UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-13913
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 51-0261715 |
(State or other jurisdiction | | (I.R.S. Employer |
of incorporation or organization) | | Identification No.) |
6300 Lamar Avenue
Overland Park, Kansas66202
(Address, including zip code, of Registrant’s principal executive offices)
(913) (913) 236-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $.01 par value | WDR | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | | Accelerated filer ☐ |
| | |
Non-accelerated filer ☐ | | Smaller reporting company ☐ |
| | |
| | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.☒.
Shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:
| | |
Class | | Outstanding as of |
Class A common stock, $.01 par value | |
|
WADDELL & REED FINANCIAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Quarter Ended September 30, 2017March 31, 2021
| | | Page No. | |
| | | | |
| | |||
| | | | |
| | | ||
| | | | |
| | Consolidated Balance Sheets at | ||
| 3 | |||
| | | | |
| | |||
| 4 | |||
| | | | |
| | |||
| 5 | |||
| | | | |
| | |||
| 6 | |||
| | | | |
| | |||
| 7 | |||
| | | | |
| | | 8 | |
| | | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 23 | |
| | | | |
| | 34 | ||
| | | | |
| | 34 | ||
| | | | |
| | |||
| | | | |
| | 35 | ||
| | | | |
| ||||
| 35 | |||
| | | | |
| ||||
| 36 | |||
| | | | |
| | | 37 |
2
2
PART I. FINANCIAL INFORMATION
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
| September 30, |
|
|
|
| |
|
| 2017 |
|
| December 31, |
| |
|
| (Unaudited) |
|
| 2016 |
| |
Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 225,922 |
|
| 555,102 |
|
Cash and cash equivalents - restricted |
|
| 35,551 |
|
| 31,137 |
|
Investment securities |
|
| 697,138 |
|
| 328,750 |
|
Receivables: |
|
|
|
|
|
|
|
Funds and separate accounts |
|
| 22,510 |
|
| 27,181 |
|
Customers and other |
|
| 114,723 |
|
| 128,095 |
|
Prepaid expenses and other current assets |
|
| 22,943 |
|
| 21,574 |
|
Total current assets |
|
| 1,118,787 |
|
| 1,091,839 |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 91,708 |
|
| 102,449 |
|
Goodwill and identifiable intangible assets |
|
| 147,069 |
|
| 148,569 |
|
Deferred income taxes |
|
| 20,457 |
|
| 31,430 |
|
Other non-current assets |
|
| 20,834 |
|
| 31,985 |
|
Total assets |
| $ | 1,398,855 |
|
| 1,406,272 |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 31,391 |
|
| 28,023 |
|
Payable to investment companies for securities |
|
| 50,320 |
|
| 53,691 |
|
Payable to third party brokers |
|
| 24,857 |
|
| 31,735 |
|
Payable to customers |
|
| 60,118 |
|
| 82,918 |
|
Short-term notes payable |
|
| 94,971 |
|
| — |
|
Accrued compensation |
|
| 49,680 |
|
| 41,672 |
|
Other current liabilities |
|
| 58,867 |
|
| 58,939 |
|
Total current liabilities |
|
| 370,204 |
|
| 296,978 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 94,765 |
|
| 189,605 |
|
Accrued pension and postretirement costs |
|
| 8,874 |
|
| 38,379 |
|
Other non-current liabilities |
|
| 24,071 |
|
| 26,655 |
|
Total liabilities |
|
| 497,914 |
|
| 551,617 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
|
| 30,636 |
|
| 10,653 |
|
|
|
|
|
|
|
|
|
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; 83,373 shares outstanding (83,118 at December 31, 2016) |
|
| 997 |
|
| 997 |
|
Additional paid-in capital |
|
| 296,116 |
|
| 291,908 |
|
Retained earnings |
|
| 1,112,374 |
|
| 1,135,694 |
|
Cost of 16,328 common shares in treasury (16,583 at December 31, 2016) |
|
| (509,870) |
|
| (531,268) |
|
Accumulated other comprehensive loss |
|
| (29,312) |
|
| (53,329) |
|
Total stockholders’ equity |
|
| 870,305 |
|
| 844,002 |
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interests and stockholders’ equity |
| $ | 1,398,855 |
|
| 1,406,272 |
|
| | | | | | | |
| | March 31, | | | | | |
| | 2021 | | | December 31, | | |
| | (Unaudited) | | | 2020 | | |
Assets: |
| | |
| | |
|
Cash and cash equivalents | | $ | 193,864 |
| | 273,756 | |
Cash and cash equivalents - restricted | |
| 62,460 |
|
| 63,594 | |
Investment securities | |
| 452,059 |
|
| 486,765 | |
Receivables: | | | | | | | |
Funds and separate accounts | |
| 13,995 |
|
| 14,837 | |
Customers and other | |
| 46,151 |
|
| 68,466 | |
Prepaid expenses and other current assets | |
| 31,341 |
|
| 36,318 | |
Total current assets | |
| 799,870 |
|
| 943,736 | |
| | | | | | | |
Property and equipment, net | |
| 19,073 |
|
| 21,903 | |
Goodwill and identifiable intangible assets | |
| 145,869 |
|
| 145,869 | |
Deferred income taxes | |
| 22,089 |
|
| 19,200 | |
Other non-current assets | |
| 21,288 |
|
| 23,123 | |
Total assets | | $ | 1,008,189 |
| | 1,153,831 | |
| | | | | | | |
Liabilities: | | | | | | | |
Accounts payable | | $ | 17,780 |
| | 18,330 | |
Payable to investment companies for securities | |
| 21,678 |
|
| 30,514 | |
Payable to third party brokers | |
| 20,941 |
|
| 16,316 | |
Payable to customers | |
| 70,890 |
|
| 82,165 | |
Short-term notes payable | | | — | | | 94,997 | |
Accrued compensation | |
| 84,748 |
|
| 101,749 | |
Other current liabilities | |
| 56,824 |
|
| 52,476 | |
Total current liabilities | |
| 272,861 |
|
| 396,547 | |
| | | | | | | |
Accrued pension and postretirement costs | |
| 447 |
|
| 446 | |
Other non-current liabilities | |
| 25,507 |
|
| 29,081 | |
Total liabilities | |
| 298,815 |
|
| 426,074 | |
| | | | | | | |
Stockholders’ equity: | | | | | | | |
Preferred stock—$1.00 par value: 5,000 shares authorized; NaN issued | |
| — |
|
| — | |
Class A Common stock—$0.01 par value: 250,000 shares authorized; 99,701 shares issued; 62,043 shares outstanding (62,398 at December 31, 2020) | |
| 997 |
|
| 997 | |
Additional paid-in capital | |
| 309,294 |
|
| 303,757 | |
Retained earnings | |
| 1,234,154 |
|
| 1,248,299 | |
Cost of 37,658 common shares in treasury (37,303 at December 31, 2020) | |
| (837,096) |
|
| (828,193) | |
Accumulated other comprehensive income | |
| 2,025 |
|
| 2,897 | |
Total stockholders’ equity | |
| 709,374 |
|
| 727,757 | |
| | | | | | | |
Total liabilities and stockholders’ equity | | $ | 1,008,189 |
| | 1,153,831 | |
See accompanying notes to the unaudited consolidated financial statements.
3
3
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited, in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended September 30, |
| For the nine months ended September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees |
| $ | 134,149 |
|
| 138,745 |
| $ | 395,463 |
|
| 424,403 |
|
Underwriting and distribution fees |
|
| 128,892 |
|
| 135,778 |
|
| 386,499 |
|
| 428,748 |
|
Shareholder service fees |
|
| 26,406 |
|
| 28,563 |
|
| 80,706 |
|
| 92,959 |
|
Total |
|
| 289,447 |
|
| 303,086 |
|
| 862,668 |
|
| 946,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting and distribution |
|
| 149,400 |
|
| 152,999 |
|
| 450,843 |
|
| 508,080 |
|
Compensation and related costs (including share-based compensation of $14,180, $12,425, $42,419 and $38,573, respectively) |
|
| 48,340 |
|
| 40,214 |
|
| 144,970 |
|
| 151,495 |
|
General and administrative |
|
| 27,832 |
|
| 23,280 |
|
| 81,709 |
|
| 61,708 |
|
Subadvisory fees |
|
| 3,566 |
|
| 2,566 |
|
| 9,457 |
|
| 6,984 |
|
Depreciation |
|
| 5,230 |
|
| 4,541 |
|
| 15,626 |
|
| 13,163 |
|
Intangible asset impairment |
|
| — |
|
| 5,700 |
|
| 1,500 |
|
| 5,700 |
|
Total |
|
| 234,368 |
|
| 229,300 |
|
| 704,105 |
|
| 747,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 55,079 |
|
| 73,786 |
|
| 158,563 |
|
| 198,980 |
|
Investment and other income (loss) |
|
| 7,236 |
|
| 7,878 |
|
| 11,386 |
|
| (1,653) |
|
Interest expense |
|
| (2,796) |
|
| (2,792) |
|
| (8,370) |
|
| (8,336) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
| 59,519 |
|
| 78,872 |
|
| 161,579 |
|
| 188,991 |
|
Provision for income taxes |
|
| 20,296 |
|
| 24,067 |
|
| 64,857 |
|
| 63,146 |
|
Net income |
|
| 39,223 |
|
| 54,805 |
|
| 96,722 |
|
| 125,845 |
|
Net income attributable to redeemable noncontrolling interests |
|
| 1,272 |
|
| 978 |
|
| 2,408 |
|
| 1,355 |
|
Net income attributable to Waddell & Reed Financial, Inc. |
| $ | 37,951 |
|
| 53,827 |
| $ | 94,314 |
|
| 124,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to Waddell and Reed Financial, Inc. common shareholders, basic and diluted: |
| $ | 0.45 |
|
| 0.65 |
| $ | 1.13 |
|
| 1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted: |
|
| 83,476 |
|
| 82,834 |
|
| 83,719 |
|
| 82,629 |
|
| | | | | | | |
| | For the three months ended March 31, | | ||||
| | 2021 | | 2020 | | ||
| | | | | | | |
Revenues: |
| | |
| | |
|
Investment management fees | | $ | 118,016 |
| | 105,219 | |
Underwriting and distribution fees | | | 154,795 |
| | 136,943 | |
Shareholder service fees | | | 22,540 |
| | 21,571 | |
Total | | | 295,351 |
| | 263,733 | |
| | | | | | | |
Operating expenses: | | | | | | | |
Distribution | | | 136,692 |
| | 120,033 | |
Compensation and benefits (including share-based compensation of $12,112 and $9,983, respectively) | | | 100,498 |
| | 58,425 | |
General and administrative | | | 30,290 |
| | 18,598 | |
Technology | | | 17,384 | | | 13,502 | |
Occupancy | | | 2,283 | | | 4,709 | |
Marketing and advertising | | | 301 | | | 1,896 | |
Depreciation | | | 2,396 |
| | 3,513 | |
Subadvisory fees | | | 3,447 |
| | 3,666 | |
Total | | | 293,291 |
| | 224,342 | |
| | | | | | | |
Operating income | | | 2,060 |
| | 39,391 | |
Investment and other income (loss) | | | 1,808 |
| | (7,745) | |
Interest expense | | | (431) |
| | (1,549) | |
| | | | | | | |
Income before provision for income taxes | | | 3,437 |
| | 30,097 | |
Provision for income taxes | | | 1,825 |
| | 9,633 | |
Net income | | | 1,612 |
| | 20,464 | |
Net loss attributable to redeemable noncontrolling interests | | | — | | | (1,522) | |
Net income attributable to Waddell & Reed Financial, Inc. | | $ | 1,612 | | | 21,986 | |
| | | | | | | |
Net income per share attributable to Waddell and Reed Financial, Inc. common shareholders, basic and diluted: | | $ | 0.03 | | | 0.32 | |
| | | | | | | |
Weighted average shares outstanding, basic and diluted: | | | 62,485 | | | 67,675 | |
See accompanying notes to the unaudited consolidated financial statements.
4
4
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended September 30, |
| For the nine months ended September 30, |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 39,223 |
|
| 54,805 |
| $ | 96,722 |
|
| 125,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) of available for sale investment securities during the period, net of income tax expense (benefit) of $364, $1, $(1,310), and $2, respectively |
|
| 2,070 |
|
| (344) |
|
| 6,904 |
|
| 1,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefit, net of income tax expense (benefit) of $9,186, $(167), $10,080, and $1,018, respectively |
|
| 15,601 |
|
| (167) |
|
| 17,113 |
|
| 1,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
| 56,894 |
|
| 54,294 |
|
| 120,739 |
|
| 129,331 |
|
Comprehensive income attributable to redeemable noncontrolling interests |
|
| 1,272 |
|
| 978 |
|
| 2,408 |
|
| 1,355 |
|
Comprehensive income attributable to Waddell & Reed Financial, Inc. |
| $ | 55,622 |
|
| 53,316 |
| $ | 118,331 |
|
| 127,976 |
|
| | | | | | | |
| | For the three months ended March 31, | | ||||
|
| 2021 |
| 2020 |
| ||
| | | | | | | |
Net income | | $ | 1,612 |
| | 20,464 | |
| | | | | | | |
Other comprehensive income: | | | | | | | |
| | | | | | | |
Unrealized loss on available for sale investment securities during the period, net of income tax benefit of $(274) and $(760), respectively | |
| (861) |
|
| (2,430) | |
| | | | | | | |
Postretirement benefit, net of income tax benefit of $(4) and $(18), respectively | |
| (11) |
|
| (49) | |
| | | | | | | |
Comprehensive income | | | 740 |
| | 17,985 | |
Comprehensive loss attributable to redeemable noncontrolling interests | | | — | | | (1,522) | |
Comprehensive income attributable to Waddell & Reed Financial, Inc. | | $ | 740 | | | 19,507 | |
See accompanying notes to the unaudited consolidated financial statements.
5
5
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated StatementStatements of Stockholders’ Equity and Redeemable Noncontrolling Interests
For the Nine Months Ended September 30, 2017
(Unaudited, in thousands)
| | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, | |||||||||||||||
| | | | | | | | | | | | | Accumulated | | | | Redeemable |
| | | | | | | Additional | | | | | | Other | | Total | | Non |
| | Common Stock | | Paid-In | | Retained | | Treasury | | Comprehensive | | Stockholders’ | | Controlling | |||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Stock |
| Income (Loss) |
| Equity |
| Interests | |
Balance at December 31, 2019 |
| 99,701 | | $ | 997 |
| 312,693 |
| 1,241,598 |
| (749,625) |
| 3,234 |
| 808,897 |
| 19,205 |
Net income (loss) |
| — | |
| — |
| — |
| 21,986 |
| — |
| — |
| 21,986 |
| (1,522) |
Net subscription of redeemable noncontrolling interests in sponsored funds | | — | | | — | | — | | — | | — | | — | | — | | 1,387 |
Recognition of equity compensation |
| — | |
| — |
| 7,693 |
| 71 |
| — |
| — |
| 7,764 |
| — |
Net issuance/forfeiture of nonvested shares |
| — | |
| — |
| (37,985) |
| — |
| 37,985 |
| — |
| — |
| — |
Dividends accrued, $0.25 per share |
| — | |
| — |
| — |
| (16,571) |
| — |
| — | | (16,571) | | — |
Repurchase of common stock |
| — | | | — | | — | | — | | (53,939) | | — |
| (53,939) |
| — |
Other comprehensive loss |
| — | |
| — |
| — |
| — |
| — |
| (2,479) |
| (2,479) |
| — |
Balance at March 31, 2020 | | 99,701 | | $ | 997 |
| 282,401 |
| 1,247,084 |
| (765,579) |
| 755 |
| 765,658 |
| 19,070 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
Balance at December 31, 2020 |
| 99,701 | | $ | 997 |
| 303,757 |
| 1,248,299 |
| (828,193) |
| 2,897 |
| 727,757 |
| — |
Net income |
| — | |
| — |
| — |
| 1,612 |
| — |
| — |
| 1,612 |
| — |
Recognition of equity compensation |
| — | |
| — |
| 5,491 |
| 4 |
| — |
| — |
| 5,495 |
| — |
Net issuance/forfeiture of nonvested shares |
| — | |
| — |
| 46 |
| — |
| (46) |
| — |
| — |
| — |
Dividends accrued, $0.25 per share |
| — | |
| — |
| — |
| (15,761) |
| — |
| — | | (15,761) | | — |
Repurchase of common stock |
| — | | | — | | — | | — | | (8,857) | | — |
| (8,857) |
| — |
Other comprehensive loss |
| — | |
| — |
| — |
| — |
| — |
| (872) |
| (872) |
| — |
Balance at March 31, 2021 | | 99,701 | | $ | 997 |
| 309,294 |
| 1,234,154 |
| (837,096) |
| 2,025 |
| 709,374 |
| — |
See accompanying notes to the unaudited consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| Redeemable |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
| Total |
| Non |
|
|
| Common Stock |
| Paid-In |
| Retained |
| Treasury |
| Comprehensive |
| Stockholders’ |
| Controlling |
| |||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Stock |
| Income (Loss) |
| Equity |
| interest |
| |
Balance at December 31, 2016 |
| 99,701 |
| $ | 997 |
| 291,908 |
| 1,135,694 |
| (531,268) |
| (53,329) |
| 844,002 |
| 10,653 |
|
Adoption of share-based compensation guidance on January 1, 2017 |
| — |
|
| — |
| 3,504 |
| (2,200) |
| — |
| — |
| 1,304 |
| — |
|
Net income |
| — |
|
| — |
| — |
| 94,314 |
| — |
| — |
| 94,314 |
| 2,408 |
|
Net subscription of redeemable noncontrolling interests in sponsored funds |
| — |
|
| — |
| — |
| — |
| — |
| — |
| — |
| 17,575 |
|
Recognition of equity compensation |
| — |
|
| — |
| 37,737 |
| 374 |
| — |
| — |
| 38,111 |
| — |
|
Net issuance/forfeiture of nonvested shares |
| — |
|
| — |
| (37,033) |
|
|
| 37,033 |
|
|
| — |
| — |
|
Dividends accrued, $1.38 per share |
| — |
|
| — |
| — |
| (115,808) |
| — |
| — |
| (115,808) |
| — |
|
Repurchase of common stock |
| — |
|
| — |
| — |
| — |
| (15,635) |
| — |
| (15,635) |
| — |
|
Other comprehensive income |
| — |
|
| — |
| — |
| — |
| — |
| 24,017 |
| 24,017 |
| — |
|
Balance at September 30, 2017 |
| 99,701 |
| $ | 997 |
| 296,116 |
| 1,112,374 |
| (509,870) |
| (29,312) |
| 870,305 |
| 30,636 |
|
6
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | | | | | | |
|
| For the three months ended March 31, | | ||||
| | 2021 |
| 2020 |
| ||
| | | | | | | |
Cash flows from operating activities: | | | | | | | |
Net income | | $ | 1,612 |
| | 20,464 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 2,660 |
|
| 3,168 | |
Write-down of impaired assets | |
| 282 |
|
| — | |
Amortization of deferred sales commissions | |
| 259 |
|
| 395 | |
Share-based compensation | |
| 12,112 |
|
| 9,983 | |
Investments and derivatives (gain) loss, net of collateral | |
| (1,991) |
|
| 50,012 | |
Net purchases, maturities, and sales of trading and equity securities | |
| 9,297 |
|
| (2,144) | |
Deferred income taxes | |
| (2,612) |
|
| (12,071) | |
Net change in equity securities and trading debt securities held by consolidated sponsored funds | | | — | | | 1,326 | |
Other | | | 171 | | | 212 | |
Changes in assets and liabilities: | | | | | | | |
Customer and other receivables | |
| 18,090 |
|
| 6,804 | |
Payable to investment companies for securities and payable to customers | |
| (20,111) |
|
| (29,763) | |
Receivables from funds and separate accounts | |
| 842 |
|
| 3,023 | |
Other assets | |
| 2,619 |
|
| 3,214 | |
Accounts payable and payable to third party brokers | |
| 2,630 |
|
| (3,219) | |
Other liabilities | |
| (20,328) |
|
| (22,128) | |
Net cash provided by operating activities | | $ | 5,532 |
|
| 29,276 | |
�� | | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of available for sale and equity method securities | | | — | | | (2,999) | |
Proceeds from maturities of available for sale securities | | | 32,941 | | | 33,875 | |
Additions to property and equipment | |
| (71) |
|
| (3,182) | |
Net cash provided by investing activities | | $ | 32,870 |
|
| 27,694 | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Dividends paid | |
| (15,555) |
|
| (17,119) | |
Repurchase of common stock | |
| (8,857) |
|
| (53,599) | |
Repayment of short-term debt, net of debt issuance costs | | | (94,997) | | | — | |
Net subscriptions (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds | | | — | | | 1,387 | |
Other | | | (19) | | | (40) | |
Net cash used in financing activities | | $ | (119,428) |
|
| (69,371) | |
| | | | | | | |
Net decrease in cash and cash equivalents | |
| (81,026) |
|
| (12,401) | |
Cash, cash equivalents, and restricted cash at beginning of period | |
| 337,350 |
|
| 226,140 | |
Cash, cash equivalents, and restricted cash at end of period | | $ | 256,324 |
| | 213,739 | |
See accompanying notes to the unaudited consolidated financial statements.
6
7
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
| For the nine months ended September 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
| $ | 96,722 |
|
| 125,845 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 15,626 |
|
| 13,163 |
|
Write-down of impaired assets |
|
| 1,500 |
|
| 5,700 |
|
Amortization of deferred sales commissions |
|
| 3,799 |
|
| 21,842 |
|
Share-based compensation |
|
| 38,111 |
|
| 38,573 |
|
Investments gain, net |
|
| (9,157) |
|
| (13,834) |
|
Net purchases of trading securities |
|
| (36,643) |
|
| (24,353) |
|
Net change in trading securities held by consolidated sponsored funds |
|
| (123,865) |
|
| (57,444) |
|
Other |
|
| 4,473 |
|
| 3,131 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Cash and cash equivalents - restricted |
|
| (4,414) |
|
| 44,816 |
|
Customer and other receivables |
|
| 13,372 |
|
| 67,338 |
|
Payable to investment companies for securities and payable to customers |
|
| (26,171) |
|
| (131,120) |
|
Receivables from funds and separate accounts |
|
| 4,671 |
|
| 8,729 |
|
Other assets |
|
| 5,050 |
|
| (2,826) |
|
Accounts payable and payable to third party brokers |
|
| (3,510) |
|
| (21,738) |
|
Other liabilities |
|
| 3,856 |
|
| (11,763) |
|
Net cash (used in) provided by operating activities |
| $ | (16,580) |
|
| 66,059 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of available for sale and equity method securities |
|
| (291,539) |
|
| (71,852) |
|
Proceeds from sales of available for sale and equity method securities |
|
| 97,917 |
|
| 148,373 |
|
Additions to property and equipment |
|
| (5,358) |
|
| (13,933) |
|
Net cash of sponsored funds on consolidation |
|
| — |
|
| 6,887 |
|
Other |
|
| — |
|
| (194) |
|
Net cash (used in) provided by investing activities |
| $ | (198,980) |
|
| 69,281 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Dividends paid |
|
| (115,691) |
|
| (114,736) |
|
Repurchase of common stock |
|
| (15,635) |
|
| (47,984) |
|
Net subscriptions, (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds |
|
| 17,575 |
|
| (3,695) |
|
Other |
|
| 131 |
|
| 2,364 |
|
Net cash used in financing activities |
| $ | (113,620) |
|
| (164,051) |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
| (329,180) |
|
| (28,711) |
|
Cash and cash equivalents at beginning of period |
|
| 555,102 |
|
| 558,495 |
|
Cash and cash equivalents at end of period |
| $ | 225,922 |
|
| 529,784 |
|
See accompanying notes to the unaudited consolidated financial statements.
7
WADDELL & REED FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. | Description of Business and Significant Accounting Policies |
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”); and the Ivy Global Investors Société d’Investissement à Capital Variable (the “SICAV”) and its Ivy Global Investors sub‑funds (the “IGI Funds”), an undertaking for the collective investment in transferable securities (“UCITS”). In 2016, we introduced the Ivy NextShares® exchange-traded managed funds (“Ivy NextShares”). In the second quarter of 2017, we launched index funds in partnership with ProShares® Advisors LLC (“Ivy ProShares”) (collectively, the Advisors Funds, Ivy Funds, Ivy VIP, InvestEd IVH, Ivy NextShares and Ivy ProSharesIVH are referred to as the “Funds”). In addition to the Funds, our assets under management (“AUM”) include institutional managed accounts. As of September 30, 2017,March 31, 2021, we had $80.9$76.0 billion in assets under management.AUM.
We derive our revenues from providing investment management investmentand advisory services, investment product underwriting and distribution, and shareholder services administration to the Funds the IGI Funds, and institutional accounts. We also provide wealth management services, primarily to retail clients through Waddell & Reed, Inc. (“W&R”), and separately managed accounts.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 amountlevel of averageAUM and assets under managementadministration (“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 products and relatedfee-based advisory services, asset‑basedprograms, asset-based service and distribution fees promulgated under Rule 12b-1 of the Investment Company Act of 1940 as amended (“Rule 12b-1”), distribution fees on certain variable products, and commissions derived from sales of investment and insurance products, and distribution fees on certain variable 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 primarily includes transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees. Transfer agency fees, are asset-based and/or account-based revenues. Portfolio accounting and administration fees are asset-based revenues. Custodian fees from retirement plan accounts areis earned based on theclient 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.
The Company continues to proactively manage business continuity and safety considerations as circumstances of the coronavirus disease 2019 (“COVID-19”) evolve. Our leadership team’s priority is on ensuring the health and safety of all employees, clients, Advisors and communities, while also ensuring full continuity of service and access. The Company started transitioning to a work from home environment early in March 2020 and has been following the Centers for Disease Control and Prevention and local authorities’ recommendations on safe practices throughout this process. We have undertaken a number of steps to facilitate safety, security and full continuity of service, including:
● | Our Enterprise Preparedness Team and COVID-19 steering committee continue to meet regularly to assess developments and determine the best action to ensure business continuity and the safety of our employees and partners. |
● | We have adopted interim business practices, including restricting business travel, requiring meetings to take place via remote access tools, adopting safety protocols to limit the potential for exposure, adopting social distancing practices, implementing a clearly-defined approval process for reentry to any worksite, advising personnel on preventive measures and offering remote collaboration and productivity tools and training resources to our employees. |
● | We enhanced monitoring and capabilities of our systems to allow our remote workforce to function efficiently and have continued our educational and monitoring practices to ensure there are no compromises to confidentiality, privacy and cybersecurity requirements. |
● | The Ivy investment management and distribution teams transitioned seamlessly to remote working. Our teams have a strong heritage of active collaboration which has migrated to a virtual environment without compromise. |
8
● | Within our wealth management business, approximately 25% of Advisors are working from temporary locations. We are demonstrating our differentiated service and support model by continuing regular communications with Advisors as well as delivering additional advisor and client focused resources. |
● | We have not initiated any layoffs, furloughs or reduced hours due to COVID-19. As we implemented our business continuity plans, we have intentionally maintained the same pay practices for all of our employees based upon their regular work schedule, paid spot bonuses to certain employees, implemented a temporary hourly wage increase to designated client services personnel, increased certain benefit coverages for specific COVID-19 related treatments and made targeted philanthropic contributions to local organizations to help support the COVID-19 responses in our community. |
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, 2016 (the “20162020 (our “2020 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 20162020 Form 10-K with the exception of the adoption of Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment2019-12, Income Taxes (Topic 740): Simplifying the Accounting” for Income Taxes, which became effective January 1, 2017. As required by this ASU, excess tax benefits and tax shortfalls resulting from share-based compensation are recognized as income tax benefit or expense in the income statement on a prospective basis. Additionally, excess tax benefits or shortfalls recognized on share-based compensation are classified as an operating activity in the statement of cash flows. The Company has applied this provision prospectively, and thus, the prior period presented in the statement of cash flows has not been adjusted. This ASU allows entities to withhold shares issued during the settlement of a stock award or option, as a means of meeting minimum tax withholding due by the employee, in an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction without resulting in a liability classification of the award. The value of the withheld shares is then remitted by the Company in cash to the taxing
8
2021.
authorities on the employees’ behalf. The Company’s historical policy to withhold shares equivalent to the minimum individual tax rate is consistent with the thresholds meeting the classification of an equity award and, therefore, a retrospective classification adjustment was not required. This ASU requires that all cash payments made to taxing authorities on the employees’ behalf for withheld shares be presented as financing activities on the statement of cash flows. As this requirement is consistent with the Company’s historical accounting policy, a retrospective adjustment to presentation of the statement of cash flows was not required. This standard also allows for the option to account for forfeitures as they occur when determining the amount of share-based compensation expense to be recognized, rather than estimating expected forfeitures over the course of a vesting period. The Company elected to account for forfeitures as they occur. The net cumulative effect to the Company from the adoption of this ASU was an increase to additional paid-in capital of $3.5 million, a reduction to retained earnings of $2.2 million and an increase to the non-current deferred tax asset of $1.3 million as of January 1, 2017.
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, 2017March 31, 2021 and the results of operations and cash flows for the ninethree months ended September 30, 2017March 31, 2021 and 20162020 in conformity with accounting principles generally accepted in the United States.
2.New Accounting GuidanceProposed Acquisition of Waddell & Reed Financial, Inc. by Macquarie
On December 2, 2020, the Company announced a merger agreement with Macquarie Asset Management, the asset management division of Macquarie Group. Subject to the terms and conditions of the Agreement and Plan of Merger (the “Merger Agreement”) by andamong the Company, Macquarie Management Holdings, Inc. (“Macquarie”), Merry Merger Sub, Inc. (“Merger Sub”) and (solely for limited purposes) Macquarie Financial Holdings Pty Ltd, Merger Sub will be merged with and into the Company (the “merger”), with the Company surviving the merger as a wholly owned subsidiary of Macquarie. Pursuant to the Merger Agreement, at the effective time of the merger, each share of the Company’s Class A common stock (“common stock”) issued and outstanding immediately prior to the effective time will be converted into the right to receive $25.00 per share in cash, without interest and subject to any withholding of taxes required by applicable law in accordance with the Merger Agreement. On completion of the merger, Macquarie intends to sell our wealth management business to LPL Holdings, Inc.
In May 2014,The closing of the Financial merger remains subject to the satisfaction or waiver of the remaining conditions to the merger set forth in the Merger Agreement. The Company expects the closing of the merger to occur on April 30, 2021.
9
Assets Held for Sale
Assets held for sale included real property and fractional aircraft ownership. The three months ended March 31, 2021 included asset impairment charges of $0.2 million on assets held for sale, which were recorded in general and administrative expenses in our consolidated statements of income. As of March 31, 2021, $3.8 million of buildings, $1.9 million of land and $1.0 million of equipment held for sale were included in Property and equipment, net on our consolidated balance sheets. As of December 31, 2020, $3.8 million of buildings and $1.9 million of land that were held for sale were included in Property and equipment, net on our consolidated balance sheets. The Company continues to actively pursue the sale of assets held for sale at market prices as soon as reasonably possible.
Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
As of March 31, 2021 and December 31, 2020, the Company had $4.8 million of capitalized implementation costs for hosting arrangements with $793 thousand and $459 thousand, respectively, of accumulated amortization in prepaid and other current assets on the consolidated balance sheets. Our hosting arrangements that are service contracts include internal and external costs related to various technology additions in support of our asset management and wealth management businesses. Amortization costs are recorded on a straight-line basis over the term of the hosting arrangement agreement.
2. | New Accounting Guidance |
Accounting Standards Board (“FASB”) issuedGuidance Adopted During the First Quarter of 2021
On January 1, 2021, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers,”2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which requires an entity to recognizesimplifies and improves the amountconsistent application of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This standard also specifies the accounting for income taxes by removing certain costsexceptions to obtain or fulfill a contract with a customer. This ASU will supersede much of thegeneral principles and by clarifying and amending existing revenue recognition guidance in accounting principles generally accepted in the United States and is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period; early application is permitted for the first interim period within annual reporting periods beginning after December 15, 2016. This ASU permits the use of either the retrospective or cumulative effect transition method.guidance. The Company has assessed its revenue streams to identify contracts that are subject to the requirements of the new standard. The Company plans to review the identified contracts and while we have not identified material changes in the timing of revenue recognition, we continue to evaluate the quantitative impact the ASU will have on the consolidated financial statements and related disclosures.
In February 2016, FASB issued ASU 2016-02, “Leases,” which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU will be presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. Although the Company is evaluating the estimated impact the adoption of this ASU will have on our consolidated financial statements and related disclosures, the Company currently believes the most significant changes will be related to the recognition of new right-of-use assets and lease liabilities on the Company’s consolidated balance sheet for real estate operating leases.
In August 2016, FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This ASU eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. This ASU designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We have concluded that the adoption of this ASU will havehad an immaterial impact on our consolidated financial statements and related disclosures.
In November 2016, FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash.” This ASU is intended to reduce diversity in practice by adding or clarifying guidance on classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendments in this ASU should be applied retrospectively to all periods presented. Upon adoption of this ASU on January 1, 2018, we will include cash and cash equivalents – restricted
9
10
3. | Revenue Recognition |
as a component of cash and cash equivalents on
All revenue recognized in the Company’s consolidated statements of cash flows for all periods presented,income is considered to be revenue from contracts with customers. The vast majority of revenue is determined based on average assets and will remove the change in cashis earned daily or monthly or is transactional and cash equivalents-restricted as a component of net cash (used in) provided by operating activities.
In March 2017, FASB issued ASU 2017-07, “Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU changes the income statement presentation of defined benefit plan expense by requiring separation between operating expense (service cost component) and non-operating expense (all other components, including interest cost, amortization of prior service cost, curtailments and settlements, etc.). The operating expense component is reported with similar compensation costs while the non-operating components are reported in a separate line item outside of operating items. In addition, only the service cost component is eligible for capitalization as part of an asset. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We have concluded that the adoption of this ASU will have no effect on our net income because it only impacts the classification of certain informationearned on the consolidated statementtrade date. As such, revenue from remaining performance obligations is not significant. The following table depicts the disaggregation of income. The service cost component of net periodic benefit cost was recognized in underwritingrevenue by product and distribution and compensation and related costs through September 30, 2017. An amendment to freeze our noncontributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”) was approved effective September 30, 2017; therefore, after September 30, 2017 we will no longer incur service cost. The other components of net periodic cost will be reclassified to investment and other income (loss) on a retrospective basis.channel:
| | | | | |
| | | | | |
| | | Three months ended | ||
| | | 2021 | | 2020 |
| | | (in thousands) | ||
Investment management fees: | | |
|
|
|
Funds | | $ | 114,395 |
| 102,293 |
Institutional | |
| 3,621 |
| 2,926 |
Total investment management fees | | $ | 118,016 |
| 105,219 |
Underwriting and distribution fees: | | | | | |
Unaffiliated | | | | | |
Service and distribution fees | | $ | 14,642 | | 15,276 |
Sales commissions | | | 15 | | 451 |
Other revenues | | | 44 | | 135 |
Total unaffiliated distribution fees | | $ | 14,701 | | 15,862 |
Wealth Management | | | | | |
Advisory fees | | $ | 94,280 | | 77,118 |
Service and distribution fees | | | 16,763 | | 14,589 |
Sales commissions | | | 19,423 | | 20,657 |
Other revenues | | | 9,628 | | 8,717 |
Total wealth management distribution fees | | | 140,094 | | 121,081 |
Total underwriting and distribution fees | | $ | 154,795 | | 136,943 |
Shareholder service fees: | | | | | |
Total shareholder service fees | | $ | 22,540 |
| 21,571 |
| |
| |
| |
Total revenues | | $ | 295,351 |
| 263,733 |
In May 2017, FASB issued ASU 2017-09, “Compensation-Stock Compensation: Scope of Modification Accounting.” This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, “Compensation – Stock Compensation Topic.” This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We have concluded that the adoption of this ASU will have an immaterial impact on our consolidated financial statements and related disclosures.
10
11
4. | Investment Securities |
3.Investment Securities
Investment securities at September 30, 2017March 31, 2021 and December 31, 2016 are2020 were as follows:
| | | | | | | ||||||
| | March 31, | | December 31, | | |||||||
|
| 2021 |
| 2020 | | |||||||
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, |
| |||||||
|
| 2017 |
| 2016 |
| |||||||
|
|
| (in thousands) |
| ||||||||
| | | (in thousands) | | ||||||||
Available for sale securities: |
|
|
|
|
|
| | | | | | |
Certificates of deposit |
| $ | 13,004 |
| — |
| ||||||
Commercial paper |
|
| 29,882 |
| — |
| | $ | — | | 9,705 | |
Corporate bonds |
|
| 171,099 |
| — |
| | | 133,652 | | 157,832 | |
U.S. treasury bills |
|
| 19,937 |
| — |
| ||||||
Total available for sale securities | |
| 133,652 | | 167,537 | | ||||||
Trading debt securities: | | | | | | | ||||||
Commercial paper | | | 14,079 | | 11,785 | | ||||||
Corporate bonds | |
| 70,427 | | 76,734 | | ||||||
Mortgage-backed securities | |
| — | | 1 | | ||||||
Term loans | | | 48,077 | | 47,224 | | ||||||
Total trading securities | |
| 132,583 | | 135,744 | | ||||||
Equity securities: | | | | | | | ||||||
Common stock | |
| 42,323 | | 41,410 | | ||||||
Sponsored funds |
|
| 144,423 |
| 122,806 |
| | | 82,323 | | 81,019 | |
Sponsored privately offered funds |
|
| — |
| 570 |
| |
| 1,224 | | 1,165 | |
Total available for sale securities |
|
| 378,345 |
| 123,376 |
| ||||||
Trading securities: |
|
|
|
|
|
| ||||||
Certificates of deposit |
|
| 2,000 |
| — |
| ||||||
U.S. treasury bills |
|
| 4,964 |
| — |
| ||||||
Corporate bonds |
|
| 48,712 |
| — |
| ||||||
Mortgage-backed securities |
|
| 11 |
| 13 |
| ||||||
Common stock |
|
| 117 |
| 101 |
| ||||||
Consolidated sponsored funds |
|
| 191,932 |
| 145,710 |
| ||||||
Consolidated sponsored privately offered funds |
|
| 4,564 |
| — |
| ||||||
Sponsored funds |
|
| 13,456 |
| 29,541 |
| ||||||
Sponsored privately offered funds |
|
| 657 |
| — |
| ||||||
Total trading securities |
|
| 266,413 |
| 175,365 |
| ||||||
Total equity securities | | | 125,870 | | 123,594 | | ||||||
Equity method securities: |
|
|
|
|
|
| | | | | | |
Sponsored funds |
|
| 52,380 |
| 26,775 |
| |
| 59,954 | | 59,890 | |
Sponsored privately offered funds |
|
| — |
| 3,234 |
| ||||||
Total equity method securities |
|
| 52,380 |
| 30,009 |
| ||||||
Total securities |
| $ | 697,138 |
| 328,750 |
| | $ | 452,059 | | 486,765 | |
Certificates of deposit, commercial paper, corporateCorporate bonds and U.S. treasury bills accounted for as available for sale and held as of September 30, 2017March 31, 2021 mature as follows:
|
|
|
|
|
|
| Amortized |
|
|
|
| cost |
| Fair value |
|
| (in thousands) | ||
Within one year | $ | 75,335 |
| 75,349 |
After one year but within five years |
| 158,845 |
| 158,573 |
| $ | 234,180 |
| 233,922 |
| | | | |
| | Amortized | | |
| | cost |
| Fair value |
| | (in thousands) | ||
Within one year | $ | 74,726 | | 75,746 |
After one year but within five years | | 56,513 | | 57,906 |
| $ | 131,239 | | 133,652 |
Certificates of deposit, commercialCommercial paper, corporate bonds and mortgage-backed securitiesterm loans accounted for as trading and held as of September 30, 2017March 31, 2021 mature as follows:
|
|
|
|
|
|
|
|
| Fair value |
|
|
|
| (in thousands) |
Within one year |
|
| $ | 10,084 |
After one year but within five years |
|
|
| 40,603 |
After 10 years |
|
|
| 5,000 |
|
|
| $ | 55,687 |
| | | | |
| | | | Fair value |
| | | | (in thousands) |
Within one year | | | $ | 38,039 |
After one year but within five years | | | | 68,227 |
After five years but within 10 years | | | | 26,317 |
| | | $ | 132,583 |
11
The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at September 30, 2017:March 31, 2021:
| | | | | | | | | | |
|
| Amortized |
| Unrealized |
| Unrealized |
| |
| |
| | cost | | gains | | losses | | Fair value |
| |
|
| (in thousands) | | |||||||
Available for sale securities: | | | | | | | | | | |
Corporate bonds | | $ | 131,239 |
| 2,413 | | — |
| 133,652 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
| Unrealized |
| Unrealized |
|
|
| |
|
| cost |
| gains |
| losses |
| Fair value |
| |
|
| (in thousands) |
| |||||||
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
| $ | 13,000 |
| 4 |
| — |
| 13,004 |
|
Commercial paper |
|
| 29,855 |
| 27 |
| — |
| 29,882 |
|
Corporate bonds |
|
| 171,306 |
| 34 |
| (241) |
| 171,099 |
|
U.S. treasury bills |
|
| 20,020 |
| — |
| (83) |
| 19,937 |
|
Sponsored funds |
|
| 144,886 |
| 1,961 |
| (2,424) |
| 144,423 |
|
|
| $ | 379,067 |
| 2,026 |
| (2,748) |
| 378,345 |
|
|
|
|
|
|
|
|
|
|
|
|
12
The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2016:2020:
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
| Unrealized |
| Unrealized |
|
|
| |
|
| cost |
| gains |
| losses |
| Fair value |
| |
|
| (in thousands) |
| |||||||
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
Sponsored funds |
| $ | 129,427 |
| 828 |
| (7,449) |
| 122,806 |
|
Sponsored privately offered funds |
|
| 265 |
| 305 |
| — |
| 570 |
|
|
| $ | 129,692 |
| 1,133 |
| (7,449) |
| 123,376 |
|
| | | | | | | | | | |
|
| Amortized |
| Unrealized |
| Unrealized |
| |
| |
| | cost | | gains | | losses | | Fair value |
| |
| | (in thousands) | | |||||||
Available for sale securities: | | | | | | | | | | |
Commercial paper | | $ | 9,720 | | — | | (15) | | 9,705 | |
Corporate bonds | | | 154,270 |
| 3,562 | | — |
| 157,832 | |
| | $ | 163,990 |
| 3,562 |
| (15) |
| 167,537 | |
There are no available for sale investment securities with fair values below carrying values at March 31, 2021. A summary of available for sale investment securities with fair values below carrying values at September 30, 2017 and December 31, 20162020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or longer |
| Total | |||||||
|
|
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized |
September 30, 2017 |
| Fair value |
| losses |
| Fair value |
| losses |
| Fair value |
| losses | |
|
| (in thousands) | |||||||||||
Corporate bonds |
| $ | 141,950 |
| (241) |
| — |
| — |
| 141,950 |
| (241) |
U.S. treasury bills |
|
| 19,937 |
| (83) |
| — |
| — |
| 19,937 |
| (83) |
Sponsored funds |
|
| 12,663 |
| (153) |
| 44,593 |
| (2,271) |
| 57,256 |
| (2,424) |
|
| $ | 174,550 |
| (477) |
| 44,593 |
| (2,271) |
| 219,143 |
| (2,748) |
| | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or longer | | Total | |||||||
| | | | | Unrealized | | | | Unrealized | | | | Unrealized |
|
| Fair value |
| losses |
| Fair value |
| losses |
| Fair value |
| losses | |
| | (in thousands) | |||||||||||
Corporate bonds | | $ | 2,414 | | (15) | | — | | — | | 2,414 | | (15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 months |
| 12 months or longer |
| Total | |||||||
|
|
|
|
| Unrealized |
|
|
| Unrealized |
|
|
| Unrealized |
December 31, 2016 |
| Fair value |
| losses |
| Fair value |
| losses |
| Fair value |
| losses | |
|
| (in thousands) | |||||||||||
Sponsored funds |
| $ | 71,051 |
| (1,834) |
| 34,182 |
| (5,615) |
| 105,233 |
| (7,449) |
Based upon our assessment of theseThe Company’s investment portfolio included 0 available for sale securities the time frame the investments have been in aan unrealized loss position at March 31, 2021. The Company’s evaluation of available for sale securities in an unrealized loss position includes reviewing credit ratings, assessing the extent of losses, and our intent to holdconsidering the investmentimpact of market conditions for each individual security.
For equity securities until they have recovered, we determined that a write-down was not necessaryheld at September 30, 2017.the end of the period, net unrealized gains of $2.6 million and net unrealized losses of $35.9 million were recognized for the three months ended March 31, 2021 and March 31, 2020, respectively.
Sponsored Funds
The Company has classified its equity investments in the Ivy Funds, Ivy Nextshares, Ivy ProShares and IGI Funds as either trading, equity method investments (when the Company owns between 20% and 50% of the fund) or as available for sale investmentsequity 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 Ivy NextShares and Ivy ProShares 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. The Company has determined that the IGI Funds are VOEs as their legal structure and the powers of their equity investors prevent the IGI Funds from meeting characteristics of being a VIE.
12
Sponsored Privately Offered Funds
The Company holds interestsan interest in a privately offered fundsfund structured in the form of a limited liability companies.company. The members of these entitiesthis entity have the substantive ability to remove the Company as managing member or dissolve the entity upon a simple majority vote. These entities doThis entity does not meet the criteria of a VIE and areis considered to be VOEs.a VOE.
Consolidated Sponsored Funds
The following table details the balances related to consolidated sponsored funds at September 30, 2017, and at December 31, 2016, as well as the Company’s net interest in these funds:
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, | |
|
| 2017 |
|
| 2016 | |
|
| (in thousands) | ||||
Cash |
| $ | 4,877 |
|
| 6,885 |
Investments |
|
| 196,496 |
|
| 145,710 |
Other assets |
|
| 6,334 |
|
| 763 |
Other liabilities |
|
| (7,072) |
|
| (390) |
Redeemable noncontrolling interests |
|
| (30,636) |
|
| (10,653) |
Net interest in consolidated sponsored funds |
| $ | 169,999 |
|
| 142,315 |
During the nine months ended September 30, 2017, we consolidated certain of the Ivy Funds, Ivy NextShares and Ivy ProShares in which we provided initial seed capital at the time of the funds’ formation. When we no longer have a controlling financial interest in a sponsored fund, it is deconsolidated from our consolidated financial statements. During the first nine months of 2017, we closed three IGI Funds and deconsolidated the Ivy ProShares, as we no longer have a controlling interest in the funds. Accordingly, we deconsolidated $2.6 million from cash and cash equivalents, $28.6 million from investments and $31.2 million from redeemable noncontrolling interests. Four IGI Funds remain consolidated as of September 30, 2017. There was no impact to the consolidated statements of income as a result of the closures and deconsolidations, as the funds were carried at fair value.
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. |
13
| 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 evaluated differently 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 of municipal bonds is measured based on pricing models that take into account, among other factors, information received from market makersdue to the short time between purchase and broker-dealers, current trades, bid-wants lists, offerings, market movements, the callabilityexpected maturity of the bond, stateinvestments. Depending on the nature of issuancethe 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 benchmark yield curves.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 tradestransactions 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.
13
The following tables summarize our investment securities as of September 30, 2017March 31, 2021 and December 31, 20162020 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.
| | | | | | | | | | | | |
March 31, 2021 |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Held at Net Asset Value | | Total |
| |
| | (in thousands) |
| |||||||||
Cash equivalents: (1) | | | | | | | | | | | | |
Money market funds | | $ | 20,062 | | — | | — | | — | | 20,062 | |
Commercial paper | | | — | | 25,801 | | — | | — | | 25,801 | |
Total cash equivalents | | $ | 20,062 | | 25,801 | | — | | — | | 45,863 | |
Available for sale securities: | | | | | | | | | | | | |
Corporate bonds | | $ | — | | 133,652 | | — | | — | | 133,652 | |
Trading debt securities: | | | | | | | | | | | | |
Commercial paper | | | — | | 14,079 | | — | | — | | 14,079 | |
Corporate bonds | | | — | | 70,427 | | — | | | | 70,427 | |
Term loans | |
| — |
| 46,355 |
| 1,722 |
| — | | 48,077 | |
Equity securities: | | | | | | | | | | | | |
Common stock | | | 42,018 | | — | | 305 | | — | | 42,323 | |
Sponsored funds | | | 82,323 | | — | | — | | — | | 82,323 | |
Sponsored privately offered funds measured at net asset value (2) | | | — | | — | | — | | 1,224 | | 1,224 | |
Equity method securities: (3) | | | | | | | | | | | | |
Sponsored funds | | | 59,954 | | — | | — | | — | | 59,954 | |
Total investment securities | | $ | 184,295 | | 264,513 | | 2,027 | | 1,224 | | 452,059 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Not Held at Fair Value |
| Total |
| |
|
| (in thousands) |
| |||||||||
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
| $ | — |
| 13,004 |
| — |
| — |
| 13,004 |
|
Commercial paper |
|
| — |
| 29,882 |
| — |
| — |
| 29,882 |
|
Corporate bonds |
|
| — |
| 171,099 |
| — |
| — |
| 171,099 |
|
U.S. treasury bills |
|
| — |
| 19,937 |
| — |
| — |
| 19,937 |
|
Sponsored funds |
|
| 144,423 |
| — |
| — |
| — |
| 144,423 |
|
Trading securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| — |
| 2,000 |
| — |
| — |
| 2,000 |
|
U.S. treasury bills |
|
| — |
| 4,964 |
| — |
| — |
| 4,964 |
|
Corporate bonds |
|
| — |
| 48,712 |
| — |
|
|
| 48,712 |
|
Mortgage-backed securities |
|
| — |
| 11 |
| — |
| — |
| 11 |
|
Common stock |
|
| 117 |
| — |
| — |
| — |
| 117 |
|
Consolidated sponsored funds |
|
| 114,707 |
| 77,225 |
| — |
| — |
| 191,932 |
|
Consolidated sponsored privately offered funds measured at net asset value (1) |
|
| — |
| — |
| — |
| 4,564 |
| 4,564 |
|
Sponsored funds |
|
| 13,456 |
| — |
| — |
| — |
| 13,456 |
|
Sponsored privately offered funds measured at net asset value (1) |
|
| — |
| — |
| — |
| 657 |
| 657 |
|
Equity method securities: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored funds |
|
| 52,380 |
| — |
| — |
| — |
| 52,380 |
|
Total |
| $ | 325,083 |
| 366,834 |
| — |
| 5,221 |
| 697,138 |
|
14
| | | | | | | | | | | | |
December 31, 2020 |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Held at Net Asset Value | | Total |
| |
| | (in thousands) |
| |||||||||
Cash equivalents: (1) | | | | | | | | | | | | |
Money market funds | | $ | 82,085 | | — | | — | | — | | 82,085 | |
Commercial paper | | | — | | 47,421 | | — | | — | | 47,421 | |
Total cash equivalents | | $ | 82,085 | | 47,421 | | — | | — | | 129,506 | |
Available for sale securities: | | | | | | | | | | | | |
Commercial paper | | $ | — | | 9,705 | | — | | — | | 9,705 | |
Corporate bonds | | | — | | 157,832 | | — | | — | | 157,832 | |
Trading debt securities: | | | | | | | | | | | | |
Commercial paper | | | — | | 11,785 | | — | | — | | 11,785 | |
Corporate bonds | | | — | | 76,734 | | — | | | | 76,734 | |
Mortgage-backed securities |
| | — |
| 1 |
| — |
| — | | 1 | |
Term loans | |
| — |
| 46,030 |
| 1,194 |
| — | | 47,224 | |
Equity securities: | | | | | | | | | | | | |
Common stock | |
| 41,079 | | — | | 331 | | — | | 41,410 | |
Sponsored funds | |
| 81,019 | | — | | — | | — | | 81,019 | |
Sponsored privately offered funds measured at net asset value (2) | | | — | | — | | — | | 1,165 | | 1,165 | |
Equity method securities: (3) | | | | | | | | | | | | |
Sponsored funds | | | 59,890 | | — | | — | | — | | 59,890 | |
Total investment securities | | $ | 181,988 | | 302,087 | | 1,525 | | 1,165 | | 486,765 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Not Held at Fair Value |
| Total |
| |
|
| (in thousands) |
| |||||||||
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored funds |
| $ | 122,806 |
| — |
| — |
| — |
| 122,806 |
|
Sponsored privately offered funds measured at net asset value (1) |
|
| — |
| — |
| — |
| 570 |
| 570 |
|
Trading securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
| — |
| 13 |
| — |
| — |
| 13 |
|
Common stock |
|
| 101 |
| — |
| — |
| — |
| 101 |
|
Consolidated sponsored funds |
|
| 100,847 |
| 44,863 |
| — |
| — |
| 145,710 |
|
Sponsored funds |
|
| 29,541 |
| — |
| — |
| — |
| 29,541 |
|
Equity method securities: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Sponsored funds |
|
| 26,775 |
| — |
| — |
| — |
| 26,775 |
|
Sponsored privately offered funds measured at net asset value (1) |
|
| — |
| — |
| — |
| 3,234 |
| 3,234 |
|
Total |
| $ | 280,070 |
| 44,876 |
| — |
| 3,804 |
| 328,750 |
|
(1) |
|
(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) |
|
|
14
15
The following table summarizes the activity of investments categorized as Level 3 for the three months ended March 31, 2021:
4.Derivative Financial Instruments
| | | |
| | | |
|
| For the three months ended | |
| | March 31, 2021 | |
| | (in thousands) | |
Level 3 assets at December 31, 2020 | | $ | 1,525 |
Transfers into level 3 | | | 4,863 |
Transfers out of level 3 | | | (4,293) |
Gains in Investment and other income (loss) | |
| 33 |
Redemptions and paydowns | | | (101) |
Level 3 assets at March 31, 2021 | | $ | 2,027 |
| | | |
Change in unrealized losses for Level 3 assets held at March 31, 2021 | | $ | (26) |
In 2016, the
5. | Derivative Financial Instruments |
The Company implementedhas in place an economic hedge program that uses total return swap contracts to hedge market risk withrelated 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, theThe Company was party to seven9 total return swap contracts with a combined notional value of $208.5$205.1 million and three10 total return swap contracts with a combined notional value of $160.2$198.2 million as of September 30, 2017March 31, 2021 and December 31, 2016,2020, 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 investmentInvestment and other income (loss), net on in the Company’s consolidated statementstatements of income.
The counterparties of the total return swap contracts posted $1.4 million in cash collateral with the Company as of March 31, 2021, which is included in accounts payable in the Company’s consolidated balance sheet. The Company posted $9.2 million and $7.1$3.4 million in cash collateral with the counterparties of the total return swap contracts as of September 30, 2017 and December 31, 2016, respectively. The cash collateral 2020, whichis included in customers and other receivables onin 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, 2017March 31, 2021 and December 31, 2016:2020 and is calculated based on Level 2 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| December 31, |
|
|
|
|
| 2017 |
|
| 2016 |
|
| Balance sheet |
|
|
|
|
|
|
|
| location |
| Fair value |
| Fair value | ||
|
|
|
| (in thousands) | ||||
Total return swap contracts |
| Other current liabilities |
| $ | 811 |
|
| 475 |
| | | | | | | | |
| | | | | March 31, | | | December 31, |
| | Balance sheet | | | 2021 | | | 2020 |
|
| location |
| Fair value |
| Fair value | ||
| | |
| (in thousands) | ||||
Total return swap contracts |
| Prepaid expenses and other current assets | | $ | 529 | | | — |
Total return swap contracts | | Other current liabilities | | $ | 26 | | | 3,464 |
Net total return swap asset (liability) | | |
| $ | 503 | | | (3,464) |
The following is a summary of net losses(losses) gains recognized in income for the three and nine months ended September 30, 2017March 31, 2021 and September 30, 2016:March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Nine months ended | ||||
|
| Income statement |
| September 30, |
| September 30, | ||||
|
| location |
|
| 2017 | 2016 |
|
| 2017 | 2016 |
|
|
|
| (in thousands) |
| (in thousands) | ||||
Total return swap contracts |
| Investment and other (loss) |
| $ | (8,855) | (8,837) |
|
| (27,321) | (30,767) |
| | | | | | | |
| | | | Three months ended | |||
| | Income statement | | March 31, | |||
|
| location |
| | 2021 | | 2020 |
| | |
| (in thousands) | |||
Total return swap contracts |
| Investment and other income |
| $ | (4,080) | | 42,069 |
5.Goodwill and Identifiable Intangible Assets
16
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. The Company performs an annual goodwill impairment assessment during the second quarter of each year and identified 0 impairment during the most recent assessment. Goodwill and identifiable intangible assets (all considered indefinite lived) at September 30, 2017March 31, 2021 and December 31, 20162020 are as follows:
| | | | | | | ||||||
| | March 31, | | December 31, |
| |||||||
| | 2021 | | 2020 | | |||||||
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, |
| |||||||
|
| 2017 |
| 2016 |
| |||||||
|
| (in thousands) |
| |||||||||
| | (in thousands) | | |||||||||
Goodwill |
| $ | 106,970 |
| 106,970 |
|
| $ | 106,970 |
| 106,970 |
|
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Mutual fund management advisory contracts |
|
| 38,699 |
| 38,699 |
| |
| 38,699 |
| 38,699 | |
Mutual fund management subadvisory contract |
|
| 1,200 |
| 2,700 |
| ||||||
Other |
|
| 200 |
| 200 |
| |
| 200 |
| 200 | |
Total identifiable intangible assets |
|
| 40,099 |
| 41,599 |
| |
| 38,899 |
| 38,899 | |
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Total |
| $ | 147,069 |
| 148,569 |
| | $ | 145,869 |
| 145,869 | |
6.Indebtedness
7. | Indebtedness |
Debt is reported at its carrying amount inDuring the consolidated balance sheet. The fair valuefirst quarter of 2021, the Company’sCompany repaid our senior unsecured notes maturingthat matured January 13, 2018 is $95.8 million at September 30, 2017 compared to the carrying value net of
15
debt issuance costs of $95.0 million, which is listed under short-term notes payable in the consolidated balance sheet. The fair value of the Company’s senior unsecured notes maturing January 13, 2021 is $102.9 million at September 30, 2017 compared to the carrying value net of debt issuance costs of $94.8 million, which is listed under long-term debt in the consolidated balance sheet. Fair value is calculated based on Level 2 inputs.
On October 20, 2017, we entered into a three-year unsecured revolving credit facility (the “New Credit Facility”) with various lenders, which initially provides for borrowings of up to $100.0 million and may be expanded to $200.0 million. The New Credit Facility replaced the prior credit facility, which was set to terminate in June 2018. The covenants in the New Credit Facility are consistent with the covenants in the prior credit facility, including the required consolidated leverage ratio and the consolidated interest coverage ratio.
7.Income Tax Uncertainties
As of January 1, 2017 and September 30, 2017, the Company had unrecognized tax benefits, including penalties and interest, of $11.5 million ($8.4 million net of federal benefit) and $11.2 million ($7.9 million net of federal benefit), respectively, that, if recognized, would impact the Company’s effective tax rate. In the accompanying consolidated balance sheet,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.
The Company’s accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes. As of January 1, 2017,March 31, 2021 and December 31, 2020, the total amount of accrued interest and penalties related to uncertain tax positions recognized in theCompany’s consolidated balance sheet was $3.8sheets included unrecognized tax benefits, including penalties and interest, of $2.0 million ($3.11.7 million net of federal benefit). The total amount of penalties and interest, net of federal benefit, related to income tax uncertainties recognized in the statement of income for the nine month period ended September 30, 2017 was $0.3 million. The total amount of accrued penalties and interest related to uncertain tax positions at September 30, 2017 of $4.1$1.9 million ($3.21.7 million net of federal benefit) is included in, respectively, that if recognized, would impact the total unrecognizedCompany’s effective tax benefits described above.rate.
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 2015 and 2016Company does not expect the resolution or settlement of any open audits, federal or state, to materially impact the consolidated financial statements.
Our 2017-2020 federal income tax returns are open tax years that remain subject to potential future audit. StateOur state income tax returns for all years after 20122016 and, in certain states, income tax returns for 2012,2016, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.
During the current quarter, the Company closed an Internal Revenue Service audit of the 2014 tax year. This audit was settled with no significant adjustments. Additionally, the Company is currently under audit in various state and local jurisdictions in which it operates. It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period. The Company’s liability for unrecognized tax benefits, including penalties and interest, is not expected to decrease significantly upon settlement of these audits. Additionally, such settlements are not anticipated to have a significant impact on the results of operations.
8.Pension Plan and Postretirement Benefits Other Than Pension
Benefits payable under the Pension Plan are 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 will not accrue additional benefits for future service or compensation. Participants will retain benefits accumulated as of September 30, 2017 in accordance with the terms of the Pension Plan. During the first nine months of 2017, we contributed $10.0 million to the Pension Plan. In accordance with applicable accounting standards, the Pension Plan’s assets and liabilities were remeasured as of July 31, 2017, the date participants were notified of the freeze. This resulted in a reduction of the accrued pension liability of approximately $30.0 million.
We also sponsor an unfunded defined benefit postretirement medical plan that previously covered substantially all employees, as well as financial advisors licensed with Waddell & Reed, Inc. 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 such plan was established. During the third quarter of 2016,
16
17
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, |
| ||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||
|
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
| 2,726 |
| 3,050 |
| — |
| 185 |
|
| 8,178 |
| 9,149 |
| — |
| 555 |
|
Interest cost |
|
| 1,654 |
| 2,358 |
| 15 |
| 91 |
|
| 4,962 |
| 7,074 |
| 44 |
| 275 |
|
Expected return on plan assets |
|
| (2,559) |
| (3,482) |
| — |
| — |
|
| (7,677) |
| (10,445) |
| — |
| — |
|
Actuarial (gain) loss amortization |
|
| 1,265 |
| 1,554 |
| (45) |
| (38) |
|
| 3,795 |
| 4,661 |
| (135) |
| (115) |
|
Prior service cost (credit) amortization |
|
| 31 |
| 93 |
| (1) |
| 1 |
|
| 93 |
| 280 |
| (3) |
| 3 |
|
Transition obligation amortization |
|
| 1 |
| 1 |
| — |
| (8,475) |
|
| 3 |
| 3 |
| — |
| (8,475) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1) |
| $ | 3,118 |
| 3,574 |
| (31) |
| (8,236) |
|
| 9,354 |
| 10,722 |
| (94) |
| (7,757) |
|
9. |
|
|
9.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, |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||
|
| (in thousands, except per share amounts) |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| | | | | | | |||||||||||
| | Three months ended | | ||||||||||||||
| | March 31, | | ||||||||||||||
| | 2021 | | 2020 | | ||||||||||||
| | | | | | | |||||||||||
Net income attributable to Waddell & Reed Financial, Inc. |
| $ | 37,951 |
| 53,827 |
| $ | 94,314 |
| 124,490 |
|
| $ | 1,612 |
| 21,986 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| | | | | | | |||||||||||
Weighted average shares outstanding, basic and diluted |
|
| 83,476 |
| 82,834 |
|
| 83,719 |
| 82,629 |
| |
| 62,485 | | 67,675 | |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| | | | | | | |||||||||||
Earnings per share, basic and diluted |
| $ | 0.45 |
| 0.65 |
| $ | 1.13 |
| 1.51 |
| | $ | 0.03 | | 0.32 | |
Dividends
On July 26, 2017,During the quarter, the Board of Directors approveddeclared a dividend on our common stock in the amount of $0.46 per share to stockholders of record on October 11, 2017. The total dividend to be paid on November 1, 2017 is approximately $38.4 million and was included in other current liabilities as of September 30, 2017.
On October 18, 2017, the Board of Directors approved aquarterly dividend on our common stock in the amount of $0.25 per share payablewith an April 30, 2021 payment date and an April 9, 2021 record date. The total dividend to be paid on February 1, 2018 to stockholders of record on January 11, 2018.April 30, 2021 is $15.8 million.
17
Common Stock Repurchases
The Board of Directors has authorized the repurchase of our 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. The terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to repurchase shares of our common stock from employees to cover their tax withholdings in connection with the vesting of restricted shares.
There were 190,056353,909 shares and 28,5373,807,438 shares repurchased in the open market or privately during the three months ended September 30, 2017March 31, 2021 and 2016,2020, respectively, which includes 56353,909 shares and 28,537231,393 shares, respectively, repurchased from employees who tendered shares to cover their minimum income tax withholdings with respect to vesting of stock awards during these sametwo reporting periods. There were 904,410 shares and 2,230,034 shares repurchased in the open market or privately during the nine months ended September 30, 2017 and 2016, respectively, which includes 239,410 shares and 333,034 shares, respectively, repurchased from employees who tendered shares to cover their minimum income tax withholdings with respect to the vesting
18
Accumulated Other Comprehensive LossIncome
The following tables summarize accumulated other comprehensive lossincome (loss) activity for the three and nine months ended September 30, 2017March 31, 2021 and September 30, 2016.March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
|
|
|
|
| |
|
|
|
|
| valuation |
|
|
|
|
| |
|
|
|
|
| allowance for |
|
|
|
|
| |
|
|
|
|
| unrealized |
| Pension and |
| Total |
| |
|
| Unrealized |
| gains |
| postretirement |
| accumulated |
| ||
|
| gains (losses) |
| (losses) on |
| benefits |
| other |
| ||
|
| on investment |
| investment |
| unrealized |
| comprehensive |
| ||
Three months ended September 30, 2017 |
| securities |
| securities |
| gains (losses) |
| income (loss) |
| ||
|
| (in thousands) |
| ||||||||
Balance at June 30, 2017 |
| $ | (1,986) |
|
| (540) |
| (44,457) |
| (46,983) |
|
Other comprehensive income before reclassification |
|
| 1,968 |
|
| 800 |
| 14,958 |
| 17,726 |
|
Amount reclassified from accumulated other comprehensive income (loss) |
|
| (438) |
|
| (260) |
| 643 |
| (55) |
|
Net current period other comprehensive income |
|
| 1,530 |
|
| 540 |
| 15,601 |
| 17,671 |
|
Balance at September 30, 2017 |
| $ | (456) |
| $ | — |
| (28,856) |
| (29,312) |
|
| | | | | | | | |
| | | | | | |
| |
| | For the three months ended March 31, |
| |||||
| | | | | | Total |
| |
| | Unrealized | | Postretirement | | accumulated |
| |
| | gains (losses) on | | benefits | | other |
| |
| | AFS investment | | unrealized | | comprehensive |
| |
| | securities | | gains (losses) | | income (loss) |
| |
| | (in thousands) | | |||||
Balance at December 31, 2020 |
| $ | 2,696 |
| 201 |
| 2,897 |
|
Other comprehensive loss before reclassification |
|
| (700) |
| — |
| (700) | |
Amount reclassified from accumulated other comprehensive income |
|
| (161) |
| (11) |
| (172) | |
Net current period other comprehensive loss |
|
| (861) | | (11) |
| (872) | |
Balance at March 31, 2021 | | $ | 1,835 |
| 190 |
| 2,025 | |
| | | | | | | | |
Balance at December 31, 2019 |
| $ | 2,521 |
| 713 |
| 3,234 |
|
Other comprehensive loss before reclassification |
|
| (2,228) |
| — |
| (2,228) | |
Amount reclassified from accumulated other comprehensive income |
|
| (202) |
| (49) |
| (251) | |
Net current period other comprehensive loss |
|
| (2,430) | | (49) |
| (2,479) | |
Balance at March 31, 2020 | | $ | 91 |
| 664 |
| 755 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
|
|
|
|
| |
|
|
|
|
| valuation |
|
|
|
|
| |
|
|
|
|
| allowance for |
|
|
|
|
| |
|
|
|
|
| unrealized |
| Pension and |
| Total |
| |
|
| Unrealized |
| gains |
| postretirement |
| accumulated |
| ||
|
| gains (losses) |
| (losses) on |
| benefits |
| other |
| ||
|
| on investment |
| investment |
| unrealized |
| comprehensive |
| ||
Three months ended September 30, 2016 |
| securities |
| securities |
| gains (losses) |
| income (loss) |
| ||
|
| (in thousands) |
| ||||||||
Balance at June 30, 2016 |
| $ | (2,498) |
|
| (2,511) |
| (52,499) |
| (57,508) |
|
Other comprehensive income (loss) before reclassification |
|
| 1,660 |
|
| 1,022 |
| (1,222) |
| 1,460 |
|
Amount reclassified from accumulated other comprehensive income (loss) |
|
| (1,871) |
|
| (1,155) |
| 1,055 |
| (1,971) |
|
Net current period other comprehensive loss |
|
| (211) |
|
| (133) |
| (167) |
| (511) |
|
Balance at September 30, 2016 |
| $ | (2,709) |
| $ | (2,644) |
| (52,666) |
| (58,019) |
|
18
|
|
|
|
| Change in valuation |
|
|
|
|
| |
|
|
|
|
| allowance for |
|
|
|
|
| |
|
|
|
|
| unrealized |
| Pension and |
| Total |
| |
|
| Unrealized |
| gains |
| postretirement |
| accumulated |
| ||
|
| gains (losses) |
| (losses) on |
| benefits |
| other |
| ||
|
| on investment |
| investment |
| unrealized |
| comprehensive |
| ||
Nine months ended September 30, 2017 |
| securities |
| securities |
| gains (losses) |
| income (loss) |
| ||
|
| (in thousands) |
| ||||||||
Balance at December 31, 2016 |
| $ | (3,972) |
|
| (3,388) |
| (45,969) |
| (53,329) |
|
Other comprehensive income before reclassification |
|
| 4,113 |
|
| 3,743 |
| 14,958 |
| 22,814 |
|
Amount reclassified from accumulated other comprehensive income (loss) |
|
| (597) |
|
| (355) |
| 2,155 |
| 1,203 |
|
Net current period other comprehensive income |
|
| 3,516 |
|
| 3,388 |
| 17,113 |
| 24,017 |
|
Balance at September 30, 2017 |
| $ | (456) |
| $ | — |
| (28,856) |
| (29,312) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
|
|
|
|
| |
|
|
|
|
| valuation |
|
|
|
|
| |
|
|
|
|
| allowance for |
|
|
|
|
| |
|
|
|
|
| unrealized |
| Pension and |
| Total |
| |
|
| Unrealized |
| gains |
| postretirement |
| accumulated |
| ||
|
| (gains) losses |
| (losses) on |
| benefits |
| other |
| ||
|
| on investment |
| investment |
| unrealized |
| comprehensive |
| ||
Nine months ended September 30, 2016 |
| securities |
| securities |
| gains (losses) |
| income (loss) |
| ||
|
| (in thousands) |
| ||||||||
Balance at December 31, 2015 |
| $ | (3,729) |
|
| (3,240) |
| (54,536) |
| (61,505) |
|
Other comprehensive income (loss) before reclassification |
|
| 3,207 |
|
| 1,938 |
| (1,222) |
| 3,923 |
|
Amount reclassified from accumulated other comprehensive income (loss) |
|
| (2,187) |
|
| (1,342) |
| 3,092 |
| (437) |
|
Net current period other comprehensive income |
|
| 1,020 |
|
| 596 |
| 1,870 |
| 3,486 |
|
Balance at September 30, 2016 |
| $ | (2,709) |
| $ | (2,644) |
| (52,666) |
| (58,019) |
|
Reclassifications from accumulated other comprehensive lossincome (loss) and included in net income are summarized in the tables that follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended September 30, 2017 |
|
|
| ||||
|
|
|
|
| Tax |
|
|
|
|
|
|
|
|
|
| (expense) |
|
|
|
|
|
|
| Pre-tax |
| benefit |
| Net of tax |
| Statement of income line item |
| |
|
| (in thousands) |
|
|
| |||||
Reclassifications included in net income: |
|
|
|
|
|
|
|
|
|
|
Sponsored funds investment gains |
| $ | 698 |
| (260) |
| 438 |
| Investment and other income (loss) |
|
Valuation allowance |
|
| — |
| 260 |
| 260 |
| Provision for income taxes |
|
Amortization of pension and postretirement benefits |
|
| (952) |
| 309 |
| (643) |
| Underwriting and distribution expense and Compensation and related costs |
|
Total |
| $ | (254) |
| 309 |
| 55 |
|
|
|
| | | | | | | | | | |
| | | For the three months ended March 31, 2021 | | | | ||||
| | | | | Tax | | | | |
|
| | 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 | | $ | 213 |
| (52) |
| 161 |
| Investment and other income (loss) | |
Amortization of postretirement benefits | | | 15 |
| (4) |
| 11 |
| Compensation and benefits | |
Total | | $ | 228 |
| (56) |
| 172 | | | |
| | | | | | | | | | |
| | For the three months ended March 31, 2020 | | | | |||||
| | | | | Tax | | | | | |
| | 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 | | $ | 266 |
| (64) |
| 202 |
| Investment and other income (loss) | |
Amortization of postretirement benefits | | | 67 |
| (18) |
| 49 |
| Compensation and benefits | |
Total | | $ | 333 |
| (82) |
| 251 | | | |
19
19
10. | 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 five 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, Leases). Operating lease assets and liabilities are included in other non-current assets, other current liabilities, and other non-current liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, net, other current liabilities, and other non-current liabilities in our consolidated balance sheets.
Right-of-use (“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, Leases) 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, Leases) 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 we have elected not to separate.
During January 2020, we signed a fifteen-year lease, which was expected to commence during 2022, relating to the development of a new 260,000 square foot corporate headquarters building in downtown Kansas City, Missouri. The lease will be recognized in the Company’s consolidated financial statements during the period that includes the lease’s commencement date. The impact that our proposed merger with Macquarie will have on our new corporate headquarters lease, including eligibility for state and local tax savings, has not been determined.
The components of lease expense were as follows:
| | | | | | |
| | For the three months ended March 31, | ||||
| | 2021 | | 2020 | ||
| | (in thousands) | ||||
Operating Lease Cost | | $ | 1,478 |
| $ | 3,233 |
| | | | | | |
Finance Lease Cost: | | | | | | |
Amortization of ROU assets | | $ | 14 |
| $ | 55 |
Interest on lease liabilities | | | 1 |
| | 9 |
Total | | $ | 15 | | $ | 64 |
| | | | | | |
Supplemental cash flow information related to leases was as follows:
| | | | | | |
| | For the three months ended March 31, | ||||
| | 2021 | | 2020 | ||
| | (in thousands) | ||||
Cash paid for amounts included in the measurement of lease liabilities: |
| |
|
| |
|
Operating cash flows from operating leases | | $ | 1,792 |
| $ | 3,143 |
Operating cash flows from finance leases | |
| 1 |
|
| 9 |
Financing cash flows from finance leases | | | 19 | | | 58 |
| | | | | | |
ROU assets obtained in exchange for lease obligations: | | | | | | |
Operating leases | | | — | | | 7 |
Finance leases | | | — | | | — |
20
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended September 30, 2016 |
|
|
| |||||
|
|
|
|
| Tax |
|
|
|
|
|
|
|
|
|
| (expense) |
|
|
|
|
|
|
| Pre-tax |
| benefit |
| Net of tax |
| Statement of income line item |
| |
|
| (in thousands) |
|
|
| |||||
Reclassifications included in net income: |
|
|
|
|
|
|
|
|
|
|
Sponsored funds investment gains |
| $ | 2,980 |
| (1,109) |
| 1,871 |
| Investment and other income (loss) |
|
Valuation allowance |
|
| — |
| 1,155 |
| 1,155 |
| Provision for income taxes |
|
Amortization of pension and postretirement benefits |
|
| (1,611) |
| 556 |
| (1,055) |
| Underwriting and distribution expense and Compensation and related costs |
|
Total |
| $ | 1,369 |
| 602 |
| 1,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the nine months ended September 30, 2017 |
|
|
| ||||
|
|
|
|
| Tax |
|
|
|
|
|
|
|
|
|
| (expense) |
|
|
|
|
|
|
| Pre-tax |
| benefit |
| Net of tax |
| Statement of income line item |
| |
|
| (in thousands) |
|
|
| |||||
Reclassifications included in net income: |
|
|
|
|
|
|
|
|
|
|
Sponsored funds investment gains |
| $ | 952 |
| (355) |
| 597 |
| Investment and other income (loss) |
|
Valuation allowance |
|
| — |
| 355 |
| 355 |
| Provision for income taxes |
|
Amortization of pension and postretirement benefits |
|
| (3,359) |
| 1,204 |
| (2,155) |
| Underwriting and distribution expense and Compensation and related costs |
|
Total |
| $ | (2,407) |
| 1,204 |
| (1,203) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the nine months ended September 30, 2016 |
|
|
| |||||
|
|
|
|
| Tax |
|
|
|
|
|
|
|
|
|
| (expense) |
|
|
|
|
|
|
| Pre-tax |
| benefit |
| Net of tax |
| Statement of income line item |
| |
|
| (in thousands) |
|
|
| |||||
Reclassifications included in net income: |
|
|
|
|
|
|
|
|
|
|
Sponsored funds investment gains |
| $ | 3,483 |
| (1,296) |
| 2,187 |
| Investment and other income (loss) |
|
Valuation allowance |
|
| — |
| 1,342 |
| 1,342 |
| Provision for income taxes |
|
Amortization of pension and postretirement benefits |
|
| (4,833) |
| 1,741 |
| (3,092) |
| Underwriting and distribution expense and Compensation and related costs |
|
Total |
| $ | (1,350) |
| 1,787 |
| 437 |
|
|
|
10.Contingencies
Supplemental balance sheet information related to leases was as follows:
| | | | | | |
| | March 31, 2021 | | December 31, 2020 | ||
| | (in thousands, except lease term and discount rate) | ||||
Operating Leases: |
| |
|
| |
|
Operating lease ROU assets (Other non-current assets) | | $ | 12,124 |
| $ | 13,461 |
| | | | | | |
Other current liabilities | | $ | 5,394 | | $ | 6,247 |
Other non-current liabilities | | | 7,765 | | | 8,812 |
Total operating lease liabilities | | $ | 13,159 | | $ | 15,059 |
| | | | | | |
| | | | | | |
Finance Leases: | | | | | | |
Property and equipment, gross | | $ | 181 | | $ | 333 |
Accumulated depreciation | | | (144) | | | (277) |
Property and equipment, net | | $ | 37 | | $ | 56 |
| | | | | | |
Other current liabilities | | $ | 25 | | $ | 41 |
Other non-current liabilities | | | 8 | | | 11 |
Total finance lease liabilities | | $ | 33 | | $ | 52 |
| | | | | | |
| | | | | | |
Weighted average remaining lease term: | | | | | | |
Operating leases | | | 4 years | | | 4 years |
Finance leases | | | 1 year | | | 1 year |
| | | | | | |
Weighted average discount rate: | | | | | | |
Operating leases | | | 4.11% | | | 4.08% |
Finance leases | | | 6.00% | | | 6.00% |
Maturities of lease liabilities are as follows:
| | | | | | |
| | Operating | | | Finance | |
| | Leases | | | Leases | |
| | (in thousands) | ||||
Year ended December 31, | | | | | | |
2021 (excluding the three months ended March 31, 2021) |
| $ | 4,834 |
| | 22 |
2022 | | | 2,424 | | | 12 |
2023 | |
| 2,090 |
| | — |
2024 | |
| 2,090 |
| | — |
Thereafter | |
| 2,613 |
| | — |
Total lease payments | |
| 14,051 |
| | 34 |
Less imputed interest | | | (892) | | | (1) |
Total | | $ | 13,159 |
| | 33 |
11. | 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”Contingencies.” These amounts are not reduced by amounts that may be recovered under insurance or claims against
21
third parties, but undiscounted receivables from insurers or other third parties may be accrued separately. The Company regularly revises such accruals in light of new information. The Company discloses the nature of the contingency when management believes it is reasonably possible the outcome may be significant to the Company’s consolidated financial statements and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items that management believes should be disclosed. Management’s judgment is required related to contingent liabilities because the outcomes are difficult to predict.
20
In an actionLitigation Relating to the Merger — NaN complaints were filed on April 18, 2016 in the District Court of Johnson County, Kansas, Hieu Phan and Audrey Ohman v. Ivy Investment Management Company, et. al. (Case No. I6CV02338 Div. 4), two individuals who allegedly purchased shares of two affiliated registered investment companies (mutual funds) for which two of the Company’s subsidiaries provide investment management services filed a putative derivative action on behalf of the two nominal defendant affiliated mutual fund trusts alleging breach of fiduciary duty and breach of contract claims relating to investments held in the affiliated mutual funds by the Company's registered investment adviser subsidiaries, the two nominal defendant trusts, the current trustees and three retired trustees of the nominal defendant trusts, and an officerpurported stockholders of the Company (who plaintiffs subsequently voluntarily dismissed)challenging the merger (the “Complaints”). On behalf of the nominal defendant trusts, plaintiffs seek monetary damages and demand a jury trial. On April 6, 2017, the court granted one of the nominal defendant trust’s motion to dismiss the claims of plaintiff Ohman for lack of standing, without leave to amend. On May 2, 2017, the remaining nominal defendant filed a motion to stay the litigation pending the investigation and recommendation of special litigation committees of each of the nominal defendant trusts, a special committee of independent trustees established by the board of each trust and empowered to,The Complaints generally allege, among other things, investigatethat the claims allegedCompany and the Board of Directors authorized the filing of a materially incomplete and misleading proxy statement with the SEC. While the Company believes that the disclosures set forth in the complaint; examine,proxy statement comply fully with applicable law, and make recommendationsvigorously denies any wrongdoing or liability with respect to the boardallegations and claims asserted, or which could have been asserted, in the Complaints, the Company voluntarily supplemented the proxy statement on March 15, 2021 with additional disclosures (the “Supplemental Disclosures”). The 7 plaintiffs who filed suit have advised the Company that they intend to dismiss their claims in light of trustees regarding, the meritsSupplemental Disclosures, subject to plaintiffs’ right to seek a mootness fee payment and the Company’s right to oppose such a request. The Company believes that the Complaints are without merit, but is unable to predict the outcome of such alleged claims; and to make a recommendation to the court concerning the properultimate resolution of the litigation. On June 13, 2017,lawsuits or the court granted a 60-day stay until August 12, 2017. Formal discovery has commenced. Trial is currently set for July 16, 2018 through August 10, 2018, although there can be no assurance that the trial will take place on those dates. The Company denies that any of its subsidiaries breached their fiduciary duties to, or committed a breach of the investment management agreement with, the nominal defendant trusts.
In the opinion of management, the ultimate resolution and outcome of this matter is uncertain. Given the preliminary nature of the proceedings and the Company's dispute over the merits of the claims, the Company is unable to estimate a range of reasonably possiblepotential loss, if any, that such matter may represent. While the ultimate resolution of this matter is uncertain, an adverse determination againstresult.
12. | Subsequent Events |
Investment Portfolio – During April 2021, the Company could haveliquidated a material adverse impact onportion of our business, financial condition and resultsinvestment portfolio. Net gains of operations.
In an action filed on June 23, 2017 and amended on June 26, 2017 in$2.4 million were recognized from the U.S. District Court for the Districtsale of Kansas, Schapker v. Waddell & Reed Financial, Inc., et al, (Case No. 17-2365 D. Kan.), Stacy Schapker,$211.4 million of securities during April 2021 as a participant in the Company’s 401(k) and Thrift Plan, as amended and restated (the “401(k) Plan”), filed a lawsuit against the Company, the Company’s Board of Directors, the Administrative Committeeresult of the 401(k) Plan, and unnamed Jane and John Doe Defendants 1-25. The amended complaint, which is filed on behalf of the 401(k) Plan and a proposed class of 401(k) Plan participants, purports to assert claims for breach of fiduciary duty and prohibited transactions under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) based on the 401(k) Plan’s offering of investments managed by the Company or its affiliates from June 23, 2011 to present. The amended complaint seeks, among other things, an order compelling the disgorgement of fees paid to the Company and its affiliates by the 401(k) Plan and the restoration of losses to the 401(k) Plan arising from defendants alleged ERISA violations, attorneys’ fees and other injunctive and equitable relief. The Company believes the allegations are without merit and intends to vigorously defend this matter. On October 6, 2017, the defendants filed a motion to dismiss the amended complaint.liquidation.
In the opinion of management, the ultimate resolution and outcome of this matter is uncertain. Given the preliminary nature of the proceedings and the Company’s dispute over the merits of the claims, the Company is unable to estimate a range of reasonably possible loss, if any, that such matter may represent.
21
22
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and notes to the unaudited consolidated financial statements included elsewhere in this report. Unless otherwise indicated or the context otherwise requires all references to the “Company,” “we,” “our” or “is” refer to Waddell & Reed Financial, Inc. and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to revenues and earnings, the amount and composition of assets under management,AUM and AUA, distribution sources, expense levels, redemption rates, stock repurchasesour proposed merger with Macquarie Management Holdings, Inc. (“Macquarie”), and the financial markets and other conditions. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to thosethe impact of the COVID-19 pandemic and related economic conditions, as well as the factors discussed below. If one or more events related to these or other risks, contingencies or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from those forecasted or expected. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016,2020, which include, without limitation:
| The loss of existing distribution |
| A reduction in |
| The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body; |
| Changes in our business model, operations and procedures, including our methods of distributing our proprietary products, as a result of |
| The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes; |
| A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds; |
| Our inability to reduce expenses rapidly enough to align with declines in our revenues due to various factors, including fee pressure, the level of our |
| Non-compliance with applicable laws or regulations and changes in current legal, regulatory, accounting, tax or compliance requirements or governmental policies; |
| Our inability to attract and retain senior executive management and other key personnel to conduct our |
| A failure in, or breach of, our operational or security systems or our technology infrastructure, or those of third parties on which we rely; and |
| Our inability to implement new information technology and systems, or our inability to complete such implementation in a timely or cost effective manner. |
23
22
The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission (the “SEC”), including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10-K for the year ended December 31, 20162020 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2017.2021. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.
Overview
Overview
We are one of the oldest mutual fund and asset management firms in the country, with expertise in a broad range of investment styles and across a variety of market environments. Our earnings and cash flows are heavily dependent on financial market conditions and client activity. Significant increases or decreases in the various securities markets can have a material impact on our results of operations, financial condition and cash flows.
We derive our revenues from providing investment management and advisory services, investment product underwriting and distribution, and shareholder services administration to the Funds, the IGI Funds, and institutional and separately managed accounts. Investment management and/or advisory fees are based on the amount of average assets under management 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 products and related advisory services, Rule 12b-1 asset-based service and distribution fees, 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 assets under management or number of client accounts.Our major expenses are for commissions, employee compensation, field services, dealer services and information technology.
One of our distinctive qualities is that we distribute our investment products through a balanced distribution network. Our retail products are distributed through our retail unaffiliated distribution channel, or through our retail broker-dealerwealth management channel and independent Waddell and Reed, Inc. (“W&R”) financial advisors.by Advisors. Through our institutional channel, we distribute a varietyan array of investment styles forto a variety of clients.
Through our retail unaffiliated distribution channel, we distribute mutual funds through broker-dealers, retirement platforms and registered investment advisers and various retirement platforms through a team of external and internal wholesalers, as well as a team dedicated to home office relationship coverage.wholesalers.
In our retail broker-dealerwealth management channel, 1,481 independentwe had 916 Advisors and 382 licensed advisor associates as of March 31, 2021, for a total of 1,298 licensed individuals associated with W&R financial advisorswho operate out of offices located throughout the United States and provide financial advice for retirement, education funding, estate planning and other financial needs for clients. A distinguishing aspect of this channel is its low redemption rate, which can be attributed to the personal and customized nature in which W&R advisors provide service to clients by focusing on meeting their long term financial objectives; this, in turn, leads to a more stable asset base for the channel.
Through our institutional channel, weWe manage assets in a variety of investment styles for a varietyin our institutional channel. Most of types of institutions, as well as the IGI Funds. The largest percentage of our clients in this channel are other asset managers that hire us to act as a subadviser for their branded products; they are typically domestic orand foreign distributors of investment products who lack scale or the track record to manage internally, or choose to market multi-manager styles. Our diverse client list also includes pension funds, Taft Hartley plans and endowments.
Proposed Acquisition of Waddell & Reed Financial, Inc. by Macquarie
23
For information related to the proposed merger with Macquarie, please see Part I – Item 1 – “Financial Statements (unaudited), Note 1 – Description of Business and Accounting Policies”, of this Quarterly Report on Form 10-Q.
Please see the Risks Related to the Proposed Merger included in Part 1, Item 1A—“Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of certain risks related to our proposed merger with Macquarie. Please see the Company’s definitive proxy statement filed with the SEC on February 17, 2021, for additional information on the merger.
Impact of COVID-19
We transitioned most of our workforce to a work from home environment early in March 2020 as part of our response to the COVID-19 pandemic. By late March 2020, 98% of our employees were working remotely, with negligible downtime. The remote work environment has largely continued through the end of 2020 and into 2021. Our steady and proactive response has allowed our asset management and wealth management businesses to maintain full continuity of service and the access that our clients need and expect. With a successful transition to a remote working environment, we plan to closely monitor developments and reintroduce employees to the workplace only when it is safe to do so. The transition of employees to a work from home environment did not result in any material incremental expenses during 2020 or in the first quarter of 2021. For additional discussion regarding steps we have taken to facilitate safety, security and full continuity of service, please see Part I – Item 1 – “Financial Statements (unaudited), Note 1 – Description of Business and Accounting Policies”, of this Quarterly Report on Form 10-Q.
24
For additional discussion regarding the risks that can impact our business, results of operations and financial condition due to COVID-19 and the related economic conditions, please see Part 1, Item 1A—“Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.
Company Developments
Operating Results
|
|
|
|
|
|
|
|
|
|
| Asset Management Highlights |
| Sales improved compared to the |
o | AUM ended the quarter at $76.0 billion, an increase of |
o | Investment performance improved from the prior quarter in trailing one-, three- and |
| Wealth Management Highlights |
| AUA ended the |
o | Net new AUA continue to improve, and net new Advisory AUA were positive for the 9th consecutive quarter. |
o | $507 thousand average trailing 12-month productivity per Advisor for the first quarter of |
● | Balance sheet remains strong with $645.9 million in |
|
|
|
|
______________
(1) | Adjusted net income, adjusted net income per diluted share, adjusted operating expenses and adjusted operating margin are non-GAAP financial measures. See Non-GAAP Financial Measures and Reconciliation of GAAP to |
25
24
Assets Under Management
During the thirdfirst quarter of 2017, assets under management2021, AUM increased 0.6%2% to $80.9$76.0 billion from $80.4$74.8 billion at June 30, 2017December 31, 2020 due to market appreciation of $3.3$2.4 billion, partially offset bynet outflows of $2.8$1.2 billion.Sales of $3.0 billion during the current quarter increased 17% compared to the first quarter of 2020. Redemptions decreased 14% compared to the first quarter of 2020.
Change in Assets Under Management (1)
| | | | | | | | | | |
| | Three months ended March 31, 2021 |
| |||||||
| | | | | | Wealth | | |
| |
|
| Unaffiliated(2) | | Institutional | | Management | | Total | | |
|
| (in millions) | | |||||||
Beginning Assets |
| $ | 27,977 |
| 3,570 |
| 43,275 |
| 74,822 | |
| | | | | | | | | | |
Sales (3) | |
| 1,960 |
| 303 |
| 688 |
| 2,951 | |
Redemptions | |
| (2,328) |
| (222) |
| (1,588) |
| (4,138) | |
Net Exchanges | |
| 290 |
| — |
| (290) |
| — | |
Net Flows | |
| (78) |
| 81 |
| (1,190) |
| (1,187) | |
| | | | | | | | | | |
Market Action | |
| 985 |
| 115 |
| 1,294 |
| 2,394 | |
Ending Assets |
| $ | 28,884 |
| 3,766 |
| 43,379 |
| 76,029 | |
| | | | | | | | | | |
| | Three months ended March 31, 2020 |
| |||||||
| | | | | | Wealth | | |
| |
|
| Unaffiliated(2) | | Institutional | | Management | | Total | | |
|
| (in millions) | | |||||||
Beginning Assets |
| $ | 26,264 |
| 3,096 |
| 40,598 |
| 69,958 | |
| | | | | | | | | | |
Sales (3) | |
| 1,581 | | 43 |
| 895 |
| 2,519 | |
Redemptions | |
| (3,019) |
| (179) |
| (1,588) |
| (4,786) | |
Net Exchanges | |
| 326 |
| — |
| (326) |
| — | |
Net Flows | |
| (1,112) |
| (136) |
| (1,019) |
| (2,267) | |
| | | | | | | | | | |
Market Action | |
| (4,908) |
| (533) |
| (6,240) |
| (11,681) | |
Ending Assets |
| $ | 20,244 |
| 2,427 |
| 33,339 |
| 56,010 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter 2017 |
| |||||||
|
| Retail |
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| |
|
| (in millions) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
Beginning Assets |
| $ | 30,307 |
| 43,084 |
| 7,036 |
| 80,427 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales (2) |
|
| 1,790 |
| 1,024 |
| 68 |
| 2,882 |
|
Redemptions |
|
| (2,486) |
| (2,049) |
| (1,139) |
| (5,674) |
|
Net Exchanges |
|
| 213 |
| (213) |
| — |
| — |
|
Net Flows |
|
| (483) |
| (1,238) |
| (1,071) |
| (2,792) |
|
|
|
|
|
|
|
|
|
|
|
|
Market Action |
|
| 1,238 |
| 1,626 |
| 400 |
| 3,264 |
|
Ending Assets |
| $ | 31,062 |
| 43,472 |
| 6,365 |
| 80,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter 2016 |
| |||||||
|
| Retail |
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| |
|
| (in millions) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
Beginning Assets |
| $ | 35,197 |
| 42,261 |
| 8,993 |
| 86,451 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales (2) |
|
| 1,320 |
| 1,024 |
| 180 |
| 2,524 |
|
Redemptions |
|
| (4,824) |
| (1,542) |
| (1,051) |
| (7,417) |
|
Net Exchanges |
|
| 161 |
| (194) |
| 33 |
| — |
|
Net Flows |
|
| (3,343) |
| (712) |
| (838) |
| (4,893) |
|
|
|
|
|
|
|
|
|
|
|
|
Market Action |
|
| 1,436 |
| 1,621 |
| 440 |
| 3,497 |
|
Ending Assets |
| $ | 33,290 |
| 43,170 |
| 8,595 |
| 85,055 |
|
25
Over the nine months ended September 30, 2017, assets under management remained relatively stable, moving from $80.5 billion at December 31, 2016 to $80.9 billion at September 30, 2017 as outflows of $8.6 billion were offset by market appreciation of $9.0 billion.
|
|
|
|
|
|
|
|
|
|
|
|
| Year to Date 2017 |
| |||||||
|
| Retail |
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker |
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| |
|
| (in millions) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
Beginning Assets |
| $ | 30,295 |
| 42,322 |
| 7,904 |
| 80,521 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales (2) |
|
| 5,667 |
| 3,143 |
| 290 |
| 9,100 |
|
Redemptions |
|
| (9,078) |
| (5,727) |
| (2,925) |
| (17,730) |
|
Net Exchanges |
|
| 684 |
| (690) |
| 6 |
| — |
|
Net Flows |
|
| (2,727) |
| (3,274) |
| (2,629) |
| (8,630) |
|
|
|
|
|
|
|
|
|
|
|
|
Market Action |
|
| 3,494 |
| 4,424 |
| 1,090 |
| 9,008 |
|
Ending Assets |
| $ | 31,062 |
| 43,472 |
| 6,365 |
| 80,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year to Date 2016 |
| |||||||
|
| Retail |
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker |
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| |
|
| (in millions) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
Beginning Assets |
| $ | 45,641 |
| 43,344 |
| 15,414 |
| 104,399 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales (2) |
|
| 4,990 |
| 3,186 |
| 823 |
| 8,999 |
|
Redemptions |
|
| (18,047) |
| (4,068) |
| (7,818) |
| (29,933) |
|
Net Exchanges |
|
| 446 |
| (529) |
| 83 |
| — |
|
Net Flows |
|
| (12,611) |
| (1,411) |
| (6,912) |
| (20,934) |
|
|
|
|
|
|
|
|
|
|
|
|
Market Action |
|
| 260 |
| 1,237 |
| 93 |
| 1,590 |
|
Ending Assets |
| $ | 33,290 |
| 43,170 |
| 8,595 |
| 85,055 |
|
(1) |
| Includes all activity of the |
(2) |
|
(3) |
|
26
Average Assets Under Management
Average assets under management,AUM, which are generally more indicative of trends in revenue for providingfrom investment management services than the change in ending assets under management,AUM, are presented below.
| | | | | | | | | | | |
| | Three months ended March 31, 2021 |
| ||||||||
| | | | | | Wealth | | | |
| |
|
| Unaffiliated | | Institutional | | Management | | Total | | ||
|
| (in millions) | | ||||||||
Asset Class: | | | | | | | | | | | |
Equity |
| $ | 23,477 |
| 3,600 |
| 33,558 |
| $ | 60,635 | |
Fixed Income | |
| 4,588 |
| — |
| 8,915 | |
| 13,503 | |
Money Market | |
| 148 |
| — |
| 1,779 | |
| 1,927 | |
Total |
| $ | 28,213 |
| 3,600 |
| 44,252 |
| $ | 76,065 | |
| | | | | | | | | | | |
| | Three months ended March 31, 2020 | | ||||||||
| | | | | | Wealth | | | | | |
| | Unaffiliated | | Institutional | | Management | | Total | | ||
| | (in millions) | | ||||||||
Asset Class: | | | | | | | | | | | |
Equity |
| $ | 19,181 |
| 2,897 |
| 28,612 |
| $ | 50,690 | |
Fixed Income | |
| 4,874 |
| — |
| 8,894 | |
| 13,768 | |
Money Market | |
| 98 |
| — |
| 1,568 | |
| 1,666 | |
Total |
| $ | 24,153 |
| 2,897 |
| 39,074 |
| $ | 66,124 | |
Performance
We have seen an increase from the prior quarter in trailing three- and five-year performance, while trailing one-year performance decreased slightly as measured by the percentage of funds ranked in the top half of their respective Morningstar universes. As measured by percentage of assets, one-, three- and five-year performance improved compared to the prior quarter.Our commitment to institutional caliber processes means that while we are mindful of short-term market dynamics, we remain focused on the long term and on maintaining discipline and consistency across multiple market cycles.
The following table is a summary of Morningstar rankings and ratings as of March 31, 2021:
| | | | | | | |
MorningStar Fund Rankings (1) |
| 1 Year |
| 3 Years |
| 5 Years |
|
Funds ranked in top half |
| 48 | % | 57 | % | 46 | % |
Assets ranked in top half |
| 54 | % | 65 | % | 62 | % |
| | | | | | | |
MorningStar Ratings (1) |
| Overall |
| 3 Years |
| 5 Years |
|
Funds with 4/5 stars |
| 35 | % | 37 | % | 35 | % |
Assets with 4/5 stars |
| 56 | % | 51 | % | 53 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter 2017 |
| ||||||||
|
| Retail |
|
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| ||
|
| (in millions) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class: |
|
|
|
|
|
|
|
|
|
|
|
Equity |
| $ | 23,477 |
| 31,268 |
| 6,385 |
| $ | 61,130 |
|
Fixed Income |
|
| 6,659 |
| 10,432 |
| 331 |
|
| 17,422 |
|
Money Market |
|
| 102 |
| 1,834 |
| — |
|
| 1,936 |
|
Total |
| $ | 30,238 |
| 43,534 |
| 6,716 |
| $ | 80,488 |
|
(1) Based on class I shares, which reflects the largest concentration of sales and assets.
27
Assets Under Administration
AUA includes both client assets invested in the Funds and in other companies’ products that are distributed through W&R and held in direct to fund accounts, brokerage accounts or within our fee-based advisory programs. AUA as of March 31, 2021 increased 37% as compared to March 31, 2020 primarily due to market appreciation and growth in net new Advisory AUA, partially offset by outflows in Non-advisory AUA. Average AUA increased 18% for the three months ended March 31, 2021, compared to the same period in 2020. This quarter marked the 9th straight quarter of positive Advisory AUA net flows. We continue to see increased average productivity per Advisor due to our efforts to transform W&R into a fully competitive and profitable aspect of our business model, with a focus on higher producing Advisors.
| | | | | | | | |
| | | | | | | | |
| | | March 31, 2021 | | | | March 31, 2020 | |
| | (in millions) | | |||||
Ending AUA | | | | | | | | |
Advisory AUA | | $ | 34,418 | | | | 23,192 | |
Non-advisory AUA | |
| 36,431 | | | | 28,644 | |
Total ending AUA | | $ | 70,849 | | | | 51,836 | |
| | | | | | | | |
| | | | | | | | |
| | Three months ended March 31, | | |||||
| | | 2021 | | | | 2020 | |
| | (in millions) | | |||||
Average AUA (1) | | | | | | | | |
Advisory AUA (1) | | $ | 33,489 | | | | 26,680 | |
Non-advisory AUA (1) | |
| 36,555 | | | | 32,488 | |
Total average AUA (1) | | $ | 70,044 | | | | 59,168 | |
| | | | | | | | |
| | | | | | | | |
Net new Advisory AUA (2) | | $ | 501 | | | | 442 | |
Net new Non-advisory AUA (2), (3) | |
| (619) | | | | (658) | |
Total net new AUA (2), (3) | | $ | (118) | | | | (216) | |
| | | | | | | | |
| | | | | | | | |
Annualized Advisory AUA growth (4) | | | 6.1 | % | | | 6.6 | % |
Annualized AUA growth (4) | | | (0.7) | % | | | (1.4) | % |
| | | | | | | | |
| | | | | | | | |
Advisors and advisor associates | |
| 1,298 | | | | 1,316 | |
Average trailing 12-month production per Advisor (5) (in thousands) | | $ | 507 | | | | 462 | |
| | | | | | | | |
(1) | Average AUA are calculated as the average of the beginning of month AUA during each reporting period. |
(2) | Net new AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest. |
(3) | Excludes activity related to products held outside of our wealth management platform. These assets represent less than 10% of total AUA. |
(4) | Annualized growth is calculated as annualized total net new AUA divided by beginning AUA. |
(5) | Production per Advisor is calculated as trailing 12-month Total Underwriting and distribution fees less “other” underwriting and distribution fees divided by the average number of Advisors. “Other” underwriting and distribution fees predominantly include fees paid by Advisors for programs and services. |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter 2016 |
| ||||||||
|
| Retail |
|
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| ||
|
| (in millions) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class: |
|
|
|
|
|
|
|
|
|
|
|
Equity |
| $ | 26,732 |
| 31,408 |
| 8,521 |
| $ | 66,661 |
|
Fixed Income |
|
| 7,424 |
| 10,057 |
| 492 |
|
| 17,973 |
|
Money Market |
|
| 149 |
| 1,991 |
| — |
|
| 2,140 |
|
Total |
| $ | 34,305 |
| 43,456 |
| 9,013 |
| $ | 86,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year to Date 2017 |
| ||||||||
|
| Retail |
|
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
| Total |
| ||
|
| (in millions) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class: |
|
|
|
|
|
|
|
|
|
|
|
Equity |
| $ | 23,256 |
| 31,311 |
| 6,924 |
| $ | 61,491 |
|
Fixed Income |
|
| 6,801 |
| 10,201 |
| 365 |
|
| 17,367 |
|
Money Market |
|
| 107 |
| 1,887 |
| — |
|
| 1,994 |
|
Total |
| $ | 30,164 |
| 43,399 |
| 7,289 |
| $ | 80,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year to Date 2016 |
| ||||||||
|
| Retail |
|
|
|
|
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
|
|
|
|
| |
|
| Distribution |
| Dealer |
| Institutional |
|
| Total | ||
|
| (in millions) |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Asset Class: |
|
|
|
|
|
|
|
|
|
|
|
Equity |
| $ | 29,464 |
| 30,683 |
| 10,828 |
| $ | 70,975 |
|
Fixed Income |
|
| 7,362 |
| 9,774 |
| 801 |
|
| 17,937 |
|
Money Market |
|
| 168 |
| 2,010 |
| — |
|
| 2,178 |
|
Total |
| $ | 36,994 |
| 42,467 |
| 11,629 |
| $ | 91,090 |
|
Results of Operations — Three and Nine Months Ended September 30, 2017March 31, 2021 as Compared with Three and Nine Months Ended September 30, 2016March 31, 2020
Total Revenues
Total revenues decreased 5%increased 12% to $289.4$295.4 million for the three months ended September 30, 2017March 31, 2021 compared to the three months ended September 30, 2016 primarilyMarch 31, 2020 due to a decreaseincreases in average assets underinvestment management of 7% driven by net outflows. For the nine months ended September 30, 2017, total revenues decreased $83.4 million, or 9%, compared to the same period in the prior year due to a decrease in average assets under management of 11% driven primarily by net outflowsfees, underwriting and to a lesser extent the share class conversion that occurred in July 2016.distribution fees and shareholder service fees.
| | | | | | | | | ||||||||
| | Three months ended | | | | |||||||||||
| | March 31, | | | | |||||||||||
|
| 2021 |
| 2020 |
| Variance |
| |||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Three months ended |
|
|
| |||||||||||
|
| September 30, |
|
|
| |||||||||||
|
| 2017 |
| 2016 |
| Variance |
| |||||||||
|
| (in thousands, except percentage data) |
| |||||||||||||
| | (in thousands, except percentage data) | | |||||||||||||
Investment management fees |
| $ | 134,149 |
| 138,745 |
| (3) | % | | $ | 118,016 |
| 105,219 |
| 12 | % |
Underwriting and distribution fees |
|
| 128,892 |
| 135,778 |
| (5) | % | |
| 154,795 |
| 136,943 |
| 13 | % |
Shareholder service fees |
|
| 26,406 |
| 28,563 |
| (8) | % | |
| 22,540 |
| 21,571 |
| 4 | % |
Total revenues |
| $ | 289,447 |
| 303,086 |
| (5) | % | | $ | 295,351 |
| 263,733 |
| 12 | % |
27
|
|
|
|
|
|
|
|
|
|
| Nine months ended |
|
|
| |||
|
| September 30, |
|
|
| |||
|
| 2017 |
| 2016 |
| Variance |
| |
|
| (in thousands, except percentage data) |
| |||||
Investment management fees |
| $ | 395,463 |
| 424,403 |
| (7) | % |
Underwriting and distribution fees |
|
| 386,499 |
| 428,748 |
| (10) | % |
Shareholder service fees |
|
| 80,706 |
| 92,959 |
| (13) | % |
Total revenues |
| $ | 862,668 |
| 946,110 |
| (9) | % |
Investment Management Fee Revenues
Investment management fee revenues for the thirdfirst quarter of 2017 decreased $4.62021 increased $12.8 million, or 3%12%, from last year’s third quarter. For the nine month period ended September 30, 2017, investmentfirst quarter of 2020 due to an increase in average AUM, partially offset by a lower effective management fee revenues decreased $28.9 million, or 7%, comparedrate, which was primarily due to the same periodtargeted pricing reductions on certain products made in 2016. previous periods and money market fee waivers.
On October 16,2017, nine Advisors Funds merged into Ivy Funds with substantially similar objectives and strategies. The Company intends to recommend that the mutual fund Board of Trustees approve the merger of the remaining Advisors Funds into Ivy Funds. Assuming necessary approvals are received, these additional mergers are expected to close in early 2018. Thereafter, the Company anticipates investment management fee revenue in 2018 to decrease between $10 million and $11 million.
The following table summarizestables summarize investment management fee revenues, related average assets under management,AUM, fee waivers and investment management fee rates for the three and nine months ended September 30, 2017March 31, 2021 and 2016.2020.
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, |
|
|
|
| ||||
|
| 2017 |
| 2016 |
|
| Variance |
| ||
|
| (in thousands, except for management fee rate and average assets) |
|
|
|
| ||||
Retail investment management fees (net) |
| $ | 128,078 |
|
| 131,139 |
|
| (2) | % |
Retail average assets (in millions) |
|
| 73,772 |
|
| 77,761 |
|
| (5) | % |
Retail management fee rate (net) |
|
| 0.6888 | % |
| 0.6709 | % |
|
|
|
Money market fee waivers |
|
| 31 |
|
| 562 |
|
| (94) | % |
Other fee waivers |
|
| 1,795 |
|
| 1,051 |
|
| 71 | % |
Total fee waivers |
| $ | 1,826 |
|
| 1,613 |
|
| 13 | % |
Institutional investment management fees (net) |
| $ | 6,071 |
|
| 7,606 |
|
| (20) | % |
Institutional average assets (in millions) |
|
| 6,716 |
|
| 9,013 |
|
| (25) | % |
Institutional management fee rate (net) |
|
| 0.3871 | % |
| 0.3546 | % |
|
|
|
| | | | | | | | | | |
| | Three months ended March 31, | | | | | ||||
|
| 2021 |
| 2020 |
| | Variance |
| ||
| | (in thousands, except for management fee rate and average assets) | | | | | ||||
Investment management fees (net) | | $ | 114,395 | | | 102,293 | | | 12 | % |
Average assets (in millions) | | $ | 72,465 | | | 63,227 | | | 15 | % |
Management fee rate (net) | |
| 0.6402 | % | | 0.6507 | % | | | |
Total fee waivers | | $ | 9,591 | | | 6,479 | | | 48 | % |
Institutional investment management fees (net) | | $ | 3,621 | | | 2,926 | | | 24 | % |
Institutional average assets (in millions) | | $ | 3,600 | |
| 2,897 | |
| 24 | % |
Institutional management fee rate (net) | |
| 0.4078 | % |
| 0.4063 | % |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended September 30, |
|
|
|
| ||||
|
| 2017 |
| 2016 |
|
| Variance |
| ||
|
| (in thousands, except for management fee rate and average assets) |
|
|
|
| ||||
Retail investment management fees (net) |
| $ | 376,563 |
|
| 395,208 |
|
| (5) | % |
Retail average assets (in millions) |
|
| 73,563 |
|
| 79,461 |
|
| (7) | % |
Retail management fee rate (net) |
|
| 0.6844 | % |
| 0.6644 | % |
|
|
|
Money market fee waivers |
|
| 218 |
|
| 2,947 |
|
| (93) | % |
Other fee waivers |
|
| 5,797 |
|
| 3,158 |
|
| 84 | % |
Total fee waivers |
| $ | 6,015 |
|
| 6,105 |
|
| (1) | % |
Institutional investment management fees (net) |
| $ | 18,900 |
|
| 29,195 |
|
| (35) | % |
Institutional average assets (in millions) |
|
| 7,289 |
|
| 11,629 |
|
| (37) | % |
Institutional management fee rate (net) |
|
| 0.3722 | % |
| 0.3500 | % |
|
|
|
Revenues from investment management services provided to our affiliated retail mutual funds, which are distributed through the retail unaffiliated distribution and retail broker-dealerwealth management channels, decreased $3.1 millionincreased 12% in the thirdfirst quarter of
28
2017 compared to the third quarter of 2016. For the nine months ended September 30, 2017, revenues from investment management services provided to our affiliated retail mutual funds decreased $18.6 million, compared to the first nine months of 2016. For both comparative periods, affiliated investment management revenue in the retail channel declined less on a percentage basis than the related average assets under management due to an increase in the average management fee rate. A mix-shift in the retail asset base has resulted in increased average management fee rates in 2017 compared to 2016. Money market fee waivers for the three and nine months ending September 30, 2017 were lower 2021 compared to the same period in 20162020. The increase was due to federalan increase in average AUM, partially offset by a lower effective management fee rate due to fee reductions on our large cap growth and core bond products that were effective in April 2020 and increased money market fee waivers due to the low interest rate increases. Other fee waivers have increased during both periods due to certain Funds increasing fee waivers to maintain expense ratios, and the launching of new Funds. Fee waivers for the Funds are recorded as an offset to investment management fees up to the amount of fees earned.environment.
Institutional account revenues in the thirdfirst quarter of 2017 decreased $1.5 million2021 increased 24% compared to the thirdfirst quarter of 2016. For the nine month period ended September 30, 2017, institutional account revenues decreased $10.3 million compared to the same period in 2016.
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| Annualized long-term redemption rates |
| |||||||
|
| (excludes money market redemptions) |
| |||||||
|
| Three months ended |
|
| Nine months ended |
| ||||
|
| September 30, |
|
| September 30, |
| ||||
|
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
|
Retail Unaffiliated Distribution channel |
| 33.0 | % | 56.2 | % |
| 40.8 | % | 65.6 | % |
Retail Broker-Dealer channel |
| 16.4 | % | 12.1 | % |
| 15.4 | % | 10.7 | % |
Institutional channel |
| 67.3 | % | 46.4 | % |
| 53.7 | % | 89.8 | % |
Total |
| 27.1 | % | 33.3 | % |
| 28.5 | % | 43.5 | % |
The decreased redemption rate for both the three and nine month periods ending September 30, 2017 in the retail unaffiliated distribution channel was driven2020 primarily by improved redemption rates in the Ivy Asset Strategy Fund, Ivy VIP Asset Strategy Fund and Waddell & Reed Advisors Asset Strategy Fund (prior to being renamed in May 2017) (the “Asset Strategy funds”). Redemptions in the Asset Strategy funds represented approximately 14% of the retail unaffiliated distribution channel’s redemptions during the third quarter of 2017, reduced from 30% in the third quarter of 2016. For the nine months ended September 30, 2017, redemptions in the Asset Strategy funds represented approximately 21% of the retail unaffiliated distribution channel’s redemptions, which was reduced from 40% during the same period in 2016. The increased redemption rate for both periods in the retail broker-dealer channel is primarily relateddue to an increase in outflows relatedaverage AUM.
29
| | | | | |
| | Annualized long-term redemption rates | | ||
| | (excludes money market redemptions) | | ||
| | Three months ended | | ||
| | March 31, | | ||
|
| 2021 |
| 2020 |
|
Unaffiliated channel |
| 33.6 | % | 50.9 | % |
Institutional channel |
| 24.9 | % | 24.9 | % |
Wealth Management channel |
| 12.8 | % | 14.6 | % |
Total |
| 21.2 | % | 28.5 | % |
The long-term redemption rate for the three months ended March 31, 2021 decreased in the unaffiliated channel and the wealth management channel as compared to the launch of the MAP Navigator product in May of 2017. Use of this open architecture fee-based asset allocation product by W&R financial advisors acceleratedthree months ended March 31, 2020. Redemptions decreased during the third quarter, of 2017. We anticipate that MAP Navigator will continue to add pressure on our retail broker-dealer redemption rates. In the Institutional channel, approximately $558 million and $253 million was redeemedparticularly in our core equity strategyInternational Core Equity and core fixed income strategies, respectively, duringHigh Income funds. The redemption rate in the third quarter of 2017. A client in our Institutionalinstitutional channel notified us in April of 2017 of its intent to redeem its $806 million position in our domestic large cap core strategy. Approximately $500 million was redeemed in April of 2017 with the balance intended to be redeemed before the end of the year.unchanged. Prolonged redemptions in any of our distribution channels could negatively affect revenues in future periods.
Our overall current year-to-date redemption rate of 28.5% is higher than the currentThe year-to-date industry average of approximately 23.7%,redemption rate, based on data fromprovided by the Investment Company Institute.Institute, was 26.1%, versus our rate of 21.2%.
29
Underwriting and Distribution Fee Revenues and Expenses
The following tables summarize our underwriting and distribution fee revenues and expenses segregated by distribution channel:
|
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|
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|
|
|
|
| Third Quarter 2017 | |||||
|
| Retail |
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Revenue |
| $ | 22,892 |
| 106,000 |
| 128,892 |
Expenses - Direct |
|
| (31,779) |
| (71,119) |
| (102,898) |
Expenses - Indirect |
|
| (9,648) |
| (36,854) |
| (46,502) |
Net Distribution Costs |
| $ | (18,535) |
| (1,973) |
| (20,508) |
|
|
|
|
|
|
|
|
|
|
| Third Quarter 2016 | ||||
|
| Retail |
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Revenue |
| $ | 29,991 |
| 105,787 |
| 135,778 |
Expenses - Direct |
|
| (39,489) |
| (72,276) |
| (111,765) |
Expenses - Indirect |
|
| (10,643) |
| (30,591) |
| (41,234) |
Net Distribution (Costs)/Excess |
| $ | (20,141) |
| 2,920 |
| (17,221) |
|
|
|
|
|
|
|
|
|
| Year to Date 2017 | |||||
|
| Retail |
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Revenue |
| $ | 71,305 |
| 315,194 |
| 386,499 |
Expenses - Direct |
|
| (98,685) |
| (213,631) |
| (312,316) |
Expenses - Indirect |
|
| (29,376) |
| (109,151) |
| (138,527) |
Net Distribution Costs |
| $ | (56,756) |
| (7,588) |
| (64,344) |
|
|
|
|
|
|
|
|
|
|
| Year to Date 2016 | ||||
|
| Retail |
|
|
|
| |
|
| Unaffiliated |
| Retail Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Revenue |
| $ | 98,424 |
| 330,324 |
| 428,748 |
Expenses - Direct |
|
| (128,787) |
| (240,293) |
| (369,080) |
Expenses - Indirect |
|
| (38,931) |
| (100,069) |
| (139,000) |
Net Distribution Costs |
| $ | (69,294) |
| (10,038) |
| (79,332) |
30
The following tables summarize the significant components of underwriting and distribution fee revenues segregated by distribution channel:
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|
|
|
|
|
|
| Third Quarter 2017 | |||||
|
| Retail |
| Retail |
|
| |
|
| Unaffiliated |
| Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Underwriting and distribution fee revenues |
|
|
|
|
|
|
|
Rule 12b-1 service and distribution fees |
| $ | 22,322 |
| 19,026 |
| 41,348 |
Fee-based asset allocation product revenues |
|
| — |
| 61,115 |
| 61,115 |
Sales commissions on front-end load mutual fund and variable annuity products |
|
| 353 |
| 12,941 |
| 13,294 |
Sales commissions on other products |
|
| — |
| 7,974 |
| 7,974 |
Other revenues |
|
| 217 |
| 4,944 |
| 5,161 |
Total |
| $ | 22,892 |
| 106,000 |
| 128,892 |
| | | | | | | |
| | For the three months ended March 31, 2021 | |||||
|
| |
| Wealth | | | |
|
| Unaffiliated |
| Management | | Total | |
|
| (in thousands) | |||||
Underwriting and distribution fee revenues | | | | | | | |
Advisory Fees | | $ | — |
| 94,280 |
| 94,280 |
Service and distribution fees |
| | 14,642 |
| 16,763 |
| 31,405 |
Sales commissions | |
| 15 |
| 19,423 |
| 19,438 |
Other revenues | |
| 44 |
| 9,628 |
| 9,672 |
Total |
| $ | 14,701 |
| 140,094 |
| 154,795 |
|
|
|
|
|
|
|
|
|
| Third Quarter 2016 | |||||
|
| Retail |
| Retail |
|
| |
|
| Unaffiliated |
| Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Underwriting and distribution fee revenues |
|
|
|
|
|
|
|
Rule 12b-1 service and distribution fees |
| $ | 29,432 |
| 19,462 |
| 48,894 |
Fee-based asset allocation product revenues |
|
| — |
| 57,269 |
| 57,269 |
Sales commissions on front-end load mutual fund and variable annuity products |
|
| — |
| 16,941 |
| 16,941 |
Sales commissions on other products |
|
| — |
| 7,203 |
| 7,203 |
Other revenues |
|
| 559 |
| 4,912 |
| 5,471 |
Total |
| $ | 29,991 |
| 105,787 |
| 135,778 |
| | | | | | | |
| | For the three months ended March 31, 2020 | |||||
| | |
| Wealth | | | |
| | Unaffiliated |
| Management | | Total | |
| | (in thousands) | |||||
Underwriting and distribution fee revenues | | | | | | | |
Advisory Fees |
| $ | — |
| 77,118 |
| 77,118 |
Service and distribution fees | |
| 15,276 |
| 14,589 |
| 29,865 |
Sales commissions | |
| 451 |
| 20,657 |
| 21,108 |
Other revenues | |
| 135 |
| 8,717 |
| 8,852 |
Total |
| $ | 15,862 |
| 121,081 |
| 136,943 |
|
|
|
|
|
|
|
|
|
| Year to Date 2017 | |||||
|
| Retail |
| Retail |
|
| |
|
| Unaffiliated |
| Broker- |
|
| |
|
| Distribution |
| Dealer |
| Total | |
|
| (in thousands) | |||||
|
|
|
|
|
|
|
|
Underwriting and distribution fee revenues |
|
|
|
|
|
|
|
Rule 12b-1 service and distribution fees |
| $ | 69,191 |
| 56,544 |
| 125,735 |
Fee-based asset allocation product revenues |
|
| — |
| 176,184 |
| 176,184 |
Sales commissions on front-end load mutual fund and variable annuity products |
|
| 1,118 |
| 41,796 |
| 42,914 |
Sales commissions on other products |
|
| — |
| 23,671 |
| 23,671 |
Other revenues |
|
| 996 |
| 16,999 |
| 17,995 |
Total |
| $ | 71,305 |
| 315,194 |
| 386,499 |