NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
1
. DESCRIPTION OF BUSINESS
Basis of Presentation
The
consolidated
financial statements include the accounts of A-Mark Precious Metals, Inc. and its wholly- and majority-owned subsidiaries ("A-Mark" or the "Company"). Intercompany accounts and transactions have been eliminated.
Business Segments
The Company conducts its operations in
three
reportable segments: (1) Wholesale Trading & Ancillary Services, (2) Secured Lending and (3) Direct Sales. Each of these reportable segments represents an aggregation of operating segments that meets the aggregation criteria set forth in the Segment Reporting Topic 280 of the FASB Accounting Standards Codification (“ASC”) (See
Note 18
).
Wholesale Trading & Ancillary Services
The Wholesale Trading & Ancillary Services segment operates as a full-service precious metals trading company. The products that this segment sells include gold, silver, platinum and palladium for storage and delivery primarily in the form of coins, bars, wafers and grain. Also, this segment's trading-related services include financing, consignment, logistics, hedging and various customized financial programs.
Through its wholly owned subsidiary, A-Mark Trading AG (“AMTAG”), the Company promotes A-Mark bullion products throughout the European continent. Transcontinental Depository Services (“TDS”), also a wholly owned subsidiary of the Company, offers worldwide storage solutions to institutions, dealers and consumers.
The Company's wholly-owned subsidiary, A-M Global Logistics, LLC ("Logistics"), operates the Company's logistics fulfillment center based in Las Vegas, Nevada. Logistics provides customers an array of complementary services, including packaging, shipping, handling, receiving, processing, and inventorying of precious metals and custom coins on a secure basis.
In August 2016, the Company formed AM&ST Associates, LLC ("AMST"), a joint venture with SilverTowne, L.P., referred to as SilverTowne, an Indiana-based producer of minted silver. The Company and SilverTowne, L.P. own
55%
and
45%
, respectively, of AMST. AMST acquired the entire minting operations (referred to as SilverTowne Mint) of SilverTowne, L.P., with the goal of providing greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver during volatile market environments.
Secured Lending
The Company operates its Secured Lending segment through its wholly-owned subsidiary, CFC. CFC has been in operation since 2005. CFC is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors and collectors.
In the fourth quarter of fiscal 2018, the Company announced its intention to engage in securitization financing, whereby it would issue privately placed notes secured by the loans that it owns and the bullion and numismatics collateralizing the loans. As a result of this action, as well as certain changes to CFC's management structure, the Company determined that the operations of CFC, which had previously been included in the Wholesale Trading and & Ancillary Services segment, constituted a separate reportable operating segment.
Direct Sales
The Company's wholly-owned subsidiary, Goldline, Inc. ("Goldline"), is a direct retailer of precious metals to the investor community. Goldline markets its precious metal products primarily on radio, the internet and television. Goldline sells gold and silver bullion in the form of coins, and bars, as well as numismatic coins.
The Company entered into the Direct Sales segment through its acquisition of substantially all of the assets of Goldline, LLC ("Goldline, LLC" or the "Seller"), pursuant to the terms of an Asset Purchase Agreement (the “Purchase Agreement”), dated August 14, 2017, between Goldline (then known as Goldline Acquisition Corp.) and the Seller. The transaction closed on
August 28, 2017
(the "Closing Date"). On the Closing Date, the estimated
purchase price for the net assets was approximately
$10.0 million
(the “Initial Provisional Purchase Price”), which was based on the Seller’s preliminary balance sheet dated as of July 31, 2017. The net assets acquired consisted of both intangible assets, which the parties agreed had an aggregate fair value of
$6.4 million
, and specified net tangible assets of the Seller, which the parties initially agreed had an estimated aggregate fair value of
$3.6 million
, subject to post-closing adjustment as described below. In connection with the closing, Goldline paid to the Seller an amount equal to the Initial Provisional Purchase Price less
$1.5 million
(the "Holdback Amount"), which amount was held back
and deposited into escrow to serve as security for the Seller’s indemnification obligations under the Purchase Agreement. As of
June 30, 2018
,
none
of the Holdback Amount had been released.
From the Closing Date and through
June 30, 2018
, the Company conducted net tangible asset value adjustment procedures pursuant to the terms of the Purchase Agreement. As a result of these procedures, the Company has adjusted the estimated total purchase price for the net assets from
$10.0 million
to
$9.5 million
(the “Revised Provisional Purchase Price”). The fair value of the acquired net tangible assets as of the Closing Date is still being reviewed by the Company and the Seller and therefore the total purchase price is subject to further adjustment. Under the terms of the Purchase Agreement, any amounts due back to the Company from the Seller as a result of the final determination of the fair value of the acquired net tangible assets is to be paid within three business days following such determination.
Acquisition costs of
$0.8 million
were expensed as incurred as selling, general and administrative expenses, of which
$0.1 million
was recorded by the Company during the
year ended June 30, 2017
.
Purchase Price Allocation
The Revised Provisional Purchase Price of
$9.5 million
has been allocated to the acquired net assets purchased based on their fair values as follows (shown in thousands, and liability balances shown as negative amounts):
|
|
|
|
|
|
|
|
|
|
|
Working capital net assets:
|
|
|
|
|
|
Receivables, net
|
|
$
|
605
|
|
|
|
|
Derivative assets
|
|
825
|
|
|
|
|
Inventory
|
|
12,403
|
|
|
|
|
Prepaid expenses and other assets
|
|
856
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
(2,111
|
)
|
|
|
|
Liability on borrowed metals
|
|
(8,949
|
)
|
|
|
|
Deferred income
|
|
(2,284
|
)
|
|
|
|
Subtotal
|
|
|
|
$
|
1,345
|
|
|
Property and equipment
|
|
|
|
1,806
|
|
|
Intangible assets (identifiable):
|
|
|
|
|
|
Trade names
|
|
$
|
2,200
|
|
|
|
|
Existing customer relationships
|
|
1,300
|
|
|
|
|
Customer lead list
|
|
1,100
|
|
|
|
|
Other
|
|
400
|
|
|
|
|
Subtotal
|
|
|
|
5,000
|
|
|
Goodwill:
|
|
|
|
|
|
Excess of cost over fair value of assets acquired
|
|
|
|
1,364
|
|
(1)
|
|
|
|
|
$
|
9,515
|
|
|
_________________________________
(1) During the fourth quarter of fiscal 2018, the Company adjusted its estimate of Revised Provisional Purchase Price, which included $86 decrease in the gross carrying amount of the acquired goodwill from $1,450 to $1,364.
|
The estimates of both the fair value and the allocation of the tangible and identifiable intangible assets requires extensive use of accounting estimates and management judgment. These estimates could be material. The fair values assigned to the assets acquired are based on estimates and assumption from data currently available.
The fair value of the acquired net tangible assets as of the Closing Date is still being reviewed by the Company and the Seller and therefore the total purchase price and the allocation of the purchase price is subject to further adjustment. Since there has been a lapse of more than one year from the date of acquisition (i.e., August 28, 2018), the measurement period as defined by generally accepted accounting principles has expired. Any further adjustments to the purchase price occurring after the conclusion of the measurement period will be recorded to income or expense in subsequent periods.
Pro-Forma Information
The following unaudited pro-forma information for the
years ended June 30, 2018 and 2017
assumes the acquisition of the net assets of Goldline, LLC occurred on July 1, 2016, that is, the first day of fiscal year 2017:
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|
|
|
|
|
|
|
|
|
in thousands, except for EPS
|
|
(Unaudited)
|
|
Years Ended June 30,
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Pro-forma revenue
|
|
$
|
7,607,405
|
|
|
$
|
7,090,784
|
|
|
Pro-forma net (loss) income
|
|
$
|
(3,341
|
)
|
|
$
|
6,917
|
|
|
Pro-forma basic (loss) earnings per share
|
|
$
|
(0.48
|
)
|
|
$
|
0.98
|
|
|
Pro-forma dilutive (loss) earnings per share
|
|
$
|
(0.48
|
)
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
The above pro-forma supplemental information does not purport to be indicative of what the Company's operations would have been had these transactions occurred on July 1, 2016 and should not be considered indicative of future operating results. The Company believes the assumptions used provide a reasonable basis for reflecting the significant pro-forma effects directly attributable to the acquisition of Goldline. The unaudited pro-forma information accounts for amortization of acquired intangible assets (based on the preliminary purchase price allocation and an estimate of their useful lives), incremental financing costs resulting from the acquisition, elimination of prior sales and purchases between the entities, elimination of acquisition costs and an application of the Company's tax rate. For the
years ended June 30, 2018 and 2017
the Company used the tax rate of
31.0%
and
37.5%
, respectively, as an approximation of our blended statutory tax rate, which excludes the effects of any tax impacts related a revaluation of net deferred asset pursuant to the recently enacted Tax Cuts and Jobs Act legislation
(see
Note 12
). The unaudited pro-forma results do not include any anticipated cost savings or other effects of the planned integration of Goldline.
Related Agreements
In connection with the closing of the acquisition, Goldline entered into a privately placed credit facility in the amount of
$7.5 million
(the “Goldline Credit Facility”) with various lenders (the "Goldline Lenders"), which include some directors from the Company's Board, effective August 28, 2017 (see
Note 14
). Borrowings under the Goldline Credit Facility were used to finance a portion of the consideration payable under the Purchase Agreement.
On the Closing Date, the Seller and Goldline entered into a transition services agreement, pursuant to which Goldline will provide reasonable assistance to the Seller at no cost to the Seller (including access to records and services of transferring employees) for a period of two years following the closing date in connection with assisting the Seller with its continuing obligations for its retained liabilities that were not assumed by Goldline.
Also on the Closing Date, the Seller and the former CEO of the Seller also agreed that, for the period commencing on the closing date until the third anniversary thereof, neither they nor any of their affiliates will, directly or indirectly own, manage, operate, join, control, participate in, invest in or otherwise provide assistance to, in any manner, any “competing business” (as defined in the Purchase Agreement).
Spinoff from Spectrum Group International, Inc.
On March 14, 2014, the Company's former parent, Spectrum Group International, Inc. (including its subsidiaries, "SGI" or the "Former Parent"), effected a spinoff (the "spinoff" or the "Distribution") of the Company from SGI. As a result of the Distribution, the Company became a publicly traded company independent from SGI. On March 17, 2014, A-Mark’s shares of common stock commenced trading on the NASDAQ Global Select Market under the symbol "AMRK."
2
. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The
consolidated
financial statements reflect the financial condition, results of operations, statement of stockholder equity and cash flows of the Company, and were prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). These
consolidated
financial statements include the accounts of A-Mark, and its wholly owned subsidiaries, CFC, AMTAG, TDS, Logistics, Goldline and its majority owned affiliate AMST (collectively the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. For the
years ended June 30, 2018 and 2017
, net income (loss) equaled comprehensive income (loss) as there were no items of comprehensive income (loss).
Use of Estimates
The preparation of
consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated
financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of fair value, allowances for doubtful accounts, impairment assessments of plant, property and equipment and intangible assets, valuation allowance determination on deferred tax assets, contingent earn-out liabilities, contingent interest liabilities, and revenue recognition judgments. Significant estimates also include the Company's
fair value determination with respect to its financial instruments and precious metals inventory. Actual results could materially differ from these estimates.
Reclassifications
Certain previously reported amounts have been reclassified for consistency to the current fiscal year's
consolidated
financial statement presentation. These reclassifications had no effect on the reported results of operations. In the third quarter of fiscal 2018, precious metals held under financing arrangements was included as a component of inventory on the consolidated balance sheets and statements of cash flows. In the fourth quarter of fiscal 2018, precious metals held under financing arrangements is shown as a separate line item on the face of the consolidated balance sheets statements and cash flows.
Concentration of Credit Risk
Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances.
Assets that potentially subject the Company to concentrations of credit risk consist principally of receivables, loans of inventory to customers, and inventory hedging transactions. Concentration of credit risk with respect to receivables is limited due to the large number of customers composing the Company's customer base, the geographic dispersion of the customers, and the collateralization of substantially all receivable balances. Based on an assessment of credit risk, the Company typically grants collateralized credit to its customers. The Company enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions. Credit risk with respect to loans of inventory to customers is minimal. All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions.
Foreign Currency
The functional currency of the Company is the United States dollar ("USD"). Also, the functional currency of the Company's wholly-owned foreign subsidiary, AMTAG, is USD, but it maintains its books of record in Euros. The Company remeasures the financial statements of AMTAG into USD. The remeasurement of local currency amounts into USD creates remeasurement gains and losses, which are included in the
consolidated
statements of operations.
To manage the effect of foreign currency exchange fluctuations, the Company utilizes foreign currency forward contracts. These derivatives generate gains and losses when they are settled and/or when they are marked to market.
Business Combinations
The Company accounts for business combinations by applying the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805,
Business Combinations
. The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The identifiable assets acquired, liabilities assumed and non-controlling interests, if any, in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed and non-controlling interests, if any, in an acquired entity is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets and liabilities.
Contingent consideration is classified as a liability or equity, as applicable. Contingent consideration in connection with the acquisition of a business is measured at fair value on the acquisition date, and unless classified as equity, is remeasured at fair value each reporting period thereafter until the consideration is settled, with changes in fair value included in net income.
Net cash paid to acquire a business is classified as investing activities on the accompanying
consolidated
statements of cash flow.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company does not have any cash equivalents as of
June 30, 2018
and
June 30, 2017
.
As of
June 30, 2018
and
June 30, 2017
, the Company has
$0.4 million
and
$0.0 million
, respectively, in a bank account that is restricted and serves as collateral against a standby letter of credit issued by the bank in favor of the landlord for our office space in Los Angeles, California (see
Note 15
).
Precious Metals held under Financing Arrangements
The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the spot value of the product on the repurchase date. The terms of these transactions are such that the Company has classified this material as precious metals held under financing arrangements, rather than as inventory - repurchase arrangements with customers (Note 6). In these repurchase arrangements, the Company holds legal title to the material and earns financing income for the duration of the agreement.
These arrangements are typically terminable by either party upon 14 days' notice. Upon termination, the customer’s right to repurchase any remaining precious metal is forfeited, and the related precious metals are reclassified as inventory held for sale. As of June 30, 2018 and June 30, 2017, precious metals held under financing arrangements totaled
$262.6 million
and
$0.0 million
respectively.
The Company’s precious metals held under financing arrangements are "marked-to-market".
Inventories
Inventories principally include bullion and bullion coins that are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: (1) published market values attributable to the costs of the raw precious metal, and (2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources.
The Company’s inventories, except for certain lower of cost or market basis products (as discussed below), are subsequently recorded at their fair market values, that is, "marked-to-market". The daily changes in the fair market value of our inventory are offset by daily changes in the fair market value of hedging derivatives that are taken with respect to our inventory positions; both the change in the fair market value of the inventory and the change in the fair market value of these derivative instruments are recorded in cost of sales in the
consolidated
statements of operations.
While the premium component included in inventories is marked-to-market, our commemorative coin inventory, including its premium component, is held at the lower of cost or market, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins. Unlike our bullion coins, the value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Neither the commemorative coin inventory nor the premium component of our inventory is hedged (see
Note 6
.)
Plant, Property and Equipment
Plant, property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using a straight line method based on the estimated useful lives of the related assets, ranging from
three years
to
twenty-five years
. Depreciation commences when the related assets are placed into service. Internal-use software development costs are capitalized during the application development stage. Internal-use software costs incurred during the preliminary project stage are expensed as incurred. Land is recorded at historical cost, and is not depreciated. Repair and maintenance costs are expensed as incurred. We have no major planned maintenance activities related to our plant assets associated with our minting operations.
The Company reviews the carrying value of these assets for impairment whenever events and circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating for impairment, the carrying value of each asset or group of assets is compared to the undiscounted estimated future cash flows expected to result from its use and eventual disposition. An impairment loss is recognized for the difference when the carrying value exceeds the discounted estimated future cash flows. The factors considered by the Company in performing this assessment include current and projected operating results, trends and prospects, the manner in which these assets are used, and the effects of obsolescence, demand and competition, as well as other economic factors.
Finite-lived Intangible Assets
Finite-lived intangible assets consist primarily of customer relationships, non-compete agreements and employment contracts which are amortized on a straight-line basis over their economic useful lives ranging from
three years
to
fifteen years
. We review our finite-lived intangible assets for impairment under the same policy described above for plant, property, and equipment; that is, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Goodwill and Indefinite-lived Intangible Assets
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill and other indefinite-lived intangibles (such as trade names) are not subject to amortization, but are evaluated for impairment at least annually. However, for tax purposes, goodwill acquired in connection with a taxable asset acquisition is generally deductible.
The Company evaluates its goodwill and other indefinite-lived intangibles for impairment in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the
Intangibles - Goodwill and Other Topic 350
of the ASC. Goodwill is reviewed for impairment at a reporting unit level, which in our case, corresponds to the Company’s reportable operating segments.
Evaluation of goodwill for impairment
The Company has the option to first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. A qualitative assessment includes analyzing current economic indicators associated with a particular reporting unit such as changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required.
If, based on this qualitative assessment, management concludes that goodwill is more likely than not to be impaired, or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine the fair value of the business, and compare the calculated fair value of the reporting unit with its carrying amount, including goodwill. If through this quantitative analysis the Company determines the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not to be impaired. If the Company concludes that the fair value of the reporting unit is less than its carrying value, a goodwill impairment loss will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value (see
Note 8
).
Evaluation of indefinite-lived intangible assets for impairment
The Company evaluates its indefinite-lived intangible assets (i.e., trademarks and trade-names) for impairment. In assessing its indefinite-lived intangible assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company is not required to perform any additional tests in assessing the asset for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine if the fair value of an indefinite-lived intangible asset is less than its carrying value. If through this quantitative analysis the Company determines the fair value of an indefinite-lived intangible asset exceeds its carrying amount, the indefinite-lived intangible asset is considered not to be impaired. If the Company concludes that the fair value of an indefinite-lived intangible asset is less than its carrying value, an impairment loss will be recognized for the amount by which the carrying amount exceeds the indefinite-lived intangible asset’s fair value.
The methods used to estimate the fair value measurements of the Company’s reporting units and indefinite-lived intangible assets include those based on the income approach (including the discounted cash flow, and relief-from-royalty methods) and those based on the market approach (primarily the guideline transaction and guideline public company methods) (see
Note 8
).
Long-Term Investments
Investments in privately-held entities that are at least 20% but less than 50% owned by the Company are accounted for using the equity method. Under the equity method, the carrying value of the investment is adjusted for the Company’s proportionate share of the investee’s earnings or losses, with the corresponding share of earnings or losses reported in other income (expense). The carrying value of the investment is reduced by the amount of the dividends received from the equity-method investee, as they are considered a return of capital.
Investments in privately-held entities that are less than 20% owned by the Company are accounted for using the cost method, unless the Company can exercise significant influence or the investee is economically dependent upon the Company, in which case the equity method is used. Under the cost method, investments are carried at cost and other income is recorded when dividends are received from the cost-method investee.
We evaluate our long-term investments for impairment quarterly or whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. As of
June 30, 2018
and
June 30, 2017
, the Company did not identify any impairments.
Fair Value Measurement
The
Fair Value Measurements and Disclosures
Topic 820 of the ASC ("ASC 820"), creates a single definition of fair value for financial reporting. The rules associated with ASC 820 state that valuation techniques consistent with the market approach, income approach and/or cost approach should be used to estimate fair value. Selection of a valuation technique, or multiple valuation techniques, depends on the nature of the asset or liability being valued, as well as the availability of data (see
Note 3
.)
Contingent Earn-out Liability
We record an estimate of the fair value of contingent consideration related to the earn-out obligation to SilverTowne LP related to the SilverTowne Mint acquisition. On a quarterly basis, we revalue the liability and record increases or decreases in the fair value as an adjustment to earnings. Changes to the contingent consideration liability can result from adjustments to the discount rate, or from changes to the estimates of future throughput activity of AMST, which are considered Level 3 inputs (see
Note 3
). Consequentially, the assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value. As of
June 30, 2018
and
June 30, 2017
the balance of contingent liability was
$588,000
and
$1,325,000
respectively, and the non-current portion of this liability is shown as a component in other long-term liabilities. Below is a reconciliation of the contingent earn out liability for the
year ended June 30, 2018
.
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Contingent
|
|
Liabilities at fair value, based on Level 3 inputs:
|
|
Consideration
|
|
Balance at June 30, 2017
|
|
$
|
1,325
|
|
|
Revaluation adjustment
|
|
(529
|
)
|
|
Amount paid to SilverTowne
|
|
(208
|
)
|
|
Balance at June 30, 2018
|
|
$
|
588
|
|
|
|
|
|
|
Revenue Recognition
Settlement Date Accounting
Substantially all of the Company’s sales of precious metals are conducted using sales contracts that meet the definition of derivative instruments in accordance with the
Derivatives and Hedging
Topic 815 of the ASC ("ASC 815"). The contract underlying A-Mark’s commitment to deliver precious metals is referred to as a “fixed-price forward commodity contract” because the price of the commodity is fixed at the time the order is placed. Revenue is recognized on the settlement date, which is defined as the date on which: (1) the quantity, price and specific items being purchased have been established, (2) metals have been delivered to the customer, and (3) payment has been received or is covered by the customer’s established credit limit with the Company.
All derivative instruments are marked to market during the interval between the trade date and the settlement date, with the changes in the fair value charged to cost of sales. The Company’s hedging strategy to mitigate the market risk associated with its sales commitments is described separately below under the caption “Hedging Activities.”
Trades Types of Products that are Physically Delivered
The Company’s contracts to sell precious metals to customers are usually settled with the physical delivery of metals to the customer, although net settlement (i.e., settlement at an amount equal to the difference between the contract value and the market price of the metal on the settlement date) is permitted. Below is a summary of the Company’s major trade order types and the key factors that determine when settlement occurs and when revenue is recognized for each type:
|
|
•
|
Traditional physical trade orders
—
The quantity, specific product, and price are determined on the trade date. Payment or sufficient credit is verified prior to delivery of the metals on the settlement date.
|
|
|
•
|
Consignment trade orders
—
The Company delivers the items requested by the customer prior to establishing a firm trade order with a price. Settlement occurs and revenue is recognized once the customer confirms its order (quantity, specific product and price) and remits full payment for the sale.
|
|
|
•
|
Provisional trade orders
—
The quantity and type of metal is established at the trade date, but the price is not set. The customer commits to purchasing the metals within a specified time period, usually within one year, at the then-current market price. The Company delivers the metal to the customer after receiving the customer’s deposit, which is typically based on 110% of the prevailing current spot price. The unpriced metal is subject to a margin call if the deposit falls below 105% of the value of the unpriced metal. The purchase price is established and revenue is recognized at the time the customer notifies the Company that it desires to purchase the metal.
|
|
|
•
|
Margin trade orders
—
The quantity, specific product and price are determined at trade date; however, the customer is allowed to finance the transaction through the Company and to defer delivery by committing to remit a partial payment (approximately 20%) of the total order price. With the remittance of the partial payment, the customer locks in the purchase price for a specified time period (usually up to two years from the trade date). Revenue on margin trade orders is recognized when the order is paid in full and delivered to the customer.
|
|
|
•
|
Borrowed precious metals trade orders for unallocated positions
—
Customers may purchase unallocated metal positions in the Company's inventory. The quantity and type of metal is established at the trade date, but the specific product is not yet determined
.
Revenue is not recognized until the customer selects the specific precious metal product it wishes to purchase, full payment is received, and the product is delivered to the customer.
|
Hedging Activities
The value of our inventory and our purchase and sale commitments are linked to the prevailing price of the underlying precious metal commodity. The Company seeks to minimize the effect of price changes of the underlying commodity and enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions. The Company hedges by each commodity type (gold, silver, platinum, and palladium). All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions.
Commodity forward, futures and option contracts entered into for hedging purposes are recorded at fair value on the trade date and are marked to market each period. The difference between the original contract values and the market values of these contracts are reflected as derivative assets or derivative liabilities in the
consolidated
balance sheets at fair value, with the corresponding unrealized gain or losses included as a component of cost of sales. When these contracts are net settled, the unrealized gains and losses are reversed and the realized gains and losses for forward contracts are recorded in revenue and cost of sales and the net realized gains and losses for futures and option contracts are recorded in cost of sales.
The Company enters into futures, forward and option contracts solely for the purpose of hedging our inventory holding risk and our liability on price protection programs, and not for speculative market purposes. The Company’s gains (losses) on derivative instruments are substantially offset by the changes in the fair market value of the underlying precious metals inventory, which is also recorded in cost of sales in the
consolidated
statements of operations (see
Note 11
.)
Other Sources of Revenue
In accordance with the
Revenue Recognition
Topic 605 of the ASC ("ASC 605") storage and logistics services revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable.
Interest Income
In accordance with the
Interest
Topic 835 of the ASC ("ASC 835") following are interest income generating activities of the Company:
|
|
•
|
Secured Loans
--
The Company uses the effective interest method to recognize interest income on its secured loans transactions. The Company maintains a security interest in the precious metals and records interest income over the terms of the secured loan receivable. Recognition of interest income is suspended and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. The interest income accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are resolved. Cash receipts on impaired loans are recorded first against the principal and then to any unrecognized interest income (see
Note 5
.)
|
|
|
•
|
Margin accounts
--
The Company earns a fee (interest income) under financing arrangements related to margin trade orders over the period during which customers have opted to defer making full payment on the purchase of metals.
|
|
|
•
|
Repurchase agreements
--
Repurchase agreements represent a form of secured financing whereby the Company sets aside specific metals for a customer and charges a fee on the outstanding value of these metals. The customer is granted the option (but not the obligation) to repurchase these metals at any time during the open reacquisition period. This fee is earned over the duration of the open reacquisition period and is classified as interest income.
|
|
|
•
|
Spot deferred trade orders
--
Spot deferred trade orders are a special type of forward delivery trade that enable customers to purchase or sell certain precious metals from/to the Company at an agreed upon price but, are allowed to delay remitting or taking delivery up to a maximum of two years from the date of trade. Even though the contact allows for physical delivery, it rarely occurs for this type of trade. As a result, revenue is not recorded from these transactions, because no product is delivered to the customer. Spot deferred trades are considered a type of financing transaction, where the Company earns a fee (interest income) under spot deferred arrangements over the period in which the trade is open.
|
Interest Expense
The Company accounts for interest expense on the following arrangements in accordance with
Interest
Topic 835 of the ASC ("ASC 835"):
|
|
•
|
Borrowings
--
The Company incurs interest expense from its lines of credit and its debt obligations using the effective interest method (see
Note 14
.) Additionally, the Company amortizes capitalized loan costs to interest expense over the period of the loan agreement.
|
|
|
•
|
Loan servicing fees
--
When the Company purchases loan portfolios, the Company may have the seller service the loans that were purchased. The Company incurs a fee based on total interest charged to borrowers over the period the loans are outstanding. The servicing fee incurred by the Company is charged to interest expense.
|
|
|
•
|
Product financing arrangements
--
The Company incurs financing fees (classified as interest expense) from its product financing arrangements (also referred to as reverse-repurchase arrangements) with third party finance companies for the transfer and subsequent option to reacquire its precious metal inventory at a later date. These arrangements are accounted for as secured borrowings. During the term of this type of agreement, the third party charges a monthly fee as a percentage of the market value of the designated inventory, which the Company intends to reacquire in the future. No revenue is generated from these trades. The Company enters this type of transaction for additional liquidity.
|
|
|
•
|
Borrowed metals fees --
The Company may incur financing costs from its liabilities on borrowed metal arrangements. The Company borrows precious metals (usually in the form of pool metals) from its suppliers and customers under short-term arrangements using other precious metals from its inventory as collateral. Typically, during the term of these arrangements, the third party charges a monthly fee as a percentage of the market value of the collateral (determined at the spot price) plus certain processing and other fees. The Company enters this type of transaction as an additional source of liquidity, and usually monetizes the metals received under such arrangements. Repayment is usually required in the same form as the metals advanced, or in cash.
|
Other Income
The Company's other income is derived from the Company's proportional interest in the reported net income or net loss in an investee accounted for under the equity method of accounting and the gains or losses associated with revaluation adjustments to the contingent earn-out liability associated with its AMST investment.
The Company's proportional interest in the investee's reported net income (loss) from its equity method investment was
$421,000
and
$94,000
for the
years ended June 30, 2018 and 2017
, respectively.
The net gains associated with revaluation adjustments to the contingent earn-out liability was
$529,000
and
$198,000
for the
years ended June 30, 2018 and 2017
, respectively.
Advertising
Advertising expense was
$3,234,000
and
$673,000
, respectively, for the
years ended June 30, 2018 and 2017
. The increase in advertising expense primarily relates to our acquisition of Goldline. See
Note 18
for bifurcation of expenses by segment.
Shipping and Handling Costs
Shipping and handling costs represent costs associated with shipping product to customers, and receiving product from vendors and are included in cost of sales in the
consolidated
statements of operations. Shipping and handling costs incurred totaled
$4,643,000
and
$4,527,000
, respectively, for the
years ended June 30, 2018 and 2017
.
Share-Based Compensation
The Company accounts for equity awards under the provisions of the
Compensation - Stock Compensation
Topic 718 of the ASC ("ASC 718"), which establishes fair value-based accounting requirements for share-based compensation to employees. ASC 718 requires the Company to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees as expense over the service period in the Company's
consolidated
financial statements. The expense is adjusted for actual forfeitures of unvested awards as they occur.
Income Taxes
As part of the process of preparing its
consolidated
financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the
Income Taxes
Topic 740 of the ASC ("ASC 740"). The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating uncertainty in its tax positions. The Company recognizes a benefit for tax positions that it believes will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts the amount of recognized tax benefit based on its evaluation of information that has become available since the end of its last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits, the Company does not consider new information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company's
consolidated
financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits. These unrecognized tax benefits are presented in the
consolidated
balance sheets principally within accrued liabilities.
The Company accounts for uncertainty in income taxes under the provisions of ASC 740. These provisions clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements, and prescribe a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions also provide guidance on de-recognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. The potential interest and/or penalties associated with an uncertain tax position are recorded in provision for income taxes on the
consolidated
statements of operations. Please refer to
Note 12
for further discussion regarding these provisions.
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company's forecast of the reversal of temporary differences, future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company's effective tax rate on future earnings.
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. Significant judgment is applied when assessing the need for valuation allowances. Areas of estimation include the Company's consideration of future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. Changes in recognized tax benefits and changes in valuation allowances could be material to the Company's results of operations for any period, but is not expected to be material to the Company's
consolidated
financial position. Based on our assessment it appears more likely than not that all of the net deferred tax assets will be realized through future taxable income.
The Company's
consolidated
financial statements recognized the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods, as if the Company were a separate taxpayer prior to the date of the Distribution of the company when it was a member of the consolidated income tax return group of its Former Parent (Spectrum Group International, Inc.) Following its spin-off, the Company files federal and state income tax filings that are separate from the Former Parent's tax filings. The Company recognizes current and deferred income taxes as a separate taxpayer for periods ending after the date of Distribution.
Earnings per Share ("EPS")
The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings (losses) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings (losses) by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity awards, including unexercised stock options, utilizing the treasury stock method.
A reconciliation of shares used in calculating basic and diluted earnings per common shares for the
years ended June 30, 2018 and 2017
, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Basic weighted average shares outstanding
|
|
7,031
|
|
|
7,029
|
|
|
Effect of common stock equivalents — stock issuable under outstanding equity awards
|
|
—
|
|
|
93
|
|
|
Diluted weighted average shares outstanding
|
|
7,031
|
|
|
7,122
|
|
|
|
|
Since the Company incurred a net loss for the
year ended June 30, 2018
, basic and diluted EPS were the same, as the inclusion of
842,515
potential common shares, related to outstanding stock options, in the computation of net loss per share would have been anti-dilutive.
Dividends
Dividends are recorded if and when they are declared by the Board of Directors. See
Note 16
for a schedule showing the dividends declared during the
years ended June 30, 2018 and 2017
.
Recently Adopted Accounting Pronouncements
From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).
The Company has elected to early adopt ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350)
- Simplifying the Test for Goodwill Impairment, effective with the annual review performed in the fourth quarter of 2018. On a prospective basis, the adoption of this ASU eliminates requirements to measure the fair value of each asset and liability to quantify the amount of impairment. Instead, goodwill impairment is simply measured by the excess of the carrying value of the reporting unit over its fair value (limited to the total amount of goodwill allocated to that reporting unit). The amendments of this ASU also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test.
In March 2018, the FASB issued ASU No. 2018-05, “
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
”, to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”), to ASC 740 “Income Taxes”. SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. tax reform under the “Tax Cuts and Jobs Act” (the “Tax Act”). SAB No. 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Reform Act. SAB No. 118 provides guidance where: (i) the accounting for the income tax effect of the Tax Reform Act is complete and reported in the Tax Reform Act’s enactment period, (ii) the accounting for the income tax effect of the Tax Reform Act is incomplete and reported as provisional amounts based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period until complete, and (iii) accounting for the income tax effect of the Tax Reform Act is not reasonably estimable (no related provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on tax law provisions in effect prior to the Tax Reform Act enactment until provisional amounts are reasonably estimable. SAB No. 118 requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among other relevant information. The Company has evaluated the potential impacts of SAB 118 and has applied this guidance to its consolidated financial statements and related disclosures beginning in the second quarter of its fiscal year 2018. For additional information on SAB 118 and the impacts of the Tax Act on the Company’s consolidated financial statements and related disclosures see
Note 12
.
Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
, (“ASU 2017-01”). The objective of ASU 2017-01 is to clarify the definition of a business in order to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective
for the Company for annual and interim reporting periods beginning July 1, 2018 (for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years). ASU 2017-01 should be applied prospectively and we do not believe that its adoption will have a material impact on our consolidated financial position, results of operations or cash flows and related disclosures.
In August 2016 the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15")
.
This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for the Company on July 1, 2018 (for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years). The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable. We will adopt the requirements of the new standard in the first quarter of fiscal 2019 and do not currently expect adoption to have a material impact on our financial statements.
In February 2016, FASB issued ASU No. 2016-02, (“ASU 2016-02”),
Leases (Topic 842)
. The amendments in this update require lessees to recognize a lease liability measured on a discounted basis and a right-of-use asset for all leases at the commencement date. This update is effective for the Company, on July 1, 2019 (for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years), and is to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are evaluating the new guidelines, but believe that adoption will not have a material impact on our consolidated financial position, results of operations or cash flows and related disclosures, as the Company has minimal lease commitments.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(“ASU 2016-08”). The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
(“ASU 2016-10”). The amendments in ASU 2016-10 clarify aspects relating to the identification of performance obligations and improve the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12("ASU 2016-12"),
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.
The amendments in ASU 2016-12 address certain issues identified on assessing collectability, presentation of sales taxes, non-cash consideration, and completed contracts and contract modifications at transition. For all of the ASUs noted above ("ASC 606"), the effective date for the Company is July 1, 2018 (for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years). Either the retrospective or cumulative effect transition method is permitted. The Company has evaluated the impact of this new pronouncement and does not believe the implementation of ASC 606 will have a significant effect on the financial results of the Company for fiscal years beginning on and after July 1, 2018. This is because the major portion of the Company's revenues fall under the authoritative guidance of ASC 815, which are outside the scope of ASC 606.
3
. ASSETS AND LIABILITIES, AT FAIR VALUE
Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of
June 30, 2018
and
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
Carrying Amount
|
|
Fair value
|
|
Carrying Amount
|
|
Fair value
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,291
|
|
|
$
|
6,291
|
|
|
$
|
13,059
|
|
|
$
|
13,059
|
|
Receivables, net
|
|
35,856
|
|
|
35,856
|
|
|
39,295
|
|
|
39,295
|
|
Secured loans receivable
|
|
110,424
|
|
|
110,424
|
|
|
91,238
|
|
|
91,238
|
|
Derivative asset on open sale and purchase commitments, net
|
|
2,274
|
|
|
2,274
|
|
|
931
|
|
|
931
|
|
Derivative asset on option contracts
|
|
390
|
|
|
390
|
|
|
—
|
|
|
—
|
|
Derivative asset on futures contracts
|
|
238
|
|
|
238
|
|
|
1,273
|
|
|
1,273
|
|
Derivative asset on forward contracts
|
|
4,493
|
|
|
4,493
|
|
|
15,383
|
|
|
15,383
|
|
Income taxes receivable
|
|
1,553
|
|
|
1,553
|
|
|
—
|
|
|
—
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Lines of credit
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
180,000
|
|
|
$
|
180,000
|
|
Debt obligation (related party)
|
|
7,226
|
|
|
7,226
|
|
|
—
|
|
|
—
|
|
Liability on borrowed metals
|
|
280,346
|
|
|
280,346
|
|
|
5,625
|
|
|
5,625
|
|
Product financing arrangements
|
|
113,940
|
|
|
113,940
|
|
|
135,343
|
|
|
135,343
|
|
Derivative liability on margin accounts
|
|
3,804
|
|
|
3,804
|
|
|
4,797
|
|
|
4,797
|
|
Derivative liability on price protection programs
|
|
168
|
|
|
168
|
|
|
—
|
|
|
—
|
|
Derivative liability on open sale and purchase commitments, net
|
|
16,485
|
|
|
16,485
|
|
|
29,785
|
|
|
29,785
|
|
Accounts payable
|
|
45,997
|
|
|
45,997
|
|
|
41,947
|
|
|
41,947
|
|
Accrued liabilities
|
|
5,129
|
|
|
5,129
|
|
|
4,945
|
|
|
4,945
|
|
Other long-term liabilities (related party)
(1)
|
|
798
|
|
|
798
|
|
|
1,117
|
|
|
1,117
|
|
Income taxes payable
|
|
—
|
|
|
—
|
|
|
1,418
|
|
|
1,418
|
|
Note payable - related party
|
|
—
|
|
|
—
|
|
|
500
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
(1) Includes estimated contingent amounts due to SilverTowne and to Goldline Lenders.
|
|
|
|
|
|
|
|
|
|
The fair values of the financial instruments shown in the above table as of
June 30, 2018
and
June 30, 2017
represent the amounts that would be received upon the sale of those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk adjusted discount rates, and available observable and unobservable inputs.
The carrying amounts of cash, secured loans receivable, receivables, income taxes receivable, accounts payable, income taxes payable, note payable, and accrued liabilities approximate fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities, liability on borrowed metals and product financing arrangements are marked-to-market on a daily basis to fair value. The carrying amounts of lines of credit and debt obligation approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The carrying value of other long-term liabilities represents the long-term portion of contingent earn-out liabilities that are remeasured on a quarterly basis.
Valuation Hierarchy
Topic 820 of the ASC established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
|
•
|
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The significant assumptions used to determine the carrying value and the related fair value of the financial instruments are described below:
Inventory
.
Inventories, principally include bullion and bullion coins, are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins are comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or market, the Company’s inventories are subsequently recorded at their fair market values on a daily basis. The fair value for commodities inventory (i.e., inventory excluding commemorative coins) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventory are classified in Level 1 of the valuation hierarchy.
Derivatives
.
Futures contracts, forward contracts, option contracts and open sale and purchase commitments are valued at their fair values, based on the difference between the quoted market price and the contractual price (i.e., intrinsic value,) and are included within Level 1 of the valuation hierarchy.
Margin and Borrowed Metals Liabilities
.
Margin and borrowed metals liabilities consist of the Company's commodity obligations to margin customers and suppliers, respectively. Margin liabilities and borrowed metals liabilities are carried at fair value, which is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Margin and borrowed metals liabilities are classified in Level 1 of the valuation hierarchy.
Product Financing Arrangements
.
Product financing arrangements consist of financing agreements for the transfer and subsequent re-acquisition of the sale of gold and silver at an agreed-upon price based on the spot price with a third party. Such transactions allow the Company to repurchase this inventory on the termination (repurchase) date. The third party charges monthly interest as a percentage of the market value of the outstanding obligation, which is carried at fair value. The obligation is stated at the amount required to repurchase the outstanding inventory. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product financing arrangements are classified in Level 1 of the valuation hierarchy.
Liability on Price Protection Programs
.
The Company records an estimate of the fair value of the liability on price protection programs based on the difference between the contractual price at trade date and the retail price at the remeasurement date (i.e., quarter-end) based on the expected redemption rate of each program. As of
June 30, 2018
, the Company used the quoted market price based on the current spot rate and used an expected redemption rate of
100%
for the price shield program, the most significant of the price protection programs. The use of a throughput rate of each program ignores the future price volatility that would affect the timing and rate of redemption under these programs, and, as a result, the liability on price protection programs is classified in Level 3 of the valuation hierarchy.
Contingent Earn-out Liability
.
The Company records an estimate of the fair value of contingent consideration related to the earn-out obligation to SilverTowne LP related to the SilverTowne Mint transaction. On a quarterly basis, the liability is remeasured and increases or decreases in the fair value are recorded as an adjustment to other income on the
consolidated
statements of operations. Changes to the contingent consideration liability can result from adjustments to the discount rate, or from changes to the estimates of future throughput activity of AMST. The assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value. The key inputs in determining fair value of our contingent consideration obligations include the changes in the assumed timing and amounts of future throughputs (i.e., operating income, operating cost per unit, and production volume) which affects the timing and amount of future earn-out payments. Contingent earn-out liability is classified in Level 3 of the valuation hierarchy.
The Company values the contingent obligation by determining the likelihood that the company has achieved the following targeted amount of performance thresholds for each annual earn-out period. Such thresholds include (1) Producing a targeted amount of silver ounces, (2) Earning a targeted amount of operating income, and (3) Generating an operating cost per ounce that
is less than a targeted level. Each category triggers a different annual payout obligation if achieved over a 3 year period, and as of
June 30, 2018
, the remaining
two
annual contingent payout obligations, if achieved, would become due on August 31, 2019 and on October 30, 2019. The company re-assesses this contingent obligation each quarter based on the most current facts and market conditions. The obligation continues to remain as a liability at its original recorded value unless, based on each quarterly evaluation, it becomes evident the Company will not achieve all or part of the threshold performance targets. In such case, the obligation is adjusted to its more current estimated value.
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of
June 30, 2018
and
June 30, 2017
, aggregated by the level in the fair value hierarchy within which the measurements fall:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
Quoted Price in
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Instruments
|
|
Inputs
|
|
Inputs
|
|
|
in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Inventory
(1)
|
|
$
|
280,017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
280,017
|
|
Precious metals held under financing arrangements
|
|
262,566
|
|
|
|
|
|
|
262,566
|
|
Derivative assets — open sale and purchase commitments, net
|
|
2,274
|
|
|
—
|
|
|
—
|
|
|
2,274
|
|
Derivative assets — option contracts
|
|
390
|
|
|
—
|
|
|
—
|
|
|
390
|
|
Derivative assets — futures contracts
|
|
238
|
|
|
—
|
|
|
—
|
|
|
238
|
|
Derivative assets — forward contracts
|
|
4,493
|
|
|
—
|
|
|
—
|
|
|
4,493
|
|
Total assets, valued at fair value
|
|
$
|
549,978
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
549,978
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability on borrowed metals
|
|
$
|
280,346
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
280,346
|
|
Product financing arrangements
|
|
113,940
|
|
|
—
|
|
|
—
|
|
|
113,940
|
|
Derivative liabilities — price protection programs
|
|
—
|
|
|
—
|
|
|
168
|
|
|
168
|
|
Derivative liabilities — liability on margin accounts
|
|
3,804
|
|
|
—
|
|
|
—
|
|
|
3,804
|
|
Derivative liabilities — open sale and purchase commitments, net
|
|
16,485
|
|
|
—
|
|
|
—
|
|
|
16,485
|
|
Contingent earn-out liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
588
|
|
|
$
|
588
|
|
Total liabilities, valued at fair value
|
|
$
|
414,575
|
|
|
$
|
—
|
|
|
$
|
756
|
|
|
$
|
415,331
|
|
____________________
(1)
Commemorative coin inventory totaling
$99,000
is held at lower of cost or market and is thus excluded from this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
Quoted Price in
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Instruments
|
|
Inputs
|
|
Inputs
|
|
|
in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Inventory
(1)
|
|
$
|
284,619
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
284,619
|
|
Derivative assets — open sale and purchase commitments, net
|
|
931
|
|
|
—
|
|
|
—
|
|
|
931
|
|
Derivative assets — futures contracts
|
|
1,273
|
|
|
—
|
|
|
—
|
|
|
1,273
|
|
Derivative assets — forward contracts
|
|
15,383
|
|
|
—
|
|
|
—
|
|
|
15,383
|
|
Total assets, valued at fair value
|
|
$
|
302,206
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
302,206
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability on borrowed metals
|
|
$
|
5,625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,625
|
|
Product financing arrangements
|
|
135,343
|
|
|
—
|
|
|
—
|
|
|
135,343
|
|
Derivative liabilities — liability on margin accounts
|
|
4,797
|
|
|
—
|
|
|
—
|
|
|
4,797
|
|
Derivative liabilities — open sale and purchase commitments, net
|
|
29,785
|
|
|
—
|
|
|
—
|
|
|
29,785
|
|
Contingent earn-out liability
|
|
—
|
|
|
—
|
|
|
1,325
|
|
|
1,325
|
|
Total liabilities, valued at fair value
|
|
$
|
175,550
|
|
|
$
|
—
|
|
|
$
|
1,325
|
|
|
$
|
176,875
|
|
____________________
(1)
Commemorative coin inventory totaling
$40,000
is held at lower of cost or market and is thus excluded from this table.
There were no transfers in or out of Level 2 or 3 from other levels within the fair value hierarchy during the reported periods.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only under certain circumstances. These include: cost method and equity method investments that are written down to fair value when a decline in the fair value is determined to be other-than-temporary, and plant, property and equipment, intangibles or goodwill, which are written down to fair value when they are held for sale or determined to be impaired. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows employed in the analyses are based on the Company’s estimated outlook and various growth rates. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. In assessing the reasonableness of its determined fair values, the Company evaluates its results against other value indicators, such as comparable transactions and comparable public company trading values.
The Company evaluates its goodwill and other indefinite-lived intangibles for impairment on non-recurring basis in the fourth quarter of the fiscal year, or more frequently if indicators of potential impairment exist. As of
June 30, 2017
, the carrying value of the Company's indefinite-lived intangible and goodwill assets totaled
$2.3 million
and
$8.9 million
, respectively. During the
year ended June 30, 2018
, the Company recorded
$2.2 million
of indefinite-lived assets and
$1.4 million
of goodwill related to our asset acquisition of Goldline (see
Note 1
). Then, in the fourth quarter of fiscal 2018, the Company recorded an impairment loss of
$1.3 million
and
$1.4 million
to indefinite-lived intangible and goodwill assets, respectively, based on our quantitative assessment of the fair value of the Direct Sales segment (i.e., Goldline). As of
June 30, 2018
, the carrying value of the Company's indefinite-lived intangible and goodwill assets totaled
$3.2 million
and
$8.9 million
, respectively (see
Note 8
).
The Company's
two
investments in noncontrolled entities do not have readily determinable fair values. Quoted prices of the investments are not available, and the cost of obtaining an independent valuation appears excessive considering the carrying value of the instruments to the Company. Based on the Company's assessment of the carrying value of these assets, during the
years ended June 30, 2018 and 2017
the Company did not record any impairments related to these investments. As of
June 30, 2018
and
June 30, 2017
, the carrying value of the Company's investments totaled
$8.4 million
and
$8.0 million
, respectively.
Receivables consist of the following as of
June 30, 2018
and
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
|
|
|
|
Customer trade receivables
|
|
$
|
22,813
|
|
|
$
|
31,949
|
|
|
Wholesale trade advances
|
|
10,722
|
|
|
2,457
|
|
|
Due from brokers
|
|
2,351
|
|
|
4,919
|
|
|
Subtotal
|
|
35,886
|
|
|
39,325
|
|
|
Less: allowance for doubtful accounts
|
|
(30
|
)
|
|
(30
|
)
|
|
Receivables, net
|
|
$
|
35,856
|
|
|
$
|
39,295
|
|
|
|
|
|
|
|
|
Customer Trade Receivables.
Customer trade receivables represent short-term, non-interest bearing amounts due from precious metal sales, advances related to financing products, and other secured interests in assets of the customer.
Wholesale Trade Advances.
Wholesale trade advances represent advances of various bullion products and cash advances for purchase commitments of precious metal inventory. Typically, these advances are unsecured, short-term, and non-interest bearing, and are made to wholesale metals dealers and government mints.
Due from Brokers
. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts (see
Note 11
).
Allowance for Doubtful Accounts
An allowance for doubtful accounts is recorded based on specifically identified receivables, which the Company has identified as potentially uncollectible. A summary of the activity in the allowance for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
Period ended:
|
|
Beginning Balance
|
|
Provision
|
|
Charge-off
|
|
Ending Balance
|
|
Year Ended June 30, 2018
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
Year Ended June 30, 2017
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
|
|
5.
|
SECURED LOANS RECEIVABLE
|
Below is a summary of the carrying value of our secured loans as of
June 30, 2018
and
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
|
|
|
|
Secured loans originated
|
|
$
|
23,300
|
|
|
$
|
30,864
|
|
|
Secured loans originated - with a related party
|
|
12,523
|
|
|
—
|
|
|
|
|
35,823
|
|
|
30,864
|
|
|
Secured loans acquired
|
|
74,601
|
|
(1)
|
60,374
|
|
(2)
|
Secured loans (current and long-term)
|
|
$
|
110,424
|
|
|
$
|
91,238
|
|
|
_________________________________
(1) Includes
$54,000
of loan premium as of
June 30, 2018
.
(2) Includes
$72,000
of loan premium as of
June 30, 2017
.
Secured Loans - Originated
:
Secured loans include short-term loans, which include a combination of on-demand lines and short term facilities, and long-term loans that are made to our customers. These loans are fully secured by the customers' assets that include bullion, numismatic and semi-numismatic material, which are typically held in safekeeping by the Company. (See
Note 13
for further information regarding our secured loans made to related parties.)
Secured Loans - Acquired
:
Secured loans also include short-term loans, which include a combination of on-demand lines and short term facilities that are purchased from our customers. The Company acquires a portfolio of their loan receivables at a price that approximates the aggregate carrying value of each loan in the portfolio, as determined on the effective transaction date.
Each loan in the portfolio is fully secured by the borrowers' assets, which include bullion, numismatic and semi-numismatic material that are held in safekeeping by the Company. Typically, the seller of the loan portfolio retains the responsibility for the servicing and administration of the loans.
As of
June 30, 2018
and
June 30, 2017
, our secured loans carried weighted-average effective interest rates of
9.6%
and
9.2%
, respectively, and mature in periods generally ranging typically from on-demand to one year.
The secured loans that the Company generates with active customers of A-Mark are reflected as an operating activity on the
consolidated
statements of cash flows. The secured loans that the Company generates with borrowers who are not active customers of A-Mark are reflected as an investing activity on the
consolidated
statements of cash flows as secured loans, net. For the secured loans that (i) are reflected as an investing activity and have terms that allow the borrowers to increase their loan balance (at the discretion of the Company) based on the excess value of their collateral compared to their aggregate principal balance of loan, and (ii) are repayable on demand or in the short-term, the borrowings and repayments are netted on the
consolidated
statements of cash flows.
Credit Quality of Secured Loans Receivables and Allowance for Credit Losses
The Company applies a systematic methodology to determine the allowance for credit losses for secured loan receivables. The secured loan receivables portfolio is comprised solely of secured loans with similar risk profiles. This similarity allows the Company to apply a standard methodology to determine the credit quality for each loan. The credit quality of each loan is generally determined by the secured material, the initial and ongoing collateral value determination and the assessment of loan-to-value determination. Typically, the Company's secured loan receivables within its portfolio have similar credit risk profiles and methods for assessing and monitoring credit risk.
The Company evaluates its loan portfolio in one of
two
classes of secured loan receivables: those loans secured by: 1) bullion items, and 2) numismatic and semi-numismatic coins. The Company's secured loans by portfolio class, which align with management reporting, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Bullion
|
|
$
|
72,128
|
|
|
65.3
|
%
|
|
$
|
61,767
|
|
|
67.7
|
%
|
|
Numismatic and semi-numismatic
|
|
38,296
|
|
|
34.7
|
|
|
29,471
|
|
|
32.3
|
|
|
|
|
$
|
110,424
|
|
|
100.0
|
%
|
|
$
|
91,238
|
|
|
100.0
|
%
|
|
Each of the two classes of secured loans receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. The methodology of assessing the credit quality of the secured loans acquired by the Company is similar to the secured loans originated by the Company; they are administered using the same internal reporting system, collateralized by precious metals, for which loan-to-value determination procedures are applied.
Credit Quality of Loans and Non-Performing Status
Generally, interest is due and payable within
30 days
. A loan is considered past due if interest is not paid in
30 days
or collateral calls are not met timely. Typically, loans do not achieve the threshold of non-performing status due to the fact that customers are generally put into default for any interest past due over
30 days
and for unsatisfied collateral calls. When this occurs the loan collateral is typically liquidated within
90 days
.
For certain secured loans, interest is billed monthly and, if not paid, is added to the outstanding loan balance. These secured loans are considered past due if their current loan-to-value ratio fails to meet established minimum equity levels, and the borrower fails to meet the collateral call required to reestablish the appropriate loan-to-value ratio.
Non-performing loans have the highest probability for credit loss. The allowance for credit losses attributable to non-performing loans is based on the most probable source of repayment, which is normally the liquidation of collateral. In determining collateral value, the Company estimates the current market value of the collateral and considers credit enhancements such as additional collateral and third-party guarantees. Due to the accelerated liquidation terms of the Company's loan portfolio, all past due loans are generally liquidated within
90 days
of default.
Further information about the Company's credit quality indicators includes differentiating by categories of current loan-to-value ratios. The Company desegregates its secured loans that are collateralized by precious metal products, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
Loan-to-value of 75% or more
|
|
$
|
69,629
|
|
|
63.1
|
%
|
|
$
|
60,432
|
|
|
66.2
|
%
|
Loan-to-value of less than 75%
|
|
40,795
|
|
|
36.9
|
|
|
30,806
|
|
|
33.8
|
|
Secured loans collateralized by precious metal products
|
|
$
|
110,424
|
|
|
100.0
|
%
|
|
$
|
91,238
|
|
|
100.0
|
%
|
The Company had
no
loans with a loan-to-value ratio in excess of
100%
at
June 30, 2018
or
June 30, 2017
.
Impaired loans
A loan is considered impaired if it is probable, based on current information and events, that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Customer loans are reviewed for impairment and include loans that are past due, non-performing or in bankruptcy. Recognition of interest income is suspended and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. Accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans are recorded first against the receivable and then to any unrecognized interest income.
All loans are contractually subject to margin calls. As a result, loans typically do not become impaired due to the fact the Company has the ability to require margin calls which are due upon receipt. Per the terms of the loan agreement, the Company has the right to liquidate the loan collateral in the event of a default. The collateral material is highly liquid and can easily be sold by the Company to pay off the loan. Such circumstances, this would result in a short term impairment that would typically result in full repayment of the loan and fees due to the Company.
For the
years ended June 30, 2018 and 2017
, the Company incurred
no
loan impairment costs.
Our inventory consists of the precious metals that the Company has physically received, and inventory held by third-parties, which, at the Company's option, it may or may not receive. Below, our inventory is summarized by classification at
June 30, 2018
and
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
Inventory held for sale
|
|
$
|
32,605
|
|
|
$
|
43,787
|
|
Repurchase arrangements with customers
|
|
104,907
|
|
|
92,496
|
|
Consignment arrangements with customers
|
|
10,785
|
|
|
7,368
|
|
Commemorative coins, held at lower of cost or market
|
|
99
|
|
|
40
|
|
Borrowed precious metals
|
|
17,780
|
|
|
5,625
|
|
Product financing arrangements, restricted
|
|
113,940
|
|
|
135,343
|
|
|
|
$
|
280,116
|
|
|
$
|
284,659
|
|
Inventory Held for Sale.
Inventory held for sale represents precious metals, excluding commemorative coin inventory, that have been received by the Company that is not subject to repurchase or consignment arrangements with third parties. As of
June 30, 2018
and
June 30, 2017
, the inventory held for sale totaled
$32.6 million
and
$43.8 million
, respectively.
Repurchase Arrangements with Customers.
The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the fair value of the product on the repurchase date. Under these arrangements, the Company, which holds legal title to the metals, earns financing income until the time the arrangement is terminated or the material is repurchased by the customer/sold to the customer.
These arrangements are typically terminable by either party upon 14 days' notice. Upon termination, the customer’s rights to repurchase any remaining inventory is forfeited. As of
June 30, 2018
and
June 30, 2017
, included within inventory is
$104.9 million
and
$92.5 million
, respectively, of precious metals products subject to repurchase arrangements with customers.
Consignment Arrangements with Customers.
The Company periodically loans metals to customers on a short-term consignment basis. Inventories loaned under consignment arrangements to customers as of
June 30, 2018
and
June 30, 2017
totaled
$10.8 million
and
$7.4 million
, respectively. Such transactions are recorded as sales and are removed from the Company's inventory at the time the customer elects to price and purchase the precious metals.
Commemorative Coins.
Our commemorative coin inventory, including its premium component, is held at the lower of cost or market, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins. Unlike our bullion coins, the value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Our commemorative coins are not hedged, and are included in inventory at the lower of cost or market and totaled
$99,000
and
$40,000
as of
June 30, 2018
and
June 30, 2017
, respectively.
Borrowed Precious Metals.
Borrowed precious metals inventories include: (1) metals held by suppliers as collateral on advanced pool metals, (2) amounts due to suppliers for the use of consigned inventory, (3) unallocated metal positions held by customers in the Company’s inventory, and (4) shortages in unallocated metal positions held by the Company in the supplier’s inventory. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts due under these arrangements require delivery either in the form of precious metals, or cash. The Company's inventories included borrowed precious metals with market values totaling
$17.8 million
and
$5.6 million
as of
June 30, 2018
and
June 30, 2017
, respectively, with a corresponding offsetting obligation reflected as liabilities on borrowed metals on the
consolidated
balance sheets.
Product Financing Arrangements.
In substance, these inventories represent amounts held as security by lenders for obligations under product financing arrangements. The Company enters into a product financing agreement for the transfer and subsequent re-acquisition of gold and silver at an agreed-upon price based on the spot price with a third party finance company. This inventory is restricted and is held at a custodial storage facility in exchange for a financing fee, paid to the third party finance company. During the term of the financing, the third party finance company holds the inventory as collateral, and both parties intend for the inventory to be returned to the Company at an agreed-upon price based on the spot price on the finance arrangement termination date. These transactions do not qualify as sales and have been accounted for as financing arrangements in accordance with ASC 470-40
Product Financing Arrangements
. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing and the underlying inventory are carried at fair value, with changes in fair value included in cost of sales in the
consolidated
statements of operations. Such obligations totaled
$113.9 million
and
$135.3 million
as of
June 30, 2018
and
June 30, 2017
, respectively.
The Company mitigates market risk of its physical inventories and open commitments through commodity hedge transactions (see
Note 11
.) As of
June 30, 2018
and
June 30, 2017
, the unrealized gains (losses) resulting from the difference between market value and cost of physical inventories were
$(5.4) million
and
$(4.5) million
, respectively.
Premium component of inventory
The Company's inventories primarily include bullion and bullion coins and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: (1) published market values attributable to the cost of the raw precious metal, and (2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable sources. The premium is included in the cost of the inventory, paid at acquisition, and is a component of the total fair market value of the inventory. The precious metal component of the inventory may be hedged through the use of precious metal commodity positions, while the premium component of our inventory is not a commodity that may be hedged.
The Company’s inventories are subsequently recorded at their fair market values, that is, "marked-to-market", except for our commemorative coin inventory. The daily changes in the fair market value of our inventory are offset by daily changes in fair market value of hedging derivatives that are taken with respects to our inventory positions; both the change in the fair market value of the inventory and the change in the fair market value of these derivative instruments are recorded in cost of sales in the
consolidated
statements of operations.
The premium component, at market value, included in the inventories as of
June 30, 2018
and
June 30, 2017
totaled
$3.5 million
and
$4.1 million
, respectively.
7
. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consists of the following at
June 30, 2018
and
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Office furniture, and fixtures
|
|
$
|
2,056
|
|
|
$
|
1,638
|
|
|
Computer equipment
|
|
757
|
|
|
462
|
|
|
Computer software
|
|
3,471
|
|
|
2,386
|
|
|
Plant equipment
|
|
2,701
|
|
|
1,979
|
|
|
Building
|
|
315
|
|
|
315
|
|
|
Leasehold improvements
|
|
2,796
|
|
|
2,571
|
|
|
Total depreciable assets
|
|
12,096
|
|
|
9,351
|
|
|
Less: accumulated depreciation
|
|
(5,597
|
)
|
|
(3,885
|
)
|
|
Property and equipment not placed in service
|
|
1,483
|
|
|
1,105
|
|
|
Land
|
|
36
|
|
|
36
|
|
|
Plant, property and equipment, net
|
|
$
|
8,018
|
|
|
$
|
6,607
|
|
|
Depreciation expense for the
years ended June 30, 2018 and 2017
was
$1,712,000
and
$1,099,000
, respectively.
Pursuant to the Company's acquisition of Goldline (see
Note 1
) the Company recorded approximately
$1.8 million
of additional property and equipment, which represents the approximate fair value of these assets.
8
. GOODWILL AND INTANGIBLE ASSETS
In connection with the acquisition of A-Mark by Former Parent on July 1, 2005, the accounts of the Company were adjusted using the push down basis of accounting to recognize the allocation of the consideration paid to the respective net assets acquired. In accordance with the push down basis of accounting, the Company's net assets were adjusted to their fair values as of the date of the acquisition based upon an independent appraisal.
Due to the Company's business combination with AMST that closed on August 31, 2016, the Company recorded an additional
$2.5 million
and
$4.3 million
of identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal. The Company’s investment in AMST has resulted in synergies between the acquired minting operation and the Company’s established distribution network by providing a more steady and reliable fabricated source of silver during times of market volatility. The Company considers that much of the acquired goodwill relates to the “ready state” of AMST's established minting operation with existing quality processes, procedures and ability to scale production to meet market needs.
Due to the Company's acquisition of Goldline (see
Note 1
), the Company recorded
$5.0 million
and
$1.4 million
of additional identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal and represents their fair values at the acquisition date. The Company’s investment in Goldline created synergies between Goldline's direct marketing operation and the Company’s established distribution network, secured storage and lending operations that is expected to lead to increased product margin spreads, lower distribution and storage costs for Goldline, and a larger customer base for the Company's secured lending operations.
The carrying value of goodwill and other purchased intangibles as of
June 30, 2018
and
June 30, 2017
is as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollar amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Estimated Useful Lives (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Accumulated Impairment
|
|
Net Book Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
Identifiable intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing customer relationships
|
5 - 15
|
|
8,848
|
|
|
(5,467
|
)
|
|
—
|
|
|
3,381
|
|
|
6,447
|
|
|
(4,636
|
)
|
|
1,811
|
|
Non-compete and other
|
3 - 5
|
|
2,300
|
|
|
(2,056
|
)
|
|
—
|
|
|
244
|
|
|
2,000
|
|
|
(2,000
|
)
|
|
—
|
|
Employment agreement
|
3
|
|
295
|
|
|
(222
|
)
|
|
—
|
|
|
73
|
|
|
195
|
|
|
(195
|
)
|
|
—
|
|
Intangibles subject to amortization
|
|
|
11,443
|
|
|
(7,745
|
)
|
|
—
|
|
|
3,698
|
|
|
8,642
|
|
|
(6,831
|
)
|
|
1,811
|
|
Trade Name
|
Indefinite
|
|
$
|
4,454
|
|
|
$
|
—
|
|
|
$
|
(1,291
|
)
|
|
$
|
3,163
|
|
|
$
|
2,254
|
|
|
$
|
—
|
|
|
$
|
2,254
|
|
|
|
|
$
|
15,897
|
|
|
$
|
(7,745
|
)
|
|
$
|
(1,291
|
)
|
|
$
|
6,861
|
|
|
$
|
10,896
|
|
|
$
|
(6,831
|
)
|
|
$
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
Indefinite
|
|
$
|
10,245
|
|
(1)
|
$
|
—
|
|
|
$
|
(1,364
|
)
|
|
$
|
8,881
|
|
|
$
|
8,881
|
|
|
$
|
—
|
|
|
$
|
8,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________
(1) During the fourth quarter of fiscal 2018, the gross carrying amount decreased by $86 related to the Company's revised estimate of the purchase price of Goldline due to the Seller. (see Note 1).
|
The Company's intangible assets are subject to amortization except for trade-names, which have an indefinite life. Intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be
three
to
fifteen
years. Amortization expense related to the Company's intangible assets for the
years ended June 30, 2018 and 2017
was
$914,000
and
$422,000
, respectively.
Annual Impairment Assessments
In accordance with ASC 350, the Company’s goodwill and indefinite-lived intangible assets are tested annually in the fourth quarter for impairment or earlier if events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount (see
Note 2
).
Fiscal 2018
Based on the Company's qualitative assessment of current economic indicators associated with the Wholesale and Ancillary Services and Direct Sales reporting units, the Company concluded that the Direct Sales reporting unit more than likely incurred a significant decline in its fair value. Our Secured Lending segment has no recorded intangible assets and therefore was not part of this analysis. During fiscal 2018, the Company revised its future outlook with respect to its Direct Sales reporting unit which resulted in a reduction in expected future cash flows. As a result, the Company determined that the fair value of this reporting unit declined below its carrying value and recorded a
$1.4 million
impairment of goodwill and a
$1.3 million
impairment of indefinite-lived intangible assets in fiscal 2018.
The Company used both the relief from royalty valuation method to determine the estimated fair value of this reporting unit's indefinite-lived intangibles (i.e., trade name). The key assumptions used in the royalty valuation method were long-term growth rate of
3.0%
, pre-tax royalty rate of
0.5%
, normalized tax rate
27.0%
, and discount rate of
30.0%
The Company used both the income valuation approach and the market transaction approach to determine the estimated fair value of this reporting unit's goodwill based on a
75%
and
25%
weighting, respectively. The key assumptions used in the income valuation approach were long-term growth rate of
3.0%
, normalized tax rate
27.0%
, normalized net working capital of
5.0%
and discount rate of
30.0%
. The key assumptions used in the market transaction approach were based on market multiples that were estimated per the Company's initial cash flow projections (first quarter of fiscal 2018) that were applied to the Company's lower fourth quarter fiscal 2018 cash flow projections of revenue of earnings before interest, taxes, depreciation and amortization ("EBITDA"). Revenue multiples ranged from
0.05
x to
0.10
x and EBITDA multiples ranged from
1.04
x to
2.52
x.
Fiscal 2017
No impairments were recorded in fiscal 2017.
Estimated amortization expense on an annual basis for the succeeding five years is as follows (in thousands):
|
|
|
|
|
|
Fiscal Year Ending June 30,
|
|
Amount
|
2019
|
|
$
|
1,011
|
|
2020
|
|
1,011
|
|
2021
|
|
599
|
|
2022
|
|
571
|
|
2023
|
|
128
|
|
Thereafter
|
|
378
|
|
Total
|
|
$
|
3,698
|
|
|
|
9
.
|
LONG-TERM INVESTMENTS
|
The Company has
two
investments in privately-held entities, both of which are online precious metals retailers and customers of the Company. The Company has exclusive supplier agreements with each entity, for which these customers have agreed to purchase all bullion products required for their businesses exclusively from A-Mark, subject to certain limitations. The Company also provides fulfillment services to both of these customers. The following table shows the carrying value of the Company's investments in the privately held companies, categorized by type of investment:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Equity method investment
|
|
$
|
7,888
|
|
|
$
|
7,467
|
|
|
Cost method investment
|
|
500
|
|
|
500
|
|
|
|
|
$
|
8,388
|
|
|
$
|
7,967
|
|
|
Equity Method Investment
The Company applies the equity method of accounting for its investment in which it has aggregate ownership interest of
20.6%
. Under the equity method of accounting, the carrying value of the investment is adjusted for the Company's proportional share of the investee's reported earnings or losses with the corresponding share of earnings or losses reported in other income (expense) on the
consolidated
statements of operations. The Company's proportionate share of the investee’s net income totaled
$421,000
and
$94,000
for the
years ended June 30, 2018 and 2017
, respectively.
Cost Method Investment
The Company applies the cost method to its investment in which its ownership percentage, based on the number of fully dilutive common shares outstanding, was
2.5%
as of
June 30, 2018
and
June 30, 2017
. As of
June 30, 2018
and
June 30, 2017
, the aggregate carrying balance of this investment was
$0.5 million
.
Accounts payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Trade payables to customers
|
|
$
|
175
|
|
|
$
|
277
|
|
|
Advances from customers
|
|
42,615
|
|
|
36,382
|
|
|
Deferred revenue
|
|
2,107
|
|
|
3,777
|
|
|
Other accounts payable
|
|
1,100
|
|
|
1,511
|
|
|
|
|
$
|
45,997
|
|
|
$
|
41,947
|
|
|
|
|
11
.
|
DERIVATIVE INSTRUMENTS AND HEDGING TRANSACTIONS
|
The Company is exposed to market risk, such as changes in commodity prices, and foreign exchange rates. To manage the volatility relating to these exposures, the Company enters into various derivative products, such as forwards and futures contracts. By policy, the Company historically has entered into derivative financial instruments for the purpose of hedging substantially all of Company's market exposure to precious metals prices, and not for speculative purposes. The Company’s gains (losses) on derivative instruments are substantially offset by the changes in the fair market value of the underlying precious metals inventory, both of which are recorded in cost of sales in the consolidated statements of operations.
Commodity Price Management
The Company manages the value of certain assets and liabilities of its trading business, including trading inventories, by employing a variety of hedging strategies. These strategies include the management of exposure to changes in the market values of the Company's trading inventories through the purchase and sale of a variety of derivative instruments, such as, forwards and futures contracts.
The Company enters into derivative transactions solely for the purpose of hedging its inventory subject to price risk, and not for speculative market purposes. Due to the nature of the Company's global hedging strategy, the Company is not using hedge accounting as defined under Topic 815 of the ASC, whereby the gains or losses would be deferred and included as a component of other comprehensive income
.
Instead, gains or losses resulting from the Company's futures and forward contracts and open sale and purchase commitments are reported in the
consolidated
statement of operations as unrealized gains or losses on commodity contracts (a component of cost of sales) with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability on the
consolidated
balance sheets.
The Company's trading inventories and purchase and sale transactions consist primarily of precious metal products. The value of these assets and liabilities are marked-to-market daily to the prevailing closing price of the underlying precious metals. The Company's precious metals inventories are subject to market value changes, created by changes in the underlying commodity market prices. Inventories purchased or borrowed by the Company are subject to price changes. Inventories borrowed are considered natural hedges, since changes in value of the metal held are offset by the obligation to return the metal to the supplier.
The Company’s open sale and purchase commitments typically settle within
2
business days, and for those commitments that do not have stated settlement dates, the Company has the right to settle the positions upon demand. Futures and forwards contracts open at end of any period typically settle within
30
days. Open sale and purchase commitments are subject to changes in value between the date the purchase or sale price is fixed (the trade date) and the date the metal is received or delivered (the settlement date). The Company seeks to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts.
The Company's policy is to substantially hedge its inventory position, net of open sale and purchase commitments that are subject to price risk. The Company regularly enters into precious metals commodity forward and futures contracts with financial institutions to hedge price changes that would cause changes in the value of its physical metals positions and purchase commitments and sale commitments. The Company has access to all of the precious metals markets, allowing it to place hedges. The Company also maintains relationships with major market makers in every major precious metals dealing center.
The Company’s management sets credit and position risk limits. These limits include gross position limits for counterparties engaged in sales and purchase transactions with the Company. They also include collateral limits for different types of sale and purchase transactions that counterparties may engage in from time to time.
Derivative Assets and Liabilities
The Company's derivative assets and liabilities represent the net fair value of the difference (or intrinsic value) between market values and trade values at the trade date for open precious metals sale and purchase contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled. The Company's derivative assets and liabilities represent the net fair value of open precious metals forwards and futures contracts. The precious metals forwards and futures contracts are settled at the contract settlement date.
All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions (i.e., offsetting derivative instruments). As such, for the Company's derivative contracts with the same counterparty, the receivables and payables have been netted on the
consolidated
balance sheets. Such derivative contracts include open sale and purchase commitments, futures, forwards and margin accounts. In the table below, the aggregate gross and net derivative receivables and payables balances are presented by contract type and type of hedge, as of
June 30, 2018
and
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
|
|
in thousands
|
|
Gross Derivative
|
|
Amounts Netted
|
|
Cash Collateral Pledge
|
|
Net Derivative
|
|
Gross Derivative
|
|
Amounts Netted
|
|
Cash Collateral Pledge
|
|
Net Derivative
|
Nettable derivative assets:
|
Open sale and purchase commitments
|
|
$
|
2,602
|
|
|
$
|
(328
|
)
|
|
$
|
—
|
|
|
$
|
2,274
|
|
|
$
|
1,625
|
|
|
$
|
(694
|
)
|
|
$
|
—
|
|
|
$
|
931
|
|
Option contracts
|
|
390
|
|
|
—
|
|
|
—
|
|
|
390
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Future contracts
|
|
238
|
|
|
—
|
|
|
—
|
|
|
238
|
|
|
1,273
|
|
|
—
|
|
|
—
|
|
|
1,273
|
|
Forward contracts
|
|
4,577
|
|
|
(84
|
)
|
|
—
|
|
|
4,493
|
|
|
15,754
|
|
|
(371
|
)
|
|
—
|
|
|
15,383
|
|
|
|
$
|
7,807
|
|
|
$
|
(412
|
)
|
|
$
|
—
|
|
|
$
|
7,395
|
|
|
$
|
18,652
|
|
|
$
|
(1,065
|
)
|
|
$
|
—
|
|
|
$
|
17,587
|
|
Nettable derivative liabilities:
|
Open sale and purchase commitments
|
|
$
|
17,132
|
|
|
$
|
(647
|
)
|
|
$
|
—
|
|
|
$
|
16,485
|
|
|
$
|
31,568
|
|
|
$
|
(1,783
|
)
|
|
$
|
—
|
|
|
$
|
29,785
|
|
Margin accounts
|
|
5,988
|
|
|
—
|
|
|
(2,184
|
)
|
|
3,804
|
|
|
7,936
|
|
|
—
|
|
|
(3,139
|
)
|
|
4,797
|
|
Liability of price protection programs
|
|
168
|
|
|
—
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
23,288
|
|
|
$
|
(647
|
)
|
|
$
|
(2,184
|
)
|
|
$
|
20,457
|
|
|
$
|
39,504
|
|
|
$
|
(1,783
|
)
|
|
$
|
(3,139
|
)
|
|
$
|
34,582
|
|
Gains or Losses on Derivative Instruments
The Company records the derivative at the trade date with a corresponding unrealized gain (loss), shown as a component of cost of sales in the
consolidated
statements of operations. The Company adjusts the derivatives to fair value on a daily basis until the transactions are settled. When these contracts are net settled, the unrealized gains and losses are reversed and the realized gains and losses for forward contracts are recorded in revenue and cost of sales, and the net realized gains and losses for futures and option contacts are recorded in cost of sales.
Below is a summary of the net gains (losses) on derivative instruments for the
years ended June 30, 2018 and 2017
.
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Gains (losses) on derivative instruments:
|
|
Unrealized gains (losses) on open future commodity and forward contracts and open sale and purchase commitments, net
|
|
$
|
2,351
|
|
|
$
|
(17,738
|
)
|
|
Realized gains on future commodity contracts, net
|
|
13,271
|
|
|
27,392
|
|
|
|
|
$
|
15,622
|
|
|
$
|
9,654
|
|
|
The Company’s net gains on derivative instruments, as shown in the table above, were substantially offset by the changes in fair market value of the underlying precious metals inventory and open sale and purchase commitments, which were also recorded in cost of sales in the
consolidated
statements of operations.
Summary of Hedging Positions
In a hedging relationship, the change in the value of the derivative financial instrument is offset to a great extent by the change in the value of the underlying hedged item. The following table summarizes the results of our hedging activities, which shows the precious metal commodity inventory position, net of open sale and purchase commitments, that is subject to price risk as of
June 30, 2018
and at
June 30, 2017
.
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Inventory
|
|
$
|
280,116
|
|
|
$
|
284,659
|
|
|
Precious metals held under financing arrangements
|
|
262,566
|
|
|
—
|
|
|
|
|
542,682
|
|
|
284,659
|
|
|
|
|
|
|
|
|
Less unhedgeable inventory:
|
|
|
|
|
|
Commemorative coin inventory, held at lower of cost or market
|
|
(99
|
)
|
|
(40
|
)
|
|
Premium on metals position
|
|
(3,530
|
)
|
|
(4,088
|
)
|
|
Precious metal value not hedged
|
|
(3,629
|
)
|
|
(4,128
|
)
|
|
|
|
|
|
|
|
|
|
539,053
|
|
|
280,531
|
|
|
|
|
|
|
|
|
Commitments at market:
|
|
|
|
|
|
|
|
Open inventory purchase commitments
|
|
342,287
|
|
|
587,687
|
|
|
Open inventory sales commitments
|
|
(138,022
|
)
|
|
(121,602
|
)
|
|
Margin sale commitments
|
|
(5,988
|
)
|
|
(7,936
|
)
|
|
In-transit inventory no longer subject to market risk
|
|
(1,060
|
)
|
|
(3,931
|
)
|
|
Unhedgeable premiums on open commitment positions
|
|
541
|
|
|
495
|
|
|
Borrowed precious metals
|
|
(280,346
|
)
|
|
(5,625
|
)
|
|
Product financing arrangements
|
|
(113,940
|
)
|
|
(135,343
|
)
|
|
Advances on industrial metals
|
|
6,044
|
|
|
1,580
|
|
|
|
|
(190,484
|
)
|
|
315,325
|
|
|
|
|
|
|
|
|
Precious metal subject to price risk
|
|
348,569
|
|
|
595,856
|
|
|
|
|
|
|
|
|
Precious metal subject to derivative financial instruments:
|
|
|
|
|
|
Precious metals forward contracts at market values
|
|
274,994
|
|
|
462,231
|
|
|
Precious metals futures contracts at market values
|
|
72,421
|
|
|
133,450
|
|
|
Total market value of derivative financial instruments
|
|
347,415
|
|
|
595,681
|
|
|
|
|
|
|
|
|
Net precious metals subject to commodity price risk
|
|
$
|
1,154
|
|
|
$
|
175
|
|
|
Notional Balances of Derivatives
The notional balances of the Company's derivative instruments, consisting of contractual metal quantities, are expressed at current spot prices of the underlying precious metal commodity. As of
June 30, 2018
and
June 30, 2017
, the Company had the following outstanding commitments and open forward and future contracts:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Purchase commitments
|
|
$
|
342,287
|
|
|
$
|
587,687
|
|
|
Sales commitments
|
|
$
|
(138,022
|
)
|
|
$
|
(121,602
|
)
|
|
Margin sales commitments
|
|
$
|
(5,988
|
)
|
|
$
|
(7,936
|
)
|
|
Open forward contracts
|
|
$
|
274,994
|
|
|
$
|
462,231
|
|
|
Open futures contracts
|
|
$
|
72,421
|
|
|
$
|
133,450
|
|
|
The contract amounts (i.e., notional balances) of the Company's forward and futures contracts and the open sales and purchase commitments are not reflected in the accompanying
consolidated
balance sheet. The Company records the difference between the market price of the underlying metal or contract and the trade amount at fair value.
The Company is exposed to the risk of failure of the counterparties to its derivative contracts. Significant judgment is applied by the Company when evaluating the fair value implications. The Company regularly reviews the creditworthiness of its major counterparties and monitors its exposure to concentrations. At
June 30, 2018
, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.
Foreign Currency Exchange Rate Management
The Company utilizes foreign currency forward contracts to manage the effect of foreign currency exchange fluctuations on its sale and purchase transactions. These contracts generally have maturities of less than one week. The accounting treatment of our foreign currency exchange derivative instruments is similar to the accounting treatment of our commodity derivative instruments, that is, the change in the value in the financial instrument is immediately recognized as a component of cost of sales. Unrealized gains (losses) on foreign exchange derivative instruments shown on the face of the
consolidated
statements of operations totaled
$30,000
and
$60,000
for the
years ended June 30, 2018 and 2017
, respectively. The market values (fair values) of the Company’s foreign exchange forward contracts and the net open sale and purchase commitment transactions, denominated in foreign currencies, outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
June 30, 2018
|
|
June 30, 2017
|
Foreign exchange forward contracts
|
|
$
|
4,130
|
|
|
$
|
2,213
|
|
Open sale and purchase commitment transactions, net
|
|
$
|
3,026
|
|
|
$
|
2,235
|
|
|
|
|
|
|
12
. INCOME TAXES
Income (loss) from operations before provision for income taxes is shown below:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
Year Ended
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
U.S.
|
|
$
|
(3,446
|
)
|
|
$
|
10,745
|
|
|
Foreign
|
|
35
|
|
|
40
|
|
|
Net (loss) income before provision for income taxes
|
|
$
|
(3,411
|
)
|
|
$
|
10,785
|
|
|
|
|
|
|
|
|
The Company files a consolidated federal income tax return based on a June 30 tax year end. The (benefit) expense from provision for income taxes for the
years ended June 30, 2018 and 2017
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
Year Ended
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
Federal
|
|
42
|
|
|
13,642
|
|
|
State and local
|
|
(96
|
)
|
|
879
|
|
|
Foreign
|
|
(27
|
)
|
|
(20
|
)
|
|
|
|
(81
|
)
|
|
14,501
|
|
|
Deferred:
|
|
|
|
|
|
Federal
|
|
361
|
|
|
(10,117
|
)
|
|
State and local
|
|
(272
|
)
|
|
(663
|
)
|
|
|
|
89
|
|
|
(10,780
|
)
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
8
|
|
|
$
|
3,721
|
|
|
|
|
|
|
|
|
A reconciliation of the income tax provisions to the amounts computed by applying the statutory federal income tax rate (
28.06%
for
2018
, and
35%
for
2017
) to income before income tax provisions for the
years ended June 30, 2018 and 2017
, are set forth below:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Federal income tax
|
|
$
|
(957
|
)
|
|
$
|
3,775
|
|
|
State tax, net of federal benefit
|
|
(98
|
)
|
|
210
|
|
|
Uncertain tax positions
|
|
(50
|
)
|
|
(147
|
)
|
|
Change in valuation allowance
|
|
(56
|
)
|
|
12
|
|
|
Tax Act
|
|
1,244
|
|
|
—
|
|
|
Other
|
|
(75
|
)
|
|
(129
|
)
|
|
Provision for income taxes
|
|
$
|
8
|
|
|
$
|
3,721
|
|
|
|
|
|
|
|
|
The schedule of deferred taxes presented below summarizes the components of deferred taxes that have been classified as deferred tax assets and deferred tax liabilities related to taxable temporary differences as of
June 30, 2018
and
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
Accrued compensation
|
|
$
|
86
|
|
|
$
|
121
|
|
Deferred rent
|
|
236
|
|
|
367
|
|
Unrealized loss on open purchase and sale commitments
|
|
2,351
|
|
|
5,026
|
|
Stock-based compensation
|
|
635
|
|
|
582
|
|
State tax accrual
|
|
37
|
|
|
112
|
|
Net operating loss carry forwards
|
|
1,657
|
|
|
705
|
|
Other
|
|
141
|
|
|
132
|
|
Deferred tax assets
|
|
5,143
|
|
|
7,045
|
|
Less: valuation allowances
|
|
—
|
|
|
(56
|
)
|
Deferred tax assets after valuation allowances
|
|
5,143
|
|
|
6,989
|
|
|
|
|
|
|
Intangible assets
|
|
(206
|
)
|
|
(1,347
|
)
|
Unrealized gain on futures and forward contracts
|
|
(146
|
)
|
|
(474
|
)
|
Fixed assets
|
|
(5
|
)
|
|
(298
|
)
|
Inventories
|
|
(319
|
)
|
|
(454
|
)
|
Earnings from equity method investment
|
|
(283
|
)
|
|
(296
|
)
|
Investment in Partnership
|
|
(287
|
)
|
|
(161
|
)
|
Other
|
|
(27
|
)
|
|
—
|
|
Deferred tax liabilities
|
|
(1,273
|
)
|
|
(3,030
|
)
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
3,870
|
|
|
$
|
3,959
|
|
|
|
|
|
|
The effective tax rate decreased to a provision of
0.2%
for the year ended June 30, 2018, compared to a provision of
34.5%
for the year ended June 30, 2017. The
decrease
in tax expense of
$3.7 million
was primarily due to a s shift to an operating loss in
June 30, 2018
from operating income in the same year ago period and the impact of the Tax Cuts and Job Act (see below). For the year ending
June 30, 2018
, the Company recorded a tax benefit of
$1.0 million
related to our pre-tax operating loss, offset by the impact of a one-time revaluation tax charge of
$1.2 million
related to the Tax Cuts and Job Act (see below). The remainder of the difference was due to normal course movements and non-material items.
Tax Cuts and Jobs Act
On December 22, 2017, the comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code. The Tax Act reduces the corporate tax rate from 35.0% to 21.0% for tax years beginning after December 31, 2017. For fiscal year taxpayers, a blended tax rate is required to compute the current tax liability. This is the result of using the income tax rate of
35.0%
for the first and second quarters of fiscal year 2018 and the reduced income tax rate of
21.0%
for the third and fourth quarters of fiscal year 2018. With respect to deferred tax assets (net of deferred tax liabilities) that are in existence as of the enactment date (i.e., valued using a
35.0
% federal tax rate), the Company has been negatively impacted by the (1) new corporate tax rates, and (2) the effective date of the new provision to preclude taxpayers from carrying net operating losses (NOLs) back to prior taxable years. As such, the realization of such deferred taxes post enactment have been realized at a lower
28.06%
blended tax rate, or a
21.0%
tax rate to the extent realized after
fiscal 2018
. We continue to analyze the impact of the Tax Act primarily related to our state income taxes. Our accounting for the estimated tax effects of the Tax Act will be completed during the measurement period, which should not extend beyond one year from the enactment date.
Tax Balances and Activity
Income Taxes Receivable and Payable
As of
June 30, 2018
and
June 30, 2017
, income taxes receivable totaled
$1.6 million
and
$0.0 million
, respectively. As of
June 30, 2018
and
June 30, 2017
, income taxes payable totaled
$0.0 million
and
$1.4 million
, respectively.
Deferred Tax Assets and Liabilities
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized by evaluating both positive and negative evidence. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary
differences become deductible. As of
June 30, 2018
and
June 30, 2017
, management concluded that with the exception of certain state net operating losses, it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets.
As of
June 30, 2018
, the consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax asset of
$1.7 million
and a federal deferred tax asset of
$2.2 million
. As of
June 30, 2017
, the consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax asset of
$1.4 million
and a federal deferred tax asset of
$2.5 million
.
Net Operating Loss Carryforwards and Valuation Allowances
As of
June 30, 2018
and
June 30, 2017
, the Company has approximately
$2.9 million
and
$0.0 million
of federal net operating loss carryforwards and approximately
$15.5 million
and
$12.5 million
, state and city net operating loss carryforwards, respectively. The Company's combined federal, state and city tax-effected net operating loss carryforwards totaled, as of
June 30, 2018
and
June 30, 2017
,
$1.7 million
and
$0.7 million
, respectively. These net operating loss carryforwards start to expire in the year ending
June 30, 2022
. The change in state net operating loss is a result of a change in the estimated use of net operating losses at
June 30, 2017
versus the actual amount used when completed tax returns were filed.
As of
June 30, 2018
and
June 30, 2017
, the Company had
$0
and
$56,000
, respectively, of valuation allowance for certain state and city net operating loss carryforwards, based on the Company's annual assessment of the realizability of its deferred tax assets. The change in the valuation allowance is a result of the settlement of a state tax audit and the expiration of statute of limitation.
Unrecognized Tax Benefits
The Company has taken or expects to take certain tax benefits on its income tax return filings that it has not recognized a tax benefit (i.e., an unrecognized tax benefit) on its consolidated statements of operations. The Company's measurement of its uncertain tax positions is based on management's assessment of all relevant information, including, but not limited to prior audit experience, audit settlement, or lapse of the applicable statute of limitations.
Below is a reconciliation of the net unrecognized tax benefits for the years ended
June 30, 2018
and
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
|
|
|
|
Beginning balance
|
|
$
|
197
|
|
|
$
|
280
|
|
Reductions due to lapse of statute of limitations
|
|
(2
|
)
|
|
(97
|
)
|
Additions as a result of tax positions taken during current period
|
|
—
|
|
|
14
|
|
Reductions as a result of tax positions of prior years
|
|
(48
|
)
|
|
—
|
|
Ending balance
|
|
$
|
147
|
|
|
$
|
197
|
|
|
|
|
|
|
In addition to the
$147,000
of accrued tax expense related to unrecognized tax positions, as shown in the table above, the Company accrued
$48,000
of interest and
$40,000
of penalties related to its uncertain tax positions. As of
June 30, 2018
, the amount of this accrued liability (inclusive of the uncertain tax deductions and the associated interest and penalty accrual) totaled
$235,000
, and, if recognized, would reduce the Company's effective tax rate. For the
years ended June 30, 2018 and 2017
, the Company recognized reductions of interest expense of
$50,000
and
$26,000
, respectively, as well as, reductions of penalties of
$13,000
and
$39,000
, respectively, related to our uncertain tax positions.
Tax Examinations
With exception of the items noted below, either prior federal, state or local examinations have been completed by the tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed for the years through June 30, 2012.
Internal Revenue Service — June 30, 2008 through June 30, 2013
During the
year ended June 30, 2018
, the Former Parent settled its IRS appeal for the tax years ended June 30, 2008 through 2013. As a result, the Former Parent amended its states filings that resulted in a state tax benefit of approximately
$0.3 million
to the Company. Generally, the state statute for examining the specific items that were included in the amendment is two years from the date of filing.
Internal Revenue Service — June 30, 2015
In a prior fiscal year, the Internal Revenue Service notified the Company of an examination for the year ended June 30, 2015. The Company settled this examination during the year ended June 30, 2018, which was closed subsequent to to June 30, 2018. The impact of the IRS examination is immaterial to the financial statements.
Utah State — June 30, 2011 through June 30, 2013
The Former Parent remains under exam with the state of Utah for the years ended June 30, 2011 through 2013. The Former Parent and the Company, as a subsidiary in a consolidated tax filing, are unable to determine the outcome of this exam at this time.
Utah State — June 30, 2014 through June 30, 2017
During the year ended June 30, 2018, the Company was notified by the state of Utah that the tax returns for the period ended June 30, 2014 through 2017 were selected for exam. The Company is unable to determine the outcome at this time.
New York — March 14, 2014 through June 30, 2014 (Former Parent)
In a prior fiscal year, the Former Parent was notified by the New York Department of Taxation and Finance that its tax return was under examination for the period ended June 30, 2014, which included the Company’s short period tax return through March 14, 2014. The former parent closed this exam during the year ended June 30, 2018. There was no change to the tax returns filed as a result of this examination.
New York — June 30, 2014 through June 30, 2016 (A-Mark Precious Metals Inc.)
In a prior fiscal year, the Company was notified by the New York Department of Taxation and Finance that its tax returns for the periods ended June 30, 2014, June 30, 2015 and June 30, 2016 were selected for audit. The Company is unable to determine the outcome of the audit at this time.
13
. RELATED PARTY TRANSACTIONS
Former Parent and its Subsidiaries
In addition to transactions with other affiliates as indicated below, the Company engages with Stack’s Bowers Numismatics LLC ("Stack's Bowers"), a wholly owned subsidiary of the Former Parent, in (i) sales and purchase transactions, and (ii) transactions in which the Company assists Stack’s Bowers in financing the purchase of rare coins and precious metals products, both through precious metal repurchase arrangements in which the Company receives a fee based upon the commodity value of the coins, and through loans to Stack’s Bowers from CFC secured by the coins or precious metal. The effect of these transactions is included in the following tables.
Balances with Affiliated Companies or Persons
As of
June 30, 2018
and
June 30, 2017
, the Company had related party receivables and payables balances as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
|
|
Receivables
|
|
Payables
|
|
Receivables
|
|
Payables
|
|
Former Parent/Stack's Bowers
|
|
$
|
13,240
|
|
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27
|
|
|
Equity method investee
|
|
—
|
|
|
920
|
|
(2)
|
—
|
|
|
558
|
|
|
SilverTowne
|
|
—
|
|
|
242
|
|
(3)
|
—
|
|
|
1,768
|
|
|
Goldline Lenders
|
|
—
|
|
|
7,710
|
|
(4)
|
—
|
|
|
—
|
|
|
|
|
$
|
13,240
|
|
|
$
|
8,872
|
|
|
—
|
|
|
$
|
2,353
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________
|
|
(1) Balance principally includes two secured lines of credit with a balance of $3.0 million and $9.5 million (shown as a component of secured loans receivables). See "Secured Lines of Credit with Stack's Bowers", below.
|
|
(2) Balance represents mostly open trade payables.
|
|
(3) Balance (net) includes (a) a trade receivables of $0.3 million (shown as a component of receivables), and (b) a contingent earn-out liability of $0.6 million (shown as a component of other long-term liabilities).
|
|
(4) Balance includes the face value of the Goldline Credit Facility of $7.5 million, and the associated estimated debt funding fees payable of $0.2 million (shown as debt obligation - related party). The Goldline Credit facility and the debt funding fee are payable in August 2020.
|
|
|
|
|
|
|
|
|
|
|
|
Secured Lines of Credit with Stack's Bowers
On September 19, 2017, CFC entered into a loan agreement with Stack's Bowers providing a secured line of credit, bearing interest at a competitive rate per annum, with a maximum borrowing line of
$5.3 million
. The loan is secured by precious metals and numismatic products. As of
June 30, 2018
and
June 30, 2017
, the aggregate carrying value of this loan was
$3.0 million
and
$0.0 million
, respectively.
On March 1, 2018, CFC entered into a loan agreement with Stack's-Bowers providing a secured line of credit on the wholesale value (i.e., the excess over the spot value of the metal), of numismatic products bearing interest at a competitive rate per annum, with a maximum borrowing line of
$10.0 million
. In addition to the annual rate of interest, the Company is entitled to receive a participation interest equal to
10%
of the net profits realized by Stack's Bowers on the ultimate sale of the products. As of
June 30, 2018
and
June 30, 2017
, the aggregate carrying value of this loan was
$9.5 million
and
$0.0 million
, respectively.
Note payable to SilverTowne
On August 31, 2016, the Company signed a
$500,000
promissory note with SilverTowne that was payable in
one
year related to our acquisition of AMST. This note was paid in full in August 2017.
Long Term Debt Obligation with Goldline Lenders
As of
June 30, 2018
, the carrying value of the long term debt obligation payable to Goldline Lenders totaled
$7.2 million
, and is shown in the
consolidated
balance sheets as debt obligation (related party). The face value of this debt obligation is
$7.5 million
and the related unamortized loan funding fee, a contra-liability, totaled
$274,000
as of
June 30, 2018
(see
Note 14
). The estimated loan funding fee payable to Goldline Lenders as of
June 30, 2018
totaled
$210,000
and is shown on the
consolidated
balance sheets as component of other long-term liabilities.
Activity with Affiliated Companies or Persons
Sales and Purchases Made to Affiliated Companies
During the
years ended June 30, 2018 and 2017
, the Company made sales and purchases to various companies, which have been deemed to be related parties, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
|
|
Sales
|
|
Purchases
|
|
Sales
|
|
Purchases
|
|
Former Parent/Stack's Bowers
|
|
$
|
50,512
|
|
|
$
|
344,348
|
|
|
$
|
47,384
|
|
|
$
|
47,979
|
|
|
Equity method investee
|
|
359,872
|
|
|
5,959
|
|
|
477,477
|
|
|
2,979
|
|
|
SilverTowne
|
|
14,921
|
|
|
7,696
|
|
|
27,834
|
|
|
4,648
|
|
|
|
|
$
|
425,305
|
|
|
$
|
358,003
|
|
|
$
|
552,695
|
|
|
$
|
55,606
|
|
|
Interest Income Earned from Affiliated Companies
During the
years ended June 30, 2018 and 2017
, the Company earned interest income related to loans made to Stack's Bowers and related to financing arrangements (including repurchase agreements) with affiliated companies, as set forth below:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Interest income from secured loans receivables
|
|
$
|
290
|
|
|
$
|
171
|
|
|
Interest income from finance products and repurchase arrangements
|
|
3,926
|
|
|
2,787
|
|
|
|
|
$
|
4,216
|
|
|
$
|
2,958
|
|
|
|
|
|
|
|
|
Interest Expense Incurred Related to Notes Payable and Long-Term Debt Obligation
During the
years ended June 30, 2018 and 2017
, the Company incurred interest expense (including debt amortization costs) related to the debt payable to SilverTowne and the Goldline Lenders, as set forth below:
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Interest expense incurred related to notes payable
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Interest expense incurred related to long-term debt obligation
|
|
$
|
648
|
|
|
$
|
—
|
|
|
|
|
$
|
648
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
Other Income Earned from Equity Method Investee
During the
years ended June 30, 2018 and 2017
, the Company recorded its proportional share of its equity method investee's net income as other income that total
$421,000
and
$94,000
, respectively. As of
June 30, 2018
and
June 30, 2017
, the carrying balance of the equity method investment was
$7.9 million
and
$7.5 million
, respectively.
|
|
14
.
|
FINANCING AGREEMENTS
|
Lines of Credit
The Company has an uncommitted demand revolving credit facility ("Trading Credit Facility”) provided to the Company by a syndicate of financial institutions, with Coöperatieve Rabobank U.A. ("Rabobank") acting as lead lender and administrative agent and Natixis, New York Branch acting as syndication agent. The Trading Credit Facility is secured by substantially all of the Company’s assets on a first priority basis. As of
June 30, 2018
, the Trading Credit Facility provided the Company with access up to
$260.0 million
, featuring a
$210.0 million
base, with a
$50.0 million
accordion option. The Trading Credit Facility is scheduled to mature on
March 29, 2019
. As of
June 30, 2018
, the Company incurred
$2.6 million
of loan costs in connection with the Trading Credit Facility, which was capitalized and is being amortized over the term of the Trading Credit Facility. As of
June 30, 2018
and
June 30, 2017
, the remaining unamortized balance was approximately
$0.5 million
and
$0.1 million
, respectively.
The Company routinely uses the Trading Credit Facility to purchase and finance precious metals and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a
2.50%
margin for revolving credit line loans and a
4.50%
margin for bridge loans (that is, for loans that exceed the available revolving credit line). The
one-month LIBOR
rate was approximately
2.09%
and
1.17%
as of
June 30, 2018
and
June 30, 2017
, respectively. Borrowings are due on demand and totaled
$200.0 million
and
$180.0 million
at
June 30, 2018
and at
June 30, 2017
, respectively. The amounts available under the respective borrowing facilities are determined at the end of each week following a specified borrowing base formula. The Company is able to access additional credit as needed to finance operations, subject to the overall limits of the borrowing facilities and lender approval of the revised borrowing base calculation. Based on the latest approved borrowing bases in effect, the amounts available under the Trading Credit Facility after taking into account current borrowings, totaled
$22.1 million
and
$45.6 million
as determined on the Friday before
June 30, 2018
and on Friday,
June 30, 2017
, respectively.
The Trading Credit Facility has certain restrictive financial covenants, including one requiring the Company to maintain a minimum tangible net worth. As of
June 30, 2018
the minimum tangible net worth financial covenant under the Trading Credit Facility was
$47.5 million
. The Company is in compliance with all restrictive financial covenants as of
June 30, 2018
.
Interest expense related to the Company’s lines of credit totaled
$7.9 million
and
$6.4 million
, which represents
57.0%
and
63.6%
of the total interest expense recognized, for the
years ended June 30, 2018 and 2017
, respectively. Our lines of credit carried a daily weighted average effective interest rate of
3.96%
and
3.18%
, respectively, for the
years ended June 30, 2018 and 2017
.
Debt Obligation
On August 28, 2017, in connection with the closing of the Goldline acquisition (see
Note 1
), Goldline, then known as Goldline Acquisition Corp., entered into a privately placed credit facility in the amount of
$7.5 million
(the “Goldline Credit Facility”) with various lenders (the "Goldline Lenders"). Borrowings under the Goldline Credit Facility were used to finance a portion of the consideration payable pursuant to the Goldline acquisition.
The Goldline Credit Facility is secured by a first priority lien on substantially all of the assets of Goldline , and is guaranteed by the Company. Interest on the Goldline Credit Facility is payable quarterly in arrears at the rate of
8.5%
per annum, and the Goldline Lenders under the Goldline Credit Facility are entitled to an additional funding fee payment at maturity equal to the greater of
3.0%
of the principal amount of the Goldline Credit Facility and
10.0%
of cumulative EBITDA (for the periods ending June 30, 2018, 2019 and 2020) of Goldline in excess of
$10.0 million
, on a pro rata basis. The Goldline Credit Facility has a
three
-year maturity, and all outstanding principal and unpaid interest is due upon maturity (August 28, 2020).
As of
June 30, 2018
, the carrying balance of the Goldline Credit facility was
$7.2 million
, and the remaining unamortized loan cost balance was approximately
$0.3 million
, which is amortized ratably through the maturity date. As of
June 30, 2018
, the balance of the loan fee payable was
$0.2 million
.
Interest expense related to the Goldline Credit Facility (including debt loan amortization costs) totaled
$648,000
which represents
4.7%
of the total interest expense recognized, for the
year ended June 30, 2018
. The Goldline Credit Facility's weighted average effective interest rate was
9.25%
for the
year ended June 30, 2018
.
The obligations of Goldline and the Company under the Goldline Credit Facility are subordinated to the Company’s obligations under the Trading Credit Facility (see Lines of Credit, above in
Note 14
). Under the subordination agreements, the Goldline Lenders are permitted to collect quarterly interest-only payments and a balloon payment of principal and accrued interest at the end of the loan term, provided that no event of default is continuing under the Trading Credit Facility and the Company is in pro-forma compliance with the financial covenants under the Trading Credit Facility.
Goldline Lenders
The following table shows the directors, executive officer and principal stockholder that participated in the Goldline Credit Facility transaction, and provides related information:
|
|
|
|
|
|
|
|
|
Goldline Lenders
|
|
Position/Relationship
|
|
Amount of Company Indebtedness Acquired
(1)
|
|
|
|
|
|
|
|
Gregory N. Roberts
|
|
Chief Executive Officer, Director and principal stockholder
|
(2)
|
$
|
587,500
|
|
(2)
|
William D. Richardson
|
|
Principal stockholder
|
(3)
|
587,500
|
|
(3)
|
Jeffrey D. Benjamin
|
|
Chairman of the Board and Director
|
|
1,000,000
|
|
|
Ellis Landau
|
|
Director
|
|
375,000
|
|
|
William Montgomery
|
|
Director
|
|
1,500,000
|
|
|
Jess Ravich
|
|
Director
|
|
500,000
|
|
(4)
|
|
|
|
|
4,550,000
|
|
|
7 other persons
|
|
Non-affiliated members
|
|
2,950,000
|
|
|
|
|
|
|
$
|
7,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________
|
|
|
|
|
(1)
|
|
The amount shown is expected to remain outstanding throughout the term of the Goldline Credit Facility, with repayment due in August 2020.
|
|
|
|
|
|
(2)
|
|
Silver Bow Ventures LLC (“Silver Bow”) is the Lender. Mr. Roberts holds 50% of the ownership interests in and controls Silver Bow. Accordingly, the amount of indebtedness shown, and the interest amounts potentially payable on such indebtedness shown, represent 50% of the aggregate amounts of indebtedness held by and potential interest payable to Silver Bow.
|
|
|
|
|
|
(3)
|
|
Silver Bow is the Lender. Mr. Richardson holds 50% of the ownership interests in and controls Silver Bow. Accordingly, the amount of indebtedness shown, and the interest amounts potentially payable on such indebtedness shown, represent 50% of the aggregate amounts of indebtedness held by and potential interest payable to Silver Bow.
|
|
(4)
|
|
Libra Securities Holdings, LLC is the Lender. Mr. Ravich and a trust for his family members holds 100% of the ownership interests and controls Libra Securities Holdings, LLC.
|
|
Liability on Borrowed Metals
The Company recorded liabilities on borrowed precious metals with market values totaling
$280.3 million
and
$5.6 million
as of
June 30, 2018
and
June 30, 2017
, respectively, with the corresponding inventory reflected on the
consolidated
balance sheets.
Advanced pool metals
The Company borrows precious metals (usually in the form of pool metals) from its suppliers and customers under short-term agreements using other precious metals from its inventory as collateral. Amounts under these arrangements require repayment either in the same form of the metals borrowed or in cash. The Company has the ability to sell the metals and to repurchase similar metals as needed, under the terms of the arrangement, in order to repay the obligation. Once the obligation is repaid, the metals held as collateral are released back to the Company.
Liability on borrowed metals
—
Other
Liabilities may also arise from: (1) unallocated metal positions held by customers in the Company’s inventory, (2) amounts due to suppliers for the use of consigned inventory, and (3) shortages in unallocated metal positions held by the Company in the supplier’s inventory. Unallocated or pool metal represent an unsegregated inventory position that is due on demand, is a specified physical form, based on the total ounces of metal held in the position. Amounts due under these arrangements require delivery either in the form of precious metals, or in cash.
Product Financing Arrangements
The Company has agreements with financial institutions (third parties) that allows the Company to transfer its gold and silver inventory at an agreed-upon price based on the spot price with these third parties. Such agreements allow the Company to repurchase this inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly fee as a percentage of the market value of the outstanding obligation; such monthly charges are classified in interest expense. These transactions do not qualify as sales, and therefore have been accounted for as financing arrangements and are reflected in the
consolidated
balance sheet as product financing arrangements. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing obligation and the underlying inventory (which is entirely restricted) are carried
at fair value, with changes in fair value recorded as a component of cost of sales in the
consolidated
statements of operations. Such obligation totaled
$113.9 million
and
$135.3 million
as of
June 30, 2018
and
June 30, 2017
, respectively.
15
. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases approximately
9,000
square feet of office space in El Segundo, California at a cost of
$3.71
per square foot per month. The term of this lease expires on
March 31, 2026
and contains annual base rent increases in cost of
3%
.
The Company leases approximately
17,600
square feet of warehouse space in Las Vegas, Nevada at a cost of approximately
$1.59
per square foot per month. The term of this lease expires on
April 30, 2025
and contains annual base rent increases of
3%
.
The Company leases approximately
21,500
square feet of office space in Los Angeles, California at a cost of
$2.68
per square foot per month. The term of this lease expires on February 28, 2022 with annual base rent increases of
3%
and the Company has the option to renew the lease term for an additional
five
years at the then current market rate. The lease requires the payment of related property taxes, insurance, maintenance and other cost related to the leased property. In addition, the Company provided the landlord of the office space in Los Angeles, California a standby letter of credit for
$400,000
in value in lieu of a security deposit. This letter of credit is renewed annually and reduces each lease anniversary date as provided in the lease agreement.
Expenses related to operating leases (including lease expense for the common space rental) were
$1.3 million
, and
$0.8 million
, respectively, for the
years ended June 30, 2018 and 2017
. Future minimum lease payments under the Company's lease arrangements with noncancellable lease terms in excess of one year as of
June 30, 2018
are as follows:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Years ending June 30,
|
|
Operating
|
|
Capital
|
|
2019
|
|
$
|
1,448
|
|
|
$
|
10
|
|
|
2020
|
|
1,491
|
|
|
10
|
|
|
2021
|
|
1,528
|
|
|
10
|
|
|
2022
|
|
1,250
|
|
|
5
|
|
|
2023
|
|
834
|
|
|
—
|
|
|
Thereafter
|
|
2,044
|
|
|
—
|
|
|
|
|
$
|
8,595
|
|
|
35
|
|
|
Less amounts representing interest
|
|
|
|
(2
|
)
|
|
|
|
|
|
$
|
33
|
|
|
Employment and Non-Compete Agreements
The Company has entered into employment agreements and non-compete and/or non-solicitation agreements with Greg Roberts, its CEO, and Thor Gjerdrum, its President, which expire in June 30, 2020 and June 30, 2019, respectively. The employment agreements provide for minimum salary levels, incentive compensation and severance benefits, among other items.
Employee Benefit Plan
The Company maintains an employee savings plan for United States employees under the Internal Revenue Code section 401(k). Employees are eligible to participate in the plan after three complete calendar months of service and all contributions are immediately vested. Employees' contributions are discretionary to a maximum of
90%
of compensation. For all plan members, the Company contributes
30%
of the eligible employees' contributions on the first
60%
of the participants' compensation to the IRS maximum annual contribution. The Company's matching 401(k) contributions totaled
$180,000
and
$81,000
for the
years ended June 30, 2018 and 2017
, respectively.
Litigation, Claims and Contingencies
In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, would not have a material adverse effect on the Company's financial position, cash flows, or operations.
SGI IRS and State Tax Audits
The Company and its Former Parent are under examination with other tax jurisdictions on certain tax matters the Company or its Former Parent have taken. The Company is unable to determine the outcome of these audits at this time. Please see
Note 12
for further detail.
In general, the majority of state and local examinations have been completed by the tax authorities for the respective jurisdictions through the years ended
June 30, 2013
. Further, some jurisdictions’ statute of limitations have expired for U.S. federal, state, and local income tax returns filed by the Former Parent for the years ended through
June 30, 2013
.
Operational Contingencies
In connection with the closing of the SilverTowne transaction (see
Note 1
), AMST entered into an exclusive distribution agreement with the Company with respect to the silver products produced by AMST which, among other things, set weekly minimum order quantities by A-Mark. The agreement has a
three
-year term, with two automatic
two
-year renewals (unless terminated prior thereto.) The Company was initially required to order no less than
300,000
ounces of silver products per week on average during any consecutive four week period during the term of the agreement; that amount was reduced in April 2017 to
235,000
ounces and was further reduced in subsequent periods. The price paid per ounce is mutually determined by both parties, and is subject to adjustments every
six
months during the term.
Additionally, in connection with the SilverTowne transaction (see
Note 1
), AMST entered into an exclusive supplier agreement, dated
August 31, 2016
, with Asahi, whereby Asahi agreed to supply all of AMST's requirements for refined silver used for producing the silver products as to which A-Mark has the exclusive right to distribute. The term of the agreement was initially for
three
years, with two automatic
two
-year term renewals (unless terminated prior thereto.) Pricing under the agreement is subject to adjustments every
six
months.
A-Mark has also guaranteed AMST's obligations under its agreement with Asahi to lease
100,000
ounces of refined silver. The lease term is for
one
year with an automatic
one
year renewal (unless terminated prior thereto), and the lease fees are subject to adjustments every
six
months.
The Company has guaranteed all of the obligations of Goldline under the Goldline Credit Facility (this guarantee is unconditional and constitutes a guarantee of payment and not merely of collection) (see
Note 14
).
|
|
16
.
|
STOCKHOLDERS’ EQUITY
|
Payment of Dividends
In fiscal 2015, the Board of Directors of the Company initiated a cash dividend policy that calls for the payment of quarterly dividends. The table below summarizes the eight most recent quarterly dividends declared pursuant to this policy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Declaration Date
|
|
Record Date
(at close of Business)
|
|
Type of Dividend
|
|
Basis of Payment
|
|
Payment Date
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2016
|
|
May 13, 2016
|
|
Cash
|
|
$
|
0.07
|
|
per common share
|
|
May 27, 2016
|
|
September 7, 2016
|
|
September 19, 2016
|
|
Cash
|
|
$
|
0.07
|
|
per common share
|
|
October 7, 2016
|
|
November 1, 2016
|
|
November 14, 2016
|
|
Cash
|
|
$
|
0.07
|
|
per common share
|
|
December 1, 2016
|
|
January 26, 2017
|
|
February 8, 2017
|
|
Cash
|
|
$
|
0.08
|
|
per common share
|
|
February 24, 2017
|
|
May 2, 2017
|
|
May 15, 2017
|
|
Cash
|
|
$
|
0.08
|
|
per common share
|
|
May 25, 2017
|
|
August 30, 2017
|
|
September 18, 2017
|
|
Cash
|
|
$
|
0.08
|
|
per common share
|
|
September 27, 2017
|
|
November 13, 2017
|
|
November 24, 2017
|
|
Cash
|
|
$
|
0.08
|
|
per common share
|
|
December 13, 2017
|
|
January 30, 2018
|
|
February 13, 2018
|
|
Cash
|
|
$
|
0.08
|
|
per common share
|
|
February 27, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
The Board of Directors determined to suspend the Company's quarterly dividend for both the third and fourth fiscal quarters ended March 31, 2018 and June 30, 2018 in order to increase its financial flexibility and strengthen its balance sheet. Going forward, the Board of Directors will re-assess its capital resources and may or may not determine to reinstate the dividend based on that assessment.
2014 Stock Award and Incentive Plan
Prior to the Distribution, the Company’s Board of Directors ("Board") adopted and the Company's then sole stockholder approved the 2014 Stock Award and Incentive Plan, which was approved by the Company's stockholders in February 2015. On November 2, 2017, the Company's stockholders approved the amended and restated 2014 Stock Award and Incentive Plan (the "2014 Plan"), to (i) increase the available shares authorized for issuance under the plan by
525,000
shares, (ii) extend the term of the 2014 Plan until 2027, an additional five years, and (iii) eliminate provisions that add back to the share reserve shares surrendered or withheld to pay the exercise price of an option or withheld to cover tax withholding obligations for any type of award, and shares as to which a stock appreciation right is exercised that exceed the number of shares actually delivered.
Under the 2014 Plan, the Company may grant options and other equity awards as a means of attracting and retaining officers, employees, non-employee directors and consultants, to provide incentives to such persons, and to align the interests of such persons with the interests of stockholders by providing compensation based on the value of the Company's stock. Awards under the 2014 Plan may be granted in the form of incentive or non-qualified stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units, dividend equivalent rights and other stock-based awards (which may include outright grants of shares). The 2014 Plan also authorizes grants of performance-based cash incentive awards. The 2014 Plan is administered by the Compensation Committee of the Board of Directors, which, in its discretion, may select officers and other employees, directors (including non-employee directors) and consultants to the Company and its subsidiaries to receive grants of awards. The Board of Directors itself may perform any of the functions of the Compensation Committee under the 2014 Plan.
Under the 2014 Plan, the exercise price of options and base price of SARs, as set by the Compensation Committee, generally may not be less than the fair market value of the shares on the date of grant, and the maximum term of stock options and SARs is
10 years
. The 2014 Plan limits the number of share-denominated awards that may be granted to any one eligible person to
250,000
shares in any fiscal year. Also, in the case of non-employee directors, the 2014 Plan limits the maximum grant-date fair value at
$300,000
of stock-denominated awards granted to a director in a given fiscal year, except for a non-employee Chairman of the Board whose grant-date fair value maximum is
$600,000
per fiscal year. The 2014 Plan will terminate when no shares remain available for issuance and no awards remain outstanding; however, the authority to grant new awards will terminate on December 13, 2022.
As of
June 30, 2018
,
523,445
shares were available for grant under the 2014 Plan.
Valuation and Significant Assumptions of Equity Awards Issued
The Company uses the Black-Scholes option pricing model, which uses various inputs such as the estimated common share price, the risk-free interest rate, volatility, expected life and dividend yield, all of which are estimates.
Stock Options
During the
years ended June 30, 2018 and 2017
, the Company incurred
$1,191,106
and
$966,190
of compensation expense related to stock options, respectively. As of
June 30, 2018
, there was total remaining compensation expense of
$1.5 million
related to employee stock options, which will be recorded over a weighted average period of approximately
1.9 years
.
The following table summarizes the stock option activity for the
year ended June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average Exercise Price Per Share
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Weighted Average Grant Date Fair Value Per Award
|
Outstanding at June 30, 2017
|
|
741,327
|
|
|
$
|
17.89
|
|
|
$
|
1,514
|
|
|
$
|
6.19
|
|
Granted
|
|
166,605
|
|
|
$
|
16.19
|
|
|
|
|
|
Cancellations, expirations and forfeitures
|
|
(65,417
|
)
|
|
$
|
17.50
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
842,515
|
|
|
$
|
17.59
|
|
|
$
|
821
|
|
|
$
|
5.99
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2018
|
|
554,281
|
|
|
$
|
16.37
|
|
|
$
|
821
|
|
|
$
|
6.20
|
|
|
Following is a summary of the status of stock options outstanding at
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Price Ranges
|
|
Number of Shares Outstanding
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Weighted Average Exercise Price
|
|
Number of Shares Exercisable
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Weighted Average Exercise Price
|
From
|
|
To
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
10.00
|
|
|
134,239
|
|
|
4.35
|
|
$
|
8.39
|
|
|
134,239
|
|
|
4.35
|
|
$
|
8.39
|
|
$
|
10.01
|
|
|
$
|
15.00
|
|
|
148,888
|
|
|
6.14
|
|
$
|
12.55
|
|
|
98,888
|
|
|
4.28
|
|
$
|
11.94
|
|
$
|
15.01
|
|
|
$
|
25.00
|
|
|
459,388
|
|
|
8.10
|
|
$
|
20.19
|
|
|
271,154
|
|
|
8.03
|
|
$
|
20.26
|
|
$
|
25.01
|
|
|
$
|
60.00
|
|
|
100,000
|
|
|
7.65
|
|
$
|
25.50
|
|
|
50,000
|
|
|
7.65
|
|
$
|
25.50
|
|
|
|
|
|
842,515
|
|
|
7.11
|
|
$
|
17.59
|
|
|
554,281
|
|
|
6.44
|
|
$
|
16.37
|
|
Certain Anti-Takeover Provisions
The Company’s certificate of incorporation and by-laws contain certain anti-takeover provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company without negotiating with its Board. Such provisions could limit the price that certain investors might be willing to pay in the future for the Company’s securities. Certain of such provisions provide for a Board with staggered terms, allow the Company to issue preferred stock with rights senior to those of the common stock, or impose various procedural and other requirements which could make it more difficult for stockholders to effect certain corporate actions.
17
. CUSTOMER AND SUPPLIER CONCENTRATIONS
Customer Concentration
Customers providing 10 percent or more of the Company's revenues for the
year ended June 30, 2018
are presented on a comparative basis in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Total revenue
|
|
$
|
7,606,248
|
|
|
100.0
|
%
|
|
$
|
6,989,624
|
|
|
100.0
|
%
|
|
Customer concentrations
|
|
|
|
|
|
|
|
|
|
HSBC Bank USA
(1)
|
|
$
|
2,039,134
|
|
|
26.8
|
%
|
|
$
|
1,492,926
|
|
|
21.4
|
%
|
|
Mitsubishi Intl. Corp.
(1)
|
|
1,712,779
|
|
|
22.5
|
|
|
1,171,532
|
|
|
16.8
|
|
|
|
|
|
$
|
3,751,913
|
|
|
49.3
|
%
|
|
$
|
2,664,458
|
|
|
38.2
|
%
|
|
________________________________
|
|
(1)
|
Sales with this trading partner is primarily comprised of sales on forward contracts that entered into for hedging purposes rather than sales characterized with the physical delivery of precious metal product.
|
|
Customers providing 10 percent or more of the Company's accounts receivable as of
June 30, 2018
are presented on a comparative basis in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Total accounts receivable, net
|
|
$
|
35,856
|
|
|
100.0
|
%
|
|
$
|
39,295
|
|
|
100.0
|
%
|
Customer concentrations
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
14,967
|
|
|
41.7
|
%
|
|
$
|
27,072
|
|
|
68.9
|
%
|
Customer B
|
|
7,468
|
|
|
20.8
|
|
|
817
|
|
|
2.1
|
|
|
|
$
|
22,435
|
|
|
62.5
|
%
|
|
$
|
27,889
|
|
|
71.0
|
%
|
The loss of any of the above listed customers could have a material adverse effect on the operations of the Company.
Supplier Concentration
The Company buys precious metals from a variety of sources, including through brokers and dealers, from sovereign and private mints, from refiners and directly from customers. The Company believes that no one or small group of suppliers is critical to its business, since other sources of supply are available that provide similar products on comparable terms.
|
|
18
.
|
SEGMENTS AND GEOGRAPHIC INFORMATION
|
The Company evaluates segment reporting in accordance with FASB ASC 280,
Segment Reporting
, each reporting period, including evaluating the organizational structure and the reporting package that is reviewed by the Chief Operating Decision Makers (“CODM”). The Company's operations are organized under
three
business segments — Wholesale Trading & Ancillary Services, Secured Lending, and Direct Sales.
Our Direct Sales segment was created on August 28, 2017 as a result of our recent acquisition (see
Note 1
), and thus comparative prior period data is not applicable ("N/A").
Revenue
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Year Ended
|
|
Three Months Ended September 30,
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Revenue by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
7,538,856
|
|
|
$
|
6,989,624
|
|
|
Direct Sales
|
|
67,392
|
|
(1)
|
N/A
|
|
|
Total revenue
|
|
$
|
7,606,248
|
|
|
$
|
6,989,624
|
|
|
|
|
|
|
|
|
_________________________________
|
|
|
|
|
|
(1) Includes $22.5 million of intercompany sales from the Direct Sales segment to the Wholesale Trading & Ancillary Services segment. The elimination of these intercompany sales are reflected in the Wholesale Trading & Ancillary Services segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Year Ended
|
|
Three Months Ended September 30,
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Revenue by geographic region
(as determined by the shipping address or where the services were performed)
:
|
|
United States
|
|
$
|
7,081,161
|
|
|
$
|
6,537,863
|
|
|
Europe
|
|
303,514
|
|
|
260,489
|
|
|
North America, excluding United States
|
|
214,895
|
|
|
177,734
|
|
|
Asia Pacific
|
|
3,554
|
|
|
7,706
|
|
|
Africa
|
|
1
|
|
|
—
|
|
|
Australia
|
|
3,123
|
|
|
5,832
|
|
|
Total revenue
|
|
$
|
7,606,248
|
|
|
$
|
6,989,624
|
|
|
|
|
|
|
|
|
Gross Profit and Gross Margin Percentage
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Year Ended
|
|
Three Months Ended September 30,
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Gross profit by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
24,109
|
|
|
$
|
31,334
|
|
|
Direct Sales
|
|
5,334
|
|
|
N/A
|
|
|
Total gross profit
|
|
$
|
29,443
|
|
|
$
|
31,334
|
|
|
Gross margin percentage by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
0.320
|
%
|
|
0.448
|
%
|
|
Direct Sales
|
|
7.915
|
%
|
|
N/A
|
|
|
Weighted average gross margin percentage
|
|
0.387
|
%
|
|
0.448
|
%
|
|
|
|
|
|
|
|
Operating Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Operating income and expenses by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(21,096
|
)
|
|
$
|
(21,529
|
)
|
|
Interest income
|
|
$
|
6,473
|
|
|
$
|
4,814
|
|
|
Interest expense
|
|
$
|
(7,778
|
)
|
|
$
|
(6,176
|
)
|
|
Other income, net
|
|
$
|
984
|
|
|
$
|
358
|
|
|
Secured Lending
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(1,689
|
)
|
|
$
|
(1,814
|
)
|
|
Interest income
|
|
$
|
9,632
|
|
|
$
|
7,739
|
|
|
Interest expense
|
|
$
|
(5,465
|
)
|
|
$
|
(3,941
|
)
|
|
Direct Sales
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(10,613
|
)
|
|
N/A
|
|
|
Goodwill and intangible asset impairment
|
|
$
|
(2,654
|
)
|
|
N/A
|
|
|
Interest expense
|
|
$
|
(648
|
)
|
|
N/A
|
|
|
Net (loss) income before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Net (loss) income before provision for income taxes by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
2,692
|
|
|
$
|
8,801
|
|
|
Secured Lending
|
|
2,478
|
|
|
1,984
|
|
|
Direct Sales
|
|
(8,581
|
)
|
|
N/A
|
|
|
Total n
et (loss) income before provision for income taxes
|
|
$
|
(3,411
|
)
|
|
$
|
10,785
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Depreciation and amortization by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
(1,560
|
)
|
|
$
|
(1,511
|
)
|
|
Secured Lending
|
|
(3
|
)
|
|
(10
|
)
|
|
Direct Sales
|
|
(1,063
|
)
|
|
N/A
|
|
|
Total depreciation and amortization
|
|
$
|
(2,626
|
)
|
|
$
|
(1,521
|
)
|
|
Advertising expense
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Advertising expense by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
(553
|
)
|
|
$
|
(646
|
)
|
|
Secured Lending
|
|
(28
|
)
|
|
(27
|
)
|
|
Direct Sales
|
|
(2,653
|
)
|
|
N/A
|
|
|
Total advertising expense
|
|
$
|
(3,234
|
)
|
|
$
|
(673
|
)
|
|
Precious metals held under financing arrangements
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Precious metals held under financing arrangements by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
262,566
|
|
|
$
|
—
|
|
|
Total precious metals held under financing arrangements
|
|
$
|
262,566
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Inventories by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
272,034
|
|
|
$
|
284,659
|
|
|
Direct Sales
|
|
8,082
|
|
|
N/A
|
|
|
Total inventories
|
|
$
|
280,116
|
|
|
$
|
284,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Inventories by geographic region
|
|
|
|
|
|
United States
|
|
$
|
273,008
|
|
|
$
|
276,809
|
|
|
Europe
|
|
1,965
|
|
|
3,154
|
|
|
North America, excluding United States
|
|
4,976
|
|
|
4,310
|
|
|
Asia
|
|
167
|
|
|
386
|
|
|
Total inventories
|
|
$
|
280,116
|
|
|
$
|
284,659
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Assets by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
616,522
|
|
|
$
|
478,500
|
|
|
Secured Lending
|
|
111,304
|
|
|
—
|
|
|
Direct Sales
|
|
15,175
|
|
|
N/A
|
|
|
Total assets
|
|
$
|
743,001
|
|
|
$
|
478,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Assets by geographic region
|
|
|
|
|
|
United States
|
|
$
|
733,131
|
|
|
$
|
469,114
|
|
|
Europe
|
|
4,727
|
|
|
4,690
|
|
|
North America, excluding United States
|
|
4,976
|
|
|
4,310
|
|
|
Asia
|
|
167
|
|
|
386
|
|
|
Total assets
|
|
$
|
743,001
|
|
|
$
|
478,500
|
|
|
Long-term Assets
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Long-term assets by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
31,328
|
|
|
$
|
31,479
|
|
|
Secured Lending
|
|
102
|
|
|
—
|
|
|
Direct Sales
|
|
4,588
|
|
|
N/A
|
|
|
Total long-term assets
|
|
$
|
36,018
|
|
|
$
|
31,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Long-term assets by geographic region
|
|
|
|
|
|
United States
|
|
$
|
35,965
|
|
|
$
|
31,423
|
|
|
Europe
|
|
53
|
|
|
56
|
|
|
Total long-term assets
|
|
$
|
36,018
|
|
|
$
|
31,479
|
|
|
Capital Expenditures for Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
Years Ended June 30,
|
|
2018
|
|
2017
|
|
Capital expenditures on plant, property and equipment by segment
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
1,104
|
|
|
$
|
2,265
|
|
(2)
|
Secured Lending
|
|
102
|
|
|
—
|
|
|
Direct Sales
|
|
111
|
|
(1)
|
N/A
|
|
|
Total capital expenditures on property and equipment
|
|
$
|
1,317
|
|
|
$
|
2,265
|
|
|
|
|
|
|
|
|
_________________________________
|
(1) Excludes $1.8 million of plant, property and equipment that was part of the net assets acquired from Goldline LLC.
|
(2) Excludes $2.1 million of plant, property and equipment that were part of the net assets acquired from SilverTowne LP.
|
Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Goodwill and Intangibles by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
12,516
|
|
|
$
|
12,946
|
|
|
Direct Sales
|
|
3,226
|
|
|
N/A
|
|
|
Total goodwill and intangible assets
|
|
$
|
15,742
|
|
|
$
|
12,946
|
|
|
Suspension of Dividend for Quarter Ended June 30, 2018
The Company's Board of Directors recently determined to suspend the Company's quarterly dividend for the fourth fiscal quarter ended June 30, 2018 in order to increase its financial flexibility and strengthen its balance sheet. Going forward, the Board of Directors will re-assess its capital resources and may or may not determine to reinstate the dividend based on that assessment.
Entry into Material Definitive Agreement
On September 14, 2018 (the “ABS Closing Date”), AM Capital Funding, LLC (the “Issuer”), an indirect subsidiary of the Company, completed an issuance of Secured
Senior Term Notes, Series 2018-1, Class A (the “Class A Notes”) in the aggregate principal amount of
$72,000,000
and Secured Subordinated Term Notes, Series 2018-1, Class B (the “Class B Notes” and together with the Class A Notes, the “Notes”) in the aggregate principal amount of
$28,000,000
. The Class A Notes bear interest at a rate of
4.98%
and the Class B Notes bear interest at a rate of
5.98%
. The Notes have a maturity date of December 15, 2023. The Notes were issued under a Master Indenture and the Series 2018 1 Supplement thereto, each dated as of the ABS Closing Date, between the Issuer and Citibank, N.A., as trustee.
The Notes will be primarily payable from, and secured by, precious metals (gold, silver, platinum or palladium) and a portfolio of loans collateralized by precious metals (gold, silver, platinum or palladium). Such loans were originated by either CFC or acquired by CFC from Worth Group, Inc. and conveyed by CFC to the Issuer on the ABS Closing Date. The Notes are not insured or guaranteed by A-Mark or CFC.
The Notes may only be acquired by persons who are qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933, as amended.
Reference is made to the Company’s Report on Form 8-K, filed with the Securities and Exchange Commission on September 17, 2018, for additional information regarding the terms of the Notes.