Spectrum Group International, Inc. Announces Second Quarter Fiscal 2011 Results

IRVINE, Calif.--(BUSINESS WIRE)--Spectrum Group International, Inc. (SPGZ.PK) today announced financial results for its fiscal quarter ended December 31, 2010.

Second Quarter Highlights:

• Total revenue increased to $1.710 billion and $3.207 billion, up from $1.705 billion and $2.682 billion for the three and six months ended December 31, 2010 and 2009, respectively.
  • Trading segment revenue increased $513.0 million to $3.11 billion from $2.59 billion for the six months ended December 31, 2010 as a result of higher metal prices and higher metal ounces sold.
  • Collectibles segment revenue increased $14.1 million and $12.0 million to $55.1 million and $100.5 million, respectively for the three and six months ended December 31, 2010 as a result of record aggregate sales during quarter.
• Gross profit increased to $15.9 million and $24.9 million from $14.1 million and $24.8 million for the three and six months ended December 31, 2010, as a result of record aggregate sales for the Collectibles business and increases in average prices in precious metals and ounces sold in the Trading business.
• Operating expenses decreased to $12.1 million and $22.9 million from $13.1 million and $25.3 million as a result of our continued efforts to control costs and to look for opportunities to improve efficiencies in the operations across the organization.

• Pre-tax income increased to $5.2 million and $1.7 million for the three and six months ended December 31, 2010 compared to $2.1 million and $1.2 million for the same periods in 2009.

Revenues for the three months ended December 31, 2010 increased $5.1 million, or 0.3%, to $1.710 billion from $1.705 billion in 2009. Our Collectibles segment revenues increased $14.1 million or 34.3% for the three months and increased $12.0 million or 13.5% for the six months ended December 31, 2010 compared to the same period for 2009. This increase was offset by a decrease of $9.0 million in our Trading segment revenues for the three-month period. Total revenues for the six months ended December 31, 2010 increased $524.9 million or 19.6% to $3.2 billion when compared to the same period last year. The Trading segment was the main contributing factor to the increase, as trading revenues increased $513.0 million to $3.1 billion from $2.6 billion during the current six months ending December 31, 2010.

Our gross profit for the three months ended December 31, 2010 increased $1.8 million to $15.9 million from $14.1 million in 2009. An increase of $0.15 million in our Trading segment's gross profit contributed to the increase. In addition, the Collectibles segment's gross profit increased $1.7 million to $9.6 million from $7.9 million for the three months ended December 31, 2010 when compared to the three months ended December 31, 2009. Gross profit for the six months ended December 31, 2010 increased $0.1 million to $24.9 million from $24.8 million in 2009. Our Trading segment's gross profit decreased $0.5 million to $10.0 million from $10.5 million for the six month period ending December 31, 2010. Gross profit in our Collectibles segment increased $0.6 million to $15.0 million from $14.4 million for same period.

Our gross profit margins increased to 0.9% for the three months ended December 31, 2010 from 0.8% in 2009 and decreased to 0.8% for the six months ended December 31, 2010 from 0.9% in 2009. Our gross profit margins decreased 0.1% and 1.3% in our Trading and Collectibles segments for the six months ended December 31, 2010, respectively.

For the three and six months ended December 31, 2010, the Company’s operating income increased by $2.7 million and $2.4 million, resulting from decreases in operating expenses during the three and six months ended December 31, 2010 of $.9 million and $2.4 million, respectively.

The Company’s pre-tax income for three months ended December 31, 2010 was $5.2 million, as compared to $2.0 million in the same period 2009. Contributing factors to pre-tax income were an increase in operating income of $2.7 million as a result of record aggregate sales during the quarter and a reduction in operating expenses. A weakening of the U.S. Dollar against the Euro resulted in a $2.1 million unrealized foreign currency loss at six months ending December 31, 2010 or a $1.5 million increase from the same period last year. This non-cash unrealized foreign currency loss directly relates to the translation of intercompany loans between SGI and its wholly owned international subsidiaries from Euros to USD in the consolidated financial statements.

More information regarding the Company’s financial results for the three and six months ended December 31, 2010 is set forth in the Company’s Report on Form 10-Q, as filed with the Securities and Exchange Commission on December 31, 2010.

	Three months ended									Six months ended
in thousands (except per share)	December 31, 2010		December 31, 2009		Increase/			Increase/		December 31, 2010		December 31, 2009			Increase/			Increase/
			(as restated)		(Decrease)			Decrease				(as restated)			Decrease			Decrease
					$			%							$			%
Revenues	$	1,710,414	$	1,705,316	$	5,098		% .3		$	3,206,700	$	2,681,754		$	524,946		% 19.6
Gross profit		15,884		14,072		1,812		12.9			24,927		24,849			78		.3
Operating expenses		12,195		13,071		(876	)	(6.7	)		22,917		25,272		$	(2,355	)	(9.3	)
Operating income		3,689		1,001		2,688		268.5			2,010		(423	)		2,433		575.0
Pre-tax income		5,244		2,072		3,172		153.1			1,653		1,193			460		38.6
Net income	$	4,582	$	2,014	$	2,568		% 127.5		$	596	$	2,282		$	(1,686	)	(73.9	)
Earnings per share
Basic	$	.14	$	.06	$	.08		% 133.3		$	.02	$	.07		$	(.05	)	%(71.4)
Diluted	$	.14	$	.06	$	.08		% 133.3		$	.02	$	.07		$	(.05	)	%(71.4)

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 spectrums from modest to ultra-high end. Furthermore, we offer loans to coin dealers, collectors and investors back by their precious metals, rare coin 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, which is the official Numismatic Lender of the American Numismatic Association, 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 Nutmeg Auctions, Inc. of Irvine, California, 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 Bowers-Stack’s Numismatics (rare coin and currency auction house), Ponterio & Associates (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 par value)
	December 31,			June 30,
	2010			2010 (1)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	38,073		$	22,320
Short-term investments and marketable securities		1,988			6,433
Receivables and secured loans, net — trading operations		68,459			42,901
Accounts receivable and consignor advances, net — collectibles operations		11,725			6,127
Inventories, net		169,926			138,077
Prepaid expenses and other assets		2,479			1,333
Total current assets		292,650			217,191
Property and equipment, net		2,310			2,277
Goodwill		5,940			5,942
Other purchased intangibles, net		5,687			5,948
Other assets		390			259
Income tax receivables		4,738			4,974
Deferred tax assets		380			144
Total assets	$	312,095		$	236,735
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, customer deposits and consignor payables	$	73,149		$	30,397
Liabilities on borrowed metals		10,118			40,841
Accrued expenses and other current liabilities		10,087			13,411
Accrued litigation settlement		—			2,697
Income taxes payable		441			825
Lines-of credit		114,000			47,200
Deferred tax liability		934			934
Dividend payable to Auctentia		—			2,500
Total current liabilities		208,729			138,805
Deferred and other long term tax liabilities		8,451			7,794
Other long term liabilities		302		—
Total liabilities		217,482			146,599
Commitments, contingencies and subsequent events
Stockholders’ equity:
Spectrum Group International, Inc. stockholders’ equity:
Preferred stock, $.01 par value, authorized 10,000 shares; issued and outstanding: none		—			—
Common stock, $.01 par value, authorized 40,000 shares; issued and outstanding: 32,439 and 31,893
at December 31, 2010, and June 30, 2010, respectively		324			319
Additional paid-in capital		241,716			241,615
Accumulated other comprehensive income		6,515			3,529
Accumulated deficit		(161,754	)		(162,350	)
Total Spectrum Group International, Inc. stockholders’ equity		86,801			83,113
Non-controlling interests		7,812			7,023
Total stockholders’ equity		94,613			90,136
Total liabilities and stockholders’ equity	$	312,095		$	236,735

(1) The Condensed Consolidated Balance Sheet as of June 30, 2010 is from the audited Consolidated Financial Statements included in the Company’s 2010 Annual Report on Form 10-K

SPECTRUM GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
	Three Months			Three Months			Three Months			Six Months
	December 31,			December 31,			December 31,			December 31,
		2010			2009			2010			2009
				(as restated)						(as restated)
Revenues:
Sales of precious metals	$	1,655,313		$	1,664,296		$	3,106,167		$	2,593,176
Collectibles revenues:
Sales of inventories		47,091			35,256			88,799			77,731
Auction services		8,010			5,764			11,734			10,847
Total revenue		1,710,414			1,705,316			3,206,700			2,681,754
Cost of sales:
Cost of precious metals sold		1,649,018			1,658,153			3,096,220			2,582,713
Cost of collectibles sold		43,894			32,215			83,340			71,810
Auction services expense		1,618			876			2,213			2,382
Total cost of sales		1,694,530			1,691,244			3,181,773			2,656,905
Gross profit		15,884			14,072			24,927			24,849
Operating expenses:
General and administrative		5,606			4,852			10,725			10,535
Salaries and wages		5,914			7,810			11,141			13,867
Depreciation and amortization		675			409			1,051			870
Total operating expenses		12,195			13,071			22,917			25,272
Operating loss		3,689			1,001			2,010			(423	)
Interest and other income (expense):
Interest income		2,344			1,727			4,082			3,120
Interest expense		(1,103	)		(682	)		(1,912	)		(1,051	)
Other income (expense), net		(364	)		(458	)		(451	)		80
Unrealized gains on foreign exchange		678			484			(2,076	)		(533	)
Total interest and other income (expense)		1,555			1,071			(357	)		1,616
Income before provision(benefit) for income taxes		5,244			2,072			1,653			1,193
Income tax provision (benefit)		143			(424	)		270			(1,984	)
Net income		5,101			2,496			1,383			3,177
Less: Net income attributable to the
non-controlling interests		(519	)		(482	)		(787	)		(895	)
Net income attributable to Spectrum
Group International, Inc.	$	4,582		$	2,014		$	596		$	2,282
(Loss) Earnings per share attributable
to Spectrum Group International, Inc.
Basic	$	0.14		$	0.06		$	0.02		$	0.07
Diluted	$	0.14		$	0.06		$	0.02		$	0.07
Weighted average shares outstanding
Basic		32,401			31,985			32,394			31,851
Diluted		32,913			32,953			32,906			32,819

SPECTRUM GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
	Three Months			Six Months
	December 31,			December 31,
	2010			2009
				(as restated)
Cash flows from operating activities:
Net income	$	1,383		$	3,177
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized loss on foreign currency		2,076			533
Depreciation and amortization		758			870
Impairment of intangibles		293			—
Provision for bad debts		44			328
Provision for inventory reserve		198			263
Stock based compensation		257			754
Gain on sales of marketable securities		—			(106	)
Loss on abandonment of property and equipment		—			114
Changes in assets and liabilities:
Accounts receivable and consignor advances		(5,488	)		(423	)
Receivables and secured loans		(25,582	)		(1,800	)
Inventory		(31,977	)		(13,787	)
Prepaid expenses and other assets		(1,229	)		(447	)
Liabilities on borrowed metals		(30,723	)		17,612
Accounts payable, accrued expenses and other liabilities		39,097			(2,502	)
Income taxes		71			(3,051	)
Deferred taxes		24			362
Accrued litigation settlement		(2,697	)		—
Net cash (used in) provided by operating activities		(53,495	)		1,897
Cash flows from investing activities:
Capital expenditures for property and equipment		(463	)		(455	)
Cash paid for acquisition, net of cash acquired		—			(220	)
Maturity of short term investment		4,995			1,885
Decrease in restricted cash		—			650
Sales of marketable securities		—			848
Net cash provided by (used in) investing activities		4,532			2,708
Cash flows from financing activities:
Borrowings under lines-of-credit, net		66,800			(4,400	)
Taxes paid on behalf of employees with respects to vesting restricted shares		—			(110	)
Dividends paid to non-controlling interest		(2,500	)		(1,000	)
Net cash provided by (used in) financing activities		64,300			(5,510	)
Effects of exchange rates on cash		416			294
Net increase in cash and cash equivalents		15,753			(611	)
Cash and cash equivalents, beginning of year		22,320			17,545
Cash and cash equivalents, end of year	$	38,073		$	16,934
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense	$	1,371		$	707
Income taxes	$	491		$	701
Non-cash items
Accrued purchase consideration	$	302		$	—