Filing summary: Great American Group, Inc. — fiscal year ended December 31, 2012
Entity note: The filing is for Great American Group, Inc. (OTCBB: GAMR), not BRC Group Holdings, Inc. It is an annual report for fiscal 2012, not a standalone fourth-quarter filing; quarterly figures are included below where relevant. Financial figures are in millions of dollars unless otherwise stated.
Business context
Great American provides auction and liquidation, valuation and appraisal, capital advisory, financing, and real estate services. Its three reportable segments are Auction and Liquidation, Valuation and Appraisal, and UK Retail Stores. The UK retail segment began after the company obtained control of Shoon Trading Limited in May 2012: it invested for a 40% equity interest, but consolidated Shoon because it controlled a majority of the board. Shoon operated ten footwear stores.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $83.936 | $63.526 |
| Operating income | $7.441 | $7.440 |
| Operating margin | 8.9% | 11.7% |
| Net income | $4.340 | $0.602 |
| Net income attributable to Great American | $3.521 | $0.602 |
| Basic and diluted EPS | $0.12 | $0.02 |
| Cash from operating activities | $16.210 | $(2.045) |
- Revenue rose 32.1%; services and fees were $65.624 million and goods sales were $18.312 million. Annual revenue included $10.206 million from Shoon after acquisition.
- Operating income was essentially unchanged despite higher revenue; operating margin narrowed. The company reported a $1.366 million Shoon bargain-purchase gain and lower interest expense, which helped lift earnings. Net income attributable to noncontrolling interests was $0.819 million.
- Segment revenue: Auction and Liquidation $48.238 million; Valuation and Appraisal $25.492 million; UK Retail Stores $10.206 million. Reported segment gross margins were 59.3%, 54.6%, and 46.4%, respectively. Auction and Liquidation gross margin declined from 66.9% in 2011; Valuation and Appraisal declined from 57.7%.
- FY 2012 quarterly revenue was $19.320 million, $19.651 million, $14.235 million, and $30.730 million. Quarterly operating income was $2.400 million, $0.764 million, $(0.659) million, and $4.936 million, respectively. Fourth-quarter net income was $2.576 million, of which $2.382 million was attributable to Great American.
- At year-end, cash and cash equivalents were $18.721 million and restricted cash was $7.923 million. Current assets were $63.958 million versus current liabilities of $34.275 million. Total assets were $80.583 million, total liabilities $84.758 million, and equity was a $4.175 million deficit.
- Debt included $52.2 million of subordinated notes payable to former owners and phantom equityholders, plus a $9.513 million equipment-secured note. The accounts-receivable revolving line had $2.304 million outstanding; there were no borrowings under the $100 million asset-based facility. The filing says asset-based advances and letters of credit are at the lender’s discretion.
- Investing activities used $6.764 million and financing activities used $5.888 million. Operating cash flow benefited from $8.5 million of loan collections and $1.7 million from an oil-rig sale. Restricted cash included $6.667 million securing a letter of credit and $1.256 million related to leased oil rigs.
Changes, outlook, and material items
- Compared with 2011, revenue increased, but operating income remained flat and operating margin fell. Growth included wholesale/industrial auctions, UK financing and real estate consulting, appraisal work, and Shoon; lower capital-advisory fees partly offset those gains.
- The company generated $16.2 million of operating cash versus using $2.0 million in 2011. It attributed the improvement partly to loan collections and the oil-rig sale, so the cash-flow increase should not be assumed to represent recurring operating performance.
- In August 2012, the company supported a Fashion Bug liquidation with a $6.7 million letter of credit. The liquidation exceeded its minimum guarantee; the letter of credit was returned in March 2013. The company reported $6.3 million of related revenue received in the first quarter of 2013.
- Management said existing cash, expected operating cash flow, and available credit were expected to cover working capital and capital expenditure needs for at least 12 months. The $100 million asset-based facility was due to expire in July 2013, and future advances were discretionary. No specific revenue or earnings guidance was provided.
- Key risks include volatile, engagement-dependent revenue; guarantee and outright-purchase losses; concentration in major clients and liquidation work; UK lending, retail, and currency exposure; competition; and substantial debt. The company disclosed prior defaults under credit agreements for late financial statements and failure to meet minimum net-worth requirements.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The auditor issued an unqualified opinion on the financial statements, but did not attest to internal control. The company reported no litigation expected to materially affect its financial position or results.
Important facts for investors to verify
- Confirm the exact registrant and ticker: this filing identifies Great American Group, Inc., not BRC Group Holdings, Inc.
- Review the terms, maturity, payment provisions, and related-party nature of the $52.2 million subordinated notes, as well as the $9.513 million equipment-backed note and its collateral.
- Check the renewal or replacement status of the asset-based credit facility due to expire in July 2013, and the availability and terms of any discretionary advances.
- Assess how much 2012 earnings and cash generation depended on the Shoon bargain-purchase gain, nonrecurring loan discount income and collections, oil-rig proceeds, and concentrated engagements.
- Monitor Shoon’s operating performance, the repayment and collateral coverage of its loan, and the company’s exposure to UK retail and foreign-currency movements.
- Review subsequent filings for the Fashion Bug proceeds and letter-of-credit release, and for any developments in the related-party note receivable, which was extended to December 2013 and was no longer accruing interest at year-end.