10-Q 1 ac20220930_10q.htm FORM 10-Q ac20220930_10q.htm
0001642122 Associated Capital Group, Inc. false --12-31 Q3 2022 41.2 60.4 0.001 10,000,000 10,000,000 0 0 0 0 - - 0.001 0.001 100,000,000 100,000,000 6,629,254 6,629,254 3,040,753 3,095,169 0.001 0.001 100,000,000 100,000,000 19,196,792 19,196,792 18,962,754 18,962,918 3,588,665 3,534,085 0.10 0.10 2,417,500 0 0 0 0 3 5 0 0 0 0.10 0.10 0.10 0 2,205 39.65 0.10 Investment in note receivable from affiliate relates to 2-Year Puttable and Callable Subordinated Notes due 2023 issued as part of a 2021 special dividend on GAMCO’s Class A Common Stock and Class B Common Stock. The Company had the intent to hold these investments until maturity, and as such they were recorded at amortized cost. Repurchases totaled $1.3 million and $1.9 million for the three-month periods ended June 30, 2022 and 2021, respectively. Repurchases totaled $1.6 million and $6.1 million for the six-month periods ended June 30, 2022 and 2021, respectively. At December 31, 2021, marketable securities held in the trust account through PMV were comprised of U.S Treasury Bills which mature in less than one year with an amortized cost and fair value of approximately $175 million. Such investments were categorized as Level 1. Represents the summation of multiple captions from the condensed consolidated statements of financial condition. Included in Receivable and investment in note receivable from affiliates in the condensed consolidated statements of financial condition. Does not include an estimate for projected future dividends. Debit adjustments to Total equity reflect the amortization of the discount related to the issuance of PMV SPAC’s redeemable noncontrolling interest. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly period ended September 30, 2022

Or

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

 

For the transition period from ______ to ______

Commission file number 001-37387

 

ASSOCIATED CAPITAL GROUP, INC.

 

(Exact name of registrant as specified in its charter)

 

Delaware

 

47-3965991

(State or other jurisdiction of incorporation or organization)

 

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

 

191 Mason Street, Greenwich, CT

 

06830

(Address of principal executive offices)

 

(Zip Code)

 

Registrants telephone number, including area code (203) 629-9595

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Class A Common Stock, par value $0.001 per share

 

AC

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ☒ No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer ☐

Accelerated filer ☐

 

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.

 

Class

 

Outstanding at November 7, 2022

Class A Common Stock, .001 par value

 

3,039,448

Class B Common Stock, .001 par value

 

18,962,754

 

As of November 7, 2022, 3,039,448 shares of class A common stock and 18,962,754 shares of class B common stock were outstanding. GGCP, Inc., a private company controlled by the Company’s Executive Chairman, held 77,165 shares of class A common stock and indirectly held 18,423,741 shares of class B common stock. Other executive officers and directors of GGCP, Inc. held 29,866 and 36,758 shares of class A and class B common stock, respectively. In addition, there are 211,910 Phantom Restricted Stock Awards outstanding as of September 30, 2022.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

Page

PART I. FINANCIAL INFORMATION  

 

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements:

 

 

Condensed Consolidated Statements of Financial Condition (Unaudited)

3

 

Condensed Consolidated Statements of Income (Unaudited)

4

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

5

 

Condensed Consolidated Statements of Equity (Unaudited)

6

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

8

 

Notes to the Condensed Consolidated Financial Statements:

 
 

A. Organization

10

 

B. Revenue

11

 

C. Investments in Securities

12

 

D. Investment Partnerships and Other Entities

13

 

E. Fair Value

15

 

F. Income Taxes

17

 

G. Earnings per Share

18

 

H. Equity

18

 

I. Goodwill

20

 

J. Guarantees, Contingencies and Commitments

20

 

K. Subsequent Events

20

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION *

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 6.

Exhibits

30

 

 

 

 

Signature

32

 

*         Items other than those listed above have been omitted because they are not applicable.

 

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

UNAUDITED

(Dollars in thousands, except per share data)

 

  

September 30,

  

December 31,

 
  

2022

  

2021

 

ASSETS

        

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

 $288,178  $319,048 

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

  133,755   60,996 

Investments in equity securities (includes GBL stock with a value of $41.2 million and $60.4 million, respectively)

  238,974   273,087 

Investments in affiliated registered investment companies

  121,863   134,548 

Investments in partnerships

  149,083   154,460 

Receivable from brokers

  18,163   42,478 

Investment advisory fees receivable

  1,293   8,315 

Receivable and investment in note receivable from affiliates

  135   10,094 

Income taxes receivable, including deferred tax assets, net

  13,170   - 

Goodwill

  3,519   3,519 

Other assets

  18,628   21,682 

Investments in marketable securities held in trust

  -   175,109 

Total assets

 $986,761  $1,203,336 
         

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

        
         

Payable to brokers

 $56,356  $9,339 

Income taxes payable, including deferred tax liabilities, net

  -   8,575 

Compensation payable

  7,662   19,730 

Securities sold, not yet purchased

  3,181   12,905 

Accrued expenses and other liabilities

  1,528   3,580 

Tendered redeemable noncontrolling interests payable

  29,001   - 

Deferred underwriting fee payable

  -   6,125 

PMV warrant liability

  -   5,280 

Total liabilities

  97,728   65,534 
         

Redeemable noncontrolling interests

  9,778   202,456 
         

Commitments and contingencies (Note J)

 
         
         

Equity:

        

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

  -   - 

Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,629,254 shares issued; 3,040,753 and 3,095,169 shares outstanding, respectively

  6   6 

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

  19   19 

Additional paid-in capital

  999,047   990,069 

Retained earnings

  3,661   68,435 

Treasury stock, at cost (3,588,665 and 3,534,085 shares, respectively)

  (123,478)  (121,427)

Total Associated Capital Group, Inc. equity

  879,255   937,102 

Noncontrolling interests

  -   (1,756)

Total equity

  879,255   935,346 

Total liabilities and equity

 $986,761  $1,203,336 

 

As of September 30, 2022 and December 31, 2021, certain balances include amounts related to consolidated variable interest entities (“VIEs”) and voting interest entities (“VOEs”). See Footnote D.

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(In thousands, except per share data)

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenues

                

Investment advisory and incentive fees

 $2,472  $2,014  $7,409  $6,627 

Other revenues

  90   98   281   299 

Total revenues

  2,562   2,112   7,690   6,926 

Expenses

                

Compensation

  3,591   2,819   10,531   11,710 

Management fee

  -   226   -   7,209 

Other operating expenses

  2,100   (764)  5,805   4,952 

Total expenses

  5,691   2,281   16,336   23,871 

Operating loss

  (3,129)  (169)  (8,646)  (16,945)

Other income/(loss)

                

Net gain/(loss) from investments

  (19,314)  5,676   (72,727)  79,303 

Interest and dividend income

  2,797   1,119   5,533   9,119 

Interest expense

  (66)  (97)  (145)  (251)

Shareholder-designated contribution

  (1,206)  (541)  (1,414)  (2,717)

Total other income/(loss), net

  (17,789)  6,157   (68,753)  85,454 

Income/(loss) before income taxes

  (20,918)  5,988   (77,399)  68,509 

Income tax expense/(benefit)

  (4,914)  484   (17,798)  15,094 

Income/(loss) before noncontrolling interests

  (16,004)  5,504   (59,601)  53,415 

Income/(loss) attributable to noncontrolling interests

  494   4,001   2,970   3,641 

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

 $(16,498) $1,503  $(62,571) $49,774 
                 

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

                

Basic

 $(0.75) $0.07  $(2.84) $2.25 

Diluted

 $(0.75) $0.07  $(2.84) $2.25 
                 

Weighted average shares outstanding:

                

Basic

  22,010   22,084   22,033   22,141 

Diluted

  22,010   22,084   22,033   22,141 
                 

Actual shares outstanding

  22,004   22,062   22,004   22,062 

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(Dollars in thousands)

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net income/(loss) before noncontrolling interests

 $(16,004) $5,504  $(59,601) $53,415 

Less: Comprehensive income/(loss) attributable to noncontrolling interests

  494   4,001   2,970   3,641 

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

 $(16,498) $1,503  $(62,571) $49,774 

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

(Dollars in thousands)

 

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

 

  

Associated Capital Group, Inc. shareholders

             
          

Additional

                  

Redeemable

 
  

Common

  

Retained

  

Paid-in

  

Treasury

      

Noncontrolling

  

Total

  

Noncontrolling

 
  

Stock

  

Earnings

  

Capital

  

Stock

  

Total

  

Interests

  

Equity

  

Interests

 

Balance at December 31, 2021

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

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (486)

Net income/(loss)

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

Purchase of treasury stock

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

Accretion of redeemable noncontrolling interest

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

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (10)

Balance at March 31, 2022

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

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (486)

Net income/(loss)

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

Dividends declared ($0.10 per share)

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

Purchase of treasury stock

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

Accretion of redeemable noncontrolling interest

  -   -   662   -   662   331   993   (993)

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (226)

Balance at June 30, 2022

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

Redemptions of noncontrolling interests

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

Net income/(loss)

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

Purchase of treasury stock

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

Accretion of redeemable noncontrolling interest

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

Effect of deconsolidation

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

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   263 

Balance at September 30, 2022

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

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

(Dollars in thousands)

 

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

 

  

Associated Capital Group, Inc. shareholders

             
          

Additional

                  

Redeemable

 
  

Common

  

Retained

  

Paid-in

  

Treasury

      

Noncontrolling

  

Total

  

Noncontrolling

 
  

Stock

  

Earnings

  

Capital

  

Stock

  

Total

  

Interests

  

Equity

  

Interests

 

Balance at December 31, 2020

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

Contributions from redeemable noncontrolling interests

  -   -   -   -   -   -   -   136 

Redemptions of noncontrolling interests

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

Net income

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

Purchase of treasury stock

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

Balance at March 31, 2021

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

Contributions from redeemable noncontrolling interests

  -   -   -   -   -   -   -   665 

Net income/(loss)

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

Dividends declared ($0.10 per share)

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

Purchase of treasury stock

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

Accretion of redeemable noncontrolling interest

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

Other changes to redeemable noncontrolling interests

  -   -   -   -   -   -   -   (7,527)

Balance at June 30, 2021

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

Redemptions of noncontrolling interests

  -   -   -   -   -   -   -   (2,161)

Net income/(loss)

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

Purchase of treasury stock

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

Accretion of redeemable noncontrolling interest

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

Balance at September 30, 2021

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

 

See accompanying notes.

 

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)

 

   

Nine Months Ended

 
   

September 30,

 
   

2022

   

2021

 

Operating activities

               

Net income/(loss)

  $ (59,601 )   $ 53,415  

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

               

Equity in net (gains)/losses from partnerships

    7,710       (15,530 )

Depreciation and amortization

    251       289  

Deferred income taxes

    (17,959 )     8,411  

Donated securities

    517       2,052  

Unrealized (gains)/losses on securities

    73,569       (39,384 )

Dividends received as securities

    -       (5,066 )

Loss on deconsolidation of subsidiary

    3,634       -  

Realized gains on sales of securities

    (11,684 )     (23,860 )

(Increase)/decrease in assets:

               

Investments in trading securities

    (89,282 )     295,687  

Investments in partnerships:

               

Contributions to partnerships

    (6,410 )     (13,562 )

Distributions from partnerships

    5,143       6,333  

Receivable from affiliates

    4,893       4,148  

Receivable from brokers

    19,428       (20,646 )

Investment advisory fees receivable

    6,976       5,989  

Income taxes receivable

    (1,746 )     (507 )

Other assets

    2,770       697  

Increase/(decrease) in liabilities:

               

Payable to affiliates

    -       (2,188 )

Payable to brokers

    47,017       236,786  

Income taxes payable

    (2,040 )     (3,037 )

Compensation payable

    (12,068 )     (1,260 )

Accrued expenses and other liabilities

    (1,676 )     (696 )

Total adjustments

    29,043       434,656  

Net cash (used in)/provided by operating activities

    (30,558 )     488,071  
                 

Investing activities

               

Maturities of marketable securities held in trust

    -       175,085  

Purchases of marketable securities held in trust

    -       (175,085 )

Purchases of securities

    (5,882 )     (2,452 )

Proceeds from sales of securities

    620       16,724  

Return of capital on securities

    1,918       38,982  

Deconsolidation of subsidiary cash

    (1,471 )     -  

Proceeds from maturities of debt securities held to maturity

    5,066       -  

Net cash provided by investing activities

  $ 251     $ 53,254  

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED (continued)

(Dollars in thousands)

 

   

Nine Months Ended

 
   

September 30,

 
   

2022

   

2021

 

Financing activities

               

Dividends paid

    (2,203 )     (2,211 )

Purchase of treasury stock

    (2,051 )     (7,487 )

Redemptions of redeemable noncontrolling interests

    (1,196 )     (1,360 )

Net cash used in financing activities

    (5,450 )     (11,058 )

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

    (35,757 )     530,267  

Cash, cash equivalents and restricted cash at beginning of period

    328,594       39,509  

Cash, cash equivalents and restricted cash at end of period

  $ 292,837     $ 569,776  
                 

Supplemental disclosures of cash flow information:

               

Cash paid for interest

  $ 145     $ 252  

Cash paid for taxes

  $ 3,947     $ 10,296  
                 

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

               

Cash and cash equivalents

  $ 288,178     $ 569,776  

Restricted cash included in receivable from broker

    4,659       -  

Cash, cash equivalents and restricted cash

  $ 292,837     $ 569,776  

 

Supplemental disclosure of non-cash activity:

- For 2022, the Company deconsolidated certain subsidiaries which resulted in a reduction of $176.9 million of assets, $7.4 million of liabilities and $152.1 million of Redeemable noncontrolling interests. The deconsolidated assets are almost entirely attributable to $175.4 million of Investments in marketable securities held in trust and $1.5 million of cash held by Consolidated PMV, the latter of which is reflected as an Investing outflow. The deconsolidated liabilities are almost entirely attributable to $6.1 million Deferred underwriting fee payable, and $0.9 million of PMV warrant liability.

- For 2022, $29.0 million of redeemable noncontrolling interest holders tendered their shares in one of our consolidated VOE's prior to September 30, 2022. The cash payment for this tender occurred in October 2022.

 

See accompanying notes.

 

 

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(UNAUDITED)

 

 

A.    Organization

 

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

 

We are a Delaware corporation that provides alternative investment management, and we derive investment income/(loss) from proprietary investment of cash and other assets in our operating business.

 

Gabelli & Company Investment Advisors, Inc. (“GCIA”), a wholly-owned subsidiary of AC, and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets across a range of risk and event arbitrage portfolios and in equity event-driven value strategies. The businesses earn management and incentive fees from their advisory activities. Management fees are largely based on a percentage of assets under management. Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

 

PMV Consumer Acquisition Corp.

 

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

 

As of December 31, 2021, the Consolidated PMV entity resulted in the consolidation of $163.8 million of assets, $11.5 million of liabilities, $161.8 million of redeemable noncontrolling interests and $(1.8) million of noncontrolling interests.

 

See Note E in our 10-K for a further discussion of PMV Consumer Acquisition Corp. as well as its registration statement, Annual Reports, and Quarterly Reports, which are all located on the U.S. Securities and Exchange Commission website https://www.sec.gov under the symbol PMVC.

 

AC Spin-off

 

On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of each class of AC common stock on a pro rata one-for-one basis to the holders of each class of GAMCO’s common stock (the “Spin-off”).

 

As part of the Spin-off, AC received 4,393,055 shares of GAMCO Class A common stock for $150 million. The Company held 2,417,500 shares as of September 30, 2022 and December 31, 2021, respectively.

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements of AC Group included herein have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP in the United States for complete financial statements. The unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year’s results.

 

The interim condensed consolidated financial statements include the accounts of AC Group and its subsidiaries. All material intercompany transactions and balances have been eliminated. The details on the impact of consolidating certain partnership entities on the condensed consolidated financial statements can be seen in Note D. Investment Partnerships and Other Entities.

 

10

 

These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported on the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Recent Accounting Developments

 

In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. The condensed consolidated statements of income will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller reporting companies for three years. This guidance is effective for the Company on January 1, 2023 and requires a modified retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption. Early adoption is permitted. The Company is currently assessing the potential impact of this new guidance on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other, to simplify the process used to test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill allocated to that reporting unit. As a smaller reporting company pursuant to ASU 2019-10, the ASU is effective for the Company on January 1, 2023. This guidance will be effective for the Company on January 1, 2023 using a prospective transition method and early adoption is permitted. The Company is currently evaluating the potential effect of this new guidance on the Company’s consolidated financial statements.

 

 

B.    Revenue

 

Refer to the Company’s audited consolidated financial statements included in our Annual Report on Form 10K for the year ended December 31, 2021 for the Company’s revenue recognition policy.

 

The Company’s major revenue sources are as follows for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Investment advisory and incentive fees

                

Asset-based advisory fees

 $1,269  $1,280  $3,882  $3,712 

Performance-based advisory fees

  2   64   46   120 

Sub-advisory fees

  1,201   670   3,481   2,795 

Sub-total

  2,472   2,014   7,409   6,627 
                 

Other

                

Miscellaneous

  90   98   281   299 
                 

Total

 $2,562  $2,112  $7,690  $6,926 

 

11

 
 

C.    Investments in Securities

 

Investments in securities at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

 

                 
  

September 30, 2022

  

December 31, 2021

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Debt - Trading Securities:

                

U.S. Treasury Bills

 $133,146  $133,755  $60,992  $60,996 

Equity Securities:

                

Common stocks

  269,034   233,113   239,383   265,156 

Mutual funds

  537   929   524   1,351 

Other investments

  6,284   4,932   6,253   6,580 

Total equity securities

  275,855   238,974   246,160   273,087 

Total investments in securities

 $409,001  $372,729  $307,152  $334,083 
                 

Investments in marketable securities held in trust(1)

 $-  $-  $175,109  $175,109 

 

(1) At  December 31, 2021, marketable securities held in the trust account through PMV were comprised of U.S Treasury Bills which mature in less than one year with an amortized cost and fair value of approximately $175 million. Such investments were categorized as Level 1.

 

The Company's held to maturity investments at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

 

  

September 30, 2022

 
  

Amortized cost

  Gross Unrealized Holding Gains  Gross Unrealized Holding Losses  Estimated Fair Value 

Held to maturity:

                

Investment in note receivable from affiliate

  -  $-  $-  $- 

 

During the nine months ended September 30, 2022, the Company received proceeds of $5.1 million from the exercise of a put option on its investment in note receivable from affiliate. The exercise of the put option was determined to occur at the instrument's maturity date and no gain or loss was recognized.

 

  

December 31, 2021

 
  

Amortized cost

  Gross Unrealized Holding Gains  Gross Unrealized Holding Losses  Estimated Fair Value 

Held to maturity:

                

Investment in note receivable from affiliate(2)

 $5,066  $-  $-  $5,066 

 

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

 

Securities sold, not yet purchased at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

 

       
  

September 30, 2022

  

December 31, 2021

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Equity securities:

                

Common stocks

 $2,373  $1,725  $9,021  $9,838 

Other investments

  670   1,456   2,767   3,067 

Total securities sold, not yet purchased

 $3,043  $3,181  $11,788  $12,905 

 

Investments in affiliated registered investment companies at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

 

       
  

September 30, 2022

  

December 31, 2021

 
  

Cost

  

Fair Value

  

Cost

  

Fair Value

 

Equity securities:

                

Closed-end funds

 $45,427  $56,006  $42,484  $64,381 

Mutual funds

  49,763   65,857   49,362   70,167 

Total investments in affiliated registered investment companies

 $95,190  $121,863  $91,846  $134,548 

 

12

 
 

D.    Investment Partnerships and Other Entities

 

The Company is general partner or co-general partner of various affiliated entities whose underlying assets consist primarily of marketable securities (“Affiliated Entities”). We also had investments in unaffiliated partnerships, offshore funds and other entities of $35.0 million and $41.9 million at September 30, 2022, and December 31, 2021, respectively (“Unaffiliated Entities”). We evaluate each entity to determine its appropriate accounting treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.

 

Investments in partnerships that are not required to be consolidated are accounted for using the equity method and are included in investments in partnerships on the condensed consolidated statements of financial condition. The Company had investments in Affiliated Entities totaling $114.1 million and $112.6 million at September 30, 2022 and December 31, 2021, respectively. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the condensed consolidated statements of income.

 

Capital may generally be redeemed from Affiliated Entities on a monthly basis upon adequate notice as determined in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may generally be redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days. Certain Unaffiliated Entities and Affiliated Entities may require a minimum investment period before capital can be voluntarily redeemed (a “Lockup Period”). No investment in any Investment Partnership has an unexpired Lockup Period. The Company has no outstanding capital commitments to any Affiliated or Unaffiliated Entity.

 

PMV Consumer Acquisition Corp.

 

Refer to the Company's audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for background on PMV Consumer Acquisition Corp.

 

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

 

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

 

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

 

In 2021 and prior to August 2022, AC consolidated the assets, liabilities and the results of operations of both PMV and Sponsor. AC invested $4.0 million, or approximately 62% of the $6.48 million total Sponsor partnership commitment. The Sponsor was managed primarily by AC executives. AC determined that the Sponsor is a variable interest entity (VIE) and that AC is the primary beneficiary and therefore consolidated the assets and liabilities and results of operations of the Sponsor. In addition, AC has determined that PMV is a VIE due to the lack of equity at risk and is consolidated by the Sponsor, who is deemed to be the primary beneficiary. Neither AC nor PMV had a right to the benefits from nor did it bear the risks associated with the marketable securities held in trust assets held by PMV. Further, if PMV were to liquidate, the marketable securities held in trust assets would not be available to its general creditors, and as a result, the Company did not consider these assets available for the benefit of its investors.

 

13

 

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

 

  

September 30, 2022

 
  

Prior to

  

Consolidated

     

Assets

 

Consolidation

  

Entities

  

As Reported

 

Cash and cash equivalents

 $277,445  $10,733  $288,178 

Investments in U.S. Treasury Bills

  133,755   -   133,755 

Investments in securities

  148,218   90,756   238,974 

Investments in affiliated registered investment companies

  172,140   (50,277)  121,863 

Investments in partnerships

  165,763   (16,680)  149,083 

Receivable from brokers

  8,796   9,367   18,163 

Investment advisory fees receivable

  1,299   (6)  1,293 

Other assets(1)

  35,444   8   35,452 

Investments in marketable securities held in trust

  -   -   - 

Total assets

 $942,860  $43,901  $986,761 

Liabilities and equity

            

Securities sold, not yet purchased

 $2,427  $754  $3,181 

Payable to brokers and other liabilities(1)

  61,178   4,368   65,546 

Tendered redeemable noncontrolling interests payable

  -   29,001   29,001 

Redeemable noncontrolling interests

  -   9,778   9,778 

Total equity

  879,255   -   879,255 

Total liabilities and equity

 $942,860  $43,901  $986,761 

 

  

December 31, 2021

 
  

Prior to

  

Consolidated

     

Assets

 Consolidation  Entities  As Reported 

Cash and cash equivalents

 $315,009  $4,039  $319,048 

Investments in U.S. Treasury Bills

  60,996   -   60,996 

Investments in securities

  184,229   88,858   273,087 

Investments in affiliated registered investment companies

  186,474   (51,926)  134,548 

Investments in partnerships

  174,683   (20,223)  154,460 

Receivable from brokers

  21,993   20,485   42,478 

Investment advisory fees receivable

  8,320   (5)  8,315 

Other assets(1)

  39,400   (4,105)  35,295 

Investments in marketable securities held in trust

  -   175,109   175,109 

Total assets

 $991,104  $212,232  $1,203,336 

Liabilities and equity

            

Securities sold, not yet purchased

  11,199   1,706   12,905 

Accrued expenses and other liabilities(1)

  33,825   18,804   52,629 

Redeemable noncontrolling interests

  -   202,456   202,456 

Total equity(2)

  946,080   (10,734)  935,346 

Total liabilities and equity

 $991,104  $212,232  $1,203,336 

 

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

(2) Debit adjustments to Total equity reflect the amortization of the discount related to the issuance of PMV SPAC’s redeemable noncontrolling interest. The discount is amortized through an adjustment to additional paid-in capital and noncontrolling interest (proportionate to ownership interest in PMV Sponsor) and is also adjusted periodically for income/loss allocated to redeemable noncontrolling interest.

 

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

 

  

Three Months Ended September 30, 2022

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $2,723  $(161) $2,562 

Operating loss

  (2,359)  (770)  (3,129)

Total other income/(loss), net

  (19,053)  1,264   (17,789)

Income/(loss) before noncontrolling interests

  (16,498)  494   (16,004)

Income/(loss) attributable to noncontrolling interests, net of taxes

  -   494   494 

Net income/(loss)

 $(16,498) $-  $(16,498)

 

  

Three Months Ended September 30, 2021

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $2,657  $(545) $2,112 

Operating loss

  (1,821)  1,652   (169)

Total other income, net

  3,777   2,380   6,157 

Income/(loss) before noncontrolling interests

  1,473   4,031   5,504 

Income/(loss) attributable to noncontrolling interests, net of taxes

  -   4,001   4,001 

Net income

 $1,473  $30  $1,503 

 

14

 
  

Nine Months Ended September 30, 2022

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $8,229  $(539) $7,690 

Operating loss

  (6,462)  (2,184)  (8,646)

Total other income/(loss), net

  (73,907)  5,154   (68,753)

Income/(loss) before noncontrolling interests

  (62,571)  2,970   (59,601)

Income/(loss) attributable to noncontrolling interests, net of taxes

  -   2,970   2,970 

Net income/(loss)

 $(62,571) $-  $(62,571)

 

  

Nine Months Ended September 30, 2021

 
  

Prior to

  

Consolidated

     
  

Consolidation

  

Entities

  

As Reported

 

Total revenues

 $9,658  $(2,732) $6,926 

Operating loss

  (13,830)  (3,115)  (16,945)

Total other income, net

  78,710   6,744   85,454 

Income/(loss) before noncontrolling interests