10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                to

Commission file number 001-13913

WADDELL & REED FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	51-0261715
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

6300 Lamar Avenue

Overland Park, Kansas  66202

(Address, including zip code, of Registrant’s principal executive offices)

(913) 236-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x.

Shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:

Class	Outstanding as of April 19, 2013
Class A common stock, $.01 par value	85,933,065

WADDELL & REED FINANCIAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended March 31, 2013

			Page No.
Part I.	Financial Information
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets at March 31, 2013 and December 31, 2012	3
		Consolidated Statements of Income for the three months ended March 31, 2013 and March 31, 2012	4
		Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and March 31, 2012	5
		Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2013	6
		Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and March 31, 2012	7
		Notes to the Unaudited Consolidated Financial Statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.		Controls and Procedures	29
Part II.	Other Information
Item 1.		Legal Proceedings	30
Item 1A.		Risk Factors	30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.		Exhibits	31
		Signatures	32

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	March 31,			December 31,
	2013			2012
	(unaudited)
Assets:
Cash and cash equivalents	$	390,497		328,027
Cash and cash equivalents - restricted	154,631			92,980
Investment securities	175,608			176,142
Receivables:
Funds and separate accounts	43,119			33,886
Customers and other	96,528			136,073
Deferred income taxes	4,063			7,978
Income taxes receivable	—			5,577
Prepaid expenses and other current assets	9,723			9,080
Assets of discontinued operations held for sale	—			15,150
Total current assets	874,169			804,893
Property and equipment, net	69,140			69,328
Deferred sales commissions, net	71,861			69,355
Goodwill and identifiable intangible assets	161,969			161,969
Deferred income taxes	20,892			17,797
Other non-current assets	14,591			11,491
Assets of discontinued operations held for sale	—			18,010
Total assets	$	1,212,622		1,152,843
Liabilities:
Accounts payable	$	15,780		23,795
Payable to investment companies for securities	189,579			152,749
Payable to third party brokers	52,857			46,169
Payable to customers	25,271			45,182
Accrued compensation	32,070			32,215
Accrued other compensation	12,803			14,132
Other current liabilities	43,039			43,504
Current income taxes	19,711			—
Liabilities of discontinued operations held for sale	—			7,587
Total current liabilities	391,110			365,333
Long-term debt	190,000			190,000
Accrued pension and postretirement costs	54,943			62,458
Other non-current liabilities	23,676			24,531
Liabilities of discontinued operations held for sale	—			281
Total liabilities	659,729			642,603
Commitments and contingencies
Stockholders’ equity:
Preferred stock-$1.00 par value: 5,000 shares authorized; none issued Class A Common stock-$0.01 par value: 250,000 shares authorized;	—			—
99,701 shares issued; 85,544 shares outstanding (85,679 at December 31, 2012)	997			997
Additional paid-in capital	243,806			230,021
Retained earnings	728,351			698,423
Cost of 14,157 common shares in treasury (14,022 at December 31, 2012)	(377,088		)	(372,404	)
Accumulated other comprehensive loss	(43,173		)	(46,797	)
Total stockholders’ equity	552,893			510,240
Total liabilities and stockholders’ equity	$	1,212,622		1,152,843

3

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited, in thousands, except for per share data)

	For the three months
	ended March 31,
	2013			2012
Revenues:
Investment management fees	$	148,445		134,900
Underwriting and distribution fees	135,419			121,153
Shareholder service fees	32,691			31,818
Total	316,555			287,871
Operating expenses:
Underwriting and distribution	161,571			144,486
Compensation and related costs (including share-based compensation of $11,676 and $11,886, respectively)	48,155			44,158
General and administrative	16,208			17,764
Subadvisory fees	4,484			6,271
Depreciation	3,227			3,359
Total	233,645			216,038
Operating income	82,910			71,833
Investment and other income	4,377			3,949
Interest expense	(2,854		)	(2,826	)
Income from continuing operations before provision for income taxes	84,433			72,956
Provision for income taxes	30,570			26,119
Income from continuing operations	53,863			46,837
Income from discontinued operations net of tax expense of $397	—			550
Net income	$	53,863		47,387
Net income per share, basic and diluted:
Income from continuing operations	$	0.63		0.55
Income from discontinued operations	—			—
Net income	$	0.63		0.55
Weighted average shares outstanding:
Basic	85,592			85,604
Diluted	85,593			85,606

See accompanying notes to the unaudited consolidated financial statements.

4

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

	For the three months
	ended March 31,
	2013		2012
Net income	$	53,863	47,387
Other comprehensive income:
Unrealized appreciation of available for sale investment securities during the period, net of income taxes of $9 and $0, respectively	2,778		5,277
Pension and postretirement benefits, net of income taxes of $558 and $521, respectively	846		657
Comprehensive income	$	57,487	53,321

See accompanying notes to the unaudited consolidated financial statements.

5

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders’ Equity
For the Three Months Ended March 31, 2013

(Unaudited, in thousands)

										Accumulated
				Additional						Other		Total
	Common Stock			Paid-in		Retained		Treasury		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Stock		Income (Loss)		Equity
Balance at December 31, 2012	99,701	$	997	230,021		698,423		(372,404	)	(46,797	)	510,240
Net income	—	—		—		53,863		—		—		53,863
Recognition of equity compensation	—	—		11,676		—		—		—		11,676
Net issuance/forfeiture of nonvested shares	—	—		1,432		—		(1,432	)	—		—
Dividends accrued, $0.28 per share	—	—		—		(23,935	)	—		—		(23,935	)
Exercise of stock options	—	—		(35	)	—		170		—		135
Excess tax benefits from share-based payment arrangements	—	—		712		—		—		—		712
Repurchase of common stock	—	—		—		—		(3,422	)	—		(3,422	)
Unrealized appreciation on available for sale investment securities	—	—		—		—		—		2,778		2,778
Pension and postretirement benefits	—	—		—		—		—		846		846
Balance at March 31, 2013	99,701	$	997	243,806		728,351		(377,088	)	(43,173	)	552,893

See accompanying notes to the unaudited consolidated financial statements.

6

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	For the three months
	ended March 31,
	2013			2012
Cash flows from operating activities:
Net income	$	53,863		47,387
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,497			3,900
Amortization of deferred sales commissions	13,668			13,485
Share-based compensation	11,676			12,272
Excess tax benefits from share-based payment arrangements	(712		)	(444	)
Gain on sale of available for sale investment securities	(2,426		)	(1,527	)
Net purchases and sales or maturities of trading securities	1,012			10,573
Unrealized gain on trading securities	(2,166		)	(2,225	)
Loss on sale and retirement of property and equipment	49			101
Capital gains and dividends reinvested	(40		)	—
Deferred income taxes	254			(851	)
Changes in assets and liabilities:
Cash and cash equivalents - restricted	(61,650		)	(30,759	)
Other receivables	39,545			(1,707	)
Payable to investment companies for securities and payble to customers	16,516			27,989
Receivables from funds and separate accounts	(9,233		)	(320	)
Other assets	(3,743		)	(366	)
Deferred sales commissions	(16,174		)	(14,466	)
Accounts payable and payable to third party brokers	(925		)	1,017
Other liabilities	18,122			20,091
Net cash provided by operating activities	$	61,133		84,150
Cash flows from investing activities:
Purchases of available for sale investment securities	(55,350		)	—
Proceeds from sales and maturities of available for sale investment securities	62,020			4,907
Additions to property and equipment	(3,088		)	(2,375	)
Disposition of companies	22,000			—
Net cash provided by investing activities	$	25,582		2,532
Cash flows from financing activities:
Dividends paid	(23,973		)	(21,402	)
Repurchase of common stock	(3,422		)	(12	)
Exercise of stock options	135			—
Excess tax benefits from share-based payment arrangements	712			444
Net cash used in financing activities	$	(26,548	)	(20,970	)
Net increase in cash and cash equivalents	60,167			65,712
Cash and cash equivalents at beginning of period, including discontinued operations	330,330			327,083
Cash and cash equivalents at end of period	390,497			392,795
Less cash and cash equivalents of discontinued operations at end of period	—			2,251
Cash and cash equivalents of continuing operations at end of period	$	390,497		390,544

See accompanying notes to the unaudited consolidated financial statements.

7

WADDELL & REED FINANCIAL, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.Description of Business and Significant Accounting Policies

Waddell & Reed Financial, Inc. and Subsidiaries

Waddell & Reed Financial, Inc. and subsidiaries (hereinafter referred to as the “Company,” “we,” “our” and “us”) derive revenues from investment management, investment product underwriting and distribution, and shareholder services administration provided to the Waddell & Reed Advisors Group of Mutual Funds (the “Advisors Funds”), Ivy Funds (the “Ivy Funds”), Ivy Funds Variable Insurance Portfolios (the “Ivy Funds VIP”) and InvestEd Portfolios (“InvestEd”) (collectively, the Advisors Funds, Ivy Funds, Ivy Funds VIP and InvestEd are referred to as the “Funds”), and institutional and separately managed accounts.  The Funds and the institutional and separately managed accounts operate under various rules and regulations set forth by the United States Securities and Exchange Commission (the “SEC”). Services to the Funds are provided under investment management agreements, underwriting agreements and shareholder servicing and accounting service agreements that set forth the fees to be charged for these services. The majority of these agreements are subject to annual review and approval by each Fund’s board of trustees and shareholders. Our revenues are largely dependent on the total value and composition of assets under management.  Accordingly, fluctuations in financial markets and composition of assets under management can significantly impact revenues and results of operations.

Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements included herein pursuant to the rules and regulations of the SEC.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented.  The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).  Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation.

The accompanying unaudited consolidated financial statements are prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements included in our 2012 Form 10-K, which include the following: use of estimates, cash and cash equivalents, disclosures about fair value of financial instruments, investment securities and investments in affiliated mutual funds, property and equipment, software developed for internal use, goodwill and identifiable intangible assets, deferred sales commissions, revenue recognition, advertising and promotion, share-based compensation and accounting for income taxes.

Effective January 1, 2013, the Company adopted an amended accounting standard to improve the reporting of reclassifications out of accumulated other comprehensive income.  The guidance requires an entity to present separately for each component of comprehensive income, the current period reclassifications out of accumulated other comprehensive income by the respective line items of net income affected by the reclassification.  The adoption was effective prospectively and did not have any effect on the Company’s results of operations, financial position or liquidity.

In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at March 31, 2013, the results of operations for the three months ended March 31, 2013 and 2012, and cash flows for the three months ended March 31, 2013 and 2012 in conformity with accounting principles generally accepted in the United States.

During the third quarter of 2012, the Company committed to a plan to sell its Legend group of subsidiaries (“Legend”) and on October 29, 2012, the Company signed a definitive agreement to execute the transaction.  The sale closed effective January 1, 2013.  The operational results of Legend have been reclassified as discontinued operations in our unaudited consolidated financial statements for the three months ended March 31, 2012 and as of December 31, 2012.  Unless otherwise stated, footnote references refer to continuing operations.

8

2.Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and short-term investments.  We consider all highly liquid investments with maturities upon acquisition of 90 days or less to be cash equivalents.  Cash and cash equivalents — restricted represents cash held for the benefit of customers segregated in compliance with federal and other regulations.

3.Accounting Pronouncements Not Yet Adopted

In July 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-06, “Other Topics (Topic 720): Fees Paid to the Federal Government by Health Insurers”(“ASU 2011-06”). This ASU was issued to address questions about how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (collectively, the “Acts”).  The Acts impose an annual fee on health insurers for each calendar year beginning on or after January 1, 2014.  A health insurer’s portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible.  The ASU specifies that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year in which it is payable. ASU 2011-06 is effective for calendar years beginning after December 31, 2013.  The Company is evaluating the impact the adoption of ASU 2011-06 in 2014 will have on its consolidated financial statements.

9

4.Investment Securities

Investment securities at March 31, 2013 and December 31, 2012 are as follows:

	Amortized		Unrealized	Unrealized
March 31, 2013	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Corporate bonds	30,190		208	(1	)	30,397
Affiliated mutual funds	69,239		5,533	(49	)	74,723
	$	99,438	5,742	(50	)	105,130
Trading securities:
Mortgage-backed securities						42
Municipal bonds						501
Corporate bonds						12,049
Common stock						48
Affiliated mutual funds						57,838
						70,478
Total investment securities						$	175,608

	Amortized		Unrealized	Unrealized
December 31, 2012	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Corporate bonds	30,408		248	(3	)	30,653
Affiliated mutual funds	73,443		3,749	(1,090	)	76,102
	$	103,860	3,998	(1,093	)	106,765
Trading securities:
Mortgage-backed securities						44
Municipal bonds						501
Corporate bonds						12,112
Common stock						37
Affiliated mutual funds						56,683
						69,377
Total investment securities						$	176,142

Purchases of trading securities during the three months ended March 31, 2013 were $49.8 million.  Sales of trading securities were $50.8 million for the same period.

10

A summary of available for sale debt securities and affiliated mutual funds with fair values below carrying values at March 31, 2013 and December 31, 2012 is as follows:

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
March 31, 2013	Fair value		losses		value	losses		value	losses
	(in thousands)
Corporate bonds	$	5,800	(1	)	—	—		5,800	(1	)
Affiliated mutual funds	—		—		3,177	(49	)	3,177	(49	)
Total temporarily impaired securities	$	5,800	(1	)	3,177	(49	)	8,977	(50	)

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
December 31, 2012	Fair value		losses		value	losses		value	losses
	(in thousands)
Corporate bonds	$	997	(3	)	—	—		997	(3	)
Affiliated mutual funds	23,478		(469	)	5,604	(621	)	29,082	(1,090	)
Total temporarily impaired securities	$	24,475	(472	)	5,604	(621	)	30,079	(1,093	)

Based upon our assessment of these corporate bonds and affiliated mutual funds, the time frame investments have been in a loss position, our intent to hold affiliated mutual funds until they have recovered, and our history of holding bonds until maturity, we determined that a write-down was not necessary at March 31, 2013.

Mortgage-backed securities and corporate bonds accounted for as available for sale and held as of March 31, 2013 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	18,811	18,850
After one year but within five years	11,379		11,547
After five years but within 10 years	9		10
	$	30,199	30,407

Mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading and held as of March 31, 2013 mature as follows:

	Fair value
	(in thousands)
Within one year	$	2,504
After one year but within five years	9,546
After five years but within 10 years	542
	$	12,592

11

Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset.  Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset.  An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs that are significant to the overall valuation.  The three-tier hierarchy of inputs is summarized as follows:

·Level 1 — Investments are valued using quoted prices in active markets for identical securities.

·Level 2 — Investments are valued using other significant observable inputs, including quoted prices in active markets for similar securities.

·Level 3 — Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments.

Assets classified as Level 2 can have a variety of observable inputs.  These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value.  The fair value of municipal bonds is measured based on pricing models that take into account, among other factors, information received from market makers and broker/dealers, current trades, bid-wants lists, offerings, market movements, the callability of the bond, state of issuance and benchmark yield curves. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer.

Securities’ values classified as Level 3 are primarily determined through the use of a single quote (or multiple quotes) from dealers in the securities using proprietary valuation models.  These quotes involve significant unobservable inputs, and thus, the related securities are classified as Level 3 securities.

The following tables summarize our investment securities as of March 31, 2013 and December 31, 2012 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.

March 31, 2013	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	52	—	52
Municipal bonds	—		501	—	501
Corporate bonds	—		42,446	—	42,446
Common stock	48		—	—	48
Affiliated mutual funds	132,561		—	—	132,561
Total	$	132,609	42,999	—	175,608

December 31, 2012	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	54	—	54
Municipal bonds	—		501	—	501
Corporate bonds	—		42,765	—	42,765
Common stock	37		—	—	37
Affiliated mutual funds	132,785		—	—	132,785
Total	$	132,822	43,320	—	176,142

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5.Discontinued Operations

During the third quarter of 2012, the Company committed to a plan to sell Legend.  On October 29, 2012, the Company signed a definitive agreement with First Allied Holdings Inc. to sell all of the common interests of Legend Group Holdings, LLC.  The sale closed effective January 1, 2013.  Based on the value of the consideration the Company expected to receive upon closing of the sale, which was less than the carrying value of net assets to be sold, the Company recorded a non-cash impairment charge of $42.4 million during the third quarter of 2012.  The agreement also includes an earnout provision based on asset retention for a period of two years following the closing date.

For income tax purposes, the sale resulted in a $48.3 million capital loss that may only be utilized to offset future capital gains.  Due to the character of the loss and the limited carry forward period permitted by law, the Company may not realize the full tax benefit of the capital loss.

The operational results of Legend have been presented as discontinued operations in the unaudited consolidated financial statements for the three months ended March 31, 2012.  Legend’s revenues and income before provision for income taxes for that period were $18.7 million and $947 thousand, respectively.

The assets and liabilities of Legend, classified as discontinued operations held for sale in the balance sheet at December 31, 2012 are as follows (amounts in thousands):

Assets
Cash and cash equivalents	$	2,303
Cash and cash equivalents - restricted	401
Investment securities	1,352
Receivables	10,345
Prepaid expenses and other current assets	749
Total current assets	15,150
Property and equipment, net	992
Goodwill	16,868
Other non-current assets	150
Total non-current assets	18,010
Total assets	33,160
Liabilities
Accounts payable	464
Accrued compensation	6,243
Other current liabilities	880
Total current liabilities	7,587
Non-current liabilities	281
Total liabilities	7,868
Assets less liabilities	$	25,292

13

6.Goodwill and Identifiable Intangible Assets

Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business.  Our goodwill is not deductible for tax purposes.  Goodwill and identifiable intangible assets (all considered indefinite lived) are as follows:

	March 31,			December 31,
	2013			2012
	(in thousands)
Goodwill	$	138,947		138,947
Accumulated amortization	(31,977		)	(31,977	)
Total goodwill	106,970			106,970
Mutual fund management advisory contracts	38,699			38,699
Mutual fund management subadvisory contracts	16,300			16,300
Total identifiable intangible assets	54,999			54,999
Total	$	161,969		161,969

7.Indebtedness

Debt is reported at its carrying amount in the consolidated balance sheets.  The fair value of the Company’s outstanding indebtedness is approximately $211.9 million at March 31, 2013 compared to the carrying value of $190.0 million.  Fair value is calculated based on Level 2 inputs.

8.Income Tax Uncertainties

As of January 1, 2013 and March 31, 2013, the Company had unrecognized tax benefits, including penalties and interest, of $10.8 million ($7.5 million net of federal benefit) and $11.2 million ($7.7 million net of federal benefit), respectively, that if recognized, would impact the Company’s effective tax rate.  The unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the accompanying consolidated balance sheets; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable.

The Company’s accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes.  As of January 1, 2013, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $2.5 million ($2.0 million net of federal benefit).  The total amount of penalties and interest, net of federal benefit, related to income tax uncertainties recognized in the statement of income for the three month period ended March 31, 2013 was $0.1 million.  The total amount of accrued penalties and interest related to uncertain tax positions at March 31, 2013 of $2.5 million ($2.0 million net of federal benefit) is included in the total unrecognized tax benefits described above.

In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain.  In addition, respective tax authorities periodically audit our income tax returns.  These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions.  The 2009, 2010, 2011 and 2012 federal income tax returns are open tax years that remain subject to potential future audit.  The 2006 and 2007 federal tax years also remain open to a limited extent due to capital loss carryback claims.  State income tax returns for all years after 2008 and, in certain states, income tax returns prior to 2009, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.

The Company is currently being audited in various state jurisdictions.  It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period.  It is estimated that the

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Company’s liability for unrecognized tax benefits, including penalties and interest, could decrease by approximately $0.1 million to $2.2 million ($0.1 million to $1.5 million net of federal benefit) upon settlement of these audits.  Such settlements are not anticipated to have a significant impact on the results of operations.

9.Pension Plan and Postretirement Benefits Other Than Pension

We provide a non-contributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”).  Benefits payable under the Pension Plan are based on employees’ years of service and compensation during the final 10 years of employment.  We also sponsor an unfunded defined benefit postretirement medical plan that covers substantially all employees, as well as Waddell & Reed advisors.  The medical plan is contributory with participant contributions adjusted annually.  The medical plan does not provide for post age 65 benefits with the exception of a small group of employees that were grandfathered when such plan was established.

The components of net periodic pension and other postretirement costs related to these plans are as follows:

	Pension Benefits					Other Postretirement Benefits
	Three months ended					Three months ended
	March 31,					March 31,
	2013			2012		2013	2012
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,950		2,209		197	173
Interest cost	1,952			1,812		90	100
Expected return on plan assets	(2,704		)	(2,127	)	—	—
Actuarial loss amortization	1,250			1,021		—	3
Prior service cost amortization	139			139		14	14
Transition obligation amortization	1			1		—	—
Total (1)	$	3,588		3,055		301	290

(1)Net periodic pension benefit cost related to discontinued operations and included in the table above was $196 thousand for the three months ended March 31, 2012. Net periodic cost for the postretirement medical plan related to discontinued operations and included in the table above was $3 thousand for the three months ended March 31, 2012.

During the first quarter of 2013, we contributed $10.0 million to the Pension Plan and contributed an additional $7.0 million to the Pension Plan in April 2013.

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10.   Stockholders’ Equity

Earnings per Share

The components of basic and diluted earnings per share from continuing operations were as follows:

	Three months ended
	March 31,
	2013		2012
	(in thousands, except per share amounts)
Net income from continuing operations	$	53,863	46,837
Weighted average shares outstanding - basic	85,592		85,604
Dilutive potential shares from stock options (1)	1		2
Weighted average shares outstanding - diluted	85,593		85,606
Earnings per share from continuing operations, basic and diluted	$	0.63	0.55

(1)There were no anti-dilutive options for the three months ended March 31, 2013 or 2012.

Dividends

On February 14, 2013, the Board of Directors (the “Board”) approved a dividend on our common stock in the amount of $0.28 per share to stockholders of record as of April 10, 2013 to be paid on May 1, 2013.  The total dividend to be paid is approximately $24.0 million and is included in other current liabilities in the consolidated balance sheet at March 31, 2013.

Common Stock Repurchases

The Board has authorized the repurchase of our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs.

There were 81,701 shares repurchased in the open market or privately during the three months ended March 31, 2013, which included 2,601 shares repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the quarter. There were 366 shares repurchased in the open market during the quarter ended March 31, 2012, all of which were repurchased from employees tendering shares during the quarter.

In April 2013, the Company repurchased 464,177 shares from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the period.

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Accumulated Other Comprehensive Loss

The following table summarizes other comprehensive income (loss) activity for the quarter ended March 31, 2013.

	Unrealized gains on investment securities			Decrease of valuation allowance for unrealized gains on investment securities			Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2012	$	1,823		32			(48,652	)	(46,797	)
Other comprehensive income before reclassification	3,279			1,934			—		5,213
Amount reclassified from accumulated other comprehensive income	(1,535		)	(900		)	846		(1,589	)
Net current period other comprehensive income	1,744			1,034			846		3,624
Balance at March 31, 2013	$	3,567		$	1,066		(47,806	)	(43,173	)

Reclassifications from accumulated other comprehensive income and included in net income are summarized in the table that follows for the three months ended March 31, 2013.

	Pre-tax			Tax (expense) benefit		Net of tax		Statement of income line item
	(in thousands)
Reclassifications included in net income:
Realized gain on sale of available for sale investment securities	$	(2,426	)	891		(1,535	)	Investment and other income
Valuation allowance	—			(900	)	(900	)	Provision for income taxes
Amortization of pension and post retirement benefits	1,404			(558	)	846		Underwriting and distribution expense Compensation and related costs
Total	$	(1,022	)	(567	)	(1,589	)

11.  Share-Based Compensation

A summary of stock option activity and related information for the three months ended March 31, 2013 is presented in the table below.

	Options	Weighted average exercise price
Outstanding, December 31, 2012	6,371	$	21.09
Granted	—	—
Exercised	6,371	$	21.09
Terminated/Cancelled	—	—
Outstanding, March 31, 2013	—	—
Exercisable, March 31, 2013	—	—

In the first quarter of 2013, we granted 33,715 shares of nonvested stock with a fair value of $36.86 per share under the Company’s 1998 Stock Incentive Plan, as amended and restated (the “SI Plan”).  The value of those shares at the grant date, aggregating $1.2 million, will generally be amortized to expense over a four year vesting period.

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On April 2, 2013, we granted 1,078,674 shares of nonvested stock with a fair value of $43.19 per share under the SI Plan.  The value of those shares at the grant date, aggregating $46.6 million, will generally be amortized to expense over a four year vesting period.

12.Contingencies

The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate.  A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

The Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable, and the amount can be reasonably estimated.  These amounts are not reduced by amounts that may be recovered under insurance or claims against third parties, but undiscounted receivables from insurers or other third parties may be accrued separately. The Company regularly revises such accruals in light of new information.  For contingencies where an unfavorable outcome is reasonably possible and that are significant, the Company discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items that management believes should be disclosed.  Management judgment is required related to contingent liabilities and the outcome of litigation because both are difficult to predict.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q 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 or on behalf of the Company 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, 2012, which include, without limitation:

·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;

·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 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;

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·Our inability to implement new information technology and systems, or 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 hire and retain senior executive management and other key personnel.

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, 2012 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2013.  All forward-looking statements speak only as 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.

Overview

Founded in 1937, we are one of the oldest mutual fund complexes in the United States, with expertise in a broad range of investment styles and across a variety of market environments.  Our earnings and cash flows are heavily dependent on financial market conditions.  Significant increases or decreases in the various securities markets can have a material impact on our results of operations, financial condition and cash flows.

We derive our revenues from providing investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds and institutional and separately managed accounts.  Investment management fees are based on the amount of average assets under management and are affected by sales levels, financial market conditions, redemptions and the composition of assets.  Our underwriting and distribution revenues consist of commissions derived from sales of investment and insurance products, Rule 12b-1 asset-based service and distribution fees, distribution fees on certain variable products, fees earned on fee-based asset allocation products, and related advisory services. The products sold have various commission structures and the revenues received from those sales vary based on the type and amount sold.  Shareholder service fee revenue includes transfer agency fees, custodian fees from retirement plan accounts, portfolio accounting and administration fees, and is earned based on assets under management or number of client accounts.  Our major expenses are underwriting and distribution-related commissions, employee compensation, amortization of deferred sales commissions, subadvisory fee expenses and information technology expense.

One of our distinctive qualities is that we are a significant distributor of investment products.  Our retail products are distributed through our Wholesale channel, which includes third-parties such as other broker/dealers, registered investment advisors and various retirement platforms, or through our Advisors channel sales force of independent financial advisors.  We also market our investment advisory services to institutional investors, either directly or through consultants, in our Institutional channel.

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Company Highlights

·The Company sold its Legend group of subsidiaries (“Legend”) effective January 1, 2013.  The operational results of Legend have been reclassified as discontinued operations in the unaudited consolidated financial statements for the three months ended March 31, 2012.  Unless stated otherwise, any reference to income statement items refers to results from continuing operations.

·In April, we launched the Ivy Global Real Estate Fund and Ivy Global Risk-Managed Real Estate Fund, both subadvised by LaSalle Investment Management Securities, to help investors and financial advisors pursue the potential opportunities of investment in real estate securities.

·Our assets under management increased 8% during the quarter, from $96.4 billion to $103.8 billion, driven by market appreciation and net flows.

·Income from continuing operations increased 15% compared to the first quarter of 2012, and our operating margin was 26.2%, an improvement from 25.0% for the same period a year ago.

·During the quarter, we recorded investment income of $4.4 million. Certain components of this investment income allowed us to release a portion of our existing tax valuation allowance, which reduced income tax expense by $1.4 million.

·Our balance sheet remains solid, and we ended the quarter with cash and investments of $566.1 million.

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Assets Under Management

During the first quarter, assets under management increased to $103.8 billion compared to $96.4 billion on December 31, 2012 due to market appreciation of $5.3 billion and net flows of $2.1 billion.

Change in Assets Under Management(1)

	First Quarter 2013
	Wholesale			Advisors		Institutional		Total
	(in millions)
Beginning Assets	$	48,930		35,660		11,775		96,365
Sales and Other Net Inflows(2)	5,042			1,303		430		6,775
Redemptions	(3,157		)	(1,047	)	(469	)	(4,673	)
Net Exchanges	66			(66	)	0		0
Net Flows	1,951			190		(39	)	2,102
Market Appreciation	2,373			2,065		890		5,328
Ending Assets	$	53,254		37,915		12,626		103,795

	First Quarter 2012
	Wholesale			Advisors		Institutional		Total
	(in millions)
Beginning Assets	$	40,954		31,709		10,494		83,157
Sales and Other Net Inflows(2)	4,520			1,097		682		6,299
Redemptions	(3,446		)	(1,042	)	(507	)	(4,995	)
Net Exchanges	(104		)	103		0		(1	)
Net Flows	970			158		175		1,303
Market Appreciation	4,814			3,206		1,312		9,332
Ending Assets	$	46,738		35,073		11,981		93,792

(1)Includes all activity of the Funds and institutional and separate accounts, including money market funds and transactions at net asset value, accounts for which we receive no commissions.

(2)Sales and Other Net Inflows is primarily gross sales (net of sales commission). This amount also includes net reinvested dividends and capital gains and investment income.

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Average assets under management, which are generally more indicative of trends in revenue for providing investment management services than the quarter over quarter change in ending assets under management, are presented below.

Average Assets Under Management

	First Quarter 2013
	Wholesale		Advisors	Institutional	Total
	(in millions)
Asset Class:
Equity	$	41,056	26,257	11,477	$	78,790
Fixed Income	10,478		9,597	798	20,873
Money Market	167		1,369	—	1,536
Total	$	51,701	37,223	12,275	$	101,199

	First Quarter 2012
	Wholesale		Advisors	Institutional	Total
	(in millions)
Asset Class:
Equity	$	38,902	24,285	10,398	$	73,585
Fixed Income	5,769		8,410	785	14,964
Money Market	226		1,315	—	1,541
Total	$	44,897	34,010	11,183	$	90,090

Results of Operations — Three Months Ended March 31, 2013 as Compared with Three Months Ended March 31, 2012

Income from continuing operations

	Three months ended
	March 31,
	2013			2012		Variance
Net income from continuing operations	$	53,863		46,837		15	%
Net income per share from continuing operations, basic and diluted	$	0.63		0.55		15	%
Operating Margin	26.2		%	25.0	%	5	%

We reported income from continuing operations of $53.9 million, or $0.63 per diluted share, for the first quarter of 2013 compared to $46.8 million, or $0.55 per diluted share, for the first quarter of 2012.

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Total Revenues

Total revenues increased 10% to $316.6 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 due to an increase in average assets under management of 12% and an increase in gross sales of 8%.

	Three months ended
	March 31,
	2013		2012	Variance
	(in thousands, except percentage data)
Investment management fees	$	148,445	134,900	10	%
Underwriting and distribution fees	135,419		121,153	12	%
Shareholder service fees	32,691		31,818	3	%
Total revenues	$	316,555	287,871	10	%

Investment Management Fee Revenues

Investment management fee revenues are earned for providing investment advisory services to the Funds and to institutional and separate accounts.  Investment management fee revenues increased $13.5 million, or 10%, from last year’s first quarter.

Revenues from investment management services provided to our retail mutual funds, which are distributed through the Wholesale, Advisors and Institutional channels, were $136.9 million for the quarter ended March 31, 2013.  Revenues increased $12.6 million, or 10%, compared to the first quarter of 2012, while the related retail average assets increased 13% to $88.9 billion.  Investment management fee revenues increased less than the related retail average assets due to a shift in assets to products with lower management fee rates, as well as one less day in the first quarter of 2013.

Institutional account revenues were $11.5 million for the first quarter of 2013, representing an increase of $0.9 million, or 9%, from the first quarter of 2012, while average assets increased 10%.  Account revenues increased less than the related average assets due to a decline in the average management fee rate.

Long-term redemption rates (which exclude money market fund redemptions) in the Wholesale channel were 24.6% in the first quarter of 2013, compared to 30.7% in the first quarter of 2012.  In the Advisors channel, long-term redemption rates were 9.4% for the quarter ended March 31, 2013, compared to 10.1% in the first quarter of 2012.  We expect the Advisors channel long-term redemption rate to remain lower than that of the Wholesale channel due to the personal and customized nature in which our financial advisors provide service to our clients.  Long-term redemption rates for our Institutional channel were 15.5% and 18.2% for the first quarter of 2013 and 2012, respectively.

Our overall redemption rate of 18.0% for the first quarter of 2013 compares positively to the current year to date industry average of approximately 24%, based on data from the Investment Company Institute.

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Underwriting and Distribution Fee Revenues and Expenses

The following tables summarize our underwriting and distribution fee revenues and expenses segregated by distribution method within the respective Wholesale or Advisors channel:

	First Quarter 2013
	Wholesale			Advisors	Total
	(in thousands)
Revenue	$	48,175		87,244	135,419
Expenses - Direct	63,548			59,657	123,205
Expenses - Indirect	11,000			27,366	38,366
Net Distribution (Costs)/Excess	$	(26,373	)	221	(26,152	)

	First Quarter 2012
	Wholesale			Advisors		Total
	(in thousands)
Revenue	$	44,473		76,680		121,153
Expenses - Direct	55,104			53,676		108,780
Expenses - Indirect	9,339			26,367		35,706
Net Distribution (Costs)	$	(19,970	)	(3,363	)	(23,333	)

Underwriting and distribution revenues earned in the first quarter of 2013 increased $14.3 million, or 12%, compared with the first quarter of 2012 due to increased revenues in our Advisors channel of $10.6 million, and increased revenues in our Wholesale channel of $3.7 million.  Revenues from fee-based asset allocation products increased $8.7 million compared to the prior year, as assets grew from $8.6 billion at March 31, 2012 to $11.3 billion at March 31, 2013.  Rule 12b-1 asset-based service and distribution fee revenues increased $5.6 million, or 9%, primarily due to an increase in average mutual fund assets under management.  Partially offsetting these increases, variable annuity revenues decreased $1.6 million.

Underwriting and distribution expenses increased by $17.1 million, or 12%, compared to the first quarter of 2012.  Direct expenses in the Wholesale channel increased by $8.4 million, as a result of an increase in average wholesale assets under management and higher sales volume year over year. We incurred higher dealer compensation paid to third party distributors, increased Rule 12b-1 asset-based service and distribution expenses and higher wholesaler commissions.  Direct expenses in the Advisors channel increased $6.0 million, or 11%, compared to the first quarter of 2012 due to increased commissions related to the sale of fee-based asset allocation products of $6.5 million and increased Rule 12b-1 asset-based service and distribution expenses of $0.4 million, partially offset by decreased commissions on variable annuity product sales of $1.0 million.  Indirect expenses increased $2.7 million compared to the quarter ended March 31, 2012 due primarily to increased group health expenses, IT and marketing expenses.

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Shareholder Service Fee Revenue

Shareholder service fee revenue primarily includes transfer agency fees, custodian fees from retirement plan accounts, and portfolio accounting and administration fees.  Transfer agency fees and portfolio accounting and administration fees are asset-based revenues or account-based revenues, while custodian fees from retirement plan accounts are based on the number of client accounts.  During the first quarter of 2013, shareholder service fee revenue increased $0.9 million, or 3%, over the first quarter of 2012.  Of the total increase, $1.6 million was due to higher asset-based fees quarter over quarter in certain share classes. This increase was partially offset by a decrease of $0.7 million attributable to account-based revenues, primarily due to an amended contract effective the beginning of the year. The number of accounts increased 1% compared to the first quarter of 2012.

Total Operating Expenses

Operating expenses increased $17.6 million, or 8%, in the first quarter of 2013 compared to the first quarter of 2012, primarily due to increased underwriting and distribution expenses. Underwriting and distribution expenses are discussed above.

	Three Months Ended
	March 31,
	2013		2012	Variance
	(in thousands, except percentage data)
Underwriting and distribution	$	161,571	144,486	12	%
Compensation and related costs	48,155		44,158	9	%
General and administrative	16,208		17,764	-9	%
Subadvisory fees	4,484		6,271	-28	%
Depreciation	3,227		3,359	-4	%
Total operating expenses	$	233,645	216,038	8	%

Compensation and Related Costs

Compensation and related costs increased $4.0 million, or 9%, compared to the first quarter of 2012.  Of the total increase period over period, $1.7 million was due to higher base salaries associated with increased headcount and annual salary increases. Incentive compensation increased $1.4 million, $0.6 million of which related to higher earnings on portfolio manager deferred compensation plans.  Share-based compensation decreased $0.2 million due a credit in the amount of $1.6 million taken in the first quarter 2013 related to the cancellation of unvested shares granted to Legend employees. This decrease was partially offset by higher amortization expense associated with our April 2012 and December 2012 grants of nonvested stock compared to grants that became fully vested in 2012 and an increase in non-employee advisor (independent contractor) stock award amortization expense.

General and Administrative Costs

General and administrative expenses decreased $1.6 million to $16.2 million for the first quarter of 2013 compared to the first quarter of 2012, primarily due to lower legal and consulting costs.

Subadvisory Fees

Subadvisory fees represent fees paid to other asset managers for providing advisory services for certain mutual fund portfolios.  These expenses reduce our operating margin since we pay out approximately half of our management fee revenue received from subadvised products.  Gross management fee revenues for products subadvised by others were $8.9 million for the three months ended March 31, 2013 compared to $12.5 million for the first quarter of 2012 due to a 28% decrease in average net assets.  Subadvisory expenses followed the same pattern of decrease compared to 2012.

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Other Income and Expenses

Investment and Other Income, Interest Expense and Taxes

Investment and other income was $4.4 million for the quarter ended March 31, 2013, compared to $3.9 million in the same period a year ago.  We recorded realized gains of $2.4 million on the sale of available for sale mutual fund holdings during the current quarter compared to $1.5 million in the first quarter of 2012. In our mutual fund trading portfolio, we recorded mark-to-market gains of $2.2 million during the quarter compared to gains of $2.0 million for the three months ended March 31, 2012.

Interest expense was $2.9 million and $2.8 million for the quarter ended March 31, 2013 and 2012, respectively.

Our effective income tax rate from continuing operations was 36.2% for the first quarter of 2013, as compared to 35.8% for the first quarter of 2012.  Due to the sale of subsidiaries in 2009 and 2013, the Company has deferred tax assets related to capital loss carryforwards, which are available to offset current and future capital gains.  A valuation allowance was recorded on a portion of these capital losses when realized due to the limited carryforward period permitted by law on losses of this character.  Realized capital gains on securities classified as available for sale and increases in the fair value of the Company’s trading securities portfolio in the first quarters of 2013 and 2012 allowed for a release of the valuation allowance and a reduction of income tax expense by $1.4 million and $1.3 million, respectively.  The reduction in the valuation allowance decreased our effective tax rate in both quarters.

The first quarter 2013 and 2012 effective income tax rates for continuing operations, removing the effects of the valuation allowance, would have been 37.9% and 37.6%, respectively.  The higher effective tax rate in 2013 compared to 2012 was largely attributable to changes in state legislation in a jurisdiction in which the Company operates.

The Company expects its future effective tax rate, exclusive of any increases or reductions to the valuation allowance, state tax incentives, unanticipated state tax legislative changes, and unanticipated fluctuations in earnings to range from 37% to 39%.

Liquidity and Capital Resources

Our operations provide much of the cash necessary to fund our priorities, as follows:

·Finance internal growth

·Pay dividends

·Repurchase our stock

Finance Internal Growth

We use cash to fund growth in our distribution channels.  Our Wholesale channel, which has a higher cost to gather assets, requires cash outlays for wholesaler commissions and commissions to third parties on deferred load product sales.  We continue to invest in our Advisors channel by providing additional support to our advisors through wholesaling efforts and enhanced technology tools.

Pay Dividends

We paid quarterly dividends on our common stock that resulted in financing cash outflows of $24.0 million and $21.4 million for the first quarter of 2013 and 2012, respectively.  The Board approved an increase in the quarterly dividend on our common stock from $0.25 per share to $0.28 per share beginning with our fourth quarter 2012 dividend, paid on February 1, 2013.

Repurchase Our Stock

We repurchased 81,701 shares and 366 shares of our common stock in the open market or privately during the three months ended March 31, 2013 and 2012, respectively, resulting in cash outflows of $3.4 million and $12 thousand, respectively.

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Operating Cash Flows

Cash from operations, our primary source of funds, decreased $23.0 million for the three months ended March 31, 2013 compared to the previous year.  The first quarter of 2013 benefited from increased net income compared to 2012, offset by a decrease in net sales or maturities of trading securities.

During the first quarter of 2013, we contributed $10.0 million to the Pension Plan and contributed an additional $7.0 million to the Pension Plan in April 2013.  We do not expect to make additional contributions for the remainder of 2013.

Investing Cash Flows

Investing activities consist primarily of the purchase, sale and maturities of available for sale investment securities, as well as capital expenditures.  We expect our 2013 capital expenditures to be in the range of $15.0 to $20.0 million.  Related to the sale of Legend, we received cash proceeds of $22.0 million during the first quarter of 2013.

Financing Cash Flows

As noted previously, dividends and stock repurchases accounted for a majority of our financing cash outflows in the first three months of 2013 and 2012.

Future Capital Requirements

Management believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund its short-term operating and capital requirements.  Expected short-term uses of cash include dividend payments, interest payments on outstanding debt, income tax payments, seed money for new products, share repurchases, payment of deferred commissions to our financial advisors and third parties, capital expenditures and home office leasehold improvements, and could include strategic acquisitions.

Expected long-term capital requirements include indebtedness, operating leases and purchase obligations, and potential recognition of tax liabilities.  Other possible long-term discretionary uses of cash could include capital expenditures for enhancement of technology infrastructure and home office expansion, strategic acquisitions, payment of dividends, income tax payments, seed money for new products, payment of upfront fund commissions for Class B shares, Class C shares and certain fee-based asset allocation products, pension funding and repurchases of our common stock.

Critical Accounting Policies and Estimates

Management believes certain critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.  The Company’s critical accounting policies and estimates are disclosed in the “Critical Accounting Policies and Estimates” section of our 2012 Form 10-K.

27

Supplemental Information

	First			First
	Quarter			Quarter
	2013			2012		Change
Channel highlights
Number of Wholesalers	50			49		2.0	%
Number of Advisors	1,717			1,778		-3.4	%
Gross revenue per advisor (in thousands)	$	47.3		40.3		17.4	%
Redemption rates - long term assets
Wholesale	24.6		%	30.7	%
Advisors	9.4		%	10.1	%
Institutional	15.5		%	18.2	%
Total	18.0		%	21.5	%
Operating highlights
Organic growth / (decay) annualized	8.7		%	6.3	%
Total assets under management (in millions)	$	103,795		93,792		10.7	%
Diversification (Company Total)
As % of Sales
Asset Strategy	33.6		%	27.7	%
Fixed Income	30.7		%	32.3	%
Other	35.7		%	40.0	%
As % of Assets Under Management
Asset Strategy	33.7		%	35.3	%
Fixed Income	20.7		%	16.9	%
Other	45.6		%	47.8	%
Operating Margin	26.2		%	25.0	%
Number of shareholder accounts (in thousands)	4,142			4,082		1.5	%
Number of shareholders	781,848			831,779		-6.0	%

28

Item 3.           Quantitative and Qualitative Disclosures About Market Risk

The Company has had no significant changes in its Quantitative and Qualitative Disclosures About Market Risk from that previously reported in the Company’s 2012 Form 10-K.

Item 4.           Controls and Procedures

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to management in a timely fashion.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report, have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

The Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.  However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

29

Part II.  Other Information

Item 1.           Legal Proceedings

The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to the business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

Item 1A.        Risk Factors

The Company has had no material changes to its Risk Factors from those previously reported in the Company’s 2012 Form 10-K.

Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth certain information about the shares of common stock we repurchased during the first quarter of 2013.

Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program
January 1 - January 31	20,000	$	38.82	20,000	n/a	(1)
February 1 - February 28	2,601	42.57		2,601	n/a	(1)
March 1 - March 31	59,100	42.88		59,100	n/a	(1)
Total	81,701	$	41.88	81,701

(1)On August 31, 1998, we announced that our Board of Directors approved a program to repurchase shares of our common stock on the open market.  Under the repurchase program, we are authorized to repurchase, in any seven-day period, the greater of (i) 3% of our outstanding common stock or (ii) $50 million of our common stock.  We may repurchase our common stock through the New York Stock Exchange, other national or regional market systems, electronic communication networks or alternative trading systems.  Our stock repurchase program does not have an expiration date or an aggregate maximum number or dollar value of shares that may be repurchased.  Our Board of Directors reviewed and ratified the stock repurchase program in October 2012.  During the first quarter of 2013, all stock repurchases were made pursuant to the repurchase program and 2,601 shares, reflected in the table above, were purchased in connection with funding employee income tax withholding obligations arising from the vesting of nonvested shares.

30

Item 6.           Exhibits

10.12013 Performance Goals established pursuant to the Waddell & Reed Financial, Inc. Executive Incentive Plan, as amended and restated. Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-13913, filed February 19, 2013 and incorporated herein by reference.*

31.1Section 302 Certification of Chief Executive Officer

31.2Section 302 Certification of Chief Financial Officer

32.1Section 906 Certification of Chief Executive Officer

32.2Section 906 Certification of Chief Financial Officer

101Materials from the Waddell & Reed Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in Extensible Business Reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related Notes to the Unaudited Consolidated Financial Statements, tagged in detail.

*Indicates management contract or compensatory plan, contract or arrangement.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 25th day of April 2013.

WADDELL & REED FINANCIAL, INC.
By:	/s/ Henry J. Herrmann
	Chief Executive Officer, Chairman of the Board and Director
	(Principal Executive Officer)
By:	/s/ Daniel P. Connealy
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)
By:	/s/ Brent K. Bloss
	Senior Vice President - Finance and Treasurer
	(Principal Accounting Officer)

32

EX-31.1

Exhibit 31.1

I, Henry J. Herrmann, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Waddell & Reed Financial, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 24, 2013
	/s/ Henry J. Herrmann
	Henry J. Herrmann
	Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Daniel P. Connealy, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Waddell & Reed Financial, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 24, 2013
	/s/ Daniel P. Connealy
	Daniel P. Connealy
	Senior Vice President and
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Henry J. Herrmann, Chief Executive Officer of Waddell & Reed Financial, Inc. (the “Company”) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (the “Act”), that:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”) dated April 25, 2013 and filed with the United States Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 24, 2013
	/s/ Henry J. Herrmann
	Henry J. Herrmann
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Daniel P. Connealy, Senior Vice President and Chief Financial Officer of Waddell & Reed Financial, Inc. (the “Company”) hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (the “Act”), that:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”) dated April 25, 2013 and filed with the United States Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 24, 2013
	/s/ Daniel P. Connealy
	Daniel P. Connealy
	Senior Vice President and
	Chief Financial Officer

XML

Pension Plan and Postretirement Benefits Other Than Pension (Details 2) (USD $)	1 Months Ended	3 Months Ended
	Apr. 30, 2013	Mar. 31, 2013	Mar. 31, 2012
Pension Benefits
Components of net periodic benefit cost:
Service cost		$ 2,950,000	$ 2,209,000
Interest cost		1,952,000	1,812,000
Expected return on plan assets		(2,704,000)	(2,127,000)
Actuarial loss amortization		1,250,000	1,021,000
Prior service cost amortization		139,000	139,000
Transition obligation amortization		1,000	1,000
Total		3,588,000	3,055,000
Net periodic pension benefit cost related to discontinued operations			196,000
Expected benefit payments
Entity's contribution to Pension Plan	7,000,000	10,000,000
Other Postretirement Benefits
Components of net periodic benefit cost:
Service cost		197,000	173,000
Interest cost		90,000	100,000
Actuarial loss amortization			3,000
Prior service cost amortization		14,000	14,000
Total		301,000	290,000
Net periodic pension benefit cost related to discontinued operations			$ 3,000

XML

Discontinued Operations (Details) (USD $)			3 Months Ended
	Dec. 31, 2012	Mar. 31, 2012	Mar. 31, 2013 Legend subsidiary	Dec. 31, 2012 Legend subsidiary	Sep. 30, 2012 Legend subsidiary
Discontinued Operations
Non-cash impairment charge					$ 42,400,000
Period under agreement for earnout provision			2 years
Capital loss on sale			48,300,000
Revenues			18,700,000
Income before provision for income taxes			947,000
Assets
Cash and cash equivalents		2,251,000		2,303,000
Cash and cash equivalents - restricted				401,000
Investment securities				1,352,000
Receivables				10,345,000
Prepaid expenses and other current assets				749,000
Total current assets	15,150,000			15,150,000
Property and equipment, net				992,000
Goodwill				16,868,000
Other non-current assets				150,000
Total non-current assets	18,010,000			18,010,000
Total assets				33,160,000
Liabilities
Accounts payable				464,000
Accrued compensation				6,243,000
Other current liabilities				880,000
Total current liabilities	7,587,000			7,587,000
Non-current liabilities	281,000			281,000
Total liabilities				7,868,000
Assets less liabilities				$ 25,292,000

XML

Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2013

Discontinued Operations

Assets and liabilities of Legend, classified as discontinued operations held for sale

The assets and liabilities of Legend, classified as discontinued operations held for sale in the balance sheet at December 31, 2012 are as follows (amounts in thousands):

Assets
Cash and cash equivalents	$	2,303
Cash and cash equivalents - restricted	401
Investment securities	1,352
Receivables	10,345
Prepaid expenses and other current assets	749
Total current assets	15,150
Property and equipment, net	992
Goodwill	16,868
Other non-current assets	150
Total non-current assets	18,010
Total assets	33,160
Liabilities
Accounts payable	464
Accrued compensation	6,243
Other current liabilities	880
Total current liabilities	7,587
Non-current liabilities	281
Total liabilities	7,868
Assets less liabilities	$	25,292

XML

Stockholders' Equity (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Total
Pre-tax	$ (1,022)
Tax (expense) benefit	(567)
Net of tax	(1,589)
Investment and other income
Realized gain on sale of available for sale investment securities
Pre-tax	(2,426)
Tax (expense) benefit	891
Net of tax	(1,535)
Provision for income taxes
Realized gain on sale of available for sale investment securities
Valuation allowance - Tax (Expense) Benefit	(900)
Underwriting and distribution expense and compensation and related costs
Amortization of pension and postretirement benefits
Pre-tax	1,404
Tax (expense) benefit	(558)
Net of tax	$ 846

XML

Income Tax Uncertainties (Details 2) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013
Income Tax Uncertainties
Estimated decrease in unrecognized tax benefits within the next 12-month period, low end of range	$ 0.1
Estimated decrease in unrecognized tax benefits within the next 12-month period, high end of range	2.2
Estimated decrease in unrecognized tax benefits net of federal benefits within the next 12-month period, low end of range	0.1
Estimated decrease in unrecognized tax benefits net of federal benefits within the next 12-month period, high end of range	$ 1.5

XML

Consolidated Statement of Stockholders' Equity (Parenthetical) (USD $)	0 Months Ended	3 Months Ended
	Feb. 14, 2013	Mar. 31, 2013
Consolidated Statement of Stockholders' Equity
Dividends accrued, per share (in dollars per share)	$ 0.28	$ 0.28

XML

Share-Based Compensation (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended	3 Months Ended
	Apr. 02, 2013	Mar. 31, 2013
Stock Options
Stock options outstanding
Balance at the beginning of the period (in shares)		6,371
Exercised (in shares)		6,371
Stock options, weighted average exercise price
Balance at the beginning of the period (in dollars per share)		$ 21.09
Exercised (in dollars per share)		$ 21.09
Nonvested stock awards | 1998 Stock Incentive Plan ("SI Plan")
Stock options, weighted average exercise price
Number of nonvested stocks granted (in shares)	1,078,674	33,715
Grant date fair value (in dollars per share)	$ 43.19	$ 36.86
Fair value of shares granted (in dollars)	$ 46.6	$ 1.2
Vesting period of the value of shares amortized to expense	4 years	4 years

XML

Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2013

Share-Based Compensation

Summary of stock option activity and related information

	Options	Weighted average exercise price
Outstanding, December 31, 2012	6,371	$	21.09
Granted	—	—
Exercised	6,371	$	21.09
Terminated/Cancelled	—	—
Outstanding, March 31, 2013	—	—
Exercisable, March 31, 2013	—	—

XML

Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2013

Stockholders' Equity

Components of basic and diluted earnings per share

	Three months ended
	March 31,
	2013		2012
	(in thousands, except per share amounts)
Net income from continuing operations	$	53,863	46,837
Weighted average shares outstanding - basic	85,592		85,604
Dilutive potential shares from stock options (1)	1		2
Weighted average shares outstanding - diluted	85,593		85,606
Earnings per share from continuing operations, basic and diluted	$	0.63	0.55

(1) There were no anti-dilutive options for the three months ended March 31, 2013 or 2012.

Summary of other comprehensive income (loss) activity

	Unrealized gains on investment securities			Decrease of valuation allowance for unrealized gains on investment securities			Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2012	$	1,823		32			(48,652	)	(46,797	)
Other comprehensive income before reclassification	3,279			1,934			—		5,213
Amount reclassified from accumulated other comprehensive income	(1,535		)	(900		)	846		(1,589	)
Net current period other comprehensive income	1,744			1,034			846		3,624
Balance at March 31, 2013	$	3,567		$	1,066		(47,806	)	(43,173	)

Summary of reclassifications from accumulated other comprehensive income and included in net income

Reclassifications from accumulated other comprehensive income and included in net income are summarized in the table that follows for the three months ended March 31, 2013.

	Pre-tax			Tax (expense) benefit		Net of tax		Statement of income line item
	(in thousands)
Reclassifications included in net income:
Realized gain on sale of available for sale investment securities	$	(2,426	)	891		(1,535	)	Investment and other income
Valuation allowance	—			(900	)	(900	)	Provision for income taxes
Amortization of pension and post retirement benefits	1,404			(558	)	846		Underwriting and distribution expense Compensation and related costs
Total	$	(1,022	)	(567	)	(1,589	)

XML

Investment Securities (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Investment Securities
Available for sale securities, Amortized cost	$ 99,438,000	$ 103,860,000
Available for sale securities, Unrealized gains	5,742,000	3,998,000
Available for sale securities, Unrealized losses	(50,000)	(1,093,000)
Available for sale securities, Fair value	105,130,000	106,765,000
Trading securities
Trading securities, Fair value	70,478,000	69,377,000
Investment securities	175,608,000	176,142,000
Purchases of trading securities	49,800,000
Sales of trading securities	50,800,000
Mortgage-backed securities
Investment Securities
Available for sale securities, Amortized cost	9,000	9,000
Available for sale securities, Unrealized gains	1,000	1,000
Available for sale securities, Fair value	10,000	10,000
Trading securities
Trading securities, Fair value	42,000	44,000
Municipal bonds
Trading securities
Trading securities, Fair value	501,000	501,000
Corporate bonds
Investment Securities
Available for sale securities, Amortized cost	30,190,000	30,408,000
Available for sale securities, Unrealized gains	208,000	248,000
Available for sale securities, Unrealized losses	(1,000)	(3,000)
Available for sale securities, Fair value	30,397,000	30,653,000
Trading securities
Trading securities, Fair value	12,049,000	12,112,000
Common Stock
Trading securities
Trading securities, Fair value	48,000	37,000
Affiliated mutual funds
Investment Securities
Available for sale securities, Amortized cost	69,239,000	73,443,000
Available for sale securities, Unrealized gains	5,533,000	3,749,000
Available for sale securities, Unrealized losses	(49,000)	(1,090,000)
Available for sale securities, Fair value	74,723,000	76,102,000
Trading securities
Trading securities, Fair value	$ 57,838,000	$ 56,683,000

XML

Investment Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Continuous unrealized loss position, Fair Value
Fair value of available for sale securities with fair values below carrying values for less than 12 months	$ 5,800	$ 24,475
Fair value of available for sale securities with fair values below carrying values for 12 months or longer	3,177	5,604
Total temporarily impaired securities	8,977	30,079
Continuous unrealized loss position, Gross
Unrealized losses on available for sale securities with fair values below carrying values for less than 12 months	(1)	(472)
Unrealized losses on available for sale securities with fair values below carrying values for 12 months or longer	(49)	(621)
Total Unrealized losses on temporarily impaired securities	(50)	(1,093)
Maturities of mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading
Total fair value of trading securities	70,478	69,377
Amortized Cost
Amortized cost of available for sale debt securities that mature within one year	18,811
Amortized cost of available for sale debt securities that mature after one year but within five years	11,379
Amortized cost of available for sale debt securities that mature after five years but within 10 years	9
Total amortized cost of available for sale debt securities	30,199
Fair value
Fair value of available for sale debt securities that mature within one year	18,850
Fair value of available for sale debt securities that mature after one year but within five years	11,547
Fair value of available for sale debt securities that mature after five years but within 10 years	10
Total fair value of available for sale debt securities	30,407
Corporate bonds
Continuous unrealized loss position, Fair Value
Fair value of available for sale securities with fair values below carrying values for less than 12 months	5,800	997
Total temporarily impaired securities	5,800	997
Continuous unrealized loss position, Gross
Unrealized losses on available for sale securities with fair values below carrying values for less than 12 months	(1)	(3)
Total Unrealized losses on temporarily impaired securities	(1)	(3)
Maturities of mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading
Total fair value of trading securities	12,049	12,112
Affiliated mutual funds
Continuous unrealized loss position, Fair Value
Fair value of available for sale securities with fair values below carrying values for less than 12 months		23,478
Fair value of available for sale securities with fair values below carrying values for 12 months or longer	3,177	5,604
Total temporarily impaired securities	3,177	29,082
Continuous unrealized loss position, Gross
Unrealized losses on available for sale securities with fair values below carrying values for less than 12 months		(469)
Unrealized losses on available for sale securities with fair values below carrying values for 12 months or longer	(49)	(621)
Total Unrealized losses on temporarily impaired securities	(49)	(1,090)
Maturities of mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading
Total fair value of trading securities	57,838	56,683
Mortgage-Backed Securities and Bonds
Maturities of mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading
Fair value of trading securities that mature within one year	2,504
Fair value of trading securities that mature after one year but within five years	9,546
Fair value of trading securities that mature after five years but within 10 years	542
Total fair value of trading securities	$ 12,592

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Consolidated Statement of Stockholders' Equity (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)
Balance at Dec. 31, 2012	$ 510,240	$ 997	$ 230,021	$ 698,423	$ (372,404)	$ (46,797)
Balance (in shares) at Dec. 31, 2012		99,701
Increase (Decrease) in Stockholders' Equity
Net income	53,863			53,863
Recognition of equity compensation	11,676		11,676
Net issuance/forfeiture of nonvested shares			1,432		(1,432)
Dividends accrued, $0.28 per share	(23,935)			(23,935)
Exercise of stock options	135		(35)		170
Excess tax benefits from share-based payment arrangements	712		712
Repurchase of common stock	(3,422)				(3,422)
Unrealized appreciation on available for sale investment securities	2,778					2,778
Pension and postretirement benefits	846					846
Balance at Mar. 31, 2013	$ 552,893	$ 997	$ 243,806	$ 728,351	$ (377,088)	$ (43,173)
Balance (in shares) at Mar. 31, 2013		99,701

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Investment Securities (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Fair value of investments
Total investment securities	$ 175,608	$ 176,142
Fair Value on Recurring Basis | Level 1
Fair value of investments
Total investment securities	132,609	132,822
Fair Value on Recurring Basis | Level 1 | Common Stock
Fair value of investments
Total investment securities	48	37
Fair Value on Recurring Basis | Level 1 | Affiliated mutual funds
Fair value of investments
Total investment securities	132,561	132,785
Fair Value on Recurring Basis | Level 2
Fair value of investments
Total investment securities	42,999	43,320
Fair Value on Recurring Basis | Level 2 | Mortgage-backed securities
Fair value of investments
Total investment securities	52	54
Fair Value on Recurring Basis | Level 2 | Municipal bonds
Fair value of investments
Total investment securities	501	501
Fair Value on Recurring Basis | Level 2 | Corporate bonds
Fair value of investments
Total investment securities	42,446	42,765
Fair Value on Recurring Basis | Total
Fair value of investments
Total investment securities	175,608	176,142
Fair Value on Recurring Basis | Total | Mortgage-backed securities
Fair value of investments
Total investment securities	52	54
Fair Value on Recurring Basis | Total | Municipal bonds
Fair value of investments
Total investment securities	501	501
Fair Value on Recurring Basis | Total | Corporate bonds
Fair value of investments
Total investment securities	42,446	42,765
Fair Value on Recurring Basis | Total | Common Stock
Fair value of investments
Total investment securities	48	37
Fair Value on Recurring Basis | Total | Affiliated mutual funds
Fair value of investments
Total investment securities	$ 132,561	$ 132,785

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Stockholders' Equity (Details) (USD $)	0 Months Ended	1 Months Ended	3 Months Ended
	Feb. 14, 2013	Apr. 30, 2013	Mar. 31, 2013	Mar. 31, 2012
Components of basic and diluted earnings per share
Net income from continuing operations (in dollars)			$ 53,863,000	$ 46,837,000
Weighted average shares outstanding - basic			85,592,000	85,604,000
Dilutive potential shares from stock options			1,000	2,000
Weighted average shares outstanding - diluted			85,593,000	85,606,000
Earnings per share:
Earnings per share from continuing operations, basic and diluted (in dollars per share)			$ 0.63	$ 0.55
Anti-dilutive Securities
Anti-dilutive securities excluded from the diluted earnings per share (in shares)			0	0
Dividends
Dividends accrued, per share (in dollars per share)	$ 0.28		$ 0.28
Dividends to be paid (in dollars)			$ 24,000,000
Common stock repurchases
Shares repurchased in the open market or privately			81,701	366
Shares repurchased from employees to cover minimum income tax withholdings		464,177	2,601

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets:
Cash and cash equivalents	$ 390,497	$ 328,027
Cash and cash equivalents - restricted	154,631	92,980
Investment securities	175,608	176,142
Receivables:
Funds and separate accounts	43,119	33,886
Customers and other	96,528	136,073
Deferred income taxes	4,063	7,978
Income taxes receivable		5,577
Prepaid expenses and other current assets	9,723	9,080
Assets of discontinued operations held for sale		15,150
Total current assets	874,169	804,893
Property and equipment, net	69,140	69,328
Deferred sales commissions, net	71,861	69,355
Goodwill and identifiable intangible assets	161,969	161,969
Deferred income taxes	20,892	17,797
Other non-current assets	14,591	11,491
Assets of discontinued operations held for sale		18,010
Total assets	1,212,622	1,152,843
Liabilities:
Accounts payable	15,780	23,795
Payable to investment companies for securities	189,579	152,749
Payable to third party brokers	52,857	46,169
Payable to customers	25,271	45,182
Accrued compensation	32,070	32,215
Accrued other compensation	12,803	14,132
Other current liabilities	43,039	43,504
Current income taxes	19,711
Liabilities of discontinued operations held for sale		7,587
Total current liabilities	391,110	365,333
Long-term debt	190,000	190,000
Accrued pension and postretirement costs	54,943	62,458
Other non-current liabilities	23,676	24,531
Liabilities of discontinued operations held for sale		281
Total liabilities	659,729	642,603
Commitments and contingencies
Stockholders' equity:
Preferred stock-$1.00 par value: 5,000 shares authorized; none issued
Class A Common stock-$0.01 par value: 250,000 shares authorized; 99,701 shares issued; 85,544 shares outstanding (85,679 at December 31, 2012)	997	997
Additional paid-in capital	243,806	230,021
Retained earnings	728,351	698,423
Cost of 14,157 common shares in treasury (14,022 at December 31, 2012)	(377,088)	(372,404)
Accumulated other comprehensive loss	(43,173)	(46,797)
Total stockholders' equity	552,893	510,240
Total liabilities and stockholders' equity	$ 1,212,622	$ 1,152,843

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statements of Comprehensive Income
Net income	$ 53,863	$ 47,387
Other comprehensive income:
Unrealized appreciation of available for sale investment securities during the period, net of income taxes of $9 and $0, respectively	2,778	5,277
Pension and postretirement benefits, net of income taxes of $558 and $521, respectively	846	657
Comprehensive income	$ 57,487	$ 53,321

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Indebtedness (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Indebtedness
Fair value of outstanding indebtedness	$ 211,900,000
Summary of long-term debt
Total long-term debt	$ 190,000,000	$ 190,000,000

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Contingencies

3 Months Ended

Mar. 31, 2013

Contingencies

Contingencies

12. Contingencies

The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate.  A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.

The Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable, and the amount can be reasonably estimated.  These amounts are not reduced by amounts that may be recovered under insurance or claims against third parties, but undiscounted receivables from insurers or other third parties may be accrued separately. The Company regularly revises such accruals in light of new information.  For contingencies where an unfavorable outcome is reasonably possible and that are significant, the Company discloses the nature of the contingency and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items that management believes should be disclosed.  Management judgment is required related to contingent liabilities and the outcome of litigation because both are difficult to predict.

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Income Tax Uncertainties (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Income Tax Uncertainties
Unrecognized tax benefits, including penalties and interest that if recognized would impact effective tax rate	$ 11.2	$ 10.8
Unrecognized tax benefits, including penalties and interest, net of federal tax benefit that if recognized would affect effective tax rate	7.7	7.5
Accrued interest and penalties related to uncertain tax positions	2.5	2.5
Accrued interest and penalties related to uncertain tax positions, net of federal benefit	2.0	2.0
Total expense of interest and penalties, net of federal benefit related to uncertain tax positions	$ 0.1

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2013

Investment Securities

Schedule of investment securities

	Amortized		Unrealized	Unrealized
March 31, 2013	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Corporate bonds	30,190		208	(1	)	30,397
Affiliated mutual funds	69,239		5,533	(49	)	74,723
	$	99,438	5,742	(50	)	105,130
Trading securities:
Mortgage-backed securities						42
Municipal bonds						501
Corporate bonds						12,049
Common stock						48
Affiliated mutual funds						57,838
						70,478
Total investment securities						$	175,608

	Amortized		Unrealized	Unrealized
December 31, 2012	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Corporate bonds	30,408		248	(3	)	30,653
Affiliated mutual funds	73,443		3,749	(1,090	)	76,102
	$	103,860	3,998	(1,093	)	106,765
Trading securities:
Mortgage-backed securities						44
Municipal bonds						501
Corporate bonds						12,112
Common stock						37
Affiliated mutual funds						56,683
						69,377
Total investment securities						$	176,142

Summary of investments with fair values below carrying values

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
March 31, 2013	Fair value		losses		value	losses		value	losses
	(in thousands)
Corporate bonds	$	5,800	(1	)	—	—		5,800	(1	)
Affiliated mutual funds	—		—		3,177	(49	)	3,177	(49	)
Total temporarily impaired securities	$	5,800	(1	)	3,177	(49	)	8,977	(50	)

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
December 31, 2012	Fair value		losses		value	losses		value	losses
	(in thousands)
Corporate bonds	$	997	(3	)	—	—		997	(3	)
Affiliated mutual funds	23,478		(469	)	5,604	(621	)	29,082	(1,090	)
Total temporarily impaired securities	$	24,475	(472	)	5,604	(621	)	30,079	(1,093	)

Schedule of available for sale securities by maturity date

Mortgage-backed securities and corporate bonds accounted for as available for sale and held as of March 31, 2013 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	18,811	18,850
After one year but within five years	11,379		11,547
After five years but within 10 years	9		10
	$	30,199	30,407

Schedule of trading securities by maturity date

Mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading and held as of March 31, 2013 mature as follows:

	Fair value
	(in thousands)
Within one year	$	2,504
After one year but within five years	9,546
After five years but within 10 years	542
	$	12,592

Schedule of fair value of investment securities

March 31, 2013	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	52	—	52
Municipal bonds	—		501	—	501
Corporate bonds	—		42,446	—	42,446
Common stock	48		—	—	48
Affiliated mutual funds	132,561		—	—	132,561
Total	$	132,609	42,999	—	175,608

December 31, 2012	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	54	—	54
Municipal bonds	—		501	—	501
Corporate bonds	—		42,765	—	42,765
Common stock	37		—	—	37
Affiliated mutual funds	132,785		—	—	132,785
Total	$	132,822	43,320	—	176,142

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statements of Comprehensive Income
Unrealized appreciation of available for sale investment securities during the period, income taxes	$ 9	$ 0
Pension and postretirement benefits, income taxes	$ 558	$ 521

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Consolidated Balance Sheets
Preferred stock-par value (in dollars per share)	$ 1.00	$ 1.00
Preferred stock-shares authorized	5,000	5,000
Preferred stock-shares issued	0	0
Class A Common stock-par value (in dollars per share)	$ 0.01	$ 0.01
Class A Common stock-shares authorized	250,000	250,000
Class A Common stock-shares issued	99,701	99,701
Class A Common stock-shares outstanding	85,544	85,679
Common shares in treasury	14,157	14,022

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Indebtedness

3 Months Ended

Mar. 31, 2013

Indebtedness

Indebtedness

7. Indebtedness

Debt is reported at its carrying amount in the consolidated balance sheets.  The fair value of the Company’s outstanding indebtedness is approximately $211.9 million at March 31, 2013 compared to the carrying value of $190.0 million.  Fair value is calculated based on Level 2 inputs.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 19, 2013
Document and Entity Information
Entity Registrant Name	WADDELL & REED FINANCIAL INC
Entity Central Index Key	0001052100
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		85,933,065
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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Income Tax Uncertainties

3 Months Ended

Mar. 31, 2013

Income Tax Uncertainties

Income Tax Uncertainties

8. Income Tax Uncertainties

As of January 1, 2013 and March 31, 2013, the Company had unrecognized tax benefits, including penalties and interest, of $10.8 million ($7.5 million net of federal benefit) and $11.2 million ($7.7 million net of federal benefit), respectively, that if recognized, would impact the Company’s effective tax rate.  The unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities in the accompanying consolidated balance sheets; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable.

The Company’s accounting policy with respect to interest and penalties related to income tax uncertainties is to classify these amounts as income taxes.  As of January 1, 2013, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $2.5 million ($2.0 million net of federal benefit).  The total amount of penalties and interest, net of federal benefit, related to income tax uncertainties recognized in the statement of income for the three month period ended March 31, 2013 was $0.1 million.  The total amount of accrued penalties and interest related to uncertain tax positions at March 31, 2013 of $2.5 million ($2.0 million net of federal benefit) is included in the total unrecognized tax benefits described above.

In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain.  In addition, respective tax authorities periodically audit our income tax returns.  These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions.  The 2009, 2010, 2011 and 2012 federal income tax returns are open tax years that remain subject to potential future audit.  The 2006 and 2007 federal tax years also remain open to a limited extent due to capital loss carryback claims.  State income tax returns for all years after 2008 and, in certain states, income tax returns prior to 2009, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.

The Company is currently being audited in various state jurisdictions.  It is reasonably possible that the Company will settle the audits in these jurisdictions within the next 12-month period.  It is estimated that the Company’s liability for unrecognized tax benefits, including penalties and interest, could decrease by approximately $0.1 million to $2.2 million ($0.1 million to $1.5 million net of federal benefit) upon settlement of these audits.  Such settlements are not anticipated to have a significant impact on the results of operations.

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenues:
Investment management fees	$ 148,445	$ 134,900
Underwriting and distribution fees	135,419	121,153
Shareholder service fees	32,691	31,818
Total	316,555	287,871
Operating expenses:
Underwriting and distribution	161,571	144,486
Compensation and related costs (including share-based compensation of $11,676 and $11,886, respectively)	48,155	44,158
General and administrative	16,208	17,764
Subadvisory fees	4,484	6,271
Depreciation	3,227	3,359
Total	233,645	216,038
Operating income	82,910	71,833
Investment and other income	4,377	3,949
Interest expense	(2,854)	(2,826)
Income from continuing operations before provision for income taxes	84,433	72,956
Provision for income taxes	30,570	26,119
Income from continuing operations	53,863	46,837
Income from discontinued operations net of tax expense of $397		550
Net income	$ 53,863	$ 47,387
Net income per share, basic and diluted:
Income from continuing operations (in dollars per share)	$ 0.63	$ 0.55
Income from discontinued operations (in dollars per share)	$ 0.00
Net income (in dollars per share)	$ 0.63	$ 0.55
Weighted average shares outstanding:
Basic (in shares)	85,592	85,604
Diluted (in shares)	85,593	85,606

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Cash and Cash Equivalents

3 Months Ended

Mar. 31, 2013

Cash and Cash Equivalents

Cash and Cash Equivalents

2. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and short-term investments.  We consider all highly liquid investments with maturities upon acquisition of 90 days or less to be cash equivalents.  Cash and cash equivalents — restricted represents cash held for the benefit of customers segregated in compliance with federal and other regulations.

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Description of Business and Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Description of Business and Significant Accounting Policies

Description of Business and Significant Accounting Policies

1. Description of Business and Significant Accounting Policies

Waddell & Reed Financial, Inc. and Subsidiaries

Waddell & Reed Financial, Inc. and subsidiaries (hereinafter referred to as the “Company,” “we,” “our” and “us”) derive revenues from investment management, investment product underwriting and distribution, and shareholder services administration provided to the Waddell & Reed Advisors Group of Mutual Funds (the “Advisors Funds”), Ivy Funds (the “Ivy Funds”), Ivy Funds Variable Insurance Portfolios (the “Ivy Funds VIP”) and InvestEd Portfolios (“InvestEd”) (collectively, the Advisors Funds, Ivy Funds, Ivy Funds VIP and InvestEd are referred to as the “Funds”), and institutional and separately managed accounts.  The Funds and the institutional and separately managed accounts operate under various rules and regulations set forth by the United States Securities and Exchange Commission (the “SEC”). Services to the Funds are provided under investment management agreements, underwriting agreements and shareholder servicing and accounting service agreements that set forth the fees to be charged for these services. The majority of these agreements are subject to annual review and approval by each Fund’s board of trustees and shareholders. Our revenues are largely dependent on the total value and composition of assets under management.  Accordingly, fluctuations in financial markets and composition of assets under management can significantly impact revenues and results of operations.

Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements included herein pursuant to the rules and regulations of the SEC.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented.  The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).  Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation.

The accompanying unaudited consolidated financial statements are prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements included in our 2012 Form 10-K, which include the following: use of estimates, cash and cash equivalents, disclosures about fair value of financial instruments, investment securities and investments in affiliated mutual funds, property and equipment, software developed for internal use, goodwill and identifiable intangible assets, deferred sales commissions, revenue recognition, advertising and promotion, share-based compensation and accounting for income taxes.

Effective January 1, 2013, the Company adopted an amended accounting standard to improve the reporting of reclassifications out of accumulated other comprehensive income.  The guidance requires an entity to present separately for each component of comprehensive income, the current period reclassifications out of accumulated other comprehensive income by the respective line items of net income affected by the reclassification.  The adoption was effective prospectively and did not have any effect on the Company’s results of operations, financial position or liquidity.

In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at March 31, 2013, the results of operations for the three months ended March 31, 2013 and 2012, and cash flows for the three months ended March 31, 2013 and 2012 in conformity with accounting principles generally accepted in the United States.

During the third quarter of 2012, the Company committed to a plan to sell its Legend group of subsidiaries (“Legend”) and on October 29, 2012, the Company signed a definitive agreement to execute the transaction.  The sale closed effective January 1, 2013.  The operational results of Legend have been reclassified as discontinued operations in our unaudited consolidated financial statements for the three months ended March 31, 2012 and as of December 31, 2012.  Unless otherwise stated, footnote references refer to continuing operations.

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Description of Business and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Description of Business and Significant Accounting Policies

Basis of Presentation

Basis of Presentation

We have prepared the accompanying unaudited consolidated financial statements included herein pursuant to the rules and regulations of the SEC.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented.  The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”).  Certain amounts in the prior years’ financial statements have been reclassified for consistent presentation.

The accompanying unaudited consolidated financial statements are prepared consistently with the accounting policies described in Note 2 to the consolidated financial statements included in our 2012 Form 10-K, which include the following: use of estimates, cash and cash equivalents, disclosures about fair value of financial instruments, investment securities and investments in affiliated mutual funds, property and equipment, software developed for internal use, goodwill and identifiable intangible assets, deferred sales commissions, revenue recognition, advertising and promotion, share-based compensation and accounting for income taxes.

Effective January 1, 2013, the Company adopted an amended accounting standard to improve the reporting of reclassifications out of accumulated other comprehensive income.  The guidance requires an entity to present separately for each component of comprehensive income, the current period reclassifications out of accumulated other comprehensive income by the respective line items of net income affected by the reclassification.  The adoption was effective prospectively and did not have any effect on the Company’s results of operations, financial position or liquidity.

In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at March 31, 2013, the results of operations for the three months ended March 31, 2013 and 2012, and cash flows for the three months ended March 31, 2013 and 2012 in conformity with accounting principles generally accepted in the United States.

During the third quarter of 2012, the Company committed to a plan to sell its Legend group of subsidiaries (“Legend”) and on October 29, 2012, the Company signed a definitive agreement to execute the transaction.  The sale closed effective January 1, 2013.  The operational results of Legend have been reclassified as discontinued operations in our unaudited consolidated financial statements for the three months ended March 31, 2012 and as of December 31, 2012.  Unless otherwise stated, footnote references refer to continuing operations.

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Pension Plan and Postretirement Benefits Other Than Pension

3 Months Ended

Mar. 31, 2013

Pension Plan and Postretirement Benefits Other Than Pension

Pension Plan and Postretirement Benefits Other Than Pension

9. Pension Plan and Postretirement Benefits Other Than Pension

We provide a non-contributory retirement plan that covers substantially all employees and certain vested employees of our former parent company (the “Pension Plan”).  Benefits payable under the Pension Plan are based on employees’ years of service and compensation during the final 10 years of employment.  We also sponsor an unfunded defined benefit postretirement medical plan that covers substantially all employees, as well as Waddell & Reed advisors.  The medical plan is contributory with participant contributions adjusted annually.  The medical plan does not provide for post age 65 benefits with the exception of a small group of employees that were grandfathered when such plan was established.

The components of net periodic pension and other postretirement costs related to these plans are as follows:

	Pension Benefits					Other Postretirement Benefits
	Three months ended					Three months ended
	March 31,					March 31,
	2013			2012		2013	2012
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,950		2,209		197	173
Interest cost	1,952			1,812		90	100
Expected return on plan assets	(2,704		)	(2,127	)	—	—
Actuarial loss amortization	1,250			1,021		—	3
Prior service cost amortization	139			139		14	14
Transition obligation amortization	1			1		—	—
Total (1)	$	3,588		3,055		301	290

(1) Net periodic pension benefit cost related to discontinued operations and included in the table above was $196 thousand for the three months ended March 31, 2012. Net periodic cost for the postretirement medical plan related to discontinued operations and included in the table above was $3 thousand for the three months ended March 31, 2012.

During the first quarter of 2013, we contributed $10.0 million to the Pension Plan and contributed an additional $7.0 million to the Pension Plan in April 2013.

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Discontinued Operations

3 Months Ended

Mar. 31, 2013

Discontinued Operations

Discontinued Operations

5. Discontinued Operations

During the third quarter of 2012, the Company committed to a plan to sell Legend.  On October 29, 2012, the Company signed a definitive agreement with First Allied Holdings Inc. to sell all of the common interests of Legend Group Holdings, LLC.  The sale closed effective January 1, 2013.  Based on the value of the consideration the Company expected to receive upon closing of the sale, which was less than the carrying value of net assets to be sold, the Company recorded a non-cash impairment charge of $42.4 million during the third quarter of 2012.  The agreement also includes an earnout provision based on asset retention for a period of two years following the closing date.

For income tax purposes, the sale resulted in a $48.3 million capital loss that may only be utilized to offset future capital gains.  Due to the character of the loss and the limited carry forward period permitted by law, the Company may not realize the full tax benefit of the capital loss.

The operational results of Legend have been presented as discontinued operations in the unaudited consolidated financial statements for the three months ended March 31, 2012.  Legend’s revenues and income before provision for income taxes for that period were $18.7 million and $947 thousand, respectively.

The assets and liabilities of Legend, classified as discontinued operations held for sale in the balance sheet at December 31, 2012 are as follows (amounts in thousands):

Assets
Cash and cash equivalents	$	2,303
Cash and cash equivalents - restricted	401
Investment securities	1,352
Receivables	10,345
Prepaid expenses and other current assets	749
Total current assets	15,150
Property and equipment, net	992
Goodwill	16,868
Other non-current assets	150
Total non-current assets	18,010
Total assets	33,160
Liabilities
Accounts payable	464
Accrued compensation	6,243
Other current liabilities	880
Total current liabilities	7,587
Non-current liabilities	281
Total liabilities	7,868
Assets less liabilities	$	25,292

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Accounting Pronouncements Not Yet Adopted

3 Months Ended

Mar. 31, 2013

Accounting Pronouncements Not Yet Adopted

Accounting Pronouncements Not Yet Adopted

3. Accounting Pronouncements Not Yet Adopted

In July 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-06, “Other Topics (Topic 720): Fees Paid to the Federal Government by Health Insurers”(“ASU 2011-06”). This ASU was issued to address questions about how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (collectively, the “Acts”).  The Acts impose an annual fee on health insurers for each calendar year beginning on or after January 1, 2014.  A health insurer’s portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible.  The ASU specifies that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year in which it is payable. ASU 2011-06 is effective for calendar years beginning after December 31, 2013.  The Company is evaluating the impact the adoption of ASU 2011-06 in 2014 will have on its consolidated financial statements.

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Investment Securities

3 Months Ended

Mar. 31, 2013

Investment Securities

Investment Securities

4. Investment Securities

Investment securities at March 31, 2013 and December 31, 2012 are as follows:

	Amortized		Unrealized	Unrealized
March 31, 2013	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Corporate bonds	30,190		208	(1	)	30,397
Affiliated mutual funds	69,239		5,533	(49	)	74,723
	$	99,438	5,742	(50	)	105,130
Trading securities:
Mortgage-backed securities						42
Municipal bonds						501
Corporate bonds						12,049
Common stock						48
Affiliated mutual funds						57,838
						70,478
Total investment securities						$	175,608

	Amortized		Unrealized	Unrealized
December 31, 2012	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	9	1	—		10
Corporate bonds	30,408		248	(3	)	30,653
Affiliated mutual funds	73,443		3,749	(1,090	)	76,102
	$	103,860	3,998	(1,093	)	106,765
Trading securities:
Mortgage-backed securities						44
Municipal bonds						501
Corporate bonds						12,112
Common stock						37
Affiliated mutual funds						56,683
						69,377
Total investment securities						$	176,142

Purchases of trading securities during the three months ended March 31, 2013 were $49.8 million.  Sales of trading securities were $50.8 million for the same period.

A summary of available for sale debt securities and affiliated mutual funds with fair values below carrying values at March 31, 2013 and December 31, 2012 is as follows:

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
March 31, 2013	Fair value		losses		value	losses		value	losses
	(in thousands)
Corporate bonds	$	5,800	(1	)	—	—		5,800	(1	)
Affiliated mutual funds	—		—		3,177	(49	)	3,177	(49	)
Total temporarily impaired securities	$	5,800	(1	)	3,177	(49	)	8,977	(50	)

	Less than 12 months				12 months or longer			Total
			Unrealized		Fair	Unrealized		Fair	Unrealized
December 31, 2012	Fair value		losses		value	losses		value	losses
	(in thousands)
Corporate bonds	$	997	(3	)	—	—		997	(3	)
Affiliated mutual funds	23,478		(469	)	5,604	(621	)	29,082	(1,090	)
Total temporarily impaired securities	$	24,475	(472	)	5,604	(621	)	30,079	(1,093	)

Based upon our assessment of these corporate bonds and affiliated mutual funds, the time frame investments have been in a loss position, our intent to hold affiliated mutual funds until they have recovered, and our history of holding bonds until maturity, we determined that a write-down was not necessary at March 31, 2013.

Mortgage-backed securities and corporate bonds accounted for as available for sale and held as of March 31, 2013 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	18,811	18,850
After one year but within five years	11,379		11,547
After five years but within 10 years	9		10
	$	30,199	30,407

Mortgage-backed securities, municipal bonds and corporate bonds accounted for as trading and held as of March 31, 2013 mature as follows:

	Fair value
	(in thousands)
Within one year	$	2,504
After one year but within five years	9,546
After five years but within 10 years	542
	$	12,592

Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset.  Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset.  An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs that are significant to the overall valuation.  The three-tier hierarchy of inputs is summarized as follows:

· Level 1 — Investments are valued using quoted prices in active markets for identical securities.

· Level 2 — Investments are valued using other significant observable inputs, including quoted prices in active markets for similar securities.

· Level 3 — Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments.

Assets classified as Level 2 can have a variety of observable inputs.  These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value.  The fair value of municipal bonds is measured based on pricing models that take into account, among other factors, information received from market makers and broker/dealers, current trades, bid-wants lists, offerings, market movements, the callability of the bond, state of issuance and benchmark yield curves. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer.

Securities’ values classified as Level 3 are primarily determined through the use of a single quote (or multiple quotes) from dealers in the securities using proprietary valuation models.  These quotes involve significant unobservable inputs, and thus, the related securities are classified as Level 3 securities.

The following tables summarize our investment securities as of March 31, 2013 and December 31, 2012 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.

March 31, 2013	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	52	—	52
Municipal bonds	—		501	—	501
Corporate bonds	—		42,446	—	42,446
Common stock	48		—	—	48
Affiliated mutual funds	132,561		—	—	132,561
Total	$	132,609	42,999	—	175,608

December 31, 2012	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	54	—	54
Municipal bonds	—		501	—	501
Corporate bonds	—		42,765	—	42,765
Common stock	37		—	—	37
Affiliated mutual funds	132,785		—	—	132,785
Total	$	132,822	43,320	—	176,142

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Goodwill and Identifiable Intangible Assets

3 Months Ended

Mar. 31, 2013

Goodwill and Identifiable Intangible Assets

Goodwill and Identifiable Intangible Assets

6. Goodwill and Identifiable Intangible Assets

Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business.  Our goodwill is not deductible for tax purposes.  Goodwill and identifiable intangible assets (all considered indefinite lived) are as follows:

	March 31,			December 31,
	2013			2012
	(in thousands)
Goodwill	$	138,947		138,947
Accumulated amortization	(31,977		)	(31,977	)
Total goodwill	106,970			106,970
Mutual fund management advisory contracts	38,699			38,699
Mutual fund management subadvisory contracts	16,300			16,300
Total identifiable intangible assets	54,999			54,999
Total	$	161,969		161,969

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Goodwill and Identifiable Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Goodwill and Identifiable Intangible Assets
Goodwill	$ 138,947	$ 138,947
Accumulated amortization	(31,977)	(31,977)
Total goodwill	106,970	106,970
Mutual fund management advisory contracts	38,699	38,699
Mutual fund management subadvisory contracts	16,300	16,300
Total identifiable intangible assets	54,999	54,999
Total goodwill and identifiable intangible assets	$ 161,969	$ 161,969

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Share-Based Compensation

3 Months Ended

Mar. 31, 2013

Share-Based Compensation

Share-Based Compensation

11.  Share-Based Compensation

A summary of stock option activity and related information for the three months ended March 31, 2013 is presented in the table below.

	Options	Weighted average exercise price
Outstanding, December 31, 2012	6,371	$	21.09
Granted	—	—
Exercised	6,371	$	21.09
Terminated/Cancelled	—	—
Outstanding, March 31, 2013	—	—
Exercisable, March 31, 2013	—	—

In the first quarter of 2013, we granted 33,715 shares of nonvested stock with a fair value of $36.86 per share under the Company’s 1998 Stock Incentive Plan, as amended and restated (the “SI Plan”).  The value of those shares at the grant date, aggregating $1.2 million, will generally be amortized to expense over a four year vesting period.

On April 2, 2013, we granted 1,078,674 shares of nonvested stock with a fair value of $43.19 per share under the SI Plan.  The value of those shares at the grant date, aggregating $46.6 million, will generally be amortized to expense over a four year vesting period.

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Goodwill and Identifiable Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2013

Goodwill and Identifiable Intangible Assets

Schedule of goodwill and identifiable intangible assets

	March 31,			December 31,
	2013			2012
	(in thousands)
Goodwill	$	138,947		138,947
Accumulated amortization	(31,977		)	(31,977	)
Total goodwill	106,970			106,970
Mutual fund management advisory contracts	38,699			38,699
Mutual fund management subadvisory contracts	16,300			16,300
Total identifiable intangible assets	54,999			54,999
Total	$	161,969		161,969

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Stockholders' Equity (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Changes in other comprehensive income (loss)
Balance at the beginning of the period	$ (46,797)
Other comprehensive income before reclassification	5,213
Amount reclassified from accumulated other comprehensive income	(1,589)
Net current period other comprehensive income	3,624
Balance at the end of the period	(43,173)
Unrealized gains on investment securities
Changes in other comprehensive income (loss)
Balance at the beginning of the period	1,823
Other comprehensive income before reclassification	3,279
Amount reclassified from accumulated other comprehensive income	(1,535)
Net current period other comprehensive income	1,744
Balance at the end of the period	3,567
Decrease of valuation allowance for unrealized gains on investment securities
Changes in other comprehensive income (loss)
Balance at the beginning of the period	32
Other comprehensive income before reclassification	1,934
Amount reclassified from accumulated other comprehensive income	(900)
Net current period other comprehensive income	1,034
Balance at the end of the period	1,066
Pension and postretirement benefits
Changes in other comprehensive income (loss)
Balance at the beginning of the period	(48,652)
Amount reclassified from accumulated other comprehensive income	846
Net current period other comprehensive income	846
Balance at the end of the period	$ (47,806)

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Consolidated Statements of Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statements of Income
Compensation and related costs, share-based compensation	$ 11,676	$ 11,886
Income from discontinued operations, tax expense		$ 397

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income	$ 53,863	$ 47,387
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,497	3,900
Amortization of deferred sales commissions	13,668	13,485
Share-based compensation	11,676	12,272
Excess tax benefits from share-based payment arrangements	(712)	(444)
Gain on sale of available for sale investment securities	(2,426)	(1,527)
Net purchases and sales or maturities of trading securities	1,012	10,573
Unrealized gain on trading securities	(2,166)	(2,225)
Loss on sale and retirement of property and equipment	49	101
Capital gains and dividends reinvested	(40)
Deferred income taxes	254	(851)
Changes in assets and liabilities:
Cash and cash equivalents - restricted	(61,650)	(30,759)
Other receivables	39,545	(1,707)
Payable to investment companies for securities and payable to customers	16,516	27,989
Receivables from funds and separate accounts	(9,233)	(320)
Other assets	(3,743)	(366)
Deferred sales commissions	(16,174)	(14,466)
Accounts payable and payable to third party brokers	(925)	1,017
Other liabilities	18,122	20,091
Net cash provided by operating activities	61,133	84,150
Cash flows from investing activities:
Purchases of available for sale investment securities	(55,350)
Proceeds from sales and maturities of available for sale investment securities	62,020	4,907
Additions to property and equipment	(3,088)	(2,375)
Disposition of companies	22,000
Net cash provided by investing activities	25,582	2,532
Cash flows from financing activities:
Dividends paid	(23,973)	(21,402)
Repurchase of common stock	(3,422)	(12)
Exercise of stock options	135
Excess tax benefits from share-based payment arrangements	712	444
Net cash used in financing activities	(26,548)	(20,970)
Net increase in cash and cash equivalents	60,167	65,712
Cash and cash equivalents at beginning of period, including discontinued operations	330,330	327,083
Cash and cash equivalents at end of period	390,497	392,795
Less cash and cash equivalents of discontinued operations at end of period		2,251
Cash and cash equivalents of continuing operations at end of period	$ 390,497	$ 390,544

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Pension Plan and Postretirement Benefits Other Than Pension (Tables)

3 Months Ended

Mar. 31, 2013

Pension Plan and Postretirement Benefits Other Than Pension

Schedule of components of net periodic pension and other postretirement costs related to the plans

	Pension Benefits					Other Postretirement Benefits
	Three months ended					Three months ended
	March 31,					March 31,
	2013			2012		2013	2012
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,950		2,209		197	173
Interest cost	1,952			1,812		90	100
Expected return on plan assets	(2,704		)	(2,127	)	—	—
Actuarial loss amortization	1,250			1,021		—	3
Prior service cost amortization	139			139		14	14
Transition obligation amortization	1			1		—	—
Total (1)	$	3,588		3,055		301	290

(1) Net periodic pension benefit cost related to discontinued operations and included in the table above was $196 thousand for the three months ended March 31, 2012. Net periodic cost for the postretirement medical plan related to discontinued operations and included in the table above was $3 thousand for the three months ended March 31, 2012.

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Pension Plan and Postretirement Benefits Other Than Pension (Details)	3 Months Ended
	Mar. 31, 2013
Pension Benefits
Pension Plan and Postretirement Benefits Other than Pension
Final number of years of employee's compensation to determine the benefits payable	10 years
Other Postretirement Benefits
Pension Plan and Postretirement Benefits Other than Pension
Age of employees after which the plan does not provide benefits	65 years

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Stockholders' Equity

3 Months Ended

Mar. 31, 2013

Stockholders' Equity

Stockholders' Equity

10.   Stockholders’ Equity

Earnings per Share

The components of basic and diluted earnings per share from continuing operations were as follows:

	Three months ended
	March 31,
	2013		2012
	(in thousands, except per share amounts)
Net income from continuing operations	$	53,863	46,837
Weighted average shares outstanding - basic	85,592		85,604
Dilutive potential shares from stock options (1)	1		2
Weighted average shares outstanding - diluted	85,593		85,606
Earnings per share from continuing operations, basic and diluted	$	0.63	0.55

(1) There were no anti-dilutive options for the three months ended March 31, 2013 or 2012.

Dividends

On February 14, 2013, the Board of Directors (the “Board”) approved a dividend on our common stock in the amount of $0.28 per share to stockholders of record as of April 10, 2013 to be paid on May 1, 2013.  The total dividend to be paid is approximately $24.0 million and is included in other current liabilities in the consolidated balance sheet at March 31, 2013.

Common Stock Repurchases

The Board has authorized the repurchase of our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including shares issued to employees in our stock-based compensation programs.

There were 81,701 shares repurchased in the open market or privately during the three months ended March 31, 2013, which included 2,601 shares repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the quarter. There were 366 shares repurchased in the open market during the quarter ended March 31, 2012, all of which were repurchased from employees tendering shares during the quarter.

In April 2013, the Company repurchased 464,177 shares from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the period.

Accumulated Other Comprehensive Loss

The following table summarizes other comprehensive income (loss) activity for the quarter ended March 31, 2013.

	Unrealized gains on investment securities			Decrease of valuation allowance for unrealized gains on investment securities			Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2012	$	1,823		32			(48,652	)	(46,797	)
Other comprehensive income before reclassification	3,279			1,934			—		5,213
Amount reclassified from accumulated other comprehensive income	(1,535		)	(900		)	846		(1,589	)
Net current period other comprehensive income	1,744			1,034			846		3,624
Balance at March 31, 2013	$	3,567		$	1,066		(47,806	)	(43,173	)

Reclassifications from accumulated other comprehensive income and included in net income are summarized in the table that follows for the three months ended March 31, 2013.

	Pre-tax			Tax (expense) benefit		Net of tax		Statement of income line item
	(in thousands)
Reclassifications included in net income:
Realized gain on sale of available for sale investment securities	$	(2,426	)	891		(1,535	)	Investment and other income
Valuation allowance	—			(900	)	(900	)	Provision for income taxes
Amortization of pension and post retirement benefits	1,404			(558	)	846		Underwriting and distribution expense Compensation and related costs
Total	$	(1,022	)	(567	)	(1,589	)