NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS
Basis of Presentation
The condensed consolidated financial statements comprise those of A-Mark Precious Metals, Inc. ("A-Mark" or the "Company") and its consolidated subsidiaries.
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 Financial Accounting Standards Board’s ("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 primarily in the form of coins, rounds, bars, wafers, and grain. This segment's trading-related services include: consignment, storage, logistics, hedging, and various customized financial programs.
Through its wholly owned subsidiary, A-Mark Trading AG (“AMTAG”), the Company promotes A-Mark's products and services 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. 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.
Through our partially-owned subsidiary, AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "Mint"), the Company designs and produces minted silver products. The Company operates the Mint pursuant to a joint venture agreement with SilverTowne, L.P. The Company and SilverTowne L.P. own 69% and 31%, respectively, of AMST. The Company acquired its interest in AMST from SilverTowne L.P. to provide greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver products during volatile market environments.
Secured Lending
The Company operates its Secured Lending segment through its wholly-owned subsidiary, Collateral Finance Corporation LLC. ("CFC".) 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.
AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC. AMCF issued and administers Secured Senior Term Notes: Series 2018-1, Class A, with an aggregate principal amount of $72.0 million and Secured Subordinated Term Notes: Series 2018-1, Class B with an aggregate principal amount of $28.0 million (collectively, the "Notes".) 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. For additional information regarding this securitization, see Note 14.
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 and the internet. Goldline sells gold and silver bullion in the form of coins, rounds, and bars.
AM IP LLC. ("AMIP"), a wholly owned subsidiary of Goldline, manages intellectual property (“IP”) that includes lists of customers and sales lead information that is licensed to third parties in the industry who can utilize such assets and provide the Company with ancillary income.
In the fourth quarter of 2019, Goldline entered into a joint venture agreement with one of the Company's related parties to form Precious Metals Purchasing Partners, LLC, ("PMPP"), a 50% owned subsidiary, primarily for the purpose of purchasing precious metals from the partners' retail customers for resale back into the marketplace. PMPP was capitalized in fiscal 2019, and commenced operations in fiscal 2020. Metals purchased by the joint venture are sold to the partners or their affiliates per terms of the joint venture agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed 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”). The Company consolidates its subsidiaries that are wholly-owned, majority owned, and entities that are variable interest entities where the Company is determined to be the primary beneficiary. Our condensed consolidated financial statements include the accounts of: A-Mark, CFC, AMTAG, TDS, Logistics, Goldline, AMIP, AMST, AMCF, and PMPP (collectively the “Company”). Intercompany accounts and transactions are eliminated.
Comprehensive Income
For the three months ended September 30, 2019 and 2018, there were no items that gave rise to other comprehensive income or loss, and, as a result net income equaled comprehensive income.
Use of Estimates
The preparation of condensed 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 condensed 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, 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.
Unaudited Interim Financial Information
The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statement of stockholders’ equity, and condensed consolidated statements of cash flows for the periods presented in accordance with U.S. GAAP. Operating results for the three months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020 or for any other interim period during such fiscal year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended 2019 (the “2019 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2019 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2019 Annual Report.
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.)
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 the European Union Euro. 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 condensed 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 settled and/or 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.
Variable Interest Entity
A variable interest entity ("VIE") is a legal entity that has either i) a total equity investment that is insufficient to finance its activities without additional subordinated financial support or ii) whose equity investors as a group lack the ability to control the entity’s activities or lack the ability to receive expected benefits or absorb obligations in a manner that is consistent with their investment in the entity.
A VIE is consolidated for accounting purposes by its primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the VIE's economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates VIE's when it is deemed to be the primary beneficiary. Management regularly reviews and reconsiders its previous conclusions regarding whether it holds a variable interest in potential VIEs, the status of an entity as a VIE, and whether the Company is required to consolidate such VIE's in the consolidated financial statements.
AMCF, a wholly owned subsidiary of CFC, is a special purpose entity ("SPE") formed as part of a securitization transaction in order to isolate certain assets and distribute the cash flows from those assets to investors. AMCF was structured to insulate investors from claims on AMCF’s assets by creditors of other entities. The Company has various forms of ongoing involvement with AMCF, which may include (i) holding senior or subordinated interests in AMCF; (ii) acting as loan servicer for a portfolio of loans held by AMCF; and (iii) providing administrative services to AMCF.
AMCF is a VIE because the Company's initial equity investment may be insufficient to maintain its ongoing collateral requirements without additional financial support from the Company. The securitization is primarily secured by bullion loans and precious metals, and the Company is required to continuously hedge the value of certain collateral and make future contributions as necessary. The Company is the primary beneficiary of this VIE because the Company has the right to determine the type of collateral (i.e., secured loans or precious metals), has the right to receive (and has received) the proceeds from the securitization transaction, earns on-going interest income from the secured loans (subject to collateral requirements), and has the obligation to absorb losses should AMCF's interest expense and other costs exceed its interest income. (See Note 14.)
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 September 30, 2019 and June 30, 2019.
As of September 30, 2019 and June 30, 2019, the Company has $0.3 million and $0.3 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.
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 precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue earned from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals 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 September 30, 2019 and June 30, 2019, precious metals held under financing arrangements totaled $200.8 million and $208.8 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 net realizable value 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 condensed 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 net realizable value, 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.)
Leased Right of Use Assets
We lease warehouse space, office facilities, and equipment. Our operating leases with terms longer than twelve months are recorded on the condensed consolidated balance sheets at the sum of the present value of the lease's fixed minimum payments as operating lease right of use assets ("ROU assets"). Our capital or finance leases, which are a type of ROU assets, are recorded in the condensed consolidated balance sheets as a component of plant, property and equipment at the present value of the lease payments.
For leases that contain termination options, where the rights to terminate are held by either us, the lessor, or both parties and it is reasonably certain that we will exercise that option, we factor these extended or shortened lease terms into the minimum lease payments. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by lease incentives. We use our incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases, as our leases do not have readily determinable implicit discount rates. Our incremental borrowing rate is the rate of interest that we would incur to borrow on a collateralized basis over a similar term and amount in a similar economic environment.
Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. The depreciable life of ROU assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Income from subleases was not significant for any period presented.
During the three months ended September 30, 2019, we incurred lease costs of $0.4 million, which is primarily comprised of operating lease cost of $0.3 million. The other costs are insignificant and relate to our finance leases, short-term leases, and variable lease payments.
For the three months ended September 30, 2019, we made cash payments of $0.4 million for operating lease obligations. These payments are included in operating cash flows. At September 30, 2019, the weighted-average remaining lease term under
our capitalized operating leases was 5.1 years, while the weighted-average discount rate for our operating leases was approximately 4.9%.
The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities, as of September 30, 2019:
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Years ending June 30,
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Operating Leases
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2020 (excluding the three months ended September 30, 2019)
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$
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1,118
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|
|
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2021
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1,526
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2022
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1,313
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2023
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834
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2024
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860
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Thereafter
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1,184
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Total lease payments
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6,835
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Less imputed interest
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(812
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)
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$
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6,023
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(1)
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Operating lease liability - current
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$
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1,232
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(2)
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Operating lease liability - long-term
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4,791
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(3)
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$
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6,023
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(1)
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________________________________________________
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(1)
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Represents the present value of the capitalized operating lease liabilities as of September 30, 2019.
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(2)
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Current operating lease liabilities are presented within accrued liabilities on our condensed consolidated balance sheets.
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(3)
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Long-term operating lease liabilities are presented within other liabilities on our condensed consolidated balance sheets.
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Following is a summary of our future minimum operating lease commitments, as determined under ASC 840, for all non-cancelable lease agreements, for each of the next five years and in the aggregate, as of June 30, 2019:
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Years ending June 30,
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Operating Leases
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2020
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$
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1,488
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|
|
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2021
|
|
1,526
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|
|
|
2022
|
|
1,313
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|
|
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2023
|
|
834
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|
|
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2024
|
|
860
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|
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Thereafter
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1,184
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$
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7,205
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The Company has no related party leases. We do not have leases that have not yet commenced, which would create significant rights and obligations for us, including any involvement with the construction or design of the underlying asset. (Refer to the section below captioned "Recently Adopted Accounting Pronouncements" for the elections adopted pursuant to ASU 2016-02, Leases (Topic 842).)
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 unlikely that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is unlikely 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), net. 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.
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. Additionally, the Company performs an on-going evaluation of its equity method investments with which the Company has variable interests to determine if any of these entities are VIEs that are required to be consolidated.
Other Long-Term Assets
Notes and other receivables, with terms greater than one year, are carried at amortized cost, net of any unamortized origination fees, which are recognized over the life of the note. The determination of an allowance is based on historical experience and, as a result, can differ from actual losses incurred in the future. We charge off receivables at such time as it is determined collection will not occur.
On September 19, 2019, the Company, as lender, entered into a convertible revolving credit facility with one of its privately-held customers (the borrower) that provides the borrower an aggregate principal amount of up to $4.0 million, bearing interest at 12.0% per annum. The facility expires on September 18, 2022. The borrower has the right to prepay the credit facility at any time without premium or penalty. Outstanding principal amounts under the credit facility may, at the lender's discretion, be converted into up to 22.0% of the borrower's issued and outstanding common stock. The credit facility also grants the lender the right to repay the borrower's outstanding unrelated third-party debt, at any time, in exchange for up to 27.5% of the borrower’s issued and outstanding common stock. In the event the borrower sells all or substantially all of its assets or has a change of control during the term of the facility, the lender is entitled to additional interest equal to 10% of the gross sales price in excess of $9.9 million. The credit facility collateral includes all: (i) account receivables; (ii) inventory; (iii) fixed assets; (iv) intellectual property; (v) contract rights; and (vi) deposit accounts, in each case subordinated to an unrelated third-party lender’s security interest.
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.”
Types of Trades Orders 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:
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•
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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.
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•
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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.
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•
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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
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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.
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•
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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.
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•
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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.
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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 condensed 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 condensed consolidated statements of operations. (See Note 11.)
Other Sources of Revenue
The Company recognizes its storage, logistics, licensing, and other services revenues in accordance with the FASB's release ASU 2014-09 Revenue From Contracts With Customers Topic 606 ("ASC 606"), which follows five basic steps to determine whether revenue can be recognized: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue when it satisfies its obligation by transferring control of the good or service to the customer. This is either satisfied over time or at a point in time. A performance obligation is satisfied over time if one of the following criteria are met: (1) the customer simultaneously receives and consumes the benefits as the Company performs, (2) the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (3) the Company's performance does not create an asset with an alternative use to the Company, and the Company has an enforceable right for payment of performance completed-to-date. When none of those are met, a performance obligation is satisfied at a point-in-time.
The Company recognizes storage revenue over time, as the customer simultaneously receives and consumes the storage services (e.g., fixed storage fees based on the passage of time). The Company recognizes logistics (i.e., fulfillment) revenue at a point-in-time, when the customer receives the benefit of the services (e.g., stated number of packages are shipped on behalf of the customer during a month). The Company recognizes revenue from the licensing of its functional intellectual property ("IP"), which include customer lists and sales lead information, at the point in time when the right to use the IP is transferred to the licensee. Any revenue generated from usage-based royalties associated with the licensing of the IP is recognized at the point in time when the licensee converts and actualizes customers from the IP. In aggregate, these types of service revenues account for less than 1% of the Company's combined revenue from all revenue streams.
Interest Income
In accordance with the Interest Topic 835 of the ASC ("ASC 835") following are interest income generating activities of the Company:
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•
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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.)
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|
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•
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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.
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•
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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.
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|
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•
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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 contract 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"):
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•
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Borrowings — The Company incurs interest expense from its lines of credit, its debt obligations, and notes payable 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.
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|
|
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•
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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.
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•
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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.
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|
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•
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Borrowed and leased metals fees — The Company may incur financing costs from its 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 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 metals borrowed (determined at the spot price) plus certain processing and other fees.
|
Leased metal transactions are a similar type of transaction, except the Company is not required to pledge other precious metal as collateral for the precious metal received. The fees charged by the third party are based on the spot value of the pool metal received.
Both borrowed and leased metal transactions provide an additional source of liquidity, as the Company usually monetizes the metals received under such arrangements. Repayment is usually in the same form as the metals advanced, but may be settled in cash.
Other Income and Expense
The Company's other income and expense is derived from the Company's proportional interest in the reported net income or loss of our investees that are accounted for under the equity method of accounting (see Note 9), and costs associated with the settlement of our purchase of Goldline (see Note 15).
Advertising
Advertising expense was $463,000 and $590,000, respectively, for the three months ended September 30, 2019 and 2018.
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 condensed consolidated statements of operations. Shipping and handling costs incurred totaled $1,371,000 and $1,740,000, respectively, for the three months ended September 30, 2019 and 2018.
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 condensed 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 condensed 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 condensed 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 condensed 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 condensed 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. 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 condensed consolidated financial statements recognized the current and deferred income taxes 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 spinoff of the Company when it was a member of the consolidated income tax return group of Spectrum Group International, Inc. ("SGI"). Following its spin-off, the Company separately files its federal and state income tax filings. The Company recognizes current and deferred income taxes as a separate taxpayer for periods ending after the date of the spinoff.
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 three months ended September 30, 2019 and 2018, is presented below.
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|
|
|
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|
|
|
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in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
Basic weighted average shares outstanding
|
|
7,031
|
|
|
7,031
|
|
|
Effect of common stock equivalents — stock issuable under outstanding equity awards
|
|
60
|
|
|
61
|
|
|
Diluted weighted average shares outstanding
|
|
7,091
|
|
|
7,092
|
|
Dividends
Dividends are recorded if and when they are declared by the Board of Directors.
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”).
We adopted ASU 2016-02, Leases (Topic 842) and relevant amendments, effective for the Company on July 1, 2019. The standard represents a change to lease accounting and requires all leases, other than short-term leases, to be reported on the balance sheet through recognition of a right-of-use asset and a corresponding liability for future lease obligations. The standard also requires incremental disclosures for assets, expenses, and cash flows associated with leases, as well as a maturity analysis of lease liabilities. We adopted Topic 842 by applying the transition method whereby comparative periods have not been restated, and no adjustment to retained earnings was required. Upon adoption of the standard, we recognized right-of-use assets of approximately $5.3 million and lease liabilities of approximately $6.3 million. This increase largely relates to the present value of future minimum lease payments due under existing operating leases of office facilities and warehouse space. No material changes are expected to the recognition of lease expenses in the condensed consolidated of statement of operations as a result of the adoption of Topic 842. For adoption, we elected Topic 842’s package of three practical expedients, and 1) did not reassess whether any expired or existing contracts are or contain leases, 2) did not reassess the lease classification for any expired or existing leases, and 3) did not reassess initial direct costs for any existing leases. In addition, we made an accounting policy election not to apply the recognition requirements to short-term leases.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Financial Instruments - Credit Loss (Topic 326), which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. This update is effective for the Company on July 1, 2020 (for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years). The Company is currently evaluating the potential impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other: Internal-Use Software (Subtopic 350-40), to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. This update is effective for the Company on July 1, 2020 (for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years). The adoption of this guidance is not expected to have a material impact on our financial statements.
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 September 30, 2019 and June 30, 2019.
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|
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in thousands
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|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
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|
June 30, 2019
|
|
|
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Carrying Amount
|
|
Fair value
|
|
Carrying Amount
|
|
Fair value
|
|
|
|
|
|
|
|
Financial assets:
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|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,461
|
|
|
$
|
12,461
|
|
|
$
|
8,320
|
|
|
$
|
8,320
|
|
|
Receivables, net
|
|
23,643
|
|
|
23,643
|
|
|
26,895
|
|
|
26,895
|
|
|
Secured loans receivable
|
|
150,473
|
|
|
150,473
|
|
|
125,298
|
|
|
125,298
|
|
|
Derivative assets on open sale and purchase commitments, net
|
|
4,960
|
|
|
4,960
|
|
|
2,322
|
|
|
2,322
|
|
|
Derivative assets on option contracts
|
|
11
|
|
|
11
|
|
|
61
|
|
|
61
|
|
|
Derivative assets on futures contracts
|
|
3,871
|
|
|
3,871
|
|
|
2
|
|
|
2
|
|
|
Derivative assets on forward contracts
|
|
10,704
|
|
|
10,704
|
|
|
43
|
|
|
43
|
|
|
Income taxes receivable
|
|
1,500
|
|
|
1,500
|
|
|
1,473
|
|
|
1,473
|
|
|
Other long-term assets
|
|
3,000
|
|
|
3,000
|
|
|
—
|
|
|
—
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|
|
Financial liabilities:
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|
|
|
|
|
|
|
|
|
Lines of credit
|
|
$
|
204,000
|
|
|
$
|
204,000
|
|
|
$
|
167,000
|
|
|
$
|
167,000
|
|
|
Liabilities on borrowed metals
|
|
196,738
|
|
|
196,738
|
|
|
201,144
|
|
|
201,144
|
|
|
Product financing arrangements
|
|
159,130
|
|
|
159,130
|
|
|
94,505
|
|
|
94,505
|
|
|
Derivative liabilities on margin accounts
|
|
3,455
|
|
|
3,455
|
|
|
2,981
|
|
|
2,981
|
|
|
Derivative liabilities on price protection programs
|
|
13
|
|
|
13
|
|
|
22
|
|
|
22
|
|
|
Derivative liabilities on open sale and purchase commitments, net
|
|
3,115
|
|
|
3,115
|
|
|
3,822
|
|
|
3,822
|
|
|
Derivative liabilities on futures contracts
|
|
—
|
|
|
—
|
|
|
1,241
|
|
|
1,241
|
|
|
Derivative liabilities on forward contracts
|
|
107
|
|
|
107
|
|
|
1,905
|
|
|
1,905
|
|
|
Accounts payable
|
|
85,405
|
|
|
85,405
|
|
|
62,180
|
|
|
62,180
|
|
|
Accrued liabilities
|
|
5,391
|
|
|
5,391
|
|
|
6,137
|
|
|
6,137
|
|
|
Notes payable
|
|
92,017
|
|
|
99,172
|
|
|
91,859
|
|
|
98,609
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the financial instruments shown in the above table as of September 30, 2019 and June 30, 2019 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, and accrued liabilities approximate fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities, liabilities 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 approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The Company’s notes payable are reported at their aggregate principal amount less unamortized original issue discount and deferred financing costs on the accompanying consolidated balance sheets. The fair value of the notes payable is based on the present value of the expected coupon and principal payments using an estimated discount rate based on current market rates for debt with similar credit risk.
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:
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•
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Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
•
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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.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The significant assumptions used to determine the carrying value and the related fair value of the assets and liabilities measured at fair value on a recurring basis are described below:
Inventory. Inventories, which 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 net realizable value, 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.
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 precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue earned from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals and earns financing income for the duration of the agreement. The fair value for precious metals held under financing arrangements, (a commodity, like inventory above) 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 the 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. As of September 30, 2019, the Company used the quoted market price based on the current spot rate and used an expected redemption rate of 100%. The use of a throughput rate ignores the future price volatility that would affect the timing and rate of redemption under the program, and, as a result, the liability on the price protection programs is classified in Level 3 of the valuation hierarchy.
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and June 30, 2019, aggregated by the level in the fair value hierarchy within which the measurements fall:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
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)
|
|
$
|
369,862
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
369,862
|
|
|
Precious metals held under financing arrangements
|
|
200,809
|
|
|
—
|
|
|
—
|
|
|
200,809
|
|
|
Derivative assets — open sale and purchase commitments, net
|
|
4,960
|
|
|
—
|
|
|
—
|
|
|
4,960
|
|
|
Derivative assets — option contracts
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
Derivative assets — futures contracts
|
|
3,871
|
|
|
—
|
|
|
—
|
|
|
3,871
|
|
|
Derivative assets — forward contracts
|
|
10,704
|
|
|
—
|
|
|
—
|
|
|
10,704
|
|
|
Total assets, valued at fair value
|
|
$
|
590,217
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
590,217
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Liabilities on borrowed metals
|
|
$
|
196,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
196,738
|
|
|
Product financing arrangements
|
|
159,130
|
|
|
—
|
|
|
—
|
|
|
159,130
|
|
|
Derivative liabilities — price protection programs
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Derivative liabilities — margin accounts
|
|
3,455
|
|
|
—
|
|
|
—
|
|
|
3,455
|
|
|
Derivative liabilities — open sale and purchase commitments, net
|
|
3,115
|
|
|
—
|
|
|
—
|
|
|
3,115
|
|
|
Derivative liabilities — forward contracts
|
|
107
|
|
|
—
|
|
|
—
|
|
|
107
|
|
|
Total liabilities, valued at fair value
|
|
$
|
362,545
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
362,558
|
|
____________________
(1) Commemorative coin inventory totaling $2.3 million is held at lower of cost or net realizable value and is thus excluded from this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
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)
|
|
$
|
292,844
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
292,844
|
|
|
Precious metals held under financing arrangements
|
|
208,792
|
|
|
—
|
|
|
—
|
|
|
208,792
|
|
|
Derivative assets — open sale and purchase commitments, net
|
|
2,322
|
|
|
—
|
|
|
—
|
|
|
2,322
|
|
|
Derivative assets — option contracts
|
|
61
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
Derivative assets — futures contracts
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Derivative assets — forward contracts
|
|
43
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
Total assets, valued at fair value
|
|
$
|
504,064
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
504,064
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Liabilities on borrowed metals
|
|
$
|
201,144
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
201,144
|
|
|
Product financing arrangements
|
|
94,505
|
|
|
—
|
|
|
—
|
|
|
94,505
|
|
|
Derivative liabilities — price protection programs
|
|
—
|
|
|
—
|
|
|
22
|
|
|
22
|
|
|
Derivative liabilities — margin accounts
|
|
2,981
|
|
|
—
|
|
|
—
|
|
|
2,981
|
|
|
Derivative liabilities — open sale and purchase commitments, net
|
|
3,822
|
|
|
—
|
|
|
—
|
|
|
3,822
|
|
|
Derivative liabilities — futures contracts
|
|
1,241
|
|
|
—
|
|
|
—
|
|
|
1,241
|
|
|
Derivative liabilities — forward contracts
|
|
1,905
|
|
|
—
|
|
|
—
|
|
|
1,905
|
|
|
Total liabilities, valued at fair value
|
|
$
|
305,598
|
|
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
305,620
|
|
____________________
(1) Commemorative coin inventory totaling $17 thousand is held at lower of cost or net realizable value 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: i) equity method investments that are written down to fair value when a decline in the fair value is determined to be other-than-temporary, ii) plant, property and equipment and definite-lived intangibles, or iii) goodwill and indefinite-lived intangibles, all of 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 equity method investment, asset group, or reporting unit. 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.
Receivables consist of the following as of September 30, 2019 and June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
Customer trade receivables
|
|
$
|
5,876
|
|
|
$
|
13,050
|
|
|
|
Wholesale trade advances
|
|
12,600
|
|
|
9,704
|
|
|
|
Due from brokers
|
|
5,167
|
|
|
4,141
|
|
|
|
Receivables, net
|
|
$
|
23,643
|
|
|
$
|
26,895
|
|
|
|
|
|
|
|
|
|
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.)
|
|
|
|
5.
|
SECURED LOANS RECEIVABLE
|
Below is a summary of the carrying value of our secured loans as of September 30, 2019 and June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
Secured loans originated
|
|
$
|
37,197
|
|
|
$
|
36,714
|
|
|
|
Secured loans originated - with a related party
|
|
8,904
|
|
|
14,058
|
|
|
|
|
|
46,101
|
|
|
50,772
|
|
|
|
Secured loans acquired
|
|
104,372
|
|
(1)
|
74,526
|
|
(2)
|
|
Secured loans
|
|
$
|
150,473
|
|
|
$
|
125,298
|
|
|
_________________________________
(1) Includes $29 thousand of loan premium as of September 30, 2019.
(2) Includes $29 thousand of loan premium as of June 30, 2019.
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 September 30, 2019 and June 30, 2019, our secured loans carried weighted-average effective interest rates of 10.6% and 10.2%, respectively, and mature in periods 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 condensed 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 condensed consolidated statements of cash flows as secured loans receivables, 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 condensed consolidated statements of cash flows.
Credit Quality of Secured Loans Receivables and Allowance for Credit Losses
The Company's secured loan receivables portfolio is comprised of secured loans with similar credit risk profiles and methods for assessing and monitoring credit risk. This similarity allows the Company to apply a standard methodology to determine the credit quality for each loan and the allowance, if any, for credit losses. The credit quality of each loan is generally determined by the type (or class) of secured material, the initial and ongoing collateral value determination, and the assessment of loan-to-value ratio. Historically, the Company has not established an allowance for any credit losses because each of its loans is fully secured by the underlying collateral.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Bullion
|
|
$
|
115,459
|
|
|
76.7
|
%
|
|
$
|
92,899
|
|
|
74.1
|
%
|
|
|
Numismatic and semi-numismatic
|
|
35,014
|
|
|
23.3
|
|
|
32,399
|
|
|
25.9
|
|
|
|
|
|
$
|
150,473
|
|
|
100.0
|
%
|
|
$
|
125,298
|
|
|
100.0
|
%
|
|
Each of the two classes of secured loans receivables has 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
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
Loan-to-value of 75% or more
|
|
$
|
83,789
|
|
|
55.7
|
%
|
|
$
|
59,258
|
|
|
47.3
|
%
|
|
Loan-to-value of less than 75%
|
|
66,684
|
|
|
44.3
|
|
|
66,040
|
|
|
52.7
|
|
|
Secured loans collateralized by precious metal products
|
|
$
|
150,473
|
|
|
100.0
|
%
|
|
$
|
125,298
|
|
|
100.0
|
%
|
The Company had no loans with a loan-to-value ratio in excess of 100% at September 30, 2019 or June 30, 2019.
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. In 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 three months ended September 30, 2019 and 2018, 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 September 30, 2019 and June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
Inventory held for sale
|
|
$
|
112,604
|
|
|
$
|
106,165
|
|
|
Repurchase arrangements with customers
|
|
68,854
|
|
|
65,516
|
|
|
Consignment arrangements with customers
|
|
5,004
|
|
|
4,896
|
|
|
Commemorative coins, held at lower of cost or net realizable value
|
|
2,336
|
|
|
17
|
|
|
Borrowed precious metals
|
|
24,270
|
|
|
21,762
|
|
|
Product financing arrangements, restricted
|
|
159,130
|
|
|
94,505
|
|
|
|
|
$
|
372,198
|
|
|
$
|
292,861
|
|
Inventory Held for Sale. Inventory held for sale represents precious metals, excluding commemorative coin inventory, that have been received by the Company and are not subject to repurchase by or consignment arrangements with third parties. As of September 30, 2019 and June 30, 2019, the inventory held for sale totaled $112.6 million and $106.2 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. In the event of a repurchase by the customer, the Company records a sale.
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 September 30, 2019 and June 30, 2019, included within inventory is $68.9 million and $65.5 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 September 30, 2019 and June 30, 2019 totaled $5.0 million and $4.9 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 net realizable value, 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 net realizable value and totaled $2,336,000 and $17,000 as of September 30, 2019 and June 30, 2019, 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 $24.3 million and $21.8 million as of September 30, 2019 and June 30, 2019, respectively, with a corresponding offsetting obligation reflected as liabilities on borrowed metals on the condensed 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 condensed consolidated statements of operations. Such obligations totaled $159.1 million and $94.5 million as of September 30, 2019 and June 30, 2019, respectively.
The Company mitigates market risk of its physical inventories and open commitments through commodity hedge transactions. (See Note 11.) As of September 30, 2019 and June 30, 2019, the unrealized (losses) gains resulting from the difference between market value and cost of physical inventories were $(1.5) million and $8.8 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 condensed consolidated statements of operations.
The premium component, at market value, included in the inventories as of September 30, 2019 and June 30, 2019 totaled $5.3 million and $4.4 million, respectively.
7. PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment consists of the following at September 30, 2019 and June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Office furniture, and fixtures
|
|
$
|
2,080
|
|
|
$
|
2,080
|
|
|
|
Computer equipment
|
|
802
|
|
|
798
|
|
|
|
Computer software
|
|
4,215
|
|
|
4,111
|
|
|
|
Plant equipment
|
|
2,896
|
|
|
2,872
|
|
|
|
Building
|
|
319
|
|
|
319
|
|
|
|
Leasehold improvements
|
|
2,804
|
|
|
2,804
|
|
|
|
Total depreciable assets
|
|
13,116
|
|
|
12,984
|
|
|
|
Less: accumulated depreciation
|
|
(7,810
|
)
|
|
(7,395
|
)
|
|
|
Property and equipment not placed in service
|
|
1,106
|
|
|
1,106
|
|
|
|
Land
|
|
36
|
|
|
36
|
|
|
|
Plant, property and equipment, net
|
|
$
|
6,448
|
|
|
$
|
6,731
|
|
|
Depreciation expense for the three months ended September 30, 2019 and 2018 was $415,000 and $445,000, respectively.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill is an intangible asset that arises when a company acquires an existing business or assets (net of assumed liabilities) which comprise a business. In general, the amount of goodwill recorded in an acquisition is calculated as the purchase price of the business minus the fair market value of the tangible assets and the identifiable intangible assets, net of the assumed liabilities. Goodwill and intangibles can also be established by push-down accounting. Below is a summary of the significant transactions that generated goodwill and intangible assets of the Company:
|
|
|
|
•
|
In connection with the acquisition of A-Mark by SGI in July 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.
|
|
|
|
|
•
|
In connection with the Company's business combination with AMST in August 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 and represent their fair values at the acquisition date. 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.
|
|
|
|
|
•
|
In connection with the Company's acquisition of Goldline in August 2017, 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 represent 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 has led to increased product margin spreads, lower distribution and storage costs for Goldline.
|
Carrying Value
The carrying value of goodwill and other purchased intangibles as of September 30, 2019 and June 30, 2019 is as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollar amounts in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Estimated Useful Lives (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Accumulated Impairment
|
|
Net Book Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Accumulated Impairment
|
|
Net Book Value
|
|
Identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing customer relationships
|
5 - 15
|
|
$
|
8,848
|
|
|
$
|
(6,605
|
)
|
|
$
|
—
|
|
|
$
|
2,243
|
|
|
$
|
8,848
|
|
|
$
|
(6,376
|
)
|
|
$
|
—
|
|
|
$
|
2,472
|
|
|
Non-compete and other
|
3 - 5
|
|
2,300
|
|
|
(2,138
|
)
|
|
—
|
|
|
162
|
|
|
2,300
|
|
|
(2,122
|
)
|
|
—
|
|
|
178
|
|
|
Employment agreement
|
3
|
|
295
|
|
|
(264
|
)
|
|
—
|
|
|
31
|
|
|
295
|
|
|
(256
|
)
|
|
—
|
|
|
39
|
|
|
Intangibles subject to amortization
|
|
11,443
|
|
|
(9,007
|
)
|
|
—
|
|
|
2,436
|
|
|
11,443
|
|
|
(8,754
|
)
|
|
—
|
|
|
2,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
Indefinite
|
|
$
|
4,454
|
|
|
$
|
—
|
|
|
$
|
(1,291
|
)
|
|
$
|
3,163
|
|
|
$
|
4,454
|
|
|
$
|
—
|
|
|
$
|
(1,291
|
)
|
|
$
|
3,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets
|
|
$
|
15,897
|
|
|
$
|
(9,007
|
)
|
|
$
|
(1,291
|
)
|
|
$
|
5,599
|
|
|
$
|
15,897
|
|
|
$
|
(8,754
|
)
|
|
$
|
(1,291
|
)
|
|
$
|
5,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
Indefinite
|
|
$
|
10,245
|
|
|
$
|
—
|
|
|
$
|
(1,364
|
)
|
|
$
|
8,881
|
|
|
$
|
10,245
|
|
|
$
|
—
|
|
|
$
|
(1,364
|
)
|
|
$
|
8,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three months ended September 30, 2019 and 2018 was $253,000 and $252,000, respectively.
Impairment
The accumulated impairment charge of $2.7 million (goodwill and indefinite-lived intangible assets) was a non-recurring charge for fiscal 2018 related to the Direct Sales segment. No further impairment of goodwill or indefinite-lived intangible assets has occurred for the three months ended September 30, 2019.
Estimated Amortization
Estimated annual amortization expense related to definite-lived intangible assets for the succeeding five years is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year Ending June 30,
|
|
Amount
|
|
2020 (9 months remaining)
|
|
$
|
758
|
|
|
2021
|
|
599
|
|
|
2022
|
|
571
|
|
|
2023
|
|
128
|
|
|
2024
|
|
47
|
|
|
Thereafter
|
|
333
|
|
|
Total
|
|
$
|
2,436
|
|
The Company has three investments in privately-held entities, each of which is a precious metals retailer and customer of the Company. For each of these entities, the Company has: 1) an exclusive supplier agreement, for which these entities have agreed to purchase all bullion products required for their businesses exclusively from A-Mark, subject to certain limitations; 2) a product fulfillment services and storage agreement; and 3) the right to appoint a director to the entity's board of directors (which has been exercised in each case). The Company has determined that it is appropriate to account for each of these investments under
the equity method of accounting. The following table shows the carrying value and ownership percentage of the Company's investment in each entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
Entity
|
|
Carrying Value
|
|
Ownership Percentage
|
|
Carrying Value
|
|
Ownership Percentage
|
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
Company A
|
|
$
|
2,006
|
|
|
7.4
|
%
|
|
$
|
2,000
|
|
|
7.4
|
%
|
|
Company B
|
|
9,046
|
|
|
20.6
|
%
|
|
9,059
|
|
|
20.6
|
%
|
|
Company C
|
|
845
|
|
|
10.0
|
%
|
|
826
|
|
|
10.0
|
%
|
|
|
|
$
|
11,897
|
|
|
|
|
$
|
11,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company considers these equity method investees to be related parties. See Note 13 for a summary of the Company's aggregate balances and activity with these related party entities.
10. ACCOUNTS PAYABLE
Accounts payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Trade payables to customers
|
|
$
|
12,644
|
|
|
$
|
1,246
|
|
|
|
Advances from customers
|
|
66,366
|
|
|
57,643
|
|
|
|
Deferred revenue
|
|
4,734
|
|
|
1,592
|
|
|
|
Other accounts payable
|
|
1,661
|
|
|
1,699
|
|
|
|
|
|
|
$
|
85,405
|
|
|
$
|
62,180
|
|
|
|
|
|
|
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 related 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 condensed 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 derivative assets or liabilities on the condensed 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 condensed 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 September 30, 2019 and June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
|
|
|
|
|
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
|
|
$
|
8,497
|
|
|
$
|
(3,537
|
)
|
|
$
|
—
|
|
|
$
|
4,960
|
|
|
$
|
2,874
|
|
|
$
|
(552
|
)
|
|
$
|
—
|
|
|
$
|
2,322
|
|
|
Option contracts
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
Future contracts
|
|
3,871
|
|
|
—
|
|
|
—
|
|
|
3,871
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Forward contracts
|
|
10,704
|
|
|
—
|
|
|
—
|
|
|
10,704
|
|
|
43
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
|
|
$
|
23,083
|
|
|
$
|
(3,537
|
)
|
|
$
|
—
|
|
|
$
|
19,546
|
|
|
$
|
2,980
|
|
|
$
|
(552
|
)
|
|
$
|
—
|
|
|
$
|
2,428
|
|
|
Nettable derivative liabilities:
|
|
Open sale and purchase commitments
|
|
$
|
5,237
|
|
|
$
|
(2,122
|
)
|
|
$
|
—
|
|
|
$
|
3,115
|
|
|
$
|
4,093
|
|
|
$
|
(271
|
)
|
|
$
|
—
|
|
|
$
|
3,822
|
|
|
Margin accounts
|
|
10,048
|
|
|
—
|
|
|
(6,593
|
)
|
|
3,455
|
|
|
11,652
|
|
|
—
|
|
|
(8,671
|
)
|
|
2,981
|
|
|
Liability on price protection programs
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
Future contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,241
|
|
|
—
|
|
|
—
|
|
|
1,241
|
|
|
Forward contracts
|
|
107
|
|
|
—
|
|
|
—
|
|
|
107
|
|
|
2,044
|
|
|
(139
|
)
|
|
—
|
|
|
1,905
|
|
|
|
|
$
|
15,405
|
|
|
$
|
(2,122
|
)
|
|
$
|
(6,593
|
)
|
|
$
|
6,690
|
|
|
$
|
19,052
|
|
|
$
|
(410
|
)
|
|
$
|
(8,671
|
)
|
|
$
|
9,971
|
|
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 condensed 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 contracts are recorded in cost of sales.
Below is a summary of the net gains (losses) on derivative instruments for the three months ended September 30, 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Gains (losses) on derivative instruments:
|
|
|
Unrealized gains (losses) on open future commodity and forward contracts and open sale and purchase commitments, net
|
|
$
|
25,111
|
|
|
$
|
(19,898
|
)
|
|
|
Realized (losses) gains on future commodity contracts, net
|
|
(16,445
|
)
|
|
4,765
|
|
|
|
|
|
$
|
8,666
|
|
|
$
|
(15,133
|
)
|
|
The Company’s net gains (losses) 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 condensed 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 September 30, 2019 and at June 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Inventory
|
|
$
|
372,198
|
|
|
$
|
292,861
|
|
|
|
Precious metals held under financing arrangements
|
|
200,809
|
|
|
208,792
|
|
|
|
|
|
573,007
|
|
|
501,653
|
|
|
|
|
|
|
|
|
|
|
Less unhedgeable inventory:
|
|
|
|
|
|
|
Commemorative coin inventory, held at lower of cost or net realizable value
|
|
(2,336
|
)
|
|
(17
|
)
|
|
|
Premium on metals position
|
|
(5,276
|
)
|
|
(4,424
|
)
|
|
|
Precious metal value not hedged
|
|
(7,612
|
)
|
|
(4,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
565,395
|
|
|
497,212
|
|
|
|
|
|
|
|
|
|
|
Commitments at market:
|
|
|
|
|
|
|
|
|
Open inventory purchase commitments
|
|
285,267
|
|
|
166,600
|
|
|
|
Open inventory sales commitments
|
|
(236,353
|
)
|
|
(158,870
|
)
|
|
|
Margin sale commitments
|
|
(10,048
|
)
|
|
(11,652
|
)
|
|
|
In-transit inventory no longer subject to market risk
|
|
(3,802
|
)
|
|
(809
|
)
|
|
|
Unhedgeable premiums on open commitment positions
|
|
2,014
|
|
|
838
|
|
|
|
Borrowed precious metals
|
|
(196,738
|
)
|
|
(201,144
|
)
|
|
|
Product financing arrangements
|
|
(159,130
|
)
|
|
(94,505
|
)
|
|
|
Advances on industrial metals
|
|
9,512
|
|
|
8,644
|
|
|
|
|
|
(309,278
|
)
|
|
(290,898
|
)
|
|
|
|
|
|
|
|
|
|
Precious metal subject to price risk
|
|
256,117
|
|
|
206,314
|
|
|
|
|
|
|
|
|
|
|
Precious metal subject to derivative financial instruments:
|
|
|
|
|
|
|
Precious metals forward contracts at market values
|
|
118,988
|
|
|
133,612
|
|
|
|
Precious metals futures contracts at market values
|
|
138,361
|
|
|
72,218
|
|
|
|
Total market value of derivative financial instruments
|
|
257,349
|
|
|
205,830
|
|
|
|
|
|
|
|
|
|
|
Net precious metals subject to commodity price risk
|
|
$
|
(1,232
|
)
|
|
$
|
484
|
|
|
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 September 30, 2019 and June 30, 2019, the Company had the following outstanding commitments and open forward and future contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Purchase commitments
|
|
$
|
285,267
|
|
|
$
|
166,600
|
|
|
|
Sales commitments
|
|
$
|
(236,353
|
)
|
|
$
|
(158,870
|
)
|
|
|
Margin sales commitments
|
|
$
|
(10,048
|
)
|
|
$
|
(11,652
|
)
|
|
|
Open forward contracts
|
|
$
|
118,988
|
|
|
$
|
133,612
|
|
|
|
Open futures contracts
|
|
$
|
138,361
|
|
|
$
|
72,218
|
|
|
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 condensed 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 September 30, 2019, 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 losses on foreign exchange derivative instruments shown on the face of the condensed consolidated statements of operations totaled $122,000 and $70,000 for the three months ended September 30, 2019 and 2018, 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
|
|
September 30, 2019
|
|
June 30, 2019
|
|
Foreign exchange forward contracts
|
|
$
|
7,566
|
|
|
$
|
5,934
|
|
|
Open sale and purchase commitment transactions, net
|
|
$
|
10,092
|
|
|
$
|
4,667
|
|
|
|
|
|
|
|
12. INCOME TAXES
Income from operations before provision for income taxes is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
U.S.
|
|
$
|
401
|
|
|
$
|
1,925
|
|
|
|
Foreign
|
|
7
|
|
|
8
|
|
|
|
Net income before provision for income taxes
|
|
$
|
408
|
|
|
$
|
1,933
|
|
|
|
|
|
|
|
|
|
The Company files a consolidated federal income tax return based on a June 30 tax year end. The provision for income tax expense by jurisdiction and the effective tax rate for the three months ended September 30, 2019 and 2018 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Federal
|
|
$
|
85
|
|
|
$
|
419
|
|
|
|
State and local
|
|
19
|
|
|
78
|
|
|
|
Foreign
|
|
1
|
|
|
2
|
|
|
|
Income tax expense
|
|
$
|
105
|
|
|
$
|
499
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
25.7
|
%
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
Tax Balances and Activity
Income Taxes Receivable and Payable
As of September 30, 2019 and June 30, 2019, income taxes receivable totaled $1.5 million and $1.5 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 September 30, 2019 and June 30, 2019, management concluded that 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. A tax valuation allowance was considered unnecessary as of September 30, 2019 and June 30, 2019.
As of September 30, 2019, 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 $1.6 million and a federal deferred tax asset of $1.5 million, primarily comprised of net operating loss carryforwards. As of June 30, 2019, 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 $1.6 million and a federal deferred tax asset of $1.6 million primarily comprised of net operating loss carryforwards.
Net Operating Loss Carryforwards and Tax Credits
As of September 30, 2019 and June 30, 2019, the Company has approximately $8.7 million and $9.1 million of federal net operating loss carryforwards and approximately $16.7 million and $17.1 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 September 30, 2019 and June 30, 2019, $3.0 million and 3.1 million, respectively. These net operating loss carryforwards start to expire in the year ending June 30, 2022.
As of September 30, 2019 and June 30, 2019, the Company has approximately $53,000 and $53,000, respectively, of a California state tax credit that can be carried-over indefinitely to future tax years.
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. For the three months ended September 30, 2019, there were no material movement in unrecognized tax benefits including interest and penalties.
Tax Examinations
There has been no material change to our open tax examinations. Information related to open tax examinations is included in our 2019 Annual Report on Form10-K for fiscal year ended June 30, 2019.
13. RELATED PARTY TRANSACTIONS
Related parties are entities that the Company controls or has the ability to significantly influence. Related parties also include persons who are affiliated with related entities or the Company that are in a position to influence corporate decisions (such as owners, executives, board members and their families). In the normal course of business, we enter into transactions with our related parties. Below is a list of related parties with whom we have had significant transactions during the comparable periods:
|
|
|
|
1)
|
Stack’s Bowers Numismatics LLC. ("Stack's Bowers Galleries"). Stack's Bowers Galleries is a wholly-owned subsidiary of Spectrum Group International, Inc. ("SGI"). In March 2014, SGI distributed all of the shares of common stock of A-Mark to its stockholders, effecting a spinoff of A-Mark from SGI. As a result of this distribution the Company became a publicly traded company independent from SGI. Also, SGI and the Company have a common chief executive officer.
|
|
|
|
|
2)
|
SilverTowne, L.P. SilverTowne L.P. is a non-controlling owner of AMST (i.e., the Company's minting operations).
|
|
|
|
|
3)
|
Equity method investees. The Company has three investments in privately-held entities, each of which is a precious metals retailer and customer of the Company. For each of these entities, the Company has: 1) an exclusive supplier agreement, for which these entities have agreed to purchase all bullion products required for their businesses exclusively from A-Mark, subject to certain limitations; 2) a product fulfillment services and storage agreement; and 3) the right to appoint a director to the entity's board of directors (which has been exercised in each case).
|
|
|
|
|
4)
|
Goldline Lenders . In connection with the acquisition of Goldline, the Company entered into a privately placed credit facility with various lenders, which included some members of the Company's board of directors.
|
Our related party transactions include (i) sales and purchases of precious metals (ii) financing activity (iii) repurchase arrangements, and (iv) hedging transactions.
Below is a summary of our related party transactions. Reported transactions from the comparable prior period have been updated, as needed, to include the balances and activity according to our current list of related parties.
Balances with Related Parties
As of September 30, 2019 and June 30, 2019, the Company had related party receivables and payables balances as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
|
|
Receivables
|
|
Payables
|
|
Receivables
|
|
Payables
|
|
|
Stack's Bowers Galleries
|
|
$
|
8,508
|
|
(1)
|
$
|
—
|
|
|
$
|
17,630
|
|
|
$
|
—
|
|
|
|
Equity method investees
|
|
1,904
|
|
(2)
|
591
|
|
|
4,978
|
|
|
163
|
|
|
|
SilverTowne
|
|
290
|
|
(3)
|
—
|
|
|
241
|
|
|
—
|
|
|
|
|
|
$
|
10,702
|
|
|
$
|
591
|
|
|
$
|
22,849
|
|
|
$
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________
|
|
|
(1) Balance principally includes two secured lines of credit with a balance of $4.8 million and $4.1 million (shown as a component of secured loans receivables) partially offset by a trade payable balance of $0.3 million. See "Secured Lines of Credit with Stack's Bowers Galleries", below.
|
|
|
(2) Balance primarily represents trade receivables, net (shown as a component of receivables).
|
|
|
(3) Balance primarily represents trade receivables, net (shown as a component of receivables).
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Lines of Credit
On September 19, 2017, CFC entered into a loan agreement with Stack's Bowers Galleries providing a secured line of credit, bearing interest at a competitive rate per annum, with a maximum borrowing line (subject to temporary increases) of $5.3 million. The loan is secured by precious metals and numismatic products. As of September 30, 2019 and June 30, 2019, the outstanding principal balance of this loan was $4.1 million and $6.4 million, respectively.
On March 1, 2018, CFC entered into a loan agreement with Stack's Bowers Galleries 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 (subject to temporary increases) 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 Galleries on the ultimate sale of the products. As of September 30, 2019 and June 30, 2019, the outstanding principal balance this loan was $4.8 million and $7.5 million, respectively.
Long Term Debt Obligation
On December 7, 2018, the Company repaid the $7.5 million principal amount outstanding under the Goldline Credit Facility to the Goldline Lenders in full. Under the terms of the principal repayment, the applicable credit and related agreements have been terminated and none of the parties thereto has any further rights or obligations thereunder. (See Note 14.)
Activity with Related Parties
Sales and Purchases
During the three months ended September 30, 2019 and 2018, the Company made sales and purchases to various companies, which have been deemed to be related parties, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
|
|
Sales
|
|
Purchases
|
|
Sales
|
|
Purchases
|
|
|
Stack's Bowers Galleries
|
|
$
|
11,001
|
|
|
$
|
16,759
|
|
|
$
|
17,475
|
|
|
$
|
16,772
|
|
|
|
Equity method investees
|
|
101,023
|
|
|
14,839
|
|
|
132,598
|
|
|
3,474
|
|
|
|
SilverTowne
|
|
1,527
|
|
|
581
|
|
|
4,138
|
|
|
461
|
|
|
|
|
|
$
|
113,551
|
|
|
$
|
32,179
|
|
|
$
|
154,211
|
|
|
$
|
20,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
During the three months ended September 30, 2019 and 2018, the Company earned interest income related to loans made to Stack's Bowers Galleries and to financing arrangements (including repurchase agreements) with affiliated companies, as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Interest income from secured loans receivables
|
|
$
|
298
|
|
|
$
|
214
|
|
|
|
Interest income from finance products and repurchase arrangements
|
|
1,627
|
|
|
1,808
|
|
|
|
|
|
$
|
1,925
|
|
|
$
|
2,022
|
|
|
|
|
|
|
|
|
|
Interest Expense
During the three months ended September 30, 2019 and 2018, the Company incurred interest expense (including debt amortization costs) related to the debt payable to the Goldline Lenders that totaled $0.0 million and $0.2 million, respectively.
Other Income
During the three months ended September 30, 2019 and 2018, the Company recorded its proportional share of its equity method investee's net income as other income that totaled $11,000 and $248,000, respectively. As of September 30, 2019 and June 30, 2019, the aggregate carrying balance of the equity method investments was $11.9 million and $11.9 million, respectively.
During the three months ended September 30, 2019 and 2018, the Company earned profit sharing income related to one of CFC's secured lending agreements with Stack's Bowers Galleries that totaled $42,000 and $0, respectively.
Lines of Credit
Effective March 29, 2019, through an amendment and restatement of the applicable credit documents, A-Mark renewed its uncommitted demand borrowing facility ("Trading Credit Facility") with a syndicate of banks. Under the agreements, Coöperatieve Rabobank U.A. acts as joint lead lender and administrative agent and Natixis acts as joint lead arranger and syndication agent for the syndicate. The Trading Credit Facility is secured by substantially all of the Company’s assets on a first priority basis.
As of September 30, 2019, 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 27, 2020. From commencement of the Trading Credit Facility (i.e., March 31, 2016), the Company has incurred $3.4 million of accumulated loan costs. These loan costs have been capitalized when incurred and are amortized over the term of the Trading Credit Facility. As of September 30, 2019 and June 30, 2019, the remaining unamortized balance was approximately $0.4 million and $0.6 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 1.82% and 2.40% as of September 30, 2019 and June 30, 2019, respectively. Borrowings are due on demand and totaled $204.0 million and $167.0 million at September 30, 2019 and at June 30, 2019, 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 $6.0 million and $11.6 million as determined on September 30, 2019 and on June 30, 2019, respectively.
The Trading Credit Facility has certain restrictive financial covenants, including one requiring the Company to maintain a minimum tangible net worth. As of September 30, 2019 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 September 30, 2019.
Interest expense related to the Company’s lines of credit totaled $2.1 million and $2.0 million, which represents 41.6% and 57.2% of the total interest expense recognized, for the three months ended September 30, 2019 and 2018, respectively. Our lines of credit carried a daily weighted average effective interest rate of 4.75% and 4.54%, respectively, for the three months ended September 30, 2019 and 2018.
Debt Obligation with Goldline Lenders
On August 28, 2017, in connection with the closing of the Goldline acquisition, 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 was secured by a first priority lien on substantially all of the assets of Goldline, and was guaranteed by the Company. Interest on the Goldline Credit Facility was payable quarterly in arrears at the rate of 8.5% per annum, and the Goldline Lenders under the Goldline Credit Facility were 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 had a three-year maturity.
On December 7, 2018, the Company prepaid the $7.5 million principal amount outstanding under the Goldline Credit Facility. As a result there was no interest expense incurred for the three months ended September 30, 2019 related to this facility.
Interest expense related to the Goldline Credit Facility (including debt loan amortization costs) totaled $195,000 which represents 5.5% of the total interest expense recognized, for the three months ended September 30, 2018. The Goldline Credit Facility's weighted average effective interest rate was 8.84% for the three months ended September 30, 2018.
Notes Payable
Securitization
In September 2018, AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes (collectively, the "Notes"): Series 2018-1, Class A (the “Class A Notes”) in the aggregate principal amount of $72.0 million 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 $28.0 million. 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 between AMCF and Citibank, N.A., as trustee. The Company holds $5.0 million of the Class B Notes in order to comply with the Credit Risk Retention Rules of Section 15G of the Exchange Act. The $5.0 million portion of the Class B Notes retained by the Company is eliminated in consolidation.
AMCF applied the net proceeds from the sale of the Notes to purchase loans and precious metals inventory, and to pay certain costs and expenses. CFC and A-Mark may from time to time also contribute cash or sell precious metals to AMCF in exchange for cash or subordinated, deferred payment obligations from AMCF. In addition, AMCF may from time to time sell precious metals to A-Mark for cash.
As of September 30, 2019, the consolidated carrying balance of the Notes was $92.0 million (which excludes the $5.0 million note that the Company retained), and the remaining unamortized loan cost balance was approximately $3.0 million, which is amortized using the effective interest method through the maturity date. As of September 30, 2019, the balance of the interest payable was $234,000.
Interest on the Notes is payable monthly in arrears at the aggregate rate of 5.26% per annum. For the three months ended September 30, 2019, the interest expense related to the Notes (including loan amortization costs) totaled $1.5 million which represents 28.6% of the total interest expense recognized by the Company. For the three months ended September 30, 2019, the Notes' weighted average effective interest rate was 5.88%.
Variable Interest Entity
AMCF is a special purpose entity whose sole activity consists of operating, owning, and financing indenture assets. The Notes are primarily payable from, and secured by, (i) precious metals obtained by AMCF from third-parties or A-Mark, and (ii) a portfolio of loans collateralized by precious metals, which were originated by either CFC or acquired by CFC from third parties and conveyed by CFC to AMCF. The indenture requires AMCF to maintain a specified level of collateral. The indenture also provides that AMCF’s assets are not to be commingled with those of CFC or A-Mark (or any affiliate), and that AMCF is to maintain separate books and records.
AMCF is a VIE because the Company's initial equity investment may be insufficient to maintain its ongoing collateral requirements without additional financial support from the Company. The securitization is primarily secured by bullion loans and precious metals, and the Company is required to continuously hedge the value of the collateral and make future contributions as necessary. The Company is the primary beneficiary of this VIE because the Company has the right to determine the type of collateral (i.e., secured loans or precious metals), has the right to receive (and has received) the proceeds from the securitization transaction, and earns on-going interest income from the secured loans (subject to collateral requirements) held by AMCF.
Liabilities on Borrowed Metals
The Company recorded liabilities on borrowed precious metals with market values totaling $196.7 million and $201.1 million as of September 30, 2019 and June 30, 2019, respectively, with the corresponding metals reflected on the condensed consolidated balance sheets.
Advanced pool metals
The Company borrows precious metals from its suppliers and customers under short-term agreements using other precious metals from its inventory as collateral. The Company has the ability to sell the metals advanced. These arrangements can be settled by repayment in similar metals or in cash. Once the obligation is settled, the metals held as collateral are released back to the Company.
Liabilities 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 allow 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 condensed 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 condensed consolidated statements of operations. Such obligation totaled $159.1 million and $94.5 million as of September 30, 2019 and June 30, 2019, respectively.
15. COMMITMENTS AND CONTINGENCIES
Refer to Note 15 of the Notes to Consolidated Financial Statements in the 2019 Annual Report for information relating to minimum rental payments under operating and capital leases, consulting and employment contracts, and other commitments. The Company is not aware of any material changes to commitments as summarized the 2019 Annual Report, other than as summarized below.
Contingencies related to Purchase of Goldline
In connection with the acquisition of assets of Goldline LLC, the Company held back and deposited a portion of the original purchase price into escrow to serve as security for the seller’s indemnification obligations. At June 30, 2019, $750,000 remained in escrow. In October 2019, the Company entered into a settlement agreement and mutual release with Goldline LLC, pursuant to which the Company received $460,000 from the escrow account and released Goldline from any further obligations relating to the acquisition. The costs associated with the settlement of our purchase of Goldline were recorded as other income (loss), net in the condensed consolidated statements of operations.
16. STOCKHOLDERS’ EQUITY
Share Repurchase Program
In April 2018, the Company's Board of Directors approved a share repurchase program which authorized the Company to purchase up to 500,000 shares of its common stock from time to time, either in the open market or in block purchase transactions. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. As of September 30, 2019, no shares had been repurchased under the program.
2014 Stock Award and Incentive Plan
Prior to the spinoff, 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. On October 30, 2019, the Company's stockholders approved the amended and restated 2014 Plan to increase the available shares authorized for issuance under the plan by an additional 200,000 shares (see Note 19.)
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 September 30, 2019, 358,395 shares were available for grant under the 2014 Plan.
Stock Options
During the three months ended September 30, 2019 and 2018, the Company incurred $166,304 and $272,681 of compensation expense related to stock options, respectively. As of September 30, 2019, there was total remaining compensation expense of $1.0 million related to employee stock options, which will be recorded over a weighted average period of approximately 2.0 years.
The following table summarizes the stock option activity for the three months ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average Exercise Price Per Share
|
|
Aggregate Intrinsic Value
(in thousands)
|
|
Weighted Average Grant Date Fair Value Per Award
|
|
Outstanding at June 30, 2019
|
|
956,998
|
|
|
$
|
17.08
|
|
|
$
|
787
|
|
|
$
|
5.88
|
|
|
Granted
|
|
50,000
|
|
|
$
|
14.34
|
|
|
|
|
|
|
Cancellations, expirations and forfeitures
|
|
(11,733
|
)
|
|
$
|
16.72
|
|
|
|
|
|
|
Outstanding at September 30, 2019
|
|
995,265
|
|
|
$
|
16.95
|
|
|
$
|
575
|
|
|
$
|
5.83
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2019
|
|
749,861
|
|
|
$
|
17.11
|
|
|
$
|
575
|
|
|
$
|
6.04
|
|
|
|
Following is a summary of the status of stock options outstanding at September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
3.10
|
|
$
|
8.39
|
|
|
134,239
|
|
|
3.10
|
|
$
|
8.39
|
|
|
$
|
10.01
|
|
|
$
|
15.00
|
|
|
275,671
|
|
|
6.85
|
|
$
|
12.80
|
|
|
143,835
|
|
|
4.83
|
|
$
|
12.40
|
|
|
$
|
15.01
|
|
|
$
|
25.00
|
|
|
485,355
|
|
|
7.03
|
|
$
|
19.91
|
|
|
396,787
|
|
|
6.81
|
|
$
|
20.17
|
|
|
$
|
25.01
|
|
|
$
|
60.00
|
|
|
100,000
|
|
|
6.39
|
|
$
|
25.50
|
|
|
75,000
|
|
|
6.39
|
|
$
|
25.50
|
|
|
|
|
|
|
995,265
|
|
|
6.39
|
|
$
|
16.95
|
|
|
749,861
|
|
|
5.73
|
|
$
|
17.10
|
|
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 three months ended September 30, 2019 are presented on a comparative basis, with their corresponding balances for the three months ended September 30, 2018 in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
Total revenue
|
|
$
|
1,481,014
|
|
|
100.0
|
%
|
|
$
|
1,565,090
|
|
|
100.0
|
%
|
|
|
Customer concentrations
|
|
|
|
|
|
|
|
|
|
HSBC Bank USA(1)
|
|
$
|
272,199
|
|
|
18.4
|
%
|
|
$
|
380,122
|
|
|
24.3
|
%
|
|
|
TD Securities(1)
|
|
300,035
|
|
|
20.2
|
%
|
|
1,806
|
|
|
0.1
|
%
|
|
|
|
|
|
572,234
|
|
|
38.6
|
%
|
|
381,928
|
|
|
24.4
|
%
|
|
|
________________________________
|
|
|
(1)
|
Sales with these trading partners are primarily comprised of sales on forward contracts that are 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 September 30, 2019 are presented on a comparative basis, with their corresponding balances as of June 30, 2019, in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Total accounts receivable, net
|
|
$
|
23,643
|
|
|
100.0
|
%
|
|
$
|
26,895
|
|
|
100.0
|
%
|
|
Customer concentrations
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
3,714
|
|
|
15.7
|
%
|
|
$
|
6,506
|
|
|
24.2
|
%
|
|
Customer B
|
|
4,645
|
|
|
19.7
|
%
|
|
—
|
|
|
—
|
%
|
|
|
|
$
|
8,359
|
|
|
35.4
|
%
|
|
$
|
6,506
|
|
|
24.2
|
%
|
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. The Company's operations are organized under three business segments — Wholesale Trading & Ancillary Services, Secured Lending, and Direct Sales. (See Note 1 for a description of the types of products and services from which each reportable segment derives its revenues.)
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Revenue by segment (1)(2)
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services (3)
|
|
$
|
1,460,933
|
|
|
$
|
1,554,313
|
|
|
|
Direct Sales
|
|
20,081
|
|
(a)
|
10,777
|
|
(b)
|
|
Total revenue
|
|
$
|
1,481,014
|
|
|
$
|
1,565,090
|
|
|
|
|
|
|
|
|
|
|
_________________________________
|
|
|
|
|
|
|
(1) Inter-segment purchases from and sales to the Direct Sales segment are transacted at Wholesale Trading & Ancillary Services segment's prices, which is consistent with arms-length transactions with third-parties.
|
|
|
|
|
|
(2) The Secured Lending segment earns interest income from its lending activity and earns no revenue from the sales of precious metals. Therefore, no amounts are shown for the Secured Lending segment in the above table.
|
|
|
(3) The elimination of inter-segment sales are reflected in the Wholesale Trading & Ancillary Services segment.
|
|
|
|
|
|
|
|
|
|
(a) Includes $8.6 million of inter-segment sales from the Direct Sales segment to the Wholesale Trading & Ancillary Services segment.
|
|
|
|
|
|
|
|
|
|
(b) Includes $0.8 million of inter-segment sales from the Direct Sales segment to the Wholesale Trading & Ancillary Services segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Revenue by geographic region
(as determined by the shipping address or where the services were performed):
|
|
|
United States
|
|
$
|
1,105,621
|
|
|
$
|
1,375,636
|
|
|
|
Europe
|
|
62,102
|
|
|
90,152
|
|
|
|
North America, excluding United States
|
|
300,397
|
|
|
96,384
|
|
|
|
Asia Pacific
|
|
6,113
|
|
|
2,343
|
|
|
|
Africa
|
|
31
|
|
|
1
|
|
|
|
Australia
|
|
6,750
|
|
|
574
|
|
|
|
Total revenue
|
|
$
|
1,481,014
|
|
|
$
|
1,565,090
|
|
|
|
|
|
|
|
|
|
Gross Profit and Gross Margin Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Gross profit by segment(1)
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
6,760
|
|
|
$
|
7,412
|
|
|
|
Direct Sales
|
|
1,580
|
|
|
1,063
|
|
|
|
Total gross profit
|
|
$
|
8,340
|
|
|
$
|
8,475
|
|
|
|
Gross margin percentage by segment(1)
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
0.463
|
%
|
|
0.477
|
%
|
|
|
Direct Sales
|
|
7.868
|
%
|
|
9.864
|
%
|
|
|
Weighted average gross margin percentage
|
|
0.563
|
%
|
|
0.542
|
%
|
|
|
|
|
|
|
|
|
|
_________________________________
|
|
|
|
|
|
|
(1) The Secured Lending segment earns interest income from its lending activity and earns no gross profit from the sales of precious metals. Therefore, no amounts are shown for the Secured Lending segment in the above table.
|
|
|
|
|
|
|
|
|
Operating income and (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Operating income and (expenses) by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(5,802
|
)
|
|
$
|
(5,258
|
)
|
|
|
Interest income
|
|
$
|
2,262
|
|
|
$
|
2,052
|
|
|
|
Interest expense
|
|
$
|
(2,826
|
)
|
|
$
|
(1,880
|
)
|
|
|
Other income, net
|
|
$
|
12
|
|
|
$
|
248
|
|
|
|
Unrealized loss on foreign exchange
|
|
$
|
(122
|
)
|
|
$
|
(70
|
)
|
|
|
Secured Lending
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(348
|
)
|
|
$
|
(345
|
)
|
|
|
Interest income
|
|
$
|
3,506
|
|
|
$
|
2,499
|
|
|
|
Interest expense
|
|
$
|
(2,316
|
)
|
|
$
|
(1,477
|
)
|
|
|
Other income, net
|
|
$
|
42
|
|
|
$
|
—
|
|
|
|
Direct Sales
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(2,120
|
)
|
|
$
|
(2,116
|
)
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
(195
|
)
|
|
|
Other expense, net
|
|
$
|
(220
|
)
|
|
$
|
—
|
|
|
Net (loss) income before provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Net (loss) income before provision for income taxes by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
284
|
|
|
$
|
2,504
|
|
|
|
Secured Lending
|
|
884
|
|
|
677
|
|
|
|
Direct Sales
|
|
(760
|
)
|
|
(1,248
|
)
|
|
|
Total net income before provision for income taxes
|
|
$
|
408
|
|
|
$
|
1,933
|
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Depreciation and amortization by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
(397
|
)
|
|
$
|
(396
|
)
|
|
|
Secured Lending
|
|
(16
|
)
|
|
—
|
|
|
|
Direct Sales
|
|
(255
|
)
|
|
(301
|
)
|
|
|
Total depreciation and amortization
|
|
$
|
(668
|
)
|
|
$
|
(697
|
)
|
|
Advertising expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Advertising expense by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
(56
|
)
|
|
$
|
(107
|
)
|
|
|
Secured Lending
|
|
(3
|
)
|
|
(3
|
)
|
|
|
Direct Sales
|
|
(404
|
)
|
|
(480
|
)
|
|
|
Total advertising expense
|
|
$
|
(463
|
)
|
|
$
|
(590
|
)
|
|
Precious metals held under financing arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Precious metals held under financing arrangements by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
200,809
|
|
|
$
|
208,792
|
|
|
|
Total precious metals held under financing arrangements
|
|
$
|
200,809
|
|
|
$
|
208,792
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Inventories by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
364,206
|
|
|
$
|
285,250
|
|
|
|
Direct Sales
|
|
7,992
|
|
|
7,611
|
|
|
|
Total inventories
|
|
$
|
372,198
|
|
|
$
|
292,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Inventories by geographic region
|
|
|
|
|
|
|
United States
|
|
$
|
358,806
|
|
|
$
|
280,924
|
|
|
|
Europe
|
|
6,470
|
|
|
3,944
|
|
|
|
North America, excluding United States
|
|
6,913
|
|
|
7,452
|
|
|
|
Asia
|
|
9
|
|
|
541
|
|
|
|
Total inventories
|
|
$
|
372,198
|
|
|
$
|
292,861
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Assets by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
657,621
|
|
|
$
|
561,902
|
|
|
|
Secured Lending
|
|
153,715
|
|
|
130,143
|
|
|
|
Direct Sales
|
|
15,861
|
|
|
13,317
|
|
|
|
Total assets
|
|
$
|
827,197
|
|
|
$
|
705,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Assets by geographic region
|
|
|
|
|
|
|
United States
|
|
$
|
809,457
|
|
|
$
|
689,287
|
|
|
|
Europe
|
|
10,818
|
|
|
8,082
|
|
|
|
North America, excluding United States
|
|
6,913
|
|
|
7,452
|
|
|
|
Asia
|
|
9
|
|
|
541
|
|
|
|
Total assets
|
|
$
|
827,197
|
|
|
$
|
705,362
|
|
|
Long-term Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Long-term assets by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
38,889
|
|
|
$
|
32,816
|
|
|
|
Secured Lending
|
|
301
|
|
|
280
|
|
|
|
Direct Sales
|
|
4,772
|
|
|
3,416
|
|
|
|
Total long-term assets
|
|
$
|
43,962
|
|
|
$
|
36,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Long-term assets by geographic region
|
|
|
|
|
|
|
United States
|
|
$
|
43,909
|
|
|
$
|
36,459
|
|
|
|
Europe
|
|
53
|
|
|
53
|
|
|
|
Total long-term assets
|
|
$
|
43,962
|
|
|
$
|
36,512
|
|
|
Capital Expenditures for Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
Three Months Ended September 30,
|
|
2019
|
|
2018
|
|
|
Capital expenditures on plant, property and equipment by segment
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
97
|
|
|
$
|
122
|
|
|
|
Secured Lending
|
|
37
|
|
|
—
|
|
|
|
Direct Sales
|
|
3
|
|
|
—
|
|
|
|
Total capital expenditures on property and equipment
|
|
$
|
137
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
June 30, 2019
|
|
|
Goodwill and Intangibles by segment
|
|
|
|
|
|
|
Wholesale Trading & Ancillary Services
|
|
$
|
11,978
|
|
|
$
|
12,087
|
|
|
|
Direct Sales
|
|
2,502
|
|
|
2,646
|
|
|
|
Total goodwill and intangible assets
|
|
$
|
14,480
|
|
|
$
|
14,733
|
|
|
Increase in Shares Authorized for Issuance under 2014 Plan
On October 30, 2019, the Company's stockholders approved an amendment to the 2014 Plan to increase the number of shares authorized for issuance thereunder by 200,000 shares. As a result of this amendment, there are currently 543,395 shares available for future issuance under the 2014 Plan.