0001060349-14-000032.txt : 20141107 0001060349-14-000032.hdr.sgml : 20141107 20141107172155 ACCESSION NUMBER: 0001060349-14-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20140930 FILED AS OF DATE: 20141107 DATE AS OF CHANGE: 20141107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMCO INVESTORS, INC. ET AL CENTRAL INDEX KEY: 0001060349 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 134007862 STATE OF INCORPORATION: DE FISCAL YEAR END: 0923 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14761 FILM NUMBER: 141205927 BUSINESS ADDRESS: STREET 1: ONE CORPORATE CENTER STREET 2: 401 THEODORE FREMD AVENUE CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149213700 MAIL ADDRESS: STREET 1: ONE CORPORATE CENTER STREET 2: 401 THEODORE FREMD AVENUE CITY: RYE STATE: NY ZIP: 10580 FORMER COMPANY: FORMER CONFORMED NAME: GABELLI ASSET MANAGEMENT INC DATE OF NAME CHANGE: 19990112 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA G INC DATE OF NAME CHANGE: 19980423 10-Q 1 form10q32014.htm FORM10Q32014  
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, 2014
or
o                  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, 2014
Class A Common Stock, .001 par value
  (Including 639,750 restriced stock awards)
6,540,443
Class B Common Stock, .001 par value
 
19,279,260



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 September 30, 2014 and 2013
 
-    Nine months ended September 30, 2014 and 2013
 
 
 
Condensed Consolidated Statements of Comprehensive Income:
 
-    Three months ended September 30, 2014 and 2013
 
-    Nine months ended September 30, 2014 and 2013
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    September 30, 2014
 
-    December 31, 2013
 
-    September 30, 2013
 
 
 
Condensed Consolidated Statements of Equity:
 
-    Nine months ended September 30, 2014 and 2013
 
 
 
Condensed Consolidated Statements of Cash Flows:
 
-    Nine months ended September 30, 2014 and 2013
 
 
 
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,
 
 
 
2014
   
2013
   
2014
   
2013
 
Revenues
 
   
         
Investment advisory and incentive fees
 
$
92,591
   
$
80,438
   
$
270,544
   
$
230,488
 
Distribution fees and other income
   
15,727
     
13,545
     
46,367
     
37,420
 
Institutional research services
   
2,540
     
2,394
     
6,720
     
6,940
 
Total revenues
   
110,858
     
96,377
     
323,631
     
274,848
 
Expenses
                               
Compensation
   
43,316
     
39,803
     
131,258
     
113,214
 
Management fee
   
3,756
     
5,629
     
13,628
     
14,455
 
Distribution costs
   
15,101
     
12,769
     
44,087
     
35,650
 
Other operating expenses
   
5,099
     
5,448
     
17,036
     
16,290
 
Total expenses
   
67,272
     
63,649
     
206,009
     
179,609
 
 
                               
Operating income
   
43,586
     
32,728
     
117,622
     
95,239
 
Other income (expense)
                               
Net gain/(loss) from investments
   
(9,086
)
   
19,334
     
7,602
     
43,766
 
Interest and dividend income
   
1,084
     
1,134
     
3,557
     
4,986
 
Interest expense
   
(1,987
)
   
(2,164
)
   
(6,000
)
   
(8,448
)
Shareholder-designated contribution
   
-
     
(313
)
   
(134
)
   
(5,313
)
Total other income (expense), net
   
(9,989
)
   
17,991
     
5,025
     
34,991
 
Income before income taxes
   
33,597
     
50,719
     
122,647
     
130,230
 
Income tax provision
   
13,045
     
17,515
     
44,796
     
46,434
 
Net income
   
20,552
     
33,204
     
77,851
     
83,796
 
Net income/(loss) attributable to noncontrolling interests
   
(3,113
)
   
106
     
(2,718
)
   
260
 
Net income attributable to GAMCO Investors, Inc.'s shareholders
 
$
23,665
   
$
33,098
   
$
80,569
   
$
83,536
 
 
                               
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
                               
Basic
 
$
0.94
   
$
1.29
   
$
3.17
   
$
3.25
 
 
                               
Diluted
 
$
0.93
   
$
1.29
   
$
3.15
   
$
3.25
 
 
                               
Weighted average shares outstanding:
                               
Basic
   
25,296
     
25,625
     
25,385
     
25,682
 
 
                               
Diluted
   
25,517
     
25,700
     
25,595
     
25,717
 
 
                               
Dividends declared:
 
$
0.06
   
$
0.06
   
$
0.18
   
$
0.16
 

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,
 
   
2014
   
2013
   
2014
   
2013
 
                 
Net income
 
$
20,552
   
$
33,204
   
$
77,851
   
$
83,796
 
Other comprehensive income/(loss), net of tax:
                               
Foreign currency translation
   
(45
)
   
49
     
(15
)
   
1
 
Net unrealized gains/(losses) on securities available for sale (a)
   
(2,407
)
   
(2,170
)
   
(6,832
)
   
(3,030
)
Other comprehensive income/(loss)
   
(2,452
)
   
(2,121
)
   
(6,847
)
   
(3,029
)
                                 
Comprehensive income
   
18,100
     
31,083
     
71,004
     
80,767
 
Less: Comprehensive loss/(income) attributable to noncontrolling interests
   
3,113
     
(106
)
   
2,718
     
(260
)
                                 
Comprehensive income attributable to GAMCO Investors, Inc.
 
$
21,213
   
$
30,977
   
$
73,722
   
$
80,507
 

(a) Net of income tax benefit of ($1,414), ($1,274), ($4,013) and ($1,780), 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,
 
   
2014
   
2013
   
2013
 
ASSETS
 
   
   
 
Cash and cash equivalents
 
$
358,421
   
$
210,451
   
$
245,411
 
Investments in securities
   
254,630
     
231,228
     
237,744
 
Investments in sponsored registered investment companies
   
39,520
     
44,042
     
43,688
 
Investments in partnerships
   
107,434
     
95,992
     
97,752
 
Receivable from brokers
   
79,885
     
49,461
     
43,854
 
Investment advisory fees receivable
   
31,155
     
51,506
     
31,151
 
Income tax receivable
   
2,433
     
445
     
433
 
Other assets
   
25,282
     
26,360
     
34,589
 
Total assets
 
$
898,760
   
$
709,485
   
$
734,622
 
 
                       
LIABILITIES AND EQUITY
                       
Payable to brokers
 
$
46,790
   
$
10,765
   
$
14,675
 
Income taxes payable and deferred tax liabilities
   
27,412
     
39,846
     
28,726
 
Capital lease obligation
   
5,272
     
5,323
     
5,331
 
Compensation payable
   
93,535
     
34,663
     
86,174
 
Securities sold, not yet purchased
   
14,180
     
6,178
     
7,725
 
Mandatorily redeemable noncontrolling interests
   
1,304
     
1,355
     
1,327
 
Accrued expenses and other liabilities
   
31,007
     
32,511
     
28,906
 
Sub-total
   
219,500
     
130,641
     
172,864
 
 
                       
5.5% Senior notes (repaid May 15, 2013)
   
-
     
0
     
0
 
5.875% Senior notes (due June 1, 2021)
   
100,000
     
100,000
     
100,000
 
Zero coupon subordinated debentures, Face value: $13.1 million at September 30, 2014, $13.8
                       
    million at December 31, 2013 and $20.5 million at September 30, 2013 (due December 31, 2015)
   
11,941
     
11,911
     
17,347
 
Total liabilities
   
331,441
     
242,552
     
290,211
 
 
                       
Redeemable noncontrolling interests
   
56,086
     
6,751
     
5,765
 
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;
                       
   15,230,433, 15,012,719 and 14,833,469 issued, respectively; 6,599,982,
                       
   6,701,930 and 6,592,649 outstanding, respectively
   
14
     
14
     
14
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
   24,000,000 shares issued; 19,279,260, 19,384,174 and 19,424,174 shares
                       
   outstanding, respectively
   
19
     
19
     
19
 
Additional paid-in capital
   
289,664
     
282,496
     
281,194
 
Retained earnings
   
582,357
     
506,441
     
487,702
 
Accumulated other comprehensive income
   
23,392
     
30,239
     
23,271
 
Treasury stock, at cost (8,630,451, 8,310,789 and 8,240,820 shares, respectively)
   
(386,952
)
   
(361,878
)
   
(356,343
)
Total GAMCO Investors, Inc. stockholders' equity
   
508,494
     
457,331
     
435,857
 
Noncontrolling interests
   
2,739
     
2,851
     
2,789
 
Total equity
   
511,233
     
460,182
     
438,646
 
 
                       
Total liabilities and equity
 
$
898,760
   
$
709,485
   
$
734,622
 

See accompanying notes.
5


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
                                                               
   noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,666
)
Contributions from
                                                               
   noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
53,607
 
Net income (loss)
   
(112
)
   
-
     
-
     
80,569
     
-
     
-
     
80,457
     
(2,606
)
Net unrealized gains on
                                                               
   securities available for sale,
                                                               
   net of income tax benefit ($1,393)
   
-
     
-
     
-
     
-
     
(2,371
)
   
-
     
(2,371
)
   
-
 
Amounts reclassified 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.
6

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

For the Nine months ended September 30, 2013

 
 
   
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, 2012
 
$
3,326
   
$
33
   
$
280,089
   
$
408,295
   
$
26,300
   
$
(347,109
)
 
$
370,934
   
$
17,362
 
Redemptions of noncontrolling
                                                               
   interests
   
(524
)
   
-
     
-
     
-
     
-
     
-
     
(524
)
   
(15,356
)
Contributions from
                                                               
   noncontrolling
                                                               
   interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
3,486
 
Net income (loss)
   
(13
)
   
-
     
-
     
83,536
     
-
     
-
     
83,523
     
273
 
Net unrealized gains on
                                                               
   securities available for sale,
                                                               
   net of income tax ($5,479)
   
-
     
-
     
-
     
-
     
9,331
     
-
     
9,331
     
-
 
Amount reclassed from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($7,259)
   
-
     
-
     
-
     
-
     
(12,361
)
   
-
     
(12,361
)
   
-
 
Income tax effect of transaction
  with shareholders
   
-
     
-
     
243
     
-
     
-
     
-
     
243
     
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
1
     
-
     
1
     
-
 
Dividends declared ($0.16 per
                                                               
   share)
   
-
     
-
     
-
     
(4,129
)
   
-
     
-
     
(4,129
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
770
     
-
     
-
     
-
     
770
     
-
 
Exercise of stock options
                                                               
   including tax benefit
   
-
     
-
     
92
     
-
     
-
     
-
     
92
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(9,234
)
   
(9,234
)
   
-
 
Balance at September 30, 2013
 
$
2,789
   
$
33
   
$
281,194
   
$
487,702
   
$
23,271
   
$
(356,343
)
 
$
438,646
   
$
5,765
 

See accompanying notes.
7


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

 
 
Nine Months Ended
 
   
September 30,
 
 
 
2014
   
2013
 
Operating activities
 
   
 
Net income
 
$
77,851
   
$
83,796
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Equity in net gains from partnerships
   
(572
)
   
(1,211
)
Depreciation and amortization
   
507
     
605
 
Stock based compensation expense
   
5,182
     
770
 
Deferred income taxes
   
(3,472
)
   
1,495
 
Tax benefit from exercise of stock options
   
349
     
16
 
Foreign currency translation gain/(loss)
   
(15
)
   
1
 
Other-than-temporary loss on available for sale securities
   
69
     
14
 
Cost basis of donated securities
   
1,502
     
1,880
 
Gains on sales of available for sale securities
   
(3,511
)
   
(16,191
)
Accretion of zero coupon debentures
   
661
     
964
 
Loss on extinguishment of debt
   
84
     
137
 
(Increase) decrease in assets:
               
Investments in trading securities
   
(22,376
)
   
(11,730
)
Investments in partnerships:
               
  Contributions to partnerships
   
(15,698
)
   
(10,124
)
  Distributions from partnerships
   
4,828
     
11,134
 
Receivable from brokers
   
(30,424
)
   
6,801
 
Investment advisory fees receivable
   
20,351
     
11,278
 
Income tax receivable and deferred tax assets
   
(1,988
)
   
584
 
Other assets
   
563
     
(7,436
)
Increase (decrease) in liabilities:
               
Payable to brokers
   
36,026
     
329
 
Income taxes payable and deferred tax liabilities
   
(4,950
)
   
3,613
 
Compensation payable
   
58,873
     
75,639
 
Mandatorily redeemable noncontrolling interests
   
(51
)
   
(15
)
Accrued expenses and other liabilities
   
(1,639
)
   
3,144
 
Total adjustments
   
44,299
     
71,697
 
Net cash provided by operating activities
 
$
122,150
   
$
155,493
 

8


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

 
 
Nine Months Ended
 
   
September 30,
 
 
 
2014
   
2013
 
Investing activities
 
   
 
Purchases of available for sale securities
 
$
(6,252
)
 
$
(8,427
)
Proceeds from sales of available for sale securities
   
8,018
     
32,422
 
Return of capital on available for sale securities
   
827
     
1,094
 
Net cash provided by investing activities
   
2,593
     
25,089
 
 
               
Financing activities
               
Contributions from redeemable noncontrolling interests
   
53,607
     
3,486
 
Redemptions of redeemable noncontrolling interests
   
(1,666
)
   
(15,356
)
Redemption of 5.5% Senior Notes
   
-
     
(99,000
)
Redemptions of noncontrolling interests
   
-
     
(524
)
Proceeds from exercise of stock options
   
1,637
     
76
 
Dividends paid
   
(4,567
)
   
(4,108
)
Repurchase of zero coupon subordinated debentures
   
(715
)
   
(1,119
)
Purchase of treasury stock
   
(25,074
)
   
(9,234
)
Net cash provided by/(used in) financing activities
   
23,222
     
(125,779
)
Effect of exchange rates on cash and cash equivalents
   
5
     
-
 
Net increase in cash and cash equivalents
   
147,970
     
54,803
 
Cash and cash equivalents at beginning of period
   
210,451
     
190,608
 
Cash and cash equivalents at end of period
 
$
358,421
   
$
245,411
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
3,847
   
$
6,607
 
Cash paid for taxes
 
$
52,956
   
$
40,500
 
 
               
Non-cash activity:
               
- For the nine months ended September 30, 2014 and September 30, 2013, the Company accrued dividends on restricted stock awards of $86 and $21, respectively.
 

See accompanying notes.
9


GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
(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, 2013 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 condensed 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 condensed consolidated financial statements.

10


B.  Investment in Securities

Investments in securities at September 30, 2014, December 31, 2013 and September 30, 2013 consisted of the following:

 
 
September 30, 2014
   
December 31, 2013
   
September 30, 2013
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Government obligations
 
$
20,995
   
$
20,999
   
$
37,986
   
$
37,994
   
$
20,993
   
$
21,000
 
Common stocks
   
167,714
     
190,939
     
96,225
     
124,634
     
143,731
     
166,443
 
Mutual funds
   
2,416
     
3,373
     
21,074
     
23,285
     
11,073
     
12,010
 
Other investments
   
753
     
1,550
     
287
     
582
     
406
     
419
 
Total trading securities
   
191,878
     
216,861
     
155,572
     
186,495
     
176,203
     
199,872
 
 
                                               
Available for sale securities:
                                               
Common stocks
   
14,228
     
36,380
     
13,389
     
43,046
     
16,372
     
36,297
 
Mutual funds
   
681
     
1,389
     
843
     
1,687
     
843
     
1,575
 
Total available for sale securities
   
14,909
     
37,769
     
14,232
     
44,733
     
17,215
     
37,872
 
 
                                               
Total investments in securities
 
$
206,787
   
$
254,630
   
$
169,804
   
$
231,228
   
$
193,418
   
$
237,744
 

Securities sold, not yet purchased at September 30, 2014, December 31, 2013 and September 30, 2013 consisted of the following:

 
 
September 30, 2014
   
December 31, 2013
   
September 30, 2013
 
 
 
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
 
Trading securities:
 
(In thousands)
 
Common stocks
 
$
11,699
   
$
13,514
   
$
5,319
   
$
6,023
   
$
6,411
   
$
7,003
 
Other investments
   
71
     
666
     
-
     
155
     
526
     
722
 
Total securities sold, not yet purchased
 
$
11,770
   
$
14,180
   
$
5,319
   
$
6,178
   
$
6,937
   
$
7,725
 
11


Investments in sponsored registered investment companies at September 30, 2014, December 31,2013 and September 30, 2013 consisted of the following:

 
 
September 30, 2014
   
December 31, 2013
   
September 30, 2013
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Mutual funds
 
$
1
   
$
1
   
$
19
   
$
10
   
$
19
   
$
12
 
Total trading securities
   
1
     
1
     
19
     
10
     
19
     
12
 
 
                                               
Available for sale securities:
                                               
Closed-end funds
   
21,819
     
36,142
     
23,100
     
40,624
     
23,850
     
40,272
 
Mutual funds
   
1,922
     
3,377
     
1,951
     
3,408
     
2,031
     
3,404
 
Total available for sale securities
   
23,741
     
39,519
     
25,051
     
44,032
     
25,881
     
43,676
 
 
                                               
Total investments in sponsored
                                               
   registered investment companies
 
$
23,742
   
$
39,520
   
$
25,070
   
$
44,042
   
$
25,900
   
$
43,688
 

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 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, 2014 and 2013 (in thousands):
 
Amount
 
Affected Line Items
Reason for
Reclassified
 
in the Statements
Reclassification
from AOCI
 
Of Income
from AOCI
Three months ended September 30,
 
 
  
2014
   
2013
      
 
$
348
   
$
5,745
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
-
     
3,112
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
348
     
8,857
 
 Income before income taxes
 
   
(129
)
   
(3,277
)
 Income tax provision
 
 
$
219
   
$
5,580
 
 Net income
 
                        
Amount
 
Affected Line Items
Reason for
Reclassified
 
in the Statements
Reclassification
from AOCI
 
Of Income
from AOCI
Nine months ended September 30,
      
   
2014
     
2013
      
 
$
3,511
   
$
16,191
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
3,639
     
3,443
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
(69
)
   
(14
)
 Net gain/(loss) from investments
 OTT impairment of AFS securities
   
7,081
     
19,620
 
 Income before income taxes
 
   
(2,620
)
   
(7,259
)
 Income tax provision
 
 
$
4,461
   
$
12,361
 
 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.  For the three months ended September 30, 2014 and 2013, the Company had transactions in equity derivatives which resulted in net gains of $661,000 and $191,000, respectively.  For the nine months ended September 30, 2014 and 2013, the Company had transactions in equity derivatives which resulted in net gains of $591,000 and $471,000, respectively.  At September 30, 2014, December 31, 2013 and September 30, 2013, we held derivative contracts on 2.3 million equity shares, 1.3 million equity shares and 1.6 million equity shares, respectively, and the fair value was $134,000, $120,000 and ($143,000), 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/(loss) from investments in the condensed consolidated statements of income. 
 
12


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, 2014
 
$
800
   
$
-
   
$
800
   
$
(657
)
 
$
-
   
$
143
 
December 31, 2013
   
275
     
-
     
275
     
(155
)
   
-
     
120
 
September 30, 2013
 
$
101
   
$
-
   
$
101
   
$
(101
)
 
$
-
   
$
-
 
                                                 
                           
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, 2014
 
$
657
   
$
-
   
$
657
   
$
(657
)
 
$
-
   
$
-
 
December 31, 2013
   
155
     
-
     
155
     
(155
)
   
-
     
-
 
September 30, 2013
 
$
135
   
$
-
   
$
135
   
$
(101
)
 
$
-
   
$
34
 

 
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, 2014, December 31, 2013 and September 30, 2013:

 
 
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
 

 
 
December 31, 2013
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
13,389
   
$
29,657
   
$
-
   
$
43,046
 
Closed-end Funds
   
23,100
     
17,654
     
(130
)
   
40,624
 
Mutual funds
   
2,794
     
2,325
     
(24
)
   
5,095
 
Total available for sale securities
 
$
39,283
   
$
49,636
   
$
(154
)
 
$
88,765
 

 
 
September 30, 2013
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
16,372
   
$
19,925
   
$
-
   
$
36,297
 
Closed-end Funds
   
23,850
     
16,545
     
(123
)
   
40,272
 
Mutual funds
   
2,874
     
2,141
     
(36
)
   
4,979
 
Total available for sale securities
 
$
43,096
   
$
38,611
   
$
(159
)
 
$
81,548
 

Unrealized changes in fair value, net of taxes, for the three months ended September 30, 2014 and September 30, 2013 of $2.4 million in losses and $2.2 million in losses, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2014 and September 30, 2013.  Return of capital on available for sale securities was $0.3 million and $0.5 million for the three months ended September 30, 2014 and September 30, 2013, respectively.  Proceeds from sales of investments available for sale were approximately $1.5 million and $10.4 million for the three months ended September 30, 2014 and September 30, 2013, respectively.  For the three months ended September 30, 2014 and September 30, 2013, gross gains on the sale of investments available for sale amounted to $0.3 million and $5.7 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 September 30, 2014 or September 30, 2013.  Unrealized changes in fair value, net of taxes, for the nine months ended September 30, 2014 and September 30, 2013 of $6.8 million in losses and $3.0 million in losses, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2014 and September 30, 2013.  Return of capital on available for sale securities was $0.8 million and $1.1 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.  Proceeds from sales of investments available for sale were approximately $8.0 million and $32.4 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.  For the nine months ended September 30, 2014 and September 30, 2013, gross gains on the sale of investments available for sale amounted to $3.5 million and $16.2 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 nine months ended September 30, 2014 or September 30, 2013.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, 2014
   
December 31, 2013
   
September 30, 2013
 
       
Unrealized
           
Unrealized
           
Unrealized
     
 
 
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                   
Cosed-end funds
 
$
79
   
$
(2
)
 
$
77
   
$
912
   
$
(130
)
 
$
782
   
$
941
   
$
(123
)
 
$
818
 
Mutual Funds
   
-
     
-
     
-
     
303
     
(24
)
   
279
     
365
     
(36
)
   
329
 
Total
 
$
79
   
$
(2
)
 
$
77
   
$
1,215
   
$
(154
)
 
$
1,061
   
$
1,306
   
$
(159
)
 
$
1,147
 

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.

At December 31, 2013, 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, 2013 were open-end funds and closed-end funds with diversified holdings across multiple companies and across multiple industries.  One holding was impaired for one month, one for two months, one for four months and one for seven months at December 31, 2013. The value of these holdings at December 31, 2013 was $1.1 million.

At September 30, 2013, 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, 2013 were open- and closed-end funds with diversified holdings across multiple companies and across multiple industries.  All holdings were impaired for four months at September 30, 2013.  The value of these holdings at September 30, 2013 was $1.1 million.

There were no losses on AFS securities for the three months ended September 30, 2014 or September 30, 2013.  For the nine months ended September 30, 2014 and September 30, 2013, there were $69,000 and $14,000 of losses, respectively, 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, 2014, December 31, 2013 and September 30, 2013 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, 2014 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
September 30,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2014
 
Cash equivalents
 
$
358,210
   
$
-
   
$
-
   
$
358,210
 
Investments in partnerships
   
-
     
24,094
     
-
     
24,094
 
Investments in securities:
                               
AFS - Common stocks
   
36,380
     
-
     
-
     
36,380
 
AFS - Mutual funds
   
1,389
     
-
     
-
     
1,389
 
Trading - Gov't obligations
   
20,999
     
-
     
-
     
20,999
 
Trading - Common stocks
   
190,215
     
-
     
724
     
190,939
 
Trading - Mutual funds
   
3,373
     
-
     
-
     
3,373
 
Trading - Other
   
453
     
803
     
294
     
1,550
 
Total investments in securities
   
252,809
     
803
     
1,018
     
254,630
 
Investments in sponsored registered investment companies:
                         
AFS - Closed-end Funds
   
36,142
     
-
     
-
     
36,142
 
AFS - Mutual Funds
   
3,377
     
-
     
-
     
3,377
 
Trading - Mutual funds
   
1
     
-
     
-
     
1
 
Total investments in sponsored
                               
registered investment companies
   
39,520
     
-
     
-
     
39,520
 
Total investments
   
292,329
     
24,897
     
1,018
     
318,244
 
Total assets at fair value
 
$
650,539
   
$
24,897
   
$
1,018
   
$
676,454
 
Liabilities
                               
Trading - Common stocks
 
$
13,514
   
$
-
   
$
-
   
$
13,514
 
Trading - Other
   
-
     
666
     
-
     
666
 
Securities sold, not yet purchased
 
$
13,514
   
$
666
   
$
-
   
$
14,180
 

16

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2013 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
December 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2013
 
Cash equivalents
 
$
209,913
   
$
-
   
$
-
   
$
209,913
 
Investments in partnerships
   
-
     
25,253
     
-
     
25,253
 
Investments in securities: