FORT LEE, N.J., Nov. 14, 2016 /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 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.

 

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














Three Months Ended
September 30,


Nine Months Ended
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
September 30,


Nine Months Ended
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
(unaudited)


December 31, 2015
 

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






 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/empire-resources-reports-results-for-third-quarter-of-2016-300362037.html

SOURCE Empire Resources, Inc.

Copyright 2016 PR Newswire

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