================================================================================
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 March 31, 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 May 9, 2000: 36,590,272
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<PAGE>
METALS USA, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 2000 (Unaudited) and
December 31, 1999.................................................. 2
Unaudited Consolidated Statements of Operations for the three months
Ended March 31, 2000 and 1999...................................... 3
Unaudited Consolidated Statements of Cash Flows for the three months
Ended March 31, 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........................................ 10
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 15
Item 5. Other Information................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................. 15
Signatures ............................................................... 16
1
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 6.6 $ 4.7
Accounts receivable, net of allowance of $6.9 and $6.2,
respectively ................................................ 175.6 128.9
Inventories ................................................... 402.6 350.5
Prepaid expenses and other .................................... 10.6 15.4
Deferred income taxes ......................................... 6.5 6.4
---------- ----------
Total current assets ..................................... 601.9 505.9
Property and equipment, net ................................... 236.1 223.0
Goodwill, net ................................................. 304.5 305.4
Other assets, net ............................................. 14.5 15.0
---------- ----------
Total assets ........................................ $ 1,157.0 $ 1,049.3
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 197.3 $ 145.5
Accrued liabilities ........................................... 39.9 48.9
Current portion of long-term debt ............................. 8.4 6.1
Income taxes payable .......................................... 3.3 --
---------- ----------
Total current liabilities ................................ 248.9 200.5
Long-term debt, less current portion .......................... 493.1 434.7
Deferred income taxes ......................................... 29.6 29.5
Other long-term liabilities ................................... 4.7 5.2
---------- ----------
Total liabilities ........................................ 776.3 669.9
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par, 5,000,000 shares authorized, none
issued ...................................................... -- --
Common stock, $.01 par, 203,122,914 shares authorized,
38,516,415 shares issued .................................... .4 .4
Additional paid-in capital .................................... 263.7 263.7
Retained earnings ............................................. 129.9 119.8
Treasury stock - 1,591,643 and 461,450 shares, respectively, at
cost ........................................................ (13.3) (4.5)
---------- ----------
Total stockholders' equity ............................... 380.7 379.4
---------- ----------
Total liabilities and stockholders' equity .......... $ 1,157.0 $ 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
MARCH 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales ................................................. $ 523.8 $ 422.4
Operating costs and expenses:
Cost of sales ....................................... 392.6 314.5
Operating and delivery .............................. 56.2 44.4
Selling, general and administrative ................. 38.5 31.0
Depreciation and amortization ....................... 6.3 4.9
--------- ---------
Operating income .......................................... 30.2 27.6
Other (income) expense:
Interest and securitization expense ................. 11.5 9.6
Other (income) expense, net ......................... (.4) (.1)
--------- ---------
Income before income taxes ................................ 19.1 18.1
Provision for income taxes ................................ 7.9 7.4
--------- ---------
Net income ................................................ $ 11.2 $ 10.7
========= =========
Earnings per share ........................................ $ .30 $ .28
========= =========
Earnings per share -- assuming dilution ................... $ .30 $ .28
========= =========
Number of common shares used in the per share calculations:
Earnings per share .................................. 37.5 38.2
========= =========
Earnings per share -- assuming dilution ............. 37.9 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>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 11.2 $ 10.7
Adjustments to reconcile net income to net cash provided by
(used in) operating activities --
Provision for bad debts ........................................ 1.0 1.0
Depreciation and amortization .................................. 6.3 4.9
Changes in operating assets and liabilities, net of acquisitions
and non-cash transactions --
Accounts receivable ......................................... (55.7) (21.3)
Inventories ................................................. (48.4) 17.6
Prepaid expenses and other assets ........................... 2.8 4.5
Accounts payable and accrued liabilities .................... 42.1 (11.2)
Income taxes payable ........................................ 3.3 1.6
Other operating ................................................ .3 .5
--------- ---------
Net cash (used in) provided by operating activities ....... (37.1) 8.3
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from securitization of receivables ...................... 10.0 87.0
Purchases of property and equipment .............................. (12.6) (6.3)
Purchase of businesses, net of acquired cash ..................... (8.6) (14.3)
Other investing .................................................. .2 .4
--------- ---------
Net cash (used in) provided by investing activities ....... (11.0) 66.8
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on revolving credit facilities ....... 58.3 (77.5)
Net repayments on long-term debt ................................. (.4) (.5)
Purchase of treasury stock ....................................... (7.8) --
Other financing .................................................. (.1) (.2)
--------- ---------
Net cash provided by (used in) financing activities ....... 50.0 (78.2)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... 1.9 (3.1)
CASH AND CASH EQUIVALENTS, beginning of period ......................... 4.7 9.3
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................... $ 6.6 $ 6.2
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
4
<PAGE>
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 to become a leading national value-added metals processor and
distributor. Through March 31, 2000, Metals USA has acquired numerous metal
processing and distributing companies. Metals USA, together with its
wholly-owned subsidiaries, is referred to as the "Company."
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
most recent 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 generally accepted accounting principles 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 the companies acquired during the last twelve
months using the "purchase" method of accounting and, accordingly, are subject
to final adjustment.
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 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
5
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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
MARCH 31,
---------------------
2000 1999
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Number of shares used in computing earnings per share
(weighted-average shares) .................................. 37.5 38.2
Effect of dilutive securities:
Stock options ................................................ -- --
Convertible securities ....................................... .4 .2
--------- ---------
Number of shares used in computing earnings per share --
assuming dilution (weighted-average shares) ................ 37.9 38.4
========= =========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials -- (UNAUDITED)
Plates and Shapes ................................ $ 126.2 $ 113.0
Flat Rolled ...................................... 87.0 63.1
Specialty Metals ................................. 112.4 105.2
Building Products ................................ 23.5 17.8
--------- ------------
Total raw materials ........................... 349.1 299.1
--------- ------------
Work-in-process and finished goods --
Plates and Shapes ................................ .8 .6
Flat Rolled ...................................... 17.1 14.8
Specialty Metals ................................. 12.0 10.3
Building Products ................................ 23.6 25.7
--------- ------------
Total work-in-process and finished goods ...... 53.5 51.4
--------- ------------
Less -- LIFO reserve ............................... -- --
--------- ------------
Total ......................................... $ 402.6 $ 350.5
========= ============
</TABLE>
6
<PAGE>
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>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(UNAUDITED)
<S> <C> <C>
Borrowings under the Credit Facility .............. $ 263.5 $ 196.0
8 5/8% Senior Subordinated Notes .................. 200.0 200.0
Industrial Revenue Bonds (various issues) ......... 24.2 24.3
Obligations under capital leases and other ........ 13.8 20.5
--------- ------------
501.5 440.8
Less -- Current portion ........................... (8.4) (6.1)
--------- ------------
Total .......................................... $ 493.1 $ 434.7
========== ============
</TABLE>
The Credit Facility provides for up to $350.0 of borrowings, 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 months
ended March 31, 2000 was 7.82%. At March 31, 2000, $86.5 was available to the
Company under the Credit Facility. At March 31, 2000, the Company had $3.8
available for the payment of dividends under the terms of the Credit Facility.
As of May 9, 2000, the Company had outstanding borrowings of $302.5 and $47.5
was available for use under this facility.
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 March 31, 2000, the
unpurchased portion of the MRC receivable portfolio was $69.0 and is included in
accounts receivable on the consolidated balance sheet. The Company recorded $1.5
and $.9 of expense attributable to the Receivable Securitization Facility for
the three months ended March 31, 2000 and 1999, respectively, which is included
in interest and securitization expense on the consolidated statements of
operations.
5. 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.
6. STOCKHOLDERS' EQUITY
In April 1999, the Board of Directors approved the use of up to $25.0 for
the purchase of the Company's Common Stock. Shares may be purchased in open
market or privately negotiated transactions. During the three months ended March
31, 2000, the Company repurchased 1,130,193 shares.
7
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On February 10, 2000, the Company announced its first quarterly dividend
of $.03 per share, payable on April 10, 2000 to stockholders of record on March
17, 2000.
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 March 31,
2000.
Plates and Shapes ....................................... $ .5
Flat Rolled ............................................. --
Specialty Metals ........................................ 1.8
Building Products ....................................... .2
---------
Total ................................................. $ 2.5
=========
The Company expects to incur approximately $1.0 to $2.0 during each of the
next two quarterly reporting periods with respect to the personnel related
costs. Approximately $4.0 of facility integration 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 third 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. 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 processing and
distributing distinct products for different customer bases. Each segment is
managed by a product segment team focused on improving and expanding operations.
The four operating segments are: Plates and Shapes, Flat Rolled, Specialty
Metals and Building Products. The Company has made certain changes among its
product segments subsequent to year end; accordingly, amounts shown for 1999
have been restated to conform to the 2000 presentation.
8
<PAGE>
METALS USA, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table shows summarized financial information concerning the
Company's reportable segments.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
PLATES AND SPECIALTY BUILDING CORPORATE
SHAPES FLAT ROLLED METALS PRODUCTS AND OTHER TOTAL
---------- ----------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
2000:
Net sales ......................... $ 202.3 $ 147.2 $ 147.4 $ 37.0 $ (10.1) $ 523.8
Operating income (loss) ........... 18.1 7.3 7.0 1.2 (3.4) 30.2
Total assets ...................... 298.1 231.3 230.9 127.1 269.6 1,157.0
Capital expenditures .............. 5.5 1.5 2.7 1.8 1.1 12.6
Depreciation and amortization ..... 2.1 1.1 1.0 .7 1.4 6.3
1999:
Net sales ......................... $ 159.8 $ 102.0 $ 140.6 $ 26.0 $ (6.0) $ 422.4
Operating income (loss) ........... 14.0 6.3 8.3 1.3 (2.3) 27.6
Total assets ...................... 300.0 121.9 210.3 83.0 236.5 951.7
Capital expenditures .............. 3.2 1.1 1.5 .4 .1 6.3
Depreciation and amortization ..... 1.8 .6 1.0 .5 1.0 4.9
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
Supplemental cash flow information:
Cash paid for interest ................................... $ 15.0 $ 13.0
Cash paid for income taxes ............................... -- 2.0
Non-cash investing and financing activities:
Treasury stock acquired in exchange for cash
surrender value of certain life insurance contracts . $ 1.0 $ --
Acquisition of businesses:
Fair value of assets acquired ....................... $ 12.3 $ 17.1
Consideration given:
Cash paid ......................................... 7.8 14.9
Stock issued ...................................... -- --
Notes issued ...................................... -- --
-------- --------
Liabilities assumed ................................. $ 4.5 $ 2.2
======== ========
9
<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 Form 10-Q have the same meaning given to them in the Form 10-K.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS -- THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31,
1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------
2000 % 1999 %
-------------- --------- -------------- ---------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Net sales .................................... $ 523.8 100.0% $ 422.4 100.0%
Operating costs and expenses:
Cost of sales ............................. 392.6 75.0% 314.5 74.5%
Operating and delivery .................... 56.2 10.7% 44.4 10.5%
Selling, general and administrative ....... 38.5 7.4% 31.0 7.3%
Depreciation and amortization ............. 6.3 1.1% 4.9 1.2%
-------------- --------- -------------- ---------
Operating income ............................. 30.2 5.8% 27.6 6.5%
Interest and securitization expense ....... 11.5 2.2% 9.6 2.3%
Other (income) expense, net ............... (.4) (.1)% (.1) -- %
-------------- --------- -------------- --------
Income before income taxes ................... $ 19.1 3.7% $ 18.1 4.2%
============== ========= ============== =========
</TABLE>
NET SALES. Net sales increased $101.4 million, or 24.0%, from $422.4
million for the three months ended March 31, 1999 to $523.8 million for the
three months ended March 31, 2000. The increase in net sales was principally due
to increased shipments in substantially all product lines, except for the
aerospace related businesses.
COST OF SALES. Cost of sales increased $78.1 million, or 24.8%, from
$314.5 million for the three months ended March 31, 1999, to $392.6 million for
the three months ended March 31, 2000. The increase in cost of sales was
principally due to the increased shipments described above. As a percentage of
net sales, cost of sales increased from 74.5% for the three months ended March
31, 1999 to 75.0% for the three months ended March 31, 2000. This percentage
increase was primarily due to higher cost of raw materials.
10
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OPERATING AND DELIVERY. Operating and delivery expenses increased $11.8
million, or 26.6%, from $44.4 million for the three months ended March 31, 1999
to $56.2 million for the three months ended March 31, 2000. The increase in
operating and delivery expenses was principally due to the increased shipments
described above. As a percentage of net sales, operating and delivery expenses
increased from 10.5% for the three months ended March 31, 1999 to 10.7% for the
three months ended March 31, 2000. This percentage increase was primarily due to
increased costs of the additional distribution facilities of the Building
Products Group.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased $7.5 million, or 24.2%, from $31.0 million for the three
months ended March 31, 1999 to $38.5 million for the three months ended March
31, 2000. This increase in selling, general and administrative expenses was
primarily attributable to the increased product shipments described above and,
to a lesser extent, increased spending on technology initiatives. As a
percentage of net sales, selling, general and administrative expenses were
essentially unchanged as the percentage increased from 7.3% for the three months
ended March 31, 1999 to 7.4% for the three months ended March 31, 2000
OPERATING INCOME. Operating income increased $2.6 million, or 9.4%, from
$27.6 million for the three months ended March 31, 1999 to $30.2 million for the
three months ended March 31, 2000. The increase in operating income was
attributable to higher product shipments. As a percentage of net sales,
operating income decreased from 6.5% for the three months ended March 31, 1999
to 5.8% for the three months ended March 31, 2000. This percentage decrease was
primarily due to higher cost of raw materials during the three months ended
March 31, 2000.
INTEREST AND SECURITIZATION EXPENSE. Interest and securitization expense
increased $1.9 million, or 19.8%, from $9.6 million for the three months ended
March 31, 1999 to $11.5 million for the three months ended March 31, 2000. The
increase in interest expense was primarily due to increased borrowings
attributable to the increased working capital required to support the increased
sales and the debt assumed and the cash portion of the purchase price paid in
connection with acquisitions completed in 1999.
OTHER (INCOME) EXPENSE. Other (income) expense decreased $0.3 million,
from $(.1) million for the three months ended March 31, 1999 to $(.4) million
for the three months ended March 31, 2000.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
differs from the federal statutory rate principally due to state income taxes
(net of federal income tax benefit) and the non-deductibility of the
amortization of goodwill attributable to certain acquisitions.
11
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SEGMENT RESULTS -- THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999
The Company has made certain changes among its product segments subsequent
to year end; accordingly, amounts shown for 1999 have been restated to conform
to the 2000 presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------------
OPERATING OPERATING
NET COSTS AND INCOME CAPITAL
SALES % EXPENSES % (LOSS) % EXPENDITURES %
------ ----- --------- ----- --------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000: (IN MILLIONS, EXCEPT PERCENTAGES)
Plates and Shapes ...... $202.3 38.6% $ 184.2 37.3% $ 18.1 59.9% $ 5.5 43.7%
Flat Rolled ............ 147.2 28.1% 139.9 28.3% 7.3 24.2% 1.5 11.9%
Specialty Metals ....... 147.4 28.1% 140.4 28.4% 7.0 23.2% 2.7 21.4%
Building Products ...... 37.0 7.1% 35.8 7.3% 1.2 4.0% 1.8 14.3%
Corporate and other .... (10.1) (1.9)% (6.7) (1.3)% (3.4) (11.3)% 1.1 8.7%
------ ----- --------- ----- --------- ----- ------------ -----
Total ............... $523.8 100.0% $ 493.6 100.0% $ 30.2 100.0% $ 12.6 100.0%
====== ===== ========= ===== ========= ===== ============ =====
1999:
Plates and Shapes ...... $159.8 37.8% $ 145.8 36.9% $ 14.0 50.7% $ 3.2 50.8%
Flat Rolled ............ 102.0 24.1% 95.7 24.2% 6.3 22.8% 1.1 17.5%
Specialty Metals ....... 140.6 33.3% 132.3 33.5% 8.3 30.1% 1.5 23.8%
Building Products ...... 26.0 6.2% 24.7 6.3% 1.3 4.7% .4 6.3%
Corporate and other .... (6.0) (1.4)% (3.7) (.9)% (2.3) (8.3)% .1 1.6%
------ ----- --------- ----- --------- ----- ------------ -----
Total ................ $422.4 100.0% $ 394.8 100.0% $ 27.6 100.0% $ 6.3 100.0%
====== ===== ========= ===== ========= ===== ============ =====
</TABLE>
PLATES AND SHAPES. Net sales increased $42.5 million, or 26.6%, from
$159.8 million for the three months ended March 31, 1999 to $202.3 million for
the three months ended March 31, 2000. Shipments of steel products increased
23.9% and average sales prices increased approximately 2.2% for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999.
Operating costs and expenses increased $38.4 million, or 26.3%, from $145.8
million for the three months ended March 31, 1999 to $184.2 million for the
three months ended March 31, 2000. Operating costs and expenses as a percentage
of net sales decreased from 91.2% for the three months ended March 31, 1999 to
91.1% for the three months ended March 31, 2000. This percentage decrease was
primarily due to spreading fixed costs over the increased sales attributable to
the increased shipments. Operating income increased by $4.1 million, or 29.3%,
from $14.0 million for the three months ended March 31, 1999 to $18.1 million
for the three months ended March 31, 2000. Operating income as a percentage of
net sales increased from 8.8% for the three months ended March 31, 1999 to 8.9%
for the three months ended March 31, 2000. This percentage increase was due to
increased shipments of higher margin material.
FLAT ROLLED. Net sales increased $45.2 million, or 44.3%, from $102.0
million for the three months ended March 31, 1999 to $147.2 million for the
three months ended March 31, 2000. Average realized prices for steel products
increased approximately 3.5% for the three months ended March 31, 2000 compared
to the three months ended March 31, 1999. Material shipments increased 39.5% for
the three months ended March 31, 2000 compared to the three months ended March
31, 1999. The net sales attributable to acquisitions completed in 1999
contributed over half of the increase. Costs and expenses increased $44.2
million, or 46.2%, from $95.7 million for the three
12
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
months ended March 31, 1999 to $139.9 million for the three months ended March
31, 2000. Operating costs and expenses as a percentage of net sales, increased
from 93.8% for the three months ended March 31, 1999 to 95.0% for the three
months ended March 31, 2000. These increases were primarily attributable to
higher cost of raw materials. Operating income increased by $1.0 million, or
15.9%, from $6.3 million for the three months ended March 31, 1999 to $7.3
million for the three months ended March 31, 2000. Operating income as a
percentage of net sales decreased from 6.2% for the three months ended March 31,
1999 to 5.0% for the three months ended March 31, 2000. This percentage decrease
was attributable to the higher cost of raw materials.
SPECIALTY METALS. Net sales increased $6.8 million, or 4.8%, from $140.6
million for the three months ended March 31, 1999 to $147.4 million for the
three months ended March 31, 2000. The net sales attributable to non-aerospace
products increased $20.6 million. Costs and expenses increased $8.1 million, or
6.1%, from $132.3 million for the three months ended March 31, 1999 to $140.4
million for the three months ended March 31, 2000. Operating costs and expenses
as a percentage of net sales increased from 94.1% for the three months ended
March 31, 1999 to 95.3% for the three months ended March 31, 2000. This
percentage increase was primarily due to lower realized prices and shipments
primarily attributable to aerospace products. Operating income decreased by $1.3
million, or 15.7%, from $8.3 million for the three months ended March 31, 1999
to $7.0 million for the three months ended March 31, 2000. Operating income as a
percentage of net sales decreased from 5.9% for the three months ended March 31,
1999 to 4.7% for the three months ended March 31, 2000. This percentage decrease
was due to lower realized shipments and prices attributable to the aerospace
business, as described above.
BUILDING PRODUCTS. Net sales increased $11.0 million, or 42.3%, from $26.0
million for the three months ended March 31, 1999 to $37.0 million for the three
months ended March 31, 2000. The increase in net sales is principally due to the
Allmet acquisition completed in the fourth quarter of 1999. Operating costs and
expenses increased $11.1 million, or 44.9%, from $24.7 million for the three
months ended March 31, 1999 to $35.8 million for the three months ended March
31, 2000. Operating costs and expenses as a percentage of net sales increased
from 95.0% for the three months ended March 31, 1999 to 96.8% for the three
months ended March 31, 2000. Operating income decreased by $.1 million, or 7.7%,
from $1.3 million for the three months ended March 31, 1999 to $1.2 million for
the three months ended March 31, 2000. This decrease was principally due to the
cost of additional distribution facilities. Operating income as a percentage of
net sales decreased from 5.0% for the three months ended March 31, 1999 to 3.2%
for the three months ended March 31, 2000.
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 increased $1.1 million, or 47.8%, from $2.3 million for the three months
ended March 31, 1999 to $3.4 million for the three months ended March 31, 2000.
This increase is primarily attributable to increased spending on technology
related initiatives.
FINANCIAL CONDITION AND INVESTING AND FINANCING ACTIVITIES
The Company used $37.1 million in net cash from operating activities and
generated $8.3 million in net cash for operating activities for the three months
ended March 31, 2000 and 1999, respectively. Net cash used in investing
activities was $11.0 million and provided by investing activities was $66.8
million for the three months ended March 31, 2000 and 1999, respectively. The
cash used for investing activities during the three months ended March 31, 2000
included $8.6 million for acquisitions and $12.6 for capital expenditures. Net
cash provided by financing activities was $50.0 million and used in financing
activities was $78.2 million for the three months
13
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
ended March 31, 2000 and 1999, respectively. For the three months ended March
31, 2000, the cash provided by financing activities consisted primarily of
borrowings on the Credit Facility. 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. At March 31, 2000, the Company had cash of $6.6 million, working
capital of $353.0 million and total debt of $501.5 million. The increase in
indebtedness subsequent to year end was to support the additional working
capital requirements associated with increased sales. As of May 9, 2000, the
Company had outstanding borrowings under the Credit Facility of $302.5 million,
leaving $47.5 million available for use.
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 business and for general corporate purposes, including future
acquisitions. Both the Company's Credit Facility and the Notes contain
restrictions as to the payment of dividends. As of March 31, 2000, the Company
had $3.8 million available for the payment of dividends under the terms of the
Credit Facility. On February 10, 2000, the Company announced its first quarterly
dividend of $.03 per share, payable on April 10, 2000 to stockholders of record
on March 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.
The Company intends to continue to pursue acquisition opportunities. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings, including use of amounts available under the 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.
The Company has an effective Shelf Registration Statement relating to the
issuance of up to 10,000,000 shares of common stock to be issued in connection
with future acquisitions. As of March 31, 2000, approximately 6,914,140 shares
are available under this registration statement for use in connection with
future acquisitions.
14
<PAGE>
METALS USA, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FINANCING ACTIVITIES
In April 1999, the Company's Board of Directors approved the use of up to
$25.0 million to repurchase shares of the Company's Common Stock. The shares may
be purchased, from time to time, in open market or in privately negotiated
transactions. As of May 9, 2000, the Company had repurchased 1,926,143 shares.
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:
21 List of Subsidiaries of the Company
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
None.
15
<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 accounting officer of the Registrant.
METALS USA, INC.
Date: May 12, 2000 By: \S\ TERRY L. FREEMAN
--------------------------------------
Terry L. Freeman
Vice President, Corporate Controller
and Chief Accounting Officer
16
EXHIBIT 21
METALS USA, INC.
PRINCIPAL SUBSIDIARIES
Affiliated Metals Company
Allmet Building Products, L.P.
Fullerton Metals Company, Inc.
Harvey Titanium, Ltd.
i-Solutions Direct, Inc.
Independent Metals L.L.C.
Intsel Southwest Limited Partnership
Jeffreys Steel Company, Inc.
The Levinson Steel Company, L.P.
Meier Metal Servicenters, Inc.
Metals USA Management Co., L.P.
Pacific Metal Company
Professional Metals, Inc.
Steel Service Systems, Inc.
Texas Aluminum Industries, Inc.
Uni-Steel, Inc.
Wayne Steel, Inc.
Williams Steel & Supply Co., Inc.
Wolf Brothers, L.L.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,578
<SECURITIES> 0
<RECEIVABLES> 182,477
<ALLOWANCES> (6,898)
<INVENTORY> 402,636
<CURRENT-ASSETS> 601,839
<PP&E> 282,162
<DEPRECIATION> (46,022)
<TOTAL-ASSETS> 1,157,015
<CURRENT-LIABILITIES> 248,949
<BONDS> 0
0
0
<COMMON> 385
<OTHER-SE> 380,226
<TOTAL-LIABILITY-AND-EQUITY> 1,157,015
<SALES> 523,811
<TOTAL-REVENUES> 523,811
<CGS> 392,593
<TOTAL-COSTS> 101,025
<OTHER-EXPENSES> (404)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,500
<INCOME-PRETAX> 19,097
<INCOME-TAX> 7,925
<INCOME-CONTINUING> 11,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,172
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
