For any entity where the Company has determined that it holds a variable interest, the Company performs an assessment to determine whether it qualifies as a
variable interest entity (“VIE”). The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not that entity should be consolidated. The Company does
not consolidate those VIEs in which substantive kick-out rights have been granted to the unaffiliated investors to either dissolve the fund or remove the general partner.
Under the variable interest entity model, the Company consolidates those entities where it is determined that the Company is the primary beneficiary
of the entity. The Company is determined to be the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly
impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. When the Company alone is not considered to have a
controlling financial interest in the VIE but the Company and its related parties under common control in the aggregate have a controlling financial interest in the VIE, the Company will be deemed the primary beneficiary if it is the party
that is most closely associated with the VIE. When the Company and its related parties not under common control in the aggregate have a controlling financial interest in the VIE, the Company would be deemed to be the primary beneficiary if
substantially all the activities of the entity are performed on behalf of the Company.
The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that
conclusion as required. Investments and redemptions (either by the Company, related parties or third parties) or amendments to the governing documents of the respective entity may affect an entity’s status as a VIE or the determination of the
primary beneficiary.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities ("VOEs") under the voting interest model. Under the
voting interest model, the Company consolidates those entities it controls through a majority voting interest or other means.
Equity Method Investments.
Substantially all of the Company’s equity
method investees are entities that record their underlying investments at fair value. Therefore, under the equity method of accounting, the Company’s share of the investee’s underlying net income predominantly represents fair value
adjustments in the investments held by the equity method investees. The Company’s share of the investee’s underlying net income or loss is based upon the most currently available information and is recorded as net gain/(loss) from investments
on the consolidated statements of income. Capital contributions are recorded as an increase in investments when paid, and withdrawals and distributions are recorded as reductions of the investments when received. Depending on the terms of the
investment, the Company may be restricted as to the timing and amounts of withdrawals.
See Note E, Investments in Partnerships and Variable Interest Entities, for more information.
Investments in Partnerships and Affiliates
The Company is general partner or co-general partner of various affiliated entities. We also have investments in unaffiliated partnerships, offshore
funds and other entities (collectively, “unaffiliated entities”). Given that we are not a general partner or investment manager in any unaffiliated entity, we neither earn any management or incentive fees nor have a controlling financial
interest in such entity. We do not consolidate any unaffiliated entity.
The balance sheet caption investments in partnerships includes investments in both affiliated and unaffiliated entities.
The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less than 100%. Refer to Noncontrolling
Interests below for additional information.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes such derivatives in either investments in
securities or securities sold, not yet purchased on the consolidated statements of financial condition. From time to time, the Company will enter into hedging transactions to manage its exposure to foreign currencies or equity prices related
to its proprietary investments. Except for a foreign exchange contract entered into by the Company, these transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net
gain/(loss) from investments on the consolidated statements of income and included in investments in securities or securities sold, not yet purchased on the consolidated statements of financial condition. See Note D, Investments in
Securities, for additional information.
Major Revenue-Generating Services and Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees and institutional research services.
Investment advisory and incentive fees are directly influenced by the level and mix of AUM as fees are derived from a contractually-determined
percentage of the balance of each account as well as a percentage of the investment performance of certain accounts. Management fees from investment partnerships and offshore funds are computed either monthly or quarterly, and amounts
receivable are included in investment advisory fees receivable on the consolidated statements of financial condition. These revenues vary depending upon the level of capital flows, financial market conditions, investment performance and the
fee rates applicable to each account.
Incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts receivable are included in investment
advisory fees receivable on the consolidated statements of financial condition.
G.research, LLC provides institutional research services and earns brokerage commissions and sales manager fees from securities transactions executed
on an agency basis on behalf of institutional clients and mutual funds, private wealth management clients and retail customers of affiliated companies. Commission revenue and related clearing charges are recorded on a trade-date basis and are
included in institutional research services and other operating expenses, respectively, on the consolidated statements of income.
It has also been involved in syndicated underwriting activities that included public equity and debt offerings managed by major investment banks.
Underwriting fees include gains, losses, selling concessions and fees, net of syndicate expenses, arising from securities offerings in which G.research acts as underwriter or agent and are accrued as earned.
See Note C, Revenue, for additional information.
Depreciation
Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives of four to seven years. As of
December 31, 2018 and 2017, fixed assets with a net book value of $84,000 and $39,000, respectively, are included in other assets on the consolidated statements of financial condition.
Allocated Expenses
The Company is charged or incurs certain overhead expenses that are paid by, or paid on our behalf by, other affiliates and are included in other
operating expenses on the consolidated statements of income. These overhead expenses primarily relate to centralized functions including finance and accounting, legal, compliance, treasury, tax, internal audit, information technology, human
resources and risk management. These overhead expenses are allocated to the Company by other affiliates or allocated by the Company to other affiliates as the expenses are incurred, based upon direct usage when identifiable, or by revenue,
headcount, space or other allocation methodologies periodically reviewed by the management of the Company and the affiliates.
In addition, GCIA and GAMCO serve as paymasters under compensation payment sharing agreements. The compensation expense and related payroll taxes and
benefits of certain dual employees that provide services to both AC and affiliates that are paid for by GCIA or GAMCO are allocated between the companies based upon the relative time each employee devotes to each affiliate. These allocated
compensation expenses are included in compensation on the consolidated statements of income.
All of the allocations and estimates in the financial statements are based on assumptions that management of AC believes are reasonable. However,
these allocations may not be indicative of the actual expenses we would have incurred or may incur in the future.
Management Fee
Management fee expense in the amount of 10% of the aggregate pre-tax profits, before consideration of this fee and before consideration of the income
attributable to consolidated funds and partnerships, is paid to the Executive Chairman or his designees in accordance with his employment agreement.
Stock-Based Compensation
We use a fair value-based method of accounting for restricted stock awards (“RSAs”) provided to our employees. The estimated fair value of RSAs is
determined by using the closing price of the relevant stock on the day prior to the grant date. The value of the RSAs, net of estimated forfeitures, is recognized as expense over the respective vesting period for these awards. The forfeiture
rate is determined by reviewing historical forfeiture rates for previous stock-based compensation grants and is reviewed and updated quarterly, if necessary. During the vesting period, dividends to RSA holders are held for them until the RSA
vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates. Dividends declared on these RSAs, less estimated forfeitures, are charged to retained earnings on the declaration date.
In connection with the spin-off of the Company from GAMCO, any GAMCO employee (including GAMCO employees who became AC employees) who had GAMCO RSAs
were granted an equal number of AC RSAs so that the total value of the RSAs post-spin was equivalent to the total value pre-spin. In accordance with GAAP, we have allocated the related stock compensation costs of the AC RSAs and the GAMCO
RSAs between GAMCO and AC based upon each employee’s individual allocation of their responsibilities between the two companies.
During 2018, the Company’s Board of Directors approved the grant of Phantom Restricted Stock awards (“Phantom RSAs”). The Phantom RSAs will be
settled by a cash payment, net of applicable withholding tax, on the vesting dates. In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A common stock during the vesting period will be paid
to participants on vesting.
The Phantom RSAs are accounted for as a liability because cash settlement is required and compensation will be recognized over the vesting period. In
determining the compensation expense to be recognized each period, the Company will remeasure the fair value of the liability at each reporting date taking into account the remaining vesting period attributable to each award and the current
market value of the Company’s Class A stock. In making these determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior to vesting (e.g., due to an employee termination). The Company has elected to
consider forfeitures as they occur.
The expense attributable to the Phantom RSAs is allocated solely to AC.
Goodwill
Goodwill is initially measured as the excess of the cost of an acquired business over the sum of the fair value assigned to assets acquired less the
liabilities assumed. Goodwill is tested for impairment at least annually on November 30th and whenever certain triggering events are met. In assessing the recoverability of goodwill as of November 30, 2018 and 2017, we performed a
qualitative assessment of whether it was more likely than not that an impairment had occurred and concluded that a quantitative analysis was not required. As such, no impairment was recorded during 2018 or 2017.
Income Taxes
For purposes of the preparation of the consolidated financial statements, the provision for income taxes is computed using the asset and liability
method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income tax expense/benefit in the period that includes the enactment date of the change in tax rate.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. A valuation
allowance would be recorded to reduce the carrying value of deferred tax assets to the amount that is more likely than not to be realized. In making such a determination of whether a valuation allowance is necessary, the Company considers all
available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company were to
determine that the Company would be able to realize the Company’s deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would
reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) Topic 740. The Company first determines
whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position. For those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest
amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes the accrual of interest on uncertain tax positions and penalties in income tax provision on
the consolidated statements of income. Accrued interest and penalties on uncertain tax positions are included within accrued expenses and other liabilities on the consolidated statements of financial condition.
Noncontrolling Interests
Noncontrolling interests in investment partnerships that are redeemable at the option of the holder are classified as redeemable noncontrolling
interests in the mezzanine section of the consolidated statements of financial condition between liabilities and equity.
For the years ended December 31, 2018 and 2017, net income/(loss) attributable to noncontrolling interests on the consolidated statements of income
represents the share of net income/(loss) attributable to third-party investors in consolidated funds.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and
receivable from brokers. The Company maintains cash and cash equivalents primarily in the Gabelli U.S. Treasury Money Market Fund, which invests fully in instruments issued by the U.S. government. Receivables from brokers and financial
institutions can exceed the federally insured limit. The concentration of credit risk with respect to advisory fees and incentive fees/allocation, which are included in investment advisory fees receivable and receivables from affiliates on
the consolidated statements of financial condition, is generally limited due to the short payment terms extended to clients by the Company. All investments in securities are held at third party brokers or custodians.
Business Segment
The Company operates in one business segment. The Company’s chief operating decision maker reviews the Company’s financial performance at an
aggregate level.
Recent Accounting Developments
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
, which supersedes the revenue recognition requirements in ASC Topic 605,
Revenue
Recognition
, and most industry-specific guidance of the ASC. The core principle of ASU 2014-09 requires companies to recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration the
company expects to receive in exchange for those goods or services. The new standard also requires expanded disclosures about revenue recognition. The Company has adopted this ASU effective January 1, 2018 with no material impact on its
consolidated financial statements other than expanded disclosure.
In January 2016, the FASB issued ASU 2016-01,
Financial
Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
, which amends the guidance in GAAP on the classification and measurement of financial instruments. Although the ASU retains many current
requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at
fair value. Under the new guidance, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. In addition, available for
sale (“AFS”) classification for equity securities with readily determinable fair values will no longer be available. As a result, changes in the fair value of such securities will be reported in net income rather than other comprehensive
income. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The Company has adopted this ASU effective January 1, 2018 with no material impact on its consolidated financial statements
other than the reclassification of approximately $8.2 million representing the cumulative unrealized gain on equity AFS securities net of tax from accumulated other comprehensive income to retained earnings.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
,
which amends the guidance in GAAP for the accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating leases in the consolidated statement of financial position. The Company adopted
this ASU effective January 1, 2019 with no material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which adds and clarifies guidance on the classification of certain cash receipts and payments in the consolidated statements of cash flows. The Company
adopted this ASU effective January 1, 2018 with no material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles –
Goodwill and Other
, to simplify the process used to test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal to the excess of the carrying amount of a reporting unit over its
fair value, limited to the total amount of goodwill allocated to that reporting unit. For public companies, the ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption was
permitted for impairment tests that occur after January 1, 2017. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
On May 10, 2017, the FASB issued ASU 2017-09,
Compensation –
Stock Compensation
, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity
would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and
after the modification. The Company has adopted this ASU effective January 1, 2018 with no material impact on its consolidated financial statements.
On December 22, 2017, the SEC issued SAB 118,
Income Tax
Accounting Implications of the Tax Cuts and Jobs Act
, to address the application of ASC 740,
Income Taxes
, in the reporting period that
includes December 22, 2017, the date legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. In general, the SAB provides that a company should reflect the income tax impacts of the TCJA in the period
in which the accounting under ASC 740 is complete. If a company is unable to complete the required accounting as a result of incomplete information, preparation or analysis, however, it may record a reasonable estimate as a provisional
amount. Additional provisions deal with situations in which no reasonable estimate can be determined. Changes to estimates determined during a measurement period up to one year from the date of enactment will be reflected as an adjustment to
tax expense or benefit in the reporting period the amounts are determined. The SAB also provides requirements concerning financial statement disclosures about the material financial reporting impacts of the TCJA. With the exception of the
book/tax differences related to the Company’s investments in funds that are partnerships and/or passive foreign investment companies, the Company completed its analysis and made a reasonable estimate of the tax impact as part of the prior
year’s tax provision. The Company completed its analysis of all remaining deferred tax items following the filing of the Company’s 2017 consolidated income tax return and reflected an immaterial amount of the related income tax impact from
these items in its fourth quarter 2018 income tax provision.
In February 2018, the FASB issued ASU 2018-02,
Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income
, dealing with the accounting for the tax effects of components of other comprehensive income (“OCI”) as a result of the reduction of the U.S. federal corporate income
tax rate under the TCJA. We adopted this ASU as of January 1, 2018 and reflected an increase to OCI and a decrease to retained earnings of approximately $1.5 million in the first quarter of 2018.
In August 2018, the FASB issued ASU 2018-13,
Fair Value
Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
. This ASU adds certain disclosure requirements and modifies or eliminates requirements under current GAAP. This ASU is
effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company has early adopted the eliminated and modified disclosure requirements and is currently evaluating this guidance as it relates to the new
disclosure requirements.
The Company’s revenue is accounted for as contracts with customers, and the timing of revenue recognition is based on the Company’s analysis of the
provisions of each respective contract. Depending upon the specific terms, revenue may be recognized over time or at a point in time. Modifications to contracts may affect the timing of the satisfaction of performance obligations, the
determination of the transaction price, and the allocation of the price to performance obligations, any of which may impact the timing of the recognition of the related revenue.
The Company’s major revenue sources are as follows:
Investment advisory and incentive fees.
The Company
and its subsidiaries act as general partner, investment manager or sub-advisor to investment funds and/or separately managed accounts of institutional investors (e.g., corporate pension plans). The fees that are paid to the Company are set
forth in the offering documents for the investment fund or the separately managed account agreement. Investment advisory and incentive fee revenue consists of:
|
a.
|
Asset-based advisory fees – The Company receives a management fee, payable monthly in advance based on value of the net assets of the client. It is generally set at a
rate of 1%-1.5% per annum. Asset-based management fee revenue is recognized only as the services are performed over the period.
|
|
b.
|
Performance-based advisory fees – Certain client contracts call for additional fees and or allocations of income tied to a certain percentage, generally 20%, of the
investment performance of the account over a measurement period, typically the calendar year. In addition, the contracts provide that performance-based fees or allocations become fixed in the event of an investor redemption prior
to the end of the measurement period. In the event that an account suffers a loss in one period, it must be recovered before incentive fees are earned by the Company; this is commonly referred to as a “high water mark” provision.
While the Company’s performance obligation is satisfied over time, the Company does not recognize performance-based fees until the end of the measurement period or the time of the investor redemption when the uncertainty
surrounding the amount of the variable consideration is resolved.
|
|
c.
|
Sub-advisory fees – Pursuant to agreements with other investment advisors, the Company receives a percentage of advisory fees received by such advisors from certain
of their investment fund clients. These fees may be either asset- or performance-based. In addition, they may be subject to reduction by certain expenses as set forth in the respective agreements. Sub-advisory fee revenue which is
asset-based is recognized ratably as the services are performed over the relevant contractual performance period. Sub-advisory fee revenue which is performance-based is recognized only when it becomes fixed and not subject to
adjustment.
|
The Company reserves the right to waive or reduce asset-based and performance-based fees with respect to certain investors in the investment funds
which may include investments by employees and other related parties. Advisory and incentive fees payable by investment funds are typically approved by third-party administrators and paid directly from the accounts’ assets. Such fees
attributable to separate accounts may be subject to review and approval by the client and may be paid either from the accounts’ assets or directly by the client.
Our advisory fee revenues are influenced by both the amount of AUM and the investment performance of our products. An overall decline in the prices
of securities may cause our advisory fees to decline by either causing the value of our AUM to decrease or causing our clients to withdraw funds in favor of investments they perceive to offer greater opportunity or lower risk. Similarly,
success in the investment management business is dependent on investment performance as well as distribution and client servicing. Good performance can stimulate sales of our investment products and tends to keep withdrawals and redemptions
low, which generates higher asset-based management fees. Conversely, poor performance, both in absolute terms and/or relative to peers and industry benchmarks, tends to result in decreased sales, increased withdrawals and redemptions and in
the loss of clients, with corresponding decreases in revenues to us.
Institutional Research Services.
The Company,
through G.research, generates institutional research services revenues via hard dollar payments or through commissions on securities transactions executed on an agency basis on behalf of clients. Clients include institutional investors (e.g.,
hedge funds and asset managers) as well as affiliated mutual funds and managed accounts. These revenues consist of:
|
a.
|
Hard dollar payments – The Company receives direct payments for research services provided to related and unrelated parties. The Company may or may not have contracts
for such services. Where a contract for such services is in place, the contractual fee for the period is recognized ratably over the contract period, typically a calendar year, which is considered the period over which the Company
satisfies its performance obligation. Payments for contracts with affiliated parties are collected monthly. For other payments where no research contract exists, revenue is not recognized until agreement is reached with the client
that the Company has satisfied its performance obligation. At that time, a value is assigned to those services and an invoice is presented to the client for payment.
|
|
b.
|
Commissions – Commissions are charged on the execution of securities transactions made on behalf of client accounts on an agency basis and are based on a rate
schedule. The Company meets its performance obligations and recognizes commission revenue when the related securities transactions are executed and the security is transferred to or from the customer. Commissions earned are
typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.
|
|
c.
|
Selling concessions – The Company participates as a member of the selling group of underwritten equity offerings and receives compensation based on the difference
between what its clients pay for the securities sold to its institutional clients and what the issuer receives. The terms of the selling concessions are set forth in contracts between the Company and the underwriter. The Company
meets its performance obligations and recognizes selling commissions upon the sale of the related securities to its clients.
|
|
d.
|
Sales manager fees – The Company participates as sales manager of at-the-market offerings of certain affiliated closed-end funds and receives a tiered percentage of
proceeds as stipulated in agreements between the Company, the funds and the funds’ investment adviser and as approved by the funds’ board of directors. The Company meets its performance obligations and recognizes sales manager
fees upon sale of the related closed-end funds. Sales manager fees earned are typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.
|
Institutional research revenues are impacted by the perceived value of the research product provided to clients, the volume of securities
transactions and the acquisition or loss of new client relationships.
Other.
Other revenues include (a) underwriting fees
representing gains, losses, and fees, net of syndicate expenses, arising from public equity and debt offerings in which G.research acts as underwriter or agent and are accrued as earned, and (b) other miscellaneous revenues.
Total revenues by type were as follows for the year ended December 31, 2018 (in thousands):
Investment advisory and incentive fees
|
|
|
|
Asset-based advisory fees
|
|
$
|
7,384
|
|
Performance-based advisory fees
|
|
|
3,115
|
|
Sub-advisory fees
|
|
|
3,910
|
|
|
|
|
14,409
|
|
|
|
|
|
|
Institutional research services
|
|
|
|
|
Hard dollar payments
|
|
|
2,835
|
|
Commissions
|
|
|
5,349
|
|
Selling concessions
|
|
|
84
|
|
Sales manager fees
|
|
|
16
|
|
|
|
|
8,284
|
|
|
|
|
|
|
Other
|
|
|
|
|
Underwriting fees
|
|
|
19
|
|
Miscellaneous
|
|
|
67
|
|
|
|
|
86
|
|
|
|
|
|
|
Total
|
|
$
|
22,779
|
|
D.
|
Investments in Securities
|
Investments in securities at December 31, 2018 and 2017 consisted of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government obligations
|
|
$
|
11,694
|
|
|
$
|
11,707
|
|
|
$
|
53,681
|
|
|
$
|
53,804
|
|
Common stocks
|
|
|
244,557
|
|
|
|
213,151
|
|
|
|
209,686
|
|
|
|
228,557
|
|
Mutual funds
|
|
|
761
|
|
|
|
1,161
|
|
|
|
1,959
|
|
|
|
3,157
|
|
Other investments
|
|
|
5,285
|
|
|
|
3,941
|
|
|
|
825
|
|
|
|
1,824
|
|
|
|
|
262,297
|
|
|
|
229,960
|
|
|
|
266,151
|
|
|
|
287,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
-
|
|
|
|
-
|
|
|
|
65,331
|
|
|
|
65,024
|
|
Mutual funds
|
|
|
-
|
|
|
|
-
|
|
|
|
103
|
|
|
|
271
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,434
|
|
|
|
65,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
262,297
|
|
|
$
|
229,960
|
|
|
$
|
331,585
|
|
|
$
|
352,637
|
|
Securities sold, not yet purchased at December 31, 2018 and 2017 consisted of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
|
|
Proceeds
|
|
|
Fair Value
|
|
|
Proceeds
|
|
|
Fair Value
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
10,150
|
|
|
$
|
9,485
|
|
|
$
|
4,862
|
|
|
$
|
5,396
|
|
Other investments
|
|
|
-
|
|
|
|
89
|
|
|
|
1
|
|
|
|
335
|
|
Total securities sold, not yet purchased
|
|
$
|
10,150
|
|
|
$
|
9,574
|
|
|
$
|
4,863
|
|
|
$
|
5,731
|
|
Investments in affiliated registered investment companies at December 31, 2018 and 2017 consisted of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end funds
|
|
$
|
73,950
|
|
|
$
|
85,090
|
|
|
$
|
26,231
|
|
|
$
|
26,929
|
|
Mutual funds
|
|
|
49,714
|
|
|
|
57,045
|
|
|
|
41,950
|
|
|
|
48,328
|
|
|
|
|
123,664
|
|
|
|
142,135
|
|
|
|
68,181
|
|
|
|
75,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end funds
|
|
|
-
|
|
|
|
-
|
|
|
|
53,782
|
|
|
|
66,218
|
|
Mutual funds
|
|
|
-
|
|
|
|
-
|
|
|
|
3,420
|
|
|
|
4,439
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,202
|
|
|
|
70,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in affiliated
registered investment companies
|
|
$
|
123,664
|
|
|
$
|
142,135
|
|
|
$
|
125,383
|
|
|
$
|
145,914
|
|
The following table identifies all reclassifications between accumulated other comprehensive income (“AOCI”) and net income/(loss) for the years ended
December 31, 2018 and 2017 (in thousands):
Year ended December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
Affected Line Item
|
|
Reason for Reclassification
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
167
|
|
Net gain (loss) from investments
|
|
Realized gains on sale of AFS securities
|
|
-
|
|
|
|
11,788
|
|
Net gain (loss) from investments
|
|
Gains on transfer of AFS securities to affiliated broker-dealer
|
|
-
|
|
|
|
(19,201
|
)
|
Net gain (loss) from investments
|
|
Other than temporary impairment of AFS securities
|
|
-
|
|
|
|
(7,246
|
)
|
Income (loss) before income taxes
|
|
|
|
-
|
|
|
|
2,599
|
|
Income tax benefit
|
|
|
$
|
-
|
|
|
$
|
(4,647
|
)
|
Net income (loss)
|
|
|
For the year ended December 31, 2017, AC recognized a $19.1 million OTT impairment on the GBL shares that were held as AFS securities due to the
magnitude and persistence of the unrealized loss. In November 2017, AC made a non-cash contribution of certain AFS securities totaling $91.3 million to G.research which was required to account for these as trading securities under specialized
industry accounting. This transaction resulted in the recognition of a gain of $11.8 million and income tax expense of $4.2 million in net income due to the reclassification of unrealized gains net of taxes from AOCI upon the completion of
this transfer.
The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them in either investments in
securities or securities sold, not yet purchased on the consolidated statements of financial condition. From time to time, the Company and/or consolidated funds will enter into hedging transactions to manage their exposure to foreign
currencies and equity prices related to their proprietary investments. At December 31, 2018 and December 31, 2017 we held derivative contracts on 1.0 million and 1.7 million equity shares, respectively, that are included in investments in
securities or securities sold, not yet purchased on the consolidated statements of financial condition. We had one foreign exchange contract outstanding at December 31, 2018, but none at December 31, 2017. Except for the foreign exchange
contract entered into by the Company, these transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain/(loss) from investments on the consolidated statements of
income and included in investments in securities, securities sold, not yet purchased, or receivable from or payable to brokers on the consolidated statements of financial condition.
The following tables identify the fair values and gains and losses of all derivatives and foreign currency positions held by the Company (in
thousands):
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Statement of
|
|
Fair Value
|
|
Statement of
|
|
Fair Value
|
|
|
Financial Condition
Location
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Financial Condition
Location
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging
instruments under FASB ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Receivable from brokers
|
|
$
|
204
|
|
|
$
|
-
|
|
Payable to brokers
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments under FASB ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts
|
Investments in
securities
|
|
$
|
464
|
|
|
$
|
229
|
|
Securities sold,
not yet purchased
|
|
$
|
89
|
|
|
$
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
668
|
|
|
$
|
229
|
|
|
|
$
|
89
|
|
|
$
|
335
|
|
|
|
|
|
Year ended December 31,
|
|
Type of Derivative
|
|
Income Statement Location
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Net gain/(loss) from investments
|
|
$
|
204
|
|
|
$
|
-
|
|
Equity contracts
|
|
Net gain/(loss) from investments
|
|
|
4,774
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
4,978
|
|
|
$
|
(98
|
)
|
The Company is a party to enforceable master netting arrangements for swaps entered into with major U.S. financial institutions as part of its
investment strategy. They are typically not used as hedging instruments. These swaps, while settled on a net basis with the counterparties, are shown gross in assets and liabilities on the consolidated statements of financial condition. The
swaps have a firm contract end date and are closed out and settled when each contract expires.
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Statements of Financial Condition
|
|
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross Amounts
Offset in the
Statements of
Financial Condition
|
|
|
Net Amounts of
Assets Presented
in the Statements of
Financial Condition
|
|
|
Financial
Instruments
|
|
|
Cash Collateral
Received
|
|
|
Net Amount
|
|
Swaps:
|
|
(In thousands)
|
|
December 31, 2018
|
|
$
|
416
|
|
|
$
|
-
|
|
|
$
|
416
|
|
|
$
|
(89
|
)
|
|
$
|
-
|
|
|
$
|
327
|
|
December 31, 2017
|
|
$
|
229
|
|
|
$
|
-
|
|
|
$
|
229
|
|
|
$
|
(229
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
Statements of Financial Condition
|
|
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
|
Gross Amounts
Offset in the
Statements of
Financial Condition
|
|
|
Net Amounts of
Liabilities Presented
in the Statements of
Financial Condition
|
|
|
Financial
Instruments
|
|
|
Cash Collateral
Pledged
|
|
|
Net Amount
|
|
Swaps:
|
|
(In thousands)
|
|
December 31, 2018
|
|
$
|
89
|
|
|
$
|
-
|
|
|
$
|
89
|
|
|
$
|
(89
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2017
|
|
$
|
334
|
|
|
$
|
-
|
|
|
$
|
334
|
|
|
$
|
(229
|
)
|
|
$
|
-
|
|
|
$
|
105
|
|
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of AFS securities as of December 31, 2017 (in
thousands):
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Common stocks
|
|
$
|
65,331
|
|
|
$
|
-
|
|
|
$
|
(307
|
)
|
|
$
|
65,024
|
|
Closed-end Funds
|
|
|
53,782
|
|
|
|
12,436
|
|
|
|
-
|
|
|
|
66,218
|
|
Mutual funds
|
|
|
3,523
|
|
|
|
1,187
|
|
|
|
-
|
|
|
|
4,710
|
|
Total
|
|
$
|
122,636
|
|
|
$
|
13,623
|
|
|
$
|
(307
|
)
|
|
$
|
135,952
|
|
Changes in net unrealized gains, net of taxes, for AFS securities for the year ended December 31, 2017 of $5.4 million have been included in other
comprehensive income, a component of equity, at December 31, 2017. Return of capital on AFS securities was $0.9 million for the year ended December 31, 2017. For the year ended December 31, 2017, proceeds from the sales of AFS investments
were approximately $0.3 million.
The Company has an established accounting policy and methodology to determine an other-than-temporary (“OTT”) impairment. Under this policy, AFS
securities are evaluated for OTT impairments and any impairment charges are recorded in net gain/(loss) from investments on the consolidated statements of income. Management reviews all AFS securities whose cost exceeds their market value to
determine if the impairment is OTT. Management uses qualitative factors such as the diversification of the investment, the amount of time that the investment has been impaired, the intent to sell or hold the security, and the severity of the
decline in determining whether the impairment is OTT.As discussed in Note A, equity securities with readily determinable fair values are no longer considered AFS securities after December 31, 2017.
Investments classified as AFS that were in an unrealized loss position for which OTT impairment had not been recognized as of December 31, 2017
consisted of the following (in thousands):
|
|
Cost
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
Common Stocks
|
|
$
|
65,331
|
|
|
$
|
(307
|
)
|
|
$
|
65,024
|
|
Total
|
|
$
|
65,331
|
|
|
$
|
(307
|
)
|
|
$
|
65,024
|
|
The Company determines the cost of a security sold by using specific identification.
E.
|
Investment Partnerships and Variable Interest Entities
|
The Company is general partner or co-general partner of various affiliated entities in which the Company had investments totaling $100.1 million and
$124.5 million at December 31, 2018 and 2017, respectively, and whose underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in unaffiliated partnerships, offshore funds and other
entities of $18.6 million and $21.1 million at December 31, 2018 and 2017, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting treatment and disclosure. Certain of the Affiliated Entities,
and none of the Unaffiliated Entities, are consolidated.
The value of entities where consolidation is not deemed appropriate is included in investments in partnerships on consolidated statements of
financial condition. This caption includes investments in Affiliated Entities and Unaffiliated Entities
which the Company accounts for under the equity method of
accounting. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the consolidated statements of income.
The following table highlights the number of entities that we consolidate as well as the basis under which they are consolidated:
|
|
VIEs
|
|
|
VOEs
|
|
Entities consolidated at December 31, 2016
|
|
|
1
|
|
|
|
1
|
|
Additional consolidated entities
|
|
|
-
|
|
|
|
2
|
|
Deconsolidated entities
|
|
|
-
|
|
|
|
-
|
|
Entities consolidated at December 31, 2017
|
|
|
1
|
|
|
|
3
|
|
Additional consolidated entities
|
|
|
-
|
|
|
|
2
|
|
Deconsolidated entities
|
|
|
-
|
|
|
|
-
|
|
Entities consolidated at December 31, 2018
|
|
|
1
|
|
|
|
5
|
|
The following table reflects the net impact of the consolidated entities on the consolidated statements of financial condition (in thousands):
|
|
December 31, 2018
|
|
|
|
Prior to
Consolidation
|
|
|
Consolidated
Entities
|
|
|
As Reported
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
396,074
|
|
|
$
|
13,490
|
|
|
$
|
409,564
|
|
Investments in securities (including GBL stock)
|
|
|
131,764
|
|
|
|
98,196
|
|
|
|
229,960
|
|
Investments in affiliated investment companies
|
|
|
193,006
|
|
|
|
(50,871
|
)
|
|
|
142,135
|
|
Investments in partnerships
|
|
|
138,119
|
|
|
|
(19,390
|
)
|
|
|
118,729
|
|
Receivable from brokers
|
|
|
7,998
|
|
|
|
16,631
|
|
|
|
24,629
|
|
Investment advisory fees receivable
|
|
|
4,427
|
|
|
|
(33
|
)
|
|
|
4,394
|
|
Other assets
|
|
|
24,551
|
|
|
|
471
|
|
|
|
25,022
|
|
Total assets
|
|
$
|
895,939
|
|
|
$
|
58,494
|
|
|
$
|
954,433
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
4,631
|
|
|
$
|
4,943
|
|
|
$
|
9,574
|
|
Accrued expenses and other liabilities
|
|
|
25,060
|
|
|
|
3,751
|
|
|
|
28,811
|
|
Redeemable noncontrolling interests
|
|
|
-
|
|
|
|
49,800
|
|
|
|
49,800
|
|
Total equity
|
|
|
866,248
|
|
|
|
-
|
|
|
|
866,248
|
|
Total liabilities and equity
|
|
$
|
895,939
|
|
|
$
|
58,494
|
|
|
$
|
954,433
|
|
|
|
December 31, 2017
|
|
|
|
Prior to
Consolidation
|
|
|
Consolidated
Entities
|
|
|
As Reported
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
287,963
|
|
|
$
|
5,149
|
|
|
$
|
293,112
|
|
Investments in securities (including GBL stock)
|
|
|
255,252
|
|
|
|
97,385
|
|
|
|
352,637
|
|
Investments in affiliated investment companies
|
|
|
198,469
|
|
|
|
(52,555
|
)
|
|
|
145,914
|
|
Investments in partnerships
|
|
|
160,456
|
|
|
|
(14,865
|
)
|
|
|
145,591
|
|
Receivable from brokers
|
|
|
11,722
|
|
|
|
23,159
|
|
|
|
34,881
|
|
Investment advisory fees receivable
|
|
|
5,749
|
|
|
|
(10
|
)
|
|
|
5,739
|
|
Other assets
|
|
|
28,865
|
|
|
|
176
|
|
|
|
29,041
|
|
Total assets
|
|
$
|
948,476
|
|
|
$
|
58,439
|
|
|
$
|
1,006,915
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
5,405
|
|
|
$
|
326
|
|
|
$
|
5,731
|
|
Accrued expenses and other liabilities
|
|
|
24,924
|
|
|
|
11,883
|
|
|
|
36,807
|
|
Redeemable noncontrolling interests
|
|
|
-
|
|
|
|
46,230
|
|
|
|
46,230
|
|
Total equity
|
|
|
918,147
|
|
|
|
-
|
|
|
|
918,147
|
|
Total liabilities and equity
|
|
$
|
948,476
|
|
|
$
|
58,439
|
|
|
$
|
1,006,915
|
|
The following table reflects the net impact of the consolidated entities on the consolidated statements of income (in thousands):
|
|
Year Ended December 31, 2018
|
|
|
|
Prior to
Consolidation
|
|
|
Consolidated
Entities
|
|
|
As Reported
|
|
Total revenues
|
|
$
|
22,855
|
|
|
$
|
(76
|
)
|
|
$
|
22,779
|
|
Total expenses
|
|
|
34,413
|
|
|
|
1,846
|
|
|
|
36,259
|
|
Operating loss
|
|
|
(11,558
|
)
|
|
|
(1,922
|
)
|
|
|
(13,480
|
)
|
Total other income/(expense), net
|
|
|
(58,019
|
)
|
|
|
2,638
|
|
|
|
(55,381
|
)
|
Income/(loss) before income taxes
|
|
|
(69,577
|
)
|
|
|
716
|
|
|
|
(68,861
|
)
|
Income tax benefit
|
|
|
(11,478
|
)
|
|
|
-
|
|
|
|
(11,478
|
)
|
Net income/(loss) before NCI
|
|
|
(58,099
|
)
|
|
|
716
|
|
|
|
(57,383
|
)
|
Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
716
|
|
|
|
716
|
|
Net loss
|
|
$
|
(58,099
|
)
|
|
$
|
-
|
|
|
$
|
(58,099
|
)
|
|
|
Year Ended December 31, 2017
|
|
|
|
Prior to
Consolidation
|
|
|
Consolidated
Entities
|
|
|
As Reported
|
|
Total revenues
|
|
$
|
26,962
|
|
|
$
|
(47
|
)
|
|
$
|
26,915
|
|
Total expenses
|
|
|
45,595
|
|
|
|
1,706
|
|
|
|
47,301
|
|
Operating loss
|
|
|
(18,633
|
)
|
|
|
(1,753
|
)
|
|
|
(20,386
|
)
|
Total other income, net
|
|
|
25,050
|
|
|
|
1,600
|
|
|
|
26,650
|
|
Income/(loss) before income taxes
|
|
|
6,417
|
|
|
|
(153
|
)
|
|
|
6,264
|
|
Income tax benefit
|
|
|
(2,420
|
)
|
|
|
-
|
|
|
|
(2,420
|
)
|
Net income/(loss) before NCI
|
|
|
8,837
|
|
|
|
(153
|
)
|
|
|
8,684
|
|
Net loss attributable to noncontrolling interests
|
|
|
-
|
|
|
|
(153
|
)
|
|
|
(153
|
)
|
Net income
|
|
$
|
8,837
|
|
|
$
|
-
|
|
|
$
|
8,837
|
|
Variable Interest Entities
With respect to each consolidated VIE, its assets may only be used to satisfy its obligations. The investors and creditors of any consolidated VIE
have no recourse to the Company’s general assets. In addition, the Company neither benefits from such VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.
The following table presents the balances related to VIEs that are consolidated and included on the consolidated statements of financial condition as
well as the Company’s net interest in these VIEs (in thousands):
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
2,560
|
|
|
$
|
120
|
|
Investments in securities
|
|
|
7,253
|
|
|
|
8,757
|
|
Receivable from broker
|
|
|
553
|
|
|
|
1,657
|
|
Other assets
|
|
|
(11
|
)
|
|
|
(19
|
)
|
Accrued expenses and other liabilities
|
|
|
(31
|
)
|
|
|
(29
|
)
|
Redeemable noncontrolling interests
|
|
|
(419
|
)
|
|
|
(284
|
)
|
AC's net interests in consolidated VIE
|
|
$
|
9,905
|
|
|
$
|
10,202
|
|
Equity Method Investments
The Company’s equity method investments include investments in partnerships and offshore funds. These equity method investments are not consolidated
but on an aggregate basis exceed 10% of the Company’s consolidated total assets or income.
The summarized financial information of the Company’s equity method investments as of and for the years ended December 31, 2018 and 2017 are as
follows (in millions):
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,549
|
|
|
$
|
1,600
|
|
Total liabilities
|
|
|
260
|
|
|
|
322
|
|
Total equity
|
|
|
1,289
|
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
|
|
|
|
|
2018
|
|
|
|
2017
|
|
Net income/(loss)
|
|
|
(12
|
)
|
|
|
112
|
|
The following tables present information about the Company’s assets and liabilities by major category measured at fair value on a recurring basis as
of December 31, 2018 and 2017 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. Investments in certain entities that calculate net asset value per share and other
investments that are not held at fair value are provided as separate items to permit reconciliation of the fair value of investments included in the fair value hierarchy to the total amounts presented in the consolidated statements of
financial condition.
The following tables present assets and liabilities measured at fair value on a recurring basis as of the dates specified (in thousands):
|
|
December 31, 2018
|
|
Assets
|
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Investments
Using NAV as
Fair Value (a)
|
|
|
Other Assets
Not Held at
Fair Value (b)
|
|
|
Total
|
|
Cash equivalents
|
|
$
|
407,239
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
407,239
|
|
Investments in partnerships
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,449
|
|
|
|
4,280
|
|
|
|
118,729
|
|
Investments in securities (including GBL stock):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gov't obligations
|
|
|
11,707
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,707
|
|
Common stocks
|
|
|
205,978
|
|
|
|
7,161
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
213,151
|
|
Mutual funds
|
|
|
1,161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,161
|
|
Other
|
|
|
19
|
|
|
|
464
|
|
|
|
3,458
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,941
|
|
Total investments in securities
|
|
|
218,865
|
|
|
|
7,625
|
|
|
|
3,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
229,960
|
|
Investments in affiliated registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end funds
|
|
|
85,090
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
85,090
|
|
Mutual funds
|
|
|
57,045
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,045
|
|
Total investments in affiliated
registered investment companies
|
|
|
142,135
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
142,135
|
|
Total investments
|
|
|
361,000
|
|
|
|
7,625
|
|
|
|
3,470
|
|
|
|
114,449
|
|
|
|
4,280
|
|
|
|
490,824
|
|
Total assets at fair value
|
|
$
|
768,239
|
|
|
$
|
7,625
|
|
|
$
|
3,470
|
|
|
$
|
114,449
|
|
|
$
|
4,280
|
|
|
$
|
898,063
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
9,485
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,485
|
|
Other
|
|
|
-
|
|
|
|
89
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
89
|
|
Securities sold, not yet purchased
|
|
$
|
9,485
|
|
|
$
|
89
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,574
|
|
|
|
December 31, 2017
|
|
Assets
|
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
|
Investments
Using NAV as
Fair Value (a)
|
|
|
Other Assets
Not Held at
Fair Value (b)
|
|
|
Total
|
|
Cash equivalents
|
|
$
|
290,043
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
290,043
|
|
Investments in partnerships
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,617
|
|
|
|
4,974
|
|
|
|
145,591
|
|
Investments in securities (including GBL stock):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
65,024
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,024
|
|
AFS - Mutual funds
|
|
|
271
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
271
|
|
Trading - Gov't obligations
|
|
|
53,804
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,804
|
|
Trading - Common stocks
|
|
|
227,938
|
|
|
|
1
|
|
|
|
618
|
|
|
|
-
|
|
|
|
-
|
|
|
|
228,557
|
|
Trading - Mutual funds
|
|
|
3,157
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,157
|
|
Trading - Other
|
|
|
426
|
|
|
|
229
|
|
|
|
1,169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,824
|
|
Total investments in securities
|
|
|
350,620
|
|
|
|
230
|
|
|
|
1,787
|
|
|
|
-
|
|
|
|
-
|
|
|
|
352,637
|
|
Investments in affiliated registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Closed-end funds
|
|
|
66,218
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66,218
|
|
AFS - Mutual funds
|
|
|
4,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,439
|
|
Trading - Closed-end funds
|
|
|
26,929
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,929
|
|
Trading - Mutual funds
|
|
|
48,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,328
|
|
Total investments in affiliated
registered investment companies
|
|
|
145,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,914
|
|
Total investments
|
|
|
496,534
|
|
|
|
230
|
|
|
|
1,787
|
|
|
|
140,617
|
|
|
|
4,974
|
|
|
|
644,142
|
|
Total assets at fair value
|
|
$
|
786,577
|
|
|
$
|
230
|
|
|
$
|
1,787
|
|
|
$
|
140,617
|
|
|
$
|
4,974
|
|
|
$
|
934,185
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common stocks
|
|
$
|
5,396
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,396
|
|
Trading - Other
|
|
|
-
|
|
|
|
335
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
335
|
|
Securities sold, not yet purchased
|
|
$
|
5,396
|
|
|
$
|
335
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,731
|
|
|
(a)
|
Amounts include certain equity method investments in Investment Partnerships which qualify for investment company specialized accounting. These Investment
Partnerships account for their financial assets and liabilities using fair value measures and, therefore, the Company’s investment approximates fair value. At December 31, 2018 and December 31, 2017, investments in these
Investment Partnerships were $105,020 and $131,175, respectively. In addition, certain investments in Investment Partnerships were held by a consolidated entity. At December 31, 2018 and December 31, 2017, these amounts were
$9,429 and $9,442, respectively. None of these investments have been classified in the fair value hierarchy.
|
|
(b)
|
Amounts include certain equity method investments which are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do
not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.
|
Investments using NAV as fair value shown in the above tables include investments in Affiliated and Unaffiliated Entities. Capital may generally be
redeemed from Affiliated Entities on a monthly basis upon adequate notice as determined in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may generally be redeemed at various intervals
ranging from monthly to annually upon notice of 30 to 95 days. Certain Unaffiliated Entities may require a minimum investment period before capital can be voluntarily redeemed (a “Lockup Period”). No investment in an Unaffiliated Entity has
an unexpired Lockup Period. The Company has no outstanding capital commitments to any Affiliated or Unaffiliated Entity.
The following table presents additional information about assets by major category measured at fair value on a recurring basis and for which the
Company has utilized Level 3 inputs to determine fair value:
|
|
Year ended December 31, 2018
|
|
|
Year ended December 31, 2017
|
|
|
|
Common
Stocks
|
|
|
Other
|
|
|
Total
|
|
|
Common
Stocks
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
618
|
|
|
$
|
1,169
|
|
|
$
|
1,787
|
|
|
$
|
461
|
|
|
$
|
283
|
|
|
$
|
744
|
|
Consolidated funds
|
|
|
-
|
|
|
|
984
|
|
|
|
984
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total gains/(losses)
|
|
|
(1
|
)
|
|
|
(3,489
|
)
|
|
|
(3,490
|
)
|
|
|
193
|
|
|
|
869
|
|
|
|
1,062
|
|
Purchases
|
|
|
-
|
|
|
|
4,773
|
|
|
|
4,773
|
|
|
|
-
|
|
|
|
167
|
|
|
|
167
|
|
Sales
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
|
|
-
|
|
|
|
(150
|
)
|
|
|
(150
|
)
|
Transfers
|
|
|
(605
|
)
|
|
|
53
|
|
|
|
(552
|
)
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
Ending balance
|
|
$
|
12
|
|
|
$
|
3,458
|
|
|
$
|
3,470
|
|
|
$
|
618
|
|
|
$
|
1,169
|
|
|
$
|
1,787
|
|
Changes in net unrealized gain/(loss) included in Net gain/(loss) from investments related to
Level 3 assets still held as of the reporting date
|
|
$
|
(1
|
)
|
|
$
|
(3,504
|
)
|
|
$
|
(3,505
|
)
|
|
$
|
184
|
|
|
$
|
827
|
|
|
$
|
1,011
|
|
Total realized and unrealized gains and losses for level 3 assets are reported in net gain/(loss) from investments in the consolidated statements of
income.
During the years ended December 31, 2018 and 2017, the Company transferred investments with a value of approximately $605,000 and $36,000,
respectively, from Level 3 to Level 1. The reclassifications were due to increased availability of market price quotations. During the year ended December 31, 2018, the Company transferred investments with a value of approximately $53,000
from Level 1 to Level 3 due to the unavailability of observable inputs.
The provision for income taxes for the years ended December 31, 2018 and 2017 consisted of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
1,223
|
|
|
$
|
781
|
|
Deferred
|
|
|
(11,631
|
)
|
|
|
(3,137
|
)
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
124
|
|
|
|
(33
|
)
|
Deferred
|
|
|
(1,194
|
)
|
|
|
(31
|
)
|
Total
|
|
$
|
(11,478
|
)
|
|
$
|
(2,420
|
)
|
A reconciliation of the federal statutory rate to the effective tax rate for the years ended December 31, 2018 and 2017 is set forth below:
|
|
2018
|
|
|
2017
|
|
Statutory Federal income tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
State income tax, net of Federal benefit
|
|
|
1.3
|
|
|
|
(1.3
|
)
|
Dividends received deduction
|
|
|
0.4
|
|
|
|
(8.0
|
)
|
Donation of appreciated securities
|
|
|
-
|
|
|
|
(21.5
|
)
|
Deferred tax asset valuation allowance
|
|
|
(1.0
|
)
|
|
|
-
|
|
Nondeductible capital losses
|
|
|
(4.5
|
)
|
|
|
-
|
|
Revaluation of net deferred tax liabilities due to tax reform
|
|
|
-
|
|
|
|
(26.5
|
)
|
Accelerated vesting of restricted stock awards
|
|
|
-
|
|
|
|
(14.5
|
)
|
Noncontrolling interests
|
|
|
-
|
|
|
|
(0.9
|
)
|
Other
|
|
|
(0.5
|
)
|
|
|
0.1
|
|
Effective income tax rate
|
|
|
16.7
|
%
|
|
|
(38.6
|
%)
|
The TCJA, which was enacted in December 2017, reduced the federal corporate income tax rate from a maximum of 35% to 21% beginning in 2018. As a
result, the Company revalued its deferred tax assets and liabilities in December 2017. The income tax provision for the year ended December 31, 2017 reflects a benefit of $1.7 million due to this revaluation. The Company has completed its
analysis of the impact of the enactment of the TCJA in 2018 with no material impact on the income tax provision.
Significant components of our deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
139
|
|
|
$
|
19
|
|
Investments in securities and partnerships
|
|
|
5,100
|
|
|
|
-
|
|
Deferred compensation
|
|
|
2,392
|
|
|
|
987
|
|
Shareholder-designated contribution carryover (a)
|
|
|
1,898
|
|
|
|
1,765
|
|
Other
|
|
|
90
|
|
|
|
3
|
|
|
|
|
9,619
|
|
|
|
2,774
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Investments in securities and partnerships
|
|
|
-
|
|
|
|
(6,165
|
)
|
Other liabilities
|
|
|
(197
|
)
|
|
|
(12
|
)
|
|
|
|
(197
|
)
|
|
|
(6,177
|
)
|
Net deferred tax assets/(liabilities)
|
|
$
|
9,422
|
|
|
$
|
(3,403
|
)
|
(a)
|
Net of valuation allowance of $719.
|
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits related to uncertain tax positions is as follows (in
thousands):
Balance at January 1, 2017
|
|
$
|
100
|
|
Additions based on tax positions related to the current year
|
|
|
-
|
|
Additions for tax positions of prior years
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
(89
|
)
|
Settlements
|
|
|
-
|
|
Balance at December 31, 2017
|
|
$
|
11
|
|
Additions based on tax positions related to the current year
|
|
|
-
|
|
Additions for tax positions of prior years
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
(5
|
)
|
Settlements
|
|
|
-
|
|
Balance at December 31, 2018
|
|
$
|
6
|
|
The Company records penalties and interest related to tax uncertainties in income taxes. As of December 31, 2018 and 2017, the Company had gross
unrecognized tax benefits of $5,688 and $10,923, respectively, of which $4,494 and $8,629, respectively, if recognized, would impact the Company’s effective tax rate. The Company has accrued liabilities of $3,071 and $6,241 as of December 31,
2018 and 2017, respectively, for interest and penalties. These amounts are included in accrued expenses and other liabilities on the consolidated statements of financial condition.
The Company is currently under audit by the Internal Revenue Service with respect to its 2016 tax year. The Company is generally subject to federal
and state audits for tax years after 2014.
Basic earnings per share is computed by dividing net income/(loss) attributable to our shareholders by the weighted average number of shares
outstanding during the period. Diluted earnings per share is computed by dividing net income/(loss) attributable to our shareholders by the weighted average number of shares outstanding during the period, adjusted for the dilutive effect of
restricted stock awards.
The computations of basic and diluted net income/(loss) per share are as follows (in thousands, except per share data):
|
|
For the Years Ending December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Basic:
|
|
|
|
|
|
|
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
|
|
$
|
(58,099
|
)
|
|
$
|
8,837
|
|
Weighted average shares outstanding
|
|
|
23,070
|
|
|
|
23,792
|
|
Basic net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
|
|
$
|
(2.52
|
)
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
|
|
$
|
(58,099
|
)
|
|
$
|
8,837
|
|
|
|
|
|
|
|
|
|
|
Weighted average share outstanding
|
|
|
23,070
|
|
|
|
23,792
|
|
Dilutive restricted stock awards
|
|
|
-
|
|
|
|
133
|
|
Total
|
|
|
23,070
|
|
|
|
23,925
|
|
Diluted net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
|
|
$
|
(2.52
|
)
|
|
$
|
0.37
|
|
I.
|
Related Party Transactions
|
The following is a summary of certain related party transactions.
GGCP, Inc., a private company controlled by the Executive Chairman, indirectly owns a majority of our Class B stock, representing approximately 95%
of the combined voting power and 82% of the outstanding shares of our common stock at December 31, 2018.
Loans with GAMCO
AC received principal repayments on the GAMCO Note totaling $50 million in each of the years ended December 31, 2018 and 2017. The GAMCO Note was
fully paid in 2018. Interest income of $0.8 million and $3.0 million paid on the GAMCO Note is included in interest and dividend income
on the consolidated statements of income
for the years ended December 31, 2018 and 2017, respectively
. See Note A, Organization.
On December 26, 2017, GAMCO issued a promissory note to the Company for $15 million. The note principal and related interest of $40,000 were paid on
February 28, 2018.
Investments in Securities
At December 31, 2018 and 2017, approximately $45 million and $44 million, respectively, of our proprietary investment accounts, which are included in
investments in securities on the consolidated statements of financial condition, were managed by analysts or portfolio managers other than the Executive Chairman. The individuals managing these accounts receive 20% of the net profits, if any,
earned on the accounts. In August 2006, a son of the Executive Chairman was given responsibility for managing one such proprietary investment account. The balance in the account at December 31, 2018 and 2017 was $18.2 million and $18.0
million, respectively, of which $0.1 million and $3.5 million, respectively, is owed to the portfolio manager representing earnings that have been re-invested in the account. For 2018 and 2017, the performance of this account resulted in
compensation of approximately $0.0 million and $0.5 million, respectively, for managing this account.
At December 31, 2018 and 2017, the value of the Company’s investment in GAMCO common
stock was $50.9 million and $130.3 million, respectively. The Company recorded dividend income of $0.3 million and $0.4 million in 2018 and 2017 from GAMCO which is
included in interest and dividend income
on the consolidated statements of income.
At December 31, 2018 and 2017, the Company invested $398.3 million and $238.1 million, respectively, in the Gabelli U.S. Treasury Money Market Fund,
which is recorded in cash and cash equivalents on the consolidated statements of financial condition.
Investments in affiliated equity mutual funds advised by Gabelli Funds, LLC, a wholly-owned subsidiary of GAMCO, and Teton Advisors, Inc., an
investment advisor controlled by GGCP Holdings, LLC, the majority stockholder of AC, at December 31, 2018 and 2017 totaled $142.4 million and $146.2 million, respectively, and are included in either investments in securities or investments in
affiliated registered investment companies on the consolidated statements of financial condition.
Investments in Partnerships
We had an aggregate investment in affiliated Investment Partnerships of approximately
$100.1
million and $
124.5
million at December 31, 2018 and 2017, respectively.
Investment Advisory Services
Pursuant to a sub-advisory agreement with the Company, Gabelli Funds, LLC pays to GCIA 90% of the net revenues it receives related to investment
advisory services provided to GAMCO International SICAV – GAMCO Merger Arbitrage, an investment company incorporated under the laws of Luxembourg (the “SICAV”). For this purpose, net revenues are defined as gross advisory fees less expenses
related to payouts and expenses of the SICAV paid by Gabelli Funds, LLC. In connection with these services, GCIA received $3.9 million and $2.8 million during 2018 and 2017, respectively. These payments are included in investment advisory and
incentive fees on the consolidated statements of income.
As general partner, co-general partner, or investment manager of various affiliated funds, the Company receives a management fee based on a
percentage of each fund’s net assets and a 20% incentive allocation or fee based on the fund’s economic profits.
Institutional Research Services
In 2018 and 2017, the Company earned $3.8 million and $4.5 million, respectively, or 62% and 60%, respectively, of its commission revenue from
transactions executed on behalf of Gabelli Funds, LLC and private wealth management clients advised by GAMCO Asset Management Inc., wholly-owned subsidiaries of GAMCO. These commissions are included in institutional research services on the
consolidated statements of income.
Pursuant to research services agreements, GAMCO Asset Management Inc. paid $1.0 million and $2.2 million and Gabelli Funds, LLC paid $1.0 million and
$2.3 million to the Company for the years ended December 31, 2018 and 2017, respectively.
The Company participated in three preferred stock offerings of certain GAMCO closed-end funds in 2017. Underwriting fees and selling concessions, net
of expenses, related to these offerings amounted to $172,730 and are included in either institutional research services or other revenue on the consolidated statements of income.
As required by the Company’s Code of Ethics, staff members are required to maintain their brokerage accounts at G.research unless they receive
permission to maintain an outside account. G.research offers its entire staff the opportunity to engage in brokerage transactions at discounted commission rates. Accordingly, many of our staff members, including the executive officers or
entities controlled by them, have brokerage accounts at G.research and have engaged in securities transactions at discounted rates.
Compensation
In accordance with an employment agreement, the Company pays the Executive Chairman, or his designated assignees, a management fee equal to 10% of
the Company’s pretax profits before consideration of this fee and before consolidation of Investment Partnerships. In 2017, the Company recorded management fee expense of $0.7 million; there was no management fee expense in 2018. These fees
are recorded as management fee on the consolidated statements of income.
Affiliated Receivables/Payables
At December 31, 2018, the receivable from affiliates consists primarily of sub-advisory fees due from Gabelli Funds, LLC. At December 31, 2017, the
receivable from affiliates consists primarily of the $15 million promissory note issued by GAMCO on December 26, 2017.
At December 31, 2018 and 2017, the payable to affiliates primarily consisted of expenses paid by affiliates on behalf of the Company.
GAMCO Sublease
In June 2016, AC entered into a sublease agreement with GBL which is subject to annual renewal. Pursuant to the sublease, AC and its subsidiaries pay
a monthly fixed lease amount based on the percentage of square footage occupied by its employees (including pro rata allocation of common space) at GBL’s corporate offices. For the years ended December 31, 2018 and 2017, the Company paid
$463,286 and $374,401, respectively, under the sublease agreement. These amounts are included in other operating expenses on the consolidated statements of income.
Other
Gabelli Securities International Limited, a Bermuda corporation (“GSIL”) was formed in 1994 to provide investment advisory services to offshore funds
and accounts. In October 2017, GCIA agreed to purchase 55% of the shares of GSIL that it did not hold from a son of the Executive Chairman, subject to regulatory approvals and other standard closing conditions. In June 2018, the closing
conditions were satisfied and consideration of $341,076 was paid. As a result of this transaction, GSIL became a wholly-owned subsidiary of the Company.
Voting Rights
The holders of Class A Common stock (“Class A Stock”) and Class B Common stock (“Class B Stock”) have identical rights except that holders of Class A
Stock are entitled to one vote per share, while holders of Class B Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general. Holders of each share class, however, are not eligible to vote on matters
relating exclusively to the other share class.
Stock Award and Incentive Plan
The Company maintains one stock award and incentive plan (the “Plan”) approved by the shareholders on May 3, 2016, which is designed to provide
incentives to attract and retain individuals key to the success of AC through direct or indirect ownership of our 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 2 million shares of Class A Stock have been reserved for issuance under the Plan by the Compensation Committee of
the Board of Directors (the “Compensation Committee”) which is responsible for administering the Plan. Under the Plan, the Compensation Committee may grant RSAs and either incentive or nonqualified stock options with a term not to exceed ten
years from the grant date and at an exercise price that it may determine. Through December 31, 2018, approximately 700,000 shares have been awarded under the Plan leaving approximately 1.3 million shares for future grants.
On November 30, 2015, in connection with the Spin-off, the Company issued 554,100 AC RSA shares to GAMCO employees (including GAMCO employees who
became AC employees) who held 554,100 GAMCO RSA shares at that date. The purpose of the issuance was to ensure that any employee who had GAMCO RSAs were granted an equal number of AC RSAs so that the total value of the RSAs post-spin-off was
equivalent to the total value pre-spin-off. In accordance with GAAP, we have allocated the stock compensation costs of both the AC RSAs and the GAMCO RSAs between GAMCO and AC based upon the allocation of each employee’s responsibilities
between the companies. During 2017, the vesting of all of the outstanding AC RSAs and all but 19,400 GAMCO RSAs was accelerated, and they are no longer outstanding. Similarly, the vesting of the GAMCO RSAs outstanding as of December 31, 2017
was accelerated in the first quarter of 2018.
There were no RSAs issued by AC during the years ended December 31, 2018 or 2017.
In August and December 2018, the Company’s Board of Directors approved the grant of 172,800 shares of Phantom Restricted Stock awards (“Phantom
RSAs”). Under the terms of the grants, which were effective August 8 and December 31, the Phantom RSAs vest 30% and 70% after three and five years, respectively. The Phantom RSAs will be settled by a cash payment, net of applicable
withholding tax, on the vesting dates. In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A common stock during the vesting period will be paid to participants on vesting. Based on the
price of the Company’s stock, the total value of the Phantom RSAs was $6.1 million as of the grant dates.
For the years ended December 31, 2018 and 2017, the Company recorded approximately $0.7 million and $5.9 million in stock-based compensation expense,
respectively. This expense is included in compensation expense in the consolidated statements of income. The expense for 2017 includes $4.2 million attributable to the acceleration of the AC and GAMCO RSAs.
As of December 31, 2018, there were 170,300 Phantom RSAs outstanding. The unrecognized compensation expense related to these was $5.4 million which
is expected to be recognized over a weighted-average period of 2.5 years.
Stock Repurchase Program
In 2018, the Company repurchased 0.2 million shares at an average price of $37.52 per share for a total investment of $7.0 million. In 2017, the
Company repurchased 0.6 million shares at an average price of $34.61 per share for a total investment of $21.2 million.
Exchange Offers
In February 2018, AC completed an exchange offer with respect to its Class A shares. Tendering shareholders received 1.35 GAMCO Class A shares for
each AC Class A share, together with cash in lieu of any fractional share. Upon completion of the offer, shareholders tendered 493,954 Class A shares in exchange for 666,805 GAMCO Class A shares with a value of $17.7 million.
In October 2018, the Company completed an exchange offer with respect to its Class A shares. Tendering shareholders received 1.9 GAMCO Class A shares
for each AC Class A share, together with cash in lieu of any fractional share. Upon completion of the offer, shareholders tendered 373,581 shares in exchange for 709,749 GAMCO shares with a value of approximately $14.6 million.
Dividends
During 2018, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.6 million, of which $2.3 million is
payable on January 9, 2019 and is included in accrued expenses and other liabilities on the
consolidated statement of financial condition as of December 31, 2018
.
During 2017, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.8 million, of which $2.4 million was
paid on January 10, 2018 and is included in accrued expenses and other liabilities on the
consolidated statements of financial condition as of December 31, 2017
.
The Company participates in an incentive savings plan (the “Savings Plan”) covering substantially all employees. Company contributions to the Savings
Plan are determined annually by management of the Company but may not exceed the amount permitted as a deductible expense under the Internal Revenue Code of 1986, as amended. The expense for contributions to the Savings Plan was approximately
$11,000 and $49,000 in 2018 and 2017, respectively, and is included in compensation on the consolidated statements of income.
L.
|
Guarantees, Contingencies, and Commitments
|
From time to time, the Company may be named in legal actions and proceedings. These actions may seek substantial or indeterminate compensatory as
well as punitive damages or injunctive relief. We are also subject to governmental or regulatory examinations or investigations. The examinations or investigations could result in adverse judgments, settlements, fines, injunctions,
restitutions or other relief. For any such matters, the condensed consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable. Furthermore, the Company evaluates whether
losses exist which may be reasonably possible and will, if material, make the necessary disclosures. Management believes, however, that such amounts, both those that are probable and those that are reasonably possible, are not material to the
Company’s financial condition, results of operations or cash flows at December 31, 2018.
G.research has agreed to indemnify clearing brokers for losses they may sustain from customer accounts introduced by G.research that trade on margin.
At each of December 31, 2018 and 2017, the total amount of customer balances subject to indemnification (i.e., unsecured margin debits) was immaterial.
The Company has also entered into arrangements with various other third parties, many of which provide for indemnification of the third parties
against losses, costs, claims and liabilities arising from the performance of obligations under the agreements. The Company has had no claims or payments pursuant to these or prior agreements and believes the likelihood of a claim being made
is remote, and, therefore, no accrual has been made on the consolidated financial statements.
M.
|
Net Capital Requirements
|
G.research is registered with the SEC as a broker-dealer and is regulated by FINRA. As such, G.research is subject to the minimum net capital
requirements promulgated by the SEC. G.research computes its net capital under the alternative method permitted by the SEC, which results in required minimum net capital of $250,000. As of December 31, 2018, and 2017, G.research had net
capital, as defined, of approximately $9.1 million and $41.8 million, respectively, exceeding the regulatory requirement by approximately $8.8 million and $41.6 million, respectively. Net capital requirements for G.research may increase in
accordance with rules and regulations to the extent it engages in other business activities.
N.
|
Shareholder-Designated Contribution Plan
|
The Company has established a Shareholder Designated Charitable Contribution program. Under the program, from time to time each shareholder is
eligible to designate a charity to which the Company would make a donation at a rate of twenty-five cents per share based upon the actual number of shares registered in the shareholder’s name. The Company recorded an expense of $3.3 million
and $4.2 million related to this program for the years ended December 31, 2018 and 2017, respectively, which is included in shareholder-designated contribution in the consolidated statements of income. As of December 31, 2018, the Company has
reflected a liability in the amount of $3.3 million in connection with this program which is included in accrued expenses and other liabilities on the consolidated statement of financial condition.
Effective February 1, 2019, G.research amended its existing research service agreements with GAMCO Asset Management Inc. and Gabelli Funds, LLC, to
provide for monthly research services fees in the amount of $62,500 from each of these entities. The amended agreements are subject to immediate cancellation by either party upon written notice.
ITEM 9:
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is
required to be timely disclosed, is recorded, processed, summarized, and reported to management within the time periods specified in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. The Company’s principal executive officer and principal
financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in the Exchange Act) as of the end of the period covered by this report, have concluded that the Company’s disclosure
controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s
management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
(b) Management’s Report on Internal Control Over Financial Reporting
AC’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule
13a-15(f) of the Exchange Act. Management of the Company, with the participation of the principal executive officer and under the supervision of the principal financial officer, conducted an evaluation of the effectiveness of AC’s internal
control over financial reporting as of December 31, 2018 as required by Rule 13a-15(c) of the Exchange Act. There are inherent limitations to the effectiveness of any system of internal control over financial reporting, including the
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective internal control over financial reporting controls can only provide reasonable assurance of achieving their control
objectives. In making its assessment of the effectiveness of its internal control over financial reporting, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework 2013.
Based on its evaluation, management concluded that, as of December 31, 2018, the Company maintained effective internal control over financial
reporting. This annual report does not include an audit attestation report on the Company’s internal control over financial reporting of the Company’s independent registered public accounting firm due to the rules of the SEC for Emerging
Growth Companies.
(c) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2018 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B:
|
OTHER INFORMATION
|
None.
PART III
ITEM 10:
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information regarding the Directors and Executive Officers of AC and compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference from the Company’s Proxy Statement for the 2019 Annual Meeting of Stockholders (the “Proxy Statement”).
AC has adopted a Code of Business Conduct that applies to all of our officers, directors, full-time and part-time employees and a Code of Conduct
that sets forth additional requirements for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (together, the “Codes of Conduct”). The Codes of
Conduct are posted on our website (
www.associated-capital-group.com
) and are available in print free of charge to anyone who requests a copy. Interested parties may
address a written request for a printed copy of the Codes of Conduct to: Secretary, Associated Capital Group, Inc., One Corporate Center, Rye, New York 10580-1422. We intend to satisfy the disclosure requirement regarding any amendment to, or
a waiver of, a provision of the Codes of Conduct by posting such information on our website.
In addition to the certifications attached as Exhibits to this Form 10-K, following its 2019 Annual Meeting, AC will also submit to the New York
Stock Exchange (“NYSE”) a certification by our Chief Executive Officer that he is not aware of any violations by AC of the NYSE corporate governance listing standards as of the date of the certification.
Information required by Item 11 is included in our Proxy Statement and is incorporated herein by reference.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Information required by Item 12 is included in our Proxy Statement and is incorporated herein by reference.
ITEM 13:
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Information required by Item 13 is included in our Proxy Statement and is incorporated herein by reference.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Information required by Item 14 is included in our Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15:
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Registered Public Accounting Firm’s Reports included herein:
See Index on page 23.
(2) Financial Statement Schedules
Financial statement schedules are omitted as not required or not applicable or because the information is included in the Financial Statements or
notes thereto.
(3) List of Exhibits:
The agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K contain representations and warranties by each of
the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the
applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement.
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether
additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
Exhibit
Number
|
Description of Exhibit
|
|
|
|
Separation and Distribution Agreement, dated November 30, 2015, between GAMCO Investors, Inc., a Delaware corporation (“GAMCO”), and
Associated Capital Group, Inc., a Delaware corporation (the “Company”). (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K dated November 30, 2015 filed with the Securities and Exchange Commission on December 4,
2015).
|
|
Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K dated
November 19, 2015 filed with the Securities and Exchange Commission on November 25, 2015).
|
|
Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Report on Form 8-K dated November 19,
2015 filed with the Securities and Exchange Commission on November 25, 2015).
|
|
Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on
Form 10 filed with the Securities and Exchange Commission on October 21, 2015).
|
|
Service Mark and Name License Agreement, dated November 30, 2015, by and between the Company and GAMCO. (Incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4, 2015
|
|
Transitional Administrative and Management Services Agreement, dated November 30, 2015, by and between the Company and GAMCO. (Incorporated
by reference to Exhibit 10.2 to the Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4, 2015).
|
|
Employment Agreement between the Company and Mario J. Gabelli dated November 30, 2015 (Incorporated by reference to Exhibit 10.3 to the
Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4, 2015).
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|
Promissory Note in aggregate principal amount of $250,000,000, dated November 30, 2015, issued by GAMCO in favor of the Company (Incorporated
by reference to Exhibit 10.4 to the Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4, 2015).
|
|
Tax Indemnity and Sharing Agreement, dated November 30, 2015, by and between the Company and GAMCO. (Incorporated by reference to Exhibit
10.5 to the Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4, 2015).
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|
2015 Stock Award Incentive Plan (Incorporated by reference to Exhibit 10.11 to Amendment No. 4 to the Company’s Registration Statement on
Form 10 filed with the Securities and Exchange Commission on October 21, 2015).
|
|
Form of Indemnification Agreement by and between the Company and the Indemnitee defined therein (Incorporated by reference to Exhibit 10.7 to
Amendment No. 4 to the Company’s Registration Statement on Form 10 filed with the Securities and Exchange Commission on October 21, 2015).
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Subsidiaries of the Company.
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24.1
|
Powers of Attorney (included on page 63 of this Report).
|
|
Certification of CEO pursuant to Rule 13a-14(a).
|
|
Certification of CFO pursuant to Rule 13a-14(a).
|
|
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
|
|
Description of Exhibit
|
|
|
100.INS
|
XBRL Instance Document
|
100.SCH
|
XBRL Taxonomy Extension Schema Document
|
100.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
100.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
100.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
100.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
ITEM 16:
|
FORM 10-K SUMMARY
|
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Rye, State of New York, on March 8, 2019.
ASSOCIATED CAPITAL GROUP, INC.
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|
By: /s/ Francis J. Conroy
|
Name: Francis J. Conroy
|
Title: Interim Chief Financial Officer
|
|
Date: March 8, 2019
|
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Kevin Handwerker and Francis J. Conroy and each of them, their true and
lawful attorney-in-fact and agent with full power of substitution and resubstitution, for them in their name, place and stead, in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on
the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
/s/ Douglas R. Jamieson
|
President and
|
March 8, 2019
|
Douglas R. Jamieson
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
/s/ Francis J. Conroy
|
Interim Chief Financial Officer
|
March 8, 2019
|
Francis J. Conroy
|
(Principal Financial Officer)
|
|
|
|
|
/s/ Mario J. Gabelli
|
Executive Chairman of the
|
March 8, 2019
|
Mario J. Gabelli
|
Board and Director
|
|
|
|
|
/s/ Richard L. Bready
|
Director
|
March 8, 2019
|
Richard L. Bready
|
|
|
|
|
|
/s/ Marc Gabelli
|
Director
|
March 8, 2019
|
Marc Gabelli
|
|
|
|
|
|
/s/ Daniel R. Lee
|
Director
|
March 8, 2019
|
Daniel R. Lee
|
|
|
|
|
|
/s/ Bruce M. Lisman
|
Director
|
March 8, 2019
|
Bruce M. Lisman
|
|
|
|
|
|
/s/ Frederic V. Salerno
|
Director
|
March 8, 2019
|
Frederic V. Salerno
|
|
|
|
|
|
/s/ Salvatore F. Sodano
|
Director
|
March 8, 2019
|
Salvatore F. Sodano
|
|
|
|
|
|
/s/ Elisa M. Wilson
|
Director
|
March 8, 2019
|
Elisa M. Wilson
|
|
|
63