Edgar Filing: GAMCO INVESTORS, INC. ET AL

gbl10q093008.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 September 30, 2008

[ ]	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

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

Large accelerated filer ¨		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes

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, 2008
Class A Common Stock, .001 par value		7,334,683
Class B Common Stock, .001 par value		20,550,006

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, 2008 and 2007
	- Nine months ended September 30, 2008 and 2007

	Condensed Consolidated Statements of Financial Condition:
	- September 30, 2008
	- December 31, 2007 (audited)
	- September 30, 2007

	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income:
	- Three months ended September 30, 2008 and 2007
	- Nine months ended September 30, 2008 and 2007

	Condensed Consolidated Statements of Cash Flows:
	- Nine months ended September 30, 2008 and 2007

	Notes to Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	(Including Quantitative and Qualitative Disclosure about Market Risk)

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

PART II.	OTHER INFORMATION

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Item 6.	Exhibits



SIGNATURES

GAMCO INVESTORS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007

Revenues
Investment advisory and incentive fees	$	52,297		$	58,392		$	164,269		$	172,606
Commission revenue		4,098			3,494			11,018			11,550
Distribution fees and other income		6,585			6,583			19,665			19,196
Total revenues		62,980			68,469			194,952			203,352
Expenses
Compensation		26,148			29,064			82,758			87,343
Management fee		1,740			3,541			6,307			10,391
Distribution costs		6,743			6,099			19,946			22,146
Other operating expenses		7,076			2,665			20,204			18,693
Total expenses		41,707			41,369			129,215			138,573

Operating income		21,273			27,100			65,737			64,779
Other (expense) income
Net (loss) gain from investments		(4,786	)		514			(13,165	)		17,277
Interest and dividend income		1,340			6,810			10,310			20,978
Interest expense		(2,139	)		(2,828	)		(6,405	)		(9,537	)
Total other (expense) income, net		(5,585	)		4,496			(9,260	)		28,718
Income before income taxes and minority interest		15,688			31,596			56,477			93,497
Income tax provision		3,837			13,340			19,882			37,403
Minority interest		(134	)		(81	)		(335	)		596
Net income	$	11,985		$	18,337		$	36,930		$	55,498

Net income per share:
Basic	$	0.43		$	0.65		$	1.32		$	1.97

Diluted	$	0.43		$	0.64		$	1.32		$	1.95

Weighted average shares outstanding:
Basic		27,602			28,106			27,930			28,164

Diluted		28,400			29,099			28,746			29,148


Dividends declared:	$	1.03		$	1.03		$	1.09		$	1.09

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)

	September 30,			December 31,				September 30,
	2008			2007				2007
	(unaudited)							(unaudited)

Cash and cash equivalents, including restricted cash of $0, $0, and $443	$	165,098		$	168,319		$	195,893
Investments in securities, including restricted securities of $0, $0, and $52,117		379,072			394,977			386,190
Investments in partnerships and affiliates		73,234			100,031			97,988
Receivable from brokers		37,929			40,145			36,677
Investment advisory fees receivable		16,392			33,701			18,591
Other assets		23,086			20,407			17,432

Total assets	$	694,811		$	757,580		$	752,771

LIABILITIES AND STOCKHOLDERS' EQUITY

Payable to brokers	$	2,492		$	7,562		$	6,844
Income taxes payable, net (A)		3,071			17,539			21,251
Accrued compensation		28,253			25,362			43,613
Capital lease obligation		5,300			2,525			2,593
Securities sold, not yet purchased		6,620			2,229			10,914
Accrued expenses and other liabilities		16,607			38,810			32,820

Total operating liabilities		62,343			94,027			118,035

Long term liabilities
5.5% Senior notes (due May 15, 2013)		100,000			100,000			100,000
6% Convertible note (due August 14, 2011) (B)		39,746			49,608			49,584

Total liabilities		202,089			243,635			267,619

Minority interest		10,994			12,630			9,497

Stockholders’ equity
Class A Common Stock, $0.001 par value; 100,000,000
shares authorized; 12,850,162, 12,574,995, 12,173,423
issued, respectively; 7,395,483, 7,819,741, and 7,438,369 outstanding, respectively		12			12			12
Class B Common Stock, $0.001 par value; 100,000,000
shares authorized; 24,000,000 shares issued, 20,550,006, 20,626,644, 20,645,816 shares outstanding, respectively		21			21			21
Additional paid-in capital		244,674			230,483			230,068
Retained earnings		451,635			445,121			421,800
Accumulated comprehensive income		14,515			20,815			17,799
Treasury stock, at cost (5,454,679, 4,755,254, and 4,735,054 shares, respectively)		(229,129	)		(195,137	)		(194,045	)
Total stockholders' equity		481,728			501,315			475,655

Total liabilities and stockholders' equity	$	694,811		$	757,580		$	752,771


See accompanying notes.

(A) At Spetember 30, 2008, Income taxes payable, net included income tax assets of $4,388.
(B) $50 million face value outstanding on December 31, 2007 and September 30, 2007. $40 million outstanding on September 30, 2008.

GAMCO INVESTORS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

UNAUDITED

(In thousands)

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
		2008			2007		2008			2007
Stockholders’ equity – beginning of period	$	510,929		$	490,793		$	501,315		$	451,576

Cumulative effect of applying the provisions of FIN 48 at January 1, 2007		-			-			-			(822	)

Comprehensive income:
Net income		11,985			18,337			36,930			55,498
Foreign currency translation adjustments		(53	)		14			(54	)		27
Net unrealized (loss)/gain on securities available for sale		(2,876	)		(2,108	)		(6,246	)		7,244
Total comprehensive income		9,056			16,243			30,630			62,769

Dividends declared		(28,716	)		(28,977	)		(30,416	)		(30,668	)
Stock based compensation expense		1,237			23			3,639			68
Conversion of 6% convertible note		(77	)		-			9,923			-
Exercise of stock options including tax benefit		65			35			629			301
Purchase of treasury stock		(10,766	)		(2,462	)		(33,992	)		(7,569	)
Stockholders’ equity – end of period	$	481,728		$	475,655		$	481,728		$	475,655

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(In thousands)

	Nine Months Ended
	September 30,
	2008			2007
Operating activities
Net income	$	36,930		$	55,498
Adjustments to reconcile net income to net cash provided by operating activities:

Equity in net losses (gains) from partnerships and affiliates		6,164			(5,600	)
Depreciation and amortization		747			739
Stock based compensation expense		3,639			68
Deferred income tax		(2,503	)		5,858
Tax benefit from exercise of stock options		2			62
Foreign currency loss / (gain)		(54	)		27
Other-than-temporary loss on available for sale securities		713			3
Impairment of goodwill		-			56
Acquisition of intangible asset		(3,370	)		-
Market value of donated securities		507			273
Minority interest in net (loss) income of consolidated subsidiaries		(165	)		610
Realized gains on sales of available for sale securities		(4,041	)		(657	)
Realized gains on sales of trading investments in securities, net		(3,273	)		(16,676	)
Change in unrealized value of trading investments in securities and securities sold, not yet purchased, net		13,823			4,453
Realized gains on covers of securities sold, not yet purchased, net		(1,068	)		(409	)
Amortization on discount on debt		138			80
(Increase) decrease in operating assets:
Purchases of trading investments in securities		(445,246	)		(1,022,506	)
Proceeds from sales of trading investments in securities		433,710			1,152,329
Cost of covers on securities sold, not yet purchased		(24,530	)		(97,552	)
Proceeds from sales of securities sold, not yet purchased		29,927			112,031
Investments in partnerships and affiliates		(182	)		(17,998	)
Distributions from partnerships and affiliates		20,932			15,719
Receivable from brokers		61			20,320
Investment advisory fees receivable		17,422			12,529
Other receivables from affiliates		3,303			5,193
Other assets		(436	)		1,594
Increase (decrease) in operating liabilities:
Payable to brokers		(4,980	)		(28,022	)
Income taxes payable		(6,617	)		(2,907	)
Compensation payable		4,232			12,192
Accrued expenses and other liabilities		(22,306	)		(7,892	)
Effects of consolidation of investment partnerships and offshore funds consolidated under FIN 46R and EITF 04-5:
Realized gains on sales of investments in securities and securities sold, not yet purchased, net		(10	)		(722	)
Change in unrealized value of investments in securities and securities sold, not yet purchased, net		946			547
Equity in net losses (gains) from partnerships and affiliates		1,206			(835	)
Purchases of trading investments in securities		(13,290	)		(41,400	)
Proceeds from sales of trading investments in securities		11,609			45,995
Investments in partnerships and affiliates		(242	)		(2,000	)
Cost of covers on securities sold, not yet purchased		(11	)		(651	)
Proceeds from sales of securities sold, not yet purchased		42			477
Distributions from partnerships and affiliates		531			5,589
Increase in investment advisory fees receivable		(113	)		(26	)
Decrease (increase) in receivable from brokers		2,155			(3,315	)
Decrease (increase) in other assets		39			(138	)
Decrease in payable to brokers		(90	)		(1,480	)
(Decrease) increase in accrued expenses and other liabilities		(68	)		237
(Loss) gain related to investment partnerships and offshore funds consolidated under FIN 46R and EITF 04-5, net		(2,017	)		839
Total adjustments		17,236			147,034
Net cash provided by operating activities		54,166			202,532

GAMCO INVESTORS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

UNAUDITED

(In thousands)

	Nine Months Ended
	September 30,
	2008				2007

Investing activities
Purchases of available for sale securities	$	(1,022	)	$	(25,942	)
Proceeds from sales of available for sale securities		8,451			2,642
Net cash provided by (used in) investing activities		7,429			(23,300	)

Financing activities
Retirement of 5.22% senior notes		-			(82,308	)
Contributions related to investment partnerships and offshore funds consolidated under FIN 46R and EITF 04-5, net		(346	)		(645	)
Proceeds from exercise of stock options		630			238
Dividends paid		(30,417	)		(30,668	)
Subsidiary dividends to minority shareholders		(593	)		(531	)
Purchase of treasury stock		(33,992	)		(7,569	)
Net cash used in financing activities		(64,718	)		(121,483	)
Net increase (decrease) in cash and cash equivalents		(3,123	)		57,749
Effect of exchange rates on cash and cash equivalents		(98	)		31
Cash and cash equivalents at beginning of period		168,319			138,113
Cash and cash equivalents at end of period	$	165,098		$	195,893

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.
- On September 15, 2008, GAMCO Investors, Inc. modified and extended its lease with M4E, LLC, the Company’s landlord at 401 Theodore Fremd Ave, Rye, NY. The lease term was extended to December 31, 2023. This resulted in an increase to the capital lease obligation and corresponding asset of $3.0 million each.

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008

(Unaudited)

A. Basis of Presentation

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “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 and non-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. All material intercompany accounts and transactions are eliminated.

These 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, 2007 from which the accompanying condensed consolidated Financial Statements were derived.

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.

Changes in Accounting Policy

GAMCO has adopted Financial Accounting Standards Board ("FASB") Statement No. 157, “Fair Value Measurements” (“Statement 157”). The statement provides guidance for using fair value to measure assets and liabilities. The statement provides guidance to companies about the extent of which to measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The statement applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The statement does not expand the use of fair value in any new circumstances. The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years. The Company adopted this statement on January 1, 2008. Although the impact of adopting Statement 157 is immaterial to the Company’s financial statements, Statement 157 required additional disclosures within the footnotes to the financial statements. Please refer to Note E for further details.

B. Recent Accounting Developments

In December 2007, the FASB issued FASB Statement No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51" ("Statement 160") 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 changes the way the consolidated income statement is presented. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. Statement 160 requires expanded disclosures in the 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. Statement 160 does not change the provisions of “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 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. Earlier adoption is prohibited. The Company plans to adopt this statement on January 1, 2009. Statement 160 will impact the Company's financial statements presentation and disclosure of minority interest.

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 plans to adopt Statement 161 on January 1, 2009. Statement 161 will impact only the Company's disclosure of derivative instruments.

In April 2008, the FASB issued FASB Statement No. 142-3, "Determination of the Useful Life of Intangible Assets" ("Statement 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 SFAS No. 142 , "Goodwill and Other Intangible Assets". Statement 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 plans to adopt this statement on January 1, 2009. Statement 142-3 is applicable to the Company; however, the effect of its adoption is not expected to be material.

C. Investment in Securities

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 with those 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, net of deferred taxes, 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 and nine months ended September 30, 2008, there was an impairment of $0.4 million and $0.7 million, respectively, in AFS securities. For the three months and nine months ended September 30, 2007, there was no impairment in AFS securities.

The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards (“FAS”) No. 133, "Accounting for Derivative Instruments and Hedging Activities, as amended" (“Statement No. 133”). Statement No. 133 requires that an entity recognize all derivatives, as defined, as either assets or liabilities measured at fair value. The Company uses swaps and treasury futures to manage its exposure to market and credit risks from changes in certain equity prices, interest rates, and volatility and does not hold or issue swaps and treasury futures for speculative or trading purposes. These swaps and treasury futures 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. As of September 30, 2008 and December 31, 2007, the notional value of swaps and treasury futures was $0.3 million and $4.4 million, respectively. There were no swaps or treasury futures included in investments in securities in the condensed consolidated statements of financial condition at September 30, 2007. For the three and nine months ended September 30, 2008, the effect of derivative transactions was immaterial to the Company's condensed consolidated statements of income.

At September 30, 2008, December 31, 2007 and September 30, 2007, the market value of investments available for sale was $116.9 million, $134.5 million and $137.2 million, respectively. Decreases in unrealized gains in market value, net of management fee and taxes, for the three months ended September 30, 2008 and 2007 of $2.9 million and $2.1 million have been included in stockholders’ equity at September 30, 2008 and 2007, respectively. Changes in unrealized (losses) gains in market value, net of management fee and taxes, for the nine months ended September 30, 2008 and 2007 of ($6.2) million and $7.2 million, have been included in stockholders’ equity at September 30, 2008 and 2007, respectively. Proceeds from sales of investments available for sale were approximately $7.8 million and $0.4 million for the three-month periods ended September 30, 2008 and 2007, respectively. Proceeds from sales of investments available for sale were approximately $8.5 million and $2.6 million for the nine-month periods ended September 30, 2008 and 2007, respectively. For the three and nine months ended September 30, 2008, gross gains on the sale of investments available for sale amounted to $3.6 and $4.0 million, respectively; there were no gross losses on the sale of investments available for sale. For the three and nine months ended September 30, 2007, gross gains on the sale of investments available for sale amounted to $0.2 and $0.7 million, respectively; there were no gross losses on the sale of investments available for sale.

D. Investments in Partnerships and Affiliates

The provisions of FASB Interpretation No. ("FIN") 46R, "Consolidation of Variable Interest Entities", and EITF 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", require consolidation of several of our investment partnerships and offshore funds managed by our subsidiaries into our condensed consolidated financial statements.

For the three and nine months ended September 30, 2008, the consolidation of these entities had no impact on net income but did result in (a) the elimination of revenues and expenses which are now intercompany transactions; (b) the recording of all the partnerships’ operating expenses of these entities including those pertaining to third-party interests; (c) the recording of all other income of these entities including those pertaining to third-party interests; (d) recording of income tax expense of these entities including those pertaining to third party interests; and (e) the recording of minority interest which offsets the net amount of any of the partnerships’ revenues, operating expenses, other income and income taxes recorded in these respective line items which pertain to third-party interest in these entities. While this had no impact on net income, the consolidation of these entities did affect the classification of income between operating and other income. Cash and cash equivalents, investments in securities and receivable from brokers held by investment partnerships and offshore funds consolidated under FIN 46R and EITF 04-5 of $4.3 million, $5.2 million and $2.6 million as of September 30, 2008, December 31, 2007 and September 30, 2007, respectively, are also restricted from use for general operating purposes.

E. 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 investments in securities and securities sold, not yet purchased are measured at fair value.

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

-	Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
-	Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals.
-	Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, per Statement 157, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.

Many of our securities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the 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 the 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. Investments in United States Treasury Bills and Notes, which are valued at amortized cost, included in Level 1 were $70.3 million as of September 30, 2008. 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.

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 September 30, 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 September 30, 2008 (in thousands)

Assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of September 30, 2008
Cash and cash equivalents	$	165,098	$	-	$	-	$	165,098
Investments in securities:
Available-for-sale		116,865		-		-		116,865
Trading		260,607		18		1,582		262,207
Total investments in securities		377,472		18		1,582		379,072
Total financial instruments owned	$	542,570	$	18	$	1,582	$	544,170
Liabilities
Securities sold, not yet purchased	$	6,620	$	-	$	-	$	6,620

The following table presents 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 September 30, 2008 (in thousands)

			Total Realized and Unrealized Gains or (Losses) in Income
Asset	Beginning Balance		Trading			Investments		Total Unrealized Gains or (Losses) Included in Other Comprehensive Income		Total Realized and Unrealized Gains or (Losses)			Purchases and Sales, net			Net Transfers In and/or (Out) of Level 3			Ending Balance
Financial instruments owned:
Investments in securities - trading	$	2,012	$	(100	)	$	-	$	-	$	(100	)	$	(205	)	$	(125	)	$	1,582
Total	$	2,012	$	(100	)	$	-	$	-	$	(100	)	$	(205	)	$	(125	)	$	1,582

Unrealized Level 3 losses included in the Condensed Consolidated Statement of Income for the three months ended September 30, 2008 was approximately $0.1 million for those Level 3 securities held at September 30, 2008.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the nine months ended September 30, 2008 (in thousands)

			Total Realized and Unrealized Gains or (Losses) in Income
Asset	Beginning Balance		Trading			Investments		Total Unrealized Gains or (Losses) Included in Other Comprehensive Income		Total Realized and Unrealized Gains or (Losses)			Purchases and Sales, net		Net Transfers In and/or (Out) of Level 3		Ending Balance
Financial instruments owned:
Investments in securities - trading	$	1,423	$	(637	)	$	-	$	-	$	(637	)	$	530	$	266	$	1,582
Total	$	1,423	$	(637	)	$	-	$	-	$	(637	)	$	530	$	266	$	1,582

Unrealized Level 3 losses included in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2008 was approximately $0.6 million for those Level 3 securities held at September 30, 2008.

In February 2007, the FASB issued FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("Statement 159"), which provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities, with changes in fair value recognized in earnings as they occur. Statement 159 permits the fair value option election on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument.

At this time, the Company has not to date and does not intend to elect fair value treatment for any other financial asset or financial liability.

F. Debt

On February 17, 2007, the $82.3 million of 5.22% Senior Notes matured. The Company paid the principal plus accrued interest. This debt was originally issued in connection with GAMCO's sale of mandatory convertible securities in February 2002 and was remarketed in November 2004.

On January 18, 2008, the Securities and Exchange Commission ("Commission") declared effective a registration statement on Form S-3 for the registration for resale by Cascade Investment, L.L.C. ("Cascade") of an aggregate of 943,396 shares of GAMCO's Class A Common Stock issuable upon conversion of the 2011 Note of the Company issued to Cascade on August 14, 2001. On January 22, 2008, Cascade elected to convert $10 million of the 6% Note into 188,679 GAMCO shares. Cascade requested that the remaining $40 million face value of notes be segregated into eight notes each with a face value of $5 million each.

G. Income Taxes

The effective tax rate for the three and nine months ended September 30, 2008 was 24.5% and 35.2%, respectively, as compared to the prior year ’s effective rates of 42.2% and 40.0%, respectively. The current period decreases are due to a $2.0 million reduction in the Company's income tax reserves.

H. Earnings Per Share

The computations of basic and diluted net income per share are as follows:

(in thousands, except per share amounts)	Three Months Ended September 30, 2008		Three Months Ended September 30, 2007		Nine Months Ended September 30, 2008		Nine Months Ended September 30, 2007
Basic:
Net income	$	11,985	$	18,337	$	36,930	$	55,498
Average shares outstanding		27,602		28,106		27,930		28,164
Basic net income per share	$	0.43	$	0.65	$	1.32	$	1.97

Diluted:
Net income	$	11,985	$	18,337	$	36,930	$	55,498
Add interest expense on convertible note, net of management fee and taxes		343		429		1,052		1,286
Total	$	12,328	$	18,766	$	37,982	$	56,784

Average shares outstanding		27,602		28,106		27,930		28,164
Dilutive stock options		43		50		43		41
Assumed conversion of convertible note		755		943		773		943
Total		28,400		29,099		28,746		29,148
Diluted net income per share	$	0.43	$	0.64	$	1.32	$	1.95

I. Stockholders’ Equity

Shares outstanding on September 30, 2008 were 27.9 million, 28.2 million on June 30, 2008, and 28.1 million shares on September 30, 2007.

On August 5, 2008, our Board of Directors declared a special dividend of $1.00 per share to all of its Class A and Class B shareholders, payable on September 16, 2008 to shareholders of record on September 2, 2008 and a quarterly dividend of $0.03 per share to all of its Class A and Class B shareholders, payable on September 30, 2008 to shareholders of record on September 16, 2008.

Voting Rights

The holders of Class A Common Stock and Class B Common Stock have identical rights except that (i) holders of Class A Common Stock are entitled to one vote per share, while holders of Class B Common Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general, and (ii) holders of Class A Common Stock are not eligible to vote on matters relating exclusively to Class B Common Stock and vice versa.

Stock Award and Incentive Plan

Effective January 1, 2003, we adopted the fair value recognition provisions of FAS No. 123 "Accounting for Stock-Based Compensation" ("Statement 123") in accordance with the transition and disclosure provisions under the recently issued FAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure.”. We adopted Statement 123(R) on January 1, 2005. In light of our modified prospective adoption of the fair value recognition provisions of Statement 123 (R) for all grants of employee stock options, the adoption of Statement 123(R) did not have a material impact on our consolidated financial statements.

As of September 30, 2008, there are 374,700 RSA shares outstanding that were issued at an average grant price of $62.38. All grants of the RSAs were recommended by the Company's Chairman, who did not receive an RSA award, and approved by the Compensation Committee of the Company's Board of Directors. This expense will be recognized over the vesting period for these awards which is 30% over three years from the date of grant and 70% over five years from the date of grant. During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates. Dividends declared on these RSAs are charged to retained earnings on the declaration date.

For the three months ended September 30, 2008 and 2007, we recognized stock-based compensation expense of $1,237,000 and $23,000, respectively. For the nine months ended September 30, 2008 and 2007, we recognized stock-based compensation expense of $3,639,000 and $68,000, respectively. Stock-based compensation expense for RSAs outstanding at September 30, 2008, for the years ended December 31, 2007 through December 31, 2013 is as follows ($ in thousands):

		2007		2008		2009		2010		2011		2012		2013
	Q1	$	21	$	1,198	$	1,250	$	1,239	$	745	$	718	$	32
	Q2		24		1,204		1,246		1,236		742		717		32
	Q3		24		1,237		1,244		1,235		725		717		10
	Q4		414		1,252		1,243		1,072		718		488		-
Full Year		$	483	$	4,891	$	4,983	$	4,782	$	2,930	$	2,640	$	74

The total compensation costs related to non-vested awards and options not yet recognized is approximately $16,661,000, of which $1,252,000 will be recognized in the fourth quarter of 2008. Proceeds from the exercise of 2,000 and 1,000 stock options were $58,000 and $29,000 for the three months ended September 30, 2008 and 2007, respectively, resulting in a tax benefit to GAMCO of $7,000 and $5,000 for the three months ended September 30, 2008 and 2007, respectively. Proceeds from the exercise of 17,550 and 9,150 stock options were $630,000 and $238,000 for the nine months ended September 30, 2008 and 2007, respectively, resulting in a tax benefit to GAMCO of $2,000 and $62,000 for the nine months ended September 30, 2008 and 2007, respectively. Additionally, during the nine months ended September 30, 2008, the Company reversed a previously recognized tax benefit of $50,000 relating to some expired stock options.

Stock Repurchase Program

In March 1999, GAMCO's Board of Directors established the Stock Repurchase Program to grant the authority to repurchase shares of our Class A Common Stock. For the three and nine months ended September 30, 2008, the Company repurchased approximately 247,000 and 699,000 shares, respectively, at an average investment of $43.60 and $48.58, respectively. For the three and nine months ended September 30, 2007, the Company repurchased approximately 52,000 and 166,000 Class A common shares, respectively, at an average investment of $47.31 and $45.53, respectively. From the inception of the program through September 30, 2008, approximately 5,555,000 shares have been repurchased at an average investment of $40.84 per share. At September 30, 2008, the total shares available under the program to be repurchased was approximately 1,062,000.

J. Capital Lease

On December 5, 1997, we entered into a fifteen-year lease, expiring on April 30, 2013, of office space from an entity controlled by members of the Chairman's family. On September 15, 2008, the Company modified and extended its lease with M4E, LLC, the Company’s landlord at 401 Theodore Fremd Ave, Rye, NY. The lease term was extended to December 31, 2023, and the base rental was established at $18 per square foot, or $1,080,000, for 2009, an increase from $14.83 per square foot for 2008. From January 1, 2010 through December 31, 2023, the base rental will be determined by the change in the consumer price index for the New York Metropolitan Area for November of the immediate prior year with the base period as November 2008 for the New York Metropolitan Area. As a result of the lease term's extension, the present value of net obligations increased by approximately $3.0 million.

Future minimum lease payments for this capitalized lease at September 30, 2008 are as follows:

		(In thousands)
Remainder of 2008	$	219
2009		1,080
2010		1,080
2011		1,080
2012		1,080
2013		1,080
Thereafter		10,800
Total minimum obligations		16,419
Interest		11,119
Present value of net obligations	$	5,300

Future minimum lease payments have not been reduced by related minimum future sublease rentals of approximately $1,775,000, which are due from an affiliated entity.

K. Goodwill and Identifiable Intangible Assets

In accordance with FAS 142 “Accounting for Goodwill and Other Intangible Assets,” we assess the recoverability of goodwill and other intangible assets at least annually, or more often should events warrant, using a present value cash flow method. There was no impairment charge recorded for the three or nine months ended September 30, 2008. There was an impairment charge of $56,000 recorded for the nine months ended September 30, 2007 as a result of the voluntary deregistration of an inactive broker dealer subsidiary. At September 30, 2008, $3.5 million of goodwill is reflected on our Condensed Consolidated Statement of Financial Condition related to our 92%-owned subsidiary, Gabelli Securities, Inc.

On March 10, 2008, the Enterprise Mergers and Acquisitions Fund's (the "Fund") Board of Directors, subsequent to obtaining shareholder approval, approved the assignment of the advisory contract to Gabelli Funds, LLC (the "Adviser") as the investment adviser to the Fund. GAMCO Asset Management, Inc. had been the sub-adviser to the Fund. On July 8, 2008, the Fund was renamed the Gabelli Enterprise Merger and Acquisitions Fund. The liability of the Company for the assignment of the advisory contract is calculated based upon assets under management ("AUM") on the six-month anniversary date subject to certain minimums. As a result of becoming the adviser to the rebranded Gabelli Enterprise Mergers and Acquisitions Fund, the Company maintains an identifiable intangible asset within other assets on the Condensed Consolidated Statement of Financial Condition of approximately $3.3 million at September 30, 2008. The investment advisory agreement is subject to annual renewal by the Fund's Board of Directors, and the Company does not expect to incur additional expense as a result, which is consistent with other investment advisory agreements entered into by GAMCO. The Company does not anticipate canceling the investment advisory agreement before the end of the current fiscal year.

L. Other Matters

We indemnify the clearing brokers for our affiliated broker-dealer for losses they may sustain from the customer accounts that trade on margin introduced by our broker-dealer subsidiary. At September 30, 2008, the total amount of customer balances subject to indemnification (i.e. unsecured margin debits) was immaterial. The Company also has entered into arrangements with various other third parties many of which provide for indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of our obligations under the agreements. The Company has had no claims or payments pursuant to these or prior agreements, and we believe the likelihood of a claim being made is remote. Utilizing the methodology in the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, our estimate of the value of such agreements is de minimis, and therefore an accrual has not been made in the condensed consolidated financial statements.

M. Subsequent Events

From October 1, 2008 through November 6, 2008, we repurchased 65,000 shares of our Class A Common Stock, under the Stock Repurchase Program, at an average investment of $30.04 per share.

On October 2, 2008, the Company issued and sold $60,000,000 principal amount of a convertible promissory note due 2018 (the "Note") to Cascade, pursuant to a Note Purchase Agreement (the "Purchase Agreement"). The Note bears interest at a rate of 6.5% per annum and is convertible into shares of the Company's Class A Common Stock at an initial conversion price of $70 per share. The Company is required to repurchase the Note at the request of the holder on specified dates and after certain circumstances involving a Change of Control or Fundamental Change and is subject to an escrow agreement (each as defined in the Note). Cascade is the holder of several convertible promissory notes due August 14, 2011 ("2011 Notes") which collectively have an aggregate principal amount of $40 million. The Company granted Cascade certain demand registration rights and piggyback registration rights with respect to the shares of Class A Common Stock issuable upon conversion of the 2011 Notes, pursuant to a Registration Rights Agreement, dated as of August 14, 2001, between the Company and Cascade. On October 2, 2008, in connection the issuance and sale of the Note, the Company entered into a First Amendment to the Registration Rights Agreement (the "First Amendment to Registration Rights Agreement"), granting Cascade similar rights with respect to the shares of Class A Common Stock issuable upon conversion of the Note. The proceeds from the sale of the Note are being held in an escrow account established pursuant to an Escrow Agreement by and among the Company, Cascade and JP Morgan Chase Bank, National Association, as Escrow Agent (the "Escrow Agreement"). The Escrow Agreement provides for the release to the Company of a pro rata portion of the escrowed funds upon conversion of the Note, based upon the principal amount of the Note that is converted into Class A Common Stock. Cascade has the right to claim the escrowed funds upon a payment default by the Company under the Note.

On October 31, 2008, the Company filed an information statement with the SEC for the spin-off of Teton Advisors, Inc. (“Teton”), an investment advisory subsidiary. The Company anticipates completing the spin-off late in the fourth quarter of 2008. The Company’s shareholders are expected to receive approximately 14 shares for each 1,000 GBL shares they hold.

On November 7, 2008, our Board of Directors declared a special dividend of $0.90 per share to all of its Class A and Class B shareholders, payable on December 23, 2008 to shareholders of record on December 9, 2008 and a quarterly dividend of $0.03 per share to all of its Class A and Class B shareholders, payable on December 30, 2008 to shareholders of record on December 16, 2008.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)

Overview

GAMCO through the Gabelli brand, well known for its Private Market Value (PMV) with a CatalystTM investment approach, is a widely-recognized provider of investment advisory services to mutual funds, institutional and high net worth investors, and investment partnerships, principally in the United States. Through Gabelli & Company, Inc., we provide institutional research and brokerage services to institutional clients and investment partnerships and mutual fund distribution. We generally manage assets on a discretionary basis and invest in a variety of U.S. and international securities through various investment styles. Our revenues are based primarily on the firm’s levels of assets under management and fees associated with our various investment products.

Since 1977, we have been identified with and have enhanced the “value” style approach to investing. Our investment objective is to earn a superior risk-adjusted return for our clients over the long-term through our proprietary fundamental research. In addition to our value portfolios, we offer our clients a broad array of investment strategies that include global, growth, international and convertible products. We also offer a series of investment partnership (performance fee-based) vehicles that provide a series of long-short investment opportunities in market and sector specific opportunities, including offerings of non-market correlated investments in merger arbitrage, as well as fixed income strategies.

Our revenues are highly correlated to the level of assets under management and fees associated with our various investment products, rather than our own corporate assets. Assets under management, which are directly influenced by the level and changes of the overall equity markets, can also fluctuate through acquisitions, the creation of new products, the addition of new accounts or the loss of existing accounts. Since various equity products have different fees, changes in our business mix may also affect revenues. At times, the performance of our equity products may differ markedly from popular market indices, and this can also impact our revenues. General stock market trends will have the greatest impact on our level of assets under management and hence, revenues.

At the close of the third quarter, global equity markets reflected a general lack of liquidity, concerns relating to the worldwide financial system, and a looming recession. The further erosion of equity markets at the beginning of the fourth quarter impacts the value of our client portfolios as well as investment in our proprietary funds and will translate directly into our fourth quarter results.

We conduct our investment advisory business principally through: GAMCO Asset Management Inc. (Separate Accounts), Gabelli Funds, LLC (Mutual Funds) and Gabelli Securities, Inc. (Investment Partnerships). We also act as an underwriter, are a distributor of our open-end mutual funds and provide institutional research through Gabelli & Company, Inc., our broker-dealer subsidiary.

Assets Under Management (AUM) were $25.6 billion as of September 30, 2008, 9.7% lower than June 30, 2008 AUM of $28.3 billion and 19.1% below September 30, 2007 AUM of $31.6 billion. Equity AUM were $24.6 billion on September 30, 2008, 9.6% less than June 30, 2008 equity assets of $27.2 billion and 19.6% below the $30.6 billion on September 30, 2007.

Our open-end equity fund AUM were $8.4 billion on September 30, 2008, 11.2% less than $9.5 million on June 30, 2008 and 14.6% below $9.9 million on September 30, 2007. The reclassification of the Enterprise Mergers and Acquisitions Fund from institutional sub-advisory to mutual fund advisory in March 2008 partially softened the decline in mutual funds AUM from the prior year level.

-	Our closed-end equity funds had AUM of $4.9 billion on September 30, 2008, down 14.6% from $5.7 billion on June 30, 2008 and 24.4% under the $6.4 billion on September 30, 2007.

Our institutional and private wealth management business ended the quarter with $10.9 billion in separately managed accounts, 5.8% below June 30, 2008 of $11.6 billion and 20.6% lower than the $13.8 billion on September 30, 2007. On a pro-forma basis, AUM were 16.1% lower than the adjusted $13.0 million AUM on September 30, 2007.

-	Our Investment Partnerships AUM were $340 million on September 30, 2008 versus $354 million on June 30, 2008 and $491 million on September 30, 2007.

-	Fixed income AUM declined 12.4% to $1.0 billion on September 30, 2008, versus the $1.2 billion on June 30, 2008 and 3.8% below September 30, 2007 AUM.

We receive incentive fees for certain institutional client assets, preferred issues for our closed-end funds, common shares of the Gabelli Global Deal Fund (NYSE: GDL) and investment partnership assets. As of September 30, 2008, incentive and fulcrum fee assets were $3.1 billion, down 2.3% from the $3.2 billion on June 30, 2008 and 15.4% below the $3.7 billion on September 30, 2007.

The Company reported Assets Under Management as follows:

Table I:
Mutual Funds:		September 30, 2008		September 30, 2007	% Inc.(Dec.)		Adj. % Inc. (Dec.) (a)
Open-end	$	8,421	$	9,866	(14.6	)	(20.6	)
Closed-end		4,869		6,443	(24.4	)	(24.4	)
Fixed Income		1,015		1,048	(3.1	)	(3.1	)
Total Mutual Funds		14,305		17,357	(17.6	)	(20.9	)
Institutional & PWM:
Equities: direct		8,964		11,266	(20.6	)	(20.6	)
Equities: sub-advisory		1,964		2,494	(21.3	)	11.8
Fixed Income		19		27	(29.6	)	(29.6	)
Total Institutional & PWM		10,947		13,787	(20.6	)	(16.1	)
Investment Partnerships		340		491	(30.8	)	(30.8	)
Total Assets Under Management	$	25,592	$	31,635	(19.1	)	(19.1	)

Equities	$	24,558	$	30,560	(19.6	)	(19.6	)
Fixed Income		1,034		1,075	(3.8	)	(3.8	)
Total Assets Under Management	$	25,592	$	31,635	(19.1	)	(19.1	)

Table II:

Assets Under Management By Quarter (millions)