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Table of Contents

 

 

 

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 June 30, 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 July 25, 2014

 

Class A common stock, $.01 par value

 

84,460,812

 

 

 

 



Table of Contents

 

WADDELL & REED FINANCIAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

Quarter Ended June 30, 2014

 

 

 

Page No.

Part I.

Financial Information

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Consolidated Balance Sheets at June 30, 2014 and December 31, 2013

3

 

 

 

 

Consolidated Statements of Income for the three and six months ended June 30, 2014 and June 30, 2013

4

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and June 30, 2013

5

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2014

6

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and June 30, 2013

7

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

Part II.

Other Information

 

 

 

 

Item 1.

Legal Proceedings

36

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 6.

Exhibits

37

 

 

 

 

Signatures

38

 

2



Table of Contents

 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

 

 

 

June 30,

 

 

 

 

 

2014

 

December 31,

 

 

 

(unaudited)

 

2013

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

507,693

 

487,845

 

Cash and cash equivalents - restricted

 

88,962

 

121,419

 

Investment securities

 

217,352

 

201,348

 

Receivables:

 

 

 

 

 

Funds and separate accounts

 

38,682

 

36,467

 

Customers and other

 

205,204

 

141,763

 

Deferred income taxes

 

5,845

 

7,654

 

Income taxes receivable

 

5,404

 

419

 

Prepaid expenses and other current assets

 

14,350

 

9,410

 

Total current assets

 

1,083,492

 

1,006,325

 

 

 

 

 

 

 

Property and equipment, net

 

82,952

 

72,638

 

Deferred sales commissions, net

 

80,249

 

79,894

 

Goodwill and identifiable intangible assets

 

161,969

 

161,969

 

Deferred income taxes

 

3,916

 

3,839

 

Other non-current assets

 

24,429

 

12,300

 

Total assets

 

$

1,437,007

 

1,336,965

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Accounts payable

 

$

19,582

 

18,821

 

Payable to investment companies for securities

 

125,227

 

214,085

 

Payable to third party brokers

 

62,632

 

59,756

 

Payable to customers

 

115,570

 

8,664

 

Accrued compensation

 

65,660

 

58,677

 

Other current liabilities

 

48,487

 

59,726

 

Total current liabilities

 

437,158

 

419,729

 

 

 

 

 

 

 

Long-term debt

 

190,000

 

190,000

 

Accrued pension and postretirement costs

 

12,226

 

13,333

 

Other non-current liabilities

 

25,300

 

26,561

 

Total liabilities

 

664,684

 

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; 84,732 shares outstanding (85,236 at December 31, 2013)

 

997

 

997

 

Additional paid-in capital

 

299,063

 

267,406

 

Retained earnings

 

950,660

 

850,600

 

Cost of 14,969 common shares in treasury (14,465 at December 31, 2013)

 

(464,641

)

(415,802

)

Accumulated other comprehensive loss

 

(13,756

)

(15,859

)

Total stockholders’ equity

 

772,323

 

687,342

 

Total liabilities and stockholders’ equity

 

$

1,437,007

 

1,336,965

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3



Table of Contents

 

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Income

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

 

 

 

For the three months

 

For the six months

 

 

 

ended June 30,

 

ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

193,624

 

156,219

 

381,661

 

304,664

 

Underwriting and distribution fees

 

169,001

 

141,597

 

334,268

 

277,016

 

Shareholder service fees

 

38,009

 

33,890

 

75,121

 

66,581

 

Total

 

400,634

 

331,706

 

791,050

 

648,261

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Underwriting and distribution

 

195,608

 

164,844

 

390,559

 

326,415

 

Compensation and related costs (including share-based compensation of $14,593, $13,330, $27,679 and $25,006, respectively)

 

48,589

 

47,376

 

98,598

 

95,531

 

General and administrative

 

27,183

 

26,938

 

50,939

 

43,146

 

Subadvisory fees

 

2,069

 

4,291

 

3,946

 

8,775

 

Depreciation

 

3,541

 

3,222

 

6,790

 

6,449

 

Total

 

276,990

 

246,671

 

550,832

 

480,316

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

123,644

 

85,035

 

240,218

 

167,945

 

Investment and other income

 

6,100

 

1,002

 

10,000

 

5,379

 

Interest expense

 

(2,755

)

(2,858

)

(5,510

)

(5,712

)

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

126,989

 

83,179

 

244,708

 

167,612

 

Provision for income taxes

 

44,001

 

31,222

 

86,856

 

61,792

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

82,988

 

51,957

 

157,852

 

105,820

 

 

 

 

 

 

 

 

 

 

 

Net income per share, basic and diluted:

 

$

0.98

 

0.61

 

1.86

 

1.23

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

85,073

 

85,869

 

85,046

 

85,731

 

Diluted

 

85,073

 

85,869

 

85,046

 

85,732

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

4



Table of Contents

 

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

 

 

 

For the three months

 

For the six months

 

 

 

ended June 30,

 

ended June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

82,988

 

51,957

 

157,852

 

105,820

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized appreciation (depreciation) of available for sale investment securities during the period, net of income tax expense (benefit) of $4, $(18), $2 and $(9), respectively

 

2,170

 

(3,403

)

1,471

 

(625

)

 

 

 

 

 

 

 

 

 

 

Pension and postretirement benefits, net of income tax expense of $167, $595, $372 and $1,153, respectively

 

285

 

592

 

632

 

1,438

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

85,443

 

49,146

 

159,955

 

106,633

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

5



Table of Contents

 

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

 

Consolidated Statement of Stockholders’ Equity

For the Six Months Ended June 30, 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

 

 

 

 

157,852

 

 

 

157,852

 

Recognition of equity compensation

 

 

 

27,679

 

 

 

 

27,679

 

Net issuance/forfeiture of nonvested shares

 

 

 

(12,883

)

 

12,883

 

 

 

Dividends accrued, $0.68 per share

 

 

 

 

(57,792

)

 

 

(57,792

)

Excess tax benefits from share-based payment arrangements

 

 

 

16,861

 

 

 

 

16,861

 

Repurchase of common stock

 

 

 

 

 

(61,722

)

 

(61,722

)

Other comprehensive income

 

 

 

 

 

 

2,103

 

2,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2014

 

99,701

 

$

997

 

299,063

 

950,660

 

(464,641

)

(13,756

)

772,323

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

6



Table of Contents

 

WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

For the six months

 

 

 

ended June 30,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

157,852

 

105,820

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

6,906

 

6,962

 

Amortization of deferred sales commissions

 

32,967

 

27,453

 

Share-based compensation

 

27,679

 

25,006

 

Excess tax benefits from share-based payment arrangements

 

(16,861

)

(6,285

)

Gain on sale of available for sale investment securities

 

(2,586

)

(5,662

)

Net purchases and sales or maturities of trading securities

 

(18,269

)

(27,391

)

Gain on trading securities

 

(5,508

)

(28

)

Loss on sale and retirement of property and equipment

 

1,058

 

132

 

Capital gains and dividends reinvested

 

(9

)

(45

)

Deferred income taxes

 

1,357

 

(3,452

)

Changes in assets and liabilities:

 

 

 

 

 

Cash and cash equivalents - restricted

 

32,457

 

(15,391

)

Other receivables

 

(63,441

)

5,426

 

Payable to investment companies for securities and payable to customers

 

18,048

 

2,300

 

Receivables from funds and separate accounts

 

(2,215

)

(4,480

)

Other assets

 

(9,743

)

(4,099

)

Deferred sales commissions

 

(33,322

)

(32,304

)

Accounts payable and payable to third party brokers

 

3,637

 

(1,439

)

Other liabilities

 

(899

)

(884

)

 

 

 

 

 

 

Net cash provided by operating activities

 

$

129,108

 

71,639

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of available for sale investment securities

 

(52,941

)

(104,279

)

Proceeds from sales and maturities of available for sale investment securities

 

64,666

 

117,522

 

Additions to property and equipment

 

(18,161

)

(7,073

)

Disposition of companies

 

 

22,000

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

$

(6,436

)

28,170

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Dividends paid

 

(57,963

)

(48,083

)

Repurchase of common stock

 

(61,722

)

(36,843

)

Exercise of stock options

 

 

135

 

Excess tax benefits from share-based payment arrangements

 

16,861

 

6,285

 

 

 

 

 

 

 

Net cash used in financing activities

 

$

(102,824

)

(78,506

)

Net increase in cash and cash equivalents

 

19,848

 

21,303

 

Cash and cash equivalents at beginning of period

 

487,845

 

330,330

 

Cash and cash equivalents at end of period

 

$

507,693

 

351,633

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

7



Table of Contents

 

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”).

 

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 June 30, 2014, the results of operations for the three and six months ended June 30, 2014 and 2013, and cash flows for the six months ended June 30, 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



Table of Contents

 

3.              Accounting Pronouncements Not Yet Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”.  This ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU will supersede much of the existing revenue recognition guidance in accounting principles generally accepted in the United States.  This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted.  ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method.  The Company is evaluating which transition method to apply and the estimated impact the adoption of this ASU will have on our consolidated financial statements.

 

4.              Investment Securities

 

Investment securities at June 30, 2014 and December 31, 2013 are as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

June 30, 2014

 

cost

 

gains

 

losses

 

Fair value

 

 

 

(in thousands)

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

3,018

 

6

 

 

3,024

 

Affiliated mutual funds

 

116,723

 

6,498

 

(27

)

123,194

 

 

 

$

119,741

 

6,504

 

(27

)

126,218

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

34

 

Corporate bonds

 

 

 

 

 

 

 

2,991

 

Common stock

 

 

 

 

 

 

 

58

 

Affiliated mutual funds

 

 

 

 

 

 

 

88,051

 

 

 

 

 

 

 

 

 

91,134

 

 

 

 

 

 

 

 

 

 

 

Total investment securities

 

 

 

 

 

 

 

$

217,352

 

 

 

 

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 six months ended June 30, 2014 were $80.5 million. Sales and maturities of trading securities were $62.3 million for the same period.

 

9



Table of Contents

 

A summary of available for sale affiliated mutual funds with fair values below carrying values at June 30, 2014 and December 31, 2013 is as follows:

 

 

 

Less than 12 months

 

12 months or longer

 

Total

 

June 30, 2014

 

Fair value

 

Unrealized
losses

 

Fair
value

 

Unrealized
losses

 

Fair
value

 

Unrealized
losses

 

 

 

(in thousands)

 

Affiliated mutual funds

 

$

 

 

1,187

 

(27

)

1,187

 

(27

)

Total temporarily impaired securities

 

$

 

 

1,187

 

(27

)

1,187

 

(27

)

 

 

 

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 the funds 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 June 30, 2014.

 

Corporate bonds accounted for as available for sale and held as of June 30, 2014 mature as follows:

 

 

 

Amortized
cost

 

Fair value

 

 

 

(in thousands)

 

Within one year

 

$

3,018

 

3,024

 

 

 

$

3,018

 

3,024

 

 

Mortgage-backed securities and corporate bonds accounted for as trading and held as of June 30, 2014 mature as follows:

 

 

 

Fair value

 

 

 

(in thousands)

 

Within one year

 

$

2,991

 

After five years but within 10 years

 

34

 

 

 

$

3,025

 

 

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Table of Contents

 

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-level hierarchy of inputs is summarized as follows:

 

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

 

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

 

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

 

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

 

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

 

The following tables summarize our investment securities as of June 30, 2014 and December 31, 2013 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.

 

June 30, 2014

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

(in thousands)

 

Mortgage-backed securities

 

$

 

34

 

 

34

 

Corporate bonds

 

 

6,015

 

 

6,015

 

Common stock

 

58

 

 

 

58

 

Affiliated mutual funds

 

211,245

 

 

 

211,245

 

Total

 

$

211,303

 

6,049

 

 

217,352

 

 

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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5.              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.  As of June 30, 2014, the Company’s annual impairment test indicated that goodwill and identifiable intangible assets were not impaired.  Goodwill and identifiable intangible assets (all considered indefinite lived) are as follows:

 

 

 

June 30,
2014

 

December 31,
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

 

 

6.              Indebtedness

 

Debt is reported at its carrying amount in the consolidated balance sheets.  The fair value of the Company’s outstanding indebtedness is approximately $210.0 million at June 30, 2014 compared to the carrying value of $190.0 million.  Fair value is calculated based on Level 2 inputs.

 

7.              Income Tax Uncertainties

 

As of January 1, 2014 and June 30, 2014, the Company had unrecognized tax benefits, including penalties and interest, of $12.0 million ($8.4 million net of federal benefit) and $13.1 million ($9.1 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 six month period ended June 30, 2014 was $0.3 million.  The total amount of accrued penalties and interest related to uncertain tax positions at June 30, 2014 of $3.4 million ($2.8 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 $0.3 million (up to $0.2 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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8.              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 retirees through the age of 65, including 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

 

Pension Benefits

 

Other
Postretirement
Benefits

 

 

 

Three months
ended
June 30,

 

Three months
ended
June 30,

 

Six months
ended
June 30,

 

Six months
ended
June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands)

 

(in thousands)

 

Components of net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,317

 

2,556

 

180

 

197

 

5,042

 

5,506

 

360

 

394

 

Interest cost

 

2,045

 

1,903

 

99

 

90

 

4,198

 

3,855

 

198

 

180

 

Expected return on plan assets

 

(3,595

)

(2,889

)

 

 

(7,008

)

(5,593

)

 

 

Actuarial (gain) loss amortization

 

337

 

1,034

 

(4

)

 

748

 

2,284

 

(8

)

 

Prior service cost amortization

 

104

 

139

 

14

 

14

 

234

 

278

 

28

 

28

 

Transition obligation amortization

 

1

 

1

 

 

 

2

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total(1)

 

$

1,209

 

2,744

 

289

 

301

 

3,216

 

6,332

 

578

 

602

 

 


(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 six months of 2014, we contributed $20.0 million to the Pension Plan.  We do not expect to make additional contributions for the remainder of 2014.

 

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9.              Stockholders’ Equity

 

Earnings per Share

 

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

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

(in thousands, except per share amounts)

 

Net income

 

$

82,988

 

51,957

 

157,852

 

105,820

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

85,073

 

85,869

 

85,046

 

85,731

 

Dilutive potential shares from stock options

 

 

 

 

1

 

Weighted average shares outstanding - diluted

 

85,073

 

85,869

 

85,046

 

85,732

 

 

 

 

 

 

 

 

 

 

 

Earnings per share basic and diluted

 

$

0.98

 

0.61

 

1.86

 

1.23

 

 

Dividends

 

On April 16, 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 July 11, 2014 to be paid on August 1, 2014.  The total dividend to be paid is approximately $28.8 million and is included in other current liabilities in the consolidated balance sheet at June 30, 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 628,022 shares and 789,177 shares repurchased in the open market or privately during the three months ended June 30, 2014 and 2013, respectively, which included 423,452 shares and 464,177 shares repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during the three months ended June 30, 2014 and 2013, respectively.  There were 908,208 shares and 870,878 shares repurchased in the open market or privately during the six months ended June 30, 2014 and 2013, respectively, which included 426,119 shares and 466,778 shares repurchased from employees tendering shares to cover their minimum income tax withholdings with respect to vesting of stock awards during each of these two periods.

 

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Table of Contents

 

Accumulated Other Comprehensive Income (Loss)

 

The following tables summarize other comprehensive income (loss) activity for the three and six months ended June 30, 2014 and June 30, 2013.

 

Three months ended June 30, 2014

 

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 March 31, 2014

 

$

2,709

 

552

 

(19,472

)

(16,211

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

2,253

 

1,317

 

 

3,570

 

Amount reclassified from accumulated other comprehensive income

 

(884

)

(516

)

285

 

(1,115

)

Net current period other comprehensive income

 

1,369

 

801

 

285

 

2,455

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2014

 

$

4,078

 

1,353

 

(19,187

)

(13,756

)

 

Three months ended June 30, 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 March 31, 2013

 

$

3,567

 

1,066

 

(47,806

)

(43,173

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

(89

)

(69

)

 

(158

)

Amount reclassified from accumulated other comprehensive income

 

(2,047

)

(1,198

)

592

 

(2,653

)

Net current period other comprehensive income (loss)

 

(2,136

)

(1,267

)

592

 

(2,811

)

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2013

 

$

1,431

 

(201

)

(47,214

)

(45,984

)

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2014

 

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

 

2,557

 

1,494

 

 

4,051

 

Amount reclassified from accumulated other comprehensive income

 

(1,629

)

(951

)

632

 

(1,948

)

Net current period other comprehensive income

 

928

 

543

 

632

 

2,103

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2014

 

$

4,078

 

1,353

 

(19,187

)

(13,756

)

 

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Table of Contents

 

Six months ended June 30, 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, 2012

 

$

1,823

 

32

 

(48,652

)

(46,797

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

3,190

 

1,865

 

 

5,055

 

Amount reclassified from accumulated other comprehensive income

 

(3,582

)

(2,098

)

1,438

 

(4,242

)

Net current period other comprehensive income (loss)

 

(392

)

(233

)

1,438

 

813

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2013

 

$

1,431

 

(201

)

(47,214

)

(45,984

)

 

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

 

 

 

For the three months ended June 30, 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

 

$

1,404

 

(520

)

884

 

Investment and other income

 

Valuation allowance

 

 

516

 

516

 

Provision for income taxes

 

Amortization of pension and postretirement benefits

 

(452

)

167

 

(285

)

Underwriting and distribution expense and Compensation and related costs

 

Total

 

$

952

 

163

 

1,115

 

 

 

 

 

 

For the three months ended June 30, 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

 

$

3,236

 

(1,189

)

2,047

 

Investment and other income

 

Valuation allowance

 

 

1,198

 

1,198

 

Provision for income taxes

 

Amortization of pension and postretirement benefits

 

(1,187

)

595

 

(592

)

Underwriting and distribution expense and Compensation and related costs

 

Total

 

$

2,049

 

604

 

2,653

 

 

 

 

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Table of Contents

 

 

 

For the six months ended June 30, 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

 

$

2,586

 

(957

)

1,629

 

Investment and other income

 

Valuation allowance

 

 

951

 

951

 

Provision for income taxes

 

Amortization of pension and postretirement benefits

 

(1,004

)

372

 

(632

)

Underwriting and distribution expense and Compensation and related costs

 

Total

 

$

1,582

 

366

 

1,948

 

 

 

 

 

 

For the six months ended June 30, 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

 

$

5,662

 

(2,080

)

3,582

 

Investment and other income

 

Valuation allowance

 

 

2,098

 

2,098

 

Provision for income taxes

 

Amortization of pension and postretirement benefits

 

(2,591

)

1,153

 

(1,438

)

Underwriting and distribution expense and Compensation and related costs

 

Total

 

$

3,071

 

1,171

 

4,242

 

 

 

 

10.       Share-Based Compensation

 

On April 2, 2014, we granted 742,141 shares of nonvested stock with a fair value of $75.96 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 $56.4 million, will generally be amortized to expense over a four year vesting period.

 

11.       Contingencies

 

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

 

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

 

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Table of Contents

 

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;

 

·                                          A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds; and

 

·                                          Our inability to attract and retain senior executive management and other key personnel to conduct our broker/dealer, fund management and investment management 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 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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Second Quarter Highlights

 

·                  In April, we launched the Ivy Emerging Markets Local Currency Debt Fund, subadvised by Pictet Asset Management.  The fund provides investors the opportunity to capture fixed income opportunities from a select group of emerging market economies.

 

·                  In May, we signed a fund adoption transaction agreement with Emerging Managers Group (“EMG”) through which Ivy Investment Management Company will take over responsibility as investment adviser and Ivy Funds Distributor, Inc. as distributor of the Selector Management Fund SICAV (collectively, Ivy Investment Management Company and Ivy Funds Distributor, Inc. are referred to as “Ivy”).  This agreement, which received regulatory approval in July and is expected to close during the third quarter, will allow Ivy to serve the non-resident customer market through national broker-dealer firms in the United States and establish a greater international distribution of Ivy’s investment management capabilities.

 

·                  Operating revenues of $400.6 million increased $68.9 million, or 21%, compared to the second quarter of 2013.

 

·                  Operating income of $123.6 million increased $38.6 million, or 45%, compared to the second quarter of 2013, and net income of $83.0 million increased $25.7 million, or 45%, over this same period, when excluding costs from the launch of the Ivy High Income Opportunities closed-end fund in 2013.

 

·                  Our operating margin was 30.9%, an improvement from 25.6% for the same period a year ago.

 

·                  Our assets under management increased 30% from $104.3 billion at June 30, 2013 to $135.6 billion at June 30, 2014.

 

·                  Company-wide sales exceeded $100.0 million for eleven investment strategies, including two investment strategies for which sales exceeded $500.0 million and two investment strategies for which sales exceeded $1.0 billion.

 

·                  Sales increased 10% to $7.5 billion for the second quarter of 2014 compared to the same period in 2013.

 

·                  Our balance sheet remains solid, and we ended the quarter with cash and investments of $725.0 million.

 

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Assets Under Management

 

Assets under management increased to $135.6 billion compared to $104.3 billion on June 30, 2013.

 

Change in Assets Under Management(1)

 

 

 

Second Quarter 2014

 

 

 

Wholesale

 

Advisors

 

Institutional

 

Total

 

 

 

(in millions)

 

Beginning Assets

 

$

70,467

 

44,224

 

16,692

 

131,383

 

 

 

 

 

 

 

 

 

 

 

Sales(2)

 

4,864

 

1,457

 

1,193

 

7,514

 

Redemptions

 

(4,363

)

(1,098

)

(851

)

(6,312

)

Net Exchanges

 

(397

)

(88

)

485

 

 

Net Flows

 

104

 

271

 

827

 

1,202

 

 

 

 

 

 

 

 

 

 

 

Market Appreciation

 

1,100

 

1,302

 

646

 

3,048

 

Ending Assets

 

$

71,671

 

45,797

 

18,165

 

135,633

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter 2013

 

 

 

Wholesale

 

Advisors

 

Institutional

 

Total

 

 

 

(in millions)

 

Beginning Assets

 

$

53,254

 

37,915

 

12,626

 

103,795

 

 

 

 

 

 

 

 

 

 

 

Sales(2)

 

5,030

 

1,403

 

379

 

6,812

 

Redemptions

 

(3,983

)

(1,083

)

(811

)

(5,877

)

Net Exchanges

 

61

 

(61

)

 

 

Net Flows

 

1,108

 

259

 

(432

)

935

 

 

 

 

 

 

 

 

 

 

 

Market Appreciation (Depreciation)

 

(502

)

(2

)

118

 

(386

)

Ending Assets

 

$

53,860

 

38,172

 

12,312

 

104,344

 

 

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Table of Contents

 

Assets under management increased to $135.6 billion at June 30, 2014 compared to $126.5 billion on December 31, 2013 due to inflows of $5.9 billion and market appreciation of $3.2 billion.

 

 

 

Year to Date 2014

 

 

 

Wholesale

 

Advisors

 

Institutional

 

Total

 

 

 

(in millions)

 

Beginning Assets

 

$

67,055

 

43,667

 

15,821

 

126,543

 

 

 

 

 

 

 

 

 

 

 

Sales(2)

 

11,881

 

2,892

 

2,747

 

17,520

 

Redemptions

 

(7,925

)

(2,204

)

(1,530

)

(11,659

)

Net Exchanges

 

(285

)

(200

)

485

 

 

Net Flows

 

3,671

 

488

 

1,702

 

5,861

 

 

 

 

 

 

 

 

 

 

 

Market Appreciation

 

945

 

1,642

 

642

 

3,229

 

Ending Assets

 

$

71,671

 

45,797

 

18,165

 

135,633

 

 

 

 

Year to Date 2013

 

 

 

Wholesale

 

Advisors

 

Institutional

 

Total

 

 

 

(in millions)

 

Beginning Assets

 

$

48,930

 

35,660

 

11,775

 

96,365

 

 

 

 

 

 

 

 

 

 

 

Sales(2)

 

10,072

 

2,706

 

809

 

13,587

 

Redemptions

 

(7,140

)

(2,130

)

(1,280

)

(10,550

)

Net Exchanges

 

127

 

(127

)

 

 

Net Flows

 

3,059

 

449

 

(471

)

3,037

 

 

 

 

 

 

 

 

 

 

 

Market Appreciation

 

1,871

 

2,063

 

1,008

 

4,942

 

Ending Assets

 

$

53,860

 

38,172

 

12,312

 

104,344

 

 


(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)         Primarily gross sales (net of sales commission), but also includes net reinvested dividends and capital gains and investment income.

 

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Table of Contents

 

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

 

 

 

Second Quarter 2014

 

 

 

Wholesale

 

Advisors

 

Institutional

 

Total

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

Asset Class:

 

 

 

 

 

 

 

 

 

Equity

 

$

55,679

 

32,547

 

16,410

 

$

104,636

 

Fixed Income

 

14,254

 

9,903

 

785

 

24,942

 

Money Market

 

167

 

2,066

 

 

2,233

 

Total

 

$

70,100

 

44,516

 

17,195

 

$

131,811

 

 

 

 

Second Quarter 2013

 

 

 

Wholesale

 

Advisors

 

Institutional

 

Total