ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and the notes thereto included in Item 8 to this report. Unless the context otherwise requires, all references to “we,” “us,” “our,” “AC Group” or the “Company” refer collectively to Associated Capital Group, Inc. and its subsidiaries through which our operations are actually conducted.
The Spin-off
On November 30, 2015, GAMCO distributed all the outstanding shares of each class of common stock of AC Group on a pro rata one-for-one basis to the holders of each class of GAMCO’s common stock. Prior to the distribution, GAMCO contributed the 93.9% interest it held in Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli Securities, Inc.) and certain cash and other assets to AC Group. During the twelve months ended December 31, 2016, AC purchased the 6.1% of GCIA shares owned by third parties and certain employees in exchange for 163,428 shares of the Company. GCIA is now a wholly owned subsidiary of AC.
In addition, the following transactions were also undertaken in connection with the spin-off:
GAMCO issued a promissory note (the "GAMCO Note") to AC Group in the original principal amount of $250.0 million used to partially capitalize the Company in connection with the spin-off. The GAMCO Note bears interest at 4.0% per annum and has a maturity date of November 30, 2020 with respect to the original principal amount of the GAMCO Note. Interest on the GAMCO Note will accrue from the most recent date for which interest has been paid, or if no interest has been paid, from the effective date of the GAMCO Note; provided, however, that at the election of GAMCO, payment of interest on the GAMCO Note may, in lieu of being paid in cash, be paid, in whole or in part, in kind on the then-outstanding principal amount (a "PIK Amount"). GAMCO will repay all PIK Amounts added to the outstanding principal amount of the GAMCO Note, in cash, on the fifth anniversary of the date on which each such PIK Amount was added to the outstanding principal amount of the GAMCO Note. In no event may any interest be paid in kind subsequent to November 30, 2019. GAMCO may prepay the GAMCO Note prior to maturity without penalty.
During the year ended December 31, 2016, AC received principal repayments totaling $150 million on the GAMCO Note. $50 million of the prepayment was applied against the principal amount due on November 30, 2016, $40 million against the principal amount due on November 30, 2017, $30 million against the principal amount due on November 30, 2018, and $30 million against the principal amount due on November 30, 2019. Of the $100 million principal amount outstanding as of December 31, 2016, $10 million is due on November 30, 2017, $20 million is due on November 30, 2018, $20 million is due on November 30, 2019, and $50 million is due on November 30, 2020.
On November 27, 2015 GCIA purchased from GAMCO 4,393,055 shares of GAMCO class A common stock at a price of $34.1448 per share, based on the average of the volume weighted average price for GAMCO class A stock on an “ex-Distribution” basis from November 9, 2015 through and including November 27, 2015. GCIA paid for the purchase by issuing a note to GAMCO in the principal amount of $150.0 million (the “GCIA Note”). The GCIA Note was then contributed by GAMCO to AC and GCIA became a majority-owned subsidiary of AC on November 30, 2015 in connection with the completion of the spin-off. The GCIA Note is thus now an intercompany note within the AC Group.
Factors Affecting Financial Condition and Results of Operations
Except for the one month period subsequent to the spin-off, the Company’s combined statements of income for the three months ended December 31, 2015 and the Company’s combined consolidated statements of income for the twelve months ended December 31, 2015 were prepared on a standalone basis derived from the combined financial statements and accounting records of GAMCO as the Company was not a standalone public company prior to the spin-off.
The combined consolidated statement of income for the period ended December 31, 2015 includes allocations for certain support functions that were provided on a centralized basis by GAMCO and not historically recorded at the business unit level. These expenses were allocated on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of headcount or other measures. Management believes the assumptions underlying the combined consolidated financial statements, including the assumptions regarding allocating general corporate expenses, are reasonable. Nevertheless, the combined consolidated financial statement may not include all of the actual expenses that would have been incurred by the Company and may not reflect its combined results of operations, financial position and cash flows had it been a separate, standalone company during the periods presented. Actual costs that would have been incurred if the Company had been a separate, standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. References within these Notes to the consolidated financial statements for the year ended December 31, 2016 and the combined consolidated statements of income, comprehensive income, equity, and cash flows for the year ended December 31, 2015 shall hereinafter be referred to as the consolidated statements of income, comprehensive income, equity, and cash flows or consolidated financial statements.
The Company, through its subsidiaries, provides alternative investment management services and institutional research services, as well as management of the Company’s proprietary investment portfolio. In all these endeavors, the Company seeks investments trading at prices that differ from those determined using our proprietary “Private Market Value (PMV) with a Catalyst
TM
” methodology where we have identified a near-term catalyst to narrow the market difference to PMV. Catalysts can include a spin-off, stock buyback, asset sale, management change, regulatory change or accounting change.
In its alternative asset management operations, subsidiaries of the Company serve as general partner or investment manager to investment funds including limited partnerships, offshore companies and separate accounts. The Company primarily manages assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios, earning management and incentive fees from its assets under management (AUM). The institutional research business offers domain knowledge-driven research and a sales and trading platform for institutional investors, earning fees from its institutional clients via trading commissions or direct payment. The Company manages its proprietary portfolio to maximize shareholder value and to support its other operating businesses.
Organizational Chart
During the second quarter of 2016, we negotiated to exchange AC shares for GCIA shares from the minority investors in GCIA. AC increased its interest in GCIA by 6.1% in return for 163,428 shares of AC and now owns 100% of GCIA. As of December 31, 2016, G.research was a wholly owned subsidiary of GCIA. However, on January 23, 2017 all of the outstanding membership interests of G.research were transferred to Institutional Services Holdings, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of AC.
(as of December 31, 2016)
|
(as of January 23, 2017)
|
Overview
Consolidated Statements of Income
Investment advisory and incentive fees, which are based on the amount and composition of AUM in our funds and accounts, represent our largest source of revenues. Growth in revenues depends on good investment performance, which influences the value of existing AUM as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels. Growth in AUM is also dependent on being able to access various distribution channels, which is usually based on several factors, including performance and service.
Incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio or a fee of 20% of the economic profit, as defined in the agreements governing the investment vehicle. We recognize revenue only when the measurement period has been completed or at the time of an investor redemption.
Institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis or direct payments on behalf of institutional clients. Commission revenues vary directly with the perceived value of the research, as well as account trading activity and new account generation.
Compensation costs include variable and fixed compensation and related expenses paid to officers, portfolio managers, sales, trading, research and all other professional staff. Variable compensation paid to sales personnel and portfolio management generally represents 40% of revenues and is the largest component of total compensation costs.
Management fee is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax profits which is paid to Mr. Gabelli or his designee for acting as Executive Chairman pursuant to his Employment Agreement so long as he is an executive of AC.
Other operating expenses include general and administrative operating costs and clearing charges and fees incurred by the brokerage business.
Other income and expenses include net gains and losses from investments (which include both realized and unrealized gains and losses from trading securities and equity in earnings of investments in partnerships), interest and dividend income, and interest expense. Net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments.
Net income (loss) attributable to noncontrolling interests represents the share of net income attributable to the minority stockholders, as reported on a separate company basis, of our consolidated majority-owned subsidiaries and net income attributable to third party limited partners of certain partnerships and offshore funds we consolidate. Please refer to Notes A and D in our consolidated financial statements included elsewhere in this report.
Consolidated Statements of Financial Condition
We ended the 2016 year with approximately $908 million in cash and investments, net of securities sold, not yet purchased of $10 million. This includes $434 million of cash and short term US treasuries; $213 million of securities, net, including 4.4 million shares of GAMCO stock; and $261 million invested in affiliated and third party funds and partnerships. Our financial resources underpin our flexibility to pursue strategic objectives that may include acquisitions, lift-outs, seeding new investment strategies, and co-investing, as well as shareholder compensation in the form of share repurchase and dividends.
Total shareholders’ equity was $874 million or $36.04 per share on December 31, 2016 compared to $752 million or $29.54 per share on December 31, 2015. Note that these shareholders’ equity per share calculations are a non-GAAP measurement. The increase in equity from the end of 2015 was largely comprised of an increase in cash and cash equivalents of $108 million, an increase in investments in securities, net and affiliated and third party funds of $46 million, a reduction of $5 million in liabilities, partially offset by a reduction in receivables of $45 million.
The Company also reviews an analysis of Adjusted Economic book value (“AEBV”), and AEBV per share, a non-GAAP financial measure that management believes is useful for analyzing AC’s financial condition because it reflects the impact on book value if and when the GAMCO Note is paid down. The GAMCO Note that was issued as part of the spin-off transaction is not treated as an asset for GAAP purposes, but as a reduction in equity, and will continue to be reflected as a reduction in equity in future periods in the amount of the principal then outstanding. As the GAMCO Note pays down, the Company's total equity will increase, and once the GAMCO Note is fully paid off by GAMCO, the Company's total equity and AEBV will be the same. At December 31, 2016, AEBV for the Company was $974 million and the AEBV per share was $40.16 per share. The reconciliation of GAAP book value and GAAP book value per share to AEBV and AEBV per share at December 31, 2016 is shown below (in thousands, except for per share data):
Reconciliation of Total Equity to Adjusted Economic Book Value
|
|
|
|
|
|
|
|
Total
|
|
Per Share
|
|
Total equity as reported
|
|
$
|
874,022
|
|
|
$
|
36.04
|
|
Add: GAMCO Note
|
|
|
100,000
|
|
|
|
4.12
|
|
Adjusted Economic book value
|
|
$
|
974,022
|
|
|
$
|
40.16
|
|
Our primary goal is to use our liquid resources to opportunistically and strategically grow book value and net income. While this goal is a priority, if opportunities are not present with what we consider a margin of safety, we will consider alternatives to return capital to our shareholders, including stock repurchases and dividends.
Assets Under Management Highlights
We reported assets under management as follows (dollars in millions):
|
Year Ended December 31,
|
|
|
CAGR (a)
|
|
|
2016
|
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
2016/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event Merger Arb
|
|
$
|
1,076
|
|
|
|
$
|
869
|
|
|
$
|
796
|
|
|
$
|
691
|
|
|
$
|
721
|
|
|
|
10.5
|
%
|
Event-Driven Value
|
|
|
133
|
|
|
|
|
145
|
|
|
|
167
|
|
|
|
140
|
|
|
|
124
|
|
|
|
1.8
|
|
Other
|
|
|
63
|
|
|
|
|
66
|
|
|
|
77
|
|
|
|
76
|
|
|
|
75
|
|
|
|
(4.3
|
)
|
Total AUM
|
|
$
|
1,272
|
|
(b)
|
|
$
|
1,080
|
|
|
$
|
1,040
|
|
|
$
|
907
|
|
|
$
|
920
|
|
|
|
8.4
|
%
|
(a) Compound annual growth rate.
(b) Includes $158.9 million of proprietary capital.
Our gross cash inflows by product line were as follows (in millions):
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Event Merger Arb
|
|
$
|
297
|
|
|
$
|
166
|
|
|
$
|
162
|
|
|
$
|
79
|
|
|
$
|
248
|
|
Event-Driven Value
|
|
|
1
|
|
|
|
39
|
|
|
|
45
|
|
|
|
38
|
|
|
|
29
|
|
Other
|
|
|
1
|
|
|
|
2
|
|
|
|
5
|
|
|
|
6
|
|
|
|
23
|
|
Total Cash Inflows
|
|
$
|
299
|
|
|
$
|
207
|
|
|
$
|
212
|
|
|
$
|
123
|
|
|
$
|
300
|
|
Our gross cash outflows by product line were as follows (in millions):
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Event Merger Arb
|
|
$
|
(148
|
)
|
|
$
|
(119
|
)
|
|
$
|
(68
|
)
|
|
$
|
(137
|
)
|
|
$
|
(58
|
)
|
Event-Driven Value
|
|
|
(18
|
)
|
|
|
(54
|
)
|
|
|
(21
|
)
|
|
|
(36
|
)
|
|
|
(42
|
)
|
Other
|
|
|
(9
|
)
|
|
|
(12
|
)
|
|
|
(5
|
)
|
|
|
(13
|
)
|
|
|
(20
|
)
|
Total Cash Outflows
|
|
$
|
(175
|
)
|
|
$
|
(185
|
)
|
|
$
|
(94
|
)
|
|
$
|
(186
|
)
|
|
$
|
(120
|
)
|
Our net appreciation and depreciation by product line were as follows (in millions):
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event Merger Arb
|
|
$
|
58
|
|
|
$
|
26
|
|
|
$
|
11
|
|
|
$
|
28
|
|
|
$
|
18
|
|
Event-Driven Value
|
|
|
5
|
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
14
|
|
|
|
5
|
|
Other
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
8
|
|
|
|
7
|
|
Total Net Appreciation/(Depreciation)
|
|
$
|
68
|
|
|
$
|
18
|
|
|
$
|
15
|
|
|
$
|
50
|
|
|
$
|
30
|
|
The majority of these assets have calendar year-end measurement periods; therefore, our incentive fees are primarily recognized in the fourth quarter when the uncertainty is removed at the end of the annual measurement period.
Operating Results for the Quarter Ended December 31, 2016 as Compared to the Quarter Ended December 31, 2015
Revenues
Total revenues were $16.3 million for the three months ended December 31, 2016, $7.3 million higher than total revenues of $9.0 million for the three months ended December 31, 2015. The increase was mainly attributable to incentive fees of $9.3 million in the current quarter versus $4.2 million in the comparable quarter in 2015. Total revenues by revenue component were as follows (dollars in thousands):
|
Three Months Ended December 31,
|
|
Increase (decrease)
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
Investment advisory and incentive fees
|
|
$
|
11,734
|
|
|
$
|
6,340
|
|
|
$
|
5,394
|
|
|
85.1
|
%
|
Institutional research services income
|
|
|
2,650
|
|
|
|
2,267
|
|
|
|
383
|
|
|
16.9
|
|
Other income
|
|
|
1,911
|
|
|
|
388
|
|
|
|
1,523
|
|
|
392.5
|
|
Total revenues
|
|
$
|
16,295
|
|
|
$
|
8,995
|
|
|
$
|
7,300
|
|
|
81.2
|
%
|
Investment advisory and incentive fees:
Investment advisory income is directly influenced by the level and mix of average AUM. We earn advisory fees based on the level of average AUM in our products.
Advisory fees were $2.4 million for the 2016 period compared to $2.1 million for the 2015 period, an increase of $0.3 million. This increase is correlated to the increase in AUM to $1.27 billion at December 31, 2016 versus $1.08 billion at December 31, 2015.
Incentive fees are directly related to the gains generated for our clients. We earn a percentage, usually 20%, of the economic gains of our clients’ AUM. These fees are generally recorded at the end of the measurement period, which is year-end. For the quarter ended December 31, 2016, we recognized $9.3 million in incentive fees versus $4.2 million for the comparable quarter in 2015 due to improved performance in our merger arbitrage funds.
Institutional research services
: Institutional research services revenues in the 2016 period were $2.7 million, an increase from $2.3 million in the 2015 period, resulting from higher brokerage commissions derived from securities transactions executed on an agency basis and sales manager fees earned from at-the market offerings of certain GAMCO closed-end funds.
Other income
: Other income was $1.9 million for fourth quarter 2016 versus $0.4 million for 2015, an increase of $1.5 million due to a renegotiation of the research services fee agreements with affiliates.
Expenses
Compensation
: Compensation costs, which include variable compensation, salaries, bonuses and benefits, were $12.8 million for the three months ended December 31, 2016, an increase from $9.5 million for the three months ended December 31, 2015. Fixed compensation costs, which include salaries, bonuses and benefits, increased to $5.3 million in the 2016 period from $5.2 million in the 2015 period primarily due to an increase in research analyst headcount and additional administrative personnel necessary to support our reporting as a stand-alone public company. The remainder of the compensation expense represents variable compensation that fluctuates with management fee and incentive fee revenues. For fourth quarter of 2016, variable payouts on revenues were $7.5 million, an increase of $3.2 million from the $4.3 million in the fourth quarter of 2015. Variable payouts as a percent of revenues are impacted by the mix of products upon which management and performance fees are earned and the extent to which they may exceed their allocated costs.
Stock based compensation
: Stock based compensation expense decreased to $0.4 million in the fourth quarter of 2016 versus $3.0 million in the fourth quarter of 2015 due to the accelerated vesting of restricted stock that occurred in October of 2015.
Management fees
: Management fee expense is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax profits, which is paid to Mario J. Gabelli or his designees pursuant to his employment agreements with GAMCO and AC. In the fourth quarter of 2016 and 2015, AC recorded management fee expense of $0.5 million and $0.6 million, respectively. Note that the management fee expense for the first two months of the fourth quarter 2015 was determined pursuant to Mr.Gabelli’s employment agreement with GAMCO and the management fee expense for the month of December, post spin-off, was determined based on Mr. Gabelli’s employment agreement with AC. Going forward, management fee expense will be determined based on Mr. Gabelli’s employment agreement with AC.
Other operating expenses
: Our other operating expenses were $2.4 million in the 2016 period up from $1.8 million in the 2015 period due to increased expenses correlated to our transformation to a stand-alone public company.
Investment and other non-operating income, net
Net gain from investments
: Net gain from investments is directly related to the performance of our proprietary capital accounts. For the three months ended December 31, 2016, net gains from investments declined to $7.1 million from the prior year’s $9.1 million.
Interest and dividend income
: Interest and dividend income increased to $2.9 million in the three months ended December 31, 2016 from $2.4 million in the three months ended December 31, 2015.
Interest expense
: Interest expense was $0.04 million in the quarter ended December 31, 2016 and $0.4 million on the comparable quarter in 2015.
Income Taxes
The effective tax rate (“ETR”) was 23.3% and 27.4% for the periods ended December 31, 2016 and 2015, respectively. The rates fluctuate below the standard corporate tax rate of 34% primarily due to the benefits of the dividends received deduction in each period and donated appreciated securities in the 2016 period. The rate fluctuation is indicative of the significant amount of investments that the Company holds relative to its income from operations.
Noncontrolling Interests
Net income (loss) attributable to noncontrolling interests was a loss of $0.02 million in the 2016 period compared to a loss of $0.3 million in the 2015 period.
Net Income
Net income for the three months ended December 31, 2016 was $3.6 million versus $4.2 million for the three months ended December 31, 2015 driven primarily by the $5.4 million cost of AC’s initial Shareholder Designated Charitable Contribution Program partially offset by a $5.1 million increase in incentive fees.
Operating Results for the Year Ended December 31, 2016 as Compared to the Year Ended December 31, 2015
Revenues
Total revenues were $31.2 million for the year ended December 31, 2016, $8.4 million higher than total revenues of $22.8 million for the year ended December 31, 2015. Total revenues by revenue component were as follows (dollars in thousands):
|
Year Ended December 31,
|
|
Increase (decrease)
|
|
|
2016
|
|
2015
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
Investment advisory and incentive fees
|
|
$
|
18,320
|
|
|
$
|
12,635
|
|
|
$
|
5,685
|
|
45.0
|
%
|
Institutional research services income
|
|
|
9,604
|
|
|
|
8,397
|
|
|
|
1,207
|
|
14.4
|
|
Other income
|
|
|
3,303
|
|
|
|
1,811
|
|
|
|
1,492
|
|
82.4
|
|
Total revenues
|
|
$
|
31,227
|
|
|
$
|
22,843
|
|
|
$
|
8,384
|
|
36.7
|
%
|
Investment advisory and incentive fees
: Investment advisory income is directly influenced by the level and mix of average AUM. We earn advisory fees based on the level of average AUM in our products.
Advisory fees were $8.9 million for 2016 compared to $8.4 million for 2015, an increase of $0.5 million. This increase is a result of the increase in average AUM to $1.19 billion in 2016 from $1.07 billion in 2015, an increase of $12 million.
Incentive fees are directly related to the gains generated for our clients. We earn a percentage, usually 20%, of the economic gains of our clients’ AUM. Incentive fees were $9.4 million in 2016, up $5.1 million from $4.3 million in 2015 as market appreciation in our clients’ accounts were higher in 2016 as compared to 2015.
Institutional research services
: Institutional research services revenues in 2016 were $9.6 million, a $1.2 million, or 14%, increase from $8.4 million in 2015 resulting from higher brokerage commissions derived from securities transactions executed on an agency basis and sales manager fees earned from at-the market offerings of certain GAMCO closed-end funds.
Other income
: Other income was $3.3 million for 2016 versus $1.8 million for 2015, an increase of $1.5 million due to a renegotiation of the research services fee agreements with affiliates.
Expenses
Compensation
: Compensation costs, which include variable compensation, salaries, bonuses and benefits, were $31.0 million for the year ended December 31, 2016, a 17% increase from $26.4 million for the year ended December 31, 2015. Fixed compensation costs, which include salaries, bonuses and benefits, increased 12% to $19.3 million in 2016 from $17.3 million in 2015 due primarily to an increase in research analyst headcount and additional administrative personnel necessary to support our reporting as a stand-alone public company. The remainder of the compensation expenses represents variable compensation that fluctuates with management fee and incentive fee revenues. For 2016, variable payouts on revenues were $11.7 million, up $2.7 million from the $9.0 million in 2015. Variable payouts are impacted by the mix of products upon which performance fees are earned and the extent to which they may exceed their allocated costs.
Stock based compensation
: Stock based compensation was $2.5 million in 2016, a decrease of $2.4 million, as compared to $4.9 million in 2015. The decrease was primarily due to the accelerated vesting of restricted stock that occurred in October of 2015.
Management fees
: Management fee expense is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax profits which is paid to Mario J. Gabelli or his designees pursuant to his employment agreements with AC and GAMCO. In 2016 and 2015, AC recorded a management fee expense of $1.6 million and contra-expense of $0.3 million, respectively, as presented in the consolidated statements of income. Note that the management fee expense for the first eleven months of 2015 was determined on a carve-out basis pursuant to Mr. Gabelli’s employment agreement with GAMCO and the management fee expense for the month of December 2015 and full year 2016, post spin-off, was determined based on Mr. Gabelli’s employment agreement with AC. The management fee expense for the month of December 2015 was $0.2 million. Subsequent to the spin-off, management fee expense is determined based on Mr. Gabelli’s employment agreement with AC.
Other operating expenses
: Our other operating expenses were $8.4 million in 2016 compared to $6.2 million in 2015, an increase of $2.2 million due primarily to our transformation to a stand-alone public company.
Investment and other non-operating income, net
Net gain from investments
: Net gain from investments is directly related to the performance of our proprietary capital accounts. For the year ended December 31, 2016, net gains from investments were $19.9 million versus $8.3 million in the prior year primarily due to gains on marking the portfolio to market.
Interest and dividend income
: Interest and dividend income increased $8.0 million to $12.7 million in 2016 from $4.7 million in 2015 due to an increase in interest income of $6.9 million from the GAMCO Note and higher dividend income.
Interest expense
: Interest expense decreased to $0.6 million in 2016 from $1.3 million in 2015.
Income Taxes
In 2016, we recorded an income tax expense of $3.9 million with the effective tax rate (“ETR”) of 27.0%. The ETR is below the standard corporate tax rate of 34% primarily due to the benefits of donated appreciated securities and the dividends received deduction. In 2015, we recorded an income tax benefit of $1.7 million with the effective tax rate (“ETR”) of 65.4%. The ETR is unusually high because we have favorable permanent tax differences in the form of the dividends received deduction that increased our tax benefit on this relatively small net loss base.
Noncontrolling Interests
Net income (loss) attributable to noncontrolling interests was $0.3 million in 2016 compared to a loss of $0.8 million in 2015.
Net Income(Loss)
Net income for the year ended December 31, 2016 was $10.2 million versus net loss of $0.1 million for the year ended December 31, 2015 substantially the result of increased net gains from investments, interest income from the GAMCO Note, and incentive fees partially offset by the $5.4 million cost of AC’s initial Shareholder Designated Charitable Contribution Program and increased operating expenses resulting from our transformation to a stand-alone public company.
Liquidity and Capital Resources
Our principal assets consist of cash and cash equivalents; short-term treasury securities; marketable securities, primarily equities, including 4.4 million shares of GAMCO stock; and interests in affiliated and third party funds and partnerships. Although Investment Partnerships are subject to restrictions as to the timing of distributions, the underlying investments of such Investment Partnerships are, for the most part, liquid, and the valuations of these products reflect that underlying liquidity.
Summary cash flow data is as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
Operating activities
|
|
$
|
6,588
|
|
|
$
|
(47,350
|
)
|
Investing activities
|
|
|
(4,115
|
)
|
|
|
(41,734
|
)
|
Financing activities
|
|
|
105,872
|
|
|
|
9,281
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
108,345
|
|
|
|
(79,803
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
205,750
|
|
|
|
285,530
|
|
Increase in cash from consolidation
|
|
|
-
|
|
|
|
10
|
|
Increase (decrease) in cash from deconsolidation
|
|
|
(2
|
)
|
|
|
13
|
|
Cash and cash equivalents at end of year
|
|
$
|
314,093
|
|
|
$
|
205,750
|
|
We require relatively low levels of capital expenditures and have a highly variable cost structure where costs increase and decrease based on the level of revenues we receive. Our revenues, in turn, are highly correlated to the level of AUM and to their investment performance. We anticipate that our available liquid assets should be sufficient to meet our cash requirements as we build out our operating businesses. At December 31, 2016, we had cash and cash equivalents of $314.1 million and $593.9 million of investments net of securities sold, not yet purchased of $10.0 million.
Net cash provided by operating activities was $6.6 million for 2016 and net cash used in operating activities was $47.4 million in 2015. In 2016, our sources of cash included a $43.2 million decrease in receivable from brokers, increased accrued expenses and other liabilities of $32.0 million, $23.2 million of decreases in distributions from partnerships, net income of $10.5 million, $6.8 million from an increase in compensation payable, a $5.9 million decline in receivable from affiliates and $2.5 million of stock based compensation expense. Cash uses included $48.2 million decrease in payable to brokers, $36.4 million of contributions to partnerships, $13.8 million of increases in trading securities, $11.2 million of equity in net gains from partnerships, a $5.5 million increase in other assets, and an increase in investment advisory fees receivable of $4.9 million. In 2015, our sources of cash included $44.5 million increase in payable to brokers, $22.9 million of distributions from partnerships, a $10.5 million decrease in other assets and $1.7 million from an increase in compensation payable. Cash uses included $71.6 million of increases in trading securities, a $30.0 million increase in receivable from brokers, $15.2 million of contributions to partnerships, a $4.7 million decline in payable to affiliates and a $4.3 million decline for income taxes payables and deferred tax liabilities.
Net cash used in investing activities of $4.1 million in 2016 is due to purchases of available for sale securities of $5.1 million less $0.8 million in proceeds from sales of available for sale securities and $0.2 million from return of capital from available for sale securities. Net cash used in investing activities of $41.7 million in 2015 is due to purchases of available for sale securities of $43.3 million less $1.0 million in proceeds from sales of available for sale securities and $0.5 million from return of capital from available for sale securities.
Net cash provided by financing activities was $105.9 million for 2016, largely resulting from $150.0 million of proceeds from payment of the GAMCO Note partially offset by $41.6 million of treasury stock purchases. Net cash provided by financing activities was $9.3 million for 2015, largely resulting from $25.2 million in cash transfers from GAMCO less $16.0 million repayment of the GAMCO demand loan.
G.research is registered with the SEC as broker-dealers and is regulated by FINRA. As such, G.research is subject to the minimum net capital requirements promulgated by the SEC. G.research’s net capital exceeded these minimum requirements at December 31, 2016. G.research computes its net capital under the alternative method permitted by the SEC, which requires minimum net capital of the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3 promulgated under the Exchange Act. As of December 31, 2016, and 2015, G.research had net capital, as defined, of approximately $3.7 million and $7.1 million, respectively, exceeding the regulatory requirement by approximately $3.4 million and $6.9 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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations
The following table sets forth our significant contractual cash obligations as of December 31, 2016 (in thousands):
|
Total
|
|
2017
|
|
Contractual Obligations:
|
|
|
|
|
Occupancy charge
|
|
$
|
96
|
|
|
$
|
96
|
|
Total
|
|
$
|
96
|
|
|
$
|
96
|
|
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
We believe the critical assumptions and estimates are those applied to revenue recognition, the accounting for and valuation of investments in securities, partnerships, and offshore funds, income taxes, and stock based compensation accounting.
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 AUM for each account as well as incentive fees earned on 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 sales compared with redemptions, financial market conditions, performance and the fee structure for AUM. Revenues derived from the equity-oriented portfolios generally have higher management fee rates than fixed income portfolios.
Revenues from investment partnerships and offshore funds also generally include an incentive allocation or fee on the absolute gain in a portfolio or a fee of 20% of the economic profit as defined in the partnership agreement. The incentive allocation or fee is generally recognized at the end of the measurement period, which is annually, 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 commission revenues and sales manager fees on a trade-date basis 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. It has also been involved in syndicated underwriting activities that included public equity and debt offerings managed by major investment banks. Underwriting fees include underwriting revenues and syndicate profits and are accrued as earned. Underwriting fees include gains, losses, selling concessions and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as underwriter or agent. It provides institutional investors and investment partnerships with investment ideas on numerous industries and special situations, with a particular focus on small-cap and mid-cap 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.
Finally, AC also has investment gains or losses generated from its proprietary trading activities which are included in net gain from investments on the consolidated statements of income.
Investments in Securities Transactions and Other Than Temporary Impairment
Investments in securities are accounted for as either “trading securities” or “available for sale” and are stated at fair value. Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. U.S. Treasury Bills and Notes with maturities of greater than three months at the time of purchase are considered investments in securities. Securities that are not readily marketable are stated at their estimated fair values in accordance with GAAP. A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain from investments on the consolidated statements of income. Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of other comprehensive income (loss) on the consolidated statements of comprehensive income (loss) except for losses deemed to be other than temporary which are recorded as realized losses on the consolidated statements of income. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain from investments on the consolidated statements of income.
AFS securities are evaluated for other than temporary impairment each reporting period and any impairment charges are recorded in net gain from investments on the consolidated statements of income. Management reviews all available for sale securities whose cost exceeds their fair value to determine if the impairment is other than temporary. Management uses qualitative factors such as diversification of the investment, the intent to hold the investment, the amount of time that the investment has been impaired and the severity of the decline in determining whether the impairment is other than temporary.
Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of AC to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments. Realized gains and losses from covers of securities sold, not yet purchased transactions are included in net gain from investments on the consolidated statements of income. Securities sold, not yet purchased are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain from investments on the consolidated statements of income.
Consolidation
The Company assesses all entities with which it is involved for consolidation on a case by case basis depending on the specific facts and circumstances surrounding each entity. Pursuant to the consolidation guidance, the Company first evaluates whether it holds a variable interest in an entity. The Company factors in all economic interests including proportionate interests through related parties, to determine if such interests are to be considered a variable interest. For entities where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether each of those entities qualify as a VIE.
The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity and therefore certain of the Company’s funds may qualify as VIEs under the variable interest model whereas others may qualify as VOEs under the voting interest model. 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.
Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest. The Company does not consolidate those voting interest entities (“VOEs”) 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 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 if it holds a controlling financial interest in the VIE 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. If 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 still be deemed to be the primary beneficiary if it is the party within the related party group that is most closely associated with the VIE. If The Company and its related parties not under common control in the aggregate have a controlling financial interest in a VIE, then The Company is 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 continuously. Investments and redemptions (either by The Company, related parties of The Company 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.
Equity Method Investments
Substantially all of AC’s equity method investees are entities that record their underlying investments at fair value. Therefore, under the equity method of accounting, AC’s share of the investee’s underlying net income predominantly represents fair value adjustments in the investments held by the equity method investees. AC’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 from investments” on the consolidated statements of income. Capital contributions are recorded as an increase in investments when paid, while 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 D. Investments in Partnerships, Offshore Funds and Variable Interest Entities (“VIEs”) for more detail as to the number and types of entities consolidated as well as the impact on the consolidated statements of financial condition and consolidated statements of income.
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 (“unaffiliated entities”). Given that we are not a general partner or investment manager in any unaffiliated entities, we do not earn any management or incentive fees and we do not have a controlling financial interest, we do not currently consolidate any unaffiliated entities.
Our balance sheet caption “Investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in consolidated feeder funds (“CFFs”) that the Company accounts for at fair value, as described below.
For CFFs that own 100% of their offshore master funds, the Company retains the CFF’s specialized investment company accounting (i.e., the CFFs account for their investment in master funds at fair value).
The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less than 100%. Refer to Noncontrolling Interests section within Note A for additional disclosures.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, the Company determines whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes the accrual of interest on uncertain tax positions and penalties in income tax provision on the consolidated statements of income.
Stock Based Compensation
The Company has granted RSAs and stock options to staff members which were recommended by the Company’s Executive Chairman, who did not receive an RSA or option award, and approved by the Compensation Committee of GAMCO’s Board of Directors prior to the spin-off. We use a fair value based method of accounting for stock-based compensation 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 total expense, which is reduced by estimated forfeitures, is recognized over the vesting period for these awards which is either (1) 30% over three years from the date of grant and 70% over five years from the date of grant or (2) 30% over three years from the date of grant and 10% each year over years four through ten from the date of grant. 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 RSA’s were granted an equal number of AC RSA’s so that the total value of the RSA’s post-spin was equivalent to the total value pre-spin. In accordance with GAAP, we have allocated the stock compensation costs between GAMCO and AC based upon each employee’s individual allocation of their responsibilities between GAMCO and AC.
Recent Accounting Developments
See Footnote B. Significant Accounting Policies – Recent Accounting Developments.
Seasonality and Inflation
We do not believe our operations are subject to significant seasonal fluctuations. We do not believe inflation will significantly affect our compensation costs, as they are substantially variable in nature. However, the rate of inflation may affect our expenses such as information technology and occupancy costs. To the extent inflation results in rising interest rates and has other effects upon the securities markets, it may adversely affect our financial position and results of operations by reducing our AUM, revenues or otherwise.
ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
40
|
|
|
Consolidated Financial Statements:
|
|
Consolidated Statements of Income for the years ended December 31, 2016 and 2015
|
41
|
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015
|
42
|
Consolidated Statements of Financial Condition at December 31, 2016 and 2015
|
43
|
Consolidated Statements of Equity for the years ended December 31, 2016 and 2015
|
44
|
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
|
46
|
Notes to Consolidated Financial Statements
|
48
|
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission that are not required under the related instructions or are inapplicable have been omitted.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Associated Capital Group, Inc.
Rye, New York
We have audited the accompanying consolidated statements of financial condition of Associated Capital Group, Inc. and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the two years in the period ended December 31, 2016. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Associated Capital Group, Inc. and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note A to the consolidated financial statements, the Company separated from GAMCO Investors, Inc. (“GAMCO”) on November 30, 2015. The Company did not operate as an independent, stand-alone entity for the year ended December 31, 2015. For periods prior to November 30, 2015, the accompanying combined consolidated financial statements were derived from the consolidated financial statements and accounting records of GAMCO.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 13, 2017
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
|
|
|
Investment advisory and incentive fees
|
|
$
|
18,320
|
|
|
$
|
12,635
|
|
Institutional research services
|
|
|
9,604
|
|
|
|
8,397
|
|
Other revenues
|
|
|
3,303
|
|
|
|
1,810
|
|
Total revenues
|
|
|
31,227
|
|
|
|
22,842
|
|
Expenses
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
30,968
|
|
|
|
26,343
|
|
Stock based compensation
|
|
|
2,464
|
|
|
|
4,931
|
|
Management fee
|
|
|
1,593
|
|
|
|
(309
|
)
|
Other operating expenses
|
|
|
8,434
|
|
|
|
6,189
|
|
Total expenses
|
|
|
43,459
|
|
|
|
37,154
|
|
Operating loss
|
|
|
(12,232
|
)
|
|
|
(14,312
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Net gain from investments
|
|
|
19,909
|
|
|
|
8,276
|
|
Interest and dividend income
|
|
|
12,669
|
|
|
|
4,720
|
|
Interest expense
|
|
|
(590
|
)
|
|
|
(1,260
|
)
|
Shareholder-designated contributions
|
|
|
(5,411
|
)
|
|
|
-
|
|
Total other income, net
|
|
|
26,577
|
|
|
|
11,736
|
|
Income (loss) before income taxes
|
|
|
14,345
|
|
|
|
(2,576
|
)
|
Income tax provision (benefit)
|
|
|
3,876
|
|
|
|
(1,685
|
)
|
Net income (loss)
|
|
|
10,469
|
|
|
|
(891
|
)
|
Net income (loss) attributable to noncontrolling interests
|
|
|
251
|
|
|
|
(780
|
)
|
Net income (loss) attributable to Associated Capital Group, Inc.'s shareholders
|
|
$
|
10,218
|
|
|
$
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Associated Capital Group, Inc.'s shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
|
$
|
-
|
|
Diluted
|
|
$
|
0.41
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,870
|
|
|
|
24,887
|
|
Diluted
|
|
|
25,175
|
|
|
|
25,170
|
|
|
|
|
|
|
|
|
|
|
Actual shares outstanding
|
|
|
24,255
|
|
|
|
25,440
|
|
See accompanying notes.
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,469
|
|
|
$
|
(891
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on securities available for sale (a)
|
|
|
4,138
|
|
|
|
(11,035
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
14,607
|
|
|
|
(11,926
|
)
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
|
|
1,215
|
|
|
|
(780
|
)
|
Comprehensive income (loss) attributable to Associated Capital Group, Inc.
|
|
$
|
13,392
|
|
|
$
|
(11,146
|
)
|
(a)
Net of income tax expense (benefit) of $2,328 and ($6,434) for 2016 and 2015, respectively.
See accompanying notes.
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
314,093
|
|
|
$
|
205,750
|
|
Investments in securities (Including GBL stock with a market value of $135.7 million and $136.4 at
|
|
|
|
|
|
|
|
|
December 31, 2016 and December 31, 2015, respectively)
|
|
|
342,797
|
|
|
|
333,624
|
|
Investments in affiliated registered investment companies
|
|
|
131,645
|
|
|
|
118,676
|
|
Investments in partnerships
|
|
|
129,398
|
|
|
|
105,051
|
|
Receivable from brokers
|
|
|
12,588
|
|
|
|
56,510
|
|
Investment advisory fees receivable
|
|
|
9,784
|
|
|
|
4,896
|
|
Receivable from affiliates
|
|
|
1,523
|
|
|
|
7,457
|
|
Goodwill
|
|
|
3,422
|
|
|
|
3,254
|
|
Other assets
|
|
|
7,353
|
|
|
|
1,530
|
|
Total assets
|
|
$
|
952,603
|
|
|
$
|
836,748
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to brokers
|
|
$
|
2,396
|
|
|
$
|
50,648
|
|
Income taxes payable and deferred tax liabilities
|
|
|
6,978
|
|
|
|
5,669
|
|
Compensation payable
|
|
|
17,676
|
|
|
|
10,926
|
|
Securities sold, not yet purchased
|
|
|
9,984
|
|
|
|
9,623
|
|
Mandatorily redeemable noncontrolling interests
|
|
|
-
|
|
|
|
1,129
|
|
Payable to affiliates
|
|
|
1,455
|
|
|
|
-
|
|
Accrued expenses and other liabilities
|
|
|
35,862
|
|
|
|
1,466
|
|
Total liabilities
|
|
|
74,351
|
|
|
|
79,461
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
|
4,230
|
|
|
|
5,738
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note J)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,398,580 and 6,247,452 shares
|
|
|
|
|
|
|
|
|
issued, respectively; 5,058,648 and 6,242,952 shares outstanding, respectively
|
|
|
6
|
|
|
|
6
|
|
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued
|
|
|
|
|
|
|
|
|
and outstanding
|
|
|
19
|
|
|
|
19
|
|
Additional paid-in capital
|
|
|
1,007,027
|
|
|
|
999,000
|
|
Retained earnings
|
|
|
7,327
|
|
|
|
2,072
|
|
GBL 4 % PIK Note
|
|
|
(100,000
|
)
|
|
|
(250,000
|
)
|
Accumulated comprehensive income (loss)
|
|
|
1,317
|
|
|
|
(1,857
|
)
|
Treasury stock, at cost (1,339,932 and 1,500 shares, respectively)
|
|
|
(41,674
|
)
|
|
|
(44
|
)
|
Total Associated Capital Group, Inc. equity
|
|
|
874,022
|
|
|
|
749,196
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
2,353
|
|
Total equity
|
|
|
874,022
|
|
|
|
751,549
|
|
Total liabilities and equity
|
|
$
|
952,603
|
|
|
$
|
836,748
|
|
See accompanying notes.
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(continued) (In thousands)
|
|
|
|
|
Associated Capital Group, Inc. shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
Noncontrolling
|
|
|
Common
|
|
|
pre Spin-
|
|
|
Retained
|
|
|
Paid-in
|
|
|
GBL 4%
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
Interests
|
|
|
Stock
|
|
|
off
|
|
|
Earnings
|
|
|
Capital
|
|
|
PIK Note
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
Balance at December 31, 2014
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
573,749
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,178
|
|
|
$
|
-
|
|
|
$
|
582,927
|
|
|
$
|
68,334
|
|
Recapitalization
|
|
|
-
|
|
|
|
25
|
|
|
|
(522,758
|
)
|
|
|
-
|
|
|
|
522,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Redemptions of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(901
|
)
|
Contributions from redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,036
|
|
Consolidation of a consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
feeder fund and a partnership
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
996
|
|
Deconsolidation of an offshore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fund
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,256
|
)
|
Net income (loss)
|
|
|
(309
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(111
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(420
|
)
|
|
|
(471
|
)
|
Net unrealized losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities available for sale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($6,503)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,157
|
)
|
|
|
-
|
|
|
|
(11,157
|
)
|
|
|
-
|
|
Amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax ($69)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
122
|
|
|
|
-
|
|
|
|
122
|
|
|
|
-
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,931
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,931
|
|
|
|
-
|
|
Issuance of GBL 4% PIK Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(44
|
)
|
|
|
(44
|
)
|
|
|
-
|
|
Net transfer from GBL
|
|
|
2,662
|
|
|
|
-
|
|
|
|
(50,991
|
)
|
|
|
2,183
|
|
|
|
221,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175,190
|
|
|
|
-
|
|
Balance at December 31, 2015
|
|
$
|
2,353
|
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
2,072
|
|
|
$
|
999,000
|
|
|
$
|
(250,000
|
)
|
|
$
|
(1,857
|
)
|
|
$
|
(44
|
)
|
|
$
|
751,549
|
|
|
$
|
5,738
|
|
See accompanying notes.
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(continued) (In thousands)
|
|
|
|
|
Associated Capital Group, Inc. shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
Noncontrolling
|
|
|
Common
|
|
|
Retained
|
|
|
Paid-in
|
|
|
GBL 4%
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
Interests
|
|
|
Stock
|
|
|
Earnings
|
|
|
Capital
|
|
|
PIK Note
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
Balance at December 31, 2015
|
|
$
|
2,353
|
|
|
$
|
25
|
|
|
$
|
2,072
|
|
|
$
|
999,000
|
|
|
$
|
(250,000
|
)
|
|
$
|
(1,857
|
)
|
|
$
|
(44
|
)
|
|
$
|
751,549
|
|
|
$
|
5,738
|
|
Redemptions of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(244
|
)
|
Contributions from redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250
|
|
Deconsolidation of an offshore
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fund
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,811
|
)
|
Net income (loss)
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
10,218
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,172
|
|
|
|
297
|
|
Net unrealized gains on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities available for sale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax ($2,319)
|
|
|
964
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,189
|
|
|
|
-
|
|
|
|
4,153
|
|
|
|
-
|
|
Amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit ($9)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
-
|
|
Noncontrolling minority interest
|
|
|
(3,271
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,591
|
|
|
|
-
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,464
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,464
|
|
|
|
-
|
|
Increase to paid in capital for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
excess of actual tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
over recorded RSA tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
701
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
701
|
|
|
|
-
|
|
Dividends declared ($.20 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,963
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,963
|
)
|
|
|
-
|
|
Proceeds from payment of GBL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4% PIK Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,630
|
)
|
|
|
(41,630
|
)
|
|
|
-
|
|
Balance at December 31, 2016
|
|
$
|
-
|
|
|
$
|
25
|
|
|
$
|
7,327
|
|
|
$
|
1,007,027
|
|
|
$
|
(100,000
|
)
|
|
$
|
1,317
|
|
|
$
|
(41,674
|
)
|
|
$
|
874,022
|
|
|
$
|
4,230
|
|
See accompanying notes.
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Operating activities
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,469
|
|
|
$
|
(891
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Equity in net gains from partnerships
|
|
|
(11,183
|
)
|
|
|
(4,756
|
)
|
Depreciation and amortization
|
|
|
17
|
|
|
|
13
|
|
Stock based compensation expense
|
|
|
2,464
|
|
|
|
4,931
|
|
Deferred income taxes
|
|
|
(1,378
|
)
|
|
|
(6,450
|
)
|
Other-than-temporary loss on available for sale securities
|
|
|
324
|
|
|
|
216
|
|
Donated securities
|
|
|
1,051
|
|
|
|
73
|
|
Gains on sales of available for sale securities
|
|
|
(348
|
)
|
|
|
(25
|
)
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
Investments in securities - trading
|
|
|
(13,769
|
)
|
|
|
(71,552
|
)
|
Investments in partnerships:
|
|
|
|
|
|
|
|
|
Contributions to partnerships
|
|
|
(36,367
|
)
|
|
|
(15,169
|
)
|
Distributions from partnerships
|
|
|
23,199
|
|
|
|
22,857
|
|
Receivable from affiliates
|
|
|
5,934
|
|
|
|
(7,055
|
)
|
Receivable from brokers
|
|
|
43,225
|
|
|
|
(30,008
|
)
|
Investment advisory fees receivable
|
|
|
(4,907
|
)
|
|
|
(949
|
)
|
Other assets
|
|
|
(5,465
|
)
|
|
|
17,568
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Payable to affiliates
|
|
|
1,455
|
|
|
|
(4,733
|
)
|
Payable to brokers
|
|
|
(48,231
|
)
|
|
|
44,516
|
|
Income taxes payable and deferred tax liabilities
|
|
|
1,060
|
|
|
|
2,191
|
|
Compensation payable
|
|
|
6,751
|
|
|
|
1,747
|
|
Mandatorily redeemable noncontrolling interests
|
|
|
292
|
|
|
|
(172
|
)
|
Accrued expenses and other liabilities
|
|
|
31,995
|
|
|
|
298
|
|
Total adjustments
|
|
|
(3,881
|
)
|
|
|
(46,459
|
)
|
Net cash provided by (used in) operating activities
|
|
$
|
6,588
|
|
|
$
|
(47,350
|
)
|
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) (In thousands)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Investing activities
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
$
|
(5,107
|
)
|
|
$
|
(43,271
|
)
|
Proceeds from sales of available for sale securities
|
|
|
803
|
|
|
|
1,013
|
|
Return of capital on available for sale securities
|
|
|
189
|
|
|
|
524
|
|
Net cash used in investing activities
|
|
|
(4,115
|
)
|
|
|
(41,734
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Contributions from redeemable noncontrolling interests
|
|
|
250
|
|
|
|
1,036
|
|
Redemptions of redeemable noncontrolling interests
|
|
|
(244
|
)
|
|
|
(901
|
)
|
Repayment of demand loan with GBL
|
|
|
-
|
|
|
|
(16,000
|
)
|
Net transfer from GBL
|
|
|
-
|
|
|
|
25,190
|
|
Dividends paid
|
|
|
(2,504
|
)
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
(41,630
|
)
|
|
|
(44
|
)
|
Proceeds from payment of GBL 4% PIK Note
|
|
|
150,000
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
105,872
|
|
|
|
9,281
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
108,345
|
|
|
|
(79,803
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
205,750
|
|
|
|
285,530
|
|
Increase in cash from consolidation
|
|
|
-
|
|
|
|
10
|
|
Increase (decrease) in cash from deconsolidation
|
|
|
(2
|
)
|
|
|
13
|
|
Cash and cash equivalents at end of period
|
|
$
|
314,093
|
|
|
$
|
205,750
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
298
|
|
|
$
|
1,428
|
|
Cash paid for taxes
|
|
$
|
2,989
|
|
|
$
|
2
|
|
Non-cash activity:
-During the year ended December 31, 2016, Associated Capital Group, Inc. ("AC") exchanged 163,428 shares of AC for the 6.1% of Gabelli & Company Investment Advisers, Inc. ("GCIA") shares owned by third parties and certain employees.
- For the year ended December 31, 2016 and December 31, 2015, AC accrued dividends on restricted stock awards of $88 and $0, respectively.
- On January 1, 2016, AC was no longer deemed to have control over a certain offshore fund which resulted in the deconsolidation of that offshore fund and a decrease of approximately $1 of cash and cash equivalents, a decrease of approximately $104 of net assets and a decrease of approximately $105 of redeemable noncontrolling interests.
- On January 1, 2016, AC adopted ASU 2015-02, which amends the consolidation requirements in ASC 810. This resulted in the deconsolidation of a certain consolidated feeder fund and a certain limited partnership and a decrease of approximately $1 of cash and cash equivalents, a decrease of approximately $1,705 of net assets and a decrease of approximately $1,706 of redeemable noncontrolling interests.
- On November 28, 2015, the Company's majority owned subsidiary purchased 4.4 million shares of GBL in exchange for a $150 million five-year 4% note ("GAMCO Note Payable").
- On November 30, 2015, in connection with the spin-off of the Company from GAMCO, GAMCO issued the Company a $250 million five-year 4% PIK Note and also contributed the GAMCO Note to the Company.
- On November 30, 2015, in connection with the spin-off of the Company from GAMCO, GAMCO contributed to the Company the GAMCO Note Payable.
- On January 1, 2015, the Company was no longer deemed to have control over a certain offshore fund and a certain consolidated feeder fund which resulted in the deconsolidation of that offshore fund and consolidated feeder fund and an increase of approximately $13 of cash and cash equivalents, a decrease of approximately $63,280 of net assets and a decrease of approximately $63,267 of redeemable noncontrolling interests.
- On April 1, 2015, the Conpany was deemed to have control over a certain offshore fund and a certain consolidated feeder fund which resulted in the consolidation of that one offshore fund and one consolidated feeder fund and an increase of approximately $10 of cash and cash equivalents, an increase of approximately $986 of other net assets and an increase of approximately $996 of redeemable noncontrolling interest.
- On April 1, 2015, the Company launched a new partnership that was funded with $1,000 of proprietary capital and no third party capital and was therefore consolidated.
See accompanying notes.
A. Organization
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.
We are a Delaware corporation organized to be the parent operating company for the spin-off of GAMCO Investors, Inc.’s (“GAMCO’s” or “GBL’s”) alternative investment management business, institutional research services operations and certain cash and other assets.
On November 30, 2015, GAMCO distributed all the outstanding shares of each class of common stock of AC Group on a pro rata one-for-one basis to the holders of each class of GAMCO’s common stock. Prior to the distribution, GAMCO contributed the 93.9% interest it held in Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli Securities, Inc.) and certain cash and other assets to AC Group. GCIA is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended. During the year ended December 31, 2016, AC purchased the 6.1% of GCIA shares owned by third parties and certain employees in exchange for 163,428 Class A shares of the Company. GCIA is now a wholly owned subsidiary of AC.
GCIA and its wholly owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners, co-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 fees from its advisory assets, and income (loss) from trading and investment portfolio activities. The advisory fees include management and incentive fees. Management fees are largely based on a percentage of the portfolios' levels of assets under management. Incentive fees are based on the percentage of profits derived from the investment performance delivered to clients' invested assets.
We operate our institutional research services operations through G.research, LLC (“G.research”).”) doing business as “Gabelli & Company”. G.research is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Through G.research, we provide institutional research services as well as act as an underwriter primarily for affiliates of the Company. G.research is regulated by the Financial Industry Regulatory Authority (“FINRA”). G.research's revenues are derived primarily from institutional research services. As of December 31, 2016, G.research was a wholly owned subsidiary of GCIA. However, on January 23, 2017 all of the outstanding membership interests of G.research were transferred to Institutional Services Holdings, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of AC.
In addition, the following transactions were also undertaken in connection with the spin-off:
GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the original principal amount of $250.0 million used to partially capitalize the Company in connection with the spin-off. The GAMCO Note bears interest at 4.0% per annum and has a maturity date of November 30, 2020 with respect to the original principal amount of the GAMCO Note. Interest on the GAMCO Note will accrue from the most recent date for which interest has been paid, or if no interest has been paid, from the effective date of the GAMCO Note; provided, however, that at the election of GAMCO, payment of interest on the GAMCO Note may, in lieu of being paid in cash, be paid, in whole or in part, in kind on the then-outstanding principal amount (a “PIK Amount”). GAMCO will repay all PIK Amounts added to the outstanding principal amount of the GAMCO Note, in cash, on the fifth anniversary of the date on which each such PIK Amount was added to the outstanding principal amount of the GAMCO Note. In no event may any interest be paid in kind subsequent to November 30, 2019. GAMCO may prepay the GAMCO Note prior to maturity without penalty.
During the year ended December 31, 2016, AC received principal repayments totaling $150 million on the GAMCO Note. $50 million of the prepayment was applied against the principal amount due on November 30, 2016, $40 million against the principal amount due on November 30, 2017, $30 million against the principal amount due on November 30, 2018, and $30 million against the principal amount due on November 30, 2019. Of the $100 million principal amount outstanding as of December 31, 2016, $10 million is due on November 30, 2017, $20 million is due on November 30, 2018, $20 million is due on November 30, 2019, and $50 million is due on November 30, 2020.
In January 2017, GAMCO prepaid an additional $10 million of the GAMCO Note, reducing the principal outstanding to $90 million.
In addition, AC Group, through GCIA, owns 4,393,055 shares of GAMCO Class A common stock. The sale was made from GAMCO to GCIA in advance of the spin-off. GCIA paid the purchase price by issuing a note to GAMCO in the principal amount of $150 million (the “GCIA Note”). In connection with the spin-off, AC Group received the GCIA Note from GAMCO and GCIA became a majority-owned subsidiary of AC Group.
Consolidated Financial Statements
The Company’s combined consolidated statement of income for the eleven months ended November 30, 2015 was derived from the combined consolidated financial statements and accounting records of GAMCO, as the Company was not a standalone public company prior to the spin-off. For the period prior to the spin-off of the Company from GAMCO, the combined consolidated financial statement includes allocations from GAMCO. These allocations may not be reflective of the actual level of assets, liabilities, income or costs which would have been incurred had the Company operated as a separate legal entity apart from GAMCO.
The Company’s consolidated statements of financial condition at December 31, 2016 and 2015, and the Company's consolidated statement of income for the one month ended December 31, 2015 are presented based on our actual results as a stand-alone public company subsequent to our spin-off. References within these Notes to the consolidated financial statements for the year ended December 31, 2016 and the combined consolidated statements of income, comprehensive income, equity, and cash flows for the year ended December 31, 2015 shall hereinafter be referred to as the consolidated statements of income, comprehensive income, equity, and cash flows or consolidated financial statements.
All intercompany transactions and balances have been eliminated. Subsidiaries are fully consolidated from the date the Company obtains control and continue to be consolidated until the date that such control ceases. The Company’s principal market is in the United States.
B. Significant Accounting Policies
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents primarily consist of an affiliated money market mutual fund which is highly liquid. U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents.
Investments in Securities
Investments in securities are accounted for as either “trading securities” or “available for sale” and are stated at fair value. Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. U.S. Treasury Bills and Notes with maturities of greater than three months at the time of purchase are considered investments in securities. Securities that are not readily marketable are stated at their estimated fair values in accordance with GAAP. A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain from investments on the consolidated statements of income. Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of other comprehensive income (loss) on the consolidated statements of comprehensive income (loss) except for losses deemed to be other than temporary which are recorded as realized losses on the consolidated statements of income. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain from investments on the consolidated statements of income.
AFS securities are evaluated for other than temporary impairments each reporting period, and any impairment charges are recorded in net gain from investments on the consolidated statements of income. Management reviews all AFS securities whose cost exceeds their fair value to determine if the impairment is other than temporary. Management uses qualitative factors such as diversification of the investment, the intent to hold the investment, the amount of time that the investment has been impaired and the severity of the decline in determining whether the impairment is other than temporary.
Securities sold, not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of the Company to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments. Realized gains and losses from covers of securities sold, not yet purchased transactions are included in net gain from investments on the consolidated statements of income. Unrealized gains and losses on securities sold, not yet purchased are reported in current period earnings in net gain from investments on the consolidated statements of income.
Fair Value of Financial Instruments
All of the instruments within investments in securities are measured at fair value.
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the Financial Accounting Standards Board’s (“FASB”) guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below:
·
|
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 asset includes cash equivalents, government obligations, open-end mutual funds, closed-end funds and equities.
|
·
|
Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals. Assets that generally are included in this category may include certain limited partnership interests in private funds and over the counter derivatives that have inputs to the valuations that can generally be corroborated by observable market data.
|
·
|
Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets included in this category generally include equities that trade infrequently and direct private equity investments held within consolidated partnerships.
|
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Investments are transferred into or out of any level at their beginning period values.
The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.
The valuation process and policies reside with the financial reporting and accounting group which reports to the Chief Financial Officer of the Company. The Company uses the “market approach” valuation technique to value investments in Level 3 investments. The Company’s valuation of the Level 3 investments has been based upon either i) the recent sale prices of the issuer’s equity securities or ii) the net assets, book value or cost basis of the issuer when there are no recent sales prices available.
In the absence of a closing price, an average of the bid and ask price is used. Bid prices reflect the highest price that the market is willing to pay for an asset. Ask prices represent the lowest price that the market is willing to accept for an asset.
Cash equivalents
—Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries and valued based on the net asset value of the fund. Cash equivalents are valued using unadjusted quoted market prices. Accordingly, cash equivalents are categorized in Level 1 of the fair value hierarchy.
Investments in securities
—Investments in securities and securities sold not yet purchased are generally valued based on quoted prices from an exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy. Securities categorized in Level 2 investments are valued using other observable inputs. Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.
Investments in partnerships
—T
he Company’s investments include those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in consolidated feeder funds. Based upon the guidance outlined in Accounting Standards Update (“ASU”) No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), investments in partnerships, measured using NAV as a practical expedient, are not classified in the fair value hierarchy.
Receivables from Affiliates and Payables to Affiliates
Receivables from affiliates consist primarily of advisory fees due from certain affiliates. Payables to affiliates primarily consist of expenses paid by affiliates on behalf of the Company pursuant to the Transitional Services Agreement with GAMCO. See Note G.
Receivables from and Payables to Brokers
Receivables from and payables to brokers consist of amounts arising from the purchases and sales of securities as well as cash amounts held in anticipation of investment.
Consolidation
In February 2015, the Financial Accounting Standards Board (“FASB”) issued new consolidation guidance which changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The Company elected to adopt this new guidance with an effective date of adoption of January 1, 2016. Restatement of prior period results is not required. Amounts presented for the year ended December 31, 2016 in the consolidated statements of income reflect the adoption of this accounting guidance as of January 1, 2016.
Pursuant to the consolidation guidance, the Company first evaluates whether it holds a variable interest in an entity. Fees that are customary and commensurate with the level of services provided, and where the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if such interests are considered a variable interest. For entities where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether each of those entities qualify as a variable interest entity (“VIE”).
The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity and therefore certain of the Company’s funds may qualify as VIEs under the variable interest model whereas others may qualify as voting interest entities (“VOEs”) under the voting interest model. 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.
Under the variable interest 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 continuously. 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.
Assets and liabilities of the consolidated VIEs are included within the consolidated statements of financial condition and are separately disclosed in Note D.
Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest. The Company does not consolidate those VOEs in which substantive kick-out rights have been granted to the unrelated investors to either dissolve the fund or remove the general partner.
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 from investments” on the consolidated statements of income. Capital contributions are recorded as an increase in investments when paid, while 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 D. Investments in Partnerships, Offshore Funds and Variable Interest Entities for more detail as to the number and types of entities consolidated as well as the impact on the consolidated statements of financial condition and consolidated statements of income.
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 (“unaffiliated entities”). Given that we are not a general partner or investment manager in any of the unaffiliated entities, we do not earn any management or incentive fees/allocation and we do not have a controlling financial interest; thus, we do not currently consolidate any unaffiliated entities.
Our balance sheet caption “Investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in consolidated feeder funds (“CFFs”) that the Company accounts for at fair value, as described below.
For CFFs that own 100% of their offshore master funds, the Company retains the CFF’s specialized investment company accounting (i.e., the CFFs account for their investment in master funds at fair value).
The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less than 100%. Refer to Noncontrolling Interests section within this Note B for additional disclosures.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities measured at fair value and are included 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 and equity prices related to its proprietary investments. During 2016 and 2015, the Company had derivative transactions which resulted in net gains of $143,000 and $264,000, respectively. At December 31, 2016 and 2015, we held derivative contracts on 16,000 equity shares and 250,000 equity shares, respectively, and the net fair value was $90,000 and $149,000, respectively, and is included as investments in securities on the consolidated statements of financial condition. These transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain 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.
Securities Transactions
The Company also generates investment gains or losses from its proprietary trading activities which are included in net gain from investments on the consolidated statements of income.
Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of the date of each consolidated statement of financial condition. 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. The portion of investments in securities held for resale in anticipation of short-term market movements are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings. AFS investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary (“OTT”) which are recorded as realized losses in the consolidated statements of income.
Major Revenue-Generating Services and Revenue Recognition
Advisory fees from investment partnerships and offshore funds are computed either monthly or quarterly, and amounts receivable are included in receivables from affiliates on the consolidated statements of financial condition.
Revenues from investment partnerships and offshore funds also generally include either an incentive fee/allocation on the absolute gain in a portfolio or a fee of 20% of the economic profit as defined in the partnership agreement and is included in investment advisory and incentive fees on the consolidated statements of income. The incentive allocation or fee is generally recognized at the end of the measurement period, which is annually, and amounts receivable are included in either receivables from affiliates or investment advisory fees receivable on the consolidated statements of financial condition.
Institutional research services includes commission revenues, sales manager fees and underwriting fees and amounts receivable are included in receivables from brokers and clearing organizations on the consolidated statements of financial condition. Related clearing charges are recorded on a trade-date basis, and are included in other operating expenses on the consolidated statements of income. Underwriting fees include underwriting revenues and syndicate profits and are accrued as earned. Underwriting fees include gains, losses, selling concessions and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as underwriter or agent.
Effective January 1, 2014, the Company, through G.research, entered into agreements with two affiliates, GAMCO Asset Management Inc. and Gabelli Funds, LLC, to provide each affiliate with the same types of research services that it provides to its other clients. The agreements call for the two affiliates to pay a research services fee. The annual fee amounts are determined by negotiations between the Company and each entity that utilizes the Company’s research.
Depreciation
Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives of four to seven years. For the years ended December 31, 2016 and 2015, depreciation was $17,000 and $13,000, respectively, on fixed assets with a cost of $85,000 and $57,000, respectively, and a net book value of $55,000 and $19,000, respectively. We estimate that depreciation will be approximately $17,000 annually over the next three years. As of December 31, 2016 and 2015, the Company wrote off assets in the amount of $25,000 and $2,000, respectively, that were fully depreciated and had been retired.
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 functions. 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, with the remainder allocated based on revenue, headcount, space or other 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. This includes compensation expense and related payroll taxes and benefits which are fully paid by the Company for professional staff performing duties related to the Company and affiliates. These compensation expenses are included in compensation on the consolidated statements of income. All of the allocations and estimates in these 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 various consolidated feeder funds and partnerships, is paid to the Executive Chairman or his designated assignees in accordance with his employment agreement.
Stock Based Compensation
The Company maintains one Plan approved by the shareholders, which is designed to provide incentives which will attract and retain individual’s 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 2.0 million shares of Class A Stock have been reserved for issuance under the Plans by a committee of the Board of Directors responsible for administering the Plans (“Compensation Committee”). Under the Plan, the 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 the committee may determine.
On November 30, 2015, in connection with the spin-off of the Company from GAMCO, 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 between GAMCO and AC based upon each employee’s individual allocation of their responsibilities between GAMCO and AC. As of December 31, 2016, there were 424,340 AC RSA shares outstanding. All grants of the RSA shares were recommended by the Company's Executive Chairman, who did not receive a RSA, and approved by the Compensation Committee. This expense, net of estimated forfeitures, is recognized over the vesting period for these awards which is either (1) 30% over three years from the date of grant and 70% over five years from the date of grant or (2) 30% over three years from the date of grant and 10% each year over years four through ten from the date of grant. 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.
Goodwill
Goodwill is initially measured as the excess of the cost of the 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 for the subsidiary’s annual impairment test on November 30, 2016 and 2015, we performed a qualitative assessment of whether it was more likely than not that an impairment has occurred and concluded that a quantitative analysis was not required. As part of this assessment, it was also determined that there was no risk of failing the quantitative impairment testing step that compares the subsidiary fair value to its carrying value. No impairment was recorded during 2016 or 2015.
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 ASC Topic 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) 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 percent 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 that are mandatorily redeemable upon a certain date or event occurring are classified as liabilities and relate to certain stockholders of GCIA who are employed by GAMCO, or its affiliates, who are required to sell their shares back to GCIA at book value once they cease being employed by GAMCO, or its affiliates. During the year ended December 31, 2016, AC purchased the outstanding 1.9% of GCIA shares owned by certain employees of GAMCO in exchange for 50,964 Class A shares of the Company in the amount of $1.5 million, which eliminated the mandatorily redeemable noncontrolling interest. Noncontrolling interests in investment partnerships and offshore funds 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. All other noncontrolling interests, which included the 4.2% GCIA shares owned by third parties, are classified as equity and are presented within the equity section, separately from AC’s portion of equity.
For the years ended December 31, 2016, and 2015, net income (loss) attributable to noncontrolling interests on the consolidated statements of income represents the share of net income (loss) attributable to the minority stockholders, as reported on a separate company basis, of our consolidated majority-owned subsidiaries and net income (loss) attributable to certain limited partners of investment partnerships and offshore funds that are consolidated. The income (loss) attributable to the mandatorily redeemable noncontrolling interests classified as liabilities prior to the Company’s purchase of the outstanding 1.9% of GCIA shares owned by certain employees of GAMCO is included in other operating expenses on the consolidated statements of income.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, the GAMCO Note, 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, and has receivables from brokers with various brokers and financial institutions, where these balances 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.
Net transfer from GBL
Net transfer from GBL in the consolidated financial statements represents the net effect of transactions with and allocations from GAMCO prior to the spin-off.
Business Segment
The Company operates in one business segment, the investment advisory and asset management business. The Company’s Chief Operating Decision Maker reviews the Company’s financial performance at an aggregate level. All of the products and services provided by the Company relate to asset management.
Recent Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in the Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the ASC. The core principle of the new ASU No. 2014-09 is for companies to recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. The ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods and is either applied on a retrospective or modified retrospective basis. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern,” which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” The FASB believes that requiring management to perform the assessment will enhance the timeliness, clarity, and consistency of related disclosures. The ASU is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. The Company has adopted this ASU effective December 31, 2016. No additional disclosures were required in this Report of Form 10K based on management’s assessment that it does not have substantial doubt about the Company’s ability to continue as a going concern.
In May 2015, the FASB issued new guidance amending the current disclosure requirements for investments in certain entities that calculate net asset value (“NAV”) per share. The guidance requires investments for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy. Instead, those investment amounts shall be provided as a separate item to permit reconciliation of the fair value of investments included in the fair value hierarchy to the line items presented in the statement of financial condition. This new guidance was effective for the Company's first quarter of 2016 and was applied retrospectively and reflected in these notes to the consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, 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. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. For public companies, the new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. To adopt the amendments, entities will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, 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. ASU 2016-02 is effective beginning January 1, 2019. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public companies, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. The Company has adopted this ASU effective January 1, 2017 without a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, which adds and clarifies guidance on the classification of certain cash receipts and payments in the consolidated statements of cash flows. For public companies, the ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04 to simplify the process used to test for goodwill. Under the new standard, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, 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 is 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.
C. Investments in Securities
Investments in securities at December 31, 2016 and 2015 consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Government obligations
|
|
$
|
119,755
|
|
|
$
|
119,823
|
|
|
$
|
99,897
|
|
|
$
|
99,940
|
|
Common stocks
|
|
|
69,503
|
|
|
|
82,158
|
|
|
|
78,974
|
|
|
|
92,194
|
|
Mutual funds
|
|
|
2,402
|
|
|
|
3,143
|
|
|
|
2,578
|
|
|
|
3,216
|
|
Other investments
|
|
|
1,275
|
|
|
|
1,472
|
|
|
|
570
|
|
|
|
771
|
|
Total trading securities
|
|
|
192,935
|
|
|
|
206,596
|
|
|
|
182,019
|
|
|
|
196,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
150,000
|
|
|
|
135,701
|
|
|
|
150,000
|
|
|
|
136,360
|
|
Mutual funds
|
|
|
206
|
|
|
|
500
|
|
|
|
627
|
|
|
|
1,143
|
|
Total available for sale securities
|
|
|
150,206
|
|
|
|
136,201
|
|
|
|
150,627
|
|
|
|
137,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
343,141
|
|
|
$
|
342,797
|
|
|
$
|
332,646
|
|
|
$
|
333,624
|
|
Securities sold, not yet purchased at December 31, 2016 and 2015 consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
9,583
|
|
|
$
|
9,947
|
|
|
$
|
10,095
|
|
|
$
|
9,537
|
|
Other investments
|
|
|
27
|
|
|
|
37
|
|
|
|
24
|
|
|
|
86
|
|
Total securities sold, not yet purchased
|
|
$
|
9,610
|
|
|
$
|
9,984
|
|
|
$
|
10,119
|
|
|
$
|
9,623
|
|
Investments in affiliated registered investment companies at December 31, 2016 and 2015 consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
40,096
|
|
|
$
|
45,351
|
|
|
$
|
40,097
|
|
|
$
|
43,133
|
|
Total trading securities
|
|
|
40,096
|
|
|
|
45,351
|
|
|
|
40,097
|
|
|
|
43,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed-end funds
|
|
|
62,890
|
|
|
|
80,650
|
|
|
|
62,070
|
|
|
|
72,591
|
|
Mutual funds
|
|
|
4,396
|
|
|
|
5,644
|
|
|
|
1,846
|
|
|
|
2,952
|
|
Total available for sale securities
|
|
|
67,286
|
|
|
|
86,294
|
|
|
|
63,916
|
|
|
|
75,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
registered investment companies
|
|
$
|
107,382
|
|
|
$
|
131,645
|
|
|
$
|
104,013
|
|
|
$
|
118,676
|
|
The following table identifies all reclassifications out of accumulated other comprehensive income ("AOCI") and into net income/(loss) for the years ended December 31, 2016 and 2015 (in thousands):
Amount
|
|
Affected Line Item
|
|
Reason for
|
Reclassified
|
|
in the Statements
|
|
Reclassification
|
from AOCI
|
|
of Income
|
|
from AOCI
|
Twelve months ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
348
|
|
|
$
|
25
|
|
Net gain from investments
|
|
Realized gains on sale of AFS securities
|
|
|
(324
|
)
|
|
|
(216
|
)
|
Net gain from investments
|
|
Other than temporary impairment of AFS securities
|
|
|
24
|
|
|
|
(191
|
)
|
Income (loss) before income taxes
|
|
|
|
|
(9
|
)
|
|
|
69
|
|
Income tax provision
|
|
|
|
$
|
15
|
|
|
$
|
(122
|
)
|
Net income (loss)
|
|
|
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 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 proprietary investments. At December 31, 2016 and December 31, 2015 we held derivative contracts on 16,000 equity shares and 250,000 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 no foreign exchange contracts and two foreign exchange contracts outstanding at December 31, 2016 and December 31, 2015, respectively, that are included in receivable from brokers or payable to brokers on the consolidated statements of financial condition. Aside from one foreign exchange contract at December 31, 2015, these transactions are not designated as hedges for accounting purposes, and therefore changes in fair values of these derivatives are included in net gain from investments on the consolidated statements of income. The one foreign exchange contract that was designated as a hedge was for a short of British Pounds to hedge the long investment that we have in our London Stock Exchange listed Gabelli Value Plus+ Trust Ltd. closed-end fund which is denominated in British Pounds. As the underlying investment that was being hedged is an available for sale security, the portion of the change in value of the closed-end fund that is currency related is recorded in net gain from investments on the consolidated statements of income and not in consolidated accumulated comprehensive income (loss).
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
|
December 31,
|
|
December 31,
|
|
Financial Condition
|
December 31,
|
|
December 31,
|
|
|
Location
|
2016
|
|
2015
|
|
Location
|
2016
|
|
2015
|
|
Derivatives designated as hedging
|
|
|
|
|
|
|
|
|
|
instruments under FASB ASC 815-20
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Receivable from brokers
|
|
$
|
-
|
|
|
$
|
-
|
|
Payable to brokers
|
|
$
|
-
|
|
|
$
|
37,584
|
|
Sub total
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
37,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments under FASB ASC 815-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity contracts
|
Investments in
|
|
|
|
|
|
|
|
|
Securities sold,
|
|
|
|
|
|
|
|
|
|
securities
|
|
$
|
127
|
|
|
$
|
236
|
|
not yet purchased
|
|
$
|
37
|
|
|
$
|
86
|
|
Foreign exchange contracts
|
Receivable from brokers
|
|
|
-
|
|
|
|
-
|
|
Payable to brokers
|
|
|
-
|
|
|
|
5,017
|
|
Sub total
|
|
|
$
|
127
|
|
|
$
|
236
|
|
|
|
$
|
37
|
|
|
$
|
5,103
|
|
Total derivatives
|
|
|
$
|
127
|
|
|
$
|
236
|
|
|
|
$
|
37
|
|
|
$
|
42,687
|
|
Type of Derivative
|
|
Income Statement Location
|
Year ended December 31,
|
|
|
|
|
2016
|
|
2015
|
|
Foreign exchange contracts
|
|
Net gain from investments
|
|
$
|
1,373
|
|
|
$
|
2,456
|
|
Equity contracts
|
|
Net gain from investments
|
|
|
143
|
|
|
|
264
|
|
Total
|
|
|
|
$
|
1,516
|
|
|
$
|
2,720
|
|
The Company is a party to enforceable master netting arrangements for swaps entered into as part of the Company's investment strategy. They are typically not used as hedging instruments. These swaps, while settled on a net basis with the counterparties, major U.S. financial institutions, 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
|
|
Gross Amounts
|
|
Net Amounts of
|
|
|
|
|
|
|
|
|
Amounts of
|
|
Offset in the
|
|
Assets Presented
|
|
|
|
|
|
|
|
|
Recognized
|
|
Statements of
|
|
in the Statements of
|
|
Financial
|
|
Cash Collateral
|
|
|
|
|
Assets
|
|
Financial Condition
|
|
Financial Condition
|
|
Instruments
|
|
Received
|
|
Net Amount
|
|
Swaps:
|
(In thousands)
|
|
December 31, 2016
|
|
$
|
96
|
|
|
$
|
-
|
|
|
$
|
96
|
|
|
$
|
(9
|
)
|
|
$
|
-
|
|
|
$
|
87
|
|
December 31, 2015
|
|
$
|
177
|
|
|
$
|
-
|
|
|
$
|
177
|
|
|
$
|
(81
|
)
|
|
$
|
-
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
|
|
|
|
|
|
|
|
|
Statements of Financial Condition
|
|
|
Gross
|
|
Gross Amounts
|
|
Net Amounts of
|
|
|
|
|
|
|
|
|
Amounts of
|
|
Offset in the
|
|
Liabilities Presented
|
|
|
|
|
|
|
|
|
Recognized
|
|
Statements of
|
|
in the Statements of
|
|
Financial
|
|
Cash Collateral
|
|
|
|
|
Liabilities
|
|
Financial Condition
|
|
Financial Condition
|
|
Instruments
|
|
Pledged
|
|
Net Amount
|
|
Swaps:
|
(In thousands)
|
|
December 31, 2016
|
|
$
|
9
|
|
|
$
|
-
|
|
|
$
|
9
|
|
|
$
|
(9
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2015
|
|
$
|
81
|
|
|
$
|
-
|
|
|
$
|
81
|
|
|
$
|
(81
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of AFS investments as of December 31, 2016 and 2015:
|
December 31, 2016
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
(In thousands)
|
|
Common stocks
|
|
$
|
150,000
|
|
|
$
|
-
|
|
|
$
|
(14,299
|
)
|
|
$
|
135,701
|
|
Closed-end Funds
|
|
|
62,890
|
|
|
|
17,760
|
|
|
|
-
|
|
|
|
80,650
|
|
Mutual funds
|
|
|
4,602
|
|
|
|
1,542
|
|
|
|
-
|
|
|
|
6,144
|
|
Total available for sale securities
|
|
$
|
217,492
|
|
|
$
|
19,302
|
|
|
$
|
(14,299
|
)
|
|
$
|
222,495
|
|
|
December 31, 2015
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
(In thousands)
|
|
Common stocks
|
|
$
|
150,000
|
|
|
$
|
-
|
|
|
$
|
(13,640
|
)
|
|
$
|
136,360
|
|
Closed-end Funds
|
|
|
62,070
|
|
|
|
11,299
|
|
|
|
(778
|
)
|
|
|
72,591
|
|
Mutual funds
|
|
|
2,472
|
|
|
|
1,641
|
|
|
|
(18
|
)
|
|
|
4,095
|
|
Total available for sale securities
|
|
$
|
214,542
|
|
|
$
|
12,940
|
|
|
$
|
(14,436
|
)
|
|
$
|
213,046
|
|
Changes in net unrealized gains (losses), net of taxes, for AFS securities for the years ended December 31, 2016 and 2015 of $3.2 million and ($11.2) million, respectively, have been included in other comprehensive income (loss) at December 31, 2016 and 2015, respectively.
The amount reclassified from other comprehensive income (loss) for the years ended December 31, 2016 and 2015 were gains of $0.02 million and losses of $0.1 million, respectively. Return of capital on AFS securities were $0.2 million and $0.5 million for the years ended December 31, 2016 and 2015, respectively. Proceeds from sales of investments available for sale were approximately $0.8 million and $1.0 million for the years ended December 31, 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, gross gains on the sale of investments available for sale amounted to $0.3 million and $0.03 million, respectively, and were reclassed from other comprehensive loss into the consolidated statements of income. There were no losses on the sale of investments available for sale for the years ended December 31, 2016 and 2015. The basis on which the cost of a security sold is determined is specific identification. Accumulated other comprehensive income (loss) on the consolidated statements of equity is primarily comprised of unrealized gains/losses, net of taxes, for AFS securities.
The Company has an established accounting policy and methodology to determine other-than-temporary impairment. Under this policy, AFS securities are evaluated for other than temporary impairments and any impairment charges are recorded in net gain 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 other than temporary. Management uses qualitative factors such as diversification of the investment, the amount of time that the investment has been impaired, the intent to sell and the severity of the decline in determining whether the impairment is other than temporary.
Investments classified as AFS that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Losses
|
|
|
Fair Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
150,000
|
|
|
$
|
(14,299
|
)
|
|
$
|
135,701
|
|
|
$
|
150,000
|
|
|
$
|
(13,640
|
)
|
|
$
|
136,360
|
|
Closed-end Funds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,627
|
|
|
|
(778
|
)
|
|
|
39,849
|
|
Mutual Funds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
244
|
|
|
|
(18
|
)
|
|
|
226
|
|
Total available for sale securities
|
|
$
|
150,000
|
|
|
$
|
(14,299
|
)
|
|
$
|
135,701
|
|
|
$
|
190,871
|
|
|
$
|
(14,436
|
)
|
|
$
|
176,435
|
|
At December 31, 2016, there was one holding in a loss position which was not deemed to be other-than-temporarily impaired due to the length of time that it has been consecutively in a loss position and because it passed scrutiny in our evaluation of issuer-specific and industry-specific considerations. This holding was a common stock and was impaired for seven consecutive months. This fair value of this holding has exceeded cost during the year ended December 31, 2016. If this holding was to continue to be impaired, we may need to record impairment in a future period on the consolidated statement of income for the amount of unrealized loss, which at December 31, 2016 was $14.3 million.
At December 31, 2015, there were six holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations. In these specific instances, five of the investments at December 31, 2015 were mutual funds and closed-end funds with diversified holdings across multiple companies and across multiple industries. Of the fund investments, two holdings were impaired for one month, one for six months, and two for seven months at December 31, 2015. The sixth holding was a common stock and was impaired for one month. The value of these holdings at December 31, 2015 was $176.4 million. If these holdings were to continue to be impaired, we may need to record impairment in a future period on the consolidated statement of income for the amount of unrealized loss, which at December 31, 2015 was $14.4 million.
For the years ended December 31, 2016 and 2015, there were $0.3 million and $0.2 million of losses, respectively, on AFS securities deemed to be other than temporary.
D. Investments in Partnerships, Offshore Funds and Variable Interest Entities
The Company is general partner or co-general partner of various affiliated entities, in which the Company had investments totaling $112.3 million and $89.3 million at December 31, 2016 and 2015, respectively, whose underlying assets consist primarily of marketable securities (the “affiliated entities”). We also had investments in unaffiliated partnerships, offshore funds and other entities of $17.1 million and $15.8 million at December 31, 2016 and 2015, respectively (the “unaffiliated entities”). We evaluate each entity for the appropriate accounting treatment and disclosure. Certain of the affiliated entities, and none of the unaffiliated entities, are consolidated, as discussed in Note B.
For those entities where consolidation is not deemed appropriate, we report them in our consolidated statements of financial condition under the caption “Investments in partnerships”. The caption includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting, as well as certain investments that the feeder funds hold that are carried at fair value, as described in Note B. The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption net gain from investments on the consolidated statements of income.
The following table highlights the number of entities, including VOEs that we consolidate as well as under which accounting guidance they are consolidated, including CFFs which retain their specialized investment company accounting, and partnerships and offshore funds which we consolidate as described in Note B.
Entities consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFFs
|
|
Partnerships
|
|
Offshore Funds
|
|
Total
|
|
VIEs
|
|
VOEs
|
|
VIEs
|
|
VOEs
|
|
VIEs
|
|
VOEs
|
|
VIEs
|
|
VOEs
|
Entities consolidated at December 31, 2014
|
1
|
|
2
|
|
-
|
|
1
|
|
-
|
|
1
|
|
1
|
|
4
|
Additional consolidated entities
|
-
|
|
1
|
|
-
|
|
1
|
|
1
|
|
-
|
|
1
|
|
2
|
Deconsolidated entities
|
-
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
(1)
|
|
-
|
|
(2)
|
Entities consolidated at December 31, 2015
|
1
|
|
2
|
|
-
|
|
2
|
|
1
|
|
-
|
|
2
|
|
4
|
Additional consolidated entities
|
-
|
|
-
|
|
1
|
|
-
|
|
-
|
|
-
|
|
1
|
|
-
|
Deconsolidated entities
|
(1)
|
|
(1)
|
|
-
|
|
(2)
|
|
(1)
|
|
-
|
|
(2)
|
|
(3)
|
Entities consolidated at December 31, 2016
|
-
|
|
1
|
|
1
|
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
At and for the year ended December 31, 2016, one CFF VOE is consolidated, as the Company owns a majority of the interests in the CFF. At and for the year ended December 31, 2016, one Partnership VIE is consolidated, as it is a VIE because the unaffiliated partners or shareholders lack substantive kick-out rights and the Company has been determined to be the primary beneficiary because it has an equity interest and absorbs the majority of the expected losses and/or expected gains.
At and for the year ended December 31, 2015, the one CFF VIE is consolidated, as the Company has been determined to be the primary beneficiary because it has an equity interest and absorbs the majority of the expected losses and/or expected gains. At and for the year ended December 31, 2015, the one CFF VOE and one Partnership VOE are consolidated because the unaffiliated partners or shareholders lack substantive kick-out rights, and the Company, as either the general partner or investment manager, is deemed to have control. During the year ended December 31, 2015, it was determined that an additional Partnership VOE should be consolidated when the Partnership was created on April 1, 2015 without unaffiliated capital and an Offshore Fund VIE should be consolidated as the last unaffiliated investor withdrew during the second quarter. Additionally, an Offshore Fund VOE was deconsolidated as the Company’s ownership percentage fell below 50%, a CFF VOE was deconsolidated when it was closed and a different CFF VOE was consolidated as the last unaffiliated investor withdrew on March 31, 2015.
The following table breaks down the investments in partnerships line by accounting method, either fair value or equity method, and investment type (in thousands):
|
December 31, 2016
|
|
|
Investment Type
|
|
Affiliated
|
|
Unaffiliated
|
|
|
|
Accounting method
|
Consolidated Feeder Funds
|
|
Partnerships
|
|
Offshore Funds
|
|
Partnerships
|
|
Offshore Funds
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
8,343
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,343
|
|
Equity Method
|
|
|
-
|
|
|
|
33,202
|
|
|
|
70,745
|
|
|
|
6,761
|
|
|
|
10,347
|
|
|
|
121,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,343
|
|
|
$
|
33,202
|
|
|
$
|
70,745
|
|
|
$
|
6,761
|
|
|
$
|
10,347
|
|
|
$
|
129,398
|
|
|
|
December 31, 2015
|
|
|
|
Investment Type
|
|
|
|
Affiliated
|
|
|
Unaffiliated
|
|
|
|
|
Accounting method
|
|
Consolidated Feeder Funds
|
|
|
Partnerships
|
|
|
Offshore Funds
|
|
|
Partnerships
|
|
|
Offshore Funds
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
13,953
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,953
|
|
Equity Method
|
|
|
-
|
|
|
|
39,552
|
|
|
|
35,746
|
|
|
|
7,911
|
|
|
|
7,889
|
|
|
|
91,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,953
|
|
|
$
|
39,552
|
|
|
$
|
35,746
|
|
|
$
|
7,911
|
|
|
$
|
7,889
|
|
|
$
|
105,051
|
|
The following table includes the net impact by line item on the consolidated statements of financial condition for each category of entity consolidated:
|
|
December 31, 2016
|
|
|
|
Prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
|
CFFs
|
|
|
Partnerships
|
|
|
Offshore Funds
|
|
|
As Reported
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
313,785
|
|
|
$
|
-
|
|
|
$
|
308
|
|
|
$
|
-
|
|
|
$
|
314,093
|
|
Investments in securities (including GBL stock)
|
|
|
336,459
|
|
|
|
-
|
|
|
|
6,338
|
|
|
|
-
|
|
|
|
342,797
|
|
Investments in affiliated investment companies
|
|
|
131,645
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,645
|
|
Investments in partnerships
|
|
|
133,794
|
|
|
|
3,964
|
|
|
|
(8,360
|
)
|
|
|
-
|
|
|
|
129,398
|
|
Receivable from brokers
|
|
|
10,542
|
|
|
|
-
|
|
|
|
2,046
|
|
|
|
-
|
|
|
|
12,588
|
|
Investment advisory fees receivable
|
|
|
9,800
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
9,784
|
|
Other assets
|
|
|
12,298
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,298
|
|
Total assets
|
|
$
|
948,323
|
|
|
$
|
3,956
|
|
|
$
|
324
|
|
|
$
|
-
|
|
|
$
|
952,603
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
9,984
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,984
|
|
Accrued expenses and other liabilities
|
|
|
64,317
|
|
|
|
13
|
|
|
|
37
|
|
|
|
-
|
|
|
|
64,367
|
|
Redeemable noncontrolling interests
|
|
|
-
|
|
|
|
3,943
|
|
|
|
287
|
|
|
|
-
|
|
|
|
4,230
|
|
Total equity
|
|
|
874,022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
874,022
|
|
Total liabilities and equity
|
|
$
|
948,323
|
|
|
$
|
3,956
|
|
|
$
|
324
|
|
|
$
|
-
|
|
|
$
|
952,603
|
|
|
|
December 31, 2015
|
|
|
|
Prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
|
CFFs
|
|
|
Partnerships
|
|
|
Offshore Funds
|
|
|
As Reported
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
205,708
|
|
|
$
|
-
|
|
|
$
|
41
|
|
|
$
|
1
|
|
|
$
|
205,750
|
|
Investments in securities (including GBL stock)
|
|
|
325,692
|
|
|
|
-
|
|
|
|
7,849
|
|
|
|
83
|
|
|
|
333,624
|
|
Investments in affiliated investment companies
|
|
|
118,676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
118,676
|
|
Investments in partnerships
|
|
|
109,274
|
|
|
|
4,506
|
|
|
|
(8,729
|
)
|
|
|
-
|
|
|
|
105,051
|
|
Receivable from brokers
|
|
|
53,921
|
|
|
|
-
|
|
|
|
2,164
|
|
|
|
425
|
|
|
|
56,510
|
|
Investment advisory fees receivable
|
|
|
4,881
|
|
|
|
2
|
|
|
|
5
|
|
|
|
8
|
|
|
|
4,896
|
|
Other assets
|
|
|
12,614
|
|
|
|
5
|
|
|
|
15
|
|
|
|
(393
|
)
|
|
|
12,241
|
|
Total assets
|
|
$
|
830,766
|
|
|
$
|
4,513
|
|
|
$
|
1,345
|
|
|
$
|
124
|
|
|
$
|
836,748
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased
|
|
$
|
9,505
|
|
|
$
|
-
|
|
|
$
|
118
|
|
|
$
|
-
|
|
|
$
|
9,623
|
|
Accrued expenses and other liabilities
|
|
|
69,712
|
|
|
|
28
|
|
|
|
79
|
|
|
|
19
|
|
|
|
69,838
|
|
Redeemable noncontrolling interests
|
|
|
-
|
|
|
|
4,485
|
|
|
|
1,148
|
|
|
|
105
|
|
|
|
5,738
|
|
Total equity
|
|
|
751,549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
751,549
|
|
Total liabilities and equity
|
|
$
|
830,766
|
|
|
$
|
4,513
|
|
|
$
|
1,345
|
|
|
$
|
124
|
|
|
$
|
836,748
|
|
The CFFs, Partnerships and Offshore Funds columns above include only affiliated entities as no unaffiliated entities are consolidated.
The following table includes the net impact by line item on the consolidated statements of income for each category of entity consolidated (in thousands):
|
|
Twelve Months Ended December 31, 2016
|
|
|
|
Prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
|
CFFs
|
|
|
Partnerships
|
|
|
Offshore Funds
|
|
|
As Reported
|
|
Total revenues
|
|
$
|
31,247
|
|
|
$
|
(17
|
)
|
|
$
|
(3
|
)
|
|
$
|
-
|
|
|
$
|
31,227
|
|
Total expenses
|
|
|
43,285
|
|
|
|
128
|
|
|
|
46
|
|
|
|
-
|
|
|
|
43,459
|
|
Operating loss
|
|
|
(12,038
|
)
|
|
|
(145
|
)
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
(12,232
|
)
|
Total other income, net
|
|
|
26,086
|
|
|
|
437
|
|
|
|
54
|
|
|
|
-
|
|
|
|
26,577
|
|
Income before income taxes
|
|
|
14,048
|
|
|
|
292
|
|
|
|
5
|
|
|
|
-
|
|
|
|
14,345
|
|
Income tax provision
|
|
|
3,876
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,876
|
|
Net income before NCI
|
|
|
10,172
|
|
|
|
292
|
|
|
|
5
|
|
|
|
-
|
|
|
|
10,469
|
|
Net income attributable to noncontrolling interests
|
|
|
(46
|
)
|
|
|
292
|
|
|
|
5
|
|
|
|
-
|
|
|
|
251
|
|
Net income
|
|
$
|
10,218
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,218
|
|
|
|
Twelve Months Ended December 31, 2015
|
|
|
|
Prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
|
CFFs
|
|
|
Partnerships
|
|
|
Offshore Funds
|
|
|
As Reported
|
|
Total revenues
|
|
$
|
22,883
|
|
|
$
|
(34
|
)
|
|
$
|
(7
|
)
|
|
$
|
-
|
|
|
$
|
22,842
|
|
Total expenses
|
|
|
36,963
|
|
|
|
114
|
|
|
|
71
|
|
|
|
6
|
|
|
|
37,154
|
|
Operating loss
|
|
|
(14,080
|
)
|
|
|
(148
|
)
|
|
|
(78
|
)
|
|
|
(6
|
)
|
|
|
(14,312
|
)
|
Total other income (expense), net
|
|
|
11,967
|
|
|
|
(170
|
)
|
|
|
(69
|
)
|
|
|
8
|
|
|
|
11,736
|
|
Loss before income taxes
|
|
|
(2,113
|
)
|
|
|
(318
|
)
|
|
|
(147
|
)
|
|
|
2
|
|
|
|
(2,576
|
)
|
Income tax provision
|
|
|
(1,685
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,685
|
)
|
Net loss before NCI
|
|
|
(428
|
)
|
|
|
(318
|
)
|
|
|
(147
|
)
|
|
|
2
|
|
|
|
(891
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
(317
|
)
|
|
|
(318
|
)
|
|
|
(147
|
)
|
|
|
2
|
|
|
|
(780
|
)
|
Net loss
|
|
$
|
(111
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(111
|
)
|
The CFFs, Partnerships and Offshore Funds columns above include only affiliated entities as no unaffiliated entities are consolidated.
Variable Interest Entities
We also have sponsored a number of investment vehicles where we are the general partner or investment manager. At December 31, 2016, we consolidated the only VIE. At December 31, 2015, certain vehicles were deemed VIEs prior to the adoption of ASU 2015-02, but we were not the primary beneficiary, because we do not absorb a majority of the entities’ expected losses and/or expected returns, and they were, therefore, not consolidated. We consolidated VIEs where we are the primary beneficiary. The Company has not provided any financial or other support to those VIEs where we are not the primary beneficiary. The total assets of these non-consolidated VIEs at December 31, 2015 were $70.2 million. Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the investment in one VIE and the deferred carried interest that we have in one another.
On December 31, 2015, we had an investment in one of the non-consolidated VIE offshore funds of approximately $9.9 million which was included in investment in partnerships on the consolidated statements of financial condition. On December 31, 2015, we had a deferred carried interest in one of the VIE offshore funds of approximately $39,000 which was included in investments in partnerships on the consolidated statements of financial condition. Additionally, as the general partner or investment manager to these VIEs the Company earns fees in relation to these roles, which given a decline in AUMs of the VIEs would result in lower fee revenues earned by the Company which would be reflected on the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of financial condition and consolidated statements of cash flows.
The assets of these VIEs may only be used to satisfy obligations of the VIEs. The following table presents the balances related to these VIEs that are consolidated and were included on the consolidated statements of financial condition as well as the Company’s net interest in these VIEs. One VIE and two VIEs are consolidated at December 31, 2016 and December 31, 2015, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
(In thousands)
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
308
|
|
|
$
|
1
|
|
Investments in securities
|
|
|
6,338
|
|
|
|
83
|
|
Investments in partnerships
|
|
|
-
|
|
|
|
4,791
|
|
Receivable from broker
|
|
|
2,046
|
|
|
|
425
|
|
Other assets
|
|
|
(8
|
)
|
|
|
-
|
|
Payable to brokers
|
|
|
-
|
|
|
|
(6
|
)
|
Accrued expenses and other liabilities
|
|
|
(37
|
)
|
|
|
(404
|
)
|
Redeemable noncontrolling interests
|
|
|
(287
|
)
|
|
|
(350
|
)
|
AC's net interests in consolidated VIE
|
|
$
|
8,360
|
|
|
$
|
4,540
|
|
Equity Method Investments
The Company’s equity method investments include its 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. One equity method investment held by the Company exceeded 20% of the Company’s consolidated total income.
The summarized financial information of the Company’s equity method investments for December 31, 2016 and 2015 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
(In millions)
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,137
|
|
|
$
|
2,414
|
|
Total liabilities
|
|
|
350
|
|
|
|
301
|
|
Total equity
|
|
|
1,787
|
|
|
|
2,113
|
|
|
For the year
|
|
|
2016
|
|
2015
|
|
Net loss
|
|
$
|
(17
|
)
|
|
$
|
(18
|
)
|
The summarized financial information of the Company’s single equity method investment which exceeded 20% of the Company’s consolidated total income for December 31, 2016 is as follows:
|
|
For the year
|
|
|
|
2016
|
|
(In thousands)
|
|
|
|
Total investment income
|
|
$
|
2,848
|
|
Net investment loss
|
|
|
(3,462
|
)
|
Net gains on investments
|
|
|
14,192
|
|
Net increase in net assets resulting from operations
|
|
|
10,730
|
|
E. Fair Value
The following tables present information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of December 31, 2016 and 2015 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2016 (in thousands)
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Investments
|
|
|
Other Assets
|
|
|
Balance as of
|
|
|
|
Markets for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Measured at
|
|
|
Not Held at
|
|
|
December 31,
|
|
Assets
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
NAV (a)
|
|
|
Fair Value (b)
|
|
|
2016
|
|
Cash equivalents
|
|
$
|
314,082
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
314,082
|
|
Investments in partnerships
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,527
|
|
|
|
3,871
|
|
|
|
129,398
|
|
Investments in securities (including GBL stock):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
135,701
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135,701
|
|
AFS - Mutual funds
|
|
|
500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500
|
|
Trading - Gov't obligations
|
|
|
119,823
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
119,823
|
|
Trading - Common stocks
|
|
|
81,696
|
|
|
|
1
|
|
|
|
461
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,158
|
|
Trading - Mutual funds
|
|
|
3,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,143
|
|
Trading - Other
|
|
|
1,062
|
|
|
|
127
|
|
|
|
283
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,472
|
|
Total investments in securities
|
|
|
341,925
|
|
|
|
128
|
|
|
|
744
|
|
|
|
-
|
|
|
|
-
|
|
|
|
342,797
|
|
Investments in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Closed-end Funds
|
|
|
80,650
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80,650
|
|
AFS - Mutual Funds
|
|
|
5,644
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,644
|
|
Trading - Mutual funds
|
|
|
45,351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,351
|
|
Total investments in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
registered investment companies
|
|
|
131,645
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
131,645
|
|
Total investments
|
|
|
473,570
|
|
|
|
128
|
|
|
|
744
|
|
|
|
125,527
|
|
|
|
3,871
|
|
|
|
603,840
|
|
Total assets at fair value
|
|
$
|
787,652
|
|
|
$
|
128
|
|
|
$
|
744
|
|
|
$
|
125,527
|
|
|
$
|
3,871
|
|
|
$
|
917,922
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common stocks
|
|
$
|
9,947
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,947
|
|
Trading - Other
|
|
|
-
|
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
Securities sold, not yet purchased
|
|
$
|
9,947
|
|
|
$
|
37
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,984
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2015 (in thousands)
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Investments
|
|
|
Other Assets
|
|
|
Balance as of
|
|
|
|
Markets for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Measured at
|
|
|
Not Held at
|
|
|
December 31,
|
|
Assets
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
NAV (a)
|
|
|
Fair Value (b)
|
|
|
2015
|
|
Cash equivalents
|
|
$
|
205,733
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
205,733
|
|
Investments in partnerships
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101,454
|
|
|
|
3,597
|
|
|
|
105,051
|
|
Investments in securities (including GBL stock):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
136,360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,360
|
|
AFS - Mutual funds
|
|
|
1,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,143
|
|
Trading - Gov't obligations
|
|
|
99,940
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,940
|
|
Trading - Common stocks
|
|
|
91,686
|
|
|
|
-
|
|
|
|
508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,194
|
|
Trading - Mutual funds
|
|
|
3,216
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,216
|
|
Trading - Other
|
|
|
230
|
|
|
|
236
|
|
|
|
305
|
|
|
|
-
|
|
|
|
-
|
|
|
|
771
|
|
Total investments in securities
|
|
|
332,575
|
|
|
|
236
|
|
|
|
813
|
|
|
|
-
|
|
|
|
-
|
|
|
|
333,624
|
|
Investments in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
registered investment companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Closed-end Funds
|
|
|
72,591
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,591
|
|
AFS - Mutual Funds
|
|
|
2,952
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,952
|
|
Trading - Mutual funds
|
|
|
43,133
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,133
|
|
Total investments in affiliated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
registered investment companies
|
|
|
118,676
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
118,676
|
|
Total investments
|
|
|
451,251
|
|
|
|
236
|
|
|
|
813
|
|
|
|
101,454
|
|
|
|
3,597
|
|
|
|
557,351
|
|
Total assets at fair value
|
|
$
|
656,984
|
|
|
$
|
236
|
|
|
$
|
813
|
|
|
$
|
101,454
|
|
|
$
|
3,597
|
|
|
$
|
763,084
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common stocks
|
|
$
|
9,537
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,537
|
|
Trading - Other
|
|
|
-
|
|
|
|
86
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86
|
|
Securities sold, not yet purchased
|
|
$
|
9,537
|
|
|
$
|
86
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,623
|
|
(a)
|
Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy (see Note B,
Recent Accounting Developments
, for more detail).
|
(b)
|
Amounts are comprised of 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.
|
The following table presents additional information about assets by major categories measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis for the year ended December 31, 2016 (in thousands)
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains or
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized and
|
|
(Losses)
|
|
Realized
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
Unrealized Gains or
|
|
Included in
|
|
and
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
31, 2015
|
|
(Losses) in Income
|
|
Other
|
|
Unrealized
|
|
|
|
|
|
In and/or
|
|
|
|
|
|
Beginning
|
|
|
|
AFS
|
|
Comprehensive
|
|
Gains or
|
|
|
|
|
|
(Out) of
|
|
Ending
|
|
Asset
|
|
Balance
|
|
Trading
|
|
Investments
|
|
Income
|
|
(Losses)
|
|
Purchases
|
|
Sales
|
|
Level 3
|
|
Balance
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stocks
|
|
$
|
508
|
|
|
$
|
(47
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(47
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
461
|
|
Trading - Other
|
|
$
|
305
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
283
|
|
Total
|
|
$
|
813
|
|
|
$
|
(49
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(49
|
)
|
|
$
|
-
|
|
|
$
|
(20
|
)
|
|
$
|
-
|
|
|
$
|
744
|
|
During the year ended December 31, 2016,
there were no transfers between Level 1, Level 2 and Level 3 holdings.
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis for the year ended December 31, 2015 (in thousands)
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains or
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized and
|
|
(Losses)
|
|
Realized
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
Unrealized Gains or
|
|
Included in
|
|
and
|
|
|
|
|
|
Transfers
|
|
|
|
|
|
31, 2014
|
|
(Losses) in Income
|
|
Unrealized
|
|
Gains or
|
|
|
|
|
|
In and/or
|
|
|
|
|
|
Beginning
|
|
|
|
AFS
|
|
Comprehensive
|
|
Gains or
|
|
|
|
|
|
(Out) of
|
|
Ending
|
|
Asset
|
|
Balance
|
|
Trading
|
|
Investments
|
|
Income
|
|
(Losses)
|
|
Purchases
|
|
Sales
|
|
Level 3
|
|
Balance
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stocks
|
|
$
|
1,293
|
|
|
$
|
(195
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(195
|
)
|
|
$
|
6
|
|
|
$
|
(238
|
)
|
|
$
|
(358
|
)
|
|
$
|
508
|
|
Trading - Other
|
|
$
|
294
|
|
|
|
98
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98
|
|
|
|
5
|
|
|
|
(80
|
)
|
|
|
(12
|
)
|
|
|
305
|
|
Total
|
|
$
|
1,587
|
|
|
$
|
(97
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(97
|
)
|
|
$
|
11
|
|
|
$
|
(318
|
)
|
|
$
|
(370
|
)
|
|
$
|
813
|
|
During the year ended December 31, 2015, there were no transfers between Level 1 and Level 2 holdings. During the year ended December 31, 2015, the Company reclassed approximately $370,000 of investments from Level 3 to Level 1. The reclassifications were due to increased availability of market price quotations and were based on the values at the beginning of the period in which the reclass occurred.
F. Income Taxes
For the calendar year 2016, AC and its greater than 80% owned subsidiaries file a consolidated federal income tax return. Accordingly, the income tax provision represents the aggregate of the amount provided for all companies. On November 30, 2015, AC spun-off from GAMCO. Except for the one month period of December 2015 subsequent to our spin-off, for which we independently determine our tax liability, we calculated provision for income taxes by using a “separate return” method. Under this method, we are assumed to file a separate return with the tax authority, thereby reporting our taxable income or loss and paying the applicable tax or receiving the appropriate refund from GAMCO.
Our 2015 provision is the amount of tax payable or refundable on the basis of a hypothetical 2015 separate return. We provide deferred taxes on temporary differences and on any carryforwards that we could claim on our hypothetical return and assess the need for a valuation allowance.
As a result of the spin-off, the operations of the Company’s subsidiaries are included in the consolidated U.S. federal and certain state and local income tax returns of GAMCO for the first eleven months of the 2015. The Company filed a consolidated U.S. federal and certain state and local income tax returns for the last month of 2015. The Company’s subsidiaries’ federal and certain state and local income taxes were calculated as if the Company’s subsidiaries filed on a separate return basis, and the amount of current and deferred tax or benefit is either remitted to or received from GAMCO for the first eleven months of 2015 or the Company for December 2015 using a benefits for loss approach such that net operating loss (or other tax attribute) is characterized as realized by the Company’s subsidiaries when those tax attributes are utilized in the consolidated tax return of GAMCO or the Company. This is the case even if the Company’s subsidiaries would not otherwise have realized those tax attributes.
The provision for income taxes for the years ended December 31, 2016 and 2015 consisted of the following:
|
|
2016
|
|
|
2015
|
|
(In thousands)
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
5,018
|
|
|
$
|
4,540
|
|
Deferred
|
|
|
(1,231
|
)
|
|
|
(6,160
|
)
|
State and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
236
|
|
|
|
225
|
|
Deferred
|
|
|
(147
|
)
|
|
|
(290
|
)
|
Total
|
|
$
|
3,876
|
|
|
$
|
(1,685
|
)
|
A reconciliation of the Federal statutory rate to the effective tax rate is set forth below:
|
2016
|
|
|
2015
|
|
Statutory Federal income tax rate
|
34.0
|
%
|
|
34.0
|
%
|
State income tax, net of Federal benefit
|
1.2
|
|
|
1.6
|
|
Dividends received deduction
|
(3.6
|
)
|
|
26.4
|
|
Donation of appreciated securities
|
(4.5
|
)
|
|
3.2
|
|
Noncontrolling interests
|
(0.7
|
)
|
|
0.0
|
|
Other
|
0.6
|
|
|
0.2
|
|
Effective income tax rate
|
27.0
|
%
|
|
65.4
|
%
|
Significant components of our deferred tax assets and liabilities are as follows:
|
|
2016
|
|
|
2015
|
|
(In thousands)
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Stock compensation expense
|
|
$
|
719
|
|
|
$
|
77
|
|
Deferred compensation
|
|
|
1,315
|
|
|
|
871
|
|
Investments in securities available for sale
|
|
|
3,652
|
|
|
|
5,523
|
|
Shareholder-designated contribution
|
|
|
1,461
|
|
|
|
-
|
|
Other
|
|
|
4
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
7,151
|
|
|
|
6,471
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Investments in securities and partnerships
|
|
|
(11,103
|
)
|
|
|
(9,839
|
)
|
Other liabilities
|
|
|
-
|
|
|
|
(41
|
)
|
Total deferred tax liabilities
|
|
|
(11,103
|
)
|
|
|
(9,880
|
)
|
Net deferred tax liabilities
|
|
$
|
(3,952
|
)
|
|
$
|
(3,409
|
)
|
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, 2015
|
|
$
|
57.1
|
|
Additions based on tax positions related to the current year
|
|
|
(59.7
|
)
|
Additions for tax positions of prior years
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
(1.9
|
)
|
Settlements
|
|
|
(11.2
|
)
|
Balance at December 31, 2015
|
|
|
(15.7
|
)
|
Additions based on tax positions related to the current year
|
|
|
-
|
|
Additions for tax positions of prior years
|
|
|
125.5
|
|
Reductions for tax positions of prior years
|
|
|
(9.7
|
)
|
Settlements
|
|
|
-
|
|
Balance at December 31, 2016
|
|
$
|
100.1
|
|
The Company records penalties and interest related to tax uncertainties in income taxes. As of December 31, 2016 and 2015, the Company’s had gross unrecognized tax benefits (liabilities) of $100,149 and ($15,678) respectively, of which $66,098 and ($10,347), respectively, if recognized, would impact the Company’s effective tax rate. The Company has accrued liabilities of $94,428 and $83,950 as of December 31, 2016 and 2015, respectively, for interest and penalties. These amounts are included in accrued expenses and other liabilities on the consolidated statements of financial condition.
Under the Company’s Tax Indemnity and Sharing Agreement with GAMCO, GAMCO is liable for all income taxes of the Company for periods prior to the spin-off from GAMCO. Income tax expense for such periods is based on the taxable income of the Company on a separate tax return basis. The Company is not currently under audit by any tax jurisdiction.
G. Related Party Transactions
The following is a summary of certain related party transactions.
GGCP Holdings LLC owns a majority of our Class B Stock, representing approximately 94% of the combined voting power and 76% of the outstanding shares of our common stock at December 31, 2016.
Loans with GAMCO
GCIA entered into a $15 million demand loan with GAMCO on March 15, 2004 at a rate of 5.5% per year. On February 28, 2007, GCIA paid back $5 million to GAMCO. GCIA entered into an additional demand loan for $16 million with GAMCO on August 17, 2010 at a rate of 5.5% per year. On March 7, 2014, GCIA repaid $10 million of the loan to GAMCO. On December 28, 2015, GCIA repaid the remaining $16 million balance owed to GAMCO. As of December 31, 2015, there are no demand loans outstanding with GAMCO. The interest was $0.9 million in 2015 and is included in interest expense on the consolidated statements of income.
On November 27, 2015, GCIA purchased from GAMCO 4.4 million shares of GAMCO Class A common stock in exchange for a five-year 4% note payable of $150 million (“GCIA Note”). As part of the spin-off of AC from GAMCO on November 30, 2015, GAMCO contributed the GCIA Note to AC. During 2015, GCIA paid to GAMCO $66,000 of interest which is included in interest expense on the consolidated statements of income.
The GCIA Note is thus now an intercompany note within the AC Group.
GAMCO issued the GAMCO Note to AC Group in the original principal amount of $250.0 million used to partially capitalize the Company in connection with the spin-off. During the year ended December 31, 2016,
AC received principal repayments totaling $150 million on the GAMCO Note. $50 million of the prepayment was applied against the principal amount due on November 30, 2016, $40 million against the principal amount due on November 30, 2017, $30 million against the principal amount due on November 30, 2018, and $30 million against the principal amount due on November 30, 2019. Of the $100 million principal amount outstanding, $10 million is due on November 30, 2017, $20 million is due on November 30, 2018, $20 million is due on November 30, 2019, and $50 million is due on November 30, 2020. Related i
nterest income of $7.8 million is included in interest and dividend income
on the consolidated statements of income
.
See Note A. Organization.
Investment in Securities
At December 31, 2016 and 2015, approximately $39 million and $41 million, respectively, of our proprietary investment accounts, which were included in investments in securities on the consolidated statements of financial condition, were managed by our analysts or portfolio managers other than Mr. Mario Gabelli. 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 a proprietary investment account, on which he would be paid, on an annual basis, 20% of any net profits earned on the account for the year. The account was initially funded with approximately $40 million during 2006, and subsequent withdrawals have totaled $40 million from 2009 through 2016. The balance in the account at December 31, 2016 and 2015 was $14.6 million and $13.7 million, respectively, of which $2.7 million and $2.4 million, respectively, is owed to the portfolio manager representing his earnings that have been re-invested in the account. For 2016 and 2015, this account was up 6.6% and 2.4%, respectively, and therefore he earned approximately $0.1 million and $0.1 million, respectively, for managing this account.
For the year ended December 31, 2016, the Company recorded dividend income of $0.4 million relating to its investment in GAMCO common stock, which is
included in interest and dividend income
on the consolidated statements of income.
At December 31, 2016 and 2015, the Company had investments of $314.1 million and $205.7 million, respectively, invested 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 (“Funds”), which are advised by Gabelli Funds, LLC and Teton Advisors, Inc., which is majority-owned by GGCP Holdings, LLC, which is also the majority stockholder of GAMCO, at December 31, 2016 and 2015 totaled $132.1 million and $119.8 million, respectively, and are included in either investments in securities or investments in affiliated registered investment companies on the consolidated statements of financial condition.
Investment in Partnerships
We had an aggregate investment in affiliated partnerships and offshore funds of approximately $112.3 million and $89.3 million at December 31, 2016 and 2015, respectively.
Investment Advisory Services
Gabelli Securities International Limited (“GS International”) was formed in 1994 to provide management and investment advisory services to offshore funds and accounts. Marc Gabelli, a director of the Company, owns 55% of GS International, and GCIA owns the remaining 45%. In 1994, Gabelli International Gold Fund Limited (“GIGFL”), an offshore investment company investing primarily in securities of issuers with gold-related activities, was formed and GS International entered into an agreement to provide management services to GIGFL. GCIA in turn entered into an agreement with GS International to provide investment advisory services to GIGFL in return for receiving all investment advisory fees paid by GIGFL. Pursuant to such agreement, GCIA earned no investment advisory fees or incentive fees for 2016. Comparable amounts for 2015 were $3,304 and no incentive fee. As of December 31, 2016 and 2015, there were $0, and $7,904, respectively, payable to GIGFL included in payables to affiliates on the consolidated statements of financial condition relating to advisory fees.
In April 1999, GCIA formed Gabelli Global Partners, L.P., an investment limited partnership for which GCIA and Gemini are the general partners. In March 2002, Gabelli Global Partners, L.P. changed its name to Gemini Global Partners, L.P. Gemini and GCIA are each due half of the advisory fee earned by the partnership to the general partners in the amount of $63,196 and $70,345 for 2016 and 2015, respectively. In 2016 and 2015, there were no incentive fees earned. As of December 31, 2016 and 2015, there were $201,065 payable and $168,311 receivable, respectively, from Gemini Global Partners, L.P. included in payables to affiliates and receivables from affiliates, respectively, on the consolidated statements of financial condition.
Compensation
Prior to the spin-off, the amount of management fee reflected on the financial statements is a carve-out from the historical GAMCO consolidated financial statements. Under this methodology, the management fee expense was a contra-expense. Subsequent to the spin-off on November 30, 2015, and in accordance with Mr. Gabelli’s employment agreement, the Company will pay the Executive Chairman, or his designated assignee, a monthly management fee equal to 10% of the Company’s pretax profits before consideration of this fee and before consolidation of the various consolidated feeder funds and partnerships discussed in Note D. In no circumstances will this fee be a contra-expense to the Company subsequent to the spin-off on November 30, 2015. In 2016 and 2015, the Company recorded management fee expense or (contra-expense) of $1.6 million and ($0.3) million, respectively. These fees are recorded as management fee on the consolidated statements of income.
Income Taxes
As a result of the spin-off, the operations of the Company’s subsidiaries were included in the consolidated U.S. federal and certain state and local income tax returns of GAMCO for the first eleven months of the 2015. The Company filed consolidated U.S. federal and certain state and local income tax returns for the last month of 2015. The Company’s subsidiaries’ federal and certain state and local income taxes are calculated as if the Company’s subsidiaries filed on a separate return basis, and the amount of current and deferred tax or benefit is either remitted to or received from GAMCO for the first eleven months of 2015 or the Company for December 2015 using a benefits for loss approach such that net operating loss (or other tax attribute) is characterized as realized by the Company’s subsidiaries when those tax attributes are utilized in the consolidated tax return of GAMCO or the Company. This is the case even if the Company’s subsidiaries would not otherwise have realized those tax attributes.
Affiliated Receivables/Payables
At December 31, 2016, the receivable from affiliates consists primarily of SICAV net revenues due from Gabelli Funds, LLC (see
Other
below for detail). At December 31, 2015, the receivable from affiliates consists primarily of cash owed to AC by GAMCO related to the spin-off.
At December 31, 2016, the payable to affiliates primarily consisted of expenses paid by affiliates on behalf of the Company pursuant to the
Transitional Services Agreement
.
GAMCO Capital Lease
On December 5, 1997, GAMCO entered into a fifteen-year lease, expiring on April 30, 2013, of office space at 401 Theodore Fremd Ave, Rye, NY from M4E, LLC, an entity owned by the adult children of the Executive Chairman. On September 15, 2008, GAMCO modified and extended this lease to December 31, 2023, and on June 11, 2013, GAMCO further modified and extended this lease to December 31, 2028. The Company paid $77,444 and $310,566 to GAMCO in 2016 and 2015, respectively, for its use of the Rye location. In June 2016, AC entered into a sublease agreement with GAMCO effective from April 1, 2016 through March 31, 2017. Pursuant to this agreement, AC and its subsidiaries shall pay a monthly fixed lease amount based on the percentage of square footage occupied by its employees (including pro rata allocation of common space) for the duration of the lease. For the nine months ended December 31, 2016, the Company paid $276,238. The amounts are included within other operating expenses on the consolidated statements of income.
Other
In 2016 and 2015, the Company earned $5.2 million and $4.9 million, respectively, or 63% and 59%, respectively, of its commission revenue, which is included in institutional research services on the consolidated statements of income, from transactions executed on behalf of Funds and private wealth management clients advised by GAMCO Asset Management Inc., a wholly-owned subsidiary of GAMCO.
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.
Pursuant to research services agreements (see Note B), GAMCO Asset Management Inc. paid $1.5 million and $0.7 million and Gabelli Funds, LLC paid $1.5 million and $0.8 million to the Company for the years ended December 31, 2016 and 2015, respectively.
During 2016, the Company participated as agent in the at the market offerings of The Gabelli Global Gold, Natural Resources & Income Trust (“GGN”) and The Gabelli Healthcare & WellnessRx Trust 5.875% Series B Cumulative Preferred Stock (“GRX Series B”). Pursuant to sales agreements between the parties, the Company earned sales manager fees related to these offerings of $1,178,330 and $5,495 for GGN and GRX Series B, respectively, which are included in institutional research services on the consolidated statements of income. There were no sales manager fees earned from GGN or GRX offerings during 2015.
Throughout 2016, the Company participated in five preferred stock offerings of certain GAMCO closed-end funds. In March 2016, the Company acted as co-underwriter in The Gabelli Equity Trust 5.45% Series J Cumulative Preferred Stock offering. During May 2016, the Company acted as co-underwriter in The Gabelli Global Small and Mid Cap Value Trust 5.45% Series A Cumulative Preferred Stock and The Gabelli Utility Trust 5.375% Series C Cumulative Preferred Stock offerings. In June and August 2016, the Company acted as co-underwriter in The Gabelli Dividend & Income Trust 5.25% Series G Cumulative Preferred Stock and Bancroft Fund Ltd. 5.375% Series A Preferred Stock offerings, respectively. Underwriting fees and selling concessions, net of expenses, related to the launch of these funds were $420,252 and are included in either institutional research services or other revenue on the consolidated statements of income.
On July 27, 2011, the Company entered into a Distribution Agreement with G.distributors, LLC ("G.distributors"), a subsidiary of GAMCO. As stated in the Distribution Agreement, the Company is the broker of record for certain ongoing client relationships for which it earns distribution fees. Subsequent to July 31, 2011, the Company recorded distribution fees revenue of $0.3 million in 2015 in relation to this role. On July 1, 2015, these mutual fund distribution assets were transferred out of the Company.
On June 30, 2015, G.research, LLC was formed as a single member LLC of Distributors Holdings, Inc. (“DHI”), a 100% subsidiary of GCIA, to transfer the distribution assets of G.research, Inc. through a series of steps to G.distributors. On July 1, 2015, G.research, Inc. was merged into G.research, LLC. As a result of the merger, a deferred tax liability of $1,937,670 was transferred to G.research, LLC’s sole member, DHI, resulting in a capital contribution to G.research, LLC. The distribution assets were then transferred from G.research, LLC to DHI for their fair value of $234,000, also resulting in a capital contribution to G.research, LLC. DHI transferred G.research, LLC to GCIA resulting in a deferred tax asset of $88,227 (tax effect of the transferred distribution assets of $234,000) to be recorded on DHI’s books and a deferred tax liability of $88,227 to be recorded on the books of G.research, LLC. GCIA transferred DHI to GAMCO Asset Management Inc. GAMCO Asset Management Inc. subsequently transferred its 100% owned subsidiary, G.distributors, to DHI. DHI then transferred the distribution assets to G.distributors.
Pursuant to an agreement between the Company and Gabelli Funds, LLC, Gabelli Funds, LLC pays to GCIA 90% of the net revenues received by Gabelli Funds, LLC related to being the advisor to the SICAV. Net revenues is defined as gross advisory fees less expenses related to payouts and expenses of the SICAV paid by Gabelli Funds, LLC. The amounts paid by Gabelli Funds, LLC to GCIA for 2016 and 2015 are $2,708,084 and $1,007,164, respectively, and are included in investment advisory and incentive fees on the consolidated statements of income.
As general partner or co-general partner of various affiliated limited partnerships, the Company receives a management fee based on a percentage of each partnership’s net assets and a 20% incentive allocation based on economic profits.
H. Equity
Voting Rights
The holders of Class A Stock and Class B Stock have identical rights except that (i) 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 (ii) holders of Class A Stock are not eligible to vote on matters relating exclusively to Class B Stock and vice versa.
Stock Award and Incentive Plan
There were no RSAs issued by AC during 2016. There were no RSAs issued by either GAMCO or AC during 2015, except in relation to the spin-off.
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. As of December 31, 2016, there were 424,340 AC RSA shares outstanding and 424,340
GAMCO RSA shares outstanding. As of December 31, 2015, there were 553,100 AC RSA shares outstanding
and 553,100
GAMCO RSA shares outstanding.
In accordance with GAAP, we have allocated the stock compensation costs between GAMCO and AC based upon each employee’s individual allocation of their responsibilities between GAMCO and AC.
The total compensation costs related to non-vested awards not yet recognized is approximately $4.6 million as of December 31, 2016. This will be recognized as expense in the following periods (in thousands):
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
$
|
1,642
|
|
|
$
|
1,082
|
|
|
$
|
893
|
|
|
$
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2023
|
|
|
|
2024
|
|
$
|
275
|
|
|
$
|
168
|
|
|
$
|
72
|
|
|
$
|
12
|
|
For the years ended December 31, 2016 and 2015, the Company recorded approximately $2.5 million and $4.9 million, respectively, in stock based compensation expense which resulted in the recognition of tax benefits of approximately $0.8 million and $1.7 million, respectively. The $4.9 million for the year ended December 31, 2015, includes $2.4 million in stock compensation expense as a result of accelerating the November 2013 RSA grant. There were no comparable accelerations in the year ended December 31, 2016.
Stock Repurchase Program
The Company repurchased 1.3 million shares at an average price of $31.10 per share for a total investment of $41.6 million. This includes a purchase of 926,345 shares from an unaffiliated third party on December 30, 2016 at a price of $31.05 for which the related payable of $28.8 million is included in accrued expenses and other liabilities on the
consolidated statements of financial condition
.
Dividends
During 2016, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $5.0 million, of which $2.4 million is payable on January 25, 2017 and is included in accrued expenses and other liabilities on the
consolidated statements of financial condition
.
I. Retirement Plan
The Company participates in an incentive savings plan (the “Plan”), covering substantially all employees. Company contributions to the Plan are determined annually by management of the Company and (prior to the spin-off) GAMCO’s Board of Directors but may not exceed the amount permitted as a deductible expense under the Internal Revenue Code. The amounts expensed for allocated contributions to this Plan amounted to approximately
$34,000
and
$12,000
in
2016
and
2015,
respectively, and are included in compensation on the consolidated statements of income.
J. Guarantees, Contingencies, and Commitments
G.research has agreed to indemnify the clearing brokers for losses they may sustain from the customer accounts that trade on margin introduced by G.research. At December 31, 2016, the total amount of customer balances subject to indemnification (i.e., unsecured margin debits) was immaterial. G.research also has 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 G.research’s obligations under the agreements. G.research has had no claims or payments pursuant to these or prior agreements, and management believes the likelihood of a claim being made is remote, and therefore, an accrual has not been made on the consolidated financial statements.
From time to time, we 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. Examinations or investigations can result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the consolidated financial statements include the necessary provisions for losses that we believe are probable and estimable. Furthermore, we evaluate whether there exist losses which may be reasonably possible and, if material, make the necessary disclosures.
K. Net Capital Requirements
G.research is a registered broker-dealer, and is subject to the SEC Uniform Net Capital Rule 15c3-1 (the “Rule”), which specifies, among other requirements, minimum net capital requirements for registered broker-dealers. G.research computes its net capital under the alternative method as permitted by the Rule, which requires that minimum net capital be the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3. G.research, LLC is exempt from Rule 15c3-3 pursuant to paragraph (k)(2)(ii) of that rule which exempts all customer transactions cleared through another broker-dealer on a fully disclosed basis. In addition, our assets at the clearing broker-dealer are treated as allowable assets for net capital purposes as we have in place Proprietary Accounts of Introducing Firms and Dealers ("PAIB") agreements pursuant to Rule 15c3-3. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be made or cash dividends paid if certain minimum net capital requirements are not met. G.research had net capital, as defined, of $3.7 million and $7.1 million, exceeding the required amount of $250,000 by $3.4 million and $6.9 million, at December 31, 2016 and 2015, respectively. There were no subordinated borrowings during the years ended December 31, 2016 and 2015.
L. Shareholder-Designated Contribution Plan
During 2016, the Company established a Shareholder Designated Charitable Contribution program. Under the program, 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. Shares held in nominee or street name were not eligible to participate. The Company recorded a cost of $5.4 million related to this contribution which was included in shareholder-designated contribution in the consolidated statements of income.
M. Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2016 and 2015 is presented below.
|
|
2016
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,517
|
|
|
$
|
4,964
|
|
|
$
|
5,451
|
|
|
$
|
16,295
|
|
|
$
|
31,227
|
|
Operating income (loss)
|
|
|
(4,515
|
)
|
|
|
(3,352
|
)
|
|
|
(4,497
|
)
|
|
|
132
|
|
|
|
(12,232
|
)
|
Net income attributable to Associated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Group, Inc.'s shareholders
|
|
|
1,593
|
|
|
|
1,019
|
|
|
|
3,959
|
|
|
|
3,647
|
|
|
|
10,218
|
|
Net income attributable to Associated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Group, Inc.'s shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
0.16
|
|
|
$
|
0.15
|
|
|
$
|
0.41
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.04
|
|
|
$
|
0.16
|
|
|
$
|
0.15
|
|
|
$
|
0.41
|
|
|
|
2015
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,567
|
|
|
$
|
4,590
|
|
|
$
|
4,690
|
|
|
$
|
8,995
|
|
|
$
|
22,842
|
|
Operating loss
|
|
|
(3,880
|
)
|
|
|
(3,468
|
)
|
|
|
(1,081
|
)
|
|
|
(5,883
|
)
|
|
|
(14,312
|
)
|
Net income (loss) attributable to Associated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Group, Inc.'s shareholders
|
|
|
2,385
|
|
|
|
855
|
|
|
|
(7,540
|
)
|
|
|
4,189
|
|
|
|
(111
|
)
|
Net income (loss) attributable to Associated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Group, Inc.'s shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.17
|
|
|
$
|
-
|
|
Diluted
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.17
|
|
|
$
|
-
|
|
For years in which our funds have positive performance, fourth quarter revenue, and therefore fourth quarter operating income, will generally exceed the revenue and operating income levels recognized in each of the prior three quarters of the year.
N. Subsequent Events
During the period from January 1, 2017 to February 7, 2017, we repurchased 3,762 shares at an average price per share of $33.45. On February 7, 2017, the Board of Directors reset the available number of shares to be purchased under the stock repurchase program to 500,000 shares. There were no stock repurchases from February 8, 2017 to March 13, 2017. As a result, there are 500,000 shares available to be repurchased under our existing buyback plan at March 13, 2017.
In January 2017, GAMCO prepaid an additional $10 million of the GAMCO Note, reducing the principal outstanding to $90 million.
On January 13, 2017, FINRA approved the G.research’s change of direct ownership. Institutional Services Holdings, LLC, a newly formed holding company wholly owned by AC, will become the new parent company of G.research.
On February 7, 2017, the Board of Directors approved an additional $0.25 per share contribution for all registered Class A and Class B shareholders under the Company’s Shareholder Designated Charitable Contribution Program. If all shares outstanding are registered in their shareholders’ names at the record date, the total contribution would be approximately $6.1 million.