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 September 30, 2001
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 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 October 31, 2001
----- ----------------------------------
Class A Common Stock, .001 par value 5,877,904
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 September 30, 2000 and 2001
- Nine months ended September 30, 2000 and 2001
Condensed Consolidated Statements of Financial Condition:
- September 30, 2001
- December 31, 2000 (Audited)
Condensed Consolidated Statements of Cash Flows:
- Nine months ended September 30, 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
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share data)
Three Months Ended
September 30,
-------------------
2000 2001
--------- --------
Revenues
Investment advisory and incentive fees ................ $ 49,009 $ 47,297
Commission revenue .................................... 3,800 3,145
Distribution fees and other income .................... 6,355 5,679
-------- --------
Total revenues ..................................... 59,164 56,121
Expenses
Compensation costs .................................... 25,029 22,673
Management fee ........................................ 2,844 2,732
Other operating expenses .............................. 9,680 8,126
-------- --------
Total expenses ..................................... 37,553 33,531
Operating income ........................................ 21,611 22,590
Other income (expense)
Net gain from investments ............................. 2,732 1,220
Interest and dividend income .......................... 2,188 2,522
Interest expense ...................................... (933) (1,741)
-------- --------
Total other income, net ............................ 3,987 2,001
-------- --------
Income before income taxes and
minority interest ..................................... 25,598 24,591
Income tax provision .................................. 10,137 9,493
Minority interest ..................................... 971 152
-------- --------
Net income .......................................... $ 14,490 $ 14,946
======== ========
Net income per share:
Basic ................................................. $ 0.49 $ 0.50
======== ========
Diluted ............................................... $ 0.48 $ 0.49
======== ========
Weighted average shares outstanding:
Basic ................................................. 29,547 29,748
======== ========
Diluted ............................................... 29,969 31,142
======== ========
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share data)
Nine Months Ended
September 30,
---------------------
2000 2001
-------- --------
Revenues
Investment advisory and incentive fees ................ $ 141,666 $ 143,202
Commission revenue .................................... 11,493 11,112
Distribution fees and other income .................... 20,898 17,168
--------- ---------
Total revenues ..................................... 174,057 171,482
Expenses
Compensation costs .................................... 72,614 68,405
Management fee ........................................ 8,376 8,486
Other operating expenses .............................. 26,681 26,046
--------- ---------
Total expenses ..................................... 107,671 102,937
Operating income ........................................ 66,386 68,545
Other income (expense)
Net gain from investments ............................. 5,353 4,462
Interest and dividend income .......................... 6,434 6,995
Interest expense ...................................... (2,791) (3,628)
--------- ---------
Total other income, net ............................ 8,996 7,829
--------- ---------
Income before income taxes and
minority interest ..................................... 75,382 76,374
Income tax provision .................................. 29,852 29,481
Minority interest ..................................... 2,790 1,210
--------- ---------
Net income .......................................... $ 42,740 $ 45,683
========= =========
Net income per share:
Basic ................................................. $ 1.44 $ 1.54
========= =========
Diluted ............................................... $ 1.43 $ 1.52
========= =========
Weighted average shares outstanding:
Basic ................................................. 29,593 29,595
========= =========
Diluted ............................................... 29,857 30,310
========= =========
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
December 31, September 30,
2000 2001
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents ........................... $ 69,271 $307,933
Investments in securities ........................... 134,520 54,786
Investments in partnerships and affiliates .......... 56,546 66,458
Receivable from broker .............................. 3,853 --
Investment advisory fees receivable ................. 15,307 14,268
Deferred income taxes, net .......................... 19,382 20,206
Other assets ........................................ 18,925 18,924
-------- --------
Total assets ................................... $317,804 $482,575
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable ........................................ $ 50,000 $ 50,000
Income taxes payable ................................ 7,468 13,016
Capital lease obligation ............................ 3,541 3,506
Payable to brokers .................................. -- 1,677
Compensation payable ................................ 25,670 36,719
Accrued expenses and other liabilities .............. 11,077 12,758
-------- --------
Total liabilities .............................. 97,756 117,676
Convertible note payable ............................ -- 100,000
Minority interest ................................... 17,851 7,435
Stockholders' equity ................................ 202,197 257,464
-------- --------
Total liabilities and stockholders' equity .......... $317,804 $482,575
======== ========
See accompanying notes.
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
Nine Months Ended
September 30,
------------------------
2000 2001
---- ----
Operating activities
Net income ........................................ $ 42,740 $ 45,683
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of partnerships and affiliates . (4,897) (1,617)
Depreciation and amortization ..................... 521 561
Deferred income taxes ............................. (712) (824)
Minority interest in net income of consolidated
subsidiaries ................................... 2,790 1,210
(Increase) decrease in operating assets:
Investments in securities ...................... (40,491) 79,095
Investment advisory fees receivable ............ (1,184) 1,039
Receivables from affiliates .................... 1,101 256
Other receivables .............................. (580) (468)
Receivable from broker ......................... -- 3,853
Other assets ................................... (596) (348)
Increase (decrease) in operating liabilities:
Payable to broker .............................. 1,226 1,677
Income taxes payable ........................... (303) 5,548
Compensation payable ........................... 26,216 11,049
Accrued expenses and other liabilities ......... 4,829 1,647
--------- ---------
Total adjustments ................................. (12,080) 102,678
--------- ---------
Net cash provided by operating activities ......... 30,660 148,361
--------- ---------
Investing activities
Distributions from partnerships and affiliates .... 3,523 21,089
Investments in partnerships and affiliates ........ (30,168) (29,384)
--------- ---------
Net cash used in investing activities ............. (26,645) (8,295)
--------- ---------
Financing activities
Purchase of minority stockholders' interest ....... (132) (112)
Issuance of Convertible note payable .............. -- 100,000
Purchase of treasury stock ........................ (3,238) (1,292)
--------- ---------
Net cash (used in) provided by financing activities (3,370) 98,596
--------- ---------
Net increase in cash and cash equivalents ......... 645 238,662
Cash and cash equivalents at beginning of period .. 103,032 69,271
--------- ---------
Cash and cash equivalents at end of period ........ $ 103,677 $ 307,933
========= =========
Supplemental disclosure of non-cash
financing activity
Treasury stock exchanged for
subsidiary stock held by
minority shareholders ............................. $ - $ 11,514
========= =========
Securities reclassified to available for sale ..... $ - $ 14,278
========= =========
See accompanying notes
GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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
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, 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. 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. As of July 1, 2001 investments in mutual funds sponsored by
the Company totaling $14.3 million were reclassified as available for sale.
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 September 30, 2001 the market value of investments available for sale was
$6.8 million. The change in market value, net of taxes, of $0.6 million has been
included in stockholders' equity.
Proceeds from sales of investments available for sale were approximately $6.6
million for the period ended September 30, 2001. Gross gains on the sale of
investments available for sale amounted to $0.2 million; gross losses were not
significant.
C. Earnings Per Share
The computations of basic and diluted net income per share are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts) 2000 2001 2000 2001
---- ---- ---- ----
Basic:
Net income ........................... $14,490 $14,946 $42,740 $45,683
======= ======= ======= =======
Average shares outstanding ........... 29,547 29,748 29,593 29,595
======= ======= ======= =======
Basic net income per share ........... $ 0.49 $ 0.50 $ 1.44 $ 1.54
======= ======= ======= =======
Diluted:
Net income ........................... $14,490 $14,946 $42,740 $45,683
Add convertible note interest, net
of management fee and taxes ....... -- 467 -- 467
------- ------- ------- -------
Total ................................ $14,490 $15,413 $42,740 $46,150
======= ======= ======= =======
Average shares outstanding ........... 29,547 29,748 29,593 29,595
Net effect of dilutive stock options . 422 430 264 390
Assumed conversion of convertible note -- 964 -- 325
------- ------- ------- -------
Total ................................ 29,969 31,142 29,857 30,310
======= ======= ======= =======
Diluted net income per share ......... $ 0.48 $ 0.49 $ 1.43 $ 1.52
======= ======= ======= =======
D. Convertible Note Payable
On August 13, 2001, the Company sold a $100 million 10-year convertible note in
a private placement to Cascade Investments LLC. The note pays interest at 6.5%
for the first year and 6% thereafter and provides the purchaser with certain put
rights. The note is convertible into the Company's Class A Common Stock at $53
per share. The proceeds will be made available for general corporate purposes,
including the financing of global strategic initiatives with a particular focus
on the alternative investments business. As a result of the purchase, and upon
conversion, Cascade Investments LLC will own 6% of the Company's aggregate
outstanding common stock.
E. Stockholders' Equity
Exchange of Common Stock
In May 2001, the Board of Directors authorized an exchange offer in which four
shares of the Company's Class A Common Stock would be exchanged for each share
of Gabelli Securities, Inc. ("GSI") Common Stock it did not already own. Under
the terms of the exchange offer, shareholders had until August 31, 2001 to
exchange their shares and all shares of the Company issued will be restricted
from sale for two years from the date of issuance. As of September 30, 2001, a
total of 400,504 shares of the Company's Common Stock were issued under the
exchange offer raising the Company's ownership interest in GSI to 92%.
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 September 30, 2001, there were 251,000 shares available
for future awards under the Plan.
Stock Repurchase Program
In 1999, the Board of Directors established the Stock Repurchase Program through
which the Company had 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, substantially completing 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. On September 17, 2001 the Board of Directors authorized the repurchase of
up to $10 million of its shares of Class A Common Stock. This latest
authorization includes $3.1 million authorized under its current stock buyback
program. During the third quarter of 2001, the Company repurchased 12,000 shares
at an average cost of $36.50 bringing the total shares repurchased under the
program to 522,900 at an average cost of $17.81 per share.
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. The Company
generally manages assets on a discretionary basis and invests 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. Advisory fees from the Mutual Funds
are computed daily or weekly, while advisory fees from Separate Accounts are
generally computed quarterly based on account values as of the end of the
preceding quarter. 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 September 30, 2001 as Compared to the Three Months Ended
September 30, 2000
Consolidated Results - Three Months Ended September 30:
(unaudited; in thousands, except per share data)
------------------------------------------------
2000 2001 % Change
---- ---- --------
Revenues ............................................. $59,164 $56,121 (5.1)
Expenses ............................................. 37,553 33,531 (10.7)
------- -------
Operating income ..................................... 21,611 22,590 4.5
Other income, net .................................... 3,987 2,001 --
------- -------
Income before taxes and minority interest ............ 25,598 24,591 (3.9)
Income tax provision ................................. 10,137 9,493 --
Minority interest .................................... 971 152 --
------- ------
Net income ........................................... $14,490 $14,946 3.1
======= =======
Net income per share:
Basic ............................................. $ 0.49 $ 0.50 2.0
======= =======
Diluted ........................................... $ 0.48 $ 0.49 2.1
======= =======
Included in income before taxes and minority interest:
Depreciation and amortization ........................ $ 177 $ 189 --
Interest expense ..................................... $ 933 $ 1,741 --
Adjusted EBITDA(a) ................................... $26,708 $26,521 (0.7)
<FN>
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and minority interest.
</FN>
Total revenues were $56.1 million in the third quarter of 2001, as compared to
$59.2 million, in the third quarter of 2000.
Investment advisory and incentive fees, which comprise 84% of total revenues,
were $47.3 million in the third quarter of 2001 as compared to $49.0 million in
the same period a year earlier. The change in investment advisory and incentive
fees are generally based on the change in average assets under management during
the respective periods. Average total assets under management were $24.5 billion
in the third quarter 2001, 1% higher than average total assets of $24.1 billion
in the third quarter of 2000, led by a 13% increase in our institutional and
high net worth Separate Accounts. Average assets under management in open-end
equity mutual funds were 15% lower, at $8.4 billion, in the third quarter 2001
versus $9.9 billion in the third quarter 2000. The increase in advisory fees
from the institutional and high net worth Separate Accounts were offset by lower
mutual fund advisory fees and lower incentive fees from alternative investment
products. Mutual fund advisory fees were lower in the 2001 quarter as net cash
inflows were offset by the impact of the overall decline in equity valuations
and a shift towards lower fee fixed income products. Incentive fees from
alternative investment products, which are based on performance, were 69% lower
in the 2001 quarter as compared to the prior year.
Commission revenues were $3.1 million in the third quarter of 2001, a decrease
of 17% from the same period a year earlier. The decline in commission revenues
reflects the volatility and uncertainty that affected the equity markets during
2001 and reduced overall trading volume.
Distribution fees and other income were $5.7 million in the third quarter of
2001 as compared to $6.4 million in the third quarter 2000. Distribution fees
were lower as a direct result of the decline in average assets in the open-end
equity mutual funds between the respective periods.
Total expenses were $33.5 million in the third quarter of 2001, as compared to
total expenses of $37.6 million in 2000. Compensation costs, which are largely
variable in nature, were $22.7 million, 9% lower than the same period a year
earlier. The decrease in compensation costs results principally from lower
incentive compensation. Management fee expense, which is totally variable and
based on pretax income, was $2.7 million in the third quarter of 2001 and $2.8
million in the third quarter of 2000. Other operating expenses were $8.1 million
in the third quarter of 2001, 16% lower than other operating expenses of $9.7
million in the third quarter of 2000. The decline in other operating expenses,
part of the Company's planned cost saving initiatives, was obtained over a broad
range of general and administrative services.
Other income, net, which includes investment gains from our proprietary
portfolio and is net of interest expense, was $2.0 million in the third quarter
of 2001, approximately $2.0 million or 50% below the prior year quarter. Lower
investment gains, largely impacted by the performance of the equity markets
post-September 11, and the increase in interest expense, resulting from the
issuance of a ten-year $100 million 6.5% convertible note in August 2001, offset
the increase in interest and dividend income received from the substantially
higher levels of cash and cash equivalents held during the 2001 quarter.
The effective tax rate for the third quarter of 2001 was approximately 38.6%,
down from 39.6% in the third quarter of 2000.
Nine Months Ended September 30, 2001 as Compared to the Nine Months Ended
September 30, 2000
Consolidated Results - Nine Months Ended September 30:
(unaudited; in thousands, except per share data)
------------------------------------------------
2000 2001 % Change
---- ---- --------
Revenues ................................ $ 174,057 $ 171,482 (1.5)
Expenses ................................ 107,671 102,937 (4.4)
--------- ---------
Operating income ....................... 66,386 68,545 3.3
Other income, net ....................... 8,996 7,829 --
--------- ---------
Income before taxes and
minority interest ..................... 75,382 76,374 1.3
Income tax provision .................... 29,852 29,481 --
Minority interest ....................... 2,790 1,210 --
--------- ---------
Net income .............................. $42,740 $ 45,683 6.9
========= =========
Net income per share:
Basic ................................ $ 1.44 $ 1.54 6.9
========= =========
Diluted .............................. $ 1.43 $ 1.52 6.3
========= =========
Included in income before taxes and
minority interest:
Depreciation and amortization ........... $ 521 $ 561 --
Interest expense ........................ $ 2,791 $ 3,628 --
Adjusted EBITDA(a) ...................... $ 78,694 $ 80,563 2.4
<FN>
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and minority interest.
</FN>
Total revenues were $171.5 million in the nine months of 2001 versus $174.1
million in the nine months of 2000. Included in total revenues for 2000 is a one
time $3.1 million investment-banking fee earned by a subsidiary. Excluding this
fee total revenues rose $0.5 million, virtually flat as compared to the nine
months of 2000.
Investment advisory and incentive fees, which comprise 84% of total revenues,
were $143.2 million in the nine months of 2001, 1% higher than total revenues of
$141.7 million in the same period a year earlier. The growth in investment
advisory and incentive fees is generally based on the growth in average assets
under management during the respective periods. Average total assets under
management were $24.4 billion during the first nine months of 2001, 6% higher
than average total assets of $22.9 billion during the first nine months of 2000.
Average assets under management in open-end equity mutual funds were 5% lower,
at $8.8 billion, for the first nine months of 2001 as compared to $9.3 billion
in the same period a year earlier. The increase in advisory fees resulting from
the growth in assets under management in the Separate Accounts and alternative
investment products was largely offset by the decline in revenues from open-end
mutual funds, attributable to the lower levels of average assets under
management, as well as lower incentive fees, which are based upon performance,
in our alternative investment products.
Commission revenue was $11.1 million in the nine months of 2001, 3% lower than
the same period a year earlier.
Distribution fees and other income were $17.2 million for the first nine months
of 2001 as compared to $20.9 million in 2000, which included a one time $3.1
million investment banking fee. Excluding this one time investment banking fee,
distribution fees and other income were $17.8 million in 2000.
Total expenses were $102.9 million in the nine months of 2001, a 4% decrease
from total expenses of $107.7 million in 2000. Compensation costs were $68.4
million in 2001, 6% lower than the nine months of 2000, principally the result
of lower incentive compensation. Management fee expense, which is totally
variable and based on pretax income, was $8.5 million in the nine months of 2001
and $8.4 million in the nine months of 2000. Other operating expenses were 2%
lower at $26.0 million in the current year versus $26.7 million in the first
nine months of 2000. Included in other operating expenses in 2001 was $1.0
million in contribution costs related to our investment portfolio.
Other income, net, which includes investment gains from our proprietary
portfolio and is net of interest expense, was $7.8 million during the nine
months of 2001 as compared to $9.0 million during the nine months of 2000.
Interest expense was $0.8 million higher in the current period resulting from
the Company's issuance of a ten year $100 million 6.5% convertible note in
August 2001.
The effective tax rate for the nine months of 2001 was approximately 38.6%, down
from 39.6% in 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:
Nine Months Ended September 30,
-------------------------------
2000 2001
---- ----
Cash flows provided by (used in): (in thousands)
Operating activities ........................... $ 30,660 $ 148,361
Investing activities ........................... (26,645) (8,295)
Financing activities ........................... (3,370) 98,596
--------- ---------
Increase ....................................... 645 238,662
Cash and cash equivalents at beginning of period 103,032 69,271
--------- ---------
Cash and cash equivalents at end of period ..... $ 103,677 $ 307,933
========= =========
Cash requirements and liquidity needs have historically been met through cash
generated by operating activities and through the Company's borrowing capacity.
At September 30, 2001, the Company had cash and cash equivalents of $307.9
million, an increase of $238.7 million from December 31, 2000.
Cash provided by operating activities was $148.4 million in the nine months of
2001 principally resulting from $45.7 million in net income and a decrease in
investments in securities of $79.1 million. In the nine months of 2000, cash
provided by operating activities was $30.7 million resulting largely from $42.7
million in net income partially offset by a net decrease of $9.8 million in
other operating assets and liabilities.
Cash used in investing activities, related to investments in and distributions
from partnerships and affiliates, was $8.3 million in the nine months of 2001.
Cash used in these investing activities in the nine months of 2000 was $26.6
million.
Cash provided by financing activities in the nine months of 2001 was $98.6,
principally through the issuance of a ten year $100 million, 6.5% convertible
note. Cash used in 2000 was $3.4 million, 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
September 30, 2001, Gabelli & Company had net capital, as defined, of
approximately $19.7 million exceeding the regulatory requirement by
approximately $19.5 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 September
30, 2001, the Company's primary market risk exposure was to changes in equity
prices and interest rates. Included in investments in securities of $54.8
million at September 30, 2001 were investments in Treasury Bills and Notes of
$5.5 million, in mutual funds, largely invested in equity products, of $28.9
million, a diverse selection of common stocks totaling $18.5 million and other
investments of approximately $1.9 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 conditions and other factors
considered appropriate by management. More than $15.8 million of the $18.5
million invested in common stocks at September 30, 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 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
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.
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
September 30, 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.
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(Registrant)
November 14, 2001 /s/ Robert S. Zuccaro
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Date Robert S. Zuccaro
Vice President and
Chief Financial Officer