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EX-32.2 - EXHIBIT 32.2, DATED AUGUST 5, 2015 - GAMCO INVESTORS, INC. ET ALex32_2063015.htm
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EX-31.3 - EXHIBIT 31.3, DATED AUGUST 5, 2015 - GAMCO INVESTORS, INC. ET ALex31_3063015.htm
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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2015
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)

Delaware
 
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   No 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  No

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
     
Non-accelerated filer
 
Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes             No 
 
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, 2015
Class A Common Stock, .001 par value
  (Including 705,050 restricted stock awards)
6,470,677
Class B Common Stock, .001 par value
 
19,218,814



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, 2015 and 2014
 
-    Six months ended March 31, 2015 and 2014
 
 
 
Condensed Consolidated Statements of Comprehensive Income:
 
-    Three months ended March 31, 2015 and 2014
 
-    Six months ended March 31, 2015 and 2014
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    June 30, 2015
 
-    December 31, 2014
 
-    June 30, 2014
 
 
 
Condensed Consolidated Statements of Equity:
 
-    Six months ended March 31, 2015 and 2014
 
 
 
Condensed Consolidated Statements of Cash Flows:
 
-    Six months ended March 31, 2015 and 2014
 
 
 
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,
 
 
 
2015
   
2014
   
2015
   
2014
 
Revenues
 
   
         
Investment advisory and incentive fees
 
$
87,344
   
$
90,156
   
$
175,381
   
$
177,953
 
Distribution fees and other income
   
13,358
     
15,767
     
27,101
     
30,640
 
Institutional research services
   
2,002
     
2,373
     
4,067
     
4,180
 
Total revenues
   
102,704
     
108,296
     
206,549
     
212,773
 
Expenses
                               
Compensation
   
43,402
     
44,045
     
87,896
     
87,942
 
Management fee
   
4,241
     
5,144
     
8,678
     
9,872
 
Distribution costs
   
13,120
     
15,023
     
27,403
     
28,986
 
Other operating expenses
   
6,992
     
6,547
     
13,678
     
11,937
 
Total expenses
   
67,755
     
70,759
     
137,655
     
138,737
 
 
                               
Operating income
   
34,949
     
37,537
     
68,894
     
74,036
 
Other income (expense)
                               
Net gain/(loss) from investments
   
3,895
     
9,610
     
10,853
     
16,554
 
Interest and dividend income
   
1,289
     
1,332
     
2,343
     
2,473
 
Interest expense
   
(1,963
)
   
(2,021
)
   
(3,982
)
   
(4,013
)
Total other income (expense), net
   
3,221
     
8,921
     
9,214
     
15,014
 
Income before income taxes
   
38,170
     
46,458
     
78,108
     
89,050
 
Income tax provision
   
14,123
     
17,135
     
29,302
     
31,751
 
Net income
   
24,047
     
29,323
     
48,806
     
57,299
 
Net income/(loss) attributable to noncontrolling interests
   
(54
)
   
373
     
(71
)
   
395
 
Net income attributable to GAMCO Investors, Inc.'s shareholders
 
$
24,101
   
$
28,950
   
$
48,877
   
$
56,904
 
 
                               
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
                               
Basic
 
$
0.96
   
$
1.14
   
$
1.95
   
$
2.24
 
 
                               
Diluted
 
$
0.95
   
$
1.13
   
$
1.93
   
$
2.22
 
 
                               
Weighted average shares outstanding:
                               
Basic
   
25,065
     
25,381
     
25,098
     
25,431
 
 
                               
Diluted
   
25,358
     
25,586
     
25,386
     
25,635
 
 
                               
Dividends declared:
 
$
0.07
   
$
0.06
   
$
0.14
   
$
0.12
 

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
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Net income
 
$
24,047
   
$
29,323
   
$
48,806
   
$
57,299
 
Other comprehensive income/(loss), net of tax:
                               
Foreign currency translation
   
55
     
22
     
13
     
30
 
Net unrealized losses on securities available for sale (a)
   
(255
)
   
(1,728
)
   
(722
)
   
(4,425
)
Other comprehensive loss
   
(200
)
   
(1,706
)
   
(709
)
   
(4,395
)
                                 
Comprehensive income
   
23,847
     
27,617
     
48,097
     
52,904
 
Less: Comprehensive loss/(income) attributable to noncontrolling interests
   
(54
   
373
 
   
(71
   
395
 
                                 
Comprehensive income attributable to GAMCO Investors, Inc.
 
$
23,901
   
$
27,244
   
$
48,168
   
$
52,509
 

(a) Net of income tax benefit of ($150), ($1,015), ($424) and ($2,599),respectively.

See accompanying notes.
4


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,
 
   
2015
   
2014
   
2014
 
ASSETS
 
   
   
 
Cash and cash equivalents
 
$
372,284
   
$
298,224
   
$
307,490
 
Investments in securities
   
144,008
     
259,537
     
225,596
 
Investments in sponsored registered investment companies
   
126,305
     
39,537
     
40,791
 
Investments in partnerships
   
108,950
     
107,637
     
107,896
 
Receivable from brokers
   
56,579
     
76,079
     
58,945
 
Investment advisory fees receivable
   
32,766
     
41,872
     
32,228
 
Income tax receivable
   
2,303
     
2,477
     
1,077
 
Other assets
   
22,791
     
41,067
     
30,779
 
Total assets
 
$
865,986
   
$
866,430
   
$
804,802
 
 
                       
LIABILITIES AND EQUITY
                       
Payable to brokers
 
$
48,858
   
$
43,409
   
$
19,859
 
Income taxes payable and deferred tax liabilities
   
21,266
     
27,939
     
31,029
 
Capital lease obligation
   
5,213
     
5,253
     
5,290
 
Compensation payable
   
68,889
     
39,983
     
68,908
 
Securities sold, not yet purchased
   
9,825
     
10,595
     
14,329
 
Mandatorily redeemable noncontrolling interests
   
1,281
     
1,302
     
1,339
 
Accrued expenses and other liabilities
   
30,964
     
29,657
     
32,194
 
Sub-total
   
186,296
     
158,138
     
172,948
 
 
                       
5.875% Senior notes (due June 1, 2021)
   
100,000
     
100,000
     
100,000
 
Zero coupon subordinated debentures, Face value: $6.9 million at June 30, 2015, $13.1
                       
    million at December 31, 2014 and $13.2 million at June 30, 2014 (due December 31, 2015)
   
6,628
     
12,163
     
11,813
 
Total liabilities
   
292,924
     
270,301
     
284,761
 
 
                       
Redeemable noncontrolling interests
   
5,943
     
68,334
     
22,806
 
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;
                       
   15,381,179, 15,341,433 and 15,108,373 issued, respectively; 6,506,477,
                       
   6,616,212 and 6,572,864 outstanding, respectively
   
14
     
14
     
14
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
   24,000,000 shares issued; 19,218,814, 19,239,260 and 19,325,820 shares
                       
   outstanding, respectively
   
19
     
19
     
19
 
Additional paid-in capital
   
297,494
     
291,681
     
287,879
 
Retained earnings
   
648,231
     
602,950
     
560,238
 
Accumulated other comprehensive income
   
24,305
     
25,014
     
25,844
 
Treasury stock, at cost (8,874,702, 8,725,221 and 8,535,509 shares, respectively)
   
(405,633
)
   
(394,617
)
   
(379,576
)
Total GAMCO Investors, Inc. stockholders' equity
   
564,430
     
525,061
     
494,418
 
Noncontrolling interests
   
2,689
     
2,734
     
2,817
 
Total equity
   
567,119
     
527,795
     
497,235
 
 
                       
Total liabilities and equity
 
$
865,986
   
$
866,430
   
$
804,802
 

See accompanying notes.
5


GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the Three months ended June 30, 2015

       
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, 2014
 
$
2,734
   
$
33
   
$
291,681
   
$
602,950
   
$
25,014
   
$
(394,617
)
 
$
527,795
   
$
68,334
 
Redemptions of
                                                               
   noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(441
)
Contributions from
                                                               
   noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
336
 
Consolidation of a consolidated
                                                               
  feeder fund and a partnership
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
996
 
Deconsolidation of offshore
                                                               
  fund
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(63,256
)
Net income (loss)
   
(45
)
   
-
     
-
     
48,877
     
-
     
-
     
48,832
     
(26
)
Net unrealized gains on
                                                               
   securities available for sale,
                                                               
   net of income tax benefit ($400)
   
-
     
-
     
-
     
-
     
(681
)
   
-
     
(681
)
   
-
 
Amounts reclassified from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($24)
   
-
     
-
     
-
     
-
     
(41
)
   
-
     
(41
)
   
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
13
     
-
     
13
     
-
 
Dividends declared ($0.14 per
                                                               
 share)
   
-
     
-
     
-
     
(3,596
)
   
-
     
-
     
(3,596
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
4,544
     
-
     
-
     
-
     
4,544
     
-
 
Exercise of stock options
                                                               
   including tax benefit ($102)
   
-
     
-
     
1,269
     
-
     
-
     
-
     
1,269
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(11,016
)
   
(11,016
)
   
-
 
Balance at June 30, 2015
 
$
2,689
   
$
33
   
$
297,494
   
$
648,231
   
$
24,305
   
$
(405,633
)
 
$
567,119
   
$
5,943
 

See accompanying notes.
6

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the Three months ended June 30, 2014

 
 
   
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, 2013
 
$
2,851
   
$
33
   
$
282,496
   
$
506,441
   
$
30,239
   
$
(361,878
)
 
$
460,182
   
$
6,751
 
Redemptions of noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(470
)
Contributions from
                                                               
   noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
16,096
 
Net income (loss)
   
(34
)
   
-
     
-
     
56,904
     
-
     
-
     
56,870
     
429
 
Net unrealized gains on
                                                               
   securities available for sale,
                                                               
   net of income tax benefit ($108)
   
-
     
-
     
-
     
-
     
(183
)
   
-
     
(183
)
   
-
 
Amount reclassed from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($2,491)
   
-
     
-
     
-
     
-
     
(4,242
)
   
-
     
(4,242
)
   
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
30
     
-
     
30
     
-
 
Dividends declared ($0.12 per
                                                               
   share)
   
-
     
-
     
-
     
(3,107
)
   
-
     
-
     
(3,107
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
3,397
     
-
     
-
     
-
     
3,397
     
-
 
Exercise of stock options
                                                               
   including tax benefit ($349)
   
-
     
-
     
1,986
     
-
     
-
     
-
     
1,986
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(17,698
)
   
(17,698
)
   
-
 
Balance at June 30, 2014
 
$
2,817
   
$
33
   
$
287,879
   
$
560,238
   
$
25,844
   
$
(379,576
)
 
$
497,235
   
$
22,806
 

See accompanying notes.
7


GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)

 
 
Six Months Ended
 
   
June 30,
 
 
 
2015
   
2014
 
Operating activities
 
   
 
Net income
 
$
48,806
   
$
57,299
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Equity in net gains from partnerships
   
(3,666
)
   
(2,884
)
Depreciation and amortization
   
318
     
336
 
Stock based compensation expense
   
4,544
     
3,397
 
Deferred income taxes
   
(1,902
)
   
(1,512
)
Tax benefit from exercise of stock options
   
102
     
349
 
Foreign currency translation gain/(loss)
   
13
     
30
 
Other-than-temporary loss on available for sale securities
   
-
     
69
 
Cost basis of donated securities
   
64
     
1,480
 
Gains on sales of available for sale securities
   
(30
)
   
(3,163
)
Accretion of zero coupon debentures
   
377
     
440
 
Loss on extinguishment of debt
   
310
     
74
 
(Increase) decrease in assets:
               
Investments in trading securities
   
14,686
     
9,899
 
Investments in partnerships:
               
  Contributions to partnerships
   
(12,369
)
   
(12,098
)
  Distributions from partnerships
   
15,060
     
3,077
 
Receivable from brokers
   
(28,406
)
   
(9,484
)
Investment advisory fees receivable
   
8,909
     
19,278
 
Income tax receivable and deferred tax assets
   
34
     
(632
)
Other assets
   
17,899
     
(4,739
)
Increase (decrease) in liabilities:
               
Payable to brokers
   
42,714
     
9,094
 
Income taxes payable and deferred tax liabilities
   
(4,208
)
   
(4,707
)
Compensation payable
   
28,904
     
34,240
 
Mandatorily redeemable noncontrolling interests
   
(20
)
   
(16
)
Accrued expenses and other liabilities
   
1,876
     
(405
)
Total adjustments
   
85,209
     
42,123
 
Net cash provided by operating activities
 
$
134,015
   
$
99,422
 

8


GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(In thousands)

 
 
Six Months Ended
 
   
June 30,
 
 
 
2015
   
2014
 
Investing activities
 
   
 
Purchases of available for sale securities
 
$
(41,603
)
 
$
(5,354
)
Proceeds from sales of available for sale securities
   
1,064
     
6,518
 
Return of capital on available for sale securities
   
252
     
561
 
Net cash provided by investing activities
   
(40,287
)
   
1,725
 
 
               
Financing activities
               
Contributions from redeemable noncontrolling interests
   
336
     
16,096
 
Redemptions of redeemable noncontrolling interests
   
(441
)
   
(470
)
Proceeds from exercise of stock options
   
-
     
1,637
 
Dividends paid
   
(3,510
)
   
(3,050
)
Repurchase of zero coupon subordinated debentures
   
(6,223
)
   
(612
)
Purchase of treasury stock
   
(11,016
)
   
(17,698
)
Net cash used in financing activities
   
(19,687
)
   
(4,097
)
Effect of exchange rates on cash and cash equivalents
   
(4
)
   
(11
)
Net increase in cash and cash equivalents
   
74,037
     
97,039
 
Cash and cash equivalents at beginning of period
   
298,224
     
210,451
 
Increase in cash from consolidation
   
10
     
-
 
Increase in cash from deconsolidation
   
13
     
-
 
Cash and cash equivalents at end of period
 
$
372,284
   
$
307,490
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
3,575
   
$
3,539
 
Cash paid for taxes
 
$
34,836
   
$
37,020
 
 
               
Non-cash activity:
               
- For the six months ended June 30, 2015 and June 30, 2014, the Company accrued dividends on restricted stock awards of $86 and $57, respectively.
- On January 1, 2015, GAMCO Investors, Inc. was no longer deemed to have control over a certain offshore fund and a certain consolidated feeder fund which resulted in the deconsolidation of that offshore fund and consolidated feeder fund and an increase of approximately $13 of cash and cash equivalents, a decrease of approximately $63,280 of net assets and a decrease of $63,267 of noncontrolling interests.
- On April 1, 2015, GAMCO Investors, Inc. was deemed to have control over a certain offshore fund and a certain partnership which resulted in the consolidation of that one offshore fund and one partnership and an increase of approximately $10 of cash and cash equivalents, an increase of approximately $986 of nets assets and an increase of approximately $996 of redeemable noncontrolling interest.
 

See accompanying notes.
9


GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
(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 U.S. 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.  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, 2014 from which the accompanying condensed consolidated financial statements were derived.

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 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in the Accounting Standards Codification ("Codification") Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification.  The core principle of the new ASU No. 2014-09 is for companies to recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services.  The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition.  The ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods and is to be retrospectively applied.  Early adoption is not permitted.  The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.

In June 2014, the FASB issued an accounting update clarifying that entities should treat performance targets that could be met after the requisite service period of a share-based payment award as performance conditions that affect vesting.  Therefore, an entity would not record compensation expense (measured as of the grant date) for an award where transfer to the employee is contingent upon satisfaction of the performance target until it becomes probable that the performance target will be met.  The guidance is effective for the Company beginning January 1, 2016.  Early adoption is permitted.  This guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued an accounting update amending the consolidation requirements under GAAP.  This guidance is effective for the Company beginning January 1, 2016.  Early adoption is permitted.  The Company is continuing to analyze the impact, if any, that this update may have on its consolidated financial statements.

10


In May 2015, the FASB issued new guidance amending the current disclosure requirement for investments in certain entities that calculate net asset value per share.  The guidance requires investments for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy.  Instead, those investment amounts shall be provided as a separate item to permit reconciliation of the fair value of investments included in the fair value hierarchy to the line items presented in the statement of financial position.  This new guidance will be effective for the Company’s first quarter of 2016.  The Company is currently evaluating the potential impact on its condensed consolidated financial statements and related disclosures.

B.  Investment in Securities

Investments in securities at June 30, 2015, December 31, 2014 and June 30, 2014 consisted of the following:

 
 
June 30, 2015
   
December 31, 2014
   
June 30, 2014
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Government obligations
 
$
6,998
   
$
7,000
   
$
18,994
   
$
18,996
   
$
23,996
   
$
23,998
 
Common stocks
   
75,995
     
93,874
     
170,977
     
195,029
     
124,502
     
156,522
 
Mutual funds
   
2,505
     
3,623
     
2,432
     
3,498
     
2,418
     
3,532
 
Other investments
   
505
     
789
     
743
     
1,704
     
532
     
694
 
Total trading securities
   
86,003
     
105,286
     
193,146
     
219,227
     
151,448
     
184,746
 
 
                                               
Available for sale securities:
                                               
Common stocks
   
13,578
     
37,429
     
13,637
     
38,942
     
15,009
     
39,334
 
Mutual funds
   
627
     
1,293
     
681
     
1,368
     
700
     
1,516
 
Total available for sale securities
   
14,205
     
38,722
     
14,318
     
40,310
     
15,709
     
40,850
 
 
                                               
Total investments in securities
 
$
100,208
   
$
144,008
   
$
207,464
   
$
259,537
   
$
167,157
   
$
225,596
 

Securities sold, not yet purchased at June 30, 2015, December 31, 2014 and June 30, 2014 consisted of the following:

 
 
June 30, 2015
   
December 31, 2014
   
June 30, 2014
 
 
 
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
 
Trading securities:
 
(In thousands)
 
Common stocks
 
$
9,705
   
$
9,715
   
$
9,835
   
$
9,960
   
$
11,662
   
$
13,861
 
Other investments
   
3
     
110
     
1
     
635
     
170
     
468
 
Total securities sold, not yet purchased
 
$
9,708
   
$
9,825
   
$
9,836
   
$
10,595
   
$
11,832
   
$
14,329
 

Investments in sponsored registered investment companies at June 30, 2015, December 31,2014 and June 30, 2014 consisted of the following:

 
 
June 30, 2015
   
December 31, 2014
   
June 30, 2014
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Mutual funds
 
$
42,416
   
$
45,406
   
$
1
   
$
1
   
$
19
   
$
14
 
Total trading securities
   
42,416
     
45,406
     
1
     
1
     
19
     
14
 
 
                                               
Available for sale securities:
                                               
Closed-end funds
   
62,780
     
77,616
     
21,962
     
36,323
     
21,531
     
37,138
 
Mutual funds
   
1,887
     
3,283
     
1,898
     
3,213
     
1,931
     
3,639
 
Total available for sale securities
   
64,667
     
80,899
     
23,860
     
39,536
     
23,462
     
40,777
 
 
                                               
Total investments in sponsored
                                               
   registered investment companies
 
$
107,083
   
$
126,305
   
$
23,861
   
$
39,537
   
$
23,481
   
$
40,791
 
11


Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of the date of each consolidated statement of financial condition.  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 the time of purchase are classified as cash equivalents.  The portion of investments in securities held for resale in anticipation of short-term market movements 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 (“OTT”) which are recorded as realized losses in the condensed consolidated statements of income.

The following table identifies all reclassifications out of accumulated other comprehensive income ("AOCI") into income for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Amount
 
Affected Line Items
Reason for
Reclassified
 
in the Statements
Reclassification
from AOCI
 
Of Income
from AOCI
Three months ended June 30,
 
 
  
2015
   
2014
      
 
$
5
   
$
1,551
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
35
     
498
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
-
     
(69
)
 Net gain/(loss) from investments
 OTT impairment of AFS securities
   
40
     
1,980
 
 Income before income taxes
 
   
(15
)
   
(733
)
 Income tax provision
 
 
$
25
   
$
1,247
 
 Net income
 
                        
Amount
 
Affected Line Items
Reason for
Reclassified
 
in the Statements
Reclassification
from AOCI
 
Of Income
from AOCI
Six months ended June 30,
      
   
2015
     
2014
      
 
$
30
   
$
3,163
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
35
     
3,639
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
-
     
(69
)
 Net gain/(loss) from investments
 OTT impairment of AFS securities
   
65
     
6,733
 
 Income before income taxes
 
   
(24
)
   
(2,491
)
 Income tax provision
 
 
$
41
   
$
4,242
 
 Net 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.  At June 30, 2015, December 31, 2014 and June 30, 2014, we held derivative contracts on 288,000 equity shares, 3.8 million equity shares and 1.9 million equity shares, respectively, that are included in investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition.   We had two, one and one foreign exchange contracts outstanding at June 30, 2015, December 31, 2014 and June 30, 2014, respectively, that are included in receivable from brokers or payable to brokers on the condensed consolidated statements of financial condition.  Aside from one foreign exchange contract, 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 on the condensed consolidated statements of income.  The one foreign exchange contract that is designated as a hedge was for a short of British Pounds to hedge the long investment that we have in our London Stock Exchange listed Gabelli Value Plus+ Trust Ltd. closed-end fund which is denominated in British Pounds.  As the underlying investment that is being hedged is an available for sale security, the portion of the change in value of the closed-end fund that is currency related is recorded in net gain/(loss) from investments on the condensed consolidated statements of income and not in accumulated comprehensive income.
 
12

 
The following tables identify the fair values and gains and losses of all derivatives held by the Company (in thousands):

 
  Asset Derivatives Fair Value
 
Liability Derivatives Fair Value
 
 
Balance Sheet
Location
 
June 30, 2015
   
December 31, 2014
   
June 30, 2014
 
Balance Sheet
Location
 
June 30, 2015
   
December 31, 2014
   
June 30, 2014
 
Derivatives designated as hedging instruments under FASB ASC 815-20
 
   
   
 
 
 
   
   
 
Foreign exchange contracts
Receivable from brokers
 
$
-
   
$
-
   
$
-
 
Payable to brokers
 
$
41,676
   
$
-
   
$
-
 
Sub total
 
 
$
-
   
$
-
   
$
-
 
 
 
$
41,676
   
$
-
   
$
-
 
Derivatives Not Designated As Hedging Instruments Under Fasb Asc 815-20
                       
 
                       
Equity contracts
Investments in securities
 
$
174
   
$
896
   
$
156
 
Securities sold, not yet purchased
 
$
110
   
$
635
   
$
456
 
Foreign exchange contracts
Receivable from brokers
   
-
     
-
     
-
 
Payable to brokers
   
5,103
     
5,470
     
6,823
 
Sub total
 
 
$
174
   
$
896
   
$
156
 
 
 
$
5,213
   
$
6,105
   
$
7,279
 
Total derivatives
 
 
$
174
   
$
896
   
$
156
 
 
 
$
46,889
   
$
6,105
   
$
7,279
 


Type of Derivative
Income Statement Location
Three Months ended
 
Six Months ended
 
 
 
June 30, 2015
 
June 30, 2014
 
June 30, 2015
 
June 30, 2014
 
Foreign exchange contracts
Net gain/(loss) from investments
 
$
(697
)
 
$
53
   
$
(100
)
 
$
59
 
Equity contracts
Net gain/(loss) from investments
   
41
     
120
     
172
     
(167
)
Total
 
 
$
(656
)
 
$
173
   
$
72
   
$
(108
)


The Company is a party to enforceable master netting arrangements for swaps entered into as part of the investment strategy of the Company’s proprietary portfolio.  They are typically not used as hedging instruments.  These swaps, while settled on a net basis with the counterparties, major U.S. financial institutions, are shown gross in assets and liabilities on the condensed consolidated statements of financial condition.  The swaps have a firm contract end date and are closed out and settled when each contract expires. 


               
Gross Amounts Not Offset in the
 
               
Statements of Financial Condition
 
   
Gross
   
Gross Amounts
   
Net Amounts of
             
   
Amounts of
   
Offset in the
   
Assets Presented
             
   
Recognized
   
Statements of
   
in the Statements of
   
Financial
   
Cash Collateral
     
   
Assets
   
Financial Condition
   
Financial Condition
   
Instruments
   
Received
   
Net Amount
 
Swaps:
 
(in thousands)
 
June 30, 2015
 
$
174
   
$
-
   
$
174
   
$
(107
)
 
$
-
   
$
67
 
December 31, 2014
   
896
     
-
     
896
     
(634
)
   
-
     
262
 
June 30, 2014
 
$
156
   
$
-
   
$
156
   
$
(156
)
 
$
-
   
$
-
 
                                                 
                           
Gross Amounts Not Offset in the
 
                           
Statements of Financial Condition
 
   
Gross
   
Gross Amounts
   
Net Amounts of
                         
   
Amounts of
   
Offset in the
   
Liabilities Presented
                         
   
Recognized
   
Statements of
   
in the Statements of
   
Financial
   
Cash Collateral
         
   
Liabilities
   
Financial Condition
   
Financial Condition
   
Instruments
   
Pledged
   
Net Amount
 
Swaps:
 
(in thousands)
 
June 30, 2015
 
$
107
   
$
-
   
$
107
   
$
(107
)
 
$
-
   
$
-
 
December 31, 2014
   
634
     
-
     
634
     
(634
)
   
-
     
-
 
June 30, 2014
 
$
205
   
$
-
   
$
205
   
$
(156
)
 
$
-
   
$
49
 
13


The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of June 30, 2015, December 31, 2014 and June 30, 2014:

 
 
June 30, 2015
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
13,578
   
$
23,851
   
$
-
   
$
37,429
 
Closed-end Funds
   
62,780
     
14,864
     
(28
)
   
77,616
 
Mutual funds
   
2,514
     
2,096
     
(34
)
   
4,576
 
Total available for sale securities
 
$
78,872
   
$
40,811
   
$
(62
)
 
$
119,621
 

 
 
December 31, 2014
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
13,637
   
$
25,305
   
$
-
   
$
38,942
 
Closed-end Funds
   
21,962
     
14,398
     
(37
)
   
36,323
 
Mutual funds
   
2,579
     
2,030
     
(28
)
   
4,581
 
Total available for sale securities
 
$
38,178
   
$
41,733
   
$
(65
)
 
$
79,846
 

 
 
June 30, 2014
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
15,009
   
$
24,325
   
$
-
   
$
39,334
 
Closed-end Funds
   
21,531
     
15,607
     
-
     
37,138
 
Mutual funds
   
2,631
     
2,524
     
-
     
5,155
 
Total available for sale securities
 
$
39,171
   
$
42,456
   
$
-
   
$
81,627
 

Unrealized changes in fair value, net of taxes, for the three months ended June 30, 2015 and June 30, 2014 of ($0.3) million in losses and ($1.7) million in losses, respectively, have been included in other comprehensive income, a component of equity, at June 30, 2015 and June 30, 2014.  Return of capital on available for sale securities was $35,000 and $0.2 million for the three months ended June 30, 2015 and June 30, 2014, respectively.  Proceeds from sales of investments available for sale were approximately $0.9 million and $2.6 million for the three months ended June 30, 2015 and June 30, 2014, respectively.  For the three months ended June 30, 2015 and June 30, 2014, gross gains on the sale of investments available for sale amounted to $5,000 and $1.6 million, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the three months ended June 30, 2015 or June 30, 2014.  Unrealized changes in fair value, net of taxes, for the six months ended June 30, 2015 and June 30, 2014 of $(0.7) million in losses and $(4.4) million in losses, respectively, have been included in other comprehensive income, a component of equity, at June 30, 2015 and June 30, 2014.  Return of capital on available for sale securities was $0.3 million and $0.6 million for the six months ended June 30, 2015 and June 30, 2014, respectively.  Proceeds from sales of investments available for sale were approximately $1.1 million and $6.5 million for the six months ended June 30, 2015 and June 30, 2014, respectively.  For the six months ended June 30, 2015 and June 30, 2014, gross gains on the sale of investments available for sale amounted to $30,000 and $3.2 million, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the six months ended June 30, 2015 or June 30, 2014.  The basis on which the cost of a security sold is determined using 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:

 
 
June 30, 2015
   
December 31, 2014
   
June 30, 2014
 
       
Unrealized
           
Unrealized
           
Unrealized
     
 
 
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                   
Cosed-end funds
 
$
146
   
$
(28
)
 
$
118
   
$
812
   
$
(37
)
 
$
775
   
$
-
   
$
-
   
$
-
 
Mutual Funds
   
303
     
(34
)
   
269
     
303
     
(28
)
   
275
     
-
     
-
     
-
 
Total
 
$
449
   
$
(62
)
 
$
387
   
$
1,115
   
$
(65
)
 
$
1,050
   
$
-
   
$
-
   
$
-
 
14


At June 30, 2015, there were three holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at June 30, 2015 were mutual funds and closed-end funds with diversified holdings across multiple companies and across multiple industries.  One holding was impaired for one month, one holding was impaired for eight months and one holding was impaired for ten months at June 30, 2015.  The value of these holdings at June 30, 2015 was $0.4 million.

At December 31, 2014, there were four holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at December 31, 2014 were mutual funds and closed-end funds with diversified holdings across multiple companies and across multiple industries.  One holding was impaired for one month, one for three months and two for four months at December 31, 2014. The value of these holdings at December 31, 2014 was $1.1 million.

At June 30, 2014, there were no holdings in loss positions which were not deemed to be other-than-temporarily impaired.

There were no losses recognized on AFS securities for the three or six months ended June 30, 2015.  For the three and six months ended June 30, 2014, there were $69,000 of losses on available for sale securities deemed to be other than temporary and a loss has been recorded in net gain from investments.

C. Fair Value

The following tables present information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of June 30, 2015, December 31, 2014 and June 30, 2014 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, 2015 (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)
   
2015
 
Cash equivalents
 
$
372,079
   
$
-
   
$
-
   
$
372,079
 
Investments in partnerships
   
-
     
21,526
     
-
     
21,526
 
Investments in securities: