Form 8-K WADDELL & REED FINANCIAL For: Oct 28

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October 28, 2014 9:37 AM EDT

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�

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

�

FORM�8-K

�

CURRENT REPORT

Pursuant to Section�13 or 15(d)�of the

Securities Exchange Act of 1934

�

Date of Report (Date of earliest event reported):

October�28, 2014

�

WADDELL�& REED FINANCIAL,�INC.

(Exact name of registrant as specified in its charter)

�

Delaware	�	001-13913	�	51-0261715
(State or Other Jurisdiction of Incorporation)	�	(Commission File Number)	�	(IRS Employer Identification No.)

�

6300 Lamar Avenue

Overland Park, Kansas 66202

(Address of Principal Executive Offices) (Zip Code)

�

(913) 236-2000

(Registrant�s Telephone Number, including Area Code)

�

(Registrant�s Former Name or Former Address, if Changed Since Last Report)

�

Check the appropriate box below if the Form�8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

�

o�� Written communications pursuant to Rule�425 under the Securities Act (17 CFR 230.425)

�

o�� Soliciting material pursuant to Rule�14a-12 under the Exchange Act (17 CFR 240.14a-12)

�

o�� Pre-commencement communications pursuant to Rule�14d-2(b)�under the Exchange Act (17 CFR 240.14d-2(b))

�

o�� Pre-commencement communications pursuant to Rule�13e-4(c)�under the Exchange Act (17 CFR 240.13e-4(c))

�

ITEM 2.02�� RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

�

On October�28, 2014, Waddell�& Reed Financial,�Inc. (the �Company�) issued a press release announcing the Company�s financial results for the fiscal quarter ended September�30, 2014.� A copy of the Company�s press release is furnished as Exhibit�99.1 and incorporated herein by reference.

�

ITEM 9.01�� FINANCIAL STATEMENTS AND EXHIBITS.

�

(d)�� Exhibits.

�

99.1�� Press Release dated October�28, 2014

�

SIGNATURES

�

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: October�28, 2014	By:	/s/ Brent K. Bloss
�	�	Brent K. Bloss
�	�	Senior Vice President, Chief Financial Officer
�	�	and Treasurer

�

EXHIBIT�INDEX

�

Exhibit�No.	�	Description
�	�	�
99.1	�	Press Release dated October�28, 2014

�

Exhibit�99.1

�

News Release

�

Waddell�& Reed Financial,�Inc. Reports Third Quarter Results

�

Overland Park, KS, Oct.�28, 2014 � Waddell�& Reed Financial,�Inc. (NYSE: WDR) today reported third quarter 2014 net income of $74.6 million, or $0.89 per diluted share, compared to net income of $83.0 million, or $0.98 per diluted share, during the previous quarter and net income of $68.4 million, or $0.80 per diluted share, during the third quarter of 2013.� During the current quarter, the company recognized an intangible asset impairment charge of $7.9 million ($5.0 million net of taxes, or $0.06 per diluted share) related to a subadvisory agreement to manage certain mutual funds.� Excluding this charge and the related tax benefit, net income would have been $79.6 million, or $0.94(1)�per diluted share.(2)

�

Operating revenues of $409.6 million rose 2% sequentially and 18% compared to the same period last year.� Our operating margin was 30.6% during the quarter, or 32.5% excluding the impairment charge(1).� This compares favorably to 30.9% during the previous quarter and 29.8% during the same period last year.

�

On September�30, 2014, assets under management were $128.9 billion, down 5% during the quarter due to a combination of market depreciation and outflows.� Compared to September�30, 2013, assets under management rose 13%.� Average assets under management were $133.1 billion during the quarter.

�

Business Discussion

�

�Headwinds our company has endured these last few months have led to disappointing outflows and detracted from an otherwise solid quarter,� said Hank Herrmann, Chairman and Chief Executive Officer of Waddell�& Reed Financial,�Inc.� �Our operating revenues rose and by keeping expenses in check, our operating margin expanded, after adjusting for the impairment charge.� Our investment management professionals remain committed to deliver superior investment performance.� For the 3� and 5� year periods, 69% of assets were ranked in the top quartile of Lipper.�

�

Sales in our Wholesale channel were $4.3 billion, down 12% sequentially and 18% compared to the same period last year.� This channel had outflows of $2.6 billion compared to inflows of $104 million during the second quarter and inflows of $1.6 billion during the third quarter of 2013.� Outflows in the current quarter were due to a combination of industry-wide outflows in high yield, performance weakness in one of our largest funds and concerns about portfolio manager turnover, which is very unusual for our firm.

�

(1)� GAAP EPS of $0.89 plus the $0.06 impairment charge does not foot to the adjusted EPS of $0.94 due to rounding.

(2)� Reconciliation to GAAP on page�9.

�

The Advisors channel had sales of $1.3 billion, down 9% sequentially and up 6% compared to the same quarter in 2013.� The channel experienced inflows of $64 million during the quarter compared to $271 million last quarter and $88 million during the same quarter last year.

�

Our Institutional channel, lumpy by nature, had outflows of $399 million during the current quarter.

�

Management Fee Revenue Analysis

�

Management fees rose 2% sequentially, benefiting from one additional day during the current quarter and higher levels of average assets under management.� Compared to the same period in 2013, revenues rose 19% due to higher levels of average assets under management.� The effective fee rate remained relatively unchanged across each quarter at 59 basis points.

�

Underwriting and Distribution Analysis

�

Wholesale channel

�

Revenues were largely unchanged compared to the second quarter of 2014 while direct costs declined due to lower commissions paid to wholesalers and third party distributors.� Indirect costs increased slightly.

�

Compared to the same period in 2013, revenues rose primarily due to higher asset-based Rule�12b-1 fees.� Direct costs rose in correlation with higher Rule�12b-1 fees and to a lesser degree, commissions paid to wholesalers and third party distributors. Indirect costs rose due to higher marketing costs.

�

Advisors channel

�

Sequentially, revenues rose primarily due to asset-based advisory fees and to a lesser degree, due to Rule�12b-1 fees.� Direct costs increased in correlation with revenues while indirect costs declined slightly due to a combination of lower marketing costs, payroll taxes and benefits.

�

Compared to the third quarter of 2013, the increase in revenues was primarily due to higher advisory fees.� Higher asset-based Rule�12b-1 fees and to a lesser degree, higher front load commissions, also contributed to the increase in revenues.� Direct costs rose with revenues, while indirect costs rose due to higher compensation and sales program costs.

�

Compensation and Related Expense Analysis

�

Costs were largely unchanged compared to second quarter levels.� Higher incentive compensation costs were offset by lower equity compensation costs and payroll taxes.

�

Compared to the same period last year, costs declined slightly due to a combination of lower bonuses, pension and equity compensation costs, which were largely offset by higher base salary expense.

�

General and Administrative Expense Analysis

�

Costs declined sequentially due to a number of items, including IT consulting, business meeting, travel, and marketing costs.� Compared to the same period last year, costs rose primarily due to higher IT consulting, dealer service and legal costs.

�

Unaudited Balance Sheet Information

Schedule of Selected Items

(Amounts�in�millions)

�

�	�	Quarter�ended		�
�	�	Sept.�30,�2014		�
Cash�& cash equivalents (unrestricted)	�	$	529.0	�
Investment securities	�	243.9		�
Total assets	�	1,399.0		�
Long-term debt	�	190.0		�
Total liabilities	�	607.2		�
Stockholders� equity	�	791.8		�
�	�	�		�
Shares outstanding	�	84.1		million shares

�

($�in thousands)

�

�	�	Quarter�ended		�	Year-to-Date		�
�	�	Sept.�30,�2014		�	Sept.�30,�2014		�
Shares repurchased	�	�		�	�		�
Number of shares	�	614,062		�	1,522,270		�
Total cost	�	$	34,423	�	$	96,145	�
�	�	�		�	�		�
Dividend paid	�	�		�	�		�
Rate per share	�	$	0.34	�	$	1.02	�
Total paid	�	$	28,791	�	$	86,754	�
�	�	�		�	�		�
Capital returned to stockholders	�	$	63,214	�	$	182,899	�

�

Unaudited Consolidated Statement of Income

(Amounts in thousands, except for per share data)

�

2013

�

2014

�

1st�Qtr.

�

2nd�Qtr.

�

3rd�Qtr.

�

4th�Qtr.

�

1st�Qtr.

�

2nd�Qtr.

�

3rd�Qtr.

�

4th�Qtr.

�

Operating Revenues:

�

Investment management fees

�

148,445

�

156,219

�

165,559

�

180,219

�

188,037

�

193,624

�

197,783

�

Underwriting and distribution fees

�

135,419

�

141,597

�

146,863

�

158,940

�

165,267

�

169,001

�

173,047

�

Shareholder service fees

�

32,691

�

33,890

�

34,667

�

35,845

�

37,112

�

38,009

�

38,728

�

Total operating revenues

�

316,555

�

331,706

�

347,089

�

375,004

�

390,416

�

400,634

�

409,558

�

Operating Expenses:

�

Underwriting and distribution

�

161,571

�

164,844

�

169,046

�

181,252

�

194,951

�

195,608

�

197,246

�

Compensation and related costs

�

48,155

�

47,376

�

49,472

�

52,594

�

50,009

�

48,589

�

48,375

�

General and administrative

�

16,208

�

26,938

�

20,462

�

22,811

�

23,756

�

27,183

�

24,924

�

Subadvisory fees

�

4,484

�

4,291

�

1,667

�

1,778

�

1,877

�

2,069

�

2,203

�

Depreciation

�

3,227

�

3,222

�

3,172

�

3,213

�

3,249

�

3,541

�

3,786

�

Intangible asset impairment

�

7,900

�

Total operating expenses

�

233,645

�

246,671

�

243,819

�

261,648

�

273,842

�

276,990

�

284,434

�

Operating Income

�

82,910

�

85,035

�

103,270

�

113,356

�

116,574

�

123,644

�

125,124

�

Investment and other income/(loss)

�

4,377

�

1,002

�

5,212

�

9,313

�

3,900

�

6,100

�

(1,205

)

�

Interest expense

�

(2,854

)

(2,858

)

(2,832

)

(2,700

)

(2,755

)

(2,755

)

(2,769

)

�

Income before taxes

�

84,433

�

83,179

�

105,650

�

119,969

�

117,719

�

126,989

�

121,150

�

Provision for taxes

�

30,570

�

31,222

�

37,231

�

41,210

�

42,855

�

44,001

�

46,564

�

Net Income

�

53,863

�

51,957

�

68,419

�

78,759

�

74,864

�

82,988

�

74,586

�

Net income per share, basic and diluted:

�

0.63

�

0.61

�

0.80

�

0.92

�

0.88

�

0.98

�

0.89

�

Weighted average shares outstanding - basic and diluted

�

85,593

�

85,869

�

85,603

�

85,294

�

85,019

�

85,073

�

84,242

�

Operating margin

�

26.2

25.6

29.8

30.2

29.9

30.9

30.6

�

Net Distribution Cost Analysis

(Amounts in thousands)

�

�	�	1st�Qtr.		�	2nd�Qtr.		�	3rd�Qtr.		�	4th�Qtr.		�	1st�Qtr.		�	2nd�Qtr.		�	3rd�Qtr.		�	4th�Qtr.	�
Wholesale�Channel	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
U&D Revenues	�	$	48,175	�	$	49,846	�	$	52,472	�	$	56,926	�	$	59,564	�	$	60,237	�	$	59,807	�	�	�
U&D Expenses - Direct	�	(63,548		)	(64,694		)	(67,107		)	(72,698		)	(79,700		)	(76,834		)	(75,775		)	�	�
U&D Expenses - Indirect	�	(11,000		)	(11,229		)	(10,409		)	(11,285		)	(11,535		)	(12,791		)	(13,317		)	�	�
Net Distribution (Costs)	�	$	(26,373	)	$	(26,077	)	$	(25,044	)	$	(27,057	)	$	(31,671	)	$	(29,388	)	$	(29,285	)	�	�
�	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Advisors Channel	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
U&D Revenues	�	$	87,244	�	$	91,751	�	$	94,391	�	$	102,014	�	$	105,703	�	$	108,764	�	$	113,240	�	�	�
U&D Expenses - Direct	�	(59,657		)	(62,794		)	(64,550		)	(69,023		)	(74,697		)	(76,867		)	(79,700		)	�	�
U&D Expenses - Indirect	�	(27,366		)	(26,127		)	(26,980		)	(28,246		)	(29,019		)	(29,116		)	(28,454		)	�	�
Net Distribution (Costs)/Excess	�	$	221	�	$	2,830	�	$	2,861	�	$	4,745	�	$	1,987	�	$	2,781	�	$	5,086	�	�	�

�

Changes in Assets Under Management

(Amounts in millions)

�

�	�	2013											�	2014										�
�	�	1st�Qtr.		�	2nd�Qtr.		�	3rd�Qtr.		�	4th�Qtr.		�	1st�Qtr.		�	2nd�Qtr.		�	3rd�Qtr.		�	4th�Qtr.	�
Wholesale Channel	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Beginning assets	�	$	48,930	�	$	53,254	�	$	53,860	�	$	59,661	�	$	67,055	�	$	70,467	�	$	71,671	�	�	�
Sales*	�	5,042		�	5,030		�	5,191		�	6,148		�	7,017		�	4,864		�	4,269		�	�	�
Redemptions	�	(3,157		)	(3,983		)	(3,723		)	(3,449		)	(3,562		)	(4,363		)	(7,008		)	�	�
Net Exchanges	�	66		�	61		�	83		�	91		�	112		�	(397		)	112		�	�	�
*Net flows*	�	1,951		�	1,108		�	1,551		�	2,790		�	3,567		�	104		�	(2,627		)	�	�
Market action	�	2,373		�	(502		)	4,250		�	4,604		�	(155		)	1,100		�	(2,669		)	�	�
Ending assets	�	$	53,254	�	$	53,860	�	$	59,661	�	$	67,055	�	$	70,467	�	$	71,671	�	$	66,375	�	�	�
�	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Advisors Channel	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Beginning assets	�	$	35,660	�	$	37,915	�	$	38,172	�	$	40,767	�	$	43,667	�	$	44,224	�	$	45,797	�	�	�
Sales*	�	1,303		�	1,404		�	1,242		�	1,283		�	1,435		�	1,457		�	1,322		�	�	�
Redemptions	�	(1,047		)	(1,083		)	(1,071		)	(1,104		)	(1,106		)	(1,098		)	(1,146		)	�	�
Net Exchanges	�	(66		)	(62		)	(83		)	(92		)	(112		)	(88		)	(112		)	�	�
*Net flows*	�	190		�	259		�	88		�	87		�	217		�	271		�	64		�	�	�
Market action	�	2,065		�	(2		)	2,507		�	2,813		�	340		�	1,302		�	(953		)	�	�
Ending assets	�	$	37,915	�	$	38,172	�	$	40,767	�	$	43,667	�	$	44,224	�	$	45,797	�	$	44,908	�	�	�
�	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Institutional Channel	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Beginning assets	�	$	11,775	�	$	12,626	�	$	12,312	�	$	13,316	�	$	15,821	�	$	16,692	�	$	18,165	�	�	�
Sales*	�	430		�	379		�	386		�	1,913		�	1,554		�	1,193		�	328		�	�	�
Redemptions	�	(469		)	(811		)	(550		)	(792		)	(679		)	(851		)	(727		)	�	�
Net Exchanges	�	0		�	0		�	0		�	0		�	0		�	485		�	0		�	�	�
*Net flows*	�	(39		)	(432		)	(164		)	1,121		�	875		�	827		�	(399		)	�	�
Market action	�	890		�	118		�	1,168		�	1,384		�	(4		)	646		�	(163		)	�	�
Ending assets	�	$	12,626	�	$	12,312	�	$	13,316	�	$	15,821	�	$	16,692	�	$	18,165	�	$	17,603	�	�	�
�	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Consolidated Total	�	�		�	�		�	�		�	�		�	�		�	�		�	�		�	�	�
Beginning assets	�	$	96,365	�	$	103,795	�	$	104,344	�	$	113,744	�	$	126,543	�	$	131,383	�	$	135,633	�	�	�
Sales*	�	6,775		�	6,813		�	6,819		�	9,344		�	10,006		�	7,514		�	5,919		�	�	�
Redemptions	�	(4,673		)	(5,877		)	(5,344		)	(5,345		)	(5,347		)	(6,312		)	(8,881		)	�	�
Net Exchanges	�	0		�	(1		)	0		�	(1		)	0		�	0		�	0		�	�	�
*Net flows*	�	2,102		�	935		�	1,475		�	3,998		�	4,659		�	1,202		�	(2,962		)	�	�
Market action	�	5,328		�	(386		)	7,925		�	8,801		�	181		�	3,048		�	(3,785		)	�	�
Ending assets	�	$	103,795	�	$	104,344	�	$	113,744	�	$	126,543	�	$	131,383	�	$	135,633	�	$	128,886	�	�	�

�

* Sales is primarily gross sales (net of sales commissions).� This amount also includes net reinvested dividends�& capital gains and investment income.

�

Supplemental Information

�

2013

�

2014

�

1st�Qtr.

�

2nd�Qtr.

�

3rd�Qtr.

�

4th�Qtr.

�

1st�Qtr.

�

2nd�Qtr.

�

3rd�Qtr.

�

4th�Qtr.

�

Channel highlights

�

Number of Wholesalers

�

Number of Advisors

�

1,717

�

1,734

�

1,784

�

1,746

�

1,737

�

1,740

�

1,759

�

Advisors� Productivity *

�

50.5

�

53.1

�

53.7

�

57.4

�

60.9

�

62.4

�

64.6

�

Redemption rates - long term assets

�

Wholesale

�

24.6

29.4

25.7

21.7

21.1

25.1

40.3

�

Advisors

�

9.4

9.1

8.7

8.5

8.2

7.9

8.2

�

Institutional

�

15.5

25.5

17.0

21.6

17.0

19.9

16.1

�

Total

�

18.0

21.7

18.6

17.1

16.2

18.7

26.1

�

Operating highlights

�

Organic growth/(decay) annualized

�

8.7

3.6

5.7

14.1

14.7

3.7

-8.7

�

Total assets under management (in millions)

�

103,795

�

104,344

�

113,744

�

126,543

�

131,383

�

135,633

�

128,886

�

Diversification (Company Total)

�

As % of Sales

�

Asset Strategy

�

33.6

28.5

25.9

27.6

33.4

26.3

24.9

�

Fixed Income

�

30.7

30.4

31.8

24.4

23.3

25.4

28.8

�

Other

�

35.7

41.1

42.3

48.0

43.3

48.3

46.3

�

As % of Assets Under Management

�

Asset Strategy

�

33.7

33.4

33.8

34.3

33.9

32.9

32.0

�

Fixed Income

�

20.7

19.9

19.0

18.1

18.6

18.7

18.2

�

Other

�

45.6

46.7

47.2

47.6

47.5

48.4

49.8

�

Operating margin

�

26.2

25.6

29.8

30.2

29.9

30.9

30.6

�

1�Year

�

3�Years

�

5�Years

�

Lipper Fund Rankings

�

Funds ranked in top quartile

�

Funds ranked in top half

�

Assets ranked in top quartile

�

Assets ranked in top half

�

*�� Advisors� productivity is calculated by dividing U&D revenues for the Advisors channel by the average number of advisors during the period.

�

Unaudited Consolidated Statement of Income

(Amounts in thousands, except for per share data)

�

�	�	Year�to�Date							�
�	�	Sep-14		�	Sep-13		�	%�Change	�
Operating Revenues:	�	�		�	�		�	�	�
Investment management fees	�	$	579,444	�	$	470,223	�	23.2	%
Underwriting and distribution fees	�	507,315		�	423,879		�	19.7	%
Shareholder service fees	�	113,849		�	101,248		�	12.4	%
Total operating revenues	�	1,200,608		�	995,350		�	20.6	%
Operating Expenses:	�	�		�	�		�	�	�
Underwriting and distribution	�	587,805		�	495,461		�	18.6	%
Compensation and related costs	�	146,973		�	145,003		�	1.4	%
General and administrative	�	75,863		�	63,608		�	19.3	%
Subadvisory fees	�	6,149		�	10,442		�	-41.1	%
Depreciation	�	10,576		�	9,621		�	9.9	%
Intangible asset impairment	�	7,900		�	0		�	N/M	�
Total operating expenses	�	835,266		�	724,135		�	15.3	%
Operating Income	�	365,342		�	271,215		�	34.7	%
Investment and other income	�	8,795		�	10,591		�	-17.0	%
Interest expense	�	(8,279		)	(8,544		)	-3.1	%
Income before taxes	�	365,858		�	273,262		�	33.9	%
Provision for taxes	�	133,420		�	99,023		�	34.7	%
Net Income	�	$	232,438	�	$	174,239	�	33.4	%
Net income per share, basic and diluted	�	2.74		�	2.03		�	34.8	%
Weighted average shares outstanding - basic and diluted	�	84,775		�	85,688		�	-1.1	%
Operating margin	�	30.4		%	27.2		%	11.7	%

�

Net Distribution Cost Analysis

(Amounts in thousands)

�

�	�	Year�to�Date							�
�	�	Sep-14		�	Sep-13		�	%�Change	�
Wholesale Channel	�	�		�	�		�	�	�
U&D Revenues	�	$	179,608	�	$	150,493	�	19.3	%
U&D Expenses - Direct	�	(232,309		)	(195,349		)	18.9	%
U&D Expenses - Indirect	�	(37,643		)	(32,638		)	15.3	%
Net Distribution (Costs)	�	$	(90,344	)	$	(77,494	)	16.6	%
�	�	�		�	�		�	�	�
Advisors Channel	�	�		�	�		�	�	�
U&D Revenues	�	$	327,707	�	$	273,386	�	19.9	%
U&D Expenses - Direct	�	(231,264		)	(187,001		)	23.7	%
U&D Expenses - Indirect	�	(86,589		)	(80,473		)	7.6	%
Net Distribution (Costs)/Excess	�	$	9,854	�	$	5,912	�	66.7	%

�

Changes in Assets Under Management

(Amounts in millions)

�

�	�	Year�to�Date							�
�	�	Sep-14		�	Sep-13		�	%�Change	�
Wholesale Channel	�	�		�	�		�	�	�
Beginning assets	�	$	67,055	�	$	48,930	�	37.0	%
Sales*	�	16,150		�	15,262		�	5.8	%
Redemptions	�	(14,933		)	(10,863		)	37.5	%
Net Exchanges	�	(173		)	211		�	N/M	�
*Net flows*	�	1,044		�	4,610		�	-77.4	%
Market action	�	(1,724		)	6,121		�	-128.2	%
Ending assets	�	$	66,375	�	$	59,661	�	11.3	%
�	�	�		�	�		�	�	�
Advisors Channel	�	�		�	�		�	�	�
Beginning assets	�	$	43,667	�	$	35,660	�	22.5	%
Sales*	�	4,214		�	3,949		�	6.7	%
Redemptions	�	(3,350		)	(3,201		)	4.7	%
Net Exchanges	�	(312		)	(211		)	N/M	�
*Net flows*	�	552		�	537		�	2.8	%
Market action	�	689		�	4,570		�	-84.9	%
Ending assets	�	$	44,908	�	$	40,767	�	10.2	%
�	�	�		�	�		�	�	�
Institutional Channel	�	�		�	�		�	�	�
Beginning assets	�	$	15,821	�	$	11,775	�	34.4	%
Sales*	�	3,075		�	1,195		�	157.3	%
Redemptions	�	(2,257		)	(1,830		)	23.3	%
Net Exchanges	�	485		�	0		�	N/M	�
*Net flows*	�	1,303		�	(635		)	305.2	%
Market action	�	479		�	2,176		�	-78.0	%
Ending assets	�	$	17,603	�	$	13,316	�	32.2	%
�	�	�		�	�		�	�	�
Consolidated Total	�	�		�	�		�	�	�
Beginning assets	�	$	126,543	�	$	96,365	�	31.3	%
Sales*	�	23,439		�	20,406		�	14.9	%
Redemptions	�	(20,540		)	(15,894		)	29.2	%
Net Exchanges	�	0		�	0		�	N/M	�
*Net flows*	�	2,899		�	4,512		�	-35.7	%
Market action	�	(556		)	12,867		�	-104.3	%
Ending assets	�	$	128,886	�	$	113,744	�	13.3	%

�

*�� Sales is primarily gross sales (net of sales commissions).� This amount also includes net reinvested dividends�& capital gains and investment income.

�

Management believes adjusting results to exclude unusual charges provides investors with important information when comparing our results to prior periods and to the results of other companies.� However, adjusted results do not represent and should not be considered as an alternative to net income and net income per diluted share calculated and presented in accordance with U.S. GAAP.

�

Reconciliation of U.S. GAAP Net Income and Operating Margin to Adjusted Net Income and Adjusted Operating Margin

(Amounts in thousand, except per share data)

�

�	�	3rd�Qtr.�2014		�	Per�Share		�
�	�	�		�	�		�
Net Income, GAAP basis	�	$	74,586	�	$	0.89	�
Add back intangible impairment charge	�	7,900		�	�		�
Deduct tax benefit from impairment charge	�	(2,920		)	0.06		�
Net Income, as adjusted	�	$	79,566	�	$	0.94	*
�	�	�		�	�		�
Weighted average shares outstanding - basic and diluted	�	�		�	84,242		�

�

* Does not foot due to rounding.

�

�	�	3rd�Qtr.�2014		�
�	�	�		�
Operating Revenues, GAAP basis	�	$	409,558	�
�	�	�		�
Operating Expenses, GAAP basis	�	284,434		�
Deduct intangible impairment charge	�	7,900		�
Operating Expenses, as adjusted	�	276,534		�
�	�	�		�
Operating Income, as adjusted	�	$	133,024	�
�	�	�		�
Operating Margin, as adjusted	�	32.5		%

�

Earnings Conference Call

�

Stockholders, members of the investment community and the general public are invited to listen to a live Web cast of our�earnings release conference call today at 10:00�a.m. Eastern.��During this call, Henry J. Herrmann, Chairman and CEO, will review our quarterly results.� Live access to the teleconference will be available on the �Investor Relations� section of our Web site at www.waddell.com.� A Web cast replay will be�made available shortly after the conclusion of the call and accessible for seven days.

�

Web Site Resources

�

We invite you to visit the �Investor Relations� section of our Web site at www.waddell.com under the caption �Data Tables� to review supplemental information schedules.

�

Contacts

�

Investor Contact:

Nicole Russell, VP,�Investor Relations, (913) 236-1880, [email protected]

�

Mutual Fund Investor Contact:

Call (888) WADDELL, or visit www.waddell.com or www.ivyfunds.com.

Past performance is no guarantee of future results.� Please invest carefully.

�

About the Company

�

Waddell�& Reed,�Inc., founded in 1937, is one of the oldest mutual fund complexes in the United States, having introduced the Waddell�& Reed Advisors Group of Mutual Funds in 1940. Today, we distribute our investment products through the Waddell�& Reed Wholesale channel (encompassing broker/dealer, retirement, and registered investment advisors), our Advisors channel (our network of financial advisors), and our Institutional channel (including defined benefit plans, pension plans and endowments, and our subadvisory partnership with Mackenzie in Canada).

�

Through its subsidiaries, Waddell�& Reed Financial,�Inc. provides investment management and financial planning services to clients throughout the United States. Waddell�& Reed Investment Management Company serves as investment advisor to the Waddell�& Reed Advisors Group of Mutual Funds,�Ivy Funds Variable Insurance Portfolios and Waddell�& Reed InvestEd Portfolios, while Ivy Investment Management Company serves as investment advisor to Ivy Funds. Waddell�& Reed,�Inc. serves as principal underwriter and distributor to the Waddell�& Reed Advisors Group of Mutual Funds,�Ivy Funds Variable Insurance Portfolios and Waddell�& Reed InvestEd Portfolios, while Ivy Funds Distributor,�Inc. serves as principal underwriter and distributor to Ivy Funds.

�

Forward-Looking Statements

�

This press release contains �forward-looking statements� within the meaning of Section�27A of the Securities Act of 1933, as amended, and Section�21E of the Securities Exchange Act of 1934, as amended, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general.� These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to revenues and earnings, the amount and composition of assets under management, distribution sources, expense levels, redemption rates and the financial markets and other conditions.� These statements are generally identified by the use of such words as �may,� �could,� �should,� �would,� �believe,� �anticipate,� �forecast,� �estimate,� �expect,� �intend,� �plan,� �project,� �outlook,� �will,� �potential� and similar statements of a future or forward-looking nature.� Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance.� Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to those discussed below.� If one or more events related to these or other risks, contingencies or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from those forecasted or expected.� Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the �Risk Factors� section of our Annual Report on Form�10-K for the year ended December�31, 2013, which include, without limitation:

�

�� The loss of existing distribution channels or inability to access new distribution channels;

�

�� A reduction in assets under our management on short notice, through increased redemptions in our distribution channels or our Funds, particularly those Funds with a high concentration of assets, or investors terminating their relationship with us or shifting their funds to other types of accounts with different rate structures;

�

�� The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body;

�

�� The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes;

�

�� Our inability to provide sufficient capital to support new investment products;

�

�� The ability of mutual fund and other investors to redeem their investments without prior notice or on short notice;

�

�� Our inability to implement new information technology and systems, or our inability to complete such implementation in a timely or cost effective manner;

�

�� Non-compliance with applicable laws or regulations and changes in current legal, regulatory, accounting, tax or compliance requirements or governmental policies;

�

�� A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds; and

�

�� Our inability to attract and retain senior executive management and other key personnel to conduct our broker/dealer, fund management and investment advisory business.

�

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission, including the information in Item 1 �Business� and Item 1A �Risk Factors� of Part�I and Item 7 �Management�s Discussion and Analysis of Financial Condition and Results of Operations� of Part�II to our Annual Report on Form�10-K for the year ended December�31, 2013 and as updated in our quarterly reports on Form�10-Q for the year ending December�31, 2014.� All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

�

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