As Anticipated, GAMCO Reports Lower Third Quarter Earnings.RYE, N.Y. -- GAMCO Investors GAMCO Investors, Inc formely known as Gabelli Asset Management Company is a provider of investment advice and brokerage services to mutual funds, institutional and select investors. It is listed on the New York Stock Exchange under the symbol GBL. , Inc. (GAMCO GAMCO Gulf Aircraft Maintenance Company (Abu Dhabi, UAE) ) (NYSE NYSE See: New York Stock Exchange : GBL GBL Gamma-Butyrolactone GBL government bill of lading (US DoD) GBL Ground-Based Laser GBL Game Boy Light GBL General Bearing Line GBL Generation Breakdown List GBL Ground-Based Laboratory GBL Green Bus Lines, Inc. ) reported third quarter 2006 earnings of $0.59 per fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share versus $0.64 per fully diluted share as reported in the third quarter of 2005 and $0.59 per fully diluted share as restated for the changes in accounting principle related to the recognition of certain fees. Revenues were $58.0 million for the third quarter versus $66.2 million as reported and $60.7 million as restated for the changes in accounting principle in the comparable 2005 period. For the nine months ended September September: see month. 30, 2006, net income was $44.2 million versus $45.1 million as reported and $43.4 million as restated for the changes in accounting principle and fully diluted earnings were $1.53 per share versus $1.48 per share as reported in 2005 and $1.43 per share as restated for the changes in accounting principle. Revenues were $178.9 million for the nine months ended September 30, 2006 versus $187.6 million as reported in 2005 and $180.8 million as restated for the changes in accounting principle. Assets Under Management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. Assets Under Management (AUM Aum (ä·ōōmˑ), n.pr 1. in Ayurveda, the subtle, noiseless cosmic vibration in which consciousness existed in the beginning, before the elements appeared. ) were $26.6 billion as of September 30, 2006, nominally nom·i·nal adj. 1. a. Of, resembling, relating to, or consisting of a name or names. b. Assigned to or bearing a person's name: nominal shares. 2. Existing in name only. lower than June June: see month. 30, 2006 AUM of $26.8 billion and 3.8% lower than September 30, 2005 AUM of $27.6 billion. Equity assets under management were $25.9 billion on September 30, 2006, remaining level with June 30, 2006 equity assets of $25.9 billion, but 3.1% lower than the $26.7 billion on September 30, 2005. * Our equity closed-end funds Closed-end fund An investment company that issues shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Related: Open-end fund. reached record AUM of $5.3 billion on September 30, 2006, slightly above AUM at June 30, 2006 and 9.8% higher than the $4.9 billion on September 30, 2005. * Our equity open-end funds Open-End Fund A mutual fund that continues to sell shares to investors, and will buy back shares when investors wish to sell. Notes: Open-end funds have no limit to the number of shares they can issue. The majority of mutual funds are open end. were $7.9 billion in AUM on September 30, 2006, 0.7% above the $7.8 billion level on June 30, 2006 and 1.3% lower than the $8.0 billion on September 30, 2005. * Our institutional and high net worth business had AUM of $12.2 billion in separately managed equity accounts on September 30, 2006, 0.6% lower than the $12.3 billion on June 30, 2006, and 7.1% lower than the $13.1 billion on September 30, 2005. * AUM in our investment partnerships were $488 million versus $536 million on June 30, 2006 and $745 million on September 30, 2005. * Fixed income AUM, primarily money market mutual funds, totaled $737 million on September 30, 2006, down 19.7% from the June 30, 2006 AUM of $918 million, and 22.7% lower than fixed income AUM of $954 million on September 30, 2005. Revenues Investment advisory fees for the third quarter of 2006 were $49.8 million, a decrease of 4.4% from the $52.0 million generated in the third quarter of 2005: * Our closed-end funds revenues increased 8.6% to $10.7 million for the third quarter 2006, up from $9.8 million in the prior year's period primarily due to increased average AUM. * Open-end o·pen-end adj. 1. Having no definite limit of duration or amount: an open-end contract. 2. mutual funds revenues decreased 3.8% to $19.6 million from $20.4 million in the 2005 period primarily due to lower average AUM. * Institutional and high net worth separate accounts revenues decreased 8.2% to $18.3 million, down from the $19.9 million reported in 2005 primarily due to a decrease in AUM. * Investment Partnership revenues decreased 37.5% to $1.2 million from $1.9 million in the prior year's period primarily due to a decrease in AUM. Commission revenues from our institutional research affiliate Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. , Gabelli & Company, Inc., were $2.8 million in the third quarter 2006, down 14.1% from the prior year's comparable period. The decrease was primarily due to a decline in trading volume Trading volume The number of shares transacted every day. As there is a seller for every buyer, one can think of the trading volume as half of the number of shares transacted. That is, if A sells 100 shares to B, the volume is 100 shares. and average revenue earned per share traded. Mutual fund distribution fees and other income were $5.4 million for the third quarter 2006, level with the prior year's period. Investment advisory fees for the nine months ended September 30, 2006 were $153.7 million, a decrease of $3.3 million, or 2.1%, from the $157.1 million generated for the nine months ended September 30, 2005 as: * Revenues from our closed-end fund increased 15.4% to a record $31.7 million for the nine months ended September 30, 2006, up from $27.5 million in the prior year's period primarily due to increased average AUM within our closed-end funds from $4.6 billion for the first nine months of 2005 to $5.3 billion for the first nine months of 2006. * Open-end mutual funds revenues were $59.9 million, down 0.2% from the $60.0 million in the 2005 period. * Institutional and high net worth separate accounts revenues decreased 6.3% to $58.4 million from the $62.3 million reported in 2005 primarily due to a decrease in AUM. * Investment Partnership revenues were $3.7 million, a decrease of 48.8% from the $7.3 million in the 2005 period primarily due to a decrease in AUM and lower performance fees. Commission revenues from our institutional research affiliate, Gabelli & Company, Inc., were $9.0 million for the nine months ended September 30, 2006, up 8.1% from the prior year's comparable period amount of $8.3 million primarily due to increased trading volume which was partially offset by a decline in the average revenue earned per share traded. Mutual fund distribution fees and other income were $16.2 million for the nine months ended September 30, 2006, 4.9% higher than the $15.5 million reported in the 2005 period. The increase was primarily due to higher distribution fees of $15.2 million for nine months ended September 30, 2006 versus $14.4 million for prior year period, principally as a result of an increase in average assets under management from our increased wholesaling of funds sold through unaffiliated broker dealers. Operating Margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: Expenses not directly tied to revenues were $13.0 million, an increase from the $12.2 million recorded in the third quarter of 2005. The increase was primarily due to a $0.4 million increase in compensation costs and a net $0.4 increase in operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , primarily legal and accounting fees resulting in operating margin, before management fee, decreasing to 36.6% for the third quarter 2006 from 38.8% in the prior year's quarter. For the nine months ended September 30, 2006, operating margin, before management fee, decreased to 29.8% from 37.2% in the prior year's period primarily due to an $11.9 million litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. reserve recorded during the second quarter of 2006. Without the reserve, operating margin would have been 36.5% for 2006. Expenses not directly tied to revenues were $50.7 million, an increase of 31.9% from the $38.5 million recorded in the period ended September 30, 2005. The increase was primarily the result of the litigation reserve taken during second quarter 2006. Other Income / Expense Total other income, net of interest expense was $9.0 million for the third quarter 2006, marginally higher than the $8.9 million in the comparable 2005 period. A $2.4 million increase in interest and dividend income from the prior quarter was partially offset by a $2.3 million decease in net gain from investments. For the quarter ended September 30, 2006, we recorded no earnings from our investment in optionXpress (Nasdaq: OXPS) as compared to $0.05 per fully diluted share for the quarter ended September 30, 2005. Total other income, net of interest expense, rose to $41.5 million for the nine months ended September 30, 2006 from $10.3 million in the 2005 period. For the third quarter 2006, interest expense was $3.4 million, $0.1 million greater than the prior year's period. For the nine months ended September 30, 2006, interest expense increased $0.1 million from the prior year's comparable period to $10.6 million. Management fee dropped to $3.0 million for the three months ended September 30, 2006, versus $3.2 million for the comparable 2005 period. Management fee was $8.2 million for the nine months ended September 30, 2006, versus $7.8 million for the comparable 2005 period. The increase was due to higher operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before management fee, income taxes, and minority interest of $94.9 million for the nine months ended September 30, 2006, as compared to $77.6 million for the comparable 2005 period. The effective tax rate for the three and nine months ended September 30, 2006, excluding the reserve taken during the second quarter of 2006, remained at 37.5%, the same as the respective prior year periods. Change in Accounting Policy GAMCO previously voluntarily changed its accounting method to recognize management fee revenues on closed-end closed-end adj. Issuing a fixed number of shares that can be traded publicly but are not redeemable by the issuer: a closed-end investment company. preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. at the end of the measurement period, effective January January: see month. 1, 2006. GAMCO has now also voluntarily changed its accounting method to recognize 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 reversal n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its 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): [TABLE OMITTED] Business Highlights * Our seven Closed End Funds reached a record total AUM of $5.3 billion at September 30, 2006, a 1.3% increase over June 30, 2005 AUM of $5.3 billion and a 9.8% increase over September 30, 2005 AUM of $4.9 billion. For the quarter ended September 30, 2006, these selected Closed End Funds performed as follows:
-- Gabelli Dividend & Income Trust generated a return of
12.99% for its shareholders in the nine months ended
September 30, 2006 and an average annual return of 11.69%
for the one year period ended September 30, 2006. Total Net
Assets(a) for the fund were approximately $2.38 billion as
of September 30, 2006.
-- Gabelli Equity Trust generated a return of 14.99% for its
shareholders in the nine months ended September 30, 2006,
and average annual returns of 11.73%, 19.82%, 12.96% and
11.32% for the one, three, five and ten year periods ended
September 30, 2006, respectively. Total Net Assets(a) for
the fund were approximately $1.84 billion as of September
30, 2006.
a) Authorized the spin-off of a proposed newly-formed
closed-end investment company. The spin-off would be
subject to shareholder and other regulatory approvals
and would create The Gabelli Global Healthcare &
Wellness(Rx) Trust ("Healthcare & Wellness(Rx) Trust").
b) Increased the cash distribution from $0.19 per share to
$0.20 per share.
-- Gabelli Utility Trust generated a return of 16.42% for its
shareholders in the nine months ended September 30, 2006,
and average annual returns of 9.42%, 16.00%, and 10.81% for
the one, three, and five year periods ended September 30,
2006, respectively. Total Net Assets(a) for the fund were
approximately $277.8 million as of September 30, 2006.
-- Gabelli Global Multimedia Trust generated a return of 9.13%
for its shareholders in the nine months ended September 30,
2006, and average annual returns of 7.76%, 14.52%, 8.40%
and 11.18% for the one, three, five and ten year periods
ended September 30, 2006, respectively. Total Net Assets(a)
for the fund were approximately $224.1 million as of
September 30, 2006.
* In our open end funds:
-- Our Gabelli ABC Fund, which focuses on absolute rates of
return, is one of the three funds according Lipper that has
had an up year every year since 1993 when it commenced
investing. This fund was up 8.83% through September 30,
2006 and is up 10.33% for the one year, 5.90% for the three
year and 4.49% and 7.15% for the five and ten year periods
ended June 30, 2006, respectively.
-- Gabelli Utilities Fund (AAA), a team managed fund,
delivered strong performance and record AUM as the fund
generated a return of 13.45% for its shareholders in the
first nine months of 2006, and average annual returns of
8.32%, 15.89%, 9.39%, and 9.34% for the one, three, and
five year and since inception (August 31, 1999) periods
ended September 30, 2006, respectively. Total Net Assets(a)
for the fund were approximately $443.2 million as of
September 30, 2006.
-- Gabelli Equity Income Fund(b) (AAA) has a 4 star
Morningstar overall rating in the Large Value Fund
category, a 3 star Morningstar rating for three years, a
4 star Morningstar rating for five years and a 5 star
Morningstar rating for the ten year periods, all ended
September 30, 2006. Since its inception, the fund earned a
return of 11.42% for shareholders in the first nine months
of 2006, and average annual returns of 11.25%, 14.80%,
10.76%, and 11.51% for the one, three, five and ten year
periods ended September 30, 2006, respectively. Total Net
Assets(a) for the fund were approximately $810.3 million,
a new record, as of September 30, 2006. There were 1,083
Large Value Funds rated overall 1,083 rated for three
years, 802 rated for five years, and 391 rated for ten
years.
-- The Gabelli Asset Fund (AAA) generated a return of 11.48%
for its shareholders in the first nine months of 2006, and
average annual returns of 11.10%, 15.76%, 10.92%, and
12.31% for the one, three, five and ten year periods ended
September 30, 2006, respectively. Total Net Assets(a) for
the fund were approximately $2.3 billion as of September
30, 2006.
-- 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 GAMCO Investors, Inc.
(NYSE: GBL) shelf registration in the third quarter 2006,
we have the right to issue any combination of senior and
subordinate debt securities, convertible debt securities
and equity securities (including common and preferred
securities) up to a total amount of $520 million. This
includes the remaining $120 million available under our
previous shelf registration filed in 2001.
* Gabelli & Company, Inc, our institutional equity research firm, hosted two research symposiums in September as part of the firm's institutional brokerage BROKERAGE, contracts. The trade or occupation of a broker; the commissions paid to a broker for his services. business.
-- Our 12th Annual Aircraft Supplier Conference in New York
hosted Boeing Company, Crane Corporation, and Honeywell
International among the seventeen presenting public
companies. The themes of this two-day research conference
included competitive dynamics, new technologies, and
company fundamentals.
-- Our 2nd Annual RFID (Radio Frequency Identification)
Conference in New York hosted Paxar Corporation, Intermec,
Inc., and eight other presenting companies. The keynote
speaker, Bill Hardgrave, PhD., Associate Professor and
Edwin & Karlee Bradberry Chair of the Information Systems
department of the University of Arkansas, highlighted the
conference as senior managements from many of the major
players in this leading supply chain management technology
discussed industry fundamentals, technology standards, and
their corporate outlooks.
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 re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. , 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 A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. 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 Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the than funds that invest more broadly. 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 Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. are for the entire fund. The performance provided is for the respective funds' class AAA AAA: see American Automobile Association. (Triple A) A common single-cell battery used in a myriad of electronic devices of all variety. Like its double A (AA) cousin, it provides 1.5 volts of DC power. When used in series, the voltage is multiplied. shares. Performance information on other fund classes are available on our website at www.gabelli.com. (b)For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating(TM) based on a Morningstar risk-adjusted return Risk-Adjusted Return A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating. Notes: This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. measure that accounts for variation in a fund's monthly performance (including the effects of sales charges Sales Charge A commission or fee paid by an investor at the time of purchasing mutual fund shares. The charge is paid to a mutual fund salesperson or financial advisor and is intended to provide compensation for the financial salesperson's efforts in assisting their client select , loads and redemption fees Redemption fee A fee some mutual funds charge when an investor sells shares within a specified short period of time. ) placing more emphasis on downward variations and rewarding consistent performance. The top 10% of the funds in an investment category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars and the bottom 10% receive one star. The Overall Morningstar Rating for a fund is derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from a weighted average of the performance figures associated with its three, five, and ten-year (if applicable) Morningstar Rating metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. . Morningstar Ratings are shown for the respective class shown; other classes may have different performance characteristics. This information is (1) proprietary to Morningstar and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Financial Highlights Balance Sheet - Liquidity and Flexibility We ended the quarter with approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $719.6 million in cash and investments in securities. This included approximately $92.6 million of our investments in The Gabelli Dividend & Income Trust, The Gabelli Global Utility & Income Trust, various Gabelli and GAMCO open-end mutual funds as well as other investments classified as available for sale securities. Our debt of $232.3 million consisted of $100 million of 5.5% senior notes due May 2013, a $50 million 6% convertible note due August 2011, and $82.3 million of 5.22% senior notes due February February: see month. 2007. We had cash and investments in securities, net of debt and minority interest of $16.54 per share on September 30, 2006, compared with $15.52 per share on June 30, 2006, $15.31 per share on September 30, 2005 and $14.69 per share on December December: see month. 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 Stock repurchase A firm's repurchase of outstanding shares of its common stock. and dividends and consider other options as well. Stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. was $418.0 million or $14.80 per share on September 30, 2006 compared with $401.5 million or $14.19 per share on June 30, 2006, $430.5 million or $14.42 per share on September 30, 2005 and $424.1 million or $14.20 per share on December 31, 2005. Shareholder Compensation - Dividends In August 2006, our Board of Directors declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. our regular quarterly dividend of $0.03 per share that was paid on September 28, 2006 to all shareholders of record on September 15, 2006. This dividend was 50% higher than the $0.02 dividend paid during September 2005. - Stock Buyback Stock buyback A corporation's purchase of its own outstanding stock, usually in order to raise the company's earnings per share. stock buyback See buyback. Shares outstanding on September 30, 2006 were 28,239,635, 5.4% lower than the 29,861,817 shares outstanding on September 30, 2005. Fully diluted shares outstanding for the third quarter of 2006 were 29,235,083, 5.9% lower than our fully diluted shares of 31,079,413 for the third quarter 2005. In the third quarter of 2006, we repurchased 62,400 shares at an average investment of $34.38 per share. The total amount of shares currently available to be repurchased under the program is approximately 653,000 shares at September 30, 2006. Through September 30, 2006, we have repurchased 4,664,958 class A common shares at an average investment of $39.45 per share since our buyback Buyback The buying back of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buyback shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may program was initiated in March 1999. Increased Liquidity We have approximately twenty-eight million shares outstanding. GGCP GGCP Gabelli Group Capital Partners (Rye, NY) , a private company and GAMCO's largest shareholder, distributed 2.7 million shares to its owners. Most of the shares have been registered, potentially increasing liquidity for GAMCO's stock. Investment Outlook As the third quarter ended amid falling oil prices and growing confidence in the economy and earnings, the equity markets closed near their highest level in six years. For three years, corporate earnings have increased at a double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. rate, while the equity market posted much more modest returns. This resulted in a dramatic compression compression, external stress applied to an object or substance, tending to cause a decrease in volume (see pressure). Gases can be compressed easily, solids and liquids to a very small degree if at all. of price earnings multiples, from an average of about 31 in 2000 to 16 times earnings today. At the same time, the economy is in transition from a strong one to a more moderate economy, as evidenced by The Federal Reserve that paused raising interest rates after 17 hikes of 25 basis points at each, increasing the Federal Funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. from 1% to 5.25% since June of 2004. Two sectors that will determine a soft landing are housing and energy. The housing slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. has been declining since the record housing starts reported in January. Oil has declined from $80 a barrel barrel: see English units of measurement. at its peak in the third quarter to $56 by the beginning of the fourth quarter. This is good news for consumption as well as inflation. This has led also to a consensus that the next Federal Reserve action will be to cut rates in 2007. The decline in the price of oil and gas, generally low interest rates, low unemployment, and continued consumer optimism Optimism See also Hope. Bontemps, Roger personification of cheery contentment. [Fr. Lit.: “Roger Bontemps” in Walsh Modern, 66] Candide beset by inconceivable misfortunes, hero indifferently shrugs them off. [Fr. and spending, as well as flush To empty the contents of a memory buffer. See buffer. Flush Elizabeth Barrett Browning’s spaniel, subject of a biography. [Br. Lit.: Woolf Flush in Barnhart, 446] See : Dogs (data) flush corporate balance sheets and the potential for capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. are all reasons to be optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about a soft landing. Fourth Quarter Earnings Outlook Since over 95% of our AUM are invested in equities, the primary risk factor affecting our revenues and financial results is the general market level of stock prices and interest rates. Our financial results are also subject to the gain or loss of clients. In addition, returns from our proprietary investment portfolio are also exposed to interest rate and equity market risk. Should negative market conditions that impact our AUM or proprietary investment portfolio occur, we could report lower operating results in the fourth quarter of 2006 than expected under current market conditions. NOTES ON NON-GAAP FINANCIAL MEASURES AND CHANGE IN ACCOUNTING METHOD A. Cash and investments as adjusted have been computed as follows: (in millions) [TABLE OMITTED] We believe adjusted cash and investments is a more useful measure of the company's liquidity for analytical analytical, analytic pertaining to or emanating from analysis. analytical control control of confounding by analysis of the results of a trial or test. 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 Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . We believe this measure is useful in illustrating the operating results of the Company as management fee expense is based on pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta 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. C. Beginning January 1, 2006, the provisions of FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). Interpretation No. 46R ("FIN fin, organ of locomotion characteristic of fish and consisting of thin tissue supported by cartilaginous or bony rays. In some fish, e.g., the eel, a single fin extends from the back, around the tail, and along the ventral surface. 46R") and Emerging Issue Task Force 04-5 ("EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation 04-5") require consolidation of the majority of our investment partnerships and offshore funds managed by our subsidiaries into our consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge . However, since we amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. the agreements of certain investment partnerships and an offshore fund on March 31, 2006, FIN46R and EITF 04-5 only required us to consolidate Consolidate To combine the assets, liabilities, and other financial items of two or more entities into one. Notes: This term is generally used in the context of consolidated financial statements. 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 con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: within our statement of income or on our balance sheet in the third quarter or future periods. However, for the nine months ended September 30, 2006, the consolidation of these entities does affect the classification of income between operating and other income. As a result, we have provided our results for the nine month period through September 30, 2006 before adjusting for FIN46R and EITF 04-5 as we believe this basis is comparable to our reported results for the nine months ended September 30, 2005. Although 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, there will only be minor adjustments for FIN 46R and EITF 04-5 for the remainder of 2006. Please refer to Form 10-Q Form 10-Q See 10-Q. for the first quarter 2006 for a discussion of FIN 46R and EITF 04-5. D. 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 year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. ) exceeds the dividend rate of the preferred shares. In 2005, GAMCO 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. Under this method, management fee revenues recognized in prior interim periods during the measurement period were subject to possible reversal in subsequent periods during that measurement period. Had this method not changed, we would have recorded approximately $1.5 million in management fee revenues on closed-end preferred shares for the three month period ended March 31, 2006. In addition, GAMCO has now changed its accounting method to recognize incentive fee revenues on investment partnerships at the end of the measurement period, effective January 1, 2006. Previously, GAMCO recognized these revenues during each interim reporting period. Under this method, incentive fee revenues recognized in prior interim periods during the measurement period were subject to possible reversal in subsequent periods during the measurement period. Had this method not changed, we would have recorded approximately $1.3 million in incentive fee revenues on investment partnerships for the three month period ended March 31, 2006 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 SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 154, which GAMCO adopted on January 1, 2006, a voluntary change in accounting principle requires retrospective LAW, RETROSPECTIVE. A retrospective law is one that is to take effect, in point of time, before it was passed. 2. Whenever a law of this kind impairs the obligation of contracts, it is void. 3 Dall. 391. 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 will result 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 for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. INFORMATION Our disclosure and analysis in this press release contain some forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . 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 relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc future actions, future performance of our products, expenses, the outcome of any legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. , 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 Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. 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 Self-regulatory organization (SRO) Organizations that enforce fair, ethical, and efficient practices in the securities and commodity futures industries, including all national securities and commodities exchanges and the NASD. . We also direct your attention to any more specific discussions of risk contained in our Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 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 Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). ("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 criteria (krītēr´ē  ),n. 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 rat·i·fy tr.v. rat·i·fied, rat·i·fy·ing, rat·i·fies To approve and give formal sanction to; confirm. See Synonyms at approve. 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 have not been consolidated at March 31, 2006. The results of operations of these entities are included in the statement of income for the nine months ended September 30, 2006, which includes 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:
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(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.
[TABLE OMITTED]
(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.
[TABLE OMITTED]
(a) As reported - GAAP at that time.
(b) Under a comparable reporting methodology as in 2005 - Non-GAAP
in 2006.
(c) Represents the effects of consolidation for the first quarter
of 2006 of those entities in which GBL holds a direct or indirect
controlling interest and the consolidation of entities under
FIN 46R and EITF 04-5.
(d) GAAP basis.
Please refer to Notes On Non-GAAP Financial Measures and Change In
Accounting Method on page 9 for discussion of FIN46R and EITF 04-5.
[TABLE OMITTED]
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* 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.
Please refer to Notes On Non-GAAP Financial Measures and Change
In Accounting Method on page 9 for discussion of our restatement
of revenues.
[TABLE OMITTED]
*As originally reported during the year ended December 31, 2005 and
quarters ended March 31, 2006 and June 30, 2006.
[TABLE OMITTED]
(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) September 30, 2006 balance sheet includes $16.5 million in assets,
$2.8 million in liabilities and $13.6 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.
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