A-Mark 10-Q (w 2014 Mar. F/S)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014



o		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: 001-36347

A-MARK PRECIOUS METALS, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware (State of Incorporation)		11-2464169 (IRS Employer I.D. No.)

429 Santa Monica Blvd.
Suite 230
Santa Monica, CA 90401
(310) 587-1477

__________________________________________________

(Registrant’s Telephone Number, Including Area Code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes. þ No. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer o	Accelerated filer ¨	Non-accelerated filer þ (Do not check if a smaller reporting company)	Smaller reporting company ¨

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

As of May 13, 2014, the registrant had 7,402,664 shares of Common Stock outstanding, par value $0.01 per share.

A-MARK PRECIOUS METALS, INC.

FORM 10-Q

For the Quarter Ended March 31, 2014

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			Page
PART I	Financial Information
	Item 1.	Condensed Consolidated Financial Statements (UNAUDITED)

		Condensed Consolidated Balance Sheets as of March 31, 2013 and June 30, 2013	3
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2014 and 2013	4
		Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended March 31, 2014	5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2014 and 2013	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
	Item 4.	Controls and Procedures	48

PART II	Other Information
	Item 1.	Legal Proceedings	48
	Item 1A.	Risk Factors	49
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 3.	Defaults Upon Senior Securities	57
	Item 4.	Mine Safety Disclosures	57
	Item 5.	Other Information	57
	Item 6.	Exhibits	58
Signatures			58

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PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A-MARK PRECIOUS METALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)



	March 31, 2014		June 30, 2013

ASSETS
Current assets:
Cash	$	7,873	$	21,565
Receivables, net	81,587		109,947

Inventories:
Inventories	144,117		123,824
Restricted inventories	49,684		38,554
	193,801		162,378
Deferred tax assets	5,993		5,993
Prepaid expenses and other assets	939		487
Total current assets	290,193		300,370
Property and equipment, net	1,541		1,213
Goodwill	4,884		4,884
Intangibles, net	2,853		3,141
Investments	500		—
Total assets	$	299,971	$	309,608
LIABILITIES,AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	119,800	$	95,000
Liability on borrowed metals	8,620		20,117
Product financing arrangement	49,684		38,554
Accounts payable	62,244		86,010
Accrued liabilities	5,904		6,601
Payable to Former Parent	—		1,015
Income taxes payable to Former Parent	5,291		8,505
Total current liabilities	251,543		255,802
Deferred tax liabilities	552		552
Total liabilities	252,095		256,354
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued and outstanding: none at March 31, 2014 and June 30, 2013	—		—
Common Stock, par value $0.01; 40,000,000 authorized; 7,402,664 issued and outstanding at March 31, 2014 and June 30, 2013	74		74
Additional paid-in capital	22,282		24,370
Retaining earnings	25,520		28,810
Total stockholders’ equity	47,876		53,254
Total liabilities and stockholders’ equity	$	299,971	$	309,608

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for share and per share data)

(unaudited)



	Three Months Ended						Nine Months Ended
	March 31, 2014			March 31, 2013			March 31, 2014			March 31, 2013

Revenues	$	1,581,547		$	1,833,454		$	4,566,179		$	5,150,050
Cost of sales	1,574,010			1,825,898			4,543,825			5,131,206
Gross profit	7,537			7,556			22,354			18,844

Selling, general and administrative expenses	(4,351		)	(3,985		)	(12,503		)	(10,072		)
Interest income	1,391			1,953			4,298			6,119
Interest expense	(1,002		)	(775		)	(2,879		)	(2,649		)
Unrealized losses on foreign exchange	(60		)	(46		)	—			(24		)
Net income before provision for income taxes	3,515			4,703			11,270			12,218
Provision for income taxes	(1,419		)	(2,093		)	(4,560		)	(5,437		)
Net income	$	2,096		$	2,610		$	6,710		$	6,781

Basic and diluted income per share:
Basic - net income	$	0.28		$	0.34		$	0.87		$	0.87
Diluted - net income	$	0.28		$	0.34		$	0.87		$	0.86
Weighted average shares outstanding
Basic	7,449,050			7,660,113			7,702,529			7,838,972
Diluted	7,515,351			7,723,809			7,748,717			7,891,258

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands, except for share data)

(unaudited)



	Common Stock (Shares)	Common Stock		Additional Paid-in Capital			Retained Earnings			Total Stockholders’ Equity
Balance, June 30, 2013	7,402,644	$	74	$	24,370		$	28,810		$	53,254
Net income	—	—		—			6,710			6,710
Share-based compensation	—	—		110			—			110
Obligation to repurchase common stock				(2,198		)	—			(2,198		)
Dividend declared	—	—		—			(10,000		)	(10,000		)
Balance, March 31, 2014	7,402,644	$	74	$	22,282		$	25,520		$	47,876

See accompanying Notes to Condensed Consolidated Financial Statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)



	Nine Months Ended
	March 31, 2014			March 31, 2013
Cash flows from operating activities:
Net Income	$	6,710		$	6,781
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	681			608
Provision for doubtful accounts	—			(700		)
Share-based compensation	110			103
Changes in assets and liabilities:
Receivables	28,360			41,959
Inventories	(31,423		)	29,604
Prepaid expenses and other current assets	(452		)	81
Accounts payable	(25,964		)	(38,817		)
Liabilities on borrowed metals	(11,497		)	9,438
Accrued liabilities	(697		)	(805		)
Payables to Former Parent	(4,229		)	(3,327		)
Net cash (used in) provided by operating activities	(38,401		)	44,925
Cash flows from investing activities:
Capital expenditures for property and equipment	(721		)	(446		)
Purchase of cost method investment	(500		)	—
Net cash used in investing activities	(1,221		)	(446		)
Cash flows from financing activities:
Product financing arrangement, net	11,130			(5,755		)
Dividends paid to Former Parent	(10,000		)	(15,000		)
Borrowings (repayments) under lines of credit, net	24,800			(13,500		)
Net cash provided by (used in) financing activities	25,930			(34,255		)

Net decrease in cash and cash equivalents	(13,692		)	10,224
Cash and cash equivalents, beginning of period	21,565			11,273
Cash and cash equivalents, end of period	$	7,873		$	21,497
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense	$	2,698		$	2,779
Income taxes	$	7,667		$	7,800
Non-cash investing and financing activities:
Obligation to repurchase common stock	$	2,198		$	—

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

A-Mark Precious Metals, Inc. and its subsidiaries (“A-Mark”, or the “Company”) is a full-service precious metals trading company. Its products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain. The Company's trading-related services include financing, consignment, hedging and various customized financial programs.

Through its wholly owned subsidiary, Collateral Finance Corporation (“CFC”), a licensed California Finance Lender, the Company offers loans on precious metals and rare coins and other collectibles collateral to coin dealers, collectors and investors. Through its wholly owned subsidiary, A-Mark Trading AG, (“AMTAG”), the Company promotes A-Mark bullion products throughout the European continent. Transcontinental Depository Services, (“TDS”), also a wholly owned subsidiary of the Company, offers worldwide storage solutions to institutions, dealers and consumers.

Spinoff from Spectrum Group International, Inc.

The Company filed a registration statement on Form S-1 in connection with the distribution (the “Distribution”) by Spectrum Group International, Inc. (“SGI” or the "Former Parent") to its stockholders of all the outstanding shares of common stock of the Company, par value $0.01 per share. The registration statement was declared effective by the Securities and Exchange Commission (“SEC”) on February 11, 2014. On March 11, 2014, the Company filed a Form 8-A with the SEC to register its shares of common stock under Section 12(b) of the Securities Exchange Act of 1934, as amended. The Distribution, which effected a spinoff of the Company from SGI, was made on March 14, 2014 to SGI stockholders of record on February 12, 2014. On the Distribution date, stockholders of SGI received one share of A-Mark common stock for each four shares of SGI common stock held. Up to and including the Distribution date, the SGI common stock traded on the “regular-way” market; that is, with an entitlement to shares of A-Mark common stock distributed pursuant to the Distribution. SGI common stock did not trade on an ex-distribution market; that is, without an entitlement to shares of A-Mark common stock distributed pursuant to the Distribution.

As a result of the Distribution, the Company is now a publicly traded company independent from SGI. On March 17, 2014, A-Mark’s shares of common stock commenced trading on the NASDAQ Global Select Market under the symbol "AMRK." An aggregate of 7,402,664 shares of A-Mark common stock were distributed in the Distribution. All share and per share information has been retrospectively adjusted to give effect for the Distribution.

In connection with the spinoff, the Company entered into various agreements with SGI, each effective as of March 14, 2014. These agreements are described below.

Distribution Agreement

The Distribution Agreement (the "Distribution Agreement") set forth the principal actions to be taken in connection with the Distribution and also governs our ongoing relationship with SGI following the Distribution.

•

A-Mark-SGI Arrangements. All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between us and our subsidiaries and other affiliates, on the one hand, and SGI and its other subsidiaries and other affiliates, on the other hand, terminated effective as of the distribution, except certain agreements and arrangements that we and SGI expressly provided will survive the Distribution.


•	The Distribution; Conditions. The Distribution Agreement governed the rights and obligations of the parties regarding the proposed Distribution and set forth the conditions that must be satisfied or waived by SGI in its sole discretion.

•

Exchange of Information. The Company and SGI have agreed to provide each other with access to information in the other party's possession or control owned by such party and created prior to the Distribution date, or as may be reasonably necessary to comply with reporting, disclosure, filing or other requirements of any national securities exchange or governmental authority, for use in judicial, regulatory, administrative and other proceedings and to satisfy audit, accounting, litigation and other similar requests. The Company and SGI have also agreed to retain such information in accordance with our respective record retention policies as in effect on the date of the Distribution Agreement, but in no event for fewer than seven years from the Distribution date. Until the end of the first full fiscal year following the Distribution, each party has also agreed to use its reasonable best efforts to assist the other with respect to its financial reporting and audit obligations.

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•

Release of Claims. The Company and SGI agreed to broad releases pursuant to which we released the other and its affiliates, successors and assigns and their respective shareholders, directors, officers, agents and employees from any claims against any of them that arise out of or relate to events, circumstances or actions occurring or failing to occur or any conditions existing at or prior to the time of the Distribution. These releases are subject to certain exceptions set forth in the Distribution Agreement.


•	Indemnification. The Company and SGI agreed to indemnify each other and each other’s current and former directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing against certain liabilities in connection with the Distribution and each other’s respective businesses.

Tax Separation Agreement

The tax separation agreement (the "Tax Separation Agreement") with SGI governs the respective rights, responsibilities and obligations of SGI and us with respect to, among other things, liabilities for U.S. federal, state, local and other taxes. In addition to the allocation of tax liabilities, the Tax Separation Agreement addresses the preparation and filing of tax returns for such taxes and disputes with taxing authorities regarding such taxes. Under the terms of the Tax Separation Agreement, SGI has the responsibility to prepare and file tax returns for tax periods ending prior to the Distribution date and for tax periods which include the Distribution date but end after the Distribution date, which will include A-Mark and its subsidiaries.

These tax returns will be prepared on a basis consistent with past practices. A-Mark has agreed to cooperate in the preparation of these tax returns and have an opportunity to review and comment on these returns prior to filing. A-Mark will pay all taxes attributable to A-Mark and its subsidiaries, and be entitled to any refund with respect to taxes it has paid.

Secondment Agreement

Under the terms of the secondment agreement (the "Secondment Agreement"), A-Mark has agreed to make Gregory N. Roberts, our Chief Executive Officer, and Carol Meltzer, our Executive Vice President, General Counsel and Secretary, available to SGI for the performance of specified management and professional services following the spinoff in exchange for an annual secondment fee of $150,000 (payable monthly) and reimbursement of certain bonus payments.

Neither Mr. Roberts nor Ms. Meltzer will devote more than 20% of their professional working time on a monthly basis to SGI and in no event will the performance of services for SGI interfere with the performance of the duties and responsibilities of Mr. Roberts and Ms. Meltzer to A-Mark. In addition, to the services to be provided under the Secondment Agreement, both Mr. Roberts and Ms. Meltzer are expected to serve as officers and directors of SGI following the spinoff. The Secondment Agreement will terminate on June 30, 2016 and is subject to earlier termination under certain circumstances. Under the Secondment Agreement,

SGI will be obligated to reimburse A-Mark for the portion of the performance bonus payable under Mr. Roberts’ employment agreement with A-Mark (to be effective at the time of the spinoff) attributable to pre-tax profits of SGI.

Equity Awards

Holders of share-based awards denominated in and settleable by delivery of shares of Fomer Parent's common stock, are entitled to receive share-based awards denominated in and settleable by delivery of shares of the Company's common stock based on the exchange ratio of one to 4.17, for which the ratio was based on the three-day-average closing stock price of SGI prior to the Distribution compared to the three-day-average closing stock price of A-Mark after the Distribution. As a result, the Company intends to issue 130,646 restricted stock units, 8,990 stock appreciation rights and options to purchase 249,846 shares of common stock. The shares subject to A-Mark equity awards issued as a result of the adjustments described above will not be drawn from A-Mark’s 2014 Stock Award and Incentive Plan. Rather, A-Mark will be committed to the issuance and/or delivery of shares under such equity awards based on its assumption of the rights and obligations under the SGI equity compensation plans under which the pre-distribution SGI awards were granted and related SGI award agreements.

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current fiscal year's condensed consolidated financial statement presentation.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements reflect the financial condition, results of operations, and cash flows of the Company, and were prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). The Company operated in one segment for all periods presented.

These condensed consolidated financial statements include the accounts of A-Mark, and its wholly owned subsidiaries, CFC, AMTAG and TDS (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated in consolidation. The condensed consolidated statements of income include all revenues and costs attributable to the Company's operations, including costs for certain functions and services performed by SGI and directly charged or allocated based on usage or other systematic methods. The allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted if the Company's operations had been operated as a separate stand-alone entity. Allocations for inter-company shared service expense are made on a reasonable basis to approximate market costs for such services; these allocations are only applicable for periods prior to the spinoff. Management believes the allocation methods are reasonable.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the condensed consolidated balance sheets, condensed consolidated statements of income, condensed consolidated statement of stockholders’ equity, and condensed consolidated statements of cash flows for the periods presented in accordance with U.S. GAAP. Operating results for the three and nine months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014 or for any other interim period during such year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of June 30, 2012 and 2013 and the three years then ended contained in the Company's Form S-1, with an effective date of February 11, 2014, (the “2013 Consolidated Financial Statements”), as filed with the SEC. Amounts related to disclosure of June 30, 2013 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2013 Consolidated Financial Statements.

The condensed consolidated financial statements include the accounts of the A-Mark and all of its wholly-owned subsidiaries. All significant inter-company accounts and transactions including inter-company profits and losses, and inter-company balances have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of fair value, and allowances for doubtful accounts, impairment assessments of long-lived assets and intangible assets, valuation reserve determinations on deferred tax assets, and revenue recognition judgments. Significant estimates also include the Company's fair value determinations with respect to its financial instruments and precious metals materials. Actual results could materially differ from these estimates.

Concentration of Credit Risk

Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.

Assets that potentially subject the Company to concentrations of credit risk consist principally of receivables, loans of inventory to customers, and inventory hedging transactions. Concentration of credit risk with respect to receivables is limited due to the large number of customers composing the Company's customer base, the geographic dispersion of the customers, and the collateralization of substantially all receivable balances. Based on an assessment of credit risk, the Company typically grants collateralized credit to its customers. Credit risk with respect to loans of inventory to customers is minimal, as substantially all amounts are secured by letters of credit issued by creditworthy financial institutions. The Company enters

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into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions. All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents.

Concentration of Suppliers

A-Mark buys precious metals from a variety of sources, including through brokers and dealers, from sovereign and private mints, from refiners and directly from customers. The Company believes that no one or small group of suppliers is critical to its business, since other sources of supply are available that provide similar products on comparable terms.

Concentration of Customers

Customers providing 10 percent or more of the Company's revenues for the three and nine months ended March 31, 2014 and 2013 are listed below:



	Three Months Ended								Nine Months Ended
	March 31, 2014				March 31, 2013				March 31, 2014				March 31, 2013

in thousands	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Total revenue	$	1,581,547	100.0	%	$	1,833,454	100.0	%	$	4,566,179	100.0	%	$	5,150,050	100.0	%
Customer concentrations
Royal Canadian Mint	$	118,442	7.5	%	$	231,272	12.6	%	$	323,728	7.1	%	$	497,646	9.7	%
HSBC Bank USA	454,899		28.8		301,644		16.5		1,160,592		25.4		559,611		10.9
Johnson Matthey	11,526		0.7		39,988		2.1		68,123		1.5		759,214		14.7
Total	$	584,867	37.0	%	$	572,904	31.2	%	$	1,552,443	34.0	%	$	1,816,471	35.3	%

Customers providing 10 percent or more of the Company's accounts receivable, excluding $31.9 million and $35.6 million of secured loans as of March 31, 2014 and June 30, 2013, respectively, are listed below:



	March 31, 2014				June 30, 2013

in thousands	Amount		Percent		Amount		Percent
Total accounts receivable, net (without secured loans)	$	31,957	100.0	%	$	59,028	100.0	%

United States Mint	$	10,234	32.0	%	$	44,185	74.9	%
Royal Canadian Mint	6,837		21.4		8,593		14.6
Total	$	17,071	53.4	%	$	52,778	89.5	%

Customers providing 10 percent or more of the Company's secured loans as of March 31, 2014 and June 30, 2013, respectively, are listed below:



	March 31, 2014				June 30, 2013

in thousands	Amount		Percent		Amount		Percent
Total secured loans, net	$	31,861	100.0	%	$	35,585	100.0	%

Customer A	$	—	—	%	$	15,800	44.4	%
Customer B	2,346		7.4		3,659		10.3
Customer C	4,200		13.1		2,700		7.6
Total	$	6,546	20.5	%	$	22,159	62.3	%

The loss of any of the above customers could have a material adverse effect on the operations of the Company.

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Inventories

Inventories principally include bullion and bullion coins and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources. The premium component included in inventories as of March 31, 2014 and June 30, 2013 was 3.4 million and $1.8 million, respectively (See Note 4). Commemorative coins, which are not hedged, are also included in inventory at the lower of cost or market and totaled $1.8 million and $0.0 million as of March 31, 2014 and June 30, 2013, respectively.

Inventories included amounts borrowed from suppliers under arrangements to purchase precious metals on an unallocated basis. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts under these arrangements require delivery either in the form of precious metals or cash. Corresponding obligations related to liabilities on borrowed metals are reflected on the consolidated balance sheets and totaled $8.6 million and $20.1 million, respectively as of March 31, 2014 and June 30, 2013. The Company mitigates market risk of its physical inventories through commodity hedge transactions. The Company also protects substantially all of its physical inventories from market risk through commodity hedge transactions (see Note 11).

The Company periodically loans metals to customers on a short-term consignment basis, charging interest fees based on the value of the metals loaned. Inventories loaned under consignment arrangements to customers as of March 31, 2014 and June 30, 2013 totaled $7.8 million and $2.6 million. Such inventories are removed at the time the customers elect to price and purchase the metals, and the Company records a corresponding sale and receivable. Substantially, all inventories loaned under consignment arrangements are collateralized for the benefit of the Company.

Inventory includes amounts for obligations under product financing agreement. A-Mark entered into an agreement for the sale of gold and silver at a fixed price to a third party. This inventory is restricted and the Company is allowed to repurchase the inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly fee as percentage of the market value of the outstanding obligation; such monthly charge is classified in interest expense in the condensed consolidated statements of income. These transactions do not qualify as sales and therefore have been accounted for as financing arrangements and reflected in the condensed consolidated balance sheet within obligation under product financing arrangement. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing and the underlying inventory (which is entirely restricted) are carried at fair value, with changes in fair value included as component of cost of precious metals sold. Such obligation totaled $49.7 million and $38.6 million as of March 31, 2014 and June 30, 2013, respectively.

Property and Equipment and Depreciation

Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using a straight line method based on the estimated useful lives of the related assets, ranging from threeto five years.

Goodwill and Purchased Intangible Assets

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

Goodwill and other indefinite life intangibles are evaluated for impairment annually in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the Intangibles - Goodwill and Other Topic 350 of the ASC. Other purchased intangible assets continue to be amortized over their useful lives and are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. The Company may first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. If, based on this qualitative assessment, management determines that goodwill is more likely than not to be impaired, the two-step impairment test is performed. This first step in this test includes comparing the fair value of each reporting unit to its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step in the test is performed, which is measurement of

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the impairment loss. The impairment loss is calculated by comparing the implied fair value of goodwill, as if the reporting unit has been acquired in a business combination, to its carrying amount. As a of March 31, 2014 and June 30, 2013, the Company had no impairments.

If the Company determines it will quantitatively assess impairment, the Company utilizes the discounted cash flow method to determine the fair value of each of its reporting units. In calculating the implied fair value of the reporting unit's goodwill, the present value of the reporting unit's expected future cash flows is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the present value of the reporting unit's expected future cash flows over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. In calculating the implied value of the Company's trade names, the Company uses the present value of the relief from royalty method.

Amortizable intangible assets are being amortized on a straight-line basis which approximates economic use, over periods ranging from four to fifteen years. The Company considers the useful life of the trademarks to be indefinite. The Company tests the value of the trademarks and trade name annually for impairment.

Long-Lived Assets

Long-lived assets, other than goodwill and purchased intangible assets with indefinite lives are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. In evaluating impairment, the carrying value of the asset is compared to the undiscounted estimated future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when estimated future cash flows are less than the carrying amount. Estimates of future cash flows may be internally developed or based on independent appraisals and significant judgment is applied to make the estimates. Changes in the Company's strategy, assumptions and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of long-lived assets. For the nine months ended March 31, 2014 and 2013 management concluded that an impairment write-down was not required.

Investments

On February 18, 2014, the Company purchased 2.5% of the issued and outstanding class A common stock of a nonpublic entity for $0.5 million. As of March 31, 2014, the aggregate carrying amount of the Company’s cost-method investment was $0.5 million. The Company assesses all cost-method investments for impairment quarterly. There were no identifiable events or changes in circumstances that may have had a significant adverse effect of the fair value. As a result, no impairment loss was recorded, nor were any dividends received during the fiscal year 2014. For the three months and nine months ended March 31, 2014 the Company had $23.6 million and $56.2 million of sales with this customer, respectively. As of March 31, 2014, the balance of advances received from this customer totaled $1.2 million.

Investments into ownership interest in noncontrolled entities that do not have readily determinable fair values (i.e., non-marketable equity securities) under Cost Method Investments Topic 325-20 of the ASC ("ASC 325-20") are are initially recorded at cost. Income is recorded for dividends received that are distributed from net accumulated earnings of the noncontrolled entity subsequent to the date of investment. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions in the cost of the investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

Fair Value Measurement

The Fair Value Measurements and Disclosures Topic 820 of the ASC ("ASC 820"), creates a single definition of fair value for financial reporting. The rules associated with ASC 820 state that valuation techniques consistent with the market approach, income approach and/or cost approach should be used to estimate fair value. Selection of a valuation technique, or multiple valuation techniques, depends on the nature of the asset or liability being valued, as well as the availability of data.

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Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of March 31, 2014 and June 30, 2013.



	March 31, 2014				June 30, 2013
in thousands	Carrying Amount		Fair value		Carrying Amount		Fair value
in thousands	Carrying Amount		Fair value		Carrying Amount		Fair value
Financial assets:
Cash	$	7,873	$	7,873	$	21,565	$	21,565
Receivables, advances receivables and secured loans	63,788		63,788		94,509		94,509
Derivative assets - open sales and purchase commitments, net, included in receivable	2,245		2,245		—		—
Derivative assets - futures contracts included in receivable	5,741		5,741		14,967		14,967
Derivative assets - forward contracts included in receivable	9,813		9,813		471		471

Financial liabilities:
Lines of credit	$	119,800	$	119,800	$	95,000	$	95,000
Liability for borrowed metals	8,620		8,620		20,117		20,117
Product financing obligation	49,684		49,684		38,554		38,554
Obligation to repurchase common stock	2,198		2,198		—		—
Derivative liabilities - open sales and purchase commitments, net, included in payable	10,621		10,621		30,192		30,192
Derivative liabilities - futures contracts included in payables	716		716		—		—
Derivative liabilities - forward foreign currency exchange contracts, included in payable	2		2		—		—
Accounts payable, margin accounts, advances and other payables	48,707		48,707		55,818		55,818
Accrued liabilities	5,904		5,904		6,601		6,601
Payable to Former Parent	5,291		5,291		9,520		9,520

The fair values of the financial instruments shown in the above table as of March 31, 2014 and June 30, 2013 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk‑adjusted discount rates, available observable and unobservable inputs.

The carrying amounts of cash and cash equivalents, receivables and secured loans, accounts receivable and consignor advances, and accounts payable approximated fair value due to their short-term nature. The carrying amounts of lines of credit approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.

Valuation Hierarchy

Topic 820 of the ASC established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:


•	Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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•	Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

There were no transfers in or out of Level 2 or 3 during the nine months ended March 31, 2014.

The significant assumptions used determine the carrying fair value and related fair value of the financial instruments are described below:

Inventory. Inventories principally include bullion and bullion coins and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or market, the Company’s inventories are subsequently recorded at their fair market values on a daily basis. The fair value for commodities inventory (i.e., inventory excluding commemorative coins) is determined using pricing and data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventory are classified in Level 1 of the valuation hierarchy.

Derivatives. Futures contracts, forward contracts and open sales and purchase commitments are valued at their intrinsic values, based on the difference between the quoted market price and the contractual price, and are included within Level 1 of the valuation hierarchy.

Margin and Borrowed Metals Liabilities. Margin and borrowed metals liabilities consist of the Company's commodity obligations to margin customers and suppliers, respectively. Margin liabilities and borrowed metals liabilities are carried at fair value, which is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Margin and borrowed metals liabilities are classified in Level 1 of the valuation hierarchy.

Product Financing Obligations. Product Financing Obligations consist of the sale of gold and silver at a fixed price to a third party. Such transactions allow the Company to repurchase this inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges monthly interest as a percentage of the market value of the outstanding obligation, which is carried at fair value. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product Financing Obligations are classified in Level 1 of the valuation hierarchy.

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The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and June 30, 2013 aggregated by the level in the fair value hierarchy within which the measurements fall:



	March 31, 2014
	Quoted Price in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total Balance
Assets:
Inventory ⁽¹⁾	$	191,997	$	—	$	—	$	191,997
Derivative assets — open sales and purchase commitments, net	2,245		—		—		2,245
Derivative assets — futures contracts	5,741		—		—		5,741
Derivative assets — forward contracts	9,813		—		—		9,813
Total assets valued at fair value	$	209,796	$	—	$	—	$	209,796
Liabilities:
Liability on borrowed metals	$	8,620	$	—	$	—	$	8,620
Obligation under product financing arrangement	49,684		—		—		49,684
Liability on margin accounts	7,914		—		—		7,914
Derivative liabilities — open sales and purchase commitments, net	10,621		—		—		10,621
Derivative liabilities — forward contracts	716		—		—		716
Derivative liabilities - forward foreign currency exchange contracts	2		—		—		2
Total liabilities, valued at fair value	$	77,557	$	—	$	—	$	77,557

____________________

(1) = Commemorative coin inventory totaling $1.8 million is held at lower of cost or market and is thus excluded from this table.



	June 30, 2013
	Quoted Price in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total Balance
Assets:
Inventory	$	162,378	$	—	$	—	$	162,378
Derivative assets — futures contracts	14,967		—		—		14,967
Derivative assets — forward contracts	471		—		—		471
Total assets, valued at fair value	$	177,816	$	—	$	—	$	177,816
Liabilities:
Liability on borrowed metals	$	20,117	$	—	$	—	$	20,117
Obligation under product financing arrangement	38,554		—		—		38,554
Liability on margin accounts	6,636		—		—		6,636
Derivative liabilities — open sales and purchase commitments, net	30,192		—		—		30,192
Total liabilities valued at fair value	$	95,499	$	—	$	—	$	95,499

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Assets Measured at Fair Value on a Non-Recurring Basis

Company's goodwill and other intangible assets are measured at fair value on a non-recurring basis. These assets are measured at cost but are written down to fair value if they are impaired. As of March 31, 2014, there were no indications present that the Company's goodwill or other purchased intangibles were impaired, and therefore were not measured at fair value. There were no gains or losses recognized in earnings associated with the above purchased intangibles during the nine months ended March 31, 2014 and 2013.

The Company's investment in an ownership interest in a noncontrolled entity does not have readily determinable fair value and was initially recorded at cost, $0.5 million. The quoted price of the investment not available, and the cost of obtaining an independent valuation appears excessive considering the materiality of the instrument to the Company.There were no gains or losses recognized in earnings associated with the Company's ownership interest in a noncontrolled entity during the nine months ended March 31, 2014.

Revenue Recognition

Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collection is probable. The Company records sales of precious metals, which occurs upon receipt by the customer. The Company records revenues from its metal assaying and melting services after the related services are completed and the effects of forward sales contracts are reflected in revenue at the date the related precious metals are delivered or the contracts expire.

The Company accounts for its metals and sales contracts using settlement date accounting. Pursuant to such accounting, the Company recognizes the sale or purchase of the metals at settlement date. During the period between trade and settlement date, the Company has essentially entered into a forward contract that meets the definition of a derivative in accordance with the Derivatives and Hedging Topic 815 of the ASC. The Company records the derivative at the trade date with a corresponding unrealized gain (loss), which is reflected in the cost of sales in the condensed consolidated statements of income. The Company adjusts the derivatives to fair value on a daily basis until the transaction is physically settled. Sales which are physically settled are recognized at the gross amount in the condensed consolidated statements of income.

Interest Income

The Company enters into certain types of metals transactions with its customers, where both parties have the capacity to make and take delivery of the metals and neither party has any obligation to settle any transactions by other than making or taking physical delivery of the metal, such as its spot deferred transactions. The Company maintains a security interest in the metals and records financing revenue over the terms of the receivable in a form of interest and related fees.

Derivative Instruments

The Company’s inventory consists of precious metals bearing products, and for which Company regularly enters into commitment transactions to purchase and sell precious metal bearing products. The value of our inventory and these commitments is intimately linked to the prevailing price of the underlying precious metal commodity. The Company seeks to minimize the effect of price changes of the underlying commodity and enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with only major credit worthy financial institutions. All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions. Notional balances of the Company's derivative instruments, consisting of contractual metal quantities, are expressed at current spot prices in Note 11.

Commodity futures and forward contract transactions are recorded at fair value on the trade date.

Open futures and forward contracts are reflected in receivables or payables in the condensed consolidated balance sheet at fair value, which is the difference between the original contract value and the market value. The change in unrealized gain (loss) on open contracts from one period to the next is reflected in net gain (loss) on derivative instruments, which is a component of cost of sales in the condensed consolidated statements of income.

Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts. Net gain (loss) on derivative instruments, which is included in the cost of sales, includes amounts recorded on the Company's outstanding metals forwards and futures contracts and on open physical sales and purchase commitments. The

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Company records changes in the market value of its metals forwards and futures contracts in costs of sales, the effect of which is to offset changes in market values of the underlying metals positions.

The Company records the difference between market value and trade value of the underlying commodity contracts as a derivative asset or liability (see Note 3 and Note 7), as well as recording an unrealized gain or loss on derivative instruments in the Company's condensed consolidated statements of income. During the three and nine months ended March 31, 2014, the Company recorded a net unrealized gain (loss) on open future commodity and forward contracts and open sales and purchase commitments of $(19.4) million and $(21.2) million, respectively, and a net realized loss on future commodity contracts of $(1.7) million and $(9.9) million, respectively. During the three and nine months ended March 31, 2013, the Company recorded a net unrealized loss on open future commodity and forward contracts and open purchase and sale commitments of $(3.8) million and $(43.7) million, respectively, and a net realized gain on future commodity contracts of $(19.5) million and $12.3 million, respectively.

Advertising

Advertising costs are expensed as incurred. Advertising expense was $0.3 million and $0.6 million respectively, for the three and nine months ended March 31, 2014 and was $0.2 million and $0.5 million, respectively for the three and nine months ended March 31, 2013.

Shipping and Handling Costs

Shipping and handling costs represent costs associated with shipping product to customers, and receiving product from vendors. Shipping and handling costs incurred totaled $1.2 million and $4.2 million respectively, for the three and nine months ended March 31, 2014 and $1.0 million and $2.7 million for the three and nine months ended March 31, 2013 respectively, and are included in selling, general and administrative expenses in the condensed consolidated statements of income.

Share-Based Compensation

Certain key employees of the Company participated in Stock Incentive Plans (“Former Plans”) of the Former Parent. The Plans permit the grant of stock options and other equity awards to employees, officers and non-employee directors. The Company accounts for equity awards under the provisions of the Compensation - Stock Compensation Topic 718 of the ASC ("ASC 718"), which establishes fair value-based accounting requirements for share-based compensation to employees. ASC 718 requires the Company to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees as expense over the service period in the Company's condensed consolidated financial statements.

Prior to the Distribution, the equity awards had been settled in shares of SGI stock and A-Mark did not reimburse SGI for the expense, therefore it was treated as a capital contribution to A-Mark. Following the Distribution, the Company will settle share-based awards by the delivery of shares of the Company's common stock (see Note 13).

The equity awards assumed by A-Mark in connection of the spinoff were substantially identical terms, conditions and vesting schedules as the previously outstanding. In accordance with the guidance in ASC 718, the assumption shares qualify as a modification of an equity compensation award. As such, the Company calculated the incremental fair value of the awards immediately prior to and after their modification and determined that there was no positive incremental equity compensation cost that was required to be expensed or amortized. Pertaining to the modified awards of A-Mark's employee and non-employees as of the Distribution date, the Company amortizes the unvested awards based on the the fair value and vesting schedule based on the original grant date, as determined by SGI. Pertaining to the modified awards of SGI's employee and non-employees for which A-Mark assumed, the Company does not expense them.

Income Taxes

As part of the process of preparing its condensed consolidated financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the Income Taxes Topic 740 of the ASC. The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating uncertainty in its tax positions. The Company recognizes a benefit for tax positions that it believes will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts the amount of recognized tax benefit based on its evaluation of information that has become available since the end of its last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits, the

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Company does not consider information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company's condensed consolidated financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits. These unrecognized tax benefits are presented in the condensed consolidated balance sheet principally within income taxes payable.

The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. Significant judgment is applied when assessing the need for valuation allowances. Areas of estimation include the Company's consideration of future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the utilization of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. Changes in recognized tax benefits and changes in valuation allowances could be material to the Company's results of operations for any period, but is not expected to be material to the Company's condensed consolidated financial position.

The Company accounts for uncertainty in income taxes under the provisions of Topic 740 of the ASC. These provisions clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements, and prescribe a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions also provide guidance on de-recognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. The potential interest and/or penalties associated with an uncertain tax position are recorded in provision for income taxes on the condensed consolidated statements of income. Please refer to Note 8 for further discussion regarding these provisions.

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company's forecast of the reversal of temporary differences, future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company's effective tax rate on future earnings.

Based on the Company’s assessment, it appears more likely than not that the net deferred tax assets will be realized through future taxable income. Accordingly, no valuation allowance has been established against any of the deferred tax assets. The Company will continue to assess the need for a valuation allowance in the future.

Following the Distribution, the Company will file federal and state income tax returns that are separate from the SGI tax filings. The Company will recognize current and deferred income taxes as a separate taxpayer for periods ending after the date of Distribution.

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Earnings per Share ("EPS")

The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity plan awards, including unexercised stock options, utilizing the treasury stock method.

To determine the weighted average number of common shares outstanding for the periods presented prior to the Distribution, the Former Parent's weighted average number of common shares outstanding was multiplied by distribution ratio of one share of the Company's common stock for every four shares of the Former Parent's common stock. Thereafter, the weighted average number of common shares outstanding was based on the Company's historical basic and fully diluted share figures.

A reconciliation of shares used in calculating basic and diluted earnings per common shares follows. There is no dilutive effect of SARs as such obligations are not settled and were out of the money for the three and nine months ended March 31, 2014 and March 31, 2013.

A reconciliation of basic and diluted shares is as follows:



	Three Months Ended		Nine Months Ended
in thousands	March 31, 2014	March 31, 2013	March 31, 2014	March 31, 2013

Basic weighted average shares outstanding ⁽¹⁾	7,449	7,660	7,703	7,839
Effect of common stock equivalents — stock options and stock issuable under employee compensation plans	66	64	46	52
Diluted weighted average shares outstanding	7,515	7,724	7,749	7,891

____________________

(1) Basic weighted average shares outstanding include the effect of vested but unissued restricted stock grants.

Recent Accounting Pronouncements

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities. In January 2013, the FASB issued Accounting Standards Update No. 2013-01, Clarifying the Scope about Offsetting Assets and Liabilities, which limited the scope of ASU No. 2011-11 guidance to derivatives, repurchase type agreements, and securities borrowing and lending activity. These ASUs require an entity to disclose gross and net information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Both ASUs are effective for annual and interim periods beginning on or after January 1, 2013. The adoption of the accounting standards in these updates did not have a material impact on the Company's consolidated financial position or results of operations.

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3.	RECEIVABLES

Receivables and secured loans consist of the following as of March 31, 2014 and June 30, 2013:



in thousands	March 31, 2014			June 30, 2013

Customer trade receivables	$	12,361		$	38,405
Wholesale trade advances	9,931			20,623
Due from brokers	9,665			—
Subtotal	31,957			59,028
Secured loans	31,861			35,585
Subtotal	63,818			94,613
Less: allowance for doubtful accounts	(30		)	(104		)
Subtotal	63,788			94,509
Derivative assets — open sales and purchase commitments, net	2,245			—
Derivative assets — futures contracts	5,741			14,967
Derivative assets — forward contracts	9,813			471
Receivables, net	$	81,587		$	109,947

Customer trade receivables represent short-term, non-interest bearing amounts due from precious metal sales and are secured by the related precious metals stored with the Company, a letter of credit issued on behalf of the customer, or other secured interests in assets of the customer.

Wholesale trade advances represent advances of refined materials to customers. These advances are limited to a portion of the unrefined materials received. These advances are unsecured, short-term, non-interest bearing advances made to wholesale metals dealers and government mints.

Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts (see Note 11).

Secured loans represent short term loans made to customers of CFC. Loans are fully secured by bullion, numismatic and semi-numismatic material which are held in safekeeping by CFC. As of March 31, 2014 and June 30, 2013, the loans carried weighted-average effective interest rates of 8.3% and 8.0%, respectively, and mature in periods generally ranging from three months to one year.

•

Until October 31, 2011, A-Mark maintained a segregated commodities account with M.F. Global, Inc. (“MFGI”). A-Mark used this account to enter into future transactions to hedge the risk related to its positions with counterparties and physical inventories. MFGI filed for bankruptcy protection on October 31, 2011. At the time MFGI filed for bankruptcy, A-Mark had $20.3 million in funds held at MFGI of which $14.6 million, or 72%, of A Mark's MFGI Equity was returned to A-Mark in December 2011 pursuant to a bulk transfer approved by the Bankruptcy Court. A-Mark has filed a claim in the bankruptcy proceedings for the remaining $5.7 million. In July 2012, A-Mark received an additional distribution of $1.6 million from the trustee for the liquidation of MFGI, bringing the remaining balance to $4.1 million. On December 31, 2012, A-Mark sold its claim to this balance for $3.8 million. During quarter ended December 31, 2011, the Company recorded a $1.0 million reserve for this potential shortfall, which is included in selling, general and administrative expenses. For the nine months ended March 31, 2013, the receipt of proceeds from the sale of the receivable of $3.8 million resulted in a positive impact to the provision for bad doubtful accounts of $0.7 million.

•

On September 27, 2013, CFC paid $0.35 million to a borrower of CFC in exchange for the right to assume a portfolio of short-term loan receivables totaling $12.8 million. The loans were used to satisfy the existing outstanding loan totaling $12.8 million with the borrower of CFC. The receivables were originated by the borrower and this transaction resulted in the assignment of those receivables to CFC. This premium will be amortized ratably as loans pay off. The loans are due on demand with the option to extend maturities for 180 days. For the three months ended and nine months ended March 31, 2014, a total of $2.3 million and $2.3 million in loans were paid off, respectively, and $0.1 million and $0.1 million ,respectively, in premium amortization cost was recorded related to this transaction.

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The Company's derivative assets and liabilities represent the net fair value of the difference between market values and trade values at the trade date for open precious metals sales and purchase contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled (see Note 11). The Company's derivative assets represent the net fair value of open metals forwards and futures contracts. The precious metals forwards and futures contracts are settled at the contract settlement date.

Credit Quality of Financing Receivables and Allowance for Credit Losses

The Company applies a systematic methodology to determine the allowance for credit losses for finance receivables. Based upon the Company's analysis of credit losses and risk factors, secured commercial loans are its sole portfolio segment. This is due to the fact that all loans are very similar in terms of secured material, method of initial and ongoing collateral value determination and assessment of loan to value determination. Typically, the Company's finance receivables within its portfolio have similar credit risk profiles and methods for assessing and monitoring credit risk.

The Company further evaluated its portfolio segments by the class of finance receivables, which is defined as a level of information in which the finance receivables have the same initial measurement attribute and a similar method for assessing and monitoring credit risk. As a result, the Company determined that the secured commercial loans portfolio segment has two classes of receivables, those secured by bullion and those secured by collectibles.

The Company's classes, which align with management reporting, are as follows:



in thousands	March 31, 2014				June 30, 2013

Bullion	$	13,211	41.5	%	$	21,993	61.8	%
Collectibles	18,650		58.5		13,592		38.2
Total secured loans	$	31,861	100.0	%	$	35,585	100.0	%

Impaired loans

A loan is considered impaired if it is probable, based on current information and events, that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Customer loans are reviewed for impairment and include loans that are past due, non-performing or in bankruptcy. Recognition of income is suspended and the loan is placed on non-accrual status when management determines that collection of future income is not probable. Accrual is resumed, and previously suspended income is recognized, when the loan becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans are recorded first against the receivable and then to any unrecognized income.

All loans are contractually subject to margin call. As a result, loans typically do not become impaired due to the fact the Company has the ability to require margin calls which are due upon receipt. Per the terms of the loan agreement, the Company has the right to rapidly liquidate the loan collateral in the event of a default. The material is highly liquid and easily sold to pay off the loan. Such circumstances would result in a short term impairment that would typically result in full repayment of the loan and fees due to the Company.

The Company ceases the accrual of interest on its non-performing loans. There were no impaired loans as of March 31, 2014 and one impaired loan of $0.07 million as of June 30, 2013.

Credit quality of loans

All interest is due and payable within 30 days. A loan is considered past due if interest is not paid in 30 days or collateral calls are not met timely. Loans never achieve the threshold of non performing status due to the fact that customers are generally put into default for any interest past due over 30 days and for unsatisfied collateral calls. When this occurs the loan collateral is typically liquidated within 90 days.

Non-performing loans have the highest probability for credit loss. The allowance for credit losses attributable to non-performing loans is based on the most probable source of repayment, which is normally the liquidation of collateral. In determining collateral value, the Company estimates the current market value of the collateral and considers credit enhancements such as additional collateral and third-party guarantees. Due to the accelerated liquidation terms of the Company's loan portfolio, all past due loans are generally liquidated within 90 days of default.

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Further information about the Company's credit quality indicators includes differentiating by categories of current loan-to-value ratios. The Company disaggregates its secured loans as follows:



in thousands	March 31, 2014				June 30, 2013

Loan-to-value of 75% or more	$	19,375	60.8	%	$	3,764	10.6	%
Loan-to-value of less than 75%	12,486		39.2		31,821		89.4
Total secured loans	$	31,861	100.0	%	$	35,585	100.0	%

No loans have a loan-to-value in excess of 100% at March 31, 2014 and June 30, 2013.

Allowance for Doubtful Accounts

Allowances for doubtful accounts are recorded based on specifically identified receivables, which the Company has identified as potentially uncollectible. Activity in the allowance for doubtful accounts for the nine months ended March 31, 2014 and year ended June 30, 2013 is as follows:

in thousands



Period ended:	Beginning Balance		Provision			Charge-off			Ending Balance
March 31, 2014	$	104	$	—		$	(74	)	$	30
June 30, 2013	$	1,118	$	(700	)	$	(314	)	$	104


4.	INVENTORIES

The Company's inventories primarily include bullion and bullion coins and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: 1) published market values attributable to the cost of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources. The premium is included in the cost of the inventory, paid at acquisition, and is a component of the total fair market value of the inventory. The precious metal component of the inventory may be hedged through the use of precious metal commodity positions, while the premium component of our inventory is not a commodity that may be hedged.

The Company’s inventories are subsequently recorded at their fair market values. Daily changes in fair market value are recorded in the income statement through cost of sales and are offset by hedging derivatives, with changes in fair value of the hedging derivatives also recorded in cost of sales in the condensed consolidated statements of income. The premium component of market value included in the inventories as of March 31, 2014 and June 30, 2013 totaled $3.4 million and $1.8 million, respectively. Commemorative coins, which are not hedged, are also included in inventory at the lower of cost or market and represent totaled $1.8 million and $0.0 million as of March 31, 2014 and June 30, 2013, respectively. For the nine months ended March 31, 2014 and 2013, the unrealized gains (losses) resulting from the difference between market value and cost of physical inventories were $3.1 million and $3.8 million, respectively.

Inventories included amounts borrowed from suppliers under arrangements to purchase precious metals on an unallocated basis. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts under these arrangements require delivery either in the form of precious metals or cash. Corresponding obligations related to liabilities on borrowed metals are reflected on the condensed consolidated balance sheets and totaled $8.6 million and $20.1 million as of March 31, 2014 and June 30, 2013, respectively. The Company mitigates market risk of its physical inventories through commodity hedge transactions (see Note 11).

Inventory includes amounts for obligations under product financing agreement. A-Mark entered into a product financing agreement for the transfer and subsequent re-acquisition of gold and silver at a fixed price to a third party finance company. This inventory is restricted and is held at a custodial storage facility in exchange for a financing fee, by the third party finance company. During the term of the financing, the third party finance company holds the inventory as collateral, and both parties intend to return the inventory to A-Mark at an agreed-upon price based on the spot price on the finance arrangement termination date, pursuant to the guidance in ASC 470-40 Product Financing Arrangements. The third party charges a monthly fee as percentage of the market

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value of the outstanding obligation; such monthly charge is classified in interest expense. These transactions do not qualify as sales and therefore have been accounted for as financing arrangements and reflected in the consolidated balance sheet within obligation under product financing arrangement. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing and the underlying inventory are carried at fair value, with changes in fair value included in cost of sales in the condensed consolidated statements of income. Such obligation totaled $49.7 million and $38.6 million as of March 31, 2014 and June 30, 2013, respectively (see Note 10).

The Company periodically loans metals to customers on a short-term consignment basis, charging interest fees based on the value of the metal loaned. Inventories loaned under consignment arrangements to customers as of March 31, 2014 and June 30, 2013 totaled $7.8 million and $2.6 million, respectively. Such inventory is removed at the time the customer elects to price and purchase the metals, and the Company records a corresponding sale and receivable. Substantially all inventories loaned under consignment arrangements are collateralized for the benefit of the Company.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at March 31, 2014 and June 30, 2013:



in thousands	March 31, 2014			June 30, 2013

Office furniture, fixtures and equipment	$	364		$	176
Computer equipment	282			196
Computer software	2,210			1,932
Leasehold improvements	260			92

	3,116			2,396
Less: accumulated depreciation	(1,575		)	(1,183		)

Property and equipment, net	$	1,541		$	1,213

Depreciation expense for the nine months ended March 31, 2014 and 2013 was $0.4 million and $0.3 million, respectively. Depreciation expense for the three months ended March 31, 2014 and 2013 was $0.1 million and $0.1 million, respectively.

6. GOODWILL AND INTANGIBLE ASSETS

In connection with the acquisition of A-Mark by Spectrum PMI on July 1, 2005, the accounts of the Company were adjusted using the push down basis of accounting to recognize the allocation of the consideration paid to the respective net assets acquired. In accordance with the push down basis of accounting, the Company's net assets were adjusted to their fair values as of the date of the acquisition based upon an independent appraisal, which resulted in an increase in goodwill of $4.9 million and identifiable purchased intangible assets of $8.4 million.

Goodwill represents the excess of the purchase price and related costs over the value assigned to intangible assets of businesses acquired and accounted for under the purchase method.

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The carrying value of other purchased intangibles as of March 31, 2014 and June 30, 2013 is as described below:



		March 31, 2014							June 30, 2013

in thousands	Estimated Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Trade-name	Indefinite	$	454	$	—		$	454	$	454	$	—		$	454
Existing Customer relationships	5 - 15	5,747		(3,348		)	2,399		5,747		(3,060		)	2,687
Non-compete and other	4	2,000		(2,000		)	—		2,000		(2,000		)	—
Employment agreement	3	195		(195		)	—		195		(195		)	—
Purchased intangibles subject to amortization		7,942		(5,543		)	2,399		7,942		(5,255		)	2,687
		$	8,396	$	(5,543	)	$	2,853	$	8,396	$	(5,255	)	$	3,141

The Company's other purchased intangible assets are subject to amortization except for trademarks, which have an indefinite life. Intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be four to fifteen years. Amortization expense related to the Company's intangible assets for the nine months ended March 31, 2014 and 2013 was $0.3 million and $0.3 million, respectively.

Estimated amortization expense on an annual basis for the succeeding five years is as follows (in thousands):



Year ending June 30,
2014 (remaining three months)	$	96
2015	385
2016	385
2017	385
2018	385
Thereafter	763
Total	$	2,399


7.	ACCOUNTS PAYABLE

Accounts payable consist of the following:



in thousands	March 31, 2014		June 30, 2013

Trade payable to customers payables	$	409	$	1,531
Advances from customers	34,476		27,548
Liability on deferred revenue	5,079		14,985
Net liability on margin accounts	7,914		6,636
Due to brokers	—		4,655
Obligation to repurchase common stock	2,198		—
Other accounts payable	829		463
Derivative liabilities — open sales and purchase commitments, net	10,621		30,192
Derivative liabilities — futures contracts	716		—
Derivative liabilities — foreign currency exchange forward contracts	2		—
	$	62,244	$	86,010

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8.	INCOME TAXES

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

Income tax provision (benefit) for the three and nine months ended March 31, 2014 and 2013 consists of the following:



	Three Months Ended				Nine Months Ended
in thousands	March 31, 2014		March 31, 2013		March 31, 2014		March 31, 2013
U.S.	$	1,419	$	2,093	$	4,560	$	5,437
Foreign	—		—		—		—
Provision for income taxes	$	1,419	$	2,093	$	4,560	$	5,437

The effective tax rate for the three and nine months ended March 31, 2014 and 2013 as follows:



	Three Months Ended				Nine Months Ended
	March 31, 2014		March 31, 2013		March 31, 2014		March 31, 2013
Effective tax rate	40.4	%	44.5	%	40.5	%	44.5	%

The effective tax rate varies significantly from the federal statutory rate due to permanent adjustments for nondeductible items and state taxes.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the nine months ended March 31, 2014, the Company concluded that it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets in the future. The Company based this conclusion on historical and projected operating performance, as well as its expectation that its operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. Accordingly, no valuation allowance has been established against the deferred tax asset.

The Company will continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist.

As of March 31, 2014, the Company had $0.7 million of unrecognized tax benefits and $0.3 million relating to interest and penalties. Of the total unrecognized tax benefits, $0.7 million would reduce the Company's effective tax rate, if recognized. The Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company accrued additional interest and penalties of $0.04 million and $0.0 million during the nine months ended March 31, 2014 and March 31, 2013, respectively.

The Company's condensed consolidated financial statements recognized the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods, as if the Company were a separate taxpayer rather than a member of the Former Parent's consolidated income tax return group. Current tax payable reflect balances due to the Former Parent for the Company's share of the income tax liabilities of the group. Following the Distribution, the Company will file federal and state income tax returns that are separate from the SGI tax filings. The Company will recognize current and deferred income taxes as a separate taxpayer for periods ending after the date of Distribution.

In connection with the spinoff, the Company entered into a Tax Separation Agreement with SGI. The Tax Separation Agreement governs the respective rights, responsibilities and obligations of SGI and us with respect to, among other things, liabilities for U.S. federal, state, local and other taxes. In addition to the allocation of tax liabilities, the Tax Separation Agreement addresses the preparation and filing of tax returns for such taxes and disputes with taxing authorities regarding such taxes. Under the terms of the Tax Separation Agreement, SGI will have the responsibility to prepare and file tax returns for tax periods ending prior to the Distribution date and for tax periods which include the Distribution date but end after the Distribution date, which will

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include A-Mark and its subsidiaries. These tax returns will be prepared on a basis consistent with past practices. A-Mark will cooperate in the preparation of these tax returns and a have an opportunity to review and comment on these returns prior to filing. A-Mark will pay all taxes attributable to A-Mark and its subsidiaries, and be entitled to any refund with respect to taxes it has paid.

9. RELATED PARTY TRANSACTIONS

During the three and nine months ended March 31, 2014 and 2013, the Company made sales and purchases to the following companies in amounts set forth below. These companies and A-Mark were under common control (common ownership and management) through the date of Distribution and therefore the transactions constitute related party transactions. The companies: Calzona Ventures, LLC ("Calzona"), Spectrum Numismatics International, Inc. ("SNI"), Stack's-Bowers Numismatics, LLC ("Stack's Bower") and Teletrade Inc. ("Teletrade") are entities consolidated by our Former Parent, SGI. All except Calzona, which is considered a variable interest entity, are wholly-owned subsidiaries of SGI.



	Three Months Ended				Three Months Ended
in thousands	March 31, 2014				March 31, 2013
	Sales		Purchases		Sales		Purchases
Related Party Company
Calzona	$	1,060	$	110	$	470	$	—
SNI	1,802		1,644		1,324		326
Stack's Bower	541		305		731		700
Teletrade	764		188		2,506		248
Related party, total	$	4,167	$	2,247	$	5,031	$	1,274



	Nine Months Ended				Nine Months Ended
in thousands	March 31, 2014				March 31, 2013
	Sales		Purchases		Sales		Purchases
Related Party Company
Calzona	$	3,409	$	464	$	530	$	—
SNI	5,589		3,904		5,445		2,090
Stack's Bower	1,743		2,955		2,548		3,101
Teletrade	1,863		1,673		11,064		1,617
Related party, total	$	12,604	$	8,996	$	19,587	$	6,808



in thousands	March 31, 2014				June 30, 2013
	Receivable		Payable		Receivable		Payable
Related Party Company
Calzona	$	—	$	65	$	—	$	171
SNI	2		34		104		—
Stack's Bower	44		—		126		—
Teletrade	—		—		—		73
SGI (Former Parent)	—		5,291		—		9,520
Related party, total	$	46	$	5,390	$	230	$	9,764

Corporate Overhead Charges

During the three months and nine months ended March 31, 2014, the Company incurred $0.1 million, and $0.5 million, respectively, of corporate overhead charges, which were payable monthly to SNI based on the Former Parent's annual budget. During the three months and nine months ended March 31, 2013, the Company incurred $0.2 million, and $0.6 million, respectively, of corporate overhead charges, which were payable to SNI.

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Transactions with Directors and Officers

Amounts included in accrued liabilities in the condensed consolidated balance sheets as of March 31, 2014 and June 30, 2013 includes $0.0 million and $1.0 million, respectively, in respect of executive compensation payable to SGI.

Dividends Paid to Former Parent

During the three months and nine months ended March 31, 2014, the Company paid $5.0 million, and $10.0 million, respectively, of dividends to SGI. During the three months and nine months ended March 31, 2013, the Company paid $0.0 million, and $15.0 million, respectively, of dividends to SGI.

Royalties to Former Owner

As part of the A-Mark sales agreement dated July 1, 2005, the former owner receives a portion of the finance income earned with a specific customer through June 2015. The Company incurred $0.05 million and $0.16 million in royalty expense during the three months and nine months ended March 31, 2014, respectively, and incurred $0.08 million and $0.26 million in royalty expense during the three months and nine months ended March 31, 2013. The total amount due to the former owner of $0.16 million and $0.31 million are included in accrued liabilities as of March 31, 2014 and June 30, 2013, respectively.

Income Tax Sharing Obligations

The Company paid $3.7 million and $7.7 million of income tax sharing obligations during the three months and nine months ended March 31, 2014, respectively, and paid $3.1 million and $7.8 million of income tax sharing obligations, during the three months and nine months ended March 31, 2013, respectively, which were payable to SGI.


10.	FINANCING AGREEMENTS

Lines of Credit

A-Mark has a borrowing facility (“Trading Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit including a sub-facility for letters of credit up to the maximum of the credit facility. All lenders have a perfected, first security interest in all assets of the Company presented as collateral. Loan advances will be available against a borrowing base report of eligible assets in accordance with the inter-creditor agreement currently in place. Pledge collateral comprises assigned and confirmed inventory, trade receivable, trade advances, derivatives equity and pledged non bullion and bullion loans.

As of March 31, 2014, the maximum of the Trading Credit Facility was $170.0 million. A-Mark routinely uses the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The one-month LIBOR rate was approximately 0.15% and 0.19% as of March 31, 2014 and June 30, 2013, respectively. Borrowings are due on demand and totaled $119.8 million and $95.0 million for lines of credit and $0.0 million and $9.0 million for letters of credit at March 31, 2014 and at June 30, 2013, respectively. The amounts available under the Trading Credit Facility are formula based and totaled $50.2 million and $66.0 million at March 31, 2014 and June 30, 2013, respectively. The Trading Credit Facility also limits A-Mark's ability to pay dividends. The Trading Credit Facility is cancelable by written notice from the financial institutions.

The Trading Credit Facility has certain restrictive financial covenants, which require the Company to maintain a minimum tangible net worth, as defined, of $25.0 million. The Company’s tangible net worth as of March 31, 2014 was $39.2 million. Accordingly, the Company is in compliance with all restrictive financial covenants. The Company's ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.

Separately, A-Mark has another line of credit with this lender (“Collectible Credit Facility”) totaling $20.0 million, which is a component of A-Mark's Trading Credit Facility. Total borrowing capacity between SNI and A-Mark cannot exceed $23.0 million with respect to this lender. As of March 31, 2014, the total amount borrowed with this lender was $23.0 million, which consisted of $15.5 million by A-Mark and $7.5 million by SNI. The A-Mark and SNI lines represent two entirely separate lines of credit under which neither party has a performance obligation for the other should an event of default occur. Amounts available for borrowing under this Collectible Credit Facility as of March 31, 2014 and June 30, 2013 was $0.0 million.

Interest expense related to A-Mark’s borrowing arrangements totaled $1.0 million and $2.9 million for the three and nine months ended March 31, 2014, respectively, and $0.8 million and $2.6 million for the three and nine months ended March 31, 2013 respectively.

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Liability on Borrowed Metals

The Company borrows precious metals from its suppliers under short-term agreements, which bear interest at a designated rate. Amounts under these agreements are due at maturity and require repayment either in the form of precious metals or cash. The Company's inventories included borrowed metals with market values totaling $8.6 million and $20.1 million as of March 31, 2014 and June 30, 2013, respectively. Certain of these metals are secured by letters of credit issued under the Trading Credit Facility, which totaled $0.0 million and $9.0 million as of March 31, 2014 and June 30, 2013, respectively.

Obligation Under Product Financing Arrangement

The Company has entered into an agreement with a third party for the sale of gold and silver, at the option of the third party, at a fixed price. Such agreement allows the Company to repurchase this inventory at an agreed-upon price based on the spot price on the repurchase date. The third party charges a monthly fee as percentage of the market value of the outstanding obligation; such monthly charges are classified in interest expense. These transactions do not qualify as sales, and therefore have been accounted for as financing arrangements and reflected in the condensed consolidated balance sheet within product financing obligation. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing obligation and the underlying inventory (which is entirely restricted) are carried at fair value, with changes in fair value recorded as a component of cost of sales in the condensed consolidated statements of income. Such obligation totaled $49.7 million and $38.6 million as of March 31, 2014 and June 30, 2013, respectively.


11.	HEDGING TRANSACTIONS

The Company is exposed to market risk, such as change in commodity prices, and foreign exchange rates. To manage the volatility relating to these exposures, the Company enters into various derivative products, such as precious metal's forwards and futures. By policy, the Company historically has not entered into derivative financial instruments for trading purposes or for speculation.

Commodity Price Management

The Company manages the value of certain specific assets and liabilities of its trading business, including trading inventories, by employing a variety of strategies. These strategies include the management of exposure to changes in the market values of the Company's trading inventories through the purchase and sale of a variety of derivative products such as metal's forwards and futures.

The Company's trading inventories and purchase and sale transactions consist primarily of precious metal bearing products. The value of these assets and liabilities are linked to the prevailing price of the underlying precious metals.

The Company's precious metals inventories are subject to market value changes, created by changes in the underlying commodity markets. Inventories purchased or borrowed by the Company are subject to price changes. Inventories borrowed are considered natural hedges, since changes in value of the metal held are offset by the obligation to return the metal to the supplier.

Open sales and purchase commitments are subject to changes in value between the date the purchase or sale price is fixed (the trade date) and the date the metal is received or delivered (the settlement date). The Company seeks to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts.

The Company's policy is to substantially hedge its inventory position, net of open sales and purchase commitments that is subject to price risk. The Company regularly enters into precious metals commodity forward and futures contracts with major financial institutions to hedge price changes that would cause changes in the value of its physical metals positions and purchase commitments and sale commitments. The Company has access to all of the precious metals markets, allowing it to place hedges. However, the Company also maintains relationships with major market makers in every major precious metals dealing center.

Due to the nature of the Company's global hedging strategy, the Company is not using hedge accounting as defined under Topic 815 of the ASC, whereby the gains or losses would be deferred and included as a component of other comprehensive income until the contract is executed. Instead, gains or losses resulting from the Company's futures and forward contracts are reported as unrealized gains or losses on commodity contracts (a component of cost of sales) with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability ( a component of receivables or payables). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts (see Notes 3 and 7). Realized and unrealized net gains (losses) on derivative instruments in the condensed consolidated statements of income totaled $(21.1) million and $(31.1) million for the three and nine months ended March 31, 2014, respectively, and $(23.3) million and $(31.5) million for the three and nine months ended March 31, 2013 respectively.

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The Company’s management sets credit and position risk limits. These limits include gross position limits for counterparties engaged in sales and purchase transactions with the Company. They also include collateral limits for different types of purchase and sale transactions that counterparties may engage in from time to time.

A summary of the market values of the Company’s physical inventory positions, sales and purchase commitments, and its outstanding forward and futures contracts is as follows at March 31, 2014 and at June 30, 2013:



in thousands	March 31, 2014			June 30, 2013
Inventory	$	193,801		$	162,378
Less unhedgable inventory:
Commemorative coin inventory, held at lower of cost or market	(1,804		)	—
Premium on metals position	(3,435		)	(1,787		)
Premium on inventory	(5,239		)	(1,787		)

Subtotal	188,562			160,591
Commitments at market:
Open inventory purchase commitments	473,095			461,883
Open inventory sales commitments	(253,818		)	(272,044		)
Margin sale commitments	(13,525		)	(13,651		)
In-transit inventory no longer subject to market risk	(5,768		)	(24,221		)
Unhedgable premiums on open commitment positions	1,555			2,107
Inventory borrowed from suppliers	(8,620		)	(20,117		)
Product financing obligation	(49,684		)	(38,554		)
Advances on industrial metals	(5,678		)	33
Inventory subject to price risk	326,119			256,027
Inventory subject to derivative financial instruments:
Precious metals forward contracts at market values	149,401			84,999
Precious metals futures contracts at market values	177,093			171,272
Total market value of derivative financial instruments	326,494			256,271
Net inventory subject to commodity price risk	$	(375	)	$	(244	)

As of March 31, 2014 and June 30, 2013, the Company had the following outstanding commitments:



in thousands	March 31, 2014			June 30, 2013

Purchase commitments	$	473,095		$	461,883
Sales commitments	(253,818		)	(272,044		)
Margin sales commitments	(13,525		)	(13,651		)
Open forward contracts	149,401			84,999
Open futures contracts	177,093			171,272

The contract amounts of these forward and futures contracts and the open sales and purchase orders are not reflected in the accompanying condensed consolidated balance sheet. The difference between the market price of the underlying metal or contract and the trade amount is recorded at fair value.

The Company’s open sales and purchase commitments typically settle within 2 business days, and for those commitments that do not have stated settlement dates, the Company has the right to settle the positions upon demand. Futures and forwards contracts open at March 31, 2014 are scheduled to settle within 30 days.

The Company is exposed to the risk of failure of the counterparties to its derivative contracts. Significant judgment is applied by the Company when evaluating the fair value implications. The Company regularly reviews the creditworthiness of its major counterparties and monitors its exposure to concentrations. At March 31, 2014, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.

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Foreign Currency Exchange Rate Management

The Company utilizes foreign currency forwards contracts to manage the effect of foreign currency exchange fluctuations of its purchase and sales transactions. These contracts generally have maturities of less than one week. The accounting treatment of our foreign currency exchange derivative instruments is similar to the the accounting treatment of our commodity derivative instruments, that is, the change in the value in the financial instrument is immediately recognized as a component of cost of sales. Realized and unrealized net gains (losses) on foreign exchange derivative instruments in the condensed consolidated statements of income totaled $60 thousand and $0 thousand for the three and nine months ended March 31, 2014, respectively, and $46 thousand and $24 thousand for the three and nine months ended March 31, 2013 respectively. The market values (fair values) of the Company’s foreign exchange forward, related to the Company's open purchase and sales commitments, outstanding at March 31, 2014 was $2 thousand.

Offsetting Derivative Instruments

In respect to the Company's derivative contracts with the same counterparty, the receivables and payables have been netted on the condensed consolidated balance sheets. Such derivative contracts include open sales and purchase commitments, futures, forwards and margin accounts. In the table below, the aggregate gross and net derivative receivables and payables balances are presented by contract type and type of hedge, as of March 31, 2014 and June 30, 2013.



		March 31, 2014										June 30, 2013

in thousands	Type of Hedge	Gross Derivative		Amounts Netted			Cash Collateral Pledge			Net Derivative		Gross Derivative		Amounts Netted			Cash Collateral Pledge			Net Derivative
Nettable derivative receivables:
Open sales and purchase commitments	COM	$	4,284	$	(2,039	)	$	—		$	2,245	$	—	$	—		$	—		$	—
Future contracts	COM	5,741		—			—			5,741		14,967		—			—			14,967
Forward contracts	COM	9,813		—			—			9,813		471		—			—			471
		$	19,838	$	(2,039	)	$	—		$	17,799	$	15,438	$	—		$	—		$	15,438
Nettable derivative payables:
Open sales and purchase commitments	COM	$	11,579	$	(958	)	$	—		$	10,621	$	48,015	$	(17,823	)	$	—		$	30,192
Margin accounts	COM	13,525		—			(5,611		)	7,914		13,651		—			(7,015		)	6,636
Future contracts	COM	716		—			—			716		—		—		<