8-K: Horizon Kinetics to Restate Prior Financial Statements Due to Consolidation of Proprietary Funds

Horizon Kinetics Holding Corporation will restate its financial statements for 2022, 2023, and interim periods of 2023 and 2024 due to the required consolidation of certain proprietary funds.

Summary

• Horizon Kinetics Holding Corporation has determined that its previously issued consolidated financial statements for the years ended December 31, 2023 and 2022, as well as the unaudited interim financial statements for the three, six, and nine months ended March 31, June 30, and September 30, 2024 and 2023, should no longer be relied upon.
• The decision was made by the Audit Committee of the Board of Directors in consultation with management and Marcum LLP, the company's independent registered public accounting firm.
• The restatement is required to consolidate certain proprietary funds in the company's financial statements, following an evaluation under the Financial Accounting Standards Board Accounting Standards Codification Topic 810, Consolidation, using the variable interest entity (VIE) model.
• The company does not expect the restatement to impact its cash and cash equivalents, total shareholders' equity, or net income (loss) attributable to Horizon Kinetics Holding Corporation.
• The company intends to restate the financial statements and will provide a reconciliation between the consolidated financial statements and a presentation without the consolidation of these proprietary funds with every earnings announcement.
• The company expects to file its Annual Report on Form 10-K for the year ended December 31, 2024, including the restated amounts, no later than March 31, 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While a restatement is generally viewed negatively, the company claims no impact on key financial metrics. The delay in filing the 10-K is a concern, but the company provides a timeline for resolution.

Positives

• The company states that the restatement is not expected to impact its cash and cash equivalents, total shareholders' equity, or net income (loss) attributable to Horizon Kinetics Holding Corporation.
• Management will provide a reconciliation between the consolidated financial statements and a presentation without the consolidation of these proprietary funds with every earnings announcement, offering transparency to investors.

Negatives

• Previously issued financial statements for 2022, 2023, and interim periods of 2023 and 2024 should no longer be relied upon.
• The restatement process introduces uncertainty and requires additional resources and time.

Risks

• The ongoing review of financial statements, accounting policies, and internal control over financial reporting could reveal further adjustments.
• The preparation and audit of restated filings may encounter unforeseen challenges.
• The company's actual results may differ materially from preliminary financial information.
• There is a risk of subsequent discovery of additional adjustments to previously issued financial statements.

Future Outlook

The company expects to file its Annual Report on Form 10-K for the year ended December 31, 2024, including the restated amounts, no later than March 31, 2025.

Management Comments

• Management will provide a reconciliation between the consolidated financial statements and a presentation without the consolidation of these proprietary funds with every earnings announcement.

Industry Context

The consolidation of variable interest entities (VIEs) is a common accounting issue in the investment management industry, particularly for firms with proprietary funds. This restatement reflects a correction to comply with accounting standards.

Comparison to Industry Standards

• Many investment management firms, such as BlackRock, Apollo, and Blackstone, manage proprietary funds and must adhere to consolidation guidelines.
• The specific impact of consolidation varies depending on the structure and size of the proprietary funds relative to the parent company's balance sheet.
• Similar restatements have occurred in the past at other firms due to changes in accounting interpretations or the discovery of errors in applying consolidation rules.

Stakeholder Impact

• Shareholders may experience short-term uncertainty due to the restatement.
• Employees involved in financial reporting may face increased workload during the restatement process.
• Clients of the proprietary funds may require additional information and assurance regarding the impact of the consolidation.

Next Steps

• The company will restate its financial statements for the affected periods.
• The company will file its Annual Report on Form 10-K for the year ended December 31, 2024, including the restated amounts, by March 31, 2025.
• Management will provide a reconciliation between the consolidated financial statements and a presentation without the consolidation of these proprietary funds with every earnings announcement.

Key Dates

Keywords

restatement, financial statements, consolidation, proprietary funds, Horizon Kinetics, Audit Committee, Marcum LLP, Form 8-K, Form 10-K, VIE, variable interest entity