NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1
. BASIS OF PRESENTATION
Basis of Presentation
The consolidated financial statements reflect the financial condition, results of operations, comprehensive income (loss), and cash flows of Spectrum Group International, Inc. and its subsidiaries (the “Company” or “SGI”), and were prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). The Company conducts its operations in
two
reportable segments: Trading and Collectibles. Each of these reportable segments represent an aggregation of operating segments that meet the aggregation criteria set forth in the
Segment Reporting
Topic 280 of the FASB Accounting Standards Codification (“ASC”).
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
statements of comprehensive income (loss),
condensed consolidated
statements 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 and
nine
months
ended
March 31, 2013
are not necessarily indicative of the results that may be expected for the year ending
June 30, 2013
or for any other interim period during such 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
June 30, 2012
(the “
2012
Annual Report”), as filed with the SEC. Amounts related to disclosure of
June 30, 2012
balances within these interim
condensed consolidated
financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the
2012
Annual Report.
The
condensed consolidated
financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions including inter-company profits and losses, and inter-company balances have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of lower of cost or market estimates for inventory and allowances for doubtful accounts, impairment assessments of long-lived assets and intangibles, valuation reserve determinations on deferred tax assets, calculations of loss accruals and other complex contingent liabilities, and revenue recognition judgments. Significant estimates also include the Company's fair value determinations with respect to its financial instruments and precious metals materials. Actual results could materially differ from those estimates.
Business Segments
Trading Segment
The Company's trading business is conducted through A-Mark Precious Metals, Inc. (“A-Mark”) and its subsidiaries. A-Mark is a full-service precious metals trading company. Its products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain. The Company's trading-related services include financing, leasing, consignment, hedging and various customized financial programs. At June 30, 2012, the Company owned
80%
of A-Mark through its
80%
ownership interest in Spectrum PMI, Inc. (“SPMI”), which owns all of the common stock of A-Mark. The remaining
20%
of SPMI was owned by Auctentia, S.L. (“Auctentia”), a wholly owned subsidiary of Afinsa Bienes Tangibles, S.A. En Liquidacion (“Afinsa”), which, together with Auctentia, owned approximately
57%
of the Company's outstanding common stock.
On September 25, 2012, the Company purchased from Afinsa and Auctentia a total of
15,609,796
shares of common stock, as a result of which the combined holdings of Afinsa and Auctentia were reduced from
57%
to
9.9%
of the Company's common stock outstanding. In addition, the Company repurchased all of Auctentia's remaining 20% interest in Spectrum PMI, Inc.
Through its subsidiary Collateral Finance Corporation (“CFC”), a licensed California Finance Lender, A-Mark offers loans on precious metals and rare coins collateral to coin dealers, collectors and investors.
Collectibles Segment
The Company's collectibles business operates as an integrated network of global companies concentrating on numismatic (coins and currencies) and rare and fine vintage wines. Products are offered by way of auction or private treaty sales. The Company has offices and auction houses in North America, Europe and Asia. In addition to traditional live auctions, the Company also conducts Internet and telephone auctions, and engages
in retail sales. Until the first quarter of fiscal 2013, when the Company sold its Stamps division (defined below), it also was an auctioneer and merchant/dealer of philatelic materials.
European Operations
The European Operations (the “European Operations”) comprised European companies of the Stamps division (the “Stamps division”) of the Collectibles segment. The Stamps division is primarily engaged in the sale of philatelic (stamps) materials by auction. All but one of the European companies were sold on September 13, 2012. See discontinued operations, below (Note
3
).
Discontinued Operations
In accordance with the provisions of the
Presentation of Financial Statements
Topic 205 of the ASC, the results of the following entities are now presented as discontinued operations in the
condensed consolidated
financial statements through the date of dissolution, as applicable (Note
3
).
Stamps Division
On September 13, 2012, the Company completed the sale of its Stamps division for approximately
$7.8 million
and recognized a gain on sale of
$17,000
(Note
3
).
Greg Martin Auctions, Inc.
Through January 2011, the Company's wholly owned subsidiary, Greg Martin Auctions, Inc. (“GMA”), operated as an auction house offering antique guns, and armor. On December 1, 2010, the Company executed an agreement to sell certain assets of GMA to a third party for
$325,000
. The transaction closed on January 31, 2011.
See Note
3
for further information regarding discontinued operations.
Consolidated Joint Ventures
The Company includes in its consolidated financial statements the results of operations and financial position of a joint venture, which is a variable interest entity in which the Company or its wholly-owned subsidiaries are the primary beneficiaries (Note
13
).
In determining that the Company or its subsidiaries is the primary beneficiary, the Company evaluated both qualitative and quantitative considerations of the VIE, including, among other things, its capital structure, terms of contracts between the Company and its subsidiaries and the VIE, which interests create or absorb variability, related party relationships and the design of the VIE.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current consolidated financial statement presentation.
2
. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
There have been no significant changes to the Company's significant accounting policies during the
nine
months
ended
March 31, 2013
. See Note 2 to the Company's consolidated financial statements included in the Company's
2012
Annual Report on Form 10-K for a comprehensive description of the Company's significant accounting policies.
Restricted Cash
During the fourth quarter of fiscal 2011, the Company purchased a building to serve as its new corporate headquarters. The building was acquired with cash and the assumption of a note, for which the lender required the Company to place
$1,121,000
of cash in escrow consisting of
$768,000
for building improvements and a leasing reserve totaling
$353,000
. As of
March 31, 2013
, the Company had remaining restricted cash of
$597,000
, consisting of
$245,000
for building improvements and
$352,000
for leasing reserve.
Foreign Currency Translation
Assets and liabilities denominated in foreign currency are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Statements of operations accounts are translated at the average exchange rates during the year. The impact of exchange rate fluctuations from translation of assets and liabilities is included in accumulated other comprehensive income, a component of stockholders' equity. Gains and losses resulting from other foreign currency transactions are included in interest and other income (expense) in the
condensed consolidated
statements of operations. For the three and
nine
months
ended
March 31, 2013
and
2012
, the Company recognized unrealized gains (losses) of
$(54,000)
and
$(1.5) million
and
$(0.9) million
and
$2.4 million
, respectively, on foreign exchange in the
condensed consolidated
statements of operations in connection with the transaction adjustments of intercompany Euro denominated loans, owed by SGI to certain of its subsidiaries included in its European Operations. On January 2, 2013, upon the conversion of Euro denominated notes to U.S. dollars, the Company changed the functional currency of its European Operations. See Note 3 for further information regarding discontinued operations. As of March 31, 2012, Euro denominated loans owed by SGI to certain of its subsidiaries was
$31.1 million
.
Income Taxes
The Company estimates its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the provisions of the
Income Taxes
Topic 740 of the ASC. 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 information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company's consolidated financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits. The total unrecognized tax benefit is
$27.7 million
;
$7.6 million
of this amount is presented as an accrued liability in the consolidated balance sheet as of
March 31, 2013
and is presented within deferred and other long-term tax liabilities. The potential interest and/or penalties associated with an uncertain tax position are recorded in provision for income taxes (income tax benefit) in the
condensed consolidated
statements of operations.
The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
Changes in recognized tax benefits and changes in valuation allowances could be material to the Company's results of operations for any period, but is not expected to be material to the Company's consolidated financial position.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share utilizing the treasury stock method, adjusts the weighted average number of common shares for common stock issuable upon exercise of stock options and other commitments to issue common stock in periods in which they have a dilutive effect, and when the stock awards exercise price is lower than the Company's average share price for the period.
A reconciliation of shares used in calculating basic and diluted earnings per common shares follows. In computing basic earnings per share for the three months ended March 31, 2013, the Company excluded
547,000
shares of common stock and
37,500
stock appreciation rights (“SARs”), where exercise prices were in excess of the quoted market price of the Company's common stock and
123,001
unvested restricted stock units because inclusion would be anti-dilutive. Since the Company incurred a net loss for the
nine
months
ended
March 31, 2013
, basic and diluted loss per share were the same because the inclusion of
1,682,501
potential common shares, related to
1,139,500
outstanding stock options,
505,501
restricted stock grants, and
37,500
SARs, in the computation of net loss per share would have been anti-dilutive. Since the Company incurred a net loss for the three months ended
March 31, 2012
, basic and diluted loss per share were the same because the inclusion of
1,148,898
potential common shares, related to
640,750
outstanding stock options,
470,648
restricted stock grants, and
37,500
SARs, in the computation of net loss per share would have been anti-dilutive. In computing diluted earnings per share for the
nine
months
ended
March 31, 2012
, the Company excluded options to purchase
318,750
shares of common stock and
37,500
SARS where exercise prices were in excess of the quoted market price of the Company's common stock and
468,148
unvested restricted stock units because inclusion would be anti-dilutive. There is no dilutive effect of stock appreciation rights as such obligations are not settled and were out of the money at
March 31, 2013
and
2012
.
A reconciliation of basic and diluted shares is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
in thousands
|
|
March 31, 2013
|
|
March 31, 2012
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding (1)
|
|
30,640
|
|
|
32,723
|
|
|
31,356
|
|
|
32,659
|
|
Effect of common stock equivalents — stock options and stock issuable under employee compensation plans
|
|
255
|
|
|
—
|
|
|
—
|
|
|
243
|
|
Diluted weighted average shares outstanding
|
|
30,895
|
|
|
32,723
|
|
|
31,356
|
|
|
32,902
|
|
|
|
(1)
|
Basic weighted average shares outstanding includes the effect of vested but unissued restricted stock grants (see note
15
).
|
Recent Accounting Pronouncements
In March 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-05,
Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.
The amendment requires the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. This update is effective for annual and interim periods beginning after December 15, 2013. The adoption of the accounting principles in this update are not anticipated to have a material impact on the Company's consolidated financial position or results of operations.
In February 2013, the FASB issued ASU No. 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.
The amendments in this update require an entity to disclose significant amounts reclassified out of accumulated other comprehensive income into net income by the respective line items of net income in its entirety in the same reporting period. These amendments are effective for the Company prospectively for reporting periods beginning after December 15, 2012. Adoption of the accounting principles in this update did not have a material impact on the Company's consolidated financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11,
Disclosures about Offsetting Assets and Liabilities
. The amendments in this update require an entity to disclose gross and net information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The FASB later clarified in ASU No. 2013-01,
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
, that the scope of these amendments applies to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. These amendments are effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of the accounting principles in this update are not anticipated to have a material impact on the Company's consolidated financial position or results of operations.
3
. DISCONTINUED OPERATIONS
Stamps Division
On September 13, 2012, the Company completed the sale of its Stamps division for approximately
$7.8 million
, of which
$400,000
is held in escrow. The Company recorded a gain on sale of
$17,000
from the transaction.
Greg Martin Auctions, Inc.
On December 1, 2010, the Company executed an agreement to sell certain assets of its wholly owned subsidiary Greg Martin Auctions, Inc. ("GMA") for
$325,000
. The transaction closed on January 31, 2011. In December 2011, the Company liquidated the remaining assets and liabilities of GMA.
The table below presents assets and liabilities of discontinued operations as of
March 31, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
March 31, 2013
|
|
June 30, 2012
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Accounts receivable and consignor advances, net - collectible operations
|
|
$
|
—
|
|
|
$
|
7,270
|
|
Inventory, net
|
|
—
|
|
|
589
|
|
Prepaid expenses and other assets
|
|
—
|
|
|
414
|
|
Total current assets
|
|
—
|
|
|
8,273
|
|
Property and equipment, net
|
|
—
|
|
|
513
|
|
Goodwill
|
|
—
|
|
|
238
|
|
Other purchased intangibles, net
|
|
—
|
|
|
225
|
|
Other assets
|
|
—
|
|
|
139
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
9,388
|
|
Liabilities
|
|
|
|
|
Accounts payable and consignor payables
|
|
$
|
—
|
|
|
$
|
6,004
|
|
Accrued expenses and other current liabilities
|
|
—
|
|
|
2,046
|
|
Income taxes payable
|
|
—
|
|
|
174
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
8,224
|
|
The following results of operations of the Stamps division and GMA have been presented as discontinued operations in the
condensed consolidated
statements of operations for all periods presented. In July 2011, the Company received
$255,000
from GMA's buyer to finalize the transaction. As a result of finalizing this transaction, the Company recognized a gain of
$55,000
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
in thousands
|
|
March 31, 2013
|
|
March 31, 2012
|
|
March 31, 2013
|
|
March 31, 2012
|
Revenues
|
|
$
|
—
|
|
|
$
|
2,128
|
|
|
$
|
185
|
|
|
$
|
8,068
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, excluding taxes and gain on sales of assets
|
|
—
|
|
|
(254
|
)
|
|
(1,080
|
)
|
|
60
|
|
Income tax benefit
|
|
(50
|
)
|
|
(2
|
)
|
|
(467
|
)
|
|
—
|
|
Income (loss) from discontinued operations
|
|
$
|
50
|
|
|
$
|
(252
|
)
|
|
$
|
(613
|
)
|
|
$
|
60
|
|
|
|
4
.
|
CUSTOMER CONCENTRATIONS
|
Customers providing 10 percent or more of the Company's Trading segment revenues for the three and
nine
months
ended
March 31, 2013
and
2012
are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
|
|
|
|
|
|
Amount
|
Percent
|
|
Amount
|
Percent
|
Total Trading segment revenue
|
|
$
|
1,825,450
|
|
100.0
|
%
|
|
$
|
1,816,231
|
|
100.0
|
%
|
|
$
|
5,127,690
|
|
100.0
|
%
|
|
$
|
6,097,344
|
|
100.0
|
%
|
Trading segment customer concentrations
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
301,644
|
|
16.5
|
%
|
|
$
|
489,628
|
|
27.0
|
%
|
|
$
|
559,611
|
|
10.9
|
%
|
|
$
|
1,373,017
|
|
22.5
|
%
|
Customer B
|
|
231,272
|
|
12.7
|
|
|
60,206
|
|
3.3
|
|
|
497,646
|
|
9.7
|
|
|
296,922
|
|
4.9
|
|
Customer C
|
|
39,988
|
|
2.2
|
|
|
248,958
|
|
13.7
|
|
|
759,214
|
|
14.8
|
|
|
910,332
|
|
14.9
|
|
Total
|
|
$
|
572,904
|
|
31.4
|
%
|
|
$
|
798,792
|
|
44.0
|
%
|
|
$
|
1,816,471
|
|
35.4
|
%
|
|
$
|
2,580,271
|
|
42.3
|
%
|
Customers providing 10 percent or more of the Company's Trading segment's accounts receivable, excluding
$39.5 million
and
$39.2 million
of secured loans as of
March 31, 2013
and
June 30, 2012
, respectively, are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
in thousands
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Trading segment accounts receivable
|
$
|
36,814
|
|
|
100.0
|
%
|
|
$
|
86,537
|
|
|
100.0
|
%
|
Trading segment customer concentrations
|
|
|
|
|
|
|
|
Customer D
|
$
|
20,875
|
|
|
56.7
|
%
|
|
$
|
55,803
|
|
|
64.5
|
%
|
Customer B
|
3,747
|
|
|
10.2
|
%
|
|
$
|
7,423
|
|
|
8.6
|
%
|
Total
|
$
|
24,622
|
|
|
66.9
|
%
|
|
$
|
63,226
|
|
|
73.1
|
%
|
Customers providing 10 percent or more of the Company's Trading segment's secured loans as of
March 31, 2013
and
June 30, 2012
, respectively, are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
in thousands
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Trading segment secured loans
|
$
|
39,500
|
|
|
100.0
|
%
|
|
$
|
39,201
|
|
|
100.0
|
%
|
Trading segment customer concentrations
|
|
|
|
|
|
|
|
Customer E
|
$
|
12,500
|
|
|
31.6
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Customer F
|
9,339
|
|
|
23.6
|
|
|
8,539
|
|
|
38.9
|
|
Customer G
|
—
|
|
|
—
|
|
|
6,707
|
|
|
17.1
|
%
|
Total
|
$
|
21,839
|
|
|
55.2
|
%
|
|
$
|
15,246
|
|
|
38.9
|
%
|
The loss of any of the above customers of the Trading segment could have a material adverse effect on the operations of the Company.
For the three and
nine
months
ended
March 31, 2013
and
2012
and as of
March 31, 2013
and
June 30, 2012
, the Collectibles segment had no reportable concentrations.
Receivables and secured loans from the Company's trading segment consist of the following as of
March 31, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
Customer trade receivables
|
$
|
17,462
|
|
|
$
|
58,518
|
|
Wholesale trade advances
|
16,657
|
|
|
15,456
|
|
Secured loans
|
39,500
|
|
|
39,201
|
|
Due from M.F. Global, Inc. trustee
|
—
|
|
|
5,692
|
|
Due from other brokers and other
|
2,695
|
|
|
6,871
|
|
Subtotal
|
76,314
|
|
|
125,738
|
|
Less: allowance for doubtful accounts
|
(104
|
)
|
|
(102
|
)
|
Less: M.F. Global, Inc. trustee reserve
|
—
|
|
|
(1,016
|
)
|
Subtotal
|
76,210
|
|
|
124,620
|
|
Derivative assets — futures contracts
|
8,584
|
|
|
3,375
|
|
Derivative assets — open purchase and sales commitments
|
1,205
|
|
|
—
|
|
Derivative assets — forward contracts
|
10
|
|
|
—
|
|
Receivables and secured loans, net — trading operations
|
$
|
86,009
|
|
|
$
|
127,995
|
|
Customer trade receivables represent short-term, non-interest bearing amounts due from metal sales and are generally secured by the related metals stored with the Company, a letter of credit issued on behalf of the customer, or other secured interests in assets of the customer.
Wholesale trade advances represent advances of refined materials to customers, secured by unrefined materials received from the customer. These advances are limited to a portion of the unrefined materials received. These advances are secured, short-term, non-interest bearing advances made to wholesale metals dealers and government mints.
Secured loans represent short term loans made to customers of CFC. Loans are fully secured by bullion, numismatic and semi-numismatic material which are held in safekeeping by CFC. As of
March 31, 2013
and
June 30, 2012
, the loans carried average effective interest rates of
9.0%
and
9.2%
, respectively.
Until October 31, 2011, A-Mark maintained a segregated commodities account with M.F. Global, Inc. (“MFGI”). A-Mark used this account to enter into future transactions to hedge the risk related to its positions with counterparties and physical inventories. MFGI filed for bankruptcy protection on October 31, 2011. At the time MFGI filed for bankruptcy, A-Mark had
$20.3 million
in funds held at MFGI of which
$14.6 million
, or
72%
, of A Mark's MFGI Equity was returned to A-Mark in December 2011 pursuant to a bulk transfer approved by the Bankruptcy Court. A-Mark has filed a claim in the bankruptcy proceedings for the remaining
$5.7 million
. In July 2012, A-Mark received an additional distribution of
$1.6 million
from the trustee for the liquidation of MFGI, bringing the remaining balance to
$4.1 million
. On December 31, 2012, A-Mark sold its claim to this balance for
$3.8 million
. At the time of the sale, the Company had a reserve of
$1.0 million
for this potential loss. The receipt of proceeds from the sale of the receivable of
$3.8 million
resulted in a positive impact to the provision for bad debts of
$0.7 million
.
Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts.
The Company's derivative liabilities (see Note
11
) represent the net fair value of the difference between market value and trade value at trade date for open metals purchases and sales contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled. The Company's derivative assets represent the net fair value of open metals forwards and futures contracts. The metals forwards and futures contracts are settled at the contract settlement date.
Accounts receivable and consignor advances from the Company's Collectibles segment consist of the following as of
March 31, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
|
|
|
|
Auction and trade
|
$
|
13,239
|
|
|
$
|
20,138
|
|
Secured loan
|
1,006
|
|
|
—
|
|
Derivative assets — future contracts
|
91
|
|
|
98
|
|
Due from brokers
|
152
|
|
|
368
|
|
Subtotal
|
14,488
|
|
|
20,604
|
|
Less: allowance for doubtful accounts
|
(201
|
)
|
|
(176
|
)
|
Accounts receivable and consignor advances, net — collectibles operations
|
$
|
14,287
|
|
|
$
|
20,428
|
|
____________________
(1) Adjusted to reflect discontinued operations
Secured loan represent a short term loan made to a business partner of the Company on January 29, 2013. The loan matures January 29, 2014 and is fully secured by assets located at the customer's place of business. As of
March 31, 2013
, the loan has an interest rate of
7.5%
.
The Company frequently extends trade credit in connection with its auction sales. The Company evaluates each customer's creditworthiness on a case-by-case basis. Generally, the customers that receive trade credit are established collectors and professional dealers that have regularly purchased property at the Company's auctions or whose reputation within the industry is known and respected by the Company. The Company makes judgments as to the ability to collect outstanding auction and consignor advances receivables and provides allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. The Company continuously monitors payments from its customers and maintains allowances for doubtful accounts for estimated losses in the period they become probable. After all attempts to collect a receivable have failed, the receivable is charged off against the allowance. Based on the information available, the Company believes its allowance for doubtful accounts as of
March 31, 2013
and
June 30, 2012
is appropriate. However, actual charge-offs could exceed the recorded allowance.
Activity in the total allowance for doubtful accounts for the Trading and Collectible segments for the
nine
months
ended
March 31, 2013
and year ended
June 30, 2012
are as follows:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
|
|
|
|
Beginning balance
|
$
|
1,294
|
|
|
$
|
241
|
|
Provision for losses
|
(608
|
)
|
|
1,171
|
|
Charge-offs to reserve
|
(383
|
)
|
|
(110
|
)
|
Foreign currency exchange rate changes
|
2
|
|
|
(8
|
)
|
Ending balance
|
$
|
305
|
|
|
$
|
1,294
|
|
____________________
(1) Adjusted to reflect discontinued operations
Credit Quality of Financing Receivables and Allowance for Credit Losses
The Company adopted the accounting guidance on disclosures about the credit quality of financing receivables and the allowance for credit losses during the year ended June 30, 2012. This guidance requires information to be disclosed at disaggregated levels, defined as portfolio segments and classes.
The Company applies a systematic methodology to determine the allowance for credit losses for finance receivables. Based upon the Company's analysis of credit losses and risk factors, secured commercial loans are its sole portfolio segment. This is due to the fact that all loans are very similar in terms of secured material, method of initial and ongoing collateral value determination and assessment of loan to value determination. Typically, the Company's finance receivables within its portfolio have similar credit risk profiles and methods for assessing and monitoring credit risk.
The Company further evaluated its portfolio segments by the class of finance receivables, which is defined as a level of information in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. As a result, the Company determined that the secured commercial loans portfolio segment has
two
classes of receivables, those secured by bullion and those secured by collectibles.
The Company's classes, which align with management reporting, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
Bullion
|
$
|
25,582
|
|
|
64.8
|
%
|
|
$
|
12,991
|
|
|
33.1
|
%
|
Collectibles
|
13,918
|
|
|
35.2
|
|
|
26,210
|
|
|
66.9
|
|
Total secured loans
|
$
|
39,500
|
|
|
100.0
|
%
|
|
$
|
39,201
|
|
|
100.0
|
%
|
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 income is suspended and the loan is placed on non-accrual status when management determines that collection of future income is not probable. Accrual is resumed, and previously suspended 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 income.
All loans are contractually subject to margin call. 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 rapidly liquidate the loan collateral in the event of a default. The material is highly liquid and easily sold to pay off the loan. Such circumstances would result in a short
term impairment that would typically result in full repayment of the loan and fees due to the Company. There were no impaired loans as of
March 31, 2013
and
June 30, 2012
.
Credit quality of loans
All 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. Customers are generally put into default for any interest past due over
30 days
and for unsatisfied collateral calls. Due to the accelerated liquidation terms of the Company's loan portfolio all past due loans are generally liquidated within
90 days
of default.
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, we estimate the current market value of the collateral and consider credit enhancements such as additional collateral and third-party guarantees.
There were no non-performing loans as of
March 31, 2013
and
June 30, 2012
.
Further information about the Company credit quality indicator includes differentiating by categories of current loan-to-value ratios. The Company disaggregates its secured loans as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
Loan-to-value of 75% or more
|
$
|
411
|
|
|
1.0
|
%
|
|
$
|
9,914
|
|
|
25.3
|
%
|
Loan-to-value of less than 75%
|
39,089
|
|
|
99.0
|
|
|
29,287
|
|
|
74.7
|
|
Total
|
$
|
39,500
|
|
|
100.0
|
%
|
|
$
|
39,201
|
|
|
100.0
|
%
|
No loans have a loan-to-value in excess of
100%
at
March 31, 2013
and
June 30, 2012
.
The Trading segment's inventories primarily include bullion and bullion coins and are stated at published market values plus purchase premiums paid on acquisition of the metal. The amount of premium included in the inventories as of
March 31, 2013
and
June 30, 2012
was
$1.7 million
and
$1.8 million
, respectively. As of
March 31, 2013
and
June 30, 2012
, the unrealized gains (losses) resulting from the difference between market value and cost of physical inventories were
$3.8 million
and
$(2.1) million
, respectively. These unrealized gains (losses) are included within the cost of products sold in the accompanying
condensed consolidated
statements of operations. Such gains (losses) are generally offset by the results of hedging transactions, which have been reflected as a net gain (loss) on derivative instruments, which is a component of cost of precious metals sold in the
condensed consolidated
statements of operations.
The Trading segment's inventories include amounts borrowed from various suppliers under ongoing agreements of
$36.5 million
and
$27.1 million
as of
March 31, 2013
and
June 30, 2012
, respectively. A corresponding obligation related to metals borrowed is reflected on the
condensed consolidated
balance sheets. The Trading Segment also protects substantially all of its physical inventories from market risk through commodity hedge transactions (See Note
11
).
The Trading segment's inventories also include amounts for obligation under a product financing arrangement totaling
$9.8 million
and
$15.6 million
as of
March 31, 2013
and
June 30, 2012
respectively (See Note
10
).
The Trading segment periodically loans metals to customers on a short-term consignment basis, charging interest fees based on the value of the metal loaned. Inventories loaned under consignment arrangements to customers as of
March 31, 2013
and
June 30, 2012
totaled
$6.5 million
and
$21.9 million
, respectively. Such inventory is removed at the time the customer elects to price and purchase the metals, and the Company records a corresponding sale and receivable. Substantially all inventory loaned under consignment arrangements is secured by letters of credit issued by major financial institutions for the benefit of the Company or under an all-risk insurance policy with the Company as the loss-payee.
Inventories as of
March 31, 2013
and
June 30, 2012
consisted of the following:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
|
|
|
|
Trading segment inventory
|
$
|
113,860
|
|
|
$
|
136,533
|
|
Less: reserve for loss
|
—
|
|
|
—
|
|
Trading, net
|
$
|
113,860
|
|
|
$
|
136,533
|
|
Collectibles segment inventory
|
$
|
19,790
|
|
|
$
|
22,033
|
|
Less: reserve for loss
|
(503
|
)
|
|
(717
|
)
|
Collectibles, net
|
$
|
19,287
|
|
|
$
|
21,316
|
|
Total inventory, gross
|
$
|
133,650
|
|
|
$
|
158,566
|
|
Less: reserve for loss
|
(503
|
)
|
|
(717
|
)
|
Net inventory
|
$
|
133,147
|
|
|
$
|
157,849
|
|
____________________
(1) Adjusted to reflect discontinued operations
Activity in the reserve for inventory loss for the
nine
months
ended
March 31, 2013
and year ended
June 30, 2012
are as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Year Ended
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
|
|
|
|
Beginning balance
|
$
|
717
|
|
|
$
|
706
|
|
Provision for loss
|
19
|
|
|
517
|
|
Charge-offs to reserve
|
(233
|
)
|
|
(506
|
)
|
Foreign currency exchange rate changes
|
—
|
|
|
—
|
|
Ending balance
|
$
|
503
|
|
|
$
|
717
|
|
____________________
(1) Adjusted to reflect discontinued operations
7
. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
The changes in the carrying values of goodwill by business segment for the
nine
months
ended
March 31, 2013
are described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Trading
|
|
Collectibles
|
|
Total
|
Balance as of June 30, 2012 (1)
|
|
|
|
|
|
Goodwill
|
4,884
|
|
|
6,144
|
|
|
11,028
|
|
Accumulated impairment losses
|
—
|
|
|
(4,263
|
)
|
|
(4,263
|
)
|
|
4,884
|
|
|
1,881
|
|
|
6,765
|
|
Adjustment to goodwill due to foreign currency exchange rate changes
|
—
|
|
|
242
|
|
|
242
|
|
Disposals related to sale of stamps division
|
—
|
|
|
(1,021
|
)
|
|
(1,021
|
)
|
Goodwill impairment
|
—
|
|
|
—
|
|
|
—
|
|
Balance as of March 31, 2013
|
|
|
|
|
|
Goodwill
|
4,884
|
|
|
5,365
|
|
|
10,249
|
|
Accumulated impairment losses
|
—
|
|
|
(4,263
|
)
|
|
(4,263
|
)
|
|
$
|
4,884
|
|
|
$
|
1,102
|
|
|
$
|
5,986
|
|
____________________
(1) Adjusted to reflect discontinued operations
Cumulative goodwill impairment totaled
$4.3 million
as of
March 31, 2013
and
June 30, 2012
, respectively. Please see note below regarding increases in goodwill related to the acquisition of Stack's, LLC (“Stack's”). Changes in goodwill were related to acquisitions and foreign currency translation adjustments within the European operations.
Other Purchased Intangible Assets
The carrying value of other purchased intangibles as of
March 31, 2013
and
June 30, 2012
is as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
June 30, 2012 (1)
|
|
|
|
|
|
|
in thousands
|
Estimated Useful Lives (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Accumulated Impairment
|
|
Net Book Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Accumulated Impairment
|
|
Net Book Value
|
Trademarks
|
Indefinite
|
|
$
|
3,479
|
|
|
$
|
—
|
|
|
$
|
(798
|
)
|
|
$
|
2,681
|
|
|
$
|
3,479
|
|
|
$
|
—
|
|
|
$
|
(798
|
)
|
|
$
|
2,681
|
|
Customer lists
|
5 - 15
|
|
9,057
|
|
|
(4,816
|
)
|
|
(419
|
)
|
|
3,822
|
|
|
9,057
|
|
|
(4,190
|
)
|
|
(419
|
)
|
|
4,448
|
|
Non-compete and other
|
4
|
|
2,270
|
|
|
(2,251
|
)
|
|
—
|
|
|
19
|
|
|
2,270
|
|
|
(2,242
|
)
|
|
—
|
|
|
28
|
|
Purchased intangibles subject to amortization
|
|
|
11,327
|
|
|
(7,067
|
)
|
|
(419
|
)
|
|
3,841
|
|
|
11,327
|
|
|
(6,432
|
)
|
|
(419
|
)
|
|
4,476
|
|
|
|
|
$
|
14,806
|
|
|
$
|
(7,067
|
)
|
|
$
|
(1,217
|
)
|
|
$
|
6,522
|
|
|
$
|
14,806
|
|
|
$
|
(6,432
|
)
|
|
$
|
(1,217
|
)
|
|
$
|
7,157
|
|
____________________
(1) Adjusted to reflect discontinued operations
The Company's other purchased intangible assets are subject to amortization except for trademarks, which have an indefinite life. Amortization expense related to the Company's intangible assets for the three and
nine
months ended
March 31, 2013
and
2012
was
$0.2 million
and
$0.6 million
and
$0.2 million
and
$0.6 million
, respectively.
On January 3, 2011, B&M formed Stack's-Bowers Numismatics, LLC (“LLC”), a Delaware limited liability company with Stack's, a Delaware limited liability company (See Note
13
).
Estimated amortization expense on an annual basis for the succeeding five years is as follows (in thousands):
|
|
|
|
|
|
Year ending June 30,
|
|
|
2013 (remaining 3 months)
|
|
$
|
205
|
|
2014
|
|
683
|
|
2015
|
|
567
|
|
2016
|
|
518
|
|
2017
|
|
479
|
|
Thereafter
|
|
1,389
|
|
Total
|
|
$
|
3,841
|
|
|
|
8
.
|
ACCOUNTS PAYABLE AND CONSIGNOR PAYABLES
|
Accounts payable and consignor payables consists of the following:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
|
|
|
|
Trade payable to customers and consignor payables
|
$
|
12,431
|
|
|
$
|
12,855
|
|
Advances from customers
|
26,387
|
|
|
21,368
|
|
Net liability on margin accounts
|
14,482
|
|
|
14,842
|
|
Other accounts payable
|
323
|
|
|
464
|
|
Derivative liabilities — open purchases and sales commitments
|
8,966
|
|
|
45,932
|
|
Derivative liabilities — forward contracts
|
—
|
|
|
326
|
|
|
$
|
62,589
|
|
|
$
|
95,787
|
|
____________________
(1) Adjusted to reflect discontinued operations
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in the which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
Income tax provision/(benefit) on continuing operations for the three and
nine
months
ended
March 31, 2013
and
2012
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
March 31, 2013
|
|
March 31, 2012
|
U.S.
|
|
436
|
|
|
(837
|
)
|
|
718
|
|
|
1,676
|
|
Foreign
|
|
89
|
|
|
126
|
|
|
977
|
|
|
456
|
|
Provision for income taxes (income tax benefit) — continuing operations
|
|
525
|
|
|
(711
|
)
|
|
1,695
|
|
|
2,132
|
|
The effective tax rate for the three and
nine
months
ended
March 31, 2013
and
2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
March 31, 2013
|
|
March 31, 2012
|
Effective tax rate
|
|
33.35
|
%
|
|
75.48
|
%
|
|
118.5
|
%
|
|
44.54
|
%
|
The effective tax rate varies significantly from the federal statutory rate due to permanent adjustments for nondeductible items, state taxes and foreign tax rate differentials. In addition, during the nine months ended March 31, 2013, the Company recorded discreet adjustments to tax expense as a result of a change in tax law that impacted the valuation of state deferred tax assets and the accrual of an uncertain tax position related to foreign and state income taxes.
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. 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. During the quarter ended
March 31, 2013
, management concluded that, with the exception of foreign tax credits which require foreign source income to be reported in the U.S., certain state net operating loss carryforwards, and capital loss carryforward, 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 in the future. 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. The valuation allowance increased by $6.1 million during the
nine
months
ended
March 31, 2013
due to Management's assessment of its ability to utilize certain state net operating losses and federal carryforwards. We will continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required. The valuation allowance against deferred tax assets was
$14.9 million
and
$8.8 million
as of
March 31, 2013
and
June 30, 2012
respectively.
The Company was notified by the New York State Department of Taxation and Finance of their intent to audit the tax years ended June 30, 2008 through 2012. The Company is unable to predict the outcome at this time.
The Company is currently under examination by the Internal Revenue Service (IRS) for the years ended June 30, 2004 through 2010. With few exceptions, either examinations have been completed by tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed by the Company for the years through 2003. The Company's Spanish operations are also currently under examination. For our remaining foreign operations, either examinations have been completed by the tax authorities or the statute of limitations has expired for tax returns filed by the Company for the years through 2002.
As of
March 31, 2013
, the Company had
$27.7 million
of unrecognized tax benefits and
$1.7 million
relating to interest and penalties. Of the total unrecognized tax benefits,
$27.7 million
would reduce our effective tax rate, if recognized. Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company accrued additional interest and penalties of
$0.1 million
and
$0.3 million
during the three and
nine
months
ended
March 31, 2013
and
$0.1 million
and
$0.3 million
during the three and
nine
months
ended
March 31, 2012
. Final determination of a significant portion of the Company's global unrecognized tax benefits that will be effectively settled remains subject to ongoing examination by various taxing authorities, including the IRS. The Company is actively pursuing strategies to favorably settle or resolve these liabilities for unrecognized tax benefits. If the Company is successful in mitigating these liabilities, in whole or in part, the impact will be recorded as an adjustment to income tax expense in the period of settlement. The Company expects to resolve this issue within the next six to twelve months; however the Company is unable to predict the outcome at this time.
|
|
10
.
|
FINANCING AGREEMENTS
|
The Company has the following amounts outstanding under financing agreements as of
March 31, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
March 31, 2013
|
|
June 30, 2012
|
Liability on borrowed metals
|
|
$
|
36,514
|
|
|
$
|
27,076
|
|
Obligation under product financing agreement
|
|
$
|
9,821
|
|
|
$
|
15,576
|
|
Lines of credit:
|
|
|
|
|
Trading credit facility
|
|
$
|
77,500
|
|
|
$
|
91,000
|
|
Collectibles credit facility
|
|
1,000
|
|
|
—
|
|
LLC credit facility
|
|
61
|
|
|
1,669
|
|
Total lines of credit
|
|
$
|
78,561
|
|
|
$
|
92,669
|
|
Debt obligations:
|
|
|
|
|
Note payable for acquired assets, plus accrued interest
|
|
$
|
205
|
|
|
$
|
330
|
|
Note payable for building, plus accrued interest
|
|
6,298
|
|
|
6,398
|
|
Total debt obligations
|
|
$
|
6,503
|
|
|
$
|
6,728
|
|
Liability on Borrowed Metals
A-Mark borrows metals from several of its suppliers under short-term agreements bearing interest at a designated rate. Amounts under these agreements are due at maturity and require repayment either in the form of borrowed metals or cash. A-Mark's inventories included borrowed metals with market values totaling
$36.5 million
and
$27.1 million
as of
March 31, 2013
and
June 30, 2012
, respectively. Certain of these metals are secured by letters of credit issued under A-Mark's borrowing facility, which totaled
$9.0 million
and
$7.0 million
as of
March 31, 2013
and
June 30, 2012
, respectively.
Obligation Under Product Financing Agreement
A-Mark entered into an agreement with a third party for the sale of gold and silver, at the option of the third party, at a fixed price. Such agreement allows 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 percentage of the market value of the outstanding obligation. These transactions do not qualify as sales and therefore have been accounted for as financing arrangements and reflected in the
condensed consolidated
balance sheet within obligation under product financing arrangement. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing obligation and the underlying inventory are carried at fair value, with changes in fair value recorded as a component of cost of precious metals sold in the
condensed consolidated
statements of operations. Such obligation totaled
$9.8 million
and
$15.6 million
as of
March 31, 2013
and
June 30, 2012
, respectively.
Lines of Credit
Trading Credit Facility
A-Mark has a borrowing facility (“Trading Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit including a sub-facility for letters of credit up to the maximum of the credit facility. As of
March 31, 2013
, the maximum of the Trading Credit Facility was
$170.0 million
. A-Mark routinely uses the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The
one-month LIBOR
rate was approximately
0.20%
and
0.24%
as of
March 31, 2013
and
June 30, 2012
, respectively. Borrowings are due on demand and totaled
$77.5 million
and
$91.0 million
for lines of credit and
$9.0 million
and
$7.0 million
for letters of credit at
March 31, 2013
and at
June 30, 2012
, respectively. Amounts borrowed under the Trading Credit Facility are secured by A-Mark’s receivables and inventories. The amounts available under the Trading Credit Facility are formula based and totaled
$83.5 million
and
$65.0 million
at
March 31, 2013
and
June 30, 2012
, respectively. The Trading Credit Facility also limits A-Mark's ability to pay dividends to SGI. The Trading Credit Facility is cancelable by written notice from the financial institutions.
A-Mark’s Trading Credit Facility has certain restrictive financial covenants which require it and SGI to maintain a minimum tangible net worth, as defined, of
$25.0 million
and
$50.0 million
, respectively. A-Mark’s and SGI’s tangible net worth as of
March 31, 2013
was
$38.9 million
and
$62.6 million
, respectively. The Company's ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.
Interest expense related to A-Mark’s borrowing arrangements totaled
$0.8 million
and
$2.6 million
for the three and
nine
months
ended
March 31, 2013
and
$1.2 million
and
$3.3 million
for the three and
nine
months
ended
March 31, 2012
, respectively.
Collectibles Credit Facility
In May 2010, the Company and its wholly-owned numismatic subsidiaries, Spectrum Numismatics International, Inc. (“SNI”), B&M, and Teletrade, Inc. (“Teletrade”), entered into a borrowing facility with a lender, providing for a line of credit (the “Collectibles Credit Facility”). As of
March 31, 2013
, the maximum of the Collectibles Credit Facility was
$5.0 million
. Amounts outstanding under the Collectibles Credit Facility are secured by the assets of SNI, B&M and Teletrade, and are further guaranteed by the Company. The Company's obligations under the guaranty are secured by the pledge of SNI shares owned by it. The Collectibles Credit Facility is due on demand, and interest on the outstanding amounts accrued at the lender's base rate, which is subject to change, plus a margin. As of
March 31, 2013
and
June 30, 2012
borrowings are due on demand and totaled
$1.0 million
and
$0
, respectively.
Separately, A-Mark, the Company's precious metals trading subsidiary, has a line of credit with this lender totaling
$20.0 million
, which is a component of A-Mark's Trading Credit Facility. Total borrowing capacity between SNI and A-Mark cannot exceed
$23.0 million
with respect to this lender. As of
March 31, 2013
, the total amount borrowed with this lender was
$21.0 million
, which consisted of
$20.0 million
by A-Mark and
$1.0 million
by SNI. Amounts available for borrowing under this Collectible Credit Facility as of
March 31, 2013
were
$2.0 million
. As of
June 30, 2012
the total amount borrowed with this lender was
$18.0 million
, which consisted of
$0
by SNI and
$18.0 million
by A-Mark.
Interest expense related to SNI's borrowing arrangements totaled
$6,000
and
$74,000
for the three and
nine
months
ended
March 31, 2013
, respectively, and
$69,000
and
$207,000
for the three and
nine
months
ended
March 31, 2012
, respectively.
LLC Credit Facility
LLC has a Revolving Credit Facility with its related party effective on January 1, 2011 and amended on April 28, 2011. This Revolving Credit Facility entitled LLC to draw upon it to cover certain costs, as defined. Under the terms of the agreement, this Revolving Credit Facility bears an interest rate of prime plus a stated rate and the agreement expires December 31, 2015. The maximum that can be drawn against the Revolving Credit Facility is
$2.0 million
. The proceeds can only be used to cover certain costs, as defined, and must be repaid within
forty five days
following the auction close. As of
March 31, 2013
and
June 30, 2012
, LLC had borrowed
$0.1 million
and
$1.7 million
, and incurred interest expense of
$4,000
and
$30,000
for the three and
nine
months
ended
March 31, 2013
, respectively, and
$7,000
and
$32,000
for the three and
nine
months
ended
March 31, 2012
, respectively.
Other Debt Obligations
Note Payable for Acquired Assets
On November 23, 2010, B&M purchased certain assets of Summit Rare Coins for
$300,000
which was reflected as an increase to customer lists (Note
7
) with a corresponding increase to note payable of
$300,000
. The loan bears interest at the rate of
6.0%
per annum. The loan was extended and now matures on March 31, 2014, at which time the then outstanding principal balance of the loan and accrued interest are due and payable in full. As of
March 31, 2013
and
June 30, 2012
the outstanding principal balance was
$159,500
and
$300,000
, and interest expense was
$5,000
and
$15,000
for the three and
nine
months
ended
March 31, 2013
, respectively, and
$5,000
and
$14,000
for the three and
nine
months
ended
March 31, 2012
, respectively.
Note Payable for Building
On April 21, 2011, the Company, through its wholly-owned subsidiary, 1063 McGaw, LLC, purchased a
two
-story
54,239
square foot office building located in Irvine, California, to serve as its new corporate headquarters. The purchase price for the building was
$7.250
million and was partly financed by the assumption of an existing loan with an outstanding principal balance of
$6.524 million
. The loan bears interest at the rate of
5.50%
per annum and is payable in equal monthly installments of principal and interest in the amount of
$40,540
. The loan matures on May 11, 2015, at which time the then outstanding principal balance of the loan is due and payable in full. As of
March 31, 2013
and
June 30, 2012
, the outstanding principal balance was
$6.3 million
and
$6.4 million
, and interest expense was
$87,000
and
$265,000
for the three and
nine
months
ended
March 31, 2013
, respectively, and
$89,000
and
$271,000
for the three and
nine
months
ended
March 31, 2012
, respectively.
The following table represents future obligations pertaining to the principal payments on the McGaw note:
|
|
|
|
|
|
Years ended June 30,
|
|
Amount
|
|
|
|
in thousands
|
|
|
2013 (remaining 3 months)
|
|
$
|
34
|
|
2014
|
|
142
|
|
2015
|
|
6,102
|
|
Total
|
|
$
|
6,278
|
|
|
|
11
.
|
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
|
The Company manages the value of certain specific assets and liabilities of its trading business, including trading inventories (see Note
6
), by employing a variety of 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 products such as metals forwards and futures.
The Company's trading inventories and purchase and sale transactions consist primarily of precious metal bearing products. The value of these assets and liabilities are linked to the prevailing 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 markets. 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.
Open purchase and sale 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 purchase and sales commitments that is subject to price risk. The Company regularly enters into metals commodity forward and futures contracts with major 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. However, the Company also maintains relationships with major market makers in every major precious metals dealing center.
Due to the nature of the Company's global hedging strategy, the Company is not using hedge accounting as defined under ASC 815,
Derivatives and Hedging.
Gains or losses resulting from the Company's futures and forward contracts are reported as unrealized gains or losses on commodity contracts with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability (see Notes
5
and
8
). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts. Realized and unrealized net gains (losses) on derivative instruments in the
condensed consolidated
statements of operations for the three and
nine
months
ended
March 31, 2013
were
$(23.3) million
and
$(31.4) million
, respectively, and for the three and
nine
months
ended
March 31, 2012
were
$31.5 million
and
$41.4 million
, respectively.
The Company’s management sets credit and position risk limits. These limits include gross position limits for counterparties engaged in purchase and sales transactions with the Company. They also include collateral limits for different types of purchase and sale transactions that counterparties may engage in from time to time.
A summary of the market values of the Company’s physical inventory positions, purchase and sale commitments, and its outstanding forwards and futures contracts is as follows at
March 31, 2013
and at
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012
|
Trading Inventory, net
|
$
|
113,860
|
|
|
$
|
136,533
|
|
Less unhedgable inventory:
|
|
|
|
Premium on metals position
|
(1,717
|
)
|
|
(1,824
|
)
|
Subtotal
|
112,143
|
|
|
134,709
|
|
Commitments at market:
|
|
|
|
|
|
Open inventory purchase commitments
|
465,018
|
|
|
392,307
|
|
Open inventory sale commitments
|
(234,354
|
)
|
|
(140,823
|
)
|
Margin sale commitments
|
(44,386
|
)
|
|
(39,716
|
)
|
Unhedgable premiums on open commitment positions
|
679
|
|
|
458
|
|
Inventory borrowed from suppliers
|
(36,514
|
)
|
|
(27,076
|
)
|
Product financing obligation
|
(9,821
|
)
|
|
(15,576
|
)
|
Advances on industrial metals
|
1,490
|
|
|
757
|
|
Inventory subject to price risk
|
254,255
|
|
|
305,040
|
|
Inventory subject to derivative financial instruments:
|
|
|
|
Precious metals forward contracts at market values
|
87,925
|
|
|
59,659
|
|
Precious metals futures contracts at market values
|
167,268
|
|
|
244,954
|
|
Total market value of derivative financial instruments
|
255,193
|
|
|
304,613
|
|
Net inventory subject to price risk
|
$
|
(938
|
)
|
|
$
|
427
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012
|
Effects of open related party transactions between A-Mark and affiliates:
|
|
|
|
Net inventory subject to price risk, Company consolidated basis
|
$
|
(938
|
)
|
|
$
|
427
|
|
Open inventory sale commitments with affiliates
|
(192
|
)
|
|
(574
|
)
|
Open inventory purchase commitments with affiliates
|
1,068
|
|
|
254
|
|
Net inventory subject to price risk, A-Mark stand-alone basis
|
$
|
(62
|
)
|
|
$
|
107
|
|
The unhedgable premium on open commitment positions is equal to total premium less hedgable premium, where the premium value is based upon a percentage of the underlying bullion value. At
March 31, 2013
, total premium on open commitment positions was
$0.7 million
, of which
$0 million
was deemed hedgable. At
June 30, 2012
, total premium on open commitment positions was
$0.5 million
, of which
$0
was deemed hedgable.
At
March 31, 2013
and
June 30, 2012
, the Company had the following outstanding commitments:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Purchase commitments
|
|
$
|
465,018
|
|
|
$
|
392,307
|
|
Sale commitments
|
|
(234,354
|
)
|
|
(140,823
|
)
|
Margin sale commitments
|
|
(44,386
|
)
|
|
(39,716
|
)
|
Open forward contracts
|
|
87,925
|
|
|
59,659
|
|
Open futures contracts
|
|
167,268
|
|
|
244,954
|
|
The Company uses forward contracts and futures contracts to protect its inventories from market exposure.
The contract amounts of these forward and futures contracts and the open purchase and sale orders are not reflected in the accompanying
condensed consolidated
balance sheets. The difference between the market price of the underlying metal or contract and the trade amount is recorded at fair value. The Company’s open purchase and sales commitments generally 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
March 31, 2013
are scheduled to settle within
30
days.
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
March 31, 2013
, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.
12
. RELATED PARTY TRANSACTIONS
Royalties to Former Owner
As part of the A-Mark sale agreement dated July 15, 2005, the former owner is paid royalties annually for his portion of income earned on a specific type of transaction. The Trading segment accrued
$258,000
and
$504,000
in royalty expenses as of
March 31, 2013
and
June 30, 2012
, respectively.
Transactions with Directors and Officers
From time to time certain of the Company's officers and directors may purchase from or consign collectibles to the Company. Each purchase and consignment is made under substantially the same conditions that are applicable to third parties. The Company's officers and directors purchased from the Company
$65,000
and
$149,000
during the three and
nine
months
ended
March 31, 2013
, respectively, and
$0
and
$1.1 million
during the three and
nine
months
ended
March 31, 2012
, respectively, and did not consign any collectibles during these periods.
Transactions with Other Related Parties
During the three and
nine
months
ended
March 31, 2013
, the Company purchased
$29,000
and
$2.5 million
in collectibles from business partners of the Company's Chief Executive Officer. The Company has sold most of these collectibles at a profit of
$0.2 million
. During the three and nine
months
ended
March 31, 2013
, the Company sold
$135,000
and
$203,000
in collectibles to business partners of the Company's Chief Executive Officer.
Securities Purchase Agreement
On September 25, 2012, the Company purchased from Afinsa and Auctentia a total of
15,609,796
shares of common stock, as a result of which the combined holdings of Afinsa and Auctentia was reduced from
57%
to
9.9%
of the Company's common stock outstanding. In addition, the Company purchased from Auctentia 20% of the shares of the Company's subsidiary Spectrum PMI, Inc., which is the holding company for the Company's A-Mark Precious Metals, Inc. trading subsidiary. As a result, Spectrum PMI is now wholly owned by the Company. The purchase of the securities was pursuant to a Securities Purchase Agreement, dated March 5, 2012, as amended, among the Company, Afinsa and Auctentia, and the aggregate purchase price, including interest and other charges, was
$51.17 million
. The purchase price was funded through the proceeds of a rights offering and private placement of shares of common stock, which also closed on September 25, 2012, as well as the Company's cash on hand, resulting in a net impact to working capital of
$25.6 million
in cash and cash equivalents. The Company sold
12,004,387
shares in the rights offering at a price of
$1.90
per share, for aggregate proceeds of
$22.8 million
, and
1,426,315
shares in the private placement at a price of
$1.90
per share, for aggregate proceeds of
$2.71 million
. In connection with the purchase of the securities from Afinsa and Auctentia, and in accordance with the terms of the Securities Purchase Agreement, George Lumby, a representative of Afinsa, resigned from the Company's board of directors. Antonio Arenas, Afinsa's other representative on the board, resigned his position as executive chairman, but remains a director of the Company. As provided in the Securities Purchase Agreement, Mr. Arenas will resign from the board when Afinsa and Auctentia collectively cease to hold at least
5%
of the Company's common stock. The Company agreed in the Securities Purchase Agreement agreed to use its reasonable commercial efforts to assist Afinsa and Auctentia to sell their remaining shares of common stock in an orderly manner that will be non-disruptive to the public market for the common stock and that is intended to facilitate a sale at prices acceptable to Afinsa and Auctentia.
As of
March 31, 2013
, there are outstanding
30,555,138
shares of common stock, of which
3,032,270
shares are owned by Afinsa and Auctentia. Accordingly, Afinsa and Auctentia no longer control the Company.
Other Transactions with Afinsa
On June 27, 2011, the Company and Afinsa entered into a consignment agreement to auction philatelic materials owned by Afinsa. Under the terms of the consignment agreement, Heinrich Köhler Auktionshaus GmbH and Heinrick Köhler Briefmarkenhandel acted as the auctioneer for the sale of the philatelic materials owned by Afinsa. Heinrich Köhler Auktionshaus GmbH and Heinrich Köhler Briefmarkenhandel earned related auction commissions
of
$0
and
$57,000
during the three and
nine
months
ended
March 31, 2013
, respectively, and
$108,000
and
$124,000
during the three and
nine
months
ended
March 31, 2012
.
Related Party Credit Facility
Stack's-Bowers Numismatics, LLC has a maximum
$2.0 million
Revolving Credit Facility with its related party (Note
10
).
|
|
13
.
|
NON-CONTROLLING INTERESTS
|
Non-controlling interests include Auctentia’s
20%
share in the net assets and income of A-Mark through September 25, 2012, and the outside partners' interests in the net assets and income of the joint ventures described below.
LLC
On January 3, 2011, B&M, a wholly owned subsidiary of SGI, formed LLC with Stack's for the purpose of selling retail coins, paper money and other numismatic collectibles. B&M contributed substantially all of its operating assets (excluding inventory, accounts receivable and other specified assets) plus cash in the amount of
$3,760,000
to the LLC in exchange for a
51%
membership interest in the LLC, and Stack's contributed substantially all of its operating assets (excluding inventory, accounts receivable and other specified assets) to the LLC plus
$490,000
in cash in exchange for a
49%
membership interest in the LLC and cash in the amount of
$3,250,000
. LLC assumed the operations of both B&M and Stack's. SGI accounted for this transaction as an acquisition of Stack's assets and consolidates the operations of the LLC for financial reporting purposes.
Calzona
On January 12, 2012, SNI formed Calzona with an outside partner for the purpose of selling precious metals and coins via the Internet. SNI and the outside partner each contributed
$150,000
to Calzona in exchange for a
35%
and
65%
interest, respectively. The outside partner's interest is redeemable after
five years
at fair value and accordingly is classified as temporary equity in the consolidated balance sheets. The Company has included in the
condensed consolidated
financial statements the financial position and results of operations of Calzona, a VIE, since SNI is the primary beneficiary. The Company recognizes the changes in the redemption value immediately as they occur and adjusts the carrying amount of the instrument to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the security.
The Company's
condensed consolidated
balance sheets include the following non-controlling interests as of
March 31, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012
|
|
|
|
|
Auctentia 20% interest in Spectrum PMI through September 25, 2012 - (Spectrum PMI owned 100% of A-Mark Precious Metals)
|
$
|
—
|
|
|
$
|
10,935
|
|
LLC 49% interest
|
1,966
|
|
|
2,461
|
|
Non controlling interest presented as a component of stockholders' equity
|
1,966
|
|
|
13,396
|
|
Calzona redeemable 65% interest presented as temporary equity
|
14
|
|
|
124
|
|
|
$
|
1,980
|
|
|
$
|
13,520
|
|
The Company's
condensed consolidated
statements of operations for the three and
nine
months
ended
March 31, 2013
and
2012
includes the following non-controlling interest in net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
in thousands
|
|
March 31, 2013
|
|
March 31, 2012
|
|
March 31, 2013
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
Auctentia 20% interest in Spectrum PMI through September 25, 2012 - (Spectrum PMI owns 100% of A-Mark Precious Metals)
|
|
$
|
—
|
|
|
$
|
466
|
|
|
$
|
337
|
|
|
$
|
1,606
|
|
LLC 49% interest
|
|
391
|
|
|
(300
|
)
|
|
(495
|
)
|
|
(420
|
)
|
Calzona redeemable 65% interest
|
|
(44
|
)
|
|
(28
|
)
|
|
(110
|
)
|
|
(28
|
)
|
|
|
$
|
347
|
|
|
$
|
138
|
|
|
$
|
(268
|
)
|
|
$
|
1,158
|
|
14
. COMMITMENTS AND CONTINGENCIES
Refer to Note 15 to the notes to Consolidated Financial Statements in the
2012
Annual Report for information relating to minimum rental payments under operating and capital leases, consulting and employment contracts, and other commitments.
Certain legal proceedings in which the Company is involved are discussed in Note 15 to the notes to the Consolidated Financial Statements in its
2012
Annual Report. There have been no material changes in those legal matters and the Company does not have any related legal reserves.
|
|
15
.
|
STOCKHOLDERS’ EQUITY
|
Repurchase of Common Shares
On February 8, 2013, the Company's board of directors approved a stock repurchase plan which authorizes the repurchase of up to
$5 million
of the Company's common stock. The authorization remains open through August 8, 2014. Purchases may be made from time to time by the Company in the open market at prevailing market prices or in privately negotiated transactions. As of March 31, 2013,
123,100
shares of common stock at an average weighted price per share of
$2.01
had been repurchased by the Company under the plan.
Stock Option Plans
1997 Stock Incentive Plan
In 1997, the Company’s Board of Directors adopted and the Company's shareholders approved the 1997 Stock Incentive Plan, as amended (the “1997 Plan”). Under the 1997 Plan, SGI has granted 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 SGI's stock. Awards under the 1997 Plan may be granted in the form of 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 1997 Plan was administered by the Board of Directors, which may in its discretion select officers and other employees, directors (including non-employee directors) and consultants to SGI and its subsidiaries to receive grants of awards.
Under the 1997 Plan, the exercise price of options and base price of SARs may be set in the discretion of the Board of Directors, and stock options and SARs may have any term. The majority of the stock options granted under the 1997 Plan have been granted with an exercise price equal to market value on the date of grant. The 1997 Plan limits the number of stock options and SARs that may be granted to any one employee to
550,000
in any year. At
March 31, 2013
, there were
0
shares remaining available for future awards under the 1997 Plan. On December 13, 2012, the 2012 Stock Award and Incentive Plan (the “2012 Plan”), which was previously approved by the Board of Directors, was approved by the Company's shareholders. The 2012 Plan replaces the 1997 Plan for new grants, but any outstanding awards under the 1997 Plan continue in accordance with the 1997 Plan terms.
2012 Stock Award and Incentive Plan
In 2012, the Company’s Board of Directors adopted and the Company's shareholders approved the 2012 Plan. Under the 2012 Plan, SGI 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 SGI's stock. Awards under the 2012 Plan may be granted in the form of incentive or non-qualified stock options, SARs, restricted stock, restricted stock units, dividend equivalent rights and other stock-based awards (which may include outright grants of shares). The 2012 Plan currently is administered by the Compensation Committee of the Board of Directors, which may in its discretion select officers and other employees, directors (including non-employee directors) and consultants to SGI and its subsidiaries to receive grants of awards.
Under the 2012 Plan, the exercise price of options and base price of SARs may be set in the discretion of the Board, but 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 ten years. The 2012 Plan limits the number of share-denominated awards that may be granted to any one employee to
750,000
in any year. The 2012 Plan will terminate when no shares remain available for issuance and no awards remain outstanding. At
March 31, 2013
, there were
2,140,000
shares remaining available for future awards under the 2012 Plan.
Non-Plan Stock Awards
Occasionally, the Company, at the discretion of the Board of Directors, may grant stock awards outside of existing stock option plans. On October 25, 2012, the Board of Directors approved a stock option grant to Jeffrey Benjamin, the non-executive Chairman of the Board of Directors (the “Chairman”), to purchase
500,000
shares of the Company's common stock. The stock options have an exercise price of
$2.00
, the closing price of the Company's common stock on October 25, 2012, expire in
ten
years, and
20%
of the options vest on each of the first
five
anniversaries of the grant date. Vesting would accelerate in the event of death, disability, or change in control, or if the Chairman ceased to serve on the Board at a time he remained willing to do so.
Employee Stock Options.
The Company recorded expense of
$593,000
and
$622,000
during the three and
nine
months
ended
March 31, 2013
, respectively and
$24,000
and
$73,000
during the three and
nine
months
ended
March 31, 2012
, in the
condensed consolidated
statements of operations related to the vesting of previously issued employee stock options.
The following table summarizes the stock option activity for the
nine
months
ended
March 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Intrinsic Value (in thousands)
|
|
Weighted Average per share Grant Date Fair Value
|
Outstanding at June 30, 2012
|
640,750
|
|
|
$
|
5.41
|
|
|
$
|
—
|
|
|
$
|
1.60
|
|
Granted through stock option plan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other stock option grants
|
860,000
|
|
|
2.36
|
|
|
—
|
|
|
1.73
|
|
Exercised
|
(50,000
|
)
|
|
2.00
|
|
|
—
|
|
|
0.74
|
|
Cancellations, expirations and forfeitures
|
(170,500
|
)
|
|
2.00
|
|
|
—
|
|
|
1.37
|
|
Outstanding at March 31, 2013
|
1,280,250
|
|
|
3.95
|
|
|
$
|
95
|
|
|
1.75
|
|
Shares exercisable at March 31, 2013
|
720,250
|
|
|
5.45
|
|
|
$
|
—
|
|
|
1.79
|
|
Following is a summary of the status of stock options outstanding at
March 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Price Ranges
|
|
Number of Shares Outstanding
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
Number of Shares Exercisable
|
|
Weighted Average Exercise Price
|
From
|
|
To
|
|
|
|
|
|
$
|
1.00
|
|
|
$
|
5.00
|
|
|
1,107,500
|
|
|
8.32
|
|
$
|
2.43
|
|
|
547,500
|
|
|
$
|
2.86
|
|
5.01
|
|
|
10.00
|
|
|
7,750
|
|
|
0.60
|
|
8.97
|
|
|
7,750
|
|
|
8.97
|
|
10.01
|
|
|
15.00
|
|
|
165,000
|
|
|
1.01
|
|
13.90
|
|
|
165,000
|
|
|
13.90
|
|
|
|
|
|
1,280,250
|
|
|
7.33
|
|
3.95
|
|
|
720,250
|
|
|
5.45
|
|
Restricted Stock Units.
The Company has issued restricted stock to certain members of management, key employees, and directors. During the
nine
months
ended
March 31, 2013
and
2012
, the Company granted
333,001
and
53,148
restricted shares at a weighted average issuance price of
$2.02
and
$2.86
, respectively. Such shares generally vest within a year from the date of grant. Total compensation expense recorded for restricted shares was
$118,000
and
$280,000
for the three and
nine
months
ended
March 31, 2013
and
$95,000
and
$357,000
for the three and
nine
months
ended
March 31, 2012
, respectively. As of
March 31, 2013
, the remaining compensation expense that will be recorded under restricted stock grants totals
$656,000
, which will be recorded over a weighted average period of approximately
2.37 years
.
The following table summarizes the restricted stock activity for the
nine
months
ended
March 31, 2013
:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Share Price at Grant Date
|
Outstanding at June 30, 2012
|
470,648
|
|
|
$
|
2.16
|
|
Shares granted
|
333,001
|
|
|
2.02
|
|
Shares issued
|
(88,148
|
)
|
|
2.50
|
|
Shares forfeited
|
—
|
|
|
—
|
|
Outstanding at March 31, 2013
|
715,501
|
|
|
2.05
|
|
Vested but unissued at March 31, 2013
|
2,500
|
|
|
1.68
|
|
No tax benefit was recognized in the
condensed consolidated
statements of operations related to share-based compensation for the three and
nine
months
ended
March 31, 2013
and
2012
.
Stock Appreciation Rights.
The Company, from time to time, enters into separate share-based payment arrangements with certain key employees and executive officers. The number of shares to be received under these awards ultimately depends on the appreciation in the Company’s common stock over a specified period of time, generally
three years
. At the end of the stated appreciation period, the number of shares of common stock issued will be equal in value to the appreciation in the shares of the Company’s common stock, as measured from the stocks closing price on the date of grant to the average price in the last month of the third year of vesting. As of
March 31, 2013
and as of
June 30, 2012
, there were approximately
37,500
and
37,500
stock appreciation rights outstanding with an exercise price of
$12.06
. At
March 31, 2013
and at
June 30, 2012
, there was no intrinsic value associated with these arrangements. The Company recorded the awards as a component of equity using the Black-Scholes valuation model. These awards are amortized on a straight-line basis over the vesting period. For the three and
nine
months
ended
March 31, 2013
and
2012
, the Company recognized no pre-tax compensation expense related to these grants, based on a weighted average risk free rate of
4.06%
, a volatility factor of
253%
and a weighted average expected life of
seven years
. There is
no
remaining compensation expense that will be recorded for these awards.
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 of Directors. 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 of Directors 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.
|
|
16
.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
The Company's operations are organized under
two
business segments - Trading and Collectibles (Note 1).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
in thousands
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Trading
|
|
$
|
1,825,450
|
|
|
$
|
1,816,231
|
|
|
$
|
5,127,690
|
|
|
$
|
6,097,344
|
|
Collectibles:
|
|
|
|
|
|
|
|
|
Numismatics
|
|
43,758
|
|
|
43,734
|
|
|
141,350
|
|
|
146,912
|
|
Philatelic
|
|
—
|
|
|
9
|
|
|
—
|
|
|
(10
|
)
|
Wine
|
|
386
|
|
|
1,298
|
|
|
1,710
|
|
|
3,888
|
|
Total Collectibles
|
|
44,144
|
|
|
45,041
|
|
|
143,060
|
|
|
150,790
|
|
Total revenue
|
|
$
|
1,869,594
|
|
|
$
|
1,861,272
|
|
|
$
|
5,270,750
|
|
|
$
|
6,248,134
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
Three Months Ended
|
|
Nine Months Ended
|
Revenue by geographic region (as determined by location of subsidiaries):
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,785,654
|
|
|
$
|
1,806,772
|
|
|
$
|
5,002,356
|
|
|
$
|
6,010,192
|
|
Europe
|
|
83,940
|
|
|
54,500
|
|
|
268,394
|
|
|
237,942
|
|
Total revenue
|
|
$
|
1,869,594
|
|
|
$
|
1,861,272
|
|
|
$
|
5,270,750
|
|
|
$
|
6,248,134
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
Three Months Ended
|
|
Nine Months Ended
|
Operating income (loss):
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
|
|
|
|
|
|
|
|
Trading
|
|
$
|
3,855
|
|
|
$
|
1,655
|
|
|
$
|
9,641
|
|
|
$
|
6,808
|
|
Collectibles
|
|
166
|
|
|
(1,688
|
)
|
|
(1,545
|
)
|
|
(3,633
|
)
|
Corporate expenses
|
|
(3,531
|
)
|
|
(1,966
|
)
|
|
(8,729
|
)
|
|
(7,439
|
)
|
Total operating income (loss)
|
|
$
|
490
|
|
|
$
|
(1,999
|
)
|
|
$
|
(633
|
)
|
|
$
|
(4,264
|
)
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
Three Months Ended
|
|
Nine Months Ended
|
Depreciation and amortization:
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
March 31, 2013
|
|
March 31, 2012 (1)
|
|
|
|
|
|
|
|
|
|
Trading
|
|
$
|
210
|
|
|
$
|
187
|
|
|
$
|
607
|
|
|
$
|
541
|
|
Collectibles
|
|
263
|
|
|
238
|
|
|
760
|
|
|
657
|
|
Corporate
|
|
97
|
|
|
65
|
|
|
276
|
|
|
116
|
|
Total depreciation and amortization
|
|
$
|
570
|
|
|
$
|
490
|
|
|
$
|
1,643
|
|
|
$
|
1,314
|
|
____________________
(1) Adjusted to reflect discontinued operations
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
Inventories by segment/geographic region:
|
|
|
|
Trading:
|
|
|
|
United States
|
$
|
113,860
|
|
|
$
|
136,533
|
|
Total Trading
|
113,860
|
|
|
136,533
|
|
Collectibles:
|
|
|
|
United States
|
19,287
|
|
|
21,316
|
|
Total Collectibles
|
19,287
|
|
|
21,316
|
|
Total inventories
|
$
|
133,147
|
|
|
$
|
157,849
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
Total assets by segment/geographic region:
|
|
|
|
Trading:
|
|
|
|
United States
|
$
|
200,931
|
|
|
$
|
255,578
|
|
Europe
|
4,579
|
|
|
2,263
|
|
Total Trading
|
205,510
|
|
|
257,841
|
|
Collectibles:
|
|
|
|
United States
|
89,439
|
|
|
100,404
|
|
Europe
|
153
|
|
|
6,781
|
|
Asia
|
—
|
|
|
706
|
|
Total Collectibles
|
89,592
|
|
|
107,891
|
|
Corporate and other
|
(137
|
)
|
|
12,776
|
|
Discontinued operations:
|
|
|
|
Europe
|
—
|
|
|
8,096
|
|
Asia
|
—
|
|
|
1,292
|
|
Total assets
|
$
|
294,965
|
|
|
$
|
387,896
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2013
|
|
June 30, 2012 (1)
|
Total long term assets by segment/geographic region:
|
|
|
|
Trading:
|
|
|
|
United States
|
$
|
9,381
|
|
|
$
|
9,534
|
|
Europe
|
94
|
|
|
102
|
|
Total Trading
|
9,475
|
|
|
9,636
|
|
Collectibles:
|
|
|
|
United States
|
6,348
|
|
|
6,818
|
|
Europe
|
22
|
|
|
27
|
|
Total Collectibles
|
6,370
|
|
|
6,845
|
|
Corporate and other
|
14,460
|
|
|
14,487
|
|
Europe
|
—
|
|
|
918
|
|
Asia
|
—
|
|
|
198
|
|
Total long term assets
|
$
|
30,305
|
|
|
$
|
32,084
|
|
____________________
(1) Adjusted to reflect discontinued operations
|
|
17
.
|
FAIR VALUE MEASUREMENTS
|
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of
March 31, 2013
and
June 30, 2012
, aggregated by the level in the fair value hierarchy within which the measurements fall:
Assets and Liabilities Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
|
Quoted Price in
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Instruments
|
|
Inputs
|
|
Inputs
|
|
|
in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total Balance
|
Assets:
|
|
|
|
|
|
|
|
|
Commodities
|
|
$
|
113,860
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
113,860
|
|
Derivative assets — open purchases and sale commitments
|
|
|
|
1,205
|
|
|
|
|
|
Derivative assets — futures contracts
|
|
—
|
|
|
8,675
|
|
|
—
|
|
|
8,675
|
|
Derivative assets — forward contracts
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Total assets valued at fair value:
|
|
$
|
113,860
|
|
|
$
|
9,890
|
|
|
$
|
—
|
|
|
$
|
122,545
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability on borrowed metals
|
|
$
|
(36,514
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(36,514
|
)
|
Obligation under product financing arrangement
|
|
(9,821
|
)
|
|
—
|
|
|
—
|
|
|
(9,821
|
)
|
Liability on margin accounts
|
|
(14,482
|
)
|
|
—
|
|
|
—
|
|
|
(14,482
|
)
|
Derivative liabilities — open sales and purchase commitments
|
|
—
|
|
|
(8,966
|
)
|
|
—
|
|
|
(8,966
|
)
|
Total liabilities valued at fair value
|
|
$
|
(60,817
|
)
|
|
$
|
(8,966
|
)
|
|
$
|
—
|
|
|
$
|
(69,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
Quoted Price in
|
|
|
|
|
|
|
|
|
Active Markets
|
|
Significant Other
|
|
Significant
|
|
|
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Instruments
|
|
Inputs
|
|
Inputs
|
|
|
in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total Balance
|
Assets:
|
|
|
|
|
|
|
|
|
Commodities
|
|
$
|
136,533
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
136,533
|
|
Derivative assets — future contracts
|
|
—
|
|
|
3,473
|
|
|
—
|
|
|
3,473
|
|
Total assets valued at fair value:
|
|
$
|
136,533
|
|
|
$
|
3,473
|
|
|
$
|
—
|
|
|
$
|
140,006
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability on borrowed metals
|
|
$
|
(27,076
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(27,076
|
)
|
Obligation under product financing arrangement
|
|
(15,576
|
)
|
|
—
|
|
|
—
|
|
|
(15,576
|
)
|
Liability on margin accounts
|
|
(14,842
|
)
|
|
—
|
|
|
—
|
|
|
(14,842
|
)
|
Derivative liabilities — open sales and purchase commitments
|
|
—
|
|
|
(45,932
|
)
|
|
—
|
|
|
(45,932
|
)
|
Derivative liabilities — forward contracts
|
|
—
|
|
|
(326
|
)
|
|
—
|
|
|
(326
|
)
|
Total liabilities valued at fair value:
|
|
$
|
(57,494
|
)
|
|
$
|
(46,258
|
)
|
|
$
|
—
|
|
|
$
|
(103,752
|
)
|
There were no transfers in or out of Level 3 during the three and
nine
months
ended
March 31, 2013
and
2012
.
The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy:
Commodities
Commodities consisting of the precious metals component of the Company's inventories are carried at fair value. The fair value for commodities inventory is determined primarily using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Precious metals commodities are classified in Level 1 of the valuation hierarchy.
Derivatives
Futures contracts, forward contracts and open purchase and sales commitments are valued at their intrinsic values, based on the difference between the quoted market price and the contractual price, and are included within Level 2 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 primarily 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.
Obligation Under Product Financing
Obligation under product financing is the amount required to repurchase outstanding inventory under an agreement with a third party for the sale of gold and silver (Note
10
). This obligation is carried at fair value, which is determined primarily using quoted market pricing and data derived from the markets on which the underlying gold and silver are traded. The obligation is classified in Level 1 of the valuation hierarchy.
Assets Measured at Fair Value on a Non-Recurring Basis
The Company's goodwill and other purchased intangible assets may be measured at fair value on a non-recurring basis. These assets are measured at cost but are written down to fair value if they are impaired. As of
March 31, 2013
, the Company's goodwill and other purchased intangibles were not impaired, and therefore were not measured at fair value. There were no gains or losses recognized in earnings associated with the above purchased intangibles during the three and
nine
months
ended
March 31, 2013
and
2012
.
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments that are not required to be carried in the
condensed consolidated
balance sheets at fair value on either a recurring or non-recurring basis as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
June 30, 2012
|
|
|
(in thousands)
|
|
Carrying amount
|
|
Fair value
|
|
Carrying amount
|
|
Fair value
|
|
Level in fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
28,083
|
|
|
$
|
28,083
|
|
|
$
|
25,305
|
|
|
$
|
25,305
|
|
|
1
|
Restricted cash
|
|
597
|
|
|
597
|
|
|
550
|
|
|
550
|
|
|
1
|
Receivables and secured loans
|
|
86,009
|
|
|
86,009
|
|
|
127,995
|
|
|
127,995
|
|
|
2
|
Accounts receivable and consignor advances
|
|
14,287
|
|
|
14,287
|
|
|
20,428
|
|
|
20,428
|
|
|
2
|
Accounts payable and consignor payables
|
|
62,589
|
|
|
62,589
|
|
|
95,787
|
|
|
95,787
|
|
|
2
|
Lines of credit
|
|
78,561
|
|
|
78,561
|
|
|
92,669
|
|
|
92,669
|
|
|
2
|
Notes payable
|
|
6,503
|
|
|
6,658
|
|
|
6,728
|
|
|
6,728
|
|
|
2
|
The carrying amounts of cash and cash equivalents, restricted cash, receivables and secured loans, accounts receivable and consignor advances, and accounts payable and consignor payables approximated fair value due to their short-term nature. The carrying amounts of lines of credit and notes payable approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.
18
. SUBSEQUENT EVENTS
On April 30, 2013, the Company, through its subsidiaries Bowers & Merena Auctions LLC and Stack's-Bowers Numismatics, LLC (“SBN”), purchased the remaining
49%
non-controlling interest in SBN/dba Stack's Bowers Galleries. As a result of this transaction, which was effective as of April 1, 2013, SBN/dba Stack's Bowers Galleries is now wholly owned by the Company. The purchase price consisted of
$2.25 million
in cash and
$2.65 million
evidenced by promissory note, bearing interest at
5.5%
per annum and maturing on
April 1, 2015
. The Company is a primary obligor on the note, which is interest-only until maturity. In addition, the Company agreed to pay the seller, Stack's, LLC, an earn-out based on the performance of Stack's Bowers Galleries for its fiscal years ending June 30, 2014, 2015 and 2016.