-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qwk4xOYZ6PfwoHSUGN/d4NA4iUtQ8OXMvee8hXkZau30RoJ+SivNYWvUzvRiy1Lg E16cKXECAPuzsBMjf0+6rg== 0000950117-04-001197.txt : 20040330 0000950117-04-001197.hdr.sgml : 20040330 20040330153428 ACCESSION NUMBER: 0000950117-04-001197 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPIRE RESOURCES INC /NEW/ CENTRAL INDEX KEY: 0001019272 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 223136782 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12127 FILM NUMBER: 04700719 BUSINESS ADDRESS: STREET 1: ONE PARKER PLAZA CITY: FORT LEE STATE: NJ ZIP: 07024 BUSINESS PHONE: 201-944-22 MAIL ADDRESS: STREET 1: ONE PARKER PLAZA CITY: FORT LEE STATE: NJ ZIP: 07024 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED TECHNOLOGY USA INC DATE OF NAME CHANGE: 19960720 10-K 1 a37377.txt EMPIRE RESOURCES, INC. U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) [x] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 [ ] Transition report under Section 13 or 15(d) of the Exchange Act 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 Incorporation or Organization) (I.R.S. Employer Identification No.) One Parker Plaza Fort Lee, NJ 07024 (Address of Principal Executive Offices) 201 944-2200 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, par value $0.01 per share American Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] Check if disclosure of delinquent filers in response to Item 405 of regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12(b)-2) Yes [ ] No [X] The aggregate market value of the voting stock of the registrant held by non-affiliates as of the last business day of the registrant's most recently completed second fiscal quarter was approximately $4.1 million. Such market value was calculated based upon the closing price of the stock on the American Stock Exchange as of such date and excludes shares held by each officer and director of the registrant and any person that owns 5% or more of the registrant's outstanding common stock. This determination of affiliate status is not necessarily a conclusive determination for all other purposes. The number of shares of common stock outstanding as of March 15, 2004, was 9,528,251. DOCUMENTS INCORPORATED BY REFERENCE: Certain information required in response to Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K are incorporated by reference from the registrant's Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2004 pursuant to Regulation 14A of the General Rules and Regulations of the Commission. EMPIRE RESOURCES, INC. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 INDEX
10-K Part and Item No. Page - ------------ ---- Part I Item 1 Business 3 Item 2 Properties 9 Item 3 Legal Proceedings 9 Item 4 Submission of Matters to a Vote of Security Holders 9 Part II Item 5 Market for Common Equity and Related Stockholder Matters 9 Item 6 Selected Financial Data 11 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation 12 Item 7A Quantitative and Qualitative Disclosures About Market Risk 18 Item 8 Financial Statements and Supplementary Data 19 Item 9 Changes In and Disagreements With Accountants On Accounting and Financial Disclosure 19 Item 9A Controls and Procedures 19 Part III Item 10. Directors and Executive Officers of the Registrant 19 Item 11. Executive Compensation 20 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 20 Item 13. Certain Relationships and Related Transactions 20 Item 14. Principal Accountant Fees and Services 20 Part IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20 Signatures 23
2 PART I ITEM 1. BUSINESS Important Information Regarding Forward Looking Statements Certain matters discussed under the captions "Business", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Quantitative and Qualitative Disclosures About Market Risk" and elsewhere in this Annual Report on Form 10-K and the information incorporated by reference in this report may constitute forward-looking statements for purposes of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. Some of the factors that might cause these differences include the following: changes in general, national or regional economic conditions; an act of war or terrorism that disrupts international shipping; changes in laws, regulations and tariffs; changes in the size and nature of the Company's competition; the imposition of anti-dumping duties against on the products imported by the Company; changes in interest rates, foreign currencies or spot prices of aluminum; loss of one or more of the Company's principal supplier or key executives; increased credit risk from customers; failure of the government to renew the generalized system of preference, which provides preferential tariff treatment for certain of the Company's imports; 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. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences, including, among others, the factors listed under "Certain Factors Affecting Future Operating Results," beginning on page [14]. Readers should carefully review the factors described under "Certain Factors Affecting Future Operating Results" and should not place undue reliance on our forward-looking statements. These forward-looking statements were based on information, plans and estimates at the date of this report, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. Background Empire Resources, Inc. (the "Company") was incorporated in the State of Delaware in 1990 under the name Integrated Technology USA, Inc. ("Integrated"). Until September 17, 3 1999, the Company was in the business of designing, developing and marketing products for emerging computer related markets. On September 17, 1999, the Company merged with Empire Resources, Inc. ("Empire"), a distributor of value added, semi-finished aluminum products. Since the merger, the Company has continued the aluminum business of Empire under the name of Empire Resources, Inc. References to the Company include its' subsidiaries, consolidated for purposes of the Company's financial statements. In conjunction with the merger, Empire Resources Pacific Ltd. ("Empire-Pacific"), then an affiliate of Empire operating in Australia, became a wholly owned subsidiary of the Company. For accounting and other financial reporting purposes, the merger has been treated as a "reverse acquisition." Under this treatment, the surviving corporation has been treated as a continuation of Empire, and the merger has been treated as an issuance of shares by Empire to the stockholders of Integrated in exchange for Integrated's cash. Accordingly, the accompanying financial statements are the historical financial statements of Empire and Empire Resources Pacific Ltd. The Company is engaged in the purchase, sale and distribution of principally nonferrous metals to a diverse customer base located throughout the United States and in Canada, Australia and New Zealand. The Company sells its products through its own marketing and sales personnel and through its independent sales agents located in North America who receive commissions on sales. Empire-Pacific acts as the Company's sales agent in Australia and New Zealand. The Company purchases from suppliers located throughout the world; however, one supplier, Hulett Aluminium Ltd., furnished approximately 55% of the Company's products in 2003. 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. Strategy The Company's strategy for growth involves the following key elements: Provide Customers with a High Level of Service and Cost Effective, Quality Products. The Company places great emphasis on providing customers with a high level of service. In particular, the Company works closely with its customers to learn the specific requirements of each customer. This enables the Company to provide each customer with cost-effective, quality materials matching the customer's particular needs. The Company also provides various ancillary services to its customers, including (1) arranging for products to be stored in warehouse facilities for release to the customer on a just-in-time delivery basis, (2) providing customers with timely information concerning market trends and product development, and (3) upon request by customers, arranging for subsequent metal processing or finishing services. Expand Volumes and Product Breadth with Existing Suppliers and Customers. The Company strives to lever its existing long-standing relationships with suppliers and customers through increased volume with existing product lines and by adding new product lines that are within the suppliers' range of production and/or within the customers ranges of usage that are saleable in the Company's marketing area. The Company believes that by pursuing this strategy 4 it will increase its volume with its existing suppliers while at the same time establishing new markets resulting in increased volume and market presence. Expand Sources of Supply and Serve as Effective Marketing Channel for Suppliers. The Company seeks to increase its supply sources by expanding its relationships with existing suppliers and by seeking new suppliers. The Company strives to build its supply relationships by serving as an effective marketing channel for its suppliers. The Company believes if it is able to increase its supply sources it will be in a position to offer its customers greater quantities and a wider range of products. Acquire Capability to Provide Additional Value Added Services. The Company may seek to acquire the capability to provide its customers with additional value-added services (such as various processing, manufacturing, finishing, and or distribution services). The Company may accomplish this through establishing joint venture arrangements with existing service providers or by selectively making acquisitions. Provide Increasingly Efficient and Cost-Competitive Handling and Delivery Services. The Company's warehouse and distribution facility in Baltimore serves the dual purpose of: (a) providing depot/warehousing capacity for just-in-time delivery and (b) providing handling capability and inventory control at the Baltimore port of entry, the Company's most active import location. This arrangement reduces freight and handling expenses while concurrently increasing efficiency, and enables the Company to monitor deliveries and serve customers more effectively. The Company is currently reviewing the possibility of adding additional facilities in other locations and/or expanding and enhancing its Baltimore location. The Industry Semi-finished aluminum products are produced by processing primary aluminum and or aluminum scrap. A product is considered "semi-finished" if it has not yet been converted into a final end-product. Semi-finished aluminum products include aluminum sheet, plate and foil, rod, bar and wire, extruded and cast products, and aluminum powder and paste. Although demand for aluminum products in the United States has been cyclical, over the longer-term demand has continued to increase. The Company believes that this growth reflects (1) general population and economic growth and (2) the advantages of aluminum products, including light weight, high degree of formability, resistance to corrosion and recyclability. However, according to CRU Monitor, an industry publication, shipments in North America for mill aluminum products in during 2003 decreased approximately 2% from shipments in 2002. Products During the last three fiscal years Empire Resources has derived substantially all of its revenues from the sale of semi-finished aluminum products. Demand for the Company's product is not seasonal. 5 Sales, Marketing and Services The Company endeavors to build its distribution within the aluminum industry by providing customers with quality products, access to alternative sources of supply, and comprehensive customer service. The Company offers customers a full range of services including: o sourcing aluminum products from the appropriate supplier in order to meet pricing and delivery requirements; o handling foreign exchange transactions for sales in local currency; o assuming responsibility for the shipment and timely delivery of the product to the customer; o assisting customers in identifying materials and matching their particular needs; o where necessary, arranging for subsequent metal processing and/or finishing services which may be required by the customer; o arranging for materials that have been ordered by a customer (and are subject to a firm purchase commitment) be stored at an appropriate warehouse for release to the customers on a just-in-time delivery basis, and o providing customers with information concerning market trends and product development. The Company carefully monitors the timing and processing of orders to meet customers' needs and commits to deliver orders within a time-period mutually agreed with the customer -- generally within a 30 day window. The Company maintains constant and ongoing communication with its suppliers in order to ensure that these delivery dates are met and that customers are apprised of the delivery status of their orders. The Company primarily sells its products through its own marketing and sales personnel. In addition, the Company sells its products through independent sales agents located in North America who receive a commission on sales. The Company's inventory generally represents material that has been ordered by customers and is in transit or is being held pending delivery to such customers. Backlog At December 31, 2003, the amount of backlog of firm orders was approximately $53 million, (as compared to $52 million at December 31, 2002) representing orders received from customers and placed into production with the Company's suppliers. The Company expects to fill and invoice substantially all of the orders backlogged at December 31, 2003 by June 30, 2004. Suppliers The Company enjoys exclusive representation arrangements with several foreign mills; however one supplier, Hulett Aluminium Ltd, furnished approximately 55% of the Company's product in 2003. See Item 7 beginning on page 12 for information about the Company's 6 relationship with Hulett. The Company provides important services to its suppliers in various ways, including: o serving as an integrated marketing, distribution, and service channel for export volume; o purchasing manufacturing capacity from suppliers in bulk; o assuming responsibility for transporting the products that it purchases; o eliminating foreign currency risks for suppliers; and o ensuring prompt payment to suppliers for materials purchased. The Company strives to maintain long-term relationships with its suppliers and to be a significant distributor for them. By being a significant distributor for its suppliers, the Company is able to obtain competitive pricing and to influence quality standards and delivery practices. During 2003 the Company continued to work with existing suppliers and continued to explore other sources to underpin its position in the market. Customers The Company serves approximately 200 customers in diverse industries, including transportation, automobile, housing, appliances and packaging. In 2003, the top ten customers of the Company represented approximately 36% of its sales, with one customer accounting for 14% of total sales. These customers included six full-service distribution centers (i.e., distributors that have the capacity to provide additional processing services), as well as producers of various consumer and industrial products. The Company's customers are located throughout the United States and Canada and, to a lesser extent, Australia and New Zealand. The Company's U.S. customer base is not regional. The following table summarizes the Company's revenues for the past three years by geographic region.
- -------------------------------------------------------------------------------- Net Sales (In thousands) - -------------------------------------------------------------------------------- 2003 2002 2001 - -------------------------------------------------------------------------------- United States 148,108 127,327 113,915 - -------------------------------------------------------------------------------- Canada & Pacific Rim 36,308 31,411 29,320 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total 184,416 158,738 143,235 - --------------------------------------------------------------------------------
The Company insures its accounts receivable against credit risk by purchasing credit insurance. This insurance is generally subject to a 10% co-insurance provision with respect to each claim and there are limits on the amount of credit that the Company's insurance carrier will underwrite with respect to each customer. The company may decide based on its own judgments to exceed the limits granted by the credit insurance provider. 7 Transportation The Company arranges for the transportation to customers of the products that they purchase. When the Company purchases products from an overseas supplier, it accepts delivery either at the port in the supplier's home country or at the port of destination. If the Company takes delivery at a foreign port, it will generally arrange for transportation to the port of destination on regularly scheduled port-to-port sea-going transportation. Upon delivery of the products at the destination port, the Company uses trucking and rail services to deliver the products to its customers. Competition The Company's principal competitors are North American aluminum producers, including Alcoa Inc. and Alcan Aluminum Limited, which dominate the aluminum industry in North America. These companies are significantly larger and have significantly greater financial resources than the Company. The Company also competes with other importers and agents that act for foreign aluminum producers. The Company's principal means of competition is customer service, including providing value-added services to its customers. The Company believes that agents of foreign mills are generally less capable of serving the needs of North American customers because these agents are generally captive to a single foreign source and often lack the flexibility and range of product offerings that the Company offers its customers. Employees As of December 31, 2003, the Company had approximately 30 employees, all of whom were full-time employees. The Company also has independent sales representatives located in the United States. None of these employees are represented under a collective bargaining agreement. Empire-Pacific, a wholly-owned subsidiary of the Company, has eight employees in Australia. Available Information We maintain a company website at www.empireresources.com. We make copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed with or furnished to the Securities and Exchange Commission ("SEC") available to investors on or through our website free of charge as soon as reasonably practicable after we have electronically filed them with or furnished them to the SEC. The contents of our website do not constitute a portion of this report. The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room, located at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at which reports, proxy and information statements and other information regarding issuers that file electronically with the SEC are a available. This website may be accessed at http://www.sec.gov. 8 ITEM 2. DESCRIPTION OF PROPERTIES The Company's corporate headquarters are located in Fort Lee, New Jersey, where the Company leases office space pursuant to a lease expiring in March 2005. The lease provides for a minimum annual rental payment of $225,000. The Company leases a warehouse and distribution facility in Baltimore, Maryland pursuant to a lease expiring in October 2005. The lease provides for minimum annual rental payments of $205,000 over the term of the lease. Management believes that the Company's facilities are adequate to meet its current needs. ITEM 3. LEGAL PROCEEDINGS The Company is party from time to time to ordinary litigation incidental to its business. The Company does not presently believe that any such litigation would have a material adverse effect on its results of operation or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to shareholders during the fourth quarter for their approval. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market for Common Stock The Company's common stock trades on the American Stock Exchange ("AMEX") under the symbol ERS. The table below sets forth the high and low sales prices for the common stock as reported by AMEX for the periods indicated.
Common Stock -------------------------------------------- 2003 2002 --------------- Cash --------------- Period High Low Dividend High Low - ------ ------ ------ -------- ------ ------ 1st Quarter...................... $1.590 $1.050 $1.000 $0.800 2nd Quarter...................... $2.230 $1.090 $0.04 $1.450 $0.800 3rd Quarter...................... $3.240 $2.000 $0.04 $1.300 $0.950 4th Quarter...................... $4.230 $2.470 $0.08 $1.700 $0.950
On March 15, 2004, the closing price of the common stock on the American Stock Exchange was $3.30 and there were 43 holders of record of the Common Stock, and approximately 1,000 beneficial holders of common stock. The Company did not sell any unregistered equity securities in 2003. 9 Dividends On June 19, 2003 the Board of Directors of the Company declared its first ever dividend on its common stock. In declaring the first dividend in its history, the Company determined that it was able to return some of its cash to stockholders without impacting future revenue and earnings growth or restricting strategic opportunities. The Board of Directors declared a cash dividend of $0.04 per share on June 19th, and September 4th. On December 5th the Board of Directors of the Company declared a regular cash dividend of $0.04 per share and a special dividend of $.04 per share. The Board of Directors intends to review its dividend policy on a quarterly basis and a determination by the Board of Directors will be made subject to profitability and free cash flow and the other requirements of the business; there can be no assurance that dividends will be paid in the future. Share Repurchase In November 1999, the Board of Directors authorized the Company to repurchase up to one million shares of its common stock. In December 2000, the Board of Directors authorized an increase in the share repurchase program from 1 million shares to 1.5 million shares. On June 18, 2002 the Board of Directors authorized an additional increase in the share repurchase program of 1 million shares. This brought the total authorized number of shares available under the repurchase program to 2.5 million. As of December 31, 2003, the Company had repurchased a total of 2,267,400 shares for an aggregate cost of $2,731,049. The Company also had acquired 50,000 shares for a cost of $50,000 in connection with the reverse merger in September 1999. Equity Compensation Plan Information The following table provides information as of December 31, 2003 regarding shares of common stock of the Company that may be issued under our existing equity compensation plans, including the Company's 1996 Stock Option Plan (the "1996 Plan").
Equity Compensation Plan Information -------------------------------------------------------------------------- Number of securities to be issued upon exercise of Weighted Average Number of securities outstanding options as of exercise price of remaining available for Plan category December 31, 2003 outstanding options future issuance - ------------- -------------------------- ------------------- ----------------------- (a) (b) (c) Equity compensation plans approved by security holders 555,933 1.30 577,000 Equity compensation plans not approved by security holders - - - Total 555,933 1.30 577,000
10 ITEM 6 SELECTED FINANCIAL DATA The following table sets forth for the periods indicated selected consolidated financial and operating data for the Company. As a result of the reverse merger completed on September 17, 1999, the Company has been treated as a continuation of the business of Empire, and accordingly, the accompanying financial data are the financial data of Empire and Empire Resources Pacific Ltd., and include the results of operations of Integrated and its subsidiaries (which have been minimal) only from September 17, 1999. Pro forma net income and pro forma earnings per share reflect provisions for income taxes as if Empire, which was taxed as an S corporation until September 17, 1999, had been treated as a C corporation for all of 1999. The consolidated balance sheet data and consolidated statement of operations data as of and for the years ended December 31, 2003, 2002, 2001, 2000, and 1999 have been derived from our Consolidated Financial Statements. The following selected consolidated financial and operating data are qualified by and should be read in conjunction with our more detailed Consolidated Financial Statements and notes thereto and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Items 7 and 8 of this Form 10-K.
- ------------------------------------------------------------------------------ Years Ended December 31, - ------------------------------------------------------------------------------ In thousands, except per share information - ------------------------------------------------------------------------------ 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------ Operating Data: - ------------------------------------------------------------------------------ Net Sales $184,416 $158,738 $143,235 $165,328 $107,112 - ------------------------------------------------------------------------------ Operating Income $ 6,775 $ 4,992 $ 4,083 $ 5,041 $ 4,273 - ------------------------------------------------------------------------------ Net Income $ 3,544 $ 2,370 $ 1,296 $ 1,041 $ 1,309* - ------------------------------------------------------------------------------ Share Data: - ------------------------------------------------------------------------------ Weighted average shares outstanding - ------------------------------------------------------------------------------ Basic 9,466 10,049 10,956 11,346 7,328* - ------------------------------------------------------------------------------ Diluted 9,702 10,189 11,091 11,445 7,356* - ------------------------------------------------------------------------------ Earnings Per Share: - ------------------------------------------------------------------------------ Basic $.37 $.24 $.12 $.09 $0.18* - ------------------------------------------------------------------------------ Diluted $.37 $.23 $.12 $.09 $0.18* - ------------------------------------------------------------------------------
*Pro Forma
- -------------------------------------------------------------------------------- Balance Sheet Data: As of December 31, - -------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------- Total Assets $74,502 $54,469 $52,762 $69,110 $46,398 - -------------------------------------------------------------------------------- Working Capital $14,962 $12,871 $11,823 $10,946 $10,065 - -------------------------------------------------------------------------------- Stockholders' Equity $15,119 $12,922 $11,944 $11,101 $10,176 - --------------------------------------------------------------------------------
11 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company is a distributor of value added, semi-finished aluminum products. Consequently, the Company'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 supplier accounted for approximately 55% of the Company's purchases for the year ended December 31, 2003, and three largest suppliers accounted for 73% of 2003 purchases. The Company's ability to succeed during the past year was 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. 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 SG&A. 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. Critical Accounting Policies The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted 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. The Company has not adopted any significant new accounting policies during the period ended December 31, 2003. 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. Allowance for Doubtful Accounts As of December 31, 2003, the Company had $25,914,000 in trade receivables. Additionally, the Company had recorded an allowance for doubtful accounts of $191,000. 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 12 majority but not all of its customers. In general, this policy has a 10% co-insurance. Changes in economic conditions could have an impact on the collection of existing receivable balances or future allowance considerations. Accruals for Inventory Claims 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. Comparison of Fiscal Years Ended December 31, 2003 and 2002 (in thousands) Net sales increased $26,000 or 16% during 2003, due to expanded shipments from the Company's existing supplier base. The Company's ability to increase its supply was the main factor for its success in 2003. The ability to obtain additional product from its suppliers is the main factor for its growth in 2003 and is the primary reason for the increase in sales. The Company successfully placed increased volumes primarily within its existing customer base. The Company's top ten customers represented 36% of sales in 2003 as compared to 35% in 2002. Prices of aluminum for most of 2003 were essentially flat. The Company's net income grew during this same period by 50%. The Company through long term planning and use of technology did not have to increase SG&A by the same percentage as its sales increased to serve its customers. This strategy, while allowing for growth, also exposes the Company to customer concentration risks. The Company benefited from the low interest rate environment. Should the interest rate environment change, the results of the Company could be adversely affected. The Company's inventory increased by $14,216 for the year ended December 2003. The Company's increase in inventory supported its increased sales. In addition, as the Company's customers became increasingly sensitive to timely shipments the Company extended its efforts by allowing additional time to stage material in its private or public warehouses to achieve timely customer deliveries. This effort increased inventories to ensure customer satisfaction. Comparison of Fiscal Years Ended December 31, 2002 and 2001 (in thousands) Net sales increased by 10.8% from 2001 to 2002. The Company pursued additional volumes from its principal suppliers which resulted in the higher sales volume for the year. Gross profit increased by 18% during the same period. The Company expanded its value added sales program, which has contributed to the overall increase in gross margin. In addition, the Company has operated more efficiently in purchasing and managing freight costs. Selling, general and administrative expenses increased by $742 or approximately 14% as the result of increases in payroll, sales commissions, severance costs, professional fees and insurance costs. 13 Interest expense declined $986 or 49% from $2,032 to $1,046. The decrease in interest expense is due to continued decreases in the variable rate of interest on the Company's revolving line of credit. The decline is also due, in part, to the reduction in the outstanding balance on the Company's line of credit. Net income was $2,370 for 2002 as compared to $1,296 for 2001. The primary reason for the increase in net income was due to the significant reduction in interest expense. Liquidity and Capital Resources (in thousands) The Company's cash balance increased by $405 in the year ended December 31, 2003. Net cash of $7,581 was used in operating activities, while $8,167 of net cash was provided by financing activities. Increase in inventories at year end was the most significant contributor to the increased use of cash. The increase in inventories supports the Company's increased volume of shipments. The $8,167 of net cash provided by financing activities was primarily the result of borrowings under the Company's line of credit. Empire currently operates under a revolving line of credit, including a commitment to issue letters of credit, with three commercial banks. The maximum availability of this facility is $50 million. Borrowings under these lines of credit are collateralized by security interests in substantially all of Empire's assets. Under these credit agreements, Empire is required to maintain working capital and net worth ratios. These facilities expire on June 30, 2006. As of December 31, 2003, the amount outstanding under the Company's revolving lines of credit was $38.9 million (including letters of credit of approximately $4.5 million). 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. Empire may require additional debt or equity financing in connection with the future expansion of its operations. Commitments and Contingencies (in thousands)
Less than 1 Year 1-3 Years 4-5 Years After 5 years Bank Debt 34,400 - - - Operating leases 430 227 - - Letters of credit 4,500 - - -
Empire has contingent liabilities in the form of letters of credit to some of its suppliers. CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS The Company is Highly Dependent on a Few Suppliers. The Company purchased approximately 55% of its products from one supplier in 2003 and approximately 73% from its three largest suppliers. As a result, the termination or limitation 14 by one or more of the Company's largest suppliers of their relationship with the Company could have a material adverse effect on the Company's business and results of operations. In addition, the Company's loss of any one of its other suppliers (or material default by any such supplier in its obligations to the Company) due to bankruptcy, financial difficulties, expropriation, social unrest, destruction, sabotage, strikes, acquisition by a person or entity unwilling to provide products to the Company, or for any other reason, could have a material adverse effect on the Company's business. The Company is Highly Dependent on a Few Significant Customers. The Company's sales are highly concentrated to a few customers. In 2003, 36% of the Company's revenues were derived from sales to ten customers. One major customer accounted for approximately 14% of the Company's consolidated net sales for the year ended December 31, 2003. As a result, any material reduction in sales to any of these customers could have a material adverse effect on the Company's business. An Act of War or Terrorism Could Disrupt the Company's Supply of Products. The Company purchases its aluminum products exclusively from foreign suppliers. An act of war or terrorism could disrupt international shipping schedules, cause additional delays in importing the Company's products into the United States or increase the costs required to do so. The Company's Supply Sources are Subject to Substantial Risks. The Company generally purchases aluminum products from foreign suppliers. Thus, its operations could be materially and adversely affected by changes in economic, political and social conditions in the countries where the Company currently purchases or may in the future purchase such products. Among other things, changes in laws, regulations, or the interpretation thereof, or restrictions on currency conversions and exports, could negatively affect the Company's business. Although the trend in the markets in which the Company operates for its sourcing has been towards open markets and trade policies and the fostering of private economic activity, no assurance can be given that the governments will continue to pursue these policies or that such policies may not be significantly altered, especially in the event of a change in the leadership, or as a result of social or political upheaval or unforeseen circumstances affecting economic, political or social life. Consolidation of Suppliers may Materially Affect the Company's Operations. During the last several years, consolidations have been taking place among aluminum suppliers. Although the Company has in the past successfully replaced any suppliers lost as a result of industry consolidations, there can be no assurance that the Company would be able to replace the volume of production or the type of products supplied by any of its current vendors, if they were acquired or their operations terminated or were interrupted. Changing Aluminum Prices Could Impact the Company's Profit Margins. 15 The Company relies on long-term relationships with its suppliers, but generally has no long-term, fixed-price purchase contracts; it purchases at prevailing market prices at the time orders are placed, typically with discounts for quantity purchases. The aluminum industry is highly cyclical, and the prices that the Company pays for aluminum and the prices it charges will be influenced by a variety of factors outside of its control, including general economic conditions (both domestic and international), competition, production levels, import duties and other trade restrictions, and currency fluctuations. While the Company hedges metal pricing and foreign currency as it deems appropriate for a portion of its purchase and sales contracts, there exists the 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. If Suppliers Fail to Provide Products of Sufficient Quality Customer Relationships and Prices Could be Negatively Affected. The Company's relationships with its customers depend, in part, on its ability to deliver products of the quality specified by those customers. The Company obtains certifications from its suppliers as to the quality of the products being supplied. However, if the product is not of the quality certified or if a supplier fails to deliver products ordered by the Company, the Company may be forced to buy product of the specified quality from another source to fulfill the customer's order. While the Company would then be left with a claim against the supplier for any loss sustained by the Company, the Company may not be able to successfully prosecute these claims, particularly in foreign jurisdictions. The Company is Exposed to Credit Risk from its Customers. The Company does not require collateral for customer receivables. The Company has significant balances owing from customers that operate in cyclical industries and under leveraged conditions, which may impair the collectability of these receivables. The Company carries credit insurance with a 10% co-pay provision and specific limits on each customer's receivables. The Company sometimes elects to exceed these specific credit limits. The Company's failure to collect a significant portion of the amount due on its receivables directly from customers or through insurance claims (or other material default by customers) could have a material adverse effect on the Company's financial condition and results of operations. In selected instances the co-pay may be increased. Rising Interest Rates may Increase Our Borrowing Costs Our borrowings are primarily short-term Libor based loans. If interest rates rise, our cost of borrowing will increase and lower our profitability. Higher interest rates may also adversely affect some of the markets for our products, such as transportation, housing and commercial construction. Increased Tariffs Could Adversely Affect the Company's Financial Condition. During 2003, in excess of 70% of sales of the Company represented sales of aluminum products from countries that were considered developing countries whose exports were eligible for preferential tariff treatment upon import into the United States under the generalized system of preferences (GSP). There can be no assurance that any of our suppliers will continue to be 16 eligible for such preferential tariff treatment or that the generalized system of preference will be renewed after it expires on December 31, 2006. If the preferential tariff treatment of any of our suppliers that are currently eligible for such treatment becomes unavailable, then imports from such supplier may be subjected to a tariff, instead of the duty-free treatment those imports now enjoy. To the extent these increased costs could not be passed on to its customers, the Company's profit margins could be negatively affected. This could result in higher costs to us and have a material adverse effect on our business, financial condition and results of operations. Antidumping and Other Duties Could be Imposed on the Company, its Suppliers and their Products. The imposition of an antidumping or other increased duty on any products imported by the Company could have a material adverse effect on the Company's financial condition. For example, under United States' law, an antidumping duty may be imposed on any imports if two conditions are met. First, the Department of Commerce must decide that the imports are being sold in the United States at less than fair value. Second, the International Trade Commission (the "ITC") must determine that the United States' industry is materially injured or threatened with material injury by reason of the imports. The ITC's determination of injury involves a two-prong inquiry: first, whether the industry is materially injured, and second, whether the dumping, not other factors, caused the injury. The ITC is required to analyze the volume of imports, the effect of imports on United States prices for like merchandise, and the effects the imports have on United States producers of like products, taking into account many factors, including lost sales, market share, profits, productivity, return on investment, and utilization of production capacity. On October 16, 2003, Alcoa, Inc. filed a petition with the Department of Commerce ("DOC") and the International Trade Commission ("ITC") for the imposition of anti-dumping duties on imports of certain aluminum rolled plate from Hulett Aluminium Ltd, the Company's major supplier of aluminum products. The petition relates to one specific product produced by Hulett - Series 6000 Aluminum Rolled Plate. Hulett produces numerous other products that the Company presently imports. Hulett announced that it would contest the allegations, which it believes are flawed. It is expected that the investigation could take up to a year to complete. As part of the investigation, Empire Resources presented data required by the ITC; a hearing was held and the ITC voted that the investigation should continue. The second phase of the investigation is conducted by the DOC which must be completed by Hulett Aluminum. The findings from the DOC are expected in May or June of 2004. Should the DOC find that there was dumping in the United States' market, the ITC would begin an injury phase of the investigation to determine what if any tariffs should be imposed. The Company has been assured by Hulett that it will continue to ship the product, pending the results of the investigation. In the event that Hulett, in the future, ceases supply of the product and if the Company is unable to secure an alternative source of supply for the product at comparable volumes and prices, the Company's future results of operations could be adversely affected. If the Company Fails to Deliver Products on a Timely Basis, it may Suffer Losses. 17 Interruption of shipping schedules upon which the Company relies for foreign purchases could result in untimely deliveries to the Company's customers or cause the Company to purchase the products in the United States at a higher cost in order to meet delivery schedules. Consequently, the Company's profit margins could be reduced or it could suffer losses. The Company guarantees its customers that it will deliver products within the period specified in their purchase orders. Any interruption of the means of transportation used by the Company to transport products could cause delays in delivery of products, could force the Company to buy the products from domestic suppliers at a higher cost in order to fulfill its commitments, and also could result in the loss of customers. The Company Competes with Companies with Captive Sources of Supply. Many of the Company's competitors are significantly larger than the Company and many have captive sources of supply and significantly greater access to capital and other resources. Thus, if the Company's sources of supply are interrupted, its competitors could be in a position to capture the Company's customers. The Company is Dependent on its Executive Officers. The Company is highly dependent on its executive officers, the loss of any of one of which could have a significant adverse impact on the Company's business. The Company is Exposed to Increased Energy Costs. To the extent that the Company utilizes both over-the-road and ocean transportation, the imposition of any additional fuel or bunker surcharges may adversely affect the Company's results. Should the Company be unable to pass along any such changes to its customers, the Company's results would be adversely affected. ITEM 7A. 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 trading activities. 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 firmly committed purchase and sales commitments. In cases where the Company enters into fixed price contracts with its supplier and variable priced sales with its customers the Company will utilize the futures market to match the terms of the purchase and sale. 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. In situations where the Company enters into purchase or sales denominated in foreign currency the foreign exchange market will be utilized to hedge foreign exchange risk exposure. 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. 18 At December 31, 2003, net unrealized gains on the Company's foreign exchange forward contracts amounted to approximately $2,176,000 as compared to $1,067,000 at December 31, 2002 and net unrealized losses on aluminum futures contracts amounted to approximately $1,613,000 as compared to $133,000 in 2002. These unrealized amounts were offset by like amounts on the underlying commitments which were hedged, and are reflected in the accompanying 2003 and 2002 balance sheet in other current assets ($3,129,000), inventory ($563,000) and accrued expenses ($2,566,000). Unrealized amounts are reflected on the 2002 balance sheet in other current assets ($1,067,000), inventory ($133,000) and accrued expenses ($1,200,000). ITEM 8. FINANCIAL STATEMENTS Furnished at end of report commencing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the past two years, the Company has not made changes in, and has not had disagreements with its independent accountant on accounting and financial disclosures ITEM 9A. CONTROLS AND PROCEDURES As required by Rule 13a-15 under 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 last fiscal year. In designing and evaluating the Company's disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Executive Officer concluded that they believe the Company's disclosure controls and procedures are reasonably effective to ensure that information required to be disclosed by the Company in the 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 Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART III 19 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2004 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission (the "Commission") prior to April 29, 2004. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2004 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2004. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2004 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2004. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2004 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2004. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2004 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2004. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Index to Financial Statements: The consolidated financial statements of the Company and report of the Company's independent public accountants incorporated herein are included in Item 8 of this Report, as follows: 20 Report of Independent Certified Public Accountants F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Income F-3 Consolidated Statements of Changes in Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules: A statement regarding the computation of per share earnings is attached as Exhibit 11.1 Other schedules have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-X or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto. 3. Exhibits: 2.1 Agreement and Plan of Merger among the Registrant, Empire Resources Inc., Empire Resource Pacific, Ltd., Nathan Kahn and Sandra Kahn, dated as of February 22, 1999 (incorporated by reference to Exhibit 2.1 to the Registrant's Report on Form 8-K dated March 9, 1999) 3.1 Certificate of Merger of Empire Resources, Inc. into Integrated Technology USA, Inc. (incorporated by reference from the correspondingly numbered exhibit in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 3.2 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from the correspondingly numbered exhibit in the Company's Registration Statement on Form SB-2 (No. 333-9697). 3.3 Amendment No. 1 to the Amended and Restated Certificate of Incorporation (incorporated by reference from the correspondingly numbered exhibit in the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 3.4 Amended and Restated By-Laws of the Registrant (incorporated by reference from the correspondingly numbered exhibit in the Company's Registration Statement on Form SB-2 (No. 333-9697). 3.5 Amendment No. 1 to Amended and Restated By-Laws of the Registrant (incorporated by reference to the correspondingly numbered exhibit in the Company's Annual Report on Form 10-K for the year ended December 31, 2002). 3.6 Amendment No. 2 to Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated May 11, 1997). 21 10.1 Employment Agreement dated September 15, 1999 entered into by Registrant with Nathan Kahn (incorporated by reference from the correspondingly numbered exhibit in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 10.2 Amendment No. 1 to Employment Agreement and Noncompetition Agreement entered into by Registrant with Nathan Kahn (incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002). 10.3 Employment Agreement dated September 15, 1999 entered into by Registrant with Sandra Kahn (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 10.4 Employment Agreement dated September 15, 1999 entered into by Registrant with Harvey Wrubel (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 10.5 Restricted Stock Agreement dated September 15, 1999 entered into by Registrant with Harvey Wrubel (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 10.6 Third Modification and Extension of Lease for office space, dated as of the 17th of February, 2000, to the Lease between 400 Kelby Associates, as Landlord, and Registrant as Tenant (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999). 10.7 Registrant's 1996 Stock Option Plan (incorporated by reference from the Company's Registration Statement on Form SB-2 (No. 333-9697). 10.8 Form of Indemnification Agreement entered into by the Registrant with executive officers and directors (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 10.9 Credit Facility dated December 21, 2000 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 10.10 Amendment No. 1 to Credit Facility, dated July 16, 2002 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference to Exhibit 10.1 from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). 10.11 Amendment No. 2 to Credit Facility, dated May 8, 2003 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003). 22 10.12 Amendment No. 3 to Credit Facility, dated June 19, 2003 between the Registrant and The Chase Manhattan Bank, as Lead Arranger and Administrative Agent (incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003). 10.13 Agreement of Lease for warehouse facility dated September 27, 2000 between Townsend Properties, Inc. and Registrant (incorporated by reference from the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000). 11.1 Statement regarding computation of per share earnings.* 21.1 List of subsidiaries of the Registrant.* 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 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 32.2 Certification of 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. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K on November 10, 2003 relating to its third quarter results, and comments on Anti-Dumping Investigation of Hulett Aluminum Ltd. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Empire Resources, Inc. By: /s/ Nathan Kahn ------------------------------- Nathan Kahn Chief Executive Officer March 30, 2004 23 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Nathan Kahn - ----------------------------------- Nathan Kahn Chief Executive Officer and Director (Principal Executive Officer) March 30, 2004 /s/ Sandra Kahn - ----------------------------------- Sandra Kahn, Chief Financial Officer and Director (Principal Financial and Principal Accounting Officer) March 30, 2004 /s/ William Spier - ----------------------------------- William Spier, Director March 30, 2004 /s/ Jack Bendheim - ----------------------------------- Jack Bendheim, Director March 30, 2004 /s/ Barry L. Eisenberg - ----------------------------------- Barry L. Eisenberg, Director March 30, 2004 /s/ Peter G. Howard - ----------------------------------- Peter G. Howard, Director March 30, 2004 24 /s/ Nathan Mazurek - ----------------------------------- Nathan Mazurek, Director March 30, 2004 /s/ Morris J. Smith - ----------------------------------- Morris J. Smith, Director March 30, 2004 /s/ Harvey Wrubel - ----------------------------------- Harvey Wrubel, Director March 30, 2004 25 INDEPENDENT AUDITORS' REPORT Board of Directors Empire Resources, Inc. Fort Lee, New Jersey We have audited the accompanying consolidated balance sheets of Empire Resources, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Empire Resources, Inc. and subsidiaries as of December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Eisner LLP New York, New York March 5, 2004 EMPIRE RESOURCES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands except share amounts)
December 31, ----------------- 2003 2002 ----------------- ASSETS Current assets: Cash $ 1,477 $ 1,072 Trade accounts receivable (less allowance for doubtful accounts of $191 and $191 at December 31, 2003 and 2002) 25,723 24,255 Inventories 42,048 27,832 Other current assets 5,100 1,259 ------- ------- Total current assets 74,348 54,418 Furniture and equipment (less accumulated depreciation of $396 and $347) 156 24 Deferred financing costs, net 0 27 ------- ------- $74,504 $54,469 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - banks $34,400 $25,600 Trade accounts payable 16,895 13,036 Accrued expenses 7,328 2,911 Dividends Payable 762 0 ------- ------- Total current liabilities 59,386 41,547 ------- ------- Commitments and contingencies Stockholders' equity: Common stock $.01 par value, 20,000,000 shares authorized and 11,749,651 shares issued at December 31, 2003 and 2002 117 117 Additional paid-in capital 10,803 10,727 Retained earnings 6,848 4,824 Accumulated other comprehensive income-- cumulative translation adjustment 14 21 Treasury stock (2,221,400 shares and 2,307,400 shares) (2,663) (2,767) ------- ------- Total stockholders' equity 15,119 12,922 ------- ------- $74,504 $54,469 ======= =======
See notes to consolidated financial statements F-2 EMPIRE RESOURCES, INC. AND SUBSIDIARES Consolidated Statements of Income (In thousands except per share amounts)
Year Ended December 31, ------------------------------ 2003 2002 2001 ------------------------------ Net sales $184,416 $158,738 $143,235 Cost of goods sold 171,222 147,714 133,862 -------- -------- -------- Gross profit 13,194 11,024 9,373 Selling, general and administrative expenses 6,419 6,032 5,290 -------- -------- -------- Operating income 6,775 4,992 4,083 Interest expense 1,013 1,046 2,032 -------- -------- -------- Income before income taxes 5,762 3,946 2,051 Income taxes 2,218 1,576 755 -------- -------- -------- Net income $ 3,544 $ 2,370 $ 1,296 ======== ======== ======== Weighted average shares outstanding: Basic 9,466 10,049 10,956 ======== ======== ======== Diluted 9,702 10,189 11,091 ======== ======== ======== Earnings per share: Basic $.37 $.24 $.12 ======== ======== ======== Diluted $.37 $.23 $.12 ======== ======== ========
See notes to consolidated financial statements F-3 EMPIRE RESOURCES, INC. AND SUBSIDIARES Consolidated Statements of Changes in Stockholders' Equity (In thousands)
Common Stock ------------------ Additional Number of Paid-in Retained Shares Amount Capital Earnings --------- ------ ---------- -------- Balance at December 31, 2000 15,575 $155 $10,510 $1,158 Transfer of restricted shares to key employee 133 Purchase of treasury stock (534 shares) Net change in cumulative translation adjustment Retirement of common stock (3,825) (38) 38 Net income for 2001 1,296 ------- ---- ------- ------ Balance at December 31, 2001 11,750 $117 $10,681 $2,454 Transfer of restricted shares to key employee 46 Purchase of treasury stock (1,127 shares) Net change in cumulative translation adjustment Net income for 2002 2,370 ------- ---- ------- ------ Balance at December 31, 2002 11,750 $117 $10,727 $4,824 ------- ---- ------- ------ Purchase of treasury stock (10 shares) Stock options exercised 21 Tax Benefit from exercise of options 55 Net change in cumulative translation adjustment Dividends ($.16 per share) (1,520) Net income for 2003 3,544 ------- ---- ------- ------ Balance at December 31, 2003 11,750 $117 $10,803 $6,848 ------- ---- ------- ------ Acumulated Other Comprehensive Income- Cumulative Translation Total Stockholders' Total Comprehensive Adjustment Treasury Stock Equity Income ---------------------- -------------- ------------------- ------------------- Balance at December 31, 2000 $ 68 ($791) $11,100 Transfer of restricted shares to key employee 133 Purchase of treasury stock (547) (547) (534 shares) Net change in cumulative translation adjustment (38) (38) (38) Retirement of common stock Net income for 2001 1,296 1,296 ----- ------- -------- ------ Balance at December 31, 2001 $ 30 ($1,338) $11,944 $1,258 ------ Transfer of restricted shares to key employee 46 Purchase of treasury stock (1,429) (1,429) (1,127 shares) Net change in cumulative translation adjustment (9) (9) (9) Net income for 2002 2,370 2,370 ------ $2,361 ----- ------- -------- ------ Balance at December 31, 2002 $ 21 ($2,767) $12,922 ----- ------- -------- Purchase of treasury stock (10 shares) (14) (14) Stock options exercised 118 139 Tax Benefit from exercise of options 55 Net change in cumulative translation adjustment (7) (7) (7) Dividends ($.16 per share) (1,520) Net income for 2003 3,544 3,544 $3,439 ----- ------- -------- ------ Balance at December 31, 2003 $ 14 ($2,663) $15,119 ----- ------- --------
See notes to consolidated financial statements F-4 EMPIRE RESOURCES, INC. AND SUBSIDIARES Consolidated Statements of Cash Flows (In thousands)
Year Ended December 31, ----------------------------- 2003 2002 2001 -------- ------- -------- Cash flows from operating activities: Net income $ 3,544 $ 2,370 $ 1,296 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 76 89 84 Deferred income taxes (27) 34 63 Translation adjustment (7) (9) (38) Transfer of restricted shares to key employee 0 46 133 Tax benefit from stock options exercised 55 0 0 Changes in: Trade accounts receivable (1,468) (1,466) 14,616 Inventories (14,216) (50) 1,139 Due from stockholders 286 Other current assets (3,814) (370) 148 Trade accounts payable 3,859 37 (5,939) Accrued expenses 4,417 1,792 49 -------- ------- -------- Net cash (used in) provided by operating activities (7,581) 2,473 11,837 -------- ------- -------- Cash flows used in investing activities: Additions to furniture and equipment (181) (19) (21) -------- ------- -------- Cash flows from financing activities: Proceeds from (repayments of) notes payable - banks 8,800 (1,100) (11,300) Dividends Paid (758) Stock options exercised 139 Cost related to financing 0 (30) Purchase of treasury stock (14) (1,429) (547) -------- ------- -------- Net cash provided by (used in) financing activities 8,167 (2,529) (11,877) -------- ------- -------- Net increase (decrease) in cash 405 (75) (61) Cash at beginning of period 1,072 1,147 1,208 -------- ------- -------- Cash at end of period $ 1,477 $ 1,072 $ 1,147 ======== ======= ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,024 $ 998 $ 2,087 Income taxes $ 2,233 $ 1,396 $ 1,033 Non Cash Financing Activities: Dividend Declared but not yet paid $ 762 $ 0 $ 0
See notes to consolidated financial statements F-5 NOTE A - BUSINESS Empire Resources, Inc ("the Company") is engaged principally in the purchase, sale and distribution of value added semi finished aluminum products to a diverse customer base located throughout North America and Australia. The Company sells its products through its own marketing and sales personnel and through its independent sales agents located in the U.S. who receive commissions on sales. The Company purchases from several suppliers located throughout the world. See B [13] NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [1] Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances have been eliminated in consolidation. [2] Revenue recognition: Revenue is recognized when title to the goods passes to the customers. [3] 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. [4] Furniture and equipment: Furniture and equipment are stated at cost. Depreciation of furniture and equipment is calculated on the straight-line method over their estimated useful lives of three to five years. [5] Deferred financing costs: Deferred financing costs include fees and costs incurred to obtain long term financing and are being amortized over the terms of the respective loans. Unamortized deferred financing costs are charged to expense when debt is retired before the maturity date. [6] Commodity futures and foreign currency hedging activities: The Company uses derivative 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 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 recognizes in the balance sheet derivative contracts at fair value, as well as changes in the fair value of the related hedges firm purchase and sales commitments attributable to the hedged risk and reflects any net gains and losses currently in earnings (See Note D). [7] Foreign currency translation: The functional currency of Empire Resources Pacific Ltd., a wholly-owned subsidiary which acts as a sales agent in Australia and New Zealand is the Australian dollar. Cumulative translation adjustments represent translation of Australian dollar amounts into U.S. dollars. [8] Income taxes: The Company follows the asset and liability approach for deferred income taxes. This method provides that deferred tax assets and liabilities are recorded, using currently enacted tax rates, based upon the difference between the tax bases of assets and liabilities and their carrying amounts for financial statement purposes. F-6 EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred tax asset valuation allowances are recorded when management does not believe that it is more likely than not that the related deferred tax assets will be realized. [9] Earnings per share: Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the year. The dilutive effect of the outstanding stock warrants and options was computed using the treasury stock method. For the years ended December 31, 2002 and 2001, diluted earnings per share did not include the effect of approximately 544,000 and 616,000 options outstanding at such dates as their effect would be anti-dilutive. [10] Stock - based compensation: At December 31, 2003, the Company had a stock option plan which is described more fully in Note F. 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." The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all awards.
Year Ended December 31, (In thousands) ------------------------ 2003 2002 2001 ------ ------ ------ Reported net income $3,544 $2,370 $1,296 Stock-based employee compensation determined under the fair value based method (7) (5) (5) ------ ------ ------ Pro forma net income $3,537 $2,365 $1,291 ====== ====== ====== Earnings per share (basic and diluted): As reported Basic $.37 $.24 $.12 Diluted $.37 $.23 $.12 Pro-forma Basic $.37 $.24 $.12 Diluted $.37 $.23 $.12
The fair value of each option grant on the date of grant is estimated using the Black-Scholes option-pricing model which included the following assumptions stated on a weighted average basis:
2003 2002 2001 ---- ---- ---- Dividend yield 4.78% 0% 0% Volatility 0.59 0.40 0.40 Risk free interest rate 2.08% 4.23% 3.87% Expected life in years 5 5 5
The weighted average fair values of options granted during the years ended December 31, 2003, 2002 and 2001 were $0.67, $0.47 and $0.40, respectively. F-7 EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) [11] Deferred stock based compensation: The expense relating to deferred stock based compensation is based on the fair market value of the stock as of the grant date and is amortized over the vesting period of three years. This resulted in amortization expense of $46,000 and $133,000 for the years ended December 31, 2002 and 2001 respectively. The amount has been fully amortized as of December 31, 2002. [12] 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. [13] Significant customers and concentration of suppliers: One major customer accounted for approximately 14% of the Company's consolidated net sales for the year ended December 31, 2003 and 11% for year ended December 31, 2002. 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 55% of total purchases during the year ended December 31, 2003 and four other suppliers accounted for 32% of total purchases. Three suppliers accounted for 75%, and 74% of total purchases during the years ended December 31, 2002 and 2001, respectively. The Company's loss of any of its three 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. On October 16, 2003, Alcoa, Inc. filed a petition with the Department of Commerce ("DOC") and the International Trade Commission ("ITC") for the imposition of anti-dumping duties on imports of certain aluminum rolled plate from Hulett, the Company's principal supplier. The petition relates to one specific product produced by Hulett - Series 6000 Aluminum Rolled Plate. Hulett produces numerous other products that the Company presently imports. Hulett announced that it will contest the allegations, which it believes are flawed. It is expected that the investigation could take up to a year to complete. The Company is unable to assess the specifics of the allegations against Hulett at this time as the key economic data has been redacted from the petition. Counsel has advised the Company that, in general, anti-dumping duties may only be assessed prospectively. According to counsel, two conditions must be met for an anti-dumping duty to be assessed. First, the DOC must decide that the product is being sold in the United States at less than fair value. Second, the ITC must determine that the United States' industry is materially injured or threatened with material injury by reason of the imports. The Company has been assured by Hulett that it will continue to ship the product, pending the results of the investigation. In the event that Hulett, in the future, ceases supply of the product and if the Company is unable to secure an alternative source of supply for the product at comparable volumes and prices, the Company's future results of operations could be adversely affected. NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of notes payable to the banks approximate fair value as of December 31, 2003 and 2002 because the interest rates on such debt approximate the market rate for the Company given the appropriate risk factors. Derivative financial instruments are carried at fair value. (See Note D) F-8 EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT As of January 1, 2001, the Company has adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting For Derivative Instruments and Hedging Activities", issued by the Financial Accounting Standards Board. SFAS No. 133 requires the Company to recognize all derivatives in the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings (fair value hedge), or recognized in other comprehensive income until the hedged item is recognized in earnings (cash flow hedge). The ineffective portion of a derivative's change in fair value, if any, is immediately recognized in earnings. The gains and losses on futures and forward positions as of January 1, 2001 offset the losses and gains at that date on the underlying firm purchase and sales commitments which they hedged, and accordingly the Company did not record a transition adjustment as of January 1, 2001, upon the adoption of SFAS No. 133. For periods prior to to January 1, 2001, gains and losses on aluminum futures contracts and on foreign exchange forward contracts were deferred and recognized in earnings as the aluminum products were sold. Accordingly, the adoption of SFAS No. 133 did not have a material effect on the Company's results of operations for the year ended December 31, 2001. At December 31, 2003, net unrealized gains on the Company's foreign exchange forward contracts amounted to approximately $2,176,000 as compared to $1,067,000 at December 31, 2002 and net unrealized losses on aluminum futures contracts amounted to approximately $1,613,000 as compared to $133,000 in 2002. These unrealized amounts, which represent the fair value of the derivative contract, were offset by like amounts for the changes in the fair value of the underlying commitments which were hedged. Such amounts are reflected in the accompanying 2003 and 2002 balance sheet in other current assets ($3,129,000), inventory ($563,000) and accrued expenses ($2,566,000) and are reflected on the 2002 balance sheet in other current assets ($1,067,000) inventory ($133,000) and accrued expenses ($1,200,000). For the years ended December 31, 2003, and 2002 and 2001, hedge ineffectiveness associated with derivatives designated as fair value hedges was insignificant, and no fair value hedges were derecognized. NOTE E - NOTES PAYABLE - BANKS The Company operates under a $50,000,000 committed credit facility with three commercial banks. This facility which was renewed on June 19, 2003, 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, Empire is required to maintain working capital and net worth ratios as defined by the loan agreement. As of December 31, 2003 and 2002 respectively, the credit utilized under this facility amounted to $38.9 million and $31.6 million (including approximately $4.5 million and $6 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. At December 31, 2003 and 2002 respectively, the interest rate charged approximated 3.1% and 3.4%, respectively. NOTE F - STOCK OPTIONS The Company's 1996 Stock Option Plan (the "1996 Plan"), as amended, provides for the granting of options to purchase not more than an aggregate of 1,129,000 shares of common stock. All officers, directors and employees of the Company and other persons who perform services for the Company are eligible to participate in the 1996 Plan. Some or all of the options may be "incentive stock options" within the meaning of the Internal Revenue Code of 1986, as amended. The 1996 Plan provides that it is to be administered by the Board of Directors, or by a committee appointed by the Board, which will be responsible for determining, subject to the provisions of the 1996 Plan, to whom the options are granted, the number of shares of common stock subject to an option, whether an option shall be incentive or non-qualified, the exercise price of each option (which, other than in the case of incentive stock options, may be less than the fair market value of the shares on the date of grant), the period during which each option may be exercised and the other terms and conditions of each option. No options may be granted under the 1996 Plan after July 29, 2006. F-9 EMPIRE RESOURCES, INC. AND SUBSIDIARES NOTE F - STOCK OPTIONS (CONTINUED) The following is a summary of stock option activity for the years ended December 31, 2003, 2002 and 2001:
Number Exercise price Weighted Average of shares per share Exercise Price --------- -------------- ---------------- Options outstanding at December 31, 2000 1,307,712 $0.01-$6.00 $2.96 Options granted 18,000 $0.98 $0.98 Options forfeited (574,779) $1.64-$6.00 $4.99 --------- Options outstanding at December 31, 2001 750,933 $0.01-$2.00 $1.36 Options granted 18,000 $1.13 $1.13 Options forfeited (85,000) $1.37-$1.50 $1.49 --------- Options outstanding at December 31, 2002 683,933 $.01-$2.00 $1.33 Options granted 18,000 $1.87 $1.87 Options exercised (96,000) $0.98-$1.87 $1.44 Options forfeited (50,000) $1.63 $0.81 --------- Options outstanding at December 31, 2003 555,933 $.01-$2.00 $1.30 ========= Options exercisable at December 31, 2003 555,933 $.01-$2.00 $1.30 ========= Options available for grant under 1996 Plan at December 31, 2003 577,000 =========
At December 31, 2003, the weighted average years remaining for outstanding and exercisable options is 4.5 years. NOTE G - COMMON STOCK [1] Stock repurchase plan: In November 1999, the Board of Directors authorized the Company to repurchase up to one million shares of its common stock at prices not to exceed $1.50 per share. In December 2000, the number of shares authorized for repurchase was increased to 1.5 million. In June 2002, the Board of Directors increased the number of shares authorized to a total of 2,500,000. As of December 31, 2003, the Company had repurchased a total of 2,267,400 shares under the repurchase program for an aggregate cost of $2,731,049. [2] Retirement of contingent shares issued to Empire stockholders: In connection with a merger of the Company in 1999, 3,824,511 of the Company's shares were deposited into escrow subject to an earn-out formula dependant on the Company achieving a minimum cumulative after-tax net income (subject to certain adjustments) of $4.4 million during the two-year period commencing April 1, 1999 and ending March 31, 2001. No shares were released from escrow in accordance with this formula and all of the 3,824,511 shares placed in escrow were retired on June 13, 2001. F-10 EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE H - INCOME TAXES Income tax expense (benefit) consists of the following:
Year Ended December 31, ---------------------------------- 2003 2002 2001 ---------- ---------- -------- Current $2,245,000 $1,542,000 $692,000 Deferred $ (27,000) 34,000 63,000 ---------- ---------- -------- $2,218,000 $1,576,000 $755,000 ========== ========== ========
The U.S. statutory rate of 34% can be reconciled to the effective tax rate as follows:
Year Ended December 31, ---------------------------------- 2003 2002 2001 ---------- ---------- -------- Provision for taxes at statutory rate $1,959,000 $1,342,000 $697,000 State and local taxes, net of federal tax benefit $ 265,000 154,000 58,000 Permanent differences and other (6,000) 80,000 ---------- ---------- -------- $2,218,000 $1,576,000 $755,000 ========== ========== ========
No valuation allowance has been provided for U.S. deferred tax assets of $43,000 and $16,000 at December 31, 2003 and December 31, 2002 respectively, since management is of the opinion that it is more likely than not that such assets will be realized. The major temporary difference that gives rise to the deferred tax asset at December 31, 2003 and 2002 is the allowance for doubtful accounts. In addition, deferred tax assets and liabilities of equal amounts of approximately $1,000,000 and $355,000 at December 31, 2003 and 2002, respectively related to derivative contracts and related hedged commitments. NOTE I - EMPLOYEE RETIREMENT BENEFITS Effective November 1, 1999, the Company implemented a salary reduction employee benefit plan, a qualified plan adopted to conform to Internal Revenue Code Section 401(k). Employees may contribute up to 15% of their eligible compensation, and the Company will provide a matching contribution of 50% of employee contributions limited to 2% of employee compensation. The plan covers all employees who have attained age 18, and substantially all eligible employees have elected to participate. Each employee's pre-tax contributions are immediately vested upon participation in the plan. The employees' vesting of the Company's matching contribution is based upon length of service as follows:
Years of service Vested % - ---------------- -------- 1 25% 2 50% 3 75% 4 100%
Employees who terminate prior to 100% vesting forfeit their non-vested portion of the Company's matching contribution, and those funds are used to reduce future matching contributions. Employees in active service on the effective date of the plan were granted retroactive service credit for the purpose of determining their vested percentage. Company matching contributions amounted to $28,000 in 2003, $25,000 in 2002, and $30,000 in 2001. F-11 EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE J - EARNINGS PER SHARE The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share:
Year Ended December 31, (In thousands except per share amounts) --------------------------------------- 2003 2002 2001 ------ ------- ------- Numerator: Net Income $3,544 $ 2,370 $ 1,296 Denominator: Computation of basic earnings per share: Weighted average shares outstanding - basic 9,466 10,049 10,956 Basic earnings per share $0.37 $0.24 $0.12 Computation of diluted earnings per share: Weighted average shares outstanding - basic 9,466 10,049 10,956 Potentially dilutive shares: Shares issuable upon exercise of dilutive options and warrants 236 140 135 Weighted average shares outstanding - diluted 9,702 10,189 11,091 Diluted earnings per share $0.37 $0.23 $0.12
NOTE K - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company operates in one business segment-the purchase, sale and distribution of non-ferrous metals. Sales to domestic and foreign customers were as follows:
Year Ended December 31, (In thousands) ------------------------------ 2003 2002 2001 -------- -------- -------- United States $148,108 $127,327 $113,915 Canada and Pacific Rim 36,308 31,411 29,320 -------- -------- -------- $184,416 $158,738 $143,235 ======== ======== ========
F-12 EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE L - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
2003 ---------------------------------------- March June September December 31 30 30 31 ------- ------- --------- -------- (In thousands except per share amounts) ---------------------------------------- Net sales $44,937 $46,873 $46,645 $45,961 Gross profit 3,196 3,317 3,272 3,409 Operating income 1,674 1,828 1,758 1,515 Net income 870 990 887 797 Income per common share- Basic and diluted Basic $.09 $.10 $.09 $.08 Diluted $.09 $.10 $.09 $.08 Weighted average shares outstanding Basic 9,435 9,432 9,469 9,528 Diluted 9,541 9,587 9,784 9,839
2002 ---------------------------------------- (In thousands except per share amounts) ---------------------------------------- March June September December 31 30 30 31 ------- ------- --------- -------- Net sales $40,417 $37,838 $40,567 $39,916 Gross profit 2,838 2,678 2,804 2,704 Operating income 1,460 1,289 1,343 836 Net income 734 637 658 341 Income per common share- Basic and diluted Basic $.07 $.06 $.07 $.04 Diluted $.07 $.06 $.07 $.04 Weighted average shares outstanding Basic 10,569 10,564 9,676 9,442 Diluted 10,699 10,699 9,819 9,588
NOTE M - COMMITMENTS AND CONTINGENCIES [1] Lease: The Company leases its office facilities under a lease expiring on March 31, 2005, and leases warehouse and distribution facilities under a lease expiring on October 31, 2005. The Company also leases equipment and vehicles under leases which run through November 2005. The minimum non-cancelable scheduled rentals under these leases are as follows:
Year Ending December 31, ------------ 2004 430,000 2005 227,000 -------- $657,000 ========
Rent expense for the years ended December 31, 2003, 2002, and 2001 was $452,000, $437,000 and $376,000 respectively. F-13 EMPIRE RESOURCES, INC. AND SUBSIDIARIES NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED) [2] Letters of credit: Outstanding letters of credit at December 31, 2003 amounting to $4.5 million expire from January through May of 2004. [3] Employment agreements: In July 2002, the Company entered into a new two year employment agreement with one of its executive officers. The agreement provides that the Company may terminate the agreement upon the disability of the executive or for cause (as such terms are defined in the agreement).Base salary under this agreement is being paid at a rate of $450,000 per annum. The amount may be increased, but not decreased, by the Board of Directors. The base salary provided for by this agreement is subject to possible upward annual adjustments based upon changes in a designated cost of living index. In July 2002, the Company also entered into a new employment agreement with another officer. The scheduled term of the agreement was until December 31, 2002 and was extended for a two year period. The base salary is $220,000 and is subject to possible upward annual adjustments based upon changes in a designated cost of living index. [4] Purchase commitments: Under the terms of some of its supply contracts, the Company may be required to purchase certain minimum tonnages over the term of the contracts. NOTE N -ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------------------------------------------------------- In thousands - ----------------------------------------------------------------------------------------- Additions - ----------------------------------------------------------------------------------------- Balance at Charged to Costs Charged to Deductions from Balance at End of Beginning of And Other Reserves Period Period Expenses Accounts - ----------------------------------------------------------------------------------------- 2003 $191 $191 2002 $189 $2 $191 2001 $202 $13 $189 - -----------------------------------------------------------------------------------------
F-14 EX-11 3 ex11-1.txt EXHIBIT 11.1 Exhibit 11.1 Statement re computation of per share earnings Earnings per share - basic, are based upon the Company's weighted average number of common shares outstanding.
2003 2002 2001 (In thousands - except per share data) Net Income $3,544 $ 2,370 $ 1,295 ====== ======= ======= Weighted average shares outstanding - basic 9,466 10,049 10,956 Shares issuable upon exercise of dilutive options 567 209 191 Less: shares assumed repurchased (331) (69) (56) ------ ------- ------- Weighted average shares outstanding - diluted 9,702 10,189 11,091 ====== ======= ======= Earnings per share - basic $0.37 $0.24 $0.12 Earnings per share - diluted $0.37 $0.23 $0.12
EX-21 4 ex21-1.txt EXHIBIT 21.1 EXHIBIT 21.1 List of subsidiaries Name of subsidiary Jurisdiction Empire Resources Pacific Ltd. Delaware I.T.I. Innovative Technology, Ltd. Israel CompuPrint Ltd. Israel EX-31 5 ex31-1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Nathan Kahn, certify that: 1. I have reviewed this annual report on Form 10-K of Empire Resources, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 By: /s/ Nathan Kahn ----------------------- Nathan Kahn Chief Executive Officer EX-31 6 ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002 I, Sandra Kahn, certify that: 1. I have reviewed this annual report on Form 10-K of Empire Resources, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: i. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; ii. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and iii. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): i. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and ii. any fraud whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 30, 2004 By: /s/ Sandra Kahn ----------------------- Sandra Kahn Chief Financial Officer EX-32 7 ex32.txt EXHIBIT 32 Exhibit 32 CERTIFICATIONS The undersigned officer of Empire Resources, Inc. (the "Company") hereby certifies that the Company's annual report on Form 10-K for the period ended December 31, 2004 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. Date: March 30, 2004 By: /s/ Nathan Kahn ------------------------------------- Nathan Kahn, Chief Executive Officer and President The undersigned officer of Empire Resources, Inc. (the "Company") hereby certifies that the Company's annual report on Form 10-K for the period ended December 31, 2003 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. Date: March 30, 2004 By: /s/ Sandra Kahn ------------------------------------- Sandra Kahn, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----