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 September 30, 2000
Commission File Number 1-13123
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 |X| No |_|
Number of shares of common stock outstanding at November 1, 2000: 36,509,972
<PAGE>
METALS USA, INC.
INDEX
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<CAPTION>
PART I. - FINANCIAL INFORMATION PAGE
----
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Item 1. Financial Statements
Consolidated Balance Sheets of Metals USA, Inc. and Subsidiaries at September 30, 2000 (unaudited)
and December 31, 1999 ................................................................................. 2
Unaudited Consolidated Statements of Operations of Metals USA, Inc. and Subsidiaries for the three
and nine months ended September 30, 2000 and 1999 ..................................................... 3
Unaudited Consolidated Statements of Cash Flows of Metals USA, Inc. and Subsidiaries for the nine
months ended September 30, 2000 and 1999 .............................................................. 4
Condensed Notes to Unaudited Consolidated Financial Statements .......................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings .................................................................................. 19
Item 5. Other Information .................................................................................. 19
Item 6. Exhibits and Reports on Form 8-K ................................................................... 19
Signatures ................................................................................................. 20
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1
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................................... $ 7.2 $ 4.7
Accounts receivable, net of allowance of $6.9 and $6.2 ......................... 174.2 128.9
Inventories .................................................................... 422.8 350.5
Prepaid expenses and other ..................................................... 7.8 15.4
Deferred income taxes .......................................................... 4.5 6.4
------------- -------------
Total current assets ........................................................ 616.5 505.9
Property and equipment, net of accumulated depreciation of $53.7 and $42.5 ........ 249.2 223.0
Goodwill, net ..................................................................... 297.2 305.4
Other assets, net ................................................................. 11.9 15.0
------------- -------------
Total assets ................................................................ $ 1,174.8 $ 1,049.3
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................... $ 228.2 $ 145.5
Accrued liabilities ............................................................ 42.3 48.9
Current portion of long-term debt .............................................. 3.1 6.1
------------- -------------
Total current liabilities ................................................... 273.6 200.5
Long-term debt, less current portion .............................................. 478.3 434.7
Deferred income tax liability ..................................................... 32.6 29.5
Other long-term liabilities ....................................................... 4.5 5.2
------------- -------------
Total liabilities ........................................................... 789.0 669.9
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and
outstanding ................................................................. -- --
Common stock, $.01 par, 203,122,914 shares authorized, 36,509,972 and 38,516,415
shares issued ............................................................... .4 .4
Additional paid-in capital ..................................................... 247.7 263.7
Retained earnings .............................................................. 137.7 119.8
Treasury stock-- none and 461,450 shares, at cost .............................. -- (4.5)
------------- -------------
Total stockholders' equity .................................................. 385.8 379.4
------------- -------------
Total liabilities and stockholders' equity .................................. $ 1,174.8 $ 1,049.3
============= =============
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
2
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ................................................... $ 510.1 $ 444.0 $ 1,582.2 $ 1,302.1
Operating costs and expenses:
Cost of sales ............................................ 396.3 328.1 1,207.9 967.2
Operating and delivery ................................... 56.1 48.4 169.0 138.5
Selling, general and administrative ...................... 36.3 31.3 113.6 93.5
Depreciation and amortization ............................ 6.8 5.6 19.4 15.6
Integration charge ....................................... -- 9.4 -- 9.4
--------- --------- --------- ---------
Operating income ............................................ 14.6 21.2 72.3 77.9
Other (income) expense:
Interest and securitization expense ...................... 12.6 10.2 36.6 29.1
Other income, net ........................................ -- (.3) (1.6) (.5)
--------- --------- --------- ---------
Income before income taxes .................................. 2.0 11.3 37.3 49.3
Provision for income taxes .................................. 1.4 4.7 16.0 20.2
--------- --------- --------- ---------
Net income .................................................. $ .6 $ 6.6 $ 21.3 $ 29.1
========= ========= ========= =========
Earnings per share ........................................ $ .02 $ .17 $ .58 $ .76
========= ========= ========= =========
Earnings per share-- assuming dilution .................... $ .02 $ .17 $ .58 $ .76
========= ========= ========= =========
Number of common shares used in the per share calculations:
Earnings per share ..................................... 36.5 38.1 36.8 38.1
========= ========= ========= =========
Earnings per share-- assuming dilution ................. 36.7 38.6 37.0 38.4
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
3
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 21.3 $ 29.1
Adjustments to reconcile net income to net cash provided by
Operating activities--
Provision for bad debts ................................................... 2.5 .8
Depreciation and amortization ............................................. 19.4 15.6
Deferred income taxes ..................................................... 5.0 (2.1)
Changes in operating assets and liabilities, net of business acquisitions--
Accounts receivable ..................................................... (55.9) (33.7)
Inventories ............................................................. (68.9) 30.8
Prepaid expenses and other assets ....................................... 8.5 1.2
Accounts payable and accrued liabilities ................................ 73.7 8.2
Income taxes payable .................................................... 1.5 4.0
Other ..................................................................... (1.5) .2
-------- --------
Net cash provided by operating activities ............................ 5.6 54.1
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of acquired cash ................................. (7.8) (53.4)
Purchases of property and equipment .......................................... (31.4) (20.1)
Proceeds from securitization of receivables .................................. 10.0 86.0
Proceeds from sales of assets ................................................ 1.1 1.6
-------- --------
Net cash (used in) provided by investing activities .................. (28.1) 14.1
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on the Credit Facility ........................... 43.2 (64.5)
Net repayments on Industrial Revenue Bonds and
Other long-term debt .................................................. (5.4) (3.0)
Deferred financing costs incurred ............................................ -- (.5)
Repurchases of common stock .................................................. (10.6) (1.8)
Payment of dividends ......................................................... (2.2) --
Other ........................................................................ -- .3
-------- --------
Net cash provided by (used in) financing activities .................. 25.0 (69.5)
-------- --------
NET INCREASE (DECREASE) IN CASH ................................................ 2.5 (1.3)
CASH, beginning of period ....................................................... 4.7 9.3
-------- --------
CASH, end of period ............................................................. $ 7.2 $ 8.0
======== ========
</TABLE>
The accompanying notes are an integral part of
these unaudited consolidated financial statements.
4
<PAGE>
METALS USA, INC.
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Metals USA, Inc., a Delaware corporation, ("Metals USA") was founded in
July 1996. Metals USA, together with its wholly-owned subsidiaries, is referred
to as the "Company." Today the Company is a leading national value-added metals
processor and distributor. Following its initial public offering in July 1997,
Metals USA has acquired numerous metals processing and distributing companies.
BASIS OF PRESENTATION
INTERIM FINANCIAL INFORMATION -- The interim consolidated 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 consolidated financial information as of and for
the periods indicated. All intercompany transactions and balances have been
eliminated. 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.
The information contained in the following notes to the accompanying
consolidated 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 Company's audited
consolidated financial statements and related notes thereto contained in the
annual report to stockholders filed with the Securities and Exchange Commission
on Form 10-K ("Form 10-K"). Any capitalized terms used but not specifically
defined herein have the same meaning given to them in the Form 10-K.
USE OF ESTIMATES AND ASSUMPTIONS -- The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect (i) the
reported amounts of assets and liabilities, (ii) the disclosure of contingent
assets and liabilities known to exist as of the date the financial statements
are published and (iii) the reported amount of net sales and expenses recognized
during the periods presented. The Company reviews all significant estimates
affecting its consolidated financial statements on a recurring basis and records
the effect of any necessary adjustments prior to their publication. Adjustments
made with respect to the use of estimates often relate to improved information
not previously available. Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of financial statements. The
accompanying consolidated balance sheets include preliminary allocations of the
respective purchase price paid for companies acquired during the latest twelve
months using the "purchase" method of accounting and, accordingly, are subject
to final adjustment.
NEW ACCOUNTING PRONOUNCEMENTS -- SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, is required to be adopted for
fiscal years beginning after June 15, 2000. Management has reviewed the
provisions of the statement and does not believe that the adoption of this
statement will have a material impact on the financial position or results of
operations of the Company.
2. EARNINGS PER SHARE
The number of shares of common stock used in the computation of Earnings
per Share excludes the potential dilution that could occur if securities and
other contracts to issue common stock were exercised or converted into common
stock. The number of shares of common stock used in the computation of Earnings
per Share -- Assuming Dilution reflects the potential dilution that could occur
if securities and other contracts to issue common
5
<PAGE>
METALS USA, INC.
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
stock were exercised or converted into common stock after taking into account
the methodologies prescribed by SFAS No. 128. In the event the conversion of
common stock equivalents is anti-dilutive, such shares are not included. The
computations result from dividing income available to common stockholders by the
applicable weighted average number of common shares outstanding during the
period.
The number of shares used in the per share calculations consists of the
following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Number of shares used in computing earnings per share
(weighted-average shares) .......................... 36.5 38.1 36.8 38.1
Effect of dilutive securities:
Stock options ....................................... -- .2 -- .1
Convertible securities .............................. .2 .3 .2 .2
-------- -------- -------- --------
Number of shares used in computing earnings per share--
assuming dilution ................................... 36.7 38.6 37.0 38.4
======== ======== ======== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Raw materials--
Plates and shapes ............................ $ 143.7 $ 113.0
Flat rolled .................................. 77.6 63.1
Specialty metals ............................. 113.4 105.2
Building products ............................ 22.0 17.8
------------- -------------
Total raw materials ........................ 356.7 299.1
------------- -------------
Work-in-process and finished goods --
Plates and shapes ............................ 0.8 0.6
Flat rolled .................................. 18.5 14.8
Specialty metals ............................. 19.7 10.3
Building products ............................ 27.1 25.7
------------- -------------
Total work-in-process and finished goods ... 66.1 51.4
------------- -------------
Less-- LIFO reserve .............................. -- --
------------- -------------
Total ........................................ $ 422.8 $ 350.5
============= =============
</TABLE>
6
<PAGE>
METALS USA, INC.
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Credit Facility .................................. $ 251.0 $ 196.0
8 5/8 % Senior Subordinated Notes ................ 200.0 200.0
Industrial Revenue Bonds (various issues) ........ 22.4 24.3
Obligations under capital leases and other ....... 8.0 20.5
------------- -------------
481.4 440.8
Less-- Current portion ........................... (3.1) (6.1)
------------- -------------
$ 478.3 $ 434.7
============= =============
</TABLE>
The Credit Facility matures in February 2003, and 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). The weighted
average interest rate for the three and nine months ended September 30, 2000 was
9.0% and 8.3%, respectively. At November 1, 2000, the Company had $1.1 available
for the payment of dividends under the terms of the Credit Facility. The Amended
Credit Facility, absent consent of the banks, further restricts the ability of
the Company to pay dividends on its Common Stock, in respect of quarterly
periods beginning in 2001 to those in which the Company will achieve $35.0 in
EBITDA (as defined). The Company and its banks amended the Credit Facility on
November 8, 2000. The Second Amended and Restated Credit Agreement (the "Amended
Credit Facility") is secured by substantially all of the Company's accounts
receivables, inventories and equipment. Additionally, the Amended Credit
Facility will provide for an immediate reduction in the overall commitment to
$300.0 effective November 1, 2000; a reduction to $275.0 effective June 30, 2001
and a further reduction to $250.0 effective December 31, 2001. The Amended
Credit Facility contains customary covenants restricting additional
indebtedness, liens, transactions with affiliates, asset sales, restricted
payments (dividends or repurchase of company common stock or other securities),
mergers and acquisitions of subsidiaries. The Amended Credit Facility will also
limit the amount available to the Company to the lesser of the then effective
overall commitment or the aggregate borrowing base calculated as 75% of accounts
receivables (after adjustment for the $100.0 securitization facility) plus 50%
of inventories. As of November 7, 2000 the Company had outstanding borrowings of
$270.0 and $30.0 was available for use under this facility. Borrowings under the
facility will be at LIBOR plus a margin (200 to 325 basis points) depending upon
the Company's ratio of funded debt to cash flows (as defined). Additionally the
Company paid a fee of $.9 in connection with this amendment.
The Notes mature on February 15, 2008. They are guaranteed by substantially
all of the Company's current and future subsidiaries and contain certain
covenants restricting additional indebtedness, liens, transactions with
affiliates, asset sales, investments and mergers and acquisitions of
subsidiaries.
The maximum undivided interest in MRC's receivable portfolio that may be
purchased pursuant to the Receivable Securitization Facility is $100.0. The
unpurchased portion of the MRC receivable portfolio is a restricted asset and
effectively collateral for the benefit of the Purchaser. At September 30, 2000,
the unpurchased portion of the MRC receivable was $59.1 and is included in
accounts receivable on the consolidated balance sheet. The Company recorded $1.8
and $4.9; and $1.3 and $3.4 of expense attributable to the Receivable
Securitization Facility for the three and nine months ended September 30, 2000
and 1999, respectively, which is included in interest and securitization expense
on the consolidated statements of operations.
7
<PAGE>
METALS USA, INC.
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
5. STOCKHOLDERS' EQUITY
During the six months ended June 30, 2000, the Company repurchased
1,544,993 shares. In June 2000, the Company retired all of its treasury stock,
(2,006,443 shares), thereby reducing the number of outstanding shares by a like
amount. No additional stock purchases have been made subsequent to June 30,
2000.
On May 24, 2000, the Company announced its second quarterly dividend of
$.03 per share, payable on July 12, 2000 to stockholders of record on June 19,
2000. On July 27, 2000, the Company announced its third quarterly dividend of
$.03 per share, payable on October 11, 2000, to stockholders of record on August
18, 2000. On November 7, 2000, the Company announced its fourth quarterly
dividend of $.03 per share, payable on January 11, 2001 to stockholders of
record on November 17, 2000.
6. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be involved in a variety of claims,
lawsuits and other disputes arising in the ordinary course of business. The
Company believes the resolution of these matters and the incurrence of their
related costs and expenses should not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
7. INTEGRATION CHARGE
In September 1999, the Company announced a comprehensive plan to reduce
operating costs and improve its operational efficiency by fully integrating
certain operations within a geographic area and consolidating certain
administrative and support functions. The Company recorded a charge to
operations of $9.4 in respect of this plan (the "Integration Charge"). The
principal components of the Integration Charge were $3.3 for termination of
certain employment contracts, $2.1 for severance costs attributable to the
consolidation of administrative and support functions, and $4.0 for the costs of
combining five processing facilities into others within the same geographic
region. These changes will affect less than 5% of the Company's workforce.
The following schedule sets forth the incurred costs by segment as of
September 30, 2000:
Plates and Shapes ......................................... $ 1.1
Flat Rolled .............................................. --
Specialty Metals .......................................... 2.7
Building Products ......................................... .3
--------
Total ................................................ $ 4.1
========
The Company expects to incur approximately $.9 during the next two
quarterly reporting periods with respect to the personnel related costs.
Approximately $4.5 of facility integration costs (substantially all of which
relate to leasehold termination costs) will occur at various times over the next
two quarterly reporting periods, of which approximately $3.0, attributable to
Plates and Shapes and Building Products, are expected to occur during the fourth
quarter of 2000. Although the foregoing estimates with respect to both costs and
timing reflect the best information available to management, there can be no
assurance that such costs will not exceed current expectations or that the
timing of the facility integration activities will not be delayed.
8
<PAGE>
METALS USA, INC.
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. ACQUISITIONS
During February 2000, the Company acquired the net assets of Gibraltar
Steel's flat rolled processing operations in Chattanooga, Tennessee for cash
consideration of approximately $7.8 and the assumption of indebtedness of
approximately $2.8.
9. SEGMENT AND RELATED INFORMATION
The Company has four reportable segments with each segment managed
separately by product group teams focused on improving and expanding each
segment's operations. The four operating segments are: Plates and Shapes, Flat
Rolled, Specialty Metals and Building Products. Certain prior year balances have
been reclassified to conform with the current year presentation.
The following table shows summarized financial information concerning the
Company's reportable segments:
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
CORPORATE,
PLATES AND SPECIALTY BUILDING ELIMINATIONS
SHAPES FLAT ROLLED METALS PRODUCTS AND OTHER TOTAL
---------- ----------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
2000:
Net sales ................................... $ 597.9 $ 452.9 $ 437.1 $ 133.6 $ (39.3) $1,582.2
Operating income (loss) ..................... 41.1 15.7 15.4 10.5 (10.4) 72.3
Total assets ................................ 322.3 219.4 237.3 131.4 266.4 1,176.8
Capital expenditures ........................ 11.9 6.4 6.6 5.1 1.4 31.4
Depreciation and amortization ............... 6.9 3.4 3.2 2.2 3.7 19.4
1999:
Net sales ................................... $ 502.9 $ 329.8 $ 403.8 $ 91.6 $ (26.0) $1,302.1
Operating income (loss) ..................... 37.6 25.6 21.2 10.1 (16.6) 77.9
Total assets ................................ 285.6 176.9 215.5 90.5 233.1 1,001.6
Capital expenditures ........................ 9.0 3.6 5.3 2.0 0.2 20.1
Depreciation and amortization ............... 5.8 2.2 2.9 1.4 3.3 15.6
</TABLE>
9
<PAGE>
METALS USA, INC.
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10. SUPPLEMENTAL INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest ..................................................... $ 39.4 $ 32.2
Cash paid for income taxes ................................................. 4.2 18.3
Non-cash investing and financing activities:
Restricted cash obtained from Industrial Revenue Bond financing for
construction of capital assets ........................................ $ -- $ 4.7
Acquisition of businesses:
Fair value of assets acquired .............................................. $ 12.3 $ 72.2
Consideration given:
Cash paid ................................................................ 7.8 53.4
Stock issued ............................................................. -- --
Notes issued ............................................................. -- 4.0
-------- --------
Liabilities assumed ........................................................ $ 4.5 $ 14.8
======== ========
</TABLE>
10
<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 Company's audited consolidated financial
statements contained in the Form 10-K. Any capitalized terms used but not
defined in this Item have the same meaning given to them in the Form 10-K.
RESULTS OF OPERATIONS - CONSOLIDATED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- ---------------------------------------
2000 % 1999 % 2000 % 1999 %
-------- ----- -------- ----- -------- ----- -------- -----
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............................ $ 510.1 100.0% $ 444.0 100.0% $1,582.2 100.0% $1,302.1 100.0%
Cost of sales ..................... 396.3 77.7% 328.1 73.9% 1,207.9 76.3% 967.2 74.3%
Operating and delivery ............ 56.1 11.0% 48.4 10.9% 169.0 10.7% 138.5 10.6%
Selling, general and
Administrative ................. 36.3 7.1% 31.3 7.0% 113.6 7.2% 93.5 7.2%
Depreciation and amortization ..... 6.8 1.3% 5.6 1.3% 19.4 1.2% 15.6 1.2%
Integration charge ................ -- -- 9.4 2.1% -- -- 9.4 0.7%
-------- ----- -------- ----- -------- ----- -------- -----
Operating income ..................... 14.6 2.9% 21.2 4.8% 72.3 4.6% 77.9 6.0%
Interest and securitization expense 12.6 2.5% 10.2 2.3% 36.6 2.3% 29.1 2.2%
Other income, net ................. -- -- (.3) .1% (1.6) (.1)% (.5) 0.0%
-------- ----- -------- ----- -------- ----- -------- -----
Income before income taxes ........... $ 2.0 0.4% $ 11.3 2.6% $ 37.3 2.4% $ 49.3 3.8%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
CONSOLIDATED RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES. Net sales increased $66.1 million, or 14.9%, from $444.0 million
for the three months ended September 30, 1999 to $510.1 million for the three
months ended September 30, 2000. This increase is primarily due to increased
shipments for most of the Company's products and the acquisitions completed
subsequent to September 1999.
COST OF SALES. Cost of sales increased $68.2 million, or 20.8%, from $328.1
million for the three months ended September 30, 1999, to $396.3 million for the
three months ended September 30, 2000. This increase is primarily due to
increased shipments and higher costs of raw materials. As a percentage of net
sales, cost of sales increased from 73.9% for the three months ended September
30, 1999 to 77.7% for the three months ended September 30, 2000. This percentage
increase was primarily due to higher cost of raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $7.7
million, or 15.9%, from $48.4 million for the three months ended September 30,
1999 to $56.1 million for the three months ended September 30, 2000. The
increase in operating and delivery expenses was primarily due to increased
shipments for most of the Company's products. As a percentage of net sales,
operating and delivery expenses increased from 10.9% for the three months ended
September 30, 1999 to 11.0% for the three months ended September 30, 2000. This
percentage increase was primarily due to higher fuel costs.
11
<PAGE>
METALS USA, INC.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $5.0 million, or 16.0%, from $31.3 million for the three
months ended September 30, 1999 to $36.3 million for the three months ended
September 30, 2000. This increase in selling, general and administrative
expenses was primarily attributable to increased volumes of product shipments
and the acquisitions subsequent to September 1999. As a percentage of net sales,
selling, general and administrative expenses was essentially unchanged from 7.0%
for the three months ended September 30, 1999 to 7.1% for the three months ended
September 30, 2000.
OPERATING INCOME. Operating income decreased $6.6 million, or 31.1%, from
$21.2 million for the three months ended September 30, 1999 to $14.6 million for
the three months ended September 30, 2000. The 1999 amount has been reduced by
the integration charge of $9.4 million. As a percentage of net sales, operating
income decreased from 4.8% for the three months ended September 30, 1999 to 2.9%
for the three months ended September 30, 2000. The decline in operating income
was primarily due to higher shipments at lower average gross margins generated
by the Flat Rolled Products Group. This percentage decrease was primarily due to
the increased costs of raw materials.
INTEREST AND SECURITIZATION EXPENSE. Interest and securitization expense
increased $2.4 million, from $10.2 million for the three months ended September
30, 1999 to $12.6 million for the three months ended September 30, 2000. The
increase in interest expense was primarily due to increased borrowings
attributable to the debt assumed and the cash portion of the purchase price paid
in connection with acquisitions completed since September 1999, together with
the increased working capital requirements attributable to the increased volume
and to a lesser extent increased interest rates.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate primarily due to state income taxes (net
of federal income tax benefit) and the non-deductibility of the amortization of
goodwill attributable to certain acquisitions.
CONSOLIDATED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES. Net sales increased $280.1 million, or 21.5%, from $1,302.1
million for the nine months ended September 30, 1999 to $1,582.2 million for the
nine months ended September 30, 2000. This increase is primarily due to
increased shipments for most of the Company's products and the acquisitions
completed subsequent to September 1999, partially offset by lower sales to the
aerospace industry.
COST OF SALES. Cost of sales increased $240.7 million, or 24.9%, from
$967.2 million for the nine months ended September 30, 1999, to $1,207.9 million
for the nine months ended September 30, 2000. The increase in cost of sales was
primarily due to the increased shipments and acquisitions subsequent to
September 1999. As a percentage of net sales, cost of sales increased from 74.3%
for the nine months ended September 30, 1999 to 76.3% for the nine months ended
September 30, 2000. This percentage increase was primarily due to higher cost of
raw materials.
OPERATING AND DELIVERY. Operating and delivery expenses increased $30.5
million, or 22.0%, from $138.5 million for the nine months ended September 30,
1999 to $169.0 million for the nine months ended September 30, 2000. The
increase in operating and delivery expenses was primarily due to the increased
shipments and acquisitions. As a percentage of net sales, operating and delivery
expenses increased slightly from 10.6% for the three months ended September 30,
1999 to 10.7% for the three months ended September 30, 2000. This percentage
increase is primarily due to higher fuel costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $20.1 million, or 21.5%, from $93.5 million for the nine
months ended September 30, 1999 to $113.6 million for the nine months ended
September 30, 2000. This increase in selling, general and administrative
expenses was primarily attributable to acquisitions and increased volumes of
product shipments. As a percentage of net sales, selling, general and
administrative expenses remained unchanged at 7.2% for both periods.
OPERATING INCOME. Operating income decreased $5.6 million, or 7.2%, from
$77.9 million for the nine months ended September 30, 1999 to $72.3 million for
the nine months ended September 30, 2000. The 1999 amount has been reduced by
the integration charge of $9.4 million. The decrease in operating income was
primarily attributable to
12
<PAGE>
METALS USA, INC.
higher shipments at lower margins in the Flat Rolled Product Group together with
the decline in the Company's sales to the aerospace industry. As a percentage of
net sales, operating income decreased from 6.0% for the nine months ended
September 30, 1999 to 4.6% for the nine months ended September 30, 2000. This
percentage decrease was primarily due to higher cost of raw materials during the
nine months ended September 30, 2000.
INTEREST AND SECURITIZATION EXPENSE. Interest and securitization expense
increased $7.5 million, or 25.8%, from $29.1 million for the nine months ended
September 30, 1999 to $36.6 million for the nine months ended September 30,
2000. The increase in interest expense was primarily due to increased borrowings
attributable to the debt assumed and the cash portion of the purchase price paid
in connection with acquisitions completed since September 1999, together with
the increased working capital requirements attributable to the increased volumes
and to a lesser extent increased interest rates.
OTHER INCOME, NET. Other income increased $1.1 million, from $.5 million
for the nine months ended September 30, 1999 to $1.6 million for the nine months
ended September 30, 2000. Other income for the nine months ended September 30,
2000 included a $1.2 million involuntary gain arising from an insurance
settlement attributable to the fire at the Company's Butler, Indiana facility in
the third quarter of 1999.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate primarily due to state income taxes (net
of federal income tax benefit) and the non-deductibility of the amortization of
goodwill attributable to certain acquisitions.
RESULTS OF OPERATIONS - SEGMENT
SEGMENT RESULTS-- THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------
OPERATING OPERATING
NET COSTS AND INCOME CAPITAL SHIPMENTS
SALES % EXPENSES % (LOSS) % EXPENDITURES (1)
------ ----- --------- ----- --------- ----- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000: (DOLLARS IN MILLIONS)
Plates and Shapes .................... $191.0 37.4% $ 181.4 36.6% $ 9.6 65.8% $ 1.4 327
Flat Rolled .......................... 145.3 28.5% 143.5 29.0% 1.8 12.3% 1.4 301
Specialty Metals ..................... 141.1 27.7% 138.3 27.9% 2.8 19.2% 1.9 94
Building Products .................... 46.7 9.2% 43.1 8.7% 3.6 24.7% 0.5 --
Corporate, eliminations and other .... (14.0) (2.8)% (10.8) (2.2)% (3.2) (22.0)% 0.7 (17)
------ ----- --------- ----- --------- ----- ------------ ---------
Total ............................. $510.1 100.0% $ 495.5 100.0% $ 14.6 100.0% $ 5.9 705
====== ===== ========= ===== ========= ===== ============ =========
1999:
Plates and Shapes .................... $177.6 40.0% $ 164.7 39.0% $ 12.9 60.9% $ 4.3 327
Flat Rolled .......................... 116.2 26.1% 106.7 25.2% 9.5 44.8% 1.3 250
Specialty Metals ..................... 129.0 29.1% 123.1 29.1% 5.9 27.8% 2.1 95
Building Products .................... 32.2 7.3% 27.9 6.6% 4.3 20.3% 1.0 --
Corporate, eliminations and other .... (11.0) (2.5)% 0.4 0.1% (11.4) (53.8)% 0.0 (19)
------ ----- --------- ----- --------- ----- ------------ ---------
Total ............................. $444.0 100.0% $ 422.8 100.0% $ 21.2 100.0% $ 8.7 653
====== ===== ========= ===== ========= ===== ============ =========
</TABLE>
(1) Shipments are expressed in thousands of tons and are not an appropriate
measure of volume for the Building Products Group
PLATES AND SHAPES. Net sales increased $13.4 million, or 7.5%, from $177.6
million for the three months ended September 30, 1999 to $191.0 million for the
three months ended September 30, 2000. Average realized prices for steel
products increased approximately 7.5% for the three months ended September 30,
2000 compared to the three months ended September 30, 1999. Material shipments
were unchanged for the three months ended September 30, 2000 compared to the
three months ended September 30, 1999. Operating costs and expenses increased
$16.7 million, or 10.1%, from $164.7 million for the three months ended
September 30, 1999 to $181.4 million for the three months ended September 30,
2000. Operating costs and expenses as a percentage of net sales increased from
92.7% for the
13
<PAGE>
METALS USA, INC.
three months ended September 30, 1999 to 95.0% for the three months ended
September 30, 2000. This percentage increase was primarily due to higher cost of
raw materials. Operating income decreased by $3.3 million, or 25.6%, from $12.9
million for the three months ended September 30, 1999 to $9.6 million for the
three months ended September 30, 2000. This decrease was primarily due to higher
raw material costs. Operating income as a percentage of net sales decreased from
7.3% for the three months ended September 30, 1999 to 5.0% for the three months
ended September 30, 2000.
FLAT ROLLED. Net sales increased $29.1 million, or 25.0%, from $116.2
million for the three months ended September 30, 1999 to $145.3 million for the
three months ended September 30, 2000. Average realized prices for steel
products increased approximately 3.9% for the three months ended September 30,
2000 compared to the three months ended September 30, 1999. Material shipments
increased 20.4% for the three months ended September 30, 2000 compared to the
three months ended September 30, 1999. Net sales on a "same store" basis
increased by 21.1%, due to a 17.7% increase in shipments. Operating costs and
expenses increased $36.8 million, or 34.5%, from $106.7 million for the three
months ended September 30, 1999 to $143.5 million for the three months ended
September 30, 2000. Operating costs and expenses as a percentage of net sales,
increased from 91.8% for the three months ended September 30, 1999 to 98.8% for
the three months ended September 30, 2000. This percentage increase was
primarily due to higher cost of raw material. Operating income decreased by $7.7
million, or 81.1%, from $9.5 million for the three months ended September 30,
1999 to $1.8 million for the three months ended September 30, 2000. This
decrease is primarily due to higher costs of raw material. Operating income as a
percentage of net sales decreased from 8.2% for the three months ended September
30, 1999 to 1.2% for the three months ended September 30, 2000.
SPECIALTY METALS. Net sales increased $12.1 million, or 9.4%, from $129.0
million for the three months ended September 30, 1999 to $141.1 million for the
three months ended September 30, 2000. Excluding sales to the aerospace
industry, average realized prices increased approximately 14.7% and shipments
decreased 1.1% for the three months ended September 30, 2000 compared to the
three months ended September 30, 1999. Average realized prices and shipments of
products to the aerospace industry decreased 19.1%, and 5.6% respectively, for
the three months ended September 30, 2000 compared to the three months ended
September 30, 1999. Operating costs and expenses increased $15.2 million, or
12.3%, from $123.1 million for the three months ended September 30, 1999 to
$138.3 million for the three months ended September 30, 2000. Operating costs
and expenses as a percentage of net sales increased from 95.4% for the three
months ended September 30, 1999 to 98.0% for the three months ended September
30, 2000. This percentage increase was primarily due to higher costs of raw
materials. Operating income decreased by $3.1 million, or 52.5%, from $5.9
million for the three months ended September 30, 1999 to $2.8 million for the
three months ended September 30, 2000. This decrease was primarily due to higher
costs of raw materials. Operating income as a percentage of net sales decreased
from 4.6% for the three months ended September 30, 1999 to 2.0% for the three
months ended September 30, 2000.
BUILDING PRODUCTS. Net sales increased $14.5 million, or 45.0%, from $32.2
million for the three months ended September 30, 1999 to $46.7 million for the
three months ended September 30, 2000. The Allmet acquisition completed in the
fourth quarter of 1999 accounted for substantially all of the increase in net
sales. Operating costs and expenses increased $15.2 million, or 54.5%, from
$27.9 million for the three months ended September 30, 1999 to $43.1 million for
the three months ended September 30, 2000. This increase is primarily due to the
Allmet acquisition and higher raw material costs. Operating costs and expenses
as a percentage of net sales increased from 86.6% for the three months ended
September 30, 1999 to 92.3% for the three months ended September 30, 2000. This
percentage increase is primarily due to increased cost of raw materials.
Operating income decreased by $.7 million, or 16.3%, from $4.3 million for the
three months ended September 30, 1999 to $3.6 million for the three months ended
September 30, 2000. A decline in demand for these products precluded the company
from passing the higher raw material costs to the consumer. Operating income as
a percentage of net sales decreased from 13.4% for the three months ended
September 30, 1999 to 7.7% for the three months ended September 30, 2000. This
percentage decrease was primarily due to higher raw material costs.
CORPORATE AND OTHER. This category reflects certain administrative costs
and expenses management has not allocated to its industry segments. The negative
net sales amount represents the elimination of intercompany sales. Operating
loss decreased by $8.2 million, from a loss of $11.4 million for the three
months ended September 30, 1999 to a loss of $3.2 million for the three months
ended September 30, 2000. This change is primarily due to the $9.4 million
14
<PAGE>
METALS USA, INC.
integration charge recorded in the third quarter of 1999, partially offset by
the increased cost of the Company's information technology initiatives and other
general and administrative costs.
SEGMENT RESULTS-- NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------
OPERATING OPERATING
NET COSTS AND INCOME CAPITAL SHIPMENTS
SALES % EXPENSES % (LOSS) % EXPENDITURES (1)
-------- ----- --------- ----- --------- ------- ------------ ---------
2000:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Plates and Shapes .................. $ 597.9 37.8% $ 556.8 36.9% $ 41.1 56.8% $ 11.9 1,033
Flat Rolled ........................ 452.9 28.6% 437.2 29.0% 15.7 21.7% 6.4 938
Specialty Metals ................... 437.1 27.6% 421.7 27.9% 15.4 21.3% 6.6 316
Building Products .................. 133.6 8.4% 123.1 8.2% 10.5 14.5% 5.1 --
Corporate, eliminations and other .. (39.3) (2.4)% (28.9) (2.0)% (10.4) (14.3)% 1.4 (73)
-------- ----- --------- ----- --------- ------- ------------ ---------
Total ........................... $1,582.2 100.0% $ 1,509.9 100.0% $ 72.3 100.0% $ 31.4 2,214
======== ===== ========= ===== ========= ======= ============ =========
1999:
Plates and Shapes .................. $ 502.9 38.7% $ 465.3 38.0% $ 37.6 48.2% $ 9.0 922
Flat Rolled ........................ 329.8 25.3% 304.2 24.8% 25.6 32.9% 3.6 709
Specialty Metals ................... 403.8 31.0% 382.6 31.3% 21.2 27.2% 5.3 288
Building Products .................. 91.6 7.0% 81.5 6.7% 10.1 13.0% 2.0 --
Corporate, eliminations and other .. (26.0) (2.0)% (9.4) (0.8)% (16.6) (21.3)% 0.2 (39)
-------- ----- --------- ----- --------- ------- ------------ ---------
Total ........................... $1,302.1 100.0% $ 1,224.2 100.0% $ 77.9 100.0% $ 20.1 1,880
======== ===== ========= ===== ========= ======= ============ =========
</TABLE>
(1) Shipments are expressed in thousands of tons and are not an appropriate
measure of volume for the Building Products Group
PLATES AND SHAPES. Net sales increased $95.0 million, or 18.9%, from $502.9
million for the nine months ended September 30, 1999 to $597.9 million for the
nine months ended September 30, 2000. Average realized prices for steel products
increased approximately 6.1% for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999. Material shipments
increased 12.0% for the nine months ended September 30, 2000 compared to the
nine months ended September 30, 1999. Operating costs and expenses increased
$91.5 million, or 19.7%, from $465.3 million for the nine months ended September
30, 1999 to $556.8 million for the nine months ended September 30, 2000.
Operating costs and expenses as a percentage of net sales increased from 92.5%
for the nine months ended September 30, 1999 to 93.1% for the nine months ended
September 30, 2000. Operating income increased by $3.5 million, or 9.3%, from
$37.6 million for the nine months ended September 30, 1999 to $41.1 million for
the nine months ended September 30, 2000. This increase is primarily due to
increased sales volumes. Operating income as a percentage of net sales decreased
from 7.5% for the nine months ended September 30, 1999 to 6.9% for the nine
months ended September 30, 2000. The percentage decrease is primarily due to
higher raw material costs.
FLAT ROLLED. Net sales increased $123.1 million, or 37.3%, from $329.8
million for the nine months ended September 30, 1999 to $452.9 million for the
nine months ended September 30, 2000. Average realized prices for steel products
increased approximately 3.8% for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999. Material shipments
increased 32.3% for the nine months ended September 30, 2000 compared to the
nine months ended September 30, 1999. Net sales on a "same store" basis
increased by 21.0%, due primarily to increased shipments. Operating costs and
expenses increased $133.0 million, or 43.7%, from $304.2 million for the nine
months ended September 30, 1999 to $437.2 million for the nine months ended
September 30, 2000. This increase is primarily due to acquisitions and higher
costs of raw materials. Operating costs and expenses as a percentage of net
sales, increased from 92.2% for the nine months ended September 30, 1999 to
96.5% for the nine months ended September 30, 2000. Operating income decreased
by $9.9 million, or 38.7%, from $25.6 million for the nine months ended
September 30, 1999 to $15.7 million for the nine months ended September 30,
2000. This decrease is primarily due to higher costs of raw materials, partially
offset by increased shipments. Operating income as a percentage of net sales
decreased from 7.8% for the nine months ended September 30, 1999 to 3.5% for the
nine months ended September 30, 2000.
15
<PAGE>
METALS USA, INC.
SPECIALTY METALS. Net sales increased $33.3 million, or 8.2%, from $403.8
million for the nine months ended September 30, 1999 to $437.1 million for the
nine months ended September 30, 2000. Excluding sales in the aerospace industry,
average realized prices increased approximately 6.5% and shipments increased
9.0% for the nine months ended September 30, 2000 compared to the nine months
ended September 30, 1999. Net sales and shipments to the aerospace industry
decreased 41.6%, and 22.5% respectively, for the nine months ended September 30,
2000 compared to the nine months ended September 30, 1999. Average realized
sales prices for aerospace products were relatively unchanged for the period.
Operating costs and expenses increased $39.1 million, or 10.2%, from $382.6
million for the nine months ended September 30, 1999 to $421.7 million for the
nine months ended September 30, 2000. Operating costs and expenses as a
percentage of net sales increased from 94.7% for the nine months ended September
30, 1999 to 96.5% for the nine months ended September 30, 2000. This percentage
increase was primarily due to higher costs of raw materials. Operating income
decreased by $5.8 million, or 27.4%, from $21.2 million for the nine months
ended September 30, 1999 to $15.4 million for the nine months ended September
30, 2000. This decrease was primarily due to higher cost of raw materials
coupled with the decline in the Company's sales to the aerospace industry
subsequent to the first quarter of 1999. Operating income as a percentage of net
sales decreased from 5.3% for the nine months ended September 30, 1999 to 3.5%
for the nine months ended September 30, 2000.
BUILDING PRODUCTS. Net sales increased $42.0 million, or 45.9%, from $91.6
million for the nine months ended September 30, 1999 to $133.6 million for the
nine months ended September 30, 2000. The Allmet acquisition completed in the
fourth quarter of 1999 accounted for substantially all of the increase in net
sales. Operating costs and expenses increased $41.6 million, or 51.0%, from
$81.5 million for the nine months ended September 30, 1999 to $123.1 million for
the nine months ended September 30, 2000. This increase is primarily due to the
Allmet acquisition and higher raw material costs. Operating costs and expenses
as a percentage of net sales increased from 89.0% for the nine months ended
September 30, 1999 to 92.1% for the nine months ended September 30, 2000. This
increase is primarily due to higher cost of raw materials. Operating income
increased by $.4 million, or 4.0%, from $10.1 million for the nine months ended
September 30, 1999 to $10.5 million for the nine months ended September 30,
2000. This increase is primarily due to the Allmet acquisition. Operating income
as a percentage of net sales decreased from 11.0% for the nine months ended
September 30, 1999 to 7.9% for the nine months ended September 30, 2000. This
decrease was primarily due to higher raw material costs.
CORPORATE AND OTHER. This category reflects certain administrative costs
and expenses management has not allocated to its industry segments. The negative
net sales amount represents the elimination of intercompany sales. Operating
loss decreased by $6.2 million, from a loss of $16.6 million for the nine months
ended September 30, 1999 to a loss of $10.4 million for the nine months ended
September 30, 2000. This change is primarily due to the $9.4 million integration
charge recorded in 1999, partially offset by the increased cost of the Company's
information technology initiatives and other general and administrative costs.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
The Company generated $5.6 million and $54.1 million in net cash from
operating activities for the nine months ended September 30, 2000 and 1999,
respectively. Net cash used for investing activities was $28.1 million and net
cash provided by investing activities was $14.1 million for the nine months
ended September 30, 2000 and 1999, respectively. Net cash provided from
financing activities was $25.0 million and net cash used in financing activities
was $69.5 million, for the nine months ended September 30, 2000 and 1999,
respectively. The cash used for investing activities during the nine months
ended September 30, 2000 included proceeds of $10.0 million from the sale of
accounts receivable under the Company's securitization facility offset by cash
used for acquisitions and capital expenditures. For the nine months ended
September 30, 2000 and 1999, the cash provided by (used in) financing activities
consisted primarily of borrowings/repayments on the Credit Facility. At
September 30, 2000, the Company had cash of $7.2 million, working capital of
$339.9 million and total debt of $481.4 million. At December 31, 1999, the
Company had cash of $4.7 million, working capital of $305.4 million and total
debt of $440.8 million. As of December 31, 1999 and September 30, 2000, the
Company had $154.0 million and $99.0 million of borrowing availability under the
Credit Facility. As of November 7, 2000, the Company had outstanding borrowings
under the Credit Facility of $270.0 million, leaving $30.0 million available for
use.
16
<PAGE>
METALS USA, INC.
The Company anticipates that its cash flow from operations (excluding
acquisition requirements) will be sufficient to meet the Company's normal
working capital and debt service requirements for at least the next several
years. The Company intends to retain the majority of its earnings to finance the
expansion of its existing business and for general corporate purposes, including
future acquisitions. In addition, the Company's Credit Facility and the
Indenture include restrictions on the ability of the Company to pay dividends.
As of November 1, 2000, the Company had $1.1 million available for the payment
of dividends under the terms of the Credit Facility. On May 24, 2000, the
Company announced its second quarterly dividend of $.03 per share, payable on
July 12, 2000 to stockholders of record on June 19, 2000. On July 27, 2000, the
Company announced its third quarterly dividend of $.03 per share, payable on
October 11, 2000 to stockholders of record on August 18, 2000. On November 7,
2000, the company announced its fourth quarterly dividend of $.03 per share,
payable on January 11, 2001 to stockholders of record on November 17, 2000.
INTEGRATION CHARGE
In September 1999, the Company announced a comprehensive plan to reduce
operating costs and improve its operational efficiency by fully integrating
certain operations within a geographic area and consolidating certain
administrative and support functions. The Company recorded a charge to
operations of $9.4 million in respect of this plan (the "Integration Charge").
The principal components of the Integration Charge were $3.3 million for
termination of certain employment contracts, $2.1 million for severance costs
attributable to the consolidation of administrative and support functions and
$4.0 million for the costs of combining five processing facilities into others
within the same geographic region. These changes will affect less than 5% of the
Company's workforce. See Note 7 to Condensed Notes to Unaudited Consolidated
Financial Statements for additional information.
INVESTING ACTIVITIES
During February 2000, the Company acquired the net assets of Gibraltar
Steel's flat rolled processing operations in Chattanooga, Tennessee for cash
consideration of approximately $7.8 million and the assumption of indebtedness
of approximately $2.8 million.
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.
FINANCING ACTIVITIES
During the six months ended June 30, 2000, the Company had repurchased
1,544,993 shares at an average price of $7.47 per share. In June 2000, the
Company retired all of its treasury stock (2,006,443 shares), thereby reducing
the number of outstanding shares by a like amount.
The Company and its banks amended the Credit Facility on November 8, 2000.
The Second Amended and Restated Credit Agreement (the "Amended Credit Facility")
is secured by substantially all of the Company's accounts receivables,
inventories and equipment. Additionally, the Amended Credit Facility will
provide for an immediate reduction in the overall commitment to $300.0 million
effective November 1, 2000; a reduction to $275.0 million effective June 30,
2001 and a further reduction to $250.0 million effective December 31, 2001. The
Amended Credit Facility contains customary covenants restricting additional
indebtedness, liens, transactions with affiliates, asset sales, restricted
payments (dividends or repurchase of company common stock or other securities),
mergers and acquisitions of subsidiaries. The Amended Credit Facility, absent
consent of the banks, restricts the ability of the company to pay dividends on
its Common Stock, in respect of quarterly periods beginning in 2001 to those in
which the Company will achieve $35.0 million in EBITDA (as defined). The Amended
Credit Facility will also limit the amount available to the Company to the
lesser of the then effective overall commitment or the aggregate borrowing base
calculated as 75% of accounts receivables (after adjustment for the $100.0
million securitization facility) plus 50% of inventories. As of November 7, 2000
the Company had outstanding borrowings of $270.0 million and $30.0 million was
available for use under this facility. Borrowings under the facility will be at
LIBOR plus a margin (200 to 325 basis points) depending upon the Company's ratio
of funded debt to cash flows (as defined). Additionally the Company paid a fee
of $.9 million in connection with this amendment.
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METALS USA, INC.
INTEREST RATE EXPOSURE
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's long-term debt. At September 30, 2000, approximately
30.8% ($148.4 million) of the long-term debt was subject to variable interest
rates. The Company entered into two interest rate swap agreements in 1998 to
reduce exposure to interest rate changes. These agreements fixed interest rates
for two years on $125.0 million of variable interest long-term debt. The
detrimental effect of a hypothetical 100 basis point increase in interest rates
would be to reduce income before taxes by $1.3 million on an annual basis. At
September 30, 2000, the fair value of the Company's fixed rate debt is
approximately $177.8 million based upon discounted future cash flows using
current market prices and the fair value of the interest rate swap agreements is
$.5 million. These agreements expire on November 15, 2000. These agreements
reduced the Company's interest expense during the quarter ended September 30,
2000 by approximately $.5 million.
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METALS USA, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any litigation that management considers to
be of a material nature.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
10.1 Second Amendment to the Company's Amended and Restated Credit
Agreement dated November 1, 2000, between Bank One, N.A, as agent
and other financial institutions parties thereto as lenders
10.2 Amendment No. 5 to the Company's Accounts Receivable Securitization
Agreement, dated November 1, 2000 with Bank One, N.A.
21 List of Subsidiaries of the Company
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None.
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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 accounting officer of the Registrant.
METALS USA, INC.
By: \S\ TERRY L. FREEMAN
Terry L. Freeman
Vice President and
Date: November 9, 2000 Chief Accounting Officer
20
