Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities, at Fair Value

v3.20.2
Assets and Liabilities, at Fair Value
3 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Assets and Liabilities, at Fair Value

3.  ASSETS AND LIABILITIES, AT FAIR VALUE

Fair Value of Financial Instruments

A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. The fair value of financial instruments represents amounts that would be received upon the sale of those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk adjusted discount rates, and available observable and unobservable inputs.

For most of the Company's financial instruments, the carrying amount approximates fair value. The carrying amounts of cash, receivables, secured loans receivable, accounts payable and other current liabilities, accrued liabilities, and income taxes payable approximate fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities, liabilities on borrowed metals and product financing arrangements are marked-to-market on a daily basis to fair value. The carrying amounts of lines of credit approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The carrying amounts of the Company's other long-term assets, which include a note receivable due from a customer, approximate fair value as of September 30, 2020.

The Company’s fixed-rate notes payable is reported at its aggregate principal amount less unamortized original issue discount and deferred financing costs on the accompanying consolidated balance sheets. The fair value of the notes payable is based on the present value of the expected coupon and principal payments using an estimated discount rate based on current market rates for debt with similar credit risk.  The following table presents the carrying amounts and estimated fair values of the Company’s fixed rate notes payable of September 30, 2020 and June 30, 2020:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

June 30, 2020

 

 

 

Carrying

Amount

 

 

Fair value

 

 

Carrying

Amount

 

 

Fair value

 

Notes payable

 

$

92,692

 

 

$

101,407

 

 

$

92,517

 

 

$

101,017

 

 

Valuation Hierarchy

In determining the fair value of its financial instruments, the Company employs a fair value hierarchy that prioritizes the inputs for the valuation techniques used to measure fair value. 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The significant assumptions used to determine the carrying value and the related fair value of the assets and liabilities measured at fair value on a recurring basis are described below:

Inventories.  The Company's inventory primarily includes bullion and bullion coins, which is acquired and initially recorded at cost and then marked to fair market value.  The fair market value of the bullion and bullion coins comprises two components: i) published market values attributable to the costs of the raw precious metal, and ii) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or net realizable value, the Company’s inventory is 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 is classified in Level 1 of the valuation hierarchy.

Precious Metals held under Financing Arrangements.  The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the spot value of the product on the repurchase date.  The precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals and earns financing income for the duration of the agreement. The fair value for precious metals held under financing arrangements, (a commodity, like inventory above) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals held under financing arrangements are classified in Level 1 of the valuation hierarchy.

Derivatives.  Futures contracts and 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 an agreed-upon price based on the spot price with a third party. Such transactions allow the Company to repurchase this inventory on the termination (repurchase) date. The third-party charges monthly interest as a percentage of the market value of the outstanding obligation, which is carried at fair value. The obligation is stated at the amount required to repurchase the outstanding inventory. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product financing arrangements are classified in Level 1 of the valuation hierarchy.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and June 30, 2020, aggregated by the level in the fair value hierarchy within which the measurements fall:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

413,172

 

 

$

 

 

$

 

 

$

413,172

 

Precious metals held under financing arrangements

 

 

158,756

 

 

 

 

 

 

 

 

 

158,756

 

Derivative assets — open sale and purchase commitments, net

 

 

79,180

 

 

 

 

 

 

 

 

 

79,180

 

Derivative assets — futures contracts

 

 

22,316

 

 

 

 

 

 

 

 

 

22,316

 

Derivative assets — forward contracts

 

 

12,104

 

 

 

 

 

 

 

 

 

12,104

 

Total assets, valued at fair value

 

$

685,528

 

 

$

 

 

$

 

 

$

685,528

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

153,752

 

 

$

 

 

$

 

 

$

153,752

 

Product financing arrangements

 

 

101,599

 

 

 

 

 

 

 

 

$

101,599

 

Derivative liabilities — margin accounts

 

 

3,279

 

 

 

 

 

 

 

 

 

3,279

 

Derivative liabilities — open sale and purchase commitments, net

 

 

2,958

 

 

 

 

 

 

 

 

 

2,958

 

Derivative liabilities — futures contracts

 

 

7,260

 

 

 

 

 

 

 

 

 

7,260

 

Total liabilities, valued at fair value

 

$

268,848

 

 

$

 

 

$

 

 

$

268,848

 

 

(1)

Commemorative coin inventory totaling $9 thousand is held at lower of cost or net realizable value and thus is excluded from the inventories balance shown in this table.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Significant Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Instruments

 

 

Inputs

 

 

Inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories(1)

 

$

321,264

 

 

$

 

 

$

 

 

$

321,264

 

Precious metals held under financing arrangements

 

 

178,577

 

 

 

 

 

 

 

 

 

178,577

 

Derivative assets — open sale and purchase commitments, net

 

 

46,224

 

 

 

 

 

 

 

 

 

46,224

 

Derivative assets — forward contracts

 

 

101

 

 

 

 

 

 

 

 

 

101

 

Total assets, valued at fair value

 

$

546,166

 

 

$

 

 

$

 

 

$

546,166

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

168,206

 

 

$

 

 

$

 

 

$

168,206

 

Product financing arrangements

 

 

74,678

 

 

 

 

 

 

 

 

 

74,678

 

Derivative liabilities — margin accounts

 

 

5,380

 

 

 

 

 

 

 

 

 

5,380

 

Derivative liabilities — open sale and purchase commitments, net

 

 

4,349

 

 

 

 

 

 

 

 

 

4,349

 

Derivative liabilities — futures contracts

 

 

12,477

 

 

 

 

 

 

 

 

 

12,477

 

Derivative liabilities — forward contracts

 

 

3,208

 

 

 

 

 

 

 

 

 

3,208

 

Total liabilities, valued at fair value

 

$

268,298

 

 

$

 

 

$

 

 

$

268,298

 

 

(1)

Commemorative coin inventory totaling $17 thousand is held at lower of cost or net realizable value thus is excluded from the inventories balance shown in this table.

There were no transfers in or out of Level 2 or 3 from other levels within the fair value hierarchy during the reported periods.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only under certain circumstances. These include: (i) equity method investments that are written down to fair value when a decline in the fair value is determined to be other-than-temporary, (ii) property, plant, and equipment and definite-lived intangibles, or (iii) goodwill and indefinite-lived intangibles, all of which are written down to fair value when they are held for sale or determined to be impaired. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples, and the amount and timing of expected future cash flows. The cash flows employed in the analyses are based on the Company’s estimated outlook and various growth rates. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective equity method investment, asset group, or reporting unit. In assessing the reasonableness of its determined fair values, the Company evaluates its results against other value indicators, such as comparable transactions and comparable public company trading values.