A-Mark Precious Metals, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Assets and Liabilities, at Fair Value

Assets and Liabilities, at Fair Value

9 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Assets and Liabilities, at Fair Value

ASSETS AND LIABILITIES, AT FAIR VALUE

Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of March 31, 2016 and June 30, 2015.



in thousands
	March 31, 2016				June 30, 2015
	Carrying Amount		Fair value		Carrying Amount		Fair value

Financial assets:
Cash	$	12,972	$	12,972	$	20,927	$	20,927
Receivables and advances, net	25,928		25,928		30,025		30,025
Secured loans	64,827		64,827		49,316		49,316
Derivative assets - open sale and purchase commitments, net	9,834		9,834		1,722		1,722
Derivative assets - futures contracts	1,226		1,226		5,363		5,363
Derivative assets - forward contracts	26		26		4,279		4,279
Income taxes receivable from Former Parent	—		—		1,095		1,095
Financial liabilities:
Lines of credit	$	190,000	$	190,000	$	147,000	$	147,000
Liability on borrowed metals	5,573		5,573		9,500		9,500
Product financing arrangement	93,168		93,168		39,425		39,425
Derivative liabilities - liability on margin accounts	6,788		6,788		6,908		6,908
Derivative liabilities - open sale and purchase commitments, net	159		159		10,989		10,989
Derivative liabilities - futures contracts	1,163		1,163		—		—
Derivative liabilities - forward contracts	2,963		2,963		—		—
Accounts payable, advances and other payables	42,838		42,838		50,639		50,639
Accrued liabilities	6,600		6,600		5,330		5,330
Income taxes payable to Former Parent	510		510		—		—

The fair values of the financial instruments shown in the above table as of March 31, 2016 and June 30, 2015 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, secured loans, accounts receivable, consignor advances, accounts payable and accrued liabilities approximated fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities are marked-to-market on a daily basis to fair value. The carrying amounts of lines of credit approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.

Valuation Hierarchy

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


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


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


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

The significant assumptions used to determine the carrying value and the 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 is readily determined, as it is published by multiple reputable sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or 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 sale and purchase commitments are valued at their fair values, based on the difference between the quoted market price and the contractual price (i.e., intrinsic value,) and are included within Level 1 of the valuation hierarchy.

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

Product Financing Arrangement. Product financing arrangement consists of financing agreements for the transfer and subsequent re-acquisition 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. The obligation is stated at the amount required to repurchase the outstanding inventory. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product financing arrangement is classified in Level 1 of the valuation hierarchy.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and June 30, 2015 aggregated by the level in the fair value hierarchy within which the measurements fall:



	March 31, 2016
	Quoted Price in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Inventory ⁽¹⁾	$	273,967	$	—	$	—	$	273,967
Derivative assets — open sale and purchase commitments, net	9,834		—		—		9,834
Derivative assets — futures contracts	1,226		—		—		1,226
Derivative assets — forward contracts	26		—		—		26
Total assets, valued at fair value	$	285,053	$	—	$	—	$	285,053
Liabilities:
Liability on borrowed metals	$	5,573	$	—	$	—	$	5,573
Product financing arrangement	93,168		—		—		93,168
Derivative liabilities — liability on margin accounts	6,788		—		—		6,788
Derivative liabilities — open sales and purchase commitments, net	159		—		—		159
Derivative liabilities — future contracts	1,163		—		—		1,163
Derivative liabilities — forward contracts	2,963		—		—		2,963
Total liabilities, valued at fair value	$	109,814	$	—	$	—	$	109,814

____________________

⁽¹⁾ Commemorative coin inventory totaling $6,000 is held at lower of cost or market and is thus excluded from this table.



	June 30, 2015
	Quoted Price in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Inventory ⁽¹⁾	$	189,983	$	—	$	—	$	189,983
Derivative assets — open sale and purchase commitments, net	1,722		—		—		1,722
Derivative assets — futures contracts	5,363		—		—		5,363
Derivative assets — forward contracts	4,279		—		—		4,279
Total assets, valued at fair value	$	201,347	$	—	$	—	$	201,347
Liabilities:
Liability on borrowed metals	$	9,500	$	—	$	—	$	9,500
Product financing arrangement	39,425		—		—		39,425
Derivative liabilities — liability on margin accounts	6,908		—		—		6,908
Derivative liabilities — open sale and purchase commitments, net	10,989		—		—		10,989
Total liabilities, valued at fair value	$	66,822	$	—	$	—	$	66,822

____________________

⁽¹⁾ Commemorative coin inventory totaling $1.5 million is held at lower of cost or market and is thus excluded from this table.

There were no transfers in or out of Level 2 or 3 during the reported periods.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only under certain circumstances. These include cost method and equity method investments that are written down to fair value when their declines are determined to be other-than-temporary, and long-lived assets or goodwill that are written down to fair value when they are held for sale or determined to be impaired.

The Company uses level-three inputs to measure the fair value of its investments on a non-recurring basis. The Company's investments in ownership interests in noncontrolled entities do not have readily determinable fair values and were initially recorded at cost, $7.2 million, in aggregate, as of March 31, 2016. Quoted prices of the investments are not available, and the cost of obtaining an independent valuation appears excessive considering the materiality of the instruments to the Company. For the Company's equity method investment, it recognized $0.1 million and $0.6 million earnings associated with the Company's ownership interests in this noncontrolled entities during the three and nine months ended March 31, 2016, respectively. As of March 31, 2016 and June 30, 2015, the carrying value of the Company's investments totaled $7.8 million and $2.5 million, respectively.

The Company uses level-three inputs to measure the fair value of goodwill and other intangibles on a non-recurring basis. These assets are measured at cost and are written down to fair value on the annual measurement dates or on the date of a triggering event, if impaired. As of March 31, 2016, 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 three and nine months ended March 31, 2016 and 2015.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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