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Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2024
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number
0-23320
OLYMPIC STEEL, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1245650
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
22901 Millcreek Boulevard, Suite 650 44122
,
Highland Hills
,
OH
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(
216
)
292-3800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, without par value ZEUS The
NASDAQ
Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T ((s)232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer",
"accelerated filer," "smaller reporting company," and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
Rule 12b-2 of the Exchange Act). Yes
No
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of August 2, 2024
Common stock, without par value 11,132,542
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Table of Contents
Olympic Steel, Inc.
Index to Form 10-Q
Page No.
Part I. FINANCIAL INFORMATION 3
Item 1. 3
Financial Statements
Consolidated Balance Sheets - June 30, 2024 and December 31, 2023 (unaudited) 3
Consolidated Statements of Comprehensive Income - for the three and six months ended June 30, 2024 and 2023 (unaudited) 4
Consolidated Statements of Cash Flows - for the six months ended June 30, 2024 and 2023 (unaudited) 5
Supplemental Disclosures of Cash Flow Information - for the six months ended June 30, 2024 and 2023 (unaudited) 6
Consolidated Statements of Shareholders' Equity - for the three and six months ended June 30, 2024 and 2023 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. 19
Management
'
s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. 30
Quantitative and Qualitative Disclosures About Market Risk
Item 4. 31
Controls and Procedures.
Part II. OTHER INFORMATION 32
Item 5. 32
Other Information
Item 6. 33
Exhibits
SIGNATURES 34
2
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Table of Contents
Part I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Olympic Steel, Inc.
Consolidated Balance Sheets
(in thousands)
As of
June 30, 2024 December 31, 2023
(unaudited)
Assets
Cash and cash equivalents $ 9,443 $ 13,224
Accounts receivable, net 216,682 191,149
Inventories, net (includes LIFO reserves of $ 386,240 386,535
11,443
and $
12,043
as of June 30, 2024 and December 31, 2023, respectively)
Prepaid expenses and other 10,725 12,261
Total current assets 623,090 603,169
Property and equipment, at cost 495,879 483,448
Accumulated depreciation ( ) ( )
308,685 297,340
Net property and equipment 187,194 186,108
Goodwill 52,091 52,091
Intangible assets, net 90,474 92,621
Other long-term assets 19,150 16,466
Right of use assets, net 34,297 34,380
Total assets $ 1,006,296 $ 984,835
Liabilities
Accounts payable $ 119,104 $ 119,718
Accrued payroll 20,545 30,113
Other accrued liabilities 19,084 22,593
Current portion of lease liabilities 6,582 7,813
Total current liabilities 165,315 180,237
Credit facility revolver 209,186 190,198
Other long-term liabilities 23,281 20,151
Deferred income taxes 10,613 11,510
Lease liabilities 28,448 27,261
Total liabilities 436,843 429,357
Shareholders' Equity
Preferred stock - -
Common stock 137,541 136,541
Accumulated other comprehensive income - 41
Retained earnings 431,912 418,896
Total shareholders' equity 569,453 555,478
Total liabilities and shareholders' equity $ 1,006,296 $ 984,835
The accompanying notes are an integral part of these consolidated statements.
3
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Table of Contents
Olympic Steel, Inc.
Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended June 30,
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2024 2023 2024 2023
(unaudited)
Net sales $ 526,250 $ 569,268 $ 1,052,892 $ 1,142,344
Costs and expenses
Cost of materials sold (excludes items shown separately below) 406,547 441,872 814,085 894,508
Warehouse and processing 33,243 31,522 66,136 62,171
Administrative and general 29,167 31,681 59,319 64,866
Distribution 17,462 17,448 34,220 35,189
Selling 13,201 10,389 24,737 20,786
Occupancy 4,293 4,111 8,786 8,655
Depreciation 5,839 5,245 11,845 10,322
Amortization 1,388 1,228 2,716 2,352
Total costs and expenses 511,140 543,496 1,021,844 1,098,849
Operating income 15,110 25,772 31,048 43,495
Other loss, net 21 28 40 39
Income before interest and income taxes 15,089 25,744 31,008 43,456
Interest and other expense on debt 4,393 4,203 8,403 8,426
Income before income taxes 10,696 21,541 22,605 35,030
Income tax provision 3,036 6,522 6,248 10,139
Net income $ 7,660 $ 15,019 $ 16,357 $ 24,891
Loss on cash flow hedge - ( ) ( ) ( )
201 41 606
Tax effect on cash flow hedge - 50 - 151
Total comprehensive income $ 7,660 $ 14,868 $ 16,316 $ 24,436
Earnings per share:
Net income per share - basic $ 0.66 $ 1.30 $ 1.40 $ 2.15
Weighted average shares outstanding - basic 11,662 11,569 11,663 11,570
Net income per share - diluted $ 0.66 $ 1.30 $ 1.40 $ 2.15
Weighted average shares outstanding - diluted 11,662 11,572 11,663 11,572
Dividends declared per share of common stock $ 0.150 $ 0.125 $ 0.300 $ 0.250
The accompanying notes are an integral part of these consolidated statements.
4
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Table of Contents
Olympic Steel, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
(in thousands)
2024 2023
(unaudited)
Cash flows provided by (used in) operating activities:
Net income $ 16,357 $ 24,891
Adjustments to reconcile net income to net cash provided by (used in) operating activities -
Depreciation and amortization 14,611 12,674
Amortization of deferred financing fees 340 326
Loss (Gain) on disposition of property and equipment 178 ( )
87
Stock-based compensation 1,000 842
Other long-term assets ( ) 3,678
2,934
Other long-term liabilities 2,751 3,519
32,303 45,843
Changes in working capital:
Accounts receivable ( ) 2,394
25,533
Inventories 295 28,223
Prepaid expenses and other 1,586 ( )
2,866
Accounts payable 327 17,821
Change in outstanding checks ( ) 1,301
941
Accrued payroll and other accrued liabilities ( ) ( )
13,549 13,520
( ) 33,353
37,815
Net cash provided by (used in) operating activities ( ) 79,196
5,512
Cash flows used for investing activities:
Acquisition, net of cash acquired - ( )
129,476
Capital expenditures ( ) ( )
13,241 15,117
Proceeds from disposition of property and equipment 35 128
Net cash used for investing activities ( ) ( )
13,206 144,465
Cash flows from financing activities:
Credit facility revolver borrowings 329,767 418,372
Credit facility revolver repayments ( ) ( )
310,779 345,789
Principal payment under finance lease obligation ( ) ( )
603 472
Credit facility fees and expenses ( ) ( )
107 1,078
Dividends paid on common stock ( ) ( )
3,341 2,783
Net cash from financing activities 14,937 68,250
Cash and cash equivalents:
Net change ( ) 2,981
3,781
Beginning balance 13,224 12,189
Ending balance $ 9,443 $ 15,170
The accompanying notes are an integral part of these consolidated statements.
5
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Table of Contents
Olympic Steel, Inc.
Supplemental Disclosures of Cash Flow Information
For the Six Months Ended June 30,
(in thousands)
2024 2023
(unaudited)
Interest paid $ 7,691 $ 7,638
Income taxes paid $ 6,734 $ 3,816
The Company incurred a nominal amount of new financing lease obligations
during the six months ended June 30, 2024. The Company incurred $1.7 million
of new financing lease obligations during the six months ended June 30, 2023.
These non-cash transactions have been excluded from the Consolidated
Statements of Cash Flows for the six months ended June 30, 2024 and 2023.
The accompanying notes are an integral part of these consolidated statements.
6
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Table of Contents
Olympic Steel, Inc.
Consolidated Statements of Shareholders
'
Equity
(in thousands)
(unaudited)
For the Three Months Ended June 30, 2024
Accumulated
Other
Common Comprehensive Retained Total
Stock Income Earnings Equity
Balance at March 31, 2024 $ 137,063 $ - $ 425,922 $ 562,985
Net income - - 7,660 7,660
Payment of dividends on common stock ($ - - ( ) ( )
0.150 1,670 1,670
per share)
Stock-based compensation 478 - - 478
Balance at June 30, 2024 $ 137,541 $ - $ 431,912 $ 569,453
For the Six Months Ended June 30, 2024
Accumulated
Other
Common Comprehensive Retained Total
Stock Income Earnings Equity
Balance at December 31, 2023 $ 136,541 $ 41 $ 418,896 $ 555,478
Net income - - 16,357 16,357
Payment of dividends on common stock ($ - - ( ) ( )
0.300 3,341 3,341
per share)
Stock-based compensation 1,000 - - 1,000
Changes in fair value of hedges, net of tax - ( ) - ( )
41 41
Balance at June 30, 2024 $ 137,541 $ - $ 431,912 $ 569,453
For the Three Months Ended June 30, 2023
Accumulated
Other
Common Comprehensive Retained Total
Stock Income Earnings Equity
Balance at March 31, 2023 $ 135,131 $ 1,007 $ 388,413 $ 524,551
Net income - - 15,019 15,019
Payment of dividends on common stock ($ - - ( ) ( )
0.125 1,392 1,392
per share)
Stock-based compensation 435 - - 435
Changes in fair value of hedges, net of tax - ( ) - ( )
151 151
Other - - 1 1
Balance at June 30, 2023 $ 135,566 $ 856 $ 402,041 $ 538,463
For the Six Months Ended June 30, 2023
Accumulated
Other
Common Comprehensive Retained Total
Stock Income Earnings Equity
Balance at December 31, 2022 $ 134,724 $ 1,311 $ 379,933 $ 515,968
Net income - - 24,891 24,891
Payment of dividends on common stock ($ - - ( ) ( )
0.250 2,783 2,783
per share)
Stock-based compensation 842 - - 842
Changes in fair value of hedges, net of tax - ( ) - ( )
455 455
Balance at June 30, 2023 $ 135,566 $ 856 $ 402,041 $ 538,463
The accompanying notes are an integral part of these consolidated statements.
7
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Table of Contents
Olympic Steel, Inc.
Notes to Unaudited Consolidated Financial Statements
June 30, 2024
1. Basis of Presentation
:
The accompanying consolidated financial statements have been prepared from the
financial records of Olympic Steel, Inc. and its wholly-owned subsidiaries
(collectively, Olympic or the Company), without audit and reflect all normal
and recurring adjustments which are, in the opinion of management, necessary
to fairly state the results of the interim periods covered by this report.
Year-to-date results are
not
necessarily indicative of
2024
annual results and these financial statements should be read in conjunction
with the Company's Annual Report on Form
10
-K for the year ended
December 31, 2023
. All intercompany transactions and balances have been eliminated in
consolidation.
The Company operates in
three
reportable segments: specialty metals flat products, carbon flat products, and
tubular and pipe products. The specialty metals flat products segment and the
carbon flat products segment are at times consolidated and referred to as the
flat products segments. Some of the flat products segments' assets and
resources are shared by the specialty metals and carbon flat products
segments, and both segments' products are stored in the shared facilities and,
in some locations, processed on shared equipment. As such, total assets and
capital expenditures are reported in the aggregate for the flat products
segments. Due to the shared assets and resources, certain of the flat products
segment expenses are allocated between the specialty metals flat products
segment and the carbon flat products segment based upon an established
allocation methodology.
The primary focus of the specialty metals flat products segment is on the
direct sale and distribution of processed aluminum and stainless flat-rolled
sheet and coil products, flat bar products, prime tin mill products and
fabricated parts. Through acquisitions, the specialty metals flat products
segment has expanded its geographical footprint and enhanced its product
offerings in stainless steel and aluminum plate, sheet, angles, flat bar, tube
and pipe and the manufacturing and distribution of stainless steel bollards
and water treatment systems.
The primary focus of the carbon flat products segment is on the direct sale
and distribution of large volumes of processed carbon and coated flat-rolled
sheet, coil and plate products and fabricated parts. Through acquisitions, the
carbon flat products segment has expanded its product offerings to include
self-dumping hoppers and steel and stainless-steel dump inserts for pickup
truck and service truck beds. Through the acquisition of Metal-Fab, Inc.
(Metal-Fab), on
January 3, 2023
, the carbon flat products segment further expanded its product offerings to
include venting, micro air and clean air products for residential, commercial
and industrial applications.
The flat products segment acts as an intermediary between metals producers and
manufacturers that require processed metals for their operations. The flat
products segment serves customers in most metals consuming industries,
including food service and commercial appliances, manufacturers and
fabrications of transportation and material handling equipment, construction
and farm machinery, storage tanks, environmental and energy generation
equipment, automobiles, military vehicles and equipment, as well as general
and plate fabricators and metals service centers. These products are primarily
distributed through a direct sales force.
Combined, the carbon and specialty metals flat products segments have
36
strategically located processing and distribution facilities in the United
States and
one
in Monterrey, Mexico. Many of our facilities service both the carbon and the
specialty metals flat products segments, and certain assets and resources are
shared by the segments. Our geographic footprint allows us to focus on
regional customers and larger national and multi-national accounts, primarily
located throughout the midwestern, eastern and southern United States.
The primary focus of the tubular and pipe products segment is on the
distribution of metal tubing, pipe, bar, valve and fittings and the
fabrication of pressure parts supplied to various industrial markets. Through
the acquisition of Central Tube and Bar (CTB), on
October 2, 2023
, the tubular and pipe products segment further expanded its geographical
footprint and extended its value-added contract manufacturing capabilities.
The tubular and pipe products segment operates from
10
locations in the midwestern and southern United States. The tubular and pipe
products segment distributes its products primarily through a direct sales
force.
Corporate expenses are reported as a separate line item for segment reporting
purposes. Corporate expenses include the unallocated expenses related to
managing the entire Company (i.e., all
three
segments), including compensation for certain personnel, expenses related to
being a publicly traded entity such as board of directors' expenses, audit
expenses, and various other professional fees.
Impact of Recently Issued Accounting Pronouncements
In
November 2023
, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU)
No.
2023
-
07,
"Segment Reporting (Topic
280
): Improvements to Reportable Segment Disclosure". The objective of this ASU
is to enhance the disclosures a public entity provides about their reportable
segments. The ASU does
not
amend any of the existing guidance or requirements in Topic
280,
Segment Reporting. Under the ASU, public entities must disclose incremental
segment information on both an annual and interim basis. The ASU is effective
for annual periods beginning after
December 15, 2023
and interim periods beginning after
December 15, 2024
, applied retroactively. The Company does
not
anticipate this having a material impact on the Consolidated Financial
Statements.
In
December 2023
, the FASB issued ASU
No.
2023
-
09,
"Income Taxes (Topic
740
): Improvements to Income Tax Disclosures". The objective of this ASU is to
improve the information a reporting entity provides to users of financial
statements about the entity's operations and the effects of related tax risks
and tax planning on the entity's tax rate and potential future cash flows. The
ASU enhances disclosures regarding the rate reconciliation, income taxes paid
and other items. The ASU is effective for annual periods beginning after
December 15, 2024
for public business entities. The Company is
not
an early adopter of this guidance and it impacts are
not
included prospectively or retrospectively on the Consolidated Financial
Statements included in this Quarterly Report on Form
10
-Q.
8
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2. Revenue Recognition:
The Company provides metals processing, distribution and delivery of large
volumes of processed carbon, coated flat-rolled sheet, coil and plate
products, aluminum, and stainless flat-rolled products, prime tin mill
products, flat bar products, metal tubing, pipe, bar, valves, fittings,
fabricated parts, venting, micro air and clean air products. The Company's
contracts with customers are comprised of purchase orders with standard terms
and conditions. Occasionally the Company
may
also have longer-term agreements with customers. Substantially all of the
contracts with customers require the delivery of metals, which represent
single performance obligations that are satisfied at a point in time upon
transfer of control of the product to the customer.
Transfer of control is assessed based on the use of the product distributed
and rights to payment for performance under the contract terms. Transfer of
control and revenue recognition for substantially all of the Company's sales
occur upon shipment or delivery of the product, which is when title, ownership
and risk of loss pass to the customer and is based on the applicable shipping
terms. The shipping terms depend on the customer contract. An invoice for
payment is issued at time of shipment and terms are generally net
30
days. The Company has certain fabrication contracts in
one
business unit for which revenue is recognized over time as performance
obligations are achieved. This fabrication business is
not
material to the Company's consolidated results.
Within the metals industry, revenue is frequently disaggregated by products
sold. The table below disaggregates the Company's revenues by segment and
products sold.
Disaggregated Revenue by Products Sold
For the Three Months Ended June 30, 2024
Specialty
metals flat Carbon flat Tubular and
products products pipe products Total
Specialty 24.9 % - - 24.9 %
Hot Rolled - 29.4 % - 29.4 %
Tube - - 16.7 % 16.7 %
Plate - 11.9 % - 11.9 %
Coated - 12.1 % - 12.1 %
Cold Rolled - 4.3 % - 4.3 %
Other - 0.7 % - 0.7 %
Total 24.9 % 58.4 % 16.7 % 100.0 %
Disaggregated Revenue by Products Sold
For the Six Months Ended June 30, 2024
Specialty
metals flat Carbon flat Tubular and
products products pipe products Total
Specialty 24.7 % - - 24.7 %
Hot Rolled - 28.6 % - 28.6 %
Tube - - 17.5 % 17.5 %
Plate - 12.7 % - 12.7 %
Coated - 11.6 % - 11.6 %
Cold Rolled - 4.3 % - 4.3 %
Other - 0.6 % - 0.6 %
Total 24.7 % 57.8 % 17.5 % 100.0 %
Disaggregated Revenue by Products Sold
For the Three Months Ended June 30, 2023
Specialty
metals flat Carbon flat Tubular and
products products pipe products Total
Specialty 25.8 % - - 25.8 %
Hot Rolled - 30.6 % - 30.6 %
Tube - - 16.8 % 16.8 %
Plate - 12.6 % - 12.6 %
Coated - 5.6 % - 5.6 %
Cold Rolled - 4.1 % - 4.1 %
Other - 4.5 % - 4.5 %
Total 25.8 % 57.4 % 16.8 % 100.0 %
Disaggregated Revenue by Products Sold
For the Six Months Ended June 30, 2023
Specialty
metals flat Carbon flat Tubular and
products products pipe products Total
Specialty 27.4 % - - 27.4 %
Hot Rolled - 28.9 % - 28.9 %
Tube - - 16.8 % 16.8 %
Plate - 13.1 % - 13.1 %
Coated - 5.0 % - 5.0 %
Cold Rolled - 3.8 % - 3.8 %
Other - 5.0 % - 5.0 %
Total 27.4 % 55.8 % 16.8 % 100.0 %
9
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Table of Contents
3. Accounts Receivable
:
Accounts receivable are presented net of allowances for credit losses and
unissued credits of $
4.1
million and $
4.2
million as of
June 30, 2024
and
December 31, 2023
, respectively. The allowance for credit losses is maintained at a level
considered appropriate based on historical experience, specific customer
collection issues that have been identified, current market conditions and
estimates for supportable forecasts when appropriate. Estimations are based
upon a calculated percentage of accounts receivable, which remains fairly
level from year to year, and judgments about the probable effects of economic
conditions on certain customers, which can fluctuate significantly from year
to year. The Company cannot guarantee that the rate of future credit losses
will be similar to past experience. The Company considers all available
information when assessing the adequacy of its allowance for credit losses and
unissued credits.
4. Inventories:
Inventories consisted of the following:
Inventory as of
(in thousands) June 30, 2024 December 31, 2023
Unprocessed $ 274,185 $ 282,565
Processed and finished 112,055 103,970
Totals $ 386,240 $ 386,535
The Company values certain of its tubular and pipe products inventory at the
last-in,
first
-out (LIFO) method. As of
June 30, 2024
and
December 31, 2023
, approximately $
32.3
million, or
8.4
% of consolidated inventory, and $
38.2
million, or
9.9
% of consolidated inventory, respectively, was reported under the LIFO method
of accounting. The cost of the remainder of the tubular and pipe products
inventory is determined using a weighted average rolling
first
-in,
first
-out (FIFO) method.
During the
three
and
six
months ended
June 30, 2024
, the Company recorded $
1.0
million and $
0.6
million of LIFO income, respectively. During the
three
and
six
months ended
June 30, 2023
, the Company recorded $
1.0
million of LIFO income.
If the FIFO method had been in use, inventories would have been $
11.4
million higher than reported as of
June 30, 2024
and $
12.0
million higher than reported at
December 31, 2023
.
5. Goodwill and Intangible Assets:
The Company's intangible assets were recorded in connection with its
acquisitions of Metal-Fab and CTB in
2023
, Shaw Stainless & Alloy, Inc. (Shaw) in
2021
, Action Stainless & Alloys, Inc. (Action Stainless) in
2020
, EZ Dumper(R) hydraulic dump inserts (EZ Dumper) and McCullough Industries
(McCullough) in
2019,
Berlin Metals, LLC (Berlin Metals) in
2018
and Chicago Tube and Iron (CTI) in
2011.
The intangible assets were evaluated on the premise of highest and best use to
a market participant, primarily utilizing the income approach valuation
methodology.
Goodwill, by reportable unit, was as follows as of
June 30, 2024
and
December 31, 2023
, respectively. The goodwill is deductible for tax purposes.
Carbon Flat Specialty Metals Tubular and
(in thousands) Products Flat Products Pipe Products Total
Balance as of December 31, 2023 $ 34,259 $ 9,431 $ 8,401 $ 52,091
Acquisitions - - - -
Impairments - - - -
Balance as of June 30, 2024 $ 34,259 $ 9,431 $ 8,401 $ 52,091
10
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Table of Contents
Intangible assets, net, consisted of the following as of
June 30, 2024
and
December 31, 2023
, respectively:
As of June 30, 2024
Gross Carrying Accumulated Intangible
(in thousands) Amount Amortization Assets, Net
Customer relationships - subject to amortization $ 62,559 $ ( ) $ 45,803
16,756
Covenant not to compete - subject to amortization 2,339 ( ) 1,452
887
Technology and know-how - subject to amortization 7,000 ( ) 6,351
649
Trade name - not subject to amortization 36,868 - 36,868
$ 108,766 $ ( ) $ 90,474
18,292
As of December 31, 2023
Gross Carrying Accumulated Intangible
(in thousands) Amount Amortization Assets, Net
Customer relationships - subject to amortization $ 62,559 $ ( ) $ 47,475
15,084
Covenant not to compete - subject to amortization 2,339 ( ) 1,660
679
Technology and know-how - subject to amortization 7,000 ( ) 6,618
382
Trade name - not subject to amortization 36,868 - 36,868
$ 108,766 $ ( ) $ 92,621
16,145
The Company estimates that amortization expense for its intangible assets
subject to amortization will be approximately $
4.3
million
per year for the next
two
years,
$
3.8
million
the following year and then $
3.3
million and $
3.0
million, r
espectively, over the next
two
years.
6. Leases
:
The components of lease expense were as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands) 2024 2023 2024 2023
Operating lease cost $ 2,152 $ 2,114 $ 4,549 $ 4,255
Finance lease cost:
Amortization of right-of-use assets $ 308 $ 260 $ 592 $ 492
Interest on lease liabilities 43 39 80 75
Total finance lease cost $ 351 $ 299 $ 672 $ 567
Supplemental cash flow information related to leases was as follows:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands) 2024 2023 2024 2023
Cash paid for lease liabilities:
Operating cash flows from operating leases $ 2,122 $ 2,083 $ 4,509 $ 4,188
Operating cash flows from finance leases 43 39 80 75
Financing cash flows from finance leases 314 252 603 472
Total cash paid for lease liabilities $ 2,479 $ 2,374 $ 5,192 $ 4,735
11
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Table of Contents
Supplemental balance sheet information related to leases was as follows:
June 30, December 31,
(in thousands) 2024 2023
Operating Leases
Operating lease $ 53,899 $ 56,117
Operating lease accumulated amortization ( ) ( )
19,602 21,737
Operating lease right-of-use asset, net 34,297 34,380
Operating lease current liabilities 6,582 7,813
Operating lease liabilities 28,448 27,261
Total operating lease liabilities $ 35,030 $ 35,074
Finance Leases
Finance lease 6,170 5,686
Finance lease accumulated depreciation ( ) ( )
3,196 2,615
Finance lease, net 2,974 3,071
Finance lease current liabilities 1,059 1,087
Finance lease liabilities 2,028 2,106
Total finance lease liabilities $ 3,087 $ 3,193
Weighted Average Remaining Lease Term
Operating leases (in years) 6 6
Finance leases (in years) 4 4
Weighted Average Discount Rate
Operating leases 3.51 % 4.07 %
Finance leases 5.45 % 5.06 %
Maturities of lease liabilities were as follows:
Operating Finance
(in thousands) Leases Leases
Year Ending December 31,
2024 $ 4,247 $ 644
2025 7,362 1,052
2026 6,418 752
2027 5,161 538
2028 3,970 360
Thereafter 18,856 45
Total future minimum lease payments $ 46,014 $ 3,391
Less remaining imputed interest ( ) ( )
10,984 304
Total $ 35,030 $ 3,087
12
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Table of Contents
7. Debt
:
The Company's debt is comprised of the following components:
As of
June 30, December 31,
(in thousands) 2024 2023
Asset-based revolving credit facility due $ 209,186 $ 190,198
June 16, 2026
Total debt $ 209,186 $ 190,198
The Company's ABL Credit Facility is collateralized by the Company's accounts
receivable, inventory and personal property. The
$
625
million
ABL Cre
dit Facility consists of: (i) a revolving credit facility of up to $
595
million, including a $
20
million sub-limit for letters of credit, and (ii) a
first
in, last out revolving credit facility of up to $
30
million. Under the terms of the ABL Credit Facility, the Company
may,
subject to the satisfaction of certain conditions, request additional
commitments under the revolving credit facility in the aggregate principal
amount of up to $
200
million to the extent that existing or new lenders agree to provide such
additional commitments, and add real estate as collateral at the Company's
discretion. The ABL Credit Facility matures on
June 16, 2026
.
The ABL Credit Facility contains customary representations and warranties and
certain covenants that limit the ability of the Company to, among other
things: (i) incur or guarantee additional indebtedness~ (ii) pay distributions
on, redeem or repurchase capital stock or redeem or repurchase subordinated
debt~ (iii) make investments~ (iv) sell assets~ (v) enter into agreements that
restrict distributions or other payments from restricted subsidiaries to the
Company~ (vi) incur liens securing indebtedness~ (vii) consolidate, merge or
transfer all or substantially all of the Company's assets~ and (viii) engage
in transactions with affiliates. In addition, the ABL Credit Facility contains
a financial covenant which requires if any commitments or obligations are
outstanding and the Company's availability is less than the greater of $
30
million or
10.0
% of the aggregate amount of revolver commitments ($
62.5
million at
June 30, 2024
) or
10.0
% of the aggregat
e borrowing base (
$
55.9
million
at
June 30, 2024
), then the Company must maintain a ratio of Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA) minus certain capital expenditures and
cash taxes paid to fixed charges of at least
1.00
to
1.00
for the most rec
ent
twelve
fiscal month period.
As of
June 30, 2024
, the Company was in compliance with its covenants and had approximately $
344
million of availability under the ABL Credit Facility.
The Company has the option to borrow under its revolver based on the agent's
base rate plus a premium ranging
from
0.00
%
to
0.25
%
or the Secur
ed Overnight Financing Rate (SOFR) plus a premium ranging fr
om
1.25
%
to
2.75
%
.
As of
June 30, 2024
and
December 31, 2023
, $
1.4
million
and
$
1.7
million
, respect
ively, of bank financing fees were included in "Prepaid expenses and other"
and "Other long-term assets" on the accompanying Consolidated Balance Sheets.
The financing fees are being amortized over the
five
-year term of the ABL Credit Facility and are included in "Interest and other
expense on debt" on the accompanying Consolidated Statements of Comprehensive
Income.
13
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Table of Contents
8. Derivative Instruments
:
Metals swaps and embedded customer derivatives
Duri
ng
2024
and
2023
, the Co
mpany entered into nickel swaps indexed to the London Metal Exchange (LME)
price of nickel with
third
-party brokers. The nickel swaps are accounted for as derivatives for
accounting purposes. The Company entered into them to mitigate its customers'
risk of volatility in the price of metals. The outstanding nickel swaps mature
in the
third
and
fourth
quarters of
2024
. The swaps are settled with the brokers at maturity. The economic benefit or
loss arising from the changes in fair value of the swaps is contractually
passed through to the customer. The primary risk associated with the metals
swaps is the ability of customers or
third
-party brokers to honor their agreements with the Company related to
derivative instruments. If the customer or
third
-party brokers are unable to honor their agreements, the Company's risk of
loss is the fair value of the metals swaps.
These derivatives have
not
been designated as hedging instruments. The periodic changes in fair value of
the metals and embedded customer derivative instruments are included in "Cost
of materials sold" in the Consolidated Statements of Comprehensive Income. The
Company recognizes derivative positions with both the customer and the
third
party for the derivatives and classifies cash settlement amounts associated
with them as part of "Cost of materials sold" in the Consolidated Statements
of Comprehensive Income. The cumulative change in fair value of the metals
swaps that had
not
yet settled as of
June 30, 2024
, are included in "Other accrued liabilities" and the embedded customer
derivatives are included in "Accounts receivable, net" on the Consolidated
Balance Sheets as of
June 30, 2024
.
Fixed rate interest rate hedge
On
January 10, 2019
, the Company entered into a
five
-year forward starting fixed rate interest rate hedge in order to eliminate
the variability of cash interest payments on
$
75
million
of the outstanding LIBOR based borrowings under the ABL Credit Facility. On
January 3, 2023
, the Company amended the interest rate hedge agreement to use SOFR as the
reference rate and updated the fixed rate to
2.42
%
from
2.57
%
. The interest rate hedge agreement ended on
January 10, 2024
.
The table below shows the total impact to the Company's Consolidated
Statements of Comprehensive Income through net income of the derivatives for
the
three
and
six
months ended
June 30, 2024
and
2023
, respectively.
Net Gain (Loss) Recognized
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in thousands) 2024 2023 2024 2023
Fixed interest rate hedge $ - $ 485 $ 55 $ 804
Metals swaps 223 ( ) 224 ( )
500 776
Embedded customer derivatives ( ) 500 ( ) 776
223 224
Total gain $ - $ 485 $ 55 $ 804
14
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Table of Contents
9. Fair Value of Assets and Liabilities
:
During the
six
months ended
June 30, 2024
, there were
no
transfers of financial assets between Levels
1,
2
or
3
fair value measurements. There have been
no
changes in the methodologies used as of
June 30, 2024
since
December 31, 2023
.
The following table presents information about the Company's assets and
liabilities that were measured at fair value on a recurring basis and
indicates the fair value hierarchy of the valuation techniques utilized by the
Company:
Value of Items Recorded at Fair Value
As of June 30, 2024
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Metal swaps $ - $ 2,375 $ - $ 2,375
Embedded customer derivative - 98 - 98
Supplemental executive retirement plan 14,124 - - 14,124
Total assets at fair value $ 14,124 $ 2,473 $ - $ 16,597
Liabilities:
Metal swaps $ - $ 2,473 $ - $ 2,473
Total liabilities recorded at fair value $ - $ 2,473 $ - $ 2,473
Value of Items Recorded at Fair Value
As of December 31, 2023
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Metal swaps $ - $ 4,458 $ - $ 4,458
Embedded customer derivative - 766 - 766
Fixed interest rate hedge - 55 - 55
Supplemental executive retirement plan 11,617 - - 11,617
Total assets at fair value $ 11,617 $ 5,279 $ - $ 16,896
Liabilities:
Metal swaps $ - $ 5,224 $ - $ 5,224
Total liabilities at fair value $ - $ 5,224 $ - $ 5,224
The value of the items
not
recorded at fair value represent the carrying value of the liabilities.
The carrying value of the ABL Credit Fa
cility was
$
209.2
million
and
$
190.2
million
at
June 30, 2024
and
December 31, 2023
, respectively. Management believes that the ABL Credit Facility's carrying
value approximates its fair value due to the variable interest rate on the ABL
Credit Facility.
10. Accumulated Other Comprehensive Income
:
On
January 10, 2019
, the Company entered into a
five
-year forward starting fixed rate interest rate hedge in order to eliminate
the variability of cash interest payments on
$
75
million
of the outstanding LIBOR based borrowings under the ABL Credit Facility. On
January 3, 2023
, the Company amended the interest rate hedge agreement to use SOFR as the
reference rate and updated the fixed rate to
2.42
%
from
2.57
%
. The interest rate hedge agreement ended on
January 10, 2024
.
11. Equity Plans
:
Restricted Shares, Restricted Stock Units and Performance Share Units
Pursuant to the Amended and Restated Olympic Steel
2007
Omnibus Incentive Plan (the Incentive Plan), the Company
may
grant stock options, stock appreciation rights, restricted shares (RS),
restricted share units (RSU), performance shares, and other stock- and
cash-based awards to employees and directors of, and consultants to, the
Company and its affiliates. Since adoption of the Incentive Plan,
1,400,000
share
s of common stock have been authorized for equity grants. On an annual basis,
the compensation committee of the Company's Board of Directors awards RSs or
RSUs to each non-employee director as part of their annual compensation.
The annual award f
or
2024
per director was
$
110,000
of RSs.
Subject to the terms of the Incentive Plan and the RS agreement,
one
-
third
of the RSs vest on each
December
31,
2024,
December 31, 2025
and
December 31, 2026.
The grantee will
not
be entitled to vote on the RSs or receive dividends with respect to RSs until
they vest.
T
he annual award for
2023
per director was
$80,000
of RSUs. Subject to the terms of the Incentive Plan and the RSU agreement, the
2023
RSUs vest after
one
year of service (from the date of grant). The RSUs are
not
converted into shares of common stock until the director either resigns or is
terminated from the Company's Board of Directors.
15
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Table of Contents
In
January 2022
, the Company adopted a new C-Suite Long-Term Incentive Plan (the C-Suite
Plan) that operates under the Senior Manager Stock Incentive Plan. Under the
C-Suite Plan, the Chief Executive Officer, the Chief Financial Officer and the
President and Chief Operating Officer are eligible for participation. In each
calendar year, the Committee
may
award eligible participants a long-term incentive of both a RSU grant and a
performance stock units (PSU) grant. Additionally, the Committee
may
offer a long-term cash incentive (split equally between service and
performance-based portions) to supplement both the RSU and PSU grants in order
to arrive at the total long-term award target. For
2024
, the total long-term award target is $
1.1
million for the Chief Executive Officer, $
0.8
million
for t
he President and Chief Operating Officer and $
0.5
million for the Chief Financial Officer.
For
2023
,
the total
long-term award target was $
1.1
million for the Chief Executive Officer, $
0.6
million for the President and Chief Operating Officer and $
0.3
million for the Chief Financial Officer. The PSUs will vest if the return on
net assets, calculated as EBITDA divided by Average Accounts Receivable,
Inventory and Property and Equipment, exce
eds
five
perce
nt. Each RSU and service-based cash incentive vests
three
years after the grant date. Each vested RSU will convert into the right to
receive
one
share of common stock. During
2024
, a total of
17,243
RSUs and
17,243
PSUs were granted to the participants under the C-Suite Plan, and $
37,400
and $
37,400
, respectively, were granted in service-based and performance-based cash
awards. During
2023
, a total of
20,000
RSUs and
20,000
PSUs were granted to the participants under the C-Suite Plan, and $
0.3
million million and $
0.3
million million, respectively, were granted in service-based and performance-bas
ed cash awards. If the return on net assets falls below
5
percent,
no
performance-based incentive will be awarded. The maximum performance-based
award is achieved if return on net assets exceeds
ten
percent, and is capped at
150
% of the grant.
Stock-based compensation expense recognized on RSUs for the
three
and
six
months ended
June 30, 2024
and
2023
, respectively, is summarized in the following table:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands, except per share data) 2024 2023 2024 2023
RS and RSU expense before taxes $ 521 $ 435 $ 1,000 $ 842
RS and RSU expense after taxes $ 373 $ 303 $ 724 $ 598
All pre-tax charges related to RS and RSU were included in the caption
"Administrative and general" on the accompanying Consolidated Statements of
Comprehensive Income.
The following table summarizes the activity related to RS for the
three
months ended
June 30, 2024
and
2023
, respectively:
As of June 30, 2024 As of June 30, 2023
Number of Weighted Average Number of Weighted Average
Shares Granted Price Shares Granted Price
Outstanding at December 31 - $ - - $ -
Granted 10,050 65.65 - -
Outstanding at June 30 10,050 $ 65.65 - $ -
Vested at June 30 - $ - - $ -
The following table summarizes the activity related to RSU for the
six
months ended
June 30, 2024
and
2023
, respectively:
As of June 30, 2024 As of June 30, 2023
Number of Weighted Average Number of Weighted Average
Shares Granted Price Shares Granted Price
Outstanding at December 31 662,103 $ 20.28 617,518 $ 18.95
Granted 34,486 66.70 49,768 36.63
Converted into shares - - ( ) 18.78
2,610
Forfeited ( ) 16.99 ( ) 19.65
2,570 2,573
Outstanding at June 30 694,019 $ 22.60 662,103 $ 20.28
Vested at June 30 529,725 $ 20.10 436,341 $ 24.98
12. Income Taxes
:
For the
three
months ended
June 30, 2024
, the Company recorded an i
ncome tax provision of $
3.0
million
, or
28.4
%
, compared to an income tax provision of $
6.5
million
, or
30.3
%
, for the
three
months ended
June 30, 2023
. For the
six
months ended
June 30, 2024
, the Company recorded an income tax provision of $
6.2
million, or
27.6
%, compared to an income tax provision of $
10.1
million, or
28.9
%, for the
six
months ended
June 30, 2023
.
The tax provision for the interim period is determined using an estimate of
the Company's annual effective tax rate, adjusted for discrete items that are
taken into account in the relevant period. Each quarter, the Company updates
the estimate of the annual effective tax rate, and if the estimated tax rate
changes, the Company makes a cumulative adjustment.
The quarterly tax provision and the quarterly estimate of the annual effective
tax rate is subject to significant volatility due to several factors,
including variability in accurately predicting the Company's pre-tax and
taxable income and the mix of jurisdictions to which they relate, changes in
law and relative changes of expenses or losses for which tax benefits are
not
recognized. Additionally, the effective tax rate can be more or less volatile
based on the amount of pre-tax income. For example, the impact of discrete
items and non-deductible expenses on the effective tax rate is greater when
pre-tax income is lower.
16
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Table of Contents
13. Shares Outstanding and Earnings Per Share
:
Earnings per share have been calculated based on the weighted average number
of shares outstanding as set forth below:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands, except per share data) 2024 2023 2024 2023
Weighted average basic shares outstanding 11,662 11,569 11,663 11,570
Assumed exercise of stock options and issuance of stock awards - 3 - 2
Weighted average diluted shares outstanding 11,662 11,572 11,663 11,572
Net income $ 7,660 $ 15,019 $ 16,357 $ 24,891
Basic earnings per share $ 0.66 $ 1.30 $ 1.40 $ 2.15
Diluted earnings per share $ 0.66 $ 1.30 $ 1.40 $ 2.15
Unvested RSs and RSUs 164 226 164 226
14. Stock Repurchase Program
:
On
October 2, 2015
, the Company announced that its Board of Directors authorized a stock
repurchase prog
ram of up to
550,000
shares of the Company's issued and outstanding common stock, which could
include open market repurchases, negotiated block transactions, accelerated
stock repurchases or open market solicitations for shares, all or some of which
may
be effected through Rule
10b5
-
1
plans. Any of the repurchased shares are held in the Company's treasury, or
canceled and retired as the Board
may
determine from time to time. Any repurchases of common stock are subject to
the covenants contained in the ABL Credit Facility. Under the ABL Credit
Facility, the Company
may
repurchase common stock and pay dividends up to
$
15
million
in the aggregate during any trailing
twelve
months without restrictions. Purchases of common stock or dividend payments in
excess of
$15
million
in the aggregate require the Company to (i) maintain availability in excess of
20.0
%
of the aggregate revolver commitments (
$
125.0
million
at
June 30, 2024
) or (ii) to maintain availability equal to or greater than
15.0
%
of the aggregate revolver commitments (
$
93.8
million
at
June 30, 2024
) and the Company must maintain a pro-forma ratio of EBITDA minus certain
capital expenditures and cash taxes paid to fixed charges of at least
1.00
to
1.00
.
There were
no
shares repurchased during the
three
and
six
months ended
June 30, 2024
and
2023
. As of
June 30, 2024
,
360,212
shares remain authorized for repurchase under the program.
At-the-Market Equity Program
On
September 3, 2021
, the Company commenced an at-the-market (ATM) equity program under its shelf
registration statement, which allows it to sell and issue up to $
50
million in shares of its common stock from time to time. The Company entered
into an Equity Distribution Agreement on
September 3, 2021
with KeyBanc Capital Markets Inc. (KeyBanc) relating to the issuance and sale
of shares of common stock pursuant to the program. KeyBanc is
not
required to sell any specific amount of securities but will act as the
Company's sales agent using commercially reasonable efforts consistent with
its normal trading and sales practices, on mutually agreed terms between
KeyBanc and the Company. KeyBanc will be entitled to compensation for shares
sold pursuant to the program of
2.0
% of the gross proceeds of any shares of common stock sold under the Equity
Distribution Agreement.
No
shares were sold under the ATM program during the
three
and
six
months ended
June 30, 2024
and
2023
.
15. Segment Information
:
The Company follows the accounting guidance that requires the utilization of a
"management approach" to define and report the financial results of operating
segments. The management approach defines operating segments along the lines
used by the Company's chief operating decision maker (CODM) to assess
performance and make operating and resource allocation decisions. The CODM
evaluates performance and allocates resources based primarily on operating
income. The operating segments are based primarily on internal management
reporting.
The Company operates in
three
reportable segments; specialty metals flat products, carbon flat products, and
tubular and pipe products. The specialty metals flat products segment and the
carbon flat products segment are at times consolidated and referred to as the
flat products segments, as certain of the flat products segments' assets and
resources are shared by the specialty metals and carbon flat products segments
and both segments' products are stored in the shared facilities and, in some
locations, processed on shared equipment. Since the
October 2, 2023
acquisition, CTB's financial results are included in the tubular and pipe
products segment.
Corporate expenses are reported as a separate line item for segment reporting
purposes. Corporate expenses include the unallocated expenses related to
managing the entire Company (i.e., all
three
segments), including compensation for certain personnel, expenses related to
being a publicly traded entity such as board of directors' expenses, audit
expenses, and various other professional fees.
17
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Table of Contents
The following table provides financial information by segment and reconciles
the Company's operating income by segment to the consolidated income before
income taxes for the
three
and
six
months ended
June 30, 2024
and
2023
, respectively.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(in thousands) 2024 2023 2024 2023
Net sales
Specialty metals flat products $ 130,873 $ 147,000 $ 260,407 $ 313,564
Carbon flat products 307,755 326,629 608,730 636,447
Tubular and pipe products 87,622 95,639 183,755 192,333
Total net sales $ 526,250 $ 569,268 $ 1,052,892 $ 1,142,344
Depreciation and amortization
Specialty metals flat products $ 929 $ 1,023 $ 1,917 $ 2,007
Carbon flat products 4,112 3,716 8,193 7,323
Tubular and pipe products 2,168 1,716 4,416 3,309
Corporate 18 18 35 35
Total depreciation and amortization $ 7,227 $ 6,473 $ 14,561 $ 12,674
Operating income
Specialty metals flat products $ 7,849 $ 6,679 $ 11,780 $ 15,938
Carbon flat products 5,361 14,695 14,018 20,641
Tubular and pipe products 6,497 9,371 14,124 19,112
Corporate expenses ( ) ( ) ( ) ( )
4,597 4,973 8,874 12,196
Total operating income $ 15,110 $ 25,772 $ 31,048 $ 43,495
Other loss, net 21 28 40 39
Income before interest and income taxes 15,089 25,744 31,008 43,456
Interest and other expense on debt 4,393 4,203 8,403 8,426
Income before income taxes $ 10,696 $ 21,541 $ 22,605 $ 35,030
For the Six Months Ended
June 30,
(in thousands) 2024 2023
Capital expenditures
Flat products segments $ 10,159 $ 8,977
Tubular and pipe products 3,082 6,083
Corporate - 57
Total capital expenditures $ 13,241 $ 15,117
As of
June 30, December 31,
(in thousands) 2024 2023
Assets
Flat products segments $ 665,840 $ 649,744
Tubular and pipe products 339,175 333,677
Corporate 1,281 1,414
Total assets $ 1,006,296 $ 984,835
There were
no
material revenue transactions between the specialty metals products, carbon
flat products and tubular and pipe products segments.
The Company sells certain products internationally, primarily in Canada and
Mexico. International sales are immaterial to the consolidated financial
results and to the individual segments' results.
18
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Table of Contents
Item 2.
Management
'
s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and accompanying notes contained
herein and our consolidated financial statements, accompanying notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2023. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from the results discussed in the forward-looking statements.
Factors that might cause a difference include, but are not limited to, those
discussed under Item 1A (Risk Factors) in our Annual Report on Form 10-K for
the year ended December 31, 2023, and in Part II, Item 1A (Risk Factors) in
this Quarterly Report on Form 10-Q. The following section is qualified in its
entirety by the more detailed information, including our financial statements
and the notes thereto, which appear elsewhere in this Quarterly Report on Form
10-Q.
Forward-Looking Information
This Quarterly Report on Form 10-Q and other documents we file with the
Securities and Exchange Commission, or SEC, contain various forward-looking
statements that are based on current expectations, estimates, forecasts and
projections about our future performance, business, our beliefs and
management's assumptions. In addition, we, or others on our behalf, may make
forward-looking statements in press releases or written statements, or in our
communications and discussions with investors and analysts in the normal
course of business through meetings, conferences, webcasts, phone calls and
conference calls. Words such as "may," "will," "anticipate," "should,"
"intend," "expect," "believe," "estimate," "project," "plan," "potential," and
"continue," as well as the negative of these terms or similar expressions are
intended to identify forward-looking statements, which are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ materially from
those implied by such statements including, but not limited to:
risks of falling metals prices and inventory devaluation;
supply disruptions and inflationary pressures, including the availability
and rising costs of transportation, energy, logistical services and labor;
risks associated with shortages of skilled labor, increased labor costs and our ability to attract and retain qualified personnel;
supplier consolidation or addition of new capacity;
rising interest rates and their impacts on our variable interest rate debt;
risks associated with the invasion of Ukraine, including economic sanctions, and the conflicts in the Middle East,
or additional war, military conflict, or hostilities could adversely affect global metals supply and pricing;
general and global business, economic, financial and political conditions, including, but not limited to,
recessionary conditions, legislation passed under the current administration and the 2024 U.S. presidential election;
reduced production schedules, layoffs or work stoppages
by our own, our suppliers' or customers' personnel;
risks associated with supply chain disruption resulting from the imbalance of metal supply and end-user demands, including
additional shutdowns as a result of infectious disease outbreaks in large markets, such as China, and other factors;
our ability to successfully integrate recent acquisitions into our business and risks inherent with the acquisitions in the
achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe;
the adequacy of our existing information technology and business
system software, including duplication and security processes;
the levels of imported steel in the United States and the tariffs initiated
by the U.S. government in 2018 under Section 232 of the Trade Expansion
Act of 1962 and imposed tariffs and duties on exported steel or other products,
U.S. trade policy and its impact on the U.S. manufacturing industry;
the inflation or deflation existing within the metals industry, as well as product mix and inventory levels on hand, which can
impact our cost of materials sold as a result of the fluctuations in the last-in, first-out, or LIFO, inventory valuation;
risks associated with infectious disease outbreaks, including, but not limited to
customer closures, reduced sales and profit levels, slower payment of accounts
receivable and potential increases in uncollectible accounts receivable, falling
metals prices that could lead to lower of cost or net realizable value inventory
adjustments and the impairment of intangible and long-lived assets, negative impacts
on our liquidity position, inability to access our traditional financing sources
and increased costs associated with and less ability to access funds under our
asset-based credit facility, or ABL Credit Facility, and the capital markets;
increased customer demand
without corresponding
increase in metal supply could lead
to an inability to meet customer demand
and result in lower sales and profits;
competitive factors such as the availability, and global pricing of metals and production levels,
industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing;
customer, supplier and competitor consolidation, bankruptcy or insolvency;
the timing and outcomes of inventory lower of cost or net realizable value adjustments and LIFO income or expense;
reduced availability and productivity of our employees, increased operational
risks as a result of remote work arrangements, including the potential effects on
internal controls, as well as cybersecurity risks and increased vulnerability to
security breaches, information technology disruptions and other similar events;
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cyclicality and volatility within the metals industry;
fluctuations in the value of the U.S. dollar and the related impact on foreign
steel pricing, U.S. exports, and foreign imports to the United States;
the successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings;
risks and uncertainties associated with intangible assets, including
impairment charges related to indefinite lived intangible assets;
our ability to generate free cash flow through operations and repay debt;
the amounts, successes and our ability to continue our capital investments and strategic growth
initiatives, including acquisitions and our business information system implementations;
events or circumstances that could adversely impact the successful operation of our processing equipment and operations;
the impacts of union organizing activities and the success of union contract renewals;
changes in laws or regulations or the manner of their interpretation or enforcement could impact our
financial performance and restrict our ability to operate our business or execute our strategies;
events or circumstances that could impair or adversely impact the carrying value of any of our assets;
our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;
our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any;
our ability to sell shares of our common stock under the at-the-market equity program; and
unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and
environmental matters, including any developments that would require any increase in our costs for such contingencies.
Should one or more of these or other risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, intended, expected, believed, estimated,
projected or planned. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We
undertake no obligation to republish revised forward-looking statements to
reflect the occurrence of unanticipated events or circumstances after the date
hereof, except as otherwise required by law.
Overview
We are a leading metals service center focused on the direct sale and
value-added processing of carbon and coated sheet, plate and coil products;
stainless steel sheet, plate, bar and coil; aluminum sheet, plate and coil;
pipe, tube bar, valves and fittings, tin plate and metal-intensive end-use
products. We provide metals processing and distribution services for a wide
range of customers. We operate in three reportable segments: specialty metals
flat products, carbon flat products, and tubular and pipe products. Our
specialty metals flat products segment's focus is on the direct sale and
distribution of processed aluminum and stainless flat-rolled sheet and coil
products, flat bar products, prime tin mill products and fabricated parts.
Through acquisitions, our specialty metals flat products segment has expanded
its geographical footprint and enhanced its product offerings in stainless
steel and aluminum plate, sheet, angles, rounds, flat bar, tube and pipe and
the manufacturing and distribution of stainless steel bollards and water
treatment systems. Our carbon flat products segment's focus is on the direct
sale and distribution of large volumes of processed carbon and coated
flat-rolled sheet, coil and plate products and fabricated parts. Through
acquisitions, our carbon flat products segment has expanded its product
offerings to include self-dumping metal hoppers and steel and stainless-steel
dump inserts for pickup truck and service truck beds. Through the acquisition
of Metal-Fab, Inc., or Metal-Fab, on January 3, 2023, the carbon flat products
segment further expanded its product offerings to include venting, micro air
and clean air products for residential, commercial and industrial
applications. Our tubular and pipe products segment's focus is on the
distribution of metal tubing, pipe, bar, valves and fittings and the
fabrication of parts supplied to various industrial markets. Through the
acquisition of Central Tube and Bar, or CTB, on October 2, 2023, the tubular
and pipe products segment further expanded its geographic footprint and
extended its value-added contract manufacturing capabilities. We also perform
toll processing of customer-owned metals. We sell certain products
internationally, primarily in Canada and Mexico. International sales are
immaterial to our consolidated financial results and to the individual
segments' results.
20
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Our results of operations are affected by numerous external factors including,
but not limited to: metals pricing, demand and availability~ the availability,
and increased costs of labor~ global supply, the level of metals imported into
the United States, tariffs, and inventory held in the supply chain~ general
and global business, economic, financial, banking and political conditions~
competition~ layoffs or work stoppages by our own, our suppliers' or our
customers' personnel; fluctuations in the value of the U.S. dollar to foreign
currencies; transportation and energy costs~ pricing and availability of raw
materials used in the production of metals and customers' ability to manage
their credit line availability. The metals industry also continues to be
affected by the addition of new capacity and the global consolidation of our
suppliers, competitors and end-use customers.
Like other metals service centers, we maintain substantial inventories of
metals to accommodate the short lead times and just-in-time delivery
requirements of our customers. Accordingly, we purchase metals in an effort to
maintain our inventory at levels that we believe to be appropriate to satisfy
the anticipated needs of our customers based upon customer forecasts, historic
buying practices, supply agreements with customers and market conditions. Our
commitments to purchase metals are generally at prevailing market prices in
effect at the time we place our orders. From time to time, we have entered
into pass-through nickel swaps at the request of our customers in order to
mitigate our customers' risk of volatility in the price of metals. We have no
long-term, fixed-price metals purchase contracts. When metals prices decline,
customer demands for lower prices and our competitors' responses to those
demands could result in lower sale prices and, consequently, lower gross
profits and earnings as we use existing metals inventory. When metals prices
increase, competitive conditions will influence how much of the price increase
we can pass on to our customers. To the extent we are unable to pass on future
price increases in our raw materials to our customers, the net sales and gross
profits of our business could be adversely affected.
At June 30, 2024, we employed approximately 2,188 people. Approximately 245
of the hourly plant personnel at the facilities listed below are represented
by seven separate collective bargaining units. The table below shows the
expiration dates of the collective bargaining agreements.
Facility Expiration date
Hammond, Indiana November 30, 2024
Locust, North Carolina March 4, 2025
St. Paul, Minnesota May 25, 2025
Romeoville, Illinois May 31, 2025
Minneapolis (coil), Minnesota September 30, 2025
Indianapolis, Indiana January 29, 2026
Minneapolis (plate), Minnesota March 31, 2027
We have never experienced a work stoppage and we believe that our relationship
with employees is good. However, any prolonged work stoppages by our personnel
represented by collective bargaining units could have a material adverse
impact on our business, financial condition, results of operations and cash
flows.
Reportable Segments
We operate in three reportable segments: specialty metals flat products,
carbon flat products and tubular and pipe products. The specialty metals flat
products segment and the carbon flat products segment are at times
consolidated and referred to as the flat products segment. Some of the flat
products segments' assets and resources are shared by the specialty metals and
carbon flat products segments and both segments' products are stored in the
shared facilities and, in some locations, processed on shared equipment. As
such, total assets and capital expenditures are reported in the aggregate for
the flat products segments. Due to the shared assets and resources, certain of
the flat products segment expenses are allocated between the specialty metals
flat products segment and the carbon flat products segment based upon an
established allocation methodology.
We follow the accounting guidance that requires the utilization of a
"management approach" to define and report the financial results of operating
segments. The management approach defines operating segments along the lines
used by the chief operating decision maker, or CODM, to assess performance and
make operating and resource allocation decisions. Our CODM evaluates
performance and allocates resources based primarily on operating income. Our
operating segments are based primarily on internal management reporting.
21
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Due to the nature of the products sold in each segment, there are significant
differences in the segments' average selling price and the cost of materials
sold. The specialty metals flat products segment generally has the highest
average selling price among the three segments followed by the tubular and
pipe products segment and carbon flat products segment. Due to the nature of
the tubular and pipe products, we do not report tons sold or per ton
information. Gross profit per ton is generally higher in the specialty metals
flat products segment than the carbon flat products segment. Gross profit as a
percentage of net sales is generally higher in the tubular and pipe products
and specialty metals flat products segments than the carbon flat products
segment. Due to the differences in average selling prices, gross profit and
gross profit percentage among the segments, a change in the mix of sales could
impact total net sales, gross profit, and gross profit percentage. In
addition, certain inventory in the tubular and pipe products segment is valued
under the LIFO method. Adjustments to the LIFO inventory value are recorded to
cost of materials sold and may impact the gross margin and gross margin
percentage at the consolidated Company and tubular and pipe products segment
levels.
Specialty metals flat products
The primary focus of our specialty metals flat products segment is on the
direct sale and distribution of processed aluminum and stainless flat-rolled
sheet and coil products, flat bar products, prime tin mill products and
fabricated parts. Through acquisitions, our specialty metals flat products
segment has expanded its geographical footprint and enhanced its product
offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat
bar, tube and pipe and the manufacturing and distribution of stainless steel
bollards and water treatment systems. We act as an intermediary between metals
producers and manufacturers that require processed metals for their
operations. We serve customers in various industries, including manufacturers
of food service and commercial appliances, agriculture equipment,
transportation and automotive equipment. We distribute these products
primarily through a direct sales force.
Carbon flat products
The primary focus of our carbon flat products segment is on the direct sale
and distribution of large volumes of processed carbon and coated flat-rolled
sheet, coil and plate products and fabricated parts. Through acquisitions, our
carbon flat products segment has expanded its product offerings to include
self-dumping hoppers and steel and stainless-steel dump inserts for pickup
truck and service truck beds. Through the acquisition of Metal-Fab on January
3, 2023, the carbon flat products segment further expanded its product
offerings to include venting, micro air and clean air products for
residential, commercial and industrial applications. We act as an intermediary
between metals producers and manufacturers that require processed metals for
their operations. We serve customers in most metals consuming industries,
including manufacturers and fabricators of transportation and material
handling equipment, construction and farm machinery, storage tanks,
environmental and energy generation equipment, automobiles, military vehicles
and equipment, as well as general and plate fabricators and metals service
centers. We distribute these products primarily through a direct sales force.
Combined, the carbon and specialty metals flat products segments have 36
strategically-located processing and distribution facilities in the United
States and one in Monterrey, Mexico. Many of our facilities service both the
carbon and the specialty metals flat products segments, and certain assets and
resources are shared by the segments. Our geographic footprint allows us to
focus on regional customers and larger national and multi-national accounts,
primarily located throughout the midwestern, eastern and southern United
States.
Tubular and pipe products
The primary focus of our tubular and pipe products segment is on the
distribution of metal tubing, pipe, bar, valve and fittings and the
fabrication of pressure parts supplied to various industrial markets. Through
the acquisition of CTB on October 2, 2023, the tubular and pipe products
segment further expanded its geographic footprint and extended its value-added
contract manufacturing capabilities. The tubular and pipe products segment
operates from 10 locations in the Midwestern and Southern United States. The
tubular and pipe products segment distributes its products primarily through a
direct sales force.
Corporate expenses
Corporate expenses are reported as a separate line item for segment reporting
purposes. Corporate expenses include the unallocated expenses related to
managing the entire Company (i.e., all three segments), including compensation
for certain personnel, expenses related to being a publicly traded entity such
as board of directors' expenses, audit expenses, and various other
professional fees.
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Results of Operations
Our results of operations are impacted by the market price of metals. Metals
prices fluctuate significantly and changes to our net sales, cost of materials
sold, gross profit, cost of inventory and profitability, are all impacted by
industry metals pricing.
Index pricing on carbon steel decreased during the
second
quarter of
2024
by 10.7%, and decreased during the first six months of 2024 by 38.7%. Hot
rolled coil index prices were 23.2% lower in the second quarter of 2024
compared to the second quarter of 2023
. Metals prices in our specialty metals flat-product segment decreased during
the six months ended June 30, 2024
, primarily due to a 8.2% decrease in stainless steel surcharges
. Despite the decline in stainless steel surcharges experienced in the six
months of 2024, stainless steel surcharges increased 15.0% in the second
quarter of 2024 when compared to the first quarter of 2024. The average price
of stainless surcharges decreased 31.5% during the first six months of 2024
compared to the six three months of 2023.
Transactional or "spot" selling prices generally move in tandem with market
price changes, while fixed selling prices typically lag and reset quarterly.
Similarly, inventory costs (and, therefore, cost of materials sold) tend to
move slower than market selling price changes due to mill lead times and
inventory turnover impacting the rate of change in average cost. When average
selling prices decrease, and net sales decrease, gross profit and operating
expenses as a percentage of net sales will generally increase.
Consolidated Operations
The following table presents consolidated operating results for the periods
indicated (dollars are shown in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2024 2023 2024 2023
% of % of % of % of
net net net net
$ sales $ sales $ sales $ sales
Net $ 526,250 100.0 $ 569,268 100.0 $ 1,052,892 100.0 $ 1,142,344 100.0
sales
Cost of materials 406,547 77.3 441,872 77.6 814,085 77.3 894,508 78.3
sold (a)
Gross 119,703 22.7 127,396 22.4 238,807 22.7 247,836 21.7
profit (b)
Operating 104,593 19.9 101,624 17.9 207,759 19.7 204,341 17.9
expenses (c)
Operating 15,110 2.8 25,772 4.5 31,048 3.0 43,495 3.8
income
Other 21 0.0 28 0.0 40 0.0 39 0.0
loss, net
Interest and other 4,393 0.8 4,203 0.7 8,403 0.8 8,426 0.7
expense on debt
Income before 10,696 2.0 21,541 3.8 22,605 2.2 35,030 3.1
income taxes
Income 3,036 0.5 6,522 1.2 6,248 0.6 10,139 0.9
taxes
Net $ 7,660 1.5 $ 15,019 2.6 $ 16,357 1.6 $ 24,891 2.2
income
(a) Includes $1,000 and $600 of LIFO income, respectively, for the three and
six months ended June 30, 2024. Includes $1,000 of LIFO income for the three
and six months ended June 30, 2023.
(b) Gross profit is calculated as net sales less the cost of materials sold.
(c) Operating expenses are calculated as total costs and expenses less the
cost of materials sold.
Net sales decreased $43.0 million, or 7.6%, to $526.3 million in the second
quarter of 2024 from $569.3 million in the second quarter of 2023. Specialty
metals flat products net sales were 24.9% of total net sales in the second
quarter of 2024 compared to 25.8% of total net sales in the second quarter of
2023. Carbon flat products net sales were 58.5% of total net sales in the
second quarter of 2024 compared to 57.4% of total net sales in the second
quarter of 2023. Tubular and pipe produc
ts net sales were
16.7%
of total net sales in the
second
quarter of
2024
compared to
16.8%
of total net sales in the
second
quarter of
2023
. The decrease in net sales was due to a consolidated 10.1%
decrease in average selling prices during the
second
quarter of
2024
compared to the
second
quarter of
2023
partially offset by a 2.8%
increase in sales volume.
Net sales decreased $89.5 million, or 7.8%, to $1.1 billion in the first six
months of 2024 from $1.1 billion in the second quarter of 2023. Specialty
metals flat products net sales were 24.7% of total net sales in the first six
months of 2024 compared to 27.4% of total net sales in the first six months of
2023. Carbon flat products net sales were 57.8% of total net sales in the
first six months of 2024 compared to 55.7% of total net sales in the first six
months of 2023. Tubular and pipe produc
ts net sales were 17.5%
of total net sales in the
first six months
of
2024
compared to 16.8%
of total net sales in the
first six months
of
2023
. The decrease in net sales was due to a consolidated 9.6%
decrease in average selling prices during the
first six months
of
2024
compared to the
first six months
of
2023
partially offset by a 1.9%
increase in sales volume.
Cost of materials sold decreased $35.3 million, or 8.0%, to $406.6 million in
the second quarter of 2024 from $441.9 million in the second quarter of 2023.
Cost of materials sold decreased $80.4 million, or 9.0%, to $814.1 million in
the first six months of 2024 from $894.5 million in the first six months of
2023.
The decrease in cost of materials sold in the
second
quarter and first
six
months of
2024
is related to the decreased metals pricing discussed above in Results of
Operations.
23
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Table of Contents
As a percentage of net sales, gross profit (as defined in footnote (b) in the
table above) increased to 22.7% in the second quarter of 2024 from 22.4% in
the second quarter of 2023. As a percentage of net sales, gross profit (as
defined in footnote (b) in the table above) increased to 22.7% in the first
six months of 2024 from 21.7% in the first six months of 2023.
The increase in the gross profit as a percentage of net sales is due to the
average cost of inventory decreasing more than the average selling prices.
Operating expenses in the second quarter of 2024 increased $3.0 million, or
2.9%, to $104.6 million from $101.6 million in the second quarter of 2023. As
a percentage of net sales, operating expenses increased to 19.9% for the
second quarter of 2024 from 17.9% in the second quarter of 2023. Operating
expenses in the specialty metals flat products segment increased $0.4 million,
operating expenses in the carbon flat products segment decreased $0.5 million,
operating expenses in the tubular and pipe products segment increased $3.5
million and Corporate expenses decreased $0.4 million in the second quarter of
2024 compared to the second quarter of 2023.
The increase in operating expenses on a dollar basis was primarily
attributable to the inclusion of CTB operating expenses in 2024 partially
offset by lower variable performance-based compensation.
Operating expenses in the first six months of 2024 increased $3.4 million, or
1.7%, to $207.8 million from $204.3 million in the first six months of 2023.
As a percentage of net sales, operating expenses increased to 19.7% for the
first six months of 2024 from 17.9% in the first six months of 2023. Operating
expenses in the specialty metals flat products segment decreased $1.2 million,
operating expenses in the carbon flat products segment increased $0.8 million,
operating expenses in the tubular and pipe products segment increased $7.2
million and Corporate expenses decreased $3.3 million in the first six months
of 2024 compared to the first six months of 2023.
The increase in operating expenses on a dollar basis was primarily
attributable to the inclusion of CTB operating expenses in 2024 partially
offset by lower variable performance-based compensation and the year-over-year
absence of acquisition-related expenses.
Interest and ot
her expense on debt totaled $
4.4
million, or 0.8% of net sales, in the
second
quarter of
2024
compared to $
4.2
million, or 0.7% of net sales, in the
second
quarter of
2023
.
Interest and ot
her expense on debt totaled $8.4
million, or 0.8% of net sales, in the
first six months
of
2024
compared to $8.4
million, or 0.7% of net sales, in the
first six months
of
2023
. The decrease in the first six months of 2024 compared to the first six
months of 2023 was due to lower average borrowings partially offset by a
higher effective borrowing rate.
Our effective borrowing rate, exclusive of deferred financing fees and
commitment fees, was 7.1%
for the first
six
months of
2024
compared to 5.4%
for the first
six
months of
2023
, primarily due to the expiration of the interest rate hedge in January 2024.
In the second quarter of 2024, income before income taxes totaled $10.7
million compared to income before income taxes of $21.5 million in the second
quarter of 2023. In the first six months of 2024, income before income taxes
totaled $22.6 million compared to income before income taxes of $35.0 million
in the first six months of 2023.
An income tax provision of 28.4% was recorded for the second quarter of 2024,
compared to an income tax provision of 30.3% for the second quarter of 2023.
An income tax provision of 27.6% was recorded for the first six months of
2024, compared to an income tax provision of 28.9% for the first six months of
2023.
Our tax provision for interim periods is determined using an estimate of our
annual effective tax rate, adjusted for discrete items that are considered in
the relevant period. Each quarter, we update our estimate of the annual
effective tax rate, and if our estimated tax rate changes, we make a
cumulative adjustment.
Net income for the second quarter of 2024 totaled $7.7 million, or $ 0.66 per
basic share and diluted share, compared to net income of $15.0 million, or $
1.30 per basic and diluted share, for the second quarter of 2023. Net income
for the first six months of 2024 totaled $16.4 million, or $ 1.40 per basic
share and diluted share, compared to net income of $24.9 million, or $ 2.15
per basic and diluted share, for the first six months of 2023.
24
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Table of Contents
Segment Operations
Specialty metals flat products
The following table presents selected operating results for our specialty
metals flat products segment for the periods indicated (dollars are shown in
thousands, except for per ton information):
For the Three Months Ended June 30, For the Six Months Ended June 30,
2024 2023 2024 2023
% of net % of net % of net % of net
sales sales sales sales
Direct tons sold 30,480 28,095 59,413 59,643
Toll tons sold 1,215 616 2,185 1,584
Total tons sold 31,695 28,711 61,598 61,227
Net sales $ 130,873 100.0 $ 147,000 100.0 $ 260,407 100.0 $ 313,564 100.0
Average selling price per ton 4,129 5,120 4,228 5,121
Cost of materials sold 104,944 80.2 122,600 83.4 212,534 81.6 260,313 83.0
Gross profit (a) 25,929 19.8 24,400 16.6 47,873 18.4 53,251 17.0
Operating expenses (b) 18,080 13.8 17,721 12.1 36,093 13.9 37,313 11.9
Operating income $ 7,849 6.0 $ 6,679 4.5 $ 11,780 4.5 $ 15,938 5.1
(a) Gross profit is calculated as net sales less the cost of materials sold.
(b) Operating expenses are calculated as total costs and expenses less the
cost of materials sold.
Tons sold by our specialty metals flat products segment increased by 10.4% to
31 thousand in the second quarter of 2024 from 28 thousand in the second
quarter of 2023. Tons sold by our specialty metals flat products segment
increased 0.6% to 61 thousand in the first six months of 2024 from 61 thousand
in the first six months of 2023. The increase in tons sold was due to a shift
towards higher volume distribution services. We do not report tons sold for
our end-use products.
Net sales in our specialty metals flat products segment decreased $16.1
million, or 11.0%, to $130.9 million in the second quarter of 2024 from $147.0
million in the second quarte
r of
2023
. The decrease in sales was due to a 19.4%
decrease in average selling prices offset by a 10.4% increase in sales volume
during the
second
quarter of
2024
compared to the
second
quarter of
2023
. Average selling prices in the
second
quarter of
2024
were $4,129
per ton, compared with $5,120
per ton in the
second
quarter of
2023
.
Net sales in our specialty metals flat products segment decreased $53.2
million, or 17.0%, to $260.4 million in the first six months of 2024 from
$313.6 million in the first six months
of
2023
. The decrease in sales was due to a 17.5%
decrease in average selling prices partially offset by a 0.6% increase in
sales volume during the
first six months
of
2024
compared to the
first six months
of
2023
. Average selling prices in the
first six months
of
2024
were $4,228
per ton, compared with $5,121
per ton in the
first six months
of
2023
.
Cost of materials sold in
our specialty metals flat products segment decreased
$17.7
million, or
14.4%
, to
$104.9
million in the
second
quarter of
2024
from
$122.6
million in the
second
quarter of
2023
.
Cost of materials sold in
our specialty metals flat products segment decreased $47.8
million, or 18.4%
, to $212.5
million in the
first six months
of
2024
from $260.3
million in the
first six months
of
2023
. The decrease in cost of materials sold was due to the decreased industry
metals pricing discussed above in Results of Operations and decreased sales
volume.
As a percentage of net sales, gross profit (as defined in footnote (a) in the
table above) increased to 19.8% in the second quarter of 2024 from 16.6% in
the second quarter of 2023. As a percentage of net sales, gross profit (as
defined in footnote (a) in the table above) increased to 18.4% in the first
six months of 2024 from 17.0% in the first six months of 2023.
The increase in the gross profit as a percentage of net sales is due to the
average cost of inventory decreasing more than the average selling prices.
Operating expenses increased $0.4 million, or 2.0%, to $18.1 million in the
second quarter of 2024 from $17.7 million in the second quarter of 2023. As a
pe
rcentage of net sales, operating expenses increased to
13.8%
in the
second
quarter of
2024
compared to
12.1%
in the
second
quarter of
2023
. The increase in operating expenses on a dollar basis was primarily
attributable to increased variable operating expenses due to increased sales
volume.
Operating expenses decreased $1.2 million, or 3.3%, to $36.1 million in the
first six months of 2024 from $37.3 million in the first six months of 2023.
As a pe
rcentage of net sales, operating expenses increased to 13.9%
in the
first six months
of
2024
compared to 11.9%
in the
first six months
of
2023
. The decrease in operating expenses on a dollar basis was primarily
attributable to decreased variable performance-based incentive compensation.
Operating income in the second quarter of 2024 totaled $7.9 million, or 6.0%
of net sales, compared to $6.7 million, or 4.5% of net sales, in the second
quarter of 2023. Operating income in the first six months of 2024 totaled
$11.8 million, or 4.5% of net sales, compared to $15.9 million, or 5.1% of net
sales, in the first six months of 2023.
25
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Table of Contents
Carbon flat products
The following table presents selected operating results for our carbon flat
products segment for the periods indicated (dollars are shown in thousands,
except for per ton information):
For the Three Months Ended June 30, For the Six Months Ended June 30,
2024 2023 2024 2023
% of net % of net % of net % of net
sales sales sales sales
Direct tons sold 220,748 216,783 431,939 426,565
Toll tons sold 8,342 9,492 16,826 18,048
Total tons sold 229,090 226,275 448,765 444,613
Net sales $ 307,755 100.0 $ 326,629 100.0 $ 608,730 100.0 $ 636,447 100.0
Average selling price per ton 1,343 1,444 1,356 1,431
Cost of materials sold 243,996 79.3 253,072 77.5 479,611 78.8 501,508 78.8
Gross profit (a) 63,759 20.7 73,557 22.5 129,119 21.2 134,939 21.2
Operating expenses (b) 58,398 19.0 58,862 18.0 115,101 18.9 114,298 18.0
Operating income $ 5,361 1.7 $ 14,695 4.5 $ 14,018 2.3 $ 20,641 3.2
(a) Gross profit is calculated as net sales less the cost of materials sold.
(b) Operating expenses are calculated as total costs and expenses less the
cost of materials sold.
Tons sold by our carbon flat products segment increased 1.2% to 229 thousand
in the second quarter of 2024 from 226 thousand in the second quarter of 2023.
Tons sold by our carbon flat products segment increased 0.9% to 448 thousand
in the first six months of 2024 from 444 thousand in the first six months of
2023.
Net sales in our carbon flat products segment decreased $18.9 million, or
5.8%, to $307.8 million in the second quarter of 2024 from $326.6 million in
the second quarte
r of
2023
. The decrease in sales was attributable to a 6.9%
decrease in average selling prices in the
second
quarter of
2024
compared to the
second
quarter of
2023
, partially offset by a 1.2% increase in tons sold. Average selling prices in
the
second
quarter of
2024
decreased to $1,343
per ton, compared with $1,444
per ton in the
second
quarter o
f 2023.
Net sales in our carbon flat products segment decreased $27.7 million, or
4.4%, to $608.7 million in the first six months of 2024 from $636.5 million in
the first six months
of
2023
. The decrease in sales was attributable to a 5.2%
decrease in average selling prices in the
first six months
of
2024
compared to the
first six months
of
2023
, partially offset by a 0.9% increase in tons sold. Average selling prices in
the
first six months
of
2024
decreased to $1,356
per ton, compared with $1,431
per ton in the
first six months
o
f 2023.
Cost of materials sold decreased $9.1 million, or 3.6%, to $244.0 million in
the second quarter of 2024 from $253.1 million in the second quarter of 2023.
Cost of materials sold decreased $21.9 million, or 4.4%, to $479.6 million in
the first six months of 2024 from $501.5 million in the first six months of
2023.
The decrease was due to the decreased market price for metals discussed above
in Results of Operations partially offset by the year-over-year absence of
$2.1 million of non-recurring amortization expense of inventory step up to
fair market value adjustments made as part of the purchase price allocation
for the January 3, 2023 acquisition of Metal-Fab.
As a percentage of net sales, gross profit (as defined in footnote (a) in the
table above) decreased to 20.7% in the second quarter of 2024 compared to
22.5% in the second quarter o
f
2023
.
As a percentage of net sales, gross profit (as defined in footnote (a) in the
table above) remained flat at 21.2% in the first six months of 2024 compared
to 21.2% in the first six months o
f
2023
. The decrease in the gross profit as a percentage of net sales in the second
quarter of 2024 when compared to the second quarter of 2023 was due to average
selling prices decreasing more than the average cost of inventory.
26
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Table of Contents
Operating expenses in thesecond
quarter of
2024
decreased
$0.5
million, or
0.8%
, to
$58.4
million from
$58.9
million in the
second
quarter of
2023
. Operating expenses increased to
19.0%
of net sales in the
second
quarter of
2024
compared to
18.0%
in the
second
quarter of
2023
. The decrease in operating expenses on a dollar basis was primarily due to
lower variable performance-based incentive compensation partially offset by
increased variable operating expenses due to increases in sales volume.
Operating expenses in the first six months
of
2024
increased $0.8
million, or 0.7%
, to $115.1
million from $114.3
million in the
first six months
of
2023
. Operating expenses increased to 18.9%
of net sales in the
first six months
of
2024
compared to 18.0%
in the
first six months
of
2023
. The increase in operating expenses on a dollar basis was primarily due to
higher variable operating expenses due to increases in sales volume.
Operating income in the second quarter of 2024 totaled $5.4 million, or 1.7%
of net sales, compared to operating income of $14.7 million, or 4.5% of net
sales, in the second quarter of 2023. Operating income in the first six months
of 2024 totaled $14.0 million, or 2.3% of net sales, compared to operating
income of $20.6 million, or 3.2% of net sales, in the first six months of 2023.
Tubular and pipe products
The following table presents selected operating results for our tubular and
pipe products segment for the periods indicated (dollars are shown in
thousands):
For the Three Months Ended June 30, For the Six Months Ended June 30,
2024 2023 2024 2023
% of net % of net % of net % of net
$ sales $ sales $ sales $ sales
Net sales $ 87,622 100.0 $ 95,639 100.0 $ 183,755 100.0 $ 192,333 100.0
Cost of materials sold (a) 57,607 65.7 66,200 69.2 121,940 66.4 132,687 69.0
Gross profit (b) 30,015 34.3 29,439 30.8 61,815 33.6 59,646 31.0
Operating expenses (c) 23,518 26.9 20,068 21.0 47,691 25.9 40,534 21.1
Operating income $ 6,497 7.4 $ 9,371 9.8 $ 14,124 7.7 $ 19,112 9.9
(a) Includes $1,000 and $600 of LIFO income, respectively, for the three and
six months ended June 30, 2024. Includes $1,000 of LIFO income for the three
and six months ended June 30, 2023.
(b) Gross profit is calculated as net sales less the cost of materials sold.
(c) Operating expenses are calculated as total costs and expenses less the
cost of materials sold.
Net sales decreased $8.0 million, or 8.4%, to $87.6 million in the second
quarter of 2024 from $95.6 million in the second quarter of 2023. The
decrease is a result of a 15.6% decrease in average selling prices partially
offset by a 8.5% increase in shipping volume during the second quarter of 2024
compared to the second quarter of 2023. The shipping volume increase is due to
the CTB acquisition on October 2, 2023.
Net sales decreased $8.6 million, or 4.5%, to $183.8 million in the first six
months of 2024 from $192.3 million in the first six months of 2023. The
decrease is a result of a 15.5% decrease in average selling prices partially
offset by a 13.1% increase in shipping volume due to the CTB acquisition
during the first six months of 2024 compared to the first six months of 2023.
Cost of materials sold decreased $8.6 million, or 13.0%, to $57.6 million in
the second quarter of 2024 from $66.2 million in the second quarter of 2023.
Cost of materials sold decreased $10.8 million, or 8.1%, to $121.9 million in
the first six months of 2024 from $132.7 million in the first six months of
2023. During the three and six months ended June 30, 2024, we recorded $1.0
million and $0.6 million of LIFO income, respectively.
During the three and six months ended June 30, 2023, we recorded $1.0 million
of LIFO income. The decrease in cost of materials sold was due to the
decreased industry metals pricing discussed above in Results of Operations.
As a percentage of net sales, gross profit (as defined in footnote (b) in the
table above) increased to 34.3% in the second quarter of 2024 compared to
30.8% in the second quarter of 2023. As a percentage of net sales, the LIFO
income recorded in the second quarter of 2024 increased gross profit by 1.1%.
As a percentage of net sales, gross profit (as defined in footnote (b) in the
table above) increased to 33.6% in the first six months of 2024 compared to
31.0% in the first six months of 2023. As a percentage of net sales, the LIFO
income recorded in the first six months of 2024 increased gross profit by
0.3%. The increase in gross profit as a percentage of net sales is primarily a
result of the inclusion of CTB gross profit and net sales in 2024.
Operati
ng expenses in the
second
quarter of
2024
increased
$3.5
million, or
17.2%
, to
$23.5
million from
$20.1
million in the
second
quarter of
2023
. Operating expenses increased to
26.9%
of net sales in the
second
quarter of
2024
compared to
21.0%
in the
second
quarter of
2023
.
Operati
ng expenses in the
first six months
of
2024
increased $7.2
, or 17.7%
, to $47.7
million from $40.5
million in the
first six months
of
2023
. Operating expenses increased to 25.9%
of net sales in the
first six months
of
2024
compared to 21.1%
in the
first six months
of
2023
. The increase in operating expenses on a dollar basis was primarily due to
the inclusion of CTB operating expenses, partially offset by lower variable
performance-based incentive compensation.
Operating income in the second quarter 2024 totaled $6.5 million, or 7.4% of
net sales, compared to $9.4 million or 9.8% of net sales, in the second
quarter of 2023. Operating income in the first six months 2024 totaled $14.1
million, or 7.7% of net sales, compared to $19.1 million, or 9.9% of net
sales, in the first six months of 2023.
Corporate expenses
Corporate expenses decreased $0.4 million, or 7.6%, to $4.6 million in the
second quarter of 2024 from $5.0 million in the second quarter of 2023.
Corporate expenses decreased $3.3 million, or 27.2%, to $8.9 million in the
first six month of 2024 from $12.2 million in the first six month of 2023.
Corporate expense primarily decreased due to the year-over-year absence of
acquisition-related expenses and lower variance performance-based incentive
compensation.
27
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Table of Contents
Liquidity, Capital Resources and Cash Flows
Our principal capital requirements include funding working capital needs,
purchasing, upgrading and acquiring processing equipment and facilities,
making acquisitions and paying dividends. We use cash generated from
operations and borrowings under our ABL Credit Facility to fund these
requirements.
We believe that funds available under our ABL Credit Facility, together with
funds generated from operations, will be sufficient to provide us with the
liquidity necessary to fund anticipated working capital requirements, capital
expenditure requirements, our dividend payments, and any share repurchases and
business acquisitions over at least the next 12 months and for the foreseeable
future thereafter. In the future, we may, as part of our business strategy,
acquire and dispose of assets or other companies in the same or complementary
lines of business, or enter into or exit strategic alliances and joint
ventures. Accordingly, the timing and size of our capital requirements are
subject to change as business conditions warrant and opportunities arise.
Operating Activities
For the six months ended June 30, 2024, we used $5.5 million of net cash from
operations, of which $32.3 million was generated from operating activities and
$37.8 million was used for working capital requirements. For the six months
ended June 30, 2023, we generated $79.2 million of net cash from operations,
of which $45.8 million was generated from operating activities and $33.4
million was generated from working capital.
Net cash from operating activities totaled $32.3 million during the first six
months of 2024 and was mainly comprised of net income of $16.4 million, the
non-cash depreciation and amortization addback of $15.0 million, and changes
in other long-term liabilities of $2.8 million partially offset by changes in
other long-term assets of $2.9 million. Net cash from operations totaled $45.8
million during the first six months of 2023 and was mainly comprised of net
income of $24.9 million, the non-cash depreciation and amortization addback of
$13.0 million, decreases in other long-term assets of $3.7 million and changes
in other long-term liabilities of $3.5 .
Working capital at June 30, 2024 totaled $457.8 million, a $34.8 million
increase from December 31, 2023. The increase was primarily attributable to a
$25.5 million increase in accounts receivable and a $13.6 million decrease in
accrued payroll and other accrued liabilities partially offset by a $1.6
million decrease in prepaid expense and other.
Investing Activities
Net cash used for investing activities totaled $13.2 million during the six
months ended June 30, 2024 and primarily consisted of capital expenditures.
Net cash used for investing activities totaled $144.5 million during the six
months ended June 30, 2023, and primarily consisted of $129.5 million for the
acquisition of Metal-Fab, inclusive of cash acquired of $1.7 million and $15.1
million in capital expenditures partially offset by $0.1 million in proceeds
from the disposition of property and equipment.
The capital expenditures in the first six months of 2024 and 2023 were
primarily attributable to additional processing equipment at our existing
facilities.
Financing Activities
During the first six months of 2024, $14.9 million of cash was generated from
financing activities, which primarily consisted of $19.0 million of net
borrowings under our ABL Credit Facility, offset by $3.3 million of dividends
paid, $0.6 million of principal payments under finance lease obligations and
$0.1 million of credit facility fees and expenses related to the amended ABL
Credit Facility. During the first six months ended of 2023, $68.3 million was
generated from financing activities, which primarily consisted of $72.6
million of net borrowings under our ABL Credit Facility, $2.8 million of
dividends paid, $1.1 million of credit facility fees and expenses related to
amending the ABL Credit Facility and $0.5 million of principle payments under
finance lease obligations.
Dividends paid were $3.3 million and $2.8 million for the six months ended
June 30, 2024 and June 30, 2023, respectively. In August 2024, our Board of
Directors approved a regular quarterly dividend of $0.150 per share, which
will be paid on September 16, 2024 to shareholders of record as of September
2, 2024. Regular dividend distributions in the future are subject to the
availability of cash, the $15.0 million annual limitation on cash dividends
and common stock repurchases under our ABL Credit Facility and continuing
determination by our Board of Directors that the payment of dividends remains
in the best interest of our shareholders.
28
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Table of Contents
Stock Repurchase Program
In 2015, our Board of Directors authorized a stock repurchase program of up to
550,000 shares of our issued and outstanding common stock, which could include
open market repurchases, negotiated block transactions, accelerated stock
repurchases or open market solicitations for shares, all or some of which may
be effected through Rule 10b5-1 plans. Repurchased shares will be held in our
treasury, or canceled and retired as our Board of Directors may determine from
time to time. Any repurchases of common stock are subject to the covenants
contained in the ABL Credit Facility. Under the ABL Credit Facility, we may
repurchase common stock and pay dividends up to $15.0 million in the aggregate
during any trailing twelve months without restrictions. Purchases in excess of
$15.0 million require us to (i) maintain availability in excess of 20% of the
aggregate revolver commitments ($125.0 million at June 30, 2024) or (ii) to
maintain availability equal to or greater than 15% of the aggregate revolver
commitments ($93.8 million at June 30, 2024) and we must maintain a pro forma
ratio of earnings before interest, taxes, depreciation and amortization, or
EBITDA, minus certain capital expenditures and cash taxes paid to fixed
charges of at least 1.00 to 1.00. The timing and amount of any repurchases
under the stock repurchase program will depend upon several factors, including
market and business conditions, and limitations under the ABL Credit Facility,
and repurchases may be discontinued at any time. As of June 30, 2024, 360,212
shares remain authorized for repurchase under the program.
There were no shares repurchased during 2024 or 2023.
At- the-Market Equity Program
On September 3, 2021, we commenced an at-the-market, or ATM, equity program
under our shelf registration statement, which allows us to sell and issue up
to $50 million in shares of our common stock from time to time. We entered
into an Equity Distribution Agreement on September 3, 2021 with KeyBanc
Capital Markets Inc., or KeyBanc, relating to the issuance and sale of shares
of common stock pursuant to the program. KeyBanc is not required to sell any
specific amount of securities but will act as our sales agent using
commercially reasonable efforts consistent with its normal trading and sales
practices, on mutually agreed terms between KeyBanc and us. KeyBanc will be
entitled to compensation for shares sold pursuant to the program of 2.0% of
the gross proceeds of any shares of common stock sold under the Equity
Distribution Agreement. No shares were sold under the ATM program during the
three and six months ended June 30, 2024 or June 30, 2023.
Debt Arrangements
Our ABL Credit Facility is collateralized by our accounts receivable,
inventory and personal property. The $625 million ABL Credit Facility consists
of: (i) a revolving credit facility of up to $595 million, including a $20
million sub-limit for letters of credit, and (ii) a first in, last out
revolving credit facility of up to $30 million. Under the terms of the ABL
Credit Facility we may, subject to the satisfaction of certain conditions,
request additional commitments under the revolving credit facility in the
aggregate principal amount of up to $200 million to the extent that existing
or new lenders agree to provide such additional commitments, and add real
estate as collateral at our discretion. The ABL Credit Facility matures on
June 16, 2026.
The ABL Credit Facility contains customary representations and warranties and
certain covenants that limit our ability to, among other things: (i) incur or
guarantee additional indebtedness~ (ii) pay distributions on, redeem or
repurchase capital stock or redeem or repurchase subordinated debt~ (iii) make
investments~ (iv) sell assets~ (v) enter into agreements that restrict
distributions or other payments from restricted subsidiaries to us~ (vi) incur
liens securing indebtedness~ (vii) consolidate, merge or transfer all or
substantially all of their assets~ and (viii) engage in transactions with
affiliates. In addition, the ABL Credit Facility contains a financial covenant
which requires if any commitments or obligations are outstanding and the our
availability is less than the greater of $30 million or 10.0% of the aggregate
amount of revolver commitments ($62.5 million at June 30, 2024) or 10.0% of
the aggregate borrowing base ($55.9 million at June 30, 2024), then we must
maintain a ratio of Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA) minus certain capital expenditures and cash taxes paid
to fixed charges of at least 1.00 to 1.00 for the most recent twelve fiscal
month period.
As of June 30, 2024, we were in compliance with our covenants and had
approximately $344 million of availability under the ABL Credit Facility.
We have the option to borrow under its revolver based on the agent's base rate
plus a premium ranging from 0.00% to 0.25% or the Secured Overnight Financing
Rate, or SOFR, plus a premium ranging from 1.25% to 2.75%.
As of June 30, 2024, and December 31, 2023, $1.4 million and $1.7 million,
respectively, of bank financing fees were included in "Prepaid expenses and
other" and "Other long-term assets" on the accompanying Consolidated Balance
Sheets. The financing fees are being amortized over the five-year term of the
ABL Credit Facility and are included in "Interest and other expense on debt"
on the accompanying Consolidated Statements of Comprehensive Income.
Critical Accounting Policies
This Management's Discussion and Analysis of Financial Condition and Results
of Operations is based on the consolidated financial statements included in
this Quarterly Report on Form 10-Q, which have been prepared in conformity
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. We monitor and evaluate our estimates and assumptions, based on
historical experience and various other factors that are believed to be
reasonable under the circumstances. Actual results could differ from these
estimates under different assumptions or conditions.
We review our financial reporting and disclosure practices and accounting
practices quarterly to ensure they provide accurate and transparent
information relative to the current economic and business environment. For
further information regarding the accounting policies that we believe to be
critical accounting policies that affect our more significant judgments and
estimates used in preparing our consolidated financial statements, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended
December 31, 2023.
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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Our principal raw materials are carbon, coated and stainless steel, aluminum,
pipe and tube, flat rolled coil, sheet and plate that we typically purchase
from multiple primary metals producers. The metals industry as a whole is
cyclical and, at times, pricing and availability of metals can be volatile due
to numerous factors beyond our control, including general domestic and
international economic conditions, the levels of metals imported into the
United States, labor costs, sales levels, competition, levels of inventory
held by other metals service centers, consolidation of metals producers, new
global capacity by metals producers, higher raw material costs for the
producers of metals, import duties and tariffs and currency exchange rates.
This volatility can significantly affect the availability and cost of raw
materials for us.
We, like many other metals service centers, maintain substantial inventories
of metals to accommodate the short lead times and justintime delivery
requirements of our customers. Accordingly, we purchase metals in an effort to
maintain our inventory at levels that we believe to be appropriate to satisfy
the anticipated needs of our customers based upon historic buying practices,
supply agreements with customers and market conditions. Our commitments to
purchase metals are generally at prevailing market prices in effect at the
time we place our orders. We have no longterm, fixedprice metals purchase
contracts. When metals prices increase, competitive conditions will influence
how much of the price increase we can pass on to our customers. To the extent
we are unable to pass on future price increases in our raw materials to our
customers, the net sales and profitability of our business could be adversely
affected. When metals prices decline, customer demands for lower prices and
our competitors' responses to those demands could result in lower sale prices
and, consequently, lower gross profits and inventory lower of cost or net
realizable value adjustments as we sell existing inventory. Significant or
rapid declines in metals prices or reductions in sales volumes could adversely
impact our ability to remain in compliance with certain financial covenants in
the ABL credit facility, as well as result in us incurring inventory or
intangible asset impairment charges. Changing metals prices therefore could
significantly impact our net sales, gross profits, operating income and net
income.
Rising metals prices result in higher working capital requirements for us and
our customers. Some customers may not have sufficient credit lines or
liquidity to absorb significant increases in the price of metals. While we
have generally been successful in the past in passing on producers' price
increases and surcharges to our customers, there is no guarantee that we will
be able to pass on price increases to our customers in the future. Declining
metals prices have generally adversely affected our net sales and net income,
while increasing metals prices have generally favorably affected our net sales
and net income.
Approximately 49%
and 51%
,
respectively, of our consolidated net sales during the first six months of
2024 and 2023 were directly related to industrial machinery and equipment
manufacturers and their fabricators.
Inflation generally affects us by increasing the cost of employee wages and
benefits, transportation services, energy, borrowings under our credit
facility, processing equipment, and purchased metals. General inflation,
including increases in the price of metals and increased labor and
distribution expense, did not materially effect our operations during the
second quarter of 2024, and it has not had a material effect on our financial
results during the last three years, but may have a significant impact in
future years.
We are exposed to the impact of fluctuating metals prices and interest rate
changes. During 2024 and 2023, we entered into metals swaps at the request of
customers. These derivatives have not been designated as hedging instruments.
For certain customers, we enter into contractual relationships that entitle us
to pass through the economic effect of trading positions that we take with
other third parties on our customers' behalf.
Our primary interest rate risk exposure results from variable rate debt. On
January 10, 2019, we entered into a five-year forward starting fixed rate
interest rate hedge in order to eliminate the variability of cash interest
payments on $75 million of the outstanding LIBOR based borrowings under the
ABL Credit Facility. On January 3, 2023, we amended the interest rate hedge
agreement to use SOFR as the reference rate and updated the fixed rate to
2.42% from 2.57%.
The interest rate hedge agreement ended on
January 10, 2024
.
We have the option to enter into 30- to 180-day fixed base rate SOFR loans
under the ABL Credit Facility.
30
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Table of Contents
Item 4.
Controls and Procedures
The evaluation required by Rule 13a-15(e) of the Securities Exchange Act of
1934, or the Exchange Act, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under Exchange Act) as of the end of
the period covered by this Quarterly Report on Form 10-Q has been carried out
under the supervision and with the participation of management, including our
Chief Executive Officer and Chief Financial Officer. These disclosure controls
and procedures are designed to provide reasonable assurance that information
required to be disclosed in reports that are filed with or submitted to the
SEC is: (i) accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosures and (ii) recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC.
Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of June 30, 2024, our disclosure controls and
procedures were effective.
There were no changes in our internal control over financial reporting that
occurred during the second quarter of 2024 that have materially affected, or
are reasonably likely to materially affect, our internal control over
financial reporting.
31
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Table of Contents
Part II. OTHER INFORMATION
Items 1, 1A, 2, 3 and 4 of this Part II are either inapplicable or are
answered in the negative and are omitted pursuant to the instructions to Part
II.
Item
5.
Other Information
Trading Arrangements
During the quarter ended
June 30, 2024
,
no
director or officer (as defined in Rule
16a
-
1
(f) promulgated under the Exchange Act) of the Company adopted or terminated a
"Rule
10b5
-
1
trading arrangement" or "non-Rule
10b5
-
1
trading arrangement" (as each term is defined in Item
408
of Regulation S-K).
32
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Table of Contents
Item 6.
Exhibits
Exhibit Description of Document Reference
31.1 Certification of the Principal Filed herewith
Executive Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Principal Filed herewith
Financial Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of the Principal Furnished herewith
Executive Officer pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of the Principal Furnished herewith
Financial Officer pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002.
101 The following materials from Olympic Steel's Quarterly Report on Form
10-Q for the period ended June 30, 2024, formatted in Inline XBRL
(eXtensible Business Reporting Language): (i) the Consolidated Balance
Sheets, (ii) the Consolidated Statements of Comprehensive Income
(Loss), (iii) the Consolidated Statements of Cash Flows, (iv) the
Supplemental Disclosures of Cash Flow Information, (v) the Consolidated
Statements of Shareholders' Equity, (vi) Notes to Unaudited Consolidated
Financial Statements and (vii) document and entity information.
104 Cover Pager Interactive Data
File (embedded within the
Inline XBRL document and
contained in Exhibit 101).
33
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLYMPIC STEEL, INC.
(Registrant)
Date: August 2, 2024 By: /s/ Richard T. Marabito
Richard T. Marabito
Chief Executive Officer
By: /s/ Richard A. Manson
Richard A. Manson
Chief Financial Officer
(Principal Financial and Accounting Officer)
34
Exhibit 31.1
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Richard T. Marabito, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Olympic Steel, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c. 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
d. 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 materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer 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 the registrant's
board of directors (or persons performing the equivalent functions):
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.
By:
/s/ Richard T. Marabito
Richard T. Marabito
Olympic Steel, Inc.
Chief Executive Officer
August 2, 2024
Exhibit 31.2
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Richard A. Manson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Olympic Steel, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
c. 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
d. 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 materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer 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 the registrant's
board of directors (or persons performing the equivalent functions):
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.
By:
/s/ Richard A. Manson
Richard A. Manson
Olympic Steel, Inc.
Chief Financial Officer
August 2, 2024
Exhibit 32.1
Certification of the Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Richard T. Marabito, the Chief Executive Officer of Olympic Steel, Inc.
(the "Company"), certify that to the best of my knowledge, based upon a review
of this report on Form 10-Q for the period ended
June 30, 2024
of the Company (the "Report"):
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company, as of the dates and for the periods expressed in this Report.
By:
/s/ Richard T. Marabito
Richard T. Marabito
Olympic Steel, Inc.
Chief Executive Officer
August 2, 2024
Exhibit 32.2
Certification of the Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Richard A. Manson, the Chief Financial Officer of Olympic Steel, Inc. (the
"Company"), certify that to the best of my knowledge, based upon a review of
this report on Form 10-Q for the period ended
June 30, 2024
of the Company (the "Report"):
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of the dates and for the periods expressed in this Report.
By:
/s/ Richard A. Manson
Richard A. Manson
Olympic Steel, Inc.
Chief Financial Officer
August 2, 2024
{graphic omitted}
{graphic omitted}