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Waddell & Reed Financial, Inc. Reports Second Quarter Results

Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter net income of $41.7 million, or $0.48 per diluted share, compared to net income of $47.4 million, or $0.55 per diluted share, during the first quarter of 2012 and net income of $50.0 million, or $0.58 per diluted share, during the same period last year.

The second quarter of 2012 included a pre-tax charge of $5.0 million ($3.1 million net of taxes, or $0.04 per diluted share) to general and administrative expenses to reflect an impairment of certain capitalized software development costs. Our ongoing assessment and changes to our enterprise information technology infrastructure and software resulted in the decision to discontinue the usage of certain capitalized software. Excluding the charge discussed above, general and administrative costs during the quarter would have been $20.0 million, net income $44.9 million, and earnings per diluted share $0.52. We believe supplementing our discussion with these non-GAAP measures provides a more meaningful comparison to other periods. A detailed reconciliation of non-GAAP measures to reported GAAP numbers is included in the table below.

Reconciliation to GAAP Unaudited Condensed Statement of Income
  As reported     Adjusted
(Amounts in thousands, except for per share data) (GAAP) Adjustments (Non-GAAP)
Total Operating Revenues $ 308,208 $ - $ 308,208
Operating Expenses:
General and administrative 25,095 (5,047 ) 20,048
All other operating expenses     214,641       -       214,641  
Total Operating Expenses     239,736       (5,047 )     234,689  
Operating Income 68,472 5,047 73,519
Non-operating income (expenses)     (1,553 )     -       (1,553 )
Income before provision for income taxes 66,919 5,047 71,966
Provision for income taxes     25,201       1,903       27,104  
Net Income     41,718       3,144       44,862  
Net income per share     0.48       0.04       0.52  
Weighted average shares outstanding - diluted     86,095       86,095       86,095  
Operating margin 22.2 % N/A 23.9 %

Operating revenues of $308 million rose 0.5% sequentially, while operating income of $68.5 million declined 5.8%. Excluding the charge for the write-off (discussed above), operating income would have been $73.5 million, an improvement of 1.2% compared to the first quarter. Our operating margin was 22.2% for the quarter. Excluding the charge for the write-off (discussed above), our adjusted operating margin during the quarter was 23.9%, a 20 basis point improvement compared to the previous quarter.

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