Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities, at Fair Value

v3.3.0.814
Assets and Liabilities, at Fair Value
3 Months Ended
Sep. 30, 2015
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, 2015 and June 30, 2015.
in thousands
 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
June 30, 2015
 
 
Carrying Amount
 
Fair value
 
Carrying Amount
 
Fair value
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
Cash
 
$
5,044

 
$
5,044

 
$
20,927

 
$
20,927

Receivables, and advances, net
 
47,899

 
47,899

 
30,025

 
30,025

Secured loans
 
50,416

 
50,416

 
49,316

 
49,316

Derivative assets - open sale and purchase commitments, net
 
7,508

 
7,508

 
1,722

 
1,722

Derivative assets - futures contracts
 
2,842

 
2,842

 
5,363

 
5,363

Derivative assets - forward contracts
 
276

 
276

 
4,279

 
4,279

Income taxes receivable from Former Parent
 
1,095

 
1,095

 
1,095

 
1,095

Financial liabilities:
 
 
 
 
 
 
 
 
Lines of credit
 
$
176,900

 
$
176,900

 
$
147,000

 
$
147,000

Liability for borrowed metals
 
4,009

 
4,009

 
9,500

 
9,500

Product financing obligation
 
50,030

 
50,030

 
39,425

 
39,425

Derivative liabilities - liability on margin accounts
 
6,367

 
6,367

 
6,908

 
6,908

Derivative liabilities - open sale and purchase commitments, net
 
6,183

 
6,183

 
10,989

 
10,989

Derivative liabilities - forward contracts
 
343

 
343

 

 

Accounts payable, advances and other payables
 
78,499

 
78,499

 
50,639

 
50,639

Accrued liabilities
 
4,242

 
4,242

 
5,330

 
5,330


The fair values of the financial instruments shown in the above table as of September 30, 2015 and June 30, 2015 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, available observable and unobservable inputs.
The carrying amounts of cash and cash equivalents, secured loans, accounts receivable, 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 and 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 Obligations. Product financing obligations 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 obligations 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, 2015 and June 30, 2015 aggregated by the level in the fair value hierarchy within which the measurements fall:
 
 
September 30, 2015
 
 
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:
 
 
 
 
 
 
 
 
Inventory (1)
 
$
254,343

 
$

 
$

 
$
254,343

Derivative assets — open sale and purchase commitments, net
 
7,508

 

 

 
7,508

Derivative assets — futures contracts
 
2,842

 

 

 
2,842

Derivative assets — forward contracts
 
276

 

 

 
276

Total assets valued at fair value
 
$
264,969

 
$

 
$

 
$
264,969

Liabilities:
 
 
 
 
 
 
 
 
Liability on borrowed metals
 
$
4,009

 
$

 
$

 
$
4,009

Product financing arrangement
 
50,030

 

 

 
50,030

Derivative liabilities — Liability on margin accounts
 
6,367

 

 

 
6,367

Derivative liabilities — open sales and purchase commitments, net
 
6,183

 

 

 
6,183

Derivative liabilities — forward contracts
 
343

 

 

 
343

Total liabilities, valued at fair value
 
$
66,932

 
$

 
$

 
$
66,932

____________________
(1) Commemorative coin inventory totaling $0.2 million is held at lower of cost or market and is thus excluded from this table.
 
 
June 30, 2015
 
 
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:
 
 
 
 
 
 
 
 
Inventory (1)
 
$
189,983

 
$

 
$

 
$
189,983

Derivative assets — open sale and purchase commitments, net
 
1,722

 

 

 
1,722

Derivative assets — futures contracts
 
5,363

 

 

 
5,363

Derivative assets — forward contracts
 
4,279

 

 

 
4,279

Total assets, valued at fair value
 
$
201,347

 
$

 
$

 
$
201,347

Liabilities:
 
 
 
 
 
 
 
 
Liability on borrowed metals
 
$
9,500

 
$

 
$

 
$
9,500

Product financing arrangement
 
39,425

 

 

 
39,425

Derivative liabilities — Liability on margin accounts
 
6,908

 

 

 
6,908

Derivative liabilities — open sale and purchase commitments, net
 
10,989

 

 

 
10,989

Total liabilities valued at fair value
 
$
66,822

 
$

 
$

 
$
66,822


____________________
(1) Commemorative coin inventory totaling $1.5 million 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 three months ended September 30, 2015.
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 investments that are written down to fair value when their declines are 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 cost method investments on a non-recurring basis. The Company's investments in ownership interests in noncontrolled entities do not have readily determinable fair values and were recorded at cost, $2.5 million, in aggregate. Quoted prices of the investments are not available, and the cost of obtaining an independent valuation appears excessive considering the materiality of the instruments to the Company. There were no gains or losses recognized in earnings associated with the Company's ownership interests in these noncontrolled entities during the three months ended September 30, 2015.
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, 2015, 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, 2015.