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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, 2003
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Corporate Center, Rye, New York 10580
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(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, 2003
----- -----------------------------
Class A Common Stock, .001 par value 6,869,072
Class B Common Stock, .001 par value 23,150,000
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INDEX
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations:
- Three months ended March 31, 2003 and 2002
Condensed Consolidated Statements of Financial Condition:
- March 31, 2003
- March 31, 2002
- December 31, 2002 (Audited)
Condensed Consolidated Statements of Cash Flows:
- Three months ended March 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Including Quantitative and Qualitative Disclosures
about Market Risk)
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
-------- --------
REVENUES
Investment advisory and incentive fees ................ $ 39,501 $ 48,860
Commission revenue .................................... 2,420 3,931
Distribution fees and other income .................... 4,132 5,241
-------- --------
Total revenues ..................................... 46,053 58,032
EXPENSES
Compensation and related costs ........................ 20,525 22,430
Management fee ........................................ 1,669 2,748
Other operating expenses .............................. 7,519 7,485
-------- --------
Total expenses ..................................... 29,713 32,663
Operating income ........................................ 16,340 25,369
OTHER INCOME (EXPENSE)
Net gain from investments ............................. 434 714
Interest and dividend income .......................... 1,256 1,379
Interest expense ...................................... (3,011) (2,728)
-------- --------
Total other income (expense), net .................. (1,321) (635)
-------- --------
Income before income taxes and minority interest ........ 15,019 24,734
Income tax provision .................................. 5,647 9,300
Minority interest ..................................... 45 45
-------- --------
Net income .......................................... $ 9,327 $ 15,389
======== ========
Net income per share:
Basic ................................................. $ 0.31 $ 0.51
======== ========
Diluted ............................................... $ 0.31 $ 0.51
======== ========
Weighted average shares outstanding:
Basic ................................................. 29,918 29,941
======== ========
Diluted ............................................... 30,031 32,164
======== ========
See accompanying notes.
3
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
March 31, March 31, December 31,
2003 2002 2002
---------- ---------- ----------
(Unaudited)
ASSETS
Cash and cash equivalents .................. $ 327,099 $ 364,085 $ 311,430
Investments in securities .................. 158,319 56,666 175,466
Investments in partnerships and affiliates . 52,294 61,373 47,932
Receivable from brokers .................... 2,675 2,023 4,919
Investment advisory fees receivable ........ 14,400 18,551 15,603
Income tax receivable ...................... -- 10,879 --
Other assets ............................... 27,065 28,123 27,381
---------- ---------- ----------
Total assets .......................... $ 581,852 $ 541,700 $ 582,731
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to brokers ......................... 6,515 2,700 17,138
Income taxes payable ....................... 8,457 973 9,196
Compensation payable ....................... 20,554 25,859 18,459
Capital lease obligation ................... 3,342 3,478 3,433
Securities sold, not yet purchased ......... 2,833 -- 5,022
Accrued expenses and other liabilities ..... 14,142 16,185 15,583
---------- ---------- ----------
Total liabilities ..................... 55,843 49,195 68,831
6% Convertible note ........................ 100,000 100,000 100,000
Mandatory convertible securities ........... 84,163 90,000 84,545
Minority interest .......................... 7,607 7,383 7,562
Stockholders' equity ....................... 334,239 295,122 321,793
---------- ---------- ----------
Total liabilities and stockholders' equity . $ 581,852 $ 541,700 $ 582,731
========== ========== ==========
See accompanying notes.
4
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net income ........................................... $ 9,327 $ 15,389
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Equity in losses from partnerships and
affiliates ........................................ (555) (266)
Depreciation and amortization ........................ 242 212
Stock-based compensation expense ..................... 215 --
Deferred income taxes ................................ -- 18,661
Tax benefit from exercise of stock options ........... 620 3,813
Minority interest in net income of consolidated
subsidiaries ...................................... 45 45
Realized losses on available for sale securities ..... -- 18
(Increase) decrease in operating assets:
Investments in securities ......................... 17,303 (161)
Investment advisory fees receivable ............... 1,203 (3,900)
Receivables from affiliates ....................... 445 1,379
Other receivables ................................. (187) (480)
Receivable from brokers ........................... 2,244 (1,987)
Income tax receivable ............................. -- (10,879)
Other assets ...................................... (185) (3,765)
Increase (decrease) in operating liabilities:
Payable to brokers ................................ (10,623) (5,854)
Income taxes payable .............................. (723) (3,841)
Compensation payable .............................. 2,100 5,246
Accrued expenses and other liabilities ............ (1,531) (1,705)
Securities sold, not yet purchased ................ (2,189) --
--------- ---------
Total adjustments .................................... 8,424 (3,464)
--------- ---------
Net cash provided by operating activities ............ 17,751 11,925
--------- ---------
INVESTING ACTIVITIES
Purchases of available for sale securities ........... (204) (102)
Proceeds from sales of available for sale
securities ........................................... -- 102
Distributions from partnerships and affiliates ....... 7,349 10,971
Investments in partnerships and affiliates ........... (11,155) (6,240)
--------- ---------
Net cash provided by (used in) investing activities .. (4,010) 4,731
--------- ---------
FINANCING ACTIVITIES
Purchase of minority stockholders' interest .......... -- (273)
Issuance of mandatory convertible securities ......... -- 87,952
Repayment of note payable ............................ -- (50,000)
Proceeds from exercise of stock options .............. 2,505 7,897
Purchase of mandatory convertible securities ......... (373) --
Purchase of treasury stock ........................... (204) (3,594)
--------- ---------
Net cash provided by financing activities ............ 1,928 41,982
--------- ---------
Net increase in cash and cash equivalents ............ 15,669 58,638
Cash and cash equivalents at beginning of period ..... 311,430 305,447
--------- ---------
Cash and cash equivalents at end of period ........... $ 327,099 $ 364,085
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY
Net present value of forward purchase contract ....... $ -- $ 2,353
========= =========
See accompanying notes.
5
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
A. BASIS OF PRESENTATION
The unaudited interim Condensed Consolidated Financial Statements of
Gabelli Asset Management Inc. (the "Company") included herein have been prepared
in conformity with accounting principles generally accepted in the United States
for interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the unaudited interim condensed consolidated financial statements
reflect all adjustments, which are of a normal recurring nature, necessary for a
fair presentation of financial position, results of operations and cash flows of
the Company for the interim periods presented and are not necessarily indicative
of a full year's results.
In preparing the unaudited interim condensed consolidated financial
statements, management is required to make estimates and assumptions that affect
the amounts reported in the financial statements. Actual results could differ
from those estimates.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, from which the
accompanying Condensed Consolidated Statement of Financial Condition was
derived.
Certain items previously reported have been reclassified to conform to the
current year's financial statement presentation.
B. INVESTMENT IN SECURITIES
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. A substantial portion of investments in securities are held
for resale in anticipation of short-term market movements and classified as
trading securities. Available-for sale investments are stated at fair value,
with any unrealized gains or losses, net of deferred taxes, reported as a
component of stockholders' equity.
At March 31, 2002 and 2003 the market value of investments
available-for-sale was $6.9 million and $6.1 million, respectively. This loss in
market value, net of taxes, of $42,000 and $665,000 has been included in
stockholders' equity for March 31, 2002 and 2003, respectively.
There were no sales of available-for-sale investment securities for the
period ended March 31, 2003. Proceeds from sales of investments
available-for-sale were approximately $0.1 million for the period ended March
31, 2002. Gross gains on the sale of investments available for sale amounted to
$1,000; gross losses on the sale of investments available for sale amounted to
$19,000.
6
C. EARNINGS PER SHARE
The computations of basic and diluted net income per share are as follows:
Three Months Ended
March 31,
(in thousands, except per share amounts) 2003 2002
------- -------
Basic:
Net income .................................. $ 9,327 $15,389
======= =======
Average shares outstanding .................. 29,918 29,941
======= =======
Basic net income per share .................. $ 0.31 $ 0.51
======= =======
Diluted:
Net income .................................. $ 9,327 $15,389
Add interest expense on convertible note, net
of management fee and taxes .............. -- 913
------- -------
Total ....................................... $ 9,327 $16,302
======= =======
Average shares outstanding .................. 29,918 29,941
Dilutive stock options ...................... 113 336
Assumed conversion of convertible note ...... -- 1,887
------- -------
Total ....................................... 30,031 32,164
======= =======
Diluted net income per share ................ $ 0.31 $ 0.51
======= =======
For the three months ended March 31, 2003 the assumed conversion of the
convertible note would not be dilutive and, accordingly, has not been used in
the computation of the weighted average diluted shares.
D. STOCKHOLDERS' EQUITY
STOCK AWARD AND INCENTIVE PLAN
On February 18, 2003 the Board of Directors approved stock option awards
totaling 633,000 shares under the Company's Stock Award and Incentive Plan at an
exercise price to be equal to the closing market price on the date of grant. Of
these options 561,000 were granted on February 18 at an exercise price of $28.95
per share and 72,000 were granted on May 13, 2003 at an exercise price of $29.00
per share. These options will vest 75% after three years and 100% after four
years from the date of grant and expire after ten years. The Company adopted
SFAS 123, "Accounting for Stock-Based Compensation" ("SFAS 123") as of January
1, 2003 in accordance with SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS 148") and will use the Prospective method for
transition. Under SFAS 123 the Company records compensation expense equal to the
fair value of the options on the date of grant based on the Black-Scholes option
pricing model. This model utilizes a number of assumptions in arriving at its
results, including an estimate of the life of the option, the risk-free interest
rate at the date of grant and the volatility of the underlying common stock. The
weighted average fair value of the options granted on the date of grant and the
assumptions used were as follows:
Weighted average fair value of
Options granted: $10.98
Assumptions made:
Expected volatility 38%
Risk-free interest rate 3.04%
Expected life 5 years
Dividend yield 0%
7
D. STOCKHOLDERS' EQUITY (CONTINUED)
The expected life reflects an estimate of the length of time the employees
are expected to hold the options, including the vesting period, and is based, in
part, on actual experience with other grants. The dividend yield reflects the
assumption that no payout will be made in the foreseeable future. In the first
quarter of 2003 we recognized $215,000 in compensation expense and expect total
stock-based compensation expense for 2003 to total $1.5 million.
STOCK REPURCHASE PROGRAM
In March 1999 the Board of Directors established the Stock Repurchase
Program through which the Company is authorized to repurchase shares of its
Class A Common Stock from time to time in the open market. During the first
quarter of 2003, the Company repurchased 7,417 shares at an average cost of
$27.75 per share. Since the inception of the program the Company has repurchased
1,127,843 shares at an average cost of $25.21 per share. At March 31, 2003 the
total amount available to repurchase shares under the program was $14.2 million.
Since May 2002 the Board of Directors have also approved the repurchase of
up to 700,000 shares of the Company's mandatory convertible securities from time
to time in the open market. During the three months ended March 31, 2003, the
Company repurchased 15,300 shares at an average investment of $19.02 per share
bringing the total shares repurchased to 233,500 at a total investment of $5.1
million. A gain attributable to the debt component of the mandatory convertible
securities totaling $87,000 has been included in other income (expense).
E. SUBSEQUENT EVENT
On May 8, 2003 the Company sold through Merrill Lynch & Co. $100 million of
ten-year, 5.5% non-callable senior notes due May 15, 2013. The notes were issued
pursuant to the Company's existing shelf registration statement filed in
December 2001. The net proceeds to the Company will be approximately $99.2
million after deducting underwriter's discount and other expenses of the
offering. The proceeds are expected to be used for general corporate purposes.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Gabelli Asset Management Inc. (the "Company") is a widely recognized
provider of investment advisory and brokerage services to mutual fund,
institutional and high net worth investors in the United States and
internationally. We generally manage assets on a discretionary basis and invest
in a wide variety of U.S. and international securities through various
investment styles.
The Company's revenues are largely based on the level of assets under
management in its business as well as the level of fees associated with its
various investment products. Growth in revenues generally depends on good
investment performance and the ability to attract additional investors while
maintaining current fee levels. The Company's largest source of revenues is
investment advisory fees which are based on the amount of assets under
management in its Mutual Funds, Separate Accounts and Alternative Investment
Partnerships. Revenues derived from the equity oriented portfolios generally
have higher management fee rates than fixed income portfolios.
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and the notes thereto included in Item 1 to
this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
Consolidated Results - Three Months Ended March 31:
(Unaudited; in thousands, except per share data)
2003 2002 %CHANGE
-------- -------- -------
Revenues ............................................. $ 46,053 $ 58,032 (20.6%)
Expenses ............................................. 29,713 32,663 (9.0)
-------- --------
Operating income ..................................... 16,340 25,369 (35.6)
Investment income, net ............................... 1,690 2,093 (19.3)
Interest expense ..................................... (3,011) (2,728) 10.4
-------- --------
Total other income (expense), net .................... (1,321) (635)
-------- --------
Income before taxes and minority interest ............ 15,019 24,734 (39.3)
Income tax provision ................................. 5,647 9,300
Minority interest .................................... 45 45
-------- --------
Net income ........................................... $ 9,327 $ 15,389 (39.4)
======== ========
Net income per share:
Basic ............................................. $ 0.31 $ 0.51 (39.2)
======== ========
Diluted ........................................... $ 0.31 $ 0.51 (39.2)
======== ========
Reconciliation of Operating income to Adjusted EBITDA:
Operating income ..................................... $ 16,340 $ 25,369
Depreciation and amortization ........................ 242 212
Investment income, net ............................... 1,690 2,093
-------- --------
Adjusted EBITDA(a) ................................... $ 18,272 $ 27,674
-------- --------
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and minority interest. Adjusted EBITDA should not be
considered as an alternative to any measure of performance as promulgated
under accounting principles generally accepted in the United States nor
should it be considered as an indicator of our overall financial
performance. We use Adjusted EBITDA as a supplemental measure of
performance as we believe it gives investors a more complete understanding
of our operating results before the impact of investing and financing
activities.
9
Total revenues were $46.1 million in the first quarter of 2003 down $11.9
million or 20.6% from total revenues of $58.0 million reported in the first
quarter of 2002.
Investment advisory and incentive fees, which comprise 85.8% of total
revenues, were $39.5 million in the first quarter of 2003, $9.4 million or 19.2%
lower than the $48.9 million reported in the first quarter of 2002. The decrease
in investment advisory and incentive fees was principally the result of lower
levels of assets under management in our GAMCO institutional and high net worth
business and in our open-end equity mutual funds. GAMCO fees, which are
generally billed based on asset levels at the beginning of a quarter, declined
$3.8 million or 17.8% in the 2003 quarter as compared to the first quarter of
2002. Revenues from open-end equity mutual funds decreased $5.0 million or 23.5%
from the prior year as average assets under management in open-end equity funds
declined to $6.4 billion, 23.2% below the prior year's first quarter average of
$8.3 billion. At March 31, 2003 assets in open-end equity funds were $6.2
billion, 27.9% lower than the prior year first quarter end balance of $8.6
billion. Revenues from our alternative investment products were 14.7% higher at
$2.1 million resulting from both increased management and performance fees.
Commissions were $2.4 million in the first quarter of 2003, down 38.4% from
$3.9 million in the same period a year earlier largely due to a decrease in
overall trading volume.
Distribution fees and other income were $4.1 million in the first quarter
of 2003 versus $5.2 million in the first quarter of 2002. The decrease in
distribution fees results from the decline in average assets managed in open-end
equity mutual funds, which generate distribution fees under 12b-1 compensation
plans.
Total expenses were $29.7 million in the first quarter of 2003, a 9.0%
decrease from total expenses of $32.7 million reported in the first quarter of
2002. Compensation and related costs, which are largely variable, was $20.5
million, 8.5% lower than the same period a year earlier. The decrease in
compensation was due to lower variable incentive compensation. Salaries, which
are not variable in nature, increased by $1.0 million as we have added eleven
individuals to our research, sales and marketing staffs since the first quarter
of 2002. Management fee expense, which is totally variable and based on pretax
income, was 39.3% lower at $1.7 million in the first quarter of 2003 versus $2.7
million in the first quarter of 2002. Other operating expenses were unchanged at
$7.5 million in the first quarter of 2003 from the prior year first quarter as
lower mutual fund administration and distribution costs and brokerage costs were
offset by increased costs from new product initiatives, insurance premiums,
benefit programs and our most recent acquisitions (Woodland Partners and Grove).
Investment income was $1.7 million in the first quarter of 2003 down $0.4
million, or 19.3% from $2.1 million reported in the first quarter of 2002 as a
combination of lower interest rates and the declining equity markets resulted in
lower proprietary investment earnings. Interest expense increased $0.3 million
to $3.0 million in the first quarter of 2003 from $2.7 million in the comparable
prior year quarter. This increase was attributable to $85 million of mandatory
convertible securities outstanding ($90 million were issued in February 2002)
for the entire quarter in 2003 while outstanding only two months in 2002.
The estimated effective tax rate for the first quarter of 2003 and calendar
year 2002 was approximately 37.6%. Minority interest was unchanged quarter to
quarter.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are primarily liquid, consisting mainly of cash, short
term investments, securities held for investment purposes and investments in
partnerships in which the Company is a general or limited partner. Investments
in partnerships are generally illiquid, however, the underlying investments in
such partnerships are generally liquid and the valuations of the investment
partnerships reflect this underlying liquidity.
Summary cash flow data is as follows:
Three Months Ended March 31,
----------------------------
2003 2002
--------- ---------
Cash flows provided by (used in): (in thousands)
Operating activities $ 17,751 $ 11,925
Investing activities (4,010) 4,731
Financing activities 1,928 41,982
--------- ---------
Increase 15,669 58,638
Cash and cash equivalents at beginning of period 311,430 305,447
--------- ---------
Cash and cash equivalents at end of period $ 327,099 $ 364,085
========= =========
Cash requirements and liquidity needs have historically been met through
cash generated by operating activities and through the Company's borrowing
capacity. The Company has received investment grade ratings from both Moody's
Investors Services and Standard & Poor's Rating Services. The addition of
investment grade ratings serves to expand our ability to attract both public and
private capital. At March 31, 2003, the Company had total cash and investments
of $537.7 million, an increase of $55.6 million from March 31, 2002. The Company
has established a collateral account, consisting of cash and cash equivalents
totaling $103.0 million, to secure a letter of credit issued in favor of the
holder of the $100.0 million convertible note. The letter of credit expires on
August 14, 2003 which coincides with the date of a put option the note holder
may exercise. Cash and securities held in the collateral account are restricted
from other uses until the date of expiration. Total debt at March 31, 2003 was
$184.2 million, consisting of a $100 million convertible note and $84.2 million
in mandatory convertible securities. The mandatory convertible securities
consist of two components, a forward exchange contract to purchase shares of
Class A common stock in February 2005 and an equivalent amount of senior notes
due in February 2007. At the time of the mandatory exercise of the forward
contract and purchase of common stock in February 2005 the Company will receive
additional proceeds equal to the amount required to repay the senior notes in
2007. The interest rate on the senior notes will be reset in November 2004 and
will be based upon the rates for treasury bills maturing on or about February
2007.
Cash provided by operating activities was $17.8 million in the first
quarter of 2003 principally resulting from a decrease in investments in
securities of $17.3 million and a $10.6 million reduction in payable to brokers
partially offset by $9.3 million in net income. Cash provided by operating
activities was $11.9 million in the first quarter of 2002 largely resulting from
$15.4 million in net income during the quarter.
Cash used by investing activities, related to investments in and
distributions from partnerships and affiliates, was $4.0 million in the first
quarter of 2003. Cash provided by investing activities, related to investments
in and distributions from partnerships and affiliates, was $4.7 million in the
first quarter of 2002.
Cash provided by financing activities in the first quarter of 2003 was $1.9
million. The increase in cash primarily results from $2.4 million received from
the exercise of non-qualified stock options which further generated cash tax
savings of $0.6 million. Other significant financing activities which used cash
included $0.5 million to repurchase shares of our Class A Common Stock and
mandatory convertible securities under the Company's respective Stock Repurchase
Programs. Cash provided by financing activities in the first quarter of 2002 was
$42.0 million. The increase in cash resulted largely from the issuance of $90
million of mandatory convertible debt securities before offering expenses and
$7.9 million from the exercise of stock options less the repayment of a $50
million note payable and $3.6 million used to repurchase 93,157 shares of our
Class A Common Stock under the Company's Stock Repurchase Program.
11
On May 8, 2003, subsequent to the end of the first quarter, the Company
sold $100 million of ten-year, 5.5% non-callable and non-convertible senior
notes. The net proceeds to the Company will be approximately $99.2 million and
will be used for general corporate purposes. The notes were issued under a $400
million shelf registration statement filed in December 2001. There remains $120
million available under the shelf registration statement.
Based upon the Company's current level of operations and its anticipated
growth, the Company expects that its current cash balances plus cash flows from
operating activities and its borrowing capacity will be sufficient to finance
its working capital needs for the foreseeable future. The Company has no
material commitments for capital expenditures.
Gabelli & Company is registered with the Securities and Exchange Commission
as a broker-dealer and is a member of the National Association of Securities
Dealers. As such, it is subject to the minimum net capital requirements
promulgated by the Commission. Gabelli & Company's net capital has historically
exceeded these minimum requirements. Gabelli & Company computes its net capital
under the alternative method permitted by the Commission, which requires minimum
net capital of $250,000. At March 31, 2003, Gabelli & Company had net capital,
as defined, of approximately $13.3 million, exceeding the regulatory requirement
by approximately $13.1 million. Regulatory net capital requirements increase
when Gabelli & Company is involved in underwriting activities.
MARKET RISK
The Company is subject to potential losses from certain market risks as a
result of absolute and relative price movements in financial instruments due to
changes in interest rates, equity prices and other factors. The Company's
exposure to market risk is directly related to its role as financial
intermediary, advisor and general partner for assets under management in its
mutual funds, institutional and separate accounts business, partnerships and its
proprietary trading activities. At March 31, 2003, the Company's primary market
risk exposure was for changes in equity prices and interest rates. Included in
investments in securities of $158.3 million at March 31, 2003 were investments
in Treasury Bills and Notes of $104.4 million, in mutual funds, largely invested
in equity products, of $38.8 million, a diverse selection of common stocks and
corporate bonds totaling $12.6 million and other investments of approximately
$2.5 million. Investments in mutual funds generally lower market risk through
the diversification of financial instruments within their portfolio. In
addition, the Company may alter its investment holdings from time to time in
response to changes in market risks and other factors considered appropriate by
management. Of the approximately $12.6 million invested in common stocks at
March 31, 2003, $0.4 million is invested in risk arbitrage opportunities in
connection with mergers, consolidations, acquisitions, tender offers or other
similar transactions. Investments in partnerships and affiliates totaled $52.3
million at March 31, 2003 and consisted principally of partnerships which invest
in risk arbitrage opportunities. These transactions involve announced deals with
agreed upon terms and conditions, including pricing, which generally involve
less market risk than common stocks held in a trading portfolio. The principal
risk associated with risk arbitrage transactions is the inability of the
companies involved to complete the transaction.
The Company's exposure to interest rate risk results, principally, from its
investment of excess cash in U.S. Government obligations. These investments are
primarily short term in nature and the carrying value of these investments
generally approximates market value. The Company's revenues are largely driven
by the market value of its assets under management and are therefore exposed to
fluctuations in market prices. Investment advisory fees for mutual funds are
based on average daily asset values. Management fees earned on institutional and
high-net-worth separate accounts, for any given quarter, are generally
determined based on asset values on the last day of the preceding quarter. Any
significant increases or decreases in market value of institutional and
high-net-worth separate accounts assets managed which occur on the last day of
the quarter will generally result in a relative increase or decrease in revenues
for the following quarter.
12
RECENT ACCOUNTING DEVELOPMENTS
In December 2002, the FASB issued SFAS 148 which provides alternative
methods of transition to SFAS 123 and also amends its disclosure provisions. The
Company elected to begin expensing options using the fair value recognition
provisions of SFAS 123 effective January 1, 2003 using the Prospective method of
transition. Under the Prospective transition method there are no changes to
previously issued financial statements and only options granted subsequent to
January 1, 2003 are expensed.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", which provides new criteria for determining whether
or not consolidation accounting is required. This interpretation focuses on
financial 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 variable interest entity's
assets and activities are the best evidence of control. If the company holds the
largest variable interest it could be considered 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. This interpretation is effective for variable interest entities
created after January 31, 2003; otherwise it is applicable for the first interim
or annual reporting period after June 15, 2003. If applicable, the
Interpretation would require consolidation of an investment partnership's assets
and liabilities and results of operations with minority interest recorded for
the ownership share applicable to other investors. The difference between
consolidation and the equity method would impact detailed line items reported
within the consolidated financial statements but not overall consolidated net
income or stockholders' equity. Where consolidation is not required additional
disclosures may be required.
ITEM 4. CONTROLS AND PROCEDURES
Management, including the Chief Executive Officer and the Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based on the
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and the
Chief Financial Officer completed their evaluation.
FORWARD-LOOKING INFORMATION
Our disclosure and analysis in this report contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements because they do
not relate strictly to historical or current facts. They use words such as
"anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and
other words and terms of similar meaning. They also appear in any discussion of
future operating or financial performance. In particular, these include
statements relating to future actions, future performance of our products,
expenses, the outcome of any legal proceedings, and financial results. Although
we believe that we are basing our expectations and beliefs on reasonable
assumptions within the bounds of what we currently know about our business and
operations, there can be no assurance that our actual results will not differ
materially from what we expect or believe. Some of the factors that could cause
our actual results to differ from our expectations or beliefs include, without
limitation: the adverse effect from a decline in the securities markets; a
decline in the performance of our products; a general downturn in the economy;
changes in government policy or regulation; changes in our ability to attract or
retain key employees; and unforeseen costs and other effects related to legal
proceedings or investigations of governmental and self-regulatory organizations.
We also direct your attention to any more specific discussions of risk contained
in our Form 10-K and other public filings. We are providing these statements as
permitted by the Private Litigation Reform Act of 1995. We do not undertake to
update publicly any forward-looking statements if we subsequently learn that we
are unlikely to achieve our expectations or if we receive any additional
information relating to the subject matters of our forward-looking statements.
13
PART II: OTHER INFORMATION
ITEM 6. (a) Exhibits
Exhibits 99.1 Certification of CEO pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
Exhibits 99.2 Certification of CFO pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K.
The Company filed the following Current Reports on Form 8-K during
the three months ended March 31, 2003.
1. Current Report on Form 8-K dated January 31, 2003
containing the press release disclosing the Company's
operating results for the year ended December 31, 2002.
2. Current Report on Form 8-K dated May 6, 2003 containing
the press release disclosing the Company's operating
results for the first quarter ended March 31, 2003.
3. Current Report on Form 8-K/A dated May 8, 2003
to correct and supersede the Current Report on Form 8K
filed on May 6, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GABELLI ASSET MANAGEMENT INC.
-----------------------------
(Registrant)
May 14, 2003 /s/ Robert S. Zuccaro
- ------------ --------------------------------
Date Robert S. Zuccaro
Vice President and Chief Financial Officer
14
CERTIFICATIONS
I, Mario J. Gabelli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gabelli Asset
Management Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /s/ Mario J. Gabelli
-------------------------------------
MARIO J. GABELLI
Chief Executive Officer
Date: May 14, 2003
15
CERTIFICATIONS
I, Robert S. Zuccaro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gabelli Asset
Management Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
By: /s/ Robert S. Zuccaro
-------------------------------------
ROBERT S. ZUCCARO
Chief Financial Officer
Date: May 14, 2003
16