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

Other Income and Expense
Our proprietary investment portfolio consists of investments in mutual funds, U.S. treasury bills, common stocks as well as other investments including limited partnerships and
offshore funds. Net gain from investments, which is derived from our proprietary investment portfolio, was approximately $10.9 million for the year ended December 31, 2005
compared to $5.6 million in 2004. The higher full year 2005 investment gains are mostly due to our $100,000 venture capital investment in optionsXpress (NASDAQ: OXPS)
made in 2001 through our 92%-owned subsidiary, Gabelli Securities, Inc. OXPS completed its initial public offering during the first quarter 2005. We recorded a total gain of
$5.4 million for the full year 2005.
Interest and dividend income was $18.5 million in 2005 compared to $10.5 million in 2004. Interest income rose $7.6 million to $12.4 million in 2005 and is a result of higher
short-term interest rates.
Interest expense fell $2.2 million to $13.8 million in 2005, from $16.0 million in 2004. The decrease is a result of the April 1, 2005 repurchase of $50 million of the $100 million
5% convertible note and the remarketing of the senior notes in November 2004, which reduced the interest rate from 6.0% to 5.22%. At December 31, 2005, the 5% convertible
note is convertible, at the holder’s option, into shares of our class A common stock at $52 per share.
Income Taxes
The effective tax rate for 2005 was 37.5% up from the 2004 effective tax rate of 36.4% as we adjusted the tax rate in 2005 to reflect our estimate of the current year-end tax
liability.
Minority Interest
Minority interest expense was essentially flat at $0.5 million in both 2005 and 2004. Minority interest expense was largely the result of earnings from our Investment Partnerships
and income from investments at our 92%-owned subsidiary, Gabelli Securities, Inc, offset by the losses at our previously 80%-owned Fixed Income business.
Net Income
Net income for 2005 was $63.9 million or $2.11 per fully diluted share versus $62.6 million or $2.06 per fully diluted share for 2004.
Operating Margin
Operating margins, before management fee, for the full year 2005 declined to 39.1% from 43.1% due to an increase in selling, general and administrative expenses, including a
number of one-time charges.
Shareholder Compensation and Initiatives
During 2005, we returned $57.3 million of our earnings to shareholders through dividends and our stock repurchases. We paid $0.69 per share in dividends ($20.1 million) to our
common shareholders in 2005 which included three quarterly dividends of $0.02 per share paid on March 28, 2005, June 28, 2005, and September 28, 2005 and one quarterly
dividend of $0.03 per share paid on December 28, 2005. In addition, we paid a special dividend of $0.60 per share on January 18, 2005 to all shareholders.
Through our stock buyback program, we repurchased approximately 861,000 shares in 2005 for a total investment of $37.2 million or $43.22 per share. There remained
approximately 1,083,000 shares authorized under our stock buyback program on December 31, 2005.
Weighted average shares outstanding on a diluted basis in 2005 were 31.2 million and included 1.0 million shares from the assumed conversion of our 5% convertible note for the
full year 2005, as under the applicable accounting methodology used to compute dilution, the convertible note was dilutive. The full number of shares which may be issued upon
conversion of this note is approximately 1.0 million. During 2005, we issued 49,500 shares from the exercise of stock options and 1,517,483 shares from the settlement of the
remaining purchase contracts relating to the mandatory convertible securities.
At December 31, 2005, we had 226,325 options outstanding to purchase our class A common stock which were granted under our Stock Award and Incentive Plans (the
“Plans”).
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