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, 2002
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, 2002 and 2001
(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 (the Plan) as of December 31, 2002 and 2001, 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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, 2002 and 2001, and the changes in its net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
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 is the responsibility of the Plan’s management. 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 |
|
|
|
|
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|
|
|
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|
|
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Kansas City, Missouri |
|
|
|
May 9, 2003 |
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|
WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
|
|
|
2002 |
|
2001 |
|
|
|
Investments (note 4) |
|
$ |
59,047,815 |
|
67,549,374 |
|
|
Contributions receivable from participating employees |
|
127,759 |
|
139,935 |
|
|
|
Contributions receivable from participating employers |
|
308,123 |
|
288,636 |
|
|
|
Net assets available for benefits |
|
$ |
59,483,697 |
|
67,977,945 |
|
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, 2002 and 2001
|
|
|
2002 |
|
2001 |
|
|
|
Investment income: |
|
|
|
|
|
|
|
Dividends – stock |
|
$ |
187,614 |
|
157,001 |
|
|
Dividends on mutual funds |
|
547,156 |
|
1,656,313 |
|
|
|
Net depreciation of investments (note 4) |
|
(14,512,806 |
) |
(10,192,169 |
) |
|
|
Investment loss |
|
(13,778,036 |
) |
(8,378,855 |
) |
|
|
Contributions (note 5): |
|
|
|
|
|
|
|
Employees |
|
5,290,873 |
|
4,623,530 |
|
|
|
Employers |
|
2,499,414 |
|
2,291,235 |
|
|
|
Employee rollovers |
|
184,588 |
|
240,620 |
|
|
|
Total contributions |
|
7,974,875 |
|
7,155,385 |
|
|
|
Withdrawals |
|
(2,691,087 |
) |
(4,567,834 |
) |
|
|
Net decrease |
|
(8,494,248 |
) |
(5,791,304 |
) |
|
|
Net assets available for benefits: |
|
|
|
|
|
|
|
Beginning of year |
|
67,977,945 |
|
73,769,249 |
|
|
|
End of year |
|
$ |
59,483,697 |
|
67,977,945 |
|
See accompanying notes to financial statements.
3
WADDELL
& REED FINANCIAL, INC.
401(k) AND THRIFT PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(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).
The Plan allows contributions to be invested in mutual fund shares and Waddell & Reed Financial, Inc. Class A common stock. The Waddell & Reed Advisors Group of Mutual Funds and the W&R Funds are managed by Waddell & Reed Investment Management Company, which is a participating employer in the Plan. Fiduciary Trust Company of New Hampshire serves as trustee for the Plan.
The Plan had 1,376 and 1,292 participants at December 31, 2002 and 2001, respectively. At December 31, 2002, 199 of the 1,376 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, 2002 and 2001. Torchmark Corporation common stock and Waddell & Reed Financial, Inc. common stock are stated at market value based upon market quotations as of December 31, 2002 and 2001. 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 5.
(e) Forfeitures
Forfeitures are held by the Plan and are then used to reduce the employer’s current year expense. Forfeitures used to reduce employer expenses were $3,391 and $5,837 for 2002 and 2001, respectively.
(f) Federal Income Taxes
The Plan received a favorable determination letter from the Internal Revenue Service, dated April 24, 2001, 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.
4
(g) Use of Estimates
The plan administrator has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. 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
In 2002, employees were allowed to make pre-tax and after-tax contributions to the Plan. Employees were allowed to contribute a maximum of 56% of eligible earnings to the Plan. Each eligible employee was allowed to make “matched contributions” ranging from 1% to 5% of eligible earnings to the 401(k) component of the Plan. The Plan provided 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 were allowed to make “unmatched contributions” to the 401(k) component of the Plan not to exceed 45% of eligible earnings. Each eligible employee was also allowed to make “unmatched contributions” ranging from 1% to 6% of eligible earnings to the thrift component (after-tax) of the Plan.
In 2001, employees were allowed to make pre-tax and after-tax contributions to the Plan. Employees were allowed to contribute a maximum of 21% of eligible earnings to the Plan. Each eligible employee was allowed to make “matched contributions” ranging from 1% to 5% of eligible earnings to the 401(k) component of the Plan. The Plan provided 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 were allowed to make “unmatched contributions” to the 401(k) component of the Plan not to exceed 10% of eligible earnings. Each eligible employee was also allowed to make “unmatched contributions” ranging from 1% to 6% of eligible earnings to the thrift component (after-tax) of the Plan.
Employees direct the investment of employee and employer matching contributions among investment options available under the Plan.
5
(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 expense.
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.
(3) Acquisitions
On December 16, 2002, the business and assets of Mackenzie Investment Management Inc. (MIMI) were acquired by Waddell & Reed Financial, Inc. The MIMI employees became eligible to participate in the Plan on January 1, 2003.
(4) Torchmark Corporation Common Stock, Waddell & Reed Financial, Inc. Class A Common Stock, Waddell & Reed Financial, Inc. Class B Common Stock, Waddell & Reed Advisors Group of Mutual Funds, and W&R Funds, Inc.
In April 2001, the stockholders of Waddell & Reed Financial, Inc. Class A and Class B common stock approved the combination of the two classes of common stock by converting shares of the Class B common stock into shares of Class A common stock on a one-for-one basis. Effective as of the end of business on April 30, 2001, each share of Class B common stock was converted into one share of Class A common stock. Waddell & Reed Financial, Inc. terminated the registration of Class B common stock under the Securities Exchange Act of 1934, as amended, and the Class B common stock is no longer listed or traded on the New York Stock Exchange.
6
The following table presents the number of shares and fair value of Torchmark Corporation common stock, Waddell & Reed Financial, Inc. Class A common stock, and mutual fund investments as of December 31, 2002 and 2001. Investments that represent 5% or more of the Plan’s net assets are separately identified.
|
December 31, 2002 |
|
Number |
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
Torchmark Corporation common stock |
|
63,888 |
|
$ |
2,334,499 |
|
|
Waddell & Reed Financial, Inc. Class A common stock |
|
351,693 |
|
6,920,084 |
|
|
|
Cash |
|
— |
|
321,242 |
|
|
|
Waddell & Reed Advisors Group of Mutual Funds shares: |
|
|
|
|
|
|
|
Waddell & Reed Advisors Cash Management |
|
7,006,276 |
|
7,006,276 |
|
|
|
Waddell & Reed Advisors Core Investment |
|
2,004,106 |
|
8,898,229 |
|
|
|
Waddell & Reed Advisors International Growth |
|
724,520 |
|
3,637,091 |
|
|
|
Waddell & Reed Advisors New Concepts |
|
871,524 |
|
5,054,839 |
|
|
|
Waddell & Reed Advisors Science and Technology |
|
627,917 |
|
4,364,025 |
|
|
|
Other Waddell & Reed Advisors Funds |
|
3,003,338 |
|
17,352,192 |
|
|
|
|
|
|
|
|
|
|
|
Total Waddell & Reed Advisors Group of Mutual Funds shares |
|
|
|
46,312,652 |
|
|
|
|
|
|
|
|
|
|
|
W&R Funds, Inc. shares (various funds) |
|
319,746 |
|
3,159,338 |
|
|
|
Total investments |
|
|
|
$ |
59,047,815 |
|
|
December 31, 2001 |
|
Number |
|
Fair |
|
|
|
|
|
|
|
|
|
|
|
Torchmark Corporation common stock |
|
66,078 |
|
$ |
2,599,664 |
|
|
Waddell & Reed Financial, Inc. Class A common stock |
|
312,376 |
|
10,057,300 |
|
|
|
Cash |
|
— |
|
414,619 |
|
|
|
Waddell & Reed Advisors Group of Mutual Funds shares: |
|
|
|
|
|
|
|
Waddell & Reed Advisors Cash Management |
|
6,210,187 |
|
6,210,187 |
|
|
|
Waddell & Reed Advisors Core Investment |
|
1,985,742 |
|
11,378,299 |
|
|
|
Waddell & Reed Advisors International Growth |
|
722,242 |
|
4,434,564 |
|
|
|
Waddell & Reed Advisors New Concepts |
|
902,749 |
|
7,185,881 |
|
|
|
Waddell & Reed Advisors Science and Technology |
|
628,954 |
|
5,943,612 |
|
|
|
Other Waddell & Reed Advisors Funds |
|
2,424,087 |
|
15,612,706 |
|
|
|
|
|
|
|
|
|
|
|
Total Waddell & Reed Advisors Group of Mutual Funds shares |
|
|
|
50,765,249 |
|
|
|
|
|
|
|
|
|
|
|
W&R Funds, Inc. shares (various funds) |
|
280,909 |
|
3,712,542 |
|
|
|
Total investments |
|
|
|
$ |
67,549,374 |
|
7
During 2002 and 2001, the Plan’s investments (including investments bought and sold, as well as held during the year) appreciated (depreciated) as follows:
|
|
|
2002 |
|
2001 |
|
|
|
Torchmark Corporation common stock |
|
$ |
(181,178 |
) |
118,705 |
|
|
Waddell & Reed Class A common stock |
|
(4,031,049 |
) |
(1,042,502 |
) |
|
|
Waddell & Reed Class B common stock |
|
— |
|
(645,534 |
) |
|
|
|
|
|
|
|
|
|
|
Waddell & Reed Advisors Group of Mutual Funds: |
|
|
|
|
|
|
|
Accumulative |
|
(733,201 |
) |
(713,483 |
) |
|
|
Asset Strategy |
|
1,336 |
|
(60,265 |
) |
|
|
Bond |
|
38,163 |
|
9,790 |
|
|
|
Continental Income |
|
(34,853 |
) |
(27,758 |
) |
|
|
Core Investment |
|
(2,625,829 |
) |
(2,578,801 |
) |
|
|
Global Bond |
|
(101,612 |
) |
59,896 |
|
|
|
Government Securities |
|
59,000 |
|
17,255 |
|
|
|
High Income |
|
(75,853 |
) |
(18,550 |
) |
|
|
International Growth |
|
(835,011 |
) |
(1,306,028 |
) |
|
|
Limited-Term Bond |
|
227 |
|
— |
|
|
|
New Concepts |
|
(2,003,165 |
) |
(1,513,282 |
) |
|
|
Retirement Shares |
|
(149,584 |
) |
(103,775 |
) |
|
|
Science and Technology |
|
(1,595,705 |
) |
(973,209 |
) |
|
|
Small Cap |
|
(601,024 |
) |
(116,679 |
) |
|
|
Value |
|
(261,638 |
) |
30,705 |
|
|
|
Vanguard |
|
(496,952 |
) |
(729,571 |
) |
|
|
|
|
|
|
|
|
|
|
Total Waddell & Reed Advisors Group of Mutual Funds |
|
(9,415,701 |
) |
(8,023,755 |
) |
|
|
|
|
|
|
|
|
|
|
W&R Funds, Inc.: |
|
|
|
|
|
|
|
Asset Strategy |
|
748 |
|
(3,471 |
) |
|
|
Core Equity |
|
(20,566 |
) |
(40,235 |
) |
|
|
High Income |
|
(1,553 |
) |
112 |
|
|
|
International Growth |
|
(122,670 |
) |
(235,178 |
) |
|
|
Large Cap Growth |
|
(63,142 |
) |
(81,447 |
) |
|
|
Limited-Term Bond |
|
518 |
|
142 |
|
|
|
Mid Cap Growth |
|
(13,286 |
) |
(22,999 |
) |
|
|
Science and Technology |
|
(397,508 |
) |
(206,224 |
) |
|
|
Small Cap Growth |
|
(267,419 |
) |
(9,783 |
) |
|
|
Total W&R Funds, Inc. |
|
(884,878 |
) |
(599,083 |
) |
|
|
Net depreciation |
|
$ |
(14,512,806 |
) |
(10,192,169 |
) |
8
(5) Contributions by Participants and Participating Employers
The contributions of each participating employer and its employees for the years ended December 31 are as follows:
|
|
|
2002 |
|
2001 |
|
|||||
|
|
|
Employee |
|
Employer |
|
Employee |
|
Employer |
|
|
|
Waddell & Reed Financial, Inc. |
|
$ |
74,350 |
|
40,348 |
|
60,976 |
|
33,482 |
|
|
Waddell & Reed, Inc. |
|
3,139,924 |
|
1,335,950 |
|
2,660,971 |
|
1,236,292 |
|
|
|
Waddell & Reed Investment Management Company |
|
766,402 |
|
404,492 |
|
721,751 |
|
377,917 |
|
|
|
Waddell & Reed Services Company |
|
838,680 |
|
448,545 |
|
754,429 |
|
409,709 |
|
|
|
The Legend Group |
|
295,338 |
|
148,695 |
|
281,466 |
|
133,765 |
|
|
|
Austin Calvert & Flavin, Inc. |
|
176,179 |
|
121,384 |
|
143,937 |
|
100,070 |
|
|
|
|
|
$ |
5,290,873 |
|
2,499,414 |
|
4,623,530 |
|
2,291,235 |
|
(6) Related Party Transactions
Plan investments include shares of mutual funds managed by Waddell & Reed Investment Management Company, as well as shares of Class A common stock of Waddell & Reed Financial, Inc. Waddell & Reed Financial, Inc. and its affiliates are the sponsors as defined by the Plan, and, therefore, these transactions qualify as party-in-interest.
Exhibits.
23.1 Independent
Accountants' Consent
99.1 Certification (furnished, not filed).
99.2 Certification (furnished, not
filed).
9
Schedule 1
WADDELL & REED FINANCIAL, INC.
401(k) AND THRIFT PLAN
Schedule of Assets Held for Investment Purposes
December 31, 2002
|
Identity of issuer, borrower, |
|
Description of investment |
|
Current |
|
|||
|
|
|
|
|
|
|
|
|
|
|
* Cash |
|
|
|
|
|
$ |
321,242 |
|
|
Torchmark Corporation |
|
63,888 |
|
shares of common stock |
|
2,334,499 |
|
|
|
* Waddell & Reed Financial, Inc. |
|
351,693 |
|
shares of Class A common stock |
|
6,920,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,575,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* Waddell & Reed Advisors Group |
|
564,504 |
|
shares of Accumulative |
|
2,715,263 |
|
|
|
* Waddell & Reed Advisors Group |
|
154,641 |
|
shares of Asset Strategy |
|
966,505 |
|
|
|
* Waddell & Reed Advisors Group |
|
149,852 |
|
shares of Bond |
|
975,540 |
|
|
|
* Waddell & Reed Advisors Group |
|
7,006,276 |
|
shares of Cash Management |
|
7,006,276 |
|
|
|
* Waddell & Reed Advisors Group |
|
43,889 |
|
shares of Continental Income |
|
259,822 |
|
|
|
* Waddell & Reed Advisors Group |
|
2,004,106 |
|
shares of Core Investment |
|
8,898,229 |
|
|
|
* Waddell & Reed Advisors Group |
|
747,936 |
|
shares of Global Bond |
|
2,520,542 |
|
|
|
* Waddell & Reed Advisors Group |
|
252,278 |
|
shares of Government Securities |
|
1,458,167 |
|
|
|
* Waddell & Reed Advisors Group |
|
131,761 |
|
shares of High Income |
|
918,373 |
|
|
|
* Waddell & Reed Advisors Group |
|
724,520 |
|
shares of International Growth |
|
3,637,091 |
|
|
|
* Waddell & Reed Advisors Group |
|
15,205 |
|
shares of Limited-Term Bond |
|
153,726 |
|
|
|
* Waddell & Reed Advisors Group |
|
871,524 |
|
shares of New Concepts |
|
5,054,839 |
|
|
|
* Waddell & Reed Advisors Group |
|
111,596 |
|
shares of Retirement Shares |
|
580,298 |
|
|
|
* Waddell & Reed Advisors Group |
|
627,917 |
|
shares of Science and Technology |
|
4,364,025 |
|
|
|
* Waddell & Reed Advisors Group |
|
332,520 |
|
shares of Small Cap |
|
3,188,870 |
|
|
|
* Waddell & Reed Advisors Group |
|
166,815 |
|
shares of Value |
|
1,514,685 |
|
|
|
* Waddell & Reed Advisors Group |
|
332,342 |
|
shares of Vanguard |
|
2,100,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Waddell & Reed Advisors |
|
|
|
|
|
46,312,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* W&R Funds, Inc. |
|
4,628 |
|
shares of Asset Strategy |
|
52,385 |
|
|
|
* W&R Funds, Inc. |
|
10,172 |
|
shares of Core Equity |
|
73,848 |
|
|
|
* W&R Funds, Inc. |
|
5,735 |
|
shares of High Income |
|
45,590 |
|
|
|
* W&R Funds, Inc. |
|
64,730 |
|
shares of International Growth |
|
576,741 |
|
|
|
* W&R Funds, Inc. |
|
40,908 |
|
shares of Large Cap Growth |
|
294,539 |
|
|
|
* W&R Funds, Inc. |
|
5,232 |
|
shares of Limited-Term Bond |
|
54,514 |
|
|
|
* W&R Funds, Inc. |
|
7,801 |
|
shares of Mid Cap Growth |
|
52,580 |
|
|
|
* W&R Funds, Inc. |
|
72,773 |
|
shares of Science and Technology |
|
1,070,493 |
|
|
|
* W&R Funds, Inc. |
|
107,767 |
|
shares of Small Cap Growth |
|
938,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total W&R Funds, Inc. |
|
|
|
|
|
3,159,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
|
|
|
|
$ |
59,047,815 |
|
* Indicates party-in-interest investment.
See accompanying independent auditors’ report.
10
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 19, 2003.
|
|
WADDELL & REED FINANCIAL, INC. |
||
|
|
401(K) AND THRIFT PLAN |
||
|
|
|
||
|
|
|
||
|
|
By: |
/s/ |
John E. Sundeen, Jr. |
|
|
|
|
John E. Sundeen, Jr., 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 |
11