XML 17 R8.htm IDEA: XBRL DOCUMENT v3.5.0.2
INVESTMENTS
 3 Months Ended
Sep. 30, 2016
Disclosure Text Block Supplement [Abstract]  
Investments and Other Noncurrent Assets [Text Block]
NOTE 2. INVESTMENTS

As of September 30, 2016, the Company held investments with a fair value of approximately $14.4 million and a cost basis of approximately $14.5 million. The fair value of these investments is approximately 53.0 percent of the Company’s total assets. In addition, the Company owned other investments of $2.7 million accounted for under the cost method of accounting. On September 30, 2016, the Company had $11.2 million and $448,000 at fair value invested in U.S. Global Investors Funds (“USGIF” or the “Funds”) and an offshore fund the Company advises, respectively. These amounts were included in the Consolidated Balance Sheets as “trading securities” and “available-for-sale securities.”

Investments in securities classified as trading are reflected as current assets on the Consolidated Balance Sheets at their fair value. Unrealized holding gains and losses on trading securities are included in earnings in the Consolidated Statements of Operations.

Investments in securities classified as available-for-sale, which may not be readily marketable, are reflected as non-current assets on the Consolidated Balance Sheets at their fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income as a separate component of shareholders’ equity until realized.

Other investments consist of equity investments in entities over which the Company is unable to exercise significant influence and which do not have readily determinable fair values. These investments are accounted for under the cost method of accounting and evaluated periodically for impairment.

The Company considers many factors in determining impairment, including the severity and duration of the decline in value below cost, the Company’s interest and ability to hold the security for a period of time sufficient for an anticipated recovery in value, and the financial condition and specific events related to the issuer. When an impairment of a security is determined to be other than temporary, the impairment is recognized as a loss in the Company’s earnings.

The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

The following details the components of the Company’s investments recorded as fair value as of September 30, 2016, and June 30, 2016.

   
September 30, 2016   
  
(dollars in thousands)
  
Cost
    
Gains
    
(Losses)
    
Fair Value
  
Trading securities1
                        
Mutual funds - Fixed income
  
$
9,284
    
$
112
    
$
-
    
$
9,396
  
Mutual funds - Domestic equity
    
535
      
-
      
(175
)
    
360
  
Other
    
45
      
-
      
(45
)
    
-
  
Offshore fund
    
1,184
      
-
      
(736
)
    
448
  
Total trading securities
  
$
11,048
    
$
112
    
$
(956
)
  
$
10,204
  
                                 
Available-for-sale securities2
                                
Common stock - Domestic
  
$
109
    
$
13
    
$
-
    
$
122
  
Common stock - International
    
602
      
199
      
(1
)
    
800
  
Corporate debt
    
1,038
      
518
      
-
      
1,556
  
Mutual funds - Fixed income
    
1,221
      
13
      
(8
)
    
1,226
  
Mutual funds - Domestic equity
    
394
      
-
      
(7
)
    
387
  
Other
    
56
      
10
      
-
      
66
  
Total available-for-sale securities3
  
$
3,420
    
$
753
    
$
(16
)
  
$
4,157
  

   
June 30, 2016     
  
(dollars in thousands)
  
Cost
    
Gains
    
(Losses)
    
Fair Value
  
Trading securities1
                        
Mutual funds - Fixed income
  
$
9,284
    
$
124
    
$
-
    
$
9,408
  
Mutual funds - Domestic equity
    
535
      
-
      
(197
)
    
338
  
Other
    
45
      
-
      
(45
)
    
-
  
Offshore fund
    
1,184
      
-
      
(826
)
    
358
  
Total trading securities
  
$
11,048
    
$
124
    
$
(1,068
)
  
$
10,104
  
                                 
Available-for-sale securities2
                                
Common stock - Domestic
  
$
109
    
$
21
    
$
-
    
$
130
  
Common stock - International
    
613
      
16
      
(83
)
    
546
  
Corporate debt
    
1,038
      
86
      
-
      
1,124
  
Mutual funds - Fixed income
    
1,226
      
18
      
(23
)
    
1,221
  
Mutual funds - Domestic equity
    
394
      
2
      
-
      
396
  
Other
    
56
      
8
      
-
      
64
  
Total available-for-sale securities3
  
$
3,436
    
$
151
    
$
(106
)
  
$
3,481
  

1  
Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.

2  
Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.

3  
Net unrealized gains (losses) on available-for-sale securities gross and net of tax as of September 30, 2016, are $737 and $737, respectively, and as of June 30, 2016, are $45 and $45, respectively.

Investment income can be volatile and varies depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. The Company expects that gains and losses will continue to fluctuate in the future.

Investment income (loss) from the Company’s investments includes:

•  
realized gains and losses on sales of securities;

•  
unrealized gains and losses on trading securities;

•  
realized foreign currency gains and losses;

•  
other-than-temporary impairments on available-for-sale securities;

•  
other-than-temporary impairments on held-at-cost securities; and

•  
dividend and interest income.

The following summarizes investment income reflected in earnings for the periods discussed:

(dollars in thousands)
  
Three Months Ended September 30,
  
Investment Income
  
2016
    
2015
  
Realized gains on sales of available-for-sale securities
  
$
-
    
$
531
  
Realized losses on sales of trading securities
    
-
      
(35
)
Unrealized gains (losses) on trading securities
    
99
      
(64
)
Realized foreign currency gains
    
2
      
35
  
Other-than-temporary declines in available-for-sale securities
    
(16
)
    
(60
)
Dividend and interest income
    
168
      
127
  
Total Investment Income
  
$
253
    
$
534
  

Included in investment income were other-than temporary declines in value on available-for-sale securities of approximately $16,000 for the three months ended September 30, 2016, and $60,000 for the three months ended September 30, 2015. The impairment losses resulted from fair values of securities being lower than book value and proposed changes to debt securities. During the three months ended September 30, 2016, two securities with a combined cost basis of $98,000 were written down to a combined fair value of $82,000. During the three months ended September 30, 2015, three securities with a combined cost basis of $49,000 were written down to a combined fair value of $12,000. Also during the three months ended September 30, 2015, a debt security with a cost basis of $970,000 was written down to $947,000 based on the net present value of estimated cash flows. In making these determinations, the Company considered the length of time and extent to which the fair value has been less than cost basis, financial condition and prospects of the issuers and the Company’s ability to hold the investment until recovery.

Unrealized Losses

The following tables show the gross unrealized losses and fair values of available-for-sale investment securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position. The Company reviewed the gross unrealized losses shown as of September 30, 2016, and determined that the losses were not other-than-temporary based on consideration of the nature of the investment and the cause, severity and duration of the loss.

   
September 30, 2016     
  
   
Less Than 12 Months
    
12 Months or Greater
    
Total
  
         
Gross
          
Gross
          
Gross
  
         
Unrealized
          
Unrealized
          
Unrealized
  
(dollars in thousands)
  
Fair Value
    
Losses
    
Fair Value
    
Losses
    
Fair Value
    
Losses
  
Available-for-sale securities
                                    
Common stock - Domestic
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
Common stock - International
    
-
      
-
      
35
      
(1
)
    
35
      
(1
)
Corporate debt
    
-
      
-
      
-
      
-
      
-
      
-
  
Mutual funds - Fixed income
    
-
      
-
      
164
      
(8
)
    
164
      
(8
)
Mutual funds - Domestic equity
    
387
      
(7
)
    
-
      
-
      
387
      
(7
)
Other
    
-
      
-
      
-
      
-
      
-
      
-
  
Total available-for-sale securities
  
$
387
    
$
(7
)
  
$
199
    
$
(9
)
  
$
586
    
$
(16
)

   
June 30, 2016
  
   
Less Than 12 Months
    
12 Months or Greater
    
Total
  
         
Gross
          
Gross
          
Gross
  
         
Unrealized
          
Unrealized
          
Unrealized
  
(dollars in thousands)
  
Fair Value
    
Losses
    
Fair Value
    
Losses
    
Fair Value
    
Losses
  
Available-for-sale securities
                                    
Common stock - Domestic
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
Common stock - International
    
246
      
(60
)
    
23
      
(23
)
    
269
      
(83
)
Corporate debt
    
-
      
-
      
-
      
-
      
-
      
-
  
Mutual funds - Fixed income
    
1
      
-
      
201
      
(23
)
    
202
      
(23
)
Mutual funds - Domestic equity
    
-
      
-
      
-
      
-
      
-
      
-
  
Other
    
-
      
-
      
-
      
-
      
-
      
-
  
Total available-for-sale securities
  
$
247
    
$
(60
)
  
$
224
    
$
(46
)
  
$
471
    
$
(106
)

Fair Value Hierarchy

ASC 820, Fair Value Measurement and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy (i.e., Levels 1, 2, and 3 inputs, as defined below). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, value of these products does not entail a significant degree of judgment.

Level 2 – Valuations based on quoted prices in markets for which not all significant inputs are observable, directly or indirectly. Corporate debt securities valued in accordance with the evaluated price supplied by an independent service are categorized as Level 2 in the hierarchy. Other securities categorized as Level 2 include securities valued at the mean between the last reported bid and ask quotation.

Level 3 – Valuations based on inputs that are unobservable and significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with the investing in those securities. Because of the inherent uncertainties of valuation, the values reflected may materially differ from the values received upon actual sale of those investments.

For actively traded securities, the Company values investments using the closing price of the securities on the exchange or market on which the securities principally trade. If the security is not traded on the last business day of the quarter, it is generally valued at the mean between the last bid and ask quotation. Mutual funds, which include open- and closed-end funds, exchange-traded funds, and offshore funds, are valued at net asset value or closing price, as applicable. Certain corporate debt securities not traded on an exchange may be valued by an independent pricing service using an evaluated quote based on such factors as institutional-size trading in similar groups of securities, yield, quality maturity, coupon rate, type of issuance and individual trading characteristics and other market data. As part of its independent price verification process, the Company reviews the fair value provided by the pricing service using information such as transactions in these investments, broker quotes, market transactions in comparable investments, general market conditions and the issuer’s financial condition. Certain debt securities may be valued based on review of similarly structured issuances in similar jurisdictions, when possible, or based on other traded debt securities issued by the issuer. The Company also takes into consideration numerous other factors that could affect valuation such as overall market conditions, liquidity of the security and bond structure. Securities for which market quotations are not readily available are valued at their fair value as determined by the portfolio management team. The portfolio management team includes representatives from the investment, accounting and legal/compliance departments. The portfolio management team meets periodically to consider a number of factors in determining a security’s fair value, including the security’s trading volume, market values of similar class issuances, investment personnel’s judgment regarding the market experience of the issuer, financial status of the issuer, the issuer’s management, and back testing, as appropriate. The fair values may differ from what may have been used had a broader market for these securities existed. The portfolio management team reviews inputs and assumptions and reports material items to the board of directors.

The following presents fair value measurements, as of September 30, 2016, and June 30, 2016, for the major categories of U.S. Global’s investments measured at fair value on a recurring basis:

   
September 30, 2016
  
               
Significant
        
         
Significant
     Unobservable        
   
Quoted Prices
    
Other Inputs
    
Inputs
        
(dollars in thousands)
  
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Trading securities
                        
Mutual funds - Fixed income
  
$
9,396
    
$
-
    
$
-
    
$
9,396
  
Mutual funds - Domestic equity
    
360
      
-
      
-
      
360
  
Other
    
-
      
-
      
-
      
-
  
Offshore fund investment measured at net asset value1
                            
448
  
Total trading securities
    
9,756
      
-
      
-
      
10,204
  
Available-for-sale securities
                                
Common stock - Domestic
    
122
      
-
      
-
      
122
  
Common stock - International
    
800
      
-
      
-
      
800
  
Corporate debt
    
-
      
1,556
      
-
      
1,556
  
Mutual funds - Fixed income
    
1,226
      
-
      
-
      
1,226
  
Mutual funds - Domestic equity
    
387
      
-
      
-
      
387
  
Other
    
66
      
-
      
-
      
66
  
Total available-for-sale securities
    
2,601
      
1,556
      
-
      
4,157
  
Total
  
$
12,357
    
$
1,556
    
$
-
    
$
14,361
  

   
June 30, 2016 
  
               
Significant
        
         
Significant
     Unobservable        
   
Quoted Prices
    
Other Inputs
    
Inputs
        
(dollars in thousands)
  
(Level 1)
    
(Level 2)
    
(Level 3)
    
Total
  
Trading securities
                        
Mutual funds - Fixed income
  
$
9,408
    
$
-
    
$
-
    
$
9,408
  
Mutual funds - Domestic equity
    
338
      
-
      
-
      
338
  
Other
    
-
      
-
      
-
      
-
  
Offshore fund investment measured at net asset value1
                            
358
  
Total trading securities
    
9,746
      
-
      
-
      
10,104
  
Available-for-sale securities
                                
Common stock - Domestic
    
130
      
-
      
-
      
130
  
Common stock - International
    
546
      
-
      
-
      
546
  
Corporate debt
    
1,124
      
-
      
-
      
1,124
  
Mutual funds - Fixed income
    
1,221
      
-
      
-
      
1,221
  
Mutual funds - Domestic equity
    
396
      
-
      
-
      
396
  
Other
    
64
      
-
      
-
      
64
  
Total available-for-sale securities
    
3,481
      
-
      
-
      
3,481
  
Total
  
$
13,227
    
$
-
    
$
-
    
$
13,585
  

1  
In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.

As of September 30, 2016, approximately 89 percent of the Company’s financial assets measured at fair value were derived from Level 1 inputs and 11 percent of the Company’s financial assets measured at fair value were derived from Level 2 inputs. As of June 30, 2016, all of the Company’s financial assets measured at fair value were derived from Level 1 inputs. The Company recognizes transfers between levels at the end of each quarter.

The Company has available-for-sale investments in corporate debt securities maturing in 2020 which were valued at $1.6 million as of September 30, 2016, using the mean between the last reported bid/ask quotation and were classified as Level 2. As of June 30, 2016, these securities were valued at $1.1 million based on a quoted price on the reporting date and were classified as Level 1.

The Company has an investment in an affiliated offshore fund, classified as trading, which invests in companies in the energy and natural resources sectors. The fair value of this investment has been estimated based on the net asset value per share at $448,000 and $358,000 as of September 30, 2016, and June 30, 2016, respectively. The Company may redeem this investment on the first business day of each month after providing a redemption notice at least forty-five days prior to the proposed redemption date.

The following table is a reconciliation of investments for which unobservable inputs (Level 3) were used in determining fair value during the three months ended September 30, 2016, and September 30, 2015:

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
  
   
September 30, 2016
    
September 30, 2015
  
(dollars in thousands)
        
Corporate Debt
  
Beginning Balance
  
$
-
    
$
539
  
Return of capital
    
-
      
(13
)
Total gains or losses (realized/unrealized)
                
Included in earnings (investment income)
    
-
      
(23
)
Included in other comprehensive income (loss)
    
-
      
56
  
Purchases
    
-
      
-
  
Sales
    
-
      
-
  
    Transfers into Level 3
    
-
      
-
  
    Transfers out of Level 3
    
-
      
-
  
Ending Balance
  
$
-
    
$
559