A N N U A L
R E P O R T
2016
G abelli & Company
2 0 1 6
I D E A S . . . F O C U S . . . I N N O VAT I O N
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
September 16, 2016
Gabelli & Company
Liberty Braves Group
(BATRA - $17.46 - NASDAQ)
Source: libertymedia.com, bizjournals.com
Glavine as Terry McGuirk, Smoltz as John Malone, Maddux as Greg Maffei
Perfect Game
-Please Refer To Important Disclosures On The Last Page Of This Report-
Gabelli & Company 2016
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
August 9, 2016
Quick on Their Feet and Ready to Run!
Global Flooring Report
John Tinker
(914) 921-834
September 15, 2016
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
O Canada!
Source: www.map-of-canada.org
Source: Armstrong Flooring and Mohawk Industries
Companies
Armstrong Flooring International
Mohawk Industries Inc.
Price
Ticker
AFI
- $18.83
MHK - 213.03
Exchange
- NYSE
-
"
Takeaways from Telecom Research Trip
Sergey Dluzhevskiy, CFA
(914) 921-8355
Gabelli & Company 2016
Gabelli & Company 2016
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G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (314) 238-1314
www.associated-capital-group.com
January 5, 2016
Gabelli & Company
Electric Utilities U.S.
Outlook 2016
Electric Transmission Renewable Energy
Industry Consolidation CFL Light Bulb
Source: Company documents, EEI
Timothy M. Winter, CFA Eric Guo
(314) 238-1314
(914) 921-7742
-Please Refer To Important Disclosures At The End Of This Report-
Gabelli & Company ©2016
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5284
www.associated -capital -group.com
February 8, 2016
Gabelli & Company
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
E
P
S
Alvaro Lacayo
(914) 921-5451
May 6, 2016
P
M
V
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
What Will Mr. Buffett
Serve Up Next?
Source:AP
Reflections From the 2016 Annual Meeting
MANAGEMENT
(BRK.A - $215,880 - NYSE)
" )
(BRK.B - $143.88
-
-Please Refer To Important Disclosures On The Last Page Of This Report-
Gabelli & Company 2016
Macrae Sykes
(914) 921-5398
April 15, 2016
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities .com
September 1, 2016
Axalta Coating Systems
(AXTA - $28.62 – NASDAQ)
Racing to the Refinish Line – Buy
A. Carolina Jolly, CFA
(914) 921-7762
(cid:31) Gabelli & Company 2016
-Please Refer To Important Disclosures On The Last Page Of This Report -
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
June 1, 2016
G.research, LLC
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5150
www.gabellisecurities.com
October 20, 2016
Gabelli & Company
The Perfect Recipe
Newell Rubbermaid
NWL – $36.43 – NYSE
US Automotive Aftermarket Retailers & Distributors:
The Goliaths of the Aftermarket
Gilead Sciences
(GILD - $87.06 - NASDAQ)
Scotts Miracle-Gro
(SMG - $87.01 - NYSE)
Market Share
Purchasing
Power
CASHFLOW
Source: Medscape.com
How US Automotive Retailers will Capture Share…
and Return Cash to Shareholders
The Antiviral Giant
Zamane Bodini © Gabelli & Company 2016
(914) 921-5284
-Please Refer To Important Disclosures On The Last Page Of This Report
-
A. Carolina Jolly, CFA
(914) 921-7762
Gabelli & Company 2016
Companies
AutoZone
O'Reilly Automotive
Advance Auto Parts
Ticker
(AZO -
(ORLY -
-
(AAP
Price
Exchange
778.14
- NYSE)
$
269.79 - NASDAQ)
160.94 - NYSE)
vs
Payers and Politicians
Jing He
(914) 921-7798
Gabelli & Company 2016
Source: Scotts Miracle-Gro
A Seed Worth Watering
Zamane Bodini
(914) 921-5284
Gabelli & Company 2016
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-Please Refer To Important Disclosures On The Last Page Of This Report-
--Please Refer To Important Disclosures On The Last Page Of This Report--
R E S E A R C H
Dear Partners/Shareholders:
We are privileged to share Associated Capital’s (“AC”) financial results for 2016. As always, we value your trust and support,
especially during our first year as an independent public company and the 40th year since establishing our institutional
research firm, Gabelli & Company, Inc.
Over the past year, we have reached a number of milestones:
• Book value, a key metric in valuing our enterprise, increased $6.50 per share from $29.54 to $36.04 per share as of
December 31, 2016, an increase of 22.0%. This increase in book value is largely traceable to a $150 million reduction
in the “GBL Note” from $250 million to $100 million at December 31, 2016.
• We exchanged 163,428 shares of AC for the 6.1% minority shareholder interest in Gabelli & Company Investment
Advisers, Inc. (GCIA, formerly Gabelli Securities, Inc.), making GCIA a wholly-owned subsidiary.
• We repurchased 1.34 million shares for an investment of $41.6 million.
• We established a semi-annual dividend of $0.10 per share.
• Continuing in the tradition of GAMCO Investors, Inc., we established a shareholder designated charitable
contribution program and donated $5.4 million on behalf of registered shareholders. AC’s Board of Directors
subsequently authorized a second $0.25 per share designation for 2017.
• We continued to gather assets in the merger arbitrage strategy with $149 million of additional flows during the year
paced by significant growth in our offshore fund, the GAMCO Merger Arbitrage UCITS.
• Our book on merger arbitrage, Deals… Deals… and More Deals, has been translated into Japanese, Italian
and Chinese.
• Our institutional research services business, G.research, LLC hosted seven investor conferences.
In 2017, we will continue to explore new avenues to put our capital to work by pursuing deals, new channels of distribution
and by examining new product offerings to our constituents, including private equity and merchant banking.
The Board has authorized us to explore the launch of a private equity fund, something our predecessor firm had success
with in the 80’s. Along these lines, we include the Acquisition Criteria list from Warren Buffett’s Berkshire Hathaway 2016
Annual Report. We cannot improve upon it:
BERKSHIRE HATHAWAY INC.
ACQUISITION CRITERIA
We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:
1. Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations),
2. Businesses earning good returns on equity while employing little or no debt,
3. Management in place (we can’t supply it),
4. Simple businesses (if there’s lots of technology, we won’t understand it),
5. An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction
when price is unknown).
Additional highlights –
• Douglas R. Jamieson was appointed as CEO on November 10, 2016.
• As Marc Gabelli steps down from our board, we wish to thank him on behalf of all our constituents for his leadership
in completing the spin-off of AC.
• We welcome Fred Salerno to our board. His wealth of knowledge and depth of experience will serve our
stakeholders well.
CO N D E N S E D CO N SO LI DATE D BAL AN CE S H E E T (in thousands)
ASSETS
Investments (including cash and cash equivalents)
Receivables
Other assets
December 31,
2016
2015
917,933
23,895
10,775
763,101
68,863
4,784
Total assets
$952,603
$836,748
LIABILITIES AND EQUITY
Compensation payable
Securities sold, not yet purchased
Income taxes payable
Accrued expenses and other liabilities
Total liabilities
17,676
9,984
6,978
39,713
74,351
10,926
9,623
5,669
53,243
79,461
Redeemable noncontrolling interests
4,230
5,738
Stockholders' equity
974,022
999,196
GBL 4% PIK Note
(100,000)
(250,000)
Noncontrolling interests
Total equity
-
874,022
2,353
751,549
Total liabilities and equity
$952,603
$836,748
At December 31, 2016, we had cash and net investments of $908 million, including $434 million of cash and short term treasuries,
$213 million of net marketable securities, including 4.4 million shares of GAMCO stock and $261 million invested in affiliated and
third party funds and partnerships. We have a GAAP basis book value of $36.04 per share at December 31, 2016.
In addition to the cash and net investments of $908 million, we are due $100 million from GAMCO over the next five years (or
earlier should GAMCO choose to prepay). This amount is not included in our book value for GAAP purposes, as GAAP requires the
note to be accounted for as a contra-equity item instead of an asset until the note is paid down with cash. As such, management
believes it is useful to consider Adjusted Economic Book Value (“AEBV”), a non-GAAP measure, when reviewing our financial
condition. AEBV is calculated as GAAP book value plus the value of the GAMCO Note. AEBV and AEBV per share were $974
million and $40.16 per share, respectively.
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. 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.
A S S E TS U N D E R MANAG E M E NT
We reported assets under management as follows (dollars in millions):
Year Ended December 31,
2016
Event Merger Arb
$1,076
Event-Driven Value
Other
133
63
2015
$869
145
66
2014
$796
167
77
Total AUM
$1,272(b)
$1,080
$1,040
2013
$691
140
76
$907
2012
$721
124
75
$920
CAGR (a)
2016/2012
10 5%
1 8
(4 3)
8 4%
(a) Compound annual growth rate.
(b) Includes $158.9 million of proprietary capital.
Q UARTE R LY FI NAN CIAL I N FO R MATI O N
Quarterly financial information for the years ended December 31, 2016 and 2015 is presented below.
(In thousands, except per share data)
2016
Revenues
Operating income (loss)
Net income attributable to Associated
Capital Group, Inc 's shareholders
Net income attributable to Associated
Capital Group, Inc 's shareholders per share:
Basic
Diluted
Revenues
Operating loss
Net income (loss) attributable to Associated
Capital Group, Inc 's shareholders
Net income (loss) attributable to Associated
Capital Group, Inc 's shareholders per share:
Basic
Diluted
1st
2nd
3rd
4th
Total
$4,517
(4,515)
$4,964
(3,352)
$5,451
(4,497)
$16,295
132
$31,227
(12,232)
$1,593
$1,019
$3,959
$3,647
$10,218
$0.06
$0.06
$0.04
$0.04
$0.16
$0.16
$0.15
$0.15
$0.41
$0.41
1st
2nd
3rd
4th
Total
2015
$4,567
(3,880)
$4,590
(3,468)
$4,690
(1,081)
$8,995
(5,883)
$22,842
(14,312)
$2,385
$855
$(7,540)
$4,189
$(111)
$0.09
$0.09
$0.03
$0.03
$(0.30)
$(0.30)
$0.17
$0.17
-
-
The Company’s financial information for the eleven months ended November 30, 2015 were 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. For the
periods prior to the spin-off of the Company from GAMCO, the quarterly financial information 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 financial information for the one month ended
December 31, 2015 is presented based on our actual results as a stand-alone public company subsequent to our Spin-off.
Notes of Non-GAAP Financial Measures
Adjusted Economic Book Value (AEBV) is used by management for purposes of evaluating our financial condition. We believe this
measure is useful in illustrating a value of the Company inclusive of the $100 million GAMCO Note.
R ECO N CI LIATI O N O F TOTAL EQ U IT Y TO
ADJ US TE D ECO N O M I C BOO K VALU E
Total equity as reported
Add: GAMCO Note
Adjusted Economic Book Value
Total
$874,022
100,000
$974,022
Per Share
$36 04
4 12
$40 16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-37387
Associated Capital Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
One Corporate Center, Rye, NY
(Address of principal executive offices)
47-3965991
(I.R.S. Employer Identification No.)
10580-1422
(Zip Code)
Registrant’s telephone number, including area code (203) 629-9595
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, par value $0.001 per share
Name of each exchange on
which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes No .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes No .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes No .
The aggregate market value of the class A common stock held by non-affiliates of the registrant as of June 30, 2016 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $178,184,681. The registrant had annual revenues of less than $50 million upon
becoming a public company.
As of March 1, 2017, 5,053,386 shares of class A common stock and 19,196,792 shares of class B common stock were
outstanding. 18,423,741 shares of class B common stock were held by a subsidiary of GGCP, Inc and 580,089 shares of class B
common stock were held by executive officers and directors of GGCP, Inc.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement relating to the 2017
Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.
2
Associated Capital Group, Inc.
Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2016
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Part II
Part III
Part IV
Business
Business Strategy
Competition
Intellectual Property
Regulation
Employees
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
4
7
9
9
9
13
13
25
25
26
26
Market For The Registrant's Common Equity, Related Stockholder Matters And
Issuer Purchases Of Equity Securities
Selected Financial Data
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
Quantitative And Qualitative Disclosures About Market Risk
Financial Statements And Supplementary Data
Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Controls And Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters
Certain Relationships And Related Transactions, and Director Independence
Principal Accountant Fees And Services
26
27
27
38
39
75
75
76
76
76
76
76
76
77
79
80
Item 15
Exhibits, Financial Statement Schedules
Signatures
Power of Attorney
Subsidiaries of Associated Capital Group, Inc.
Consent of Independent Registered Public Accounting Firm
Certifications Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
3
PART I
Forward-Looking Statements
Our disclosure and analysis in this report and in documents that are incorporated by reference contain some forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because
they do not relate strictly to historical or current facts. You should not place undue reliance on these statements. They use words
such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar
meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements
relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results.
Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we
currently know about our business and operations, there can be no assurance that our actual results will not differ materially from
what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include,
without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general
downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and
unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations.
We also direct your attention to any more specific discussions of risk contained in Item 1A below and in our other public filings or in
documents incorporated by reference here or in prior filings or reports.
We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly
any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any
additional information relating to the subject matters of our forward-looking statements.
ITEM 1: BUSINESS
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.
Our principal executive offices are located at One Corporate Center, Rye, New York 10580. We post or provide a link on our
website, www.associated-capital-group.com, to the following filings as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission (“Commission” or “SEC”): our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our website are available free of charge.
The Spin-off and Related Transactions
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.
4
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 the
original principal amount of the GAMCO Note to AC Group, in cash, in five equal annual installments of $50 million on each interest
payment date up to and including the maturity date and 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 $10 million of the GAMCO Note due on November 30,
2017, reducing the principal outstanding to $90 million.
In addition, AC, owns 4,393,055 shares of GAMCO Class A common stock via transactions that occurred in connection wi th the
spin-off.
Alternative Investment Management
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 (“AUM”). Incentive fees are based on the percentage of profits derived from the investment performance. As of
December 31, 2016, we managed a total of $1.27 billion in assets.
In our event-driven value funds, we seek investments trading at prices that differ from those determined using our proprietary
“Private Market Value (PMV) with a Catalyst” 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 event merger arbitrage, the goal is to earn absolute returns (positive returns) regardless of the direction of the market. We have
compounded returns at a 7.71% net CAGR since we launched our first partnership dedicated to investing in merger arbitrage
situations. That is, $10 million invested in Gabelli Associates Fund in 1985 would today be worth more than $107 million, earned
with significantly less volatility than the market.
The investment process begins with the announcement of an acquisition, where an acquirer makes an offer for all of the target
company’s stock. The target’s shares usually trade at a discount, or spread, to the final deal price because of the time value of money,
regulatory approval risks and other risks specific to the companies in the transaction.
5
Our role as arbitrageurs is to quantify and assess the risks to the transaction, and make investments that compensate our investors for
these risks and earn a satisfactory return.
Our typical investment process involves buying shares of the target at a discount, earning the spread to the deal price when the deal
closes, and reinvesting the profits in new deals in a similar manner. By owning a diversified portfolio of deals, we mitigate the adverse
impact of deal-specific risks.
We expect rising interest rates will boost returns in merger arbitrage in the form of wider spreads, given the time value of money
component of the deal spread. As a result, merger arbitrage offers a good alternative to fixed income portfolios and should benefit
from a rising rate environment. We look forward to our next 30 years investing in merger arbitrage situations.
While merger arbitrage returns have historically been non-market correlated and deal-specific, event-driven value returns are more
correlated to broader equity markets.
We generally manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities utilizing a bottom up value
investment style. Our managed funds primarily employ absolute return strategies such that we strive to generate positive returns
regardless of market cycles or performance.
We introduced our first alternative fund, a merger arbitrage partnership, Gabelli Arbitrage (renamed Gabelli Associates), in February
1985. An offshore version of the event merger arbitrage strategy was added in 1989. Building on our strengths in global event-driven
value investing, several new Investment Partnerships have been added to balance investors’ geographic, strategy and sector needs.
Today, we offer Investment Partnerships in multiple categories, including event merger arbitrage, event-driven value and others across
a broad range of absolute return products. Within our event merger arbitrage strategy, as of December 31, 2016, we managed
approximately $1.08 billion of assets for investors who seek positive returns not correlated to fluctuations of the general market.
These funds seek to drive returns by investing mostly in announced merger and acquisition transactions that are primarily dependent
on deal closure and less on the overall market environment. In event-driven value, as of December 31, 2016, we managed
approximately $133 million of assets focused on global markets. We also manage $63 million of assets in a variety of other
Investment Partnerships designed to offer investors a mechanism to diversify their portfolios by global economic and sectoral
opportunities. These include sector, high yield, capital structure and venture capital or merchant banking portfolios. Since our
inception, we have been closely identified with, and have enhanced, the “value” style of investing consistent with our fundamental
objective of providing an absolute return for our clients. Our investment objective is to earn a superior risk-adjusted return over the
long-term through our proprietary fundamental research. We serve a wide variety of investors including private wealth management
accounts, corporations, corporate pension and profit-sharing plans, foundations and endowments, as well as serving as sub-advisor to
certain third-party investment funds.
Assets Under Management
The following table sets forth AC’s total AUM for the dates shown.
Assets Under Management (a)
(in millions)
2016
Year Ended December 31,
2014
2013
2015
2012
Event Merger Arb
Event-Driven Value (b)
Other (c)
Total AUM
$
$
$
$
$
1,076
133
63
1,272
869
145
66
1,080
796
167
77
1,040
691
140
76
907
$
$
$
$
$
721
124
75
920
(a) Asset levels include managed a c c o u n t s , partnerships and offshore companies.
(b) Excluding event merger arbitrage.
(c) Includes investment v e h i c l e s focused on private equity, merchant b a n k i n g, non-investment-grade credit and
capital structure arbitrage.
6
Institutional Research Services
Through G.research, doing business as “Gabelli & Company”, we provide institutional research services and act as an underwriter.
G.research is regulated by FINRA. G.research’s revenues are derived primarily from institutional research services, underwriting fees
and selling concessions. Our research analysts are industry-focused, following sectors based on our core competencies. They research
companies of all market capitalizations on a global basis. The primary function of the research team is to gather data, array the data,
and then project and interpret data from which investment decisions can be made. Analysts publish their insights in the form of
research reports and daily notes. In addition, G.research hosts selected conferences each year which bring together industry leaders
and institutional investors. The objective of institutional research services is to provide superior investment ideas to investment
decision makers. A significant portion of our institutional research services and underwriting revenues are from GAMCO and its
affiliates. We can provide no assurance that GAMCO and its affiliates will continue to use our institutional research and underwriting
services to the same extent in the future. G.research provides institutional investors with investment ideas in numerous industries and
special situations.
Analysts are generally assigned to research platforms, overseen by a senior analyst, whose role is to ensure a consistent process,
enhance idea cross-fertilization and knowledge-sharing.
Our research platforms include Digital, which includes cable,
telecommunications, broadcasting, publishing, advertising, entertainment and technology; Utilities and Energy; Consumer, Health and
Wellness; Aerospace and Capital Goods; Natural Resources; and Financial Services.
G.research generates institutional research services revenues via hard dollar payments or through securities transactions executed on
an agency basis on behalf of clients. Clients include institutional investors (hedge funds and asset managers) as well as affiliated
mutual funds and managed accounts. Institutional research services revenues totaled $9.6 million and $8.4 million for the years ended
December 31, 2016 and 2015, respectively. G.research earned $5.2 million and $4.9 million, or approximately 63% and 59%, of its
commission revenue from transactions executed on behalf of funds advised by Gabelli Funds, LLC, and clients advised by GAMCO
Asset Management Inc. for the years ended December 31, 2016 and 2015, respectively. Additionally, pursuant to research services
agreements 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. Gabelli Funds, LLC and GAMCO Asset
Management Inc. are both wholly owned subsidiaries of GAMCO. G.research continues to pursue expansion of third party and
affiliated activities.
GCIA Minority Interest Exchange
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 to 100% in return for 163,428 shares of AC.
Proprietary Trading
We received a substantial portfolio of cash and investments held by GAMCO prior to the spin-off. We expect to use this proprietary
investment portfolio to provide seed capital for introducing new products, expand our geographic presence, develop new markets
and pursue strategic acquisitions, alliances and lift-outs, as well as for shareholder compensation in the form of share repurchases and
dividends. Our proprietary portfolios are largely invested in products we manage or that are managed by GAMCO.
Business Strategy
Our business strategy targets global growth of the business through continued leveraging of our proven asset management strengths
including the long-term performance record of our alternative investment funds, diverse product offerings and experienced
investment, research and client relationship professionals. In order to achieve performance and growth in AUM and profitability, we
are pursuing a strategy which includes the following key elements:
Continuing an Active Fundamental Investment Approach
We began managing hedge fund assets in 1985, when we launched our first merger arbitrage fund resulting in an unparalleled thirty-
one year track record. Our results through a multitude of market cycles clearly demonstrate our core competence in event driven
investing. Our legacy of Gabelli “Private Market Value (PMV) with a Catalyst™” investing remains the principal management
philosophy guiding our investment operations. This method is based on investing principles articulated by Graham & Dodd, and
further augmented by our founder Mario J. Gabelli.
7
Growing our Investment Partnerships Advisory Business
We intend to grow our Investment Partnerships advisory business by gaining share with existing products and introducing new
products within our core competencies, such as event and merger arbitrage. In addition, we intend to grow internationally.
Capitalizing on Acquisitions, Alliances and Lift-outs
We intend to leverage our research and investment capabilities to selectively and opportunistically pursue acquisitions, alliances and
lift-outs that will broaden our product offerings and add new sources of distribution.
Pursuing Partnerships and Joint Ventures
We plan to pursue partnerships, distribution capabilities and joint ventures with firms that fit with AC’s product quality and that can
provide Asian/European opportunities that would complement our U.S. equity product expertise. We expect to pursue investments
targeting opportunities for investors interested in non-market correlated returns.
Growing our Institutional Research Services Operations
We intend to grow our Institutional Research Services operations by increasing our client base and by increasing our interactions with
existing clientele to generate increased trading activity and payment flow.
Continuing Our Sponsorship of Industry Conferences
G.research, our institutional research services business, sponsors industry conferences and management events throughout the year. At
these conferences and events, senior management from leading companies share their thoughts on the industry, competition, regulation
and the challenges and opportunities in their businesses with portfolio managers and securities analysts. These meetings are an
important component of the research services provided to institutional clients. In 2016, G.research hosted seven such meetings (listed
in chronological order):
February 25, 2016
March 3, 2016
March 23, 2016
April 29 - 30, 2016
June 6, 2016
September 8, 2016
November 1, 2016
Pump, Valve, & Water Systems
26th
2nd Waste & Environmental Services
Specialty Chemicals Conference
7th
Omaha Research Trip
10th
Movie & Entertainment Conference
8th
Aircraft & Connectivity Conference
22nd
Automotive Aftermarket Symposium
40th
We also have a tradition of sponsoring institutional investor symposiums that bring together prominent portfolio managers, members of
academia and other leading business professionals to present, discuss and debate current issues and topics in the investment industry.
These symposiums have included:
2015:
2013:
2006:
2003:
2001:
1998:
1997:
“Capital Allocation – The Tug of War”
“Value Investing 20 Years Later: A Celebration of the Roger Murray Lecture Series”
“Closed-End Funds: Premiums vs. Discounts, Dividends and Distributions”
“Dividends, Taxable versus Non-Taxable Issues”
“Virtues of Value Investing”
“The Role of Hedge Funds as a Way of Generating Absolute Returns”
“Active vs. Passive Stock Selection”
Attracting and Retaining Experienced Professionals
Our ability to attract and retain highly experienced investment and other professionals with a long-term commitment to us and our
clients has been, and will continue to be, a significant factor in our long-term growth. We offer significant variable compensation that
provides opportunities to our staff. We expect to increase the scope of our investment management capabilities, add portfolio managers
and other investment personnel, and expand our product offerings.
8
Competition
The alternative asset management industry is intensively competitive and is expected to remain so. We face competition in all aspects
of our business and in each of our investment strategies from other managers in the United States and globally. We compete with other
alternative investment management firms, insurance companies, banks, brokerage firms and other financial institutions that offer
products that have similar features and investment objectives. Many of these investment management firms are subsidiaries of large
diversified financial companies and may have access to greater resources, including liquidity sources, not available to us. Many others
are much larger in terms of AUM and revenues and, accordingly, have much larger sales organizations and marketing budgets.
Historically, we have competed primarily on the basis of the long-term investment performance of many of our investment products.
However, we have recently taken steps to increase our distribution channels, brand awareness and marketing efforts.
The market for providing investment management services to institutional and private wealth management clients is also highly
competitive. Selection of investment advisors by U.S. institutional investors is often subject to a screening process and to favorable
recommendations by investment industry consultants. Many of these investors require their investment advisors to have a successful
and sustained performance record, often five years or longer, with focus also on one-year and three-year performance records. We
have significantly increased our AUM on behalf of U.S. institutional investors since our entry into the institutional asset management
business. At the current time, we believe that our investment performance record would be attractive to potential new institutional and
private wealth management clients. However, no assurance can be given that our efforts to obtain new business will be successful.
Intellectual Property
Service marks and brand name recognition are important to our business. We have rights to the service marks under which our
products are offered. We have rights to use the “Gabelli” name, and the “GAMCO” name, pursuant to a Service Mark and Name
License Agreement, a non-exclusive, royalty-free perpetual license agreement we have entered into with GAMCO (the “Service Mark
and Name License Agreement”). GAMCO has licensed to us its rights to the “Gabelli” name and the “GAMCO” name for use with
respect to our funds, collective investment vehicles, investment partnerships and other investment products pursuant to the Service
Mark and Name License Agreement. The Service Mark and Name License Agreement has a perpetual term, subject to termination only
in the event we are not in compliance with the quality control provisions in the Service Mark and Name License Agreement. Pursuant
to an assignment agreement signed in 1999, Mario J. Gabelli had assigned to GAMCO all of his rights, title and interests in and to the
“Gabelli” name for use in connection with investment management services and institutional research services. In addition, the funds
managed by Mario J. Gabelli outside GAMCO and AC have entered into a license agreement with GAMCO permitting them to
continue limited use of the “Gabelli” name under specified circumstances.
Regulation
Virtually all aspects of our businesses are subject to various federal, state and foreign laws and regulations. These laws and regulations
are primarily intended to protect investment advisory clients and investors, the markets and customers of broker-dealers. Under such
laws and regulations, agencies that regulate investment advisors and broker-dealers have broad powers, including the power to limit,
restrict or prohibit such an advisor or broker-dealer from carrying on its business in the event that it fails to comply with such laws and
regulations. In such an event, the possible sanctions that may be imposed include civil and criminal liability, the suspension of
individual employees, injunctions, limitations on engaging in certain lines of business for specified periods of time, revocation of the
investment advisor and other registrations, censures and fines.
Global Regulatory Reform
We are subject to numerous regulatory reform initiatives in each country in which we do business. Any initiative, or new laws or
regulations or changes in enforcement of existing laws or regulations, could materially and adversely impact the scope or profitability
of AC’s business activities, lead to business disruptions, require AC to change certain business practices and expose AC to additional
costs (including compliance and legal costs), as well as reputational harm. AC’s profitability also could be materially and adversely
affected by modification of the rules and regulations that impact the business and financial communities in general, including changes
to the laws governing taxation, antitrust regulation and electronic commerce.
Dodd-Frank Wall Street Reform and Consumer Protection Act. In July 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “DFA”) was signed into law in the United States. The DFA is expansive in scope and requires the adoption of
extensive regulations and numerous regulatory decisions, many of which have been adopted. As the impact of these rules becomes
evident over time, it is not yet possible to predict the ultimate effects that the DFA, or subsequent regulations and decisions, will have
upon AC’s business, financial condition and results of operations.
9
Securities and Exchange Commission Review of Asset Managers. Our business may also be impacted by the SEC regulatory
initiatives. For example, on December 11, 2014 the Chair of the SEC announced that she is recommending that the SEC enhance its
oversight of asset managers by (i) expanding and updating data requirements with which asset managers must comply, (ii) improving
fund level controls, including those related to liquidity levels and the nature of specific instruments and (iii) ensuring that asset
management firms have appropriate transition plans in place to deal with market stress events or situations where an investment
adviser is no longer able to serve its clients. Although these recommendations have not yet resulted in any proposed rules, any
additional SEC oversight or the introduction of any new reporting, disclosure or control requirements could expose us to additional
compliance costs and may require us to change how we operate our business.
Taxation. Our global business may be impacted by the Foreign Account Tax Compliance Act (“FATCA”), which was enacted in 2010
and introduced expansive new investor onboarding, withholding and reporting rules aimed at ensuring U.S. persons with financial
assets outside of the United States pay appropriate taxes. In many instances, however, the precise nature of what needs to be
implemented will be governed by bilateral Intergovernmental Agreements (“IGAs”) between the United States and the countries in
which we do business or have accounts. While many of these IGAs have been put into place, others have yet to be concluded. The
FATCA rules will impact both U.S. and non-U.S. funds and subject us to extensive additional administrative burdens. The
Organization for Economic Co-operation and Development has also recently launched the business erosion and profit shifting
(“BEPS”) proposal that aims to rationalize tax treatment across jurisdictions. If the BEPS proposal becomes the subject of legislative
action in the format proposed, it could have unintended taxation consequences for collective investment vehicles and our tax position,
which could adversely affect our financial condition.
In addition, certain individual EU Member States, such as France and Italy, have enacted national financial transaction taxes (“FTTs”).
There has also been renewed momentum by several other Member States to introduce FTTs, which would impose taxation on a
broad range of financial instrument and derivatives transactions. In general, any tax on securities and derivatives transactions would
impact investors and would likely have a negative impact on the liquidity of the securities and derivatives markets, could diminish
the attractiveness of certain types of products that we manage in those countries and could cause clients to shift assets away from
such products. An FTT could significantly increase the operational costs of our entering into, on behalf of our clients, securities and
derivatives transactions that would be subjected to an FTT, which could adversely impact our financial results and clients’ performance
results.
Our business could also be impacted to the extent there are other changes to tax laws. For example, the administration recently
announced plans to significantly overhaul the current tax regime. To the extent such changes are adopted and found to apply to us; such
changes could adversely affect our financial results.
Alternative Investment Fund Managers Directive. Our European business is impacted by the EU Alternative Investment Fund
Managers Directive (“AIFMD”), which became effective on July 21, 2011. The AIFMD regulates managers of, and service providers
to, a broad range of alternative investment funds (“AIFs”) domiciled within and (depending on the precise circumstances) outside
the EU. The AIFMD also regulates the marketing of all AIFs inside the European Economic Area (“EEA”). The AIFMD is being
implemented in stages, which run through 2018. Compliance with the AIFMD’s requirements restrict alternative investment fund
marketing and impose additional compliance and disclosure obligations regarding remuneration, capital requirements, leverage,
valuation, stakes in EU companies, depositaries, the domicile of custodians and liquidity management on AC. These new
compliance and disclosure obligations and the associated risk management and reporting requirements will subject us to additional
expenses.
Undertakings for Collective Investment in Transferable Securities. The EU has also adopted directives on the coordination of laws,
regulations and administrative provisions relating to undertakings for collective investment in transferable securities (“UCITS”) as
regards depositary functions, remuneration policies and sanctions. The latest initiative in this area, UCITS V, which became
effective in September 2014, seeks to align the depositary regime, remuneration rules and sanctioning powers of regulators under
the UCITS Directive with the requirements of the AIFMD. UCITS V was required to be adopted in the national law of each EU
member state during the second quarter of 2016. Similarly, in August 2014 ESMA revised the guidelines it initially published in 2012
on exchange-traded funds and other UCITS funds. The guidelines introduced new collateral management requirements for UCITS
funds concerning collateral received in the context of derivatives using Efficient Portfolio Management (“EPM”) techniques
(including securities lending) and over-the-counter derivative transactions. These rules, which are now in effect, required us to make
a series of changes to its collateral management arrangements applicable to the EPM of its UCITS fund ranges. Compliance with the
UCITS directives will cause us to incur additional expenses associated with new risk management and reporting requirements.
Existing U.S. Regulation Overview
AC and certain of its U.S. subsidiaries are currently subject to extensive regulation, primarily at the federal level, by the SEC, the
Department of Labor, FINRA and other government agencies and regulatory bodies. Certain of our U.S. subsidiaries are also
10
subject to various anti-terrorist financing, privacy, anti-money laundering regulations and economic sanctions laws and regulations
established by various agencies.
The Investment Advisers Act of 1940
GCIA is registered with the SEC under the Advisers Act and is regulated by and subject to examination by the SEC. The Advisers Act
imposes numerous obligations on registered investment advisors including fiduciary duties, disclosure obligations and record keeping,
operational and marketing requirements. The SEC is authorized to institute proceedings and impose sanctions for violations of the
Advisers Act, ranging from censure to termination of an investment advisor’s registration. The failure of GCIA to comply with the
requirements of the SEC could have a material adverse effect on us.
We derive a majority of our revenues from investment advisory services through our various investment management agreements.
Under the Advisers Act, our investment management agreements may not be assigned without the client’s consent.
Broker-Dealer and Trading and Investment Regulation
G.research is a registered as broker-dealer with the SEC and is subject to regulation by FINRA and various states. In its capacity as a
broker-dealer, G.research is required to maintain certain minimum net capital amounts. 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’s net capital, as defined, met or exceeded all minimum requirements as of December 31, 2016. As
a registered broker-dealer, G.research is also subject to periodic examination by FINRA, the SEC and the state regulatory authorities.
Our trading and investment activities for client accounts are regulated under the Exchange Act, as well as the rules of various U.S. and
non-U.S. securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market
manipulation and a broad number of technical requirements (e.g., short sale limits, volume limitations and reporting obligations)
and market regulation policies in the United States and globally. Violation of any of these laws and regulations could result in
restrictions on our activities and damage our reputation.
Potential Legislation Relating to Private Pools of Capital
We manage a variety of private pools of capital, including hedge funds. Congress, regulators, tax authorities and others continue to
explore, on their own and in response to demands from the investment community and the public, increased regulation related to
private pools of capital, including changes with respect to investor eligibility, certain limitations on trading activities, record-
keeping and reporting, the scope of anti-fraud protections, safekeeping of client assets, tax treatment and a variety of other matters. AC
may be materially and adversely affected by new legislation, rule-making or changes in the interpretation or enforcement of existing
rules and regulations imposed by various regulators.
Employee Retirement Income Security Act of 1974 (“ERISA”)
Subsidiaries of AC are subject to ERISA and to regulations promulgated thereunder, insofar as they are “fiduciaries” under ERISA
with respect to certain of their clients. ERISA and applicable provisions of the Code impose certain duties on persons who are
fiduciaries under ERISA and prohibit certain transactions involving ERISA plan clients. Our failure to comply with these requirements
could have a material adverse effect on us.
The Patriot Act
The USA Patriot Act of 2001 contains anti-money laundering and financial transparency laws and mandates the implementation of
various new regulations applicable to broker-dealers and other financial services companies, including standards for verifying client
identification at account opening, and obligations to monitor client transactions and report suspicious activities. Anti-money
laundering laws outside of the United States contain some similar provisions. Our failure to comply with these requirements could have
a material adverse effect on us.
Laws and Other Issues Relating to Taking Significant Equity Stakes in Companies
Investments by AC and on behalf of our advisory clients and Investment Partnerships often represent a significant equity ownership
position in an issuer’s class of stock. As of December 31, 2016, we had five percent or more beneficial ownership with respect to 112
equity securities (this is partially due to the fact that we may be deemed to be a member of “group” with GAMCO and therefore may
be deemed to beneficially own the securities owned by that group). This activity raises frequent regulatory, legal and disclosure issues
regarding our aggregate beneficial ownership level with respect to portfolio securities, including issues relating to issuers’
stockholder rights plans or “poison pills,” and various federal and state regulatory limitations, including state gaming laws and
11
regulations, federal communications laws and regulations and federal and state public utility laws and regulations, as well as federal
proxy rules governing stockholder communications and federal laws and regulations regarding the reporting of beneficial ownership
positions. Our failure to comply with these requirements could have a material adverse effect on us.
Existing International Regulation Overview
Our international operations are subject to the laws and regulations of a number of international jurisdictions, as well as oversight by
numerous regulatory agencies and bodies in those jurisdictions. In some instances, they are also affected by U.S. laws and regulations
that have extra-territorial application.
Below is a summary of certain international regulatory standards to which AC is subject. It is not meant to be comprehensive as there
are parallel legal and regulatory arrangements in force in many jurisdictions where AC’s subsidiaries conduct business.
Of note among the various other international regulations to which AC is subject, are the extensive and increasingly stringent
regulatory reporting requirements that necessitate the monitoring and reporting of issuer exposure levels (thresholds) across the
holdings of managed funds and accounts and those of AC.
European Regulation
The Financial Conduct Authority (“FCA”) currently regulates entities in the United Kingdom. Authorization by the FCA is required to
conduct certain financial services related business in the United Kingdom under the Financial Services and Markets Act 2000. The
FCA’s rules adopted under that Act govern the majority of a firm’s capital resources requirements, senior management arrangements,
and conduct of business, interaction with clients and systems and controls. The FCA supervises AC through a combination of
proactive engagement, event-driven and reactive supervision and thematic based reviews in order to monitor our compliance with
regulatory requirements. Breaches of the FCA’s rules may result in a wide range of disciplinary actions against our U.K.-regulated
entities and/or its employees.
In addition, our U.K.-regulated entities and other European entities must comply with the pan-European regulatory regime established
by the Markets in Financial Instruments Directive (“MiFID”), which became effective on November 1, 2007 and regulates the
provision of investment services and activities throughout the wider EEA. MiFID, the scope of which is being enhanced through
MiFID 2, sets out detailed requirements governing the organization and conduct of business of investment firms and regulated markets.
It also includes pre- and post-trade transparency requirements for equity markets and extensive transaction reporting requirements. In
addition, relevant entities must comply with revised obligations on capital resources for banks and certain investment firms (the Capital
Requirements Directive), which became effective in January 2014. These include requirements not only on capital, but address matters
of governance and remuneration as well. The obligations introduced through these directives will have a direct effect on some of our
European operations.
Our EU-regulated entities are additionally subject to an EU regulation on OTC derivatives, central counterparties and trade
repositories, which was adopted in August 2012 and which requires (i) the central clearing of standardized OTC derivatives, (ii) the
application of risk-mitigation techniques to non-centrally cleared OTC derivatives and (iii) the reporting of all derivative contracts
from February 2014.
Regulatory Matters
The investment management industry is likely to continue facing a high level of regulatory scrutiny and become subject to additional
rules designed to increase disclosure, tighten controls and reduce potential conflicts of interest. In addition, the Commission has
substantially increased its use of focused inquiries which request information from investment advisors and a number of fund
complexes regarding particular practices or provisions of the securities laws. We participate in some of these inquiries in the normal
course of our business. Changes in laws, regulations and administrative practices by regulatory authorities, and the associated
compliance costs, have increased our cost structure and could in the future have a material adverse impact. Although we have installed
procedures and utilize the services of experienced administrators, accountants and lawyers to assist us in adhering to regulatory
guidelines and satisfying these requirements, and maintain insurance to protect ourselves in the case of client losses, there can be no
assurance that the precautions and procedures that we have instituted and installed, or the insurance that we maintain to protect
ourselves in case of client losses, will protect us from all potential liabilities.
12
Employees
On February 28, 2017, we had a full-time staff of 72 teammates, of whom 46 served in the portfolio management, research and trading
areas, 17 served in the marketing and shareholder servicing areas and 9 served in the administrative area. We also avail ourselves of
services provided by GAMCO in accordance with the Transitional Services Agreement that were entered into with GAMCO as part of
the spin-off.
Status as an Emerging Growth Company and a Smaller Reporting Company
We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These
exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
We may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as
we qualify as an emerging growth company, except that we have irrevocably elected not to take advantage of the extension of time
to comply with new or revised financial accounting standards available under Section 107(b) of the JOBS Act.
We will, in general, remain as an emerging growth company for up to five full fiscal years following the spin-off. We would cease to
be an emerging growth company and, therefore, become ineligible to rely on the above exemptions, if we:
• have more than $1 billion in annual revenue in a fiscal year;
• issue more than $1 billion of non-convertible debt during the preceding three-year period; or
• become a “large accelerated filer” as defined in Exchange Act Rule 12b-2, which would occur after: (i) we have filed at
least one annual report pursuant to the Exchange Act; (ii) we have been an SEC-reporting company for at least 12 months;
and (iii) the market value of AC common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter.
In addition, we qualify as a “smaller reporting company” under the Exchange Act. As a smaller reporting company, we enjoy many of
the same exemptions as emerging growth companies, in addition to scaled disclosures. At the end of the second quarter of our fiscal
year (June 30), our public float exceeded $75 million and as such we are required to transition out of the scaled disclosure system for
“smaller reporting companies” by the time we file our quarterly report on Form 10-Q covering the first fiscal quarter of the fiscal year
2017, which would be due in May 2017. However, we would still be able to avail ourselves of the “emerging growth company”
exemptions.
ITEM 1A: RISK FACTORS
We caution the reader that the following risks and those risks described elsewhere in this report and in our other SEC filings could have
a material adverse effect on our business, prospects, financial condition, results of operations or cash flow or could cause a decline in
the Company’s stock price.
Risks Related to the Spin-off
We may not achieve the benefits expected from our spin-off from GAMCO and may be more susceptible to adverse events.
We expect that, as a company independent from GAMCO, we will be able to grow organically and through acquisitions. Nonetheless,
we may not be able to achieve either of these goals. Furthermore, by separating from GAMCO, there is a risk that we may be more
susceptible to adverse events than we would have otherwise experienced as a subsidiary of GAMCO. As a subsidiary of GAMCO, we
enjoyed certain benefits, including economies of scope and scale in costs, employees and business relationships. These benefits may
not be as readily achievable as a smaller, stand-alone company.
Certain of our directors and officers may have actual or potential conflicts of interest because of their positions or relationships
with GAMCO.
Mario J. Gabelli serves as our Executive Chairman and also continues to serve as Chairman and Chief Executive Officer of GAMCO.
Douglas R. Jamieson, President and Chief Executive Officer of Associated Capital, continues his role as President and Chief Operating
13
Officer of GAMCO Asset Management. Executive Vice President Agnes Mullady, who is responsible for the oversight of Associated
Capital’s UCITs offerings, also acts as Senior Vice President of GAMCO and President and Chief Operating Officer of the Gabelli
Funds Division. Our Director, Marc Gabelli, is a son of Mario J. Gabelli and continues to have responsibilities relating to GAMCO,
which include participating on GAMCO’s portfolio management team. Marc Gabelli will not be standing for re-election as a Director
at the Company’s annual meeting in May 2017. Kevin Handwerker, Associated Capital’s Executive Vice President, General Counsel
and Secretary, also serves in the same capacities for GAMCO. In addition, some of our portfolio managers and employees are
provided pursuant to the Transitional Services Agreement with GAMCO and are officers or employees of GAMCO. Such dual
assignments could create, or appear to create, potential conflicts of interest when our and GAMCO’s officers and directors face
decisions that could have different implications for the two companies.
Associated Capital has renounced its rights to certain business opportunities, and our certificate of incorporation provides that no
director or officer of Associated Capital will breach their fiduciary duty and therefore be liable to Associated Capital or its stockholders
by reason of the fact that any such individual directs a corporate opportunity to another person or entity (including GAMCO) instead of
Associated Capital, or does not refer or communicate information regarding such corporate opportunity to Associated Capital, unless
(x) such opportunity was expressly offered to such person solely in his or her capacity as a director or officer of Associated Capital or
as a director or officer of any of our subsidiaries, and (y) such opportunity relates to a line of business in which Associated Capital or
any of its subsidiaries is then directly engaged; provided, however, if the conditions specified in the immediately preceding clauses (x)
and (y) are satisfied, any officer or director of Associated Capital may pursue such corporate opportunity (or direct it to another person
or entity) if either (i) Associated Capital renounces its interest in the potential business opportunity in writing or (ii) Associated Capital
does not within a reasonable period of time, begin to pursue, or thereafter continue to pursue, such corporate opportunity diligently and
in good faith. Our certificate of incorporation specifically provides that any person purchasing, receiving or otherwise becoming an
owner of any shares of our capital stock, or any interest therein, will be deemed to have notice of and to have consented to the
corporate opportunity policy contained in our certificate of incorporation.
Also, some of our directors, executive officers, portfolio managers and teammates own shares of GAMCO common stock and
GAMCO restricted stock awards (“RSAs”) or other GAMCO equity awards. At the time of the spin-off, these equity awards were
supplemented by the awarding of Associated Capital RSAs. Specifically, outstanding RSAs relating to GAMCO remain unchanged,
with each RSA holder also receiving an equal number of RSAs relating to Associated Capital. The terms of the new Associated Capital
RSAs are the same as the terms of the pre-spin-off GAMCO RSAs. The purpose of the issuance was to ensure that any employee who
had GAMCO RSAs was 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. The ownership of these RSAs may create, or may create the appearance of, conflicts of interest.
In addition, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between GAMCO
and Associated Capital regarding the terms of the agreements governing the separation and the relationship thereafter between the
companies. The executive officers and other personnel of GAMCO who serve as directors or executive management of Associated
Capital may interpret these agreements in their capacity as GAMCO employees in a manner that would adversely affect the business of
Associated Capital.
Also, certain subsidiaries of GAMCO and GCIA are investment advisers. The executive officers and other personnel of GAMCO who
also serve as directors or executive management of Associated Capital may be confronted with the possibility of making decisions in
their GAMCO capacity that would adversely affect the business of Associated Capital.
Associated Capital and GAMCO expect to be vigilant in attempting to identify and resolve any potential conflicts of interest, including
but not limited to the types described above, at the earliest possible time. However, there can be no guarantee that the interests of
Associated Capital may not be adversely affected at some point by such a conflict.
The separation from GAMCO may adversely affect the level of our assets under management (“AUM”).
Our revenues are dependent on the amount of our AUM as well as the performance of our products. Many investors may have
invested assets in alternative investment products (the “Alternative Investments”) in part because GCIA was a subsidiary of
GAMCO. There can be no assurance that we will be able to attract investors to the Alternative Investments at the same rate as in prior
years. In addition, we can make no assurance that current investors will not redeem their investments from the Alternative Investments
as a result of our changed relationship with GAMCO. The occurrence of either of these events could adversely affect our business,
results of operations and financial condition.
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Concerns about our prospects as a stand-alone company could affect our ability to attract and retain employees or individuals
whom we are attempting to recruit as employees.
Our employees or individuals whom we are attempting to recruit as employees may have concerns about our prospects as a stand-alone
company, including our ability to maintain our independence and our inability to continue our current reliance on GAMCO’s
resources. If we are not successful in assuring our employees or individuals whom we are attempting to recruit as employees of our
prospects as an independent company, our employees or recruits may seek or accept other employment, which could adversely affect
our business and our results of operations.
We may have been able to receive better terms from unaffiliated third parties than the terms provided in our agreements with
GAMCO.
The agreements related to our separation from GAMCO, including, but not limited to, the Separation Agreement, the Transitional
Services Agreement and the Service Mark and Name License Agreement, were negotiated in the context of our separation from
GAMCO while Associated Capital was still majority-owned by GAMCO. Accordingly, they may not reflect terms that would have
been reached between unaffiliated parties. The terms of the agreements we negotiated in the context of our separation related to, among
other things, indemnities and other obligations between GAMCO and us. Had these agreements been negotiated with unaffiliated third
parties, they might have been more favorable to us.
In connection with the spin-off, GAMCO has indemnified us for certain liabilities. There can be no assurance that the indemnity
will be sufficient to insure us against the full amount of such liabilities, or that GAMCO’s ability to satisfy its indemnification
obligations will not be impaired in the future.
Pursuant to the Separation Agreement, GAMCO will agree to indemnify us from certain liabilities. Third parties could seek to hold us
responsible for any of the liabilities that GAMCO has agreed to retain, and there can be no assurance that the indemnity from GAMCO
will be sufficient to protect us against the full amount of such liabilities or that GAMCO will be able to fully satisfy its indemnification
obligations. Moreover, even if we ultimately succeed in recovering from GAMCO any amounts for which we are held liable, we may
be temporarily required to bear those losses until such recovery. Each of these risks could adversely affect our business, results of
operations and financial condition.
Risks Related to Our Industry
Changes in laws or regulations or in governmental policies and compliance with existing laws or regulations could limit the
sources and amounts of our revenues, increase our costs of doing business, decrease our profitability and materially and adversely
affect our business.
Our business is subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC
under the Advisers Act as well as other securities laws, by the Department of Labor under ERISA, and regulation by FINRA and state
regulators. The Advisers Act imposes numerous obligations on investment advisors, including record-keeping, advertising and
operating requirements, fiduciary and disclosure obligations, custodial requirements and prohibitions on fraudulent activities. In
addition, our businesses are also subject to regulation by the FCA in the United Kingdom, and we are also subject to the laws of other
non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies.
Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions,
including revocation of our subsidiaries’ registrations as an investment advisor or broker-dealer. Industry regulations are designed to
protect our clients and investors in our funds and other third parties who deal with us and to ensure the integrity of the financial
markets. Our industry is frequently altered by new laws or regulations and by revisions to, and evolving interpretations of, existing
laws and regulations, both in the United States and in other nations. Changes in laws or regulations or in governmental policies could
limit the sources and amounts of our revenues, increase our costs of doing business, decrease our profitability and materially and
adversely affect our business.
We are subject to extensive and pervasive regulation around the world.
Our business is subject to extensive regulation around the world. These regulations subject our business activities to a pervasive array
of increasingly detailed operational requirements, compliance with which is costly, time-consuming and complex. We may be
adversely affected by our failure to comply with current laws and regulations or by changes in the interpretation or enforcement of
existing laws and regulations. Challenges associated with interpreting regulations issued in numerous countries in a globally consistent
manner may add to such risks if regulators in different jurisdictions have inconsistent views or provide only limited regulatory
15
guidance. In particular, violation of applicable laws or regulations could result in fines, temporary or permanent prohibition of certain
activities, reputational harm and related client terminations, suspensions of employees or revocation of their licenses, suspension or
termination of investment adviser, broker-dealer or other registrations or other sanctions, which could have a material adverse effect on
our reputation or business and may cause our AUM, revenue and earnings to decline.
New tax legislation or changes in U.S. and foreign tax laws and regulations or challenges to Associated Capital’s historical
taxation practices may adversely affect Associated Capital’s effective tax rate, business and overall financial condition.
Our businesses may be affected by new tax legislation or regulations, or the modification of existing tax laws and regulations, by U.S.
or non-U.S. authorities. In particular, the Foreign Account Tax Compliance Act (“FATCA”) has introduced expansive new investor
onboarding, withholding and reporting rules aimed at ensuring U.S. persons with financial assets outside of the United States pay
appropriate taxes. The FATCA rules will impact both U.S. and non-U.S. funds and subject Associated Capital to extensive additional
administrative burdens. Certain of our FATCA compliance are done by third parties, and we cannot be certain that they will always
comply with applicable FATCA rules. Similarly, there has been renewed momentum by several European Union (“EU”) Member
States to introduce national FTTs, which would impose taxation on a broad range of financial instrument and derivatives transactions.
If introduced as proposed, FTTs could have an adverse effect on Associated Capital’s financial results and on clients’ performance
results. In addition, the Organization for Economic Co-operation and Development recently launched a BEPS proposal that aims to
rationalize tax treatment across jurisdictions. If the BEPS proposal becomes the subject of legislative action in the format proposed, it
could have unintended taxation consequences for collective investment vehicles and our tax position, which could adversely affect our
financial condition.
We also manage significant assets in products and accounts that have specific tax and after-tax related objectives, which could be
adversely impacted by changes in tax policy. Additionally, any new legislation, modification or interpretation of tax laws could impact
Associated Capital’s corporate tax position. The application of complex tax regulations involves numerous uncertainties and in the
normal course of business, U.S. and non-U.S. tax authorities may review and challenge Associated Capital’s historical tax
positions. These challenges may result in adjustments to Associated Capital’s tax position, or impact the timing or amount of, taxable
income, deductions or other tax allocations, which may adversely affect Associated Capital’s effective tax rate and overall financial
condition.
To the extent we are forced to compete on the basis of price, we may not be able to maintain our current fee structure.
The investment management business is highly competitive and has relatively low barriers to entry. To the extent we are forced to
compete on the basis of price, we may not be able to maintain our current fee structure. Although our investment management fees
vary from product to product, historically we have competed primarily on the performance of our products and not on the level of our
investment management fees relative to those of our competitors. In recent years, however, there has been a trend toward lower fees in
the investment management industry. In order to maintain our fee structure in a competitive environment, we must be able to continue
to provide clients with investment returns and service that make investors willing to pay our fees. We cannot be assured that we will
succeed in providing investment returns and service that will allow us to maintain our current fee structure. Fee reductions on existing
or new business could have an adverse effect on our profit margins and results of operations.
Catastrophic and unpredictable events could have a material adverse effect on our business.
A terrorist attack, political unrest, war (whether or not directly involving the United States), power failure, cyber-attack, technology
failure, natural disaster or many other possible catastrophic or unpredictable events could adversely affect our future revenues,
expenses and earnings by, among other things: causing disruptions in United States, regional or global economic conditions;
interrupting our normal business operations; inflicting employee casualties, including loss of our key executives; requiring substantial
expenditures and expenses to repair, replace and restore normal business operations; and reducing investor confidence.
Pursuant to the Transitional Services Agreement with GAMCO, we have a disaster recovery plan to address certain contingencies, but
we cannot assure you that this plan will be effective or sufficient in responding to, eliminating or ameliorating the effects of all disaster
scenarios. If our employees or vendors we rely upon for support in a catastrophic event are unable to respond adequately or in a timely
manner, we may lose clients resulting in a decrease in AUM which may have a material adverse effect on revenues and net income.
The soundness of other financial institutions could adversely affect our business.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We and the
investments we manage may have exposure to many different industries and counterparties, and we routinely execute transactions with
counterparties in the financial services industry, including: brokers and dealers, commercial banks, investment banks, clearing
16
organizations, mutual and hedge funds and other institutions. Many of these transactions expose us and the accounts we manage to
credit risk in the event of the counterparty’s default. There is no assurance that any such losses would not materially and adversely
impact Associated Capital’s revenues and earnings.
Risks Related to Our Business
Control by Mario J. Gabelli of a majority of the combined voting power of Associated Capital common stock may give rise to
conflicts of interests.
Mario J. Gabelli, through his control and majority ownership of GGCP and his individual ownership of Associated Capital common
stock, will beneficially own a majority of our outstanding Associated Capital Class B Stock, representing approximately 96.1% voting
control. As long as Mario J. Gabelli indirectly beneficially owns a majority of the combined voting power of Associated Capital
common stock, he will have the ability to elect all of the members of our Board and thereby control our management and affairs,
including determinations with respect to acquisitions, dispositions, borrowings, issuances of common stock or other securities, and the
declaration and payment of dividends on the Associated Capital common stock. In addition, Mario J. Gabelli will be able to determine
the outcome of all matters submitted to a vote of our stockholders for approval and will be able to cause or prevent a change in control
of Associated Capital. As a result of Mario J. Gabelli’s control, none of our agreements with Mario J. Gabelli and other companies
controlled by him can be assumed to have been arrived at through “arm’s-length” negotiations, although the parties endeavor to
implement market-based terms. There can be no assurance that we would not have received more favorable terms, or offered less
favorable terms to, an unaffiliated party.
In addition, Mario J. Gabelli, through his control and majority ownership of GGCP, controls GAMCO, and he could take actions that
favor GAMCO over Associated Capital.
We may compete with GAMCO for clients and investment opportunities.
Although our business is expected to focus primarily on alternative investment management and institutional research services, while
GAMCO is expected to focus primarily on its mutual fund and institutional and private wealth management businesses, situations may
arise where we find ourselves directly competing with GAMCO for investment clients and opportunities. For example, it is possible
that a potential investor might consider investing in Associated Capital and GAMCO investment products and that such potential
investor will have to choose between our investment products and those offered by GAMCO. In addition, Associated Capital and
GAMCO could pursue the same investment opportunities in the future.
Investors in our products have the right to redeem their investments in our products on a regular basis and could redeem a
significant amount of AUM during any given quarterly period, which would result in significantly decreased revenues.
Subject to any specific redemption provisions applicable to a product, investors may generally redeem their investments in our
products on an annual or quarterly basis following the expiration of a specified period of time. In a declining market, the pace of
redemptions and consequent reduction in our AUM potentially could accelerate. Furthermore, investors in our products may also
invest in products managed by other alternative asset managers that have restricted or suspended redemptions or may in the future do
so. Such investors may redeem capital from our products, even if our performance is superior to such other alternative asset managers’
performance, if they are restricted or prevented from redeeming capital from those other managers.
The decrease in revenues that would result from significant redemptions in our products could have a material adverse effect on our
results of operations, cash flows and business. In 2009, due to factors related to the financial crisis, investors redeemed approximately
$62 million invested in Associated Capital’s products which represented approximately 20% of Associated Capital’s AUM at that time.
If economic and market conditions remain uncertain or worsen, we may once again experience significant redemptions.
Our business and financial condition may be materially adversely impacted by the highly variable nature of our revenues, results of
operations and cash flows. In a typical year, a substantial portion of our incentive allocation income is determined and recorded in
the fourth quarter of each year, which means that our interim results are not expected to be indicative of our results for a full year.
Our revenues are influenced by the combination of the amount of AUM and the investment performance of our products. Asset flows,
whether inflows or outflows, can be highly variable from month to month and quarter to quarter. Furthermore, our products’
investment performance, which affects the amount of AUM, can be volatile due to, among other things, general market and economic
conditions. Accordingly, our revenues, results of operations and cash flows may be highly variable. This variability is exacerbated
during the fourth quarter of each fiscal year, primarily due to the fact that a substantial portion of our revenues historically have been,
and we expect will continue to be, derived from incentive allocation income from our products. Incentive allocation income is
contingent on the investment performance of the products as of the relevant measurement period, which generally is as of the end of
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each calendar year. We may also experience fluctuations in our results from quarter to quarter due to a number of other factors,
including changes in management fees resulting from changes in the value of our products’ investments, other changes in the amount
of AUM, changes in our operating expenses, unexpected business developments and initiatives and, as discussed above, general
economic and market conditions. Such variability and unpredictability may lead to volatility or declines in the price of the our stock
and cause our results for a particular period not to be indicative of our performance in a future period or meaningful as a basis of
comparison against results for a prior period.
The amount of incentive allocation income that may be generated by our products is uncertain until it is determined and realized at a
particular point in time. We generally do not record incentive allocation income in our interim financial statements other than incentive
allocation income earned as a result of investor redemptions during the period. As a result of these and other factors, our interim results
may not be indicative of historical performance or the results that may be expected for a full year.
In addition, a substantial portion of our products’ AUM have “high-water marks.” This means that if an investor experiences losses in a
given year, we will not be able to earn incentive allocation income with respect to such investor’s investment unless and until our
investment performance surpasses the high-water mark. The incentive allocation income we earn is therefore dependent on the net
asset value of each investor’s investment in our products. As of December 31, 2016, approximately 1% of our AUM was below a
high-water mark, with a loss carryforward amount that was approximately 0.2% of AUM. We can make no assurances that our
investors will not experience losses in future years and, as a result, we may not earn incentive allocation income in those or subsequent
years until such losses are earned back.
A decline in the prices of securities generally could lead to a decline in our AUM, revenues and earnings.
Substantially all of our revenues are directly related to both the amount of our AUM and the performance of our investment products.
Under our investment advisory contracts, the investment advisory fees we receive are typically based on the market value of AUM.
Accordingly, a decline in the prices of securities generally may cause our revenues and net income to decline by either causing the
value of our AUM to decrease, which would result in lower investment advisory fees, or causing our clients to withdraw funds in favor
of investments they perceive to offer greater opportunity or lower risk, which would also result in lower fees. The securities markets
are highly volatile, and securities prices may increase or decrease for many reasons beyond our control, including but not limited to
economic and political events, war (whether or not directly involving the United States), acts of terrorism, unanticipated changes in
currency exchange rates, interest rates, inflation rates, the yield curve, defaults by derivative counterparties, bond default risks,
decreases in commodity prices, slowing growth in other countries, particularly China, the sovereign debt crisis in Europe and other
factors that are difficult or impossible to predict or even to identify. If a decline in securities prices caused our revenues to decline, it
could have a material adverse effect on our earnings.
The loss of the services of Mario J. Gabelli and other key personnel could have a material adverse effect on our business.
We are dependent on the efforts of Mario J. Gabelli, our Executive Chairman. The loss of the services of Mario J. Gabelli could have a
material adverse effect on our business.
Our future success depends to a substantial degree on our ability to retain and attract other qualified personnel to conduct our
investment management business. The market for qualified portfolio managers is extremely competitive and has grown more so in
recent periods as the investment management industry has experienced growth. We anticipate that it will be necessary for us to add
portfolio managers and investment analysts as we further diversify our investment products and strategies. There can be no assurance,
however, that we will be successful in our efforts to recruit and retain the required personnel. In addition, our investment professionals
and senior marketing personnel have direct contact with our clients, which can lead to strong client relationships. The loss of these
personnel could jeopardize our relationships with certain clients, and result in the loss of such accounts. The loss of key management
professionals or the inability to recruit and retain sufficient portfolio managers and marketing personnel could have a material adverse
effect on our business.
We have experienced and may again experience periods of rapid growth and significant declines in AUM, which place significant
demands on our legal, compliance, accounting, risk management, administrative and operational resources.
Our AUM grew from approximately $230 million as of December 31, 1999 to $814 million as of December 31, 2004. Between
December 31, 2004 and December 31, 2008, our AUM had declined to $295 million due to investment losses and redemptions
experienced by our funds over that period. As of December 31, 2016, our AUM had grown to approximately $1.27 billion.
Rapid changes in our AUM impose significant demands on our legal, compliance, accounting, risk management, administrative and
operational infrastructure. The complexity of these demands and the time and expense required to address them, is a function not
18
simply of the amount by which our AUM have changed, but also of significant differences in the investing strategies employed within
our funds and the time periods during which these changes occur. Furthermore, our future growth will depend on, among other things,
our ability to develop and maintain highly reliable operating platforms, management systems and financial reporting and compliance
infrastructures that are also sufficiently flexible to promptly and appropriately address our business needs, applicable legal and
regulatory requirements and relevant market and other operating conditions, all of which can change rapidly.
There may be adverse effects on our business from a decline in the performance of the securities markets.
Our results of operations are affected by many economic factors, including the performance of the securities markets. During the
1990s, unusually favorable and sustained performance of the U.S. securities markets, and the U.S. equity market in particular, attracted
substantial inflows of new investments in these markets. That contributed to significant market appreciation which, in turn, led to an
increase in our AUM and revenues. More recently, the securities markets in general have experienced significant volatility, and such
volatility may continue or increase in the future. At December 31, 2016, our AUM are primarily invested in equity securities. Any
decline in the securities markets, in general, and the equity markets, in particular, could reduce our AUM and consequently reduce our
revenues. In addition, any such decline in the equity markets, failure of these markets to sustain their prior levels of growth, or
continued short-term volatility in these markets could result in investors withdrawing from the equity markets or decreasing their rate
of investment, either of which would be likely to adversely affect us. Also, from time to time, a relatively high proportion of the assets
we manage may be concentrated in particular economic or industry sectors. A general decline in the performance of securities in those
industry sectors could have an adverse effect on our AUM and revenues.
There is a possibility of losses associated with proprietary investment activities.
Currently, we maintain large proprietary investment positions in securities. Market fluctuations and other factors may result in
substantial losses in our proprietary accounts, which could have an adverse effect on our balance sheet, reduce our ability or
willingness to make new investments or impair our credit ratings.
Future investment performance could reduce revenues and other income.
Success in the investment management business is dependent on investment performance as well as distribution and client servicing.
Good performance generally stimulates sales of our investment products and tends to keep withdrawals and redemptions low, which
generates higher management fees (which are based on the amount of AUM). Conversely, poor performance, both in absolute terms
and/or relative to peers and industry benchmarks, tends to result in decreased sales, increased withdrawals and redemptions and in the
loss of clients, with corresponding decreases in revenues to us. Failure of our investment products to perform well could, therefore,
have a material adverse effect on us.
In addition, when our investment products experience strong results relative to the market or other asset classes, clients’ investments in
our products may increase beyond their target levels, and we could, therefore, suffer withdrawals as our clients rebalance their
investments to fit their asset allocation preferences.
There is a possibility of losses associated with underwriting and trading activities.
We undertake limited underwriting activities through our subsidiary, G.research and also conduct proprietary trading activities. Such
activities subject our capital to significant risks of loss. The risks of loss include those resulting from ownership of securities, extension
of credit, leverage, liquidity, counterparty failure to meet commitments, client fraud, employee errors, misconduct and fraud (including
unauthorized transactions by traders), failures in connection with the processing of securities transactions and litigation. We have
procedures and internal controls to address such risks, but there can be no assurance that these procedures and controls will prevent
losses from occurring.
The loss of institutional research services and underwriting revenues from GAMCO and its affiliates would have an adverse effect
on our results of operations, and we can provide no assurance that these revenues will continue after the spin-off.
Institutional research services revenues totaled $9.6 million and $8.4 million for the years ended December 31, 2016 and 2015,
respectively. G.research earned $5.2 million and $4.9 million, or approximately 63% and 59%, of its commission revenue from
transactions executed on behalf of funds advised by Gabelli Funds, LLC, and clients advised by GAMCO. In addition, G.research
earned $1.6 million and $0.0 million in underwriting revenues for the years ended December 31, 2016 and 2015, respectively. All of
these underwriting revenues related to funds affiliated with GAMCO. We can provide no assurance that these institutional research and
underwriting revenues from GAMCO and its affiliates will continue after the spin-off, and the loss of these revenues would have an
adverse effect on our results of operations.
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We may have liability as a general partner or otherwise with respect to our Alternative Investments.
We act as general partner for Investment Partnerships, including arbitrage, event-driven long/short, sector focused and merchant
banking limited partnerships. As a general partner of these partnerships, we may be held liable for the partnerships’ liabilities in excess
of their ability to pay such liabilities. In addition, in certain circumstances, we may be liable as a control person for the acts of our
Investment Partnerships. As of December 31, 2016, our AUM included approximately $497 m illion in Investment Partnerships. A
substantial adverse judgment or other liability with respect to our Investment Partnerships could have a material adverse effect on us.
Our organizational documents do not limit our ability to enter into new lines of businesses, and we may expand into new investment
strategies, geographic markets and businesses, each of which may result in additional risks and uncertainties in our businesses.
Our plan, to the extent that market conditions permit, is to continue to grow our investment businesses and expand into new investment
strategies, geographic markets and businesses. Our organizational documents do not limit us to the investment management and
financial advisory businesses. Accordingly, we may pursue growth through acquisitions of other investment management or advisory
companies, acquisitions of critical business partners or other strategic initiatives. In addition, we expect opportunities will arise to
acquire other alternative or traditional asset managers. To the extent we make strategic investments or acquisitions, undertake other
strategic initiatives or enter into a new line of business, we will face numerous risks and uncertainties, including risks associated with
(a) the required investment of capital and other resources, (b) the possibility that we have insufficient expertise to engage in such
activities profitably or without incurring inappropriate amounts of risk, (c) the diversion of management’s attention from our core
businesses, (d) assumption of liabilities in any acquired business, (e) the disruption of our ongoing businesses, (f) the increasing
demands on or issues related to the combining or integrating operational and management systems and controls, (g) compliance with
additional regulatory requirements, and (h) the broadening of our geographic footprint, including the risks associated with conducting
operations in non-U.S. jurisdictions. Entry into certain lines of business may subject us to new laws and regulations with which we are
not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. For example, our recent
and planned business initiatives include offering registered investment products and the creation of investment products open to retail
investors. These activities have and will continue to impose additional compliance burdens on us and could also subject us to enhanced
regulatory scrutiny and expose us to greater reputation and litigation risk. See “— We are subject to substantial litigation risks and may
face significant liabilities and damage to our professional reputation as a result of litigation allegations and negative publicity.” In
addition, if a new business generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our
results of operations will be adversely affected. Our strategic initiatives may include joint ventures, in which case we will be subject to
additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to
systems, controls and personnel that are not under our control.
If we are unable to consummate or successfully integrate additional development opportunities, acquisitions or joint ventures, we
may not be able to implement our growth strategy successfully.
Our growth strategy is based, in part, on the selective development or acquisition of asset management businesses, or other businesses
complementary to our business where we think we can add substantial value or generate substantial returns. The success of this
strategy will depend on, among other things: (a) the availability of suitable opportunities, (b) the level of competition from other
companies that may have greater financial resources, (c) our ability to value potential development or acquisition opportunities
accurately and negotiate acceptable terms for those opportunities, (d) our ability to obtain requisite approvals and licenses from the
relevant governmental authorities and to comply with applicable laws and regulations without incurring undue costs and delays and
(e) our ability to identify and enter into mutually beneficial relationships with venture partners. Moreover, even if we are able to
identify and successfully complete an acquisition, we may encounter unexpected difficulties or incur unexpected costs associated with
integrating and overseeing the operations of the new businesses. If we are not successful in implementing our growth strategy, our
business, financial results and the market price for our common units may be adversely affected.
Risk management activities may materially adversely affect the return on our and our clients’ investments.
When managing our and our clients’ exposure to market risks, we may from time to time use hedging strategies and various forms of
derivative instruments to limit the funds’ exposure to changes in the relative values of investments that may result from market
developments, including changes in prevailing interest rates, currency exchange rates and commodity prices. The success of any
hedging transactions generally will depend on our ability to correctly assess the degree of correlation between price movements of the
hedging instrument, the position being hedged, the creditworthiness of the counterparty and other factors. As a result, while we may
enter into a transaction in order to reduce our exposure to market risks, the transaction may result in poorer overall investment
performance than if it had not been executed. Such transactions may also limit the opportunity for gain if the value of a hedged position
increases. In addition, the degree of correlation between price movements of the instruments used in connection with hedging activities
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and price movements in a position being hedged may vary. For a variety of reasons, we may not seek or be successful in establishing a
perfect correlation between the instruments used in a hedging or other derivative transaction and the position being hedged. An
imperfect correlation could prevent us from achieving the intended result and could give rise to a loss. In addition, it may not be
possible to fully or perfectly limit our exposure against all changes in the value of our investment because the value of investments is
likely to fluctuate as a result of a number of factors, some of which will be beyond our control or ability to hedge.
If our risk management processes and systems are ineffective, we may be exposed to material unanticipated losses.
We continue to refine and implement our risk management techniques, strategies and assessment methods, such as the use of statistical
and other quantitative and qualitative tools to identify, observe, measure and analyze the risks to which our funds are exposed. These
methods, even if properly implemented, may not allow us to fully mitigate the risk exposure of our funds in all economic or market
environments, or against all types of risk, including risks that we might fail to identify or anticipate. Some of our strategies for
anticipating and managing risk in our funds are based upon our use of historical market behavior statistics, which may not be an
accurate predictor of current or future market risks. We apply statistical and other tools to these observations to measure and analyze
the risks to which our funds are exposed. Any failure in our risk management systems, whether in design or implementation, to
accurately identify and quantify such risk exposure could limit our ability to manage risks in the funds, identify appropriate investment
opportunities or realize positive, risk-adjusted returns. Because neither our quantitative nor qualitative risk management processes can
anticipate for every investment the economic and financial outcome or timing and other specifics of the outcome, we will, in the course
of our activities, incur losses.
Operational risks may disrupt our businesses, result in regulatory action against us or limit our growth.
We face operational risk arising from errors made in the execution, confirmation or settlement of transactions or from transactions not
being properly recorded, evaluated or accounted for. Our business is highly dependent on our ability to process, on a daily basis,
transactions across markets in an efficient and accurate manner. Consequently, we rely heavily on our financial, accounting and other
data processing systems. Despite the reliability of these systems and the training and skill of our teammates and third parties we rely
on, it remains likely that errors may occasionally occur due to the extremely large number of transactions we process. In addition, if
systems we use are unable to accommodate an increasing volume of transactions, our ability to expand our businesses could be
constrained. If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our
businesses, liability to clients, regulatory intervention or reputational damage.
Failure to maintain adequate infrastructure could impede our productivity and growth. Additionally, failure to maintain effective
information and cyber security policies, procedures and capabilities could disrupt operations and cause financial losses that could
result in a decrease in our earnings or stock price.
Our infrastructure, including information systems, hardware, software, networks and other technology, is vital to the competitiveness
of our business. Our information systems and technology is currently provided by GAMCO pursuant to the Transitional Services
Agreement. The failure of GAMCO to maintain an adequate infrastructure commensurate with the size and scope of our business
could impede our productivity and growth, which could cause our earnings or stock price to decline.
GAMCO outsources a significant portion of our information systems operations to third parties, who are responsible for providing the
management, maintenance and updating of such systems. Technology is subject to rapid change, and we cannot guarantee that our
competitors may not implement more advanced technology platforms for their products than we do for ours. In addition, there can be
no assurance that the cost of maintaining such outsourcing arrangements will not increase from its current level, which could have a
material adverse effect on us.
In addition, any inaccuracies, delays, system failures or security breaches in these and other systems could subject us to client
dissatisfaction and losses. Our technology systems may be subject to unauthorized access, computer viruses or other malicious code or
other events that could have a security impact. There can be no assurance that breach of our technology systems could result in material
losses (such material losses including the loss of valuable information, liability for stolen assets or information, remediation costs to
repair damage caused by the breach, additional security costs to mitigate against future incidents and litigation costs resulting from the
incident) relating to such security breach of our technology systems.
If a successful cyber-attack or other security breach were to occur, our confidential or proprietary information, or the confidential or
proprietary information of our clients or their counterparties, that is stored in, or transmitted through, such technology systems could be
compromised or misappropriated. Moreover, loss of confidential customer identification information could harm our reputation
and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues. Further,
although we take precautions to password protect and encrypt our laptops and other mobile electronic hardware; there can be no
21
assurance that these measures will always provide sufficient protection. If such hardware is stolen, misplaced or left unattended, it may
become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by
us.
The failure of one of our vendors to fulfill its obligations to us could have a material adverse effect on us and our clients.
We and GAMCO depend on a number of key vendors for various fund administration, accounting, custody and transfer agent roles and
other operational needs. Our or GAMCO’s failure or inability to diversify sources for key services or the failure of any key vendors to
fulfill their obligations could lead to operational issues for us and, with respect to certain products, could result in financial losses for
us and our clients.
We face exposure to legal actions, including litigation and arbitration claims and regulatory and governmental examinations
and/or investigations. Insurance coverage for these matters may be inadequate.
The volume of litigation and arbitration claims against financial services firms and the amount of damages claimed has increased over
the past several years. The types of claims that we may face are varied. For example, we may face claims against us for purchasing
securities that are inconsistent with a client’s investment objectives or guidelines or arising from an employment dispute. The risk of
litigation is difficult to predict, assess or quantify, and may occur years after the activities or events at issue. In addition, from time to
time we may become the subject of governmental or regulatory investigations and/or examinations. Even if we prevail in a legal or
regulatory action, the costs alone of defending against the action or the harm to our reputation could have a material adverse
effect on us. The insurance coverage that we maintain with respect to legal and regulatory actions may be inadequate or may not cover
certain proceedings.
Compliance failures could adversely affect us.
Our investment management activities are subject to client guidelines. A failure to comply with these guidelines could result in damage
to our reputation or in our clients seeking to recover losses, withdrawing their investments or terminating their contracts, any of which
could cause our revenues and earnings to decline. There can be no assurance that the precautions and procedures that we have
instituted and installed or the insurance we maintain to protect ourselves in case of client losses will protect us from potential liabilities.
Our reputation is critical to our success.
Our reputation is critical to acquiring, maintaining and developing relationships with our clients and third-party intermediaries. In
recent years, there have been a number of well-publicized cases involving fraud, conflicts of interest or other misconduct by
individuals in the financial services industry. Misconduct by our staff, or even unsubstantiated allegations, could result not only in
direct financial harm but also in harm to our reputation, causing injury to the value of our brands and our ability to retain or attract
AUM. In addition, in certain circumstances, misconduct on the part of our clients or other parties could damage our reputation.
Moreover, reputational harm may cause us to lose current employees and we may be unable to attract new employees with similar
qualification or skills. Damage to our reputation could substantially reduce our AUM and impair our ability to maintain or grow our
business, which could have a material adverse effect on us.
We face strong competition from numerous and sometimes larger companies.
We compete with numerous investment management companies, stock brokerage and investment banking firms, insurance companies,
banks, savings and loan associations and other financial institutions. The periodic establishment of new investment management
companies and other competitors increases the competition that we face. At the same time, consolidation in the financial services
industry has created stronger competitors with greater financial resources and broader distribution channels than our own. Competition
is based on various factors, including, among others business reputation, investment performance, product mix and offerings, service
quality and innovation, distribution relationships and fees charged. Our competitive success in all of these areas cannot be assured.
Additionally, competing securities dealers whom we rely upon to distribute our products also sell their own proprietary investment
products, which could limit the distribution of our investment products. To the extent that existing or potential customers, including
securities dealers, decide to invest in or distribute the products of our competitors, the sales of our products as well as our market share,
revenues and net income could decline. Both GAMCO and Associated Capital have asset management as their principal business and
derive most of their revenues through that business and, as such, may compete with each other.
22
If third-party investors in our funds exercise their right to remove us as investment manager or general partner of our products, we
would lose the AUM in such funds, which would eliminate our management fees and incentive allocation income derived from
such products.
The governing agreements of most of our investment partnerships and offshore funds provide that, subject to certain conditions, third-
party investors in those funds have the right, without cause, to vote to remove us as investment manager or general partner of the
investment partnerships or offshore fund by a simple majority vote, resulting in the elimination of the AUM by those products
and the management fees and incentive allocation income derived from those products. In addition to having a significant negative
impact on our revenues, results of operations and cash flows, the occurrence of such an event would likely result in significant
reputational damage to us.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended, and were required to
register, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material
adverse effect on our business.
Given the nature of its assets, the Company may be deemed to be an investment company as defined in Section 3(a)(1)(C) of the
Investment Company Act. However, the Company currently relies on an exclusion from the definition of “investment company”
provided by Rule 3a-2 under the Investment Company Act and positions of the Commission staff relating to the conditions of this rule
taken in various no-action letters.
Since the spin-off transaction, the Company has undertaken measures to ensure that it may rely on Rule 3a-2. The Company’s Board
of Directors has adopted a resolution that the Company has a bona fide intent to be engaged primarily in the alternative management
business – i.e., a business other than that of investing, reinvesting, owning, holding or trading in securities -- during the time period
permitted by Rule 3a-2 and Commission staff no-action positions. Towards this objective, the Company has made bona fide efforts
over the last several months to grow its alternative management business and expand its product offerings through the development of
alternative investment products, such as hedge funds and private equity funds that invest in particular alternative asset classes, as well
as through alliances with companies engaged in similar businesses and lift-outs (i.e., the hiring of alternative asset portfolio managers).
To date, however, these efforts have not been successful to a degree that causes the Company to no longer be an “investment
company” as defined in Section 3(a)(1)(C).
The Company will continue to pursue these efforts so that it will no longer be an “investment company” as defined in Section
3(a)(1)(C). If the Company is not able to achieve this objective within the time periods permitted by Rule 3a-2 and Commission staff
no-action letters, however, the Company may be required to register as an investment company. In such case, the Company would be
subject to significant restrictions imposed on its operations by the Investment Company Act, including limitations on capital structure
and the ability to transaction business with affiliates. These limitations could make it impractical for the Company to continue its
business as contemplated and would have a material adverse effect on its business.
Risks Related to the Associated Capital Common Stock
The disparity in the voting rights among the classes of shares may have a potential adverse effect on the price of the Associated
Capital Class A Stock.
The holders of Associated Capital Class A Stock and Associated Capital Class B Stock have identical rights except that holders of
Associated Capital Class A Stock are entitled to one vote per share, while holders of Associated Capital Class B Stock are
entitled to ten votes per share on all matters to be voted on by stockholders in general, and holders of Associated Capital Class A Stock
are not eligible to vote on matters relating exclusively to Associated Capital Class B Stock and vice versa. Mario J. Gabelli, through his
control and majority ownership of GGCP and his individual ownership of Associated Capital common stock, beneficially owns a
majority of the outstanding Associated Capital Class B Stock, representing approximately 96.1% voting control. As long as Mario J.
Gabelli indirectly beneficially owns a majority of the combined voting power of the Associated Capital common stock, he will have the
ability to elect all of the members of our Board and thereby control our management and affairs, including, among other things, any
determinations with respect to acquisitions, dispositions, borrowings, issuances of common stock or other securities, and the
declaration and payment of dividends on the Associated Capital common stock. The differential in voting rights and the ability of
Associated Capital to issue additional Associated Capital Class B Stock could adversely affect the value of the Associated Capital
Class A Stock to the extent the investors, or any potential future purchaser of Associated Capital, view the superior voting rights of the
Associated Capital Class B Stock to have value. While there is no current intention to issue additional Associated Capital Class B
Stock, there is no prohibition on Associated Capital issuing additional shares of Associated Capital Class B Stock in the future.
23
An active public trading market for the Associated Capital Class A Stock is not assured.
A liquid public market for the Associated Capital Class A Stock is not assured, especially because a large percentage of the Associated
Capital common stock is held by a limited number of stockholders. If an active trading market for the Associated Capital Class A Stock
does not exist, the market price and liquidity of the Associated Capital Class A Stock may be materially and adversely affected.
We cannot predict the prices at which the Associated Capital Class A Stock may trade.
The market price of the Associated Capital Class A Stock may fluctuate significantly due to a number of factors, some of which may
be beyond our control, including:
•
•
•
•
•
•
•
•
our quarterly or annual earnings, or those of other companies in our industry;
actual or anticipated reductions in our revenue, net earnings and cash flow resulting from actual or anticipated decline in
AUM;
changes in accounting standards, policies, guidance, interpretations or principles;
the failure of securities analysts to cover Associated Capital or changes in financial estimates by analysts;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating and stock price performance of other comparable companies;
overall market fluctuations; and
general economic conditions.
In particular, the realization of any of the risks described in these “Risk Factors” could have a significant and adverse impact on the
market price of the Associated Capital Class A Stock. In addition, the stock market in general has experienced extreme price and
volume volatility that has often been unrelated to the operating performance of particular companies. This volatility has had a
significant impact on the market price of securities issued by many companies, including companies in our industry. The price of the
Associated Capital Class A Stock could fluctuate based upon factors that have little or nothing to do with us, and these
fluctuations could materially reduce our stock price.
We cannot predict how the investment community will value the GAMCO Note ($100 million outstanding as of December 31, 2016)
given the GAAP accounting treatment as a reduction to book value.
For GAAP purposes, the amount of the GAMCO Note, which was issued by GAMCO to Associated Capital as part of the spin-off
transaction, will be treated as a reduction in equity, rather than as an asset, during the period all or any portion of the GAMCO Note is
outstanding. Management utilizes adjusted economic book value (“AEBV”), a non-GAAP measure, in its analysis of our financial
condition. AEBV includes the outstanding value of the GAMCO Note as an asset. Management believes AEBV is useful in analyzing
our financial condition during the period in which we build our core operating business. The GAMCO Note will be paid down ratably
over five years or sooner at GAMCO’s option. As GAMCO pays down the note, Associated Capital’s GAAP book value will
increase, and once the GAMCO Note is fully paid off by GAMCO, Associated Capital’s GAAP book value and AEBV will be
the same. It is possible that the investment community will rely on the GAAP treatment of the GAMCO Note rather than on the non-
GAAP AEBV, which may have an adverse effect on the value of our stock.
Future sales of Associated Capital Class A Stock in the public market or sales or distributions of Associated Capital Class B Stock
could lower our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute
our stockholders’ ownership in us.
We may sell additional shares of Associated Capital Class A Stock in public or private offerings. We also may issue additional shares
of Associated Capital Class A Stock or convertible debt securities. In addition, sales by our current stockholders could be perceived
negatively. No prediction can be made as to the effect, if any, that future sales or distributions of Associated Capital Class B
Stock owned by GGCP will have on the market price of the Associated Capital Class A Stock from time to time. Sales or distributions
of substantial amounts of Associated Capital Class A Stock or Associated Capital Class B Stock, or the perception that such sales or
distributions are likely to occur, could adversely affect the prevailing market price for the Associated Capital Class A Stock.
The reduced disclosure requirements applicable to us as an “emerging growth company” and a “smaller reporting company” may
make Associated Capital common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act, and we may avail ourselves of certain exemptions from
various reporting requirements of public companies that are not “emerging growth companies,” including, but not limited to, an
exemption from complying with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended
24
(the “Sarbanes-Oxley Act”) and, like smaller reporting companies, reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements, and exemptions from the requirement of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved. We may remain an emerging
growth company for up to five full fiscal years following the spin-off. We would cease to be an emerging growth company, and,
therefore, become ineligible to rely on the above exemptions, if we (a) have more than $1 billion in annual revenue in a fiscal year, (b)
issue more than $1 billion of non-convertible debt over a three-year period or (c) become a “large accelerated filer” as defined in Rule
12b-2 under the Exchange Act, which would occur after: (i) we have filed at least one annual report; (ii) we have been an SEC-
reporting company for at least 12 months; and (iii) the market value of Associated Capital Class A Stock that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. We cannot predict if investors
will find Associated Capital common stock less attractive because we may rely on these exemptions.
We also qualify as a “smaller reporting company” under the Exchange Act. As a smaller reporting company, we enjoy many of the
same exemptions and reduced disclosure requirements as emerging growth companies.
If some investors find Associated Capital Class A Stock less attractive as a result of the exemptions available to us as an emerging
growth company and a smaller reporting company, there may be a less active trading market for Associated Capital Class A Stock
(assuming a market develops) and our value may be more volatile than that of an otherwise comparable company that does not avail
itself of the same or similar exemptions.
We are a “controlled company” within the meaning of NYSE rules and, as a result, will qualify for, and intend to rely on,
exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of
companies that are subject to such requirements.
Mario J. Gabelli and his affiliates control a majority of the voting power of the Associated Capital common stock. As a result, we are a
“controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which
more than 50% of the voting power in the election of directors is held by an individual, group or another company is a “controlled
company” and may elect not to comply with certain corporate governance requirements, including the requirements that, within one
year of the date of the listing of the Associated Capital Class A Stock:
• we have a board that is composed of a majority of “independent directors,” as defined under the rules of the NYSE;
• we have a compensation committee that is composed entirely of independent directors; and
• we have a nominating/corporate governance committee that is composed entirely of independent directors.
While a majority of our directors are currently independent, we intend to utilize certain of these exemptions. For example, our
Nominating Committee is not comprised of independent directors. Accordingly, you will not have the same protections afforded to
stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
Our certificate of incorporation provides that certain lawsuits must be litigated in Delaware, which may limit your ability to obtain
a favorable judicial forum for disputes with us.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and
exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a
fiduciary duty owed by any director, officer or other employee of Associated Capital to Associated Capital or its stockholders,
(iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or our certificate of
incorporation or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Court of
Chancery in the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the
District of Delaware). Accordingly, it may not be possible for stockholders to litigate any action relating to the foregoing matters
outside of the State of Delaware, even though stockholders may view other forums to be more favorable.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
AC owns no properties. AC currently pays GAMCO an occupancy charge based on percentage of square footage occupied by its
employees (including pro rata allocation of common space) with respect to the office space it uses at GAMCO’s offices at 401
Theodore Fremd Avenue in Rye, NY. AC’s usage of such property is covered under a sublease agreement executed with GAMCO.
25
ITEM 3: LEGAL PROCEEDINGS
Currently, we are not subject to any legal proceedings that individually or in the aggregate involved a claim for damages in excess of
10% of our consolidated assets. 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.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5: MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market for our Stock, Dividends and Stock Repurchase Program
Our shares of Class A Stock are traded on the NYSE under the symbol AC.
As of February 1, 2017, there were 266 Class A Stockholders of record and 26 Class B Stockholders of record. These figures do not
include approximately 3,200 stockholders with shares held under beneficial ownership in nominee name.
The following table sets forth the high and low prices of our Class A Stock since our spin-off from GAMCO and historical dividends
declared per share to both Class A Stock and Class B Stock as reported by the NYSE.
2015
Dividend Declared
2016
Dividend Declared
High
Low
Regular
Special
High
Low
Regular
Special
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
-
$
-
-
36.51
-
$
-
-
28.05
-
$
-
-
-
-
$
-
-
-
$
30.40
30.89
35.51
35.96
$
24.67
27.58
28.51
32.25
$
0.10
-
-
0.10
-
$
-
-
-
In December 2015, the Board of Directors established a stock repurchase program authorizing the Company to re-purchase up to
500,000 shares. Our stock repurchase program is not subject to an expiration date. The following table provides information with
respect to the shares of our Class A Stock we repurchased during the quarter ended December 31, 2016:
Period
10/01/16 - 10/31/16
11/01/16 - 11/30/16
12/01/16 - 12/31/16
Totals
Total
Number of
Shares
Repurchased
17,365
76,430
1,008,882
1,102,677
Average
Price Paid Per
Share, net of
Commissions
34.27
$
33.91
31.28
31.51
$
Total Number of
Shares Repurchased as
Part of Publicly
Announced Plans
or Programs
17,365
76,430
82,537
176,332
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plans or Programs
245,380
168,950
86,413
In addition to our on-going stock repurchase program, on December 30, 2016, with the approval of the Board of Directors, the
Company entered into an agreement to purchase a block of 926,345 shares of Class A common stock from an unaffiliated third party
for $31.05 per share, or $28,763,012.
26
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.
We have adopted the 2015 Stock Award and Incentive Plan (the “Equity Compensation Plan”). The following table shows information
regarding the number of restricted shares outstanding under our Equity Compensation Plan, as well as the number of outstanding
options and shares reserved for future issuance under our equity compensation plans as of December 31, 2016.
Plan Category
Equity compensation plans approved
by security holders:
Restricted stock awards
Equity compensation plans not approved
by security holders:
Total
Number of Securities to be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average Exercise
Price of Outstanding Options,
Warrants and Rights
424,340
-
424,340
65.74
n/a
A maximum of 2.0 million shares of Class A Stock have been reserved for issuance as approved by the Company's stockholders at the
annual meeting of stockholders held on May 3, 2016. The number of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in the first column above) is 1,456,200.
ITEM 6: SELECTED FINANCIAL DATA
As we are currently following disclosure requirements for a smaller reporting company, this information is not required to be
provided.
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.
27
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 CatalystTM” 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.
28
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
29
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 equity as reported
Add: GAMCO Note
Adjusted Economic book value
Total
874,022
100,000
974,022
$
$
Per Share
36.04
$
4.12
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):
2016
Year Ended December 31,
2014
2015
2013
2012
CAGR (a)
2016/2012
Event Merger Arb
Event-Driven Value
Other
Total AUM
(a) Compound annual growth rate.
(b) Includes $158.9 million of proprietary capital.
1,076
133
63
1,272
$
$
$
$
$
796
167
77
1,040
691
140
76
907
721
124
75
920
10.5%
1.8
(4.3)
8.4%
$
(b)
$
$
$
$
869
145
66
1,080
30
Our gross cash inflows by product line were as follows (in millions):
2016
Year Ended December 31,
2014
2013
2015
2012
$
$
$
$
$
$
$
$
$
$
Our gross cash outflows by product line were as follows (in millions):
2016
Year Ended December 31,
2014
2013
2015
2012
Event Merger Arb
Event-Driven Value
Other
Total Cash Inflows
Event Merger Arb
Event-Driven Value
Other
Total Cash Outflows
$
$
$
$
$
$
$
$
$
$
Our net appreciation and depreciation by product line were as follows (in millions):
2016
Year Ended December 31,
2014
2013
2015
2012
Event Merger Arb
Event-Driven Value
Other
Total Net Appreciation/(Depreciation)
$
$
$
$
$
$
$
$
$
$
162
45
5
212
(68)
(21)
(5)
(94)
11
3
1
15
79
38
6
123
(137)
(36)
(13)
(186)
28
14
8
50
248
29
23
300
(58)
(42)
(20)
(120)
18
5
7
30
297
1
1
299
(148)
(18)
(9)
(175)
58
5
5
68
166
39
2
207
(119)
(54)
(12)
(185)
26
(7)
(1)
18
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):
Investment advisory and incentive fees
Institutional research services income
Other income
Total revenues
11,734
2,650
1,911
16,295
Three Months Ended December 31,
2016
$
2015
$
Increase (decrease)
$
%
6,340
2,267
388
8,995
$
5,394
383
1,523
7,300
85.1%
16.9
392.5
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
31
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.
32
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):
Investment advisory and incentive fees
Institutional research services income
Other income
Total revenues
18,320
9,604
3,303
31,227
Year Ended December 31,
2016
2015
$
$
Increase (decrease)
$
%
12,635
8,397
1,811
22,843
$
5,685
1,207
1,492
8,384
45.0%
14.4
82.4
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
33
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
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash from consolidation
Increase (decrease) in cash from deconsolidation
Cash and cash equivalents at end of year
$
6,588
(4,115)
105,872
108,345
205,750
-
(2)
314,093
$
34
$
(47,350)
(41,734)
9,281
(79,803)
285,530
10
13
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):
Contractual Obligations:
Occupancy charge
Total
Total
2017
$
$
96
96
$
$
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
35
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
36
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.
37
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 RSAs were granted an equal number of AC RSAs so
that the total value of the RSAs post-spin was equivalent to the total value pre-spin. In accordance with GAAP, we have allocated the
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 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As we are currently following disclosure requirements for a smaller reporting company, this information is not required to be
provided.
38
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015
Consolidated Statements of Financial Condition at December 31, 2016 and 2015
Consolidated Statements of Equity for the years ended December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
Notes to Consolidated Financial Statements
Page
40
41
42
43
44
46
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.
39
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
40
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Revenues
Investment advisory and incentive fees
Institutional research services
Other revenues
Total revenues
Expenses
Compensation
Stock based compensation
Management fee
Other operating expenses
Total expenses
Operating loss
Other income (expense)
Net gain from investments
Interest and dividend income
Interest expense
Shareholder-designated contribution
Total other income, net
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to Associated Capital Group, Inc.'s shareholders
Year Ended December 31,
2016
2015
$
18,320
9,604
3,303
31,227
$
12,635
8,397
1,810
22,842
30,968
2,464
1,593
8,434
43,459
(12,232)
19,909
12,669
(590)
(5,411)
26,577
14,345
3,876
10,469
251
10,218
$
26,343
4,931
(309)
6,189
37,154
(14,312)
8,276
4,720
(1,260)
-
11,736
(2,576)
(1,685)
(891)
(780)
(111)
$
Net income (loss) per share attributable to Associated Capital Group, Inc.'s
shareholders:
Basic
Diluted
$
$
0.41
0.41
$
-
$
-
Weighted average shares outstanding:
Basic
Diluted
Actual shares outstanding
See accompanying notes.
24,870
25,175
24,255
24,887
25,170
25,440
41
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
Net income (loss)
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale (a)
Ye ar Ende d De ce mbe r 31,
2016
2015
$
10,469
$
(891)
4,138
(11,035)
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to noncontrolling interests
14,607
1,215
(11,926)
(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.
42
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
ASSETS
Cash and cash equivalents
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)
Investments in affiliated registered investment companies
Investments in partnerships
Receivable from brokers
Investment advisory fees receivable
Receivable from affiliates
Goodwill
Other assets
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Payable to brokers
Income taxes payable and deferred tax liabilities
Compensation payable
Securities sold, not yet purchased
Mandatorily redeemable noncontrolling interests
Payable to affiliates
Accrued expenses and other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies (Note J)
Equity:
Preferred stock, $.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
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued
and outstanding
Additional paid-in capital
Retained earnings
GBL 4% PIK Note
Accumulated comprehensive income (loss)
Treasury stock, at cost (1,339,932 and 1,500 shares, respectively)
Total Associated Capital Group, Inc. equity
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes.
December 31,
2016
December 31,
2015
$
314,093
$
205,750
342,797
131,645
129,398
12,588
9,784
1,523
3,422
7,353
952,603
$
333,624
118,676
105,051
56,510
4,896
7,457
3,254
1,530
836,748
$
$
2,396
6,978
17,676
9,984
-
1,455
35,862
74,351
$
50,648
5,669
10,926
9,623
1,129
-
1,466
79,461
4,230
5,738
6
6
19
1,007,027
7,327
(100,000)
1,317
(41,674)
874,022
-
874,022
952,603
$
19
999,000
2,072
(250,000)
(1,857)
(44)
749,196
2,353
751,549
836,748
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4
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in net gains from partnerships
Depreciation and amortization
Stock based compensation expense
Deferred income taxes
Other-than-temporary loss on available for sale securities
Donated securities
Gains on sales of available for sale securities
(Increase) decrease in assets:
Investments in securities - trading
Investments in partnerships:
Contributions to partnerships
Distributions from partnerships
Receivable from affiliates
Receivable from brokers
Investment advisory fees receivable
Other assets
Increase (decrease) in liabilities:
Payable to affiliates
Payable to brokers
Income taxes payable and deferred tax liabilities
Compensation payable
Mandatorily redeemable noncontrolling interests
Accrued expenses and other liabilities
Total adjustments
Net cash provided by (used in) operating activities
Investing activities
Purchases of available for sale securities
Proceeds from sales of available for sale securities
Return of capital on available for sale securities
Net cash used in investing activities
Year Ended December 31,
2016
2015
$
10,469
$
(891)
(11,183)
17
2,464
(1,378)
324
1,051
(348)
(13,769)
(36,367)
23,199
5,934
43,225
(4,907)
(5,465)
1,455
(48,231)
1,060
6,751
292
31,995
(3,881)
6,588
(4,756)
13
4,931
(6,450)
216
73
(25)
(71,552)
(15,169)
22,857
(7,055)
(30,008)
(949)
17,568
(4,733)
44,516
2,191
1,747
(172)
298
(46,459)
(47,350)
(5,107)
803
189
(4,115)
$
(43,271)
1,013
524
(41,734)
$
46
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) (In thousands)
Year Ended December 31,
2016
2015
Financing activities
Contributions from redeemable noncontrolling interests
Redemptions of redeemable noncontrolling interests
Repayment of demand loan with GBL
Net transfer from GBL
Dividends paid
Purchase of treasury stock
Proceeds from payment of GBL 4% PIK Note
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash from consolidation
Increase (decrease) in cash from deconsolidation
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for taxes
$
250
(244)
-
-
(2,504)
(41,630)
150,000
105,872
108,345
205,750
-
$
(2)
314,093
$
1,036
(901)
(16,000)
25,190
-
(44)
-
9,281
(79,803)
285,530
10
13
205,750
$
$
$
298
2,989
$
1,428
$
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, AC's majority owned subsidiary GCIA 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 AC from GAMCO, GAMCO issued AC a $250 million
five-year 4% PIK Note and also contributed the GAMCO Note to AC.
- On November 30, 2015, in connection with the spin-off of AC from GAMCO, GAMCO contributed to AC the
GAMCO Note Payable.
- On January 1, 2015, AC 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, AC 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 ofapproximately $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, AC 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.
47
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the years ended December 31, 2016 and 2015
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
48
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
49
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.
50
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—The 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
51
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.
52
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.
53
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.
54
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
55
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
56
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:
(In thousands)
Trading securities:
Government obligations
Common stocks
Mutual funds
Other investments
Total trading securities
Available for sale securities:
Common stocks
Mutual funds
Total available for sale securities
2016
2015
Cost
Fair Value
Cost
Fair Value
$
119,755
69,503
2,402
1,275
192,935
$
119,823
82,158
3,143
1,472
206,596
$
99,897
78,974
2,578
570
182,019
$
99,940
92,194
3,216
771
196,121
150,000
206
150,206
135,701
500
136,201
150,000
627
150,627
136,360
1,143
137,503
Total investments in securities
$
343,141
$
342,797
$
332,646
$
333,624
57
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
Other investments
Total securities sold, not yet purchased
$
$
9,583
27
9,610
$
$
9,947
37
9,984
$
$
10,095
24
10,119
$
$
9,537
86
9,623
Investments in affiliated registered investment companies at December 31, 2016 and 2015 consisted of the following:
(In thousands)
Trading securities:
Mutual funds
Total trading securities
Available for sale securities:
Closed-end funds
Mutual funds
Total available for sale securities
Total investments in affiliated
registered investment companies
2016
2015
Cost
Fair Value
Cost
Fair Value
$
40,096
40,096
$
45,351
45,351
$
40,097
40,097
$
43,133
43,133
62,890
4,396
67,286
80,650
5,644
86,294
62,070
1,846
63,916
72,591
2,952
75,543
$
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
Reclassified
from AOCI
Twelve months ended December 31,
2016
2015
Affected Line Item in
in the Statements
Of Income
Reason for
Reclassification
from AOCI
$
$
348
(324)
24
(9)
15
25
(216)
(191)
69
(122)
Net gain from investments
Net gain from investments
Income (loss) before income taxes
Income tax provision
Net income (loss)
Realized gains on sale of AFS securities
Other than temporary impairment of AFS securities
$
$
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
58
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
Financial Condition
Location
Derivatives designated as hedging
instruments under FASB ASC 815-20
Foreign exchange contracts
Receivable from brokers
Fair Value
Statement of
December 31, December 31, Financial Condition December 31, December 31,
Location
Fair Value
2015
2016
2015
2016
$
-
$
-
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
Receivable from brokers
Foreign exchange contracts
Sub total
Total derivatives
$
127
-
$
236
-
Securities sold,
not yet purchased
Payable to brokers
$
-
37
$
86
5,017
$
127
$
236
$
37
$
5,103
$
127
$
236
$
37
$
42,687
Type of Derivative
Income Statement Location
Year ended December 31,
2016
2015
Foreign exchange contracts Net gain from investments
Net gain from investments
Equity contracts
$
1,373
143
$
2,456
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 of
Recognized
Assets
Gross Amounts
Offset in the
Statements of
Financial Condition
Net Amounts of
Assets Presented
in the Statements of
Financial Condition
Financial
Instruments
Cash Collateral
Received
Net Amount
Swaps:
December 31, 2016
December 31, 2015
$
$
96
177
$
-
$
-
$
$
96
177
$
$
(9)
(81)
$
-
$
-
$
$
87
96
(In thousands)
Gross Amounts Not Offset in the
Statements of Financial Condition
Gross
Amounts of
Recognized
Liabilities
Gross Amounts
Offset in the
Statements of
Financial Condition
Net Amounts of
Liabilities Presented
in the Statements of
Financial Condition
Financial
Instruments
Cash Collateral
Pledged
Net Amount
Gross Amounts Not Offset in the
Statements of Financial Condition
Swaps:
December 31, 2016
December 31, 2015
$
9
$
81
$
-
$
-
(In thousands)
$
9
$
81
$
$
(9)
(81)
$
-
$
-
$
-
$
-
59
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
Cost
Gains
Losses
(In thousands)
Fair
Value
Common stocks
Closed-end Funds
Mutual funds
Total available for sale securities
Common stocks
Closed-end Funds
Mutual funds
Total available for sale securities
$
$
150,000
62,890
4,602
217,492
$
-
17,760
1,542
19,302
$
$
$
(14,299)
-
-
(14,299)
$
$
135,701
80,650
6,144
222,495
December 31, 2015
Gross
Gross
Unrealized Unrealized
Cost
Gains
Losses
Fair
Value
$
$
150,000
62,070
2,472
214,542
$
(In thousands)
-
$
11,299
1,641
12,940
$
$
(13,640)
(778)
(18)
(14,436)
$
$
136,360
72,591
4,095
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
Unrealized
Losses
Fair Value
Cost
December 31, 2015
Unrealized
Losses
Fair Value
Cost
(in thousands)
Common Stocks
Closed-end Funds
Mutual Funds
Total avalable for sale securities
$
150,000
-
-
150,000
$
$
(14,299)
-
-
(14,299)
$
$
135,701
-
-
135,701
$
$
150,000
40,627
244
190,871
$
60
$
(13,640)
(778)
(18)
(14,436)
$
$
136,360
39,849
226
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
Entities consolidated at December 31, 2014
Additional consolidated entities
Deconsolidated entities
Entities consolidated at December 31, 2015
Additional consolidated entities
Deconsolidated entities
Entities consolidated at December 31, 2016
CFFs
VIEs
1
-
-
-
-
1
(1)
VOEs
2
1
(1)
2
-
(1)
1
Partnerships
VIEs
-
-
-
-
VOEs
1
1
2
-
-
1
1
-
-
(2)
Offshore Funds
VIEs
VOEs
1
-
1
1
(1)
-
-
-
(1)
-
-
-
-
-
Total
VIEs
1
1
-
2
1
(2)
1
VOEs
4
2
(2)
4
-
(3)
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.
61
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):
Affiliated
Unaffiliated
December 31, 2016
Investment Type
Accounting method
Consolidated
Feeder Funds
Partnerships
Offshore Funds
Partnerships
Offshore Funds
Total
Fair Value
Equity Method
$
8,343
-
-
$
33,202
-
$
70,745
-
$
6,761
-
$
10,347
$
8,343
121,055
Total
$
8,343
$
33,202
$
70,745
$
6,761
$
10,347
$
129,398
Affiliated
Unaffiliated
December 31, 2015
Investment Type
Accounting method
Consolidated
Feeder Funds
Partnerships
Offshore Funds
Partnerships
Offshore Funds
Total
Fair Value
Equity Method
$
13,953
-
-
$
39,552
-
$
35,746
-
$
7,911
-
$
7,889
$
13,953
91,098
Total
$
13,953
$
39,552
$
35,746
$
7,911
$
7,889
$
105,051
62
The following table includes the net impact by line item on the consolidated statements of financial condition for each
category of entity consolidated:
Prior to
Consolidation
CFFs
Partnerships
Offshore Funds
As Reported
December 31, 2016
Assets
Cash and cash equivalents
Investments in securities (including GBL stock)
Investments in affiliated investment companies
Investments in partnerships
Receivable from brokers
Investment advisory fees receivable
Other assets
Total assets
Liabilities and equity
Securities sold, not yet purchased
Accrued expenses and other liabilities
Redeemable noncontrolling interests
Total equity
Total liabilities and equity
Assets
Cash and cash equivalents
Investments in securities (including GBL stock)
Investments in affiliated investment companies
Investments in partnerships
Receivable from brokers
Investment advisory fees receivable
Other assets
Total assets
Liabilities and equity
Securities sold, not yet purchased
Accrued expenses and other liabilities
Redeemable noncontrolling interests
Total equity
Total liabilities and equity
$
313,785
336,459
131,645
133,794
10,542
9,800
12,298
948,323
9,984
64,317
-
874,022
948,323
$
$
$
-
$
-
-
3,964
-
(8)
$
308
6,338
-
(8,360)
2,046
(8)
$
-
3,956
$
-
324
-
$
13
3,943
-
3,956
$
-
$
37
287
-
324
$
-
$
-
-
-
-
-
-
$
-
-
$
-
-
-
$
-
$
314,093
342,797
131,645
129,398
12,588
9,784
12,298
952,603
9,984
64,367
4,230
874,022
952,603
$
$
$
Prior to
Consolidation
CFFs
Partnerships
Offshore Funds
As Reported
December 31, 2015
$
$
$
205,708
325,692
118,676
109,274
53,921
4,881
12,614
830,766
9,505
69,712
-
751,549
830,766
-
$
-
-
4,506
-
2
5
4,513
$
-
$
28
4,485
-
4,513
$
$
$
41
7,849
-
(8,729)
2,164
5
15
1,345
118
79
1,148
-
1,345
1
$
83
-
-
425
8
(393)
124
$
-
$
19
105
-
124
$
205,750
333,624
118,676
105,051
56,510
4,896
12,241
836,748
9,623
69,838
5,738
751,549
836,748
$
$
$
$
$
$
$
The CFFs, Partnerships and Offshore Funds columns above include only affiliated entities as no unaffiliated entities are
consolidated.
63
The following table includes the net impact by line item on the consolidated statements of income for each category of
entity consolidated (in thousands):
Total revenues
Total expenses
Operating loss
Total other income, net
Income before income taxes
Income tax provision
Net income before NCI
Net income attributable to noncontrolling interests
Net income
Total revenues
Total expenses
Operating loss
Total other income (expense), net
Loss before income taxes
Income tax provision
Net loss before NCI
Net loss attributable to noncontrolling interests
Net loss
Prior to
Consolidation
31,247
$
43,285
(12,038)
26,086
14,048
3,876
10,172
(46)
10,218
$
Prior to
Consolidation
22,883
$
36,963
(14,080)
11,967
(2,113)
(1,685)
(428)
(317)
(111)
$
Twelve Months Ended December 31, 2016
CFFs
$
(17)
128
(145)
437
292
-
292
292
$
-
Partnerships
$
(3)
46
(49)
54
5
-
5
5
$
-
Offshore Funds
-
$
-
-
-
-
-
-
-
$
-
Twelve Months Ended December 31, 2015
CFFs
$
(34)
114
(148)
(170)
(318)
-
(318)
(318)
$
-
Partnerships
$
(7)
71
(78)
(69)
(147)
-
(147)
(147)
$
-
Offshore Funds
$
-
6
(6)
8
2
-
2
2
$
-
$
As Reported
31,227
43,459
(12,232)
26,577
14,345
3,876
10,469
251
10,218
$
$
As Reported
22,842
37,154
(14,312)
11,736
(2,576)
(1,685)
(891)
(780)
(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.
64
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:
(In thousands)
Cash and cash equivalents
Investments in securities
Investments in partnerships
Receivable from broker
Other assets
Payable to brokers
Accrued expenses and other liabilities
Redeemable noncontrolling interests
AC's net interests in consolidated VIE
Equity Method Investments
December 31,
2016
December 31,
2015
$
308
6,338
-
2,046
(8)
-
(37)
(287)
8,360
$
$
1
83
4,791
425
-
(6)
(404)
(350)
4,540
$
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:
(In millions)
Total assets
Total liabilities
Total equity
Net loss
December 31,
2016
December 31,
2015
$
2,137
350
1,787
$
2,414
301
2,113
For the year
2016
2015
(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:
(In thousands)
Total investment income
Net investment loss
Net gains on investments
Net increase in net assets resulting from operations
For the year
2016
$
2,848
(3,462)
14,192
10,730
65
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)
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
314,082
-
Significant Other
Observable
Inputs (Level 2)
-
$
-
Significant
Unobservable
Inputs (Level 3)
-
$
-
Investments
Measured at
NAV (a)
-
$
125,527
Other Assets
Not Held at
Fair Value (b)
-
$
3,871
Balance as of
December 31,
2016
$
314,082
129,398
Cash equivalents
Investments in partnerships
Investments in securities (including GBL stock):
AFS - Common stocks
AFS - Mutual funds
Trading - Gov't obligations
Trading - Common stocks
Trading - Mutual funds
Trading - Other
Total investments in securities
Investments in affiliated registered investment companies:
AFS - Closed-end funds
AFS - Mutual funds
Trading - Mutual funds
Total investments in affiliated
registered investment companies
Total investments
Total assets at fair value
Liabilities
Trading - Common stocks
Trading - Other
Securities sold, not yet purchased
135,701
500
119,823
81,696
3,143
1,062
341,925
80,650
5,644
45,351
-
-
-
1
-
127
128
-
-
-
-
-
-
461
-
283
744
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
135,701
500
119,823
82,158
3,143
1,472
342,797
80,650
5,644
45,351
131,645
473,570
787,652
9,947
-
9,947
$
$
$
-
128
128
$
-
744
744
$
-
125,527
125,527
$
-
3,871
3,871
$
131,645
603,840
917,922
$
-
$
37
37
$
-
$
-
$
-
-
$
-
$
-
-
$
-
$
-
$
$
9,947
37
9,984
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2015 (in thousands)
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
205,733
-
Significant Other
Observable
Inputs (Level 2)
-
$
-
Significant
Unobservable
Inputs (Level 3)
-
$
-
Investments
Measured at
NAV (a)
-
$
101,454
Other Assets
Not Held at
Fair Value (b)
-
$
3,597
Balance as of
December 31,
2015
$
205,733
105,051
Cash equivalents
Investments in partnerships
Investments in securities (including GBL stock):
AFS - Common stocks
AFS - Mutual funds
Trading - Gov't obligations
Trading - Common stocks
Trading - Mutual funds
Trading - Other
Total investments in securities
Investments in affiliated registered investment companies:
AFS - Closed-end funds
AFS - Mutual funds
Trading - Mutual funds
Total investments in affiliated
registered investment companies
Total investments
Total assets at fair value
Liabilities
Trading - Common stocks
Trading - Other
Securities sold, not yet purchased
136,360
1,143
99,940
91,686
3,216
230
332,575
72,591
2,952
43,133
-
-
-
-
-
236
236
-
-
-
-
-
-
508
-
305
813
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
136,360
1,143
99,940
92,194
3,216
771
333,624
72,591
2,952
43,133
118,676
451,251
656,984
9,537
-
9,537
$
$
$
-
236
236
$
-
813
813
$
-
101,454
101,454
$
-
3,597
3,597
$
118,676
557,351
763,084
$
$
-
86
86
$
$
-
-
$
-
$
-
-
$
-
$
-
-
$
-
$
$
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.
66
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)
December
31, 2015
Beginning
Balance
Total Realized and
Unrealized Gains or
(Losses) in Income
AFS
Investments
Trading
Total
Unrealized
Gains or
(Losses)
Included in
Other
Comprehensive
Income
Total
Realized
and
Unrealized
Gains or
(Losses)
Purchases
Sales
Transfers
In and/or
(Out) of
Level 3
Ending
Balance
$
$
$
$
508
305
813
(47)
(2)
(49)
-
$
-
$
-
-
$
-
$
-
$
$
(47)
(2)
(49)
-
$
-
$
-
-
$
(20)
(20)
$
-
$
-
$
-
$
$
461
283
744
Asset
Financial
instruments owned:
Trading - Common
stocks
Trading - Other
Total
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)
December
31, 2014
Beginning
Balance
Total Realized and
Unrealized Gains or
(Losses) in Income
AFS
Investments
Trading
Total
Unrealized
Gains or
(Losses)
Included in
Other
Comprehensive
Income
Total
Realized
and
Unrealized
Gains or
(Losses)
Purchases
Sales
Transfers
In and/or
(Out) of
Level 3
Ending
Balance
$
$
1,293
294
1,587
$
(195)
98
(97)
$
-
$
-
$
-
-
$
-
$
-
$
(195)
98
(97)
6
$
5
11
$
$
$
(238)
(80)
(318)
$
$
(358)
(12)
(370)
$
$
508
305
813
$
Asset
Financial
instruments owned:
Trading - Common
stocks
Trading - Other
Total
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.
67
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:
(In thousands)
Federal:
Current
Deferred
State and local:
Current
Deferred
Total
2016
2015
$
5,018
(1,231)
$
4,540
(6,160)
236
(147)
3,876
$
225
(290)
(1,685)
$
A reconciliation of the Federal statutory rate to the effective tax rate is set forth below:
Statutory Federal income tax rate
State income tax, net of Federal benefit
Dividends received deduction
Donation of appreciated securities
Noncontrolling interests
Other
Effective income tax rate
2016
2015
34.0%
1.2
(3.6)
(4.5)
(0.7)
0.6
27.0%
34.0%
1.6
26.4
3.2
-
0.2
65.4%
Significant components of our deferred tax assets and liabilities are as follows:
(In thousands)
Deferred tax assets:
Stock compensation expense
Deferred compensation
Investments in securities available for sale
Shareholder-designated contribution
Other
Total deferred tax assets
Deferred tax liabilities:
Investments in securities and partnerships
Other liabilities
Total deferred tax liabilities
Net deferred tax liabilities
2016
2015
$
719
1,315
3,652
1,461
4
7,151
$
77
871
5,523
-
-
6,471
(11,103)
-
(11,103)
(3,952)
$
(9,839)
(41)
(9,880)
(3,409)
$
68
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits related to uncertain tax positions is
as follows:
Balance at January 1, 2015
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at December 31, 2015
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at December 31, 2016
(in thousands)
57.1
$
(59.7)
-
(1.9)
(11.2)
(15.7)
-
125.5
(9.7)
-
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
69
interest 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.
70
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.
71
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.
72
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
$
1,642
$
1,082
2019
$
893
2020
$
413
2021
$
275
2022
$
168
2023
$
72
2024
$
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
73
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.
(In thousands, except per share data)
Revenues
Operating income (loss)
Net income attributable to Associated
Capital Group, Inc.'s shareholders
Net income attributable to Associated
Capital Group, Inc.'s shareholders per share:
Basic
Diluted
Revenues
Operating loss
Net income (loss) attributable to Associated
Capital Group, Inc.'s shareholders
Net income (loss) attributable to Associated
Capital Group, Inc.'s shareholders per share:
Basic
Diluted
1st
2nd
2016
3rd
4th
Total
$
4,517
(4,515)
$
4,964
(3,352)
$
5,451
(4,497)
$
16,295
132
$
31,227
(12,232)
1,593
1,019
3,959
3,647
10,218
0.06
0.06
$
0.04
0.04
$
0.16
0.16
$
0.15
0.15
$
0.41
0.41
$
1st
2nd
2015
3rd
4th
Total
$
4,567
(3,880)
$
4,590
(3,468)
$
4,690
(1,081)
$
8,995
(5,883)
$
22,842
(14,312)
2,385
855
(7,540)
4,189
(111)
0.09
0.09
$
0.03
0.03
$
(0.30)
(0.30)
$
0.17
0.17
$
-
$
-
74
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.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A: CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance
that information, which is required to be timely disclosed, is recorded, processed, summarized, and reported to
management within the time periods specified in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Company’s disclosure controls and procedures (as defined in the Exchange Act) as of the end of the
period covered by this report, have concluded that the Company’s disclosure controls and procedures are effective to
provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and
are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms.
(b) Management’s Report on Internal Control Over Financial Reporting
AC's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rule 13a-15(f) of the Exchange Act. Management, with the participation of the principal executive
officer and under the supervision of the principal financial officers, of the Company conducted an evaluation of the
effectiveness of AC's internal control over financial reporting as of December 31, 2016, as required by Rule 13a-15(c) of
the Exchange Act. There are inherent limitations to the effectiveness of any system of internal control over financial
reporting, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective internal control over financial reporting controls can only provide reasonable assurance of
achieving their control objectives. In making its assessment of the effectiveness of its internal control over financial
reporting, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework 2013.
75
Based on its evaluation, management concluded that, as of December 31, 2016, the Company maintained effective internal
control over financial reporting. This annual report does not include an audit attestation report on the Company’s internal
control over financial reporting of the Company’s independent registered public accounting firm due to the rules of the
Securities and Exchange Commission for Emerging Growth Companies.
(c) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2016 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the Directors and Executive Officers of AC and compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference from Proxy Statement.
AC has adopted a Code of Business Conduct that applies to all of our officers, directors, full-time and part-time employees
and a Code of Conduct that sets forth additional requirements for our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions (together, the “Codes of Conduct”). The
Codes of Conduct are posted on our website (www.associated-capital-group.com) and are available in print free of charge
to anyone who requests a copy. Interested parties may address a written request for a printed copy of the Codes of Conduct
to: Secretary, Associated Capital Group, Inc., One Corporate Center, Rye, New York 10580-1422. We intend to satisfy the
disclosure requirement regarding any amendment to, or a waiver of, a provision of the Codes of Conduct by posting such
information on our website.
In addition to the certifications attached as Exhibits to this Form 10-K, following its 2017 Annual Meeting, AC also will
submit to the New York Stock Exchange (“NYSE”) a certification by our Chief Executive Officer that he is not aware of
any violations by AC of the NYSE corporate governance listing standards as of the date of the certification.
ITEM 11: EXECUTIVE COMPENSATION
Information required by Item 11 is included in our Proxy Statement for the 2017 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required by Item 12 is included in our Proxy Statement for the 2017 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM
INDEPENDENCE
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
Information required by Item 13 is included in our Proxy Statement for the 2017 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption “Independent Registered Public Accounting Firm” in our Proxy Statement for
the 2017 Annual Meeting of Stockholders is incorporated herein by reference.
76
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Registered Public Accounting Firm’s Reports included
herein:
See Index on page 39.
(2) Financial Statement Schedules
Financial statement schedules are omitted as not required or not applicable or because the information is included in
the Financial Statements or notes thereto.
(3) List of Exhibits:
The agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K
contain representations and warranties by each of the parties to the applicable agreement. These representations and
warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended
to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to
the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of
“materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of
the date of the applicable agreement or such other date or dates as may be specified in the agreement.
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is
responsible for considering whether additional specific disclosures of material information regarding material
contractual provisions are required to make the statements in this report not misleading.
Exhibit
Number Description of Exhibit
2.1
3.1
3.2
4.1
Separation and Distribution Agreement, dated November 30, 2015, between GAMCO Investors,
Inc., a Delaware corporation and Associated Capital Group, Inc., a Delaware corporation.
(Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K dated November 30, 2015
filed with the Securities and Exchange Commission on December 4, 2015).
Amended and Restated Certificate of Incorporation of Associated Capital Group, Inc. (the
“Company”) (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K dated
November 19, 2015 filed with the Securities and Exchange Commission on November 25,
2015).
Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the
Company’s Report on Form 8-K dated November 19, 2015 filed with the Securities and
Exchange Commission on November 25, 2015).
Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Amendment
No. 4 to the Company’s Registration Statement on Form 10 filed with the Securities and
Exchange Commission on October 21, 2015).
10.1
Service Mark and Name License Agreement, dated November 30, 2015, by and between the
Company and GAMCO Investors, Inc. (“GAMCO”). (Incorporated by reference to Exhibit 10.1
to the Company’s Form 8-K dated November 30, 2015 filed with the Commission on December
77
Commission on December 4, 2015).
Transitional Administrative and Management Services Agreement, dated November 30, 2015,
by and between the Company and GAMCO Investors, Inc. (“GAMCO”). (Incorporated by
reference to Exhibit 10.2 to the Company’s Form 8-K dated November 30, 2015 filed with the
Commission on December 4, 2015).
Employment Agreement between the Company and Mario J. Gabelli dated November 30, 2015
(Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated November 30,
2015 filed with the Commission on December 4, 2015).
Promissory Note in aggregate principal amount of $250,000,000, dated November 30, 2015,
issued by GAMCO in favor of the Company (Incorporated by reference to Exhibit 10.4 to the
Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4,
2015).
Tax Indemnity and Sharing Agreement, dated November 30, 2015, by and between the
Company and GAMCO Investors, Inc. (“GAMCO”). (Incorporated by reference to Exhibit 10.5
to the Company’s Form 8-K dated November 30, 2015 filed with the Commission on December
4, 2015).
2015 Stock Award Incentive Plan (Incorporated by reference to Exhibit 10.11 to Amendment
No. 4 to the Company’s Registration Statement on Form 10 filed with the Securities and
Exchange Commission on October 21, 2015).
Form of Indemnification Agreement by and between the Company and the Indemnitee defined
therein (Incorporated by reference to Exhibit 10.7 to Amendment No. 4 to the Company’s
Registration Statement on Form 10 filed with the Securities and Exchange Commission on
October 21, 2015).
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney (included on page 80 of this Report).
Certification of CEO pursuant to Rule 13a-14(a).
Certification of CFO pursuant to Rule 13a-14(a).
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
10.2
10.3
10.4
10.5
10.6
10.7
21.1
23.1
24.1
31.1
31.2
32.1
32.2
100.INS
100.SCH
100.CAL
100.DEF
100.LAB
100.PRE
the Sarbanes- Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Rye, State of
New York, on March 13, 2017.
ASSOCIATED CAPITAL GROUP, INC.
By: /s/ Patrick Dennis
Name: Patrick Dennis
Title: Chief Financial Officer
Date: March 13, 2017
79
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Kevin Handwerker and Patrick Dennis
and each of them, their true and lawful attorney-in-fact and agent with full power of substitution and resubstitution,
for them in their name, place and stead, in any and all capacities, to sign any and all amendments to this report and to
file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Douglas R. Jamieson
Douglas R. Jamieson
President and
March 13, 2017
Chief Executive Officer
(Principal Executive Officer)
/s/ Patrick Dennis
Patrick Dennis
/s/ Mario J. Gabelli
Mario J. Gabelli
/s/ Marc Gabelli
Marc Gabelli
/s/ Richard L. Bready
Richard L. Bready
/s/ Daniel R. Lee
Daniel R. Lee
/s/ Bruce M. Lisman
Bruce M. Lisman
/s/ Frederic V. Salerno
Frederic V. Salerno
/s/ Salvatore F. Sodano
Salvatore F. Sodano
Executive Vice-President
March 13, 2017
and Chief Financial Officer
(Principal Financial Officer)
Executive Chairman of the
Board and Director
March 13, 2017
Director
March 13, 2017
Director
March 13, 2017
Director
March 13, 2017
Director
March 13, 2017
Director
March 13, 2017
Director
March 13, 2017
80
Subsidiaries of Associated Capital Group, Inc.
The following table lists the direct and indirect subsidiaries of Associated Capital Group, Inc. (the “Company”), except
those investment partnerships and offshore funds which are consolidated. In accordance with Item 601 (21) of Regulation S-K,
the omitted subsidiaries considered in the aggregate as a single subsidiary would not constitute a “significant subsidiary” as
defined under Rule 1-02(w) of Regulation S-X.
Exhibit 21.1
Name
Gabelli & Company Investment Advisers, Inc.
(100%-owned by the Company)
G.research, LLC
(100%-owned by Gabelli & Company Investment Advisers, Inc.)
Gabelli & Partners LLC
(100%-owned by Gabelli & Company Investment Advisers, Inc.)
Gabelli Arbitrage Holdings LLC
(100%-owned by the Company)
Gabelli Trading Holdings LLC
(100%-owned by the Company)
Institutional Services Holdings, LLC
(100%-owned by the Company)
Jurisdiction of Incorporation or Organization
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements of Associated Capital Group, Inc. and
subsidiaries (“ACG”) of our report dated March 13, 2017, relating to the consolidated financial statements of ACG, appearing in this
Annual Report on Form 10-K of ACG for the year ended December 31, 2016.
1) Registration Statement (Form S-8 No. 333-212944) pertaining to the 2015 Stock Award and Incentive Plan of Associated
Capital Group, Inc. and subsidiaries.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 13, 2017
Exhibit 31.1
I, Douglas R. Jamieson, certify that:
Certifications
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Associated Capital Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of income and cash flows of the registrant
as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the
period covered by this report; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
a)
b)
c)
d)
a)
b)
By:
Name:
Title:
/s/ Douglas R. Jamieson
Douglas R. Jamieson
Chief Executive Officer
Date:
March 13, 2017
Certifications
Exhibit 31.2
I, Patrick Dennis, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Associated Capital Group, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of income and cash flows of the registrant
as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
a)
b)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of the end of the
period covered by this report; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
By:
Name:
Title:
/s/ Patrick Dennis
Patrick Dennis
EVP and Chief Financial Officer
Date:
March 13, 2017
Certification of CEO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Associated Capital Group, Inc. (the “Company”) for the year ended
December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mario J. Gabelli, as
Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of income of the Company.
By:
Name:
Title:
/s/ Douglas R. Jamieson
Douglas R. Jamieson
Chief Executive Officer
Date:
March 13, 2017
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities
Exchange Act of 1934, as amended.
Certification of CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Associated Capital Group, Inc. (the “Company”) for the year ended
December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Patrick Dennis, as
Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of income of the Company.
By:
Name:
Title:
/s/ Patrick Dennis
Patrick Dennis
EVP and Chief Financial Officer
Date:
March 13, 2017
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities
Exchange Act of 1934, as amended.
Board of Directors
Richard L. Bready
Former Chairman & Chief Executive Officer
Nortek, Inc.
Daniel R. Lee
Chief Executive Officer and Director
Full House Resorts, Inc.
Marc Gabelli
President
GGCP, Inc.
Officers
Mario J. Gabelli, CFA
Executive Chairman
Douglas R. Jamieson
Chief Executive Officer and President
Corporate and Shareholder Information
Investor Relations
For our 10-K and other shareholder information, as well as
information on our products and services, visit our website at
www.associated-capital-group.com or write to:
One Corporate Center
Rye, New York 10580-1422
203-629-9595
email: investor@associated-capital-group.com
Transfer Agent
Computershare
250 Royall Street
Canton, MA 02021
(781) 575-2000
Trading Information
New York Stock Exchange
Class A Common Stock
Symbol - AC
Website
www.associated-capital-group.com
Mario J. Gabelli
Executive Chairman
Associated Capital Group, Inc.
Bruce M. Lisman
Former Chairman of JP Morgan’s Global
Equity Division
Frederic V. Salerno
Former Vice Chairman, Verizon Communications Inc.
Salvatore F. Sodano
Chairman and Chief Executive Officer
Worldwide Capital Advisory Partners, LLC.
Kevin Handwerker
Executive Vice President, General Counsel
and Secretary
Patrick Dennis
Executive Vice President and
Chief Financial Officer
Investment Services Information
Alternative Investments
Contact: Michael M. Gabelli
Managing Director and President
914-921-5135
email: alternatives@gabelli.com
Institutional Research
Contact: C.V. McGinity
President
914-921-7732
email: CMcGinity@gabelli.com
Annual Meeting
Our 2017 Annual Meeting of Shareholders
will be held at 8:00 a.m. on May 3, 2017 at the
Belle Haven Club, 100 Harbor Drive,
Greenwich, CT 06830
“The more you give, the more you receive”
Our shareholders designated contributions to the following
501(c)(3) organizations in 2016
The Board of Directors of Associated Capital Group, Inc. established an inaugural Shareholder Designated Charitable
Contribution program in 2016. Shareholders who directly registered their ownership by December 6, 2016 were able to
designate $0.25 per share to a recognized 501(c)(3) organization.
AC’s program is tracking the shareholder program launched by GAMCO Investors, Inc. in April 2013 which was based, in
part, on the program established by Berkshire Hathaway in 1981. The Berkshire Hathaway program continued for over 20
years, until 2003. Warren Buffett’s letter to shareholders at the inception of Berkshire’s program explained that charitable
giving in this manner provides significant benefits to shareholders. Each eligible shareholder is able to choose whether a
contribution of corporate funds based on his/her ownership interest is to be made, and if so, to specify the recipient of that
contribution. The shareholder’s judgment – not the judgment of the company’s directors or management – controls the
contribution process.
Under this program, each registered shareholder of Associated Capital was able to designate one charitable organization
(two charitable organizations for holders with 8,000 shares or more) to which AC contributed $0.25 per share on the
shareholder’s behalf.
♦ ♦ ♦
♦
♦
Cornell
Doctors
We are fortunate to live in the
wealthiest nation in the world and
to have the ability to share our good
fortune. IN 2016, WE WERE ABLE
TO SUPPORT MANY WORTHY
ENDEAVORS, INCLUDING THESE
115 RECIPIENTS. Our firm has
grown for 40 years, and the stock
market has rewarded long term
investors. This has also enabled us
to donate countless hours to scores
of charitable organizations.
Alzheimer’s Disease & Related Disorders Association ♦ Alzheimer’s Foundation of America ♦ American Associates of Ben-Gurion
University of the Negev ♦ American Cancer Society ♦ American Macular Degeneration Foundation ♦ American National Red
Cross ♦ Amigos Del Museo Del Barrio ♦ Archbishop Wood High School ♦ Arthritis Foundation ♦ Aurora Ice Association ♦ Battle
Buddies, VOA ♦ Bay Area Discovery Museum ♦ Bedford Audubon Society ♦ Blythedale Children’s Hospital ♦ Bob Woodruff Family
Foundation ♦ Boston College Trustees ♦ Boys and Girls Club of Truckee Meadows ♦ Bristol Riverside Theater Co. ♦ Brunswick School
Catholic Charities of the Archdiocese
♦ Catholic Big Sisters & Big Brothers ♦
♦ Central Scholarship Bureau ♦
of New York ♦ Center for All Abilities
for Kids ♦ Chicago Chesed Fund ♦
Chaminade High School ♦ Change
Citymeals-on-Wheels ♦ Columbus
Church-in-the-Garden ♦ CityArts ♦
University ♦ Cow Hollow Preschool
Citizens Foundation
Direct Relief International ♦ Disabled
♦ Cristo Rey Jesuit High School ♦
Service Trust ♦ Disabled Veterans
American Veterans DAV Charitable
Without Borders USA ♦ Downtown
National Foundation
Eastchester Volunteer Ambulance
Community Television Center
♦
Village ♦ Feeding America ♦ Fidelity
Corps. ♦ Elevation Chapel ♦ Eva’s
Foundation of the State University of
Investments Charitable Gift Fund ♦
Valley School of Colorado ♦ Friends of
New York at Binghamton ♦ Fountain
Me an Answer ♦ Greenwich Hospital
Animals ♦ Gilchrist Hospice Care ♦ Give
Heifer Project International ♦ Hetrick-
♦ Groton School ♦ Haley House ♦
Nevada ♦ Honeywell Humanitarian
Martin Institute ♦ Hindu Society of
Conception Church - Bronx ♦ Injured
Immaculate
Relief Foundation
Scholarship Fund ♦ Jack Miller Center
Marine Semper Fi Fund ♦ Inner-City
Principles & H ♦ Jewish Communal
for Teaching America’s Founding
Pittsburgh ♦ Joel Barlow High School
Fund ♦ Jewish Federation of Greater
-RSD#9 ♦ Junior League of Greenwich
Connecticut ♦ Kids in Crisis ♦ Lee
Memorial Health System Foundation ♦ Legal Services of the Hudson Valley ♦ Leukemia and Lymphoma Society ♦ LongHouse
Reserve ♦ Marc Lustgarten Pancreatic Cancer Foundation ♦ Marine Corps Scholarship Foundation ♦ Memorial Sloan-Kettering
Cancer Center ♦ Millbrook School ♦ Mount Sinai Medical Center Foundation ♦ National Brain Tumor Society ♦ Natural Resources
Defense Council ♦ New Israel Fund ♦ New York and Presbyterian Hospital ♦ New York City Relief ♦ Northeastern University ♦
Northern Nevada HIV Outpatient Program Education and Services ♦ Northwell Health Foundation ♦ Paci fic House ♦ Pediatric
Cancer Research Foundation ♦ Perlman Music Program ♦ Planned Parenthood Federation of America ♦ Prospects, Opportunity
and Enrichment ♦ Rainforest Action Network ♦ Rainforest Alliance ♦ Rector Wardens Vestry Men of St. Bartholomew’s Church
♦ Rochester Institute of Technology ♦ Salvation Army National Corp. ♦ San Diego Opera Association ♦ San Miguel Academy of
Newburgh ♦ SATO Project ♦ Save the Children Federation ♦ Science Buddies ♦ Seamen’s Church Institute of New York and New
Jersey ♦ Shriners Hospitals for Children ♦ South Bronx Educational Foundation ♦ Special Young Adults ♦ St. Joseph’s Indian School
♦ St. Jude Children’s Research Hospital ♦ Step Up International ♦ Student U ♦ The Arc of Palm Beach County ♦ The Miller Center
Foundation ♦ The Windward School ♦ Tuesday’s Children ♦ Tuxedo Park School ♦ University of Wisconsin Foundation ♦ Villanova
University ♦ Westchester ARC Foundation ♦ Wilton Library Association ♦ Yale-New Haven Hospital ♦ Zacharias Sexual Abuse Center
♦
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