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EX-32.2 - EXHIBIT 32.2, DATED NOVEMBER 4, 2015 - GAMCO INVESTORS, INC. ET ALex32_2093015.htm
EX-32.1 - EXHIBIT 32.1, DATED NOVEMBER 4, 2015 - GAMCO INVESTORS, INC. ET ALex32_1093015.htm
EX-31.1 - EXHIBIT 31.1, DATED NOVEMBER 4, 2015 - GAMCO INVESTORS, INC. ET ALex31_1093015.htm
EX-31.2 - EXHIBIT 31.2, DATED NOVEMBER 4, 2015 - GAMCO INVESTORS, INC. ET ALex31_2093015.htm
EX-31.3 - EXHIBIT 31.3, DATED NOVEMBER 4, 2015 - GAMCO INVESTORS, INC. ET ALex31_3093015.htm
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 September 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 October 31, 2015
Class A Common Stock, .001 par value
  (Including 556,100 restricted stock awards)
6,247,452
Class B Common Stock, .001 par value
 
19,196,792



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
 
-    Nine months ended September 30, 2015 and 2014
 
 
 
Condensed Consolidated Statements of Comprehensive Income:
 
-    Three months ended March 31, 2015 and 2014
 
-    Nine months ended September 30, 2015 and 2014
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    September 30, 2015
 
-    December 31, 2014
 
-    September 30, 2014
 
 
 
Condensed Consolidated Statements of Equity:
 
-    Nine months ended September 30, 2015 and 2014
 
 
 
Condensed Consolidated Statements of Cash Flows:
 
-    Nine months ended September 30, 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
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
 
 
2015
   
2014
   
2015
   
2014
 
Revenues
 
   
         
Investment advisory and incentive fees
 
$
82,182
   
$
92,591
   
$
257,563
   
$
270,544
 
Distribution fees and other income
   
12,301
     
15,727
     
39,402
     
46,367
 
Institutional research services
   
2,063
     
2,540
     
6,130
     
6,720
 
Total revenues
   
96,546
     
110,858
     
303,095
     
323,631
 
Expenses
                               
Compensation
   
39,731
     
43,316
     
127,627
     
131,258
 
Management fee
   
2,682
     
3,756
     
11,360
     
13,628
 
Distribution costs
   
12,344
     
15,101
     
39,747
     
44,087
 
Other operating expenses
   
5,593
     
5,099
     
19,271
     
17,036
 
Total expenses
   
60,350
     
67,272
     
198,005
     
206,009
 
 
                               
Operating income
   
36,196
     
43,586
     
105,090
     
117,622
 
Other income (expense)
                               
Net gain/(loss) from investments
   
(11,467
)
   
(9,086
)
   
(614
)
   
7,468
 
Interest and dividend income
   
884
     
1,084
     
3,227
     
3,557
 
Interest expense
   
(1,917
)
   
(1,987
)
   
(5,899
)
   
(6,000
)
Total other income/(expense), net
   
(12,500
)
   
(9,989
)
   
(3,286
)
   
5,025
 
Income before income taxes
   
23,696
     
33,597
     
101,804
     
122,647
 
Income tax provision
   
9,245
     
13,045
     
38,547
     
44,796
 
Net income
   
14,451
     
20,552
     
63,257
     
77,851
 
Net loss attributable to noncontrolling interests
   
(518
)
   
(3,113
)
   
(589
)
   
(2,718
)
Net income attributable to GAMCO Investors, Inc.'s shareholders
 
$
14,969
   
$
23,665
   
$
63,846
   
$
80,569
 
 
                               
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
                               
Basic
 
$
0.60
   
$
0.94
   
$
2.55
   
$
3.17
 
 
                               
Diluted
 
$
0.59
   
$
0.93
   
$
2.52
   
$
3.15
 
 
                               
Weighted average shares outstanding:
                               
Basic
   
24,947
     
25,296
     
25,047
     
25,385
 
 
                               
Diluted
   
25,241
     
25,517
     
25,337
     
25,595
 
 
                               
Dividends declared:
 
$
0.07
   
$
0.06
   
$
0.21
   
$
0.18
 

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
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Net income
 
$
14,451
   
$
20,552
   
$
63,257
   
$
77,851
 
Other comprehensive income/(loss), net of tax:
                               
Foreign currency translation
   
(35
)
   
(45
)
   
(22
)
   
(15
)
Net unrealized losses on securities available for sale (a)
   
(6,696
)
   
(2,407
)
   
(7,417
)
   
(6,832
)
Other comprehensive income / (loss)
   
(6,731
)
   
(2,452
)
   
(7,439
)
   
(6,847
)
                                 
Comprehensive income
   
7,720
     
18,100
     
55,818
     
71,004
 
Less: Comprehensive loss attributable to noncontrolling interests
   
(518
   
(3,113
   
(589
   
(2,718
                                 
Comprehensive income attributable to GAMCO Investors, Inc.
 
$
8,238
   
$
21,213
   
$
56,407
   
$
73,722
 

(a) Net of income tax benefit of ($3,932), ($1,414), ($4,356) and ($4,013),respectively.

See accompanying notes.
4


GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)

 
 
September 30,
   
December 31,
   
September 30,
 
   
2015
   
2014
   
2014
 
ASSETS
 
   
   
 
Cash and cash equivalents
 
$
425,616
   
$
298,224
   
$
358,421
 
Investments in securities
   
126,917
     
259,537
     
254,630
 
Investments in sponsored registered investment companies
   
115,046
     
39,537
     
39,520
 
Investments in partnerships
   
101,025
     
107,637
     
107,434
 
Receivable from brokers
   
52,918
     
76,079
     
79,885
 
Investment advisory fees receivable
   
28,629
     
41,872
     
31,155
 
Income tax receivable
   
2,409
     
2,477
     
2,433
 
Other assets
   
20,109
     
41,067
     
25,282
 
Total assets
 
$
872,669
   
$
866,430
   
$
898,760
 
 
                       
LIABILITIES AND EQUITY
                       
Payable to brokers
 
$
49,074
   
$
43,409
   
$
46,790
 
Income taxes payable and deferred tax liabilities
   
10,529
     
27,939
     
27,412
 
Capital lease obligation
   
5,191
     
5,253
     
5,272
 
Compensation payable
   
88,747
     
39,983
     
93,535
 
Securities sold, not yet purchased
   
5,577
     
10,595
     
14,180
 
Mandatorily redeemable noncontrolling interests
   
1,257
     
1,302
     
1,304
 
Accrued expenses and other liabilities
   
34,246
     
29,657
     
31,007
 
Sub-total
   
194,621
     
158,138
     
219,500
 
 
                       
5.875% Senior notes (due June 1, 2021)
   
100,000
     
100,000
     
100,000
 
Zero coupon subordinated debentures, Face value: $6.9 million at September 30, 2015, $13.1
                       
    million at December 31, 2014 and $13.1 million at September 30, 2014 (due December 31, 2015)
   
6,750
     
12,163
     
11,941
 
Total liabilities
   
301,371
     
270,301
     
331,441
 
 
                       
Redeemable noncontrolling interests
   
6,018
     
68,334
     
56,086
 
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;
                       
   15,387,701, 15,341,433 and 15,230,433 issued, respectively; 6,340,992,
                       
   6,616,212 and 6,599,982 outstanding, respectively
   
14
     
14
     
14
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
   24,000,000 shares issued; 19,196,792, 19,239,260 and 19,279,260 shares
                       
   outstanding, respectively
   
19
     
19
     
19
 
Additional paid-in capital
   
299,769
     
291,681
     
289,664
 
Retained earnings
   
661,415
     
602,950
     
582,357
 
Accumulated other comprehensive income
   
17,575
     
25,014
     
23,392
 
Treasury stock, at cost (9,046,709, 8,725,221 and 8,630,451 shares, respectively)
   
(416,147
)
   
(394,617
)
   
(386,952
)
Total GAMCO Investors, Inc. stockholders' equity
   
562,645
     
525,061
     
508,494
 
Noncontrolling interests
   
2,635
     
2,734
     
2,739
 
Total equity
   
565,280
     
527,795
     
511,233
 
 
                       
Total liabilities and equity
 
$
872,669
   
$
866,430
   
$
898,760
 

See accompanying notes.
5


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

For the Nine months ended September 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 redeemable
                                                               
   noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(602
)
Contributions from redeemable
                                                               
   noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,036
 
Consolidation of a consolidated
                                                               
  feeder fund and a partnership
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
996
 
Deconsolidation of offshore
                                                               
  fund
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(63,256
)
Net income (loss)
   
(99
)
   
-
     
-
     
63,846
     
-
     
-
     
63,747
     
(490
)
Net unrealized losses on
                                                               
   securities available for sale,
                                                               
   net of income tax benefit ($4,341)
   
-
     
-
     
-
     
-
     
(7,392
)
   
-
     
(7,392
)
   
-
 
Amounts reclassified from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($15)
   
-
     
-
     
-
     
-
     
(25
)
   
-
     
(25
)
   
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
(22
)
   
-
     
(22
)
   
-
 
Dividends declared ($0.21 per
                                                               
 share)
   
-
     
-
     
-
     
(5,381
)
   
-
     
-
     
(5,381
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
6,819
     
-
     
-
     
-
     
6,819
     
-
 
Exercise of stock options
                                                               
   including tax benefit ($102)
   
-
     
-
     
1,269
     
-
     
-
     
-
     
1,269
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(21,530
)
   
(21,530
)
   
-
 
Balance at September 30, 2015
 
$
2,635
   
$
33
   
$
299,769
   
$
661,415
   
$
17,575
   
$
(416,147
)
 
$
565,280
   
$
6,018
 

See accompanying notes.
6

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

For the NIne months ended September 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 redeemable
                                                               
   noncontrollin interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,666
)
Contributions from redeemable
                                                               
   noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
53,607
 
Net income (loss)
   
(112
)
   
-
     
-
     
80,569
     
-
     
-
     
80,457
     
(2,606
)
Net unrealized losses on
                                                               
   securities available for sale,
                                                               
   net of income tax ($1,393)
   
-
     
-
     
-
     
-
     
(2,371
)
   
-
     
(2,371
)
   
-
 
Amount reclassed from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($2,620)
   
-
     
-
     
-
     
-
     
(4,461
)
   
-
     
(4,461
)
   
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
(15
)
   
-
     
(15
)
   
-
 
Dividends declared ($0.18 per
                                                               
   share)
   
-
     
-
     
-
     
(4,653
)
   
-
     
-
     
(4,653
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
5,182
     
-
     
-
     
-
     
5,182
     
-
 
Exercise of stock options
                                                               
   including tax benefit ($349)
   
-
     
-
     
1,986
     
-
     
-
     
-
     
1,986
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(25,074
)
   
(25,074
)
   
-
 
Balance at September 30, 2014
 
$
2,739
   
$
33
   
$
289,664
   
$
582,357
   
$
23,392
   
$
(386,952
)
 
$
511,233
   
$
56,086
 

See accompanying notes.
7


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

 
 
Nine Months Ended
 
   
September 30,
 
 
 
2015
   
2014
 
Operating activities
 
   
 
Net income
 
$
63,257
   
$
77,851
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Equity in net gains from partnerships
   
(681
)
   
(572
)
Depreciation and amortization
   
475
     
507
 
Stock based compensation expense
   
6,819
     
5,182
 
Deferred income taxes
   
(8,033
)
   
(3,472
)
Tax benefit from exercise of stock options
   
102
     
349
 
Foreign currency translation gain/(loss)
   
(22
)
   
(15
)
Other-than-temporary loss on available for sale securities
   
150
     
69
 
Cost basis of donated securities
   
104
     
1,502
 
Gains on sales of available for sale securities
   
(30
)
   
(3,511
)
Accretion of zero coupon debentures
   
502
     
661
 
Loss on extinguishment of debt
   
310
     
84
 
(Increase) decrease in assets:
               
Investments in trading securities
   
29,096
     
(22,376
)
Investments in partnerships:
               
  Contributions to partnerships
   
(15,170
)
   
(15,698
)
  Distributions from partnerships
   
22,800
     
4,828
 
Receivable from brokers
   
(24,745
)
   
(30,424
)
Investment advisory fees receivable
   
13,046
     
20,351
 
Income tax receivable and deferred tax assets
   
68
     
(1,988
)
Other assets
   
20,402
     
563
 
Increase (decrease) in liabilities:
               
Payable to brokers
   
42,930
     
36,026
 
Income taxes payable and deferred tax liabilities
   
(5,019
)
   
(4,950
)
Compensation payable
   
48,768
     
58,873
 
Mandatorily redeemable noncontrolling interests
   
(45
)
   
(51
)
Accrued expenses and other liabilities
   
5,092
     
(1,639
)
Total adjustments
   
136,919
     
44,299
 
Net cash provided by operating activities
 
$
200,176
   
$
122,150
 

8


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

 
 
Nine Months Ended
 
   
September 30,
 
 
 
2015
   
2014
 
Investing activities
 
   
 
Purchases of available for sale securities
 
$
(43,030
)
 
$
(6,252
)
Proceeds from sales of available for sale securities
   
1,064
     
8,018
 
Return of capital on available for sale securities
   
554
     
827
 
Net cash (used in) provided by investing activities
   
(41,412
)
   
2,593
 
 
               
Financing activities
               
Contributions from redeemable noncontrolling interests
   
1,036
     
53,607
 
Redemptions of redeemable noncontrolling interests
   
(602
)
   
(1,666
)
Redemptions of noncontrolling interests
   
-
     
-
 
Proceeds from exercise of stock options
   
1,169
     
1,637
 
Dividends paid
   
(5,252
)
   
(4,567
)
Repurchase of zero coupon subordinated debentures
   
(6,224
)
   
(715
)
Purchase of treasury stock
   
(21,530
)
   
(25,074
)
Net cash (used in) provided by financing activities
   
(31,403
)
   
23,222
 
Effect of exchange rates on cash and cash equivalents
   
8
     
5
 
Net increase in cash and cash equivalents
   
127,369
     
147,970
 
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
 
$
425,616
   
$
358,421
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
3,897
   
$
3,847
 
Cash paid for taxes
 
$
49,590
   
$
52,956
 
 
               
Non-cash activity:
               
- For the nine months ended September 30, 2015 and September 30, 2014, the Company accrued dividends on restricted stock awards of $129 and $86, 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 other net 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
September 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 interim condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries.  Intercompany accounts and transactions are eliminated.
 
These interim 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 interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported on the interim 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, 2017, 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 requirements 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 condition.  This new guidance will be effective for the Company's first quarter of 2016.  The Company is currently evaluating the potential impact on its consolidated financial statements and related disclosures.

B.  Investment in Securities

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

 
 
September 30, 2015
   
December 31, 2014
   
September 30, 2014
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Government obligations
 
$
-
   
$
-
   
$
18,994
   
$
18,996
   
$
20,995
   
$
20,999
 
Common stocks
   
78,025
     
87,745
     
170,977
     
195,029
     
167,714
     
190,939
 
Mutual funds
   
2,504
     
3,180
     
2,432
     
3,498
     
2,416
     
3,373
 
Other investments
   
505
     
723
     
743
     
1,704
     
753
     
1,550
 
Total trading securities
   
81,034
     
91,648
     
193,146
     
219,227
     
191,878
     
216,861
 
 
                                               
Available for sale securities:
                                               
Common stocks
   
13,561
     
34,095
     
13,637
     
38,942
     
14,228
     
36,380
 
Mutual funds
   
627
     
1,174
     
681
     
1,368
     
681
     
1,389
 
Total available for sale securities
   
14,188
     
35,269
     
14,318
     
40,310
     
14,909
     
37,769
 
 
                                               
Total investments in securities
 
$
95,222
   
$
126,917
   
$
207,464
   
$
259,537
   
$
206,787
   
$
254,630
 

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

 
 
September 30, 2015
   
December 31, 2014
   
September 30, 2014
 
 
 
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
 
Trading securities:
 
(In thousands)
 
Common stocks
 
$
6,123
   
$
5,482
   
$
9,835
   
$
9,960
   
$
11,699
   
$
13,514
 
Other investments
   
8
     
95
     
1
     
635
     
71
     
666
 
Total securities sold, not yet purchased
 
$
6,131
   
$
5,577
   
$
9,836
   
$
10,595
   
$
11,770
   
$
14,180
 

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

 
 
September 30, 2015
   
December 31, 2014
   
September 30, 2014
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Mutual funds
 
$
40,097
   
$
41,820
   
$
1
   
$
1
   
$
1
   
$
1
 
Total trading securities
   
40,097
     
41,820
     
1
     
1
     
1
     
1
 
 
                                               
Available for sale securities:
                                               
Closed-end funds
   
63,068
     
70,349
     
21,962
     
36,323
     
21,819
     
36,142
 
Mutual funds
   
1,883
     
2,877
     
1,898
     
3,213
     
1,922
     
3,377
 
Total available for sale securities
   
64,951
     
73,226
     
23,860
     
39,536
     
23,741
     
39,519
 
 
                                               
Total investments in sponsored
                                               
   registered investment companies
 
$
105,048
   
$
115,046
   
$
23,861
   
$
39,537
   
$
23,742
   
$
39,520
 
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 nine months ended September 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 September 30,
 
 
  
2015
   
2014
      
 
$
-
   
$
348
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
45
     
-
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
(150
)
   
-
 
 Net gain/(loss) from investments
 OTT impairment of AFS securities
   
(105
)
   
348
 
 Income before income taxes
 
   
39
     
(129
)
 Income tax provision
 
 
$
(66
)
 
$
219
 
 Net income
 
                        
Amount
 
Affected Line Items
Reason for
Reclassified
 
in the Statements
Reclassification
from AOCI
 
Of Income
from AOCI
Nine months ended September 30,
      
   
2015
     
2014
      
 
$
30
   
$
3,511
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
80
     
3,639
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
(150
)
   
(69
)
 Net gain/(loss) from investments
 OTT impairment of AFS securities
   
(40
)
   
7,081
 
 Income before income taxes
 
   
15
     
(2,620
)
 Income tax provision
 
 
$
(25
)
 
$
4,461
 
 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 September 30, 2015, December 31, 2014 and September 30, 2014, we held derivative contracts on 170,000 equity shares, 3.8 million equity shares and 2.3 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 September 30, 2015, December 31, 2014 and September 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
 
September 30, 2015
   
December 31, 2014
   
September 30, 2014
 
Balance Sheet Location
 
September 30, 2015
   
December 31, 2014
   
September 30, 2014
 
Derivatives designated as hedging instruments under
   
   
 
 
 
   
   
 
    FASB ASC 815-20                                   
Foreign exchange contracts
Receivable from brokers
 
$
-
   
$
-
   
$
-
 
Payable to brokers
 
$
36,354
   
$
-
   
$
-
 
Sub total
 
 
$
-
   
$
-
   
$
-
 
 
 
$
36,354
   
$
-
   
$
-
 
Derivatives Not Designated As Hedging Instruments Under Fasb Asc 815-20
                 
 
                       
  Investments in                          Securities sold,                         
Equity contracts
securities
 
$
143
   
$
896
   
$
800
 
 not yet purchased
 
$
95
   
$
635
   
$
666
 
Foreign exchange contracts
Receivable from brokers
   
-
     
-
     
-
 
Payable to brokers
   
5,172
     
5,470
     
6,343
 
Sub total
 
 
$
143
   
$
896
   
$
800
 
 
 
$
5,267
   
$
6,105
   
$
7,009
 
Total derivatives
 
 
$
143
   
$
896
   
$
800
 
 
 
$
41,621
   
$
6,105
   
$
7,009
 


Type of Derivative
Income Statement Location
Three Months ended September 30,
 
Nine Months ended September 30,
 
 
  
2015
 
2014
 
2015
 
2014
 
Foreign exchange contracts
Net gain/(loss) from investments
 
$
1,985
   
$
482
   
$
1,885
   
$
541
 
Equity contracts
Net gain/(loss) from investments
   
27
     
758
     
199
     
591
 
Total
 
 
$
2,012
   
$
1,240
   
$
2,084
   
$
1,132
 


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)
 
September 30, 2015
 
$
143
   
$
-
   
$
143
   
$
(89
)
 
$
-
   
$
54
 
December 31, 2014
   
896
     
-
     
896
     
(634
)
   
-
     
262
 
September 30, 2014
 
$
800
   
$
-
   
$
800
   
$
(657
)
 
$
-
   
$
143
 
                                                 
                           
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)
 
September 30, 2015
 
$
89
   
$
-
   
$
89
   
$
(89
)
 
$
-
   
$
-
 
December 31, 2014
   
634
     
-
     
634
     
(634
)
   
-
     
-
 
September 30, 2014
 
$
657
   
$
-
   
$
657
   
$
(657
)
 
$
-
   
$
-
 
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 September 30, 2015, December 31, 2014 and September 30, 2014:

 
 
September 30, 2015
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
13,561
   
$
20,534
   
$
-
   
$
34,095
 
Closed-end Funds
   
63,068
     
10,128
     
(2,847
)
   
70,349
 
Mutual funds
   
2,510
     
1,620
     
(79
)
   
4,051
 
Total available for sale securities
 
$
79,139
   
$
32,282
   
$
(2,926
)
 
$
108,495
 

 
 
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
 

 
 
September 30, 2014
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
14,228
   
$
22,152
   
$
-
   
$
36,380
 
Closed-end Funds
   
21,819
     
14,325
     
(2
)
   
36,142
 
Mutual funds
   
2,603
     
2,163
     
-
     
4,766
 
Total available for sale securities
 
$
38,650
   
$
38,640
   
$
(2
)
 
$
77,288
 

Changes in net unrealized losses, net of taxes, for the three months ended September 30, 2015 and September 30, 2014 of ($6.7) million in losses and ($2.4) million in losses, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2015 and September 30, 2014.  Return of capital on available for sale securities was $0.3 million and $0.3 million for the three months ended September 30, 2015 and September 30, 2014, respectively.  During the three months ended September 30, 2015, there were no proceeds from the sales of investments available for sale and no gross gains on the sale of investments available for sale.  Proceeds from sales of investments available for sale were approximately $1.5 million for the three months ended September 30, 2014.  For the three months ended September 30, 2014, gross gains on the sale of investments available for sale amounted to $0.3 million 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 September 30, 2015 or September 30, 2014.  Changes in net unrealized losses, net of taxes, for the nine months ended September 30, 2015 and September 30, 2014 of $(7.4) million in losses and $(6.8) million in losses, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2015 and September 30, 2014.  Return of capital on available for sale securities was $0.6 million and $0.8 million for the nine months ended September 30, 2015 and September 30, 2014, respectively.  Proceeds from sales of investments available for sale were approximately $1.1 million and $8.0 million for the nine months ended September 30, 2015 and September 30, 2014, respectively.  For the nine months ended September 30, 2015 and September 30, 2014, gross gains on the sale of investments available for sale amounted to $30,000 and $3.5 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 nine months ended September 30, 2015 or September 30, 2014.  The basis on which the cost of a security sold is determined using specific identification.
 
14


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:

 
 
September 30, 2015
   
December 31, 2014
   
September 30, 2014
 
       
Unrealized
           
Unrealized
           
Unrealized
     
 
 
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                   
Cosed-end funds
 
$
40,537
   
$
(2,847
)
 
$
37,690
   
$
812
   
$
(37
)
 
$
775
   
$
79
   
$
(2
)
 
$
77
 
Mutual Funds
   
303
     
(79
)
   
224
     
303
     
(28
)
   
275
     
-
     
-
     
-
 
Total available for sale securities
 
$
40,840
   
$
(2,926
)
 
$
37,914
   
$
1,115
   
$
(65
)
 
$
1,050
   
$
79
   
$
(2
)
 
$
77
 

At September 30, 2015, 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 September 30, 2015 were mutual funds and closed-end funds with diversified holdings across multiple companies and across multiple industries.  One holding was impaired for two months, one holding was impaired for three months, one holding was impaired for seven months and one holding was impaired for eight months at September 30, 2015.  The value of these holdings at September 30, 2015 was $37.9 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 September 30, 2014, 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 September 30, 2014 was a closed-end fund with diversified holdings across multiple companies and across multiple industries.  The one holding was impaired for one month at September 30, 2014.  The value of this holding at September 30, 2014 was $0.1 million.

For the three months ended September 30, 2015 there were $150,000 of losses on available for sale securities deemed to be other than temporary and a loss has been recorded in net gain from investments.  There were no losses recognized on AFS securities for the three months ended September 30, 2014.  For the nine months ended September 30, 2015 and September 30, 2014, there were $150,000 and $69,000, respectively, of losses on available for sale securities deemed to be other than temporary and a loss has been recorded in net gain from investments.
 
15

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 September 30, 2015, December 31, 2014 and September 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 September 30, 2015 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of