Unless we have indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “GBL,” “we,” “us” and “our” or similar terms are to GAMCO Investors, Inc., its predecessors and its subsidiaries.
The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States 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 U.S. GAAP in the United States for complete financial statements. In the opinion of management, 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 GAMCO 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 GAMCO and its subsidiaries. Intercompany accounts and transactions are eliminated.
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, 2016.
The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported on the interim condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In March 2016, the FASB issued revised guidance which clarifies the guidance related to (a) determining the appropriate unit of account under the revenue standard’s principal versus agent guidance and (b) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. In April 2016, the FASB issued an amendment to provide more detailed guidance including additional implementation guidance and examples related to a) identifying performance obligations and b) licenses of intellectual property. In May 2016, the FASB amended the standard to clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters. This new guidance will be effective for the Company's first quarter of 2018 and requires either a full retrospective or a modified retrospective approach to adoption. The Company’s implementation analysis is nearing completion, and the Company does not expect the adoption of the guidance to have a significant effect on the timing of the recognition of revenue. The Company has also been reviewing and preparing for the enhanced disclosure requirements of the standard, which will have an effect on the disclosures in the consolidated financial statements and accompanying notes. The overall effect upon adoption may change based on further analysis and implementation efforts. Finally, the Company has not yet determined which transition method it will use.
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. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. 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. This new guidance will be effective for the Company’s first quarter of 2018. Upon adoption of this guidance, changes in the fair value of the Company’s available-for-sale investments will be reported through earnings rather than through other comprehensive income.
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 condensed consolidated statement of financial position. It requires these operating leases to be recorded on the balance sheet as right of use assets and offsetting lease liability obligations. This new guidance will be effective for the Company’s first quarter of 2019. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements and related disclosures.
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. The Company adopted this guidance on January 1, 2017 without a material impact to the consolidated financial statements. Please see Note D.
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. This guidance is intended to unify the currently diverse presentations and classifications, which address eight classification issues related to the statement of cash flows, including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This new guidance will be effective for the Company’s first quarter of 2018 and requires a retrospective approach to adoption. The Company is currently evaluating the potential effect of this new guidance on its condensed consolidated financial statements and the related disclosures.
In November 2016, the FASB issued ASU 2016-18, which amends ASC 230 to clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. Key requirements are that an entity should include in its cash and cash equivalent balances in the statement of cash flow those amounts that are deemed to be restricted cash and restricted cash equivalents and that a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. The ASU also mandates that changes in restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents, restricted cash, and restricted cash equivalents should not be presented as cash flow activities in the statement of cash flows and that an entity with a material amount of restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. This new guidance was to be effective for the Company’s first quarter of 2018, but the Company has elected to early adopt in the third quarter of 2017. There was no material impact to the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04 to simplify the process used to test for goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This new guidance will be effective for the Company’s first quarter of 2020. The Company is currently evaluating the potential effect of this new guidance on its condensed consolidated financial statements and related disclosures.
On May 10, 2017, the FASB issued ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. For all entities, the ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. This ASU, which we did not early adopt, would not have impacted the accounting for the acceleration of vesting of restricted stock awards during the nine months ended September 30, 2017.
There were no securities sold, not yet purchased at September 30, 2017, December 31, 2016 and September 30, 2016.
$59.9 million of U.S. Government Obligations are held in an escrow account for the benefit of the Convertible Note holder.
Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of the date of each condensed consolidated statement of financial condition. Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities, and those with maturities of three months or less at the time of purchase are classified as cash equivalents. The portion of investments in securities held for resale in anticipation of short-term market movements are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings. Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary (“OTT”) which are recorded as realized losses in the condensed consolidated statements of income.
The following table identifies all reclassifications out of accumulated other comprehensive income (“AOCI”) into income for the three and nine months ended September 30, 2017 and 2016 (in thousands):
Amount
|
|
Affected Line Items
|
|
Reason for
|
Reclassified
|
|
in the Statements
|
|
Reclassification
|
from AOCI
|
|
Of Income
|
|
from AOCI
|
Three Months Ended September 30,
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
$
|
20
|
|
|
$
|
-
|
|
Net gain from investments
|
|
Realized gain on sale of AFS securities
|
|
|
2,821
|
|
|
|
7
|
|
Other operating expenses/net gains from investments
|
|
Realized gain on donations of AFS securities
|
|
|
2,841
|
|
|
|
7
|
|
Income before income taxes
|
|
|
|
|
(1,051
|
)
|
|
|
(3
|
)
|
Income tax provision
|
|
|
|
$
|
1,790
|
|
|
$
|
4
|
|
Net income
|
|
|
Amount
|
|
Affected Line Items
|
|
Reason for
|
Reclassified
|
|
in the Statements
|
|
Reclassification
|
from AOCI
|
|
Of Income
|
|
from AOCI
|
Nine Months Ended September 30,
|
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
$
|
20
|
|
|
$
|
4
|
|
Net gain from investments
|
|
Realized gain on sale of AFS securities
|
|
|
2,855
|
|
|
|
159
|
|
Other operating expenses/net gains from investments
|
|
Realized gain on donations of AFS securities
|
|
|
2,875
|
|
|
|
163
|
|
Income before income taxes
|
|
|
|
|
(1,064
|
)
|
|
|
(61
|
)
|
Income tax provision
|
|
|
|
$
|
1,811
|
|
|
$
|
102
|
|
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 September 30, 2017, December 31, 2016 and September 30, 2016:
|
September 30, 2017
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
(In thousands)
|
|
Common stocks
|
|
$
|
21,319
|
|
|
$
|
19,996
|
|
|
$
|
-
|
|
|
$
|
41,315
|
|
Closed-end funds
|
|
|
99
|
|
|
|
15
|
|
|
|
-
|
|
|
|
114
|
|
Total available for sale securities
|
|
$
|
21,418
|
|
|
$
|
20,011
|
|
|
$
|
-
|
|
|
$
|
41,429
|
|
|
December 31, 2016
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair 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
|
|
|
September 30, 2016
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
(In thousands)
|
|
Common stocks
|
|
$
|
17,649
|
|
|
$
|
15,224
|
|
|
$
|
-
|
|
|
$
|
32,873
|
|
Total available for sale securities
|
|
$
|
17,649
|
|
|
$
|
15,224
|
|
|
$
|
-
|
|
|
$
|
32,873
|
|
A net unrealized gain, net of taxes, for the three months ended September 30, 2017 and 2016 of $2.3 million and $0.5 million, respectively, has been included in other comprehensive income, a component of equity, at September 30, 2017 and 2016. During the three months ended September 30, 2017, proceeds from the sales of investments available for sale were approximately $321,000 and gross gains on the sale of investments available for sale amounted to $20,000 and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income. There were no sales of investments available for sale for the three months ended September 30, 2016. There were no realized losses on the sale of investments available for sale for the three months ended September 30, 2017 or September 30, 2016. A net unrealized gain, net of taxes, for the nine months ended September 30, 2017 and 2016 of $1.0 million and $0.3 million, respectively, has been included in other comprehensive income, a component of equity, at September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017 and 2016, proceeds from the sales of investments available for sale were approximately $321,000 and $408,000, respectively, and gross gains on the sale of investments available for sale amounted to $20,000 and $4,000, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income. There were no realized losses on the sale of investments available for sale for the nine months ended September 30, 2017 or September 30, 2016. The basis on which the cost of a security sold is determined using specific identification. Accumulated other comprehensive income on the condensed consolidated statements of equity is primarily comprised of unrealized gains/losses, net of taxes, for AFS securities.
The Company has an established accounting policy and methodology to determine other-than-temporary impairment 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 condensed 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 September 30, 2017, December 31, 2016 or September 30, 2016.
For the three and nine months ended September 30, 2017 and 2016, 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 September 30, 2017, December 31, 2016 and September 30, 2016 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 September 30, 2017 (in thousands)
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Balance as of
|
|
|
|
Markets for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
September 30,
|
|
Assets
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
2017
|
|
Cash equivalents
|
|
$
|
60,702
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
60,702
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
41,315
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,315
|
|
AFS - Closed-end Funds
|
|
|
114
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114
|
|
US Government Obligations
|
|
|
59,954
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59,954
|
|
Trading - Common stocks
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Trading - Mutual Funds
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
Total investments in securities
|
|
|
101,425
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101,425
|
|
Total assets at fair value
|
|
$
|
162,127
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
162,127
|
|
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
|
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2016 (in thousands)
|
|
Quoted Prices in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
Balance as of
|
|
|
|
Markets for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
September 30,
|
|
Assets
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
2016
|
|
Cash equivalents
|
|
$
|
33,576
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
33,576
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS - Common stocks
|
|
|
32,873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,873
|
|
Trading - Common stocks
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Total investments in securities
|
|
|
32,889
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,889
|
|
Total assets at fair value
|
|
$
|
66,465
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
66,465
|
|
During the quarters ended September 30, 2017 and 2016, there were no transfers between any Level 1 and Level 2 holdings, or between Level 1 and Level 3 holdings.
D. Income Taxes
The effective tax rate (“ETR”) for the three months ended September 30, 2017 and September 30, 2016 was 18.8% and 31.9%, respectively. The ETR for the nine months ended September 30, 2017 and September 30, 2016 was 34.4% and 35.9%, respectively. The current year quarter’s ETR benefited from the reversal of certain tax accruals totaling $3.6 million due to a change in accounting estimate as well as a $1.0 million tax benefit related to the charitable contribution while the prior year quarter benefited from a reversal of $2.6 million in tax accruals due to the conclusion of a state audit.
ASU 2016-09, which was issued in March 2016 and became effective for interim and annual reporting periods beginning after December 15, 2016, simplifies several aspects of accounting for employee share-based payment transactions. Upon adoption of ASU 2016-09 on January 1, 2017, our accounting for excess tax benefits has changed and adopted prospectively, resulting in recognition of excess tax benefits or tax deficiencies against income tax expenses rather than additional paid-in capital. During the three and nine months ended September 30, 2017, the ETR was higher by 3.6% and 1.0%, respectively, as a result of a reduction to previously recorded stock compensation tax benefits.
E. Earnings Per Share
The
computations of basic and diluted net income per share are as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(in thousands, except per share amounts)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to GAMCO Investors, Inc.'s
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
$
|
16,600
|
|
|
$
|
30,861
|
|
|
$
|
64,314
|
|
|
$
|
84,429
|
|
Weighted average shares outstanding
|
|
|
28,926
|
|
|
|
29,185
|
|
|
|
28,930
|
|
|
|
29,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders
|
|
$
|
0.57
|
|
|
$
|
1.06
|
|
|
$
|
2.22
|
|
|
$
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to GAMCO Investors, Inc.'s shareholders
|
|
$
|
16,600
|
|
|
$
|
30,861
|
|
|
$
|
64,314
|
|
|
$
|
84,429
|
|
Add interest on convertible note, net of management fee and taxes
|
|
|
696
|
|
|
|
387
|
|
|
|
2,192
|
|
|
|
387
|
|
Total income attributable to GAMCO Investors, Inc.'s shareholders
|
|
$
|
17,296
|
|
|
$
|
31,248
|
|
|
$
|
66,506
|
|
|
$
|
84,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average share outstanding
|
|
|
28,926
|
|
|
|
29,185
|
|
|
|
28,930
|
|
|
|
29,222
|
|
Restricted stock awards
|
|
|
247
|
|
|
|
221
|
|
|
|
214
|
|
|
|
253
|
|
Assumed conversion of convertible note
|
|
|
2,000
|
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
336
|
|
Total
|
|
|
31,173
|
|
|
|
30,406
|
|
|
|
31,144
|
|
|
|
29,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share attributable to GAMCO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors, Inc.'s shareholders
|
|
$
|
0.55
|
|
|
$
|
1.03
|
|
|
$
|
2.14
|
|
|
$
|
2.85
|
|
F. Debt
Debt consists of the following:
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2016
|
|
|
Carrying
|
|
Fair Value
|
|
Carrying
|
|
Fair Value
|
|
Carrying
|
|
Fair Value
|
|
|
Value
|
|
Level 2
|
|
Value
|
|
Level 2
|
|
Value
|
|
Level 2
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 % Convertible note
|
|
$
|
109,862
|
|
|
|
111,574
|
|
|
$
|
109,835
|
|
|
$
|
111,525
|
|
|
$
|
109,826
|
|
|
$
|
112,172
|
|
AC 4% PIK Note
|
|
|
70,000
|
|
|
|
71,755
|
|
|
|
100,000
|
|
|
|
100,930
|
|
|
|
100,000
|
|
|
|
101,347
|
|
5.875% Senior notes
|
|
|
24,138
|
|
|
|
24,748
|
|
|
|
24,120
|
|
|
|
24,558
|
|
|
|
24,115
|
|
|
|
25,073
|
|
Total
|
|
$
|
204,000
|
|
|
$
|
208,077
|
|
|
$
|
233,955
|
|
|
$
|
237,013
|
|
|
$
|
233,941
|
|
|
$
|
238,592
|
|
4.5% Convertible Note
On August 15, 2016, the Company issued and sold a 5-year, $110 million convertible note (“Convertible Note”). 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 recorded $174,000 of costs in connection with the issuance of the Convertible Note. GGCP, Inc. (“GGCP”), which owns approximately 63 % 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.
A portion of the proceeds from the sale of the Convertible Note are now held in an escrow account established pursuant to an escrow agreement dated August 15, 2016 by and among the Company, GGCP and its related parties, Cascade and JP Morgan Chase Bank, National Association, as escrow agent (the “Escrow Agreement”). On September 30, 2017, in connection with an amendment to the Escrow Agreement and in exchange for approximately 53% of the assets in the escrow account, the Company paid GGCP $60 million. The $60 million is disclosed as restricted cash and restricted investment in securities of $0.1 million and $59.9 million, respectively, on the statement of financial condition. The Escrow Agreement provides for the release to the Company of a pro rata portion of the escrowed funds upon repayment of the Convertible Note or conversion of the Convertible Note, based upon the principal amount of the Convertible Note that is converted into Class A Stock. Under the Convertible Note, Cascade has the right to claim the escrowed funds upon a payment default by the Company. It is the Company’s current plan to redeem the Convertible Note no later than February 15, 2019.
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 the three and nine months ended September 30, 2017, the Company prepaid $10 million and $30 million, respectively, of principal of the AC 4% PIK Note against the principal amount due on November 30, 2018. Of the $70 million principal amount outstanding after this payment, $20 million is due on November 30, 2019, and $50 million is due on November 30, 2020. During the three and nine months ended September 30, 2016, the Company prepaid $150 million of principal of the AC 4% PIK Note. Subsequent to quarter end, the Company paid an additional $20 million of principal, thereby reducing the amount outstanding to $50 million, all of which is due on November 30, 2020.
5.875% Senior Notes
On May 31, 2011, the Company issued 10-year, $100 million senior notes (“Senior Notes”). The Senior 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 the occurrence of a change of control triggering event, as defined in the indenture, the Company would be required to offer to repurchase the Senior Notes at 101% of their principal amount.
At September 30, 2017, December 31, 2016 and September 30, 2016, the debt was recorded at its face value, net of issuance costs, of $24.1 million, $24.1 million and $24.1 million, respectively.
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 in these standard models include credit rating, maturity and interest rate.
G. Stockholders
’
Equity
Shares outstanding were 29.2 million, 29.5 million and 29.5 million on September 30, 2017, December 31, 2016 and September 30, 2016, respectively.
Dividends
|
|
Record
|
|
Payment
|
|
|
|
|
|
Date
|
|
Date
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
|
March 14, 2017
|
|
March 28, 2017
|
|
$
|
0.02
|
|
Three months ended June 30, 2017
|
|
June 27, 2017
|
|
July 11, 2017
|
|
|
0.02
|
|
Three months ended September 30, 2017
|
|
September 12, 2017
|
|
September 26, 2017
|
|
|
0.02
|
|
Nine months ended September 30, 2017
|
|
|
|
|
|
$
|
0.06
|
|
|
|
Record
|
|
Payment
|
|
|
|
|
|
Date
|
|
Date
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
March 15, 2016
|
|
March 29, 2016
|
|
$
|
0.02
|
|
Three months ended June 30, 2016
|
|
June 14, 2016
|
|
June 28, 2016
|
|
|
0.02
|
|
Three months ended September 30, 2016
|
|
September 13, 2016
|
|
September 27, 2016
|
|
|
0.02
|
|
Nine months ended September 30, 2016
|
|
|
|
|
|
$
|
0.06
|
|
Voting Rights
The holders of Class A Stock and Class B Common stock (“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 7.5 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.
As of September 30, 2017, December 31, 2016 and September 30, 2016, there were 164,050 RSA shares, 424,340 RSA shares and 427,290 RSA shares outstanding, respectively, that were previously issued at an average weighted grant price of $66.84, $65.74 and $65.72, respectively. These RSA grants occurred prior to the spin-off of Associated Capital (“AC”). On November 30, 2015, pursuant to the spin-off, all RSA grant holders received shares of AC’s Class A common stock as a result of their ownership of their GAMCO unvested RSAs (one share of AC for each share of GBL). All grants of the RSA shares were recommended by the Company's Chairman, who did not receive a RSA, and approved by the Compensation Committee. 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 (deficit) on the declaration date.
On June 1, 2017, the Compensation Committee of AC accelerated the vesting of all 420,240 AC RSAs outstanding effective June 15, 2017. As a result, GBL recorded an incremental $3.7 million of stock-based compensation expense for the nine months ended September 30, 2017. This amount related to GBL teammates who held AC RSAs. There will be no further expense related to these AC RSAs recorded by GBL after the second quarter ended June 30, 2017.
On August 7, 2017, the Compensation Committee of GBL accelerated the vesting relating to 201,120 of GBL RSAs outstanding effective August 31, 2017. As a result, GBL recorded an incremental $1.8 million of stock-based compensation expense for the three and nine months ended September 30, 2017. There continue to be 164,050 GBL RSAs outstanding that were not vested as part of this acceleration which will result in recognition of expense as these RSAs continue to vest. See table below for impact by quarter.
ASU 2016-09, which was issued in March 2016 and became effective for interim and annual reporting periods beginning after December 15, 2016, simplifies several aspects of accounting for employee share-based payment transactions. Upon adoption of ASU 2016-09 on January 1, 2017, the Company elected not to change its accounting policy on forfeitures and continue to estimate forfeitures rather than accounting for forfeitures as they occur, an alternative allowed under ASU 2016-09. The Company’s accounting treatment for excess tax benefits or tax deficiencies also changed with the adoption of ASU 2016-09 on January 1, 2017. Excess tax benefits or tax deficiencies are now required to be recorded within the income tax expense line in the consolidated statement of income rather than to additional paid-in capital within the condensed consolidated statement of financial condition. During the three and nine months ended September 30, 2017, the Company reduced previously recorded tax benefits relating to RSA expense by $0.7 million and $1.0 million, respectively, on RSAs that vested.
For the three months ended September 30, 2017 and September 30, 2016, we recognized stock-based compensation expense of $2.1 million and $1.2 million, respectively. For the nine months ended September 30, 2017 and September 30, 2016, we recognized stock-based compensation expense of $7.2 million and $3.3 million, respectively. The three month amount for 2017 includes the $1.8 million related to the GBL RSA accelerated vesting mentioned above. The nine month amount for 2017 includes the $1.8 million related to the GBL RSAs’ accelerated vesting and the $3.7 million related to the AC RSAs’ accelerated vesting both mentioned above. All stock-based compensation expense in future periods for grants currently outstanding will relate to GBL RSAs only.
Actual and projected stock-based compensation expense for RSA shares for the years ended December 31, 2016 through December 31, 2024 is as follows (in thousands):
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Q1
|
|
|
$
|
1,037
|
|
|
$
|
699
|
|
|
$
|
144
|
|
|
$
|
113
|
|
|
$
|
72
|
|
|
$
|
49
|
|
|
$
|
32
|
|
|
$
|
17
|
|
|
$
|
4
|
|
|
Q2
|
|
|
|
1,036
|
|
|
|
4,381
|
|
|
|
141
|
|
|
|
113
|
|
|
|
68
|
|
|
|
49
|
|
|
|
32
|
|
|
|
17
|
|
|
|
4
|
|
|
Q3
|
|
|
|
1,186
|
|
|
|
2,103
|
|
|
|
126
|
|
|
|
101
|
|
|
|
57
|
|
|
|
39
|
|
|
|
24
|
|
|
|
10
|
|
|
|
2
|
|
|
Q4
|
|
|
|
691
|
|
|
|
157
|
|
|
|
113
|
|
|
|
90
|
|
|
|
49
|
|
|
|
32
|
|
|
|
17
|
|
|
|
4
|
|
|
|
-
|
|
Full Year
|
|
|
$
|
3,950
|
|
|
$
|
7,340
|
|
|
$
|
524
|
|
|
$
|
417
|
|
|
$
|
246
|
|
|
$
|
169
|
|
|
$
|
105
|
|
|
$
|
48
|
|
|
$
|
10
|
|
The total compensation cost related to non-vested RSAs not yet recognized is approximately $1.7 million as of September 30, 2017.
Stock Repurchase Program
In March 1999, GAMCO's Board of Directors established the Stock Repurchase Program to grant management the authority to repurchase shares of our Class A Common Stock. On May 3, 2017, our Board of Directors authorized an incremental 500,000 shares to be added to the current buyback authorization. On August 3, 2017, our Board of Directors authorized an incremental 425,352 shares to be added to the current buy back authorization. For the three months ended September 30, 2017 and September 30, 2016, the Company repurchased 131,480 shares and 223,811 shares, respectively, at an average price per share of $29.42 and $31.50, respectively. For the nine months ended September 30, 2017 and September 30, 2016, the Company repurchased 290,300 shares and 266,846 shares, respectively, at an average price per share of $29.71 and $31.41, respectively. From the inception of the program through September 30, 2017, 10,191,640 shares have been repurchased at an average price of $43.90 per share. At September 30, 2017, the total shares available under the program to be repurchased in the future were 868,520.
Shelf Registration
On May 4, 2015, the Securities and Exchange Commission (“SEC”) declared effective the “shelf” registration statement filed by the Company. The “shelf” provides the Company with the flexibility of issuing any combination of senior and subordinated debt securities, convertible securities and common and preferred securities up to a total amount of $500 million and replaced the existing shelf registration which expired in May 2015. As of September 30, 2017, $500 million is available on the shelf.
H. Related Party Transactions
In connection with the issuance of the Convertible Note in August 2016, GGCP deposited cash of approximately $112.5 million, equal to the principal amount of the Convertible 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. On September 30, 2017, in connection with an amendment to the Escrow Agreement and in exchange for approximately 53% of the assets in the escrow account, the Company paid GGCP $60 million. See Note F. Debt for additional details.
I. Identifiable Intangible Assets
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 condensed consolidated statements of financial condition at September 30, 2017, December 31, 2016 and September 30, 2016. 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 is next up for renewal in February 2018. 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 condensed consolidated statement of financial condition at September 30, 2017, December 31, 2016 and September 30, 2016. The advisory contracts for the Bancroft Fund Ltd. and the Ellsworth Growth and Income Fund Ltd. are both next up for renewal in August 2018. The Company assesses the recoverability of this intangible asset at least annually, or more often should events warrant. There were no indicators of impairment for the three months ended September 30, 2017 or September 30, 2016, and as such there was no impairment analysis performed or charge recorded.
J. Commitments and Contingencies
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 condensed 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 will, if material, make the necessary disclosures. However, management believes such amounts, both those that are probable and those that are reasonably possible, are not material to the Company’s financial condition, operations or cash flows at September 30, 2017.
K. Subsequent Events
On September 30, 2017, GAMCO entered into a third deferred compensation agreement with Mr. Gabelli for the period of October 1, 2017 to December 31, 2017. Mr. Gabelli’s variable cash compensation for that period will vest on April 1, 2019. For GAAP accounting purposes, the compensation earned from October 1, 2017 to December 31, 2017 will be expensed ratably from October 1, 2017 to March 31, 2019.
On October 3, 2017, the Company paid an additional $20 million of principal relating to the AC 4% PIK Note, thereby reducing the amount outstanding to $50 million, all of which is due on November 30, 2020.
On November 7, 2017, the Board of Directors declared its regular quarterly dividend of $0.02 per share to all of its shareholders, payable on January 10, 2018 to shareholders of record on December 27, 2017.
From October 1, 2017 to November 7, 2017, the Company repurchased 31,100 shares at $29.11 per share.