gbl10q033109.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, 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 ¨
  
Smaller reporting company ¨
  
 
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 April 30, 2009
  
Class A Common Stock, .001 par value
  
7,399,483
  
Class B Common Stock, .001 par value
  
20,350,931
  
 
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:
 
 
 
   
 
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 6.
   
   
   
 
   

2
 

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

   
Three Months Ended
    
   
March 31,
    
   
2009
    
2008
    
               
             
Investment advisory and incentive fees
  
$
35,199
    
$
56,841
    
Commission revenue
    
3,650
      
3,256
    
Distribution fees and other income
    
4,510
      
6,451
    
Total revenues
    
43,359
      
66,548
    
Expenses
                  
Compensation
    
20,785
      
28,922
    
Management fee
    
1,349
      
1,981
    
Distribution costs
    
5,422
      
6,334
    
Other operating expenses
    
4,301
      
6,054
    
Total expenses
    
31,857
      
43,291
    
                   
Operating income
    
11,502
      
23,257
    
Other (expense) income
                  
Net gain (loss) from investments
    
2,592
      
(8,389
)
  
Interest and dividend income
    
1,278
      
4,774
    
Interest expense
    
(3,168
)
    
(2,007
)
  
Total other income (expense), net
    
702
      
(5,622
)
  
Income before income taxes
    
12,204
      
17,635
    
Income tax provision
    
3,988
      
7,326
    
Net income
    
8,216
      
10,309
    
Net income (loss) attributable to noncontrolling interests
    
4
      
(177
)
  
Net income attributable to GAMCO Investors, Inc.’s shareholders
  
$
8,212
    
$
10,486
    
                   
Net income attributable to GAMCO Investors, Inc.’s shareholders
                  
  per share:
                  
Basic
  
$
0.30
    
$
0.37
    
                   
Diluted
  
$
0.30
    
$
0.37
    
                   
Weighted average shares outstanding:
                  
Basic
    
27,379
      
28,175
    
                   
Diluted
    
27,386
      
28,227
    
                   
Dividends declared:
  
$
0.03
    
$
0.03
    
                   
See accompanying notes.
                  
 
3

GAMCO INVESTORS, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
  
UNAUDITED
  
(In thousands, except share data)
  
   
March 31,
    
December 31,
  
  March 31,
    
   
2009
    
2008
  
2008
    
                   
Cash and cash equivalents, including restricted cash of $204, $2,158, and $0
  
$
393,859
    
$
333,332
  
 $
280,796
    
Investments in securities, including restricted securities of $61,963, $59,892, and $0
    
187,609
      
231,492
    
325,407
    
Investments in partnerships and affiliates
    
56,244
      
60,707
    
85,572
    
Receivable from brokers
    
12,911
      
16,460
    
15,186
    
Investment advisory fees receivable
    
11,522
      
11,261
    
18,862
    
Income tax receivable and deferred tax assets
    
23,913
      
23,952
    
6,753
    
Other assets
  
19,217
    
20,430
  
23,202
    
Total assets
  
$                         705,275
    
$                     697,634
  
 $                       755,778
    
                         
LIABILITIES AND STOCKHOLDERS' EQUITY
                        
Payable to brokers
  
$
2,149
    
$
1,857
  
 $
5,421
    
Income taxes payable
    
-
      
-
    
10,799
    
Compensation payable
    
15,129
      
15,862
    
30,278
    
Capital lease obligation
    
5,313
      
5,329
    
2,453
    
Securities sold, not yet purchased
    
3,570
      
1,677
    
3,110
    
Mandatorily redeemable noncontrolling interests
    
2,229
      
2,303
    
2,581
    
Accrued expenses and other liabilities
  
21,034
    
23,605
  
43,655
    
Sub-total
  
49,424
    
50,633
  
98,297
    
                         
5.5% Senior notes (due May 15, 2013)
    
99,000
      
99,000
    
100,000
    
6% Convertible note (due August 14, 2011)
    
39,787
      
39,766
    
39,706
    
6.5% Convertible note (due October 2, 2018)
  
60,000
    
60,000
  
-
    
           Total liabilities
    
248,211
      
249,399
    
238,003
    
                         
Redeemable noncontrolling interests
    
2,327
      
3,294
    
4,146
    
                         
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; 13,033,062, 13,018,869, 12,765,674
                        
        issued, respectively; 7,381,283, 7,367,090, and 7,801,831
    
 13
      
13
    
12
    
       outstanding, respectively                        
      Class B Common Stock, $0.001 par value; 100,000,000
                        
        shares authorized; 24,000,000 shares issued,
    
20
      
20
    
21
    
        20,370,931, 20,378,699, 20,626,644 shares outstanding, respectively 
                        
      Additional paid-in capital
    
247,128
      
245,973
    
242,293
    
      Retained earnings
    
420,841
      
413,761
    
454,749
    
      Accumulated other comprehensive income
    
17,121
      
14,923
    
16,737
    
      Treasury stock, at cost (5,651,779, 5,651,779, and 4,963,843 shares, respectively)
  
(234,537
)
  
(234,537
)
(205,950
)
  
   Total GAMCO Investors, Inc. stockholders’ equity
  
450,586
    
440,153
  
507,862
    
Noncontrolling interests
  
4,151
    
4,788
  
5,767
    
Total stockholders’ equity
  
454,737
    
444,941
  
513,629
    
                         
Total liabilities and stockholders' equity
  
$                        705,275
    
$                    697,634
  
 $                       755,778
    
 
See accompanying notes.
 
4
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
UNAUDITED
 (In thousands)
 
   
             
         
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
    
(172
)
  
-
    
-
    
-
    
-
    
-
    
(172
)
Spin-off of subsidiary shares
                                            
 to noncontrolling interests
    
(412
)
  
-
    
-
    
-
    
-
    
-
    
(412
)
Comprehensive income:
                                            
Net (loss) income
    
(53
)
  
-
    
-
    
8,212
    
-
    
-
    
8,159
  
Net unrealized gains on
                                            
 securities available for sale, net
                                            
 of income tax
    
  -
    
  -
    
  -
    
  -
    
  2,205
    
  -
    
  2,205
  
Foreign currency translation
    
-
    
-
    
-
    
-
    
(7
)
  
-
    
(7
)
Total comprehensive income
                                        
10,357
  
Dividends declared
    
-
    
-
    
-
    
(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
  
                                             

5
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
UNAUDITED (Continued)
 (In thousands)
   
For the three months ended March 31, 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
  
Comprehensive income:
                                            
Net (loss) income
    
(24
)
  
-
    
-
    
10,486
    
-
    
-
    
10,462
  
Net unrealized gains on
                                            
 securities available for sale, net
                                            
 of income tax
    
-
    
-
    
-
    
-
    
(4,100
)
  
-
    
(4,100
)
Foreign currency translation
    
-
    
-
    
-
    
-
    
22
    
-
    
22
  
Total comprehensive income
                                        
6,384
  
Dividends declared
    
-
    
-
    
-
    
(858
)
  
-
    
-
    
(858
)
Stock based compensation
                                            
 expense
    
-
    
-
    
1,198
    
-
    
-
    
-
    
1,198
  
Conversion of 6% convertible
                                            
 note
    
-
    
-
    
10,000
    
-
    
-
    
-
    
10,000
  
Exercise of stock options
                                            
 including tax benefit
    
-
    
-
    
612
    
-
    
-
    
-
    
612
  
Purchase of treasury stock
    
-
    
-
    
-
    
-
    
-
    
(10,813
)
  
(10,813
)
Balance at March 31, 2008
  
$
5,767
  
$
33
  
$
242,293
  
$
454,749
  
$
16,737
  
$
(205,950
)
$
513,629
  
                                             
See accompanying notes.
 
6
 
 GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED
 (In thousands)

   
Three Months Ended
    
   
March 31,
    
   
2009
    
2008
    
             
Net income
  
$
8,216
    
 $
10,309
    
 Adjustments to reconcile net income
                  
    to net cash provided by operating activities:
                  
  Equity in net (gains) losses from partnerships and affiliates
    
(1,032
)
    
2,375
    
  Depreciation and amortization
    
165
      
  229
    
  Stock based compensation expense
    
1,271
      
  1,198
    
  Deferred income taxes
    
(947
)
    
(2,815
)
  
  Tax benefit from exercise of stock options
    
34
      
  43
    
  Foreign currency (gain) loss 
    
(7
)
    
  22
    
  Other-than-temporary loss on available for sale securities
    
-
      
  249
    
  Acquisition of intangible asset
    
-
      
  (4,043
)
  
  Fair value of donated securities
    
121
      
  -
    
  Realized gains on sales of available for sale securities
    
(794
) 
    
  (253
) 
  
  Realized gains on sales of trading investments in securities, net
    
(3,080
) 
    
  (3,121
) 
  
  Change in unrealized value of trading investments in securities and securities sold, not yet purchased, net
    
1,767
      
  7,012
    
  Realized gains on covers of securities sold, not yet purchased, net
    
(483
) 
    
(318
)
  
  Amortization on discount on debt 
    
21
      
98
    
(Increase) decrease in operating assets:
                  
   Purchases of trading investments in securities
    
(105,391
) 
    
  (109,155
) 
  
   Proceeds from sales of trading investments in securities
    
158,822
      
  164,837
    
   Cost of covers on securities sold, not yet purchased
    
(6,895
) 
    
  (10,173
) 
  
   Proceeds from sales of securities sold, not yet purchased
    
8,301
      
  11,495
    
   Investments in partnerships and affiliates 
    
(807
) 
    
  (182
) 
  
   Distributions from partnerships and affiliates 
    
2,182
      
  12,728
    
   Receivable from brokers
    
3,598
      
  22,609
    
   Investment advisory fees receivable 
    
(203
)
    
14,994
    
   Other receivables from affiliates 
    
338
      
2,512
    
   Income tax receivable and deferred tax assets
    
774
      
-
    
   Other assets
    
117
      
  (1,440
) 
  
Increase (decrease) in operating liabilities:
                  
   Payable to brokers 
    
292
      
  (2,149
)
  
   Income taxes payable 
    
(1,255
) 
    
 1,662
    
   Compensation payable
    
(1,109
)
    
  5,791
    
   Mandatorily redeemable noncontrolling interests
    
(74
)
    
(60
)
  
   Accrued expenses and other liabilities
    
(2,228
) 
    
  (4,038
) 
  
Effects of consolidation of investment partnerships and offshore funds consolidated under EITF 04-5:
                  
   Realized (losses) gains on sales of investments in securities and securities sold, not yet purchased, net
    
(33
) 
    
  67
    
   Change in unrealized value of investments in securities and securities sold, not yet purchased, net
    
226
      
  350
    
   Equity in net losses (gains) from partnerships and affiliates
    
388
      
  (28
) 
  
   Purchases of trading investments in securities
    
(3,998
) 
    
  (3,218
)
  
   Proceeds from sales of trading investments in securities and securities sold, not yet purchased, net
    
4,493
      
  4,322
    
   Distributions from partnerships and affiliates
    
3,397
      
  -
    
   Decrease (increase) in investment advisory fees receivable
    
(58
 )     
  (155
)
  
   Decrease (increase) in receivable from brokers
    
(49
)
    
  2,350
    
   Increase in other assets
    
591
 
    
  (52
) 
  
   Decrease in payable to brokers
    
-
      
  8
    
   (Decrease) increase in accrued expenses and other liabilities
    
(584
) 
    
107
    
   Loss related to investment partnerships and offshore funds consolidated under EITF 04-5, net
    
(306
) 
    
(601
)
  
Total adjustments 
    
57,565
      
113,257
    
Net cash provided by operating activities
    
65,781
      
123,566
    
 
7
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED (continued)
 (In thousands)

   
Three Months Ended
  
   
March 31,
  
   
2009
    
 2008
    
             
Investing activities
            
Purchases of available for sale securities
  
 $
(5,419
) 
 $
 (774
) 
  
Proceeds from sales of available for sale securities
    
2,175
    
  383
    
Net cash used in investing activities
    
(3,244
) 
  
 (391
) 
  
                 
Financing activities
                
(Contributions) distributions related to investment partnerships and offshore funds consolidated
    
(371
)
  
404
    
   under EITF 04-5, net 
                
Proceeds from exercise of stock options
    
93
    
569
    
Dividends paid
    
(1,132
) 
  
  (857
) 
  
Subsidiary dividends to noncontrolling interests
    
(585
) 
  
  -
    
Purchase of treasury stock
    
-
    
(10,813
) 
  
Net cash used in financing activities
    
(1,995
) 
  
 (10,697
) 
  
Net increase in cash and cash equivalents
    
60,542
    
112,478
    
Effect of exchange rates on cash and cash equivalents
    
(15
) 
  
  (1
)
  
Cash and cash equivalents at beginning of period
    
333,332
    
168,319
    
Cash and cash equivalents at end of period
  
$
393,859
  
$ 
280,796
    
Supplemental disclosures of cash flow information:
                
Cash paid for interest
  
$
3,413
  
$
1,400
    
Cash paid for taxes
  
$
 5,743
  
$
  8,609
    
   
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 GAMCO Investors, Inc. class A common shares.
  
                 
See accompanying notes.

8
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 for the first quarter of 2009 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”).  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 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") 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 will impact only the Company's disclosure of derivative instruments.  Refer also to Note B.

In April 2008, the FASB issued FASB Staff Position (“FSP”) 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3") 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 February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”).  FSP FAS 157-2 delays the effective date of the application of FASB Statement No. 157, “Fair Value Measurements” (“Statement 157”) to fiscal years beginning after November 15, 2008 for all non-financial assets and liabilities recognized or disclosed at fair value in the financial statements on a non-recurring basis.  Such non-financial assets and liabilities include goodwill, intangible assets, and long-lived assets, each measured at fair value for purposes of impairment testing, and non-financial assets and liabilities initially measured at fair value in a business combination.  On January 1, 2009, the Company adopted the Statement 157 provisions pertaining to non-financial assets and liabilities without a material impact to the condensed consolidated financial statements.
 
In April 2009, the FASB issued three FSPs 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"), 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"), 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 of these FSPs is not material to the condensed consolidated financial statements.
 
10
 
B.  Investment in Securities

Investments in securities at March 31, 2009 and 2008 consisted of the following:

   
2009
    
2008
    
   
Cost
    
Fair Value
    
Cost
    
Fair Value
    
   
(In thousands)
    
Trading securities:
                          
U.S. Government obligations
  
$
65,703
    
$
65,815
    
$
79,626
    
$
80,618
    
Common stocks 
    
40,782
      
35,250
      
67,934
      
64,474
    
Mutual funds
    
3,132
      
2,328
      
56,617
      
53,363
    
Preferred stocks 
    
-
      
14
      
-
      
-
    
Other investments 
    
321
      
323
      
663
      
774
    
Total trading securities
    
109,938
      
103,730
      
204,840
      
199,229
    
                                   
Available for sale securities:
                                  
Common stocks 
    
18,234
      
39,285
      
20,931
      
44,595
    
Mutual funds
    
50,167
      
44,594
      
80,213
      
81,583
    
Total available for sale securities
    
68,401
      
83,879
      
101,144
      
126,178
    
                                   
Total investments in securities
  
$
178,339 
    
$
187,609
    
$
305,984
    
$
325,407
    

Securities sold, not yet purchased at March 31, 2009 and 2008 consisted of the following:

   
2009
    
2008
    
   
Cost
    
Fair Value
    
Cost
    
Fair Value
    
   
(In thousands)
    
 Common stocks
  
 $
3,443
    
 $
3,570
    
 $
2,963
    
 $
2,784
    
 Mutual funds
    
-
      
-
      
434
      
326
    
 Total securities sold, not yet purchased
  
 $
3,443
    
 $
3,570
    
 $
3,397
    
 $
3,110
    

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 management fee and 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 three months ended March 31, 2009, there was no impairment of AFS securities.  For the three months ended March 31, 2008, there was an impairment of $0.2 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”).  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 three months ended March 31, 2009, the Company closed out of its only two foreign currency forwards which resulted in a net loss of $27,000.  As of March 31, 2009, the Company does not hold any derivative contracts.
 
11

At March 31, 2009, December 31, 2008 and March 31, 2008, the fair value of investments available for sale was $83.9 million, $76.1 million and $126.2 million, respectively.  Increases in unrealized gains to fair value, net of management fee and taxes, for the three months ended March 31, 2009 of $2.2 million have been included in stockholders’ equity at March 31, 2009 while decreases in unrealized losses to fair value, net of management fee and taxes, for the three months ended March 31, 2008 of $4.1 million have been included in stockholders’ equity at March 31, 2008.  Proceeds from sales of investments available for sale were approximately $2.2 million and $0.4 million for the three-month periods ended March 31, 2009 and 2008, respectively.  For the three months ended March 31, 2009, gross gains on the sale of investments available for sale amounted to $0.8 million; there were no gross losses on the sale of investments available for sale.  For the three months ended March 31, 2008, gross gains on the sale of investments available for sale amounted to $0.3 million; there were no gross losses on the sale of investments available for sale.

C. Investments in Partnerships and Affiliates
 
The provisions of FIN 46(R) 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”), 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 $3.2 million, $4.1 million and $5.2 million as of March 31, 2009, December 31, 2008 and March 31, 2008, respectively, are also restricted from use for general operating purposes.

In the normal course of business, the Company is the manager 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 both March 31, 2009 and December 31, 2008 were $9.1 million.

D. Fair Value

In September 2006, the FASB issued Statement 157, 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.
 
12
 
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 Company and others are willing to pay for an asset. Ask prices represent the lowest price that the Company and others are willing to accept for an asset.

Cash and cash equivalents – Cash and cash equivalents are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, cash and cash equivalents are categorized in Level 1 of the fair value hierarchy.

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.  Listed derivatives that are actively traded and are valued based on quoted prices from an exchange are also categorized in Level 1 of the fair value hierarchy.  Listed derivatives that are not actively traded are valued using the same approaches as those applied to over the counter derivatives, and they are generally categorized in Level 2 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 March 31, 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 March 31, 2009 (in thousands)
 
   
Quoted Prices in Active Markets
    
 Significant Other
   
Significant Unobservable
    
Balance as of
  
Assets
  
for Identical Assets (Level 1)
    
Observable Inputs (Level 2)
    
Inputs (Level 3)
    
March 31, 2009
  
Cash and cash equivalents
  
$
393,859
    
$
-
    
$
-
    
$
393,859
  
Investments in securities:
                                
   Available for sale
    
83,880
      
-
      
-
      
83,880
  
   Trading
    
101,176
      
2,086
      
467
      
103,729
  
Total investments in securities
    
185,056
      
2,086
      
467
      
187,609
  
Total financial instruments owned
  
$
578,915
    
$
2,086
    
$
467
    
$
581,468
  
Liabilities
                                
Securities sold, not yet purchased
  
$
3,570
    
$
-
    
$
-
    
$
3,570
  

13

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2008 (in thousands)

   
Quoted Prices in Active Markets
    
Significant Other
    
Significant Unobservable
    
 Balance as of
  
Assets
  
for Identical Assets (Level 1)
    
Observable Inputs (Level 2)
    
Inputs (Level 3)
    
March 31, 2008
  
Cash and cash equivalents
  
$
280,796
    
$
-
    
$
-
    
$
280,796
  
Investments in securities:
                                
   Available-for-sale
    
126,178
      
-
      
-
      
126,178
  
   Trading
    
197,634
      
407
      
1,188
      
199,229
  
Total investments in securities
    
323,812
      
407
      
1,188
      
325,407
  
Total financial instruments owned
  
$
604,608
    
$
407
    
$
1,188
    
$
606,203
  
Liabilities
                                
Securities sold, not yet purchased
  
$
3,110
    
$
-
    
$
-
    
$
3,110
  

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, 2009 (in thousands)
 
   
 
  
 
  
Total
  
 
  
 
    
 
          
           
Unrealized
                        
           
Gains or
  
Total
                    
           
(Losses)
  
Realized
        
Net
          
   
December
      
Included in
  
and
       
Transfers
          
   
31, 2008
  
Total Realized and Unrealized
  
Other
  
Unrealized
  
Purchases
    
In and/or
          
   
Beginning
  
Gains or (Losses) in Income
  
Comprehensive
  
Gains or
  
and Sales,
    
(Out) of
    
Ending
    
Asset
  
Balance
  
Trading
    
Investments
  
Income
  
(Losses)
  
net
    
Level 3
    
Balance
    
Financial instruments owned:
                                                          
Investments in securities - trading
  
$
1,541
  
$
 (82
)
  
$
-
  
$
-
  
$
 (82
)
$
 (29
) 
  
$
 (963
) 
  
$
467 
    
 Total
  
$
1,541
  
$
 (82
)
  
$
-
  
$
-
  
$
 (82
)
$
 (29
) 
  
$
 (963
) 
  
$
467 
    

14

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2008 (in thousands)
 
 
 
  
 
  
Total
  
 
  
 
    
 
          
           
Unrealized
                        
           
Gains or
  
Total
                    
           
(Losses)
  
Realized
        
Net
          
   
December
      
Included in
  
and
       
Transfers
          
   
31, 2007
  
Total Realized and Unrealized
  
Other
  
Unrealized
  
Purchases
    
In and/or
          
   
Beginning
  
Gains or (Losses) in Income
  
Comprehensive
  
Gains or
  
and Sales,
    
(Out) of
    
Ending
    
Asset
  
Balance
  
Trading
    
Investments
  
Income
  
(Losses)
  
net
    
Level 3
    
Balance
    
Financial instruments owned:
                                                          
Investments in securities - trading
  
$
1,423
  
$
 (235
)
  
$
-
  
$
-
  
$
 (235
)
$