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

N. Goodwill
In accordance with SFAS 142, we assess the recoverability of goodwill and other intangible assets at least annually, or more often should events warrant. There was no impairment
charge recorded in 2006. During the first quarter of 2005, assets under management for our fixed income business decreased approximately 42% from the beginning of the year,
triggering under our accounting policies the need to reassess goodwill for this 80% owned subsidiary. Using a present value cash flow method, we reassessed the recoverability of
goodwill for this entity and determined that the value of the entity no longer justified the amount of goodwill. Accordingly, we recorded a charge of $1.1 million during the first
quarter of 2005 for the impairment of goodwill that represented the entire amount of goodwill for this entity. At December 31, 2006, there remains $3.5 million of goodwill related
to our 92% owned subsidiary, Gabelli Securities, Inc.
At November 30, 2005 and November 30, 2006, management conducted its annual assessments and assessed the recoverability of goodwill and other intangible assets and
determined that there was no further impairment of the remaining goodwill on GBL’s consolidated financial statements. In assessing the recoverability of goodwill and other
intangible assets, projections regarding estimated future cash flows and other factors are made to determine the fair value of the respective assets. If these estimates or related
projections change in the future, it may result in an impairment charge for these assets to income.
O. Other Matters
Since September 2003, GBL and certain of its subsidiaries have been cooperating with inquiries from the N.Y. Attorney General's office and the SEC by providing documents and
testimony regarding certain mutual fund share trading practices. In June 2006, we began discussions with the SEC for a potential resolution of their inquiry. As a result of these
discussions, GBL recorded a reserve against earnings of approximately $12 million in the second quarter of 2006. In February 2007, one of our advisory subsidiaries made an
offer of settlement to the SEC for its consideration to resolve an ongoing inquiry. This offer of settlement is subject to agreement regarding the specific language of the SEC’s
administrative order and other settlement documents. As a result of these developments, we increased our reserves as of the fourth quarter of 2006 by $3 million, bringing the total
reserves to approximately $15 million in 2006. Since these discussions are ongoing, we cannot determine at this time whether they will ultimately result in a settlement of this matter,
whether our reserves will be sufficient to cover any payments by GBL related to such a settlement, or whether and to what extent insurance may cover such payments.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others” (“FIN 45”), which provides accounting and disclosure requirements for certain guarantees. The disclosure requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The interpretation’s initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. We indemnify our clearing brokers for losses they may sustain from the customer accounts introduced by our broker-dealer subsidiaries. In
accordance with NYSE rules, customer balances are typically collateralized by customer securities or supported by other recourse provisions. In addition, we further limit margin
balances to a maximum of 25% versus 50% permitted under Regulation T of the Federal Reserve Board and exchange regulations. At December 31, 2006 and 2005, the total
amount of customer balances subject to indemnification (i.e. margin debits) was immaterial. The Company also has entered into arrangements with various other third parties which
provide for indemnification against losses, costs, claims and liabilities arising from the performance of their obligations under our agreement, except for gross negligence or bad
faith. The Company has had no claims or payments pursuant to these or prior agreements, and we believe the likelihood of a claim being made is remote. Utilizing the methodology
in FIN 45, our estimate of the value of such agreements is de minimis, and therefore an accrual has not been made in the financial statements.
P. Subsequent Events
In January 2007, Gabelli & Company participated in an underwriting syndicate of the initial public offering of the Gabelli Global Deal Fund (“GDL”). GDL issued 18.75 million
common shares and the issuance generated gross proceeds to GDL of $375 million, based on the initial offering price of $20 per share. GBL invested $25 million from its cash and
cash equivalents in GDL. In March 2007, GDL issued 2.5 million additional common shares in conjunction with the exercise of the underwriters’ overallotment option. The
issuance of these shares generated gross proceeds to GDL of $50 million, based on the initial offering price of $20 per share. We anticipate incurring approximately $1.5 million of
expenses in connection with this offering during first quarter 2007.
On February 7, 2007, the Board of Directors declared a regular quarterly dividend of $0.03 per share to all of its class A and class B shareholders, payable on March 28, 2007 to
shareholders of record on March 15, 2007.
In February 2007, one of our advisory subsidiaries made an offer of settlement to the SEC for its consideration to resolve an ongoing inquiry. This offer of settlement is subject to
agreement regarding the specific language of the SEC’s administrative order and other settlement documents. As a result of these developments, we increased our reserves as of the
fourth quarter of 2006 by $3 million bringing the total reserves to approximately $15 million for 2006.
In February 2007, the Company paid off the $82.3 million in 5.22% Senior Notes plus accrued interest from its cash and cash equivalents and investments. This debt was originally
issued in connection with GBL's sale of mandatory convertible securities in February 2002 and was remarketed in November 2004.
In 2007, the Company has repurchased 33,000 shares at an average investment of $38.74 per share as of March 14, 2007. This brings the remaining authorization under the stock
repurchase program to approximately 1,015,000 shares at March 14, 2007.
Subsequent to December 31, 2006, a client, of which we are its subadvisor, announced an agreement and plan of reorganization of certain of its open-ended mutual fund products
to a New York based investment bank. The transaction is subject to shareholder approval and is expected to close in the second quarter of 2007.
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