Spectrum Group International, Inc. Announces Fiscal Second Quarter 2012 Financial Results

IRVINE, Calif.--(BUSINESS WIRE)--Spectrum Group International, Inc. (SPGZ.PK) today announced financial results for the second quarter of fiscal year 2012, which ended December 31, 2011.

Highlights for the Three and Six Months ended December 31, 2011:

• Total revenue increased $415.7 million to $2.13 billion and $1.18 billion to $4.39 billion, respectively, for the three and six months ended December 31, 2011, as compared with the same periods last year.
  • Trading segment revenue increased $435.2 million to $2.09 billion and $1.17 billion to $4.28 billion, respectively, for the three and six months ended December 31, 2011, as compared with the same periods last year.
  • Collectibles segment revenue decreased $19.6 million to $39.5 million and increased $4.6 million to $111.7 million, respectively, for the three and six months ended December 31, 2011, as compared with the same periods last year.
• Gross profit decreased $4.6 million to $11.1 million and increased $7.9 million to $32.4 million, respectively, for the three and six months ended December 31, 2011, as compared with the same periods last year.
• Pre-tax income from continuing operations decreased $7.8 million to a loss of $1.9 million and increased $3.4 million to $6.0 million, respectively, for the three and six months ended December 31, 2011, as compared with the same periods last year.

Revenues for the three months ended December 31, 2011 increased $415.7 million, or 24.2%, to $2.13 billion from $1.71 billion in the year-ago quarter. Revenues for the six months ended December 31, 2011 increased $1.18 billion, or 36.7%, to $4.39 billion from $3.21 billion in the year-ago quarter. Trading revenues increased $435.2 million, or 26.3%, for the three months ended December 31, 2011 and increased $1.17 billion, or 37.8%, for the six months ended December 31, 2011 compared with the same periods last year. The increase is the result of higher precious metal prices during the three and six months ended December 31, 2011. Collectible segment revenues decreased $19.6 million, or 33.1%, for the three months ended December 31, 2011 and increased $4.6 million, or 4.3%, for the six months ended December 31, 2011. A change in the auction calendar resulted in fewer auctions taking place during the second quarter as compared with the year-ago quarter. In addition, there was a special Hong Kong sale in the prior year’s second quarter which did not take place this year. The joint venture with Stack’s LLC along with strong first quarter demand for numismatics, philatelic, and wine products contributed to the overall increase for the six months ended December 31, 2011.

Gross profit for the three months ended December 31, 2011 decreased $4.6 million, or 29.5%, to $11.1 million, or a gross profit margin of 0.5%, from $15.7 million, or a gross profit margin of 0.9% in 2010. There was a decrease in gross profit of $5.5 million, or 58.7%, to $3.9 million, or a gross profit margin of 9.9%, in the Collectibles segment, resulting from a reduced number of auctions during the second quarter and the sales of a higher percentage of certain lower margin numismatic materials, which affected the gross profit margin. Trading segment gross profit increased by $0.9 million, or 14.4%, to $7.2 million, or a gross profit margin of 0.3% for the three months ended December 31, 2011.

Gross profit for the six months ended December 31, 2011 increased $7.9 million to $32.4 million, or a gross profit margin of 0.7%, from $24.5 million, or a gross profit margin of 0.8% in 2010. Trading and Collectibles segments contributed to this increase, with individual increases of $5.7 million and $2.2 million, respectively, during this period.

The increase in gross profit in the Trading segment was due primarily to higher precious metal prices during current three and six-month period as compared with the year-ago period. Gross profit from financing activities in the Trading segment increased during the three and six-month period as a result of continued expansion of the financing and liquidity services offered by the Trading business.

The pre-tax loss from continuing operations for the three months ended December 31, 2011 was $1.9 million, as compared with pre-tax income of $5.9 million for the comparable quarter in the prior fiscal year. Pre-tax income for the six months ended December 31, 2011 increased $3.4 million to $6.0 million from $2.5 million during the year-ago period. 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. The decrease in pre-tax income for the three-month period is primarily due to fewer auctions in the Collectible segment and we sold a higher percentage of certain lower margin numismatic materials, which affected the gross profit margin as well as higher operating expenses. The increase in pre-tax income for the six-month period is primarily a result of the acquisition of Stack’s LLC and strong demands for precious metals. More information regarding the Company’s financial results for quarter ended December 31, 2011 is set forth in the Company’s Report on Form 10-Q, as filed with the Securities and Exchange Commission on February 13, 2012.

		Three Months Ended
in thousands, except per share data		December 31, 2011 (unaudited)			December 31, 2010 (1) (2) (restated) (unaudited)			Increase/ (Decrease) $		Increase/ (Decrease) %
Revenues	$	2,130,007		$	1,714,350		$	415,657		24.2	%
Gross profit		11,096			15,731			(4,635	)	-29.5	%
Operating expenses		17,607			11,387			6,220		54.6	%
Operating income (loss)		(6,511	)		4,344			(10,855	)	-249.9	%
Pre-tax income (loss)		(1,913	)		5,896			(7,809	)	-132.4	%
Net income (loss) from continuing operations		(1,438	)		5,753			(7,191	)	-125.0	%
Net (loss) from discontinued operations		(1	)		(652	)		651		-99.8	%
Net income (loss)		(1,439	)		5,101			(6,540	)	-128.2	%
Less: net (income) loss attributable to non-controlling interest		444			(519	)		963		-185.5	%
Net income (loss) attributable to Spectrum Group International, Inc.	$	(995	)	$	4,582		$	(5,577	)	-121.7	%
Earnings (loss) per share
Basic – continuing operations	$	(0.03	)	$	0.16		$	(0.19	)
Basic – discontinuing operations	$	—		$	(0.02	)	$	0.02
Diluted –continued operations	$	(0.03	)	$	0.16		$	(0.19	)
Diluted – discontinued operations	$	—		$	(0.02	)	$	0.02
Basic – attributable to Spectrum Group International, Inc.	$	(0.03	)	$	0.14		$	(0.17	)
Diluted – attributable to Spectrum Group International, Inc.	$	(0.03	)	$	0.14		$	(0.17	)

(1)	Adjusted to reflect Greg Martin Auctions, Inc. ("GMA") as discontinued operations. See Note 2 of the Notes to Consolidated Financial Statements on Form 10-Q filed on February 13, 2012
(2)	The 2010 Consolidated Statement of Operations and related segment disclosures have been restated for certain errors. Such errors did not result in an adjustment to the Company's reported net income. See Note 1 of the Notes to Consolidated Financial Statements on Form 10-Q filed on February 13, 2012

		Six Months Ended
in thousands, except per share data		December 31, 2011 (unaudited)			December 31, 2010 (1) (2) (restated) (unaudited)			Increase/ (Decrease) $		Increase/ (Decrease) %
Revenues	$	4,392,790		$	3,213,212		$	1,179,578		36.7	%
Gross profit		32,404			24,492			7,912		32.3	%
Operating expenses		34,562			21,612			12,950		59.9	%
Operating income (loss)		(2,158	)		2,880			(5,038	)	-174.9	%
Pre-tax income		5,949			2,520			3,429		136.1	%
Net income from continuing operations		3,104			2,250			854		38.0	%
Net income (loss) from discontinued operations		94			(867	)		961		-110.8	%
Net income		3,198			1,383			1,815		131.2	%
Less: net income attributable to non-controlling interest		(1,020	)		(787	)		233		29.6	%
Net income attributable to Spectrum Group International, Inc.	$	2,178		$	596		$	1,582		265.4	%
Earnings (loss) per share
Basic – continuing operations	$	0.06		$	0.05		$	0.01
Basic – discontinuing operations	$	—		$	(0.03	)	$	0.03
Diluted –continued operations	$	0.06		$	0.04		$	0.02
Diluted – discontinued operations	$	—		$	(0.03	)	$	0.03
Basic – attributable to Spectrum Group International, Inc.	$	0.06		$	0.02		$	0.04
Diluted – attributable to Spectrum Group International, Inc.	$	0.06		$	0.01		$	0.05

(1)	Adjusted to reflect Greg Martin Auctions, Inc. ("GMA") as discontinued operations. See Note 2 of the Notes to Consolidated Financial Statements on Form 10-Q filed on November 10, 2011
(2)	The 2010 Consolidated Statement of Operations and related segment disclosures have been restated for certain errors. Such errors did not result in an adjustment to the Company's reported net income. See Note 1 of the Notes to Consolidated Financial Statements on Form 10-Q filed on November 10, 2011

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, stamps 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 philatelic (stamps) materials 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.

Our Collectibles companies in the philatelic field are auction houses H.R. Harmer Global Philatelic Network GmbH, Corinphila Auktionen of Zurich, Switzerland, Heinrich Köhler Auktionshaus of Wiesbaden, Germany, Corinphila Veilingen B.V., Amstelveen, Netherlands, and John Bull Stamp Auctions, Ltd of Hong Kong. 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, 2011			June 30, 2011 (1) (2)
ASSETS
Current assets
	Cash and cash equivalents		$	34,541		$	24,181
	Short-term investments and marketable securities			1,165			1,151
	Receivables and secured loans, net – trading operations			185,962			93,895
	Accounts receivable and consignor advances, net – collectibles operations			24,441			29,647
	Inventory, net			149,026			186,111
	Prepaid expenses and other assets			4,197			4,091
	Deferred tax assets			2,246			2,246
	Current assets of discontinued operations			—			228
		Total current assets		401,578			341,550
	Property and equipment, net			12,490			10,937
	Goodwill			7,008			7,026
	Other purchased intangible assets, net			7,831			8,240
	Restricted cash			528			1,121
	Income taxes receivable			2,637			2,637
	Other assets			408			306
	Non-current assets of discontinued operations			—			10
		Total assets	$	432,480		$	371,827
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Accounts payable and consignor payables		$	149,811		$	83,867
	Liability on borrowed metals			21,923			11,384
	Accrued expenses and other current liabilities			13,730			16,204
	Accrued litigation settlement			75			755
	Income taxes payable			3,994			2,460
	Lines of credit			121,358			134,891
	Debt obligation, current portion			150			146
	Current liabilities of discontinued operations			—			23
		Total current liabilities		311,041			249,730
	Deferred and other long term tax liabilities			10,163			11,785
	Debt obligations, net of current portion			6,633			6,689
	Other long-term liabilities			54			—
		Total liabilities		327,891			268,204
	Commitments, contingencies and subsequent events
	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: 32,638 and 32,537 at December 31, 2011 and June 30, 2011, respectively		326			325
		Additional paid-in capital		242,227			241,917
		Accumulated other comprehensive income		7,330			9,867
		Accumulated deficit		(158,660	)		(160,838	)
		Total Spectrum Group International, Inc. stockholders’ equity		91,223			91,271
	Non-controlling interest			13,366			12,352
		Total stockholders’ equity		104,589			103,623
		Total liabilities and stockholders’ equity	$	432,480		$	371,827

(1)	The condensed consolidated balance sheet as of June 30, 2011 has been derived from the audited consolidated financial statements included in the Company’s 2011 Annual Report on Form 10-K.

SPECTRUM GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
		Three Months Ended December 31, 2011			Three Months Ended December 31, 2010 (1) (2)			Six Months Ended December 31, 2011			Six Months Ended December 31, 2011 (1) (2)
Revenues:
Sales of precious metals	$	2,090,527		$	1,655,313		$	4,281,113		$	3,106,167
Collectibles revenues:
Sales of inventories		34,679			51,351			94,595			96,008
Auction services		4,801			7,686			17,082			11,037
Total revenue		2,130,007			1,714,350			4,392,790			3,213,212
Cost of sales:
Cost of precious metals sold		2,083,325			1,649,018			4,265,429			3,096,220
Cost of collectibles sold		34,261			48,181			90,704			90,598
Auction services expense		1,325			1,420			4,253			1,902
Total cost of sales		2,118,911			1,698,619			4,360,386			3,188,720
Gross profit		11,096			15,731			32,404			24,492
Operating expenses:
General and administrative		7,030			5,355			15,005			10,243
M.F. Global, Inc. loss provision		2,094			—			2,094			—
Salaries and wages		7,967			5,679			16,507			10,700
Depreciation and amortization		516			353			956			669
Total operating expenses		17,607			11,387			34,562			21,612
Operating income (loss)		(6,511	)		4,344			(2,158	)		2,880
Interest and other income (expense):
Interest income		3,312			2,341			6,969			4,079
Interest expense		(1,275	)		(1,103	)		(2,563	)		(1,912	)
Other income (expense), net		1,036			(364	)		408			(451	)
Unrealized gain (loss) on foreign exchange		1,525			678			3,293			(2,076	)
Total interest and other (expense) income, foreign exchange gain (loss)		4,598			1,552			8,107			(360	)
Income (loss) before provision for income taxes		(1,913	)		5,896			5,949			2,520
Provision for income taxes (income tax benefit)		(475	)		143			2,845			270
Income (loss) from continuing operations		(1,438	)		5,753			3,104			2,250
Income (loss) from discontinued operations, net of tax		(1	)		(652	)		94			(867	)
Net income (loss)		(1,439	)		5,101			3,198			1,383
Less: net (income) loss attributable to the non-controlling interests		444			(519	)		(1,020	)		(787	)
Net income (loss) attributable to Spectrum Group International, Inc.	$	(995	)	$	4,582		$	2,178		$	596
Basic and diluted income (loss) per share:
Basic – continuing operations	$	(0.03	)	$	0.16		$	0.06		$	0.05
Basic – discontinued operations	$	—		$	(0.02	)	$	—		$	(0.03	)
Diluted – continuing operations	$	(0.03	)	$	0.16		$	0.06		$	0.04
Diluted – discontinued operations	$	—		$	(0.02	)	$	—		$	(0.03	)
Basic – attributable to Spectrum Group International, Inc.	$	(0.03	)	$	0.14		$	0.06		$	0.02
Diluted – attributable to Spectrum Group International, Inc.	$	(0.03	)	$	0.14		$	0.06		$	0.01
Weighted average shares outstanding
Basic		32,652			32,401			32,645			32,394
Diluted		32,652			32,913			32,992			32,906

(1)	Adjusted to reflect Greg Martin Auctions, Inc. ("GMA") as discontinued operations. See note 2 of the notes to condensed consolidated financial statements on Form 10-Q filed on February 13, 2012.
(2)	The 2010 condensed consolidated statement of operations have been restated for certain errors. Such errors did not result in an adjustment to the Company's reported net income. See note 1 of the notes to condensed consolidated financial statements on Form 10-Q filed on February 13, 2012.

SPECTRUM GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
		Six Months Ended December 31, 2011			Six Months Ended December 31, 2010 (1) (2)
Cash flows from operating activities:
Net income	$	3,198		$	1,383
(Income) loss from discontinued operations, net of tax		(94	)		867
Income from continuing operations		3,104			2,250
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		(3,293	)		2,076
Depreciation and amortization		956			638
Impairment of intangible assets		—			30
Provision for bad debts		2,567			44
Provision for inventory reserve		428			190
Share based compensation		311			255
Loss on abandonment of property of equipment		76			—
Changes in assets and liabilities:
Receivables and secured loans		(94,161	)		(25,582	)
Accounts receivable and consignor advances		4,081			(5,427	)
Inventory		36,599			(31,946	)
Prepaid expenses and other assets		(87	)		(1,128	)
Liabilities on borrowed metals		10,539			(30,723	)
Accounts payable, accrued expenses and other liabilities		64,003			39,343
Income taxes receivable/payable		1,659			71
Deferred taxes and other long-term liabilities		171			24
Accrued litigation settlement		(680	)		(2,697	)
Net cash provided by (used in) operating activities — continuing operations		26,273			(52,582	)
Net cash provided by (used in) operating activities — discontinued operations		109			(914	)
Net cash provided by (used in) operating activities		26,382			(53,496	)
Cash flows from investing activities:
Capital expenditures for property and equipment		(2,259	)		(463	)
Change in restricted cash		593			—
Purchases/sales of marketable securities		(138	)		4,995
Disposition of Greg Martin Auctions, Inc.		109			—
Net cash (used in) provided by investing activities — continuing operations		(1,695	)		4,532
Net cash (used in) investing activities — discontinued operations		(109	)		—
Net cash (used in) provided by investing activities		(1,804	)		4,532
Cash flows from financing activities:
(Repayments) borrowings under lines of credit, net		(13,533	)		66,800
(Repayments) borrowings on notes payable		(52	)		—
Distributions paid to non-controlling interest		(5	)		(2,500	)
Net cash (used in) provided by financing activities		(13,590	)		64,300
Effects of exchange rates on cash		(628	)		417
Net increase in cash and cash equivalents		10,360			15,753
Cash and cash equivalents, beginning of period		24,181			22,320
Cash and cash equivalents, end of period	$	34,541		$	38,073
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense	$	2,766		$	1,371
Income taxes	$	1,184		$	491
Non-cash items
Accrued purchase consideration	$	—		$	302

(1)	Adjusted to reflect Greg Martin Auctions, Inc. ("GMA") as discontinued operations. See note 2 of the notes to condensed consolidated financial statements on Form 10-Q filed on February 13, 2012.