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

We also serve as investment manager or co-investment manager for various affiliated offshore funds whose underlying assets consist primarily of marketable securities. As the
investment manager or co-investment manager, we earn a management fee based on a percentage of net assets and are entitled to a 20% incentive based on the absolute gain in the
portfolio. For the year ended December 31, 2006 for the offshore funds that are not consolidated, we earned management fees of $1,850,000 and recorded incentive fees of
$3,656,000. For the years ended December 31, 2004 and 2005 for all of the offshore funds, we earned management fees of $2,448,000 and $2,306,000, respectively and
recorded incentive fees of $1,423,000 and $3,013,000, respectively. At December 31, 2006 for the offshore funds that are not consolidated, we had investments in these affiliated
offshore funds aggregating $29,008,000 and earned income of $3,292,000. At December 31, 2005 for all of the offshore funds, we had investments in these affiliated offshore
funds aggregating $27,790,000 and earned $643,000 and $2,083,000 from these investments in 2004 and 2005, respectively.
At December 31, 2005 and 2006, we had various interests in unaffiliated limited partnerships, offshore funds and other investments aggregating approximately $22,408,000 and
$21,098,000, respectively. For the years ended December 31, 2004, 2005 and 2006, we recorded net gains related to these investments of approximately $1,000,000,
$1,183,000, and $2,078,000, respectively.
D. Income Taxes
We account for income taxes under the liability method prescribed by SFAS 109. Under SFAS 109, deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax purposes.
GBL and our greater than 80% owned subsidiaries file a consolidated federal income tax return. Advisers, our less than 80% owned subsidiary files a separate federal income tax
return. Accordingly, the income tax provision represents the aggregate of the amounts provided for all companies.
The provision for (benefit from) income taxes for the years ended December 31, 2004, 2005 and 2006 consisted of the following:
2004 (a) 2005 (a) (b) 2006 (b)
(In Thousands)
Federal:
Current $ 31,799 $ 32,024 $ 52,472
Deferred (1,198) 1,183 (6,502)
State and local:
Current 6,088 5,573 5,505
Deferred (571) (95 ) (627 )
$ 36,118 $ 38,685 $ 50,848
(a) Restated as described in note A of item 8 of this report on Form 10-K.
(b) Restated as described in the explanatory note of this report on Form 10-K/A.
Our effective tax rate for each of the years ended December 31, 2004, 2005 and 2006 was 36.4%, 37.5% and 38.2%, respectively. A reconciliation of the Federal statutory
income tax rate to the effective tax rate is set forth below:
2004 2005 2006
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal benefit 3.6 3.5 2.4
Other (2.2) (1.0) 0.8
Effective income tax rate 36.4% 37.5% 38.2%
Significant components of our deferred tax assets and liabilities were as follows:
2005 (a) 2006
Deferred tax assets: (in thousands)
Stock option expense $ (650) $ (622)
Deferred compensation (3,362) (3,602)
Accrued Bonus - (1,575)
Reserve for settlement - (4,500)
Other (482) (495)
Total deferred tax assets (4,494) (10,794)
Deferred tax liabilities:
Investments in securities available for sale 64 6,207
Investments in securities and partnerships 5,733 4,551
Other 396 399
Total deferred tax liabilities 6,193 11,157
Net deferred tax liabilities $ 1,699 $ 363
(a) Restated as described in note A of item 8 of this report on Form 10-K/A.
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