FORT LEE, N.J., Nov. 14, 2014 /PRNewswire/ -- Empire
Resources, Inc. (NASDAQ: ERS), a distributor of value added,
semi-finished metal products, announced today that net sales for
the third quarter of 2014 were $159.4
million, an increase of 26% from the third quarter of 2013,
and 9% higher sequentially. The growth in revenue compared
with both the third quarter of 2013 as well as the second quarter
of 2014 was primarily driven by a strong increase in sales in the
U.S.
Gross profit for the third quarter of 2014 increased 41% from
the third quarter of 2013 to $7.5
million, or 4.7% of sales, compared with $5.3 million, or 4.2% of sales, in the third
quarter of 2013. In the second quarter of 2014, gross profit was
$7.0 million, or 4.8% of
sales.
Operating income for the third quarter of 2014 was $3.7 million, which is more than double the
operating income of $1.7 million
reported in the third quarter of 2013 and up 3% from operating
income of $3.5 million in the second
quarter of 2014.
Net interest expense for the third quarter of 2014 was
$1.0 million, which is 10% below the
third quarter of 2013 and 5% below the second quarter of 2014,
reflecting the lower interest rate environment in the most recent
quarter and reduced interest expense due to a reduction in the
Company's convertible debt.
The Company recognized a non-cash non-operating loss of
$2.1 million in the third quarter of
2014 related to the change in fair market valuation of the
derivative feature of its convertible subordinated note. That
compares with a non-cash non-operating gain of $1.7 million in the third quarter of 2013, and a
non-cash non-operating gain of $0.2
million in the second quarter of 2014.
Fair value accounting requires that changes in derivative
liabilities related to the Company's convertible notes be charged
or credited to income during each accounting period. The changes in
valuation have several drivers, primary among them is the change in
the Company's stock price, with increases in the stock price
causing losses on the derivative liability, while decreases in the
stock price produce gains on the derivative liability. Such losses
are not tax deductible, and likewise any recoveries of such losses
are not taxable upon recovery. Accordingly, no tax effect was
given to the non-cash non-operating loss of $2.1 million in the third quarter of 2014 or the
non-cash non-operating gains of $1.7
million in the third quarter of 2013 and the $0.2 million in the second quarter of 2014. The
resultant effective tax rate for the third quarter of 2014 was
279.8%, 8.6% for the third quarter of 2013 and 38.8% in the second
quarter of 2014.
Non-GAAP net income for the third quarter of 2014, excluding the
effect of the change in fair market valuation of the derivative
liability and the associated tax treatment, increased 345% to
$1.5 million, or $0.17 per diluted share, compared with non-GAAP
net income of $0.3 million, or
$0.04 per diluted share, in the third
quarter of 2013. Non-GAAP net income was $1.5 million, or $0.17 per diluted share, in the second quarter of
2014.
On a GAAP basis, the Company reported a net loss of $0.7 million, or $0.08 per diluted share, for the third quarter of
2014, compared with net income of $2.1
million, or $0.06 per diluted
share, in the third quarter of 2013, and net income of $1.6 million, or $0.15 per diluted share, in the second quarter of
2014.
For the first nine months of 2014, net sales increased 20% to
$444.2 million compared with
$370.3 million in the first nine
months of 2013. On a GAAP basis, net income for the first
nine months of 2014 was $1.8 million,
or $0.20 per diluted share, compared
with $1.9 million, or $0.22 per diluted share, in the first nine months
of 2013. On a non-GAAP basis, net income increased 103% to
$4.3 million, or $0.48 per diluted share, for the first nine
months of 2014, compared with non-GAAP net income of $2.1 million, or $0.24 per diluted share, in the first nine months
of 2013.
The Company uses the non-GAAP measures internally, which exclude
the effect of the non-cash non-operating gains and losses due to
the quarterly changes in the valuation of the derivative liability,
to evaluate its operating performance and believes that this is a
useful measure also used by investors.
Nathan Kahn, President and CEO,
commented, "For a third consecutive quarter, we achieved both
sequential and year-over-year top-line growth, as we continue to
benefit from our geographic and product diversity. Robust
market demand in the U.S. was the main driver of our sales in the
third quarter, both in aluminum and steel. We also realized
improved growth in Europe, where
our team's focus on execution is making a difference despite
locally soft economic conditions. Sales in Latin America remained nearly level while the
Australia/New Zealand team continued the year-over-year
improvement they have achieved for the past two quarters. We are
also pleased to report continued growth in operating income, which
is at the highest level in four years, while our non-GAAP net
income year-to-date is double the level we achieved last year."
Restatement Due to Change in Income Tax Provision
Losses and gains arising from the change in values of the
derivative liability are excluded from deferred income tax
calculations and adjustments for this have been reflected in the
accounting for deferred income taxes. Net income for the three
months ended September 30, 2013 has
been increased by $0.6 million, or
$0.07 per basic share, and by
$0.00 per diluted share, from the
amount of $1.5 million previously
reported, to reflect a reduction in the deferred income tax
provision attributable to the income from the change in value of
the derivative liability. Correspondingly, the net income for the
three months ended March 31, 2013 has
been decreased by $0.6 million, or
$0.07 per basic and diluted share,
from the amount of $0.1 million
previously reported to reflect an increase in the deferred income
tax provision attributable to the loss from change in value of the
derivative liability. Similarly, the net income for the three
months ended March 31, 2014 has been
decreased by $0.2 million, or
$0.03 per basic and diluted share,
from the amount of $1.0 million
previously reported.
About Empire Resources, Inc.
Empire Resources, Inc. is a distributor of a wide range of
semi-finished metal products to customers in the transportation,
automotive, housing, appliance and packaging industries in the
U.S., Canada, Latin America, Australia, New
Zealand and Europe. The
Company maintains supply contracts with mills in various parts of
the world.
Use of Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements
presented on a GAAP basis, the Company discloses non-GAAP net
income, because management uses this supplemental non-GAAP
financial measure to evaluate performance period over period, to
analyze the underlying trends in its business, and to establish
operational goals. In addition, the Company believes investors
already use this non-GAAP measure to monitor the Company's
performance. Non-GAAP net income is defined by the Company as net
income excluding non-cash, non-operating changes in value of
derivative liability related to the conversion option on its
convertible debt.
Generally, a non-GAAP financial measure is a numerical measure
of a company's performance, financial position or cash flow that
either excludes or includes amounts that are not normally excluded
or included in the most directly comparable measure calculated and
presented in accordance with GAAP. The non-GAAP measure discussed
above, however, should be considered in addition to, and not as a
substitute for, or superior to net income or other measures of
financial performance prepared in accordance with GAAP. A
reconciliation of non-GAAP to GAAP net income is set forth in the
table below.
The Company believes that providing this information assists
investors in understanding the Company's operating performance and
the methodology used by management to evaluate and measure such
performance.
Forward-Looking Statements:
This press release contains "forward-looking statements."
Such statements may be preceded by the words "intends," "may,"
"will," "plans," "expects," "anticipates," "projects," "predicts,"
"estimates," "aims," "believes," "hopes," "potential" or similar
words. Forward-looking statements are not guarantees of future
performance, are based on certain assumptions and are subject to
various known and unknown risks and uncertainties, many of which
are beyond the Company's control, and cannot be predicted or
quantified and consequently, actual results may differ materially
from those expressed or implied by such forward-looking statements.
Such risks and uncertainties include, without limitation, risks and
uncertainties associated with (i) the loss or default of one or
more suppliers; (ii) the loss or default of one or more significant
customers; (iii) a default by counterparties to derivative
financial instruments; (iv) changes in general, national or
regional economic conditions; (v) an act of war or terrorism that
disrupts international shipping; (vi) changes in laws, regulations
and tariffs; (vii) the imposition of anti-dumping duties on
products the Company imports; (viii) changes in the size and nature
of the Company's competition; (ix) changes in interest rates,
foreign currencies or spot prices of aluminum; (x) the loss of one
or more key executives; (xi) increased credit risk from customers;
(xii) the Company's failure to grow internally or by acquisition
and (xiii) the Company's failure to improve operating margins and
efficiencies. More detailed information about the Company and the
risk factors that may affect the realization of forward-looking
statements is set forth in the Company's filings with the
Securities and Exchange Commission (SEC), including the Company's
Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q.
Investors and security holders are urged to read these documents
free of charge on the SEC's web site at http://www.sec.gov. The
Company assumes no obligation to publicly update or revise its
forward-looking statements as a result of new information, future
events or otherwise.
Condensed
Consolidated Statements of Income (Unaudited)
(In thousands except per share amounts)
|
|
Three Months
Ended September 30,
|
|
Nine
Months Ended September 30,
|
2014
|
|
2013
|
2014
|
|
2013
|
|
|
|
|
(see note
20)
|
|
|
|
|
|
|
Net sales
|
$
|
159,366
|
|
$
|
126,390
|
|
$
|
444,199
|
|
$
|
370,288
|
Cost of goods
sold
|
|
151,897
|
|
|
121,082
|
|
|
423,228
|
|
|
353,083
|
Gross
profit
|
|
7,469
|
|
|
5,308
|
|
|
20,971
|
|
|
17,205
|
Selling, general and
administrative expenses
|
|
3,819
|
|
|
3,602
|
|
|
10,600
|
|
|
10,361
|
Operating
income
|
|
3,650
|
|
|
1,706
|
|
|
10,371
|
|
|
6,844
|
Interest
expense, net
|
|
1,041
|
|
|
1,156
|
|
|
3,223
|
|
|
3,403
|
Income before other
expenses
|
|
2,609
|
|
|
550
|
|
|
7,148
|
|
|
3,441
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
Change
in value of derivative liability
|
|
(2,059)
|
|
|
1,715
|
|
|
(2,239)
|
|
|
(452)
|
Loss
related to extinguishment of debt
converted into common
stock
|
|
(164)
|
|
|
-
|
|
|
(164)
|
|
|
-
|
Income before income
taxes
|
|
386
|
|
|
2,265
|
|
|
4,745
|
|
|
2,989
|
Income
taxes
|
|
1,080
|
|
|
194
|
|
|
2,985
|
|
|
1,066
|
Net
(loss)/income
|
$
|
(694)
|
|
$
|
2,071
|
|
$
|
1,760
|
|
$
|
1,923
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
8,814
|
|
|
8,586
|
|
|
8,705
|
|
|
8,585
|
Diluted
|
|
8,814
|
|
|
11,835
|
|
|
8,964
|
|
|
8,856
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
($0.08)
|
|
|
$0.24
|
|
|
$0.20
|
|
|
$0.22
|
Diluted
|
|
($0.08)
|
|
|
$0.06
|
|
|
$0.20
|
|
|
$0.22
|
See notes to
unaudited condensed consolidated financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP
Consolidated Statements of Income (Unaudited)
(In thousands except per share amounts)
|
|
Three Months
Ended September 30,
|
|
Nine
Months Ended September 30,
|
2014
|
|
2013
|
2014
|
|
2013
|
GAAP income before
income taxes
|
|
386
|
|
|
2,265
|
|
|
4,745
|
|
|
2,989
|
Elimination of the
change in value of
derivative liability
|
|
2,059
|
|
|
(1,715)
|
|
|
2,239
|
|
|
452
|
Non-GAAP net income
before taxation
|
|
2,445
|
|
|
550
|
|
|
6,984
|
|
|
3,441
|
Income
taxes
|
|
954
|
|
|
215
|
|
|
2,724
|
|
|
1,342
|
Non-GAAP net
income
|
$
|
1,491
|
|
$
|
336
|
|
$
|
4,260
|
|
$
|
2,099
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
8,814
|
|
|
8,586
|
|
|
8,705
|
|
|
8,585
|
Diluted
|
|
8,814
|
|
|
8,850
|
|
|
8,964
|
|
|
8,856
|
Non-GAAP earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$0.17
|
|
|
$0.04
|
|
|
$0.49
|
|
|
$0.24
|
Diluted
|
|
$0.17
|
|
|
$0.04
|
|
|
$0.48
|
|
|
$0.24
|
Condensed
Consolidated Balance Sheets (In thousands except share
and per share amounts)
|
|
September 30,
2014 (Unaudited)
|
|
December 31,
2013
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
$
|
4,663
|
|
$
|
2,477
|
Trade accounts receivable
(less allowance for doubtful
accounts of $543 and
$562)
|
|
97,393
|
|
|
52,696
|
Inventories
|
|
120,104
|
|
|
139,752
|
Deferred tax
assets
|
|
3,194
|
|
|
3,217
|
Advance to supplier, net of
imputed interest of $87 and $176
|
|
3,236
|
|
|
3,147
|
Other current assets,
including derivatives
|
|
6,051
|
|
|
6,081
|
Total current assets
|
|
234,641
|
|
|
207,370
|
Advance to supplier, net of
imputed interest of $3 and $56,
and net of current
maturities
|
|
841
|
|
|
3,287
|
Preferential supply
agreement, net
|
|
401
|
|
|
641
|
Long-term financing costs,
net of amortization
|
|
962
|
|
|
358
|
Property and equipment,
net
|
|
3,886
|
|
|
3,949
|
Deferred tax
assets
|
|
-
|
|
|
215
|
Total
assets
|
$
|
240,731
|
|
$
|
215,820
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Notes payable -
banks
|
$
|
132,785
|
|
$
|
107,922
|
Current maturities of
mortgage payable
|
|
1,154
|
|
|
1,290
|
Trade accounts
payable
|
|
33,488
|
|
|
44,058
|
Income taxes
payable
|
|
3,037
|
|
|
2,042
|
Accrued expenses and
derivative liabilities
|
|
8,257
|
|
|
2,844
|
Dividends payable
|
|
224
|
|
|
215
|
Total current liabilities
|
|
178,945
|
|
|
158,371
|
|
|
|
|
|
|
Subordinated
convertible debt net of unamortized discount
of $865 and $1,368 respectively
|
|
10,135
|
|
|
10,632
|
Derivative liability
for embedded conversion option
|
|
3,860
|
|
|
2,048
|
Deferred taxes
payable
|
|
49
|
|
|
-
|
Total Liabilities
|
|
192,989
|
|
|
171,051
|
|
|
|
|
|
|
Commitments (Note
19)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
Common stock $0.01 par
value, 20,000,000 shares authorized
and 11,749,651 shares
issued
at September 30, 2014
and December 31, 2013
|
|
117
|
|
|
117
|
Additional paid-in
capital
|
|
13,678
|
|
|
11,937
|
Retained earnings
|
|
39,280
|
|
|
38,178
|
Accumulated other
comprehensive (loss)/income
|
|
(217)
|
|
|
51
|
Treasury stock, 2,773,420
and 3,177,708 shares
at September 30, 2014
and December 31, 2013, respectively
|
|
(5,116)
|
|
|
(5,514)
|
Total stockholders' equity
|
|
47,742
|
|
|
44,769
|
Total liabilities and
stockholders' equity
|
$
|
240,731
|
|
$
|
215,820
|
See notes to
unaudited condensed consolidated financial statements
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
Nine Months
Ended September 30,
|
2014
|
|
2013
|
Cash flows -
operating activities:
|
|
|
|
|
|
Net income
|
$
|
1,760
|
|
$
|
1,923
|
Adjustments to reconcile net
income to net cash (used in)/provided
by operating
activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
482
|
|
|
518
|
Change in value of derivative liability
|
|
2,239
|
|
|
452
|
Loss related to extinguishment of debt converted into
common stock
|
|
164
|
|
|
-
|
Amortization of convertible note discount
|
|
419
|
|
|
424
|
Imputed interest on vendor advance
|
|
(144)
|
|
|
(231)
|
Loss on sale of marketable securities
|
|
-
|
|
|
32
|
Amortization of supply agreement
|
|
240
|
|
|
240
|
Deferred income taxes
|
|
271
|
|
|
(503)
|
Foreign exchange loss/(gain) and other
|
|
296
|
|
|
(23)
|
Stock-based compensation
|
|
630
|
|
|
-
|
Changes in:
|
|
|
|
|
|
Trade accounts receivable
|
|
(45,330)
|
|
|
(9,932)
|
Inventories
|
|
18,947
|
|
|
21,708
|
Other current assets
|
|
27
|
|
|
(666)
|
Trade accounts payable
|
|
(10,751)
|
|
|
(8,061)
|
Income taxes payable
|
|
995
|
|
|
(818)
|
Accrued expenses and derivative liabilities
|
|
5,708
|
|
|
(1,221)
|
Net cash (used in)/provided by operating
activities
|
|
(24,047)
|
|
|
3,842
|
Cash flows -
investing activities:
|
|
|
|
|
|
Repayment related to supply agreement
|
|
2,500
|
|
|
2,500
|
Net proceeds from sale of marketable securities
|
|
-
|
|
|
6
|
Purchases of property and equipment
|
|
(19)
|
|
|
(6)
|
Net cash provided by investing activities
|
|
2,481
|
|
|
2,500
|
Cash flows -
financing activities:
|
|
|
|
|
|
Proceeds from/(repayments)
of notes payable – banks
|
|
25,602
|
|
|
(6,594)
|
Repayments - mortgage
payable
|
|
(136)
|
|
|
(127)
|
Deferred Financing
Costs
|
|
(1,005)
|
|
|
(60)
|
Dividends
paid
|
|
(648)
|
|
|
(429)
|
Proceeds from stock options
exercised
|
|
15
|
|
|
-
|
Treasury stock
purchased
|
|
(13)
|
|
|
(23)
|
Net cash provided by/(used in) financing activities
|
|
23,815
|
|
|
(7,233)
|
Net
increase/(decrease) in cash
|
|
2,249
|
|
|
(891)
|
Effect of
exchange rate
|
|
(63)
|
|
|
1
|
Cash at beginning of
period
|
|
2,477
|
|
|
3,136
|
Cash at end of the
period
|
$
|
4,663
|
|
$
|
2,246
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
Interest
|
$
|
3,476
|
|
$
|
2,913
|
Income taxes
|
$
|
2,737
|
|
$
|
1,955
|
Non cash financing
activities:
|
|
|
|
|
|
Dividend declared but
not yet paid
|
$
|
224
|
|
$
|
215
|
Treasury stock issued
on conversion of subordinated debt
|
$
|
1,507
|
|
|
-
|
See notes to
unaudited condensed consolidated financial statements
|
|
|
|
SOURCE Empire Resources, Inc.