-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WihpsyUY5ejXEnmw17u5DMO7D5zlNIBGtPSGz887dTfB1jXsJ8uxPu1imAGqymvi oXmsMJys15/iwJHYjcWF3w== 0001157523-05-008455.txt : 20080114 0001157523-05-008455.hdr.sgml : 20080114 20050929165229 ACCESSION NUMBER: 0001157523-05-008455 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20050929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMCO INVESTORS, INC. ET AL CENTRAL INDEX KEY: 0001060349 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 134007862 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: CORRESP BUSINESS ADDRESS: STREET 1: ONE CORPORATE CENTER STREET 2: 401 THEODORE FREMD AVENUE CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149213700 MAIL ADDRESS: STREET 1: ONE CORPORATE CENTER STREET 2: 401 THEODORE FREMD AVENUE CITY: RYE STATE: NY ZIP: 10580 FORMER COMPANY: FORMER CONFORMED NAME: GABELLI ASSET MANAGEMENT INC DATE OF NAME CHANGE: 19990112 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA G INC DATE OF NAME CHANGE: 19980423 CORRESP 1 filename1.txt One Corporate Center GAMCO Investors, Inc. Rye, NY 10580-1422 Tel. (914) 921-5147 Fax (914) 921-5392 September 29, 2005 Mr. Mark Webb Legal Branch Chief United States Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Mr. Webb: We have reviewed your letter, dated July 15, 2005, regarding our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005. We have responded to each of your comments and provided additional information where appropriate. Form 10-K for the year ended December 31, 2004: ---------------------------------------------- General ------- Comment 1. Section 3(a)(1) of the Investment Company Act of 1940 (the "Investment Company Act") defines an investment company, in relevant part, as: Any issuer which (a) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities...or (c) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer's total assets (exclusive of Government securities and cash items) on an unconsolidated basis. Based on Gabelli Asset Management Inc.'s ("Gabelli") Form 10-K for the year ended December 31, 2004, it appears that Gabelli owns investment securities having a value greater than 40 percent of its total assets (exclusive of Government securities and cash items) on a consolidated basis. Please provide financial information, on an unconsolidated basis that indicates the percentage of Gabelli's total assets (exclusive of Government securities and cash items) that are investment securities. If more than 40 percent of Gabelli's total assets are investment securities under section 3(1)(1)(C), please explain (if true) why you believe that Gabelli is not an investment company subject to registration and regulation under the Investment Company Act. If you conclude however, that Gabelli is an investment company, please explain what steps Gabelli has taken to resolve its status as an investment company under the Investment Company Act. 1 Response The staff's comment questions whether GAMCO Investors, Inc. ("GBL" or the "Company"), formerly known as Gabelli Asset Management Inc., is an investment company under Section 3(a)(1) of the Investment Company Act under the premise that more than 40% of its unconsolidated assets are investment securities. On an unconsolidated basis, the Company's total assets on a GAAP basis were approximately $634,053,000. Of the total assets, approximately $202,888,000 consists of cash and cash items, approximately $148,310,000 consists of U.S. government securities, approximately $152,733,000 consists of investment securities, approximately $107,121,000 consists of investments in subsidiaries and approximately $23,000,000 consists of other assets. Pursuant to Section 2(a)(41) of the Investment Company Act of 1940, for purposes of the statistical 40% test set forth in Section 3(a)(1) of the Investment Company Act, the Company's investments in its operating subsidiaries should be measured at fair value. After adjusting the Company's investments in subsidiaries to fair value, the percentage of investment securities of gross unconsolidated assets is below the 40% statistical test. In analyzing the fair value of the subsidiaries, we performed a simple analysis which considered the valuation of subsidiaries in two ways: (i) The value of GBL's two largest subsidiaries, Gabelli Funds, LLC and GAMCO Asset Management Inc. (formerly known as GAMCO Investors, Inc.), using an EBITDA multiple of 10 (marginally less than the multiple that most asset management companies sell for) yields a total value of approximately $838,000,000 as the fair value of these subsidiaries. This fair value results in a percentage of investment securities of gross unconsolidated assets of approximately 15%, well below the 40% statistical threshold, without taking into consideration GBL's other subsidiaries (see Attachment I). (ii) Gabelli Funds, LLC and GAMCO Asset Management Inc. accounted for approximately 81% of the total 2004 consolidated net income. Based on this, if the fair value of these subsidiaries represents at least 80% of the total GBL market capitalization or approximately $710,000,000 (adjusted for total GBL unconsolidated cash and cash items, government securities and investments in securities) then the percentage of investment securities of gross unconsolidated assets is approximately 17%, well below the 40% statistical threshold, without taking into consideration GBL's other subsidiaries (see Attachment II). Based on this analysis, we believe that the percentage of investment securities of GBL's gross unconsolidated assets is well below the 40% statistical test. However, even if more than 40% of the Company's unconsolidated assets consisted of investment securities, the disclosure in the Company's Annual Report on Form 10-K would show that under the factors utilized by the SEC and the courts in analyzing the primary engagement of the Company under Section 3(b)(1) of the Investment Company Act: (i) the Company has historically been, and today remains primarily an investment management firm; (ii) the Company's proprietary investments are managed and administered by a small number of individuals in comparison to over 100 professionals involved in managing, administering and marketing investment companies, separate accounts and private investment funds and conducting its broker-dealer and investment banking business; (iii) the Company has never suggested that its investments are a significant aspect of its business; (iv) for the years ended December 31, 2004, December 31, 2003 and December 31, 2002, approximately 99.9%, 92.2%, and 104.5%, respectively, of the Company's income before taxes and minority interest was derived from its investment management, administrative, distribution and broker-dealer activities, which are not proprietary investment activities; and (v) it is only in the assets test that any question at all arises. Further, a large percentage of the Company's investment securities are investments in its own investment products, which is a necessary adjunct of the Company's asset management business. 2 Thus, we conclude that the Company is not an investment company subject to registration and regulation under the Investment Company Act of 1940. Management's Discussion and Analysis of Financial Condition and Results of -------------------------------------------------------------------------- Operations Asset Highlights, page 30 ------------------------------------ Comment 2. The change in your assets under management presented in the table on page 30 does not appear to reconcile to the net cash inflow/outflow amounts presented in the table on page 31. Please tell us the reason for the difference and revise future filings to reconcile these amounts by product line. Response The change in assets under management ("AUM") presented in the table on page 30 represents the total change in AUM for the year. The change has two components: (i) net cash inflows/outflows (which is presented in the table on the following page); and (ii) market appreciation/depreciation (which is not presented) We have enclosed a schedule (see Attachment III) which shows the reconciliation of these two components to the change in AUM for the year, and it is our intention to provide such a reconciliation in all future filings. Financial Statements -------------------- Note A-Significant Accounting Policies - Investments in Partnerships and ------------------------------------------------------------------------ Affiliates, page F-10 --------------------- Comment 3. We note that you account for your investments in partnerships and affiliates using the equity method. We also note in footnote C on page F-14 that you are a General Partner or co-General Partner in various limited partnerships. Tell us how you determined that you are not required to consolidate your investments in these limited partnerships citing the authoritative accounting literature you relied upon. 3 Response In our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, we disclosed that we accounted for our investment in partnerships and affiliates (each, a "Fund" and collectively, the "Funds") using the equity method. In determining the appropriate accounting for our investment in Funds, we relied on FIN46R, APB Opinion No. 18, AICPA Accounting Interpretation No. 2 of APB 18, SOP 78-9 and ARB 51. Prior to FIN46R and EITF 04-5, there was diversity in industry practice in accounting for investments in partnerships and funds where ownership interest was less than a majority. We interpreted the third- party equityholders' ability to remove their investment from the respective partnership/fund as a means by which they prevent the Company from controlling (i.e., substantive participating rights) of the respective partnership/fund and as a sufficient basis to preclude consolidation. Therefore, the Company's use of the equity method of accounting for the majority of our Funds is based upon the guidance provided in SOP 78-9, ARB 51, APB Opinion No. 18, and AICPA Accounting Interpretation No. 2 of APB 18. Related to the guidance in APB Opinion No. 18 in reaching this conclusion, we determined that although our holdings are generally less than 20% of the Funds, we believed the equity method is the correct methodology as the general partner or investment manager (each, the "Investment Manager") has significant influence over the operations of the respective Funds. Furthermore, for the remaining Funds where our ownership exceeded 50%, we also deemed the equity method of accounting to be acceptable because the impact of the gross-up to the Company's balance sheet was immaterial and the Company's net income and equity were not affected. Overall, we believed non-consolidation had an immaterial impact on the Company's consolidated financial statements. Upon the issuance of FIN 46R, we evaluated that guidance to determine the appropriateness of our accounting for investments in the Funds. As stated in FIN46R, a variable interest entity ("VIE") has one or more of the following characteristics: (i) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including the equity holders; or (ii) the equity investors lack one or more of the following essential characteristics of a controlling financial interest: o the direct or indirect ability to make decisions about the entity's activities through voting rights or similar rights; o the obligation to absorb the expected losses of the entity; or o the right to receive the expected residual returns of the entity; or (iii) the equity investors have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. Based on the provisions of FIN46R, we determined, at that time, that the Funds managed by GBL subsidiaries were VIEs. We reached this conclusion based on the fact that the limited partners and shareholders (the "investors"), as a group, in our Funds could not make substantive decisions about activities of these entities as such investors do not have any voting/control rights with respect to the operations of these Funds. 4 In determining whether the VIEs should be consolidated, we considered whether the Investment Manager was the primary beneficiary of the entity. In reviewing the amount of investment as Investment Manager and the impact of fees (including incentive fees), we concluded that the Investment Manager was not the primary beneficiary for most of these VIEs. For those VIEs where the Company was not the primary beneficiary, we relied on the provisions of AICPA Accounting Interpretation No. 2 of APB 18 and SOP 78-9 and determined that the appropriate accounting for our Funds was the equity method. We also relied on the guidance in APB Opinion No. 18 in reaching this conclusion, as we determined that although our holdings were generally less than 20% of the Funds, we believed the equity method was the correct methodology as the Investment Manager had significant influence over the operations of the respective Funds. For those VIEs where we concluded that the Investment Manager was the primary beneficiary, it was determined that the effect of consolidating these entities had no material impact on the financial statements of GBL, as the total net assets of these entities were approximately $21 million, of which GBL had recorded approximately $15 million of assets on its balance sheet through the equity method of accounting, resulting in an impact on the balance sheet of: (i) an increase in assets of $6.8 million (representing less than 1% of assets); (ii) an increase of $1.4 million to liabilities; and (iii) an increase of $5.4 million to minority interest. We therefore did not consolidate these VIEs. We also considered the following in reaching our determination: o consolidating these VIEs versus accounting for them under the current method of equity accounting has no impact on GBL's net income or equity in the financial statements and only represents a gross-up of the balance sheet; and o information regarding the activities of these Funds are disclosed in the notes to the consolidated financial statements. Please see the responses to Comment 4 for further information regarding the accounting for the Company's investments in the Funds. Financial Statements -------------------- Note A-Significant Accounting Policies - Recently Issued Accounting ------------------------------------------------------------------- Standards, page F-12 -------------------- Comment 4. Please tell us and revise future filings to disclose the impact EITF 04-5 will have on your financial statements when adopted. Refer to SAB topic 11M. Response In June 2005, the Financial Accounting Standards Board ("FASB") ratified the consensus EITF 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights", which provides guidance in determining whether a general partner controls a limited partnership. The provisions of EITF 04-5 are not applicable to limited partnerships or similar entities accounted for as VIEs pursuant to FIN46R. In light of the ratification of EITF 04-5 by the FASB and subsequent to the filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005, we have further analyzed the accounting for our investments in the Funds. Based on this analysis and consultation with our independent auditors, we have determined that we should begin consolidating the majority of the Funds managed by GBL subsidiaries effective January 1, 2006 consistent with the provisions of FIN46R and EITF 04-5. 5 We previously determined that the Funds managed by GBL subsidiaries were VIEs. We reached this conclusion based on the fact that the investors, as a group, in our Funds could not make substantive decisions about activities of these entities as such investors do not have any voting/control rights with respect to the operations of these Funds. In considering whether the equity investors, as a group, had the direct or indirect ability to make decisions about the entity's activities through voting rights or similar rights, we initially considered the equity investors as a group to be only the limited partners and shareholders in our Funds. In making this determination, we excluded the interests of the general partner or investment manager of the respective Fund, which we believed was consistent with the overall purpose of FIN46R. However, in further analyzing the provisions of FIN46R, in light of EITF 04-5, it could be interpreted that the equity investors would include the interests of a general partner or investment manager in an investment partnership or fund, respectively, and therefore, these interests should be included when determining whether the equity investors as a group had the direct or indirect ability to make decisions about the entity's activities through voting rights or similar rights. In this case, the majority of our Funds would not be considered VIEs. This interpretation would be based on footnote 6 to Section 5a in FIN46R which states that: Equity investments in an entity are interests that are required to be reported as equity in that entity's financial statements. While we believe this statement implies that a general partner or investment manager's interest should be included in determining the voting rights or similar rights of the equity investors, as a group, we also believe that the following statement in Section 5b(1) of FIN46R seems to contradict this statement: 5. An entity shall be subject to consolidation according to the provisions of this Interpretation if, by design conditions in a, b, or c exist: b. As a group the holders of the equity investment at risk lack any one of the following three characteristics of a controlling financial interest: (1) The direct or indirect ability through voting rights or similar rights to make decisions about an entity's activities that have a significant effect on the success of the entity. The investors do not have the ability through voting rights or similar rights if no owners hold voting rights or similar rights (such as those of a common shareholder in a corporation or a general partner in a partnership). By stating "such as those of a general partner in a partnership," one could conclude that the limited partner interests should be considered separately from the interest of a general partner to determine whether the limited partners, as a group, have voting rights or similar rights. In this case, all of our Funds would be considered VIEs. However, when FIN46R and EITF 04-5 are read together, we have reached the conclusion that the preferred accounting treatment of the FASB for these types of entities is consolidation. 6 Based on this conclusion, if a general partner or investment manager had an investment in an investment partnership or fund, respectively, the investors, as a group, would have direct or indirect ability to make decisions about the entity's activities through voting rights or similar rights. As a result, we have now concluded that we have investments in only five VIEs and the remaining entities would not be considered VIEs in accordance with FIN46R and would be subject to the provisions of EITF 04-5, when effective. The provisions of EITF 04-5, which will be effective on January 1, 2006, state that a sole general partner in a limited partnership is presumed to control that limited partnership and therefore should include the limited partnership in its consolidated financial statements, regardless of the sole general partner's ownership in the limited partnership. As EITF 04-5 makes clear, upon effective date, a limited partners' ability to remove their investment from a limited partnership does not prevent the Company from controlling that limited partnership. The assessment of whether the rights of the limited partners should overcome the presumption of control, and therefore consolidation, by the sole general partner is a matter of judgment and depends on facts and circumstances. Such facts and circumstances should be evaluated based on the following two-step process: (i) Do the limited partners have the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the sole general partner without cause? (ii) Do the limited partners have substantive participating rights? For each investment partnership where we are the sole general partner (and the investment partnerships are not VIEs), the limited partners do not have the ability to dissolve (liquidate) the limited partnership or otherwise remove the sole general partner without cause and also do not have substantive participating rights. Therefore, these investment partnerships would be subject to consolidation beginning on January 1, 2006 under EITF 04-5. We also believe these provisions apply by analogy to each fund where we are the sole investment manager and the common shareholders in such fund do not hold the rights as outlined above. In these situations, these funds would also be subject to consolidation beginning January 1, 2006 under EITF 04-5. For those investment partnerships where we are co-general partner or have an interest in the general partner (and the investment partnerships are not VIEs), our first step would be to analyze whether our co-general partner status or interest in the general partner leads to control of the limited partnership. In those cases where our co-general partner status or interest in the general partner leads to control (4 of the 5 cases), the limited partners also do not have the ability to dissolve (liquidate) the limited partnership or otherwise remove either the co-general partner or general partner without cause and also do not have substantive participating rights. Therefore, these investment partnerships (4 of the 5 cases) would also be subject to consolidation beginning on January 1, 2006 under EITF 04-5. In summary, while it is our opinion that the issue remains a "gray" area, we plan on consolidating twelve of our Funds managed by GBL subsidiaries beginning January 1, 2006. These twelve Funds include: o five Funds which we have not consolidated in the past because they are immaterial; and o seven Funds that will be subject to the provisions of EITF 04-5. In addition, we currently have five Funds that are VIEs for which we are not considered to be the primary beneficiary. We plan on providing the appropriate disclosure in accordance with FIN46R for these five VIEs beginning with our Quarterly Report on Form10-Q for the fiscal quarter ended September 30, 2005. 7 The impact of consolidation of these entities versus the current method of equity accounting has no impact on GBL's net income or equity in the financial statements and only represents a gross-up of the balance sheet. To illustrate this, we have presented our statement of financial condition and income statement as filed in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2005 and the pro-forma effects that EITF 04-5 would have on the statement of financial condition as of June 30, 2005 and income statement for the six month period ended June 30, 2005, adjusted for the effects of EITF 04-5 as if effective as of June 30, 2005 (see Attachment IV). We plan on revising our disclosure regarding our Funds in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, which will include the pro forma effects on our consolidated financial statements of EITF 04-5 based on this revised interpretation and the disclosures required by paragraphs 23-26 of FIN46R for our five VIEs. Below is the revised disclosure that we currently anticipate including in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005 (please note the figures required for disclosure have not been included as the amounts cannot be determined at this time): In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities" which was subsequently revised in December 2003 by FASB Interpretation No. 46(R) ("FIN46R"). FIN46R provides new criteria for determining whether or not consolidation accounting is required for off-balance sheet activities conducted through certain types of entities. This interpretation focuses on financial interests in entities (i.e., variable interests) that indicate control despite the absence of clear control through voting interest. It concludes that a company's exposure (variable interest) to the economic risks and rewards from the entity's assets and activities are the best evidence of control. The interpretation requires that these variable interest entities (VIEs) be subject to consolidation if the company holding the variable interest is subject to a majority of the expected losses or will receive a majority of the expected residual returns of the VIE (the "primary beneficiary"). As the primary beneficiary, it would be required to include the variable interest entity's assets, liabilities and results of operations in its own financial statements. In June 2005, the FASB ratified the consensus EITF 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights," which provides guidance in determining whether a general partner controls a limited partnership. The provisions of EITF 04-5 are not applicable to limited partnerships or similar entities accounted for as VIEs pursuant to FIN46R. We have further reviewed the provisions of FIN46R and EITF 04-5 and have determined that we will be required to consolidate the majority of our investment partnerships and offshore funds managed by our subsidiaries beginning on January 1, 2006. If consolidation of these investment partnerships and offshore funds were required as of September 30, 2005, the effect on our consolidated financial statements would have been as follows: 8 - -------------------------------------------------------------------------------- Consolidated Statement of Financial Condition September 30, 2005 - -------------------------------------------------------------------------------- (Pro Forma) Effects of Post Reported consolidation Consolidation - -------------------------------------------------------------------------------- Assets - -------------------------------------------------------------------------------- Liabilities - -------------------------------------------------------------------------------- Minority Interest - -------------------------------------------------------------------------------- Stockholders' Equity - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Consolidated Income Statement For the nine months ended September 30, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Pro Forma) Effects of Post Reported consolidation Consolidation - -------------------------------------------------------------------------------- Revenues - -------------------------------------------------------------------------------- Expenses - -------------------------------------------------------------------------------- Other Income - -------------------------------------------------------------------------------- Net Income - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We also serve as the Investment Manager of five offshore funds that are classified as VIEs. These offshore funds seek to earn absolute returns for investors and are primarily focused within our event-driven long/short equity and sector-focused strategies. Our involvement with one of these offshore funds began in 1994 but the majority were launched between 1999 and 2002. The total net assets of the five offshore funds classified as VIEs were $___________ on September 30, 2005. However, we are not the primary beneficiary or a holder of a significant variable interest in these VIEs. Our maximum exposure to loss as result of our involvement with these VIEs is limited to our investment in the respective VIEs. On September 30, 2005, our total investment in these VIEs was approximately $___________. Form 10-Q for the quarter ended March 31, 2005 ---------------------------------------------- Recent Accounting Developments, page 18 --------------------------------------- Comment 5. We note that you implemented FIN46R for the quarter ended September 30, 2004. Please tell us how you determined that you were not required to implement FIN 46R as of March 31, 2004, i.e., the first period ending after March 15, 2004, based on the guidance in paragraphs 27-36 of FIN 46R. 9 Response We have reviewed the disclosure in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 and also reviewed our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. In performing this review, we noted that while we did indicate in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 that we implemented FIN46R for the quarter ended September 30, 2004, that this was a typographical error and should have stated as of March 31, 2004. We have enclosed the relevant disclosure (see Attachment V) from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, which states that we implemented FIN46R for the quarter ended March 31, 2004. This appears in the second paragraph on page 14 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. Form 10-Q for the quarter ended March 31, 2005 ---------------------------------------------- Recent Accounting Developments, page 18 --------------------------------------- Comment 6. On page 19 you state that you were not the primary beneficiary for most of the partnerships and offshore funds you manage that were determined to be VIEs. Please tell us and revise future filings to provide the disclosures required by paragraphs 23-26 of FIN46R related to VIEs in which you are primary beneficiary or the holder of a significant variable interest. Response Our revised disclosure, which will be included in our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, appears in the last paragraph in the response to Comment 4 above. 10 Closing Comments - ---------------- In response to your request, we acknowledge that: o the Company is responsible for the adequacy and accuracy of the disclosure in the filings; o staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and o the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. If you have any questions or require additional information, please contact Gregory Fernicola at Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036-6522 or by telephone at (212) 735-2918. Regards, Michael R. Anastasio Jr. Vice President and Chief Financial Officer 11
ATTACHMENT I (AT BOOK VALUE) (AT FAIR VALUE) GBL GBL UNCONSOLIDATED UNCONSOLIDATED ---------------------------------------------------------- Cash and Cash Items $202,888,000 $ 202,888,000 Treasury Bills 148,310,000 148,310,000 Investments in Securities 152,733,000 152,733,000 Investment in Subsidiaries 107,120,909 837,730,000 Other 23,000,698 23,000,698 -------------- -------------- Total Assets $634,052,607 $1,364,661,698 ============== ============== Total Assets Excluding Cash and Cash Equivalents and Government Securities $1,013,463,698 Investment Securities as a Percentage of Assets 15.07% 2004 Gabelli Funds LLC EBITDA $ 50,215,000 2004 GAMCO EBITDA $ 33,558,000 Total 2004 Gabelli Funds and GAMCO EBITDA $ 83,773,000 Total Estimated 2004 Gabelli Funds and GAMCO Fair Value $ 837,730,000 EBITDA Multiple 10X
ATTACHMENT II (AT BOOK VALUE) (AT FAIR VALUE) GBL GBL UNCONSOLIDATED UNCONSOLIDATED --------------------------------------------------------- Cash and Cash Items $202,888,000 $ 202,888,000 Treasury Bills 148,310,000 148,310,000 Investments in Securities 152,733,000 152,733,000 Investment in Subsidiaries 107,120,909 709,583,336 Other 23,000,698 23,000,698 -------------- -------------- Total Assets $634,052,607 $1,236,515,034 ============== ============== Total Assets Excluding Cash and Cash Equivalents and Government Securities $ 885,317,034 Investment Securities as a Percentage of Assets 17.25% Total GBL Market Capitalization - 12/31/04 $1,399,170,000 Less: Total Assets (other than Investments in Subsidiaries) at GBL Unconsolidated 526,931,698 -------------- Total Market Capitalization - Subsidiaries $ 872,238,302 ============== 2004 Gabelli Funds LLC Net Income 30,809,000 2004 GAMCO Net Income 20,084,000 Total 2004 Gabelli Funds and GAMCO Net Income 50,893,000 Total 2004 GBL Net Income 62,559,000 Gabelli Funds and GAMCO Net Income Percentage of GBL 2004 Net Income 81.35%
GABELLI ASSET MANAGEMENT INC. Attachment III Assets Under Management (in thousands) Year to Date ---------------------------------------------------------------------- Acquisitions/ Cash Market 12/31/2001 Transfers Flows Performance 12/31/2002 ---------------------------------------------------------------------- Mutual Funds Open end equities $ 8,334,033 $ - $(188,000) $(1,664,004) $ 6,482,029 Closed end equities 1,830,578 - - (222,041) 1,608,537 ---------------------------------------------------------------------- Total equities 10,164,611 - (188,000) (1,886,045) 8,090,566 ---------------------------------------------------------------------- Fixed income Money market funds 899,387 - 96,745 14,522 1,010,653 Treasurers funds 882,115 - 59,388 11,431 952,934 Bond funds 8,645 - - 4,902 13,548 ---------------------------------------------------------------------- Total fixed income 1,790,147 - 156,132 30,855 1,977,135 ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL MUTUAL FUNDS 11,954,758 - (31,868) (1,855,190) 10,067,701 ---------------------------------------------------------------------- Institutional & separate accounts Equities Value 9,031,860 - 67,429 (1,541,069) 7,558,220 Growth 542,700 - 16,700 (218,000) 341,400 Woodland - 247,900 (200) 4,400 252,100 Small cap value 1,797,600 - (37,500) (93,800) 1,666,300 International 141,400 - 50,000 (19,000) 172,400 ---------------------------------------------------------------------- Total equities 11,513,560 247,900 96,429 (1,867,469) 9,990,420 ---------------------------------------------------------------------- Fixed income 719,851 - (119,793) 12,600 612,658 TOTAL INSTITUTIONAL & SEPARATE ACCOUNTS 12,233,411 247,900 (23,364) (1,854,869) 10,603,078 ---------------------------------------------------------------------- Investment Partnerships Partnerships 508,213 - (105,399) 7,533 410,347 Separate Accounts 64,611 - 99,279 4,080 167,970 ---------------------------------------------------------------------- Total Investment Partnerships 572,824 - (6,120) 11,613 578,317 ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL ASSETS UNDER MGMT $24,760,993 $ 247,900 $ (61,351) $(3,698,446) $21,249,096 ====================================================================== BY PRODUCT SUMMARY: TOTAL EQUITIES 22,250,995 247,900 (97,691) (3,741,901) 18,659,303 TOTAL FIXED INCOME 2,509,998 - 36,340 43,455 2,589,793 ---------------------------------------------------------------------- TOTAL ASSETS UNDER MGMT $24,760,993 $ 247,900 $ (61,351) $(3,698,446) $21,249,096 ======================================================================
Attachment III (continued) GABELLI ASSET MANAGEMENT INC. Assets Under Management (in thousands) Year to Date ---------------------------------------------------------------------- Cash Market 12/31/2002 Flows Performance 12/31/2003 ---------------------------------------------------------------------- Mutual Funds Open end equities $ 6,482,029 $ (268,000) $1,873,399 $ 8,087,428 Closed end equities 1,608,537 1,632,338 289,024 3,529,899 ---------------------------------------------------------------------- Total equities 8,090,566 1,364,338 2,162,423 11,617,327 ---------------------------------------------------------------------- Fixed income Money market funds 1,010,653 (48,433) 8,397 970,617 Treasurers funds 952,934 (225,830) 5,320 732,424 Bond funds 13,548 (2,000) (367) 11,180 ---------------------------------------------------------------------- Total fixed income 1,977,135 (276,263) 13,350 1,714,221 ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL MUTUAL FUNDS 10,067,701 1,088,075 2,175,773 13,331,549 ---------------------------------------------------------------------- Institutional & separate accounts Equities Value 7,558,220 297,366 2,154,474 10,010,060 Growth 341,400 (40,400) 105,300 406,300 Woodland 252,100 (72,900) 57,900 237,100 Small cap value 1,666,300 20,300 660,900 2,347,500 International 172,400 (152,200) 10,400 30,600 ---------------------------------------------------------------------- Total equities 9,990,420 52,166 2,988,974 13,031,560 ---------------------------------------------------------------------- Fixed income 612,658 (114,584) 5,600 503,674 TOTAL INSTITUTIONAL & SEPARATE ACCOUNTS 10,603,078 (62,418) 2,994,574 13,535,234 ---------------------------------------------------------------------- Investment Partnerships Partnerships 410,347 (73,849) 35,954 372,452 Separate Accounts 167,970 127,536 24,075 319,581 ---------------------------------------------------------------------- Total Investment Partnerships 578,317 53,688 60,029 692,033 ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL ASSETS UNDER MGMT $ 21,249,096 $ 1,079,345 $5,230,375 $27,558,816 ====================================================================== BY PRODUCT SUMMARY: TOTAL EQUITIES 18,659,303 1,470,192 5,211,425 25,340,921 TOTAL FIXED INCOME 2,589,793 (390,847) 18,950 2,217,896 ---------------------------------------------------------------------- TOTAL ASSETS UNDER MGMT $ 21,249,096 $ 1,079,345 $5,230,375 $27,558,816 ======================================================================
Attachment III GABELLI ASSET MANAGEMENT INC. (continued) Assets Under Management (in thousands) Year to Date ---------------------------------------------------------------------- Cash Market 12/31/2003 Flows Performance 12/31/2004 ---------------------------------------------------------------------- Mutual Funds Open end equities $ 8,087,428 $ (838,482) $ 780,082 $ 8,029,028 Closed end equities 3,529,899 577,360 234,709 4,341,968 ---------------------------------------------------------------------- Total equities 11,617,327 (261,122) 1,014,791 12,370,996 ---------------------------------------------------------------------- Fixed income Money market funds 970,617 (9,089) 9,280 970,808 Treasurers funds 732,424 (220,324) 4,919 517,018 Bond funds 11,180 1,185 (1,753) 10,613 ---------------------------------------------------------------------- Total fixed income 1,714,221 (228,229) 12,446 1,498,439 ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL MUTUAL FUNDS 13,331,549 (489,351) 1,027,237 13,869,435 ---------------------------------------------------------------------- Institutional & separate accounts Equities Value 10,010,060 71,319 1,753,594 11,834,973 Growth 406,300 (51,700) 6,500 361,100 Woodland 237,100 (135,600) 22,600 124,100 Small cap value 2,347,500 (1,054,100) (52,400) 1,241,000 International 30,600 (8,200) 3,900 26,300 ---------------------------------------------------------------------- Total equities 13,031,560 (1,178,281) 1,734,194 13,587,473 ---------------------------------------------------------------------- Fixed income 503,674 (124,545) 8,512 387,641 TOTAL INSTITUTIONAL & SEPARATE ACCOUNTS 13,535,234 (1,302,826) 1,742,706 13,975,114 ---------------------------------------------------------------------- Investment Partnerships Partnerships 372,452 35,870 15,842 424,163 Separate Accounts 319,581 56,246 14,363 390,191 ---------------------------------------------------------------------- Total Investment Partnerships 692,033 92,116 30,205 814,354 ---------------------------------------------------------------------- ---------------------------------------------------------------------- TOTAL ASSETS UNDER MGMT $27,558,816 $(1,700,061) $2,800,148 $28,658,903 ====================================================================== BY PRODUCT SUMMARY: TOTAL EQUITIES 25,340,921 (1,347,287) 2,779,190 26,772,823 TOTAL FIXED INCOME 2,217,896 (352,774) 20,958 1,886,080 ---------------------------------------------------------------------- TOTAL ASSETS UNDER MGMT $27,558,816 $(1,700,061) $2,800,148 $28,658,903 ======================================================================
Attachment IV Gabelli Asset Management Inc. and Subsidiaries Consolidated Income Statement (000's) Six Months Ended June 30, 2005 ----------------------------------------------- Effects of Pro Forma Reported Consolidation Post Consolidation ----------------------------------------------- Income Statement Data: Investment advisory and incentive fees $106,290 $(3,425) $102,865 Commission revenue 5,039 - 5,039 Distribution fees and other income 10,043 329 10,372 ---------- ---------- ---------- Total revenues 121,372 (3,096) 118,276 Expenses: Compensation costs 53,508 - 53,508 Management fee 4,577 - 4,577 Distribution costs 10,748 - 10,748 Other operating expenses 12,754 238 12,992 ---------- ---------- ---------- Total expenses 81,587 238 81,825 Operating income 39,785 (3,334) 36,451 Other Income (Expense) Net gain from investments 982 9,846 10,828 Interest and dividend income 7,629 3,977 11,606 Interest expense (7,204) (2,177) (9,381) ---------- ---------- ---------- Total other income, net 1,407 11,646 13,053 Income before income taxes and minority interest 41,192 8,311 49,503 Income taxes 15,447 - 15,447 Minority interest 108 8,311 8,419 ---------- ---------- ---------- Net Income $ 25,637 $ - $ 25,637 ========== ========== ========== Earnings per share - Basic $ 0.86 $ - $ 0.86 ========== ========== ========== Earnings per share - Fully diluted $ 0.85 $ - $ 0.85 ========== ========== ========== Basic weighted average shares outstanding 29,821 29,821 29,821 ========== ========== ========== Fully diluted weighted average shares outstanding 31,447 31,447 31,447 ========== ========== ==========
Attachment IV Gabelli Asset Management Inc. and Subsidiaries Consolidated Statement of Financial Condition (000's) June 30, 2005 ----------------------------------------------------------------------- Effects of Pro Forma Reported Consolidation Post Consolidation ----------------------------------------------------------------------- Assets: - ------- Cash and cash equivalents $ 191,413 $ 98,791 $ 290,205 Investments in securities 366,664 275,856 642,520 Investments in partnerships and affiliates 85,716 (48,851) 36,865 Investment advisory fees and other receivables 55,376 (6,750) 48,626 Other assets 13,105 10,674 23,779 ------------------------- -------------------- -------------------- Total assets 712,273 329,722 1,041,995 ------------------------- -------------------- -------------------- Liabilities: - ------------ Capital lease obligation 3,084 - 3,084 Compensation payable 31,914 - 31,914 Accounts payable and accrued expenses 18,864 4,248 23,112 Taxes payable 3,050 - 3,050 Due to broker & clearing organizations 1 - 1 ------------------------- -------------------- -------------------- Total operating liabilities 56,913 4,248 61,161 ------------------------- -------------------- -------------------- 5.5% Senior Notes 100,000 - 100,000 5% Convertible Note 50,000 - 50,000 5.22% Senior notes 82,308 - 82,308 ------------------------- -------------------- -------------------- Total liabilities 289,220 4,248 293,469 Minority interest 5,735 325,473 331,209 Stockholders' Equity: - --------------------- Capital stock 33 - 33 Additional paid in capital 235,103 - 235,103 Retained earnings 292,821 - 292,821 Accum. Comprehensive Income 1,864 - 1,864 Treasury stock (112,504) - (112,504) ------------------------- -------------------- -------------------- Total stockholders' equity 417,318 - 417,318 ------------------------- -------------------- -------------------- ------------------------- -------------------- -------------------- Total liabilities and stockholders' equity $ 712,273 $329,722 $1,041,995 ------------------------- -------------------- --------------------
Attachment V SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 -------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- Commission File No. 1-106 ----- GABELLI ASSET MANAGEMENT INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) New York 13-4007862 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Corporate Center, Rye, New York 10580 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (914)921-3700 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No --- Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practical date. Class Outstanding at April 30, 2004 --------- ------------------------------------ Class A Common Stock, .001 par value 6,799,653 Class B Common Stock, .001 par value 23,128,500 1 Attachment V In January 2003 the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" which was subsequently revised in December 2003 by FASB Interpretation No. 46(R) ("FIN No. 46"). FIN No. 46 provides new criteria for determining whether or not consolidation accounting is required for off-balance sheet activities conducted through certain types of entities. This interpretation focuses on financial interests in entities (i.e., variable interests) that indicate control despite the absence of clear control through voting interest. It concludes that a company's exposure (variable interest) to the economic risks and rewards from the entity's assets and activities are the best evidence of control. The interpretation requires that these variable interest entities (VIEs) be subject to consolidation if the company holding the variable interest is subject to a majority of the expected losses or will receive a majority of the expected residual returns of the VIE (the "primary beneficiary"). As the primary beneficiary it would be required to include the variable interest entity's assets, liabilities and results of operations in its own financial statements. During February 2004, the FASB issued further guidance through FASB Staff Positions related to FIN No. 46. We have implemented FIN No. 46 for the quarter ended March 31, 2004 based on the provisions of the interpretation and the related staff positions and concluded that certain of the partnerships and offshore funds managed by Gabelli are VIEs. However, in most cases, it was concluded based on the provisions of the interpretation and related staff positions that Gabelli was not the primary beneficiary of these entities. As a result, the effect of the implementation of FIN No. 46 for the quarter ended March 31, 2004 did not have a material impact to our consolidated financial statements. We serve as General Partner, co-General Partner or Investment Manager for a number of partnerships and offshore funds classified as VIEs. As General Partner or co-General Partner, we are contingently liable for all of the partnerships' liabilities. Our exposure to the activities of VIEs which are not partnerships is limited to our investment in each respective VIE. 2 -----END PRIVACY-ENHANCED MESSAGE-----