Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SPECTRUM GROUP INTERNATIONAL, INC. (895516) 10-Q published on Feb 14, 2014 at 1:51 pm
Reporting Period: Dec 30, 2013
Effective December 1, 2013, the Company executed a binding purchase agreement whereby, for consideration received, the Company sold 60% of its member interests in SWA, a California limited liability company. Although 60% of the SWA's interest was sold through contractual arrangements, the Company maintained the power to direct activities of SWA that most significantly impact their economic performance. Additionally, the Company absorbs losses or the right to receive benefits significant to SWA. As such, SWA was deemed a VIE and the Company, as the primary beneficiary, consolidates SWA's results of operations in its condensed consolidated financial statements.
A-Mark has filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 relating to the distribution, which was declared effective by the SEC on February 11, 2014.
Following the Distribution Date, SGI intends to reduce the number of record holders of its common stock to fewer than 300 through a 1-for-1,000 reverse stock split and to terminate the registration of its common stock under the Securities Exchange Act, with the result that SGI will no longer be required to file periodic and other reports with the SEC. If the reverse stock split is consummated, stockholders of record who hold fewer than 1,000 shares of common stock before the reverse stock split will receive a cash payment of $0.65 per pre-reverse stock split share in lieu of receiving a fractional post-reverse stock split share. It is expected that SGI common stock will be quoted on the OTC Pink market under the symbol “SPGZ” following the deregistration of its shares under the Securities Exchange Act. SGI intends to schedule a special meeting of SGI stockholders to approve an amendment to its certificate of incorporation for the purpose of effecting the reverse split. There is no assurance that the reverse split will be consummated.
Our provision for income taxes on continuing operations was approximately $1.5 million and $1.06 million for the three months ended December 31, 2013 and 2012, respectively. Our effective tax rate was approximately (226.3%) and 203.1% for the three months ended December 31, 2013 and 2012, respectively. Our provision for income taxes on continuing operations was approximately $2.2 million and $1.2 million for the six months ended December 31, 2013 and 2012, respectively. The primary difference in the tax provision from December 31, 2012 to December 31, 2013 is the result of withholding tax of $3.1 million on the dividend from a foreign subsidiary which, relative to the second quarter pre-tax book loss, reduces the rate of the total tax benefit recognized and increases the total tax expense recognized in the current quarter. Our effective tax rate was approximately (183.1%) and (809.4%) for the six months ended December 31, 2013 and 2012, respectively. Our effective tax rate differs from the federal statutory rate due to permanent adjustments for nondeductible items, state taxes and foreign tax rate differentials. The primary difference in the effective tax rate between the six months ended December 31, 2013 and 2012 is the result of the Company recording discreet adjustments to tax expense as a result of a change in tax law that impacted the valuation of state deferred tax assets and the accrual of an uncertain tax position related to foreign income taxes in the six months ended December 31, 2012. This impact was partially offset by the recording of the withholding tax of $3.1 million as discussed above in the six months ended December 31, 2013. In addition, the U.S. rate is significantly higher than expected due to an increase in permanent differences caused by non-deductible transaction costs.
Net loss (income) attributable to non-controlling interests changed to net (income) attributable to non-controlling interests of $(62,000) for the three months ended December 31, 2013 compared to net loss attributable to non-controlling interests of $699,000 in 2012. For the six months ended December 31, 2013, net loss (income) attributable to non-controlling interests changed to net (income) of $(21,000) from net loss of $615,000 in 2012. The share of net loss attributable to non-controlling interests for the three and six months ended December 31, 2012 was primarily related to the 49% non-controlling interest in SBN. This 49% non-controlling interest was acquired by the Company effective April 1, 2013 and accordingly is not represented in net loss (income) attributable to non-controlling interests for the three and six months ended December 31, 2013. Share of net (income) attributable to non-controlling interests for the three and six months ended December 31, 2013 primarily represents the share of net (income) attributable to the 60% interest in SWA.
Gross profit in our Collectibles segment for the three months ended December 31, 2013 decreased $1.6 million, or 31.6% to $3.4 million from $4.9 million in 2012. The decrease is due primarily to lower sales during the second quarter of fiscal 2014 which was partially offset by the sale of higher margin numismatic materials in the second quarter of fiscal 2014 as compared to 2013 resulting in higher margins for the quarter. For the six months ended December 31, 2013, gross profit in our Collectible segment decreased $0.4 million, or 4.3% to $9.5 million from $10.0 million in 2012. This decrease in both the three and six months ended December 31, 2013 is due primarily to lower numismatic demand this period compared to the prior period. Numismatic sales decreased $22.3 million, or 47.4% to $24.7 million for the three months ended December 31, 2013 from $47.0 million in 2012 and decreased $30.6 million or 31.3% to $67.0 million for the six months ended December 31, 2013 from $97.6 million in 2012. Our numismatic business experienced weaker sales in the three and six months ended December 31, 2013 compared to 2012, which was due in part to lower overall hammer prices at auction impacting our commissions. Additionally, our wine revenues increased by $37,000 or 5.6% for the three months ended December 31, 2013 compared to 2012 and decreased by $231,000 or 17.4% for the six months ended December 31, 2013 compared to 2012.