Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities, at Fair Value

v3.19.3
Assets and Liabilities, at Fair Value
3 Months Ended
Sep. 30, 2019
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, 2019 and June 30, 2019.
in thousands
 
 
 
 
 
 
 
 
 
 
September 30, 2019
 
June 30, 2019
 
 
Carrying Amount
 
Fair value
 
Carrying Amount
 
Fair value
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
Cash
 
$
12,461

 
$
12,461

 
$
8,320

 
$
8,320

Receivables, net
 
23,643

 
23,643

 
26,895

 
26,895

Secured loans receivable
 
150,473

 
150,473

 
125,298

 
125,298

Derivative assets on open sale and purchase commitments, net
 
4,960

 
4,960

 
2,322

 
2,322

Derivative assets on option contracts
 
11

 
11

 
61

 
61

Derivative assets on futures contracts
 
3,871

 
3,871

 
2

 
2

Derivative assets on forward contracts
 
10,704

 
10,704

 
43

 
43

Income taxes receivable
 
1,500

 
1,500

 
1,473

 
1,473

Other long-term assets
 
3,000

 
3,000

 

 

Financial liabilities:
 
 
 
 
 
 
 
 
Lines of credit
 
$
204,000

 
$
204,000

 
$
167,000

 
$
167,000

Liabilities on borrowed metals
 
196,738

 
196,738

 
201,144

 
201,144

Product financing arrangements
 
159,130

 
159,130

 
94,505

 
94,505

Derivative liabilities on margin accounts
 
3,455

 
3,455

 
2,981

 
2,981

Derivative liabilities on price protection programs
 
13

 
13

 
22

 
22

Derivative liabilities on open sale and purchase commitments, net
 
3,115

 
3,115

 
3,822

 
3,822

Derivative liabilities on futures contracts
 

 

 
1,241

 
1,241

Derivative liabilities on forward contracts
 
107

 
107

 
1,905

 
1,905

Accounts payable
 
85,405

 
85,405

 
62,180

 
62,180

Accrued liabilities
 
5,391

 
5,391

 
6,137

 
6,137

Notes payable
 
92,017

 
99,172

 
91,859

 
98,609

 
 
 
 
 
 
 
 
 

The fair values of the financial instruments shown in the above table as of September 30, 2019 and June 30, 2019 represent the 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.
The carrying amounts of cash, secured loans receivable, receivables, income taxes receivable, accounts payable, and accrued liabilities 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 notes payable are reported at their 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.
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.
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:
Inventory. Inventories, which principally include bullion and bullion coins, are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins are 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 net realizable value, 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.
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 commodities inventory 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.
Liability on Price Protection Programs. The Company records an estimate of the fair value of the liability on the price protection programs based on the difference between the contractual price at trade date and the retail price at the remeasurement date (i.e., quarter-end) based on the expected redemption rate. As of September 30, 2019, the Company used the quoted market price based on the current spot rate and used an expected redemption rate of 100%. The use of a throughput rate ignores the future price volatility that would affect the timing and rate of redemption under the program, and, as a result, the liability on the price protection programs is classified in Level 3 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, 2019 and June 30, 2019, aggregated by the level in the fair value hierarchy within which the measurements fall:
 
 
September 30, 2019
 
 
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)
 
$
369,862

 
$

 
$

 
$
369,862

Precious metals held under financing arrangements
 
200,809

 

 

 
200,809

Derivative assets — open sale and purchase commitments, net
 
4,960

 

 

 
4,960

Derivative assets — option contracts
 
11

 

 

 
11

Derivative assets — futures contracts
 
3,871

 

 

 
3,871

Derivative assets — forward contracts
 
10,704

 

 

 
10,704

Total assets, valued at fair value
 
$
590,217

 
$

 
$

 
$
590,217

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Liabilities on borrowed metals
 
$
196,738

 
$

 
$

 
$
196,738

Product financing arrangements
 
159,130

 

 

 
159,130

Derivative liabilities — price protection programs
 

 

 
13

 
13

Derivative liabilities — margin accounts
 
3,455

 

 

 
3,455

Derivative liabilities — open sale and purchase commitments, net
 
3,115

 

 

 
3,115

Derivative liabilities — forward contracts
 
107

 

 

 
107

Total liabilities, valued at fair value
 
$
362,545

 
$

 
$
13

 
$
362,558

____________________
(1) Commemorative coin inventory totaling $2.3 million is held at lower of cost or net realizable value and is thus excluded from this table.
 
 
June 30, 2019
 
 
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)
 
$
292,844

 
$

 
$

 
$
292,844

Precious metals held under financing arrangements
 
208,792

 

 

 
208,792

Derivative assets — open sale and purchase commitments, net
 
2,322

 

 

 
2,322

Derivative assets — option contracts
 
61

 

 

 
61

Derivative assets — futures contracts
 
2

 

 

 
2

Derivative assets — forward contracts
 
43

 

 

 
43

Total assets, valued at fair value
 
$
504,064

 
$

 
$

 
$
504,064

Liabilities:
 
 
 
 
 
 
 
 
Liabilities on borrowed metals
 
$
201,144

 
$

 
$

 
$
201,144

Product financing arrangements
 
94,505

 

 

 
94,505

Derivative liabilities — price protection programs
 

 

 
22

 
22

Derivative liabilities — margin accounts
 
2,981

 

 

 
2,981

Derivative liabilities — open sale and purchase commitments, net
 
3,822

 

 

 
3,822

Derivative liabilities — futures contracts
 
1,241

 

 

 
1,241

Derivative liabilities — forward contracts
 
1,905

 

 

 
1,905

Total liabilities, valued at fair value
 
$
305,598

 
$

 
$
22

 
$
305,620

____________________
(1) Commemorative coin inventory totaling $17 thousand is held at lower of cost or net realizable value and is thus excluded from 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) plant, property 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.