SPGZ Spectrum Group International Inc (CE)

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 ) $ —               (1) Adjusted to reflect discontinued operations.