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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 333-26601
METALS USA, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 76-0533626
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
THREE RIVERWAY, SUITE 600
HOUSTON, TEXAS 77056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 965-0990
----------
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 [X]
Number of shares of common stock outstanding at August 15, 1997: 21,667,023
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<PAGE>
METALS USA, INC.
INDEX
PART I. - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Unaudited Pro Forma Combined Balance Sheet at June 30, 1997........... 3
Unaudited Pro Forma Combined Statements of Operations for the
three and six months ended June 30, 1996 and 1997.................... 4
Balance Sheets of Metals USA, Inc. at December 31, 1996 and
June 30, 1997........................................................ 5
Statements of Operations of Metals USA, Inc. for the three and
six months ended June 30, 1996 and 1997.............................. 6
Statements of Cash Flows of Metals USA, Inc. for the three and
six months ended June 30, 1996 and 1997.............................. 7
Condensed Notes to Financial Statements............................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 16
Item 5. Other Information.............................................. 16
Item 6. Exhibits and Reports on Form 8-K............................... 16
Signatures.............................................................. 17
2
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
June 30,
1997
---------
ASSETS
Cash ........................................................... $ 13,976
Accounts receivable ............................................ 50,717
Inventory ...................................................... 75,708
Prepaid expenses and other ..................................... 3,525
---------
Total current assets ......................................... 143,926
Property and equipment, net .................................... 27,658
Goodwill ....................................................... 82,845
Other .......................................................... 3,664
---------
$ 258,093
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ............................................... $ 31,387
Accrued liabilities ............................................ 5,018
Income taxes payable ........................................... 135
Current portion of long-term debt .............................. --
Other .......................................................... 522
---------
Total current liabilities .................................... 37,062
Long-term debt ................................................. 82,262
Deferred income taxes .......................................... 6,104
Other .......................................................... 691
---------
Total liabilities ............................................ 126,119
---------
Stockholders' equity:
Preferred stock .............................................. --
Common stock ................................................. 208
Additional paid-in capital ................................... 141,390
Retained deficit ............................................. (9,624)
---------
Total stockholders' equity ................................. 131,974
---------
$ 258,093
=========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
METALS USA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ................................. $ 113,588 $ 101,233 $ 218,971 $ 195,442
Costs and expenses:
Cost of sales ........................... 87,373 76,081 168,623 147,408
Operating and delivery .................. 12,290 11,064 23,947 21,303
Selling, general and administrative ..... 5,995 6,493 12,199 12,211
Depreciation and amortization ........... 1,446 1,390 2,936 2,770
------------ ------------ ------------ ------------
Operating income .......................... 6,484 6,205 11,266 11,750
Interest expense .......................... 1,426 1,187 2,723 2,270
Other ..................................... (21) (58) (118) (233)
------------ ------------ ------------ ------------
Income before income taxes ................ 5,079 5,076 8,661 9,713
Provisions for income taxes ............... 2,250 2,287 3,896 4,329
------------ ------------ ------------ ------------
Net income ................................ $ 2,829 $ 2,789 $ 4,765 $ 5,384
============ ============ ============ ============
Earnings per share ........................ $ 0.14 $ 0.13 $ 0.23 $ 0.26
============ ============ ============ ============
Shares used in the pro forma computation of
earnings per common share ............... 20,782,023 20,782,023 20,782,023 20,782,023
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
METALS USA, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
June 30, December 31,
1997 1996
---------- ----------
(Unaudited)
ASSETS
Cash ............................................... $ 15 $ 5
Deferred offering costs and other .................. 4,045 83
---------- ----------
$ 4,060 $ 88
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities and amounts due to stockholders $ 3,951 $ 49
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par, 5,000,000 authorized,
none issued and outstanding ................... -- --
Common stock, $.01 par, 53,122,914 shares
authorized, 3,767,914 and 4,753,414 shares
issued and outstanding at December 31, 1996
and June 30, 1997, respectively ............... 48 38
Additional paid-in capital ....................... 9,685 3,637
Retained deficit ................................. (9,624) (3,636)
---------- ----------
Total stockholders' equity .................... 109 39
---------- ----------
$ 4,060 $ 88
========== ==========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
METALS USA, INC.
STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales ............................ $ -- $ -- $ -- $ --
Selling, general and administrative
expenses ........................... 3,175 -- 5,988 --
----------- --------- ----------- ---------
Loss before income taxes ............. (3,175) -- (5,988) --
Provision for income taxes ........... -- -- -- --
----------- --------- ----------- ---------
Net loss ............................. $ (3,175) $ -- $ (5,988) $ --
=========== ========= =========== =========
Loss per common share ................ $ (.67) $ -- $ (1.26) $ --
=========== ========= =========== =========
Shares used in the pro forma
computation of loss per common share 4,753,414 -- 4,753,414 --
=========== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
METALS USA, INC.
STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS OF DOLLARS)
Six Months Ended
June 30,
------------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Net loss .......................................... $ (5,988) $ --
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Compensation expense related to issuance of
management shares ............................ 6,048 --
Other .......................................... (60) --
---------- ----------
Net cash provided by (used in)
operating activities ...................... -- --
---------- ----------
Cash flows from financing activities:
Issuance of stock ................................. 10 --
---------- ----------
Net cash provided by financing activities ... 10 --
---------- ----------
Net increase in cash ................................ 10
Cash, beginning of period ........................... 5 --
---------- ----------
Cash, end of period ................................. $ 15 $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
METALS USA, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Metals USA, Inc., a Delaware corporation, ("Metals") was founded in July
1996 to become a leading national value-added metals processor/service center to
manufacture higher-value components from processed metals and to pursue
aggressively the consolidation of the highly fragmented metals processing
industry. On July 11, 1997, Metals acquired: Texas Aluminum Industries, Inc.
("Texas Aluminum"), Interstate Steel Supply Co. ("Interstate"), Queensboro Steel
Corporation ("Queensboro"), Affiliated Metals Company ("Affiliated"), Uni-Steel,
Inc. ("Uni-Steel"), Williams Steel & Supply Co., Inc. ("Williams"), Steel
Service Systems, Inc. ("Steel Service"), and Southern Alloy of America, Inc.
("Southern Alloy"), (the "Mergers"), collectively referred to herein as the
"Founding Companies," for $27,826 cash and 10,128,609 shares of common stock.
Additionally, on the same day, Metals completed its initial public offering (the
"IPO") of 5,900,000 shares of its common stock. The Company intends to continue
to acquire through merger or purchase, similar companies to expand its national
operations. All references to the "Company" include Metals USA, Inc. and the
Founding Companies.
Metals has not conducted any revenue generating activities of its own. For
the period from inception through June 30, 1997, all of Metals' activity has
been related to the completion of the IPO and the Mergers. Metals' expenditures
from the date of inception through the completion of the IPO were advanced by
Notre Capital Ventures II, L.L.C. ("Notre"). In August 1997, Metals repaid Notre
approximately $1,310 with respect to such advances from a portion of the net
proceeds it received from the IPO.
The information contained in the following notes to the accompanying
financial statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Prospectus contained in the Registration
Statement on Form S-1 (the "Prospectus") filed by Metals with the Securities and
Exchange Commission on July 11, 1997. Certain capitalized terms used herein have
the same meaning given to them in the Prospectus.
BASIS OF PRESENTATION
The unaudited pro forma combined financial statements give effect to the
acquisitions by Metals of the Founding Companies using the purchase method of
accounting. The unaudited pro forma combined balance sheet gives effect to the
Mergers and the IPO as if they had occurred on June 30, 1997. The unaudited pro
forma combined statements of operations give effect to the Mergers and the IPO
as if they had occurred on January 1, 1996.
To the extent the former owners of the Founding Companies agreed
prospectively (from July 11, 1997) to reductions in salary, bonuses and benefits
and certain reductions in lease costs (which have been conformed to the amounts
stated in the operative lease agreements), these reductions have been reflected
in the pro forma combined statements of operations. In addition, the Company has
a $150,000 five-year revolving credit facility (the "Credit Facility") which
became available upon the closing of the IPO. Based on terms of the Credit
Facility, a reduction in interest expense has been reflected in the pro forma
combined statements of operations. Additionally, the refinancing of outstanding
indebtedness with the Credit Facility has been reflected in the pro forma
combined balance sheet. With respect to other potential cost savings, the
Company has not and cannot quantify such savings; however, it is anticipated
that a portion of such savings will be offset by costs related to additional
overhead attributable to the Company's corporate staff and by the costs
associated with being a public company. However, because these savings cannot be
accurately quantified, they have not been included in the pro forma combined
financial information of the Company.
8
<PAGE>
METALS USA, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The pro forma adjustments are based on estimates, available information and
certain assumptions which may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's combined financial position or results of operations would actually
have been if such transactions had in fact occurred on those dates and are not
necessarily representative of the Company's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance.
The interim and combined pro forma financial statements included herein are
unaudited; however, they include all adjustments of a normal recurring nature
which, in the opinion of management, are necessary to present fairly the interim
and combined pro forma financial information presented therein as of and for the
periods indicated. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the interim periods presented are not necessarily indicative of the results to
be expected for the entire year.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. LONG-TERM DEBT
The Company entered into the Credit Facility with the First National Bank of
Chicago as agent, on July 15, 1997. The Credit Facility matures on July 15,
2002, bears interest at the bank's prime rate or LIBOR, at the Company's option,
plus an applicable margin based on the ratio of funded debt to cash flows (as
defined). An annual commitment fee of up to 1/4% is payable on any unused
portion of the Credit Facility.
The Credit Facility will be used to fund acquisitions, capital expenditures
and working capital requirements. Under the terms of the the Credit Facility the
Company is required to comply with various affirmative and negative covenants
including: (i) the maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness, (iii) restrictions on liens, guarantees and dividends,
(iv) obtaining the lenders' consent with respect to certain individual
acquisitions, and (v) maintain a specified level of consolidated tangible net
worth. In July 1997, the Company used a portion of the Credit Facility together
with the net proceeds from the IPO to retire substantially all of the
indebtedness of the Founding Companies.
3. PER SHARE INFORMATION
Generally, per share calculations are based on the weighted average number
of common shares outstanding in each period and, if dilutive, weighted average
common equivalent shares assumed to be issued from the exercise of common stock
options based upon the average price of the Company's common stock during the
period. There were no stock options outstanding with respect to periods ending
before July 11, 1997. Upon completion of the IPO, the Company had 20,782,023
shares issued and outstanding. This amount has been used to calculate pro forma
earnings per share for all periods presented.
9
<PAGE>
METALS USA, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
The earnings per share calculations with respect to the historical
operations of Metals for the three and six months ended June 30, 1997 were
computed based on 4,753,414 shares issued and outstanding which reflects the
135.81 to-one stock split on April 21, 1997. Of this amount, 985,500 shares were
issued to the management of and consultants to Metals for $0.01 per share.
Metals recorded compensation expense of $3,325 and $6,048, respectively, for the
three and six months ended June 30, 1997 in connection with the issuance of the
985,500 shares.
4. SUBSEQUENT EVENT
On August 12, 1997, the Company sold 885,000 shares of its common stock
pursuant to the overallotment option granted to the underwriters' in connection
with the IPO. The Company realized net proceeds of approximately $8,231 from the
sale.
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-Q CONTAINS STATEMENTS, WHICH CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY," "ESTIMATES,"
"WILL," "SHOULD," "PLANS" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY.
READERS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE SIGNIFICANT RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF FACTORS, MOST OF WHICH
ARE BEYOND THE CONTROL OF MANAGEMENT. THESE FACTORS INCLUDE GENERAL ECONOMIC AND
BUSINESS CONDITIONS, NEW OR MODIFIED STATUTORY OR REGULATORY REQUIREMENTS,
CHANGING PRICES AND MARKET CONDITIONS, AND THE EFFECTIVENESS OF MANAGEMENT'S
STRATEGIES AND DECISIONS. NO ASSURANCE CAN BE GIVEN THAT THESE ARE ALL OF THE
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS.
The following should be read in conjunction with the response to Part I,
Item 1 of this Report and the Prospectus. Any capitalized terms used but not
defined in this Item have the same meaning given to them in the Prospectus.
RESULTS OF OPERATIONS
The Company conducts its operations through its wholly-owned subsidiaries.
The Company's net sales are derived from the processing of steel, aluminum and
other specialty metals and the use of processed metals to manufacture high-value
end-use products. The Company processes the majority of the metal sold. The
Company processes various metals to specified thickness, length, width, shape
and surface quality pursuant to specific customer orders. Additionally, certain
of the Founding Companies manufacture finished building products for commercial
and residential applications and machine certain specialty metals.
The Founding Companies have operated throughout the periods presented as
privately-owned entities and their results of operations reflect varying tax
structures ("S Corporations" or "C Corporations") which have influenced the
historical level of owners' compensation. Accordingly, selling, general and
administrative expenses as a percentage of net sales may not be comparable among
the individual Founding Companies. The owners of the Founding Companies have
contractually agreed to certain reductions in both their compensation and
benefits and in certain cases lease payments for their respective facilities in
connection with the Mergers.
During the first and second quarters of 1997, the Company sold an aggregate
of 985,500 shares of Common Stock to management of and consultants to the
Company for $0.01 per share. Accordingly, the Company has recorded a
Compensation Charge of $3.3 million and $6.0 million in the three and six months
ended June 30, 1997, respectively, representing the difference between the
amount paid for the shares and the estimated fair value of the shares on the
date of sale, as if the Founding Companies were combined. The accounting
classifications used by the Company to present the combined results of
operations for the Founding Companies generally conform to the conventions
established by the Steel Service Center Institute ("SSCI") and the National
Association of Aluminum Distributors. Depreciation and amortization expenses are
shown separately as management believes certain investors find the information
beneficial. Brief descriptions of the classifications are as follows:
NET SALES. Net sales include sales of materials, processing and fabrication,
less sales returns, allowances and cash discounts. Net sales also exclude any
sales and use taxes collected.
COST OF SALES. Cost of sales include the cost of material and freight and
all processing services purchased from unaffiliated third parties, less any
applicable purchase discounts realized. The Company carries a substantial
quantity of raw material inventories and five of the eight Founding Companies
use the last-in first-out ("LIFO") method of accounting. The LIFO method of
accounting generally matches current costs more
11
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
closely with current sales. However, variations in inventory quantities and/or
prices may have a significant impact on cost of sales.
OPERATING AND DELIVERY. Operating and delivery expenses consist of labor,
utilities, rent, repairs and maintenance expenses attributable to material
processing operations, warehouse facilities and delivery operations, including
the cost of freight attributable to product shipments.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses include the cost of personnel conducting sales and administrative
activities (including commissions and other forms of incentive compensation),
advertising and marketing expenses, rent, utilities, repairs and maintenance
costs for non-warehouse facilities, professional fees, property taxes and other
costs not included in the preceding classifications that are directly
attributable to operations.
The combined results of operations of the Founding Companies for the periods
presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the net sales, cost of sales, operating and delivery expenses,
selling, general and administrative expenses and depreciation and amortization
expenses of the individual Founding Companies on a historical basis. The
combined results of operations include the results of Williams from March 1,
1996, the effective date of acquisition of the business by its current owners,
and the results of businesses acquired by Texas Aluminum in August 1996 and
February 1997 from their respective dates of acquisition. The combined results
also exclude the effect of pro forma adjustments and, therefore, may not be
indicative of the Company's post-combination results of operations for a number
of reasons, including the following: (i) the Founding Companies were not under
common control or management during the periods presented, (ii) the Founding
Companies used different tax structures ("S Corporations" or "C Corporations")
during the periods presented, (iii) the Company will incur incremental costs
related to its new corporate management and the costs of being a public company,
(iv) the Company will use the purchase method of accounting to record the
Mergers, resulting in the recording and amortization of goodwill and (v) the
combined data do not reflect the Compensation Differential, the Rent
Differential or the potential benefits and cost savings the Company expects to
realize once Metals and the Founding Companies begin operating as a combined
entity.
The Founding Companies have a broad geographic product and customer mix,
which in large measure has served to mitigate cyclical and seasonal trends;
however, there can be no assurance that period-to-period differences will not
occur in the future or that cyclical or seasonal patterns will not emerge.
Further, the results of operations for any interim period (on a combined basis
and for each of the Founding Companies) are not necessarily indicative of the
results for the full year. The Company's operating results are sensitive to
changes in prices of steel and aluminum, and also depend to a significant degree
upon the volume and mix of all products sold.
The following table presents selected historical financial information for
the three and six months ended June 30, 1997 and 1996. The information presented
in the table is in millions of dollars.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------- -----------------------------------------
1997 % 1996 % 1997 % 1996 %
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... $ 113.6 100.0 $ 99.3 100.0 $ 218.6 100.0 $ 186.6 100.0
Costs of sales .................... 87.4 76.9 75.0 75.5 168.4 77.0 141.3 75.7
Operating and delivery ............ 12.5 11.0 11.1 11.2 24.3 11.1 21.0 11.3
Selling, general and administrative 8.1 7.1 7.1 7.2 14.9 6.8 13.1 7.0
Depreciation and amortization ..... 0.9 0.9 0.7 0.7 1.8 0.9 1.4 0.7
-------- -------- -------- -------- -------- -------- -------- --------
Operating income .................. $ 4.7 4.1 $ 5.4 5.4 $ 9.2 4.2 $ 9.8 5.3
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
COMBINED RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1996
NET SALES. Combined net sales increased $14.3 million, or 14.4%, from $99.3
million for the three months ended June 30, 1996 to $113.6 million for the three
months ended June 30, 1997. The increase in combined
12
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
net sales was principally due to increased shipments from Affiliated's new
facility at Butler, Indiana, and business acquisitions by Texas Aluminum. The
Texas Aluminum acquisitions accounted for approximately $1.8 million in
additional combined net sales.
COST OF SALES. Combined cost of sales increased $12.4 million, or 16.5%,
from $75.0 million for the three months ended June 30, 1996 to $87.4 million for
the three months ended June 30, 1997. The increase in combined cost of sales was
principally due to the increased shipments described above. As a percentage of
combined net sales, combined cost of sales increased from 75.5% for the three
months ended June 30, 1996 to 76.9% for the three months ended June 30, 1997.
This percentage increase was due to higher cost of raw materials.
OPERATING AND DELIVERY. Combined operating and delivery expenses increased
$1.4 million, or 12.6%, from $11.1 million for the three months ended June 30,
1996 to $12.5 million for the three months ended June 30, 1997. As a percentage
of combined net sales, combined operating and delivery expenses decreased from
11.2% for the three months ended June 30, 1996 to 11.0% for the three months
ended June 30, 1997. This percentage decrease was primarily due to spreading of
fixed operating costs over a higher volume of combined net sales.
SELLING, GENERAL AND ADMINISTRATIVE. Combined selling, general and
administrative expenses increased $1.0 million, or 14.1%, from $7.1 million for
the three months ended June 30, 1996 to $8.1 million for the three months ended
June 30, 1997. This increase in combined selling, general and administrative
expenses was primarily attributable to expenses associated with increased net
sales described above. As a percentage of combined net sales, combined selling,
general and administrative expenses decreased from 7.2% for the three months
ended June 30, 1996 to 7.1% for the three months ended June 30, 1997. This
percentage decrease was primarily due to spreading of fixed operating costs over
a higher volume of combined net sales.
OPERATING INCOME. Combined operating income decreased $0.7 million, or
13.0%, from $5.4 million for the three months ended June 30, 1996 to $4.7
million for the three months ended June 30, 1997. The decrease in combined
operating income was attributable to the factors discussed above. As a
percentage of combined net sales, combined operating income decreased from 5.4%
for the three months ended June 30, 1996 to 4.1% for the three months ended June
30, 1997.
COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
NET SALES. Combined net sales increased $32.0 million, or 17.1%, from $186.6
million for the six months ended June 30, 1996 to $218.6 million for the six
months ended June 30, 1997. The increase in combined net sales was principally
due to increased shipments from Affiliated's new facility in Butler, Indiana,
Uni-Steel's expanded plate steel products line, and business acquisitions by
Williams and Texas Aluminum. The acquisition of Williams, which was acquired by
its current owners on March 1, 1996, accounted for $5.4 million of the increase
in combined net sales and acquisitions by Texas Aluminum in August 1996 and
February 1997 accounted for approximately $2.7 million in additional combined
net sales.
COST OF SALES. Combined cost of sales increased $27.1 million, or 19.2%,
from $141.3 million for the six months ended June 30, 1996 to $168.4 million for
the six months ended June 30, 1997. The increase in combined cost of sales was
principally due to the increased shipments and business acquisitions described
above. As a percentage of combined net sales, combined cost of sales increased
from 75.7% for the six months ended June 30, 1996 to 77.0% for the six months
ended June 30, 1997. This percentage increase was due to higher cost of raw
materials.
13
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OPERATING AND DELIVERY. Combined operating and delivery expenses increased
$3.3 million, or 15.7%, from $21.0 million for the six months ended June 30,
1996 to $24.3 million for the six months ended June 30, 1997. As a percentage of
combined net sales, combined operating and delivery expenses decreased from
11.3% for the six months ended June 30, 1996 to 11.1% for the six months ended
June 30, 1997. This percentage decrease was primarily due to spreading of fixed
operating costs over a higher volume of combined net sales.
SELLING, GENERAL AND ADMINISTRATIVE. Combined selling, general and
administrative expenses increased $1.8 million, or 13.7%, from $13.1 million for
the six months ended June 30, 1996 to $14.9 million for the six months ended
June 30, 1997. This increase in combined selling, general and administrative
expenses was primarily attributable to expenses associated with increased net
sales and costs attributable to the Texas Aluminum acquisitions. As a percentage
of combined net sales, combined selling, general and administrative expenses
decreased from 7.0% for the six months ended June 30, 1996 to 6.8% for the six
months ended June 30, 1997. This percentage decrease was primarily due to
spreading of these expenses over a higher volume of combined net sales.
OPERATING INCOME. Combined operating income decreased $0.6 million, or 6.1%,
from $9.8 million for the six months ended June 30, 1996 to $9.2 million for the
six months ended June 30, 1997. The decrease in combined operating income was
primarily attributable to the factors discussed above. As a percentage of
combined net sales, combined operating income decreased from 5.3% for the six
months ended June 30, 1996 to 4.2% for the six months ended June 30, 1997.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
As of June 30, 1997, the Company had, on a combined pro forma basis, cash of
$14.0 million and available capacity under its Credit Facility of $67.7 million.
The Company believes that its existing cash and marketable securities, together
with the funds available to it, will be sufficient to fund its working capital
requirements for the foreseeable future.
The Company has a five-year unsecured revolving credit facility of $150.0
million (the "Credit Facility") which became available upon the closing of the
IPO. The Credit Facility will be used to fund acquisitions, capital expenditures
and working capital requirements. The Credit Facility will require the Company
to comply with various affirmative and negative covenants including: (i) the
maintenance of certain financial ratios, (ii) restrictions on additional
indebtedness, (iii) restrictions on liens, guarantees and dividends, (iv)
obtaining the lenders' consent with respect to certain individual acquisitions,
and (v) maintain a specified level of consolidated tangible net worth.
On a combined basis, the Founding Companies generated $0.6 million of net
cash from operating activities during the six months ended June 30, 1996 and
used $0.3 million in net cash from operating activities for the six months ended
June 30, 1997 primarily for working capital requirements for accounts
receivable, inventories and accounts payable. Net cash used in investing
activities was $8.8 million and $3.6 million on a combined basis for the six
months ended June 30, 1996 and 1997, respectively, primarily for the
construction of a new facility by Affiliated in Butler, Indiana and the
acquistion of Williams during 1996, the acquisition of a business by Texas
Aluminum in 1997 and for equipment purchases by the Founding Companies. On a
combined basis, net cash provided by financing activities was $9.4 million and
$5.0 million for the six months ended June 30, 1996 and 1997, respectively, the
most significant components of which were distributions to stockholders of $2.0
million and $14.7 million during the six months ended June 30, 1996 and 1997,
respectively, and $11.2 million and $19.8 million provided by borrowings for the
six months ended June 30, 1996 and 1997, respectively.
14
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In July 1997 the Company closed its IPO of 5,900,000 shares of common stock
for which it received net proceeds of approximately $54.9 million, before
payment of estimated offering costs of $4.5 million. Concurrent with the
completion of the IPO, Metals acquired the Founding Companies for $27.8 million
in cash and 10,128,609 shares of common stock. The Company used a portion of the
Credit Facility together with the net proceeds from the IPO to retire
substantially all of the indebtedness of the Founding Companies.
Additionally, on August 12, 1997, the Company sold 885,000 shares of its
common stock pursuant to the overallotment option granted to the underwriters in
connection with the IPO for net proceeds of $8.2 million. The Company used the
net proceeds to repay borrowings on the Credit Facility and for other corporate
purposes.
The Company intends to actively pursue acquisition opportunities. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings, including use of amounts available under its Credit
Facility, and cash flow from operations. Capital expenditures for equipment and
expansion of facilities are expected to be funded from cash flow from operations
and supplemented as necessary by borrowings from the Credit Facility or other
sources of financing. To the extent the Company funds a significant portion of
the consideration for future acquisitions with cash, it may have to increase the
amount of the Credit Facility or obtain other sources of financing.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new fair
value based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting had been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). For the
Company, SFAS No. 128 will be effective for the year ended December 31, 1997.
SFAS No. 128 simplifies the standards required under current accounting rules
for computing earnings per share and replaces the presentation of primary
earnings per share and fully diluted earnings per share with a presentation of
basic earnings per share ("basic EPS") and diluted earnings per share ("diluted
EPS"). Basic EPS excludes dilution and is determined by dividing income
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if securities and other contracts to issue common stock were
exercised or converted into common stock. Diluted EPS is computed similarly to
fully diluted earnings per share under current accounting rules. The
implementation of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share as determined under current accounting rules.
15
<PAGE>
METALS USA, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation management considers to be of a
material nature.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None.
16
<PAGE>
METALS USA, INC.
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, who has signed this report on behalf of
the Registrant and as the principal financial officer of the Registrant.
METALS USA, INC.
Date: August 25, 1997 By: J. MICHAEL KIRKSEY
J. Michael Kirksey
Senior Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM METALS USA, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,060
<CURRENT-LIABILITIES> 3,951
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 61
<TOTAL-LIABILITY-AND-EQUITY> 4,060
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,175)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> (.67)
</TABLE>
