10-Q 1 form10q0315.htm FORM10Q32015  
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 March 31, 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 April 30, 2015
Class A Common Stock, .001 par value
  (Including 705,050 restricted stock awards)
6,567,119
Class B Common Stock, .001 par value
 
19,219,260



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 March 31, 2015 and 2014
   
 
 
 
Condensed Consolidated Statements of Comprehensive Income:
 
-    Three months ended March 31, 2015 and 2014
   
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    March 31, 2015
 
-    December 31, 2014
 
-    March 31, 2014
 
 
 
Condensed Consolidated Statements of Equity:
 
-    Three months ended March 31, 2015 and 2014
 
 
 
Condensed Consolidated Statements of Cash Flows:
 
-    Three 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
     
   
March 31,
     
 
 
2015
   
2014
         
Revenues
 
   
         
Investment advisory and incentive fees
 
$
88,037
   
$
87,797
         
Distribution fees and other income
   
13,743
     
14,873
         
Institutional research services
   
2,065
     
1,807
         
Total revenues
   
103,845
     
104,477
         
Expenses
                       
Compensation
   
44,494
     
43,897
         
Management fee
   
4,437
     
4,728
         
Distribution costs
   
14,283
     
13,963
         
Other operating expenses
   
6,686
     
5,390
         
Total expenses
   
69,900
     
67,978
         
 
                       
Operating income
   
33,945
     
36,499
         
Other income
                       
Net gain from investments
   
6,958
     
6,944
         
Interest and dividend income
   
1,054
     
1,141
         
Interest expense
   
(2,019
)
   
(1,992
)
       
Total other income, net
   
5,993
     
6,093
         
Income before income taxes
   
39,938
     
42,592
         
Income tax provision
   
15,179
     
14,616
         
Net income
   
24,759
     
27,976
         
Net income/(loss) attributable to noncontrolling interests
   
(17
)
   
22
         
Net income attributable to GAMCO Investors, Inc.'s shareholders
 
$
24,776
   
$
27,954
         
 
                       
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
                       
Basic
 
$
0.99
   
$
1.10
         
 
                       
Diluted
 
$
0.97
   
$
1.09
         
 
                       
Weighted average shares outstanding:
                       
Basic
   
25,132
     
25,481
         
 
                       
Diluted
   
25,414
     
25,684
         
 
                       
Dividends declared:
 
$
0.07
   
$
0.06
         

See accompanying notes.
3


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

   
Three Months Ended
 
   
March 31,
 
   
2015
   
2014
   
           
Net income
 
$
24,759
   
$
27,976
   
Other comprehensive loss, net of tax:
                 
Foreign currency translation
   
(42
)
   
8
   
Net unrealized losses on securities available for sale (a)
   
(467
)
   
(2,697
)
 
Other comprehensive income loss
   
(509
)
   
(2,689
)
 
                   
Comprehensive income
   
24,250
     
25,287
   
Less: Comprehensive loss/(income) attributable to noncontrolling interests
   
17
     
(22
)
 
                   
Comprehensive income attributable to GAMCO Investors, Inc.
 
$
24,267
   
$
25,265
   

(a) Net of income tax benefit of ($274) and ($1,584), respectively.

See accompanying notes.
4


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

 
 
March 31,
   
December 31,
   
March 31,
 
   
2015
   
2014
   
2014
 
ASSETS
 
   
   
 
Cash and cash equivalents
 
$
331,634
   
$
298,224
   
$
243,142
 
Investments in securities
   
158,788
     
259,537
     
234,414
 
Investments in sponsored registered investment companies
   
120,831
     
39,537
     
42,433
 
Investments in partnerships
   
106,943
     
107,637
     
105,849
 
Receivable from brokers
   
21,615
     
76,079
     
54,084
 
Investment advisory fees receivable
   
33,703
     
41,872
     
33,035
 
Income tax receivable
   
2,443
     
2,477
     
445
 
Other assets
   
23,950
     
41,067
     
26,418
 
Total assets
 
$
799,907
   
$
866,430
   
$
739,820
 
 
                       
LIABILITIES AND EQUITY
                       
Payable to brokers
 
$
10,174
   
$
43,409
   
$
11,370
 
Income taxes payable and deferred tax liabilities
   
32,830
     
27,939
     
41,427
 
Capital lease obligation
   
5,234
     
5,253
     
5,307
 
Compensation payable
   
43,394
     
39,983
     
41,447
 
Securities sold, not yet purchased
   
8,569
     
10,595
     
10,788
 
Mandatorily redeemable noncontrolling interests
   
1,298
     
1,302
     
1,337
 
Accrued expenses and other liabilities
   
33,618
     
29,657
     
30,658
 
Sub-total
   
135,117
     
158,138
     
142,334
 
 
                       
5.875% Senior notes (due June 1, 2021)
   
100,000
     
100,000
     
100,000
 
Zero coupon subordinated debentures, Face value: $10.4 million at March 31, 2015, $13.1
                       
    million at December 31, 2014 and $13.8 million at March 31, 2014 (due December 31, 2015)
   
9,936
     
12,163
     
12,098
 
Total liabilities
   
245,053
     
270,301
     
254,432
 
 
                       
Redeemable noncontrolling interests
   
5,519
     
68,334
     
8,464
 
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;
                       
   15,357,733, 15,341,433 and 15,071,087 issued, respectively; 6,591,119,
                       
   6,616,212 and 6,639,106 outstanding, respectively
   
14
     
14
     
14
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
   24,000,000 shares issued; 19,219,260, 19,239,260 and 19,345,706 shares
                       
   outstanding, respectively
   
19
     
19
     
19
 
Additional paid-in capital
   
293,958
     
291,681
     
285,215
 
Retained earnings
   
625,926
     
602,950
     
532,839
 
Accumulated other comprehensive income
   
24,505
     
25,014
     
27,550
 
Treasury stock, at cost (8,766,614, 8,725,221 and 8,431,981 shares, respectively)
   
(397,813
)
   
(394,617
)
   
(371,525
)
Total GAMCO Investors, Inc. stockholders' equity
   
546,609
     
525,061
     
474,112
 
Noncontrolling interests
   
2,726
     
2,734
     
2,812
 
Total equity
   
549,335
     
527,795
     
476,924
 
 
                       
Total liabilities and equity
 
$
799,907
   
$
866,430
   
$
739,820
 

See accompanying notes.
5


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

For the Three months ended March 31, 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
)
Consolidation of consolidated
                                                               
  feeder fund
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
891
 
Deconsolidation of offshore
                                                               
  fund
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(63,256
)
Net income (loss)
   
(8
)
   
-
     
-
     
24,776
     
-
     
-
     
24,768
     
(9
)
Net unrealized losses on
                                                               
   securities available for sale,
                                                               
   net of income tax benefit ($265)
   
-
     
-
     
-
     
-
     
(451
)
   
-
     
(451
)
   
-
 
Amounts reclassified from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($9)
   
-
     
-
     
-
     
-
     
(16
)
   
-
     
(16
)
   
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
(42
)
   
-
     
(42
)
   
-
 
Dividends declared ($0.07 per
                                                               
 share)
   
-
     
-
     
-
     
(1,800
)
   
-
     
-
     
(1,800
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
2,277
     
-
     
-
     
-
     
2,277
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(3,196
)
   
(3,196
)
   
-
 
Balance at March 31, 2015
 
$
2,726
   
$
33
   
$
293,958
   
$
625,926
   
$
24,505
   
$
(397,813
)
 
$
549,335
   
$
5,519
 

See accompanying notes.
6

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

For the Three months ended March 31, 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
                                                               
   noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Contributions from redeemable
                                                               
   noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,652
 
Net income (loss)
   
(39
)
   
-
     
-
     
27,954
     
-
     
-
     
27,915
     
61
 
Net unrealized gains on
                                                               
   securities available for sale,
                                                               
   net of income tax ($175)
   
-
     
-
     
-
     
-
     
297
     
-
     
297
     
-
 
Amount reclassed from
                                                               
   accumulated other
                                                               
   comprehensive income,
                                                               
   net of income tax benefit ($1,759)
   
-
     
-
     
-
     
-
     
(2,994
)
   
-
     
(2,994
)
   
-
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
8
     
-
     
8
     
-
 
Dividends declared ($0.06 per
                                                               
   share)
   
-
     
-
     
-
     
(1,556
)
   
-
     
-
     
(1,556
)
   
-
 
Stock based compensation
                                                               
   expense
   
-
     
-
     
1,700
     
-
     
-
     
-
     
1,700
     
-
 
Exercise of stock options
                                                               
   including tax benefit ($173)
   
-
     
-
     
1,019
     
-
     
-
     
-
     
1,019
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
-
     
(9,647
)
   
(9,647
)
   
-
 
Balance at March 31, 2014
 
$
2,812
   
$
33
   
$
285,215
   
$
532,839
   
$
27,550
   
$
(371,525
)
 
$
476,924
   
$
8,464
 

See accompanying notes.
7


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

 
 
Three Months Ended
 
   
March 31,
 
 
 
2015
   
2014
 
Operating activities
 
   
 
Net income
 
$
24,759
   
$
27,976
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Equity in net gains from partnerships
   
(2,099
)
   
(426
)
Depreciation and amortization
   
160
     
169
 
Stock based compensation expense
   
2,277
     
1,700
 
Deferred income taxes
   
(605
)
   
(1,318
)
Tax benefit from exercise of stock options
   
-
     
173
 
Foreign currency translation gain/(loss)
   
(42
)
   
8
 
Other-than-temporary loss on available for sale securities
   
-
     
-
 
Cost basis of donated securities
   
-
     
1,267
 
Gains on sales of available for sale securities
   
(48
)
   
(1,612
)
Accretion of zero coupon debentures
   
213
     
223
 
Loss on extinguishment of debt
   
156
     
5
 
(Increase) decrease in assets:
               
Investments in trading securities
   
4,603
     
(324
)
Investments in partnerships:
               
  Contributions to partnerships
   
(9,870
)
   
(9,448
)
  Distributions from partnerships
   
13,525
     
17
 
Receivable from brokers
   
6,478
     
(4,623
)
Investment advisory fees receivable
   
7,959
     
18,471
 
Income tax receivable and deferred tax assets
   
34
     
-
 
Other assets
   
16,861
     
(222
)
Increase (decrease) in liabilities:
               
Payable to brokers
   
4,250
     
606
 
Income taxes payable and deferred tax liabilities
   
5,772
     
4,482
 
Compensation payable
   
3,417
     
6,783
 
Mandatorily redeemable noncontrolling interests
   
(4
)
   
(18
)
Accrued expenses and other liabilities
   
4,630
     
(1,898
)
Total adjustments
   
57,667
     
14,015
 
Net cash provided by operating activities
 
$
82,426
   
$
41,991
 

8


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

 
 
Three Months Ended
 
   
March 31,
 
 
 
2015
   
2014
 
Investing activities
 
   
 
Purchases of available for sale securities
 
$
(41,397
)
 
$
(4,782
)
Proceeds from sales of available for sale securities
   
132
     
3,880
 
Return of capital on available for sale securities
   
217
     
323
 
Net cash provided by investing activities
   
(41,048
)
   
(579
)
 
               
Financing activities
               
Contributions from redeemable noncontrolling interests
   
-
     
1,652
 
Redemptions of redeemable noncontrolling interests
   
(441
)
   
-
 
Redemptions of noncontrolling interests
   
-
     
-
 
Proceeds from exercise of stock options
   
-
     
846
 
Dividends paid
   
(1,759
)
   
(1,528
)
Repurchase of zero coupon subordinated debentures
   
(2,596
)
   
(41
)
Purchase of treasury stock
   
(3,196
)
   
(9,647
)
Net cash used in financing activities
   
(7,992
)
   
(8,718
)
Effect of exchange rates on cash and cash equivalents
   
11
     
(3
)
Net increase in cash and cash equivalents
   
33,397
     
32,691
 
Cash and cash equivalents at beginning of period
   
298,224
     
210,451
 
Increase in cash from deconsolidation
   
13
     
-
 
Cash and cash equivalents at end of period
 
$
331,634
   
$
243,142
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
316
   
$
294
 
Cash paid for taxes
 
$
9,078
   
$
10,662
 
 
               
Non-cash activity:
               
    - For the three months ended March 31, 2015 and March 31, 2014, the Company accrued dividends on restricted stock awards of $41 and $28, 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.
 

See accompanying notes.
9


GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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


B.  Investment in Securities

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

 
 
March 31, 2015
   
December 31, 2014
   
March 31, 2014
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Government obligations
 
$
9,998
   
$
9,998
   
$
18,994
   
$
18,996
   
$
25,989
   
$
25,999
 
Common stocks
   
84,646
     
105,190
     
170,977
     
195,029
     
113,508
     
141,276
 
Mutual funds
   
2,505
     
3,596
     
2,432
     
3,498
     
21,131
     
23,404
 
Other investments
   
549
     
762
     
743
     
1,704
     
544
     
749
 
Total trading securities
   
97,698
     
119,546
     
193,146
     
219,227
     
161,172
     
191,428
 
 
                                               
Available for sale securities:
                                               
Common stocks
   
13,609
     
37,954
     
13,637
     
38,942
     
15,003
     
41,538
 
Mutual funds
   
627
     
1,288
     
681
     
1,368
     
700
     
1,448
 
Total available for sale securities
   
14,236
     
39,242
     
14,318
     
40,310
     
15,703
     
42,986
 
 
                                               
Total investments in securities
 
$
111,934
   
$
158,788
   
$
207,464
   
$
259,537
   
$
176,875
   
$
234,414
 

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

 
 
March 31, 2015
   
December 31, 2014
   
March 31, 2014
 
 
 
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
 
Trading securities:
 
(In thousands)
 
Common stocks
 
$
8,485
   
$
8,530
   
$
9,835
   
$
9,960
   
$
8,837
   
$
10,469
 
Other investments
   
3
     
39
     
1
     
635
     
85
     
319
 
Total securities sold, not yet purchased
 
$
8,488
   
$
8,569
   
$
9,836
   
$
10,595
   
$
8,922
   
$
10,788
 
11


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

 
 
March 31, 2015
   
December 31, 2014
   
March 31, 2014
 
 
 
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
 
 
(In thousands)
 
Trading securities:
 
   
   
   
   
   
 
Mutual funds
 
$
37,097
   
$
39,871
   
$
1
   
$
1
   
$
19
   
$
12
 
Total trading securities
   
37,097
     
39,871
     
1
     
1
     
19
     
12
 
 
                                               
Available for sale securities:
                                               
Closed-end funds
   
63,538
     
77,663
     
21,962
     
36,323
     
22,565
     
38,980
 
Mutual funds
   
1,891
     
3,297
     
1,898
     
3,213
     
1,939
     
3,441
 
Total available for sale securities
   
65,429
     
80,960
     
23,860
     
39,536
     
24,504
     
42,421
 
 
                                               
Total investments in sponsored
                                               
   registered investment companies
 
$
102,526
   
$
120,831
   
$
23,861
   
$
39,537
   
$
24,523
   
$
42,433
 

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 months ended March 31, 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 March 31,
 
 
  
2015
   
2014
      
 
$
25
   
$
1,612
 
 Net gain/(loss) from investments
 Realized gain on sale of AFS securities
   
-
     
3,141
 
 Other operating expenses/net gain from investments
 Realized gain on donation of AFS securities
   
25
     
4,753
 
 Income before income taxes
 
   
(9
)
   
(1,759
)
 Income tax provision
 
 
$
16
   
$
2,994
 
 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 March 31, 2015 and 2014, the Company had transactions in equity derivatives which resulted in net gains of $131,000 and net losses of $190,000, respectively.  At March 31, 2015, December 31, 2014 and March 31, 2014, we held derivative contracts on 0.4 million equity shares, 3.8 million equity shares and 1.9 million equity shares, respectively, and the fair value was $88,000, $262,000 and ($107,000), 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. 
 
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. 
12


               
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)
 
March 31, 2015
 
$
128
   
$
-
   
$
128
   
$
(23
)
 
$
-
   
$
105
 
December 31, 2014
   
896
     
-
     
896
     
(634
)
   
-
     
262
 
March 31, 2014
 
$
198
   
$
-
   
$
198
   
$
(198
)
 
$
-
   
$
-
 
                                                 
                           
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)
 
March 31, 2015
 
$
23
   
$
-
   
$
23
   
$
(23
)
 
$
-
   
$
-
 
December 31, 2014
   
634
     
-
     
634
     
(634
)
   
-
     
-
 
March 31, 2014
 
$
277
   
$
-
   
$
277
   
$
(198
)
 
$
-
   
$
79
 

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

 
 
March 31, 2015
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
13,609
   
$
24,345
   
$
-
   
$
37,954
 
Closed-end Funds
   
63,538
     
14,150
     
(25
)
   
77,663
 
Mutual funds
   
2,518
     
2,101
     
(34
)
   
4,585
 
Total available for sale securities
 
$
79,665
   
$
40,596
   
$
(59
)
 
$
120,202
 

 
 
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
 

 
 
March 31, 2014
 
       
Gross
   
Gross
     
       
Unrealized
   
Unrealized
     
 
 
Cost
   
Gains
   
Losses
   
Fair Value
 
 
 
(In thousands)
 
Common stocks
 
$
15,003
   
$
26,535
   
$
-
   
$
41,538
 
Closed-end Funds
   
22,565
     
16,477
     
(62
)
   
38,980
 
Mutual funds
   
2,639
     
2,250
     
-
     
4,889
 
Total available for sale securities
 
$
40,207
   
$
45,262
   
$
(62
)
 
$
85,407
 
13


Unrealized changes in fair value, net of taxes, for the three months ended March 31, 2015 and March 31, 2014 of $0.5 million in losses and $2.7 million in losses, respectively, have been included in other comprehensive income, a component of equity, at March 31, 2015 and March 31, 2014.  Return of capital on available for sale securities was $0.2 million and $0.3 million for the three months ended March 31, 2015 and March 31, 2014, respectively.  Proceeds from sales of investments available for sale were approximately $0.1 million and $3.9 million for the three months ended March 31, 2015 and March 31, 2014, respectively.  For the three months ended March 31, 2015 and March 31, 2014, gross gains on the sale of investments available for sale amounted to $48,000 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 March 31, 2015 or March 31, 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:

 
 
March 31, 2015
   
December 31, 2014
   
March 31, 2014
 
       
Unrealized
           
Unrealized
           
Unrealized
     
 
 
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
   
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                   
Cosed-end funds
 
$
149
   
$
(25
)
 
$
124
   
$
812
   
$
(37
)
 
$
775
   
$
828
   
$
(62
)
 
$
766
 
Mutual Funds
   
303
     
(34
)
   
269
     
303
     
(28
)
   
275
     
-
     
-
     
-
 
Total
 
$
452
   
$
(59
)
 
$
393
   
$
1,115
   
$
(65
)
 
$
1,050
   
$
828
   
$
(62
)
 
$
766
 

At March 31, 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 March 31, 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 five months and one holding was impaired for seven months at March 31, 2015.  The value of these holdings at March 31, 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 March 31, 2014, there were two 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 March 31, 2014 were closed-end funds with diversified holdings across multiple companies and across multiple industries.  One holding was impaired for seven months and one for ten months at March 31, 2014.  The value of these holdings at March 31, 2014 was $0.8 million.

There were no losses recognized on AFS securities for the three months ended March 31, 2015 or March 31, 2014.
14


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 March 31, 2015, December 31, 2014 and March 31, 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 March 31, 2015 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2015
 
Cash equivalents
 
$
331,419
   
$
-
   
$
-
   
$
331,419
 
Investments in partnerships
   
-
     
21,243
     
-
     
21,243
 
Investments in securities:
                               
AFS - Common stocks
   
37,954
     
-
     
-
     
37,954
 
AFS - Mutual funds
   
1,288
     
-
     
-
     
1,288
 
Trading - Gov't obligations
   
9,998
     
-
     
-
     
9,998
 
Trading - Common stocks
   
104,071
     
180
     
939
     
105,190
 
Trading - Mutual funds
   
3,596
     
-
     
-
     
3,596
 
Trading - Other
   
355
     
128
     
279
     
762
 
Total investments in securities
   
157,262
     
308
     
1,218
     
158,788
 
Investments in sponsored registered investment companies:
                         
AFS - Closed-end Funds
   
77,663
     
-
     
-
     
77,663
 
AFS - Mutual Funds
   
3,297
     
-
     
-
     
3,297
 
Trading - Mutual funds
   
39,871
     
-
     
-
     
39,871
 
Total investments in sponsored
                               
registered investment companies
   
120,831
     
-
     
-
     
120,831
 
Total investments
   
278,093
     
21,551
     
1,218
     
300,862
 
Total assets at fair value
 
$
609,512
   
$
21,551
   
$
1,218
   
$
632,281
 
Liabilities
                               
Trading - Common stocks
 
$
8,530
   
$
-
   
$
-
   
$
8,530
 
Trading - Other
   
-
     
39
     
-
     
39
 
Securities sold, not yet purchased
 
$
8,530
   
$
39
   
$
-
   
$
8,569
 

15

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2014 (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)
   
2014
 
Cash equivalents
 
$
297,971
   
$
-
   
$
-
   
$
297,971
 
Investments in partnerships
   
-
     
23,803
     
-
     
23,803
 
Investments in securities:
                               
AFS - Common stocks
   
38,942
     
-
     
-
     
38,942
 
AFS - Mutual funds
   
1,368
     
-
     
-
     
1,368
 
Trading - Gov't obligations
   
18,996
     
-
     
-
     
18,996
 
Trading - Common stocks
   
193,735
     
1
     
1,293
     
195,029
 
Trading - Mutual funds
   
3,498
     
-
     
-
     
3,498
 
Trading - Other
   
513
     
897
     
294
     
1,704
 
Total investments in securities
   
257,052
     
898
     
1,587
     
259,537
 
Investments in sponsored registered investment companies:
                         
AFS - Closed-end Funds
   
36,323
     
-
     
-
     
36,323
 
AFS - Mutual Funds
   
3,213
     
-
     
-
     
3,213
 
Trading - Mutual funds
   
1
     
-
     
-
     
1
 
Total investments in sponsored
                               
registered investment companies
   
39,537
     
-
     
-
     
39,537
 
Total investments
   
296,589
     
24,701
     
1,587
     
322,877
 
Total assets at fair value
 
$
594,560
   
$
24,701
   
$
1,587
   
$
620,848
 
Liabilities
                               
Trading - Common stocks
 
$
9,960
   
$
-
   
$
-
   
$
9,960
 
Trading - Other
   
-
     
635
     
-
     
635
 
Securities sold, not yet purchased
 
$
9,960
   
$
635
   
$
-
   
$
10,595
 

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2014 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2014
 
Cash equivalents
 
$
242,917
   
$
-
   
$
-
   
$
242,917
 
Investments in partnerships
   
-
     
24,080
     
-
     
24,080
 
Investments in securities:
                               
AFS - Common stocks
   
41,538
     
-
     
-
     
41,538
 
AFS - Mutual funds
   
1,448
     
-
     
-
     
1,448
 
Trading - Gov't obligations
   
25,999
     
-
     
-
     
25,999
 
Trading - Common stocks
   
140,575
     
1
     
700
     
141,276
 
Trading - Mutual funds
   
23,404
     
-
     
-
     
23,404
 
Trading - Other
   
253
     
212
     
284
     
749
 
Total investments in securities
   
233,217
     
213
     
984
     
234,414
 
Investments in sponsored registered investment companies:
                         
AFS - Closed-end Funds
   
38,980
     
-
     
-
     
38,980
 
AFS - Mutual Funds
   
3,441
     
-
     
-
     
3,441
 
Trading - Mutual funds
   
12
     
-
     
-
     
12
 
Total investments in sponsored
                               
registered investment companies
   
42,433
     
-
     
-
     
42,433
 
Total investments
   
275,650
     
24,293
     
984
     
300,927
 
Total assets at fair value
 
$
518,567
   
$
24,293
   
$
984
   
$
543,844
 
Liabilities
                               
Trading - Common stocks
 
$
10,469
   
$
-
   
$
-
   
$
10,469
 
Trading - Other
   
-
     
319
     
-