WADDELL & REED FINANCIAL INC - FORM 8-K - EX-99.1

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8-K - 8-K - WADDELL & REED FINANCIAL INC	a18-11052_28k.htm

Exhibit 99.1

The table below reflects the retrospective change in the Company’s accounting policy for reporting certain expenses for all periods presented.

Unaudited Schedule of Operating Data

(Amounts in thousands, except for per share and margin data)

	Three Months Ended Mar. 31, 2017											Three Months Ended Jun. 30, 2017											Three Months Ended Sep. 30, 2017											Three Months Ended Dec. 31, 2017
	Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted
Total Revenues	$	286,564		—			—		$	286,564		$	286,657		—			—		$	286,657		$	289,447		—			—		$	289,447		$	294,476		—			—		$	294,476
Operating Expenses
Underwriting and distribution	149,863			(149,863		)	—		—			150,693			(150,693		)	—		—			141,830			(141,830		)	—		—			151,038			(151,038		)	—		—
Distribution	—			108,437			—		108,437			—			109,060			—		109,060			—			106,878			—		106,878			—			107,889			—		107,889
Compensation and benefits	48,570			17,582			883		67,035			46,449			17,907			976		65,332			31,076			12,503			26,057		69,636			55,281			20,513			(6,521	)	69,273
General and administrative	25,724			(3,529		)	—		22,195			28,153			(4,866		)	—		23,287			27,832			(4,432		)	—		23,400			23,811			(3,742		)	—		20,069
Technology	—			16,977			—		16,977			—			17,780			—		17,780			—			16,039			—		16,039			—			15,282			—		15,282
Occupancy	—			7,785			—		7,785			—			7,548			—		7,548			—			7,645			—		7,645			—			7,743			—		7,743
Marketing and advertising	—			2,611			—		2,611			—			3,264			—		3,264			—			3,197			—		3,197			—			3,353			—		3,353
Depreciation	5,221			—			—		5,221			5,175			—			—		5,175			5,230			—			—		5,230			5,357			—			—		5,357
Subadvisory fees	2,697			—			—		2,697			3,194			—			—		3,194			3,566			—			—		3,566			3,717			—			—		3,717
Intangible asset impairment	600			—			—		600			900			—			—		900			—			—			—		—			—			—			—		—
Total Operating Expenses	$	232,675		—			883		233,558			$	234,564		—			976		235,540			$	209,534		—			26,057		235,591			$	239,204		—			(6,521	)	232,683
Operating Income	53,889			—			(883	)	53,006			52,093			—			(976	)	51,117			79,913			—			(26,057	)	53,856			55,272			—			6,521		61,793
Investment and other income (loss)	2,129			—			883		3,012			2,021			—			976		2,997			7,236			—			26,057		33,293			4,303			—			(6,521	)	(2,218		)
Interest expense	(2,786		)	—			—		(2,786		)	(2,788		)	—			—		(2,788		)	(2,796		)	—			—		(2,796		)	(2,909		)	—			—		(2,909		)
Income before provision for income taxes	53,232			—			—		53,232			51,326			—			—		51,326			84,353			—			—		84,353			56,666			—			—		56,666
Provision for income taxes	18,881			—			—		18,881			26,608			—			—		26,608			29,499			—			—		29,499			26,380			—			—		26,380
Net income	$	34,351		—			—		$	34,351		$	24,718		—			—		$	24,718		$	54,854		—			—		$	54,854		$	30,286		—			—		$	30,286
Net income attributable to redeemable noncontrolling interests	480			—			—		480			656			—			—		656			1,272			—			—		1,272			522			—			—		522
Net income attributable to Waddell & Reed Financial, Inc.	$	33,871		—			—		$	33,871		$	24,062		—			—		$	24,062		$	53,582		—			—		$	53,582		$	29,764		—			—		$	29,764
Net income per share attributable to Waddell & Reed Financial, Inc. common shareholders, basic and diluted	$	0.40							$	0.40		$	0.29							$	0.29		$	0.64							$	0.64		$	0.36							$	0.36
Weighted average shares outstanding, basic and diluted	84,077								84,077			83,611								83,611			83,476								83,476			83,137								83,137
Operating margin	18.8		%						18.5		%	18.2		%						17.8		%	27.6		%						18.6		%	18.8		%						21.0		%

Distribution Expense
Broker-Dealer	—			74,529			—		74,529			—			76,062			—		76,062			—			75,100			—		75,100			—			76,494			—		76,494
Unaffiliated	—			33,908			—		33,908			—			32,998			—		32,998			—			31,778			—		31,778			—			31,395			—		31,395
Total	—			$	108,437		—		$	108,437		—			$	109,060		—		$	109,060		—			$	106,878		—		$	106,878		—			$	107,889		—		$	107,889

Unaudited Schedule of Operating Data

(Amounts in thousands, except for per share and margin data)

	Six Months Ended Jun. 30, 2017											Nine Months Ended Sep. 30, 2017											Year Ended Dec. 31, 2017
	Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted
Total Revenues	$	573,221		—			—		$	573,221		$	862,668		—			—		$	862,668		$	1,157,144		—			—		$	1,157,144
Operating Expenses
Underwriting and distribution	300,556			(300,556		)	—		—			442,386			(442,386		)	—		—			593,424			(593,424		)	—		—
Distribution	—			217,497			—		217,497			—			324,375			—		324,375			—			432,264			—		432,264
Compensation and benefits	95,019			35,489			1,859		132,367			126,095			47,992			27,916		202,003			181,376			68,505			21,395		271,276
General and administrative	53,877			(8,395		)	—		45,482			81,709			(12,827		)	—		68,882			105,520			(16,569		)	—		88,951
Technology	—			34,757			—		34,757			—			50,796			—		50,796			—			66,078			—		66,078
Occupancy	—			15,333			—		15,333			—			22,978			—		22,978			—			30,721			—		30,721
Marketing and advertising	—			5,875			—		5,875			—			9,072			—		9,072			—			12,425			—		12,425
Depreciation	10,396			—			—		10,396			15,626			—			—		15,626			20,983			—			—		20,983
Subadvisory fees	5,891			—			—		5,891			9,457			—			—		9,457			13,174			—			—		13,174
Intangible asset impairment	1,500			—			—		1,500			1,500			—			—		1,500			1,500			—			—		1,500
Total Operating Expenses	$	467,239		—			1,859		$	469,098		$	676,773		—			27,916		$	704,689		$	915,977		—			21,395		$	937,372
Operating Income	105,982			—			(1,859	)	104,123			185,895			—			(27,916	)	157,979			241,167			—			(21,395	)	219,772
Investment and other income (loss)	4,150			—			1,859		6,009			11,386			—			27,916		39,302			15,689			—			21,395		37,084
Interest expense	(5,574		)	—			—		(5,574		)	(8,370		)	—			—		(8,370		)	(11,279		)	—			—		(11,279		)
Income before provision for income taxes	104,558			—			—		104,558			188,911			—			—		188,911			245,577			—			—		245,577
Provision for income taxes	45,489			—			—		45,489			74,988			—			—		74,988			101,368			—			—		101,368
Net income	$	59,069		—			—		$	59,069		$	113,923		—			—		$	113,923		$	144,209		—			—		$	144,209
Net income attributable to redeemable noncontrolling interests	1,136			—			—		1,136			2,408			—			—		2,408			2,930			—			—		2,930
Net income attributable to Waddell & Reed Financial, Inc.	$	57,933		—			—		$	57,933		$	111,515		—			—		$	111,515		$	141,279		—			—		$	141,279
Net income per share attributable to Waddell & Reed Financial, Inc. common shareholders, basic and diluted	$	0.69							$	0.69		$	1.33							$	1.33		$	1.69							$	1.69
Weighted average shares outstanding, basic and diluted	83,843								83,843			83,719								83,719			83,573								83,573
Operating margin	18.5		%						18.2		%	21.5		%						18.3		%	20.8		%						19.0		%

Distribution Expense
Broker-Dealer	—			150,591			—		150,591			—			225,691			—		225,691			—			302,185			—		302,185
Unaffiliated	—			66,906			—		66,906			—			98,684			—		98,684			—			130,079			—		130,079
Total	—			$	217,497		—		$	217,497		—			$	324,375		—		$	324,375		—			$	432,264		—		$	432,264

The table below reflects the retrospective change in the Company’s accounting policy for reporting certain expenses for all periods presented.

Unaudited Schedule of Operating Data

(Amounts in thousands, except for per share and margin data)

	Three Months Ended Mar. 31, 2016											Three Months Ended Jun. 30, 2016											Three Months Ended Sep. 30, 2016											Three Months Ended Dec. 31, 2016
	Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted
Total Revenues	$	323,816		—			—		$	323,816		$	319,208		—			—		$	319,208		$	303,086		—			—		$	303,086		$	292,913		—			—		$	292,913
Operating Expenses
Underwriting and distribution	173,197			(173,197		)	—		—			180,669			(180,669		)	—		—			152,392			(152,392		)	—		—			158,390			(158,390		)	—		—
Distribution	—			129,624			—		129,624			—			132,825			—		132,825			—			111,633			—		111,633			—			111,899			—		111,899
Compensation and benefits	51,848			17,569			1,154		70,571			57,351			23,563			1,093		82,007			39,173			14,543			1,124		54,840			52,450			18,637			(10,667	)	60,420
General and administrative	19,152			1,030			—		20,182			19,276			(1,396		)	—		17,880			23,280			(1,847		)	—		21,433			22,287			(963		)	—		21,324
Technology	—			14,444			—		14,444			—			14,569			—		14,569			—			16,988			—		16,988			—			17,044			—		17,044
Occupancy	—			7,842			—		7,842			—			7,808			—		7,808			—			7,899			—		7,899			—			7,857			—		7,857
Marketing and advertising	—			2,688			—		2,688			—			3,300			—		3,300			—			3,176			—		3,176			—			3,916			—		3,916
Depreciation	4,362			—			—		4,362			4,260			—			—		4,260			4,541			—			—		4,541			5,196			—			—		5,196
Subadvisory fees	2,093			—			—		2,093			2,325			—			—		2,325			2,566			—			—		2,566			2,588			—			—		2,588
Intangible asset impairment	—			—			—		—			—			—			—		—			5,700			—			—		5,700			4,049			—			—		4,049
Total Operating Expenses	$	250,652		—			1,154		$	251,806		$	263,881		—			1,093		$	264,974		$	227,652		—			1,124		$	228,776		$	244,960		—			(10,667	)	$	234,293
Operating Income	73,164			—			(1,154	)	72,010			55,327			—			(1,093	)	54,234			75,434			—			(1,124	)	74,310			47,953			—			10,667		58,620
Investment and other income (loss)	(10,218		)	—			1,154		(9,064		)	687			—			1,093		1,780			7,878			—			1,124		9,002			890			—			(10,667	)	(9,777		)
Interest expense	(2,768		)	—			—		(2,768		)	(2,776		)	—			—		(2,776		)	(2,792		)	—			—		(2,792		)	(2,786		)	—			—		(2,786		)
Income before provision for income taxes	60,178			—			—		60,178			53,238			—			—		53,238			80,520			—			—		80,520			46,057			—			—		46,057
Provision for income taxes	21,610			—			—		21,610			18,682			—			—		18,682			24,634			—			—		24,634			16,958			—			—		16,958
Net income	$	38,568		—			—		$	38,568		$	34,556		—			—		$	34,556		$	55,886		—			—		$	55,886		$	29,099		—			—		$	29,099
Net income attributable to redeemable noncontrolling interests	501			—			—		501			(124		)	—			—		(124		)	978			—			—		978			59			—			—		59
Net income attributable to Waddell & Reed Financial, Inc.	$	38,067		—			—		$	38,067		$	34,680		—			—		$	34,680		$	54,908		—			—		$	54,908		$	29,040		—			—		$	29,040
Net income per share attributable to Waddell & Reed Financial, Inc. common shareholders, basic and diluted	$	0.46							$	0.46		$	0.42							$	0.42		$	0.66							$	0.66		$	0.35							$	0.35
Weighted average shares outstanding, basic and diluted	82,104								82,104			82,947								82,947			82,834								82,834			82,783								82,783
Operating margin	22.6		%						22.2		%	17.3		%						17.0		%	24.9		%						24.5		%	16.4		%						20.0		%

Distribution Expense
Broker-Dealer	—			82,776			—		82,776			—			90,374			—		90,374			—			72,146			—		72,146			—			76,043			—		76,043
Unaffiliated	—			46,848			—		46,848			—			42,451			—		42,451			—			39,487			—		39,487			—			35,856			—		35,856
Total	—			$	129,624		—		$	129,624		—			$	132,825		—		$	132,825		—			$	111,633		—		$	111,633		—			$	111,899		—		$	111,899

Unaudited Schedule of Operating Data

(Amounts in thousands, except for per share and margin data)

	Six Months Ended Jun. 30, 2016											Nine Months Ended Sep. 30, 2016											Year Ended Dec. 31, 2016
	Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted			Previously Reported (1)			Expense Reclassification			ASU 2017-07		Adjusted
Total Revenues	$	643,024		—			—		$	643,024		$	946,110		—			—		$	946,110		$	1,239,023		—			—		$	1,239,023
Operating Expenses
Underwriting and distribution	353,866			(353,866		)	—		—			506,258			(506,258		)	—		—			664,648			(664,648		)	—		—
Distribution	—			262,449			—		262,449			—			374,082			—		374,082			—			485,981			—		485,981
Compensation and benefits	109,199			41,132			2,247		152,578			148,372			55,675			3,371		207,418			200,822			74,312			(7,296	)	267,838
General and administrative	38,428			(366		)	—		38,062			61,708			(2,213		)	—		59,495			83,995			(3,176		)	—		80,819
Technology	—			29,013			—		29,013			—			46,001			—		46,001			—			63,045			—		63,045
Occupancy	—			15,650			—		15,650			—			23,549			—		23,549			—			31,406			—		31,406
Marketing and advertising	—			5,988			—		5,988			—			9,164			—		9,164			—			13,080			—		13,080
Depreciation	8,622			—			—		8,622			13,163			—			—		13,163			18,359			—			—		18,359
Subadvisory fees	4,418			—			—		4,418			6,984			—			—		6,984			9,572			—			—		9,572
Intangible asset impairment	—			—			—		—			5,700			—			—		5,700			9,749			—			—		9,749
Total Operating Expenses	$	514,533		—			2,247		$	516,780		$	742,185		—			3,371		$	745,556		$	987,145		—			(7,296	)	$	979,849
Operating Income	128,491			—			(2,247	)	126,244			203,925			—			(3,371	)	200,554			251,878			—			7,296		259,174
Investment and other income (loss)	(9,531		)	—			2,247		(7,284		)	(1,653		)	—			3,371		1,718			(763		)	—			(7,296	)	(8,059		)
Interest expense	(5,544		)	—			—		(5,544		)	(8,336		)	—			—		(8,336		)	(11,122		)	—			—		(11,122		)
Income before provision for income taxes	113,416			—			—		113,416			193,936			—			—		193,936			239,993			—			—		239,993
Provision for income taxes	40,292			—			—		40,292			64,926			—			—		64,926			81,884			—			—		81,884
Net income	$	73,124		—			—		$	73,124		$	129,010		—			—		$	129,010		$	158,109		—			—		$	158,109
Net income attributable to redeemable noncontrolling interests	377			—			—		377			1,355			—			—		1,355			1,414			—			—		1,414
Net income attributable to Waddell & Reed Financial, Inc.	$	72,747		—			—		$	72,747		$	127,655		—			—		$	127,655		$	156,695		—			—		$	156,695
Net income per share attributable to Waddell & Reed Financial, Inc. common shareholders, basic and diluted	$	0.88							$	0.88		$	1.54							$	1.54		$	1.90							$	1.90
Weighted average shares outstanding, basic and diluted	82,526								82,526			82,629								82,629			82,668								82,668
Operating margin	20.0		%						19.6		%	21.6		%						21.2		%	20.3		%						20.9		%

Distribution Expense
Broker-Dealer	—			173,150			—		173,150			—			245,296			—		245,296			—			321,339			—		321,339
Unaffiliated	—			89,299			—		89,299			—			128,786			—		128,786			—			164,642			—		164,642
Total	—			$	262,449		—		$	262,449		—			$	374,082		—		$	374,082		—			$	485,981		—		$	485,981

(1) As disclosed in the Form 10-K filed February 23, 2018, during the fourth quarter of 2017 the Company retrospectively changed its method of accounting for net periodic pension costs and elected to immediately recognize all actuarial gains and losses in net periodic pension cost in the year in which the gains and losses occur. The prior period quarters have been adjusted for this retrospective change.

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