UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

x

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2015

OR

¨

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

FOR THE TRANSITION PERIOD FROM                      TO                    

Commission file number: 001-35733

 

Silvercrest Asset Management Group Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

45-5146560

(State or other jurisdiction

of incorporation)

 

(I.R.S. Employer

Identification No.)

1330 Avenue of the Americas, 38th Floor

New York, New York 10019

(Address of principal executive offices and zip code)

(212) 649-0600

(Registrant’s telephone number, including area code)

Not Applicable

(Formed name, former address and former fiscal year, if changed since last report)

 

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  x    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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, as of November 3, 2015 was 7,912,633 and 4,772,130, respectively.

 

 

 

 


 

Part I

 

Financial Information

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

  

1

 

 

Condensed Consolidated Statements of Financial Condition as of September 30, 2015 and December 31, 2014

  

1

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014

  

2

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2015 and 2014

  

3

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014

  

4

 

 

Notes to Condensed Consolidated Financial Statements as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014

  

6

 

 

 

  

 

Item 2.

 

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

  

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

48

Item 4.

 

Controls and Procedures

  

48

 

Part II 

 

Other Information

  

 

Item 1.

 

Legal Proceedings

  

49

Item 6.

 

Exhibits

  

50

 

 

 


Except where the context requires otherwise and as otherwise set forth herein, in this report, references to the “Company”, “we”, “us” or “our” refer to Silvercrest Asset Management Group Inc. (“Silvercrest”) and its consolidated subsidiary, Silvercrest L.P., the managing member of our operating subsidiary (“Silvercrest L.P.” or “SLP”). SLP is a limited partnership whose existing limited partners are referred to in this report as “principals”.

Forward-Looking Statements

This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions, may include projections of our future financial performance, future expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in our business or financial results. These statements are only predictions based on our current expectations and projections about future events. Important factors that could cause actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements include but are not limited to: incurrence of net losses, fluctuations in quarterly and annual results, adverse economic or market conditions, our expectations with respect to future levels of assets under management, inflows and outflows, our ability to retain clients from whom we derive a substantial portion of our assets under management, our ability to maintain our fee structure, our particular choices with regard to investment strategies employed, our ability to hire and retain qualified investment professionals, the cost of complying with current and future regulation, coupled with the cost of defending ourselves from related investigations or litigation, failure of our operational safeguards against breaches in data security, privacy, conflicts of interest or employee misconduct, our expected tax rate, and our expectations with respect to deferred tax assets,  adverse economic or market conditions, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Silvercrest brand and other factors disclosed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2014 which is accessible on the SEC’s website at www.sec.gov.  We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

 

 

 

 


Part I – Financial Information

 

Item 1. Financial Statements

Silvercrest Asset Management Group Inc.

Condensed Consolidated Statements of Financial Condition

(Unaudited)

(In thousands, except share and par value data)

 

 

  

September 30,
2015

 

  

December 31,
2014

 

Assets

  

 

 

 

  

 

 

 

Cash

  

$

26,080

  

  

$

30,820

  

Restricted certificates of deposit

  

 

587

  

  

 

586

  

Investments

  

 

15

  

  

 

1,307

  

Receivables, net

  

 

4,003

  

  

 

4,534

  

Due from Silvercrest Funds

  

 

3,039

  

  

 

3,797

  

Furniture, equipment and leasehold improvements, net

  

 

2,535

  

  

 

2,354

  

Goodwill

  

 

24,686

  

  

 

20,008

  

Intangible assets, net

  

 

15,833

  

  

 

11,167

  

Deferred tax asset—tax receivable agreement

  

 

22,286

  

  

 

23,000

 

Prepaid expenses and other assets

  

 

2,882

  

  

 

2,123

  

Total assets

  

$

101,946

  

  

$

99,696

  

Liabilities and Stockholders’ Equity

  

 

 

 

  

 

 

 

Accounts payable and accrued expenses

  

$

3,760

  

  

$

3,291

  

Accrued compensation

  

 

16,482

  

  

 

21,758

  

Notes payable

  

 

5,152

  

  

 

4,124

  

Borrowings under revolving credit facility

  

 

  

  

 

24

 

Deferred rent

  

 

972

  

  

 

1,299

  

Deferred tax and other liabilities

  

 

16,042

  

  

 

16,138

  

Total liabilities

  

 

42,408

  

  

 

46,634

  

Commitments and Contingencies (Note 10)

  

 

 

 

  

 

 

 

Stockholders’ Equity

  

 

 

 

  

 

 

 

Preferred Stock, par value $0.01, 10,000,000 shares authorized; none issued and outstanding, as of September 30, 2015 and December 31, 2014

  

 

 

  

 

 

Class A common stock, par value $0.01, 50,000,000 shares authorized; 7,912,633 and 7,768,010 issued and outstanding, as of September 30, 2015 and December 31, 2014, respectively

  

 

79

  

  

 

78

 

Class B common stock, par value $0.01, 25,000,000 shares authorized; 4,772,130 and 4,520,413 issued and outstanding, as of September 30, 2015 and December 31, 2014, respectively

  

 

47

  

  

 

46

 

Additional Paid-In Capital

  

 

40,591

  

  

 

39,175

 

Retained earnings

  

 

4,843

  

  

 

3,217

 

Total stockholders’ equity

  

 

45,560

  

  

 

42,516

 

Non-controlling interests

  

 

13,978

  

  

 

10,546

 

Total equity

  

 

59,538

  

  

 

53,062

 

Total liabilities and stockholders’ equity

  

$

101,946

  

  

$

99,696

  

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

1


 

Silvercrest Asset Management Group Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management and advisory fees

 

$

19,117

 

 

$

16,816

 

 

$

53,492

 

 

$

48,487

 

Family office services

 

 

836

 

 

 

1,001

 

 

 

2,435

 

 

 

3,276

 

Total revenue

 

 

19,953

 

 

 

17,817

 

 

 

55,927

 

 

 

51,763

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

11,547

 

 

 

9,959

 

 

 

31,740

 

 

 

29,431

 

General and administrative

 

 

4,137

 

 

 

3,382

 

 

 

11,177

 

 

 

9,818

 

Total expenses

 

 

15,684

 

 

 

13,341

 

 

 

42,917

 

 

 

39,249

 

Income before other (expense) income, net

 

 

4,269

 

 

 

4,476

 

 

 

13,010

 

 

 

12,514

 

Other (expense) income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

8

 

 

 

8

 

 

 

1,013

 

 

 

16

 

Interest income

 

 

17

 

 

 

17

 

 

 

54

 

 

 

53

 

Interest expense

 

 

(77

)

 

 

(113

)

 

 

(191

)

 

 

(368

)

Total other (expense) income, net

 

 

(52

)

 

 

(88

)

 

 

876

 

 

 

(299

)

Income before provision for income taxes

 

 

4,217

 

 

 

4,388

 

 

 

13,886

 

 

 

12,215

 

Provision for income taxes

 

 

1,434

 

 

 

1,465

 

 

 

4,966

 

 

 

4,253

 

Net income

 

 

2,783

 

 

 

2,923

 

 

 

8,920

 

 

 

7,962

 

Less: net income attributable to non-controlling interests

 

 

(1,457

)

 

 

(1,565

)

 

 

(4,470

)

 

 

(4,309

)

Net income attributable to Silvercrest

 

$

1,326

 

 

$

1,358

 

 

$

4,450

 

 

$

3,653

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

 

$

0.18

 

 

$

0.57

 

 

$

0.48

 

Diluted

 

$

0.17

 

 

$

0.18

 

 

$

0.57

 

 

$

0.48

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,876,930

 

 

 

7,583,911

 

 

 

7,823,618

 

 

 

7,544,443

 

Diluted

 

 

7,876,930

 

 

 

7,583,911

 

 

 

7,823,618

 

 

 

7,544,443

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

2


 

Silvercrest Asset Management Group Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands)

 

 

 

Class A
Common
Stock
Shares

 

 

Class A
Common
Stock
Amount

 

 

Class B
Common
Stock
Shares

 

 

Class B
Common
Stock
Amount

 

 

Additional
Paid-In
Capital

 

 

Retained
Earnings

 

 

Total
Stockholders’
Equity

 

 

Non-
controlling
Interest

 

 

Total
Equity

 

January 1, 2014

 

 

7,523

 

 

$

75

 

 

 

4,465

 

 

$

45

 

 

$

39,003

 

 

$

2,099

 

 

$

41,222

 

 

$

6,943

 

 

$

48,165

 

Distributions to partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,244

)

 

 

(5,244

)

Redemptions of partners’ interests

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(376

)

 

 

(376

)

Repayment of notes receivable from partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

833

 

 

 

833

 

Equity-based compensation

 

 

 

 

 

 

 

 

264

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

1,444

 

 

 

1,447

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,653

 

 

 

3,653

 

 

 

4,309

 

 

 

7,962

 

Accrued interest on notes receivable from partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47

)

 

 

(47

)

Share conversion

 

 

136

 

 

 

2

 

 

 

(136

)

 

 

(2

)

 

 

319

 

 

 

 

 

 

319

 

 

 

(296

)

 

 

23

 

Deferred tax, net of amounts payable under tax receivable agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(185

)

 

 

 

 

 

(185

)

 

 

 

 

 

(185

)

Dividends paid on Class A common stock - $0.36
per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,724

)

 

 

(2,724

)

 

 

 

 

 

(2,724

)

September 30, 2014

 

 

7,658

 

 

$

77

 

 

 

4,570

 

 

$

46

 

 

$

39,137

 

 

$

3,028

 

 

$

42,288

 

 

$

7,566

 

 

$

49,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2015

 

 

7,768

 

 

$

78

 

 

 

4,520

 

 

$

46

 

 

$

39,175

 

 

$

3,217

 

 

$

42,516

 

 

$

10,546

 

 

$

53,062

 

Distributions to partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,571

)

 

 

(5,571

)

Repayment of notes receivable from partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

481

 

 

 

481

 

Equity-based compensation

 

 

 

 

 

 

 

 

127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

980

 

 

 

980

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,450

 

 

 

4,450

 

 

 

4,470

 

 

 

8,920

 

Deferred tax, net of amounts payable under tax receivable agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

975

 

 

 

 

 

 

975

 

 

 

 

 

 

975

 

Accrued interest on notes receivable from partners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

(50

)

Share conversion

 

 

145

 

 

 

1

 

 

 

(134

)

 

 

(2

)

 

 

441

 

 

 

 

 

 

440

 

 

 

(440

)

 

 

 

Issuance of Class B shares in connection with the Jamison acquisition

 

 

 

 

 

 

 

 

259

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

3,562

 

 

 

3,565

 

Dividends paid on Class A common stock - $0.36
per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,824

)

 

 

(2,824

)

 

 

 

 

 

(2,824

)

September 30, 2015

 

 

7,913

 

 

$

79

 

 

 

4,772

 

 

$

47

 

 

$

40,591

 

 

$

4,843

 

 

$

45,560

 

 

$

13,978

 

 

$

59,538

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


Silvercrest Asset Management Group Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine months ended September 30,

 

 

 

2015

 

 

2014

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net income

 

$

8,920

 

 

$

7,962

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

716

 

 

 

848

 

Depreciation and amortization

 

 

1,678

 

 

 

1,489

 

Deferred rent

 

 

(346

)

 

 

(320

)

Provision for doubtful accounts

 

 

 

 

 

227

 

Deferred income taxes

 

 

2,396

 

 

 

1,830

 

Tax receivable agreement adjustment

 

 

(990

)

 

 

 

Non-cash interest on notes receivable from partners

 

 

(50

)

 

 

(47

)

Distributions received from investment funds

 

 

1,292

 

 

 

3

 

Other

 

 

3

 

 

 

4

 

Cash flows due to changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables and due from Silvercrest Funds

 

 

1,289

 

 

 

(175

)

Prepaid expenses and other assets

 

 

(614

)

 

 

1,682

 

Accounts payable and accrued expenses

 

 

(392

)

 

 

(2,280

)

Accrued compensation

 

 

(5,011

)

 

 

(1,250

)

Other liabilities

 

 

 

 

 

647

 

Interest payable on notes payable

 

 

156

 

 

 

249

 

Net cash provided by operating activities

 

 

9,047

 

 

 

10,869

 

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Restricted certificates of deposit and escrow

 

$

(1

)

 

$

435

 

Acquisition of furniture, equipment and leasehold improvements

 

 

(337

)

 

 

(337

)

Earn-outs paid related to acquisitions completed before January 1, 2009

 

 

 

 

 

(1,679

)

Acquisition of Jamison

 

 

(3,550

)

 

 

 

Net cash used in investing activities

 

 

(3,888

)

 

 

(1,581

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Earn-outs paid related to acquisitions completed on or after January 1, 2009

 

$

(570

)

 

$

(511

)

Redemptions of partners’ interests

 

 

 

 

 

(270

)

Repayments of notes payable

 

 

(1,316

)

 

 

(421

)

Payments on capital leases

 

 

(99

)

 

 

(38

)

Distributions to partners

 

 

(5,571

)

 

 

(5,244

)

Dividends paid on Class A common stock

 

 

(2,824

)

 

 

(2,724

)

Payments from partners on notes receivable

 

 

481

 

 

 

741

 

Net cash used in financing activities

 

 

(9,899

)

 

 

(8,467

)

Net (decrease)/increase in cash and cash equivalents

 

 

(4,740

)

 

 

821

 

Cash and cash equivalents, beginning of period

 

 

30,820

 

 

 

27,122

 

Cash and cash equivalents, end of period

 

$

26,080

 

 

$

27,943

 

4


Silvercrest Asset Management Group Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

(continued)

 

 

 

Nine months ended September 30,

 

 

  

2015

 

  

2014

 

Supplemental Disclosures of Cash Flow Information

  

 

 

 

  

 

 

 

Net cash paid during the period for:

  

 

 

 

  

 

 

 

Income taxes

  

$

3,361

  

  

$

4,308

 

Interest

  

 

114

 

  

 

133

 

Supplemental Disclosures of Non-cash Financing and Investing Activities

  

 

 

 

  

 

 

 

Common stock surrendered

 

$

 

 

$

92

 

Recognition of deferred tax assets as a result of IPO

 

 

 

 

 

11

 

Recognition of deferred tax assets as a result of share conversions

 

 

675

 

 

 

 

Asset acquired under capital lease

 

 

32

 

 

 

321

 

Issuance of notes payable related to acquisition of certain assets of Jamison

 

 

2,165

 

 

 

 

Issuance of Class B shares of Silvercrest L.P. in conjunction with the acquisition of certain assets of Jamison

 

 

3,562

 

 

 

 

Issuance of Class B shares of Silvercrest L.P. in conjunction with the acquisition of certain assets of Jamison, par value $1

 

 

3

 

 

 

 

Earnout accrual for acquisition of certain assets of Jamison

 

 

1,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

Silvercrest Asset Management Group Inc.

Notes to Condensed Consolidated Financial Statements

As of September 30, 2015 and December 31, 2014 and for the Three and Nine Months ended September 30, 2015 and 2014

(Unaudited)

(Dollars in thousands, except per share and par value data)

 

1. ORGANIZATION AND BUSINESS

Silvercrest Asset Management Group Inc. (“Silvercrest”), together with its consolidated subsidiary, Silvercrest L.P., a limited partnership, (collectively the “Company”), was formed as a Delaware corporation on July 11, 2011. Silvercrest was formed for the purpose of completing a public offering and related transactions in order to carry on the business of Silvercrest L.P., the managing member of our operating subsidiary, and its subsidiaries.  Effective on June 26, 2013, Silvercrest became the sole general partner of Silvercrest L.P. and its only material asset is the general partner interest in Silvercrest L.P., represented by 7,912,633 Class A units or approximately 62% of the outstanding interests of Silvercrest L.P. Effective June 26, 2013, Silvercrest controlled all of the businesses and affairs of Silvercrest L.P. and, through Silvercrest L.P. and its subsidiaries, continues to conduct the business previously conducted by these entities prior to the reorganization.

Silvercrest L.P., together with its consolidated subsidiaries (collectively “SLP”), provides investment management and family office services to individuals and families and their trusts, and to endowments, foundations and other institutional investors primarily located in the United States of America. The business includes the management of funds of funds and other investment funds, collectively referred to as the “Silvercrest Funds”.

Silvercrest L.P. was formed on December 10, 2008 and commenced operations on January 1, 2009.

On March 11, 2004, SAMG LLC acquired 100% of the outstanding shares of James C. Edwards Asset Management, Inc. (“JCE”) and subsequently changed JCE’s name to Silvercrest Financial Services, Inc. (“SFS”). On December 31, 2004, SLP acquired 100% of the outstanding shares of the LongChamp Group, Inc. (now SAM Alternative Solutions, Inc.) (“LGI”). Effective March 31, 2005, SLP entered into an Asset Contribution Agreement with and acquired all of the assets, properties, rights and certain liabilities of Heritage Financial Management, LLC (“HFM”). Effective October 3, 2008, SLP acquired 100% of the outstanding limited liability company interests of Marathon Capital Group, LLC (“MCG”) through a limited liability company interest purchase agreement dated September 22, 2008. On November 1, 2011, SLP acquired certain assets of Milbank Winthrop & Co. (“Milbank”). On April 1, 2012, SLP acquired 100% of the outstanding limited liability company interests of MW Commodity Advisors, LLC (“Commodity Advisors”). On March 28, 2013, SLP acquired certain assets of Ten-Sixty Asset Management, LLC (“Ten-Sixty”). On June 30, 2015, SLP acquired certain assets of Jamison, Eaton & Wood, Inc. (“Jamison”).  See Notes 3, 7 and 8 for additional information related to goodwill and intangible assets arising from these acquisitions.

Tax Receivable Agreement

In connection with the Company’s initial public offering (the “IPO”) and reorganization of SLP that were completed on June 26, 2013, Silvercrest entered into a tax receivable agreement (the “TRA”) with the partners of SLP that requires it to pay them 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that it actually realizes (or are deemed to realize in the case of an early termination payment by it, or a change in control) as a result of the increases in tax basis and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. The payments to be made pursuant to the tax receivable agreement are a liability of Silvercrest and not Silvercrest L.P., and thus this liability has been recorded as an “other liability” on our Condensed Consolidated Statement of Financial Condition.  As of September 30, 2015, this liability is estimated to be $15,317 and is included in deferred tax and other liabilities in the Condensed Consolidated Statements of Financial Condition. Silvercrest expects to benefit from the remaining 15% of cash savings, if any, realized.

The TRA was effective upon the consummation of the IPO and will continue until all such tax benefits have been utilized or expired, unless Silvercrest exercises its right to terminate the TRA for an amount based on an agreed upon value of the payments remaining to be made under the agreement. The TRA will automatically terminate with respect to Silvercrest’s obligations to a partner if a partner (i) is terminated for cause, (ii) breaches his or her non-solicitation covenants with Silvercrest or any of its subsidiaries or (iii) voluntarily resigns or retires and competes with Silvercrest or any of its subsidiaries in the 12-month period following resignation of employment or retirement, and no further payments will be made to such partner under the TRA.

For purposes of the TRA, cash savings in income tax will be computed by comparing Silvercrest’s actual income tax liability to the amount of such taxes that it would have been required to pay had there been no increase in its share of the tax basis of the tangible and intangible assets of SLP.

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Estimating the amount of payments that Silvercrest may be required to make under the TRA is imprecise by nature, because the actual increase in its share of the tax basis, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including:

 

·

the timing of exchanges of Silvercrest’s Class B units for shares of Silvercrest’s Class A common stock—for instance, the increase in any tax deductions will vary depending on the fair market value, which may fluctuate over time, of the depreciable and amortizable assets of SLP at the time of the exchanges;

 

·

the price of Silvercrest’s Class A common stock at the time of exchanges of Silvercrest’s Class B units—the increase in Silvercrest’s share of the basis in the assets of SLP, as well as the increase in any tax deductions, will be related to the price of Silvercrest’s Class A common stock at the time of these exchanges;

 

·

the extent to which these exchanges are taxable—if an exchange is not taxable for any reason (for instance, if a principal who holds Silvercrest’s Class B units exchanges units in order to make a charitable contribution), increased deductions will not be available;

 

·

the tax rates in effect at the time Silvercrest utilizes the increased amortization and depreciation deductions; and

 

·

the amount and timing of Silvercrest’s income—Silvercrest will be required to pay 85% of the tax savings, as and when realized, if any. If Silvercrest does not have taxable income, it generally will not be required to make payments under the TRA for that taxable year because no tax savings will have been actually realized.

In addition, the TRA provides that, upon certain mergers, asset sales, other forms of business combinations or other changes of control, Silvercrest’s (or its successors’) obligations with respect to exchanged or acquired Silvercrest’s Class B units (whether exchanged or acquired before or after such transaction) would be based on certain assumptions, including that Silvercrest would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the TRA.

Decisions made by the continuing partners of SLP in the course of running Silvercrest’s business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by an exchanging or selling principal under the TRA. For example, the earlier disposition of assets following an exchange or acquisition transaction will generally accelerate payments under the TRA and increase the present value of such payments, and the disposition of assets before an exchange or acquisition transaction will increase an existing owner’s tax liability without giving rise to any rights of a principal to receive payments under the TRA.

Were the Internal Revenue Service to successfully challenge the tax basis increases described above, Silvercrest would not be reimbursed for any payments previously made under the TRA. As a result, in certain circumstances, Silvercrest could make payments under the TRA in excess of its actual cash savings in income tax.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of Silvercrest and SLP, including its wholly owned subsidiaries, Silvercrest Asset Management Group LLC (“SAMG”), SFS, MCG, Silvercrest Investors LLC, Silvercrest Investors II LLC and Silvercrest Investors III LLC as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014.  All intercompany transactions and balances have been eliminated.

The Condensed Consolidated Statement of Financial Condition at December 31, 2014 was derived from the audited Consolidated Statement of Financial Condition at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.  The results of operations for the three and nine months ended September 30, 2015 and 2014 are not necessarily indicative of the operating results that may be expected for the full fiscal year ending December 31, 2015 and 2014 or any future period.

The Condensed Consolidated Financial Statements of the Company included herein are unaudited and have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the interim financial position and results, have been made. The Company’s Condensed Consolidated Financial Statements and the related notes should be read together with the Consolidated Financial Statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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The Company evaluates for consolidation those entities it controls through a majority voting interest or otherwise, including those SLP funds over which the general partner or equivalent is presumed to have control. The initial step in the Company’s determination of whether a fund for which SLP is the general partner is required to be consolidated is assessing whether the fund meets the definition of a variable interest entity (VIE). None of the funds for which SLP is the general partner met the definition of a VIE during the three and nine months ended September 30, 2015 and 2014, as the total equity at risk of each fund is sufficient for the fund to finance its activities without additional subordinated financial support provided by any parties, including the equity holders.

SLP then considers whether the fund is a voting interest entity (“VoIE”) in which the unaffiliated limited partners have substantive “kick-out” rights that provide the ability to dissolve (liquidate) the limited partnership or otherwise remove the general partner without cause. SLP considers the “kick-out” rights to be substantive if the general partner for the fund can be removed by the vote of a simple majority of the unaffiliated limited partners and there are no significant barriers to the unaffiliated limited partners’ ability to exercise these rights in that among other things, (1) there are no conditions or timing limits on when the rights can be exercised, (2) there are no financial or operational barriers associated with replacing the general partner, (3) there are a number of qualified replacement investment advisors that would accept appointment at the same fee level, (4) each fund’s documents provide for the ability to call and conduct a vote, and (5) the information necessary to exercise the kick-out rights and related vote are available from the fund and its administrator.

As of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014, all of the funds for which SLP was the general partner had substantive “kick-out” rights and, therefore, neither SLP nor Silvercrest consolidated any of the Silvercrest Funds.

Non-controlling Interest

As of September 30, 2015, Silvercrest holds approximately 62% of the outstanding interests in SLP. Silvercrest is the sole general partner of SLP and, therefore, controls the management of SLP. As a result, Silvercrest consolidates the financial position and the results of operations of SLP and its subsidiaries, and records a non-controlling interest, as a separate component of stockholders’ equity on its Condensed Consolidated Statement of Financial Condition for the remaining economic interests in SLP. The non-controlling interest in the income or loss of SLP is included in the Condensed Consolidated Statement of Operations as a reduction or addition to net income derived from SLP.

Segment Reporting

The Company views its operations as comprising one operating segment. Each of the Company’s acquired businesses have similar economic characteristics and have been or are in the process of being fully integrated upon acquisition. Furthermore, our chief operating decision maker, which is the Company’s Chief Executive Officer, monitors and reviews financial information at a consolidated level for assessing operating results and the allocation of resources.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues, expenses and other income reported in the Condensed Consolidated Financial Statements and the accompanying notes. Actual results could differ from those estimates. Significant estimates and assumptions made by management include the fair value of acquired assets and liabilities, equity-based compensation, accounting for income taxes, the useful lives of long-lived assets and other matters that affect the Condensed Consolidated Financial Statements and related disclosures.

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of 90 days or less when purchased to be cash equivalents.

Restricted Certificates of Deposit

Certain certificates of deposit held at a major financial institution are restricted and serve as collateral for letters of credit for the Company’s lease obligations as described in Note 10.

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Equity Method Investments

Entities and investments, the activities over which the Company exercises significant influence, but which do not meet the requirements for consolidation, are accounted for using the equity method of accounting, whereby the Company records its share of the underlying income or losses of these entities. Intercompany profit arising from transactions with affiliates is eliminated to the extent of its beneficial interest. Equity in losses of equity method investments is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other funding obligations exist.

The Company evaluates its equity method investments for impairment, whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment when the loss in value is deemed other than temporary. The Company’s equity method investments approximate their fair value at September 30, 2015 and December 31, 2014. The fair value of the equity method investments is estimated based on the Company’s share of the fair value of the net assets of the equity method investee which is based on the net asset value, consisting of Level I and Level II securities, of the equity method investee. No impairment charges related to equity method investments were recorded during the three and nine months ended September 30, 2015 or 2014.

Receivables and Due from Silvercrest Funds

Receivables consist primarily of amounts for advisory fees due from clients, management fees and family office services fees, and are stated as net realizable value. The Company maintains an allowance for doubtful receivables based on estimates of expected losses and specific identification of uncollectible accounts. The Company charges actual losses to the allowance when incurred.

Furniture, Equipment and Leasehold Improvements

Furniture, equipment and leasehold improvements consist primarily of furniture, fixtures and equipment, computer hardware and software and leasehold improvements and are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives, which for leasehold improvements is the lesser of the lease term or the life of the asset, generally 10 years, and for other fixed assets is 3 to 7 years.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting. The acquisition method of accounting requires that the purchase price, including the fair value of contingent consideration, of the acquisition be allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. Contingent consideration is recorded as part of the purchase price when such contingent consideration is not based on continuing employment of the selling shareholders. Contingent consideration that is related to continuing employment is recorded as compensation expense. Payments made for contingent consideration recorded as part of an acquisition’s purchase price are reflected as financing activities in the Company’s Condensed Consolidated Statements of Cash Flows.

For acquisitions completed subsequent to January 1, 2009, the Company remeasures the fair value of contingent consideration at each reporting period using a probability-adjusted discounted cash flow method based on significant inputs not observable in the market and any change in the fair value from either the passage of time or events occurring after the acquisition date, is recorded in earnings. Contingent consideration payments that exceed the acquisition date fair value of the contingent consideration are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows.

Goodwill and Intangible Assets

Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is not amortized and is generally evaluated for impairment using a two-step process that is performed at least annually, or whenever events or circumstances indicate that impairment may have occurred.

The Company accounts for Goodwill under Accounting Standard Codification (“ASC”) No. 350, “Intangibles - Goodwill and Other,” which provides an entity the option to first perform a qualitative assessment of whether a reporting unit’s fair value is more likely than not less than its carrying value, including goodwill. In performing its qualitative assessment, an entity considers the extent to which adverse events or circumstances identified, such as changes in economic conditions, industry and market conditions or entity specific events, could affect the comparison of the reporting unit’s fair value with its carrying amount. If an entity concludes that the fair value of a reporting unit is more likely than not less than its carrying amount, the entity is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and, accordingly, measure the amount, if any, of goodwill impairment loss to be recognized for that reporting unit. The Company utilized this option when performing its annual impairment assessment in 2014 and 2013, and concluded that its single reporting unit’s fair value was more likely than not greater than its carrying value, including goodwill.

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The Company has one reporting unit at September 30, 2015 and December 31, 2014. No goodwill impairment charges were recorded during the three and nine months ended September 30, 2015 and 2014.

Identifiable finite-lived intangible assets are amortized over their estimated useful lives ranging from 3 to 20 years. The method of amortization is based on the pattern over which the economic benefits, generally expected undiscounted cash flows, of the intangible asset are consumed. Intangible assets for which no pattern can be reliably determined are amortized using the straight-line method. Intangible assets consist primarily of the contractual right to future management, advisory and performance fees from customer contracts or relationships.

Long-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount of the asset may not be recoverable. In connection with such review, the Company also reevaluates the periods of depreciation and amortization for these assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value.

Partner Distributions

Partner incentive allocations, which are determined by the general partner, can be formula-based or discretionary. Partner incentive allocations are treated as compensation expense and recognized in the period in which they are earned. In the event there is insufficient distributable cash flow to make incentive distributions, the general partner in its sole and absolute discretion may determine not to make any distributions called for under the partnership agreement. The remaining net income or loss after partner incentive allocations is generally allocated to unit holders based on their pro rata ownership.

Redeemable Partnership Units

If a principal of SLP is terminated for cause, SLP has the right to redeem all of the vested Class B units collectively held by the principal and his or her permitted transferees for a purchase price equal to the lesser of (i) the aggregate capital account balance in SLP of the principal and his or her permitted transferees and (ii) the purchase price paid by the terminated principal to first acquire the Class B units.

SLP also makes distributions to its partners of various nature including incentive payments, profit distributions and tax distributions.  The profit distributions and tax distributions are accounted for as equity transactions.

Class A Common Stock

The Company’s Class A stockholders are entitled to one vote for each share held of record on all matters submitted to a vote of the Company’s stockholders. Also, Class A stockholders are entitled to receive dividends, when and if declared by the Company’s board of directors, out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock. Dividends consisting of shares of Class A common stock may be paid only as follows: (i) shares of Class A common stock may be paid only to holders of shares of Class A common stock and (ii) shares will be paid proportionately with respect to each outstanding share of the Company’s Class A common stock. Upon the Company’s liquidation, dissolution or winding-up, or the sale of all, or substantially all, of the Company’s assets, after payment in full of all amounts required to be paid to creditors and to holders of preferred stock having a liquidation preference, if any, the Class A stockholders will be entitled to share ratably in the Company’s remaining assets available for distribution to Class A stockholders. Class B units of SLP held by principals will be exchangeable for shares of the Company’s Class A common stock, on a one-for-one basis, subject to customary adjustments for share splits, dividends and reclassifications.

Class B Common Stock

Shares of the Company’s Class B common stock are issuable only in connection with the issuance of Class B units of SLP. When a vested or unvested Class B unit is issued by SLP, the Company will issue the holder one share of its Class B common stock in exchange for the payment of its par value. Each share of the Company’s Class B common stock will be redeemed for its par value and cancelled by the Company if the holder of the corresponding Class B unit exchanges or forfeits its Class B unit pursuant to the terms of the Second Amended and Restated Limited Partnership Agreement of SLP and the terms of the Silvercrest Asset Management Group Inc. 2012 Equity Incentive Plan (the “2012 Equity Incentive Plan”). The Company’s Class B stockholders will be entitled to one vote for each share held of record on all matters submitted to a vote of the Company’s stockholders. The Company’s Class B stockholders will not participate in any dividends declared by the Company’s board of directors. Upon the Company’s liquidation, dissolution or winding-up, or the sale of all, or substantially all, of its assets, Class B stockholders only will be entitled to receive the par value of the Company’s Class B common stock.

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Revenue Recognition

Revenue is recognized ratably over the period in which services are performed. Revenue consists primarily of investment advisory fees, family office services fees and fund management fees. Investment advisory fees, which are earned pursuant to the terms of the underlying advisory contract, are typically billed quarterly in advance at the beginning of the quarter or in arrears after the end of the quarter, based on a contractually specified percentage of the assets managed. For investment advisory fees billed in advance, the value of assets managed is determined based on the value of the customer’s account as of the last trading day of the preceding quarter. For investment advisory fees billed in arrears, the value of assets managed is determined based on the value of the customer’s account on the last day of the quarter being billed. Family office services fees are typically billed quarterly in advance at the beginning of the quarter or in arrears after the end of the quarter based on a contractual percentage of the assets managed or based on a fixed fee arrangement. Management fees from proprietary and non-proprietary funds are calculated as a percentage of net asset values measured at the beginning of a month or quarter or at the end of a quarter, depending on the fund.

The Company accounts for performance based revenue in accordance with ASC No. 605-20-S99, “Accounting for Management Fees Based on a Formula”, by recognizing performance fees and allocations as revenue only when it is certain that the fee income is earned and payable pursuant to the relevant agreements, and no contingencies remain. Performance fee contingencies are typically resolved at the end of each annual period. In certain arrangements, the Company is only entitled to receive performance fees and allocations when the return on assets under management exceeds certain benchmark returns or other performance targets.

Equity-Based Compensation

Equity-based compensation cost relating to the issuance of share-based awards to employees is based on the fair value of the award at the date of grant, which is expensed ratably over the requisite service period, net of estimated forfeitures. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Therefore, changes in the forfeiture assumptions may affect the timing of the total amount of expense recognized over the vesting period. The service period is the period over which the employee performs the related services, which is normally the same as the vesting period. Equity-based awards that do not require future service are expensed immediately. Equity-based awards that have the potential to be settled in cash at the election of the employee or prior to the reorganization related to redeemable partnership units are classified as liabilities (“Liability Awards”) and are adjusted to fair value at the end of each reporting period. Distributions associated with Liability Awards expected to vest are accounted for as compensation expense in the Condensed Consolidated Statements of Operations.

Leases

The Company expenses the net lease payments associated with operating leases on a straight-line basis over the respective lease term, including any rent-free periods. Leasehold improvements are recorded at cost and are depreciated using the straight-line method over the lesser of the estimated useful lives of the improvements (generally 10 years) or the remaining lease term.

Income Taxes

Silvercrest and SFS are subject to federal and state corporate income tax, which requires an asset and liability approach to the financial accounting and reporting of income taxes. SLP is not subject to federal and state income taxes, since all income, gains and losses are passed through to its partners. SLP is, however, subject to New York City unincorporated business tax. With respect to the Company’s incorporated entities, the annual tax rate is based on the income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Judgment is required in determining the tax expense and in evaluating tax positions. The tax effects of an uncertain tax position (“UTP”) taken or expected to be taken in income tax returns are recognized only if it is “more likely-than-not” to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes estimated accrued interest and penalties related to UTPs in income tax expense.

The Company derecognizes the benefit of a UTP in the period when it is effectively settled. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination.

Recent Accounting Developments

In May 2014, the Financial Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.” ASU No. 2014-09 will replace most existing revenue recognition guidance in

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U.S. GAAP.  Originally, ASU No. 2014-09 was to become effective on January 1, 2017, but the effective date has been deferred for one year. Early adoption is permitted as of the original effective date. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU No. 2014-09 will have on the Condensed Consolidated Financial Statements and related disclosures. The Company has not yet selected a transition method nor determined the effect of this standard on its ongoing financial reporting.

In June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU No. 2014-12").” ASU No. 2014-12 applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. A reporting entity should apply existing guidance ASC 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. This guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company is in the process of evaluating the impact of the adoption of this guidance on its Condensed Consolidated Financial Statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (ASC 810): Amendments to the Consolidation Analysis.”  The amendments in this ASU modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership, affect the consolidation analysis of reporting entities that are involved with variable interest entities, and provide a scope exception from consolidation guidance for reporting entities with interest in certain investment funds. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015.  Early adoption, including adoption in an interim period, is permitted.  The Company is evaluating the impact of the adoption of this guidance on its Condensed Consolidated Financial Statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Amendments to Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”   The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts.  The amendments in this ASU will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted.  The Company is evaluating the impact of adoption of this guidance on its Condensed Consolidated Financial Statements.

In June 2015, the FASB issued ASU No. 2015-10, “Technical Corrections and Improvements.”  The amendments in this ASU will affect a wide variety of topics and represent changes to clarify GAAP, correct unintended application of guidance, or make minor improvements to GAAP that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.  Transition guidance varies based on the amendments in this Update. The amendments in this ASU that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.  The Company is evaluating the impact of adoption of this guidance on its Condensed Consolidated Financial Statements.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, ASU No. 2015-16 would require an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer must record in the financial statements for the same period, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Entities must also present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company is evaluating the impact of the adoption of this guidance on its Condensed Consolidated Financial Statements.

 

 

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3. ACQUISITIONS

Jamison:

On March 30, 2015, the Company executed an Asset Purchase Agreement (the “Asset Purchase Agreement”), by and among the Company, SLP, SAMG LLC (the “Buyer”) and Jamison Eaton & Wood, Inc., a New Jersey corporation (“Jamison” or the “Seller”), and Keith Wood, Ernest Cruikshank, III, William F. Gadsden and Frederick E. Thalmann, Jr., each such individual a principal of Jamison (together, the “Principals of Jamison”), to acquire certain assets of Jamison.  The transaction contemplated by the Asset Purchase Agreement closed on June 30, 2015 and is referred to herein as the “Jamison Acquisition”.

Pursuant to the terms of the Asset Purchase Agreement, SAMG LLC acquired (i) substantially all of the business and assets of the Seller, an investment adviser, including goodwill and the benefit of the amortization of goodwill related to such assets and (ii) the personal goodwill of the Principals of Jamison. In consideration of the purchased assets and goodwill, SAMG LLC paid to the Seller and the Principals of Jamison an aggregate purchase price consisting of (1) cash payments in the aggregate amount of $3,550 (the “Closing Cash Payment”), (2) a promissory note issued to the Seller in the principal amount of $394, with an interest rate of 5% per annum (the “Seller Note”), (3) promissory notes in varying amounts issued to each of the Principals of Jamison for an aggregated total amount of $1,771, each with an interest rate of 5% per annum (together, the “Principals of Jamison Notes”) and (4) Class B units of SLP (the “Class B Units”) issued to the Principals of Jamison with a value equal to $3,562 and an equal number of shares of Class B common stock of the Company, having voting rights but no economic interest (together, the “Equity Consideration”). The Company determined that the acquisition-date fair value of the contingent consideration was $1,429, based on the likelihood that the financial and performance targets described in the Asset Purchase Agreement will be achieved.  SAMG LLC will make earnout payments to the Principals of Jamison as soon as practicable following December 31, 2015, 2016, 2017, 2018, 2019 and during 2020, in an amount equal to 20% of the EBITDA attributable to the business and assets of Jamison (the “Jamison Business”), based on revenue gained or lost post-transaction during the twelve months ended on the applicable determination date, except that the earnout payment for 2015 shall be equal to 20% of the EBITDA attributable to the Jamison Business for the period between the closing date of the Jamison Acquisition and December 31, 2015 and the earnout payment for 2020 shall be equal to 20% of the EBITDA attributable to the Jamison Business for the period between January 1, 2020 and the fifth anniversary of the closing date of the Jamison Acquisition.  The estimated fair value of contingent consideration is recognized at the date of acquisition, and adjusted for changes in facts and circumstances until the ultimate resolution of the contingency. Changes in the fair value of contingent consideration are reflected as a component of general and administrative expenses in the Condensed Consolidated Statement of Operations. The fair value of the contingent consideration was based on discounted cash flow models using projected EBITDA for each earnout period. The discount rate applied to the to the projected EBITDA was determined based on the weighted average cost of capital for the Company and took into account that the overall risk associated with the payments was similar to the overall risks of the Company as there is no target, floor or cap associated the contingent payments.  The Company has a liability of $1,429 related to earnout payments to be made in conjunction with the Jamison Acquisition which is included in accounts payable and accrued expenses in the Condensed Consolidated Statement of Financial Condition as of September 30, 2015 for contingent consideration.

In connection with their receipt of the Equity Consideration, the Principals of Jamison became subject to the rights and obligations set forth in the limited partnership agreement of SLP and are entitled to distributions consistent with SLP’s distribution policy.  In addition, the Principals of Jamison became parties to the Exchange Agreement, which governs the exchange of Class B Units for Class A common stock of the Company, the Resale and Registration Rights Agreement, which provides the Principals of Jamison with liquidity with respect to shares of Class A common stock of the Company received in exchange for Class B Units, and the TRA of the Company, which entitles the Principals of Jamison to share in a portion of the tax benefit received by the Company upon the exchange of Class B Units for Class A common stock of the Company.

The Asset Purchase Agreement includes customary representations, warranties and covenants.

The strategic acquisition of Jamison, a long-standing and highly regarded investment boutique, strengthens the Company’s presence in the greater New York market and the Company obtains investment managers that have significant experience and knowledge of the industry.  Jamison’s clients will gain access to the Company’s complete investment management, wealth planning and reporting capabilities, including proprietary value equity and fixed income disciplines and alternative investment advisory services.

Jamison revenue and income before provision for income taxes for the three and nine months ended September 30, 2015 that are included in the Condensed Consolidated Statement of Operations are $1,465 and $188, respectively.

13


 

During the first nine months of 2015, the Company incurred $122 in costs related to the Jamison Acquisition, and has included these in general, administrative and other in the Condensed Consolidated Statement of Operations.

 

Cash paid on date of acquisition

$

3,550

 

Notes payable to Jamison and Principals of Jamison

 

2,165

 

Units issued

 

3,562

 

Contingent consideration

 

1,429

 

Total purchase consideration

$

10,706

 

The following table summarizes the amounts preliminarily allocated to acquired assets and assumed liabilities.  The excess of the purchase price over the fair values of the assets acquired and liabilities assumed was allocated to goodwill and intangible assets.

 

Prepaid expense

$

135

 

Furniture and equipment

 

335

 

Security deposits

 

30

 

Capital leases

 

(253

)

Deferred rent

 

(19

)

Total fair value of net tangible assets acquired

 

228

 

Goodwill

 

4,678

 

Customer relationships (10 years)

 

5,000

 

Non-compete agreements (5 years)

 

800

 

Total purchase consideration

$

10,706

 

The preliminary valuation of acquired intangible assets is in the process of being prepared by an independent appraisal firm. The initial purchase price allocations are preliminary and may be adjusted for changes in estimates of the fair value of the assets acquired and liabilities assumed. The Company expects that the purchase price allocations will be finalized by the time it files its annual report on Form 10-K for the year ending December 31, 2015. 

The Company believes the recorded goodwill is supported by the anticipated revenues and expected synergies of integrating the operations of Jamison into the Company.  The goodwill is expected to be deductible for tax purposes.

The pro forma information below represents consolidated results of operations as if the acquisition of Jamison occurred on January 1, 2015 and January 1, 2014. The pro forma information has been included for comparative purposes and is not indicative of results of operations of the Company had the acquisitions occurred as of January 1, 2015 and 2014, nor is it necessarily indicative of future results.

 

 

  

Pro Forma 

Nine Months Ended
September 30, 2015

 

 

  

Pro Forma 

Nine Months Ended
September 30, 2014

 

Total Revenue

  

$

58,601

  

 

  

$

56,310

  

Net Income

  

$

9,256

  

 

  

$

8,613

  

Ten-Sixty:

On March 28, 2013, SLP executed an asset purchase agreement with and closed the related transaction to acquire certain assets of Ten-Sixty. Ten-Sixty was a registered investment adviser that advised on approximately $1,900,000 of assets primarily on behalf of institutional clients. This strategic acquisition enhanced the Company’s hedge fund and investment manager due diligence capabilities, risk management analysis and reporting, and enhanced its institutional business. Under the terms of the Asset Purchase Agreement, SLP paid cash consideration at closing of $2,500 and issued a promissory note to Ten-Sixty in the principal amount of $1,479 subject to adjustment. The principal amount of the promissory note was paid in two initial installments of $218 each on April 30, 2013 and December 31, 2013 and then quarterly installments from June 30, 2014 through March 31, 2017 of $87 each. The principal amount outstanding under this note bears interest at the rate of five percent per annum.  As of September 30, 2015, $569 remained outstanding on the note payable related to the Ten-Sixty acquisition.

14


 

Milbank:

On November 1, 2011, SAMG LLC executed an asset purchase agreement to acquire certain assets of Milbank.  The Company has a liability of $755 and $1,325 related to earn-outs payable to Milbank included in accounts payable and accrued expenses in the Condensed Consolidated Statement of Financial Condition as of September 30, 2015 and December 31, 2014, respectively, for contingent consideration.  As of September 30, 2015, $590 remained outstanding on the note payable related to the Milbank acquisition.  The final payment on this note will be made on November 1, 2015.      

 

4. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Investments

Investments include $15 and $1,307 as of September 30, 2015 and December 31, 2014, respectively, representing the Company’s interests in affiliated investment funds which have been established and managed by the Company and its affiliates. The Company’s financial interest in these funds can range in amounts up to 2% of the net assets of the funds. Despite the Company’s insignificant financial interest, the Company applies the equity method to account for its interests in affiliated investment funds because it exercises significant influence over these funds as the Company typically serves as the general partner, managing member or equivalent for these funds. During 2007, the Silvercrest Funds granted rights to the unaffiliated investors in each respective fund to provide that a simple majority of the fund’s unaffiliated investors will have the right, without cause, to remove the general partner or equivalent of that fund or to accelerate the liquidation date of that fund in accordance with certain procedures. At September 30, 2015 and 2014, the Company determined that none of the Silvercrest Funds were required to be consolidated. The Company’s involvement with these entities began on the dates that they were formed, which range from July 2003 to July 2014.

Fair Value Measurements

GAAP establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in an orderly market generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

·

Level I: Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments in Level I include listed equities and listed derivatives.

 

·

Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in Level II include corporate bonds and loans, less liquid and restricted equity securities, certain over-the counter derivatives, and certain fund of hedge funds investments in which the Company has the ability to redeem its investment at net asset value at, or within three months of, the reporting date.

 

·

Level III: Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation. Investments that are included in Level III generally include general and limited partnership interests in private equity and real estate funds, credit-oriented funds, certain over-the-counter derivatives, funds of hedge funds which use net asset value per share to determine fair value in which the Company may not have the ability to redeem its investment at net asset value at, or within three months of, the reporting date, distressed debt and non-investment grade residual interests in securitizations and collateralized debt obligations.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. 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 investment.

At September 30, 2015 and December 31, 2014, the Company did not have any financial assets or liabilities that are recorded at fair value on a recurring basis.

15


 

At September 30, 2015 and December 31, 2014, financial instruments that are not held at fair value are categorized in the table below:

 

 

  

September 30, 2015

 

  

December 31, 2014

 

  

 

 

 

  

Carrying
Amount

 

  

Fair
Value

 

  

Carrying
Amount

 

  

Fair
Value

 

  

Fair Value
Hierarchy

 

Financial Assets:

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Cash

  

$

26,080

 

  

$

26,080

  

  

$

30,820

  

  

$

30,820

  

  

 

 

 

Restricted Certificates of Deposit

  

$

587

  

  

$

587

  

  

$

586

  

  

$

586

  

  

 

Level 1

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Notes Payable

  

$

5,152

  

  

$

5,152

  

  

$

4,124

  

  

$

4,124

  

  

 

Level 2

(2)

 

(1)

Restricted certificates of deposit consists of money market funds that are carried at either cost or amortized cost that approximates fair value due to their short-term maturities. The money market funds are valued through the use of quoted market prices, or $1.00, which is generally the net asset value of the funds.

(2)

The carrying value of notes payable and borrowings under the revolving credit agreement approximates fair value, which is determined based on interest rates currently available to the Company for similar debt.

 

5. RECEIVABLES, NET

The following is a summary of receivables as of September 30, 2015 and December 31, 2014:

 

 

  

2015

 

 

2014

 

Management and advisory fees receivable

  

$

2,037

  

 

$

2,705

  

Unbilled receivables

  

 

2,322

  

 

 

2,229

  

Other receivables

  

 

2

  

 

 

2

  

Receivables

  

 

4,361

  

 

 

4,936

  

Allowance for doubtful receivables

  

 

(358

 

 

(402

Receivables, net

  

$

4,003

  

 

$

4,534

  

 

 

6. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

The following is a summary of furniture, equipment and leasehold improvements, net as of September 30, 2015 and December 31, 2014:

 

 

  

2015

 

 

2014

 

Leasehold improvements

  

$

3,874

 

 

$

3,766

  

Furniture and equipment

  

 

5,110

 

 

 

4,496

  

Artwork

  

 

423

 

 

 

421

  

Total cost

  

 

9,407

 

 

 

8,683

  

Accumulated depreciation and amortization

  

 

(6,872

)

 

 

(6,329

)

Furniture, equipment and leasehold improvements, net

  

$

2,535

 

 

$

2,354

  

 

Depreciation expense for the three months ended September 30, 2015 and 2014 was $270 and $147, respectively.  Depreciation for the nine months ended September 30, 2015 and 2014 was $544 and $410, respectively.

 

16


 

7. GOODWILL

The following is a summary of the changes to the carrying amount of goodwill for the nine months ended September 30, 2015 and the year ended December 31, 2014:

 

 

  

2015

 

 

2014

 

Beginning

  

 

 

 

 

 

 

 

Gross balance

  

$

37,423

 

 

$

37,446

  

Accumulated impairment losses

  

 

(17,415

)

 

 

(17,415

)

Net balance

  

 

20,008

 

 

 

20,031

  

Purchase price adjustments from earnouts

  

 

 

 

 

(23

Acquisition of Jamison

 

 

4,678

 

 

 

 

Ending

  

 

 

 

 

 

 

 

Gross balance

  

 

42,101

 

 

 

37,423

  

Accumulated impairment losses

  

 

(17,415

)

 

 

(17,415

)

Net balance

  

$

24,686

 

 

$

20,008

  

 

 

8. INTANGIBLE ASSETS, NET

The following is a summary of intangible assets as of September 30, 2015 and December 31, 2014:

 

 

 

Customer
Relationships

 

 

Other
Intangible
Assets

 

 

Total

 

Cost

  

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

  

$

17,560

  

 

$

1,663

  

 

$

19,223

  

Acquisition of Jamison

 

 

5,000

 

 

 

800

 

 

 

5,800

 

Balance, September 30, 2015

  

 

22,560

 

 

 

2,463

 

 

 

25,023

  

Useful lives

  

 

10-20 years

 

 

 

3-5 years

 

 

 

 

 

Accumulated amortization

  

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

  

 

(6,627

)

 

 

(1,429

)

 

 

(8,056

)

Amortization expense

  

 

(1,000

)

 

 

(134

)

 

 

(1,134

)

Balance, September 30, 2015

  

 

(7,627

)

 

 

(1,563

)

 

 

(9,190

)

Net book value

  

$

14,933

 

 

$

900

 

 

$

15,833

  

Cost

  

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

  

$

17,560

  

 

$

1,663

  

 

$

19,223

  

Balance, December 31, 2014

  

 

17,560

  

 

 

1,663

  

 

 

19,223

  

Useful lives

  

 

10-20 years

  

 

 

3-5 years

  

 

 

 

 

Accumulated amortization

  

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

  

 

(5,410

)

 

 

(1,224

)

 

 

(6,634

)

Amortization expense

  

 

(1,217

)

 

 

(205

)

 

 

(1,422

)

Balance, December 31, 2014

 

 

(6,627

)

 

 

(1,429

)

 

 

(8,056

)

Net Book Value

  

$

10,933

 

 

$

234

 

 

$

11,167

 

 

Amortization expense related to intangible assets was $488 and $360 for the three months ended September 30, 2015 and 2014, respectively.  Amortization expense related to intangible assets was $1,134 and $1,079 for the nine months ended September 30, 2015 and 2014, respectively.

17


 

Amortization related to the Company’s finite life intangible assets is scheduled to be expensed over the next five years and thereafter as follows:

 

2015 (remainder of)

  

$

488

  

2016

  

 

1,896

  

2017

  

 

1,796

  

2018

  

 

1,662

  

2019

  

 

1,380

 

Thereafter

  

 

8,611

 

Total

  

$

15,833

  

 

 

9. DEBT

Credit Facility

On June 24, 2013, the subsidiaries of SLP entered into a $15,000 credit facility with City National Bank. The subsidiaries of SLP are the borrowers under such facility and SLP guarantees the obligations of its subsidiaries thereunder. The credit facility is secured by certain assets of SLP and its subsidiaries. The credit facility consists of a $7,500 delayed draw term loan that matures on June 24, 2020 and a $7,500 revolving credit facility that matures on December 24, 2016. The loan bears interest at either (a) the higher of the prime rate plus a margin of 0.05 percentage points and 2.5% or (b) the LIBOR rate plus 3 percentage points, at the borrowers’ option. On June 28, 2013, the borrowers borrowed $7,000 on the revolving credit loan. As of September 30, 2015 and December 31, 2014, no amount had been drawn on the term loan credit facility and the borrowers may draw up to the full amount of the term loan through June 25, 2018. Borrowings under the term loan on or prior to June 24, 2015 were payable in 20 equal quarterly installments. Borrowings under the term loan after June 24, 2015 are payable in equal quarterly installments through the maturity date. The credit facility contains restrictions on, among other things, (i) incurrence of additional debt, (ii) creating liens on certain assets, (iii) making certain investments, (iv) consolidating, merging or otherwise disposing of substantially all of our assets, (v) the sale of certain assets, and (vi) entering into transactions with affiliates. In addition, the credit facility contains certain financial covenants including a test on discretionary assets under management, maximum debt to EBITDA and a fixed charge coverage ratio. The credit facility contains customary events of default, including the occurrence of a change in control which includes a person or group of persons acting together acquiring more than 30% of the total voting securities of Silvercrest.

As of September 30, 2015 and December 31, 2014, the Company did not have any outstanding borrowings under the revolving credit loan.

Interest expense, which also includes amortization of deferred financing fees, incurred on the revolving credit and term loans for the three months ended September 30, 2015 and 2014 was $10 and $38, respectively, and for the nine months ended September 30, 2015 and 2014 was $30 and $112, respectively.

Notes Payable

The following is a summary of notes payable:

 

 

  

September 30, 2015

 

 

  

Interest Rate

 

 

Amount

 

Principal on fixed rate notes

  

 

5.0

 

$

3,297

  

Variable rate notes issued for redemption of partners’ interests (see Note 15)

  

 

Prime plus 1

%

 

 

1,789

  

Interest payable

  

 

 

 

 

 

66

  

Total, September 30, 2015

  

 

 

 

 

$

5,152

  

 

 

  

December 31, 2014

 

 

  

Interest Rate

 

 

Amount

 

Principal on fixed rate notes

  

 

5.0

 

$

1,417

  

Variable rate notes issued for redemption of partners’ interests (see Note 15)

  

 

Prime plus 1

%

 

 

2,683

  

Interest payable

  

 

 

 

 

 

24

  

Total, December 31, 2014

  

 

 

 

 

$

4,124

  

 

18


 

The carrying value of notes payable approximates fair value. The fixed rate notes, which are related to the Jamison, Ten-Sixty and Milbank acquisitions, approximate fair value based on interest rates currently available to the Company for similar debt.  The variable rate notes are based on the U.S. Prime Rate.

As of September 30, 2015, future principal amounts payable under the fixed and variable rate notes are as follows:

 

2015 (remainder of)

  

$

658

  

2016

  

 

1,995

  

2017

  

 

1,711

  

2018

 

 

722

 

Total

  

$

5,086

  

 

On June 3, 2013, Silvercrest redeemed units from two of our former principals. In conjunction with this redemption, Silvercrest issued promissory notes in an aggregate principal amount of approximately $5,300, subject to downward adjustments to the extent of any breach by the holders of such notes. The principal amounts of the notes were originally payable in four equal annual installments on each of June 3, 2014, 2015, 2016 and 2017. The principal amount outstanding under these notes bear interest at the U.S. Prime Rate plus 1% in effect at the time payments are due. Silvercrest elected not to make the June 3, 2014 payment as it was being assessed as to whether the former principals had complied with the note covenants and whether any reduction to these notes should be made.  In October 2014, certain reductions totaling $1,722 were agreed to, based upon a review of the note covenants.  As a result, the principal amounts of the notes of $3,578 became payable in four equal installments of approximately $900 on November 1, 2014, and on each of August 1, 2015, 2016 and 2017.  As of September 30, 2015 and December 31, 2014, $1,789 and $2,683, respectively, remained outstanding on the notes and accrued but unpaid interest on the notes was approximately $13 and $19, respectively.  

On June 30, 2015, Silvercrest issued promissory notes in an aggregate principal amount of approximately $2,165 in connection with the Jamison Acquisition.  The principal amount outstanding under the notes bears interest at 5% per annum.  The principal amounts of the notes are payable in three equal installments of approximately $722 on each of June 30, 2016, 2017 and 2018.  Accrued but unpaid interest on the notes was approximately $27 as of September 30, 2015.

 

 

10. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases office space pursuant to operating leases that are subject to specific escalation clauses. Rent expense charged to operations for the three months ended September 30, 2015 and 2014 amounted to $949 and $938, respectively. The Company received sub-lease income from subtenants during the three months ended September 30, 2015 and 2014 of $96 and $91, respectively. Therefore, for the three months ended September 30, 2015 and 2014, net rent expense amounted to $853 and $847, respectively, and is included in general and administrative expenses in the Condensed Consolidated Statement of Operations.  

Rent expense charged to operations for the nine months ended September 30, 2015 and 2014 amounted to $2,817 and $2,736, respectively. The Company received sub-lease income from subtenants during the nine months ended September 30, 2015 and 2014 of $284 and $287, respectively. Therefore, for the nine months ended September 30, 2015 and 2014, net rent expense amounted to $2,533 and $2,449, respectively, and is included in general and administrative expenses in the Condensed Consolidated Statement of Operations.

As security for performance under the leases, the Company is required to maintain letters of credit in favor of the landlord totaling $586 as of September 30, 2015 and December 31, 2014.  The letter of credit is collateralized by a certificate of deposit in an equal amount.  Furthermore, the Company maintains an $80 letter of credit in favor of its Boston landlord that is collateralized by the Company’s revolving credit facility with City National Bank.

In March 2014, the Company entered into a lease agreement for additional office space in Richmond, VA.  The lease commenced on May 1, 2014 and expires July 31, 2019. The lease is subject to escalation clauses and provides for a rent-free period of three months.  Monthly rent expense is $5.  The Company paid a refundable security deposit of $3.

In June 2015, the Company entered into a lease agreement for office space in Charlottesville, VA.  The lease commenced on June 30, 2015 and expires on June 30, 2018.  The lease is subject to escalation clauses and provides for a rent-free period of two months.  Monthly rent expense is $2.  The Company paid a refundable security deposit of $2.

19


 

With the Jamison Acquisition, the Company assumed lease agreements for office space in Bedminster and Princeton, NJ.  The Bedminster lease expires on November 1, 2016.  Monthly rent expense on this lease is $11.  The Princeton lease expires on March 1, 2016.  Monthly rent expense on this lease is $5.  Both leases are subject to escalation clauses.        

Future minimum lease payments and rentals under lease agreements which expire through 2019 are as follows:

 

 

  

Minimum Lease
Commitments

 

  

Non-cancellable
Subleases

 

 

Minimum Net
Rentals

 

Remainder of 2015

  

$

967

  

  

$

(107

)

 

$

860

  

2016

  

 

3,817

  

  

 

(427

)

 

 

3,390

  

2017

  

 

2,865

  

  

 

(328

)

 

 

2,537

  

2018

  

 

74

  

  

 

 

 

 

74

  

2019

 

 

36

 

 

 

 

 

 

36

 

Total

  

$

7,759

  

  

$

(862

)

 

$

6,897

  

 

The Company has capital leases for certain office equipment. The Company entered into a new capital lease agreement for a telephone system during 2014.  The amount financed was $321 and the lease has a term of five years, which began on March 1, 2014.   Monthly minimum lease payments are $5, and continue through November 30, 2018.   On June 30, 2015, the Company assumed certain capital leases for equipment totaling $253 as part of the Jamison Acquisition.  In July 2015, the Company entered into a new capital lease for a copier.  The amount financed was $21 and the lease has a term of three years, which began on July 1, 2015.  Monthly minimum lease payments are $1, and continue through June 30, 2018.  The aggregate principal balance of capital leases was $468 and $282 as of September 30, 2015 and December 31, 2014, respectively.

The assets relating to capital leases that are included in equipment as of September 30, 2015 and December 31, 2014 are as follows:

 

 

  

2015

 

 

2014

 

Capital lease assets included in furniture and equipment

  

$

630

  

 

$

345

  

Capital lease assets included in software

  

 

58

  

 

 

58

  

Less: Accumulated depreciation and amortization

  

 

(210

)

 

 

(127

)

 

  

$

478

  

 

$

276

  

 

Depreciation expense relating to capital lease assets was $46 and $20 for the three months ended September 30, 2015 and 2014, respectively.  Depreciation expense relating to capital lease assets was $82 and $60 for the nine months ended September 30, 2015 and 2014, respectively.

Future minimum lease payments under capital leases are as follows:

 

 

  

Future Minimum Lease
Commitments

 

Remainder of 2015

  

$

39

  

2016

  

 

164

  

2017

  

 

155

  

2018

  

 

99

  

2019

 

 

11

 

Total

  

$

468

  

 

Contingent Consideration

In connection with its acquisition of MCG in October 2008, SLP entered into a contingent consideration agreement whereby the former members of MCG were entitled to contingent consideration equal to 22% of adjusted annual EBITDA in addition to any performance fee payments for each of the five years subsequent to the date of acquisition. As the acquisition was completed prior to January 1, 2009, contingent consideration is recognized when the contingency is resolved pursuant to the authoritative guidance on business combinations in effect at the date of the closing of the acquisition. Contingent consideration payments of $0 and $1,679 were made during the nine months ended September 30, 2015 and 2014, respectively, related to MCG and are reflected in investing activities in the Condensed Consolidated Statements of Cash Flows.

 

20


 

11. STOCKHOLDERS’ EQUITY

SLP historically made, and will continue to make, distributions of its net income to the holders of its partnership units for income tax purposes as required under the terms of its Second Amended and Restated Limited Partnership Agreement and also made, and will continue to make, additional distributions of net income under the terms of its Second Amended and Restated Limited Partnership Agreement. Partnership distributions totaled $1,446 and $5,571, for the three and nine months ended September 30, 2015, respectively.  Partnership distributions totaled $1,248 and $5,244 for the three and nine months ended September 30, 2014, respectively. Distributions are included in non-controlling interests in the Condensed Consolidated Statements of Financial Condition.

Pursuant to SLP’s Second Amended and Restated Limited Partnership Agreement, as amended and restated, partner incentive allocations are treated as distributions of net income. The remaining net income or loss after partner incentive allocations was generally allocated to the partners based on their pro rata ownership. Net income allocation is subject to the recovery of the allocated losses of prior periods. Distributions of partner incentive allocations of net income for the nine months ended September 30, 2015 and 2014 amounted to $18,568 and $14,206, respectively. The distributions are included in non-controlling interests in the Condensed Consolidated Statements of Financial Condition and Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2015 and 2014.  Silvercrest treats SLP’s partner incentive allocations as compensation expense and accrues such amounts when earned. During the three months ended September 30, 2015 and 2014, SLP accrued partner incentive allocations of $5,022 and $4,622, respectively.  During the nine months ended September 30, 2015 and 2014, SLP accrued partner incentive allocations of $14,123 and $13,062, respectively.

Silvercrest—Stockholders’ Equity

Silvercrest has the following authorized and outstanding equity:

 

 

  

Shares at September 30, 2015

 

  

Authorized

 

  

Outstanding

 

  

Voting Rights

  

Economic
Rights

Common shares

  

 

 

 

  

 

 

 

  

 

  

 

Class A, par value $0.01 per share

  

 

50,000,000

  

  

 

7,912,633

  

  

1 vote per share (1)

  

All (1)

Class B, par value $0.01 per share

  

 

25,000,000

  

  

 

4,772,130

  

  

1 vote per  share (2),(3)

  

None (2), (3)

Preferred shares

  

 

 

 

  

 

 

 

  

 

  

 

Preferred stock, par value $0.01 per share

  

 

10,000,000

  

  

 

 

  

See footnote (4) below

  

See footnote (4) below

 

(1)

Each share of Class A common stock is entitled to one vote per share. Class A common stockholders have 100% of the rights of all classes of Silvercrest’s capital stock to receive dividends.

(2)

Each share of Class B common stock is entitled to one vote per share.

(3)

Each Class B unit of SLP held by a principal is exchangeable for one share of the Company’s Class A common stock. The principals collectively hold 4,772,130 Class B units, which represent the right to receive their proportionate share of the distributions made by SLP, 4,911 deferred equity units exercisable for Class B units of SLP, which represent the right to receive additional proportions of the distributions made by SLP and 966,510 restricted stock units which will vest and settle in the form of Class B units of SLP. The 4,911 deferred equity units and the 966,510 restricted stock units which have been issued to our principals entitle the holders thereof to participate in distributions from SLP as if the underlying Class B units are outstanding and thus are taken into account to determine the economic interest of each holder of units in SLP. However, because the Class B units underlying the deferred equity units and restricted stock units have not been issued and are not deemed outstanding, the holders of deferred equity units or restricted stock units have no voting rights with respect to those Class B units. Silvercrest will not issue shares of Class B common stock in respect of deferred equity units or restricted stock units of SLP until such time that the underlying Class B units are issued.

(4)

Silvercrest’s board of directors has the authority to issue preferred stock in one or more classes or series and to fix the rights, preferences, privileges and related restrictions, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any class or series, or the designation of the class or series, without the approval of its stockholders.

Silvercrest is dependent on cash generated by SLP to fund any dividends. Generally, SLP will distribute its profits to all of its partners, including Silvercrest, based on the proportionate ownership each holds in SLP. Silvercrest will fund dividends to its stockholders from its proportionate share of those distributions after provision for its income taxes and other obligations.

21


 

During the nine months ended September 30, 2015, Silvercrest issued the following shares:

Class A Common Stock

 

 

 

Transaction

 

 

# of

 

 

 

Date