Exhibit 99.1
GAMCO Reports Record Full Year 2006
Earnings of $2.38 Per Fully Diluted Share vs. $2.10 Per Share in 2005
- Returned $58 Million to Shareholders in 2006 -
RYE, N.Y.--(BUSINESS WIRE)--Feb. 7, 2007--Our mission statement is
to earn a superior risk-adjusted return for our clients over the long
term. By doing so we will earn a return for all our stakeholders. Our
clients enjoyed a great year in 2006. This investment performance was
the engine for our report of record profits and earnings.
GAMCO Investors, Inc. (GAMCO) (NYSE: GBL) reported record fourth
quarter 2006 earnings of $0.86 per fully diluted share, up 28.4% from
the $0.67 per fully diluted share for 2005 as restated from $0.61
initially reported prior to adjusting for a change in accounting
policy related to the recognition of certain fees. Net income rose
22.1% to $24.6 million for the fourth quarter of 2006 from $20.1
million in 2005. Fourth quarter revenues were $82.5 million versus
$72.5 million in 2005 and $64.8 million as initially reported.
Performance fee revenues of $23.1 million for the fourth quarter 2006
increased 76.8% from $13.1 million in 2005. Total other income, net of
interest expense, was $15.3 million in the fourth quarter 2006, up
from $5.4 million in 2005.
For the year ended December 31, 2006, net income was $68.8 million
compared to $63.5 million in 2005 and fully diluted earnings were
$2.38 per share versus $2.10 per share in 2005 as restated. Total
revenues increased to $261.5 million for the year ended December 31,
2006 from $253.3 million in 2005 as restated. Incentive fees were
$25.5 million for 2006 versus $15.3 million in 2005 as restated. Total
other income, net of interest expense, increased to $56.9 million for
the year ended December 31, 2006 from $15.6 million in 2005.
Assets Under Management - Performance was Terrific
Assets Under Management (AUM) were $28.1 billion as of December
31, 2006, 5.6% higher than September 30, 2006 AUM of $26.6 billion and
4.9% greater than December 31, 2005 AUM of $26.8 billion. Equity
assets under management were a record $27.3 billion on December 31,
2006, 5.6% more than September 30, 2006 equity assets of $25.9 billion
and 5.1% above the $26.0 billion on December 31, 2005.
-- Our closed-end equity funds reached record AUM of $5.8 billion
on December 31, 2006, up 9.0% from $5.3 billion on September
30, 2006 and 14.4% higher than the $5.1 billion on December
31, 2005.
-- Our open-end equity fund AUM were $8.4 billion on December 31,
2006, a 6.3% gain from the $7.9 billion level on both
September 30, 2006 and December 31, 2005.
-- Our institutional and high net worth business had $12.6
billion in separately managed equity accounts under management
on December 31, 2006, 3.5% more than the $12.2 billion on
September 30, 2006, and 1.9% above the $12.4 billion on
December 31, 2005.
-- Our Investment Partnerships AUM were $491 million on December
31, 2006 versus $488 million on September 30, 2006 and $634
million on December 31, 2005.
-- Fixed income AUM, primarily money market mutual funds, totaled
$794 million on December 31, 2006, up 7.7% from the September
30, 2006 AUM of $737 million, and 3.1% lower than AUM of $819
million on December 31, 2005.
Fourth Quarter Revenues
Investment advisory fees for the fourth quarter 2006 were $73.3
million, a 15.6% increase over the $63.4 million in 2005 as restated:
-- Our closed-end funds revenues surged 38.0% to $21.9 million in
the fourth quarter 2006, from $15.9 million in 2005 as
restated, primarily due to management fees on levered assets
and increased average AUM.
-- Open-end mutual funds revenues grew 4.6% to $20.8 million from
$19.9 million in 2005, primarily due to higher average AUM
from solid investment performance.
-- Institutional and high net worth separate accounts revenues
increased 11.1% to $22.3 million from $20.1 million in 2005.
-- Investment Partnership revenues of $8.3 million were ahead of
the $7.5 million in 2005 as restated, primarily due to
increased incentive fees, which were partially offset by a
decrease in AUM.
Commission revenues from our institutional research affiliate,
Gabelli & Company, Inc., were $3.2 million in the fourth quarter 2006,
down 17.5% from the prior year's comparable period. The decrease was
primarily due to a decline in trading volume.
Mutual fund distribution fees and other income were $6.0 million
for the fourth quarter 2006, an increase of $0.8 million, or 16.1%,
from $5.2 million in 2005.
Full Year Revenues
Investment advisory fees for the full year ended December 31, 2006
were $227.0 million, an increase of $6.5 million versus $220.5 million
in 2005 as restated:
-- Revenues from our closed-end funds increased 23.7% to a record
$53.6 million for the full year ended December 31, 2006, up
from $43.4 million in 2005 as restated primarily due to the
management fees earned on levered assets and higher average
AUM.
-- Open-end mutual funds revenues were $80.7 million, up 1.0%
from $79.9 million in 2005.
-- Institutional and high net worth separate accounts revenues
decreased 2.1% to $80.7 million from 2005.
-- Investment Partnership revenues were $12.0 million, a decrease
from $14.8 million in 2005 as restated primarily due to a
decrease in AUM, which was partially offset by higher
performance fees.
Commission revenues from our institutional research affiliate,
Gabelli & Company, Inc., were $12.2 million for the full year ended
December 31, 2006, level with the prior year amount.
Mutual fund distribution fees and other income were $22.3 million
for the full year ended December 31, 2006, an increase of 7.7% from
$20.7 million in 2005. The increase was primarily due to higher
distribution fees of $20.6 million for 2006 versus $19.4 million for
the prior year, principally as a result of an increase in average AUM
due to our increased wholesaling of funds sold through unaffiliated
broker dealers.
Operating Margin
The operating margin before management fee was 43.6% for the
fourth quarter 2006 versus 42.6% in the prior year before a prepayment
of $3.7 million in net distribution expenses and the funding of the
Graham & Dodd, Murray, Greenwald Prize for Value Investing.
For the full year ended December 31, 2006, the operating margin
before management fee was 38.7% versus 38.8% in the prior year. The
operating margin in 2006 is before the inclusion of an $11.9 million
litigation reserve taken during the second quarter 2006 and other
charges in the fourth quarter as described.
Other Income / Expense
Along with our clients, we benefited from the strong equities
market as our investment in our proprietary funds generated solid
returns. Total other income, net of interest expense, was $15.3
million for the fourth quarter 2006 versus $5.4 million in 2005.
Total other income, net of interest expense, rose to $56.9 million
for the full year ended December 31, 2006 from $15.6 million in 2005.
The increase was due to an increase of $10.9 million in interest and
dividend income and $30.8 million in net gain from investments. Of the
$30.8 million in net gain from investments, $13.5 million is due to
the consolidation of certain partnerships and offshore funds in
accordance with our adoption of FIN 46 and EITF 04-5 in 2006, as
described in the notes included herein.
Management fee increased to $4.5 million for the three months
ended December 31, 2006 versus $3.6 million in 2005 and was $12.7
million for the full year ended December 31, 2006 versus $11.4 million
for 2005. The increase is traceable to higher operating income before
management fee, income taxes, and minority interest of $141.0 million
in 2006 versus $113.8 million in 2005.
The effective tax rate for the three months ended December 31,
2006 was approximately 37.7%, slightly above the prior year period's
effective rate of 37.5%. The effective rate for the full year ended
December 31, 2006 was approximately 38.6%, slightly above the prior
year's effective rate of 37.5%.
Change in Accounting Policy
GAMCO voluntarily changed its accounting method to recognize
management fee revenues on closed-end preferred shares and incentive
fee revenues on investment partnerships at the end of the measurement
period, effective January 1, 2006. Prior to the accounting change,
GAMCO recognized these revenues during each interim reporting period.
Under this method, management and incentive fee revenues recognized in
prior interim periods during the measurement period were subject to
possible reversal in subsequent periods during that measurement
period.
The net effect of the change in accounting policy is as follows
(dollars in thousands, except for earnings per share):
2005
-----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenue (1,218) (23) (5,528) 7,738
Operating Income Before Management
Fee (487) (91) (2,553) 3,372
Earnings Per Share ($0.01) ($0.01) ($0.05) $0.06
2006
-----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenue (1,291) (1,138) (887) 5,464
Operating Income Before Management
Fee (941) (435) (282) 1,424
Earnings Per Share ($0.02) ($0.01) $0.00 $0.03
Business Highlights - Our Thirtieth Year!
-- For 2006, the investment results for our GAMCO institutional
and high net worth separate account clients averaged over 20%,
exceeding the 18.8% compound annual return shown by the GAMCO
composite returns since the inception of GAMCO in 1977.
(The GAMCO composite, also started in 1977, consists of fully
discretionary, tax-exempt accounts managed in our absolute return,
research-driven Private Market Value (PMV) with a Catalyst(TM)
investment style for at least one full quarter that meet minimum
account size requirements, and does not track all assets under
management. The minimum account size requirement for inclusion was
$500,000 in 1985; $1.0 million in 1986; and $5.0 million in 1987 and
thereafter. The performance calculations include accounts under
management during the respective periods. As of 12/31/06, the GAMCO
composite included 40 accounts with an aggregate market value of $4.1
billion. A complete list of composites is available upon request. No
two portfolios are identical. Accounts not within this size range and
type may have experienced different results.)
-- GAM GAMCO Equity Fund was awarded Standard & Poor's AAA Rating
for the third consecutive year and was one of only six S&P AAA
rated funds out of the 1,028 fund Mainstream Sector Group. GAM
GAMCO Equity Fund has been sub-advised by GAMCO Asset
Management Inc. for London UK based Global Asset Management
(GAM), since the fund's launch in October 1987.
-- Our seven Closed End Funds reached a record total AUM of $5.8
billion at December 31, 2006, a 9.0% increase over September
30, 2006 AUM of $5.3 billion and a 14.4% increase over
December 31, 2005 AUM of $5.1 billion. For the year ended
December 31, 2006, selected Closed End Funds performed as
follows:
-- Gabelli Equity Trust provided a return of 28.4% for the year
ended December 31, 2006, and average annual returns of 17.6%,
12.8%, and 12.2% for the three, five and ten year periods
ended December 31, 2006, respectively. Total Net Assets(a) for
the fund were approximately $2.1 billion as of December 31,
2006. In November 2006, the fund's board of directors approved
the creation of The Gabelli Global Healthcare & Wellness(Rx)
Trust as a spin-off of the fund. The fund will focus on health
and welfare investment opportunities.
-- Gabelli Dividend & Income Trust enjoyed a return of 22.4% for
the year ended December 31, 2006, and an average annual return
of 14.0% for the three year period ended December 31, 2006.
Total Net Assets(a) for the fund were approximately $2.5
billion as of December 31, 2006.
-- Gabelli Utility Trust generated a return of 29.4% for the year
ended December 31, 2006, and average annual returns of 17.4%,
and 12.6% for the three and five year periods ended December
31, 2006, respectively. Total Net Assets(a) for the fund were
approximately $297.5 million as of December 31, 2006.
-- Gabelli Global Multimedia Trust produced a return of 25.9% for
its shareholders for the year ended December 31, 2006, and
average annual returns of 13.8%, 8.2%, and 12.8% for the
three, five and ten year periods ended December 31, 2006,
respectively.
-- In our open end funds:
-- The February 2007 issue of Consumer Reports (b) lists "60
Funds You Can Count On", and highlights two Gabelli Funds:
Gabelli Equity Income Fund and the Gabelli Small Cap Growth
Fund.
-- Gabelli Asset Fund (Class AAA), in its twentieth year,
generated a return of 21.8% for its shareholders for the year
ended December 31, 2006, and average annual returns of 14.0%,
10.7%, and 12.8% for the three, five and ten year periods
ended December 31, 2006, respectively.
-- Our Gabelli ABC Fund, which focuses on an absolute rate of
return, has completed its fourteenth calendar year with
positive performance and is one of only three equity-oriented
funds out of 1,476 funds according to Lipper that has had
positive performance every year since 1993 when it commenced
investing. This fund was up 12.0% for the year ended December
31, 2006 and 6.2%, 4.9% and 7.2% for the three, five and ten
year periods ended December 31, 2006, respectively.
-- Gabelli Equity Income Fund (Class AAA), since its inception,
has earned an average annual return of 12.5% for its
shareholders through December 31, 2006, and average annual
returns of 19.2%, 12.7%, 11.2%, and 11.4% for the one, three,
five and ten year periods ended December 31, 2006,
respectively. Total Net Assets(a) for the fund were
approximately $906.2 million, a new record, as of December 31,
2006.
-- GAMCO Global Telecommunications Fund (Class AAA) generated a
total return of 28.9% for the year ended December 31, 2006,
and average annual returns of 17.8%, 10.5%, and 12.2% for the
three, five, and ten year periods ended December 31, 2006,
respectively.
-- The GAMCO Gold Fund Fund (Class AAA), provided a total return
of 32.4% for its shareholders for the year ended December 31,
2006, and average annual returns of 16.4%, 34.6%, and 9.1% for
the three, five and ten year periods ended December 31, 2006,
respectively.
-- Our liquid balance sheet, coupled with an investment grade
credit rating, provides access to financial markets and the
flexibility to opportunistically add operating resources to
our firm, repurchase our stock and consider strategic
initiatives. As a result of the shelf registration in the
third quarter of 2006, we have the right to issue any
combination of senior and subordinate debt securities,
convertible debt securities and equity securities (common
and/or preferred securities) up to a total amount of $520
million, including the remaining $120 million available under
our initial shelf registration filed in 2001.
-- We added the following individuals to our management team:
-- Terrence P. Clancy was named Chief Operating Officer of
Gabelli & Partners, a wholly owned subsidiary of Gabelli
Securities, Inc., which focuses on absolute return investment
partnerships. Mr. Clancy was formerly with Citigroup Asset
Management, where he served on the CAM Management Committee
and as a Director and Deputy CFO, since 2004. Prior to joining
CAM, Mr. Clancy was with Merrill Lynch & Company and JP Morgan
& Company. Mr. Clancy is a CPA and a graduate of Notre Dame
with a BBA in Accountancy.
-- James C. Scanlon joined Gabelli Funds, LLC as Senior Vice
President and Director of Mutual Fund Marketing and
Distribution for the firm's mutual fund enterprise. Mr.
Scanlon has extensive sales and marketing experience. For the
past five years, he worked in the Retirement Group Sales
office for Merrill Lynch, managing the Northeast/New England
Territory.
-- Wayne C. Plewniak was named Managing Director of Gabelli Fixed
Income, joining the management team of the GAMCO Global
Convertible Securities Fund. Mr. Plewniak was formerly with
Lehman Brothers/Neuberger Berman where he served as a Managing
Director and Senior Portfolio Manager following Neuberger's
acquisition of Lipper & Company in 2002. Mr. Plewniak is a
graduate of Rochester Institute of Technology and earned an
MBA in Finance and International Business from Georgetown
University.
Past performance is no guarantee of future results. Other share
classes are available and have different performance characteristics.
The average annual returns and total returns are historical and
reflect changes in share price, reinvested dividends and capital gains
and are net of expenses. Investment returns and principal value of an
investment will fluctuate. When shares are redeemed, they may be worth
more or less than their original costs. Current performance may be
lower or higher than the performance presented. Performance
information as of the most recent month-end is available at
www.gabelli.com. Investors should carefully consider the investment
objectives, risks, charges and expenses of a fund before investing.
The prospectus for a fund contains information about this and other
matters and should be read carefully before investing. Call
800-GABELLI to obtain a prospectus. Equity funds involve the risk that
the underlying investments may lose value. Accordingly, it is possible
to lose money by investing in these funds. Funds investing in a single
sector such as utilities may be subject to more volatility than funds
that invest more broadly. Investing in gold stocks is considered
speculative and is affected by a variety of worldwide economic,
financial, and political risks. The utilities industries can be
affected by government regulation, financing difficulties, supply or
demand of services or fuel and natural resources conservation.
(a) Total Net Assets are for the entire fund. For the open-end
funds, the performance provided is for the respective funds' class AAA
shares. Performance information on other fund share classes, which
have different performance characteristics, is available on our
website at www.gabelli.com.
(b) Consumer Reports does not endorse or recommend any products or
services.
Financial Highlights
Balance Sheet - Liquidity and Flexibility
We ended the quarter with approximately $713.9 million in cash and
investments in securities, which is net of $15.6 million of cash and
investments held by our consolidated investment partnerships. This
included approximately $102.0 million of our investments in The
Gabelli Dividend & Income Trust, The Gabelli Global Utility & Income
Trust, Westwood Holdings Group, various Gabelli and GAMCO open-end
mutual funds as well as other investments classified as available for
sale securities. Our debt of $231.8 million consisted of $100 million
of 5.5% senior notes due May 2013, a $49.5 million 6% convertible note
due August 2011, and $82.3 million of 5.22% senior notes due February
17, 2007. We had cash and investments in securities, net of debt and
minority interest of $16.88 per share on December 31, 2006, compared
with $16.54 per share on September 30, 2006 and $14.69 per share on
December 31, 2005.
Our primary goal is to utilize our liquid resources to
opportunistically and strategically convert our investment income to
operating income. While this goal is our priority, if opportunities
are not present with what we consider a margin of safety, we will
continue to return value to our shareholders through stock repurchases
and dividends and to consider other options as well. In this regard,
we returned $58 million to shareholders in 2006 through buybacks and
dividends.
Stockholders' equity was $448.0 million or $15.87 per share on
December 31, 2006 compared to $418.0 million or $14.80 per share on
September 30, 2006, and $424.1 million or $14.35 per share on December
31, 2005.
Shareholder Compensation
Dividends
In November 2006, our Board of Directors declared our regular
quarterly dividend of $0.03 per share that was paid on December 26,
2006 to all shareholders of record on December 12, 2006.
Stock Buyback
Shares outstanding on December 31, 2006 were 28.2 million. This is
4.4% lower than the 29.5 million shares outstanding on December 31,
2005. Fully diluted shares outstanding for the fourth quarter of 2006
were 29.2 million, 4.7% below our fully diluted shares of 30.7 million
for the fourth quarter 2005.
Through December 31, 2006, we have repurchased 4,669,658 class A
common shares at an average investment of $39.45 per share since our
buyback program was initiated in March 1999. In the fourth quarter of
2006, we repurchased 4,700 shares at an average investment of $37.91
per share. On November 7, 2006, the board of directors approved the
repurchase of 400,000 additional shares. The total amount of shares
currently available for repurchase under the program is approximately
1,047,800 shares at December 31, 2006.
Looking Ahead
To achieve our objectives of enhancing client returns
and increasing assets under management and profitability, our business
strategy targets the growth of our franchise through leveraging
our corporate strengths of the Gabelli and GAMCO brands, outstanding
long-term investment performance, extensive client base, diverse
product offerings and experienced portfolio, research and client
service professionals.
We are meeting our risk adjusted return criteria as well as
launching new products, widening our geographic territories and adding
to our portfolio and research teams in order to identify new
investment opportunities. We are expanding our marketing and client
servicing capabilities to enhance our strong positions in many of the
markets we serve.
We are confident that our commitment to adding value to
clients with our focus on providing superior long-term, absolute
performance through our Private Market Value (PMV) with a Catalyst(TM)
fundamental research and stock selection process will continue
to generate above market returns.
We are competitively positioned to achieve our goals and look
forward to the challenge of creating wealth for our clients and for
our shareholders in today's ever-changing financial markets.
NOTES ON NON-GAAP FINANCIAL MEASURES AND CHANGE IN ACCOUNTING
METHOD
A. Cash and investments as adjusted have been computed as follows:
(in millions)
12/31/05 12/31/06
--------- ---------
Cash and cash equivalents $170.7 $130.7
Investments (marketable securities) 412.0 463.4
--------- ---------
Total cash and investments (marketable securities) 582.7 594.1
Net amounts receivable/(payable) from/to brokers 8.5 33.4
--------- ---------
Adjusted cash and investments (marketable
securities) 591.2 627.5
Investments (available for sale) 81.2 102.0
--------- ---------
Total adjusted cash and investments $672.4 $729.5
========= =========
We believe adjusted cash and investments is a more useful measure
of the company's liquidity for analytical purposes.
Net amounts receivable/(payable) from/to brokers reflects cash and
cash equivalents held with brokers and cash payable for securities
purchased and recorded on a trade date basis for which settlement
occurs subsequent to period end.
B. Operating income before management fee expense is used by
management for purposes of evaluating its business operations. We
believe this measure is useful in illustrating the operating results
of the Company as management fee expense is based on pre-tax income
and 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 IV.
Beginning January 1, 2006, the provisions of FASB Interpretation
No. 46R ("FIN 46R") and Emerging Issue Task Force 04-5 ("EITF 04-5")
require consolidation of the majority of our investment partnerships
and offshore funds managed by our subsidiaries into our consolidated
financial statements. However, since we amended the agreements of
certain investment partnerships and an offshore fund on March 31,
2006, FIN46R and EITF 04-5 only required us to consolidate these
entities on our income statement for the first quarter 2006, we were
not required to consolidate these entities on our balance sheet at
March 31, 2006. In addition, these partnerships and offshore funds,
for which the agreements were amended, are not required to be
consolidated within our statement of income or on our balance sheet in
future periods. However, for the year ended December 31, 2006
consolidation of these entities does affect the classification of
income between operating and other income.
Certain of our investments in partnerships and offshore funds will
continue to be consolidated as long as we have a direct or indirect
controlling financial interest.
GAMCO voluntarily changed its accounting method to recognize
management fee revenues on closed-end preferred shares at the end of
the measurement period, effective January 1, 2006. Unlike most money
management firms, GAMCO does not charge fees on leverage in its
closed-end funds unless the total return to the common shareholders
(of the closed-end fund at year-end) exceeds the dividend rate of the
preferred shares. In 2005, GAMCO had recognized these revenues during
each interim reporting period if and when the total return to common
shareholders of the closed-end fund exceeded the dividend rate of the
preferred shares. In addition, GAMCO previously recognized incentive
fee revenues on investment partnerships during each interim reporting
period. Under this method, management and incentive fee revenues
recognized in prior interim periods during the measurement period were
subject to possible reversal in subsequent periods during that
measurement period.
The net effect of the change in accounting policy is as follows
(dollars in thousands, except for earnings per share):
2005
-----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenue (1,218) (23) (5,528) 7,738
Operating Income Before Management
Fee (487) (91) (2,553) 3,372
Earnings Per Share ($0.01) ($0.01) ($0.05) $0.06
2006
-----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenue (1,291) (1,138) (887) 5,464
Operating Income Before Management
Fee 941 (435) (282) 1,424
Earnings Per Share ($0.02) ($0.01) $0.00 $0.03
After considering the guidance provided in EITF D-96, "Accounting
for Management Fees Based on Formula", GAMCO believes that the
preferable method of accounting is to recognize management fee
revenues on closed-end preferred shares and incentive fees on
investment partnerships at the end of the measurement period. This
method results in revenue recognition only when the measurement period
has been completed and when the management fees and incentive fees
have been earned. This eliminates the possibility of revenues that
have been recognized in interim measurement periods subsequently being
reversed in later periods during a fiscal year.
Under SFAS No. 154, which GAMCO adopted on January 1, 2006, a
voluntary change in accounting principle requires retrospective
application to each period presented as if the different accounting
principle had always been used and requires an adjustment at the
beginning of the first period presented for the cumulative effect of
the change to the new accounting principle. Therefore, this change in
accounting principle resulted in a reduction of revenues of
approximately $1.2 million in the first quarter of 2005, approximately
$23,000 in the second quarter of 2005, $5.5 million in the third
quarter of 2005 and an increase in revenues of $7.7 million in the
fourth quarter of 2005.
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.
What are FIN46R and EITF 04-5?
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest
Entities" which was subsequently revised in December 2003 by FASB
Interpretation No. 46(R) ("FIN46R"). FIN46R provides new criteria for
determining whether or not consolidation accounting is required for
activities which prior to FIN46R were off-balance sheet activities
conducted through certain types of entities.
In June 2005, the FASB ratified the consensus EITF 04-5,
"Determining Whether a General Partner, or the General Partners as a
Group, Controls a Limited Partnership or Similar Entity When the
Limited Partners Have Certain Rights", which provides guidance in
determining whether a general partner controls a limited partnership.
The provisions of EITF 04-5 are not applicable to limited partnerships
or similar entities accounted for as Variable Interest Entities
("VIEs") pursuant to FIN46R.
How do FIN46R and EITF 04-5 apply to GBL?
We have reviewed the provisions of FIN46R and EITF 04-5 and
beginning January 1, 2006 consolidated the majority of our investment
partnerships and offshore funds that are managed by our subsidiaries
and are not determined to be VIEs. We amended the agreements of
certain investment partnerships and an offshore fund on March 31,
2006. Accordingly, these partnerships were not consolidated at March
31, 2006. The results of operations of these entities are consolidated
in the statement of income for the year ended December 31, 2006 for
the first quarter 2006, which represents the period from the effective
date of EITF 04-5 through the date the partnerships and offshore fund
agreements were amended. Furthermore, these partnerships and offshore
funds, for which the agreements were amended, will not be consolidated
within our statement of income or on our statement of financial
condition in future periods as long as we continue to not have any
direct or indirect controlling financial interest.
In addition, we have consolidated five investment partnerships and
two offshore funds in which we have a direct or indirect controlling
financial interest. These entities will continue to be consolidated in
future periods as long as we continue to maintain a direct or indirect
controlling financial interest.
The company reported Assets Under Management as follows:
Table I: Assets Under Management
(millions)
-------------------------------
December 31
------------------- %
2005 2006 Inc. (Dec.)
--------- --------- -----------
Mutual Funds:
Equities
Open-end $7,888 $8,389 6.4%
Closed-end 5,075 5,806 14.4
Fixed Income 735 744 1.2
--------- ---------
Total Mutual Funds 13,698 14,939 9.1
--------- ---------
Institutional & High Net Worth Separate
Accounts:
Equities: direct 9,550 10,282 7.7
" sub-advisory 2,832 2,340 (17.4)
Fixed Income 84 50 (40.5)
--------- ---------
Total Institutional & High Net Worth
Separate Accounts 12,466 12,672 1.7
--------- ---------
Investment Partnerships 634 491 (22.6)
--------- ---------
Total Assets Under Management $26,798 $28,102 4.9
========= =========
Equities 25,979 27,308 5.1
Fixed Income 819 794 (3.1)
--------- ---------
Total Assets Under Management $26,798 $28,102 4.9
========= =========
Table II: Assets Under Management (millions)
---------------------------------------------
12/05 3/06 6/06 9/06 12/06
-------- -------- -------- -------- --------
Mutual Funds
Open-end $ 7,888 $ 8,176 $ 7,796 $ 7,854 $ 8,389
Closed-end 5,075 5,284 5,258 5,327 5,806
Fixed income 735 807 863 683 744
-------- -------- -------- -------- --------
Total Mutual Funds 13,698 14,267 13,917 13,864 14,939
-------- -------- -------- -------- --------
Institutional & HNW
Separate Accounts:
Equities: direct 9,550 9,853 9,520 9,470 10,282
" sub-advisory 2,832 2,786 2,750 2,725 2,340
Fixed Income 84 59 55 54 50
-------- -------- -------- -------- --------
Total Institutional & HNW
Separate Accounts 12,466 12,698 12,325 12,249 12,672
-------- -------- -------- -------- --------
Investment Partnerships 634 681 536 488 491
-------- -------- -------- -------- --------
Total Assets Under
Management $26,798 $27,646 $26,778 $26,601 $28,102
======== ======== ======== ======== ========
% Increase/(decrease)
9/06 12/05
------------------- ------------------
Mutual Funds
Open-end 6.8% 6.4%
Closed-end 9.0 14.4
Fixed income 8.9 1.2
Total Mutual Funds 7.8 9.1
Institutional & HNW
Separate Accounts:
Equities: direct 8.6 7.7
" sub-advisory (14.1) (17.4)
Fixed Income (7.4) (40.5)
Total Institutional & HNW
Separate Accounts 3.5 1.7
Investment Partnerships 0.6 (22.6)
Total Assets Under
Management 5.6 4.9
Table III: Fund Flows - 4th Quarter 2006 (millions)
----------------------------------------------
September Market December
30, Net Cash Appreciation / 31,
2006 Flows (Depreciation) 2006
---------- -------- --------------- ----------
Mutual Funds:
Equities $13,181 ($78) $1,092 $14,195
Fixed Income 683 64 (3) 744
---------- -------- --------------- ----------
Total Mutual Funds 13,864 (14) 1,089 14,939
---------- -------- --------------- ----------
Institutional & HNW
Separate Accounts
Equities: direct 9,470 (101) 913 10,282
" sub-advisory 2,725 (602) 217 2,340
Fixed Income 54 (5) 1 50
---------- -------- --------------- ----------
Total Institutional &
HNW Separate Accounts 12,249 (708) 1,131 12,672
---------- -------- --------------- ----------
Investment Partnerships 488 (11) 14 491
---------- -------- --------------- ----------
Total Assets Under
Management $26,601 ($733) $2,234 $28,102
========== ======== =============== ==========
Table IV
GAMCO INVESTORS, INC
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
For the Fourth Quarter
Ended
December 31,
2005
----------------------- % Inc.
Reported Restated 2006 (Dec.)
-------- --------
Revenues $64,757 $72,495 $82,526 13.8%
Expenses 37,264 41,631 51,745 24.3
----------- ----------- --------
Operating income before
management fee 27,493 30,864 30,781 (0.3)
Investment income 8,631 8,631 18,938 119.4
Interest expense (3,280) (3,280) (3,589) 9.4
----------- ----------- --------
Other income (expense), net 5,351 5,351 15,349 186.8
----------- ----------- --------
Income before management fee,
income taxes and minority
interest 32,844 36,215 46,130 27.4
Management fee 3,284 3,621 4,537
----------- ----------- --------
Income before income taxes
and minority interest 29,560 32,594 41,593
Income taxes 11,085 12,222 15,680
Minority interest 169 232 1,312
----------- ----------- --------
Net income $18,306 $20,140 $24,601 22.1
=========== =========== ========
Net income per share:
Basic $0.62 $0.68 $0.87 28.2
=========== =========== ========
Diluted $0.61 $0.67 $0.86 28.2
=========== =========== ========
Weighted average shares
outstanding:
Basic 29,643 29,643 28,240 (4.7)
=========== =========== ========
Diluted 30,652 30,652 29,208 (4.7)
=========== =========== ========
Reconciliation of Non-GAAP
Financial Measures to GAAP:
Operating income before
management fee $27,493 $30,864 $30,781 (0.3)
Deduct: management fee 3,284 3,621 4,537
----------- ----------- --------
Operating income $24,209 $27,243 $26,244 (3.7)
----------- ----------- --------
Operating margin before
management fee 42.5% 42.6% 37.3%
----------- ----------- --------
Operating margin after
management fee 37.4% 37.6% 31.8%
----------- ----------- --------
As restated for the change in accounting method to recognize
management fee revenues on closed-end preferred shares and incentive
fee revenues on investment partnerships at the end of the measurement
period, effective January 1, 2006.
Table IV
GAMCO INVESTORS, INC
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF INCOME
(dollars in thousands, except per share data)
For the Year Ended
December 31,
2005
----------------------- % Inc.
Reported Restated 2006 (Dec.)
--------- -------
Revenues $252,363 $253,332 $261,463 3.2%
Expenses 154,415 155,143 177,339 14.3
----------- ----------- ---------
Operating income before
management fee 97,948 98,189 84,124 (14.3)
Investment income 29,395 29,395 71,119 141.9
Interest expense (13,782) (13,782) (14,226) 3.2
----------- ----------- ---------
Other income (expense), net 15,613 15,613 56,893 264.4
----------- ----------- ---------
Income before management fee,
income taxes and minority
interest 113,561 113,802 141,017 23.9
Management fee 11,356 11,380 12,690
----------- ----------- ---------
Income before income taxes
and minority interest 102,205 102,422 128,327
Income taxes 38,327 38,408 49,406
Minority interest 487 498 10,095
----------- ----------- ---------
Net income $63,391 $63,516 $68,826 8.4
=========== =========== =========
Net income per share:
Basic $2.13 $2.13 $2.41 13.2
=========== =========== =========
Diluted $2.09 $2.10 $2.38 13.7
=========== =========== =========
Weighted average shares
outstanding:
Basic 29,805 29,805 28,542 (4.2)
=========== =========== =========
Diluted 31,155 31,155 29,525 (5.2)
=========== =========== =========
Reconciliation of Non-GAAP
Financial Measures to GAAP:
Operating income before
management fee $97,948 $98,189 $84,124 (14.3)
Deduct: management fee 11,356 11,380 12,690
----------- ----------- ---------
Operating income $86,592 $86,809 $71,434 (17.7)
----------- ----------- ---------
Operating margin before
management fee 38.8% 38.8% 32.2%
----------- ----------- ---------
Operating margin after
management fee 34.3% 34.3% 27.3%
----------- ----------- ---------
As restated for the change in accounting method to recognize
management fee revenues on closed-end preferred shares and incentive
fee revenues on investment partnerships at the end of the measurement
period, effective January 1, 2006.
Table V
GAMCO INVESTORS, INC
UNAUDITED QUARTERLY CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
2005 (As Restated)*
---------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- ---------
Income Statement Data:
Revenues $60,313 $59,818 $60,706 $72,495 $253,332
Expenses 38,391 37,956 37,166 41,630 155,143
-------- -------- -------- -------- ---------
Operating income before
management fee 21,922 21,862 23,540 30,865 98,189
Investment income 4,067 4,544 12,153 8,631 29,395
Interest expense (3,929) (3,275) (3,298) (3,280) (13,782)
-------- -------- -------- -------- ---------
Other income (expense),
net 138 1,269 8,855 5,351 15,613
-------- -------- -------- -------- ---------
Income before management
fee, income taxes and
minority interest 22,060 23,131 32,395 36,216 113,802
Management fee 2,206 2,313 3,240 3,621 11,380
-------- -------- -------- -------- ---------
Income before income
taxes and minority
interest 19,854 20,818 29,155 32,595 102,422
Income taxes 7,445 7,808 10,933 12,222 38,408
Minority interest (20) 110 176 232 498
-------- -------- -------- -------- ---------
Net income $12,429 $12,900 $18,046 $20,141 $63,516
======== ======== ======== ======== =========
Net income per share:
Basic $0.42 $0.43 $0.60 $0.68 $2.13
======== ======== ======== ======== =========
Diluted $0.41 $0.42 $0.59 $0.67 $2.10
======== ======== ======== ======== =========
Weighted average shares
outstanding:
Basic 29,560 30,079 29,935 29,643 29,805
======== ======== ======== ======== =========
Diluted 31,684 31,211 31,079 30,652 31,155
======== ======== ======== ======== =========
Reconciliation of Non-
GAAP Financial Measures
to GAAP:
Operating income before
management fee $21,922 $21,862 $23,540 $30,865 $98,189
Deduct: management fee 2,206 2,313 3,240 3,621 11,380
-------- -------- -------- -------- ---------
Operating income $19,716 $19,549 $20,300 $27,244 $86,809
-------- -------- -------- -------- ---------
Operating margin before
management fee 36.3% 36.5% 38.8% 42.6% 38.8%
-------- -------- -------- -------- ---------
Operating margin after
Management fee 32.7% 32.7% 33.4% 37.6% 34.3%
-------- -------- -------- -------- ---------
2006
---------------------------------------------
1st 2nd 3rd 4th
Quarter* Quarter* Quarter Quarter Total
-------- -------- -------- -------- ---------
Income Statement Data:
Revenues $59,284 $61,659 $57,994 $82,526 $261,463
Expenses 37,883 50,963 36,748 51,745 177,339
-------- -------- -------- -------- ---------
Operating income before
management fee 21,401 10,696 21,246 30,781 84,124
Investment income 29,498 10,355 12,328 18,938 71,119
Interest expense (3,875) (3,394) (3,368) (3,589) (14,226)
-------- -------- -------- -------- ---------
Other income (expense),
net 25,623 6,961 8,960 15,349 56,893
-------- -------- -------- -------- ---------
Income before management
fee, income taxes and
minority interest 47,024 17,657 30,206 46,130 141,017
Management fee 3,367 1,760 3,026 4,537 12,690
-------- -------- -------- -------- ---------
Income before income
taxes and minority
interest 43,657 15,897 27,180 41,593 128,327
Income taxes 16,371 7,163 10,192 15,680 49,406
Minority interest 8,586 93 104 1,312 10,095
-------- -------- -------- -------- ---------
Net income $18,700 $8,641 $16,884 $24,601 $68,826
======== ======== ======== ======== =========
Net income per share:
Basic $0.64 $0.30 $0.60 $0.87 $2.41
======== ======== ======== ======== =========
Diluted $0.63 $0.30 $0.59 $0.86 $2.38
======== ======== ======== ======== =========
Weighted average shares
outstanding:
Basic 29,180 28,507 28,254 28,240 28,542
======== ======== ======== ======== =========
Diluted 30,185 29,496 29,235 29,208 29,525
======== ======== ======== ======== =========
Reconciliation of Non-
GAAP Financial Measures
to GAAP:
Operating income before
management fee $21,401 $10,696 $21,246 $30,781 $84,124
Deduct: management fee 3,367 1,760 3,026 4,537 12,690
-------- -------- -------- -------- ---------
Operating income $18,034 $8,936 $18,220 $26,244 $71,434
-------- -------- -------- -------- ---------
Operating margin before
management fee 36.1% 17.3% 36.6% 37.3% 32.2%
-------- -------- -------- -------- ---------
Operating margin after
Management fee 30.4% 14.5% 31.4% 31.8% 27.3%
-------- -------- -------- -------- ---------
* As restated for the change in accounting method to recognize
management fee revenues on closed-end preferred shares and incentive
fee revenues on investment partnerships at the end of the measurement
period, effective January 1, 2006.
Table V
GAMCO INVESTORS, INC
UNAUDITED QUARTERLY CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
2005 (As Reported)*
---------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- ---------
Income Statement Data:
Revenues $61,531 $59,841 $66,234 $64,757 $252,363
Expenses 39,122 37,888 40,141 37,264 154,415
-------- -------- -------- -------- ---------
Operating income before
management fee 22,409 21,953 26,093 27,493 97,948
Investment income 4,067 4,544 12,153 8,631 29,395
Interest expense (3,929) (3,275) (3,298) (3,280) (13,782)
-------- -------- -------- -------- ---------
Other income (expense),
net 138 1,269 8,855 5,351 15,613
-------- -------- -------- -------- ---------
Income before management
fee, income taxes and
minority interest 22,547 23,222 34,948 32,844 113,561
Management fee 2,255 2,322 3,495 3,284 11,356
-------- -------- -------- -------- ---------
Income before income
taxes and minority
interest 20,292 20,900 31,453 29,560 102,205
Income taxes 7,609 7,838 11,795 11,085 38,327
Minority interest 1 107 210 169 487
-------- -------- -------- -------- ---------
Net income $12,682 $12,955 $19,448 $18,306 $ 63,391
======== ======== ======== ======== =========
Net income per share:
Basic $ 0.43 $ 0.43 $ 0.65 $ 0.62 $ 2.13
======== ======== ======== ======== =========
Diluted $ 0.42 $ 0.43 $ 0.64 $ 0.61 $ 2.09
======== ======== ======== ======== =========
Weighted average shares
outstanding:
Basic 29,560 30,079 29,935 29,643 29,805
======== ======== ======== ======== =========
Diluted 31,684 31,211 31,079 30,652 31,155
======== ======== ======== ======== =========
Reconciliation of Non-
GAAP Financial Measures
to GAAP:
Operating income before
management fee $22,409 $21,953 $26,093 $27,493 $ 97,948
Deduct: management fee 2,255 2,322 3,495 3,284 11,356
-------- -------- -------- -------- ---------
Operating income $20,154 $19,631 $22,598 $24,209 $ 86,592
-------- -------- -------- -------- ---------
Operating margin before
management fee 36.4% 36.7% 39.4% 42.5% 38.8%
-------- -------- -------- -------- ---------
Operating margin after
Management fee 32.8% 32.8% 34.1% 37.4% 34.3%
-------- -------- -------- -------- ---------
2006 (As Reported)*
-----------------------------------
1st 2nd
Quarter Quarter
----------------- -----------------
Income Statement Data:
Revenues $ 60,575 $ 62,797
Expenses 40,115 51,666
----------------- -----------------
Operating income before
management fee 20,460 11,131
Investment income 29,498 10,355
Interest expense (3,875) (3,394)
----------------- -----------------
Other income (expense),
net 25,623 6,961
----------------- -----------------
Income before management
fee, income taxes and
minority interest 46,083 18,092
Management fee 3,478 1,804
----------------- -----------------
Income before income
taxes and minority
interest 42,605 16,288
Income taxes 15,977 7,308
Minority interest 7,350 108
----------------- -----------------
Net income $ 19,278 $ 8,872
================= =================
Net income per share:
Basic $ 0.66 $ 0.31
================= =================
Diluted $ 0.65 $ 0.31
================= =================
Weighted average shares
outstanding:
Basic 29,180 28,507
================= =================
Diluted 30,185 29,496
================= =================
Reconciliation of Non-
GAAP Financial Measures
to GAAP:
Operating income before
management fee $ 20,460 $ 11,131
Deduct: management fee 3,478 1,804
----------------- -----------------
Operating income $ 16,982 $ 9,327
----------------- -----------------
Operating margin before
management fee 33.8% 17.7%
----------------- -----------------
Operating margin after
Management fee 28.0% 14.9%
----------------- -----------------
* As originally reported during the year ended December 31, 2005
and quarters ended March 31, 2006 and June 30, 2006.
Table VI
GAMCO INVESTORS, INC
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(thousands)
December 31, December 31,
2005 (a)(c) 2006 (b)
------------ ------------
ASSETS
Cash and cash equivalents $ 170,659 $ 130,688
Investments 493,187 565,351
Receivables 45,198 89,771
Other assets 11,888 12,247
------------ ------------
Total assets $ 720,932 $ 798,057
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Compensation payable $ 27,820 $ 38,826
Income taxes payable 10,097 12,203
Accrued expenses and other liabilities 20,485 46,248
------------ ------------
Total operating liabilities 58,402 97,277
5.5% Senior notes (due May 15, 2013) 100,000 100,000
6% Convertible note (conversion price, $53
per share; note due August 14, 2011) 50,000 49,504
5.22% Senior notes (due February 17, 2007) 82,308 82,308
------------ ------------
Total liabilities 290,710 329,089
Minority interest 6,147 20,919
Stockholders' equity 424,075 448,049
------------ ------------
Total liabilities and stockholders' equity $ 720,932 $ 798,057
============ ============
(a) As restated for the change in accounting method to recognize
management fee revenues on closed-end preferred shares and incentive
fee revenues on investment partnerships at the end of the measurement
period, effective January 1, 2006.
(b) December 31, 2006 balance sheet includes $17.1 million in
assets, $2.8 million in liabilities and $14.3 million in minority
interest that pertain to investment partnerships and offshore funds in
which we have a direct or indirect controlling financial interest.
These entities have been consolidated and will be consolidated in
future periods as long as we continue to maintain a direct or indirect
controlling financial interest.
(c) Convertible note was 5% with a conversion price of $52 per
share.
CONTACT: GAMCO Investors, Inc.
Douglas R. Jamieson, 914-921-5020
President & Chief Operating Officer
or
John C. Ferrara, 914-921-5147
Interim Chief Financial Officer
www.gabelli.com