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EX-31.2 - EXHIBIT 31.2, DATED AUGUST 2, 2011 - GAMCO INVESTORS, INC. ET ALex31_20063011.htm
EX-31.1 - EXHIBIT 31.1, DATED AUGUST 2, 2011 - GAMCO INVESTORS, INC. ET ALex31_10063011.htm
EX-32.1 - EXHIBIT 32.1, DATED AUGUST 2, 2011 - GAMCO INVESTORS, INC. ET ALex32_10063011.htm
EX-32.2 - EXHIBIT 32.2, DATED AUGUST 2, 2011 - GAMCO INVESTORS, INC. ET ALex32_20063011.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

For the quarterly period ended June 30, 2011
or

[  ]
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.
(Exact name of Registrant as specified in its charter)
       
New York
   
13-4007862
(State of other jurisdiction of incorporation or organization)
   
(I.R.S. Employer Identification No.)
   
     
One Corporate Center, Rye, NY
   
10580-1422
(Address of principle executive offices)
   
(Zip Code)
       
(914) 921-3700
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).
Yesx    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):
 
Large accelerated filer ¨
 
Accelerated filer x
 
       
Non-accelerated filer o
 
Smaller reporting company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
 
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.
Class
 
Outstanding at July 31, 2011
 
Class A Common Stock, .001 par value
 
6,644,812
 
Class B Common Stock, .001 par value
 
20,142,640
 
 
 
 
 

 
 

INDEX
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
   
   
PART I.
FINANCIAL INFORMATION
 
   
   
Item 1.
Unaudited Condensed Consolidated Financial Statements
   
 
Condensed Consolidated Statements of Income:
 
-    Three months ended June 30, 2011 and 2010
 
-    Six months ended June 30, 2011 and 2010
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    June 30, 2011
 
-    December 31, 2010
 
-    June 30, 2010
   
 
Condensed Consolidated Statements of Equity and Comprehensive Income:
 
-    Six months ended June 30, 2011 and 2010
   
 
Condensed Consolidated Statements of Cash Flows:
 
-    Six months ended June 30, 2011 and 2010
   
 
Notes to Unaudited Condensed Consolidated Financial Statements
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)
   
Item 4.
Controls and Procedures
   
PART II.
OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
Item 6.
Exhibits
   
SIGNATURES
 
   

 
 
2

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
UNAUDITED
 
(Dollars in thousands, except per share data)
 
                         
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
                       
  Investment advisory and incentive fees
  $ 69,252     $ 50,271     $ 132,163     $ 99,613  
  Institutional research services
    4,241       4,524       7,890       7,948  
  Distribution fees and other income
    11,588       7,704       21,933       14,936  
Total revenues
    85,081       62,499       161,986       122,497  
Expenses
                               
  Compensation
    34,365       25,871       67,782       52,084  
  Management fee
    3,626       1,380       6,739       3,828  
  Distribution costs
    9,588       7,099       23,017       14,130  
  Other operating expenses
    7,005       5,569       13,191       10,505  
Total expenses (a)
    54,584       39,919       110,729       80,547  
                                 
Operating income
    30,497       22,580       51,257       41,950  
Other income (expense)
                               
  Net gain/(loss) from investments
    3,669       (7,797 )     12,409       (2,565 )
  Interest and dividend income
    1,861       1,089       3,797       1,904  
  Interest expense
    (3,403 )     (3,406 )     (6,270 )     (6,698 )
Total other income (expense), net
    2,127       (10,114 )     9,936       (7,359 )
Income before income taxes
    32,624       12,466       61,193       34,591  
Income tax provision
    11,945       4,401       22,233       12,695  
Net income
    20,679       8,065       38,960       21,896  
Net income attributable to noncontrolling interests
    32       16       670       121  
Net income attributable to GAMCO Investors, Inc.'s shareholders
  $ 20,647     $ 8,049     $ 38,290     $ 21,775  
                                 
Net income attributable to GAMCO Investors, Inc.'s shareholders
                               
  per share:
                               
Basic
  $ 0.77     $ 0.30     $ 1.43     $ 0.80  
                                 
Diluted
  $ 0.77     $ 0.30     $ 1.42     $ 0.80  
                                 
Weighted average shares outstanding:
                               
Basic
    26,665       26,979       26,783       27,081  
                                 
Diluted
    26,733       27,219       26,872       27,306  
                                 
Dividends declared:
  $ 0.04     $ 0.03     $ 0.07     $ 0.06  
(a) Six months ended June 30, 2011 includes $5.6 million in costs directly related to the launch of a new closed-end fund.
         
                                 
See accompanying notes.
                               

 
3

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
UNAUDITED
 
(Dollars in thousands, except per share data)
 
                   
   
June 30,
   
December 31,
   
June 30,
 
   
2011
   
2010
   
2010
 
ASSETS
                 
Cash and cash equivalents, including restricted cash of $0, $0 and $62,287, respectively
  $ 260,839     $ 169,601     $ 321,029  
Investments in securities
    363,305       305,486       213,079  
Investments in partnerships
    98,598       82,871       74,107  
Receivable from brokers
    35,968       46,621       54,548  
Investment advisory fees receivable
    25,746       44,660       16,844  
Income tax receivable and deferred tax assets
    238       325       3,436  
Other assets
    25,964       23,172       20,445  
  Total assets
  $ 810,658     $ 672,736     $ 703,488  
                         
LIABILITIES AND EQUITY
                       
Payable to brokers
  $ 2,950     $ 1,554     $ 3,351  
Income taxes payable and deferred tax liabilities
    21,622       23,225       -  
Capital lease obligation
    5,126       5,182       5,219  
Compensation payable
    29,484       23,771       18,613  
Securities sold, not yet purchased
    10,244       19,299       13,652  
Mandatorily redeemable noncontrolling interests
    1,478       1,444       1,632  
Accrued expenses and other liabilities
    34,620       23,089       28,146  
  Sub-total
    105,524       97,564       70,613  
                         
5.5% Senior notes (due May 15, 2013)
    99,000       99,000       99,000  
5.875% Senior notes (due June 1, 2021)
    100,000       -       -  
6% Convertible note (due August 14, 2011; repaid September 30, 2010)
    -       -       19,948  
6.5% Convertible note (due October 2, 2018; repaid October 13, 2010)
    -       -       60,000  
Zero coupon subordinated debentures, Face value: $86.4 million (due December 31, 2015)
    61,814       59,580       -  
  Total liabilities
    366,338       256,144       249,561  
                         
Redeemable noncontrolling interests
    35,519       26,984       7,773  
Commitments and contingencies (Note J)
                       
Equity
                       
  GAMCO Investors, Inc. stockholders' equity
                       
    Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
      13,569,703, 13,255,503 and 13,203,330 issued, respectively; 6,647,212,
                       
      6,763,221 and 6,984,351 outstanding, respectively
    13       13       13  
    Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
      24,000,000 shares issued; 20,142,640, 20,290,140 and 20,292,263 shares
                       
      outstanding, respectively
    20       20       20  
    Additional paid-in capital
    263,371       262,108       254,444  
    Retained earnings
    406,666       370,272       430,605  
    Accumulated comprehensive income
    26,349       25,389       15,960  
    Treasury stock, at cost (6,922,491, 6,492,282 and 6,218,979 shares, respectively)
    (291,287 )     (271,773 )     (258,956 )
  Total GAMCO Investors, Inc. stockholders' equity
    405,132       386,029       442,086  
Noncontrolling interests
    3,669       3,579       4,068  
Total equity
    408,801       389,608       446,154  
                         
Total liabilities and equity
  $ 810,658     $ 672,736     $ 703,488  
                         
See accompanying notes.
                       
 
 
 
4

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
 
UNAUDITED
 
(In thousands)
 
                                                       
For the six months ended June 30, 2011
 
         
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, 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
    -       -       -       -       -       -       -       12,897       -  
Deconsolidation of
                                                                       
 Partnership
    -       -       -       -       -       -       -       (4,103 )     -  
Net income
    90       -       -       38,290       -       -       38,380       580       38,960  
Net unrealized gains on
                                                                       
 securities available for sale,
                                                                       
 net of income tax ($550)
    -       -       -       -       937       -       937       -       937  
Foreign currency translation
    -       -       -       -       23       -       23       -       23  
Dividends declared ($0.07 per
                                                                       
 share)
    -       -       -       (1,896 )     -       -       (1,896 )     -       -  
Stock based compensation
                                                                       
 expense
    -       -       1,263       -       -       -       1,263       -       -  
Purchase of treasury stock
    -       -       -       -       -       (19,514 )     (19,514 )     -       -  
Balance at June 30, 2011
  $ 3,669     $ 33     $ 263,371     $ 406,666     $ 26,349     $ (291,287 )   $ 408,801     $ 35,519     $ 39,920  
Comprehensive income attributable
                                                                       
 to noncontrolling interest
                                                                    (670 )
Total comprehensive income
                                                                       
attributable to GAMCO Investors, Inc.
                                                            $ 39,250  
                                                                         
See accompanying notes.
                                                                       
 
 
 
5

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
 
UNAUDITED
 
(In thousands)
 
                                                       
For the six months ended June 30, 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
    -       -       -       -       -       -       -       6,688       -  
Net income
    25       -       -       21,775       -       -       21,800       96       21,896  
Net unrealized losses on
                                                                       
 securities available for sale,
                                                                       
 net of income tax benefit ($1,821)
    -       -       -       -       (3,101 )     -       (3,101 )     -       (3,101 )
Foreign currency translation
    -       -       -       -       (27 )     -       (27 )     -       (27 )
Dividends declared ($0.06 per
                                                                       
 share)
    -       -       -       (1,643 )     -       -       (1,643 )     -       -  
Stock based compensation
                                                                       
 expense
    -       -       2,805       -       -       -       2,805       -       -  
Exercise of stock options
                                                                       
 including tax benefit
    -       -       48       -       -       -       48       -       -  
Purchase of treasury stock
    -       -       -       -       -       (17,389 )     (17,389 )     -       -  
Balance at June 30, 2010
  $ 4,068     $ 33     $ 254,444     $ 430,605     $ 15,960     $ (258,956 )   $ 446,154     $ 7,773     $ 18,768  
Comprehensive income attributable
                                                                       
 to noncontrolling interest
                                                                    (121 )
Total comprehensive income
                                                                       
attributable to GAMCO Investors, Inc.
                                                            $ 18,647  
                                                                         
See accompanying notes.
                                                                       
 
 
 
6

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
UNAUDITED
 
(In thousands)
 
             
   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Operating activities
           
Net income
  $ 38,960     $ 21,896  
 Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
  Equity in net gains from partnerships
    (3,094 )     (1,037 )
  Depreciation and amortization
    456       343  
  Stock based compensation expense
    1,263       2,805  
  Deferred income taxes
    1,220       2,934  
  Tax benefit from exercise of stock options
    -       8  
  Foreign currency translation gain/(loss)
    23       (27 )
  Fair value of donated securities
    56       (608 )
  Gains on sales of available for sale securities
    (584 )     (13 )
  Amortization of discount on convertible debt
    -       297  
  Accretion of zero coupon debentures
    2,234       -  
(Increase) decrease in assets:
               
  Investments in trading securities
    (70,979 )     (59,206 )
  Investments in partnerships:
               
    Contributions to partnerships
    (10,683 )     (15,807 )
    Distributions from partnerships
    3,226       5,392  
  Receivable from brokers
    4,966       (24,476 )
  Investment advisory fees receivable
    19,044       18,841  
  Income tax receivable and deferred tax assets
    87       -  
  Other assets
    (2,312 )     667  
Increase (decrease) in liabilities:
               
  Payable to brokers
    1,396       2,956  
  Income taxes payable and deferred tax liabilities
    (3,108 )     (13,073 )
  Compensation payable
    5,710       5,313  
  Mandatorily redeemable noncontrolling interests
    35       10  
  Accrued expenses and other liabilities
    12,776       2,972  
Total adjustments
    (38,268 )     (71,709 )
Net cash provided by (used in) operating activities
  $ 692     $ (49,813 )
 
 
 
7

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
UNAUDITED (continued)
 
(In thousands)
 
             
   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Investing activities
           
Purchases of available for sale securities
  $ (4,370 )   $ (9 )
Proceeds from sales of available for sale securities
    5,685       2,014  
Return of capital on available for sale securities
    777       1,306  
Increase in restricted cash
    -       (29 )
Net cash provided by investing activities
    2,092       3,282  
                 
Financing activities
               
Contributions from redeemable noncontrolling interests
    12,897       6,213  
Redemptions of redeemable noncontrolling interests
    (839 )     -  
Issuance of 5.875% Senior notes due June 1, 2021
    100,000       -  
Issuance costs on the 5.875% Senior notes due June 1, 2021     (934         
Repayment of 6% Convertible note due August 14, 2011
    -       (20,200 )
Proceeds from exercise of stock options
    -       40  
Dividends paid
    (1,896 )     (1,643 )
Purchase of treasury stock
    (19,514 )     (17,389 )
Net cash provided by (used in) financing activities
    89,714       (32,979 )
Effect of exchange rates on cash and cash equivalents
    (9 )     (18 )
Net increase (decrease) in cash and cash equivalents
    92,489       (79,528 )
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
  $ 260,839     $ 258,742  
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 3,267     $ 6,800  
Cash paid for taxes
  $ 23,433     $ 22,441  
                 
Non-cash activity:
               
- On January 1, 2011, GAMCO Investors, Inc. was no longer deemed to have control over a certain 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 six months ended June 30, 2011 and June 30, 2010, the Company accrued restricted stock award dividends of $17 and $23, respectively.
 
See accompanying notes.
               
 
 
 
8

 
 

GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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  (“GAAP”) 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 GAAP 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, including our new broker-dealer, G.distributors, LLC, a wholly-owned subsidiary of GAMCO, which became the distributor for the Gabelli/GAMCO family of funds on August 1, 2011.  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 June 30, 2010.  The accompanying consolidated statement of equity and comprehensive income for the period ended June 30, 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. GAAP 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 Financial Accounting Standards Board (“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.

In May 2011, the FASB issued guidance on fair value measurement which expands existing disclosure requirements for fair value measurements and makes other amendments.  The guidance requires, for level 3 fair value measurements, (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) a description of the valuation processes in place, and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs.  Additionally, the guidance requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed and clarifies that the valuation premise and highest and best use concepts are not relevant to financial instruments.  The guidance is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years.  The application of this guidance will result in enhanced footnote disclosure upon adoption on January 1, 2012.
 
 
 
9

 
 

In June 2011, the FASB issued guidance which revises the manner in which entities present comprehensive income in their financial statements.  The new guidance requires entities to report comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.  Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used currently, and the second statement would include components of other comprehensive income (“OCI”).  The guidance does not change the items that must be reported in OCI.  The guidance is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years.  The application of this guidance is not expected to be material to the condensed consolidated financial statements.

 B.  Investment in Securities

Investments in securities at June 30, 2011, December 31, 2010 and June 30, 2010 consisted of the following:
 
   
June 30, 2011
   
December 31, 2010
   
June 30, 2010
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
   
(In thousands)
 
Trading securities:
                                   
  Government obligations
  $ 7,924     $ 7,925     $ 27,327     $ 27,288     $ 1,388     $ 1,223  
  Common stocks
    238,689       251,118       158,455       170,374       122,071       118,167  
  Mutual funds
    1,096       1,525       1,205       1,554       1,194       1,229  
  Convertible bonds
    -       -       574       620       1,123       1,161  
  Preferred stocks
    -       -       1,783       1,973       1,783       1,685  
  Other investments
    459       487       1,559       1,350       818       552  
Total trading securities
    248,168       261,055       190,903       203,159       128,377       124,017  
                                                 
Available for sale securities:
                                               
  Common stocks
    16,780       35,296       16,835       37,139       16,918       32,827  
  Mutual funds
    42,199       66,954       43,707       65,188       46,156       56,235  
Total available for sale securities
    58,979       102,250       60,542       102,327       63,074       89,062  
                                                 
Total investments in securities
  $ 307,147     $ 363,305     $ 251,445     $ 305,486     $ 191,451     $ 213,079  

Securities sold, not yet purchased at June 30, 2011, December 31, 2010 and June 30, 2010 consisted of the following:
 
   
June 30, 2011
   
December 31, 2010
   
June 30, 2010
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Trading securities:
 
(In thousands)
 
  Common stocks
  $ 9,416     $ 10,238     $ 19,071     $ 19,299     $ 15,528     $ 13,537  
  Other
    1       6       -       -       224       115  
Total securities sold, not yet purchased
  $ 9,417     $ 10,244     $ 19,071     $ 19,299     $ 15,752     $ 13,652  

 
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 or six month periods ended June 30, 2011 and June 30, 2010.
 
 
 
10

 
 
 
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 and six months ended June 30, 2011, the Company had no derivative transactions.  For the three months ended June 30, 2010, the Company had derivative transactions in equity derivatives which resulted in net losses of $66,000.  For the six months ended June 30, 2010, the Company had derivative transactions in equity derivatives which resulted in net losses of $118,000.  At December 31, 2010 and June 30, 2010, we held derivative contracts on 403,000 equity shares and 21,000 equity shares, respectively, and the fair value was $1.0 million and $201,000, respectively; these are included in investments in securities in the condensed consolidated statements of financial condition.  At June 30, 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/(loss) from investments in the condensed consolidated statements of income. 

At June 30, 2011, December 31, 2010 and June 30, 2010, the fair value of common stock investments available for sale was $35.3 million, $37.1 million and $32.8 million, respectively.  The total unrealized gains for common stock investments available for sale securities with unrealized gains was $18.5 million, $20.3 million and $15.9 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.  There were no unrealized losses for common stock investments available for sale at June 30, 2011, December 31, 2010 or June 30, 2010.  At June 30, 2011, December 31, 2010 and June 30, 2010, the fair value of mutual fund investments available for sale with unrealized gains was $67.0 million, $65.2 million and $56.2 million, respectively.  At June 30, 2011 and December 31, 2010, there were no unrealized losses for mutual fund investments available for sale.  At June 30, 2010, the fair value of mutual fund investments available for sale with unrealized losses was $4,000.  The total unrealized gains for mutual fund investments available for sale securities with unrealized gains at June 30, 2011, December 31, 2010 and June 31, 2010 was $24.8 million, $21.5 million and $10.1 million, respectively.  The total unrealized losses for available for sale securities with unrealized losses was $1,000 at June 30, 2010.

Unrealized changes to fair value, net of taxes, for the three months ended June 30, 2011 and June 30, 2010 of $1.5 million in losses and $4.9 million in losses, respectively, have been included in other comprehensive income, a component of equity, at June 30, 2011 and June 30, 2010.  Return of capital on available for sale securities for the three months ended June 30, 2011 and June 30, 2010 was $0.2 million and $0.6 million, respectively.  Proceeds from sales of investments available for sale were approximately $5.6 million and $2.0 million for the three month periods ended June 30, 2011 and June 30, 2010, respectively.  For the three months ended June 30, 2011 and June 30, 2010, gross gains on the sale of investments available for sale amounted to $483,000 and $13,000, respectively; there were no gross losses on the sale of investments available for sale.  Unrealized changes to fair value, net of taxes, for the six months ended June 30, 2011 and June 30, 2010 of $0.9 million in gains and $3.1 million in losses, respectively, have been included in other comprehensive income, a component of equity, at June 30, 2011 and June 30, 2010.  Return of capital on available for sale securities for the six months ended June 30, 2011 and June 30, 2010 was $0.8 million and $1.3 million, respectively.  Proceeds from sales of investments available for sale were approximately $5.7 million and $2.0 million for the six month periods ended June 30, 2011 and June 30, 2010, respectively.  For the six months ended June 30, 2011 and June 30, 2010, gross gains on the sale of investments available for sale amounted to $584,000 and $13,000, respectively; there were no gross losses on the sale of investments available for sale.

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:
 
   
June 30, 2011
   
December 31, 2010
   
June 30, 2010
 
         
Unrealized
               
Unrealized
               
Unrealized
       
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                                     
Mutual Funds
  $ -     $ -     $ -     $ -     $ -     $ -     $ 5     $ (1 )   $ 4  

At June 30, 2010, there were three 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 June 30, 2010 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  One holding was impaired for one month, one holding was impaired for five consecutive months and one holding was impaired for twelve consecutive months.  The fair value of these holdings at June 30, 2010 was $4,000.
 
 
 
11

 
 
 
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/(loss) 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 June 30, 2011, December 31, 2010 and June 30, 2010 were $23.5 million, $13.3 million and $10.8 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 June 30, 2011, December 31, 2010 and June 30, 2010, we had a deferred carried interest in one of the VIE offshore funds of approximately $49,000, $325,000 and $288,000, 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, would vary depending on these AUMs and would be reflected in the condensed consolidated statements of income, condensed consolidated statements of financial condition and condensed consolidated statements of cash flows.

In the case of two VIEs, we have determined that we are the primary beneficiary of each because we absorb a majority of each entity’s expected losses; therefore they are consolidated in the financial statements.  The Company has not provided any financial support to these VIEs but does earn fees as the investment manager.  The assets of these VIEs may only be used to satisfy obligations of the VIEs.  The following table presents the balances related to these VIEs that were included on the condensed consolidated statements of financial condition as well as GAMCO’s net interest in these VIEs:
 
   
June 30,
 
   
2011
 
(In thousands)
     
Cash and cash equivalents
  $ 1  
Investments in securities
    73,047  
Investments in partnerships
    1,576  
Receivable from brokers
    22,881  
Other assets
    57  
Securities sold, not yet purchased
    (7,334 )
Accrued expenses and other liabilities
    (327 )
Redeemable noncontrolling interests
    (34,794 )
GAMCO's net interests in consolidated VIEs
  $ 55,107  

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).
 
 
 
12

 
 
 
At June 30, 2011, December 31, 2010 and June 30, 2010, and for the three and six months ended June 30, 2011 and June 30, 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 June 30, 2011, December 31, 2010 and June 30, 2010, are $28.0 million $27.7 million, and $25.6 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.

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.
 
 
 
13

 

 
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 June 30, 2011, December 31, 2010 and June 30, 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 June 30, 2011 (in thousands)
 
   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
June 30,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2011
 
Cash equivalents
  $ 260,177     $ -     $ -     $ 260,177  
Investments in partnerships
    -       27,977       -       27,977  
Investments in securities:
                               
  AFS - Common stocks
    35,296       -       -       35,296  
  AFS - Mutual funds
    66,954       -       -       66,954  
  Trading - Gov't obligations
    7,925       -       -       7,925  
  Trading - Common stocks
    250,524       10       584       251,118  
  Trading - Mutual funds
    1,525       -       -       1,525  
  Trading - Other
    118       -       369       487  
Total investments in securities
    362,342       10       953       363,305  
Total investments
    362,342       27,987       953       391,282  
Total assets at fair value
  $ 622,519     $ 27,987     $ 953     $ 651,459  
Liabilities
                               
  Trading - Common stocks
  $ 10,238     $ -     $ -     $ 10,238  
  Trading - Other
    6       -       -       6  
Securities sold, not yet purchased
  $ 10,244     $ -     $ -     $ 10,244  

 
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  
 
 
 
14

 

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of June 30, 2010 (in thousands)
 
   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
June 30,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2010
 
Cash equivalents
  $ 320,575     $ -     $ -     $ 320,575  
Investments in partnerships
    -       25,553       -       25,553  
Investments in securities:
                               
  AFS - Common stocks
    32,827       -       -       32,827  
  AFS - Mutual funds
    56,235