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EXCEL - IDEA: XBRL DOCUMENT - GAMCO INVESTORS, INC. ET ALFinancial_Report.xls
EX-32.1 - EXHIBIT 32.1, DATED MAY 1, 2012 - GAMCO INVESTORS, INC. ET ALex32_10033112.htm
EX-31.2 - EXHIBIT 31.2, DATED MAY 1, 2012 - GAMCO INVESTORS, INC. ET ALex31_20033112.htm
EX-31.1 - EXHIBIT 31.1, DATED MAY 1, 2012 - GAMCO INVESTORS, INC. ET ALex31_10033112.htm
EX-32.2 - EXHIBIT 32.2, DATED MAY 1, 2012 - GAMCO INVESTORS, INC. ET ALex32_20033112.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 March 31, 2012
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. 001-14761

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 April 30, 2012
 
Class A Common Stock, .001 par value
 
6,592,716
 
Class B Common Stock, .001 par value
 
20,040,746
 

 
 
 

 
 
 
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 March 31, 2012 and 2011
   
 
Condensed Consolidated Statements of Comprehensive Income:
 
-    Three months ended March 31, 2012 and 2011
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    March 31, 2012
 
-    December 31, 2011
 
-    March 31, 2011
   
 
Condensed Consolidated Statements of Equity:
 
-    Three months ended March 31, 2012 and 2011
   
 
Condensed Consolidated Statements of Cash Flows:
 
-    Three months ended March 31, 2012 and 2011
   
 
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
   
   
March 31,
   
   
2012
   
2011
   
Revenues
             
  Investment advisory and incentive fees
  $ 67,783     $ 62,911    
  Distribution fees and other income
    11,623       10,345    
  Institutional research services
    2,343       3,649    
Total revenues
    81,749       76,905    
Expenses
                 
  Compensation
    34,554       33,417    
  Management fee
    4,184       3,113    
  Distribution costs
    10,177       13,429    
  Other operating expenses
    5,822       6,186    
Total expenses
    54,737       56,145  
(a)
                   
Operating income
    27,012       20,760    
Other income (expense)
                 
  Net gain from investments
    13,878       8,740    
  Interest and dividend income
    1,236       1,936    
  Interest expense
    (4,404 )     (2,867 )  
Total other income, net
    10,710       7,809    
Income before income taxes
    37,722       28,569    
Income tax provision
    13,756       10,288    
Net income
    23,966       18,281    
Net income attributable to noncontrolling interests
    130       638    
Net income attributable to GAMCO Investors, Inc.'s shareholders
  $ 23,836     $ 17,643    
                   
Net income attributable to GAMCO Investors, Inc.'s shareholders
                 
  per share:
                 
Basic
  $ 0.90     $ 0.66    
                   
Diluted
  $ 0.90     $ 0.65    
                   
Weighted average shares outstanding:
                 
Basic
    26,415       26,901    
                   
Diluted
    26,533       27,008    
                   
Dividends declared:
  $ 0.04     $ 0.03    
(a) 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 COMPREHENSIVE INCOME
 
UNAUDITED
 
(Dollars in thousands, except per share data)
 
             
             
   
Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
             
Net income
  $ 23,966     $ 18,281  
Other comprehensive income, net of tax:
               
  Foreign currency translation
    (17 )     24  
  Net unrealized gains on securities available for sale
    3,457       2,487  
Other comprehensive income
    3,440       2,511  
                 
Comprehensive income
    27,406       20,792  
Less: Comprehensive income attributable to noncontrolling interests
    (130 )     (638 )
                 
Comprehensive income attributable to GAMCO Investors, Inc.
  $ 27,276     $ 20,154  
                 
See accompanying notes.
               
 

 
4

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
UNAUDITED
 
(Dollars in thousands, except per share data)
 
                   
   
March 31,
   
December 31,
   
March 31,
 
   
2012
   
2011
   
2011
 
ASSETS
                 
Cash and cash equivalents
  $ 324,630     $ 276,340     $ 164,671  
Investments in securities
    257,607       238,333       279,713  
Investments in sponsored registered investment companies
    62,305       59,214       65,903  
Investments in partnerships
    101,685       100,893       94,584  
Receivable from brokers
    29,298       20,913       43,308  
Investment advisory fees receivable
    27,193       32,156       24,992  
Income tax receivable
    39       39       302  
Other assets
    23,668       28,861       24,030  
  Total assets
  $ 826,425     $ 756,749     $ 697,503  
                         
LIABILITIES AND EQUITY
                       
Payable to brokers
  $ 22,366     $ 10,770     $ 7,998  
Income taxes payable and deferred tax liabilities
    24,782       15,296       25,035  
Capital lease obligation
    5,043       5,072       5,151  
Compensation payable
    28,834       17,695       22,883  
Securities sold, not yet purchased
    9,657       5,488       15,550  
Mandatorily redeemable noncontrolling interests
    1,390       1,386       1,466  
Accrued expenses and other liabilities
    28,692       24,441       28,351  
  Sub-total
    120,764       80,148       106,434  
                         
5.5% Senior notes (due May 15, 2013)
    99,000       99,000       99,000  
5.875% Senior notes (due June 1, 2021)
    100,000       100,000       -  
Zero coupon subordinated debentures, Face value: $86.3 million at March 31, 2012 and
                       
  December 31, 2011 and $86.4 million at March 31, 2011 (due December 31, 2015)
    65,300       64,119       60,697  
  Total liabilities
    385,064       343,267       266,131  
                         
Redeemable noncontrolling interests
    16,828       6,071       28,884  
Commitments and contingencies (Note J)
                       
Equity
                       
  GAMCO Investors, Inc. stockholders' equity
                       
    Preferred stock, $.001 par value; 10,000,000 shares authorized;
                       
      none issued and outstanding
                       
    Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
      13,760,697, 13,627,397 and 13,256,203 issued, respectively; 6,592,716,
                       
      6,684,149 and 6,872,333 outstanding, respectively
    13       13       13  
    Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
      24,000,000 shares issued; 20,040,746, 20,070,746 and 20,190,140 shares
                       
      outstanding, respectively
    20       20       20  
    Additional paid-in capital
    265,280       264,409       262,686  
    Retained earnings
    431,963       409,191       387,101  
    Accumulated other comprehensive income
    25,960       22,520       27,900  
    Treasury stock, at cost (7,167,981, 6,943,248 and 6,653,870 shares, respectively)
    (302,152 )     (292,181 )     (278,870 )
  Total GAMCO Investors, Inc. stockholders' equity
    421,084       403,972       398,850  
Noncontrolling interests
    3,449       3,439       3,638  
Total equity
    424,533       407,411       402,488  
                         
Total liabilities and equity
  $ 826,425     $ 756,749     $ 697,503  
                         
See accompanying notes.
                       
 
 
 
5

 

 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
 
UNAUDITED
 
(In thousands)
 
                                                 
For the three months ended March 31, 2012
 
         
GAMCO Investors, Inc. stockholders
       
                           
Accumulated
                   
               
Additional
         
Other
               
Redeemable
 
   
Noncontrolling
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
         
Noncontrolling
 
   
Interests
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
   
Interests
 
Balance at December 31, 2011
  $ 3,439     $ 33     $ 264,409     $ 409,191     $ 22,520     $ (292,181 )   $ 407,411     $ 6,071  
Redemptions of redeemable
                                                               
 noncontrolling interests
    -       -       -       -       -       -       -       (3 )
Contributions from redeemable
                                                               
 noncontrolling interests
    -       -       -       -       -       -       -       10,640  
Net income (loss)
    10       -       -       23,836       -       -       23,846       120  
Net unrealized gains on
                                                               
 securities available for sale,
                                                               
 net of income tax ($2,031)
    -       -       -       -       3,457       -       3,457       -  
Foreign currency translation
    -       -       -       -       (17 )     -       (17 )     -  
Dividends declared ($0.04 per
                                                               
 share)
    -       -       -       (1,064 )     -       -       (1,064 )     -  
Stock based compensation
                                                               
 expense
    -       -       871       -       -       -       871       -  
Purchase of treasury stock
    -       -       -       -       -       (9,971 )     (9,971 )     -  
Balance at March 31, 2012
  $ 3,449     $ 33     $ 265,280     $ 431,963     $ 25,960     $ (302,152 )   $ 424,533     $ 16,828  
                                                                 
See accompanying notes.
                                                               
 
 
 
6

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
 
UNAUDITED
 
(In thousands)
 
                                                 
For the three months ended March 31, 2011
 
         
GAMCO Investors, Inc. stockholders
       
                           
Accumulated
                   
               
Additional
         
Other
               
Redeemable
 
   
Noncontrolling
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
         
Noncontrolling
 
   
Interests
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
   
Interests
 
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
                                                               
  Partnership
    -       -       -       -       -       -       -       (4,103 )
Net income
    59       -       -       17,643       -       -       17,702       579  
Net unrealized gains on
                                                               
 securities available for sale,
                                                               
 net of income tax ($1,460)
    -       -       -       -       2,487       -       2,487       -  
Foreign currency translation
    -       -       -       -       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  
                                                                 
See accompanying notes.
                                                               
 
 
 
7

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
UNAUDITED
 
(In thousands)
 
             
   
Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
Operating activities
           
Net income
  $ 23,966     $ 18,281  
 Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
  Equity in net gains from partnerships
    (3,351 )     (2,977 )
  Depreciation and amortization
    180       274  
  Stock based compensation expense
    871       578  
  Deferred income taxes
    1,515       1,649  
  Foreign currency translation gain/(loss)
    (17 )     24  
  Fair value of donated securities
    83       -  
  Gains on sales of available for sale securities
    (279 )     (101 )
  Accretion of zero coupon debentures
    1,180       1,117  
  Loss on extinguishment of debt
    1       -  
(Increase) decrease in assets:
               
  Investments in trading securities
    (13,604 )     (44,589 )
  Investments in partnerships:
               
    Contributions to partnerships
    (23,293 )     (6,583 )
    Distributions from partnerships
    25,852       3,026  
  Receivable from brokers
    (8,385 )     (2,373 )
  Investment advisory fees receivable
    4,963       19,798  
  Income tax receivable and deferred tax assets
    -       23  
  Other assets
    5,023       (1,129 )
Increase (decrease) in liabilities:
               
  Payable to brokers
    11,596       6,444  
  Income taxes payable and deferred tax liabilities
    5,940       (1,035 )
  Compensation payable
    11,139       (891 )
  Mandatorily redeemable noncontrolling interests
    4       23  
  Accrued expenses and other liabilities
    4,227       6,531  
Total adjustments
    23,645       (20,191 )
Net cash provided by (used in) operating activities
  $ 47,611     $ (1,910 )
 
 
 
8

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
UNAUDITED (continued)
 
(In thousands)
 
             
   
Three Months Ended
 
   
March 31,
 
   
2012
   
2011
 
Investing activities
           
Purchases of available for sale securities
  $ (4 )   $ (4 )
Proceeds from sales of available for sale securities
    525       101  
Return of capital on available for sale securities
    571       631  
Net cash provided by investing activities
    1,092       728  
                 
Financing activities
               
Contributions from redeemable noncontrolling interests
    10,640       6,263  
Redemptions of redeemable noncontrolling interests
    (3 )     (839 )
Dividends paid
    (1,070 )     (814 )
Purchase of treasury stock
    (9,971 )     (7,097 )
Net cash used in financing activities
    (404 )     (2,487 )
Effect of exchange rates on cash and cash equivalents
    (9 )     (10 )
Net increase (decrease) in cash and cash equivalents
    48,290       (3,679 )
Cash and cash equivalents at beginning of period
    276,340       169,601  
Decrease in cash from deconsolidation of partnership
    -       (1,251 )
Cash and cash equivalents at end of period
  $ 324,630     $ 164,671  
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 322     $ 271  
Cash paid for taxes
  $ 6,038     $ 9,167  
                 
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 three months ended March 31, 2012 and March 31, 2011, the Company accrued restricted stock
 
     award dividends of $13 and $7, respectively.
               
See accompanying notes.
               
 
 
 
9

 
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(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, 2011 from which the accompanying condensed consolidated financial statements were derived.

The Company has now separately disclosed the amount of investments in sponsored registered investment companies as a new line item in the condensed consolidated statements of financial condition.  These amounts were previously included within investments in securities in the condensed consolidated statements of financial condition.

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 on the condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Recent Accounting Developments

In May 2011, the Financial Accounting Standards Board (“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 condition but whose fair value must be disclosed and clarifies that the valuation premise and highest and best use concepts are not relevant to financial assets or liabilities.  The guidance is effective for interim and annual periods beginning after December 15, 2011.  The Company adopted this guidance on January 1, 2012 and has reflected the new disclosures in the condensed consolidated financial statements.

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.  In December 2011, the FASB indefinitely deferred a portion of the guidance that would have required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which the net income is presented and the statement in which other comprehensive income is presented.  The guidance is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years.  The Company adopted the guidance on January 1, 2012 and opted for the two separate but consecutive statements approach.  Accordingly, the Company now presents the condensed consolidated statements of comprehensive income immediately following the condensed consolidated statements of income.
 
 
 
10

 

 
In December 2011, the FASB issued guidance which creates new disclosure requirements about the nature of an entity’s right of offset and related arrangements associated with its financial instruments and derivative instruments.  The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods therein, with retrospective application required.  The new disclosures are designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards.  The Company is currently evaluating the impact that the application of this guidance will have on its disclosures.

B.  Investment in Securities

Investments in securities at March 31, 2012, December 31, 2011 and March 31, 2011 consisted of the following:
 
   
March 31, 2012
   
December 31, 2011
   
March 31, 2011
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
   
(In thousands)
 
Trading securities:
                                   
  Government obligations
  $ 48,624     $ 48,630     $ 42,124     $ 42,126     $ 12,069     $ 12,076  
  Common stocks
    156,206       170,224       153,294       159,314       210,956       225,589  
  Mutual funds
    1,086       1,495       1,084       1,307       1,190       1,629  
  Convertible bonds
    -       -       -       -       163       175  
  Preferred stocks
    -       -       -       -       -       -  
  Other investments
    601       571       466       399       465       476  
Total trading securities
    206,517       220,920       196,968       203,146       224,843       239,945  
                                                 
Available for sale securities:
                                               
  Common stocks
    16,158       34,578       16,487       33,282       16,835       37,408  
  Mutual funds
    1,362       2,109       1,362       1,905       1,503       2,360  
Total available for sale securities
    17,520       36,687       17,849       35,187       18,338       39,768  
                                                 
Total investments in securities
  $ 224,037     $ 257,607     $ 214,817     $ 238,333     $ 243,181     $ 279,713  

Securities sold, not yet purchased at March 31, 2012, December 31, 2011 and March 31, 2011 consisted of the following:
 
   
March 31, 2012
   
December 31, 2011
   
March 31, 2011
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Trading securities:
 
(In thousands)
 
  Common stocks
  $ 9,016     $ 9,553     $ 5,271     $ 5,415     $ 14,044     $ 15,550  
  Other
    21       104       49       73       -       -  
Total securities sold, not yet purchased
  $ 9,037     $ 9,657     $ 5,320     $ 5,488     $ 14,044     $ 15,550  

 
 
11

 
 
 
Investments in sponsored registered investment companies at March 31, 2012, December 31, 2011 and March 31, 2011 consisted of the following:
 
   
March 31, 2012
   
December 31, 2011
   
March 31, 2011
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
   
(In thousands)
 
Trading securities:
                                   
  Mutual funds
  $ 15     $ 17     $ 15     $ 18     $ 15     $ 25  
Total trading securities
    15       17       15       18       15       25  
                                                 
Available for sale securities:
                                               
  Closed-end funds
    36,546       58,721       37,104       55,855       39,232       61,734  
  Mutual funds
    2,204       3,567       2,213       3,341       2,345       4,144  
Total available for sale securities
    38,750       62,288       39,317       59,196       41,577       65,878  
                                                 
Total investments in sponsored
                                               
  registered investment companies
  $ 38,765     $ 62,305     $ 39,332     $ 59,214     $ 41,592     $ 65,903  

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.

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, 2012, the Company had derivative transactions in equity derivatives which resulted in net losses of $29,000.  At March 31, 2011, the Company did not hold any derivatives.  At March 31, 3012 and December 31, 2011, we held derivative contracts on 1 million equity shares and 142,000 equity shares, respectively, and the fair value was $105,000 and $24,000, respectively; these are included in investments in securities in the condensed consolidated statements of financial condition.  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. 
 
 
 
12

 

 
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of March 31, 2012, December 31, 2011 and March 31, 2011:
 
   
March 31, 2012
 
         
Gross
   
Gross
       
         
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In thousands)
 
Common stocks
  $ 16,158     $ 18,420     $ -     $ 34,578  
Closed-end Funds
    36,546       22,189       (14 )     58,721  
Mutual funds
    3,566       2,110       -       5,676  
Total available for sale securities
  $ 56,270     $ 42,719     $ (14 )   $ 98,975  
                                 
   
December 31, 2011
 
           
Gross
   
Gross
         
           
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In thousands)
 
Common stocks
  $ 16,487     $ 16,795     $ -     $ 33,282  
Closed-end Funds
    37,104       18,779       (28 )     55,855  
Mutual funds
    3,575       1,671       -       5,246  
Total available for sale securities
  $ 57,166     $ 37,245     $ (28 )   $ 94,383  
                                 
   
March 31, 2011
 
           
Gross
   
Gross
         
           
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(In thousands)
 
Common stocks
  $ 16,835     $ 20,573     $ -     $ 37,408  
Closed-end Funds
    39,232       22,502               61,734  
Mutual funds
    3,848       2,656       -       6,504  
Total available for sale securities
  $ 59,915     $ 45,731     $ -     $ 105,646  

Unrealized changes to fair value, net of taxes, for the three months ended March 31, 2012 and March 31, 2011 of $3.5 million and $2.5 million in gains, respectively, have been included in other comprehensive income, a component of equity, at March 31, 2012 and March 31, 2011.  Return of capital on available for sale securities were $0.6 million for both the three months ended March 31, 2012 and March 31, 2011.  Proceeds from sales of investments available for sale were approximately $0.5 million and $0.1 million for the three month periods ended March 31, 2012 and March 31, 2011, respectively.  For the three months ended March 31, 2012 and March 31, 2011, gross gains on the sale of investments available for sale amounted to $0.3 million and $0.1 million, respectively, and were reclassed from other comprehensive income into the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the three months ended March 31, 2012 or March 31, 2011.  The basis on which the cost of a security sold is determined is specific identification.

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, 2012
   
December 31, 2011
   
March 31, 2011
 
         
Unrealized
               
Unrealized
               
Unrealized
       
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                                     
Mutual Funds
  $ 97     $ (14 )   $ 83     $ 101     $ (28 )   $ 73     $ -     $ -     $ -  

At March 31, 2012 and December 31, 2011, there was one holding in a loss position which was not deemed to be other-than-temporarily impaired due to the length of time that it had been in a loss position and because it passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In this specific instance, the investment at March 31, 2012 and December 31, 2011 was a closed-end fund with diversified holdings across multiple companies and across multiple industries.  The one holding was impaired for ten and seven consecutive months, respectively.  The value of this holding at March 31, 2012 and December 31, 2011 was $0.1 million for both periods.

 
 
13

 
 
 
At March 31, 2011, there were no available for sale holdings in loss positions.

For the three months ended March 31, 2012 and 2011, there were no losses on available for sale securities deemed to be other than temporary.

C. Investments in Partnerships, Offshore Funds and Variable Interest Entities
 
The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds, and have investments totaling $86.9 million, $86.9 million and $74.4 million at March 31, 2012, December 31, 2011 and March 31, 2011, respectively, whose underlying assets consist primarily of marketable securities (the “affiliated entities”).  We also have investments in unaffiliated partnerships, offshore funds and other entities of $14.8 million, $14.0 million and $20.2 million at March 31, 2012, December 31, 2011 and March 31, 2011, respectively (the “unaffiliated entities”).  We evaluate each entity for the appropriate accounting treatment and disclosure.  Certain of the affiliated entities are consolidated.  In addition, our statement of financial condition caption “Investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting, as well as certain investments that the feeder funds hold that are carried at fair value, as described in Note D.  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.

The following table highlights the number of entities that we consolidate as well as under which accounting guidance they are consolidated, including consolidated feeder funds (“CFFs”), which retain their specialized investment company accounting, partnerships and offshore funds.
 
Entities consolidated
                                               
   
CFFs
   
Partnerships
   
Offshore Funds
   
Total
 
   
VIEs
   
VOEs
   
VIEs
   
VOEs
   
VIEs
   
VOEs
   
VIEs
   
VOEs
 
Entities consolidated at December 31, 2010
    1       2       -       2       1       -       2       4  
Additional consolidated entities
    -       -       -       -       -       1       -       1  
Deconsolidated entities
    -       -       -       (1 )     -       -       -       (1 )
Entities consolidated at March 31, 2011
    1       2       -       1       1       1       2       4  
Additional consolidated entities
    -       -       -       -       -       -       -       -  
Deconsolidated entities
    -       -       -       -       (1 )     -       (1 )     -  
Entities consolidated at December 31, 2011
    1       2       -       1       -       1       1       4  
Additional consolidated entities
    -       -       -       -       -       -       -       -  
Deconsolidated entities
    -       -       -       -       -       -       -       -  
Entities consolidated at March 31, 2012
    1       2       -       1       -       1       1       4  

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 earn 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).
 
 
 
14

 

 
The following table includes the net impact by line item on the condensed consolidated statements of financial condition for each category of entity consolidated (in thousands):

   
March 31, 2012
 
   
Prior to
                         
   
Consolidation
   
CFFs
   
Partnerships
   
Offshore Funds
   
As Reported
 
Assets
                             
Cash and cash equivalents
  $ 322,523     $ -     $ 2,107     $ -     $ 324,630  
Investments in securities
    236,387       -       6,503       14,717       257,607  
Investments in sponsored investment companies
    62,289       -       16       -       62,305  
Investments in partnerships
    109,136       990       (8,441 )     -       101,685  
Receivable from brokers
    18,400       -       121       10,777       29,298  
Investment advisory fees receivable
    27,189       5       (1 )     -       27,193  
Other assets
    23,691       16       -       -       23,707  
Total assets
  $ 799,615     $ 1,011     $ 305     $ 25,494     $ 826,425  
Liabilities and equity
                                       
Securities sold, not yet purchased
  $ 9,633     $ -     $ -     $ 24     $ 9,657  
Accrued expenses and other liabilities
    101,149       59       38       9,861       111,107  
Total debt
    264,300       -       -       -       264,300  
Redeemable noncontrolling interests
    -       952       267       15,609       16,828  
Total equity
    424,533       -       -       -       424,533  
Total liabilities and equity
  $ 799,615     $ 1,011     $ 305     $ 25,494     $ 826,425  
                                         
   
December 31, 2011
 
   
Prior to
                                 
   
Consolidation
   
CFFs
   
Partnerships
   
Offshore Funds
   
As Reported
 
Assets
                                       
Cash and cash equivalents
  $ 259,531     $ 15,000     $ 1,809     $ -     $ 276,340  
Investments in securities
    225,599       -