UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to _________
Commission file number 001-12127
EMPIRE RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3136782
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Parker Plaza
Fort Lee, NJ 07024
(Address of Principal Executive Offices) (Zip Code)
(201) 944-2200
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Common Stock, par value $0.01 per share 9,743,184
(Class) (Outstanding on August 8, 2005)
EMPIRE RESOURCES, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2005
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2005
(unaudited) and December 31, 2004............................... 2
Condensed Consolidated Statements of Income for the Three and
Six Months Ended June 30, 2005 and 2004 (unaudited)............. 3
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2005 and 2004 (unaudited)................. 4
Notes to Condensed Consolidated Financial Statements
(unaudited)..................................................... 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk...... 12
Item 4 Controls and Procedures......................................... 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................................... 14
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds..... 14
Item 3 Defaults Upon Senior Securities................................. 14
Item 4 Submission of Matters to a Vote of Security Holders............. 14
Item 5 Other Information............................................... 15
Item 6 Exhibits........................................................ 15
Signatures...................................................... 16
(i)
Introduction
The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been omitted pursuant to such rules and regulations. In the opinion
of management, such financial statements reflect all adjustments necessary for a
fair presentation of the results for the interim periods presented and to make
such financial statements not misleading. The results of operations of the
Company for the six months ended June 30, 2005 are not necessarily indicative of
the results to be expected for the full year. It is suggested that these interim
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report filed
on Form 10-K for the year ended December 31, 2004.
1
EMPIRE RESOURCES, INC.
Condensed Consolidated Balance Sheets
In Thousands, except shares and per share amounts
June 30, December 31,
----------- ------------
2005 2004
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash $ 444 $ 287
Trade accounts receivable (less allowance
for doubtful accounts of $191 and $191) 50,372 30,367
Inventories 74,257 58,969
Other current assets 1,374 1,397
-------- -------
Total current assets 126,447 91,020
Property and Equipment (less accumulated
depreciation of $512 and $472) 4,280 2,895
-------- -------
$130,727 $93,915
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks $ 75,700 $40,300
Current maturities of long-term debt 97 94
Trade accounts payable 25,669 25,411
Accrued expenses 4,547 6,796
Dividends Payable 487 960
-------- -------
Total current liabilities 106,500 73,561
-------- -------
Long-term debt, net of current maturities 2,352 2,406
Commitments and contingencies
Stockholders' equity:
Common stock $.01 par value, 20,000,000 shares
authorized and 11,749,651 shares issued at
June 30, 2005 and December 31, 2004, respectively $ 117 117
Additional paid-in capital 10,690 10,827
Retained earnings 13,421 9,547
Accumulated other comprehensive income 0 14
Treasury stock (2,006,467 and 2,150,400 shares,
respectively) (2,353) (2,557)
-------- -------
Total stockholders' equity 21,875 17,948
-------- -------
$130,727 $93,915
======== =======
See notes to condensed consolidated financial statements
2
EMPIRE RESOURCES, INC.
Condensed Consolidated Statements of Income (Unaudited)
In thousands, except per share amounts
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2005 2004 2005 2004
------- ------- -------- --------
Net sales $89,446 $51,605 $169,460 $105,790
Cost of goods sold 82,658 47,782 155,998 98,131
------- ------- -------- --------
Gross profit 6,788 3,823 13,462 7,659
Selling, general and administrative expenses 1,889 1,829 4,445 3,520
------- ------- -------- --------
Operating income 4,899 1,994 9,017 4,139
Interest expense 872 274 1,436 573
------- ------- -------- --------
Income before income taxes 4,027 1,720 7,581 3,566
Income taxes 1,505 656 2,835 1,367
------- ------- -------- --------
Net income $ 2,522 $ 1,064 $ 4,746 $ 2,199
======= ======= ======== ========
Weighted average shares outstanding:
Basic 9,618 9,553 9,609 9,549
======= ======= ======== ========
Diluted 9,903 9,903 9,876 9,902
======= ======= ======== ========
Earnings per share:
Basic $ 0.26 $ 0.11 $ 0.49 $ 0.23
======= ======= ======== ========
Diluted $ 0.25 $ 0.11 $ 0.48 $ 0.22
======= ======= ======== ========
See notes to condensed consolidated financial statements
3
EMPIRE RESOURCES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
In thousands
Six Months Ended
June 30,
-------------------
2005 2004
-------- --------
Cash flows from operating activities:
Net income $ 4,746 $ 2,199
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 40 30
Translation Adjustment (15) (3)
Changes in:
Trade accounts receivable (20,005) (4,567)
Inventories (15,288) 10,485
Other current assets 23 3,660
Trade accounts payable 258 2,751
Accrued expenses (2,249) (4,876)
-------- --------
Net cash (used in) provided by operating activities (32,490) 9,679
-------- --------
Cash flows used in investing activities:
Additions to fixed assets (1,425) (42)
-------- --------
Cash flows from financing activities:
Net proceeds from notes payable - banks 35,349 (5,900)
Proceeds - options exercised 67 130
Dividends Paid (1,344) (1,144)
-------- --------
Net cash provided by (used in) financing activities 34,072 (6,914)
-------- --------
Net increase in cash 157 2,723
Cash at beginning of period 287 1,477
-------- --------
Cash at end of period $ 444 $ 4,200
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,513 $ 474
Income taxes $ 2,835 $ 1,371
Non Cash Financing Activities:
Dividend Declared but not yet paid $ 487 $ 384
See notes to condensed consolidated financial statements
4
Empire Resources, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. The Company
Empire Resources, Inc. (the "Company" or "Empire") is engaged in the
purchase, sale and distribution of principally nonferrous metals to a diverse
customer base located throughout the United States and Canada, Australia and New
Zealand. The Company sells its products through its own marketing and sales
personnel and its independent sales agents located in North America who receive
commissions on sales. The Company purchases its products from suppliers located
throughout the world; however, one supplier, Hulett Aluminium Ltd., supplied
approximately 48% of the Company's products during the first six months of 2005.
The Company does not typically purchase inventory for stock; rather, it places
orders with its suppliers based upon orders that it has received from its
customers.
In the fall of 2004, the Company entered into an agreement to purchase a
used aluminum extrusion press. The Company is modernizing and installing the
press in the newly purchased warehouse/distribution facility in Baltimore,
Maryland. The Company expects to begin manufacturing extrusions in the new
facility in late 2005 and expects that its current customers are potential
customers for its extrusions production.
Reclassification
Certain items reported as cost of sales in the quarter ended March 31, 2005
have been reclassified to selling, general, and administrative expense for the
six months ended June 30, 2005. The effect of this reclassification reduced cost
of goods sold for the six months ended June 30, 2005 by approximately $800,000
and increased selling general and administrative expenses by a corresponding
amount.
The condensed consolidated financial statements include the accounts of
Empire Resources, Inc. and its wholly-owned subsidiaries, Empire Resources
Pacific Ltd., which acts as a sales agent for the Company in Australia. In
addition, the statements include 6900 Quad Avenue LLC, the company which
purchased the warehouse facility, and Empire Extrusions LLC the company which
will manufacture extrusions. All significant intercompany transactions and
accounts have been eliminated in consolidation.
2. Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. The principle estimate made relates to the
allowance for doubtful accounts. Actual results could differ from these
estimates.
3. Concentrations
One major customer accounted for approximately 15% of the Company's
consolidated net sales for the six month period ended June 30, 2005 and 17% for
the six month period ended June 30, 2004.
5
The Company's purchase of nonferrous metal is from a limited number of suppliers
located throughout the world. One supplier, Hulett Aluminium Ltd., accounted for
48% of total purchases during the six month period ended June 30, 2005 and three
other suppliers accounted for 39% of total purchases. The Company's loss of any
one of its largest suppliers or a material default by any such supplier in its
obligations to the Company would have at least a short-term material adverse
effect on the Company's business.
4. Stock Options
The Company accounts for stock-based employee compensation under the
recognitions and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. No stock-based employee compensation cost is reflected in net
income as all options granted under the Plan had an exercise price equal to the
market value of the underlying common stock on the date of grant. The Company
has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." For the
six months ended June 30, 2005 and 2004, there would be no effect on net income
and earnings per share. See Note #10.
5. Inventories
Inventories, which consist of purchased semi-finished aluminum products,
are stated at the lower of cost or market. Cost is determined by the
specific-identification method. Inventory has generally been purchased for
specific customer orders.
6. Notes Payable--Banks
As of June 30, 2005, the Company operated under a $90,000,000 committed
credit facility with four commercial banks. This facility as amended, expires on
June 30, 2006. Borrowings by the Company under this line of credit are
collateralized by security interests in substantially all its assets. Under the
agreement, the Company is required to maintain working capital and net worth
ratios as defined by the loan agreement. As of June 30, 2005 and December 31,
2004 respectively, the credit utilized under this facility amounted to $85.5
million and $57.3 million (including approximately $9.8 million and $17.0
million of outstanding letters of credit). Interest on borrowings is either (i)
the federal funds rate, (ii) the prime rate of JP Morgan Chase or (iii) LIBOR,
plus the applicable margins defined in the loan agreement.
In December 2004, the Company entered into a mortgage and an interest rate swap
in connection with the purchase of a warehouse. The mortgage, which requires
monthly payments of approximately $21,000 including interest, bears interest at
Libor + 1.75% and matures in December 2014. At the same time, the Company
entered into an interest rate swap with a bank which has been designated as a
cash flow hedge. Effective 2004 through December 29, 2014 each month the Company
will pay a fixed interest rate of 6.37% to the bank on a notional principal
equal to the outstanding principal balance of the mortgage. In return, the bank
will pay to the Company a floating rate, namely, LIBOR, to reset monthly plus
1.75% on the same notional principal amount.
6
Empire Resources, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - (continued)
7. Earnings Per Share
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
2005 2004 2005 2004
----- ----- ----- -----
Weighted average shares outstanding-basic 9,618 9,553 9,609 9,549
Dilutive effect of stock options 285 350 267 353
----- ----- ----- -----
Weighted average shares outstanding-diluted 9,903 9,903 9,876 9,902
===== ===== ===== =====
Basic earnings per share are based upon the Company's weighted average
number of common shares outstanding during each period. Diluted earnings per
share are based upon the weighted average number of common shares outstanding
during each period, assuming the issuance of common shares for all dilutive
potential common shares outstanding during the period, using the treasury stock
method.
8. Dividends
On June 21, 2005, the Board of Directors of the Company declared a cash
dividend of $0.05 per share to stockholders of record at the close of business
on July 6, 2005. The dividend totaling $487,000 is reflected in dividends
payable at June 30, 2005 and was paid on July 19, 2005.
9. Commitments and Contingencies
Empire has contingent liabilities in the form of letters of credit to
certain of its suppliers, which at June 30, 2005 amounted to approximately $9.8
million.
The Company hedges metal pricing and foreign currency as it deems
appropriate for a portion of its purchase and sales contracts. There is a risk
of a counterparty default in fulfilling the hedge contract. Should there be a
counterparty default, the Company could be exposed to losses on the original
hedged contract.
10. Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 151, "Inventory Costs--an amendment of ARB No. 43," which is the result
of its efforts to converge U.S. accounting standards for inventories with
International Accounting Standards. SFAS No. 151 requires idle facility
expenses, freight, handling cost and wasted material (spoilage) costs to be
recognized as current-period charges. It also requires that allocation of fixed
production overhead to the costs of conversion be based on the normal capacity
of the production facilities. SFAS No. 151 will be effective for us beginning
January 1, 2006. We do not anticipate that the adoption of SFAS No. 151 will
have a material impact on our financial position, results of operations or cash
flows.
7
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" that prescribes the accounting for share-based payment transactions in
which a company receives employee services in exchange for (a) equity
instruments of the company or (b) liabilities that are based on the fair value
of the company's equity instruments or that may be settled by the issuance of
such equity instruments. SFAS No. 123R addresses all forms of share-based
payment awards, including shares issued under employee stock purchase plans,
stock options, restricted stock and stock appreciation rights. SFAS No. 123R
eliminates the ability to account for share-based compensation transactions
using APB Opinion No. 25, "Accounting for Stock Issued to Employees," that was
previously allowed under SFAS No. 123 as originally issued. Under SFAS No. 123R,
companies are required to record compensation expense for all share based
payment award transactions measured at fair value. In April 2005, the Securities
and Exchange Commission ("SEC") delayed the effective date of SFAS No. 123R.
Accordingly, this statement is effective for us beginning January 1, 2006. We
believe that the impact, if any, that the adoption of SFAS No. 123R will have on
our financial position, results of operations or cash flows will not be
material.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
The discussions set forth below and elsewhere herein contain certain
statements that may be considered forward-looking statements under the Private
Securities Litigation Reform Act of 1995. The Company may make written or oral
forward-looking statements in other documents we file with the Securities and
Exchange Commission, in our annual reports to stockholders, in press releases
and other written materials, and in oral statements made by our officers,
directors or employees.
You can identify forward-looking statements by the use of the words
"believe," "expect," "anticipate," "intend," estimate," "assume," "will,"
"should," and other expressions which predict or indicate future events or
trends and which do not relate to historical matters. You should not rely on
forward-looking statements, because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond the control of the
Company. These risks, uncertainties and other factors may cause the actual
results, performance or achievements of the Company to be materially different
from the anticipated future results, performance or achievements expressed or
implied by the forward-looking statements.
Among the significant factors that could cause our actual results to differ
materially from those expressed in forward-looking statements are: changes in
general, national or regional economic conditions; an act of war or terrorism
that disrupts international shipping; changes in laws, regulations and tariffs,
the imposition of anti-dumping duties on the products imported, including those
produced by Hulett Aluminium Ltd.; failure to successfully integrate
manufacturing extrusions in the business of the Company; changes in the size and
nature of the Company's competition; changes in interest rates, foreign
currencies or spot prices of aluminum; loss of one or more foreign suppliers or
key executives; loss of one or more significant customers, increased credit risk
from customers; failure of the Company to grow internally or by acquisition and
to integrate acquired businesses; failure to improve operating margins and
efficiencies; and changes in the assumptions used in making such forward-looking
statements. The risks set forth in the immediately preceding sentence are not
exhaustive. You should carefully review all of these risk factors, and you
should be aware that there may be other factors that could cause these
differences, including, among others, the factors listed under "Risk Factors,"
beginning on page 17 of our Annual Report on Form 10-K for the year ended
December 31, 2004. Readers should carefully review the factors described under
"Risk Factors" and should not place undue reliance on our forward-looking
statements. In addition, readers should refer to our annual reports on Form 10-K
and our quarterly reports on Form 10-Q for future periods and our current
reports on Form 8-K as we file them with the Securities and Exchange Commission,
and to other materials we may furnish to the public from time to time through
Form 8-K or otherwise.
These forward-looking statements were based on information, plans and
estimates at the date of this report, and we undertake no obligation to update
any forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes. New risk factors
emerge from time to time, and it is not possible for us to predict all risk
factors, nor can we predict the impact of all risk factors on our business or to
the extent which any factor, or combination of factors, may cause actual results
to differ materially from those contained in forward-looking statements.
9
Overview
Empire is a distributor of value added, semi-finished aluminum products.
Consequently, Empire's sales volume has been, and will continue to be, a
function of its ongoing ability to secure quality aluminum products from its
suppliers. While the Company maintains long-term supply relationships with
several foreign mills, one such supplier, Hulett Aluminium Ltd., ("Hulett")
accounted for approximately 48% of the Company's purchases during the six months
ended June 30, 2005.
The Company's ability to succeed is driven in part by continued customer
satisfaction, supplier and customer loyalty and the ability to manage the
competitive economic environment through the expansion and upgrading of its
service to its suppliers and customers. This includes the ability to ship
material on a just in time basis from both private and public warehouses, and
the establishment of a proprietary on-line service modules for customers to
track their shipments. This bolstered the Company's commitment to service and
customer satisfaction. The Company has also used its excellent customer
relationships to leverage sales per employee by developing long term
relationships with its customers and understanding their needs. Because the
Company has always engaged in a strategy of developing long term relationships,
it has been able to build sales volume without a similar increase in selling,
general and administrative expenses that would otherwise accompany customer
turn-over. The stable customer and supplier base has enabled the Company to
increase its purchases from its suppliers and to sell the majority of these
quantities to its existing customer base. While this does expose the Company to
concentration risks, it has provided the foundation of the Company's growth and
performance.
Application of Critical Accounting Policies
The Company's condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America. Certain accounting policies have a significant impact
on amounts reported in the financial statements. A summary of those significant
accounting policies can be found in Note B to the Company's financial statements
included in the Company's 2004 Annual Report on Form 10-K. The Company has not
adopted any significant new accounting policies during the six-month period
ended June 30, 2005.
Among the significant judgments made by management in the preparation of
the Company's financial statements are the determination of the allowance for
doubtful accounts and accruals for inventory claims. These adjustments are made
each quarter in the ordinary course of accounting.
The Company reports accounts receivable, net of an allowance for doubtful
accounts, to represent its estimate of the amount that ultimately will be
realized in cash. The Company reviews the adequacy of its allowance for doubtful
accounts on an ongoing basis, using historical collection trends, aging of
receivables, as well as review of specific accounts, and makes adjustments in
the allowance as it believes necessary. The Company maintains a credit insurance
policy on the majority of its customers. This policy generally has a
co-insurance provision and specific limits on each customer's receivables. The
co-pay may be increased in selected instances and the Company sometimes elects
to exceed these specific credit limits. Changes in economic conditions could
have an impact on the collection of existing receivable balances or future
allowance considerations.
Generally, the Company's exposure on claims for defective material is small
as the Company refers all claims on defects back to the mill supplying the
material. In the event that the Company does not believe the mill will honor a
claim, the Company will record an allowance for inventory adjustments.
10
Results of Operations for the Six months ended June 30, 2005 (in thousands)
During the first six months of 2005 net sales increased $63,670 to
$169,460, or a 60% increase, from $105,790 in the first six months of 2004. This
increase was due to approximately a 31% volume increase in shipments to the
Company's customers and an increase of approximately 23% in pricing. Gross
profit increased $5,803 to $13,462 in this period, or a 76% increase, from
$7,659 in the first six months of 2004. The dollar increase in gross profit is
due largely to the increased sales volume and to a lesser extent to the increase
in the gross profit margin. During the six months gross profit as a percentage
of sales increased due to strong demand for one of the Company's significant
product lines.
The Company experienced approximately a 26% increase in selling, general
and administrative costs. These costs are primarily attributable to increased
sales commissions and payroll costs, and banking fees.
Interest expense grew during the six month period by $863 from $573 to
$1,436. This 151% increase in interest expense is due to both the growth in
loans outstanding during the six month period to support revenue growth and the
continuing upward trend in interest rates.
The Company's ability to grow sales without as large a percentage increase
in selling, general and administrative costs led to an increase in net income of
116% from $2,199 in June 2004 to $4,746 in June 2005. The Company's ability to
increase its supply has been and will continue to be the main factor for
increased revenues. The Company's top ten customers represented 43% of sales in
the first six months of 2005 as compared to 46% during the first six months of
2004.
Results of Operations for the Three months ended June 30, 2005 (in thousands)
Net sales increased $37,841 or 73% during the second quarter of 2005 from
$51,605 in 2004 to $89,446 in 2005. The Company achieved approximately a 31%
increase in shipment volume to its customers and prices increased approximately
18%. Gross profit increased in the three month period by $2,965 to $6,788 from
$3,823 in the three months of 2004. The dollar increase in gross profit is due
largely to the increased sales volume and to a lesser extent an increase in the
gross margin percentage.
The Company experienced approximately a 3% increase in selling, general and
administrative costs for the second quarter of 2005 as compared to the same
period in 2004. These costs are primarily attributable to increased sales
commissions and payroll costs. Certain items reported as cost of sales in the
quarter ended March 31, 2005 have been reclassified to selling, general, and
administrative expense for the six months ended June 30, 2005. The effect of
this reclassification reduced cost of sales for the six months ended
June 30, 2005 by approximately $800,000 and increased selling general and
administrative expenses by a corresponding amount.
Interest expense increased during the three month period by $598 from $274
to $872. This 218% increase in interest expense is due to both the growth in
loans outstanding during the period to support revenue growth and the continuing
upward trend in interest rates.
11
Net income increased by $1,458 from $1,064 to $2,522 for the three months
ended June 30, 2005, an increase of 137%. The Company's ability to increase its
supply has been and will continue to be the main factor in increased revenues.
Liquidity and Capital Resources (in thousands, except per share data)
The Company's cash flow from operations increased slightly by $157 in the
first six months of 2005. The Company used $32,490 in operating activities for
the six month period, comprised largely of increases in accounts receivable and
inventories. Accounts receivables increased by $20,005 and inventories increased
by $15,288. The increase in accounts receivables and inventories is driven by
the growth of the Company's sales for the six month period. Cash flows from
financing activities provided $34,072, primarily from the increased borrowing
under the Company's line of credit.
Empire currently operates under a $90,000 revolving line of credit,
including a commitment to issue letters of credit, with four commercial banks.
The Company's borrowings under this line of credit are collateralized by
security interests in substantially all of Empire's assets. Empire is required
to maintain working capital and net worth ratios under this credit agreement.
This facility will expire on June 30, 2006.
On June 21, 2005, the Company announced that its Board of Directors
declared a cash dividend of $0.05 per share. The dividend totaling $487 was paid
on July 19, 2005 to stockholders of record at the close of business on June 30,
2005. The Board of Directors will review its dividend policy on a quarterly
basis and a determination by the Board of Directors will be made subject to the
profitability and free cash flow and the other requirements of the business.
Management believes that cash from operations, together with funds
available under its credit facility, will be sufficient to fund the cash
requirements relating to the Company's existing operations for the next twelve
months. Empire may require additional debt or equity financing in connection
with the future expansion of its operations.
Commitments and Contingencies (in thousands)
Empire has contingent liabilities in the form of letters of credit totaling
$9,800 to certain of its suppliers and as of June 30, 2005, the credit utilized
under its credit facility amounted to $85,500. Except as noted, there have been
no material changes to the Company's commitments and contingencies from that
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2004.
The Company hedges metal pricing and foreign currency as it deems
appropriate for a portion of its purchase and sales contracts. There is a risk
of a counterparty default in fulfilling the hedge contract. Should there be a
counterparty default, the Company could be exposed to losses on the original
hedged contract.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses financial instruments designated as fair value hedges to
manage its exposure to commodity price risk and foreign currency exchange risk
inherent in its operations. It is the Company's policy to hedge such risks, to
the extent practicable. The Company enters into high-grade aluminum futures
contracts to limit its gross margin exposure by hedging the metals content
element of
12
firmly committed purchase and sales commitments. The Company also enters into
foreign exchange forward contracts to hedge its exposure related to commitments
to purchase or sell non-ferrous metals denominated in international currencies.
The Company records "mark-to-market" adjustments on these futures and forward
positions, and on the underlying firm purchase and sales commitments which they
hedge, and reflects the net gains and losses currently in earnings.
Refer to our Annual Report on Form 10-K for the year ended December 31,
2004 for more detailed disclosure about quantitative and qualitative disclosure
of market risk. Quantitative and qualitative disclosure about market risk have
not materially changed since December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
As required by the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's management conducted an evaluation with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, regarding the effectiveness of the Company's disclosure controls and
procedures, as of the end of the fiscal quarter covered by this report. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. We intend to continue to review and document our
disclosure controls and procedures, including our internal controls and
procedures for financial reporting, and we may from time to time make changes to
the disclosure controls and procedures to enhance their effectiveness and to
ensure that our systems evolve with our business.
There was no change in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-Q that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is party from time to time to certain legal proceedings and
claims that arise in the ordinary course of business. The Company does not
believe that any such litigation would have a material adverse effect on its
results of operation or financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its annual meeting of stockholders on June 21, 2005.
(b) The current directors, being William Spier, Nathan Kahn, Sandra Kahn, Harvey
Wrubel, Jack Bendheim, Peter J. Howard, Nathan Mazurek, and Morris J. Smith,
were re-elected as directors at the annual meeting. A new director L. Rick
Milner was elected to serve on the Board at the annual meeting.
(c) At the annual meeting, two matters were voted upon by shareholders. The
results were as follows:
Proposal 1 -- Election of Directors. By the vote reflected below, the
stockholders elected the following individuals to serve as directors until the
2006 Annual Meeting of Stockholders and until their respective successors are
duly elected and qualified. There were no broker non-votes in the election of
directors.
FOR WITHHELD
--- --------
WILLIAM SPIER 8,869,405 14,793
NATHAN KAHN 8,872,530 11,668
SANDRA KAHN 8,872,530 11,668
HARVEY WRUBEL 8,872,530 11,668
JACK BENDHEIM 8,869,955 14,243
PETER G. HOWARD 8,868,830 15,368
NATHAN MAZUREK 8,871,080 13,118
MORRIS J. SMITH 8,869,955 14,243
L. RICK MILNER 8,872,480 11,718
Proposal 2 - Ratification of Eisner, LLP as independent accountants for the
current fiscal year. The shareholders voted to ratify the selection of Eisner,
LLP as the Company's independent public accounting firm for the current fiscal
year.
For: 8,874,595
Against: 3,018
Abstain: 6,585
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(d) Not applicable.
Item 5. Other Information.
On April 22, 2005, the Company entered into Amendment No. 6 to its Credit
Facility with JP Morgan Chase Bank, N.A., as Lead Arranger and Administrative
Agent. This Amendment increased the total committed amount under the credit
facility to $90 million. The borrowings under the credit facility remain
collateralized by security interests in substantially all of the Company's
assets and remains subject to certain financial ratios provided in the loan
agreement.
Item 6. Exhibits.
The following are included as exhibits to this report:
Exhibit No. Description
- ----------- -----------
10.20 Amendment No. 6 to Credit Facility, dated April 22, 2005 between
the Registrant and JP Morgan Chase Bank, N.A. as Lead Arranger and
Administrative Agent.*
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934*
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934*
32.1 Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002**
- ----------
* Filed herewith
** Furnished herewith
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
EMPIRE RESOURCES, INC.
Dated: August 12, 2005 By: /s/ Sandra Kahn
------------------------------------
Sandra Kahn
Chief Financial Officer
(signing both on behalf of the
registrant and in her capacity as
Principal Financial and Principal
Accounting Officer)
16