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 ---------- ---------- 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 incorporation or organization) Identification No.) 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 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
<TABLE> GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (In thousands, except per share data) <CAPTION> Three Months Ended September 30, ------------------- 2000 2001 --------- -------- Revenues <S> <C> <C> 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 ======== ======== </TABLE>
<TABLE> GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (In thousands, except per share data) <CAPTION> Nine Months Ended September 30, --------------------- 2000 2001 -------- -------- Revenues <S> <C> <C> 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 ========= ========= </TABLE>
<TABLE> GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands) <CAPTION> December 31, September 30, 2000 2001 ---- ---- (Unaudited) ASSETS <S> <C> <C> 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. </TABLE>
<TABLE> GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands) <CAPTION> Nine Months Ended September 30, ------------------------ 2000 2001 ---- ---- Operating activities <S> <C> <C> 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 </TABLE>
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: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share amounts) 2000 2001 2000 2001 ---- ---- ---- ---- Basic: <S> <C> <C> <C> <C> 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 ======= ======= ======= ======= </TABLE> 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 <TABLE> Consolidated Results - Three Months Ended September 30: (unaudited; in thousands, except per share data) ------------------------------------------------ <CAPTION> 2000 2001 % Change ---- ---- -------- <S> <C> <C> <C> 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> </TABLE> 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 <TABLE> Consolidated Results - Nine Months Ended September 30: <CAPTION> (unaudited; in thousands, except per share data) ------------------------------------------------ 2000 2001 % Change ---- ---- -------- <S> <C> <C> <C> 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> </TABLE> 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. <TABLE> Summary cash flow data is as follows: <CAPTION> Nine Months Ended September 30, ------------------------------- 2000 2001 ---- ---- Cash flows provided by (used in): (in thousands) <S> <C> <C> 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 ========= ========= </TABLE> 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. ----------------------------- (Registrant) November 14, 2001 /s/ Robert S. Zuccaro - ----------------- ----------------------------------- Date Robert S. Zuccaro Vice President and Chief Financial Officer