SPGZ Spectrum Group International Inc (CE)

Spectrum Group International, Inc. (OTCQB:SPGZ) today announced financial results for its second quarter of fiscal year 2014, which ended December 31, 2013.

Highlights for the Three and Six Months Ended December 31, 2013:

• Total revenue of $1.51 billion and $3.04 billion for the three and six months ended December 31, 2013.
  • Trading segment revenue of $1.48 billion and $2.98 billion for the three and six months ended December 31, 2013
  • Collectibles segment revenue of $25.4 million and $68.1 million for the three and six months ended December 31, 2013
• Gross profit of $11.4 million and $24.7 million for the three and six months ended December 31, 2013
• Pre-tax loss from continuing operations of $2.8 million and $1.2 million for the three and six months ended December 31, 2013

Revenues for the three months ended December 31, 2013, decreased $226.8 million, or 13.1%, to $1.51 billion from $1.74 billion in 2012. Revenues for the six months ended December 31, 2013, decreased $356.8 million, or 10.5%, to $3.04 billion from $3.40 billion in 2012. Our Trading segment revenues decreased $204.5 million, or 12.1%, for the three months ended December 31, 2013, and decreased $326.0 million, or 9.9%, for the six months ended December 31, 2013. Our Collectibles segment revenues decreased $22.2 million, or 46.6%, for the three months ended December 31, 2013, and decreased $30.8 million, or 31.1%, for the six months ended December 31, 2013.

Our gross profit for the three months ended December 31, 2013, decreased $0.1 million, or 0.4%, to $11.4 million, or a gross profit margin of 0.8%, from $11.5 million, or a gross profit margin of 0.7% in 2012. We experienced an increase in gross profit of $1.5 million, or 23.2%, to $8.0 million, or a gross profit margin of 0.5%, in our Trading segment, while our Collectibles segment gross profit decreased by $1.6 million, or 31.6%, to $3.4 million, or a gross profit margin of 13.3%, for the three months ended December 31, 2013. Our gross profit for the six months ended December 31, 2013, increased $3.1 million, or 14.3%, to $24.7 million, or a gross profit margin of 0.8%, from $21.6 million, or a gross profit margin of 0.6% in 2012.

General and administrative expenses increased $2.2 million, or 43.2%, to $7.3 million in the three months ended December 31, 2013, from $5.1 million in 2012. For the six months ended December 31, 2013 general and administrative expenses increased $2.5 million, or 24.2%, to $12.7 million from $10.2 million in 2012. The increase in both periods is primarily attributable to additional professional fees and outside consultant expenses incurred in connection with our proposed spin-off transaction, as disclosed in Note 20 of our Form 10-Q as well as IT costs incurred in the period to implement a new ERP system.

Net loss attributable to SGI increased $4.6 million, to $4.4 million in the three months ended December 31, 2013, from a net income of $0.2 million in 2012. For the six months ended December 31, 2013, net loss attributable to SGI increased $2.1 million, or 153.0%, to $3.4 million from a loss of $1.4 million in 2012. The increase in net loss for the three months ended December 31, 2013, is due primarily to decreased operating income in our Collectibles segment of $1.5 million and increases in corporate operating expenses of $1.6 million. The increase in net loss for the six months ended December 31, 2013, is due primarily to increases in corporate operating expenses of $1.6 million and reduced interest income of $1.5 million.

Basic earnings (loss) per share from continuing operations decreased $0.15 to $(0.14) for the three months ended December 31, 2013, from $0.01 in 2012, and diluted earnings per share from continuing operations decreased $0.15 to $(0.14) from $0.01 in 2012. For the six months ended December 31, 2013, basic earnings per share from continuing operations decreased $0.09 to $(0.11) from a loss of $(0.02) while diluted earnings per share from continuing operations decreased by $0.09 to $(0.11) from a loss of $(0.02) in 2012. The change in both basic and diluted earnings per share was primarily due to the increase in our net loss from the factors mentioned above.

The operating results of our business for the three months ended December 31, 2013, and 2012 are as follows:

    2013   2012   $   %   % of   % of Increase/ Increase/

in thousands

$ revenue $ revenue (decrease) (decrease) Revenue $ 1,509,516   100.0 % $ 1,736,289   100.0 % $ (226,773 ) (13.1 )% Gross profit 11,408 0.8 % 11,459 0.7 % (51 ) (0.4 )% General and administrative expenses 7,311 0.5 % 5,105 0.3 % 2,206 43.2 % M.F. Global, Inc. loss provision — — % (711 ) — % 711

NM

Salaries and wages 6,796 0.5 % 6,383 0.4 % 413 6.5 % Depreciation and amortization   579   — %   568   — %   11   1.9 % Operating income (loss) (3,278 ) (0.2 )% 114 — %

(3,392

)

NM Interest income 1,483 0.1 % 2,464 0.1 % (981 ) (39.8 )% Interest expense (1,065 ) (0.1 )% (1,331 ) (0.1 )% (266 ) (20.0 )% Other income, net 19 — % 83 — % (64 ) (77.1 )% Unrealized gain (loss) on foreign exchange   16   — %   (807 ) — %   823   102.0 % Income (loss) from continuing operations before provision for income taxes (2,825 ) (0.2 )% 523 — % (3,348 ) (640.2 )% Provision for income taxes   1,515   0.1 %   1,062   0.1 %   453   42.7 % Loss from continuing operations (4,340 ) (0.3 )% (539 ) — % (3,801 ) (705.2 )% Loss from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.   —   — %   —   — %   —   — % Net loss (4,340 ) (0.3 )% (539 ) — % (3,801 ) (705.2 )% Less: net loss (income) attributable to the non-controlling interests   (62 ) — %   699   — %   (761 ) (108.9 )% Net income (loss) attributable to Spectrum Group International, Inc. $ (4,402 ) (0.3 )% $ 160   — % $ (4,562 ) NM    

NM = Not Meaningful

 

Basic and diluted income (loss) per share attributable to Spectrum Group International, Inc.:

  Three Months Ended         December 31,   Increase/ % of Increase/ 2013 2012 (decrease) (decrease) Basic - continuing operations $ (0.14 ) $ 0.01 $ (0.15 ) NM   Basic - discontinued operations $ —   $ — $ —   — % Diluted - continuing operations $ (0.14 ) $ 0.01 $ (0.15 ) NM   Diluted - discontinuing operations $ —   $ — $ —   — % Basic - net income (loss) $ (0.14 ) $ 0.01 $ (0.15 ) NM   Diluted - net income (loss) $ (0.14 ) $ 0.01 $ (0.15 ) NM     Weighted average shares outstanding (in thousands): Basic   30,917     30,628 Diluted   30,917     30,835  

The operating results of our business for the six months ended December 31, 2013, and 2012 are as follows:

    2013   2012   $   %   % of   % of Increase/ Increase/

in thousands

$ revenue $ revenue (decrease) (decrease) Revenue $ 3,044,316   100.0 % $ 3,401,156   100.0 % $ (356,840 ) (10.5 )% Gross profit 24,737 0.8 % 21,639 0.6 % 3,098 14.3 % General and administrative expenses 12,708 0.4 % 10,233 0.3 % 2,475 24.2 % M.F. Global, Inc. loss provision — — % (711 ) — % 711 NM Salaries and wages 13,065 0.4 %

12,167

 

0.4 % 898 7.4 % Depreciation and amortization   1,136   — %   1,073   — %   63   5.9 % Operating loss (2,172 ) (0.1 )% (1,123 ) — % (1,049 ) (93.4 )% Interest income 3,117 0.1 % 4,652 0.1 % (1,535 ) (33.0 )% Interest expense (2,264 ) (0.1 )% (2,413 ) (0.1 )% (149 ) (6.2 )% Other income, net 68 — % 222 — % (154 ) (69.4 )% Unrealized gain (loss) on foreign exchange   41   — %   (1,482 ) — %   1,523   (102.8 )% Loss from continuing operations before provision for income taxes (1,210 ) — % (144 ) — % (1,066 ) (740.3 )% Provision for income taxes   2,215   0.1 %   1,170   — %   1,045   89.3 % Loss from continuing operations (3,425 ) (0.1 )% (1,314 ) — % (2,111 ) (160.7 )% Loss from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.   —   — %   (663 ) — %   663   (100.0 )% Net loss (3,425 ) (0.1 )% (1,977 ) (0.1 )% (1,448 ) (73.2 )% Less: net loss (income) attributable to the non-controlling interests   (21 ) — %   615   — %   (636 ) (103.4 )% Net loss attributable to Spectrum Group International, Inc. $ (3,446 ) (0.1 )% $ (1,362 ) — % $ (2,084 ) (153.0 )%  

NM = Not Meaningful

 

Basic and diluted income (loss) per share attributable to Spectrum Group International, Inc.:

    Six Months Ended         December 31,   Increase/ % of Increase/ 2013 2012 (decrease) (decrease) Basic - continuing operations $ (0.11 ) $ (0.02 ) $ (0.09 ) (450.0 )% Basic - discontinued operations $ —   $ (0.02 ) $ 0.02   100.0 % Diluted - continuing operations $ (0.11 ) $ (0.02 ) $ (0.09 ) (450.0 )% Diluted - discontinuing operations $ —   $ (0.02 ) $ 0.02   100.0 % Basic - net income (loss) $ (0.11 ) $ (0.04 ) $ (0.07 ) (175.0 )% Diluted - net income (loss) $ (0.11 ) $ (0.04 ) $ (0.07 ) (175.0 )%   Weighted average shares outstanding (in thousands): Basic   30,918     31,706   Diluted   30,918     31,706       Reconciliation of non-GAAP disclosure   Three Months Ended   Six Months Ended December 31,   December 31, December 31,   December 31,

in thousands

2013 2012 2013 2012  

Income (loss) from continuing operations before provision for income taxes

$

(2,825

)

$ 523 $ (1,210 ) $ (144 ) Subtract: unrealized(loss) gain on foreign exchange   16     (807 )   41     (1,482 )

Non-GAAP adjusted pretax income from continuing operations

$ (2,841 ) $ 1,330   $ (1,251 ) $ 1,338    

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 currency 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 Numismatics LLC (dba Stack’s Bowers Galleries), a rare coin and currency auction house and Spectrum Wine Auctions, all based in Irvine, California.

On February 12, 2014, SGI announced that its Board of Directors has formally declared a distribution to its stockholders of all the outstanding stock of A-Mark. The distribution will affect a spinoff of A-Mark from the Company. Following the distribution, A-Mark will be a publicly traded company independent from SGI. The distribution will be made on or about February 28, 2014 (the “Distribution Date”).

On the Distribution Date, stockholders of SGI will receive one share of A-Mark common stock for each four shares of SGI common stock held. It is expected that on the first trading day after the Distribution Date, March 3, 2014, A-Mark’s shares of common stock will commence trading on the NASDAQ Global Select Market under the symbol “AMRK.” Up to and including the distribution date, the SGI common stock will trade on the “regular-way” market; that is, with an entitlement to shares of A-Mark common stock distributed pursuant to the distribution. SGI common stock will not trade on an ex-distribution market; that is, without an entitlement to shares of A-Mark common stock distributed pursuant to the distribution.

Fractional shares of A-Mark common stock will not be distributed. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash from proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share. SGI has received an opinion of counsel to the effect that the spinoff will be tax-free to SGI stockholders for U.S. federal income tax purposes, except for any cash received in lieu of fractional shares.

SGI stockholders are not required to take any action to receive A-Mark common stock in the distribution, and they will not be required to surrender or exchange their SGI shares.

SGI is delivering to its stockholders a prospectus with respect to the distribution. The prospectus is included in a registration statement on Form S-1 filed by A-Mark with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on February 11, 2014. Stockholders are urged to read the prospectus for important information concerning the distribution.

Following the Distribution Date, SGI intends to reduce the number of record holders of its common stock to fewer than 300 through a 1-for-1,000 reverse stock split and to terminate the registration of its common stock under the Securities Exchange Act, with the result that SGI will no longer be required to file periodic and other reports with the SEC. If the reverse stock split is consummated, stockholders of record who hold fewer than 1,000 shares of common stock before the reverse stock split will receive a cash payment of $0.65 per pre-reverse stock split share in lieu of receiving a fractional post-reverse stock split share. It is expected that SGI common stock will be quoted on the OTC Pink market under the symbol “SPGZ” following the deregistration of its shares under the Securities Exchange Act. SGI intends to schedule a special meeting of SGI stockholders to approve an amendment to its certificate of incorporation for the purpose of affecting the reverse split. There is no assurance that the reverse split will be consummated.

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) (Unaudited)     December 31,   June 30, 2013 2013   ASSETS Current assets: Cash and cash equivalents $ 16,918 $ 23,643 Receivables and secured loans, net — trading operations 101,538 109,696 Accounts receivable and consignor advances, net — collectibles operations 7,083 12,347 Inventories: Inventory, net 157,124 149,699 Restricted inventories   25,506     38,554     182,630     188,253   Prepaid expenses and other assets 2,977 2,306 Deferred tax assets   3,630     3,630   Total current assets 314,776 339,875 Property and equipment, net 14,327 13,908 Goodwill 4,884 4,884 Other purchased intangibles, net 5,951 6,317 Restricted cash 577 602 Income tax receivables 4,448 1,836 Deferred tax assets - non-current 3,387 3,387 Other assets   291     566   Total assets $ 348,641   $ 371,375   LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and consignor payables $ 88,438 $ 95,839 Liability on borrowed metals 11,226 20,117 Obligation under product financing arrangement 25,506 38,554 Accrued expenses and other current liabilities 7,233 10,693 Income taxes payable 8,173 6,364 Lines of credit 111,135 100,857 Debt obligations, current portion   166     161   Total current liabilities 251,877 272,585 Long term tax liabilities 10,477 9,322 Debt obligations, net of current portion 8,716 8,788 Other long-term liabilities   1,802     1,888   Total liabilities   272,872     292,583   Commitments and contingencies     Redeemable non-controlling interest, VIE   92     160   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: 30,841 and 30,909 at December 31, 2013 and June 30, 2013, respectively 309 309 Additional paid-in capital 206,817 206,655 Accumulated other comprehensive income 6,605 6,605 Accumulated deficit   (138,383 )   (134,937 ) Total Spectrum Group International, Inc. stockholders’ equity 75,348 78,632 Non-controlling interests   329     —   Total stockholders’ equity   75,677     78,632   Total liabilities, redeemable non-controlling interests, and stockholders’ equity $ 348,641   $ 371,375       SPECTRUM GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)     Three Months Ended   Six Months Ended December 31,   December 31,   December 31,   December 31, 2013 2012   2013   2012 Revenues: Sales of precious metals $ 1,484,083 $ 1,688,625 $ 2,976,196 $ 3,302,240 Collectibles revenues: Sales of inventory 23,390 44,900 58,521 91,174 Auction services   2,043     2,764       9,599       7,742   Total revenues   1,509,516     1,736,289       3,044,316       3,401,156   Cost of sales: Cost of precious metals sold 1,476,058 1,682,113 2,960,998 3,290,564 Cost of collectibles sold 21,405 41,829 55,134 85,246 Auction services expense   645     888       3,447       3,707   Total cost of sales   1,498,108     1,724,830       3,019,579       3,379,517   Gross profit   11,408     11,459       24,737       21,639   Operating expenses: General and administrative 7,311 5,105 12,708 10,233 M.F. Global, Inc. loss provision — (711 ) — (711 ) Salaries and wages 6,796 6,383 13,065 12,167 Depreciation and amortization   579     568       1,136       1,073   Total operating expenses   14,686     11,345       26,909       22,762   Operating income (loss)   (3,278 )   114       (2,172 )     (1,123 ) Interest and other income (expense): Interest income 1,483 2,464 3,117 4,652 Interest expense (1,065 ) (1,331 ) (2,264 ) (2,413 ) Other income, net 19 83 68 222 Unrealized gain (loss) on foreign exchange   16     (807 )     41       (1,482 ) Total interest and other income   453     409       962       979   Income (loss) from continuing operations before provision for income taxes (2,825 ) 523 (1,210 ) (144 ) Provision for income taxes   1,515     1,062       2,215       1,170   Income (loss) from continuing operations (4,340 ) (539 ) (3,425 ) (1,314 ) Loss from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.   —     —       —       (663 ) Net loss (4,340 ) (539 ) (3,425 ) (1,977 ) Less: net loss (income) attributable to non-controlling interests   (62 )   699       (21 )     615   Net income (loss) attributable to Spectrum Group International, Inc. $ (4,402 ) $ 160     $ (3,446 )   $ (1,362 ) Basic and diluted income (loss) per share attributable to Spectrum Group International, Inc.: Basic - continuing operations $ (0.14 ) $ 0.01     $ (0.11 )   $ (0.02 ) Basic - discontinued operations $ —   $ —     $ —     $ (0.02 ) Diluted - continuing operations $ (0.14 ) $ 0.01     $ (0.11 )   $ (0.02 ) Diluted - discontinued operations $ —   $ —     $ —     $ (0.02 ) Basic - net income (loss) $ (0.14 ) $ 0.01     $ (0.11 )   $ (0.04 ) Diluted - net income (loss) $ (0.14 ) $ 0.01     $ (0.11 )   $ (0.04 ) Weighted average shares outstanding Basic   30,917     30,628       30,918       31,706   Diluted   30,917     30,835       30,918       31,706       SPECTRUM GROUP INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)     Six Months Ended December 31,   December 31, (in thousands) 2013 2012 Cash flows from operating activities: Net loss $ (3,425 ) $ (1,977 ) Loss from discontinued operations, net of tax, attributable to Spectrum Group International, Inc.   —     663   Loss from continuing operations (3,425 ) (1,314 ) Adjustments to reconcile income from continuing operations to net cash provided by operating activities — continuing operations: Net unrealized (gains) losses on foreign currency (41 ) 1,482 Depreciation and amortization 1,136 1,073 Provision for bad debts — (660 ) Share based compensation 287 191 Gain on sale of Stamps business — (17 ) Loss on abandonment of property and equipment — 204 Changes in assets and liabilities: Receivables and secured loans 8,200 15,625 Accounts receivable and consignor advances 5,264 4,298 Inventory 5,623 11,307 Prepaid expenses and other assets (257 ) (1,407 ) Liabilities on borrowed metals (8,891 ) 8,063 Accounts payable, consignor payables, accrued expenses and other liabilities (10,838 ) 7,727 Income taxes receivable/payable 354 (1,051 ) Deferred taxes and other long-term tax liabilities   —     (408 ) Net cash (used in) provided by operating activities — continuing operations (2,588 ) 45,113 Net cash used in operating activities — discontinued operations   —     (1,238 ) Net cash (used in) provided by operating activities   (2,588 )   43,875   Cash flows from investing activities: Capital expenditures for property and equipment (1,189 ) (1,565 ) Cash proceeds on sale of non-controlling interests 100 — Change in restricted cash 25 (43 ) Cash transferred with sale of subsidiary — (3,935 ) Divestiture of business   —     7,750   Net cash (used in) provided by investing activities — continuing operations (1,064 ) 2,207 Net cash used in investing activities — discontinued operations   —     (22 ) Net cash (used in) provided by investing activities   (1,064 )   2,185   Cash flows from financing activities: Borrowings (repayments) under lines of credit, net 10,278 (12,035 ) Repayments on notes payable and capital lease obligations (178 ) (55 ) Obligation under product financing arrangement (13,048 ) (10,798 ) Issuance of common stock — 25,213 Retirement of repurchased Afinsa and Auctentia common stock and interest in Spectrum Precious Metals, Inc. — (51,178 ) Repurchase of common stock (158 ) — Proceeds from exercise of stock options 33 — Repurchase of restricted stock   —     (1 ) Net cash used in financing activities — continuing operations (3,073 ) (48,854 ) Net cash used in financing activities — discontinued operations   —     —   Net cash used in financing activities   (3,073 )   (48,854 ) Effects of exchange rate changes on cash   —     (110 ) Net decrease in cash and cash equivalents (6,725 ) (2,904 ) Cash and cash equivalents, beginning of period   23,643     25,305   Cash and cash equivalents, end of period $ 16,918   $ 22,401   Supplemental disclosures of cash flow information: Cash paid during the period for: Interest expense $ 2,065   $ 1,982   Income taxes $ 1,341   $ 3,099   Non-cash investing and financing activities: Purchase of equipment under capital lease $ —   $ (573 )  

Spectrum Group International, Inc.Paul Soth, 949-748-4800Chief Financial Officerpsoth@spectrumgi.com