities
Investment Securities | 9 Months Ended |
Sep. 30, 2019 | |
Investment Securities | |
Investment Securities | 4. Investment Securities Investment securities at September 30, 2019 and December 31, 2018 were as follows: September 30, December 31, 2019 2018 (in thousands) Available for sale securities: Certificates of deposit $ — 5,001 Commercial paper 1,975 7,970 Corporate bonds 267,064 218,121 U.S. Treasury bills — 19,672 Total available for sale securities 269,039 250,764 Trading debt securities: Commercial paper 1,975 1,993 Corporate bonds 89,057 77,250 U.S. Treasury bills 5,968 5,884 Mortgage-backed securities 5 7 Term loans 42,272 — Consolidated sponsored funds 41,269 33,088 Total trading securities 180,546 118,222 Equity securities: Common stock 31,744 21,204 Sponsored funds 174,219 153,548 Sponsored privately offered funds 781 678 Consolidated sponsored funds — 24,879 Total equity securities 206,744 200,309 Equity method securities: Sponsored funds 35,287 47,840 Total securities $ 691,616 617,135 Commercial paper and corporate bonds accounted for as available for sale and held as of September 30, 2019 mature as follows: Amortized cost Fair value (in thousands) Within one year $ 83,965 84,173 After one year but within five years 181,873 184,866 $ 265,838 269,039 Commercial paper, corporate bonds, U.S. Treasury bills, mortgage-backed securities and term loans accounted for as trading and held as of September 30, 2019 mature as follows: Fair value (in thousands) Within one year $ 32,977 After one year but within five years 76,645 After five years but within 10 years 29,655 $ 139,277 The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at September 30, 2019: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Commercial paper $ 1,975 — — 1,975 Corporate bonds 263,863 3,240 (39) 267,064 $ 265,838 3,240 (39) 269,039 The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2018: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Certificates of deposit $ 5,000 1 — 5,001 Commercial paper 7,902 68 — 7,970 Corporate bonds 219,236 254 (1,369) 218,121 U.S. Treasury bills 19,672 — — 19,672 $ 251,810 323 (1,369) 250,764 A summary of available for sale investment securities with fair values below carrying values at September 30, 2019 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized September 30, 2019 Fair value losses Fair value losses Fair value losses (in thousands) Corporate bonds $ 19,987 (19) 27,105 (20) 47,092 (39) A summary of available for sale investment securities with fair values below carrying values at December 31, 2018 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized December 31, 2018 Fair value losses Fair value losses Fair value losses (in thousands) Corporate bonds $ 36,302 (160) 119,480 (1,209) 155,782 (1,369) The Company’s investment portfolio included 12 available for sale securities in an unrealized loss position at September 30, 2019. The Company evaluated available for sale securities in an unrealized loss position at September 30, 2019 and concluded no other-than-temporary impairment existed. The unrealized losses in the Company’s investment portfolio were primarily caused by changes in interest rates. At this time, the Company does not intend to sell, and does not believe it will be required to sell these securities before recovery of their amortized cost. Sponsored Funds The Company has classified its equity investments in the Ivy Funds as equity method investments (when the Company owns between 20% and 50% of the fund) or equity securities measured at fair value through net income (when the Company owns less than 20% of the fund). These entities do not meet the criteria of a variable interest entity (“VIE”) and are considered to be voting interest entities (“VOE”). The Company has determined the Ivy Funds are VOEs because the structure of the investment products is such that the voting rights held by the equity holders provide for equality among equity investors. Sponsored Privately Offered Funds The Company holds an interest in a privately offered fund structured in the form of a limited liability company. The members of this entity have the substantive ability to remove the Company as managing member or dissolve the entity upon a simple majority vote. This entity does not meet the criteria of a VIE and is considered to be a VOE. Consolidated Sponsored Funds The following table details the balances related to consolidated sponsored funds at September 30, 2019 and December 31, 2018, as well as the Company’s net interest in these funds: September 30, December 31, 2019 2018 (in thousands) Cash $ 5,161 4,285 Investments 41,269 57,967 Other assets 486 872 Other liabilities — (79) Redeemable noncontrolling interests (16,913) (11,463) Net interest in consolidated sponsored funds $ 30,003 51,582 At September 30, 2019, we consolidated an Ivy Fund and Ivy Global Investors Funds in which we provided initial seed capital at the time of the funds’ formation. During 2018, we liquidated the Ivy Global Investors Société d’Investissement à Capital Variable and its Ivy Global Investors sub-funds, including converting the investments held by the sub-funds to cash, and redeemed the majority of our investment. During the third quarter of 2019, the formerly consolidated Ivy Nextshares were liquidated and distributed to shareholders. When we no longer have a controlling financial interest in a sponsored fund, it is deconsolidated from our consolidated financial statements. Fair Value Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset. An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs that are significant to the overall valuation. The three-level hierarchy of inputs is summarized as follows: ● Level 1 – Investments are valued using quoted prices in active markets for identical securities. ● Level 2 – Investments are valued using other significant observable inputs, including quoted prices in active markets for similar securities. ● Level 3 – Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments. Assets classified as Level 2 can have a variety of observable inputs. These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value. The carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short-time between purchase and expected maturity of the investments. Depending on the nature of the inputs, these investments are generally classified as Level 1 or 2 within the fair value hierarchy. U.S. Treasury bills are valued upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer. Term loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Term loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors. The following tables summarize our investment securities as of September 30, 2019 and December 31, 2018 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs. September 30, 2019 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 3,090 — — — 3,090 U.S. government sponsored enterprise note — 896 — — 896 Commercial paper — 37,104 — — 37,104 Total cash equivalents $ 3,090 38,000 — — 41,090 Available for sale securities: Commercial paper $ — 1,975 — — 1,975 Corporate bonds — 267,064 — — 267,064 Trading debt securities: Commercial paper — 1,975 — — 1,975 Corporate bonds — 89,057 — 89,057 U.S. Treasury bills — 5,968 — — 5,968 Mortgage-backed securities — 5 — — 5 Term loans — 40,879 1,393 — 42,272 Consolidated sponsored funds — 41,269 — — 41,269 Equity securities: Common stock 31,742 — 2 — 31,744 Sponsored funds 174,219 — — — 174,219 Sponsored privately offered funds measured at net asset value (2) — — — 781 781 Equity method securities: (3) Sponsored funds 35,287 — — — 35,287 Total investment securities $ 241,248 448,192 1,395 781 691,616 December 31, 2018 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 121,759 — — — 121,759 U.S. government sponsored enterprise note — 895 — — 895 Commercial paper — 74,277 — — 74,277 Total cash equivalents $ 121,759 75,172 — — 196,931 Available for sale securities: Certificates of deposit $ — 5,001 — — 5,001 Commercial paper — 7,970 — — 7,970 Corporate bonds — 218,121 — — 218,121 U.S. Treasury bills — 19,672 — — 19,672 Trading debt securities: Commercial paper — 1,993 — — 1,993 Corporate bonds — 77,250 — 77,250 U.S. Treasury bills — 5,884 — — 5,884 Mortgage-backed securities — 7 — — 7 Consolidated sponsored funds — 33,088 — — 33,088 Equity securities: Common stock 21,192 — 12 — 21,204 Sponsored funds 153,548 — — — 153,548 Sponsored privately offered funds measured at net asset value (2) — — — 678 678 Consolidated sponsored funds 24,879 — — — 24,879 Equity method securities: (3) Sponsored funds 47,840 — — — 47,840 Total investment securities $ 247,459 368,986 12 678 617,135 (1) Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at net asset value and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization, and are classified as Level 2. (2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. (3) Substantially all of the Company’s equity method investments are investment companies that record their underlying investments at fair value. The following table summarizes the activity of investments categorized as Level 3 for the nine months ended September 30, 2019: For the nine months ended September 30, 2019 (in thousands) Level 3 assets at December 31, 2018 $ 12 Additions 2,357 Transfers out of level 3 (196) Losses in Investment and other income (23) Redemptions/Paydowns (755) Level 3 assets at September 30, 2019 $ 1,395 Change in unrealized losses for Level 3 assets held at $ (21) |
Derivative Financial Instrument
Derivative Financial Instruments | 9 Months Ended |
Sep. 30, 2019 | |
Derivative Financial Instruments | |
Derivative Financial Instruments | 5. Derivative Financial Instruments The Company has in place an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in certain sponsored funds. Certain of the consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives. We do not hedge for speculative purposes. Excluding derivative financial instruments held in certain consolidated sponsored funds, the Company was party to 14 total return swap contracts with a combined notional value of $222.1 million and five total return swap contracts with a combined notional value of $194.4 million as of September 30, 2019 and December 31, 2018, respectively. These derivative financial instruments are not designated as hedges for accounting purposes. Changes in fair value of the total return swap contracts are recognized in investment and other income in the Company’s consolidated statements of income. The Company posted $0.6 million and $5.2 million in cash collateral with the counterparties of the total return swap contracts as of September 30, 2019 and December 31, 2018, respectively. The cash collateral is included in Customers and other receivables in the Company’s consolidated balance sheet. The Company does not record its fair value in derivative transactions against the posted collateral. The following table presents the fair value of the derivative financial instruments, excluding derivative financial instruments held in certain consolidated sponsored funds, as of September 30, 2019 and December 31, 2018 and is calculated based on Level 2 inputs: September 30, December 31, Balance sheet 2019 2018 location Fair value Fair value (in thousands) Total return swap contracts Prepaid expenses and other current assets $ 153 4,968 Total return swap contracts Other current liabilities 467 — Net total return swap (liability) asset $ (314) 4,968 The following is a summary of net gains (losses) recognized in income for the three and nine months ended September 30, 2019 and September 30, 2018: Three months ended Nine months ended Income statement September 30, September 30, location 2019 2018 2019 2018 (in thousands) (in thousands) Total return swap contracts Investment and other income $ 135 (6,769) $ (25,728) (7,313) |
Goodwill and Identifiable Intan
Goodwill and Identifiable Intangible Assets | 9 Months Ended |
Sep. 30, 2019 | |
Goodwill and Identifiable Intangible Assets | |
Goodwill and Identifiable Intangible Assets | 6. Goodwill and Identifiable Intangible Assets Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business. Our goodwill is not deductible for tax purposes. Goodwill and identifiable intangible assets (all considered indefinite lived) at September 30, 2019 and December 31, 2018 are as follows: September 30, December 31, 2019 2018 (in thousands) Goodwill $ 106,970 106,970 Mutual fund management advisory contracts 38,699 38,699 Other 200 200 Total identifiable intangible assets 38,899 38,899 Total $ 145,869 145,869 |
Indebtedness
Indebtedness | 9 Months Ended |
Sep. 30, 2019 | |
Indebtedness | |
Indebtedness | 7. Indebtedness Debt is reported at its carrying amount in the consolidated balance sheet. The fair value, calculated based on Level 2 inputs, of the Company’s senior unsecured notes maturing January 13, 2021 was $98.6 million at September 30, 2019 compared to the carrying value net of debt issuance costs of $94.9 million, which is listed under long-term debt in the consolidated balance sheet. |
Income Tax Uncertainties
Income Tax Uncertainties | 9 Months Ended |
Sep. 30, 2019 | |
Income Tax Uncertainties | |
Income Tax Uncertainties | 8. Income Tax Uncertainties In the accompanying consolidated balance sheets, unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable; unrecognized tax benefits that reduce a net operating loss, similar tax loss, or tax credit carryforward are presented as a reduction to non-current deferred income taxes. As of September 30, 2019 and December 31, 2018, the Company’s consolidated balance sheet included unrecognized tax benefits, including penalties and interest, of $2.7 million ($2.3 million net of federal benefit) and $2.7 million ($2.4 million net of federal benefit), respectively, that if recognized, would impact the Company’s effective tax rate. The Company’s accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes. The total amount of penalties and interest, net of federal benefit, related to income tax uncertainties recognized in the statements of income for the three and nine month periods ended September 30, 2019 was $38 thousand and $79 thousand, respectively. The total amount of accrued penalties and interest related to uncertain tax positions recognized in the consolidated balance sheet at September 30, 2019 and December 31, 2018 is $0.7 million ($0.6 million net of federal benefit) and $0.7 million ($0.6 million net of federal benefit), respectively. In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. The Company does not expect the resolution or settlement of any open audits, Federal or State, to materially impact the consolidated financial statements. The 2016, 2017, and 2018 federal income tax returns are open tax years that remain subject to potential future audit. State income tax returns for all years after 2014 and, in certain states, income tax returns for 2014, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions. |
Pension Plan and Postretirement
Pension Plan and Postretirement Benefits Other Than Pension | 9 Months Ended |
Sep. 30, 2019 | |
Pension Plan and Postretirement Benefits Other Than Pension | |
Pension Plan and Postretirement Benefits Other Than Pension | 9. Pension Plan and Postretirement Benefits Other Than Pension Benefits payable under our noncontributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”) were based on employees’ years of service and compensation during the final 10 years of employment. On July 26, 2017, the Compensation Committee of the Company’s Board of Directors approved an amendment to freeze the Pension Plan, effective September 30, 2017. After September 30, 2017, participants in the Pension Plan ceased accruing additional benefits for future service or compensation. Participants retain benefits accumulated as of September 30, 2017 in accordance with the terms of the Pension Plan. The Company intends to terminate the Pension Plan in a standard termination, as defined by the Pension Benefit Guaranty Corporation, with an expected completion date in 2020. We also sponsor an unfunded defined benefit postretirement medical plan that previously covered substantially all employees, as well as Advisors. The medical plan is contributory with participant contributions adjusted annually. The medical plan does not provide for benefits after age 65 with the exception of a small group of employees that were grandfathered when this plan was established. During the third quarter of 2016, the Company amended this plan to discontinue the availability of coverage for any individuals who retire after December 31, 2016. The components of net periodic pension and other postretirement costs related to these plans were as follows: Other Other Pension Benefits Postretirement Benefits Pension Benefits Postretirement Benefits Three months ended September 30, Three months ended September 30, Nine months ended September 30, Nine months ended September 30, 2019 2018 2019 2018 2019 2018 2019 2018 (in thousands) (in thousands) Components of net periodic benefit cost: Interest cost $ 1,537 1,497 $ 9 14 $ 4,610 4,490 $ 25 41 Expected return on plan assets (1,579) (2,065) — — (4,736) (6,196) — — Actuarial gain amortization — — (124) (30) — — (371) (90) Prior service credit amortization — — — (1) — — — (2) Total $ (42) (568) $ (115) (17) $ (126) (1,706) $ (346) (51) |
Stockholders' Equity
Stockholders' Equity | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity | |
Stockholders' Equity | 10. Stockholders’ Equity Earnings per Share The components of basic and diluted earnings per share were as follows: Three months ended Nine months ended September 30, September 30, 2019 2018 2019 2018 (in thousands, except per share amounts) Net income attributable to Waddell & Reed Financial, Inc. $ 33,054 46,305 $ 99,056 137,120 Weighted average shares outstanding, basic and diluted 72,387 79,595 74,446 81,372 Earnings per share, basic and diluted $ 0.46 0.58 $ 1.33 1.69 Dividends During the quarter, the Board of Directors declared a quarterly dividend on our Class A common stock in the amount of $0.25 per share with a November 1, 2019 payment date and an October 11, 2019 record date. The total dividend paid on November 1, 2019 was $17.7 million. Common Stock Repurchases The Board of Directors has authorized the repurchase of our Class A common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including issuing shares to employees in our stock-based compensation programs. There were 2,480,019 shares and 1,424,612 shares repurchased in the open market or privately during the three months ended September 30, 2019 and 2018, respectively, which includes 19 shares and 225 shares, respectively, repurchased from employees who tendered shares to cover income tax withholdings with respect to vesting of stock awards during these two reporting periods. There were 6,849,238 shares and 4,519,546 shares repurchased in the open market or privately during the nine months ended September 30, 2019 and 2018, respectively, which includes 440,002 shares and 630,159 shares, respectively, repurchased from employees who tendered shares to cover income tax withholdings with respect to vesting of stock awards during these two reporting periods. Accumulated Other Comprehensive Income (Loss) The following tables summarize accumulated other comprehensive income (loss) activity for the three and nine months ended September 30, 2019 and September 30, 2018. For the three months ended September 30, Total Unrealized Postretirement accumulated gains (losses) on benefits other AFS investment unrealized comprehensive securities gains (losses) income (loss) (in thousands) Balance at June 30, 2019 $ 2,142 939 3,081 Other comprehensive income before reclassification 379 — 379 Amount reclassified from accumulated other comprehensive (loss) (83) (94) (177) Net current period other comprehensive income (loss) 296 (94) 202 Balance at September 30, 2019 $ 2,438 845 3,283 Balance at June 30, 2018 $ (1,772) 440 (1,332) Other comprehensive income before reclassification 218 — 218 Amount reclassified from accumulated other comprehensive income (loss) 44 (24) 20 Net current period other comprehensive income (loss) 262 (24) 238 Balance at September 30, 2018 $ (1,510) 416 (1,094) For the nine months ended September 30, Total Unrealized Postretirement accumulated gains (losses) benefits other on investment unrealized comprehensive securities gains (losses) income (loss) (in thousands) Balance at December 31, 2018 $ (797) 1,128 331 Other comprehensive income before reclassification 3,413 — 3,413 Amount reclassified from accumulated other comprehensive (loss) (178) (283) (461) Net current period other comprehensive income (loss) 3,235 (283) 2,952 Balance at September 30, 2019 $ 2,438 845 3,283 Balance at December 31, 2017 $ 145 379 524 Amount reclassified to retained earnings for ASUs adopted in 2018 (955) 107 (848) Other comprehensive loss before reclassification (744) — (744) Amount reclassified from accumulated other comprehensive income (loss) 44 (70) (26) Net current period other comprehensive (loss) income (1,655) 37 (1,618) Balance at September 30, 2018 $ (1,510) 416 (1,094) Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow. Tax For the three months ended September 30, 2019 Pre-tax expense Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Gains on available for sale debt securities $ 109 (26) 83 Investment and other income Amortization of postretirement benefits 124 (30) 94 Compensation and benefits Total $ 233 (56) 177 Tax benefit For the three months ended September 30, 2018 Pre-tax (expense) Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Losses on available for sale debt securities $ (58) 14 (44) Investment and other income Amortization of postretirement benefits 31 (7) 24 Compensation and benefits Total $ (27) 7 (20) Tax For the nine months ended September 30, 2019 Pre-tax expense Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Gains on available for sale debt securities $ 234 (56) 178 Investment and other income Amortization of postretirement benefits 371 (88) 283 Compensation and benefits Total $ 605 (144) 461 Tax (expense) Statement of income For the nine months ended September 30, 2018 Pre-tax benefit Net of tax line item or retained earnings (in thousands) Reclassifications included in net income or retained earnings for ASUs adopted in 2018: Sponsored funds investment gains $ 1,295 (340) 955 Retained earnings Losses on available for sale debt securities (58) 14 (44) Investment and other income Amortization of postretirement benefits 92 (129) (37) Compensation and benefits and retained earnings Total $ 1,329 (455) 874 |
Leases
Leases | 9 Months Ended |
Sep. 30, 2019 | |
Leases | |
Leases | 11. Leases On January 1, 2019, the Company adopted ASU 2016-02, Leases The Company has operating and finance leases for corporate office space and equipment. Our leases have remaining lease terms of less than one year to seven years, some of which include options to extend leases for up to 20 years, and some of which include options to terminate the leases within one year. Certain leases include variable lease payments in future periods based on a market index or rate. We determine if an arrangement is a lease at inception (or the effective date of ASU 2016-02). Operating lease assets and liabilities are included in other non-current assets, other current liabilities, and other non-current liabilities in our consolidated balance sheet at September 30, 2019. Finance leases are included in property and equipment, net, other current liabilities, and other non-current liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date (or the effective date of ASU 2016-02) based on the present value of lease payments over the lease term. The Company uses an incremental borrowing rate based on the information available at the commencement date (or the effective date of ASU 2016-02) in determining the present value of lease payments. The ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. The components of lease expense were as follows: For the three For the nine months ended months ended September 30, 2019 September 30, 2019 (in thousands) Operating Lease Cost $ 4,189 $ 14,472 Finance Lease Cost: Amortization of ROU assets $ 80 $ 224 Interest on lease liabilities 8 23 Total $ 88 $ 247 Supplemental cash flow information related to leases was as follows: For the nine months ended September 30, 2019 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 13,661 Operating cash flows from finance leases 23 Financing cash flows from finance leases 222 ROU assets obtained in exchange for lease obligations: Operating leases 2,410 Finance leases 40 Supplemental balance sheet information related to leases was as follows: September 30, 2019 (in thousands, except lease term and discount rate) Operating Leases: Operating lease ROU assets (Other non-current assets) $ 25,795 Other current liabilities $ 10,873 Other non-current liabilities 16,445 Total operating lease liabilities $ 27,318 Finance Leases: Property and equipment, gross $ 1,054 Accumulated depreciation (734) Property and equipment, net $ 320 Other current liabilities $ 241 Other non-current liabilities 90 Total finance lease liabilities $ 331 Weighted average remaining lease term: Operating leases 4 years Finance leases 1 year Weighted average discount rate: Operating leases 4.32% Finance leases 6.00% Maturities of lease liabilities are as follows: Operating Finance Leases Leases (in thousands) Year ended December 31, 2019 (excluding the nine months ended September 30, 2019) $ 3,361 68 2020 10,580 218 2021 6,468 45 2022 2,178 6 2023 2,090 — Thereafter 4,703 — Total lease payments 29,380 337 Less imputed interest (2,062) (6) Total $ 27,318 331 The adoption of the lease standard using the effective date as the date of initial application requires the inclusion of the disclosures for periods prior to adoption, which are included below. Minimum future rental commitments as of December 31, 2018 for all non-cancelable operating leases were as follows: Year Commitments (in thousands) 2019 $ 16,488 2020 9,797 2021 5,757 2022 2,913 2023 2,320 Thereafter 5,161 $ 42,436 Rent expense was $5.8 million and $17.6 million for the three and nine months ended September 30, 2018, respectively. As of December 31, 2018, we had property and equipment under capital leases with a cost of $1.6 million and accumulated depreciation of $1.1 million. |
Contingencies
Contingencies | 9 Months Ended |
Sep. 30, 2019 | |
Contingencies | |
Contingencies | 12. Contingencies The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year. The Company establishes reserves for litigation and similar matters when those matters present material loss contingencies that management determines to be both probable and reasonably estimable in accordance with ASC 450, “Contingencies.” |
Description of Business and S_2
Description of Business and Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2019 | |
Description of Business and Significant Accounting Policies | |
Basis of Presentation | Basis of Presentation We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented. The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Form 10-K”). Certain amounts in the prior year’s financial statements have been reclassified for consistent presentation. The accompanying unaudited consolidated financial statements are prepared consistent with the accounting policies described in Note 1 to the consolidated financial statements included in our 2018 Form 10-K with the exception of the adoption of Accounting Standards Update (“ASU”) 2016-02, “Leases Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at September 30, 2019 and the results of operations and cash flows for the three and nine months ended September 30, 2019 and 2018 in conformity with accounting principles generally accepted in the United States. |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Revenue Recognition | |
Summary of disaggregation of revenue | All revenue recognized in the consolidated statements of income is considered to be revenue from contracts with customers. The vast majority of revenue is determined based on average assets and is earned daily or monthly or is transactional and is earned on the trade date. As such, revenue from remaining performance obligations is not significant. The following table depicts the disaggregation of revenue by product and distribution channel: Three months ended Three months ended Nine months ended Nine months ended (in thousands) (in thousands) Investment management fees: Funds $ 107,926 123,764 322,678 376,193 Institutional 3,880 5,538 11,760 17,192 Total investment management fees $ 111,806 129,302 334,438 393,385 Underwriting and distribution fees: Unaffiliated Rule 12b-1 service and distribution fees $ 16,003 19,707 48,514 60,734 Sales commissions on front-end load mutual fund and variable annuity sales 361 441 1,287 1,418 Other revenues 67 126 242 459 Total unaffiliated distribution fees $ 16,431 20,274 50,043 62,611 Wealth Management Fee-based asset allocation product revenues $ 73,356 69,468 208,806 201,565 Rule 12b-1 service and distribution fees 16,426 18,106 48,441 54,591 Sales commissions on front-end load mutual fund and variable annuity sales 12,523 13,651 36,845 41,900 Sales commissions on other products 8,024 9,111 24,127 26,632 Other revenues 9,027 9,698 27,265 28,923 Total wealth management distribution fees 119,356 120,034 345,484 353,611 Total distribution fees $ 135,787 140,308 395,527 416,222 Shareholder service fees: Total shareholder service fees $ 23,087 25,508 70,279 78,464 Total revenues $ 270,680 295,118 800,244 888,071 |
Investment Securities (Tables)
Investment Securities (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Investment Securities | |
Schedule of investment securities | Investment securities at September 30, 2019 and December 31, 2018 were as follows: September 30, December 31, 2019 2018 (in thousands) Available for sale securities: Certificates of deposit $ — 5,001 Commercial paper 1,975 7,970 Corporate bonds 267,064 218,121 U.S. Treasury bills — 19,672 Total available for sale securities 269,039 250,764 Trading debt securities: Commercial paper 1,975 1,993 Corporate bonds 89,057 77,250 U.S. Treasury bills 5,968 5,884 Mortgage-backed securities 5 7 Term loans 42,272 — Consolidated sponsored funds 41,269 33,088 Total trading securities 180,546 118,222 Equity securities: Common stock 31,744 21,204 Sponsored funds 174,219 153,548 Sponsored privately offered funds 781 678 Consolidated sponsored funds — 24,879 Total equity securities 206,744 200,309 Equity method securities: Sponsored funds 35,287 47,840 Total securities $ 691,616 617,135 |
Summary of maturities of securities held | Commercial paper and corporate bonds accounted for as available for sale and held as of September 30, 2019 mature as follows: Amortized cost Fair value (in thousands) Within one year $ 83,965 84,173 After one year but within five years 181,873 184,866 $ 265,838 269,039 Commercial paper, corporate bonds, U.S. Treasury bills, mortgage-backed securities and term loans accounted for as trading and held as of September 30, 2019 mature as follows: Fair value (in thousands) Within one year $ 32,977 After one year but within five years 76,645 After five years but within 10 years 29,655 $ 139,277 |
Summary of the gross unrealized gains (losses) related to securities | The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at September 30, 2019: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Commercial paper $ 1,975 — — 1,975 Corporate bonds 263,863 3,240 (39) 267,064 $ 265,838 3,240 (39) 269,039 The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2018: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Certificates of deposit $ 5,000 1 — 5,001 Commercial paper 7,902 68 — 7,970 Corporate bonds 219,236 254 (1,369) 218,121 U.S. Treasury bills 19,672 — — 19,672 $ 251,810 323 (1,369) 250,764 |
Summary of available for sale sponsored funds with fair values below carrying values | A summary of available for sale investment securities with fair values below carrying values at September 30, 2019 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized September 30, 2019 Fair value losses Fair value losses Fair value losses (in thousands) Corporate bonds $ 19,987 (19) 27,105 (20) 47,092 (39) A summary of available for sale investment securities with fair values below carrying values at December 31, 2018 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized December 31, 2018 Fair value losses Fair value losses Fair value losses (in thousands) Corporate bonds $ 36,302 (160) 119,480 (1,209) 155,782 (1,369) |
Summary of balances related to consolidated sponsored funds as well the company's net interest in these funds | The following table details the balances related to consolidated sponsored funds at September 30, 2019 and December 31, 2018, as well as the Company’s net interest in these funds: September 30, December 31, 2019 2018 (in thousands) Cash $ 5,161 4,285 Investments 41,269 57,967 Other assets 486 872 Other liabilities — (79) Redeemable noncontrolling interests (16,913) (11,463) Net interest in consolidated sponsored funds $ 30,003 51,582 |
Schedule of fair value of investment securities | The following tables summarize our investment securities as of September 30, 2019 and December 31, 2018 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs. September 30, 2019 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 3,090 — — — 3,090 U.S. government sponsored enterprise note — 896 — — 896 Commercial paper — 37,104 — — 37,104 Total cash equivalents $ 3,090 38,000 — — 41,090 Available for sale securities: Commercial paper $ — 1,975 — — 1,975 Corporate bonds — 267,064 — — 267,064 Trading debt securities: Commercial paper — 1,975 — — 1,975 Corporate bonds — 89,057 — 89,057 U.S. Treasury bills — 5,968 — — 5,968 Mortgage-backed securities — 5 — — 5 Term loans — 40,879 1,393 — 42,272 Consolidated sponsored funds — 41,269 — — 41,269 Equity securities: Common stock 31,742 — 2 — 31,744 Sponsored funds 174,219 — — — 174,219 Sponsored privately offered funds measured at net asset value (2) — — — 781 781 Equity method securities: (3) Sponsored funds 35,287 — — — 35,287 Total investment securities $ 241,248 448,192 1,395 781 691,616 December 31, 2018 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 121,759 — — — 121,759 U.S. government sponsored enterprise note — 895 — — 895 Commercial paper — 74,277 — — 74,277 Total cash equivalents $ 121,759 75,172 — — 196,931 Available for sale securities: Certificates of deposit $ — 5,001 — — 5,001 Commercial paper — 7,970 — — 7,970 Corporate bonds — 218,121 — — 218,121 U.S. Treasury bills — 19,672 — — 19,672 Trading debt securities: Commercial paper — 1,993 — — 1,993 Corporate bonds — 77,250 — 77,250 U.S. Treasury bills — 5,884 — — 5,884 Mortgage-backed securities — 7 — — 7 Consolidated sponsored funds — 33,088 — — 33,088 Equity securities: Common stock 21,192 — 12 — 21,204 Sponsored funds 153,548 — — — 153,548 Sponsored privately offered funds measured at net asset value (2) — — — 678 678 Consolidated sponsored funds 24,879 — — — 24,879 Equity method securities: (3) Sponsored funds 47,840 — — — 47,840 Total investment securities $ 247,459 368,986 12 678 617,135 (1) Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at net asset value and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization, and are classified as Level 2. (2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. (3) Substantially all of the Company’s equity method investments are investment companies that record their underlying investments at fair value. |
Schedule of activity of investments categorized as Level 3 | The following table summarizes the activity of investments categorized as Level 3 for the nine months ended September 30, 2019: For the nine months ended September 30, 2019 (in thousands) Level 3 assets at December 31, 2018 $ 12 Additions 2,357 Transfers out of level 3 (196) Losses in Investment and other income (23) Redemptions/Paydowns (755) Level 3 assets at September 30, 2019 $ 1,395 Change in unrealized losses for Level 3 assets held at $ (21) |
Derivative Financial Instrume_2
Derivative Financial Instruments (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Derivative Financial Instruments | |
Schedule of fair value of derivative financial instruments, excluding derivative financial instruments held in certain consolidated sponsored funds | The following table presents the fair value of the derivative financial instruments, excluding derivative financial instruments held in certain consolidated sponsored funds, as of September 30, 2019 and December 31, 2018 and is calculated based on Level 2 inputs: September 30, December 31, Balance sheet 2019 2018 location Fair value Fair value (in thousands) Total return swap contracts Prepaid expenses and other current assets $ 153 4,968 Total return swap contracts Other current liabilities 467 — Net total return swap (liability) asset $ (314) 4,968 |
Schedule of net gains (losses) recognized in income of derivative financial instrument | The following is a summary of net gains (losses) recognized in income for the three and nine months ended September 30, 2019 and September 30, 2018: Three months ended Nine months ended Income statement September 30, September 30, location 2019 2018 2019 2018 (in thousands) (in thousands) Total return swap contracts Investment and other income $ 135 (6,769) $ (25,728) (7,313) |
Goodwill and Identifiable Int_2
Goodwill and Identifiable Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Goodwill and Identifiable Intangible Assets | |
Schedule of goodwill and identifiable intangible assets | Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business. Our goodwill is not deductible for tax purposes. Goodwill and identifiable intangible assets (all considered indefinite lived) at September 30, 2019 and December 31, 2018 are as follows: September 30, December 31, 2019 2018 (in thousands) Goodwill $ 106,970 106,970 Mutual fund management advisory contracts 38,699 38,699 Other 200 200 Total identifiable intangible assets 38,899 38,899 Total $ 145,869 145,869 |
Pension Plan and Postretireme_2
Pension Plan and Postretirement Benefits Other Than Pension (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Pension Plan and Postretirement Benefits Other Than Pension | |
Schedule of components of net periodic pension and other postretirement costs | The components of net periodic pension and other postretirement costs related to these plans were as follows: Other Other Pension Benefits Postretirement Benefits Pension Benefits Postretirement Benefits Three months ended September 30, Three months ended September 30, Nine months ended September 30, Nine months ended September 30, 2019 2018 2019 2018 2019 2018 2019 2018 (in thousands) (in thousands) Components of net periodic benefit cost: Interest cost $ 1,537 1,497 $ 9 14 $ 4,610 4,490 $ 25 41 Expected return on plan assets (1,579) (2,065) — — (4,736) (6,196) — — Actuarial gain amortization — — (124) (30) — — (371) (90) Prior service credit amortization — — — (1) — — — (2) Total $ (42) (568) $ (115) (17) $ (126) (1,706) $ (346) (51) |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity | |
Components of basic and diluted earnings per share | The components of basic and diluted earnings per share were as follows: Three months ended Nine months ended September 30, September 30, 2019 2018 2019 2018 (in thousands, except per share amounts) Net income attributable to Waddell & Reed Financial, Inc. $ 33,054 46,305 $ 99,056 137,120 Weighted average shares outstanding, basic and diluted 72,387 79,595 74,446 81,372 Earnings per share, basic and diluted $ 0.46 0.58 $ 1.33 1.69 |
Summary of accumulated other comprehensive income (loss) activity | The following tables summarize accumulated other comprehensive income (loss) activity for the three and nine months ended September 30, 2019 and September 30, 2018. For the three months ended September 30, Total Unrealized Postretirement accumulated gains (losses) on benefits other AFS investment unrealized comprehensive securities gains (losses) income (loss) (in thousands) Balance at June 30, 2019 $ 2,142 939 3,081 Other comprehensive income before reclassification 379 — 379 Amount reclassified from accumulated other comprehensive (loss) (83) (94) (177) Net current period other comprehensive income (loss) 296 (94) 202 Balance at September 30, 2019 $ 2,438 845 3,283 Balance at June 30, 2018 $ (1,772) 440 (1,332) Other comprehensive income before reclassification 218 — 218 Amount reclassified from accumulated other comprehensive income (loss) 44 (24) 20 Net current period other comprehensive income (loss) 262 (24) 238 Balance at September 30, 2018 $ (1,510) 416 (1,094) For the nine months ended September 30, Total Unrealized Postretirement accumulated gains (losses) benefits other on investment unrealized comprehensive securities gains (losses) income (loss) (in thousands) Balance at December 31, 2018 $ (797) 1,128 331 Other comprehensive income before reclassification 3,413 — 3,413 Amount reclassified from accumulated other comprehensive (loss) (178) (283) (461) Net current period other comprehensive income (loss) 3,235 (283) 2,952 Balance at September 30, 2019 $ 2,438 845 3,283 Balance at December 31, 2017 $ 145 379 524 Amount reclassified to retained earnings for ASUs adopted in 2018 (955) 107 (848) Other comprehensive loss before reclassification (744) — (744) Amount reclassified from accumulated other comprehensive income (loss) 44 (70) (26) Net current period other comprehensive (loss) income (1,655) 37 (1,618) Balance at September 30, 2018 $ (1,510) 416 (1,094) |
Summary of reclassifications from accumulated other comprehensive income (loss) and included in net income | Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow. Tax For the three months ended September 30, 2019 Pre-tax expense Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Gains on available for sale debt securities $ 109 (26) 83 Investment and other income Amortization of postretirement benefits 124 (30) 94 Compensation and benefits Total $ 233 (56) 177 Tax benefit For the three months ended September 30, 2018 Pre-tax (expense) Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Losses on available for sale debt securities $ (58) 14 (44) Investment and other income Amortization of postretirement benefits 31 (7) 24 Compensation and benefits Total $ (27) 7 (20) Tax For the nine months ended September 30, 2019 Pre-tax expense Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Gains on available for sale debt securities $ 234 (56) 178 Investment and other income Amortization of postretirement benefits 371 (88) 283 Compensation and benefits Total $ 605 (144) 461 Tax (expense) Statement of income For the nine months ended September 30, 2018 Pre-tax benefit Net of tax line item or retained earnings (in thousands) Reclassifications included in net income or retained earnings for ASUs adopted in 2018: Sponsored funds investment gains $ 1,295 (340) 955 Retained earnings Losses on available for sale debt securities (58) 14 (44) Investment and other income Amortization of postretirement benefits 92 (129) (37) Compensation and benefits and retained earnings Total $ 1,329 (455) 874 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Leases | |
Components of lease expense | The components of lease expense were as follows: For the three For the nine months ended months ended September 30, 2019 September 30, 2019 (in thousands) Operating Lease Cost $ 4,189 $ 14,472 Finance Lease Cost: Amortization of ROU assets $ 80 $ 224 Interest on lease liabilities 8 23 Total $ 88 $ 247 |
Schedule of supplemental cash flow information | Supplemental cash flow information related to leases was as follows: For the nine months ended September 30, 2019 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 13,661 Operating cash flows from finance leases 23 Financing cash flows from finance leases 222 ROU assets obtained in exchange for lease obligations: Operating leases 2,410 Finance leases 40 |
Schedule of supplemental balance sheet information | Supplemental balance sheet information related to leases was as follows: September 30, 2019 (in thousands, except lease term and discount rate) Operating Leases: Operating lease ROU assets (Other non-current assets) $ 25,795 Other current liabilities $ 10,873 Other non-current liabilities 16,445 Total operating lease liabilities $ 27,318 Finance Leases: Property and equipment, gross $ 1,054 Accumulated depreciation (734) Property and equipment, net $ 320 Other current liabilities $ 241 Other non-current liabilities 90 Total finance lease liabilities $ 331 Weighted average remaining lease term: Operating leases 4 years Finance leases 1 year Weighted average discount rate: Operating leases 4.32% Finance leases 6.00% |
Schedule of maturities of operating leases | Maturities of lease liabilities are as follows: Operating Finance Leases Leases (in thousands) Year ended December 31, 2019 (excluding the nine months ended September 30, 2019) $ 3,361 68 2020 10,580 218 2021 6,468 45 2022 2,178 6 2023 2,090 — Thereafter 4,703 — Total lease payments 29,380 337 Less imputed interest (2,062) (6) Total $ 27,318 331 |
Schedule of maturities of finance leases | Operating Finance Leases Leases (in thousands) Year ended December 31, 2019 (excluding the nine months ended September 30, 2019) $ 3,361 68 2020 10,580 218 2021 6,468 45 2022 2,178 6 2023 2,090 — Thereafter 4,703 — Total lease payments 29,380 337 Less imputed interest (2,062) (6) Total $ 27,318 331 |
Schedule of minimum future rental commitments for non-cancelable operating leases | The adoption of the lease standard using the effective date as the date of initial application requires the inclusion of the disclosures for periods prior to adoption, which are included below. Minimum future rental commitments as of December 31, 2018 for all non-cancelable operating leases were as follows: Year Commitments (in thousands) 2019 $ 16,488 2020 9,797 2021 5,757 2022 2,913 2023 2,320 Thereafter 5,161 $ 42,436 |
Description of Business and S_3
Description of Business and Significant Accounting Policies (Details) $ in Billions | Sep. 30, 2019USD ($) |
Description of Business and Significant Accounting Policies | |
Assets under management | $ 68.8 |
New Accounting Guidance (Detail
New Accounting Guidance (Details) | Sep. 30, 2019 |
ASU 2018-15 | |
New Accounting Guidance | |
Change in Accounting Principle, Accounting Standards Update, Adopted [true false] | false |
Revenue Recognition - Disaggreg
Revenue Recognition - Disaggregation of revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Revenue Recognition | ||||
Total Revenues | $ 270,680 | $ 295,118 | $ 800,244 | $ 888,071 |
Investment management fees | ||||
Revenue Recognition | ||||
Total Revenues | 111,806 | 129,302 | 334,438 | 393,385 |
Investment management fees - Funds | ||||
Revenue Recognition | ||||
Total Revenues | 107,926 | 123,764 | 322,678 | 376,193 |
Investment management fees - Institutional | ||||
Revenue Recognition | ||||
Total Revenues | 3,880 | 5,538 | 11,760 | 17,192 |
Underwriting and distribution fees | ||||
Revenue Recognition | ||||
Total Revenues | 135,787 | 140,308 | 395,527 | 416,222 |
Unaffiliated | ||||
Revenue Recognition | ||||
Total Revenues | 16,431 | 20,274 | 50,043 | 62,611 |
Unaffiliated Rule 12b-1 service and distribution fees | ||||
Revenue Recognition | ||||
Total Revenues | 16,003 | 19,707 | 48,514 | 60,734 |
Unaffiliated sales commissions on front-end load mutual fund and variable annuity sales | ||||
Revenue Recognition | ||||
Total Revenues | 361 | 441 | 1,287 | 1,418 |
Unaffiliated other revenues | ||||
Revenue Recognition | ||||
Total Revenues | 67 | 126 | 242 | 459 |
Wealth Management | ||||
Revenue Recognition | ||||
Total Revenues | 119,356 | 120,034 | 345,484 | 353,611 |
Wealth Management, Fee-based asset allocation product revenues | ||||
Revenue Recognition | ||||
Total Revenues | 73,356 | 69,468 | 208,806 | 201,565 |
Wealth Management, Rule 12b-1 service and distribution fees | ||||
Revenue Recognition | ||||
Total Revenues | 16,426 | 18,106 | 48,441 | 54,591 |
Wealth Management, sales commissions on front-end load mutual fund and variable annuity sales | ||||
Revenue Recognition | ||||
Total Revenues | 12,523 | 13,651 | 36,845 | 41,900 |
Wealth Management, sales commissions on other products | ||||
Revenue Recognition | ||||
Total Revenues | 8,024 | 9,111 | 24,127 | 26,632 |
Wealth Management, other revenues | ||||
Revenue Recognition | ||||
Total Revenues | 9,027 | 9,698 | 27,265 | 28,923 |
Shareholder service fees | ||||
Revenue Recognition | ||||
Total Revenues | $ 23,087 | $ 25,508 | $ 70,279 | $ 78,464 |
Investment Securities - Investm
Investment Securities - Investment securities (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Available for sale securities: | ||
Available for sale securities | $ 269,039 | $ 250,764 |
Trading debt securities: | ||
Trading debt securities | 180,546 | 118,222 |
Equity securities: | ||
Equity securities | 206,744 | 200,309 |
Equity method securities: | ||
Total investment securities | 691,616 | 617,135 |
Certificates of deposit | ||
Available for sale securities: | ||
Available for sale securities | 5,001 | |
Commercial paper | ||
Available for sale securities: | ||
Available for sale securities | 1,975 | 7,970 |
Trading debt securities: | ||
Trading debt securities | 1,975 | 1,993 |
Corporate bonds | ||
Available for sale securities: | ||
Available for sale securities | 267,064 | 218,121 |
Trading debt securities: | ||
Trading debt securities | 89,057 | 77,250 |
U.S. treasury bills | ||
Available for sale securities: | ||
Available for sale securities | 19,672 | |
Trading debt securities: | ||
Trading debt securities | 5,968 | 5,884 |
Mortgage-backed securities | ||
Trading debt securities: | ||
Trading debt securities | 5 | 7 |
Term loans | ||
Trading debt securities: | ||
Trading debt securities | 42,272 | |
Consolidated Sponsored Funds | ||
Trading debt securities: | ||
Trading debt securities | 41,269 | 33,088 |
Equity securities: | ||
Equity securities | 24,879 | |
Common Stock | ||
Equity securities: | ||
Equity securities | 31,744 | 21,204 |
Sponsored funds | ||
Equity securities: | ||
Equity securities | 174,219 | 153,548 |
Equity method securities: | ||
Equity method securities | 35,287 | 47,840 |
Sponsored privately offered funds | ||
Equity securities: | ||
Equity securities | $ 781 | $ 678 |
Investment Securities - Maturit
Investment Securities - Maturity (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Amortized Cost | ||
Within one year | $ 83,965 | |
After one year but within five years | 181,873 | |
Amortized Cost | 265,838 | $ 251,810 |
Fair value | ||
Within one year | 84,173 | |
After one year but within five years | 184,866 | |
Total fair value | 269,039 | $ 250,764 |
Fair value | ||
Within one year | 32,977 | |
After one year but within five years | 76,645 | |
After five years but within 10 years | 29,655 | |
Total fair value | $ 139,277 |
Investment Securities - Inves_2
Investment Securities - Investment securities and summary of the gains (losses) related to securities (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Available for sale securities: | ||
Amortized Cost | $ 265,838 | $ 251,810 |
Unrealized gains | 3,240 | 323 |
Unrealized losses | (39) | (1,369) |
Fair value | 269,039 | 250,764 |
Certificates of deposit | ||
Available for sale securities: | ||
Amortized Cost | 5,000 | |
Unrealized gains | 1 | |
Fair value | 5,001 | |
Commercial paper | ||
Available for sale securities: | ||
Amortized Cost | 1,975 | 7,902 |
Unrealized gains | 68 | |
Fair value | 1,975 | 7,970 |
Corporate bonds | ||
Available for sale securities: | ||
Amortized Cost | 263,863 | 219,236 |
Unrealized gains | 3,240 | 254 |
Unrealized losses | (39) | (1,369) |
Fair value | $ 267,064 | 218,121 |
U.S. treasury bills | ||
Available for sale securities: | ||
Amortized Cost | 19,672 | |
Fair value | $ 19,672 |
Investment Securities - Availab
Investment Securities - Available for sale sponsored funds with fair values below carrying values (Details) $ in Thousands | Sep. 30, 2019USD ($)security | Dec. 31, 2018USD ($) |
Unrealized losses | ||
Securities in an unrealized loss position | security | 12 | |
Corporate bonds | ||
Fair value | ||
Less than 12 months | $ 19,987 | $ 36,302 |
12 months or longer | 27,105 | 119,480 |
Total fair value | 47,092 | 155,782 |
Unrealized losses | ||
Less than 12 months | (19) | (160) |
12 months or longer | (20) | (1,209) |
Total unrealized losses | $ (39) | $ (1,369) |
Investment Securities - Consoli
Investment Securities - Consolidated Sponsored Funds (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Investment Securities | ||
Cash | $ 162,567 | $ 231,997 |
Redeemable noncontrolling interests | (16,913) | (11,463) |
Consolidated Sponsored Funds | ||
Investment Securities | ||
Cash | 5,161 | 4,285 |
Investments | 41,269 | 57,967 |
Other assets | 486 | 872 |
Other liabilities | (79) | |
Redeemable noncontrolling interests | (16,913) | (11,463) |
Net interest in consolidated sponsored funds | $ 30,003 | $ 51,582 |
Investment Securities - Fair va
Investment Securities - Fair value of investment securities (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Fair value of investments | ||
Cash equivalents | $ 41,090 | $ 196,931 |
Available for sale securities | 269,039 | 250,764 |
Trading debt securities | 180,546 | 118,222 |
Equity securities | 206,744 | 200,309 |
Total investment securities | 691,616 | 617,135 |
Money market funds | ||
Fair value of investments | ||
Cash equivalents | 3,090 | 121,759 |
U.S. government sponsored enterprise note | ||
Fair value of investments | ||
Cash equivalents | 896 | 895 |
Certificates of deposit | ||
Fair value of investments | ||
Available for sale securities | 5,001 | |
Commercial paper | ||
Fair value of investments | ||
Cash equivalents | 37,104 | 74,277 |
Available for sale securities | 1,975 | 7,970 |
Trading debt securities | 1,975 | 1,993 |
Corporate bonds | ||
Fair value of investments | ||
Available for sale securities | 267,064 | 218,121 |
Trading debt securities | 89,057 | 77,250 |
U.S. treasury bills | ||
Fair value of investments | ||
Available for sale securities | 19,672 | |
Trading debt securities | 5,968 | 5,884 |
Mortgage-backed securities | ||
Fair value of investments | ||
Trading debt securities | 5 | 7 |
Term loans | ||
Fair value of investments | ||
Trading debt securities | 42,272 | |
Common Stock | ||
Fair value of investments | ||
Equity securities | 31,744 | 21,204 |
Consolidated Sponsored Funds | ||
Fair value of investments | ||
Trading debt securities | 41,269 | 33,088 |
Equity securities | 24,879 | |
Sponsored funds | ||
Fair value of investments | ||
Equity securities | 174,219 | 153,548 |
Equity method securities | 35,287 | 47,840 |
Sponsored privately offered funds | ||
Fair value of investments | ||
Equity securities | 781 | 678 |
Level 1 | ||
Fair value of investments | ||
Cash equivalents | 3,090 | 121,759 |
Total investment securities | 241,248 | 247,459 |
Level 1 | Money market funds | ||
Fair value of investments | ||
Cash equivalents | 3,090 | 121,759 |
Level 1 | Common Stock | ||
Fair value of investments | ||
Equity securities | 31,742 | 21,192 |
Level 1 | Consolidated Sponsored Funds | ||
Fair value of investments | ||
Equity securities | 24,879 | |
Level 1 | Sponsored funds | ||
Fair value of investments | ||
Equity securities | 174,219 | 153,548 |
Equity method securities | 35,287 | 47,840 |
Level 2 | ||
Fair value of investments | ||
Cash equivalents | 38,000 | 75,172 |
Total investment securities | 448,192 | 368,986 |
Level 2 | U.S. government sponsored enterprise note | ||
Fair value of investments | ||
Cash equivalents | 896 | 895 |
Level 2 | Certificates of deposit | ||
Fair value of investments | ||
Available for sale securities | 5,001 | |
Level 2 | Commercial paper | ||
Fair value of investments | ||
Cash equivalents | 37,104 | 74,277 |
Available for sale securities | 1,975 | 7,970 |
Trading debt securities | 1,975 | 1,993 |
Level 2 | Corporate bonds | ||
Fair value of investments | ||
Available for sale securities | 267,064 | 218,121 |
Trading debt securities | 89,057 | 77,250 |
Level 2 | U.S. treasury bills | ||
Fair value of investments | ||
Available for sale securities | 19,672 | |
Trading debt securities | 5,968 | 5,884 |
Level 2 | Mortgage-backed securities | ||
Fair value of investments | ||
Trading debt securities | 5 | 7 |
Level 2 | Term loans | ||
Fair value of investments | ||
Trading debt securities | 40,879 | |
Level 2 | Consolidated Sponsored Funds | ||
Fair value of investments | ||
Trading debt securities | 41,269 | 33,088 |
Level 3 | ||
Fair value of investments | ||
Total investment securities | 1,395 | 12 |
Level 3 | Term loans | ||
Fair value of investments | ||
Trading debt securities | 1,393 | |
Level 3 | Common Stock | ||
Fair value of investments | ||
Equity securities | 2 | 12 |
Other Assets Held at Net Value | ||
Fair value of investments | ||
Total investment securities | 781 | 678 |
Other Assets Held at Net Value | Sponsored privately offered funds | ||
Fair value of investments | ||
Equity securities | $ 781 | $ 678 |
Investment Securities - Inves_3
Investment Securities - Investment category (Details) $ in Thousands | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Level 3 assets at beginning of period | $ 12 |
Additions | 2,357 |
Transfers out of level 3 | (196) |
Losses in Investment and other income | (23) |
Redemptions/Paydowns | (755) |
Level 3 assets at end of period | 1,395 |
Change in unrealized losses for Level 3 assets held | $ (21) |
Derivative Financial Instrume_3
Derivative Financial Instruments (Details) - Not designated as a hedge - Total return swap contracts $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019USD ($)contract | Sep. 30, 2018USD ($) | Sep. 30, 2019USD ($)contract | Sep. 30, 2018USD ($) | Dec. 31, 2018USD ($)contract | |
Derivative Financial Instruments | |||||
Number of contracts | contract | 14 | 14 | 5 | ||
Notional value | $ 222,100 | $ 222,100 | $ 194,400 | ||
Cash collateral with the counterparties | 600 | 600 | 5,200 | ||
Level 2 | |||||
Derivative Financial Instruments | |||||
Net total return swap (liability) asset | (314) | (314) | 4,968 | ||
Investment and other income (loss) | Level 2 | |||||
Derivative Financial Instruments | |||||
Net gains (losses) recognized in income | 135 | $ (6,769) | (25,728) | $ (7,313) | |
Prepaid expenses and other current assets | Level 2 | |||||
Derivative Financial Instruments | |||||
Fair value - assets | 153 | 153 | $ 4,968 | ||
Other current liabilities | Level 2 | |||||
Derivative Financial Instruments | |||||
Fair value - liabilities | $ 467 | $ 467 |
Goodwill and Identifiable Int_3
Goodwill and Identifiable Intangible Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Goodwill and Identifiable Intangible Assets | ||
Goodwill | $ 106,970 | $ 106,970 |
Mutual fund management advisory contracts | 38,699 | 38,699 |
Other | 200 | 200 |
Total identifiable intangible assets | 38,899 | 38,899 |
Total goodwill and identifiable intangible assets | $ 145,869 | $ 145,869 |
Indebtedness (Details)
Indebtedness (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Indebtedness | ||
Long-term debt | $ 94,908 | $ 94,854 |
Senior 5.75% unsecured notes due, 2021 ("Series B Notes") | ||
Indebtedness | ||
Fair value of outstanding long-term indebtedness | 98,600 | |
Long-term debt | $ 94,900 |
Income Tax Uncertainties (Detai
Income Tax Uncertainties (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2019 | Dec. 31, 2018 | |
Income Tax Uncertainties | |||
Unrecognized tax benefits, including penalties and interest that if recognized would impact effective tax rate | $ 2,700 | $ 2,700 | $ 2,700 |
Unrecognized tax benefits, including penalties and interest, net of federal tax benefit that if recognized would affect effective tax rate | 2,300 | 2,300 | 2,400 |
Unrecognized tax benefits, reduced | 38 | 79 | |
Accrued interest and penalties related to uncertain tax positions | 700 | 700 | 700 |
Accrued interest and penalties related to uncertain tax positions, net of federal benefit | $ 600 | $ 600 | $ 600 |
Pension Plan and Postretireme_3
Pension Plan and Postretirement Benefits Other Than Pension (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Pension Benefits | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Final number of years of employee's compensation to determine the benefits payable | 10 years | |||
Components of net periodic benefit cost: | ||||
Interest cost | $ 1,537 | $ 1,497 | $ 4,610 | $ 4,490 |
Expected return on plan assets | (1,579) | (2,065) | (4,736) | (6,196) |
Total | (42) | (568) | $ (126) | (1,706) |
Other Postretirement Benefits | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Age of employees after which the plan does not provide benefits | 65 years | |||
Components of net periodic benefit cost: | ||||
Interest cost | 9 | 14 | $ 25 | 41 |
Actuarial gain amortization | (124) | (30) | (371) | (90) |
Prior service cost amortization | (1) | (2) | ||
Total | $ (115) | $ (17) | $ (346) | $ (51) |
Stockholders' Equity - Earnings
Stockholders' Equity - Earnings per share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Components of basic and diluted earnings per share | ||||
Net income attributable to Waddell & Reed Financial, Inc. | $ 33,054 | $ 46,305 | $ 99,056 | $ 137,120 |
Weighted average shares outstanding - basic and diluted | 72,387,000 | 79,595,000 | 74,446,000 | 81,372,000 |
Earnings per share: | ||||
Earnings per share, basic and diluted (in dollars per share) | $ 0.46 | $ 0.58 | $ 1.33 | $ 1.69 |
Dividends | ||||
Dividends declared (in dollars per share) | $ 0.25 | $ 0.25 | $ 0.75 | $ 0.75 |
Dividends to be paid | $ 17,700 | $ 17,700 | ||
Common stock repurchases | ||||
Shares repurchased in the open market or privately | 2,480,019 | 1,424,612 | 6,849,238 | 4,519,546 |
Shares repurchased from employees to cover income tax withholdings | 19 | 225 | 440,002 | 630,159 |
Stockholders' Equity - Accumula
Stockholders' Equity - Accumulated other comprehensive income (loss) activity (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
AOCI Attributable to Parent, Net of Tax | ||||
Balance at the beginning of the period | $ 856,656 | $ 885,718 | $ 883,450 | $ 872,884 |
Balance at the end of the period | 839,530 | 893,510 | 839,530 | 893,510 |
Accumulated Other Comprehensive Income (Loss) | ||||
AOCI Attributable to Parent, Net of Tax | ||||
Balance at the beginning of the period | 3,081 | (1,332) | 331 | 524 |
Amount reclassified to retained earnings for ASUs adopted in 2018 | (848) | |||
Other comprehensive income (loss) before reclassification | 379 | 218 | 3,413 | (744) |
Amount reclassified from accumulated other comprehensive income (loss) | (177) | 20 | (461) | (26) |
Net current period other comprehensive income (loss) | 202 | 238 | 2,952 | (1,618) |
Balance at the end of the period | 3,283 | (1,094) | 3,283 | (1,094) |
Unrealized gains (losses) on AFS investment securities | ||||
AOCI Attributable to Parent, Net of Tax | ||||
Balance at the beginning of the period | 2,142 | (1,772) | (797) | 145 |
Amount reclassified to retained earnings for ASUs adopted in 2018 | (955) | |||
Other comprehensive income (loss) before reclassification | 379 | 218 | 3,413 | (744) |
Amount reclassified from accumulated other comprehensive income (loss) | (83) | 44 | (178) | 44 |
Net current period other comprehensive income (loss) | 296 | 262 | 3,235 | (1,655) |
Balance at the end of the period | 2,438 | (1,510) | 2,438 | (1,510) |
Postretirement benefits unrealized gains (losses) | ||||
AOCI Attributable to Parent, Net of Tax | ||||
Balance at the beginning of the period | 939 | 440 | 1,128 | 379 |
Amount reclassified to retained earnings for ASUs adopted in 2018 | 107 | |||
Amount reclassified from accumulated other comprehensive income (loss) | (94) | (24) | (283) | (70) |
Net current period other comprehensive income (loss) | (94) | (24) | (283) | 37 |
Balance at the end of the period | $ 845 | $ 416 | $ 845 | $ 416 |
Stockholders' Equity - Reclassi
Stockholders' Equity - Reclassifications from accumulated other comprehensive income (loss) and included in net income (Details) - Reclassifications from accumulated other comprehensive income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Reclassifications included in net income: | ||||
Pre-tax | $ 233 | $ (27) | $ 605 | $ 1,329 |
Tax benefit (expense) | (56) | 7 | (144) | (455) |
Net of tax | 177 | (20) | 461 | 874 |
Sponsored funds investment losses | Retained earnings | ||||
Reclassifications included in net income: | ||||
Pre-tax | 1,295 | |||
Tax benefit (expense) | (340) | |||
Net of tax | 955 | |||
Gains (losses) on available for sale debt securities | Investment and other income (loss) | ||||
Reclassifications included in net income: | ||||
Pre-tax | 109 | (58) | 234 | (58) |
Tax benefit (expense) | (26) | 14 | (56) | 14 |
Net of tax | 83 | (44) | 178 | (44) |
Postretirement benefits unrealized gains (losses) | Compensation and benefits | ||||
Reclassifications included in net income: | ||||
Pre-tax | 124 | 31 | 371 | 92 |
Tax benefit (expense) | (30) | (7) | (88) | (129) |
Net of tax | $ 94 | $ 24 | $ 283 | $ (37) |
Leases (Details)
Leases (Details) | 9 Months Ended |
Sep. 30, 2019 | |
Leases | |
Option to extend - Operating | true |
Option to extend - Finance | true |
Option to terminate - Operating | true |
Option to terminate - Finance | true |
Minimum | |
Leases | |
Remaining lease terms - Operating | 1 year |
Remaining lease terms - Finance | 1 year |
Maximum | |
Leases | |
Remaining lease terms - Operating | 7 years |
Remaining lease terms - Finance | 7 years |
Option to extend period - Operating | 20 years |
Option to extend period - Finance | 20 years |
Option to terminate period - Operating | 1 year |
Option to terminate period - Finance | 1 year |
Leases - Components of Lease (D
Leases - Components of Lease (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended |
Sep. 30, 2019 | Sep. 30, 2019 | |
Components of lease expense | ||
Operating Lease Cost | $ 4,189 | $ 14,472 |
Amortization of ROU assets | 80 | 224 |
Interest on lease liabilities | 8 | 23 |
Total | $ 88 | $ 247 |
Leases - Supplemental Cash Flow
Leases - Supplemental Cash Flow Information (Details) $ in Thousands | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Leases | |
Operating cash flows from operating leases | $ 13,661 |
Operating cash flows from finance leases | 23 |
Financing cash flows from finance leases | 222 |
ROU assets obtained in exchange for lease obligations - Operating leases | 2,410 |
ROU assets obtained in exchange for lease obligations - Finance leases | $ 40 |
Leases - Supplemental Balance S
Leases - Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2018 | Sep. 30, 2019 | |
Leases | |||
Operating lease ROU assets | $ 25,795 | ||
Financial position | us-gaap:OtherAssetsNoncurrent | ||
Operating lease liabilities - current | $ 10,873 | ||
Financial position | us-gaap:OtherLiabilitiesCurrent | ||
Operating lease liabilities - noncurrent | $ 16,445 | ||
Financial position | us-gaap:OtherLiabilitiesNoncurrent | ||
Total Operating lease liabilities | $ 27,318 | ||
Financing Lease ROU assets | $ 320 | ||
Financial position | Property, Plant and Equipment, Net | ||
Finance lease liabilities - current | $ 241 | ||
Financial position | us-gaap:OtherLiabilitiesCurrent | ||
Finance lease liabilities - noncurrent | $ 90 | ||
Financial position | us-gaap:OtherLiabilitiesNoncurrent | ||
Finance lease liabilities | $ 331 | ||
Weighted average remaining lease term - Operating leases | 4 years | ||
Weighted average remaining lease term - Financing leases | 1 year | ||
Weighted average discount rate - Operating leases | 4.32% | ||
Weighted average discount rate - Financing leases | 6.00% | ||
Rent expense before adoption | $ 5,800 | $ 17,600 | |
Finance lease assets | |||
Leases | |||
Property and equipment, gross | $ 1,054 | ||
Accumulated depreciation | $ (734) |
Leases - Capital Leases (Detail
Leases - Capital Leases (Details) $ in Millions | Dec. 31, 2018USD ($) |
Leases | |
Property and equipment under capital leases, cost | $ 1.6 |
Property and equipment accumulated depreciation | $ 1.1 |
Leases - Maturity of Lease Liab
Leases - Maturity of Lease Liabilities (Details) $ in Thousands | Sep. 30, 2019USD ($) |
Operating Leases maturities: | |
2019 (excluding the nine months ended September 30, 2019) | $ 3,361 |
2020 | 10,580 |
2021 | 6,468 |
2022 | 2,178 |
2023 | 2,090 |
Thereafter | 4,703 |
Total lease payments | 29,380 |
Less imputed interest | (2,062) |
Total | 27,318 |
Finance Leases maturities: | |
2019 (excluding nine months ended September 30, 2019) | 68 |
2020 | 218 |
2021 | 45 |
2022 | 6 |
Total lease payments | 337 |
Less imputed interest | (6) |
Total | $ 331 |
Leases (Details)_2
Leases (Details) $ in Thousands | Dec. 31, 2018USD ($) |
Future minimum rental commitments under non-cancelable operating leases | |
2019 | $ 16,488 |
2020 | 9,797 |
2021 | 5,757 |
2022 | 2,913 |
2023 | 2,320 |
Thereafter | 5,161 |
Total | $ 42,436 |