FORM 10-K/A GAMCO Investors, Inc. - Gabelli

Mutual fund revenues increased $3.9 million or 3.3%, as higher revenues from closed-end funds were offset slightly by lower revenues from open-end equity mutual funds and fixed
income mutual funds. Revenue from open-end equity funds decreased $0.4 million or 0.4% from the prior year as average assets under management in 2005 and 2004 were
essentially flat at $7.8 billion. The closing of The Treasurer’s Fund in the fourth quarter of 2005 contributed to lower revenues from fixed income mutual funds of $1.5 million or
74.6% from the 2004 period. Closed-end fund revenues increased $5.8 million or 15.4% from the prior year.
Revenue from Separate Accounts decreased $5.1 million or 5.9% principally due to lower average asset levels and a decrease in fulcrum fees earned on certain accounts. Assets in
our equity Separate Accounts fell $1.2 billion or 8.9% for the year.
Total advisory fees from Investment Partnerships increased to $14.8 million in 2005 from $13.7 million in 2004. Incentive allocations and fees from investment partnerships, which
generally represent 20% of the economic profit, increased to $7.1 million in 2005 compared to $5.0 million in 2004, slightly offset by a decrease in management fees of 11.6% to
$7.7 million in 2005 from $8.7 million in 2004.
Commissions: Commission revenues in 2005 were $12.2 million, $3.4 million or 21.7% lower than commission revenues of $15.6 million in 2004. The decrease in revenues was
due to a decrease in agency trading activity for accounts managed by affiliated companies offset slightly by higher revenues from institutional customers. Commission revenues
derived from transactions on behalf of our Mutual Funds and Separate Account clients totaled $9.7 million, or approximately 80% of total commission revenues in 2005.
Distribution Fees and Other Income: Distribution fees and other income increased 5.2% or $1.0 million to $20.7 million in 2005 from $19.7 million in 2004. The year-to-year
increase was principally the result of higher average AUM in class C shares which have 12b-1 fees of 1%.
Expenses
Compensation: Compensation costs, which are largely variable in nature, increased approximately $2.2 million, or 2.2%, to $106.1 million in 2005 from $103.9 million in
2004. Our variable compensation costs increased $0.7 million to $77.3 million in 2005 from $76.6 million in 2004 and increased, as a percent of revenues, to 30.5% in 2005
compared to 29.9% in 2004. The increase in total variable compensation costs is principally due to higher revenues from Mutual Funds and Investment Partnerships (an increase of
$1.5 million) partially offset by lower variable compensation costs related to Commissions (a decrease of $1.3 million). The increase, as a percent of revenues, is due to a shift in
revenue mix from Separate Accounts to Investment Partnerships and Mutual Funds. Fixed compensation costs rose approximately $1.5 million to $28.8 million in 2005 from $27.3
million in 2004 principally due to increases in salaries and stock option expense. The increase in stock option expense of approximately $1.0 million was related to the accelerated
vesting of stock options during the year.
Management Fee: Management fee expense is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax profits which is paid to Mr.
Gabelli for acting as CEO pursuant to his Employment Agreement so long as he is an executive of GBL and devoting the substantial majority of his working time to the business. In
2005, management fee expense increased 4.0% to $11.5 million versus $11.0 million in 2004.
Distribution Costs: Distribution costs, which include marketing, promotion and distribution costs increased $1.2 million or 5.7% in 2005 from the 2004 period. This increase
related to the one-time launch costs of $1.5 million for our new closed-end fund, GGN, as continuing distribution costs decreased $0.3 million in 2005 from the 2004 period.
Other Operating Expenses: Other operating expenses increased $5.2 million or 24.3% to $26.7 million in 2005. This increase includes a one-time charge of $1.1 million from the
impairment of goodwill related to our fixed income business. In addition, there was an increase in accounting and legal costs of approximately $2.6 million as well as $1.2 million of
higher costs directly related to the elimination of soft dollars in our mutual fund business.
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