Empire Resources Reports Second Quarter 2013 Results

FORT LEE, N.J., Aug. 14, 2013 /PRNewswire/ -- Empire Resources, Inc. (NASDAQ: ERS), a distributor of value added, semi-finished metal products, announced today that net sales for the second quarter of 2013 were $110.5 million, which is 24% lower than the second quarter of 2012, and reflected the market decline in metal pricing as well as lower unit volume shipments to most geographic regions in line with soft economic conditions.

Gross profit for the second quarter of 2013 was $5.3 million, down 18% from the second quarter of 2012.  However, gross profit as a percentage of sales improved to 4.8% from 4.4% of sales in the second quarter of 2012, as the Company continued to implement its inventory management strategy and reduced storage and processing costs in the quarter. 

Operating income for the second quarter of 2013 was $1.8 million compared with $3.1 million in the second quarter of 2012.  SG&A expenses were 6% higher versus the second quarter of 2012 due in part to the Company's investment in employee count to expand its geographic reach.   

Interest expense of $1.1 million in the second quarter of 2013 was 20% below the second quarter of 2012.  The Company's continued success in controlling inventory levels, which decreased $36.9 million or 24% from the end of the second quarter of 2012, enabled Empire to reduce bank debt by $43.8 million or 28% from the end of the prior year second quarter.

In the second quarter of 2013, the Company recognized a non-cash non-operating loss of $0.04 million 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 $0.2 million related to the derivative valuation recognized in the second quarter of 2012.  

Before including the non-cash non-operating derivative-related amounts in both periods, pre-tax income was $0.6 million in the second quarter of 2013 versus $1.7 million in the second quarter of 2012.

Net income for the second quarter of 2013 was $0.4 million, or $0.04 per diluted share, including the derivative related non-cash non-operating loss. That compares with net income of $1.2 million, or $0.11 per diluted share, in the second quarter of 2012, including the non-cash non-operating gain in the prior year period.

For the first six months of 2013, net sales were $243.9 million; pre-tax income, before including a non-cash non-operating derivative-related loss of $2.2 million, was $2.9 million; and net income was $0.5 million, or $0.05 per diluted share, including the derivative-related loss.  In the first six months of 2012, net sales were $291.3 million; pre-tax income, before including a non-cash non-operating derivative-related loss of $0.05 million, was $3.3 million; and net income was $2.0 million, or $0.21 per diluted share, including the derivative-related loss.   

Nathan Kahn, President and CEO, commented, "Softer than expected economic conditions in most regions of the world and the fall-off in the market pricing of both aluminum and steel made the second quarter an especially challenging period.  Additionally, the drop in the value of the Brazilian real meant that many potential steel orders in that market did not meet our margin requirements and caused us to curtail volume in the second quarter.  However, the rest of South America remained strong and we are continuing to expand our reach in the region, most recently through the establishment of a wholly owned subsidiary in Mexico.  We also have initiatives underway in Europe to improve our market position there."

"Additionally, we moved forward in the second quarter with our strategy to improve profitability, and were successful in further reducing inventory, bank debt and interest costs. That progress is also reflected in our cash flow from operations, which nearly doubled to $7.9 million for the six month period from $4.0 million in the same period of 2012."

"It is generally expected that market conditions will begin to strengthen in the fourth quarter.  In the meantime, we will continue to execute our plan for profitable growth with our central focus on being effective partners to our customers and suppliers."

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. It maintains supply contracts with mills in various parts of the world.

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 June 30,


Six Months Ended June 30,



2013



2012



2013



2012

Net sales

$

110,468


$

145,692


$

243,898


$

291,301

Cost of goods sold


105,201



139,271



232,001



278,526

Gross profit


5,267



6,421



11,897



12,775

Selling, general and administrative expenses


3,501



3,307



6,759



6,759

Operating income


1,766



3,114



5,138



6,016

Other expenses












   Change in value of derivative liability 


(44)



195



(2,167)



(49)

   Interest expense, net


(1,134)



(1,413)



(2,247)



(2,741)

Income before income taxes


588



1,896



724



3,226

Income taxes


221



728



272



1,227

Net income

$

367


$

1,168


$

452


$

1,999

Weighted average shares outstanding:












     Basic


8,586



9,230



8,585



9,205

     Diluted


8,871



12,117



8,860



12,096

Earnings per share:












     Basic

$

0.04


$

0.13


$

0.05


$

0.22

     Diluted

$

0.04


$

0.11


$

0.05


$

0.21

See notes to unaudited condensed consolidated financial statements



















 

 

Condensed Consolidated Balance Sheets

(In thousands except share amounts)








June 30, 2013
 (Unaudited)


December 31, 2012

ASSETS 






Current assets:






     Cash

$

2,212


$

3,136

     Trade accounts receivable (less allowance for doubtful
        accounts of $517 and $521)


58,408



53,551

     Inventories


119,585



145,547

     Deferred tax assets


4,166



3,306

     Advance to supplier, net of imputed interest of $235 and  $292


3,089



3,061

     Other current assets


10,229



3,965

          Total current assets


197,689



212,566

     Advance to supplier, net of imputed interest of $130 and
        $234, net of current maturities


4,880



6,413

     Preferential supply agreement


802



962

     Long-term financing costs, net of amortization 


637



862

     Property and equipment, net


3,930



3,987

Total assets

$

207,938


$

224,790







LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






     Notes payable - banks

$

113,853


$

124,095

     Current maturities of mortgage payable


177



171

     Trade accounts payable


27,481



36,048

     Income taxes payable


4,248



3,036

     Accrued expenses and derivative liabilities


3,003



4,783

     Dividends payable


215



-

          Total current liabilities


148,977



168,133







Mortgage payable, net of current maturities


1,200



1,290

Subordinated convertible debt net of unamortized discount
   of $1,651 and $1,933 respectively


10,349



10,067

Derivative liability for embedded conversion option


4,163



1,996

Deferred taxes payable


138



195

          Total Liabilities


164,827



181,681







Commitments and Contingencies (Note 19)












Stockholders' equity:






     Common stock $.01 par value, 20,000,000 shares authorized
        and 11,749,651 shares issued
        at June 30, 2013 and December 31, 2012


117



117

     Additional paid-in capital


11,937



11,937

     Retained earnings


36,664



36,641

     Accumulated other comprehensive loss


(136)



(136)

     Treasury stock, 3,165,249 and 3,158,597 shares
        at June 30, 2013 and December 31, 2012, respectively


(5,471)



(5,450)

          Total stockholders' equity


43,111



43,109

Total liabilities and stockholders' equity

$

207,938


$

224,790

See notes to unaudited condensed consolidated financial statements










 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)








    Six Months Ended June 30,

Cash flows from operating activities:


2013



2012

     Net income

$

452


$

1,999

     Adjustments to reconcile net income to net cash provided
        by operating activities:






               Depreciation and amortization 


286



271

               Change in value of derivative liability


2,167



49

               Amortization of convertible note discount


283



283

               Imputed interest on vendor advance


(161)



(259)

               Amortization of supply agreement


160



-

               Deferred income taxes 


(942)



(39)

               Foreign exchange loss/(gain), and other


10



35

               Loss on sale of marketable securities


31



-

               Changes in:






                    Trade accounts receivable


(4,900)



(12,148)

                    Inventories


25,879



27,423

                    Other current assets


(6,270)



(1,197)

                    Trade accounts payable


(8,562)



(14,905)

                    Income taxes payable


1,212



1,008

                    Accrued expenses and derivative liabilities


(1,746)



1,476

                 Net cash  provided by operating activities


7,899



3,996

Cash flows provided by/(used in) investing activities:






    Repayment/(advance) related to supply agreement


1,667



(5,000)

    Net proceeds from sale of marketable securities 


6



-

    Purchases of property and equipment


(4)



(20)

                 Net cash provided by/(used in) investing activities


1,669



(5,020)

Cash flows (used in)/provided by financing activities:






     (Repayments of)/proceeds from notes payable – banks


(10,169)



3,398

     Repayments - mortgage payable


(84)



(79)

     Dividends paid 


(215)



(461)

     Deferred financing costs


-



(2)

     Treasury stock purchased 


(21)



(1,932)

                 Net cash (used in)/provided by financing activities


(10,489)



924

Net decrease in cash


(921)



(100)

        Effect of exchange rate


(3)



(15)

Cash at beginning of period


3,136



4,274

Cash at end of the period

$

2,212


$

4,159

Supplemental disclosures of cash flow information:






     Cash paid during the period for:






          Interest

$

2,137


$

2,697

          Income taxes

$

1,825


$

2,221

Non cash financing activities:






      Dividend declared but not yet paid

$

215


$

215

See notes to unaudited condensed consolidated financial statements












 

SOURCE Empire Resources, Inc.



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