e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for |
the quarterly period ended December 31, 2008
OR
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the transition period from to
Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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| Texas
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74-1598370 |
| (State or Other Jurisdiction of
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(IRS Employer Identification Number) |
| Incorporation or Organization) |
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| 7900 Callaghan Road
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78229-1234 |
| San Antonio, Texas
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(Zip Code) |
| (Address of Principal Executive Offices) |
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(210) 308-1234
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller Reporting Company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
On January 30, 2009, there were 13,819,673 shares of Registrant’s class A nonvoting common stock
issued and 13,185,449 shares of Registrant’s class A nonvoting common stock issued and outstanding,
no shares of Registrant’s
class B nonvoting common shares outstanding, and 2,091,875 shares of Registrant’s class C voting
common stock issued and outstanding.
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U.S. Global Investors, Inc. |
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December 31, 2008, Quarterly Report on Form 10-Q
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Page 1 of 23 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
Assets
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December 31, 2008 |
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June 30, 2008 |
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(Unaudited) |
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Current Assets |
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Cash and cash equivalents |
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$ |
22,235,465 |
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$ |
25,135,075 |
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Trading securities, at fair value |
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4,156,297 |
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6,991,843 |
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Receivables |
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Mutual funds |
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2,139,609 |
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5,096,117 |
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Offshore clients |
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13,616 |
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3,690,400 |
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Employees |
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1,751 |
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6,111 |
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Other |
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117,689 |
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21,767 |
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Prepaid expenses |
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768,500 |
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628,790 |
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Deferred tax asset |
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547,012 |
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— |
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|
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Total Current Assets |
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29,979,939 |
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41,570,103 |
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Net Property and Equipment |
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3,407,054 |
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2,378,396 |
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Other Assets |
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Deferred tax asset, long term |
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908,970 |
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|
299,351 |
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Investment securities available-for-sale, at fair value |
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520,283 |
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1,246,769 |
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Income tax receivable |
|
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2,038,143 |
|
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— |
|
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|
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Total Other Assets |
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3,467,396 |
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1,546,120 |
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Total Assets |
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$ |
36,854,389 |
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$ |
45,494,619 |
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|
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The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc. |
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December 31, 2008, Quarterly Report on Form 10-Q
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Page 2 of 23 |
Liabilities and Shareholders’ Equity
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December 31, 2008 |
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June 30, 2008 |
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(Unaudited) |
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Current Liabilities |
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Accounts payable |
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$ |
237,578 |
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$ |
289,364 |
|
Accrued compensation and related costs |
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1,037,726 |
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2,396,881 |
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Deferred tax Liability |
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— |
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|
406,730 |
|
Other accrued expenses |
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1,018,530 |
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3,167,900 |
|
|
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|
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Total Current Liabilities |
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2,293,834 |
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6,260,875 |
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Shareholders’ Equity |
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Common stock (class A) — $0.25 par
value; nonvoting; authorized,
28,000,000 shares; issued, 13,819,673
shares and 13,817,269 shares at
December 31, 2008, and June 30, 2008,
respectively |
|
|
345,492 |
|
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|
345,432 |
|
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|
|
|
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Common stock (class B) — $0.25 par
value; nonvoting; authorized,
4,500,000 shares; no shares issued |
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— |
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— |
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Common stock (class C) — $0.25 par
value; voting; authorized, 3,500,000
shares; issued, 2,091,875 shares and
2,094,279 shares at December 31,
2008, and June 30, 2008, respectively |
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52,297 |
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52,357 |
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Additional paid-in-capital |
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14,413,967 |
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14,114,178 |
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Treasury stock, class A shares at
cost; 637,809 and 656,520 shares at
December 31, 2008, and June 30, 2008,
respectively |
|
|
(1,493,351 |
) |
|
|
(1,562,419 |
) |
Accumulated other comprehensive
income (loss), net of tax |
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54 |
|
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|
(325,397 |
) |
Retained earnings |
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21,242,096 |
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26,609,593 |
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Total Shareholders’ Equity |
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34,560,555 |
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39,233,744 |
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Total Liabilities and Shareholders’ Equity |
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$ |
36,854,389 |
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$ |
45,494,619 |
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The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc. |
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December 31, 2008, Quarterly Report on Form 10-Q
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Page 3 of 23 |
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
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Six Months Ended |
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Three Months Ended |
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December 31, |
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December 31, |
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2008 |
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2007 |
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2008 |
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2007 |
|
Revenues |
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Mutual fund advisory fees |
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$ |
10,982,654 |
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$ |
19,907,529 |
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$ |
2,948,348 |
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$ |
10,550,297 |
|
Other advisory fees |
|
|
802,540 |
|
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|
1,548,754 |
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|
149,000 |
|
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|
801,612 |
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Distribution fees |
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|
966,893 |
|
|
|
— |
|
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|
966,893 |
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|
|
— |
|
Administrative services fees |
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|
417,567 |
|
|
|
— |
|
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|
417,567 |
|
|
|
— |
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Transfer agent fees |
|
|
3,544,263 |
|
|
|
4,183,665 |
|
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1,329,861 |
|
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|
2,111,663 |
|
Investment income (loss) |
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|
(5,061,024 |
) |
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|
1,148,543 |
|
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(2,992,670 |
) |
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|
386,575 |
|
Other |
|
|
20,608 |
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|
26,440 |
|
|
|
6,957 |
|
|
|
14,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,673,501 |
|
|
|
26,814,931 |
|
|
|
2,825,956 |
|
|
|
13,864,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Expenses |
|
|
|
|
|
|
|
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|
|
|
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|
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Employee compensation and
benefits |
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|
5,129,140 |
|
|
|
6,533,134 |
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|
|
2,313,177 |
|
|
|
3,386,098 |
|
General and adminstrative |
|
|
6,144,093 |
|
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3,428,068 |
|
|
|
1,527,542 |
|
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|
1,688,244 |
|
Subadvisory fees |
|
|
2,220,585 |
|
|
|
4,858,528 |
|
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|
482,898 |
|
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2,546,937 |
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Platform fees |
|
|
3,017,327 |
|
|
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4,273,220 |
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|
831,896 |
|
|
|
2,346,051 |
|
Advertising |
|
|
237,242 |
|
|
|
244,913 |
|
|
|
89,296 |
|
|
|
119,456 |
|
Depreciation |
|
|
146,772 |
|
|
|
140,940 |
|
|
|
73,965 |
|
|
|
71,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,895,159 |
|
|
|
19,478,803 |
|
|
|
5,318,774 |
|
|
|
10,158,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
(5,221,658 |
) |
|
|
7,336,128 |
|
|
|
(2,492,818 |
) |
|
|
3,706,101 |
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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Provision for Federal Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) |
|
|
(1,693,349 |
) |
|
|
2,462,693 |
|
|
|
(809,658 |
) |
|
|
1,241,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
|
(3,528,309 |
) |
|
|
4,873,435 |
|
|
|
(1,683,160 |
) |
|
|
2,464,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss),
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses)
on available-for-sale
securities |
|
|
325,451 |
|
|
|
(17,068 |
) |
|
|
576,804 |
|
|
|
9,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
$ |
(3,202,858 |
) |
|
$ |
4,856,367 |
|
|
$ |
(1,106,356 |
) |
|
$ |
2,473,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) per Share |
|
$ |
(0.23 |
) |
|
$ |
0.32 |
|
|
$ |
(0.11 |
) |
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) per Share |
|
$ |
(0.23 |
) |
|
$ |
0.32 |
|
|
$ |
(0.11 |
) |
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of
common shares outstanding |
|
|
15,261,582 |
|
|
|
15,243,193 |
|
|
|
15,264,634 |
|
|
|
15,244,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of
common shares outstanding |
|
|
15,285,343 |
|
|
|
15,273,783 |
|
|
|
15,285,459 |
|
|
|
15,273,666 |
|
The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc. |
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December 31, 2008, Quarterly Report on Form 10-Q
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Page 4 of 23 |
Consolidated Statements of Cash Flows (Unaudited)
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|
SIX MONTHS ENDED DECEMBER 31, |
|
| |
|
2008 |
|
|
2007 |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(3,528,309 |
) |
|
$ |
4,873,435 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
146,772 |
|
|
|
140,940 |
|
Net recognized loss on sale of fixed assets |
|
|
2,075 |
|
|
|
— |
|
Net recognized loss on securities |
|
|
2,456,618 |
|
|
|
227,985 |
|
Provision for deferred taxes |
|
|
(1,731,019 |
) |
|
|
76,684 |
|
Stock bonuses |
|
|
103,219 |
|
|
|
47,218 |
|
SFAS 123R compensation expense |
|
|
162,917 |
|
|
|
157,860 |
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, impacting cash
from operations: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
4,503,587 |
|
|
|
8,658,390 |
|
Prepaid expenses |
|
|
(139,710 |
) |
|
|
(173,214 |
) |
Trading securities |
|
|
2,835,546 |
|
|
|
(1,144,420 |
) |
Accounts payable and accrued expenses |
|
|
(3,560,311 |
) |
|
|
(2,981,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
4,779,694 |
|
|
|
5,010,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operations |
|
|
1,251,385 |
|
|
|
9,883,484 |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(1,177,505 |
) |
|
|
(147,375 |
) |
Purchase of available-for-sale securities |
|
|
(1,237,024 |
) |
|
|
(579,876 |
) |
Proceeds on sale of available-for-sale
securities |
|
|
— |
|
|
|
45,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
|
(2,414,529 |
) |
|
|
(681,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities |
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
— |
|
|
|
— |
|
Proceeds from issuance of exercise of
stock and options |
|
|
— |
|
|
|
— |
|
Treasury stock issued |
|
|
102,722 |
|
|
|
102,281 |
|
Dividends paid |
|
|
(1,839,188 |
) |
|
|
(1,379,493 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing Activities |
|
|
(1,736,466 |
) |
|
|
(1,277,212 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash Equivalents |
|
|
(2,899,610 |
) |
|
|
7,924,295 |
|
|
|
|
|
|
|
|
|
|
Beginning Cash and Cash Equivalents |
|
|
25,135,075 |
|
|
|
14,854,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Cash and Cash Equivalents |
|
$ |
22,235,465 |
|
|
$ |
22,778,715 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this statement.
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 5 of 23 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has prepared the consolidated
financial statements pursuant to accounting principles generally accepted in the United States of
America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange
Commission (“SEC”) that permit reduced disclosure for interim periods. The financial information
included herein reflects all adjustments (consisting solely of normal recurring adjustments), which
are, in management’s opinion, necessary for a fair presentation of results for the interim periods
presented. The Company has consistently followed the accounting policies set forth in the notes to
the consolidated financial statements in the Company’s Form 10-K for the fiscal year ended June 30,
2008.
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, United Shareholder Services, Inc. (“USSI”), U.S. Global Investors (Guernsey) Limited,
U.S. Global Brokerage, Inc., and U.S. Global Investors (Bermuda) Limited.
All significant intercompany balances and transactions have been eliminated in consolidation.
Certain amounts have been reclassified for comparative purposes. The results of operations for the
six months ended December 31, 2008, are not necessarily indicative of the results to be expected
for the entire year.
Note 2. Dividend
Payment of cash dividends is within the discretion of the Company’s board of directors and is
dependent on earnings, operations, capital requirements, general financial condition of the
Company, and general business conditions. A dividend of $0.02 per share is authorized through
March, 2009, and will be reviewed by the board quarterly.
Note 3. Investments
As of December 31, 2008, the Company held investments with a market value of approximately $4.7
million and a cost basis of approximately $6.8 million. The market value of these investments is
approximately 12.7 percent of the Company’s total assets. The Company currently has no investments
in debt securities or mortgage-backed securities.
During the quarter ended December 31, 2008, other-than-temporary impairments of $2.457 million were
realized on corporate investments classified as available-for-sale relating primarily to two
holdings. The impairment is the difference between the investments’ cost basis of $2.977 million
and their fair value of $520,201. The fair value of the investments at December 31, 2008, will
become the new cost basis, which will not be adjusted for any subsequent recoveries in fair value.
Investments in securities classified as trading are reflected as current assets on the consolidated
balance sheet at their fair market value. Unrealized holding gains and losses on trading
securities are included in earnings in the consolidated statements of operations and comprehensive
income.
Investments in securities classified as available-for-sale, which may not be readily marketable,
are reflected as non-current assets on the consolidated balance sheet 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.
| |
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|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q |
|
Page 6 of 23 |
The following summarizes the market value, cost, and unrealized gain or loss on investments as of
December 31, 2008, and June 30, 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
losses on available-for- |
|
| |
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
sale securities, net of |
|
| Securities |
|
Market Value |
|
|
Cost |
|
|
Gain (Loss) |
|
|
tax |
|
| |
Trading 1 |
|
$ |
4,156,297 |
|
|
$ |
6,276,578 |
|
|
$ |
(2,120,281 |
) |
|
|
N/A |
|
Available-for-sale 2 |
|
|
520,283 |
|
|
|
520,201 |
|
|
|
82 |
|
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2008 |
|
$ |
4,676,580 |
|
|
$ |
6,796,779 |
|
|
$ |
(2,120,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading 1 |
|
$ |
6,991,843 |
|
|
$ |
6,275,478 |
|
|
$ |
716,365 |
|
|
|
N/A |
|
Available-for-sale 2 |
|
|
1,246,769 |
|
|
|
1,739,795 |
|
|
|
(493,026 |
) |
|
$ |
(325,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at June 30, 2008 |
|
$ |
8,238,612 |
|
|
$ |
8,015,273 |
|
|
$ |
223,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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. |
Investment income can be volatile and varies depending on market fluctuations, the Company’s
ability to participate in investment opportunities, and timing of transactions. A significant
portion of the unrealized gains and losses for the six months ended December 31, 2008, is
concentrated in a small number of issuers. 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; and |
| |
| |
• |
|
dividend and interest income. |
The following summarizes investment income (loss) reflected in earnings for the periods discussed:
| |
|
|
|
|
|
|
|
|
| |
|
Six Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
Investment Income (Loss) |
|
|
|
|
|
|
|
|
Realized gains (losses) on sales of available-for-sale securities |
|
$ |
— |
|
|
|
34,522 |
|
Realized gains (losses) on sales of trading securities |
|
|
— |
|
|
|
(262,507 |
) |
Unrealized gains (losses) on trading securities |
|
|
(2,836,646 |
) |
|
|
555,402 |
|
Realized foreign currency losses |
|
|
(48,795 |
) |
|
|
183 |
|
Other-than-temporary declines in available-for-sale securities |
|
|
(2,456,618 |
) |
|
|
— |
|
Dividend and interest income |
|
|
281,035 |
|
|
|
820,943 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
(5,061,024 |
) |
|
$ |
1,148,543 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
Investment Income (Loss) |
|
|
|
|
|
|
|
|
Realized gains (losses) on sales of available-for-sale securities |
|
$ |
— |
|
|
|
34,522 |
|
Realized gains (losses) on sales of trading securities |
|
|
— |
|
|
|
(262,507 |
) |
Unrealized gains (losses) on trading securities |
|
|
(596,890 |
) |
|
|
58,457 |
|
Realized foreign currency losses |
|
|
(46,992 |
) |
|
|
183 |
|
Other-than-temporary declines in available-for-sale securities |
|
|
(2,456,618 |
) |
|
|
— |
|
Dividend and interest income |
|
|
107,830 |
|
|
|
555,920 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
(2,992,670 |
) |
|
$ |
386,575 |
|
|
|
|
|
|
|
|
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 7 of 23 |
Note 4. Fair Value Disclosures
U.S. Global adopted Statement of Financial Accounting Standards (“SFAS”) No. 157 Fair Value
Measurements (“SFAS No. 157”) effective July 1, 2008. SFAS No. 157 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. SFAS No. 157 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. Additionally, companies are required to provide enhanced disclosures regarding
instruments in the Level 3 category (which have inputs to the valuation techniques that are
unobservable and require significant management judgment), including a reconciliation of the
beginning and ending values separately for each major category of assets or liabilities.
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 that are not active or for which all
significant inputs are observable, directly or indirectly.
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 following table presents fair value measurements, as of December 31, 2008, for the two major
categories of U.S. Global’s investments measured at fair value on a recurring basis:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurement using(in thousands) |
|
| |
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
| |
|
|
|
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
| |
|
Quoted Prices |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
| |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
| |
Trading Securities |
|
$ |
3,683 |
|
|
$ |
473 |
|
|
|
— |
|
|
|
4,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities |
|
|
520 |
|
|
|
— |
|
|
|
— |
|
|
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
$ |
4,203 |
|
|
$ |
473 |
|
|
|
— |
|
|
|
4,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately 90 percent of the Company’s financial assets measured at fair value are derived from
Level 1 inputs including SEC-registered mutual funds and equity securities traded on an active
market and the remaining 10 percent are Level 2 inputs including an investment in an offshore fund.
U.S. Global held investments in two securities with a value of zero that were measured at fair
value using significant unobservable inputs (Level 3) at December 31, 2008. There were no realized
or unrealized gains or losses or transactions in these securities or any transfers in or out of
Level 3 during the three month period ended December 31, 2008.
Note 5. Investment Management, Transfer Agent and Other Fees
Investment advisory fees for the USGIF funds totaled $10,982,654 and $19,907,529 for the six months
ended December 31, 2008, and December 31, 2007, respectively. Transfer agency fees totaled
$3,544,263 and $4,183,665 for the six months ended December 31, 2008, and December 31, 2007,
respectively.
The Company serves as investment adviser to U.S. Global Investors Funds (“USGIF”) and receives a
fee based on a specified percentage of net assets under management. Two of the funds within USGIF
(Eastern European Fund and Global Emerging Markets
Fund) were subadvised by a third-party manager, Charlemagne Capital (IOM) Limited (“Charlemagne”)
through November 6, 2008.
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 8 of 23 |
Effective November 7, 2008, the Company assumed the day-to-day
management of both funds. The subadvisory agreements with Charlemagne were amended, effective
November 7, 2008, to reflect reduced subadvisory fees in light of restructured responsibilities.
USSI also serves as transfer agent to USGIF and receives fees based on the number of shareholder
accounts as well as transaction and activity-based fees. Fees for providing investment management
and transfer agent services to USGIF continue to be the Company’s primary revenue source.
A special meeting of shareholders of USGIF and USGAF was held on September 23, 2008, to consider
several proposals. The new proposals were approved effective October 1, 2008, and included (i) a
reorganization of the USGIF and USGAF funds from two separate Massachusetts business trusts into a
single Delaware statutory trust under the name USGIF, (ii) a new advisory agreement for the USGIF
funds and (iii) a new distribution plan for the nine equity USGIF funds under which U.S. Global
Brokerage, Inc. is paid a fee at an annual rate of 0.25 percent of the average daily net assets of
each fund. A full discussion of the proposals is set forth in proxy materials filed with the SEC by
USGIF and USGAF. The Company incurred a total of $3.74 million in merger-related costs, of which
$3.57 million was recorded in the first quarter of fiscal 2009.
The new advisory agreement for the nine equity USGIF funds provides for a base advisory fee that
will be adjusted upwards or downwards by 0.25 percent if there is a performance difference of 5
percent or more between a fund’s performance and that of its designated benchmark index over the
prior 12 months. With respect to four equity funds, the new advisory agreement also will increase
the base advisory fee and make changes to the advisory fee breakpoints. In addition, administrative
services that were part of the previous advisory agreement were removed and became the subject of a
separate agreement. Under the new administrative services agreement, the USGIF funds no longer
reimburse the Company for certain legal and administrative services, but instead pay the Company
compensation at an annual rate of 0.08 percent of the average daily net assets of each fund for
administrative services provided by the Company to USGIF.
Prior to October 1, 2008, the Company voluntarily waived or reduced its advisory fees and/or agreed
to pay expenses on seven of thirteen funds. Effective October 1, 2008, the Company agreed to cap
the expenses of all thirteen funds through September 30, 2009. The Company and each fund’s Board
of Trustees will negotiate the amounts of these expense caps from time to time. The aggregate fees
waived and expenses borne by the Company for the six months ended December 31, 2008, and December
31, 2007, were $2,214,127, and $726,399, respectively.
On November 6, 2008, effective immediately, the Company terminated its relationship with Endeavour
Financial Corp. as the subadviser to its equity portfolio. As investment adviser, the Company was
paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance
fee, if any, based on a percentage of consolidated net income from operations in excess of a
predetermined percentage return on equity. The Company recorded fees totaling $661,262 and
$1,277,197 for the six months ended December 31, 2008, and December 31, 2007, respectively.
The Company continues to provide advisory services for two offshore clients and receives monthly
advisory fees based on the net asset values of the clients and performance fees, if any, based on
the overall increase in net asset values. The Company recorded fees from these clients totaling
$141,278 and $271,557 for the six months ended December 31, 2008, and December 31, 2007,
respectively. The performance fees for these clients are calculated and recorded quarterly in
accordance with the terms of the advisory agreements. These fees may fluctuate significantly from
year to year based on factors that may be out of the Company’s control. Frank Holmes, CEO, serves
as a director of the offshore clients.
The Company receives additional revenue from several sources including custodial fee revenues,
revenues from mailroom operations, and investment income.
Substantially all of the cash and cash equivalents included in the balance sheet at December 31,
2008, and June 30, 2008, are invested in USGIF money market funds.
Note 6. Borrowings
As of December 31, 2008, the Company has no long-term liabilities.
The Company has access to a $1 million credit facility with a one-year maturity for working capital
purposes. The credit agreement requires the Company to maintain certain quarterly financial
covenants to access the line of credit. As of December 31, 2008, this credit facility remained
unutilized by the Company.
Note 7. Stock-Based Compensation
Beginning in fiscal year 2006, with the adoption of the Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), stock-based compensation expense was
recorded for the cost of stock options. Stock-based
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 9 of 23 |
compensation expense for the six months ended December 31, 2008, and December 31, 2007,
respectively, was $162,917 and $157,860. As of December 31, 2008, and December 31, 2007,
respectively, there was approximately $275,197 and $604,313 of total unrecognized share-based
compensation cost related to share-based compensation granted under the plans that will be
recognized over the remainder of their respective vesting periods.
Stock compensation plans
The Company’s stock option plans provide for the granting of class A shares as either incentive or
nonqualified stock options to employees and non-employee directors. Options are subject to terms
and conditions determined by the Compensation Committee of the Board of Directors.
The following table summarizes information about the Company’s stock option plans for the six
months ended December 31, 2008.
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
| |
|
Number of Options |
|
|
Exercise Price |
|
Options outstanding, beginning of year |
|
|
77,300 |
|
|
$ |
13.66 |
|
Granted |
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,300 |
|
|
$ |
13.66 |
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
52,560 |
|
|
$ |
9.81 |
|
|
|
|
|
|
|
|
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 10 of 23 |
Note 8. Earnings Per Share
The basic earnings per share (“EPS”) calculation excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of EPS that could occur if options to issue common stock were
exercised.
The following table sets forth the computation for basic and diluted earnings per share (EPS):
| |
|
|
|
|
|
|
|
|
| |
|
Six Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
|
Net income (loss) |
|
$ |
(3,528,309 |
) |
|
$ |
4,873,435 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding shares |
|
|
|
|
|
|
|
|
Basic |
|
|
15,261,582 |
|
|
|
15,243,193 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
23,761 |
|
|
|
30,590 |
|
|
|
|
|
|
|
|
Diluted |
|
|
15,285,343 |
|
|
|
15,273,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.23 |
) |
|
$ |
0.32 |
|
Diluted |
|
$ |
(0.23 |
) |
|
$ |
0.32 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
|
Net income (loss) |
|
$ |
(1,683,160 |
) |
|
$ |
2,464,603 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding shares |
|
|
|
|
|
|
|
|
Basic |
|
|
15,264,634 |
|
|
|
15,244,563 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
20,825 |
|
|
|
29,103 |
|
|
|
|
|
|
|
|
Diluted |
|
|
15,285,459 |
|
|
|
15,273,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.11 |
) |
|
$ |
0.16 |
|
Diluted |
|
$ |
(0.11 |
) |
|
$ |
0.16 |
|
The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed
the average market price for the period. For the quarter ended December 31, 2008, 53,300 options
were excluded from diluted EPS.
The Company may repurchase stock from employees. The Company made no repurchases of shares of its
class A, class B, or class C common stock during the quarter ended December 31, 2008. Upon
repurchase, these shares are classified as treasury shares and are deducted from outstanding shares
in the earnings per share calculation.
Note 9. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Provisions for
income taxes include deferred taxes for temporary differences in the bases of assets and
liabilities for financial and tax purposes, resulting from the use of the liability method of
accounting for income taxes. The current deferred tax asset primarily consists of unrealized
losses on trading securities as well as temporary differences in the deductibility of prepaid
expenses and accrued liabilities. The long-term deferred tax asset is composed primarily of
unrealized losses on available-for-sale securities and the tax benefit of carryovers. For federal
income tax purposes at December 31, 2008, the Company had charitable contribution carryovers of
approximately $31,000 expiring in fiscal 2013.
A valuation allowance is provided when it is more likely than not that some portion of the deferred
tax amount will not be realized. No valuation allowance was included or deemed necessary at
December 31, 2008, or June 30, 2008.
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 11 of 23 |
Note 10. Financial Information by Business Segment
The Company operates principally in two business segments: providing investment management services
to the funds it advises and investing for its own account in an effort to add growth and value to
its cash position. The following schedule details total revenues and income by business segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Investment |
|
|
|
|
|
|
|
| |
|
Management |
|
|
Corporate |
|
|
|
|
| |
|
Services |
|
|
Investments |
|
|
Consolidated |
|
Six months ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
16,986,908 |
|
|
$ |
(5,313,407 |
) |
|
$ |
11,673,501 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
94,593 |
|
|
$ |
(5,316,251 |
) |
|
$ |
(5,221,658 |
) |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
146,772 |
|
|
$ |
— |
|
|
$ |
146,772 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
1,177,505 |
|
|
$ |
— |
|
|
$ |
1,177,505 |
|
|
|
|
|
|
|
|
|
|
|
Gross identifiable assets at December 31, 2008 |
|
$ |
30,691,976 |
|
|
$ |
4,706,431 |
|
|
$ |
35,398,407 |
|
Deferred tax asset |
|
|
|
|
|
|
|
|
|
|
1,455,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets at December 31, 2008 |
|
|
|
|
|
|
|
|
|
$ |
36,854,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
26,484,433 |
|
|
$ |
330,498 |
|
|
$ |
26,814,931 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
7,005,994 |
|
|
$ |
330,134 |
|
|
$ |
7,336,128 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
140,940 |
|
|
$ |
— |
|
|
$ |
140,940 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
147,375 |
|
|
$ |
— |
|
|
$ |
147,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
5,903,190 |
|
|
$ |
(3,077,234 |
) |
|
$ |
2,825,956 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
587,169 |
|
|
$ |
(3,079,987 |
) |
|
$ |
(2,492,818 |
) |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
73,965 |
|
|
$ |
— |
|
|
$ |
73,965 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
575,321 |
|
|
$ |
— |
|
|
$ |
575,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
14,031,165 |
|
|
$ |
(167,007 |
) |
|
$ |
13,864,158 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
3,873,287 |
|
|
$ |
(167,186 |
) |
|
$ |
3,706,101 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
71,271 |
|
|
$ |
— |
|
|
$ |
71,271 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
78,487 |
|
|
$ |
— |
|
|
$ |
78,487 |
|
|
|
|
|
|
|
|
|
|
|
Note 11. Contingencies and Commitments
The Company continuously reviews any investor, employee or vendor complaints, and any pending or
threatened litigation. The likelihood that a loss contingency exists is evaluated under the
criteria of SFAS No. 5, “Accounting for Contingencies,” through consultation with legal counsel,
and a loss contingency is recorded if the contingency is probable and reasonably estimable at the
date of the financial statements.
During the normal course of business, the Company may be subject to claims, legal proceedings, and
other contingencies. These matters are subject to various uncertainties, and it is possible that
some of these matters may be resolved unfavorably. The Company establishes accruals for matters for
which the outcome is probable and can be reasonably estimated. Management believes that any
liability in excess of these accruals upon the ultimate resolution of these matters will not have a
material adverse effect on the consolidated financial statements of the Company.
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 12 of 23 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
U.S. Global has made forward-looking statements concerning the Company’s performance, financial
condition, and operations in this report. The Company from time to time may also make
forward-looking statements in its public filings and press releases. Such forward-looking
statements are subject to various known and unknown risks and uncertainties and do not guarantee
future performance. Actual results could differ materially from those anticipated in such
forward-looking statements due to a number of factors, some of which are beyond the Company’s
control, including: (i) the volatile and competitive nature of the investment management industry,
(ii) changes in domestic and foreign economic conditions, (iii) the effect of government regulation
on the Company’s business, and (iv) market, credit, and liquidity risks associated with the
Company’s investment management activities. Due to such risks, uncertainties, and other factors,
the Company cautions each person receiving such forward-looking information not to place undue
reliance on such statements. All such forward-looking statements are current only as of the date on
which such statements were made.
Recent Trends and Continuing Disruptions in Worldwide Financial Markets
Due to the consequences of the meltdown in the subprime mortgage market beginning in 2007, the
worldwide financial markets have encountered intense volatility due to uncertainty and disruption
within the credit markets. This disruption moved into 2008 causing global equities to decline
worldwide. The Company’s investment advisory fees and operating revenue primarily depend on the
value of our assets under management, and continued global market fluctuations impact the funds’
asset levels, thereby affecting income and results of operations.
This global strain has resulted in a seizing of the international credit markets resulting in
unprecedented worldwide governmental actions. For instance, on September 7, 2008, the U.S.
Government moved to guarantee the outstanding debt of Fannie Mae and Freddie Mac. On September 19,
2008, the U.S. Treasury Department (the “Treasury”) announced a temporary guarantee program
(Temporary Guarantee Program for Money Market Funds) for publicly available money market funds
which elected to participate in the program.
Furthermore, on October 3, 2008, the U.S. Congress enacted the Emergency Economic Stabilization Act
of 2008, which sanctioned the Treasury Secretary to create the Troubled Assets Relief Program and
authorize the purchase of up to $700 billion of troubled assets. Despite these aggressive
governmental programs and actions, the global financial markets continue to remain extremely
volatile.
This unsettled financial environment has had an impact on the Company’s assets under management.
Total assets under management at June 30, 2008, were $5.753 billion versus $3.330 billion at
September 30, 2008, and $1.981 billion at December 31, 2008. Total assets under management at
December 31, 2008, were $1.981 billion versus $5.704 billion at December 31, 2007.
BUSINESS SEGMENTS
The Company, with principal operations located in San Antonio, Texas, manages two business
segments: (1) the Company offers a broad range of investment management products and services to
meet the needs of individual and institutional investors; and (2) the Company invests for its own
account in an effort to add growth and value to its cash position. Although the Company generates
the majority of its revenues from its investment advisory segment, the Company holds a significant
amount of its total assets in investments. The following is a brief discussion of the Company’s
two business segments.
Investment Management Products and Services
The Company generates substantially all of its operating revenues from managing and servicing USGIF
and other advisory clients. These revenues are largely dependent on the total value and composition
of assets under its management. Fluctuations in the markets and investor sentiment directly impact
the funds’ asset levels, thereby affecting income and results of operations.
The Company continues to provide advisory services for two offshore clients and receives monthly
advisory fees based on the net asset values of the clients and performance fees, if any, based on
the overall increase in net asset values. The Company recorded fees from these clients totaling
$141,278 and $271,557 for the six months ended December 31, 2008, and December 31, 2007,
respectively. The performance fees for these clients are calculated and recorded quarterly in
accordance with the terms of the advisory agreements. These fees may fluctuate significantly from
year to year based on factors that may be out of the Company’s control.
At December 31, 2008, total assets under management as of period end, including both SEC-registered
funds and offshore clients, were $1.981 billion versus $5.704 billion at December 31, 2007. During
the six months ended December 31, 2008, average assets
| |
|
|
U.S. Global Investors, Inc. |
|
|
December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 13 of 23 |
under management were $3.105 billion versus
$5.329 billion for the same period ended December 31, 2007. This decrease was primarily due to a
decrease in the natural resources and foreign equity funds under management. Total assets under
management at June 30, 2008, were $5.753 billion versus $1.981 billion at December 31, 2008.
Investment Activities
Management believes it can more effectively manage the Company’s cash position by broadening the
types of investments used in cash management and continues to believe that such activities are in
the best interest of the Company. Company compliance and operational personnel review and monitor
these activities, and various reports are provided to investment advisory clients.
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; and |
| |
| |
• |
|
dividend and interest income. |
This source of revenue does not remain consistent and is dependent on market fluctuations, the
Company’s ability to participate in investment opportunities, and timing of transactions.
As of December 31, 2008, the Company held investments with a market value of approximately $4.7
million and a cost basis of approximately $6.8 million. The market value of these investments is
approximately 12.7 percent of the Company’s total assets. The Company currently has no investments
in debt securities or mortgage-backed securities.
During the quarter ended December 31, 2008, other-than-temporary impairments of $2.457 million were
realized on corporate investments classified as available-for-sale relating primarily to two
holdings. The impairment is the difference between the investments’ cost basis of $2.977 million
and their fair value of $520,201. The fair value of the investments at December 31, 2008, will
become the new cost basis, which will not be adjusted for any subsequent recoveries in fair value.
The following summarizes investment income (loss) reflected in earnings for the periods discussed:
| |
|
|
|
|
|
|
|
|
| |
|
Six Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
Investment Income (Loss) |
|
|
|
|
|
|
|
|
Realized gains (losses) on sales of available-for-sale securities |
|
$ |
— |
|
|
|
34,522
|
|
Realized gains (losses) on sales of trading securities |
|
|
— |
|
|
|
(262,507 |
) |
Unrealized gains (losses) on trading securities |
|
|
(2,836,646 |
) |
|
|
555,402 |
|
Realized foreign currency losses |
|
|
(48,795 |
) |
|
|
183 |
|
Other-than-temporary declines in available-for-sale securities |
|
|
(2,456,618 |
) |
|
|
— |
|
Dividend and interest income |
|
|
281,035 |
|
|
|
820,943 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
(5,061,024 |
) |
|
$ |
1,148,543 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
Investment Income (Loss) |
|
|
|
|
|
|
|
|
Realized gains (losses) on sales of available-for-sale securities |
|
$ |
— |
|
|
|
34,522 |
|
Realized gains (losses) on sales of trading securities |
|
|
— |
|
|
|
(262,507 |
) |
Unrealized gains (losses) on trading securities |
|
|
(596,890 |
) |
|
|
58,457 |
|
Realized foreign currency losses |
|
|
(46,992 |
) |
|
|
183 |
|
Other-than-temporary declines in available-for-sale securities |
|
|
(2,456,618 |
) |
|
|
— |
|
Dividend and interest income |
|
|
107,830 |
|
|
|
555,920 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
(2,992,670 |
) |
|
$ |
386,575 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| U.S. Global Investors, Inc. |
|
|
| December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 14 of 23 |
RESULTS OF OPERATIONS — SIX MONTHS ENDED DECEMBER 31, 2008, AND 2007
The Company posted a net after-tax loss of $3,528,309 ($0.23 loss per share) for the six months
ended December 31, 2008, compared with a net after-tax income of $4,873,435 ($0.32 income per
share) for the six months ended December 31, 2007.
Revenues
Total consolidated revenues for the six months ended December 31, 2008, decreased $15,141,430, or
56 percent, compared with the six months ended December 31, 2007. This decrease was primarily
attributable to the following:
| |
• |
|
Investment advisory fees decreased by approximately $9,671,000 primarily as a result of
decreased assets under management in the natural resources and emerging markets funds; and |
| |
| |
• |
|
Investment income decreased by approximately $6,210,000 primarily as a result of
declines in the market value of trading securities in the natural resources and emerging
markets sectors as well as an other-than-temporary impairment as a result of declines in
the market value of available-for-sale securities. |
Expenses
Total consolidated expenses for the six months ended December 31, 2008, decreased $2,583,644, or 13
percent, compared with the six months ended December 31, 2007. This was largely attributable to
the following:
| |
• |
|
Subadvisory fees decreased by $2,638,000 due to decreased assets in the funds being
subadvised and the change in subadvisory contracts discussed in Note 5; |
| |
| |
• |
|
Employee compensation decreased by$1,404,000 primarily due to lower bonuses resulting
from decreased assets under management as well as lower relative performance in certain of
the funds; |
| |
| |
• |
|
Platform fees decreased by $1,256,000 due to decreased assets under management; and |
| |
| |
• |
|
These decreases in expenses were somewhat offset by an increase in general and
administrative expenses of $2,717,000 primarily due to proxy-related costs associated with
the merger of the USGIF and USGAF trusts. |
RESULTS OF OPERATIONS — THREE MONTHS ENDED DECEMBER 31, 2008, AND 2007
The Company posted a net after-tax loss of $1,683,160 ($0.11 loss per share) for the three months
ended December 31, 2008, compared with a net after-tax income of $2,464,603 ($0.16 income per
share) for the three months ended December 31, 2007.
Revenues
Total consolidated revenues for the three months ended December 31, 2008, decreased $11,038,202, or
80 percent, compared with the six months ended December 31, 2007. This decrease was primarily
attributable to the following:
| |
• |
|
Investment advisory fees decreased by approximately $8,255,000 primarily as a result of
decreased assets under management in the natural resources and emerging markets funds; and |
| |
| |
• |
|
Investment income decreased by approximately $3,379,000 primarily as a result of
declines in the market value of available-for-sale securities resulting in an
other-than-temporary impairment. |
Expenses
Total consolidated expenses for the three months ended December 31, 2008, decreased $4,839,283, or
48 percent, compared with the three months ended December 31, 2007. This was largely attributable
to the following:
| |
• |
|
Subadvisory fees decreased by $2,064,000 due to decreased assets in the funds being
subadvised and the change in subadvisory contracts discussed in Note 5; |
| |
| |
• |
|
Platform fees decreased by $1,514,000 due to decreased assets under management; and |
| |
| |
• |
|
Employee compensation decreased by $1,073,000 primarily due to lower bonuses resulting
from decreased assets under management as well as lower relative performance in certain of
the funds. |
|
|
|
| |
|
|
| U.S. Global Investors, Inc. |
|
|
| December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 15 of 23 |
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, the Company had net working capital (current assets minus current
liabilities) of approximately $27.7 million and a current ratio (current assets divided by current
liabilities) of 13.1 to 1. With approximately $22.2 million in cash and cash equivalents and
approximately $4.7 million in marketable securities, the Company has adequate liquidity to meet its
current obligations. Total shareholders’ equity was approximately $34.6 million, with cash, cash
equivalents, and marketable securities comprising 73 percent of total assets.
As of December 31, 2008, the Company has no long-term liabilities. The Company has access to a $1
million credit facility with a one-year maturity for working capital purposes. The credit agreement
requires the Company to maintain certain quarterly financial covenants to access the line of
credit. As of December 31, 2008, this credit facility remained unutilized by the Company.
Management believes current cash reserves, financing obtained and/or available, and potential cash
flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the
above-mentioned activities and allow the Company to take advantage of opportunities for growth
whenever available.
Market volatility may cause the price of the Company’s publicly traded class A shares to fluctuate,
which in turn may allow the Company an opportunity to buy back stock at favorable prices.
The investment advisory and related contracts between the Company and USGIF will expire September
30, 2009. Management anticipates the board of trustees of USGIF will renew the contracts. The
Company provides advisory services to two offshore clients. The Company generally receives a
monthly advisory fee and a quarterly performance fee, if any, based on agreed-upon performance
measurements. The contracts between the Company and these offshore clients expire periodically,
and management anticipates that its offshore clients will renew the contracts.
The Company receives additional revenue from several sources including custodial fee revenues,
revenues from mailroom operations, and investment income.
|
|
|
| |
|
|
| U.S. Global Investors, Inc. |
|
|
| December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 16 of 23 |
ACCOUNTING PRONOUNCEMENTS
The Company is subject to extensive and often complex, overlapping and frequently changing
governmental regulation and accounting oversight. Moreover, financial reporting requirements, such
as those listed below, and the processes, controls and procedures that have been put in place to
address them, are comprehensive and complex. While management has focused considerable attention
and resources on meeting these reporting requirements, interpretations by regulatory or accounting
agencies that differ from those of the Company could negatively impact financial results.
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157,
“Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements because the FASB had
previously concluded in those accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, SFAS 157 does not require any new fair value measurements. In February
2008, the FASB issued an FSP to defer the effective date of SFAS 157 for one year for nonfinancial
assets and liabilities recognized or disclosed at fair value on a non-recurring basis. Management
adopted the provisions of SFAS 157 related to all financial assets and liabilities and nonfinancial
assets and liabilities recognized or disclosed at fair value on a recurring basis on July 1, 2008.
Management continues to evaluate the impact this statement will have on the Consolidated Financial
Statements once its provisions are adopted for nonfinancial assets and liabilities recognized or
disclosed at fair value on a non-recurring basis.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities — Including an Amendment of FASB Statement No. 115.” SFAS 159 allows entities
to voluntarily choose to measure many financial assets and liabilities at fair value. The election
is made on an instrument-by-instrument basis and is irrevocable. Once the election is made for the
instrument, all subsequent changes in fair value for that instrument must be reported in earnings.
SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have not elected to
apply the provisions of SFAS 159 to any of our financial instruments; therefore, the adoption of
SFAS 159 effective July 1, 2008, has not affected our financial position or results of operations.
In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-11, “Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards,” (“EITF 06-11”). Under the
provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that
are charged to retained earnings and are paid to employees for equity classified nonvested equity
shares, nonvested equity share units, and outstanding equity share options should be recognized as
an increase to additional paid-in capital. The amount recognized in additional paid-in capital for
the realized income tax benefit from dividends on those awards should be included in the pool of
excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11
should be applied prospectively to the income tax benefits that result from dividends on
equity-classified employee share-based payment awards that are declared in fiscal years beginning
after December 15, 2007, and interim periods within those fiscal years. Accordingly, the Company
adopted EITF 06-11 on July 1, 2008. The adoption of EITF 06-11 did not have a material effect on
the Company’s financial position or results of operations for the quarter ended December 31, 2008.
CRITICAL ACCOUNTING POLICIES
For a discussion of critical accounting policies that the Company follows, please refer to the
notes to the consolidated financial statements included in the Annual Report on Form 10-K for the
year ended June 30, 2008.
|
|
|
| |
|
|
| U.S. Global Investors, Inc. |
|
|
| December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 17 of 23 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s balance sheet includes assets whose fair value is subject to market risks. Due to the
Company’s investments in equity securities, equity price fluctuations represent a market risk
factor affecting the Company’s consolidated financial position. The carrying values of investments
subject to equity price risks are based on quoted market prices or, if not actively traded,
management’s estimate of fair value as of the balance sheet date. Market prices fluctuate, and the
amount realized in the subsequent sale of an investment may differ significantly from the reported
market value.
The Company’s investment activities are reviewed and monitored by Company compliance personnel, and
various reports are provided to investment advisory clients. Written procedures are also in place
to manage compliance with the code of ethics.
The table below summarizes the Company’s equity price risks as of December 31, 2008, and shows the
effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Estimated Fair Value |
|
Increase (Decrease) |
| |
|
Fair Value at |
|
Hypothetical |
|
After Hypothetical |
|
in Shareholders' |
| SENSITIVITY ANALYSIS |
|
December 31, 2008 |
|
Percentage Change |
|
Price Change |
|
Equity, Net of Tax |
| |
Trading securities1 |
|
$ |
4,156,297 |
|
|
25% increase |
|
$ |
5,195,371 |
|
|
$ |
685,789 |
|
|
|
|
|
|
|
25% decrease |
|
$ |
3,117,223 |
|
|
$ |
(685,789 |
) |
Available-for-sale2 |
|
$ |
520,283 |
|
|
25% increase |
|
$ |
650,353 |
|
|
$ |
85,847 |
|
|
|
|
|
|
|
25% decrease |
|
$ |
390,212 |
|
|
$ |
(85,847 |
) |
|
|
|
| 1 |
|
Unrealized and realized gains and losses on trading securities are included in earnings in the
statement of operations. |
| |
| 2 |
|
Unrealized and realized gains and losses on available-for-sale securities are excluded from
earnings and recorded in other comprehensive income as a component of shareholders’ equity until
realized. |
The selected hypothetical change does not reflect what could be considered best or worst-case
scenarios. Results could be significantly worse due to both the nature of equity markets and the
concentration of the Company’s investment portfolio.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures as of December 31, 2008, was conducted under the supervision and with the
participation of management, including our chief executive officer and chief financial officer.
Based on that evaluation, the chief executive officer and chief financial officer concluded that
our disclosure controls and procedures were effective as of December 31, 2008.
There has been no change in the Company’s internal control over financial reporting that occurred
during the quarter ended December 31, 2008, that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
|
|
|
| |
|
|
| U.S. Global Investors, Inc. |
|
|
| December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 18 of 23 |
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors
For a discussion of risk factors which could affect the Company, please refer to Item 1A. “Risk
Factors” in the Annual Report on Form 10-K for the year ended June 30, 2008. There has been no
material changes since fiscal year end to the risk factors listed therein.
ITEM 6. Exhibits
1. Exhibits -
| |
1.1 |
|
Advisory Agreement with U.S. Global Investors Funds, dated October 1, 2008, incorporated
by reference to Post-Effective Amendment 100 filed October 1, 2008 (EDGAR Accession No.
0000950134-08-017422). |
| |
| |
1.2 |
|
Transfer Agency Agreement, dated July 31, 2008, by and between U.S. Global Investors Funds
and United Shareholder Services, Inc., incorporated by reference to Post -Effective
Amendment 100 filed October 1, 2008 (EDGAR Accession No. 0000950134-08-017422). |
| |
| |
1.3 |
|
Administrative Services Agreement, dated October 1, 2008, by and between U.S. Global
Investors Funds and U.S. Global Investors, Inc., incorporated by reference to
Post-Effective Amendment 100 filed October 1, 2008 (EDGAR Accession No.
0000950134-08-017422). |
| |
| |
1.4 |
|
Rule 12b-1 Plan, dated October 1, 2008, by and between U.S. Global Investors Funds and
U.S. Global Brokerage, Inc., incorporated by reference to Post-Effective Amendment 100
filed October 1, 2008 (EDGAR Accession No. 0000950134-08-017422). |
| |
| |
1.5 |
|
Distribution Agreement, dated October 1, 2008, by and between U.S. Global Investors Funds
and U.S. Global Brokerage, Inc., incorporated by reference to Post-Effective Amendment 100
filed October 1, 2008 (EDGAR Accession No. 0000950134-08-017422). |
| |
| |
31 |
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act Of 2002 |
| |
| |
32 |
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act Of 2002 |
|
|
|
| |
|
|
| U.S. Global Investors, Inc. |
|
|
| December 31, 2008, Quarterly Report on Form 10-Q
|
|
Page 19 of 23 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereto duly authorized.
| |
|
|
|
|
|
|
|
|
|
|
U.S. GLOBAL INVESTORS, INC. |
|
|
|
|
|
|
|
|
|
DATED: February 6, 2009
|
|
BY:
|
|
/s/ Frank E. Holmes
|
|
|
|
|
|
|
Frank E. Holmes |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
DATED: February 6, 2009
|
|
BY:
|
|
/s/ Catherine A. Rademacher |
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine A. Rademacher |
|
|
|
|
|
|
Chief Financial Officer |
|
|