Our firm has long held the belief that generating returns for our stakeholders, while important, is not the only factor in measuring our corporate success.  The importance of the way we and others conduct business is a key facet of our principles.  As evidence of this, we have been involved in the field of responsible investing since 1987.  In our program of corporate giving, our shareholder designated charitable contribution program, GAMCO shareholders select which organizations will be recipients of charitable grants.  This year, the majority of our shareholders registered their shares and were eligible to designate a 501(c)(3) organization.  With this year’s $4.9 million distribution, we have donated more than $22 million to over 150 charities across the United States since the inception of this program in 2013 which brings the total charitable contributions since our IPO to $47 million.  On November 6, 2018, the Board declared an additional $0.20 per share shareholder designated charitable contribution to registered shareholders of record as of December 31, 2018.

 

-

On August 21, 2018, we announced that Ian Lapey joined us as portfolio manager for the newly registered Gabelli Global Financial Services Fund.  The Fund launched on October 1, 2018.  Ian was a Partner, Research Analyst, and Portfolio Manager at Third Avenue Management, after which he joined Moerus Capital Management LLC.  In 2009 he was appointed Co-Manager of the firm’s flagship Third Avenue Value Fund, and was subsequently named sole Portfolio Manager of that fund in 2012.

-	We also launched the Gabelli Global Mini Mites Fund.  The fund will invest on a global basis in equity securities that have a market capitalization of $250 million or less.

-	On August 27, 2018, Trevor, Stewart, Burton & Jacobson (“TSB&J”), an RIA firm, agreed to assign their private wealth clients to GAMCO Asset Management.  Carl Kempner, Jr. and Melody Bryant joined GAMCO to manage the portfolios for the former TSB&J clients.

-	On September 28, 2018, Fitch Ratings gave the Gabelli U.S. Treasury Fund its highest rating, AAAmmf.

 

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Table V
GAMCO INVESTORS, INC.
UNAUDITED QUARTERLY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
		2018																2017
		1st				2nd				3rd				Year				1st				2nd				3rd				4th
		Quarter				Quarter				Quarter				to Date				Quarter				Quarter				Quarter				Quarter				Full Year
Income Statement Data:
Revenues		$	87,497			$	87,193			$	85,788			$	260,478			$	85,917			$	87,600			$	88,341			$	98,666			$	360,524
Expenses			41,607				44,338				32,639				118,584				41,310				45,584				60,013				54,931				201,838
Operating income before
management fee			45,890				42,855				53,149				141,894				44,607				42,016				28,328				43,735				158,686
Investment income			(4,855	)			2,111				(3,797	)			(6,541	)			509				537				3,586				(2,467	)			2,165
Interest expense			(1,200	)			(922	)			(759	)			(2,881	)			(2,832	)			(2,749	)			(2,688	)			(1,891	)			(10,160	)
Shareholder-designated contribution			-				(176	)			(708	)			(884	)			-				-				(3,857	)			(280	)			(4,137	)
Other income/(expense), net			(6,055	)			1,013				(5,264	)			(10,306	)			(2,323	)			(2,212	)			(2,959	)			(4,638	)			(12,132	)
Income before management
fee and income taxes			39,835				43,868				47,885				131,588				42,284				39,804				25,369				39,097				146,554
Management fee expense			4,634				1,482				1,449				7,565				2,164				2,356				4,935				4,211				13,666
Income before income taxes			35,201				42,386				46,436				124,023				40,120				37,448				20,434				34,886				132,888
Income tax expense			7,940				10,804				11,420				30,164				15,300				14,554				3,834				21,391				55,079
Net income attributable to
GAMCO Investors, Inc.		$	27,261			$	31,582			$	35,016			$	93,859			$	24,820			$	22,894			$	16,600			$	13,495			$	77,809
Net income per share
attributable to GAMCO
Investors, Inc.:
Basic		$	0.94			$	1.10			$	1.22			$	3.26			$	0.86			$	0.79			$	0.57			$	0.46			$	2.68
Diluted		$	0.94			$	1.10			$	1.22			$	3.26			$	0.82			$	0.76			$	0.55			$	0.46			$	2.60
Weighted average shares outstanding:
Basic			28,916				28,777				28,677				28,789				28,970				28,896				28,926				29,103				28,980
Diluted			28,916				28,819				28,739				28,824				31,160				31,100				31,173				30,336				30,947
Reconciliation of non-GAAP
financial measures to GAAP:
Operating income before
management fee			45,890				42,855				53,149				141,894				44,607				42,016				28,328				43,735				158,686
Deduct: management fee expense			4,634				1,482				1,449				7,565				2,164				2,356				4,935				4,211				13,666
Operating income		$	41,256			$	41,373			$	51,700			$	134,329			$	42,443			$	39,660			$	23,393			$	39,524			$	145,020
Operating margin before
management fee			52.4	%			49.1	%			62.0	%			54.5	%			51.9	%			48.0	%			32.1	%			44.3	%			44.0	%
Operating margin after
management fee			47.2	%			47.4	%			60.3	%			51.6	%			49.4	%			45.3	%			26.5	%			40.1	%			40.2	%
Notes on Non-GAAP Financial Measures:
Operating income before management fee 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.

Table VI
GAMCO INVESTORS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
		September 30,				December 31,
		2018				2017
ASSETS
Cash and cash equivalents		$	34,334			$	17,821
Investments			29,704				36,790
Receivable from brokers			2,654				1,578
Other receivables			30,616				45,621
Deferred tax asset and income tax receivable			11,532				15,615
Other assets			9,617				10,861
Total assets		$	118,457			$	128,286
LIABILITIES AND EQUITY
Payable to brokers		$	-			$	14,926
Income taxes payable and deferred tax liabilities			3,555				3,128
Compensation payable (a)			70,385				82,907
Accrued expenses and other liabilities			32,545				34,454
Sub-total			106,485				135,415
5.875% Senior notes (due June 1, 2021)			24,162				24,144
4% PIK note (due November 30, 2020)			-				50,000
1.6% AC Note (due February 28, 2018)			-				15,000
Total debt			24,162				89,144
Total liabilities			130,647				224,559
GAMCO Investors, Inc.'s stockholders' deficit			(12,190	)			(96,273	)
Total liabilities and equity		$	118,457			$	128,286
(a) Excludes $21.1 million and $59.0 million of DCCA expense that is not yet recorded under GAAP as of
September 30, 2018 and December 31, 2017, respectively.