NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Basis of Presentation
The consolidated financial statements reflect the financial condition, results of operations, 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”).
Consolidated Joint Ventures
Our consolidated financial statements also include the financial results of Calzona Ventures, LLC ("Calzona"). Based on our contractual arrangements with the members of Calzona, we have determined that Calzona is a variable interest entity, or VIE, for which we are the primary beneficiary and are required to consolidate in accordance with Accounting Standards Codification, or ASC, subtopic 810-10, or ASC 810-10,
Consolidation: Overall
. Despite our lack of greater than 50% member interest ownership, there exists a parent-subsidiary relationship between SGI and Calzona, whereby through contractual arrangements, the member interest holders of Calzona have effectively assigned all of their voting rights underlying their member interest in Calzona to us. In addition, through these agreements, we have the ability and intention to absorb all of the expected losses of Calzona (Note 14).
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, 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 at June 30, 2012.
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 interest in Spectrum PMI, Inc.
A-Mark has a wholly owned subsidiary, Collateral Finance Corporation ("CFC"). Through CFC, a licensed California Finance Lender, A-Mark offers loans on precious metals and rare coins and other collectibles collateral to coin dealers, collectors and investors.
A-Mark has a wholly owned subsidiary, A-Mark Trading AG, ("AMTAG"). AMTAG promotes A-Mark bullion products in Central and Eastern Europe.
A-Mark has a wholly owned subsidiary, Transcontinental Depository Services, ("TDS"). TDS offers worldwide storage solutions to institutions, dealers and consumers.
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, 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 European Operation, John Bull and Greg Martin Auctions are now presented as discontinued operations in the 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
$0.02 million
(Note
3
).
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
2013
consolidated financial statement presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its wholly- and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of lower-of-cost-or-market estimates for inventory and allowances for doubtful accounts, impairment assessments of long-lived assets and intangible assets, 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 stock compensation arrangements, financial instruments and precious metals materials. Actual results could materially differ from these estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk vary based on the business segment. Both segments are subject to the risks associated with holding cash and cash equivalents. Cash and cash equivalents are maintained with several financial institutions and, at times, balances may exceed federally insured limits. All of the Company's non-interest bearing balances were fully insured at June 30, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Beginning in calendar 2013, insurance coverage reverted to
$250,000
per depositor at each financial institution, and the Company's non-interest bearing cash balances may exceed federally insured limits.
Concentrations specific to the Company's business segments are as follows:
Trading Segment
Assets that potentially subject the Company to concentrations of credit risk consist principally of receivables, loans of inventory to customers, and inventory hedging transactions. Concentration of credit risk with respect to receivables is limited due to the large number of customers composing the Company's customer base, the geographic dispersion of the customers, and the collateralization of substantially all receivable balances. Based on an assessment of credit risk, the Company typically grants collateralized credit to its customers. Credit risk with respect to loans of inventory to customers is minimal, as substantially all amounts are secured by letters of credit issued by creditworthy financial institutions. The Company enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forwards contracts with only major creditworthy financial institutions. Substantially all of these transactions are secured by the underlying metals positions.
Collectibles Segment
The Company may extend trade credit and release goods sold to the purchasers prior to the receipt of payments in connection with auction sales or private treaty sales. In addition, the Company may extend advances to consignors on collectibles inventory held for future auctions. The Company evaluates each customer's creditworthiness at period-end and specifically identifies trade receivables and consignor advances for risk of loss based on analysis of several factors including a specific review of the collectability of customer accounts, historical collection experience, current economic and business conditions, and aging of accounts, and provides an allowance for the portion of receivables or advances for which collection is doubtful. The Company continuously monitors payments from its customers and maintains allowances for doubtful accounts for estimated losses in the period they become known. The Company charges off uncollectible receivables and advances when management deems it appropriate based upon analysis of each account.
In limited situations, trade credit is extended in the sale of consigned products. When consigned goods are delivered to purchasers prior to the receipt of payments, the Company may be deemed to have assumed risk of loss associated with the trade credit, and the responsibility of collections from the purchasers. Losses to date under these situations have not been material. The terms and provisions of the Company's auctions and consignment agreements do not require the Company to extend such credit and obligate the Company to pay the consignors only after the Company has received payments from the purchasers.
Cash Equivalents
The Company considers all highly liquid investments with remaining maturities of three months or less, when purchased, to be cash equivalents.
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
$1.1
million of cash in escrow consisting of
$0.8
million for building improvements and a leasing reserve totaling
$0.3 million
. As of
June 30, 2013
, the Company had remaining restricted cash of
$0.6 million
, consisting of
$0.2 million
for building improvements and
$0.4 million
for leasing reserve. During the year ended
June 30, 2013
, the Company spent
$16,500
and added
$35,200
of restricted cash for building improvements. As of June 30, 2012, the Company had remaining restricted cash of
$0.6 million
, consisting of
$0.3 million
for building improvements and
$0.3 million
for leasing reserve. During the year ended June 30, 2012, the Company spent
$0.5 million
and added
$0.03 million
of restricted cash for building improvements.
Short-Term Investments
Short-term investments represent uninsured bank notes with maturities greater than 90 days held by the Company's European Operations. The Company's short-term investments are carried at lower of cost or market.
Inventories
Trading Inventories
Inventories principally include bullion and bullion coins and are stated at published market values plus purchase premiums paid by the Company on acquisition of the metal. The Company also protects substantially all of its physical inventories from market risk through commodity hedge transactions (see Note 12). Market risk gains (losses) are generally offset by the results of hedging transactions, which have been reflected as net (gain) loss on derivative instruments, which is a component of Cost of precious metals sold in the Consolidated statements of operations. Inventories included amounts borrowed from suppliers under arrangements to purchase precious metals on an unallocated basis. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts under these arrangements require delivery either in the form of precious metals or cash, and the corresponding obligations related to Liabilities on borrowed metals are reflected on the Consolidated balance sheets. The Company mitigates market risk of its physical inventories through commodity hedge transactions.
The Company periodically loans metals to customers on a short-term consignment basis, charging interest fees based on the value of the metals loaned. Such metal inventories are removed at the time the customers elect to price and purchase the metals, and the Company records a corresponding sale and receivable. Substantially all inventories loaned under consignment arrangements are 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.
Inventory includes amounts for obligations under product financing agreement. A-Mark entered into an agreement for the sale of gold and silver at a fixed price to a third party. This inventory is restricted under this agreement and the Company is allowed to repurchase the inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly interest as percentage of the market value of the outstanding obligation; such monthly charges are classified in interest expense. These transactions do not qualify as sales and therefore have been accounted for as financing arrangements and reflected in the consolidated balance sheet within obligation under Product Financing Obligation. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing obligation and the underlying inventory (which is entirely restricted) are carried at fair value, with changes in fair value included as component of Cost of precious metals sold.
Collectibles Inventories
The Collectibles segment's inventories are stated at the lower of cost or management's estimate of net realizable value, and are accounted for under the specific identification method in which the value is calculated based on a detailed physical count of the inventory and the cost on the purchase date. In instances where bulk purchases are made, the cost allocation is based on the relative market values of the respective goods. On a quarterly basis, the Company reviews the age and turnover of its inventory to determine whether any inventory has declined in value, and incurs a charge to operations for such declines. The Company records write-downs based on two methodologies; specific write-downs on certain items based on declines in the marketplace, and estimated write-downs based on inventory aging depending on the category and type of inventory (where such percentages are supported by historical experience). If actual market conditions are less favorable than those projected by management and the Company's estimates prove to be inaccurate, additional write-downs or adjustments may be required.
The Company has agreements with certain suppliers and employees to share the net profits or losses attributable to the sale of specified items of inventory. The Company determines the selling price of the inventory and acts as the principal in these transactions; taking title to the inventory and bearing risk of loss, collection, delivery and return. The cost associated with the profit sharing is reflected in cost of collectibles sold for suppliers and salaries and wages expense for employees in the consolidated statements of operations.
Derivative Financial Instruments
The Company’s inventory, purchase and sale commitments transactions consist of precious metals bearing products. The value of these assets and liabilities is intimately linked to the prevailing price of the underlying precious metal commodity. The Company seeks to minimize the effect of price changes of the underlying commodity and enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with only major credit worthy financial institutions. All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions. Notional balance of the Company derivative instruments are reported on Note
12
.
Commodity futures and forward contract transactions are recorded at fair value on the trade date.
Open futures and forward contracts are reflected in receivables or payables in the consolidated balance sheet as the difference between the original contract value and the market value; or at fair value. The change in unrealized gain (loss) on open contracts from one period to the next is reflected in net (gain) loss on derivative instruments, which is a component of Cost of precious metals sold in the Consolidated statements of operations.
Net (gain) loss on derivative instruments, which is included in the cost of sales, includes amounts recorded on the Company's outstanding metals forwards and futures contracts and on open physical purchase and sale commitments. The Company records changes in the market value of its metals forwards and futures contracts as income or loss, the effect of which is to offset changes in market values of the underlying metals positions.
The Company records the difference between market value and trade value of the underlying commodity contracts as a derivative asset or liability, as well as recording an unrealized gain or loss on derivative instruments in the Company's consolidated statements of operations. During the year ended June 30, 2013, the Company recorded a net unrealized loss on open future commodity and forward contracts and open purchase and sale commitments of
$28.2 million
and a net realized loss on future commodity contracts of
$38.4 million
. During the year ended June 30, 2012, the Company recorded a net unrealized loss on open future commodity and forward contracts and open purchase and sale commitments of
$35.8 million
and a net realized gain on future commodity contracts of
$75.5 million
.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, when applicable, the life of the lease, whichever is shorter. The following are the estimated useful lives of property and equipment:
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Asset Category
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Estimated Useful Life
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Equipment and vehicles
|
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3 – 10 years
|
Furniture and fixtures and leasehold improvements
|
|
3 – 20 years
|
Software
|
|
3 – 5 years
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Building
|
|
40 years
|
Building improvements
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20 – 40 years
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Goodwill and Other Purchased Intangible Assets
We evaluate goodwill and other indefinite life intangibles for impairment annually in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the
Intangibles - Goodwill and Other
Topic 350 of the ASC. Other finite life intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. We may first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. If, based on this qualitative assessment, we determine that goodwill is more likely than not to be impaired, the two-step impairment test is performed. This first step in this test involves comparing the fair value of each reporting unit to its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step in the test is performed, which is measurement of the impairment loss. The impairment loss is calculated by comparing the implied fair value of goodwill, as if the reporting unit has been acquired in a business combination, to its carrying amount. In accordance with ASU 2011-08 and 2011-02, we performed a Step 0 assessment on our goodwill of A-Mark totaling
$4.9 million
, and determined
no
impairment was necessary. In the performance of our Step 1 analysis of Stack's-Bowers Numismatics, LLC's ("SBN") goodwill, we determined that the carrying amount of the reporting unit exceeded its fair value. Therefore, we performed a Step 2 analysis where we compared the carrying value of SBN to the fair value of its assets and liabilities as if SBN was acquired in a business combination. As a result, the carrying amount of SBN's goodwill exceeded the implied fair value of its goodwill, and we recorded a goodwill impairment charge of
$1.1 million
. There were no other impairment charges to the Company's goodwill and purchased intangibles during the fiscal years ended June 30, 2013 or 2012.
We utilize the discounted cash flow method to determine the fair value of our SBN reporting unit. In calculating the implied fair value of the reporting unit's goodwill, the present value of the reporting unit's expected future cash flows is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the present value of the reporting unit's expected future cash flows over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. In calculating the implied value of the Company's trade names, the Company uses the present value of the relief from royalty method.
Estimates critical to these calculations include projected future cash flows, discount rates, royalty rates, customer attrition rates and foreign exchange rates. Imprecision in estimating unobservable market inputs can impact the carrying amount of assets in the balance sheet. Furthermore, while we believe our valuation methods are appropriate, the use of different methodologies or assumptions to determine the fair value of certain assets could result in a different estimate of fair value at the reporting date.
Long-Lived Assets
Long-lived assets, other than goodwill and purchased intangible assets with indefinite lives, are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. In evaluating impairment, the carrying value of the asset is compared to the undiscounted estimated future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when estimated future cash flows are less than the carrying amount. Estimates of future cash flows may be internally developed or based on independent appraisals and significant judgment is applied to make the estimates. Changes in the Company's strategy, assumptions and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of long-lived assets. For the years ended
June 30, 2013
and
2012
, no impairment of long-lived assets was identified.
Consolidated Joint Ventures
The Company includes in its consolidated financial statements the results of operations and financial position of joint ventures which are variable interest entities in which the Company or its wholly-owned subsidiary are the primary beneficiaries (Note 14). The joint ventures consist of Calzona Ventures, LLC.
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.
Consignor Advances and Payables
Consignor advances are cash advances on inventory consigned from a third party for sale by the Company at a later date at which time the advance will be deducted from the proceeds due to the consignors if and when such inventory is sold. Consignor advances are short-term in duration and are typically bear interest at prevailing rates. Consignor payables represent amounts due to consignors for the sale of their inventory by the Company. Such amounts do not bear interest.
Revenue Recognition
Trading Segment
Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable. The Company records sales of precious metals upon the transfer of title, which occurs upon receipt by customer. The Company records revenues from its metal assaying and melting services after the related services are completed and the effects of forward sales contracts are reflected in revenue at the date the related precious metals are delivered or the contracts expire.
The Company accounts for its metals and sales contracts using settlement date accounting. Pursuant to such accounting, the Company recognizes the sales or purchases of the metals at the settlement date. During the period between trade and settlement dates, the Company has essentially entered into a forward contract that meets the definition of a derivative in accordance with the
Derivatives and Hedging
Topic 815 of the ASC. The Company records the derivatives at the trade date with corresponding unrealized gains or losses which are reflected in the cost of precious metals sold in the consolidated statements of operations. The Company adjusts the derivatives to fair value on a daily basis until the transactions are physically settled. Sales are recognized in the consolidated statements of operations.
Collectibles Segment
The Company's Collectibles segment derives revenues from
two
primary sources: auctions and private treaty sales.
Auction Sales
In its role as auctioneer, the Company functions as an agent accepting properties on consignment from its selling clients. The Company sells properties as an agent of the consignors, billing the buyers for properties purchased, receiving payments from the buyers, and remitting to the consignors their portion of the buyers' payments after deducting the Company's commissions, expenses, applicable taxes and advances. Throughout this process, we do not take title to the properties consigned to us and risk of loss transfers from the consignor directly to the buyer of properties purchased. The Company's commissions include those earned from the buyers (“buyers' premium revenue”) and those earned from the consignors
(“sellers' commission revenue”), both of which are calculated as a percentage of the value of the final bid at auction (the “hammer price”) of property sold at auction. The Company recognizes revenues, in the manner discussed in the following paragraph, from the buyers' premiums and sellers' commissions upon delivery of property sold at auction for owned property and at the close of the auction for consigned property. Commissions earned for the years ended
June 30, 2013
and
2012
, totaled
$17.6 million
and
$20.5 million
, respectively.
The Company currently recognizes revenue as follows:
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1.
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For auctions of consigned product, revenue is recognized upon delivery of the related service elements. The first service element in the auction of consigned product consists of cataloging, appraising, preparation and performance of the auction. Revenue related to this element is recognized upon completion of the auction. The second service element relates to the processing, packaging and delivery of the sold consigned product and the collection of the sales consideration on behalf of the consignor. Revenue related to this element is recognized upon cash receipt from the purchaser, and coincides with delivery of the consigned product to the purchaser. Since each delivered service element has standalone value to the customer and delivery or performance of any undelivered service elements is probable, revenue is allocated to each separate unit of accounting based on the relative selling price of the element as a result of the lack of reliable vendor specific objective evidence or third-party evidence of the selling price. Significant inputs in determining the selling price of each service element included time employees spent working on these elements and their cost plus a markup.
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2.
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For auctions of owned product, revenue is recognized when title of the product passes to the customer which is upon delivery, which, based on Company operational policies, usually occurs when the sales consideration is collected.
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3.
|
For the wholesale sale of owned products, revenue is recognized upon the transfer of title to the customer, which occurs upon delivery.
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The Company does not provide guarantees with respect to the authenticity of property offered for sale at its live auctions; however it does authenticate the materials sold via its Internet auctions. All property presented for sale at live auction is sold as genuine and as described by the Company in its auction catalogues. In the event that auctioned property is deemed to be other than authentic (in the opinion of a competent authority mutually acceptable to the buyer and the Company), the Company refunds the purchase price if returned within a specified time period. Historically, returns have not been material and the Company sells large collections on an “as is” basis.
Private Treaty Sales
The Company engages in private treaty sales of both consigned property and sales of owned inventory to third parties (merchant/dealer relationships and direct to consumer sales). Private treaty sales of consigned property occur when an owner of property arranges with the Company to sell such consigned property to a third party at a privately negotiated price. In such a transaction, the owner may set selling price parameters for the Company, or the Company may solicit selling prices for the owner, and the owner may reserve the right to reject any selling price. The Company does not guarantee a fixed price to the owner, which would be payable regardless of the actual sales price ultimately received. The Company recognizes private treaty sales of consigned property at an amount equal to a percentage of the sales price. Such amounts of revenue are recorded on a net basis as commissions earned and are recognized upon delivery of property sold, which occurs upon cash receipt. The Company recognizes private treaty sales of owned property upon delivery of the property.
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. For the years ended June 30, 2013 and 2012, the Company recorded translation gains and (losses) of
$1.2 million
and
$(3.5) million
, respectively, and related tax expense(benefit) of
$0.5 million
and
$(1.4) million
.
Gains and losses resulting from other foreign currency transactions are included in interest and other income (expense) in the consolidated statements of operations. For the years ended
June 30, 2013
and
2012
, the Company recognized unrealized gains (losses) of
$(1.5) million
and
$4.2 million
, respectively, on foreign exchange in the consolidated statements of operations in connection with the translation adjustments of Euro denominated loans totaling
$31.6 million
and
$31.2 million
at
June 30, 2013
and
2012
, owed by SGI to certain of its subsidiaries included in its European Operations.
Stock Based Compensation
SGI has equity plans that provide for the award of restricted stock, stock options and other equity grants to officers, employees, non-employee directors and consultants (Note
16
). The Company recognizes stock-based compensation expense in accordance with ASC Topic 718,
Stock Compensation
, based on the fair value of the stock award on the grant date, net of estimated forfeitures, recognized ratably over the service period of the award. The fair value of restricted stock grants is based on the quoted market price at the date of grant. The fair value of stock option grants is calculated using the Black-Scholes valuation model, which is consistent with the Company's valuation techniques previously utilized for options in footnote disclosures required under Topic 718 of the ASC. The Black-Scholes valuation model requires the input of subjective assumptions including estimating the length of time employees will retain their stock options before exercising them (the “expected term”), the estimated volatility of the common stock price over the expected term, and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in these subjective assumptions can materially affect the estimate of stock-based compensation and, consequently, the related amount recognized as an expense on the consolidated statements of operations. As required under the accounting
rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The estimation of stock awards that will ultimately vest requires significant judgment. Actual results, and future changes in estimates, may materially differ from the Company's current estimates.
Marketing
Marketing, advertising and promotion costs are expensed as incurred. Marketing, advertising and promotion expenses from continuing operations were
$2.6 million
and
$3.6 million
, respectively, for the years ended
June 30, 2013
and
2012
.
Shipping and Handling
Shipping and handling costs represent costs associated with shipping product to customers, and receiving product from vendors. Shipping and handling costs from continuing operations incurred totaled
$5.6 million
and
$5.6 million
for the years ended
June 30, 2013
and
2012
, respectively, and are included in general and administrative expenses in the consolidated statements of operations.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that all or a portion of the deferred tax assets may not be realized.
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 $
27.1 million
;
$8.0 million
of this amount is presented as an accrued liability in the consolidated balance sheet as of June 30, 2012 and is presented within long-term tax liabilities. The total unrecognized tax benefit is
$27.7 million
;
$9.3 million
of this amount is presented as an accrued liability in the consolidated balance sheet as of June 30, 2013 and is presented within long-term tax liabilities.
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.
The Company adopted certain provisions of Topic 740 of the ASC which clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. Topic 740 prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. The potential interest and/or penalties associated with an uncertain tax position are recorded in provision for income taxes (income tax benefit) in the consolidated statements of operations.
The Company files a consolidated federal income tax return and combined or consolidated state income tax returns in various state jurisdictions. In addition, certain of the Company's subsidiaries file separate income tax returns in various state and foreign jurisdictions.
Recent Accounting Pronouncements
In July 2012, the FASB issued Accounting Standards Update No. 2012-02,
Intangibles - Goodwill and Other, Testing Indefinite-Lived Intangible Assets for Impairment.
This ASU allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test for indefinite-lived intangible assets. An organization that elects to perform a qualitative assessment no longer is required to perform the quantitative impairment test for an indefinite-lived intangible asset unless it is
more likely than not
that the asset is impaired. The ASU, which applies to all entities, is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company adopted this guidance in the third quarter of fiscal year 2012, as allowed by the early adoption provisions within the guidance. The 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 Accounting Standards Update 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. These amendments are effective for annual and
interim periods beginning on or after January 1, 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. However, in its adoption, the Company is expecting to provide the proscribed supplemental disclosures.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05,
Comprehensive Income
, the objective of which is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholder's equity, requiring that all non-owner changes in stockholder's equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, except as it pertains to reclassifications out of accumulated other comprehensive income. The FASB has deferred such changes in Accounting Standards Update No. 2011-12,
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income
in Accounting Standards Update No. 2011-05
, which was issued in December 2011. The adoption of the accounting principles in these updates did not have a material impact on the Company's consolidated financial position or results of operations. The FASB issued Accounting Standards Update No. 2013-02,
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
, to address concerns raised in the initial issuance of ASU 2011-05,
Comprehensive Income
, for which the Board deferred the effective date of certain provisions relating to the presentation of reclassification adjustments in the income statement. With the issuance of ASU 2013-02 entities are now required to disclose:
|
|
•
|
For items reclassified out of accumulated other comprehensive income (AOCI) and into net income in their entirety, the effect of the reclassification on each affected net income line item; and
|
|
|
•
|
for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required U.S. GAAP disclosures.
|
This information may be provided either in the notes or parenthetically on the face of the statement that reports net income as long as all the information is disclosed in a single location. However, an entity is prohibited from providing this information parenthetically on the face of the statement that reports net income if it has items that are not reclassified in their entirety into net income. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2012 and interim periods within those years. The Company is currently evaluating the provisions of ASU 2013-02 and does not expect this update to have a material impact on its 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. In accordance with the provisions of the
Presentation of Financial Statements
Topic 205 of the ASC, the results of the Stamps division are now presented in the consolidated financial statements as discontinued operations.
The table below presents assets and liabilities of the Stamps Division, which has been presented as discontinued operations as of
June 30, 2013
and
June 30, 2012
:
Assets and liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
June 30, 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
|
|
—
|
|
|
1,018
|
|
Other purchased intangibles, net
|
|
—
|
|
|
225
|
|
Other assets
|
|
—
|
|
|
139
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
10,168
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Accounts payable, customer deposits 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 Greg Martin Auctions have been presented as discontinued operations in the consolidated statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
Revenues
|
|
$
|
185
|
|
|
$
|
11,895
|
|
Income (loss) from discontinued operations:
|
|
|
|
|
Income (loss) from discontinued operations
|
|
(1,080
|
)
|
|
456
|
|
Income tax (benefit)
|
|
(941
|
)
|
|
198
|
|
Income (loss) from discontinued operations
|
|
$
|
(139
|
)
|
|
$
|
258
|
|
During the years ended June 30, 2013 and June 30, 2012, the tax rate related to the income tax provision from discontinued operations varied from the federal income tax rate primarily as a result of state taxes and foreign rate differential. In addition, during the year ended June 30, 2013, the tax rate was also impacted by the write off of the deferred tax liability for unrepatriated foreign earnings of the subsidiaries that were sold.
|
|
4
.
|
CUSTOMER CONCENTRATIONS
|
Customers providing 10 percent or more of the Company's Trading segment revenues for the years ended
June 30, 2013
and
2012
are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
in thousands
|
Amount
|
Percent
|
|
Amount
|
Percent
|
Total Trading segment revenue
|
$
|
7,223,750
|
|
100.0
|
%
|
|
$
|
7,769,792
|
|
100.0
|
%
|
Trading segment customer concentrations
|
|
|
|
|
|
Customer A
|
$
|
823,756
|
|
11.4
|
%
|
|
$
|
434,795
|
|
5.6
|
%
|
Customer B
|
814,207
|
|
11.3
|
%
|
|
1,796,016
|
|
23.1
|
%
|
Customer C
|
778,151
|
|
10.8
|
%
|
|
1,305,876
|
|
16.8
|
%
|
Total
|
$
|
2,416,114
|
|
33.5
|
%
|
|
$
|
3,536,687
|
|
45.5
|
%
|
Customers providing 10 percent or more of the Company's Trading segment's accounts receivable, excluding
$35.6 million
and
$39.2 million
of secured loans as of
June 30, 2013
and
2012
, respectively, are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
in thousands
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Trading segment accounts receivable
|
$
|
58,777
|
|
|
100.0
|
%
|
|
$
|
85,921
|
|
|
100.0
|
%
|
Trading segment customer concentrations
|
|
|
|
|
|
|
|
Customer A
|
$
|
44,185
|
|
|
75.2
|
%
|
|
$
|
55,803
|
|
|
64.5
|
%
|
Customer D
|
8,593
|
|
|
14.6
|
|
|
7,423
|
|
|
8.6
|
|
Total
|
$
|
52,778
|
|
|
89.8
|
%
|
|
$
|
63,226
|
|
|
73.1
|
%
|
Customers providing 10 percent or more of the Company's Trading segment's secured loans as of
June 30, 2013
and
2012
, respectively, are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
in thousands
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Trading segment secured loans
|
$
|
35,585
|
|
|
100.0
|
%
|
|
$
|
39,201
|
|
|
100.0
|
%
|
Trading segment customer concentrations
|
|
|
|
|
|
|
|
Customer E
|
$
|
15,800
|
|
|
44.4
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Customer F
|
3,659
|
|
|
10.3
|
|
|
8,539
|
|
|
21.8
|
|
Customer G
|
—
|
|
|
—
|
%
|
|
6,707
|
|
|
17.1
|
%
|
Total
|
$
|
19,459
|
|
|
54.7
|
%
|
|
$
|
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 years ended
June 30, 2013
and
2012
and as of
June 30, 2013
and
2012
, the Collectibles segment had no reportable concentrations.
Receivables and secured loans from the Company's trading segment consist of the following as of
June 30, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Customer trade receivables
|
$
|
38,154
|
|
|
$
|
58,324
|
|
Wholesale trade advances
|
20,623
|
|
|
15,035
|
|
Secured loans
|
35,585
|
|
|
39,201
|
|
Due from M.F. Global, Inc. trustee
|
—
|
|
|
5,692
|
|
Due from other brokers and other
|
—
|
|
|
6,871
|
|
Subtotal
|
94,362
|
|
|
125,123
|
|
Less: allowance for doubtful accounts
|
(104
|
)
|
|
(102
|
)
|
Less: M.F. Global, Inc. trustee reserve
|
—
|
|
|
(1,016
|
)
|
Subtotal
|
94,258
|
|
|
124,005
|
|
Derivative assets — futures contracts
|
14,967
|
|
|
3,375
|
|
Derivative assets — forward contracts
|
471
|
|
|
—
|
|
Receivables and secured loans, net — trading operations
|
$
|
109,696
|
|
|
$
|
127,380
|
|
Customer trade receivables represent short-term, non-interest bearing amounts due from metal sales and are 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 unsecured, 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
June 30, 2013
and
June 30, 2012
, the loans carried average effective interest rates of
8.0%
and
9.2%
, respectively. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts.
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 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
.
The Company's derivative liabilities (see Note
12
) 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
June 30, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Auction and trade
|
$
|
10,827
|
|
|
$
|
20,138
|
|
Secured loan
|
1,258
|
|
|
—
|
|
Derivative assets — future contracts
|
569
|
|
|
98
|
|
Due from brokers
|
—
|
|
|
368
|
|
Subtotal
|
12,654
|
|
|
20,604
|
|
Less: allowance for doubtful accounts
|
(307
|
)
|
|
(176
|
)
|
Accounts receivable and consignor advances, net — collectibles operations
|
$
|
12,347
|
|
|
$
|
20,428
|
|
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. Typically, 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 written off against the allowance. Based on the information available, the Company believes its allowance for doubtful accounts as of
June 30, 2013
and
June 30, 2012
is adequate. However, actual write-offs could exceed the recorded allowance.
Activity in the total allowance for doubtful accounts for the Trading and Collectible segments for the years ended
June 30, 2013
and
2012
are as follows:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Beginning balance
|
$
|
1,294
|
|
|
$
|
123
|
|
Provision for losses
|
(396
|
)
|
|
1,171
|
|
Charge-offs to reserve
|
(488
|
)
|
|
—
|
|
Foreign currency exchange rate changes
|
1
|
|
|
—
|
|
Ending balance
|
$
|
411
|
|
|
$
|
1,294
|
|
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
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
Bullion
|
$
|
21,993
|
|
|
61.8
|
%
|
|
$
|
12,991
|
|
|
33.1
|
%
|
Collectibles
|
13,592
|
|
|
38.2
|
%
|
|
26,210
|
|
|
66.9
|
%
|
Total
|
$
|
35,585
|
|
|
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 was one impaired loan of
$70,000
as of
June 30, 2013
and
none
as of
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. Loans are considered non performing when customers are in default for any interest past due over
30 days
and for unsatisfied collateral calls. When this occurs the loan collateral is typically liquidated within
90 days
.
Non-performing loans have the highest probability for credit loss. The allowance for credit losses attributable to non-performing loans is based on the most probable source of repayment, which is normally the liquidation of collateral. In determining collateral value, we estimate the current market value of the collateral and consider credit enhancements such as additional collateral and third-party guarantees. Due to the accelerated liquidation terms of the Company's loan portfolio all past due loans are liquidated within
90 days
of default.
There was one non-performing loan of
$70,000
as of
June 30, 2013
and
none
as of 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
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
Loan-to-value of 75% or more
|
$
|
3,764
|
|
|
10.6
|
%
|
|
$
|
9,914
|
|
|
25.3
|
%
|
Loan-to-value of less than 75%
|
31,821
|
|
|
89.4
|
%
|
|
29,287
|
|
|
74.7
|
%
|
Total
|
$
|
35,585
|
|
|
100.0
|
%
|
|
$
|
39,201
|
|
|
100.0
|
%
|
No loans have a loan-to-value in excess of
100%
at
June 30, 2013
and 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
June 30, 2013
and
June 30, 2012
was
$1.8 million
and
$1.8 million
, respectively. The Company also protects substantially all of its physical inventories from market risk through commodity hedge transactions (Note 12). For the years ended
June 30, 2013
and
2012
, the unrealized gains(losses) resulting from the difference between market value and cost of physical inventories were
$0.9 million
and
$(2.1) million
, respectively. These unrealized gains(losses) are included in Cost of collectibles sold in the accompanying 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 Consolidated statements of operations.
The Trading segment's inventories include amounts borrowed from various suppliers under ongoing agreements to purchase precious metals on an unallocated basis. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts under these arrangements require delivery either in the form of precious metals or cash. A corresponding obligation related to metals borrowed is reflected on the consolidated balance sheets for
$20.1 million
and
$27.1 million
as of
June 30, 2013
and
2012
, respectively. The Trading Segment also protects substantially all of its physical inventories from market risk through commodity hedge transactions.
The Trading segment's inventories also include amounts for obligation under a product financing arrangement. The Company entered into an agreement for the sale of gold and silver at a fixed price to a third party. This inventory is restricted under this agreement and the Company is allowed to repurchase the inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly interest as percentage of the market value of the outstanding obligation; such monthly charges are classified in interest expense. These transactions do not qualify as sales and therefore have been accounted for as financing arrangements and reflected in the consolidated balance sheet within obligation under 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 (which is entirely restricted) are carried at fair value, with changes in fair value included as component of cost of precious metals sold. Such obligation totaled
$38.6 million
and
$15.6 million
as of
June 30, 2013
and 2012 respectively (See Note
11
).
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
June 30, 2013
and 2012 totaled
$2.6 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.
The Collectibles segment's inventories are stated at the lower of cost or management's estimate of net realizable value, and are accounted for under the specific identification method in which the value is calculated based on a detailed physical count of the inventory and the cost on the purchase date. In instances where bulk purchases are made, the cost allocation is based on the relative market values of the respective goods. We review the age and turnover of our inventory quarterly to determine whether any inventory has declined in value, and incur a charge to operations for such declines. We record write-downs based on two methodologies; specific write-downs on certain items based on declines in the marketplace, and estimated write-downs based on inventory aging depending on the category and type of inventory (where such percentages are supported by historical experience). If actual market conditions are less favorable than those projected by us and our estimates prove to be inaccurate, additional write-downs or adjustments may be required.
We have agreements with certain suppliers and employees to share the net profits or losses attributable to the sale of specified items of inventory. We determine the selling price of the inventory and act as the principal in these transactions; taking title to the inventory and bearing risk of loss, collection, delivery and return. The cost associated with the profit sharing is reflected in cost of collectibles sold for suppliers and salaries and wages expense for employees in the consolidated statements of operations.
Inventories as of
June 30, 2013
and 2012 consisted of the following:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Trading
|
$
|
162,378
|
|
|
$
|
143,464
|
|
Collectibles
|
25,875
|
|
|
21,316
|
|
Net inventory
|
$
|
188,253
|
|
|
$
|
164,780
|
|
7
. PROPERTY AND EQUIPMENT
The Company's property and equipment as of
June 30, 2013
and 2012, are as follows:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Equipment
|
$
|
2,082
|
|
|
$
|
1,533
|
|
Furniture and fixtures
|
1,048
|
|
|
1,009
|
|
Vehicles
|
52
|
|
|
52
|
|
Software
|
2,283
|
|
|
1,913
|
|
Leasehold improvements
|
1,691
|
|
|
1,065
|
|
Building
|
3,296
|
|
|
3,296
|
|
Building improvements
|
1,324
|
|
|
1,259
|
|
Land
|
3,954
|
|
|
3,954
|
|
Total property and equipment
|
15,730
|
|
|
14,081
|
|
Less: accumulated depreciation and amortization
|
(3,332
|
)
|
|
(2,371
|
)
|
Construction in progress - ERP system
|
1,510
|
|
|
—
|
|
Property and equipment, net
|
$
|
13,908
|
|
|
$
|
11,710
|
|
Depreciation and amortization of property and equipment for the years ended
June 30, 2013
and
2012
, was approximately
$1.3 million
and
$1.0 million
respectively.
8
. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
The changes in the carrying values of goodwill by business segment for the years ended
June 30, 2013
and
2012
are described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Trading
|
|
Collectibles
|
|
Total
|
Balance as of June 30, 2011
|
|
|
|
|
|
Goodwill
|
$
|
4,884
|
|
|
$
|
5,386
|
|
|
$
|
10,270
|
|
Accumulated impairment losses
|
—
|
|
|
(4,261
|
)
|
|
(4,261
|
)
|
Goodwill, net as of June 30, 2011
|
4,884
|
|
|
1,125
|
|
|
6,009
|
|
Adjustment to goodwill due to foreign currency exchange rate changes
|
—
|
|
|
(23
|
)
|
|
(23
|
)
|
Balance as of June 30, 2012
|
|
—
|
|
|
|
|
Goodwill
|
$
|
4,884
|
|
|
$
|
5,363
|
|
|
$
|
10,247
|
|
Accumulated impairment losses
|
—
|
|
|
(4,261
|
)
|
|
(4,261
|
)
|
|
4,884
|
|
|
1,102
|
|
|
5,986
|
|
Goodwill impairment
|
—
|
|
|
(1,102
|
)
|
|
(1,102
|
)
|
Balance as of June 30, 2013
|
|
—
|
|
|
|
|
Goodwill
|
4,884
|
|
|
5,363
|
|
|
10,247
|
|
Accumulated impairment losses
|
—
|
|
|
(5,363
|
)
|
|
(5,363
|
)
|
|
$
|
4,884
|
|
|
$
|
—
|
|
|
$
|
4,884
|
|
Cumulative goodwill impairment totaled
$5.4 million
and
$4.3 million
as of
June 30, 2013
and 2012, respectively. During the fiscal year ended June 30, 2013, the Company recorded a goodwill impairment charge of
$1.1 million
. There were no other impairment charges to the Company's goodwill and purchased intangibles during the fiscal year ended June 30, 2013. The Company had recorded the impairment charge primarily due to the operating loss incurred in SBN and management's evaluation of economic conditions and projected future performance in the business.
Other Purchased Intangible Assets
The carrying value of other purchased intangibles as of
June 30, 2013
and 2012 is as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
|
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
|
Tradenames
|
Indefinite
|
|
$
|
3,479
|
|
|
$
|
—
|
|
|
$
|
(798
|
)
|
|
$
|
2,681
|
|
|
$
|
3,479
|
|
|
$
|
—
|
|
|
$
|
(798
|
)
|
|
$
|
2,681
|
|
Customer lists
|
5 - 15
|
|
9,057
|
|
|
(5,019
|
)
|
|
(419
|
)
|
|
3,619
|
|
|
9,057
|
|
|
(4,190
|
)
|
|
(419
|
)
|
|
4,448
|
|
Non-compete and other
|
4
|
|
2,270
|
|
|
(2,253
|
)
|
|
—
|
|
|
17
|
|
|
2,270
|
|
|
(2,242
|
)
|
|
—
|
|
|
28
|
|
Purchased intangibles subject to amortization
|
|
|
11,327
|
|
|
(7,272
|
)
|
|
(419
|
)
|
|
3,636
|
|
|
11,327
|
|
|
(6,432
|
)
|
|
(419
|
)
|
|
4,476
|
|
|
|
|
$
|
14,806
|
|
|
$
|
(7,272
|
)
|
|
$
|
(1,217
|
)
|
|
$
|
6,317
|
|
|
$
|
14,806
|
|
|
$
|
(6,432
|
)
|
|
$
|
(1,217
|
)
|
|
$
|
7,157
|
|
The Company's other purchased intangible assets are subject to amortization except for tradenames, which have an indefinite life. Amortization expense related to the Company's intangible assets for the year ended
June 30, 2013
and
2012
was
$0.8 million
and
$0.7 million
, respectively. On November 23, 2010, Bowers and Merena Auctions, LLC (“B&M”) purchased certain assets of Summit Rare Coins for
$0.3 million
which was reflected as an increase to customer lists.
On January 3, 2011, B&M formed SBN, a Delaware limited liability company with Stack's, a Delaware limited liability company (See Note
20
). The results of operations of SBN from January 1, 2011 through June 30, 2011 have been included in the Company's consolidated statements of operations for the year ended
June 30, 2012
.
Estimated amortization expense on an annual basis for the succeeding five years is as follows (in thousands):
|
|
|
|
|
|
Year ending June 30,
|
|
|
2014
|
|
$
|
683
|
|
2015
|
|
567
|
|
2016
|
|
518
|
|
2017
|
|
479
|
|
2018
|
|
450
|
|
Thereafter
|
|
939
|
|
Total
|
|
$
|
3,636
|
|
|
|
9
.
|
ACCOUNTS PAYABLE AND CONSIGNOR PAYABLES
|
Accounts payable and consignor payables consists of the following:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Trade payable to customers and consignor payables
|
$
|
8,094
|
|
|
$
|
19,171
|
|
Advances from customers
|
31,026
|
|
|
21,368
|
|
Liability on deferred revenue
|
14,985
|
|
|
—
|
|
Net liability on margin accounts
|
6,636
|
|
|
14,842
|
|
Due to brokers
|
4,985
|
|
|
—
|
|
Other accounts payable
|
—
|
|
|
464
|
|
Derivative liabilities — open purchases and sales commitments
|
30,113
|
|
|
45,932
|
|
Derivative liabilities — forward contracts
|
—
|
|
|
326
|
|
|
$
|
95,839
|
|
|
$
|
102,103
|
|
Income from continuing operations before provision for income taxes is shown below:
|
|
|
|
|
|
|
|
|
|
Year ended
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
U.S.
|
$
|
4,438
|
|
|
$
|
7,778
|
|
Foreign
|
700
|
|
|
1,307
|
|
Income from continuing operations before provision for income taxes
|
$
|
5,138
|
|
|
$
|
9,085
|
|
The income tax provision/(benefit) attributable to continuing operations included the following for the years ended
June 30, 2013
and 2012:
|
|
|
|
|
|
|
|
|
|
Year ended
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Current:
|
|
|
|
Federal
|
$
|
(7,140
|
)
|
|
$
|
15,578
|
|
State
|
413
|
|
|
3,240
|
|
Foreign
|
411
|
|
|
115
|
|
Total current tax provision/(benefit)
|
(6,316
|
)
|
|
18,933
|
|
Deferred:
|
|
|
|
Federal
|
6,527
|
|
|
(11,708
|
)
|
State
|
1,543
|
|
|
(2,923
|
)
|
Total deferred tax provision/(benefit)
|
8,070
|
|
|
(14,631
|
)
|
Income tax provision
|
$
|
1,754
|
|
|
$
|
4,302
|
|
The non-current income tax receivable as of June 30, 2013 of
$1.8 million
represents a
$1.2 million
carry-back claim for the 2007 taxable year, a
$1.5 million
carry-back claim for the 2008 taxable year, alternative minimum tax liability of
$0.2 million
related to the 2010 taxable year, and a balance due of
$0.7 million
related to the 2011 taxable year. The non-current income tax receivable as of June 30, 2012 of
$2.6 million
represents a
$1.2 million
carry-back claim for the 2007 taxable year, a
$1.6 million
carry-back claim for the 2008 taxable year, and alternative minimum tax liability of
$145,000
related to the 2010 taxable year. Management intends to effect the filing of such claims upon completion of the Internal Revenue Service (IRS) examination (discussed below).
Deferred income taxes are provided for differences in the basis of assets and liabilities for financial reporting purposes and tax reporting purposes. Deferred tax assets (liabilities) are comprised of the following as of
June 30, 2013
and June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Deferred tax assets:
|
|
|
|
Inventories
|
$
|
305
|
|
|
$
|
409
|
|
Unrealized losses on open purchase and sale contracts
|
11,538
|
|
|
18,503
|
|
Stock-based compensation
|
264
|
|
|
151
|
|
Accrued compensation
|
541
|
|
|
359
|
|
Net operating loss carry-forwards
|
3,758
|
|
|
4,120
|
|
Foreign tax credit carry-forwards
|
4,884
|
|
|
5,050
|
|
State tax accrual
|
2,658
|
|
|
2,700
|
|
Investment in partnership
|
2,349
|
|
|
1,781
|
|
Other
|
637
|
|
|
709
|
|
Total deferred tax assets
|
26,934
|
|
|
33,782
|
|
Less: valuation allowances
|
(8,904
|
)
|
|
(8,834
|
)
|
Net deferred tax assets after valuation allowances
|
18,030
|
|
|
24,948
|
|
Deferred tax liabilities:
|
|
|
|
Accrued interest
|
300
|
|
|
641
|
|
Fixed assets
|
691
|
|
|
665
|
|
Inventories
|
368
|
|
|
1,866
|
|
Unrealized gains on futures
|
5,822
|
|
|
1,358
|
|
Intangible assets
|
810
|
|
|
262
|
|
Unrepatriated foreign earnings
|
41
|
|
|
1,616
|
|
Withholding tax on foreign earnings
|
1,040
|
|
|
1,221
|
|
Unrealized loss on foreign exchange
|
—
|
|
|
1,156
|
|
Unrealized foreign exchange translation adjustment
|
1,919
|
|
|
1,764
|
|
Other
|
22
|
|
|
—
|
|
Total deferred tax liabilities
|
11,013
|
|
|
10,549
|
|
Net deferred tax assets
|
$
|
7,017
|
|
|
$
|
14,399
|
|
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 years ended June 30, 2013 and June 30, 2012, management concluded that, with the exception of foreign tax credits which require foreign source income to be reported in the US, Spanish net operating losses, and certain state and capital loss carryforwards, 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. As a result, the Company's valuation allowance increased by approximately
$0.1 million
and increased
$0.3 million
during the years ended
June 30, 2013
and
2012
respectively.
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. As of
June 30, 2013
and
2012
, the valuation allowance of approximately
$8.9 million
and
$8.8 million
, respectively, was applied to offset gross deferred tax assets that are not more likely than not to be realized based on future expectations of taxable income in the tax jurisdictions within which the deferred tax assets reside and the future likelihood of utilizing foreign tax credit carry-forwards.
As a result of the securities purchase agreement with Afinsa and Auctentia on September 25, 2012, the Company incurred a change of ownership in excess of 50%. Accordingly, the utilization of the foreign tax credits, federal and state net operating losses may be limited under the provision
of the Internal Revenue Code. Management has analyzed the impact of this ownership change and does not believe it will impact the Company's ability to use its tax attributes before they expire. See note
13
for discussion of changes in ownership.
As of
June 30, 2013
, the Company has U.S. state and city net operating loss carry-forwards of approximately
$13.7 million
, which expire at various periods beginning with the year ending June 30, 2014. The Company has Spanish net operating loss carry-forwards as of
June 30, 2013
of approximately
$7.8 million
, which begin to expire with the year ending June 30, 2021. As of
June 30, 2013
, the Company has a foreign tax credit carry-forward of approximately
$4.9 million
that begins to expire during the year ending June 30, 2016.
Under the new California apportionment rules, effective January 1, 2011, taxpayers are able to elect between two different apportionment regimes for determining California-source business income: (1) a new single-sales factor apportionment formula based on market sourcing or (2) the continued use of a double-weighted sales factor apportionment formula based on costs of performance sourcing. For tax years beginning on or after January 1, 2013, taxpayers must use Single Sales apportionment for determining their California-source business income. The Company has considered the impact of this change in computing its current year tax expense.
A reconciliation of the income tax provisions from continuing operations to the amounts computed by applying the statutory federal income tax rate (
35%
) to the income (loss) before income tax provisions for the years ended
June 30, 2013
and
2012
, are as below:
|
|
|
|
|
|
|
|
|
|
Year ended
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Statutory income tax provision/(benefit)
|
$
|
1,799
|
|
|
$
|
3,180
|
|
State and local taxes, net of federal tax benefit
|
200
|
|
|
497
|
|
Foreign taxes at rates different from U.S. rates
|
(6
|
)
|
|
(151
|
)
|
Deferred tax asset write-offs / adjustments
|
(1,177
|
)
|
|
(706
|
)
|
Valuation allowance
|
153
|
|
|
36
|
|
Uncertain tax position
|
380
|
|
|
494
|
|
Non-controlling interest in partnership
|
174
|
|
|
—
|
|
Foreign income inclusion
|
91
|
|
|
360
|
|
Disallowed interest
|
94
|
|
|
187
|
|
Compensation limitation
|
273
|
|
|
190
|
|
Prior year state tax true up
|
(324
|
)
|
|
—
|
|
Impact of IRS audit adjustment
|
(293
|
)
|
|
—
|
|
Other
|
390
|
|
|
215
|
|
Income tax provision/(benefit)
|
$
|
1,754
|
|
|
$
|
4,302
|
|
The comparison of the effective income tax rate between periods is significantly influenced by the level and mix of earnings and losses by taxing jurisdiction, foreign tax rate differentials, the relative impact of permanent book to tax differences, recording of uncertain tax positions, and the recording of a valuation allowance against certain state and foreign deferred tax assets and loss carry-forwards. The Company has determined that all investments in foreign subsidiaries are not intended to be indefinitely reinvested. Accordingly, income taxes have been provided on undistributed earnings of foreign subsidiaries that are not intended to be indefinitely reinvested outside of the U.S. as of
June 30, 2013
and
June 30, 2012
, respectively.
The Company files a consolidated federal income tax return and combined or consolidated state income tax returns in various state jurisdictions. In addition, certain of the Company's subsidiaries file separate income tax returns in various state and foreign jurisdictions.
The
June 30, 2013
and
2012
balances reflected as total unrecognized tax benefits are as follows:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Total unrecognized tax benefits
|
|
|
|
Deferred income taxes - (contra assets, netted against corresponding tax refund receivables)
|
20,426
|
|
|
20,426
|
|
Tax liability for uncertain tax positions
|
7,254
|
|
|
6,631
|
|
Total unrecognized tax benefits
|
$
|
27,680
|
|
|
$
|
27,057
|
|
The following is a reconciliation of the total unrecognized tax benefit at the beginning and end of the period:
|
|
|
|
|
|
|
|
|
|
Year ended
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Beginning balance
|
$
|
27,057
|
|
|
$
|
27,012
|
|
Increase as a result of tax position taken during the current period
|
410
|
|
|
45
|
|
Increase for tax positions of prior year
|
213
|
|
|
—
|
|
Ending balance
|
$
|
27,680
|
|
|
$
|
27,057
|
|
Included in the balance in unrecognized tax benefits at
June 30, 2013
and
2012
, respectively, there are
$27.7 million
and
$27.1 million
of tax benefits that, if recognized, would affect the effective tax rate.
Interest and penalties recognized in the Company's consolidated statements of operations for the years ended
June 30, 2013
and
2012
are
$0.7 million
and
$0.4 million
, respectively. Interest and penalties of
$2.1 million
and
$1.4 million
are accrued as of
June 30, 2013
and
2012
, respectively, which are included in long term tax liabilities in the accompanying consolidated balance sheets. Within the long-term tax liabilities as of
June 30, 2013
are uncertain tax liabilities of
$9.3 million
. At
June 30, 2012
, other long-term tax liabilities included uncertain tax liabilities of
$8.0 million
. The uncertain tax liabilities include interest and penalties.
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 Internal Revenue Service (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 is currently under examination by the IRS for the years ended June 30, 2004 through 2010 and other taxing jurisdictions on certain tax matters, including challenges to certain positions the Company has taken. With few exceptions, either examinations have been completed by the tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed by the Company for the years through 2003. Our Spanish operations are currently under examination as discussed at Note
15
. 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 2003. As of
June 30, 2013
the Company anticipates closing the IRS examination within the next 12 months. Closing the IRS examination would materially impact the amount of unrecognized tax benefits. However, the Company is not able to predict the outcome of the IRS examination at this time.
IRS and New York State Tax Audits
Audits of SGI's tax returns for fiscal 2004 through fiscal 2010 are currently under exam with the IRS. These audits are ongoing and the outcome cannot be determined at this time. Therefore, no accrual has been made with respect to this potential liability. In March 2008, the New York State Department of Taxation and Finance began an audit of the Company's tax returns for fiscal 2005, 2006 and 2007. These audits were concluded on June 2, 2011 and the New York State Department of Taxation and Finance accepted the return(s) as filed.
Tax Investigation in Spain
On November 17, 2005, the Spanish tax authorities commenced a tax examination of CdC. This examination, which now covers all periods from fiscal 2003 through fiscal 2006, is ongoing and the outcome cannot be determined at this time. Therefore,
no
accrual has been made with respect to this potential liability.
|
|
11
.
|
FINANCING AGREEMENTS
|
The Company has the following amounts outstanding under financing agreements as of
June 30, 2013
and 2012:
|
|
|
|
|
|
|
|
|
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
Liability on borrowed metals
|
|
$
|
20,117
|
|
|
$
|
27,076
|
|
Obligation under product financing agreement
|
|
$
|
38,554
|
|
|
$
|
15,576
|
|
Lines of credit:
|
|
|
|
|
Trading credit facility
|
|
$
|
95,000
|
|
|
$
|
91,000
|
|
Collectibles credit facility
|
|
5,000
|
|
|
—
|
|
SBN credit facility
|
|
857
|
|
|
1,669
|
|
Total lines of credit
|
|
$
|
100,857
|
|
|
$
|
92,669
|
|
Debt obligations:
|
|
|
|
|
Note payable for acquired assets, plus accrued interest
|
|
$
|
131
|
|
|
$
|
330
|
|
Note payable for repurchase of minority interest
|
|
2,675
|
|
|
—
|
|
Note payable for building, plus accrued interest
|
|
6,263
|
|
|
6,398
|
|
Earn-out related to Stack's LLC minority interest repurchase
|
|
1,063
|
|
|
—
|
|
Other liabilities
|
|
705
|
|
|
—
|
|
Total debt obligations
|
|
$
|
10,837
|
|
|
$
|
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 precious metals or cash. A-Mark's inventories included borrowed metals with market values totaling
$20.1 million
and
$27.1 million
as of
June 30, 2013
and 2012, respectively. Certain of these metals are secured by letters of credit issued under the Trading Credit Facility, which totaled
$9.0 million
and
$7.0 million
as of
June 30, 2013
and 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 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 (which is entirely restricted) are carried at fair value, with changes in fair value recorded as a component of cost of precious metals sold in the consolidated statements of operations. Such obligation totaled
$38.6 million
and
$15.6 million
as of
June 30, 2013
and 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
June 30, 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
0.19%
and
0.24%
as of
June 30, 2013
and 2012, respectively. Borrowings are due on demand and totaled
$95.0 million
and
$91.0 million
for lines of credit and
$9.0 million
and
$7.0 million
for letters of credit at
June 30, 2013
and at 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
$66.0 million
and
$65.0 million
at
June 30, 2013
and 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
June 30, 2013
was
$44.8 million
and
$65.1 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
$3.5 million
and
$4.2 million
for the years ended
June 30, 2013
and
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”) up to a maximum of
$5.0 million
. Amounts outstanding under the Collectibles Credit Facility are secured by the assets of SNI and B&M, 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 of
4.75%
, which is subject to change. As of
June 30, 2013
and 2012 borrowings are due on demand and totaled
$5.0 million
and
zero
, 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. This total borrowing capacity was subsequently increased to
$23.0 million
. As of
June 30, 2013
, the total amount borrowed with this lender was
$23.0 million
, which consisted of
$18.0 million
by A-Mark and
$5.0 million
by SNI. Amounts available for borrowing under this Collectible Credit Facility as of
June 30, 2013
were zero. As of 2012 the total amount borrowed with this lender was
$18.0 million
, which consisted of
zero
by SNI and
$18.0 million
by A-Mark.
Interest expense related to SNI's borrowing arrangements totaled
$0.1 million
and
$0.2 million
for the years ended
June 30, 2013
and
2012
, respectively.
SBN Credit Facility
SBN 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 SBN 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
June 30, 2013
and 2012, SBN had borrowed
$0.9 million
and
$1.7 million
, and incurred interest expense of
$39,000
and
$40,000
for the years ended
June 30, 2013
and
2012
.
Other Debt Obligations
Note Payable for Acquired Assets
On November 23, 2010, B&M purchased certain assets of Summit Rare Coins for
$0.3
million which was reflected as an increase to customer lists (Note
8
) with a corresponding increase to note payable of
$0.3
million. The note bears interest at the rate of
6.0%
per annum. The note previously matured on March 31, 2013. The note was extended and now matures on March 31, 2014, at which time the then outstanding principal balance of the note and accrued interest are due and payable in full. As of
June 30, 2013
and 2012 the outstanding principal balance was
$0.1 million
and
$0.3 million
, and interest expense was
$3,000
and
$19,000
for the years ended
June 30, 2013
and
2012
, respectively.
Note Payable for Repurchase of Minority Interest
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
$2.3 million
in cash and
$2.7 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 (see Note 15). Per the earn-out agreement, the Company is to pay Stacks, LLC.
40%
of the pre-tax net profit of SBN in excess of
$2.2 million
for each of the fiscal years. As of and for the years ended June 30, 2013 and 2012, the outstanding principal balance of the note was
$2.7
million and
zero
, respectively, and interest expense was
$0.04 million
and
zero
, respectively. The Company also recorded a liability of
$1.1 million
as of June 30, 2013 in connection with the earn-out.
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
$7.3
million and was partly financed by the assumption of an existing loan with an outstanding principal balance of
$6.5 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
June 30, 2013
and
June 30, 2012
, the outstanding principal balance with accrued interest was
$6.3 million
and
$6.4 million
, and interest expense was
$0.4 million
and
$0.4 million
for the years ended
June 30, 2013
and
2012
.
The following table represents future obligations pertaining to the principal payments on the McGaw note:
|
|
|
|
|
|
Years ended June 30,
|
|
Amount
|
|
|
|
in thousands
|
|
|
2014
|
|
$
|
142
|
|
2015
|
|
6,102
|
|
Total
|
|
$
|
6,244
|
|
|
|
12
.
|
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
9
). 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 consolidated statements of operations for the years ended
June 30, 2013
and
2012
were
$(66.6) million
and
$39.8 million
, respectively, and recorded to cost of goods sold.
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
June 30, 2013
and at
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Trading inventory
|
$
|
162,378
|
|
|
$
|
143,464
|
|
Less unhedgable inventory:
|
|
|
|
Premium on metals position
|
(1,787
|
)
|
|
(1,824
|
)
|
Subtotal
|
160,591
|
|
|
141,640
|
|
Commitments at market:
|
|
|
|
|
|
Open inventory purchase commitments
|
461,883
|
|
|
392,308
|
|
Open inventory sale commitments
|
(272,044
|
)
|
|
(140,824
|
)
|
Margin sale commitments
|
(13,651
|
)
|
|
(39,716
|
)
|
In-transit inventory no longer subject to market risk
|
(24,221
|
)
|
|
(6,931
|
)
|
Unhedgable premiums on open commitment positions
|
2,107
|
|
|
458
|
|
Inventory borrowed from suppliers
|
(20,117
|
)
|
|
(27,076
|
)
|
Product financing obligation
|
(38,554
|
)
|
|
(15,576
|
)
|
Advances on industrial metals
|
33
|
|
|
757
|
|
Inventory subject to price risk
|
256,027
|
|
|
305,040
|
|
Inventory subject to derivative financial instruments:
|
|
|
|
Precious metals forward contracts at market values
|
84,999
|
|
|
59,659
|
|
Precious metals futures contracts at market values
|
171,272
|
|
|
244,954
|
|
Total market value of derivative financial instruments
|
256,271
|
|
|
304,613
|
|
Net inventory subject to price risk
|
$
|
(244
|
)
|
|
$
|
427
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Effects of open related party transactions between A-Mark and affiliates:
|
|
|
|
Net inventory subject to price risk, Company consolidated basis
|
$
|
(244
|
)
|
|
$
|
427
|
|
Open inventory sale commitments with affiliates
|
(1,402
|
)
|
|
(574
|
)
|
Open inventory purchase commitments with affiliates
|
1,282
|
|
|
254
|
|
Net inventory subject to price risk, A-Mark stand-alone basis
|
$
|
(364
|
)
|
|
$
|
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
June 30, 2013
, total premium on open commitment positions was
$2.1 million
, of which
zero
was deemed hedgable. At
June 30, 2012
, total premium on open commitment positions was
$0.5 million
, of which
zero
was deemed hedgable.
At
June 30, 2013
and
June 30, 2012
, the Company had the following outstanding commitments:
|
|
|
|
|
|
|
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Purchase commitments
|
|
461,883
|
|
|
392,308
|
|
Sale commitments
|
|
(272,044
|
)
|
|
(140,824
|
)
|
Open forward contracts
|
|
84,999
|
|
|
59,659
|
|
Open futures contracts
|
|
171,272
|
|
|
244,954
|
|
The Company uses forward contracts and futures contracts to protect its inventories from market exposure.
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 typically settle within
2
business days, and for those commitments that do not have stated settlement dates, the Company has the right to settle the positions upon demand. Futures and forwards contracts open at
June 30, 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
June 30, 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.
13
. 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 for his portion of income earned on a specific type of transaction. The Trading segment accrued
$312,000
and
$504,000
in royalty expenses as of
June 30, 2013
and 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. During the years ended
June 30, 2013
and
2012
, the Company's officers and directors purchased from and sold to the Company bullion and numismatic products totaling
$2.9 million
and
$1.4 million
respectively.
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
$51.18 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
$22.31 million
, and
1,426,315
shares in the private placement at a price of
$1.90
per share, for aggregate proceeds of
$2.70 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 June 30, 2013, there are outstanding
30.9 million
shares of common stock, of which
3.0 million
shares are owned by Afinsa and Auctentia. Accordingly, Afinsa and Auctentia may be deemed to 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. During the year ended June 30, 2012, Heinrich Köhler Auktionshaus GmbH and Heinrich Köhler Briefmarkenhandel earned
$130,000
in related auction commissions.
During the year ended June 30, 2012, Afinsa consigned to Stack's-Bowers numismatic materials, which were sold at auction for
$2.7 million
. The Company earned
$0.3 million
in related auction commission.
|
|
14
.
|
NON-CONTROLLING INTERESTS
|
Non-controlling interests include Auctentia’s
20%
share in the net assets and income of A-Mark through September 25, 2012 (see Note 13), and the outside partners' interests in the net assets and income of the joint ventures described below.
SBN
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. As of June 30, 2013, the Company
no
longer had any non-controlling interests in SBN.
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 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 consolidated balance sheets include the following non-controlling interests as of
June 30, 2013
and
June 30, 2012
:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Auctentia 20% interest in Spectrum PMI - (Spectrum PMI owned 100% of A-Mark Precious Metals)
|
$
|
—
|
|
|
$
|
10,935
|
|
SBN 49% interest
|
—
|
|
|
2,461
|
|
Non controlling interest presented as a component of stockholders' equity
|
—
|
|
|
13,396
|
|
Calzona redeemable 65% interest presented as temporary equity
|
160
|
|
|
124
|
|
|
$
|
160
|
|
|
$
|
13,520
|
|
Calzona's redeemable
65%
interest is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Beginning balance
|
|
$
|
124
|
|
|
$
|
—
|
|
Contribution by noncontrolling interest
|
|
—
|
|
|
150
|
|
Allocation to noncontrolling interest
|
|
—
|
|
|
45
|
|
Non-controlling interest in net income (loss) of Calzona
|
|
36
|
|
|
(71
|
)
|
Ending balance
|
|
$
|
160
|
|
|
$
|
124
|
|
The Company's consolidated statements of operations for the years ended
June 30, 2013
and
2012
includes the following non-controlling interest in net income:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Auctentia 20% interest in Spectrum PMI - (Spectrum PMI owns 100% of A-Mark Precious Metals)
|
|
$
|
—
|
|
|
$
|
(2,114
|
)
|
SBN 49% interest
|
|
159
|
|
|
1,064
|
|
Calzona redeemable 65% interest
|
|
(36
|
)
|
|
71
|
|
|
|
$
|
123
|
|
|
$
|
(979
|
)
|
15. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Spanish Criminal Investigation
In May 2006, Spanish judicial authorities shut down the operations of Afinsa and began an investigation related to alleged criminal wrongdoing, including money laundering, fraud, tax evasion and criminal insolvency. The Spanish criminal investigation initially focused on Afinsa and certain of its executives and was later expanded to include several former officers and directors of SGI and CdC, including Mr. Manning. The allegations against Afinsa and the certain named individuals relate to the central claim that Afinsa's business operations constituted a fraudulent “Ponzi scheme,” whereby funds received from later investors were used to pay interest to earlier investors, and that the stamps that were the subject of the investment contracts were highly overvalued. Spanish authorities have alleged that Mr. Manning knew Afinsa's business, and aided and abetted in its activity by, among other things, causing the Company to supply allegedly overvalued stamps to Afinsa.
The Company understands that, under Spanish law that, if any of the former officers or directors of SGI or its subsidiary were ultimately found guilty, then, under the principle of secondary civil liability, SGI could be held liable for certain associated damages. . In July 2013, the Spanish
judicial authorities determined to bring formal charges of indictment against certain persons formerly associated with Afinsa and SGI, including Mr. Manning. The charges include a civil demand for substantial monetary damages. On October 7, 2013, the Spanish court issued an order naming SGI as a party, on a secondary civil liability basis, to the proceedings. SGI has not appeared in the proceedings and is therefore not yet subject to the jurisdiction of the Spanish courts. SGI will not appear unless and until it is adequately served and the Spanish court complies with all other requirements of applicable international treaties. If SGI is brought into the proceedings, it intends to defend its interests vigorously.
We do not believe it is feasible to predict or determine the outcome or resolution of the above litigation proceeding, or to estimate the amounts of, or potential range of, loss with respect to this proceeding. In addition, the timing of the final resolution of these proceedings is uncertain.
Mr. Manning, and certain of the other former officers and directors of the Company who are also the subject of the Spanish criminal proceedings, are entitled to receive advances from the Company for their legal fees and expenses in connection with the Spanish criminal proceedings. These costs are expensed as incurred. The Company has not accrued for any estimated future costs.
Litigation, Claims and Contingencies
In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, would not have a material adverse effect on the Company's financial statements or operations.
Operating Leases
The Company leases its facilities and a portion of its equipment under operating leases that expire at various dates through fiscal 2020. Some of the operating leases provide for increasing rents over the terms of the leases. Total rent expense under these leases is recognized ratably over the initial renewal period of each lease. The following table presents future lease commitments under non-cancelable operating leases (in thousands):
|
|
|
|
|
For the years ending June 30:
|
|
2014
|
$
|
1,174
|
|
2015
|
781
|
|
2016
|
594
|
|
2017
|
175
|
|
2018
|
87
|
|
Thereafter
|
191
|
|
Total future minimum lease payments
|
$
|
3,002
|
|
Total rent expense under operating leases in the Company's operations was approximately
$1.7 million
and
$2.4 million
for the years ended
June 30, 2013
and
2012
, respectively, and is included in general and administrative expenses.
Capital Leases
The Company leases portion of its equipment under capital leases that expire at various dates through fiscal 2018. The following table presents future lease commitments under non-cancelable capital leases (in thousands):
|
|
|
|
|
For the years ending June 30:
|
|
2014
|
$
|
217
|
|
2015
|
231
|
|
2016
|
245
|
|
2017
|
213
|
|
2018
|
24
|
|
Total future minimum lease payments
|
$
|
930
|
|
Auction Fees Sponsorship
The Company has a commitment to pay for sponsorship fees for various auctions that are held in the future. The fees is based on a minimum set amount plus a percentage of the hammer. The commitment can range from
three
years to
ten
years. Below is a table showing the future payments relating to this commitment (in thousands):
|
|
|
|
|
For the years ending June 30:
|
|
2014
|
$
|
765
|
|
2015
|
172
|
|
2016
|
180
|
|
2017
|
188
|
|
2018
|
195
|
|
Thereafter
|
630
|
|
Total future minimum payments
|
$
|
2,130
|
|
Contractual Obligations
There were no purchase commitment agreements entered into during the year ended
June 30, 2013
, other than the open purchase and sale commitments discussed in Notes
9
and
12
.
Consulting, Employment and Non-Compete Agreements
The Company has entered into various consulting, employment and non-compete and/or non-solicitation agreements with certain key executive officers and other key employees. The employment agreements provide for minimum salary levels, incentive compensation and severance benefits, among other items.
Employee Benefit Plans
The Company maintains an employee savings plan for United States employees under the Internal Revenue Code section 401(k). Employees are eligible to participate in the plan after three complete calendar months of service and all contributions are immediately vested. Employees' contributions are discretionary to a maximum of
90%
of compensation. For all plan members, the Company contributed
30%
of the eligible employees' contributions on the first
60%
of the participants' compensation to the IRS maximum annual contribution. The Company's total contribution was approximately
$283,000
and
$291,000
, for the years ended
June 30, 2013
and
2012
, respectively.
Restricted Capital of Foreign Subsidiaries
Certain of the Company's foreign jurisdictions maintain nominal regulatory capital requirements.
M.F. Global, Inc. Bankruptcy
Until October 31, 2011, A-Mark maintained a segregated commodities account with MFGI. A-Mark used this account to enter into futures transactions to hedge the risk related to its positions with counterparties and physical inventories. On October 31, 2011, the Securities Investor Protection Corporation (“SIPC”) commenced an action against MFGI which resulted in a liquidation proceeding under the SIPC Rules in the Bankruptcy Court.
Prior to the bankruptcy filing, A-Mark had transferred its open futures positions to another clearinghouse. However, approximately
$20.3 million
of equity (the “MFGI Equity”) in A-Mark's MFGI account (of which approximately
$17 million
represented margin), was effectively frozen by the pendency of the bankruptcy proceedings. A-Mark was required to re-margin its positions by transferring approximately
$17 million
in cash to the new firm.
Because MFGI was both a broker-dealer dealing in securities and an “FCM” - a futures commission merchant - both SIPA (Securities Investor Protection Act) and the Commodities Futures Trading Commission (“CFTC”) rules regarding the liquidation of a commodity broker registered with the CFTC as a futures commission merchant will apply. The federal bankruptcy code will also apply to the extent not inconsistent with SIPA.
In December 2011, the Company received
$14.6 million
(or
72%
) of its MFGI Equity 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
. The Company accrued
$1.0 million
as of June 30, 2012 as a reserve against this potential loss. 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, which is included in general and administrative expenses. 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
, which is included in general and administrative expenses.
SGI remains in compliance with all banking covenants under the Trading Credit Facility and this event does not represent an event of default under its loan agreements.
|
|
16
.
|
STOCKHOLDERS’ EQUITY
|
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 currently is 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, and stock options and SARs may have any term. The majority of the stock options granted through June 30, 2008 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. The 1997 Plan will terminate when no shares remain available for issuance and no awards remain outstanding. At
June 30, 2013
, there were no shares remaining available for future awards under the 1997 Plan, and 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
June 30, 2013
, there were
1,392,500
shares remaining available for future awards under the 2012 Plan.
Employee Stock Options.
During the years ended
June 30, 2013
and
2012
, the Company recorded expense of
$699,000
and
$89,000
in the consolidated statements of operations related to the vesting of issued employee stock options. We estimate the fair value of our options on the date of grant using the Black-Scholes option-pricing model, which takes into account assumptions such as dividend yield, the risk-free interest rate, the expected stock price volatility and the expected life of the options.
The total estimated grant date fair value of stock options that vested during the year ended June 30, 2013 was
$0.6 million
. The weighted average fair value of options granted by us was
$1.73
per share and
none
for the years ended June 30, 2013 and 2012, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, utilizing the following weighted average assumptions:
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2013
|
|
2012
|
Dividend yield
|
|
—%
|
|
—
|
Risk-free interest rate
|
|
0.81%
|
|
—
|
Expected volatility
|
|
88.00%
|
|
—
|
Expected life
|
|
7 years
|
|
—
|
The dividend yield assumption is excluded from the calculation, as it is our present intention to retain all earnings. The expected volatility is based on our historical stock price. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the options. The expected life of our stock options represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior.
Option valuation models require the input of subjective assumptions including the expected stock price volatility and expected life. Because our employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, we do not believe that the Black-Scholes model necessarily provides a reliable single measure of the fair value of our employee stock options.
The following table summarizes the stock option activity for the year ended
June 30, 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
|
(52,000
|
)
|
|
2.00
|
|
|
—
|
|
|
0.80
|
|
Cancellations, expirations and forfeitures
|
(170,000
|
)
|
|
2.00
|
|
|
—
|
|
|
1.37
|
|
Outstanding at June 30, 2013
|
1,278,750
|
|
|
3.95
|
|
|
$
|
—
|
|
|
1.75
|
|
Shares exercisable at June 30, 2013
|
748,750
|
|
|
5.32
|
|
|
$
|
—
|
|
|
1.79
|
|
Following is a summary of the status of stock options outstanding at
June 30, 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
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
4.99
|
|
|
1,106,000
|
|
|
8.08
|
|
$
|
2.43
|
|
|
576,000
|
|
|
$
|
2.82
|
|
5.00
|
|
|
9.99
|
|
|
7,750
|
|
|
0.35
|
|
8.97
|
|
|
7,750
|
|
|
8.97
|
|
10.00
|
|
|
14.99
|
|
|
165,000
|
|
|
0.76
|
|
13.90
|
|
|
165,000
|
|
|
13.90
|
|
|
|
|
|
1,278,750
|
|
|
7.09
|
|
3.95
|
|
|
748,750
|
|
|
5.32
|
|
Restricted Stock Units.
The Company has issued restricted stock to certain members of management, key employees, and directors. During the years ended
June 30, 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 after
2
years from the date of grant. Total compensation expense recorded for restricted shares for the years ended
June 30, 2013
and
2012
was
$476,000
and
$453,000
, respectively. The remaining compensation expense that will be recorded under restricted stock grants totals
$684,000
, which will be recorded over a weighted average period of approximately
2.63
years.
The following table summarizes the restricted stock activity for the year ended
June 30, 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
|
(441,149
|
)
|
|
1.89
|
|
Shares forfeited
|
—
|
|
|
—
|
|
Outstanding at June 30, 2013
|
362,500
|
|
|
2.36
|
|
Vested but unissued at June 30, 2013
|
113,875
|
|
|
2.32
|
|
No
tax benefit was recognized in the consolidated statements of operations related to share-based compensation for the years ended
June 30, 2013
and
2012
.
No
share-based compensation was capitalized for the years ended
June 30, 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
June 30, 2013
and as of 2012, there were approximately
37,500
and
37,500
stock appreciation rights outstanding with an exercise price of
$12.06
. At
June 30, 2013
and at 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 years ended
June 30, 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.
17
. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations are organized under
two
business segments - Trading and Collectibles (Note 1).
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Revenue:
|
|
|
|
|
Trading
|
|
$
|
7,223,750
|
|
|
$
|
7,769,792
|
|
Collectibles:
|
|
|
|
|
Numismatics
|
|
179,939
|
|
|
188,732
|
|
Wine
|
|
2,354
|
|
|
4,425
|
|
Total Collectibles
|
|
182,293
|
|
|
193,157
|
|
Total revenue
|
|
$
|
7,406,043
|
|
|
$
|
7,962,949
|
|
|
|
|
|
|
in thousands
|
|
Year Ended
|
Revenue by geographic region (as determined by location of subsidiaries):
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
United States
|
|
$
|
7,059,503
|
|
|
$
|
7,656,282
|
|
Europe
|
|
346,540
|
|
|
306,667
|
|
Total revenue
|
|
$
|
7,406,043
|
|
|
$
|
7,962,949
|
|
|
|
|
|
|
in thousands
|
|
Year Ended
|
Revenue by geographic region - Trading:
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
United States
|
|
$
|
6,152,931
|
|
|
$
|
6,343,703
|
|
Europe
|
|
241,256
|
|
|
875,754
|
|
North America, excluding United States
|
|
638,577
|
|
|
485,062
|
|
Asia Pacific
|
|
186,633
|
|
|
64,430
|
|
Africa
|
|
51
|
|
|
—
|
|
Australia
|
|
4,084
|
|
|
779
|
|
South America
|
|
218
|
|
|
64
|
|
Total revenue - Trading
|
|
$
|
7,223,750
|
|
|
$
|
7,769,792
|
|
|
|
|
|
|
in thousands
|
|
Year Ended
|
Consolidated income of continuing operations before taxes:
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Trading
|
|
$
|
21,666
|
|
|
$
|
18,372
|
|
Collectibles
|
|
(3,904
|
)
|
|
(5,748
|
)
|
Corporate expenses
|
|
(12,623
|
)
|
|
(3,539
|
)
|
Total consolidated income of continuing operations before taxes
|
|
$
|
5,139
|
|
|
$
|
9,085
|
|
|
|
|
|
|
Trading interest income for the years ended June 30, 2013 and 2012 totaled $7.8 million and $12.2 million, respectively. Collectibles
|
interest income for the years ended June 30, 2013 and 2012 totaled $0.6 million and $0.4 million, respectively. Trading interest expense
|
for the years ended June 30, 2013 and 2012 totaled $3.5 million and $4.3 million, respectively. Collectibles interest expense totaled $0.9
|
million and $0.6 million, respectively during those same periods.
|
|
|
|
|
|
in thousands
|
|
Year Ended
|
Depreciation and amortization:
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Trading
|
|
$
|
824
|
|
|
$
|
734
|
|
Collectibles
|
|
1,021
|
|
|
887
|
|
Corporate
|
|
381
|
|
|
191
|
|
Total depreciation and amortization
|
|
$
|
2,226
|
|
|
$
|
1,812
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Inventories by segment/geographic region:
|
|
|
|
Trading:
|
|
|
|
United States
|
$
|
148,336
|
|
|
$
|
128,869
|
|
Europe
|
9,504
|
|
|
11,359
|
|
North America, excluding United States
|
4,423
|
|
|
2,210
|
|
Asia
|
115
|
|
|
1,026
|
|
Total Trading
|
162,378
|
|
|
143,464
|
|
Collectibles:
|
|
|
|
United States
|
25,875
|
|
|
21,316
|
|
Europe
|
—
|
|
|
—
|
|
Asia
|
—
|
|
|
—
|
|
Total Collectibles
|
25,875
|
|
|
21,316
|
|
Total inventories
|
$
|
188,253
|
|
|
$
|
164,780
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Total assets by segment/geographic region:
|
|
|
|
Trading:
|
|
|
|
United States
|
$
|
264,043
|
|
|
$
|
261,894
|
|
Europe
|
2,473
|
|
|
2,263
|
|
Total Trading
|
266,516
|
|
|
264,157
|
|
Collectibles:
|
|
|
|
United States
|
86,460
|
|
|
99,625
|
|
Europe
|
275
|
|
|
6,780
|
|
Asia
|
—
|
|
|
706
|
|
Total Collectibles
|
86,735
|
|
|
107,111
|
|
Corporate and other
|
18,124
|
|
|
12,775
|
|
Discontinued Operations
|
—
|
|
|
10,168
|
|
Total assets
|
$
|
371,375
|
|
|
$
|
394,211
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
Total long term assets by segment/geographic region:
|
|
|
|
Trading:
|
|
|
|
United States
|
$
|
9,201
|
|
|
$
|
9,534
|
|
Europe
|
90
|
|
|
102
|
|
Total Trading
|
9,291
|
|
|
9,636
|
|
Collectibles:
|
|
|
|
United States
|
4,983
|
|
|
5,705
|
|
Europe
|
22
|
|
|
27
|
|
Total Collectibles
|
5,005
|
|
|
5,732
|
|
Corporate and other
|
17,194
|
|
|
13,614
|
|
Discontinued Operations
|
—
|
|
|
1,895
|
|
Total long term assets
|
$
|
31,490
|
|
|
$
|
30,877
|
|
18
. ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated comprehensive income consist primarily of foreign currency translation gain (loss), net of tax. During 2013, the component of accumulated comprehensive income associated with the sale of our European Stamps division of
$1.02 million
was removed from our consolidated equity. The foreign currency translation gain relates to the Company's investment in its European and Asian subsidiaries and fluctuations in exchange rates between their local currencies and the U.S. dollar (Note 2).
As of
June 30, 2013
and 2012, the components of accumulated other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
in thousands
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
Foreign currency translation gain, net of tax
|
$
|
7,628
|
|
|
$
|
6,389
|
|
Sale of stamps division - European operations
|
(1,023
|
)
|
|
—
|
|
Accumulated other comprehensive income
|
$
|
6,605
|
|
|
$
|
6,389
|
|
|
|
19
.
|
FAIR VALUE MEASUREMENTS
|
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the principal or most advantageous market on the measurement date. The Company carries a portion of its assets and liabilities at fair value in accordance with the Fair Value Measurements and Disclosures Topic 820 of the ASC. The majority of such assets and liabilities are carried at fair value on a recurring basis. In addition, certain assets are carried at fair value on a nonrecurring basis, including goodwill and purchased intangible assets accounted for at fair value that are only subject to fair value adjustments under certain circumstances.
Fair value measurements are classified within one of three levels in a valuation hierarchy based upon the observability of significant inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
• Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets at the measurement date.
• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3 inputs are unobservable inputs for the asset or liability for which there is limited or no market activity at the measurement date. For instruments classified within level 3 of the hierarchy, judgments are more significant. Such judgments include determining the appropriate model to use and assessment of all relevant empirical data in deriving valuation inputs including but not limited to projected future cash flows, discount rates, royalty rates, interest rates, customer attrition rates and foreign exchange rates.
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of
June 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 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
|
|
$
|
162,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
162,378
|
|
Derivative assets — futures contracts
|
|
15,536
|
|
|
—
|
|
|
—
|
|
|
15,536
|
|
Derivative assets — forward contracts
|
|
471
|
|
|
|
|
|
|
471
|
|
Total assets valued at fair value:
|
|
$
|
178,385
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
178,385
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability on borrowed metals
|
|
$
|
(20,117
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(20,117
|
)
|
Obligation under product financing arrangement
|
|
(38,554
|
)
|
|
—
|
|
|
—
|
|
|
(38,554
|
)
|
Liability on margin accounts
|
|
(6,636
|
)
|
|
—
|
|
|
—
|
|
|
(6,636
|
)
|
Derivative liabilities — open sales and purchase commitments
|
|
(30,113
|
)
|
|
—
|
|
|
—
|
|
|
(30,113
|
)
|
Total liabilities valued at fair value
|
|
$
|
(95,420
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(95,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
143,464
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
143,464
|
|
Derivative assets — future contracts
|
|
3,473
|
|
|
—
|
|
|
—
|
|
|
3,473
|
|
Total assets valued at fair value:
|
|
$
|
146,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
146,937
|
|
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:
|
|
$
|
(103,752
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(103,752
|
)
|
For the year ended June 30, 2013, the Company has reclassified its fair value disclosure as of June 30, 2012 and transferred all derivative assets and liabilities of
$3.5 million
and $46.3 million, respectively from Level 2 to Level 1, related to precious metals commodities and liabilities on derivative instruments, which are traded in an active market.
There were
no
transfers in or out of Level 3 during the years ended
June 30, 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 1 of the valuation hierarchy.
Margin and Borrowed Metals Liabilities
Margin and borrowed metals liabilities consist of the Company's commodity obligations to margin customers and suppliers, respectively.
Margin liabilities and borrowed metals liabilities are carried at fair value, which is determined 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
11
). 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 are measured at fair value on a non-recurring basis. These assets are measured at cost but are written down to fair value if their are impaired. As of
June 30, 2013
, the Company's goodwill related to SBN was impaired (see Note 8). No other goodwill and purchased intangibles were impaired for the year ended June 30, 2013, and therefore are not measured at fair value.
Fair Value of Financial Instruments
The Company estimates the fair value of financial instruments that are not required to be carried in the consolidated balance sheets at fair value on either a recurring or non-recurring basis as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
(in thousands)
|
|
Carrying amount
|
|
Fair value
|
|
Carrying amount
|
|
Fair value
|
|
Level in fair value hierarchy
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,643
|
|
|
$
|
23,643
|
|
|
$
|
25,305
|
|
|
$
|
25,305
|
|
|
1
|
Restricted cash
|
|
602
|
|
|
602
|
|
|
550
|
|
|
550
|
|
|
1
|
Receivables and secured loans
|
|
109,696
|
|
|
109,696
|
|
|
127,380
|
|
|
127,380
|
|
|
2
|
Accounts receivable and consignor advances
|
|
12,347
|
|
|
12,347
|
|
|
20,428
|
|
|
20,428
|
|
|
2
|
Accounts payable and consignor payables
|
|
95,839
|
|
|
95,839
|
|
|
102,103
|
|
|
102,103
|
|
|
2
|
Lines of credit
|
|
100,857
|
|
|
100,857
|
|
|
92,669
|
|
|
92,669
|
|
|
2
|
Notes payable
|
|
10,837
|
|
|
10,837
|
|
|
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.
20. 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 award's exercise price is lower than the Company's average share price for the period. For the years ended
June 30, 2013
and
2012
, basic and diluted earnings per share include the impact of vested but unissued restricted stock of
113,875
and
90,648
, respectively.
A reconciliation of shares used in calculating basic and diluted earnings per common shares follows. In computing diluted earnings per share for the year ended
June 30, 2013
, the Company excluded options to purchase
1,461,000
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 because inclusion would be anti-dilutive. In computing diluted earnings per share for the year ended
June 30, 2012
, the Company excluded options to purchase
420,500
shares of common stock,
37,500
SARS, and
150,000
unvested restricted stock units where exercise prices were in excess of the quoted market
price of the Company's common stock 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
June 30, 2013
and
2012
.
A reconciliation of basic and diluted shares is as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
|
in thousands
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
|
|
|
Basic weighted average shares outstanding (1)
|
|
31,150
|
|
|
32,678
|
|
Effect of common stock equivalents — stock options and stock issuable under employee compensation plans
|
|
283
|
|
|
187
|
|
Diluted weighted average shares outstanding
|
|
31,433
|
|
|
32,865
|
|
|
|
(1)
|
Basic weighted average shares outstanding includes the effect of vested but unissued restricted stock grants (see note
16
).
|
21. SUBSEQUENT EVENTS
The Company intends shortly to file a registration statement with the SEC relating to the proposed distribution (or spinoff) by SGI to its shareholders of all of the shares of common stock of A-Mark owned by it. SGI currently owns
100%
of the outstanding common stock of A-Mark.
If the spinoff is consummated, SGI will distribute all of the A-Mark common stock held by it on a pro rata basis to holders of SGI common stock, and A-Mark will thereafter be a publicly traded company independent from SGI. The distribution ratio, record date and distribution date, among other things, have not yet been determined. Shareholders of SGI will continue to own their SGI common stock following the distribution, which at that point will include the remaining businesses of SGI.
The spinoff is subject to a number of significant conditions and there can be no assurance that the spinoff will be consummated.
If the spinoff is consummated, then the Company intends thereafter to reduce the number of record holders of its common stock to fewer than 300 and to terminate the registration of its common stock under Section 12(g) of the Securities Exchange Act of 1934.
SGI intends to do this by means of an amendment to its certificate of incorporation, in which the shares of SGI common stock will be reverse split in a ratio to be determined. As a result, SGI shareholders who own fewer than the specified number of shares of SGI common stock will cease to be shareholders of SGI and will receive payment in cash for each SGI share that they previously owned. SGI will then file a Form 15 with the SEC to terminate the registration of its shares under the Securities Exchange Act, with the result that SGI will no longer be required to file periodic and other reports with the SEC. It is expected that the SGI common stock will continue to be quoted on the OTCQB under the symbol “SPGZ” following the deregistration of its shares under the Securities Exchange Act.
Information regarding the spinoff, the deregistration of the SGI shares and related matters will be set forth in documents filed with the SEC.