[GRAPHIC OMITTED]
Gabelli Asset Management
ONE CORPORATE CENTER
RYE, NY 10580-1435
Tel. (914) 921-5146 Fax (914) 921-5392
www.gabelli.com
For Immediate Release: Contact: Robert S. Zuccaro
Chief Financial Officer
(914) 921-5146
For further information
please visit our website
at: WWW.GABELLI.COM
GABELLI REPORTS 2003 FIRST QUARTER RESULTS
Rye, New York, April 29, 2003 - Gabelli Asset Management Inc. (NYSE: GBL)
today reported results for its first quarter ended March 31, 2003.
Reflecting a 23% decline in assets under management, mostly related
to the overall stock market, revenues fell to $46.1 million in the first
quarter of 2003 down 21% from the $58.0 million reported in the prior
year quarter. Operating income fell 35.6% to $16.3 million in the 2003
quarter versus $25.4 million in the prior year quarter. Net income was
$9.3 million or $0.31 per diluted share in 2003 compared to $15.4
million or $0.51 per diluted share in 2002. Actual shares outstanding at
March 31, 2003 were 30,019,072 compared to 30,219,941 at March 31, 2002.
From an analytical point of view, adjusted cash and investments were
$531 million at March 31, 2003, an increase of $13 million from the $518
million at December 31, 2002 and up from $490 million at March 31, 2002.
This amounted to approximately $13.46 per share net of debt. On a GAAP
basis we have cash and investments of $538 million at March 31, 2003
versus $535 million at December 31, 2002 and $482 million at March 31,
2002.
FINANCIAL RESULTS
After gaining ground early in January 2003, U.S. equity markets
declined during the remainder of the quarter with the Standard and
Poor's 500, Russell 2000 and Morgan Stanley Capital International World
Index falling 3.2%, 4.5% and 5.0%, respectively. Over the last twelve
months these indices declined 24.8%, 27.0% and 23.8%, respectively.
Against this backdrop assets under management at March 31, 2003 were
$20.1 billion down 22.6% from record levels of $25.9 billion at March
31, 2002 and down 5.6% from $21.3 billion at December 31, 2002. Average
total assets under management were $20.7 billion during the first
quarter of 2003 versus $24.6 billion during the first quarter of 2002.
Average assets in our open-end equity funds, impacted by market
performance and outflows in our Growth funds, were $6.4 billion during
the 2003 quarter down 23.2% from average assets of $8.3 billion in the
prior year quarter. Our equity mutual funds and alternative investment
products experienced modest cash inflows during the first quarter of
2003 which were offset by net cash outflows in our institutional and
separate accounts.
The decline in assets under management was largely responsible for
the roughly 21% overall decline in total revenues to $46.1 million for
the first quarter of 2003 versus $58.0 million in 2002. Investment
advisory and incentive fees, which comprise the largest portion of total
revenues, totaled $39.6 million in 2003 versus $48.9 million in the
first quarter of 2002 due to lower levels of assets under management.
Commission revenues were $2.4 million compared to $3.9 million in the
2002 quarter resulting from lower transaction volume. Distribution fees
generated from open-end mutual funds declined 21.2% to $4.1 million in
the 2003 quarter versus $5.2 million in the first quarter of 2002 due to
the lower levels of average assets under management.
Operating income declined 35.6% to $16.3 million in the first
quarter of 2003 compared to $25.4 million in 2002. Operating margins
were 35.5% down from 43.7% in the prior year quarter. (If we were to
exclude our two acquisitions, Woodland and Grove from the 2003 first
quarter, our operating margin was 36.1%.) We made the decision to add to
our long-term strengths in research and in client service. Total
compensation costs, which are largely variable in nature, declined 8.5%
to $20.5 million in 2003 versus $22.4 million in the first quarter of
2002. Compensation increased by $1.0 million as we added eleven
individuals to our sales, marketing and research staff since the first
quarter of 2002. Other operating expenses were unchanged at $7.5 million
in the first quarter of both 2003 and 2002. The expensing of stock
options, ($215,000 for the first quarter and $1.5 million for the year),
new product initiatives, insurance premiums, benefit programs as well as
costs from acquisitions have all contributed to lower margins.
Management fee expense, which is totally variable and based on
pre-tax profits, declined 39.3% to $1.7 million from $2.7 million in the
2002 quarter.
Interest expense increased $0.3 million or 10.4% to $3.0 million
in the first quarter of 2003 compared to $2.7 million in the first
quarter of 2002. The increase is attributable to having approximately
$85 million of mandatory convertible securities outstanding ($90 million
were issued in February 2002) for the entire quarter in 2003 versus only
two months in 2002. Notwithstanding higher liquid investable assets, the
combination of lower interest rates and declining world equity markets
resulted in our proprietary investment earnings being down $0.4 million
on a quarter to quarter basis.
The estimated effective tax rate for 2003 and calendar 2002 was
37.6%. Minority interest expense was unchanged quarter to quarter.
INVESTMENT, BUSINESS AND OTHER HIGHLIGHTS-POSITIONING FOR RENEWED GROWTH
We continue to position ourselves to improve investment
results, expand product offerings, improve client service, marketing,
research and portfolio management infrastructure and invest in growth
opportunities.
o Assets in our Non-Market Correlated Mutual Funds Group, under
the aegis of Henry Van der Eb, amounted to $712 million at
March 31, 2003, up 6% from $673 million at December 31, 2002,
and 38% from $512 million a year earlier.
- Mutual Fund net cash flows in this Group were $70
million during the quarter.
- The Ned Davis Research Asset Allocation Fund, launched
on March 31, 2003, is a new product offering in the
Non-Market Correlated Mutual Fund Group.
- The Comstock Capital Value Fund and Comstock Strategy
Fund both received first place awards for "consistent
performance relative to their peers" within their
respective categories, at the recent Lipper Fund Awards
ceremony. The Comstock funds, managed by Charles Minter
and Martin Weiner, were the only two funds with the same
portfolio managers to receive awards.
- Gabelli ABC Fund (inception May 14, 1993) is one of only
three equity-oriented funds, among 1,288 funds according
to Lipper Inc., which have had absolute total returns in
each of the last ten calendar years through 2002.
o Twelve Gabelli Mutual Funds, representing over 62% of our
total rated fund assets, have earned Morningstar Inc.'s
overall ratings of Five and Four Stars
o The Gabelli Convertible and Income Securities Fund Inc., a
closed-end diversified management investment company, raised
$50 million through an offering of two series of Preferred
Stock in March 2003
o We announced a symposium which was held on April 22nd on
"Dividends- Their Role In Investment Decisions" to discuss
how dividends affect the cost of capital as well as the
importance of dividends in generating long-term returns for
equity owners.
o During the second half of 2002 we continued building our
research team of security analysts and our institutional
sales and marketing staff. These additions, while negatively
impacting earnings in the short run, are essential to
expanding our product offerings including proprietary,
fundamental sell-side research for the institutional market
OUTLOOK-BLEAK TO BRIGHT
- Investors are "back to basics". President Bush, as a
precondition for his reelection, will pull out all the
stops. Lower oil prices, rising confidence, record
fiscal stimulus, and lower interest rates should spark a
pick up in the economy, especially in the fourth quarter
and first half of 2004. The stock market generally
anticipates economic recovery by six months.
- Our stock selection process, on the value side of
Gabelli, driven by our proprietary company and industry
research, continues to find fundamentally attractive
investment opportunities selling at discounts to private
market value with catalysts to trigger appreciation.
- We expect global merger, acquisition and restructuring
activity to continue to increase. In the U.S.,
regulatory reforms for the utility, telecom, energy,
newspaper and broadcast industries should provide
catalysts. Deals for television, radio, and newspaper
firms are set to heat up after FCC regulators meeting in
June to decide easing the ban on same market ownership
of newspapers, TV and radio stations, as well as the 35%
cap that limits how much of the national audience one
entity can reach. Banks and utilities are also ripe for
another round of consolidation.
- The recent U.S. Supreme Court's ruling limiting the size
of punitive damages is the kickoff in the battle to curb
abusive tort litigation and excessive monetary awards.
Congress is working on a legislative solution to
skyrocketing asbestos claims.
FINANCIAL STRENGTH AND FLEXIBILITY
Our balance sheet remains strong with cash and liquid investments
totaling over $531 million at March 31, 2003 versus $518 million at
December 31, 2002. Our debt consists of a $100 million ten-year 6%
convertible note and $84.2 million of mandatory convertible securities,
which will be, exchanged in February 2005 for approximately two million
Class A common shares. Stockholders' equity, including the mandatory
convertible securities, was $418.4 million at March 31, 2003 compared
with $406.3 million at December 31, 2002 and $385.1 million at March 31,
2002. We include mandatory convertible securities as equity since this
instrument will be exchanged for common shares on February 2005.
In July 2002 we announced the expensing of stock options beginning
in January 2003. Previously, options were recorded as capital
contributions at the time of their exercise. In February 2003 the Board
of Directors granted 633,000 options to most of the firm's staff (except
our Chief Executive Officer) at the then prevailing market price of
$28.95 per share. Using the Black-Scholes option-pricing model the total
expense associated with this option grant over its four-year vesting
period is estimated at $5.6 million, of which $0.2 million has been
recognized for half of the first quarter of 2003.
We continue our Stock Repurchase Program under which the company may,
from time to time, repurchase its Class A common shares in the open
market. During the first quarter of 2003 the Company repurchased 7,417
shares at an aggregate investment of $205,829. Since the inception of
the program the company has repurchased 1,127,844 shares at an aggregate
investment of $28.5 million. At March 31, 2003 there remains $14.2
million available under this program.
The Company also repurchased 15,300 shares of its mandatory
convertible securities during the first quarter of 2003, bringing the
total shares repurchased since May 2002 to 233,500 at a total investment
of $5.1 million. There remains an additional 466,500 shares to be
repurchased under this program.
OUTLOOK
Since we derive over 90% of our revenues from our equity products, our
firm's profits are tied to the world equity market. Our rising cost
structure reflects increased distribution and our intense focus on
equity research where we have expanded our team of sell-side analysts
and plan further additions opportunistically.
This will impact our short term earnings, as will higher costs from
expensing stock options, new product initiatives and increased
distribution expenses from our mutual funds. However, we believe these
initiatives provide the best cost effective way to increase value for
our clients as well as intrinsic value for our shareholders on a
longer-term basis. We note that our liquidity is sufficient to take
advantage of opportunities including repurchasing our stock.
NOTES ON NON-GAAP FINANCIAL MEASURES
A. Cash and investments as adjusted have been computed as follows: (in
millions)
12/31/02 3/31/02 3/31/03
Cash and cash equivalents $ 311.4 $364.1 $327.1
Investments 223.4 118.0 210.6
Total cash and investments 534.8 482.1 537.7
Amounts payable to brokers (17.2) (2.7) (6.5)
Deferred tax benefit - 10.9 -
Adjusted cash and investments $517.6 $490.3 $531.2
Amounts payable to broker reflects cash payable for securities purchased and
recorded in a trade date basis for which settlement occurs subsequent to
quarter end. The deferred tax benefit represents the reduction in cash taxes
payable in the subsequent quarter, which was based on the repayment of the $50
million note payable, which occurred on January 2, 2002. Cash and investments
per outstanding share is computed based on the actual shares outstanding at
March 31, 2003 of 30,019,072 plus shares issuable upon conversion of the
mandatory convertible securities. Cash and investments per share net of debt
is computed by reducing the adjusted cash and investments for the $100 million
6% convertible note. We believe cash and investments as adjusted is a more
useful measure of the company's liquidity for analytical purposes.
B. Operating income before management fee expense is used by management for
purposes of evaluating its business operations. Management fee expense
is based on pre-tax income and includes non-operating items including
investment gains and losses from the company's proprietary investment
portfolio and interest expense.
C. The operating margin excluding our two acquisitions, Woodland and Grove,
was computed by excluding the combined revenues and expenses of these
acquisitions of $0.5 million and $0.6 million, respectively.
D. Stockholders' equity including the mandatory convertible securities were
computed as follows: (in millions)
12/31/02 3/31/02 3/31/03
Stockholders' equity $321.8 $295.1 $334.2
Mandatory convertible securities 84.5 90.0 84.2
Stockholders' equity including
mandatory convertible securities $406.3 $385.1 $418.4
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Our disclosure and analysis in this press release 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.
Assets Under Management
The company reported assets under management as follows:
TABLE I:
Assets Under Management (in millions)
March 31 %
2002 2003 Inc. (Dec.)
Mutual Funds:
Open End $ 8,627 $6,213 (28.0%)
Closed End 1,850 1,545 (16.5)
Fixed Income 1,835 1,916 4.4
Total Mutual Funds 12,312 9,674 (21.4)
Institutional & Separate Accounts:
Equities 12,326 9,247 (25.0)
Fixed Income 673 547 (18.7)
Total Institutional & Separate Accounts 12,999 9,794 (24.7)
Alternative Investments 605 585 (3.3)
Total Assets Under Management $25,916 $20,053 (22.6)
TABLE II: Fund Flows - 1st Quarter 2003 (in millions)
Market
Net Appreciation /
December 31, 2002 Cash Flows (Depreciation) March 31, 2003
---------------------- -------------- ----------------- ----------------
Mutual Funds:
Equities $8,091 $ 71 $ (404) $7,758
Fixed Income 1,977 (67) 6 1,916
Total Mutual Funds 10,068 4 (398) 9,674
Institutional and Separate Accounts
Equities 9,990 (266) (477) 9,247
Fixed Income 613 (67) 1 547
Total Institutional and Separate Accounts 10,603 (333) (476) 9,794
Alternative Investments 578 7 - 585
Total Assets Under Management $ 21,249 $(322) $ (874) $20,053
Assets Under Management (in millions)
---------------------------------------------------------
TABLE III: % Increase/(decrease)
3/02 6/02 9/02 12/02 3/03 12/02 3/02
Mutual Funds
Open end $8,627 $ 7,353 $ 6,200 $ 6,482 $6,213 (4.1%) (28.0%)
Closed end 1,850 1,735 1,515 1,609 1,545 (4.0) (16.5)
Fixed income 1,835 1,823 1,988 1,977 1,916 (3.1) 4.4
Total Mutual Funds 12,312 10,911 9,703 10,068 9,674 (3.9) (21.4)
Institutional & Separate Accounts:
Equities 12,326 11,129 9,305 9,990 9,247 (7.4) (25.0)
Fixed Income 673 544 557 613 547 (10.8) (18.7)
Total Institutional & Separate Accounts 12,999 11,673 9,862 10,603 9,794 (7.6) (24.7)
Alternative Investments 605 611 625 578 585 1.2 (3.3)
Total Assets Under Management $ 25,916 $ 23,195 $20,190 $21,249 $20,053 (5.6) (22.6)
TABLE IV:
GABELLI ASSET MANAGEMENT INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
For the Three Months Ended
March 31,
% Inc.
2002 2003 (Dec.)
Revenues..................................... $ 58,032 $ 46,053 (20.6)%
--------- -------- -----
Expenses..................................... 29,915 28,044 (6.3)
Operating income before management fee....... 28,117 18,009 (35.9)
Investment income............................
2,093 1,690 (19.3)
Interest expense.............................
(2,728) (3,011) 10.4
--------- -------- -----
Other expense, net........................... (635) (1,321) 108.0
--------- -------- -----
Income before management fee, income taxes and
minority interest......................... 27,482 16,688 (39.3)
Management fee............................ 2,748 1,669
--------- -------- -----
Income before income taxes and minority interest 24,734 15,019
Income taxes.............................. 9,300 5,647
Minority interest......................... 45 45
--------- -------- -----
Net income................................... $ 15,389 $ 9,327 (39.4)
========= =========
Net income per share:
Basic........................................ $ 0.51 $ 0.31 (39.2)
========= =========
Diluted...................................... $ 0.51 $ 0.31 (39.2)
========= =========
Weighted average shares outstanding:
Basic....................................... 29,941 29,918 (0.1)
========= =========
Diluted..................................... 32,164 30,031 (6.6)
========= =========
Reconciliation of Non-GAAP Financial Measures
to GAAP:
Operating income before management fee....... $ 28,117 $ 18,009 (35.9)
Deduct: management fee...................... 2,748 1,669
--------- --------
Operating income............................. $ 25,369 $ 16,340 (35.6)
--------- --------
Operating margin............................. 43.7% 35.5%
--------- --------
TABLE V
Gabelli Asset Management Inc.
Unaudited Quarterly Consolidated Condensed Statements of Income
(Dollars in thousands, except per share data)
2002 2003
------------------------------------------------------ ----------
1st 2nd 3rd 4th 1st
Quarter Quarter Quarter Quarter Total Quarter
-------- -------- -------- -------- -------- ---------
Income Statement Data:
Revenues $58,032 $57,402 $47,320 $47,205 $ 209,959 $46,053
Expenses 29,915 30,533 25,045 25,271 110,764 28,044
------- ------- ------- ------- --------- -------
Operating income before
management fee 28,117 26,869 22,275 21,934 99,195 18,009
Investment income 2,093 1,144 1,330 3,543 8,110 1,690
Interest expense (2,728) (3,186) (3,057) (3,006) (11,977) (3,011)
------- ------- ------- ------- --------- -------
Other income (expense), net (635) (2,042) (1,727) 537 (3,867) (1,321)
------- ------- ------- ------- --------- -------
Income before
management fee,
income taxes and
minority interest 27,482 24,827 20,548 22,471 95,328 16,688
Management fee 2,748 2,483 2,055 2,247 9,533 1,669
------- ------- ------- ------- --------- -------
Income before income
taxes and minority
interest 24,734 22,344 18,493 20,224 85,795 15,019
Income taxes 9,300 8,401 6,954 7,604 32,259 5,647
Minority interest 45 2 46 131 224 45
------- ------- ------- ------- --------- -------
Net income $15,389 $13,941 $11,493 $12,489 $53,312 $ 9,327
======= ======= ======= ======= ======= =======
Net income per share:
Basic $ 0.51 $ 0.46 $ 0.38 $ 0.42 $ 1.77 $ 0.31
======= ======= ======= ======= ======= =======
Diluted $ 0.51 $ 0.46 $ 0.38 $ 0.41 $ 1.76 $ 0.31
======= ======= ======= ======= ======= =======
Weighted average shares
outstanding:
Basic
29,941 30,222 30,141 30,062 30,092 29,918
======= ======= ======= ======= ======= =======
Diluted 32,164 32,327 30,296 30,204 30,302 30,031
======= ======= ======= ======= ======= =======
Reconciliation of Non-GAAP
Financial Measures to GAAP:
Operating income before
management fee $28,117 $26,869 $22,275 $21,934 $99,195 $18,009
Deduct: management fee 2,748 2,483 2,055 2,247 9,533 1,669
------- ------- ------- ------- --------- -------
Operating income $25,369 $24,386 $20,220 $19,687 $89,662 $16,340
------- ------- ------- ------- --------- -------
Operating margin 43.7% 42.5% 42.7% 41.7% 42.7% 35.5%
---- ---- ---- ---- ---- ----
TABLE VI
GABELLI ASSET MANAGEMENT INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
December 31, March 31,
2002 2003
ASSETS (unaudited)
Cash and cash equivalents.................. $311,430 $ 327,099
Investments ............................... 223,398 210,613
Receivables................................ 32,238 28,533
Other assets............................... 15,665 15,607
-------- --------
Total assets.......................... $582,731 $581,852
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Compensation payabl........................ $ 18,459 $ 20,554
Income taxes payable....................... 9,196 8,457
Accrued expenses and other liabilities..... 41,176 26,832
-------- --------
Total liabilities..................... 68,831 55,843
6% Convertible note........................ 100,000 100,000
Mandatory convertible securities........... 84,545 84,163
Minority interest.......................... 7,562 7,607
Stockholders' equity....................... 321,793 334,239
-------- --------
Total liabilities and stockholders' equity.. $582,731 $581,852
======== ========