11-K 1 a11-k.txt 11-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 Commission file number 001-13913 WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN (Full title of the Plan) ---------- WADDELL & REED FINANCIAL, INC. 6300 Lamar Avenue Overland Park, Kansas 66202 913-236-2000 (Name of issuer of securities held pursuant to the Plan) WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Financial Statements and Schedule December 31, 1999 and 1998 (With Independent Auditors' Report Thereon) INDEPENDENT AUDITORS' REPORT The Plan Administrators Waddell & Reed Financial, Inc. 401(k) and Thrift Plan: We have audited the accompanying statements of net assets available for benefits of Waddell & Reed Financial, Inc. 401(k) and Thrift Plan as of December 31, 1999 and 1998 and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Waddell & Reed Financial, Inc. 401(k) and Thrift Plan as of December 31, 1999 and 1998 and the changes in its net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in Schedule 1 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplementary schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG LLP June 2, 2000 WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Statements of Net Assets Available for Benefits December 31, 1999 and 1998
1999 1998 ----------- ---------- Investments (note 3) $73,437,983 56,331,186 Receivable from participating employees 87,941 81,874 Receivable from participating employers 184,750 33,474 ----------- ---------- Net assets available for benefits $73,710,674 56,446,534 =========== ==========
See accompanying notes to financial statements. 2 WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Statements of Changes in Net Assets Available for Benefits Years ended December 31, 1999 and 1998
1999 1998 Investment income: Dividends - stock $ 167,731 176,589 Dividends on mutual funds 4,791,565 5,070,623 Interest income -- 3,433 ----------- ---------- Investment income 4,959,296 5,250,645 ----------- ---------- Net appreciation of investments (note 3) 11,570,882 3,500,074 ----------- ---------- Contributions (note 4): Employees 3,446,065 2,273,548 Employers 1,568,784 896,323 Merger of Waddell & Reed, Inc. Career Field Retirement Plan (note 1) 1,302,542 -- Employee rollovers 25,785 -- ----------- ---------- 6,343,176 3,169,871 ----------- ---------- Withdrawals (5,609,214) (7,412,859) ----------- ---------- Net increase 17,264,140 4,507,731 Net assets available for benefits: Beginning of year 56,446,534 51,938,803 ----------- ---------- End of year $73,710,674 56,446,534 =========== ==========
See accompanying notes to financial statements. 3 WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Notes to Financial Statements December 31, 1999 and 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PRESENTATION The accompanying financial statements have been prepared on the accrual basis of accounting and present the net assets available for benefits and changes in those net assets of the Waddell & Reed Financial, Inc. 401(k) and Thrift Plan (the Plan), formerly the Waddell & Reed Financial, Inc. Savings and Investment Plan. Effective October 22, 1999, the Waddell & Reed, Inc. Career Field Retirement Plan (Career Field Plan) was merged with and into the Plan. All assets and liabilities of the Career Field Plan were assumed by the Plan. Assets transferred were credited to rollover contribution subaccounts established in the name of each participant of the Career Field Plan, and will be distributed to participants upon separation from service or at an earlier time as permitted under the Plan. The Plan currently allows contributions to be invested in mutual fund shares and Waddell & Reed Financial, Inc. Class A and B stock. The United and Waddell & Reed Groups of Mutual Funds are managed by Waddell & Reed Investment Management Company, Inc., which is a participating employer in the Plan. Fiduciary Trust Company of New Hampshire serves as Trustee for the Plan. The Plan had 909 and 793 participants at December 31, 1999 and 1998, respectively. At December 31, 1999, 175 of the 909 participants in the Plan are former employees who have elected not to withdraw from the Plan. (b) VALUATION OF SECURITIES Investments in mutual fund shares are stated at net asset value based upon market quotations as of December 31, 1999 and 1998. Torchmark Corporation common stock and Waddell & Reed Financial, Inc. Class A and Class B stock are stated at market value based upon market quotations as of December 31, 1999 and 1998. Securities transactions are recorded on the trade date (the date the order to buy or sell is executed). (c) DIVIDEND INCOME Dividend income is recorded on the ex-dividend date. (d) ADMINISTRATIVE EXPENSES Administrative expenses are paid by the participating employers which are listed in note 4. (e) FORFEITURES Forfeitures are held by the Plan for one year and are then used to reduce the employer's current year contribution. Forfeitures used to reduce employer contributions were $23,653 and $37,625 for 1999 and 1998, respectively. 4 (Continued) WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Notes to Financial Statements December 31, 1999 and 1998 (f) FEDERAL INCOME TAXES The Plan has received a favorable determination letter from the Internal Revenue Service, dated January 4, 1996, indicating that it is qualified under Section 401(a) of the Internal Revenue Code and, therefore, the related trust is exempt from tax under Section 501(a) of the Internal Revenue Code. The Plan Administrator is not aware of any activity or transactions that may adversely affect the qualified status of the Plan. (g) USE OF ESTIMATES The Plan Administrator has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) DESCRIPTION OF PLAN The following brief description of the Plan is provided for general information purposes only. Participants should refer to the Plan Agreement for more complete information. The Plan is a defined contribution plan covering substantially all employees of Waddell & Reed Financial, Inc. and subsidiaries. The Plan complies with the provisions of the Employee Retirement Income Security Act of 1974, as amended. Plan administration is accomplished through a committee of three persons who have authority to arbitrate disputes and settle claims arising under the Plan. (a) CONTRIBUTIONS Effective January 1, 1999, employees were allowed to make pre-tax and after-tax contributions to the Plan. Employees may contribute a maximum of 21% of eligible earnings to the Plan. Each eligible employee may make "Matched Contributions" ranging from 1% to 5% of eligible earnings to the 401(k) component of the Plan. The Plan provides for a matching employer contribution of 100% of the first 3% of the employee's contribution and a 50% match of the next 2% of the employee's contribution. Employees may make "Unmatched Contributions" to the Plan not to exceed 10% of eligible earnings. Effective January 1, 1999, each eligible employee may make "Unmatched Contributions" ranging from 1% to 6% of eligible earnings to the thrift component (after-tax) of the Plan. Prior to January 1, 1999, each eligible employee was allowed to make "Matched Contributions" ranging from 1% to 6% of eligible earnings. The Plan provided for a matching employer contribution of 50% of the employee's contribution, not to exceed 3% of the employee's salary. Employees were also able to make "Unmatched Contributions" to the Plan not to exceed 10% of eligible earnings. 5 (Continued) WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Notes to Financial Statements December 31, 1999 and 1998 (b) BENEFITS Employees are fully vested as to their own contributions. Prior to January 1, 1999, vesting in employer contributions was graduated to 100% after six years of employment. Effective January 1, 1999, all future employer matching contributions are fully vested at the time of the contribution. The vested portion of a participant's account balance is paid in a Joint and 50% Survivor Annuity upon retirement, death, or other termination of employment unless a participant chooses a lump-sum distribution. The nonvested portion of employer contributions made prior to January 1, 1999 is retained by the Plan until the separated participant incurs a "break in service," at which time the remaining account balance is forfeited and applied to reduce the employer's contribution in the following Plan year. In accordance with regulations of the Internal Revenue Service, in the event the Plan is terminated, all participants would immediately become fully vested in their employer contribution accounts and Plan assets would be distributed. Waddell & Reed Financial, Inc. does not intend to terminate the Plan. At December 31, 1998, participants whose account balances totaled $20,941 notified the Plan Administrator that they had elected to withdraw from the Plan. Such amounts are presented herein as a component of net assets, but were presented as a liability of the Plan in Form 5500 for 1998. The Plan Administrator was not notified of any participants electing to withdraw from the Plan as of December 31, 1999. (3) TORCHMARK CORPORATION COMMON STOCK, WADDELL & REED FINANCIAL, INC. CLASS A STOCK, WADDELL & REED FINANCIAL, INC. CLASS B STOCK, UNITED GROUP OF MUTUAL FUNDS, AND WADDELL & REED GROUP OF MUTUAL FUNDS In September 1999, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 99-3, ACCOUNTING FOR AND REPORTING OF CERTAIN DEFINED CONTRIBUTION PLAN INVESTMENTS AND OTHER DISCLOSURE Matters. SOP 99-3 simplifies the disclosure for certain investments and is effective for plan years ending after December 15, 1999. The Plan adopted SOP 99-3 during the Plan year ended December 31, 1999. Accordingly, information previously required to be disclosed about participant-directed fund investment programs is not presented in the Plan's 1999 financial statements. The Plan's 1998 financial statements have been reclassified to conform with the current year presentation. 6 (Continued) WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Notes to Financial Statements December 31, 1999 and 1998 The following table presents the number of shares and fair value of Torchmark Corporation common stock, Waddell & Reed Financial, Inc. Class A and B stock, and mutual fund investments as of December 31, 1999 and 1998. Investments that represent 5% or more of the Plan's net assets are separately identified.
DECEMBER 31, 1999 ------------------------- NUMBER OF SHARES/ FAIR UNITS VALUE --------- ----------- Torchmark Corporation common stock 491,060 $ 4,267,309 Waddell & Reed Financial, Inc. Class A stock 364,489 4,351,142 Waddell & Reed Financial, Inc. Class B stock 131,594 1,487,752 United Group of Mutual Funds shares: United Cash Management 5,796,737 5,796,737 United International Growth 619,754 8,565,004 United Income 1,543,635 12,549,632 United New Concepts 801,333 11,314,711 United Science and Technology 456,944 8,521,881 Other United Funds 1,833,970 13,843,440 ----------- Total United Group of Mutual Funds shares 60,591,405 ----------- Waddell & Reed Group of Mutual Funds shares 88,619 2,740,375 ========= ----------- Total investments $73,437,983 ===========
DECEMBER 31, 1998 ------------------------- NUMBER OF SHARES/ FAIR UNITS VALUE --------- ----------- Torchmark Corporation common stock 650,575 $ 6,752,971 Waddell & Reed Financial, Inc. Class A stock 358,662 3,672,695 Waddell & Reed Financial, Inc. Class B stock 119,082 1,233,692 United Group of Mutual Funds shares: United Cash Management 5,817,096 5,817,096 United International Growth 614,632 6,060,272 United Income 1,610,962 12,114,434 United New Concepts 744,498 7,072,732 United Science and Technology 296,972 2,963,784 Other United Funds 1,616,182 10,643,510 ========= ----------- Total United Group of Mutual Funds shares 44,671,828 ----------- Total investments $56,331,186 ===========
7 (Continued) WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Notes to Financial Statements December 31, 1999 and 1998 During 1999 and 1998, the Plan's investments (including investments bought and sold, as well as held during the year) appreciated (depreciated) as follows:
1999 1998 ----------- --------- Torchmark Corporation common stock $(1,026,350) (745,218) Waddell & Reed Class A common stock 364,462 310,812 Waddell & Reed Class B common stock 100,830 815,340 United Group of Mutual Funds: Accumulative 184,955 145,502 Asset Strategy 27,846 5,539 Bond (31,736) 5,973 Continental Income (5,841) 8,938 Gold and Government Securities (7,509) (15,480) Government Securities (83,741) 6,583 High Income (73,683) (80,304) High Income II (188,860) (159,289) Income 926,261 (96,844) International Growth 2,439,393 436,695 New Concepts 3,468,361 1,301,187 Retirement Shares 101,709 17,890 Science and Technology 3,476,001 1,047,655 Small Cap 370,813 -- Vanguard 735,671 495,095 ----------- --------- Total United Group of Mutual Funds 11,339,640 3,119,140 ----------- --------- Waddell & Reed Group of Mutual Funds: Asset Strategy 5 -- Growth 88,085 -- High Income (94) -- International Growth 165,210 -- Limited Term Bond (3) -- Science & Technology 538,481 -- Total Return 616 -- ----------- --------- Total Waddell & Reed Group of Mutual Funds 792,300 -- ----------- --------- Net appreciation $11,570,882 3,500,074 =========== =========
8 (Continued) WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Notes to Financial Statements December 31, 1999 and 1998 (4) CONTRIBUTIONS BY PARTICIPANTS AND PARTICIPATING EMPLOYERS The contributions of each participating employer and its employees for the years ended December 31 are as follows:
1999 1998 ------------------------- ------------------------- EMPLOYEES EMPLOYER EMPLOYEES EMPLOYER ---------- --------- --------- -------- United Investors Life $ -- -- 15,189 7,143 Waddell & Reed, Inc. 2,308,962 1,008,260 1,524,621 556,516 Waddell & Reed Asset Management Company -- -- 9,600 4,800 Waddell & Reed Investment Management Company 633,330 288,456 392,217 182,347 Waddell & Reed Services Company 503,773 272,068 331,921 145,517 ---------- --------- --------- ------- $3,446,065 1,568,784 2,273,548 896,323 ========== ========= ========= =======
(5) RELATED PARTY TRANSACTIONS The Plan purchased Torchmark Corporation common stock at the prevailing market price prior to the spin-off of Waddell & Reed from Torchmark Corporation in 1998. The Plan also received Waddell & Reed Financial, Inc. Class A common stock and Waddell & Reed Financial, Inc. Class B common stock as a result of Waddell & Reed's spin-off from Torchmark Corporation during 1998, and purchased the common stock at the prevailing market price during both 1998 and 1999. (6) SUBSEQUENT EVENT On March 31, 2000, the Legend Group was acquired by the Plan sponsor. An eligible employee, who was a participant in the Legend Services Corporation 401(k) Profit Sharing Plan at the date of the acquisition, became eligible to participate in the Plan on April 1, 2000. An eligible employee who was employed by the Legend Group on March 31, 2000, and who was not a participant in the Legend Services Corporation 401(k) Profit Sharing Plan, became eligible to participate in the Plan on an entry date not earlier than April 1, 2000 or the next following date on which the participant completes one-half year of service with the Legend Group. 9 SCHEDULE 1 WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN Schedule of Assets Held for Investment Purposes December 31, 1999
IDENTITY OF ISSUER, BORROWER, CURRENT LESSOR, OR SIMILAR PARTY DESCRIPTION OF INVESTMENT VALUE ----------------------------------------------- ------------------------------------------------------ --------------- * Torchmark Corporation 491,060 shares of common stock $ 4,267,309 * Waddell & Reed Financial, Inc. Class A 364,489 shares of common stock 4,351,142 * Waddell & Reed Financial, Inc. Class B 131,594 shares of common stock 1,487,752 * United Funds 1,543,635 shares of Income 12,549,632 * United Funds 456,944 shares of Science and Technology 8,521,881 * United Funds 231,661 shares of Accumulative 2,117,383 * United Funds 84,668 shares of Bond 505,467 * United Funds 619,754 shares of International Growth 8,565,004 * United Funds 42,828 shares of Continental Income 336,631 * United Funds 124,504 shares of High Income 1,105,593 * United Funds 250,830 shares of Vanguard 3,095,123 * United Funds 801,333 shares of New Concepts 11,314,711 * United Funds 614,711 shares of High Income II 2,397,372 * United Funds 5,796,737 shares of Cash Management 5,796,737 * United Funds 197,892 shares of Government Securities 1,026,697 * United Funds 54,707 shares of Retirement Shares 598,491 * United Funds 197,926 shares of Small Cap 2,438,447 * United Funds 34,243 shares of Asset Strategy 222,236 ----------- Total United Funds 60,591,405 ----------- * Waddell & Reed Funds 11 shares of Asset Strategy 144 * Waddell & Reed Funds 23,134 shares of Growth 473,788 * Waddell & Reed Funds 256 shares of High Income 2,494 * Waddell & Reed Funds 27,249 shares of International Growth 746,076 * Waddell & Reed Funds 37 shares of Limited Term Bond 365 * Waddell & Reed Funds 36,968 shares of Science & Technology 1,505,344 * Waddell & Reed Funds 964 shares of Total Return 12,164 ----------- Total Waddell & Reed Funds 2,740,375 ----------- Total investments $73,437,983 ===========
* Indicates party-in-interest investment. See accompanying independent auditors' report. 10 SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Administrative Committee of the Plan has duly caused this annual report to be signed on its behalf by the undersigned, hereunto duly authorized, in the City of Overland Park, State of Kansas, on June 20th, 2000. WADDELL & REED FINANCIAL, INC. 401(K) AND THRIFT PLAN By: /s/ Robert L. Hechler ---------------------------------- Robert L. Hechler, Member Administrative Committee By: /s/ Michael D. Strohm ---------------------------------- Michael D. Strohm, Member Administrative Committee By: /s/ William D. Howey, Jr. ---------------------------------- William D. Howey, Jr., Member Administrative Committee