Document and Entity Information
Document and Entity Information - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2018 | Feb. 08, 2019 | Jun. 30, 2018 | |
Document and Entity Information | |||
Entity Registrant Name | WADDELL & REED FINANCIAL INC | ||
Entity Central Index Key | 1,052,100 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 1,410 | ||
Entity Small Business | false | ||
Entity Emerging Growth Company | false | ||
Entity Shell Company | false | ||
Entity Common Stock, Shares Outstanding | 76,332,069 | ||
Document Fiscal Year Focus | 2,018 | ||
Document Fiscal Period Focus | FY |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Assets: | ||
Cash and cash equivalents | $ 231,997 | $ 207,829 |
Cash and cash equivalents - restricted | 59,558 | 28,156 |
Investment securities | 617,135 | 700,492 |
Receivables: | ||
Funds and separate accounts | 18,112 | 25,664 |
Customers and other | 151,515 | 131,108 |
Prepaid expenses and other current assets | 27,164 | 25,593 |
Total current assets | 1,105,481 | 1,118,842 |
Property and equipment, net | 63,429 | 87,667 |
Goodwill and identifiable intangible assets | 145,869 | 147,069 |
Deferred income taxes | 12,321 | 13,308 |
Other non-current assets | 16,979 | 17,476 |
Total assets | 1,344,079 | 1,384,362 |
Liabilities: | ||
Accounts payable | 26,253 | 38,998 |
Payable to investment companies for securities | 100,085 | 43,422 |
Payable to third party brokers | 19,891 | 25,153 |
Payable to customers | 86,184 | 66,830 |
Short-term notes payable | 94,996 | |
Accrued compensation | 54,129 | 47,643 |
Other current liabilities | 51,580 | 44,797 |
Total current liabilities | 338,122 | 361,839 |
Long-term debt | 94,854 | 94,783 |
Accrued pension and postretirement costs | 798 | 15,137 |
Other non-current liabilities | 15,392 | 25,210 |
Total liabilities | 449,166 | 496,969 |
Redeemable noncontrolling interests | 11,463 | 14,509 |
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; 76,790 shares outstanding (82,687 at December 31, 2017) | 997 | 997 |
Additional paid-in capital | 311,264 | 301,410 |
Retained earnings | 1,198,445 | 1,092,394 |
Cost of 22,911 common shares in treasury (17,014 at December 31, 2017) | (627,587) | (522,441) |
Accumulated other comprehensive income | 331 | 524 |
Total stockholders’ equity | 883,450 | 872,884 |
Total liabilities, redeemable noncontrolling interests and stockholders’ equity | $ 1,344,079 | $ 1,384,362 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Consolidated Balance Sheets | ||
Preferred stock-par value (in dollars per share) | $ 1 | $ 1 |
Preferred stock-shares authorized | 5,000 | 5,000 |
Preferred stock-shares issued | 0 | 0 |
Class A Common stock-par value (in dollars per share) | $ 0.01 | $ 0.01 |
Class A Common stock-shares authorized | 250,000 | 250,000 |
Class A Common stock-shares issued | 99,701 | 99,701 |
Class A Common stock-shares outstanding | 76,790 | 82,687 |
Common shares in treasury | 22,911 | 17,014 |
Consolidated Statements of Inco
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Revenues: | |||
Total Revenues | $ 1,160,301 | $ 1,157,144 | $ 1,239,023 |
Operating expenses: | |||
Distribution | 456,832 | 432,264 | 485,981 |
Compensation and benefits (including share-based compensation of $51,565, $57,716 and $51,514, respectively) | 263,329 | 271,276 | 267,839 |
General and administrative | 73,643 | 88,951 | 80,820 |
Technology | 65,275 | 66,078 | 63,045 |
Occupancy | 27,197 | 30,721 | 31,406 |
Marketing and advertising | 10,323 | 12,425 | 13,080 |
Depreciation | 25,649 | 20,983 | 18,358 |
Subadvisory fees | 14,805 | 13,174 | 9,572 |
Intangible asset impairment | 1,200 | 1,500 | 9,749 |
Total | 938,253 | 937,372 | 979,850 |
Operating income | 222,048 | 219,772 | 259,173 |
Investment and other income (loss) | 22,705 | 37,084 | (8,058) |
Interest expense | (6,461) | (11,279) | (11,122) |
Income before provision for income taxes | 238,292 | 245,577 | 239,993 |
Provision for income taxes | 55,480 | 101,368 | 81,884 |
Net income | 182,812 | 144,209 | 158,109 |
Net (loss) income attributable to redeemable noncontrolling interests | (776) | 2,930 | 1,414 |
Net income attributable to Waddell & Reed Financial, Inc. | $ 183,588 | $ 141,279 | $ 156,695 |
Net income per share attributable to Waddell and Reed Financial, Inc. common shareholders, basic and diluted: | $ 2.28 | $ 1.69 | $ 1.90 |
Weighted average shares outstanding, basic and diluted: | 80,468 | 83,573 | 82,668 |
Investment management fees | |||
Revenues: | |||
Total Revenues | $ 507,906 | $ 531,850 | $ 557,112 |
Underwriting and distribution fees | |||
Revenues: | |||
Total Revenues | 550,010 | 518,699 | 561,670 |
Shareholder service fees | |||
Revenues: | |||
Total Revenues | $ 102,385 | $ 106,595 | $ 120,241 |
Consolidated Statements of In_2
Consolidated Statements of Income (Parenthetical) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements of Income | |||
Compensation and benefits, share-based compensation | $ 51,565 | $ 57,716 | $ 51,514 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements of Comprehensive Income | |||
Net income | $ 182,812 | $ 144,209 | $ 158,109 |
Other comprehensive income: | |||
Unrealized gain (loss) on available for sale investment securities during the period, net of income tax expense (benefit) of $2, $(956) and $(2), respectively | 13 | 7,505 | (391) |
Postretirement benefit, net of income tax expense (benefit) of $202, $(99) and $(718), respectively | 642 | (224) | (1,220) |
Comprehensive income | 183,467 | 151,490 | 156,498 |
Comprehensive (loss) income attributable to redeemable noncontrolling interests | (776) | 2,930 | 1,414 |
Comprehensive income attributable to Waddell & Reed Financial, Inc. | $ 184,243 | $ 148,560 | $ 155,084 |
Consolidated Statements of Co_2
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statements of Comprehensive Income | |||
Unrealized gain (loss) of available for sale investment securities during the period, income tax expense (benefit) | $ 2 | $ (956) | $ (2) |
Postretirement benefit, income tax expense (benefit) | $ 202 | $ (99) | $ (718) |
Consolidated Statement of Stock
Consolidated Statement of Stockholders’ Equity - USD ($) shares in Thousands, $ in Thousands | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total |
Balance at the beginning of the period at Dec. 31, 2015 | $ 997 | $ 331,611 | $ 1,085,248 | $ (566,256) | $ (5,145) | $ 846,455 |
Balance (in shares) at Dec. 31, 2015 | 99,701 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income (loss) | 156,695 | 156,695 | ||||
Recognition of equity compensation | 51,382 | 132 | 51,514 | |||
Net issuance/forfeiture of nonvested shares | (84,741) | 84,741 | ||||
Dividends accrued, $1.84, $1.63 and $1.00 per share for 2016, 2017 and 2018, respectively | (152,953) | (152,953) | ||||
Tax impact of share-based payment arrangements | (6,344) | (6,344) | ||||
Repurchase of common stock | (49,753) | (49,753) | ||||
Other comprehensive income (loss) | (1,612) | (1,612) | ||||
Balance at the end of the period at Dec. 31, 2016 | $ 997 | 291,908 | 1,089,122 | (531,268) | (6,757) | 844,002 |
Balance (in shares) at Dec. 31, 2016 | 99,701 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Adoption of consolidation guidance on January 1, 2016 - redeemable noncontrolling interests in sponsored funds | 14,330 | |||||
Net income (loss) | 1,414 | |||||
Net redemption of redeemable noncontrolling interests in sponsored funds | (5,091) | |||||
Balance at the end of the period at Dec. 31, 2016 | 10,653 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net income (loss) | 141,279 | 141,279 | ||||
Recognition of equity compensation | 50,593 | 690 | 51,283 | |||
Net issuance/forfeiture of nonvested shares | (44,595) | 44,595 | ||||
Dividends accrued, $1.84, $1.63 and $1.00 per share for 2016, 2017 and 2018, respectively | (136,497) | (136,497) | ||||
Repurchase of common stock | (35,768) | (35,768) | ||||
Other comprehensive income (loss) | 7,281 | 7,281 | ||||
Balance at the end of the period at Dec. 31, 2017 | $ 997 | 301,410 | 1,092,394 | (522,441) | 524 | 872,884 |
Balance (in shares) at Dec. 31, 2017 | 99,701 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Net income (loss) | 2,930 | |||||
Net subscription of redeemable noncontrolling interests in sponsored funds | 926 | |||||
Balance at the end of the period at Dec. 31, 2017 | 14,509 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Adoption of new accounting principle guidance | 3,504 | (2,200) | 1,304 | |||
Net income (loss) | 183,588 | 183,588 | ||||
Recognition of equity compensation | 40,598 | 1,383 | 41,981 | |||
Net issuance/forfeiture of nonvested shares | (30,744) | 30,744 | ||||
Dividends accrued, $1.84, $1.63 and $1.00 per share for 2016, 2017 and 2018, respectively | (79,768) | (79,768) | ||||
Repurchase of common stock | (135,890) | (135,890) | ||||
Other comprehensive income (loss) | 655 | 655 | ||||
Balance at the end of the period at Dec. 31, 2018 | $ 997 | $ 311,264 | 1,198,445 | $ (627,587) | 331 | 883,450 |
Balance (in shares) at Dec. 31, 2018 | 99,701 | |||||
Increase (Decrease) in Redeemable Noncontrolling Interest | ||||||
Net income (loss) | (776) | |||||
Net redemption of redeemable noncontrolling interests in sponsored funds | (2,270) | |||||
Balance at the end of the period at Dec. 31, 2018 | $ 11,463 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Adoption of new accounting principle guidance | ASU 2016-01 | 812 | (812) | ||||
Adoption of new accounting principle guidance | ASU 2018-02 | $ 36 | $ (36) |
Consolidated Statement of Sto_2
Consolidated Statement of Stockholders’ Equity (Parenthetical) - $ / shares | 1 Months Ended | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Consolidated Statement of Stockholders’ Equity | ||||
Dividends accrued (in dollars per share) | $ 0.25 | $ 1 | $ 1.63 | $ 1.84 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Cash flows from operating activities: | |||
Net income | $ 182,812 | $ 144,209 | $ 158,109 |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 28,278 | 20,983 | 18,359 |
Write-down of impaired assets | 1,538 | 1,500 | 9,749 |
Amortization of deferred sales commissions | 3,348 | 4,855 | 23,601 |
Share-based compensation | 51,565 | 57,716 | 51,514 |
Investments loss (gain), net | 26,449 | (17,104) | (12,075) |
Net purchases of trading and equity securities | (30,237) | (43,714) | (24,352) |
Deferred income taxes | 783 | 20,481 | 1,982 |
Pension and postretirement plan benefits | (15,380) | (17,714) | 3,166 |
Net change in equity securities and trading debt securities held by consolidated sponsored funds | 81,119 | (101,457) | (79,065) |
Other | 1,158 | 3,276 | (2,523) |
Changes in assets and liabilities: | |||
Customer and other receivables | (20,407) | (3,013) | 92,565 |
Payable to investment companies for securities and payable to customers | 76,017 | (26,357) | (97,459) |
Receivables from funds and separate accounts | 7,552 | 1,517 | 7,218 |
Other assets | 2,194 | 10,134 | 2,255 |
Accounts payable and payable to third party brokers | (18,007) | 4,395 | (22,948) |
Other liabilities | (21,767) | (8,856) | (42,192) |
Net cash provided by operating activities | 357,015 | 50,851 | 87,904 |
Cash flows from investing activities: | |||
Purchases of available for sale and equity method securities | (113,975) | (365,770) | (72,096) |
Proceeds from sales of available for sale and equity method securities | 1,157 | 160,158 | 156,965 |
Proceeds from maturities of available for sale securities | 125,727 | ||
Additions to property and equipment | (2,566) | (6,783) | (15,691) |
Net cash of sponsored funds on consolidation | 6,887 | ||
Other | (194) | ||
Net cash provided by (used in) investing activities | 10,343 | (212,395) | 75,871 |
Cash flows from financing activities: | |||
Dividends paid | (81,215) | (154,042) | (152,830) |
Repurchase of common stock | (133,378) | (35,768) | (49,753) |
Repayment of short-term debt, net of debt issuance costs | (94,925) | ||
Net subscriptions, (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds | (2,270) | 926 | (3,473) |
Other | 174 | 3,145 | |
Net cash used in financing activities | (311,788) | (188,710) | (202,911) |
Net increase (decrease) in cash and cash equivalents | 55,570 | (350,254) | (39,136) |
Cash, cash equivalents, and restricted cash at beginning of period | 235,985 | 586,239 | 625,375 |
Cash, cash equivalents, and restricted cash at end of period | 291,555 | 235,985 | 586,239 |
Cash paid for: | |||
Income taxes, net | 59,147 | 85,299 | 76,982 |
Interest | $ 7,948 | $ 10,299 | $ 10,289 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2018 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | WADDELL & REED FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2018, 2017 and 2016 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Amounts in the accompanying financial statements and notes are rounded to the nearest thousand unless otherwise stated. Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation. The Company operates in one business segment as the Company’s management utilizes a consolidated approach to assess performance and allocate resources. Effective January 1, 2018, the Company changed the presentation of certain line items in the consolidated statements of income that are intended to improve the transparency of the Company’s financial statements through clearer alignment of operating expenses with financial statement captions. Specifically, the Company revised its accounting policy related to the reporting of indirect underwriting and distribution expenses in the former underwriting and distribution caption and certain expenses historically reported as general and administrative. Expenses previously recorded as underwriting and distribution expenses were retrospectively reclassified into (a) the following existing operating expense captions: Compensation and benefits and General and administrative, and (b) the following newly created operating expense captions: Distribution, Technology, Occupancy, and Marketing and advertising. Certain expenses historically reported as general and administrative were retrospectively reclassified into the following newly created operating expense captions: Technology, Occupancy, and Marketing and advertising. The Company considers the change in policy to be preferable and does not consider the change to be material to its consolidated financial statements. These changes were applied retrospectively to all periods presented and do not affect net income attributable to the Company. The Company also adopted Accounting Standards Update (“ASU”) 2017-07, “ Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ”. As a result, the Company retrospectively reclassified all net periodic pension costs, other than the historical service cost, from Compensation and benefits to Investment and other income (loss) within the consolidated statements of income. The reclassification of expenses as a result of the adoption of ASU 2017-07 does not affect net income attributable to the Company. Consolidation In the normal course of our business, we sponsor and manage various types of investment products. These investment products include open-end mutual funds, a closed-end mutual fund, privately offered funds, exchange-traded managed funds, and a Luxembourg SICAV. When creating and launching a new investment product, we typically fund the initial cash investment, commonly referred to as “seeding,” to allow the investment product the ability to generate an investment performance track record so that it is able to attract third party investors. Our initial investment in a new product typically represents 100% of the ownership in that product. We generally redeem our investment in seeded products when the related product establishes a sufficient track record, when third party investments in the related product are sufficient to sustain the strategy, or when a decision is made to no longer pursue the strategy. The length of time we hold a majority interest in a product varies based on a number of factors, including market demand, market conditions and investment performance. Our exposure to risk in these investment products is generally limited to any equity investment we have in the product and any earned but uncollected management or other fund-related service fees. In accordance with financial accounting standards, we consolidate certain sponsored investment products in which we have a controlling interest or the investment product meets the criteria of a variable interest entity (“VIE”) and we are deemed to be the primary beneficiary. In order to make this determination, an analysis is performed to determine if the investment product is a VIE or a voting interest entity (“VOE”). Assessing if an entity is a VIE or VOE involves judgment and analysis on an entity by entity basis. Factors included in this assessment include the legal organization of the entity, the Company’s contractual involvement with the entity and any implications resulting from or associated with related parties’ involvement with the entity. A VIE is an entity which does not have adequate equity to finance its activities without subordinated financial support, the equity investors do not have the normal characteristics of equity investors for a potential controlling financial interest as a group, or the voting rights are not proportional to their obligations to absorb the expected losses or their rights to receive the expected residual returns of the entity. The Company is deemed to be the primary beneficiary if it absorbs a majority of the VIE’s expected losses, expected residual returns, or both. If the Company is the primary beneficiary of a VIE, we are required to consolidate the assets, liabilities, results of operations and cash flows of the VIE into our consolidated financial statements. If an entity does not meet the criteria and is not considered a VIE, it is treated as a VOE, which is subject to traditional consolidation concepts based on ownership rights. Sponsored investment products that are considered VOEs are consolidated if we have a controlling financial interest in the entity absent substantive investor rights to replace the investment manager of the entity (kick-out rights). Use of Estimates GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes, and related disclosures of commitments and contingencies. Estimates are used for, but are not limited to, depreciation and amortization, income taxes, valuation of assets, pension and postretirement obligations, and contingencies. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Actual results could differ from our estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and short‑term investments. We consider all highly liquid investments with maturities upon acquisition of 90 days or less to be cash equivalents. Cash and cash equivalents – restricted represents cash held for the benefit of customers and non-customers segregated in compliance with federal and other regulations. Disclosures About Fair Value of Financial Instruments Fair value of cash and cash equivalents, receivables and payables approximates carrying value. Fair values for investment securities are based on quoted market prices, where available. Otherwise, fair values for investment securities are based on Level 2 or Level 3 inputs detailed in Note 4. Fair value of long‑term debt is disclosed in Note 8. Investment Securities and Investments in Sponsored Funds Our investments are comprised of debt and equity securities, investments in sponsored funds and sponsored privately offered funds. Sponsored funds, which include the Funds and the IGI Funds, are investments we have made to provide seed capital for new investment products. The Company has classified its investments in certain sponsored funds as either equity method investments (when the Company owns between 20% and 50% of the fund) or as equity securities measured at fair value through net income (when the Company owns less than 20% of the fund). Unrealized gains and losses on debt securities classified as available for sale, net of related tax effects, are excluded from earnings until realized and are reported as a separate component of comprehensive income. For debt securities classified as trading and equity securities, unrealized gains and losses are included in earnings. Realized gains and losses are computed using the specific identification method for all investment securities, other than sponsored funds. For sponsored funds, realized gains and losses are computed using the average cost method. Substantially all of the Company’s equity method investees are investment companies that record their underlying investments at fair value. Therefore, under the equity method of accounting, our share of the investee's underlying net income or loss is predominantly representative of fair value adjustments in the investments held by the equity method investee. Our share of the investee's net income or loss is based on the most current information available and is recorded as a net gain or loss on investments within investment and other income (loss). Our available for sale debt securities are reviewed each quarter and adjusted for other than temporary declines in value. We consider factors affecting the issuer and the industry in which the issuer operates, general market trends including interest rates, and our ability and intent to hold an investment until it has recovered. Consideration is given to the length of time an investment’s market value has been below its amortized cost basis as well as prospects for recovery to the amortized cost basis. When a decline in the fair value of debt securities is determined to be other than temporary, the amount of the impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current‑period credit loss. If so, the other than temporary impairment recognized in earnings is equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If not, the portion of the impairment related to the credit loss is recognized in earnings while the portion of the impairment related to other factors is recognized in other comprehensive income, net of tax. Property and Equipment Property and equipment are carried at cost. The costs of improvements that extend the life of a fixed asset are capitalized, while the costs of repairs and maintenance are expensed as incurred. Depreciation and amortization are calculated and recorded using the straight‑line method over the estimated useful life of the related asset (or lease term if shorter), generally three to 10 years for furniture and fixtures; one to 10 years for computer software; one to five years for data processing equipment; one to 30 years for buildings; two to 26 years for other equipment; and up to 15 years for leasehold improvements, determined by the lesser of the lease term or expected life. Software Developed for Internal Use Certain internal costs incurred in connection with developing or obtaining software for internal use are capitalized in accordance with ASC 350, “Intangibles – Goodwill and Other Topic.” Internal costs capitalized are included in property and equipment, net in the consolidated balance sheets, and were $6.4 million and $10.5 million as of December 31, 2018 and 2017, respectively. Amortization begins when the software project is complete and ready for its intended use and continues over the estimated useful life, generally one to 10 years. Goodwill and Identifiable Intangible Assets Goodwill represents the excess of cost over fair value of the identifiable net assets of acquired companies. Indefinite-lived intangible assets represent advisory and subadvisory management contracts for managed assets obtained in acquisitions. The Company considers these contracts to be indefinite-lived intangible assets as they are expected to be renewed without significant cost or modification of terms. Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Goodwill and intangible assets require significant management estimates and judgment, including the valuation determination in connection with the initial purchase price allocation and the ongoing evaluation for impairment. Additional information related to the indefinite-lived intangible assets is included in Note 7. Revenue Recognition As of January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers ” and all subsequent ASUs that modified Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The Company elected to apply the standard utilizing the cumulative effect approach. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue. Investment Management and Advisory Fees We recognize investment management and advisory fees as earned over the period in which investment management and advisory services are provided. While our investment management and advisory contracts are long-term in nature, the performance obligations are generally satisfied daily or monthly based on AUM. We calculate investment management fees from the Funds daily based upon average daily net AUM in accordance with investment management agreements between the Funds and the Company. The majority of investment and/or advisory fees earned from institutional accounts are calculated either monthly or quarterly based upon an average of net AUM in accordance with such investment management agreements. The Company may waive certain fees for investment management services at its discretion, or in accordance with contractual expense limitations, and these waivers are reflected as a reduction to investment management fees on the consolidated statements of income. Our investment advisory business receives research products and services from broker-dealers through “soft dollar” arrangements. Consistent with the “soft dollar” safe harbor established by Section 28(e) of the Securities Exchange Act of 1934, as amended, the investment advisory business does not have any contractual obligation requiring it to pay for research products and services obtained through soft dollar arrangements with brokers. As a result, we present “soft dollar” arrangements on a net basis. The Company has contractual arrangements with third parties to provide subadvisory services. Investment advisory fees are recorded gross of any subadvisory payments and are included in investment management fees based on management’s determination that the Company is acting in the capacity of principal service provider with respect to its relationship with the Funds. Any corresponding fees paid to subadvisors are included in operating expenses. Underwriting, Distribution and Shareholder Service Fees Fee‑based asset allocation products offer clients a selection of traditional asset allocation models, as well as features such as systematic rebalancing and client and Advisor participation in determining asset allocation across asset classes. Underwriting and distribution fee-based asset allocation revenues are calculated monthly based upon beginning of month client assets and are earned over the period in which services are provided. Performance obligations are generally satisfied daily or monthly based on client assets. Under a Rule 12b-1 service plan, the Funds may charge a maximum fee of 0.25% of the average daily net AUM for Ivy Funds Class B, C, E and Y shares for expenses paid to broker-dealers and other sales professionals in connection with providing ongoing services to the Funds’ shareholders and/or maintaining the Funds’ shareholder accounts, with the exception of the Funds’ Class R shares, for which the maximum fee is 0.50%. The Funds’ Class B and C shares may charge a maximum of 0.75% of the average daily net AUM under a Rule 12b-1 distribution plan to broker-dealers and other sales professionals for their services in connection with distributing shares of that class. The Funds’ Class A shares may charge a maximum fee of 0.25% of the average daily net AUM under a Rule 12b-1 service and distribution plan for expenses detailed previously. The Rule 12b-1 plans are subject to annual approval by the Funds’ board of trustees, including a majority of the disinterested members, by votes cast in person at a meeting called for the purpose of voting on such approval. All Funds may terminate the service and distribution plans at any time with approval of fund trustees or portfolio shareholders (a majority of either) without penalty. Underwriting and distribution commission revenues resulting from the sale of investment products are recorded upon satisfaction of performance obligations, which occurs on the trade date. For certain types of investment products, primarily variable annuities, distribution revenues are generally calculated based upon average daily net assets. When a client purchases Class A or Class E shares (front-end load), the client pays an initial sales charge of up to 5.75% of the amount invested. The sales charge for Class A or Class E shares typically declines as the investment amount increases. In addition, investors may combine their purchases of all fund shares to qualify for a reduced sales charge. When a client invests in a fee-based asset allocation product, Class I or Y shares are purchased at net asset value, and we do not charge an initial sales charge. Underwriting and distribution revenues resulting from payments from Advisors for office space, compliance oversight and affiliation fees are earned over the period in which the service is provided, which is generally monthly and is based on a fee schedule. Fees collected from Advisors for various services are recorded in underwriting and distribution fees on a gross basis, as the Company is the principal in these arrangements. Shareholder service fee revenue primarily includes transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees. Transfer agency fees and portfolio accounting and administration fees are asset‑based revenues or account‑based revenues, while custodian fees from retirement plan accounts are based on the number of client accounts. Custodian fees, transfer agency fees and portfolio accounting and administration fees are earned upon completion of the service when all performance obligations have been satisfied. Advertising and Promotion We expense all advertising and promotion costs as the advertising or event takes place. Advertising expense was $8.1 million, $9.7 million and $9.4 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is classified in marketing and advertising expense in the consolidated statements of income. Leases The Company leases office space under various leasing arrangements. Certain lease agreements contain renewal options, rent escalation clauses and/or other inducements provided by the landlord. Rent expense is recorded on a straight-line basis, including escalations and inducements, over the term of the lease. Share‑Based Compensation We account for share‑based compensation expense using the fair value method. Under the fair value method, share‑based compensation expense reflects the fair value of share‑based awards measured at grant date, and is recognized over the service period. The Company also issues share‑based awards to our Board of Directors. Changes in the Company’s share price result in variable compensation expense over the vesting period of awards granted to our Board of Directors. The Company’s Cash Settled RSU Plan (the “RSU Plan”) allows the Company to grant cash-settled restricted stock units (“RSUs”). Unvested RSUs have no purchase price and vest in 25% increments over four years, beginning on the first anniversary of the grant date. On the vesting date, RSU holders receive a lump sum cash payment equal to the fair market value of one share of the Company’s common stock, par value $0.01, for each RSU that has vested, subject to applicable tax withholdings. We treat RSUs as liability-classified awards and, therefore, account for them at fair value based on the closing price of our common stock on the reporting date, which results in variable compensation expense over the vesting period. Accounting for Income Taxes Income tax expense is based on pre-tax income, including adjustments made for the recognition or derecognition related to uncertain tax positions. The recognition or derecognition of income tax expense related to uncertain tax positions is determined under the guidance as prescribed by ASC 740, “ Income Taxes Topic. ” Deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized to reduce deferred tax assets if, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect when they are expected to be realized or settled. The effect on the measurement of deferred tax assets and liabilities of a change in income tax law is recognized in earnings in the period that includes the enactment date. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted, which significantly revised the U.S. corporate income tax system by, among other things, permanently reducing the federal statutory tax rate from 35% to 21% effective January 1, 2018. The Company recorded a one-time charge of $5.4 million in the fourth quarter of 2017 to measure net deferred tax assets at the reduced federal statutory rate. According to guidance from SEC Staff Accounting Bulletin 118, the Company recognized a provisional tax impact related to the revaluation of deferred tax assets and liabilities and included those amounts in its consolidated financial statements for the year ended December 31, 2017. In the third quarter of 2018, we finalized our 2017 U.S. corporate income tax return and revised provisional adjustments made to our net deferred tax asset. Accordingly, we recorded a discrete tax benefit of $1.0 million. The Company now considers its accounting for the income tax effects of the Tax Reform Act to be complete. |
New Accounting Guidance
New Accounting Guidance | 12 Months Ended |
Dec. 31, 2018 | |
New Accounting Guidance | |
New Accounting Guidance | 2. New Accounting Guidance Accounting Guidance Adopted During Fiscal Year 2018 On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers.” This ASU requires an entity to recognize the amount 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 certain costs to obtain or fulfill a contract with a customer. The Company applied the five-step method detailed in this ASU to all revenue streams and elected the cumulative effect approach. The implementation of this ASU did not have a material impact on the measurement or recognition of revenue from prior periods. See Note 1 - Summary of Significant Accounting Policies and Note 3 – Revenue Recognition, for additional accounting policy information and the additional disclosures required by this ASU. On January 1, 2018, the Company adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU provided updated guidance on the recognition, measurement, presentation and disclosure of certain financial assets and financial liabilities. After January 1, 2018, the guidance requires substantially all equity investments in non-consolidated entities to be measured at fair value with changes recognized in earnings, except for those accounted for using the equity method of accounting. As such, the guidance eliminated the available for sale investment category for equity securities, which required unrealized holding gains to be recognized in accumulated other comprehensive income. Upon adoption, we reclassified net unrealized holding gains, net of taxes, related to our available for sale investment portfolio from accumulated other comprehensive income to retained earnings. See consolidated statement of stockholders’ equity and redeemable noncontrolling interests for the financial statement reclassification impact of adopting this ASU. On January 1, 2018, the Company adopted ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This ASU eliminated 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. The adoption of this ASU did not impact our consolidated financial statements and related disclosures. On January 1, 2018, the Company adopted 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 required that a statement of cash flows include the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Cash and cash equivalents – restricted is included as a component of cash and cash equivalents on the Company’s consolidated statements of cash flows for all periods presented. On January 1, 2018, the Company adopted ASU 2017-07, “Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU changed the income statement presentation of our noncontributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”) 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.). In addition, only the service cost component is eligible for capitalization as part of an asset. The adoption of this ASU had no effect on our net income because it only impacts the classification of certain information on the consolidated statements of income. An amendment to freeze our noncontributory retirement plan that covers substantially all employees and certain vested employees of our former parent company was approved effective September 30, 2017; therefore, after September 30, 2017, we no longer incur service costs. The service cost component of net periodic benefit cost is recognized in compensation and related costs through September 30, 2017. The other components of net periodic cost were reclassified to investment and other income (loss) on a retrospective basis. On January 1, 2018, the Company adopted ASU 2017-09, “Compensation-Stock Compensation: Scope of Modification Accounting.” This ASU provided 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.” The adoption of this ASU had an immaterial impact our consolidated financial statements and related disclosures. On January 1, 2018, the Company early adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows entities to reclassify stranded tax effects attributable to the Tax Reform Act from accumulated other comprehensive income (“AOCI”) to retained earnings. Tax effects that are stranded in other comprehensive income for reasons unrelated to the Tax Reform Act, such as other changes in tax law, will be reclassified in future periods in accordance with the Company’s policy. Under the policy, the Company releases stranded income tax effects on available for sale securities on a security-by-security basis as securities are sold, matured, or extinguished. For the post retirement plan, the Company will release stranded income tax effects when the entire plan is liquidated or terminated. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures. See consolidated statement of stockholders’ equity for the financial statement reclassification impact of adopting this ASU. On January 1, 2018, the Company adopted ASU 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” This ASU updates the income tax accounting in U.S. GAAP to reflect SEC interpretive guidance released on December 22, 2017 when the Tax Reform Act became law. Staff Accountant Bulletin No. 118 states the SEC permits companies to use “reasonable estimates” and “provisional amounts” for some of their line items for taxes for their fourth quarter and year-end 2017 financial statements and regulatory filings. The Company has applied this guidance to its consolidated financial statements and related disclosures. See Note 1 - Summary of Significant Accounting Policies for additional information on the adoption of this ASU. During the fourth quarter of 2018, the company early adopted ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures. See Note 10 – Pension Plan and Postretirement Benefits Other Than Pension for updated disclosures as a result of the adoption of this ASU. New Accounting Guidance Not Yet Adopted In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, which increases transparency and comparability among organizations by establishing a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet with additional disclosures of key information about leasing arrangements. The new standard, and related ASUs, are effective for us on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect all of the new standard’s available transition practical expedients. We expect that this ASU will have a material effect on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right-of-use assets and lease liabilities on our balance sheet for our real estate and equipment leases ranging from $35.0-45.0 million and the addition of significant new disclosures about our leasing activities. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. In June 2018, FASB issued ASU 2018-07, Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share–based payments granted to nonemployees by aligning the accounting with the requirements for employee share–based compensation. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company will adopt the provisions of this guidance on January 1, 2019. We have concluded that the adoption of this ASU will have an immaterial impact on our consolidated financial statements and related disclosures. In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Upon adoption of this ASU, disclosure changes will be reflected in our consolidated financial statements and related disclosures. In August 2018, FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We are evaluating the impact the adoption of this ASU will have on our consolidated financial statements and related disclosures. |
Revenue Recognition
Revenue Recognition | 12 Months Ended |
Dec. 31, 2018 | |
Revenue Recognition | |
Revenue Recognition | 3. Revenue Recognition All revenue recognized in the consolidated statements of income is considered to be revenue from contracts with customers. The vast majority of revenue is determined based on average assets and is earned daily or monthly or is transactional and is earned on the trade date. As such, revenue from remaining performance obligations is not significant. The following table depicts the disaggregation of revenue by product and distribution channel: For the Year ended December 31, 2018 2017 2016 (in thousands) Investment management fees: Funds $ 486,181 506,868 521,207 Institutional 21,725 24,982 35,905 Total investment management fees 507,906 531,850 557,112 Underwriting and distribution fees: Unaffiliated Rule 12b-1 service and distribution fees 78,041 91,313 121,926 Sales commissions on front-end load mutual fund and variable annuity sales 1,886 1,498 565 Other revenues 568 1,182 2,924 Total unaffiliated distribution fees 80,495 93,993 125,415 Broker-Dealer Fee-based asset allocation product revenues 269,069 240,089 224,319 Rule 12b-1 service and distribution fees 70,938 75,850 93,260 Sales commissions on front-end load mutual fund and variable annuity sales 54,895 55,293 67,169 Sales commissions on other products 36,131 31,286 31,246 Other revenues 38,482 22,188 20,261 Total broker-dealer distribution fees 469,515 424,706 436,255 Total distribution fees 550,010 518,699 561,670 Shareholder service fees: Total shareholder service fees 102,385 106,595 120,241 Total revenues $ 1,160,301 1,157,144 1,239,023 |
Investment Securities
Investment Securities | 12 Months Ended |
Dec. 31, 2018 | |
Investment Securities | |
Investment Securities | 4. Investment Securities Investment securities at December 31, 2018 and 2017 are as follows: December 31, December 31, 2018 2017 (in thousands) Available for sale securities: Certificates of deposit $ 5,001 12,999 Commercial paper 7,970 34,978 Corporate bonds 218,121 197,442 U.S. Treasury bills 19,672 19,779 Total available for sale securities 250,764 265,198 Trading debt securities: Certificates of deposit — 1,999 Commercial paper 1,993 — Corporate bonds 77,250 55,414 U.S. Treasury bills 5,884 4,929 Mortgage-backed securities 7 10 Consolidated sponsored funds 33,088 62,038 Total trading securities 118,222 124,390 Equity securities: Common stock 21,204 116 Sponsored funds (1) 153,548 137,857 Sponsored privately offered funds 678 695 Consolidated sponsored funds 24,879 77,048 Total equity securities 200,309 215,716 Equity method securities: Sponsored funds 47,840 95,188 Total securities $ 617,135 700,492 (1) Includes $124.0 million of investments at December 31, 2017, that were previously reported as available for sale securities prior to the adoption of ASU 2016-01 on January 1, 2018. Refer to Note 2 – New Accounting Guidance - Accounting Guidance Adopted During Fiscal Year 2018. Certificates of deposit, commercial paper, corporate bonds and U.S. Treasury bills accounted for as available for sale and held as of December 31, 2018 mature as follows: Amortized cost Fair value (in thousands) Within one year $ 97,196 96,726 After one year but within five years 154,614 154,038 $ 251,810 250,764 Commercial paper, corporate bonds, U.S. Treasury bills and mortgage-backed securities accounted for as trading and held as of December 31, 2018 mature as follows: Fair value (in thousands) Within one year $ 30,929 After one year but within five years 49,660 After five years but within 10 years 4,545 $ 85,134 The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2018: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Certificates of deposit $ 5,000 1 — 5,001 Commercial paper 7,902 68 — 7,970 Corporate bonds 219,236 254 (1,369) 218,121 U.S. Treasury bills 19,672 — — 19,672 $ 251,810 323 (1,369) 250,764 The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2017: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Certificates of deposit $ 13,000 1 (2) 12,999 Commercial paper 34,836 142 — 34,978 Corporate bonds 198,404 33 (995) 197,442 U.S. Treasury bills 20,019 — (240) 19,779 $ 266,259 176 (1,237) 265,198 Investment securities with fair values of $84.5 million, $237.2 million and $234.4 million were sold or redeemed during 2018, 2017 and 2016, respectively. During 2018, net realized gains of $0.3 million, less than $0.1 million and $12.8 million were recognized from the sale of $8.3 million in equity securities, the sale of $1.2 million in equity method securities and the redemption of $75.1 million in consolidated traded securities, respectively. During 2017, net realized gains of $0.9 million, $6.9 million and $1.5 million were recognized from the sale of $86.9 million in available for sale securities, the sale of $73.2 million in equity method securities, and the sale of $57.1 million in consolidated traded securities, respectively, and net realized losses of $0.5 million were recognized from the sale of $19.8 million in trading securities. During 2016, net realized gains of $3.6 million were recognized from the sale of $98.2 million in available for sale securities and net realized losses of $2.3 million were recognized from the sale of $58.7 million in equity method securities. A summary of available for sale sponsored funds with fair values below carrying values at December 31, 2018 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized December 31, 2018 Fair value losses Fair value losses Fair value losses (in thousands) Corporate bonds $ 36,302 (160) 119,480 (1,209) 155,782 (1,369) A summary of available for sale sponsored funds with fair values below carrying values at December 31, 2017 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized December 31, 2017 Fair value losses Fair value losses Fair value losses (in thousands) Certificates of deposit $ 2,998 (2) — — 2,998 (2) Corporate bonds 192,409 (995) — — 192,409 (995) U.S. Treasury bills 19,779 (240) — — 19,779 (240) $ 215,186 (1,237) — — 215,186 (1,237) The Company’s investment portfolio included 44 securities which were in an unrealized loss position at December 31, 2018. During 2018 and 2017, we recorded pre-tax charges of $0.3 million and $1.3 million, respectively, to reflect the “other than temporary” decline in value of certain of the Company’s available for sale investments with fair value below amortized cost. These charges were recorded due to either an intent to sell prior to recovery of the amortized cost or the investment in an unrealized loss position for an extended period of time where the losses were expected to become realized. These charges are recorded in investment and other income (loss) in the consolidated statement of operations for 2018 and 2017. The Company evaluated all of the other available for sale securities in an unrealized loss position at December 31, 2018 and concluded no additional other-than-temporary impairment existed at December 31, 2018. The unrealized losses in the Company’s investment portfolio at December 31, 2018 were primarily caused by changes in interest rates. At this time, the Company does not intend to sell, and does not believe it will be required to sell these securities before recovery of their amortized cost, with the exception of the securities mentioned above for which a charge was recorded. Sponsored Privately Offered Funds The Company holds a voting interests in a sponsored privately offered fund that is structured as an investment company in the legal form of an LLC. The Company held an investment in this fund totaling $0.7 million as of December 31, 2018 and December 31, 2017, which is the maximum loss exposure. Consolidated Sponsored Funds The following table details the balances related to consolidated sponsored funds at December 31, 2018 and 2017, as well as the Company’s net interest in these funds: December 31, December 31, 2018 2017 (in thousands) Cash $ 4,285 8,472 Investments 57,967 139,086 Other assets 872 1,588 Other liabilities (79) (1,040) Redeemable noncontrolling interests (11,463) (14,509) Net interest in consolidated sponsored funds $ 51,582 133,597 During the year ended December 31, 2018, we consolidated one sponsored privately offered fund, Ivy Funds, IGI Funds and Ivy NextShares 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 2018, we liquidated and redeemed our investment in the sponsored privately offered fund and the majority of our investment in the remaining IGI Funds, which resulted in a decrease in investments in the consolidated sponsored funds. One Ivy Fund, the IGI Funds and the Ivy Nextshares funds remain consolidated as of December 31, 2018. There was no impact to the consolidated statement of income as a result of the sponsored privately offered fund or IGI liquidation, 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. · Level 3 – Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments. Assets classified as Level 2 can have a variety of observable inputs. These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value. The carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short-time between purchase and expected maturity of the investments. Depending on the nature of the inputs, these investments are generally classified as Level 1 or 2 within the fair value hierarchy. U.S. Treasury bills are valued upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors. The following tables summarize our investment securities as of December 31, 2018 and 2017 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs. There were no transfers between levels for the years ended December 31, 2018 or 2017. December 31, 2018 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 121,759 — — — 121,759 U.S. government sponsored enterprise note — 895 — — 895 Commercial paper — 74,277 — — 74,277 Total cash equivalents $ 121,759 75,172 — — 196,931 Available for sale securities: Certificates of deposit $ — 5,001 — — 5,001 Commercial paper — 7,970 — — 7,970 Corporate bonds — 218,121 — — 218,121 U.S. Treasury bills — 19,672 — — 19,672 Trading debt securities: Commercial paper — 1,993 — — 1,993 Corporate bonds — 77,250 — 77,250 U.S. Treasury bills — 5,884 — — 5,884 Mortgage-backed securities — 7 — — 7 Consolidated sponsored funds — 33,088 — — 33,088 Equity securities: Common stock 21,192 — 12 — 21,204 Sponsored funds 153,548 — — — 153,548 Sponsored privately offered funds measured at net asset value (2) — — — 678 678 Consolidated sponsored funds 24,879 — — — 24,879 Equity method securities: (3) Sponsored funds 47,840 — — — 47,840 Total $ 247,459 368,986 12 678 617,135 December 31, 2017 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 145,785 — — — 145,785 Commercial paper — 11,064 — — 11,064 Total cash equivalents $ 145,785 11,064 — — 156,849 Available for sale securities: Certificates of deposit $ — 12,999 — — 12,999 Commercial paper — 34,978 — — 34,978 Corporate bonds — 197,442 — — 197,442 U.S. Treasury bills — 19,779 — — 19,779 Trading debt securities: Certificates of deposit — 1,999 — — 1,999 Corporate bonds — 55,414 — 55,414 U.S. Treasury bills — 4,929 — — 4,929 Mortgage-backed securities — 10 — — 10 Consolidated sponsored funds — 62,038 — — 62,038 Equity securities: Common stock 116 — — — 116 Sponsored funds 137,857 — — — 137,857 Sponsored privately offered funds measured at net asset value (2) — — — 695 695 Consolidated sponsored funds 77,048 — — — 77,048 Equity method securities: (3) Sponsored funds 95,188 — — — 95,188 Total $ 310,209 389,588 — 695 700,492 (1) Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at NAV and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization, and are classified as Level 2. (2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. (3) Substantially all of the Company’s equity method investments are investment companies that record their underlying investments at fair value. The following table summarizes the activity of investments categorized as Level 3 for the year ended December 31, 2018: For the year ended December 31, 2018 (in thousands) Level 3 assets at December 31, 2017 $ — Additions 359 Valuation change 5 Redemptions (352) Level 3 assets at December 31, 2018 $ 12 |
Derivative Financial Instrument
Derivative Financial Instruments | 12 Months Ended |
Dec. 31, 2018 | |
Derivative Financial Instruments | |
Derivative Financial Instruments | 5. Derivative Financial Instruments The Company has in place an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in certain sponsored funds. Certain of the consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives. We do not hedge for speculative purposes. Excluding derivative financial instruments held in certain consolidated sponsored funds, the Company was party to five total return swap contracts with a combined notional value of $194.4 million and six total return swap contracts with a combined notional value of $213.9 million as of December 31, 2018 and 2017, respectively. These derivative instruments are not designated as hedges for accounting purposes. Changes in fair value of the total return swap contracts are recognized in investment and other income (loss) on the Company’s consolidated statement of income. The Company posted $5.2 million and $9.7 million in cash collateral with the counterparties of the total return swap contracts as of December 31, 2018 and 2017, respectively. The cash collateral is included in customers and other receivables on 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 December 31, 2018 and 2017 calculated based on Level 2 inputs: December 31, December 31, 2018 2017 Balance sheet location Fair value Fair value (in thousands) Total return swap contracts Prepaid expenses and other current assets $ 4,968 — Total return swap contracts Other current liabilities — 1,093 Total $ 4,968 1,093 The following is a summary of net gains (losses) recognized in income for the years ended December 31, 2018 and 2017: Year ended Income statement December 31, location 2018 2017 (in thousands) Total return swap contracts Investment and other income (loss) $ 15,163 (36,368) |
Property and Equipment
Property and Equipment | 12 Months Ended |
Dec. 31, 2018 | |
Property and Equipment | |
Property and Equipment | 6. Property and Equipment A summary of property and equipment at December 31, 2018 and 2017 is as follows: Estimated 2018 2017 useful lives (in thousands) Leasehold improvements $ 21,790 22,106 1 - 15 years Furniture and fixtures 28,482 30,529 3 - 10 years Equipment 20,248 20,802 2 - 26 years Computer software 100,507 99,644 1 - 10 years Data processing equipment 17,056 18,678 1 - 5 years Buildings 11,772 11,759 1 - 30 years Land 2,843 2,843 Property and equipment, at cost 202,698 206,361 Accumulated depreciation (139,269) (118,694) Property and equipment, net $ 63,429 87,667 Depreciation expense was $25.6 million, $21.0 million and $18.4 million during the years ended December 31, 2018, 2017 and 2016, respectively. At December 31, 2018, we had property and equipment under capital leases with a cost of $1.6 million and accumulated depreciation of $1.1 million. At December 31, 2017, we had property and equipment under capital leases with a cost of $1.9 million and accumulated depreciation of $1.0 million. |
Goodwill and Identifiable Intan
Goodwill and Identifiable Intangible Assets | 12 Months Ended |
Dec. 31, 2018 | |
Goodwill and Identifiable Intangible Assets | |
Goodwill and Identifiable Intangible Assets | 7. Goodwill and Identifiable Intangible Assets Goodwill and identifiable intangible assets (all considered indefinite-lived) at December 31, 2018 and 2017 are as follows: December 31, December 31, 2018 2017 (in thousands) Goodwill $ 106,970 106,970 Mutual fund management advisory contracts 38,699 38,699 Mutual fund management subadvisory contract — 1,200 Other 200 200 Total identifiable intangible assets 38,899 40,099 Total $ 145,869 147,069 During 2018, the balance of the mutual fund management subadvisory contract intangible asset was determined to be impaired due to a termination of the subadvisory agreement. |
Indebtedness
Indebtedness | 12 Months Ended |
Dec. 31, 2018 | |
Indebtedness | |
Indebtedness | 8. Indebtedness On August 31, 2010, the Company entered into a note purchase agreement to complete a $190.0 million private placement Series A and Series B senior unsecured notes. The $95.0 million Series A, senior unsecured notes that matured on January 13, 2018 were repaid. Interest is payable semi‑annually in January and July of each year. The agreement requires the Company to maintain a consolidated leverage ratio not to exceed 3.0 to 1.0 for four consecutive quarters and a consolidated interest coverage ratio of not less than 4.0 to 1.0 for four consecutive quarters. The Company was in compliance with these covenants for all periods presented. As of December 31, 2018, the Company’s consolidated leverage ratio was 0.3 to 1.0, and the consolidated interest coverage ratio was 48.7 to 1.0. Debt is reported at its carrying amount in the consolidated balance sheet. The fair value of the Company’s Series B Senior Notes maturing January 13, 2021 was $98.0 million at December 31, 2018 compared to the carrying value net of debt issuance costs of $94.9 million, which is listed under long-term debt in the consolidated balance sheet. Fair value is calculated based on Level 2 inputs. On October 20, 2017, we entered into a three-year unsecured revolving credit facility (the “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 Credit Facility replaced the prior credit facility, which was set to expire in June 2018. At December 31, 2018 and 2017, there were no borrowings outstanding under the Credit Facility. Borrowings under the Credit Facility bear interest at various rates including adjusted LIBOR or an alternative base rate plus, in each case, an incremental margin based on the Company’s credit rating. The Credit Facility also imposes a facility fee on the aggregate amount of commitments under the revolving facility (whether or not utilized). The facility fee is also based on the Company’s credit rating level. The covenants in the Credit Facility are consistent with the covenants in the prior credit facility, including the required consolidated leverage ratio and the consolidated interest coverage ratio, which match those outlined above for the Senior Notes. |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2018 | |
Income Taxes | |
Income Taxes | 9. Income Taxes The provision for income taxes from continuing operations for the years ended December 31, 2018, 2017 and 2016 consists of the following: 2018 2017 2016 (in thousands) Current taxes: Federal $ 54,071 73,167 72,711 State 625 7,720 7,174 Foreign 1 — 17 54,697 80,887 79,902 Deferred taxes 783 20,481 1,982 Provision for income taxes $ 55,480 101,368 81,884 The following table reconciles the statutory federal income tax rate with our effective income tax rate from continuing operations for the years ended December 31, 2018, 2017 and 2016: 2018 2017 2016 Statutory federal income tax rate 21.0 % 35.0 % 35.0 % State income taxes, net of federal tax benefit 2.4 2.2 2.0 Share-based compensation 1.8 3.4 — Effects of U.S. tax rate decrease (0.4) 2.2 — Uncertain tax positions (2.2) (0.2) (0.1) Valuation allowance on losses capital in nature — (1.0) (3.2) Other items 0.7 (0.3) 0.4 Effective income tax rate 23.3 % 41.3 % 34.1 % The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at December 31, 2018 and 2017 are as follows: 2018 2017 (in thousands) Deferred tax assets: Benefit plans $ — 3,381 Accrued compensation and related costs 5,868 5,558 Other accrued expenses 3,861 4,094 Unrealized losses on investment securities and partnerships 6,272 — Share-based compensation 10,300 15,047 Unused state tax credits 2,618 2,788 State net operating loss carryforwards 7,266 7,235 Other 1,171 2,874 Total gross deferred assets 37,356 40,977 Deferred tax liabilities: Property and equipment $ (3,700) (7,301) Benefit plans (1,872) — Identifiable intangible assets (9,206) (7,419) Unrealized gains on investments securities and partnerships — (3,554) Prepaid expenses (2,478) (1,679) Other (513) (481) Total gross deferred liabilities (17,769) (20,434) Valuation allowance (7,266) (7,235) Net deferred tax asset $ 12,321 13,308 Certain subsidiaries of the Company have net operating loss carryforwards in certain states in which these companies file on a separate company basis. The deferred tax asset, net of federal tax effect, relating to these carryforwards as of December 31, 2018 and 2017 is approximately $7.3 million and $7.2 million, respectively. The carryforwards, if not utilized, will expire between 2019 and 2038. Management believes it is not more likely than not that these subsidiaries will generate sufficient future taxable income in these states to realize the benefit of the net operating loss carryforwards and, accordingly, a valuation allowance in the amount of $7.3 million and $7.2 million has been recorded at December 31, 2018 and 2017, respectively. The Company has state tax credit carryforwards of $2.6 million and $2.8 million as of December 31, 2018 and 2017, respectively. Of these state tax credit carryforwards, $2.3 million will expire between 2024 and 2034 if not utilized, $0.2 million will expire in 2026 if not utilized, and $0.1 million can be carried forward indefinitely. The Company anticipates these credits will be fully utilized prior to their expiration date. In the accompanying consolidated balance sheet, 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 as a reduction to income taxes receivable; unrecognized tax benefits that reduce a net operating loss, similar tax loss, or tax credit carryforward are presented as a reduction to non-current deferred income taxes. As of December 31, 2018 and December 31, 2017, the Company’s consolidated balance sheet included unrecognized tax benefits, including penalties and interest, of $2.7 million ($2.4 million net of federal benefit) and $10.9 million ($8.9 million net of federal benefit), respectively, that if recognized, would impact the Company’s effective tax rate. The Company finalized a voluntary disclosure agreement with a state tax jurisdiction in June 2018, which reduced unrecognized tax benefits by $9.3 million ($7.6 million net of federal benefit). 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 December 31, 2018, and December 31, 2017, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $0.7 million ($0.6 million net of federal benefit) and $4.0 million ($3.5 million net of federal benefit), respectively. The total amount of penalties and interest, net of federal expense, related to tax uncertainties recognized in the statement of income for the period ended December 31, 2018 was a benefit of $2.8 million, which was comprised of a $3.0 million benefit related to settlement of the previously mentioned voluntary disclosure agreement and offset by the accrual of $0.2 million additional penalties and interest on outstanding uncertain tax positions. The following table summarizes the Company's reconciliation of unrecognized tax benefits, excluding penalties and interest, for the years ended December 31, 2018, 2017 and 2016: 2018 2017 2016 (in thousands) Balance at beginning of year $ 6,843 7,734 8,448 Increases during the year: Gross increases - tax positions in prior period 712 244 465 Gross increases - current-period tax positions 331 97 494 Decreases during the year: Gross decreases - tax positions in prior period (4,219) (56) (167) Decreases due to settlements with taxing authorities (1,385) (178) (21) Decreases due to lapse of statute of limitations (212) (998) (1,485) Balance at end of year $ 2,070 6,843 7,734 In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. The Company is currently under audit in one state jurisdiction in which the Company operates. During 2017, the Company closed an Internal Revenue Service audit of the 2014 tax year. This audit was settled with no significant adjustments. During 2016, the Company settled two open tax years that were undergoing audit by a state jurisdiction in which the Company operates. The 2015, 2016, 2017 and 2018 federal income tax returns are open tax years that remain subject to potential future audit. State income tax returns for all years after 2014 and, in certain states, income tax returns for 2014, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions. |
Pension Plan and Postretirement
Pension Plan and Postretirement Benefits Other Than Pension | 12 Months Ended |
Dec. 31, 2018 | |
Pension Plan and Postretirement Benefits Other Than Pension | |
Pension Plan and Postretirement Benefits Other Than Pension | 10. 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. 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 no longer 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. 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 and a curtailment gain of $31.6 million. During 2016, the Company offered eligible terminated, vested Pension Plan participants an option to elect a one-time voluntary lump sum window distribution equal to the present value of the participant’s pension benefit, in settlement of all future pension benefits to which they would otherwise have been entitled. This offer was made in an effort to reduce pension obligations and ongoing annual pension expense. Payments were distributed to participants who accepted the lump sum offer in 2016 from the assets of the Pension Plan. The Company recognized a non-cash settlement charge of $20.7 million in 2016 related to this event. We also sponsor an unfunded defined benefit postretirement medical plan that previously covered substantially all employees, as well as Advisors. The medical plan is contributory with participant contributions adjusted annually. The medical plan does not provide for benefits after age 65 with the exception of a small group of employees that were grandfathered when such plan was established. During 2016, the Company amended this plan to discontinue the availability of coverage for any individuals who retire after December 31, 2016. The plan amendment resulted in an $8.5 million curtailment gain, recorded in 2016 as part of net other postretirement benefit costs. A reconciliation of the funded status of these plans and the assumptions related to the obligations at December 31, 2018, 2017 and 2016 are as follows: Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands) Change in projected benefit obligation: Net benefit obligation at beginning of year $ 184,245 180,921 210,783 2,195 2,446 8,421 Service cost — 8,367 12,199 — — 555 Interest cost 5,986 6,248 9,432 54 58 297 Benefits paid (13,690) (8,511) (52,288) (602) (954) (674) Actuarial (gain) loss (22,013) 28,841 (19,886) (965) 139 1,790 Retiree contributions — — — 366 506 532 Curtailment gain — (31,621) — — — (8,475) Settlement loss — — 20,681 — — — Net benefit obligation at end of year $ 154,528 184,245 180,921 1,048 2,195 2,446 Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands) Change in plan assets: Fair value of plan assets at beginning of year $ 170,881 144,529 173,885 — — — Actual return on plan assets 1,808 24,863 2,932 — — — Employer contributions 4,000 10,000 20,000 236 448 142 Retiree contributions — — — 366 506 532 Benefits paid (13,690) (8,511) (52,288) (602) (954) (674) Fair value of plan assets at end of year $ 162,999 170,881 144,529 — — — Funded status at end of year $ 8,471 (13,364) (36,392) (1,048) (2,195) (2,446) Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands, except percentage data) Amounts recognized in the statement of financial position: Noncurrent assets $ 8,471 — — — — — Current liabilities — — — (250) (422) (458) Noncurrent liabilities — (13,364) (36,392) (798) (1,773) (1,988) Net amount recognized at end of year $ 8,471 (13,364) (36,392) (1,048) (2,195) (2,446) Weighted average assumptions used to determine benefit obligation at December 31: Discount rate 4.45 % 3.76 % 4.39 % 4.08 % 3.28 % 3.46 % Rate of compensation increase Not applicable 5.12 % Not applicable The discount rate assumption used to determine the pension and other postretirement benefits obligations was based on the Aon Hewitt AA Only Above Median Yield Curve. This discount rate was determined separately for each plan by plotting the expected benefit payments from each plan against a yield curve of high quality, zero coupon bonds and calculating the single rate that would produce the same present value of liabilities as the yield curve. Our Pension Plan asset allocation at December 31, 2018 and 2017 is as follows: Percentage of Percentage of Plan Assets at Plan Assets at Plan assets by category December 31, 2018 December 31, 2017 Cash 2 % 40 % Equity securities: Domestic — 29 % International — 18 % Fixed income securities 98 % 8 % Gold bullion — 5 % Total 100 % 100 % Historically, the primary investment objective has been to maximize growth of the Pension Plan assets to meet the projected obligations to the beneficiaries over a long period of time and to do so in a manner that is consistent with the Company’s earnings strength and risk tolerance. Asset allocation is the most important decision in managing the assets and is reviewed regularly. The asset allocation policy considers the Company’s financial strength and long‑term asset class risk/return expectations since the obligations are long‑term in nature. Prior to the Pension Plan freeze in 2017, assets were invested in our Asset Strategy investment style, managed by our in‑house investment professionals. Subsequent to the freeze, the Company adjusted the Pension Plan’s asset allocation to decrease the exposure to equity securities. In 2018, the Company implemented a new pension de-risking strategy designed to more closely match assets to the pension obligations by shifting exposure from return-seeking assets to liability-hedging assets. We determine the fair value of our Pension Plan assets using broad levels of inputs as defined by related accounting standards and categorized as Level 1, Level 2 or Level 3, as described in Note 4. The following tables summarize our Pension Plan assets as of December 31, 2018 and 2017. As of December 31, 2018 and 2017 a portion of the international equity securities were valued utilizing Level 2 inputs, in accordance with company policy based on market movement greater than or equal to 0.50% on the final trading day of the year. 2018 Level 1 Level 2 Level 3 Total (in thousands) Cash equivalents $ — 465 — 465 Equity securities: International — 4 — 4 Fixed income securities: U.S. Treasuries — 46,415 — 46,415 Corporate bond — 91,521 — 91,521 Foreign bonds — 21,870 — 21,870 Total investment securities — 160,275 — 160,275 Cash 2,724 Total $ 162,999 2017 Level 1 Level 2 Level 3 Total (in thousands) Cash equivalents $ — 66,779 — 66,779 Equity securities: Domestic 49,540 — — 49,540 International 4,889 26,542 — 31,431 Fixed income securities: U.S. Treasuries — 6,455 — 6,455 Corporate bond — 587 — 587 Foreign Bonds — 6,591 — 6,591 Gold bullion 8,369 — — 8,369 Total investment securities 62,798 106,954 — 169,752 Cash 1,129 Total $ 170,881 The 6.00% expected long‑term rate of return utilized after the Pension Plan freeze in 2017 reflected management’s expectations of long‑term average rates of return on funds invested to provide for benefits included in the projected benefit obligations. The expected return was based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy. In 2018, we adjusted the expected long-term rate of return to 5.00% to reflect a further decrease to the Plan’s equity securities’ holdings based on expected investment mix at the beginning of the year. During the year, we accelerated the de-risking strategy and as such, expect to further reduce the long-term rate of return in the future. The components of net periodic pension and other postretirement costs consisted of the following for the years ended December 31, 2018, 2017 and 2016: Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands) Components of net periodic benefit cost: Service cost $ — 8,367 12,199 — — 555 Interest cost 5,986 6,248 9,432 54 58 297 Expected return on plan assets (8,320) (10,113) (13,927) — — — Actuarial (gain) loss (15,501) 14,091 (8,891) — — — Actuarial gain amortization — — — (120) (180) (153) Prior service cost amortization — — — (2) (4) 4 Curtailment gain — (31,621) — — — (8,475) Settlement loss — — 20,681 — — — Total $ (17,835) (13,028) 19,494 (68) (126) (7,772) The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2018, 2017 and 2016 are as follows: Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 Discount rate 3.76 % 4.39% / 3.96 1 % 4.60 % 3.28 % 3.46 % 4.44 % Expected return on plan assets 5.00 % 7.00% / 6.00 1 % 7.50 % Not applicable Rate of compensation increase Not applicable 5.12 % 5.12 % Not applicable ________________________ (1) Due to the Pension Plan freeze and associated remeasurement as of July 31, 2017, the discount rate changed from 4.39% to 3.96% and the expected return on assets changed from 7.00% to 6.00%. Under current plan provisions, we expect the following benefit payments to be paid: Other Pension Postretirement Benefits Benefits (in thousands) 2019 $ 7,984 250 2020 8,068 179 2021 9,371 131 2022 8,843 116 2023 9,031 79 2024 through 2028 46,521 233 $ 89,818 988 Our policy with respect to funding the Pension Plan is to fund at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not more than the maximum amount deductible for tax purposes. All contributions made to the Pension Plan for 2018, 2017 and 2016 were voluntary. All Company contributions to other postretirement medical benefits are voluntary, as the postretirement medical plan is not funded and is not subject to any minimum regulatory funding requirements. The contributions for each year represent claims paid for medical expenses, and we anticipate making the 2019 expected contribution with cash generated from operations. Contributions by participants to the postretirement plan were $366 thousand, $506 thousand and $532 thousand for the years ended December 31, 2018, 2017 and 2016, respectively. For measurement purposes, the initial health care cost trend rate was 8.05% (prior to age 65) and 9.30% (subsequent to age 65) for 2018, 7.02% (prior to age 65) and 8.47% (subsequent to age 65) for 2017 and 6.82% for 2016. The health care cost trend rate reflects anticipated increases in health care costs. The initial growth rates for 2018 are assumed to gradually decline over the next 8 years to a rate of 4.5%. We also sponsored the Waddell & Reed Financial, Inc. Supplemental Executive Retirement Plan, as amended and restated (the “SERP”), a non-qualified deferred compensation plan covering eligible employees. The SERP was adopted to supplement the annual pension benefit for certain senior executive officers that the Pension Plan was prevented from providing because of compensation and benefit limits in the Internal Revenue Code (the “IRC”). The SERP allowed for discretionary contributions, though none were awarded to participants in 2017 or 2016. Additionally, each calendar year, participants’ accounts were credited (or charged) with an amount equal to the performance of certain hypothetical investment vehicles since the last preceding year. Upon a participant’s separation, or at such other time based on a pre-existing election by a participant, benefits accumulated under the SERP were payable in installments or in a lump sum. Following a lump sum payment of $3.8 million in February 2017 to the sole remaining participant in the SERP, the Board of Directors terminated the SERP. At December 31, 2018, the pension asset and postretirement liability recorded in the consolidated balance sheet was comprised of a pension asset of $8.5 million and a liability for postretirement benefits in the amount of $0.8 million. The current portion of postretirement liability of $0.3 million is included in other current liabilities on the consolidated balance sheet. At December 31, 2017, the accrued pension and postretirement liability recorded in the consolidated balance sheet was comprised of accrued pension costs of $13.4 million and a liability for postretirement benefits in the amount of $1.8 million. The accrued liability for the current portion of postretirement liability of $0.4 million is included in other current liabilities on the consolidated balance sheet. |
Defined Contribution Plan
Defined Contribution Plan | 12 Months Ended |
Dec. 31, 2018 | |
Defined Contribution Plan | |
Defined Contribution Plan | 11. Defined Contribution Plan We sponsor a defined contribution plan that qualifies under Section 401(k) of the IRC to provide retirement benefits to substantially all of our employees. As allowed under Section 401(k), the plan provides tax‑deferred salary deductions for eligible employees. Our matching contributions to the plan for the years ended December 31, 2018, 2017 and 2016 were $6.8 million, $6.0 million and $6.8 million, respectively. In 2017, in connection with the Pension Plan freeze, the Company amended its 401(k) plan to permit employer discretionary nonelective contributions to eligible participants. For the 2017 plan year, the Company approved a discretionary nonelective contribution in an amount equal to 4% of such participant’s eligible compensation. These contributions, which were expensed over the service period in 2017, totaled $5.5 million and were funded and allocated to participant accounts during the first quarter of 2018. |
Stockholders' Equity
Stockholders' Equity | 12 Months Ended |
Dec. 31, 2018 | |
Stockholders' Equity | |
Stockholders' Equity | 12. Stockholders’ Equity Earnings per Share For the years ended December 31, 2018, 2017 and 2016, earnings per share were computed as follows: 2018 2017 2016 Net income attributable to Waddell & Reed Financial, Inc. $ 183,588 141,279 156,695 Weighted average shares outstanding, basic and diluted 80,468 83,573 82,668 Earnings per share, basic and diluted $ 2.28 1.69 1.90 Dividends The Board of Directors declared dividends on our Class A common stock of $1.00 per share, $1.63 per share and $1.84 per share for the years ended December 31, 2018, 2017 and 2016, respectively. In December 2018, the Board of Directors declared a quarterly dividend on our Class A common stock of $0.25 per share payable on February 1, 2019 to stockholders of record as of January 11, 2019. As of December 31, 2018 and 2017, other current liabilities included $19.2 million and $20.7 million, respectively, for dividends payable to stockholders. Common Stock Repurchases The Board of Directors has authorized the repurchase of our Class A common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including as shares issued to employees in our share‑based compensation programs. There were 6,963,269 shares, 1,842,337 shares and 2,320,726 shares repurchased in the open market or privately during the years ended December 31, 2018, 2017 and 2016, respectively. The repurchased shares include; 729,882 shares, 402,337 shares and 423,726 shares repurchased from employees who elected to tender shares to cover their income tax withholdings with respect to vesting of stock awards during the years ended December 31, 2018, 2017 and 2016, respectively. Accumulated Other Comprehensive Loss The following tables summarize other comprehensive income (loss) activity for the years ended December 31, 2018 and 2017. Total Unrealized Postretirement accumulated gains (losses) on benefits other AFS investment unrealized comprehensive Year ended December 31, 2018 securities gains (losses) income (loss) (in thousands) Balance at December 31, 2017 $ 145 379 524 Amount reclassified to retained earnings for ASUs adopted in 2018 (955) 107 (848) Other comprehensive (loss) income before reclassification (360) 736 376 Amount reclassified from accumulated other comprehensive income (loss) 373 (94) 279 Net current period other comprehensive (loss) income (942) 749 (193) Balance at December 31, 2018 $ (797) 1,128 331 Change in valuation allowance for unrealized Total Unrealized gains Postretirement accumulated gains (losses) (losses) on benefits other on investment investment unrealized comprehensive Year ended December 31, 2017 securities securities gains (losses) income (loss) (in thousands) Balance at December 31, 2016 $ (3,972) (3,388) 603 (6,757) Other comprehensive income (loss) before reclassification 4,039 3,743 (106) 7,676 Amount reclassified from accumulated other comprehensive income (loss) 78 (355) (118) (395) Net current period other comprehensive income (loss) 4,117 3,388 (224) 7,281 Balance at December 31, 2017 $ 145 — 379 524 Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow: For the year ended December 31, 2018 Tax (expense) Statement of income Pre-tax benefit Net of tax line item or retained earnings (in thousands) Reclassifications included in net income or retained earnings for ASUs adopted in 2018: Sponsored funds investment gains $ 1,295 (340) 955 Retained earnings Losses on available for sale debt securities $ (489) 116 (373) Investment and other income (loss) Amortization of postretirement benefits 122 (135) (13) Compensation and benefits and retained earnings Total $ 928 (359) 569 For the year ended December 31, 2017 Tax benefit Pre-tax (expense) Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Sponsored funds investment losses $ (124) 46 (78) Investment and other income (loss) Valuation allowance — 355 355 Provision for income taxes Amortization of postretirement benefits 184 (66) 118 Compensation and benefits Total $ 60 335 395 |
Share-Based Compensation
Share-Based Compensation | 12 Months Ended |
Dec. 31, 2018 | |
Share-Based Compensation | |
Share-Based Compensation | 13. Share‑Based Compensation The Company’s 1998 Stock Incentive Plan, as amended and restated (the “SI Plan”) allows us to grant equity compensation awards, including nonvested stock, as part of our overall compensation program to attract and retain key personnel and encourage a greater personal financial investment in the Company, thereby promoting the long-term growth of the Company. A maximum of 35.6 million shares of common stock are authorized for issuance under the SI Plan and as of December 31, 2018, 2,121,728 shares of common stock were available for issuance under the SI Plan. In addition, we may make incentive payments under the Company Executive Incentive Plan, as amended and restated (the “EIP”) in the form of cash, nonvested stock or a combination thereof. Incentive awards paid under the EIP in the form of nonvested stock are issued out of shares reserved for issuance under the SI Plan. Generally, shares of common stock subject to an award that expires or is cancelled, forfeited, exchanged, settled in cash or is terminated will again be available for awards under the SI Plan. Nonvested stock awards are valued on the date of grant and have no purchase price. These awards have historically vested over four years in 33 1/3% increments on the second, third and fourth anniversaries of the grant date; however, awards granted on or after December 31, 2016 vest in 25% increments on the first anniversary of the grant date. The Company has issued nonvested stock awards to non-employee directors. These awards generally have the same terms as awards issued to employees, except awards granted on or after January 2, 2017 fully vest on the first anniversary of the grant date and changes in the Company’s share price result in variable compensation expense over the vesting period. Beginning in 2017, the Company established a Cash Settled RSU Plan (the “RSU Plan”), which allows the Company to grant cash-settled restricted stock units (“RSU”) to attract and retain key personnel and enable them to participate in the long-term growth of the Company. Unvested RSUs have no purchase price and vest in 25% increments over four years, beginning on the first anniversary of the grant date. On the vesting date, RSU holders receive a lump sum cash payment equal to the fair market value of one share of the Company’s common stock, par value $0.01, for each RSU that has vested, subject to applicable tax withholdings. We treat RSUs as liability-classified awards and, therefore, account for them at fair value based on the closing price of our common stock on the reporting date, which results in variable compensation expense over the vesting period. Nonvested shares and nonvested RSU’s are forfeited upon the termination of employment with or service to the Company, as applicable, or service on the Board of Directors, dependent upon the circumstances of termination. Except for restrictions placed on the transferability of nonvested shares, holders of nonvested shares have full stockholders’ rights during the term of restriction, including voting rights and the rights to receive cash dividends. Since nonvested RSUs are not shares of Company stock, holders of nonvested RSUs are not entitled to voting rights, but are entitled to dividend equivalent payments for each RSU equal to the dividend paid on one share of our common stock. A summary of nonvested share activity and related fair value for the year ended December 31, 2018 follows: Weighted Average Nonvested Grant Date Stock Shares Fair Value Nonvested at December 31, 2017 5,088,640 $ 27.26 Granted 1,561,155 20.87 Vested (2,061,297) 32.02 Forfeited (494,738) 24.23 Nonvested at December 31, 2018 4,093,760 $ 22.79 A summary of nonvested RSU activity for the year ended December 31, 2018 follows: Nonvested Cash-Settled Units Nonvested at December 31, 2017 1,213,029 Granted 1,105,087 Vested (343,711) Forfeited (212,345) Nonvested at December 31, 2018 1,762,060 For the years ended December 31, 2018, 2017 and 2016 compensation expense related to nonvested shares totaled $51.6 million, $57.7 million and $51.5 million, respectively. The deferred income tax benefit from the compensation expense related to nonvested stock was $10.0 million, $12.2 million and $19.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. These benefits will be recognized upon vesting and may increase or decrease depending on the fair value of the shares on the date of vesting. As of December 31, 2018, the remaining unamortized expense of $60.6 million is expected to be recognized over a weighted average period of 2.2 years. The total fair value of shares vested (at vest date) during the years ended December 31, 2018, 2017 and 2016, was $41.0 million, $20.8 million and $26.7 million, respectively. The Company withholds a portion of each employee’s vested shares to satisfy income tax withholding obligations of the Company with respect to vesting of the shares. |
Uniform Net Capital Rule Requir
Uniform Net Capital Rule Requirements | 12 Months Ended |
Dec. 31, 2018 | |
Uniform Net Capital Rule Requirements | |
Uniform Net Capital Rule Requirements | 14. Uniform Net Capital Rule Requirements Two of our subsidiaries, W&R and IDI are registered broker-dealers and members of FINRA. Broker-dealers are subject to the SEC’s Uniform Net Capital Rule (Rule 15c3‑1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15.0 to 1.0. The primary difference between net capital and stockholders’ equity is the non‑allowable assets that are excluded from net capital. A broker-dealer may elect not to be subject to the Aggregate Indebtedness Standard of paragraph (a)(1)(i) of Rule 15c3‑1, in which case net capital must exceed the greater of $250 thousand or 2% of aggregate debit items computed in accordance with the Formula for Determination of Reserve Requirements for broker-dealers. W&R made this election and thus is not subject to the aggregate indebtedness ratio as of December 31, 2018 or 2017. Net capital and aggregated indebtedness information for our broker-dealer subsidiaries is presented in the following table as of December 31, 2018 and 2017: 2018 2017 (in thousands) W&R IDI W&R IDI Net capital $ 57,109 25,688 28,024 21,167 Required capital 250 1,336 250 1,757 Excess of required capital $ 56,859 24,352 27,774 19,410 Ratio of aggregate indebtedness to net capital Not Not applicable 0.78 to 1.0 applicable 1.25 to 1.0 |
Rental Expense and Lease Commit
Rental Expense and Lease Commitments | 12 Months Ended |
Dec. 31, 2018 | |
Rental Expense and Lease Commitments | |
Rental Expense and Lease Commitments | 15. Rental Expense and Lease Commitments We lease certain home office buildings, certain sales and other office space and equipment under operating leases. Rent expense was $22.7 million, $24.5 million and $24.3 million, for the years ended December 31, 2018, 2017 and 2016, respectively. Future minimum rental commitments under non‑cancelable operating leases are as follows: Year Commitments (in thousands) 2019 $ 16,488 2020 9,797 2021 5,757 2022 2,913 2023 2,320 Thereafter 5,161 $ 42,436 |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions | |
Related Party Transactions | 16. Related Party Transactions We earn investment management fee revenues from the Funds and IGI Funds for which we act as an investment adviser, pursuant to an investment management agreement with each Fund. In addition, we have agreements with the Funds pursuant to Rule 12b‑1 under the ICA for which distribution and service fees are collected from the Funds for distribution of mutual fund shares, for costs such as advertising and commissions paid to broker-dealers, and for providing ongoing services to shareholders of the Funds and/or maintaining shareholder accounts. We also earn service fee revenues by providing various services to the Funds and their shareholders pursuant to a shareholder servicing agreement with each Fund (except Ivy VIP) and an accounting service agreement with each Fund. Certain of our officers and directors are also officers and/or trustees for the various Funds for which we act as an investment adviser. These agreements are approved or renewed on an annual basis by each Fund’s board of trustees, including a majority of the disinterested members. Revenues for services provided or related to the Funds and IGI Funds for the years ended December 31, 2018, 2017 and 2016 are as follows: 2018 2017 2016 (in thousands) Investment management fees $ 486,581 508,035 523,304 Rule 12b-1 service and distribution fees 141,220 159,873 208,901 Shareholder service fees 102,385 106,595 120,241 Total revenues $ 730,186 774,503 852,446 Included in Funds and separate accounts receivable at December 31, 2018 and 2017 are receivables due from the Funds of $14.6 and $20.6 million, respectively. |
Contingencies
Contingencies | 12 Months Ended |
Dec. 31, 2018 | |
Contingencies | |
Contingencies | 17. 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 Topic.” These amounts are not reduced by amounts that may be recovered under insurance or claims against 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 must be disclosed. Management’s judgment is required related to contingent liabilities because the outcomes are difficult to predict. Shareholder Derivative Litigation In an action filed on April 18, 2016 in the District Court of Johnson County, Kansas, Hieu Phan v. Ivy Investment Management Company, et al. (Case No. I6CV02338 Div. 4), plaintiff filed a putative derivative action on behalf of the nominal defendant, a mutual fund trust affiliated with the Company, alleging breach of fiduciary duty and breach of contract claims relating to an investment held in the affiliated mutual fund by the Company's registered investment adviser subsidiary. On behalf of the nominal defendant trust, plaintiff filed claims against the Company’s registered investment adviser subsidiary and current and retired trustees of the trust seeking monetary damages and demanding a jury trial. While 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 trust, the parties to the litigation reached a settlement. The February 14, 2018 settlement agreement provided a full release for the benefit of defendants and for the payment of $19.9 million (less $6.1 million for attorney’s fees plus nominal costs associated with notice to shareholders), recoverable to the Company through insurance, to the affiliated mutual fund for the benefit of its shareholders. On July 30, 2018, the court entered an order granting final approval of the settlement. The settlement amount has been funded by insurance, and the affiliated mutual fund has received the net settlement amount after deduction for attorney’s fees and nominal costs described above. 401(k) Plan Class Action Litigation In an action filed on June 23, 2017 and amended on June 26, 2017 in the U.S. District Court for the District of Kansas, Schapker v. Waddell & Reed Financial, Inc., et al, (Case No. 17-2365 D. Kan.), Stacy Schapker, 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 Committee of the 401(k) Plan, and unnamed Jane and John Doe Defendants 1-25. On August 7, 2017, plaintiff filed a second amended complaint on behalf of the 401(k) Plan and a proposed class of 401(k) Plan participants, alleging claims for breach of fiduciary duty and prohibited transactions under the Employee Retirement Income Security Act of 1974, as amended, based on the 401(k) Plan’s offering of investments managed by the Company or its affiliates during a proposed class period of June 23, 2011 to present. The second amended complaint dismissed the Company’s Board of Directors as a defendant and named as defendants the Company, the Compensation Committee of the Company’s Board of Directors, the Administrative Committee of the 401(k) Plan, and the individuals who served on those committees during the proposed class period. While the Company and all other defendants deny any and all liability with respect to the claims, the parties to the litigation reached a settlement. The November 19, 2018 settlement agreement contemplates a full release for the benefit of the Company and all other defendants and the payment of $4.875 million (less attorney’s fees and costs, class representative compensation, and administrative expenses) to eligible settlement class members, their beneficiaries or alternate payees. On November 28, 2018, the court entered an order granting preliminary approval of the settlement, including preliminary certification of a class for settlement purposes only, to include 401(k) Plan participants at any time during the approved class period of June 23, 2011 to November 28, 2018. A fairness hearing is scheduled for April 8, 2019, at which the court will consider granting final approval to the settlement. The settlement is subject to final court approval. The payments contemplated by the proposed settlement are recoverable to the Company through insurance. The Company has recorded a liability and offsetting receivable from insurance, as reflected in the Company's consolidated balance sheets. |
Concentrations of Risk
Concentrations of Risk | 12 Months Ended |
Dec. 31, 2018 | |
Concentrations of Risk | |
Concentrations of Risk | 18. Concentrations of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents held. The Company maintains cash and cash equivalents with various financial institutions. Cash deposits maintained at financial institutions may exceed the federally insured limit. Our investments in sponsored funds and investments held as trading expose us to market risk. The underlying holdings of our AUM are also subject to market risk, which may arise from changes in equity prices, credit ratings, foreign currency exchange rates, and interest rates. |
Selected Quarterly Information
Selected Quarterly Information (Unaudited) | 12 Months Ended |
Dec. 31, 2018 | |
Selected Quarterly Information (Unaudited) | |
Selected Quarterly Information (Unaudited) | 19. Selected Quarterly Information (Unaudited) Quarter First Second Third Fourth (in thousands) 2018 Total revenues $ 297,615 295,338 295,118 272,230 Net income attributable to Waddell & Reed Financial, Inc. $ 46,337 44,478 46,305 46,468 Net income per share, basic and diluted $ 0.56 0.55 0.58 0.60 Quarter First Second Third Fourth (in thousands) 2017 Total revenues $ 286,564 286,657 289,447 294,476 Net income attributable to Waddell & Reed Financial, Inc. $ 33,871 24,061 53,582 29,765 Net income per share, basic and diluted $ 0.40 0.29 0.64 0.36 |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Description of Business and Significant Accounting Policies | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Amounts in the accompanying financial statements and notes are rounded to the nearest thousand unless otherwise stated. Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation. The Company operates in one business segment as the Company’s management utilizes a consolidated approach to assess performance and allocate resources. Effective January 1, 2018, the Company changed the presentation of certain line items in the consolidated statements of income that are intended to improve the transparency of the Company’s financial statements through clearer alignment of operating expenses with financial statement captions. Specifically, the Company revised its accounting policy related to the reporting of indirect underwriting and distribution expenses in the former underwriting and distribution caption and certain expenses historically reported as general and administrative. Expenses previously recorded as underwriting and distribution expenses were retrospectively reclassified into (a) the following existing operating expense captions: Compensation and benefits and General and administrative, and (b) the following newly created operating expense captions: Distribution, Technology, Occupancy, and Marketing and advertising. Certain expenses historically reported as general and administrative were retrospectively reclassified into the following newly created operating expense captions: Technology, Occupancy, and Marketing and advertising. The Company considers the change in policy to be preferable and does not consider the change to be material to its consolidated financial statements. These changes were applied retrospectively to all periods presented and do not affect net income attributable to the Company. The Company also adopted Accounting Standards Update (“ASU”) 2017-07, “ Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ”. As a result, the Company retrospectively reclassified all net periodic pension costs, other than the historical service cost, from Compensation and benefits to Investment and other income (loss) within the consolidated statements of income. The reclassification of expenses as a result of the adoption of ASU 2017-07 does not affect net income attributable to the Company. |
Consolidation | Consolidation In the normal course of our business, we sponsor and manage various types of investment products. These investment products include open-end mutual funds, a closed-end mutual fund, privately offered funds, exchange-traded managed funds, and a Luxembourg SICAV. When creating and launching a new investment product, we typically fund the initial cash investment, commonly referred to as “seeding,” to allow the investment product the ability to generate an investment performance track record so that it is able to attract third party investors. Our initial investment in a new product typically represents 100% of the ownership in that product. We generally redeem our investment in seeded products when the related product establishes a sufficient track record, when third party investments in the related product are sufficient to sustain the strategy, or when a decision is made to no longer pursue the strategy. The length of time we hold a majority interest in a product varies based on a number of factors, including market demand, market conditions and investment performance. Our exposure to risk in these investment products is generally limited to any equity investment we have in the product and any earned but uncollected management or other fund-related service fees. In accordance with financial accounting standards, we consolidate certain sponsored investment products in which we have a controlling interest or the investment product meets the criteria of a variable interest entity (“VIE”) and we are deemed to be the primary beneficiary. In order to make this determination, an analysis is performed to determine if the investment product is a VIE or a voting interest entity (“VOE”). Assessing if an entity is a VIE or VOE involves judgment and analysis on an entity by entity basis. Factors included in this assessment include the legal organization of the entity, the Company’s contractual involvement with the entity and any implications resulting from or associated with related parties’ involvement with the entity. A VIE is an entity which does not have adequate equity to finance its activities without subordinated financial support, the equity investors do not have the normal characteristics of equity investors for a potential controlling financial interest as a group, or the voting rights are not proportional to their obligations to absorb the expected losses or their rights to receive the expected residual returns of the entity. The Company is deemed to be the primary beneficiary if it absorbs a majority of the VIE’s expected losses, expected residual returns, or both. If the Company is the primary beneficiary of a VIE, we are required to consolidate the assets, liabilities, results of operations and cash flows of the VIE into our consolidated financial statements. If an entity does not meet the criteria and is not considered a VIE, it is treated as a VOE, which is subject to traditional consolidation concepts based on ownership rights. Sponsored investment products that are considered VOEs are consolidated if we have a controlling financial interest in the entity absent substantive investor rights to replace the investment manager of the entity (kick-out rights). |
Use of Estimates | Use of Estimates GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and accompanying notes, and related disclosures of commitments and contingencies. Estimates are used for, but are not limited to, depreciation and amortization, income taxes, valuation of assets, pension and postretirement obligations, and contingencies. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Actual results could differ from our estimates. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents include cash on hand and short‑term investments. We consider all highly liquid investments with maturities upon acquisition of 90 days or less to be cash equivalents. Cash and cash equivalents – restricted represents cash held for the benefit of customers and non-customers segregated in compliance with federal and other regulations. |
Disclosures About Fair Value of Financial Instruments | Disclosures About Fair Value of Financial Instruments Fair value of cash and cash equivalents, receivables and payables approximates carrying value. Fair values for investment securities are based on quoted market prices, where available. Otherwise, fair values for investment securities are based on Level 2 or Level 3 inputs detailed in Note 4. Fair value of long‑term debt is disclosed in Note 8. |
Investment Securities and Investments in Sponsored Funds | Investment Securities and Investments in Sponsored Funds Our investments are comprised of debt and equity securities, investments in sponsored funds and sponsored privately offered funds. Sponsored funds, which include the Funds and the IGI Funds, are investments we have made to provide seed capital for new investment products. The Company has classified its investments in certain sponsored funds as either equity method investments (when the Company owns between 20% and 50% of the fund) or as equity securities measured at fair value through net income (when the Company owns less than 20% of the fund). Unrealized gains and losses on debt securities classified as available for sale, net of related tax effects, are excluded from earnings until realized and are reported as a separate component of comprehensive income. For debt securities classified as trading and equity securities, unrealized gains and losses are included in earnings. Realized gains and losses are computed using the specific identification method for all investment securities, other than sponsored funds. For sponsored funds, realized gains and losses are computed using the average cost method. Substantially all of the Company’s equity method investees are investment companies that record their underlying investments at fair value. Therefore, under the equity method of accounting, our share of the investee's underlying net income or loss is predominantly representative of fair value adjustments in the investments held by the equity method investee. Our share of the investee's net income or loss is based on the most current information available and is recorded as a net gain or loss on investments within investment and other income (loss). Our available for sale debt securities are reviewed each quarter and adjusted for other than temporary declines in value. We consider factors affecting the issuer and the industry in which the issuer operates, general market trends including interest rates, and our ability and intent to hold an investment until it has recovered. Consideration is given to the length of time an investment’s market value has been below its amortized cost basis as well as prospects for recovery to the amortized cost basis. When a decline in the fair value of debt securities is determined to be other than temporary, the amount of the impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current‑period credit loss. If so, the other than temporary impairment recognized in earnings is equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If not, the portion of the impairment related to the credit loss is recognized in earnings while the portion of the impairment related to other factors is recognized in other comprehensive income, net of tax. |
Property and Equipment | Property and Equipment Property and equipment are carried at cost. The costs of improvements that extend the life of a fixed asset are capitalized, while the costs of repairs and maintenance are expensed as incurred. Depreciation and amortization are calculated and recorded using the straight‑line method over the estimated useful life of the related asset (or lease term if shorter), generally three to 10 years for furniture and fixtures; one to 10 years for computer software; one to five years for data processing equipment; one to 30 years for buildings; two to 26 years for other equipment; and up to 15 years for leasehold improvements, determined by the lesser of the lease term or expected life. |
Software Developed for Internal Use | Software Developed for Internal Use Certain internal costs incurred in connection with developing or obtaining software for internal use are capitalized in accordance with ASC 350, “Intangibles – Goodwill and Other Topic.” Internal costs capitalized are included in property and equipment, net in the consolidated balance sheets, and were $6.4 million and $10.5 million as of December 31, 2018 and 2017, respectively. Amortization begins when the software project is complete and ready for its intended use and continues over the estimated useful life, generally one to 10 years. |
Goodwill and Identifiable Intangible Assets | Goodwill and Identifiable Intangible Assets Goodwill represents the excess of cost over fair value of the identifiable net assets of acquired companies. Indefinite-lived intangible assets represent advisory and subadvisory management contracts for managed assets obtained in acquisitions. The Company considers these contracts to be indefinite-lived intangible assets as they are expected to be renewed without significant cost or modification of terms. Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Goodwill and intangible assets require significant management estimates and judgment, including the valuation determination in connection with the initial purchase price allocation and the ongoing evaluation for impairment. Additional information related to the indefinite-lived intangible assets is included in Note 7. |
Revenue Recognition | Revenue Recognition As of January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers ” and all subsequent ASUs that modified Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers.” The Company elected to apply the standard utilizing the cumulative effect approach. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue. Investment Management and Advisory Fees We recognize investment management and advisory fees as earned over the period in which investment management and advisory services are provided. While our investment management and advisory contracts are long-term in nature, the performance obligations are generally satisfied daily or monthly based on AUM. We calculate investment management fees from the Funds daily based upon average daily net AUM in accordance with investment management agreements between the Funds and the Company. The majority of investment and/or advisory fees earned from institutional accounts are calculated either monthly or quarterly based upon an average of net AUM in accordance with such investment management agreements. The Company may waive certain fees for investment management services at its discretion, or in accordance with contractual expense limitations, and these waivers are reflected as a reduction to investment management fees on the consolidated statements of income. Our investment advisory business receives research products and services from broker-dealers through “soft dollar” arrangements. Consistent with the “soft dollar” safe harbor established by Section 28(e) of the Securities Exchange Act of 1934, as amended, the investment advisory business does not have any contractual obligation requiring it to pay for research products and services obtained through soft dollar arrangements with brokers. As a result, we present “soft dollar” arrangements on a net basis. The Company has contractual arrangements with third parties to provide subadvisory services. Investment advisory fees are recorded gross of any subadvisory payments and are included in investment management fees based on management’s determination that the Company is acting in the capacity of principal service provider with respect to its relationship with the Funds. Any corresponding fees paid to subadvisors are included in operating expenses. Underwriting, Distribution and Shareholder Service Fees Fee‑based asset allocation products offer clients a selection of traditional asset allocation models, as well as features such as systematic rebalancing and client and Advisor participation in determining asset allocation across asset classes. Underwriting and distribution fee-based asset allocation revenues are calculated monthly based upon beginning of month client assets and are earned over the period in which services are provided. Performance obligations are generally satisfied daily or monthly based on client assets. Under a Rule 12b-1 service plan, the Funds may charge a maximum fee of 0.25% of the average daily net AUM for Ivy Funds Class B, C, E and Y shares for expenses paid to broker-dealers and other sales professionals in connection with providing ongoing services to the Funds’ shareholders and/or maintaining the Funds’ shareholder accounts, with the exception of the Funds’ Class R shares, for which the maximum fee is 0.50%. The Funds’ Class B and C shares may charge a maximum of 0.75% of the average daily net AUM under a Rule 12b-1 distribution plan to broker-dealers and other sales professionals for their services in connection with distributing shares of that class. The Funds’ Class A shares may charge a maximum fee of 0.25% of the average daily net AUM under a Rule 12b-1 service and distribution plan for expenses detailed previously. The Rule 12b-1 plans are subject to annual approval by the Funds’ board of trustees, including a majority of the disinterested members, by votes cast in person at a meeting called for the purpose of voting on such approval. All Funds may terminate the service and distribution plans at any time with approval of fund trustees or portfolio shareholders (a majority of either) without penalty. Underwriting and distribution commission revenues resulting from the sale of investment products are recorded upon satisfaction of performance obligations, which occurs on the trade date. For certain types of investment products, primarily variable annuities, distribution revenues are generally calculated based upon average daily net assets. When a client purchases Class A or Class E shares (front-end load), the client pays an initial sales charge of up to 5.75% of the amount invested. The sales charge for Class A or Class E shares typically declines as the investment amount increases. In addition, investors may combine their purchases of all fund shares to qualify for a reduced sales charge. When a client invests in a fee-based asset allocation product, Class I or Y shares are purchased at net asset value, and we do not charge an initial sales charge. Underwriting and distribution revenues resulting from payments from Advisors for office space, compliance oversight and affiliation fees are earned over the period in which the service is provided, which is generally monthly and is based on a fee schedule. Fees collected from Advisors for various services are recorded in underwriting and distribution fees on a gross basis, as the Company is the principal in these arrangements. Shareholder service fee revenue primarily includes transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees. Transfer agency fees and portfolio accounting and administration fees are asset‑based revenues or account‑based revenues, while custodian fees from retirement plan accounts are based on the number of client accounts. Custodian fees, transfer agency fees and portfolio accounting and administration fees are earned upon completion of the service when all performance obligations have been satisfied. |
Advertising and Promotion | Advertising and Promotion We expense all advertising and promotion costs as the advertising or event takes place. Advertising expense was $8.1 million, $9.7 million and $9.4 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is classified in marketing and advertising expense in the consolidated statements of income. |
Leases | Leases The Company leases office space under various leasing arrangements. Certain lease agreements contain renewal options, rent escalation clauses and/or other inducements provided by the landlord. Rent expense is recorded on a straight-line basis, including escalations and inducements, over the term of the lease. |
Share-Based Compensation | Share‑Based Compensation We account for share‑based compensation expense using the fair value method. Under the fair value method, share‑based compensation expense reflects the fair value of share‑based awards measured at grant date, and is recognized over the service period. The Company also issues share‑based awards to our Board of Directors. Changes in the Company’s share price result in variable compensation expense over the vesting period of awards granted to our Board of Directors. The Company’s Cash Settled RSU Plan (the “RSU Plan”) allows the Company to grant cash-settled restricted stock units (“RSUs”). Unvested RSUs have no purchase price and vest in 25% increments over four years, beginning on the first anniversary of the grant date. On the vesting date, RSU holders receive a lump sum cash payment equal to the fair market value of one share of the Company’s common stock, par value $0.01, for each RSU that has vested, subject to applicable tax withholdings. We treat RSUs as liability-classified awards and, therefore, account for them at fair value based on the closing price of our common stock on the reporting date, which results in variable compensation expense over the vesting period. |
Accounting for Income Taxes | Accounting for Income Taxes Income tax expense is based on pre-tax income, including adjustments made for the recognition or derecognition related to uncertain tax positions. The recognition or derecognition of income tax expense related to uncertain tax positions is determined under the guidance as prescribed by ASC 740, “ Income Taxes Topic. ” Deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized to reduce deferred tax assets if, based on available evidence, it is more likely than not that all or some portion of the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect when they are expected to be realized or settled. The effect on the measurement of deferred tax assets and liabilities of a change in income tax law is recognized in earnings in the period that includes the enactment date. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted, which significantly revised the U.S. corporate income tax system by, among other things, permanently reducing the federal statutory tax rate from 35% to 21% effective January 1, 2018. The Company recorded a one-time charge of $5.4 million in the fourth quarter of 2017 to measure net deferred tax assets at the reduced federal statutory rate. According to guidance from SEC Staff Accounting Bulletin 118, the Company recognized a provisional tax impact related to the revaluation of deferred tax assets and liabilities and included those amounts in its consolidated financial statements for the year ended December 31, 2017. In the third quarter of 2018, we finalized our 2017 U.S. corporate income tax return and revised provisional adjustments made to our net deferred tax asset. Accordingly, we recorded a discrete tax benefit of $1.0 million. The Company now considers its accounting for the income tax effects of the Tax Reform Act to be complete. |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Revenue Recognition | |
Summary of disaggregation of revenue | For the Year ended December 31, 2018 2017 2016 (in thousands) Investment management fees: Funds $ 486,181 506,868 521,207 Institutional 21,725 24,982 35,905 Total investment management fees 507,906 531,850 557,112 Underwriting and distribution fees: Unaffiliated Rule 12b-1 service and distribution fees 78,041 91,313 121,926 Sales commissions on front-end load mutual fund and variable annuity sales 1,886 1,498 565 Other revenues 568 1,182 2,924 Total unaffiliated distribution fees 80,495 93,993 125,415 Broker-Dealer Fee-based asset allocation product revenues 269,069 240,089 224,319 Rule 12b-1 service and distribution fees 70,938 75,850 93,260 Sales commissions on front-end load mutual fund and variable annuity sales 54,895 55,293 67,169 Sales commissions on other products 36,131 31,286 31,246 Other revenues 38,482 22,188 20,261 Total broker-dealer distribution fees 469,515 424,706 436,255 Total distribution fees 550,010 518,699 561,670 Shareholder service fees: Total shareholder service fees 102,385 106,595 120,241 Total revenues $ 1,160,301 1,157,144 1,239,023 |
Investment Securities (Tables)
Investment Securities (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Investment Securities | |
Schedule of investment securities | December 31, December 31, 2018 2017 (in thousands) Available for sale securities: Certificates of deposit $ 5,001 12,999 Commercial paper 7,970 34,978 Corporate bonds 218,121 197,442 U.S. Treasury bills 19,672 19,779 Total available for sale securities 250,764 265,198 Trading debt securities: Certificates of deposit — 1,999 Commercial paper 1,993 — Corporate bonds 77,250 55,414 U.S. Treasury bills 5,884 4,929 Mortgage-backed securities 7 10 Consolidated sponsored funds 33,088 62,038 Total trading securities 118,222 124,390 Equity securities: Common stock 21,204 116 Sponsored funds (1) 153,548 137,857 Sponsored privately offered funds 678 695 Consolidated sponsored funds 24,879 77,048 Total equity securities 200,309 215,716 Equity method securities: Sponsored funds 47,840 95,188 Total securities $ 617,135 700,492 (1) Includes $124.0 million of investments at December 31, 2017, that were previously reported as available for sale securities prior to the adoption of ASU 2016-01 on January 1, 2018. Refer to Note 2 – New Accounting Guidance - Accounting Guidance Adopted During Fiscal Year 2018. |
Summary of maturities of securities held | Certificates of deposit, commercial paper, corporate bonds and U.S. Treasury bills accounted for as available for sale and held as of December 31, 2018 mature as follows: Amortized cost Fair value (in thousands) Within one year $ 97,196 96,726 After one year but within five years 154,614 154,038 $ 251,810 250,764 Commercial paper, corporate bonds, U.S. Treasury bills and mortgage-backed securities accounted for as trading and held as of December 31, 2018 mature as follows: Fair value (in thousands) Within one year $ 30,929 After one year but within five years 49,660 After five years but within 10 years 4,545 $ 85,134 |
Summary of the gross unrealized gains (losses) related to securities | The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2018: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Certificates of deposit $ 5,000 1 — 5,001 Commercial paper 7,902 68 — 7,970 Corporate bonds 219,236 254 (1,369) 218,121 U.S. Treasury bills 19,672 — — 19,672 $ 251,810 323 (1,369) 250,764 The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2017: Amortized Unrealized Unrealized cost gains losses Fair value (in thousands) Available for sale securities: Certificates of deposit $ 13,000 1 (2) 12,999 Commercial paper 34,836 142 — 34,978 Corporate bonds 198,404 33 (995) 197,442 U.S. Treasury bills 20,019 — (240) 19,779 $ 266,259 176 (1,237) 265,198 |
Summary of available for sale sponsored funds with fair values below carrying values | A summary of available for sale sponsored funds with fair values below carrying values at December 31, 2018 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized December 31, 2018 Fair value losses Fair value losses Fair value losses (in thousands) Corporate bonds $ 36,302 (160) 119,480 (1,209) 155,782 (1,369) A summary of available for sale sponsored funds with fair values below carrying values at December 31, 2017 is as follows: Less than 12 months 12 months or longer Total Unrealized Unrealized Unrealized December 31, 2017 Fair value losses Fair value losses Fair value losses (in thousands) Certificates of deposit $ 2,998 (2) — — 2,998 (2) Corporate bonds 192,409 (995) — — 192,409 (995) U.S. Treasury bills 19,779 (240) — — 19,779 (240) $ 215,186 (1,237) — — 215,186 (1,237) |
Summary of balances related to consolidated sponsored funds as well the company’s net interest in these funds | December 31, December 31, 2018 2017 (in thousands) Cash $ 4,285 8,472 Investments 57,967 139,086 Other assets 872 1,588 Other liabilities (79) (1,040) Redeemable noncontrolling interests (11,463) (14,509) Net interest in consolidated sponsored funds $ 51,582 133,597 |
Schedule of fair value of investment securities | December 31, 2018 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 121,759 — — — 121,759 U.S. government sponsored enterprise note — 895 — — 895 Commercial paper — 74,277 — — 74,277 Total cash equivalents $ 121,759 75,172 — — 196,931 Available for sale securities: Certificates of deposit $ — 5,001 — — 5,001 Commercial paper — 7,970 — — 7,970 Corporate bonds — 218,121 — — 218,121 U.S. Treasury bills — 19,672 — — 19,672 Trading debt securities: Commercial paper — 1,993 — — 1,993 Corporate bonds — 77,250 — 77,250 U.S. Treasury bills — 5,884 — — 5,884 Mortgage-backed securities — 7 — — 7 Consolidated sponsored funds — 33,088 — — 33,088 Equity securities: Common stock 21,192 — 12 — 21,204 Sponsored funds 153,548 — — — 153,548 Sponsored privately offered funds measured at net asset value (2) — — — 678 678 Consolidated sponsored funds 24,879 — — — 24,879 Equity method securities: (3) Sponsored funds 47,840 — — — 47,840 Total $ 247,459 368,986 12 678 617,135 December 31, 2017 Level 1 Level 2 Level 3 Other Assets Held at Net Asset Value Total (in thousands) Cash equivalents: (1) Money market funds $ 145,785 — — — 145,785 Commercial paper — 11,064 — — 11,064 Total cash equivalents $ 145,785 11,064 — — 156,849 Available for sale securities: Certificates of deposit $ — 12,999 — — 12,999 Commercial paper — 34,978 — — 34,978 Corporate bonds — 197,442 — — 197,442 U.S. Treasury bills — 19,779 — — 19,779 Trading debt securities: Certificates of deposit — 1,999 — — 1,999 Corporate bonds — 55,414 — 55,414 U.S. Treasury bills — 4,929 — — 4,929 Mortgage-backed securities — 10 — — 10 Consolidated sponsored funds — 62,038 — — 62,038 Equity securities: Common stock 116 — — — 116 Sponsored funds 137,857 — — — 137,857 Sponsored privately offered funds measured at net asset value (2) — — — 695 695 Consolidated sponsored funds 77,048 — — — 77,048 Equity method securities: (3) Sponsored funds 95,188 — — — 95,188 Total $ 310,209 389,588 — 695 700,492 (1) Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at NAV and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization, and are classified as Level 2. (2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. (3) Substantially all of the Company’s equity method investments are investment companies that record their underlying investments at fair value. |
Schedule of activity of investments categorized as Level 3 | For the year ended December 31, 2018 (in thousands) Level 3 assets at December 31, 2017 $ — Additions 359 Valuation change 5 Redemptions (352) Level 3 assets at December 31, 2018 $ 12 |
Derivative Financial Instrume_2
Derivative Financial Instruments (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Derivative Financial Instruments | |
Schedule of fair value of derivative financial instruments, excluding derivative financial instruments held in certain consolidated sponsored funds | December 31, December 31, 2018 2017 Balance sheet location Fair value Fair value (in thousands) Total return swap contracts Prepaid expenses and other current assets $ 4,968 — Total return swap contracts Other current liabilities — 1,093 Total $ 4,968 1,093 |
Schedule of net gains (losses) recognized in income of derivative financial instrument | Year ended Income statement December 31, location 2018 2017 (in thousands) Total return swap contracts Investment and other income (loss) $ 15,163 (36,368) |
Property and Equipment (Tables)
Property and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Property and Equipment | |
Schedule of property and equipment, net | Estimated 2018 2017 useful lives (in thousands) Leasehold improvements $ 21,790 22,106 1 - 15 years Furniture and fixtures 28,482 30,529 3 - 10 years Equipment 20,248 20,802 2 - 26 years Computer software 100,507 99,644 1 - 10 years Data processing equipment 17,056 18,678 1 - 5 years Buildings 11,772 11,759 1 - 30 years Land 2,843 2,843 Property and equipment, at cost 202,698 206,361 Accumulated depreciation (139,269) (118,694) Property and equipment, net $ 63,429 87,667 |
Goodwill and Identifiable Int_2
Goodwill and Identifiable Intangible Assets (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Goodwill and Identifiable Intangible Assets | |
Schedule of goodwill and identifiable intangible assets | December 31, December 31, 2018 2017 (in thousands) Goodwill $ 106,970 106,970 Mutual fund management advisory contracts 38,699 38,699 Mutual fund management subadvisory contract — 1,200 Other 200 200 Total identifiable intangible assets 38,899 40,099 Total $ 145,869 147,069 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Income Taxes | |
Schedule of provision for income taxes | 2018 2017 2016 (in thousands) Current taxes: Federal $ 54,071 73,167 72,711 State 625 7,720 7,174 Foreign 1 — 17 54,697 80,887 79,902 Deferred taxes 783 20,481 1,982 Provision for income taxes $ 55,480 101,368 81,884 |
Schedule of reconciliation of statutory federal income tax rate with effective income tax rate | 2018 2017 2016 Statutory federal income tax rate 21.0 % 35.0 % 35.0 % State income taxes, net of federal tax benefit 2.4 2.2 2.0 Share-based compensation 1.8 3.4 — Effects of U.S. tax rate decrease (0.4) 2.2 — Uncertain tax positions (2.2) (0.2) (0.1) Valuation allowance on losses capital in nature — (1.0) (3.2) Other items 0.7 (0.3) 0.4 Effective income tax rate 23.3 % 41.3 % 34.1 % |
Schedule of deferred tax liabilities and deferred tax assets | 2018 2017 (in thousands) Deferred tax assets: Benefit plans $ — 3,381 Accrued compensation and related costs 5,868 5,558 Other accrued expenses 3,861 4,094 Unrealized losses on investment securities and partnerships 6,272 — Share-based compensation 10,300 15,047 Unused state tax credits 2,618 2,788 State net operating loss carryforwards 7,266 7,235 Other 1,171 2,874 Total gross deferred assets 37,356 40,977 Deferred tax liabilities: Property and equipment $ (3,700) (7,301) Benefit plans (1,872) — Identifiable intangible assets (9,206) (7,419) Unrealized gains on investments securities and partnerships — (3,554) Prepaid expenses (2,478) (1,679) Other (513) (481) Total gross deferred liabilities (17,769) (20,434) Valuation allowance (7,266) (7,235) Net deferred tax asset $ 12,321 13,308 |
Summary of the Company's reconciliation of unrecognized tax benefits, excluding penalties and interest | The following table summarizes the Company's reconciliation of unrecognized tax benefits, excluding penalties and interest, for the years ended December 31, 2018, 2017 and 2016: 2018 2017 2016 (in thousands) Balance at beginning of year $ 6,843 7,734 8,448 Increases during the year: Gross increases - tax positions in prior period 712 244 465 Gross increases - current-period tax positions 331 97 494 Decreases during the year: Gross decreases - tax positions in prior period (4,219) (56) (167) Decreases due to settlements with taxing authorities (1,385) (178) (21) Decreases due to lapse of statute of limitations (212) (998) (1,485) Balance at end of year $ 2,070 6,843 7,734 |
Pension Plan and Postretireme_2
Pension Plan and Postretirement Benefits Other Than Pension (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Pension Plan and Postretirement Benefits Other Than Pension | |
Schedule of changes in net funded status, disclosure of amounts recognized in the balance sheet, and the assumptions used to determine the benefit obligation | A reconciliation of the funded status of these plans and the assumptions related to the obligations at December 31, 2018, 2017 and 2016 are as follows: Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands) Change in projected benefit obligation: Net benefit obligation at beginning of year $ 184,245 180,921 210,783 2,195 2,446 8,421 Service cost — 8,367 12,199 — — 555 Interest cost 5,986 6,248 9,432 54 58 297 Benefits paid (13,690) (8,511) (52,288) (602) (954) (674) Actuarial (gain) loss (22,013) 28,841 (19,886) (965) 139 1,790 Retiree contributions — — — 366 506 532 Curtailment gain — (31,621) — — — (8,475) Settlement loss — — 20,681 — — — Net benefit obligation at end of year $ 154,528 184,245 180,921 1,048 2,195 2,446 Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands) Change in plan assets: Fair value of plan assets at beginning of year $ 170,881 144,529 173,885 — — — Actual return on plan assets 1,808 24,863 2,932 — — — Employer contributions 4,000 10,000 20,000 236 448 142 Retiree contributions — — — 366 506 532 Benefits paid (13,690) (8,511) (52,288) (602) (954) (674) Fair value of plan assets at end of year $ 162,999 170,881 144,529 — — — Funded status at end of year $ 8,471 (13,364) (36,392) (1,048) (2,195) (2,446) Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands, except percentage data) Amounts recognized in the statement of financial position: Noncurrent assets $ 8,471 — — — — — Current liabilities — — — (250) (422) (458) Noncurrent liabilities — (13,364) (36,392) (798) (1,773) (1,988) Net amount recognized at end of year $ 8,471 (13,364) (36,392) (1,048) (2,195) (2,446) Weighted average assumptions used to determine benefit obligation at December 31: Discount rate 4.45 % 3.76 % 4.39 % 4.08 % 3.28 % 3.46 % Rate of compensation increase Not applicable 5.12 % Not applicable |
Schedule of Pension Plan asset allocation | Our Pension Plan asset allocation at December 31, 2018 and 2017 is as follows: Percentage of Percentage of Plan Assets at Plan Assets at Plan assets by category December 31, 2018 December 31, 2017 Cash 2 % 40 % Equity securities: Domestic — 29 % International — 18 % Fixed income securities 98 % 8 % Gold bullion — 5 % Total 100 % 100 % |
Summary of entity's pension plan assets fair value | 2018 Level 1 Level 2 Level 3 Total (in thousands) Cash equivalents $ — 465 — 465 Equity securities: International — 4 — 4 Fixed income securities: U.S. Treasuries — 46,415 — 46,415 Corporate bond — 91,521 — 91,521 Foreign bonds — 21,870 — 21,870 Total investment securities — 160,275 — 160,275 Cash 2,724 Total $ 162,999 2017 Level 1 Level 2 Level 3 Total (in thousands) Cash equivalents $ — 66,779 — 66,779 Equity securities: Domestic 49,540 — — 49,540 International 4,889 26,542 — 31,431 Fixed income securities: U.S. Treasuries — 6,455 — 6,455 Corporate bond — 587 — 587 Foreign Bonds — 6,591 — 6,591 Gold bullion 8,369 — — 8,369 Total investment securities 62,798 106,954 — 169,752 Cash 1,129 Total $ 170,881 |
Schedule of components of net periodic pension and other postretirement costs | The components of net periodic pension and other postretirement costs consisted of the following for the years ended December 31, 2018, 2017 and 2016: Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 (in thousands) Components of net periodic benefit cost: Service cost $ — 8,367 12,199 — — 555 Interest cost 5,986 6,248 9,432 54 58 297 Expected return on plan assets (8,320) (10,113) (13,927) — — — Actuarial (gain) loss (15,501) 14,091 (8,891) — — — Actuarial gain amortization — — — (120) (180) (153) Prior service cost amortization — — — (2) (4) 4 Curtailment gain — (31,621) — — — (8,475) Settlement loss — — 20,681 — — — Total $ (17,835) (13,028) 19,494 (68) (126) (7,772) |
Schedule of weighted average assumptions used to determine net periodic cost | The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2018, 2017 and 2016 are as follows: Other Pension Benefits Postretirement Benefits 2018 2017 2016 2018 2017 2016 Discount rate 3.76 % 4.39% / 3.96 1 % 4.60 % 3.28 % 3.46 % 4.44 % Expected return on plan assets 5.00 % 7.00% / 6.00 1 % 7.50 % Not applicable Rate of compensation increase Not applicable 5.12 % 5.12 % Not applicable ________________________ (1) Due to the Pension Plan freeze and associated remeasurement as of July 31, 2017, the discount rate changed from 4.39% to 3.96% and the expected return on assets changed from 7.00% to 6.00%. |
Schedule of expected benefit payments to be paid | Under current plan provisions, we expect the following benefit payments to be paid: Other Pension Postretirement Benefits Benefits (in thousands) 2019 $ 7,984 250 2020 8,068 179 2021 9,371 131 2022 8,843 116 2023 9,031 79 2024 through 2028 46,521 233 $ 89,818 988 |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Stockholders' Equity | |
Components of basic and diluted earnings per share | For the years ended December 31, 2018, 2017 and 2016, earnings per share were computed as follows: 2018 2017 2016 Net income attributable to Waddell & Reed Financial, Inc. $ 183,588 141,279 156,695 Weighted average shares outstanding, basic and diluted 80,468 83,573 82,668 Earnings per share, basic and diluted $ 2.28 1.69 1.90 |
Summary of other comprehensive income (loss) activity | The following tables summarize other comprehensive income (loss) activity for the years ended December 31, 2018 and 2017. Total Unrealized Postretirement accumulated gains (losses) on benefits other AFS investment unrealized comprehensive Year ended December 31, 2018 securities gains (losses) income (loss) (in thousands) Balance at December 31, 2017 $ 145 379 524 Amount reclassified to retained earnings for ASUs adopted in 2018 (955) 107 (848) Other comprehensive (loss) income before reclassification (360) 736 376 Amount reclassified from accumulated other comprehensive income (loss) 373 (94) 279 Net current period other comprehensive (loss) income (942) 749 (193) Balance at December 31, 2018 $ (797) 1,128 331 Change in valuation allowance for unrealized Total Unrealized gains Postretirement accumulated gains (losses) (losses) on benefits other on investment investment unrealized comprehensive Year ended December 31, 2017 securities securities gains (losses) income (loss) (in thousands) Balance at December 31, 2016 $ (3,972) (3,388) 603 (6,757) Other comprehensive income (loss) before reclassification 4,039 3,743 (106) 7,676 Amount reclassified from accumulated other comprehensive income (loss) 78 (355) (118) (395) Net current period other comprehensive income (loss) 4,117 3,388 (224) 7,281 Balance at December 31, 2017 $ 145 — 379 524 |
Summary of reclassifications from accumulated other comprehensive income (loss) and included in net income | Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow: For the year ended December 31, 2018 Tax (expense) Statement of income Pre-tax benefit Net of tax line item or retained earnings (in thousands) Reclassifications included in net income or retained earnings for ASUs adopted in 2018: Sponsored funds investment gains $ 1,295 (340) 955 Retained earnings Losses on available for sale debt securities $ (489) 116 (373) Investment and other income (loss) Amortization of postretirement benefits 122 (135) (13) Compensation and benefits and retained earnings Total $ 928 (359) 569 For the year ended December 31, 2017 Tax benefit Pre-tax (expense) Net of tax Statement of income line item (in thousands) Reclassifications included in net income: Sponsored funds investment losses $ (124) 46 (78) Investment and other income (loss) Valuation allowance — 355 355 Provision for income taxes Amortization of postretirement benefits 184 (66) 118 Compensation and benefits Total $ 60 335 395 |
Share-Based Compensation (Table
Share-Based Compensation (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Share-Based Compensation | |
Summary of nonvested share activity and related fair value | A summary of nonvested share activity and related fair value for the year ended December 31, 2018 follows: Weighted Average Nonvested Grant Date Stock Shares Fair Value Nonvested at December 31, 2017 5,088,640 $ 27.26 Granted 1,561,155 20.87 Vested (2,061,297) 32.02 Forfeited (494,738) 24.23 Nonvested at December 31, 2018 4,093,760 $ 22.79 |
Schedule of nonvested cash settled unit activity | A summary of nonvested RSU activity for the year ended December 31, 2018 follows: Nonvested Cash-Settled Units Nonvested at December 31, 2017 1,213,029 Granted 1,105,087 Vested (343,711) Forfeited (212,345) Nonvested at December 31, 2018 1,762,060 |
Uniform Net Capital Rule Requ_2
Uniform Net Capital Rule Requirements (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Uniform Net Capital Rule Requirements | |
Schedule of net capital and aggregated indebtedness information for broker/dealer subsidiaries | Net capital and aggregated indebtedness information for our broker-dealer subsidiaries is presented in the following table as of December 31, 2018 and 2017: 2018 2017 (in thousands) W&R IDI W&R IDI Net capital $ 57,109 25,688 28,024 21,167 Required capital 250 1,336 250 1,757 Excess of required capital $ 56,859 24,352 27,774 19,410 Ratio of aggregate indebtedness to net capital Not Not applicable 0.78 to 1.0 applicable 1.25 to 1.0 |
Rental Expense and Lease Comm_2
Rental Expense and Lease Commitments (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Rental Expense and Lease Commitments | |
Schedule of future minimum rental commitments under non-cancelable operating leases | Future minimum rental commitments under non‑cancelable operating leases are as follows: Year Commitments (in thousands) 2019 $ 16,488 2020 9,797 2021 5,757 2022 2,913 2023 2,320 Thereafter 5,161 $ 42,436 |
Related Party Transactions (Tab
Related Party Transactions (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions | |
Schedule of revenues for services provided or related to the Funds and IGI | Revenues for services provided or related to the Funds and IGI Funds for the years ended December 31, 2018, 2017 and 2016 are as follows: 2018 2017 2016 (in thousands) Investment management fees $ 486,581 508,035 523,304 Rule 12b-1 service and distribution fees 141,220 159,873 208,901 Shareholder service fees 102,385 106,595 120,241 Total revenues $ 730,186 774,503 852,446 |
Selected Quarterly Informatio_2
Selected Quarterly Information (Unaudited) (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Selected Quarterly Information (Unaudited) | |
Schedule of selected quarterly Information | Quarter First Second Third Fourth (in thousands) 2018 Total revenues $ 297,615 295,338 295,118 272,230 Net income attributable to Waddell & Reed Financial, Inc. $ 46,337 44,478 46,305 46,468 Net income per share, basic and diluted $ 0.56 0.55 0.58 0.60 Quarter First Second Third Fourth (in thousands) 2017 Total revenues $ 286,564 286,657 289,447 294,476 Net income attributable to Waddell & Reed Financial, Inc. $ 33,871 24,061 53,582 29,765 Net income per share, basic and diluted $ 0.40 0.29 0.64 0.36 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies - Basis of Presentation and Consolidation (Details) | 12 Months Ended |
Dec. 31, 2018segment | |
Summary of Significant Accounting Policies | |
Number of operating business segments | 1 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Summary of property and equipment (Details) - USD ($) $ in Millions | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Furniture and fixtures | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 3 years | |
Furniture and fixtures | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 10 years | |
Computer software | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 1 year | |
Computer software | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 10 years | |
Data processing equipment | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 1 year | |
Data processing equipment | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 5 years | |
Buildings | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 1 year | |
Buildings | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 30 years | |
Other equipment | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 2 years | |
Other equipment | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 26 years | |
Leasehold improvements | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 1 year | |
Leasehold improvements | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 15 years | |
Software Developed for Internal Use | ||
Summary of property and equipment | ||
Internal costs capitalized | $ 6.4 | $ 10.5 |
Software Developed for Internal Use | Minimum | ||
Summary of property and equipment | ||
Estimated useful lives | 1 year | |
Software Developed for Internal Use | Maximum | ||
Summary of property and equipment | ||
Estimated useful lives | 10 years |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies - Deferred Sales Commissions and Revenue Recognition (Details) | 12 Months Ended |
Dec. 31, 2018 | |
Ivy Funds Class C | |
Revenue Recognition | |
Maximum service plan fee (as a percent) | 0.25% |
Maximum distribution plan fee (as a percent) | 0.75% |
Ivy Funds Class E | |
Revenue Recognition | |
Maximum service plan fee (as a percent) | 0.25% |
Ivy Funds Class E | Maximum | |
Revenue Recognition | |
Sales charge (as a percent) | 5.75% |
Ivy Funds Class Y | |
Revenue Recognition | |
Maximum service plan fee (as a percent) | 0.25% |
Ivy Funds Class R | |
Revenue Recognition | |
Maximum service plan fee (as a percent) | 0.50% |
Ivy Funds Class A | |
Revenue Recognition | |
Maximum service plan fee (as a percent) | 0.25% |
Maximum distribution plan fee (as a percent) | 0.25% |
Ivy Funds Class A | Maximum | |
Revenue Recognition | |
Sales charge (as a percent) | 5.75% |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies - Advertising and Promotion (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Advertising and Promotion | |||
Advertising expense | $ 8.1 | $ 9.7 | $ 9.4 |
Summary of Significant Accoun_7
Summary of Significant Accounting Policies - Share Based Compensation and Accounting for Income Taxes (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 12 Months Ended | ||||
Sep. 30, 2018 | Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | |
Percentage increments vested on anniversaries on the grant date | 25.00% | 33.33% | ||||
Vesting period | 4 years | |||||
Par value, common stock | $ 0.01 | $ 0.01 | $ 0.01 | |||
Federal statutory tax rate | 21.00% | 35.00% | 35.00% | |||
Provisional tax impact related to the revaluation of deferred tax assets and liabilities | $ 5.4 | |||||
Discrete tax benefit | $ (1) | |||||
Cash Settled RSU Plan | ||||||
Percentage increments vested on anniversaries on the grant date | 25.00% | |||||
Vesting period | 4 years | |||||
Number of share of par value $0.01 on which lump sum cash payment is received by RSU holders | 1 | |||||
Par value, common stock | $ 0.01 |
New Accounting Guidance (Detail
New Accounting Guidance (Details) - ASU 2016-02 $ in Millions | Jan. 01, 2019USD ($) |
Minimum | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Operating lease, right-of-use asset | $ 35 |
Operating lease liability | 35 |
Maximum | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Operating lease, right-of-use asset | 45 |
Operating lease liability | $ 45 |
Revenue Recognition - Disaggreg
Revenue Recognition - Disaggregation of revenue (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Revenue Recognition | |||
Total Revenues | $ 1,160,301 | $ 1,157,144 | $ 1,239,023 |
Investment management fees | |||
Revenue Recognition | |||
Total Revenues | 507,906 | 531,850 | 557,112 |
Investment management fees - Funds | |||
Revenue Recognition | |||
Total Revenues | 486,181 | 506,868 | 521,207 |
Investment management fees - Institutional | |||
Revenue Recognition | |||
Total Revenues | 21,725 | 24,982 | 35,905 |
Underwriting and distribution fees | |||
Revenue Recognition | |||
Total Revenues | 550,010 | 518,699 | 561,670 |
Unaffiliated | |||
Revenue Recognition | |||
Total Revenues | 80,495 | 93,993 | 125,415 |
Unaffiliated Rule 12b-1 service and distribution fees | |||
Revenue Recognition | |||
Total Revenues | 78,041 | 91,313 | 121,926 |
Unaffiliated sales commissions on front-end load mutual fund and variable annuity sales | |||
Revenue Recognition | |||
Total Revenues | 1,886 | 1,498 | 565 |
Unaffiliated other revenues | |||
Revenue Recognition | |||
Total Revenues | 568 | 1,182 | 2,924 |
Broker-dealer | |||
Revenue Recognition | |||
Total Revenues | 469,515 | 424,706 | 436,255 |
Broker-dealer fee based asset allocation product revenue | |||
Revenue Recognition | |||
Total Revenues | 269,069 | 240,089 | 224,319 |
Broker-dealer Rule 12b-1 service and distribution fees | |||
Revenue Recognition | |||
Total Revenues | 70,938 | 75,850 | 93,260 |
Broker-dealer sales commissions on front-end load mutual fund and variable annuity sales | |||
Revenue Recognition | |||
Total Revenues | 54,895 | 55,293 | 67,169 |
Broker-dealer sales commissions on other products | |||
Revenue Recognition | |||
Total Revenues | 36,131 | 31,286 | 31,246 |
Broker-dealer other revenues | |||
Revenue Recognition | |||
Total Revenues | 38,482 | 22,188 | 20,261 |
Shareholder service fees | |||
Revenue Recognition | |||
Total Revenues | $ 102,385 | $ 106,595 | $ 120,241 |
Investment Securities - Investm
Investment Securities - Investment securities (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Available for sale securities: | ||
Available for sale securities | $ 250,764 | $ 265,198 |
Trading debt securities: | ||
Trading debt securities | 118,222 | 124,390 |
Equity securities: | ||
Equity securities | 200,309 | 215,716 |
Equity method securities: | ||
Total investment securities | 617,135 | 700,492 |
Certificates of deposit | ||
Available for sale securities: | ||
Available for sale securities | 5,001 | 12,999 |
Trading debt securities: | ||
Trading debt securities | 1,999 | |
Commercial paper | ||
Available for sale securities: | ||
Available for sale securities | 7,970 | 34,978 |
Trading debt securities: | ||
Trading debt securities | 1,993 | |
Corporate bonds | ||
Available for sale securities: | ||
Available for sale securities | 218,121 | 197,442 |
Trading debt securities: | ||
Trading debt securities | 77,250 | 55,414 |
U.S. treasury bills | ||
Available for sale securities: | ||
Available for sale securities | 19,672 | 19,779 |
Trading debt securities: | ||
Trading debt securities | 5,884 | 4,929 |
Fixed income securities: Mortgage-backed securities | ||
Trading debt securities: | ||
Trading debt securities | 7 | 10 |
Consolidated Sponsored Funds | ||
Trading debt securities: | ||
Trading debt securities | 33,088 | 62,038 |
Equity securities: | ||
Equity securities | 24,879 | 77,048 |
Common Stock | ||
Equity securities: | ||
Equity securities | 21,204 | 116 |
Sponsored funds | ||
Equity securities: | ||
Equity securities | 153,548 | 137,857 |
Equity method securities: | ||
Equity method securities | 47,840 | 95,188 |
Sponsored funds | Previous accounting guidance | ||
Equity method securities: | ||
Available for sale securities | 124,000 | |
Sponsored privately offered funds | ||
Equity securities: | ||
Equity securities | $ 678 | $ 695 |
Investment Securities - Maturit
Investment Securities - Maturity (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Amortized Cost | ||
Within one year | $ 97,196 | |
After one year but within five years | 154,614 | |
Amortized Cost | 251,810 | $ 266,259 |
Fair value | ||
Within one year | 96,726 | |
After one year but within five years | 154,038 | |
Total fair value | 250,764 | $ 265,198 |
Fair value | ||
Within one year | 30,929 | |
After one year but within five years | 49,660 | |
After five years but within 10 years | 4,545 | |
Total fair value | $ 85,134 |
Investment Securities - Inves_2
Investment Securities - Investment securities and summary of the gains (losses) related to securities (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Available for sale securities: | ||
Amortized Cost | $ 251,810 | $ 266,259 |
Unrealized gains | 323 | 176 |
Unrealized losses | (1,369) | (1,237) |
Fair value | 250,764 | 265,198 |
Certificates of deposit | ||
Available for sale securities: | ||
Amortized Cost | 5,000 | 13,000 |
Unrealized gains | 1 | 1 |
Unrealized losses | (2) | |
Fair value | 5,001 | 12,999 |
Commercial paper | ||
Available for sale securities: | ||
Amortized Cost | 7,902 | 34,836 |
Unrealized gains | 68 | 142 |
Fair value | 7,970 | 34,978 |
Corporate bonds | ||
Available for sale securities: | ||
Amortized Cost | 219,236 | 198,404 |
Unrealized gains | 254 | 33 |
Unrealized losses | (1,369) | (995) |
Fair value | 218,121 | 197,442 |
U.S. treasury bills | ||
Available for sale securities: | ||
Amortized Cost | 19,672 | 20,019 |
Unrealized losses | (240) | |
Fair value | $ 19,672 | $ 19,779 |
Investment Securities - Sponsor
Investment Securities - Sponsored Privately Offered Funds (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Investment Securities | |||
Proceeds from maturities of trading debt securities | $ 84.5 | $ 237.2 | $ 234.4 |
Net realized gains on sale of equity securities | 0.3 | ||
Net realized gains (losses) on sale of trading securities | (0.5) | ||
Proceeds from sale of equity securities | 8.3 | ||
Proceeds from sale of trading securities | 19.8 | ||
Net realized gains on sale of available for sale securities | 0.9 | 3.6 | |
Proceeds from sale of available for sale securities | 86.9 | 98.2 | |
Consolidated Sponsored Funds | |||
Investment Securities | |||
Net realized gains (losses) on sale of trading securities | 12.8 | 1.5 | |
Proceeds from sale of trading securities | 75.1 | 57.1 | |
Sponsored funds | |||
Investment Securities | |||
Net realized gain (loss) on equity method investments | 6.9 | (2.3) | |
Proceeds from sale of equity method investments | 1.2 | 73.2 | $ 58.7 |
Sponsored funds | Maximum | |||
Investment Securities | |||
Net realized gain (loss) on equity method investments | 0.1 | ||
Sponsored funds | Investment and other income (loss) | |||
Investment Securities | |||
Pre-tax charge to reflect the “other than temporary” decline in value of investments | $ 0.3 | $ 1.3 |
Investment Securities - Availab
Investment Securities - Available for sale sponsored funds with fair values below carrying values (Details) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018USD ($)security | Dec. 31, 2017USD ($) | |
Fair value | ||
Less than 12 months | $ 215,186 | |
Total fair value | 215,186 | |
Unrealized losses | ||
Less than 12 months | (1,237) | |
Total unrealized losses | (1,237) | |
Securities in an unrealized loss position | security | 44 | |
Other-than-temporary impairment of available for sale securities | $ 0 | |
Certificates of deposit | ||
Fair value | ||
Less than 12 months | 2,998 | |
Total fair value | 2,998 | |
Unrealized losses | ||
Less than 12 months | (2) | |
Total unrealized losses | (2) | |
Corporate bonds | ||
Fair value | ||
Less than 12 months | 36,302 | 192,409 |
12 months or longer | 119,480 | |
Total fair value | 155,782 | 192,409 |
Unrealized losses | ||
Less than 12 months | (160) | (995) |
12 months or longer | (1,209) | |
Total unrealized losses | $ (1,369) | (995) |
U.S. treasury bills | ||
Fair value | ||
Less than 12 months | 19,779 | |
Total fair value | 19,779 | |
Unrealized losses | ||
Less than 12 months | (240) | |
Total unrealized losses | $ (240) |
Investment Securities - Consoli
Investment Securities - Consolidated Sponsored Funds (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Investment Securities | ||
Cash | $ 231,997 | $ 207,829 |
Redeemable noncontrolling interests | (11,463) | (14,509) |
Consolidated Sponsored Funds | ||
Investment Securities | ||
Cash | 4,285 | 8,472 |
Investments | 57,967 | 139,086 |
Other assets | 872 | 1,588 |
Other liabilities | (79) | (1,040) |
Redeemable noncontrolling interests | (11,463) | (14,509) |
Net interest in consolidated sponsored funds | $ 51,582 | $ 133,597 |
Investment Securities - Fair va
Investment Securities - Fair value of investment securities (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Fair value of investments | ||
Cash equivalents | $ 196,931 | $ 156,849 |
Available for sale securities | 250,764 | 265,198 |
Trading debt securities | 118,222 | 124,390 |
Equity securities | 200,309 | 215,716 |
Total investment securities | 617,135 | 700,492 |
Amount of transfer between levels | 0 | 0 |
Money market funds | ||
Fair value of investments | ||
Cash equivalents | 121,759 | 145,785 |
U.S. government sponsored enterprise note | ||
Fair value of investments | ||
Cash equivalents | 895 | |
Certificates of deposit | ||
Fair value of investments | ||
Available for sale securities | 5,001 | 12,999 |
Trading debt securities | 1,999 | |
Commercial paper | ||
Fair value of investments | ||
Cash equivalents | 74,277 | 11,064 |
Available for sale securities | 7,970 | 34,978 |
Trading debt securities | 1,993 | |
Corporate bonds | ||
Fair value of investments | ||
Available for sale securities | 218,121 | 197,442 |
Trading debt securities | 77,250 | 55,414 |
U.S. treasury bills | ||
Fair value of investments | ||
Available for sale securities | 19,672 | 19,779 |
Trading debt securities | 5,884 | 4,929 |
Fixed income securities: Mortgage-backed securities | ||
Fair value of investments | ||
Trading debt securities | 7 | 10 |
Common Stock | ||
Fair value of investments | ||
Equity securities | 21,204 | 116 |
Consolidated Sponsored Funds | ||
Fair value of investments | ||
Trading debt securities | 33,088 | 62,038 |
Equity securities | 24,879 | 77,048 |
Sponsored funds | ||
Fair value of investments | ||
Equity securities | 153,548 | 137,857 |
Equity method securities | 47,840 | 95,188 |
Sponsored privately offered funds | ||
Fair value of investments | ||
Equity securities | 678 | 695 |
Level 1 | ||
Fair value of investments | ||
Cash equivalents | 121,759 | 145,785 |
Total investment securities | 247,459 | 310,209 |
Level 1 | Money market funds | ||
Fair value of investments | ||
Cash equivalents | 121,759 | 145,785 |
Level 1 | Common Stock | ||
Fair value of investments | ||
Equity securities | 21,192 | 116 |
Level 1 | Consolidated Sponsored Funds | ||
Fair value of investments | ||
Equity securities | 24,879 | 77,048 |
Level 1 | Sponsored funds | ||
Fair value of investments | ||
Equity securities | 153,548 | 137,857 |
Equity method securities | 47,840 | 95,188 |
Level 2 | ||
Fair value of investments | ||
Cash equivalents | 75,172 | 11,064 |
Total investment securities | 368,986 | 389,588 |
Level 2 | U.S. government sponsored enterprise note | ||
Fair value of investments | ||
Cash equivalents | 895 | |
Level 2 | Certificates of deposit | ||
Fair value of investments | ||
Available for sale securities | 5,001 | 12,999 |
Trading debt securities | 1,999 | |
Level 2 | Commercial paper | ||
Fair value of investments | ||
Cash equivalents | 74,277 | 11,064 |
Available for sale securities | 7,970 | 34,978 |
Trading debt securities | 1,993 | |
Level 2 | Corporate bonds | ||
Fair value of investments | ||
Available for sale securities | 218,121 | 197,442 |
Trading debt securities | 77,250 | 55,414 |
Level 2 | U.S. treasury bills | ||
Fair value of investments | ||
Available for sale securities | 19,672 | 19,779 |
Trading debt securities | 5,884 | 4,929 |
Level 2 | Fixed income securities: Mortgage-backed securities | ||
Fair value of investments | ||
Trading debt securities | 7 | 10 |
Level 2 | Consolidated Sponsored Funds | ||
Fair value of investments | ||
Trading debt securities | 33,088 | 62,038 |
Level 3 | ||
Fair value of investments | ||
Total investment securities | 12 | |
Level 3 | Common Stock | ||
Fair value of investments | ||
Equity securities | 12 | |
Other Assets Held at Net Value | ||
Fair value of investments | ||
Total investment securities | 678 | 695 |
Other Assets Held at Net Value | Sponsored privately offered funds | ||
Fair value of investments | ||
Equity securities | $ 678 | $ 695 |
Investment Securities - Inves_3
Investment Securities - Investment category (Details) $ in Thousands | 12 Months Ended |
Dec. 31, 2018USD ($) | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Additions | $ 359 |
Valuation change | 5 |
Redemptions | (352) |
Level 3 assets at end of period | $ 12 |
Derivative Financial Instrume_3
Derivative Financial Instruments (Details) - Not designated as a hedge - Total return swap contracts $ in Thousands | 12 Months Ended | |
Dec. 31, 2018USD ($)contract | Dec. 31, 2017USD ($)contract | |
Derivative Financial Instruments | ||
Number of contracts | contract | 5 | 6 |
Notional value | $ 194,400 | $ 213,900 |
Cash collateral with the counterparties | 5,200 | 9,700 |
Level 2 | ||
Derivative Financial Instruments | ||
Fair value - assets | 4,968 | |
Fair value - liabilities | 1,093 | |
Level 2 | Investment and other income (loss) | ||
Derivative Financial Instruments | ||
Net gains (losses) recognized in income | 15,163 | (36,368) |
Level 2 | Prepaid expenses and other current assets (liabilities) | ||
Derivative Financial Instruments | ||
Fair value - assets | $ 4,968 | |
Level 2 | Other current liabilities | ||
Derivative Financial Instruments | ||
Fair value - liabilities | $ 1,093 |
Property and Equipment (Details
Property and Equipment (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Summary of property and equipment | |||
Property and equipment, at cost | $ 202,698 | $ 206,361 | |
Accumulated depreciation | (139,269) | (118,694) | |
Property and equipment, net | 63,429 | 87,667 | |
Depreciation | 25,649 | 20,983 | $ 18,358 |
Leasehold improvements | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 21,790 | 22,106 | |
Leasehold improvements | Minimum | |||
Summary of property and equipment | |||
Estimated useful lives | 1 year | ||
Leasehold improvements | Maximum | |||
Summary of property and equipment | |||
Estimated useful lives | 15 years | ||
Furniture and fixtures | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 28,482 | 30,529 | |
Furniture and fixtures | Minimum | |||
Summary of property and equipment | |||
Estimated useful lives | 3 years | ||
Furniture and fixtures | Maximum | |||
Summary of property and equipment | |||
Estimated useful lives | 10 years | ||
Equipment | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 20,248 | 20,802 | |
Equipment | Minimum | |||
Summary of property and equipment | |||
Estimated useful lives | 2 years | ||
Equipment | Maximum | |||
Summary of property and equipment | |||
Estimated useful lives | 26 years | ||
Computer software | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 100,507 | 99,644 | |
Computer software | Minimum | |||
Summary of property and equipment | |||
Estimated useful lives | 1 year | ||
Computer software | Maximum | |||
Summary of property and equipment | |||
Estimated useful lives | 10 years | ||
Data processing equipment | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 17,056 | 18,678 | |
Data processing equipment | Minimum | |||
Summary of property and equipment | |||
Estimated useful lives | 1 year | ||
Data processing equipment | Maximum | |||
Summary of property and equipment | |||
Estimated useful lives | 5 years | ||
Buildings | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 11,772 | 11,759 | |
Buildings | Minimum | |||
Summary of property and equipment | |||
Estimated useful lives | 1 year | ||
Buildings | Maximum | |||
Summary of property and equipment | |||
Estimated useful lives | 30 years | ||
Land | |||
Summary of property and equipment | |||
Property and equipment, at cost | $ 2,843 | 2,843 | |
Property and equipment under capital leases | |||
Summary of property and equipment | |||
Property and equipment, at cost | 1,600 | 1,900 | |
Accumulated depreciation | $ (1,100) | $ (1,000) |
Goodwill and Identifiable Int_3
Goodwill and Identifiable Intangible Assets (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Goodwill and identifiable intangible assets | ||
Goodwill | $ 106,970 | $ 106,970 |
Other | 200 | 200 |
Total identifiable intangible assets | 38,899 | 40,099 |
Total goodwill and identifiable intangible assets | 145,869 | 147,069 |
Mutual fund management advisory contracts | ||
Goodwill and identifiable intangible assets | ||
Mutual fund contracts | $ 38,699 | 38,699 |
Mutual fund management subadvisory contract | ||
Goodwill and identifiable intangible assets | ||
Mutual fund contracts | $ 1,200 |
Indebtedness (Details)
Indebtedness (Details) $ in Thousands | Jan. 13, 2018USD ($) | Oct. 20, 2017USD ($) | Dec. 31, 2018USD ($)item | Dec. 31, 2017USD ($) | Aug. 31, 2010USD ($) |
Indebtedness | |||||
Repayment of short-term debt | $ 94,925 | ||||
Long-term debt | 94,854 | $ 94,783 | |||
Credit Facility | |||||
Indebtedness | |||||
Revolving credit facility term | 3 years | ||||
Maximum borrowing capacity | $ 100,000 | ||||
Amount that borrowing capacity can be expanded upon entity's request | $ 200,000 | ||||
Borrowing outstanding under the facility | $ 0 | $ 0 | |||
Senior Notes | |||||
Indebtedness | |||||
Face amount of notes issued and sold | $ 190,000 | ||||
Consolidated leverage ratio | 0.3 | ||||
Number of consecutive quarters for which the maximum consolidated leverage ratio is required to be maintained under financial covenants | item | 4 | ||||
Number of consecutive quarters for which the minimum consolidated interest coverage ratio is required to be maintained under financial covenants | item | 4 | ||||
Consolidated interest coverage ratio | 48.7 | ||||
Senior Notes | Maximum | |||||
Indebtedness | |||||
Consolidated leverage ratio | 3 | ||||
Senior Notes | Minimum | |||||
Indebtedness | |||||
Consolidated interest coverage ratio | 4 | ||||
Senior 5.0% unsecured notes due, 2018 ("Series A Notes") | |||||
Indebtedness | |||||
Repayment of short-term debt | $ 95,000 | ||||
Senior 5.75% unsecured notes due, 2021 ("Series B Notes") | |||||
Indebtedness | |||||
Fair value of outstanding long-term indebtedness | $ 98,000 | ||||
Long-term debt | $ 94,900 |
Income Taxes - Provision for in
Income Taxes - Provision for income taxes and reconciliation of statutory federal income tax rate with effective income tax rate (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Current taxes: | |||
Federal | $ 54,071 | $ 73,167 | $ 72,711 |
State | 625 | 7,720 | 7,174 |
Foreign | 1 | 17 | |
Total current taxes | 54,697 | 80,887 | 79,902 |
Deferred Income Tax Expense (Benefit) | 783 | 20,481 | 1,982 |
Provision for income taxes | $ 55,480 | $ 101,368 | $ 81,884 |
Reconciliation of statutory federal income tax rate with the entity's effective income tax rate | |||
Statutory federal income tax rate (as a percent) | 21.00% | 35.00% | 35.00% |
State income taxes, net of federal tax benefit (as a percent) | 2.40% | 2.20% | 2.00% |
Share-based compensation (as a percent) | 1.80% | 3.40% | |
Effects of U.S. tax rate decrease (as a percent) | (0.40%) | 2.20% | |
Uncertain tax positions (as a percent) | (2.20%) | (0.20%) | (0.10%) |
Valuation allowance on losses capital in nature (as a percent) | (1.00%) | (3.20%) | |
Other items (as a percent) | 0.70% | (0.30%) | 0.40% |
Effective income tax rate (as a percent) | 23.30% | 41.30% | 34.10% |
Income Taxes - Deferred tax lia
Income Taxes - Deferred tax liabilities and deferred tax assets (Details) - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 |
Deferred tax assets: | ||
Benefit plans | $ 3,381 | |
Accrued compensation and related costs | $ 5,868 | 5,558 |
Other accrued expenses | 3,861 | 4,094 |
Unrealized losses on investment securities and partnerships | 6,272 | |
Share-based compensation | 10,300 | 15,047 |
Unused state tax credits | 2,618 | 2,788 |
State net operating loss carryforwards | 7,266 | 7,235 |
Other | 1,171 | 2,874 |
Total gross deferred assets | 37,356 | 40,977 |
Deferred tax liabilities: | ||
Property and equipment | (3,700) | (7,301) |
Benefit plans | (1,872) | |
Identifiable intangible assets | (9,206) | (7,419) |
Unrealized gain on investments securities and partnerships | (3,554) | |
Prepaid expenses | (2,478) | (1,679) |
Other | (513) | (481) |
Total gross deferred liabilities | (17,769) | (20,434) |
Valuation allowance | (7,266) | (7,235) |
Net deferred tax asset | 12,321 | 13,308 |
Deferred tax assets, operating loss carryforwards, subject to expiration | 7,300 | 7,200 |
Operating loss carryforward, valuation allowance | 7,300 | $ 7,200 |
State tax credit carryforwards that will expire between 2024 and 2034 if not utilized | 2,300 | |
State tax credit carryforwards that will expire in 2026 if not utilized | 200 | |
State tax credit carryforwards, indefinite carryforward | $ 100 |
Income Taxes - Unrecognized tax
Income Taxes - Unrecognized tax benefits narrative (Details) - USD ($) $ in Millions | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income Taxes | ||
Unrecognized tax benefits, including penalties and interest that if recognized would impact effective tax rate | $ 2.7 | $ 10.9 |
Unrecognized tax benefits, including penalties and interest, net of federal tax benefit that if recognized would affect effective tax rate | 2.4 | 8.9 |
Unrecognized Tax Benefits, Period Increase (Decrease) | 9.3 | |
Unrecognized tax benefits, net of federal benefit | 7.6 | |
Accrued interest and penalties related to uncertain tax positions | 0.7 | 4 |
Accrued interest and penalties related to uncertain tax positions, net of federal benefit | 0.6 | $ 3.5 |
Total expense of interest and penalties, net of federal benefit related to uncertain tax positions | 2.8 | |
Unrecognized tax benefits, settlement | 3 | |
Uncertain tax positions, additional penalties and interest | $ 0.2 |
Income Taxes - Reconciliation o
Income Taxes - Reconciliation of unrecognized tax benefits (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Reconciliation of unrecognized tax benefits, excluding penalties and interest | |||
Balance at the beginning of the period | $ 6,843 | $ 7,734 | $ 8,448 |
Increases during the year: | |||
Gross increases - tax positions in prior period | 712 | 244 | 465 |
Gross increases - current-period tax positions | 331 | 97 | 494 |
Decreases during the year: | |||
Gross decreases - tax positions in prior period | (4,219) | (56) | (167) |
Decreases due to settlements with taxing authorities | (1,385) | (178) | (21) |
Decreases due to lapse of statute of limitations | (212) | (998) | (1,485) |
Balance at the end of the period | $ 2,070 | $ 6,843 | $ 7,734 |
Number of open tax years settled | 2 years |
Pension Plan and Postretireme_3
Pension Plan and Postretirement Benefits Other Than Pension - Changes in net funded status, disclosure of amounts recognized in the balance sheet, and the assumptions used to determine the benefit (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Amounts recognized in the statement of financial position: | |||
Noncurrent liabilities | $ (798) | $ (15,137) | |
Pension Benefits | |||
Pension Plan and Postretirement Benefits Other than Pension | |||
Final number of years of employee's compensation to determine the benefits payable | 10 years | ||
Reduction of the accrued pension liability | (30,000) | ||
Curtailment gain | 31,621 | ||
Change in projected benefit obligation: | |||
Net benefit obligation at beginning of year | $ 184,245 | 180,921 | $ 210,783 |
Service cost | 8,367 | 12,199 | |
Interest cost | 5,986 | 6,248 | 9,432 |
Benefits paid | (13,690) | (8,511) | (52,288) |
Actuarial (gain) loss | (22,013) | 28,841 | (19,886) |
Curtailment gain | (31,621) | ||
Settlement loss | 20,681 | ||
Net benefit obligation at end of year | 154,528 | 184,245 | 180,921 |
Change in plan assets: | |||
Fair value of plan assets at beginning of year | 170,881 | 144,529 | 173,885 |
Actual return on plan assets | 1,808 | 24,863 | 2,932 |
Employer contributions | 4,000 | 10,000 | 20,000 |
Benefits paid | (13,690) | (8,511) | (52,288) |
Fair value of plan assets at end of year | 162,999 | 170,881 | 144,529 |
Funded status at end of year | 8,471 | (13,364) | (36,392) |
Amounts recognized in the statement of financial position: | |||
Noncurrent assets | 8,471 | ||
Noncurrent liabilities | (13,364) | (36,392) | |
Net amount recognized at end of year | $ 8,471 | $ (13,364) | $ (36,392) |
Weighted average assumptions used to determine benefit obligation at December 31: | |||
Discount rate (as a percent) | 4.45% | 3.76% | 4.39% |
Rate of compensation increase (as a percent) | 5.12% | ||
Other Postretirement Benefits | |||
Pension Plan and Postretirement Benefits Other than Pension | |||
Age of employees after which the plan does not provide benefits | 65 years | ||
Curtailment gain | $ 8,475 | ||
Change in projected benefit obligation: | |||
Net benefit obligation at beginning of year | $ 2,195 | $ 2,446 | 8,421 |
Service cost | 555 | ||
Interest cost | 54 | 58 | 297 |
Benefits paid | (602) | (954) | (674) |
Actuarial (gain) loss | (965) | 139 | 1,790 |
Retiree contributions | 366 | 506 | 532 |
Curtailment gain | (8,475) | ||
Net benefit obligation at end of year | 1,048 | 2,195 | 2,446 |
Change in plan assets: | |||
Employer contributions | 236 | 448 | 142 |
Retiree contributions | 366 | 506 | 532 |
Benefits paid | (602) | (954) | (674) |
Funded status at end of year | (1,048) | (2,195) | (2,446) |
Amounts recognized in the statement of financial position: | |||
Current liabilities | (250) | (422) | (458) |
Noncurrent liabilities | (798) | (1,773) | (1,988) |
Net amount recognized at end of year | $ (1,048) | $ (2,195) | $ (2,446) |
Weighted average assumptions used to determine benefit obligation at December 31: | |||
Discount rate (as a percent) | 4.08% | 3.28% | 3.46% |
Pension Plan and Postretireme_4
Pension Plan and Postretirement Benefits Other Than Pension - Pension plan asset allocation (Details) | Dec. 31, 2018 | Dec. 31, 2017 |
Defined Benefit Plan Disclosure [Line Items] | ||
Defined Benefit Plan, Actual Plan Asset Allocations | 100.00% | 100.00% |
Cash | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Defined Benefit Plan, Actual Plan Asset Allocations | 2.00% | 40.00% |
Domestic | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Defined Benefit Plan, Actual Plan Asset Allocations | 29.00% | |
International | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Defined Benefit Plan, Actual Plan Asset Allocations | 18.00% | |
Fixed income securities | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Defined Benefit Plan, Actual Plan Asset Allocations | 98.00% | 8.00% |
Gold bullion | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Defined Benefit Plan, Actual Plan Asset Allocations | 5.00% |
Pension Plan and Postretireme_5
Pension Plan and Postretirement Benefits Other Than Pension - Plan assets fair value (Details) - Pension Benefits - USD ($) $ in Thousands | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | $ 162,999 | $ 170,881 | $ 144,529 | $ 173,885 |
Total investment securities | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 160,275 | 169,752 | ||
Cash equivalents | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 465 | 66,779 | ||
Domestic | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 49,540 | |||
International | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 4 | 31,431 | ||
U.S. treasuries | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 46,415 | 6,455 | ||
Corporate bonds | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 91,521 | 587 | ||
Foreign Bonds | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 21,870 | 6,591 | ||
Gold bullion | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 8,369 | |||
Cash | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 2,724 | 1,129 | ||
Level 1 | Total investment securities | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 62,798 | |||
Level 1 | Domestic | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 49,540 | |||
Level 1 | International | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 4,889 | |||
Level 1 | Gold bullion | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 8,369 | |||
Level 2 | Total investment securities | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 160,275 | 106,954 | ||
Level 2 | Cash equivalents | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 465 | 66,779 | ||
Level 2 | International | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 4 | 26,542 | ||
Level 2 | U.S. treasuries | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 46,415 | 6,455 | ||
Level 2 | Corporate bonds | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | 91,521 | 587 | ||
Level 2 | Foreign Bonds | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Total fair value | $ 21,870 | $ 6,591 |
Pension Plan and Postretireme_6
Pension Plan and Postretirement Benefits Other Than Pension - Components of net periodic costs, weighted average assumptions, and expected benefit payments (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Pension Benefits | ||||
Components of net periodic benefit cost: | ||||
Service cost | $ 8,367 | $ 12,199 | ||
Interest cost | $ 5,986 | 6,248 | 9,432 | |
Expected return on plan assets | (8,320) | (10,113) | (13,927) | |
Actuarial (gain) loss | (15,501) | 14,091 | (8,891) | |
Curtailment gain | (31,621) | |||
Settlement loss | 20,681 | |||
Total | $ (17,835) | $ (13,028) | $ 19,494 | |
Weighted average assumptions used to determine net periodic benefit cost | ||||
Discount rate (as a percent) | 3.76% | 4.60% | ||
Expected return on plan assets (as a percent) | 6.00% | 5.00% | 7.50% | |
Rate of compensation increase (as a percent) | 5.12% | 5.12% | ||
Expected benefit payments | ||||
2,019 | $ 7,984 | |||
2,020 | 8,068 | |||
2,021 | 9,371 | |||
2,022 | 8,843 | |||
2,023 | 9,031 | |||
2024 through 2028 | 46,521 | |||
Total | $ 89,818 | |||
Pension Benefits | Maximum | ||||
Weighted average assumptions used to determine net periodic benefit cost | ||||
Discount rate (as a percent) | 3.76% | 4.39% | ||
Expected return on plan assets (as a percent) | 7.00% | |||
Pension Benefits | Minimum | ||||
Weighted average assumptions used to determine net periodic benefit cost | ||||
Discount rate (as a percent) | 3.96% | |||
Expected return on plan assets (as a percent) | 6.00% | |||
Other Postretirement Benefits | ||||
Components of net periodic benefit cost: | ||||
Service cost | $ 555 | |||
Interest cost | $ 54 | $ 58 | 297 | |
Actuarial gain amortization | (120) | (180) | (153) | |
Prior service cost amortization | (2) | (4) | 4 | |
Curtailment gain | (8,475) | |||
Total | $ (68) | $ (126) | $ (7,772) | |
Weighted average assumptions used to determine net periodic benefit cost | ||||
Discount rate (as a percent) | 3.28% | 3.46% | 4.44% | |
Expected benefit payments | ||||
2,019 | $ 250 | |||
2,020 | 179 | |||
2,021 | 131 | |||
2,022 | 116 | |||
2,023 | 79 | |||
2024 through 2028 | 233 | |||
Total | 988 | |||
Contributions by participants | $ 366 | $ 506 | $ 532 |
Pension Plan and Postretireme_7
Pension Plan and Postretirement Benefits Other Than Pension - Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 12 Months Ended | ||
Feb. 28, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Pension Plan and Postretirement Benefits Other than Pension | ||||
Defined benefit plan liabilities | $ 798 | $ 15,137 | ||
Pension Benefits | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Defined benefit plan assets | $ 8,471 | |||
Defined benefit plan liabilities | $ 13,364 | $ 36,392 | ||
Other Postretirement Benefits | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Initial health care cost trend rate prior to age 65 (as a percent) | 8.05% | 7.02% | ||
Initial health care cost trend rate subsequent to age 65 (as a percent) | 9.30% | 8.47% | ||
Initial health care cost trend rate (as a percent) | 6.82% | |||
Rate to which the cost trend rate is assumed to decline (as a percent) | 4.50% | |||
Defined benefit plan liabilities | $ 798 | $ 1,773 | $ 1,988 | |
Current portion of postretirement liability | $ 250 | $ 422 | $ 458 | |
SERP | ||||
Pension Plan and Postretirement Benefits Other than Pension | ||||
Lump sum payment | $ 3,800 |
Defined Contribution Plan (Deta
Defined Contribution Plan (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Defined Contribution Plan | |||
Employer's matching contribution to the plan | $ 6.8 | $ 6 | $ 6.8 |
Percentage of participant’s eligible compensation for discretionary nonelective contribution | 4.00% | ||
Defined Contribution Plan Employer Discretionary Contribution Amount | $ 5.5 |
Stockholders' Equity - Earnings
Stockholders' Equity - Earnings per share (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2018 | Dec. 31, 2018 | Sep. 30, 2018 | Jun. 30, 2018 | Mar. 31, 2018 | Dec. 31, 2017 | Sep. 30, 2017 | Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Components of basic and diluted earnings per share | ||||||||||||
Net income attributable to Waddell & Reed Financial, Inc. | $ 46,468 | $ 46,305 | $ 44,478 | $ 46,337 | $ 29,765 | $ 53,582 | $ 24,061 | $ 33,871 | $ 183,588 | $ 141,279 | $ 156,695 | |
Weighted average shares outstanding - basic and diluted | 80,468,000 | 83,573,000 | 82,668,000 | |||||||||
Earnings per share: | ||||||||||||
Earnings per share, basic and diluted (in dollars per share) | $ 2.28 | $ 1.69 | $ 1.90 | |||||||||
Dividends | ||||||||||||
Dividends accrued (in dollars per share) | $ 0.25 | $ 1 | $ 1.63 | $ 1.84 | ||||||||
Dividends to be paid | $ 19,200 | $ 19,200 | $ 20,700 | $ 19,200 | $ 20,700 | |||||||
Common stock repurchases | ||||||||||||
Shares repurchased in the open market or privately | 6,963,269 | 1,842,337 | 2,320,726 | |||||||||
Shares repurchased from employees to cover income tax withholdings | 729,882 | 402,337 | 423,726 |
Stockholders' Equity - Other co
Stockholders' Equity - Other comprehensive income (loss) activity (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
AOCI Attributable to Parent, Net of Tax | ||
Balance at the beginning of the period | $ 872,884 | $ 844,002 |
Balance at the end of the period | 883,450 | 872,884 |
Accumulated Other Comprehensive Income (Loss) | ||
AOCI Attributable to Parent, Net of Tax | ||
Balance at the beginning of the period | 524 | (6,757) |
Amount reclassified to retained earnings for ASUs adopted in 2018 | (848) | |
Other comprehensive income (loss) before reclassification | 376 | 7,676 |
Amount reclassified from accumulated other comprehensive loss | 279 | (395) |
Net current period other comprehensive income (loss) | (193) | 7,281 |
Balance at the end of the period | 331 | 524 |
Unrealized gains (losses) on investment securities | ||
AOCI Attributable to Parent, Net of Tax | ||
Balance at the beginning of the period | 145 | (3,972) |
Amount reclassified to retained earnings for ASUs adopted in 2018 | (955) | |
Other comprehensive income (loss) before reclassification | (360) | 4,039 |
Amount reclassified from accumulated other comprehensive loss | 373 | 78 |
Net current period other comprehensive income (loss) | (942) | 4,117 |
Balance at the end of the period | (797) | 145 |
Change in valuation allowance for unrealized gains (losses) on investment securities | ||
AOCI Attributable to Parent, Net of Tax | ||
Balance at the beginning of the period | (3,388) | |
Other comprehensive income (loss) before reclassification | 3,743 | |
Amount reclassified from accumulated other comprehensive loss | (355) | |
Net current period other comprehensive income (loss) | 3,388 | |
Postretirement benefits unrealized gains (losses) | ||
AOCI Attributable to Parent, Net of Tax | ||
Balance at the beginning of the period | 379 | 603 |
Amount reclassified to retained earnings for ASUs adopted in 2018 | 107 | |
Other comprehensive income (loss) before reclassification | 736 | (106) |
Amount reclassified from accumulated other comprehensive loss | (94) | (118) |
Net current period other comprehensive income (loss) | 749 | (224) |
Balance at the end of the period | $ 1,128 | $ 379 |
Stockholders' Equity - Reclassi
Stockholders' Equity - Reclassifications from accumulated other comprehensive income (loss) and included in net income (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Reclassifications from accumulated other comprehensive income | ||
Reclassifications included in net income: | ||
Pre-tax | $ 928 | $ 60 |
Tax (expense) benefit | (359) | 335 |
Net of tax | 569 | 395 |
Sponsored funds investment gains | Retained earnings | Reclassifications from accumulated other comprehensive income | ||
Reclassifications included in net income: | ||
Pre-tax | 1,295 | |
Tax (expense) benefit | (340) | |
Net of tax | 955 | |
Sponsored funds investment gains | Investment and other income (loss) | Reclassifications from accumulated other comprehensive income | ||
Reclassifications included in net income: | ||
Pre-tax | (124) | |
Tax (expense) benefit | 46 | |
Net of tax | (78) | |
Losses on available for sale debt securities | Investment and other income (loss) | Reclassifications from accumulated other comprehensive income | ||
Reclassifications included in net income: | ||
Pre-tax | (489) | |
Tax (expense) benefit | 116 | |
Net of tax | (373) | |
Change in valuation allowance for unrealized gains (losses) on investment securities | ||
Reclassifications included in net income: | ||
Net of tax | 355 | |
Change in valuation allowance for unrealized gains (losses) on investment securities | Provision for income taxes | Reclassifications from accumulated other comprehensive income | ||
Reclassifications included in net income: | ||
Tax (expense) benefit | 355 | |
Net of tax | 355 | |
Postretirement benefits unrealized gains (losses) | ||
Reclassifications included in net income: | ||
Net of tax | 94 | 118 |
Postretirement benefits unrealized gains (losses) | Underwriting and distribution expense and Compensation and related costs | Reclassifications from accumulated other comprehensive income | ||
Reclassifications included in net income: | ||
Pre-tax | 122 | 184 |
Tax (expense) benefit | (135) | (66) |
Net of tax | $ (13) | $ 118 |
Share-Based Compensation - Narr
Share-Based Compensation - Narrative (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2015 | Dec. 31, 2017 | |
Share-Based Compensation | |||
Vesting period | 4 years | ||
Percentage increments vested on anniversaries of the grant date | 25.00% | 33.33% | |
Par value, common stock | $ 0.01 | $ 0.01 | |
Cash Settled RSU Plan | |||
Share-Based Compensation | |||
Vesting period | 4 years | ||
Percentage increments vested on anniversaries of the grant date | 25.00% | ||
Number of share of par value $0.01 on which lump sum cash payment is received by RSU holders | 1 | ||
Par value, common stock | $ 0.01 | ||
Number of shares of common stock on which each RSU holders are entitled to dividend equivalent payments | 1 | ||
1998 Stock Incentive Plan ("SI Plan") | |||
Share-Based Compensation | |||
Maximum number of shares of common stock authorized for issuance | 35,600,000 | ||
Number of shares of common stock available for issuance | 2,121,728 |
Share-Based Compensation - Nonv
Share-Based Compensation - Nonvested share activity and related fair value (Details) - USD ($) $ / shares in Units, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Nonvested Stock Shares, Weighted Average Grant Date Fair Value | |||
Compensation expense | $ 51,565 | $ 57,716 | $ 51,514 |
Nonvested stock awards | |||
Nonvested Stock Shares | |||
Nonvested at the beginning of the period (in shares) | 5,088,640 | ||
Granted (in shares) | 1,561,155 | ||
Vested (in shares) | (2,061,297) | ||
Forfeited (in shares) | (494,738) | ||
Nonvested at the end of the period (in shares) | 4,093,760 | 5,088,640 | |
Nonvested Stock Shares, Weighted Average Grant Date Fair Value | |||
Nonvested at the beginning of the period (in dollars per share) | $ 27.26 | ||
Granted (in dollars per share) | 20.87 | ||
Vested (in dollars per share) | 32.02 | ||
Forfeited (in dollars per share) | 24.23 | ||
Nonvested at the end of the period (in dollars per share) | $ 22.79 | $ 27.26 | |
Compensation expense | $ 51,600 | $ 57,700 | 51,500 |
Related income tax benefit recognized | 10,000 | 12,200 | 19,200 |
Remaining unamortized expense of nonvested stock expected to be recognized | $ 60,600 | ||
Period for expense amortized | 2 years 2 months 12 days | ||
Total fair value of shares vested | $ 41,000 | $ 20,800 | $ 26,700 |
Cash Settled RSU Plan | |||
Nonvested Stock Shares | |||
Nonvested at the beginning of the period (in shares) | 1,213,029 | ||
Granted (in shares) | 1,105,087 | ||
Vested (in shares) | (343,711) | ||
Forfeited (in shares) | (212,345) | ||
Nonvested at the end of the period (in shares) | 1,762,060 | 1,213,029 |
Uniform Net Capital Rule Requ_3
Uniform Net Capital Rule Requirements - Narrative (Details) $ in Thousands | 12 Months Ended | |
Dec. 31, 2018USD ($)subsidiary | Dec. 31, 2017USD ($) | |
Uniform Net Capital Rule Requirements | ||
Number of subsidiaries registered as broker dealers | subsidiary | 2 | |
Maximum ratio of aggregate indebtedness to net capital | 15 | |
Minimum net capital | $ | $ 250 | $ 250 |
Net capital percentage of debit balances | 2.00% | 2.00% |
Uniform Net Capital Rule Requ_4
Uniform Net Capital Rule Requirements - Net capital and aggregated indebtedness information for broker/dealer subsidiaries (Details) $ in Thousands | Dec. 31, 2018USD ($) | Dec. 31, 2017USD ($) |
Waddell & Reed, Inc. (W&R) | ||
Net capital and aggregated indebtedness information for entity's broker/dealer subsidiaries | ||
Net capital | $ 57,109 | $ 28,024 |
Required capital | 250 | 250 |
Excess of required capital | 56,859 | 27,774 |
Ivy Funds Distributor, Inc. (IFDI) | ||
Net capital and aggregated indebtedness information for entity's broker/dealer subsidiaries | ||
Net capital | 25,688 | 21,167 |
Required capital | 1,336 | 1,757 |
Excess of required capital | $ 24,352 | $ 19,410 |
Ratio of aggregate indebtedness to net capital | 0.78 | 1.25 |
Rental Expense and Lease Comm_3
Rental Expense and Lease Commitments (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Rental Expense and Lease Commitments | |||
Rent expense | $ 22,700 | $ 24,500 | $ 24,300 |
Future minimum rental commitments under non-cancelable operating leases | |||
2,019 | 16,488 | ||
2,020 | 9,797 | ||
2,021 | 5,757 | ||
2,022 | 2,913 | ||
2,023 | 2,320 | ||
Thereafter | 5,161 | ||
Total | $ 42,436 |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Related Party Transactions | |||
Total revenues | $ 730,186 | $ 774,503 | $ 852,446 |
Receivables due from the Funds | 14,600 | 20,600 | |
Investment management fees | |||
Related Party Transactions | |||
Total revenues | 486,581 | 508,035 | 523,304 |
Rule 12b-1 serve and distribution fees | |||
Related Party Transactions | |||
Total revenues | 141,220 | 159,873 | 208,901 |
Shareholder service fees | |||
Related Party Transactions | |||
Total revenues | $ 102,385 | $ 106,595 | $ 120,241 |
Contingencies (Details)
Contingencies (Details) - USD ($) $ in Thousands | Nov. 19, 2018 | Feb. 14, 2018 |
Case No I6CV02338 Div. 4 | ||
Shareholder Derivative Litigation | ||
Settlement amount | $ 19,900 | |
Attorney’s fees plus nominal costs associated with notice to shareholders | $ 6,100 | |
Case No. 17-2365 D. Kan | ||
Shareholder Derivative Litigation | ||
Settlement amount | $ 4,875 |
Selected Quarterly Informatio_3
Selected Quarterly Information (Unaudited) (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2018 | Sep. 30, 2018 | Jun. 30, 2018 | Mar. 31, 2018 | Dec. 31, 2017 | Sep. 30, 2017 | Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Selected Quarterly Information (Unaudited) | |||||||||||
Total revenues | $ 272,230 | $ 295,118 | $ 295,338 | $ 297,615 | $ 294,476 | $ 289,447 | $ 286,657 | $ 286,564 | |||
Net income attributable to Waddell & Reed Financial, Inc. | $ 46,468 | $ 46,305 | $ 44,478 | $ 46,337 | $ 29,765 | $ 53,582 | $ 24,061 | $ 33,871 | $ 183,588 | $ 141,279 | $ 156,695 |
Net income per share, basic and diluted | $ 0.60 | $ 0.58 | $ 0.55 | $ 0.56 | $ 0.36 | $ 0.64 | $ 0.29 | $ 0.40 | $ 2.28 | $ 1.69 | $ 1.90 |