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Waddell & Reed Financial, Inc. Reports Fourth Quarter Results
Overland Park, KS, Jan. 30, 2018 Waddell & Reed Financial, Inc. (NYSE: WDR) today reported fourth quarter 2017 net income1 of $29.8 million, or $0.36 per diluted share, compared to net income of $53.6 million, or $0.64 per diluted share, during the prior quarter and net income of $29.0 million, or $0.35 per diluted share, during the fourth quarter of 2016.
Subsequent to the freeze of the pension plan in the third quarter of 2017, we elected in the fourth quarter to change to mark-to-market accounting for the pension plan. The impact from this change in accounting policy has been retrospectively applied to the financial results for all periods presented. These adjustments are non-cash and do not affect our pension liability. Supplemental schedules that include information regarding the prior quarter adjustments have been included with the Current Report on Form 8-K furnished to the SEC today and are also available on the Investor Relations section of our Web site at ir.waddell.com. The impact of the pension expense during the current quarter was $5.9 million ($4.5 million net of taxes) or $0.05 per share.
The enactment of the U.S. tax reform required us to revalue our net deferred tax asset, which resulted in a tax charge during the quarter of $5.4 million, or $0.07 per share.
Operating revenues of $294.5 million during the fourth quarter of 2017 increased 2% sequentially and 1% compared to the fourth quarter of 2016. The operating margin during the current quarter was 18.8% compared to 27.6% during the prior quarter and 16.4% during the same period last year. Pension expense caused most of the sequential variance in our operating margin.
As part of our initiative to improve corporate efficiency, we announced a plan last July that is expected to add between $30 and $40 million to pre-tax income by 2019. During 2017, we were able to reduce the run-rate for operating costs by approximately $20 million. In January 2018, we paid off $95 million of Series A senior notes at maturity, which will reduce annual interest costs by approximately $5 million. We have also fully implemented a laddered fixed income investment portfolio to optimize the return on our cash, which we estimate will add up to $5 million per year to investment income depending on the pace of share repurchases and on the cash needs of other corporate initiatives. Offsetting some of our progress to date is the reduction of management fees associated with the previously announced fund mergers. We estimate the impact of reduced management fee revenues to range between $10 and $11 million in 2018. We continue to work toward our cost savings goal and expect to reach our run-rate in 2019.
Assets under management ended the year at $81.1 billion, unchanged compared to the prior quarter and to the prior year end. Sequentially, gross sales declined slightly. Net outflows were $2.7 billion during the quarter, compared to net outflows of $2.8 billion during the prior quarter and net outflows of $4.4 billion during the fourth quarter of 2016. Redemption pressure eased meaningfully over the last 12 months; however, gross sales volume remains subdued, improving only 1% annually compared to the year 2016. As a result of lower redemptions, net outflows improved to $11.4 billion during 2017 compared to net outflows of $25.3 billion during 2016.
The following information was filed by Waddell Reed Financial Inc (WDR) on Tuesday, January 30, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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