GAMCO Investors, Inc. Reports Second Quarter Results

GAMCO Investors, Inc. (GAMCO) (NYSE: GBL) today announced second quarter 2012 earnings of $15.1 million or $0.57 per fully diluted share versus $20.6 million or $0.77 per fully diluted share in the second quarter 2011.

Revenues were $81.0 million in the second quarter of 2012, down $4.1 million, or 4.8%, from $85.1 million in the prior year quarter. Included in revenues were incentive fees of $1.1 million for the second quarter of 2012, down from the $3.3 million included in the second quarter of 2011. Operating income before management fee was $33.0 million, a 3.3% decrease from the record $34.1 million in the prior year period as operating margin before management fee expands to 40.7% from 40.1%.

For the six months ended June 30, 2012, earnings were $38.9 million or $1.47 per fully diluted share versus $38.3 million or $1.42 per fully diluted share in 2011. Included in the first half of 2011 was $5.6 million, or $0.12 per diluted share, of one-time costs directly related to the launch of a new closed-end fund.
                       
                                     
Financial Highlights Second Quarter Year-to-date
($'s in 000's except AUM and per share data) 2012       2011

%
2012       2011

%
 
AUM (in millions) $ 35,662 $ 36,137 (1.3%) $ 35,662 $ 36,137 (1.3%)
Revenues 81,024 85,081 (4.8) 162,773 161,986 0.5
Operating income:
before management fee 32,982 34,123 (3.3) 64,178 57,996 10.7
after management fee 30,367 30,497 (0.4) 57,379 51,257 11.9
Operating margin:
before management fee 40.7% 40.1% 39.4% 35.8%
after management fee 37.5% 35.8% 35.3% 31.6%
Other income/(expense), net (6,818) 2,127 n/m 3,892 9,936 n/m
Net income attributable to GAMCO 15,105 20,647 (26.8) 38,941 38,290 1.7
Net income attributable to GAMCO per share $ 0.57 $ 0.77 (26.0%) $ 1.47 $ 1.42 3.5%
Shares outstanding at June 30         26,631       26,790               26,631       26,790          
 
 

Shareholders’ book value was $426.7 million or $16.02 per share at June 30, 2012. We ended the quarter with cash and investments of approximately $735.8 million and $265.6 million (face value of $285.3 million) of debt. On July 9, 2012, $55.8 million of our own liquidity was used to repurchase $64.1 million aggregate principal of the 0% Subordinated Debentures due 2015.

Assets under Management

AUM were $35.7 billion as of June 30, 2012, a decrease of 1.3% from AUM of $36.1 billion at June 30, 2011 and down 2.8% from the March 31, 2012 AUM of $36.7 billion. During the second quarter of 2012, we had net cash flows of $111 million versus net cash flows of $355 million in the first quarter of 2012 and $786 million in the second quarter of 2011. Highlights are as follows:
  • Our open-end equity funds’ AUM were $12.5 billion on June 30, 2012, 3.2% below the $12.9 billion on June 30, 2011 and 3.8% lower than the $13.0 billion on March 31, 2012. Net outflows for our open-end equity funds were $194 million during the second quarter of 2012 versus net outflows of $135 million for the first quarter of 2012 and net inflows of $559 million during the second quarter of 2011.
  • Our closed-end funds had AUM of $5.9 billion on June 30, 2012, 6.4% lower than the $6.3 billion on June 30, 2011 and 3.4% lower than the $6.1 billion on March 31, 2012. Net additions to AUM from at-the-market offerings added $105 million in the second quarter of 2012, while distributions from all closed-end funds, net of reinvestments, reduced AUM by $109 million.
  • Our institutional and private wealth management business ended the quarter with $14.5 billion in AUM, declining 1.4% from $14.7 billion on June 30, 2011 and 3.3% below the March 31, 2012 level of $15.0 billion. Net cash flows, which encompass new and closed accounts as well as additional investments or withdrawals from existing accounts, totaled $28 million in the second quarter of 2012.
  • Our investment partnerships’ AUM increased $172 million to $781 million on June 30, 2012 from $609 million on June 30, 2011 and $594 million on March 31, 2012. Net cash inflows in the second quarter of 2012 were $192 million.
  • The GAMCO International SICAV, our Luxembourg based UCITS fund which has two sub-funds, the GAMCO Strategic Value and the GAMCO Merger Arbitrage, totaled $126 million in AUM at June 30, 2012, with $9 million in net cash inflows offset slightly by $1 million in market depreciation, and is up 6.8% from $118 million at March 31, 2012.
  • AUM in The Gabelli U.S. Treasury Money Market Fund (“GUSTO”), our 100% U.S. Treasury money market fund, were $1.9 billion at June 30, 2012, increasing 15.2% from the $1.6 billion at June 30, 2011 and unchanged from the $1.9 billion at March 31, 2012.
  • In addition to management fees, we earn incentive fees for certain institutional client assets, assets attributable to preferred issues for our closed-end funds, our GDL Fund (NYSE: GDL) and investment partnership assets. As of June 30, 2012, assets with incentive based fees were $3.9 billion, 2.6% higher than the $3.8 billion on June 30, 2011 and 5.4% above the $3.7 billion on March 31, 2012. The majority of these assets have calendar year-end measurement periods; therefore, our incentive fees are primarily recognized in the fourth quarter when the uncertainty is removed at the end of the annual measurement period.

For the Second quarter

Revenues

Investment advisory and incentive fees for the second quarter ended June 30, 2012 were $67.2 million, a decline of 2.9% from the $69.3 million reported in the 2011 period:
  • Open-end fund revenues were $30.6 million versus $30.8 million in the second quarter 2011, a decrease of 0.6%. Average AUM for open-end equity funds fell 0.6% from the prior year quarter whereas average AUM for all open-end funds were 2.1% higher at $14.4 billion in the 2012 quarter versus $14.1 billion in the prior year quarter due to a 15.2% increase in the Gabelli U.S. Treasury money market fund.
  • Our closed-end fund revenues declined 7.9% to $11.7 million from $12.7 million in the second quarter 2011. Average closed-end fund AUM, excluding certain closed-end fund preferred share assets that generate annual performance based fees, fell 7.9% from the prior year quarter.
  • Institutional and private wealth management account revenues, excluding incentive fees, which are generally based upon beginning of quarter AUM, increased 3.7% to $22.3 million in the second quarter 2012 from $21.5 million in second quarter 2011. During the second quarter 2012, we earned $1.1 million in incentive fees, a decrease of $2.2 million from the $3.3 million recognized in the second quarter 2011.
  • Investment partnership gross fee income for the second quarter 2012 was $1.5 million, an increase of 50.0% from $1.0 million in the second quarter 2011.

Revenues from the distribution of our open-end funds and other income were $11.0 million for the second quarter 2012, a decrease of $0.6 million or 5.0% from the prior year quarter of $11.6 million, which was largely the result of lower average AUM in open-end equity funds.

Our institutional research services generated revenues of $2.8 million in the second quarter 2012, versus $4.2 million in the second quarter 2011 traceable both to lower trading volume and revenue per trade.

Operating Income and Margin

Operating income, which is net of management fee expense, decreased $0.1 million, or 0.4%, to $30.4 million in the 2012 second quarter versus $30.5 million in the prior year period. The year over year decrease in operating income primarily results from lower revenues partially offset by lower compensation and non-compensation expenses. Operating income before management fee was $33.0 million in the second quarter 2012, versus $34.1 million in the second quarter 2011. For the second quarter 2012, the operating margin before management fee was 40.7% versus 40.1% in the second quarter of 2011. After management fee the operating margin was 37.5% in the 2012 second quarter versus 35.8% in the prior year period. The quarter comparison benefited from a combination of reimbursements received in the 2012 period for previously incurred legal expenses and one-time accruals for client service matters in 2011 totaling $1.7 million. Management believes evaluating operating income before management fee is an important measure in analyzing the Company’s operating results. Further information regarding Non-GAAP measures is included in Notes on Non-GAAP Financial Measures and Table VII included elsewhere herein.

Other Income / (Expense)

Other income/(expense), net, was an expense of $6.8 million ($0.14 per diluted share net of management fee and tax expense) in the second quarter of 2012 versus income of $2.1 million ($0.04 per diluted share, net of management fee and tax expense) in the second quarter of 2011. Mark to market losses, largely unrealized, from investments in our mutual funds as well as from proprietary capital in our alternative products and proprietary accounts were $2.4 million versus gains of $5.5 million, largely unrealized, in the 2011 second quarter. Interest expense was $4.4 million in the 2012 second quarter, $1.0 million higher than the prior year quarter due to an increase in total debt outstanding.

Income Taxes

The effective tax rate for the quarter ended June 30, 2012 was 36.9% compared to the 2011 quarter effective tax rate of 36.6% and full year 2011 effective tax rate of 36.9%.

For the Six Months

Revenues

Investment advisory and incentive fees for the second quarter ended June 30, 2012 were $135.0 million, an increase of 2.1% from the $132.2 million reported in the 2011 period:
  • Open-end fund revenues were $62.1 million versus $59.2 million in the first half of 2011, an increase of 4.9%. Average AUM for open-end equity funds rose 4.3% from the prior year six months. Average AUM for all open-end funds were 6.6% higher at $14.6 billion in the 2012 period versus $13.7 billion in the prior year six months.
  • Our closed-end fund revenues declined 1.6% to $24.0 million from $24.4 million in the six months ended June 30, 2011. Average closed-end fund AUM, excluding certain closed-end fund preferred share assets that generate annual performance based fees, fell 2.0% from the prior year period. The asset decline resulted from the distributions, net of reinvestments of $217 million, offset by positive market performance and by $147 million of inflows from at-the-market offerings of the GAMCO Global Gold, Natural Resources & Income Trust by Gabelli (NYSE: GGN).
  • Institutional and private wealth management account revenues, excluding incentive fees, which are generally based upon beginning of quarter AUM, increased 3.2% to $42.5 million in the first half of 2012 from $41.2 million in the first half of 2011. During the first half of 2012, we earned $3.6 million in incentive fees, a decrease of $1.9 million from $5.5 million earned in the first half of 2011.
  • Investment partnership revenues for the six months ended June 30, 2012 were $2.7 million, an increase of 42.1% from $1.9 million in the prior year period.

Revenues from the distribution of our open-end funds and other income were $22.6 million for the six months ended June 30, 2012, an increase of $0.7 million or 3.2% from the prior year period of $21.9 million and were largely driven by higher average AUM in open-end equity funds.

Our institutional research services generated revenues of $5.2 million in the first half of 2012, versus $7.9 million in the prior year period principally due to lower trading volume and a decline in average commission rates.

Operating Income and Margin

Operating income, which is net of management fee expense, increased $6.1 million, or 11.9%, to $57.4 million in the 2012 first half versus $51.3 million in the prior year period. The year over year increase in operating income primarily results from $5.6 million, or $0.12 per diluted share, of one-time costs directly related to the launch of a new closed-end fund during the first half of 2011 as well as a reduction in non-compensation operating expenses and a decrease in mutual fund distribution costs. Operating margin was 35.3% in the 2012 first half versus 31.6% in the prior year period (34.7% excluding the one-time costs previously discussed). Operating income before management fee was $64.2 million in the six months ended June 30, 2012, versus $58.0 million in 2011. For the first half of 2012, the operating margin before management fee was 39.4% versus 35.8% in the first half of 2011 (39.2% excluding the one-time costs previously discussed). Management believes evaluating operating income before management fee is an important measure in analyzing the Company’s operating results. Further information regarding Non-GAAP measures is included in Notes on Non-GAAP Financial Measures and Table VII included elsewhere herein.

Other Income / (Expense)

Other income/(expense), net, was $3.9 million or $0.08 per diluted share net of management fee and tax expense in the first half of 2012 versus $9.9 million or $0.17 per diluted share, net of management fee and tax expense in the first half of 2011. Interest expense was $8.8 million in the 2012 period, $2.5 million higher than the prior year period due to an increase in total debt outstanding.

Income Taxes

The effective tax rate for the six months ended June 30, 2012 was 36.6% compared to the 2011 period effective tax rate of 36.3% and full year 2011 effective tax rate of 36.9%.

Business and Investment Highlights
  • On May 21, 2012, GAMCO commenced a tender offer (the “Offer”) to purchase up to $50 million in aggregate principal amount (“face value”) of its 0% Subordinated Debentures due 2015 (“Debentures”). $64.1 million of the $86.3 million face value outstanding was purchased at $870 per $1,000 principal amount, for a total outlay of $55.8 million.
  • In the May 28, 2012 issue of Pensions & Investments (“P & I”) Report on the Largest Money Managers-Worldwide Institutional Assets Under Management GAMCO was ranked #182 for the year ended December 31, 2011 and #185 for the year ended December 31, 2010.
  • GAMCO Asset Management was selected as one of eight subadvisers in the newly launched Neuberger Berman Absolute Return Multi-Manager Fund. GAMCO was selected for its merger arbitrage strategy.
  • During the second quarter of 2012, Gabelli & Company, Inc. hosted its 6th annual Omaha research trip in conjunction with the Berkshire Hathaway Annual Meeting.
  • Several members of Gabelli & Company, Inc.’s institutional research team were recognized by the Wall Street Journal “Best on the Street” survey, including Damian Witkowski (for the second consecutive year), for his coverage of beverages, Brett Harriss for the entertainment industry and Hendi Susanto for technology.
  • The Financial Times also recognized the outstanding stock performance of recommendations by Gabelli & Company, Inc. analysts James Foung in the aerospace and pump, valve & motor industries, Amit Kapoor in gaming and lodging and Damian Witkowski for his coverage of beverages.
  • Gabelli Securities, Inc., the advisor to our investment partnerships group received funding for a separate account mandate by a large corporate plan sponsor in our merger arbitrage strategy significantly increasing investment partnership AUMs.
  • Available on the “In the News” and “On the Air” segments of our website are recent interviews with Portfolio Managers including Mario Gabelli, Barbara Marcin, Howard Ward and Caesar Bryan among others as they address world markets, industries and specific stocks. Also available is Howard Ward’s “Top Ten Reasons to Own Stocks” (also available in six languages in our 2011 Annual Report). Complete articles and interviews are on the Gabelli website at www.gabelli.com/inthenews.html.

Other Financial Highlights

Statement of Financial Condition

We ended the quarter with approximately $735.8 million in cash and investments versus $746.2 million at March 31, 2012 and $722.7 million at June 30, 2011. This included approximately $94.4 million in available for sale securities at June 30, 2012 of which $59.6 million was in Company sponsored registered investment companies.

Subsequent to the end of the quarter we completed the purchase of $64.1 million face value of Debentures (accreted value of $49.5 million) for a total cash consideration of $55.8 million.

We expect to record a loss on extinguishment of debt, net of management fees and tax benefit, of approximately $2.1 million or $0.08 per fully diluted share in the third quarter of 2012 and a reduction in outstanding debt of $49.5 million. Interest expense is expected to be reduced by $1.8 million from $9.0 million in the second half of 2012 to $7.2 million. Interest expense is expected to be reduced annually by $4.0 million in 2013, $4.3 million in 2014 and $4.6 million in 2015.

With the renewal of our universal shelf registration in May 2012, we continue to have the flexibility of issuing any combination of senior and subordinated debt securities, convertible debt securities and common and preferred securities of up to a total amount of $500 million.

Shareholders’ book value was $426.7 million or $16.02 per share on June 30, 2012 compared to $404.0 million or $15.10 per share on December 31, 2011 and $405.1 million or $15.12 per share on June 30, 2011.

Shareholder Compensation

Dividends

On May 1, 2012 GAMCO’s Board of Directors approved a special dividend of $0.25 per share to all of its Class A and Class B shareholders in addition to its quarterly dividend of $0.04 per share.

During 2012, we paid $8.8 million, or $0.33 per share, in dividends, and since our IPO, we have paid cumulative dividends of $352.8 million, or $13.75 per share.

GAMCO announced on August 7, 2012 that its Board of Directors increased its quarterly dividend by 25% to $0.05 per share to all of its Class A and Class B shareholders in addition to declaring a special dividend of $0.25 per share payable on September 25, 2012 to its Class A and Class B shareholders of record on September 11, 2012.

Share Repurchase

Through June 30, 2012, we repurchased 228,102 shares at an average price of $44.34 per share for an investment of $10.1 million. Since our IPO, we have repurchased a total of 7.6 million shares at an average price of $40.74 per share for an investment of $308.5 million. There currently remain 345,265 shares available to be repurchased under our existing buyback plan.

Since our NYSE IPO of six million shares of GBL at a price of $17.50 per share in 1999, we have returned $661 million to our shareholders through dividends and stock repurchases.

Fully diluted shares outstanding for the second quarter 2012 were 26.4 million, 1.1% lower than 26.7 million in the second quarter 2011. Diluted shares outstanding were lower in the second quarter 2012 due to shares purchased under our Stock Repurchase Program.

At June 30, 2012, we had 373,500 RSAs outstanding.

NOTES ON NON-GAAP FINANCIAL MEASURES
                             

A.

Stockholders’ book value per share:
(in millions, except per share data)   6/30/2012   12/31/2011   6/30/2011
Stockholders' book value $ 426.66 $ 403.97 $ 405.13
Shares outstanding   26.63   26.75   26.79
Stockholders' book value per share $ 16.02 $ 15.10 $ 15.12
 
 
   
 
B.

Operating income before management fee expense is used by management to evaluate its business operations. We believe this measure is useful in illustrating the operating results of GAMCO Investors, Inc. (the “Company”) as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company’s proprietary investment portfolio and interest expense. The reconciliation of operating income before management fee expense to operating income is provided in Table VII.
 
 
C. Operating income before management fee expense per share and other income, net per share are used by management for purposes of evaluating its business operations. We believe this measure is useful in comparing the operating and non-operating results of the Company for the purposes of understanding the composition of net income per fully diluted share. The reconciliation of operating income before management fee expense per share and other income, net per share to net income per fully diluted share, is provided below.
 
            2nd Quarter       YTD June
2012       2011 2012       2011
Operating income before management fee $ 32,982 $ 34,123 $ 64,178 $ 57,996
Management fee expense (3,297 ) (3,413 ) (6,410 ) (5,745 )
Tax expense (10,949 ) (11,244 ) (21,159 ) (18,984 )
Noncontrolling interest (expense)/income   77     194     185     445  
Operating income (after management fee and taxes)   18,813     19,660     36,794     33,712  
Per fully diluted share $ 0.71   $ 0.73   $ 1.39   $ 1.25  
 
Other income, net $ (6,818 ) $ 2,127 $ 3,892 $ 9,936
Management fee expense 682 (213 ) (389 ) (994 )
Tax expense 2,263 (701 ) (1,283 ) (3,249 )
Noncontrolling interest expense   165     (226 )   (73 )   (1,115 )
Other income, net (after management fee and taxes) $ (3,708 ) $ 987   $ 2,147   $ 4,578  
Per fully diluted share $ (0.14 ) $ 0.04   $ 0.08   $ 0.17  
 
Net income per fully diluted share $ 0.57   $ 0.77   $ 1.47   $ 1.42  
Diluted weighted average shares outstanding   26,426     26,733     26,501     26,872  
 
 
   
D. Launch of new closed-end fund expense, net of management fee and tax benefit, per diluted share:
 
            YTD June
(in thousands, except per share data) 2011
Launch of new closed-end fund expense $ 5,562
Management fee and tax benefit   2,359
Net loss $ 3,203
 
Launch of new closed-end fund expense per share $ 0.12
Diluted weighted average shares outstanding   26,872
 
 

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Our disclosure and analysis in this press release contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in our Form 10-K and other public filings. We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.

           
 
The Company reported Assets Under Management as follows (in millions):
                 
Table I: Fund Flows - 2nd Quarter 2012
Closed-end Fund
Market distributions,
March 31, appreciation/ Net cash net of June 30,
2012 (depreciation) flows reinvestments 2012
Equities:
Open-end Funds $ 12,996 $ (306 ) $ (194 ) $ - $ 12,496
Closed-end Funds 6,067 (203 ) 105 (109 ) 5,860
Institutional & PWM - direct 12,031 (343 ) (33 ) - 11,655
Institutional & PWM - sub-advisory 2,924 (160 ) 24 - 2,788
Investment Partnerships 594 (5 ) 192 - 781
SICAV (a)   118   (1 )   9     -     126
Total Equities   34,730   (1,018 )   103     (109 )   33,706
Fixed Income:
Money-Market Fund 1,922 - (29 ) - 1,893
Institutional & PWM   26   -     37     -     63
Total Fixed Income   1,948   -     8     -     1,956
Total Assets Under Management $ 36,678 $ (1,018 ) $ 111   $ (109 ) $ 35,662
 
 
           
 
The Company reported Assets Under Management as follows (in millions):
                 
Table II: Fund Flows - Six months ended June 30, 2012
Closed-end Fund
Market distributions,
December 31, appreciation/ Net cash net of June 30,
2011 (depreciation) flows reinvestments 2012
Equities:
Open-end Funds $ 12,273 $ 552 $ (329 ) $ - $ 12,496
Closed-end Funds 5,799 133 145 (217 ) 5,860
Institutional & PWM - direct 10,853 540 262 - 11,655
Institutional & PWM - sub-advisory 2,600 92 96 - 2,788
Investment Partnerships 605 10 166 - 781
SICAV (a)   105   1   20     -     126
Total Equities   32,235   1,328   360     (217 )   33,706
Fixed Income:
Money-Market Fund 1,824 - 69 - 1,893
Institutional & PWM   26   -   37     -     63
Total Fixed Income   1,850   -   106     -     1,956
Total Assets Under Management $ 34,085 $ 1,328 $ 466   $ (217 ) $ 35,662
 
 
                 
 
Table III: Assets Under Management
June 30, June 30, %
2011 2012 Inc.(Dec.)
Equities:
Open-end Funds $ 12,912 $ 12,496 (3.2 %)
Closed-end Funds 6,259 5,860 (6.4 )
Institutional & PWM - direct 11,735 11,655 (0.7 )
Institutional & PWM - sub-advisory 2,953 2,788 (5.6 )
Investment Partnerships 609 781 28.2
SICAV (a)   -   126 n/m
Total Equities   34,468   33,706 (2.2 )
Fixed Income:
Money-Market Fund 1,643 1,893 15.2
Institutional & PWM   26   63 142.3
Total Fixed Income   1,669   1,956 17.2
Total Assets Under Management $ 36,137 $ 35,662 (1.3 %)
 
 
                             
 
Table IV: Assets Under Management by Quarter
            % Increase/
(decrease) from
6/11 9/11 12/11 3/12 6/12 6/11 3/12
Equities:
Open-end Funds $ 12,912 $ 11,469 $ 12,273 $ 12,996 $ 12,496 (3.2 %) (3.8 %)
Closed-end Funds 6,259 5,355 5,799 6,067 5,860 (6.4 ) (3.4 )
Institutional & PWM - direct 11,735 9,644 10,853 12,031 11,655 (0.7 ) (3.1 )
Institutional & PWM - sub-advisory 2,953 2,326 2,600 2,924 2,788 (5.6 ) (4.7 )
Investment Partnerships 609 627 605 594 781 28.2 31.5
SICAV (a)   -   -   105   118   126 n/m 6.8
Total Equities   34,468   29,421   32,235   34,730   33,706 (2.2 ) (2.9 )
Fixed Income:
Money-Market Fund 1,643 1,895 1,824 1,922 1,893 15.2 (1.5 )
Institutional & PWM   26   26   26   26   63 142.3 142.3
Total Fixed Income   1,669   1,921   1,850   1,948   1,956 17.2 0.4
Total Assets Under Management $ 36,137 $ 31,342 $ 34,085 $ 36,678 $ 35,662 (1.3 %) (2.8 %)
 
(a) Includes $100 million, $102 million and $101 million of proprietary seed capital at December 31, 2011, March 31, 2012
and June 30, 2012, respectively.
 
 
                     
 
Table V
 
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
For the Three Months Ended June 30,
% Inc.
2012 2011 (Dec.)
 
Investment advisory and incentive fees $ 67,210 $ 69,252 (2.9%)
Distribution fees and other income 11,006 11,588 (5.0)
Institutional research services 2,808 4,241 (33.8)
Total revenues 81,024 85,081 (4.8)
 
Compensation costs 32,921 34,365 (4.2)
Distribution costs 10,012 9,588 4.4
Other operating expenses 5,109 7,005 (27.1)
Total expenses 48,042 50,958 (5.7)
 
Operating income before management fee 32,982 34,123 (3.3)
 
Investment income/(loss) (2,389) 5,530
Interest expense (4,429) (3,403)
Other income/(expense), net (6,818) 2,127
 
Income before management fee and income taxes 26,164 36,250 (27.8)
Management fee expense 2,615 3,626
Income before income taxes 23,549 32,624 (27.8)
Income tax expense 8,686 11,945
Net income 14,863 20,679 (28.1)
Net income/(loss) attributable to noncontrolling interests (242) 32
Net income attributable to GAMCO Investors, Inc. $ 15,105 $ 20,647 (26.8)
 
Net income per share attributable to GAMCO Investors, Inc.:
Basic $ 0.58 $ 0.77 (24.7)
 
Diluted $ 0.57 $ 0.77 (26.0)
 
Weighted average shares outstanding:
Basic 26,258 26,665 (1.5)
 
Diluted 26,426 26,733 (1.1)
 
Actual shares outstanding (a) 26,631 26,790 (0.6%)
 
Notes:
(a) Includes 373,500 and 289,800 of RSAs, respectively.
See GAAP to non-GAAP reconciliation on page 15.
 
 
                 
 
Table VI
 
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
For the Six Months Ended June 30,
% Inc.
2012 2011 (Dec.)
 
Investment advisory and incentive fees $ 134,993 $ 132,163 2.1 %
Distribution fees and other income 22,629 21,933 3.2
Institutional research services   5,151     7,890   (34.7 )
Total revenues 162,773 161,986 0.5
 
Compensation costs 67,475 67,782 (0.5 )
Distribution costs 20,189 23,017 (12.3 )
Other operating expenses   10,931     13,191   (17.1 )
Total expenses 98,595 103,990 (a) (5.2 )
 
Operating income before management fee 64,178 57,996 10.7
 
Investment income 12,725 16,206
Interest expense   (8,833 )   (6,270 )
Other income/(expense), net   3,892     9,936  
 
Income before management fee and income taxes 68,070 67,932 0.2
Management fee expense   6,799     6,739  
Income before income taxes 61,271 61,193 0.1
Income tax expense   22,442     22,233  
Net income 38,829 38,960 (0.3 )
Net income/(loss) attributable to noncontrolling interests   (112 )   670  
Net income attributable to GAMCO Investors, Inc. $ 38,941   $ 38,290   1.7
 
Net income per share attributable to GAMCO Investors, Inc.:
Basic $ 1.48   $ 1.43   3.5
 
Diluted $ 1.47   $ 1.42   3.5
 
Weighted average shares outstanding:
Basic   26,338     26,783   (1.7 )
 
Diluted   26,501     26,872   (1.4 )
 
Actual shares outstanding (b)   26,631     26,790   (0.6 %)
 
Notes:
(a) Includes $0.4 million in compensation, $4.7 million in distribution costs and $0.5 million in other operating
expenses directly related to the launch of a new closed-end fund.
(b) Includes 373,500 and 289,800 of RSAs, respectively.
See GAAP to non-GAAP reconciliation on page 15.
 
 
                                                         
 
Table VII
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
 
2012 2011
1st 2nd YTD 1st 2nd YTD 3rd 4th
Quarter Quarter 2012 Quarter Quarter 2011 Quarter Quarter Full Year
Income Statement Data:
 
Revenues $ 81,749 $ 81,024 $ 162,773 $ 76,905 $ 85,081 $ 161,986 $ 80,151 $ 84,991 $ 327,128
 
Expenses   50,553     48,042     98,595     53,032   (a)   50,958     103,990     48,103     49,471     201,564  
 
Operating income before
management fee 31,196 32,982 64,178 23,873 34,123 57,996 32,048 35,520 125,564
 
Investment income/(loss) 15,114 (2,389 ) 12,725 10,676 5,530 16,206 (14,329 ) 10,268 12,145
Interest expense   (4,404 )   (4,429 )   (8,833 )   (2,867 )   (3,403 )   (6,270 )   (4,418 )   (4,309 )   (14,997 )
Other income/(expense), net 10,710 (6,818 ) 3,892 7,809 2,127 9,936 (18,747 ) 5,959 (2,852 )
 
Income before management
fee and income taxes 41,906 26,164 68,070 31,682 36,250 67,932 13,301 41,479 122,712
Management fee expense   4,184     2,615     6,799     3,113     3,626     6,739     1,387     4,144     12,270  
Income before income taxes 37,722 23,549 61,271 28,569 32,624 61,193 11,914 37,335 110,442
Income tax expense   13,756     8,686     22,442     10,288     11,945     22,233     4,745     13,789     40,767  
Net income 23,966 14,863 38,829 18,281 20,679 38,960 7,169 23,546 69,675
Net income/(loss) attributable
to noncontrolling interests   130     (242 )   (112 )   638     32     670     (530 )   (147 )   (7 )
Net income attributable to
GAMCO Investors, Inc. $ 23,836   $ 15,105   $ 38,941   $ 17,643   $ 20,647   $ 38,290   $ 7,699   $ 23,693   $ 69,682  
 
Net income per share
attributable to GAMCO
Investors, Inc.:
Basic $ 0.90   $ 0.58   $ 1.48   $ 0.66   $ 0.77   $ 1.43   $ 0.29   $ 0.89   $ 2.62  
 
Diluted $ 0.90   $ 0.57   $ 1.47   $ 0.65   $ 0.77   $ 1.42   $ 0.29   $ 0.89   $ 2.61  
 
Weighted average shares outstanding:
Basic   26,415     26,258     26,338     26,901     26,665     26,783     26,496     26,488     26,636  
 
Diluted   26,533     26,426     26,501     27,008     26,733     26,872     26,576     26,584     26,724  
Reconciliation of non-GAAP
financial measures to GAAP:
Operating income before
management fee $ 31,196 $ 32,982 $ 64,178 $ 23,873 $ 34,123 $ 57,996 $ 32,048 $ 35,520 $ 125,564
Deduct: management fee expense   4,184     2,615     6,799     3,113     3,626     6,739     1,387     4,144     12,270  
Operating income $ 27,012   $ 30,367   $ 57,379   $ 20,760   $ 30,497   $ 51,257   $ 30,661   $ 31,376   $ 113,294  
 
Operating margin before
management fee   38.2 %   40.7 %   39.4 %   31.0 %   40.1 %   35.8 %   40.0 %   41.8 %   38.4 %
Operating margin after
management fee   33.0 %   37.5 %   35.3 %   27.0 %   35.8 %   31.6 %   38.3 %   36.9 %   34.6 %
 
(a) Includes $5.6 million in expenses directly related to the launch of a new closed-end fund.
 
 
                     
 
Table VIII
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
 
June 30, December 31, June 30,
2012 2011 2011
 
ASSETS
 
Cash and cash equivalents $ 324,440 (b) $ 276,340 $ 260,839
Investments (a) 411,310 398,440 461,903
Receivable from brokers 41,513 20,913 35,968
Other receivables 32,847 43,424 34,180
Income tax receivable 402 39 238
Other assets   16,218   17,593   17,530
 
Total assets $ 826,730 $ 756,749 $ 810,658
 
LIABILITIES AND EQUITY
 
Payable to brokers $ 20,113 $ 10,770 $ 2,950
Income taxes payable and deferred tax liabilities 12,846 15,296 21,622
Compensation payable 28,985 17,695 29,484
Securities sold short, not yet purchased 7,010 5,488 10,244
Accrued expenses and other liabilities   36,006   30,899   41,224
Sub-total 104,960 80,148 105,524
 
5.5% Senior notes (due May 15, 2013) 99,000 99,000 99,000
5.875% Senior notes (due June 1, 2021) 100,000 100,000 100,000
0% Subordinated Debentures (due December 31, 2015)   66,598 (b)   64,119   61,814
Total debt   265,598   263,119   260,814
Total liabilities 370,558 343,267 366,338
 
Redeemable noncontrolling interests 26,162 6,071 35,519
 
GAMCO Investors, Inc.'s stockholders' equity 426,659 403,972 405,132
Noncontrolling interests   3,351   3,439   3,669
Total equity   430,010   407,411   408,801
 
Total liabilities and equity $ 826,730 $ 756,749 $ 810,658
 
(a) Includes investments in sponsored registered investment companies of $59.6 million, $59.2 million and $64.9 million, respectively.
(b) The 0% Subordinated Debentures due December 31, 2015 have a face value of $86.3 million at June 30, 2012,
$86.3 million at December 31, 2011 and $86.4 million at June 30, 2011. On July 9, 2012, we completed the purchase of $64.1
million face value of Debentures (accreted value of $49.5 million) for a total cash consideration of $55.8 million.
 
 
                   
 
GABELLI/GAMCO FUNDS Gabelli/GAMCO Funds Lipper Rankings as of June 30, 2012
1 Yr - 6/30/11-6/30/12     3 Yrs - 6/30/09-6/30/12     5 Yrs - 6/30/07-6/30/12 10 Yrs - 6/30/02-6/30/12
Percentile

Rank
    Rank / PercentileRank     Rank / PercentileRank     Rank / PercentileRank Rank /
Fund Name         Lipper Category        

Total Funds
        Total Funds         Total Funds         Total Funds
Gabelli Asset; AAA         Multi-Cap Core Funds     48     348/724     14     84/632     12     62/545     9     26/292
Gabelli Value Fund; A         Multi-Cap Core Funds     58     416/724     2     12/632     26     138/545     17     47/292
Gabelli SRI; AAA         Global Small/Mid-Cap Funds     72     63/87     74     58/78     8     5/66     -     -
Gabelli Eq:Eq Inc; AAA         Equity Income Funds     74     218/296     37     90/248     34     71/214     12     12/105
GAMCO Growth; AAA         Large-Cap Core Funds     41     423/1,042     77     720/941     42     335/807     58     315/550
Gabelli Eq:SC Gro; AAA         Small-Cap Core Funds     60     409/681     66     403/613     15     76/519     11     32/300
Gabelli Focus Five Fund;AAA         Small-Cap Core Funds     58     389/681     74     451/613     36     183/519     -     -
GAMCO Gl:Oppty; AAA         Global Large-Cap Growth     76     84/110     57     50/87     55     40/72     32     16/49
GAMCO Gl:Growth; AAA         Global Large-Cap Growth     19     20/110     20     17/87     25     18/72     22     11/49
Gabelli Gold; AAA         Precious Metal Funds     10     7/74     45     27/59     34     17/50     37     13/35
GAMCO Intl Gro; AAA         International Large-Cap Growth     21     45/219     4     8/207     23     40/179     39     46/118
Gabelli Dividend Growth Fund; AAA         Large-Cap Core Funds     64     660/1,042     82     771/941     58     464/807     3     15/550
Gabelli Inv:ABC; AAA         Specialty Diversified Equity Funds     35     16/46     54     17/31     38     10/26     10     1/9
GAMCO Mathers; AAA         Specialty Diversified Equity Funds     71     33/46     72     23/31     71     19/26     30     3/9
Comstock Cap Val; A         Specialty Diversified Equity Funds     81     38/46     91     29/31     86     23/26     70     7/9
GAMCO Gl:Telecom; AAA         Telecommunications Funds     75     30/39     75     26/34     52     14/26     27     5/18
GAMCO Gl:Vertumnus; AAA         Convertible Securities Funds     52     37/71     66     36/54     95     37/38     91     29/31
Gabelli Utilities; AAA         Utility Funds     66     49/74     73     49/67     13     8/62     75     32/42
787:Gabelli Merg&Acq A         Mid-Cap Core Funds     15     45/309     98     275/280     60     137/230     94     150/160
Gabelli Capital Asset Fund         Distributed through Insurance Channel     46     137/295     4     11/282     27     67/247     11     16/147
% of funds in top half               40.0%           35.0%           65.0%           72.2%      
 

Data presented reflects past performance, which is no guarantee of future results. Strong rankings are not indicative of positive fund performance. Absolute performance for some funds was negative for certain periods. Other share classes are available which may have different performance characteristics.
 
Lipper, a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives. Rankings are historical with capital gains and dividends reinvested and do not include the effect of loads. If an expense waiver was in effect, it may have had a material effect on the total return or yield for the period.
 
Relative long-term investment performance remained strong with approximately 40%, 35%, 65% and 72% of firmwide mutual funds in the top half of their Lipper categories on a one-, three-, five-, and ten-year total-return basis, respectively, as of June 30, 2012.
 

Investors should carefully consider the investment objective, risks, charges, and expenses of each fund before investing. Each fund's prospectus contains information about these and other matters and should be read carefully before investing. Each fund’s share price will fluctuate with changes in the market value of the fund’s portfolio securities. Stocks are subject to market, economic and business risks that cause their prices to fluctuate. When you sell fund shares, they may be worth less than what you paid for them. Consequently, you can lose money by investing in a fund. You can obtain a prospectus by calling 800-GABELLI (422-3554), online at www.gabelli.com, or from your financial advisor. Distributed by G.distributors, LLC., One Corporate Center, Rye New York, 10580. Other share classes are available that have different performance characteristics.
 
The inception date for the Gabelli SRI Green Fund was June 1, 2007. The inception date for the Gabelli Focus Five Fund was December 31, 2002.
 
 

Copyright Business Wire 2010

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