NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
A.
|
Basis of Presentation and Significant Accounting Policies
|
Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.,” “AC Group,” “the
Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries.
The Spin-off and Related Transactions
We are a Delaware corporation that provides alternative investment management, institutional research and underwriting services. In addition, we derive
investment income/(loss) from proprietary trading of cash and other assets awaiting deployment in our operating business.
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of each class of AC common stock on a pro rata
one-for-one basis to the holders of each class of GAMCO’s common stock (the “Spin-off”).
We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli
Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners or investment managers to investment funds including limited partnerships and offshore companies
(collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns management and incentive fees from its
advisory activities. Management fees are largely based on a percentage of assets under management. Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an investment adviser registered with
the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended.
We provide our institutional research and underwriting services through G.research, LLC (“G.research”), an indirect wholly-owned subsidiary of the Company.
G.research is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is regulated by the Financial Industry Regulatory Authority (“FINRA”). G.research’s revenues are derived primarily from
institutional research services.
We may make direct investments in operating businesses using a variety of techniques and structures. For example, in April 2018, the Company completed a
€110 million initial public offering of its first special purpose acquisition corporation, the Gabelli Value for Italy S.p.a., an Italian company listed on the London Stock Exchange’s Borsa Italiana AIM segment under the symbol “VALU”. VALU was
created to acquire a small- to medium-sized Italian franchise business with the potential for international expansion, particularly in the United States.
In connection with the Spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the original principal amount of $250 million used to
partially capitalize the Company. During the year ended December 31, 2018, AC received principal repayments totaling $50 million on the GAMCO Note which fully satisfied the outstanding principal balance. The GAMCO Note bore interest at 4% per annum
and had an original maturity date of November 30, 2020. In addition, GCIA acquired 4,393,055 shares of GAMCO Class A common stock for $150 million in connection with the Spin-off.
Basis of Presentation
The unaudited interim condensed consolidated financial statements of AC Group included herein have been prepared in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by
GAAP in the United States for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair
presentation of financial position, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year’s results.
The interim condensed consolidated financial statements include the accounts of AC Group and its subsidiaries. All material intercompany transactions and
balances have been eliminated.
These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2018.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported on the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Recent Accounting Developments
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 condensed consolidated statement of financial position. The Company adopted this ASU effective January 1, 2019 with no material impact on its condensed
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 condensed consolidated financial statements.
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 assets under management (“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 three ended March 31, 2019 and 2018, respectively (in thousands):
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Investment advisory and incentive fees
|
|
|
|
|
|
|
Asset-based advisory fees
|
|
$
|
1,724
|
|
|
$
|
1,839
|
|
Performance-based advisory fees
|
|
|
13
|
|
|
|
7
|
|
Sub-advisory fees
|
|
|
996
|
|
|
|
683
|
|
|
|
|
2,733
|
|
|
|
2,529
|
|
|
|
|
|
|
|
|
|
|
Institutional research services
|
|
|
|
|
|
|
|
|
Hard dollar payments
|
|
|
487
|
|
|
|
930
|
|
Commissions
|
|
|
1,426
|
|
|
|
1,196
|
|
Selling concessions
|
|
|
-
|
|
|
|
26
|
|
|
|
|
1,913
|
|
|
|
2,152
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Underwriting fees
|
|
|
-
|
|
|
|
19
|
|
Miscellaneous
|
|
|
6
|
|
|
|
3
|
|
|
|
|
6
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,652
|
|
|
$
|
4,703
|
|
C.
|
Investment in Securities
|
Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in
securities, and those with maturities of three months or less at the time of purchase are classified as cash equivalents.
Investments in securities are stated at fair value, with any unrealized gains or losses reported in current period earnings.
Investments in securities, including GBL stock, at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government obligations
|
|
$
|
28,489
|
|
|
$
|
28,648
|
|
|
$
|
11,694
|
|
|
$
|
11,707
|
|
Common stocks
|
|
|
258,470
|
|
|
|
247,485
|
|
|
|
244,557
|
|
|
|
213,151
|
|
Mutual funds
|
|
|
762
|
|
|
|
1,332
|
|
|
|
761
|
|
|
|
1,161
|
|
Other investments
|
|
|
5,284
|
|
|
|
3,477
|
|
|
|
5,285
|
|
|
|
3,941
|
|
Total investments in securities
|
|
$
|
293,005
|
|
|
$
|
280,942
|
|
|
$
|
262,297
|
|
|
$
|
229,960
|
|
Securities sold, not yet purchased at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Proceeds
|
|
|
Fair Value
|
|
|
Proceeds
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
16,393
|
|
|
$
|
17,011
|
|
|
$
|
10,150
|
|
|
$
|
9,485
|
|
Other investments
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
|
|
89
|
|
Total securities sold, not yet purchased
|
|
$
|
16,393
|
|
|
$
|
17,118
|
|
|
$
|
10,150
|
|
|
$
|
9,574
|
|
Investments in affiliated registered investment companies at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end funds
|
|
$
|
73,717
|
|
|
$
|
93,434
|
|
|
$
|
73,950
|
|
|
$
|
85,090
|
|
Mutual funds
|
|
|
47,550
|
|
|
|
57,129
|
|
|
|
49,714
|
|
|
|
57,045
|
|
Total investments in affiliated
registered investment companies
|
|
$
|
121,267
|
|
|
$
|
150,563
|
|
|
$
|
123,664
|
|
|
$
|
142,135
|
|
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 condensed consolidated statements of financial condition. From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to
manage their exposure to foreign currencies and equity prices related to their investments.
The following table identifies the fair values of all derivatives held by the Company (in thousands):
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Statement of
Financial Condition
Location
|
|
Fair Value
|
|
Statement of
Financial Condition
Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments under FASB ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Receivable from brokers
|
|
$
|
285
|
|
|
$
|
204
|
|
Payable to brokers
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments under FASB ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts
|
Investments in
securities
|
|
$
|
145
|
|
|
$
|
464
|
|
Securities sold,
not yet purchased
|
|
$
|
107
|
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
$
|
430
|
|
|
$
|
668
|
|
|
|
$
|
107
|
|
|
$
|
89
|
|
The following table identifies gains and losses of all derivatives held by the Company (in thousands):
Type of Derivative
|
|
Income Statement Location
|
|
Three Months ended March 31,
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Net gain/(loss) from investments
|
|
$
|
81
|
|
|
$
|
-
|
|
Equity contracts
|
|
Net gain/(loss) from investments
|
|
|
(2,022
|
)
|
|
|
1,778
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(1,941
|
)
|
|
$
|
1,778
|
|
At March 31, 2019 and December 31, 2018, we held derivative contracts on 2.1 million and 1.0 million equity shares, respectively, that are included in
investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition. 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 condensed consolidated statements of income.
The Company is a party to enforceable master netting arrangements for equity swaps entered into with major U.S. financial institutions as part of the
investment strategy of the Company’s proprietary portfolio. 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 condensed
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
Offset in the
Statements of
Financial Condition
|
|
|
Net Amounts of
Assets Presented
in the Statements
of Financial Condition
|
|
|
Gross Amounts Not Offset in the
Statements of Financial Condition
|
|
|
|
|
|
|
|
Net Amount
|
|
Swaps:
|
|
(In thousands)
|
|
March 31, 2019
|
|
$
|
70
|
|
|
$
|
-
|
|
|
$
|
70
|
|
|
$
|
(70
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2018
|
|
|
416
|
|
|
|
-
|
|
|
|
416
|
|
|
|
(89
|
)
|
|
|
-
|
|
|
|
327
|
|
|
|
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
|
|
|
Gross Amounts Not Offset in the
Statements of Financial Condition
|
|
Financial
Instruments
|
|
|
Cash Collateral
Pledged
|
|
|
Net Amount
|
|
Swaps:
|
|
(In thousands)
|
|
March 31, 2019
|
|
$
|
106
|
|
|
$
|
-
|
|
|
$
|
106
|
|
|
$
|
(70
|
)
|
|
$
|
-
|
|
|
$
|
36
|
|
December 31, 2018
|
|
|
89
|
|
|
|
-
|
|
|
|
89
|
|
|
|
(89
|
)
|
|
|
-
|
|
|
|
-
|
|
D.
|
Investment Partnerships and Variable Interest Entities
|
The Company is general partner or co-general partner of various affiliated entities (“Affiliated Entities”) in which the Company had investments totaling
$107.2 million and $100.1 million at March 31, 2019 and December 31, 2018, respectively, and whose underlying assets consist primarily of marketable securities. We also had investments in unaffiliated partnerships, offshore funds and other entities
(“Unaffiliated Entities”) of $19.0 million and $18.6 million at March 31, 2019 and December 31, 2018, respectively. 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 condensed 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 condensed 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, 2017
|
|
|
1
|
|
|
|
3
|
|
Additional consolidated entities
|
|
|
-
|
|
|
|
2
|
|
Deconsolidated entities
|
|
|
-
|
|
|
|
-
|
|
Entities consolidated at March 31, 2018
|
|
|
1
|
|
|
|
5
|
|
Additional consolidated entities
|
|
|
-
|
|
|
|
-
|
|
Deconsolidated entities
|
|
|
-
|
|
|
|
-
|
|
Entities consolidated at December 31, 2018
|
|
|
1
|
|
|
|
5
|
|
Additional consolidated entities
|
|
|
-
|
|
|
|
-
|
|
Deconsolidated entities
|
|
|
-
|
|
|
|
-
|
|
Entities consolidated at March 31, 2019
|
|
|
1
|
|
|
|
5
|
|
The following table includes the net impact by line item on the condensed consolidated statements of financial condition for the consolidated entities (in
thousands):
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
377,343
|
|
|
$
|
18,677
|
|
|
$
|
396,020
|
|
Investments in securities (including GBL stock)
|
|
|
171,339
|
|
|
|
109,603
|
|
|
|
280,942
|
|
Investments in affiliated investment companies
|
|
|
202,066
|
|
|
|
(51,503
|
)
|
|
|
150,563
|
|
Investments in partnerships
|
|
|
146,256
|
|
|
|
(20,117
|
)
|
|
|
126,139
|
|
Receivable from brokers
|
|
|
4,992
|
|
|
|
21,988
|
|
|
|
26,980
|
|
Investment advisory fees receivable
|
|
|
1,212
|
|
|
|
(24
|
)
|
|
|
1,188
|
|
Other assets
|
|
|
12,437
|
|
|
|
427
|
|
|
|
12,864
|
|
Total assets
|
|
$
|
915,645
|
|
|
$
|
79,051
|
|
|
$
|
994,696
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
5,920
|
|
|
$
|
11,198
|
|
|
$
|
17,118
|
|
Accrued expenses and other liabilities
|
|
|
20,721
|
|
|
|
17,072
|
|
|
|
37,793
|
|
Redeemable noncontrolling interests
|
|
|
-
|
|
|
|
50,781
|
|
|
|
50,781
|
|
Total equity
|
|
|
889,004
|
|
|
|
-
|
|
|
|
889,004
|
|
Total liabilities and equity
|
|
$
|
915,645
|
|
|
$
|
79,051
|
|
|
$
|
994,696
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
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
|
|
The following table includes the net impact by line item on the condensed consolidated statements of income for the consolidated entities (in thousands):
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Total revenues
|
|
$
|
4,817
|
|
|
$
|
(165
|
)
|
|
$
|
4,652
|
|
Total expenses
|
|
|
11,462
|
|
|
|
1,066
|
|
|
|
12,528
|
|
Operating loss
|
|
|
(6,645
|
)
|
|
|
(1,231
|
)
|
|
|
(7,876
|
)
|
Total other income, net
|
|
|
35,983
|
|
|
|
2,738
|
|
|
|
38,721
|
|
Income before income taxes
|
|
|
29,338
|
|
|
|
1,507
|
|
|
|
30,845
|
|
Income tax expense
|
|
|
6,191
|
|
|
|
-
|
|
|
|
6,191
|
|
Net income before NCI
|
|
|
23,147
|
|
|
|
1,507
|
|
|
|
24,654
|
|
Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
1,507
|
|
|
|
1,507
|
|
Net income
|
|
$
|
23,147
|
|
|
$
|
-
|
|
|
$
|
23,147
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Total revenues
|
|
$
|
4,720
|
|
|
$
|
(17
|
)
|
|
$
|
4,703
|
|
Total expenses
|
|
|
8,441
|
|
|
|
512
|
|
|
|
8,953
|
|
Operating loss
|
|
|
(3,721
|
)
|
|
|
(529
|
)
|
|
|
(4,250
|
)
|
Total other income/(expense), net
|
|
|
(25,242
|
)
|
|
|
386
|
|
|
|
(24,856
|
)
|
Loss before income taxes
|
|
|
(28,963
|
)
|
|
|
(143
|
)
|
|
|
(29,106
|
)
|
Income tax benefit
|
|
|
(6,734
|
)
|
|
|
-
|
|
|
|
(6,734
|
)
|
Net loss before NCI
|
|
|
(22,229
|
)
|
|
|
(143
|
)
|
|
|
(22,372
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
(143
|
)
|
Net loss
|
|
$
|
(22,229
|
)
|
|
$
|
-
|
|
|
$
|
(22,229
|
)
|
Variable Interest Entities
With respect to the 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 the VIE that is consolidated and included on the condensed consolidated statements of financial
condition as well as the Company’s net interest in this VIE (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,561
|
|
|
$
|
2,560
|
|
Investments in securities
|
|
|
8,538
|
|
|
|
7,253
|
|
Receivable from brokers
|
|
|
(5
|
)
|
|
|
553
|
|
Other assets
|
|
|
1
|
|
|
|
(11
|
)
|
Accrued expenses and other liabilities
|
|
|
(291
|
)
|
|
|
(31
|
)
|
Redeemable noncontrolling interests
|
|
|
(424
|
)
|
|
|
(419
|
)
|
AC Group’s net interests in consolidated VIE
|
|
$
|
10,380
|
|
|
$
|
9,905
|
|
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
March 31, 2019 and December 31, 2018 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 condensed 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 (except for Investment
Partnerships) (in thousands):
|
|
March 31, 2019
|
|
Assets
|
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Cash equivalents
|
|
$
|
394,490
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
394,490
|
|
Investments in partnerships
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,753
|
|
|
|
4,386
|
|
|
|
126,139
|
|
Investments in securities (including GBL stock):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gov’t obligations
|
|
|
28,648
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,648
|
|
Common stocks
|
|
|
240,131
|
|
|
|
7,321
|
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
247,485
|
|
Mutual funds
|
|
|
1,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,332
|
|
Other
|
|
|
21
|
|
|
|
145
|
|
|
|
3,311
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,477
|
|
Total investments in securities
|
|
|
270,132
|
|
|
|
7,466
|
|
|
|
3,344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280,942
|
|
Investments in affiliated registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end funds
|
|
|
93,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93,434
|
|
Mutual funds
|
|
|
57,129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,129
|
|
Total investments in affiliated
registered investment companies
|
|
|
150,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,563
|
|
Total investments
|
|
|
420,695
|
|
|
|
7,466
|
|
|
|
3,344
|
|
|
|
121,753
|
|
|
|
4,386
|
|
|
|
557,644
|
|
Total assets at fair value
|
|
$
|
815,185
|
|
|
$
|
7,466
|
|
|
$
|
3,344
|
|
|
$
|
121,753
|
|
|
$
|
4,386
|
|
|
$
|
952,134
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
17,011
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,011
|
|
Other
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
Securities sold, not yet purchased
|
|
$
|
17,011
|
|
|
$
|
107
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,118
|
|
|
|
December 31, 2018
|
|
Assets
|
|
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
|
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
|
|
|
|
|
|
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
|
|
|
(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 March 31, 2019 and December 31, 2018, investments in these Investment Partnerships were
$111,940 and $105,020, respectively. In addition, certain investments in Investment Partnerships were held by a consolidated entity. At March 31, 2019 and December 31, 2018, these amounts were $9,813 and $9,429, 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:
|
|
Three months ended March 31, 2019
|
|
|
Three months ended March 31, 2018
|
|
|
|
Common
Stocks
|
|
|
Other
|
|
|
Total
|
|
|
Common
Stocks
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
12
|
|
|
$
|
3,458
|
|
|
$
|
3,470
|
|
|
$
|
618
|
|
|
$
|
1,169
|
|
|
$
|
1,787
|
|
Consolidated fund
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
984
|
|
|
|
984
|
|
Total gains/(losses)
|
|
|
(42
|
)
|
|
|
(147
|
)
|
|
|
(189
|
)
|
|
|
(11
|
)
|
|
|
8
|
|
|
|
(3
|
)
|
Purchases
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
Transfers
|
|
|
63
|
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ending balance
|
|
$
|
33
|
|
|
$
|
3,311
|
|
|
$
|
3,344
|
|
|
$
|
607
|
|
|
$
|
2,140
|
|
|
$
|
2,747
|
|
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
|
|
$
|
(42
|
)
|
|
$
|
(147
|
)
|
|
$
|
(189
|
)
|
|
$
|
(11
|
)
|
|
$
|
-
|
|
|
$
|
(11
|
)
|
Total realized and unrealized gains and losses for level 3 assets are reported in net gain/(loss) from investments in the condensed consolidated statements
of income.
During the three months ended March 31, 2019, the Company transferred investments with values of approximately $63,000, respectively, from level 1 to level
3 due to the unavailability of observable inputs.
The effective tax rate (“ETR”) for the three months ended March 31, 2019 and March 31, 2018 was 20.1% and 23.1%, respectively. The ETR in the first quarter
of 2019 differs from the standard corporate tax rate of 21% primarily due to state and local taxes (net of federal benefit) and the benefit of (a) the donation of appreciated securities and (b) the dividends received deduction. The ETR in the
first quarter of 2018 differs from the standard corporate tax rate of 21% primarily due to state and local taxes (net of federal benefit).
Basic earnings per share is computed by dividing net income/(loss) per share 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) per share attributable to our shareholders by the weighted average number of shares outstanding during the period, adjusted for the dilutive effect
of outstanding RSAs. There were no outstanding AC RSAs during the three months ended March 31, 2019 and 2018.
The computations of basic and diluted net income/(loss) per share are as follows:
|
|
Three Months Ended March 31,
|
|
(amounts in thousands, except per share amounts)
|
|
2019
|
|
|
2018
|
|
Basic:
|
|
|
|
|
|
|
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders
|
|
$
|
23,147
|
|
|
$
|
(22,229
|
)
|
Weighted average shares outstanding
|
|
|
22,584
|
|
|
|
23,508
|
|
Basic net income/(loss) attributable to Associated Capital Group, Inc.’s
shareholders per share
|
|
$
|
1.02
|
|
|
$
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders
|
|
$
|
23,147
|
|
|
$
|
(22,229
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average share outstanding
|
|
|
22,584
|
|
|
|
23,508
|
|
Dilutive restricted stock awards
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
22,584
|
|
|
|
23,508
|
|
Diluted net income/(loss) attributable to Associated Capital Group, Inc.’s
shareholders per share
|
|
$
|
1.02
|
|
|
$
|
(0.95
|
)
|
Shares outstanding were 22.6 million at March 31, 2019 and December 31, 2018.
Dividends
There were no dividends declared during each of the three months ended March 31, 2019 and 2018.
Stock Repurchase Program
During first quarter 2019, the Company repurchased approximately 10 thousand shares at an average price of $40.03 per share for a total investment of $0.4
million. During first quarter 2018, the Company repurchased approximately 13 thousand shares at an average price of $35.87 per share for a total investment of $0.5 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.
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 (a) 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, and (b) holders of each share class are not eligible to vote on matters relating
exclusively to the other share class.
Stock Award and Incentive Plan
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.
The vesting of the GAMCO RSAs outstanding was accelerated in the first quarter of 2018. There were no AC RSAs outstanding at March 31, 2019 and 2018.
There were no RSAs issued by AC during the three months ended March 31, 2019 or 2018.
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.
Pursuant to ASC 718, the Phantom RSAs will be treated 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.
As of March 31, 2019, there were 160,300 Phantom RSAs outstanding. The unrecognized compensation cost related to these was $5.3 million which is expected
to be recognized over a weighted-average period of 2.4 years.
For the three months ended March 31, 2019 and 2018, the Company recorded approximately $0.4 million and $0.1 million in stock-based compensation expense,
respectively.
I.
|
Goodwill and Identifiable Intangible Assets
|
At March 31, 2019, goodwill and intangible assets on the condensed consolidated statements of financial condition includes $3.4 million of goodwill related
to GCIA. The Company assesses the recoverability of goodwill at least annually, or more often should events warrant, using a qualitative assessment of whether it is more likely than not that an impairment has occurred to determine if a quantitative
analysis is required. There were no indicators of impairment for the three months ended March 31, 2019 or March 31, 2018, and as such there was no impairment analysis performed or charge recorded.
J.
|
Commitments and Contingencies
|
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 March 31, 2019.
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 March 31, 2019 and December 31, 2018, 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 condensed consolidated financial statements.
From April 1, 2019 to May 8, 2019, the Company repurchased 21,961 shares at an average price of $39.59 per share.
On April 23, 2019, the Company issued a promissory note for $2.1 million to our Executive Chairman. The note bears interest at 1% per annum and is payable
upon demand.
On May 7, 2019, the Board of Directors (“Board”) approved a semi-annual dividend of $0.10 per share to all of its Class A and Class B shareholders payable
on July 2, 2019 to shareholders of record on June 18, 2019.
The Board approved the purchase of a building in Greenwich, Connecticut and plans to relocate its corporate offices.