A N N U A L
R E P O R T
2017
WISDOM. PERFORMANCE. BRIGHT FUTURE. TRUST
2 0 1 7
E
P
S
P
M
V
MANAGEMENT
CASHFLOW
R E S E A R C H
Dear Partners/Shareholders:
We are privileged to share Associated Capital’s (the “Company”) financial results for 2017. As always, we value your trust
and support.
During 2017, we:
• Grew assets under management by 21% to $1.5 billion at year-end. We launched a closed-end fund on the London
Stock Exchange and saw significant capital flows into our UCITS fund.
•
Increased book value, a key metric in valuing our enterprise by $2.80 per share to $38.84 from $36.04 per share
as of December 31, 2017 and 2016, respectively. This represents an increase of 7.8% and stems largely from $50
million of principal repayments by GAMCO Investors, Inc. on the note they issued in connection with our spin-off
(the “GAMCO Note”). As of the end of the year, the remaining balance of the GAMCO Note stood at $50 million
and this has been further reduced by an additional $10 million during the first quarter of 2018.
• Repurchased over 600,000 shares, returning $21.2 million to shareholders.
•
Subsequent to year-end, successfully completed an exchange offer of outstanding shares of the Company
for GAMCO shares that we hold. Approximately 500,000 Class A shares were tendered, and we distributed
approximately 670,000 GAMCO shares with a market value of $17.7 million. Following this transaction, we hold 3.7
million GAMCO shares.
•
Paid semi-annual dividends of $0.10 per share, paying out $4.8 million to shareholders.
• Continued the shareholder designated charitable contribution program and donated over $4 million on behalf of
registered shareholders. We have now distributed over $9.6 million to qualified Section 501(c)(3)charities.
• Hosted nine investor conferences, seven of which are presented annually by our institutional research services
business, G.research, LLC.
• Continued to disseminate our research on social media platforms. We invite you to follow us on the Gabelli TV
channel on YouTube (www.youtube.com) or Facebook (www.facebook.com/GabelliTV) and receive regular
updates of our research.
•
Finalizing publication of a follow up to our 1999 book, Deals… Deals… and More Deals. The sequel will contain tales
of merger arbitrageurs based on over twenty detailed interviews.
In 2018, we will continue to explore new avenues to put our capital to work by pursuing new distribution channels and new
products as well as deals, initially through a new proprietary fund.
As previously discussed, our Board has authorized us to explore the launch of a private equity business, something our
predecessor firm had success with in the 1980s. During the year, we have created a new subsidiary, Gabelli Private Equity
Partners, and have begun staffing up for this effort. Initial outreach initiatives have begun with business owners, corporate
management, and various financial sponsors.
Along these lines, we include the Acquisition Criteria list from Warren Buffett’s Berkshire Hathaway 2017 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:
– Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations),
– Businesses earning good returns on equity while employing little or no debt,
– Management in place (we can’t supply it),
– Simple businesses (if there’s lots of technology, we won’t understand it),
– 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).
We look forward to another successful year and hope to continue to deliver steady value creation for your investment in us.
CO N D E N S E D CO N SO LI DATE D BAL AN CE S H E E T (in thousands)
December 31,
2017
2016
ASSETS
Investments (including cash and cash equivalents)
$ 937,254
$ 917,933
Receivables
Other assets
65,758
3,903
30,950
3,720
Total assets
$1,006,915
$ 952,603
LIABILITIES AND EQUITY
Compensation payable
$ 12,785
$ 17,676
Securities sold, not yet purchased
Income taxes payable
Accrued expenses and other liabilities
Total liabilities
5,731
5,484
18,538
42,538
9,984
6,978
39,713
74,351
Redeemable noncontrolling interests
46,230
4,230
Stockholders' equity
968,147
974,022
GBL 4% PIK Note
(50,000)
(100,000)
Noncontrolling interests
918,147
874,022
Total equity
Total liabilities and equity
$ 1,006,915
$ 952,603
We ended 2017 with cash and net investments of $932 million, including $347 million of cash and short term treasuries, $293 million
of net marketable securities, including 4.4 million shares of GAMCO stock and $292 million invested in affiliated and third party
funds and partnerships. Our GAAP book value was $918 million or $38.84 per share.
In addition to these assets, GAMCO owes us $50 million. This amount is not included in our book value for GAAP purposes, as
GAAP treats it as a contra-equity item instead of an asset until the note is repaid 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 at year-end was $968 million or $40.96 per share.
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. We
consider our primary goal as using our liquid resources to opportunistically and strategically grow book value and net income. If
opportunities are not present with what we consider a margin of safety, however, 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 continue to see strong growth in assets under
management (dollars in millions):
Assets grew by 21% over the prior year. For the year,
we saw growth from both net capital inflows as well
as positive performance across our funds. For the
past four years, we have seen compounded annual
asset growth of approximately 14%.
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$-
2013
2014
2015
2016
2017
Event Merger Arb
Event-Driven Value
Other
Q UARTE R LY FI NAN CIAL I N FO R MATI O N
Quarterly financial information for 2017 and 2016 is presented below.
(In thousands, except per share data)
2017
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
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
1st
2nd
3rd
4th
Total
$4,987
(4,332)
$5,095
(6,453)
$5,248
(6,112)
$11,585
(3,489)
$26,915
(20,386)
$(13,078)
$4,596
$1,519
$15,800
$8,837
$(0.55)
$(0.55)
$0.19
$0.19
$0.06
$0.06
$0.67
$0.67
$0.37
$0.37
1st
2nd
3rd
4th
Total
2016
$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
Notes on 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 $50 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
$918,147
50,000
$968,147
Per Share
$38 84
2 12
$40 96
M E RG E R AR B ITR AG E
The merger arbitrage
investment process begins with the
announcement of an acquisition, when 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 or any other risks that might prevent
a transaction from closing. 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.
Gabelli & Partners’ Arbitrage Team
Merger arbitrage is a natural extension of our Private Market Value
with a Catalyst™ methodology. The catalyst that surfaces a company’s
private market value in our case is a merger or acquisition. Our merger
arbitrage investment team leverages the research capabilities of
the thirty industry analysts to provide us with insights into deal risk -
antitrust, regulatory, financing and timing - as well as to determine synergies, strategic considerations and other potential buyers. We believe
that focus on strategic buyers in industries we know well is essential to earn absolute returns not correlated to the market.
Bill Gregorio
Global Markets Specialist
Ralph Rocco
Managing Director
Anthony Lombardi
Research
Willis Brucker
Portfolio Manager
Paolo Vicinelli
Portfolio Manager
Global deal activity totaled $3.6 trillion in 2017. While the deal volume was largely in line with 2016 levels, the number of announced deals
increased 3%, making it the strongest year on record. Europe was a bright spot with deal activity of $870 billion, an increase of 17% year over
year. We expect corporate confidence, robust balance sheets, accommodative debt markets and repatriation of foreign cash will continue to
propel corporate merger activity in 2018.
The U.S. Federal Reserve has indicated at least three rate hikes in 2018. This is good for merger arbitrage returns since the risk-free rate is
one component of merger arbitrage spreads and nominal spreads are positively correlated with interest rates. Merger arbitrage should benefit
from a rising rate environment and continued M&A activity. Our dedicated team has extensive deal and fundamental investment experience
which we expect will enable us to generate returns in 2018.
“There are many advantages to investing in risk arbitrage. Let’s focus on three: risk
arbitrage returns are not closely correlated with those of the stock market; they are less
volatile than returns on the S&P 500; and longer term they are higher than those returns
afforded by traditional investing. While these three factors provide for excellent results in
the world of arbitrage, the real beauty of risk arb investing is that there is rarely a down
year. Because risk arb returns are consistently positive year in and year out, they fulfill the
concept of a compound return. We proclaim this source of compounded earnings as the
eighth wonder of the world.
Compounding is the secret to wealth creation over a period of decades.”
-Regina M. Pitaro
(Deals...Deals...and More Deals, 1999)
Regina M. Pitaro
Columbia University,
Graduate School of Business
M.B.A., Finance
Loyola University of Chicago
M.A., Anthropology
Fordham University
B.S., Anthropology
“Give a man a fish and you
feed him for a day.
Teach a man to arbitrage,
and you feed him forever.”
- Warren Buffett
ENGLISH
ITALIAN
CHINESE
JAPANESE
Deals...Deals...and More Deals - Now in four languages.
Originally published in 1999 by Gabelli University Press.
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, 2017
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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2017 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $159,849,334.
As of March 1, 2018, 4,447,408 shares of class A common stock and 19,187,885 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 532,766 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 2018 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, 2017
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
Item 15
Item 16
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
8
9
10
10
14
14
29
29
29
29
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
29
31
33
45
49
88
88
89
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
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Power of Attorney
Subsidiaries of Associated Capital Group, Inc.
89
89
89
89
89
90
92
93
94
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 that provides alternative investment management, institutional research and
underwriting services. In addition, we derive investment income/(loss) from proprietary trading of cash and other
assets awaiting deployment in our operating businesses.
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of
each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common
stock (the “Spin-off”).
We conduct our investment management business through Gabelli & Company Investment Advisers, Inc. (“GCIA”
f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli &
Partners”), collectively serve as general partners or investment managers to investment funds including limited
partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily
4
manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The
business earns management and incentive fees from its advisory assets. Management fees are largely based on a
percentage of assets under management. Incentive fees are based on the percentage of the investment returns of
certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
We provide our institutional research services operations through G.research, LLC ("G.research") doing business as
“Gabelli & Company”, an indirect wholly-owned subsidiary of the Company. G.research is a broker-dealer
registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 connection with the spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the
original principal amount of $250 million used to partially capitalize the Company. The GAMCO Note bears interest
at 4% per annum and has a maturity date of November 30, 2020 with respect to its original principal amount.
Interest on the GAMCO Note will accrue from the most recent date for which interest has been paid. Prior to
November 30, 2019, 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 (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. GAMCO may prepay the
GAMCO Note prior to maturity without penalty.
Through December 31, 2017, AC received principal repayments totaling $200 million on the GAMCO Note. The
$50 million principal amount outstanding as of December 31, 2017 is due on November 30, 2020.
In addition, AC Group owns 4,393,055 shares of GAMCO Class A common stock via transactions that occurred in
connection with 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 clients, 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, 2017, we managed a total of
$1.5 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 7.56% net CAGR since we launched our first partnership dedicated to
investing in merger arbitrage situations. That is, $10 million invested in this fund in 1985 would today be worth
more than $110 million. In addition, the value of such an investment would have exhibited significantly less
volatility than that of broad equity indices.
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 with the objective
of generating positive returns regardless of market 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, 2017, we managed, either directly
or indirectly, approximately $1.4 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, 2017, we managed $91 million of assets focused on global markets. We also
manage $66 million of assets in other Investment Partnerships designed to offer diversification by global economic
and sectoral opportunities. These include sector, high yield, capital structure and venture capital or merchant
banking portfolios. Since 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.
6
Assets Under Management
The following table sets forth AC’s total AUM for the dates shown.
Assets Under Management (a)
(in millions)
2017
Year Ended December 31,
2015
2014
2016
2013
Event Merger Arb
Event-Driven Value (b)
Other (c)
Total AUM
$
$
$
$
$
1,384
91
66
1,541
1,076
133
63
1,272
869
145
66
1,080
796
167
77
1,040
$
$
$
$
$
691
140
76
907
(a) Includes separately managed accounts and Investment Partnerships.
(b) Excluding event merger arbitrage.
(c) Includes investment vehicles focused on private equity, merchant banking, non-investment-grade credit and
capital structure arbitrage.
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 across 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 conferences 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.
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 (e.g., hedge
funds and asset managers) as well as affiliated mutual funds and managed accounts. Institutional research services
revenues totaled $12.2 million, $12.6 million, and $9.9 million for the years ended December 31, 2017, 2016 and
2015, respectively. Pursuant to research services agreements, GAMCO Asset Management Inc. paid $2.2 million,
$1.5 million and $0.7 million and Gabelli Funds, LLC paid $2.3 million, $1.5 million and $0.8 million to the
Company for the years ended December 31, 2017, 2016 and 2015, respectively. Gabelli Funds, LLC and GAMCO
Asset Management Inc. are both wholly-owned subsidiaries of GAMCO. G.research earned $4.5 million, $5.2
million and $4.9 million, or approximately 60%, 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, 2017, 2016 and 2015, respectively. G.research continues to pursue expansion
of third party and affiliated activities.
7
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 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. Our results
through market cycles clearly demonstrate our core competence in event driven investing. Our “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.
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 by pursuing 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 and joint ventures with firms that fit with AC’s product quality and that can provide
Asian/European distribution capabilities that would complement our U.S. equity product expertise. We expect to
target opportunities for investors interested in non-market correlated returns.
Growing our Institutional Research Services Operations
We intend to grow our Institutional Research Services by growing our client base and by increasing our interactions
with existing clients to generate greater trading activity and payment flow.
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Continuing Our Sponsorship of Industry Conferences
G.research sponsors industry conferences and management events throughout the year. At these conferences, 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 2017, G.research hosted meetings
covering the following sectors:
Pump, Valve, & Water Systems
Waste & Environmental Services
Specialty Chemicals
Omaha Research Trip
Movie & Entertainment
Television & Broadcasting
Aircraft Supplier & Connectivity
Automotive Aftermarket
We also have a tradition of sponsoring institutional investor symposia 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 symposia have included:
2017:
2015:
2013:
2006:
2003:
2001:
1998:
1997:
“Digital Evolution within Financial Services”
“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 the Company and our clients is a significant factor in our long-term growth. We offer significant variable
compensation that provides incentives 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.
Competition
The alternative asset management industry is intensively competitive. We face competition in all aspects of our
business from other managers in the United States and globally. We compete with alternative investment
management firms, insurance companies, banks, brokerage firms and 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 not available to us. Many are larger in
terms of AUM and revenues and, accordingly, have larger sales organizations and marketing budgets. Historically,
we have competed primarily on the basis of the long-term investment performance 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
9
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” brand, 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”). We can use these names 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 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 countries where 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 led to the adoption of extensive regulations. 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.
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.
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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 Organization for Economic
Cooperation and Development (“OECD”) has developed the Common Reporting Standard (“CRS”) to address the
issue of offshore tax evasion on a global basis. Aimed at maximizing efficiency and reducing cost for financial
institutions, the CRS provides a common standard for due diligence, reporting and exchange of financial account’s
information. Pursuant to the CRS, participating jurisdictions will obtain from reporting financial institutions, and
automatically exchange with partner jurisdictions on an annual basis, financial information with respect to all
reportable accounts identified by financial institutions on the basis of common due diligence and reporting
procedures. The first information exchanges began in 2017 on the basis of the information reported with respect to
2016. As a result, the Investment Partnerships will be required to report information on the investors of the
Partnerships to comply with the CRS due diligence and reporting requirements, as adopted by the countries in which
the Investment Partnerships are organized.
The FATCA and CRS rules will impact both U.S. and non-U.S. Investment Partnerships and separately managed
accounts and subject us to extensive additional administrative burdens. Our business could also be impacted to the
extent there are other changes to tax laws such as the recent tax reform legislation. Such changes could adversely
affect our financial results.
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 regulatory bodies. Certain of our U.S. subsidiaries are also
subject to anti-terrorist financing, privacy, anti-money laundering regulations and economic sanctions laws and
regulations established by these agencies.
The Advisers Act
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 from 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’
regulatory authorities. 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, 2017. 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 as well as 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.
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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 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 equity. As of December 31, 2017, we had five percent or more beneficial
ownership with respect to 108 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 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 European Regulation Overview
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. 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. AIFMD also regulates the marketing of all AIFs inside the
European Economic Area (“EEA”). AIFMD is being implemented in stages, which run through 2018. Compliance
with 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”) impacting 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
12
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 required us to
make changes to our collateral management arrangements applicable to the EPM of the UCITS funds for which
GCIA acts as a sub-advisor. Compliance with the UCITS directives will cause us to incur additional expenses
associated with new risk management and reporting requirements.
Markets in Financial Instruments Directive. MiFID is the acronym for the European Union’s (“EU”) Markets in
Financial Instruments Directive. MiFID has been in force since November 1, 2007 and its goal is to foster a
competitive and level playing field between trading venues for financial instruments in the European Economic Area
(“EEA”) and to improve investor protection across the EEA. After the 2008 financial crisis the European
Commission (“EC”) determined to revise MiFID. In furtherance of this, the replacement directive was adopted by the
EC on July 2, 2014 (together with its underlying directives, regulations and technical standards, “MiFID II”) and all
EU Member States were required to fully implement MiFID II by January 3, 2018.
MiFID II creates specific new rules regarding the use of “soft dollars” to pay for research. A MiFID licensed
investment firm that is providing portfolio management services or independent investment advisory services to
clients may not pay for third party research with soft dollars generated through client trading activity. Research must
be paid for either (i) by the investment firm out of its own resources or (ii) through a separate research payment
account (“RPA”) for each client (SMA or pooled vehicle established by the investment firm) to pay for the research.
While currently neither GCIA nor G.research is directly subject to MiFID II, GCIA may be invoiced separately by
any EU brokers from whom it purchases research in the future and/or clients may begin to require that GCIA
“unbundle” research payments from commission trading. To the extent G.research attempts to provide its
institutional research services to EU based clients, those clients may also demand that G. research separately invoice
them for trading and research.
The Financial Conduct Authority (“FCA”) currently regulates Gabelli Securities International (UK) Limited
(“GSIL”), our MiFID licensed entity 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 GSIL 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 GSIL and/or its employees.
In addition, GSIL must comply with MiFID, the scope of which has been enhanced through MiFID II and sets out
detailed requirements governing the organization and conduct of business of investment firms and regulated markets.
MiFID II 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 Generally
The investment management industry is likely to continue facing a high level of regulatory scrutiny and to 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
13
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.
Employees
On February 28, 2018, we had a full-time staff of 71 teammates, of whom 46 served in the portfolio management,
research and trading areas, 12 served in the marketing and shareholder servicing areas and 13 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
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.
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.
14
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 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. 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. The ownership of this
GAMCO common stock 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
15
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.
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.
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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 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, 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 OECD has developed CRS to address the issue of offshore tax evasion on a
global basis. Aimed at maximizing efficiency and reducing cost for financial institutions, the CRS provides a
common standard for due diligence, reporting and exchange of financial account information. The FATCA and CRS
rules will impact both U.S. and non-U.S. Investment Partnerships and separately managed accounts and subject
Associated Capital to extensive additional administrative burdens.
Certain of our FATCA and CRS compliance are done by third parties, and we cannot be certain that they will always
comply with applicable FATCA and CRS rules.
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 or amendments to or
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modification of the interpretation of tax laws could impact Associated Capital’s corporate tax position. The U.S. Tax
Cuts and Jobs Act enacted in December 2017 made significant changes to the corporate and individual tax rates,
available income tax deductions and the treatment of other tax attributes. Many provisions of this legislation may be
subject to further technical corrections and the adoption of implementing regulations.
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 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.
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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, Inc. (“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 98.6% voting control as of December 31, 2017. 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.
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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
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, 2017, approximately 21.6% of our AUM was below a high-water mark. 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.
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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, 2017, our AUM
had grown to approximately $1.5 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 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, 2017, 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
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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.
Institutional research services revenues totaled $12.2 million, $12.6 million and $9.9 million for the years ended
December 31, 2017, 2016 and 2015, respectively. G.research earned $4.5 million, $5.2 million and $4.9 million, or
approximately 60%, 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,
2017, 2016 and 2015, respectively. Additionally, pursuant to research services agreements, GAMCO Asset
Management Inc. and Gabelli Funds LLC paid in aggregate $4.5 million, $3.0 million and $1.5 million to the
Company for the years ended December 31, 2017, 2016 and 2015, respectively. G.research also earned $0.2 million,
$1.6 million and $0.0 million in underwriting revenues for the years ended December 31, 2017, 2016 and 2015,
respectively. These underwriting revenues primarily 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,
and the loss of these revenues would have an adverse effect on our results of operations.
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 these investment partnerships. As of December 31, 2017, our AUM
included approximately $452 million in these investment partnerships. A substantial adverse judgment or other
liability with respect to these 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
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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 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
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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 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.
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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 regulatory rules and negotiated client guidelines. A failure to
comply with these rules and guidelines could result in damage to our reputation, regulatory fines 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
25
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.
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 provide that, subject to certain conditions, third-
party investors in those Investment Partnerships have the right, without cause, to vote to remove us as investment
manager or general partner of the Investment Partnerships 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 (the “Investment
Company Act”), 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 “inadvertent” investment company as defined in
Section 3(a)(1)(C) of the Investment Company Act and, if so, it may be required to be registered with the
Commission as an investment company. While we believe that the Company’s assets and operations are structured so
that it is not an investment company, there can be no assurance that the Commission would agree with the
Company’s assessment. In addition, if the composition of the Company’s assets and/or operations were to change,
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 transact 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 shares of one class are not eligible to vote on matters relating exclusively to the other class. 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 96.4% 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.
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
26
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 ($50 million outstanding as of
December 31, 2017) 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. Upon issuance, the GAMCO Note was required to be paid down ratably over five
years subject to prepayment 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, 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.
27
The reduced disclosure requirements applicable to us as an “emerging growth 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 (the “Sarbanes-Oxley Act”) and 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.
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, there may be a less active trading market for Associated Capital Class A Stock 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
28
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.
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, 2018, there were 132 holders of record and 23 holders of record of the Company’s Class A and
Class B common stock, respectively. These figures do not include approximately 3,500 holders with Class A shares
held under beneficial ownership in nominee name.
The following table sets forth the high and low prices of our Class A common stock since our spin-off from GAMCO
and historical dividends declared per share to both Class A common stock and Class B common stock as reported by
the NYSE.
2016
Dividend Declared
2017
Dividend Declared
High
Low
Regular
Special
High
Low
Regular
Special
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
30.40
30.89
35.51
35.96
$
24.67
27.58
28.51
32.25
$
0.10
-
-
0.10
-
$
-
-
-
$
39.35
36.30
37.45
38.82
$
32.20
32.60
32.20
33.10
-
$
0.10
-
0.10
-
$
-
-
-
29
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, 2017:
Period
10/01/17 - 10/31/17
11/01/17 - 11/30/17
12/01/17 - 12/31/17
Totals
Total
Number of
Shares
Repurchased
84,612
33,067
29,284
146,963
Average
Price Paid Per
Share, net of
Commissions
37.53
$
35.42
33.96
36.34
$
Total Number of
Shares Repurchased as
Part of Publicly
Announced Plans
or Programs
84,612
33,067
29,284
146,963
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plans or Programs
953,137
920,070
890,786
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, for total consideration of $28,763,012.
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. On August 3, 2017, the Board of Directors authorized the repurchase of an
additional 1 million shares.
During the period from January 1, 2018 to March 8, 2018, we repurchased 3,971 shares at an average price per share
of $33.99.
We are required to provide a comparison of the cumulative total return on our Class A common stock as of
December 31, 2017 with that of a broad equity market index and either a published industry index or a peer group
index selected by us. The following chart compares the return on the Class A common stock with the return on the
S&P 500 Index and the SNL Asset Manager Index, an index comprised of 41 primarily U.S. publicly traded asset
managers. The comparison assumes that $100 was invested in the Class A common stock and in each of the named
indices on November 30, 2015 and includes the reinvestment of dividends. This chart is not intended to forecast
future performance of our Class A common stock.
30
Total Return Performance
Associated Capital Group, Inc.
S&P 500 Index
SNL Asset Manager Index
140
130
120
110
l
e
u
a
V
x
e
d
n
I
100
90
11/30/15
12/31/15
12/31/16
12/31/17
Nov. 30,
2015
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2017
Associated Capital Group, Inc.
S&P 500 Index
SNL Asset Manager Index
100.00
100.00
100.00
100.89
98.42
92.59
109.04
110.19
97.95
114.21
134.25
130.07
We have adopted the 2015 Stock Award and Incentive Plan (the “Equity Compensation Plan”). 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.
No awarded but unvested shares are outstanding under the Equity Compensation Plan as of December 31, 2017. The
number of securities remaining available for future issuance under equity compensation plans is 1,459,400. The
Company withdrew the registration statement covering the issuance of those securities as of December 29, 2017.
ITEM 6: SELECTED FINANCIAL DATA
General
The selected historical financial data presented below has been derived in part from, and should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included in Item 7 and “Financial Statements and Supplementary Data” included in Item 8 of this report. Amounts
included in the tables related to income statement data and balance sheet data are derived from audited financial
statements.
31
Income Statement Data (in thousands)
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
2017
2015
$
14,551
12,199
165
26,915
$
18,320
12,634
273
31,227
$
12,635
9,927
280
22,842
30,644
5,879
713
10,065
47,301
(20,386)
30,968
2,464
1,593
8,434
43,459
(12,232)
20,598
10,501
(227)
(4,222)
26,650
6,264
(2,420)
8,684
(153)
8,837
$
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
$
$
0.37
0.37
$
$
0.41
0.41
$
-
$
-
Weighted average shares outstanding:
Basic
Diluted
Actual shares outstanding at December 31st (a)
23,792
23,925
23,639
24,870
25,175
24,255
24,887
25,170
25,440
Dividends declared per share:
$
0.20
$
0.20
$
-
See accompanying notes.
(a) Includes unvested RSAs of 0, 424,340 and 553,100 at December 31, 2017, 2016 and 2015, respectively.
Balance Sheet Data (in thousands)
2017
December 31,
2016
2015
Total assets
Long-term obligations
Other liabilities and noncontrolling interest
Total liabilities and noncontrolling interest
Total equity
$
1,006,915
-
88,768
88,768
918,147
$
952,603
-
78,581
78,581
874,022
$
$
$
$
836,748
-
85,199
85,199
751,549
Assets Under Management (in millions)
2017
Year Ended December 31,
2016
2015
Event Merger Arb
Event-Driven Value
Other
Total AUM
$
$
$
1,384
91
66
1,541
1,076
133
63
1,272
$
$
$
869
145
66
1,080
32
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 connection with the spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the
original principal amount of $250 million used to partially capitalize the Company. The GAMCO Note bears interest
at 4% per annum and has a maturity date of November 30, 2020 with respect to its original principal amount. Interest
on the GAMCO Note will accrue from the most recent date for which interest has been paid. Prior to November 30,
2019, 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 (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. GAMCO may prepay the GAMCO Note prior
to maturity without penalty.
During the year ended December 31, 2017, AC received principal repayments totaling $50 million on the GAMCO
Note. Following these prepayments, the $50 million principal amount outstanding as of December 31, 2017 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.
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,
33
including information technology and infrastructure. References within these Notes to the consolidated financial
statements for the years ended December 31, 2017 and 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.
Interim Chief Financial Officer
Francis J. Conroy, CPA joined the Company as Interim Chief Financial Officer effective November 7, 2017. Mr.
Conroy succeeded Patrick Dennis who originally joined AC in November 2015 prior to the Company’s spin-off
from GAMCO.
Reclassification
The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For
presentation of 2017 results, the Company reported revenue from its research services agreement with affiliates in
“Institutional Research Services Revenue” instead of “Other Revenue”. The reclassification did not impact total
revenues, operating expenses, operating income/(loss), net income, or equity.
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
34
portfolio management generally represents 40% of revenues and is the largest component of total compensation
costs.
Management fee is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax
profits which is paid to Mr. Gabelli or his designee for acting as Executive Chairman pursuant to his Employment
Agreement so long as he is an executive of AC.
Other operating expenses include general and administrative operating costs and clearing charges and fees incurred
by the brokerage business.
Other income and expenses include net gains and losses from investments (which include both realized and
unrealized gains and losses from trading securities and equity in earnings of investments in partnerships), interest and
dividend income, and interest expense. Net gains and losses from investments are derived from our proprietary
investment portfolio consisting of various public and private investments.
Net income/(loss) attributable to noncontrolling interests represents the share of net income attributable to the
minority stockholders, as reported on a separate company basis, of our consolidated majority-owned subsidiaries and
net income attributable to third party limited partners of certain partnerships and offshore funds we consolidate.
Please refer to Notes A and D in our consolidated financial statements included elsewhere in this report.
Consolidated Statements of Financial Condition
We ended the 2017 year with approximately $932 million in cash and investments, net of securities sold, not yet
purchased of $6 million. This includes $347 million of cash and short term US treasuries; $293 million of securities,
net, including 4.4 million shares of GAMCO valued at $130 million; and $292 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 $918 million or $38.84 per share on December 31, 2017, compared to $874 million or
$36.04 per share on December 31, 2016. Note that these shareholders’ equity per share calculations are a non-GAAP
measurement calculated by dividing the total equity by the number of common shares outstanding. The increase in
equity from the end of 2016 was largely attributable to prepayments of the GAMCO Note totaling $50 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 repaid,
the Company's total equity and AEBV will be the same. At December 31, 2017, AEBV for the Company was $968
million and the AEBV per share was $40.96 per share. The reconciliation of GAAP book value and GAAP book
value per share to AEBV and AEBV per share at December 31, 2017 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
918,147
50,000
968,147
$
$
Per Share
$
38.84
2.12
40.96
$
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.
35
691
140
76
907
79
38
6
123
(137)
(36)
(13)
(186)
28
14
8
50
Assets Under Management Highlights
We reported assets under management as follows (dollars in millions):
2017
Year Ended December 31,
2015
2016
2014
2013
CAGR (a)
2017/2013
Event Merger Arb
Event-Driven Value
Other
Total AUM
$
$
$
$
$
1,384
91
66
1,541
1,076
133
63
1,272
869
145
66
1,080
796
167
77
1,040
$
(b)
$
$
$
$
19.0%
(10.2)
(3.5)
14.2%
(a) Compound annual growth rate.
(b) Includes $235 million of proprietary capital.
Our gross cash inflows by product line were as follows (dollars in millions):
2017
Year Ended December 31,
2015
2014
2016
2013
$
$
$
$
$
$
$
$
$
$
Event Merger Arb
Event-Driven Value
Other
Total Cash Inflows
Event Merger Arb
Event-Driven Value
Other
Total Cash Outflows
Our gross cash outflows by product line were as follows (dollars in millions):
2017
Year Ended December 31,
2015
2014
2016
2013
$
$
$
$
$
$
$
$
$
$
Our net investment returns by product line were as follows (dollars in millions):
2017
Year Ended December 31,
2015
2014
2016
2013
Event Merger Arb
Event-Driven Value
Other
Total Net Appreciation/(Depreciation)
$
$
$
$
$
$
$
$
$
$
559
13
-
572
(313)
(65)
(2)
(380)
62
10
5
77
297
1
1
299
(148)
(18)
(9)
(175)
58
5
5
68
166
39
2
207
(119)
(54)
(12)
(185)
26
(7)
(1)
18
162
45
5
212
(68)
(21)
(5)
(94)
11
3
1
15
The majority of these assets have calendar year-end measurement periods; therefore, our incentive fees are primarily
recognized in the fourth quarter.
36
Operating Results for the Year Ended December 31, 2017 as Compared to the Year Ended December 31,
2016
Revenues
Total revenues were $26.9 million for the year ended December 31, 2017, $4.3 million lower than total revenues of
$31.2 million for the year ended December 31, 2016. Total revenues by type were as follows (dollars in
thousands):
Investment advisory and incentive fees
Institutional research services
Other revenues
Total revenues
14,551
12,199
165
26,915
Year Ended December 31,
2017
2016
$
$
Decrease
18,320
12,634
273
31,227
$
$
(3,769)
(435)
(108)
(4,312)
%
-20.6%
(3.4)
(39.6)
-13.8%
$
$
$
Investment advisory and incentive fees: We earn advisory fees based on the level of average AUM in our products.
Investment advisory income is directly influenced by the amount of average AUM and the fee rates applicable to
various accounts.
Advisory fees were $9.9 million for 2017 compared to $8.9 million for 2016, an increase of $1.0 million. This
increase is a result of the increase in average AUM over the period.
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 $4.7 million in 2017, down $4.7 million from $9.4 million
in 2016 due to lower investment performance.
Institutional research services: Institutional research services revenues in 2017 were $12.2 million, a $0.4 million
decline from $12.6 million in 2016 resulting from lower 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 partially offset by increased revenue from research services agreements with affiliates.
Other revenues: Other revenues were $0.2 million for 2017 compared to $0.3 million for 2016, a decrease of $0.1
million.
Expenses
Compensation: Compensation costs, which include variable compensation, salaries, bonuses and benefits, were $30.6
million for the year ended December 31, 2017, a decrease from $31.0 million for the year ended December 31, 2016.
Fixed compensation costs, which include salaries, bonuses and benefits, increased to $19.8 million in 2017 from
$19.3 million in 2016. The remainder of compensation expense represents variable compensation that fluctuates with
management fee and incentive fee revenues. For 2017, variable payouts on revenues were $10.8 million, down $0.9
million from $11.7 million in 2016. 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 $5.9 million in 2017, an increase of $3.4 million, as
compared to $2.5 million in 2016. The increase was primarily due to the accelerated vesting of AC and GBL
restricted stock that occurred in June and August of 2017, respectively.
Management fees: Management fee expense is incentive-based and entirely variable compensation equal to 10% of
the aggregate pre-tax profits, which is paid to Mario J. Gabelli or his designees pursuant to his employment
agreement with AC. In 2017 and 2016, AC recorded management fee expense of $0.7 million and $1.6 million,
respectively, as presented in the consolidated statements of income.
37
Other operating expenses: Our other operating expenses were $10.1 million in 2017 compared to $8.4 million in
2016, an increase of $1.7 million due primarily to initial offering costs of a consolidated fund that launched in July
2017.
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, 2017, net gains from investments were $20.6 million compared to $19.9
million in the prior year primarily due to mark-to-market gains in the value of our investments. The net gain was also
impacted by two items attributable to available for sale (“AFS”) securities: a $19.1 million other than temporary
impairment on our investment in GBL and a gain of $11.8 million associated with AFS securities contributed to
G.research, our broker-dealer, where they are held as trading securities.
Interest and dividend income: Interest and dividend income declined $2.2 million to $10.5 million in 2017 from
$12.7 million in 2016 primarily due to the reduction in the balance of the GAMCO Note.
Interest expense: Interest expense decreased to $0.2 million in 2017 from $0.6 million in 2016.
Income Taxes
In 2017, we recorded an income tax benefit of $2.4 million resulting in a negative effective tax rate (“ETR”)
of -38.6% (i.e., a tax benefit on positive income). In 2016, we recorded an income tax expense of $3.9 million
resulting in an ETR of 27.0%. The 2017 negative ETR is below the standard corporate tax rate of 34% primarily due
to tax benefits from the dividends received deduction and the charitable contribution of appreciated securities and
the revaluation of deferred tax items as a result of the reduction in the federal corporate income tax rate to 21%
under the recently-enacted Tax Cut and Jobs Act. The revaluation of deferred tax items was based on reasonable
estimates but may require future adjustment for a variety of reasons including the receipt of additional information
from investment funds, changes in the Company’s assumptions and the availability of further guidance and
interpretations.
We expect that the Company’s ETR in future years will be slightly less than the 21% statutory rate as a result of the
continued availability of the dividend received deduction. This expectation does not, however, include the effect of
significant discretionary tax-advantaged actions (e.g., a charitable contribution of appreciated securities).
Noncontrolling Interests
Net income/(loss) attributable to noncontrolling interests was a loss of $0.2 million in 2017 compared to income of
$0.3 million in 2016.
Net Income
Net income for the year ended December 31, 2017 was $8.8 million compared to net income of $10.2 million for the
prior year substantially the result of decreased incentive fee revenues and increased stock-based compensation due to
the accelerated vesting of AC and GBL restricted stock offset by an income tax benefit driven by the revaluation of
deferred tax items.
38
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
Other revenues
Total revenues
18,320
12,634
273
31,227
Year Ended December 31,
2016
2015
$
$
Increase/(decrease)
$
%
12,635
9,927
281
22,843
$
5,685
2,707
(8)
8,384
45.0%
27.3
(2.8)
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 $12.6 million, a $2.7 million, or
27%, increase from $9.9 million in 2015 resulting from higher brokerage commissions derived from securities
transactions executed on an agency basis, sales manager fees earned from at-the market offerings of certain GAMCO
closed-end funds and an increase of $1.5 million due to a renegotiation of the research services fee agreements with
affiliates.
Other revenues: Other revenues were $0.3 million for 2016 and 2015.
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.
39
Gabelli’s employment agreement with GAMCO and the management fee expense for the month of December 2015
and full year 2016, post spin-off, was determined based on Mr. Gabelli’s employment agreement with AC. The
management fee expense for the month of December 2015 was $0.2 million. Subsequent to the spin-off, management
fee expense is determined based on Mr. Gabelli’s employment agreement with AC.
Other operating expenses: Our other operating expenses were $8.4 million in 2016 compared to $6.2 million in 2015,
an increase of $2.2 million due primarily to our transformation to a stand-alone public company.
Investment and other non-operating income, net
Net gain from investments: Net gain from investments is directly related to the performance of our proprietary capital
accounts. For the year ended December 31, 2016, net gains from investments were $19.9 million versus $8.3 million
in the prior year primarily due to gains on marking the portfolio to market.
Interest and dividend income: Interest and dividend income increased $8.0 million to $12.7 million in 2016 from
$4.7 million in 2015 due to an increase in interest income of $6.9 million from the GAMCO Note and higher
dividend income.
Interest expense: Interest expense decreased to $0.6 million in 2016 from $1.3 million in 2015.
Income Taxes
In 2016, we recorded an income tax expense of $3.9 million with the 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 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.
40
Summary cash flow data is as follows (in thousands):
2017
Year Ended December 31,
2016
(in thousands)
2015
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
$
$
(67,620)
(18,734)
65,373
(20,981)
314,093
-
-
293,112
$
6,588
(4,115)
105,872
108,345
205,750
-
(2)
314,093
$
(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, 2017, we had cash and cash
equivalents of $293.1 million and $638.4 million of investments net of securities sold, not yet purchased of $5.7
million. Of these amounts, $5.1 million and $30.0 million, respectively, were held by consolidated investment funds
and may not be readily available for the Company to access.
Net cash used in operating activities was $67.6 million for 2017. In 2017, our sources of cash included $8.7 million
of net income increased by (a) non-cash stock-based compensation and charitable contributions of $8.5 million and
(b) net unrealized losses attributable to available for sale securities of $7.4 million, and reduced by (c) non-cash
equity earnings of partnerships and deferred taxes of $10.3 million and $3.2 million, respectively. Net cash uses
included $5.1 million of net contributions to partnerships, $26.2 million for increases in trading securities and a net
reduction in liabilities of $47.3 million
Net cash provided by operating activities was $6.6 million for 2016. 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.
Net cash used in operating activities was $47.4 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 $18.7 million in 2017 is due to purchases of the GBL 1.6% Note (due
February 28, 2018) and available for sale securities totaling $19.9 million less $0.3 million in proceeds from sales of
available for sale securities and $0.9 million from return of capital from available for sale securities. 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 $65.4 million for 2017, largely resulting from the $50.0 million
prepayment of the GAMCO Note and contributions from redeemable noncontrolling interests of $41.6 million
41
partially offset by $21.2 million of treasury stock purchases and dividend payments of $4.8 million. Net cash
provided by financing activities was $105.9 million for 2016, largely resulting from $150 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 a broker-dealer and is regulated by FINRA. As such, G.research is subject to
the minimum net capital requirements promulgated by the SEC. G.research’s net capital exceeded these minimum
requirements at December 31, 2017. 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, 2017, and 2016, G.research had net capital, as defined, of approximately $41.8 million and $3.7
million, respectively, exceeding the regulatory requirement by approximately $41.6 million and $3.4 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, 2017 (in thousands):
Contractual Obligations:
Occupancy charge
Total
2018
$
$
94
94
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of
results of operations and financial condition in the preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on
historical experience, when available, and on other various assumptions that are believed to be reasonable under the
circumstances. Actual results could differ significantly from those estimates under different assumptions and
conditions.
We believe the critical assumptions and estimates are those applied to revenue recognition, the accounting for and
valuation of investments in securities, partnerships, and offshore funds, income taxes, and stock-based compensation
accounting.
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 the investment
performance of certain accounts. Management fees from investment partnerships and offshore funds are computed
either monthly or quarterly, and amounts receivable are included in investment advisory fees receivable on the
consolidated statements of financial condition. These revenues vary depending upon the level of capital flows,
financial market conditions, investment performance and the fee rates applicable to each account.
42
Revenues from Investment Partnerships and separate accounts 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 an annual measurement period and amounts
receivable are included in investment advisory fees receivable on the consolidated statements of financial condition.
G.research, LLC provides institutional research services and earns brokerage 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 gains, losses, selling concessions and fees, net of syndicate expenses,
arising from securities offerings in which G.research acts as underwriter or agent and are accrued as earned.
G.research also 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
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. 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 computed using the specific identified cost basis and are included in net gain from
investments on the consolidated statements of income.
AFS securities are evaluated for other than temporary impairment each reporting period and any impairment charges
are recorded in net gain from investments on the consolidated statements of income. Management reviews all
available for sale securities whose cost exceeds their fair value to determine if the impairment is other than
temporary. Management uses qualitative factors such as diversification of the investment, the intent to hold the
investment, the amount of time that the investment has been impaired and the severity of the decline in determining
whether the impairment is other than temporary.
Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent
obligations of AC to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such
obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of
financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities
are purchased to settle the obligations under the sales commitments. Unrealized gains and losses and 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.
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 accounting guidance, the Company first
evaluates whether it holds a variable interest in an entity. The Company factors in all economic interests including
43
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 variable interest entity (a “VIE”).
The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding
each entity. The granting of substantive kick-out rights is a key consideration in determining whether a limited
partnership or similar entity is a VIE and whether or not that entity should be consolidated. The Company does not
consolidate those VIEs in which substantive kick-out rights have been granted to the unaffiliated investors to either
dissolve the fund or remove the general partner.
Under the variable interest 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.
Under the voting interest model, the Company consolidates those entities it controls through a majority voting
interest or other means.
Equity Method Investments. Substantially all of 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, and withdrawals and distributions are recorded
as reductions of the investments when received. Depending on the terms of the investment, the Company may be
restricted as to the timing and amounts of withdrawals.
See Note D. Investment Partnerships 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 unaffiliated entities, we do not (a) earn any management or incentive fees: (b)
have a controlling financial interest; and (c) currently consolidate any unaffiliated entities.
Our balance sheet caption “Investments in partnerships” includes investments in both affiliated and unaffiliated
entities which the Company accounts for under the equity method of accounting and certain investments that the
Company accounts for at fair value.
The Company records noncontrolling interests in consolidated Investment Partnerships for which the Company’s
ownership is less than 100%.
44
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
In connection with the Spin-off, the Company granted RSAs 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. 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 value of the RSAs, net of estimated forfeitures, is
recognized as expense over the respective vesting period for these awards which is either (1) five years (30% three
years and 70% five years from the date of grant, respectively), or (2) ten years (30% three years and 10% each year
thereafter from the date of grant, respectively). 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. As of June 15, 2017, all the AC RSAs issued under our Stock Compensation Plan were
accelerated and are no longer outstanding.
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
In the normal course of its business, AC is exposed to risk of loss due to fluctuations in the securities market and
general economy. Management is responsible for identifying, assessing and managing market and other risks.
Our exposure to pricing risk in equity securities is directly related to our role as financial intermediary and advisor
for AUM in our investment partnerships and separate accounts as well as our proprietary investment and trading
45
activities. At December 31, 2017, we had equity investments, including open-end funds and closed-end funds
largely invested in equity products, of $442.9 million. Included in this total are investments in open-end funds and
closed-end funds of $149.3 million which seek to reduce market risk through the diversification of financial
instruments within their portfolios. In addition, we may alter our investment holdings from time to time in response
to changes in market risks and other factors considered appropriate by management. We also hold investments in
partnerships which invest primarily in equity securities and which are subject to changes in equity prices. These
investments totaled $145.6 million at December 31, 2017, $102.3 million of which comprised partnerships which
invest in risk arbitrage. Risk arbitrage is primarily dependent upon deal closure rather than the overall market
environment. The equity investment portfolio is recorded at fair value and is expected to move in line with the
equity markets. The trading portfolio changes are recorded as net gain/(loss) from investments in the consolidated
statements of income while the available for sale portfolio changes are recorded in other comprehensive income in
the consolidated statements of financial condition.
Market Risk
Our primary market risk exposures are to changes in equity prices and interest rates. Since a majority of our AUM is
invested in equities, our financial results are subject to equity market risk as revenues from our investment
management services are sensitive to stock market dynamics. In addition, returns from our proprietary investment
portfolio are exposed to interest rate and equity market risk.
The Company’s Executive Chairman oversees the proprietary investment portfolios and allocations of proprietary
capital among the various strategies. The Executive Chairman and the Board of Directors review the proprietary
investment portfolios throughout the year. Additionally, the Company monitors its proprietary investment portfolios
to ensure that they are in compliance with the Company’s guidelines.
Equity Price Risk
The Company earns a substantial portion of its revenue as advisory fees from investment partnership and separate
account assets. Such fees represent a percentage of AUM, and the majority of these assets are in equities.
Accordingly, since revenues are proportionate to the value of those investments, a substantial increase or decrease in
overall equity markets will likely have a corresponding effect on the Company’s revenues.
46
Investments consisted of the following (in thousands):
Investment in securities:
Government obligations
GBL stock
Common stocks
Mutual funds
Other investments
Total investments in securities
December 31,
2017
2016
$
53,804
130,254
163,327
3,428
1,824
352,637
$
119,823
135,701
82,158
3,643
1,472
342,797
Investments in affiliated registered investment companies:
Closed-end funds
Mutual funds
Total investments in affiliated registered
investment companies
93,147
52,767
145,914
80,650
50,995
131,645
Investments in partnerships:
Investments in partnerships
Total investments in partnerships
Securities sold, not yet purchased:
Common stocks
Other investments
Total securities sold, not yet purchased
145,591
145,591
129,398
129,398
(5,396)
(335)
(5,731)
(9,947)
(37)
(9,984)
Total investments net of securities sold,
not yet purchased
$
638,411
$
593,856
We may alter our investment holdings from time to time in response to changes in market risks and other factors
considered appropriate by management. Of the approximately $293.6 million and $217.9 million invested in
common and preferred stocks at December 31, 2017 and 2016, respectively, $108.7 million and $31.0 million was
invested by the Company in arbitrage opportunities in connection with mergers, consolidations, acquisitions, tender
offers or other similar transactions. Risk arbitrage generally involves investing in securities of companies that have
announced corporate transactions with agreed upon terms and conditions, including pricing, and typically involves
less market risk than holding common stocks in a trading portfolio. The principal risk associated with merger
arbitrage transactions is the inability of the companies involved to complete the transaction.
Of the investments in affiliated registered investment companies at December 31, 2017 and 2016, $57.8 million and
$56.4 million, respectively, consisted of investment companies which invest in merger arbitrage opportunities.
Securities sold, not yet purchased are stated at fair value and are subject to market risks resulting from changes in
price and volatility. At December 31, 2017 and 2016, the fair value of securities sold, not yet purchased was $5.7
million and $10.0 million, respectively. Investments in partnerships totaled $145.6 million and $129.4 million at
December 31, 2017 and 2016, respectively, $102.3 million and $91.8 million of which consisted of investment
partnerships and offshore funds which invest in risk arbitrage opportunities.
47
The following table provides a sensitivity analysis for our investments in equity securities and partnerships and
affiliates which invest primarily in equity securities, excluding arbitrage products for which the principal exposure is
to deal closure and not overall market conditions, as of December 31, 2017 and 2016. The sensitivity analysis
assumes a 10% increase or decrease in the value of these investments (in thousands):
Fair Value
assuming
10% decrease in
equity prices
Fair Value
assuming
10% increase in
equity prices
Fair Value
$
321,550
$
289,395
$
353,705
$
304,836
$
274,352
$
335,320
At December 31, 2017:
Equity price sensitive investments, at fair value
At December 31, 2016:
Equity price sensitive investments, at fair value
Interest Rate Risk
Our exposure to interest rate risk principally results from our investment of excess cash in a related money market
fund that holds U.S. Government securities. These investments are primarily short term in nature, and the carrying
value of these investments generally approximates fair value. Based on the December 31, 2017 cash and cash
equivalent balance of $293.1 million, a 1% increase in interest rates would increase our interest income by $2.9
million annually. Given that our return on these cash equivalent investments in the current low interest rate
environment is approximately 1.15% annually, an analysis of a 1% decrease is not meaningful.
48
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, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Financial Condition at December 31, 2017 and 2016
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Page
50
51
52
53
54
57
59
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.
49
Deloitte & Touche LLP
30 Rockefeller Plaza
New York, NY 10112-0015
USA
Tel: +1 212 492 4000
Fax: +1 212 489 1687
www.deloitte.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Associated Capital Group, Inc.
Rye, New York
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Associated Capital Group, Inc.
and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income,
comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2017,
and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Emphasis of a Matter
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 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 8, 2018
We have served as the Company’s auditor since 2015.
50
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
2017
2015
$
14,551
12,199
165
26,915
$
18,320
12,634
273
31,227
$
12,635
9,927
280
22,842
30,644
5,879
713
10,065
47,301
(20,386)
30,968
2,464
1,593
8,434
43,459
(12,232)
20,598
10,501
(227)
(4,222)
26,650
6,264
(2,420)
8,684
(153)
8,837
$
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
$
$
0.37
0.37
$
$
0.41
0.41
$
-
$
-
Weighted average shares outstanding:
Basic
Diluted
Actual shares outstanding
See accompanying notes.
23,792
23,925
23,639
24,870
25,175
24,255
24,887
25,170
25,440
51
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
Ye ar Ende d De ce mbe r 31,
2016
2017
2015
Net income (loss)
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale (a)
$
8,684
$
10,469
$
(891)
5,395
4,138
(11,035)
Comprehensive income (loss)
Less: Comprehensive income (loss) attributable to noncontrolling interests
14,079
(153)
14,607
1,215
(11,926)
(780)
Comprehensive income (loss) attributable to Associated Capital Group, Inc.
$
14,232
$
13,392
$
(11,146)
(a) Net of income tax expense (benefit) of $2,876, $2,328 and ($6,434) for 2017, 2016 and 2015, respectively.
See accompanying notes.
52
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 $130.3 million and $135.7 million
at December 31, 2017 and 2016, 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
Payable to affiliates
Accrued expenses and other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies (Note K)
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; 6,404,287 and 6,398,580 shares
issued, respectively; 4,451,379 and 5,058,648 shares outstanding, respectively
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued;
19,187,885 and 19,196,792 shares outstanding, respectively
Additional paid-in capital
Retained earnings
GBL 4% PIK Note
Accumulated comprehensive income
Treasury stock, at cost (1,952,908 and 1,339,932 shares, respectively)
Total Associated Capital Group, Inc. equity
Total equity
Total liabilities and equity
See accompanying notes.
December 31,
2017
December 31,
2016
$
293,112
$
314,093
352,637
145,914
145,591
34,881
5,739
15,866
3,422
9,753
1,006,915
$
342,797
131,645
129,398
12,588
9,784
1,523
3,422
7,353
952,603
$
$
13,281
5,484
12,785
5,731
442
4,815
42,538
$
2,396
6,978
17,676
9,984
1,455
35,862
74,351
46,230
4,230
6
6
19
1,010,505
13,800
(50,000)
6,712
(62,895)
918,147
918,147
1,006,915
$
19
1,007,027
7,327
(100,000)
1,317
(41,674)
874,022
874,022
952,603
$
53
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Noncontrolling
Interests
$
-
-
Common
Stock
$
-
25
Parent Company
Equity
pre Spin-off
$
573,749
(522,758)
Retained
Earnings
$
-
-
Additional
Paid-in
Capital
$
-
522,733
GBL 4%
PIK Note
$
-
-
Accumulated
Comprehensive
Income
$
9,178
-
Treasury
Stock
$
-
-
Redeemable
Noncontrolling
Interests
$
68,334
-
$
Total
582,927
-
Associated Capital Group, Inc. shareholders
-
-
-
-
(309)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(111)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11,157)
122
-
-
-
-
-
-
-
-
-
-
-
(420)
(11,157)
122
(901)
1,036
996
(63,256)
(471)
-
-
-
-
-
2,662
2,353
$
-
-
-
-
$
25
-
-
-
(50,991)
$
-
-
-
-
2,183
2,072
$
4,931
250,000
-
221,336
999,000
$
-
(250,000)
-
-
(250,000)
$
-
-
-
-
(1,857)
$
-
-
(44)
-
$
(44)
4,931
-
(44)
175,190
751,549
$
-
-
-
-
5,738
$
Balance at December 31, 2014
Recapitalization
Redemptions of
noncontrolling interests
Contributions from redeemable
noncontrolling interests
Consolidation of investment
funds
Deconsolidation of an investment
fund
Net income (loss)
Net unrealized losses on
securities available for sale,
net of income tax benefit ($6,503)
Amounts reclassified from
accumulated other
comprehensive income,
net of income tax ($69)
Stock based compensation
expense
Issuance of GBL 4% PIK Note
Purchase of treasury stock
Net transfer from GBL
Balance at December 31, 2015
See accompanying notes.
54
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(continued) (In thousands)
Balance at December 31, 2015
Contributions from redeemable
noncontrolling interests
Redemptions of
noncontrolling interests
Deconsolidation of an investment
fund
Net income (loss)
Net unrealized gains on
securities available for sale,
net of income tax ($2,319)
Amounts reclassified from
accumulated other
comprehensive income,
net of income tax benefit ($9)
Noncontrolling minority interest
Stock based compensation
expense
Increase to paid in capital for the
excess of actual tax benefit over
recorded RSA tax benefit
Dividends declared ($.20 per share)
Proceeds from payment of
GBL 4% PIK Note
Purchase of treasury stock
Balance at December 31, 2016
See accompanying notes.
Noncontrolling
Interests
$
2,353
Common
Stock
$
25
Retained
Earnings
$
2,072
-
-
-
(46)
964
-
(3,271)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,218
-
-
-
-
-
(4,963)
-
-
$
-
-
-
$
25
-
-
7,327
$
Associated Capital Group, Inc. shareholders
Accumulated
Comprehensive
Income
GBL 4%
PIK Note
Additional
Paid-in
Capital
$
999,000
$
(250,000)
$
(1,857)
Treasury
Stock
$
(44)
Total
751,549
$
Redeemable
Noncontrolling
Interests
$
5,738
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,189
(15)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,172
4,153
(15)
1,591
2,464
701
(4,963)
250
(244)
(1,811)
297
-
-
-
-
-
-
150,000
-
(100,000)
$
-
-
1,317
$
-
(41,630)
(41,674)
$
150,000
(41,630)
874,022
$
-
-
4,230
$
-
-
-
-
-
-
4,862
2,464
701
-
-
-
$
1,007,027
55
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(continued) (In thousands)
Balance at December 31, 2016
Contributions from redeemable
noncontrolling interests
Redemptions of noncontrolling
interests
Consolidation of an investment fund
Net income (loss)
Net unrealized gains on
securities available for sale,
net of income tax ($277)
Amounts reclassified from
accumulated other
comprehensive income,
net of income tax benefit ($2,599)
Stock-based compensation expense
Dividends declared ($0.20 per share)
Proceeds from payment of
GBL 4% PIK Note
Purchase of treasury stock
Balance at December 31, 2017
See accompanying notes.
Common
Stock
$
25
Retained
Earnings
$
7,327
-
-
-
-
-
-
-
-
-
-
8,837
-
-
(2,364)
-
-
$
25
-
-
13,800
$
Associated Capital Group, Inc. shareholders
Accumulated
Comprehensive
Income
$
Additional
Paid-in
Capital
1,007,027
GBL 4%
PIK Note
(100,000)
$
1,317
$
Treasury
Stock
$
(41,674)
Total
874,022
$
Redeemable
Noncontrolling
Interests
$
4,230
-
-
-
-
-
-
5,879
(2,401)
-
-
$
1,010,505
-
-
-
-
-
-
-
-
-
-
-
748
4,647
-
-
-
-
-
-
-
-
-
-
-
8,837
748
4,647
5,879
(4,765)
41,598
(236)
791
(153)
-
-
-
50,000
-
(50,000)
$
-
-
6,712
$
-
(21,221)
(62,895)
$
50,000
(21,221)
918,147
$
-
-
46,230
$
56
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
Gains on contribution of available for sale securities to subsidiary
(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
Purchase of GBL 1.6% Note (due February 28, 2018)
Net cash used in investing activities
2017
Year Ended December 31,
2016
2015
$
8,684
$
10,469
$
(891)
(10,274)
16
5,879
(3,168)
19,201
2,627
(167)
(11,788)
(26,231)
(26,278)
21,151
657
(22,292)
4,045
(2,417)
(1,013)
10,885
(1,203)
(4,892)
-
(31,042)
(76,304)
(67,620)
(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)
(4,900)
271
895
(15,000)
(18,734)
$
(5,107)
803
189
-
(4,115)
$
(43,271)
1,013
524
-
(41,734)
$
57
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) (In thousands)
2017
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
41,598
(236)
-
-
(4,768)
(21,221)
50,000
65,373
(20,981)
314,093
-
-
293,112
$
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
$
$
$
$
227
2,077
$
$
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 years ended December 31, 2017, 2016 and 2015, AC accrued dividends on restricted stock awards of $8, $88 and $0,
respectively.
- On July 19, 2017, AC was deemed to have control over an investment fund which resulted in its consolidation and an increase of
approximately $99,276 of net assets and an increase of approximately $37,901 of redeemable noncontrolling interests.
- On October 1, 2017, AC was deemed to have control over an investment fund which resulted in its consolidation and an increase
of approximately $791 of net assets and an increase of approximately $791 of redeemable noncontrolling interests.
- In November 2017, an investment fund that AC consolidates completed its first new issue of ordinary shares which resulted in
an increase of approximately $3,344 of net assets and an increase of approximately $3,344 of redeemable noncontrolling interests.
- In November 2017, AC contributed certain available for sale securities totaling $91,303 to its wholly-owned broker-dealer subsidiary
which accounts for these as trading securities. See Note C for detail.
- On January 1, 2016, AC was no longer deemed to have control over a certain investment fund which resulted in its deconsolidation
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 amended the consolidation requirements in ASC 810. This resulted in the
deconsolidation of certain investment funds 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 ("GCIA 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 ("GBL 4% PIK Note").
- On November 30, 2015, in connection with the spin-off of AC from GAMCO, GAMCO contributed to AC the GCIA Note Payable.
- On January 1, 2015, AC was no longer deemed to have control over certain investment funds which resulted in their deconsolidation
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 certain investment funds which resulted in their consolidation and an
increase of approximately $10 of cash and cash equivalents, an increase of approximately $986 of other net assets and an increase
of approximately $996 of redeemable noncontrolling interests.
- On April 1, 2015, AC launched a new investment fund that was funded with $1,000 of proprietary capital and no third party capital
and was therefore consolidated.
See accompanying notes.
58
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.
The Spin-off and Related Transactions
We are a Delaware corporation that provides alternative investment management, institutional research and
underwriting services. In addition, we derive investment income/(loss) from proprietary trading of cash and other
assets awaiting deployment in our operating businesses.
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of
each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common
stock (the “Spin-off”).
We conduct our investment management business through Gabelli & Company Investment Advisers, Inc. (“GCIA”
f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli &
Partners”), collectively serve as general partners or investment managers to investment funds including limited
partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily
manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The
business earns management and incentive fees from its advisory assets. Management fees are largely based on a
percentage of assets under management. Incentive fees are based on the percentage of the investment returns of
certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission
under the Investment Advisers Act of 1940, as amended.
We provide our institutional research and underwriting services through G.research, LLC (“G.research”) doing
business as “Gabelli & Company”, an indirect wholly-owned subsidiary of the Company. G.research is a broker-
dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is regulated by
the Financial Industry Regulatory Authority (“FINRA”). G.research's revenues are derived primarily from
institutional research services.
In connection with the Spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the
original principal amount of $250 million used to partially capitalize the Company. The GAMCO Note bears interest
at 4% per annum and has a maturity date of November 30, 2020 with respect to its original principal amount.
Interest on the GAMCO Note will accrue from the most recent date for which interest has been paid. Prior to
November 30, 2019, 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 (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. GAMCO may prepay the
GAMCO Note prior to maturity without penalty.
AC has received principal repayments totaling $200 million on the GAMCO Note, of which $50 million was
received during the year ended December 31, 2017 leaving an outstanding principal balance of $50 million. After
application of the principal payments, the balance of the GAMCO Note is due on November 30, 2020.
In addition, GCIA purchased 4,393,055 shares of GAMCO Class A common stock in exchange for a note in the
principal amount of $150 million (the “GCIA Note”). In connection with the Spin-off, GAMCO contributed the
GCIA Note to the Company. During the quarter ended December 31, 2017, AC forgave the outstanding principal
and interest on the GCIA Note as a capital contribution to GCIA.
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
59
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 financial statements as of and for the year ended December 31, 2017 and 2016, 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 as of and for the years ended December 31, 2017 and 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 material 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.
Reclassification
The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For
presentation of 2015 to 2017 results, the Company reported revenue from its research services agreement with
affiliates in “Institutional Research Services Revenue” instead of “Other Revenue”. The reclassification did not
impact total revenues, operating expenses, operating income/(loss), net income, or equity.
Cash and Cash Equivalents
Cash equivalents primarily consist of an affiliated money market mutual fund which is highly liquid. U.S. Treasury
Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents.
Investments in Securities
Investments in securities are accounted for as either “trading securities” or “available for sale” and are stated at fair
value. Management determines the appropriate classification of debt and equity securities at the time of purchase
and reevaluates such designations as of each balance sheet date. U.S. Treasury Bills and Notes with maturities of
greater than three months at the time of purchase are considered investments in securities. Securities that are not
readily marketable are stated at their estimated fair values in accordance with GAAP. A substantial portion of
investments in securities are held for resale in anticipation of short-term market movements and therefore are
classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported
in current period earnings in net gain from investments on the consolidated statements of income. Available for sale
(“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a
component of other comprehensive income (loss) on the consolidated statements of comprehensive income (loss)
except for losses deemed to be other than temporary which are recorded as realized losses on the consolidated
statements of income. Securities transactions and any related gains and losses are recorded on a trade date basis.
Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are
included in net gain from investments on the consolidated statements of income.
60
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.
61
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 investments, in both affiliated and unaffiliated
entities, which the Company accounts for under the equity or fair value methods of accounting. Based upon the
guidance outlined in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, 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 a $15 million promissory note issued by GAMCO on December 26,
2017. 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 H.
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
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. The
granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar
entity is a VIE and whether or not that entity should be consolidated.
Under the variable interest model, the Company consolidates those entities where it is determined that the Company
is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it has a
controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of
62
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.
For voting interest entities (“VOEs”) that do not qualify as VIEs, the Company applies the voting interest model.
Under the voting interest model, the Company consolidates those entities it controls through a majority voting
interest.
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 entities that the Company accounts for at fair value.
The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less
than 100%. Refer to Noncontrolling Interests section within this Note B for additional disclosures.
Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities measured at fair value and are included in
either investments in securities or securities sold, not yet purchased on the consolidated statements of financial
condition. From time to time, the Company will enter into hedging transactions to manage its exposure to foreign
currencies and equity prices related to its proprietary investments. During 2017, 2016 and 2015, the Company had
63
derivative transactions which resulted in a net loss of $98,000, net gain of $143,000 and net gain of $264,000,
respectively. At December 31, 2017 and 2016, we held derivative contracts on 1.7 million equity shares and 16,000
equity shares, respectively, and the net fair value was ($106,000) and $90,000, respectively. The gross amounts are
included as investments in securities and securities sold, not yet purchased 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
are 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 an annual measurement period 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 G.research acts as underwriter or agent.
Effective January 1, 2014, the Company, through G.research, entered into agreements with two affiliates, GAMCO
Asset Management Inc. and Gabelli Funds, LLC, to provide each affiliate with the same types of research services
that it provides to its other clients. The agreements call for the two affiliates to pay a research services fee. The
annual fee amounts are determined by negotiations between the Company and each entity that utilizes the
Company’s research.
Depreciation
Fixed assets, with a net book value of $39,000 and $55,000 at December 31, 2017 and 2016, respectively, which are
included in other assets, are recorded at cost and depreciated using the straight-line method over their estimated
useful lives of four to seven years. As of December 31, 2017 and 2016, fixed assets were recorded at a cost of
$85,000 and $85,000, respectively net of accumulated depreciation of $46,000 and $30,000, respectively. For the
64
years ended December 31, 2017, 2016 and 2015, depreciation was $16,000, $17,000 and $13,000, respectively. We
estimate that depreciation will be approximately $16,000 annually over the next three years. As of December 31,
2017 and 2016, the Company wrote off assets in the amount of $1,000 and $25,000, 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 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 stock award and incentive plan (the “Plan”) approved by the shareholders at the
Company’s annual meeting held on May 3, 2016, 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 million shares of Class A Stock have been reserved for issuance under the Plan by a committee of the Board of
Directors responsible for administering the Plan (the “Compensation Committee”). Under the Plan, the
Compensation Committee may grant RSAs and either incentive or nonqualified stock options with a term not to
exceed ten years from the grant date and at an exercise price that the committee may determine. Through December
31, 2017, approximately 0.5 million shares have been awarded under the Plan leaving approximately 1.5 million
shares for future grants.
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 the allocation of each employee’s responsibilities between GAMCO
and AC. As of December 31, 2017 and 2016, there were 0 and 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.
The value of the AC RSAs, net of estimated forfeitures, is recognized as expense over the respective vesting period
for these awards which is either (1) five years (30% three years and 70% five years from the date of grant,
respectively), or (2) ten years (30% three years and 10% each year thereafter from the date of grant, respectively).
During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited
65
if the grantee is no longer employed by the Company on the vesting dates. Dividends declared on these RSAs, less
estimated forfeitures, are charged to retained earnings on the declaration date.
Goodwill
Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the fair value
assigned to assets acquired less the liabilities assumed. Goodwill is tested for impairment at least annually on
November 30th and whenever certain triggering events are met. In assessing the recoverability of goodwill for the
subsidiary’s annual impairment test on November 30, 2017 and 2016, 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 2017 or 2016.
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 were
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 interest attributable to
the 4.2% GCIA shares owned by third parties were classified as equity and were presented within the equity section,
separately from AC’s portion of equity. During the year ended December 31, 2016, AC purchased the outstanding
4.2% of GCIA shares owned by third parties.
66
Noncontrolling interests in Investment Partnerships that are redeemable at the option of the holder are classified as
redeemable noncontrolling interests in the mezzanine section of the consolidated statements of financial condition
between liabilities and equity.
For the years ended December 31, 2017, 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 investors in Investment Partnerships that are consolidated. The income/(loss)
attributable to the mandatorily redeemable noncontrolling interests classified as liabilities prior to the Company’s
purchase of the outstanding 1.9% of GCIA shares owned by certain employees of GAMCO is included in other
operating expenses on the consolidated statements of income.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents, the GAMCO Note, and receivable from brokers. The Company maintains cash and cash
equivalents primarily in the Gabelli U.S. Treasury Money Market Fund, which invests fully in instruments issued by
the U.S. Government, and has receivables from brokers with various brokers and financial institutions, where these
balances can exceed the federally insured limit. The concentration of credit risk with respect to advisory fees and
incentive fees/allocation, which are included in investment advisory fees receivable and receivables from affiliates
on the consolidated statements of financial condition, is generally limited due to the short payment terms extended
to clients by the Company. All investments in securities are held at third party brokers or custodians.
Net transfer from GBL
Net transfer from GBL in the consolidated statements of equity and cash flows for the year ended December 31,
2015 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 Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and
most industry-specific guidance throughout the industry topics of the ASC. The core principle of the new ASU No.
2014-09 requires 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 has evaluated this guidance and has concluded that it has no material impact on its consolidated
financial statements other than expanded disclosure. The Company has adopted this ASU effective January 1, 2018.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities, which amends the guidance in GAAP on the classification and
measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises
an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2)
the presentation of certain fair value changes for financial liabilities measured at fair value. Under the new guidance,
all equity investments in unconsolidated entities (other than those accounted for using the equity method of
accounting) will generally be measured at fair value through earnings. In addition, AFS classification (changes in
fair value reported in other comprehensive income) for equity securities with readily determinable fair values will no
67
longer be available. 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 has evaluated this guidance and has adopted this ASU effective January 1, 2018
with no material impact on its consolidated financial statements other than the reclassification of the cumulative
unrealized gain on AFS securities net of tax from other comprehensive income to retained earnings.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the guidance in GAAP for the
accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating
leases in the consolidated statement of financial position. 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 August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments, which adds and clarifies guidance on the classification of certain cash receipts
and payments in the consolidated statements of cash flows. 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 was permitted. The Company has evaluated this guidance and has concluded that it has no
material impact on its consolidated financial statements. The Company has adopted this ASU effective January 1,
2018.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, to simplify the process used to
test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal
to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill
allocated to that reporting unit. For public companies, the ASU is effective for annual and any interim impairment
tests for periods beginning after December 15, 2019. Early adoption was permitted for impairment tests that occur
after January 1, 2017. The Company is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
On May 10, 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation, which amends the scope
of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of
changes to the terms or conditions of share-based payment awards to which an entity would be required to apply
modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair
value, vesting conditions, and classification of the awards are the same immediately before and after the
modification. For all entities, the ASU is effective for annual reporting periods, including interim periods within
those annual reporting periods, beginning after December 15, 2017. Early adoption was permitted, including
adoption in any interim period. The Company has adopted this ASU effective January 1, 2018. This ASU would not
have impacted the accounting for the acceleration of vesting of restricted stock awards (“RSAs”) during 2017. This
ASU will have minimal, if any, impact given the relatively few unvested GAMCO RSAs currently outstanding.
On December 22, 2017, the SEC issued SAB 118, Income Tax Accounting Implications of the Tax Cuts and Jobs
Act, to address the application of ASC 740, Income Taxes, in the reporting period that includes December 22, 2017,
the date the Tax Cuts and Jobs Act (the “Act”) was signed into law. In general, the SAB provides that a company
should reflect the income tax impacts of the Act for which the accounting under ASC 740 is complete. If a company
is unable to complete the required accounting as a result of incomplete information, preparation or analysis,
however, it may record a reasonable estimate as a provisional amount. Additional provisions deal with situations in
which no reasonable estimate can be determined. Changes to estimates determined during a measurement period up
to one year from the date of enactment will be reflected as an adjustment to tax expense or benefit in the reporting
period the amounts are determined. With the exception of the book/tax differences related to the Company’s
investments in funds that are partnerships and/or passive foreign investment companies, the Company has completed
its analysis. We believe that we are able to make a reasonable estimate of the tax impact related to funds and have
included this in the current year’s tax provision. As additional information is received from the underlying funds
(e.g., Form K-1s are received that set out AC’s share of the funds’ taxable income), these estimates will be adjusted,
most likely in the fourth quarter following the filing of the Company’s consolidated income tax return. The SAB
also provides requirements concerning financial statement disclosures about the material financial reporting impacts
of the Act.
68
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, dealing with the accounting for the tax effects of components of other comprehensive
income (OCI). As a result of the reduction of the U.S. federal corporate income tax rate under the Tax Cuts and Jobs
Act, current accounting guidance requires the revaluation of deferred tax assets and liabilities, and the resulting tax
expense or benefit is reflected in net income. If the deferred tax asset or liability related to a component of OCI (e.g.,
unrealized gain/(loss) on available for sale securities), however, the tax effects of items within OCI no longer reflect
the appropriate tax rate (referred to as stranded tax effects). This ASU permits the reclassification of the stranded tax
effects from OCI to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years. Early adoption was permitted. We have adopted the ASU as of January
1, 2018 and will reflect an increase to OCI and a decrease to retained earnings of approximately $1.5 million in the
period of adoption.
C. Investments in Securities
Investments in securities at December 31, 2017 and 2016 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
2017
2016
Cost
Fair Value
Cost
Fair Value
$
53,681
209,686
1,959
825
266,151
$
53,804
228,557
3,157
1,824
287,342
$
119,755
69,503
2,402
1,275
192,935
$
119,823
82,158
3,143
1,472
206,596
65,331
103
65,434
65,024
271
65,295
150,000
206
150,206
135,701
500
136,201
Total investments in securities
$
331,585
$
352,637
$
343,141
$
342,797
Securities sold, not yet purchased at December 31, 2017 and 2016 consisted of the following:
2017
2016
Cost
Fair Value
Cost
Fair Value
(In thousands)
Trading securities:
Common stocks
Other investments
Total securities sold, not yet purchased
$
$
$
$
4,862
1
4,863
5,396
335
5,731
9,583
27
9,610
9,947
37
9,984
$
$
$
$
69
Investments in affiliated registered investment companies at December 31, 2017 and 2016 consisted of the
following:
(In thousands)
Trading securities:
Closed-end funds
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
2017
2016
Cost
Fair Value
Cost
Fair Value
$
26,231
41,950
68,181
$
26,929
48,328
75,257
$
-
40,096
40,096
-
$
45,351
45,351
53,782
3,420
57,202
66,218
4,439
70,657
62,890
4,396
67,286
80,650
5,644
86,294
$
125,383
$
145,914
$
107,382
$
131,645
The following table identifies all reclassifications between accumulated other comprehensive income (“AOCI”) and
net income/(loss) for the years ended December 31, 2017 and 2016 (in thousands):
Amount
Reclassified
from AOCI
Year ended December 31,
2017
2016
Affected Line Item in
in the Statements
Of Income
Reason for
Reclassification
from AOCI
$
167
11,788
(19,201)
(7,246)
2,599
(4,647)
348
$
-
(324)
24
(9)
15
$
Net gain from investments
Net gain from investments
Net gain from investments
Income (loss) before income taxes
Income tax benefit (expense)
Net income (loss)
Realized gains on sale of AFS securities
Gains on transfer of AFS securities to affiliated broker-dealer
Other than temporary impairment of AFS securities
$
In November 2017, AC made a non-cash contribution of certain AFS securities totaling $91.3 million to G.research,
an indirect wholly-owned broker-dealer that is required to account for these as trading securities under specialized
industry accounting, which is ultimately retained through consolidation. This transaction resulted in the recognition
of a gain of $11.8 million and income tax expense of $4.2 million in net income due to the reclassification of
unrealized gains net of taxes out of other comprehensive income upon the completion of this transfer.
The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them
in either investments in securities or securities sold, not yet purchased on the consolidated statements of financial
condition. From time to time, the Company and/or 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, 2017 and December 31, 2016 we held derivative contracts
on 1.7 million equity shares and 16,000 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 outstanding at December 31, 2017 and December 31, 2016. Generally, these transactions are not designated
as hedges for accounting purposes, and, therefore changes in fair values of these derivatives are included in net
gain/(loss) from investments on the consolidated statements of income. One foreign exchange contract, which
expired in June 2016, however, was designated as a hedge on Gabelli Value Plus+ Trust Ltd., a London Stock
Exchange listed 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
70
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
2017
2017
2016
2016
$
-
$
-
Payable to brokers
$
-
$
-
Sub total
$
-
$
-
$
-
$
-
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
$
229
-
$
127
-
Securities sold,
not yet purchased
Payable to brokers
$
335
-
$
-
37
$
229
$
127
$
335
$
37
$
229
$
127
$
335
$
37
Type of Derivative
Income Statement Location
Year ended December 31,
2017
2016
Foreign exchange contracts Net gain from investments
Net gain from investments
Equity contracts
$
-
(98)
$
1,373
143
Total
$
(98)
$
1,516
The Company is a party to enforceable master netting arrangements for swaps entered into with major U.S. financial
institutions as part of the investment strategy of the Company’s proprietary portfolio. They are typically not used as
hedging instruments. These swaps, while settled on a net basis with the counterparties are shown gross in assets and
liabilities on the 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, 2017
December 31, 2016
$
$
229
96
$
-
$
-
$
$
229
96
$
$
(229)
(9)
$
-
$
-
$
-
$
87
(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
Swaps:
December 31, 2017
December 31, 2016
$
334
$
9
$
-
$
-
$
334
$
9
$
$
(229)
(9)
$
-
$
-
$
105
$
-
(In thousands)
Gross Amounts Not Offset in the
Statements of Financial Condition
71
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of AFS
investments as of December 31, 2017 and 2016:
December 31, 2017
Gross
Gross
Unrealized Unrealized
Cost
Gains
Losses
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
$
65,331
53,782
3,523
122,636
$
$
(In thousands)
-
$
12,436
1,187
13,623
$
$
(307)
-
-
(307)
$
65,024
66,218
4,710
135,952
$
December 31, 2016
Gross
Gross
Unrealized Unrealized
Cost
Gains
Losses
(In thousands)
Fair
Value
$
$
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
Changes in net unrealized gains/(losses), net of taxes, for AFS securities for the years ended December 31, 2017,
2016 and 2015 of $5.4 million, $3.2 million and ($11.2) million, respectively, have been included in other
comprehensive income/(loss) at December 31, 2017, 2016 and 2015, respectively.
The amount reclassified from other comprehensive income/(loss) for the years ended December 31, 2017, 2016 and
2015 were gains/(losses) inclusive of other-than-temporary impairments and the impact of transfers of AFS
securities to trading securities of $4.6 million, $0.02 million and of ($0.1) million, respectively. Return of capital on
AFS securities were $0.9 million, $0.2 million and $0.5 million for the years ended December 31, 2017, 2016 and
2015, respectively. Proceeds from sales of investments available for sale were approximately $0.3 million, $0.8
million and $1.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. For the years ended
December 31, 2017, 2016 and 2015, gross gains on the sale of investments available for sale amounted to $0.2
million, $0.3 million and $0.03 million, respectively, and were reclassed from other comprehensive income/(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, 2017, 2016 and 2015. The Company determines the cost of a security sold by using
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.
72
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 (in thousands):
December 31, 2017
Unrealized
Losses
Fair Value
Cost
December 31, 2016
Unrealized
Losses
Fair Value
Cost
(in thousands)
Common Stocks
Total avalable for sale securities
in unrealized loss position
$
65,331
$
(307)
$
65,024
$
150,000
$
(14,299)
$
135,701
$
65,331
$
(307)
$
65,024
$
150,000
$
(14,299)
$
135,701
For the years ended December 31, 2017, 2016 and 2015, there were $19.2 million, $0.3 million and $0.2 million of
losses, respectively, on AFS securities deemed to be other-than-temporary. In 2017, AC recognized a $19.1 million
OTT impairment on the GBL shares due to the magnitude and persistence of the unrealized loss.
At December 31, 2017, 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 our evaluation of issuer-
specific and industry-specific considerations. The holding was the GBL stock that was, as noted above, deemed to
have an “other than temporary impairment” during the year ended December 31, 2017, but which has subsequently
further declined. These further losses were not deemed to be other-than-temporarily impaired.
At December 31, 2016, there was one holding in an unrealized 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 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 exceeded its cost during the year ended December 31, 2016.
D. Investment Partnerships and Variable Interest Entities
The Company is general partner or co-general partner of various affiliated entities, in which the Company had
investments totaling $124.5 million and $112.3 million at December 31, 2017 and 2016, respectively, and whose
underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in
unaffiliated partnerships, offshore funds and other entities of $21.1 million and $17.1 million at December 31, 2017
and 2016, respectively (“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 investments in Affiliated
Entities which the Company accounts for under the equity method of accounting and Unaffiliated Entities which the
Company accounts for using fair value accounting. The Company reflects the equity in earnings of these Affiliated
Entities and the change in fair value of the Unaffiliated Entities under the caption net gain from investments on the
consolidated statements of income.
73
The following table highlights the number of entities that we consolidate as well as the basis under which they are
consolidated:
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
Additional consolidated entities
Deconsolidated entities
Entities consolidated at December 31, 2017
VIEs
1
1
-
-
-
2
1
(2)
1
1
VOEs
4
2
(2)
4
-
-
(3)
1
2
3
At and for the year ended December 31, 2017, three VOEs are consolidated, as the Company owns a majority of the
interests in these entities and one Partnership VIE is consolidated, as the unaffiliated partners or shareholders lack
substantive kick-out rights and the Company is the entity’s primary beneficiary.
At and for the year ended December 31, 2016, one VOE is consolidated, as the Company owns a majority of the
interests in the entity and one VIE is consolidated, as the unaffiliated partners or shareholders lack substantive kick-
out rights and the Company is the entity’s primary beneficiary.
At and for the year ended December 31, 2015, two VIEs were consolidated because the unaffiliated partners or
shareholders lack substantive kick-out rights and the Company was determined to be the primary beneficiary. At and
for the year ended December 31, 2015, two VOEs were consolidated because the Company, as either the general
partner or investment manager, was deemed to have control. During the year ended December 31, 2015, it was
determined that an additional VOE should be consolidated when the entity was created without unaffiliated capital
and a VIE should be consolidated upon the last unaffiliated investor withdrawing its capital. Additionally, a VOE
was deconsolidated as the Company’s ownership percentage fell below 50%, a VOE was deconsolidated when it
was closed, and an additional VOE was consolidated upon the withdrawal of the last unaffiliated investor.
The following table breaks down the investments in partnerships line by accounting method used (in thousands):
Accounting method
Affiliated
December 31, 2017
Unaffiliated
Total
Fair Value
Equity Method
$
9,442
115,046
-
$
21,103
$
9,442
136,149
Total
$
124,488
$
21,103
$
145,591
Accounting method
Affiliated
December 31, 2016
Unaffiliated
Total
Fair Value
Equity Method
$
8,343
103,947
-
$
17,108
$
8,343
121,055
Total
$
112,290
$
17,108
$
129,398
74
The following table includes the net impact by line item on the consolidated statements of financial condition for the
consolidated entities (in thousands):
Prior to
Consolidation
December 31, 2017
Consolidated
Entities
As Reported
$
$
$
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
5,149
97,385
(52,555)
(14,865)
23,159
(10)
176
58,439
326
11,883
46,230
-
58,439
308
6,338
-
(4,396)
2,046
(16)
-
4,280
293,112
352,637
145,914
145,591
34,881
5,739
29,041
1,006,915
5,731
36,807
46,230
918,147
1,006,915
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
December 31, 2016
Consolidated
Entities
As Reported
$
$
$
$
$
$
$
$
-
$
50
4,230
-
4,280
$
$
$
287,963
255,252
198,469
160,456
11,722
5,749
28,865
948,476
5,405
24,924
-
918,147
948,476
313,785
336,459
131,645
133,794
10,542
9,800
12,298
948,323
9,984
64,317
-
874,022
948,323
75
The following table includes the net impact by line item on the consolidated statements of income for the
consolidated entities (in thousands):
Total revenues
Total expenses
Operating loss
Total other income, net
Income (loss) before income taxes
Income tax benefit
Net income (loss) before NCI
Net loss attributable to noncontrolling interests
Net income
Total revenues
Total expenses
Operating loss
Total other income, net
Income before income taxes
Income tax expense
Net income before NCI
Net income (loss) attributable to noncontrolling interests
Net income
Total revenues
Total expenses
Operating loss
Total other income (expense), net
Loss before income taxes
Income tax benefit
Net loss before NCI
Net loss attributable to noncontrolling interests
Net loss
Variable Interest Entities
Twelve Months Ended December 31, 2017
Consolidated
Entities
$
(47)
1,706
(1,753)
1,600
(153)
-
(153)
(153)
$
-
$
(20)
174
(194)
491
297
-
297
297
$
-
$
As Reported
26,915
47,301
(20,386)
26,650
6,264
(2,420)
8,684
(153)
8,837
$
$
As Reported
31,227
43,459
(12,232)
26,577
14,345
3,876
10,469
251
10,218
$
Twelve Months Ended December 31, 2016
Consolidated
Entities
Twelve Months Ended December 31, 2015
Consolidated
Entities
$
(41)
191
(232)
(231)
(463)
-
(463)
(463)
$
-
$
As Reported
22,842
37,154
(14,312)
11,736
(2,576)
(1,685)
(891)
(780)
(111)
$
Prior to
Consolidation
26,962
$
45,595
(18,633)
25,050
6,417
(2,420)
8,837
-
8,837
$
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)
$
With respect to each consolidated VIE, its assets may only be used to satisfy its obligations. The investors and
creditors of these VIEs have no recourse to the Company’s general assets. In addition, the Company neither benefits
from the VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.
The following table presents the balances related to VIEs that are consolidated and included on the consolidated
statements of financial condition as well as the Company’s net interest in these VIEs:
December 31,
2017
December 31,
2016
(In thousands)
Cash and cash equivalents
Investments in securities
Receivable from broker
Other assets
Accrued expenses and other liabilities
Redeemable noncontrolling interests
AC's net interests in consolidated VIE
$
$
308
6,338
2,046
(8)
(37)
(287)
8,360
120
8,757
1,657
(19)
(29)
(284)
10,202
76
$
$
Equity Method Investments
The Company’s equity method investments include its investments in partnerships and offshore funds. These equity
method investments are not consolidated but on an aggregate basis exceed 10% of the Company’s consolidated total
assets or income.
The summarized financial information of the Company’s equity method investments for December 31, 2017 and
2016 are as follows:
December 31,
2017
December 31,
2016
$
1,600
322
1,278
$
2,137
350
1,787
For the year
2017
112
2016
(17)
(In millions)
Total assets
Total liabilities
Total equity
Net income/(loss)
E. Fair Value
The following tables present information about the Company’s assets and liabilities by major category measured at
fair value on a recurring basis as of December 31, 2017 and 2016 and indicates the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair value. Investments in certain entities that
calculate net asset value per share and other investments that are not held at fair value are provided as separate items
to permit reconciliation of the fair value of investments included in the fair value hierarchy to the total amounts
presented in the consolidated statements of financial condition.
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2017 (in thousands)
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
290,043
-
Significant Other
Observable
Inputs (Level 2)
$
-
-
Significant
Unobservable
Inputs (Level 3)
$
-
-
Investments
Measured at
NAV (a)
-
$
140,617
Other Assets
Not Held at
Fair Value (b)
-
$
4,974
Balance as of
December 31,
2017
$
290,043
145,591
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 - Closed-end 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
65,024
271
53,804
227,938
3,157
426
350,620
66,218
4,439
26,929
48,328
-
-
-
1
-
229
230
-
-
-
-
-
-
-
618
-
1,169
1,787
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
65,024
271
53,804
228,557
3,157
1,824
352,637
66,218
4,439
26,929
48,328
145,914
496,534
786,577
5,396
-
5,396
$
$
$
-
230
230
$
-
1,787
1,787
$
-
140,617
140,617
$
-
4,974
4,974
$
145,914
644,142
934,185
$
$
-
335
335
$
-
$
-
$
-
-
$
-
$
-
-
$
-
$
-
$
$
5,396
335
5,731
Investments that are measured at NAV as of December 31, 2017 include $124.5 million and $16.1 million of
Affiliated and Unaffiliated Entities, respectively. Capital may generally be redeemed from Affiliated Entities on a
monthly basis upon adequate notice as determined in the sole discretion of each entity’s investment manager.
Capital invested in Unaffiliated Entities may generally be redeemed at various intervals ranging from monthly to
annually upon notice of 30 to 95 days. Certain Unaffiliated Entities may require a minimum investment period
before capital can be voluntarily redeemed (a “Lockup Period”). No investment in an Unaffiliated Entity has an
77
unexpired Lockup Period. The Company has no outstanding capital commitments to any Affiliated or Unaffiliated
Entity.
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
(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.
(b) Amounts include certain equity method investments which are not accounted for under a fair value measure. In
accordance with GAAP, certain equity method investees do not account for both their financial assets and
liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may
not represent fair value.
The following table presents additional information about assets by major category measured at fair value on a
recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis for the year ended December 31,
2017 (in thousands)
December
31, 2016
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
$
$
461
283
744
$
193
869
1,062
$
-
$
-
$
-
-
$
-
$
-
$
193
869
1,062
$
-
$
167
167
$
-
$
(150)
(150)
$
(36)
$
-
$
(36)
$
618
1,169
1,787
$
Asset
Financial
instruments owned:
Trading - Common
stocks
Trading - Other
Total
There were no transfers between Level 1 and Level 2 during the year ended December 31, 2017. During the year
ended December 31, 2017, the Company transferred an investment with a value of approximately $36,000 from
Level 3 to Level 1. The reclassification was due to increased availability of market price quotations and was based
on the value at the beginning of the period in which the transfer occurred.
78
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.
F. Income Taxes
For the calendar years 2017, 2016 and the month of December 2015, 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.
Prior to 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. For this period, 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.
The provision for income taxes for the years ended December 31, 2017, 2016 and 2015 consisted of the following:
(In thousands)
Federal:
Current
Deferred
State and local:
Current
Deferred
Total
2017
2016
2015
$
781
(3,137)
$
5,018
(1,231)
$
4,540
(6,160)
(33)
(31)
(2,420)
$
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
Revaluation of net deferred tax liabilities due to tax reform
Accelerated vesting of restricted stock awards
Noncontrolling interests
Other
Effective income tax rate
2017
2016
2015
34.0%
(1.3)
(8.0)
(21.5)
(26.5)
(14.5)
(0.9)
0.1
-38.6%
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%
79
U.S. federal legislation commonly referred to as the Tax Cuts and Jobs Act reduced the corporate income tax rate
from a maximum of 35% to 21% beginning in 2018. As a result, the Company revalued its deferred tax assets and
liabilities in December 2017. The income tax provision for the year ended December 31, 2017 reflects a benefit of
$1.7 million due to this revaluation. This benefit, which was based on reasonable estimates, may require future
adjustment for a variety of factors including the receipt of additional information from investment funds, changes in
the Company’s assumptions, and/or the availability of further guidance and interpretations.
Significant components of our deferred tax assets and liabilities are as follows:
(In thousands)
Deferred tax assets:
Stock-based compensation expense
Deferred compensation
Shareholder-designated contribution carryover
Other
Total deferred tax assets
Deferred tax liabilities:
Investments in securities and partnerships
Other liabilities
Total deferred tax liabilities
Net deferred tax liabilities
2017
2016
$
19
987
1,765
3
2,774
$
719
1,315
1,461
4
3,499
(6,165)
(12)
(6,177)
(3,403)
$
(7,451)
-
(7,451)
(3,952)
$
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
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, 2017
(in thousands)
57
$
(60)
-
(2)
(11)
(16)
-
126
(10)
-
100
-
-
(89)
-
$
11
The Company records penalties and interest related to tax uncertainties in income taxes. As of December 31, 2017,
2016 and 2015, the Company’s had gross unrecognized tax benefits (liabilities) of $10,923, $100,149 and ($15,678),
respectively, of which $8,629, $66,098 and ($10,347), respectively, if recognized, would impact the Company’s
effective tax rate. The Company has accrued liabilities of $6,241 and $94,428 as of December 31, 2017 and 2016,
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. The Company is not currently under audit by any
tax jurisdiction. The Company is subject to Federal and state audits for tax years after 2014.
80
G. Earnings per Share
Basic earnings per share is computed by dividing net income/(loss) per share attributable to our shareholders by the
weighted average number of shares outstanding during the period. Diluted earnings per share is computed by
dividing net income/(loss) per share attributable to our shareholders by the weighted average number of shares
outstanding during the period, adjusted for the dilutive effect of restricted stock awards.
The computations of basic and diluted net income/(loss) per share are as follows:
(in thousands, except per share amounts)
Basic:
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
Weighted average shares outstanding
Basic net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
For the Years Ending December 31,
2016
2017
2015
$
8,837
23,792
$
10,218
24,870
$
(111)
24,887
$
0.37
$
0.41
$
-
Diluted:
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
$
8,837
$
10,218
$
(111)
Weighted average share outstanding
Dilutive restricted stock awards
Total
Diluted net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
23,792
133
23,925
24,870
305
25,175
24,887
283
25,170
$
0.37
$
0.41
$
-
H. Related Party Transactions
The following is a summary of certain related party transactions.
GGCP indirectly owns a majority of our Class B Stock, representing approximately 94% of the combined voting
power and 78% of the outstanding shares of our common stock at December 31, 2017.
Loans with GAMCO
On December 28, 2015, GCIA paid GAMCO $16 million in full repayment of an outstanding demand loan which
bore interest at 5.5%. The interest on this loan was $0.9 million in 2015 and is included in interest expense on the
consolidated statements of income.
During 2015, GCIA paid to GAMCO $66,000 of interest on the GCIA Note which is included in interest expense on
the consolidated statements of income.
During the years ended December 31, 2017 and 2016, AC received principal repayments totaling $50 million and
$150 million, respectively, on the GAMCO Note. Following these prepayments, the outstanding balance of $50
million is due on November 30, 2020. Interest income of $3.0 million, $7.8 million and $0.8 million is included in
interest and dividend income on the consolidated statements of income for the years ended December 31, 2017,
2016 and 2015, respectively. See Note A. Organization.
On December 26, 2017, GAMCO issued a promissory note to the Company for $15 million. The note comes due on
February 28, 2018, bears interest at 1.6% per annum, and is secured by a second lien on certain marketable securities
held by GAMCO.
Investment in Securities
At December 31, 2017 and 2016, approximately $44 million and $39 million, respectively, of our proprietary
investment accounts, which are 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 one such proprietary investment account. The balance in
81
the account at December 31, 2017 and 2016 was $18.0 and $14.6 million, respectively, of which $3.5 million and
$2.7 million, respectively, is owed to the portfolio manager representing earnings that have been re-invested in the
account. For 2017, 2016 and 2015, the performance of this account resulted in compensation of approximately $0.5
million, $0.1 million and $0.1 million, respectively, for managing this account.
At December 31, 2017 and 2016, the value of the Company’s investment in GAMCO common stock was $130.3
million and $135.7 million, respectively. The Company recorded dividend income of $0.4 million in 2017 and 2016
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, 2017 and 2016, the Company had investments of $238.1 million and $314.1 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 advised by Gabelli Funds, LLC, a wholly-owned subsidiary of
GAMCO, and Teton Advisors, Inc., an investment advisor controlled by GGCP Holdings, LLC, the majority
stockholder of AC, at December 31, 2017 and 2016 totaled $146.2 million and $132.1 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 $124.5 million and
$112.3 million at December 31, 2017 and 2016, respectively.
Investment Advisory Services
GCIA and Gemini Capital Management LLC (“GCM LLC”) serve as co-general partners of Gemini Global
Partners, L.P. (formerly Gabelli Global Partners, L.P., “Gemini LP”). Gabelli Securities International Limited, a
Bermuda corporation (“GSIL”) formed in 1994 to provide investment advisory services to offshore funds and
accounts, and GCM LLC serve as co-investment managers of Gabelli Global Partners Ltd. (“GGP Ltd”). Gemini LP
and GGP Ltd are both feeder funds of Gabelli Global Partners Master Fund Ltd., an investment fund organized in
the Cayman Islands. GCIA owns 45% of GSIL. A son of the Executive Chairman owns the remaining 55% of GSIL
and 100% of GCM LLC.
Each of GCIA and GCM LLC is entitled to 50% of advisory fees and incentive allocations payable by Gemini LP.
These advisory fees were $55,228, $63,196 and $70,345 for 2017, 2016 and 2015, respectively. No incentive fees
were earned from 2015 to 2017. As of December 31, 2017 and 2016, there were payables of $13,018 and $201,065,
respectively, from Gemini LP included in payables to affiliates and receivables from affiliates, respectively, on the
consolidated statements of financial condition.
Each of GSIL and GCM LLC is entitled to 50% of advisory and incentive fees payable by and GGP Ltd. These
advisory fees were $7,365, $10,325 and $0 for 2017, 2016 and 2015, respectively. No incentive fees were earned
from 2015 to 2017. As of December 31, 2017 and 2016, there was a payable of $10,528 and a receivable of $10,329
respectively, from GGP Ltd included in payables to affiliates and receivables from affiliates, respectively, on the
consolidated statements of financial condition.
In October 2017, GCIA agreed to purchase the remaining shares of GSIL that it does not hold for $564,516, subject
to regulatory approvals and other standard closing conditions. As of December 31, 2017, the closing conditions have
not been satisfied.
In October 2017, GCIA agreed to purchase all outstanding shares of GAMA Funds Holdings GmbH, Baar, (“GFH”)
a private Swiss company that holds investments in private companies, from a son of the Executive Chairman for
$110,539 plus net proceeds from the sale of its investments, subject to regulatory approvals and other standard
closing conditions. As of December 31, 2017, the closing conditions have not been satisfied.
82
Compensation
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
funds and partnerships discussed in Note D. 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. In 2017, 2016 and
2015, the Company recorded management fee expense or (contra-expense) of $0.7 million, $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, 2017, the receivable from affiliates consists primarily of the $15 million promissory note issued by
GAMCO on December 26, 2017. 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, 2017 and 2016, the payable to affiliates primarily consisted of expenses paid by affiliates on behalf
of the Company pursuant to the Transitional Services Agreement.
GAMCO Sublease
Since 1997, GAMCO has leased office space at 401 Theodore Fremd Ave, Rye, NY from M4E, LLC, an entity
owned by the adult children of the Executive Chairman. The current lease expires on 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 initially effective from April 1, 2016 through
March 31, 2017. In March, 2017, this sublease was renewed through March 31, 2018. Pursuant to the sublease, 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 year ended December 31, 2017 and the nine
months ended December 31, 2016, the Company paid $374,401 and $276,238, respectively, under the sublease
agreement. These amounts are included within other operating expenses on the consolidated statements of income.
Other
In 2017, 2016 and 2015, the Company earned $4.5 million, $5.2 million and $4.9 million, respectively, or 60%, 63%
and 59%, respectively, of its commission revenue from transactions executed on behalf of Gabelli Funds, LLC and
private wealth management clients advised by GAMCO Asset Management Inc., wholly-owned subsidiaries of
GAMCO. These commissions are included in institutional research services on the consolidated statements of
income.
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.
83
Pursuant to research services agreements (see Note B), GAMCO Asset Management Inc. paid $2.2 million, $1.5
million and $0.7 million and Gabelli Funds, LLC paid $2.3 million, $1.5 million and $0.8 million to the Company
for the years ended December 31, 2017, 2016 and 2015, respectively.
During 2017 and 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”). Pursuant to sales agreements between the parties, the Company earned sales
manager fees related to these offerings of $39,782 and $1,178,330 for GGN, respectively, and $0 and $5,495 for
GRX, 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.
The Company participated in three preferred stock offerings of certain GAMCO closed-end funds in 2017. In
September 2017, the Company acted as co-underwriter in The Ellsworth Growth and Income Fund Ltd 5.25% Series
A Fixed Rate Preferred Stock and The Gabelli Multimedia Trust 5.25% Series E Cumulative Preferred Stock
offerings. During October 2017, the Company acted as co-underwriter in GAMCO Natural Resources, Gold &
Income Trust 5.20% Series A Cumulative Preferred Stock offering. Underwriting fees and selling concessions, net
of expenses, related to the launch of these funds amounted to $172,730 and are included in either institutional
research services or other revenue on the consolidated statements of income. Throughout 2016, the Company acted
as co-underwriter in five preferred stock offerings of certain GAMCO closed-end funds: The Gabelli Equity Trust
5.45% Series J Cumulative Preferred Stock; The Gabelli Global Small and Mid Cap Value Trust 5.45% Series A
Cumulative Preferred Stock; The Gabelli Utility Trust 5.375% Series C Cumulative Preferred Stock; The Gabelli
Dividend & Income Trust 5.25% Series G Cumulative Preferred Stock; and Bancroft Fund Ltd. 5.375% Series A
Preferred Stock. Underwriting fees and selling concessions, net of expenses, related to the launch of these funds
amounted to $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. Under the Distribution Agreement, the Company was the broker of record for certain
ongoing client relationships and earned distribution fees. On July 1, 2015, these mutual fund distribution assets were
transferred out of the Company. Through June 30, 2015, the Company earned $263,692 in distribution fees, which
are included in other income on the consolidated statements of income.
On June 30, 2015, Distributors Holdings, Inc. (“DHI”), a wholly-owned subsidiary of GCIA formed G.research,
LLC, a single member limited liability company, in connection with the transfer of the distribution assets of
G.research, Inc. As a result of these transactions: (a) DHI became a wholly-owned subsidiary of GAMCO; (b)
G.research LLC became a wholly-owned subsidiary of GCIA; (c) G.research received capital contributions of
$1,937,670 and $234,000 related to a deferred tax liability that was transferred to DHI and the value of the
distribution assets, respectively; and (d), G.research, LLC recorded a deferred tax liability of $88,227 related to the
distribution assets.
Pursuant to an agreement between the Company and Funds, Funds pays to GCIA 90% of the net revenues it receives
related to investment advisory service provided to GAMCO International SICAV – GAMCO Merger Arbitrage, an
investment company incorporated under the laws of Luxembourg (the “SICAV”). For this purpose, net revenues are
defined as gross advisory fees less expenses related to payouts and expenses of the SICAV paid by Funds. In
connection with these services, Funds paid GCIA $2.8 million, $2.7 million and $1.0 million during 2017, 2016 and
2015, respectively. These payments 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.
84
I. 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 each share class are not eligible to vote on matters relating
exclusively to the other share class.
Stock Award and Incentive Plan
There were no restricted stock awards (“RSAs”) issued by AC during 2017 or 2016. 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 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 value of the
GAMCO RSAs held by AC employees is recognized as expense by the Company over the remaining vesting period
because the employees’ services are for the benefit of the Company. 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.
On June 1, 2017, the Compensation Committee of AC accelerated the vesting of all 420,240 outstanding RSAs
effective June 15, 2017 and on August 7, 2017, the compensation committee of GAMCO’s Board of Directors (the
“GAMCO Committee”) accelerated the vesting of 201,120 outstanding GAMCO RSAs effective August 31, 2017.
In addition, the GAMCO Committee accelerated the vesting of an additional 144,650 GAMCO RSAs effective
December 27, 2017.
The total compensation costs related to non-vested awards not yet recognized is approximately $0.1 million as of
December 31, 2017. This was recognized as expense in January 2018.
For the years ended December 31, 2017, 2016 and 2015, the Company recorded approximately $5.9 million, $2.5
million and $4.9 million, respectively, in stock-based compensation expense which resulted in the recognition of tax
benefits of approximately $1.3 million, $0.8 million and $1.7 million, respectively. The expense for the years ended
December 31, 2017, 2016 and 2015 includes $4.2 million, $0 and $4.9 million attributable to the acceleration of the
AC and GAMCO RSAs, respectively, in each year. There was no accelerated vesting of RSAs in the year ended
December 31, 2016.
Stock Repurchase Program
In 2017, the Company repurchased 0.6 million shares at an average price of $34.61 per share for a total investment
of $21.2 million.
In 2016, 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 2017, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.8
million, of which $2.4 million is payable on January 10, 2018 and is included in accrued expenses and other
liabilities on the consolidated statements of financial condition.
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 was paid on January 25, 2017 and is included in accrued expenses and other liabilities
on the consolidated statements of financial condition.
85
J. Retirement Plan
The Company participates in an incentive savings plan (the “Savings Plan”), covering substantially all employees.
Company contributions to the Savings Plan are determined annually by management of the Company 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 the Savings Plan amounted to
approximately $49,000, $34,000 and $12,000 in 2017, 2016 and 2015, respectively, and are included in
compensation on the consolidated statements of income.
K. 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 each of December 31, 2017, 2016 and 2015, the total amount of
customer balances subject to indemnification (i.e., unsecured margin debits) was immaterial. G.research also has
entered into arrangements with various other third parties, many of which provide for indemnification of the third
parties against losses, costs, claims and liabilities arising from the performance of G.research’s obligations under the
agreements. G.research has had no claims or payments pursuant to these or prior agreements, and management
believes the likelihood of a claim being made is remote, and therefore, an accrual has not been made on the
consolidated financial statements.
From time to time, we may be named in legal actions and proceedings. These actions may seek substantial or
indeterminate compensatory as well as punitive damages or injunctive relief. We are also subject to governmental or
regulatory examinations or investigations. Examinations or investigations can result in adverse judgments,
settlements, fines, injunctions, restitutions or other relief. For any such matters, the consolidated financial statements
include the necessary provisions for losses that we believe are probable and estimable. Furthermore, we evaluate
whether there exist losses which may be reasonably possible and, if material, make the necessary disclosures.
L. 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 $41.8 million and $3.7 million, exceeding the required amount of $250,000 by $41.6 million and $3.4 million, at
December 31, 2017 and 2016, respectively. There were no subordinated borrowings during the years ended
December 31, 2017 and 2016.
M. Shareholder-Designated Contribution Plan
The Company has established a Shareholder Designated Charitable Contribution program. Under the program, from
time to time each shareholder is eligible to designate a charity to which the Company would make a donation at a
rate of twenty-five cents per share based upon the actual number of shares registered in the shareholder’s name.
Shares held in nominee or street name were not eligible to participate. The Company recorded an expense of $4.2
million and $5.4 million related to this contribution for the years ended December 31, 2017 and 2016, respectively,
which is included in shareholder-designated contribution in the consolidated statements of income.
86
N. Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2017 and 2016 is presented below.
(In thousands, except per share data)
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
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
1st
2nd
2017
3rd
4th
Total
$
4,987
(4,332)
$
5,095
(6,453)
$
5,248
(6,112)
$
11,585
(3,489)
$
26,915
(20,386)
(13,078)
4,596
1,519
15,800
8,837
(0.55)
(0.55)
$
0.19
0.19
$
0.06
0.06
$
0.67
0.67
$
0.37
0.37
$
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
$
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 due to the recognition of incentive fees from investment partnerships and funds.
The GAMCO Committee accelerated the vesting of 144,650 GAMCO RSAs effective December 27, 2017 which
resulted in stock-based compensation expense of $0.6 million.
During the fourth quarter of 2017, AC contributed securities to its wholly-owned broker-dealer subsidiary. A portion
of the contributed securities had qualified for AFS accounting under current generally accepted accounting
principles while held by AC. The contribution of the AFS securities to the broker-dealer resulted in the recognition
of net income during the quarter since the broker-dealer does not qualify for AFS accounting treatment. The
unrealized gain on the contributed AFS securities recognized in net income was reclassified from other
comprehensive income in the amount of $11.8 million.
In December 2017, the Company recorded a $1.7 million income tax benefit related to the revaluation of deferred
tax items as a result of the recently-enacted Tax Cut and Jobs Act. This benefit, which is based on reasonable
estimates, may require future adjustment due to receipt of additional information from investment funds, changes in
the Company’s assumptions, and/or the availability of further guidance and interpretations.
O. Subsequent Events
During the period from January 1, 2018 to March 8, 2018, we repurchased 3,971 Class A shares at an average price
per share of $33.99.
On March 5, 2018, AC completed an exchange offer with respect to its Class A shares. Tendering shareholders will
receive 1.35 GAMCO Class A shares that the Company holds for each Class A share, together with cash in lieu of
any fractional share. Computershare Trust Company, N.A., the exchange agent for the offer, advised the Company
that 490,761 shares were validly tendered and not withdrawn (including 32,756 shares delivered by the expiration of
the guaranteed delivery period), representing approximately 11% of the Class A shares outstanding. The Company
87
has accepted for exchange all shares validly tendered and not withdrawn and will promptly deliver approximately
662,000 GAMCO Class A shares in payment for the tendered Class A shares.
On February 6, 2018, G.research amended its existing research service agreements with GAMCO Asset
Management Inc. and Gabelli Funds, LLC, to provide for annual research services fees from these entities in 2018 of
$1.50 million and $1.53 million respectively.
On February 6, 2018, the Company and GAMCO renewed their sublease for the period of April 1, 2018 to March
31, 2019. The annual rental cost under the sublease is approximately $0.5 million.
The outstanding principal and accrued interest on the December 2017 promissory note from GAMCO were paid on
February 28, 2018.
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 of the Company, with the participation
of the principal executive officer and under the supervision of the principal financial officer, conducted an
evaluation of the effectiveness of AC’s internal control over financial reporting as of December 31, 2017, as
required by Rule 13a-15(c) of the Exchange Act. There are inherent limitations to the effectiveness of any system of
internal control over financial reporting, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective internal control over financial reporting
controls can only provide reasonable assurance of achieving their control objectives. In making its assessment of the
effectiveness of its internal control over financial reporting, the Company used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework 2013.
Based on its evaluation, management concluded that, as of December 31, 2017, 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.
88
(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,
2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the Directors and Executive Officers of AC and compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by reference from the Company’s Proxy Statement for the
2018 Annual Meeting of Stockholders (the “Proxy Statement”).
AC has adopted a Code of Business Conduct that applies to all of our officers, directors, full-time and part-time
employees and a Code of Conduct that sets forth additional requirements for our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions
(together, the “Codes of Conduct”). The Codes of Conduct are posted on our website (www.associated-capital-
group.com) and are available in print free of charge to anyone who requests a copy. Interested parties may address a
written request for a printed copy of the Codes of Conduct to: Secretary, Associated Capital Group, Inc., One
Corporate Center, Rye, New York 10580-1422. We intend to satisfy the disclosure requirement regarding any
amendment to, or a waiver of, a provision of the Codes of Conduct by posting such information on our website.
In addition to the certifications attached as Exhibits to this Form 10-K, following its 2018 Annual Meeting, AC will
also submit to the New York Stock Exchange (“NYSE”) a certification by our Chief Executive Officer that he is not
aware of any violations by AC of the NYSE corporate governance listing standards as of the date of the certification.
ITEM 11: EXECUTIVE COMPENSATION
Information required by Item 11 is included in our Proxy Statement 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 and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by Item 13 is included in our Proxy Statement and is incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption “Independent Registered Public Accounting Firm” in our Proxy
Statement is incorporated herein by reference.
89
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 49.
(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.
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Exhibit
Number Description of Exhibit
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
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).
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 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).
91
10.7
21.1
24.1
31.1
31.2
32.1
32.2
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.
Powers of Attorney (included on page 94 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
100.INS
100.SCH
100.CAL
100.DEF
100.LAB
100.PRE
906 of 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
ITEM 16: FORM 10-K SUMMARY
None.
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Rye, State
of New York, on March 8, 2018.
ASSOCIATED CAPITAL GROUP, INC.
By: /s/ Francis J. Conroy
Name: Francis J. Conroy
Title: Interim Chief Financial Officer
Date: March 8, 2018
93
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Kevin Handwerker and Francis J.
Conroy and each of them, their true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for them in their name, place and stead, in any and all capacities, to sign any and all amendments to
this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Douglas R. Jamieson
Douglas R. Jamieson
President and
March 8, 2018
Chief Executive Officer
(Principal Executive Officer)
/s/ Francis J. Conroy
Francis J. Conroy
/s/ Mario J. Gabelli
Mario J. 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
Interim Chief Financial Officer
(Principal Financial Officer)
March 8, 2018
Executive Chairman of the
Board and Director
March 8, 2018
Director
March 8, 2018
Director
March 8, 2018
Director
March 8, 2018
Director
March 8, 2018
Director
March 8, 2018
94
Exhibit 21.1
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.
Name
Gabelli & Company Investment Advisers, Inc.
(100%-owned by the Company)
G.research, LLC
(100%-owned by Institutional Services Holdings, LLC)
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
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:
/s/ Douglas R. Jamieson
Name: Douglas R. Jamieson
Title: Chief Executive Officer
Date: March 8, 2018
Certifications
Exhibit 31.2
I, Francis J. Conroy, 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/ Francis J. Conroy
Francis J. Conroy
Interim Chief Financial Officer
Date:
March 8, 2018
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, 2017 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Douglas R. Jamieson, 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of income of the Company.
/s/ Douglas R. Jamieson
By:
Name: Douglas R. Jamieson
Title: Chief Executive Officer
Date: March 8, 2018
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, 2017 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), Francis J. Conroy, as Interim 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:
/s/ Francis J. Conroy
Name: Francis J. Conroy
Title: Interim Chief Financial Officer
Date: March 8, 2018
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.
Mario J. Gabelli
Executive Chairman
Associated Capital Group, Inc.
Douglas R. Jamieson
Chief Executive Officer and President
Associated Capital Group, Inc.
Officers
Mario J. Gabelli, CFA
Executive Chairman
Daniel R. Lee
Chief Executive Officer and Director
Full House Resorts, Inc.
Bruce M. Lisman
Former Chairman of JP Morgan’s Global
Equity Division
Frederic V. Salerno
Non-executive Chairman
Akamai Technologies, Inc.
Salvatore F. Sodano
Chairman and Chief Executive Officer
Worldwide Capital Advisory Partners, LLC.
Kevin Handwerker
Executive Vice President, General Counsel
and Secretary
Douglas R. Jamieson
Chief Executive Officer and President
Francis J. Conroy
Interim Chief Financial Officer
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
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 2018 Annual Meeting of Shareholders
will be held at 8:00 a.m. on May 8, 2018 at the
Indian Harbor Yacht Club, 710 Steamboat Road,
Greenwich, CT 06830
“The more you give, the more you receive”
Our shareholders designated contributions to the following
501(c)(3) organizations in 2017
The Board of Directors of Associated Capital Group, Inc. established an inaugural Shareholder Designated Charitable
Contribution program in 2016. The company continued this initiative in 2017. To date, AC has donated $9.6 million on
behalf of its shareholders.
Under the program, each registered shareholder could 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.
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.
♦ ♦ ♦
♦
Inc.
Alzheimer’s Disease & Related Disorders Association, Inc. ♦ America Needs You ♦ American Heart Association, Inc. ♦ American
National Red Cross ♦ American Refugee Committee ♦ Arizona State University Foundation ♦ Blythedale Children’s Hospital ♦
Bob Woodruff Family Foundation, Inc. ♦ Boston College ♦ Boys and Girls Club of Truckee Meadows ♦ Bristol Riverside Theater
Co., Inc. ♦ Cathedral of St. John the Baptist ♦ Catholic Big Sisters & Big Brothers ♦ Center for All Abilities, Inc. ♦ Chaminade High
School ♦ Christian Brothers Academy ♦ CityArts, Inc. ♦ Citymeals-on-Wheels ♦ Columbia University in the City of New York
♦ Doctors Without Borders USA, Inc. ♦ Don Bosco Community Center of Port Chester, Inc. ♦ Elevation Chapel ♦ Eva’s Village,
America
Inc. ♦ Fair field University ♦ Feeding
Investments
Fidelity
Foundation ♦ Fountain Valley School
Charitable Gift Fund ♦ Folds of Honor
♦ Greenwich Hospital ♦ Greenwich
of Colorado ♦ Friends of Animals, Inc.
Groton School ♦ Haley House, Inc.
International Film Festival,
♦
Hindu Society of Nevada ♦ Homeless
♦ Heifer Project International, Inc. ♦
Special Surgery Fund, Inc. ♦ Interfaith
Prenatal Program, Inc. ♦ Hospital for
Campaign for Tibet
Nutrition Network ♦ International
Jewish
of Greater Pittsburgh ♦ Joel Barlow
Communal Fund ♦ Jewish Federation
Medical Center Foundation, Inc. ♦
High School ♦ John F. Kennedy
Lymphoma Society, Inc. ♦ LongHouse
K9s for Warriors, Inc. ♦ Leukemia and
♦ McMaster University Ontario ♦
Reserve ♦ Marin Country Day School
America ♦ Memorial Sloan-Kettering
Meals on Wheels Association of
Society, Inc. ♦ National Brain Tumor
Cancer Center ♦ National Audubon
Nature
Defense Council,
Society, Inc. ♦ Natural Resources
Technology Foundation ♦ New York
Conservancy ♦ New Jersey Institute of
Health Foundation ♦ Operation Smile,
and Presbyterian Hospital ♦ Northwell
Troopers Foundation ♦ Perlman
Inc. ♦ Pennsylvania Troopers Helping
Parenthood Northern California ♦
Music Program,
Planned
Inc.
New England, Inc. ♦ Prospects,
Planned Parenthood of Southern
Randolph Foundation ♦ Rochester
Opportunity and Enrichment, Inc. ♦
Institute of Technology
San Diego
Ignatius School
Saint
Opera Association ♦ Save the Children Federation, Inc. ♦ Shriners Hospitals for Children ♦ Sierra Nevada Journeys ♦ South
Bronx Educational Foundation, Inc. ♦ St. Joseph’s Indian School ♦ St. Jude Children’s Research Hospital ♦ St. Thomas’ Church,
Whitemarsh ♦ State University of New York at Binghamton ♦ Student U ♦ The Arc of Palm Beach County, Inc. ♦ The Littlest
Lamb ♦ The Roman Catholic Church of St. Robert Bellarmine ♦ The University of Pennsylvania ♦ Troy University Foundation ♦
Tuesday’s Children ♦ University of Texas Foundation ♦ Variety Child Learning Center ♦ Villanova University ♦ Wilton Library
Association, Inc. ♦ Woman’s Club of Rye, Inc. ♦ World Eye Cancer Hope ♦ World Vision, Inc. ♦ Zacharias Sexual Abuse Center
We are fortunate to live in the
wealthiest nation in the world and
to have the ability to share our good
fortune. IN 2017, WE WERE ABLE
TO SUPPORT MANY WORTHY
ENDEAVORS, INCLUDING THESE
91 RECIPIENTS DESIGNATED BY
OUR SHAREHOLDERS. Our firm
has grown for 41 years, and the stock
market has rewarded long term
investors. This has also enabled us
to donate countless hours to scores
of charitable organizations.
Inc.
♦
♦
♦
♦
♦
One Corporate Center, Rye, New York 10580-1422
www.associated-capital-group.com
203-629-9595 | info@associated-capital-group.com