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| 8-K - 8-K - EMPIRE RESOURCES INC /NEW/ | v453012_8k.htm |
EMPIRE RESOURCES, INC.
Exhibit 99.1
Empire Resources Reports Results for Third Quarter of 2016
· Net Sales are $113.6 Million
· Operating Income Totals $2.2 Million
· GAAP Net Income per Diluted Share Is $0.10; Non-GAAP Net Income per Diluted Share Is $0.10
Fort Lee, NJ, November 14, 2016 — Empire Resources, Inc. (NASDAQ: ERS), a distributor of value added, semifinished metal products, announced today that net sales for the third quarter of 2016 were $113.6 million, compared with $122.0 million in the third quarter of 2015 a decrease of 6.8% from the third quarter of 2015, comprised of declines in sales across all regions except Canada.
Gross profit for the third quarter of 2016 was $5.5 million, or 4.9% of sales, compared with $5.3 million, or 4.4% of sales, in the third quarter of 2015. Reduced inventories and storage costs contributed to this improvement in gross profit margin.
Operating income for the third quarter of 2016 was $2.2 million, compared with $2.3 million for the third quarter of 2015.
Net interest expense for the third quarter of 2016 decreased to $0.8 million from $1.4 million in the third 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 $153.5 million at September 30, 2015, $157.0 million at December 31, 2015 and $116.7 million at September 30, 2016.
As a result of the repayment of the Company’s subordinated debt, there was no gain or loss in the third quarter of 2016 related to the change in fair market valuation of the derivative feature of the convertible subordinated note. That compares with a non-cash non-operating loss of $0.2 million in the 2015 third 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 loss of $0.2 million in the third quarter of 2015.
Non-GAAP net income for the third quarter of 2016, which reflects no change in fair market valuation of the derivative liability and the associated tax treatment, was $0.8 million, or $0.10 per diluted share, compared with $0.5 million, or $0.06 per diluted share in the third quarter of 2015.
On a GAAP basis, the Company reported net income for the third quarter of 2016 of $0.9 million, or $0.10 per diluted share, compared with net income of $0.3 million, or $0.04 per diluted share, in the third quarter of 2015.
For the first nine months of 2016, net sales decreased 15.6% to $358.2 million and net income was $3.0 million, or $0.25 per diluted share, on a GAAP basis, and $2.2 million, or $0.22 per diluted share, on a non-GAAP basis. For the first nine months of 2015, net sales were $424.7 million and net income was $2.8 million, or $0.22 per diluted share, on a GAAP basis, and $1.8 million, or $0.15 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net sales | $ | 113,599 | $ | 121,950 | $ | 358,235 | $ | 424,689 | ||||||||
| Cost of goods sold | 108,088 | 116,603 | 341,536 | 406,488 | ||||||||||||
| Gross profit | 5,511 | 5,347 | 16,699 | 18,201 | ||||||||||||
| Selling, general and administrative expenses | 3,335 | 3,094 | 9,918 | 10,632 | ||||||||||||
| Operating income | 2,176 | 2,253 | 6,781 | 7,569 | ||||||||||||
| Interest expense, net | 786 | 1,419 | 3,128 | 4,665 | ||||||||||||
| Income before change in value of derivative liability | 1,390 | 834 | 3,653 | 2,904 | ||||||||||||
| Reduction (increase) in value of derivative liability | - | (224 | ) | 942 | 1,184 | |||||||||||
| Income before income taxes | 1,390 | 610 | 4,595 | 4,088 | ||||||||||||
| Income taxes | 502 | 295 | 1,596 | 1,314 | ||||||||||||
| Net income | $ | 888 | $ | 315 | $ | 2,999 | $ | 2,774 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 8,504 | 8,870 | 8,486 | 8,709 | ||||||||||||
| Diluted | 8,536 | 8,898 | 10,137 | 11,736 | ||||||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.10 | $ | 0.04 | $ | 0.35 | $ | 0.32 | ||||||||
| Diluted | $ | 0.10 | $ | 0.04 | $ | 0.25 | $ | 0.22 | ||||||||
See notes to unaudited consolidated financial statements
Non-GAAP Consolidated Statements of Income
(In thousands except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| GAAP income before income taxes | 1,390 | 610 | 4,595 | 4,088 | ||||||||||||
| Elimination of the change in value of derivative liability | - | 224 | (942 | ) | (1,184 | ) | ||||||||||
| Non-GAAP net income before taxation | 1,390 | 834 | 3,653 | 2,904 | ||||||||||||
| Income taxes | 502 | 325 | 1,425 | 1,133 | ||||||||||||
| Non-GAAP net income | $ | 888 | $ | 509 | $ | 2,228 | $ | 1,771 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 8,504 | 8,870 | 8,486 | 8,709 | ||||||||||||
| Diluted | 8,536 | 8,898 | 10,137 | 11,736 | ||||||||||||
| Non-GAAP earnings per share: | ||||||||||||||||
| Basic | $ | 0.10 | $ | 0.06 | $ | 0.26 | $ | 0.20 | ||||||||
| Diluted | $ | 0.10 | $ | 0.06 | $ | 0.22 | $ | 0.15 | ||||||||
Consolidated Balance Sheets
(In thousands except share and per share amounts)
| September 30, 2016 | December 31, 2015 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 5,719 | $ | 7,315 | ||||
| Trade accounts receivable (less allowance for doubtful accounts of $1,192 and $1,190) | 64,143 | 60,525 | ||||||
| Inventories | 116,717 | 157,025 | ||||||
| Deferred tax assets | 5,102 | 5,101 | ||||||
| Other current assets, including derivatives | 4,177 | 10,601 | ||||||
| Total current assets | 195,858 | 240,567 | ||||||
| Property and equipment, net | 7,364 | 7,340 | ||||||
| Total assets | $ | 203,222 | $ | 247,907 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Notes payable - banks (net of unamortized financing costs of $369 and $629) | $ | 108,556 | $ | 138,517 | ||||
| Current maturities of mortgage payable | 265 | 265 | ||||||
| Subordinated convertible debt net of unamortized discount of $216 | - | 10,784 | ||||||
| Trade accounts payable | 26,403 | 35,741 | ||||||
| Income taxes payable | 3,429 | 2,092 | ||||||
| Accrued expenses and derivative liabilities | 9,417 | 6,177 | ||||||
| Derivative liability for embedded conversion option | - | 942 | ||||||
| Dividends payable | 339 | 213 | ||||||
| Total current liabilities | 148,409 | 194,731 | ||||||
| Mortgage payable, net of current maturities | 4,770 | 4,969 | ||||||
| Deferred taxes payable | 6 | 8 | ||||||
| Total liabilities | 153,185 | 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 September 30, 2016 and December 31, 2015 | 117 | 117 | ||||||
| Additional paid-in capital | 13,037 | 13,037 | ||||||
| Retained earnings | 44,858 | 42,749 | ||||||
| Accumulated other comprehensive loss | (484 | ) | (666 | ) | ||||
| Treasury stock, 3,327,371 and 3,218,691 shares at September 30, 2016 and December 31, 2015 | (7,491 | ) | (7,038 | ) | ||||
| Total stockholders' equity | 50,037 | 48,199 | ||||||
| Total liabilities and stockholders' equity | $ | 203,222 | $ | 247,907 | ||||
See notes to unaudited consolidated financial statements
Unaudited Consolidated Statements of Cash Flows
(In thousands)
| Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows - operating activities: | ||||||||
| Net income | $ | 2,999 | $ | 2,774 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 543 | 487 | ||||||
| Reduction in value of derivative liability | (942 | ) | (1,184 | ) | ||||
| Amortization of convertible note discount | 216 | 457 | ||||||
| Imputed interest on vendor advance | - | (53 | ) | |||||
| Provision for doubtful accounts | (7 | ) | (188 | ) | ||||
| Amortization of supply agreement | - | 240 | ||||||
| Deferred income taxes | (3 | ) | 73 | |||||
| Foreign exchange loss and other | 928 | 437 | ||||||
| Changes in: | ||||||||
| Trade accounts receivable | (3,790 | ) | 13,043 | |||||
| Inventories | 40,209 | 37,828 | ||||||
| Other current assets | 6,389 | 5,353 | ||||||
| Trade accounts payable | (9,341 | ) | (19,689 | ) | ||||
| Income taxes payable | 1,335 | (2,973 | ) | |||||
| Accrued expenses and derivative liabilities | 3,232 | 2,649 | ||||||
| Net cash provided by operating activities | 41,768 | 39,254 | ||||||
| Cash flows - investing activities: | ||||||||
| Repayment related to supply agreement | - | 2,500 | ||||||
| Purchases of property and equipment | (159 | ) | (237 | ) | ||||
| Net cash (used in)/provided by investing activities | (159 | ) | 2,263 | |||||
| Cash flows - financing activities: | ||||||||
| Repayment of notes payable – banks | (30,514 | ) | (33,978 | ) | ||||
| 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 | (199 | ) | - | |||||
| Deferred financing costs | (148 | ) | (158 | ) | ||||
| Dividends paid | (766 | ) | (884 | ) | ||||
| Treasury stock purchased | (453 | ) | (1,407 | ) | ||||
| Net cash used in financing activities | (43,080 | ) | (37,067 | ) | ||||
| Net (decrease)/increase in cash | (1,471 | ) | 4,450 | |||||
| Effect of exchange rate | (125 | ) | (44 | ) | ||||
| Cash at beginning of period | 7,315 | 1,130 | ||||||
| Cash at end of period | $ | 5,719 | $ | 5,536 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 3,001 | $ | 4,024 | ||||
| Income taxes | $ | 1,444 | $ | 2,480 | ||||
| Non cash financing activities: | ||||||||
| Dividend declared but not yet paid | $ | 339 | $ | 217 | ||||
See notes to unaudited consolidated financial statements