ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in Item 8 to this report.
Introduction
On November 30, 2015 (the “Spin-Off Date”), GBL distributed to its stockholders all of the outstanding common stock of Associated Capital Group, Inc. (“AC”) and its subsidiaries along with certain cash and other assets (the “Spin-off”). AC owns and operates, directly or indirectly, the alternatives and the institutional research businesses previously owned and operated by GBL. In the Spin-off, each holder of GAMCO’s Class A Common Stock (“Class A Stock”) of record as of 5:00 p.m. New York City time on November 12, 2015 (the “Record Date”), received one share of AC Class A common stock for each share of GAMCO Class A Stock held on the Record Date. Each record holder of GAMCO’s Class B Stock received one share of AC Class B common stock for each share of GAMCO Class B Stock held on the Record Date. Subsequent to the Spin-off, GAMCO no longer consolidates the financial results of AC for the purposes of its own financial reporting and the historical financial results of AC have been reflected in the Company’s consolidated financial statements as discontinued operations for all periods presented through the Spin-off Date. Historical AUM have similarly been adjusted to remove AUM managed by AC.
Our revenues are highly correlated to the level of AUM and fees associated with our various investment products, rather than our own corporate assets. AUM, which are directly influenced by the level and changes of the overall equity markets, can also fluctuate through acquisitions, the creation of new products, the addition of new accounts or the loss of existing accounts. Since various equity products have different fees, changes in our business mix may also affect revenues. At times, the performance of our equity products may differ markedly from popular market indices, and this can also impact our revenues. It is our belief that general stock market trends will have the greatest impact on our level of AUM and hence, revenues.
As of December 31, 2016, we had $39.7 billion of AUM. We conduct our investment advisory business principally through: GAMCO (Institutional and Private Wealth Management), and Funds Advisor (Funds). We also are a distributor of our open-end funds through our broker-dealer subsidiary G.distributors.
Organizational Chart
Subsequent to the Spin-off, this is the current organizational chart of the Company.
2016 Business and Investment Highlights
·
|
On December 1, 2016, the Company launched Gabelli Media Mogul (NYSE: MOGLC), its first in a series of actively managed, non-transparent exchange traded managed funds (“ETMFs”). Gabelli Media Mogul will invest primarily in the media industry; specifically in companies that were spun-off from Dr. John Malone’s Liberty Media Corporation (“Liberty Media”) as constituted in 2001, including companies formed through subsequent mergers of those spin-offs and companies in which Liberty Media and its successors have invested.
|
·
|
On October 4, 2016, the Company announced that Katrina O’Leary joined GAMCO’s institutional team as Vice President, head of Consultant Relations. Ms. O’Leary will launch a dedicated effort to develop the firm’s relationships with the global consulting community. The role underscores GAMCO’s commitment to delivering superior risk adjusted returns and providing best in class client service in a rapidly changing investment environment.
|
·
|
On August 15, 2016, the Company issued a $110 million five year convertible note to Cascade Investment, L.L.C. in a private transaction. The note has a coupon of 4.5% and is convertible into GBL Class A common stock at $55 per share.
|
·
|
On September 2, 2016, GAMCO completed the initial public offering of The Gabelli Go Anywhere Trust, the Company’s 15
th
closed-end fund. This newly organized closed-end fund initially traded on the NYSE MKT as a $100 combination consisting of one preferred share at $40 and three common shares at $19 each under the symbol GGO.C. This innovative offering demonstrates the flexibility of the closed-end fund structure. Separate trading on the NYSE MKT for the common shares (“GGO”) and the Series A Preferred shares (“GGO.A”) commenced on November 2, 2016.
|
·
|
2016 was the first full year of advising the Bancroft Fund, and Ellsworth Growth and Income Fund. The Dinsmore team now manages over $350 million in AUM across three closed-end funds. 2016 was also the first full year of advising The Gabelli Value Plus+ Trust, our first London Stock Exchange listed closed-end fund. The Fund had $171 million of AUM at December 31, 2016.
|
·
|
Net debt improved from $262.4 million at December 31, 2015 to $156.9 million at December 31, 2016.
|
Overview
Consolidated Statements of Income
Investment advisory and incentive fees, which are based on the amount and composition of AUM in our Funds, Institutional and Private Wealth Management accounts, represent our largest source of revenues. In addition to the general level and trends of the stock market, growth in revenues depends on good investment performance, which influences the value of existing AUM as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels. Growth in AUM is also dependent on being able to access various distribution channels, which is usually based on several factors, including performance and service. A majority of our cash inflows to mutual fund products have come through third party distribution programs, including NTF programs. We have also been engaged to act as a sub-advisor for other much larger financial services companies with much larger sales distribution organizations. These sub-advisory clients are subject to business combinations that may result in the termination of the relationship. The loss of a sub-advisory relationship could have a significant impact on our financial results in the future.
Advisory fees from the open-end funds, closed-end funds and sub-advisory accounts are computed daily or weekly based on average net assets. Advisory fees from Institutional and Private Wealth Management clients are generally computed quarterly based on account values as of the end of the preceding quarter. These revenues are based on AUM which is highly correlated to the stock market and can vary in direct proportion to movements in the stock market and the level of sales compared with redemptions, financial market conditions and the fee structure for AUM. Revenues derived from the equity-oriented portfolios generally have higher management fee rates than fixed income portfolios.
We also receive incentive fees from certain Institutional and Private Wealth Management clients, which are based upon meeting or exceeding a specific benchmark index or indices. These fees are recognized at the end of the stipulated contract period, which may be quarterly or annually, for the respective account. Management fees on assets attributable to a majority of the closed-end preferred shares are earned at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares. These fees are recognized at the end of the measurement period.
Distribution fees and other income primarily include distribution fee revenue earned in accordance with Rule 12b-1 of the Company Act, as amended, along with sales charges and underwriting fees associated with the sale of the mutual funds plus other revenues. Distribution fees fluctuate based on the level of AUM and the amount and type of mutual funds sold directly by G.distributors or through various distribution channels.
Compensation costs include variable and fixed compensation and related expenses paid to officers, portfolio managers, sales, trading, research and all other professional staff. Variable compensation paid to sales personnel and portfolio management generally represents 40% of revenues and is the largest component of total compensation costs. Distribution costs include marketing, product distribution and promotion costs. Management fee is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax profits which is paid to Mr. Gabelli or his designee for acting as CEO pursuant to his 2008 Employment Agreement so long as he is an executive of GBL and devotes the substantial majority of his working time to the business. Other operating expenses include general and administrative operating costs.
Other income and expenses include net gains and losses from investments (which includes both realized and unrealized gains and losses from trading securities), interest and dividend income, and interest expense. Net gains and losses from investments are derived from our proprietary investment portfolio consisting of various public and private investments.
Net income (loss) attributable to noncontrolling interests represents the share of net income attributable to the minority stockholders, as reported on a separate company basis, of our consolidated majority-owned subsidiaries and net income attributable to third party limited partners of certain partnerships and offshore funds we consolidate. Please refer to Note A in our consolidated financial statements included elsewhere in this report.
Income/(loss) on discontinued operations, net of taxes represents the results of the businesses and assets that were part of the Spin-off of AC. Please refer to Note P in our consolidated financial statements included elsewhere in this report.
Consolidated Statements of Financial Condition
We ended the 2016 year with approximately $77.1 million in cash and investments. The $77.1 million consists of $39.8 million cash and cash equivalents, primarily invested in our 100% U.S. Treasury Money Market Fund, $0.1 million invested in common stocks and available for sale (“AFS”) securities of $37.2 million. Of the $37.2 million of AFS securities, $37.1 million represent our investment in shares of Westwood Holdings Group.
The face value of our debt consisted of $100 million of a 4% PIK Note due to AC, $110 million of a 4.5% convertible note due August 15, 2021 and $24.2 million of 5.875% senior notes due June 1, 2021.
Equity was a negative $166.6 million on December 31, 2016 compared to a negative $276.3 million on December 31, 2015.
We filed a shelf registration with the SEC in 2015 which, among other things, provides us the flexibility to sell any combination of senior and subordinate debt securities, convertible debt securities, equity securities (including common and preferred stock), and other securities up to a total amount of $500 million. The shelf is available through April 10, 2018, at which time it may be renewed.
Our primary short-term goal is to use our liquid resources to pay down our existing debt. As a secondary goal, we will look to opportunistically and strategically grow operating income at what we consider a margin of safety. We will also consider alternatives to return capital to our shareholders including stock repurchases and dividends.
Assets Under Management Highlights
We reported assets under management as follows (dollars in millions):
|
|
Year Ended December 31,
|
|
|
CAGR (a)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
2016/2012
|
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open-End
|
|
$
|
13,462
|
|
|
$
|
13,811
|
|
|
$
|
17,684
|
|
|
$
|
17,078
|
|
|
$
|
12,502
|
|
|
|
1.9
|
%
|
Closed-End
|
|
|
7,150
|
|
|
|
6,492
|
|
|
|
6,949
|
|
|
|
6,945
|
|
|
|
6,288
|
|
|
|
3.3
|
|
Institutional & PWM direct
|
|
|
13,441
|
|
|
|
13,366
|
|
|
|
16,597
|
|
|
|
16,486
|
|
|
|
12,030
|
|
|
|
2.8
|
|
Institutional & PWM sub-advisory
|
|
|
3,783
|
|
|
|
3,401
|
|
|
|
3,704
|
|
|
|
3,797
|
|
|
|
2,924
|
|
|
|
6.7
|
|
SICAV
|
|
|
50
|
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
n/a
|
|
Total Equities
|
|
|
37,886
|
|
|
|
37,107
|
|
|
|
44,934
|
|
|
|
44,306
|
|
|
|
33,744
|
|
|
|
2.9
|
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money-Market Fund
|
|
|
1,767
|
|
|
|
1,514
|
|
|
|
1,455
|
|
|
|
1,735
|
|
|
|
1,681
|
|
|
|
1.3
|
|
Institutional & PWM
|
|
|
31
|
|
|
|
38
|
|
|
|
58
|
|
|
|
62
|
|
|
|
60
|
|
|
|
(15.2
|
)
|
Total Fixed Income
|
|
|
1,798
|
|
|
|
1,552
|
|
|
|
1,513
|
|
|
|
1,797
|
|
|
|
1,741
|
|
|
|
0.8
|
|
Total AUM
|
|
$
|
39,684
|
|
|
$
|
38,659
|
|
|
$
|
46,447
|
|
|
$
|
46,103
|
|
|
$
|
35,485
|
|
|
|
2.8
|
%
|
Our net cash inflows or outflows by product line were as follows (in millions):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Equities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open-End
|
|
$
|
(1,832
|
)
|
|
$
|
(3,053
|
)
|
|
$
|
(355
|
)
|
|
$
|
1,305
|
|
|
$
|
(1,130
|
)
|
Closed-End (b)
|
|
|
(55
|
)
|
|
|
(87
|
)
|
|
|
(137
|
)
|
|
|
(334
|
)
|
|
|
(34
|
)
|
Institutional & PWM direct
|
|
|
(1,571
|
)
|
|
|
(2,273
|
)
|
|
|
(846
|
)
|
|
|
169
|
|
|
|
(348
|
)
|
Institutional & PWM sub-advisory
|
|
|
(226
|
)
|
|
|
(237
|
)
|
|
|
(250
|
)
|
|
|
(134
|
)
|
|
|
(60
|
)
|
SICAV
|
|
|
8
|
|
|
|
39
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Equities
|
|
|
(3,676
|
)
|
|
|
(5,611
|
)
|
|
|
(1,588
|
)
|
|
|
1,006
|
|
|
|
(1,572
|
)
|
Fixed Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money-Market Fund
|
|
|
249
|
|
|
|
59
|
|
|
|
(280
|
)
|
|
|
54
|
|
|
|
(143
|
)
|
Institutional & PWM
|
|
|
(7
|
)
|
|
|
(20
|
)
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
34
|
|
Total Fixed Income
|
|
|
242
|
|
|
|
39
|
|
|
|
(284
|
)
|
|
|
56
|
|
|
|
(109
|
)
|
Total Net Cash In (Out) Flows
|
|
$
|
(3,434
|
)
|
|
$
|
(5,572
|
)
|
|
$
|
(1,872
|
)
|
|
$
|
1,062
|
|
|
$
|
(1,681
|
)
|
|
(a)
|
Compound annual growth rate.
|
|
(b)
|
Our net cash inflows or outflows for Closed-End equity funds includes distributions, net of reinvestments, to fund holders of $500 million, $461 million, $479 million, $484 million and $454 million in 2016, 2015, 2014, 2013 and 2012, respectively.
|
|
|
Closed-End Fund flows
|
|
|
|
Capital raises
|
|
|
Distributions
|
|
|
Net
|
|
2016
|
|
$
|
445
|
|
|
$
|
(500
|
)
|
|
$
|
(55
|
)
|
2015
|
|
|
374
|
|
|
|
(461
|
)
|
|
|
(87
|
)
|
2014
|
|
|
342
|
|
|
|
(479
|
)
|
|
|
(137
|
)
|
2013
|
|
|
150
|
|
|
|
(484
|
)
|
|
|
(334
|
)
|
2012
|
|
|
420
|
|
|
|
(454
|
)
|
|
|
(34
|
)
|
Our net appreciation and depreciation by product line were as follows (in millions):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open End
|
|
$
|
1,483
|
|
|
$
|
(820
|
)
|
|
$
|
961
|
|
|
$
|
3,271
|
|
|
$
|
1,359
|
|
Close End
|
|
|
713
|
|
|
|
(370
|
)
|
|
|
141
|
|
|
|
991
|
|
|
|
523
|
|
Institutional & PWM direct
|
|
|
1,646
|
|
|
|
(958
|
)
|
|
|
957
|
|
|
|
4,287
|
|
|
|
1,525
|
|
Institutional & PWM sub-advisory
|
|
|
608
|
|
|
|
(66
|
)
|
|
|
157
|
|
|
|
1,007
|
|
|
|
384
|
|
SICAV
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Equities
|
|
|
4,455
|
|
|
|
(2,216
|
)
|
|
|
2,216
|
|
|
|
9,556
|
|
|
|
3,791
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money-Market Fund
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Institutional & PWM
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Fixed Income
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Net Appreciation/(Depreciation)
|
|
$
|
4,459
|
|
|
$
|
(2,216
|
)
|
|
$
|
2,216
|
|
|
$
|
9,556
|
|
|
$
|
3,791
|
|
AUM at December 31, 2016 were $39.7 billion, an increase of 2.6% from AUM of $38.7 billion at December 31, 2015. Equity AUM were $37.9 billion on December 31, 2016, 2.2% above the $37.1 billion on December 31, 2015. We earn incentive fees for certain institutional client assets, assets attributable to certain preferred issues for our closed-end funds and our GDL Fund (NYSE: GDL). As of December 31, 2016, assets with incentive based fees were $2.5 billion, 7.4% below the $2.7 billion on December 31, 2015. The majority of these assets have calendar year-end measurement periods; therefore, our incentive fees are primarily recognized in the fourth quarter when the uncertainty is removed at the end of the annual measurement period.
Operating Results for the Year Ended December 31, 2016 as Compared to the Year Ended December 31, 2015
Revenues
Total revenues were $353.0 million in 2016, $28.0 million or 7.3% lower than the total revenues of $381.0 million in 2015. The change in total revenues by revenue component was as follows (dollars in millions):
|
Year Ended December 31,
|
|
Increase (decrease)
|
|
|
2016
|
|
2015
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
|
|
$
|
293.1
|
|
|
$
|
325.6
|
|
|
$
|
(32.5
|
)
|
|
(10.0
|
)%
|
Incentive fees
|
|
|
15.4
|
|
|
|
4.4
|
|
|
|
11.0
|
|
|
250.0
|
|
Distribution fees and other income
|
|
|
44.5
|
|
|
|
51.0
|
|
|
|
(6.5
|
)
|
|
(12.7
|
)
|
Total revenues
|
|
$
|
353.0
|
|
|
$
|
381.0
|
|
|
$
|
(28.0
|
)
|
|
(7.3
|
)%
|
Investment Advisory and Incentive Fees:
Investment advisory fees, which comprised 83.0% of total revenues in 2016, are directly influenced by the level and mix of average AUM. Average total AUM declined 10.0% to $38.9 billion in 2016 as compared to $43.2 billion in 2015. Average equity AUM fell 10.6% to $37.2 billion in 2016 from $41.6 billion in 2015, primarily from net outflows. Incentive fees, which comprised 4.4% of total revenues in 2016, result from our ability to either generate an absolute return in a portfolio or meet or exceed a specific benchmark index or indices and can vary significantly from one period to another. Incentive fees were higher in 2016 as a greater number of portfolios exceeded their respective benchmarks as compared to 2015.
Fund revenues decreased $14.9 million or 7.0%, to $199.3 million, driven by lower average AUM. Revenue from open-end funds decreased $21.9 million, or 14.4%, to $130.0 million from the prior year as average AUM in 2016 decreased $2.2 billion, or 12.6%, to $15.2 billion from the $17.4 billion in 2014. Closed-end fund revenues increased $7.0 million, or 11.2%, to $69.3 million from the prior year and was comprised of an increase of $7.8 million in incentive fees on certain closed-end fund AUM partially reduced by a decrease of $0.8 million in investment advisory fees attributable to lower average AUM. Revenue from Institutional and Private Wealth Management accounts, excluding incentive fees, which are generally billed on beginning quarter AUM, decreased $11.7 million, or 10.3%, principally due to lower billable AUM levels throughout the course of 2016. Incentive fees earned on certain accounts increased by $1.7 million. In 2016, average AUM in our equity Institutional and Private Wealth Management business decreased $2.1 billion, or 11.1%, for the year to $16.8 billion.
Distribution Fees and Other Income:
Distribution fees and other income decreased $6.5 million, or 12.7%, to $44.5 million in 2016 from $51.0 million in 2015. Lower distribution fees of $41.0 million in 2016 versus $47.7 million for the prior year, principally as a result of decreased average AUM in our open-end equity mutual funds of 13.7%, offset by an increase of $0.2 million in fees from the sale of load shares of mutual funds and other income, contributed to this decrease.
Expenses
Compensation:
Total compensation costs, which are largely variable in nature, decreased $53.9 million, or 39.5%, to $82.6 million in 2016 from $136.5 million in 2015. Variable compensation costs, principally portfolio manager and relationship manager fees, decreased $53.6 million to $56.6 million in 2016 from $110.2 million in 2015 and decreased as a percent of revenues to 16.0% in 2016 from 28.9% in 2015. The principle reason was the December 2015 Restricted Stock Units (“RSU”) agreement with Mr. Gabelli which reduced variable compensation by $44.6 million in 2016. (see page 34) Variable compensation is also driven by revenue levels which decreased in 2016 from 2015. Fixed compensation costs decreased slightly to $26.0 million in 2016 from $26.3 million in 2015.
Stock based compensation:
Stock based compensation was $4.0 million in 2016, a decrease of $5.9 million, as compared to $9.9 million in 2015. The decrease primarily results from the acceleration of 130,650 RSAs during 2015 for an additional expense of $3.5 million that would have been recognized in future years.
Management Fee:
In 2016 management fee expense decreased to $6.5 million versus $15.5 million in 2015. Management fee expense is incentive-based and entirely variable in the amount of 10% of the aggregate pre-tax profits which is paid to Mr. Gabelli (or his designee) in accordance with his employment agreement. Most importantly the December 2015 RSU agreement reduced the management fee by $12.4 million in 2016. (see page 34)
Distribution Costs:
Distribution costs, which include marketing, promotion and distribution costs decreased $7.8 million, or 15.0%, to $44.2 million in 2016 from $52.0 million in 2015 driven by a decrease in average open-end equity mutual funds AUM of 13.7%.
Other Operating Expenses:
Our other operating expenses were $23.9 million in 2016 compared to $19.2 million in 2015, an increase of $4.7 million or 24.4%. The largest components of this increase were additional donated securities expense of $1.6 million and an increase to the research services fee of $1.5 million.
Operating Income and Margin
Operating income increased $43.9 million, or 29.7%, to $191.8 million for 2016 versus $147.9 million in the prior year period. This increase was primarily due to higher incentive fees of $11.0 million and reduced variable compensation expense relating to the RSU agreement of $57.0 million partially offset by lower non-incentive fee revenues of $39.0 million. Operating margin was 54.3% for the year ended December 31, 2016, versus 38.8% in the prior year period. The increase in operating margin was due primarily to lower variable compensation costs and management fee expense related to the RSU agreement. (see page 34)
Operating income before management fee was $198.3 million for the year ended of 2016, versus $163.5 million in the prior year. Operating margin before management fee was 56.2% in the 2016 period versus 42.9% in the 2015 period. The reconciliation of operating income before management fee and operating margin before management fee, both of which are non-GAAP measures to their respective GAAP measures, is provided at the end of this section.
Other Income and Expense
Total other income (expense), net of interest expense, was an expense of $9.6 million for the year ended December 31, 2016 compared to an expense of $8.9 million in 2015. This is comprised of net gain from investments of $1.6 million in 2016 as compared to $5.0 million in 2015; loss on extinguishment of debt of $1.1 million in 2015; interest and dividend income of $1.5 million in 2016 versus $2.2 million in 2015; interest expense of $12.7 million in 2016 as compared to $8.6 million in 2015 and Shareholder-designated contribution expense of $6.4 million in 2015.
Interest expense increased $4.1 million to $12.7 million in 2016, from $8.6 million in 2015 primarily related to the higher average amount of debt outstanding in 2016 versus 2015.
In 2015, the Board of Directors of GBL again adopted a Shareholder Designated Charitable Contribution program on behalf of all registered Class A and Class B shareholders. Under the programs the Board approved a $0.25 per share contribution, resulting in a charge of $6.4 million in 2015.
Income Taxes
The effective tax rate (“ETR”) was 35.7% for the year ended December 31, 2016, versus 37.2% for the year ended December 31, 2015. The ETR for 2016 benefitted by 1.4% due to the reversal of tax accruals related to the closing out of a state audit.
Shareholder Compensation and Initiatives
During 2016, we returned $13.2 million of our earnings to shareholders through dividends and stock repurchases. We returned to shareholders a total of $0.08 per share in regular quarterly cash dividends in 2016 totaling $2.4 million. During 2015, we returned $34.7 million of our earnings to shareholders through dividends and stock repurchases. We returned to shareholders a total of $0.28 per share in regular quarterly cash dividends totaling $7.5 million.
Through our stock buyback program, we repurchased 348,687 and 426,628 shares in 2016 and 2015, respectively, for approximately $10.8 million and $27.2 million, or $30.88 and $63.85 per share, respectively (For 2015, 413,228 shares were at an average investment of $64.86 per share prior to the distribution of AC on November 30, 2015 and 13,400 shares were at an average price of $32.56 following the distribution of AC). Approximately 233,000 shares remain authorized under our stock buyback program at December 31, 2016. Since our IPO we have repurchased 9,901,340 shares for a total investment of $438.8 million, or $44.32 per share.
Weighted average shares outstanding on a diluted basis in 2016 and 2015 were 30.2 million and 25.7 million, respectively.
Operating income before management fee expense is used by management for purposes of evaluating its business operations. We believe this measure is useful in illustrating the operating results of the Company as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company’s proprietary investment portfolio and interest expense. We believe that an investor would find this useful in analyzing the business operations of the Company without the impact of the non-operating items such as trading and investment portfolios or interest expense.
Reconciliation of non-GAAP financial measures to GAAP:
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
353,000
|
|
|
$
|
380,976
|
|
Operating Income
|
|
|
191,796
|
|
|
|
147,949
|
|
Add back: management fee expense
|
|
|
6,518
|
|
|
|
15,503
|
|
Operating income before management fee
|
|
$
|
198,314
|
|
|
$
|
163,452
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
54.3
|
%
|
|
|
38.8
|
%
|
|
|
|
|
|
|
|
|
|
Operating margin before management fee
|
|
|
56.2
|
%
|
|
|
42.9
|
%
|
Operating Results for the Year Ended December 31, 2015 as Compared to the Year Ended December 31, 2014
Revenues
Total revenues were $381.0 million in 2015, $40.9 million or 9.7% lower than the total revenues of $421.9 million in 2014. The change in total revenues by revenue component was as follows (dollars in millions):
|
Year Ended December 31,
|
|
Increase (decrease)
|
|
|
2015
|
|
2014
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory
|
|
$
|
325.6
|
|
|
$
|
351.6
|
|
|
$
|
(26.0
|
)
|
|
|
(7.4
|
)%
|
Incentive fees
|
|
|
4.4
|
|
|
|
8.9
|
|
|
|
(4.5
|
)
|
|
|
(50.6
|
)
|
Distribution fees and other income
|
|
|
51.0
|
|
|
|
61.4
|
|
|
|
(10.4
|
)
|
|
|
(16.9
|
)
|
Total revenues
|
|
$
|
381.0
|
|
|
$
|
421.9
|
|
|
$
|
(40.9
|
)
|
|
|
(9.7
|
)%
|
Investment Advisory and Incentive Fees:
Investment advisory fees, which comprised 85.5% of total revenues in 2015, are directly influenced by the level and mix of average AUM. Average total AUM declined 7.5% to $43.2 billion in 2015 as compared to $46.7 billion in 2014. Average equity AUM fell 7.3% to $41.6 billion in 2015 from $44.9 billion in 2014, primarily from net outflows. Incentive fees, which comprised 1.2% of total revenues in 2015, result from our ability to either generate an absolute return in a portfolio or meet or exceed a specific benchmark index or indices and can vary significantly from one period to another. Incentive fees were lower in 2015 as fewer portfolios exceeded their respective benchmarks.
Fund revenues decreased $23.9 million or 10.1%, to $214.2 million, driven by lower average AUM. Revenue from open-end funds decreased $19.0 million, or 11.1%, from the prior year as average AUM in 2015 decreased $2.0 billion, or 10.3%, to $17.4 billion from the $19.4 billion in 2014. Closed-end fund revenues decreased $5.0 million, or 7.4%, to $62.3 million from the prior year and was comprised of a decline of $3.4 million in incentive fees on certain closed-end fund AUM and a decrease of $1.6 million in investment advisory fees attributable to lower average AUM. Revenue from Institutional and Private Wealth Management accounts, excluding incentive fees, which are generally billed on beginning quarter AUM, decreased $6.1 million, or 5.0%, principally due to lower billable AUM levels throughout the course of 2015. Incentive fees earned on certain accounts declined by $1.1 million. In 2015, average AUM in our equity Institutional and Private Wealth Management business decreased $1.3 billion, or 6.3%, for the year to $18.9 billion.
Distribution Fees and Other Income:
Distribution fees and other income decreased $10.4 million, or 16.9%, to $51.0 million in 2015 from $61.4 million in 2014. Lower distribution fees of $47.7 million in 2015 versus $56.1 million for the prior year, principally as a result of decreased average AUM in our open-end equity mutual funds of 10.7% and a decrease of $2.0 million in fees from the sale of load shares of mutual funds and other income contributed to this decrease.
Expenses
Compensation:
Total compensation costs, which are largely variable in nature, decreased $14.8 million, or 9.8%, to $136.5 million in 2015 from $151.3 million in 2014. Variable compensation costs, principally portfolio manager and relationship manager fees, decreased $11.6 million to $110.2 million in 2015 from $121.8 million in 2014 and remained steady as a percent of revenues at 28.9% in both 2015 and 2014. Variable compensation is driven by revenue levels which decreased in 2015 from 2014. Fixed compensation costs decreased to $26.3 million in 2015 from $29.5 million in 2014.
Stock based compensation:
Stock based compensation was $9.9 million in 2015, an increase of $4.6 million, as compared to $5.3 million in 2014. The increase primarily results from the acceleration of 130,650 RSAs during 2015 for an additional expense of $3.5 million that would have been recognized in future years.
Management Fee:
In 2015 management fee expense decreased to $15.5 million versus $18.7 million in 2014. Management fee expense is incentive-based and entirely variable in the amount of 10% of the aggregate pre-tax profits which is paid to Mr. Gabelli (or his designee) in accordance with his employment agreement.
Distribution Costs:
Distribution costs, which include marketing, promotion and distribution costs decreased $7.7 million, or 12.9%, to $52.0 million in 2015 from $59.7 million in 2014 driven by a decrease in average open-end equity mutual funds AUM of 10.7%.
Other Operating Expenses:
Our other operating expenses were $19.2 million in 2015 compared to $17.5 million in 2014, an increase of $1.7 million or 9.7%. The year over year increase was attributable to recovery of legal expense in 2014 related to prior years of $1.3 million. The remainder of $0.4 million increase was spread among multiple categories of expense.
Operating Income and Margin
Operating income decreased $21.6 million, or 12.7%, to $147.9 million for 2015 versus $169.5 million in the prior year period. This decrease was primarily due to the declines in revenues which were largely attributable to the lower levels of average AUM in 2015 versus 2014. Operating margin was 38.8% for the year ended December 31, 2015, versus 40.2% in the prior year period. The decline in operating margin was due to increased fixed costs as a percentage of revenues partially offset by lower management fee expense.
Operating income before management fee was $163.5 million for the year ended of 2015, versus $188.1 million in the prior year. Operating margin before management fee was 42.9% in the 2015 period versus 44.6% in the 2014 period. The reconciliation of operating income before management fee and operating margin before management fee, both of which are non-GAAP measures to their respective GAAP measures, is provided at the end of this section.
Other Income and Expense
Total other income (expense), net of interest expense, was an expense of $8.9 million for the year ended December 31, 2015 compared to an expense of $1.4 million in 2014. This is comprised of net gain from investments of $5.0 million in 2015 as compared to $4.3 million in 2014; loss on extinguishment of debt of $1.1 million in 2015 and $0.1 million in 2014; interest and dividend income of $2.2 million in 2015 versus $2.2 million in 2014; interest expense of $8.6 million in 2015 as compared to $7.7 million in 2014 and Shareholder-designated contribution expense of $6.4 million in 2015 and $0.1 million in 2014.
Interest expense increased $0.9 million to $8.7 million in 2015, from $7.7 million in 2014 primarily related to the 4% PIK Note payable to AC that was outstanding for one month in 2015.
In 2015, the Board of Directors of GBL again adopted a Shareholder Designated Charitable Contribution program on behalf of all registered Class A and Class B shareholders. Under the program the Board approved a $0.25 per share contribution, resulting in a charge of $6.4 million in 2015. During 2013, the Board had approved a $0.25 per share contribution that was not finalized as to which shareholders would participate until 2014. As a result there was $0.1 million of expense recorded in 2014.
Income Taxes
The effective tax rate (“ETR”) was 37.2% for the year ended December 31, 2015, versus 36.7% for the year ended December 31, 2014.
Shareholder Compensation and Initiatives
During 2015, we returned $34.7 million of our earnings to shareholders through dividends and stock repurchases. We returned to shareholders a total of $0.28 per share in regular quarterly cash dividends in 2015 totaling $7.5 million. During 2014, we returned $45.6 million of our earnings to shareholders through dividends and stock repurchases. We returned to shareholders a total of $0.25 per share in regular quarterly cash dividends and one special cash dividend of $0.25 per share in 2014 totaling $12.9 million.
Through our stock buyback program, we repurchased 426,628 and 414,432 shares in 2015 and 2014, respectively, for approximately $27.2 million and $32.7 million, or $63.85 and $78.99 per share, respectively (for 2015, 413,228 shares were at an average investment of $64.86 per share prior to the distribution of AC on November 30, 2015 and 13,400 shares were at an average price of $32.56 following the distribution of AC). Approximately 582,000 shares remain authorized under our stock buyback program at December 31, 2015. Since our IPO we have repurchased 9,552,653 shares for a total investment of $428.0 million, or $44.81 per share.
Weighted average shares outstanding on a diluted basis in 2015 and 2014 were 25.7 million and 25.6 million, respectively.
There were no stock options outstanding at December 31, 2015.
Operating income before management fee expense is used by management for purposes of evaluating its business operations. We believe this measure is useful in illustrating the operating results of the Company as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company’s proprietary investment portfolio and interest expense. We believe that an investor would find this useful in analyzing the business operations of the Company without the impact of the non-operating items such as trading and investment portfolios or interest expense.
Reconciliation of non-GAAP financial measures to GAAP:
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
$
|
380,976
|
|
|
$
|
421,936
|
|
Operating income
|
|
|
147,949
|
|
|
|
169,452
|
|
Add back: management fee expense
|
|
|
15,503
|
|
|
|
18,663
|
|
Operating income before management fee
|
|
$
|
163,452
|
|
|
$
|
188,115
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
38.8
|
%
|
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
Operating margin before management fee
|
|
|
42.9
|
%
|
|
|
44.6
|
%
|
DEFERRED COMPENSATION
On December 21, 2015, GAMCO entered into a deferred compensation agreement with Mr. Gabelli whereby his variable compensation for 2016 will be in the form of Restricted Stock Units (“RSUs”) determined by the volume-weighted average price (“VWAP”) of the Company’s Class A Stock during 2016. When the restrictions lapse on January 1, 2020 (the “Lapse Date”), this RSU agreement can be settled in either cash or stock. Notwithstanding its ability to settle the RSU agreement in stock, GAMCO currently intends to make a cash payment to Mr. Gabelli on the Lapse Date in an amount, under the terms of the agreement, equal to the number of RSUs valued at the lesser of the VWAP of the Company’s Class A Stock for the 2016 fiscal year or the value on the Lapse Date or, if not a trading day, then the first trading date thereafter. The Board’s decision to grant these RSUs and thereby defer the cash payment of his 2016 variable compensation until January 1, 2020 was to provide the Company with greater financial flexibility. While the issuance of the award itself does not change Mr. Gabelli’s compensation, the Generally Accepted Accounting Principles (“GAAP”) reporting for his compensation has changed. The 2016 results were materially bolstered by the GAAP-mandated treatment of these RSUs. Margins for 2016 therefore are not comparable with prior periods.
Under GAAP, only 25% of this deferred compensation expense is being recognized in the current year with the remainder amortized ratably over 2017, 2018, and 2019. Expressed another way, 2016 benefitted from a reduction of 75% of the compensation, and 2017, 2018, and 2019 will, in turn, be impacted by an additional 25% of the compensation from 2016 in each year.
The balance sheet is also impacted; the compensation payable at December 31, 2016 is only 25% of the full amount of the 2016 compensation that will be due once the RSUs are fully vested. At December 31, 2016, the amount of unrecognized compensation was $53.5 million.
The following tables show a reconciliation of our results for 2016, and our balance sheet at December 31, 2016 between the GAAP basis and a non-GAAP adjusted basis of the deferred compensation (the RSU grant) as if all of the expense was recognized in 2016. We believe this adjusted measure is useful in evaluating the ongoing operating results of the Company absent the material adjustment related to the treatment of the deferred compensation agreement.
|
|
Full Year Ended December 31, 2016
|
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Deferred
|
|
|
|
|
|
|
GAAP
|
|
|
Compensation
|
|
|
Non-GAAP
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Investment advisory and incentive fees
|
|
$
|
308,459
|
|
|
$
|
-
|
|
|
$
|
308,459
|
|
Distribution fees and other income
|
|
|
44,541
|
|
|
|
-
|
|
|
|
44,541
|
|
Total revenues
|
|
|
353,000
|
|
|
|
-
|
|
|
|
353,000
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
82,613
|
|
|
|
45,734
|
|
|
|
128,347
|
|
Stock based compensation
|
|
|
3,959
|
|
|
|
-
|
|
|
|
3,959
|
|
Management fee
|
|
|
6,518
|
|
|
|
7,782
|
|
|
|
14,300
|
|
Distribution costs
|
|
|
44,189
|
|
|
|
-
|
|
|
|
44,189
|
|
Other operating expenses
|
|
|
23,925
|
|
|
|
-
|
|
|
|
23,925
|
|
Total expenses
|
|
|
161,204
|
|
|
|
53,516
|
|
|
|
214,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
191,796
|
|
|
|
(53,516
|
)
|
|
|
138,280
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain from investments
|
|
|
1,594
|
|
|
|
-
|
|
|
|
1,594
|
|
Interest and dividend income
|
|
|
1,511
|
|
|
|
-
|
|
|
|
1,511
|
|
Interest expense
|
|
|
(12,674
|
)
|
|
|
-
|
|
|
|
(12,674
|
)
|
Total other expense, net
|
|
|
(9,569
|
)
|
|
|
-
|
|
|
|
(9,569
|
)
|
Income before income taxes
|
|
|
182,227
|
|
|
|
(53,516
|
)
|
|
|
128,711
|
|
Income tax provision
|
|
|
65,106
|
|
|
|
(20,069
|
)
|
|
|
45,037
|
|
Net income attributable to GAMCO Investors, Inc.'s shareholders
|
|
$
|
117,121
|
|
|
$
|
(33,447
|
)
|
|
$
|
83,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
4.01
|
|
|
$
|
(1.15
|
)
|
|
$
|
2.87
|
|
Diluted
|
|
$
|
3.92
|
|
|
$
|
(1.11
|
)
|
|
$
|
2.81
|
|
DEFERRED COMPENSATION (continued)
|
|
December 31, 2016
|
|
|
|
|
|
|
Impact of
|
|
|
|
|
|
|
Reported
|
|
|
Deferred
|
|
|
|
|
|
|
GAAP
|
|
|
Compensation
|
|
|
Non-GAAP
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,812
|
|
|
$
|
-
|
|
|
$
|
39,812
|
|
Investments in securities
|
|
|
37,285
|
|
|
|
-
|
|
|
|
37,285
|
|
Receivable from brokers
|
|
|
453
|
|
|
|
-
|
|
|
|
453
|
|
Investment advisory fees receivable
|
|
|
43,736
|
|
|
|
-
|
|
|
|
43,736
|
|
Receivable from affiliates
|
|
|
5,960
|
|
|
|
-
|
|
|
|
5,960
|
|
Income tax receivable
|
|
|
9,349
|
|
|
|
20,069
|
|
|
|
29,418
|
|
Other assets
|
|
|
12,634
|
|
|
|
-
|
|
|
|
12,634
|
|
Total assets
|
|
$
|
149,229
|
|
|
$
|
20,069
|
|
|
$
|
169,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to brokers
|
|
|
66
|
|
|
|
-
|
|
|
|
66
|
|
Income taxes payable and deferred tax liabilities
|
|
|
3,815
|
|
|
|
-
|
|
|
|
3,815
|
|
Capital lease obligation
|
|
|
5,066
|
|
|
|
-
|
|
|
|
5,066
|
|
Compensation payable
|
|
|
42,384
|
|
|
|
53,516
|
|
|
|
95,900
|
|
Payable to affiliates
|
|
|
1,412
|
|
|
|
-
|
|
|
|
1,412
|
|
Accrued expenses and other liabilities
|
|
|
29,178
|
|
|
|
-
|
|
|
|
29,178
|
|
Sub-total
|
|
|
81,921
|
|
|
|
53,516
|
|
|
|
135,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5% Convertible note (due August 15, 2021)
|
|
|
109,835
|
|
|
|
-
|
|
|
|
109,835
|
|
AC 4% PIK Note (due November 30, 2020)
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
5.875% Senior notes (due June 1, 2021)
|
|
|
24,120
|
|
|
|
-
|
|
|
|
24,120
|
|
Total liabilities
|
|
|
315,876
|
|
|
|
53,516
|
|
|
|
369,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
GAMCO Investors, Inc. stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
Class B Common Stock
|
|
|
19
|
|
|
|
-
|
|
|
|
19
|
|
Additional paid-in capital
|
|
|
3,903
|
|
|
|
-
|
|
|
|
3,903
|
|
Retained earnings
|
|
|
80,515
|
|
|
|
(33,447
|
)
|
|
|
47,068
|
|
Accumulated other comprehensive income
|
|
|
11,271
|
|
|
|
-
|
|
|
|
11,271
|
|
Treasury stock, at cost
|
|
|
(262,369
|
)
|
|
|
-
|
|
|
|
(262,369
|
)
|
Total GAMCO Investors, Inc. stockholders' equity (deficit)
|
|
|
(166,647
|
)
|
|
|
(33,447
|
)
|
|
|
(200,094
|
)
|
Total liabilities and equity (deficit)
|
|
$
|
149,229
|
|
|
$
|
20,069
|
|
|
$
|
169,298
|
|
The following further illustrates the effect that the GAAP accounting for the compensation deferral has on our results for 2016 through 2019.
Effect of recording RSU on a GAAP basis versus recording all of the expense in 2016:
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
|
|
|
|
|
|
|
RSU expense
|
|
(53,516)
|
|
|
17,839
|
|
|
17,839
|
|
|
17,839
|
On December 23, 2016, it was announced that the Company and Mr. Gabelli agreed to enter into a new deferred compensation agreement for the period of January 1, 2017 to June 30, 2017. Mr. Gabelli’s compensation for that period will be in the form of an RSU and will vest on July 1, 2018. For GAAP accounting purposes, the compensation earned from January 1, 2017 to June 30, 2017 will be expensed ratably from January 1, 2017 to June 30, 2018.
Liquidity and Capital Resources
Our principal assets are highly liquid in nature and consist of cash and cash equivalents, short-term investments and securities held for investment purposes. Cash and cash equivalents are comprised primarily of 100% U.S. Treasury money market funds managed by GAMCO. Although investments in partnerships and offshore funds are subject to restrictions as to the timing of distributions, the underlying investments of such partnerships or funds are, for the most part, liquid, and the valuations of these products reflect that underlying liquidity.
Summary cash flow data derived from our audited consolidated statements of cash flows are as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cash flows provided by (used in) from continuing operations:
|
|
|
|
Operating activities
|
|
$
|
115,737
|
|
|
$
|
117,130
|
|
|
$
|
140,458
|
|
Investing activities
|
|
|
(1,435
|
)
|
|
|
(6,198
|
)
|
|
|
(1,147
|
)
|
Financing activities
|
|
|
(88,247
|
)
|
|
|
(109,923
|
)
|
|
|
(131,139
|
)
|
Increase (decrease) in cash and cash equivalents from continuing operations
|
|
|
26,055
|
|
|
|
1,009
|
|
|
|
8,172
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
-
|
|
|
|
54,335
|
|
|
|
(76,618
|
)
|
Investing activities
|
|
|
-
|
|
|
|
(41,463
|
)
|
|
|
3,839
|
|
Financing activities
|
|
|
-
|
|
|
|
(12,871
|
)
|
|
|
66,367
|
|
Increase (decrease) in cash and cash equivalents from discontinued operations
|
|
|
-
|
|
|
|
1
|
|
|
|
(6,412
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
38
|
|
|
|
15
|
|
|
|
19
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
26,093
|
|
|
|
1,025
|
|
|
|
1,779
|
|
Cash and cash equivalents at beginning of year
|
|
|
13,719
|
|
|
|
12,694
|
|
|
|
10,915
|
|
Cash and cash equivalents at end of year
|
|
$
|
39,812
|
|
|
$
|
13,719
|
|
|
$
|
12,694
|
|
Cash and liquidity requirements have historically been met through cash generated by operating income and our borrowing capacity. We filed a shelf registration with the SEC in 2015 which, among other things, provides us opportunistic flexibility to sell any combination of senior and subordinate debt securities, convertible debt securities, equity securities (including common and preferred stock), and other securities up to a total amount of $500 million. The shelf is available through April 2018, at which time it may be renewed.
At December 31, 2016, we had cash and cash equivalents of $39.8 million, an increase of $26.1 million from the prior year-end primarily due to the Company’s operating activities described below. Total face value debt outstanding at December 31, 2016 was $234.2 million, consisting of $100 million of a 4% PIK Note due November 30, 2020, $110 million of a 4.5% Convertible note due August 15, 2021 and $24.2 million of 5.875% senior notes due 2021. It is anticipated that the majority of our cash flow will go towards servicing our debt for the next few years.
Cash provided by operating activities was $115.7 million in 2016 and $117.1 million in 2015. Our largest source of cash comes from net earnings as adjusted for non-cash expenses. In 2016, this totaled $117.1 million versus $87.3 million in 2015. Other sources of cash included an increase in compensation payable of $24.3 million, and an increase in income taxes payable of $13.2 million. Cash uses included an increase of recievables from affiliates of $22.3 million, an increase in investment advisory fees receivable of $19.4 million, reductions of $13.6 million as a result of a decrease in payable to affiliates, reductions in stock based compensation expense of $5.9, a reduction in deferred income taxes of $6.7 million and $0.8 million from other changes in net assets and liabilities. In 2015, cash was provided by net income of $87.3 million, a reduction of assets of $24.6 million and decreases in payable to affiliates, accrued expenses and other liabilities of $8.4 million.
Net cash used in investing activities of $1.4 million in 2016 is due to purchases of available for sale securities of $1.8 million less $0.4 million in proceeds from sales of available for sale securities. Net cash used in investing activities of $6.2 million in 2015 is due to purchases of available for sale securities of $6.3 million less $0.1 million in proceeds from sales of available for sale securities.
Net cash used in financing activities of $88.2 million in 2016 principally resulted from $150 million in repayments of our AC 4% PIK Note due November 30, 2020 , $35 million repayment of the loan from GGCP, $10.8 million of repurchases of our Class A Stock under the Stock Repurchase Program, and $2.3 million in dividends paid offset by the issuance of the 4.5% Convertible Note due August 15, 2021 of $109.8 million. Net cash used in financing activities of $109.9 million in 2015 principally resulted from $76.5 million in repurchases of our 5.875% Senior Notes due June 1, 2021 resulting from the tender offer for those notes in December 2015, $21.7 million in net cash transferred to AC, $27.2 million of repurchases of our Class A Stock under the Stock Repurchase Program, $13.1 million in redemptions of our zero coupon subordinated debentures and $7.5 million in dividends paid partially offset by $35.0 million in borrowings from GGCP and $1.2 million of proceeds from the exercise of stock options.
Under the terms of the lease of our Rye, New York office, we are obligated to make minimum total payments of $13.1 million through December 2028.
On November 25, 2015, Moody’s Investors Services downgraded the Company to Ba1 from Baa3. We continue to maintain an investment grade rating with Standard and Poor’s Ratings Services. We believe that our ability to maintain our investment grade rating will provide greater access to the capital markets, enhance liquidity and lower overall borrowing costs.
G.distributors is registered with the SEC as a broker-dealer and is regulated by FINRA. As such, it is subject to the minimum net capital requirements promulgated by the SEC. G.distributors’ net capital exceeded these minimum requirements at December 31, 2016. G.distributors computes its net capital under the alternative method permitted by the SEC, which requires minimum net capital of the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3 promulgated under the Securities Exchange Act of 1934. At December 31, 2016 and 2015, G.distributors had net capital, as defined, of approximately $2.8 million and $1.6 million, respectively, exceeding the regulatory requirement by approximately $2.6 million and $1.4 million, respectively. Net capital requirements for our affiliated broker-dealer may increase in accordance with rules and regulations to the extent they engage in other business activities.
Our subsidiary, GAMCO Asset Management (UK) Limited is authorized and regulated by the FCA. In February 2011, GAMCO Asset Management (UK) Limited increased its permitted license with the FCA’s predecessor, the Financial Services Authority (“FSA”) and has held Total Capital of £580,000 and £519,000 ($713,000 and $769,000 at December 31, 2016 and 2015, respectively) and had a Financial Resources Requirement of £265,000 and £262,000 ($326,000 and $388,000 at December 31, 2016 and 2015, respectively). We have consistently met or exceeded these minimum requirements.
Market Risk
Our primary market risk exposure is to changes in equity prices and interest rates. Since approximately 95% of our AUM are equities, our financial results are subject to equity-market risk as revenues from our investment management services are sensitive to stock market dynamics. In addition, returns from our proprietary investment portfolio are exposed to interest rate and equity market risk.
The Company’s Chief Investment Officer oversees the proprietary investment portfolios and allocations of proprietary capital among the various strategies. The Chief Investment Officer and the Board of Directors review the proprietary investment portfolios throughout the year. Additionally, the Company monitors its proprietary investment portfolios to ensure that they are in compliance with the Company’s guidelines.
Equity Price Risk
The Company earns substantially all of its revenue as advisory and distribution fees from our affiliated open-end and closed-end funds, Institutional and Private Wealth Management, and Investment Partnership assets. Such fees represent a percentage of AUM, and the majority of these assets are in equity investments. Accordingly, since revenues are proportionate to the value of those investments, a substantial increase or decrease in equity markets overall will have a corresponding effect on the Company's revenues.
With respect to our proprietary investment activities, included in investments in securities of $37.3 million and $33.0 million at December 31, 2016 and 2015, respectively, were investments in common stocks totaling $37.2 million and $33.0 million, respectively, and closed-end funds of $0.1 million and $0.0 million, respectively. Of the $37.2 million and $33.0 million, invested in common stocks at December 31, 2016 and 2015, respectively, $37.1 million and $32.6 million, respectively, was related to our investment in Westwood Holdings Group Inc. (NYSE: WHG). Securities sold, not yet purchased are financial instruments purchased under agreements to resell and financial instruments sold under agreement to repurchase. These financial instruments are stated at fair value and are subject to market risks resulting from changes in price and volatility. At December 31, 2016 there were no securities sold, not yet purchased. At December 31, 2015, the fair value of securities sold, not yet purchased was $0.1 million.
The following table provides a sensitivity analysis for our investments in equity securities as of December 31, 2016. The sensitivity analysis assumes a 10% increase or decrease in the value of these investments (in thousands):
|
|
|
Fair Value
|
|
Fair Value
|
|
|
|
|
assuming
|
|
assuming
|
|
|
|
|
10% decrease in
|
|
10% increase in
|
|
(unaudited)
|
Fair Value
|
|
equity prices
|
|
equity prices
|
|
At December 31, 2016
|
|
|
|
|
|
|
|
|
|
Equity price sensitive investments, at fair value
|
|
$
|
37,285
|
|
|
$
|
33,557
|
|
|
$
|
41,014
|
|
At December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity price sensitive investments, at fair value
|
|
$
|
32,848
|
|
|
$
|
29,563
|
|
|
$
|
36,133
|
|
Investment advisory fees for mutual funds and sub-advisory relationships are based on average daily or weekly asset values. Advisory fees earned on Institutional and Private Wealth Management assets, for any given quarter, are generally determined based on asset values at the beginning of a quarter with any significant increases or decreases in market value of assets managed which occur during a quarter resulting in a relative increase or decrease in revenues for the following quarter.
Interest Rate Risk
Our exposure to interest rate risk results, principally, from our investment of excess cash in a money market fund that holds U.S. Government securities. These investments are primarily short term in nature, and the carrying value of these investments generally approximates fair value. Based on December 31, 2016, cash and cash equivalent balance of $39.8 million a 1% increase in interest rates would increase our interest income by $0.4 million annually. Given that our current annualized return on these investments is close to 0.37%, an analysis of a 1% decrease is not meaningful.
Contractual Obligations
We are obligated to make future payments under various contracts such as debt agreements and capital and operating lease agreements. The following table sets forth our significant contractual cash obligations as of December 31, 2016 (in thousands):
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.875% Senior notes
|
|
$
|
24,225
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
24,225
|
|
|
$
|
-
|
|
Interest on 5.875% Senior notes
|
|
|
6,285
|
|
|
|
1,423
|
|
|
|
1,423
|
|
|
|
1,423
|
|
|
|
1,423
|
|
|
|
593
|
|
|
|
-
|
|
AC 4% PIK Note
|
|
|
100,000
|
|
|
|
10,000
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
Interest on AC 4% PIK Note
|
|
|
12,066
|
|
|
|
3,967
|
|
|
|
3,533
|
|
|
|
2,733
|
|
|
|
1,833
|
|
|
|
-
|
|
|
|
-
|
|
4.5% Convertible note
|
|
|
110,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,000
|
|
|
|
-
|
|
Interest on 4.5% Convertible note
|
|
|
22,894
|
|
|
|
4,950
|
|
|
|
4,950
|
|
|
|
4,950
|
|
|
|
4,950
|
|
|
|
3,094
|
|
|
|
-
|
|
Capital lease obligations
|
|
|
13,091
|
|
|
|
1,211
|
|
|
|
1,080
|
|
|
|
1,080
|
|
|
|
1,080
|
|
|
|
1,080
|
|
|
|
7,560
|
|
Non-cancelable operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lease obligations
|
|
|
1,642
|
|
|
|
705
|
|
|
|
489
|
|
|
|
357
|
|
|
|
43
|
|
|
|
44
|
|
|
|
4
|
|
Total
|
|
$
|
290,203
|
|
|
$
|
22,256
|
|
|
$
|
31,475
|
|
|
$
|
30,543
|
|
|
$
|
59,329
|
|
|
$
|
139,036
|
|
|
$
|
7,564
|
|
The AC 4% PIK Note interest may be paid in kind with additional notes on the same terms as the original note at the Company’s option. See Note F Debt for additional details.
The capital lease contains an escalation clause tied to the change in the New York Metropolitan Area Consumer Price Index which may cause the future minimum payments to exceed $1,080,000 annually. Any increases to the base rental will be accounted for prospectively.
Off-Balance Sheet Arrangements
We do not invest in any other off-balance sheet vehicles that provide financing, liquidity, market or credit risk support or engage in any leasing activities that expose us to any liability that is not reflected on the Consolidated Financial Statements.
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 financial statements in conformity with U.S. generally accepted accounting principles. We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.
We believe the critical assumptions and estimates are those applied to revenue recognition, the accounting for and valuation of investments in securities, income taxes, and stock based compensation accounting.
Major Revenue-Generating Services and Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees, institutional research services and distribution 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 AUM for each account as well as incentive fees earned on certain accounts. Advisory fees from the open-end funds, closed-end funds and sub-advisory accounts are computed daily or weekly based on average net assets and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition. Advisory fees from Institutional and Private Wealth Management accounts are generally computed quarterly based on account values as of the end of the preceding quarter, and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition. The Company derived approximately 87%, 87% and 85% of its total revenues from advisory and management fees, including incentive fees, for the periods ended December 31, 2016, 2015 and 2014, respectively. These revenues vary depending upon the level of sales compared with redemptions, financial market conditions, performance and the fee structure for AUM. Revenues derived from the equity-oriented portfolios generally have higher management fee rates than fixed income portfolios.
The Company earns incentive fees from certain Institutional and Private Wealth Management accounts, which are based upon meeting or exceeding a specific benchmark index or indices. Incentive fees refer to fees earned when the return generated for the client exceeds the benchmark and can be earned even if the return to the client is negative as long as the return exceeds the benchmark. These fees are recognized, for each respective account, at the end of the stipulated contract period which is either quarterly or annually and varies by account. Receivables due for incentive fees earned are included in investment advisory fees receivable on the consolidated statements of financial condition. There were $2.4 million in incentive fees receivable as of December 31, 2016. There were no incentive fees receivable as of December 31, 2015. Management fees on a majority of the closed-end preferred shares are earned at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares. These fees are recognized at the end of the measurement period, which is annually. Receivables due for management fees on closed-end preferred shares are included in investment advisory fees receivable on the consolidated statements of financial condition. There were $7.3 million in management fees receivable on closed-end preferred shares as of December 31, 2016. There were no management fees receivable on closed-end preferred shares as of December 31, 2015. For The GDL Fund, there is an incentive fee earned as of the end of the calendar year and varies to the extent the total return of the fund is in excess of the 90 day T-Bill Index total return. This fee is recognized at the end of the measurement period, which is annually on a calendar year basis. Receivables due on incentive fees relating to The GDL Fund are included in investment advisory fees receivable on the consolidated statements of financial condition and were $4.2 million and $3.7 million as of December 31, 2016 and 2015, respectively.
Distribution fees revenues are derived primarily from the distribution of Gabelli, GAMCO, Comstock and Teton open-end funds (“Funds”) advised by a subsidiary of GBL, Funds Advisor and a subsidiary of GGCP, Teton. G.distributors distributes these open-end Funds pursuant to distribution agreements with each Fund. Under each distribution agreement with an open-end Fund, G.distributors offers and sells such open-end Fund shares on a continuous basis and pays all of the costs of marketing and selling the shares, including printing and mailing prospectuses and sales literature, advertising and maintaining sales and customer service personnel and sales and services fulfillment systems, and payments to the sponsors of third party distribution programs, financial intermediaries and G.distributors’ sales personnel. G.distributors receives fees for such services pursuant to distribution plans adopted under provisions of Rule 12b-1 of the Company Act. G.distributors is the principal underwriter for funds distributed in multiple classes of shares which carry front-end or back-end sales charge or no-load to certain investors.
Under the distribution plans, the open-end Class AAA shares of the Funds (except The Gabelli U.S. Treasury Money Market Fund, Gabelli Capital Asset Fund and The Gabelli ABC Fund) and the Class A shares of certain Funds pay G.distributors a distribution or service fee of .25% per year (except the Class A shares of the Westwood Funds which pay .50% per year, except for the TETON Westwood Intermediate Bond Fund which pays .35%, and the Class A shares of the Gabelli Enterprise Mergers and Acquisitions Fund which pay .45% per year) on the average daily net assets of the fund. Class B and Class C shares have a 12b-1 distribution plan with a service and distribution fee totaling 1%. Class B shares were discontinued in 2014.
Distribution fees from the open-end funds are computed daily based on average net assets. The amounts receivable for distribution fees are included in receivables from affiliates on the consolidated statements of financial condition.
Finally, GBL also has investment gains or losses generated from its proprietary trading activities which are included in net gain/(loss) from investments on the consolidated statements of income.
Investments in Securities
Investments in securities are accounted for as either “trading securities” or “available for sale” and are stated at fair value. Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. U.S. Treasury Bills and Notes with maturities of greater than three months at the time of purchase are considered investments in securities. Securities that are not readily marketable are stated at their estimated fair values in accordance with GAAP. A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain/(loss) from investments on the consolidated statements of income. AFS investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of other comprehensive income except for losses deemed to be other than temporary which are recorded as realized losses on the consolidated statements of income. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain/(loss) from investments on the consolidated statements of income.
AFS securities are evaluated for other than temporary impairment each reporting period and any impairment charges are recorded in net gain/(loss) from investments on the consolidated statements of income. Management reviews all available for sale securities whose cost exceeds their fair value to determine if the impairment is other than temporary. Management uses qualitative factors such as diversification of the investment, the intent to hold the investment, the amount of time that the investment has been impaired and the severity of the decline in determining whether the impairment is other than temporary.
Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of GBL to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments. Realized gains and losses from covers of securities sold, not yet purchased transactions are included in net gain/(loss) from investments on the consolidated statements of income. Securities sold, not yet purchased are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain/(loss) from investments on the consolidated statements of income.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, the Company determines whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes the accrual of interest on uncertain tax positions and penalties in income tax provision on the consolidated statements of income.
Stock Based Compensation
The Company has granted RSAs and stock options to staff members which were recommended by the Company’s Chairman, who did not receive an RSA or option award, and approved by the Compensation Committee of the Company’s Board of Directors. We use a fair value based method of accounting for stock-based compensation provided to our employees. The estimated fair value of RSAs is determined by using the closing price of our Class A Stock on the day prior to the grant date. The total expense, which is reduced by estimated forfeitures, is recognized over the vesting period for these awards which is either (1) 30% over three years from the date of grant and 70% over five years from the date of grant or (2) 30% over three years from the date of grant and 10% each year over years four through ten from the date of grant. The forfeiture rate is determined by reviewing historical forfeiture rates for previous stock-based compensation grants and is reviewed and updated quarterly, if necessary. During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates. Dividends declared on these RSAs, less estimated forfeitures, are charged to retained earnings on the declaration date. During 2015, the Board of Directors accelerated the lapsing of restrictions on the November 2013 grant of RSAs.
The estimated fair value of option awards is determined using the Black Scholes option-pricing model. This sophisticated model utilizes a number of assumptions in arriving at its results, including the estimated life of the option, the risk free interest rate at the date of grant and the volatility of the underlying common stock. There may be other factors, which have not been considered, which may have an effect on the value of the options as well. The effects of changing any of the assumptions or factors employed by the Black Scholes model may result in a significantly different valuation for the options. The total expense, which is reduced by estimated forfeitures, is recognized over the vesting period for these awards which is 75% over three years from the date of grant and 25% after four years from date of grant. The forfeiture rate is determined by reviewing historical forfeiture rates for previous stock-based compensation grants and is reviewed and updated quarterly, if necessary.
In connection with the spin-off of AC, the unvested RSA expense relating to the existing GBL RSAs at November 30, 2015 was split between GBL and AC based on the allocation of time of the underlying employees who held the RSAs.
The Company has entered into a deferred compensation agreement with Mr. Gabelli whereby his variable compensation for 2016 was in the form of Restricted Stock Units (“RSUs”) determined by the volume-weighted average price (“VWAP”) of the Company’s Class A Stock during 2016. The RSUs will vest 100% on January 1, 2020, and the Company intends to settle the award in cash at that time; however, the Company reserves the right to issue shares of the Company’s Class A Stock in lieu of such cash payment. Under the terms of the agreement the Company will pay Mr. Gabelli an amount equal to the number of RSUs valued at the lesser of the VWAP of the Company’s Class A Stock for the 2016 fiscal year or the value on the lapse date or, if not a trading day, then the first trading date thereafter. Under GAAP, only 25% of this deferred compensation expense is being recognized in 2016 with the remainder amortized ratably over 2017, 2018, and 2019. Notwithstanding its ability to settle the award in stock, given the Company’s intent to settle it in cash, in accordance with GAAP (ASC 718), the award is accounted for as a liability-classified award and not as an equity-classified award. The liability is remeasured at fair value on each reporting period from December 31, 2016 until the vesting date. However, given the cap on the obligation in that Mr. Gabelli will not receive cash in excess of the VWAP of the Company’s Class A Stock for the 2016 fiscal year, the remeasurement of the liability at fair value will never exceed its value determined using that VWAP price.
Recent Accounting Developments
See Footnote A. Significant Accounting Policies – Recent Accounting Developments.
Seasonality and Inflation
We do not believe our operations are subject to significant seasonal fluctuations. We do not believe inflation will significantly affect our compensation costs, as they are substantially variable in nature. However, the rate of inflation may affect our expenses such as information technology and occupancy costs. To the extent inflation results in rising interest rates and has other effects upon the securities markets, it may adversely affect our financial position and results of operations by reducing our AUM, revenues or otherwise.
ITEM 7A:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information contained under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk.”
ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GAMCO INVESTORS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
44
|
Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control over Financial Reporting
|
45
|
|
|
Consolidated Financial Statements:
|
|
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014
|
46
|
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
|
47
|
Consolidated Statements of Financial Condition at December 31, 2016 and 2015
|
48
|
Consolidated Statements of Equity for the years ended December 31, 2016, 2015 and 2014
|
49
|
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
|
52
|
Notes to Consolidated Financial Statements
|
54
|
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission that are not required under the related instructions or are inapplicable have been omitted.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
GAMCO Investors, Inc.
Rye, New York
We have audited the accompanying consolidated statements of financial condition of GAMCO Investors, Inc. and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in Exhibit 99.1. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of GAMCO Investors, Inc. and subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 6, 2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
GAMCO Investors, Inc.
Rye, New York
We have audited the internal control over financial reporting of GAMCO Investors, Inc. and subsidiaries (the "Company") as of December 31, 2016, based on criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2016 of the Company and our report dated March 6, 2017, expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 6, 2017
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Investment advisory and incentive fees
|
|
$
|
308,459
|
|
|
$
|
329,965
|
|
|
$
|
360,498
|
|
Distribution fees and other income
|
|
|
44,541
|
|
|
|
51,011
|
|
|
|
61,438
|
|
Total revenues
|
|
|
353,000
|
|
|
|
380,976
|
|
|
|
421,936
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
82,613
|
|
|
|
136,503
|
|
|
|
151,255
|
|
Stock based compensation
|
|
|
3,959
|
|
|
|
9,868
|
|
|
|
5,278
|
|
Management fee
|
|
|
6,518
|
|
|
|
15,503
|
|
|
|
18,663
|
|
Distribution costs
|
|
|
44,189
|
|
|
|
51,990
|
|
|
|
59,746
|
|
Other operating expenses
|
|
|
23,925
|
|
|
|
19,163
|
|
|
|
17,542
|
|
Total expenses
|
|
|
161,204
|
|
|
|
233,027
|
|
|
|
252,484
|
|
Operating income
|
|
|
191,796
|
|
|
|
147,949
|
|
|
|
169,452
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain from investments
|
|
|
1,594
|
|
|
|
4,953
|
|
|
|
4,282
|
|
Extinguishment of debt
|
|
|
-
|
|
|
|
(1,067
|
)
|
|
|
(84
|
)
|
Interest and dividend income
|
|
|
1,511
|
|
|
|
2,222
|
|
|
|
2,154
|
|
Interest expense
|
|
|
(12,674
|
)
|
|
|
(8,636
|
)
|
|
|
(7,653
|
)
|
Shareholder-designated contributions
|
|
|
-
|
|
|
|
(6,396
|
)
|
|
|
(134
|
)
|
Total other income (expense), net
|
|
|
(9,569
|
)
|
|
|
(8,924
|
)
|
|
|
(1,435
|
)
|
Income before income taxes
|
|
|
182,227
|
|
|
|
139,025
|
|
|
|
168,017
|
|
Income tax provision
|
|
|
65,106
|
|
|
|
51,726
|
|
|
|
61,734
|
|
Income from continuing operations
|
|
|
117,121
|
|
|
|
87,299
|
|
|
|
106,283
|
|
Income/(loss) from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
(3,887
|
)
|
|
|
3,107
|
|
Net income attributable to GAMCO Investors, Inc.'s shareholders
|
|
$
|
117,121
|
|
|
$
|
83,412
|
|
|
$
|
109,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to GAMCO Investors, Inc.'s shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - Continuing operations
|
|
$
|
4.01
|
|
|
$
|
3.43
|
|
|
$
|
4.20
|
|
Basic - Discontinued operations
|
|
|
-
|
|
|
|
(0.15
|
)
|
|
|
0.12
|
|
Basic - Total
|
|
$
|
4.01
|
|
|
$
|
3.28
|
|
|
$
|
4.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted - Continuing operations
|
|
$
|
3.92
|
|
|
$
|
3.40
|
|
|
$
|
4.16
|
|
Diluted - Discontinued operations
|
|
|
-
|
|
|
|
(0.15
|
)
|
|
|
0.12
|
|
Diluted - Total
|
|
$
|
3.92
|
|
|
$
|
3.24
|
|
|
$
|
4.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,182
|
|
|
|
25,425
|
|
|
|
25,335
|
|
Diluted
|
|
|
30,170
|
|
|
|
25,711
|
|
|
|
25,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual shares outstanding
|
|
|
29,463
|
|
|
|
29,821
|
|
|
|
25,855
|
|
See accompanying notes.
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to GAMCO Investors, Inc.'s shareholders
|
|
$
|
117,121
|
|
|
$
|
83,412
|
|
|
$
|
109,390
|
|
Other comprehensive income/(loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(164
|
)
|
|
|
(46
|
)
|
|
|
(57
|
)
|
Net unrealized gains/(losses) on securities available for sale (a)
|
|
|
2,320
|
|
|
|
(8,300
|
)
|
|
|
(5,168
|
)
|
Other comprehensive income/(loss)
|
|
|
2,156
|
|
|
|
(8,346
|
)
|
|
|
(5,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to GAMCO Investors, Inc.
|
|
$
|
119,277
|
|
|
$
|
75,066
|
|
|
$
|
104,165
|
|
(a) Net of income tax expense (benefit) of $1,363, ($4,875) and ($3,036) for 2016, 2015 and 2014, respectively.
See accompanying notes.
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
39,812
|
|
|
$
|
13,719
|
|
Investments in securities
|
|
|
37,285
|
|
|
|
32,975
|
|
Receivable from brokers
|
|
|
453
|
|
|
|
1,091
|
|
Investment advisory fees receivable
|
|
|
43,736
|
|
|
|
31,048
|
|
Receivable from affiliates
|
|
|
5,960
|
|
|
|
5,041
|
|
Capital lease
|
|
|
2,514
|
|
|
|
2,723
|
|
Goodwill and identifiable intangible assets
|
|
|
3,765
|
|
|
|
3,765
|
|
Income tax receivable
|
|
|
9,349
|
|
|
|
6,787
|
|
Other assets
|
|
|
6,355
|
|
|
|
6,750
|
|
Total assets
|
|
$
|
149,229
|
|
|
$
|
103,899
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to brokers
|
|
$
|
66
|
|
|
$
|
12
|
|
Income taxes payable and deferred tax liabilities
|
|
|
3,815
|
|
|
|
4,823
|
|
Capital lease obligation
|
|
|
5,066
|
|
|
|
5,170
|
|
Compensation payable
|
|
|
42,384
|
|
|
|
24,426
|
|
Securities sold, not yet purchased
|
|
|
-
|
|
|
|
129
|
|
Payable to affiliates
|
|
|
1,412
|
|
|
|
7,687
|
|
Accrued expenses and other liabilities
|
|
|
29,178
|
|
|
|
28,882
|
|
Sub-total
|
|
|
81,921
|
|
|
|
71,129
|
|
|
|
|
|
|
|
|
|
|
AC 4% PIK Note (due November 30, 2020) (Note F)
|
|
|
100,000
|
|
|
|
250,000
|
|
4.5% Convertible note (due August 15, 2021) (Note F)
|
|
|
109,835
|
|
|
|
-
|
|
Loan from GGCP (due December 28, 2016) (Note F)
|
|
|
-
|
|
|
|
35,000
|
|
5.875% Senior notes (due June 1, 2021) (Note F)
|
|
|
24,120
|
|
|
|
24,097
|
|
Total liabilities
|
|
|
315,876
|
|
|
|
380,226
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note I)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; 10,000,000 shares authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 15,477,082 and 15,422,901
|
|
|
|
|
|
|
|
|
shares issued, respectively; 10,369,601 and 10,664,107 shares outstanding, respectively
|
|
|
14
|
|
|
|
14
|
|
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 24,000,000 shares issued
|
|
|
|
|
|
|
|
|
and 19,093,311 and 19,156,792 shares outstanding, respectively
|
|
|
19
|
|
|
|
19
|
|
Additional paid-in capital
|
|
|
3,903
|
|
|
|
345
|
|
Retained earnings (deficit)
|
|
|
80,515
|
|
|
|
(34,224
|
)
|
Accumulated comprehensive income
|
|
|
11,271
|
|
|
|
9,115
|
|
Treasury stock, at cost (5,107,481 and 4,758,794 shares, respectively)
|
|
|
(262,369
|
)
|
|
|
(251,596
|
)
|
Total GAMCO Investors, Inc. stockholders' equity (deficit)
|
|
|
(166,647
|
)
|
|
|
(276,327
|
)
|
Noncontrolling interests from discontinued operations
|
|
|
-
|
|
|
|
0
|
|
Total equity (deficit)
|
|
|
(166,647
|
)
|
|
|
(276,327
|
)
|
Total liabilities and equity
|
|
$
|
149,229
|
|
|
$
|
103,899
|
|
See accompanying notes.
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
|
|
|
|
|
GAMCO Investors, Inc. shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
Noncontrolling
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
Interests
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
Balance at December 31, 2013
|
|
$
|
2,851
|
|
|
$
|
33
|
|
|
$
|
282,496
|
|
|
$
|
506,441
|
|
|
$
|
30,239
|
|
|
$
|
(361,878
|
)
|
|
$
|
460,182
|
|
|
$
|
6,751
|
|
Redemptions of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,353
|
)
|
Contributions from redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,093
|
|
Net income (loss)
|
|
|
(117
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
109,390
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109,273
|
|
|
|
(4,157
|
)
|
Net unrealized losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities available for sale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit ($356)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(604
|
)
|
|
|
-
|
|
|
|
(604
|
)
|
|
|
-
|
|
Amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit ($2,680)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,564
|
)
|
|
|
-
|
|
|
|
(4,564
|
)
|
|
|
-
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
-
|
|
Dividends declared ($0.50 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,881
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,881
|
)
|
|
|
-
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
7,199
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,199
|
|
|
|
-
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including tax benefit ($349)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,986
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,986
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,739
|
)
|
|
|
(32,739
|
)
|
|
|
-
|
|
Balance at December 31, 2014
|
|
$
|
2,734
|
|
|
$
|
33
|
|
|
$
|
291,681
|
|
|
$
|
602,950
|
|
|
$
|
25,014
|
|
|
$
|
(394,617
|
)
|
|
$
|
527,795
|
|
|
$
|
68,334
|
|
See accompanying notes.
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(continued) (In thousands)
|
|
|
|
|
GAMCO Investors, Inc. shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
Noncontrolling
|
|
|
Common
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
Noncontrolling
|
|
|
|
Interests
|
|
|
Stock
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Interests
|
|
Balance at December 31, 2014
|
|
$
|
2,734
|
|
|
$
|
33
|
|
|
$
|
291,681
|
|
|
$
|
602,950
|
|
|
$
|
25,014
|
|
|
$
|
(394,617
|
)
|
|
$
|
527,795
|
|
|
$
|
68,334
|
|
Redemptions of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Contributions from redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,412
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,412
|
|
|
|
-
|
|
Net unrealized losses on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities available for sale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit ($3,213)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,471
|
)
|
|
|
-
|
|
|
|
(5,471
|
)
|
|
|
-
|
|
Amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit ($1,662)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,829
|
)
|
|
|
-
|
|
|
|
(2,829
|
)
|
|
|
-
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
-
|
|
Dividends declared ($0.28 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,477
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,477
|
)
|
|
|
-
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
9,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,868
|
|
|
|
-
|
|
Reduction of deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for excess of recorded RSA tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit over actual tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,190
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,190
|
)
|
|
|
-
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
including tax benefit ($102)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,269
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,269
|
|
|
|
-
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,249
|
)
|
|
|
(27,249
|
)
|
|
|
-
|
|
Issuance of 4.4 million treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares to GSI
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,270
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
170,270
|
|
|
|
150,000
|
|
|
|
-
|
|
Spin-off of AC
|
|
|
(2,734
|
)
|
|
|
-
|
|
|
|
(281,013
|
)
|
|
|
(713,109
|
)
|
|
|
(7,553
|
)
|
|
|
-
|
|
|
|
(1,004,409
|
)
|
|
|
(68,334
|
)
|
Balance at December 31, 2015
|
|
$
|
-
|
|
|
$
|
33
|
|
|
$
|
345
|
|
|
$
|
(34,224
|
)
|
|
$
|
9,115
|
|
|
$
|
(251,596
|
)
|
|
$
|
(276,327
|
)
|
|
$
|
-
|
|
See accompanying notes.
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(continued) (In thousands)
|
|
GAMCO Investors, Inc. shareholders
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
33
|
|
|
$
|
345
|
|
|
$
|
(34,224
|
)
|
|
$
|
9,115
|
|
|
$
|
(251,596
|
)
|
|
$
|
(276,327
|
)
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
117,121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
117,121
|
|
Net unrealized gains on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities available for sale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax expense ($1,857)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,111
|
|
|
|
-
|
|
|
|
3,111
|
|
Amounts reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of income tax benefit ($464)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(791
|
)
|
|
|
-
|
|
|
|
(791
|
)
|
Foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(164
|
)
|
|
|
-
|
|
|
|
(164
|
)
|
Dividends declared ($0.08 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,382
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,382
|
)
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
-
|
|
|
|
3,959
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,959
|
|
Reduction of deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for excess of recorded RSA tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit over actual tax benefit
|
|
|
-
|
|
|
|
(401
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(401
|
)
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,773
|
)
|
|
|
(10,773
|
)
|
Balance at December 31, 2016
|
|
$
|
33
|
|
|
$
|
3,903
|
|
|
$
|
80,515
|
|
|
$
|
11,271
|
|
|
$
|
(262,369
|
)
|
|
$
|
(166,647
|
)
|
See accompanying notes.
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
117,121
|
|
|
$
|
83,412
|
|
|
$
|
109,390
|
|
Loss/(income) from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
3,887
|
|
|
|
(3,107
|
)
|
Income from continuing operations
|
|
|
117,121
|
|
|
|
87,299
|
|
|
|
106,283
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
625
|
|
|
|
618
|
|
|
|
669
|
|
Stock based compensation expense
|
|
|
3,959
|
|
|
|
9,868
|
|
|
|
5,278
|
|
Deferred income taxes
|
|
|
(5,537
|
)
|
|
|
1,166
|
|
|
|
3,493
|
|
Tax benefit from exercise of stock options
|
|
|
-
|
|
|
|
102
|
|
|
|
349
|
|
Foreign currency translation gain/(loss)
|
|
|
(164
|
)
|
|
|
(46
|
)
|
|
|
(57
|
)
|
Donated securities
|
|
|
499
|
|
|
|
1,945
|
|
|
|
1,486
|
|
Gains on sales of available for sale securities
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
(587
|
)
|
Accretion of zero coupon debentures
|
|
|
-
|
|
|
|
628
|
|
|
|
885
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
1,067
|
|
|
|
84
|
|
Acquisition of identifiable intangible asset
|
|
|
-
|
|
|
|
(1,661
|
)
|
|
|
-
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in trading securities
|
|
|
186
|
|
|
|
(240
|
)
|
|
|
-
|
|
Receivable from affiliates
|
|
|
(927
|
)
|
|
|
21,393
|
|
|
|
-
|
|
Receivable from brokers
|
|
|
638
|
|
|
|
592
|
|
|
|
(1,055
|
)
|
Investment advisory fees receivable
|
|
|
(12,688
|
)
|
|
|
6,679
|
|
|
|
8,528
|
|
Income tax receivable and deferred tax assets
|
|
|
(2,562
|
)
|
|
|
(4,354
|
)
|
|
|
(1,988
|
)
|
Other assets
|
|
|
(69
|
)
|
|
|
529
|
|
|
|
10,289
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to affiliates
|
|
|
(6,275
|
)
|
|
|
7,333
|
|
|
|
(410
|
)
|
Payable to brokers
|
|
|
54
|
|
|
|
1
|
|
|
|
(752
|
)
|
Income taxes payable and deferred tax liabilities
|
|
|
2,768
|
|
|
|
(10,401
|
)
|
|
|
(896
|
)
|
Compensation payable
|
|
|
17,969
|
|
|
|
(6,369
|
)
|
|
|
11,116
|
|
Accrued expenses and other liabilities
|
|
|
144
|
|
|
|
987
|
|
|
|
(2,257
|
)
|
Total adjustments
|
|
|
(1,384
|
)
|
|
|
29,831
|
|
|
|
34,175
|
|
Net cash provided by operating activities from continuing operations
|
|
$
|
115,737
|
|
|
$
|
117,130
|
|
|
$
|
140,458
|
|
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued) (In thousands)
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
$
|
(1,843
|
)
|
|
$
|
(6,279
|
)
|
|
$
|
(5,024
|
)
|
Proceeds from sales of available for sale securities
|
|
|
408
|
|
|
|
81
|
|
|
|
3,877
|
|
Net cash used in investing activities from continuing operations
|
|
|
(1,435
|
)
|
|
|
(6,198
|
)
|
|
|
(1,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Zero coupon subordinated debentures due December 31, 2015
|
|
|
-
|
|
|
|
(13,101
|
)
|
|
|
(716
|
)
|
Repurchase of 5.875% Senior note due June 1, 2021
|
|
|
-
|
|
|
|
(76,533
|
)
|
|
|
-
|
|
Repayment of AC 4% PIK Note
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Issuance of 4.5% Convertible note
|
|
|
109,826
|
|
|
|
-
|
|
|
|
-
|
|
Repayment of GGCP loan due December 28, 2016
|
|
|
(35,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Loan from GGCP due December 28, 2016
|
|
|
-
|
|
|
|
35,000
|
|
|
|
-
|
|
Amortization of debt issuance costs
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
Net cash transferred to AC
|
|
|
-
|
|
|
|
(21,739
|
)
|
|
|
(86,703
|
)
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
1,167
|
|
|
|
1,637
|
|
Dividends paid
|
|
|
(2,333
|
)
|
|
|
(7,468
|
)
|
|
|
(12,618
|
)
|
Purchase of treasury stock
|
|
|
(10,773
|
)
|
|
|
(27,249
|
)
|
|
|
(32,739
|
)
|
Net cash used in financing activities from continuing operations
|
|
|
(88,247
|
)
|
|
|
(109,923
|
)
|
|
|
(131,139
|
)
|
Cash flows of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
-
|
|
|
|
54,335
|
|
|
|
(76,618
|
)
|
Net cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
(41,463
|
)
|
|
|
3,839
|
|
Net cash provided by (used in) financing activities
|
|
|
-
|
|
|
|
(12,871
|
)
|
|
|
66,367
|
|
Net cash provided by (used in) discontinued operations
|
|
|
-
|
|
|
|
1
|
|
|
|
(6,412
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
38
|
|
|
|
15
|
|
|
|
19
|
|
Net increase in cash and cash equivalents
|
|
|
26,093
|
|
|
|
1,025
|
|
|
|
1,779
|
|
Cash and cash equivalents at beginning of period
|
|
|
13,719
|
|
|
|
12,694
|
|
|
|
10,915
|
|
Cash and cash equivalents at end of period
|
|
$
|
39,812
|
|
|
$
|
13,719
|
|
|
$
|
12,694
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
11,274
|
|
|
$
|
7,011
|
|
|
$
|
6,671
|
|
Cash paid for taxes
|
|
$
|
75,238
|
|
|
$
|
59,657
|
|
|
$
|
70,103
|
|
Non-cash activity:
- For 2016, 2015 and 2014 the Company accrued restricted stock award dividends of $35, $175 and $263, respectively.
- For 2016 and 2015, the Company recorded $402 and $1,190, respectively, as a reduction to its deferred tax asset and additional paid-in capital for the excess of the recorded restricted stock award tax benefit over the actual tax benefit.
- On November 1, 2015, in connection with becoming the advisor to the Bancroft Fund Ltd. and the Ellswoth Growth and Income Fund Ltd., the Company recorded a non-cash identifiable intangible asset of $1.2 million.
- On November 28, 2015, the Company issued 4.4 million shares to GSI in exchange for a $150 million five-year 4% note ("GSI Note").
- On November 30, 2015, in connection with the spin-off of AC, the Company issued a $250 million five-year 4% PIK Note to AC and also contributed the GSI Note to AC.
- On November 30, 2015, in connection with the spin-off of AC, the Company transferred $601.7 million of net assets, excluding cash and cash equivalents.
See accompanying notes.
A. Significant Accounting Policies
Basis of Presentation
GAMCO Investors, Inc. (“GBL”, "We" or the “Company”) was incorporated in April 1998 in the state of New York, with no significant assets or liabilities and did not engage in any substantial business activities prior to the initial public offering (“Offering”) of our shares. On February 9, 1999, we exchanged 24 million shares of our Class B Common Stock (“Class B Stock”), representing all of our then issued and outstanding common stock, with Gabelli Funds, Inc. (“GFI”) and two of its subsidiaries in consideration for substantially all of the operating assets and liabilities of GFI, relating to its institutional and retail asset management, mutual fund advisory, underwriting and brokerage business (the “Reorganization”). GFI, which was renamed Gabelli Group Capital Partners, Inc. in 1999, is the majority shareholder of GBL and was renamed GGCP, Inc. (“GGCP”) in 2005. During 2010, the shares of GBL owned by GGCP were transferred to GGCP Holdings LLC, a subsidiary of GGCP. In 2014, the Company changed its state of incorporation from New York to Delaware in a tax-free reorganization. On November 30, 2015 (the “Spin-Off Date”), GBL distributed to its stockholders all of the outstanding common stock of Associated Capital Group, Inc. (“AC”) and its subsidiaries along with certain cash and other assets (the “Spin-off”). AC owns and operates, directly or indirectly, the alternatives and the institutional research businesses previously owned and operated by GBL. In the Spin-off, each holder of GAMCO’s Class A Common Stock (“Class A Stock”) of record as of 5:00 p.m. New York City time on November 12, 2015 (the “Record Date”), received one share of AC Class A common stock for each share of GAMCO Class A Stock held on the Record Date. Each record holder of GAMCO’s Class B Stock received one share of AC Class B common stock for each share of GAMCO Class B Stock held on the Record Date. Subsequent to the Spin-off, GAMCO no longer consolidates the financial results of AC or certain investment partnerships and offshore funds in which we had a direct or indirect controlling financial interest for the purposes of GAMCO’s financial reporting and the historical financial results of AC and certain investment partnerships and offshore funds have been reflected in the Company’s consolidated financial statements as discontinued operations for all periods presented through the Spin-off Date.
The accompanying consolidated financial statements include the assets, liabilities and earnings of:
·
|
Our wholly-owned subsidiaries: Gabelli Funds, LLC (“Funds Advisor”), GAMCO Asset Management Inc. (“GAMCO”), G.distributors, LLC (“G.distributors”), GAMCO Asset Management (UK) Limited, Gabelli Fixed Income, Inc. (“Fixed Income”), GAMCO International Partners LLC, and GAMCO Acquisition LLC.
|
The consolidated financial statements comprise the financial statements of GBL and its subsidiaries as of December 31 of each year. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intercompany transactions and balances have been eliminated. Subsidiaries are fully consolidated from the date of acquisition, being the date on which GBL obtains control, and continue to be consolidated until the date that such control ceases.
Reclassifications
Debt issuance costs of $128,000 at December 31, 2015 have been reclassified from the other assets line to the 5.875% Senior notes (due June 1, 2021) line within the consolidated statements of financial condition. In addition, the historical results of AC and certain investment partnerships and offshore funds have been reflected in the accompanying consolidated statements of income for the years ended December 31, 2015 and 2014 as discontinued operations and financial information related to discontinued operations has been excluded from the notes to these financial statements for all periods presented (See Note P. Discontinued Operations for further details).
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Nature of Operations
GAMCO, Funds Advisor, Gabelli Fixed Income LLC (“Fixed Income LLC”), a wholly-owned subsidiary of Fixed Income are registered investment advisors under the Advisers Act of 1940. G.distributors is a registered broker-dealer with the Securities and Exchange Commission (“SEC”) and is regulated by the Financial Industry Regulatory Authority (“FINRA”). Refer to Major Revenue-Generating Services and Revenue Recognition section within Note A for additional discussion of GBL's business.
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.
Securities Transactions
Investments in securities are accounted for as either “trading securities” or “available for sale” and are stated at fair value. Management determines the appropriate classification of debt and equity securities at the time of purchase. U.S. Treasury Bills and Notes with maturities of greater than three months at the time of purchase are considered investments in securities. Securities that are not readily marketable are stated at their estimated fair values in accordance with GAAP. A portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain/(loss) from investments on the consolidated statements of income. Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of other comprehensive income except for losses deemed to be other than temporary which are recorded as realized losses on the consolidated statements of income. Securities transactions and any related gains and losses are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in net gain/(loss) from investments on the consolidated statements of income.
Available for sale securities are evaluated for other than temporary impairments each reporting period and any impairment charges are recorded in net gain/(loss) from investments on the consolidated statements of income. Management reviews all available for sale securities whose cost exceeds their fair value to determine if the impairment is other than temporary. Management uses qualitative factors such as the intent to hold the investment, the amount of time that the investment has been impaired and the severity of the decline in determining whether the impairment is other than temporary.
Securities sold, but not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of GBL to purchase the securities at prevailing market prices. Therefore, the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition. The ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments. Realized gains and losses from covers of securities sold, not yet purchased transactions are included in net gain/(loss) from investments on the consolidated statements of income. Securities sold, not yet purchased are stated at fair value, with any unrealized gains or losses reported in current period earnings in net gain/(loss) from investments on the consolidated statements of income.
Major Revenue-Generating Services and Revenue Recognition
The Company’s revenues are derived primarily from investment advisory and incentive fees and distribution fees.
Investment advisory and incentive fees are directly influenced by the level and mix of assets under management (“AUM”) as fees are derived from a contractually-determined percentage of AUM for each account as well as incentive fees earned on certain accounts. Advisory fees from the open-end funds, closed-end funds and sub-advisory accounts are computed daily or weekly based on average net assets and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition. Advisory fees from Institutional and Private Wealth Management accounts are generally computed quarterly based on account values as of the end of the preceding quarter, and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition. The Company derived approximately 87%, 87% and 85% of its total revenues from advisory and management fees, including incentive fees, for the periods ended December 31, 2016, 2015 and 2014, respectively. These revenues vary depending upon the level of sales compared with redemptions, financial market conditions, performance and the fee structure for AUM. Revenues derived from the equity-oriented portfolios generally have higher management fee rates than fixed income portfolios.
The Company receives incentive fees from certain Institutional and Private Wealth Management accounts, which are based upon meeting or exceeding a specific benchmark index or indices. Incentive fees refer to fees earned when the return generated for the client exceeds the benchmark and can be earned even if the return to the client is negative as long as the return exceeds the benchmark. These fees are recognized, for each respective account, at the end of the stipulated contract period which is either quarterly or annually and varies by account. Receivables due for incentive fees earned are included in investment advisory fees receivable on the consolidated statements of financial condition. There were $2.4 million of incentive fees receivable as of December 31, 2016. There were no incentive fees receivable as of December 31, 2015. For The GDL Fund, there is a performance fee earned as of the end of the calendar year if the total return of the fund is in excess of the 90 day T-Bill Index total return. This fee is recognized at the end of the measurement period, which is annually on a calendar year basis. Receivables due on incentive fees relating to The GDL Fund are included in investment advisory fees receivable on the consolidated statements of financial condition and were $4.2 million and $3.7 million as of December 31, 2016 and 2015, respectively.
Management fees on $0.7 billion of the closed-end preferred shares are earned at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares. These fees are recognized at the end of the measurement period, which is annually. Receivables due for management fees on closed-end preferred shares are included in investment advisory fees receivable on the consolidated statements of financial condition. There were $7.3 million in management fees receivable on closed-end preferred shares as of December 31, 2016. There were no management fees receivable on closed-end preferred shares as of December 31, 2015.
Distribution fees revenues are derived primarily from the distribution of Gabelli, GAMCO and Comstock open-end funds (“Funds”) advised by a subsidiary of GBL, Funds Advisor and a subsidiary of GGCP, Teton. Effective August 1, 2011, G.distributors distributes our open-end Funds pursuant to distribution agreements with each Fund. Under each distribution agreement with an open-end Fund, G.distributors offers and sells such open-end Fund shares on a continuous basis and pays all of the costs of marketing and selling the shares, including printing and mailing prospectuses and sales literature, advertising and maintaining sales and customer service personnel and sales and services fulfillment systems, and payments to the sponsors of third party distribution programs, financial intermediaries and G.distributors’ sales personnel. G.distributors receives fees for such services pursuant to distribution plans adopted under provisions of Rule 12b-1 (“12b-1”) of the Investment Company Act of 1940 (“Company Act”). G.distributors is the principal underwriter for funds distributed in multiple classes of shares which carry either a front-end or back-end sales charge. Prior to August 1, 2011, G.research, an indirect subsidiary of AC, was the distributor of the Gabelli, GAMCO and Comstock open-end Funds.
Under the distribution plans, the open-end Class AAA shares of the Funds (except The Gabelli U.S. Treasury Money Market Fund, Gabelli Capital Asset Fund and The Gabelli ABC Fund) and the Class A shares of certain Funds pay G.distributors a distribution or service fee of 0.25% per year (except the Class A shares of the Westwood Funds which pay 0.50% per year and the Class A shares of the Gabelli Enterprise Mergers and Acquisitions Fund which pays 0.45% per year) on the average daily net assets of the Fund. Class B and Class C shares have a 12b-1 distribution plan with a service and distribution fee totaling 1%. Sales of class B shares were discontinued in 2014.
Distribution fees from the open-end funds are computed daily based on average net assets. The amounts receivable for distribution fees are included in receivables from affiliates on the consolidated statements of financial condition.
GBL also has investment gains or losses generated from its proprietary trading activities which are included in net gain/(loss) from investments on the consolidated statements of income.
Distribution Costs
We incur certain promotion and distribution costs, which are expensed as incurred, principally related to the sale of shares of Funds, shares sold in the initial public offerings of our closed-end funds, and after-market support services related to our closed-end funds. Additionally, Funds Advisor has agreed to reimburse expenses on certain funds, beyond certain expense caps. The reimbursed expenses are presented on a gross basis in distribution costs in the consolidated statements of income.
Dividends and Interest Income and Interest Expense
Dividends are recorded on the ex-dividend date. Interest income and interest expense are accrued as earned or incurred.
Depreciation and Amortization
Fixed assets other than leasehold improvements, with net book value of
$524,000 and $394,000 at December 31, 2016 and 2015, respectively, which are included in other assets, are recorded at cost and depreciated using the straight-line method over their estimated useful lives from four to seven years. Accumulated depreciation was $2.6 million and $2.5 million at December 31, 2016 and 2015, respectively. Leasehold improvements, with net book value of $1.6 million and $1.7 million at December 31, 2016 and 2015, respectively, which are included in other assets, are recorded at cost and amortized using the straight-line method over their estimated useful lives or lease terms, whichever is shorter. The leased property under the capital lease is depreciated utilizing the straight-line method over the term of the lease, which expires on December 31, 2028. The capital lease was extended on June 11, 2014 to December 31, 2028 from December 31, 2023. For the years ended December 31, 2016, 2015 and 2014, depreciation and amortization were $632,000, $618,000 and $683,000, respectively. We estimate that depreciation and amortization will be approximately $630,000 annually over the next three years.
Goodwill and Identifiable Intangible Assets
Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the amounts assigned to assets acquired less the liabilities assumed. At December 31, 2016 and 2015, goodwill recorded on the consolidated statements of financial condition relates to G.distributors. At December 31, 2016 and 2015, the identifiable intangible assets are the investment advisory contracts for the Gabelli Enterprise Mergers and Acquisition Fund, for the Bancroft Fund Ltd. and the Ellsworth Growth and Income Fund Ltd., all of which relate to Funds Advisor. Goodwill and identifiable intangible assets are tested for impairment at least annually on November 30
th
and whenever certain triggering events are met. In assessing the recoverability of the identifiable intangible asset for 2016 and 2015, projections regarding estimated future cash flows and other factors are made to determine the fair value of the asset. No impairment was recorded during 2016, 2015, or 2014.
In assessing the recoverability of goodwill for our annual impairment test on November 30, 2016 and 2015, we performed a qualitative assessment of whether it was more likely than not that an impairment had occurred and concluded that a quantitative analysis was not required. No impairment was recorded during 2016, 2015, or 2014.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, the Company determines whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes the accrual of interest on uncertain tax positions and penalties in income tax provision on the consolidated statements of income.
Fair Values of Financial Instruments
All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value. Certain investments in partnerships are also measured at fair value.
The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB’s guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below:
-
|
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 assets include cash equivalents, government obligations, open-end funds, closed-end funds and equities.
|
-
|
Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals. Assets that generally are included in this category may include certain limited partnership interests in private funds and over the counter derivatives that have inputs to the valuations that can generally be corroborated by observable market data.
|
-
|
Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets included in this category generally include equities that trade infrequently and direct private equity investments held within consolidated partnerships.
|
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Investments are transferred into or out of any level at their beginning period values.
The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.
The valuation process and policies reside with the financial reporting and accounting group which reports to the Co-Chief Accounting Officers. The Company uses the “market approach” valuation technique to value its investments in Level 3 investments. The Company’s valuation of the Level 3 investments has been based upon either i) the recent sale prices of the issuer’s equity securities or ii) the net assets, book value or cost basis of the issuer when there is no recent sales prices available.
In the absence of a closing price, an average of the bid and ask price is used. Bid prices reflect the highest price that the market is willing to pay for an asset. Ask prices represent the lowest price that the market is willing to accept for an asset.
Cash equivalents
– Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries and valued based on the net asset value of the fund. U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents. Cash equivalents are valued using unadjusted quoted market prices.
Investments in securities and Securities sold, not yet purchased
– Investments in securities and securities sold, not yet purchased are generally valued based on quoted prices from an exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy. Securities categorized in Level 2 investments are valued using other observable inputs. Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.
Earnings Per Share
Basic earnings per share is based on the weighted-average number of common shares outstanding during each period less unvested restricted stock. Diluted earnings per share is based on basic shares plus the incremental shares that would be issued upon the assumed exercise of in-the-money stock options and unvested restricted stock using the treasury stock method, and, if dilutive, assumes the conversion of the convertible note for the periods outstanding since the issuance in August 2016 using the if converted method.
Management Fee
Management fee expense is incentive-based and entirely variable compensation in the amount of 10% of the aggregate pre-tax profits before management fee which is paid to Mr. Gabelli or his designee for acting as CEO pursuant to his 2008 Employment Agreement so long as he is an executive of GBL and devotes the substantial majority of his working time to the business. In accordance with his 2008 Employment Agreement, he has allocated approximately $2.2 million, $1.9 million and $4.0 million of his management fee to certain other employees of the Company in 2016, 2015 and 2014, respectively.
Stock Based Compensation
The Company has granted restricted stock awards (“RSAs”) and stock options to staff members which were recommended by the Company’s Chairman, who did not receive an RSA or option award, and approved by the Compensation Committee of the Company’s Board of Directors. We use a fair value based method of accounting for stock-based compensation provided to our employees.
The estimated fair value of RSAs is determined by using the closing price of Class A Common Stock ("Class A Stock") on the day prior to the grant date. The total expense, which is reduced by estimated forfeitures, is recognized over the vesting period for these awards which is either (1) 30% over three years from the date of grant and 70% over five years from the date of grant or (2) 30% over three years from the date of grant and 10% each year over years four through ten from the date of grant. The forfeiture rate is determined by reviewing historical forfeiture rates for previous stock-based compensation grants and is reviewed and updated quarterly, if necessary. During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates. Dividends declared on these RSAs, less estimated forfeitures, are charged to retained earnings on the declaration date.
The estimated fair value of option awards on the grant date is determined using the Black Scholes option-pricing model. This sophisticated model utilizes a number of assumptions in arriving at its results, including the estimated life of the option, the risk free interest rate at the date of grant and the volatility of the underlying common stock. There may be other factors, which are not considered in the Black Scholes model, which may have an effect on the value of the options as well. The effects of changing any of the assumptions or factors employed by the Black Scholes model may result in a significantly different valuation for the options. The total expense based on the grant date fair value, which is reduced by estimated forfeitures, is recognized over the vesting period for these awards which is 75% over three years from the date of grant and 25% over four years from date of grant. The forfeiture rate is determined by reviewing historical forfeiture rates for previous stock-based compensation grants and is reviewed and updated quarterly, if necessary.
In connection with the Spin-off of AC and in accordance with GAAP, the Company has allocated the stock compensation costs between GBL and AC based upon each employee’s individual allocation of their responsibilities between GBL and AC. See note H. Equity for further details.
On December 21, 2015, GAMCO entered into a deferred compensation agreement with Mr. Gabelli whereby his variable compensation for 2016 was in the form of Restricted Stock Units (“RSUs”) determined by the volume-weighted average price (“VWAP”) of the Company’s Class A Stock during 2016. The RSUs will vest 100% on January 1, 2020, and the Company intends to settle the award in cash at that time; however, the Company reserves the right to issue shares of the Company’s Class A Stock in lieu of such cash payment. Under the terms of the agreement the Company will pay Mr. Gabelli an amount equal to the number of RSUs valued at the lesser of the VWAP of the Company’s Class A Stock for the 2016 fiscal year or the value on the lapse date or, if not a trading day, then the first trading date thereafter. Under GAAP, only 25% of this deferred compensation expense is being recognized in 2016 with the remainder amortized ratably over 2017, 2018, and 2019. Notwithstanding its ability to settle the award in stock, given the Company’s intent to settle it in cash, in accordance with GAAP (ASC 718), the award is accounted for as a liability-classified award and not as an equity-classified award. The liability is remeasured at fair value on each reporting period from December 31, 2016 until the vesting date. However, given the cap on the obligation in that Mr. Gabelli will not receive cash in excess of the VWAP of the Company’s Class A Stock for the 2016 fiscal year, the remeasurement of the liability at fair value will never exceed its value determined using that VWAP price.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and receivable from brokers. The Company maintains cash and cash equivalents primarily in the Gabelli U.S. Treasury Money Market Fund, which invests fully in instruments issued by the U.S. government, and has receivables from brokers with various brokers and financial institutions, where these balances can exceed the federally insured limit. The concentration of credit risk with respect to advisory fees receivable is generally limited due to the short payment terms extended to clients by the Company. In addition, the credit risk is further limited by virtue of the fact that no single advisory relationship provided over 10% of the total revenue of the Company during the years 2016, 2015, or 2014. All investments in securities are held at third party brokers or custodians.
Business Segment
The Company operates in one business segment, the investment advisory and asset management business. The Company conducts its investment advisory business principally through: GAMCO (Institutional and Private Wealth Management) and Funds Advisor (Funds). The distribution of our open-end funds and underwriting of those Funds was conducted through G.distributors.
Recent Accounting Developments
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in the Accounting Standards Codification ("Codification") Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the Codification. The core principle of the new ASU No. 2014-09 is for companies to recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. ASU No. 2016-08 “Principal versus Agent Considerations” amends ASU No. 2014-09 to clarify if an entity is considered a principal, an agent, or both in the contract. In addition, ASU No. 2016-20 “Technical Corrections and Improvements in Topic 606 Revenue from Contracts with Customers” provides additional clarification to a number of topics addressed in ASU No. 2014-09. The three ASUs are effective for annual reporting periods beginning after December 15, 2017, including interim periods and is either applied on a retrospective or modified retrospective basis. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern,” which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern.” The FASB believes that requiring management to perform the assessment will enhance the timeliness, clarity, and consistency of related disclosures. The ASU is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. The Company has adopted this ASU effective December 31, 2016. No additional disclosures were required in this Report of Form 10K based on management’s assessment that it does not have substantial doubt about the Company’s ability to continue as a going concern.
In April 2015, the FASB issued ASU 2015-03, which amends the presentation of debt issuance costs in financial statements. This amended guidance requires entities to present the cost of debt issuances as a reduction of the related debt rather than as an asset. This guidance is effective for the Company beginning January 1, 2016. The Company adopted this guidance retrospectively on January 1, 2016. As a result, the debt issuance costs related to the 5.875% Senior Notes are now shown net in the liability section on the consolidated statements of financial condition. At December 31, 2015, the 5.875% Senior Notes are now disclosed net of issuance costs of $128,000. These amounts were previously disclosed in other assets on the consolidated statements of financial condition.
In January 2016, the FASB issued ASU 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. For public companies, the new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. To adopt the amendments, entities will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, which amends the guidance in U.S. GAAP for the accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating leases in the consolidated statement of financial position. ASU 2016-02 is effective beginning January 1, 2019. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public companies, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption is permitted. The Company has adopted this ASU effective January 1, 2017 without a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, which adds and clarifies guidance on the classification of certain cash receipts and payments in the consolidated statements of cash flows. For public companies, the ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The ASU is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity transfers, particularly those involving intellectual property. For public companies, the ASU is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating this guidance and the impact it will have on its financial statements.
In January 2017, the FASB issued ASU 2017-04 to simplify the process used to test for goodwill. Under the new standard, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” For public companies, the ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption is permitted for impairment tests that occur after January 1, 2017. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
B. Investments in Securities
|
|
2016
|
|
|
2015
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
51
|
|
|
$
|
54
|
|
|
$
|
385
|
|
|
$
|
368
|
|
Total trading securities
|
|
|
51
|
|
|
|
54
|
|
|
|
385
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
18,739
|
|
|
|
37,131
|
|
|
|
17,898
|
|
|
|
32,607
|
|
Closed-end funds
|
|
|
99
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
Total available for sale securities
|
|
|
18,838
|
|
|
|
37,231
|
|
|
|
17,898
|
|
|
|
32,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
18,889
|
|
|
$
|
37,285
|
|
|
$
|
18,283
|
|
|
$
|
32,975
|
|
Securities sold, not yet purchased at December 31, 2016 and 2015 consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
123
|
|
|
$
|
129
|
|
Total securities sold, not yet purchased
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
123
|
|
|
$
|
129
|
|
The following table identifies all reclassifications out of accumulated other comprehensive income and into net income for the year ended December 31, 2016 and 2015 (in thousands):
Amount
|
|
Affected Line Item
|
|
Reason for
|
Reclassified
|
|
in the Statements
|
|
Reclassification
|
from AOCI
|
|
of Income
|
|
from AOCI
|
Twelve months ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4
|
|
|
$
|
6
|
|
Net gain from investments
|
|
Realized gain on sale of AFS securities
|
|
1,251
|
|
|
|
4,485
|
|
Other operating expenses
|
|
Donation of AFS securities
|
|
1,255
|
|
|
|
4,491
|
|
Income before income taxes
|
|
|
|
(464
|
)
|
|
|
(1,662
|
)
|
Income tax benefit
|
|
|
$
|
791
|
|
|
$
|
2,829
|
|
Net income
|
|
|
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of December 31, 2016 and December 31, 2015:
|
|
December 31, 2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Common stocks
|
|
$
|
18,739
|
|
|
$
|
18,392
|
|
|
$
|
-
|
|
|
$
|
37,131
|
|
Closed-end funds
|
|
|
99
|
|
|
|
1
|
|
|
|
-
|
|
|
|
100
|
|
Total available for sale securities
|
|
$
|
18,838
|
|
|
$
|
18,393
|
|
|
$
|
-
|
|
|
$
|
37,231
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
Common stocks
|
|
$
|
17,898
|
|
|
$
|
14,709
|
|
|
$
|
-
|
|
|
$
|
32,607
|
|
Total available for sale securities
|
|
$
|
17,898
|
|
|
$
|
14,709
|
|
|
$
|
-
|
|
|
$
|
32,607
|
|
Increases in unrealized gains, net of taxes, for AFS securities for the year ended December 31, 2016 of $2.3 million have been included in other comprehensive income at December 31, 2016. Increases in unrealized losses, net of taxes, for AFS securities for the years ended December 31, 2015 and 2014 of $5.5 million and $0.6 million have been included in other comprehensive income at December 31, 2015 and 2014, respectively. The amount reclassified from other comprehensive income for the years ended December 31, 2016, 2015 and 2014 was $0.8 million, $2.8 million and $4.6 million, respectively. Proceeds from sales of investments available for sale were approximately $0.4 million, $0.1 million and $3.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. For the years ended December 31, 2016, 2015 and 2014, gross gains on the sale of investments available for sale amounted to $4,000, $6,000 and $0.6 million, respectively, and were reclassed from other comprehensive income into the consolidated statements of income. There were no losses on the sale of investments available for sale for the years ended December 31, 2016, 2015 and 2014. The basis on which the cost of a security sold is determined is specific identification. Accumulated other comprehensive income on the consolidated statements of equity is primarily comprised of unrealized gains/losses, net of taxes, for AFS securities.
GBL has an established accounting policy and methodology to determine other-than-temporary impairment on available for sale securities. Under this policy, available for sale securities are evaluated for other than temporary impairments and any impairment charges are recorded in net gain/(loss) from investments on the consolidated statements of income. Management reviews all available for sale securities whose cost exceeds their market value to determine if the impairment is other than temporary. Management uses qualitative factors such as diversification of the investment, the amount of time that the investment has been impaired, the intent to sell and the severity of the decline in determining whether the impairment is other than temporary.
There were no investments classified as available for sale that were in an unrealized loss position at either December 31, 2016 or December 31, 2015.
For the years ended December 31, 2016, 2015 and 2014 there were no losses on available for sale securities that were deemed to be other than temporary.
C. Fair Value
The following tables present information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of December 31, 2016 and 2015 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2016 (in thousands)
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Balance as of
|
|
|
|
Markets for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
December 31,
|
|
Assets
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
2016
|
|
Cash equivalents
|
|
$
|
39,638
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39,638
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
37,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,131
|
|
AFS - Closed-end Funds
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
Trading - Common stocks
|
|
|
54
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54
|
|
Total investments in securities
|
|
|
37,285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,285
|
|
Total assets at fair value
|
|
$
|
76,923
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
76,923
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common stocks
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total securities sold, not yet purchased
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
During the year ended December 31, 2016, there were no transfers between any Level 1 and Level 2 holdings, or between Level 1 and Level 3 holdings.
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2015 (in thousands)
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Balance as of
|
|
|
|
Markets for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
December 31,
|
|
Assets
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
2015
|
|
Cash equivalents
|
|
$
|
13,538
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,538
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
32,607
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,607
|
|
Trading - Common stocks
|
|
|
368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
368
|
|
Total investments in securities
|
|
|
32,975
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,975
|
|
Total assets at fair value
|
|
$
|
46,513
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
46,513
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold, not yet purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading - Common stocks
|
|
$
|
129
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
129
|
|
Total securities sold, not yet purchased
|
|
$
|
129
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
129
|
|
During the year ended December 31, 2015, there were no transfers between any Level 1 and Level 2 holdings, or between Level 1 and Level 3 holdings.
Other than certain securities which were part of the Spin-off (which are reflected in discontinued operations), the Company did not hold any Level 2 or 3 securities at either December 31, 2016 or December 31, 2015.
D. Income Taxes
GBL and its greater than 80% owned operating subsidiaries file a consolidated federal income tax return. Accordingly, the income tax provision represents the aggregate of the amounts provided for all companies.
The provision for income taxes for the years ended December 31, 2016, 2015 and 2014 consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
63,991
|
|
|
$
|
47,699
|
|
|
$
|
58,194
|
|
Deferred
|
|
|
(4,424
|
)
|
|
|
(1,441
|
)
|
|
|
(2,876
|
)
|
State and local:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
6,652
|
|
|
|
5,359
|
|
|
|
6,595
|
|
Deferred
|
|
|
(1,113
|
)
|
|
|
109
|
|
|
|
(179
|
)
|
Total
|
|
$
|
65,106
|
|
|
$
|
51,726
|
|
|
$
|
61,734
|
|
A reconciliation of the Federal statutory income tax rate to the effective tax rate is set forth below:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory Federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income tax, net of Federal benefit
|
|
|
1.0
|
|
|
|
2.7
|
|
|
|
2.5
|
|
Other
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
Effective income tax rate
|
|
|
35.7
|
%
|
|
|
37.2
|
%
|
|
|
36.7
|
%
|
Significant components of our deferred tax assets and liabilities are as follows:
|
|
2016
|
|
|
2015
|
|
(In thousands)
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Stock compensation expense
|
|
$
|
4,006
|
|
|
$
|
4,857
|
|
Deferred compensation
|
|
|
7,629
|
|
|
|
1,268
|
|
Capital lease obligation
|
|
|
944
|
|
|
|
905
|
|
Other
|
|
|
311
|
|
|
|
287
|
|
Total deferred tax assets
|
|
|
12,890
|
|
|
|
7,317
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Investments in securities available for sale
|
|
|
(6,805
|
)
|
|
|
(5,443
|
)
|
Contingent deferred sales commissions
|
|
|
(322
|
)
|
|
|
(419
|
)
|
Intangible asset amortization
|
|
|
(235
|
)
|
|
|
(111
|
)
|
Other
|
|
|
(9
|
)
|
|
|
-
|
|
Total deferred tax liabilities
|
|
|
(7,371
|
)
|
|
|
(5,973
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
5,519
|
|
|
$
|
1,344
|
|
As a result of the vesting of RSAs, and in accordance with GAAP, decreases of $0.4 million and $1.2 million were recorded in additional paid in capital for the years ended December 31, 2016 and December 31, 2015, respectively, as the actual tax benefits realized by the Company were less than the previously recorded deferred tax benefits.
As of December 31, 2016 and 2015, the total amount of gross unrecognized tax benefits related to uncertain tax positions was approximately $15.0 million and $18.4 million, respectively, of which recognition of $9.8 million and $11.9 million, respectively, would impact the Company’s effective tax rate.
As of December 31, 2016 and 2015, the net liability for unrecognized tax benefits related to uncertain tax positions was $14.1 million and $17.6 million, respectively, and is included in accrued expenses and other liabilities on the consolidated statements of financial condition.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits related to uncertain tax positions is as follows:
|
|
(in millions)
|
|
Balance at December 31, 2013
|
|
$
|
12.9
|
|
Additions based on tax positions related to the current year
|
|
|
3.1
|
|
Additions for tax positions of prior years
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
-
|
|
Settlements
|
|
|
-
|
|
Balance at December 31, 2014
|
|
|
16.0
|
|
Additions based on tax positions related to the current year
|
|
|
2.8
|
|
Additions for tax positions of prior years
|
|
|
0.1
|
|
Reductions for tax positions of prior years
|
|
|
(0.5
|
)
|
Settlements
|
|
|
-
|
|
Balance at December 31, 2015
|
|
|
18.4
|
|
Additions based on tax positions related to the current year
|
|
|
2.3
|
|
Additions for tax positions of prior years
|
|
|
1.2
|
|
Reductions for tax positions of prior years
|
|
|
(6.9
|
)
|
Settlements
|
|
|
-
|
|
Balance at December 31, 2016
|
|
$
|
15.0
|
|
The Company records penalties and interest related to tax uncertainties in income taxes. As of December 31, 2016 and 2015, the Company had recognized gross liabilities of approximately $6.7 million and $8.0 million related to interest and penalties, respectively. For the year ended December 31, 2016, the Company recorded an income tax benefit related to a decrease in its liability for interest and penalties of $0.7 million. For the years ended December 31, 2015 and 2014, the Company recorded income tax expenses related to an increase in its liability for interest and penalties of $1.1 million and $1.0 million, respectively.
The Company is currently being audited by the Internal Revenue Service for 2014, New York State for years 2007 through 2011 and the State of Illinois for years 2010 through 2012 but does not expect that any potential assessments will be material to its results of operations. The Company is subject to future audits by New York State for all years after 2011. The Company’s remaining state income tax returns are subject to future audit for all years after 2010. The Company’s Federal tax returns are subject to future audit for 2013 and 2015.
E. Earnings per Share
The computations of basic and diluted net income per share are as follows:
|
|
For the Years Ending December 31,
|
|
(In thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
117,121
|
|
|
$
|
87,299
|
|
|
$
|
106,283
|
|
Gain/(loss) from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
(3,887
|
)
|
|
|
3,107
|
|
Net income attributable to GAMCO Investors, Inc.'s
shareholders
|
|
$
|
117,121
|
|
|
$
|
83,412
|
|
|
$
|
109,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
29,182
|
|
|
|
25,425
|
|
|
|
25,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
4.01
|
|
|
$
|
3.43
|
|
|
$
|
4.20
|
|
Discontinued operations
|
|
|
-
|
|
|
|
(0.15
|
)
|
|
|
0.12
|
|
Total
|
|
$
|
4.01
|
|
|
$
|
3.28
|
|
|
$
|
4.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
117,121
|
|
|
$
|
87,299
|
|
|
$
|
106,283
|
|
Add interest on convertible note, net of management fee and taxes
|
|
|
1,133
|
|
|
|
-
|
|
|
|
-
|
|
Total income from continuing operations
|
|
|
118,254
|
|
|
|
87,299
|
|
|
|
106,283
|
|
Gain/(loss) from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
(3,887
|
)
|
|
|
3,107
|
|
Net income attributable to GAMCO Investors, Inc.'s shareholders
|
|
$
|
118,254
|
|
|
$
|
83,412
|
|
|
$
|
109,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average share outstanding
|
|
|
29,182
|
|
|
|
25,425
|
|
|
|
25,335
|
|
Dilutive stock options and restricted stock awards
|
|
|
234
|
|
|
|
286
|
|
|
|
223
|
|
Assumed conversion of convertible notes
|
|
|
754
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
30,170
|
|
|
|
25,711
|
|
|
|
25,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
3.92
|
|
|
$
|
3.40
|
|
|
$
|
4.16
|
|
Discontinued operations
|
|
|
-
|
|
|
|
(0.15
|
)
|
|
|
0.12
|
|
Total
|
|
$
|
3.92
|
|
|
$
|
3.24
|
|
|
$
|
4.28
|
|
F. Debt
Debt consists of the following:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
|
Value
|
|
|
Level 2
|
|
|
Value
|
|
|
Level 2
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5% Convertible note
|
|
$
|
109,835
|
|
|
$
|
111,525
|
|
|
$
|
-
|
|
|
$
|
-
|
|
AC 4% PIK Note
|
|
|
100,000
|
|
|
|
100,930
|
|
|
|
250,000
|
|
|
|
250,000
|
|
Loan from GGCP
|
|
|
-
|
|
|
|
-
|
|
|
|
35,000
|
|
|
|
35,000
|
|
5.875% Senior notes
|
|
|
24,120
|
|
|
|
24,558
|
|
|
|
24,097
|
|
|
|
24,437
|
|
Total
|
|
$
|
233,955
|
|
|
$
|
237,013
|
|
|
$
|
309,097
|
|
|
$
|
309,437
|
|
4.5% Convertible Note
On August 15, 2016, the Company issued via a private placement a 5-year, $110 million convertible note (“Convertible Note”) to Cascade Investment, L.L.C. The note bears interest at a rate of 4.5% per annum and is convertible into shares of the Company’s Class A Common stock (“Class A Stock”) at an initial conversion price of $55.00 per share. The Convertible Note is initially convertible into two million shares of the Company’s Class A Stock, subject to adjustment pursuant to the terms of the Convertible Note. The Company is required to repurchase the Convertible Note at the request of the holder on specified dates or after certain circumstances involving a Fundamental Change (as defined in the Convertible Note). The Company has the option to repurchase, in whole or in part (must be at least 50%), the Convertible Note at $101 on or after February 15, 2019. The Company recorded $174,000 of costs in connection with the issuance of the Convertible Note that will be amortized over the five year life. GGCP, Inc. (“GGCP”), which owns approximately 62 % of the equity interest of the Company, has deposited cash equal to the principal amount of the Note and six months interest (“Initial Deposit”) into an escrow account established pursuant to an escrow agreement by and among GGCP, the Company, the Convertible Note holder and the escrow agent. In connection with the Initial Deposit made by GGCP, the Company has agreed that GGCP has a right to demand payment in an amount equal to any funds withdrawn from the escrow account by the Convertible Note holder.
AC 4% PIK Note
In connection with the spin-off of AC on November 30, 2015, the Company issued a $250 million promissory note (the “AC 4% PIK Note”) payable to AC. The AC 4% PIK Note bears interest at 4.0% per annum. The original principal amount has a maturity date of November 30, 2020. Interest on the AC 4% PIK Note will accrue from the date of the last interest payment, or if no interest has been paid, from the effective date of the AC 4% PIK Note. At the election of the Company, payment of interest on the AC 4% PIK Note may be paid in kind (in whole or in part) on the then-outstanding principal amount (a “PIK Amount”) in lieu of cash. All PIK Amounts added to the outstanding principal amount of the AC 4% PIK Note will mature on the fifth anniversary from the date the PIK Amount was added to the outstanding principal of the AC 4% PIK Note. In no event may any interest be paid in kind subsequent to November 30, 2019. The Company may prepay the AC 4% PIK Note (in whole or in part) prior to maturity without penalty.
During 2016, the Company prepaid $150 million of principal of the AC 4% PIK Note. $50 million of the prepayment was applied against the principal amount due on November 30, 2016, $40 million against the principal amount due on November 30, 2017, $30 million against the principal amount due on November 30, 2018, and $30 million against the principal amount due on November 30, 2019. Of the $100 million principal amount outstanding at December 31, 2016, $10 million is due on November 30, 2017, $20 million is due on November 30, 2018, $20 million is due on November 30, 2019, and $50 million is due on November 30, 2020.
5.875% Senior notes
On May 31, 2011, the Company issued $100 million of senior unsecured notes (“Senior Notes”) at par. The net proceeds of $99.1 million are being used for working capital and general corporate purposes, which may include acquisitions and seed investments. The issuance costs of $0.9 million have been capitalized and will be amortized over the term of the debt or pro rata upon a repurchase. The notes mature on June 1, 2021 and bear interest at 5.875% per annum, payable semi-annually on June 1 and December 1 of each year and commenced on December 1, 2011. Upon a change of control triggering event, as defined in the indenture, the Company is required to offer to repurchase the notes at 101% of their principal amount.
On November 18, 2015, the Company commenced a tender offer (the “Offer”) to purchase for cash up to $100 million aggregate principal amount of the Senior Notes at a price of 101% of the principal amount. $75.8 million of face value Senior Notes were tendered upon the expiration of the Offer. The tender was accounted for as an extinguishment of debt and resulted in a loss of $0.8 million and is included in extinguishment of debt on the consolidated statements of income. In connection with the tender, the Company also expensed $0.4 million of pro rata unamortized issuance costs which was included in interest expense on the consolidated statements of income. At December 31, 2016 and 2015, the debt was recorded at its face value, net of issuance costs, of $24.1 million and $24.1 million, respectively.
Loan from GGCP
In connection with the Offer, the Company borrowed $35.0 million from GGCP. The loan had a term of one year and bore interest at 90-day LIBOR plus 3.25%, reset and payable quarterly. On March 18, 2016, the Company paid back $15.0 million of the loan. During the second quarter of 2016 the Company paid back the remaining $20.0 million of the loan. At December 31, 2015, the debt was recorded at its face value of $35.0 million.
Zero coupon Subordinated debentures due December 31, 2015
On December 31, 2010, the Company issued $86.4 million in par value of five year zero coupon subordinated debentures due December 31, 2015 (“Debentures”) to its shareholders of record on December 15, 2010 through the declaration of a special dividend of $3.20 per share. The Debentures had a par value of $100 and were callable at the option of the Company, in whole or in part, at any time or from time to time, at a redemption price equal to 100% of the principal amount of the Debentures to be redeemed. During 2015 and 2014, the Company repurchased 62,242 Debentures and 7,178 Debentures, respectively, having a face value of $6.2 million and $0.7 million, respectively. The redemptions in 2015 and 2014 were accounted for as an extinguishment of debt and resulted in a loss of $0.3 million and $0.1 million, respectively, which was included in extinguishment of debt on the consolidated statements of income. The debt was being accreted to its face value using the effective rate on the date of issuance of 7.45%. The debt matured on December 31, 2015 and was fully paid at that time.
The fair value of the Company’s debt, which is a Level 2 valuation, is estimated based on either quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities or using market standard models. Inputs into these models include credit rating, maturity and interest rate.
G. Equity
Voting Rights
The holders of Class A Stock and Class B Stock have identical rights except that (i) holders of Class A Stock are entitled to one vote per share, while holders of Class B Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general, and (ii) holders of Class A Stock are not eligible to vote on matters relating exclusively to Class B Stock and vice versa.
Stock Award and Incentive Plan
The Company maintains two Plans approved by the shareholders, which are designed to provide incentives which will attract and retain individuals key to the success of GBL through direct or indirect ownership of our common stock. Benefits under the Plans 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 4.0 million shares of Class A Stock have been reserved for issuance under the Plans by a committee of the Board of Directors responsible for administering the Plans (“Compensation Committee”). Under the Plans, the committee may grant RSAs and either incentive or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price that the committee may determine.
During 2014, the Company issued 158,600 RSAs at a grant date fair value of $80.23 per share. There were no RSAs issued during 2016 or 2015. As of December 31, 2016 and 2015, there were 424,340 RSA shares and 553,100 RSA shares, respectively, outstanding that were issued at an average grant price of $65.74 per share and $64.02 per share, respectively. All grants of RSAs were recommended by the Company's Chairman, who did not receive a RSA, and approved by the Compensation Committee of the Company's Board of Directors. This expense, net of estimated forfeitures, is recognized over the vesting period for these awards which is either (1) 30% over three years from the date of grant and 70% over five years from the date of grant or (2) 30% over three years from the date of grant and 10% each year over years four through ten from the date of grant. During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates. Dividends declared on these RSAs, less estimated forfeitures, are charged to retained earnings on the declaration date. For RSAs issued by GAMCO prior to the spin-off of AC on November 30, 2015, the Company expenses the portion of the RSAs that correspond to the employee allocation between GAMCO and AC.
During 2015, the Board of Directors accelerated the lapsing of restrictions on the November 2013 grant of RSAs resulting in recognition of $3.5 million in stock compensation expense during 2015 that would have been recorded in 2016 through 2018.
During 2016, in accordance with the deferred compensation agreement with Mr. Gabelli for the full year of 2016, the Company issued 2,314,695 RSUs, based upon the VWAP of the Company’s Class A Stock for 2016 of $32.8187, in satisfaction of Mr. Gabelli’s variable compensation of $75,965,266 for 2016. These RSUs will vest 100% on January 1, 2020 and are being expensed ratably over the vesting period. For 2016, the Company expensed 25%, or $18,991,316, of this RSU. The Company will pay Mr. Gabelli an amount equal to the number of RSUs valued at the lesser of the VWAP of the Company’s Class A Stock for 2016 or the value on the lapse date. Notwithstanding its ability to settle the award in stock, given the Company’s intent to settle it in cash, in accordance with GAAP (ASC 718), the award is accounted for as a liability-classified award and not as an equity-classified award. The liability is remeasured at fair value on each reporting period from December 31, 2016 until the vesting date. However, given the cap on the obligation in that Mr. Gabelli will not receive cash in excess of the VWAP of the Company’s Class A Stock for the 2016 fiscal year, the remeasurement of the liability at fair value will never exceed its value determined using that VWAP price. Therefore, in accordance with GAAP, the Company marked to market the RSU payable on December 31, 2016 to the closing price of the Company’s Class A Stock of $30.89. This mark to market adjustment resulted in a reduction of the RSU expense of $1,116,082 for 2016.
On December 23, 2016, GAMCO entered into a deferred compensation agreement with Mr. Gabelli whereby his variable compensation for the first half of 2017 will be in the form of RSUs determined by the VWAP of the Company’s Class A Stock during the first half of 2017. The RSUs will vest 100% on July 1, 2018, and the Company intends to settle the award in cash at that time; however, the Company reserves the right to issue shares of the Company’s Class A Stock in lieu of such cash payment. Under the terms of the agreement the Company will pay Mr. Gabelli an amount equal to the number of RSUs valued at the lesser of the VWAP of the Company’s Class A Stock for the first half of 2017 or the value on the lapse date or, if not a trading day, then the first trading date thereafter. For GAAP reporting, the Company will recognize the amount of Mr. Gabelli’s 2017 first half compensation ratably over the vesting period, or approximately 67% of the total during 2017 and 33% during 2018. Notwithstanding its ability to settle the award in stock, given the Company’s intent to settle it in cash, in accordance with GAAP (ASC 718), the award is accounted for as a liability-classified award and not as an equity-classified award. The liability is remeasured at fair value on each reporting period from June 30, 2017 until the vesting date. However, given the cap on the obligation in that Mr. Gabelli will not receive cash in excess of the VWAP of the Company’s Class A Stock for the first half of the 2017 fiscal year, the remeasurement of the liability at fair value will never exceed its value determined using that VWAP price.
A summary of the stock option and RSA activity for the years ended December 31, 2016 and 2015 is as follows:
|
|
Options
|
|
|
RSAs
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
26,000
|
|
|
$
|
44.89
|
|
|
|
710,750
|
|
|
$
|
67.45
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,000
|
)
|
|
|
69.50
|
|
Exercised / Vested
|
|
|
(26,000
|
)
|
|
|
39.55
|
|
|
|
(130,650
|
)
|
|
|
81.55
|
|
Outstanding at December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
553,100
|
|
|
|
64.02
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,300
|
)
|
|
|
64.85
|
|
Exercised / Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
(119,460
|
)
|
|
|
57.86
|
|
Outstanding at December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
424,340
|
|
|
$
|
65.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares available for future issuance at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
51,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014, there were exercisable outstanding stock options of 23,500. The weighted average exercise price of the exercisable outstanding stock options at December 31, 2014 was $44.80 per share.
The total compensation costs related to non-vested awards not yet recognized is approximately $7.3 million as of December 31, 2016. This will be recognized as expense in the following periods (in thousands):
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
$
|
2,541
|
|
|
$
|
1,718
|
|
|
$
|
1,379
|
|
|
$
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
2022
|
|
|
|
2023
|
|
|
|
2024
|
|
|
$
|
505
|
|
|
$
|
306
|
|
|
$
|
130
|
|
|
$
|
21
|
|
|
For the years ended December 31, 2016, 2015 and 2014, the Company recorded approximately $4.0 million, $9.9 million and $5.3 million, respectively, in stock based compensation expense which resulted in the recognition of tax benefits of approximately $1.5 million, $3.7 million and $2.0 million, respectively. The $9.9 million for the year ended December 31, 2015, includes $3.5 million in stock compensation expense as a result of accelerating the November 2013 grant of RSAs. There were no comparable accelerations in the years ended December 31, 2016 or 2014.
For the years ended December 31, 2015 and 2014, the Company received approximately $1.2 million and $1.6 million, respectively, from the exercise of stock options which resulted in tax benefits of $0.1 million and $0.3 million, respectively.
Stock Repurchase Program
In 1999, the Board of Directors established the Stock Repurchase Program through which the Company has been authorized to purchase up to $9 million of Class A Stock. The Board of Directors authorized 500,000 shares in August 2015. In 2016, 2015 and 2014, we repurchased 348,687 shares, 426,628 shares and 414,432 shares, respectively, at an average price of $30.88 per share, $63.85 per share and $78.99 per share, respectively. Please note, however, 2014 and 2015 have not been adjusted for the Spin-off. (For 2015, 413,228 shares were at an average investment of $64.86 per share prior to the distribution of AC on November 30, 2015 and 13,400 shares were at an average price of $32.56 following the distribution of AC.) There remain 233,468 shares available under this program at December 31, 2016.
Dividends
During 2016, 2015 and 2014, the Company declared dividends of $0.08 per share, $0.28 per share and $0.50 per share, respectively, to class A and class B shareholders totaling $2.4 million, $7.5 million and $12.9 million, respectively. Under the terms of the RSA agreements, we accrue dividends, less estimated forfeitures, for RSA grantees from the date of grant but these dividends are held for grantees who are not entitled to receive dividends until their awards vest and only if they are still employed by the Company at those dates. As of December 31, 2016 and 2015, dividends accrued on RSAs not yet vested were approximately $0.4 million and $0.6 million, respectively.
Shelf Registration
In April 2015, the SEC declared effective the Company’s “shelf” registration statement on Form S-3 giving the Company the flexibility to sell any combination of senior and subordinate debt securities, convertible debt securities and equity securities (including common and preferred securities) up to a total amount of $500 million. The shelf is available through April 2018, at which time it may be renewed.
H. Capital Lease
On December 5, 1997, prior to the Offering in 1999, the Company entered into a fifteen-year lease, expiring on April 30, 2014, of office space from an entity controlled by members of the Chairman's family. On June 11, 2013, the Company modified and extended its lease with M4E, LLC, the Company’s landlord at 401 Theodore Fremd Ave, Rye, NY. The lease term was extended to December 31, 2028, and the base rental remained at $18 per square foot, or $1.1 million, for 2014. From January 1, 2015 through December 31, 2028, the base rental will be determined by the change in the consumer price index for the New York Metropolitan Area for November of the immediate prior year with the base period as November 2008 for the New York Metropolitan Area.
The lease has been accounted for as a capital lease as it transfers substantially all the benefits and risks of ownership to GBL. The Company has recorded the leased property as an asset and a capital lease obligation for the present value of the obligation of the leased property. The leased property is amortized on a straight-line basis from the date of the most recent extension to the end of the lease. The capital lease obligation is amortized over the same term using the interest method of accounting. Capital lease improvements are amortized from the date of expenditure through the end of the lease term or the useful life, whichever is shorter, on a straight-line basis. The lease provides that all operating expenses relating to the property (such as property taxes, utilities and maintenance) are to be paid by the lessee, GBL. These are recognized as expenses in the periods in which they are incurred. Accumulated amortization on the leased property was approximately $4.6 million and $4.4 million at December 31, 2016 and 2015, respectively.
Future minimum lease payments for this capitalized lease at December 31, 2016 are as follows:
|
|
(In thousands)
|
|
2017
|
|
$
|
1,211
|
|
2018
|
|
|
1,080
|
|
2019
|
|
|
1,080
|
|
2020
|
|
|
1,080
|
|
2021
|
|
|
1,080
|
|
Thereafter
|
|
|
7,560
|
|
Total minimum obligations
|
|
|
13,091
|
|
Interest
|
|
|
8,015
|
|
Present value of net obligations
|
|
$
|
5,076
|
|
Lease payments under this agreement amounted to approximately $1.2 million, $1.2 million and $1.2 million for each of the years ended December 31, 2016, 2015 and 2014, respectively. The capital lease contains an escalation clause tied to the change in the New York Metropolitan Area Consumer Price Index which may cause the future minimum payments to exceed $1,080,000 annually. Future minimum lease payments have not been reduced by related minimum future sublease rentals of approximately $1.3 million due over the next seven years, which are due from affiliated entities. Total minimum obligations exclude the operating expenses to be borne by the Company, which are estimated to be approximately $0.8 million per year.
I. Contractual Obligations
We rent office space under leases which expire at various dates through November 30, 2019. Future minimum lease commitments under these operating leases as of December 31, 2016 are as follows:
|
|
(In thousands)
|
|
2017
|
|
$
|
705
|
|
2018
|
|
|
489
|
|
2019
|
|
|
357
|
|
2020
|
|
|
43
|
|
2021
|
|
|
44
|
|
2022
|
|
|
4
|
|
Total
|
|
$
|
1,642
|
|
Equipment rentals and occupancy expense amounted to approximately $2.4 million, $2.3 million and $2.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
J. Shareholder-Designated Contribution Plan
During 2013, the Company established a Shareholder Designated Charitable Contribution program. Under the program, each shareholder is eligible to designate a charity to which the Company would make a donation based upon the actual number of shares registered in the shareholder’s name. Shares held in nominee or street name were not eligible to participate. The Board of Directors approved one contribution during 2015 of $0.25 per registered share. During 2015, the Company recorded a charge of $6.4 million, or $0.12 per diluted share, net of management fee and tax benefit related to the contributions which were included in shareholder-designated contribution on the consolidated statements of income. Based upon the number of registered shares that participated in the program in 2013, the Company recorded an additional charge of $134,000 during 2014.
K. Related Party Transactions
The following is a summary of certain related party transactions.
GGCP Holdings LLC owns a majority of our Class B Stock, representing approximately 91% of the combined voting power and 62% of the outstanding shares of our common stock at December 31, 2016.
GCI, a subsidiary of AC, owns 4.4 million shares of our Class A Stock, representing approximately 2% of the combined voting power and 15% of the outstanding shares of our common stock at December 31, 2016.
Capital Lease
We lease an approximately 60,000 square foot building located at 401 Theodore Fremd Avenue, Rye, New York as our headquarters (the “Building”) from an entity controlled by members of the Chairman’s family. See Notes H and I.
We sub-lease approximately 3,300 square feet in the Building to LICT Corporation, a company for which Mr. Gabelli serves as Chairman and CEO, which pays rent at the rate of $28 per square foot plus $3 per square foot for electricity, subject to adjustment for increases in taxes and other operating expenses. The total amounts paid in 2016, 2015, and 2014 for rent and other expenses under this lease were $116,564, $119,686, and $117,640, respectively. Concurrent with the extension of the lease on the Building during 2008, we and LICT Corporation further agreed to extend the term of the sub-lease until December 2023 on the same terms and conditions. As of July 1, 2008, we also sub-lease approximately 1,600 square feet in the Building to Teton. Teton pays rent at the rate of $37.75 per square foot plus $3 per square foot for electricity, subject to adjustment for increases in taxes and other operating expenses. The total amount paid in 2016, 2015 and 2014 for rent and other expenses under this lease were $68,205, $69,632 and $68,697, respectively, and were recorded in other operating expenses as a credit on the consolidated statements of income. As of April 1, 2016, we lease approximately 15,000 square feet in the Building to AC. AC pays rent at the rate of $21.62 per square foot plus $3 per square foot for electricity, subject to adjustment for increases in taxes and other operating expenses. The total amount paid in 2016 for rent and other expenses under this lease was $297,185 and was recorded in distribution fee and other income on the consolidated statements of income.
Investment Advisory Services
GAMCO has entered into agreements to provide advisory and administrative services to MJG Associates, Inc., which is wholly-owned by Mr. Gabelli, with respect to the private investment funds managed by them. Pursuant to such agreements, MJG Associates, Inc. paid GAMCO $10,000 (excluding reimbursement of expenses) for each of the years 2016, 2015, and 2014. For 2016, 2015 and 2014, Manhattan Partners I, L.P. and Manhattan Partners II, L.P., investment partnerships for which John Gabelli Inc., an entity owned by John Gabelli, a brother of the Company's Chairman, is the general partner, paid GAMCO investment advisory fees in the amount of $11,274, $13,595 and $14,483, respectively. In addition, an entity in which Mr. John Gabelli’s wife is the sole shareholder, is the co-general partner of S.W.A.N. Partners, LP (“S.W.A.N.”). S.W.A.N. paid GAMCO investment advisory fees in the amount of $18,206, $20,406 and $22,094 for 2016, 2015 and 2014, respectively, and is included in investment advisory and incentive fees on the consolidated statements of income.
The Company serves as the investment advisor for the Funds and earns advisory fees based on predetermined percentages of the average net assets of the Funds. In addition, G.distributors has entered into distribution agreements with each of the Funds. As principal distributor, G.distributors incurs certain promotional and distribution costs related to the sale of Fund shares, for which it receives a distribution fee from the Funds or reimbursement from the investment advisor. For 2016, 2015 and 2014, the Company received $41.0 million, $47.7 million and $56.1 million, respectively, in distributions fees. Advisory and distribution fees receivable from the Funds were approximately $32.9 million and $24.1 million at December 31, 2016 and 2015, respectively.
Pursuant to an agreement between Gabelli & Company Investment Advisers, Inc. (“GCI”) (formerly called Gabelli Securities, Inc.) and Funds Advisor, Funds Advisor pays to GCI 90% of the net revenues received by Funds Advisor related to being the advisor to the SICAV. Net revenues are defined as gross advisory fees less expenses related to payouts and expenses of the SICAV paid by Funds Advisor. The amounts paid by Funds Advisor to GCI for 2016, 2015 and 2014 were $2.7 million, $1.0 million and $0.3 million, respectively, and are included in other operating expenses on the consolidated statements of income.
Compensation
Immediately preceding the Offering and in conjunction with the Reorganization, GBL and our Chairman and CEO entered into an employment agreement. This agreement was amended and approved by shareholders on November 30, 2007 and most recently re-approved by shareholders on May 6, 2011.
Under the terms of this agreement and consistent with the firm’s practice since its inception in 1977, Mr. Gabelli will also continue receiving a percentage of revenues or net operating contribution, which are substantially derived from AUM, as compensation relating to or generated by the following activities: (i) managing or overseeing the management of various investment companies and partnerships, (ii) attracting mutual fund shareholders, (iii) attracting and managing Institutional and Private Wealth Management clients, and (iv) otherwise generating revenues for the Company. Such payments are made in a manner and at rates as agreed to from time to time by GAMCO, which rates have been and generally will be the same as those received by other professionals at GAMCO performing similar services. With respect to our Institutional and Private Wealth Management and mutual fund advisory business, we pay out up to 40% of the revenues or net operating contribution to the portfolio managers and marketing staff who introduce, service or generate such business, with payments involving the Institutional and Private Wealth Management accounts being typically based on revenues and payments involving the mutual funds being typically based on net operating contribution.
Mr. Gabelli has agreed that while he is employed by us he will not provide investment management services outside of GAMCO, except for certain permitted accounts as defined under the agreement. The 2008 Employment Agreement may not be amended without the approval of the Compensation Committee and Mr. Gabelli.
The Chairman and CEO receives compensation in the form of a management fee for managing the Company. Additionally, he earns compensation for acting as portfolio manager and/or attracting and providing client service to a large number of GAMCO's Institutional and Private Wealth Management clients, for creating and acting as portfolio manager of several open-end funds, for creating and acting as portfolio manager of the closed-end funds and for providing other services.
Other
On May 31, 2006, the Company entered into an Exchange and Standstill Agreement with Frederick J. Mancheski, a significant shareholder, pursuant to which, among other things, he agreed to exchange his 2,071,635 shares of Class B Stock, which he received on a pari passu basis with his investment in GGCP, for an equal number of shares of Class A Stock. The standstill expired on May 31, 2016. Under the terms of the standstill agreement, Mr. Mancheski agreed to, among other things, vote his shares in favor of the nominees and positions advocated by the Board of Directors. As stated in the latest available Form 13D filed by Mr. Mancheski on July 2, 2015, he continues to exercise voting control over 1,705,974 shares of Class A Stock.
For 2016, 2015, and 2014, we incurred variable costs (but not the fixed costs) of $353,000, $432,000, and $458,000, respectively, for actual usage relating to our use of aircraft in which GGCP owns the fractional interests.
GBL and Teton entered into a transitional administrative and management service agreement in connection with the spin-off of Teton from GBL that formalized certain arrangements. Effective January 1, 2011, Teton and GBL renegotiated the terms of the sub-administration agreement from a flat 0.20% on the average net assets of the mutual funds managed by Teton to 0.20% on the first $370 million in average net assets, 0.12% on the next $630 million in average net assets and 0.10% on average net assets in excess of $1 billion, as compensation for providing mutual fund administration services and $15,000 per month for various administrative services. Effective April 1, 2014, the administrative services fee was increased to $25,000 per month. Prior to the spin-off these fees were eliminated in consolidation. During 2016, 2015 and 2014, there was $2.0 million, $2.2 million and $2.3 million, respectively, included in distribution fees and other income on the consolidated statements of income.
Effective January 1, 2014, GAMCO and Funds Advisor each entered into a research services agreement with G.research, LLC, a wholly-owned subsidiary of GCI, for G.research, LLC to provide them with the same types of research services that it provides to its other clients. For the year ended December 31, 2016, GAMCO and Funds Advisor both paid G.research, LLC $1.5 million. For both the years ended December 31, 2015 and 2014, GAMCO paid G.research, LLC $0.7 million and Funds Advisor paid G.research, LLC $0.8 million.
GAMCO and AC entered into a transitional administrative and management services agreement in connection with the Spin-off. The agreement calls for GAMCO to provide to AC certain services including but not limited to: accounting, financial reporting and consolidation services, including the services of a financial and operations principal; treasury services, including, without limitation, insurance and risk management services and administration of benefits; tax planning, tax return preparation, recordkeeping and reporting services; human resources, including but not limited to the sourcing of permanent and temporary employees as needed, recordkeeping, performance reviews and terminations; legal and compliance advice, including the services of a Chief Compliance Officer; technical/technology consulting; and operations and general administrative assistance, including office space, office equipment and furniture, payroll, procurement, and administrative personnel. In addition, AC will provide GAMCO with payroll services. All services provided under the agreement by GAMCO to AC or by AC to GAMCO will be charged at cost. The agreement is terminable by either party on 30 days’ prior written notice to the other party and has a term of twelve months.
At December 31, 2014, GCI owed GAMCO a demand loan of $16 million bearing interest at 5.5% annually. On December 28, 2015, GCI repaid the demand loan in full plus accrued and unpaid interest. The interest paid by GCI to GAMCO during 2015 and 2014 was $0.9 million and $1.0 million, respectively.
In connection with the spin-off of AC on November 30, 2015, the Company issued the AC 4% PIK Note. During 2016 and 2015, GAMCO recorded interest expense of $7.7 million and $0.8 million, respectively. See Note F. Debt for further details.
In connection with the Offer, the Company borrowed $35.0 million from GGCP. During 2016 and 2015, GAMCO recorded interest expense of $415,000 and $15,000, respectively. See Note F. Debt for further details.
In connection with the issuance of the Convertible Note, GGCP deposited cash equal to the principal amount of the Note and six months interest into an escrow account established pursuant to an escrow agreement by and among GGCP, the Company, the Convertible Note holder and the escrow agent. The Company paid the annual costs of setting up the escrow account in the amount of $55,000 and will continue to pay them as long as the escrow account is open. The Company did not pay any fees to GGCP in connection with the funding of the escrow account.
L. Financial Requirements
As a registered broker-dealer, G.distributors is subject to the Uniform Net Capital Rule 15c3-1 (the “Rule”) of the SEC. These regulatory capital requirements, while not specific encumbrances on assets, restrict the total assets of this subsidiary broker-dealer to the extent they are needed to fulfill the regulatory capital requirements. Accordingly, this restriction limits the transfer of funds from this subsidiary to the Company in the form of cash dividends or otherwise. This restriction is 120% of its minimum net capital. G.distributors computes its net capital under the alternative method permitted by the Rule which requires minimum net capital of $250,000, and it exceeded this requirement at December 31, 2016.
Our subsidiary, GAMCO Asset Management (UK) Limited is authorized and regulated by the Financial Conduct Authority (“FCA”). In February 2011, GAMCO Asset Management (UK) Limited increased its permitted license with the FCA’s predecessor, the Financial Services Authority (“FSA”) and has held Total Capital of £580,000 and £519,000 ($713,000 and $769,000 at December 31, 2016 and 2015, respectively) and had a Financial Resources Requirement of £265,000 and £262,000 ($326,000 and $388,000 at December 31, 2016 and 2015, respectively). We have consistently met or exceeded these minimum requirements.
M. Administration Fees
We have entered into administration agreements with other companies (the “Administrators”), whereby the Administrators provide certain services on behalf of several of the Funds. Such services do not include the investment advisory and portfolio management services provided by GBL. The fees are negotiated based on predetermined percentages of the net assets of each of the Funds.
N. Profit Sharing Plan and Incentive Savings Plan
The Company has a qualified contributory employee profit sharing plan and incentive savings plan covering substantially all employees. Company contributions to the plans are determined annually by the Board of Directors but may not exceed the amount permitted as a deductible expense under the Internal Revenue Code. The Company accrued contributions of approximately $77,000 and $26,000 to the plans for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2014, the Company used unvested contributions that were forfeited from prior year’s matching to satisfy the current year’s contribution.
O. Identifiable Intangible Asset
As a result of becoming the advisor to the Gabelli Enterprise Mergers and Acquisitions Fund and the associated consideration paid, the Company maintains an identifiable intangible asset of $1.9 million within other assets on the consolidated statements of financial condition at both December 31, 2016 and 2015. The investment advisory agreement is subject to annual renewal by the fund's Board of Directors, which the Company expects to be renewed, and the Company does not expect to incur additional expense as a result, which is consistent with other investment advisory agreements entered into by the Company. The advisory contract for the Gabelli Enterprise Mergers and Acquisitions Fund are next up for renewal in February 2017. On November 1, 2015, as a result of becoming the advisor to the Bancroft Fund Ltd. and the Ellsworth Growth and Income Fund Ltd. and the associated consideration paid, the Company maintains an identifiable intangible asset of $1.6 million within other assets on the consolidated statement of financial condition at both December 31, 2016 and 2015. The advisory contracts for the Bancroft Fund Ltd. and the Ellsworth Growth and Income Fund Ltd. are both next up for renewal in November 2017. At November 30, 2016 and November 30, 2015, management conducted its annual assessments of the recoverability of the intangible assets and determined that there was no impairment of it on GBL’s consolidated financial statements.
P. Discontinued Operations
As a result of the Spin-off, the results of AC’s operations through the Spin-off Date, as well as transaction costs related to the Spin-off, have been classified in the consolidated statements of income as discontinued operations for all periods presented. There was no gain or loss on the Spin-off for the Company, and it was a tax-free spin-off to GAMCO’s shareholders.
GAMCO does not have any significant continuing involvement in the operations of AC after the Spin-off, and GAMCO will not have the ability to influence operating or financial policies of AC. GAMCO and AC did have a common Chief Executive Officer for a transition period, and GBL does provide certain services to AC under a Transition Services Agreement (see Note K. Related Party Transactions for details). GAMCO also has debt on its consolidated statement of financial condition at December 31, 2016 and 2015 that is payable to AC. That GAMCO note pays interest at 4%, which is payable in cash or PIK, and will be paid off ratably over five years, or sooner at GAMCO’s option (see Note F. Debt for details). AC owns 4.4 million shares of GAMCO’s Class A Stock on which it will receive dividends, if and when they are declared (see Note K. Related Party Transactions for details). As with all stockholders, employees and directors of GAMCO received one share of AC stock for each share of GAMCO stock that they held on the record date for the distribution. Some of these AC shares are unvested restricted stock awards to the extent an employee’s holdings consisted of unvested GAMCO restricted stock awards on the record date. The vesting provisions remain unchanged (see Note G. Equity for details).
The 2015 results include $2.4 million in costs incurred with respect to the Spin-off and are included in Other operating expenses below. Operating results for the period from January 1, 2015 through November 30, 2015 and the full year 2014 are summarized below:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
|
|
|
|
|
Investment advisory and incentive fees
|
|
$
|
8,552
|
|
|
$
|
9,750
|
|
Distribution fees and other income
|
|
|
279
|
|
|
|
325
|
|
Institutional research services
|
|
|
8,973
|
|
|
|
10,925
|
|
Total revenues
|
|
|
17,804
|
|
|
|
21,000
|
|
Expenses
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
20,500
|
|
|
|
22,298
|
|
Stock based compensation
|
|
|
4,716
|
|
|
|
1,921
|
|
Management fee
|
|
|
(727
|
)
|
|
|
(36
|
)
|
Distribution costs
|
|
|
(85
|
)
|
|
|
(598
|
)
|
Other operating expenses
|
|
|
9,070
|
|
|
|
7,341
|
|
Total expenses
|
|
|
33,474
|
|
|
|
30,926
|
|
Operating loss
|
|
|
(15,670
|
)
|
|
|
(9,926
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Net gain from investments
|
|
|
7,660
|
|
|
|
6,491
|
|
Interest and dividend income
|
|
|
2,740
|
|
|
|
4,416
|
|
Interest expense
|
|
|
(1,224
|
)
|
|
|
(1,377
|
)
|
Total other income (expense), net
|
|
|
9,176
|
|
|
|
9,530
|
|
Income/(loss) from discontinued operations before income taxes
|
|
|
(6,494
|
)
|
|
|
(396
|
)
|
Income tax provision/(benefit)
|
|
|
(2,045
|
)
|
|
|
771
|
|
Income/(loss) from discontinued operations, net of taxes
|
|
|
(4,449
|
)
|
|
|
(1,167
|
)
|
Net income/(loss) attributable to noncontrolling interests
|
|
|
(562
|
)
|
|
|
(4,274
|
)
|
Net income/(loss) attributable to GAMCO Investors, Inc.'s
|
|
|
|
|
|
|
|
|
discontinued operations, net of taxes
|
|
$
|
(3,887
|
)
|
|
$
|
3,107
|
|
Q. Other Matters
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. The Company is 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 that the Company believes are probable and estimable. Furthermore, the Company evaluates whether there exist losses which may be reasonably possible and, if material, makes the necessary disclosures. Such amounts, both those that are probable and those that are reasonably possible, are not considered material to the Company’s financial condition, operations or cash flows.
The investment management industry is likely to continue facing a high level of regulatory scrutiny and become subject to additional rules designed to increase disclosure, tighten controls and reduce potential conflicts of interest. In addition, the SEC has substantially increased its use of focused inquiries which request information from a number of fund complexes regarding particular practices or provisions of the securities laws. The Company participates 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 impact.
R. Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2016 and 2015 is presented below.
|
|
2016
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
81,385
|
|
|
$
|
83,944
|
|
|
$
|
87,721
|
|
|
$
|
99,950
|
|
|
$
|
353,000
|
|
Operating income
|
|
|
44,942
|
|
|
|
46,747
|
|
|
|
48,076
|
|
|
|
52,031
|
|
|
|
191,796
|
|
Net income attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders
|
|
|
26,025
|
|
|
|
27,543
|
|
|
|
30,861
|
|
|
|
32,692
|
|
|
|
117,121
|
|
Net income attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.89
|
|
|
|
0.94
|
|
|
|
1.06
|
|
|
|
1.12
|
|
|
|
4.01
|
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
0.93
|
|
|
$
|
1.03
|
|
|
$
|
1.07
|
|
|
$
|
3.92
|
|
|
|
2015
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
99,806
|
|
|
$
|
98,693
|
|
|
$
|
92,160
|
|
|
$
|
90,317
|
|
|
$
|
380,976
|
|
Operating income
|
|
|
38,590
|
|
|
|
38,981
|
|
|
|
37,276
|
|
|
|
33,102
|
|
|
|
147,949
|
|
Income from continuing operations
|
|
|
23,148
|
|
|
|
23,775
|
|
|
|
22,451
|
|
|
|
17,925
|
|
|
|
87,299
|
|
Income/(loss) from discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of taxes
|
|
|
1,628
|
|
|
|
326
|
|
|
|
(7,483
|
)
|
|
|
1,642
|
|
|
|
(3,887
|
)
|
Net income attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders
|
|
|
24,776
|
|
|
|
24,101
|
|
|
|
14,968
|
|
|
|
19,567
|
|
|
|
83,412
|
|
Net income attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic - Continuing operations
|
|
$
|
0.92
|
|
|
$
|
0.95
|
|
|
$
|
0.90
|
|
|
$
|
0.68
|
|
|
$
|
3.43
|
|
Basic - Discontinued operations
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
(0.30
|
)
|
|
|
0.06
|
|
|
|
(0.15
|
)
|
Basic - Total
|
|
$
|
0.99
|
|
|
$
|
0.96
|
|
|
$
|
0.60
|
|
|
$
|
0.74
|
|
|
$
|
3.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted - Continuing operations
|
|
$
|
0.91
|
|
|
$
|
0.94
|
|
|
$
|
0.89
|
|
|
$
|
0.67
|
|
|
$
|
3.40
|
|
Diluted - Discontinued operations
|
|
|
0.06
|
|
|
|
0.01
|
|
|
|
(0.30
|
)
|
|
|
0.06
|
|
|
|
(0.15
|
)
|
Diluted - Total
|
|
$
|
0.97
|
|
|
$
|
0.95
|
|
|
$
|
0.59
|
|
|
$
|
0.73
|
|
|
$
|
3.24
|
|
During the fourth quarter of 2015, the Board of Directors accelerated the lapsing of restrictions on the November 2013 grant of RSAs resulting in recognition of $3.5 million in stock compensation expense, or $0.07 per fully diluted share, that would have been recorded in 2016 through 2018.
S. Subsequent Events
On January 6, 2017, GAMCO pre-paid $10 million of the AC 4% PIK Note, which was applied to the $10 million payment due on November 30, 2017. Of the $90 million principal amount outstanding after this payment, $20 million is due on November 30, 2018, $20 million is due on November 30, 2019, and $50 million is due on November 30, 2020.
On February 7, 2017, the Board of Directors declared a regular quarterly dividend of $0.02 per share to all of its shareholders, payable on March 28, 2017 to shareholders of record on March 14, 2017.
From January 1, 2017 to March 6, 2017, the Company repurchased 118,029 shares at $30.34 per share. As a result, there are 115,439 shares available to be repurchased under our existing buyback plan at March 6, 2017.