Spectrum Group International, Inc. Announces Fiscal Second Quarter 2013 Financial Results

IRVINE, Calif.--(BUSINESS WIRE)--Spectrum Group International, Inc. (SPGZ.PK) today announced financial results for the second quarter of fiscal year 2013, which ended December 31, 2012.

Highlights for the Three and Six Months ended December 31, 2012:

Total revenue of $1.74 billion and $3.40 billion for the three and six months ended December 31, 2012
- Trading segment revenue of $1.69 billion and $3.30 billion for the three and six months ended December 31, 2012
- Collectibles segment revenue of $47.7 million and $98.9 million for the three and six months ended December 31, 2012
Gross profit of $11.5 million and $21.6 million for the three and six months ended December 31, 2012
Pre-tax income (loss) from continuing operations of $0.5 million and $(0.1) million for the three and six months ended December 31, 2012

Revenues for the three months ended December 31, 2012 decreased $391.5 million, or 18.4%, to $1.74 billion from $2.13 billion in the year-ago quarter. Revenues for the six months ended December 31, 2012 decreased $985.7 million, or 22.5%, to $3.40 billion from $4.39 billion in the year-ago quarter. Trading revenues decreased $401.9 million, or 19.2%, for the three months ended December 31, 2012 and decreased $978.9 million, or 22.9%, for the six months ended December 31, 2012 compared with the same periods last year. This decrease was primarily due to a slight decrease in average precious metals prices and a decrease in the ounces of precious metals sold. Collectible segment revenues increased $10.4 million, or 27.9%, for the three months ended December 31, 2012 and decreased $6.8 million, or 6.5%, for the six months ended December 31, 2012. The increase for the three-month period is due primarily to stronger second quarter sales in our numismatics business as a result of improved market conditions. The decrease for the six-month period is due to weaker sales in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012, due in part to lower hammer prices at auction impacting our commissions.

Gross profit for the three months ended December 31, 2012 increased $1.5 million, or 15.2%, to $11.5 million, or a gross profit margin of 0.7%, from $9.9 million, or a gross profit margin of 0.5% in 2011. Trading segment gross profit decreased by $0.7 million, or 9.6%, to $6.5 million, or a gross profit margin of 0.39% for the three months ended December 31, 2012. The decrease was due primarily to less price volatility and a decrease in volumes. Collectibles segment gross profit increased by $2.2 million, or 80.3%, to $4.9 million from $2.7 million. The increase was due primarily to sales of a higher percentage of higher margin numismatic materials. Gross profit for the six months ended December 31, 2012 decreased $6.3 million to $21.6 million, or a gross profit margin of 0.6%, from $28.0 million, or a gross profit margin of 0.6% in 2011. Trading and Collectibles segments contributed to this decrease, with individual decreases of $4.0 million and $2.3 million, respectively, during this period.

Pre-tax income from continuing operations for the three months ended December 31, 2012 was $0.5 million, as compared with pre-tax loss of $1.1 million for the comparable quarter in the prior fiscal year. Pre-tax loss for the six months ended December 31, 2012 was $0.1 million, compared to pre-tax income of $5.7 million for the six months ended December 31, 2011. Included in operating expenses for the three and six months ended December 31, 2011 was a $2.1 million reserve in connection with the claim against M.F. Global, Inc., of which settlement in the second quarter of fiscal 2013 resulted in a $0.7 million recovery of the reserve, or an increase of $2.8 million in pre-tax income. The increase to pre-tax income in the three-month period is primarily due to this increase as well as the increase in gross profit of $1.5 million described above and the impact of a $1.1 million decrease in general and administrative expenses. The decrease in general and administrative expenses is due to an effort to reduce spending in our Collectibles segment. For the six-month period, the decrease in pre-tax income is due to a $2.2 million decrease in interest income primarily from our Trading segment’s lending business, and the impact of unrealized gain (loss) on foreign currency, which declined by $4.7 million gain to $1.5 million loss.

More information regarding the Company’s financial results for the quarter ended December 31, 2012 is set forth in the Company’s Report on Form 10-Q, as filed with the Securities and Exchange Commission on February 13, 2013.


		Three Months Ended


		December			December			Increase/		Increase/
in thousands, except per share data		31, 2012			31, 2011			(Decrease)		(Decrease)
		(unaudited)			(1)			$		%
					(unaudited)
Revenues	$	1,736,289		$	2,127,808		$	(391,519	)	(18.4	)%
Gross profit		11,459			9,945			1,514		15.2	%
Operating expenses		11,345			15,554			(4,209	)	(27.1	)%
Operating income (loss)		114			(5,609	)		5,723		102.0	%
Pre-tax income (loss) from continuing operations		523			(1,083	)		1,606		148.3	%
Provision for income taxes (income tax benefit)		1,062			(127	)		1,189		936.2	%
Loss from continuing operations		(539	)		(956	)		417		43.6	%
Net income (loss) from discontinued operations		—			(483	)		483		100.0	%
Net income (loss)		(539	)		(1,439	)		900		62.5	%
Less: net income attributable to non-controlling interest		699			444			255		57.4	%
Net income (loss) attributable to Spectrum Group International, Inc.	$	160		$	(995	)	$	1,155		116.1	%
Earnings (loss) per share
Basic – continuing operations	$	0.01		$	(0.02	)	$	0.03		(150.0	)%
Basic – discontinued operations	$	—		$	(0.01	)	$	0.01		NM
Diluted – continued operations	$	0.01		$	(0.02	)	$	0.03		(150.0	)%
Diluted – discontinued operations	$	—		$	(0.01	)	$	0.01		NM
Basic – attributable to Spectrum Group International, Inc.	$	0.01		$	(0.03	)	$	0.04		(133.3	)%
Diluted – attributable to Spectrum Group International, Inc.	$	0.01		$	(0.03	)	$	0.04		(133.3	)%
_________________
(1) Adjusted to reflect discontinued operations.
NM = not meaningful


		Six Months Ended

					December
					31, 2011
		December			(1)			Increase/		Increase/
in thousands, except per share data		31, 2012			(restated)			(Decrease)		(Decrease)
		(unaudited)			(unaudited)			$		%

Revenues	$	3,401,156		$	4,386,862		$	(985,706	)	(22.5	)%
Gross profit		21,639			27,970			(6,331	)	(22.6	)%
Operating expenses		22,762			30,235			(7,473	)	(24.7	)%
Operating income (loss)		(1,123	)		(2,265	)		1,142		50.4	%
Pre-tax income (loss) from continuing operations		(144	)		5,729			(5,873	)	(102.5	)%
Provision for income taxes		1,170			2,843			(1,673	)	(58.8	)%
Net income (loss) from continuing operations		(1,314	)		2,886			(4,200	)	(145.5	)%
Net income (loss) from discontinued operations		(663	)		312			(975	)	(312.5	)%
Net income (loss)		(1,977	)		3,198			(5,175	)	(161.8	)%
Less: net (income) loss attributable to non-controlling interest		615			(1,020	)		1,635		(160.3	)%
Net income (loss) attributable to Spectrum Group International, Inc.	$	(1,362	)	$	2,178		$	(3,540	)	(162.5	)%
Earnings (loss) per share
Basic – continuing operations	$	(0.02	)	$	0.06		$	(0.08	)	(133.3	)%
Basic – discontinued operations	$	(0.02	)	$	0.01		$	(0.03	)	NM
Diluted – continuing operations	$	(0.02	)	$	0.06		$	(0.08	)	(133.3	)%
Diluted – discontinued operations	$	(0.02	)	$	0.01		$	(0.03	)	NM
Basic – attributable to Spectrum Group International, Inc.	$	(0.04	)	$	0.07		$	(0.11	)	(157.1	)%
Diluted – attributable to Spectrum Group International, Inc.	$	(0.04	)	$	0.07		$	(0.11	)	(157.1	)%
_____________
(1) Adjusted to reflect discontinued operations.
NM = not meaningful

About Spectrum Group International, Inc.

Spectrum Group International, Inc. (together with its subsidiaries, “we,” the “Company” or “SGI”) is a global trading and collectibles network. We are a trader of precious metals and an auctioneer of coins and wine, serving both collectors and dealers. We are also a merchant/dealer of certain collectibles. Our collectibles offerings span the price spectrum from modest to ultra-high end. Furthermore, we offer loans to coin dealers, collectors and investors backed by their precious metals, rare coins, and other collectibles as collateral.

Our Trading business is conducted through A-Mark Precious Metals, Inc. (“A-Mark”) and its subsidiaries. A-Mark is a full-service precious metal trading company, and an official distributor for many government mints throughout the world. A-Mark products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain, and our services include financing, leasing, consignment, hedging and various customized financial programs. A-Mark’s subsidiary, Collateral Finance Corporation, provides financing on a wide array of bullion and numismatic products.

Our Collectibles business operates as an integrated network of leading companies concentrating on numismatic (coins) and rare and fine vintage wine. We have offices and auction houses in North America, Europe and Asia. In addition to traditional live auctions, we also conduct Internet and telephone auctions.

Spectrum Group’s Collectibles companies in the numismatics field include Stack’s Bowers Galleries (rare coin and currency auction house), Stack’s Bowers and Ponterio (world and ancient coins and currency auction house), Teletrade (online coin auctions), and Spectrum Numismatics International (wholesale rare coin dealer), all based in Irvine, California. Spectrum Wine Auctions is engaged in the sale by auction of rare and fine vintage wine.

SAFE HARBOR STATEMENT

Statements in this press release that relate to future plans, objectives, expectations, performance, events and the like are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. Future events, risks and uncertainties, individually or in the aggregate, could cause actual results to differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ are identified in our public filings with the Securities and Exchange Commission (SEC), and include the fact that we have disclosed that you should not rely upon our previously published financial statements and the fact that we have not filed all of our reports required by the Securities Exchange Act of 1934. More information about factors that could affect our business and financial results included in our public filings with the SEC, which are available on the SEC’s website located at www.sec.gov.

The words "should," "believe," "estimate," "expect," "intend," "anticipate," "foresee," "plan" and similar expressions and variations thereof identify certain of such forward-looking statements, which speak only as of the dates on which they were made. Additionally, any statements related to future improved performance and estimates of revenues and earnings per share are forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.


SPECTRUM GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

		December 31,			June 30, 2012
		2012			(1)
ASSETS
Current assets
Cash and cash equivalents	$	22,401		$	25,305
Receivables and secured loans, net – trading operations		113,081			127,995
Accounts receivable and consignor advances, net – collectibles operations		11,091			20,428
Inventory, net		145,964			157,849
Prepaid expenses and other assets		3,611			2,770
Deferred tax assets		13,192			13,192
Current assets of discontinued operations		—			8,273
Total current assets		309,340			355,812
Property and equipment, net		12,999			11,710
Goodwill		5,986			6,765
Other purchased intangible assets, net		6,731			7,157
Restricted cash		593			550
Income taxes receivable		2,637			2,637
Deferred tax assets – non-current		1,615			1,207
Other assets		567			943
Non-current assets of discontinued operations		—			1,115
Total assets	$	340,468		$	387,896

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and consignor payables	$	101,760		$	95,787
Liability on borrowed metals		35,139			27,076
Obligation under product financing arrangement		4,778			15,576
Accrued expenses and other current liabilities		7,460			9,921
Income taxes payable		16,138			17,860
Lines of credit		80,634			92,669
Debt obligation, current portion		498			154
Current liabilities of discontinued operations		—			8,224
Total current liabilities		246,407			267,267

Deferred and other long term tax liabilities		8,652			8,010
Debt obligations, net of current portion		6,175			6,574
Other long-term liabilities		636			168
Total liabilities		261,870			282,019

Commitments and contingencies
Redeemable non-controlling interest		59			124
Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 10,000 shares; issued and outstanding: none		—			—
Common stock, $0.01 par value, authorized 40,000 shares; issued and outstanding: 30,628 and 32,537 at December 31, 2012 and June 30, 2011, respectively		306			327
Additional paid-in capital		209,666			242,418
Accumulated other comprehensive income		6,660			6,389
Accumulated deficit		(139,668	)		(156,777	)
Total Spectrum Group International, Inc. stockholders’ equity		76,964			92,357
Non-controlling interest		1,575			13,396
Total stockholders’ equity		78,539			105,753
Total liabilities, redeemable non-controlling interest and stockholders’ equity	$	340,468		$	387,896


					(1)		The condensed consolidated balance sheet as of June 30, 2012 has been derived from the audited consolidated financial statements included in the Company’s 2012 Annual Report on Form 10-K, adjusted to reflect discontinued operations.


SPECTRUM GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

		Three Months			Three Months			Six Months			Six Months
		Ended			Ended			Ended			Ended
		December 31,			December 31,			December 31,			December 31,
		2012			2011			2012			2011
					(1)						(1)
Revenues:
Sales of precious metals	$	1,688,625		$	2,090,527		$	3,302,240		$	4,281,113
Collectibles revenues:
Sales of inventory		44,900			33,913			91,174			93,813
Auction services		2,764			3,368			7,742			11,936
Total revenues		1,736,289			2,127,808			3,401,156			4,386,862
Cost of sales:
Cost of precious metals sold		1,682,113			2,083,325			3,290,564			4,265,429
Cost of collectibles sold		41,829			33,497			85,246			89,883
Auction services expense		888			1,041			3,707			3,580
Total cost of sales		1,724,830			2,117,863			3,379,517			4,358,892
Gross profit		11,459			9,945			21,639			27,970
Operating expenses:
General and administrative		5,105			6,162			10,233			12,703
M.F. Global, Inc. loss provision (recovery)		(711	)		2,094			(711	)		2,094
Salaries and wages		6,383			6,846			12,167			14,614
Depreciation and amortization		568			452			1,073			824
Total operating expenses		11,345			15,554			22,762			30,235
Operating income (loss)		114			(5,609	)		(1,123	)		(2,265	)
Interest and other income (expense):
Interest income		2,464			3,286			4,652			6,910
Interest expense		(1,331	)		(1,275	)		(2,413	)		(2,563	)
Other income, net		83			1,036			222			408
Unrealized gain (loss) on foreign exchange		(807	)		1,479			(1,482	)		3,239
Total interest and other income (expense) and unrealized gain (loss) on foreign exchange		409			4,526			979			7,994
Income (loss) from continuing operations before provision for income taxes		523			(1,083	)		(144	)		5,729
Provision for income taxes (income tax benefit)		1,062			(127	)		1,170			2,843
Income (loss) from continuing operations		(539	)		(956	)		(1,314	)		2,886
Income (loss) from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.		—			(483	)		(663	)		312
Net income (loss)		(539	)		(1,439	)		(1,977	)		3,198
Less: net (income) loss attributable to non-controlling interests		699			444			615			(1,020	)
Net income (loss) attributable to Spectrum Group International, Inc.	$	160		$	(995	)	$	(1,362	)	$	2,178

Basic and diluted income (loss) per share:
Basic – continuing operations	$	0.01		$	(0.02	)	$	(0.02	)	$	0.06
Basic – discontinued operations	$	—		$	(0.01	)	$	(0.02	)	$	0.01
Diluted – continuing operations	$	0.01		$	(0.02	)	$	(0.02	)	$	0.06
Diluted – discontinued operations	$	—		$	(0.01	)	$	(0.02	)	$	0.01
Basic – net income (loss)	$	0.01		$	(0.03	)	$	(0.04	)	$	0.07
Diluted – net income (loss)	$	0.01		$	(0.03	)	$	(0.04	)	$	0.07

Weighted average shares outstanding
Basic		30,628			32,652			31,706			32,645
Diluted		30,835			32,652			31,706			32,992


					(1)		Adjusted to reflect discontinued operations.


SPECTRUM GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		Six Months Ended			Six Months Ended
		December 31, 2012			December 31, 2011
					(1)

Cash flows from operating activities:
Net income (loss)	$	(1,977	)	$	3,198
(Income) loss from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.		663			(312	)
Income (loss) from continuing operations		(1,314	)		2,886
Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities — continuing operations:
Net unrealized (gains) losses on foreign currency		1,482			(3,239	)
Depreciation and amortization		1,073			824
Provision for (recovery of) bad debts		(660	)		2,094
Provision for inventory reserve		10			49
Share based compensation		191			311
Gain on sale of Stamps business		(17	)		—
Loss on abandonment of property of equipment		204			76
Changes in assets and liabilities:
Receivables and secured loans		15,625			(94,161	)
Accounts receivable and consignor advances		4,298			5,011
Inventory		11,297			36,996
Prepaid expenses and other assets		(1,407	)		(498	)
Liabilities on borrowed metals		8,063			10,539
Accounts payable, accrued expenses and other liabilities		3,792			64,418
Income taxes receivable/payable		(1,051	)		1,486
Deferred taxes and other long-term liabilities		(408	)		(1,554	)
Accrued litigation settlement		—			(680	)
Net cash provided by operating activities — continuing operations		41,178			24,558
Net cash provided by (used in) operating activities — discontinued operations		(1,238	)		280
Net cash provided by operating activities		39,940			24,838
Cash flows from investing activities:
Capital expenditures for property and equipment		(1,565	)		(2,313	)
Change in restricted cash		(43	)		593
Purchases/sales of marketable securities		—			(138	)
Divestiture of business		7,750			—
Net cash provided by (used in) investing activities — continuing operations		6,142			(1,858	)
Net cash used in investing activities — discontinued operations		(22	)		(27	)
Net cash provided by (used in) investing activities		6,120			(1,885	)
Cash flows from financing activities:
Borrowings (repayments) under lines of credit, net		(12,035	)		(13,533	)
Borrowings (repayments) on notes payable		(55	)		(52	)
Obligation under product financing arrangement		(10,798	)		—
Issuance of common stock		25,213			—
Retirement of repurchased common stock		(51,178	)		—
Repurchase of restricted stock		(1	)		—
Distributions paid to non-controlling interest		—			(6	)
Net cash used in financing activities – continuing operations		(48,854	)		(13,591	)
Net cash provided by (used in) financing activities – discontinued operations		—			—
Net cash used in financing activities		(48,854	)		(13,591	)
Effects of exchange rates on cash		(110	)		998
Net increase in cash and cash equivalents		(2,904	)		10,360
Cash and cash equivalents, beginning of period		25,305			24,181
Cash and cash equivalents, end of period	$	22,401		$	34,541
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense	$	1,982		$	1,224
Income taxes	$	2,618		$	751
Non-cash items
Purchase of equipment under capital lease	$	(573	)	$	—