0001060349-19-000013.txt : 20190507 0001060349-19-000013.hdr.sgml : 20190507 20190507170058 ACCESSION NUMBER: 0001060349-19-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190507 DATE AS OF CHANGE: 20190507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GAMCO INVESTORS, INC. ET AL CENTRAL INDEX KEY: 0001060349 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 134007862 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14761 FILM NUMBER: 19803991 BUSINESS ADDRESS: STREET 1: ONE CORPORATE CENTER STREET 2: 401 THEODORE FREMD AVENUE CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149213700 MAIL ADDRESS: STREET 1: ONE CORPORATE CENTER STREET 2: 401 THEODORE FREMD AVENUE CITY: RYE STATE: NY ZIP: 10580 FORMER COMPANY: FORMER CONFORMED NAME: GABELLI ASSET MANAGEMENT INC DATE OF NAME CHANGE: 19990112 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA G INC DATE OF NAME CHANGE: 19980423 10-Q 1 form10q0319.htm FORM10Q12019  
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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 No. 001-14761

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
13-4007862
(State of other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
140 Greenwich Ave., Greenwich, CT
One Corporate Center, Rye, NY
 
06830
10580-1422
(Address of principle executive offices)
 
(Zip Code)

(203) 629-2726
Registrant's telephone number, including area code
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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. (Check one):

Large accelerated filer
Accelerated filer
 
 
Non-accelerated filer
Smaller reporting company o 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 Rule 12b-2 of the Exchange Act).
Yes    No 
 
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
 
GBL
 
New York Stock Exchange

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 April 30, 2019
Class A Common Stock, .001 par value
  (Including 425,150 restricted stock awards)
8,586,327
Class B Common Stock, .001 par value
 
19,024,117



INDEX
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
   
PART I.
FINANCIAL INFORMATION
   
Item 1.
Unaudited Condensed Consolidated Financial Statements
   
 
Condensed Consolidated Statements of Income:
 
- Three months ended March 31, 2019 and 2018
   
 
Condensed Consolidated Statements of Comprehensive Income:
 
- Three months ended March 31, 2019 and 2018
   
 
Condensed Consolidated Statements of Financial Condition:
 
- March 31, 2019
 
- December 31, 2018
 
- March 31, 2018
   
 
Condensed Consolidated Statements of Equity:
 
- Three months ended March 31, 2019 and 2018
   
 
Condensed Consolidated Statements of Cash Flows:
 
- Three months ended March 31, 2019 and 2018
   
 
Notes to Unaudited Condensed Consolidated Financial Statements
   
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)
   
Item 4.
Controls and Procedures
   
PART II.
OTHER INFORMATION
   
Item 1.
Legal Proceedings
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
   
SIGNATURES
 

2

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share data) 

   
Three Months Ended
 
 
 
March 31,
 
 
 
2019
   
2018
 
Revenues
           
Investment advisory and incentive fees
 
$
65,888
   
$
77,348
 
Distribution fees and other income
   
8,448
     
10,149
 
Total revenues
   
74,336
     
87,497
 
Expenses
               
Compensation
   
30,347
     
25,950
 
Management fee
   
1,449
     
4,634
 
Distribution costs
   
8,670
     
10,204
 
Other operating expenses
   
5,257
     
5,453
 
Total expenses
   
45,723
     
46,241
 
 
               
Operating income
   
28,613
     
41,256
 
Other income (expense)
               
Net gain (loss) from investments
   
(1,895
)
   
(5,347
)
Interest and dividend income
   
724
     
492
 
Interest expense
   
(655
)
   
(1,200
)
Total other expense, net
   
(1,826
)
   
(6,055
)
Income before income taxes
   
26,787
     
35,201
 
Income tax provision
   
6,895
     
7,940
 
Net income
 
$
19,892
   
$
27,261
 
 
               
Net income:
               
Basic
 
$
0.70
   
$
0.94
 
 
               
Diluted
 
$
0.70
   
$
0.94
 
                 
Weighted average shares outstanding:
               
Basic
   
28,507
     
28,916
 
 
               
Diluted
   
28,539
     
28,916
 

See accompanying notes.

3

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(Dollars in thousands, except per share data)
 
 
Three Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
       
Net income
 
$
19,892
   
$
27,261
 
Other comprehensive gain, net of tax:
               
Foreign currency translation
   
20
     
89
 
Other comprehensive gain
   
20
     
89
 
 
               
Comprehensive income
 
$
19,912
   
$
27,350
 
 
 
See accompanying notes.

4

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)

   
March 31,
   
December 31,
   
March 31,
 
   
2019
   
2018
   
2018
 
ASSETS
                 
Cash and cash equivalents
 
$
64,389
   
$
41,202
   
$
27,383
 
Investments in securities
   
31,623
     
33,789
     
31,407
 
Receivable from brokers
   
3,529
     
3,423
     
1,876
 
Investment advisory fees receivable
   
23,058
     
25,677
     
27,150
 
Receivable from affiliates
   
4,435
     
4,194
     
4,794
 
Deferred tax asset and income tax receivable
   
15,661
     
15,001
     
12,878
 
Other assets
   
11,534
     
11,326
     
11,505
 
Total assets
 
$
154,229
   
$
134,612
   
$
116,993
 
                         
LIABILITIES AND EQUITY
                       
Payable to brokers
 
$
478
   
$
112
   
$
164
 
Income taxes payable and deferred tax liabilities
   
8,068
     
2,388
     
7,491
 
Lease liability obligations
   
5,300
     
4,794
     
4,908
 
Compensation payable
   
59,142
     
60,408
     
84,333
 
Payable to affiliates
   
-
     
1,041
     
864
 
Accrued expenses and other liabilities
   
30,196
     
32,091
     
27,706
 
Sub-total
   
103,184
     
100,834
     
125,466
 
                         
AC 4% PIK Note (due November 30, 2020) (Note G)
   
-
     
-
     
40,000
 
5.875% Senior notes (net of issuance costs of $51, $57 and $75, respectively)
                       
  (due June 1, 2021) (Note G)
   
24,174
     
24,168
     
24,150
 
Total liabilities
   
127,358
     
125,002
     
189,616
 
                         
Commitments and contingencies (Note J)
   
-
     
-
     
-
 
                         
Equity
                       
GAMCO Investors, Inc. stockholders' equity
                       
Preferred stock, $.001 par value;10,000,000 shares authorized;
                       
         none issued and outstanding
   
-
     
-
     
-
 
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
  15,966,926, 15,969,303 and 15,541,489 issued, respectively;9,828,570,
                       
  9,957,301 and 9,830,148 outstanding, respectively
   
14
     
14
     
14
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
                       
  24,000,000 shares issued; 19,024,117, 19,024,240 and 19,024,404 shares
                       
  outstanding, respectively
   
19
     
19
     
19
 
Additional paid-in capital
   
14,769
     
14,192
     
12,759
 
Retained earnings
   
302,139
     
282,928
     
194,732
 
Accumulated other comprehensive income
   
(220
)
   
(240
)
   
(145
)
Treasury stock, at cost (6,138,356, 6,012,002 and 5,711,341 shares, respectively)
   
(289,850
)
   
(287,303
)
   
(280,002
)
Total GAMCO Investors, Inc. stockholders' equity (deficit)
   
26,871
     
9,610
     
(72,623
)
                         
Total liabilities and equity
 
$
154,229
   
$
134,612
   
$
116,993
 

See accompanying notes.

5

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the Three Months Ended March 31, 2019

   
GAMCO Investors, Inc. stockholders
 
                     
Accumulated
             
         
Additional
         
Other
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
       
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
 
Balance at December 31, 2018
 
$
33
   
$
14,192
   
$
282,928
   
$
(240
)
 
$
(287,303
)
 
$
9,610
 
Net income
   
-
     
-
     
19,892
     
-
     
-
     
19,892
 
Adoption of ASU 2016-02
   
-
     
-
     
(106
)
   
-
     
-
     
(106
)
Foreign currency translation
   
-
     
-
     
-
     
20
     
-
     
20
 
Dividends declared ($0.02 per
                                               
share)
   
-
     
-
     
(575
)
   
-
     
-
     
(575
)
Stock based compensation
                                               
expense
   
-
     
577
     
-
     
-
     
-
     
577
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(2,547
)
   
(2,547
)
Balance at March 31, 2019
 
$
33
   
$
14,769
   
$
302,139
   
$
(220
)
 
$
(289,850
)
 
$
26,871
 

See accompanying notes.

6

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the Three Months Ended March 31, 2018

   
GAMCO Investors, Inc. stockholders
 
                     
Accumulated
             
         
Additional
         
Other
             
   
Common
   
Paid-in
   
Retained
   
Comprehensive
   
Treasury
       
   
Stock
   
Capital
   
Earnings
   
Income
   
Stock
   
Total
 
Balance at December 31, 2017
 
$
33
   
$
12,572
   
$
155,939
   
$
11,876
   
$
(276,693
)
 
$
(96,273
)
Net income
   
-
     
-
     
27,261
     
-
     
-
     
27,261
 
Reclassification pursuant to
                                               
adoption of ASU 2016-01,
                                               
net of tax
   
-
     
-
     
12,110
     
(12,110
)
   
-
     
-
 
Foreign currency translation
   
-
     
-
     
-
     
89
     
-
     
89
 
Dividends declared ($0.02 per
                                               
share)
   
-
     
-
     
(578
)
   
-
     
-
     
(578
)
Stock based compensation
                                               
expense
   
-
     
187
     
-
     
-
     
-
     
187
 
Purchase of treasury stock
   
-
     
-
     
-
     
-
     
(3,309
)
   
(3,309
)
Balance at March 31, 2018
 
$
33
   
$
12,759
   
$
194,732
   
$
(145
)
 
$
(280,002
)
 
$
(72,623
)

See accompanying notes.

7

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)

   
Three Months Ended
 
   
March 31,
 
   
2019
   
2018
 
Operating activities
           
Net income
 
$
19,892
   
$
27,261
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
313
     
146
 
Stock based compensation expense
   
577
     
187
 
Deferred income taxes
   
4,015
     
(1,409
)
Foreign currency translation loss
   
20
     
89
 
Cost basis of donated securities
   
1,691
     
-
 
Unrealized (gain)/loss on available for sale securities
   
920
     
-
 
Net realized (gain)/loss on available for sale securities
   
6
     
-
 
(Increase) decrease in assets:
               
Investments in securities
   
2,686
     
5,384
 
Receivable from affiliates
   
(239
)
   
935
 
Receivable from brokers
   
(106
)
   
(298
)
Investment advisory fees receivable
   
2,619
     
11,562
 
Income taxes receivable and deferred tax assets
   
(660
)
   
2,738
 
Other assets
   
(623
)
   
490
 
Increase (decrease) in liabilities:
               
Payable to affiliates
   
(1,041
)
   
9
 
Payable to brokers
   
366
     
(282
)
Income taxes payable and deferred tax liabilities
   
1,664
     
5,772
 
Compensation payable
   
(1,267
)
   
1,424
 
Accrued expenses and other liabilities
   
(1,393
)
   
(988
)
Total adjustments
   
9,548
     
25,759
 
Net cash provided by operating activities
 
$
29,440
   
$
53,020
 

8

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(In thousands)

   
Three Months Ended
 
   
March 31,
 
   
2019
   
2018
 
Investing activities
           
Purchases of available for sale securities
 
$
(3,393
)
 
$
-
 
Proceeds from sales of available for sale securities
   
252
     
-
 
Return of capital on available for sale securities
   
5
     
-
 
Net cash used in investing activities
   
(3,136
)
   
-
 
                 
Financing activities
               
Dividends paid
   
(571
)
   
(578
)
Purchase of treasury stock
   
(2,547
)
   
(3,309
)
Repayment of AC 4% PIK Note
   
-
     
(10,000
)
Repayment of AC 1.6% Note
   
-
     
(15,000
)
Margin loan borrowings
   
-
     
5,000
 
Margin loan payments
   
-
     
(19,479
)
Amortization of debt issuance costs
   
6
     
6
 
Net cash used in financing activities
   
(3,112
)
   
(43,360
)
Effect of exchange rates on cash and cash equivalents
   
(5
)
   
(98
)
Net increase in cash and cash equivalents
   
23,187
     
9,562
 
Cash and cash equivalents at beginning of period
   
41,202
     
17,821
 
Cash and cash equivalents at end of period
 
$
64,389
   
$
27,383
 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
279
   
$
384
 
Cash paid for taxes
 
$
764
   
$
960
 

Non-cash activity:
-
For the three months ended March 31, 2019 and March 31, 2018, the Company accrued dividends on restricted stock awards of $8 and $0, respectively.

See accompanying notes.

9

GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)

A.  Significant Accounting Policies

Basis of Presentation

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, 2018.

Use of Estimates

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.

Recent Accounting Developments

In February 2016, the FASB issued Accounting Standards Update (“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.  The Company adopted this guidance on January 1, 2019.  We have elected the transition method allowed under ASU 2018-11, which does not require restatement of comparative periods but instead requires a cumulative adjustment to opening retained earnings at the January 1, 2019 adoption date.  The Company has performed the analysis on the transition to this new guidance and recorded a $106,000 reduction to retained earnings, a $650,000 increase to other assets and a $756,000 increase to lease liability obligations as a result.

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.

10

B.  Revenue Recognition

The revenue streams in the discussion below and in the table at the end of this Note include those that are within the scope of ASU 2014-09.  In all cases for all revenue streams discussed below, the revenue generated is from a single transaction price, and there is no need to allocate the amounts across more than a single revenue stream.  The customer for all revenues derived from open-end and closed-end funds described in detail below has been determined to be the fund itself and not the ultimate underlying investor in the fund.  The Company has identified similar performance obligations under ASU 2014-09 as compared with ASC Topic 605.  As a result, the timing of the recognition of our revenue remains the same under this new guidance as it was under ASC Topic 605.

Significant judgments that affect the amounts and timing of revenue recognition:

The Company’s analysis of the timing of revenue recognition for each revenue stream is based upon an analysis of current contract terms.  Performance obligations could, however, change from time to time if and when existing contracts are modified or new contracts are entered into.  These changes could potentially affect the timing of satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to performance obligations.  In the case of the revenue streams discussed below, the performance obligation is satisfied either at a point in time or over time.  For performance correlated and conditional revenues, the performance obligation (advising a client portfolio) is satisfied over time, while recognition of revenues effectively occurs at the end of the measurement period as defined within the contract, as such amounts are subject to reduction to zero on the date where the measurement period ends even if the performance benchmarks were exceeded during the intervening period.  The judgments outlined below, where the determination as to these factors is discussed in detail, are continually reviewed and monitored by the Company when new contracts or contract modifications occur.  Transaction price is in all instances formulaic and not subject to significant (or any) judgment at the current time.  The allowance for doubtful accounts is subject to judgment.  There were no impairment losses (allowance for doubtful accounts) on any receivables from any revenue stream at the end of the three months ended March 31, 2019.

Advisory Fee Revenues

Advisory fees for open-end funds, closed-end funds, sub-advisory accounts, SICAVs, and Exchange Traded Managed Funds (“ETMFs”) are earned based on predetermined percentages of the average net assets of the individual funds and are recognized as revenues as the related services are performed.  Fees for open-end funds, one non-U.S. closed-end fund, sub-advisory accounts, SICAVs, and ETMFs are computed on a daily basis on average net assets under management (“AUM”).  Fees for U.S. closed-end funds are computed on average weekly net AUM, and fees for one non-U.S. closed-end fund are computed on a daily basis based on market value.  These fees are received in cash after the end of each monthly period within 30 days.  The revenue recognition occurs ratably as the performance obligation (advising the fund) is met continuously over time.  There is a risk of non-payment, and therefore an impairment loss on these receivables is possible at each reporting date.  There were no such impairment losses for the current period.

Advisory fees for Institutional & Private Wealth Management accounts are earned based on predetermined percentages of the AUM and are generally computed quarterly based on account values at the end of the preceding quarter.  The revenue recognition occurs daily as the performance obligation (advising the client portfolio) is met continuously.  These fees are received in cash, typically within 60 days of the client being billed.  There is a risk of non-payment, and therefore an impairment loss on these receivables is possible at each reporting date.  There were no such impairment losses for the current period.

Performance Correlated and Conditional Revenues

Investment advisory fees earned on a portion of the closed-end funds' preferred shares are earned at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares.  These fees are recognized at the end of the measurement period which coincides with the calendar year.  The fee would also be earned and the contract period ended at any interim point in time that the preferred shares are redeemed.  These fees are received in cash after the end of the measurement period, within 30 days.

We also receive incentive fees from certain institutional clients which are based upon exceeding a specific benchmark index.  These fees are recognized at the end of the stipulated contract period, which is generally annually, for the respective account.  The fee would also be earned and the contract period ended at any interim point in time that the client terminated its relationship with us.  These fees are received in cash after the end of the measurement period, typically within 60 days.

11

One fund within the SICAV structure charges a performance fee.  That fee is recognized at the end of the measurement period which coincides with the calendar year.  The fee would also be earned and the measurement period ended at any interim point in time that the client redeemed their shares.  That fee is received in cash after the end of the measurement period, within 30 days.

We also receive conditional fees from certain institutional clients which are based upon exceeding a defined return for these accounts.  These fees are recognized at the end of the stipulated contract period, which is generally annually, for the respective account.  The fee would also be earned and the contract period ended at any interim point in time that the client terminated its relationship with us.  These fees are received in cash after the end of the measurement period, typically within 60 days.

In all cases of the performance correlated and conditional revenue, because of the variable nature of the consideration, revenue recognition is delayed until it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, which is generally when the uncertainty associated with the variable consideration is subsequently resolved (for example, the measurement period has concluded and the hurdle has been exceeded).  There is a risk of non-payment, and therefore an impairment loss on these receivables is possible at each reporting date.  There were no such impairment losses for the current period.

Distribution Fees and Other Income

Distribution fees and other income primarily includes distribution fee revenue earned in accordance with Rule 12b-1 of the Company Act, as amended, along with sales charges and underwriting fees associated with the sale of the mutual funds.  Distribution plan fees are computed based on average daily net assets of each fund and are accrued for during the period in which they are earned.  These fees are received in cash after the end of each monthly period within 30 days.  In evaluating the appropriate timing of the recognition of these fees, we applied the guidance on up-front fees to determine whether such fees are related to the transfer of a promised service (a distinct performance obligation).  Our conclusion is that the service being provided by G.distributors to the customer in exchange for the fee is for the initial distribution of the funds and is completed at the time of the sale.  Any fixed amounts are recognized on the trade date, and variable amounts are recognized to the extent it is probable that a significant revenue reversal will not occur once the uncertainty is resolved. For variable amounts, as the uncertainty is dependent on the value of the shares at future points in time as well as the length of time the investor remains in the fund, both of which are highly susceptible to factors outside the Company’s influence, the Company does not believe that it can overcome this constraint until the market value of the fund and the investor activities are known, which are usually monthly.  Sales charges and underwriting fees associated with the sale of the mutual funds are recognized on the trade date of the sale of the shares.  There is a risk of non-payment, and therefore an impairment loss on these receivables is possible at each reporting date.  There were no such impairment losses for the current period.

Revenue Disaggregated

The following table presents our revenue disaggregated by account type:

   
Three Months Ended March 31,
 
   
2019
   
2018
 
Advisory Fees:
           
Open-end Funds
 
$
26,925
   
$
31,834
 
Closed-end Funds
   
15,789
     
17,145
 
Sub-advisory accounts
   
935
     
1,092
 
Institutional & Private Wealth Management
   
20,726
     
25,965
 
SICAVs
   
1,335
     
1,289
 
Performance-based
   
178
     
23
 
Distribution and other income
   
8,448
     
10,149
 
Total revenues
 
$
74,336
   
$
87,497
 

C.  Investment in Securities

Effective with the Company’s adoption of ASU 2016-01 on January 1, 2018, the Company carries all investments in equity securities at fair value through net income (“FVTNI”) which approximates market value.  The Company has no securities that qualify for the equity method or for consolidation of the investee for which the Company has elected the practicality exception to fair value measurement.

12

Investments in securities at March 31, 2019, December 31, 2018 and March 31, 2018 consisted of the following:

   
March 31, 2019
   
December 31, 2018
   
March 31, 2018
 
         
Estimated
         
Estimated
         
Estimated
 
   
Cost
   
Market Value
   
Cost
   
Market Value
   
Cost
   
Market Value
 
   
(In thousands)
 
Securities carried at FVTNI:
                         
Common stocks
 
$
40,562
   
$
30,408
   
$
38,865
   
$
32,414
   
$
17,467
   
$
31,291
 
Closed-end funds
   
1,181
     
1,173
     
1,414
     
1,337
     
99
     
105
 
Mutual funds
   
44
     
42
     
44
     
38
     
12
     
11
 
Total securities carried at FVTNI
 
$
41,787
   
$
31,623
   
$
40,323
   
$
33,789
   
$
17,578
   
$
31,407
 

There were no securities sold, not yet purchased at March 31, 2019, December 31, 2018 and March 31, 2018.

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.   Securities carried at FVTNI for the March 31, 2019, December 31, 2018, and March 31, 2018 period-end are stated at fair value, with any unrealized gains or losses reported in current period earnings.

D. 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 March 31, 2019, December 31, 2018 and March 31, 2018 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 March 31, 2019 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2019
 
Cash equivalents
 
$
63,985
   
$
-
   
$
-
   
$
63,985
 
Investments in securities:
                               
Common stocks
   
30,408
     
-
     
-
     
30,408
 
Closed-end Funds
   
1,173
     
-
     
-
     
1,173
 
Mutual Funds
   
42
     
-
     
-
     
42
 
Total investments in securities
   
31,623
     
-
     
-
     
31,623
 
Total assets at fair value
 
$
95,608
   
$
-
   
$
-
   
$
95,608
 


Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2018 (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)
   
2018
 
Cash equivalents
 
$
40,905
   
$
-
   
$
-
   
$
40,905
 
Investments in securities:
                               
Common stocks
   
32,414
     
-
     
-
     
32,414
 
Closed-end Funds
   
1,337
     
-
     
-
     
1,337
 
Mutual Funds
   
38
     
-
     
-
     
38
 
Total investments in securities
   
33,789
     
-
     
-
     
33,789
 
Total assets at fair value
 
$
74,694
   
$
-
   
$
-
   
$
74,694
 


13

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2018 (in thousands)

   
Quoted Prices in Active
   
Significant Other
   
Significant
   
Balance as of
 
   
Markets for Identical
   
Observable
   
Unobservable
   
March 31,
 
Assets
 
Assets (Level 1)
   
Inputs (Level 2)
   
Inputs (Level 3)
   
2018
 
Cash equivalents
 
$
27,034
   
$
-
   
$
-
   
$
27,034
 
Investments in securities:
                               
Common stocks
   
31,291
     
-
     
-
     
31,291
 
Closed-end Funds
   
105
     
-
     
-
     
105
 
Mutual Funds
   
11
     
-
     
-
     
11
 
Total investments in securities
   
31,407
     
-
     
-
     
31,407
 
Total assets at fair value
 
$
58,441
   
$
-
   
$
-
   
$
58,441
 

During the quarters ended March 31, 2019 and 2018, there were no transfers between any Level 1 and Level 2 holdings, or between Level 1 and Level 3 holdings.

E. Income Taxes
 
The effective tax rate (ETR) for the three months ended March 31, 2019 and March 31, 2018 was 25.7% and 22.6%, respectively.  The ETR for the first quarter of 2019 included an accrual of $1.5 million related to an adjustment in an uncertain tax position.  The ETR absent this accrual was 20.4%.

F. Earnings Per Share

The computations of basic and diluted net income per share are as follows:

 
 
Three Months Ended March 31,
 
(In thousands, except per share amounts)
 
2019
   
2018
 
Basic:
           
Net income
 
$
19,892
   
$
27,261
 
Weighted average shares outstanding
   
28,507
     
28,916
 
                 
Basic net income
 
$
0.70
   
$
0.94
 
 
               
Diluted:
               
Net income
 
$
19,892
   
$
27,261
 
 
               
Weighted average shares outstanding
   
28,507
     
28,916
 
Restricted stock awards
   
32
     
-
 
Total
   
28,539
     
28,916
 
 
               
Diluted net income
 
$
0.70
   
$
0.94
 

G. Debt

Debt consists of the following:

   
March 31, 2019
   
December 31, 2018
   
March 31, 2018
 
   
Carrying
   
Fair Value
   
Carrying
   
Fair Value
   
Carrying
   
Fair Value
 
   
Value
   
Level 2
   
Value
   
Level 2
   
Value
   
Level 2
 
(In thousands)
                                   
AC 4% PIK Note
 
$
-
   
$
-
   
$
-
   
$
-
   
$
40,000
   
$
39,860
 
5.875% Senior notes
   
24,174
     
24,020
     
24,168
     
23,061
     
24,150
     
23,742
 
Total
 
$
24,174
   
$
24,020
   
$
24,168
   
$
23,061
   
$
64,150
   
$
63,602
 


14

AC 4% PIK Note

In connection with the Spin-off of Associated Capital Group, Inc. (“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 bore interest at 4.0% per annum.  The original principal amount had a maturity date of November 30, 2020.  The Company was, under the terms of the note, able to prepay the AC 4% PIK Note (in whole or in part) prior to maturity without penalty.

During the three months ended March 31, 2018, the Company prepaid $10 million of principal of the AC 4% PIK Note against the principal amount due on November 30, 2020.  The AC 4% PIK Note was fully repaid on August 28, 2018 prior to maturity without penalty.

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 March 31, 2019, December 31, 2018 and March 31, 2018, the debt was recorded at its face value, net of issuance costs, of $24.2 million, $24.2 million and $24.2 million, respectively.

The Company’s debt, which is a Level 2 valuation, is carried at amortized cost on the condensed consolidated statements of financial position.  The Company has not elected the fair value option for its debt, and, therefore, the provisions of ASU 2016-01 (adopted by the Company on January 1, 2018) related to instrument-specific credit risk are not applicable.

H. Stockholders Equity
 
Shares outstanding were 28.9 million, 29.0 million and 28.9 million on March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

Dividends

   
Record
 
Payment
   
   
Date
 
Date
 
Amount
             
Three months ended March 31, 2019
 
April 16, 2019
 
April 30, 2019
  $
0.02
Three months ended March 31, 2018
 
March 13, 2018
 
March 27, 2018
  $
0.02

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 one Plan approved by the shareholders, which is 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 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 7.5 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 (“Compensation Committee”). Under the Plan, the committee may grant restricted stock awards (“RSAs”) and either incentive or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price that the committee may determine.

On January 5, 2018, the Compensation Committee of GBL accelerated the vesting relating to the remaining 19,400 RSAs outstanding at that time.  As a result, GBL recorded an incremental $0.2 million of stock-based compensation expense during the first quarter of 2018.

15

On April 4, 2018, 270,500 RSAs were issued at a grant price of $24.77.  On August 7, 2018, 162,450 RSAs were issued at a grant price of $25.16.  On September 17, 2018, 5,000 RSAs were issued at a grant price of $25.74.  As of March 31, 2019, there were 425,150 of these RSA shares outstanding with a weighted average grant price of $24.93.There were no RSAs outstanding as of March 31, 2018. 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.

 During the three months ended March 31, 2018, the Company reduced previously recorded tax benefits relating to RSA expense by $0.1 million on RSAs that vested.  There were no RSAs that vested for the three months ended March 31, 2019.

For the three months ended March 31, 2019 and March 31, 2018, we recognized stock-based compensation expense of $0.6 million and $0.2 million, respectively.

Actual and projected stock-based compensation expense for RSA shares for the years ended December 31, 2018 through December 31, 2023 is as follows (in thousands):

     
2018
   
2019
   
2020
   
2021
   
2022
   
2023
 
 
Q1
   
$
187
   
$
577
   
$
577
   
$
577
   
$
330
   
$
329
 
 
Q2
     
354
     
577
     
577
     
426
     
330
     
128
 
 
Q3
     
501
     
577
     
577
     
362
     
329
     
43
 
 
Q4
     
577
     
577
     
577
     
330
     
329
     
-
 
Full Year
   
$
1,619
   
$
2,308
   
$
2,308
   
$
1,695
   
$
1,318
   
$
500
 

The total compensation costs related to non-vested RSAs not yet recognized is approximately $7.6 million as of March 31, 2019.

Stock Repurchase Program
 
In March 1999, GAMCOs Board of Directors established the Stock Repurchase Program to grant management the authority to repurchase shares of our Class A Common Stock.  For the three months ended March 31, 2019, the Company repurchased 126,354 shares at an average price per share of $20.15.  At March 31, 2019, the total shares available under the program to be repurchased in the future were 738,456.

Shelf Registration

In April 2018, the SEC declared effective the Company’s “shelf” registration statement on Form S-3 giving the Company the flexibility to sell any combination of senior and subordinate debt securities, convertible debt securities and equity securities (including common and preferred securities) up to a total amount of $500 million.  The shelf is available through April 2021, at which time it may be renewed.

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 in the condensed consolidated statements of financial condition at March 31, 2019, December 31, 2018 and March 31, 2018. 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 2020. 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 in the condensed consolidated statement of financial condition at March 31, 2019, December 31, 2018 and March 31, 2018.  The advisory contracts for the Bancroft Fund Ltd. and the Ellsworth Growth and Income Fund Ltd. are next up for renewal in August 2019. 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 March 31, 2019 or March 31, 2018, and as such there was no impairment analysis performed or charge recorded.

16

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 exists 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 March 31, 2019.

K. Related Party Transactions

On February 23, 2018, the Chief Executive Officer of the Company elected to waive all of his compensation that he would have otherwise been entitled to for the period of March 1, 2018 through December 31, 2018.  On December 26, 2018, the CEO elected to continue to waive all of his compensation that he would otherwise have been entitled to for the period from January 1, 2019 to March 31, 2019.  For the three months ended March 31, 2019 and March 31, 2018, the waiver reduced compensation by $12.2 million and $4.9 million, respectively, and management fee by $1.7 million and $1.7 million, respectively.

L. Subsequent Events

On April 1, 2019, GAMCO and AC agreed to extend AC’s lease agreement, that expired on March 31, 2019, on the same terms and conditions on a month-to-month basis commencing on April 1, 2019.

On April 1, 2019, the deferred cash compensation agreement (“DCCA”) with the CEO covering compensation from the fourth quarter of 2017 vested in accordance with the terms of the agreement.  The CEO earned $15.5 million during the fourth quarter of 2017 resulting in the issuance of 530,662 RSUs based on the volume weighted average price (“VWAP”) of GBL stock over the fourth quarter of 2017.

Under the terms of the agreement, if the RSUs were settled in cash, the amount paid to the CEO upon vesting would be capped and calculated as the number of net RSUs vesting (530,662) valued at the lesser of the VWAP over the fourth quarter of 2017 or the VWAP on the date of vesting.  The Company elected to settle the DCCA in cash, as had been the stated intention at the time the DCCA was entered into, notwithstanding the Compensation Committee’s ability to settle it by issuing stock. This resulted in a cash payment of $11.0 million by the Company in April 2019, which, because of the cap, was $4.5 million less than what he had been entitled to receive absent the DCCA.

On April 16, 2019, GAMCO repurchased 1.2 million shares of GBL class A stock at $21.00 per share in a private transaction.  This transaction resulted in a 12.4% reduction in Class A shares outstanding from 9.8 million to 8.6 million and a 4.2% reduction in total shares outstanding from 28.8 million to 27.6 million.

From April 1, 2019 to May 7, 2019, and excluding the private transaction, the Company repurchased 29,484 shares at $20.90 per share.

On May 7, 2019, the Board of Directors declared its regular quarterly dividend of $0.02 per share to all of its shareholders, payable on June 25, 2019 to shareholders of record on June 11, 2019.

17

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)
 
Overview
 
GAMCO, through the Gabelli brand, well known for its Private Market Value (PMV) with a CatalystTM investment approach, is a widely-recognized provider of investment advisory services to open-end funds, closed-end funds, and institutional and private wealth management investors principally in the United States.  Through G.distributors, LLC (“G.distributors”), we provide distribution for open-end funds.  We generally manage assets on a fully discretionary basis and invest in a variety of U.S. and international securities through various investment styles including value, growth, non-market correlated, and convertible securities.  Our revenues are based primarily on the Company’s levels of assets under management and fees associated with our various investment products.
 
Our revenues are highly correlated to the level of assets under management and fees associated with our various investment products, rather than our own corporate assets.  Assets under management, which are influenced by the level and changes of the overall equity markets, can also fluctuate through acquisitions, the creation of new products, the addition of new accounts, or the loss of existing accounts.  Since various equity products have different fees, changes in our business mix may also affect revenues.  At times, the performance of our equity products may differ markedly from popular market indices, and this can also impact our revenues.  General stock market trends will have an impact on our level of assets under management and hence, on revenues.

We conduct our investment advisory business principally through the following subsidiaries: GAMCO Asset Management Inc. (Institutional and Private Wealth Management) and Gabelli Funds, LLC (Funds).  The distribution of our open-end funds is conducted through G.distributors, our broker-dealer subsidiary.

Assets under management (“AUM”) were $37.3 billion as of March 31, 2019, an increase of $2.9 billion, or 8.4%, from the December 31, 2018 AUM of $34.4 billion and a decrease of $3.6 billion, or 8.8%, from the March 31, 2018 AUM of $40.9 billion.  The first quarter 2019 activity consisted of $3.7 billion of market appreciation partially reduced by net cash outflows of $685 million and recurring distributions, net of reinvestments, from open-end and closed-end funds of $136 million.  Average total AUM was $36.8 billion in the 2019 quarter versus $42.5 billion in the prior year period, a decrease of 13.4%.

In addition to management fees, we earn incentive fees for certain institutional client assets, certain assets attributable to preferred issues of our closed-end funds, two closed-end funds, and one SICAV.  As of March 31, 2019, assets under management with incentive based fees were $1.8 billion, $0.9 billion less than the $2.7 billion on March 31, 2018. 
18

The Company reported Assets Under Management as follows (in millions):

Table I: Fund Flows - 1st Quarter 2019

                     
Fund
       
         
Market
         
distributions,
       
   
December 31,
   
appreciation/
   
Net cash
   
net of
   
March 31,
 
 
 
2018
   
(depreciation)
   
flows
   
reinvestments
   
2019
 
Equities:
                             
Open-end Funds
 
$
10,589
   
$
1,190
   
$
(319
)
 
$
(8
)
 
$
11,452
 
Closed-end Funds
   
6,959
     
725
     
(6
)
   
(128
)
   
7,550
 
Institutional & PWM
   
14,078
     
1,803
     
(638
)
   
-
     
15,243
 
SICAV
   
507
     
8
     
7
     
-
     
522
 
Total Equities
   
32,133
     
3,726
     
(956
)
   
(136
)
   
34,767
 
Fixed Income:
                                       
100% U.S. Treasury Fund
   
2,195
     
14
     
278
     
-
     
2,487
 
Institutional & PWM
   
26
     
-
     
(7
)
   
-
     
19
 
Total Fixed Income
   
2,221
     
14
     
271
     
-
     
2,506
 
Total Assets Under Management
 
$
34,354
   
$
3,740
   
$
(685
)
 
$
(136
)
 
$
37,273
 

Table II: Assets Under Management by Quarter

                     
% Change From
 
   
March 31,
   
December 31,
   
March 31,
   
December 31,
   
March 31,
 
 
 
2019
   
2018
   
2018
   
2018
   
2018
 
Equities:
                             
Open-end Funds
 
$
11,452
   
$
10,589
   
$
12,964
     
8.2
%
   
(11.7
%)
Closed-end Funds
   
7,550
     
6,959
     
7,768
     
8.5
     
(2.8
)
Institutional & PWM
   
15,243
     
14,078
     
17,643
     
8.3
     
(13.6
)
SICAV
   
522
     
507
     
527
     
3.0
     
(0.9
)
Total Equities
   
34,767
     
32,133
     
38,902
     
8.2
     
(10.6
)
Fixed Income:
                                       
100% U.S. Treasury Fund
   
2,487
     
2,195
     
1,922
     
13.3
     
29.4
 
Institutional & PWM
   
19
     
26
     
30
     
(26.9
)
   
(36.7
)
Total Fixed Income
   
2,506
     
2,221
     
1,952
     
12.8
     
28.4
 
Total Assets Under Management
 
$
37,273
   
$
34,354
   
$
40,854
     
8.5
     
(8.8
)
Institutional & PWM includes $251 million, $247 million and $212 million of Money Market Fund AUM at March 31, 2019,
December 31, 2018 and March 31, 2018, respectively.
19

DEFERRED COMPENSATION

As previously disclosed, the Company has deferred the cash compensation of the Chief Executive Officer relating to all of 2016 (“2016 DCCA”), the first half of 2017 (“First Half 2017 DCCA”), and the fourth quarter of 2017 (“Fourth Quarter 2017 DCCA”) to provide the Company with flexibility to pay down debt and enhance our ability to execute lift-outs, make acquisitions, and seed new products.  We have made substantial progress toward this objective, having reduced our debt since the November 2015 spin-off of AC, resulting in Standard & Poor’s July 2018 reaffirmation of our investment grade rating of BBB- and stable outlook.

Notwithstanding its ability to settle these agreements in stock, GAMCO currently intends to make a cash payment to Mr. Gabelli on the respective vesting date.  While the agreements did not change Mr. Gabelli’s compensation, generally accepted accounting principles (“GAAP”) reporting for his compensation did change due to the ratable vesting.

The DCCAs defer the Chief Executive Officer’s compensation expense by amortizing it over each DCCA’s respective vesting period.  The Chief Executive Officer is not entitled to receive the compensation until the end of the vesting period, so GAAP specify this treatment of the expense.  The 2016 DCCA is expensed ratably over 4 years, the First Half 2017 DCCA was expensed ratably over 18 months, and the Fourth Quarter 2017 DCCA was expensed ratably over 18 months.

Because the GAAP reporting of the DCCAs granted to the CEO tracks vesting, compensation expense and management fee expense in the year of grant is lower than compensation expense and management fee expense in future periods to the extent that future periods contain the vesting of the prior year’s DCCA compensation in addition to normal non-deferred compensation for the current year period.  In 2016, the full amount of the compensation was deferred, and expense was recorded for the 25% vesting in that year.  In the first six months of 2017, the ratable vesting continued for the 2016 compensation, and the new First Half 2017 DCCA grant resulted in compensation for the first six months of 2017 being deferred and expense being recorded for 33% vesting in that period.  The CEO’s third quarter 2017 compensation was not deferred so 100% of the CEO’s compensation for that period was recorded together with the ratable portions of the vestings of the 2016 DCCA and the First Half 2017 DCCA.  This results in a compounding effect in future periods when non-deferred current period compensation and prior period deferred compensation is ratably vested.  On May 23, 2018, the CEO waived receipt of $6 million of the First Half 2017 DCCA, and a reduction in expense was recognized. On July 2, 2018, the First Half 2017 DCCA vested in accordance with the terms of the agreement and a cash payment in the amount of $28.3 million was made to the CEO.  On April 1, 2019, the Fourth Quarter 2017 DCCA vested in accordance with the terms of the agreement, and a cash payment in the amount of $11.0 million was made to the CEO.

Accordingly, this vesting schedule resulted in a $13.0 million increase in compensation expense in the first quarter 2019 versus the comparable 2018 period’s amounts as well as a $1.4 million decrease in management fee expense in the first quarter 2019 as compared to the 2018 period’s amounts.

The following tables show the amortization and EPS impact of the DCCAs by quarter.  The amortization amount of future periods assumes that the stock price of GBL of $20.50 is unchanged from March 31, 2019.  For every $1.00 change in the GBL stock price, up to a GBL stock price of $32.8187, the 2016 DCCA would increase by $2,314,695.

Amortization by quarter (increase / (decrease)):
   
EPS impact by quarter:
 
   
2017
   
2018
   
2019
   
2020
       
2017
   
2018
   
2019
   
2020
 
   
(amounts in thousands)
                 
 
Q1
   
$
(8,126
)
 
$
979
   
$
12,615
   
$
-
     
Q1
   
$
0.16
   
$
(0.03
)
 
$
(0.34
)
 
$
-
 
 
Q2
     
(7,389
)
   
11,232
     
2,966
     
-
     
Q2
     
0.15
     
(0.29
)
   
(0.07
)
   
-
 
 
Q3
     
9,805
     
183
     
2,966
     
-
     
Q3
     
(0.20
)
   
-
     
(0.07
)
   
-
 
 
Q4
     
(1,857
)
   
(8,764
)
   
2,966
     
-
     
Q4
     
0.04
     
0.23
     
(0.07
)
   
-
 
Year
   
$
(7,567
)
 
$
3,630
   
$
21,513
   
$
-
   
Year
   
$
0.15
   
$
(0.09
)
 
$
(0.55
)
 
$
-
 

The GAAP based balance sheets are also impacted as only the vested portion of the compensation subject to the DCCAs is included in compensation payable.  At March 31, 2019, the amount of unrecognized compensation was $8.9 million.

The following tables show a reconciliation of our results for the three months ended March 31, 2019 and 2018 and our balance sheet at March 31, 2019 between the GAAP basis and a non-GAAP adjusted basis as if all of the 2016 DCCA was recognized in 2016, and the First Half 2017 DCCA and the Fourth Quarter 2017 DCCA expense were recognized in 2017 without regard to the vesting schedule.  We believe the non-GAAP financial measures below provide relevant and meaningful information to investors about our core operating results.  These measures have been established in order to increase transparency for the purpose of evaluating our core business, for comparing results with prior period results, and to enable more appropriate comparisons with industry peers.  However, non-GAAP financial measures should not be considered a substitute for financial measures calculated in accordance with U.S. GAAP and may be calculated differently by other companies.  The following schedules reconcile U.S. GAAP financial measures to non-GAAP measures for the three months ended March 31, 2019 and 2018 as well as at March 31, 2019.

20

   
Three Months Ended March 31, 2019
 
         
Impact of
             
   
Reported
   
Fourth Quarter
   
Impact of
       
   
GAAP
   
2017 DCCA
   
2016 DCCA
   
Non-GAAP
 
Revenues
                       
Investment advisory and incentive fees
 
$
65,888
   
$
-
   
$
-
   
$
65,888
 
Distribution fees and other income
   
8,448
     
-
     
-
     
8,448
 
Total revenues
   
74,336
     
-
     
-
     
74,336
 
Expenses
                               
Compensation
   
30,347
     
(2,983
)
   
(8,184
)
   
19,180
 
Management fee
   
1,449
     
(419
)
   
(1,030
)
   
-
 
Distribution costs
   
8,670
     
-
     
-
     
8,670
 
Other operating expenses
   
5,257
     
-
     
-
     
5,257
 
Total expenses
   
45,723
     
(3,402
)
   
(9,214
)
   
33,107
 
                                 
Operating income
   
28,613
     
3,402
     
9,214
     
41,229
 
Other income (expense)
                               
Net gain (loss) from investments
   
(1,895
)
   
-
     
-
     
(1,895
)
Interest and dividend income
   
724
     
-
     
-
     
724
 
Interest expense
   
(655
)
   
-
     
-
     
(655
)
Total other expense, net
   
(1,826
)
   
-
     
-
     
(1,826
)
Income before income taxes
   
26,787
     
3,402
     
9,214
     
39,403
 
Income tax provision
   
6,895
     
816
     
2,211
     
9,922
 
Net income
 
$
19,892
   
$
2,586
   
$
7,003
   
$
29,481
 
                                 
Net income:
                               
Basic
 
$
0.70
   
$
0.09
   
$
0.25
   
$
1.03
 
Diluted
   
0.70
     
0.09
     
0.25
     
1.03
 


   
Three Months Ended March 31, 2018
 
         
Impact of
   
Impact of
             
   
Reported
   
Fourth Quarter
   
First Half
   
Impact of
       
   
GAAP
   
2017 DCCA
   
2017 DCCA
   
2016 DCCA
   
Non-GAAP
 
Revenues
                             
Investment advisory and incentive fees
 
$
77,348
   
$
-
   
$
-
   
$
-
   
$
77,348
 
Distribution fees and other income
   
10,149
     
-
     
-
     
-
     
10,149
 
Total revenues
   
87,497
     
-
     
-
     
-
     
87,497
 
Expenses
                                       
Compensation
   
25,950
     
(1,391
)
   
213
     
3,016
     
27,788
 
Management fee
   
4,634
     
(419
)
   
(1,368
)
   
(1,030
)
   
1,817
 
Distribution costs
   
10,204
     
-
     
-
     
-
     
10,204
 
Other operating expenses
   
5,453
     
-
     
-
     
-
     
5,453
 
Total expenses
   
46,241
     
(1,810
)
   
(1,155
)