BRC Group Holdings, Inc. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law we are under no obligation to update any of the forward-looking statements after the filing of this Annual Report to conform such statements to actual results or to changes in our expectations. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Annual Report under the caption “Risk Factors.” Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; competition in the asset management business; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions, including increasing inflation; the continuing effects of the COVID-19 pandemic, or other pandemics or severe public health crises, and other related impacts including supply chain disruptions, labor shortages and increased labor costs; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; failure to successfully compete in any of our segments; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition-related issues; the failure of our brand investment portfolio licensees to pay us royalties; and the intense competition to which our brand investment portfolio is subject. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Except as otherwise required by the context, references in this Annual Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries. Overview General B. Riley Financial, Inc. (NASDAQ: RILY) (“B. Riley” or the “Company”) is a diversified financial services platform and opportunistically invests in companies or assets with attractive risk-adjusted return profiles to benefit its shareholders. Through its affiliated subsidiaries, B. Riley provides a full suite of investment banking, corporate finance research, sales, and trading, as well as advisory, valuation, and wealth management, services. The Company’s major business lines include: ● B. Riley Securities, a leading, full service investment bank that provides corporate finance, lending, research, securities lending and sales and trading services to corporate, institutional, and high net worth individual clients. It is nationally recognized for its proprietary small and mid-cap equity research. B. Riley Securities was established from the merger of B. Riley & Co, LLC and FBR Capital Markets & Co. in 2017. 51 ● B. Riley Wealth Management, which provides comprehensive wealth management and brokerage services to individuals and families, corporations and non-profit organizations, including qualified retirement plans, trusts, foundations, and endowments. The firm was formerly known as Wunderlich Securities, Inc., which the Company acquired in July 2017. ● National Holdings Corporation (“National”), which provides wealth management, brokerage, insurance brokerage, tax preparation and advisory services, was acquired in February 2021. ● B. Riley Capital Management, which is a Securities and Exchange Commission (“SEC”) registered investment advisor, that includes B. Riley Asset Management, an advisor to and/or manager of certain private funds. ● B. Riley Advisory Services, which provides expert witness, bankruptcy, financial advisory, forensic accounting, valuation and appraisal, and operations management services to companies, financial institutions, and the legal community. B. Riley Advisory Services is primarily comprised of the bankruptcy and restructuring, forensic accounting, litigation support, and appraisal and valuation practices. ● B. Riley Retail Solutions, which is a leading provider of asset disposition, liquidation, and auction solutions to a wide range of retail and industrial clients. ● B. Riley Real Estate, which advises companies, financial institutions, investors, family offices and individuals on real estate projects worldwide. A core focus of B. Riley Real Estate, LLC is the restructuring of lease obligations in both distressed and non-distressed situations, both inside and outside of the bankruptcy process, on behalf of corporate tenants. ● B. Riley Principal Investments, which identifies attractive investment opportunities and seeks to control or influence the operations of our portfolio company investments to deliver financial and operational improvements that will maximize the Company’s free cash flow, and therefore, shareholder returns. The team concentrates on opportunities presented by distressed companies or divisions that exhibit challenging market dynamics. Representative transactions include recapitalization, direct equity investment, debt investment, active minority investment and buyouts. ● Communications consist of United Online, Inc. (“UOL” or “United Online”), which was acquired in July 2016, magicJack VocalTec Ltd. (“magicJack”), which was acquired in November 2018, a 40% equity interest in Lingo Management, LLC (“Lingo”), which was acquired in November 2020, and a mobile virtual network operator business (“Marconi Wireless”), which was acquired in October 2021. Upon receipt of certain regulatory approvals, the Company has the right to acquire an additional 40% equity interest in Lingo. The following briefly describes each such business: ○ UOL is a communications company that offers consumer subscription services and products, consisting of Internet access services and devices under the NetZero and Juno brands. ○ magicJack is a Voice over IP (“VoIP”) cloud-based technology and services and wireless mobile communications provider. ○ Lingo is a global cloud/UC and managed service provider. ○ Marconi Wireless is a mobile virtual network operator business that provides mobile phone voice, text, and data services and devices. ● BR Brand Holding (“BR Brands”), in which the Company owns a majority interest, provides licensing of certain brand trademarks. BR Brands owns the assets and intellectual property related to licenses of six brands: Catherine Malandrino, English Laundry, Joan Vass, Kensie Girl, Limited Too and Nanette Lepore as well as investments in the Hurley and Justice brands with Bluestar Alliance LLC (“Bluestar”), a brand management company. 52 We are headquartered in Los Angeles with over 44 offices throughout the United States including New York, Chicago, Boston, Atlanta, Dallas, Memphis, Metro Washington D.C., West Palm Beach, and Boca Raton. During the fourth quarter of 2020, the Company realigned its segment reporting structure to reflect organizational management changes. Under the new structure, the valuation and appraisal businesses are reported in the Financial Consulting segment and our bankruptcy, financial advisory, forensic accounting, and real estate consulting businesses that were previously reported in the Capital Markets segment are now reported as part of the Financial Consulting segment. In conjunction with the new reporting structure, the Company recast its segment presentation for all periods presented. During the first quarter of 2021, in connection with the acquisition of National on February 25, 2021, the Company further realigned its segment reporting structure to reflect organizational management changes in the Company’s wealth management business and created a new Wealth Management segment that was previously reported as part of the Capital Markets segment in 2020. In conjunction with the new reporting structures, the Company recast its segment presentation for all periods presented. For financial reporting purposes, we classify our businesses into six operating segments: (i) Capital Markets, (ii) Wealth Management, (iii) Auction and Liquidation, (iv) Financial Consulting, (v) Principal Investments – Communications, and (vi) Brands. Capital Markets Segment . Our Capital Markets segment provides a full array of investment banking, corporate finance, financial advisory, research, securities lending and sales and trading services to corporate, institutional, and individual clients. Our corporate finance and investment banking services include merger and acquisitions as well as restructuring advisory services to public and private companies, initial and secondary public offerings, and institutional private placements. In addition, we trade equity securities as a principal for our account, including investments in funds managed by our subsidiaries. Our Capital Markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors. Wealth Management Segment . Our Wealth Management segment provides wealth management and tax services to corporate and high net worth clients. We offer comprehensive wealth management services for corporate businesses that include investment strategies, executive services, retirement plans, lending & liquidity resources, and settlement solutions. Our wealth management services for individual client services provide investment management, education planning, retirement planning, risk management, trust coordination, lending & liquidity solutions, legacy planning, and wealth transfer. In addition, we supply market insights to provide unbiased guidance to make important financial decisions. Wealth management resources include market views from our investment strategists and B. Riley Securities’ proprietary equity research. Auction and Liquidation Segment . Our Auction and Liquidation segment utilizes our significant industry experience, a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients, logistical challenges, and distressed circumstances. Our scale and pool of resources allow us to offer our services across North America as well as parts of Europe, Asia, and Australia. Our Auction and Liquidation segment operates through two main divisions, retail store liquidations and wholesale and industrial assets dispositions. Our wholesale and industrial assets dispositions division operates through limited liability companies that are controlled by us. Financial Consulting Segment . Our Financial Consulting segment provides services to law firms, corporations, financial institutions, lenders, and private equity firms. These services primarily include bankruptcy, financial advisory, forensic accounting, litigation support, operations management consulting, real estate consulting, and valuation and appraisal services. Our Financial Consulting segment operates through limited liability companies that are wholly owned or majority owned by us. Principal Investments - Communications Segment . Our Principal Investments - Communications segment consists of businesses which have been acquired primarily for attractive investment return characteristics. Currently, this segment includes, among other investments, UOL, through which we provide consumer Internet access, magicJack, through which we provide VoIP communication and related product and subscription services, and Marconi Wireless, through which we provide mobile phone services and devices. Brands Segment . Our Brands segment consists of our brand investment portfolio that is focused on generating revenue through the licensing of trademarks and is held by BR Brands. 53 Recent Developments On January 19, 2022, we acquired FocalPoint Securities, LLC, an independent investment bank based in Los Angeles. The combination is expected to significantly expand B. Riley Securities’ mergers and acquisitions (“M&A”) advisory business and enhance its debt capital markets and financial restructuring capabilities. Founded in 2002, FocalPoint specializes in M&A, private capital advisory, financial restructuring, and special situation transactions. The firm includes approximately 50 investment banking professionals with deep industry specialization in high-growth sectors such as aerospace and defense, industrials, business services, consumer, healthcare, and technology/media/telecom. Our acquisition of FocalPoint builds upon the momentum and proven execution capabilities of both firms and is in line with our stated intent to expand capabilities in M&A advisory and fixed income. This combination provides strategic and financial sponsor clients with access to both firms’ proven execution capabilities and a full suite of end-to-end services from a single platform. On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. During the fourth quarter of 2021, the full impact of the COVID-19 outbreak continued to evolve, with the emergence of variant strains and breakthrough infections becoming prevalent both in the U.S. and worldwide. As the U.S. economy recovers, aided by stimulus packages and fiscal and monetary policies, inflation has been rising at historically high rates, and the Federal Reserve has signaled that it will begin increasing the target federal funds effective rate. The impact of the COVID-19 outbreak and these related matters on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the success of vaccines and natural immunity in controlling the pandemic. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position and cash flows may be materially adversely affected. Results of Operations The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results. A discussion of changes in our results of operations during the year ended December 31, 2020 compared to the year ended December 31, 2019 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K during the year ended December 31, 2020, filed with the SEC on March 4, 2021, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov. 54 Consolidated Statements of Income (Dollars in thousands) Year Ended Year Ended December 31, 2021 December 31, 2020 Change Amount % Amount % Amount % Revenues: Services and fees $ 1,172,957 67.4 % $ 667,069 73.9 % $ 505,888 75.8 % Trading income and fair value adjustments on loans 386,676 22.2 % 104,018 11.5 % 282,658 n/m Interest income - Loans and securities lending 122,723 7.1 % 102,499 11.4 % 20,224 19.7 % Sale of goods 58,205 3.3 % 29,135 3.2 % 29,070 99.8 % Total revenues 1,740,561 100.0 % 902,721 100.0 % 837,840 92.8 % Operating expenses: Direct cost of services 54,390 3.1 % 60,451 6.7 % (6,061 ) (10.0 %) Cost of goods sold 26,953 1.5 % 12,460 1.4 % 14,493 116.3 % Selling, general and administrative expenses 906,196 52.1 % 428,537 47.5 % 477,659 111.5 % Restructuring charge — 0.0 % 1,557 0.2 % (1,557 ) (100.0 %) Impairment of tradenames — 0.0 % 12,500 1.4 % (12,500 ) (100.0 %) Interest expense - Securities lending and loan participations sold 52,631 3.0 % 42,451 4.7 % 10,180 24.0 % Total operating expenses 1,040,170 59.7 % 557,956 61.9 % 482,214 86.4 % Operating income 700,391 40.2 % 344,765 38.2 % 355,626 103.2 % Other income (expense): Interest income 229 0.0 % 564 0.1 % (335 ) (59.4 %) Gain on extinguishment of loans and other 3,796 0.2 % — 0.0 % 3,796 100.0 % Income (loss) on equity investments 2,801 0.2 % (623 ) (0.1 %) 3,424 n/m Interest expense (92,455 ) (5.3 %) (65,249 ) (7.2 %) (27,206 ) 41.7 % Income before income taxes 614,762 35.3 % 279,457 31.0 % 335,305 120.0 % Provision for income taxes (163,960 ) (9.4 %) (75,440 ) (8.4 %) (88,520 ) 117.3 % Net income 450,802 25.9 % 204,017 22.6 % 246,785 121.0 % Net income (loss) attributable to noncontrolling interests 5,748 0.3 % (1,131 ) (0.1 %) 6,879 n/m Net income attributable to B. Riley Financial, Inc. 445,054 25.6 % 205,148 22.7 % 239,906 116.9 % Preferred stock dividends 7,457 0.4 % 4,710 0.5 % 2,747 58.3 % Net income available to common shareholders $ 437,597 25.1 % $ 200,438 22.2 % $ 237,159 118.3 % n/m - Not applicable or not meaningful. 55 Revenues The table below and the discussion that follows are based on how we analyze our business. Year Ended Year Ended December 31, 2021 December 31, 2020 Change Amount % Amount % Amount % Revenues - Services and fees Capital Markets segment $ 575,317 33.1 % $ 339,877 37.7 % $ 235,440 69.3 % Wealth Management segment 374,361 21.5 % 72,345 8.0 % 302,016 n/m Auction and Liquidation segment 20,169 1.2 % 63,101 7.0 % (42,932 ) (68.0 )% Financial Consulting segment 94,312 5.4 % 91,622 10.1 % 2,690 2.9 % Principal Investments - Communications segment 88,490 5.1 % 83,666 9.3 % 4,824 5.8 % Brands segment 20,308 1.1 % 16,458 1.8 % 3,850 23.4 % Subtotal 1,172,957 67.4 % 667,069 73.9 % 505,888 75.8 % Revenues - Sale of goods Auction and Liquidation segment 53,348 3.1 % 25,663 2.8 % 27,685 107.9 % Principal Investments - Communications segment 4,857 0.2 % 3,472 0.4 % 1,385 39.9 % Subtotal 58,205 3.3 % 29,135 3.2 % 29,070 99.8 % Trading income and fair value adjustments on loans Capital Markets segment 379,053 21.8 % 103,214 11.4 % 275,839 n/m Wealth Management segment 7,623 0.4 % 804 0.1 % 6,819 n/m Subtotal 386,676 22.2 % 104,018 11.5 % 282,658 n/m Interest income - Loans and securities lending Capital Markets segment 122,723 7.1 % 102,499 11.4 % 20,224 19.7 % Total revenues $ 1,740,561 100.0 % $ 902,721 100.0 % $ 837,840 92.8 % n/m - Not applicable or not meaningful. Total revenues increased approximately $837.8 million to $1,740.6 million during the year ended December 31, 2021 from $902.7 million during the year ended December 31, 2020. The increase in revenues during the year ended December 31, 2021 was primarily due to an increase in revenue from services and fees of $505.9 million, an increase in revenue from trading income and fair value adjustments on loans of $282.7 million, an increase in revenue from sale of goods of $29.1 million, and an increase in revenue from interest income - loans and securities lending of $20.2 million, as further described below. The increase in revenue from services and fees of $505.9 million was primarily due to increases in revenue of $302.0 million in the Wealth Management segment, $235.4 million in the Capital Markets segment, $4.8 million in the Principal Investments - Communications segment, $3.9 million in the Brands segment, and $2.7 million in the Financial Consulting segment, partially offset by a decrease of $42.9 million in the Auction and Liquidation segment, as further described below. Revenues from services and fees in the Capital Markets segment increased approximately $235.4 million, to $575.3 million during the year ended December 31, 2021 from $339.9 million during the year ended December 31, 2020. The increase in revenues was primarily due to increases in revenue of $203.2 million from corporate finance, consulting and investment banking fees, $26.0 million from the acquisition of National, $5.5 million in dividends, and $1.4 million in other income, partially offset by a decrease in revenue of $0.6 million from asset management fees. 56 Revenues from services and fees in the Wealth Management segment increased $302.0 million, to $374.4 million during the year ended December 31, 2021 from $72.3 million during the year ended December 31, 2020. The increase in revenues was primarily due to increases in revenue of $280.9 million from the acquisition of National, $20.7 million from wealth and asset management fees, and $0.5 million in other income. Revenues from services and fees in the Auction and Liquidation segment decreased $42.9 million, to $20.2 million during the year ended December 31, 2021 from $63.1 million during the year ended December 31, 2020. The decrease in revenues was primarily due to fewer large retail fee liquidation engagements. Revenues from services and fees in the Financial Consulting segment increased $2.7 million, to $94.3 million during the year ended December 31, 2021 from $91.6 million during the year ended December 31, 2020. The increase in revenues was primarily due to an increase in revenue of $2.4 million from advisory services. Revenues from services and fees in the Principal Investments - Communications segment increased $4.8 million to $88.5 million during the year ended December 31, 2021 from $83.7 million during the year ended December 31, 2020. The increase in revenues was primarily due to $12.4 million from the acquisition of a mobile phone services business during Q4 2021, partially offset by a decrease in revenues of $7.6 million from subscription services. Revenues from services and fees in the Brands segment increased approximately $3.9 million, to $20.3 million during the year ended December 31, 2021 from $16.4 million during the year ended December 31, 2020. The primary source of revenue included in this segment is the licensing of trademarks. Trading income and fair value adjustments on loans increased $282.7 million to income of $386.7 million during the year ended December 31, 2021 compared to $104.0 million during the year ended December 31, 2020. This was primarily due to increases of $275.8 million in the Capital Markets segment and $6.8 million in the Wealth Management segment. The gain of $386.7 million during the year ended December 31, 2021 included realized and unrealized amounts earned on investments made in our proprietary trading accounts of $376.2 million and unrealized amounts on our loans receivable, at fair value of $10.5 million. Interest income – loans and securities lending increased $20.2 million, to $122.7 million during the year ended December 31, 2021 from $102.5 million during the year ended December 31, 2020. Interest income from securities lending was $66.1 million and $51.3 million during the year ended December 31, 2021 and 2020, respectively. Interest income from loans was $56.6 million and $51.2 million during the year ended December 31, 2021 and 2020, respectively. The increase in interest income on loans was primarily due to the increase in lending activities in our Capital Markets segment which included an increase in loans receivable to $873.2 million as of December 31, 2021 from $390.7 million as of December 31, 2020. Revenues – Sale of Goods Revenues from the sale of goods increased $29.1 million, to $58.2 million during the year ended December 31, 2021 from $29.1 million during the year ended December 31, 2020. Revenues from sale of goods were primarily attributable to $46.1 million of sales of retail goods related to retail liquidation engagements in Europe, $6.1 million of sales of retail goods related to a retail liquidation engagement in the U.S., and $2.7 million in sales of magicJack devices that were sold in connection with VoIP services, partially offset by a decrease of $25.7 million from sales of goods related to multiple liquidation engagements that ended in 2020. Cost of goods sold during the years ended December 31, 2021 and 2020 was $27.0 million and $12.5 million, respectively, resulting in a gross margin of 53.7% and 57.2%, respectively. 57 Operating Expenses Direct Cost of Services Total direct costs decreased $6.1 million, to $54.4 million during the year ended December 31, 2021 from $60.5 million during the year ended December 31, 2020. Direct costs of services decreased by $10.0 million in the Auction and Liquidation segment, partially offset by an increase of $4.0 million in the Principal Investments - Communications segment. The decrease in direct costs in the Auction and Liquidation segment was primarily due to a decrease in the number of retail fee type engagements performed during the year ended December 31, 2021, partially offset by an increase of $11.7 million of direct costs incurred on a retail liquidation engagement in Europe, where we purchased inventory for resale and as part of the retail liquidation engagement we incurred costs related to the store operations which primarily related to expenses for occupancy, payroll and other store operating costs. Selling, General and Administrative Expenses Selling, general and administrative expenses during the years ended December 31, 2021 and 2020 were comprised of the following: Selling, General and Administrative Expenses Year Ended Year Ended December 31, 2021 December 31, 2020 Change Amount % Amount % Amount % Capital Markets segment $ 347,591 38.4 % $ 201,348 47.0 % $ 146,243 72.6 % Wealth Management segment 366,050 40.3 % 70,248 16.4 % 295,802 n/m Auction and Liquidation segment 14,069 1.6 % 12,359 2.9 % 1,710 13.8 % Financial Consulting segment 77,418 8.5 % 68,579 16.0 % 8,839 12.9 % Principal Investments - Communications segment 36,240 4.0 % 31,363 7.3 % 4,877 15.6 % Brands segment 5,923 0.7 % 5,747 1.3 % 176 3.1 % Corporate and Other segment 58,905 6.5 % 38,893 9.1 % 20,012 51.5 % Total selling, general & administrative expenses $ 906,196 100.0 % $ 428,537 100.0 % $ 477,659 111.5 % Total selling, general and administrative expenses increased $477.7 million to $906.2 million during the year ended December 31, 2021 from $428.5 million during the year ended December 31, 2020. The increase of $477.7 million in selling, general and administrative expenses was due to increases of $146.2 million in the Capital Markets segment, $295.8 million in the Wealth Management segment, $1.7 million in the Auction and Liquidation segment, $8.8 million in the Financial Consulting segment, $4.9 million in the Principal Investments - Communications segment, $0.2 million in the Brands segment, and $20.0 million in the Corporate and Other segment, as described below. Capital Markets Selling, general and administrative expenses in the Capital Markets segment increased by $146.2 million to $347.6 million during the year ended December 31, 2021 from $201.3 million during the year ended December 31, 2020. The increase was primarily due to increases of $85.4 million in payroll and related expenses, $32.1 million in consulting expenses, $18.7 million from the acquisition of National, and $10.3 million in investment banking deal expenses, partially offset by a decrease in depreciation and amortization of $0.3 million. Wealth Management Selling, general and administrative expenses in the Wealth Management segment increased by $295.8 million to $366.1 million during the year ended December 31, 2021 from $70.2 million during the year ended December 31, 2020. The increase was primarily due to increases of $280.8 million from the acquisition of National and $16.7 million in payroll and related expenses, partially offset by decreases of $1.3 million in legal expenses and $0.5 million in other expenses. 58 Auction and Liquidation Selling, general and administrative expenses in the Auction and Liquidation segment increased by $1.7 million to $14.1 million during the year ended December 31, 2021 from $12.4 million during the year ended December 31, 2020. The increase was primarily due to an increase of $3.5 million in other business development activities, partially offset by decreases of $0.7 million in payroll and related expenses, $0.6 million in outside contractors, and $0.4 million in foreign currency fluctuations. Financial Consulting Selling, general and administrative expenses in the Financial Consulting segment increased by $8.8 million to $77.4 million during the year ended December 31, 2021 from $68.6 million during the year ended December 31, 2020. The increase was primarily due to increases of $5.7 million in payroll and related expenses, $1.8 million in legal expenses, $0.7 million in other expenses, $0.6 million in travel and entertainment expenses, and $0.2 million in occupancy expenses. Principal Investments - Communications Selling, general and administrative expenses in the Principal Investments - Communications segment increased by $4.9 million to $36.2 million during the year ended December 31, 2021 from $31.4 million during the year ended December 31, 2020. The increase was primarily due to increases of $1.2 million in communications expenses, $0.9 million in payroll and related expenses, $0.8 million due to a legal settlement accrual release in 2020, $0.8 million in transaction costs, $0.7 million in other expenses, and $0.5 million in other business development activities expenses. Brands Selling, general and administrative expenses in the Brands segment increased by $0.2 million to $5.9 million during the year ended December 31, 2021 from $5.7 million during the year ended December 31, 2020. Corporate and Other Selling, general and administrative expenses for the Corporate and Other segment increased $20.0 million to $58.9 million during the year ended December 31, 2021 from $38.9 million during the year ended December 31, 2020. The increase was primarily due to increases of $18.9 million in payroll and related expenses, $8.0 million in gains on extinguishment of debt, and $4.0 million from the consolidation of special purpose acquisition corporations (“SPACs”) , partially offset by decreases of $8.7 million in legal settlement accrual, primarily due to recording a pre-acquisition litigation claim related to one of our acquired subsidiaries, $1.8 million in other expenses, and $0.8 million in legal expenses . During the year ended December 31, 2021, we repurchased $513.8 million of our senior notes with an aggregate face value of $504.1 million, resulting in a loss net of expenses, premiums paid, and original issue discount of $6.5 million. The total redemption payments included approximately $6.5 million in accrued interest. During the year ended December 31, 2020, we repurchased bonds with an aggregate face value of $3.4 million for $1.8 million resulting in a gain net of expenses of $1.6 million. As part of the repurchase, we paid $0.03 million in interest accrued through the date of each respective repurchase. Impairment of tradenames . Due to the impact of the COVID-19 outbreak on economic activity and market volatility, we tested our intangible assets as of March 31, 2020 and June 30, 2020 and made the determination that the indefinite-lived tradenames in the Brands segment were impaired and the Company recognized impairment charges of $12.5 million during the year ended December 31, 2020. There was no impairment recognized during the year ended December 31, 2021. Other Income (Expense). Other income included interest income of $0.2 million during the year ended December 31, 2021 compared to $0.6 million during the year ended December 31, 2020. Gain on extinguishment of loans and other in the amount of $3.8 million during the year ended December 31, 2021 was primarily due to a gain of $6.5 million from National PPP loans that were forgiven by the SBA, partially offset by a loss of $2.7 million due to changes in fair value of warrant liabilities. Income on equity investments was $2.8 million during the year ended December 31, 2021 compared to a loss of $0.6 million during the year ended December 31, 2020. Interest expense was $92.5 million during the year ended December 31, 2021 compared to $65.2 million during the year ended December 31, 2020. The increase in interest expense was primarily due to increases in interest expense of $20.2 million from the issuance of senior notes, $5.9 million from the Nomura term loan, and $1.9 million from the Nomura revolver. 59 Income Before Income Taxes . Income before income taxes increased $335.3 million to $614.8 million during the year ended December 31, 2021 from $279.5 million during the year ended December 31, 2020. The increase in income before income taxes was primarily due to increases in revenues of approximately $837.8 million, gain on extinguishment of loans and other of $3.8 million, and income from equity investments of $3.4 million, partially offset by increases in operating expenses of $482.2 million, interest expense of $27.2 million, and a decrease in interest income of $0.3 million. Provision for Income Taxes. Provision for income taxes was $164.0 million during the year ended December 31, 2021 compared to $75.4 million during the year ended December 31, 2020. The effective income tax rate was a provision of 26.7% during the year ended December 31, 2021 as compared to a provision of 27.0% during the year ended December 31, 2020. Net Income (Loss) Attributable to Noncontrolling Interest . Net income attributable to noncontrolling interests represents the proportionate share of net income (loss) generated by membership interests of partnerships that we do not own. The net income attributable to noncontrolling interests was $5.7 million during the year ended December 31, 2021 compared to a net loss of $1.1 million during the year ended December 31, 2020. Net Income Attributable to the Company . Net income attributable to the Company during the year ended December 31, 2021 was $445.1 million, an increase of $239.9 million, from net income attributable to the Company of $205.1 million during the year ended December 31, 2020. The increase was primarily due to increases in operating income of $355.6 million, gain on extinguishment of loans and other of $3.8 million, and income from equity investments of $3.4 million, partially offset by increases in provision for income taxes of $88.5 million, interest expense of approximately $27.2 million, net income attributable to noncontrolling interests of $6.9 million, and a decrease in interest income of $0.3 million. Preferred Stock Dividends . Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. On January 11, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021. Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears. On January 11, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021. Net Income Available to Common Shareholders . Net income available to common shareholders during the year ended December 31, 2021 was $437.6 million, an increase of $237.2 million, from net income available to common shareholders of $200.4 million during the year ended December 31, 2020. The increase was primarily due to increases in operating income of $355.6 million, gain on extinguishment of loans and other of $3.7 million, and income from equity investments of $3.4 million, partially offset by increases in provision for income taxes of $88.5 million, interest expense of approximately $27.2 million, net income attributable to noncontrolling interests of $6.9 million, preferred stock dividends of $2.7 million, and a decrease in interest income of $0.3 million. 60 Liquidity and Capital Resources Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loans and credit facilities, and special purpose financing arrangements. During the years ended December 31, 2021 and 2020, we generated net income attributable to the Company of $445.1 million and $205.2 million, respectively. Our cash flows and profitability are impacted by capital markets engagements performed on a quarterly and annual basis and amounts realized from the sale of our investments in marketable securities. As of December 31, 2021, we had $278.9 million of unrestricted cash and cash equivalents, $0.9 million of restricted cash, $1,532.1 million of securities and other investments, at fair value, $873.2 million of loans receivable, at fair value, and $2,033.3 million of borrowings outstanding. The borrowings outstanding of $2,033.3 million as of December 31, 2021 included $1,606.6 million of borrowings from the issuance of the series of senior notes that are due at various dates ranging from May 31, 2024 to August 31, 2028 with interest rates ranging from 5.00% to 6.75%, $346.4 million term loans borrowed pursuant to the BRPAC Credit Agreement and Nomura Credit Agreement discussed below, $80.0 million of revolving credit facility under the Nomura credit facility discussed below, and $0.4 million of notes payable. We believe that our current cash and cash equivalents, securities and other investments owned, funds available under our asset based credit facility, funds available under the BRPAC and Nomura term loans, funds available under the Nomura revolving credit facility, and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements. We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan. Cash Flow Summary Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities during the years ended December 31, 2021 and 2020. A discussion of cash flows during the year ended December 31, 2019 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Liquidity and Capital Resources” in our Annual Report on Form 10-K during the year ended December 31, 2020, filed with the SEC on March 4, 2021, which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Year Ended December 31, 2021 2020 (Dollars in thousands) Net cash provided by (used in): Operating activities $ 50,894 $ 57,689 Investing activities (956,534 ) 21,790 Financing activities 1,081,045 (80,692 ) Effect of foreign currency on cash (382 ) 1,311 Net increase in cash, cash equivalents and restricted cash $ 175,023 $ 98 61 Cash provided by operating activities was $50.9 million during the year ended December 31, 2021 compared to cash provided by operating activities of $57.7 million during the year ended December 31, 2020. Cash provided by operating activities during the year ended December 31, 2021 included net income of $450.8 million adjusted for noncash items of $91.5 million and changes in operating assets and liabilities of $491.4 million. Noncash items of $91.5 million included deferred income taxes of $61.8 million, share-based compensation of $36.0 million, depreciation and amortization of $25.9 million, loss on extinguishment of debt of $6.1 million, dividends from equity investments of $2.1 million, provision for doubtful accounts of $1.5 million, effect of foreign currency on operations of $0.1 million, and income allocated for mandatorily redeemable noncontrolling interests of $0.9 million, partially offset by interest and other of $22.3 million, fair value adjustments of $7.6 million, gain on extinguishment of loans of $6.5 million, gain on equity investments of $3.5 million, income from equity investments of $2.8 million, and impairment of leaseholds, intangibles and lease loss accrual and gain on disposal of fixed assets of $0.1 million. Cash provided by operating activities during the year ended December 31, 2020 included net income of $204.0 million adjusted for noncash items of $123.4 million and changes in operating assets and liabilities of $269.7 million. Noncash items of $123.4 million included deferred income taxes of $61.6 million, noncash fair value adjustments of $22.0 million, depreciation and amortization of $19.4 million, share-based compensation of $18.6 million, other noncash interest and other of $16.8 million, impairment of leaseholds, intangibles and lease loss accrual and gain on disposal of fixed assets of $14.1 million, provision for doubtful accounts of $3.4 million, gain on extinguishment of debt of $1.6 million, dividends from equity investments of $1.3 million, income allocated for mandatorily redeemable noncontrolling interests of $1.2 million, and loss on equity investments of $0.6 million. Cash used in investing activities was $956.5 million during the year ended December 31, 2021 compared to cash provided by investing activities of $21.8 million during the year ended December 31, 2020. During the year ended December 31, 2021, cash used in investing activities consisted of cash used for purchases of loans receivable of $738.9 million, cash of $345.0 million used to fund two trust accounts for the future redemption of our subsidiaries’ redeemable common stock, cash used for acquisition of businesses of $28.3 million, cash used for repayments of loan participations sold of $15.2 million, cash used for purchases of property and equipment and intangible assets of $0.7 million, and purchases of equity investments of $0.6 million, partially offset by cash received from loans receivable repayment of $172.1 million. During the year ended December 31, 2020, cash provided by investing activities consisted of funds received from trust account of subsidiary of $320.5 million, cash received from loans receivable repayment of $90.1 million, loan participations sold of $6.9 million, and proceeds from sale of loans receivable to related party of $1.8 million, partially offset by cash used for purchases of loans receivable of $207.5 million, cash of $176.8 million used to fund a trust account for the future redemption of one of our subsidiaries’ redeemable common stock, cash used for purchases of equity investments of $7.5 million, repayments of loan participations sold of $2.2 million, cash used for acquisition of businesses of $1.5 million and cash used for purchases of property and equipment and intangible assets of $2.0 million. Cash provided by financing activities was $1,081.0 million during the year ended December 31, 2021 compared to cash used in financing activities of $80.7 million during the year ended December 31, 2020. During the year ended December 31, 2021, cash provided by financing activities primarily consisted of $1,249.1 million proceeds from issuance of senior notes, $345.0 million proceeds from initial public offering of subsidiaries, $300.0 million proceeds from our term loan, $80.0 million proceeds from revolving line of credit, $64.7 million proceeds from our offering of common stock, $13.7 million contributions from noncontrolling interests, $14.7 million proceeds from our offering of preferred stock, partially offset by $507.3 million used to repurchase our senior notes, $347.1 million used to pay dividends on our common shares, $37.6 million used to repay our notes payable, $33.4 million used to pay debt issuance costs, $20.7 million used for repayment on our term loan, $16.5 million distribution to noncontrolling interests, $9.6 million used for payment of employment taxes on vesting of restricted stock, $7.5 million used to pay dividends on our preferred shares, $2.7 million used to repurchase our common stock, and $3.7 million used for payment of participating note payable and contingent consideration. During the year ended December 31, 2020, cash used in financing activities primarily consisted of $318.8 million used for redemption of subsidiary temporary equity and distributions, $67.3 million used for repayment on our term loan, $48.2 million used to repurchase our common stock, $38.8 million used to pay dividends on our common shares, $37.1 million used for repayment of our asset based credit facility, $22.6 million used for payment of employment taxes on vesting of restricted stock, $9.8 million used to pay debt issuance and offering costs, $4.7 million used to pay dividends on our preferred shares, $4.3 million used for payment of participating note payable and contingent consideration, $3.8 million distribution to noncontrolling interests, $1.8 million used to repurchase our senior notes, and $0.4 million used to repay our other notes payable, partially offset by $186.8 million proceeds from issuance of senior notes, $175.0 million proceeds from initial public offering of subsidiaries, $75.0 million proceeds from our term loan, $39.5 million proceeds from our offering of preferred stock, and $0.6 million contributions from noncontrolling interests. 62 Credit Agreements Nomura Credit Agreement On June 23, 2021, we, and our wholly owned subsidiaries, BR Financial Holdings, LLC (the “Primary Guarantor”), and BR Advisory & Investments, LLC (the “Borrower”) entered into a credit agreement (as amended prior to the Second Amendment (as defined below) the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC, as administrative agent (the “Administrative Agent”) , and Wells Fargo Bank, N.A., as collateral agent (the “Collateral Agent”) , for a four-year $200.0 million secured term loan credit facility (the “Term Loan Facility”) and a four-year $80.0 million revolving loan credit facility (the “Revolving Credit Facility”). On December 17, 2021 (the “Amendment Date”), we, the Primary Guarantor, and the Borrower entered into a Second Incremental Amendment to Credit Agreement (the “Second Amendment”), by and among us, the Primary Guarantor, the Borrower, each of the subsidiary guarantors signatory thereto, each of the lenders party thereto, the Administrative Agent and the Collateral Agent, pursuant to which the Borrower established an incremental facility in an aggregate principal amount of $100.0 million (the “Incremental Facility” and the incremental term loans made thereunder, the “Incremental Term Loans”) of secured term loans under the Credit Agreement on terms identical to those applicable to the Term Loan Facility. The Borrower borrowed the full amount of the Incremental Term Loans on the Amendment Date. The Term Loan Facility, Revolving Credit Facility, and Incremental Facility, together, (“Credit Facilities”), mature on June 23, 2025, subject to acceleration or prepayment. Eurodollar loans under the Credit Facilities accrue interest at the Eurodollar Rate plus an applicable margin of 4.50%. Base rate loans accrue interest at the Base Rate plus an applicable margin of 3.50%. In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined by the average utilization of the Revolving Credit Facility for the immediately preceding fiscal quarter. Subject to certain eligibility requirements, the assets of certain subsidiaries of ours that hold credit assets, private equity assets, and public equity assets are placed into a borrowing base, which serves to limit the borrowings under the Credit Facilities. If borrowings under the Credit Facilities exceed the borrowing base, we are obligated to prepay the loans in an aggregate amount equal to such excess. The Credit Agreement and the Second Amendment contain certain representations and warranties (subject to certain agreed qualifications) that are customary for financings of this kind. The Credit Agreement and the Second Amendment contain certain affirmative and negative covenants customary for financings of this type that, among other things, limit our, the Primary Guarantor’s, the Borrower’s, and the Borrower’s subsidiaries’ ability to incur additional indebtedness or liens, to dispose of assets, to make certain fundamental changes, to enter into restrictive agreements, to make certain investments, loans, advances, guarantees and acquisitions, to prepay certain indebtedness and to pay dividends or to make other distributions or redemptions/repurchases in respect of their respective equity interests. In addition, the Credit Agreement and the Second Amendment contain a financial covenant that requires us to maintain Operating EBITDA of at least $135.0 million and the Primary Guarantor to maintain net asset value of at least $1,100.0 million. The Credit Agreement and the Second Amendment contain customary events of default, including with respect to a failure to make payments under the credit facilities, cross-default, certain bankruptcy and insolvency events and customary change of control events. Commencing on September 30, 2022, the Term Loan Facility and Incremental Facility will amortize in equal quarterly installments of 1.25% of the aggregate principal amount of the term loan as of the closing date with the remaining balance due at final maturity. Quarterly installments from September 30, 2022 to March 31, 2025 are in the amount of $3.8 million per quarter. As of December 31, 2021, the outstanding balance on the Term Loan Facility and Incremental Facility was $292.7 million (net of unamortized debt issuance costs of $7.4 million). Interest on the term loan during the year ended December 31, 2021 was $5.9 million (including amortization of deferred debt issuance costs of $0.8 million). The interest rate on the term loan as of December 31, 2021 was 4.72%. We had an outstanding balance of $80.0 million under the Revolving Credit Facility as of December 31, 2021. Interest on the revolving facility during the year ended December 31, 2021 was $1.9 million (including unused commitment fees of $0.08 million and amortization of deferred financing costs of $0.3 million). The interest rate on the Revolving Credit Facility as of December 31, 2021 was 4.67%. We are in compliance with all financial covenants in the Nomura Credit Agreement as of December 31, 2021. 63 Wells Fargo Credit Agreement On April 21, 2017, we amended the asset based credit facility agreement (as amended, the “Credit Agreement”) with Wells Fargo Bank to increase the maximum borrowing limit from $100.0 million to $200.0 million. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under a separate credit agreement (a “UK Credit Agreement”) dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom with borrowings up to 50.0 million British Pounds. Any borrowing on the UK Credit Agreement reduces the availability of the asset based $200.0 million credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. The Credit Agreement continues to include the addition of our Canadian subsidiary, from the October 5, 2016 amendment to the Credit Agreement, to facilitate borrowings to fund retail liquidation transactions in Canada. From time to time, we utilize this credit facility to fund costs and expenses incurred in connection with liquidation engagements. We also utilize this credit facility in order to issue letters of credit in connection with liquidation engagements conducted on a guaranteed basis. Subject to certain limitations and offsets, we are permitted to borrow up to $200.0 million under the credit facility, less the aggregate principal amount borrowed under the UK Credit Agreement (if in effect). Borrowings under the credit facility are only made at the discretion of the lender and are generally required to be repaid within 180 days. The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility is secured by the proceeds received for services rendered in connection with the liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract, if any. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related credit agreement. We typically seek borrowings on an engagement-by-engagement basis. The Credit Agreement contains certain covenants, including covenants that limit or restrict our ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge, or consolidate and enter into certain transactions with affiliates. There was no outstanding balance on this credit facility as of December 31, 2021 or 2020. As of December 31, 2021, there were no open letters of credit outstanding. We are in compliance with all financial covenants in the asset based credit facility as of December 31, 2021. BRPAC Credit Agreement On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of ours, in the capacity of borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with Banc of California, N.A. in its capacity as agent (the “Agent”) and lender and with the other lenders party (the “Closing Date Lenders”). Under the BRPAC Credit Agreement, we borrowed $80.0 million due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10.0 million at any time prior to the first anniversary of the agreement date. On February 1, 2019, the Borrowers entered into the First Amendment to Credit Agreement and Joinder with City National Bank as a new lender in which the new lender extended to Borrowers the additional $10.0 million. On December 31, 2020, the Borrowers, the Secured Guarantors, the Agent, and the Closing Date Lenders, entered into the Second Amendment to Credit Agreement (the “Second Amendment”) pursuant to which, among other things, (i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ will use to repay the outstanding principal amount of the existing Terms Loans and Optional Loans and for other general corporate purposes, (ii) the Borrowers were permitted to make a one-time Permitted Distribution (as defined in the Second Amendment) in the amount of $30.0 million on the date of the Second Amendment, (iii) the maturity date of the new Term Loans is five (5) years from the date of the Second Amendment, (iv) the interest rate margin was increased by 25 basis points as set forth in the Second Amendment, (v) the Borrowers agreed to make mandatory prepayments of the Term Loans from a portion of the Consolidated Excess Cash Flow (as defined in the Credit Agreement), (vi) the maximum Consolidated Total Funded Debt Ratio (as defined in the Credit Agreement) was increased as set forth in the Second Amendment and (vii) the Company and B. Riley Principal Investments, LLC entered into a reaffirmation of their guarantees of the Borrowers’ obligations under the Credit Agreement. Additionally, the Borrowers paid a commitment fee and an arrangement fee, each based on a percentage of the aggregate commitments, in each case upon the closing of the Second Amendment. 64 On December 16, 2021, the Borrowers, the Secured Guarantors, the Agent, and the Closing Date Lenders, entered into the Third Amendment to Credit Agreement (the “Third Amendment”) pursuant to which, among other things, replaced LIBOR with the Secured Overnight Financing Rate (“SOFR”) reference rate and the Borrowers were permitted to make a one-time Permitted Distribution (as defined in the Third Amendment) in the amount of $30.0 million on the date of the Third Amendment. The borrowings under the amended BRPAC Credit Agreement bear interest equal to the SOFR rate plus a margin of 2.75% to 3.25% depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement. As of December 31, 2021 and 2020, the interest rate on the amended BRPAC Credit Agreement was at 3.17% and 3.40%, respectively. Principal outstanding under the amended BRPAC Credit Agreement is due in quarterly installments. Quarterly installments from March 31, 2022 to December 31, 2022 are in the amount of $4.1 million per quarter, from March 31, 2023 to December 31, 2023 are in the amount of $3.6 million per quarter, from March 31, 2024 to December 31, 2024 are in the amount of $3.1 million per quarter, from March 31, 2025 to December 31, 2025 are $2.8 million per quarter , and the remaining principal balance is due at final maturity on December 31, 2025. As of December 31, 2021 and 2020, the outstanding balance on the term loan was $53.7 million (net of unamortized debt issuance costs of $0.6 million), and $74.2 million (net of unamortized debt issuance costs of $0.8 million), respectively. Interest expense on the term loan during the years ended December 31, 2021 and 2020, was $2.5 million (including amortization of deferred debt issuance costs of $0.3 million) and $2.4 million (including amortization of deferred debt issuance costs of $0.3 million), respectively. We are in compliance with all financial covenants in the amended BRPAC Credit Agreement as of December 31, 2021. Preferred Stock Offering On September 4, 2020, the Company closed its public offering of Depositary Shares, each representing 1/1000th of a share of 7.375% Series B Cumulative Perpetual Preferred Stock. The liquidation preference of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share). As a result of the offering the Company issued 1,300 shares of Series B Preferred Stock represented by 1,300,000 depositary shares. The offering resulted in gross proceeds of approximately $32.5 million. Senior Note Offerings During the year ended December 31, 2021, we issued $223.4 million of senior notes due with maturities dates ranging from May 2023 to August 2028 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, which governs the program of at-the-market sales of our senior notes. We filed a series of prospectus supplements with the SEC which allowed us to sell these senior notes. On January 25, 2021, we issued $230.0 million of senior notes due in January 2028 (“6.0% 2028 Notes”). Interest on the 6.0% 2028 Notes is payable quarterly at 6.0%. The 6.0% 2028 Notes are unsecured and due and payable in full on January 31, 2028. In connection with the issuance of the 6.0% 2028 Notes, we received net proceeds of $225.7 million (after underwriting commissions, fees, and other issuance costs of $4.3 million). The Notes bear interest at the rate of 6.0% per annum. On March 29, 2021, we issued $159.5 million of senior notes due in March 2026 (“5.5% 2026 Notes”). Interest on the 5.5% 2026 Notes is payable quarterly at 5.5%. The 5.5% 2026 Notes are unsecured and due and payable in full on March 31, 2026. In connection with the issuance of the 5.5% 2026 Notes, we received net proceeds of $156.3 million (after underwriting commissions, fees, and other issuance costs of $3.2 million). The Notes bear interest at the rate of 5.5% per annum. On March 31, 2021, we exercised our option for early redemption at par $128.2 million of senior notes due in May 2027 (“7.50% 2027 Notes”) pursuant to the second supplemental indenture dated May 31, 2017. The total redemption payment included $1.6 million in accrued interest. On July 26, 2021, we redeemed, in full, $122.8 million aggregate principal amount of our 7.25% Senior Notes due 2027 (“7.25% 2027 Notes”) pursuant to the third supplemental indenture dated December 31, 2017. The total redemption payment included approximately $2.1 million in accrued interest. In connection with the full redemption, the 7.25% 2027 Notes under the ticker symbol “RILYG,” were delisted from NASDAQ. 65 On August 4, 2021, we issued $316.3 million of senior notes due in August 2028 (“5.25% 2028 Notes”). Interest on the 5.25% 2028 Notes is payable quarterly at 5.25%. The 5.25% 2028 Notes are unsecured and due and payable in full on August 31, 2028. In connection with the issuance of the 5.25% 2028 Notes, we received net proceeds of $308.7 million (after underwriting commissions, fees, and other issuance costs of $7.6 million). The Notes bear interest at the rate of 5.25% per annum. On September 4, 2021, we redeemed, in full, $137.5 million aggregate principal amount of our 7.375% Senior Notes due 2023 (“7.375% 2023 Notes”) pursuant to the fifth supplemental indenture dated September 11, 2018. The redemption price was equal to 101.5% of the aggregate principal amount, plus accrued and unpaid interest up to, but excluding, the redemption date. The total redemption payment included approximately $1.0 million in accrued interest and $2.1 million in premium. In connection with the full redemption, the 7.375% 2023 Notes under the ticker symbol “RILYH,” were delisted from NASDAQ. On October 22, 2021, we redeemed, in full, $115.7 million aggregate principal amount of our 6.875% Senior Notes due 2023 (the “6.875% 2023 Notes”) pursuant to the fifth supplemental indenture dated September 11, 2018. The redemption price was equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, up to, but excluding, the redemption date. The total redemption payment included approximately $1.8 million in accrued interest and $1.2 million in premium. In connection with the full redemption, the 6.875% 2023 Notes under the ticker symbol “RILYI,” were delisted from NASDAQ. On December 3, 2021, we issued $322.7 million of senior notes due in December 2026 (“5.00% 2026 Notes”). Interest on the 5.00% 2026 Notes is payable quarterly at 5.00%. The 5.00% 2026 Notes are unsecured and due and payable in full on December 31, 2026. In connection with the issuance of the 5.00% 2026 Notes, we received net proceeds of $317.6 million (after underwriting commissions, fees, and other issuance costs of $5.0 million). The Notes bear interest at the rate of 5.00% per annum. As of December 31, 2021 and December 31, 2020, the total senior notes outstanding was $1,606.6 million (net of unamortized debt issue costs of $21.5 million) and $870.8 million (net of unamortized debt issue costs of $9.6 million) with a weighted average interest rate of 5.69% and 6.95%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $81.5 million and $61.2 million, during the years ended December 31, 2021 and 2020, respectively. The most recent sales agreement prospectus was filed by us with the SEC on January 5, 2022 (the “January 2022 Sales Agreement Prospectus”), supplementing the prospectus filed on August 11, 2021, the prospectus filed on April 6, 2021, and the prospectus filed on January 28, 2021. This program provides for the sale by the Company of up to $250.0 million of certain of the Company’s senior notes. As of December 31, 2021, the Company had $111.9 million remaining availability under the January 2022 Sales Agreement. Off Balance Sheet Arrangements Information about our off-balance sheet arrangements is included in Note 17 of the Notes to Consolidated Financial Statements. Such information is hereby incorporated by reference. Dividends From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. During the years ended December 31, 2021 and 2020, we paid cash dividends on our common stock of $347.1 million and $38.8 million, respectively. On February 23, 2022, the Company declared a regular quarterly dividend of $1.00 per share, which will be paid on or about March 23, 2022 to stockholders of record as of March 9, 2022. On October 28, 2021, we declared a regular dividend of $1.00 per share and special dividend of $3.00 per share that will be paid on or about November 23, 2021 to stockholders of record as of November 9, 2021. On July 29, 2021, we declared a regular dividend of $0.50 per share and special dividend of $1.50 per share that was paid on August 26, 2021 to stockholders of record as of August 13, 2021. On May 3, 2021, we declared a regular dividend of $0.50 per share and special dividend of $2.50 per share that was paid on May 28, 2021 to stockholders of record as of May 17, 2021. On October 28, 2021, the Board of Directors announced an increase to the regular quarterly dividend from $0.50 per share to $1.00 per share. While it is the Board’s current intention to make regular dividend payments of $1.00 per share each quarter and special dividend payments dependent upon exceptional circumstances from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems relevant. The declaration and payment of any future dividends or repurchases of our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors. 66 A summary of our common stock dividend activity during the years ended December 31, 2021 and 2020 was as follows: Regular Special Total Date Date Stockholder Dividend Dividend Dividend Declared Paid Record Date Amount Amount Amount October 28, 2021 November 23, 2021 November 9, 2021 $ 1.000 $ 3.000 $ 4.000 July 29, 2021 August 26, 2021 August 13, 2021 0.500 1.500 2.000 May 3, 2021 May 28, 2021 May 17, 2021 0.500 2.500 3.000 February 25, 2021 March 24, 2021 March 10, 2021 0.500 3.000 3.500 October 28, 2020 November 24, 2020 November 10, 2020 0.375 0.000 0.375 July 30, 2020 August 28, 2020 August 14, 2020 0.300 0.050 0.350 May 8, 2020 June 10, 2020 June 1, 2020 0.250 0.000 0.250 March 3, 2020 March 31, 2020 March 17, 2020 0.250 0.100 0.350 Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $0.03 million liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends are payable quarterly in arrears. As of December 31, 2021, dividends in arrears in respect of the Depositary Shares were $0.8 million. On January 11, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021. On January 10, 2022, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 31, 2022 to holders of record as of the close of business on January 21, 2022. Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25 thousand liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends are payable quarterly in arrears. As of December 31, 2021, dividends in arrears in respect of the Depositary Shares were $0.5 million. On January 11, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. On April 5, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on April 30, 2021 to holders of record as of the close of business on April 20, 2021. On July 8, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on August 2, 2021 to holders of record as of the close of business on July 21, 2021. On October 6, 2021, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid on November 1, 2021 to holders of record as of the close of business on October 21, 2021. On January10, 2022, the Company declared a cash dividend $0.4609375 per Depositary Share, which was paid January 31, 2022 to holders of record as of the close of business on January 21, 2022. Critical Accounting Policies Our financial statements and the notes thereto contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, management’s estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. Management considers an accounting estimate to be critical if: ● it requires assumptions to be made that were uncertain at the time the estimate was made; and ● changes in the estimate, or the use of different estimating methods that could have been selected, could have a material impact on results of operations or financial condition. 67 Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used when accounting for certain items such as valuation of securities, reserves for accounts receivable, the fair value of loans receivable, intangible assets and goodwill, share based arrangements and accounting for income tax valuation allowances, recovery of contract assets and sales returns and allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ. On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. During the fourth quarter of 2021, the full impact of the COVID-19 outbreak continued to evolve, with the emergence of variant strains and breakthrough infections becoming prevalent both in the U.S. and worldwide. As the U.S. economy recovers, aided by stimulus packages and fiscal and monetary policies, inflation has been rising at historically high rates, and the Federal Reserve has signaled that it will begin increasing the target federal funds effective rate. The impact of the COVID-19 outbreak and these related matters on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the success of vaccines and natural immunity in controlling the pandemic. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position and cash flows may be materially adversely affected. Our significant accounting policies are described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report. Management believes that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our financial statements. Revenue Recognition . We recognize revenues under Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers Revenues are recognized when control of the promised goods or performance obligations for services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services. Revenues from contracts with customers in the Capital Markets segment, Wealth Management segment, Auction and Liquidation segment, Financial Consulting segment, Principal Investments – Communications segment and Brands segment are primarily comprised of the following: Capital Markets Segment - Fees earned from corporate finance and investment banking services are derived from debt, equity and convertible securities offerings in which the Company acted as an underwriter or placement agent. Fees from underwriting activities are recognized as revenues when the performance obligation for the services related to the underwriting transaction is satisfied under the terms of the engagement and is not subject to any other contingencies. Fees are also earned from financial advisory and consulting services rendered in connection with client mergers, acquisitions, restructurings, recapitalizations and other strategic transactions. The performance obligation for financial advisory services is satisfied over time as work progresses on the engagement and services are delivered to the client. The performance obligation for financial advisory services may also include success and performance based fees which are recognized as revenue when the performance obligation is no longer constrained and it is not probable that the revenue recognized would be subject to significant reversal in a future period. Generally, it is probable that the revenue recognized is no longer subject to significant reversal upon the closing of the investment banking transaction. Fees from asset management services are recognized over the period the performance obligation for the services are provided. Asset management fees are primarily comprised of fees for asset management services and are generally based on the dollar amount of the assets being managed. 68 Revenues from sales and trading are recognized when the performance obligation is satisfied and include commissions resulting from equity securities transactions executed as agent or principal and are recorded on a trade date basis and fees paid for equity research. Revenues from other sources in the Capital Markets segment is primarily comprised of (i) interest income from loans receivable and securities lending activities, (ii) related net trading gains and losses from market making activities, the commitment of capital to facilitate customer orders, (iii) trading activities from our Principal Investments in equity and other securities for the Company’s account, and (iv) other income. Interest income from securities lending activities consists of interest income from equity and fixed income securities that are borrowed from one party and loaned to another. The Company maintains relationships with a broad group of banks and broker-dealers to facilitate the sourcing, borrowing and lending of equity and fixed income securities in a “matched book” to limit the Company’s exposure to fluctuations in the market value or securities borrowed and securities loaned. Other revenues include (i) net trading gains and losses from market making activities in our fixed income group, (ii) carried interest from our asset management recognized as earnings from financial assets within the scope of ASC 323 - Investments - Equity Method and Joint Ventures , and therefore will not be in the scope of ASC 606 - Revenue from Contracts with Customers . In accordance with ASC 323 - Investments - Equity Method and Joint Ventures , the Company will record equity method income (losses) as a component of investment income based on the change in our proportionate claim on net assets of the investment fund, including performance-based capital allocations, assuming the investment fund was liquidated as of each reporting date pursuant to each fund’s governing agreements, and (iii) other miscellaneous income. Wealth Management segment - Fees from wealth management asset advisory services consist primarily of investment advisory fees that are recognized over the period the performance obligation for the services provided. Investment advisory and asset management fees are primarily comprised of fees for investment services and are generally based on the dollar amount of the assets being managed. Investment advisory fee revenues as a principal registered investment advisor (RIA) are recognized on a gross basis. Asset management fee revenues as an agent are recognized on a net basis. Revenues from sales and trading are recognized when the performance obligation is satisfied and include commissions resulting from equity securities transactions executed as agent and are recorded on a trade date basis. Auction and Liquidation segment - Commission and fees earned on the sale of goods at Auction and Liquidation sales are recognized when evidence of a contract or arrangement exists, the transaction price has been determined, and the performance obligation has been satisfied when control of the product and risks of ownership has been transferred to the buyer. The commission and fees earned for these services are included in revenues in the accompanying consolidated statements of income. Under these types of arrangements, revenues also include contractual reimbursable costs. Revenues earned from Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation are recognized over time when the performance obligation is satisfied. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of services to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill the contract include labor and other direct costs incurred by the Company related to the contract. Due to the nature of the guarantees and performance obligations under these contracts, the estimation of revenue that is ultimately earned is complex and subject to many variables and requires significant judgment. It is common for these contracts to contain provisions that can either increase or decrease the transaction price upon completion of our performance obligations under the contract. Estimated amounts are included in the transaction price at the most likely amount it is probable that a significant reversal of revenue will not occur. Our estimates of variable consideration and determination of whether or not to include estimated amounts in the transaction price are based on an assessment of our anticipated performance under the contract taking into consideration all historical, current and forecasted information that is reasonably available to us. Costs that directly relate to the contract and expected to be recoverable are capitalized as an asset and included in advances against customer contracts in the accompanying consolidated balance sheets. These costs are amortized as the services are transferred to the customer over the contract period, which generally does not exceed six months, and the expense is recognized as a component of direct cost of services. If, during the auction or liquidation sale, the Company determines that the total costs to be incurred on a performance obligation under a contract exceeds the total estimated revenues to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined. 69 If the Company determines that the variable consideration used in the initial determination of the transaction price for the contract is such that the total recoveries from the auction or liquidation will not exceed the guaranteed recovery values or advances made in accordance with the contract, the transaction price will be reduced and a loss or negative revenue could result from the performance obligation. A provision for the entire loss as negative revenue on the performance obligation is recognized in the period the loss is determined. Financial Consulting Segment - Revenues in the Financial Consulting segment are primarily comprised of fees earned from providing bankruptcy, financial advisory, forensic accounting, real estate consulting and valuation and appraisal services. Fees earned from bankruptcy, financial advisory, forensic accounting and real estate consulting services are rendered to clients over time as work progresses on the engagement and services are delivered to the client. Fees may also include success and performance based fees which are recognized as revenue when the performance obligation is no longer constrained and it is not probable that the revenue recognized would be subject to significant reversal in a future period. Revenues for valuation and appraisal services are recognized when the performance obligation is completed and is generally at the point in time upon delivery of the report to the customer. Revenues in the Financial Consulting segment also include contractual reimbursable costs. Principal Investments – Communications Segment – Revenues in the Principal Investments - Communications segment are primarily comprised of subscription services revenues which consist of fees charged to United Online pay accounts; revenues from the sale of the magicJack access rights; revenues from access rights renewals and mobile apps; prepaid minutes revenues; revenues from access and wholesale charges; service revenue from UCaaS hosting services; and revenues from mobile phone voice, text, and data services. Products revenues consist of revenues from the sale of magicJack, mobile phone, and mobile broadband service devices, including the related shipping and handling and installation fees, if applicable. This segment’s revenues also include advertising revenues which consist primarily of amounts from the Company’s Internet search partner that are generated as a result of users utilizing the partner’s Internet search services and amounts generated from display advertisements. The Company recognizes such advertising revenues in the period in which the advertisement is displayed or, for performance-based arrangements, when the related performance criteria are met. Subscription service revenues are recognized over time in the service period in which the transaction price has been determinable and the related performance obligations for services are provided to the customer. Fees charged to customers in advance are initially recorded in the consolidated balance sheets as deferred revenue and then recognized ratably over the service period as the performance obligations are provided. Product revenues for hardware and shipping are recognized at the time of delivery. Revenues from sales of devices and services represent revenues recognized from sales of the magicJack devices to retailers, wholesalers, or direct to customers, net of returns, and rights to access the Company’s servers over the period associated with the access right period, and from sales of mobile phones and voice, text, and data services. The transaction price for devices is allocated between equipment and service based on stand-alone selling prices. Revenues allocated to devices are recognized upon delivery (when control transfers to the customer), and service revenue is recognized ratably over the service term. The Company estimates the return of magicJack device direct sales as part of the transaction price using a six month rolling average of historical returns. 70 Brands Segment – Licensing revenue results from various license agreements that provide revenue based on guaranteed minimum royalty amounts and advertising/marketing fees with additional royalty revenue based on a percentage of defined sales. Guaranteed minimum royalty amounts are recognized as revenue on a straight-line basis over the full contract term. Royalty payments exceeding the guaranteed minimum amounts in a specific contract year are recognized only subsequent to when the guaranteed minimum amount has been achieved. Other licensing fees are recognized at a point in time once the performance obligations have been satisfied. Payments received as consideration for the grant of a license are recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue when earned. Revenue is not recognized unless collectability is probable. Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses inherent in our accounts receivable portfolio. In establishing the required allowance, management utilizes the expected loss model. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The bad debt expense is included as a component of selling, general and administrative expenses in the accompanying consolidated statements of income. Goodwill and Other Intangible Assets. We account for goodwill and intangible assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. Goodwill includes the excess of the purchase price over the fair value of net assets acquired in business combinations and the acquisition of noncontrolling interests. The Codification requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. The Company operates five reporting units, which are the same as its reporting segments described in Note 22 to the consolidated financial statements. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment. 71 When testing goodwill for impairment, in accordance with ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the Company made a qualitative assessment of the impact of the COVID-19 outbreak on goodwill and other intangible assets. Based on the Company’s qualitative assessments during 2020, the Company concluded that a positive assertion can be made from the qualitative assessment that it is more likely than not that the fair value of the reporting units exceeded their carrying values and no impairments were identified. The Company reviews the carrying value of its amortizable intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group, if any, exceeds its fair market value. During the year ended December 31, 2020, the Company determined that the COVID-19 outbreak was a triggering event for testing the indefinite-lived tradenames in the Brands segment during the first quarter and again in the second quarter and determined that the indefinite-lived tradenames in the Brands segment were impaired. As a result, the Company recognized impairment charges of $12,500, during the year ended December 31, 2020, which are included in restructuring charge in the Company’s consolidated statements of income. During the year ended December 31, 2021, the Company recognized no impairment of intangibles. Fair Value Measurements. The Company records securities and other investments owned, securities sold not yet purchased, and mandatorily redeemable noncontrolling interests that were issued after November 5, 2003 at fair value with fair value determined in accordance with the Codification. Our mandatorily redeemable noncontrolling interests are measured at fair value on a recurring basis and are categorized using the three levels of fair value hierarchy. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. We also invest in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments is derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC 820 - Fair Value Measurements . The carrying amounts reported in the consolidated financial statements for cash, restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value based on the short-term maturity of these instruments. The carrying amounts of the notes payable (including credit lines used to finance liquidation engagements), long-term debt and capital lease obligations approximate fair value because the contractual interest rates or effective yields of such instruments are consistent with current market rates of interest for instruments of comparable credit risk. 72 Share-Based Compensation. The Company’s share based payment awards principally consist of grants of restricted stock and restricted stock units. Share based payment awards also include grants of membership interests in the Company’s majority owned subsidiaries. The grants of membership interests consist of percentage interests in the Company’s majority owned subsidiaries as determined at the date of grant. In accordance with the accounting guidance share based payment awards are classified as either equity or a liability. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the consolidated statements of income over the requisite service or performance period the award is expected to vest. In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions at a price that is 85% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of ASC 718 - Compensation – Stock Compensation , the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan. Income Taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect during the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction, the eligible carryforward period, and other circumstances. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced. The Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. As a result of the common stock offering that was completed on June 5, 2014, the Company had a more than 50% ownership shift in accordance with Internal Revenue Code Section 382. Accordingly, the Company is limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income. As of December 31, 2019, the Company believes that the net operating loss that existed as of the more than 50% ownership shift will be utilized in future tax periods and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided an allowance. Recent Accounting Standards See Note 2(ac) to the accompanying financial statements for recent accounting standards we have not yet adopted and recently adopted. 73