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Empire Resources Reports Strong Second Quarter 2014 Results

- Net Sales Increase 33% from Second Quarter of 2013 to $146.5 Million

FORT LEE, N.J., Aug. 14, 2014 /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 2014 were $146.5 million, representing an increase of 33% from the second quarter of 2013, and 6% higher sequentially.  The improvement compared with the second quarter of 2013 reflected increased sales across all geographic regions, led by a four-fold increase in sales to Latin America and a tripling of sales in Europe.  Strong sales growth in North America drove the increase in sales as compared to the first quarter of 2014.

Gross profit for the second quarter of 2014 also increased 33% from the second quarter of 2013 to $7.0 million, or 4.8% of sales, compared with $5.3 million, or 4.8% of sales, in the second quarter of 2013. In the first quarter of 2014, gross profit was $6.5 million, or 4.7% of sales. 

Operating income for the second quarter of 2014 was $3.5 million, which is double the operating income of $1.8 million reported in the second quarter of 2013 and up 11% from  operating income of $3.2 million in the first quarter of 2014.    

Net interest expense for the second quarter of 2014 was $1.1 million, which is level with both the second quarter of 2013 and the first quarter of 2014. 

The Company recognized a non-cash non-operating gain of $0.2 million in the second 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 loss of $0.04 million in the second quarter of 2013, and a non-cash non-operating loss of $0.4 million in the first quarter of 2014.  

For the second quarter of 2014, net income was $1.6 million, or $0.15 per diluted share, compared with net income of $0.4 million, or $0.04 per diluted share, in the second quarter of 2013, and net income of $1.0 million, or $0.12 per diluted share, in the first quarter of 2014.   

Non-GAAP net income for the second quarter of 2014, which excludes changes in the value of the derivative liability, net of tax, increased 279% to $1.5 million, or $0.17 per diluted share, compared with non-GAAP net income of $0.4 million, or $0.04 per diluted share, in the second quarter of 2013.  Non-GAAP net income was $1.3 million, or $0.15 per diluted share, in the first quarter of 2014. 

For the first six months of 2014, net sales were $284.8 million and net income was $2.7 million, or $0.28 per diluted share, on a GAAP basis, and $2.8 million, or $0.31 per diluted share, on a non-GAAP basis.  For the first six months of 2013, net sales were $243.9 million and net income was $0.5 million, or $0.05 per diluted share, on a GAAP basis, and $1.8 million, or $0.20 per diluted share, on a non-GAAP basis.    

The Company uses the non-GAAP measures, which exclude the effect of the non-cash non-operating gains and losses due the quarterly change in derivatives valuation, internally to evaluate its operating performance and believes that this is a useful measure also used by investors.

Nathan Kahn, President and CEO, commented, "The recovery that began in our first quarter this year continued in the second quarter, yielding our highest level of sales since the second quarter of 2012 and our highest operating income since the third quarter of 2010.  In combination, the benefits of our product and geographic diversification, our investment in our sales team, the continued sharp focus of our team on executing our strategy, and improved market conditions in the U.S. enabled us to achieve this additional progress."

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



June 30, 2014
 (Unaudited)


December 31, 2013

ASSETS 






Current assets:






     Cash

$

2,749


$

2,477

     Trade accounts receivable (less allowance for doubtful
        accounts of $561 and $562)


92,629



52,696

     Inventories


124,312



139,752

     Deferred tax assets


3,206



3,217

     Advance to supplier, net of imputed interest of $117 and  $176


3,207



3,147

     Other current assets, including derivatives


5,634



6,081

          Total current assets


231,737



207,370

     Advance to supplier, net of imputed interest of $13 and $56,
        and net of current maturities


1,664



3,287

     Preferential supply agreement, net


481



641

     Long-term financing costs, net of amortization 


1,060



358

     Property and equipment, net


3,910



3,949

     Deferred tax assets


388



215

Total assets

$

239,240


$

215,820







LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:






     Notes payable - banks

$

134,154


$

107,922

     Current maturities of mortgage payable


1,200



1,290

     Trade accounts payable


33,314



44,058

     Income taxes payable


3,751



2,042

     Accrued expenses and derivative liabilities


6,076



2,844

     Dividends payable


217



215

          Total current liabilities


178,712



158,371







Subordinated convertible debt net of unamortized discount
   of $1,085 and $1,368 respectively


10,915



10,632

Derivative liability for embedded conversion option


2,228



2,048

          Total Liabilities


191,855



171,051







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, 2014 and December 31, 2013


117



117

     Additional paid-in capital


12,210



11,937

     Retained earnings


40,417



38,178

     Accumulated other comprehensive income


53



51

     Treasury stock, 3,077,086 and 3,177,708 shares
        at June 30, 2014 and December 31, 2013, respectively


(5,412)



(5,514)

          Total stockholders' equity


47,385



44,769

Total liabilities and stockholders' equity

$

239,240


$

215,820

See notes to unaudited condensed consolidated financial statements

 

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



Three Months Ended June 30,


Six Months  Ended June 30,


2014


2013


2014


2013

Net sales

$

146,516


$

110,468


$

284,833


$

243,898

Cost of goods sold


139,501



105,201



271,331



232,001

Gross profit


7,015



5,267



13,502



11,897

Selling, general and administrative expenses


3,482



3,501



6,781



6,759

Operating income


3,533



1,766



6,721



5,138

Other expenses












   Change in value of derivative liability 


249



(44)



(180)



(2,167)

   Interest expense, net


(1,091)



(1,134)



(2,182)



(2,247)

Income before income taxes


2,691



588



4,359



724

Income taxes


1,045



221



1,687



272

Net income

$

1,646


$

367


$

2,672


$

452

Weighted average shares outstanding:












     Basic


8,669



8,586



8,649



8,585

     Diluted


11,968



8,871



11,949



8,860

Earnings per share:












     Basic


$0.19



$0.04



$0.31



$0.05

     Diluted


$0.15



$0.04



$0.28



$0.05

See notes to unaudited condensed consolidated financial statements













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


Three Months Ended June 30,


Six Months  Ended June 30,


2014


2013


2014


2013

GAAP income before income taxes


2,691



588



4,359



724

Elimination of the change in value of
     derivative liability 


(249)



44



180



2,167

Non-GAAP net income before taxation 


2,442



632



4,539



2,891

Income taxes 


948



238



1,757



1,086

Non-GAAP net income

$

1,494


$

394


$

2,782


$

1,805

Weighted average shares outstanding:












     Basic


8,669



8,586



8,649



8,585

     Diluted


8,924



8,871



8,905



8,860

Non-GAAP earnings per share:












     Basic


$0.17



$0.05



$0.32



$0.21

     Diluted


$0.17



$0.04



$0.31



$0.20

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)



  Six Months Ended June 30,
         2014                     2013

Cash flows - operating activities:






     Net income

$

2,672


$

452

     Adjustments to reconcile net income to net cash (used in)/provided
        by operating activities:






               Depreciation and amortization 


317



286

               Change in value of derivative liability


180



2,167

               Amortization of convertible note discount


283



283

               Imputed interest on vendor advance


(103)



(161)

               Loss on sale of marketable securities


-



31

               Amortization of supply agreement


160



160

               Deferred income taxes 


(173)



(942)

               Foreign exchange loss and other


2



10

               Stock-based compensation 


373



-

               Changes in:






                    Trade accounts receivable


(39,954)



(4,900)

                    Inventories


15,421



25,879

                    Other current assets


448



(6,270)

                    Trade accounts payable


(10,742)



(8,562)

                    Income taxes payable


1,708



1,212

                    Accrued expenses and derivative liabilities


3,260



(1,746)

                 Net cash  (used in)/provided by operating activities


(26,148)



7,899

Cash flows - investing activities:






    Repayment related to supply agreement


1,667



1,667

    Net proceeds from sale of marketable securities


-



6

    Purchases of property and equipment


(16)



(4)

                 Net cash provided by investing activities


1,651



1,669

Cash flows - financing activities:






     Proceeds from/(repayments) of notes payable – banks


26,255



(10,169)

     Repayments - mortgage payable


(90)



(84)

     Deferred Financing Costs


(965)



-

     Dividends paid 


(431)



(215)

     Proceeds from stock options exercised 


15



-

     Treasury stock purchased 


(13)



(21)

                 Net cash provided by/(used in) financing activities


24,771



(10,489)

Net increase/(decrease) in cash


274



(921)

        Effect of exchange rate


(2)



(3)

Cash at beginning of period


2,477



3,136

Cash at end of the period

$

2,749


$

2,212

Supplemental disclosures of cash flow information:






     Cash paid during the period for:






          Interest

$

2,502


$

2,137

          Income taxes

$

1,404


$

1,825

Non cash financing activities:






      Dividend declared but not yet paid

$

217


$

215

See notes to unaudited condensed consolidated financial statements

SOURCE Empire Resources, Inc.

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