Goodwill and Intangible Assets
|12 Months Ended|
Jun. 30, 2018
|Goodwill and Intangible Assets Disclosure [Abstract]|
|Goodwill and Intangible Assets||
GOODWILL AND INTANGIBLE ASSETS
In connection with the acquisition of A-Mark by Former Parent on July 1, 2005, the accounts of the Company were adjusted using the push down basis of accounting to recognize the allocation of the consideration paid to the respective net assets acquired. In accordance with the push down basis of accounting, the Company's net assets were adjusted to their fair values as of the date of the acquisition based upon an independent appraisal.
Due to the Company's business combination with AMST that closed on August 31, 2016, the Company recorded an additional $2.5 million and $4.3 million of identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal. The Company’s investment in AMST has resulted in synergies between the acquired minting operation and the Company’s established distribution network by providing a more steady and reliable fabricated source of silver during times of market volatility. The Company considers that much of the acquired goodwill relates to the “ready state” of AMST's established minting operation with existing quality processes, procedures and ability to scale production to meet market needs.
Due to the Company's acquisition of Goldline (see Note 1), the Company recorded $5.0 million and $1.4 million of additional identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal and represents their fair values at the acquisition date. The Company’s investment in Goldline created synergies between Goldline's direct marketing operation and the Company’s established distribution network, secured storage and lending operations that is expected to lead to increased product margin spreads, lower distribution and storage costs for Goldline, and a larger customer base for the Company's secured lending operations.
The carrying value of goodwill and other purchased intangibles as of June 30, 2018 and June 30, 2017 is as described below:
The Company's intangible assets are subject to amortization except for trade-names, which have an indefinite life. Intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be three to fifteen years. Amortization expense related to the Company's intangible assets for the years ended June 30, 2018 and 2017 was $914,000 and $422,000, respectively.
Annual Impairment Assessments
In accordance with ASC 350, the Company’s goodwill and indefinite-lived intangible assets are tested annually in the fourth quarter for impairment or earlier if events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount (see Note 2).
Based on the Company's qualitative assessment of current economic indicators associated with the Wholesale and Ancillary Services and Direct Sales reporting units, the Company concluded that the Direct Sales reporting unit more than likely incurred a significant decline in its fair value. Our Secured Lending segment has no recorded intangible assets and therefore was not part of this analysis. During fiscal 2018, the Company revised its future outlook with respect to its Direct Sales reporting unit which resulted in a reduction in expected future cash flows. As a result, the Company determined that the fair value of this reporting unit declined below its carrying value and recorded a $1.4 million impairment of goodwill and a $1.3 million impairment of indefinite-lived intangible assets in fiscal 2018.
The Company used both the relief from royalty valuation method to determine the estimated fair value of this reporting unit's indefinite-lived intangibles (i.e., trade name). The key assumptions used in the royalty valuation method were long-term growth rate of 3.0%, pre-tax royalty rate of 0.5%, normalized tax rate 27.0%, and discount rate of 30.0%
The Company used both the income valuation approach and the market transaction approach to determine the estimated fair value of this reporting unit's goodwill based on a 75% and 25% weighting, respectively. The key assumptions used in the income valuation approach were long-term growth rate of 3.0%, normalized tax rate 27.0%, normalized net working capital of 5.0% and discount rate of 30.0%. The key assumptions used in the market transaction approach were based on market multiples that were estimated per the Company's initial cash flow projections (first quarter of fiscal 2018) that were applied to the Company's lower fourth quarter fiscal 2018 cash flow projections of revenue of earnings before interest, taxes, depreciation and amortization ("EBITDA"). Revenue multiples ranged from 0.05x to 0.10x and EBITDA multiples ranged from 1.04x to 2.52x.
No impairments were recorded in fiscal 2017.
Estimated amortization expense on an annual basis for the succeeding five years is as follows (in thousands):
The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.
Reference 1: http://www.xbrl.org/2003/role/presentationRef