UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 31, 2000
-----------------------------
Waddell & Reed Financial, Inc.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 001-13913 51-0261715
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
6300 Lamar Avenue, Overland Park, KS 66202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (913) 236-2000
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N/A
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 2000, Legend Group Holdings, LLC, a wholly-owned
subsidiary of Waddell & Reed Financial, Inc. (the "Company"), acquired all of
the issued and outstanding shares of common stock of each of Freemark Investment
Management, Inc., Legend Financial Corporation, Advisory Services Corporation,
Performance Management Group, Inc., Service Management Advisory Corporation and
The Legend Group, Inc. (collectively, "The Legend Group") for an aggregate
purchase price of $57,979,749.99, and a contingent obligation to pay not more
than $14,000,000 over a three-year period. In satisfaction of certain conditions
contained in the Purchase Agreement, an additional amount of $2,801,772.00 was
paid on May 25, 2000. The Legend Group is a mutual fund distribution and
retirement planning business based in Palm Beach Gardens, Florida. The shares
were purchased in a private transaction from Philip C. Restino, Mark J.
Spinello, Glenn T. Ferris, David L. Phillips and certain trusts for the benefit
of certain members of Mr. Restino's family (collectively, the "Sellers"). Prior
to the acquisition, there were no material relationships between the Sellers and
the Company or any of its affiliates or any of its directors or officers or any
associate of any of them. The purchase price was determined through arm's length
negotiations. The Purchase Agreement is incorporated herein by reference from
the Company's Current Report on Form 8-K for an event dated March 31, 2000. A
copy of the Company's press release is incorporated herein by reference from the
Company's Current Report on Form 8-K for an event dated February 28, 2000. The
foregoing description of the acquisition is qualified in its entirety by
reference to such Exhibits.
The funds used to consummate the acquisition were provided to Legend
Group Holdings, LLC in the form of a capital contribution made by the Company.
The Company obtained $47,000,000 for such capital contribution from its existing
Credit Agreement dated as of October 14, 1999 by and among the Company, the
Lender's party thereto and The Chase Manhattan Bank. The remaining funds came
from the Company's cash and cash equivalents.
The Company currently intends to operate The Legend Group as an
affiliated group of subsidiaries.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
The financial statements of The Legend Group for the periods specified in
Rule 3-05(b) of Regulation S-X which were to be filed by amendment to the
Registrant's Current Report on Form 8-K dated March 31, 2000, are filed
herewith.
(i) Audited Combined Balance Sheet as of December 31, 1999.
(ii) Audited Combined Statement of Operations For the Year Ended December
31, 1999.
(iii) Audited Combined Statement of Owners' Equity For the Year Ended
December 31, 1999.
2
(iv) Audited Combined Statement of Cash Flows For the Year Ended December
31, 1999.
(v) Notes to Combined Financial Statements.
(b) Pro Forma Financial Information.
The Pro Forma financial statements of the Registrant required pursuant to
Article 11 of Regulation S-X which were to be filed by amendment to the
Registrant's Current Report on Form 8-K dated March 31, 2000, are filed
herewith.
(i) Notes to Unaudited Pro Forma Consolidated Financial Statements.
(ii) Unaudited Pro Forma Consolidated Statements of Operations For the
Three Months Ended March 31, 2000.
(iii) Notes to Unaudited Pro Forma Consolidated Statements of Operations
For the Three Months Quarter Ended March 31, 2000.
(vi) Unaudited Pro Forma Consolidated Statements of Operations For the
Year Ended December 31, 1999.
(vii) Notes to Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1999.
(c) Exhibits.
The following exhibits, from which schedules have been omitted and will be
furnished to the Commission upon its request, are filed with this Report on
Form 8-K/A. Exhibits incorporated by reference to a prior filing (on Form
8-K) are designated by an asterisk (*); all other exhibits not so
designated are documents required to be filed as exhibits to this Form
8-K/A.
3
Exhibit No. Exhibit
- ----------- -------
2.1* Purchase Agreement, dated as of February 28, 2000, by and among
Waddell & Reed Financial, Inc., Freemark Investment Management,
Inc., Legend Financial Corporation, Advisory Services Corporation,
Performance Management Group, Inc., The Legend Group, Inc., Philip
C. Restino, Restino Family Trust, 01/02/94 Trust FBO Robert R.
Restino, 1/02/94 Trust FBO John J. Restino, Mark J. Spinello,
Glenn T. Ferris and David L. Phillips.
23.1 Consent of KPMG LLP
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
WADDELL & REED FINANCIAL, INC.
Date: June 12, 2000 By: /s/ John E. Sundeen, Jr.
----------------- ---------------------------
Name: John E. Sundeen, Jr.
Title: Senior Vice President, Chief
Financial Officer and Treasurer
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS OF BUSINESS ACQUIRED PAGE
Report of Independent Auditors 5
Audited Combined Balance Sheet as of December 31, 1999. 6
Audited Combined Statement of Operations For the Year Ended December 31, 1999. 7
Audited Combined Statement of Owners' Equity For the Year Ended December 31, 1999. 8
Audited Combined Statement of Cash Flows For the Year Ended December 31, 1999 9
Notes to Combined Financial Statements 10
4
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS: PAGE
Notes to Unaudited Pro Forma Consolidated Financial Statements. 16
Unaudited Pro Forma Consolidated Statements of Operations For the Quarter Ended
March 31, 2000. 17
Notes to Unaudited Pro Forma Consolidated Statements of Operations For the Quarter
Ended March 31, 2000. 18
Unaudited Pro Forma Consolidated Statements of Operations For the Year Ended
December 31, 1999. 19
Notes to Unaudited Pro Forma Consolidated Statements of Operations For the Year
Ended December 31, 1999. 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Legend Group of Companies:
We have audited the accompanying combined balance sheet of the Legend Group of
Companies, as of December 31, 1999 and the related combined statements of
operations, owners' equity, and cash flows for the year then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Legend Group of
Companies as of December 31, 1999 and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
March 27, 2000
5
THE LEGEND GROUP OF COMPANIES
Combined Balance Sheet
December 31, 1999
ASSETS
Assets:
Cash and cash equivalents (note 1) $ 934,587
Investment securities, trading (note 2) 406,639
Accounts receivable 6,478,197
Taxes receivable 51,064
Prepaid expenses and other current assets 290,853
----------
Total current assets 8,161,340
Furniture, fixtures, and equipment, net (note 3) 660,792
Deferred income taxes (note 8) 42,512
Other assets 138,920
----------
Total assets $9,003,564
==========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Current liabilities:
Current maturities of long-term debt (note 4) $ 237,285
Current lease obligations (note 5) 111,361
Commissions payable 3,607,501
Accounts payable 52,652
Management fees payable (note 7) 3,358,874
Deferred income taxes (note 8) 16,800
Accrued expenses and other current liabilities 353,589
----------
Total current liabilities 7,738,062
Long-term debt, less current maturities (note 4) 31,083
Long-term lease obligations, less current maturities (note 5) 131,048
----------
Total liabilities 7,900,193
----------
Owners' equity:
Common stock and additional paid-in capital 427,530
Retained earnings 675,841
----------
Total owners' equity 1,103,371
Contingencies (note 10)
----------
Total liabilities and owners' equity $9,003,564
==========
See accompanying notes to combined financial statements.
6
THE LEGEND GROUP OF COMPANIES
Combined Statement of Operations
Year ended December 31, 1999
Revenue:
Distribution fees $ 20,971,476
Advisory fees 11,406,327
Custodial fees 5,488,016
Investment and other 1,357,737
------------
Total revenue 39,223,556
------------
Expenses:
Commission expense 24,733,653
Selling expense 1,082,974
General and administrative 5,469,148
Management fees (note 7) 7,768,644
Depreciation 247,193
------------
Total expenses 39,301,612
------------
Loss before affiliated items and provision for income taxes (78,056)
Affiliated items:
Interest income 112,123
Interest expense (27,075)
------------
Income before provision for income taxes 6,992
Provision for income taxes (note 8) 16,647
------------
Net loss $ (9,655)
============
See accompanying notes to combined financial statements.
7
THE LEGEND GROUP OF COMPANIES
Combined Statement of Owners' Equity
Year ended December 31, 1999
COMMON
STOCK AND
ADDITIONAL TOTAL
PAID-IN RETAINED OWNERS'
CAPITAL EARNINGS EQUITY
----------- ----------- ---------
Balance at December 31, 1998 $ 427,530 1,002,903 1,430,433
Net loss - (9,655) (9,655)
Capital distributions - (317,407) (317,407)
----------- ---------- ----------
Balance at December 31, 1999 $ 427,530 675,841 1,103,371
=========== ========== ==========
See accompanying notes to combined financial statements.
8
THE LEGEND GROUP OF COMPANIES
Combined Statement of Cash Flows
Year ended December 31, 1999
Cash flows from operating activities:
Net loss $ (9,655)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 247,193
Changes in assets and liabilities:
Accounts receivable (1,686,524)
Investment securities (77,773)
Prepaid expenses and other assets 70,962
Taxes receivable (95,396)
Accounts payable (17,871)
Management fees payable 1,147,984
Commissions payable 870,556
Accrued expenses (141,272)
-----------
Net cash provided by operating activities 308,204
-----------
Cash flows from investing activities - capital expenditures (104,052)
-----------
Cash flows from financing activities:
Proceeds from short-term obligations 200,000
Payments on long-term debt and capital lease obligations (125,151)
Capital distributions (317,407)
-----------
Net cash used in financing activities (242,558)
-----------
Net decrease in cash and cash equivalents (38,406)
Cash and cash equivalents at beginning of year 972,993
-----------
Cash and cash equivalents at end of year $ 934,587
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 26,696
Income taxes 147,525
===========
See accompanying notes to combined financial statements.
9
THE LEGEND GROUP OF COMPANIES
Notes to Combined Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The operating entities of the Legend Group of Companies (the Company)
consist of Legend Equities Corporation, a broker dealer registered with the
Securities and Exchange Commission (SEC) and a member of the National
Association of Securities Dealers, Inc. (NASD), Legend Advisory
Corporation, and Freemark Investment Management, Inc., both investment
advisors registered with the SEC, Legend National Corporation, and LEC
Insurance Agency, Inc., both licensed insurance agencies, Advisory Services
Corporation, a pension service provider, and Legend Services Corporation,
which provides marketing, office space and equipment, custom software
development and accounting services for other Legend Group Companies.
Service Management Advisory Corporation, Performance Management Group,
Inc., The Legend Group, Inc., and Legend Financial Corporation are holding
companies for the other operating entities.
The Company's products including distribution, portfolio management, and
custodial services are primarily geared toward 403(b) retirement planning.
A 403(b) plan is similar to 401(k) plans offered by many for-profit
employers. Therefore, a majority of the Company's clients include educators
and other employees of not-for-profit organizations. The Company's major
sources of revenues consist of distribution fees earned on new sales of
mutual fund products and trailing commissions on existing eligible assets.
Other sources of revenue include fees earned for advisory and custodial
services provided and commissions earned on the sale of insurance products,
marketing support, and networking fees. The Company's clients are located
throughout the United States.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements reflect the combined
financial position, results of operations, and cash flows of each of the
Company's entities. The following entities are affiliated through common
ownership and management:
Advisory Services Corporation
Legend Equities Corporation
Legend Advisory Corporation
Freemark Investment Management, Inc.
Legend Services Corporation
Service Management Advisory Corporation
Legend Financial Corporation
Performance Management Group, Inc.
Legend National Corporation
LEC Insurance Agency, Inc.
The Legend Group, Inc.
All intercompany accounts and transactions, consisting principally of
intercompany sales and services have been eliminated in the combined
financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term investments.
The Company considers all highly liquid debt instruments with original
maturities of ninety days or less to be cash equivalents.
10
THE LEGEND GROUP OF COMPANIES
Notes to Combined Financial Statements
December 31, 1999
Investment Securities
Investment securities consisting of mutual fund shares held for trading
purposes, and are recorded at fair market value. Changes in fair value are
reflected in earnings.
REVENUE RECOGNITION
Distribution revenue and expenses (and related receivables and payables)
resulting from securities transactions are recorded on the date on which
the order to buy or sell securities is executed. Advisory and custodial
revenue and expenses (and related receivables and payables) are recorded
quarterly based on assets under management.
FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment are carried at cost. Depreciation of
these assets is calculated using the straight-line method over their
estimated useful lives of five years. All maintenance and repairs that do
not improve or extend the life of respective assets are charged to expense
as incurred.
INCOME TAXES
Federal and state income taxes are accounted for using the asset and
liability method. Income taxes are accounted for on a current and deferred
basis using tax rates based upon a combined corporate tax rate bracket for
all controlled entities.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Given the nature of the Company's assets and liabilities, the Company
believes the carrying amounts of financial instruments in the financial
statements approximate fair value.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these combined financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) INVESTMENTS
As of December 31, 1999, the fair value of the Company's mutual fund
holdings as quoted by mutual fund companies was $406,639. These holdings
included net unrealized gains of approximately $84,000 at December 31,
1999. Realized gains of $19,157 were recorded during 1999.
11
THE LEGEND GROUP OF COMPANIES
Notes to Combined Financial Statements
December 31, 1999
(3) FURNITURE, FIXTURES, AND EQUIPMENT
A summary of furniture, fixtures, and equipment at December 31, 1999 is as
follows:
Equipment $ 1,870,662
Furniture and fixtures 79,106
-------------
1,949,768
Less accumulated depreciation 1,288,976
-------------
$ 660,792
=============
(4) LONG-TERM DEBT
A summary of long-term debt at December 31, 1999 was as follows:
Unsecured line of credit with interest at prime
plus 0.5% (9.0% at December 31, 1999), maturing
June 2000 $ 200,000
Other notes payable 68,368
-----------
268,368
Less current maturities 237,285
-----------
Long-term debt, excluding current maturities $ 31,083
===========
Schedules payments on the line of credit and long-term debt are as
follows:
2000 $ 237,285
2001 23,185
2002 7,898
-----------
$ 268,368
===========
(5) CAPITAL AND OPERATING LEASES
Capital lease obligations related to certain computer equipment have
remaining lease terms ranging from one to three years at December 31, 1999.
The Company currently has operating leases for two sales offices and has
entered into an operating lease for the Company's new headquarters building
currently under construction. Rental expenses under operating leases
amounted to $257,034 for the year ended December 31, 1999.
12
THE LEGEND GROUP OF COMPANIES
Notes to Combined Financial Statements
December 31, 1999
Minimum annual rentals for the five years subsequent to 1999 and in the
aggregate are:
CAPITAL OPERATING
LEASES LEASES
----------- -------------
2000 $ 139,466 206,755
2001 130,976 326,600
2002 32,744 368,235
2003 - 385,998
2004 - 410,166
Thereafter - 2,403,008
----------- -------------
303,186 $ 4,100,762
=============
Less amount representing interest 60,777
-----------
Present value of net minimum lease
payments under capital leases $ 242,409
============
(6) OWNERS' EQUITY
The capital structure of entities included in the combined balance sheet at
December 31, 1999 is as follows:
COMMON STOCK
----------------------------------------------
SHARES
PAR SHARES ISSUED AND
VALUE AUTHORIZED OUTSTANDING
---------- ---------------- ---------------
Advisory Services Corporation $ - 25,000 108
Freemark Investment Management, Inc. - 20,000 10
Legend Financial Corporation 0.01 3,000 3,000
Legend Services Corporation - 3,000 3,000
The Legend Group, Inc. - 3,000 100
Legend Equities Corporation - 1,500 600
Performance Management Group, Inc. - 1,500 100
LEC Insurance Agency, Inc. - 1,500 100
Service Management Advisory Corporation - 1,500 10
Legend National Corporation - 200 100
Legend Advisory Corporation - 200 95
13
THE LEGEND GROUP OF COMPANIES
Notes to Combined Financial Statements
December 31, 1999
(7) TRANSACTIONS WITH RELATED PARTIES
Effective January 1, 1999, the Company entered into an annual service
agreement with Legend Management Group, Inc., an affiliated entity, whereby
Legend Management Group, Inc. agreed to provide legal services, management
expertise as it relates to administrative services, and marketing and sales
direction necessary in the conduct of the business of the Company. The
Company agreed to pay Legend Management Group, Inc. for its services under
this agreement at a monthly fee based on a percentage of their gross
revenues. On the anniversary date of this agreement, the parties will agree
to the amount of periodic fees to be charged by Legend Management Group,
Inc. to the Company for the next year in connection with these services.
During 1999, the Company paid Legend Management Group, Inc. $6,908,968 for
the services under this agreement. At December 31, 1999, the Company was
indebted to Legend Management Group, Inc. for $3,358,874 for services under
this agreement.
(8) INCOME TAXES
The components of total income tax expense for the year ended December 31,
1999 were as follows:
Current income tax expense (benefit):
Federal $ (7,065)
State and local 23,712
----------
Total current tax expense $ 16,647
==========
The tax effects of temporary differences that resulted in deferred tax
assets and liabilities at December 31, 1999 are presented below. There were
no valuation allowances provided.
Deferred income tax assets (liabilities):
Depreciation $ 42,512
Unrealized gains on investments (16,800)
------------
Net deferred income tax assets $ 25,712
============
(9) SAVINGS AND INVESTMENT PLAN
The Company has a flexible spending plan and 401(k) profit sharing plan and
trust covering substantially all full-time employees which was established
in 1992. The Company contribution to the plan in 1999 was $278,120.
14
THE LEGEND GROUP OF COMPANIES
Notes to Combined Financial Statements
December 31, 1999
(10) CONTINGENCIES
From time to time, the Company is a party to various claims arising in the
ordinary course of business. In the opinion of management, after
consultation with legal counsel, any adverse determination in one or more
pending claims would not have a material adverse effect on the Company's
financial position or results of operations.
(11) SUBSEQUENT EVENT
On February 28, 2000, Waddell & Reed Financial, Inc. announced a definitive
agreement to acquire all of the common stock of the Company. Under the
terms of the agreement, Waddell & Reed Financial, Inc. will pay $61,000,000
in cash, and contingent cash payments over three years of up to
$14,000,000. It is expected that this transaction will be consummated on
March 31, 2000.
15
Waddell & Reed Financial, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Statements
Year ended December 31, 1999
and three months ended March 31, 2000
General
On March 31, 2000, Waddell & Reed Financial, Inc. ("the Company") acquired The
Legend Group ("Legend"). The transaction was accounted for as a purchase.
The following unaudited pro forma consolidated statements of operations data
presents the Company's results of operations for the year ended December 31,
1999 and for the three months ended March 31, 2000, adjusted for the acquisition
of Legend and the related financing. The pro forma statements of operations data
are presented as if such transaction had occurred at the beginning of the
periods presented.
The Company's historical information as of and for the year ended December 31,
1999 was derived from audited consolidated financial statements. The Company's
historical information for the three months ended March 31, 2000 was derived
from our unaudited condensed consolidated financial statements. The financial
information for The Legend Group of Companies was derived from their respective
historical financial statements.
These pro forma financial statements and notes thereto are provided for
informational purposes only and do not purport to be indicative of the actual
financial position or results of operation had such transactions been completed
on the dates indicated or of future results of operations. Furthermore, the pro
forma adjustments reflected herein are based upon preliminary estimates and
actual adjustments to record the purchase could be different.
16
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Operations
For the Quarter Ended March 31, 2000
(Amounts in thousands, except for per share data)
W&R Legend Adjustments Proforma
------ ------ ----------- --------
Revenue:
Investment management fees 63,805 0 63,805
Underwriting and distribution fees: 45,481 10,197 55,678
Shareholder service fees 11,294 1,693 12,987
Investment and other revenue 4,162 40 (210)(a) 3,992
-----------------------------------------
Total revenue 124,742 11,930 (210) 136,462
Expenses:
Underwriting and distribution 41,396 7,954 (732)(b) 48,618
Compensation and related costs 14,001 1,050 76 (c) 15,127
General and administrative 6,612 1,677 (469)(d) 7,820
Depreciation 631 61 692
Interest expense 2,499 5 784 (e) 3,288
Amortization of goodwill 929 0 595 (f) 1,524
-----------------------------------------
Total expenses 66,068 10,747 254 77,069
Income before provision for income taxes 58,674 1,183 (464) 59,393
Provision for income taxes 22,548 454 50 (g) 23,052
-----------------------------------------
Net income 36,126 729 (514) 36,341
=========================================
Net income per share:*
Basic 0.43 0.43
Diluted 0.41 0.42
Weighted average shares outstanding:*
Basic 84,713 84,713
Diluted 87,213 87,213
* All share and per share data have been adjusted to reflect the 2000
three-for-two stock split.
See notes to pro forma financial statements
17
Waddell & Reed Financial, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statements of Operations
For the Quarter ended March 31, 2000
(a) To give effect to foregone interest income from invested cash, aggregating
approximately $14,326,000, used to finance a portion of the purchase price
based on the average rate of 5.88% for the Company during the three months
ended March 31, 2000.
(b) Reduction of costs from the discontinuation of a service agreement for
marketing and sales support services which will now be administered by the
Company.
(c) To give effect to compensation costs remaining from the service agreement
now administered by the Company.
(d) Reduction of costs from the discontinuation of a service agreement for
legal and administrative services which will now be administered by the
Company.
(e) To give effect to interest expense on borrowings, aggregating approximately
$47,000,000, used to finance a portion of the purchase price based on the
average borrowing rate of 6.67% for the Company during the three months
ended March 31, 2000, with the assumption that such borrowing had occurred
at the beginning of the period presented.
(f) To give effect to the estimated amortization of cost in excess of the fair
value of net assets acquired (goodwill) recorded in purchase accounting
based upon an aggregate purchase price of $61,327,000 and a useful life of
twenty-five years.
(g) To reflect the income tax impacts of the pro forma adjustments described
above.
18
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 1999
(Amounts in thousands, except for per share data)
W&R Legend Adjustments Proforma
------- ------ ----------- --------
Revenue:
Investment management fees 178,612 0 178,612
Underwriting and distribution fees: 126,318 33,717 160,035
Shareholder service fees 41,525 5,507 47,032
Investment and other revenue 10,202 112 (748)(a) 9,566
---------------------------------------------
Total revenue 356,657 39,336 (748) 395,245
Expenses:
Underwriting and distribution 124,938 28,255 (4,645)(b) 148,548
Compensation and related costs 44,944 3,886 305 (c) 49,135
General and administrative 19,245 6,914 (3,124)(d) 23,035
Depreciation 2,162 247 0 2,409
Interest expense 6,546 27 2,693 (e) 9,266
Amortization of goodwill 3,224 0 2,380 (f) 5,604
Loss on sale of real estate 4,592 0 4,592
Write off of deferred acquisition costs 18,981 0 18,981
---------------------------------------------
Total expenses 224,632 39,329 (2,391) 261,570
Income before provision for income taxes 132,025 7 1,643 133,675
Provision for income taxes 50,258 17 1,528 (g) 51,803
---------------------------------------------
Net income 81,767 (10) 115 81,872
=============================================
Net income per share:*
Basic 0.91 0.92
Diluted 0.89 0.89
Weighted average shares outstanding:*
Basic 89,456 89,456
Diluted 91,548 91,548
* All share and per share data have been adjusted to reflect the 2000
three-for-two stock split.
See notes to pro forma financial statements
19
Waddell & Reed Financial, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statements of Operations
For the Year ended December 31, 1999
(a) To give effect to foregone interest income from invested cash, aggregating
approximately $14,326,000, used to finance a portion of the purchase price
based on the average rate of 5.22% for the Company during 1999.
(b) Reduction of costs from the discontinuation of a service agreement for
marketing and sales support services which will now be administered by the
Company.
(c) To give effect to compensation costs remaining from the service agreement
now administered by the Company.
(d) Reduction of costs from the discontinuation of a service agreement for
legal and administrative services which will now be administered by the
Company.
(e) To give effect to interest expense on borrowings, aggregating approximately
$47,000,000, used to finance a portion of the purchase price based on the
average borrowing rate of 5.73% for the Company during 1999, with the
assumption that such borrowing had occurred at the beginning of the period
presented.
(f) To give effect to the estimated amortization of cost in excess of the fair
value of net assets acquired (goodwill) recorded in purchase accounting
based upon an aggregate purchase price of $61,327,000 and a useful life of
twenty-five years.
(g) To reflect the income tax impacts of the pro forma adjustments described
above.
20
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
2.1* Purchase Agreement, dated as of February 28, 2000, by and among
Waddell & Reed Financial, Inc., Freemark Investment Management,
Inc., Legend Financial Corporation, Advisory Services
Corporation, Performance Management Group, Inc., The Legend
Group, Inc., Philip C. Restino, Restino Family Trust, 01/02/94
Trust FBO Robert R. Restino, 1/02/94 Trust FBO John J. Restino,
Mark J. Spinello, Glenn T. Ferris and David L. Phillips.
23.1 Consent of KPMG LLP
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* Previously filed.
21