Original GBL Prospectus - Gabelli

GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
of net assets acquired, which is being amortized over a period of 10 years. The results of Fixed Income's
operations are included in the consolidated statement of income eÅective April 15, 1997. For the years ended
December 31, 1995, 1996 and 1997, the Company recorded equity income (loss) from these entities of
approximately $147,000, $331,000 and $(109,000), respectively. Pro forma information relating to this
transaction is not presented because its eÅect is immaterial.
D. Notes Receivable
At December 31, 1996, the Company had a note receivable amounting to $11,800,000, which represents a
loan made during 1996 to an aÇliate, Lynch Corporation. The interest rate on the note was 10% per annum. In
addition, there was a one-time commitment fee of 1% and a special fee equal to 10% of the net proÑts of an
aÇliate of Lynch Corporation. The aÇliate was the high bidder for Personal Communications Services
(""PCS'') licenses in the Federal Communications Commission's (""FCC'') F Block Auction concluded in
January 1997. In 1997, the aÇliate repaid all outstanding principal and interest due on this loan. Additionally,
the Company transferred its 10% net proÑts interest in exchange for an equity ownership in a non-controlled
entity which currently holds these PCS licenses.
At December 31, 1996 and 1997, the Company had full recourse notes and interest receivable from
directors of GAMCO in the amount of approximately $1,560,000 and $1,666,000, respectively, which are
secured by the directors' ownership interests in the Company and various aÇliates. The notes bear interest at
an annual rate of 7% and are payable on demand.
At December 31, 1997, the Company had a note receivable of approximately $603,000 from an aÇliated
entity in which the Company has a 49.9% ownership interest. Under the terms of the note, 15% of the realized
net proÑts of the aÇliate are payable to the Company. The note is secured by a security interest in all of the
assets of the aÇliate, which consist primarily of Wireless Communications Service (""WCS'') licenses. For the
year ended December 31, 1997, the Company did not record any income under the terms of the note.
At December 31, 1997, the Company had a note receivable from an entity controlled by certain
stockholders of the Company in the amount of $3,600,000. The note bears interest at an annual rate of 7%. All
principal and interest due on the note was repaid in 1998.
The Company has approximately $2,464,000 in various other notes and interest receivable outstanding at
December 31, 1997 from certain executive oÇcers, directors and employees in connection with the acquisition
of stock and other ownership interests in the Company. Interest rates on these notes range from 5% to 10%.
E. Income Taxes
The Company accounts for income taxes under the liability method prescribed by SFAS No. 109,
""Accounting for Income Taxes''. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the diÅerences between the Ñnancial statement carrying amount of existing assets
and liabilities and their respective tax bases.
GFI and GSI each Ñle separate income tax returns. Accordingly, the tax provision represents the
aggregate of the amounts provided for all companies.
GFI elected to be treated as a Subchapter ""S'' corporation for federal and state income tax purposes
eÅective January 1, 1995. On January 1, 1997, the Company elected to treat GAMCO as a QualiÑed
Subchapter ""S'' subsidiary for Federal and state income tax purposes. As a result of converting from a taxable
""C'' corporation to a nontaxable ""S'' corporation, a federal income tax will be imposed on any ""built-in gain''
recognized by the Company on the disposition of assets within ten years from the date of conversion. The
Company retained its existing deferred tax liability at the date of conversion to the extent of the estimated
built-in gains tax. This tax liability is subject to remeasurement at each Ñnancial statement date until the end
of the ten-year period.
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