0001140361-21-036603.txt : 20211105 0001140361-21-036603.hdr.sgml : 20211105 20211104182645 ACCESSION NUMBER: 0001140361-21-036603 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 66 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211105 DATE AS OF CHANGE: 20211104 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14761 FILM NUMBER: 211381567 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 form10q0921.htm FORM10Q32021
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
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 or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
   
 
 
191 Mason Street, Greenwich, CT 06830
One Corporate Center, Rye, NY 10580
 
 
(203) 629-2726
(Address of principle executive offices)(Zip Code)
 
Registrant’s telephone number, including area code
 
 
 

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Class A Common Stock, $0.001 par value
 
GBL
 
New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
Accelerated filer 
 
Non-accelerated filer
Smaller reporting company
Emerging growth company
   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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, 2021
Class A Common Stock, $0.001 par value
  (Including 905,715  restricted stock awards)
7,982,227
Class B Common Stock, $0.001 par value
 
19,024,117
In addition, there are 390,300 Phantom Restricted Stock Awards outstanding as of October 31, 2021.





GAMCO INVESTORS, INC. AND SUBSIDIARIES

INDEX
 
   
PART I.
FINANCIAL INFORMATION
Page
     
Item 1.
Unaudited Condensed Consolidated Financial Statements
 
     
 
Condensed Consolidated Statements of Financial Condition as of September 30, 2021 (unaudited) and December 31, 2020
3
     
 
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)
4
     
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)
5
     
 
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)
6
     
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)
7
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
8
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
     
Item 4.
Controls and Procedures
31
     
PART II.
OTHER INFORMATION *
 
     
Item 1.
Legal Proceedings
32
     
Item 1A.
Risk Factors
32
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
32
     
Item 6.
Exhibits
33
     
 
Signature 
33

* Items other than those listed above have been omitted because they are not applicable.
2

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

 
September 30,
   
December 31,
 
   
2021
   
2020
 
ASSETS
           
Cash and cash equivalents (a)
 
$
152,615
   
$
33,325
 
Short-term investments in U.S. Treasury Bills
   
-
     
64,988
 
Investments in securities, at fair value
   
29,561
     
25,845
 
Investment advisory fees receivable
   
24,187
     
28,796
 
Receivable from brokers
   
4,629
     
5,833
 
Receivable from affiliates
   
3,310
     
4,882
 
Goodwill and identifiable intangible assets
   
3,176
     
3,176
 
Deferred tax asset and income tax receivable
   
9,058
     
9,462
 
Other assets
   
9,794
     
9,095
 
Total assets
 
$
236,330
   
$
185,402
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Income taxes payable
 
$
2,414
   
$
3,910
 
Lease liability obligations
   
6,767
     
5,208
 
Compensation payable
   
47,767
     
21,543
 
Securities sold, not yet purchased
   
-
     
799
 
Payable to affiliates
   
450
     
3,843
 
Accrued expenses and other liabilities
   
38,645
     
38,973
 
Sub-total
   
96,043
     
74,276
 
5.875% Senior Notes (net of issuance costs of $10) (due June 1, 2021) (Note 7)
   
-
     
24,215
 
Subordinated Notes (net of issuance costs of $88) (due June 15, 2023) (Note 7)
   
52,102
     
-
 
Total liabilities
   
148,145
     
98,491
 
                 
Commitments and contingencies (Note 10)
   
     
 
                 
Stockholders’ Equity
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding
   
-
     
-
 
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 16,561,976 and 16,621,426 shares issued, respectively; 8,071,855 and 8,478,694 shares outstanding, respectively
   
14
     
14
 
Class B Common Stock, $0.001 par value; 25,000,000 shares authorized; 24,000,000 shares issued; 19,024,117  outstanding
   
19
     
19
 
Additional paid-in capital
   
24,241
     
21,219
 
Retained earnings
   
400,452
     
394,386
 
Accumulated other comprehensive loss
   
(181
)
   
(165
)
Treasury stock, at cost (8,490,121 and 8,142,732 shares, respectively)
   
(336,360
)
   
(328,562
)
Total stockholders’ equity
   
88,185
     
86,911
 
Total liabilities and stockholders’ equity
 
$
236,330
   
$
185,402
 

(a)
Includes U.S. Treasury Bills with maturities of three months or less when purchased of $138 million and $15 million at September 30, 2021 and December 31, 2020, respectively.

See notes to condensed consolidated financial statements.
3

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

 
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
Revenues:
                       
Investment advisory and incentive fees
 
$
69,147
   
$
54,894
   
$
199,502
   
$
168,637
 
Distribution fees and other income
   
6,760
     
6,358
     
19,957
     
19,741
 
Total revenues
   
75,907
     
61,252
     
219,459
     
188,378
 
Expenses:
                               
Compensation
   
21,965
     
17,722
     
83,945
     
72,488
 
Management fee
   
-
     
-
     
5,552
     
3,725
 
Distribution costs
   
7,781
     
6,994
     
22,523
     
21,258
 
Other operating expenses
   
5,485
     
4,694
     
19,460
     
14,982
 
Total expenses
   
35,231
     
29,410
     
131,480
     
112,453
 
                                 
Operating income
   
40,676
     
31,842
     
87,979
     
75,925
 
Non-operating income / (loss)
                               
Gain / (loss) from investments, net
   
(1,290
)
   
(3,133
)
   
2,376
     
(13,061
)
Interest and dividend income
   
72
     
41
     
359
     
700
 
Interest expense
   
(814
)
   
(691
)
   
(2,101
)
   
(1,985
)
Shareholder-designated contribution
   
-
     
(5,436
)
   
-
     
(5,436
)
Total non-operating income / (loss)
   
(2,032
)
   
(9,219
)
   
634
     
(19,782
)
Income before income taxes
   
38,644
     
22,623
     
88,613
     
56,143
 
Provision for income taxes
   
9,483
     
6,188
     
26,401
     
17,173
 
Net income
 
$
29,161
   
$
16,435
   
$
62,212
   
$
38,970
 
                                 
Earnings per share:
                               
Basic
 
$
1.11
   
$
0.62
   
$
2.36
   
$
1.46
 
Diluted
 
$
1.09
   
$
0.62
   
$
2.32
   
$
1.46
 
                                 
Weighted average shares outstanding:
                               
Basic
   
26,222
     
26,531
     
26,310
     
26,615
 
Diluted
   
26,832
     
26,613
     
26,863
     
26,679
 

See notes to condensed consolidated financial statements.
4

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(in thousands)

Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2021
 
2020
 
2021
 
2020
 
Net income
 
$
29,161
   
$
16,435
   
$
62,212
   
$
38,970
 
Other comprehensive income / (loss):
                               
Foreign currency translation gain / (loss)
   
(31
)
   
42
     
(16
)
   
(23
)
Total comprehensive income
 
$
29,130
   
$
16,477
   
$
62,196
   
$
38,947
 

See notes to condensed consolidated financial statements.


5

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
(in thousands, except per share data)

                     
Accumulated
             
         
Additional
         
Other
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
       
   
Stock
   
Capital
   
Earnings
   
Loss
   
Stock
   
Total
 
Balance at December 31, 2020
 
$
33
   
$
21,219
   
$
394,386
   
$
(165
)
 
$
(328,562
)
 
$
86,911
 
Net income
   
-
     
-
     
15,950
     
-
     
-
     
15,950
 
Foreign currency translation
   
-
     
-
     
-
     
10
     
-
     
10
 
Dividends declared ($0.02 per share)
   
-
     
-
     
(548
)
   
-
     
-
     
(548
)
Stock based compensation expense
   
-
     
1,166
     
-
     
-
     
-
     
1,166
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(1,814
)
   
(1,814
)
Balance at March 31, 2021
 
$
33
   
$
22,385
   
$
409,788
   
$
(155
)
 
$
(330,376
)
 
$
101,675
 
Net income
   
-
     
-
     
17,101
     
-
     
-
     
17,101
 
Foreign currency translation
   
-
     
-
     
-
     
5
     
-
     
5
 
Dividends declared ($2.02 per share)
   
-
     
-
     
(55,061
)
   
-
     
-
     
(55,061
)
Stock based compensation expense
   
-
     
946
     
-
     
-
     
-
     
946
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(3,520
)
   
(3,520
)
Balance at June 30, 2021
 
$
33
   
$
23,331
   
$
371,828
   
$
(150
)
 
$
(333,896
)
 
$
61,146
 
Net income
   
-
     
-
     
29,161
     
-
     
-
     
29,161
 
Foreign currency translation
   
-
     
-
     
-
     
(31
)
   
-
     
(31
)
Dividends declared ($0.02 per share)
   
-
     
-
     
(537
)
   
-
     
-
     
(537
)
Stock based compensation expense
   
-
     
910
     
-
     
-
     
-
     
910
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(2,464
)
   
(2,464
)
Balance at September 30, 2021
 
$
33
   
$
24,241
   
$
400,452
   
$
(181
)
 
$
(336,360
)
 
$
88,185
 


                     
Accumulated
             
         
Additional
         
Other
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
       
   
Stock
   
Capital
   
Earnings
   
Loss
   
Stock
   
Total
 
Balance at December 31, 2019
 
$
33
   
$
17,033
   
$
362,515
   
$
(204
)
 
$
(324,660
)
 
$
54,717
 
Net income
   
-
     
-
     
11,245
     
-
     
-
     
11,245
 
Foreign currency translation
   
-
     
-
     
-
     
(61
)
   
-
     
(61
)
Dividends declared ($0.02 per share)
   
-
     
-
     
(552
)
   
-
     
-
     
(552
)
Stock based compensation expense
   
-
     
941
     
-
     
-
     
-
     
941
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(946
)
   
(946
)
Balance at March 31, 2020
 
$
33
   
$
17,974
   
$
373,208
   
$
(265
)
 
$
(325,606
)
 
$
65,344
 
Net income
   
-
     
-
     
11,290
     
-
     
-
     
11,290
 
Foreign currency translation
   
-
     
-
     
-
     
(4
)
   
-
     
(4
)
Dividends declared ($0.02 per share)
   
-
     
-
     
(551
)
   
-
     
-
     
(551
)
Stock based compensation expense
   
-
     
1,137
     
-
     
-
     
-
     
1,137
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(772
)
   
(772
)
Balance at June 30, 2020
 
$
33
   
$
19,111
   
$
383,947
   
$
(269
)
 
$
(326,378
)
 
$
76,444
 
Net income
   
-
     
-
     
16,435
     
-
     
-
     
16,435
 
Foreign currency translation
   
-
     
-
     
-
     
42
     
-
     
42
 
Dividends declared ($0.02 per share)
   
-
     
-
     
(547
)
   
-
     
-
     
(547
)
Stock based compensation expense
   
-
     
993
     
-
     
-
     
-
     
993
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(1,637
)
   
(1,637
)
Balance at September 30, 2020
 
$
33
   
$
20,104
   
$
399,835
   
$
(227
)
 
$
(328,015
)
 
$
91,730
 

See notes to condensed consolidated financial statements.



6

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

 
Nine Months Ended
 
   
September 30,
 
   
2021
   
2020
 
Cash flows from operating activities:
           
Net income
 
$
62,212
   
$
38,970
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
857
     
694
 
Accretion of discounts and amortization of premiums
   
(35
)
   
53
 
Stock based compensation expense
   
3,022
     
3,071
 
Deferred income taxes
   
345
     
7,621
 
Foreign currency translation loss
   
(16
)
   
(23
)
Unrealized (gains) / losses on securities
   
(8,149
)
   
8,329
 
Net realized losses on securities
   
3,992
     
1,482
 
Impairment charge on intangible asset
   
-
     
589
 
(Increase) decrease in assets:
               
Investments in securities
   
1,073
     
2,802
 
Investment advisory fees receivable
   
4,609
     
17,099
 
Receivable from brokers
   
1,204
     
(4,699
)
Receivable from affiliates
   
1,572
     
535
 
Income taxes receivable
   
59
     
(1,840
)
Other assets
   
(1,637
)
   
(1,360
)
Increase (decrease) in liabilities:
               
Payable to brokers
   
74
     
-
 
Income taxes payable
   
(1,496
)
   
(395
)
Compensation payable
   
26,224
     
(32,183
)
Payable to affiliates
   
(3,393
)
   
(3,688
)
Accrued expenses and other liabilities
   
(461
)
   
617
 
Total adjustments
   
27,844
     
(1,296
)
Net cash provided by operating activities
   
90,056
     
37,674
 
Cash flows from investing activities:
               
Purchases of securities
   
(4,895
)
   
(105,598
)
Proceeds from sales and maturities of securities
   
67,360
     
7,157
 
Return of capital on securities
   
1,127
     
18
 
Net cash provided by / (used in) investing activities
   
63,592
     
(98,423
)
Cash flows from financing activities:
               
Maturity of 5.875ten year notes due 6/1/21
   
(24,225
)
   
-
 
Dividends paid
   
(2,135
)
   
(1,595
)
Purchase of treasury stock
   
(7,798
)
   
(3,355
)
Repayment of principal portion of lease liability
   
(193
)
   
(160
)
Repurchase of 2-year puttable note due 6/15/23
   
(10
)
       
Net cash used in financing activities
   
(34,361
)
   
(5,110
)
Effect of exchange rates on cash and cash equivalents
   
3
     
5
 
Net increase / (decrease) in cash and cash equivalents
   
119,290
     
(65,854
)
Cash and cash equivalents, beginning of period
   
33,325
     
86,136
 
Cash and cash equivalents, end of period
 
$
152,615
   
$
20,282
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
1,600
   
$
1,597
 
Cash paid for taxes
 
$
27,092
   
$
12,373
 
Supplemental disclosure of non-cash activity:
For the nine months ended September 30, 2021 and 2020, the Company accrued dividends on restricted stock awards of $1,911 and $55, respectively.
For the nine months ended September 30, 2021, the Company issued approximately $52.2 million principal amount of Subordinated Notes due 2023 to shareholders in connection with the special dividend of $2.00 per share.

See notes to condensed consolidated financial statements.


7

GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)

Organization and Description of Business

Unless indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “the Firm,” and “GBL” or similar terms are to GAMCO Investors, Inc., its predecessors, and its subsidiaries.
 
GAMCO (New York Stock Exchange (“NYSE”): GBL), a company incorporated under the laws of Delaware, is a widely-recognized provider of investment advisory services to 24 open-end funds, 14 closed-end funds, 2 actively managed semi-transparent exchange traded funds (ETFs), one société d’investissement à capital variable (“SICAV”), and approximately 1,400 institutional and private wealth management (“Institutional and PWM”) investors principally in the United States (U.S.). The Company generally manages assets on a fully discretionary basis and invests in a variety of U.S. and international securities. The Company’s revenues are based primarily on the levels of assets under management (“AUM”) and fees associated with the various investment products.

GAMCO offers a wide range of solutions for clients across Value, Growth Equity, ESG, Convertibles, actively managed semi-transparent ETFs, sector-focused strategies including Gold and Utilities, Merger Arbitrage, and Fixed Income. In 1977, GAMCO started its well-known All Cap Value strategy, Gabelli Value, and in 1986 entered the mutual fund business.

The investment advisory business is conducted principally through the following subsidiaries: Gabelli Funds, LLC (open-end funds, closed-end funds, and actively managed semi-transparent ETFs) (“Gabelli Funds”) and GAMCO Asset Management Inc. (Institutional and PWM) (“GAMCO Asset”). The distribution of open-end funds and actively managed semi-transparent ETFs are conducted through G.distributors, LLC (“G.distributors”), the Company’s broker-dealer subsidiary.

1.  Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on 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 for complete financial statements. The unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for the 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 the Company and its wholly-owned subsidiaries including: Gabelli Funds, GAMCO Asset, G.distributors, and GAMCO Asset Management (UK) Limited. Intercompany accounts and transactions have been eliminated. Subsidiaries are fully consolidated from the date of acquisition, being the date on which GBL obtains control, and continue to be consolidated until the date that such control ceases.
 
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, 2020.

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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

8

Recent Accounting Developments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. The consolidated statement of income will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), Leases (Topic 842): Effective Dates (ASU 2019-10), which deferred the effective date of this guidance for smaller reporting companies for three years. This guidance is effective for the Company on January 1, 2023 and requires a modified retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption. Early adoption is permitted. The Company is currently assessing the potential impact of this new guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the process used to test for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill, and instead any goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller reporting companies for three years. This guidance will be effective for the Company on January 1, 2023 using a prospective transition method and early adoption is permitted. The Company is currently evaluating the potential effect of this new guidance on the Company’s consolidated financial statements.

2.  Revenue Recognition

The discussion below includes all material revenue streams that are within the scope of ASU 2014-09, Revenue From Contracts With Customers (Topic 606) (“ASU 2014-09”). In all cases for all revenue streams discussed below, the revenue generated is from a single transaction price and there is no need to allocate the amounts across more than a single revenue stream. The customer for all revenues derived from mutual funds, closed-end funds, and actively managed semi-transparent ETFs (collectively, the “Funds”) described in detail below has been determined to be each Fund itself and not the ultimate underlying investor in each Fund.

Significant judgments that affect the amounts and timing of revenue recognition:

The Company’s analysis of the timing of revenue recognition for each revenue stream is based upon an analysis of the current terms of each contract. Performance obligations could, however, change from time to time if and when existing contracts are modified or new contracts are entered into. These changes could potentially affect the timing of satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to performance obligations. In the case of the revenue streams discussed below, the performance obligation is satisfied either at a point in time or over time. For incentive fee revenues, the performance obligation (advising a client portfolio) is satisfied over time, while the recognition of revenues effectively occurs at the end of the measurement period as defined within the contract, as such amounts are subject to reduction to zero on the date where the measurement period ends even if the performance benchmarks were exceeded during the intervening period. The judgments outlined below, where the determination as to these factors is discussed in detail, are continually reviewed and monitored by the Company when new contracts or contract modifications occur. Transaction price is in all instances formulaic and not subject to significant (or any) judgment at the current time. The allowance for doubtful accounts is subject to judgment.

Advisory Fee Revenues

Advisory fees for Funds, sub-advisory accounts, and the SICAV are earned based on predetermined percentages of the average net assets of the individual Funds and are recognized as revenues as the related services are performed. Fees for mutual Funds, one LSE listed closed-end investment company, actively managed semi-transparent ETFs, sub-advisory accounts, and the SICAV are computed on a daily basis based on average daily net AUM. Fees for U.S. closed-end Funds are computed on average weekly net AUM and fees for one LSE listed closed-end Fund are computed on a daily basis based on daily market value. These fees are received in cash after the end of each monthly period within 30 days. The revenue recognition occurs ratably as the performance obligation (advising the Fund) is met continuously over time. There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date. There were no such impairment losses for the periods presented.

Advisory fees for Institutional and PWM accounts are earned based on predetermined percentages of the AUM and are generally computed quarterly based on account values at the end of the preceding quarter. The revenue recognition occurs daily as the performance obligation (advising the client portfolio) is met continuously. These fees are received in cash, typically within 60 days of the client being billed. There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date.  There were no such impairment losses for the periods presented.

9

Performance Correlated and Conditional Revenues

Investment advisory fees are earned on a portion of some closed-end Funds’ preferred shares at year-end if the total return to common shareholders of the respective closed-end Fund for the year exceeds the dividend rate of the preferred shares. These fees are recognized at the end of the measurement period, which coincides with the calendar year.  These fees would also be earned and the contract period ended at any interim point in time that the respective preferred shares are redeemed. These fees are received in cash after the end of each annual measurement period, within 30 days.

The Company earns an incentive fee from two closed-end Funds. For The GDL Fund (GDL), there is an incentive fee, which is earned and recognized as of the end of each calendar year and varies to the extent the total return of the Fund is in excess of the ICE Bank of America Merrill Lynch 3-month U.S. Treasury Bill Index total return. For the Gabelli Merger Plus+ Trust Plc (GMP), there is an incentive fee, which is earned and recognized as of the end of each annual measurement period, June 30th, and varies to the extent the total return of the Fund is in excess of twice the rate of return of the 13-week Treasury Bills over the performance period.

The Company earns a performance fee from a SICAV sub-fund, the GAMCO Merger Arbitrage SICAV. This fee is recognized at the end of the measurement period, which coincides with the calendar year. The fee would also be earned and the measurement period ended at any interim point in time that a client redeemed their respective shares. This fee is received in cash after the end of the measurement period, within 30 days.

The Company also may receive incentive fees from institutional clients, which are based upon exceeding either a specific benchmark index or a defined return for these accounts.  These fees are recognized at the end of the stipulated contract period, which is generally annually, for each respective account. These fees would also be earned and the contract period ended at any interim point in time that the client terminated its relationship with the Company. These fees are received in cash after the end of the measurement period, typically within 60 days.

In all cases of the incentive fees and performance fees, because of the variable nature of the consideration, revenue recognition is delayed until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, which is generally when the uncertainty associated with the variable consideration is subsequently resolved (for example, the measurement period has concluded and the hurdle rate has been exceeded). There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date. There were no such impairment losses for the periods presented.

Distribution Fees and Other Income

Distribution fees and other income primarily includes distribution fee revenue earned in accordance with Rule 12b-1 of the Company Act of 1940, as amended, along with sales charges and underwriting fees associated with the sale of the class A shares of mutual funds. Distribution fees are computed based on average daily net assets of certain classes of each Fund and are accrued during the period in which they are earned. These fees are received in cash after the end of each monthly period within 30 days. In evaluating the appropriate timing of the recognition of these fees, the Company applied the guidance on up-front fees to determine whether such fees are related to the transfer of a promised service (a distinct performance obligation). The Company’s conclusion is that the service being provided by G.distributors to the customer in exchange for the fee is for the initial distribution of certain classes of the mutual funds and is completed at the time of each respective sale. Any fixed amounts are recognized on the trade date and variable amounts are recognized to the extent it is probable that a significant revenue reversal will not occur once the uncertainty is resolved. For variable amounts, as the uncertainty is dependent on the value of the shares at future points in time as well as the length of time the investor remains in the fund, both of which are highly susceptible to factors outside the Company’s influence, the Company does not believe that it can overcome this constraint until the market value of the Fund and the investor activities are known, which are generally monthly. Sales charges and underwriting fees associated with the sale of certain classes of the mutual funds are recognized on the trade date of the sale of the respective shares. There is a risk of non-payment and, therefore, an impairment loss on these receivables is possible at each reporting date. There were no such impairment losses for the periods presented.

10

Revenue Disaggregated

The following table presents the Company’s revenue disaggregated by investment vehicle (in thousands):

 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2021
   
2020
   
2021
   
2020
 
Investment advisory and incentive fees:
                       
Mutual Funds
 
$
25,075
   
$
22,163
   
$
73,256
   
$
66,084
 
Closed-end Funds
   
22,298
     
16,218
     
60,185
     
47,232
 
Institutional & PWM
   
19,246
     
14,771
     
55,437
     
49,319
 
Sub-advisory accounts
   
636
     
521
     
1,902
     
1,770
 
SICAV
   
1,829
     
1,159
     
4,767
     
3,827
 
Performance-based
   
63
     
62
     
3,955
     
405
 
Distribution fees and other income
   
6,760
     
6,358
     
19,957
     
19,741
 
Total revenues
 
$
75,907
   
$
61,252
   
$
219,459
   
$
188,378
 

3.  Investment in Securities

Investments in equity securities and funds at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

 
September 30, 2021
   
December 31, 2020
 
   
Cost
   
Estimated
Fair Value
   
Cost
   
Estimated
Fair Value
 
Investments in equity securities and funds:
             
Common stocks
 
$
33,652
   
$
17,687
   
$
41,341
   
$
19,099
 
Open-end funds
   
5,633
     
6,018
     
5,757
     
6,128
 
Actively managed semi-transparent ETFs
   
5,000
     
5,320
     
-
     
-
 
Closed-end Funds
   
523
     
529
     
628
     
618
 
Other
   
6
     
7
     
-
     
-
 
Total investments in equity securities and funds
 
$
44,814
   
$
29,561
   
$
47,726
   
$
25,845
 

Investments in equity securities and funds, including the Company’s investments in common stocks and the Funds, are stated at fair value with any unrealized gains or losses reported in each respective period’s earnings.

There were no investments in debt securities at September 30, 2021. Investments in debt securities at December 31, 2020 consisted of the following (in thousands):

December 31, 2020
 
 
Amortized
Cost
 
Gross Unrecognized
Holding Gains
 
Gross Unrecognized
Holding Losses
 
Estimated
Fair Value
 
Short-term investments in U.S. Treasury Bills:
                       
U.S. Treasury Bills
 
$
64,988
   
$
6
   
$
-
   
$
64,994
 
Total short-term investments in U.S. Treasury Bills
 
$
64,988
   
$
6
   
$
-
   
$
64,994
 

The maturity dates of all of the Company’s investments in debt securities are less than one year.
11


Securities sold, not yet purchased at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021
 
December 31, 2020
 
 
Cost
 
Estimated
Fair Value
 
Cost
 
Estimated
Fair Value
 
Securities sold, not yet purchased:
               
Common stocks
 
$
-
   
$
-
   
$
728
   
$
799
 
Total securities sold, not yet purchased
 
$
-
   
$
-
   
$
728
   
$
799
 

4. Fair Value

All of the instruments within cash and cash equivalents and investments in securities are measured at fair value, except for those investments designated as held-to-maturity. The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below:

-  
Level 1 - the valuation methodology utilizes quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.  Level 1 assets include cash equivalents, government obligations, mutual funds, closed-end funds, and listed equities.
-  
Level 2 - the valuation methodology utilizes inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals.
-  
Level 3 - the valuation methodology utilizes unobservable inputs for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis by the above fair value hierarchy levels as of September 30, 2021 and December 31, 2020 (in thousands):

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2021

Assets
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
   
Significant Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Balance as of
September 30,
2021
 
Cash equivalents
 
$
152,243
   
$
-
   
$
-
   
$
152,243
 
Investments in securities:
                               
Common stocks
   
17,687
     
-
     
-
     
17,687
 
Open-end Funds
   
6,018
     
-
     
-
     
6,018
 
Actively managed semi-transparent ETFs
   
5,320
     
-
     
-
     
5,320
 
Closed-end Funds
   
529
     
-
     
-
     
529
 
Other
   
7
     
-
     
-
     
7
 
Total investments in securities
   
29,561
     
-
     
-
     
29,561
 
Total assets at fair value
 
$
181,804
   
$
-
   
$
-
   
$
181,804
 

12

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2020

Assets
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
   
Significant Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Balance as of
December 31,
2020
 
Cash equivalents
 
$
32,661
   
$
-
   
$
-
   
$
32,661
 
Investments in securities:
                               
Common stocks
   
19,099
     
-
     
-
     
19,099
 
Open-end Funds
   
6,128
     
-
     
-
     
6,128
 
Closed-end Funds
   
618
     
-
     
-
     
618
 
Total investments in securities
   
25,845
     
-
     
-
     
25,845
 
Total assets at fair value
 
$
58,506
   
$
-
   
$
-
   
$
58,506
 
Liabilities
                               
Securities sold, not yet purchased:
                               
Trading - Common stocks
 
$
799
   
$
-
   
$
-
   
$
799
 
Total securities sold, not yet purchased
 
$
799
   
$
-
   
$
-
   
$
799
 

Cash equivalents are comprised primarily of U.S. Treasury Bills and our money market fund which invests in U.S. Treasury Bills.

Financial assets not carried at fair value

The following table presents the carrying value and fair value of the Company’s investments in debt securities that are held-to-maturity and consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021
 
December 31, 2020
 
 
Carrying
Value
 
Fair Value
Level 1
 
Carrying
Value
 
Fair Value
Level 1
 
U.S. Treasury Bills
 
$
-
   
$
-
   
$
64,988
   
$
64,994
 
Total
 
$
-
   
$
-
   
$
64,988
   
$
64,994
 

At September 30, 2021 and December 31, 2020, the Senior Notes and Subordinated Notes were recorded at face value, net of amortized issuance costs, as follows (in thousands) on the Condensed Consolidated Statements of Financial Condition:

September 30, 2021
 
December 31, 2020
 
 
Carrying
Value
 
Fair Value
Level 2
 
Carrying
Value
 
Fair Value
Level 2
 
5.875% Senior Notes
 
$
-
   
$
-
   
$
24,215
   
$
24,554
 
Subordinated Notes
   
52,102
     
52,102
     
-
     
-
 
Total
 
$
52,102
   
$
52,102
   
$
24,215
   
$
24,554
 

The carrying value of other financial assets and liabilities approximates their fair value based on the short-term nature of these items.

5. Income Taxes

The effective tax rate (“ETR”) for the three months ended September 30, 2021 and 2020 was 24.5% and 27.4%, respectively. The ETR for the nine months ended September 30, 2021 and 2020 was 29.8% and 30.6%, respectively.

13


6. Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted average shares outstanding. Diluted earnings per share is calculated using the treasury stock method by dividing net income by the total weighted average shares of common stock outstanding and restricted stock awards.  The computations of basic and diluted net income per share were as follows (in thousands, except per share amounts):

 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2021
   
2020
   
2021
   
2020
 
Basic:
                       
Net income
 
$
29,161
   
$
16,435
   
$
62,212
   
$
38,970
 
Weighted average shares outstanding
   
26,222
     
26,531
     
26,310
     
26,615
 
Basic net income per share
 
$
1.11
   
$
0.62
   
$
2.36
   
$
1.46