Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities, at Fair Value

v3.22.1
Assets and Liabilities, at Fair Value
9 Months Ended
Mar. 31, 2022
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 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 condensed 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 as of March 31, 2022 and June 30, 2021:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

June 30, 2021

 

 

 

Carrying
Amount

 

 

Fair value

 

 

Carrying
Amount

 

 

Fair value

 

Notes payable

 

$

93,859

 

 

$

96,047

 

 

$

93,249

 

 

$

100,724

 

 

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. ASC 820 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, which consists primarily of bullion and bullion coins, 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 cost of the raw precious metal, and ii) the premium paid at acquisition of the metal, which is attributable to the incremental value of the product in its finished goods form. The market value attributable solely to such premium is readily determinable by reference to multiple reputable published 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 earned 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, forward contracts, option 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 March 31, 2022 and June 30, 2021, aggregated by each fair value hierarchy level:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

 

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)

 

$

763,155

 

 

$

 

 

$

 

 

$

763,155

 

Precious metals held under financing arrangements

 

 

87,450

 

 

 

 

 

 

 

 

 

87,450

 

Derivative assets — open sale and purchase commitments, net

 

 

25,389

 

 

 

 

 

 

 

 

 

25,389

 

Derivative assets — futures contracts

 

 

138

 

 

 

 

 

 

 

 

 

138

 

Derivative assets — forward contracts

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Total assets, valued at fair value

 

$

876,578

 

 

$

 

 

$

 

 

$

876,578

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

67,824

 

 

$

 

 

$

 

 

$

67,824

 

Product financing arrangements

 

 

199,447

 

 

 

 

 

 

 

 

 

199,447

 

Derivative liabilities — open sale and purchase commitments, net

 

 

2,522

 

 

 

 

 

 

 

 

 

2,522

 

Derivative liabilities — margin accounts

 

 

4,081

 

 

 

 

 

 

 

 

 

4,081

 

Derivative liabilities — futures contracts

 

 

1,260

 

 

 

 

 

 

 

 

 

1,260

 

Derivative liabilities — forward contracts

 

 

16,920

 

 

 

 

 

 

 

 

 

16,920

 

Total liabilities, valued at fair value

 

$

292,054

 

 

$

 

 

$

 

 

$

292,054

 

 

(1)
Commemorative coin inventory totaling $1,108 thousand is held at lower of cost or realizable value, and thus is excluded from the inventories balance shown in this table.

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

 

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)

 

$

457,613

 

 

$

 

 

$

 

 

$

457,613

 

Precious metals held under financing arrangements

 

 

154,742

 

 

 

 

 

 

 

 

 

154,742

 

Derivative assets — open sale and purchase commitments, net

 

 

38,340

 

 

 

 

 

 

 

 

 

38,340

 

Derivative assets — futures contracts

 

 

4,510

 

 

 

 

 

 

 

 

 

4,510

 

Derivative assets — forward contracts

 

 

1,686

 

 

 

 

 

 

 

 

 

1,686

 

Total assets, valued at fair value

 

$

656,891

 

 

$

 

 

$

 

 

$

656,891

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities on borrowed metals

 

$

91,866

 

 

$

 

 

$

 

 

$

91,866

 

Product financing arrangements

 

 

201,028

 

 

 

 

 

 

 

 

 

201,028

 

Derivative liabilities — open sale and purchase commitments, net

 

 

243

 

 

 

 

 

 

 

 

 

243

 

Derivative liabilities — margin accounts

 

 

2,806

 

 

 

 

 

 

 

 

 

2,806

 

Derivative liabilities — futures contracts

 

 

465

 

 

 

 

 

 

 

 

 

465

 

Derivative liabilities — forward contracts

 

 

4,025

 

 

 

 

 

 

 

 

 

4,025

 

Total liabilities, valued at fair value

 

$

300,433

 

 

$

 

 

$

 

 

$

300,433

 

 

(1)
Commemorative coin inventory totaling $406 thousand is held at lower of cost or net realizable value, and 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 on-going basis but are subject to fair value adjustments only under certain circumstances. These include (i) investments in private companies when there are identifiable events or changes in circumstances that may have a significant adverse impact on the fair value of these assets, (ii) equity method investments that are remeasured to the acquisition-date fair value upon the Company obtaining a controlling interest in the investee during a step acquisition, (iii) property, plant, and equipment and definite-lived intangibles, (iv) digital assets, (v) goodwill, or (vi) indefinite-lived intangibles, all of which are written down to fair value when they are held for sale or determined to be impaired.

With the exception of digital assets, our non-recurring valuations use significant unobservable inputs and significant judgments and therefore fall under Level 3 of the fair value hierarchy. The valuation inputs include assumptions on the 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. The Company used a third-party independent valuation specialist to assist us to determine the fair value of the net assets acquired in connection with Company’s step acquisition of JMB. (Refer to Note 1 in our 2021 Annual Report.)

In regards to the Company's digital assets, the fair value is determined quarterly in accordance with ASC 820 and is based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs). When the quoted prices on active exchanges decrease and indicate that it is more likely than not that our digital assets are impaired, we consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined. As of March 31, 2022, the carrying amounts and estimated fair values of the Company’s digital assets totaled $0.2 million and $0.3 million, respectively.