Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities, at Fair Value

v3.5.0.2
Assets and Liabilities, at Fair Value
3 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Assets and Liabilities, at Fair Value
ASSETS AND LIABILITIES, AT FAIR VALUE
Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of September 30, 2016 and June 30, 2016.
in thousands
 
 
 
 
 
 
 
 
 
 
September 30, 2016
 
June 30, 2016
 
 
Carrying Amount
 
Fair value
 
Carrying Amount
 
Fair value
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
Cash
 
$
16,753

 
$
16,753

 
$
17,142

 
$
17,142

Receivables, net
 
20,746

 
20,746

 
43,302

 
43,302

Secured loans
 
82,782

 
82,782

 
70,504

 
70,504

Derivative assets - open sale and purchase commitments, net
 
21,874

 
21,874

 
32,347

 
32,347

Derivative assets - futures contracts
 
6,901

 
6,901

 

 

Derivative assets - forward contracts
 

 

 
1,385

 
1,385

Income tax receivables
 
8,341

 
8,341

 
7,318

 
7,318

Income taxes receivable from Former Parent
 

 

 
203

 
203

Financial liabilities:
 
 
 
 
 
 
 
 
Lines of credit
 
$
203,000

 
$
203,000

 
$
212,000

 
$
212,000

Liability on borrowed metals
 
4,196

 
4,196

 
4,352

 
4,352

Product financing arrangements
 
117,789

 
117,789

 
59,358

 
59,358

Derivative liabilities - liability on margin accounts
 
8,372

 
8,372

 
8,182

 
8,182

Derivative liabilities - open sale and purchase commitments, net
 
662

 
662

 
1,919

 
1,919

Derivative liabilities - futures contracts
 

 

 
13,914

 
13,914

Derivative liabilities - forward contracts
 
4,485

 
4,485

 
12,439

 
12,439

Accounts payable, advances and other payables
 
61,867

 
61,867

 
46,769

 
46,769

Accrued liabilities
 
4,279

 
4,279

 
7,660

 
7,660


The fair values of the financial instruments shown in the above table as of September 30, 2016 and June 30, 2016 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk adjusted discount rates, and available observable and unobservable inputs.
The carrying amounts of cash, secured loans, accounts receivable, income tax receivables, consignor advances, accounts payable and accrued liabilities approximated fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities are marked-to-market on a daily basis to fair value. The carrying amounts of lines of credit approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.
Valuation Hierarchy
Topic 820 of the ASC established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The significant assumptions used to determine the carrying value and the related fair value of the financial instruments are described below:
Inventory. Inventories principally include bullion and bullion coins and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or market, the Company’s inventories are subsequently recorded at their fair market values on a daily basis. The fair value for commodities inventory (i.e., inventory excluding commemorative coins) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventory are classified in Level 1 of the valuation hierarchy.
Derivatives. Futures contracts, forward contracts and open sale and purchase commitments are valued at their fair values, based on the difference between the quoted market price and the contractual price (i.e., intrinsic value,) and are included within Level 1 of the valuation hierarchy.
Margin and Borrowed Metals Liabilities. Margin and borrowed metals liabilities consist of the Company's commodity obligations to margin customers and suppliers, respectively. Margin liabilities and borrowed metals liabilities are carried at fair value, which is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Margin and borrowed metals liabilities are classified in Level 1 of the valuation hierarchy.
Product Financing Arrangements. Product financing arrangements consist of financing agreements for the transfer and subsequent re-acquisition of the sale of gold and silver at a fixed price to a third party. Such transactions allow the Company to repurchase this inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges monthly interest as a percentage of the market value of the outstanding obligation, which is carried at fair value. The obligation is stated at the amount required to repurchase the outstanding inventory. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product financing arrangements are classified in Level 1 of the valuation hierarchy.
The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and June 30, 2016 aggregated by the level in the fair value hierarchy within which the measurements fall:
 
 
September 30, 2016
 
 
Quoted Price in
 
 
 
 
 
 
 
 
Active Markets
 
Significant Other
 
Significant
 
 
 
 
for Identical
 
Observable
 
Unobservable
 
 
 
 
Instruments
 
Inputs
 
Inputs
 
 
in thousands
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
 
Inventory (1)
 
$
297,608

 
$

 
$

 
$
297,608

Derivative assets — open sale and purchase commitments, net
 
21,874

 

 

 
21,874

Derivative assets — futures contracts
 
6,901

 

 

 
6,901

Total assets, valued at fair value
 
$
326,383

 
$

 
$

 
$
326,383

Liabilities:
 
 
 
 
 
 
 
 
Liability on borrowed metals
 
$
4,196

 
$

 
$

 
$
4,196

Product financing arrangements
 
117,789

 

 

 
117,789

Derivative liabilities — liability on margin accounts
 
8,372

 

 

 
8,372

Derivative liabilities — open sales and purchase commitments, net
 
662

 

 

 
662

Derivative liabilities — forward contracts
 
4,485

 

 

 
4,485

Total liabilities, valued at fair value
 
$
135,504

 
$

 
$

 
$
135,504

____________________
(1) Commemorative coin inventory totaling $7,000 is held at lower of cost or market and is thus excluded from this table.
 
 
June 30, 2016
 
 
Quoted Price in
 
 
 
 
 
 
 
 
Active Markets
 
Significant Other
 
Significant
 
 
 
 
for Identical
 
Observable
 
Unobservable
 
 
 
 
Instruments
 
Inputs
 
Inputs
 
 
in thousands
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
 
Inventory (1)
 
$
245,041

 
$

 
$

 
$
245,041

Derivative assets — open sale and purchase commitments, net
 
32,347

 

 

 
32,347

Derivative assets — forward contracts
 
1,385

 

 

 
1,385

Total assets, valued at fair value
 
$
278,773

 
$

 
$

 
$
278,773

Liabilities:
 
 
 
 
 
 
 
 
Liability on borrowed metals
 
$
4,352

 
$

 
$

 
$
4,352

Product financing arrangements
 
59,358

 

 

 
59,358

Derivative liabilities — liability on margin accounts
 
8,182

 

 

 
8,182

Derivative liabilities — open sale and purchase commitments, net
 
1,919

 

 

 
1,919

Derivative liabilities — futures contracts
 
13,914

 

 

 
13,914

Derivative liabilities — forward contracts
 
12,439

 

 

 
12,439

Total liabilities, valued at fair value
 
$
100,164

 
$

 
$

 
$
100,164


____________________
(1) Commemorative coin inventory totaling $16,000 is held at lower of cost or market and is thus excluded from this table.
There were no transfers in or out of Level 2 or 3 during the reported periods.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only under certain circumstances. These include cost method and equity method investments that are written down to fair value when a decline in the fair value is determined to be other-than-temporary, and long-lived assets or goodwill that are written down to fair value when they are held for sale or determined to be impaired.
The Company uses level-three inputs to measure the fair value of its investments on a non-recurring basis. The Company's two investments in noncontrolled entities do not have readily determinable fair values. Quoted prices of the investments are not available, and the cost of obtaining an independent valuation appears excessive considering the carrying value of the instruments to the Company. As of September 30, 2016 and June 30, 2016, the carrying value of the Company's investments totaled $7.9 million and $7.9 million, respectively. During the three months ended September 30, 2016, the Company did not record any impairments related to these investments.
The Company uses level-three inputs to measure the fair value of goodwill and other intangibles on a non-recurring basis. These assets are measured at cost and are written down to fair value on the annual measurement dates or on the date of a triggering event, if impaired. As of September 30, 2016, there were no indications present that the Company's goodwill or other purchased intangibles were impaired, and therefore were not measured at fair value. There were no gains or losses recognized in earnings associated with the above purchased intangibles during the three months ended September 30, 2016.