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

(Mark One)

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

For the quarterly period ended September 30, 2013
or
o                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 001-14761

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)

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) 921-3700
Registrant's telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   No 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  No

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

Large accelerated filer
 
Accelerated filer
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes             No 
 
Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practical date.
Class
 
Outstanding at October 31, 2013
Class A Common Stock, .001 par value
 
6,586,649
Class B Common Stock, .001 par value
 
19,424,174


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 September 30, 2013 and 2012
 
-    Nine months ended September 30, 2013 and 2012
 
 
 
Condensed Consolidated Statements of Comprehensive Income:
 
-    Three months ended September 30, 2013 and 2012
 
-    Nine months ended September 30, 2013 and 2012
 
 
 
Condensed Consolidated Statements of Financial Condition:
 
-    September 30, 2013
 
-    December 31, 2012
 
-    September 30, 2012
 
 
 
Condensed Consolidated Statements of Equity:
 
-    Nine months ended September 30, 2013 and 2012
 
 
 
Condensed Consolidated Statements of Cash Flows:
 
-    Nine months ended September 30, 2013 and 2012
 
 
 
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
    
Nine Months Ended
  
 
  
September 30,
    
September 30,
  
 
  
2013
    
2012
    
2013
    
2012
  
Revenues
  
   
   
   
 
Investment advisory and incentive fees
  
$
80,438
    
$
67,790
    
$
230,488
    
$
202,783
  
Distribution fees and other income
    
13,545
      
11,139
      
37,420
      
33,768
  
Institutional research services
    
2,394
      
3,302
      
6,940
      
8,453
  
Total revenues
    
96,377
      
82,231
      
274,848
      
245,004
  
Expenses
                                
Compensation
    
39,803
      
32,948
      
113,214
      
100,423
  
Management fee
    
5,629
      
3,056
      
14,455
      
9,855
  
Distribution costs
    
12,769
      
10,386
      
35,650
      
30,575
  
Other operating expenses
    
5,448
      
6,829
      
16,290
      
17,760
  
Total expenses
    
63,649
      
53,219
      
179,609
      
158,613
  
 
                                
Operating income
    
32,728
      
29,012
      
95,239
      
86,391
  
Other income (expense)
                                
Net gain from investments
    
19,334
      
7,525
      
43,903
      
17,234
  
Extinguishment of debt
    
-
      
(6,305
)
    
(137
)
    
(6,307
)
Interest and dividend income
    
1,134
      
920
      
4,986
      
3,938
  
Interest expense
    
(2,164
)
    
(3,586
)
    
(8,448
)
    
(12,419
)
Shareholder-designated contribution
    
(313
)
    
-
      
(5,313
)
    
-
  
Total other income (expense), net
    
17,991
      
(1,446
)
    
34,991
      
2,446
  
Income before income taxes
    
50,719
      
27,566
      
130,230
      
88,837
  
Income tax provision
    
17,515
      
8,467
      
46,434
      
30,909
  
Net income
    
33,204
      
19,099
      
83,796
      
57,928
  
Net income/(loss) attributable to noncontrolling interests
    
106
      
95
      
260
      
(17
)
Net income attributable to GAMCO Investors, Inc.'s shareholders
  
$
33,098
    
$
19,004
    
$
83,536
    
$
57,945
  
 
                                
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
                                
Basic
  
$
1.29
    
$
0.72
    
$
3.25
    
$
2.20
  
 
                                
Diluted
  
$
1.29
    
$
0.72
    
$
3.25
    
$
2.19
  
 
                                
Weighted average shares outstanding:
                                
Basic
    
25,625
      
26,250
      
25,682
      
26,309
  
 
                                
Diluted
    
25,700
      
26,439
      
25,717
      
26,480
  
 
                                
Dividends declared:
  
$
0.06
    
$
0.30
    
$
0.16
    
$
0.63
  

See accompanying notes.
3

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

 
  
Three Months Ended
    
Nine Months Ended
  
 
  
September 30,
    
September 30,
  
 
  
2013
    
2012
    
2013
    
2012
  
 
  
   
   
   
 
Net income
  
$
33,204
    
$
19,099
    
$
83,796
    
$
57,928
  
Other comprehensive income, net of tax:
                                
Foreign currency translation
    
49
      
(34
)
    
1
      
(29
)
Net unrealized gains/(losses) on securities available for sale (a)
    
(2,170
)
    
2,938
      
(3,030
)
    
3,816
  
Other comprehensive income
    
(2,121
)
    
2,904
      
(3,029
)
    
3,787
  
 
                                
Comprehensive income
    
31,083
      
22,003
      
80,767
      
61,715
  
Less: Comprehensive income/(loss) attributable to noncontrolling interests
    
(106
)
    
(95
)
    
(260
)
    
17
  
 
                                
Comprehensive income attributable to GAMCO Investors, Inc.
  
$
30,977
    
$
21,908
    
$
80,507
    
$
61,732
  

(a) Net of income tax (benefit) /  expense of ($1,274), $1,726, ($1,780) and $2,241, respectively.

See accompanying notes.
4

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

 
  
September 30,
    
December 31,
    
September 30,
  
 
  
2013
    
2012
    
2012
  
ASSETS
  
   
   
 
Cash and cash equivalents
  
$
245,411
    
$
190,608
    
$
288,685
  
Investments in securities
    
237,744
      
218,843
      
235,445
  
Investments in sponsored registered investment companies
    
43,688
      
61,872
      
64,223
  
Investments in partnerships
    
97,752
      
97,549
      
102,604
  
Receivable from brokers
    
43,854
      
50,655
      
55,159
  
Investment advisory fees receivable
    
31,151
      
42,429
      
29,187
  
Income tax receivable
    
433
      
1,018
      
1,018
  
Other assets
    
34,589
      
27,759
      
22,250
  
Total assets
  
$
734,622
    
$
690,733
    
$
798,571
  
 
                        
LIABILITIES AND EQUITY
                        
Payable to brokers
  
$
14,675
    
$
14,346
    
$
28,039
  
Income taxes payable and deferred tax liabilities
    
28,726
      
25,398
      
16,445
  
Capital lease obligation
    
5,331
      
4,949
      
4,982
  
Compensation payable
    
86,174
      
10,535
      
33,998
  
Securities sold, not yet purchased
    
7,725
      
3,136
      
3,856
  
Mandatorily redeemable noncontrolling interests
    
1,327
      
1,342
      
1,356
  
Accrued expenses and other liabilities
    
28,906
      
26,365
      
30,175
  
Sub-total
    
172,864
      
86,071
      
118,851
  
 
                        
5.5% Senior notes (repaid May 15, 2013)
    
-
      
99,000
      
99,000
  
5.875% Senior notes (due June 1, 2021)
    
100,000
      
100,000
      
100,000
  
Zero coupon subordinated debentures, Face value: $20.5 million at September 30, 2013, $21.7
                        
    million at December 31, 2012 and $21.8 million at September 30, 2012 (due December 31, 2015)
    
17,347
      
17,366
      
17,118
  
Total liabilities
    
290,211
      
302,437
      
334,969
  
 
                        
Redeemable noncontrolling interests
    
5,765
      
17,362
      
20,228
  
Commitments and contingencies (Note J)
                        
Equity
                        
GAMCO Investors, Inc. stockholders' equity
                        
Preferred stock, $.001 par value; 10,000,000 shares authorized;
                        
    none issued and outstanding
                        
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
                        
   14,833,469, 14,203,146 and 13,904,190 issued, respectively; 6,592,649,
                        
   6,121,585 and 6,685,414 outstanding, respectively
    
14
      
13
      
13
  
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                        
   24,000,000 shares issued; 19,424,174, 19,624,174 and 19,920,730 shares
                        
   outstanding, respectively
    
19
      
20
      
20
  
Additional paid-in capital
    
281,194
      
280,089
      
267,914
  
Retained earnings
    
487,702
      
408,295
      
450,326
  
Accumulated other comprehensive income
    
23,271
      
26,300
      
26,307
  
Treasury stock, at cost (8,240,820, 8,081,561 and 7,218,776 shares, respectively)
    
(356,343
)
    
(347,109
)
    
(304,567
)
Total GAMCO Investors, Inc. stockholders' equity
    
435,857
      
367,608
      
440,013
  
Noncontrolling interests
    
2,789
      
3,326
      
3,361
  
Total equity
    
438,646
      
370,934
      
443,374
  
 
                        
Total liabilities and equity
  
$
734,622
    
$
690,733
    
$
798,571
  

See accompanying notes.
5

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

For the nine months ended September 30, 2013

 
  
   
GAMCO Investors, Inc. stockholders
    
 
 
  
   
   
   
   
Accumulated
    
   
   
 
 
  
   
   
Additional
    
   
Other
    
   
   
Redeemable
  
 
  
Noncontrolling
    
Common
    
Paid-in
    
Retained
    
Comprehensive
    
Treasury
    
   
Noncontrolling
  
 
  
Interests
    
Stock
    
Capital
    
Earnings
    
Income
    
Stock
    
Total
    
Interests
  
Balance at December 31, 2012
  
$
3,326
    
$
33
    
$
280,089
    
$
408,295
    
$
26,300
    
$
(347,109
)
  
$
370,934
    
$
17,362
  
Redemptions of
                                                                
   noncontrolling interests
    
(524
)
    
-
      
-
      
-
      
-
      
-
      
(524
)
    
(15,356
)
Contributions from
                                                                
   noncontrolling
                                                                
   interests
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
3,486
  
Net income (loss)
    
(13
)
    
-
      
-
      
83,536
      
-
      
-
      
83,523
      
273
  
Net unrealized gains on
                                                                
   securities available for sale,
                                                                
   net of income tax ($5,479)
    
-
      
-
      
-
      
-
      
9,331
      
-
      
9,331
      
-
  
Amounts reclassified from
                                                                
   accumulated other
                                                                
   comprehensive income,
                                                                
   net of income tax benefit ($7,259)
    
-
      
-
      
-
      
-
      
(12,361
)
    
-
      
(12,361
)
    
-
  
Income tax effect of transaction
                                                                
  with shareholder
    
-
      
-
      
243
      
-
      
-
      
-
      
243
      
-
  
Foreign currency translation
    
-
      
-
      
-
      
-
      
1
      
-
      
1
      
-
  
Dividends declared ($0.16 per
                                                                
 share)
    
-
      
-
      
-
      
(4,129
)
    
-
      
-
      
(4,129
)
    
-
  
Stock based compensation
                                                                
   expense
    
-
      
-
      
770
      
-
      
-
      
-
      
770
      
-
  
Exercise of stock options
                                                                
   including tax benefit ($16)
    
-
      
-
      
92
      
-
      
-
      
-
      
92
      
-
  
Purchase of treasury stock
    
-
      
-
      
-
      
-
      
-
      
(9,234
)
    
(9,234
)
    
-
  
Balance at September 30, 2013
  
$
2,789
    
$
33
    
$
281,194
    
$
487,702
    
$
23,271
    
$
(356,343
)
  
$
438,646
    
$
5,765
  

See accompanying notes.
6
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the nine months ended September 30, 2012

 
  
   
GAMCO Investors, Inc. stockholders
    
 
 
  
   
   
   
   
Accumulated
    
   
   
 
 
  
   
   
Additional
    
   
Other
    
   
   
Redeemable
  
 
  
Noncontrolling
    
Common
    
Paid-in
    
Retained
    
Comprehensive
    
Treasury
    
   
Noncontrolling
  
 
  
Interests
    
Stock
    
Capital
    
Earnings
    
Income
    
Stock
    
Total
    
Interests
  
Balance at December 31, 2011
  
$
3,439
    
$
33
    
$
264,409
    
$
409,191
    
$
22,520
    
$
(292,181
)
  
$
407,411
    
$
6,071
  
Redemptions of noncontrolling
                                                                
   interests
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
(8,566
)
Contributions from
                                                                
   noncontrolling
                                                                
   interests
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
22,662
  
Net income (loss)
    
(78
)
    
-
      
-
      
57,945
      
-
      
-
      
57,867
      
61
  
Net unrealized gains on
                                                                
   securities available for sale,
                                                                
   net of income tax ($2,241)
    
-
      
-
      
-
      
-
      
3,816
      
-
      
3,816
      
-
  
Foreign currency translation
    
-
      
-
      
-
      
-
      
(29
)
    
-
      
(29
)
    
-
  
Dividends declared ($0.63 per
                                                                
   share)
    
-
      
-
      
-
      
(16,810
)
    
-
      
-
      
(16,810
)
    
-
  
Stock based compensation
                                                                
   expense
    
-
      
-
      
2,615
      
-
      
-
      
-
      
2,615
      
-
  
Exercise of stock options
                                                                
   including tax benefit ($108)
    
-
      
-
      
890
      
-
      
-
      
-
      
890
      
-
  
Purchase of treasury stock
    
-
      
-
      
-
      
-
      
-
      
(12,386
)
    
(12,386
)
    
-
  
Balance at September 30, 2012
  
$
3,361
    
$
33
    
$
267,914
    
$
450,326
    
$
26,307
    
$
(304,567
)
  
$
443,374
    
$
20,228
  

See accompanying notes.
7

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

 
  
Nine Months Ended
  
 
  
September 30,
  
 
  
2013
    
2012
  
Operating activities
  
   
 
Net income
  
$
83,796
    
$
57,928
  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Equity in net gains from partnerships
    
(1,211
)
    
(4,445
)
Depreciation and amortization
    
605
      
580
  
Stock based compensation expense
    
770
      
2,615
  
Deferred income taxes
    
1,495
      
1,708
  
Tax benefit from exercise of stock options
    
16
      
108
  
Foreign currency translation gain/(loss)
    
1
      
(29
)
Other-than-temporary loss on available for sale securities
    
14
      
20
  
Fair value of donated securities
    
1,880
      
393
  
Gains on sales of available for sale securities
    
(16,191
)
    
(1,503
)
Accretion of zero coupon debentures
    
964
      
2,908
  
Loss on extinguishment of debt
    
137
      
6,307
  
(Increase) decrease in assets:
                
Investments in trading securities
    
(11,730
)
    
(60
)
Investments in partnerships:
                
  Contributions to partnerships
    
(10,124
)
    
(26,893
)
  Distributions from partnerships
    
11,134
      
29,627
  
Receivable from brokers
    
6,801
      
(34,246
)
Investment advisory fees receivable
    
11,278
      
2,970
  
Income tax receivable and deferred tax assets
    
584
      
(979
)
Other assets
    
(7,436
)
    
6,045
  
Increase (decrease) in liabilities:
                
Payable to brokers
    
329
      
17,268
  
Income taxes payable and deferred tax liabilities
    
3,613
      
(2,802
)
Compensation payable
    
75,639
      
16,301
  
Mandatorily redeemable noncontrolling interests
    
(15
)
    
(30
)
Accrued expenses and other liabilities
    
3,144
      
5,394
  
Total adjustments
    
71,697
      
21,257
  
Net cash provided by operating activities
  
$
155,493
    
$
79,185
  

8

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

 
  
Nine Months Ended
  
 
  
September 30,
  
 
  
2013
    
2012
  
Investing activities
  
   
 
Purchases of available for sale securities
  
$
(8,427
)
  
$
(1,264
)
Proceeds from sales of available for sale securities
    
32,422
      
3,068
  
Return of capital on available for sale securities
    
1,094
      
1,650
  
Net cash provided by investing activities
    
25,089
      
3,454
  
 
                
Financing activities
                
Contributions from redeemable noncontrolling interests
    
3,486
      
22,662
  
Redemptions of redeemable noncontrolling interests
    
(15,356
)
    
(8,566
)
Redemption of 5.5% Senior Notes
    
(99,000
)
    
-
  
Redemptions of noncontrolling interests
    
(524
)
    
-
  
Proceeds from exercise of stock options
    
76
      
781
  
Repurchase of zero coupon subordinated debentures
    
(1,119
)
    
(56,215
)
Dividends paid
    
(4,108
)
    
(16,558
)
Purchase of treasury stock
    
(9,234
)
    
(12,386
)
Net cash (used in) provided by financing activities
    
(125,779
)
    
(70,282
)
Effect of exchange rates on cash and cash equivalents
    
-
      
(12
)
Net increase in cash and cash equivalents
    
54,803
      
12,345
  
Cash and cash equivalents at beginning of period
    
190,608
      
276,340
  
Cash and cash equivalents at end of period
  
$
245,411
    
$
288,685
  
Supplemental disclosures of cash flow information:
                
Cash paid for interest
  
$
6,607
    
$
4,684
  
Cash paid for taxes
  
$
40,500
    
$
31,639
  
 
                
Non-cash activity:
                
- For the nine months ended September 30, 2013 and September 30, 2012, the Company accrued dividends on restricted stock awards of $21 and $203, respectively.
  

See accompanying notes.
9

GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(Unaudited)

A.  Significant Accounting Policies

Basis of Presentation

Unless we have indicated otherwise, or the context otherwise requires, references in this report to "GAMCO Investors, Inc.," "GAMCO," "the Company," "GBL," "we," "us" and "our" or similar terms are to GAMCO Investors, Inc., its predecessors and its subsidiaries.

The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP in the United States for complete financial statements.  In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of GAMCO for the interim periods presented and are not necessarily indicative of a full year's results.

The condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries.  Intercompany accounts and transactions are eliminated.

These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 from which the accompanying condensed consolidated financial statements were derived.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported on the condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Recent Accounting Developments

In December 2011, the Financial Accounting Standards Board ("FASB") issued guidance which creates new disclosure requirements about the nature of an entity's right of offset and related arrangements associated with its financial instruments and derivative instruments.  In January 2013, the FASB issued guidance which clarifies the scope of the disclosure requirements.  The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods therein, with retrospective application required. The new disclosures are designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards. The Company adopted this guidance on January 1, 2013 and now presents the disclosures required by this guidance in Note B.

In July 2012, the FASB issued guidance allowing companies to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired.  If a company determines, on the basis of qualitative factors, that the fair value of such asset is not more likely than not impaired, it would not need to calculate the fair value of such asset.  However, if a company concludes otherwise, it must calculate the fair value of the asset, compare the value with its carrying amount and record an impairment charge, if any.  To perform the qualitative assessment, a company must identify and evaluate events and circumstances that could affect the significant inputs used to determine the fair value of an indefinite-lived intangible asset.  This guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The Company adopted this guidance on January 1, 2013 without a material impact to the financial statements.

 
10

In February 2013, the FASB issued guidance which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI").  The guidance is intended to help entities improve the transparency of changes in other comprehensive income ("OCI") and items reclassified out of AOCI in their financial statements.  It does not amend any existing requirements for reporting net income or OCI in the financial statements.  The guidance requires entities to disclose additional information about reclassification adjustments, including changes in AOCI balances by component and significant items reclassified out of AOCI.  The guidance requires an entity to present information about significant items reclassified out of AOCI by component either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements.  The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012.  The Company adopted this guidance on January 1, 2013 and now presents the disclosures required by this guidance in Note B.

B.  Investment in Securities

Investments in securities at September 30, 2013, December 31, 2012 and September 30, 2012 consisted of the following:

 
  
September 30, 2013
    
December 31, 2012
    
September 30, 2012
  
 
  
Cost
    
Fair Value
    
Cost
    
Fair Value
    
Cost
    
Fair Value
  
 
  
(In thousands)
  
Trading securities:
  
   
   
   
   
   
 
Government obligations
  
$
20,993
    
$
21,000
    
$
42,973
    
$
42,989
    
$
28,731
    
$
28,742
  
Common stocks
    
143,731
      
166,443
      
125,697
      
138,478
      
160,027
      
170,846
  
Mutual funds
    
11,073
      
12,010
      
1,072
      
1,484
      
1,064
      
1,461
  
Other investments
    
406
      
419
      
328
      
630
      
382
      
484
  
Total trading securities
    
176,203
      
199,872
      
170,070
      
183,581
      
190,204
      
201,533
  
 
                                                
Available for sale securities:
                                                
Common stocks
    
16,372
      
36,297
      
14,822
      
33,560
      
14,931
      
32,239
  
Mutual funds
    
843
      
1,575
      
1,105
      
1,702
      
1,105
      
1,673
  
Total available for sale securities
    
17,215
      
37,872
      
15,927
      
35,262
      
16,036
      
33,912
  
 
                                                
Total investments in securities
  
$
193,418
    
$
237,744
    
$
185,997
    
$
218,843
    
$
206,240
    
$
235,445
  

Securities sold, not yet purchased at September 30, 2013, December 31, 2012 and September 30, 2012 consisted of the following:

 
  
September 30, 2013
    
December 31, 2012
    
September 30, 2012
  
 
  
Cost
    
Fair Value
    
Cost
    
Fair Value
    
Cost
    
Fair Value
  
Trading securities:
  
(In thousands)
  
Common stocks
  
$
6,411
    
$
7,003
    
$
2,593
    
$
2,867
    
$
3,044
    
$
3,816
  
Other investments
    
526
      
722
      
184
      
269
      
-
      
40
  
Total securities sold, not yet purchased
  
$
6,937
    
$
7,725
    
$
2,777
    
$
3,136
    
$
3,044
    
$
3,856
  
11

Investments in sponsored registered investment companies at September 30, 2013, December 31, 2012 and September 30, 2012 consisted of the following:

 
  
September 30, 2013
    
December 31, 2012
    
September 30, 2012
  
 
  
Cost
    
Fair Value
    
Cost
    
Fair Value
    
Cost
    
Fair Value
  
 
  
(In thousands)
  
Trading securities:
  
   
   
   
   
   
 
Mutual funds
  
$
19
    
$
12
    
$
19
    
$
20
    
$
19
    
$
24
  
Total trading securities
    
19
      
12
      
19
      
20
      
19
      
24
  
 
                                                
Available for sale securities:
                                                
Closed-end funds
    
23,850
      
40,272
      
35,868
      
58,511
      
36,721
      
60,731
  
Mutual funds
    
2,031
      
3,404
      
2,055
      
3,341
      
2,080
      
3,468
  
Total available for sale securities
    
25,881
      
43,676
      
37,923
      
61,852
      
38,801
      
64,199
  
 
                                                
Total investments in sponsored
                                                
   registered investment companies
  
$
25,900
    
$
43,688
    
$
37,942
    
$
61,872
    
$
38,820
    
$
64,223
  

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 the time of purchase are classified as cash equivalents.  A substantial portion of investments in securities is held for resale in anticipation of short-term market movements and therefore is 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.

The following table identifies all reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2013  (in thousands):
 
Amount
  
Affected Line Item in
Reason for
Reclassified
  
in the Statements
Reclassification
from AOCI
  
Of Income
from AOCI
Three months ended
 
Nine months ended
  
 
  
September 30, 2013
  
September 30, 2013
  
 
  
 
   
 
 
      
 
$
5,745
    
$
16,191
  
 Net gain from investments
 Realized gain / (loss) on sale of AFS securities
   
3,112
      
3,443
  
 Other operating expenses
 Donation of AFS securities
   
-
      
(14
)
 Net gain from investments
 Other than temporary impairment of AFS securities
   
8,857
      
19,620
  
 Income before income taxes
 
   
(3,277
)
    
(7,259
)
 Income tax provision
 
 
$
5,580
    
$
12,361
  
 Net income
 
               
 
      

The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes them in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition.  From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments.  For the three months ended September 30, 2013 and 2012, the Company had transactions in equity derivatives which resulted in net gains of $191,000 and net losses of ($411,000), respectively.  For the nine months ended September 30, 2013 and 2012, the Company had transactions in equity derivatives which resulted in net gains of $471,000 and net losses of ($425,000), respectively.  At September 30, 2013, December 31, 2012 and September 30, 2012, we held derivative contracts on 1.6 million equity shares, 1.2 million equity shares and 1.1 million equity shares, respectively, with a fair value of ($143,000), ($121,000) and ($6,000), respectively; that are included in investments in securities in the condensed consolidated statements of financial condition.  These transactions are not designated as hedges for accounting purposes, and therefore changes in fair values of these derivatives are included in net gain/(loss) from investments in the condensed consolidated statements of income. 
12

The Company is a party to enforceable master netting arrangements for swaps entered into as part of the Company's investment strategy. They are typically not used as hedging instruments. These swaps, while settled on a net basis with the counterparties, major U.S. financial institutions, are shown gross in assets and liabilities on the condensed consolidated statements of financial condition. The swaps have a firm contract end date and are closed out and settled when each contract expires.


 
  
   
   
   
Gross Amounts Not Offset in the
  
 
  
   
   
   
Statements of Financial Condition
  
 
  
Gross
    
Gross Amounts
    
Net Amounts of
    
   
   
 
 
  
Amounts of
    
Offset in the
    
Assets Presented
    
   
   
 
 
  
Recognized
    
Statements of
    
in the Statements of
    
Financial
    
Cash Collateral
    
 
 
  
Assets
    
Financial Condition
    
Financial Condition
    
Instruments
    
Received
    
Net Amount
  
Swaps:
  
(in thousands)
  
September 30, 2013
  
$
101
    
$
-
    
$
101
    
$
(101
)
  
$
-
    
$
-
  
December 31, 2012
    
148
      
-
      
148
      
(132
)
    
-
      
16
  
September 30, 2012
  
$
197
    
$
-
    
$
197
    
$
(197
)
  
$
-
    
$
-
  
 
                                                
 
                          
Gross Amounts Not Offset in the
  
 
                          
Statements of Financial Condition
  
 
  
Gross
    
Gross Amounts
    
Net Amounts of
                          
 
  
Amounts of
    
Offset in the
    
Liabilities Presented
                          
 
  
Recognized
    
Statements of
    
in the Statements of
    
Financial
    
Cash Collateral
          
 
  
Liabilities
    
Financial Condition
    
Financial Condition
    
Instruments
    
Pledged
    
Net Amount
  
Swaps:
  
(in thousands)
  
September 30, 2013
  
$
135
    
$
-
    
$
135
    
$
(101
)
  
$
-
    
$
34
  
December 31, 2012
    
132
      
-
      
132
      
(132
)
    
-
      
-
  
September 30, 2012
  
$
200
    
$
-
    
$
200
    
$
(197
)
  
$
-
    
$
3
  

The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of September 30, 2013, December 31, 2012 and September 30, 2012:

 
  
September 30, 2013
  
 
  
   
Gross
    
Gross
    
 
 
  
   
Unrealized
    
Unrealized
    
 
 
  
Cost
    
Gains
    
Losses
    
Fair Value
  
 
  
(In thousands)
  
Common stocks
  
$
16,372
    
$
19,925
    
$
-
    
$
36,297
  
Closed-end Funds
    
23,850
      
16,545
      
(123
)
    
40,272
  
Mutual funds
    
2,874
      
2,141
      
(36
)
    
4,979
  
Total available for sale securities
  
$
43,096
    
$
38,611
    
$
(159
)
  
$
81,548
  

 
  
December 31, 2012
  
 
  
   
Gross
    
Gross
    
 
 
  
   
Unrealized
    
Unrealized
    
 
 
  
Cost
    
Gains
    
Losses
    
Fair Value
  
 
  
(In thousands)
  
Common stocks
  
$
14,822
    
$
18,738
    
$
-
    
$
33,560
  
Closed-end Funds
    
35,868
      
22,645
      
(2
)
    
58,511
  
Mutual funds
    
3,160
      
1,883
      
-
      
5,043
  
Total available for sale securities
  
$
53,850
    
$
43,266
    
$
(2
)
  
$
97,114
  

 
  
September 30, 2012
  
 
  
   
Gross
    
Gross
    
 
 
  
   
Unrealized
    
Unrealized
    
 
 
  
Cost
    
Gains
    
Losses
    
Fair Value
  
 
  
(In thousands)
  
Common stocks
  
$
14,931
    
$
17,308
    
$
-
    
$
32,239
  
Closed-end Funds
    
36,721
      
24,010
      
-
      
60,731
  
Mutual funds
    
3,185
      
1,956
      
-
      
5,141
  
Total available for sale securities
  
$
54,837
    
$
43,274
    
$
-
    
$
98,111
  
13

Unrealized changes in fair value, net of taxes, for the three months ended September 30, 2013 and September 30, 2012 of ($2.2) million in losses and $2.9 million in gains, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2013 and September 30, 2012.  Return of capital on available for sale securities was $0.5 million and $0.8 million for the three months ended September 30, 2013 and September 30, 2012, respectively.  Proceeds from sales of investments available for sale were approximately $10.4 million and $2.3 million for the three months ended September 30, 2013 and September 30, 2012, respectively.  For the three months ended September 30, 2013 and September 30, 2012, gross gains on the sale of investments available for sale amounted to $5.7 million and $1.1 million, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the three months ended September 30, 2013 or September 30, 2012.  Unrealized changes in fair value, net of taxes, for the nine months ended September 30, 2013 and September 30, 2012 of ($3.0) million in losses and $3.8 million in gains, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2013 and September 30, 2012.  Return of capital on available for sale securities was $1.1 million and $1.7 million for the nine months ended September 30, 2013 and September 30, 2012, respectively.  Proceeds from sales of investments available for sale were approximately $32.4 million and $3.1 million for the nine months ended September 30, 2013 and September 30, 2012, respectively.  For the nine months ended September 30, 2013 and September 30, 2012, gross gains on the sale of investments available for sale amounted to $16.2 million and $1.5 million, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the nine months ended September 30, 2013 or September 30, 2012.  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:

 
  
September 30, 2013
    
December 31, 2012
    
September 30, 2012
  
 
  
   
Unrealized
    
   
   
Unrealized
    
   
   
Unrealized
    
 
 
  
Cost
    
Losses
    
Fair Value
    
Cost
    
Losses
    
Fair Value
    
Cost
    
Losses
    
Fair Value
  
(in thousands)
  
   
   
   
   
   
   
   
   
 
Cosed-end funds
  
$
941
    
$
(123
)
  
$
818
    
$
73
    
$
(2
)
  
$
71
    
$
-
    
$
-
    
$
-
  
Mutual Funds
    
365
      
(36
)
    
329
      
-
      
-
      
-
      
-
      
-
      
-
  
Total
  
$
1,306
    
$
(159
)
  
$
1,147
    
$
73
    
$
(2
)
  
$
71
    
$
-
    
$
-
    
$
-
  

At September 30, 2013, there were four holdings in loss positions which were not deemed to be other than temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at September 30, 2013 were open and closed-end funds with diversified holdings across multiple companies and across multiple industries.  All holdings were impaired for four months at September 30, 2013.  The value of these holdings at September 30, 2013 was $1.1 million.  If these holdings were to continue to be impaired, we may need to record an impairment in a future period on the condensed consolidated statement of income for the amount of the unrealized loss, which at September 30, 2013 was $159,000.

At December 31, 2012 there was one holding in a loss position which was not deemed to be other-than-temporarily impaired due to the length of time that it had been in a loss position and because it passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In this specific instance, the investment at December 31, 2012 was a closed-end fund with diversified holdings across multiple companies and across multiple industries.  The one holding was impaired for one month at December 31, 2012 . The value of this holding at December 31, 2012 was $0.1 million.

At September 30, 2012, there were no available for sale holdings in loss positions.

For the nine months ended September 30, 2013 and September 30, 2012, there was $14,000 and $20,000 of losses, respectively, on available for sale securities deemed to be other than temporary.  There were no losses for the three months ended September 30, 2013 and September 30, 2012.
14

C. Fair Value

The following tables present information about the Company's assets and liabilities by major categories measured at fair value on a recurring basis as of September 30, 2013, December 31, 2012 and September 30, 2012 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 September 30, 2013 (in thousands)

 
  
Quoted Prices in Active
    
Significant Other
    
Significant
    
Balance as of
  
 
  
Markets for Identical
    
Observable
    
Unobservable
    
September 30,
  
Assets
  
Assets (Level 1)
    
Inputs (Level 2)
    
Inputs (Level 3)
    
2013
  
Cash equivalents
  
$
244,144
    
$
-
    
$
-
    
$
244,144
  
Investments in partnerships
    
-
      
23,146
      
-
      
23,146
  
Investments in securities:
                                
AFS - Common stocks
    
36,297
      
-
      
-
      
36,297
  
AFS - Mutual funds
    
1,575
      
-
      
-
      
1,575
  
Trading - Gov't obligations
    
21,000
      
-
      
-
      
21,000
  
Trading - Common stocks
    
165,776
      
-
      
667
      
166,443
  
Trading - Mutual funds
    
12,010
      
-
      
-
      
12,010
  
Trading - Other
    
32
      
104
      
283
      
419
  
Total investments in securities
    
236,690
      
104
      
950
      
237,744
  
Investments in sponsored registered investment companies:
                          
AFS - Closed-end Funds
    
40,272
      
-
      
-
      
40,272
  
AFS - Mutual Funds
    
3,404
      
-
      
-
      
3,404
  
Trading - Mutual funds
    
12
      
-
      
-
      
12
  
Total investments in sponsored
                                
registered investment companies
    
43,688
      
-
      
-
      
43,688
  
Total investments
    
280,378
      
23,250
      
950
      
304,578
  
Total assets at fair value
  
$
524,522
    
$
23,250
    
$
950
    
$
548,722
  
Liabilities
                                
Trading - Common stocks
  
$
7,003
    
$
-
    
$
-
    
$
7,003
  
Trading - Other
    
-
      
722
      
-
      
722
  
Securities sold, not yet purchased
  
$
7,003
    
$
722
    
$
-
    
$
7,725
  

15
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2012 (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)
    
2012
  
Cash equivalents
  
$
190,475
    
$
-
    
$
-
    
$
190,475
  
Investments in partnerships
    
-
      
26,128
      
-
      
26,128
  
Investments in securities:
                                
AFS - Common stocks
    
33,560
      
-
      
-
      
33,560
  
AFS - Mutual funds
    
1,702
      
-
      
-
      
1,702
  
Trading - Gov't obligations
    
42,989
      
-
      
-
      
42,989
  
Trading - Common stocks
    
137,796
      
7
      
675
      
138,478
  
Trading - Mutual funds
    
1,484
      
-
      
-
      
1,484
  
Trading - Other
    
120
      
148
      
362
      
630
  
Total investments in securities
    
217,651
      
155
      
1,037
      
218,843
  
Investments in sponsored registered investment companies:
                          
AFS - Closed-end Funds
    
58,511
      
-
      
-
      
58,511
  
AFS - Mutual Funds
    
3,341
      
-
      
-
      
3,341
  
Trading - Mutual funds
    
20
      
-
      
-
      
20
  
Total investments in sponsored
                                
registered investment companies
    
61,872
      
-
      
-
      
61,872
  
Total investments
    
279,523
      
26,283
      
1,037
      
306,843
  
Total assets at fair value
  
$
469,998
    
$
26,283
    
$
1,037
    
$
497,318
  
Liabilities
                                
Trading - Common stocks
  
$
2,867
    
$
-
    
$
-
    
$
2,867
  
Trading - Other
    
-
      
269
      
-
      
269
  
Securities sold, not yet purchased
  
$
2,867
    
$
269
    
$
-
    
$
3,136
  

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2012 (in thousands)

 
  
Quoted Prices in Active
    
Significant Other
    
Significant
    
Balance as of
  
 
  
Markets for Identical
    
Observable
    
Unobservable
    
September 30,
  
Assets
  
Assets (Level 1)
    
Inputs (Level 2)
    
Inputs (Level 3)
    
2012
  
Cash equivalents
  
$
288,450
    
$
-
    
$
-
    
$
288,450
  
Investments in partnerships
    
-
      
24,976
      
-
      
24,976
  
Investments in securities: