form10q033110.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 March 31, 2010
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yeso    Noo
 
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 Rule 12b-2 of the Exchange Act).
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 April 30, 2010
 
Class A Common Stock, .001 par value
 
7,102,097
 
Class B Common Stock, .001 par value
 
20,292,917
 
 
 
 

 
 
INDEX
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
   
   
PART I.
FINANCIAL INFORMATION
 
   
   
Item 1.
Unaudited Condensed Consolidated Financial Statements
   
 
Condensed Consolidated Statements of Income:
 
-    Three months ended March 31, 2010 and 2009
   
   
 
Condensed Consolidated Statements of Financial Condition:
 
-    March 31, 2010
 
-    December 31, 2009
 
-    March 31, 2009
   
 
Condensed Consolidated Statements of Equity and Comprehensive Income:
 
-    Three months ended March 31, 2010 and 2009
   
 
Condensed Consolidated Statements of Cash Flows:
 
-    Three months ended March 31, 2010 and 2009
   
 
Notes to Unaudited Condensed Consolidated Financial Statements
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)
   
Item 4.
Controls and Procedures
   
PART II.
OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
Item 6.
Exhibits
   
   
SIGNATURES
 
   
 
 
2

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
UNAUDITED
 
(Dollars in thousands, except per share data)
 
             
             
   
Three Months Ended
 
   
March 31,
 
   
2010
   
2009
 
Revenues
           
  Investment advisory and incentive fees
  $ 49,342     $ 35,199  
  Institutional research services
    3,424       3,650  
  Distribution fees and other income
    7,232       4,510  
Total revenues
    59,998       43,359  
Expenses
               
  Compensation
    26,213       20,785  
  Management fee
    2,448       1,349  
  Distribution costs
    7,031       5,422  
  Other operating expenses
    4,936       4,301  
Total expenses
    40,628       31,857  
                 
Operating income
    19,370       11,502  
Other income (expense)
               
  Net gain from investments
    5,232       2,592  
  Interest and dividend income
    815       1,278  
  Interest expense
    (3,292 )     (3,234 )
Total other income, net
    2,755       636  
Income before income taxes
    22,125       12,138  
Income tax provision
    8,294       3,988  
Net income
    13,831       8,150  
Net income (loss) attributable to noncontrolling interests
    105       (62 )
Net income attributable to GAMCO Investors, Inc.'s shareholders
  $ 13,726     $ 8,212  
                 
Net income attributable to GAMCO Investors, Inc.'s shareholders
               
  per share:
               
Basic
  $ 0.50     $ 0.30  
                 
Diluted
  $ 0.50     $ 0.30  
                 
Weighted average shares outstanding:
               
Basic
    27,184       27,379  
                 
Diluted
    28,148       27,386  
                 
Dividends declared:
  $ 0.03     $ 0.03  
                 
See accompanying notes.
               
 
 
3

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
UNAUDITED
 
(Dollars in thousands, except per share data)
 
                   
   
March 31,
   
December 31,
   
March 31,
 
   
2010
   
2009
   
2009
 
ASSETS
                 
Cash and cash equivalents, including restricted cash of $62,265,
                 
  $62,258 and $22,199, respectively
  $ 411,365     $ 400,528     $ 415,854  
Investments in securities, including restricted securities of $0,
                       
  $0 and $39,968, respectively
    177,001       157,403       165,614  
Investments in partnerships
    70,744       62,655       56,244  
Receivable from brokers
    25,368       30,072       12,911  
Investment advisory fees receivable
    18,858       35,685       12,044  
Income tax receivable and deferred tax assets
    -       -       23,913  
Other assets
    21,289       21,466       18,695  
  Total assets
  $ 724,625     $ 707,809     $ 705,275  
                         
LIABILITIES AND EQUITY
                       
Payable to brokers
  $ 4,394     $ 395     $ 2,149  
Income taxes payable and deferred tax liabilities
    7,548       8,523       -  
Capital lease obligation
    5,239       5,265       5,313  
Compensation payable
    21,335       13,302       15,129  
Securities sold, not yet purchased
    9,063       9,569       3,570  
Mandatorily redeemable noncontrolling interests
    1,636       1,622       1,388  
Accrued expenses and other liabilities
    23,333       25,157       21,034  
  Sub-total
    72,548       63,833       48,583  
                         
5.5% Senior notes (due May 15, 2013)
    99,000       99,000       99,000  
6% Convertible note (due August 14, 2011)
    39,873       39,851       39,787  
6.5% Convertible note (due October 2, 2018)
    60,000       60,000       60,000  
  Total liabilities
    271,421       262,684       247,370  
Redeemable noncontrolling interests
    1,464       1,464       3,168  
Commitments and contingencies (Note J)
                       
Equity
                       
  GAMCO Investors, Inc. stockholders' equity
                       
    Class A Common Stock, $0.001 par value; 100,000,000
                       
      shares authorized; 13,119,776, 13,120,276 and 13,033,062
                       
      issued, respectively; 7,131,297, 7,311,997 and 7,381,283
                       
      outstanding, respectively
    13       13       13  
    Class B Common Stock, $0.001 par value; 100,000,000
                       
      shares authorized; 24,000,000 shares issued;
                       
      20,292,917, 20,292,917 and 20,370,931 shares
                       
      outstanding, respectively
    20       20       20  
    Additional paid-in capital
    252,987       251,591       247,128  
    Retained earnings
    423,374       410,473       420,841  
    Accumulated comprehensive income
    20,871       19,088       17,121  
    Treasury stock, at cost (5,988,479, 5,808,279 and 5,651,779
                       
    shares, respectively)
    (249,604 )     (241,567 )     (234,537 )
  Total GAMCO Investors, Inc. stockholders' equity
    447,661       439,618       450,586  
Noncontrolling interests
    4,079       4,043       4,151  
Total equity
    451,740       443,661       454,737  
                         
Total liabilities and equity
  $ 724,625     $ 707,809     $ 705,275  
                         
See accompanying notes.
                       
 
 
4

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
 
UNAUDITED
 
(In thousands)
 
                                                       
For the three months ended March 31, 2010
 
         
GAMCO Investors, Inc. shareholders
             
               
Additional
         
Accumulated
               
Redeemable
       
   
Noncontrolling
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
         
Noncontrolling
    Comprehensive   
   
Interests
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
   
Interests
   
Income
 
Balance at December 31, 2009
  $ 4,043     $ 33     $ 251,591     $ 410,473     $ 19,088     $ (241,567 )   $ 443,661     $ 1,464    $  
Redemption of noncontrolling
                                                                     
 interests
    -       -       -       -       -       -       -       (475 )    -  
Contributions of noncontrolling                                                                         
 interests      -        -        -        -        -        -        -        406        -  
Net income
    36       -       -       13,726       -       -       13,762       69       13,831  
Net unrealized gains on
                                                                       
 securities available for sale,
                                                                       
 net of income tax ($1,067)
    -       -       -       -       1,816       -       1,816       -        1,816  
Foreign currency translation
    -       -       -       -       (33 )     -       (33 )     -        (33
Dividends declared ($0.03 per
                                                                       
 share)
    -       -       -       (825 )     -       -       (825 )     -        -  
Stock based compensation
                                                                       
 expense
    -       -       1,383       -       -       -       1,383       -        -  
Exercise of stock options
                                                                       
 including tax benefit
    -       -       13       -       -       -       13       -        -  
Purchase of treasury stock
    -       -       -       -       -       (8,037 )     (8,037 )     -        -  
Balance at March 31, 2010
  $ 4,079     $ 33     $ 252,987     $ 423,374     $ 20,871     $ (249,604 )   $ 451,740     $ 1,464      $ 15,614   
                                                                         
See accompanying notes.
                                                                 
 
 
5

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
 
UNAUDITED
 
(In thousands)
 
                                                       
For the three months ended March 31, 2009
 
         
GAMCO Investors, Inc. shareholders
             
               
Additional
         
Accumulated
               
Redeemable
       
   
Noncontrolling
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
         
Noncontrolling
    Comprehensive   
   
Interests
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
   
Interests
   
Income
 
Balance at December 31, 2008
  $ 4,788     $ 33     $ 245,973     $ 413,761     $ 14,923     $ (234,537 )   $ 444,941     $ 4,201    -  
Purchase of subsidiary shares
                                                                     
 from noncontrolling interest
    (172 )     -       -       -       -       -       (172 )     -      -  
Redemption of noncontrolling                                                                       
 interests      -        -        -        -        -        -        -        (1,024      
Spin-off of subsidiary shares
                                                                     
 to noncontrolling interests
    (412 )     -       -       -       -       -       (412 )     -      -  
Net income
    (53 )     -       -       8,212       -       -       8,159       (9 )     8,150  
Net unrealized gains on
                                                                       
 securities available for sale,
                                                                       
 net of income tax ($1,256)
    -       -       -       -       2,205       -       2,205       -        2,205  
Foreign currency translation
    -       -       -       -       (7 )     -       (7 )     -        (7
Dividends declared ($0.03 per
                                                                       
 share)
    -       -       -       (1,132 )     -       -       (1,132 )     -        -  
Income tax effect of transaction
                                                                       
 with shareholders
    -       -       (243 )     -       -       -       (243 )     -        -  
Stock based compensation
                                                                       
 expense
    -       -       1,271       -       -       -       1,271       -        -  
Exercise of stock options
                                                                       
 including tax benefit
    -       -       127       -       -       -       127       -        -  
Balance at March 31, 2009
  $ 4,151     $ 33     $ 247,128     $ 420,841     $ 17,121     $ (234,537 )   $ 454,737     $ 3,168      $ 10,348  
                                                                         
See accompanying notes.
                                                                 
 
 
6

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
UNAUDITED
 
(In thousands)
 
             
   
Three Months Ended
 
   
March 31,
 
   
2010
   
2009
 
Operating activities
           
Net income
  $ 13,831     $ 8,150  
 Adjustments to reconcile net income to net cash provided by operating activities:
               
  Equity in net (gains) losses from partnerships and affiliates
    (2,352 )     (918 )
  Depreciation and amortization
    171       165  
  Stock based compensation expense
    1,383       1,271  
  Deferred income taxes
    277       (947 )
  Tax benefit from exercise of stock options
    5       34  
  Foreign currency translation gain/(loss)
    (33 )     (7 )
  Fair value of donated securities
    77       121  
  (Gains) losses on sales of available for sale securities
    -       (794 )
  Amortization of discount on debt
    22       21  
(Increase) decrease in assets:
               
  Investments in trading securities
    (17,980 )     70,527  
  Investments in partnerships:                 
    Contributions to partnerships
    (11,129 )     (807 )
    Distributions from partnerships
    5,391       6,189  
  Receivable from brokers
    4,704       3,549  
  Income tax receivable and deferred tax assets
    -       (281 )
  Investment advisory fees receivable
    16,827       (109 )
  Other assets
    (6     776  
Increase (decrease) in liabilities:
               
  Payable to brokers
    3,999       292  
  Income taxes payable and deferred tax liabilities
    (2,320 )     -  
  Compensation payable
    8,035       (1,099 )
  Mandatorily redeemable noncontrolling interests
    14       (8 )
  Accrued expenses and other liabilities
    (1,791 )     (2,498 )
Total adjustments
    5,294       75,477  
Net cash provided by operating activities
    19,125       83,627  


 
7

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
UNAUDITED (continued)
 
(In thousands)
 
             
   
Three Months Ended
 
   
March 31,
 
   
2010
   
2009
 
Investing activities
           
Purchases of available for sale securities
  $ (4 )   $ (5,419 )
Proceeds from sales of available for sale securities
    686       2,175  
Increase in restricted cash
    (7 )     (15,043 )
Net cash provided by (used in) investing activities
    675       (18,287 )
                 
Financing activities
               
Contributions related to consolidated investment partnerships and offshore funds
    (69 )     (1,023 )
Proceeds from exercise of stock options
    8       93  
Dividends paid
    (825 )     (1,742 )
Purchase of subsidiary shares from noncontrolling interests
    -       (172 )
Purchase of treasury stock
    (8,037 )     -  
Net cash used in financing activities
    (8,923 )     (2,844 )
Net increase in cash and cash equivalents
    10,877       62,496  
Effect of exchange rates on cash and cash equivalents
    (48 )     (15 )
Cash and cash equivalents at beginning of period
    338,270       331,174  
Cash and cash equivalents at end of period
  $ 349,099     $ 393,655  
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 3,447     $ 3,413  
Cash paid for taxes
  9,969     $ 5,743  
Non-cash acivity:
               
- On March 20, 2009, GAMCO Investors, Inc. distributed its shares of Teton Advisors, Inc. ($300) to its shareholders
 
which resulted in the deconsolidation of Teton, and decreases of approximately $911 of cash and cash equivalents,
 
    $199 of net liabilities and $412 of noncontrolling interests.
               
                 
See accompanying notes.
               
 
 
8

 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(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, 2009 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.
 
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 June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance 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.  This guidance 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 Company adopted this guidance on January 1, 2010 with no impact to the condensed consolidated financial statements.

In June 2009, the FASB issued amended guidance on the accounting for variable interest entities (“VIEs”).  The amendments will significantly affect the overall consolidation analysis, changing the approach taken by companies in identifying which entities are VIEs and in determining which party is the primary beneficiary.  The guidance requires continuous assessment of the reporting entity’s involvement with such VIEs.  The revised guidance also enhances the disclosure requirements for a reporting entity’s involvement with VIEs, irrespective of whether they qualify for deferral, as discussed below.  The guidance is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and early adoption is prohibited.  In February 2010, the FASB issued further guidance which provided a limited scope deferral for a reporting entity’s interest in an entity that meets all of the following conditions: (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with the AICPA Audit and Accounting Guide, Investment Companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset-backed financing entity or an entity that was formerly considered a qualifying special-purpose entity.  The reporting entity is required to perform a consolidation analysis for entities that qualify for the deferral in accordance with previously issued guidance on VIEs.  The Company adopted this guidance on January 1, 2010 and has evaluated the deferral guidelines and determined that all significant entities that the Company is involved with that this guidance would potentially have impacted qualify for the deferral, and therefore the guidance issued did not have a material impact on the condensed consolidated financial statements.

In January 2010, the FASB issued guidance to improve disclosures about fair value measurements.  The guidance affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements.  The guidance requires new disclosures regarding transfers in and out of Level 1 and 2 fair value measurements and activity related to Level 3 fair value measurements.  In addition, the guidance clarifies existing fair value disclosure requirements related to the level of disaggregation of assets and liabilities and the valuation techniques and inputs used.  This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The Company adopted this guidance on January 1, 2010 without a material impact to the condensed consolidated financial statement disclosures.
 
 
10

 
 
 B.  Investment in Securities

Investments in securities at March 31, 2010, December 31, 2009 and March 31, 2009 consisted of the following:
 
   
March 31, 2010
   
December 31, 2009
   
March 31, 2009
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
   
(In thousands)
 
Trading securities:
                                   
  Government obligations
  $ 1,388     $ 1,348     $ -     $ -     $ 43,711     $ 43,820  
  Common stocks
    68,071       74,573       53,985       58,834       40,782       35,250  
  Mutual funds
    1,194       1,379       1,194       1,295       3,132       2,328  
  Convertible bonds
    637       749       -       -       -       -  
  Preferred stocks
    -       11       -       15       -       14  
  Other investments
    367       142       819       585       321       323  
Total trading securities
    71,657       78,202       55,998       60,729       87,946       81,735  
                                                 
Available for sale securities:
                                               
  Common stocks
    17,063       34,655       17,100       34,294       18,234       39,285  
  Mutual funds
    48,773       64,144       49,656       62,380       50,167       44,594  
Total available for sale securities
    65,836       98,799       66,756       96,674       68,401       83,879  
                                                 
Total investments in securities
  $ 137,493     $ 177,001     $ 122,754     $ 157,403     $ 156,347     $ 165,614  
                                                 
 
Securities sold, not yet purchased at March 31, 2010, December 31, 2009 and March 31, 2009 consisted of the following:
 
   
March 31, 2010
   
December 31, 2009
   
March 31, 2009
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
   
(In thousands)
 
Common stocks
  $ 9,268     $ 9,052     $ 9,505     $ 9,569     $ 3,443     $ 3,570  
Other
    10       11       -       -       -       -  
Total securities sold, not yet purchased
  $ 9,278     $ 9,063     $ 9,505     $ 9,569     $ 3,443     $ 3,570  
                                                 
 
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 equity except for losses deemed to be other than temporary which are recorded as unrealized losses in the condensed consolidated statements of income.  There were no impairment of AFS securities for the three month periods ended March 31, 2010 and 2009.  
 
The Company recognizes all derivatives as either assets or liabilities measured at fair value and are included in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition.  From time to time, the Company will enter into hedging transactions to manage its exposure to foreign currencies and equity prices related to its proprietary investments.  These transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain (loss) from investments in the condensed consolidated statements of income.  For the three months ended March 31, 2010 and 2009, the Company had derivative transactions in equity derivatives which resulted in net losses of $61,000 and $27,000, respectively.  The notional value of derivatives at March 31, 2010 and December 31, 2009 was $38,000 and $275,000, respectively and the fair value was $29,000 and $246,000, respectively.  There were no derivatives held as of March 31, 2009.
 
 
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At March 31, 2010, December 31, 2009 and March 31, 2009, the fair value of common stock investments available for sale was $34.7 million, $34.3 million and $39.3 million, respectively.  The total unrealized gains for common stock investments available for sale securities with unrealized gains was $17.6 million, $17.2 million and $21.1 million at March 31, 2010, December 31, 2009 and March 31, 2009, respectively.  There were no unrealized losses for common stock investments available for sale at March 31, 2010, December 31, 2009 or March 31, 2009.  At March 31, 2010, December 31, 2009 and March 31, 2009, the fair value of mutual fund investments available for sale with unrealized gains was $62.2 million, $60.4 million and $6.3 million, respectively.  At March 31, 2010, December 31, 2009 and March 31, 2009, the fair value of mutual fund investments available for sale with unrealized losses was $1.9 million, $2.0 million and $38.3 million, respectively.  The total unrealized gains for mutual fund investments available for sale securities with unrealized gains was $15.4 million, $12.9 million and $0.5 million at March 31, 2010, December 31, 2009 and March 31, 2009, respectively, while the total unrealized losses for available for sale securities with unrealized losses was $0.1 million, $1,700 and $6.1 million, respectively.

Increases in unrealized gains to fair value, net of taxes, for the three months ended March 31, 2010 and 2009 of $1.8 million and $2.2 million, respectively, have been included in other comprehensive income, a component of equity, at March 31, 2010 and March 31, 2009, respectively.  Proceeds from sales of investments available for sale were approximately $0.7 million and $2.2 million for the three month periods ended March 31, 2010 and 2009, respectively.  For the three months ended March 31, 2010 and 2009, gross gains on the sale of investments available for sale amounted to less than $1,000 and $0.8 million, respectively; 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.

Investments classified as available for sale that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:
 
   
March 31, 2010
   
December 31, 2009
   
March 31, 2009
 
         
Unrealized
             
Unrealized
             
Unrealized
     
   
Cost
   
Losses
   
Fair Value
 
Cost
   
Losses
   
Fair Value
 
Cost
   
Losses
   
Fair Value
 
(in thousands)
                                                     
Mutual Funds
  $ 2,002     $ (55 )   $ 1,947     $ 2,002     $ (2 )   $ 2,000     $ 44,402     $ (6,109 )   $ 38,293  
 
At March 31, 2010, there were two holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at March 31, 2010 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  One holding was impaired for four months and one holding was impaired for twelve consecutive months.  The fair value of these holdings at March 31, 2010 was $1.9 million.

At December 31, 2009, there were five 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, 2009 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 nine consecutive months and three holdings were impaired for fourteen consecutive months.  The fair value of these holdings at December 31, 2009 was $2.0 million.

At March 31, 2009, there were sixty-four holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at March 31, 2009 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries.  Fifty-five holdings were impaired for three months, one holding was impaired for five consecutive months, two holdings were impaired for six consecutive months and six holdings were impaired for seven consecutive months.  The fair value of these holdings at March 31, 2009 was $38.3 million.
 
 
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C. Investments in Partnerships
 
The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds whose underlying assets consist primarily of marketable securities (the “affiliated entities”).  We also have investments in those unaffiliated partnerships, offshore funds and other entities.  Certain of the entities 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.  Our balance sheet caption “investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting.  The Company reflects the equity in earnings of these equity method investees under the caption net gain/(loss) from investments on the condensed consolidated statements of income.

We also have sponsored a number of investment vehicles where we are the investment manager in which, aside from one instance, we do not have an equity investment.  These vehicles are considered VIEs and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns.  The Company has not provided any financial or other support to these entities.  The total assets of these entities at March 31, 2010, December 31, 2009 and March 31, 2009 were $10.5 million, $10.4 million and $9.1 million, respectively.  Our maximum exposure to loss as a result of our involvement with the VIEs is limited to our investment in the respective VIEs which was only the case for one of these.  On March 31, 2010, December 31, 2009 and March 31, 2009, we had an investment in one of the VIE offshore funds of approximately $287,000, $284,000 and $264,000, respectively, and was included in investments in partnerships on the condensed consolidated statements of financial condition.  Additionally, as the general partner or investment manager to these VIEs the Company earns fees in relation to these roles, which given a decline in AUMs for the VIEs would result in lower fee revenues earned by the Company which would be reflected in the condensed consolidated statement of income, condensed consolidated statement of financial condition and condensed consolidated statement of cash flows.
 
At March 31, 2010, December 31, 2009 and March 31, 2009, and for the three months ended March 31, 2010 and March 31, 2009, the Company consolidated two limited partnerships and one offshore fund (the “consolidated feeder funds”), two limited partnerships and one offshore fund, three limited partnerships and one offshore fund, two limited partnerships and one offshore funds, and three limited partnerships and one offshore fund, respectively, that owned 100% of their offshore master funds.  The Company retained the specialized accounting of the consolidated feeder funds in the Company’s consolidated financial statements.  Included in the investment in partnerships on the Company’s consolidated statement of financial condition as of March 31, 2010, December 31, 2009 and March 31, 2009, is $26.2 million $25.1 million, and $21.4 million, respectively, which represents the consolidated feeder fund’s proportionate investment in the master funds carried at fair value. 

D. Fair Value

All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value.  Certain instruments within investments in partnerships are also measured at fair value as described in detail below.
 
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB’s guidance on fair value measurement.  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 at the reporting date.  Level 1 assets include cash equivalents, government obligations, listed mutual funds and equities.
-  
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, 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.  Assets that generally are included in this category may include certain limited partnership interests in hedge funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs and over the counter derivatives that have inputs to the valuations that can be generally corroborated by observable market data.
-  
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.  Assets included in this category generally include equities and direct private equity investments held within consolidated partnerships.
 
 
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In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, 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.  Investments are transferred into or out of any level at their beginning period values.

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.  In the absence of a closing price, an average of the bid and ask price is used.  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.
 
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 three months or less 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.  Securities categorized in Level 2 investments are valued using other observable inputs.
 
Investments in PartnershipsThe Company’s investments include limited partner investments in hedge funds.  Initially, the transaction price is generally considered by the Company as the exit price and is the Company’s best estimate of fair value.  After initial recognition, in determining the fair value of internally managed funds, the Company considers the net asset value of the fund to be the best estimate of fair value.  Investments in hedge funds that are redeemable at the measurement date or in the near future, are categorized in Level 2 of the fair value hierarchy.  These funds primarily invest in long and short investments in debt and equity securities that are traded in public and over-the-counter exchanges in the United States and are classified as level 1 assets or liabilities in the funds’ financial statements.  We may redeem our investments in these funds monthly with 30 days’ notice.
 
 
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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 March 31, 2010, December 31, 2009 and March 31, 2009 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2010 (in thousands)
 
   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2010
 
Cash equivalents
  $ 410,798     $ -     $ -     $ 410,798  
Investments in securities:
                               
  AFS - Common stocks
    34,655       -       -       34,655  
  AFS - Mutual funds
    64,144       -       -       64,144  
  Trading - Gov't obligations
    1,348       -       -       1,348  
  Trading - Common stocks
    74,227       113       233       74,573  
  Trading - Mutual funds
    1,379       -       -       1,379  
  Trading - Convertible bonds
    749       -       -       749  
  Trading - Preferred stocks
    -       -       11       11  
  Trading - Investments in
                               
    partnerships
    -       26,202       -       26,202  
  Trading - Other
    12       40       90       142  
Total investments in securities
    176,514       26,355       334       203,203  
Total assets at fair value
  $ 587,312     $ 26,355     $ 334     $ 614,001  
Liabilities
                               
  Trading - Common stocks
  $ 9,052     $ -     $ -     $ 9,052  
  Trading - Other
    -       11       -       11  
Securities sold, not yet purchased
  $ 9,052     $ 11     $ -     $ 9,063  
 
There were no significant transfers between any levels during the three months ended March 31, 2010.  Transfers are based on the value at the beginning of the period.
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2009 (in thousands)
 
   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
December 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2009
 
Cash equivalents
  $ 400,111     $ -     $ -     $ 400,111  
Investments in securities:
                               
  AFS - Common stocks
    34,294       -       -       34,294  
  AFS - Mutual funds
    62,380       -       -       62,380  
  Trading - Common stocks
    58,521       108       205       58,834  
  Trading - Mutual funds
    1,295       -       -       1,295  
  Trading - Preferred stocks
    -       -       15       15  
  Trading - Investments in
                               
    partnerships
    -       25,092       -       25,092  
  Trading - Other
    249       246       90       585  
Total investments in securities
    156,739       25,446       310       182,495  
Total assets at fair value
  $ 556,850     $ 25,446     $ 310     $ 582,606  
Liabilities
                               
  Trading - Common stocks
  $ 9,569     $ -     $ -     $ 9,569  
Securities sold, not yet purchased
  $ 9,569     $ -     $ -     $ 9,569  
 
 
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Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2009 (in thousands)
 
   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2009
 
Cash equivalents
  $ 393,859     $ -     $ -     $ 393,859  
Investments in securities:
                               
  AFS - Common stocks
    39,285       -       -       39,285  
  AFS - Mutual funds
    44,594       -       -       44,594  
  Trading - U.S. Gov't obligations
    65,815       -       -       65,815  
  Trading - Common stocks
    33,012       2,086       152       35,250  
  Trading - Mutual funds
    2,3298       -       -       2,328  
  Trading - Preferred stocks
    -       -       14       14  
  Trading - Investments in
                               
    partnerships
    -       21,366       -       21,366  
  Trading - Other
    22       -       301       323  
Total investments in securities
    185,056       23,452       467       208,975  
Total assets at fair value
  $ 578,915     $ 23,452     $ 467     $ 602,834  
Liabilities
                               
  Trading - common stocks
  $ 3,570     $ -     $ -     $ 3,570  
Securities sold, not yet purchased
  $ 3,570     $ -     $ -     $ 3,570  
 
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 March 31, 2010 (in thousands)
 
                     
Total
                         
                     
Unrealized
                         
                     
Gains or
   
Total
                   
          Total Realized and    
(Losses)
   
Realized
         
Net
       
   
December
   
Unrealized Gains or
   
Included in
   
and
         
Transfers
       
    31, 2009    
(Losses) in Income
   
Other
   
Unrealized
   
Purchases
   
In and/or
       
    Beginning           AFS     Comprehensive     Gains or     and Sales,     (Out) of     Ending  
Asset
 
Balance
   
Trading
   
Investments
   
Income
   
(Losses)
   
net
   
Level 3
   
Balance
 
Financial
                                                 
instruments owned:
                                                 
Trading - Common
                                                 
  stocks
  $ 205     $ 37     $ -     $ -     $ 37     $ (32 )   $ 23     $ 233  
Trading - Preferred
                                                               
  stocks
    15       (4 )     -       -       (4 )     -       -       11  
Trading - Other
    90       -       -       -       -       -       -       90  
Total
  $ 310     $ 33     $ -     $ -     $ 33     $ (32 )   $ 23     $ 334  
 
During the three months ended March 31, 2010, the Company reclassed approximately $23,000 of investments from Level 1 to Level 3.  The reclassifications were due to decreased availability of market price quotations and were based on the values at the beginning of the period in which the reclass occurred.
 
 
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Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2009 (in thousands)
 
                     
Total
                         
                     
Unrealized
                         
                     
Gains or
   
Total
                   
          Total Realized and    
(Losses)
   
Realized
         
Net
       
   
December
   
Unrealized Gains or
   
Included in
   
and
         
Transfers
       
    31, 2008    
(Losses) in Income
   
Other
   
Unrealized
   
Purchases
   
In and/or
       
    Beginning           AFS     Comprehensive     Gains or     and Sales,     (Out) of     Ending  
Asset
 
Balance
   
Trading
   
Investments
   
Income
   
(Losses)