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, 2001
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.
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(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 Identification No.)
incorporation or organization)
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 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, 2001
----- -----------------------------
Class A Common Stock, .001 par value 5,489,200
Class B Common Stock, .001 par value 24,000,000
1
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, 2000 and 2001
Condensed Consolidated Statements of Financial Condition:
- March 31, 2001
- December 31, 2000 (Audited)
Condensed Consolidated Statements of Cash Flows:
- Three months ended March 31, 2000 and 2001
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)
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,
----------------------------------------
2000 2001
-------- --------
Investment advisory and incentive fees. . . . . . . . . $ 45,189 $ 48,187
Commission revenue. . . . . . . . . . . . . . . . . . . 3,778 4,387
Distribution fees and other income. . . . . . . . . . . 8,806 5,770
-------- --------
Total revenues . . . . . . . . . . . . . . . . . . . 57,773 58,344
Expenses
Compensation costs. . . . . . . . . . . . . . . . . . . 23,950 23,113
Management fee. . . . . . . . . . . . . . . . . . . . . 2,749 2,793
Other operating expenses. . . . . . . . . . . . . . . . 8,441 8,437
-------- --------
Total expenses . . . . . . . . . . . . . . . . . . . 35,140 34,343
Operating income . . . . . . . . . . . . . . . . . . . . 22,633 24,001
Other Income (Expense)
Net gain from investments . . . . . . . . . . . . . . . 1,153 434
Interest and dividend income. . . . . . . . . . . . . . 1,891 1,633
Interest expense. . . . . . . . . . . . . . . . . . . . (933) (931)
-------- --------
Total other income, net. . . . . . . . . . . . . . . 2,111 1,136
-------- --------
Income before income taxes and minority interest. . . . . 24,744 25,137
Income tax provision. . . . . . . . . . . . . . . . . . 9,799 9,703
Minority interest. . . . . . . . . . . . . . . . . . . 949 538
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . $ 13,996 $ 14,896
======== ========
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.47 $ 0.50
======== ========
Diluted . . . . . . . . . . . . . . . . . . . . . . . . $ 0.47 $ 0.50
======== ========
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . 29,643 29,507
======== ========
Diluted . . . . . . . . . . . . . . . . . . . . . . . . 29,643 30,041
======== ========
See accompanying notes.
3
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
December 31, March 31,
2000 2001
------------ -----------
(Unaudited)
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 69,271 $ 105,698
Investments in securities . . . . . . . . . . . . . . . . . 134,520 125,844
Investments in partnerships and affiliates. . . . . . . . . 56,546 51,895
Receivable from broker. . . . . . . . . . . . . . . . . . . 3,853 4,778
Investment advisory fees receivable . . . . . . . . . . . . 15,307 14,073
Deferred income taxes, net. . . . . . . . . . . . . . . . . 19,382 19,658
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 18,925 17,022
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 317,804 $ 338,968
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable. . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . 7,468 12,488
Capital lease obligation. . . . . . . . . . . . . . . . . . 3,541 3,530
Compensation payable. . . . . . . . . . . . . . . . . . . . 25,670 26,173
Accrued expenses and other liabilities. . . . . . . . . . . 11,077 12,187
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . 97,756 104,378
Minority interest . . . . . . . . . . . . . . . . . . . . . 17,851 18,351
Stockholders' equity. . . . . . . . . . . . . . . . . . . . 202,197 216,239
--------- ---------
Total liabilities and stockholders' equity. . . . . . . . . $ 317,804 $ 338,968
========= =========
See accompanying notes.
4
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
Three Months Ended
March 31,
-------------------------------
2000 2001
----
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 13,996 $ 14,896
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of partnerships and affiliates . . . . (1,115) (963)
Depreciation and amortization . . . . . . . . . . . . . . 177 185
Deferred income tax asset . . . . . . . . . . . . . . . . - (276)
Minority interest in net income of consolidated
Subsidiaries . . . . . . . . . . . . . . . . . . . . . 949 539
(Increase) decrease in operating assets:
Investments in securities. . . . . . . . . . . . . . . (11,993) 8,676
Investment advisory fees receivable. . . . . . . . . . (210) 1,234
Receivables from affiliates. . . . . . . . . . . . . . 3,037 1,598
Other receivables. . . . . . . . . . . . . . . . . . . 97 134
Receivable from broker . . . . . . . . . . . . . . . . (162) (925)
Other assets . . . . . . . . . . . . . . . . . . . . . (603) (14)
Increase (decrease) in operating liabilities:
Payable to broker. . . . . . . . . . . . . . . . . . . (5,637) -
Income taxes payable . . . . . . . . . . . . . . . . . 5,414 5,020
Compensation payable . . . . . . . . . . . . . . . . . 9,173 503
Accrued expenses and other liabilities . . . . . . . . 4,378 1,100
--------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . 3,505 16,811
--------- --------
Net cash provided by operating activities . . . . . . . . 17,501 31,707
--------- --------
Investing activities
Distributions from partnerships and affiliates. . . . . . 3,342 7,014
Investments in partnerships and affiliates. . . . . . . . (1,000) (1,400)
--------- --------
Net cash provided by investing activities . . . . . . . . 2,342 5,614
--------- --------
Financing activities
Purchase of minority stockholders' interest . . . . . . . (18) (39)
Purchase of treasury stock. . . . . . . . . . . . . . . . (1,762) (855)
--------- --------
Net cash used in financing activities . . . . . . . . . . (1,780) (894)
--------- --------
Net increase in cash and cash equivalents . . . . . . . . 18,063 36,427
Cash and cash equivalents at beginning of period. . . . . 103,032 69,271
--------- --------
Cash and cash equivalents at end of period. . . . . . . . $ 121,095 $105,698
========= ========
See accompanying notes.
5
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(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 accordance with generally accepted accounting principles 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, 2000, from which the
accompanying Statement of Financial Condition was derived.
Certain items previously reported have been reclassified to conform with
the current year's financial statement presentation.
B. 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) 2000 2001
---- ----
Net income $ 13,996 $ 14,896
========= =========
Basic weighted average shares outstanding 29,643 29,507
Effect of dilutive stock options - 534
--------- ---------
Diluted weighed average shares outstanding 29,643 30,041
========= =========
Net income per share:
Basic and diluted $ 0.47 $ 0.50
========= =========
C. Stock Award and Incentive Plan
On February 20, 2001, the Compensation Committee of the Board of Directors
approved an option grant of 172,500 shares under the Stock Award and Incentive
Plan (the "Plan") at an exercise price, equal to the market price on that date,
of $31.62 per share. At March 31, 2001, there were 224,500 shares available for
future awards under the Plan.
D. Stock Repurchase Program
In 1999 the Board of Directors established the Stock Repurchase Program
through which the Company has been authorized to purchase up to $9,000,000 of
the Company's Class A Common Stock in open market transactions. During the first
quarter of 2001 the Company purchased 30,000 shares at an average cost of $28.46
per share bringing the total shares repurchased under the program to 510,900 at
an average cost of $17.38 per share. This substantially completed the previously
announced Stock Repurchase Program. On March 2, 2001, the Board of Directors
authorized the repurchase of up to an additional $3,000,000 of its shares of
Class A Common Stock.
6
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. 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, 2001 As Compared To the
Three Months Ended March 31, 2000
Consolidated Results - Three Months Ended March 31:
(unaudited; in thousands, except per share data)
------------------------------------------------
2000 2001 % Change
---- ---- --------
Revenues $ 57,773 $ 58,344 1.0
Expenses 35,140 34,343 (2.3)
-------- --------
Operating income 22,633 24,001 6.0
Other income, net 2,111 1,136
-------- --------
Income before taxes and minority interest 24,744 25,137 1.6
Income tax provision 9,799 9,703
Minority interest 949 538
-------- --------
Net income $ 13,996 $ 14,896 6.4
======== ========
Net income per share:
Basic and diluted $ 0.47 $ 0.50 6.4
======== ========
Included in income before taxes and minority interest:
Depreciation and amortization $ 177 $ 185
Interest expense $ 933 $ 931
Adjusted EBITDA(a) $ 25,854 $ 26,253
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and minority interest.
7
Total revenues were $58.3 million in the first quarter of 2001, up from
$57.8 million, in the first quarter of 2000. Included in total revenues in the
prior year quarter was a $3.1 million investment banking fee. Excluding this fee
total revenues for the first quarter 2000 were $54.7 million.
Investment advisory and incentive fees, which comprise 83% of total
revenues, were $48.2 million in the first quarter of 2001, 7% higher than the
same period a year earlier. The growth in investment advisory and incentive fees
is based on the growth in average assets under management during the respective
periods. Average assets under management were $24.2 billion in the first quarter
2001, 9% higher than average assets of $22.4 billion in the first quarter of
2000. Average assets under management in open end equity mutual funds were $9.0
billion in the first quarter 2001 compared to $8.8 billion in the first quarter
2000.
Commission revenues was $4.4 million in the first quarter of 2001, an
increase of 16% from the same period a year earlier. The increase was
principally driven by the increased activity related to the net cash flows and
growth in assets under management in institutional and high net worth separate
accounts.
Distribution fees and other income were $5.8 million in the first quarter
of 2001 versus $8.8 million in the first quarter of 2000 which included a $3.1
million investment banking fee. Excluding this fee, distribution fees and other
income were $5.7 million in the first quarter of 2000. The increase in
distribution fees results from the growth in average assets managed in open-end
equity mutual funds which generate distribution fees under 12b-1 compensation
plans.
Total expenses were $34.3 million in the first quarter of 2001, a 2.3%
decrease from total expenses of $35.1 million in 2000. Total expenses declined
as a percentage of total revenues to 58.9% in 2001 from 60.8% in the prior year
quarter. Compensation costs, which are largely variable in nature, were $23.1
million, 3.5% lower than the same period a year earlier. The decrease in
compensation principally reflects lower incentive compensation costs. Management
fee expense, which is totally variable and based on pretax income, was $2.7
million in the first quarter of 2000 and $2.8 million in the first quarter of
2001. Other operating expenses were $8.4 million in both the first quarter of
2001 and 2000 as increased mutual fund distribution costs were offset by lower
administrative costs resulting from company-wide cost reduction efforts.
Other income, net, which includes investment gains from our proprietary
portfolio was $1.1 million in the first quarter of 2001, a 46% decline from the
prior year quarter which reflects the effects of the adverse equity markets.
The effective tax rate for the first quarter of 2001 was approximately
38.6%, down from 39.6% in the first quarter of 2000.
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,
--------------------------------
2000 2001
---- ----
Cash flows provided by (used in): (in thousands)
Operating activities $ 17,501 $ 31,707
Investing activities 2,342 5,614
Financing activities (1,780) (894)
--------- ---------
Increase 18,063 36,427
Cash and cash equivalents at beginning of period 103,032 69,271
--------- ---------
Cash and cash equivalents at end of period $ 121,095 $ 105,698
========= =========
8
Cash requirements and liquidity needs have historically been met through
cash generated by operating activities and through the Company's borrowing
capacity. At March 31, 2001, the Company had cash and cash equivalents of $105.7
million, an increase of $36.4 million from December 31, 2000.
Cash provided by operating activities was $31.7 million in the first
quarter of 2001 principally resulting from $14.9 million in net income and
decreases in investments in securities and various receivables of $8.7 million
and $2.0 million, respectively. In the first quarter of 2000, cash provided by
operating activities was $17.5 million largely from $14.0 million in net income.
Cash provided by investing activities, related to investments in and
distributions from partnerships and affiliates, was $5.6 million in the first
quarter of 2001. Cash provided by these investing activities in the first
quarter of 2000 was $2.3 million.
Cash used in financing activities in the first quarter of 2001 and 2000 was
$0.9 million and $1.8 million, respectively, primarily from the purchase of
treasury stock under the company's Stock Repurchase Program.
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 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, 2001, Gabelli & Company had net capital, as defined, of
approximately $16.7 million exceeding the regulatory requirement by
approximately $16.4 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 and advisor for assets under management in its mutual funds,
institutional and separate accounts business and its proprietary trading
activities. At March 31, 2001, the Company's primary market risk exposure was
for changes in equity prices and interest rates. Included in investments in
securities of $125.8 million at March 31, 2001 were investments in Treasury
Bills and Notes of $72.4 million, in mutual funds, largely invested in equity
products, of $36.0 million, a diverse selection of common stocks totaling $15.7
million and other investments of approximately $1.7 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. More than $12.9 million
of the $15.7 million invested in common stocks at March 31, 2001, represents the
Company's participation in risk arbitrage opportunities in connection with
mergers, consolidations, acquisitions, tender offers or other similar
transactions. 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 government obligations. These investments are
primarily short term in nature and the fair 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 advisoryfees for mutual funds are
based on average daily asset values. Management fees earned on institutional and
separate accounts, for any given quarter, are determined based on asset values
on the last day of the preceding quarter. Any significant increases or decreases
in market value of institutional and separate accounts assets managed which
occur on the last day of the quarter will result in a relative increase or
decrease in revenues for the following quarter.
9
Forward Looking Information
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain "forward-looking information",
including information relating to anticipated growth in assets under management,
revenues or earnings, strategies to bring about anticipated growth, anticipated
expense levels and expectations regarding market risk. The Company cautions
readers that any forward-looking information provided by or on behalf of the
Company is not a guarantee of future performance or events. Actual results may
differ materially from those in forward-looking information as a result of many
risk factors including, but not limited to, economic, competitive, governmental
and technological, many of which are beyond the Company's control or are subject
to change. Further, such forward-looking information speaks only as of the date
on which such statements are made and the Company undertakes no obligation to
update any forward-looking information to reflect changes in events or
circumstances subsequent to the date made or to reflect the occurrence of
unanticipated events.
10
Part II: Other Information
Item 6. (a) Exhibits
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three
months ended March 31, 2001.
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, 2001 /s/ Robert S. Zuccaro
------------ ---------------------
Date Robert S. Zuccaro
Vice President and Chief Financial Officer