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

Our revenues are primarily driven by the market value of our AUM and are therefore exposed to fluctuations in market prices of these assets, which are largely readily marketable
equity securities. Investment advisory fees for mutual funds are based on average daily or weekly asset values. Advisory fees earned on institutional and high net worth separate
accounts, for any given quarter, are generally determined based on asset values at the beginning of a quarter. Any significant increases or decreases in market value of assets
managed which occur during a quarter will result in a relative increase or decrease in revenues for the following quarter.
Investment Partnership advisory fees are computed based on monthly or quarterly asset values. The incentive allocation or fee of 20% of the economic profit from Investment
Partnerships is impacted by changes in the market prices of the underlying investments of these products.
Interest Rate Risk
Our exposure to interest rate risk results, principally, from our investment of excess cash in government obligations and money market funds. These investments are primarily short
term in nature, and the fair value of these investments generally approximates market value. Our mandatory convertible securities included a provision to reset the interest rate in
November 2004. The reset rate was determined to be 5.22%.
Commitments and Contingencies
We are obligated to make future payments under various contracts such as debt agreements and capital and operating lease agreements. The following table sets forth our
significant contractual cash obligations as of December 31, 2006 (in thousands):
Total 2007 2008 2009 2010 2011 Thereafter
Contractual Obligations:
5.5% Senior notes $ 100,000 $ - $ - $ - $ - $ - $ 100,000
6% Convertible note 50,000 - - - - 50,000 -
5.22% Senior Notes 82,308 82,308 - - - - -
Capital lease obligations 4,936 856 765 765 765 765 1,020
Non-cancelable operating
lease obligations 278 242 35 1 - - -
Total $ 237,522 $ 83,406 $ 800 $ 766 $ 765 $ 50,765 $ 101,020
In June 2006, GBL and Cascade Investments L.L.C. (“Cascade”) agreed to amend the terms of the $50 million convertible note maturing in August 2011. Effective September 15,
2006, the rate on the note increased from 5% to 6% while the conversion price was raised to $53 per share from $52 per share. In addition, the exercise date of Cascade’s put
option was extended to May 15, 2007, the expiration date of the related letter of credit was extended to May 22, 2007 and a call option was included giving GBL the right to
redeem the note at 101% of its principal amount together with all accrued but unpaid interest thereon upon at least 30 days prior written notice, subject to certain provisions.
Off-Balance Sheet Arrangements
We are the General Partner or co-General Partner of various limited partnerships whose underlying assets consist primarily of marketable securities. As General Partner or co-
General Partner, we are contingently liable for all of the limited partnerships' liabilities.
Our income from these limited partnerships consists of our share of the management fee and the 20% incentive allocation from the limited partners. We also receive our pro-rata
return on any investment made in the limited partnership. We earned management fees of $1.6 million in 2006 and $1.9 million in 2005 and incentive fees of $2.4 million and $1.6
million in 2006 and 2005, respectively. Our pro-rata gain on investments in these limited partnerships totaled $0.8 million in 2006 as compared to a gain of $0.8 million in 2005.
We do not invest in any other off-balance sheet vehicles that provide financing, liquidity, market or credit risk support or engage in any leasing activities that expose us to any liability
that is not reflected in the Consolidated Financial Statements.
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