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8-K - FORM 8-K - EMPIRE RESOURCES INC /NEW/v447004_8k.htm

 

Exhibit 99.1

 

 

EMPIRE RESOURCES, INC.

 

 

Empire Resources Reports Results for Second Quarter of 2016

 

·Net Sales are $122.5 Million
·Operating Income Totals $2.3 Million
·GAAP Net Income per Diluted Share Is $0.09; Non-GAAP Net Income per Diluted Share Is $0.07

 

Fort Lee, NJ, August 15, 2016 -- Empire Resources, Inc. (NASDAQ: ERS), a distributor of value added, semi-finished metal products, announced today that net sales for the second quarter of 2016 were $122.5 million, compared with $134.5 million in the second quarter of 2015 a decrease of 8.9% from the second quarter of 2015, comprised of declines in sales across all regions except Europe.

 

Gross profit for the second quarter of 2016 was $5.9 million, or 4.8% of sales, compared with $5.7 million, or 4.2% of sales, in the second quarter of 2015. Reduced inventories, storage costs as well as softer container line shipping conditions all contributed to this improvement in gross profit margin. These improvements were partially offset by losses generated from the revaluation of our UK subsidiary’s dollar denominated liabilities.

 

Operating income for the second quarter of 2016 was $2.3 million, compared with $2.0 million for the second quarter of 2015.

 

Net interest expense for the second quarter of 2016 decreased to $1.1 million from $1.6 million in the second quarter of 2015, as a result of decreased bank loans reflecting reduced inventory levels as well as reduced interest expense due to the repayment of our convertible debt. The Company has focused on reducing inventories which totaled $163.3 million at June 30, 2015, $157.0 million at December 31, 2015 and $123.4 million at June 30, 2016.

 

The Company recognized a non-cash non-operating gain of $0.2 million in the second quarter of 2016 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 $0.4 million in the 2015 second quarter.

 

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, increasing the value of the derivative liability, while decreases in the stock price produce gains, reducing the value of 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 gain of $0.2 million in the second quarter of 2016, or the non-cash non-operating gain of $0.4 million in the second quarter of 2015.

 

Non-GAAP net income for the second quarter of 2016, excluding the effect of the change in fair market valuation of the derivative liability and the associated tax treatment, was $0.8 million, or $0.07 per diluted share, compared with $0.3 million, or $0.02 per diluted share in the second quarter of 2015.

 

On a GAAP basis, the Company reported net income for the second quarter of 2016 of $1.0 million, or $0.09 per diluted share, compared with net income of $0.8 million, or $0.06 per diluted share, in the second quarter of 2015.   

 

 

 

 

For the first six months of 2016, net sales decreased 19.2% to $244.6 million and net income was $2.1 million, or $0.15 per diluted share, on a GAAP basis, and $1.4 million, or $0.13 per diluted share, on a non-GAAP basis. For the first six months of 2015, net sales were $302.7 million and net income was $2.5 million, or $0.15 per diluted share, on a GAAP basis, and $1.3 million, or $0.11 per diluted share, on a non-GAAP basis.

 

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.

 

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.

 

CONTACT: Investor Relations, David Kronfeld, +1 917-408-1940, kronfeld@empireresources.com

 

 

 

 

Unaudited Consolidated Statements of Income
(In thousands except per share amounts)

 

   Three Months
Ended June 30,
   Six Months
Ended June 30,
 
   2016   2015   2016   2015 
Net sales  $122,511   $134,486   $244,636   $302,739 
Cost of goods sold   116,576    128,808    233,448    289,885 
Gross profit   5,935    5,678    11,188    12,854 
Selling, general and administrative expenses   3,629    3,640    6,583    7,538 
Operating income   2,306    2,038    4,605    5,316 
Interest expense, net   1,068    1,571    2,342    3,246 
Income before change in value of derivative liability   1,238    467    2,263    2,070 
Reduction in value of derivative liability   242    412    942    1,408 
Income before income taxes   1,480    879    3,205    3,478 
Income taxes   518    75    1,094    1,019 
Net income  $962   $804   $2,111   $2,459 
Weighted average shares outstanding:                    
Basic   8,525    8,863    8,501    8,753 
Diluted   10,513    11,864    10,970    11,821 
Earnings  per share:                    
Basic  $0.11   $0.09   $0.25   $0.28 
Diluted  $0.09   $0.06   $0.15   $0.15 

 

Non-GAAP Consolidated Statements of Income
(In thousands except per share amounts)

 

   Three Months
Ended June 30,
   Six Months
Ended June 30,
 
   2016   2015   2016   2015 
GAAP income before income taxes   1,480    879    3,205    3,478 
Elimination of the change in value of derivative liability   (242)   (412)   (942)   (1,408)
Non-GAAP net income before taxation   1,238    467    2,263    2,070 
Income taxes   483    182    883    807 
Non-GAAP net income  $755   $285   $1,380   $1,263 
Weighted average shares outstanding:                    
Basic   8,525    8,863    8,501    8,753 
Diluted   10,513    11,864    10,970    11,821 
Non-GAAP earnings per share:                    
Basic  $0.09   $0.03   $0.16   $0.14 
Diluted  $0.07   $0.02   $0.13   $0.11 

 

 

 

 

Consolidated Balance Sheets
(In thousands except share and per share amounts)

 

   June 30, 2016
(unaudited)
   December 31, 2015 
ASSETS          
Current assets:          
Cash  $6,358   $7,315 
Trade accounts receivable (less allowance for doubtful accounts of $1,192 and $1,190)   65,507    60,525 
Inventories   123,418    157,025 
Deferred tax assets   5,102    5,101 
Other current assets, including derivatives   4,064    10,601 
Total current assets   204,449    240,567 
Property and equipment, net   7,395    7,340 
Total assets  $211,844   $247,907 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Notes payable - banks (net of unamortized financing costs of $496 and $629)  $127,946   $138,517 
Current maturities of mortgage payable   265    265 
Subordinated convertible debt net of unamortized discount of $216   -    10,784 
Trade accounts payable   15,650    35,741 
Income taxes payable   3,135    2,092 
Accrued expenses and derivative liabilities   9,936    6,177 
Derivative liability for embedded conversion option   -    942 
Dividends payable   340    213 
Total current liabilities   157,272    194,731 
           
Mortgage payable, net of current maturities   4,836    4,969 
Deferred taxes payable   3    8 
Total liabilities   162,111    199,708 
           
Commitments (Note 18)          
           
Stockholders’ equity:          
Common stock $0.01 par value, 20,000,000 shares authorized and 11,749,651 shares issued at June 30, 2016 and December 31, 2015   117    117 
Additional paid-in capital   13,037    13,037 
Retained earnings   44,309    42,749 
Accumulated other comprehensive loss   (521)   (666)
Treasury stock, 3,266,186 and 3,218,691 shares at June 30, 2016 and December 31, 2015   (7,209)   (7,038)
Total stockholders’ equity   49,733    48,199 
Total liabilities and stockholders’ equity  $211,844   $247,907 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows
(In thousands)

 

   Six Months
Ended June 30,
 
   2016   2015 
Cash flows - operating activities:          
Net income  $2,111   $2,459 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   372    318 
Reduction in value of derivative liability   (942)   (1,408)
Amortization of convertible note discount   216    327 
Imputed interest on vendor advance   -    (43)
Provision for doubtful accounts   (7)   - 
Amortization of supply agreement   -    160 
Deferred income taxes   (5)   85 
Foreign exchange loss and other   778    342 
Changes in:          
Trade accounts receivable   (5,210)   1,907 
Inventories   33,501    28,080 
Other current assets   6,516    1,294 
Trade accounts payable   (20,093)   (13,898)
Income taxes payable   1,042    199 
Accrued expenses and derivative liabilities   3,780    (194)
Net cash  provided by operating activities   22,059    19,628 
Cash flows - investing activities:          
Repayment related to supply agreement   -    1,666 
Purchases of property and equipment   (147)   (180)
Net cash (used in)/provided by investing activities   (147)   1,486 
Cash flows - financing activities:          
Repayment of notes payable – banks   (10,883)   (15,600)
Repayment of convertible subordinated debt   (11,000)   - 
Purchase of stock options   -    (922)
Excess tax benefit related to purchase of stock options   -    282 
Repayments of mortgage loan   (132)   - 
Deferred financing costs   (148)   (158)
Dividends paid   (426)   (668)
Treasury stock purchased   (171)   (1,098)
Net cash used in financing activities   (22,760)   (18,164)
Net (decrease)/increase in cash   (848)   2,950 
Effect of exchange rate   (109)   (41)
Cash at beginning of period   7,315    1,130 
Cash at end of period  $6,358   $4,039 
Supplemental disclosures of cash flow information:          
Cash paid during the period for:          
Interest  $2,219   $2,769 
Income taxes  $1,380   $2,046 
Non cash financing activities:          
Dividend declared but not yet paid  $340   $216