Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Jun. 30, 2014
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES

The Company files a consolidated federal income tax return based on a June 30th tax year end.

The provision for (benefit from) income taxes for the years ended June 30, 2014, 2013 and 2012 consists of the following:
in thousands
 
 
 
 
 
 
Years Ended June 30,
 
2014
 
2013
 
2012
Current:
 
 
 
 
 
 
Federal
 
$
(1,788
)
 
$
(1,691
)
 
$
20,398

State and local
 
130

 
(1,348
)
 
5,212

 
 
(1,658
)
 
(3,039
)
 
25,610

Deferred:
 
 
 
 
 
 
Federal
 
6,405

 
8,941

 
(13,944
)
State and local
 
525

 
2,150

 
(3,324
)
 
 
6,930

 
11,091

 
(17,268
)
Total provision
 
$
5,272

 
$
8,052

 
$
8,342

 
 
 
 
 
 
 


A reconciliation of the income tax provisions to the amounts computed by applying the statutory federal income tax rate (35% for 2014, 2013 and 2012) to income before income tax provisions for the years ended June 30, 2014, 2013 and 2012, are as below:
in thousands
 
 
 
 
 
 
Years Ended June 30,
 
2014
 
2013
 
2012
Federal income tax
 
$
4,736

 
$
7,198

 
$
6,622

State tax, net of federal benefit
 
212

 
521

 
1,229

162(m) limitation
 
—

 
188

 
180

Uncertain tax positions
 
22

 
110

 
395

Change in tax rate
 
—

 
—

 
23

Valuation allowance
 
329

 
—

 
—

Other
 
(27
)
 
35

 
(107
)
Total provision for income taxes
 
$
5,272

 
$
8,052

 
$
8,342

 
 
 
 
 
 
 

Significant components of the Company's net deferred tax assets and liabilities as of June 30, 2014 and 2013 are as follows:
in thousands
 
 
 
 
June 30,
 
2014
 
2013
Accrued compensation
 
$
236

 
$
588

Unrealized loss on open purchase and sale commitments
 
—

 
11,538

Unrealized loss on futures and forward contracts
 
3,170

 
—

Stock-based compensation
 
133

 
56

State tax accrual
 
349

 
291

Net operating loss carry forwards
 
775

 
129

Other
 
34

 
56

Deferred tax assets
 
4,697

 
12,658

Less: valuation allowances
 
(329
)
 
—

Net deferred tax assets after valuation allowances
 
4,368

 
12,658

 
 
 
 
 
Intangible assets
 
(913
)
 
(709
)
Unrealized gain on open paperwork
 
(2,533
)
 
—

Unrealized gain on futures and forward contracts
 
—

 
(5,856
)
Fixed assets
 
(224
)
 
—

Inventories
 
(2,164
)
 
(368
)
Other
 
(23
)
 
(284
)
Total deferred tax liabilities
 
(5,857
)
 
(7,217
)
 
 
 
 
 
Net deferred tax asset (liability)
 
$
(1,489
)
 
$
5,441

 
 
 
 
 

In assessing the realizability of deferred tax assets, management 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 years ended June 30, 2014 and 2013, management concluded that with the exception of certain state net operating losses, 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. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. Management has established a valuation allowance against the deferred taxes related to certain state net operating loss carryovers. Management believes the utilization of these losses may be limited.
The Company will continue to assess the need for a valuation allowance in the future by evaluating both positive and negative evidence that may exist.
The Company's 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 during the period prior to the Distribution rather than a member of the Former Parent company's consolidated income tax return group. Current tax receivable reflects balances due from the Former Parent company to A-Mark for its share of the income tax assets of the group. Income taxes payable represents amounts due to federal and state jurisdictions due to taxable income generated following the close of the transaction.
As of June 30, 2014 the Company has state and city net operating loss carry-forwards of approximately $14.8 million, which expire beginning with the year ending June 30, 2029. The tax effect of the state and city net operating loss carryforwards included in the Company’s deferred tax assets is $0.8 million.  Due to limitations on the ability to use certain state and city net operating loss carryforwards, the Company has recorded a valuation allowance of $0.3 million against these assets as the Company believes that it is not more likely than not that they will realize the benefit of these carryforwards.
A reconciliation of the net unrecognized tax benefits for the years ended June 30, 2014 and 2013 is as follows:
in thousands
 
 
 
 
June 30,
 
2014
 
2013
 
 
 
 
 
Beginning balance
 
$
733

 
$
828

Reductions due to lapse of statute of limitations
 
(3
)
 
(95
)
Ending balance
 
$
730

 
$
733

 
 
 
 
 

The balance of unrecognized tax benefits at June 30, 2014 and 2013, if recognized, would affect the effective tax rate.
In accordance with the Company's accounting policy, interest expense and penalties related to income taxes are included in provision for income taxes in the consolidated statements of income. For the years ended June 30, 2014, 2013 and 2012, the Company recognized approximately $0.04 million, $0.08 million and $0.01 million for interest expense related to uncertain tax positions, respectively. As of June 30, 2014 and 2013, the Company had recorded liabilities for interest expense related to uncertain tax positions in the amounts of $0.18 million and $0.15 million, respectively. As of June 30, 2014 and 2013, the Company accrued $0.20 million and $0.20 million for penalties related to income tax positions, respectively.
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.
The Company files income tax returns in the US and various states. Prior to the Distribution, the Company was included in the consolidated federal and state tax filing of the Former Parent. The Former Parent is currently under examination by the IRS for the years ended June 30, 2004 through 2013 and other taxing jurisdictions on certain tax matters, including challenges to certain positions the Former Parent has taken. The Former Parent is unable to determine the outcome of these audits at this time. With few exceptions, either examinations have been completed by the tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed by the Former Parent for the years through 2003. Pursuant to the Tax Separation Agreement, A-Mark may be responsible for any tax amount related to A-Mark that is incurred as the result of adjustments made during the Internal Revenue Service examination or other tax jurisdictions' examinations of the Former Parent.
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 include A-Mark and its subsidiaries. These tax returns will be prepared on a basis consistent with past practices. The Company 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.
The amounts receivable under the Company's income tax sharing obligation due from SGI, totaled $3.1 million, and $0.0 million as of June 30, 2014 and June 30, 2013, respectively, and is shown on the face of the consolidated balance sheets as income taxes receivable from Former Parent. Based on the terms to the Tax Separation Agreement, payment is due to the Company upon SGI's after it files its tax return and is in receipt of its tax refund from the IRS. The amounts payable under the Company's income tax sharing obligation payable to SGI, totaled $0.0 million, and $8.5 million as of June 30, 2014 and June 30, 2013, respectively, and is shown on the face of the consolidated balance sheets as income taxes payable to Former Parent. Furthermore, pursuant to the terms of the Tax Separation Agreement, the Company has been allocated approximately $6.3 million of state net operating losses. These net operating losses resulted in a deferred tax asset of $0.4 million.
SGI received a written opinion from Kramer Levin Naftalis & Frankel LLP that the spinoff qualifies as a tax-free transaction under Section 355 of the Internal Revenue Code and that for U.S. federal income tax purposes, (i) no gain or loss shall be recognized by SGI upon the distribution of our common stock in the spinoff, and (ii) no gain or loss shall be recognized by, and no amount will be included in the income of, holders of SGI common stock upon the receipt of shares of our common stock in the spinoff. If, notwithstanding the conclusions included in the opinion, it is ultimately determined that the distribution does not qualify as tax-free for U.S. federal income tax purposes, each SGI shareholder that is subject to U.S. federal income tax and that received shares of our common stock in the distribution could be treated as receiving a taxable distribution in an amount equal to the fair market value of such shares. In addition, if the distribution were not to qualify as tax-free for U.S. federal income tax purposes, then SGI would recognize gain in an amount equal to the excess of the fair market value of our common stock distributed to SGI shareholders on the date of the distribution over SGI’s tax basis in such shares. Also, we could have an indemnification obligation to SGI related to its tax liability. The Company considers this possible outcome as remote, and as a result, no liability has been recorded.