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Associated Capital Group, Inc. - Annual Report: 2022 (Form 10-K)

ac20221231_10k.htm
 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K


☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

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

 

47-3965991

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

191 Mason Street, Greenwich, CT 06830

 

(203) 629-9595

(Address of principal executive offices)(Zip Code)

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

 Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

 

AC

 

 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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 ☐

Accelerated filer ☐

 

Non-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ☐ No ☒.

 

The aggregate market value of the class A common stock held by non-affiliates of the registrant as of June 30, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) was $111,632,521.

 

As of March 3, 2023, 2,994,616 shares of class A common stock and 18,962,754 shares of class B common stock were outstanding. GGCP, Inc., a private company controlled by the Company’s Executive Chair, held 77,165 shares of class A common stock and indirectly held 18,423,741 shares of class B common stock. Other executive officers and directors of GGCP, Inc. held 29,866 and 36,758 shares of class A and class B common stock, respectively. In addition, there are 210,910 Phantom Restricted Stock Awards outstanding as of December 31, 2022.

 

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant’s definitive proxy statement relating to the 2023 Annual Meeting of Shareholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this report.

 

 

 

 

Associated Capital Group, Inc.

 

Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2022

 

Part I

 

 

 

 

Item 1

Business

4

 

 

Business Strategy

6

 

 

Competition

6

 

 

Intellectual Property

7

 

 

Regulation

7

 

 

Employees

9

 

Item 1A

Risk Factors

10

 

Item 1B

Unresolved Staff Comments

10

 

Item 2

Properties

10

 

Item 3

Legal Proceedings

10

 

Item 4

Mine Safety Disclosures

10

Part II

 

 

 

 

Item 5

Market For The Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities

11

 

Item 6

Selected Financial Data

11

 

Item 7

Management’s Discussion And Analysis ("MD&A") Of Financial Condition And Results Of Operations

11

 

Item 7A

Quantitative And Qualitative Disclosures About Market Risk

18

 

Item 8

Financial Statements And Supplementary Data

19

 

Item 9

Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

50

 

Item 9A

Controls And Procedures

50

 

Item 9B

Other Information

51

 

Item 9C

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

51

Part III

 

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

51

 

Item 11

Executive Compensation

51

 

Item 12

Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters

51

 

Item 13

Certain Relationships And Related Transactions, and Director Independence

51

 

Item 14

Principal Accountant Fees And Services

51

Part IV

 

 

 

 

Item 15

Exhibits, Financial Statement Schedules

51

 

Item 16

Form 10-K Summary

52

 

 

 

 

 

 

Signatures

53

 

 

Power of Attorney

54

 

 

Exhibit 21.1 - Subsidiaries of Associated Capital Group, Inc.

 

 

 

 

 

 

Certifications

Exhibit 31.1

 

 

 

Exhibit 31.2

 

    Exhibit 31.3  

 

 

Exhibit 32.1

 

 

 

Exhibit 32.2

 

 

 

 

 

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.

 

Definitions

 

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 through which our operations are actually conducted. GAMCO, GAMI, or similar terms refer to our former parent GAMCO Investors, Inc.

 

The information provided in response to Item 7. Managements Discussion and Analysis (MD&A) of Financial Condition and Results of Operations 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.

 

 

PART 1:         OVERVIEW

 

Giving Back to Society - (Y)our S in ESG

 

AC seeks to be a good corporate citizen by supporting our community through sponsoring local organizations. On November 11, 2022, the Board of Directors of AC approved a $0.15 per share shareholder designated charitable contribution (“SDCC”) for registered shareholders as of January 18, 2023. Based on the program created by Warren Buffett at Berkshire Hathaway, our corporate charitable giving is somewhat unique in that the recipients of AC's charitable contributions are chosen directly by the shareholders, rather than our corporate officers. Since our spin off as a public company in 2015, the shareholders of AC have donated approximately $34 million, including $3.0 million for the most recent SDCC, to over 160 organizations (501(c)(3)) across the United States.

 

ITEM 1:

BUSINESS

 

(Y)our Business

 

We are a Delaware corporation, incorporated in 2015, that provides alternative investment management services and operates a direct investment business that over time invests in businesses that fit our criteria. Additionally, we derive income from proprietary investments.

 

Alternative Investment Management

 

We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company Investment Advisers, Inc. (“GCIA”) and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”). GCIA is an investment adviser registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). GCIA and Gabelli & Partners together 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 across a range of risk and event arbitrage portfolios and in equity event-driven value strategies. 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 client portfolios.

 

We manage assets on a discretionary basis and invest in a variety of U.S. and foreign securities mainly in the developed global markets. We primarily employ absolute return strategies with the objective of generating positive returns. We serve a wide variety of investors globally, including private wealth management clients, corporations, corporate pension and profit-sharing plans, foundations and endowments, as well as serving as sub-advisor to certain third-party investment funds.

 

In merger arbitrage, the goal is to earn absolute positive returns. We introduced our first limited partnership, Gabelli Arbitrage (renamed Gabelli Associates Fund), in February 1985. Our typical investment process begins when a deal is announced, buying shares of the target at a discount to the stated deal terms, earning the spread until the deal closes, and reinvesting the proceeds in new deals in a similar manner. By owning a diversified portfolio of transactions, we mitigate the adverse impact of single deal-specific risks. Since inception, we have compounded net annual returns of 7.2% with 36 of 38 positive years, net, overall. As a result, a $10 million investment by a tax free vehicle in this fund at its inception would be worth more than $140 million as of December 31, 2022. In addition, the value of the investment would have exhibited significantly less volatility than that of broad equity indices.

 

As the business and investor base expanded, we launched an offshore version in 1989. Building on our strengths in global event-driven value investing, several investment vehicles have been added to balance investors’ geographic, strategic and sector-specific needs. Today, we manage investments in multiple categories, including merger arbitrage, event-driven value and other strategies.

 

In 2021, our Board of Directors approved the launch of a private equity fund.

 

 

Assets Under Management

 

As of December 31, 2022, we managed approximately $1.84 billion in assets. The following table sets forth AC’s total AUM, including investment funds and separately managed accounts, for the dates shown:

 

   

December 31,

 

($ in millions)

 

2022

   

2021

   

2020

   

2019

   

2018

   

2017

   

2016

   

2015

 

Merger Arbitrage

  $ 1,588     $ 1,542     $ 1,126     $ 1,525     $ 1,342     $ 1,384     $ 1,076     $ 869  

Event-Driven Value(a)

    222       195       180       132       118       91       133       145  

Other(b)

    32       44       45       59       60       66       63       66  

Total AUM

  $ 1,842     $ 1,781     $ 1,351     $ 1,716     $ 1,520     $ 1,541     $ 1,272     $ 1,080  

 

(a)

Assets under management represent the assets invested in this strategy that are attributable to AC.

(b)

Includes investment vehicles focused on private equity, merchant banking, non-investment grade credit and capital structure arbitrage.

 

Proprietary Capital

 

Proprietary capital is earmarked for our direct investment business that invests in new and existing businesses, using a variety of techniques and structures. We launched our direct private equity and merchant banking activities in August 2017. The direct investment business is developing along several core pillars:

 

Gabelli Private Equity Partners, LLC (“GPEP”), formed in August 2017 with $150 million of authorized capital as a “fund-less” sponsor.

 

Gabelli Principal Strategies Group, LLC (“GPS”) was created to pursue strategic operating initiatives broadly.

 

Our direct investing efforts are organized to invest in various ways, including growth capital, leveraged buyouts and restructurings, with an emphasis on small and mid-sized companies. Our investment sourcing is across a variety of channels, including direct owners, private equity funds, classic agents, and corporate carve outs (which are positioned for accelerated growth, as businesses seek to enhance shareholder value through financial engineering). The Company’s direct investing vehicles allow us to acquire companies and create long-term value with no pre-determined exit timetable. 

 

We have a proprietary portfolio of cash and investments which we expect to use to invest primarily in funds that we will manage, provide seed capital for new products, expand our geographic presence, develop new markets and pursue strategic acquisitions and alliances.

 

 

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

 

Since 1985, our results demonstrate our core competence in absolute return, event driven investing through varying market cycles to earn rates of return independent of the broad markets’ direction. Our proprietary “Private Market Value (PMV) with a Catalyst” investing approach remains the principal management philosophy guiding our global research efforts and forms the backbone of our M&A investment activities. The PMV methodology is based on investing principles first articulated by Graham & Dodd, and further refined by our Executive Chair, Mario J. Gabelli. Our M&A portfolios provide access to Gabelli’s deep history of investing in mergers and is a natural extension of our long standing research-driven investment process oriented toward undervalued assets as articulated through our PMV methodology. The investment team takes an active approach to merger investing, analyzing the various qualitative and quantitative aspects of the transaction from announcement to deal completion, coupled with our fundamental understanding of business valuations, building and monitoring transactions in the portfolio across the deal timeline.

 

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. 

 

Opportunities in Private Equity

 

One of our initiatives is to launch a private equity business to capitalize on the developing opportunities in the capital market place.

 

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.

 

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 we do. 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 founding, 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 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 and the financial markets. Under such laws and regulations, agencies that regulate investment advisors have broad powers, including the power to limit, restrict or prohibit such an advisor from carrying on its business in the event that it fails to comply with such laws and regulations. Possible sanctions that may be imposed for non-compliance 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 United States Department of Labor, 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 advisers 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 adviser’s registration. The failure of GCIA to comply with the requirements of the SEC could have a material adverse effect on us.

 

We derive substantially all of our revenues from investment advisory services under investment management agreements. Under the Advisers Act, our investment management agreements cannot be assigned without the client’s consent.

 

Employee Retirement Income Security Act of 1974 (ERISA)

 

GCIA is subject to ERISA and to regulations promulgated thereunder, insofar as it is a “fiduciary” under ERISA with respect to certain of its 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 various regulations applicable to 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 as applicable to us 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, an entity under common control with AC, 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, 2022, by virtue of being a member of the group, AC was deemed to hold five percent or more beneficial ownership with respect to approximately 70 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, (iv) federal proxy rules governing stockholder communications, and (v) 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.

 

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. We are following the guidelines with respect to our collateral management arrangements applicable to the EPM of the UCITS funds for which GCIA acts as a sub-advisor. The costs of complying with increasing regulation in the EU may negatively impact the net performance of the UCITS fund that GCIA sub advises and therefore may result in decreased remuneration to GCIA for this sub advisory activity.

 

 

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 GCIA is not directly subject to MiFID II: (a) GCIA may be invoiced separately by any EU brokers from whom it purchases research in the future; and (b) clients may begin to require that GCIA “unbundle” research payments from commission trading.

 

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 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 UK and/or its employees.

 

Clients whose assets we manage in the EU 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.

 

Brexit Impact

 

Through The European Union (Withdrawal) Act of 2018, GSIL UK remained subject to the requirements of MiFID II as in effect on December 31, 2020 (the “Transition End Date”). MiFID II 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 have a direct effect on some of our European operations. The Company cannot assure you the extent to which the future amendments to or replacement of MiFID II or other EU regulations will be adopted into UK law and continue to apply to GSIL UK after the Transition End Date.

 

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 3, 2023, we had a full-time staff of 24 teammates, of whom 8 served in the portfolio management, research and trading areas, 8 served in the marketing and shareholder servicing areas and 8 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 AC’s spin-off from GAMCO on November 30, 2015.

 

 

Status as a Smaller Reporting 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 not available to other public companies that are not “smaller reporting companies”.

 

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 SEC: our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (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.

 

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

 

Our offices are owned by a wholly-owned subsidiary of AC and are located at 191 Mason Street, Greenwich, CT 06830. A portion of the office space is leased to affiliates. AC received $116.4 thousand and $118.1 thousand from affiliates (primarily GAMCO) pursuant to lease agreements for this property for 2022 and 2021, respectively. These amounts are included in other revenues in the consolidated statements of income.

 

AC acquired 3 St. James Place, London, UK on March 3, 2020, which was fully leased to GAMCO commencing 2021. For the years ended December 31, 2022 and 2021, the Company received $309.8 thousand and $275.4 thousand, respectively, under the lease agreement. These amounts are included in other revenues in the consolidated statements of income.

 

During 2022 and 2021, AC paid $72.1 thousand and $73.7 thousand, respectively, to GAMCO pursuant to a sublease based on the percentage of square footage occupied by several AC teammates (including pro rata allocation of common space) at GAMCO’s offices at One Corporate Center, Rye, NY 10580. These amounts are included in other operating expenses in the consolidated statements of income.

 

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. Management is not aware of any probable or reasonably possible losses at December 31, 2022. See also Note 12, Guarantees, Contingencies and Commitments, to the consolidated financial statements in Part II, Item 8 of this Form 10-K.

 

ITEM 4:

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5:

MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market for our Stock, Dividends and Stock Repurchase Program

 

Shares of our Class A common stock are traded on the New York Stock Exchange ("NYSE") under the symbol AC.

 

As of March 3, 2023, there were 114 and 20 holders of record of the Company’s Class A and Class B common stock, respectively. These figures do not include 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 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 for our repurchase of our Class A common stock during the quarter ended December 31, 2022:

 

                   

Total Number of

   

Maximum

 
   

Total

   

Average

   

Shares Repurchased as

   

Number of Shares

 
   

Number of

   

Price Paid Per

   

Part of Publicly

   

That May Yet Be

 
   

Shares

   

Share, net of

   

Announced Plans

   

Purchased Under

 

Period

 

Repurchased

   

Commissions

   

or Programs

   

the Plans or Programs

 

10/01/22 - 10/31/22

    1,305     $ 39.16       1,305       621,259  

11/01/22 - 11/30/22

    9,326       39.39       9,326       611,933  

12/01/22 - 12/31/22

    2,581       40.87       2,581       609,352  

Totals

    13,212     $ 39.66       13,212          

 

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.

 

The number of shares remaining available for future issuance under equity compensation plans is 1.3 million.

 

ITEM 6:

SELECTED FINANCIAL DATA

 

Smaller reporting companies are not required to provide the information required by this item.

 

ITEM 7:

MANAGEMENTS DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

Associated Capital Group, Inc. (NYSE: AC), a company incorporated under the laws of Delaware, provides alternative investment management services and operates a direct investment business. Our revenues are based primarily on the Company’s level of assets under management (“AUM”).

 

In response to the invasion of Ukraine by Russia, economic sanctions were imposed on individuals and entities within Russia by governments around the world, including the U.S. and the European Union. Furthermore, a novel strain of coronavirus, and its variants ("COVID-19"), continue to disrupt global supply chains, adding broad inflationary pressures impacting companies worldwide. As a result of this pandemic, many of our employees ("teammates") were working remotely in early 2021. The Company's remote work arrangements were mostly discontinued as of July 2021 and a majority of our teammates are now back in our offices. The resulting economic dislocations from the pandemic and the Ukraine-Russia conflict did not have a significant adverse impact on our AUM.

 

There was no material impact of remote work arrangements on our operations, including our financial reporting systems, internal control over financial reporting, and disclosure controls and procedures, and there was no material challenge in implementing our business continuity plan.

 

 

Financial Highlights

 

Financial Performance

 

The following is a summary of the Company’s financial performance for the quarters and years ended December 31, 2022 and 2021:

 

   

Fourth Quarter

   

Full Year

 
   

2022

   

2021

   

2022

   

2021

 

AUM - end of period (in millions)

  $ 1,842     $ 1,781     $ 1,842     $ 1,781  

AUM - average (in millions)

    1,811       1,735       1,817       1,595  

Net income/(loss) per share-diluted

  $ 0.62     $ 0.43     $ (2.22 )   $ 2.68  

Book value per share at December 31

  $ 40.48     $ 42.48     $ 40.48     $ 42.48  

 

Financial Condition Overview

 

The Company consolidates certain investment partnerships and other entities for which it has a controlling financial interest. The following table reflects the net impact of the consolidated investment partnerships and other entities (“Consolidated Entities”) on the consolidated statements of financial condition (in thousands):

 

   

December 31, 2022

 
   

Prior to

   

Consolidated

         

Assets

 

Consolidation

   

Entities

   

As Reported

 

Cash and cash equivalents

  $ 209,941     $ 8,521     $ 218,462  

Investments

    660,445       (2,151 )     658,294  

Other

    42,861       8,073       50,934  

Total assets

  $ 913,247     $ 14,443     $ 927,690  

Liabilities and equity

                       

Total liabilities

  $ 23,051     $ 4,250     $ 27,301  

Redeemable noncontrolling interests

    -       10,193       10,193  

Total Associated Capital Group, Inc. equity

    890,196       -       890,196  

Total liabilities and equity

  $ 913,247     $ 14,443     $ 927,690  

 

   

December 31, 2021

 
   

Prior to

   

Consolidated

         

Assets

 

Consolidation

   

Entities

   

As Reported

 

Cash and cash equivalents

  $ 315,009     $ 4,039     $ 319,048  

Investments

    606,382       16,709       623,091  

Other

    69,713       191,484       261,197  

Total assets

  $ 991,104     $ 212,232     $ 1,203,336  

Liabilities and equity

                       

Total liabilities

  $ 45,024     $ 20,510     $ 65,534  

Redeemable noncontrolling interests

    -       202,456       202,456  

Total Associated Capital Group, Inc. equity(1)

    946,080       (8,978 )     937,102  

Noncontrolling interests(1)

    -       (1,756 )     (1,756 )

Total liabilities and equity

  $ 991,104     $ 212,232     $ 1,203,336  

 

(1) Debit adjustments to Associated Capital Group, Inc. equity and noncontrolling interests reflects the amortization of the discount related to the issuance of PMV SPAC’s (as defined in Note 1) redeemable noncontrolling interest. The discount is amortized through an adjustment to additional paid-in capital and noncontrolling interest (proportionate to ownership interest in PMV Sponsor, as defined in Note 1) and is also adjusted periodically for income/loss allocated to redeemable noncontrolling interest.

 

 

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 attracts 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. In light of the ongoing dynamics created by the Russian invasion of Ukraine and COVID-19, and their impact on the global economy and markets, we could experience higher volatility in short-term returns of our funds.

 

Incentive fees generally consist of an incentive allocation on the absolute gain in a portfolio generally equating to 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.

 

Compensation includes variable and fixed compensation and related expenses paid to officers, portfolio managers, sales, trading, research and all other professional staff. Variable compensation is paid to sales personnel and portfolio management and may represent up to approximately 55% of revenues.

 

Management fee expense is incentive-based equal to 10% of adjusted aggregate pre-tax profits paid to the Executive Chair or his designees for his services pursuant to an employment agreement.

 

Other operating expenses include general and administrative operating costs.

 

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 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 1 and 5 in our consolidated financial statements included elsewhere in this report.

 

Consolidated Statements of Financial Condition

 

We ended 2022 with approximately $873.9 million in cash and investments, net of securities sold, not yet purchased of $2.9 million. This includes $218.5 million of cash and cash equivalents; $186.0 million of short-term U.S. Treasury obligations; $192.7 million of securities, net of securities sold, not yet purchased, including shares of GAMCO with a market value of $36.7 million; and $276.7 million invested in affiliated and third-party funds and partnerships, including investments in closed end funds managed by affiliates (primarily GAMCO) which have a value of $56.8 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 equity attributable to shareholders of the Company was $890.2 million or $40.48 per share as of December 31, 2022, compared to $937.1 million or $42.48 per share as of the prior year-end. Shareholders’ equity per share is calculated by dividing the total Associated Capital Group, Inc. equity by the number of common shares outstanding. 

 

Assets Under Management Highlights

 

We reported assets under management as follows (dollars in millions):

   

December 31,

   

December 31,

         
   

2022

   

2021

   

% Change

 

Merger Arbitrage

  $ 1,588     $ 1,542       3.0  

Event-Driven Value

    222       195       13.8  

Other

    32       44       (27.3 )

Total AUM (a)

  $ 1,842     $ 1,781       3.4  

 

(a) Includes $239 million and $238 million of proprietary capital, respectively.

 

 

Changes in our AUM during 2022 were as follows (dollars in millions):

 

   

December 31,

                   

Investment

   

Foreign

   

December 31,

 
   

2021

   

Inflows

   

Outflows

   

Return

   

Currency(1)

   

2022

 

Merger Arbitrage

  $ 1,542     $ 573     $ (504 )   $ 50     $ (73 )   $ 1,588  

Event-Driven Value

    195       40       (2 )     (11 )     -       222  

Other

    44       -       (7 )     (5 )     -       32  

Total AUM

  $ 1,781     $ 613     $ (513 )   $ 34     $ (73 )   $ 1,842  

 

(1) Reflects the impact of currency fluctuations of non-US dollar classes of investment funds.

 

The majority of our AUM have calendar year-end measurement periods, and our incentive fees are primarily recognized in the fourth quarter. Assets under management increased on a net basis by $61 million for the year ended December 31, 2022 due to net investor inflows of $100 and market appreciation of $34, partially offset by the impact of currency fluctuations of $73 from non-US dollar classes of investment funds.

 

Operating Results for the Year Ended December 31, 2022 as Compared to the Year Ended December 31, 2021

 

Revenues

 

Total revenues were $15.2 million for the year ended December 31, 2022, $5.7 million lower than total revenues of $20.9 million for the year ended December 31, 2021. Total revenues by type were as follows (dollars in thousands):

 

   

Year Ended December 31,

   

Change

 
   

2022

   

2021

   

$

   

%

 
                                 

Investment advisory and incentive fees

    14,801       20,530       (5,729 )     (27.9 )

Other revenues

    427       394       33       8.4  

Total revenues

  $ 15,228     $ 20,924       (5,696 )     (27.2 )

 

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.

 

Advisory and incentive fees were $14.8 million for 2022 compared to $20.5 million for 2021, a decrease of $5.7 million. This decrease is the result of lower performance-based incentive fees, partially offset by higher management fees based on higher average AUM in 2022.

 

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 $5.1 million in 2022, down $7.3 million from $12.4 million in 2021, due to superior investment performance in 2021.

 

Other revenues: Other revenues were $0.4 million in 2022 and $0.4 million in 2021.

 

Expenses

 

Compensation: Compensation, which includes variable compensation, salaries, bonuses and benefits, was $18.9 million for the year ended December 31, 2022, a decrease of $5.6 million from $24.5 million for the year ended December 31, 2021. Fixed compensation expense, which includes salaries, stock-based compensation, bonuses and benefits, increased to $11.5 million in 2022 from $11.1 million in 2021. 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 2022, these variable payouts (based on the investment performance of the products with incentive fees) were $7.4 million, a decrease of $6.0 million from $13.4 million in 2021.

 

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 Chair or his designees pursuant to his employment agreement with AC. In 2022 AC recorded no management fee expense due to pre-tax losses compared to management fee expense of $8.4 million in 2021.

 

Other operating expenses: Our other operating expenses were $7.6 million in 2022 compared to $7.1 million in 2021.

 

 

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 portfolio. For the year ended December 31, 2022, net losses from investments were $56.5 million compared to gains of $93.4 million in 2021. In 2022, market volatility brought on by rising interest rates, geo-political factors, and accelerating inflation impacted AC's investments, other than investments in merger arbitrage funds, on a mark-to-market basis.

 

Interest and dividend income: Interest and dividend income decreased to $10.7 million in 2022 from $12.1 million in 2021, primarily due to the $5.1 million ($2 per share) special dividend declared on our holdings of GAMCO in 2021, partially offset by higher interest income on our investments in treasury bills as a result of higher nominal interest rates in 2022.

 

Income Taxes

 

In 2022, we recorded an income tax benefit of $14.9 million resulting in an effective tax rate (“ETR”) of 24.7%. In 2021, we recorded income tax expense of $17.7 million resulting in an ETR of 21.8%. The increase in rate from 2021 is primarily driven by foreign investments and foreign income, which increased the 2022 rate by approximately 0.9% and decreased the 2021 rate by approximately 1.2%.

 

Noncontrolling Interests

 

Net income attributable to noncontrolling interests was $3.4 million in 2022 compared to $4.4 million in 2021. The decrease of $1.0 million was driven primarily by the deconsolidation of Consolidated PMV (as defined in Note 1) in Q3 2022 and the Gabelli Merger Plus+ Trust tender offer in Q3 2022.

 

Net Income/(Loss)

 

Net loss for the year ended December 31, 2022 was $48.9 million compared to net income of $59.2 million for the prior year. The change was primarily driven by market uncertainty in 2022, which impacted AC's investments, other than our investments in merger arbitrage funds, on a mark-to-market basis.

 

Liquidity and Capital Resources

 

Our principal assets consist of cash and cash equivalents; short-term treasury securities; marketable securities, primarily equities, including 2.4 million shares of GAMCO; 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):

   

Year Ended December 31,

 
   

2022

   

2021

 

Cash flows provided by (used in):

               

Operating activities

  $ (70,552 )   $ 238,194  

Investing activities

    402       65,285  

Financing activities

    (37,175 )     (14,394 )

Net (decrease)/increase in cash, cash equivalents and restricted cash

    (107,325 )     289,085  

Cash, cash equivalents and restricted cash at beginning of period

    328,594       39,509  

Cash, cash equivalents and restricted cash at end of period

  $ 221,269     $ 328,594  

 

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 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, 2022, we had cash and cash equivalents of $218.5 million, investments in U.S. Treasury Bills of $186.0 million and $192.7 million of investments, net of securities sold, not yet purchased of $2.9 million. Included in cash and cash equivalents are $8.5 million and $4.0 million as of December 31, 2022 and 2021, respectively, which were held by consolidated investment funds and may not be readily available for the Company to access.

 

Net cash used in operating activities was $70.6 million in 2022 due to $89.4 million of net increases driven by increases of securities less net distributions from investment partnerships and our net loss of $45.5 million, partially offset by $43.6 million of adjustments for noncash items, primarily unrealized losses on investment securities and partnership investments and deferred taxes, and $20.7 million in net receivables/payables.

 

 

Net cash provided by operating activities was $238.2 million in 2021 due to $278.1 million of net decreases of securities and net contributions to investment partnerships and our net income of $63.6 million, offset by $82.9 million of adjustments for noncash items, primarily gains on investments securities and partnership investments and deferred taxes, and $20.6 million in net receivables/payables.

 

Net cash provided by investing activities was $0.4 million in 2022 due to proceeds from maturities of debt securities held to maturity of $5.1 million, proceeds from sales of securities of $2.9 million, return of capital on securities of $2.3 million, partially offset by purchases of securities of $8.5 million and the impact of deconsolidation of our subsidiary of $1.4 million.

 

Net cash provided by investing activities was $65.3 million in 2021 due to proceeds from sales of securities of $35.3 million and return of capital on securities of $38.7 million, partially offset by purchases of securities of $8.7 million.

 

Net cash used in financing activities was $37.2 million in 2022 resulting from redemptions of redeemable noncontrolling interests of $30.2 million, dividends paid of $4.4 million and stock buyback payments of $2.6 million.

 

Net cash used in financing activities was $14.4 million in 2021 resulting from stock buyback payments of $7.6 million, dividends paid of $4.4 million and redemptions of redeemable noncontrolling interests of $2.3 million.

 

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:

 

Major Revenue-Generating Services and Revenue Recognition

 

The Company’s revenues are derived primarily from investment advisory and incentive fees.

 

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.

 

See Note 2, Significant Accounting Policies, in the consolidated financial statements for additional information.

 

Investments in Securities

 

Investments in securities are recorded at fair value in the consolidated statements of financial condition in accordance with U.S. GAAP. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain/(loss) from investments on the consolidated statements of income.

 

 

Management determines the appropriate classification of securities at the time of purchase. Government debt with maturities of greater than three months at the time of purchase are considered investments in debt securities. The Company has investments in debt securities accounted for as trading, including investments in marketable securities held in trust by PMV in 2021 and prior to the deconsolidation of Consolidated PMV in August 2022.

 

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 the 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. Fees 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 in which the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether it qualifies as a variable interest entity (“VIE”). A VIE is an entity in which either the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest.

 

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 evaluates consolidation on a case by case basis for 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 (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 in the aggregate have a controlling financial interest in the VIE, the Company will be deemed to be 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 a 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 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. The Company evaluates whether the entity should be evaluated under the guidance for partnerships and similar entities, or corporations, and consolidates those entities it controls through a majority voting interest or other means. If the Company is the general partner or managing member it generally will not be required to consolidate a VOE.

 

The Company records noncontrolling interests in consolidated Investment Partnerships for which the Company’s ownership is less than 100%.

 

See Note 5, Investment Partnerships and Other 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 managed funds. We also have investments in unaffiliated partnerships, offshore funds and other entities (collectively, “investments in partnerships and affiliates”). The Company accounts for its investments in partnerships and affiliates under the equity method. Substantially all of the Company’s equity method investees are entities that record their underlying investments at fair value and are included in investments in partnerships in the consolidated statements of financial condition. 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 in net gain/(loss) from investments on the consolidated statements of income. Capital contributions are recorded as an increase in investments when payable, and withdrawals and distributions are recorded as reductions of the investments when receivable. Depending on the terms of the investment, the Company may be restricted as to the timing and amounts of withdrawals.

 

 

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 recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is 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. To the extent uncertain tax positions exist, the Company recognizes the accrual of interest on uncertain tax positions and penalties in the income tax provision on the consolidated statements of income.

 

Recent Accounting Developments

 

See Note 2, 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.

 

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

 

 

Page

 

 

Report of Independent Registered Public Accounting Firm (PCAOB ID #34)

20

 

 

Consolidated Financial Statements:

 

Consolidated Statements of Income for the years ended December 31, 2022 and 2021

21

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021

22

Consolidated Statements of Financial Condition at December 31, 2022 and 2021

23

Consolidated Statements of Equity for the years ended December 31, 2022 and 2021

24

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

26

Notes to Consolidated Financial Statements:

 

1. Organization

28

2. Significant Accounting Policies

29

3. Revenue

36

4. Investments in Securities

36

5. Investments in Partnerships and Other Entities

37

6. Fair Value

41

7. Income Taxes

43

8. Earnings per Share

45

9. Related Party Transactions

45

10. Equity

47

11. Retirement Plan

48

12. Guarantees, Contingencies, and Commitments

48

13. Shareholder Designated Contribution Plan

49

14. Subsequent Events

49

 

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission that are not required under the related instructions or are inapplicable have been omitted.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and the Board of Directors of Associated Capital Group, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of financial condition of Associated Capital Group, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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.

 

Critical Audit Matters

 

The critical audit matter communiacted below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

 

Deconsolidation of PMV Consumer Acquisition Corp - Refer to Notes 1, 2 and 5 to the financial statements

 

Critical Audit Matter Description

 

The Company assesses all entities with which it is involved for consolidation on a case-by-case basis depending on the specific facts and circumstances surrounding each entity. Pursuant to the 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 variable interests. For any entity where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether it qualifies as a variable interest entity (“VIE”). Entities that do not qualify as VIEs are assessed for consolidation as voting interest entities (“VOEs”) under the voting interest model. The Company evaluates whether the entity should be evaluated under the guidance for partnerships and similar entities, or corporations, and consolidates those entities it controls through a majority voting interest or other means.

 

PMV Consumer Acquisition Corp. (“PMV”, or “PMV SPAC”), a special purpose acquisition corporation, and its sponsor, PMV Consumer Acquisition Holding Company, LLC ("Sponsor", collectively "Consolidated PMV") were previously consolidated in the financial statements of the Company because the Company had a controlling financial interest in these entities through the Company’s 100% ownership of the manager of the Sponsor. Commencing in August 2022, as a result of management and organizational restructuring negotiations at the Sponsor to extend the life of PMV, the Company no longer controlled the manager of the Sponsor and thus no longer controlled Consolidated PMV. As a result, Consolidated PMV was deconsolidated from the financial statements. 

 

We identified the deconsolidation of Consolidated PMV, as a Critical Audit Matter because of the significant judgement involved in the application of the consolidation accounting principles in Accounting Standards Codification (“ASC”) No. 810, Consolidation (“ASC 810”). The judgement was related to whether the Company continued to have substantive control of Consolidated PMV.

 

How the Critical Audit Matter was Addressed in the Audit:

 

1.

We evaluated management’s consolidation analysis, including their conclusion that the Company no longer has a controlling financial interest in Consolidated PMV.

2.

We considered whether management’s conclusions were supported by transaction documents and other relevant facts.

3.

We involved senior, more experienced audit team members to perform audit procedures.

4.

We evaluated the financial statement impact and related disclosures associated with the deconsolidation of these entities.

 

/s/ Deloitte & Touche, LLP

 

Stamford, Connecticut

 

March 15, 2023

We have served as the Company’s auditor since 2015.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

 

                 
   

Year Ended December 31,

 
   

2022

   

2021

 

Revenues

               

Investment advisory and incentive fees

  $ 14,801     $ 20,530  

Other revenues

    427       394  

Total revenues

    15,228       20,924  

Expenses

               

Compensation

    18,883       24,457  

Management fee

    -       8,426  

Other operating expenses

    7,607       7,117  

Total expenses

    26,490       40,000  

Operating loss

    (11,262 )     (19,076 )

Other income/(expense)

               

Net gain/(loss) from investments

    (56,513 )     93,405  

Interest and dividend income

    10,653       12,109  

Interest expense

    (216 )     (310 )

Shareholder-designated contribution

    (3,127 )     (4,789 )

Total other income/(expense), net

    (49,203 )     100,415  

Income/(loss) before income taxes

    (60,465 )     81,339  

Income tax expense/(benefit)

    (14,943 )     17,705  

Income/(loss) before noncontrolling interests

    (45,522 )     63,634  

Income attributable to noncontrolling interests

    3,385       4,431  

Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders

  $ (48,907 )   $ 59,203  
                 

Net income/(loss) per share attributable to Associated Capital Group, Inc.'s shareholders:

               

Basic

  $ (2.22 )   $ 2.68  

Diluted

  $ (2.22 )   $ 2.68  
                 

Weighted average shares outstanding (in thousands):

               

Basic

    22,024       22,120  

Diluted

    22,024       22,120  
                 

Actual shares outstanding (in thousands)

    21,990       22,058  

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

 

                 
   

Year Ended December 31,

 
   

2022

   

2021

 
                 

Net income/(loss) before noncontrolling interests

  $ (45,522 )   $ 63,634  

Less: Comprehensive income attributable to noncontrolling interests

    3,385       4,431  

Comprehensive income/(loss) attributable to Associated Capital Group, Inc.

  $ (48,907 )   $ 59,203  

 

See accompanying notes.

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except per share data)

 

  

December 31,

  

December 31,

 

ASSETS

  2022   2021 

Cash and cash equivalents (includes U.S. Treasury Bills with maturities of 3 months or less)

 $218,462  $319,048 

Investments in U.S. Treasury Bills with greater than 3 month maturities

  186,001   60,996 

Investments in equity securities (includes GAMCO stock with a value of $36.7 million and $60.4 million, respectively)

  195,585   273,087 

Investments in affiliated registered investment companies

  126,210   134,548 

Investments in partnerships

  150,498   154,460 

Receivable from brokers

  12,072   42,478 

Investment advisory fees receivable

  3,807   8,315 

Receivable and investment in note receivable from affiliates

  2,517   10,094 

Income taxes receivable, including deferred tax assets, net

  10,320   - 

Goodwill

  3,519   3,519 

Other assets

  18,699   21,682 

Investments in marketable securities held in trust

  -   175,109 

Total assets

 $927,690  $1,203,336 
         

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

        
         

Payable to brokers

 $7,784  $9,339 

Income taxes payable, including deferred tax liabilities, net

  -   8,575 

Compensation payable

  13,936   19,730 

Securities sold, not yet purchased

  2,874   12,905 

Accrued expenses and other liabilities

  2,707   3,580 

Deferred underwriting fee payable

  -   6,125 

PMV warrant liability

  -   5,280 

Total liabilities

  27,301   65,534 
         

Redeemable noncontrolling interests

  10,193   202,456 
         

Commitments and contingencies (Note 12)

          
         

Equity:

        

Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding

  -   - 

Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,629,254 shares issued; 3,027,541 and 3,095,169 shares outstanding, respectively

  6   6 

Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued; 18,962,754 and 18,962,918 outstanding, respectively

  19   19 

Additional paid-in capital

  999,047   990,069 

Retained earnings

  15,126   68,435 

Treasury stock, at cost (3,601,877 and 3,534,085 shares, respectively)

  (124,002)  (121,427)

Total Associated Capital Group, Inc. equity

  890,196   937,102 

Noncontrolling interests

  -   (1,756)

Total equity

  890,196   935,346 

Total liabilities and equity

 $927,690  $1,203,336 

 

As of December 31, 2022 and 2021, certain balances include amounts related to consolidated variable interest entities (“VIEs”) and voting interest entities ("VOEs"), see Note 5.

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

 

(Dollars in thousands)

For the three months ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022

 

  

Associated Capital Group, Inc. shareholders

             
          

Additional

                  

Redeemable

 
  

Common

  

Retained

  

Paid-in

  

Treasury

      

Noncontrolling

  

Total

  

Noncontrolling

 
  

Stock

  

Earnings

  

Capital

  

Stock

  

Total

  

Interests

  

Equity

  

Interests

 

Balance at December 31, 2021

 $25  $68,435  $990,069  $(121,427) $937,102  $(1,756) $935,346  $202,456 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (486)

Net income/(loss)

  -   (16,186)  -   -   (16,186)  197   (15,989)  2,484 

Purchases of treasury stock

  -   -   -   (293)  (293)  -   (293)  - 

Accretion of redeemable noncontrolling interest

  -   -   (584)  -   (584)  (292)  (876)  876 

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (10)

Balance at March 31, 2022

 $25  $52,249  $989,485  $(121,720) $920,039  $(1,851) $918,188  $205,320 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (486)

Net income/(loss)

  -   (29,887)  -   -   (29,887)  83   (29,804)  (288)

Dividends declared ($0.10 per share)

  -   (2,203)  -   -   (2,203)  -   (2,203)  - 

Purchases of treasury stock

  -   -   -   (1,317)  (1,317)  -   (1,317)  - 

Accretion of redeemable noncontrolling interest

  -   -   662   -   662   331   993   (993)

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (226)

Balance at June 30, 2022

 $25  $20,159  $990,147  $(123,037) $887,294  $(1,437) $885,857  $203,327 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (29,001)

Net income/(loss)

  -   (16,498)  -   -   (16,498)  -   (16,498)  494 

Purchases of treasury stock

  -   -   -   (441)  (441)  -   (441)  - 

Reversal of accretion of redeemable noncontrolling interest

  -   -   8,900   -   8,900   4,305   13,205   (13,205)

Effect of deconsolidation

  -   -   -   -   -   (2,868)  (2,868)  (152,100)

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   263 

Balance at September 30, 2022

 $25  $3,661  $999,047  $(123,478) $879,255  $-  $879,255  $9,778 

Net income/(loss)

  -   13,664   -   -   13,664   -   13,664   415 

Dividends declared ($0.10 per share)

  -   (2,199)  -   -   (2,199)  -   (2,199)  - 

Purchases of treasury stock

  -   -   -   (524)  (524)  -   (524)  - 

Balance at December 31, 2022

 $25  $15,126  $999,047  $(124,002) $890,196  $-  $890,196  $10,193 

 

See accompanying notes.

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

 

(Dollars in thousands)

For the three months ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021

 

  

Associated Capital Group, Inc. shareholders

             
          

Additional

                  

Redeemable

 
  

Common

  

Retained

  

Paid-in

  

Treasury

      

Noncontrolling

  

Total

  

Noncontrolling

 
  

Stock

  

Earnings

  

Capital

  

Stock

  

Total

  

Interests

  

Equity

  

Interests

 

Balance at December 31, 2020

 $25  $13,649  $999,047  $(113,783) $898,938  $2,451  $901,389  $206,828 

Contributions from redeemable noncontrolling interests

  -   -   -   -   -   -   -   136 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (12,066)

Net income

  -   18,555   -   -   18,555   -   18,555   172 

Purchases of treasury stock

  -   -   -   (4,198)  (4,198)  -   (4,198)  - 

Balance at March 31, 2021

 $25  $32,204  $999,047  $(117,981) $913,295  $2,451  $915,746  $195,070 

Contributions from redeemable noncontrolling interests

  -   -   -   -   -   -   -   665 

Net income/(loss)

  -   29,716   -   -   29,716   -   29,716   (532)

Dividends declared ($0.10 per share)

  -   (2,211)  -   -   (2,211)  -   (2,211)  - 

Purchases of treasury stock

  -   -   -   (1,893)  (1,893)  -   (1,893)  - 

Accretion of redeemable noncontrolling interest

  -   -   (6,001)  -   (6,001)  (2,892)  (8,893)  8,893 

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (7,527)

Balance at June 30, 2021

 $25  $59,709  $993,046  $(119,874) $932,906  $(441) $932,465  $196,569 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (2,161)

Net income/(loss)

  -   1,503   -   -   1,503   122   1,625   3,879 

Purchases of treasury stock

  -   -   -   (1,396)  (1,396)  -   (1,396)  - 

Accretion of redeemable noncontrolling interest

  -   -   (1,028)  -   (1,028)  (478)  (1,506)  1,506 

Balance at September 30, 2021

 $25  $61,212  $992,018  $(121,270) $931,985  $(797) $931,188  $199,793 

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (973)

Net income/(loss)

  -   9,429   -   -   9,429   15   9,444   775 

Dividends declared ($0.10 per share)

  -   (2,206)  -   -   (2,206)  -   (2,206)  - 

Purchases of treasury stock

  -   -   -   (157)  (157)  -   (157)  - 

Accretion of redeemable noncontrolling interest

  -   -   (1,949)  -   (1,949)  (974)  (2,923)  2,923 

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (62)

Balance at December 31, 2021

 $25  $68,435  $990,069  $(121,427) $937,102  $(1,756) $935,346  $202,456 

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

         
  

Year Ended December 31,

 
  

2022

  

2021

 

Operating activities

        

Net income/(loss)

 $(45,522) $63,634 

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

        

Equity in net (gains)/losses from partnerships

  1,895   (23,392)

Depreciation and amortization

  341   379 

Deferred income taxes

  (14,211)  8,742 

Donated securities

  711   2,213 

Unrealized (gains)/losses on securities

  64,078   (26,791)

Dividends received as securities

  -   (5,066)

Loss on deconsolidation of subsidiary

  3,634   - 

Realized gains on sales of securities

  (12,846)  (38,971)

(Increase)/decrease in assets:

        

Investments in trading securities

  (92,484)  281,986 

Investments in partnerships:

        

Contributions to partnerships

  (7,510)  (15,172)

Distributions from partnerships

  10,643   11,308 

Receivable from affiliates

  2,511   (285)

Receivable from brokers

  23,667   (10,097)

Investment advisory fees receivable

  4,462   (916)

Income taxes receivable

  (2,644)  - 

Other assets

  2,609   (1,454)

Increase/(decrease) in liabilities:

        

Payable to affiliates

  -   (2,188)

Payable to brokers

  (1,555)  2,843 

Income taxes payable

  (2,040)  (7,706)

Compensation payable

  (5,794)  1,163 

Accrued expenses and other liabilities

  (497)  (2,036)

Total adjustments

  (25,030)  174,560 

Net cash (used in)/provided by operating activities

  (70,552)  238,194 
         

Investing activities

        

Maturities of marketable securities held in trust

  -   175,109 

Purchases of marketable securities held in trust

  -   (175,109)

Purchases of securities

  (8,462)  (8,738)

Proceeds from sales of securities

  2,940   35,329 

Return of capital on securities

  2,329   38,694 

Deconsolidation of subsidiary cash

  (1,471)  - 

Proceeds from maturities of debt securities held to maturity

  5,066   - 

Net cash provided by investing activities

 $402  $65,285 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

 

         
  

Year Ended December 31,

 
  

2022

  

2021

 

Financing activities

        

Dividends paid

 $(4,402) $(4,417)

Purchases of treasury stock

  (2,575)  (7,644)

Redemptions of redeemable noncontrolling interests

  (30,198)  (2,333)

Net cash used in financing activities

  (37,175)  (14,394)

Net (decrease)/increase in cash, cash equivalents and restricted cash

  (107,325)  289,085 

Cash, cash equivalents and restricted cash at beginning of period

  328,594   39,509 

Cash, cash equivalents and restricted cash at end of period

 $221,269  $328,594 
         

Supplemental disclosures of cash flow information:

        

Cash paid for interest

 $216  $310 

Cash paid for taxes

 $4,024  $16,741 
         

Reconciliation of Cash, cash equivalents and restricted cash at end of period:

        

Cash and cash equivalents

 $218,462  $319,048 

Restricted cash included in receivable from broker

  2,807   9,546 

Cash, cash equivalents and restricted cash

 $221,269  $328,594 

 

Non-cash activity:

 

-

For 2022, the Company deconsolidated certain subsidiaries which resulted in a reduction of $176.9 million of assets, $7.4 million of liabilities and $165.0 million of Redeemable noncontrolling interests. The deconsolidated assets are almost entirely attributable to $175.4 million of Investments in marketable securities held in trust and $1.5 million of cash held by Consolidated PMV (as defined in Note 1), the latter of which is reflected as an Investing outflow. The deconsolidated liabilities are almost entirely attributable to $6.1 million Deferred underwriting fee payable, and $0.9 million of PMV warrant liability. As a result of deconsolidation, $9.9 million of Investments in securities and $1.0 million of Investments in partnerships, which were previously eliminated in consolidation, were recognized in the consolidated statement of financial condition (see Note 5).

 

See accompanying notes.

 

 

 

1. Organization

 

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries.

 

We are a Delaware corporation that provides alternative investment management, and we derive investment income/(loss) from proprietary investment of cash and other assets in our operating business. Our proprietary portfolio of cash and investments will be used to invest primarily in funds that we will manage, provide seed capital for new products, expand our geographic presence, develop new markets and pursue strategic acquisitions and alliances.

 

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 across a range of risk and event arbitrage portfolios and in equity event-driven value strategies. The businesses earn management and incentive fees from their advisory activities. Management fees are largely based on a percentage of assets under management. 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”).

 

PMV Consumer Acquisition Corp.

 

PMV Consumer Acquisition Corp. (“PMV”, or “PMV SPAC”), a special purpose acquisition corporation, and its sponsor, PMV Consumer Acquisition Holding Company, LLC ("Sponsor", collectively "Consolidated PMV") were previously consolidated in the financial statements of AC because AC had a controlling financial interest in these entities through AC's 100% ownership of the manager of the Sponsor. Commencing in August 2022, as a result of management and organizational restructuring negotiations at the Sponsor to extend the life of PMV, AC no longer controlled the manager of the Sponsor and thus no longer controlled Consolidated PMV. As a result, Consolidated PMV was deconsolidated from the financial statements in August 2022. 

 

As of December 31, 2021, the Consolidated PMV entity resulted in the consolidation of $163.8 million of assets, $11.5 million of liabilities, $161.8 million of redeemable noncontrolling interests and $1.8 million of noncontrolling interests. There are several other entities that are consolidated within the financial statements for both 2022 and 2021. The details on the impact of consolidating these entities on the consolidated financial statements can be seen in Note 5. Investment Partnerships and Other Entities.

 

See Note 5 for a further discussion of PMV Consumer Acquisition Corp., as well as its registration statement, Annual Reports, and Quarterly Reports, which are all located on the U.S. Securities and Exchange Commission website https://www.sec.gov under the symbol PMVC.

 

AC Spin-off

 

On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GAMI”) 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”).

 

As part of the Spin-off, AC received 4,393,055 shares of GAMCO Class A common stock for $150 million. The Company currently holds 2,407,000 shares as of December 31, 2022.

 

 

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2. Significant Accounting Policies

 

Consolidated Financial Statements

 

All intercompany transactions and balances have been eliminated. Subsidiaries are fully consolidated from the date the Company obtains control and continue to be consolidated until the date that such control ceases. The Company’s principal market is in the United States.

 

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 amounts reported on the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash equivalents primarily consist of an affiliated money market mutual fund which is highly liquid. U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents.

 

Investments in Securities

 

Securities owned are recorded at fair value in the statements of financial condition with any unrealized gains or losses reported in current period earnings in net gain/(loss) from investments on the consolidated statements of income. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain/(loss) from investments on the consolidated statements of income.

 

Management determines the appropriate classification of debt securities at the time of purchase. Government debt securities with maturities of greater than three months at the time of purchase are considered investments in debt securities. 

 

Investments in securities are reflected in U.S. Treasury Bills, investments in equity securities, investments in affiliated registered investment companies and investments in marketable securities held in trust.

 

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

 

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the 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.

 

 

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.

 

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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 short-term Treasury Bills and 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 or an active dealer market. 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.

 

Investment in note receivable from affiliate – Investment in note receivable from affiliate is not measured at fair value on a recurring basis, however fair value is estimated based on observed market inputs for similar instruments and therefore is classified as Level 2.

 

PMV warrant liability – PMV warrant liability was valued based on quoted prices from an exchange and is categorized in Level 1 of the fair value hierarchy.

 

Investments in marketable securities held in trust account

 

At December 31, 2021, debt securities of Consolidated PMV were held in a trust account and consisted of U.S. Treasury Bills accounted for as trading in accordance with ASC 320 “Investments – Debt and Equity Securities.” Trading securities are recorded at fair value, with changes in fair value recorded in the consolidated statements of income. 

 

Receivables from Affiliates and Payables to Affiliates

 

Receivables from affiliates consist primarily of sub-advisory fees due from Gabelli Funds, LLC, a subsidiary of GAMCO. 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 AC Spin-off.

 

Receivables from and Payables to Brokers

 

Receivables from and payables to brokers consist of amounts related to purchases and sales of securities, restricted cash held on deposit and cash amounts held in anticipation of investment.

 

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Consolidation

 

The Company assesses all entities with which it is involved for consolidation on a case by case basis depending on the specific facts and circumstances surrounding each entity. Pursuant to the 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 considered a variable interest. Fees paid to the Company that are customary and commensurate with the level of services provided from entities in which the Company does not hold more than an insignificant economic interest are not considered as a variable interest.

 

For any entity in which the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether it qualifies as a variable interest entity (“VIE”). A VIE is an entity in which either the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest. The granting of substantive kick-out or participating 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 evaluates for consolidation on a case by case basis those entities in which substantive kick-out or participating 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. The Company evaluates whether the entity should be evaluated under the guidance for partnerships and similar entities, or corporations, and consolidates those entities it controls through a majority voting interest or other means. If the Company is the general partner or managing member it generally will not be required to consolidate a VOE.

 

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.

 

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 financial statement caption investments in partnerships, in the consolidated statements of financial condition, includes investments in both affiliated and unaffiliated entities.

 

The Company accounts for its investments in partnerships and affiliates under the equity method. Substantially all of the Company’s equity method investees are entities that record their underlying investments at fair value and are included in investments in partnerships. 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 in net gain/(loss) from investments on the consolidated statements of income. Capital contributions are recorded as an increase in investments when payable, and withdrawals and distributions are recorded as reductions of the investments when receivable. Depending on the terms of the investment, the Company may be restricted as to the timing and amounts of withdrawals.

 

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. 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. 

 

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Major Revenue-Generating Services and Revenue Recognition

 

The Company’s revenues are derived primarily from investment advisory and incentive fees.

 

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.

 

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 15%-20%, of the investment performance of the account over a measurement period, typically the calendar year. In addition, the contracts provide that performance-based fees or allocations become fixed in the event of an investor redemption prior to the end of the measurement period. In the event that an account suffers a loss in one period, it must be recovered before incentive fees are earned by the Company; this is commonly referred to as a “high water mark” provision. While the Company’s performance obligation is satisfied over time, the Company does not recognize performance-based fees until the end of the measurement period or the time of the investor redemption when the uncertainty surrounding the amount of the variable consideration is resolved.

 

 

c)

Sub-advisory fees – Pursuant to agreements with other investment advisors, the Company receives a percentage of advisory fees received by such advisors from certain of their investment fund clients. These fees may be either asset- or performance-based. In addition, they may be subject to reduction by certain expenses as set forth in the respective agreements. Sub-advisory fee revenue which is asset-based is recognized ratably as the services are performed over the relevant contractual performance period. Sub-advisory fee revenue which is performance-based is recognized only when it becomes fixed and not subject to adjustment. Amounts receivable are included in receivable and investment in note receivable from affiliates in the consolidated statements of financial condition.

 

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 services. 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.

 

32

 

Depreciation

 

Fixed assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives of four to thirty-nine years and are included in other assets on the consolidated statements of financial condition.

 

Fixed assets as of December 31, 2022 and 2021 consisted of the following (in thousands):

 

 

  December 31, 
  

2022

  

2021

 

Buildings

 $17,748  $17,745 

Equipment

  207   206 

Total

  17,955   17,951 

Less: accumulated depreciation

  (1,102)  (761)

Net book value

 $16,853  $17,190 

 

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 (primarily GAMCO) 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.

 

The compensation expense and related payroll taxes and benefits of certain dual employees that provide services to both AC and affiliates are allocated 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 Chair or his designees in accordance with his employment agreement.

 

Stock-Based Compensation

 

From time to time, the Company’s Board of Directors approves grants of Phantom Restricted Stock awards (“Phantom RSAs”). The Phantom RSAs are 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. The Company amortizes each award based on the applicable 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.

 

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, 2022 and 2021, 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 2022 or 2021.

 

33

 

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.

 

For uncertain tax positions 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. Uncertain tax positions and accrued interest and penalties on those uncertain tax positions, if any, are included within accrued expenses and other liabilities on the consolidated statements of financial condition.

 

Redeemable Noncontrolling Interests and Noncontrolling Interests

 

Noncontrolling interests in Investment Partnerships or other entities 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. Noncontrolling interests in other entities that are not redeemable at the option of the holder are classified as such as a separate component of shareholder’s equity.

 

Redeemable Noncontrolling Interests-PMV

 

Prior to the deconsolidation of Consolidated PMV, the Company accounted for the common stock held by noncontrolling interest holders of PMV SPAC as subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity" ("ASC 480"). Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as mezzanine equity. PMV SPAC's common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at December 31, 2021, common stock held by noncontrolling interest holders of Consolidated PMV is presented at redemption value in redeemable noncontrolling interests, outside of the stockholders’ equity section of the Company’s consolidated statements of financial condition. As a result of the deconsolidation of Consolidated PMV in August 2022, there was no such balance at December 31, 2022.

 

The discount amount related to the issuance of redeemable noncontrolling interest was amortized through an adjustment to additional paid-in capital and noncontrolling interest (proportionate to our ownership of the Sponsor) and was adjusted periodically for income/loss allocated to redeemable noncontrolling interest.

 

For the years ended December 31, 2022 and 2021, net income attributable to noncontrolling interests on the consolidated statements of income represents the share of net income/(loss) attributable to third-party investors in consolidated entities.

 

PMV Warrant Liability

 

In connection with its initial public offering, PMV sold 17,500,000 units, at $10.00 per unit. Each unit consisted of one share of Class A common stock and one-half of one redeemable warrant (“Public Warrant”).

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

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For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized in net gain/(loss) from investments on the consolidated statements of income.

 

The warrant liability related to the Public Warrant was charged against the redeemable noncontrolling interest of PMV.

 

Offering Costs

 

Offering costs incurred by the initial public offering of PMV consist of legal, accounting, underwriting fees and other costs. Offering costs amounting to $9,957,390, including deferred underwriting fees of $6,125,000, net of a $175,000 credit paid by the underwriter, were allocated as follows, $502,848 in offering costs was charged to other operating expenses in the consolidated statements of income in 2021 and $9,454,542 was charged to redeemable noncontrolling interest of PMV in 2021, similar to the warrant liability.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and receivables 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, 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.

 

Recent Accounting Developments

 

In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. The Statement of Income will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller reporting companies for three years. This guidance is effective for the Company on January 1, 2023 and requires a modified retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption. Adoption of this standard will not have a material impact on the 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. As a smaller reporting company pursuant to ASU 2019-10, the ASU is effective for the Company on January 1, 2023. Further, a prospective transition method and early adoption is permitted. Adoption of this standard will not have a material impact on the consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. We adopted this standard prospectively on January 1, 2021. The adoption of this standard did not have a material impact on our financial condition or results of operations.

 

35

 
 

3. 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.

 

Total revenues by type were as follows for the years ended December 31, 2022 and 2021 (in thousands):

 

  

Year Ended December 31,

 
  

2022

  

2021

 

Investment advisory and incentive fees

        

Asset-based advisory fees

 $5,178  $5,021 

Performance-based advisory fees

  2,544   7,006 

Sub-advisory fees

  7,079   8,503 

Sub-total

  14,801   20,530 
         

Other

        

Miscellaneous

  427   394 
         

Total

 $15,228  $20,924 

 

 

4. Investments in Securities

 

Investments in securities at December 31, 2022 and 2021, consisted of the following (in thousands):

 

  

December 31, 2022

  

December 31, 2021

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Debt - Trading Securities:

                

U.S. Treasury Bills

 $184,636  $186,001  $60,992  $60,996 

Equity Securities:

                

Common stocks

  221,794   189,977   239,383   265,156 

Mutual funds

  539   906   524   1,351 

Other investments

  6,364   4,702   6,253   6,580 

Total equity securities

  228,697   195,585   246,160   273,087 

Total investments in securities

 $413,333  $381,586  $307,152  $334,083 
                 

Investments in marketable securities held in trust(1)

 $-  $-  $175,109  $175,109 

 

(1) At December 31, 2021, marketable securities held in the trust account through PMV were comprised primarily of U.S. Treasury Bills which mature in less than one year with an amortized cost and fair value of approximately $175 million, due to the short maturity profile.

 

The Company's held to maturity investments at December 31, 2022 and 2021, consisted of the following (in thousands):

 

  

December 31, 2022

 
  

Amortized Cost

  

Gross Unrealized Holding Gains

  

Gross Unrealized Holding Losses

  

Estimated Fair Value

 

Held to maturity:

                

Investment in note receivable from affiliate

 $-  $-  $-  $- 

 

During the year ended December 31, 2022, the Company received proceeds of $5.1 million from the exercise of a put option on its investment in note receivable from affiliate. The exercise of the put option was determined to occur at the instrument's maturity date and no gain or loss was recognized. 

 

  

December 31, 2021

 
  

Amortized Cost

  

Gross Unrealized Holding Gains

  

Gross Unrealized Holding Losses

  

Estimated Fair Value

 

Held to maturity:

                

Investment in note receivable from affiliate(2)

 $5,066  $-  $-  $5,066 

 

(2) Investment in note receivable from affiliate relates to 2-Year Puttable and Callable Subordinated Notes due 2023 issued as part of a 2021 special dividend on GAMCO’s Class A Common Stock and Class B Common Stock. The Company has the intent to hold these investments until maturity, and as such they were recorded at amortized cost.

 

36

 

Securities sold, not yet purchased at  December 31, 2022 and 2021, consisted of the following (in thousands):

 

  

December 31, 2022

  

December 31, 2021

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Equity securities:

                

Common stocks

 $2,918  $2,509  $9,021  $9,838 

Other investments

  499   365   2,767   3,067 

Total securities sold, not yet purchased

 $3,417  $2,874  $11,788  $12,905 

 

Investments in affiliated registered investment companies at December 31, 2022 and 2021 consisted of the following (in thousands):

 

  

December 31, 2022

  

December 31, 2021

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Equity securities:

                

Closed-end funds

 $45,029  $56,772  $42,484  $64,381 

Mutual funds

  50,224   69,438   49,362   70,167 

Total investments in affiliated registered investment companies

 $95,253  $126,210  $91,846  $134,548 

 

 

5. Investment Partnerships and Other Entities

 

The Company is general partner or co-general partner of various affiliated entities whose underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in unaffiliated partnerships, offshore funds and other entities of $35.8 and $41.9 million at December 31, 2022 and 2021, 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.

 

Investments in partnerships that are not required to be consolidated are accounted for using the equity method and are included in investments in partnerships on the consolidated statements of financial condition. The Company had investments in Affiliated Entities totaling $114.7 million and $112.6 million at December 31, 2022 and 2021, respectively. 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.

 

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 and Affiliated 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.

 

37

 

PMV Consumer Acquisition Corp.

 

Commencing in August 2022, as a result of management and organizational restructuring negotiations at the Sponsor to extend the life of PMV, AC no longer controlled Consolidated PMV. As a result, Consolidated PMV was deconsolidated from the financial statements and a loss of $3.6 million was recognized and recorded in Net gain/(loss) from investments in the consolidated statements of income. The loss represents the difference between the carrying value and fair value of our remaining interest as of the transaction date.

 

We accounted for our remaining interest in PMV (comprising 1 million shares of Class A common stock and 500,000 PMV Public Warrants) at fair value. The initial fair value of these investments was $9.9 million based on the respective closing prices of both instruments on the transaction date. Our investments in Class A common stock and PMV Public Warrants were recorded in Investments in equity securities in the condensed consolidated statements of financial condition and related earnings or loss from subsequent changes in fair value recognized in Net gain/(loss) from investments in the consolidated statements of income. On December 27, 2022, our 1 million shares of Class A common stock were redeemed in full at $10.10 per share. We have continuing involvement with PMV through our ownership of the 500,000 PMV Public Warrants. 

 

We accounted for our remaining interest in the Sponsor (comprising our original $4.0 million investment) under the equity method. The initial fair value was $1.0 million which was valued using the market approach. Our investment is recorded in Investments in partnerships in the consolidated statements of financial condition and related earnings or loss from our share of the underlying net income or loss will be recognized in Net gain/(loss) from investments in the consolidated statements of income. We have continuing involvement with the Sponsor through our ownership interest. 

 

In 2021 and prior to August 2022, AC consolidated the assets, liabilities and the results of operations of both PMV and Sponsor. AC invested $4.0 million, or approximately 62% of the $6.48 million total Sponsor partnership commitment. The Sponsor was managed primarily by AC executives. AC determined that the Sponsor was a variable interest entity (VIE) and that AC was the primary beneficiary and therefore consolidated the assets and liabilities and results of operations of the Sponsor. In addition, AC has determined that PMV is a VIE due to the lack of equity at risk and therefore was consolidated by the Sponsor, who was deemed to be the primary beneficiary. Neither AC nor PMV had a right to the benefits from nor did it bear the risks associated with the marketable securities held in trust assets held by PMV. 

 

The registration statement for the PMV initial public offering was declared effective on September 21, 2020. On September 24, 2020, PMV consummated the initial public offering of 17,500,000 units (the “Units” and, with respect to the shares of common stock included in the Units Sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $175,000,000.

 

Simultaneously with the closing of the initial public offering, PMV consummated the sale of 6,150,000 warrants (the “Private Warrants”) at a price of $1.00 per Private Warrant in a private placement to the Sponsor, generating gross proceeds of $6,150,000.

 

AC invested $10 million in the Class A shares in PMV and the Sponsor invested $6.15 million in Private Warrants, both of which were eliminated in the consolidation of PMV for periods in which PMV was consolidated.

 

Following the closing of the initial public offering on September 24, 2020, an amount of $175,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the initial public offering and the sale of the Private Warrants was placed in a trust account (the “Trust Account”) located in the United States, which were generally invested in U.S. Treasury Bills.

 

The following table reflects the net impact of the consolidated investment partnerships and other entities (“Consolidated Entities”) on the consolidated statements of financial condition (in thousands):

 

  

December 31, 2022

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $209,941  $8,521  $218,462 

Investments in U.S. Treasury Bills

  183,528   2,473   186,001 

Investments in securities

  129,942   65,643   195,585 

Investments in affiliated registered investment companies

  178,689   (52,479)  126,210 

Investments in partnerships

  168,286   (17,788)  150,498 

Receivable from brokers

  4,002   8,070   12,072 

Investment advisory fees receivable

  3,814   (7)  3,807 

Other assets(1)

  35,045   10   35,055 

Total assets

 $913,247  $14,443  $927,690 

Liabilities and equity

            

Securities sold, not yet purchased

 $2,678  $196  $2,874 

Payable to brokers and other liabilities(1)

  20,373   4,054   24,427 

Redeemable noncontrolling interests

  -   10,193   10,193 

Total equity

  890,196   -   890,196 

Total liabilities and equity

 $913,247  $14,443  $927,690 

 

38

 
  

December 31, 2021

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $315,009  $4,039  $319,048 

Investments in U.S. Treasury Bills

  60,996   -   60,996 

Investments in securities

  184,229   88,858   273,087 

Investments in affiliated registered investment companies

  186,474   (51,926)  134,548 

Investments in partnerships

  174,683   (20,223)  154,460 

Receivable from brokers

  21,993   20,485   42,478 

Investment advisory fees receivable

  8,320   (5)  8,315 

Other assets(1)

  39,400   (4,105)  35,295 

Investments in marketable securities held in trust

  -   175,109   175,109 

Total assets

 $991,104  $212,232  $1,203,336 

Liabilities and equity

            

Securities sold, not yet purchased

  11,199   1,706   12,905 

Accrued expenses and other liabilities(1)

  33,825   18,804   52,629 

Redeemable noncontrolling interests

  -   202,456   202,456 

Total equity

  946,080   (10,734)  935,346 

Total liabilities and equity

 $991,104  $212,232  $1,203,336 

 

(1) Represents the summation of multiple captions from the consolidated statements of financial condition.

 

The following table reflects the net impact of the Consolidated Entities on the consolidated statements of income (in thousands):

 

  

Year Ended December 31, 2022

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $15,884  $(656) $15,228 

Total expenses

  24,538   1,952   26,490 

Operating loss

  (8,654)  (2,608)  (11,262)

Total other income/(expense), net

  (55,196)  5,993   (49,203)

Income before income taxes

  (63,850)  3,385   (60,465)

Income tax expense

  (14,943)  -   (14,943)

Income/(loss) before noncontrolling interests

  (48,907)  3,385   (45,522)

Income attributable to noncontrolling interests, net of taxes

  -   3,385   3,385 

Net income/(loss)

 $(48,907) $-  $(48,907)

 

  

Year Ended December 31, 2021

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $23,852  $(2,928) $20,924 

Total expenses

  39,245   755   40,000 

Operating loss

  (15,393)  (3,683)  (19,076)

Total other income/(expense), net

  92,301   8,114   100,415 

Income before income taxes

  76,908   4,431   81,339 

Income tax expense

  17,705   -   17,705 

Income/(loss) before noncontrolling interests

  59,203   4,431   63,634 

Income attributable to noncontrolling interests, net of taxes

  -   4,431   4,431 

Net income/(loss)

 $59,203  $-  $59,203 

 

39

 

Variable Interest Entities

 

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):

 

  December 31, 2022  December 31, 2021 

Cash and cash equivalents

 $500  $1,911 

Investments in securities

  8,396   11,227 

Receivable from brokers

  304   1,106 

Investments in marketable securities held in trust

  -   175,109 

Other assets

  -   103 

Accrued expenses and other liabilities(1)

  (33)  (7,074)

PMV warrant liability

  -   (5,280)

Redeemable noncontrolling interests

  (428)  (162,314)

Nonredeemable noncontrolling interests

  -   1,757 

AC Group's net interests in consolidated VIEs

 $8,739  $16,545 

 

(1) Represents the summation of multiple captions from the consolidated statements of financial condition. 

 

Voting Interest Entities

 

We have an investment partnership that is consolidated as a VOE for both 2022 and 2021 because AC has a controlling interest in the entity. This resulted in the consolidation of $75.6 million of assets, $4.4 million of liabilities, and $9.8 million of redeemable noncontrolling interests for 2022 and $109.3 million of assets, $8.4 million of liabilities, and $40.1 million of redeemable noncontrolling interests for 2021. AC’s net interest in the consolidated VOE for 2022 and 2021 was $61.4 million and $60.8 million, respectively. In 2022, approximately $29.0 million of redeemable noncontrolling interests tendered their shares in the entity. 

 

Equity Method Investments

 

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.

 

40

 
 

6. 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, 2022 and 2021, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

 

  

December 31, 2022

 

Assets

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

  

Significant Other Observable Inputs (Level 2)

  

Significant Unobservable Inputs (Level 3)

  

Total

 

Cash equivalents

 $216,313  $-  $-  $216,313 

Investments in securities (including GAMCO stock):

                

Trading - U.S. Treasury Bills

  186,001   -   -   186,001 

Common stocks

  185,952   1,990   2,035   189,977 

Mutual funds

  906   -   -   906 

Other

  4,132   317   253   4,702 

Total investments in securities

  376,991   2,307   2,288   381,586 

Investments in affiliated registered investment companies:

                

Closed-end funds

  45,286   -   11,486   56,772 

Mutual funds

  69,438   -   -   69,438 

Total investments in affiliated registered investment companies

  114,724   -   11,486   126,210 

Total investments held at fair value

  491,715   2,307   13,774   507,796 

Total assets at fair value

 $708,028  $2,307  $13,774  $724,109 

Liabilities

                

Common stocks

 $2,509  $-  $-  $2,509 

Other

  132   233   -   365 

Securities sold, not yet purchased

  2,641   233   -   2,874 

Total liabilities at fair value

 $2,641  $233  $-  $2,874 

 

41

 
  

December 31, 2021

 

Assets

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

  

Significant Other Observable Inputs (Level 2)

  

Significant Unobservable Inputs (Level 3)

  

Total

 

Cash equivalents

 $314,172  $-  $-  $314,172 

Investments in securities (including GAMCO stock):

                

Trading - U.S. Treasury Bills

  60,996   -   -   60,996 

Common stocks

  260,763   2,320   2,073   265,156 

Mutual funds

  1,351   -   -   1,351 

Other

  4,833   1,220   527   6,580 

Total investments in securities

  327,943   3,540   2,600   334,083 

Investments in affiliated registered investment companies:

                

Closed-end funds

  56,381   -   8,000   64,381 

Mutual funds

  70,167   -   -   70,167 

Total investments in affiliated registered investment companies

  126,548   -   8,000   134,548 

Total investments held at fair value

  454,491   3,540   10,600   468,631 

Total assets at fair value

 $768,663  $3,540  $10,600  $782,803 

Liabilities

                

Common stocks

 $9,838  $-  $-  $9,838 

Other

  1,959   1,108   -   3,067 

Securities sold, not yet purchased

  11,797   1,108   -   12,905 

PMV warrant liability

  5,280   -   -   5,280 

Total liabilities at fair value

 $17,077  $1,108  $-  $18,185 

 

The following table presents additional information about assets and liabilities by major category measured at fair value on a recurring basis as of the dates specified (in thousands) and for which the Company has utilized Level 3 inputs to determine fair value:

 

  

Year Ended December 31, 2022

  

Year Ended December 31, 2021

 

Assets:

 

Total

  

Total

 

Beginning balance

 $10,600  $6,498 

Total gains/(losses)

  27   (546)

Purchases

  5,900   6,053 

Sales/return of capital

  (2,753)  (1,046)

Transfers

  -   (359)

Ending balance

 $13,774  $10,600 

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

 $27  $(546)

 

  

Year Ended December 31, 2022

  

Year Ended December 31, 2021

 

Liabilities:

 

Total

  

Total

 

Beginning balance

 $-  $- 

Total (gains)/losses

  -   (3,053)

Issuances

  -   8,333 

Transfers

  -   (5,280)

Ending balance

 $-  $- 

Changes in net unrealized (gain)/loss included in Net gain/(loss) from investments related to level 3 liabilities still held as of the reporting date

 $-  $- 

 

42

 

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, 2022 and 2021, the Company transferred no investments from Level 1 to Level 3. For the year ended December 31, 2022, the Company transferred no investments from Level 3 to Level 1. For the year ended December 31, 2021, the Company transferred investments with a value of approximately $359 thousand from Level 3 to Level 1 due to increased availability of market price quotations.

 

Transfers out of Level 3 liabilities during the year ended December 31, 2021, reflected the transfer of the PMV warrant liability to Level 1 principally due to increased availability of market price quotations.

 

The aforementioned warrant liability is not subject to qualified hedge accounting.

 

The following table presents the carrying amounts and estimated fair values of financial assets that are not measured at fair value on a recurring basis (in thousands) and their respective levels within the fair value hierarchy:

 

  

December 31, 2022

  

December 31, 2021

 

Assets

 

Level within Fair Value Hierarchy

  

Fair Value

  

Amortized Cost

  

Level within Fair Value Hierarchy

  

Fair Value

  

Amortized Cost

 
                         

Investment in note receivable from affiliate(1)

  -  $-  $-   2  $5,066  $5,066 

Total assets

     $-  $-      $5,066  $5,066 

 

(1)

Included in Receivable and investment in note receivable from affiliates in the consolidated statement of financial condition.

 

 

7. Income Taxes

 

The provision for income taxes for the years ended December 31, 2022 and 2021, consisted of the following (in thousands):

 

  

2022

  

2021

 

Federal:

        

Current

 $(348) $8,512 

Deferred

  (13,237)  7,966 

State and local:

        

Current

  (463)  453 

Deferred

  (925)  722 

Foreign:

        

Current

  41   36 

Deferred

  (11)  16 

Total

 $(14,943) $17,705 

 

43

 

A reconciliation of the federal statutory rate to the effective tax rate for the years ended December 31, 2022 and 2021, is set forth below:

 

  

2022

  

2021

 

Statutory Federal income tax rate

  21.0   21.0 

State income tax, net of Federal benefit

  1.7   1.2 

Dividends received deduction

  0.6   (1.0)

Deferred tax asset valuation allowance

  (1.0)  (0.5)

Foreign investments

  -   (0.5)

Foreign-derived intangible income

  0.9   (0.7)

Noncontrolling interests

  0.6   (1.1)

Nondeductible compensation

  (0.1)  2.0 

Other

  1.0   1.4 

Effective income tax rate

  24.7%  21.8%

 

Significant components of our deferred tax assets and liabilities as of December 31, 2022 and 2021, are as follows (in thousands):

 

  

2022

  

2021

 

Deferred tax assets:

        

Stock-based compensation expense

 $1,073  $683 

Deferred compensation

  542   277 

Investments in securities and partnerships

  4,660   - 

Shareholder-designated contribution carryover

  1,902   2,990 

Other

  56   755 
   8,233   4,705 

Deferred tax liabilities:

        

Investments in securities and partnerships

  -   (9,683)

Other liabilities

  (221)  (182)
   (221)  (9,865)

Gross deferred tax assets/(liabilities)

  8,012   (5,160)

Valuation allowance

  (336)  (1,336)

Net deferred tax assets/(liabilities)

 $7,676  $(6,496)

 

The Company believes that it is more-likely-than-not that the benefit from a portion of the shareholder-designated charitable contribution carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $336 and $1,336 as of December 31, 2022 and 2021, respectively, on the deferred tax assets related to these charitable contribution carryforwards.

 

The Company records penalties and interest related to tax uncertainties in income taxes. These amounts are included in accrued expenses and other liabilities on the consolidated statements of financial condition. As of and for the periods ended December 31, 2022 and 2021, the Company had not established a liability for uncertain tax positions as no such positions existed.

 

The Company remains subject to income tax examination by the IRS for the years 2019 through 2021 and state examinations for years after 2016.

 

44

 
 

8. 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, plus any potentially dilutive securities (if any) outstanding during the period.

 

The computations of basic and diluted net income/(loss) per share are as follows:

 

  

Year Ended December 31,

 

(In thousands, except per share amounts)

 

2022

  

2021

 

Income/(loss) before noncontrolling interests

 $(45,522) $63,634 

Less: Income attributable to noncontrolling interests

  3,385   4,431 

Net income/(loss) attributable to Associated Capital Group, Inc.'s shareholders

 $(48,907) $59,203 
         

Weighted average number of shares of Common Stock outstanding - basic

  22,024   22,120 

Weighted average number of shares of Common Stock outstanding - diluted

  22,024   22,120 
         

Basic and Diluted EPS

 $(2.22) $2.68 

 

 

9. Related Party Transactions

 

The following is a summary of certain related party transactions.

 

GGCP, Inc., a private company controlled by the Executive Chair, indirectly owns a majority of our Class B stock, representing approximately 96% of the combined voting power and 84% of the outstanding shares of our common stock at December 31, 2022.

 

Investments in Securities

 

At December 31, 2022 and 2021, the value of the Company’s investment in GAMCO common stock was $36.7 million and $60.4 million, respectively. As of December 31, 2022 and 2021, AC and its subsidiaries own approximately 2.4 million of GAMCO Class A stock. The Company recorded investment income of $0.5 million and $5.4 million in 2022 and 2021, respectively, from GAMCO, which is included in interest and dividend income on the consolidated statements of income. For the year, GAMCO's stock price decreased 39.0% to $15.24 per share, resulting in a $23.5 million net realized and unrealized loss for the Company versus a net realized and unrealized gain of $20.4 million in 2021.

 

At December 31, 2022 and 2021, the Company invested $209.3 million and $6.0 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. For the year ended December 31, 2022, the Company earned $0.4 million from the investment in this fund. For the year ended December 31, 2021, the Company earned insignificant interest.

 

Investments in equity mutual funds advised by our affiliates (primarily Gabelli Funds, an investment advisor under common control with the Company), totaled $126.2 million and $134.5 million at December 31, 2022 and 2021, respectively, and are included in investments in affiliated registered investment companies on the consolidated statements of financial condition. Included in other income/(expense) is loss of $10.2 million and $24.2 million of gains from investments and dividends related to these funds for the years ending December 31, 2022 and 2021, respectively.

 

45

 

Investments in Partnerships

 

The Company serves as an investment advisor and/or general partner for certain affiliated investment partnerships and receives management fees and performance-based incentive fees for providing such services. Investment advisory and incentive fees relating to such services were $7.7 million and $12.0 million for the years ending December 31, 2022 and 2021 respectively, and are included in investment advisory and incentive fees on the consolidated statements of income. We had an aggregate investment in these affiliated Investment Partnerships of approximately $114.7 million and $112.6 million at December 31, 2022 and 2021, respectively.

 

Investment Advisory Services

 

Pursuant to a sub-advisory agreement between GCIA, a wholly owned subsidiary of the Company, and Gabelli Funds, Gabelli Funds pays GCIA 90% of the net revenues received by Gabelli Funds 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. GCIA received $7.1 million and $8.9 million during 2022 and 2021, respectively, under this sub-advisory agreement. These payments are included in investment advisory and incentive fees on the consolidated statements of income. In addition, GAMCO makes certain payments to employees of the Company primarily related to marketing of SICAV.

 

The Company also serves as sub-advisor to Gabelli Merger Plus+ Trust Plc., an investment company based in the United Kingdom, which is consolidated due to the Company’s controlling interest in the entity. As such, the Company’s portion of management and/or incentive fees received for services provided are eliminated in the consolidation of the entity.

 

Compensation

 

In accordance with an employment agreement, the Company pays the Executive Chair, 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 2022, there was no management fee expense due to pre-tax losses. In 2021, the Company recorded management fee expense of $8.4 million. This fee is recorded as management fee on the consolidated statements of income.

 

Affiliated Receivables/Payables

 

At December 31, 2022 and 2021, the receivable and investment in note receivable from affiliates consisted primarily of sub-advisory fees due from Gabelli Funds, and for 2021 the balance also included the 2-Year Puttable and Callable Subordinated Notes due 2023 issued as part of a 2021 special dividend on GAMCO’s Class A Common Stock and Class B Common Stock.

 

There were no material payables to affiliates at December 31, 2022 and 2021

 

Leases

 

Our offices are owned by a wholly owned subsidiary of AC and are located at 191 Mason Street, Greenwich, CT 06830. A portion of the office space is leased to affiliates. AC received $116.4 thousand and $118.1 thousand from affiliates (primarily GAMCO) pursuant to lease agreements for this property for 2022 and 2021, respectively. These amounts are included in other revenues on the consolidated statements of income.

 

AC acquired a building at 3 St. James Place, London, UK on March 3, 2020 which was fully leased to GAMCO commencing 2021. For the years ending  December 31, 2022 and 2021, the Company received $309.8 thousand and $275.4 thousand, respectively, under the lease agreement. These amounts are included in other revenues on the consolidated statements of income.

 

In June 2016, AC entered into a sublease agreement with GAMCO 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 GAMCO’s Rye office. For the years ended December 31, 2022 and 2021, the Company paid $72.1 thousand and $73.7 thousand under the sublease agreement. These amounts are included in other operating expenses on the consolidated statements of income.

 

46

 

Other

 

AC and GAMCO entered into a transitional administrative and management services agreement in connection with the spin-off of AC from GAMCO on November 30, 2015. The agreement calls for GAMCO to provide to AC certain administrative services, including but not limited to: human resources, compliance, legal, payroll, information technology, and operations. The agreement is terminable by either party on 30 days’ prior written notice to the other party. All services provided under the agreement by GAMCO to AC or by AC to GAMCO are charged at cost. Amounts charged under this agreement are included in compensation expense, if related to fixed or variable compensation, or other operating expenses, on the consolidated statements of income. For the years ended December 31, 2022 and 2021, we recorded $2.7 million and $5.5 million, respectively, of compensation expense related to employees shared with GAMCO. In addition, we recorded approximately $1.4 million and $1.8 million of other operating expense, primarily related to GAMCO’s share of management and incentive fees in funds we consolidate and the ancillary services provided by GAMCO as noted above, for the years ended December 31, 2022 and 2021, respectively. Certain officers and employees of the Company receive additional compensation from GAMCO.

 

 

10. 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 restricted stock awards (“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, 2022, approximately 0.7 million shares have been awarded under the Plan leaving approximately 1.3 million shares available for future grants.

 

There were no RSAs outstanding as of December 31, 2022 or 2021.

 

Based on the closing price of the Company’s Class A Common Stock on December 31, 2022 and 2021, the total liability recorded by the Company in compensation payable in our consolidated statements of financial condition with respect to the Phantom RSAs was $4.8 million and $3.0 million, respectively.

 

The following table summarizes our stock-based compensation, as well as unrecognized compensation, for the periods ended December 31, 2022 and 2021 respectively. Stock-based compensation expense is included in compensation expense in the consolidated statements of income (in thousands, unless otherwise noted):

 

  

Year Ended December 31,

 
  

2022

  

2021

 
         

Stock-based compensation expense

 $1,811  $2,092 
         

Remaining expense to be recognized, if all vesting conditions are met(1)

  4,142   6,640 
         

Weighted average remaining contractual term (in years)

  1.8   2.2 

 

(1) Does not include an estimate for projected future dividends.

 

47

 

The following table summarizes Phantom RSA ("PRSA") activity:

 

  

PRSA's

  Weighted Average Grant Date Fair Value 

Balance at December 31, 2021

  222,905  $36.03 

Granted

  -   - 

Forfeited

  (945)  37.40 

Vested

  -   - 

Balance at March 31, 2022

  221,960  $36.02 

Granted

  -   - 

Forfeited

  (6,050)  35.63 

Vested

  -   - 

Balance at June 30, 2022

  215,910  $36.04 

Granted

  4,500   41.70 

Forfeited

  (8,500)  35.82 

Vested

  -   - 

Balance at September 30, 2022

  211,910  $36.16 

Granted

  -   - 

Forfeited

  (1,000)  35.12 

Vested

  -   - 

Balance at December 31, 2022

  210,910  $36.17 

 

Stock Repurchase Program

 

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 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 presents the Company's stock repurchase activity and remaining authorization:

 

  

Number of shares purchased

  

Average price per share

 

Remaining repurchase authorization January 1, 2021

  893,102     

Share repurchases under stock repurchase program (1)

  (215,958) $35.40 

Remaining repurchase authorization December 31, 2021

  677,144     

Share repurchases under stock repurchase program (1)

  (67,792) $37.98 

Remaining repurchase authorization December 31, 2022

  609,352     

 

(1) Repurchases totaled $2.6 million and $7.6 million in 2022 and 2021, respectively,

 

Dividends

 

During 2022 and 2021, the Company declared and paid dividends of $0.20 per share to class A and class B shareholders totaling $4.4 million and $4.4 million, respectively.

 

11. 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 $8 thousand and $7 thousand in 2022 and 2021, respectively, and is included in compensation on the consolidated statements of income.

 

12. 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 consolidated financial statements include the necessary provisions for losses, if any, 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. is not aware of any probable or reasonably possible losses at December 31, 2022.

 

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.

 

48

 
 

13. 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 per share, approved by the Board of Directors, based upon the actual number of shares registered in the shareholder’s name. The Company recorded an expense of $3.1 million and $4.8 million related to this program for the years ended December 31, 2022 and 2021, respectively, which is included in shareholder-designated contribution in the consolidated statements of income. As of December 31, 2022 and 2021, the Company has reflected a liability in the amount of $1.0 million and $1.5 million, respectively, in connection with this program, which is included in accrued expenses and other liabilities on the consolidated statement of financial condition.

 

 

14. Subsequent Events

 

From January 1, 2023 to March 15, 2023, the Company repurchased 41,442 shares at $37.24 per share. 

 

On January 3, 2023, our consolidated VOE commenced its second scheduled tender offer. On February 10, 2023, our consolidated VOE announced approximately $3.2 million of redeemable noncontrolling interests had tendered their interests in the fund.

 

49

 
 

ITEM 9:

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be timely disclosed, is recorded, processed, summarized, and reported to management within the time periods specified in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's Chief Executive Officer and Co-Chief Financial Officers, 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 reasonable assurance that such information is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Our current management, including our CEO and co-CFOs, have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2022.

 

Managements Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”)). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with GAAP. An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

 

Based on its evaluation, management concluded that, as of December 31, 2022, the Company maintained effective internal control over financial reporting.

 

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, 2022, that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

ITEM 9B:

OTHER INFORMATION

 

None.

 

ITEM 9C:

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not applicable.

 

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 to the Company’s Proxy Statement for the 2023 Annual Meeting of Stockholders (the “Proxy Statement”).

 

AC has adopted a Code of Business Conduct that applies to all of our officers, directors, full-time and part-time employees and a Code of Conduct that sets forth additional requirements for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (together, the “Codes of Conduct”). The Codes of Conduct are posted on our website (www.associated-capital-group.com) and are available in print free of charge to anyone who requests a copy. Interested parties may address a written request for a printed copy of the Codes of Conduct to: Secretary, Associated Capital Group, Inc., 191 Mason Street, Greenwich, Connecticut 06830. 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 2023 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 19.

 

 

(2)

Financial Statement Schedules

 

Financial statement schedules are omitted as not required or not applicable or because the information is included in the Financial Statements or notes thereto.

 

(3)

List of Exhibits:

 

The agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

 

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.

 

Exhibit

Number

Description of Exhibit

2.1

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).

3.1

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).

3.2

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).

4.1

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).

4.2

Description of The Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. (Incorporated by reference to Exhibit 4.2 of the Company’s Report on Form 10-K filed with the Commission on March 16, 2020).

10.1

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).

10.2

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).

10.3

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).

10.4

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).

10.5

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).

10.6

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).

10.7

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).

10.8

Agreement and Plan of Merger, dated as of October 31, 2019, by and among Morgan Group Holding Co., G.R. acquisition, LLC, G.research, LLC, Institutional Services Holdings, LLC and Associated Capital Group, Inc. (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Morgan Group Holding Co. filed with the Securities and Exchange Commission on November 6, 2019).

21.1

Subsidiaries of the Company.

24.1

Powers of Attorney (included on page 54 of this Report).

31.1

Certification of CEO pursuant to Rule 13a-14(a).

31.2

Certification of Co-CFO pursuant to Rule 13a-14(a).

31.3 Certification of Co-CFO pursuant to Rule 13a-14(a).

32.1

Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Co-CFOs pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

ITEM 16:

FORM 10-K SUMMARY

 

None.

 

 

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 Greenwich, State of Connecticut, on March 15, 2023.

 

ASSOCIATED CAPITAL GROUP, INC.

 

By:

/s/ Patrick B. Huvane

  By: /s/ Ian J. McAdams

 

Name:

Patrick B. Huvane

  Name: Ian J. McAdams

 

Title:

Interim Co-Chief Financial Officer

  Title: Interim Co-Chief Financial Officer

 

 

 

     

 

Date: March 15, 2023   Date: March 15, 2023

 

 

 

POWER OF ATTORNEY

 

Each person whose signature appears below hereby constitutes and appoints Peter D. Goldstein, Patrick B. Huvane, and Ian J. McAdams and each of them, their true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for them in their name, place and stead, in any and all capacities, to sign any and all amendments to this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Douglas R. Jamieson

 

President,

 

March 15, 2023

Douglas R. Jamieson

 

Chief Executive Officer and Director

 

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Patrick B. Huvane

 

Interim Co-Chief Financial Officer

 

March 15, 2023

Patrick B. Huvane

 

(Co-Principal Financial Officer)

 

 

         
/s/ Ian J. McAdams   Interim Co-Chief Financial Officer   March 15, 2023
Ian J. McAdams   (Co-Principal Financial Officer)    

 

 

 

 

 

/s/ Mario J. Gabelli

 

Executive Chair of the

 

March 15, 2023

Mario J. Gabelli

 

Board and Director

 

 

 

 

 

 

 

/s/ Marc Gabelli

 

Director

 

March 15, 2023

Marc Gabelli

 

 

 

 

 

 

 

 

 

/s/ Daniel R. Lee

 

Director

 

March 15, 2023

Daniel R. Lee

 

 

 

 

 

 

 

 

 

/s/ Bruce M. Lisman

 

Director

 

March 15, 2023

Bruce M. Lisman

 

 

 

 

 

 

 

 

 

/s/ Richard T. Prins

 

Director

 

March 15, 2023

Richard T. Prins

 

 

 

 

         

/s/ Frederic V. Salerno

 

Director

 

March 15, 2023

Frederic V. Salerno

 

 

 

 

 

 

 

 

 

/s/ Salvatore F. Sodano

 

Director

 

March 15, 2023

Salvatore F. Sodano

 

 

 

 

 

 

 

 

 

/s/ Elisa M. Wilson

 

Director

 

March 15, 2023

Elisa M. Wilson

 

 

 

 

 

54