10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

OR

o  TRANSITION 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 17, 2014
Class A common stock, $.01 par value	85,227,949

WADDELL & REED FINANCIAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended March 31, 2014

			Page No.
Part I.	Financial Information
Item 1.		Financial Statements (unaudited)
		Consolidated Balance Sheets at March 31, 2014 and December 31, 2013	3
		Consolidated Statements of Income for the three months ended March 31, 2014 and March 31, 2013	4
		Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and March 31, 2013	5
		Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2014	6
		Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and March 31, 2013	7
		Notes to the Unaudited Consolidated Financial Statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
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,
	2014			December 31,
	(unaudited)			2013
Assets:
Cash and cash equivalents	$	520,742		487,845
Cash and cash equivalents - restricted	102,161			121,419
Investment securities	199,919			201,348
Receivables:
Funds and separate accounts	35,914			36,467
Customers and other	128,230			141,763
Deferred income taxes	5,353			7,654
Income taxes receivable	—			419
Prepaid expenses and other current assets	12,164			9,410
Total current assets	1,004,483			1,006,325
Property and equipment, net	82,804			72,638
Deferred sales commissions, net	82,613			79,894
Goodwill and identifiable intangible assets	161,969			161,969
Deferred income taxes	2,127			3,839
Other non-current assets	14,405			12,300
Total assets	$	1,348,401		1,336,965
Liabilities:
Accounts payable	$	17,768		18,821
Payable to investment companies for securities	168,365			214,085
Payable to third party brokers	58,640			59,756
Payable to customers	11,178			8,664
Accrued compensation	58,201			58,677
Other current liabilities	47,353			59,726
Income taxes payable	31,065			—
Total current liabilities	392,570			419,729
Long-term debt	190,000			190,000
Accrued pension and postretirement costs	11,980			13,333
Other non-current liabilities	24,317			26,561
Total liabilities	618,867			649,623
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; 84,874 shares outstanding (85,236 at December 31, 2013)	997			997
Additional paid-in capital	283,695			267,406
Retained earnings	896,601			850,600
Cost of 14,827 common shares in treasury (14,465 at December 31, 2013)	(435,548		)	(415,802	)
Accumulated other comprehensive loss	(16,211		)	(15,859	)
Total stockholders’ equity	729,534			687,342
Total liabilities and stockholders’ equity	$	1,348,401		1,336,965

See accompanying notes to the unaudited consolidated financial statements.

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,
	2014			2013
Revenues:
Investment management fees	$	188,037		148,445
Underwriting and distribution fees	165,267			135,419
Shareholder service fees	37,112			32,691
Total	390,416			316,555
Operating expenses:
Underwriting and distribution	194,951			161,571
Compensation and related costs (including share-based compensation of $13,086 and $11,676, respectively)	50,009			48,155
General and administrative	23,756			16,208
Subadvisory fees	1,877			4,484
Depreciation	3,249			3,227
Total	273,842			233,645
Operating income	116,574			82,910
Investment and other income	3,900			4,377
Interest expense	(2,755		)	(2,854	)
Income before provision for income taxes	117,719			84,433
Provision for income taxes	42,855			30,570
Net income	$	74,864		53,863
Net income per share, basic and diluted:	$	0.88		0.63
Weighted average shares outstanding:
Basic	85,019			85,592
Diluted	85,019			85,593

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,
	2014			2013
Net income	$	74,864		53,863
Other comprehensive income:
Unrealized appreciation (depreciation) of available for sale investment securities during the period, net of income tax expense of $(2) and $9, respectively	(699		)	2,778
Pension and postretirement benefits, net of income tax expense of $205 and $558, respectively	347			846
Comprehensive income	$	74,512		57,487

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, 2014

(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, 2013	99,701	$	997	267,406	850,600		(415,802	)	(15,859	)	687,342
Net income	—	—		—	74,864		—		—		74,864
Recognition of equity compensation	—	—		13,086	—		—		—		13,086
Net issuance/forfeiture of nonvested shares	—	—		2,071	—		(2,071	)	—		—
Dividends accrued, $0.34 per share	—	—		—	(28,863	)	—		—		(28,863	)
Excess tax benefits from share-based payment arrangements	—	—		1,132	—		—		—		1,132
Repurchase of common stock	—	—		—	—		(17,675	)	—		(17,675	)
Other comprehensive loss	—	—		—	—		—		(352	)	(352	)
Balance at March 31, 2014	99,701	$	997	283,695	896,601		(435,548	)	(16,211	)	729,534

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,
	2014			2013
Cash flows from operating activities:
Net income	$	74,864		53,863
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization	3,330			3,497
Amortization of deferred sales commissions	16,120			13,668
Share-based compensation	13,086			11,676
Excess tax benefits from share-based payment arrangements	(1,132		)	(712	)
Gain on sale of available for sale investment securities	(1,182		)	(2,426	)
Net purchases and sales or maturities of trading securities	479			1,012
Gain on trading securities	(1,961		)	(2,166	)
Loss on sale and retirement of property and equipment	410			49
Capital gains and dividends reinvested	(4		)	(40	)
Deferred income taxes	3,809			2,065
Changes in assets and liabilities:
Cash and cash equivalents - restricted	19,258			(61,650	)
Other receivables	13,533			40,832
Payable to investment companies for securities and payable to customers	(43,206		)	16,516
Receivables from funds and separate accounts	553			(9,233	)
Other assets	2,044			(3,721	)
Deferred sales commissions	(18,839		)	(16,174	)
Accounts payable and payable to third party brokers	(2,169		)	(925	)
Other liabilities	9,942			15,002
Net cash provided by operating activities	$	88,935		61,133
Cash flows from investing activities:
Purchases of available for sale investment securities	(16,826		)	(55,350	)
Proceeds from sales and maturities of available for sale investment securities	20,142			62,020
Additions to property and equipment	(13,825		)	(3,088	)
Disposition of companies	—			22,000
Net cash provided by (used in) investing activities	$	(10,509	)	25,582
Cash flows from financing activities:
Dividends paid	(28,986		)	(23,973	)
Repurchase of common stock	(17,675		)	(3,422	)
Exercise of stock options	—			135
Excess tax benefits from share-based payment arrangements	1,132			712
Net cash used in financing activities	$	(45,529	)	(26,548	)
Net increase in cash and cash equivalents	32,897			60,167
Cash and cash equivalents at beginning of period	487,845			330,330
Cash and cash equivalents at end of period	$	520,742		390,497

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 services, 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.  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, 2013 (the “2013 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 2013 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.

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, 2014, the results of operations for the three months ended March 31, 2014 and 2013, and cash flows for the three months ended March 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States.

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.

8

3.Investment Securities

Investment securities at March 31, 2014 and December 31, 2013 are as follows:

	Amortized		Unrealized	Unrealized
March 31, 2014	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Corporate bonds	$	11,190	28	—		11,218
Affiliated mutual funds	115,574		5,172	(898	)	119,848
	$	126,764	5,200	(898	)	131,066
Trading securities:
Mortgage-backed securities						35
Corporate bonds						9,369
Common stock						56
Affiliated mutual funds						59,393
						68,853
Total investment securities						$	199,919
	Amortized		Unrealized	Unrealized
December 31, 2013	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	8	1	—		9
Corporate bonds	14,568		61	—		14,629
Affiliated mutual funds	87,710		5,899	(957	)	92,652
	$	102,286	5,961	(957	)	107,290
Trading securities:
Mortgage-backed securities						37
Municipal bonds						501
Corporate bonds						9,412
Common stock						60
Affiliated mutual funds						84,048
						94,058
Total investment securities						$	201,348

Purchases of trading securities during the three months ended March 31, 2014 were $27.3 million. Sales and maturities of trading securities were $27.7 million for the same period.

9

A summary of available for sale affiliated mutual funds with fair values below carrying values at March 31, 2014 and December 31, 2013 is as follows:

	Less than 12 months				12 months or longer			Total
March 31, 2014	Fair value		Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
	(in thousands)
Affiliated mutual funds	$	57,964	(883	)	217	(15	)	58,181	(898	)
Total temporarily impaired securities	$	57,964	(883	)	217	(15	)	58,181	(898	)

	Less than 12 months				12 months or longer			Total
December 31, 2013	Fair value		Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
	(in thousands)
Affiliated mutual funds	$	29,598	(939	)	213	(18	)	29,811	(957	)
Total temporarily impaired securities	$	29,598	(939	)	213	(18	)	29,811	(957	)

Based upon our assessment of these affiliated mutual funds, the time frame investments have been in a loss position, and our intent to hold affiliated mutual funds until they have recovered, we determined that a write-down was not necessary at March 31, 2014.

Corporate bonds accounted for as available for sale and held as of March 31, 2014 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	11,190	11,218
	$	11,190	11,218

Mortgage-backed securities and corporate bonds accounted for as trading and held as of March 31, 2014 mature as follows:

	Fair value
	(in thousands)
Within one year	$	9,369
After five years but within 10 years	35
	$	9,404

10

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. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors.

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, 2014 and December 31, 2013 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.

March 31, 2014	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	35	—	35
Corporate bonds	—		20,587	—	20,587
Common stock	56		—	—	56
Affiliated mutual funds	179,241		—	—	179,241
Total	$	179,297	20,622	—	199,919

December 31, 2013	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	46	—	46
Municipal bonds	—		501	—	501
Corporate bonds	—		24,041	—	24,041
Common stock	60		—	—	60
Affiliated mutual funds	176,700		—	—	176,700
Total	$	176,760	24,588	—	201,348

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4.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,
	2014		2013
	(in thousands)
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

5.Indebtedness

Debt is reported at its carrying amount in the consolidated balance sheets.  The fair value of the Company’s outstanding indebtedness is approximately $205.0 million at March 31, 2014 compared to the carrying value of $190.0 million.  Fair value is calculated based on Level 2 inputs.

6.Income Tax Uncertainties

As of January 1, 2014 and March 31, 2014, the Company had unrecognized tax benefits, including penalties and interest, of $12.0 million ($8.4 million net of federal benefit) and $12.6 million ($8.8 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, 2014, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $3.0 million ($2.5 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, 2014 was $0.1 million.  The total amount of accrued penalties and interest related to uncertain tax positions at March 31, 2014 of $3.1 million ($2.6 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 2010, 2011, 2012 and 2013 federal income tax returns are open tax years that remain subject to potential future audit.  State income tax returns for all years after 2009 and, in certain states, income tax returns prior to 2010, 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 up to $2.9 million (up to $1.9 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.

12

7.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, who are independent contractors.  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 March 31,					Three months ended March 31,
	2014			2013		2014		2013
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,725		2,950		180		197
Interest cost	2,153			1,952		99		90
Expected return on plan assets	(3,413		)	(2,704	)	—		—
Actuarial (gain) loss amortization	411			1,250		(4	)	—
Prior service cost amortization	130			139		14		14
Transition obligation amortization	1			1		—		—
Total(1)	$	2,007		3,588		289		301

(1)Approximately 60% of net periodic pension and other postretirement benefit costs are included in Compensation and related costs on the consolidated statements of income, while the remainder are included in Underwriting and distribution expense.

During the first quarter of 2014, we contributed $10.0 million to the Pension Plan and contributed an additional $10.0 million in April 2014.  We do not expect to make additional contributions for the remainder of 2014.

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8.Stockholders’ Equity

Earnings per Share

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

	Three months ended
	March 31,
	2014		2013
	(in thousands, except per share amounts)
Net income from continuing operations	$	74,864	53,863
Weighted average shares outstanding - basic	85,019		85,592
Dilutive potential shares from stock options	—		1
Weighted average shares outstanding - diluted	85,019		85,593
Earnings per share from continuing operations, basic and diluted	$	0.88	0.63

Dividends

On February 13, 2014, the Board of Directors (the “Board”) approved a dividend on our common stock in the amount of $0.34 per share to stockholders of record as of April 14, 2014 to be paid on May 1, 2014.  The total dividend to be paid is approximately $28.9 million and is included in other current liabilities in the consolidated balance sheet at March 31, 2014.

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 280,186 shares and 81,701 shares repurchased in the open market or privately during the three months ended March 31, 2014 and 2013, respectively, which included 2,667 shares and 2,601 shares, respectively, repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during these two periods.

In April 2014, the Company repurchased 386,165 shares from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the period.

14

Accumulated Other Comprehensive Income (Loss)

The following tables summarize other comprehensive income (loss) activity for the periods ended March 31, 2014 and March 31, 2013.

	Unrealized gains on investment securities			Change in valuation allowance for unrealized gains (losses) on investment securities			Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2013	$	3,150		810			(19,819	)	(15,859	)
Other comprehensive income before reclassification	307			176			—		483
Amount reclassified from accumulated other comprehensive income	(748		)	(434		)	347		(835	)
Net current period other comprehensive income (loss)	(441		)	(258		)	347		(352	)
Balance at March 31, 2014	$	2,709		$	552		(19,472	)	(16,211	)

	Unrealized gains on investment securities			Change in valuation allowance for unrealized gains (losses) 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	)

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Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow.

	For the three months ended March 31, 2014
	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	$	1,182		(434	)	748		Investment and other income
Valuation allowance	—			434		434		Provision for income taxes
Amortization of pension and postretirement benefits	(552		)	205		(347	)	Underwriting and distribution expense and Compensation and related costs
Total	$	630		205		835

	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 postretirement benefits	(1,404		)	558		(846	)	Underwriting and distribution expense and Compensation and related costs
Total	$	1,022		567		1,589

9.Share-Based Compensation

In the first quarter of 2014, we granted 38,365 shares of nonvested stock with a fair value of $67.13 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 to $2.6 million, will generally be amortized to expense over a four year vesting period.

On April 2, 2014, we granted 742,141 shares of nonvested stock with a fair value of $75.96 per share under the SI Plan.  The value of those shares at the grant date, aggregating to $56.4 million, will generally be amortized to expense over a four year vesting period.

10.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

16

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, 2013, which include, without limitation:

·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;

·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 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;

·Our inability to provide sufficient capital to support new investment products;

·The ability of mutual fund and other investors to redeem their investments without prior notice or on short notice;

·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; and

·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.

·Our inability to attract and retain senior executive management and other key personnel to conduct our broker/dealer, fund management and investment advisory business.

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, 2013 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2014.  All forward-looking statements

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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 services, 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 Rule 12b-1 asset-based service and distribution fees, fees earned on fee-based asset allocation products and related advisory services, distribution fees on certain variable products, and commissions derived from sales of investment and insurance products. 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, field support, dealer services expense and information technology expense.

One of our distinctive qualities is that we distribute our investment products through a balanced distribution network. 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, and through our Advisors channel sales force of independent financial advisors.  Through the Institutional channel, we serve as sub-advisor for domestic and foreign distributors of investment products and manage investments for pension funds, Taft-Hartley plans and endowments.

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First Quarter Highlights

·We introduced the Ivy Emerging Market Equity Fund to offer investors a single fund for emerging-market equities investments in any region of the world. The creation of the fund was a two-step process that began with expanding the Fund’s investment mandate from its predecessor, Ivy Pacific Opportunities Fund, and merging into it the former Ivy Asset Strategy New Opportunities Fund.

·Barron’s Best Mutual Fund Families named Ivy Funds as Best Mutual Fund Family over the 10-year period ended December 31, 2013, out of 48 firms.

·Lipper selected five funds for recognition among peer funds for their strong risk-adjusted performance. Three funds were ranked in the 10-year category and two funds were ranked in the 3-year category.

·Operating revenues increased $73.9 million, or 23%, compared to the first three months of 2013.

·Net income increased 39% compared to the first quarter of 2013, and our operating margin was 29.9%, an improvement from 26.2% for the same period a year ago.

·Our assets under management increased 4% during the quarter, from $126.5 billion to $131.4 billion, driven by inflows.

·Company-wide sales exceeded $100.0 million for eleven investment strategies, including four investment strategies for which sales exceeded $1.0 billion. Of the total, seven of the investment strategies with sales greater than $100.0 million and three of the investment strategies with sales in excess of $1.0 billion were in the Wholesale channel.

·Sales increased 48% to $10.0 billion for the first quarter of 2014 compared to the same period in 2013.

·Inflows of $4.7 billion represent an annualized organic growth rate of 15%.

·Our balance sheet remains solid, and we ended the quarter with cash and investments of $720.7 million.

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Assets Under Management

During the first quarter, assets under management increased to $131.4 billion compared to $126.5 billion on December 31, 2013 due to inflows of $4.7 billion.

Change in Assets Under Management(1)

	First Quarter 2014
	Wholesale			Advisors		Institutional		Total
	(in millions)
Beginning Assets	$	67,055		43,667		15,821		126,543
Sales(2)	7,017			1,435		1,554		10,006
Redemptions	(3,562		)	(1,106	)	(679	)	(5,347	)
Net Exchanges	112			(112	)	—		—
Net Flows	3,567			217		875		4,659
Market Appreciation (Depreciation)	(155		)	340		(4	)	181
Ending Assets	$	70,467		44,224		16,692		131,383

	First Quarter 2013
	Wholesale			Advisors		Institutional		Total
	(in millions)
Beginning Assets	$	48,930		35,660		11,775		96,365
Sales(2)	5,042			1,303		430		6,775
Redemptions	(3,157		)	(1,047	)	(469	)	(4,673	)
Net Exchanges	66			(66	)	—		—
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

(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 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 2014
	Wholesale		Advisors	Institutional	Total
	(in millions)
Asset Class:
Equity	$	55,051	32,448	15,536	$	103,035
Fixed Income	13,382		9,617	634	23,633
Money Market	184		1,926	—	2,110
Total	$	68,617	43,991	16,170	$	128,778

	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

Results of Operations — Three Months Ended March 31, 2014 as Compared with Three Months Ended March 31, 2013

Net Income

	Three months ended March 31,
	2014			2013		Variance
Net Income	$	74,864		53,863		39	%
Earnings per share, basic and diluted	$	0.88		0.63		40	%
Operating Margin	29.9		%	26.2	%	14	%

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Total Revenues

Total revenues increased 23% to $390.4 million for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 due to an increase in average assets under management of 27% and an increase in sales of 48%.

	Three months ended
	March 31,
	2014		2013	Variance
	(in thousands, except percentage data)
Investment management fees	$	188,037	148,445	27	%
Underwriting and distribution fees	165,267		135,419	22	%
Shareholder service fees	37,112		32,691	14	%
Total revenues	$	390,416	316,555	23	%

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 $39.6 million, or 27%, from last year’s first quarter.

Revenues from investment management services provided to our retail mutual funds, which are distributed through the Wholesale and Advisors channels, were $174.0 million for the quarter ended March 31, 2014.  Revenues increased $37.1 million, or 27%, compared to the first quarter of 2013, while the related retail average assets increased 27% to $112.6 billion. Management fee waivers of $2.8 and $2.2 million were recorded as an offset to investment management fees for the periods ending March 31, 2014 and March 31, 2013, respectively. Of the total management fee waivers recorded, $1.9 million was related to money market accounts for the first quarter of 2014 and $1.4 million was related to money market accounts for the first quarter of 2013.

Institutional account revenues were $14.0 million for the first quarter of 2014, representing an increase of $2.4 million, or 21%, from the first quarter of 2013, while average assets increased 32%.  Account revenues increased less than the related average assets due to a decline in the average management fee rate. The decline in the average management fee rate was driven by a mix-shift of assets into investment styles and account types with lower management fee rates.

Long-term redemption rates (which exclude money market fund redemptions) in the Wholesale channel were 21.1% in the first quarter of 2014, compared to 24.6% in the first quarter of 2013.  In the Advisors channel, long-term redemption rates were 8.2% for the quarter ended March 31, 2014 compared to 9.4% in the first quarter of 2013.   We expect the Advisors channel long-term redemption rate to remain lower than that of the industry average 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 17.0% and 15.5% for the first quarter of 2014 and 2013, respectively.  Subadvisory accounts comprise more than 70% of the Institutional channel’s assets as of March 31, 2014 and, unlike direct advisory accounts, the active daily flows in or out of these accounts can result in an increase in contributions and withdrawals and impact the channel’s redemption rate.

Our overall redemption rate of 16.2% for the first quarter of 2014 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 2014
	Wholesale			Advisors		Total
	(in thousands)
Revenue	$	59,564		105,703		165,267
Expenses - Direct	(79,700		)	(74,697	)	(154,397	)
Expenses - Indirect	(11,535		)	(29,019	)	(40,554	)
Net Distribution (Costs)/Excess	$	(31,671	)	1,987		(29,684	)

	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	)

The following tables summarize the significant components of underwriting and distribution fee revenues segregated by distribution channel:

	First Quarter 2014
	Wholesale		Advisors	Total
	(in thousands)
Underwriting and distribution fee revenues
Rule 12b-1 service and distribution fees	$	56,792	28,931	85,723
Fee-based asset allocation product revenues	—		47,347	47,347
Sales commissions on front-end load mutual fund and variable annuity sales	2,032		17,132	19,164
Sales commissions on other products	—		6,361	6,361
Other revenues	740		5,932	6,672
Total	$	59,564	105,703	165,267

	First Quarter 2013
	Wholesale		Advisors	Total
	(in thousands)
Underwriting and distribution fee revenues
Rule 12b-1 service and distribution fees	$	46,213	24,795	71,008
Fee-based asset allocation product revenues	—		34,907	34,907
Sales commissions on front-end load mutual fund and variable annuity sales	1,124		16,680	17,804
Sales commissions on other products	—		5,646	5,646
Other revenues	838		5,216	6,054
Total	$	48,175	87,244	135,419

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Underwriting and distribution revenues earned in the first quarter of 2014 increased by $29.8 million, or 22%, compared with the first quarter of 2013.  Rule 12b-1 asset based service and distribution fees increased $14.7 million, or 21%, quarter over quarter driven by a 27% increase in average mutual fund assets under management.  In our Advisors channel, revenues from fee-based asset allocation products continued to be a meaningful contributor to revenues, increasing to 45% of underwriting and distribution revenues in the first quarter of 2014 compared to 40% in the first quarter of 2013.  Fee-based asset allocation assets grew from $11.2 billion at March 31, 2013 to $15.1 billion at March 31, 2014 generating an increase of fee-based asset allocation revenue of $12.4 million, or 36%.

Underwriting and distribution expenses increased by $33.4 million, or 21%, compared to the first quarter of 2013.  Direct expenses in the Wholesale channel increased by $16.2 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 and Rule 12b-1 asset-based service and distribution expenses paid to third-party distributors and higher wholesaler commissions.  In the Advisors channel, direct expenses grew faster than revenue due to increased advisor payouts.  Across both channels, indirect expenses increased $2.2 million, or 6%, compared to the quarter ended March 31, 2013, primarily due to increased employee compensation, computer services and software expenses, and advertising expenses.

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 2014, shareholder service fee revenue increased $4.4 million, or 14%, over the first quarter of 2013. Asset-based fees increased $3.5 million, or 32%, for the same time period in the I, Y and R share classes. Assets in the I, Y and R share classes grew from an average of $21.2 billion at March 31, 2013 to an average of $30.0 billion at March 31, 2014, representing an increase of 42%.  Account-based fees increased $1.0 million quarter over quarter due to a 6% increase in the number of accounts compared to the first quarter in 2013.

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Total Operating Expenses

Operating expenses increased $40.2 million, or 17%, in the first quarter of 2014 compared to the first quarter of 2013, primarily due to increased underwriting and distribution expenses and general and administrative expenses.  Underwriting and distribution expenses are discussed above.

	Three Months Ended
	March 31,
	2014		2013	Variance
	(in thousands, except percentage data)
Underwriting and distribution	$	194,951	161,571	21	%
Compensation and related costs	50,009		48,155	4	%
General and administrative	23,756		16,208	47	%
Subadvisory fees	1,877		4,484	-58	%
Depreciation	3,249		3,227	1	%
Total operating expenses	$	273,842	233,645	17	%

Compensation and Related Costs

Compensation and related costs increased $1.9 million, or 4%, compared to the first quarter of 2013.     Share-based compensation increased $1.4 million due to higher amortization expense associated with our April 2013 and December 2013 grants of nonvested stock compared to grants that became fully vested in 2013, an increase in non-employee advisor (independent contractor) stock award amortization expense and a credit taken in the first quarter of 2013 related to the cancellation of unvested shares granted to a subsidiary sold in 2013. Adjustments to the forfeiture rate during the first quarter of 2014 partially offset the share-based compensation increase.  Base salaries increased $0.9 million due to increased headcount and annual salary increases, while pension expense decreased $0.9 million.

General and Administrative Costs

General and administrative expenses increased $7.5 million to $23.8 million for the first quarter of 2014 compared to the first quarter of 2013, primarily due to increased legal, consulting and audit costs, increased dealer services costs based on higher asset levels in certain share classes, increased costs for temporary office staff and increased computer services and software 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 a portion of our management fee revenue received from subadvised products.  Gross management fee revenues for products subadvised by others were $3.6 million for the three months ended March 31, 2014 compared to $8.9 million for the first quarter of 2013 due to a 55% decrease in subadvised average net assets.  The decrease in subadvised average net assets is a result of internalizing the management of the Global Natural Resources funds after the portfolio manager’s retirement from Mackenzie Financial Corporation, the subadvisor, during the third quarter of 2013.  Subadvisory expenses followed the same pattern of decrease compared to 2013.

Subadvised average assets under management at March 31, 2014 were $2.0 billion compared to $4.4 billion at March 31, 2013.

Other Income and Expenses

Investment and Other Income, Interest Expense and Taxes

Investment and other income was $3.9 million for the quarter ended March 31, 2014, compared to $4.4 million in the same period a year ago.  We recorded realized gains of $1.2 million on the sale of available for sale mutual fund holdings during the current quarter compared to $2.4 million in the first quarter of 2013. In our mutual fund trading portfolio, we recorded mark-to-market gains of $2.0 million during the quarter compared to gains of $2.2 million for the three months ended March 31, 2013. We recorded losses related to our investment in a limited partnership of $0.8 million in the first quarter of 2013.

Interest expense was $2.8 million and $2.9 million for the three month periods ended March 31, 2014 and 2013, respectively.

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Our effective income tax rate was 36.4% for the first quarter of 2014, as compared to 36.2% for the first quarter of 2013.  Due to the sale of a subsidiary in 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 this capital loss when realized due to the extent that this loss exceeded available capital gains. The valuation allowance was necessary due to the limited carryforward period permitted by law on losses of this character.  An increase in the fair value of the Company’s trading securities portfolio and realized capital gains on securities classified as available for sale in the first quarters of 2014 and 2013 allowed for a release of the valuation allowance, thereby reducing income tax expense by $1.2 million and $1.4 million, respectively.

The first quarter 2014 and 2013 effective income tax rates, removing the effects of the valuation allowance, would have been 37.4% and 37.9%, respectively.  The adjusted effective tax rate in the first quarter of 2014 was lower primarily due to a reduction in unrecognized state tax benefits for which the outcome is uncertain.  Additionally, higher income before taxes in the first quarter of 2014 decreased the impact of non-deductible expenses on the effective income tax rate.

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 home office resources, wholesaling efforts and enhanced technology tools.

We are currently investing in technology initiatives to modernize and optimize our technology environment.  Initiatives underway include upgrading our infrastructure, network and security, moving to distributed applications and building system architecture.

Pay Dividends

We paid quarterly dividends on our common stock that resulted in financing cash outflows of $29.0 million and $24.0 million for the first quarter of 2014 and 2013 respectively.  The Board of Directors approved an increase in the quarterly dividend on our common stock from $0.28 per share to $0.34 per share beginning with our fourth quarter 2013 dividend, paid on February 3, 2014.

Repurchase Our Stock

We repurchased 280,186 shares and 81,701 shares of our common stock in the open market or privately during the three months ended March 31, 2014 and 2013, respectively, resulting in cash outflows of $17.7 million and $3.4 million, respectively.

Operating Cash Flows

Cash from operations, our primary source of funds, increased $27.8 million for the three months ended March 31, 2014 compared to the previous year.  The increase is primarily due to increased net income compared to the prior quarter.

During the first quarter of 2014, we contributed $10.0 million to the Pension Plan and contributed an additional $10.0 million to the Pension Plan in April 2014.  We do not expect to make additional contributions for the remainder of the year.

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Investing Cash Flows

Investing activities consist primarily of the purchase, sale and maturities of available for sale investment securities, as well as capital expenditures.  During the first quarter of 2014, we purchased two buildings adjacent to our home campus that we previously leased.  We expect our 2014 capital expenditures to be in the range of $25.0 to $35.0 million.  Related to the sale of a subsidiary, 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 2014 and 2013.

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 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 2013 Form 10-K.

Our indefinite life intangible asset balance includes $16.3 million related to our subadvisory agreement to manage certain mutual fund products for Mackenzie Financial Corporation (“MFC”) recorded in connection with our purchase of Mackenzie Investment Management, Inc. in 2002.  As part of purchase accounting, a deferred tax liability was established related to this identifiable intangible asset.  As of March 31, 2014, the associated deferred tax liability is $6.0 million.

The fair value of this intangible asset exceeded its carrying amount by 20% when performing our annual testing for impairment during the second quarter of 2013.  Based on the result of our annual test, we increased the frequency of our impairment analysis for this asset, and there are no indicators of impairment as of March 31, 2014.

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Supplemental Information

	First			First
	Quarter			Quarter
	2014			2013		Change
Channel highlights
Number of wholesalers	60			50		20.0	%
Number of advisors	1,737			1,717		1.2	%
Advisor productivity (in thousands)(1)	$	60.9		50.5		20.6	%
Redemption rates - long term assets
Wholesale	21.1		%	24.6	%
Advisors	8.2		%	9.4	%
Institutional	17.0		%	15.5	%
Total	16.2		%	18.0	%
Operating highlights
Organic growth annualized	14.7		%	8.7	%
Total assets under management (in millions)	$	131,383		103,795		26.6	%
Operating margin	29.9		%	26.2	%
Diversification (company total)
As % of Sales
Asset Strategy	33.4		%	33.6	%
Fixed Income	23.3		%	30.7	%
Other	43.3		%	35.7	%
As % of Assets Under Management
Asset Strategy	33.9		%	33.7	%
Fixed Income	18.6		%	20.7	%
Other	47.5		%	45.6	%
Shareholder service fees
Average assets for I, Y, and R share classes (in millions)	$	30,038		21,221		41.5	%
Number of shareholder accounts (in thousands)	4,393			4,142		6.1	%

(1)Advisors’ productivity is calculated by dividing underwriting and distribution revenues for the Advisors channel by the average number of advisors during the year.

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 2013 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 2013 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 2014.

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	77,519	$	64.04	77,519	n/a	(1)
February 1 - February 28	202,667	62.72		202,667	n/a	(1)
March 1 - March 31	—	—		—	n/a	(1)
Total	280,186	$	63.08	280,186

(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 2014, all stock repurchases were made pursuant to the repurchase program and 2,667 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

10.12014 Performance Goals established pursuant to the Waddell & Reed Financial, Inc. 2003 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, 2014 and incorporated herein by reference.*

10.2Waddell & Reed Financial, Inc. 2003 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 April 17, 2014 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, 2014, 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 2nd day of May 2014.

WADDELL & REED FINANCIAL, INC.
By:	/s/ Henry J. Herrmann
	Chief Executive Officer, Chairman of the Board and Director
	(Principal Executive Officer)
By:	/s/ Brent K. Bloss
	Senior Vice President, Chief Financial Officer
	and Treasurer
	(Principal Financial Officer)
By:	/s/ Melissa A. Clouse
	Vice President and Controller 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: May 1, 2014
	/s/ Henry J. Herrmann
	Henry J. Herrmann
	Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Brent K. Bloss, 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: May 1, 2014
	/s/ Brent K. Bloss
	Brent K. Bloss
	Senior Vice President,
	Chief Financial Officer and Treasurer

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 30, 2014 (the “Report”) dated May 2, 2014 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: May 1, 2014
	/s/ Henry J. Herrmann
	Henry J. Herrmann
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Brent K. Bloss, Senior Vice President, Chief Financial Officer and Treasurer 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 30, 2014 (the “Report”) dated May 2, 2014 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: May 1, 2014
	/s/ Brent K. Bloss
	Brent K. Bloss
	Senior Vice President,
	Chief Financial Officer and Treasurer

XML

Pension Plan and Postretirement Benefits Other Than Pension (Details)	3 Months Ended
	Mar. 31, 2014
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

XML

Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2014

Stockholders' Equity

Components of basic and diluted earnings per share

	Three months ended
	March 31,
	2014		2013
	(in thousands, except per share amounts)
Net income from continuing operations	$	74,864	53,863
Weighted average shares outstanding - basic	85,019		85,592
Dilutive potential shares from stock options	—		1
Weighted average shares outstanding - diluted	85,019		85,593
Earnings per share from continuing operations, basic and diluted	$	0.88	0.63

Summary of other comprehensive income (loss) activity

	Unrealized gains on investment securities			Change in valuation allowance for unrealized gains (losses) on investment securities			Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2013	$	3,150		810			(19,819	)	(15,859	)
Other comprehensive income before reclassification	307			176			—		483
Amount reclassified from accumulated other comprehensive income	(748		)	(434		)	347		(835	)
Net current period other comprehensive income (loss)	(441		)	(258		)	347		(352	)
Balance at March 31, 2014	$	2,709		$	552		(19,472	)	(16,211	)

	Unrealized gains on investment securities			Change in valuation allowance for unrealized gains (losses) 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 (loss) and included in net income

	For the three months ended March 31, 2014
	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	$	1,182		(434	)	748		Investment and other income
Valuation allowance	—			434		434		Provision for income taxes
Amortization of pension and postretirement benefits	(552		)	205		(347	)	Underwriting and distribution expense and Compensation and related costs
Total	$	630		205		835

	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 postretirement benefits	(1,404		)	558		(846	)	Underwriting and distribution expense and Compensation and related costs
Total	$	1,022		567		1,589

XML

Stockholders' Equity (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Reclassifications included in net income:
Net of tax	$ 835	$ 1,589
Reclassifications from accumulated other comprehensive income
Reclassifications included in net income:
Pre-tax	630	1,022
Tax (expense) benefit	205	567
Net of tax	835	1,589
Realized gain on sale of available for sale investment securities
Reclassifications included in net income:
Net of tax	748	1,535
Realized gain on sale of available for sale investment securities | Investment and other income | Reclassifications from accumulated other comprehensive income
Reclassifications included in net income:
Pre-tax	1,182	2,426
Tax (expense) benefit	(434)	(891)
Net of tax	748	1,535
Valuation allowance
Reclassifications included in net income:
Net of tax	434	900
Valuation allowance | Provision for income taxes | Reclassifications from accumulated other comprehensive income
Reclassifications included in net income:
Tax (expense) benefit	434	900
Net of tax	434	900
Amortization of pension and postretirement benefits
Reclassifications included in net income:
Net of tax	(347)	(846)
Amortization of pension and postretirement benefits | Underwriting and distribution expense and Compensation and related costs | Reclassifications from accumulated other comprehensive income
Reclassifications included in net income:
Pre-tax	(552)	(1,404)
Tax (expense) benefit	205	558
Net of tax	$ (347)	$ (846)

XML

Consolidated Statement of Stockholders' Equity (Parenthetical) (USD $)	0 Months Ended	3 Months Ended
	Feb. 13, 2014	Mar. 31, 2014
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dividends accrued, per share (in dollars per share)	$ 0.34	$ 0.34

XML

Goodwill and Identifiable Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Goodwill and Identifiable Intangible Assets
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

XML

Investment Securities (Details 3) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair value of investments
Total investment securities	$ 199,919	$ 201,348
Level 1
Fair value of investments
Total investment securities	179,297	176,760
Level 1 | Common Stock
Fair value of investments
Total investment securities	56	60
Level 1 | Affiliated mutual funds
Fair value of investments
Total investment securities	179,241	176,700
Level 2
Fair value of investments
Total investment securities	20,622	24,588
Level 2 | Mortgage-backed securities
Fair value of investments
Total investment securities	35	46
Level 2 | Municipal bonds
Fair value of investments
Total investment securities		501
Level 2 | Corporate bonds
Fair value of investments
Total investment securities	20,587	24,041
Total | Mortgage-backed securities
Fair value of investments
Total investment securities	35	46
Total | Municipal bonds
Fair value of investments
Total investment securities		501
Total | Corporate bonds
Fair value of investments
Total investment securities	20,587	24,041
Total | Common Stock
Fair value of investments
Total investment securities	56	60
Total | Affiliated mutual funds
Fair value of investments
Total investment securities	$ 179,241	$ 176,700

XML

Indebtedness (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Indebtedness
Fair value of outstanding indebtedness	$ 205,000,000
Summary of long-term debt
Total long-term debt	$ 190,000,000	$ 190,000,000

XML

Income Tax Uncertainties (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Income Tax Uncertainties
Unrecognized tax benefits, including penalties and interest that if recognized would impact effective tax rate	$ 12.6	$ 12.0
Unrecognized tax benefits, including penalties and interest, net of federal tax benefit that if recognized would affect effective tax rate	8.8	8.4
Accrued interest and penalties related to uncertain tax positions	3.1	3.0
Accrued interest and penalties related to uncertain tax positions, net of federal benefit	2.6	2.5
Total expense of interest and penalties, net of federal benefit related to uncertain tax positions	$ 0.1

XML

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, 2013	$ 687,342	$ 997	$ 267,406	$ 850,600	$ (415,802)	$ (15,859)
Balance (in shares) at Dec. 31, 2013		99,701
Increase (Decrease) in Stockholders' Equity
Net income	74,864			74,864
Recognition of equity compensation	13,086		13,086
Net issuance/forfeiture of nonvested shares			2,071		(2,071)
Dividends accrued, $0.34 per share	(28,863)			(28,863)
Excess tax benefits from share-based payment arrangements	1,132		1,132
Repurchase of common stock	(17,675)				(17,675)
Other comprehensive loss	(352)					(352)
Balance at Mar. 31, 2014	$ 729,534	$ 997	$ 283,695	$ 896,601	$ (435,548)	$ (16,211)
Balance (in shares) at Mar. 31, 2014		99,701

XML

Income Tax Uncertainties (Details 2) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014
Income Tax Uncertainties
Estimated decrease in unrecognized tax benefits within the next 12-month period, high end of range	$ 2.9
Estimated decrease in unrecognized tax benefits net of federal benefits within the next 12-month period	$ 1.9

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets :
Cash and cash equivalents	$ 520,742	$ 487,845
Cash and cash equivalents - restricted	102,161	121,419
Investment securities	199,919	201,348
Receivables:
Funds and separate accounts	35,914	36,467
Customers and other	128,230	141,763
Deferred income taxes	5,353	7,654
Income taxes receivable		419
Prepaid expenses and other current assets	12,164	9,410
Total current assets	1,004,483	1,006,325
Property and equipment, net	82,804	72,638
Deferred sales commissions, net	82,613	79,894
Goodwill and identifiable intangible assets	161,969	161,969
Deferred income taxes	2,127	3,839
Other non-current assets	14,405	12,300
Total assets	1,348,401	1,336,965
Liabilities:
Accounts payable	17,768	18,821
Payable to investment companies for securities	168,365	214,085
Payable to third party brokers	58,640	59,756
Payable to customers	11,178	8,664
Accrued compensation	58,201	58,677
Other current liabilities	47,353	59,726
Income taxes payable	31,065
Total current liabilities	392,570	419,729
Long-term debt	190,000	190,000
Accrued pension and postretirement costs	11,980	13,333
Other non-current liabilities	24,317	26,561
Total liabilities	618,867	649,623
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; 84,874 shares outstanding (85,236 at December 31, 2013)	997	997
Additional paid-in capital	283,695	267,406
Retained earnings	896,601	850,600
Cost of 14,827 common shares in treasury (14,465 at December 31, 2013)	(435,548)	(415,802)
Accumulated other comprehensive loss	(16,211)	(15,859)
Total stockholders' equity	729,534	687,342
Total liabilities and stockholders' equity	$ 1,348,401	$ 1,336,965

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 74,864	$ 53,863
Other comprehensive income:
Unrealized appreciation (depreciation) of available for sale investment securities during the period, net of income tax expense of $(2) and $9, respectively	(699)	2,778
Pension and postretirement benefits, net of income tax expense of $205 and $558, respectively	347	846
Comprehensive income	$ 74,512	$ 57,487

XML

Stockholders' Equity (Details) (USD $)	0 Months Ended	3 Months Ended		1 Months Ended
	Feb. 13, 2014	Mar. 31, 2014	Mar. 31, 2013	Apr. 30, 2014 Subsequent Event
Components of basic and diluted earnings per share
Net income from continuing operations		$ 74,864,000	$ 53,863,000
Weighted average shares outstanding - basic		85,019,000	85,592,000
Dilutive potential shares from stock options			1,000
Weighted average shares outstanding - diluted		85,019,000	85,593,000
Earnings per share:
Earnings per share from continuing operations, basic and diluted (in dollars per share)		$ 0.88	$ 0.63
Dividends
Dividends accrued, per share (in dollars per share)	$ 0.34	$ 0.34
Dividends to be paid		$ 28,900,000
Common stock repurchases
Shares repurchased in the open market or privately		280,186	81,701
Common stock repurchases
Shares repurchased from employees to cover minimum income tax withholdings		2,667	2,601	386,165

XML

Investment Securities (Tables)

3 Months Ended

Mar. 31, 2014

Investment Securities

Schedule of investment securities

	Amortized		Unrealized	Unrealized
March 31, 2014	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Corporate bonds	$	11,190	28	—		11,218
Affiliated mutual funds	115,574		5,172	(898	)	119,848
	$	126,764	5,200	(898	)	131,066
Trading securities:
Mortgage-backed securities						35
Corporate bonds						9,369
Common stock						56
Affiliated mutual funds						59,393
						68,853
Total investment securities						$	199,919
	Amortized		Unrealized	Unrealized
December 31, 2013	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	8	1	—		9
Corporate bonds	14,568		61	—		14,629
Affiliated mutual funds	87,710		5,899	(957	)	92,652
	$	102,286	5,961	(957	)	107,290
Trading securities:
Mortgage-backed securities						37
Municipal bonds						501
Corporate bonds						9,412
Common stock						60
Affiliated mutual funds						84,048
						94,058
Total investment securities						$	201,348

Summary of available for sale affiliated mutual funds with fair values below carrying values

	Less than 12 months				12 months or longer			Total
March 31, 2014	Fair value		Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
	(in thousands)
Affiliated mutual funds	$	57,964	(883	)	217	(15	)	58,181	(898	)
Total temporarily impaired securities	$	57,964	(883	)	217	(15	)	58,181	(898	)

	Less than 12 months				12 months or longer			Total
December 31, 2013	Fair value		Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
	(in thousands)
Affiliated mutual funds	$	29,598	(939	)	213	(18	)	29,811	(957	)
Total temporarily impaired securities	$	29,598	(939	)	213	(18	)	29,811	(957	)

Schedule of Corporate bonds accounted for available for sale securities by maturity date

Corporate bonds accounted for as available for sale and held as of March 31, 2014 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	11,190	11,218
	$	11,190	11,218

Schedule of Mortgage-backed securities and corporate bonds accounted for trading securities by maturity date

Mortgage-backed securities and corporate bonds accounted for as trading and held as of March 31, 2014 mature as follows:

	Fair value
	(in thousands)
Within one year	$	9,369
After five years but within 10 years	35
	$	9,404

Schedule of fair value of investment securities

March 31, 2014	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	35	—	35
Corporate bonds	—		20,587	—	20,587
Common stock	56		—	—	56
Affiliated mutual funds	179,241		—	—	179,241
Total	$	179,297	20,622	—	199,919

December 31, 2013	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	46	—	46
Municipal bonds	—		501	—	501
Corporate bonds	—		24,041	—	24,041
Common stock	60		—	—	60
Affiliated mutual funds	176,700		—	—	176,700
Total	$	176,760	24,588	—	201,348

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Stockholders' Equity (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Changes in other comprehensive income (loss)
Balance at the beginning of the period	$ (15,859)	$ (46,797)
Other comprehensive income before reclassification	483	5,213
Amount reclassified from accumulated other comprehensive income	(835)	(1,589)
Net current period other comprehensive income (loss)	(352)	3,624
Balance at the end of the period	(16,211)	(43,173)
Unrealized gains on investment securities
Changes in other comprehensive income (loss)
Balance at the beginning of the period	3,150	1,823
Other comprehensive income before reclassification	307	3,279
Amount reclassified from accumulated other comprehensive income	(748)	(1,535)
Net current period other comprehensive income (loss)	(441)	1,744
Balance at the end of the period	2,709	3,567
Change in valuation allowance for unrealized gains (losses) on investment securities
Changes in other comprehensive income (loss)
Balance at the beginning of the period	810	32
Other comprehensive income before reclassification	176	1,934
Amount reclassified from accumulated other comprehensive income	(434)	(900)
Net current period other comprehensive income (loss)	(258)	1,034
Balance at the end of the period	552	1,066
Pension and postretirement benefits
Changes in other comprehensive income (loss)
Balance at the beginning of the period	(19,819)	(48,652)
Amount reclassified from accumulated other comprehensive income	347	846
Net current period other comprehensive income (loss)	347	846
Balance at the end of the period	$ (19,472)	$ (47,806)

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Pension Plan and Postretirement Benefits Other Than Pension (Tables)

3 Months Ended

Mar. 31, 2014

Pension Plan and Postretirement Benefits Other Than Pension

Schedule of components of net periodic pension and other postretirement costs

	Pension Benefits					Other Postretirement Benefits
	Three months ended March 31,					Three months ended March 31,
	2014			2013		2014		2013
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,725		2,950		180		197
Interest cost	2,153			1,952		99		90
Expected return on plan assets	(3,413		)	(2,704	)	—		—
Actuarial (gain) loss amortization	411			1,250		(4	)	—
Prior service cost amortization	130			139		14		14
Transition obligation amortization	1			1		—		—
Total(1)	$	2,007		3,588		289		301

(1)Approximately 60% of net periodic pension and other postretirement benefit costs are included in Compensation and related costs on the consolidated statements of income, while the remainder are included in Underwriting and distribution expense.

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unrealized appreciation of available for sale investment securities during the year, income tax expense	$ (2)	$ 9
Pension and postretirement benefits, income tax expense	$ 205	$ 558

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
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	84,874	85,236
Common shares in treasury	14,827	14,465

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Pension Plan and Postretirement Benefits Other Than Pension

3 Months Ended

Mar. 31, 2014

Pension Plan and Postretirement Benefits Other Than Pension

Pension Plan and Postretirement Benefits Other Than Pension

7. 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, who are independent contractors.  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 March 31,					Three months ended March 31,
	2014			2013		2014		2013
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	2,725		2,950		180		197
Interest cost	2,153			1,952		99		90
Expected return on plan assets	(3,413		)	(2,704	)	—		—
Actuarial (gain) loss amortization	411			1,250		(4	)	—
Prior service cost amortization	130			139		14		14
Transition obligation amortization	1			1		—		—
Total(1)	$	2,007		3,588		289		301

(1)Approximately 60% of net periodic pension and other postretirement benefit costs are included in Compensation and related costs on the consolidated statements of income, while the remainder are included in Underwriting and distribution expense.

During the first quarter of 2014, we contributed $10.0 million to the Pension Plan and contributed an additional $10.0 million in April 2014.  We do not expect to make additional contributions for the remainder of 2014.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2014	Apr. 17, 2014
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, 2014
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		85,227,949
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1

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Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Stockholders' Equity

Stockholders' Equity

8. Stockholders’ Equity

Earnings per Share

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

	Three months ended
	March 31,
	2014		2013
	(in thousands, except per share amounts)
Net income from continuing operations	$	74,864	53,863
Weighted average shares outstanding - basic	85,019		85,592
Dilutive potential shares from stock options	—		1
Weighted average shares outstanding - diluted	85,019		85,593
Earnings per share from continuing operations, basic and diluted	$	0.88	0.63

Dividends

On February 13, 2014, the Board of Directors (the “Board”) approved a dividend on our common stock in the amount of $0.34 per share to stockholders of record as of April 14, 2014 to be paid on May 1, 2014.  The total dividend to be paid is approximately $28.9 million and is included in other current liabilities in the consolidated balance sheet at March 31, 2014.

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 280,186 shares and 81,701 shares repurchased in the open market or privately during the three months ended March 31, 2014 and 2013, respectively, which included 2,667 shares and 2,601 shares, respectively, repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during these two periods.

In April 2014, the Company repurchased 386,165 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 Income (Loss)

The following tables summarize other comprehensive income (loss) activity for the periods ended March 31, 2014 and March 31, 2013.

	Unrealized gains on investment securities			Change in valuation allowance for unrealized gains (losses) on investment securities			Pension and postretirement benefits		Total accumulated other comprehensive income (loss)
	(in thousands)
Balance at December 31, 2013	$	3,150		810			(19,819	)	(15,859	)
Other comprehensive income before reclassification	307			176			—		483
Amount reclassified from accumulated other comprehensive income	(748		)	(434		)	347		(835	)
Net current period other comprehensive income (loss)	(441		)	(258		)	347		(352	)
Balance at March 31, 2014	$	2,709		$	552		(19,472	)	(16,211	)

	Unrealized gains on investment securities			Change in valuation allowance for unrealized gains (losses) 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 (loss) and included in net income are summarized in the tables that follow.

	For the three months ended March 31, 2014
	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	$	1,182		(434	)	748		Investment and other income
Valuation allowance	—			434		434		Provision for income taxes
Amortization of pension and postretirement benefits	(552		)	205		(347	)	Underwriting and distribution expense and Compensation and related costs
Total	$	630		205		835

	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 postretirement benefits	(1,404		)	558		(846	)	Underwriting and distribution expense and Compensation and related costs
Total	$	1,022		567		1,589

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Revenues:
Investment management fees	$ 188,037	$ 148,445
Underwriting and distribution fees	165,267	135,419
Shareholder service fees	37,112	32,691
Total	390,416	316,555
Operating expenses:
Underwriting and distribution	194,951	161,571
Compensation and related costs (including share-based compensation of $13,086 and $11,676, respectively)	50,009	48,155
General and administrative	23,756	16,208
Subadvisory fees	1,877	4,484
Depreciation	3,249	3,227
Total	273,842	233,645
Operating income	116,574	82,910
Investment and other income	3,900	4,377
Interest expense	(2,755)	(2,854)
Income before provision for income taxes	117,719	84,433
Provision for income taxes	42,855	30,570
Net income	$ 74,864	$ 53,863
Net income per share, basic and diluted (in dollars per share)	$ 0.88	$ 0.63
Weighted average shares outstanding:
Basic (in shares)	85,019	85,592
Diluted (in shares)	85,019	85,593

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Cash and Cash Equivalents

3 Months Ended

Mar. 31, 2014

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, 2014

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 services, 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.  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, 2013 (the “2013 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 2013 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.

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, 2014, the results of operations for the three months ended March 31, 2014 and 2013, and cash flows for the three months ended March 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States.

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Goodwill and Identifiable Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2014

Goodwill and Identifiable Intangible Assets

Schedule of goodwill and identifiable intangible assets

	March 31,		December 31,
	2014		2013
	(in thousands)
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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Share-Based Compensation

3 Months Ended

Mar. 31, 2014

Share-Based Compensation

Share-Based Compensation

9. Share-Based Compensation

In the first quarter of 2014, we granted 38,365 shares of nonvested stock with a fair value of $67.13 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 to $2.6 million, will generally be amortized to expense over a four year vesting period.

On April 2, 2014, we granted 742,141 shares of nonvested stock with a fair value of $75.96 per share under the SI Plan.  The value of those shares at the grant date, aggregating to $56.4 million, will generally be amortized to expense over a four year vesting period.

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Indebtedness

3 Months Ended

Mar. 31, 2014

Indebtedness

Indebtedness

5. Indebtedness

Debt is reported at its carrying amount in the consolidated balance sheets.  The fair value of the Company’s outstanding indebtedness is approximately $205.0 million at March 31, 2014 compared to the carrying value of $190.0 million.  Fair value is calculated based on Level 2 inputs.

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Investment Securities

3 Months Ended

Mar. 31, 2014

Investment Securities

Investment Securities

3. Investment Securities

Investment securities at March 31, 2014 and December 31, 2013 are as follows:

	Amortized		Unrealized	Unrealized
March 31, 2014	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Corporate bonds	$	11,190	28	—		11,218
Affiliated mutual funds	115,574		5,172	(898	)	119,848
	$	126,764	5,200	(898	)	131,066
Trading securities:
Mortgage-backed securities						35
Corporate bonds						9,369
Common stock						56
Affiliated mutual funds						59,393
						68,853
Total investment securities						$	199,919
	Amortized		Unrealized	Unrealized
December 31, 2013	cost		gains	losses		Fair value
	(in thousands)
Available for sale securities:
Mortgage-backed securities	$	8	1	—		9
Corporate bonds	14,568		61	—		14,629
Affiliated mutual funds	87,710		5,899	(957	)	92,652
	$	102,286	5,961	(957	)	107,290
Trading securities:
Mortgage-backed securities						37
Municipal bonds						501
Corporate bonds						9,412
Common stock						60
Affiliated mutual funds						84,048
						94,058
Total investment securities						$	201,348

Purchases of trading securities during the three months ended March 31, 2014 were $27.3 million. Sales and maturities of trading securities were $27.7 million for the same period.

A summary of available for sale affiliated mutual funds with fair values below carrying values at March 31, 2014 and December 31, 2013 is as follows:

	Less than 12 months				12 months or longer			Total
March 31, 2014	Fair value		Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
	(in thousands)
Affiliated mutual funds	$	57,964	(883	)	217	(15	)	58,181	(898	)
Total temporarily impaired securities	$	57,964	(883	)	217	(15	)	58,181	(898	)

	Less than 12 months				12 months or longer			Total
December 31, 2013	Fair value		Unrealized losses		Fair value	Unrealized losses		Fair value	Unrealized losses
	(in thousands)
Affiliated mutual funds	$	29,598	(939	)	213	(18	)	29,811	(957	)
Total temporarily impaired securities	$	29,598	(939	)	213	(18	)	29,811	(957	)

Based upon our assessment of these affiliated mutual funds, the time frame investments have been in a loss position, and our intent to hold affiliated mutual funds until they have recovered, we determined that a write-down was not necessary at March 31, 2014.

Corporate bonds accounted for as available for sale and held as of March 31, 2014 mature as follows:

	Amortized cost		Fair value
	(in thousands)
Within one year	$	11,190	11,218
	$	11,190	11,218

Mortgage-backed securities and corporate bonds accounted for as trading and held as of March 31, 2014 mature as follows:

	Fair value
	(in thousands)
Within one year	$	9,369
After five years but within 10 years	35
	$	9,404

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. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors.

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, 2014 and December 31, 2013 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.

March 31, 2014	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	35	—	35
Corporate bonds	—		20,587	—	20,587
Common stock	56		—	—	56
Affiliated mutual funds	179,241		—	—	179,241
Total	$	179,297	20,622	—	199,919

December 31, 2013	Level 1		Level 2	Level 3	Total
	(in thousands)
Mortgage-backed securities	$	—	46	—	46
Municipal bonds	—		501	—	501
Corporate bonds	—		24,041	—	24,041
Common stock	60		—	—	60
Affiliated mutual funds	176,700		—	—	176,700
Total	$	176,760	24,588	—	201,348

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Goodwill and Identifiable Intangible Assets

3 Months Ended

Mar. 31, 2014

Goodwill and Identifiable Intangible Assets

Goodwill and Identifiable Intangible Assets

4. 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,
	2014		2013
	(in thousands)
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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Income Tax Uncertainties

3 Months Ended

Mar. 31, 2014

Income Tax Uncertainties

Income Tax Uncertainties

6. Income Tax Uncertainties

As of January 1, 2014 and March 31, 2014, the Company had unrecognized tax benefits, including penalties and interest, of $12.0 million ($8.4 million net of federal benefit) and $12.6 million ($8.8 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, 2014, the total amount of accrued interest and penalties related to uncertain tax positions recognized in the consolidated balance sheet was $3.0 million ($2.5 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, 2014 was $0.1 million.  The total amount of accrued penalties and interest related to uncertain tax positions at March 31, 2014 of $3.1 million ($2.6 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 2010, 2011, 2012 and 2013 federal income tax returns are open tax years that remain subject to potential future audit.  State income tax returns for all years after 2009 and, in certain states, income tax returns prior to 2010, 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 up to $2.9 million (up to $1.9 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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Pension Plan and Postretirement Benefits Other Than Pension (Details 2) (USD $)	3 Months Ended			1 Months Ended	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Pension Benefits	Mar. 31, 2013 Pension Benefits	Apr. 30, 2014 Pension Benefits Subsequent Event	Mar. 31, 2014 Other Postretirement Benefits	Mar. 31, 2013 Other Postretirement Benefits
Components of net periodic benefit cost:
Service cost		$ 2,725,000	$ 2,950,000		$ 180,000	$ 197,000
Interest cost		2,153,000	1,952,000		99,000	90,000
Expected return on plan assets		(3,413,000)	(2,704,000)
Actuarial (gain) loss amortization		411,000	1,250,000		(4,000)
Prior service cost amortization		130,000	139,000		14,000	14,000
Transition obligation amortization		1,000	1,000
Total		2,007,000	3,588,000		289,000	301,000
Percentage of net periodic pension and other postretirement benefit costs included in Compensation and related costs	60.00%
Expected benefit payments
Employer contributions		$ 10,000,000		$ 10,000,000

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Description of Business and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

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, 2013 (the “2013 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 2013 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.

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, 2014, the results of operations for the three months ended March 31, 2014 and 2013, and cash flows for the three months ended March 31, 2014 and 2013 in conformity with accounting principles generally accepted in the United States.

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Investment Securities (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Available for sale securities:
Amortized cost	$ 126,764,000	$ 102,286,000
Unrealized gains	5,200,000	5,961,000
Unrealized losses	(898,000)	(957,000)
Fair value	131,066,000	107,290,000
Trading securities:
Fair value	68,853,000	94,058,000
Investment securities	199,919,000	201,348,000
Purchases of trading securities	27,300,000
Sales and maturities of trading securities	27,700,000
Mortgage-backed securities
Available for sale securities:
Amortized cost		8,000
Unrealized gains		1,000
Fair value		9,000
Trading securities:
Fair value	35,000	37,000
Municipal bonds
Trading securities:
Fair value		501,000
Corporate bonds
Available for sale securities:
Amortized cost	11,190,000	14,568,000
Unrealized gains	28,000	61,000
Fair value	11,218,000	14,629,000
Trading securities:
Fair value	9,369,000	9,412,000
Common Stock
Trading securities:
Fair value	56,000	60,000
Affiliated mutual funds
Available for sale securities:
Amortized cost	115,574,000	87,710,000
Unrealized gains	5,172,000	5,899,000
Unrealized losses	(898,000)	(957,000)
Fair value	119,848,000	92,652,000
Trading securities:
Fair value	$ 59,393,000	$ 84,048,000

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Consolidated Statements of Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
CONSOLIDATED STATEMENTS OF INCOME
Compensation and related costs, share-based compensation	$ 13,086	$ 11,676

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Net income	$ 74,864	$ 53,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,330	3,497
Amortization of deferred sales commissions	16,120	13,668
Share-based compensation	13,086	11,676
Excess tax benefits from share-based payment arrangements	(1,132)	(712)
Gain on sale of available for sale investment securities	(1,182)	(2,426)
Net purchases and sales or maturities of trading securities	479	1,012
Gain on trading securities	(1,961)	(2,166)
Loss on sale and retirement of property and equipment	410	49
Capital gains and dividends reinvested	(4)	(40)
Deferred income taxes	3,809	2,065
Changes in assets and liabilities:
Cash and cash equivalents - restricted	19,258	(61,650)
Other receivables	13,533	40,832
Payable to investment companies for securities and payable to customers	(43,206)	16,516
Receivables from funds and separate accounts	553	(9,233)
Other assets	2,044	(3,721)
Deferred sales commissions	(18,839)	(16,174)
Accounts payable and payable to third party brokers	(2,169)	(925)
Other liabilities	9,942	15,002
Net cash provided by operating activities	88,935	61,133
Cash flows from investing activities:
Purchases of available for sale investment securities	(16,826)	(55,350)
Proceeds from sales and maturities of available for sale investment securities	20,142	62,020
Additions to property and equipment	(13,825)	(3,088)
Disposition of companies		22,000
Net cash provided by (used in) investing activities	(10,509)	25,582
Cash flows from financing activities:
Dividends paid	(28,986)	(23,973)
Repurchase of common stock	(17,675)	(3,422)
Exercise of stock options		135
Excess tax benefits from share-based payment arrangements	1,132	712
Net cash used in financing activities	(45,529)	(26,548)
Net increase in cash and cash equivalents	32,897	60,167
Cash and cash equivalents at beginning of period	487,845	330,330
Cash and cash equivalents at end of period	$ 520,742	$ 390,497

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Investment Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value
Less than 12 months	$ 57,964	$ 29,598
12 months or longer	217	213
Total temporarily impaired securities	58,181	29,811
Unrealized losses
Less than 12 months	(883)	(939)
12 months or longer	(15)	(18)
Total Unrealized losses on temporarily impaired securities	(898)	(957)
Fair value
Total fair value	68,853	94,058
Affiliated mutual funds
Fair Value
Less than 12 months	57,964	29,598
12 months or longer	217	213
Total temporarily impaired securities	58,181	29,811
Unrealized losses
Less than 12 months	(883)	(939)
12 months or longer	(15)	(18)
Total Unrealized losses on temporarily impaired securities	(898)	(957)
Fair value
Total fair value	59,393	84,048
Mortgage-Backed Securities and Bonds
Fair value
Within one year	9,369
After five years but within 10 years	35
Total fair value	9,404
Corporate bonds
Fair value
Total fair value	9,369	9,412
Amortized Cost
Within one year	11,190
Total amortized cost	11,190
Fair value
Within one year	11,218
Total fair value	$ 11,218

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Share-Based Compensation (Details) (Nonvested stock awards, 1998 Stock Incentive Plan ("SI Plan"), USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	0 Months Ended
	Mar. 31, 2014	Apr. 02, 2014 Subsequent Event
Share-Based Compensation
Number of nonvested stocks granted (in shares)	38,365	742,141
Grant date fair value (in dollars per share)	$ 67.13	$ 75.96
Fair value of shares granted (in dollars)	$ 2.6	$ 56.4
Vesting period of the value of shares amortized to expense	4 years	4 years

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Contingencies

3 Months Ended

Mar. 31, 2014

Contingencies

Contingencies

10. 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.