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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 JuneSeptember 30, 2002
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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
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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
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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[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 JulyOctober 31, 2002
----- ------------------------------------ ------------------------------------ -------------------------------
Class A Common Stock, .001 par value 6,694,2436,681,901
Class B Common Stock, .001 par value 23,450,000
1
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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 JuneSeptember 30, 2001 and 2002
- SixNine months ended JuneSeptember 30, 2001 and 2002
Condensed Consolidated Statements of Financial Condition:
- JuneSeptember 30, 2002
-
December 31, 2001 (Audited)
Condensed Consolidated Statements of Cash Flows:
- Three months ended JuneSeptember 30, 2001 and 2002
- SixNine months ended JuneSeptember 30, 2001 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 4. Submission of Matters to Vote of Security Holders
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
JUNEThree Months Ended
September 30,
----------------------
2001 2002
-------- --------
REVENUESRevenues
Investment advisory and incentive fees ...........fees. . . . . . . $ 47,71847,297 $ 48,35639,707
Commission revenue ............................... 3,580 3,682revenue. . . . . . . . . . . . . . . . . 3,145 3,199
Distribution fees and other income ............... 5,719 5,364income. . . . . . . . . 5,679 4,414
-------- --------
Total revenues ................................ 57,017 57,402
EXPENSES. . . . . . . . . . . . . . . . . 56,121 47,320
Expenses
Compensation and related costs ................... 22,619 22,291costs. . . . . . . . . . . 22,673 17,474
Management fee ................................... 2,961 2,483fee. . . . . . . . . . . . . . . . . . . 2,732 2,055
Other operating expenses ......................... 9,483 8,242expenses. . . . . . . . . . . . . . 8,126 7,571
-------- --------
Total expenses ................................ 35,063 33,016. . . . . . . . . . . . . . . . . 33,531 27,100
Operating income. . . . . . . . . . . . . . . . . . . 22,590 20,220
Other income ................................... 21,954 24,386
OTHER INCOME (EXPENSE)(expense)
Net gain (loss) from investments ................. 2,808 (636)investments. . . . . . . . . . 1,220 (390)
Interest and dividend income ..................... 2,840 1,780income. . . . . . . . . . . . 2,522 1,720
Interest expense ................................. (956) (3,186)expense. . . . . . . . . . . . . . . . . . (1,741) (3,057)
-------- --------
Total other income (expense), net ............. 4,692 (2,042). . . . . . . 2,001 (1,727)
-------- --------
Income before income taxes and minority interest ... 26,646 22,344interest. . . 24,591 18,493
Income tax provision ............................. 10,285 8,401provision. . . . . . . . . . . . . . . . 9,493 6,954
Minority interest ................................ 520 2interest. . . . . . . . . . . . . . . . . 152 46
-------- --------
Net income .....................................income. . . . . . . . . . . . . . . . . . . $ 15,84114,946 $ 13,94111,493
======== ========
Net income per share:
Basic ............................................. . . . . . . . . . . . . . . . . . . . . . . $ 0.540.50 $ 0.460.38
======== ========
Diluted ........................................... . . . . . . . . . . . . . . . . . . . . . $ 0.530.49 $ 0.460.38
======== ========
Weighted average shares outstanding:
Basic ............................................ 29,527 30,222. . . . . . . . . . . . . . . . . . . . . . . 29,748 30,141
======== ========
Diluted .......................................... 29,932 32,327. . . . . . . . . . . . . . . . . . . . . . 31,142 30,296
======== ========
See accompanying notes.
3
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share data)
SIX MONTHS ENDED
JUNENine Months Ended
September 30,
----------------------------------------------
2001 2002
--------- ---------
REVENUES-------- --------
Revenues
Investment advisory and incentive fees ........... $ 95,905 $ 97,216fees. . . . . . . $143,202 $136,923
Commission revenue ............................... 7,967 7,613revenue. . . . . . . . . . . . . . . . . 11,112 10,812
Distribution fees and other income ............... 11,489 10,605
--------- ---------income. . . . . . . . . 17,168 15,019
Total revenues ................................ 115,361 115,434
EXPENSES. . . . . . . . . . . . . . . . . 171,482 162,754
Expenses
Compensation and related costs ................... 45,732 44,721costs. . . . . . . . . . . 68,405 62,195
Management fee ................................... 5,754 5,231fee. . . . . . . . . . . . . . . . . . . 8,486 7,286
Other operating expenses ......................... 17,920 15,727
--------- ---------expenses. . . . . . . . . . . . . . 26,046 23,928
Total expenses ................................ 69,406 65,679. . . . . . . . . . . . . . . . . 102,937 92,779
Operating income. . . . . . . . . . . . . . . . . . . 68,545 69,975
Other income ................................... 45,955 49,755
OTHER INCOME (EXPENSE)(expense)
Net gain (loss)from investments ........................ 3,242 78. . . . . . . . . . 4,462 (312)
Interest and dividend income ..................... 4,473 3,159income. . . . . . . . . . . . 6,995 4,879
Interest expense ................................. (1,887) (5,914)
--------- ---------expense. . . . . . . . . . . . . . . . . . (3,628) (8,971)
Total other income (expense), net ............. 5,828 (2,677)
--------- ---------net. . . . . . . . 7,829 (4,404)
Income before income taxes and minority interest ... 51,783 47,078interest. . . 76,374 65,571
Income tax provision ............................. 19,988 17,701provision. . . . . . . . . . . . . . . . 29,481 24,655
Minority interest ................................ 1,058 47
--------- ---------interest. . . . . . . . . . . . . . . . . 1,210 93
Net income .....................................income. . . . . . . . . . . . . . . . . . . . $ 30,73745,683 $ 29,330
========= =========40,823
Net income per share:
Basic ............................................. . . . . . . . . . . . . . . . . . . . . . . $ 1.041.54 $ 0.97
========= =========1.36
======== ========
Diluted ........................................... . . . . . . . . . . . . . . . . . . . . . $ 1.031.52 $ 0.97
========= =========1.35
======== ========
Weighted average shares outstanding:
Basic ............................................ 29,517 30,083
========= =========. . . . . . . . . . . . . . . . . . . . . . . 29,595 30,102
======== ========
Diluted .......................................... 29,887 32,246
========= =========. . . . . . . . . . . . . . . . . . . . . . 30,310 30,337
======== ========
See accompanying notes.
4
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
December 31, JuneSeptember 30,
2001 2002
-------- --------
(Unaudited)----------- -----------
ASSETS
Cash and cash equivalents ........................... $305,447 $395,928(Note B). . . . . . . . $ 305,447 $ 316,351
Investments in securities ............................ . . . . . . . . . . . 56,293 53,803152,709
Investments in partnerships and affiliates ..........affiliates. . . . 65,838 60,09352,894
Receivable from brokers .............................. . . . . . . . . . . . . 36 1011,052
Investment advisory fees receivable .................. . . . . . . 14,651 15,294
Income tax receivable ............................... -- 3,25213,767
Deferred income taxes, net ..........................net. . . . . . . . . . . . 18,661 --939
Other assets ........................................assets. . . . . . . . . . . . . . . . . . . 25,468 28,170
-------- --------26,271
----------- -----------
Total assets ................................... $486,394 $556,641
======== ========. . . . . . . . . . . . . . . . $ 486,394 $ 563,983
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable ........................................payable. . . . . . . . . . . . . . . . . . . $ 50,000 $ --
Income taxes payable ................................payable. . . . . . . . . . . . . . . 4,733 3354,153
Capital lease obligation ............................obligation. . . . . . . . . . . . . 3,492 3,4643,449
Payable to brokers ..................................brokers. . . . . . . . . . . . . . . . 8,554 5,3314,245
Compensation payable ................................payable. . . . . . . . . . . . . . . 21,183 29,02628,395
Accrued expenses and other liabilities ..............liabilities. . . . . . 15,524 16,126
-------- --------15,014
----------- -----------
Total liabilities ..............................liabilities. . . . . . . . . . . . . . 103,486 54,28255,256
6% Convertible note ..................................... . . . . . . . . . . . . . . 100,000 100,000
6.95% Mandatory convertible securities ....................securities. . . . . . -- 87,51384,748
Minority interest .................................... . . . . . . . . . . . . . . . 7,611 7,3857,432
Stockholders' equity ................................equity. . . . . . . . . . . . . . . 275,297 307,461
-------- --------316,547
----------- -----------
Total liabilities and stockholders' equity .......... $486,394 $556,641
======== ========equity. . . . $ 486,394 $ 563,983
=========== ===========
See accompanying notes.
5
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNEThree Months Ended Nine Months Ended
September 30, JUNESeptember 30,
------------------------ --------------------------------------------------------------------
2001 2002 2001 2002
--------- --------- --------- ----------------- -------- -------- --------
OPERATING ACTIVITIES
Operating activities
Net income ...................................................income. . . . . . . . . . . . . . . . . . . . . $ 15,84114,946 $ 13,94111,493 $ 30,73745,683 $ 29,33040,823
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Equity in earnings ofearnings(losses)from partnerships and
affiliates ............ (1,024) (79) (1,987) (345). . . . . . . . . . . . . . . . . . . 370 (94) (1,617) (439)
Depreciation and amortization ................................ 187 216 372 428. . . . . . . . . . . 189 242 561 670
Deferred income tax asset .................................... 78. . . . . . . . . . . . . (626) -- (198)(824) 18,661
Tax benefit from exercise of stock options ...................options. . . . . -- 26934 -- 4,0824,116
Minority interest in net income of consolidated
subsidiaries .............................................. 519 2 1,058 47. . . . . . . . . . . . . . . . . . 152 46 1,210 93
Market value of donated securities ...........................securities. . . . . . . . . -- 412-- -- 412
Realized losses on available for sale securities .............securities. . -- (58)-- -- (40)
(Increase) decrease in operating assets:
Investments in securities ................................. 6,827 2,048 15,503 1,887securities. . . . . . . . . . . . 63,592 (99,323) 79,095 (97,436)
Investment advisory fees receivable ....................... 34 3,257 1,268 (643)receivable. . . . . . . (229) 1,527 1,039 884
Receivables from affiliates ............................... (966) (613) 632 766affiliates. . . . . . . . . . . (376) 924 256 1,690
Other receivables ......................................... (318) 738 (184) 258receivables. . . . . . . . . . . . . . . . (284) 272 (468) 530
Receivable from brokers ................................... 3,686 1,922 2,761 (65)brokers. . . . . . . . . . . . . 1,092 (952) 3,853 (1,017)
Income tax receivable ...................................... . . . . . . . . . . . . -- 7,6272,313 -- (3,252)(939)
Other assets .............................................. (115) (388) (129) (4,153). . . . . . . . . . . . . . . . . . (219) 459 (348) (3,694)
Increase (decrease) in operating liabilities:
Payable to brokers ........................................ -- 2,631 -- (3,223). . . . . . . . . . . . . . . 1,677 (1,088) 1,677 (4,309)
Income taxes payable ...................................... (7,702) (536) (2,682) (4,377). . . . . . . . . . . . . . 8,230 4,080 5,548 (297)
Compensation payable ...................................... 5,275 2,612 5,778 7,858. . . . . . . . . . . . . . 5,271 (561) 11,049 7,297
Accrued expenses and other liabilities .................... (645) (77) 455 (1,782)
--------- --------- --------- ---------. . . . . 1,192 (1,119) 1,647 (2,903)
-------- -------- -------- --------
Total adjustments ............................................ 5,836 19,983 22,647 16,519
--------- --------- --------- ---------. . . . . . . . . . . . . . . . . 80,031 (93,240) 102,678 (76,721)
-------- -------- -------- --------
Net cash (usedprovided by(used in) provided by operating activities .......... 21,677 33,924 53,384 45,849
--------- --------- --------- ---------
Investing activities. 94,977 (81,747) 148,361 (35,898)
-------- -------- -------- --------
INVESTING ACTIVITIES
Purchases of available for sale securities ...................securities. . . . . -- (456)(243) -- (558)(801)
Proceeds from sales of available for sale
securities .......... . . . . . . . . . . . . . . . . . . -- 500-- -- 602
Distributions from partnerships and affiliates ............... 121 1,487 7,135 12,458affiliates. . . 13,954 8,039 21,089 20,497
Investments in partnerships and affiliates ................... (1,084) (128) (2,484) (6,368)
--------- --------- --------- ---------affiliates. . . . . (26,900) (745) (29,384) (7,113)
-------- -------- -------- --------
Net cash (used in)provided by investing activities .......... (963) 1,403 4,651 6,134
--------- --------- --------- ---------
Financing activitiesactivities. (12,946) 7,051 (8,295) 13,185
-------- -------- -------- --------
FINANCING ACTIVITIES
Purchase of minority stockholders' interest .................. (67). . . . (6) -- (106)(112) (273)
Proceeds from issuanceIssuance of Mandatory convertible securities ..................................................securities. . . . -- (214) -- 87,738
Issuance of Convertible note payable. . . . . . . . 100,000 -- 87,952100,000 --
Repayment of note payable ..................................... . . . . . . . . . . . . -- -- -- (50,000)
Proceeds from exercise of stock options ....................... . . . . . -- 1,166109 -- 9,0639,172
Purchase of mandatoryMandatory convertible securities .................securities. . . . -- (2,422)(2,693) -- (2,422)
Issuance (purchase)(5,115)
Purchase of treasury stock ........................ 3 (2,228) (852) (5,822)
--------- --------- --------- ---------. . . . . . . . . . . . (440) (2,083) (1,292) (7,905)
-------- -------- -------- --------
Net cash(cash provided by(used in)provided by financing activities ............ (64) (3,484) (958) 38,498
--------- --------- --------- ---------. 99,554 (4,881) 98,596 33,617
-------- -------- -------- --------
Net increase increase(decrease)in cash and cash equivalents .................... 20,650 31,843 57,077 90,481equivalents. 181,585 (79,577) 238,662 10,904
Cash and cash equivalents at beginning of period ............. 105,698 364,085period. . 126,348 395,928 69,271 305,447
--------- --------- --------- ----------------- -------- -------- --------
Cash and cash equivalents at end of period ................... $ 126,348 $ 395,928 $ 126,348 $ 395,928
========= ========= ========= =========
Supplemental disclosure of non-cash financing activityperiod. . . . . $307,933 $316,351 $307,933 $316,351
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY
Treasury stock exchanged for subsidiary stock
held by minority shareholders ...................................... . . . . . . . . . $ 3,3688,146 $ -- $ 3,36811,514 $ --
========= ========= ========= ================= ======== ======== ========
Net present value of forward purchase contract ...............contract. . . $ -- $ 2,353 $ -- $ 2,353
========= ========= ========= ================= ======== ======== ========
Securities reclassified to available for sale . . . $ 14,278 $ -- $ 14,278 $ --
======== ======== ======== ========
See accompanying notes.
6
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNESeptember 30, 2002
(UNAUDITED)(Unaudited)
A. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of
Gabelli Asset Management Inc. ("the Company"(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, 2001, 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. RESTRICTED CASH
On August 9, 2002 the Board of Directors authorized the Company to
establish a collateral account, consisting of cash or securities totaling $103.0
million, to secure a letter of credit issued in favor of Cascade Investment LLC,
the holder of the $100 million convertible note that was issued in a private
placement on August 14, 2001. The Company will pay a fee of approximately
$206,000 for the letter of credit, which expires on August 14, 2003. At that
time the collateral account will be closed and any cash or securities held will
be available for general corporate use.
C. 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 JuneSeptember 30, 2002 the market value of investments available for sale
was $6.1$5.7 million. The changeThis loss in market value, net of taxes, of $321,000$646,000 has been
included in stockholders' equity.
Proceeds from sales of investments available for sale were approximately
$0.6 million for the period ended JuneSeptember 30, 2002. Gross gains on the sale of
investments available for sale amounted to $58,000; gross losses on the sale of
investments available for sale amounted to $19,000.$18,000.
7
C.D. EARNINGS PER SHARE
The computations of basic and diluted net income per share are as follows:
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
2001 2002 2001 2002
------- ------- ------- -------
----------------------- -----------------------
(in thousands, except per share amounts) 2001 2002 2001 2002
--------- --------- --------- ---------
Basic:
Net income $15,841 $13,941 $30,737 $29,330
======= ======= ======= =======$ 14,946 $ 11,493 $ 45,683 $ 40,823
========= ========= ========= =========
Average shares outstanding 29,527 30,222 29,517 30,083
======= ======= ======= =======29,748 30,141 29,595 30,102
========= ========= ========= =========
Basic net income per share $ 0.540.50 $ 0.460.38 $ 1.041.54 $ 0.97
======= ======= ======= =======1.36
========= ========= ========= =========
Diluted:
Net income $15,841 $13,941 $30,737 $29,330$ 14,946 $ 11,493 $ 45,683 $ 40,823
Add interest expense on convertible note,
net of management fee and taxes 467 -- 913467 --
1,825
------- ------- ------- ---------------- --------- --------- ---------
Total $15,841 $14,854 $30,737 $31,155
======= ======= ======= =======$ 15,413 $ 11,493 $ 46,150 $ 40,823
========= ========= ========= =========
Average shares outstanding 29,527 30,222 29,517 30,08329,748 30,141 29,595 30,102
Dilutive stock options 405 218 370 276430 155 390 235
Assumed conversion of convertible note 964 -- 1,887325 --
1,887
------- ------- ------- ---------------- --------- --------- ---------
Total 29,932 32,327 29,887 32,246
======= ======= ======= =======31,142 30,296 30,310 30,337
========= ========= ========= =========
Diluted net income per share $ 0.530.49 $ 0.460.38 $ 1.031.52 $ 0.97
======= ======= ======= =======1.35
========= ========= ========= =========
D.For the three and nine months ended September 30, 2002 the assumed conversion of
the convertible note would be anti-dilutive and, accordingly, has not been used
in the computation of the weighted average diluted shares.
E. MANDATORY CONVERTIBLE SECURITIES (" FELINE PRIDES ")Feline PRIDES")
On February 6, 2002 the Company completed its public offering of 3.6
million mandatory convertible debt securities ("Feline PRIDES"). The securities
are listed on the New York Stock Exchange under the symbol "GBL.I". Each Feline
PRIDE initially consists of a unit referred to as an Income PRIDE that includes
(a) a purchase contract under which the holder will purchase shares of the
Company's Class A Common Stock on February 17, 2005 and (b) senior notes due
February 17, 2007 with a principal amount of $25 per share. The notes pay
interest quarterly at a rate of 6% per year, which rate is expected to be reset
on or about November 17, 2004. Each purchase contract obligates its holder to
purchase, on February 17, 2005, newly issued shares of the Company's Class A
Common Stock. The total number of shares to be issued will be between 1.9
million and 2.3 million, subject to adjustment in certain circumstances with the
number of shares to be determined based upon the average trading price of Common
Stock over a period preceding that date. In connection with the offering the
Company received $90 million before underwriting and other expenses of
approximately $3.1 million. For accounting purposes the net present value of the
purchase contract adjustments and their related offering costs have been
recorded as a reduction to additional paid in capital. Costs incurred in
connection with the issuance of the senior notes are capitalized as deferred
financing costs and amortized as an adjustment to interest expense over the term
of the notes.
On April 29,During the second quarter of 2002 the Board of Directors approved the
repurchase of up to 100,000200,000 shares of the mandatory convertible securities from
time to time in the open market. On August 9, 2002 the Board of Directors
increased the number of shares authorized to be repurchased by an additional
200,000. During the third quarter ended June 30,of 2002 the Company repurchased 99,500110,600 shares
at an average cost of $23.92$18.57 per share. For the nine months ended September 30,
2002 the Company has repurchased 210,100 shares at an average cost of $21.10 per
share. A gain of approximately
$112,000 attributable to the debt component of each Feline PRIDE
repurchased totaling approximately
8
$501,000 and $613,000 for the quarter and nine months ended September 30, 2002,
respectively, has been included in other income.
On June 26, 2002 the Board of Directors authorized the repurchase of
an additional 100,000 shares.
8
E.income (expense), net.
F. STOCKHOLDERS' EQUITY
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 secondthird
quarter of 2002, the Company repurchased 59,64867,392 shares at an average cost of
$37.34$30.89 per share bringing the total shares repurchased under the program in 2002
to 152,805220,197 at an average cost of $38.08$35.88 per share. Since the inception of the
program in March 1999 we havethe Company has repurchased 725,705793,097 shares at an average
cost of $23.28$23.93 per share.
F. SUBSEQUENT EVENT
CONVERTIBLE NOTE
On August 9, 2002 the Board of Directors authorized the Company to
establish a collateral account, consisting of cash or securities totaling $103.0
million, to secure a letter of credit issued in favor of Cascade Investment LLC,
the holder of the $100 million convertible note that was issued in a private
placement on August 14, 2001. When this note was first issued to Cascade an
affiliated entity put up the collateral and absorbed the cost of the letter of
credit which was approximately 0.375% per annum. The Company will pay a fee of
approximately $206,000 for the letter of credit which expires on August 14,
2003.
STOCK REPURCHASE PROGRAM
On July 18, 2002 the Board of Directors raised the amount authorized to
repurchase shares of the Company's Class A Common Stock by $5,000,000. On August
9,$3.0 million. At
September 30, 2002 the Board further increased thetotal amount authorizedavailable to repurchase shares by an additional $3,000,000.under the
program was $4.9 million.
G. SUBSEQUENT EVENT
On August 9, 2002 the Board of Directors increased the number of shares
of the Company's mandatory convertible securities which may be repurchased by an
additional 200,000 shares.
STOCK OPTION ACCOUNTING
On July 26,November 4, 2002 the Company announced that itentered into an agreement to acquire the
business and operations of Woodland Partners LLC ("Woodland"), a
Minneapolis-based equity investment adviser managing more than $250 million for
institutional, high net worth and mutual fund clients. The acquisition of
Woodland adds to the Company's portfolio management and research expertise in
the small cap sector and provides a sales and marketing office in the
Minneapolis area. The results of Woodland will expensebe included in the costCompany's
consolidated results of stock options issued beginning January 1, 2003 using the expense recognition
guidance provided by SFAS No. 123, "Accounting for Stock-Based Compensation".
The Company had previously accounted for stock options under the intrinsic value
method in which compensation expense is recognized only if the exercise price of
the stock option is less than the market price of the underlying stock onoperations from the date of grant. If the Company had initially electedacquisition. The impact of
this acquisition is not material in relation to expense stock options
under the fair value method of SFAS No. 123 the Company's diluted net income per
share would have been reduced by $0.03results of
operations and, $0.01 for the six months ended June
30, 2001 and 2002, respectively. For the three years ended December 31, 1999,
2000 and 2001 diluted net income per share would have been reduced by $0.04,
$0.04 and $0.06, respectively.accordingly, no pro forma information is presented.
9
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, and Separate Accounts business.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 JUNESEPTEMBER 30, 2002 AS COMPARED TO THREE MONTHS ENDED JUNESEPTEMBER
30, 2001
Consolidated Results - Three Months Ended JuneSeptember 30:
(unaudited; in thousands, except per share data)
----------------------------------------------
2001 2002 % CHANGE
-------- -------- --------
Revenues $ 57,017 $ 57,402 0.7
Expenses 35,063 33,016 (5.8)
-------- --------
Operating income 21,954 24,386 11.1
Net investment income 5,648 1,144
Interest expense (956) (3,186)
-------- --------
Total other income (expense), net 4,692 (2,042)
-------- --------
Income before taxes and minority interest 26,646 22,344 (16.1)
Income tax provision 10,285 8,401
Minority interest 520 2
-------- --------
Net income $ 15,841 $ 13,941 (12.0)
======== ========
Net income per share:
Basic $ 0.54 $ 0.46 (14.8)
======== ========
Diluted $ 0.53 $ 0.46 (13.2)
======== ========
Included in income before taxes and minority interest:
Depreciation and amortization $ 187 $ 216
Adjusted EBITDA(a) $ 27,789 $ 25,746
(unaudited; in thousands,
except per share data)
------------------------------
2001 2002 %Change
------- ------- -------
Revenues $56,121 $47,320 (15.7%)
Expenses 33,531 27,100 (19.2)
------- -------
Operating income 22,590 20,220 (10.5)
Investment income, net 3,742 1,330 (64.5)
Interest expense (1,741) (3,057) 75.6
------- -------
Total other income (expense), net 2,001 (1,727)
------- -------
Income before taxes and minority interest 24,591 18,493 (24.8)
Income tax provision 9,493 6,954
Minority interest 152 46
------- -------
Net income $14,946 $11,493 (23.1)
======= =======
Net income per share:
Basic $ 0.50 $ 0.38 (24.0)
======= =======
Diluted $ 0.49 $ 0.38 (22.4)
======= =======
Included in income before taxes and
minority interest:
Depreciation and amortization $ 189 $ 243
Adjusted EBITDA(a) 26,521 $21,793
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and minority interest.
10
Total revenues were $57.4$47.3 million in the secondthird quarter of 2002 versus $57.0$56.1
million in the secondthird quarter of 2001.
Investment advisory and incentive fees, which comprise 84%83.9% of total
revenues, were $48.4was $39.7 million in the secondthird quarter of 2002, $0.6$7.6 million or 1.3%
higher16.0%
lower than the $47.7$47.3 million reported in the secondthird quarter of 2001. The increasedecrease
in investment advisory and incentive fees was principally the result of increasedlower
revenues reported from our GAMCO institutional and high net worth business.business and
from the open-end equity mutual funds. GAMCO fees, which are generally billed
based on asset levels at the beginning of a quarter, rose $3.0declined $2.2 million or
16.1%11.3% in the 2002 quarter as compared to the secondthird quarter of 2001. This increase was largely offset by a 7.6% or $1.7 million decline in
revenuesRevenues
from open-end equity mutual funds. Averagefunds decreased $4.2 million or 19.3% from the prior
year as average assets under management in open-end equity funds during the second quarter of 2002 were $8.2declined to
$6.7 billion, 8.6%20.1% below the prior year's secondthird quarter average of $8.9$8.4
billion. At JuneSeptember 30, 2002 assets in open-end equity funds were $7.4$6.2
billion, 18.0%16.3% lower than the prior year quarter end balance of $9.0$7.4 billion.
Commissions were $3.7$3.2 million in the secondthird quarter of 2002, up 2.8%1.7% from
$3.6$3.1 million in the same period a year earlier largely due to an increase in
overall trading volume.
Distribution fees and other income were $5.4$4.4 million in the secondthird quarter
of 2002 versus $5.7 million in the secondthird quarter of 2001. 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 $33.0$27.1 million in the secondthird quarter of 2002, a 5.8%19.2%
decrease from total expenses of $35.1$33.5 million reported in the secondthird quarter of
2001. Total expenses declined as a percentage of total revenues to 57.5%57.3% in 2002
from 61.5%59.7% in the prior year quarter.year. Compensation and related costs, which are largely
variable, in nature, was $22.3$17.5 million, 1.5%22.9% lower than the same period a year earlier.
The decrease in compensation was principally due to lower incentive compensation
accruals and costs associated with benefit programs. The 2002 quarter further benefited
from a reversal of $1.0 million in bonus incentive accruals recorded earlier in
the year. Management fee expense, which is totally variable and based on pretax
income, was 16.1%24.8% lower at $2.5$2.1 million in the secondthird quarter of 2002 versus $3.0$2.7
million in the secondthird quarter of 2001. Other operating expenses were $8.2$7.6 million
in the secondthird quarter of 2002, a 13.1% reduction from6.8% lower than the $9.5$8.1 million reported in the
secondthird quarter of 2001. Lower mutual fund administration and distribution costs
and marketing costs comprised the largest components of expense reductions.
Investment income was $1.3 million in the third quarter of 2002 down $2.4
million, or 64.5% from $3.7 million reported in the third quarter of 2001.
During the quarter the Company repurchased 110,600 shares of the mandatory
convertible debt securities at an average price of $18.57 per share resulting in
a gain of $0.5 million. Interest expense increased $2.2$1.3 million to $3.2$3.1 million
in the secondthird quarter of 2002 from $1.0$1.7 million in the second quarter of 2001.prior year quarter. The
increase in interest expense reflects the issuance of two convertible
securities, in August 2001 and February 2002, with proceeds totaling $190
million and is offset by the repayment of a $50 million note in the beginning of
the 2002 quarter. Earnings from the firm's
cash and investments were $1.1 million in the secondfirst quarter of 2002, lower2002. The impact of the negative swing on other income
reduced results by $4.5 million, or 79.7% than the second quarter of 2001 as higher average
balances in the firm's investment accounts in 2002 were offset by lower interest
rates.$0.07 per diluted share.
The estimated effective tax rate for the secondthird quarter of 2002 was 37.6%,
down from 38.6% in calendar 2001 as we benefitthe Company benefits from lower state income
tax rates. In 2002, the New York State corporate tax rate was lowered to 9.0%
from 9.5%. Minority interest was lower as a result of the share exchange
program, completed in August 2001, through which wethe Company increased ourits
ownership in Gabelli Securities, Inc. to 92% from 77%.
11
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002 AS COMPARED TO SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
2001
Consolidated Results - SixNine Months Ended JuneSeptember 30:
(unaudited; in thousands, except per share data)
----------------------------------------------
2001 2002 % CHANGE
--------- --------- ---------
Revenues $ 115,361 $ 115,434 0.1
Expenses 69,406 65,679 (5.4)
--------- ---------
Operating income 45,955 49,755 8.3
Net investment income 7,715 3,237
Interest expense (1,887) (5,914)
--------- ---------
Total other income (expense), net 5,828 (2,677)
--------- ---------
Income before taxes and minority interest 51,783 47,078 (9.1)
Income tax provision 17,701 19,988
Minority interest 1,058 47
--------- ---------
Net income $ 30,737 $ 29,330 (4.6)
========= =========
Net income per share:
Basic $ 1.04 $ 0.97 (6.7)
========= =========
Diluted $ 1.03 $ 0.97 5.8)
========= =========
Included in income before taxes and minority interest:
Depreciation and amortization $ 372 $ 428
Adjusted EBITDA(a) $ 54,042 $ 53,420
(unaudited; in thousands,
except per share data)
-------------------------------
2001 2002 %Change
-------- -------- -------
Revenues $171,482 $162,754 (5.1)
Expenses 102,937 92,779 (9.9)
-------- --------
Operating income 68,545 69,975 2.1
Investment income, net 11,457 4,567 (60.1)
Interest expense (3,628) (8,971) 147.3
-------- --------
Total other income (expense), net 7,829 (4,404)
-------- --------
Income before taxes and minority interest 76,374 65,571 (14.1)
Income tax provision 29,481 24,655
Minority interest 1,210 93
-------- --------
Net income $ 45,683 $ 40,823 (10.6)
======== ========
Net income per share:
Basic $ 1.54 $ 1.36 (11.7)
======== ========
Diluted $ 1.52 $ 1.35 (11.2)
======== ========
Included in income before taxes and minority
interest:
Depreciation and amortization $ 561 $670
Adjusted EBITDA(a) $ 80,563 $75,212
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and minority interest.
Total revenues were $115.4$162.8 million in both the first halfnine months of 2002 andversus
$171.5 million in the first nine months of 2001.
Investment advisory and incentive fees which comprise 84% of total
revenues, were $97.2$136.9 million in the first
halfnine months of 2002, $1.3$6.3 million or 1.4%
higher4.4% lower than the $95.9$143.2 million reported
in the first halfnine months of 2001. The increase
in investment advisory and incentive fees was the result of increased revenuesRevenues from our GAMCO institutional and high net worth business. GAMCO fees, which are
generally billed based on asset levels at the beginning of a quarter, rose $5.7open end mutual funds declined
$7.5 million or 15.3%11.1% as average assets in the 2002 quarter asopen end equity mutual funds were
down 12.4% compared to the prior year period. Revenues from our closed end
mutual funds were down $1.9 million or 16.3% as the average assets in these
funds declined 17.3% over the first halfnine months of 2001. This2002. GAMCO fees increased
$3.6 million or 6.4% from the same period a year earlier. Revenues from
alternative investments were down $0.5 million as the increase was largely offset by a 7.2%, or $3.3in management
fees of $0.6 million decline in revenues from
open-end equity mutual funds. Averageon higher levels of assets under management in open-end equity
funds during the first half of 2002 was $8.2 billion, 8.3% below the prior
year's first half average of $9.0 billion.offset by
lower performance fees.
Commissions were $7.6$10.8 million in the first halfnine months of 2002, a decrease
of 4.4%2.7% from $8.0$11.1 million in the same period a year earlier largely due to
lower overall trading volume.
Distribution fees and other income were $10.6$15.0 million in the first halfnine
months of 2002 versus $11.5$17.2 million in the first halfnine months of 2001. A 7.7%12.5%
decrease in distribution fees resulted from the 8.3%12.4% decline in average assets
managed in open-end equity mutual funds.funds which have 12b-1 compensation plans.
12
Total expenses were $65.7$92.8 million in the first halfnine months of 2002, a 5.4%9.9%
decrease from total expenses of $69.4$102.9 million reported in the first halfnine months
of 2001. Total expenses declined as a percentage of total revenues to 56.9%57.0% in
2002 from 60.2%60.0% in the prior year quarter. Compensation and related costs which are
largely variable in nature, were $44.7was
$62.2 million, 2.2%9.1% lower than the same period a year earlier. The decrease in
compensation was principally due to lower incentive compensation, the reversal,
in the third quarter, of $1.0 million in incentive bonus accruals and lower
costs associated with benefit programs. Management fee expense, which is totally
variable and based on pretax income, was 9.1%14.1% lower at $5.2$7.3 million for the
first nine months of 2002 versus $8.5 million in the first half of 2002 versus $5.8 million in
the first half of 2001.prior year period. Other
operating expenses were $15.7$23.3 million in the first
half of 2002 a 12.2%10.6% reduction from the $17.9$26.0 million
reported in the first halfnine months of 2001. Lower mutual fund administration and
distribution costs and corporate-wide marketing costs comprisedwere the largest
components of expense reductions.
Investment income was $4.6 million in 2002 down $6.9 million from $11.5
million reported in the comparable period of 2001. Interest expense increased
$4.0$5.4 million to $5.9$9.0 million in 2002 from $3.6 million in the first
half of 2002 from $1.9 millionprior year
quarter. The increase in the first half of 2001. The increaseinterest expense reflects the issuance of two
convertible securities, in August 2001 and February 2002, with proceeds totaling
$190 million and is offset by the repayment of a $50 million note in the
beginning of the 2002 quarter. Earnings from the firm's cash
and investments were $3.2 million in the first halfquarter of 2002, lower by $4.5
million, or 58.0% than the first half of 2001 as higher average balances in the
firm's investment accounts in 2002 were offset by lower interest rates.2002.
The estimated effective tax rate for the first halfnine months of 2002 was
37.6%, down from 38.6% in calendar 2001.2001as the Company benefits from lower state
tax rates. Minority interest was lower as a result of the share exchange
program, completed in August 2001, through which wethe Company increased ourits
ownership in Gabelli Securities, Inc. to 92% from 77%.
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:
Six Months Ended June 30,
----------------------------------
2001 2002
----------- -----------
Cash flows provided by (used in): (in thousands)
Operating activities $ 53,384 $ 45,849
Investing activities 4,651 6,134
Financing activities (958) 38,498
----------- -----------
Increase 57,077 90,481
Cash and cash equivalents at beginning of period 69,271 305,447
----------- -----------
Cash and cash equivalents at end of period $ 126,348 $ 395,928
=========== ===========
Nine Months Ended
September 30,
----------------------
2001 2002
--------- ---------
Cash flows provided by (used in): (in thousands)
Operating activities $ 148,361 $ (35,898)
Investing activities (8,295) 13,185
Financing activities 98,596 33,617
--------- ---------
Increase 238,662 10,904
Cash and cash equivalents at beginning of period 69,271 305,447
--------- ---------
Cash and cash equivalents at end of period $ 307,933 $ 316,351
========= =========
Cash requirements and liquidity needs have historically been met through
cash generated by operating activities and through the Company's borrowing
capacity. During the first quarter of 2002 Moody's Investors Services
issued an investment grade rating to the Company. Together with a prior rating
from Standard & Poors Rating Services, theThe Company possesseshas received investment grade ratings from two large, well respected ratings agencies.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. In February 2002, the Company completed a $90 million offering
of 3.6 million mandatory convertible debt securities. Total debt at JuneSeptember
30, 2002 was $187.5$184.7 million, consisting of a $100 million convertible note and
$87.5$84.7 million in mandatory convertible debt securities. At JuneSeptember 30, 2002,
the Company had total cash and investments of $509.8$522.0 million, an increase of
$82.2$94.4 million from December 31, 2001. On August 14, 2002 the Company established
a collateral account, consisting of cash or securitiesand cash equivalents totaling $103.0
million, to secure a letter of credit issued in favor of Cascade Investment LLC,
the holder of the $100.0 million convertible note. The letter of credit expires
on August 14, 2003. Cash and securities held in the collateral account are
restricted from other uses until the date of expiration.
13
Cash used by operating activities was $35.9 million in the first nine
months of 2002 principally resulting from an increase in investments in
securities of $97.4 million offset by $40.8 million in net income. Cash provided
by operating activities was $45.8$148.4 million in the first
halfnine months of 20022001
principally resulting from $29.3$45.7 million in net income and offset
by changes in other assets and liabilities. Cash provided by operating
activities was $53.4 million in the first half of 2001 principally resulting
from $30.7 million in net income and decreasesa decrease in
investments in securities and
various receivables of $15.5 million and $4.5 million, respectively.$79.1 million.
Cash provided by investing activities, related to investments in and
distributions from partnerships and affiliates, was $6.1 million and $4.7$13.2 million in the first
halfnine months of 20022002. Cash used in investing activities, related to investments
in and 2001, respectively.distributions from partnerships and affiliates, was $8.3 million in the
nine months of 2001.
Cash provided by financing activities in the first halfnine months of 2002 was
$38.5$33.6 million. The increase in cash primarily results from the issuance of $90$87.7
million, net of expenses, of mandatory convertible debt securities before offering expenses and $9.1 million
from the exercise of stock options less the
repayment of a $50 million note payable and $5.8payable. Other significant financing activities
which provided cash includes the $9.2 million received from the exercise of
non-qualified stock options which further generated cash tax savings of $4.1
million. Other significant financing activities which used cash included $7.9
million to repurchase 152,805220,197 shares of our Class A Common Stock and $5.1
million to repurchase 210,100 shares of the mandatory convertible securities
under the Company's respective Stock Repurchase Program. The exercise of
non-qualified stock options and the repayment of the note payable during the
first half of 2002 will generate cash tax savings of $4.1 million and $19.8
million, respectively, which has been included in income tax receivable.Programs. Cash used inprovided by
financing activities in the first halfnine months of 2001 was $1.0$98.6, principally through
the issuance of a ten year $100 million, primarily from the purchase of treasury stock.6.5% convertible note.
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 JuneSeptember 30, 2002, Gabelli & Company had net
capital, as defined, of approximately $12.5$13.1 million, exceeding the regulatory
requirement by approximately $12.2$12.8 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 advisorgeneral partner for assets under management in its
mutual funds, institutional and separate accounts business, partnerships and its
proprietary trading activities. At JuneSeptember 30, 2002, the Company's primary
market risk exposure was for changes in equity prices and interest rates.
Included in investments in securities of $53.8$152.7 million at JuneSeptember 30, 2002
were investments in Treasury Bills and Notes of $1.6$104.4 million, in mutual funds,
largely invested in equity products, of $38.4 million, a diverse selection of
common stocks and corporate bonds totaling $10.9$7.6 million and other investments of
approximately $2.9$2.3 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. Approximately $5.4 millionNone of the $10.9approximately $7.6 million invested in
common stocks at JuneSeptember 30, 2002, represents the
Company's participationis invested in risk arbitrage opportunities
in connection with mergers, consolidations, acquisitions, tender offers or other
similar transactions. Investments in partnerships and affiliates totaled $52.9
million at September 30, 2002 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.
14
The Company's exposure to interest rate risk results, principally, from its
investment of excess cash in government obligations. These investments are
primarily short term in nature and the faircarrying 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.
RECENT ACCOUNTING DEVELOPMENTS
On July 26, 2002 the Company announced it will expense the cost of stock
options issued beginning January 1, 2003 using the expense recognition guidance
provided by SFAS No. 123, "Accounting for Stock-Based Compensation". The Company
had previously elected to account for stock options using the intrinsic value
method in which compensation expense is only recognized if the exercise price of
the option is less than the market price of the underlying stock on the date of
grant. The companyCompany does not expect the change to the fair value method of
expensing options to have a material impact on its financial position or its
results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS 142, intangible assets with indefinite lives and
goodwill will no longer be required to be amortized. Instead, these assets will
be evaluated annually for impairment. The Company adopted the provisions of SFAS
142 at the beginning of 2002 and the adoption did not have a material impact to
the Company's financial position or its results of operations.
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
15
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.
15
PART II: OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Gabelli Asset Management
Inc. was held in Greenwich, Connecticut on May 21, 2002. At
that meeting, the stockholders considered and acted upon the
following proposals:
A. THE ELECTION OF DIRECTORS. The stockholders elected
the following individuals to serve as directors until
the 2003 annual meeting of stockholders and until
their respective successors are duly elected and
qualified. All the directors were elected with more
than 99.7% of the total votes cast.
Raymond C. Avansino, Jr.
John C. Ferrara
Mario J. Gabelli
Paul B. Guenther
Eamon M. Kelly
Karl Otto Pohl
B. APPROVAL OF THE 2002 STOCK AWARD AND INCENTIVE PLAN
(the "Plan"). The stockholders approved the Plan
which authorizes grants of stock options, stock
appreciation rights, stock awards, performance shares
and stock units. The Plan was approved with more than
99.8% of the total votes cast.
ITEMItem 6. (a) Exhibits
Exhibits 99.1.99.1 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 did not file any reports on Form 8-K during the
three months ended JuneSeptember 30, 2002.
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)
AUGUSTDate: November 14, 2002 /s/ Robert S. Zuccaro
---------------- ----------------------------
Date---------------------------------------
Robert S. Zuccaro
Vice President and Chief Financial Officer
16
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: November 14, 2002
17
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: November 14, 2002
18