SPGZ Spectrum Group International Inc (CE)

Spectrum Group International, Inc. (SPGZ.PK) today announced financial results for its first quarter of fiscal year 2013, which ended September 30, 2012.

Highlights for the Three Months Ended September 30, 2012:

• Total revenue $1.66 billion and gross profit of $10.2 million
  • Trading segment revenue of $1.61 billion and gross profit of $5.2 million
  • Collectible’s revenue of $51.3 million and gross profit of $5.0 million
• Pre-tax loss from continuing operations of $667,000 and basic and diluted loss per share from continuing operations of $0.02
• Sold Stamps division for $7.75 million, resulting in a gain on sale of $17,000
• Reduced ownership by Afinsa and Auctentia from 57% to 9.9% of our outstanding common stock and eliminated Auctentia’s 20% ownership of our Trading operations
• Sold in aggregate 13,430,702 shares of common stock for aggregate proceeds of $25.5 million.

Revenues for the three months ended September 30, 2012 decreased $594.2 million, or 26.3%, to $1.66 billion from $2.26 billion in the three months ended September 30, 2011. Our Trading segment revenues decreased $577.0 million, or 26.3%, to $1.61 billion for the three months ended September 30, 2012 versus $2.19 billion in the prior 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. Our Collectibles segment revenues decreased $17.2 million, or 25.1%, to $51.3 million for the three months ended September 30, 2012 from $68.5 million in 2011. This was due primarily to softening in the numismatics market, which led to decreased sales of coins and lower hammer prices at auction impacting our commissions.

Gross profit decreased $7.8 million, or 43.5%, to $10.2 million, or a gross profit margin of 0.6%, from $18.0 million, or a gross profit margin of 0.8% in 2011. There was a decrease in gross profit of $3.3 million, or 39.1%, to $5.2 million, or a gross profit margin of 0.3%, in the Trading segment. The decrease was due primarily to less price volatility and a decrease in volumes. Collectibles segment gross profit decreased by $4.5 million, or 47.4%, to $5.0 million, or a gross profit margin of 9.8%. The decrease was due to sales of a higher percentage of certain lower margin numismatic material, losses on hedging transactions, and softening of the overall market.

Pre-tax loss from continuing operations for the three months ended September 30, 2012 was $667,000 versus $6.8 million income in 2011. The pre-tax loss in the current quarter is primarily due to the factors affecting gross profit and revenues described above as well as the impact of a $1.4 million decrease in interest income primarily associated with contraction of our finance and liquidity business services in our Trading operations caused by a decline in commodity prices. Also contributing to the $667,000 loss was the impact of $675,000 in unrealized losses on foreign exchange.

On September 13, 2012, we completed the sale of our Stamps division for $7.75 million and recognized a $17,000 gain on the sale. Loss from discontinued operations, which comprises the Stamps division and our discontinued militaria collectibles business, increased $1.6 million to $787,000 loss for the three months ended September 30, 2012 from $795,000 income in 2011, due primarily to the lack of Stamp auctions in the first quarter prior to the sale of the Stamps division.

On September 25, 2012, we purchased from Afinsa and Auctentia a total of 15,609,796 shares of common stock, as a result of which the combined holdings of Afinsa and Auctentia was reduced from 57% to 9.9% of the Company's common stock outstanding. In addition, the Company purchased from Auctentia 20% of the shares of the Company's subsidiary Spectrum PMI, Inc., which is the holding company for the Company's A-Mark Precious Metals, Inc. trading subsidiary. As a result, Spectrum PMI is now wholly owned by the Company. The aggregate purchase price, including interest and other charges, was $51.17 million. The purchase price was funded through the proceeds of a rights offering and private placement of shares of common stock, which also closed on September 25, 2012, as well as the Company's cash on hand, resulting in a net impact to working capital of $25.6 million in cash and cash equivalents. The Company sold 12,004,387 shares in the rights offering at a price of $1.90 per share, for aggregate proceeds of $22.8 million, and 1,426,315 shares in the private placement at a price of $1.90 per share, for aggregate proceeds of $2.71 million.

More information regarding the Company’s financial results for the first quarter ended September 30, 2012 is set forth in the Company’s Report on Form 10-Q, as filed with the Securities and Exchange Commission on November 13, 2012.

    Three months ended        

in thousands, except per share data (unaudited)

September 30,2012

   

September 30,2011

Increase/(Decrease)$

Increase/(Decrease)%

Revenues $ 1,664,867 $ 2,259,054 $ (594,187 ) (26.3 )% Gross profit 10,180 18,025 (7,845 ) (43.5 )% Operating expenses 11,417 14,681 (3,264 ) (22.2 )% Operating income (loss) (1,237 ) 3,344 (4,581 ) (137.0 )% Pre-tax income (loss) from continuing operations (667 ) 6,812 (7,479 ) (109.8 )% Income (loss) from continuing operations (651 ) 3,842 (4,493 ) (116.9 )% Income (loss) from discontinued operations, net of tax, attributable to Spectrum Group International, Inc. (787 ) 795 (1,582 ) (199.0 )% Net income (loss) (1,438 ) 4,637 (6,075 ) (131.0 )% Less: net income attributable to non-controlling interest (84 ) (1,464 ) (1,380 ) (94.3 )% Net income (loss) attributable to Spectrum Group International, Inc. $ (1,522 ) $ 3,173 $ (4,695 ) (148.0 )% Income (loss) per share attributable to Spectrum Group International, Inc. Basic – continuing operations $ (0.02 ) $ 0.07 $ (0.09 ) (128.6 )% Basic – discontinued operations $ (0.03 ) $ 0.03 $ (0.06 ) (200.0 )% Diluted – continuing operations $ (0.02 ) $ 0.07 $ (0.09 ) (128.6 )% Diluted – discontinued operations $ (0.03 ) $ 0.03 $ (0.06 ) (200.0 )% Basic – net income (loss) $ (0.05 ) $ 0.10 $ (0.15 ) (150.0 )% Diluted – net income (loss) $ (0.05 ) $ 0.10 $ (0.15 ) (150.0 )%  

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 are 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)          

September 30,2012

June 30,2012 (1)

ASSETS Current assets:   Cash and cash equivalents $ 15,659 $ 25,305 Receivables and secured loans, net – trading operations 146,341 127,995 Accounts receivable and consignor advances, net – collectibles operations 15,583 20,428 Inventory, net 184,016 157,849 Prepaid expenses and other assets 3,145 2,770 Deferred tax assets 13,231 13,192 Current assets of discontinued operations   —     8,273     Total current assets 377,975 355,812 Property and equipment, net 12,672 11,710 Goodwill 5,986 6,765 Other purchased intangible assets, net 6,943 7,157 Restricted cash 572 550 Income tax receivables 2,637 2,637 Deferred tax assets – non-current 1,907 1,207 Other assets 940 943 Non-current assets of discontinued operations   —     1,115   Total assets $ 409,632   $ 387,896     LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and consignor payables $ 145,587 $ 95,787 Liability on borrowed metals 27,512 27,076 Obligation under product financing arrangement — 15,576 Accrued expenses and other current liabilities 6,882 9,921 Income taxes payable 15,000 17,860 Lines of credit 120,565 92,669 Debt obligations, current portion 491 154 Current liabilities of discontinued operations   —     8,224   Total current liabilities 316,037 267,267   Deferred and other long-term tax liabilities 8,155 8,010 Debt obligations, net of current portion 6,210 6,574 Other long-term liabilities   649     168   Total liabilities   331,051     282,019     Commitments and contingencies         Redeemable non-controlling interest   56     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: 30,629 and 32,723 at September 30, 2012 and June 30, 2012, respectively 306 327 Additional paid-in capital 209,576 242,418 Accumulated other comprehensive income 6,194 6,389 Accumulated deficit   (139,828 )   (156,777 ) Total Spectrum Group International, Inc. stockholders’ equity 76,248 92,357 Non-controlling interest   2,277     13,396   Total stockholders’ equity   78,525     105,753   Total liabilities, redeemable non-controlling interest and stockholders’ equity $ 409,632   $ 387,896  

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(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. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)                  

Three monthsendedSeptember 30,2012

Three monthsendedSeptember 30,2011 (1)

Revenues: Sales of precious metals $ 1,613,615 $ 2,190,586 Collectibles revenues: Sales of inventory 46,274 59,900 Auction services   4,978     8,568   Total revenues   1,664,867     2,259,054   Cost of sales: Cost of precious metals sold 1,608,451 2,182,104 Cost of collectibles sold 43,417 56,386 Auction services expense   2,819     2,539   Total cost of sales   1,654,687     2,241,029   Gross profit   10,180     18,025   Operating expenses: General and administrative 5,128 6,541 Salaries and wages 5,784 7,768 Depreciation and amortization   505     372   Total operating expenses   11,417     14,681   Operating income (loss)   (1,237 )   3,344   Interest and other income (expense): Interest income 2,188 3,624 Interest expense (1,082 ) (1,288 ) Other income (expense), net 139 (628 ) Unrealized gain (loss) on foreign exchange   (675 )   1,760   Total interest, other income (expense) and unrealized gain (loss) on foreign exchange   570     3,468   Income (loss) from continuing operations before provision for income taxes (667 ) 6,812 Provision for income taxes (income tax benefit)   (16 )   2,970   Income (loss) from continuing operations (651 ) 3,842 Income (loss) from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.   (787 )   795   Net income (loss) (1,438 ) 4,637 Less: net income attributable to non-controlling interests   (84 )   (1,464 ) Net income (loss) attributable to Spectrum Group International, Inc. $ (1,522 ) $ 3,173     Basic and diluted income (loss) per share attributable to Spectrum Group International, Inc.: Basic – continuing operations $ (0.02 ) $ 0.07   Basic – discontinued operations $ (0.03 ) $ 0.03   Diluted – continuing operations $ (0.02 ) $ 0.07   Diluted – discontinued operations $ (0.03 ) $ 0.03   Basic – net income (loss) $ (0.05 ) $ 0.10   Diluted – net income (loss) $ (0.05 ) $ 0.10     Weighted average shares outstanding Basic   32,783     32,638   Diluted   32,783     32,935  

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(1)   Adjusted to reflect discontinued operations.   SPECTRUM GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)                  

Three monthsendedSeptember 30,2012

Three monthsendedSeptember 30,2011 (1)

  Cash flows from operating activities: Net income (loss) $ (1,438 ) $ 4,637 (Income) loss from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.   787     (795 ) Income (loss) from continuing operations (651 ) 3,842 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 675 (1,760 ) Depreciation and amortization 505 372 Provision for bad debts 42 — Provision for inventory reserve 19 26 Share based compensation 72 148 Gain on sale of Stamps business (17 ) — Loss on abandonment of property and equipment 179 — Changes in assets and liabilities: Receivables and secured loans (18,346 ) (115,552 ) Accounts receivable and consignor advances (179 ) (3,782 ) Inventory (26,760 ) 21,378 Prepaid expenses and other assets (1,303 ) (1,549 ) Liabilities on borrowed metals 436 10,688 Accounts payable, accrued expenses and other liabilities 47,011 142,288 Income taxes receivable/payable (2,593 ) 2,119 Deferred taxes and other long-term tax liabilities (739 ) (2 ) Accrued litigation settlement   —     (755 ) Net cash provided by (used in) operating activities — continuing operations (1,649 ) 57,461 Net cash provided by (used in) operating activities — discontinued operations   (1,353 )   1,078   Net cash provided by (used in) operating activities   (3,002 )   58,539   Cash flows from investing activities: Capital expenditures for property and equipment (858 ) (898 ) Change in restricted cash (22 ) 543 Purchases/sales of marketable securities — (991 ) Divestiture of business   7,750     —   Net cash provided by (used in) investing activities — continuing operations 6,870 (1,346 ) Net cash used in investing activities — discontinued operations   (22 )   —   Net cash provided by (used in) investing activities   6,848     (1,346 ) Cash flows from financing activities: Borrowings (repayments) under lines of credit, net 27,896 (18,697 ) Borrowings (repayments) on notes payable (27 ) (34 ) Obligation under product financing arrangement (15,576 ) — Issuance of common stock 25,242 — 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 (13,644 ) (18,737 ) Net cash provided by (used in) financing activities — discontinued operations   —     —   Net cash used in financing activities   (13,644 )   (18,737 ) Effects of exchange rates on cash   152     (195 ) Net increase (decrease) in cash and cash equivalents (9,646 ) 38,261 Cash and cash equivalents, beginning of period   25,305     24,181   Cash and cash equivalents, end of period $ 15,659     62,442   Supplemental disclosures of cash flow information: Cash paid during the period for: Interest expense $ 965     1,224   Income taxes $ 3,099     751   Non-cash investing and financing activities: Purchase of equipment under capital lease $ (573 )   —  

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(1)   Adjusted to reflect discontinued operations.