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

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

Highlights for the Three and Nine months ended March 31, 2012:

• Total revenue increased $251.1 million to $1.86 billion and $1.43 billion to $6.26 billion, respectively, for the three and nine months ended March 31, 2012, as compared with the same periods last year.
  • Trading segment revenue increased $273.6 million to $1.82 billion and $1.45 billion to $6.10 billion, respectively, for the three and nine months ended March 31, 2012, as compared with the same periods last year.
  • Collectibles segment revenue decreased $22.5 million to $47.2 million and $17.9 million to $158.8 million, respectively, for the three and nine months ended March 31, 2012, as compared with the same periods last year.
• Gross profit decreased $5.5 million to $12.8 million and increased $2.4 million to $45.2 million, respectively, for the three and nine months ended March 31, 2012, as compared with the same periods last year.
• Pre-tax income from continuing operations decreased $3.5 million to a loss of $483,000 and $2.6 million to $2.6 million, respectively, for the three and nine months ended March 31, 2012, as compared with the same periods last year.

Revenues for the three months ended March 31, 2012 increased $251.1 million, or 15.6%, to $1.86 billion from $1.61 billion in the year-ago quarter. Revenues for the nine months ended March 31, 2012 increased $1.43 billion, or 29.6%, to $6.26 billion from $4.83 billion in the year-ago quarter. Trading revenues increased $273.6 million, or 17.7%, for the three months ended March 31, 2012 and increased $1.45 billion, or 31.2%, for the nine months ended March 31, 2012 compared with the same periods last year. The increase is the result of higher precious metal prices during the three and nine months ended March 31, 2012. Collectible segment revenues decreased $22.5 million, or 32.3%, for the three months ended March 31, 2012 and $17.9 million, or 10.1%, for the nine months ended March 31, 2012. The decrease is due primarily to softening in the overall market and decreased sales of silver bullion coins.

Gross profit for the three months ended March 31, 2012 decreased $5.5 million, or 30.0%, to $12.8 million, or a gross profit margin of 0.7%, from $18.3 million, or a gross profit margin of 1.1% in 2011. There was a decrease in gross profit of $2.8 million, or 33.8%, to $5.6 million, or a gross profit margin of 0.31%, in the Trading segment. The decrease was due primarily to less price volatility and a decrease in volumes. Collectibles segment gross profit decreased by $2.6 million, or 26.9%, to $7.2 million, or a gross profit margin of 15.3% for the three months ended March 31, 2012. The decrease is due to sales of a higher percentage of certain lower margin numismatic materials, which was partially offset by higher gross profits from the acquisition of Stack’s, LLC.

Gross profit for the nine months ended March 31, 2012 increased $2.4 million to $45.2 million, or a gross profit margin of 0.7%, from $42.7 million, or a gross profit margin of 0.9% in 2011. The Trading segment contributed to this increase, with an increase of $2.9 million, which was partially offset by a decrease of $463,000 in Collectibles gross profit. The increase in gross profit in the Trading segment was due primarily to higher volumes in the first half of the current fiscal year in the nine-month period as compared with the year-ago period.

The pre-tax loss from continuing operations for the three months ended March 31, 2012 was $1.1 million, as compared with pre-tax income of $3.4 million for the comparable quarter in the prior fiscal year. Pre-tax income for the nine months ended March 31, 2012 decreased $1.2 million to $4.8 million from $6.0 million during the year-ago period. The decrease in pre-tax income for the three-month period is primarily due to sales of a higher percentage of certain lower margin numismatic materials, which affected the gross profit margin. The decrease for the nine months was due primarily to an increase in operating expenses which was partially offset by increases in gross profit in our Trading segment, interest income and unrealized gain on foreign exchange. Included in operating expenses for the nine months ended March 31, 2012 was a $2.1 million reserve in connection with the claim against M.F. Global, Inc. More information regarding the Company’s financial results for quarter ended March 31, 2012 is set forth in the Company’s Report on Form 10-Q, as filed with the Securities and Exchange Commission on May 14, 2012.

		Three Months Ended
in thousands, except per share data		March 31, 2012 (unaudited)			March 31, 2011 (1) (restated) (unaudited)			Increase/ (Decrease) $		Increase/ (Decrease) %
Revenues	$	1,863,399		$	1,612,345		$	251,054		15.6	%
Gross profit		12,768			18,250			(5,482	)	(30.0	)%
Operating expenses		14,945			14,457			488		3.4	%
Operating income (loss)		(2,177	)		3,793			(5,970	)	(157.4	)%
Pre-tax income (loss)		(1,102	)		3,447			(4,549	)	(132.0	)%
Net income (loss) from continuing operations		(483	)		2,999			(3,482	)	(116.1	)%
Net loss from discontinued operations		—			(152	)		(152	)	(100.0	)%
Net income (loss)		(483	)		2,847			(3,330	)	(117.0	)%
Less: net income attributable to non-controlling interests		(138	)		(305	)		(167	)	(54.8	)%
Net income (loss) attributable to Spectrum Group International, Inc.	$	(621	)	$	2,542		$	(3,163	)	(124.4	)%
Earnings (loss) per share
Basic – continuing operations	$	(0.02	)	$	0.08		$	(0.10	)
Basic – discontinuing operations	$	—		$	—		$	—
Diluted –continued operations	$	(0.02	)	$	0.08		$	(0.10	)
Diluted – discontinued operations	$	—		$	—		$	—
Basic – attributable to Spectrum Group International, Inc.	$	(0.02	)	$	0.08		$	(0.10	)
Diluted – attributable to Spectrum Group International, Inc.	$	(0.02	)	$	0.08		$	(0.10	)
(1)  The 2011 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 May 14, 2012.

		Nine months ended
in thousands, except per share data		March 31, 2012 (unaudited)			March 31, 2011 (1) (restated) (unaudited)			Increase/ (Decrease) $		Increase/ (Decrease) %
Revenues	$	6,256,189		$	4,825,558		$	1,430,631		29.6	%
Gross profit		45,172			42,735			2,437		5.7	%
Operating expenses		49,507			36,061			13,446		37.3	%
Operating income (loss)		(4,335	)		6,674			(11,009	)	(165.0	)%
Pre-tax income		4,847			5,968			(1,121	)	(18.8	)%
Net income from continuing operations		2,621			5,197			(2,576	)	(49.6	)%
Net income (loss) from discontinued operations		94			(966	)		1,060		109.7	%
Net income		2,715			4,231			(1,516	)	(35.8	)%
Less: net income attributable to non-controlling interest		(1,158	)		(1,092	)		66		6.0	%
Net income attributable to Spectrum Group International, Inc.	$	1,557		$	3,139		$	(1,582	)	(50.4	)%
Earnings (loss) per share
Basic – continuing operations	$	0.04		$	0.13		$	(0.09	)
Basic – discontinuing operations	$	0.01		$	(0.03	)	$	0.04
Diluted –continued operations	$	0.04		$	0.12		$	(0.08	)
Diluted – discontinued operations	$	0.01		$	(0.03	)	$	0.04
Basic – attributable to Spectrum Group International, Inc.	$	0.05		$	0.10		$	(0.05	)
Diluted – attributable to Spectrum Group International, Inc.	$	0.05		$	0.09		$	(0.04	)
(1) The 2011 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 May 14, 2012.

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. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited)
					March 31, 2012			June 30, 2011 (1)
ASSETS
Current assets:
	Cash and cash equivalents			$	36,128		$	24,181
	Short-term investments and marketable securities				1,000			1,151
	Receivables and secured loans, net – trading operations				103,279			93,895
	Accounts receivable and consignor advances, net – collectibles operations				32,672			29,647
	Inventory, net				183,453			186,111
	Prepaid expenses and other assets				3,610			4,091
	Deferred tax assets				2,246			2,246
	Current assets of discontinued operations				—			228
		Total current assets			362,388			341,550
	Property and equipment, net				12,544			10,937
	Goodwill				7,013			7,026
	Other purchased intangible assets, net				7,616			8,240
	Restricted cash				528			1,121
	Income taxes receivable				2,637			2,637
	Other assets				501			306
	Non-current assets of discontinued operations				—			10
		Total assets		$	393,227		$	371,827
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and consignor payables			$	60,490		$	83,867
	Liability on borrowed metals				26,137			11,384
	Obligation under product financing arrangement				18,314			—
	Accrued expenses and other current liabilities				13,622			16,204
	Accrued litigation settlement				—			755
	Income taxes payable				1,406			2,460
	Lines of credit				150,399			134,891
	Debt obligations, current portion				153			146
	Current liabilities of discontinued operations				—			23
		Total current liabilities			270,521			249,730
	Deferred and other long term tax liabilities				10,967			11,785
	Debt obligations, net of current portion				6,603			6,689
	Other long-term liabilities				52			—
		Total liabilities			288,143			268,204
	Commitments, contingencies and subsequent events
	Redeemable non-controlling interest				167			—
	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: 32,721 and 32,537 at March 31, 2012 and June 30, 2011, respectively			327			325
		Additional paid-in capital			242,305			241,917
		Accumulated other comprehensive income			8,034			9,867
		Accumulated deficit			(159,281	)		(160,838	)
			Total Spectrum Group International, Inc. stockholders’ equity		91,385			91,271
	Non-controlling interest				13,532			12,352
		Total stockholders’ equity			104,917			103,623
		Total liabilities, redeemable non-controlling interest and stockholders’ equity		$	393,227		$	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. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
		Three Months Ended March 31, 2012			Three Months Ended March 31, 2011 (1)			Nine months Ended March 31, 2012			Nine Months Ended March 31, 2011 (1)
Revenues:
Sales of precious metals	$	1,816,231		$	1,542,653		$	6,097,344		$	4,648,820
Collectibles revenues:
Sales of inventories		40,239			61,808			134,834			157,816
Auction services		6,929			7,884			24,011			18,922
Total revenue		1,863,399			1,612,345			6,256,189			4,825,558
Cost of sales:
Cost of precious metals sold		1,810,664			1,534,249			6,076,093			4,630,469
Cost of collectibles sold		38,854			58,315			129,558			148,913
Auction services expense		1,113			1,531			5,366			3,441
Total cost of sales		1,850,631			1,594,095			6,211,017			4,782,823
Gross profit		12,768			18,250			45,172			42,735
Operating expenses:
General and administrative		6,532			6,407			21,537			16,643
M.F. Global, Inc. loss provision		—			—			2,094			—
Salaries and wages		7,856			7,556			24,363			18,256
Depreciation and amortization		557			494			1,513			1,162
Total operating expenses		14,945			14,457			49,507			36,061
Operating income (loss)		(2,177	)		3,793			(4,335	)		6,674
Interest and other income (expense):
Interest income		3,235			2,617			10,204			6,696
Interest expense		(1,326	)		(1,156	)		(3,889	)		(3,068	)
Other income (expense), net		46			(14	)		454			(465	)
Unrealized gain (loss) on foreign exchange		(880	)		(1,793	)		2,413			(3,869	)
Total interest and other income (expense), foreign exchange gain (loss)		1,075			(346	)		9,182			(706	)
Income (loss) from continuing operations before provision for income taxes		(1,102	)		3,447			4,847			5,968
Provision for income taxes (income tax benefit)		(619	)		448			2,226			771
Income (loss) from continuing operations		(483	)		2,999			2,621			5,197
Income (loss) from discontinued operations, net of tax		—			(152	)		94			(966	)
Net income (loss)		(483	)		2,847			2,715			4,231
Less: net income attributable to non-controlling interests		(138	)		(305	)		(1,158	)		(1,092	)
Net income (loss) attributable to Spectrum Group International, Inc.	$	(621	)	$	2,542		$	1,557		$	3,139
Basic and diluted income (loss) per share:
Basic – continuing operations	$	(0.02	)	$	0.08		$	0.04		$	0.13
Basic – discontinued operations	$	—		$	—		$	—		$	(0.03	)
Diluted – continuing operations	$	(0.02	)	$	0.08		$	0.04		$	0.12
Diluted – discontinued operations	$	—		$	—		$	0.01		$	(0.03	)
Basic – attributable to Spectrum Group International, Inc.	$	(0.02	)	$	0.08		$	0.04		$	0.10
Diluted – attributable to Spectrum Group International, Inc.	$	(0.02	)	$	0.08		$	0.05		$	0.09
Weighted average shares outstanding
Basic		32,723			32,468			32,659			32,422
Diluted		32,723			33,169			32,902			33,089
(1) The 2011 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 May 14, 2012.

SPECTRUM GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
		Nine months ended March 31, 2012			Nine months ended March 31, 2011
Cash flows from operating activities:
Net income	$	2,715		$	4,231
(Income) loss from discontinued operations, net of tax		(94	)		966
Income from continuing operations		2,621			5,197
Adjustments to reconcile income from continuing operations to net cash used in operating activities — continuing operations:
Net unrealized (gains) losses on foreign currency		(2,413	)		3,869
Depreciation and amortization		1,513			1,131
Impairment of intangible assets		—			30
Provision for bad debts		2,980			74
Provision for inventory reserve		485			270
Share based compensation		430			467
Loss on abandonment of property of equipment		90			—
Changes in assets and liabilities:
Receivables and secured loans		(11,478	)		(29,268	)
Accounts receivable and consignor advances		(4,445	)		(21,631	)
Inventory		2,130			(61,179	)
Prepaid expenses and other assets		408			(2,448	)
Liabilities on borrowed metals		14,753			(28,256	)
Obligation under product financing arrangement		18,314			—
Accounts payable, accrued expenses and other liabilities		(25,513	)		76,917
Income taxes receivable/payable		(713	)		379
Deferred taxes and other long-term tax liabilities		258			105
Accrued litigation settlement		(755	)		(2,697	)
Net cash used in operating activities — continuing operations		(1,335	)		(57,040	)
Net cash used in operating activities — discontinued operations		109			(996	)
Net cash used in operating activities		(1,226	)		(58,036	)
Cash flows from investing activities:
Capital expenditures for property and equipment		(2,651	)		(819	)
Cash paid for acquisition, net of cash received		—			(2,760	)
Maturity of short-term investments		68			4,711
Change in restricted cash		593			—
Disposition of Greg Martin Auctions, Inc.		109
Net cash provided by (used in) investing activities — continuing operations		(1,881	)		1,132
Net cash provided by investing activities — discontinued operations		(109	)		125
Net cash provided by (used in) investing activities		(1,990	)		1,257
Cash flows from financing activities:
Borrowings under lines of credit, net		15,508			53,600
Repayments on notes payable		(79	)		—
Taxes paid on behalf of employees with respect to vesting of restricted shares		—			(151	)
Contribution from non-controlling interest		195			—
Distributions paid to non-controlling interest		(51	)		—
Dividends paid to non-controlling interest		—			(2,500	)
Proceeds from exercise of stock options		5			—
Net cash provided by financing activities		15,578			50,949
Effects of exchange rates on cash		(415	)		346
Net increase (decrease) in cash and cash equivalents		11,947			(5,484	)
Cash and cash equivalents, beginning of period		24,181			22,320
Cash and cash equivalents, end of period	$	36,128		$	16,836
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense	$	3,486		$	707
Income taxes	$	2,864		$	2,128
Non-cash investing and financing activities:
Accrued purchase consideration	$	—		$	302
Sale of Greg Martin Auctions, Inc.	$	—		$	200
Acquisition of Stack’s Bowers Numismatics, LLC	$	—		$	3,498