Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET AL | ex32_10033111.htm |
EX-31.1 - EXHIBIT 31.1, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET AL | ex31_10033111.htm |
EX-31.2 - EXHIBIT 31.2, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET AL | ex31_20033111.htm |
EX-32.2 - EXHIBIT 32.2, DATED MAY 6, 2011 - GAMCO INVESTORS, INC. ET AL | ex32_20033111.htm |
SECURITIES & 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
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For the quarterly period ended March 31, 2011
or
[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ___ to ___
Commission File No. 1-106
GAMCO INVESTORS, INC.
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|||
(Exact name of Registrant as specified in its charter)
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New York
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13-4007862
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(State of other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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One Corporate Center, Rye, NY
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10580-1422
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(Address of principle executive offices)
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(Zip Code)
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(914) 921-3700
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Registrant’s telephone number, including area code
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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
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x
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No
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o
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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).
Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer", "accelerated filer", and "smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ¨
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
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o
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No
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x
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Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.
Class
|
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Outstanding at April 30, 2011
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|
Class A Common Stock, .001 par value
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6,860,757
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||
Class B Common Stock, .001 par value
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20,190,140
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INDEX
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GAMCO INVESTORS, INC. AND SUBSIDIARIES
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Unaudited Condensed Consolidated Financial Statements
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Condensed Consolidated Statements of Income:
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- Three months ended March 31, 2011 and 2010
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Condensed Consolidated Statements of Financial Condition:
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- March 31, 2011
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- December 31, 2010
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- March 31, 2010
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Condensed Consolidated Statements of Equity and Comprehensive Income:
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- Three months ended March 31, 2011 and 2010
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Condensed Consolidated Statements of Cash Flows:
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- Three months ended March 31, 2011 and 2010
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Notes to Unaudited Condensed Consolidated Financial Statements
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)
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Item 4.
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Controls and Procedures
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 6.
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Exhibits
|
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SIGNATURES
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2
GAMCO INVESTORS, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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||||||||
UNAUDITED
|
||||||||
(Dollars in thousands, except per share data)
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||||||||
Three Months Ended
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||||||||
March 31,
|
||||||||
2011
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2010
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|||||||
Revenues
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||||||||
Investment advisory and incentive fees
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$ | 62,911 | $ | 49,342 | ||||
Institutional research services
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3,649 | 3,424 | ||||||
Distribution fees and other income
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10,345 | 7,232 | ||||||
Total revenues
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76,905 | 59,998 | ||||||
Expenses
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||||||||
Compensation
|
33,417 | 26,213 | ||||||
Management fee
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3,113 | 2,448 | ||||||
Distribution costs
|
13,429 | 7,031 | ||||||
Other operating expenses
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6,186 | 4,936 | ||||||
Total expenses (a)
|
56,145 | 40,628 | ||||||
Operating income
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20,760 | 19,370 | ||||||
Other income (expense)
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||||||||
Net gain from investments
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8,740 | 5,232 | ||||||
Interest and dividend income
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1,936 | 815 | ||||||
Interest and other expense
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(2,867 | ) | (3,292 | ) | ||||
Total other income (expense), net
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7,809 | 2,755 | ||||||
Income before income taxes
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28,569 | 22,125 | ||||||
Income tax provision
|
10,288 | 8,294 | ||||||
Net income
|
18,281 | 13,831 | ||||||
Net income attributable to noncontrolling interests
|
638 | 105 | ||||||
Net income attributable to GAMCO Investors, Inc.'s shareholders
|
$ | 17,643 | $ | 13,726 | ||||
Net income attributable to GAMCO Investors, Inc.'s shareholders
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||||||||
per share:
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||||||||
Basic
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$ | 0.66 | $ | 0.50 | ||||
Diluted
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$ | 0.65 | $ | 0.50 | ||||
Weighted average shares outstanding:
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||||||||
Basic
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26,901 | 27,184 | ||||||
Diluted
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27,008 | 28,148 | ||||||
Dividends declared:
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$ | 0.03 | $ | 0.03 | ||||
(a) First quarter 2011 includes $5.6 million in costs directly related to the launch of a new closed-end fund.
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||||||||
See accompanying notes.
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3
GAMCO INVESTORS, INC. AND SUBSIDIARIES
|
||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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||||||||||||
UNAUDITED
|
||||||||||||
(Dollars in thousands, except per share data)
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||||||||||||
March 31,
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December 31,
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March 31,
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||||||||||
2011
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2010
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2010
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||||||||||
ASSETS
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||||||||||||
Cash and cash equivalents, including restricted cash of $0, $0 and $62,265, respectively
|
$ | 164,671 | $ | 169,601 | $ | 411,365 | ||||||
Investments in securities
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345,616 | 305,486 | 177,001 | |||||||||
Investments in partnerships
|
94,584 | 82,871 | 70,744 | |||||||||
Receivable from brokers
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43,308 | 46,621 | 25,368 | |||||||||
Investment advisory fees receivable
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24,992 | 44,660 | 18,858 | |||||||||
Income tax receivable and deferred tax assets
|
302 | 325 | - | |||||||||
Other assets
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24,030 | 23,172 | 21,289 | |||||||||
Total assets
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$ | 697,503 | $ | 672,736 | $ | 724,625 | ||||||
LIABILITIES AND EQUITY
|
||||||||||||
Payable to brokers
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$ | 7,998 | $ | 1,554 | $ | 4,394 | ||||||
Income taxes payable and deferred tax liabilities
|
25,035 | 23,225 | 7,548 | |||||||||
Capital lease obligation
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5,151 | 5,182 | 5,239 | |||||||||
Compensation payable
|
22,883 | 23,771 | 21,335 | |||||||||
Securities sold, not yet purchased
|
15,550 | 19,299 | 9,063 | |||||||||
Mandatorily redeemable noncontrolling interests
|
1,466 | 1,444 | 1,636 | |||||||||
Accrued expenses and other liabilities
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28,351 | 23,089 | 23,333 | |||||||||
Sub-total
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106,434 | 97,564 | 72,548 | |||||||||
5.5% Senior notes (due May 15, 2013)
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99,000 | 99,000 | 99,000 | |||||||||
6% Convertible note (due August 14, 2011; repaid September 30, 2010)
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- | - | 39,873 | |||||||||
6.5% Convertible note (due October 2, 2018; repaid October 13, 2010)
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- | - | 60,000 | |||||||||
Zero coupon subordinated debentures, Face value: $86.4 million (due December 31, 2015)
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60,697 | 59,580 | - | |||||||||
Total liabilities
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266,131 | 256,144 | 271,421 | |||||||||
Redeemable noncontrolling interests
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28,884 | 26,984 | 1,464 | |||||||||
Commitments and contingencies (Note J)
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Equity
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||||||||||||
GAMCO Investors, Inc. stockholders' equity
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||||||||||||
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
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||||||||||||
13,526,203, 13,255,503 and 13,119,776 issued, respectively; 6,872,333,
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||||||||||||
6,763,221 and 7,131,297 outstanding, respectively
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13 | 13 | 13 | |||||||||
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
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||||||||||||
24,000,000 shares issued; 20,190,140, 20,290,140 and 20,292,917 shares
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||||||||||||
outstanding, respectively
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20 | 20 | 20 | |||||||||
Additional paid-in capital
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262,686 | 262,108 | 252,987 | |||||||||
Retained earnings
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387,101 | 370,272 | 423,374 | |||||||||
Accumulated comprehensive income
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27,900 | 25,389 | 20,871 | |||||||||
Treasury stock, at cost (6,653,870, 6,492,282 and 5,988,479 shares, respectively)
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(278,870 | ) | (271,773 | ) | (249,604 | ) | ||||||
Total GAMCO Investors, Inc. stockholders' equity
|
398,850 | 386,029 | 447,661 | |||||||||
Noncontrolling interests
|
3,638 | 3,579 | 4,079 | |||||||||
Total equity
|
402,488 | 389,608 | 451,740 | |||||||||
Total liabilities and equity
|
$ | 697,503 | $ | 672,736 | $ | 724,625 | ||||||
See accompanying notes.
|
4
GAMCO INVESTORS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||||||||||||||
UNAUDITED
|
||||||||||||||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2011
|
||||||||||||||||||||||||||||||||||||
GAMCO Investors, Inc. shareholders
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||||||||||||||||||||||||||||||||||||
Additional
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Accumulated
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Redeemable
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||||||||||||||||||||||||||||||||||
Noncontrolling
|
Common
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
Noncontrolling
|
Comprehensive
|
|||||||||||||||||||||||||||||
Interests
|
Stock
|
Capital
|
Earnings
|
Income
|
Stock
|
Total
|
Interests
|
Income
|
||||||||||||||||||||||||||||
Balance at December 31, 2010
|
$ | 3,579 | $ | 33 | $ | 262,108 | $ | 370,272 | $ | 25,389 | $ | (271,773 | ) | $ | 389,608 | $ | 26,984 | $ | - | |||||||||||||||||
Redemptions of redeemable
|
||||||||||||||||||||||||||||||||||||
noncontrolling interests
|
- | - | - | - | - | - | - | (839 | ) | - | ||||||||||||||||||||||||||
Contributions from redeemable
|
||||||||||||||||||||||||||||||||||||
noncontrolling interests
|
- | - | - | - | - | - | - | 6,263 | - | |||||||||||||||||||||||||||
Deconsolidation of
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||||||||||||||||||||||||||||||||||||
Partnership
|
- | - | - | - | - | - | - | (4,103 | ) | - | ||||||||||||||||||||||||||
Net income
|
59 | - | - | 17,643 | - | - | 17,702 | 579 | 18,281 | |||||||||||||||||||||||||||
Net unrealized gains on
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||||||||||||||||||||||||||||||||||||
securities available for sale,
|
||||||||||||||||||||||||||||||||||||
net of income tax ($1,460)
|
- | - | - | - | 2,487 | - | 2,487 | - | 2,487 | |||||||||||||||||||||||||||
Foreign currency translation
|
- | - | - | - | 24 | - | 24 | - | 24 | |||||||||||||||||||||||||||
Dividends declared ($0.03 per
|
||||||||||||||||||||||||||||||||||||
share)
|
- | - | - | (814 | ) | - | - | (814 | ) | - | - | |||||||||||||||||||||||||
Stock based compensation
|
||||||||||||||||||||||||||||||||||||
expense
|
- | - | 578 | - | - | - | 578 | - | - | |||||||||||||||||||||||||||
Purchase of treasury stock
|
- | - | - | - | - | (7,097 | ) | (7,097 | ) | - | - | |||||||||||||||||||||||||
Balance at March 31, 2011
|
$ | 3,638 | $ | 33 | $ | 262,686 | $ | 387,101 | $ | 27,900 | $ | (278,870 | ) | $ | 402,488 | $ | 28,884 | $ | 20,792 | |||||||||||||||||
Comprehensive income attributable
|
||||||||||||||||||||||||||||||||||||
to noncontrolling interest
|
(638 | ) | ||||||||||||||||||||||||||||||||||
Total comprehensive income
|
||||||||||||||||||||||||||||||||||||
attributable to GAMCO Investors, Inc.
|
$ | 20,154 | ||||||||||||||||||||||||||||||||||
See accompanying notes.
|
5
GAMCO INVESTORS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||||||||||||||
UNAUDITED
|
||||||||||||||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2010
|
||||||||||||||||||||||||||||||||||||
GAMCO Investors, Inc. shareholders
|
||||||||||||||||||||||||||||||||||||
Additional
|
Accumulated
|
Redeemable
|
||||||||||||||||||||||||||||||||||
Noncontrolling
|
Common
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
Noncontrolling
|
Comprehensive
|
|||||||||||||||||||||||||||||
Interests
|
Stock
|
Capital
|
Earnings
|
Income
|
Stock
|
Total
|
Interests
|
Income
|
||||||||||||||||||||||||||||
Balance at December 31, 2009
|
$ | 4,043 | $ | 33 | $ | 251,591 | $ | 410,473 | $ | 19,088 | $ | (241,567 | ) | $ | 443,661 | $ | 1,464 | $ | - | |||||||||||||||||
Redemptions of redeemable
|
||||||||||||||||||||||||||||||||||||
noncontrolling interests
|
- | - | - | - | - | - | - | (475 | ) | - | ||||||||||||||||||||||||||
Contributions from redeemable
|
||||||||||||||||||||||||||||||||||||
noncontrolling interests
|
- | - | - | - | - | - | - | 406 | - | |||||||||||||||||||||||||||
Net income
|
36 | - | - | 13,726 | - | - | 13,762 | 69 | 13,831 | |||||||||||||||||||||||||||
Net unrealized gains on
|
||||||||||||||||||||||||||||||||||||
securities available for sale,
|
||||||||||||||||||||||||||||||||||||
net of income tax ($1,067)
|
- | - | - | - | 1,816 | - | 1,816 | - | 1,816 | |||||||||||||||||||||||||||
Foreign currency translation
|
- | - | - | - | (33 | ) | - | (33 | ) | - | (33 | ) | ||||||||||||||||||||||||
Dividends declared ($0.03 per
|
||||||||||||||||||||||||||||||||||||
share)
|
- | - | - | (825 | ) | - | - | (825 | ) | - | - | |||||||||||||||||||||||||
Stock based compensation
|
||||||||||||||||||||||||||||||||||||
expense
|
- | - | 1,383 | - | - | - | 1,383 | - | - | |||||||||||||||||||||||||||
Exercise of stock options
|
||||||||||||||||||||||||||||||||||||
including tax benefit
|
- | - | 13 | - | - | - | 13 | - | - | |||||||||||||||||||||||||||
Purchase of treasury stock
|
- | - | - | - | - | (8,037 | ) | (8,037 | ) | - | - | |||||||||||||||||||||||||
Balance at March 31, 2010
|
$ | 4,079 | $ | 33 | $ | 252,987 | $ | 423,374 | $ | 20,871 | $ | (249,604 | ) | $ | 451,740 | $ | 1,464 | $ | 15,614 | |||||||||||||||||
Comprehensive income attributable
|
||||||||||||||||||||||||||||||||||||
to noncontrolling interest
|
(105 | ) | ||||||||||||||||||||||||||||||||||
Total comprehensive income
|
||||||||||||||||||||||||||||||||||||
attributable to GAMCO Investors, Inc.
|
$ | 15,509 | ||||||||||||||||||||||||||||||||||
See accompanying notes.
|
6
GAMCO INVESTORS, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
UNAUDITED
|
||||||||
(In thousands)
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2011
|
2010
|
|||||||
Operating activities
|
||||||||
Net income
|
$ | 18,281 | $ | 13,831 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
||||||||
Equity in net gains from partnerships and affiliates
|
(2,977 | ) | (2,352 | ) | ||||
Depreciation and amortization
|
274 | 171 | ||||||
Stock based compensation expense
|
578 | 1,383 | ||||||
Deferred income taxes
|
1,649 | 277 | ||||||
Tax benefit from exercise of stock options
|
- | 5 | ||||||
Foreign currency translation gain/(loss)
|
24 | (33 | ) | |||||
Fair value of donated securities
|
- | 77 | ||||||
(Gains) on sales of available for sale securities
|
(101 | ) | - | |||||
Amortization of discount on convertible debt
|
- | 22 | ||||||
Accretion of zero coupon debentures
|
1,117 | - | ||||||
(Increase) decrease in assets:
|
||||||||
Investments in trading securities
|
(44,589 | ) | (17,980 | ) | ||||
Investments in partnerships:
|
||||||||
Contributions to partnerships
|
(6,583 | ) | (11,129 | ) | ||||
Distributions from partnerships
|
3,026 | 5,391 | ||||||
Receivable from brokers
|
(2,373 | ) | 4,704 | |||||
Investment advisory fees receivable
|
19,798 | 16,827 | ||||||
Income tax receivable and deferred tax assets
|
23 | - | ||||||
Other assets
|
(1,129 | ) | (6 | ) | ||||
Increase (decrease) in liabilities:
|
||||||||
Payable to brokers
|
6,444 | 3,999 | ||||||
Income taxes payable and deferred tax liabilities
|
(1,035) | (2,320 | ) | |||||
Compensation payable
|
(891 | ) | 8,035 | |||||
Mandatorily redeemable noncontrolling interests
|
23 | 14 | ||||||
Accrued expenses and other liabilities
|
6,531 | (1,791 | ) | |||||
Total adjustments
|
(20,191 | ) | 5,294 | |||||
Net cash (used in) provided by operating activities
|
$ | (1,910 | ) | $ | 19,125 |
7
GAMCO INVESTORS, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
UNAUDITED (continued)
|
||||||||
(In thousands)
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2011
|
2010
|
|||||||
Investing activities
|
||||||||
Purchases of available for sale securities
|
$ | (4 | ) | $ | (4 | ) | ||
Proceeds from sales of available for sale securities
|
101 | - | ||||||
Return of capital on available for sale securities
|
631 | 686 | ||||||
Increase in restricted cash
|
- | (7 | ) | |||||
Net cash provided by investing activities
|
728 | 675 | ||||||
Financing activities
|
||||||||
Contributions from redeemable noncontrolling interests
|
6,263 | - | ||||||
Redemptions of redeemable noncontrolling interests
|
(839 | ) | (69 | ) | ||||
Proceeds from exercise of stock options
|
- | 8 | ||||||
Dividends paid
|
(814 | ) | (825 | ) | ||||
Purchase of treasury stock
|
(7,097 | ) | (8,037 | ) | ||||
Net cash used in financing activities
|
(2,487 | ) | (8,923 | ) | ||||
Effect of exchange rates on cash and cash equivalents
|
(10 | ) | (48 | ) | ||||
Net (decrease) increase in cash and cash equivalents
|
(3,679 | ) | 10,829 | |||||
Cash and cash equivalents at beginning of period
|
169,601 | 338,270 | ||||||
Decrease in cash from deconsolidation of partnership
|
(1,251 | ) | - | |||||
Cash and cash equivalents at end of period
|
$ | 164,671 | $ | 349,099 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid for interest
|
$ | 271 | $ | 3,447 | ||||
Cash paid for taxes
|
$ | 9,167 | $ | 9,969 | ||||
Non-cash activity:
|
||||||||
- On January 1, 2011, GAMCO Investors, Inc. was no longer determined to have control over one partnership which
|
||||||||
resulted in the deconsolidation of that partnership, and decreases of approximately $1,251 of cash and cash
|
||||||||
equivalents, $2,852 of net assets and $4,103 of noncontrolling interests.
|
||||||||
- For the three months ended March 31, 2011 and March 31, 2010, the Company accrued RSA dividends of $7
|
||||||||
and $10, respectively.
|
||||||||
See accompanying notes.
|
8
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2011
(Unaudited)
A. Significant Accounting Policies
Basis of Presentation
Unless we have indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “GBL,” “we,” “us” and “our” or similar terms are to GAMCO Investors, Inc., its predecessors and its subsidiaries.
The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of GAMCO for the interim periods presented and are not necessarily indicative of a full year’s results.
The condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries. Intercompany accounts and transactions are eliminated.
These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010 from which the accompanying condensed consolidated financial statements were derived.
Certain items previously reported have been reclassified to conform to the current period’s condensed consolidated financial statements presentation.
Subsequent to the issuance of the Company’s second quarter 2010 Form 10-Q, filed with the SEC on August 5, 2010, the Company determined that pursuant to ASC 810, Consolidation, it should have presented the amount of comprehensive income attributable to noncontrolling interests and comprehensive income attributable to GAMCO in its consolidated statement of equity and comprehensive income. The affected period includes the period ended March 31, 2010. The accompanying consolidated statement of equity and comprehensive income for the period ended March 31, 2010 has been corrected to also include such information. The Company believes this correction was not material to the consolidated financial statements taken as a whole.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Recent Accounting Developments
In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The guidance affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements. The guidance requires new disclosures regarding purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted the applicable portions of this guidance on January 1, 2011 without a material impact to the consolidated financial statement disclosures.
9
B. Investment in Securities
Investments in securities at March 31, 2011, December 31, 2010 and March 31, 2010 consisted of the following:
March 31, 2011
|
December 31, 2010
|
March 31, 2010
|
||||||||||||||||||||||
Cost
|
Fair Value
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
|||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
Trading securities:
|
||||||||||||||||||||||||
Government obligations
|
$ | 12,069 | $ | 12,076 | $ | 27,327 | $ | 27,288 | $ | 1,388 | $ | 1,348 | ||||||||||||
Common stocks
|
210,956 | 225,589 | 158,455 | 170,374 | 68,071 | 74,573 | ||||||||||||||||||
Mutual funds
|
1,205 | 1,654 | 1,205 | 1,554 | 1,194 | 1,379 | ||||||||||||||||||
Convertible bonds
|
163 | 175 | 574 | 620 | 637 | 749 | ||||||||||||||||||
Preferred stocks
|
- | - | 1,783 | 1,973 | - | 11 | ||||||||||||||||||
Other investments
|
465 | 476 | 1,559 | 1,350 | 367 | 142 | ||||||||||||||||||
Total trading securities
|
224,858 | 239,970 | 190,903 | 203,159 | 71,657 | 78,202 | ||||||||||||||||||
Available for sale securities:
|
||||||||||||||||||||||||
Common stocks
|
16,835 | 37,408 | 16,835 | 37,139 | 17,063 | 34,655 | ||||||||||||||||||
Mutual funds
|
43,080 | 68,238 | 43,707 | 65,188 | 48,773 | 64,144 | ||||||||||||||||||
Total available for sale securities
|
59,915 | 105,646 | 60,542 | 102,327 | 65,836 | 98,799 | ||||||||||||||||||
Total investments in securities
|
$ | 284,773 | $ | 345,616 | $ | 251,445 | $ | 305,486 | $ | 137,493 | $ | 177,001 |
Securities sold, not yet purchased at March 31, 2011, December 31, 2010 and March 31, 2010 consisted of the following:
March 31, 2011
|
December 31, 2010
|
March 31, 2010
|
||||||||||||||||||||||
Cost
|
Fair Value
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
|||||||||||||||||||
Trading securities:
|
(In thousands)
|
|||||||||||||||||||||||
Common stocks
|
$ | 14,044 | $ | 15,550 | $ | 19,071 | $ | 19,299 | $ | 9,268 | $ | 9,052 | ||||||||||||
Other
|
- | - | - | - | 10 | 11 | ||||||||||||||||||
Total securities sold, not yet purchased
|
$ | 14,044 | $ | 15,550 | $ | 19,071 | $ | 19,299 | $ | 9,278 | $ | 9,063 |
Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities, and those with maturities of three months or less at time of purchase are classified as cash equivalents. A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses, reported in current period earnings. Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary which are recorded as unrealized losses in the condensed consolidated statements of income. There was no impairment of AFS securities for the three month periods ended March 31, 2011 and 2010.
The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes them in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition. From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments. For the three months ended March 31, 2011 and 2010, the Company had derivative transactions in equity derivatives which resulted in net losses of $0 and $61,000, respectively. At December 31, 2010 and March 31, 2010, we held derivative contracts on 403,000 equity shares and 6,000 equity shares, respectively, and the fair value was $1.0 million and $29,000, respectively; these are included in investments in securities in the condensed consolidated statements of financial condition. At March 31, 2011, the Company did not hold any derivatives. These transactions are not designated as hedges for accounting purposes, and therefore changes in fair values of these derivatives are included in net gain from investments in the condensed consolidated statements of income.
10
At March 31, 2011, December 31, 2010 and March 31, 2010, the fair value of common stock investments available for sale was $37.4 million, $37.1 million and $34.7 million, respectively. The total unrealized gains for common stock investments available for sale securities with unrealized gains was $20.6 million, $20.3 million and $17.6 million at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. There were no unrealized losses for common stock investments available for sale at March 31, 2011, December 31, 2010 or March 31, 2010. At March 31, 2011, December 31, 2010 and March 31, 2010, the fair value of mutual fund investments available for sale with unrealized gains was $68.2 million, $65.2 million and $62.2 million, respectively. At March 31, 2011 and December 31, 2010, there were no unrealized losses for mutual fund investments available for sale. At March 31, 2010, the fair value of mutual fund investments available for sale with unrealized losses was $1.9 million. The total unrealized gains for mutual fund investments available for sale securities with unrealized gains at March 31, 2011, December 31, 2010 and March 31, 2010 was $25.0 million, $21.5 million and $15.4 million, respectively. The total unrealized losses for available for sale securities with unrealized losses was $0.1 million at March 31, 2010.
Unrealized changes to fair value, net of taxes, for the three months ended March 31, 2011 and 2010 of $2.5 million in gains and $1.8 million in gains, respectively, have been included in other comprehensive income, a component of equity, at March 31, 2011 and March 31, 2010. Return of capital on available for sale securities for the three months ended March 31, 2011 and 2010 was $0.6 million and $0.7 million, respectively. Proceeds from sales of investments available for sale were approximately $101,000 for the three month period ended March 31, 2011. For the three months ended March 31, 2011, gross gains on the sale of investments available for sale amounted to $101,000; there were no gross losses on the sale of investments available for sale. There were no sales of investments available for sale for the three months ended March 31, 2010.
Investments classified as available for sale that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:
March 31, 2011
|
December 31, 2010
|
March 31, 2010
|
||||||||||||||||||||||||||||||||||
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||||||||||||||
Cost
|
Losses
|
Fair Value
|
Cost
|
Losses
|
Fair Value
|
Cost
|
Losses
|
Fair Value
|
||||||||||||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||||||||||||||
Mutual Funds
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,002 | $ | (55 | ) | $ | 1,947 |
At March 31, 2010, there were two holdings in loss positions which were not deemed to be other-than-temporarily impaired because they passed scrutiny in our evaluation of the length of time that they had been in a loss position and our evaluation of issuer-specific and industry-specific considerations. In these specific instances, the investments at March 31, 2010 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries. One holding was impaired for four consecutive months, and one holding was impaired for twelve consecutive months. The fair value of these holdings at March 31, 2010 was $1.9 million.
C. Investments in Partnerships
The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds whose underlying assets consist primarily of marketable securities (the “affiliated entities”). We also have investments in unaffiliated partnerships, offshore funds and other entities. Certain of the affiliated entities are consolidated, generally because a majority of the equity is owned by the Company. Other investment partnerships for which we serve as the general partner but have only a minority ownership interest are not consolidated because the limited partners have substantive rights to replace the Company as general partner. Our balance sheet caption “investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in consolidated feeder funds that the Company accounts for at fair value, as described below. The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption net gain from investments on the condensed consolidated statements of income.
We also have sponsored a number of investment vehicles where we are the investment manager in which we do not have an equity investment. These vehicles are considered VIEs, and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns. The Company has not provided any financial or other support to these entities. The total assets of these entities at March 31, 2011, December 31, 2010 and March 31, 2010 were $9.8 million, $13.3 million and $10.5 million, respectively. Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the deferred carried interest that we have in one of the VIEs. On March 31, 2011, December 31, 2010 and March 31, 2010, we had a deferred carried interest in one of the VIE offshore funds of approximately $48,000, $325,000 and $287,000, respectively, and it was included in investments in partnerships on the condensed consolidated statements of financial condition. Additionally, as the general partner or investment manager to these VIEs, the Company earns fees for performing these roles. These revenues are dependent upon the AUM levels in the VIEs and would vary depending on these AUMs and which would be reflected in the condensed consolidated statements of income, condensed consolidated statements of financial condition and condensed consolidated statements of cash flows.
11
In the case of two VIEs, we are determined to be the primary beneficiary of each because we absorb a majority of each entity’s expected losses and therefore they are consolidated in the financial statements. The Company has an investment in these VIEs of $54.6 million. The Company has not provided any financial or other support to these VIEs but does earn fees as the investment manager. These VIEs have total assets of $96.9 million at March 31, 2011; $2.0 million is included in cash and cash equivalents, $77.0 million is included in investments in securities, $1.6 million is included in investments in partnerships and $16.3 million is included in receivable from brokers on the condensed consolidated statements of financial condition. These assets may only be used to satisfy the obligations of the VIEs which include $12.3 million included in securities sold, not yet purchased, $2.2 million included in accrued expenses and other liabilities and $28.0 million included in redeemable noncontrolling interest.
On January 1, 2011, upon analysis of several factors, including the additional contribution of capital from unrelated third parties into a partnership that we consolidated for the year ended and as of December 31, 2010, we determined that the Company was no longer deemed to control the partnership, resulting in the deconsolidation of this partnership, effective January 1, 2011. The deconsolidation did not result in the recognition of any gain or loss. The Company continues to serve as the general partner and earns fees for this role, and it also maintains an investment in the deconsolidated partnership which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).
At March 31, 2011, December 31, 2010 and March 31, 2010, and for the three months ended March 31, 2011 and March 31, 2010, the Company consolidated two limited partnerships and one offshore fund (the “consolidated feeder funds”), that owned 100% of their offshore master funds. The Company retained the specialized investment company accounting of the consolidated feeder funds in the Company’s consolidated financial statements. Included in the investment in partnerships on the Company’s consolidated statement of financial condition as of March 31, 2011, December 31, 2010 and March 31, 2010, are $28.5 million $27.7 million, and $26.2 million, respectively, which represent the consolidated feeder fund’s proportionate investment in the master funds carried at fair value, at those dates.
D. Fair Value
All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value. Certain investments in partnerships are also measured at fair value.
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB’s guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below:
-
|
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 assets include cash equivalents, government obligations, open and closed end funds and equities.
|
-
|
Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals. Assets that generally are included in this category may include certain limited partnership interests in private funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs and over the counter derivatives that have inputs to the valuations that can generally be corroborated by observable market data.
|
-
|
Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets included in this category generally include equities that trade infrequently and direct private equity investments held within consolidated partnerships.
|
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Investments are transferred into or out of any level at their beginning period values.
12
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.
In the absence of a closing price, an average of the bid and ask price is used. Bid prices reflect the highest price that the market is willing to pay for an asset. Ask prices represent the lowest price that the market is willing to accept for an asset.
Cash equivalents – Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries. U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents. Cash equivalents are valued using quoted market prices.
Investments in securities and securities sold, not yet purchased – Investments in securities and securities sold, not yet purchased are generally valued based on quoted prices from an exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy. Securities categorized in Level 2 investments are valued using other observable inputs. Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.
Investments in Partnerships – The Company’s investments include limited partner investments in consolidated feeder funds. The Company considers the net asset value of the consolidated feeder fund to be the best estimate of fair value. Investments in private funds that are redeemable at the measurement date or within the near term, are categorized in Level 2 of the fair value hierarchy. These funds primarily invest in long and short investments in debt and equity securities that are traded in public and over-the-counter exchanges in the United States and are classified as Level 1 assets or liabilities in the funds’ financial statements. We may redeem our investments in these funds monthly with 30 days’ notice.
The following table presents information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of March 31, 2011, December 31, 2010 and March 31, 2010 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2011 (in thousands)
Quoted Prices in Active
|
Significant Other
|
Significant
|
Balance as of
|
|||||||||||||
Markets for Identical
|
Observable
|
Unobservable
|
March 31,
|
|||||||||||||
Assets
|
Assets (Level 1)
|
Inputs (Level 2)
|
Inputs (Level 3)
|
2011
|
||||||||||||
Cash equivalents
|
$ | 161,946 | $ | - | $ | - | $ | 161,946 | ||||||||
Investments in partnerships
|
- | 28,473 | - | 28,473 | ||||||||||||
Investments in securities:
|
||||||||||||||||
AFS - Common stocks
|
37,408 | - | - | 37,408 | ||||||||||||
AFS - Mutual funds
|
68,238 | - | - | 68,238 | ||||||||||||
Trading - Gov't obligations
|
12,076 | - | - | 12,076 | ||||||||||||
Trading - Common stocks
|
225,008 | 13 | 568 | 225,589 | ||||||||||||
Trading - Mutual funds
|
1,654 | - | - | 1,654 | ||||||||||||
Trading - Convertible bonds
|
175 | - | - | 175 | ||||||||||||
Trading - Other
|
120 | - | 356 | 476 | ||||||||||||
Total investments in securities
|
344,679 | 13 | 924 | 345,616 | ||||||||||||
Total investments
|
344,679 | 28,486 | 924 | 374,089 | ||||||||||||
Total assets at fair value
|
$ | 506,625 | $ | 28,486 | $ | 924 | $ | 536,035 | ||||||||
Liabilities
|
||||||||||||||||
Trading - Common stocks
|
$ | 15,550 | $ | - | $ | - | $ | 15,550 | ||||||||
Securities sold, not yet purchased
|
$ | 15,550 | $ | - | $ | - | $ | 15,550 |
13
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2010 (in thousands)
Quoted Prices in Active
|
Significant Other
|
Significant
|
Balance as of
|
|||||||||||||
Markets for Identical
|
Observable
|
Unobservable
|
December 31,
|
|||||||||||||
Assets
|
Assets (Level 1)
|
Inputs (Level 2)
|
Inputs (Level 3)
|
2010
|
||||||||||||
Cash equivalents
|
$ | 167,548 | $ | - | $ | - | $ | 167,548 | ||||||||
Investments in partnerships
|
- | 27,690 | - | 27,690 | ||||||||||||
Investments in securities:
|
||||||||||||||||
AFS - Common stocks
|
37,139 | - | - | 37,139 | ||||||||||||
AFS - Mutual funds
|
65,188 | - | - | 65,188 | ||||||||||||
Trading - Gov't obligations
|
27,288 | - | - | 27,288 | ||||||||||||
Trading - Common stocks
|
170,204 | 23 | 147 | 170,374 | ||||||||||||
Trading - Mutual funds
|
1,554 | - | - | 1,554 | ||||||||||||
Trading - Convertible bonds
|
620 | - | - | 620 | ||||||||||||
Trading - Preferred stocks
|
1,973 | - | - | 1,973 | ||||||||||||
Trading - Other
|
72 | 1,000 | 278 | 1,350 | ||||||||||||
Total investments in securities
|
304,038 | 1,023 | 425 | 305,486 | ||||||||||||
Total investments
|
304,038 | 28,713 | 425 | 333,176 | ||||||||||||
Total assets at fair value
|
$ | 471,586 | $ | 28,713 | $ | 425 | $ | 500,724 | ||||||||
Liabilities
|
||||||||||||||||
Trading - Common stocks
|
$ | 19,299 | $ | - | $ | - | $ | 19,299 | ||||||||
Securities sold, not yet purchased
|
$ | 19,299 | $ | - | $ | - | $ | 19,299 |
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2010 (in thousands)
Quoted Prices in Active
|
Significant Other
|
Significant
|
Balance as of
|
|||||||||||||
Markets for Identical
|
Observable
|
Unobservable
|
March 31,
|
|||||||||||||
Assets
|
Assets (Level 1)
|
Inputs (Level 2)
|
Inputs (Level 3)
|
2010
|
||||||||||||
Cash equivalents
|
$ | 410,798 | $ | - | $ | - | $ | 410,798 | ||||||||
Investments in partnerships
|
- | 26,202 | - | 26,202 | ||||||||||||
Investments in securities:
|
||||||||||||||||
AFS - Common stocks
|
34,655 | - | - | 34,655 | ||||||||||||
AFS - Mutual funds
|
64,144 | - | - | 64,144 | ||||||||||||
Trading - Gov't obligations
|
1,348 | - | - | 1,348 | ||||||||||||
Trading - Common stocks
|
74,227 | 113 | 233 | 74,573 | ||||||||||||
Trading - Mutual funds
|
1,379 | - | - | 1,379 | ||||||||||||
Trading - Convertible bonds
|
749 | - | - | 749 | ||||||||||||
Trading - Preferred stocks
|
- | - | 11 | 11 | ||||||||||||
Trading - Other
|
12 | 40 | 90 | 142 | ||||||||||||
Total investments in securities
|
176,514 | 153 | 334 | 177,001 | ||||||||||||
Total investments
|
176,514 | 26,355 | 334 | 203,203 | ||||||||||||
Total assets at fair value
|
$ | 587,312 | $ | 26,355 | $ | 334 | $ | 614,001 | ||||||||
Liabilities
|
||||||||||||||||
Trading - Common stocks
|
$ | 9,052 | $ | - | $ | - | $ | 9,052 | ||||||||
Trading - Other
|
- | 11 | - | 11 | ||||||||||||
Securities sold, not yet purchased
|
$ | 9,052 | $ | 11 | $ | - | $ | 9,063 |
14
The following tables present additional information about assets and liabilities by major categories measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2011 (in thousands)
Total
|
||||||||||||||||||||||||||||||||||||
Unrealized
|
||||||||||||||||||||||||||||||||||||
Gains or
|
Total
|
|||||||||||||||||||||||||||||||||||
Total Realized and
|
(Losses)
|
Realized
|
|
|||||||||||||||||||||||||||||||||
December
|
Unrealized Gains or
|
Included in
|
and
|
Transfers
|
||||||||||||||||||||||||||||||||
31, 2010 |
(Losses) in Income
|
Other
|
Unrealized
|
In and/or
|
||||||||||||||||||||||||||||||||
Beginning
|
AFS
|
Comprehensive
|
Gains or
|
(Out) of
|
Ending
|
|||||||||||||||||||||||||||||||
Asset
|
Balance
|
Trading
|
Investments
|
Income
|
(Losses)
|
Purchases
|