A N N U A L
R E P O R T
2018
WISDOM. PERFORMANCE. BRIGHT FUTURE. TRUST.
Dear Partners/Shareholders:
We are privileged to share Associated Capital’s (“AC”) financial results for 2018. As always, we value your trust and support.
During 2018 -
• COMMITMENT TO COMMUNITY - in November, our Board approved the continuation of the shareholder designated
charitable contribution program with a $0.25 per share designation for registered shareholders. This translates into
approximately $5 million in donations, which brings our total projected contributions to $15 million since our spin-
off from GAMCO in November 2015.
•
In November, we published Merger Masters – Tales of Arbitrage. Merger Masters profiles leading merger
arbitrageurs and corporate CEOs who were actively involved in M&A. It is a sequel to Deals… Deals… and More
Deals, which has been translated into Japanese, Chinese, Italian with plans to publish in Spanish, reflecting the
global virtues of our merger arbitrage strategy.
• Our Merger Arbitrage strategy was up 2.7% net for the year.
• As a natural extension of our direct investment efforts, in April we announced the successful public offering of
Gabelli Value for Italy S.p.a. (VALU), an Italian company listed on the LSE’s Borsa Italian AIM segment. This general
sector SPAC, which raised €110 million, was created to acquire an Italian small to mid-sized franchised business at
a target capitalization of €400 million with the potential for international development, especially into the United
States.
• Our shares outstanding were reduced to 22.6 million from 23.7 million, of which 187,000 shares were via buybacks
(at an average investment of $37.52 per share), and 867,000 shares through two exchange offers of GAMCO shares
for shares of Associated Capital. We continue to own more than 3 million shares of GAMCO (GBL: NYSE).
• Paid semi-annual dividends of $0.10 per share, paying out $4.6 million to shareholders.
• We announced that our Board authorized the company to explore strategic options for its institutional research
business, including a spin-off to shareholders or a management-led buyout of the business.
As previously discussed, we created a new subsidiary, Gabelli Private Equity Partners to explore the launch of a private
equity business, something our predecessor firm had success with in the 1980s. We will continue our outreach initiatives
with business owners, corporate management, and various financial sponsors.
In 2019, we will continue to explore new avenues, including L.P.’s in our investments, to put our capital to work by pursuing
deals, new distribution channels and new products.
Along these lines, we echo 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).
Sincerely,
Mario J. Gabelli
Executive Chairman
A S S E TS U N D E R MANAG E M E NT
Assets under management (dollars in millions) are close to
an all-time high:
Year-over-year, AUM was essentially flat with both slight
capital outflows and negative investment performance.
We continue to see interest in products from new investor
groups, especially outside of the United States.
CO N D E N S E D CO N SO LI DATE D BAL AN CE S H E E T (in thousands)
ASSETS
Cash and cash equivalents (a)
Investments
Receivables
Other assets
Total assets
LIABILITIES AND EQUITY
Compensation payable
Securities sold, not yet purchased
Income taxes payable
Accrued expenses and other liabilities
Total liabilities
Redeemable noncontrolling interests (b)
Stockholders' equity
GAMCO Note
Total equity
December 31,
2018
2017
$409,564
490,824
30,332
23,713
$293,112
644,142
65,758
3,903
$954,433
$1,006,915
$11,388
$12,785
9,574
3,577
13,846
38,385
49,800
866,248
-
866,248
5,731
5,484
18,538
42,538
46,230
968,147
(50,000)
918,147
Total liabilities and equity
$954,433
$1,006,915
Shares outstanding
Average
Year-end
23,070
22,585
23,792
23,639
(a) Includes $13 million and $5 million, respectively, held by consolidated investment funds
(b) Represents third-party capital balances in consolidated investment funds
We ended 2018 with cash and investments of $410 million and $491 million, respectively, including three million shares of GAMCO
stock valued at $51 million. Our net equity was $866 million or $38.36 per share.
Our financial resources underpin our flexibility to pursue strategic objectives that may include acquisitions, seeding new investment
strategies, and co-investing. 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.
Q UARTE R LY FI NAN CIAL I N FO R MATI O N
Quarterly financial information for 2018 and 2017 is presented below.
(In thousands, except per share data)
2018
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 loss
Net income/(loss) attributable to Associated
Capital Group, Inc 's shareholders
Net income/(loss) attributable to Associated
Capital Group, Inc 's shareholders per share:
Basic
Diluted
1st
2nd
3rd
4th
Total
$4,703
(4,250)
$4,796
(3,446)
$4,666
(3,499)
$8,614
(2,285)
$22,779
(13,480)
$(22,229)
$11,824
$(7,379)
$(40,315)
$(58,099)
$(0.95)
$(0.95)
$0.51
$0.51
$(0.32)
$(0.32)
$(1.77)
$(1.77)
$(2.52)
$(2.52)
1st
2nd
3rd
4th
Total
2017
$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
Douglas R. Jamieson Chief Executive Officer and President
In 2018, we planted seeds for future growth. Of note, the Gabelli & Partners team is extending our marketing reach
with trips to Asia and Europe, resulting in searches, proposals and new business for the UCITs, offshore funds and
SMAs. Gabelli Value for Italy (VALU) jump-started our efforts in private equity. Italy is the second largest market
for SPACs and valuations of target companies tend to be least 20% lower than comparable assets in the US. Marc
Gabelli and his team are actively reviewing potential investments.
We are also pursuing options for our institutional research operation. We have to rationalize the cost/benefits of
the research, trading and sales organization. Our intention is to arrive at a solution for the broker/dealer in 2019.
On behalf of all our constituents, we thank Rick Bready who is stepping down from our Board in May. His contributions to AC’s Board
from inception (and the Board of GAMCO Investors before) were invaluable.
Finally, we thank Fran Conroy for stepping in as our interim CFO over the past 18 months. We wish him well as he returns as an adviser
to our parent, GGCP, LLC. We also welcome Ken Masiello as our Chief Accounting Officer.
Francis J. Conroy Interim Chief Financial Officer
We ended 2018 with a book value of $38.36 per share versus $38.84 in 2017. Our equity was crimped by our net loss of
$58.1 million, stemming primarily from unrealized mark-to-market losses on our investment portfolio. We also returned
capital to shareholders during the year; we exchanged 1.4 million shares of GAMCO for 870,000 AC shares, purchased
187,000 shares of AC in the market and paid $4.6 million in dividends.
Our operating loss decreased significantly to $13.5 million from $20.4 million in 2017. Investment advisory and incentive
fees were essentially flat over the prior year at $14.4 million. Management fees based on higher average AUM were
offset by lower incentive fees on the investment performance of our funds. Institutional research services revenues were $8.3 million, a
$3.9 million decline primarily the result of a reduction in research payments from GAMCO. Variable compensation, salaries, bonuses and
benefits were $25.9 million for the year, a decrease of $4.7 million. Stock-based compensation was $0.7 million in 2018, $5.2 million less
than in 2017. In 2018, there was no management fee; in 2017, the management fee was $0.7 million. Other operating expenses were slightly
lower at $9.7 million reflecting lower brokerage clearing charges.
Net investment losses were $65.2 million compared to a net gain of $20.6 million in 2017. Interest and dividend income increased $2.9
million to $13.4 million, mostly due to higher returns on our cash balances. Our pre-tax loss gave rise to an income tax benefit of $11.5 million.
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.
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
Paolo Vicinelli
Portfolio Manager
Anthony Lombardi
Research
Willis Brucker
Portfolio Manager
Kevin Wang
Research
Worldwide deal activity totaled $4.0 trillion during 2018, an increase of 19% compared to 2017, and only the third year on record M&A has
passed the $4 trillion milestone. Global growth has been a theme of the current wave of M&A, and cross-border deal activity totaled $1.6
trillion during the year, a 32% increase over 2017 and the strongest year for cross-border M&A since 2007. European activity clocked in at $1.0
trillion, the highest total in 11 years. Private Equity backed transactions accounted for their highest level in over a decade at over 20% of total
M&A activity, or about $800 billion.
“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
In 1999, we published one of the few books on merger
arbitrage, Deals…Deals…and More Deals. Our new
publication, Merger Masters: Tales of Arbitrage,
profiles leading investors who share our enthusiasm
for merger arbitrage and have utilized the investment
discipline in various forms over the last half-century. It
also includes the perspective of iconic CEOs who have
used M&A to build value and, in the process, tangled
with the arbitrage community. Merger Masters is now
available on Amazon.com.
“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
SPANISH
Coming soon
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, 2018
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)
140 Greenwich Avenue, Greenwich, CT
One Corporate Center, Rye, NY
(Address of principal executive offices)
47-3965991
(I.R.S. Employer Identification No.)
06830
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 every Interactive Data File required to be submitted 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, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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 29, 2018 (the last business day of the
registrant’s most recently completed second fiscal quarter) was $146,471,327.
As of March 1, 2019, 3,562,238 shares of class A common stock and 19,022,918 shares of class B common stock were outstanding. GGCP, Inc., a
private company controlled by the Company’s Executive Chairman, held 2,098 shares of class A common stock and indirectly held 18,423,741
shares of class B common stock. Executive officers and directors of GGCP, Inc. held 102,064 and 434,534 shares of class A and class B common
stock, respectively.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement relating to the 2019 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, 2018
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
Market For The Registrant's Common Equity, Related Stockholder Matters And
Issuer Purchases Of Equity Securities
Selected Financial Data
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Quantitative And Qualitative Disclosures About Market Risk
Financial Statements And Supplementary Data
Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Controls And Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters
Certain Relationships And Related Transactions, and Director Independence
Principal Accountant Fees And Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Power of Attorney
Exhibit 21.1 - Subsidiaries of Associated Capital Group, Inc.
4
7
8
8
9
12
13
13
13
13
13
13
14
14
23
23
58
58
58
58
59
59
59
59
59
61
62
63
Certifications Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
3
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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, as amended (the “Exchange Act”). 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 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 offices are located at 140 Greenwich Avenue, Greenwich, CT 06830 and One Corporate Center, Rye, New
York 10580. Our website address is www.associated-capital-group.com. Information on our website is not
incorporated by reference herein and is not part of this report. We provide a link on our website 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 Exchange Act. All such filings on our website are available free of charge. In addition, these reports and
the other documents we file with the SEC are available at www.sec.gov.
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 investment of cash and
other assets awaiting deployment in our operating business.
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of
each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common
stock (the “Spin-off”).
4
We conduct our investment management operations 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 activities. Management fees are largely based on a
percentage of assets under management (“AUM”). Incentive fees are based on a 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 institutional research services through G.research, LLC ("G.research"), an indirect wholly-owned
subsidiary of the Company. G.research is a broker-dealer registered under the Exchange Act and also acts as an
underwriter primarily for affiliates of the Company. G.research is regulated by the Financial Industry Regulatory
Authority (“FINRA”).
In connection with the Spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the
original principal amount of $250 million used to partially capitalize the Company. During the year ended December
31, 2018, AC received principal repayments totaling $50 million on the GAMCO Note which fully satisfied the
outstanding principal balance. The GAMCO Note bore interest at 4% per annum and had an original maturity date of
November 30, 2020.
In addition, AC Group received 4,393,055 shares of GAMCO Class A common stock for $150 million in connection
with the Spin-off. Following two share exchange offers during 2018, the Company continues to hold 3,016,501 of
these shares as of December 31, 2018.
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 activities, and income/(loss) from investment portfolio
activities. The advisory fees include management and incentive fees. Management fees are largely based on a
percentage of AUM. Incentive fees are based on a percentage of profits derived from the investment performance of
certain clients’ accounts. As of December 31, 2018, we managed approximately $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 that is expected 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 positive returns regardless of the direction of the overall equity
markets. We have compounded net annual returns of 7.41% since we launched our first partnership dedicated to
investing in merger arbitrage situations in February 1985. As a result, $10 million invested in this fund at its
inception would today be worth more than $113 million without considering taxes. In addition, the value of such an
investment would have exhibited significantly less volatility than that of broad equity indices.
The arbitrage investment process generally begins with the announcement of an acquisition where an acquirer makes
an offer for all of a 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.
Our role as arbitrageurs is to quantify and assess the risks to the transaction, 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.
5
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.
We generally manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities. 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 funds have been added to
balance investors’ geographic, strategy and sector needs. Today, we manage funds in multiple categories, including
event merger arbitrage, event-driven value and other strategies.
We serve a wide variety of investors including private wealth management accounts, corporations, corporate
pension and profit-sharing plans, foundations and endowments, as well as serving as sub-advisor to certain third-
party investment funds.
Assets Under Management
The following table sets forth AC’s total AUM, including investment funds and separately managed
accounts, for the dates shown (in millions):
December 31,
2018
2017
Event Merger Arbitrage
Event-Driven Value (a)
Other (b)
Total (c)
$
$
1,342
118
60
1,520
1,384
91
66
1,541
$
$
(a) Excluding event merger arbitrage.
(b) Includes investment vehicles focused on private equity, merchant banking, non-investment-grade credit and
capital structure arbitrage.
(c) Includes $214 and $235 of proprietary capital, respectively.
Institutional Research Services
Through G.research, 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 the data in order to make informed investment
recommendations. 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.
Analysts are generally assigned to industry sectors, overseen by a senior analyst, whose role is to ensure a consistent
process and enhance idea cross-fertilization and knowledge-sharing. Our research focus includes Basic Materials –
Specialty Chemicals; Business Services; Consumer Staples – Beverage, Supermarkets & Specialty Retail; Energy
Services; Financials – Community Banks; Financials – Investment Services; Healthcare – Animal Health, Biotech &
Pharma; Biotech; Industrials – Housing; Industrials – Diversified Industrials, Transports & Metals; Industrials &
Internet; Media – Entertainment; Media; Technology; and Global Telecommunications.
G.research generates revenues via direct fees and commissions on securities transactions executed on an agency
basis on behalf of clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as
6
affiliated mutual funds and managed accounts. Institutional research services revenues totaled $8.3 million and
$12.2 million for the years ended December 31, 2018 and 2017, respectively.
A significant portion of our institutional research services are provided to GAMCO and its affiliates. Pursuant to
research services agreements, GAMCO Asset Management Inc. paid $1.0 million and $2.2 million and Gabelli
Funds, LLC paid $1.0 million and $2.3 million to the Company for the years ended December 31, 2018 and 2017,
respectively. Gabelli Funds, LLC and GAMCO Asset Management Inc. are wholly-owned subsidiaries of GAMCO.
G.research earned $3.8 million and $4.5 million, or approximately 62% and 60%, 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, 2018 and 2017, respectively. We can provide no assurance that
GAMCO and its affiliates will continue to use our institutional research to the same extent in the future. G.research
continues to pursue expansion of third party and affiliated activities.
In April 2018, the Board of Directors announced that it authorized the Company to explore strategic options for the
institutional research services operations. Among the options being considered is the spin-off of the broker-dealer to
the shareholders as well as a management-led buyout. The Company can provide no assurances that a transaction
will result.
Use of Resources
We have a substantial portfolio of cash and investments. 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 and alliances, 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. In addition,
we expect to make private equity acquisitions including through the use of special purpose acquisition vehicles
(“SPACs”).
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 approach remains the principal management
philosophy guiding our investment operations. This method is based on investing principles articulated by
Graham & Dodd, and further refined by our Executive Chairman, Mario J. Gabelli.
Growing our Investment Partnerships Advisory Business
We intend to grow our Investment Partnerships advisory operations 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 and Alliances - Direct Investments
We intend to leverage our research and investment capabilities by pursuing acquisitions and alliances that
will broaden our product offerings and add new sources of distribution. In addition, we may make direct
investments in operating businesses using a variety of techniques and structures. For example, in April
2018, the Company completed a €110 million initial public offering of its first special purpose acquisition
7
corporation, the Gabelli Value for Italy S.p.a., an Italian company listed on the London Stock Exchange’s
Borsa Italiana AIM segment under the symbol “VALU”. VALU was created to acquire a small- to
medium-sized Italian franchise business with the potential for international expansion, particularly in the
United States.
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.
Commitment to Community
AC seeks to be a good corporate citizen in our community through the way we conduct our business activities as well
as by other measures such as serving our community, sponsoring local organizations and developing our teammates.
Over its first two years as a public company, AC supported nearly 100 qualified charities that address a broad range
of local, national and international concerns. The recipients were identified by our shareholders through AC’s
Shareholder-Designated Contribution Program. The 2018 program, approved by our Board in November 2018,
allows each shareholder of record at year-end to designate a qualified charity to receive a $0.25 per share donation
from AC. We expect that the Company’s total contributions for the 2018 program will be approximately $5 million
bringing cumulative donations to approximately $15 million.
Competition
The alternative asset management industry is intensely competitive. We face competition in all aspects of our
business from other managers in the United States and around the globe. 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 than us. Many are larger in terms of
AUM and revenues and, accordingly, have larger investment and sales organizations and related budgets.
Historically, we have competed primarily on the basis of the long-term investment performance of our investment
products. 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,
and focus on one-year and three-year performance records. Currently, we believe that our investment performance
record would be attractive to potential new institutional and private wealth management clients. While we have
significantly increased our AUM from institutional investors since our entry into the institutional asset management
business, 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
non-exclusive, royalty-free 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
8
Mark and Name License Agreement has a perpetual term, subject to termination only in the event we are not in
compliance with its quality control provisions. 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 financial markets and the
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.
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, and anti-money laundering regulations as well as 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, 2018. 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. These laws and regulations govern
such items as trading on inside information, market manipulation, 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.
9
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 Internal Revenue Code
of 1986, as amended, 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.
Anti-Tax Evasion Legislation
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 information regarding financial accounts. 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. 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.
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, its affiliates, and those made on behalf of their respective advisory clients and Investment
Partnerships often represent a significant equity ownership position in an issuer’s equity. This may be due to the fact
that AC is deemed to be a member of a “group” that includes GAMCO and, therefore, may be deemed to beneficially
own the securities owned by other members of the group under applicable securities regulations. As of December 31,
2018, by virtue of being a member of the group, AC was deemed to hold five percent or more beneficial ownership
with respect to 102 equity securities. 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;” various federal and state regulatory limitations, including (i) state gaming
laws and regulations, (ii) federal communications laws and regulations; (iii) federal and state public utility laws and
regulations, as well as federal proxy rules governing stockholder communications; and (iv) 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.
10
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; 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.
Existing European Regulation Overview
Alternative Investment Fund Managers Directive
Our European activities are impacted by the European Union’s (“EU”) Alternative Investment Fund Managers
Directive (“AIFMD”). AIFMD regulates managers of, and service providers to, a broad range of alternative
investment funds (“AIFs”) domiciled within and, potentially, outside the EU. AIFMD also regulates the marketing of
all AIFs inside the European Economic Area. AIFMD’s requirements restrict AIF marketing and impose additional
compliance and disclosure obligations on AC regarding items such as remuneration, capital requirements, leverage,
valuation, stakes in EU companies, depositaries, domicile of custodians and liquidity management. These 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, seeks to align the depositary regime,
remuneration rules and sanctioning powers of regulators under the UCITS Directive with the requirements of
AIFMD.
Similarly, the European Securities and Markets Authority recently revised its guidelines for exchange-traded and
other UCITS funds. These 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
The EU’s revised Markets in Financial Instruments Directive (“MiFID II”), which was fully implemented in 2018,
created specific new rules regarding the use of “soft dollars” to pay for research. A MiFID licensed investment firm
that provides 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 for each client to pay
for the research. While currently neither GCIA nor G.research is directly subject to MiFID II: (a) GCIA may be
invoiced separately by any EU brokers from whom it purchases research in the future; (b) clients may begin to
require that GCIA “unbundle” research payments from commission trading; and (c) EU-based clients of G.research
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
UK”), 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 provide requirements dealing with a firm’s capital resources, senior management
arrangements, conduct of business, interaction with clients and systems and controls. The FCA supervises GSIL UK
11
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 UK must comply with MiFID II which 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 set out in
the Capital Requirements Directive. This directive includes requirements not only on capital, but also 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 EU regulations on OTC derivatives which require (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.
Regulatory Matters Generally
The investment management industry is likely to continue to face 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 SEC has substantially increased its use of focused inquiries which request information from
investment advisors regarding particular practices or provisions of the securities laws. We participate in some of
these inquiries in the normal course of our business. Changes in laws, regulations and administrative practices by
regulatory authorities, and the associated compliance costs, have increased our cost structure and could in the future
have a material adverse impact. Although we have installed procedures and utilize the services of experienced
administrators, accountants and lawyers to assist us in adhering to regulatory guidelines and satisfying these
requirements, and maintain insurance to protect ourselves in the case of client losses, there can be no assurance that
the precautions and procedures that we have instituted and installed, or the insurance that we maintain to protect
ourselves in case of client losses, will protect us from all potential liabilities.
Employees
On March 1, 2019, we had a full-time staff of 62 teammates, of whom 35 served in the portfolio management,
research and trading areas, 14 served in the marketing and shareholder servicing areas and 13 served in the finance,
legal, operations and administrative areas. We also avail ourselves of services provided by GAMCO in accordance
with a transitional services agreement that was entered into with GAMCO as part of the Spin-off.
Status as a Smaller Reporting Company and an Emerging Growth Company
We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of
Regulation S-K. As a result, we are eligible to take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not “smaller reporting companies.” We will, in
general, remain a smaller reporting company unless the market value of AC common stock that is held by non-
affiliates exceeds $250 million as of the last business day of our most recently completed second fiscal quarter.
In addition, we are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS
Act”). As a result, 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 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
12
exemptions, if (1) we have more than $1 billion in annual revenue in a fiscal year; (2) we issue more than $1 billion
of non-convertible debt during the preceding three-year period; or (3) 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.
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 a smaller reporting company or 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.
ITEM 1A: RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
AC owns no properties. AC currently pays rent to GAMCO pursuant to a sublease based on the percentage of square
footage occupied by its employees (including pro rata allocation of common space) at GAMCO’s offices at One
Corporate Center, in Rye, NY.
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 New York Stock Exchange under the symbol AC.
As of February 1, 2019, there were 132 and 22 holders of record of the Company’s Class A and Class B common
stock, respectively. These figures do not include approximately 2,300 beneficial holders of Class A shares held in
“street” name at various brokerage firms.
In December 2015, the Board of Directors established a stock repurchase program authorizing the Company to
repurchase up to 500,000 shares. 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 and May 8, 2018, the Board
13
of Directors authorized the repurchase of an additional 1 million and 500,000 shares, respectively. 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, 2018:
October
November
December
Total
Total
Number of
Shares
Repurchased
-
373,581
12,482
386,063
Average
Price Paid Per
Share, net of
Commissions
$
-
38.99
35.08
38.86
$
Total Number of
Shares Repurchased as
Part of Publicly
Announced Plans
or Programs
-
-
12,482
12,482
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plans or Programs
1,216,695
1,216,695
1,204,213
In addition to our on-going stock repurchase program, in March and October 2018, the Company completed
exchange offers with respect to its Class A shares which resulted in the repurchase of 493,954 and 373,581 Class A
shares in exchange for 666,805 and 709,749 shares of GBL valued at approximately $17.7 million and $14.6
million, respectively.
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. The Company withdrew the registration statement covering the
issuance of those shares as of December 29, 2017.
During 2018, the Company awarded 172,800 Phantom Restricted Stock Awards (“Phantom RSAs”) under the Equity
Compensation Plan. As of December 31, 2018, 170,300 awarded but unvested Phantom RSAs are outstanding.
The number of shares remaining available for future issuance under equity compensation plans is 1,289,100.
ITEM 6: SELECTED FINANCIAL DATA
Smaller reporting companies are not required to provide the information required by this item.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS (“MD&A”) 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.
Factors Affecting Financial Condition and Results of Operations
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 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 advisory activities. The institutional research operations
14
offer domain knowledge-driven research and a sales and execution platform for institutional investors, earning fees
from its institutional clients via trading commissions or direct payment.
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 or account. We recognize such
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 from institutional clients. Commission revenues vary directly with
the perceived value of the research provided, as well as account execution activity and new account generation.
Compensation includes variable and fixed compensation and related expenses paid to officers, portfolio managers,
sales, trading, research and all other professional staff. Variable compensation paid to sales personnel and portfolio
management and may represent up to 55% of revenues.
Management fee expense is incentive-based and entirely variable compensation in the amount of 10% of adjusted
aggregate pre-tax profits which is paid to the Executive Chairman or his designees for his services as Executive
Chairman pursuant to an employment agreement.
Other operating expenses include general and administrative operating costs and clearing charges and fees incurred
by our brokerage operations.
Other income and expense includes net gains and losses from investments (which include both realized and
unrealized gains and losses from 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 and from consolidated investment funds.
Net income/(loss) attributable to noncontrolling interests represents the share of net income attributable to third-party
limited partners of certain partnerships and offshore funds we consolidate. Please refer to Notes A and E in our
consolidated financial statements included elsewhere in this report.
Consolidated Statements of Financial Condition
We ended 2018 with approximately $891 million in cash and investments, net of securities sold, not yet purchased of
$10 million. This includes $410 million of cash and cash equivalents; $11 million of short-term U.S. Treasury
obligations; $209 million of securities, net of securities sold, not yet purchased, including shares of GAMCO and
VALU with market values of $51 million and $9 million, respectively; and $261 million invested in affiliated and
third-party funds and partnerships, including investments in affiliated closed end funds which have a value of $85
million and more limited liquidity. Our financial resources provide 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 repurchases and dividends.
Total shareholders’ equity was $866 million or $38.36 per share as of December 31, 2018, compared to $918 million
or $38.84 per share as of the prior year-end. These shareholders’ equity per share calculations are a non-GAAP
15
measurement calculated by dividing the total equity by the number of common shares outstanding. The decrease in
equity from the end of 2017 was largely attributable to the net loss for the year and repurchases of Company stock
from shareholders offset partially by principal payments of the GAMCO Note totaling $50 million.
Our primary goal is to use our liquid resources to opportunistically and strategically grow book value and net
income. While this goal is a priority, if opportunities are not present with what we consider a margin of safety, we
will consider alternatives to return capital to our shareholders, including stock repurchases and dividends.
Assets Under Management Highlights
We reported assets under management as follows (dollars in millions):
Year Ended December 31,
2018
2017
% Change
Event Merger Arbitrage
Event-Driven Value
Other
Total (a)
$
$
1,342
118
60
1,520
1,384
91
66
1,541
$
$
(a) Includes $214 million and $235 million of proprietary capital, respectively.
Changes in our AUM during 2018 were as follows (dollars in millions):
Beginning
Inflows
Outflows
Event Merger Arbitrage
Event-Driven Value
Other
Total AUM
$
$
$
1,384
91
66
1,541
355
42
-
397
(401)
(5)
(3)
(409)
$
$
$
(3.0)
29.7
(9.1)
(1.4)
Investment
Return
4
$
(10)
(3)
(9)
$
Ending
$
$
1,342
118
60
1,520
The majority of our AUM has calendar year-end measurement periods, and our incentive fees are primarily
recognized in the fourth quarter.
Operating Results for the Year Ended December 31, 2018 as Compared to the Year Ended December 31,
2017
Revenues
Total revenues were $22.8 million for the year ended December 31, 2018, $4.1 million lower than total revenues of
$26.9 million for the year ended December 31, 2017. Total revenues by type were as follows (dollars in
thousands):
Investment advisory and incentive fees
Institutional research services
Other revenues
Total revenues
Year Ended December 31,
2018
2017
$
$
14,409
8,284
86
22,779
14,551
12,199
165
26,915
$
(142)
(3,915)
(79)
(4,136)
$
$
$
Change
$
%
(1.0)
(32.1)
(47.9)
(15.4)
Investment advisory and incentive fees: We earn advisory fees based on our AUM. Investment advisory fees are
directly influenced by the amount of average AUM and the fee rates applicable to various accounts.
16
Advisory fees were $10.2 million for 2018 compared to $9.9 million for 2017, an increase of $0.3 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’ accounts. We earn a percentage, usually
20%, of such gains. Incentive fees were $4.2 million in 2018, down $0.5 million from $4.7 million in 2017, due to
lower investment performance.
Institutional research services: Institutional research services revenues in 2018 were $8.3 million, a $3.9 million
decline from $12.2 million in 2017 primarily resulting from decreased revenue from research services agreements
with affiliates and lower brokerage commissions derived from securities transactions executed on an agency basis.
Other revenues: Other revenues were $0.1 million for 2018 compared to $0.2 million for 2017, a decrease of $0.1
million.
Expenses
Compensation: Compensation, which includes variable compensation, salaries, bonuses and benefits, was $25.9
million for the year ended December 31, 2018, a decrease of $4.7 million from $30.6 million for the year ended
December 31, 2017. Fixed compensation expense, which includes salaries, bonuses and benefits, decreased to $16.8
million in 2018 from $19.8 million in 2017. The remainder of compensation expense represents variable
compensation that fluctuates with management and incentive fee revenues as well as the investment results of certain
proprietary accounts. Variable payouts are also impacted by the mix of products upon which performance fees are
earned and the extent to which they may exceed their allocated costs. For 2018, these variable payouts were $9.1
million, down $1.7 million from $10.8 million in 2017.
Stock-based compensation was $0.7 million in 2018, a decrease of $5.2 million from $5.9 million recorded in 2017.
The decrease was primarily due to the accelerated vesting of AC and GBL restricted stock that occurred during 2017,
partially offset by the expense attributable to Phantom RSAs awarded in 2018.
Management fees: Management fee expense is incentive-based and entirely variable compensation equal to 10% of
the aggregate adjusted pre-tax profits, which is paid to the Executive Chairman or his designees pursuant to his
employment agreement with AC. In 2018, AC recorded no management fee expense compared to an expense of $0.7
million in 2017.
Other operating expenses: Our other operating expenses were $9.7 million in 2018 compared to $10.1 million in
2017, a decrease of $0.4 million due primarily to a reduction in brokerage clearing charges.
Investment and other non-operating income/(expense), net
Net gain/(loss) from investments: Net gain/(loss) from investments is directly related to the performance of our
proprietary capital. For the year ended December 31, 2018, net losses from investments were $65.2 million compared
to a net gain of $20.6 million in the prior year primarily due to mark-to-market changes in the value of the GAMCO
stock and other investments. The 2017 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.
Interest and dividend income: Interest and dividend income increased $2.9 million to $13.4 million in 2018 from
$10.5 million in 2017 primarily due to the increase in money market rates over the year offset in part by the reduction
in interest received on the lower average balance of the GAMCO Note.
Interest expense: Interest expense increased to $0.3 million in 2018 from $0.2 million in 2017.
17
Income Taxes
In 2018, we recorded an income tax benefit of $11.5 million resulting in an effective tax rate (“ETR”) of 16.7%. In
2017, we recorded an income tax benefit of $2.4 million resulting in a negative ETR of -38.6% (i.e., a tax benefit on
positive income). The 2018 ETR is below the standard corporate tax rate of 21% primarily due to the inability of the
Company to deduct certain capital losses incurred during the year offset in part by tax benefits from the dividends
received deduction. In addition, the Company recorded a valuation allowance of $0.7 million against deferred tax
assets attributable to charitable contribution carryovers.
Noncontrolling Interests
Net income attributable to noncontrolling interests was $0.7 million in 2018 compared to a loss of $0.2 million in
2017.
Net Income/(Loss)
Net loss for the year ended December 31, 2018 was $58.1 million compared to net income of $8.8 million for the
prior year. The change was driven primarily by mark-to-market losses on our investment portfolio.
Liquidity and Capital Resources
Our principal assets consist of cash and cash equivalents; short-term treasury securities; marketable securities,
primarily equities, including 3.0 million shares of GAMCO stock; and interests in affiliated and third-party funds and
partnerships. Although Investment Partnerships may be subject to restrictions as to the timing of distributions, the
underlying investments of such Investment Partnerships are generally liquid, and the valuations of these products
reflect that underlying liquidity.
Summary cash flow data is as follows (in thousands):
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash from consolidation
Cash and cash equivalents at end of year
Year Ended December 31,
2018
2017
$
$
76,980
4,736
34,689
116,405
293,112
47
409,564
(67,620)
(18,734)
65,373
(20,981)
314,093
-
293,112
$
$
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 its investment performance. We anticipate that our available liquid assets should be sufficient to meet
our cash requirements as we build out our operating business. At December 31, 2018, we had cash and cash
equivalents of $409.6 million and $481.3 million of investments net of securities sold, not yet purchased of $9.6
million. Of these amounts, $13.5 million and $102.7 million, respectively, were held by consolidated investment
funds and may not be readily available for the Company to access.
Net cash provided by operations was $77.0 million in 2018. The net loss adjusted for noncash items, primarily
unrealized losses on securities, deferred income taxes and exchange offers, was $9.0 million. This was more than
offset, however, by an increase in net receivables/payables of $8.7 million and reductions in investments in securities
and net withdrawals from investment partnerships of $77.3 million.
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
18
(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 generated from investing activities was $4.7 million in 2018. A short-term note from GBL (“GBL Short-
term Note”) with a principal amount of $15 million was repaid during the year. Offsetting this principal repayment
was net purchases of securities in the amount of $10.3 million. Net cash used in investing activities in the prior year
was $18.7 million representing purchases of the GBL Short-term Note 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 provided by financing activities was $34.7 million for 2018, largely resulting from $50.0 million principal
payments on the GAMCO Note partially offset by $7.0 million of treasury stock purchases, dividend payments of
$4.7 million, and net redemptions of redeemable noncontrolling interests of $3.6 million. Net cash provided by
financing activities was $65.4 million for 2017, largely resulting from $50.0 million principal payments on the
GAMCO Note and contributions from redeemable noncontrolling interests of $41.6 million partially offset by $21.2
million of treasury stock purchases and dividend payments of $4.8 million.
G.research is registered with the SEC as a broker-dealer and is regulated by FINRA. As such, G.research is subject to
minimum net capital requirements promulgated by the SEC. G.research computes its net capital under the alternative
method permitted by the SEC, which requires minimum net capital of $250,000. As of December 31, 2018 and 2017,
G.research had net capital, as defined, of approximately $9.1 million and $41.8 million, respectively, exceeding the
regulatory requirement by approximately $8.8 million and $41.6 million, respectively. Net capital requirements for
G.research may increase in accordance with SEC 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.
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 that the following critical accounting policies require management to exercise significant judgment:
Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees and institutional
research services.
Investment advisory and incentive fees are directly influenced by the level and mix of AUM as fees are derived from
a contractually-determined percentage of the balance of each account as well as a percentage of the investment
performance of certain accounts. Management fees from investment partnerships and offshore funds are computed
either monthly or quarterly, and amounts receivable are included in investment advisory fees receivable on the
consolidated statements of financial condition. These revenues vary depending upon the level of capital flows,
financial market conditions, investment performance and the fee rates applicable to each account.
19
Incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts
receivable are included in investment advisory fees receivable on the consolidated statements of financial condition.
G.research, LLC provides institutional research services and earns brokerage commissions and sales manager fees
from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds, private
wealth management clients and retail customers of affiliated companies. Commission revenue and related clearing
charges are recorded on a trade-date basis and are included in institutional research services and other operating
expenses, respectively, on the consolidated statements of income.
G.research 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.
Investments in Securities
Investments in securities are accounted for at fair market value as of each balance sheet date.
As a result of recent changes to accounting standards, beginning in 2018, any realized or unrealized gains or losses
on equity securities are reported in current period earnings in net gain/(loss) from investments on the consolidated
statements of income.
Prior to 2018, such investments were classified as either trading securities or available for sale (“AFS”) securities.
Management determined the appropriate classification of debt and equity securities at the time of purchase and
reevaluated such designations as of each balance sheet date. A substantial portion of such investments were held for
resale in anticipation of short-term market movements and, therefore, were classified as trading securities. Any
realized or unrealized gains or losses from trading securities were reported in current period earnings in net
gain/(loss) from investments on the consolidated statements of income. Any unrealized gains or losses, net of taxes,
on AFS securities were 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 were recorded
as realized losses on the consolidated statements of income.
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. Securities transactions and any related gains and losses are recorded on a trade date basis.
The Company determines the cost of a security sold by using specific identification.
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/(loss) 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 considers all economic interests, including
proportionate interests through related parties, to determine if such interests are to be considered a variable interest.
For entities where the Company has determined that it does hold a variable interest, the Company performs an
assessment to determine whether each of such entities qualifies as a variable interest entity (“VIE”).
20
The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or
similar entity is a VIE and whether or not that entity should be consolidated. The Company does not consolidate
those VIEs in which substantive kick-out rights have been granted to the unaffiliated investors to either dissolve the
fund or remove the general partner.
Under the variable interest entity model, the Company consolidates those VIEs 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 (a) the power to direct the activities of the
VIE that most significantly impact the VIE’s economic performance and (b) 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 have a controlling financial interest in the VIE in the aggregate, 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 as required. 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.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities ("VOEs") under the
voting interest model. Under the voting interest model, the Company consolidates those entities it controls through a
majority voting interest or other means.
Equity Method Investments. Substantially all of 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 such 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/(loss) from investments on the consolidated statements of income. Capital contributions
are recorded as an increase in investments when paid, and withdrawals and distributions are recorded as reductions
of the investments as of their effective date. Depending on the terms of the investment, the Company may be
restricted as to the timing and amounts of withdrawals.
See Note E, Investment Partnerships and Variable Interest Entities in the consolidated financial statements for
additional information.
Investments in Partnerships and Affiliates
The Company is general partner or co-general partner of various affiliated entities. We also have investments in
unaffiliated partnerships, offshore funds and other entities (collectively, “unaffiliated entities”). Given that we are not
a general partner or investment manager in any unaffiliated entity, we neither earn any management or incentive fees
nor have a controlling financial interest in any such entity. We do not consolidate any unaffiliated entity.
Investments in partnerships on the consolidated statements of financial condition include investments in both
affiliated and unaffiliated entities.
The Company records noncontrolling interests in consolidated Investment Partnerships for which the Company’s
ownership is less than 100%.
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
21
when the reported amount of the asset or liability is expected to be 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
the income tax provision on the consolidated statements of income.
Stock-Based Compensation
We use a fair value-based method of accounting for restricted stock awards (“RSAs”) provided to our employees.
The estimated fair value of RSAs is determined by using the closing price of the relevant stock on the day prior to the
grant date. The value of the RSAs, net of estimated forfeitures, is recognized as expense over the respective vesting
period for these awards. The forfeiture rate is determined by reviewing historical forfeiture rates for previous stock-
based compensation grants and is reviewed and updated quarterly, if necessary. During the vesting period, dividends
to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed
by the Company on the vesting dates. Dividends declared on these RSAs, less estimated forfeitures, are charged to
retained earnings on the declaration date.
In connection with the Spin-off of the Company from GAMCO, any GAMCO employee (including GAMCO
employees who became AC employees) who had GAMCO RSAs were granted an equal number of AC RSAs so that
the total value of the RSAs post-spin was equivalent to the total value pre-spin. In accordance with GAAP, we have
allocated the related stock compensation costs of the AC RSAs and the GAMCO RSAs between GAMCO and AC
based upon each employee’s individual allocation of their responsibilities between the two companies.
During 2018, the Company’s Board of Directors approved the grant of Phantom Restricted Stock awards (“Phantom
RSAs”). The Phantom RSAs will be settled by a cash payment, net of applicable withholding tax, on the vesting
dates. In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A
common stock during the vesting period will be paid to participants on vesting.
The Phantom RSAs are accounted for as a liability because cash settlement is required and compensation will be
recognized over the vesting period. In determining the compensation expense to be recognized each period, the
Company will remeasure the fair value of the liability at each reporting date taking into account the remaining
vesting period attributable to each award and the current market value of the Company’s Class A stock. In making
these determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior to
vesting (e.g., due to an employee termination). The Company has elected to consider forfeitures as they occur.
The expense attributable to the Phantom RSAs is allocated solely to AC.
Recent Accounting Developments
See Footnote B, Significant Accounting Policies – Recent Accounting Developments, in the consolidated financial
statements.
Seasonality and Inflation
We do not believe that 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. The rate of inflation may
affect certain other expenses, however, 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.
22
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
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, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018 and 2017
Consolidated Statements of Financial Condition at December 31, 2018 and 2017
Consolidated Statements of Equity for the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
Page
24
25
26
27
28
30
32
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.
23
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 Stockholders and the Board of Directors of Associated Capital Group, Inc.
Rye, New York
Opinion on the Consolidated 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, 2018 and 2017, the related consolidated statements of income,
comprehensive income, equity, and cash flows, for each of the two years in the period ended December 31, 2018,
and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the
period ended December 31, 2018, 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 Public Company Accounting Oversight Board (United States) (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. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 8, 2019
We have served as the Company’s auditor since 2015.
24
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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
Management fee
Other operating expenses
Total expenses
Operating loss
Other income/(expense)
Net gain/(loss) from investments
Interest and dividend income
Interest expense
Shareholder-designated contribution
Total other income/(expense), net
Income/(loss) before income taxes
Income tax 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,
2018
2017
$
14,409
8,284
86
22,779
$
14,551
12,199
165
26,915
26,607
-
9,652
36,259
(13,480)
36,523
713
10,065
47,301
(20,386)
(65,203)
13,384
(262)
(3,300)
(55,381)
(68,861)
(11,478)
(57,383)
716
(58,099)
$
20,598
10,501
(227)
(4,222)
26,650
6,264
(2,420)
8,684
(153)
8,837
$
Net income/(loss) per share attributable to Associated Capital Group, Inc.'s
shareholders:
Basic
Diluted
$
$
(2.52)
(2.52)
$
$
0.37
0.37
Weighted average shares outstanding:
Basic
Diluted
Actual shares outstanding
See accompanying notes.
23,070
23,070
22,585
23,792
23,925
23,639
25
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income/(loss)
Other comprehensive income/(loss), net of tax:
Net unrealized gains on securities available for sale (a)
Comprehensive income/(loss)
Less: Comprehensive income/(loss) attributable to noncontrolling interests
Year Ended December 31,
2018
2017
$
(57,383)
$
8,684
-
(57,383)
716
5,395
14,079
(153)
Comprehensive income/(loss) attributable to Associated Capital Group, Inc.
$
(58,099)
$
14,232
(a) Net of income tax expense of $2,876 for 2017.
See accompanying notes.
26
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
December 31,
2018
December 31,
2017
$
$
409,564
229,960
142,135
118,729
24,629
4,394
1,309
9,422
3,519
10,772
954,433
293,112
352,637
145,914
145,591
34,881
5,739
15,866
-
3,422
9,753
1,006,915
$
$
$
5,511
3,577
11,388
9,574
515
7,820
38,385
$
13,281
5,484
12,785
5,731
442
4,815
42,538
49,800
46,230
6
6
19
1,008,319
(39,889)
-
-
(102,207)
866,248
866,248
954,433
$
19
1,010,505
13,800
(50,000)
6,712
(62,895)
918,147
918,147
1,006,915
$
ASSETS
Cash and cash equivalents
Investments in securities (Including GBL stock with a value of $50.9 million and $130.3 million, respectively)
Investments in affiliated registered investment companies
Investments in partnerships
Receivable from brokers
Investment advisory fees receivable
Receivable from affiliates
Deferred tax assets, net
Goodwill
Other assets
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Payable to brokers
Income taxes payable and deferred tax liabilities, net
Compensation payable
Securities sold, not yet purchased
Payable to affiliates
Accrued expenses and other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies (Note L)
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; 6,537,768 and 6,404,287 shares
issued, respectively; 3,530,752 and 4,451,379 shares outstanding, respectively
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued;
19,054,404 and 19,187,885 shares outstanding, respectively
Additional paid-in capital
Retained earnings/(Accumulated Deficit)
GAMCO Note
Accumulated other comprehensive income
Treasury stock, at cost (3,007,016 and 1,952,908 shares, respectively)
Total Associated Capital Group, Inc. equity
Total equity
Total liabilities and equity
See accompanying notes.
27
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S
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars 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
Losses on exchange offers
Unrealized losses on securities
Realized (gains)/losses on sales of securities
Gains on contribution of available for sale securities to subsidiary
(Increase)/decrease in assets:
Investments in securities
Investments in partnerships:
Contributions to partnerships
Distributions from partnerships
Receivable from affiliates
Receivable from brokers
Investment advisory fees receivable
Goodwill and intangible assets
Other assets
Increase/(decrease) in liabilities:
Payable to affiliates
Payable to brokers
Income taxes payable and deferred tax liabilities, net
Compensation payable
Accrued expenses and other liabilities
Total adjustments
Net cash provided by/(used in) operating activities
Investing activities
Purchases of securities
Proceeds from sales of securities
Return of capital on securities
Purchase of GBL 1.6% Note (due February 28, 2018)
Net cash provided by/(used in) investing activities
Year Ended December 31,
2018
2017
$
(57,383)
$
8,684
(2,078)
21
72
(12,825)
-
-
8,706
54,397
37
-
53,924
(8,577)
31,948
(443)
13,430
1,345
(97)
(757)
73
(7,770)
1,496
(1,397)
2,858
134,363
76,980
(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)
(12,350)
1,958
128
15,000
4,736
$
(4,900)
271
895
(15,000)
(18,734)
$
30
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) (Dollars in thousands)
Year Ended December 31,
2018
2017
Financing activities
Contributions from redeemable noncontrolling interests
Redemptions of redeemable noncontrolling interests
Dividends paid
Purchase of treasury stock
Proceeds from payment of GAMCO Note
Net cash provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash, cash equivalents and restricted cash at beginning of period
Increase in cash from consolidation
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid/(received) for taxes
Reconciliation to cash, cash equivalents and restricted cash
Cash and cash equivalents
Restricted cash included in receivable from brokers
Cash, cash equivalents and restricted cash
$
-
(3,634)
(4,666)
(7,011)
50,000
34,689
116,405
293,312
47
409,764
$
$
41,598
(236)
(4,768)
(21,221)
50,000
65,373
(20,981)
314,293
-
293,312
$
$
$
261
(140)
$
$
227
2,077
409,564
200
409,764
$
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200
293,312
$
Non-cash activity:
- 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, a consolidated investment fund completed an 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 D for detail.
- On January 1, 2018, AC was deemed to have control over certain investment funds which resulted in their
consolidation and an increase of approximately $47 of cash and cash equivalents, $6,441 of net assets and an
increase of approximately $6,488 of redeemable noncontrolling interests.
- During 2018, AC completed two exchange offers with respect to its Class A shares. The Company exchanged
1,376,554 GBL Class A shares valued at $32,301 for 867,535 Class A shares.
See accompanying notes.
31
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 business.
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of
each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common
stock (the “Spin-off”).
We conduct our investment management activities through Gabelli & Company Investment Advisers, Inc. (“GCIA”
f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli &
Partners”), collectively serve as general partners or investment managers to investment funds including limited
partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily
manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The
business earns management and incentive fees from its advisory activities. Management fees are largely based on a
percentage of assets under management. Incentive fees are based on the percentage of the investment returns of
certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission
under the Investment Advisers Act of 1940, as amended.
We provide our institutional research and underwriting services through G.research, LLC (“G.research”), an indirect
wholly-owned subsidiary of the Company. G.research is a broker-dealer registered under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) and is regulated by the Financial Industry Regulatory Authority
(“FINRA”). G.research's revenues are derived primarily from institutional research services.
In connection with the Spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the
original principal amount of $250 million used to partially capitalize the Company. During the year ended December
31, 2018, AC received principal repayments totaling $50 million on the GAMCO Note which fully satisfied the
outstanding principal balance. The GAMCO Note bore interest at 4% per annum and had an original maturity date of
November 30, 2020.
In addition, GCIA acquired 4,393,055 shares of GAMCO Class A common stock for $150 million in connection
with the Spin-off.
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.
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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 at fair market value as of each balance sheet date.
As a result of recent changes to accounting standards, beginning in 2018, any realized or unrealized gains or losses
on equity securities are reported in current period earnings in net gain/(loss) from investments on the consolidated
statements of income.
Prior to 2018, such investments were classified as either trading securities or available for sale (“AFS”) securities.
Management determined the appropriate classification of debt and equity securities at the time of purchase and
reevaluated such designations as of each balance sheet date. A substantial portion of such investments were held for
resale in anticipation of short-term market movements and, therefore, were classified as trading securities. Any
realized or unrealized gains or losses from trading securities were reported in current period earnings in net
gain/(loss) from investments on the consolidated statements of income. Any unrealized gains or losses, net of taxes,
on AFS securities were 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 were recorded
as realized losses on the consolidated statements of income.
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. Securities transactions and any related gains and losses are recorded on a trade date basis.
The Company determines the cost of a security sold by using specific identification.
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/(loss) from
investments on the consolidated statements of income.
Fair Value of Financial Instruments
All of the instruments in 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 are unadjusted quoted prices in active markets for identical assets or liabilities at
the reporting date. Level 1 assets include cash equivalents, government obligations, open-end
mutual funds, closed-end funds and equities.
Level 2 inputs are 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
included in this category are over-the-counter derivatives that have valuation inputs that can
generally be corroborated by observable market data.
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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 in this category generally include
equities that trade infrequently and direct private equity investments.
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 in 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.
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 instrument. 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.
In the absence of a closing price, an average of the bid and ask price is used. Bid prices reflect the highest price that
market participants are willing to pay for an asset. Ask prices represent the lowest price that market participants are
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. Treasury securities and valued based on the net asset value of the fund. Other 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 as 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 relevant
guidance, investments in partnerships measured using NAV as a practical expedient or equity method investees are
not classified in the fair value hierarchy.
Receivables from Affiliates and Payables to Affiliates
Receivables from affiliates consist primarily of sub-advisory fees due from Gabelli Funds, LLC. Payables to
affiliates primarily consist of expenses paid by affiliates on behalf of the Company pursuant to a transitional services
agreement with GAMCO entered into in connection with the Spin-off.
Receivables from and Payables to Brokers
Receivables from and payables to brokers consist of amounts related to purchases and sales of securities as well as
cash amounts held in anticipation of investment.
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 applicable guidance, the Company first
evaluates whether it holds a variable interest in an entity. The Company considers all economic interests including
proportionate interests through related parties, to determine if such interests are considered a variable interest. Fees
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paid to the Company that are customary and commensurate with the level of services provided from entities in
which the Company does not hold other economic interests in the entity are not considered as a variable interest.
For any entity where the Company has determined that it holds a variable interest, the Company performs an
assessment to determine whether it qualifies as a variable interest entity (“VIE”). The granting of substantive kick-
out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether
or not that entity should be consolidated. The Company does not consolidate those VIEs in which substantive kick-
out rights have been granted to the unaffiliated investors to either dissolve the fund or remove the general partner.
Under the variable interest entity model, the Company consolidates those entities where it is determined that the
Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it
has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the
activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb
losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. When
the Company alone is not considered to have a controlling financial interest in the VIE but the Company and its
related parties under common control in the aggregate have a controlling financial interest in the VIE, the Company
will be deemed the primary beneficiary if it is the party that is most closely associated with the VIE. When the
Company and its related parties not under common control in the aggregate have a controlling financial interest in
the VIE, the Company would be deemed to be the primary beneficiary if substantially all the activities of the entity
are performed on behalf of the Company.
The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved
with the VIE and reconsiders that conclusion as required. Investments and redemptions (either by the Company,
related parties or third parties) or amendments to the governing documents of the respective entity may affect an
entity’s status as a VIE or the determination of the primary beneficiary.
Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities ("VOEs") under the
voting interest model. Under the voting interest model, the Company consolidates those entities it controls through a
majority voting interest or other means.
Equity Method Investments. Substantially all of the Company’s equity method investees are entities that record their
underlying investments at fair value. Therefore, under the equity method of accounting, the Company’s share of the
investee’s underlying net income predominantly represents fair value adjustments in the investments held by the
equity method investees. The Company’s share of the investee’s underlying net income or loss is based upon the
most currently available information and is recorded as net gain/(loss) from investments on the consolidated
statements of income. Capital contributions are recorded as an increase in investments when paid, and withdrawals
and distributions are recorded as reductions of the investments when received. Depending on the terms of the
investment, the Company may be restricted as to the timing and amounts of withdrawals.
See Note E, Investments in Partnerships and Variable Interest Entities, for more information.
Investments in Partnerships and Affiliates
The Company is general partner or co-general partner of various affiliated entities. We also have investments in
unaffiliated partnerships, offshore funds and other entities (collectively, “unaffiliated entities”). Given that we are not
a general partner or investment manager in any unaffiliated entity, we neither earn any management or incentive fees
nor have a controlling financial interest in such entity. We do not consolidate any unaffiliated entity.
The balance sheet caption investments in partnerships includes investments in both affiliated and unaffiliated entities.
The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less
than 100%. Refer to Noncontrolling Interests below for additional information.
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Derivative Financial Instruments
The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes such
derivatives in either investments in securities or securities sold, not yet purchased on the consolidated statements of
financial condition. From time to time, the Company will enter into hedging transactions to manage its exposure to
foreign currencies or equity prices related to its proprietary investments. Except for a foreign exchange contract
entered into by the Company, these transactions are not designated as hedges for accounting purposes, and changes
in fair values of these derivatives are included in net gain/(loss) from investments on the consolidated statements of
income and included in investments in securities or securities sold, not yet purchased on the consolidated statements
of financial condition. See Note D, Investments in Securities, for additional information.
Major Revenue-Generating Services and Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees and institutional
research services.
Investment advisory and incentive fees are directly influenced by the level and mix of AUM as fees are derived from
a contractually-determined percentage of the balance of each account as well as a percentage of the investment
performance of certain accounts. Management fees from investment partnerships and offshore funds are computed
either monthly or quarterly, and amounts receivable are included in investment advisory fees receivable on the
consolidated statements of financial condition. These revenues vary depending upon the level of capital flows,
financial market conditions, investment performance and the fee rates applicable to each account.
Incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts
receivable are included in investment advisory fees receivable on the consolidated statements of financial condition.
G.research, LLC provides institutional research services and earns brokerage commissions and sales manager fees
from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds, private
wealth management clients and retail customers of affiliated companies. Commission revenue and related clearing
charges are recorded on a trade-date basis and are included in institutional research services and other operating
expenses, respectively, on the consolidated statements of income.
It has also been involved in syndicated underwriting activities that included public equity and debt offerings managed
by major investment banks. Underwriting fees include gains, losses, selling concessions and fees, net of syndicate
expenses, arising from securities offerings in which G.research acts as underwriter or agent and are accrued as
earned.
See Note C, Revenue, for additional information.
Depreciation
Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives of
four to seven years. As of December 31, 2018 and 2017, fixed assets with a net book value of $84,000 and $39,000,
respectively, are included in other assets on the consolidated statements of financial condition.
Allocated Expenses
The Company is charged or incurs certain overhead expenses that are paid by, or paid on our behalf by, other
affiliates and are included in other operating expenses on the consolidated statements of income. These overhead
expenses primarily relate to centralized functions including finance and accounting, legal, compliance, treasury, tax,
internal audit, information technology, human resources and risk management. These overhead expenses are
allocated to the Company by other affiliates or allocated by the Company to other affiliates as the expenses are
incurred, based upon direct usage when identifiable, or by revenue, headcount, space or other allocation
methodologies periodically reviewed by the management of the Company and the affiliates.
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In addition, GCIA and GAMCO serve as paymasters under compensation payment sharing agreements. The
compensation expense and related payroll taxes and benefits of certain dual employees that provide services to both
AC and affiliates that are paid for by GCIA or GAMCO are allocated between the companies based upon the
relative time each employee devotes to each affiliate. These allocated compensation expenses are included in
compensation on the consolidated statements of income.
All of the allocations and estimates in the financial statements are based on assumptions that management of AC
believes are reasonable. However, these allocations may not be indicative of the actual expenses we would have
incurred or may incur in the future.
Management Fee
Management fee expense in the amount of 10% of the aggregate pre-tax profits, before consideration of this fee and
before consideration of the income attributable to consolidated funds and partnerships, is paid to the Executive
Chairman or his designees in accordance with his employment agreement.
Stock-Based Compensation
We use a fair value-based method of accounting for restricted stock awards (“RSAs”) provided to our employees.
The estimated fair value of RSAs is determined by using the closing price of the relevant stock on the day prior to the
grant date. The value of the RSAs, net of estimated forfeitures, is recognized as expense over the respective vesting
period for these awards. The forfeiture rate is determined by reviewing historical forfeiture rates for previous stock-
based compensation grants and is reviewed and updated quarterly, if necessary. During the vesting period, dividends
to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed
by the Company on the vesting dates. Dividends declared on these RSAs, less estimated forfeitures, are charged to
retained earnings on the declaration date.
In connection with the spin-off of the Company from GAMCO, any GAMCO employee (including GAMCO
employees who became AC employees) who had GAMCO RSAs were granted an equal number of AC RSAs so that
the total value of the RSAs post-spin was equivalent to the total value pre-spin. In accordance with GAAP, we have
allocated the related stock compensation costs of the AC RSAs and the GAMCO RSAs between GAMCO and AC
based upon each employee’s individual allocation of their responsibilities between the two companies.
During 2018, the Company’s Board of Directors approved the grant of Phantom Restricted Stock awards (“Phantom
RSAs”). The Phantom RSAs will be settled by a cash payment, net of applicable withholding tax, on the vesting
dates. In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A
common stock during the vesting period will be paid to participants on vesting.
The Phantom RSAs are accounted for as a liability because cash settlement is required and compensation will be
recognized over the vesting period. In determining the compensation expense to be recognized each period, the
Company will remeasure the fair value of the liability at each reporting date taking into account the remaining
vesting period attributable to each award and the current market value of the Company’s Class A stock. In making
these determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior to
vesting (e.g., due to an employee termination). The Company has elected to consider forfeitures as they occur.
The expense attributable to the Phantom RSAs is allocated solely to AC.
Goodwill
Goodwill is initially measured as the excess of the cost of an acquired business over the sum of the fair value
assigned to assets acquired less the liabilities assumed. Goodwill is tested for impairment at least annually on
November 30th and whenever certain triggering events are met. In assessing the recoverability of goodwill as of
November 30, 2018 and 2017, we performed a qualitative assessment of whether it was more likely than not that an
impairment had occurred and concluded that a quantitative analysis was not required. As such, no impairment was
recorded during 2018 or 2017.
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Income Taxes
For purposes of the preparation of the consolidated financial statements, the provision for income taxes is computed
using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the consolidated financial statements. Under
this method, deferred tax assets and liabilities are determined based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income tax expense/benefit in the period that includes the enactment date of the change in tax rate.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than
not be realized. A valuation allowance would be recorded to reduce the carrying value of deferred tax assets to the
amount that is more likely than not to be realized. In making such a determination of whether a valuation allowance
is necessary, the Company considers all available positive and negative evidence, including future reversals of
existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent
operations. In the event the Company were to determine that the Company would be able to realize the Company’s
deferred income tax assets in the future in excess of their net recorded amount, the Company would make an
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) Topic
740. The Company first determines whether it is more likely than not that the tax positions will be sustained based
on the technical merits of the position. For those tax positions that meet the more-likely-than-not recognition
threshold, the Company recognizes the largest amount of tax benefit that is greater than 50% likely to be realized
upon ultimate settlement with the related tax authority. The Company recognizes the accrual of interest on uncertain
tax positions and penalties in income tax provision on the consolidated statements of income. Accrued interest and
penalties on uncertain tax positions are included within accrued expenses and other liabilities on the consolidated
statements of financial condition.
Noncontrolling Interests
Noncontrolling interests in investment partnerships that are redeemable at the option of the holder are classified as
redeemable noncontrolling interests in the mezzanine section of the consolidated statements of financial condition
between liabilities and equity.
For the years ended December 31, 2018 and 2017, net income/(loss) attributable to noncontrolling interests on the
consolidated statements of income represents the share of net income/(loss) attributable to third-party investors in
consolidated funds.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and receivable from brokers. The Company maintains cash and cash equivalents primarily in
the Gabelli U.S. Treasury Money Market Fund, which invests fully in instruments issued by the U.S. government.
Receivables from brokers and financial institutions can exceed the federally insured limit. The concentration of
credit risk with respect to advisory fees and incentive fees/allocation, which are included in investment advisory fees
receivable and receivables from affiliates on the consolidated statements of financial condition, is generally limited
due to the short payment terms extended to clients by the Company. All investments in securities are held at third
party brokers or custodians.
Business Segment
The Company operates in one business segment. The Company’s chief operating decision maker reviews the
Company’s financial performance at an aggregate level.
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Recent Accounting Developments
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with
Customers, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and
most industry-specific guidance of the ASC. The core principle of ASU 2014-09 requires companies to recognize
revenue from the transfer of goods or services to customers in amounts that reflect the consideration the company
expects to receive in exchange for those goods or services. The new standard also requires expanded disclosures
about revenue recognition. The Company has adopted this ASU effective January 1, 2018 with no material impact
on its consolidated financial statements other than expanded disclosure.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of
Financial Assets and Financial Liabilities, which amends the guidance in GAAP on the classification and
measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises
an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2)
the presentation of certain fair value changes for financial liabilities measured at fair value. Under the new guidance,
all equity investments in unconsolidated entities (other than those accounted for using the equity method of
accounting) will generally be measured at fair value through earnings. In addition, available for sale (“AFS”)
classification for equity securities with readily determinable fair values will no longer be available. As a result,
changes in the fair value of such securities will be reported in net income rather than other comprehensive income.
The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The
Company has adopted this ASU effective January 1, 2018 with no material impact on its consolidated financial
statements other than the reclassification of approximately $8.2 million representing the cumulative unrealized gain
on equity AFS securities net of tax from accumulated other comprehensive income to retained earnings.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the guidance in GAAP for the
accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating
leases in the consolidated statement of financial position. The Company adopted this ASU effective January 1, 2019
with no material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments, which adds and clarifies guidance on the classification of certain cash receipts
and payments in the consolidated statements of cash flows. The Company adopted this ASU effective January 1,
2018 with no material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, to simplify the process used to
test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal
to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill
allocated to that reporting unit. For public companies, the ASU is effective for annual and any interim impairment
tests for periods beginning after December 15, 2019. Early adoption was permitted for impairment tests that occur
after January 1, 2017. The Company is currently evaluating this guidance and the impact it will have on its
consolidated financial statements.
On May 10, 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation, which amends the scope
of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of
changes to the terms or conditions of share-based payment awards to which an entity would be required to apply
modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair
value, vesting conditions, and classification of the awards are the same immediately before and after the
modification. The Company has adopted this ASU effective January 1, 2018 with no material impact on its
consolidated financial statements.
On December 22, 2017, the SEC issued SAB 118, Income Tax Accounting Implications of the Tax Cuts and Jobs
Act, to address the application of ASC 740, Income Taxes, in the reporting period that includes December 22, 2017,
the date legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. In
general, the SAB provides that a company should reflect the income tax impacts of the TCJA in the period in which
the accounting under ASC 740 is complete. If a company is unable to complete the required accounting as a result of
incomplete information, preparation or analysis, however, it may record a reasonable estimate as a provisional
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amount. Additional provisions deal with situations in which no reasonable estimate can be determined. Changes to
estimates determined during a measurement period up to one year from the date of enactment will be reflected as an
adjustment to tax expense or benefit in the reporting period the amounts are determined. The SAB also provides
requirements concerning financial statement disclosures about the material financial reporting impacts of the TCJA.
With the exception of the book/tax differences related to the Company’s investments in funds that are partnerships
and/or passive foreign investment companies, the Company completed its analysis and made a reasonable estimate
of the tax impact as part of the prior year’s tax provision. The Company completed its analysis of all remaining
deferred tax items following the filing of the Company’s 2017 consolidated income tax return and reflected an
immaterial amount of the related income tax impact from these items in its fourth quarter 2018 income tax
provision.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, dealing with the accounting for the tax effects of components of other comprehensive
income (“OCI”) as a result of the reduction of the U.S. federal corporate income tax rate under the TCJA. We
adopted this ASU as of January 1, 2018 and reflected an increase to OCI and a decrease to retained earnings of
approximately $1.5 million in the first quarter of 2018.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –
Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adds certain disclosure
requirements and modifies or eliminates requirements under current GAAP. This ASU is effective for fiscal years
beginning after December 15, 2019 and early adoption is permitted. The Company has early adopted the eliminated
and modified disclosure requirements and is currently evaluating this guidance as it relates to the new disclosure
requirements.
C. Revenue
The Company’s revenue is accounted for as contracts with customers, and the timing of revenue recognition is based
on the Company’s analysis of the provisions of each respective contract. Depending upon the specific terms,
revenue may be recognized over time or at a point in time. Modifications to contracts may affect the timing of the
satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to
performance obligations, any of which may impact the timing of the recognition of the related revenue.
The Company’s major revenue sources are as follows:
Investment advisory and incentive fees. The Company and its subsidiaries act as general partner, investment
manager or sub-advisor to investment funds and/or separately managed accounts of institutional investors (e.g.,
corporate pension plans). The fees that are paid to the Company are set forth in the offering documents for the
investment fund or the separately managed account agreement. Investment advisory and incentive fee revenue
consists of:
a. Asset-based advisory fees – The Company receives a management fee, payable monthly in advance based
on value of the net assets of the client. It is generally set at a rate of 1%-1.5% per annum. Asset-based
management fee revenue is recognized only as the services are performed over the period.
b. Performance-based advisory fees – Certain client contracts call for additional fees and or allocations of
income tied to a certain percentage, generally 20%, of the investment performance of the account over a
measurement period, typically the calendar year. In addition, the contracts provide that performance-based
fees or allocations become fixed in the event of an investor redemption prior to the end of the measurement
period. In the event that an account suffers a loss in one period, it must be recovered before incentive fees
are earned by the Company; this is commonly referred to as a “high water mark” provision. While the
Company’s performance obligation is satisfied over time, the Company does not recognize performance-
based fees until the end of the measurement period or the time of the investor redemption when the
uncertainty surrounding the amount of the variable consideration is resolved.
c. Sub-advisory fees – Pursuant to agreements with other investment advisors, the Company receives a
percentage of advisory fees received by such advisors from certain of their investment fund clients. These
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fees may be either asset- or performance-based. In addition, they may be subject to reduction by certain
expenses as set forth in the respective agreements. Sub-advisory fee revenue which is asset-based is
recognized ratably as the services are performed over the relevant contractual performance period. Sub-
advisory fee revenue which is performance-based is recognized only when it becomes fixed and not subject
to adjustment.
The Company reserves the right to waive or reduce asset-based and performance-based fees with respect to certain
investors in the investment funds which may include investments by employees and other related parties. Advisory
and incentive fees payable by investment funds are typically approved by third-party administrators and paid
directly from the accounts’ assets. Such fees attributable to separate accounts may be subject to review and approval
by the client and may be paid either from the accounts’ assets or directly by the client.
Our advisory fee revenues are influenced by both the amount of AUM and the investment performance of our
products. An overall decline in the prices of securities may cause our advisory fees to decline by either causing the
value of our AUM to decrease or causing our clients to withdraw funds in favor of investments they perceive to
offer greater opportunity or lower risk. Similarly, success in the investment management business is dependent on
investment performance as well as distribution and client servicing. Good performance can stimulate sales of our
investment products and tends to keep withdrawals and redemptions low, which generates higher asset-based
management fees. Conversely, poor performance, both in absolute terms and/or relative to peers and industry
benchmarks, tends to result in decreased sales, increased withdrawals and redemptions and in the loss of clients,
with corresponding decreases in revenues to us.
Institutional Research Services. The Company, through G.research, generates institutional research services
revenues via hard dollar payments or through commissions on securities transactions executed on an agency basis on
behalf of clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as affiliated
mutual funds and managed accounts. These revenues consist of:
a. Hard dollar payments – The Company receives direct payments for research services provided to related
and unrelated parties. The Company may or may not have contracts for such services. Where a contract for
such services is in place, the contractual fee for the period is recognized ratably over the contract period,
typically a calendar year, which is considered the period over which the Company satisfies its performance
obligation. Payments for contracts with affiliated parties are collected monthly. For other payments where
no research contract exists, revenue is not recognized until agreement is reached with the client that the
Company has satisfied its performance obligation. At that time, a value is assigned to those services and an
invoice is presented to the client for payment.
b. Commissions – Commissions are charged on the execution of securities transactions made on behalf of
client accounts on an agency basis and are based on a rate schedule. The Company meets its performance
obligations and recognizes commission revenue when the related securities transactions are executed and
the security is transferred to or from the customer. Commissions earned are typically collected from the
clearing brokers utilized by G.research on a daily or weekly basis.
c. Selling concessions – The Company participates as a member of the selling group of underwritten equity
offerings and receives compensation based on the difference between what its clients pay for the securities
sold to its institutional clients and what the issuer receives. The terms of the selling concessions are set
forth in contracts between the Company and the underwriter. The Company meets its performance
obligations and recognizes selling commissions upon the sale of the related securities to its clients.
d. Sales manager fees – The Company participates as sales manager of at-the-market offerings of certain
affiliated closed-end funds and receives a tiered percentage of proceeds as stipulated in agreements
between the Company, the funds and the funds’ investment adviser and as approved by the funds’ board of
directors. The Company meets its performance obligations and recognizes sales manager fees upon sale of
the related closed-end funds. Sales manager fees earned are typically collected from the clearing brokers
utilized by G.research on a daily or weekly basis.
41
Institutional research revenues are impacted by the perceived value of the research product provided to clients, the
volume of securities transactions and the acquisition or loss of new client relationships.
Other. Other revenues include (a) underwriting fees representing gains, losses, and fees, net of syndicate expenses,
arising from public equity and debt offerings in which G.research acts as underwriter or agent and are accrued as
earned, and (b) other miscellaneous revenues.
Total revenues by type were as follows for the year ended December 31, 2018 (in thousands):
Investment advisory and incentive fees
Asset-based advisory fees
Performance-based advisory fees
Sub-advisory fees
$
7,384
3,115
3,910
14,409
Institutional research services
Hard dollar payments
Commissions
Selling concessions
Sales manager fees
Other
Underwriting fees
Miscellaneous
2,835
5,349
84
16
8,284
19
67
86
Total
$
22,779
D. Investments in Securities
Investments in securities at December 31, 2018 and 2017 consisted of the following (in thousands):
Securities:
Government obligations
Common stocks
Mutual funds
Other investments
Available for sale securities:
Common stocks
Mutual funds
2018
2017
Cost
Fair Value
Cost
Fair Value
$
11,694
244,557
761
5,285
262,297
$
11,707
213,151
1,161
3,941
229,960
$
53,681
209,686
1,959
825
266,151
$
53,804
228,557
3,157
1,824
287,342
-
-
-
-
-
-
65,331
103
65,434
65,024
271
65,295
Total investments in securities
$
262,297
$
229,960
$
331,585
$
352,637
42
Securities sold, not yet purchased at December 31, 2018 and 2017 consisted of the following (in thousands):
2018
2017
Proceeds
Fair Value
Proceeds
Fair Value
Equity securities:
Common stocks
Other investments
Total securities sold, not yet purchased
$
$
10,150
-
10,150
$
$
9,485
89
9,574
$
$
4,862
1
4,863
$
$
5,396
335
5,731
Investments in affiliated registered investment companies at December 31, 2018 and 2017 consisted of the following
(in thousands):
Equity securities:
Closed-end funds
Mutual funds
Available for sale securities:
Closed-end funds
Mutual funds
Total investments in affiliated
registered investment companies
2018
2017
Cost
Fair Value
Cost
Fair Value
$
73,950
49,714
123,664
$
85,090
57,045
142,135
$
26,231
41,950
68,181
$
26,929
48,328
75,257
-
-
-
-
-
-
53,782
3,420
57,202
66,218
4,439
70,657
$
123,664
$
142,135
$
125,383
$
145,914
The following table identifies all reclassifications between accumulated other comprehensive income (“AOCI”) and
net income/(loss) for the years ended December 31, 2018 and 2017 (in thousands):
Year ended December 31,
2018
2017
Affected Line Item
Reason for Reclassification
-
$
-
-
-
-
$
-
$
167
11,788
(19,201)
(7,246)
2,599
(4,647)
$
Net gain (loss) from investments
Net gain (loss) from investments
Net gain (loss) from investments
Income (loss) before income taxes
Income tax benefit
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
For the year ended December 31, 2017, AC recognized a $19.1 million OTT impairment on the GBL shares that
were held as AFS securities due to the magnitude and persistence of the unrealized loss. In November 2017, AC
made a non-cash contribution of certain AFS securities totaling $91.3 million to G.research which was required to
account for these as trading securities under specialized industry accounting. This transaction resulted in the
recognition of a gain of $11.8 million and income tax expense of $4.2 million in net income due to the
reclassification of unrealized gains net of taxes from AOCI upon the completion of this transfer.
The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them
in either investments in securities or securities sold, not yet purchased on the consolidated statements of financial
condition. From time to time, the Company and/or consolidated funds will enter into hedging transactions to manage
their exposure to foreign currencies and equity prices related to their proprietary investments. At December 31, 2018
and December 31, 2017 we held derivative contracts on 1.0 million and 1.7 million equity shares, respectively, that
are included in investments in securities or securities sold, not yet purchased on the consolidated statements of
financial condition. We had one foreign exchange contract outstanding at December 31, 2018, but none at December
31, 2017. Except for the foreign exchange contract entered into by the Company, these transactions are not
designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net
43
gain/(loss) from investments on the consolidated statements of income and included in investments in securities,
securities sold, not yet purchased, or receivable from or payable to brokers on the consolidated statements of
financial condition.
The following tables identify the fair values and gains and losses of all derivatives and foreign currency positions
held by the Company (in thousands):
Asset Derivatives
Liability Derivatives
Statement of
Financial Condition
Location
Fair Value
December 31,
2018
December 31,
2017
Statement of
Financial Condition
Location
Fair Value
December 31,
2018
December 31,
2017
Derivatives designated as hedging
instruments under FASB ASC 815-20
Foreign exchange contracts
Receivable from brokers
$
204
$
-
Payable to brokers
$
-
$
-
Derivatives not designated as hedging
instruments under FASB ASC 815-20
Equity contracts
Total
Investments in
securities
$
464
$
229
Securities sold,
not yet purchased
$
89
$
335
$
668
$
229
$
89
$
335
Type of Derivative
Income Statement Location
2018
2017
Year ended December 31,
Foreign exchange contracts
Equity contracts
Net gain/(loss) from investments
Net gain/(loss) from investments
$
204
4,774
-
$
(98)
Total
$
4,978
$
(98)
The Company is a party to enforceable master netting arrangements for swaps entered into with major U.S. financial
institutions as part of its investment strategy. They are typically not used as hedging instruments. These swaps,
while settled on a net basis with the counterparties, are shown gross in assets and liabilities on the consolidated
statements of financial condition. The swaps have a firm contract end date and are closed out and settled when each
contract expires.
Gross
Amounts 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
Gross Amounts Not Offset in the
Statements of Financial Condition
Swaps:
December 31, 2018
December 31, 2017
$
$
416
229
$
-
$
-
$
$
(In thousands)
416
229
$
$
(89)
(229)
-
$
$
-
$
327
$
-
Gross
Amounts of
Recognized
Liabilities
Gross Amounts
Offset in the
Statements of
Financial Condition
Net Amounts of
Liabilities Presented
in the Statements of
Financial Condition
(In thousands)
Gross Amounts Not Offset in the
Statements of Financial Condition
Financial
Instruments
Cash Collateral
Pledged
Net Amount
$
$
89
334
$
-
$
-
$
$
89
334
$
$
(89)
(229)
-
$
$
-
$
-
$
105
Swaps:
December 31, 2018
December 31, 2017
44
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of AFS
securities as of December 31, 2017 (in thousands):
Common stocks
Closed-end Funds
Mutual funds
Total
Cost
$
65,331
53,782
3,523
122,636
$
Gross
Unrealized
Gains
$
-
12,436
1,187
13,623
$
Gross
Unrealized
Losses
$
(307)
-
-
(307)
Fair
Value
$
65,024
66,218
4,710
135,952
$
$
Changes in net unrealized gains, net of taxes, for AFS securities for the year ended December 31, 2017 of $5.4
million have been included in other comprehensive income, a component of equity, at December 31, 2017. Return of
capital on AFS securities was $0.9 million for the year ended December 31, 2017. For the year ended December 31,
2017, proceeds from the sales of AFS investments were approximately $0.3 million.
The Company has an established accounting policy and methodology to determine an other-than-temporary (“OTT”)
impairment. Under this policy, AFS securities are evaluated for OTT impairments and any impairment charges are
recorded in net gain/(loss) from investments on the consolidated statements of income. Management reviews all
AFS securities whose cost exceeds their market value to determine if the impairment is OTT. Management uses
qualitative factors such as the diversification of the investment, the amount of time that the investment has been
impaired, the intent to sell or hold the security, and the severity of the decline in determining whether the
impairment is OTT.As discussed in Note A, equity securities with readily determinable fair values are no longer
considered AFS securities after December 31, 2017.
Investments classified as AFS that were in an unrealized loss position for which OTT impairment had not been
recognized as of December 31, 2017 consisted of the following (in thousands):
Common Stocks
Total
Cost
$
$
65,331
65,331
Unrealized
Losses
$
$
(307)
(307)
Fair Value
$
65,024
$
65,024
The Company determines the cost of a security sold by using specific identification.
E. Investment Partnerships and Variable Interest Entities
The Company is general partner or co-general partner of various affiliated entities in which the Company had
investments totaling $100.1 million and $124.5 million at December 31, 2018 and 2017, respectively, and whose
underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in
unaffiliated partnerships, offshore funds and other entities of $18.6 million and $21.1 million at December 31, 2018
and 2017, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting
treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.
The value of entities where consolidation is not deemed appropriate is included in investments in partnerships on
consolidated statements of financial condition. This caption includes investments in Affiliated Entities and
Unaffiliated Entities which the Company accounts for under the equity method of accounting. The Company reflects
the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the
consolidated statements of income.
45
The following table highlights the number of entities that we consolidate as well as the basis under which they are
consolidated:
Entities consolidated at December 31, 2016
Additional consolidated entities
Deconsolidated entities
Entities consolidated at December 31, 2017
Additional consolidated entities
Deconsolidated entities
Entities consolidated at December 31, 2018
VIEs
1
-
-
-
-
1
1
VOEs
1
2
-
-
3
2
5
The following table reflects the net impact of the consolidated entities on the consolidated statements of financial
condition (in thousands):
Prior to
Consolidation
December 31, 2018
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
396,074
131,764
193,006
138,119
7,998
4,427
24,551
895,939
4,631
25,060
-
866,248
895,939
287,963
255,252
198,469
160,456
11,722
5,749
28,865
948,476
5,405
24,924
-
918,147
948,476
$
$
$
$
$
$
$
$
$
Prior to
Consolidation
December 31, 2017
Consolidated
Entities
As Reported
$
$
$
13,490
98,196
(50,871)
(19,390)
16,631
(33)
471
58,494
4,943
3,751
49,800
-
58,494
5,149
97,385
(52,555)
(14,865)
23,159
(10)
176
58,439
326
11,883
46,230
-
58,439
409,564
229,960
142,135
118,729
24,629
4,394
25,022
954,433
9,574
28,811
49,800
866,248
954,433
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
$
$
$
$
$
$
$
$
$
46
The following table reflects the net impact of the consolidated entities on the consolidated statements of income (in
thousands):
Total revenues
Total expenses
Operating loss
Total other income/(expense), net
Income/(loss) before income taxes
Income tax benefit
Net income/(loss) before NCI
Net income attributable to noncontrolling interests
Net loss
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
Variable Interest Entities
Year Ended December 31, 2018
Consolidated
Entities
$
As Reported
$
Prior to
Consolidation
$
22,855
34,413
(11,558)
(58,019)
(69,577)
(11,478)
(58,099)
-
(58,099)
$
Prior to
Consolidation
$
26,962
45,595
(18,633)
25,050
6,417
(2,420)
8,837
-
8,837
$
(76)
1,846
(1,922)
2,638
716
-
716
716
$
-
(47)
1,706
(1,753)
1,600
(153)
-
(153)
(153)
$
-
22,779
36,259
(13,480)
(55,381)
(68,861)
(11,478)
(57,383)
716
(58,099)
26,915
47,301
(20,386)
26,650
6,264
(2,420)
8,684
(153)
8,837
$
$
Year Ended December 31, 2017
Consolidated
Entities
$
As Reported
$
With respect to each consolidated VIE, its assets may only be used to satisfy its obligations. The investors and
creditors of any consolidated VIE have no recourse to the Company’s general assets. In addition, the Company
neither benefits from such VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.
The following table presents the balances related to VIEs that are consolidated and included on the consolidated
statements of financial condition as well as the Company’s net interest in these VIEs (in thousands):
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
Equity Method Investments
December 31,
2018
$
December 31,
2017
$
2,560
7,253
553
(11)
(31)
(419)
9,905
120
8,757
1,657
(19)
(29)
(284)
10,202
$
$
The Company’s equity method investments include investments in partnerships and offshore funds. These equity
method investments are not consolidated but on an aggregate basis exceed 10% of the Company’s consolidated total
assets or income.
47
The summarized financial information of the Company’s equity method investments as of and for the years ended
December 31, 2018 and 2017 are as follows (in millions):
December 31,
2018
December 31,
2017
$
1,549
260
1,289
$
1,600
322
1,278
For the year
2018
(12)
2017
112
Total assets
Total liabilities
Total equity
Net income/(loss)
F. 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, 2018 and 2017 and indicate the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair value. Investments in certain entities that
calculate net asset value per share and other investments that are not held at fair value are provided as separate items
to permit reconciliation of the fair value of investments included in the fair value hierarchy to the total amounts
presented in the consolidated statements of financial condition.
The following tables present assets and liabilities measured at fair value on a recurring basis as of the dates
specified (in thousands):
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
407,239
-
Cash equivalents
Investments in partnerships
Investments in securities (including GBL stock):
Gov't obligations
Common stocks
Mutual funds
Other
Total investments in securities
Investments in affiliated registered investment companies:
Closed-end funds
Mutual funds
Total investments in affiliated
registered investment companies
Total investments
Total assets at fair value
Liabilities
Common stocks
Other
Securities sold, not yet purchased
142,135
361,000
768,239
9,485
-
9,485
$
$
$
Significant Other
Observable
Inputs (Level 2)
$
-
-
December 31, 2018
Significant
Unobservable
Inputs (Level 3)
$
-
-
Investments
Using NAV as
Fair Value (a)
$
-
114,449
Other Assets
Not Held at
Fair Value (b)
$
-
4,280
Total
$
407,239
118,729
11,707
205,978
1,161
19
218,865
85,090
57,045
-
7,161
-
464
7,625
-
-
-
12
-
3,458
3,470
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,707
213,151
1,161
3,941
229,960
85,090
57,045
-
7,625
7,625
$
-
3,470
3,470
$
-
114,449
114,449
$
-
4,280
4,280
$
142,135
490,824
898,063
$
$
$
9,485
89
9,574
-
$
89
89
$
-
$
-
$
-
-
$
-
$
-
-
$
-
$
-
48
Assets
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
$
290,043
-
Significant Other
Observable
Inputs (Level 2)
$
-
-
December 31, 2017
Significant
Unobservable
Inputs (Level 3)
$
-
-
Investments
Using NAV as
Fair Value (a)
$
-
140,617
Other Assets
Not Held at
Fair Value (b)
$
-
4,974
Total
$
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
(a) Amounts include certain equity method investments in Investment Partnerships which qualify for investment
company specialized accounting. These Investment Partnerships account for their financial assets and
liabilities using fair value measures and, therefore, the Company’s investment approximates fair value. At
December 31, 2018 and December 31, 2017, investments in these Investment Partnerships were $105,020 and
$131,175, respectively. In addition, certain investments in Investment Partnerships were held by a
consolidated entity. At December 31, 2018 and December 31, 2017, these amounts were $9,429 and $9,442,
respectively. None of these investments have been classified in the fair value hierarchy.
(b) Amounts include certain equity method investments which are not accounted for under a fair value measure.
In accordance with GAAP, certain equity method investees do not account for both their financial assets and
liabilities under fair value measures; therefore, the Company’s investment in such equity method investees
may not represent fair value.
Investments using NAV as fair value shown in the above tables include investments in Affiliated and Unaffiliated
Entities. Capital may generally be redeemed from Affiliated Entities on a monthly basis upon adequate notice as
determined in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may
generally be redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days. Certain
Unaffiliated Entities may require a minimum investment period before capital can be voluntarily redeemed (a
“Lockup Period”). No investment in an Unaffiliated Entity has an unexpired Lockup Period. The Company has no
outstanding capital commitments to any Affiliated or Unaffiliated Entity.
49
The following table presents additional information about assets by major category measured at fair value on a
recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:
Year ended December 31, 2018
Year ended December 31, 2017
Beginning balance
Consolidated funds
Total gains/(losses)
Purchases
Sales
Transfers
Ending balance
Changes in net unrealized
gain/(loss) included in Net
gain/(loss) from investments
related to Level 3 assets still
held as of the reporting date
Common
Stocks
$
618
-
(1)
-
-
(605)
12
$
Other
Total
Common
Stocks
Other
Total
$
$
$
$
$
1,169
984
(3,489)
4,773
(32)
53
3,458
1,787
984
(3,490)
4,773
(32)
(552)
3,470
461
-
193
-
-
(36)
618
283
-
869
167
(150)
-
1,169
744
-
1,062
167
(150)
(36)
1,787
$
$
$
$
$
$
(1)
$
(3,504)
$
(3,505)
$
184
$
827
$
1,011
Total realized and unrealized gains and losses for level 3 assets are reported in net gain/(loss) from investments in
the consolidated statements of income.
During the years ended December 31, 2018 and 2017, the Company transferred investments with a value of
approximately $605,000 and $36,000, respectively, from Level 3 to Level 1. The reclassifications were due to
increased availability of market price quotations. During the year ended December 31, 2018, the Company
transferred investments with a value of approximately $53,000 from Level 1 to Level 3 due to the unavailability of
observable inputs.
G. Income Taxes
The provision for income taxes for the years ended December 31, 2018 and 2017 consisted of the following (in
thousands):
Federal:
Current
Deferred
State and local:
Current
Deferred
Total
2018
2017
$
1,223
(11,631)
$
781
(3,137)
124
(1,194)
(11,478)
$
(33)
(31)
(2,420)
$
50
A reconciliation of the federal statutory rate to the effective tax rate for the years ended December 31, 2018 and
2017 is set forth below:
Statutory Federal income tax rate
State income tax, net of Federal benefit
Dividends received deduction
Donation of appreciated securities
Deferred tax asset valuation allowance
Nondeductible capital losses
Revaluation of net deferred tax liabilities due to tax reform
Accelerated vesting of restricted stock awards
Noncontrolling interests
Other
Effective income tax rate
2018
21.0%
1.3
0.4
-
(1.0)
(4.5)
-
-
-
(0.5)
16.7%
2017
34.0%
(1.3)
(8.0)
(21.5)
-
-
(26.5)
(14.5)
(0.9)
0.1
(38.6%)
The TCJA, which was enacted in December 2017, reduced the federal corporate income tax rate from a maximum of
35% to 21% beginning in 2018. As a result, the Company revalued its deferred tax assets and liabilities in December
2017. The income tax provision for the year ended December 31, 2017 reflects a benefit of $1.7 million due to this
revaluation. The Company has completed its analysis of the impact of the enactment of the TCJA in 2018 with no
material impact on the income tax provision.
Significant components of our deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows
(in thousands):
Deferred tax assets:
Stock-based compensation expense
Investments in securities and partnerships
Deferred compensation
Shareholder-designated contribution carryover (a)
Other
Deferred tax liabilities:
Investments in securities and partnerships
Other liabilities
Net deferred tax assets/(liabilities)
(a) Net of valuation allowance of $719.
2018
2017
$
139
5,100
2,392
1,898
90
9,619
19
$
-
987
1,765
3
2,774
-
(197)
(197)
9,422
$
(6,165)
(12)
(6,177)
(3,403)
$
51
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits related to uncertain tax
positions is as follows (in thousands):
Balance at January 1, 2017
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
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, 2018
$
100
-
-
(89)
-
11
$
-
-
(5)
-
$
6
The Company records penalties and interest related to tax uncertainties in income taxes. As of December 31, 2018
and 2017, the Company had gross unrecognized tax benefits of $5,688 and $10,923, respectively, of which $4,494
and $8,629, respectively, if recognized, would impact the Company’s effective tax rate. The Company has accrued
liabilities of $3,071 and $6,241 as of December 31, 2018 and 2017, respectively, for interest and penalties. These
amounts are included in accrued expenses and other liabilities on the consolidated statements of financial condition.
The Company is currently under audit by the Internal Revenue Service with respect to its 2016 tax year. The
Company is generally subject to federal and state audits for tax years after 2014.
H. Earnings per Share
Basic earnings per share is computed by dividing net income/(loss) attributable to our shareholders by the weighted
average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net
income/(loss) attributable to our shareholders by the weighted average number of shares outstanding during the
period, adjusted for the dilutive effect of restricted stock awards.
The computations of basic and diluted net income/(loss) per share are as follows (in thousands, except per share
data):
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,
2018
2017
$
(58,099)
23,070
$
8,837
23,792
$
(2.52)
$
0.37
Diluted:
Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders
$
(58,099)
$
8,837
Weighted average share outstanding
Dilutive restricted stock awards
Total
Diluted net income/(loss) attributable to Associated Capital Group, Inc.'s
shareholders per share
23,070
-
23,070
23,792
133
23,925
$
(2.52)
$
0.37
I. Related Party Transactions
The following is a summary of certain related party transactions.
52
GGCP, Inc., a private company controlled by the Executive Chairman, indirectly owns a majority of our Class B
stock, representing approximately 95% of the combined voting power and 82% of the outstanding shares of our
common stock at December 31, 2018.
Loans with GAMCO
AC received principal repayments on the GAMCO Note totaling $50 million in each of the years ended December
31, 2018 and 2017. The GAMCO Note was fully paid in 2018. Interest income of $0.8 million and $3.0 million paid
on the GAMCO Note is included in interest and dividend income on the consolidated statements of income for the
years ended December 31, 2018 and 2017, respectively. See Note A, Organization.
On December 26, 2017, GAMCO issued a promissory note to the Company for $15 million. The note principal and
related interest of $40,000 were paid on February 28, 2018.
Investments in Securities
At December 31, 2018 and 2017, approximately $45 million and $44 million, respectively, of our proprietary
investment accounts, which are included in investments in securities on the consolidated statements of financial
condition, were managed by analysts or portfolio managers other than the Executive Chairman. The individuals
managing these accounts receive 20% of the net profits, if any, earned on the accounts. In August 2006, a son of the
Executive Chairman was given responsibility for managing one such proprietary investment account. The balance in
the account at December 31, 2018 and 2017 was $18.2 million and $18.0 million, respectively, of which $0.1
million and $3.5 million, respectively, is owed to the portfolio manager representing earnings that have been re-
invested in the account. For 2018 and 2017, the performance of this account resulted in compensation of
approximately $0.0 million and $0.5 million, respectively, for managing this account.
At December 31, 2018 and 2017, the value of the Company’s investment in GAMCO common stock was $50.9
million and $130.3 million, respectively. The Company recorded dividend income of $0.3 million and $0.4 million
in 2018 and 2017 from GAMCO which is included in interest and dividend income on the consolidated statements
of income.
At December 31, 2018 and 2017, the Company invested $398.3 million and $238.1 million, respectively, in the
Gabelli U.S. Treasury Money Market Fund, which is recorded in cash and cash equivalents on the consolidated
statements of financial condition.
Investments in affiliated equity mutual funds advised by Gabelli Funds, LLC, a wholly-owned subsidiary of
GAMCO, and Teton Advisors, Inc., an investment advisor controlled by GGCP Holdings, LLC, the majority
stockholder of AC, at December 31, 2018 and 2017 totaled $142.4 million and $146.2 million, respectively, and are
included in either investments in securities or investments in affiliated registered investment companies on the
consolidated statements of financial condition.
Investments in Partnerships
We had an aggregate investment in affiliated Investment Partnerships of approximately $100.1 million and $124.5
million at December 31, 2018 and 2017, respectively.
Investment Advisory Services
Pursuant to a sub-advisory agreement with the Company, Gabelli Funds, LLC pays to GCIA 90% of the net
revenues it receives related to investment advisory services provided to GAMCO International SICAV – GAMCO
Merger Arbitrage, an investment company incorporated under the laws of Luxembourg (the “SICAV”). For this
purpose, net revenues are defined as gross advisory fees less expenses related to payouts and expenses of the SICAV
paid by Gabelli Funds, LLC. In connection with these services, GCIA received $3.9 million and $2.8 million during
2018 and 2017, respectively. These payments are included in investment advisory and incentive fees on the
consolidated statements of income.
53
As general partner, co-general partner, or investment manager of various affiliated funds, the Company receives a
management fee based on a percentage of each fund’s net assets and a 20% incentive allocation or fee based on the
fund’s economic profits.
Institutional Research Services
In 2018 and 2017, the Company earned $3.8 million and $4.5 million, respectively, or 62% and 60%, respectively,
of its commission revenue from transactions executed on behalf of Gabelli Funds, LLC and private wealth
management clients advised by GAMCO Asset Management Inc., wholly-owned subsidiaries of GAMCO. These
commissions are included in institutional research services on the consolidated statements of income.
Pursuant to research services agreements, GAMCO Asset Management Inc. paid $1.0 million and $2.2 million and
Gabelli Funds, LLC paid $1.0 million and $2.3 million to the Company for the years ended December 31, 2018 and
2017, respectively.
The Company participated in three preferred stock offerings of certain GAMCO closed-end funds in 2017.
Underwriting fees and selling concessions, net of expenses, related to these offerings amounted to $172,730 and are
included in either institutional research services or other revenue on the consolidated statements of income.
As required by the Company’s Code of Ethics, staff members are required to maintain their brokerage accounts at
G.research unless they receive permission to maintain an outside account. G.research offers its entire staff the
opportunity to engage in brokerage transactions at discounted commission rates. Accordingly, many of our staff
members, including the executive officers or entities controlled by them, have brokerage accounts at G.research and
have engaged in securities transactions at discounted rates.
Compensation
In accordance with an employment agreement, the Company pays the Executive Chairman, or his designated
assignees, a management fee equal to 10% of the Company’s pretax profits before consideration of this fee and
before consolidation of Investment Partnerships. In 2017, the Company recorded management fee expense of $0.7
million; there was no management fee expense in 2018. These fees are recorded as management fee on the
consolidated statements of income.
Affiliated Receivables/Payables
At December 31, 2018, the receivable from affiliates consists primarily of sub-advisory fees due from Gabelli
Funds, LLC. At December 31, 2017, the receivable from affiliates consists primarily of the $15 million promissory
note issued by GAMCO on December 26, 2017.
At December 31, 2018 and 2017, the payable to affiliates primarily consisted of expenses paid by affiliates on behalf
of the Company.
GAMCO Sublease
In June 2016, AC entered into a sublease agreement with GBL which is subject to annual renewal. Pursuant to the
sublease, AC and its subsidiaries pay a monthly fixed lease amount based on the percentage of square footage
occupied by its employees (including pro rata allocation of common space) at GBL’s corporate offices. For the years
ended December 31, 2018 and 2017, the Company paid $463,286 and $374,401, respectively, under the sublease
agreement. These amounts are included in other operating expenses on the consolidated statements of income.
Other
Gabelli Securities International Limited, a Bermuda corporation (“GSIL”) was formed in 1994 to provide
investment advisory services to offshore funds and accounts. In October 2017, GCIA agreed to purchase 55% of the
shares of GSIL that it did not hold from a son of the Executive Chairman, subject to regulatory approvals and other
standard closing conditions. In June 2018, the closing conditions were satisfied and consideration of $341,076 was
paid. As a result of this transaction, GSIL became a wholly-owned subsidiary of the Company.
54
J. Equity
Voting Rights
The holders of Class A Common stock (“Class A Stock”) and Class B Common stock (“Class B Stock”) have
identical rights except that holders of Class A Stock are entitled to one vote per share, while holders of Class B
Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general. Holders of each
share class, however, are not eligible to vote on matters relating exclusively to the other share class.
Stock Award and Incentive Plan
The Company maintains one stock award and incentive plan (the “Plan”) approved by the shareholders on May 3,
2016, which is designed to provide incentives to attract and retain individuals key to the success of AC through
direct or indirect ownership of our common stock. Benefits under the Plan may be granted in any one or a
combination of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards,
dividend equivalents and other stock or cash-based awards. A maximum of 2 million shares of Class A Stock have
been reserved for issuance under the Plan by the Compensation Committee of the Board of Directors (the
“Compensation Committee”) which is responsible for administering the Plan. Under the Plan, the Compensation
Committee may grant RSAs and either incentive or nonqualified stock options with a term not to exceed ten years
from the grant date and at an exercise price that it may determine. Through December 31, 2018, approximately
700,000 shares have been awarded under the Plan leaving approximately 1.3 million shares for future grants.
On November 30, 2015, in connection with the Spin-off, the Company issued 554,100 AC RSA shares to GAMCO
employees (including GAMCO employees who became AC employees) who held 554,100 GAMCO RSA shares at
that date. The purpose of the issuance was to ensure that any employee who had GAMCO RSAs were granted an
equal number of AC RSAs so that the total value of the RSAs post-spin-off was equivalent to the total value pre-
spin-off. In accordance with GAAP, we have allocated the stock compensation costs of both the AC RSAs and the
GAMCO RSAs between GAMCO and AC based upon the allocation of each employee’s responsibilities between
the companies. During 2017, the vesting of all of the outstanding AC RSAs and all but 19,400 GAMCO RSAs was
accelerated, and they are no longer outstanding. Similarly, the vesting of the GAMCO RSAs outstanding as of
December 31, 2017 was accelerated in the first quarter of 2018.
There were no RSAs issued by AC during the years ended December 31, 2018 or 2017.
In August and December 2018, the Company’s Board of Directors approved the grant of 172,800 shares of Phantom
Restricted Stock awards (“Phantom RSAs”). Under the terms of the grants, which were effective August 8 and
December 31, the Phantom RSAs vest 30% and 70% after three and five years, respectively. The Phantom RSAs
will be settled by a cash payment, net of applicable withholding tax, on the vesting dates. In addition, an amount
equivalent to the cumulative dividends declared on shares of the Company’s Class A common stock during the
vesting period will be paid to participants on vesting. Based on the price of the Company’s stock, the total value of
the Phantom RSAs was $6.1 million as of the grant dates.
For the years ended December 31, 2018 and 2017, the Company recorded approximately $0.7 million and $5.9
million in stock-based compensation expense, respectively. This expense is included in compensation expense in the
consolidated statements of income. The expense for 2017 includes $4.2 million attributable to the acceleration of the
AC and GAMCO RSAs.
As of December 31, 2018, there were 170,300 Phantom RSAs outstanding. The unrecognized compensation expense
related to these was $5.4 million which is expected to be recognized over a weighted-average period of 2.5 years.
Stock Repurchase Program
In 2018, the Company repurchased 0.2 million shares at an average price of $37.52 per share for a total investment
of $7.0 million. In 2017, the Company repurchased 0.6 million shares at an average price of $34.61 per share for a
total investment of $21.2 million.
55
Exchange Offers
In February 2018, AC completed an exchange offer with respect to its Class A shares. Tendering shareholders
received 1.35 GAMCO Class A shares for each AC Class A share, together with cash in lieu of any fractional share.
Upon completion of the offer, shareholders tendered 493,954 Class A shares in exchange for 666,805 GAMCO
Class A shares with a value of $17.7 million.
In October 2018, the Company completed an exchange offer with respect to its Class A shares. Tendering
shareholders received 1.9 GAMCO Class A shares for each AC Class A share, together with cash in lieu of any
fractional share. Upon completion of the offer, shareholders tendered 373,581 shares in exchange for 709,749
GAMCO shares with a value of approximately $14.6 million.
Dividends
During 2018, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.6
million, of which $2.3 million is payable on January 9, 2019 and is included in accrued expenses and other liabilities
on the consolidated statement of financial condition as of December 31, 2018.
During 2017, the Company declared dividends of $0.20 per share to class A and class B shareholders totaling $4.8
million, of which $2.4 million was paid on January 10, 2018 and is included in accrued expenses and other liabilities
on the consolidated statements of financial condition as of December 31, 2017.
K. 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 but may not
exceed the amount permitted as a deductible expense under the Internal Revenue Code of 1986, as amended. The
expense for contributions to the Savings Plan was approximately $11,000 and $49,000 in 2018 and 2017,
respectively, and is included in compensation on the consolidated statements of income.
L. Guarantees, Contingencies, and Commitments
From time to time, the Company may be named in legal actions and proceedings. These actions may seek substantial
or indeterminate compensatory as well as punitive damages or injunctive relief. We are also subject to governmental
or regulatory examinations or investigations. The examinations or investigations could result in adverse judgments,
settlements, fines, injunctions, restitutions or other relief. For any such matters, the condensed consolidated financial
statements include the necessary provisions for losses that the Company believes are probable and estimable.
Furthermore, the Company evaluates whether losses exist which may be reasonably possible and will, if material,
make the necessary disclosures. Management believes, however, that such amounts, both those that are probable and
those that are reasonably possible, are not material to the Company’s financial condition, results of operations or
cash flows at December 31, 2018.
G.research has agreed to indemnify clearing brokers for losses they may sustain from customer accounts introduced
by G.research that trade on margin. At each of December 31, 2018 and 2017, the total amount of customer balances
subject to indemnification (i.e., unsecured margin debits) was immaterial.
The Company has also entered into arrangements with various other third parties, many of which provide for
indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of
obligations under the agreements. The Company has had no claims or payments pursuant to these or prior
agreements and believes the likelihood of a claim being made is remote, and, therefore, no accrual has been made on
the consolidated financial statements.
M. Net Capital Requirements
G.research is registered with the SEC as a broker-dealer and is regulated by FINRA. As such, G.research is subject to
the minimum net capital requirements promulgated by the SEC. G.research computes its net capital under the
alternative method permitted by the SEC, which results in required minimum net capital of $250,000. As of
56
December 31, 2018, and 2017, G.research had net capital, as defined, of approximately $9.1 million and $41.8
million, respectively, exceeding the regulatory requirement by approximately $8.8 million and $41.6 million,
respectively. Net capital requirements for G.research may increase in accordance with rules and regulations to the
extent it engages in other business activities.
N. Shareholder-Designated Contribution Plan
The Company has established a Shareholder Designated Charitable Contribution program. Under the program, from
time to time each shareholder is eligible to designate a charity to which the Company would make a donation at a
rate of twenty-five cents per share based upon the actual number of shares registered in the shareholder’s name. The
Company recorded an expense of $3.3 million and $4.2 million related to this program for the years ended
December 31, 2018 and 2017, respectively, which is included in shareholder-designated contribution in the
consolidated statements of income. As of December 31, 2018, the Company has reflected a liability in the amount of
$3.3 million in connection with this program which is included in accrued expenses and other liabilities on the
consolidated statement of financial condition.
O. Subsequent Events
Effective February 1, 2019, G.research amended its existing research service agreements with GAMCO Asset
Management Inc. and Gabelli Funds, LLC, to provide for monthly research services fees in the amount of $62,500
from each of these entities. The amended agreements are subject to immediate cancellation by either party upon
written notice.
57
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 Exchange Act.
The Company’s principal executive officer and principal financial officer, after evaluating the effectiveness of the
Company’s disclosure controls and procedures (as defined in the Exchange Act) as of the end of the period covered
by this report, have concluded that the Company’s disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company’s management, including its principal
executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure and are effective to provide reasonable assurance that such information is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
(b) Management’s Report on Internal Control Over Financial Reporting
AC’s management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) of the Exchange Act. Management of the Company, with the participation
of the principal executive officer and under the supervision of the principal financial officer, conducted an
evaluation of the effectiveness of AC’s internal control over financial reporting as of December 31, 2018 as required
by Rule 13a-15(c) of the Exchange Act. There are inherent limitations to the effectiveness of any system of internal
control over financial reporting, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective internal control over financial reporting controls can only
provide reasonable assurance of achieving their control objectives. In making its assessment of the effectiveness of
its internal control over financial reporting, the Company used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013.
Based on its evaluation, management concluded that, as of December 31, 2018, the Company maintained effective
internal control over financial reporting. This annual report does not include an audit attestation report on the
Company’s internal control over financial reporting of the Company’s independent registered public accounting firm
due to the rules of the SEC for Emerging Growth Companies.
(c) Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31,
2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the Directors and Executive Officers of AC and compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated herein by reference from the Company’s Proxy Statement for the
2019 Annual Meeting of Stockholders (the “Proxy Statement”).
58
AC has adopted a Code of Business Conduct that applies to all of our officers, directors, full-time and part-time
employees and a Code of Conduct that sets forth additional requirements for our principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions
(together, the “Codes of Conduct”). The Codes of Conduct are posted on our website (www.associated-capital-
group.com) and are available in print free of charge to anyone who requests a copy. Interested parties may address a
written request for a printed copy of the Codes of Conduct to: Secretary, Associated Capital Group, Inc., One
Corporate Center, Rye, New York 10580-1422. We intend to satisfy the disclosure requirement regarding any
amendment to, or a waiver of, a provision of the Codes of Conduct by posting such information on our website.
In addition to the certifications attached as Exhibits to this Form 10-K, following its 2019 Annual Meeting, AC will
also submit to the New York Stock Exchange (“NYSE”) a certification by our Chief Executive Officer that he is not
aware of any violations by AC of the NYSE corporate governance listing standards as of the date of the certification.
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
Information required by Item 14 is included in our Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this Report:
(1) Consolidated Financial Statements and Independent Registered Public Accounting Firm’s Reports included
herein:
See Index on page 23.
(2) Financial Statement Schedules
Financial statement schedules are omitted as not required or not applicable or because the information is included in
the Financial Statements or notes thereto.
(3) List of Exhibits:
The agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K contain
representations and warranties by each of the parties to the applicable agreement. These representations and
warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended
to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to
the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of
“materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of
the date of the applicable agreement or such other date or dates as may be specified in the agreement.
59
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is
responsible for considering whether additional specific disclosures of material information regarding material
contractual provisions are required to make the statements in this report not misleading.
Exhibit
Number
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
21.1
24.1
31.1
31.2
32.1
Description of Exhibit
Separation and Distribution Agreement, dated November 30, 2015, between GAMCO Investors,
Inc., a Delaware corporation (“GAMCO”), and Associated Capital Group, Inc., a Delaware
corporation (the “Company”). (Incorporated by reference to Exhibit 2.1 to the Company’s Form
8-K dated November 30, 2015 filed with the Securities and Exchange Commission on December
4, 2015).
Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference
to Exhibit 3.1 to the Company’s Form 8-K dated November 19, 2015 filed with the Securities and
Exchange Commission on November 25, 2015).
Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the
Company’s Report on Form 8-K dated November 19, 2015 filed with the Securities and
Exchange Commission on November 25, 2015).
Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to Amendment No.
4 to the Company’s Registration Statement on Form 10 filed with the Securities and Exchange
Commission on October 21, 2015).
Service Mark and Name License Agreement, dated November 30, 2015, by and between the
Company and GAMCO. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
dated November 30, 2015 filed with the Commission on December 4, 2015
Transitional Administrative and Management Services Agreement, dated November 30, 2015, by
and between the Company and GAMCO. (Incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4,
2015).
Employment Agreement between the Company and Mario J. Gabelli dated November 30, 2015
(Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K dated November 30, 2015
filed with the Commission on December 4, 2015).
Promissory Note in aggregate principal amount of $250,000,000, dated November 30, 2015,
issued by GAMCO in favor of the Company (Incorporated by reference to Exhibit 10.4 to the
Company’s Form 8-K dated November 30, 2015 filed with the Commission on December 4,
2015).
Tax Indemnity and Sharing Agreement, dated November 30, 2015, by and between the Company
and GAMCO. (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K dated
November 30, 2015 filed with the Commission on December 4, 2015).
2015 Stock Award Incentive Plan (Incorporated by reference to Exhibit 10.11 to Amendment No.
4 to the Company’s Registration Statement on Form 10 filed with the Securities and Exchange
Commission on October 21, 2015).
Form of Indemnification Agreement by and between the Company and the Indemnitee defined
therein (Incorporated by reference to Exhibit 10.7 to Amendment No. 4 to the Company’s
Registration Statement on Form 10 filed with the Securities and Exchange Commission on
October 21, 2015).
Subsidiaries of the Company.
Powers of Attorney (included on page 63 of this Report).
Certification of CEO pursuant to Rule 13a-14(a).
Certification of CFO pursuant to Rule 13a-14(a).
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
60
Exhibit
Number
32.2
100.INS
100.SCH
100.CAL
100.DEF
100.LAB
100.PRE
Description of Exhibit
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rye, State
of New York, on March 8, 2019.
ASSOCIATED CAPITAL GROUP, INC.
By: /s/ Francis J. Conroy
Name: Francis J. Conroy
Title: Interim Chief Financial Officer
Date: March 8, 2019
62
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
/s/ Douglas R. Jamieson
Douglas R. Jamieson
President and
Chief Executive Officer
(Principal Executive Officer)
Date
March 8, 2019
/s/ Francis J. Conroy
Francis J. Conroy
/s/ Mario J. Gabelli
Mario J. Gabelli
/s/ Richard L. Bready
Richard L. Bready
/s/ Marc Gabelli
Marc Gabelli
/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
/s/ Elisa M. Wilson
Elisa M. Wilson
Interim Chief Financial Officer
(Principal Financial Officer)
March 8, 2019
Executive Chairman of the
Board and Director
March 8, 2019
Director
March 8, 2019
Director
Director
March 8, 2019
March 8, 2019
Director
March 8, 2019
Director
Director
March 8, 2019
March 8, 2019
Director
March 8, 2019
63
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 entities 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)
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)
G.research, LLC
(100%-owned by Institutional Services Holdings, LLC)
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:
a)
b)
c)
d)
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):
a)
b)
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.
/s/ Douglas R. Jamieson
By:
Name: Douglas R. Jamieson
Title: Chief Executive Officer
Date: March 8, 2019
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)
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):
a)
b)
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:
/s/ Francis J. Conroy
Name: Francis J. Conroy
Title: Interim Chief Financial Officer
Date: March 8, 2019
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, 2018 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.
By:
/s/ Douglas R. Jamieson
Name: Douglas R. Jamieson
Title: Chief Executive Officer
Date: March 8, 2019
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, 2018 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, 2019
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.
ENGLISH
ITALIAN
CHINESE
JAPANESE
SPANISH
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Board of Directors
Richard L. Bready
Former Chairman & Chief Executive Officer
Nortek, Inc.
Marc Gabelli
Co-Chief Executive Officer
Gabelli Securities International Limited (UK)
Daniel R. Lee
Chief Executive Officer and Director
Full House Resorts, Inc.
Salvatore F. Sodano
Vice Chairman
Broadridge Financial Solutions, Inc.
Officers
Mario J. Gabelli, CFA
Executive Chairman
Mario J. Gabelli, CFA
Executive Chairman
Associated Capital Group, Inc.
Douglas R. Jamieson
Chief Executive Officer and President
Bruce M. Lisman
Former Chairman
JP Morgan’s Global Equity Division
Frederic V. Salerno
Former Vice Chairman
Verizon Communications Inc.
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:
140 Greenwich Avenue
Greenwich, CT 06830
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
914-921-7787
email: alternatives@gabelli.com
Institutional Research
Contact: C.V. McGinity
President
914-921-7732
email: CMcGinity@gabelli.com
Annual Meeting
Our 2019 Annual Meeting of Shareholders
will be held at 8:00 a.m. on May 7, 2019 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
The Board of Directors of Associated Capital Group, Inc. established an inaugural Shareholder Designated Charitable Contribution program in
2016. The company continued this initiative into 2018. To date, AC has donated approximately $15 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 tracks 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.
♦ ♦ ♦
We are fortunate to live in the
wealthiest nation in the world and
to have the ability to share our
fortune. SINCE 2016, WE
good
WERE ABLE TO SUPPORT MANY
WORTHY ENDEAVORS, INCLUDING
THESE DESIGNATED BY OUR
SHAREHOLDERS. In addition, our
teammates have donated countless
hours of service
to scores of
charitable organizations.
Abilis ♦ Alzheimer’s Disease & Related Disorders Association ♦ Alzheimer’s Foundation of America ♦ America Needs You ♦ American Associates
of Ben-Gurion University of the Negev ♦ American Cancer Society ♦ American Heart Association ♦ American Macular Degeneration Foundation
♦ American National Red Cross ♦ American Refugee Committee ♦ Amigos Del Museo Del Barrio ♦ Archbishop Wood High School ♦ Arizona
State University Foundation ♦ Arthritis Foundation ♦ Atlantis Educational Foundation ♦ Aurora Ice Association ♦ Bay Area Discovery Museum ♦
Bedford Audubon Society ♦ Blythedale Children’s Hospital ♦ Bob Woodruff Family Foundation ♦ Boston College Trustees ♦ Boys and Girls Club
of Truckee Meadows ♦ Bristol Riverside Theater Co. ♦ Brunswick School ♦ Cathedral of St. John the Baptist ♦ Catholic Big Sisters & Big Brothers
♦ Catholic Charities of the Archdiocese of New York ♦ CCM of Westchester ♦ Center for All Abilities ♦ Central Scholarship Bureau ♦ Chaminade
High School ♦ Change for Kids ♦ Chicago Chesed Fund ♦ Christian Brothers Academy ♦ Church-in-the-Garden ♦ CityArts ♦ Citymeals-on-
Wheels ♦ Columbia University ♦ Columbus Citizens Foundation ♦ Cornell University ♦ Cow Hollow Preschool ♦ Cristo Rey Jesuit High School
♦ Direct Relief International ♦ Disabled American Veterans ♦ Disabled Veterans National Foundation ♦ Doctors Without Borders USA ♦ Don
♦ Downtown Community Television Center
Bosco Community Center of Port Chester
♦ Elevation Chapel ♦ Eva’s Village ♦
♦ Eastchester Volunteer Ambulance Corps.
Fidelity Investments Charitable Gift Fund
Fairfield University ♦ Feeding America ♦
University of New York at Binghamton
♦ Folds of Honor Foundation ♦ The State
Friends of Animals ♦ Futures in Education
♦ Fountain Valley School of Colorado ♦
Answer ♦ Greenwich Hospital ♦ Greenwich
♦ Gilchrist Hospice Care ♦ Give Me an
♦ Haley House ♦ Hank’s Yanks Baseball
International Film Festival ♦ Groton School
♦ Hetrick-Martin Institute ♦ Hindu
Foundation ♦ Heifer Project International
Honeywell Humanitarian
Program
Society of Nevada ♦ Homeless Prenatal
Surgery Fund ♦ Immaculate Conception
Relief Foundation ♦ Hospital for Special
Semper Fi Fund ♦ Inner-City Scholarship
Church - Bronx, NY ♦ Injured Marine
International Campaign for Tibet ♦ Iona
Fund ♦ Interfaith Nutrition Network ♦
America’s Founding Principles ♦ Jewish
College ♦ Jack Miller Center for Teaching
Greater Pittsburgh ♦ Joel Barlow High
Communal Fund ♦ Jewish Federation of
F. Kennedy Medical Center Foundation ♦
School, Regional School District #9 ♦ John
K9s for Warriors ♦ Kids in Crisis ♦ Lee
Junior League of Greenwich Connecticut ♦
Services of the Hudson Valley ♦ Leukemia
Memorial Health System Foundation ♦ Legal
Reserve ♦ Los Angeles Team Mentoring
and Lymphoma Society ♦ LongHouse
New York ♦ Manhattan College ♦ Marc
Make-A-Wish Foundation of Metro
♦
♦ Marin Country Day School ♦ Marine
Lustgarten Pancreatic Cancer Foundation
Corps Scholarship Foundation ♦ Masters
School ♦ McMaster University Ontario ♦
Meals on Wheels Association of America ♦ Memorial Sloan-Kettering Cancer Center ♦ Millbrook School ♦ Mount Sinai Medical Center ♦ National
Audubon Society ♦ National Brain Tumor Society ♦ Natural Resources Defense Council ♦ Nature Conservancy ♦ New Israel Fund ♦ New Jersey
Institute of Technology Foundation ♦ New York and Presbyterian Hospital ♦ New York City Relief ♦ Northeastern University ♦ Northern Nevada
HIV Outpatient Program Education and Services ♦ Northwell Health Foundation ♦ Operation Smile ♦ Pacific House ♦ Peck Slip School Parent
Teachers Association ♦ Pediatric Cancer Research Foundation ♦ Pennsylvania Troopers Helping Troopers Foundation ♦ Perlman Music Program ♦
Planned Parenthood Federation of America ♦ Planned Parenthood of Southern New England ♦ Planned Parenthood Shasta Diablo ♦ Prospects,
Opportunity and Enrichment ♦ Putnam-Indian Field School ♦ Rainforest Action Network ♦ Rainforest Alliance ♦ Randolph Foundation ♦ Rector
Wardens Vestry Men of St. Bartholomew’s Church ♦ Rochester Institute of Technology ♦ Saint Ignatius School ♦ Salvation Army National Corp. ♦
San Diego Opera Association ♦ San Miguel Academy of Newburgh ♦ SATO Project ♦ Save the Children Federation ♦ Science Buddies ♦ Seamen’s
Church Institute of New York and New Jersey ♦ Shriners Hospitals for Children ♦ Sierra Nevada Journeys ♦ South Bronx Educational Foundation
♦ Special Young Adults ♦ St. Joseph’s Indian School ♦ St. Jude Children’s Research Hospital ♦ St. Thomas’ Church Whitemarsh Bethlehem Park
& Camp Hill Road ♦ Step Up International ♦ Student U ♦ Susan G. Komen Breast Cancer Foundation ♦ The Arc of Palm Beach County ♦ The
Littlest Lamb ♦ The Miller Center Foundation ♦ The Roman Catholic Church of St. Robert Bellarmine Church ♦ The University of Pennsylvania ♦
The Windward School ♦ Top of Michigan Mountain Bike Association ♦ Troy University Foundation ♦ Tuesday’s Children ♦ Tuxedo Park School
♦ University of Texas Foundation ♦ University of Wisconsin Foundation ♦ Variety Child Learning Center ♦ Villanova University ♦ Volunteers of
America ♦ Westchester ARC Foundation ♦ Wilton Education Foundation ♦ Wilton Library Association ♦ Woman’s Club of Rye ♦ World Eye
Cancer Hope ♦ World Vision ♦ Yale-New Haven Hospital ♦ Young Men’s Christian Association of Stamford ♦ Zacharias Sexual Abuse Center
♦
One Corporate Center, Rye, New York 10580-1422
www.associated-capital-group.com
203-629-9595 | info@associated-capital-group.com