gbl10q063009.htm

SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009
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. 1-106

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
       
New York
    
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) 921-5100
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
x
No
o
 
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 x
  
       
Non-accelerated filer o
  
Smaller reporting company o
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes
o
No
x

 
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.
Class
  
Outstanding at July 31, 2009
  
Class A Common Stock, .001 par value
  
7,444,729
  
Class B Common Stock, .001 par value
  
20,301,435
  
 
1
 
INDEX
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
   
   
PART I.
FINANCIAL INFORMATION
  
   
   
Item 1.
Unaudited Condensed Consolidated Financial Statements
   
 
Condensed Consolidated Statements of Income:
 
 
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    June 30, 2009
 
 
-    June 30, 2008
   
 
Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income:
 
   
 
Condensed Consolidated Statements of Cash Flows:
 
   
 
   
Item 2.
 
(Including Quantitative and Qualitative Disclosure about Market Risk)
   
Item 3.
   
Item 4.
   
PART II.
  
   
Item 1.
   
Item 2.
   
Item 4.
   
Item 6.
   
   
 
   

2
 

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

   
Three Months Ended
    
Six Months Ended
  
   
June 30,
    
June 30,
  
   
2009
    
2008
    
2009
    
2008
  
                         
Revenues
                        
Investment advisory and incentive fees
  
$             35,989
    
$             55,131
    
$             71,188
    
$           111,972
  
Commission revenue
    
3,949
      
3,664
      
7,599
      
6,920
  
Distribution fees and other income
  
5,233
    
6,629
    
9,743
    
13,080
  
Total revenues
  
45,171
    
65,424
    
88,530
    
131,972
  
Expenses
                                
Compensation
    
19,681
      
27,857
      
40,466
      
56,780
  
Management fee
    
2,304
      
2,586
      
3,653
      
4,567
  
Distribution costs
    
5,583
      
6,700
      
11,005
      
13,033
  
Other operating expenses
  
4,942
    
7,074
    
9,243
    
13,128
  
Total expenses
    
32,510
      
44,217
      
64,367
      
87,508
  
                                 
Operating income
    
12,661
      
21,207
      
24,163
      
44,464
  
Other (expense) income
                                
Net gain (loss) from investments
    
10,730
      
10
      
13,322
      
(8,379
)
Interest and dividend income
    
801
      
4,196
      
2,079
      
8,970
  
Interest expense
  
(3,435
)
  
(2,187
)
  
(6,669
)
  
(4,204
)
Total other income (expense), net
  
8,096
    
2,019
    
8,732
    
(3,613
)
Income before income taxes
    
20,757
      
23,226
      
32,895
      
40,851
  
Income tax provision
  
7,133
    
8,719
    
11,121
    
16,045
  
Net income
  
13,624
    
14,507
    
21,774
    
24,806
  
Net income (loss) attributable to noncontrolling interests
    
308
    
48
    
246
    
(139
)
Net income attributable to GAMCO Investors, Inc.’s shareholders
  
$             13,316
    
$              14,459
    
$             21,528
    
$             24,945
  
                                 
Net income attributable to GAMCO Investors, Inc.’s shareholders
                                
  per share:
                                
Basic
  
$                 0.49
    
$                  0.52
    
$                 0.79
    
$                 0.89
  
                                 
Diluted
  
$                 0.48
    
$                  0.51
    
$                 0.78
    
$                 0.89
  
                                 
Weighted average shares outstanding:
                                
Basic
  
27,384
    
27,948
    
27,381
    
28,070
  
                                 
Diluted
  
27,508
    
28,743
    
27,446
    
28,116
  
                                 
Dividends declared:
  
$                 0.03
    
$                  0.03
    
$                 0.06
    
$                0.06
  
                                 
See accompanying notes.
                                
 
3

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
   
June 30,
    
December 31,
  
  June 30,
  
   
2009
    
2008
  
2008
  
ASSETS 
                  
Cash and cash equivalents, including restricted cash of $222, $2,158, and $0
  
$             410,552
    
$             333,332
  
$             266,344
  
Investments in securities, including restricted securities of $61,991, $59,892, and $0
    
204,121
      
231,492
    
319,833
  
Investments in partnerships and affiliates
    
59,996
      
60,707
    
77,955
  
Receivable from brokers
    
15,226
      
16,460
    
21,936
  
Investment advisory fees receivable
    
12,249
      
11,261
    
17,434
  
Income tax receivable and deferred tax assets
    
9,303
      
23,952
    
3,648
  
Other assets
  
18,577
    
20,430
  
20,643
  
Total assets
  
$             730,024
    
$             697,634
  
$             727,793
  
                       
LIABILITIES AND STOCKHOLDERS' EQUITY
                      
Payable to brokers
  
$                 4,914
    
$                1,857
  
$                 4,888
  
Compensation payable
    
13,539
      
15,862
    
29,162
  
Capital lease obligation
    
5,296
      
5,329
    
2,377
  
Securities sold, not yet purchased
    
7,037
      
1,677
    
2,105
  
Mandatorily redeemable noncontrolling interests
    
1,518
      
1,396
    
1,567
  
Accrued expenses and other liabilities
  
22,698
    
23,605
  
27,288
  
Sub-total
  
55,002
    
49,726
  
67,387
  
                       
5.5% Senior notes (due May 15, 2013)
    
99,000
      
99,000
    
100,000
  
6% Convertible notes (due August 14, 2011)
    
39,808
      
39,766
    
39,726
  
6.5% Convertible note (due October 2, 2018)
  
60,000
    
60,000
  
-
  
Total liabilities
    
253,810
      
248,492
    
207,113
  
                       
Redeemable noncontrolling interests
    
1,326
      
4,201
    
4,503
  
                       
Commitments and contingencies (Note J)
                      
                       
Stockholders’ equity
                      
   GAMCO Investors, Inc. stockholders’ equity
                      
      Class A Common Stock, $0.001 par value; 100,000,000
                      
        shares authorized; 13,101,808, 13,018,869, 12,757,024
                      
        issued, respectively; 7,446,529, 7,367,090, and 7,549,145
        outstanding, respectively
    
 13
      
13
    
12
  
      Class B Common Stock, $0.001 par value; 100,000,000
                      
        shares authorized; 24,000,000 shares issued,
        20,301,435, 20,378,699, 20,626,644 shares outstanding, respectively
    
20
      
20
    
21
  
      Additional paid-in capital
    
248,606
      
245,973
    
243,449
  
      Retained earnings
    
433,324
      
413,761
    
468,365
  
      Accumulated other comprehensive income
    
23,844
      
14,923
    
17,445
  
      Treasury stock, at cost (5,655,279, 5,651,779, and 5,207,879 shares, respectively)
  
(234,706
)
  
(234,537
)
(218,363
)
   Total GAMCO Investors, Inc. stockholders’ equity
  
471,101
    
440,153
  
510,929
  
Noncontrolling interests
  
3,787
    
4,788
  
5,248
  
Total stockholders’ equity
  
474,888
    
444,941
  
516,177
  
                       
Total liabilities and stockholders' equity
  
$             730,024
    
$             697,634
  
$             727,793
  
             See accompanying notes.
 
4
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
 (In thousands)
 
For the six months ended June 30, 2009
      
               
         
GAMCO Investors, Inc. shareholders
    
                           
Accumulated
              
               
Additional
        
Other
              
   
Noncontrolling
  
Common
  
Paid-in
  
Retained
  
Comprehensive
  
Treasury
        
   
Interests
  
Stock
  
Capital
  
Earnings
  
Income
  
Stock
  
Total
  
Balance at December 31, 2008
  
$               4,788
  
$                 33
  
$        245,973
  
$        413,761
  
$               14,923
  
$       (234,537
)
$         444,941
  
Purchase of subsidiary shares
                                            
 from noncontrolling interest
    
(747
)
  
-
    
-
    
-
    
-
    
-
    
(747
)
Spin-off of subsidiary shares
                                            
 to noncontrolling interests
    
(412
)
  
-
    
-
    
-
    
-
    
-
    
(412
)
Comprehensive income:
                                            
Net income
    
158
    
-
    
-
    
21,528
    
-
    
-
    
21,686
  
Net unrealized gains on
                                            
 securities available for sale,
                                            
 net of income tax
    
-
    
-
    
-
    
-
    
8,861
    
-
    
8,861
  
Foreign currency translation
    
-
    
-
    
-
    
-
    
60
    
-
  
60
  
Total comprehensive income
                                        
30,607
  
Dividends declared
    
-
    
-
    
-
    
(1,965
)
  
-
    
-
    
(1,965
)
Income tax effect of transaction
                                            
   with shareholders
    
-
    
-
    
(243
)
  
-
    
-
    
-
    
(243
)
Stock based compensation
                                            
 expense
    
-
    
-
    
2,538
    
-
    
-
    
-
    
2,538
  
Exercise of stock options
                                            
 including tax benefit
  
-
  
-
  
338
  
-
  
-
  
-
  
338
  
Purchase of treasury stock
  
-
  
-
  
-
  
-
  
-
  
(169
)
(169
)
Balance at June 30, 2009
  
$               3,787
  
$                 33
  
$        248,606
  
$        433,324
  
$                23,844
  
$       (234,706
)
$         474,888
  
                                             
            See accompanying notes.
 
5
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
  
 
 (In thousands)
  
For the six months ended June 30, 2008
  
                                             
         
GAMCO Investors, Inc. shareholders
  
                           
Accumulated
              
               
Additional
        
Other
              
   
Noncontrolling
  
Common
  
Paid-in
  
Retained
  
Comprehensive
  
Treasury
        
   
Interests
  
Stock
  
Capital
  
Earnings
  
Income
  
Stock
  
Total
  
Balance at December 31, 2007
  
$               5,791
  
$                 33
  
$          230,483
  
$       445,121
  
$               20,815
  
$       (195,137
)
$              507,106
  
Payment of subsidiary dividend
                                            
 to noncontrolling interests
    
(604
)
  
-
    
-
    
-
    
-
    
-
    
(604
)
Comprehensive income:
                                            
Net income
    
  61
    
-
    
-
    
24,945
    
-
    
-
    
25,006
  
Net unrealized gains on
                                            
 securities available for sale, net
                                            
 of income tax
    
-
    
-
    
-
    
-
    
(3,370
)
  
-
    
(3,370
)
Foreign currency translation
    
-
    
-
    
-
    
-
    
-
    
-
  
-
  
Total comprehensive income
                                        
21,636
  
Dividends declared
    
-
    
-
    
-
    
(1,701
)
  
-
    
-
    
(1,701
)
Stock based compensation
                                            
 expense
    
-
    
-
    
2,402
    
-
    
-
    
-
    
2,402
  
Conversion of 6% convertible
                                            
 note
    
-
    
-
    
10,000
    
-
    
-
    
-
    
10,000
  
Exercise of stock options
                                            
 including tax benefit
    
-
    
-
    
564
    
-
    
-
    
-
    
564
  
Purchase of treasury stock
  
-
  
-
  
-
  
-
  
-
  
(23,226
)
(23,226
)
Balance at June 30, 2008
  
$                5,248
  
$                 33
  
$          243,449
  
$       468,365
  
$               17,445
  
$       (218,363
)
$              516,177
  
                                             
           See accompanying notes.
 
6

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

   
Six Months Ended
  
   
June 30,
  
   
2009
    
2008
  
Operating activities 
            
Net income
  
$             21,774
    
$            24,806
  
 Adjustments to reconcile net income
                
    to net cash provided by operating activities:
                
  Equity in net (gains) losses from partnerships and affiliates
    
(6,462
)
    
1,498
  
  Depreciation and amortization
    
327
      
  483
  
  Stock based compensation expense
    
2,538
      
  2,402
  
  Deferred income taxes
    
1,674
      
858
  
  Tax benefit (expense) from exercise of stock options
    
113
      
  (6
)
  Foreign currency (gain) loss 
    
60
      
  -
  
  Other-than-temporary loss on available for sale securities
    
-
      
  262
  
  Acquisition of intangible asset
    
-
      
  (3,479
)
  Fair value of donated securities
    
370
      
  157
  
  Realized gains on sales of available for sale securities
    
(1,965
) 
    
  (415
) 
  Realized gains on sales of trading investments in securities, net
    
(1,057
) 
    
  (3,209
) 
  Change in unrealized value of trading investments in securities and securities sold, not yet purchased, net
    
(4,359
)
    
  9,249
  
  Realized losses (gains) on covers of securities sold, not yet purchased, net
    
353
      
(378
)
  Amortization on discount on debt 
    
42
      
118
  
(Increase) decrease in operating assets:
                
   Purchases of trading investments in securities
    
(179,471
) 
    
  (221,966
) 
   Proceeds from sales of trading investments in securities
    
227,170
      
  282,645
  
   Cost of covers on securities sold, not yet purchased
    
(19,246
) 
    
  (18,481
) 
   Proceeds from sales of securities sold, not yet purchased
    
23,015
      
  19,015
  
   Investments in partnerships and affiliates 
    
(932
) 
    
  (182
) 
   Distributions from partnerships and affiliates 
    
2,482
      
  20,626
  
   Receivable from brokers
    
(1,887
)
    
  15,738
  
   Investment advisory fees receivable 
    
(948
)
    
16,367
  
   Other receivables from affiliates 
    
(51
)
    
2,950
  
   Income tax receivable and deferred tax assets
    
12,708
      
-
  
   Other assets
    
988
      
  (194
) 
Increase (decrease) in operating liabilities:
                
   Payable to brokers 
    
3,056
      
  (3,443
)
   Income taxes payable 
    
(5,140
) 
    
 (9,541
)
   Compensation payable
    
(1,069
)
    
  4,567
  
   Mandatorily redeemable noncontrolling interests
    
122
      
(85
)
   Accrued expenses and other liabilities
    
(655
) 
    
  (20,822
) 
Effects of consolidation of investment partnerships and offshore funds consolidated under EITF 04-5:
                
   Realized gains on sales of investments in securities and securities sold, not yet purchased, net
    
(22
) 
    
  (17
)
   Change in unrealized value of investments in securities and securities sold, not yet purchased, net
    
(619
)
    
  511
  
   Equity in net losses from partnerships and affiliates
    
249
      
  761
  
   Purchases and covers of trading investments in securities
    
(5,314
) 
    
  (6,859
)
   Proceeds from sales of trading investments in securities and securities sold, not yet purchased, net
    
7,649
      
  7,105
  
   Distributions from partnerships and affiliates
    
4,229
      
  -
  
   Increase in investment advisory fees receivable
    
(40
) 
    
  (100
)
   Decrease in receivable from brokers
    
3,121
      
  2,471
  
   Decrease in other assets
    
607
      
  5
  
   Increase in payable to brokers
    
1
      
  769
  
   Decrease in accrued expenses, income tax receivable and other liabilities
    
(656
) 
    
(48
)
   Gain (loss) related to investment partnerships and offshore funds consolidated under EITF 04-5, net
  
558
    
(823
)
Total adjustments 
  
61,539
    
98,509
  
Net cash provided by operating activities
    
83,313
      
123,315
  
 
7
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED  (continued)
 (In thousands)

   
Six Months Ended
  
   
June 30,
  
   
2009
  
 2008
  
           
Investing activities
          
Purchases of available for sale securities
  
$              (6,174
) 
$                 (777
) 
Proceeds from sales of available for sale securities
  
5,340
  
618
  
Change in restricted cash   1,936   -   
Net cash used in investing activities
  
1,102
 
(159
) 
               
Financing activities
              
Contributions related to investment partnerships and offshore funds consolidated
              
   under EITF 04-5, net
    
(2,309
)
  
(169
)
Proceeds from exercise of stock options
    
225
    
570
  
Dividends paid
    
(1,965
) 
  
  (1,701
) 
Subsidiary dividends to noncontrolling interests
    
(1,159
) 
  
  (604
) 
Purchase of treasury stock
  
(169
) 
(23,226
) 
Net cash used in financing activities
  
(5,377
) 
(25,130
) 
Net increase in cash and cash equivalents
    
79,038
    
98,026
  
Effect of exchange rates on cash and cash equivalents
    
118
    
  (1
)
Cash and cash equivalents, excluding restricted cash at beginning of period
  
331,174
  
168,319
  
Cash and cash equivalents, excluding restricted cash at end of period
  
$           410,330
  
$           266,344
  
Supplemental disclosures of cash flow information:
              
Cash paid for interest
  
$               6,460
  
$              4,330
  
Cash paid for taxes
  
$           12,664
  
$             24,891
  
 
Non-cash activity:
 - On January 22, 2008, Cascade Investment, L.L.C. elected to convert $10 million of its $50 million convertible note paying interest of 6% into 188,679 shares of GAMCO Investors, Inc. Class A Common stock.
               
            See accompanying notes.
 
8
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(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 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 generally accepted accounting principles 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, 2008 from which the accompanying condensed consolidated financial statements were derived.

On March 20, 2009, the Company completed its spin-off of its ownership of Teton Advisors, Inc. (“Teton”) to its shareholders.  The condensed consolidated financial statements include the results of Teton up to March 20, 2009.  Prior periods have not been restated.
 
Certain items previously reported have been reclassified to conform to the current period’s condensed consolidated financial statement presentation.
 
Use of Estimates
 
The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.
 
9

Recent Accounting Developments
 
In December 2007 the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“Statement 160”) (FASB ASC 810-10-10).  The statement’s objective is to improve the relevance, comparability, and transparency of the financial information that a reporting entity with minority interests provides in its consolidated financial statements.  Statement 160 does not change the provisions of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”) related to consolidation purpose or consolidation policy or the requirement that a parent consolidate all entities in which it has a controlling financial interest.  Statement 160 does, however, amend certain of ARB 51’s consolidation procedures to make them consistent with the requirements of FASB Statement No. 141(R) “Business Combinations”.  It also amends ARB 51 to provide definitions for certain terms and to clarify some terminology. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The Company adopted this statement on January 1, 2009.  The impact of adopting Statement 160 to the Company’s condensed consolidated financial statements required a change in the presentation on the condensed consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary.  In accordance with this pronouncement as well as with FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, and SEC Topic No. D-98, “Classification and Measurement of Redeemable Securities,” GAMCO now discloses noncontrolling interests, formerly referred to as minority interest, in three different line items in the condensed consolidated statements of financial condition, depending on their characteristics.  Noncontrolling interests that are mandatorily redeemable upon a certain date or event occurring are classified as liabilities.  Noncontrolling interests that are redeemable at the option of the holder are classified as redeemable noncontrolling interests in the mezzanine section between liabilities and stockholders’ equity.  All other noncontrolling interests are classified as equity and are presented within the stockholders’ equity section, separately from GAMCO Investors, Inc.’s portion of equity.  Statement 160 also requires prior periods to be recast in the same manner.

In March 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“Statement 161”) (FASB ASC 815-10-10) to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Statement 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted Statement 161 on January 1, 2009. Statement 161 impacted only the Company's disclosure of derivative instruments.  Refer also to Note B to the condensed consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”) (FASB ASC 815-10-10) which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets”.  FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Early adoption is prohibited. The Company adopted FSP 142-3 on January 1, 2009 without a material impact to the condensed consolidated financial statements.

In April 2009, the FASB issued three FASB Staff Positions (“FSP”) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities.  FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”) (FASB ASC 820-10-65), provides guidelines for making fair value measurements more consistent with the principles presented in Statement 157.  FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”) (FASB ASC 825-10-10), enhances consistency in financial reporting by increasing the frequency of fair value disclosures.  FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”), provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities.  The application and adoption in the second quarter of these FSPs is not material to the condensed consolidated financial statements.
 
10
 
In May 2009 the FASB issued FASB Statement No. 165, “Subsequent Events” (“Statement 165”) (FASB ASC 855-10-05).  The statement’s objective is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  Although Statement 165 does not change the recognition and disclosure requirements for type I and type II subsequent events it does refer to them as recognized (type I) and nonrecognized (type II) subsequent events.  Statement 165 does require management to disclose the date through which subsequent events have been evaluated and whether that is the date on which the financial statements were issued or were available to be issued.  Statement 165 is effective for financial statements issued for fiscal years and interim periods ending after June 15, 2009 and shall be applied prospectively.  The Company adopted Statement 165 for the quarter ended June 30, 2009.  Statement 165 impacted only the Company's disclosure of subsequent events.  Refer to Note K.

In June 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” (“Statement 166”) (FASB ASC 860-10-10).  The statement’s objective is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets.  Statement 166 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009 and shall be applied prospectively.  Early adoption is prohibited.  The application of this statement is not expected to be material to the condensed consolidated financial statements.

In June 2009, the FASB issued FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“Statement 167”).  The statement’s objective is to improve financial reporting by enterprises involved with variable interest entities.  Statement 167 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009 and shall be applied prospectively.  Early adoption is prohibited.  The application of this statement is not expected to be material to the condensed consolidated financial statements.

In June 2009, the FASB voted to approve the FASB Statement No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (“Codification”) (FASB ASC 105-10-10) as the single source of authoritative nongovernmental U.S. GAAP, effective for interim and annual periods ending after September 15, 2009.  All existing accounting standard documents are superseded.  All other accounting literature not included in the Codification will be considered nonauthoritative.  The Codification reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure.  It also includes relevant Securities and Exchange Commission guidance that follows the same topical structure in separate sections in the Codification.  While the Codification does not change GAAP, it introduces a new structure - one that is organized in an easily accessible, user-friendly online research system.  The FASB expects that the new system will reduce the amount of time and effort required to research an accounting issue, mitigate the risk of noncompliance with standards through improved usability of the literature, provide accurate information with real-time updates as new standards are released, and assist the FASB with the research efforts required during the standard-setting process.  While the Codification will not change the U.S. GAAP used by the Company, it will change how U.S. GAAP is referenced in the condensed consolidated financial statements.  All future references to U.S. GAAP will be organized by topic, subtopic, section and paragraph and be preceded by FASB ASC, where ASC stands for Accounting Standards Codification.  In order to facilitate the transition to the Codification, the Company has elected to show all references to U.S. GAAP within this report on Form 10-Q as usual along with a parenthetical Codification reference.

11
 
B.  Investment in Securities

Investments in securities at June 30, 2009 and 2008 consisted of the following:

   
2009
  
2008
   
Cost
  
Fair Value
  
Cost
  
Fair Value
   
(In thousands)
Trading securities:
                
U.S. Government obligations
  
$         61,951
  
$         61,991
  
$         59,502
  
$          59,923
Common stocks 
    
48,625
    
49,665
    
74,405
    
68,510
Mutual funds
    
1,115
    
972
    
66,543
    
63,527
Preferred stocks 
    
-
    
14
    
52
    
56
Other investments 
  
306
  
185
  
581
  
691
Total trading securities
  
111,997
  
112,827
  
201,083
  
192,707
                         
Available for sale securities:
                        
Common stocks 
    
17,211
    
39,707
    
20,807
    
46,693
Mutual funds
  
49,839
  
51,587
  
80,203
  
80,433
Total available for sale securities
  
67,050
  
91,294
  
101,010
  
127,126
                         
Total investments in securities
  
$       179,047
  
$       204,121
  
$        302,093
  
$        319,833

Securities sold, not yet purchased at June 30, 2009 and 2008 consisted of the following:

   
2009
  
2008
   
Cost
  
Fair Value
  
Cost
  
Fair Value
   
(In thousands)
 Common stocks
  
$           6,564
  
$           7,037
  
$           2,103
  
$           1,781
 Mutual funds
  
-
  
-
  
524
  
324
 Total securities sold, not yet purchased
  
$           6,564
  
$           7,037
  
$           2,627
  
$           2,105

Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.  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 time of purchase are classified as cash and cash equivalents.  A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore 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 stockholders’ equity except for losses deemed to be other than temporary which are recorded as realized losses in the condensed consolidated statements of income.  For the six months ended June 30, 2009, there was no impairment of AFS securities.  For the six months ended June 30, 2008, there was an impairment of $0.3 million of AFS securities.  
 
The Company accounts for derivative financial instruments in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended” (“Statement 133”) (FASB ASC 815-10-10).  Statement 133 requires that an entity recognize all derivatives, as defined, as either assets or liabilities measured at fair value.  From time to time, the Company will enter into hedging transactions to manage its exposure to foreign currencies related to its proprietary investments.  These transactions are not designated as hedges, and changes in fair values of these derivatives are included in net gain (loss) from investments in the condensed consolidated statements of income.  During the six months ended June 30, 2009, the Company closed out of its only two foreign currency forwards which resulted in a net loss of $27,000.  As of June 30, 2009, the Company did not hold any derivative contracts.
 
12

At June 30, 2009, December 31, 2008 and June 30, 2008, the fair value of common stock investments available for sale was $39.7 million, $29.7 million and $46.7 million, respectively.  The total unrealized gains for common stock investments available for sale securities with unrealized gains was $22.5 million, $10.7 million and $25.9 million at June 30, 2009, December 31, 2008 and June 30, 2008, respectively.  There were no unrealized losses for common stock investments available for sale at June 30, 2009, December 31, 2008 or June 30, 2008.  At June 30, 2009, December 31, 2008 and June 30, 2008, the fair value of mutual fund investments available for sale with unrealized gains was $49.1 million, $30.5 million and $10.5 million, respectively.  At June 30, 2009, December 31, 2008 and June 30, 2008, the fair value of mutual fund investments available for sale with unrealized losses was $2.5 million, $15.9 million and $69.9 million, respectively.  All of the mutual fund investments available for sale with unrealized losses at June 30, 2009, December 31, 2008 or June 30, 2008 have been in continuous loss positions for less than twelve months.  The total unrealized gains for mutual fund investments available for sale securities with unrealized gains was $1.9 million, $1.9 million and $1.9 million at June 30, 2009, December 31, 2008 and June 30, 2008, respectively, while the total unrealized losses for available for sale securities with unrealized losses was $0.2 million, $0.9 million and $1.7 million, respectively.  Increases in unrealized gains to fair value, net of taxes, for the three and six months ended June 30, 2009 of $6.7 million and $8.9 million, respectively, have been included in stockholders’ equity at June 30, 2009 while increases in unrealized gains to fair value, net of taxes, for the three months ended June 30, 2008 of $0.7 million and decreases in unrealized losses to fair value, net of taxes, for the six months ended June 30, 2008 of $3.4 million have been included in stockholders’ equity at June 30, 2008.  Proceeds from sales of investments available for sale were approximately $3.1 million and $0.2 million for the three month periods ended June 30, 2009 and 2008, respectively.  For the three months ended June 30, 2009 and 2008, gross gains on the sale of investments available for sale amounted to $1.2 million and $0.1 million, respectively; there were no gross losses on the sale of investments available for sale.  Proceeds from sales of investments available for sale were approximately $5.3 million and $0.6 million for the six month periods ended June 30, 2009 and 2008, respectively.  For the six months ended June 30, 2009 and 2008, gross gains on the sale of investments available for sale amounted to $2.0 million and $0.4 million; there were no gross losses on the sale of investments available for sale.  The basis on which the cost of a security sold is determined is specific identification.

At June 30, 2009, there were 14 holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at June 30, 2009 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  One holding was impaired for three consecutive months, one holding was impaired for four consecutive months, one holding was impaired for five consecutive months and eleven holdings were impaired for eight consecutive months.  The value of these holdings at June 30, 2009 was $2.5 million.

At December 31, 2008, there were 11 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, 2008 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  One holding was impaired for one month, one holding was impaired for two consecutive months, two holdings were impaired for three consecutive months, six holdings were impaired for four consecutive months, and one holding was impaired for eight consecutive months.  The value of these holdings at December 31, 2008 was $15.9 million.

At June 30, 2008, there were 37 holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at June 30, 2008 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  Twenty-five holdings were impaired for one month, one holding was impaired for three consecutive months, one holding was impaired for four consecutive months, three holdings were impaired for six consecutive months and seven holdings were impaired for eight consecutive months.  The value of these holdings at June 30, 2008 was $69.9 million.

13

C. Investments in Partnerships and Affiliates
 
The provisions of FIN 46(R) (FASB ASC 810-10-10) and Emerging Issues Task Force Issue No. 04-5, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights” (“EITF 04-5”) (FASB ASC 810-20-15), require consolidation of several of our investment partnerships and offshore funds managed by our subsidiaries into our condensed consolidated financial statements.
 
Cash and cash equivalents, investments in securities, investments in partnerships and affiliates, receivable from brokers, securities sold, not yet purchased and payable to brokers held by investment partnerships and offshore funds consolidated under EITF 04-5 which resulted in a net increase to the condensed consolidated statements of financial condition of $1.4 million, $4.1 million and $4.5 million as of June 30, 2009, December 31, 2008 and June 30, 2008, respectively, are also restricted from use for general operating purposes.

In the normal course of business, the Company is the manager or general partner of several sponsored investment partnerships.  We evaluate each partnership for the appropriate accounting treatment and disclosure.  Certain of the partnerships are consolidated, generally because a majority of the equity is owned by the Company.  Other investment partnerships for which we serve as the general partner but have only a minority ownership interest are not consolidated because the limited partners have substantive rights to replace the Company as general partner.  We also have sponsored a number of investment vehicles where we are the investment manager in which we do not have an equity investment.  These vehicles are considered variable interest entities under FASB Interpretation No. 46 (revised), Variable Interest Entities, and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns.  For these entities, the Company has no amount recorded on the balance sheet, has zero maximum exposure to loss, and has not provided any financial or other support to the entity.  The total assets of these entities at June 30, 2009 and December 31, 2008 were $9.3 million and $9.1 million, respectively.

D. Fair Value

In September 2006, the FASB issued Statement 157 (FASB ASC 820-10-50), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value.

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with Statement 157.  The levels of the fair value hierarchy and their applicability to the Company are described below:

-  
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
-  
Level 2 inputs utilize 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 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 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. 
 
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, per Statement 157, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction.  To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.
 
Many of our securities have bid and ask prices that can be observed in the marketplace.  Bid prices reflect the highest price that the market is willing to pay for an asset.  Ask prices represent the lowest price that the market is willing to accept for an asset.
 
14
 
Cash and cash equivalents – Cash is maintained in demand deposit accounts at major United States banking institutions.  Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries.  U.S. Treasury Bills and Notes with maturities of less than three months at the time of purchase are considered cash equivalents.  Cash equivalents are valued using quoted market prices.
 
Investments in securities and securities sold, not yet purchased – Investments in securities and securities sold, not yet purchased are generally valued based on quoted prices from an exchange.  To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy.  Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.  Investments are transferred into or out of Level 3 at their beginning period values.
 
The following table presents information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of June 30, 2009 and 2008 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of June 30, 2009 (in thousands)
 
   
Quoted Prices in Active
  
Significant Other
  
Significant
    
   
Markets for Identical
  
Observable
  
Unobservable
  
Balance as of
Assets
  
Assets (Level 1)
  
Inputs (Level 2)
  
Inputs (Level 3)
  
June 30, 2009
Cash equivalents
  
$                            410,145
  
$                                -
  
$                               -
  
$                    410,145
Investments in securities:
                        
   AFS – Common stocks
    
39,707
    
-
    
-
    
39,707
   AFS – Mutual funds
    
51,587
    
-
    
-
    
51,587
   Trading – U.S. Gov’t obligations
    
61,991
    
-
    
-
    
61,991
   Trading – Common stocks
    
47,772
    
1,651
    
242
    
49,665
   Trading – Mutual funds
    
972
    
-
    
-
    
972
   Trading – Preferred stocks
    
-
    
-
    
14
    
14
   Trading – Other
  
13
  
-
  
172
  
185
Total investments in securities
  
202,042
  
1,651
  
428
  
204,121
Total assets at fair value
  
$                           612,187
  
$                        1,651
  
$                           428
  
$                    614,266
Liabilities
                        
   Trading – Common stocks
  
$                               7,037
  
$                               -
  
$                                -
  
$                        7,037
Securities sold, not yet purchased
  
$                               7,037
  
$                               -
  
$                                -
  
$                        7,037
 
15
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of June 30, 2008 (in thousands)

   
Quoted Prices in Active
  
Significant Other
  
Significant
    
   
Markets for Identical
  
Observable
  
Unobservable
  
Balance as of
Assets
  
Assets (Level 1)
  
Inputs (Level 2)
  
Inputs (Level 3)
  
June 30, 2008
Cash equivalents
  
$                           266,021
  
$                                -
  
$                               -
  
$                    266,021
Investments in securities:
                        
   AFS – Common stocks
    
46,693
    
-
    
-
    
46,693
   AFS – Mutual funds
    
80,433
    
-
    
-
    
80,433
   Trading – U.S. Gov’t obligations
    
59,923
    
-
    
-
    
59,923
   Trading – Common stocks
    
66,948
    
183
    
1,379
    
68,510
   Trading – Mutual funds
    
63,527
    
-
    
-
    
63,527
   Trading – Preferred stocks
    
19
    
-
    
37
    
56
   Trading – Other
  
95
  
-
  
596
  
691
Total investments in securities
  
317,638
  
183
  
2,012
  
319,833
Total assets at fair value
  
$                            583,659
  
$                           183
  
$                        2,012
  
$                    585,854
Liabilities
                
   Trading – Common stocks
  
$                                1,781
  
$                                -
  
$                               -
  
$                        1,781
   Trading – Mutual funds
  
324
  
-
  
-
  
324
Securities sold, not yet purchased
  
$                                2,105
  
$                                -
  
$                               -
  
$                        2,105

The following tables present additional information about assets and liabilities by major categories measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.
 
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2009 (in thousands)
 
               
Total
                        
               
Unrealized
                        
               
Gains or
    
Total
                  
         
 
    
(Losses)
    
Realized
          
Net
      
   
March
    
Total Realized and
    
Included in
    
and
          
Transfers
      
   
31, 2009
    
Unrealized Gains or
    
Other
    
Unrealized
    
Purchases
    
In and/or
      
   
Beginning
    
(Losses) in Income
    
Comprehensive
    
Gains or
    
and Sales,
    
(Out) of
    
Ending
Asset
  
Balance
    
Trading
    
Investments
    
Income
    
(Losses)
    
net
    
Level 3
    
Balance
Financial instruments owned:
                                                              
Trading – Common
   stocks
  
$                  151
    
$               5
    
$                          -
    
$                                    -
    
$                         5
    
$                       -
    
$                   86
    
$           242
Trading – Preferred
   stocks
    
14
      
-
      
-
      
-
      
-
      
-
      
-
      
14
Trading – Other
  
302
    
(130
)
  
-
    
-
    
(130
)
  
-
    
-
    
172
Total
  
$                  467
    
$          (125
)
  
$                          -
    
$                                    -
    
$                    (125
)
  
$                       -
    
$                   86
    
$           428
 
During the quarter ended June 30, 2009, the Company reclassified approximately $86,000 of investments from Level 2 to Level 3.  The reclassification was due to a reduction in market price quotations for these investments.
 
16
 
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2009 (in thousands)
 
               
Total
                        
               
Unrealized
                        
               
Gains or
    
Total
                  
               
(Losses)
    
Realized
          
Net
      
   
December
    
Total Realized and
    
Included in
    
and
          
Transfers
      
   
31, 2008
    
Unrealized Gains or
    
Other
    
Unrealized
    
Purchases
    
In and/or
      
   
Beginning
    
 (Losses) in Income
    
Comprehensive
    
Gains or
    
and Sales,
    
(Out) of
    
Ending
Asset
  
Balance
    
Trading
    
Investments
    
Income
    
(Losses)
    
net
    
Level 3
    
Balance
Financial instruments owned:
                                                              
Trading – Common
   stocks
  
$               1,114
    
$               6
    
$                          -
    
$                                    -
    
$                         6
    
$                     (1
)
  
$                (877
)
  
$           242
Trading – Preferred
   stocks
    
96
      
(82
)
    
-
      
 -
      
(82
)
    
-
      
-
      
14
Trading – Other
  
331
    
(131
)
  
-
    
-
    
(131
)
  
(28
) 
  
-
    
172
Total
  
$               1,541
    
$          (207
)
  
$                          -
    
$                                    -
    
$                    (207
)
  
$                   (29
) 
  
$                (877
) 
  
$           428
 
During the six months ended June 30, 2009, the Company reclassed approximately $0.9 million of  investments from Level 3 to Level 2.  The reclassifications were due to increased availability of market price quotations.
 
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2008 (in thousands)

               
Total
                        
               
Unrealized
                        
               
Gains or
    
Total
                  
               
(Losses)
    
Realized