-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MzN42HDqLEccyya2hIyHzjG5KjRAR7hWusBuSLeeFdNo05X7qk+R5uFX3T2WC0xV /2Q5D0AmLZzJOng4dyvvJA== 0001060349-00-000004.txt : 20000516 0001060349-00-000004.hdr.sgml : 20000516 ACCESSION NUMBER: 0001060349-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GABELLI ASSET MANAGEMENT INC CENTRAL INDEX KEY: 0001060349 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 134007862 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14761 FILM NUMBER: 633761 BUSINESS ADDRESS: STREET 1: ONE CORPORATE CENTER CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149213700 MAIL ADDRESS: STREET 1: ONE CORPORATE CENTER CITY: RYE STATE: NY ZIP: 10580 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA G INC DATE OF NAME CHANGE: 19980423 10-Q 1 GABELLI ASSET MANAGEMENT INC. 1ST QTR. 10-Q 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, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission File No. 1-106 GABELLI ASSET MANAGEMENT INC. (Exact name of Registrant as specified in its charter) New York 13-4007862 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Corporate Center, Rye, New York 10580 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (914) 921-3700 Registrant's telephone number, including area code Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate 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, 2000 ----- ------------------------------------ Class A Common Stock, .001 par value 5,589,200 Class B Common Stock, .001 par value 24,000,000 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, 1999 and 2000 Condensed Consolidated Statements of Financial Condition: - March 31, 2000 - December 31, 1999 (Audited) Condensed Consolidated Statements of Cash Flows: - Three months ended March 31, 1999 and 2000 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 GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (In thousands, except per share data)
Three Months Ended March 31, ---------------------------------------- 1999 2000 -------- -------- Revenues Investment advisory and incentive fees. . . . . . . . . $ 32,917 $ 45,189 Commission revenue. . . . . . . . . . . . . . . . . . . 2,920 3,778 Distribution fees and other income. . . . . . . . . . . 3,854 8,806 ------ ------ Total revenues . . . . . . . . . . . . . . . . . . . 39,691 57,773 Expenses Compensation costs. . . . . . . . . . . . . . . . . . . 16,775 23,729 Management fee. . . . . . . . . . . . . . . . . . . . . 2,982 2,749 Other operating expenses. . . . . . . . . . . . . . . . 6,185 8,662 Non recurring charge. . . . . . . . . . . . . . . . . . 50,725 - ------ ------ Total expenses . . . . . . . . . . . . . . . . . . . 76,667 35,140 Operating (loss) income . . . . . . . . . . . . . . . . . (36,976) 22,633 Other Income (Expense) Net gain from investments . . . . . . . . . . . . . . . 4,249 1,153 Interest and dividend income. . . . . . . . . . . . . . 1,158 1,891 Interest expense. . . . . . . . . . . . . . . . . . . . (716) (933) ------ ------ Total other income, net. . . . . . . . . . . . . . . 4,691 2,111 ------ ------ (Loss) income before income taxes and minority interest . . . . . . . . . . . . . . . . . . . (32,285) 24,744 Income tax (benefit) provision. . . . . . . . . . . . . (15,118) 9,799 Minority interest. . . . . . . . . . . . . . . . . . . 714 949 ------ ------ Net (loss) income . . . . . . . . . . . . . . . . . $(17,881) $ 13,996 ====== ====== Net income per share: Basic and diluted . . . . . . . . . . . . . . . . . . . $ 0.47 ==== Weighted average shares outstanding: Basic and diluted . . . . . . . . . . . . . . . . . . . 29,643 ====== Pro forma data: Loss before income taxes and minority interest as reported . . . . . . . . . . . . . . . . . . . . . $(32,285) Pro forma interest expense on $50 million note payable. (338) Pro forma management fee adjustment from 20% to 10% of pre tax profits . . . . . . . . . . . . . . . . . . . 1,097 Pro forma reallocation of expenses to the new parent company . . . . . . . . . . . . . . . . . . . . . . . 23 Pro forma effect on income and expenses of distribution of assets and liabilities. . . . . . . . . . . . . . . . (2,256) Pro forma benefit for income taxes. . . . . . . . . . . 12,857 Pro forma minority interest . . . . . . . . . . . . . . (714) ------ Pro forma net loss. . . . . . . . . . . . . . . . . . . $(21,616) ====== Pro forma net loss per share: Basic and diluted . . . . . . . . . . . . . . . . . $( 0.72) ====== Pro forma weighted average shares outstanding: Basic and diluted . . . . . . . . . . . . . . . . . 30,000 ======
See accompanying notes. GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands)
December 31, March 31, 1999 2000 -------------- ------------ (Unaudited) ASSETS Cash and cash equivalents . . . . . . . . . . . . . . $ 103,032 $ 121,095 Investments in securities . . . . . . . . . . . . . . 69,791 81,784 Investments in partnerships and affiliates. . . . . . 21,018 19,851 Receivable from broker. . . . . . . . . . . . . . . . - 162 Investment advisory fees receivable . . . . . . . . . 14,269 14,479 Deferred income taxes . . . . . . . . . . . . . . . . 16,887 16,887 Other assets. . . . . . . . . . . . . . . . . . . . . 18,065 15,333 -------- -------- Total assets . . . . . . . . . . . . . . . . . . $ 243,062 $ 269,591 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Note payable. . . . . . . . . . . . . . . . . . . . . 50,000 50,000 Payable to brokers. . . . . . . . . . . . . . . . . . 5,637 - Income taxes payable. . . . . . . . . . . . . . . . . 4,592 10,006 Compensation payable. . . . . . . . . . . . . . . . . 10,260 19,516 Accrued expenses and other liabilities. . . . . . . . 10,179 14,510 -------- -------- Total liabilities. . . . . . . . . . . . . . . . 80,668 94,032 Minority interest . . . . . . . . . . . . . . . . . . 14,818 15,749 Stockholders' equity: . . . . . . . . . . . . . . . . 147,576 159,810 -------- -------- Total liabilities and stockholders' equity. . . . . . $ 243,062 $ 269,591 ======== ========
See accompanying notes. GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands)
Three Months Ended March 31, ------------------------------ 1999 2000 ---------- ---------- Operating activities Net (loss) income . . . . . . . . . . . . . . . . . . . . . $(17,881) $ 13,996 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Equity in earnings of partnerships and affiliates . . . . (2,828) (1,115) Depreciation and amortization . . . . . . . . . . . . . . 174 177 Non recurring charge. . . . . . . . . . . . . . . . . . . 50,725 - Deferred income tax asset . . . . . . . . . . . . . . . . (19,830) - Minority interest in net income of consolidated Subsidiaries . . . . . . . . . . . . . . . . . . . . . 714 949 Net change in operating assets and liabilities. . . . . . (22,443) 3,494 -------- -------- Total adjustments . . . . . . . . . . . . . . . . . . . . . 6,512 3,505 -------- -------- Net cash (used in) provided by operating activities . . . . (11,369) 17,501 -------- -------- Investing activities Distributions from partnerships and affiliates. . . . . . . 5,187 3,342 Investments in partnerships and affiliates. . . . . . . . . (25) (1,000) -------- -------- Net cash provided by investing activities . . . . . . . . . 5,162 2,342 -------- -------- Financing activities Distributions to shareholders . . . . . . . . . . . . . . . (10,023) - Sale (purchase) of minority stockholders' interest. . . . . 633 (18) Net proceeds from issuance of common stock. . . . . . . . . 96,750 - Purchase of treasury stock - (1,762) Cash included in deemed distribution. . . . . . . . . . . . (18,170) - -------- -------- Net cash provided by (used in) financing activities . . . . 69,190 (1,780) -------- -------- Net increase in cash and cash equivalents. . . . 62,983 18,063 Cash and cash equivalents at beginning of period. . . . . . 50,222 103,032 -------- -------- Cash and cash equivalents at end of period. . . . . . . . . $113,205 $121,095 ======== ========
See footnote C regarding non-cash financing transactions. See accompanying notes. GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2000 (Unaudited) A. Organization Gabelli Asset Management Inc. (the "Company") was incorporated in April 1998 in the state of New York, with no significant assets or liabilities and did not engage in any substantial business activities prior to the public offering ("Offering") of its shares. On February 9, 1999, the Company exchanged 24 million shares of its Class B Common Stock, representing all of its then issued and outstanding shares of Common Stock, with Gabelli Group Capital Partners, Inc. and two of its subsidiaries ("GGCP") in consideration for substantially all of the operating assets and liabilities of GGCP relating to its institutional and retail asset management, mutual fund advisory, underwriting and brokerage business (the "Reorganization"). On February 17, 1999, the Company completed its sale of 6 million shares of Class A Common Stock and received proceeds, after fees and expenses, of approximately $96 million. After the Offering, GGCP owned 80% of the outstanding common stock of the Company. In addition, with the completion of the Offering, the Company is a "C" Corporation for Federal and state income tax purposes and is subject to substantially higher income tax rates. The accompanying condensed consolidated financial statements for periods prior to the date of the Reorganization, include the assets, liabilities and earnings of GGCP, its wholly-owned subsidiary GAMCO Investors, Inc. ("GAMCO"), and GGCP majority-owned subsidiaries consisting of Gabelli Securities, Inc. ("GSI"), Gabelli Fixed Income L.L.C. ("Fixed Income") and Gabelli Advisers LLC ("Advisers"). After the Reorganization, these financial statements include the accounts of Gabelli Funds, LLC and GAMCO and former GGCP majority-owned subsidiaries GSI, Fixed Income and Advisers. B. Basis of Presentation The unaudited interim condensed consolidated financial statements of 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, 1999, 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. C. Formation Transactions Reorganization The exchange of operating assets and liabilities of approximately $169 million, including cash of approximately $18 million, has been recorded as a deemed distribution. Accordingly, only the cash portion of this deemed distribution has been reflected in the Statement of Cash Flows for the three months ended March 31, 1999. Employment Agreement Immediately preceding the Offering and in conjunction with the Reorganization, the Company and its Chairman and Chief Executive Officer ("Chairman") entered into an Employment Agreement ("Agreement"). The Agreement provides that the Company pay the Chairman 10% of the Company's aggregate pre-tax profits, before consideration of the one-time charge discussed below, while he remains an executive of the Company and devotes the substantial majority of his working time to the business of the Company. Note Payable The Agreement further provides the Chairman or his assignee will be paid $50 million on January 2, 2002 plus interest payable quarterly at an annual rate of 6% from the date of the Agreement. This payment, plus related costs and net of a related deferred tax benefit of $19.8 million, has been reflected as a one-time charge to earnings in the first quarter of 1999 and the liability has been recorded as a note payable. Stock Award and Incentive Plan On February 5, 1999, the Board of Directors adopted the 1999 Gabelli Asset Management Inc. Stock Award and Incentive Plan (the "Plan"), designed to provide incentives which will attract and retain individuals key to the success of the Company through direct or indirect ownership of the Company's common stock. Benefits under the Plan may be granted in any one or a combination of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents and other stock or cash based awards. A maximum of 1,500,000 shares Class A Common Stock has been reserved for issuance and the Plan provides that the terms and conditions of each award are to be determined by a committee of the Board of Directors charged with administering the Plan. Under the Plan, the committee may grant either incentive or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price that the committee may determine. Options granted under the Plan vest 75% after three years and 100% after four years from the date of grant and expire after ten years. On February 10, 1999, options were granted to all full time employees and a non-employee director to purchase an aggregate of 1,134,500 shares of common stock at an exercise price of $16.28 per share. On February 15, 2000, the Compensation Committee of the Board of Directors approved a second option grant of 135,000 shares under the Stock Award and Incentive Plan at an exercise price, equal to the market price on that date, of $16.00 per share. There were 41,000 options canceled and none exercised during 1999 and 24,000 options canceled and none exercised during the first quarter of 2000. At March 31, 2000, there were 295,500 shares available for future awards. The Company has elected to account for stock options under the intrinsic value method. Under the intrinsic value method, compensation expense is recognized only if the exercise price of the employee stock option is less than the market price of the underlying stock on the date of grant. The estimated pro forma compensation expense attributable to options granted to employees under the Plan is not presented as its effect is immaterial. Pro Forma Information Pro forma information has been included which gives effect to the Reorganization, including the reduction in other income as a result of the deemed distribution of a proprietary investment portfolio, the lower management fee and the increase in interest expense as if the Employment Agreement had been in effect as of January 1, 1999 and the additional income taxes which would have been recorded if GGCP had been a "C" corporation instead of an "S" corporation based on tax laws in effect. The pro forma information does not give effect to the use of proceeds received from the Offering prior to the date received. D. Earnings Per Share For the quarter ended March 31, 2000, net income per share is computed in accordance with the Statement of Financial Accounting Standards No. 128 "Earnings Per Share." Basic net income per common share is calculated by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding. Diluted net income per share is computed using the treasury stock method. Options outstanding for the period do not have a dilutive effect and therefore are excluded from the computation of diluted earnings per share. The Company has not presented historical earnings per share for the first quarter of 1999 due to the significant changes in its operations which are not reflected in the historical financial statements as reported. The Company has presented pro forma earnings per share based upon the number of shares outstanding at the close of the Offering. E. Stock Repurchase Program During 1999 the Board of Directors authorized the repurchase of up to $6,000,000 of the Company's Class A Common Stock. The Company completed the stock buyback during the quarter ended March 31, 2000. During the first quarter of 2000 the Board of Directors authorized the repurchase of an additional $3,000,000 of shares in open market transactions. Through March 31, 2000, the Company has repurchased 410,900 shares, including 110,000 in the first quarter of 2000, at an average cost of $15.61 per share, which are held in treasury. GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 The following unaudited pro forma consolidated financial information gives effect to assets and liabilities assumed to be distributed as part of the Reorganization and the resulting impact on allocated income and expenses; the $50 million deferred payment to the Chairman and Chief Executive Officer net of deferred tax benefit; the reduction in the management fee from 20% to 10% pursuant to the Employment Agreement; and the conversion from an "S" corporation to a "C" corporation. The unaudited pro forma consolidated financial information does not purport to represent the results of operations or the financial position of the Company which actually would have occurred had the Reorganization and Formation Transactions been previously consummated or project the results of operations or the financial position of the Company for any future date or period. The pro forma information does not reflect the $96 million in net cash proceeds received upon completion of the Offering. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months Ended March 31, 1999 (In thousands, except per share data)
Pro Forma Pro Forma As Reported Adjustments Consolidated ----------- ----------- ------------ Revenues Investment advisory and incentive fees. . . . . . . $ 32,917 $ 32,917 Commission revenue. . . . . . . . . . . . . . . . . 2,920 2,920 Distribution fees and other income. . . . . . . . . 3,854 3,854 -------- -------- Total revenues . . . . . . . . . . . . . . . . . 39,691 39,691 Expenses Compensation costs. . . . . . . . . . . . . . . . . 16,775 16,775 Management fee. . . . . . . . . . . . . . . . . . . 2,982 $(1,097)(a) 1,885 Other operating expenses. . . . . . . . . . . . . . 6,185 (23)(b) 6,162 Non recurring charge. . . . . . . . . . . . . . . . 50,725 50,725 -------- ------- -------- Total expenses . . . . . . . . . . . . . . . . . 76,667 (1,120) 75,547 -------- ------- -------- Operating loss. . . . . . . . . . . . . . . . . . . . (36,976) 1,120 (35,856) Other income (expense) Net gain from investments . . . . . . . . . . . . . 4,249 (1,903)(c) 2,346 Interest and dividend income. . . . . . . . . . . . 1,158 (476)(c) 682 Interest expense. . . . . . . . . . . . . . . . . . (716) 123 (c) (338)(d) (931) -------- ------- -------- Total other income, net. . . . . . . . . . . . . 4,691 (2,594) 2,097 -------- ------- -------- Loss before income taxes and minority interest. . . . (32,285) (1,474) (33,759) Income tax benefit. . . . . . . . . . . . . . . . . (15,118) 2,261 (e) (12,857) Minority interest . . . . . . . . . . . . . . . . . 714 714 -------- ------- -------- Net loss . . . . . . . . . . . . . . . . . . . . $(17,881) $(3,735) $(21,616) ======== ======= ======== Pro forma net loss per share: Basic and diluted . . . . . . . . . . . . . . . $( 0.72) (f) ======== Pro forma weighted average shares outstanding: Basic and diluted. . . . . . . . . . . . . . . 30,000 ========
Notes to Pro Forma Adjustments: (a) To reflect the change in management fee from 20% to 10%. (b) To reflect reallocation of expenses to new parent company. (c) To reflect effect on income and expenses of distribution of assets and liabilities. (d) To reflect a full quarter of interest on $50 million note payable. (e) To record additional taxes related to conversion from Subchapter S Corporation to "C" Corporation for Federal and state income tax purposes and tax effects of pro forma adjustments. (f) Excluding the one-time charge, net of tax benefit, of $30.9 million the pro forma net income per share on both a basic and diluted basis is $0.31 per share. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Gabelli Asset Management Inc. (the "Company"), incorporated in April 1998, had no significant assets or liabilities and did not engage in any business activities prior to its reorganization and the public offering ("Offering") of its shares. On February 9, 1999, the Company exchanged 24 million shares of its Class B Common Stock, representing all of its then issued and outstanding common stock, to Gabelli Group Capital Partners, Inc. ("GGCP") and two of its subsidiaries in consideration for substantially all of the operating assets and liabilities of GGCP related to its institutional and retail asset management, mutual fund advisory, underwriting and brokerage business (the "Reorganization"). Immediately following the Reorganization, the Company sold 6 million shares of its Class A Common Stock in an initial public offering. Proceeds from the Offering, net of fees and expenses, were approximately $96 million. Following the Offering, GGCP owned 80% of the outstanding common stock of the Company. For periods after the Offering, the Company's financial statements reflect the financial condition and results of operations of Gabelli Asset Management Inc. and the historical results of GGCP are shown as predecessor financial statements. 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. 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. RESULTS OF OPERATIONS The pro forma information presented herein for the three months ended March 31, 1999 presents results of operations as if the Reorganization and Offering had occurred at the beginning of 1999. The Company believes the pro forma results provide more meaningful information for comparing operating results and earnings trends. The pro forma information is not necessarily indicative of the results that the Company would have reported had these events occurred at the beginning of the year. Information is also presented herein on an "as reported" basis to meet certain disclosure requirements. This information does not give effect to assets and liabilities assumed to be distributed as part of the Reorganization and the resulting impact on allocated income and expenses; the $50 million deferred payment to the Chairman and Chief Executive Officer net of deferred tax benefit; the reduction in the management fee from 20% to 10% and the conversion from an "S" corporation to a "C" corporation for tax purposes. The net effect of these adjustments was to lower net income on a pro forma basis for the first quarter of 1999 by $3.7 million. These adjustments principally consisted of $2.4 million of investment earnings from assets distributed as part of the Reorganization and a $2.3 million increase in the pro forma tax provision due to the conversion from an S corporation to a C corporation partially offset by a $1.1 million decrease in the pro forma management fee. Three Months Ended March 31, 2000 As Compared To Three Months Ended March 31, 1999 Consolidated Results - Three Months Ended March 31:
(unaudited; in thousands, except per share data) 1999 (a) 1999 Adjusted 2000 % Change (As reported) (pro forma) (vs. pro forma) ------------- ------------ ---------- --------------- Revenues $ 39,691 $ 39,691 $ 57,773 45.6 % Expenses 76,667 24,822 35,140 41.6 --------- ---------- ---------- Operating income (loss) (36,976) 14,869 22,633 52.2 Other income (expense), net 4,691 2,097 2,111 --------- ---------- ---------- Income (loss) before taxes and minority interest (32,285) 16,966 24,744 45.8 Income tax provision (15,118) 6,973 9,799 Minority interest 714 714 949 --------- ---------- ---------- Net income (loss) $( 17,881) $ 9,279 $ 13,996 50.8 ========= ========== ========== Net income per share: Basic and diluted $ 0.31 $ 0.47 51.6 ========== ========== Included in income before taxes and minority interest: Depreciation and amortization $ 174 $ 169 Interest expense $ 931 $ 933 Adjusted EBITDA(b) $ 18,071 $ 25,846 43.0%
(a) The 1999 adjusted pro forma results above do not include the $50.7 million non-recurring charge ($30.9 million net of tax benefit or $1.03 per share) recorded in the first quarter of 1999. After giving effect to this charge, net of tax, the Company had a net loss of $21.6 million or $0.72 per share for the three months ended March 31, 1999. (b) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization and minority interest. Total revenues rose 46% in the first quarter of 2000, to $57.8 million, up $18.1 million from $39.7 million in the first quarter of 1999. Included in total revenue is a $3.1 million investment banking fee earned by a subsidiary in the first quarter of 2000. Excluding this fee total revenues were $54.7 million, a 38% increase over the prior year quarter. Investment advisory and incentive fees, which comprise 78% of total revenues, were $45.2 million in the first quarter of 2000, 37% 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 $22.4 billion in the first quarter 2000, 34% higher than average assets of $16.7 billion in the first quarter of 1999. Average assets under management in open end equity mutual funds climbed 53%, to $8.8 billion, in the first quarter 2000 compared to $5.7 billion in the first quarter 1999. Commission revenue was $3.8 million in the first quarter of 2000, 29% higher than the same period a year earlier. Distribution fees and other income were $8.8 million in the first quarter of 2000 including a $3.1 million investment banking fee. Excluding this fee, distribution fees and other income were $5.7 million, an increase of 47% from the $3.9 million reported in the first quarter of 1999. This increase results from the growth in average assets managed in open end mutual funds which generate distribution fees under 12b-1 compensation plans. Total expenses were $35.1 million in the first quarter of 2000, a 41.6% increase over total expenses, excluding the $50.7 million non-recurring charge, of $24.8 million in 1999. Total expenses declined as a percentage of total revenues to 60.8% in 2000 from 62.5% in the prior year quarter as the Company continues to benefit from spreading the fixed component of both compensation costs and other operating expenses over a larger revenue base. Compensation costs, which are largely variable in nature, were $23.7 million in 2000, 41.5% ahead of the first quarter of 1999. Management fee expense, which is totally variable and based on pretax income, increased 45.8% to $2.7 million in 2000 versus $1.9 million a year earlier. Other operating expenses increased $2.5 million, or 40.6%, to $8.7 million in the current year versus $6.2 million in the first quarter of 1999. This increase, principally resulting from the increased mutual fund distribution costs associated with the more than 53% increase in average open end equity mutual fund assets under management, was partially offset by lower mutual fund administration costs. Other income, net, which includes investment gains from our proprietary portfolio was $2.1 million in both the first quarter of 2000 and the first quarter of 1999. The effective tax rate for the first quarter of 2000 was approximately 39.6%. In the first quarter of 1999, the Company had recorded a tax benefit of $15.1 million, which included a deferred tax benefit of $19.8 million related to a non-recurring charge of $50.7 million. On a pro forma basis and excluding this deferred tax benefit, the effective tax rate for the first quarter of 1999 was 41.1%. 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. 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, 2000, the Company had cash and cash equivalents of $121.1 million, an increase of $18.1 million from December 31, 1999. Included in cash and cash equivalents at March 31, 1999 were net proceeds of approximately $96 million received from the sale of the Company's Class A Common Stock in an initial public offering completed on February 17, 1999. Proceeds from the Offering are being used for general corporate purposes, including working capital, and achieving strategic growth plans which call for expanding product offerings, accessing new distribution channels and pursuing strategic acquisitions or alliances, as opportunities arise. Cash provided by operating activities was $17.5 million in the first quarter of 2000 principally resulting from $14.0 million in net income. In the first quarter of 1999, cash used in operating activities was $11.4 million. Cash provided by investing activities, related to investments in and distributions from partnerships and affiliates, was $2.3 million in the first quarter of 2000. Cash provided by these investing activities in the first quarter of 1999 was $5.2 million. Cash used in financing activities in the first quarter of 2000 was $1.8 million. Cash provided by financing activities in the first quarter of 1999 was $69.2 million principally resulting from the receipt of the net proceeds from the Offering of $96 million partially offset by distributions to shareholders of $10 million and $18.2 million of cash included in the deemed distribution. 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, 2000, Gabelli & Company had net capital, as defined, of approximately $15.2 million exceeding the regulatory requirement by approximately $15.0 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. Since December 31, 1999, the Company has increased its positions in securities held for investment purposes effectively increasing its exposure to market risk. At March 31, 2000, the Company's primary market risk exposure was for changes in equity prices and interest rates. Included in investments in securities of $81.8 million at March 31, 2000 were investments in Treasury Bills and Notes of $28.2 million, in mutual funds, largely invested in equity products, of $28.2 million, a diverse selection of common stocks totaling $24.3 million and other investments of approximately $1 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 $20.2 million of the $24.3 million invested in common stocks at March 31, 2000, 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 advisory fees 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. 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 expenselevels 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. Part II: Other Information Item 6. (a) Exhibits Exhibit No. Description ----------- ----------- 27-1 Financial Data Schedule (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended March 31, 2000. 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 10, 2000 /s/ Robert S. Zuccaro ------------------ -------------------------------------- Date Robert S. Zuccaro Vice President and Chief Financial Officer EX-27 2 FDS --
5 1000 3-MOS DEC-31-2000 MAR-31-2000 121,095 81,784 23,942 0 0 0 0 0 269,591 0 0 0 0 30 159,780 159,810 0 57,773 0 35,140 0 0 (933) 24,744 9,799 13,996 0 0 0 13,996 0.47 0.47
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