| Significant Accounting Policies | B. Significant Accounting Policies Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification The Company has reclassified certain prior-period amounts to conform to the current-period presentation. For presentation of 2015 to 2017 results, the Company reported revenue from its research services agreement with affiliates in “Institutional Research Services Revenue” instead of “Other Revenue”. The reclassification did not impact total revenues, operating expenses, operating income/(loss), net income, or equity. Cash and Cash Equivalents Cash equivalents primarily consist of an affiliated money market mutual fund which is highly liquid. U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents. Investments in Securities Investments in securities are accounted for 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 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 (loss) on the consolidated statements of comprehensive income (loss) 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 from investments on the consolidated statements of income. AFS securities are evaluated for other than temporary impairments each reporting period, and any impairment charges are recorded in net gain from investments on the consolidated statements of income. Management reviews all AFS 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, not yet purchased are recorded on the trade date, and are stated at fair value and represent obligations of the Company 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 from investments on the consolidated statements of income. Unrealized gains and losses on securities sold, not yet purchased are reported in current period earnings in net gain from investments on the consolidated statements of income. Fair Value of Financial Instruments All of the instruments within investments in securities are measured at fair value. The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the Financial Accounting Standards Board’s (“FASB”) guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below: · Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 asset includes cash equivalents, government obligations, open-end mutual 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 Chief Financial Officer of the Company. The Company uses the “market approach” valuation technique to value 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 are 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 Investments in securities Investments in partnerships —T Fair Value Measurement Receivables from Affiliates and Payables to Affiliates Receivables from affiliates consist primarily of a $15 million promissory note issued by GAMCO on December 26, 2017. Payables to affiliates primarily consist of expenses paid by affiliates on behalf of the Company pursuant to the Transitional Services Agreement with GAMCO. See Note H. Receivables from and Payables to Brokers Receivables from and payables to brokers consist of amounts arising from the purchases and sales of securities as well as cash amounts held in anticipation of investment. Consolidation Pursuant to the consolidation guidance, the Company first evaluates whether it holds a variable interest in an entity. Fees that are customary and commensurate with the level of services provided, and where the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if such interests are considered a variable interest. For entities where the Company has determined that it does hold a variable interest, the Company performs an assessment to determine whether each of those entities qualify as a variable interest entity (“VIE”). The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity and therefore certain of the Company’s funds may qualify as VIEs under the variable interest model. The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not that entity should be consolidated. Under the variable interest model, the Company consolidates those entities where it is determined that the Company is the primary beneficiary of the entity. The Company is determined to be the primary beneficiary when it has a controlling financial interest in the VIE, which is defined as possessing both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. When the Company alone is not considered to have a controlling financial interest in the VIE but the Company and its related parties under common control in the aggregate have a controlling financial interest in the VIE, the Company will be deemed the primary beneficiary if it is the party that is most closely associated with the VIE. When the Company and its related parties not under common control in the aggregate have a controlling financial interest in the VIE, the Company would be deemed to be the primary beneficiary if substantially all the activities of the entity are performed on behalf of the Company. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. Investments and redemptions (either by the Company, related parties or third parties) or amendments to the governing documents of the respective entity may affect an entity’s status as a VIE or the determination of the primary beneficiary. Assets and liabilities of the consolidated VIEs are included within the consolidated statements of financial condition and are separately disclosed in Note D. For voting interest entities (“VOEs”) that do not qualify as VIEs, the Company applies the voting interest model. Under the voting interest model, the Company consolidates those entities it controls through a majority voting interest. Equity Method Investments. See Note D. Investments in Partnerships, Offshore Funds and Variable Interest Entities for more detail as to the number and types of entities consolidated as well as the impact on the consolidated statements of financial condition and consolidated statements of income. Investments in Partnerships and Affiliates The Company is general partner or co-general partner of various affiliated entities. We also have investments in unaffiliated partnerships, offshore funds and other entities (“unaffiliated entities”). Given that we are not a general partner or investment manager in any of the unaffiliated entities, we do not earn any management or incentive fees/allocation and we do not have a controlling financial interest; thus, we do not currently consolidate any unaffiliated entities. Our balance sheet caption “Investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in entities that the Company accounts for at fair value. The Company records noncontrolling interests in consolidated entities for which the Company’s ownership is less than 100%. Refer to Noncontrolling Interests section within this Note B for additional disclosures. Derivative Financial Instruments The Company recognizes all derivatives as either assets or liabilities measured at fair value and are included in either investments in securities or securities sold, not yet purchased on the consolidated statements of financial condition. From time to time, the Company will enter into hedging transactions to manage its exposure to foreign currencies and equity prices related to its proprietary investments. During 2017, 2016 and 2015, the Company had derivative transactions which resulted in a net loss of $98,000, net gain of $143,000 and net gain of $264,000, respectively. At December 31, 2017 and 2016, we held derivative contracts on 1.7 million equity shares and 16,000 equity shares, respectively, and the net fair value was ($106,000) and $90,000, respectively. The gross amounts are included as investments in securities and securities sold, not yet purchased on the consolidated statements of financial condition. These transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain from investments on the consolidated statements of income and included in investments in securities or securities sold, not yet purchased on the consolidated statements of financial condition. Securities Transactions The Company also generates investment gains or losses from its proprietary trading activities which are included in net gain from investments on the consolidated statements of income. 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 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. 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 consolidated statements of income. Major Revenue-Generating Services and Revenue Recognition Advisory fees from investment partnerships and offshore funds are computed either monthly or quarterly, and amounts receivable are included in receivables from affiliates on the consolidated statements of financial condition. Revenues from investment partnerships and offshore funds also generally include either an incentive fee/allocation on the absolute gain in a portfolio or a fee of 20% of the economic profit as defined in the partnership agreement and are included in investment advisory and incentive fees on the consolidated statements of income. The incentive allocation or fee is generally recognized at the end of an annual measurement period and amounts receivable are included in either receivables from affiliates or investment advisory fees receivable on the consolidated statements of financial condition. Institutional research services includes commission revenues, sales manager fees and underwriting fees and amounts receivable are included in receivables from brokers and clearing organizations on the consolidated statements of financial condition. Related clearing charges are recorded on a trade-date basis, and are included in other operating expenses on the consolidated statements of income. Underwriting fees include underwriting revenues and syndicate profits and are accrued as earned. Underwriting fees include gains, losses, selling concessions and fees, net of syndicate expenses, arising from securities offerings in which G.research acts as underwriter or agent. Effective January 1, 2014, the Company, through G.research, entered into agreements with two affiliates, GAMCO Asset Management Inc. and Gabelli Funds, LLC, to provide each affiliate with the same types of research services that it provides to its other clients. The agreements call for the two affiliates to pay a research services fee. The annual fee amounts are determined by negotiations between the Company and each entity that utilizes the Company’s research. Depreciation Fixed assets, with a net book value of $39,000 and $55,000 at December 31, 2017 and 2016, respectively, which are included in other assets, are recorded at cost and depreciated using the straight-line method over their estimated useful lives of four to seven years. As of December 31, 2017 and 2016, fixed assets were recorded at a cost of $85,000 and $85,000, respectively net of accumulated depreciation of $46,000 and $30,000, respectively. For the years ended December 31, 2017, 2016 and 2015, depreciation was $16,000, $17,000 and $13,000, respectively. We estimate that depreciation will be approximately $16,000 annually over the next three years. As of December 31, 2017 and 2016, the Company wrote off assets in the amount of $1,000 and $25,000, respectively, that were fully depreciated and had been retired. Allocated Expenses The Company is charged or incurs certain overhead expenses that are paid by, or paid on our behalf by other affiliates and are included in other operating expenses on the consolidated statements of income. These overhead expenses primarily relate to centralized functions including finance and accounting, legal, compliance, treasury, tax, internal audit, information technology, human resources and risk management functions. These overhead expenses are allocated to the Company by other affiliates or allocated by the Company to other affiliates as the expenses are incurred, based upon direct usage when identifiable, with the remainder allocated based on revenue, headcount, space or other methodologies periodically reviewed by the management of the Company and the affiliates. In addition, GCIA and GAMCO serve as paymasters under compensation payment sharing agreements. This includes compensation expense and related payroll taxes and benefits which are fully paid by the Company for professional staff performing duties related to the Company and affiliates. These compensation expenses are included in compensation on the consolidated statements of income. All of the allocations and estimates in these financial statements are based on assumptions that management of AC believes are reasonable. However, these allocations may not be indicative of the actual expenses we would have incurred or may incur in the future. Management Fee Management fee expense in the amount of 10% of the aggregate pre-tax profits, before consideration of this fee and before consideration of the various consolidated funds and partnerships, is paid to the Executive Chairman or his designated assignees in accordance with his employment agreement. Stock-Based Compensation The Company maintains one stock award and incentive plan (the “Plan”) approved by the shareholders at the Company’s annual meeting held on May 3, 2016, which is designed to provide incentives which will attract and retain individual’s key to the success of AC through direct or indirect ownership of our common stock. Benefits under the Plan may be granted in any one or a combination of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents and other stock or cash based awards. A maximum of 2 million shares of Class A Stock have been reserved for issuance under the Plan by a committee of the Board of Directors responsible for administering the Plan (the “Compensation Committee”). Under the Plan, the Compensation Committee may grant RSAs and either incentive or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price that the committee may determine. Through December 31, 2017, approximately 0.5 million shares have been awarded under the Plan leaving approximately 1.5 million shares for future grants. On November 30, 2015, in connection with the spin-off of the Company from GAMCO, the Company issued 554,100 AC RSA shares to GAMCO employees (including GAMCO employees who became AC employees) who held 554,100 GAMCO RSA shares at that date. The purpose of the issuance was to ensure that any employee who had GAMCO RSAs were granted an equal number of AC RSAs so that the total value of the RSAs post-spin-off was equivalent to the total value pre-spin-off. In accordance with GAAP, we have allocated the stock compensation costs between GAMCO and AC based upon the allocation of each employee’s responsibilities between GAMCO and AC. As of December 31, 2017 and 2016, there were 0 and 424,340 AC RSA shares outstanding. All grants of the RSA shares were recommended by the Company's Executive Chairman, who did not receive a RSA, and approved by the Compensation Committee. The value of the AC RSAs, net of estimated forfeitures, is recognized as expense over the respective vesting period for these awards which is either (1) five years (30% three years and 70% five years from the date of grant, respectively), or (2) ten years (30% three years and 10% each year thereafter from the date of grant, respectively). 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. Goodwill Goodwill is initially measured as the excess of the cost of the acquired business over the sum of the fair value assigned to assets acquired less the liabilities assumed. Goodwill is tested for impairment at least annually on November 30th and whenever certain triggering events are met. In assessing the recoverability of goodwill for the subsidiary’s annual impairment test on November 30, 2017 and 2016, we performed a qualitative assessment of whether it was more likely than not that an impairment has occurred and concluded that a quantitative analysis was not required. As part of this assessment, it was also determined that there was no risk of failing the quantitative impairment testing step that compares the subsidiary fair value to its carrying value. No impairment was recorded during 2017 or 2016. Income Taxes For purposes of the preparation of the consolidated financial statements, the provision for income taxes is computed using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax expense/benefit in the period that includes the enactment date of the change in tax rate. The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. A valuation allowance would be recorded to reduce the carrying value of deferred tax assets to the amount that is more likely than not to be realized. In making such a determination of whether a valuation allowance is necessary, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company were to determine that the Company would be able to realize the Company’s deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC Topic 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes the accrual of interest on uncertain tax positions and penalties in income tax provision on the consolidated statements of income. Accrued interest and penalties on uncertain tax positions are included within accrued expenses and other liabilities on the consolidated statements of financial condition. Noncontrolling Interests Noncontrolling interests that are mandatorily redeemable upon a certain date or event occurring are classified as liabilities and relate to certain stockholders of GCIA who are employed by GAMCO, or its affiliates, who were required to sell their shares back to GCIA at book value once they cease being employed by GAMCO, or its affiliates. During the year ended December 31, 2016, AC purchased the outstanding 1.9% of GCIA shares owned by certain employees of GAMCO in exchange for 50,964 Class A shares of the Company in the amount of $1.5 million, which eliminated the mandatorily redeemable noncontrolling interest. Noncontrolling interest attributable to the 4.2% GCIA shares owned by third parties were classified as equity and were presented within the equity section, separately from AC’s portion of equity. During the year ended December 31, 2016, AC purchased the outstanding 4.2% of GCIA shares owned by third parties. Noncontrolling interests in Investment Partnerships that are redeemable at the option of the holder are classified as redeemable noncontrolling interests in the mezzanine section of the consolidated statements of financial condition between liabilities and equity. For the years ended December 31, 2017, 2016, and 2015, net income/(loss) attributable to noncontrolling interests on the consolidated statements of income represents the share of net income/(loss) attributable to the minority stockholders, as reported on a separate company basis, of our consolidated majority-owned subsidiaries and net income/(loss) attributable to certain investors in Investment Partnerships that are consolidated. The income/(loss) attributable to the mandatorily redeemable noncontrolling interests classified as liabilities prior to the Company’s purchase of the outstanding 1.9% of GCIA shares owned by certain employees of GAMCO is included in other operating expenses on the consolidated statements of income. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, the GAMCO Note, 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 and incentive fees/allocation, which are included in investment advisory fees receivable and receivables from affiliates on the consolidated statements of financial condition, is generally limited due to the short payment terms extended to clients by the Company. All investments in securities are held at third party brokers or custodians. Net transfer from GBL Net transfer from GBL in the consolidated statements of equity and cash flows for the year ended December 31, 2015 represents the net effect of transactions with and allocations from GAMCO prior to the spin-off. Business Segment The Company operates in one business segment, the investment advisory and asset management business. The Company’s Chief Operating Decision Maker reviews the Company’s financial performance at an aggregate level. All of the products and services provided by the Company relate to asset management. Recent Accounting Developments In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers Revenue Recognition In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other On May 10, 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation On December 22, 2017, the SEC issued SAB 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, |
