Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

( X )

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017March 31, 2024

 

(    )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to ____________

 

Commission File Number 0-23320

 

OLYMPIC STEEL, INC.

(Exact name of registrant as specified in its charter)

 

 

Ohio

 

34-1245650

 
 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S.EmployerI.R.S. Employer Identification Number)

 
 incorporation or organization) Identification Number) 

 

22901 Millcreek Boulevard, Suite 650, Highland Hills, OH

 

44122

 
 

(Address of principal executive offices)

 

(Zip Code)

 

 

Registrant's telephone number, including area code (216) 292-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, without par value

ZEUS

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes (X) No ( )

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (X) No ( )

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Act.

 

Large accelerated filer ( )

Accelerated filer (X) 

Non-accelerated filer ( )

Smaller reporting company ( )

(Do not check if a smaller reporting company)

 

Emerging growth company ( )

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ( )

 

Indicate by check mark whether the registrant is a shell company (as defined Rule 12b-2 of the Exchange Act). Yes ( ) No (X)

 

Indicate the number of shares of each of the issuer's classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of November 8, 2017May 3, 2024

Common stock, without par value

 

10,971,52111,132,542



 

 

 

Olympic Steel, Inc.

Index to Form 10-Q

 

 

Page No.

  

Part I. FINANCIAL INFORMATION

3

 

Item 1. Financial Statements

3

  Consolidated Balance Sheets – September 30, 2017 and December 31, 2016 (unaudited)3
  

Consolidated StatementsBalance Sheets – March 31, 2024 and December 31, 2023 (unaudited)

3

Consolidated Statements of Comprehensive Income – for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 (unaudited)

4

  

Consolidated StatementsStatements of Cash Flows – for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 (unaudited)

5

  

Supplemental Disclosures of Cash Flow Information – for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 (unaudited)

6

  

Consolidated Statements of Shareholders’ Equity – for the three months ended March 31, 2024 and 2023 (unaudited)

7

Notes to Unaudited Consolidated Financial Statements

7

8

 

Item 2. ManagementManagement’ss Discussion and Analysis of Financial Condition and Results of Operations

16

21

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

27

33

 Item 4.  Controls and Procedures28

Part II.  OTHER INFORMATION

29
 

Item 4. Controls and Procedures.

34

Part II. OTHER INFORMATION

35

Item 5. Other Information

35

Item 6. Exhibits

29

36

SIGNATURES

30

37

 


2

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Olympic Steel, Inc.

Consolidated Balance Sheets

 (in thousands)

  

As of

 
  

September 30, 2017

  

December 31, 2016

 
  

(unaudited)

 

Assets

        

Cash and cash equivalents

 $4,157  $2,315 

Accounts receivable, net

  150,692   101,902 

Inventories, net (includes LIFO debit of $6,569 as of September 30, 2017 and $8,045 as of December 31, 2016)

  280,223   254,526 

Prepaid expenses and other

  5,510   6,197 

Assets held for sale

  844   - 

Total current assets

  441,426   364,940 

Property and equipment, at cost

  374,653   374,242 

Accumulated depreciation

  (226,553)  (218,476)

Net property and equipment

  148,100   155,766 

Intangible assets, net

  23,202   23,869 

Other long-term assets

  12,170   11,493 

Total assets

 $624,898  $556,068 
         

Liabilities

        

Current portion of long-term debt

 $930  $1,825 

Accounts payable

  80,189   79,458 

Accrued payroll

  12,339   8,445 

Other accrued liabilities

  10,911   15,170 

Total current liabilities

  104,369   104,898 

Credit facility revolver

  220,409   164,599 

Other long-term liabilities

  11,482   10,062 

Deferred income taxes

  20,176   23,119 

Total liabilities

  356,436   302,678 

Shareholders' Equity

        

Preferred stock

  -   - 

Common stock

  129,490   128,619 

Treasury stock

  (527)  (609)

Retained earnings

  139,499   125,380 

Total shareholders' equity

  268,462   253,390 

Total liabilities and shareholders' equity

 $624,898  $556,068 

 

 

Olympic Steel, Inc.

Consolidated Balance Sheets

(in thousands)

  

As of

 
  

March 31, 2024

  

December 31, 2023

 
  

(unaudited)

 

Assets

        

Cash and cash equivalents

 $10,340  $13,224 

Accounts receivable, net

  214,753   191,149 

Inventories, net (includes LIFO reserves of $12,443 and $12,043 as of March 31, 2024 and December 31, 2023, respectively)

  397,567   386,535 

Prepaid expenses and other

  9,304   12,261 

Total current assets

  631,964   603,169 

Property and equipment, at cost

  487,968   483,448 

Accumulated depreciation

  (303,462)  (297,340)

Net property and equipment

  184,506   186,108 

Goodwill

  52,091   52,091 

Intangible assets, net

  91,559   92,621 

Other long-term assets

  18,864   16,466 

Right of use assets, net

  32,795   34,380 

Total assets

 $1,011,779  $984,835 
         

Liabilities

        

Accounts payable

 $149,429  $119,718 

Accrued payroll

  16,475   30,113 

Other accrued liabilities

  19,273   22,593 

Current portion of lease liabilities

  7,786   7,813 

Total current liabilities

  192,963   180,237 

Credit facility revolver

  196,800   190,198 

Other long-term liabilities

  22,420   20,151 

Deferred income taxes

  10,897   11,510 

Lease liabilities

  25,714   27,261 

Total liabilities

  448,794   429,357 

Shareholders' Equity

        

Preferred stock

  -   - 

Common stock

  137,063   136,541 

Accumulated other comprehensive income

  -   41 

Retained earnings

  425,922   418,896 

Total shareholders' equity

  562,985   555,478 

Total liabilities and shareholders' equity

 $1,011,779  $984,835 

The accompanying notes are an integral part of these consolidated statements.

 


3

 

Olympic Steel, Inc.

Consolidated StatementsStatements of Comprehensive Income

For the Three Months Ended March 31,

(in thousands, except per share data)

 

 

Three months ended

  

Nine months ended

 
 

September 30,

  

September 30,

  

2024

  

2023

 
 

2017

  

2016

  

2017

  

2016

  

(unaudited)

 
 

(unaudited)

  

Net sales

 $331,442  $268,255  $1,022,530  $800,212  $526,642  $573,076 

Costs and expenses

                 

Cost of materials sold (excludes items shown separately below)

  265,351   211,037   806,846   616,545  407,538  452,636 

Warehouse and processing

  20,531   20,034   65,870   61,561  32,893  30,649 

Administrative and general

  16,647   16,003   52,699   48,054  30,152  33,185 

Distribution

  10,574   8,995   31,507   27,762  16,758  17,741 

Selling

  6,797   5,629   19,804   17,361  11,536  10,397 

Occupancy

  2,150   2,135   6,651   6,630  4,493  4,544 

Depreciation

  3,883   4,172   12,516   13,231  6,006  5,077 

Amortization

  223   223   667   667   1,328   1,124 

Total costs and expenses

  326,156   268,228   996,560   791,811   510,704   555,353 

Operating income

  5,286   27   25,970   8,401  15,938  17,723 

Other income (loss), net

  (22)  21   (76)  (42)

Other loss, net

  19   11 

Income before interest and income taxes

  5,264   48   25,894   8,359  15,919  17,712 

Interest and other expense on debt

  1,966   1,336   5,380   3,895   4,010   4,223 

Income (loss) before income taxes

  3,298   (1,288)  20,514   4,464 

Income before income taxes

 11,909  13,489 

Income tax provision

  1,018   469   5,738   3,438   3,212   3,617 

Net income (loss)

 $2,280  $(1,757) $14,776  $1,026 

Net gain on cash flow hedge

  -   -   -   114 

Net income

 $8,697  $9,872 

Loss on cash flow hedge

 (41) (405)

Tax effect on cash flow hedge

  -   -   -   (44)  -   101 

Total comprehensive income

 $2,280  $(1,757) $14,776  $1,096  $8,656  $9,568 
                 

Earnings per share:

                 

Net income (loss) per share - basic

 $0.20  $(0.16) $1.30  $0.09 

Net income per share - basic

 $0.75  $0.85 

Weighted average shares outstanding - basic

  11,386   11,219   11,384   11,206   11,663   11,570 

Net income (loss) per share - diluted

 $0.20  $(0.16) $1.30  $0.09 

Net income per share - diluted

 $0.75  $0.85 

Weighted average shares outstanding - diluted

  11,386   11,219   11,384   11,206   11,663   11,571 
 

Dividends declared per share of common stock

 $0.150  $0.125 

 

The accompanying notes are an integral part of these consolidated statements.statements.

 


4

 

Olympic Steel, Inc.

Consolidated StatementsStatements of Cash Flows

For the NineThree Months Ended September 30,March 31,

(in thousands)

 

 

2017

  

2016

  

2024

  

2023

 
 

(unaudited)

  (unaudited) 

Cash flows from (used for) operating activities:

        
 

Cash flows (used for) from operating activities:

 

Net income

 $14,776  $1,026  $8,697  $9,872 

Adjustments to reconcile net income to net cash from (used for) operating activities -

        

Adjustments to reconcile net income to net cash (used for) from operating activities -

 

Depreciation and amortization

  13,872   14,586  7,334  6,201 

Gain on disposition of property and equipment

  (38)  (161)

Amortization of deferred financing fees

 194  132 

Loss (Gain) on disposition of property and equipment

 197  (92)

Stock-based compensation

  944   400  522  407 

Other long-term assets

  (1,264)  (3,713) (982) (1,587)

Other long-term liabilities

  (1,523)  4,192   330   1,020 
  26,767   16,330   16,292   15,953 

Changes in working capital:

         

Accounts receivable

  (48,790)  (18,112) (23,604) (6,458)

Inventories

  (25,697)  (24,175) (11,032) 26,184 

Prepaid expenses and other

  710   1,618  3,032  2,412 

Accounts payable

  178   10,913  28,779  37,476 

Change in outstanding checks

  553   (1,518) 932  167 

Accrued payroll and other accrued liabilities

  (363)  5,256   (17,007)  (23,294)
  (73,409)  (26,018)  (18,900)  36,487 

Net cash used for operating activities

  (46,642)  (9,688)

Net cash (used for) from operating activities

  (2,608)  52,440 
         

Cash flows from (used for) investing activities:

        

Cash flows used for investing activities:

 

Acquisition, net of cash acquired

 -  (129,476)

Capital expenditures

  (6,470)  (5,335) (4,818) (7,415)

Proceeds from disposition of property and equipment

  814   161   -   124 

Net cash used for investing activities

  (5,656)  (5,174)  (4,818)  (136,767)
         

Cash flows from (used for) financing activities:

        

Cash flows from financing activities:

 

Credit facility revolver borrowings

  310,734   230,911  166,595  263,194 

Credit facility revolver repayments

  (254,925)  (213,195) (159,993) (170,087)

Industrial revenue bond repayments

  (895)  (865)

Principal payment under finance lease obligation

 (289) (220)

Credit facility fees and expenses

  (125)  (125) (100) (944)

Proceeds from exercise of stock options (including tax benefits) and employee stock purchases

  9   34 

Dividends paid

  (658)  (657)

Dividends paid on common stock

  (1,671)  (1,392)

Net cash from financing activities

  54,140   16,103   4,542   90,551 
         

Cash and cash equivalents:

         

Net change

  1,842   1,241  (2,884) 6,224 

Beginning balance

  2,315   1,604   13,224   12,189 

Ending balance

 $4,157  $2,845  $10,340  $18,413 

 

 

The accompanying notes are an integral part of these consolidated statements.statements.

 


5

 

Olympic Steel, Inc.

Supplemental Disclosures of Cash Flow Information

For the NineThree Months Ended September 30,March 31,

(in thousands)

 

 

2017

  

2016

  

2024

  

2023

 
 

(unaudited)

  

(unaudited)

 
         

Interest paid

 $4,691  $3,257  $3,590  $3,561 

Income taxes paid

 $7,918  $890 

Income taxes paid (refunded)

 $(69) $115 

 

 

The Company incurred a nominal amount of new financing lease obligations during the three months ended March 31, 2024. The Company incurred $1.7 million of new financing lease obligations during the three months ended March 31, 2023. These non-cash transactions have been excluded from the Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023.

The accompanying notes are an integral part of these consolidated statements.statements.

 


6

Olympic Steel, Inc.

Consolidated Statements of Shareholders Equity

(in thousands)

(unaudited)

  

For the Three Months Ended March 31, 2024

 
      

Accumulated

         
      

Other

         
  

Common

  

Comprehensive

  

Retained

  

Total

 
  

Stock

  

Income

  

Earnings

  

Equity

 
                 

Balance at December 31, 2023

 $136,541  $41  $418,896  $555,478 

Net income

  -   -   8,697   8,697 

Payment of dividends on common stock ($0.150 per share)

  -   -   (1,671)  (1,671)

Stock-based compensation

  522   -   -   522 

Changes in fair value of hedges, net of tax

  -   (41)  -   (41)

Balance at March 31, 2024

 $137,063  $-  $425,922  $562,985 

  

For the Three Months Ended March 31, 2023

 
      

Accumulated

         
      

Other

         
  

Common

  

Comprehensive

  

Retained

  

Total

 
  

Stock

  

Income

  

Earnings

  

Equity

 
                 

Balance at December 31, 2022

 $134,724  $1,311  $379,933  $515,968 

Net income

  -   -   9,872   9,872 

Payment of dividends on common stock ($0.125 per share)

  -   -   (1,392)  (1,392)

Stock-based compensation

  407   -   -   407 

Changes in fair value of hedges, net of tax

  -   (304)  -   (304)

Balance at March 31, 2023

 $135,131  $1,007  $388,413  $524,551 

The accompanying notes are an integral part of these consolidated statements.

7

 

Olympic Steel, Inc.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017March 31, 2024

 

 

1.

Basis of Presentation:

 

The accompanying consolidated financial statements have been prepared from the financial records of Olympic Steel, Inc. and its wholly-owned subsidiaries (collectively, Olympic or the Company), without audit and reflect all normal and recurring adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods covered by this report. Year-to-date results are not necessarily indicative of 20172024 annual results and these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2016.2023. All intercompany transactions and balances have been eliminated in consolidation.

 

The Company operates in three reportable segments; carbonsegments: specialty metals flat products, specialty metalscarbon flat products, and tubular and pipe products. The carbonspecialty metals flat products segment and the specialty metalscarbon flat products segmentssegment are at times consolidated and referred to as the flat products segments. CertainSome of the flat products segments’ assets and resources are shared by the carbon and specialty metals and carbon flat products segments, and both segments’ products are stored in the shared facilities and, in some locations, processed on shared equipment. As such, total assets and capital expenditures are reported in the aggregate for the flat products segments. Due to the shared assets and resources, certain of the flat products segment expenses are allocated between the carbonspecialty metals flat products segment and the specialty metalscarbon flat products segment based upon an established allocation methodology.

The primary focus of the specialty metals flat products segment is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products, prime tin mill products and fabricated parts. Through acquisitions, the specialty metals flat products segment has expanded its geographical footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, flat bar, tube and pipe and the manufacturing and distribution of stainless steel bollards and water treatment systems. 

The primary focus of the carbon flat products segment is on the Company sellsdirect sale and distributesdistribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products and fabricated parts. Through acquisitions, the carbon flat products segment has expanded its product offerings to include self-dumping hoppers and steel and stainless-steel dump inserts for pickup truck and service truck beds. Through the acquisition of Metal-Fab, Inc. (Metal-Fab), on January 3, 2023, the carbon flat products segment further expanded its product offerings to include venting, micro air and clean air products for residential, commercial and industrial applications. 

The flat products segment acts as an intermediary between metals producers and manufacturers that require processed metals for their operations. The flat products segment serves customers in most metals consuming industries, including food service and commercial appliances, manufacturers and fabrications of transportation and material handling equipment, construction and farm machinery, storage tanks, environmental and energy generation equipment, automobiles, military vehicles and equipment, as well as general and plate fabricators and metals service centers. These products are primarily distributed through a direct sales force.

Combined, the carbon and specialty metals flat products segment,segments have 36 strategically located processing and distribution facilities in the Company sellsUnited States and distributes processed aluminumone in Monterrey, Mexico. Many of our facilities service both the carbon and stainless flat-rolled sheetthe specialty metals flat products segments, and coil products, flat bar productscertain assets and fabricated parts. Through itsresources are shared by the segments. Our geographic footprint allows us to focus on regional customers and larger national and multi-national accounts, primarily located throughout the midwestern, eastern and southern United States.

The primary focus of the tubular and pipe products segment which consistsis on the distribution of the Chicago Tube and Iron subsidiary (CTI), the Company distributes metal tubing, pipe, bar, valvesvalve and fittings and fabricatethe fabrication of pressure parts supplied to various industrial markets. Through the acquisition of Central Tube and Bar (CTB), on October 2, 2023, the tubular and pipe products segment further expanded its geographical footprint and extended its value-added contract manufacturing capabilities. The tubular and pipe products segment operates from 10 locations in the midwestern and southern United States. The tubular and pipe products segment distributes its products primarily through a direct sales force.

 

Corporate expenses are reported as a separate line item for segment reporting purposes. Corporate expenses include the unallocated expenses related to managing the entire Company (i.e., all three segments), including payroll expensescompensation for certain personnel, expenses related to being a publicly traded entity such as board of directorsdirectors’ expenses, audit expenses, and various other professional fees.

Impact of Recently Issued Accounting Pronouncements

 

In November 2023, the first quarterFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure". The objective of 2017,this ASU is to enhance the disclosures a public entity provides about their reportable segments. The ASU does not amend any of the existing guidance or requirements in Topic 280, Segment Reporting. Under the ASU, public entities must disclose incremental segment information on both an annual and interim basis. The ASU is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, applied retroactively. The Company does not anticipate this having a material impact on the Consolidated Financial Statements.

In December 2023, the FASB issued ASU No.2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The objective of this ASU is to improve the information a reporting entity provides to users of financial statements about the entity's operations and the effects of related tax risks and tax planning on the entity's tax rate and potential future cash flows. The ASU enhances disclosures regarding the rate reconciliation, income taxes paid and other items. The ASU is effective for annual periods beginning after December 15, 2024 for public business entities. The Company is not an early adopter of this guidance and it impacts are not included prospectively or retrospectively on the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

8

2.

Revenue Recognition:

The Company provides metals processing, distribution and delivery of large volumes of processed carbon, coated flat-rolled sheet, coil and plate products, aluminum, and stainless flat-rolled products, prime tin mill products, flat bar products, metal tubing, pipe, bar, valves, fittings, fabricated parts, venting, micro air and clean air products. The Company's contracts with customers are comprised of purchase orders with standard terms and conditions. Occasionally the Company made an out-of-period adjustment to correct and record previously unrecognized deferred tax assets, andmay also have longer-term agreements with customers. Substantially all of the associated tax benefit, relatedcontracts with customers require the delivery of metals, which represent single performance obligations that are satisfied at a point in time upon transfer of control of the product to the supplemental executive retirement plan (SERP). The adjustment, which had accumulated sincecustomer.

Transfer of control is assessed based on the inceptionuse of the plan in 2005, resulted in an increaseproduct distributed and rights to after-tax incomepayment for performance under the contract terms. Transfer of $1.9 million incontrol and revenue recognition for substantially all of the first quarterCompany’s sales occur upon shipment or delivery of 2017.the product, which is when title, ownership and risk of loss pass to the customer and is based on the applicable shipping terms. The shipping terms depend on the customer contract. An invoice for payment is issued at time of shipment and terms are generally net 30 days. The Company determined that this adjustment was has certain fabrication contracts in one business unit for which revenue is recognized over time as performance obligations are achieved. This fabrication business is not material to its current or prior periodthe Company's consolidated financial statements.results.

 

9

Within the metals industry, revenue is frequently disaggregated by products sold. The table below disaggregates the Company’s revenues by segment and products sold.

  

Disaggregated Revenue by Products Sold

 
  

For the Three Months Ended March 31, 2024

 
  

Specialty

             
  

metals flat

  

Carbon flat

  

Tubular and

     
  

products

  

products

  

pipe products

  

Total

 

Specialty

  24.6%  -   -   24.6%

Hot Rolled

  -   27.7%  -   27.7%

Tube

  -   -   18.3%  18.3%

Plate

  -   13.5%  -   13.5%

Coated

  -   11.1%  -   11.1%

Cold Rolled

  -   4.2%  -   4.2%

Other

  -   0.6%  -   0.6%

Total

  24.6%  57.1%  18.3%  100.0%

  

Disaggregated Revenue by Products Sold

 
  

For the Three Months Ended March 31, 2023

 
  

Specialty

             
  

metals flat

  

Carbon flat

  

Tubular and

     
  

products

  

products

  

pipe products

  

Total

 

Specialty

  29.1%  -   -   29.1%

Hot Rolled

  -   27.3%  -   27.3%

Tube

  -   -   16.9%  16.9%

Plate

  -   13.5%  -   13.5%

Coated

  -   8.5%  -   8.5%

Cold Rolled

  -   3.4%  -   3.4%

Other

  -   1.3%  -   1.3%

Total

  29.1%  54.0%  16.9%  100.0%

10

2.3.

Accounts Receivable:

 

Accounts receivable are presented net of allowances for doubtful accountscredit losses and unissued credits of $3.2$3.6 million and $2.4$4.2 million as of September 30, 2017March 31, 2024 and December 31, 2016,2023, respectively. The allowance for doubtful accountscredit losses is maintained at a level considered appropriate based on historical experience, and specific customer collection issues that have been identified.identified, current market conditions and estimates for supportable forecasts when appropriate. Estimations are based upon a calculated percentage of accounts receivable, which remains fairly level from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year. The Company cannot guarantee that the rate of future credit losses will be similar to past experience. The Company considers all available information when assessing the adequacy of its allowance for doubtful accountscredit losses and unissued credits each quarter.credits.

 

3.4.

InventoriesInventories::

 

Inventories consisted of the following:

  

Inventory as of

 

(in thousands)

 

September 30, 2017

  

December 31, 2016

 

Unprocessed

 $232,123  $203,256 

Processed and finished

  48,100   51,270 

Totals

 $280,223  $254,526 

 


  

Inventory as of

 

(in thousands)

 

March 31, 2024

  

December 31, 2023

 

Unprocessed

 $290,058  $282,565 

Processed and finished

  107,509   103,970 

Totals

 $397,567  $386,535 

 

The Company values certain of its tubular and pipe products inventory at the last-in, first-outfirst-out (LIFO) method. At September 30, 2017As of March 31, 2024 and December 31, 2016,2023, approximately $50.5$37.1 million, or 18.0%9.3% of consolidated inventory, and $43.4$38.2 million, or 17.1%9.9% of consolidated inventory, respectively, was reported under the LIFO method of accounting. The cost of the remainder of the tubular and pipe products inventory is determined using a weighted average rolling first-in, first-outfirst-in, first-out (FIFO) method.

 

During the three and nine months ended September 30, 2017,March 31, 2024, the Company recorded $0.7 million and $1.5$0.4 million of LIFO expense. The Company did not record LIFO expense respectively, asor income during the current projections anticipate increased pricing and volume of LIFO inventory for the remainder of the year. During the three and nine months ended September 30, 2016, the Company recorded $0.7 million of LIFO income.March 31, 2023.

 

If the FIFO method had been in use, inventories would have been $6.6$12.4 million lowerhigher than reported as of March 31, 2024 and $12.0 million higher than reported at September 30, 2017 and $8.0 million lower than reported at December 31, 2016.2023.

 

4.

Assets Held for Sale:

During the second quarter of 2017, the Company began actively marketing for sale certain property at the flat product segment’s Siler City, North Carolina facility. As a result of that decision, the Company reclassified $0.8 million of net book value related to that property along with certain machinery and equipment as assets held for sale in the Consolidated Balance Sheets. The sale of those assets is expected to be completed within the next twelve months and are presented as current. Based on the present real estate market and discussions with the Company’s real estate adviser, no impairment of the recorded amounts has occurred as of September 30, 2017.

5.

DebtGoodwill and Intangible Assets::

 

The Company's intangible assets were recorded in connection with its acquisitions of Metal-Fab and CTB in 2023, Shaw Stainless & Alloy, Inc. (Shaw) in 2021, Action Stainless & Alloys, Inc. (Action Stainless) in 2020, EZ Dumper® hydraulic dump inserts (EZ Dumper) and McCullough Industries (McCullough) in 2019, Berlin Metals, LLC (Berlin Metals) in 2018 and Chicago Tube and Iron (CTI) in 2011. The intangible assets were evaluated on the premise of highest and best use to a market participant, primarily utilizing the income approach valuation methodology.

11

Goodwill, by reportable unit, was as follows as of March 31, 2024 and December 31, 2023, respectively. The goodwill is deductible for tax purposes.

  

Carbon Flat

  

Specialty Metals

  

Tubular and

     

(in thousands)

 

Products

  

Flat Products

  

Pipe Products

  

Total

 

Balance as of December 31, 2023

 $34,259  $9,431  $8,401  $52,091 

Acquisitions

  -   -   -   - 

Impairments

  -   -   -   - 

Balance as of March 31, 2024

 $34,259  $9,431  $8,401  $52,091 

Intangible assets, net, consisted of the following as of March 31, 2024 and December 31, 2023, respectively:

  

As of March 31, 2024

 
  

Gross Carrying

  

Accumulated

  

Intangible

 

(in thousands)

 

Amount

  

Amortization

  

Assets, Net

 

Customer relationships - subject to amortization

 $62,559  $(15,911) $46,648 

Covenant not to compete - subject to amortization

  2,339   (783)  1,556 

Technology and know-how - subject to amortization

  7,000   (513)  6,487 

Trade name - not subject to amortization

  36,868   -   36,868 
  $108,766  $(17,207) $91,559 

  

As of December 31, 2023

 
  

Gross Carrying

  

Accumulated

  

Intangible

 

(in thousands)

 

Amount

  

Amortization

  

Assets, Net

 

Customer relationships - subject to amortization

 $62,559  $(15,084) $47,475 

Covenant not to compete - subject to amortization

  2,339   (679)  1,660 

Technology and know-how - subject to amortization

  7,000   (382)  6,618 

Trade name - not subject to amortization

  36,868   -   36,868 
  $108,766  $(16,145) $92,621 

The Company’s estimates that amortization expense for its intangible assets subject to amortization will be approximately $4.3 million per year for the next two years, $3.8 million the following year and then $3.3 million and $3.0 million, respectively, over the next two years.

6.

Leases:

The components of lease expense were as follows:

  

For the Three Months

 
  

Ended March 31,

 

(in thousands)

 

2024

  

2023

 

Operating lease cost

 $2,398  $2,140 
         

Finance lease cost:

        

Amortization of right-of-use assets

 $283  $229 

Interest on lease liabilities

  38   35 

Total finance lease cost

 $321  $264 

12

Supplemental cash flow information related to leases was as follows:

  

For the Three Months

 
  

Ended March 31,

 

(in thousands)

 

2024

  

2023

 

Cash paid for lease liabilities:

        

Operating cash flows from operating leases

 $2,386  $2,105 

Operating cash flows from finance leases

  38   35 

Financing cash flows from finance leases

  289   220 

Total cash paid for lease liabilities

 $2,713  $2,360 

Supplemental balance sheet information related to leases was as follows:

  

March 31,

  

December 31,

 

(in thousands)

 

2024

  

2023

 

Operating Leases

        

Operating lease

 $55,744  $56,117 

Operating lease accumulated amortization

  (22,949)  (21,737)

Operating lease right-of-use asset, net

  32,795   34,380 
         

Operating lease current liabilities

  7,786   7,813 

Operating lease liabilities

  25,714   27,261 

Total operating lease liabilities

 $33,500  $35,074 
         

Finance Leases

        

Finance lease

  5,732   5,686 

Finance lease accumulated depreciation

  (2,878)  (2,615)

Finance lease, net

  2,854   3,071 
         

Finance lease current liabilities

  1,034   1,087 

Finance lease liabilities

  1,934   2,106 

Total finance lease liabilities

 $2,968  $3,193 
         

Weighted Average Remaining Lease Term

        

Operating leases (in years)

  6   6 

Finance leases (in years)

  4   4 
         

Weighted Average Discount Rate

        

Operating leases

  4.10%  4.07%

Finance leases

  5.15%  5.06%

13

Maturities of lease liabilities were as follows:

  

Operating

  

Finance

 

(in thousands)

 

Leases

  

Leases

 

Year Ending December 31,

        

2024

 $6,898  $904 

2025

  7,552   926 

2026

  6,377   633 

2027

  5,119   432 

2028

  3,850   316 

Thereafter

  8,140   41 

Total future minimum lease payments

 $37,936  $3,252 

Less remaining imputed interest

  (4,436)  (284)

Total

 $33,500  $2,968 

7.

Debt:

The Company’s debt is comprised of the following components:

 

  

As of

 
  

September 30,

  

December 31,

 

(in thousands)

 

2017

  

2016

 

Asset-based revolving credit facility due June 30, 2019

 $220,409  $164,599 

Industrial revenue bond due April 1, 2018

  930   1,825 

Total debt

  221,339   166,424 

Less current amount

  (930)  (1,825)

Total long-term debt

 $220,409  $164,599 
  

As of

 
  

March 31,

  

December 31,

 

(in thousands)

 

2024

  

2023

 

Asset-based revolving credit facility due June 16, 2026

 $196,800  $190,198 

Total debt

 $196,800  $190,198 

 

The Company’s asset-based credit facility (theCompany's ABL Credit Facility)Facility is collateralized by the Company’sCompany's accounts receivable, inventory and inventory.personal property. The$625 million ABL Credit Facility consists of: (i) a revolving credit facility of up to $595 million, including a $20 million sub-limit for letters of credit, and (ii) a first in, last out revolving credit facility of up to $30 million. Under the terms of the ABL Credit Facility, consiststhe Company may, subject to the satisfaction of acertain conditions, request additional commitments under the revolving credit linefacility in the aggregate principal amount of $365 million. Revolver borrowings are limitedup to $200 million to the lesser of a borrowing base, comprised of eligible receivablesextent that existing or new lenders agree to provide such additional commitments, and inventories, or $365 million inadd real estate as collateral at the aggregate.Company’s discretion. The ABL Credit Facility matures on June 30, 2019.16, 2026.

 

The ABL Credit Facility requirescontains customary representations and warranties and certain covenants that limit the ability of the Company to, complyamong other things: (i) incur or guarantee additional indebtedness; (ii) pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; (iii) make investments; (iv) sell assets; (v) enter into agreements that restrict distributions or other payments from restricted subsidiaries to the Company; (vi) incur liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of the Company’s assets; and (viii) engage in transactions with various covenants, the most significant of which include: (i) until maturity ofaffiliates. In addition, the ABL Credit Facility contains a financial covenant which requires if any commitments or obligations are outstanding and the Company’sCompany’s availability is less than the greater of $30 million or 10.0% of the aggregate amount of revolver commitments ($36.562.5 million at September 30, 2017)March 31, 2024) or 10.0% of the aggregate borrowing base ($56.8 million at March 31, 2024), then the Company must maintain a ratio of EBITDAEarnings before Interest, Taxes, Depreciation and Amortization (EBITDA) minus certain capital expenditures and cash taxes paid to fixed charges of at least 1.00 to 1.00 for the most recent recent twelve fiscal month period; (ii) limitations on dividend paymentsperiod.

As of March 31, 2024, the Company was in compliance with its covenants and common stock repurchases; and (iii) restrictions on additional indebtedness. had approximately $366 million of availability under the ABL Credit Facility.

The Company has the option to borrow under its revolver based on the agent’s base rate plus a premium ranging from 0.00% to 0.25% or the London Interbank OfferedSecured Overnight Financing Rate (LIBOR)(SOFR) plus a premium ranging from from 1.25% to 3.00%2.75%.

 

14

As of September 30, 2017, the Company was in compliance with its covenantsMarch 31, 2024 and had approximately $110December 31, 2023, $1.6 million of availability under the ABL Credit Facility.

As of September 30, 2017, $1.4 and $1.7 million, respectively, of bank financing fees were included in “Prepaid expenses and other” and “Other long-term assets” on the accompanying Consolidated Balance Sheets. The financing fees are being amortized over the five-yearfive-year term of the ABL Credit facilityFacility and are included in “Interest and other expense on debt” on the accompanying Consolidated Statements of Comprehensive Income.

 


As part of the CTI acquisition in July 2011, the Company assumed approximately $5.9 million of Industrial Revenue Bond (IRB) indebtedness issued through the Stanly County, North Carolina Industrial Revenue and Pollution Control Authority. The bond matures in April 2018, with the option to provide principal payments annually in April. On April 3, 2017, the Company paid an optional principal payment of $0.9 million. The remaining balance of the IRB is included in “Current portion of long-term debt” on the accompanying Consolidated Balance Sheets as the payment is due in April 2018. Interest is payable monthly, with a variable rate that resets weekly. As a security for payment of the bonds, the Company obtained a direct pay letter of credit issued by JPMorgan Chase Bank, N.A. The letter of credit reduces annually by the principal reduction amount. The interest rate at September 30, 2017 was 0.9% for the IRB debt.

CTI entered into an interest rate swap agreement to reduce the impact of changes in interest rates on the IRB. At September 30, 2017, the effect of the swap agreement on the bond was to fix the rate at 3.46%. The swap agreement matures in April 2018, and is reduced annually by the amount of the optional principal payments on the bond. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counterparties.

6.8.

Derivative Instruments::

 

Metals swaps and embedded customer derivatives

During 2017During 2024 and 2016,2023, the CompanyCompany entered into nickel swaps indexed to the London Metal Exchange (LME) price of nickel with third-partythird-party brokers. The nickel swaps are accounted for as derivatives for accounting purposes. The Company entered into them to mitigate its customerscustomers’ risk of volatility in the price of metals. The outstanding nickel swaps mature in 2017 and 2018.2024. The swaps are settled with the brokers at maturity. The economic benefit or loss arising from the changes in fair value of the swaps is contractually passed through to the customer. The primary risk associated with the metals swaps is the ability of customers or third-partythird-party brokers to honor their agreements with the Company related to derivative instruments. If the customer or third-partythird-party brokers are unable to honor their agreements, the Company’s risk of loss is the fair value of the metals swaps.

 

While theseThese derivatives are intended to help the Company manage risk, they have not been designated as hedging instruments. The periodic changes in fair value of the metals and embedded customer derivative instruments are included in “Cost of materials sold” in the Consolidated Statements of Comprehensive Income. The Company recognizes derivative positions with both the customer and the third party for the derivatives and classifies cash settlement amounts associated with them as part of “Cost of materials sold” in the Consolidated Statements of Comprehensive Income. The cumulative change in fair value of the metals swaps that have had not yet been settled as of March 31, 2024, are included in “Other accrued liabilities” and the embedded customer derivatives are included in “Other accrued liabilities”, and “Accounts receivable, net” on the Consolidated Balance Sheets at September 30, 2017 and Decemberas of March 31, 2016.

Interest rate swap

CTI entered into an interest rate swap to reduce the impact of changes in interest rates on its IRB. The swap agreement matures in April 2018, the same time as the IRB, and is reduced annually by the amount of the optional principal payments on the IRB. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement. However, the Company does not anticipate nonperformance by the counterparties. The interest rate swap is not treated as a hedge for accounting purposes.

The periodic changes in fair value of the interest rate swap and cash settlement amounts associated with the interest rate swap are included in “Interest and other expense on debt” in the Consolidated Statements of Comprehensive Income.2024.  

 

Fixed rate interest rate hedge

In June 2012,On January 10, 2019, the Company entered into afive-year forward starting fixed rate interest rate hedge commencing June 2013 in order to eliminate the variability of cash interest payments on $53.2$75 million of the then outstanding LIBOR-basedLIBOR based borrowings under the ABL Credit Facility. The hedge, which matured on June 1, 2016, fixedJanuary 3, 2023, the rate at 1.21% plus a premium ranging from 1.25% to 1.75%. The fixed rateCompany amended the interest rate hedge was accounted foragreement to use SOFR as a cash flow hedging instrument for accounting purposes.the reference rate and updated the fixed rate to 2.42% from 2.57%. The interest rate hedge agreement ended on January 10, 2024.

 


There was no net impact from the nickel swaps or embedded customer derivative agreements to the Company’s Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016. The table below shows the total impact to the Company’s Consolidated Statements of Comprehensive Income through net income of the derivatives for the three and nine months ended September 30, 2017 March 31, 2024 and 2016.2023, respectively.

 

 

Net Gain (Loss) Recognized

 
 

Net Gain (Loss) Recognized

  

For the Three Months

 
 

For the Three Months

Ended September 30,

  

For the Nine Months

Ended September 30,

  

Ended March 31,

 

(in thousands)

 

2017

  

2016

  

2017

  

2016

  

2024

  

2023

 

Interest rate swap (CTI)

 $(6) $(19) $(24) $(52)

Fixed interest rate swap (ABL)

  -   -   -   (98)

Fixed interest rate hedge

 $55  $319 

Metals swaps

  156   111   79   173  1  (276)

Embedded customer derivatives

  (156)  (111)  (79)  (173)  (1)  276 

Total loss

 $(6) $(19) $(24) $(150)

Total gain

 $55  $319 

 

15

7.9.

Fair Value of Financial InstrumentsAssets and Liabilities::

 

During the three months ended September 30, 2017,March 31, 2024, there were no transfers of financial assets between Levels 1,2 or 3 fair value measurements. There have been no changes in the methodologies used at September 30, 2017as of March 31, 2024 since December 31, 2016. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value as of September 30, 2017 and December 31, 2016:

Metals swaps and embedded customer derivatives – Determined by using Level 2 inputs that include the price of nickel indexed to the LME. The fair value is determined based on quoted market prices and reflects the estimated amounts the Company would pay or receive to terminate the nickel swaps.

Interest rate swaps – Based on the present value of the expected future cash flows, considering the risks involved, and using discount rates appropriate for the maturity date. Market observable Level 2 inputs are used to determine the present value of future cash flows.2023.

 

The following table presents information about the Company’sCompany’s assets and liabilities that were measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company:

 

 

Value of Items Recorded at Fair Value

  

Value of Items Recorded at Fair Value

 
 

As of September 30, 2017

  

As of March 31, 2024

 

(in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                        

Metal Swaps

 $-  $70  $-  $70 

Metal swaps

 $-  $4,098  $-  $4,098 

Embedded customer derivative

 -  407  -  407 

Supplemental executive retirement plan

  13,726  -  -  13,726 

Total assets at fair value

 $-  $70  $-  $70  $13,726  $4,505  $-  $18,231 
                 

Liabilities:

                        

Embedded customer derivative

 $-  $40  $-  $40 

Interest rate swap (CTI)

  -   12   -   12 

Metal swaps

 $-  $4,505  $-  $4,505 

Total liabilities recorded at fair value

 $-  $52  $-  $52  $-  $4,505  $-  $4,505 

 

  

Value of Items Not Recorded at Fair Value

 
  

As of September 30, 2017

 

(in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Liabilities:

                

IRB

 $930  $-  $-  $930 

Revolver

  -   220,409   -   220,409 

Total liabilities not recorded at fair value

 $930  $220,409  $-  $221,339 
  

Value of Items Recorded at Fair Value

 
  

As of December 31, 2023

 

(in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Metal swaps

 $-  $4,458  $-  $4,458 

Embedded customer derivative

  -   766   -   766 

Fixed interest rate hedge

  -   55   -   55 

Supplemental executive retirement plan

  11,617   -   -   11,617 

Total assets at fair value

 $11,617  $5,279  $-  $16,896 
                 

Liabilities:

                

Metal swaps

 $-  $5,224  $-  $5,224 

Total liabilities at fair value

 $-  $5,224  $-  $5,224 

 

The value of the items not recorded at fair value represent the carrying value of the liabilities.


  

Value of Items Recorded at Fair Value

 
  

As of December 31, 2016

 

(in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets:

                

Embedded customer derivative

 $-  $113  $-  $113 

Total assets at fair value

 $-  $113  $-  $113 
                 

Liabilities:

                

Metals swaps

 $-  $113  $-  $113 

Interest rate swap (CTI)

  -   36   -   36 

Total liabilities recorded at fair value

 $-  $149  $-  $149 

  

Value of Items Not Recorded at Fair Value

 
  

As of December 31, 2016

 

(in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Liabilities:

                

IRB

 $1,825  $-  $-  $1,825 

Revolver

  -   164,599   -   164,599 

Total liabilities not recorded at fair value

 $1,825  $164,599  $-  $166,424 

The value of the items not recorded at fair value represent the carrying value of the liabilities.

 

The faircarrying value of the IRB is determined using Level 1 inputs. TheABL Credit Facility was $196.8 million and $190.2 million at March 31, 2024 and December 31, 2023, respectively.  Management believes that the ABL Credit Facility’s carrying value and theapproximates its fair value ofdue to the IRB that qualify as financial instruments was $0.9 million and $1.8 million at September 30, 2017 and December 31, 2016, respectively.variable interest rate on the ABL Credit Facility.

 

The fair value of the revolver is determined using Level 2 inputs. The Level 2 fair value of the Company's long-term debt was estimated using prevailing market interest rates on debt with similar credit worthiness, terms and maturities.

8.10.

Accumulated Other Comprehensive IncomeEquity Plans::

 

On January 10, 2019, the Company entered into a five-year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on $75 million of the outstanding LIBOR based borrowings under the ABL Credit Facility. January 3, 2023, the Company amended the interest rate hedge agreement to use SOFR as the reference rate and updated the fixed rate to 2.42% from 2.57%. The interest rate hedge agreement ended on January 10, 2024

11.

Equity Plans:

Restricted Shares, Restricted Stock Units and Performance Share Units

 

Pursuant to the Amended and Restated Olympic Steel 2007 Omnibus Incentive Plan (the(the Incentive Plan), the Company may grant stock options, stock appreciation rights, restricted shares (RS), restricted share units (RSU), performance shares, and other stock- and cash-based awards to employees and Directorsdirectors of, and consultants to, the Company and its affiliates. UnderSince adoption of the Incentive Plan, 1,000,000 shares1,400,000 shares of common stock are availablehave been authorized for equity grants.

On March 13, 2017 and May 1, 2016,an annual basis, the Compensation Committeecompensation committee of the Company’sCompany’s Board of Directors approved the grant of 3,501 and 3,094 restricted stock units (RSUs), respectively,awards RSs or RSUs to each non-employee Director. director as part of their annual compensation.

The annual award for 2024 per director was $110,000 of RSs. Subject to the terms of the Incentive Plan and the RS agreement, one-third of the RSs vest on each December 31,2024,December 31, 2025 and December 31, 2026. The grantee will not be entitled to vote on the RSs or receive dividends with respect to RSs until they vest. 

The annual award for 2023 per director was $80,000 of RSUs. Subject to the terms of the Incentive Plan and the RSU agreement, the 2023RSUs vest after one year of service (from the date of grant). The RSUs are not converted into shares of common stock until the director either resigns or is terminated from the Company's Board of Directors.

16

In January 2022, the Company adopted a new C-Suite Long-Term Incentive Plan (the C-Suite Plan) that operates under the Senior Manager Stock Incentive Plan. Under the C-Suite Plan, the Chief Executive Officer, the Chief Financial Officer and the President and Chief Operating Officer are eligible for participation. In each calendar year, the Committee may award eligible participants a long-term incentive of both a RSU grant and a performance stock units (PSU) grant. Additionally, the Committee may offer a long-term cash incentive (split equally between service and performance-based portions) to supplement both the RSU and PSU grants in order to arrive at the total long-term award target. For 2024, the total long-term award target is $1.1 million for the Chief Executive Officer, $0.8 million for the President and Chief Operating Officer and $0.5 million for the Chief Financial Officer. For 2023, the total long-term award target is $1.1 million for the Chief Executive Officer, $0.6 million for the President and Chief Operating Officer and $0.3 million for the Chief Financial Officer. The fair value of eachPSUs will vest if the return on net assets, calculated as EBITDA divided by Average Accounts Receivable, Inventory and Property and Equipment, exceeds five percent. Each RSU was estimated to be the closing price of the Company’s common stock on the date ofand service-based cash incentive vests three years after the grant which was $19.99 and $22.62 on March 31, 2017 and May 1, 2016, respectively.

On July 1, 2016, the Company created a new Senior Management Stock Incentive Program (the New Plan) for certain participants. Under the New Plan, each participant, subject to the terms and conditions of the plan and the attainment of minimum performance requirements, can be awarded RSUs with a dollar value equal to 10% of the participant’s base salary, up to an annual maximum of $17,500. The RSUs have a five-year vesting period and the RSUsdate. Each vested RSU will convert into the right to receive shares of common stock upon a participant’s retirement, or earlier upon the participant’s death or disability or upon a change in control of the Company. The carbon and specialty metals flat products segments adopted the New Plan on July 1, 2016 and the tubular and pipe products segment adopted the New Plan on January 1, 2017.


Prior to July 1, 2016, the Company’s Senior Management Compensation Program included an equity component in order to encourage more ownership of common stock by the senior management (the Old Plan). The Old Plan imposed stock ownership requirements upon the participants. Each participant was required to own at least 750 shares of common stock for each year that the participant participated in the Old Plan. Any participant that failed to meet the stock ownership requirements would be ineligible to receive any equity awards under the Company’s equity compensation plans, including the Plan, until the participant satisfied the ownership requirements. To assist participants in meeting the stock ownership requirements, on an annual basis, if a participant purchased 500 shares of common stock on the open market, the Company awarded that participant 250 sharesone share of common stock. During 2016,2024, a total of 17,243 RSUs and 17,243 PSUs were granted to the Company matched 2,500 shares. Additionally, any participant who continuedparticipants under the C-Suite Plan, and $37,400 and $37,400, respectively, were granted in service-based and performance-based cash awards. During 2023, a total of 20,000 RSUs and 20,000 PSUs were granted to comply with the stock ownership requirements asparticipants under the C-Suite Plan, and $0.3 million million and $0.3 million million, respectively, were granted in service-based and performance-based cash awards. If the return on net assets falls below 5 percent, no performance-based incentive will be awarded. The maximum performance-based award is achieved if return on net assets exceeds ten percent, and is capped at 150% of the five-year, 10-year, 15-year, 20-year and 25-year anniversaries of the participant’s participation in the Senior Management Compensation Program would receive a restricted stock unit award with a dollar value of $25 thousand, $50 thousand, $75 thousand, $100 thousand and $100 thousand, respectively. Restricted stock unit awards would convert into the right to receive shares of common stock upon a participant’s retirement, or earlier upon the participant’s death or disability or upon a change in control of the Company. The carbon and specialty metals flat products segments terminated this plan on July 1, 2016 and the tubular and pipe products segment terminated the plan on January 1, 2017.

As part of the termination of the Old Plan and the transition to the New Plan, participants were paid the RSU grants that were earned to date, or a pro-rata amount of the RSUs earned, depending on the participants’ length of time they participated in the plan. After the payment of the RSUs noted above, the remaining liability of approximately $1.0 million was reversed during 2016 in accordance with ASC No. 718.

During the third quarter of 2016, the Company adopted a formal RSU award program for employees who are promoted to an executive level position. During the third quarter of 2016, Andrew Greiff received 10,573 RSUs upon his promotion to Executive Vice President and Chief Operating Officer. These RSUs vest on the fifth anniversary of his promotion.grant.

 

Stock-based compensation expense or income recognized on RSUs for the three and nine months ended September 30, 2017 March 31, 2024 and 2016,2023, respectively, is summarized in the following table:

 

  

For the Three Months Ended

  

For the Nine Months Ended

 
  

September 30,

  

September 30,

 

(in thousands, except per share data)

 

2017

  

2016

  

2017

  

2016

 

RSU expense before taxes of New Plan

 $141  $-  $408  $- 

RSU expense (income) before taxes of Old Plan

  -  $162  $-  $(170)

RSU expense (income) after taxes

 $97  $220  $294  $(39)
  

For the Three Months Ended

 
  

March 31,

 

(in thousands, except per share data)

 

2024

  

2023

 

RS and RSU expense before taxes

 $479  $407 

RS and RSU expense after taxes

 $350  $298 

 

All pre-tax charges related to RSUsRS and RSU were included in the caption “Administrative and general” on the accompanying Consolidated Statements of Comprehensive Income.

 

The following table summarizes the activity related to RSUsRS for the ninethree months ended September 30, 2017:March 31, 2024 and 2023, respectively:

 

  

Number of

  

Weighted Average

 
  

Shares

  

Granted Price

 

Outstanding at December 31, 2016

  421,486  $19.92 

Granted

  73,021   20.01 

Converted into shares

  (7,658)  17.62 

Forfeited

  -   - 

Outstanding at September 30, 2017

  486,849  $19.97 

Vested at September 30, 2017

  421,849  $19.71 
  

As of March 31, 2024

  

As of March 31, 2023

 
  

Number of

  

Weighted Average

  

Number of

  

Weighted Average

 
  

Shares

  

Granted Price

  

Shares

  

Granted Price

 

Outstanding at December 31

  -  $-   -  $- 

Granted

  10,050   65.65   -   - 

Outstanding at March 31

  10,050  $65.65   -  $- 

Vested at March 31

  -  $-   -  $- 

The following table summarizes the activity related to RSU for the three months ended March 31, 2024 and 2023, respectively:

 

As of March 31, 2024

As of March 31, 2023

 

Number of

 

Weighted Average

Number of

 

Weighted Average

 

Shares

 

Granted Price

Shares

 

Granted Price

Outstanding at December 31

 662,103 $20.28 617,518 $18.95

Granted

 34,486  66.70 49,768  36.63

Converted into shares

 -  - (2,610) 18.78

Forfeited

 (2,570) 16.99 -  -

Outstanding at March 31

 694,019 $22.60 664,676 $20.28

Vested at March 31

 529,725 $20.10 438,914 $24.95

9.12.

Income Taxes::

 

OurFor the three months ended March 31, 2024, the Company recorded an income tax provision of $3.2 million, or 27.0%, compared to an income tax provision of $3.6 million, or 26.8%, for the three months ended March 31, 2023

The tax provision for the interim period is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items that are taken into account in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company makes a cumulative adjustment.

The quarterly tax provision and ourthe quarterly estimate of ourthe annual effective tax rate is subject to significant volatility due to several factors, including variability in accurately predicting our income before taxesthe Company’s pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, changes in law and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, ourthe effective tax rate can be more or less volatile based on the amount of income before taxes.pre-tax income. For example, the impact of discrete items and non-deductible expenses on ourthe effective tax rate is greater when our income before taxes is lower. 

For the three months ended September 30, 2017, the Company recorded an income tax provision of $1.0 million, or 30.9% of pre-tax income compared to an income tax provision of $0.5 million on loss before taxes of $1.3 million for the three months ended September 30, 2016 resulting in an effective tax rate of negative 36.4%. The tax provision recorded for the three months ended September 30, 2017 included a $0.3 million favorable return to provision adjustment. The tax provision recorded for the three months ended September 30, 2016 is primarily a result of an increase in tax expense from state and local income taxes applied against forecasted income for 2016 and discrete tax expense recorded during the third quarter of 2016, applied against a net loss for the quarter.lower.

 

17


For the nine months ended September 30, 2017, the Company recorded an income tax provision of $5.7 million, or 28.0% of pre-tax income, compared to an income tax provision of $3.4 million, or 77.0%, for the nine months ended September 30, 2016. In the first quarter of 2017, the Company made an out-of-period adjustment to correct and record previously unrecognized deferred tax assets, and the associated tax benefit, related to the SERP. The adjustment, which accumulated since the inception of the plan in 2005, resulted in an increase to after-tax income of $1.9 million in the first quarter of 2017.  The Company determined that this adjustment was not material to its current or prior period consolidated financial statements. During the nine months ended September 30, 2016, the Company recorded a valuation allowance of $0.8 million to reduce certain state deferred tax assets to the amount that is more likely than not to be realized. The valuation allowance increased the Company’s effective tax rate by 18.3% for the nine months ended September 30, 2016.

10.13.

Shares Outstanding and Earnings Per Share::

 

Earnings per share have been calculated based on the weighted average number of shares outstanding as set forth below:

 

 

For the Three Months Ended

  

For the Nine Months Ended

  

For the Three Months Ended

 
 

September 30,

  

September 30,

  

March 31,

 

(in thousands, except per share data)

 

2017

  

2016

  

2017

  

2016

  

2024

  

2023

 

Weighted average basic shares outstanding

  11,386   11,219   11,384   11,206  11,663  11,570 

Assumed exercise of stock options and issuance of stock awards

  -   -   -   -   -   1 

Weighted average diluted shares outstanding

  11,386   11,219   11,384   11,206   11,663   11,571 

Net income

 $2,280  $(1,757) $14,776  $1,026  $8,697  $9,872 

Basic earnings per share

 $0.20  $(0.16) $1.30  $0.09  $0.75  $0.85 

Diluted earnings per share

 $0.20  $(0.16) $1.30  $0.09  $0.75  $0.85 

Anti-dilutive securities outstanding

  65   167   65   167 

Unvested RSs and RSUs

 174  226 

14.

Stock Repurchase Program:

 

11. Segment Information:On October 2, 2015, the Company announced that its Board of Directors authorized a stock repurchase program of up to 550,000 shares of the Company’s issued and outstanding common stock, which could include open market repurchases, negotiated block transactions, accelerated stock repurchases or open market solicitations for shares, all or some of which may be effected through Rule 10b5-1 plans. Any of the repurchased shares are held in the Company’s treasury, or canceled and retired as the Board may determine from time to time. Any repurchases of common stock are subject to the covenants contained in the ABL Credit Facility. Under the ABL Credit Facility, the Company may repurchase common stock and pay dividends up to $15 million in the aggregate during any trailing twelve months without restrictions. Purchases of common stock or dividend payments in excess of $15 million in the aggregate require the Company to (i) maintain availability in excess of 20.0% of the aggregate revolver commitments ($125.0 million at March 31, 2024) or (ii) to maintain availability equal to or greater than 15.0% of the aggregate revolver commitments ($93.8 million at March 31, 2024) and the Company must maintain a pro-forma ratio of EBITDA minus certain capital expenditures and cash taxes paid to fixed charges of at least 1.00 to 1.00.

There were no shares repurchased during the three months ended March 31, 2024 and 2023.  As of March 31, 2024, 360,212 shares remain authorized for repurchase under the program.

At-the-Market Equity Program

On September 3, 2021, the Company commenced an at-the-market (ATM) equity program under its shelf registration statement, which allows it to sell and issue up to $50 million in shares of its common stock from time to time. The Company entered into an Equity Distribution Agreement on September 3, 2021 with KeyBanc Capital Markets Inc. (KeyBanc) relating to the issuance and sale of shares of common stock pursuant to the program. KeyBanc is not required to sell any specific amount of securities but will act as the Company’s sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between KeyBanc and the Company. KeyBanc will be entitled to compensation for shares sold pursuant to the program of 2.0% of the gross proceeds of any shares of common stock sold under the Equity Distribution Agreement. No shares were sold under the ATM program during the three months ended March 31, 2024 and 2023.

15.

Segment Information:

 

The Company follows the accounting guidance that requires the utilization of a “management approach” to define and report the financial results of operating segments. The management approach defines operating segments along the lines used by the Company’sCompany’s chief operating decision maker (CODM) to assess performance and make operating and resource allocation decisions. OurThe CODM evaluates performance and allocates resources based primarily on operating income. OurThe operating segments are based primarily on internal management reporting.

 

18

The Company operates in three reportable segments; carbonspecialty metals flat products, specialty metalscarbon flat products, and tubular and pipe products. CertainThe specialty metals flat products segment and the carbon flat products segment are at times consolidated and referred to as the flat products segments, as certain of the flat products segments’ assets and resources are shared by the carbon and specialty metals and carbon flat products segments and both segments’ products are stored in the shared facilities and, in some locations, processed on shared equipment. As such, total assets and capital expendituresSince the October 2, 2023 acquisition, CTB's financial results are reportedincluded in the aggregate for the flat products segments. Due to the shared assets and resources, certain of the flat products segment expenses are allocated between the carbon flat products segment and the specialty metals flat products segment based upon an established allocation methodology. Through its carbon flat products segment, the Company sells and distributes large volumes of processed carbon and coated flat-rolled sheet, coil and plate products. Through its specialty metals flat products segment, the Company sells and distributes processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. Through its tubular and pipe products segment, the Company distributes metal tubing, pipe, bar, valve and fittings and fabricates pressure parts supplied to various industrial markets.segment. 

 

Corporate expenses are reported as a separate line item for segment reporting purposes. Corporate expenses include the unallocated expenses related to managing the entire Company (i.e., all three segments), including compensation for certain personnel, expenses related to being a publicly traded entity such as board of directorsdirectors’ expenses, audit expenses, and various other professional fees.


 

The following table provides financial information by segment and reconciles the Company’sCompany’s operating income by segment to the consolidated income before income taxes for the three and nine months ended September 30, 2017 March 31, 2024 and 2016.2023, respectively.

 

 

For the Three Months Ended

  

For the Nine Months Ended

  

For the Three Months Ended

 
 

September 30,

  

September 30,

  

March 31,

 

(in thousands)

 

2017

  

2016

  

2017

  

2016

  

2024

  

2023

 

Net sales

                 

Specialty metals flat products

 $129,534  $166,564 

Carbon flat products

 $215,843  $169,372  $669,817  $503,928  300,975  309,818 

Specialty metals flat products

  57,554   49,539   173,789   144,898 

Tubular and pipe products

  58,045   49,344   178,924   151,386   96,133   96,694 

Total net sales

 $331,442  $268,255  $1,022,530  $800,212  $526,642  $573,076 
                 

Depreciation and amortization

                 

Specialty metals flat products

 $988  $984 

Carbon flat products

 $2,493  $2,795  $8,287  $8,737  4,081  3,607 

Specialty metals flat products

  185   203   609   586 

Tubular and pipe products

  1,403   1,372   4,211   4,499  2,248  1,593 

Corporate

  25   25   76   76   17   17 

Total depreciation and amortization

 $4,106  $4,395  $13,183  $13,898  $7,334  $6,201 
                 

Operating income (loss)

                

Operating income

 

Specialty metals flat products

 $3,931  $9,259 

Carbon flat products

 $3,698  $(3,613) $18,312  $(122) 8,657  5,946 

Specialty metals flat products

  2,074   3,003   8,918   7,326 

Tubular and pipe products

  1,608   2,773   6,439   7,149  7,627  9,741 

Corporate expenses

  (2,094)  (2,136)  (7,699)  (5,952)  (4,277)  (7,223)

Total operating income

 $5,286  $27  $25,970  $8,401  $15,938  $17,723 

Other income (loss), net

  (22)  21   (76)  (42)

Other loss, net

 19  11 

Income before interest and income taxes

  5,264   48   25,894   8,359  15,919  17,712 

Interest and other expense on debt

  1,966   1,336   5,380   3,895   4,010   4,223 

Income (loss) before income taxes

 $3,298  $(1,288) $20,514  $4,464 

Income before income taxes

 $11,909  $13,489 

 

  

For the Three Months Ended

  

For the Nine Months Ended

 
  

September 30,

  

September 30,

 

(in thousands)

 

2017

  

2016

  

2017

  

2016

 

Capital expenditures

                

Flat products segments

 $1,110  $1,145  $4,292  $3,930 

Tubular and pipe products

  891   593   2,178   1,405 

Total capital expenditures

 $2,001  $1,738  $6,470  $5,335 
19

 
  

For the Three Months Ended

 
  

March 31,

 

(in thousands)

 

2024

  

2023

 

Capital expenditures

        

Flat products segments

 $3,410  $4,502 

Tubular and pipe products

  1,408   2,913 

Total capital expenditures

 $4,818  $7,415 

 

 As of  

As of

 
 September 30,  December 31,  

March 31,

 

December 31,

 
(in thousands) 2017  2016  

2024

  

2023

 
Total assets        

Assets

 
Flat products segments $427,786  $363,626  $674,903  $649,744 
Tubular and pipe products  196,834   192,088  335,528  333,677 
Corporate  278   354   1,348   1,414 
Total assets $624,898  $556,068  $1,011,779  $984,835 

 

There were no material revenue transactions between the specialty metals products, carbon flat products, specialty metals products and tubular and pipe products segments.

 

The Company sells certain products internationally, primarily in Canada Mexico and Central and South America.Mexico. International sales are immaterial to the consolidated financial results and to the individual segments’ results.


12. Recently Issued Accounting Updates:

��

In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No 2017-09, “Compensation – Stock Compensation (Topic 718)”. This ASU provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This Update is the final version of proposed Accounting Standards Update 2016-360, “Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting,” which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The adoption of this ASU is not expected to materially impact our consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update (ASU) No 2016-15, “Classification of certain cash receipts and cash payments”. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The guidance will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years with early adoption permitted. The adoption of this ASU is not expected to materially impact our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which specifies the accounting for leases. The objective is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. This ASU introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The guidance will be effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. We are in the process of evaluating the impact of the future adoption of this standard on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU is a joint project initiated by the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. generally accepted accounting principles and International Financial Reporting Standards that will: remove inconsistencies and weaknesses in revenue requirements; provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; provide more useful information to users of financial statements through improved disclosure requirements; and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. As originally proposed, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The modified retrospective adoption of this ASU is not expected to materially impact our consolidated financial statements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers.” This ASU deferred the effective date of ASU No. 2014-09 until annual reporting periods beginning after December 15, 2017.

 

 

Item 2. Management’sManagements Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and accompanying notes contained herein and our consolidated financial statements, accompanying notes and Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2023. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under Item 1A (Risk Factors) in our Annual Report on Form 10-K for the year ended December 31, 2016.2023, and in Part II, Item 1A (Risk Factors) in this Quarterly Report on Form 10-Q. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appear elsewhere in this Quarterly Report on Form 10-Q.

 

Forward-Looking Information

 

This Quarterly Report on Form 10-Q and other documents we file with the Securities and Exchange Commission, or SEC, contain various forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, business, our beliefs and management’smanagement’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, conferences, webcasts, phone calls and conference calls. Words such as “may,” “will,” “anticipate,” “should,” “intend,” “expect,” “believe,” “estimate,” “project,” “plan,” “potential,” and “continue,” as well as the negative of these terms or similar expressions are intended to identify forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those implied by such statements including, but not limited to:

 

 

risks of falling metals prices and inventory devaluation;

supply disruptions and inflationary pressures, including the availability and rising costs of transportation, energy, logistical services and labor;

risks associated with shortages of skilled labor, increased labor costs and our ability to attract and retain qualified personnel;

rising interest rates and their impacts on our variable interest rate debt; 

supplier consolidation or addition of new capacity;

risks associated with the invasion of Ukraine, including economic sanctions, and the conflicts in the Middle East, or additional war, military conflict, or hostilities could adversely affect global metals supply and pricing;

general and global business, economic, financial and political conditions;

conditions, including, but not limited to, recessionary conditions and legislation passed under the current administration;
reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel;
risks associated with supply chain disruption resulting from the imbalance of metal supply and end-user demands, including additional shutdowns as a result of infectious disease outbreaks in large markets, such as China, and other factors; 
 

competitive factors such asour ability to successfully integrate recent acquisitions into our business and risks inherent with the availability, global production levelsacquisitions in the achievement of expected results, including whether the acquisition will be accretive and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing;within the expected timeframe;

 

cyclicalitythe adequacy of our existing information technology and volatility within the metals industry;

business system software, including duplication and security processes;

fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States;

 

the levels of imported steel in the United States and any associatedthe tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and imposed tariffs and duties;duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry;

the availability and costs of transportation and logistical services;

the successes of our efforts and initiatives to increase sales and earnings, maintain or improve working capital turnover and free cash flows, improve our customer service, and achieve cost savings;

our ability to generate free cash flow through operations and repay debt within anticipated time frames;

events or circumstances that could impair or adversely impact the carrying value of any of our assets;

risks and uncertainties associated with intangible assets, including additional impairment charges related to indefinite lived intangible assets;

events or circumstances that could adversely impact the successful operation of our processing equipment and operations;

the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including our business information system implementations;

the successes of our operational initiatives to improve our operating, cultural and management systems and reduce our costs;

the ability to comply with the terms of our asset-based credit facility;

the ability of our customers and third parties to honor their agreements related to derivative instruments;

customer, supplier and competitor consolidation, bankruptcy or insolvency;

reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel;

the impacts of union organizing activities and the success of union contract renewals;

the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense;

the ability of our customers (especially those that may be highly leveraged, and those with inadequate liquidity) to maintain their credit availability;

 

the inflation or deflation existing within the metals industry, as well as our product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the last-in, first-out, or LIFO, inventory valuation;

risks associated with infectious disease outbreaks, including, but not limited to customer closures, reduced sales and profit levels, slower payment of accounts receivable and potential increases in uncollectible accounts receivable, falling metals prices that could lead to lower of cost or net realizable value inventory valuation;adjustments and the impairment of intangible and long-lived assets, negative impacts on our liquidity position, inability to access our traditional financing sources and increased costs associated with and less ability to access funds under our asset-based credit facility, or ABL Credit Facility, and the capital markets;

increased customer demand without corresponding increase in metal supply could lead to an inability to meet customer demand and result in lower sales and profits;

competitive factors such as the availability, and global pricing of metals and production levels, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing;

customer, supplier and competitor consolidation, bankruptcy or insolvency;

 

the adequacytiming and outcomes of our existing information technologyinventory lower of cost or net realizable value adjustments and business system software, including duplication and security processes;LIFO income or expense;

 

cyclicality and volatility within the adequacy of our efforts to mitigate cyber security risks and threats;metals industry;

 

 

 

accessreduced availability and productivity of our employees, increased operational risks as a result of remote work arrangements, including the potential effects on internal controls, as well as cybersecurity risks and increased vulnerability to capitalsecurity breaches, information technology disruptions and global credit markets;other similar events;

 

fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States;

the successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings;

risks and uncertainties associated with intangible assets, including impairment charges related to indefinite lived intangible assets;

our ability to generate free cash flow through operations and repay debt;

the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations;

events or circumstances that could adversely impact the successful operation of our processing equipment and operations;

the impacts of union organizing activities and the success of union contract renewals;

changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies;

events or circumstances that could impair or adversely impact the carrying value of any of our assets;

our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;

 

our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any;

 

our ability to sell shares of our common stock under the at-the-market equity program; and

unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies; and

changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies.

contingencies.

 

Should one or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, intended, expected, believed, estimated, projected or planned. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to republish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof, except as otherwise required by law.

 

Overview

 

We are a leading metals service center that operates in three reportable segments;focused on the direct sale and value-added processing of carbon flat products, specialty metals flat products, and tubularcoated sheet, plate and coil products; stainless steel sheet, plate, bar and coil; aluminum sheet, plate and coil; pipe, tube bar, valves and fittings, tin plate and metal-intensive end-use products. We provide metals processing and distribution services for a wide range of customers. We operate in three reportable segments: specialty metals flat products, carbon flat products, and tubular and pipe products. Our specialty metals flat products segment's focus is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products, prime tin mill products and fabricated parts. Through acquisitions, our specialty metals flat products segment has expanded its geographical footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tube and pipe and the manufacturing and distribution of stainless steel bollards and water treatment systems. Our carbon flat products segment’ssegment's focus is on the direct sale and distribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products and fabricated parts. Our specialty metalsThrough acquisitions, our carbon flat products segment’ssegment has expanded its product offerings to include self-dumping metal hoppers and steel and stainless-steel dump inserts for pickup truck and service truck beds. Through the acquisition of Metal-Fab, Inc., or Metal-Fab, on January 3, 2023, the carbon flat products segment further expanded its product offerings to include venting, micro air and clean air products for residential, commercial and industrial applications. Our tubular and pipe products segment's focus is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. In addition, we distribute metal tubing, pipe, bar, valves and fittings and fabricate pressurethe fabrication of parts supplied to various industrial markets. Products that require moreThrough the acquisition of Central Tube and Bar, or CTB, on October 2, 2023, the tubular and pipe products segment further expanded its geographic footprint and extended its value-added processing generally have a higher gross profit. Accordingly, our overall gross profit is affected by, among other things, product mix, the amount of processing performed, the demand for and availability of metals, and volatility in selling prices and material purchase costs.contract manufacturing capabilities. We also perform toll processing of customer-owned metals. We sell certain products internationally, primarily in Canada Mexico and Central and South America.Mexico. International sales are immaterial to our consolidated financial results and to the individual segments’segments' results.

 

Our results of operations are affected by numerous external factors including, but not limited to: general and global business, economic, financial, banking and political conditions; fluctuations in the value of the U.S. dollar to foreign currencies, competition; metals pricing, demand and availability; energy prices; pricingavailability; the availability, and availabilityincreased costs of raw materials used in the production of metals;labor; global supply, the level of metals imported into the United States, tariffs, and inventory held in the supply chain; customers’ ability to manage their credit line availability;chain; general and global business, economic, financial, banking and political conditions; competition; layoffs or work stoppages by our own, our suppliers’ or our customers’ personnel.personnel; fluctuations in the value of the U.S. dollar to foreign currencies; transportation and energy costs; pricing and availability of raw materials used in the production of metals and customers’ ability to manage their credit line availability. The metals industry also continues to be affected by the global consolidation of our suppliers, competitors and end-use customers.

 

Like other metals service centers, we maintain substantial inventories of metals to accommodate the short lead times and just-in-time delivery requirements of our customers. Accordingly, we purchase metals in an effort to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon customer forecasts, historic buying practices, supply agreements with customers and market conditions. Our commitments to purchase metals are generally at prevailing market prices in effect at the time we place our orders. WeFrom time to time, we have entered into pass-through nickel and carbon swaps at the request of our customers in order to mitigate our customers’ risk of volatility in the price of metals, and we have entered into metals hedges to mitigate our risk of volatility in the price of metals. We have no long-term, fixed-price metals purchase contracts. When metals prices decline, customer demands for lower prices and our competitors’ responses to those demands could result in lower sale prices and, consequently, lower gross profits and earnings as we use existing metals inventory. When metals prices increase, competitive conditions will influence how much of the price increase we can pass on to our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, the net sales and gross profits of our business could be adversely affected.


 

At September 30, 2017,March 31, 2024, we employed approximately 1,6602,163 people.  Approximately 270245 of the hourly plant personnel at the facilities listed below are represented by nineseven separate collective bargaining units.  The table below shows the expiration dates of the collective bargaining agreements.

 

Facility

Expiration date

Duluth, MinnesotaHammond, Indiana

December 21, 2017November 30, 2024

Locust, North Carolina

March 4, 2025

St. Paul, Minnesota

May 25, 2018

Milan, Illinois

August 12, 2018

Locust, North Carolina

March 4, 20202025

Romeoville, Illinois

May 31, 20202025

Minneapolis coil,(coil), Minnesota

September 30, 20202025

Indianapolis, Indiana

January 29, 20212026

Minneapolis plate,(plate), Minnesota

March 31, 20222027

Detroit, Michigan

August 31, 2022

 

We have never experienced a work stoppage and we believe that our relationship with employees is good. However, any prolonged work stoppages by our personnel represented by collective bargaining units could have a material adverse impact on our business, financial condition, results of operations and cash flows.

 

Reportable Segments

 

The Company operatesWe operate in three reportable segments; carbonsegments: specialty metals flat products, specialty metalscarbon flat products and tubular and pipe products. The carbonspecialty metals flat products segment and the specialty metalscarbon flat products segment are at times consolidated and referred to as the flat products segment. Some of the flat products segmentssegments’ assets and resources are shared by the carbon and specialty metals and carbon flat products segments and both segments’ products are stored in the shared facilities and, in some locations, processed on shared equipment. As such, total assets and capital expenditures are reported in the aggregate for the flat products segments. Due to the shared assets and resources, certain of the flat products segment expenses are allocated between the carbonspecialty metals flat products segment and the specialty metalscarbon flat products segment based upon an established allocation methodology.

 

We follow the accounting guidance that requires the utilization of a “management approach” to define and report the financial results of operating segments. The management approach defines operating segments along the lines used by the chief operating decision maker, or CODM, to assess performance and make operating and resource allocation decisions. Our CODM evaluates performance and allocates resources based primarily on operating income. Our operating segments are based primarily on internal management reporting.

 

Due to the nature of the products sold in each segment, there are significant differences in the segmentssegments’ average selling price and the cost of materials sold. The tubular and pipespecialty metals flat products segment generally has the highest average selling price among the three segments followed by the specialty metals flattubular and pipe products segment and carbon flat products segments.segment. Due to the nature of the tubular and pipe products, we do not report tons sold or per ton information. Gross profit per ton is generally higher in the specialty metals flat products segment than the carbon flat products segment. Gross profit as a percentage of net sales is generally highesthigher in the tubular and pipe products segment, followed by the carbon and specialty metals flat products segments.

segments than the carbon flat products segment. Due to the differences in average selling prices, gross profit and gross profit percentage among the segments, a change in the mix of sales could impact total net sales, gross profit, and gross profit percentage. In addition, certain inventory in the tubular and pipe products segment is valued under the LIFO method. Adjustments to the LIFO inventory value are recorded to cost of materials sold and may impact the gross margin and gross margin percentage at the consolidated Company and tubular and pipe products segment levels.

 

Specialty metals flat products

The primary focus of our specialty metals flat products segment is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products, prime tin mill products and fabricated parts. Through acquisitions, our specialty metals flat products segment has expanded its geographical footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tube and pipe and the manufacturing and distribution of stainless steel bollards and water treatment systems. We act as an intermediary between metals producers and manufacturers that require processed metals for their operations. We serve customers in various industries, including manufacturers of food service and commercial appliances, agriculture equipment, transportation and automotive equipment. We distribute these products primarily through a direct sales force.

Carbon flat products

The primary focus of our carbon flat products segment is on the direct sale and distribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products and fabricated parts. Through acquisitions, our carbon flat products segment has expanded its product offerings to include self-dumping hoppers and steel and stainless-steel dump inserts for pickup truck and service truck beds. Through the acquisition of Metal-Fab, on January 3, 2023, the carbon flat products segment further expanded its product offerings to include venting, micro air and clean air products for residential, commercial and industrial applications. We act as an intermediary between metals producers and manufacturers that require processed metals for their operations. We serve customers in most metals consuming industries, including manufacturers and fabricators of transportation and material handling equipment, construction and farm machinery, storage tanks, environmental and energy generation equipment, automobiles, military vehicles and equipment, as well as general and plate fabricators and metals service centers. We distribute these products primarily through a direct sales force.

 

Specialty metals flat products

The primary focus of our specialty metals flat products segment is on the direct sale and distribution of processed stainless and aluminum flat-rolled sheet and coil products, flat bar products and fabricated parts. We act as an intermediary between metals producers and manufacturers that require processed metals for their operations. We serve customers in various industries, including manufacturers of food service and commercial appliances, agriculture equipment, transportation and automotive equipment. We distribute these products primarily through a direct sales force.


Combined, the carbon and specialty metals flat products segments have 2036 strategically-located processing and distribution facilities in the United States and one in Monterrey, Mexico. Many of our facilities service both the carbon and the specialty metals flat products segments, and certain assets and resources are shared by the segments. Our geographic footprint allows us to focus on regional customers and larger national and multi-national accounts, primarily located throughout the midwestern, eastern and southern United States.

 

Tubular and pipe products

The tubular and pipe products segment consistsprimary focus of the Chicago Tube and Iron, or CTI, business, acquired in 2011. Through our tubular and pipe products segment we distributeis on the distribution of metal tubing, pipe, bar, valve and fittings and fabricatethe fabrication of pressure parts supplied to various industrial markets. Founded in 1914, CTIThrough the acquisition of CTB on October 2, 2023, the tubular and pipe products segment further expanded its geographic footprint and extended its value-added contract manufacturing capabilities. The tubular and pipe products segment operates from nine10 locations in the midwesternMidwestern and southeasternSouthern United States. The tubular and pipe products segment distributes its products primarily through a direct sales force.

 

Corporate expenses

Corporate expenses are reported as a separate line item for segment reporting purposes. Corporate expenses include the unallocated expenses related to managing the entire Company (i.e., all three segments), including compensation for certain personnel, expenses related to being a publicly traded entity such as board of directorsdirectors’ expenses, audit expenses, and various other professional fees.

 

 

Results of Operations

 

Our results of operations are impacted by the market price of metals.  Over the past 24 months, metalsMetals prices have fluctuatedfluctuate significantly and changes to our net sales, cost of materials sold, gross profit, cost of inventory and profitability, are all impacted by industry metals pricing. Metals marketIndex pricing on carbon steel decreased during the first quarter of 2024 by $344 per ton, or 31.3%. Hot rolled coil index prices in the third quarter and first nine months of 2017 were approximately 5% and 20% higher, respectively, than metals market prices in the third quarter and first nine months of 2016. Average quarterly metals market prices during 2017 have remained relatively flat after increasing29.1% lower in the first quarter.quarter of 2024 compared to the first quarter of 2023.  Metals prices in our specialty metals flat-product segment decreased during the three months ended March 31, 2024, primarily due to a 8.4% decrease in stainless steel surcharges. The average price of stainless surcharges decreased 36.6% during the first three months of 2024 compared to the first three months of 2023.  

 

Transactional or “spot” selling prices generally move in tandem with market price changes, while fixed selling prices typically lag and reset quarterly. Similarly, inventory costs (and, therefore, cost of materials sold) tend to move slower than market selling price changes due to mill lead times and inventory turnover impacting the rate of change in average cost. When average selling prices increase,decrease, and net sales increase,decrease, gross profit and operating expenses as a percentage of net sales will generally decrease. Our year over year net sales and earnings comparisons were positively impacted by the price increases and improved customer demand during the first nine months of 2017, and increased sales volume of products that we sell.increase. 

 

During the second quarter of 2017, we announced the permanent closure of our carbon flat products segment’s Siler City, North Carolina operation. The facility ceased operations in July 2017. The land and building associated with the operation is classified as Assets held for sale on the accompanying Consolidated Balance Sheets. The operating loss related to the Siler City, North Carolina operation was $1.2 million for the nine months ended September 30, 2017.


Consolidated Operations

 

The following table presents consolidated operating results for the periods indicated (dollars are shown in thousands):

 

 

For the Three Months Ended March 31,

 
 

For the Three Months Ended September 30,

  

For the Nine Months Ended September 30,

  

2024

  

2023

 
 

2017

  

2016

  

2017

  

2016

     

% of net

    

% of net

 
     

% of net

sales

      

% of net

sales

      

% of net

sales

      

% of net

sales

  

$

  

sales

  

$

  

sales

 

Net sales

 $331,442   100.0  $268,255   100.0  $1,022,530   100.0  $800,212   100.0  $526,642  100.0  $573,076  100.0 

Cost of materials sold (a)

  265,351   80.1   211,037   78.7   806,846   78.9   616,545   77.0   407,538   77.4   452,636   79.0 

Gross profit (b)

  66,091   19.9   57,218   21.3   215,684   21.1   183,667   23.0  119,104  22.6  120,440  21.0 

Operating expenses (c)

  60,805   18.3   57,191   21.3   189,714   18.6   175,266   21.9   103,166   19.6   102,717   17.9 

Operating income

 $5,286   1.6  $27   0.0  $25,970   2.5  $8,401   1.1   15,938   3.0   17,723   3.1 

Other income (loss), net

  (22)  (0.0)  21   0.0   (76)  (0.0)  (42)  (0.0)

Other loss, net

 19  0.0  11  0.0 

Interest and other expense on debt

  1,966   0.6   1,336   0.5   5,380   0.5   3,895   0.5   4,010   0.7   4,223   0.7 

Income (loss) before income taxes

  3,298   1.0   (1,288)  (0.5)  20,514   2.0   4,464   0.6 

Income before income taxes

 11,909  2.3  13,489  2.4 

Income taxes

  1,018   0.3   469   0.2   5,738   0.6   3,438   0.4   3,212   0.6   3,617   0.7 

Net income (loss)

  2,280   0.7   (1,757)  (0.7)  14,776   1.4   1,026   0.2 

Net income

 $8,697   1.7  $9,872   1.7 

 

(a)   Includes $700 and $1,475 of LIFO expense for the three and nine months ended September 30, 2017, respectively.  Includes $700 of LIFO income recorded in the three and nine months ended September 30,  2016.

(a) Includes $400 of LIFO expense for the three months ended March 31, 2024.

(b) Gross profit is calculated as net sales less the cost of materials sold.

(c) Operating expenses are calculated as total costs and expenses less the cost of materials sold.  

 

Net sales increased $63.1decreased $46.4 million, or 23.6%8.1%, to $331.4$526.6 million in the thirdfirst quarter of 20172024 from $268.3$573.1 million in the thirdfirst quarter of 2016. Carbon flat products net sales were 65.1% of total net sales in the third quarter of 2017 compared to 63.1% of total net sales in the third quarter of 2016.2023. Specialty metals flat products net sales were 17.4%24.6% of total net sales in the thirdfirst quarter of 20172024 compared to 18.5%29.1% of total net sales in the thirdfirst quarter of 2016. Tubular and pipe2023. Carbon flat products net sales were 17.5%57.1% of total net sales in the thirdfirst quarter of 20172024 compared to 18.4%54.0% of total net sales in the thirdfirst quarter of 2016.2023. Tubular and pipe products net sales were 18.3% of total net sales in the first quarter of 2024 compared to 16.9% of total net sales in the first quarter of 2023. The increasedecrease in net sales was due to a 13.4% increase in sales volume and an 8.9% increaseconsolidated 8.7% decrease in average selling prices during the thirdfirst quarter of 20172024 compared to the thirdfirst quarter of 2016. Average selling prices increased sequentially from the second quarter of 20172023 partially offset by approximately 2.2%. Sales volumes and average selling prices increased in all three operating segments during the third quarter of 2017 compared to the third quarter of 2016 as discussed above.

Net sales increased $222.3 million, or 27.8%, to $1.0 billion during the nine months ended September 30, 2017 from $800.2 million during the nine months ended September 30, 2016. Carbon flat products net sales were 65.5% of total net sales in the first nine months of 2017 compared to 63.0% of total net sales in the first nine months of 2016. Specialty metals flat products net sales were 17.0% of total net sales in the first nine months of 2017 compared to 18.1% of total net sales in the first nine months of 2016. Tubular and pipe products net sales were 17.5% of total net sales in the first nine months of 2017 compared to 18.9% of total net sales in the first nine months of 2016. The increase in net sales was due to a 13.2% increase in average selling prices and a 12.9%0.6% increase in sales volume during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Sales volumes and average selling prices increased in all three operating segments during the first nine months of 2017 compared to the first nine months of 2016.volume.

 

Cost of materials sold increased $54.4decreased $45.1 million, or 25.8%10.0%, to $265.4 million$407.5 in the thirdfirst quarter of 20172024 from $211.0 million$452.6 in the thirdfirst quarter of 2016. Cost of materials sold increased $190.3 million, or 30.9%, to $806.8 million during the nine months ended September 30, 2017, from $616.5 million during the nine months ended September 30, 2016. 2023. The increasedecrease in cost of materials sold in the thirdfirst quarter and first ninethree months of 20172024 is related to increasedthe decreased metals pricing discussed above and increased sales volume.in Results of Operations.

 

As a percentage of net sales, gross profit (as defined in footnote (b) in the table above) decreasedincreased to 19.9%22.6% in the thirdfirst quarter of 2017 compared to 21.3%2024 from 21.0% in the thirdfirst quarter of 2016. Gross profit for the carbon flat products segment increased by 0.1%2023. The increase in the third quarter of 2017 compared to the third quarter of 2016. Grossgross profit for the specialty metals flat products segment and tubular and pipe products segment decreased by 3.2% and 4.8%, respectively, for the third quarter of 2017 compared to the third quarter of 2016. Asas a percentage of net sales gross profit decreased to 21.1% in the nine months ended September 30, 2017 compared to 23.0% in the nine months ended September 30, 2016. Gross profit decreased for the nine months ended September 30, 2017 comparedis due to the nine months ended September 30, 2016 by 1.7% foraverage cost of inventory decreasing more than the carbon flat products segment, 0.7% for the specialty metals flat products segment and 3.2% for the tubular and pipe products segment.average selling prices. 


 

Operating expenses in the thirdfirst quarter of 20172024 increased $3.6$0.5 million, or 6.3%0.4%, to $60.8$103.2 million from $57.2$102.7 million in the thirdfirst quarter of 2016.2023. As a percentage of net sales, operating expenses decreasedincreased to 18.3%19.6% for the thirdfirst quarter of 20172024 from 21.3%17.9% in the comparable 2016 period.first quarter of 2023. Operating expenses in the specialty metals flat products segment decreased $1.6 million, operating expenses in the carbon flat products segment increased $2.0 million, operating expenses in the specialty metals flat products segment increased $0.4$1.3 million, operating expenses in the tubular and pipe products segment increased $1.3$3.7 million and Corporate expenses remained flat compared to the third quarter of 2016. Operating expenses increased in all categories, except for depreciation expense, as reported on the Company’s Consolidated Statements of Comprehensive Income. Variable operating expenses, such as distribution and warehouse and processing, increased $2.1 million, or 7.2%, primarily related to the 13.4% volume increase. Selling and administrative and general expenses increased $1.8 million, or 8.4%, primarily related to increased variable performance based incentive compensation and increased direct sales representation.

Operating expenses in the first nine months of 2017 increased $14.4 million, or 8.2%, to $189.7 million from $175.3decreased $3.0 million in the first nine monthsquarter of 2016. As a percentage of net sales, operating expenses decreased to 18.6% in the first nine months of 2017 from 21.9% for the first nine months of 2016. Operating expenses in the carbon flat products segment increased $7.1 million, operating expenses in the specialty metals flat products segment increased $1.6 million, operating expenses in the tubular and pipe products segment increased $4.0 million, and Corporate expenses increased $1.7 million2024 compared to the nine months ended September 30, 2016. Operating expenses increasedfirst quarter of 2023. The increase in all categories, except for depreciation expense, as reported on the Company’s Consolidated Statements of Comprehensive Income. Variable operating expenses such as distribution and warehouse and processing, increased $8.1 million, or 9.0%,was primarily relatedattributable to the 12.9% volume increase. Selling and administrative and generalinclusion of CTB operating expenses increased $7.1 million, or 10.8%, primarily related to increasedoffset by lower variable performance based incentiveperformance-based compensation and increased direct sales representation.the year-over-year absence of acquisition-related expenses.

 

Interest and other expense on debt totaled $2.0 million, or 0.6% of net sales, for the third quarter of 2017 compared to $1.3 million, or 0.5% of net sales, for the third quarter of 2016. Interest and otherother expense on debt totaled $5.4 $4.0 million, or 0.5%0.7% of net sales, forin the first nine months quarter of 20172024 compared to $3.9 $4.2 million, or 0.5%0.7% of net sales, forin the first quarter of 2023. The decrease was due to lower average borrowings partially offset by a higher effective borrowing rate in the first ninethree months of 2016.2024 compared to the first three months of 2023. Our effective borrowing rate, exclusive of deferred financing fees and commitment fees, was 3.0%7.0% for the first ninethree months of 20172024 compared to 2.4%5.7% for the first ninethree months of 2016 due to the increases in LIBOR rates since 2016. Total average borrowings increased $49 million, or 33.6%, from $149 million in2023.

In the first nine months of 2016 to $198 million in the first nine months of 2017, primarily related to increased working capital needs in 2017.

For the third quarter of 2017,2024, income before income taxes totaled $3.3$11.9 million compared to lossincome before income taxes of $1.3 million in the third quarter of 2016. For the first nine months of 2017, income before income taxes totaled $20.5 million compared to $4.5$13.5 million in the first nine monthsquarter of 2016.2023. 

 

An income tax provision of 30.9%27.0% was recorded for the thirdfirst quarter of 2017,2024, compared to an income tax provision of $0.5 million on loss before income taxes of $1.3 million26.8% for the third quarter of 2016 resulting in an effective tax rate of negative 36.4%, An income tax provision of 28.0% was recorded for the first nine months of 2017, compared to 77.0% for the first nine months of 2016. During the quarter ended March 31, 2017, we made an out-of-period adjustment to correct and record previously unrecognized deferred tax assets, and the associated tax benefit, related to the Supplemental Executive Retirement Plan. The adjustment, which accumulated since the inception of the plan in 2005, resulted in an increase to after-tax income of $1.9 million in the first quarter of 2017.  During the nine months ended September 30, 2016, we recorded a valuation allowance of $0.8 million to reduce certain state deferred tax assets to the amount that is more likely than not to be realized. The valuation allowance increased the effective tax rate by 18.3% for the nine months ended September 30, 2016. 2023. Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items that are taken into accountconsidered in the relevant period.  Each quarter, we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

 

Net income for the thirdfirst quarter of 20172024 totaled $2.3$8.7 million, or $0.20$0.75 per basic share and diluted share, compared to net lossincome of $1.8$9.9 million, or $0.16 per basic and diluted share for the third quarter of 2016. Net income for the first nine months of 2017 totaled $14.8 million or $1.30 per basic and diluted share, compared to $1.0 million, or $0.09$0.85 per basic and diluted share, for the first nine monthsquarter of 2016.2023. 

 

 

Segment Operations

Carbon fSpecialty metals flat productslat products

 

The following table presents selected operating results for our specialty metals flat products segment for the periods indicated (dollars are shown in thousands, except for per ton information):

  

For the Three Months Ended March 31,

 
  

2024

  

2023

 
      

% of net

      

% of net

 
      

sales

      

sales

 

Direct tons sold

  28,933       31,548     

Toll tons sold

  970       968     

Total tons sold

  29,903       32,516     
                 

Net sales

 $129,534   100.0  $166,564   100.0 

Average selling price per ton

  4,332       5,123     

Cost of materials sold

  107,590   83.1   137,713   82.7 

Gross profit (a)

  21,944   16.9   28,851   17.3 

Operating expenses (b)

  18,013   13.9   19,592   11.7 

Operating income

 $3,931   3.0  $9,259   5.6 

(a) Gross profit is calculated as net sales less the cost of materials sold.

(b) Operating expenses are calculated as total costs and expenses less the cost of materials sold.  

Tons sold by our specialty metals flat products segment decreased 8.0% to 29 thousand in the first quarter of 2024 from 32 thousand in the first quarter of 2023. The decrease in tons sold was due to a shift towards lower volume fabrication and value-added services. We do not report tons sold for our end-use products. 

Net sales in our specialty metals flat products segment decreased $37.0 million, or 22.2%, to $129.5 million in the first quarter of 2024 from $166.6 million in the first quarter of 2023. The decrease in sales was due to a 15.4% decrease in average selling prices and an 8.0% decrease in sales volume during the first quarter of 2024 compared to the first quarter of 2023. Average selling prices in the first quarter of 2024 were $4,332 per ton, compared with $5,123 per ton in the first quarter of 2023.

Cost of materials sold in our specialty metals flat products segment decreased $30.1 million, or 21.9%, to $107.6 million in the first quarter of 2024 from $137.7 million in the first quarter of 2023. The decrease in cost of materials sold was due to the decreased industry metals pricing discussed above in Results of Operations and decreased sales volume.

As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) decreased to 16.9% in the first quarter of 2024 from 17.3% in the first quarter of 2023. The decrease in the gross profit as a percentage of net sales is due to the average selling prices decreasing more than the average cost of inventory.

Operating expenses decreased $1.6 million, or 8.1%, to $18.0 million in the first quarter of 2023 from $19.6 million in the first quarter of 2023.  As a percentage of net sales, operating expenses increased to 13.9% in the first quarter of 2024 compared to 11.7% in the first quarter of 2023. The decrease in operating expenses was primarily attributable to decreased variable performance-based incentive compensation and decreased variable operating expenses due to decreased sales volume. 

Operating income in the first quarter of 2024 totaled $3.9 million, or 3.0% of net sales, compared to $9.3 million, or 5.6% of net sales, in the first quarter of 2023. 

Carbon flat products

The following table presents selected operating results for our carbon flat products segment for the periods indicated (dollars are shown in thousands, except for per ton information):

 

 

For the Three Months Ended March 31,

 
 

For the Three Months Ended September 30,

  

For the Nine Months Ended September 30,

  

2024

  

2023

 
 

2017

  

2016

  

2017

  

2016

     

% of net

    

% of net

 
     

 

% of

net sales

      

% of net

sales

      

% of net

sales

      

% of net

sales

      

sales

      

sales

 

Direct tons sold

  256,550       226,152       822,330       723,019      211,191     209,782    

Toll tons sold

  20,876       16,381       67,346       58,811       8,484      8,556    

Total tons sold

  277,426       242,533       889,676       781,830       219,675      218,338    
                                 

Net sales

 $215,843   100.0  $169,372   100.0  $669,817   100.0  $503,928   100.0  $300,975  100.0  $309,818  100.0 

Average selling price per ton

  778       698       753       645      1,370     1,419    

Cost of materials sold

  173,560   80.4   136,378   80.5   532,383   79.5   392,042   77.8   235,615   78.3   248,436   80.2 

Gross profit (a)

  42,283   19.6   32,994   19.5   137,434   20.5   111,886   22.2  65,360  21.7  61,382  19.8 

Operating expenses (b)

  38,585   17.9   36,607   21.6   119,122   17.8   112,008   22.2   56,703   18.8   55,436   17.9 

Operating income (loss)

 $3,698   1.7  $(3,613)  (2.1) $18,312   2.7  $(122)  (0.0)

Operating income

 $8,657   2.9  $5,946   1.9 

 

(a) Gross profit is calculated as net sales less the cost of materials sold.

(b) Operating expenses are calculated as total costs and expenses less the cost of materials sold.  

(b)  Operating expenses are calculated as total costs and expenses less the cost of materials sold.

 

Tons sold by our carbon flat products segment increased 35 thousand tons, or 14.4%,0.6% to 277 thousand in the third quarter of 2017 from 243 thousand in the third quarter of 2016. Tons sold by our carbon flat products segment increased 108 thousand tons, or 13.8%, to 890219 thousand in the first nine monthsquarter of 20172024 from 782218 thousand in the first nine monthsquarter of 2016. The increase in tons sold is due to improved customer demand in the markets we serve. Industry-wide shipments increased year over year in the first nine months of 2017.2023. 

 

Net sales in our carbon flat products segment increased $46.5decreased $8.8 million, or 27.4%2.9%, to $215.8$301.0 million in the thirdfirst quarter of 20172024 from $169.4$309.8 million in the third quarterfirst quarter of 2016.2023. The increasedecrease in sales was dueattributable to a 14.4% increase in sales volume and an 11.4% increase3.4% decrease in average selling prices duringin the thirdfirst quarter of 2017,2024 compared to the thirdfirst quarter of 2016.2023, partially offset by a 0.6% increase in tons sold. Average selling prices in the thirdfirst quarter of 2017 were $7782024 decreased to $1,370 per ton, compared with $698$1,419 per ton in the thirdfirst quarter of 2016, and $769 per ton in the second quarter of 2017.

Net sales in our carbon flat products segment increased $165.9 million, or 32.9%, to $669.8 million in the first nine months of 2017 from $503.9 million in the first nine months of 2016. The increase in sales was due to a 16.8% increase in average selling prices and a 13.8% increase in sales volume. Average selling prices in the first nine months of 2017 were $753 per ton, compared with $645 per ton in the first nine months of 2016.of 2023.

 

Cost of materials sold increased $37.2decreased $12.8 million, or 27.3%5.2%, to $173.6 million in the third quarter of 2017 from $136.4 million in the third quarter of 2016. The increase in cost of materials sold was due to a 14.4% increase in sales volume and the increased cost of metals during 2017 compared to 2016.

Cost of materials sold increased $140.3 million, or 35.8%, to $532.4$235.6 million in the first nine monthsquarter of 20172024 from $392.0$248.4 million in the first nine monthsquarter of 2016. 2023. The increase in cost of materials solddecrease was due to a 13.8% increasethe decreased market price for metals discussed above in sales volume and increased metals cost duringResults of Operations partially offset by the nine months ended September 30, 2017 comparedyear-over-year absence of $2.1 million of non-recurring amortization expense of inventory step up to fair market value adjustments made as part of the nine months ended September 30, 2016.purchase price allocation for the January 3, 2023 acquisition of Metal-Fab.

 

As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) increased to 19.6%21.7% in the thirdfirst quarter of 2017,2024 compared to 19.5%19.8% in the thirdfirst quarter of 2016. Gross profit per ton increased $16 per ton to $152 per tonof 2023. The increase in the third quarter of 2017 from $136 per ton in the third quarter of 2016, and decreased $2 per ton from $154 per ton in the second quarter of 2017.


Asgross profit as a percentage of net sales gross profit decreasedwas due to 20.5% inaverage cost of inventory decreasing more than the nine months ended September 30, 2017 compared to 22.2% in the nine months ended September 30, 2016. Gross profit per ton increased $11 per ton to $154 per ton in the nine months ended September 30, 2017 from $143 per ton in the nine months ended September 30, 2016.average selling prices.

 

Operating expenses in the thirdthefirst quarter of 20172024 increased $2.0 $1.3 million, or 5.4%2.3%, to $38.6 $56.7 million from $36.6 $55.4 million in the thirdfirst quarter of 2016. As a percentage2023.  Operating expenses increased to 18.8% of net sales operating expenses decreased to 17.9% forin the thirdfirst quarter of 2017 from 21.6%2024 compared to 17.9% in the comparable 2016 period. Operating expenses in the first nine months quarter of 2017 increased $7.1 million, or 6.4%, to $119.1 million from $112.0 million in the first nine months of 2016. As a percentage of net sales, operating expenses decreased to 17.8% for the first nine months of 2017 from 22.2% in the comparable 2016 period. The percentage increase in operating expense in the third quarter and first nine months of 2017 were less than the volume increases during the same periods. Variable operating expenses, such as distribution and warehouse and processing, increased as a result of increased sales volume. Selling and administrative and general expenses increased primarily as a result of increased variable performance based incentive compensation.2023.  

 

Operating income forin the thirdfirst quarter of 20172024 totaled $3.7$8.7 million, or 1.7%2.9% of net sales, compared to operating lossincome of $3.6$5.9 million, or 2.1%1.9% of net sales, forin the thirdfirst quarter of 2016. Operating income for the nine months ended September 30, 2017 totaled $18.3 million, or 2.7% of net sales, compared to operating loss of $0.1 million, or 0.0%, of net sales for the nine months ended September 30, 2016.2023. 

 

Specialty metalsTubular and pipe products flat products

 

The following table presents selected operating results for our specialty metals flat products for the periods indicated (dollars are shown in thousands, except for per ton information):

  

For the Three Months Ended September 30,

  

For the Nine Months Ended September 30,

 
  

2017

  

2016

  

2017

  

2016

 
      

 

% of net

sales

      

% of net

sales

      

% of net

sales

      

% of net

sales

 

Direct tons sold

  23,253       21,636       68,931       63,171     

Toll tons sold

  -       46       54       102     

Total tons sold

  23,253       21,682       68,985       63,273     
                                 

Net sales

 $57,554   100.0  $49,539   100.0  $173,789   100.0  $144,898   100.0 

Average selling price per ton

  2,475       2,285       2,519       2,290     

Cost of materials sold

  50,083   87.0   41,547   83.9   148,413   85.4   122,733   84.7 

Gross profit (a)

  7,471   13.0   7,992   16.1   25,376   14.6   22,165   15.3 

Operating expenses (b)

  5,397   9.4   4,989   10.0   16,458   9.5   14,839   10.2 

Operating income

 $2,074   3.6  $3,003   6.1  $8,918   5.1  $7,326   5.1 

(a)  Gross profit is calculated as net sales less the cost of materials sold.

(b)  Operating expenses are calculated as total costs and expenses less the cost of materials sold.  

Tons sold by our specialty metals flat products segment increased one thousand tons, or 7.2%, to 23 thousand in the third quarter of 2017 from 22 thousand in the third quarter of 2016. Tons sold by our specialty metals flat products segment increased six thousand tons, or 9.0%, to 69 thousand in the nine months ended September 30, 2017 from 63 thousand in the nine months ended September 30, 2016. The increase in tons sold is due to improved customer demand in the markets we serve. Industry-wide shipments increased year over year in the third quarter and first nine months of 2017. The specialty metals flat products segment increased its market share for stainless products in the first nine months of 2017.

Net sales in our specialty metals flat products segment increased $8.0 million, or 16.2% to $57.6 million in the third quarter of 2017 from $49.5 million in the third quarter of 2016. The increase in sales was due to an 8.3% increase in average selling prices and a 7.2% increase in sales volume during the third quarter of 2017 compared to the third quarter of 2016. Average selling prices in the third quarter of 2017 were $2,475 per ton compared to $2,285 per ton in the third quarter of 2016 and $2,586 per ton in the second quarter of 2017.

Net sales in our specialty metals flat products segment increased $28.9 million, or 19.9%, to $173.8 million in the first nine months of 2017 from $144.9 million in the first nine months of 2016. The increase in sales was due to a 10.0% increase in average selling prices and a 9.0% increase in sales volume. Average selling prices in the first nine months of 2017 were $2,519 per ton, compared with $2,290 per ton in the first nine months of 2016.

Cost of materials sold increased $8.5 million, or 20.5%, to $50.1 million in the third quarter of 2017 from $41.5 million in the third quarter of 2016. The increase was due to increased metals cost and a 7.2% increase in sales volume in the third quarter of 2017 compared to the third quarter of 2016.


Cost of materials sold increased $25.7 million, or 20.9%, to $148.4 million in the first nine months of 2017 from $122.7 million in the first nine months of 2016. The increase in cost of materials sold was due to increased metals cost and a 9.0% increase in sales volume during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) decreased to 13.0% in the third quarter of 2017 from 16.1 % in the third quarter of 2016. As a percentage of net sales, gross profit decreased to 14.6% in the nine months ended September 30, 2017 from 15.3% in the nine months ended September 30, 2016.

Operating expenses in the third quarter of 2017 increased $0.4 million, or 8.2%, to $5.4 million from $5.0 million in the third quarter of 2016. As a percentage of net sales, operating expenses decreased to 9.4% of net sales for the third quarter of 2017 compared to 10.0% of net sales for the third quarter of 2016.

Operating expenses in the first nine months of 2017 increased $1.6 million, or 10.9%, to $16.5 million from $14.8 million in the first nine months of 2016. As a percentage of net sales, operating expenses decreased to 9.5% of net sales for the nine months ended September 30, 2017 compared to 10.2% for the nine months ended September 30, 2016. For both the three and nine months ended September 30, 2017 variable operating expenses, such as distribution and warehouse and processing increased as a result of higher sales volumes. Selling and administrative and general expenses increased primarily as a result of increased variable based incentive compensation related to the increased sales volume and gross profit.

Operating income for the third quarter of 2017 totaled $2.1 million, or 3.6% of net sales, compared to $3.0 million, or 6.1% of net sales, for the third quarter of 2016. Operating income for the nine months ended September 30, 2017 totaled $8.9 million, or 5.1% of net sales, compared to operating income of $7.3 million, or 5.1% of net sales, for the nine months ended September 30, 2016.

Tubular and pipe products

The following table presents selected operating results for our tubular and pipe products segment for the periods indicated (dollars are shown in thousands):

 

 

For the Three Months Ended March 31,

 
 

For the Three Months Ended September 30,

  

For the Nine Months Ended September 30,

  

2024

  

2023

 
 

2017

  

2016

  

2017

  

2016

     

% of net

    

% of net

 
     

% of net

sales

      

% of net

sales

      

% of net

sales

      

% of net

sales

  

$

  

sales

  

$

  

sales

 

Net sales

 $58,045   100.0  $49,344   100.0  $178,924   100.0  $151,386   100.0  $96,133  100.0  $96,694  100.0 

Cost of materials sold (a)

  41,708   71.9   33,112   67.1   126,050   70.4   101,770   67.2   64,333   66.9   66,487   68.8 

Gross profit (b)

  16,337   28.1   16,232   32.9   52,874   29.6   49,616   32.8  31,800  33.1  30,207  31.2 

Operating expenses (c)

  14,729   25.3   13,459   27.3   46,435   26.0   42,467   28.1   24,173   25.2   20,466   21.1 

Operating income

 $1,608   2.8  $2,773   5.6  $6,439   3.6  $7,149   4.7  $7,627   7.9  $9,741   10.1 

 

(a)   Includes $700 and $1,475 of LIFO expense for the three and nine months ended September 30, 2017, respectively and $700 of LIFO income for the three and nine months ended September 30, 2016.

(a) Includes $400 of LIFO expense for the three months ended March 31, 2024.  

(b) Gross profit is calculated as net sales less the cost of materials sold.

(c) Operating expenses are calculated as total costs and expenses less the cost of materials sold. 

 

Net sales increased $8.7decreased $0.6 million, or 17.6%0.6%, to $58.0$96.1 million in the thirdfirst quarter of 20172024 from $49.3$96.7 million in the thirdfirst quarter of 2016.2023.  The increasedecrease is a result of a 8.7% increase11.7% decrease in average selling prices and a 8.2% increase in sales volume during the third quarter of 2017 compared to the third quarter of 2016.

Net sales increased $27.5 million, or 18.2%, to $178.9 million in the nine months ended September 30, 2017 from $151.4 million in the nine months ended September 30, 2016. The increase in net sales is a result ofpartially offset by a 12.5% increase in average selling prices and a 5.0 % increase in salesshipping volume due to the CTB acquisition during the first nine monthsquarter of 20172024 compared to the first nine monthsquarter of 2016.2023.  

 

Cost of materials sold increased $8.6decreased $2.2 million, or 26.0%3.2%, to $41.7 million in the third quarter of 2017 from $33.1 million in the third quarter of 2016. During the third quarter of 2017, we recorded LIFO expense of $0.7 million compared to $0.7 million of LIFO income recorded in the third quarter of 2016.


Cost of materials sold increased $24.3 million, or 23.9% to $126.1$64.3 million in the first nine monthsquarter of 20172024 from $101.8$66.5 million in the first nine monthsquarter of 2016.2023. During the first ninethree months of 2017,ended March 31, 2024, we recorded $1.5$0.4 million of LIFO expense. We did not record LIFO expense compared to $0.7 million of LIFOor income recorded induring the first ninethree months of 2016.ended March 31, 2023. The increasedecrease in cost of materials sold was due to the decreased industry metals pricing discussed above in 2017 is a resultResults of increased metals cost and sales volume in 2017 compared to 2016.Operations.

 

As a percentage of net sales, gross profit (as defined in footnote (b) in the table above) decreasedincreased to 28.1%33.1% in the thirdfirst quarter of 2017 from 32.9%2024 compared to 31.2% in the thirdfirst quarter of 2016.2023.  As a percentage of net sales, the $0.7 million LIFO expense in 2017 decreased gross profit by 1.2%. The $0.7 million of LIFO income increased gross profit by 1.4% in the third quarter of 2017. As a percentage of net sales, gross profit decreased to 29.6% in the first nine months of 2017 compared to 32.8% in the first nine months of 2016. As a percentage of net sales, the $1.5 million LIFO expense recorded in the nine months ended September 30, 2017 decreasedfirst quarter of 2024 reduced gross profit by 0.8%0.4%The $0.7 million of LIFO income increased gross profit by 0.5% in the nine months ended September 30, 2017.

 

OperatingOperating expenses in the thirdfirst quarter of 20172024 increased $1.2 $3.7 million, or 9.4%18.1%, to $14.7 $24.2 million from $13.5 $20.5 million in the thirdfirst quarter of 2016. As a percentage2023. Operating expenses increased to 25.2% of net sales in the first quarter of 2024 compared to 21.1% in the first quarter of 2023. The increase in operating expenses decreasedwas primarily due to 25.3% for the third quarterinclusion of 2017 compared to 27.3% for the third quarter of 2016. Operating expenses in the nine months ended September 30, 2017 increased $3.9 million, or 9.3%, to $46.4 million from $42.5 million in the first nine months of 2016. As a percentage of net sales,CTB operating expenses, decreased to 26.0% in the first nine months of 2017 compared to 28.1% in the first nine months of 2016. Operating expenses increased in the third quarter and first nine months of 2017 primarily as a result of increased distribution expense related to increased shipments, less labor and overhead capitalized into inventory, and increasedpartially offset by lower variable performance-based incentive compensation related to increased gross profit.compensation.

 

Operating income for in the thirdfirst quarter of 20172024 totaled $1.6$7.6 million, or 2.8%7.9% of net sales, compared to $2.8$9.7 million, or 5.6%10.1% of net sales, forin the thirdfirst quarter of 2016. Operating income for the nine months ended September 30, 2017 totaled $6.4 million, or 3.6% of net sales, compared to $7.1 million, or 4.7% of net sales, for the nine months ended September 30, 2016.2023. 

 

Corporate expenses

 

Corporate expenses totaled $2.1 million for both the third quarter of 2017 and 2016. Corporate expenses increased $1.7 decreased $3.0 million, or 29.4%40.8%, to $7.7$4.3 million in the nine months ended September 30, 2017 compared to $6.0first quarter of 2024 from $7.2 million in the nine months ended September 30, 2016. The increase in corporate expenses isfirst quarter of 2023. Corporate expense primarily attributable to increased variable performance based incentive compensation and, effective August 2016, when our President of Specialty Metals was appointeddecreased due to the positionyear-over-year absence of Executive Vice President and Chief Operating Officer, his associated costs were classified as Corporateacquisition-related expenses. Corporate expenses include the unallocated expenses related to managing the entire Company, (i.e. all three segments) including payroll expenses for certain personnel, expenses related to being a publicly traded entity such as board of directors’ expenses, audit expenses, and various other professional fees.

 

Liquidity, Capital Resources and Cash Flows

 

Our principal capital requirements include funding working capital needs, purchasing, upgrading and acquiring processing equipment and facilities, making acquisitions and paying dividends. We use cash generated from operations leasing transactions and borrowings under our credit facilityABL Credit Facility to fund these requirements.

 

We believe that funds available under our existing asset-based credit facility (the ABL Credit Facility), lease arrangement proceeds and the sale of equity or debt securities,Facility, together with funds generated from operations, will be sufficient to provide us with the liquidity necessary to fund anticipated working capital requirements, capital expenditure requirements, our dividend payments and any share repurchases and business acquisitions over at least the next 12 months.months and for the foreseeable future thereafter. In the future, we may as part of our business strategy, acquire and dispose of assets or other companies in the same or complementary lines of business, or enter into or exit strategic alliances and joint ventures. Accordingly, the timing and size of our capital requirements are subject to change as business conditions warrant and opportunities arise.

Operating Activities

 

For the ninethree months ended September 30, 2017,March 31, 2024, we used $46.6 million of net cash for operations, of which $26.8 million was generated from operating activities and $73.4 million was used for working capital investments. For the nine months ended September 30, 2016, we used $9.7$2.6 million of net cash from operations, of which $16.3 million was generated from operating activities and $26.0$18.9 million was used for working capital investments.requirements. For the three months ended March 31, 2023, we generated $52.4 million of net cash from operations, of which $16.0 million was generated from operating activities and $36.5 million was generated from working capital.


 

Net cash from operationsoperating activities totaled $26.8$16.3 million during the ninefirst three months ended September 30, 2017of 2024 and consisted primarilywas mainly comprised of net income of $14.8$8.7 million and the non-cash depreciation and amortization addback of $13.9$7.5 million. Net cash from operations totaled $16.3$16.0 million during the ninefirst three months ended September 30, 2016of 2023 and consisted primarilywas mainly comprised of net income of $1.0$9.9 million, andthe non-cash depreciation and amortization addback of $14.6$6.3 million and changes in other long-term liabilities of $1.0 million partially offset by changes in other long-term assets of $1.6 million.

 

Working capital at September 30, 2017March 31, 2024 totaled $337.1$439.0 million, a $77.0$16.1 million increase from December 31, 2016.2023.  The increase was primarily attributable to a $48.8$29.7 million or 47.9%,increase in accounts payable and outstanding checks and a $3.0 million decrease in prepaid expenses and other, offset by a $23.6 million increase in accounts receivable, (resulting from higher sales prices and higher sales volumes experienced in the third quarter of 2017 compared to the fourth quarter of 2016) and an $25.7a $11.0 million or 10.0%, increase in inventories.inventory and a $17.0 million decrease in accrued payroll and other liabilities.

Investing Activities

 

Net cash used for capital expenditures was $6.5investing activities totaled $4.8 million during the ninethree months ended September 30, 2017, compared to $5.3March 31, 2024 and primarily consisted new capital expenditures. Net cash used for investing activities totaled $136.8 million during the ninethree months ended September 30, 2016. The 2017March 31, 2023, and primarily consisted of $129.5 million acquisition of Metal-Fab, inclusive of cash acquired of $1.7 million and $7.4 million in new capital expenditures partially offset by $0.1 million in proceeds from the disposition of property and equipment.

The capital expenditures in the first three months of 2024 and 2023 were primarily attributable to additional processing equipment at our existing facilities.

 

Financing Activities

 

During the ninefirst three months ended September 30, 2017, $54.1of 2024, $4.5 million of cash was generated from financing activities, which primarily consisted of $55.8$6.6 million of net borrowings under our ABL Credit Facility, offset by a $0.9$1.7 million IRB repaymentof dividends paid, $0.3 million of principal payments under finance lease obligations and $0.7$0.1 million dividend payment.of credit facility fees and expenses related to the amended ABL Credit Facility. During the ninefirst three months ended September 30, 2016, $16.1of 2023, $90.6 million of cash was generated from financing activities, which primarily consisted of $17.7$93.1 million of net borrowings under our ABL Credit Facility, offset by a$1.4 million of dividends paid, $0.9 million IRB repaymentof credit facility fees and $0.7expenses related to amending the ABL Credit Facility and $0.2 million dividend payment.of principle payments under finance lease obligations.

 

Dividends paid were $0.7$1.7 million and $1.4 million for both the ninethree months ended September 30, 2017March 31, 2024 and September 30, 2016.March 31, 2023, respectively.  In May 2024, our Board of Directors approved a regular quarterly dividend of $0.150 per share, which will be paid on June 17, 2024 to shareholders of record as of June 3, 2024. Regular dividend distributions in the future are subject to the availability of cash, the $2.5$15.0 million annual limitation on cash dividends and common stock repurchases under our ABL Credit Facility and continuing determination by our Board of Directors that the payment of dividends remains in the best interest of our shareholders.

Stock Repurchase Program

 

On October 2,In 2015, we announced that our Board of Directors authorized a stock repurchase program of up to 550,000 shares of the Company’sour issued and outstanding common stock, which could include open market repurchases, negotiated block transactions, accelerated stock repurchases or open market solicitations for shares, all or some of which may be effected through Rule 10b5-1 plans. Any of the repurchasedRepurchased shares will be held in our treasury, or canceled and retired as our Board of Directors may determine from time to time. Any repurchases of common stock are subject to the covenants contained in the ABL Credit Facility. Under the ABL Credit Facility, we may repurchase common stock and pay dividends up to $2.5$15.0 million in the aggregate during any trailing twelve months without restrictions. Purchases in excess of $2.5$15.0 million require us to (i) maintain availability in excess of 25%20% of the aggregate revolver commitments ($91.3125.0 million at September 30, 2017)March 31, 2024) or (ii) to maintain availability equal to or greater than 15% of the aggregate revolver commitments ($54.893.8 million at September 30, 2017)March 31, 2024) and we must maintain a pro-formapro forma ratio of earnings before interest, taxes, depreciation and amortization, or EBITDA, minus certain capital expenditures and cash taxes paid to fixed charges of at least 1.00 to 1.00. The timing and amount of any repurchases under the stock repurchase program will depend upon several factors, including market and business conditions, and limitations under the ABL Credit Facility, and repurchases may be discontinued at any time. As of March 31, 2024, 360,212 shares remain authorized for repurchase under the program.

 

There were no shares repurchased during 2024 or 2023.

At- the-Market Equity Program

On September 3, 2021, we commenced an at-the-market, or ATM, equity program under our shelf registration statement, which allows us to sell and issue up to $50 million in shares of our common stock from time to time. We entered into an Equity Distribution Agreement on September 3, 2021 with KeyBanc Capital Markets Inc., or KeyBanc, relating to the issuance and sale of shares of common stock pursuant to the program. KeyBanc is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between KeyBanc and us. KeyBanc will be entitled to compensation for shares sold pursuant to the program of 2.0% of the gross proceeds of any shares of common stock sold under the Equity Distribution Agreement. No share repurchasesshares were madesold under the ATM program during the 2017three months ended March 31, 2024 or 2016 periods presented.March 31, 2023.

 

Debt Arrangements

 

Our ABL Credit Facility is collateralized by our accounts receivable, inventory and inventory.personal property. The $625 million ABL Credit Facility consists ofof: (i) a revolving credit linefacility of $365up to $595 million, including a $20 million sub-limit for letters of credit, and (ii) a first in, last out revolving credit facility of up to $30 million. Revolver borrowings are limitedUnder the terms of the ABL Credit Facility we may, subject to the lessersatisfaction of a borrowing base, comprised of eligible receivables and inventories, or $365 millioncertain conditions, request additional commitments under the revolving credit facility in the aggregate.aggregate principal amount of up to $200 million to the extent that existing or new lenders agree to provide such additional commitments, and add real estate as collateral at our discretion. The ABL Credit Facility matures on June 30, 2019.16, 2026.

 

The ABL Credit Facility requires uscontains customary representations and warranties and certain covenants that limit our ability to, complyamong other things: (i) incur or guarantee additional indebtedness; (ii) pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; (iii) make investments; (iv) sell assets; (v) enter into agreements that restrict distributions or other payments from restricted subsidiaries to us; (vi) incur liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of their assets; and (viii) engage in transactions with various covenants, the most significant of which include: (i) until maturity ofaffiliates. In addition, the ABL Credit Facility contains a financial covenant which requires if any commitments or obligations are outstanding and the our availability is less than the greater of $30 million or 10.0% of the aggregate amount of revolver commitments ($36.562.5 million at September 30, 2017)March 31, 2024) or 10.0% of the aggregate borrowing base ($56.8 million at March 31, 2024), then we must maintain a ratio of EBITDAEarnings before Interest, Taxes, Depreciation and Amortization (EBITDA) minus certain capital expenditures and cash taxes paid to fixed charges of at least 1.00 to 1.00 for the most recent twelve fiscal month period; (ii) limitations on dividend paymentsperiod.

As of March 31, 2024, we were in compliance with our covenants and stock repurchases; and (iii) restrictions on additional indebtedness. had approximately $366 million of availability under the ABL Credit Facility.

We have the option to borrow under ourits revolver based on the agent’s base rate plus a premium ranging from 0.00% to 0.25% or the London Interbank OfferedSecured Overnight Financing Rate, (LIBOR)or SOFR, plus a premium ranging from 1.25% to 3.00%2.75%.


As of September 30, 2017, we were in compliance with our covenants and had approximately $110 million of availability under the ABL Credit Facility.

 

As of September 30, 2017, $1.4March 31, 2024, and December 31, 2023, $1.6 million and $1.7 million, respectively, of bank financing fees were included in “Prepaid expenses and other” and “Other long-term assets” on the accompanying Consolidated Balance Sheets. The financing fees are being amortized over the five-year term of the ABL Credit facilityFacility and are included in “Interest and other expense on debt” on the accompanying Consolidated Statements of Comprehensive Income.

 

As part of the CTI acquisition in July 2011, we assumed approximately $5.9 million of Industrial Revenue Bond (IRB) indebtedness ($0.9 million at September 30, 2017). The bond matures in April 2018, with the option to provide principal payments annually in April. On April 3, 2017, we made an optional principal payment of $0.9 million. The remaining balance of the IRB is included in “Current portion of long-term debt” on the accompanying Consolidated Balance Sheets as the payment is due in April of 2018. Interest is payable monthly, with a variable rate that resets weekly. As a security for payment of the bonds, we obtained a direct pay letter of credit issued by JPMorgan Chase Bank, N.A. The letter of credit reduces annually by the principal reduction amount. The interest rate at September 30, 2017 was 0.9% for the IRB debt.

CTI entered into an interest rate swap agreement to reduce the impact of changes in interest rates on the above IRB. At September 30, 2017, the effect of the swap agreement on the bond was to fix the rate at 3.46%. The swap agreement matures in April 2018, and is reduced annually by the amount of the optional principal payments on the bond. We are exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement. However, we do not anticipate nonperformance by the counterparties.

Critical Accounting Policies

 

This Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations is based on the consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements. We monitor and evaluate our estimates and assumptions, based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

 

We review our financial reporting and disclosure practices and accounting practices quarterly to ensure they provide accurate and transparent information relative to the current economic and business environment. For further information regarding the accounting policies that we believe to be critical accounting policies that affect our more significant judgments and estimates used in preparing our consolidated financial statements, see Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2023.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Our principal raw materials are carbon, coated and stainless steel, and aluminum, pipe and tube, flat rolled coil, sheet and plate that we typically purchase from multiple primary metals producers. The metals industry as a whole is cyclical and, at times, pricing and availability of metals can be volatile due to numerous factors beyond our control, including general domestic and international economic conditions, the levels of metals imported into the United States, labor costs, sales levels, competition, levels of inventory held by other metals service centers, consolidation of metals producers, new global capacity by metals producers, higher raw material costs for the producers of metals, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and cost of raw materials for us.

 

We, like many other metals service centers, maintain substantial inventories of metals to accommodate the short lead times and just-in-timejust‑in‑time delivery requirements of our customers. Accordingly, we purchase metals in an effort to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon historic buying practices, supply agreements with customers and market conditions. Our commitments to purchase metals are generally at prevailing market prices in effect at the time we place our orders. We have no long-term, fixed-pricelong‑term, fixed‑price metals purchase contracts. When metals prices increase, competitive conditions will influence how much of the price increase we can pass on to our customers. To the extent we are unable to pass on future price increases in our raw materials to our customers, the net sales and profitability of our business could be adversely affected. When metals prices decline, customer demands for lower prices and our competitors’ responses to those demands could result in lower sale prices and, consequently, lower gross profits and inventory lower of cost or marketnet realizable value adjustments as we sell existing inventory. Significant or rapid declines in metals prices or reductions in sales volumes could adversely impact our ability to remain in compliance with certain financial covenants in ourthe ABL credit facility, as well as result in us incurring inventory or intangible asset impairment charges. Changing metals prices therefore could significantly impact our net sales, gross profits, operating income and net income.


 

Rising metals prices result in higher working capital requirements for us and our customers. Some customers may not have sufficient credit lines or liquidity to absorb significant increases in the price of metals. While we have generally been successful in the past in passing on producersproducers’ price increases and surcharges to our customers, there is no guarantee that we will be able to pass on price increases to our customers in the future. Declining metals prices have generally adversely affected our net sales and net income, while increasing metals prices have generally favorably affected our net sales and net income.

 

Approximately 52%49% and 51%50%, respectively, of our consolidated net sales during the first ninethree months of 20172024 and 2016, respectively,2023 were directly related to industrial machinery and equipment manufacturers and their fabricators.

 

Inflation generally affects us by increasing the cost of employee wages and benefits, transportation services, processing equipment, energy, and borrowings under our credit facility. Generalfacility, processing equipment, and purchased metals. Although general inflation, excluding increases in the price of metals and increased labor and distribution expense, has increased during the first quarter of 2024, it has not had a material effect on our financial results during the past twolast three years, but may have a significant impact in future years.

 

We are exposed to the impact of fluctuating metals prices and interest rate changes. During 20172024 and 2016,2023, we entered into metals swaps at the request of customers. While theseThese derivatives are intended to be effective in helping us manage risk, they have not been designated as hedging instruments. For certain customers, we enter into contractual relationships that entitle us to pass-throughpass through the economic effect of trading positions that we take with other third parties on our customerscustomers’ behalf.

 

Our primary interest rate risk exposure results from variable rate debt. On January 10, 2019, we entered into a five-year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on $75 million of the outstanding LIBOR based borrowings under the ABL Credit Facility. On January 3, 2023, we amended the interest rate hedge agreement to use SOFR as the reference rate and updated the fixed rate to 2.42% from 2.57%. The interest rate hedge agreement ended on January 10, 2024We have the option to enter into 30- to 180-day fixed base rate LIBORSOFR loans under the ABL Credit Facility.As part of the CTI acquisition, we assumed an interest rate swap agreement on the $5.9 million of IRB ($0.9 million at September 30, 2017). The swap agreement matures in April 2018, but the notional amount may be reduced annually by the amount of the optional principal payments on the IRB. We are exposed to credit loss in the event of nonperformance by the other parties to the fixed interest rate hedge agreement. However, we do not anticipate nonperformance by the counterparties.

 

 

Item 4. Controls and Procedures

 

The evaluation required by Rule 13a-15(e) of the Securities Exchange Act of 1934, or the Exchange Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934)Act) as of the end of the period covered by this Quarterly Report on Form 10-Q has been carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. These disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports that are filed with or submitted to the SEC is: (i) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and (ii) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2017,March 31, 2024, our disclosure controls and procedures were effective.

 

There were no changes in our internal control over financial reporting that occurred during the thirdfirst quarter of 20172024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

Part II. OTHER INFORMATION

 

Items 1, 1A, 2, 3 4 and 54 of this Part II are either inapplicable or are answered in the negative and are omitted pursuant to the instructions to Part II.

Item 5.Other Information

 

Trading Arrangements

During the quarter ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) promulgated under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

 

Item 6. Exhibits

 

Exhibit

Description of Document

Reference

10.45 *Form of Restricted Share Agreement for Outside Directors.Filed herewith
   

31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.

Filed herewith

   

31.2

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.

Filed herewith

   

32.1

Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.

Furnished herewith

   

32.2

Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.

Furnished herewith

   

101.INS101

The following materials from Olympic Steel’s Quarterly Report on Form 10-Q for the period ended March 31, 2024, formatted in Inline XBRL Instance Document(eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Statements of Cash Flows, (iv) the Supplemental Disclosures of Cash Flow Information, (v) the Consolidated Statements of Shareholders’ Equity, (vi) Notes to Unaudited Consolidated Financial Statements and (vii) document and entity information.

 
   

101.SCH

XBRL Taxonomy Extension Schema Document

 

104

Cover Pager Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

  

101.CAL

* This exhibit is a management contract or compensatory plan or arrangement.

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

OLYMPIC STEEL, INC.

(Registrant)

(Registrant)

   

Date: November 8, 2017  

By: /s/ Michael D. Siegal

May 3, 2024

By:

Michael D. Siegal

Chairman of the Board and Chief

/s/ Richard T. Marabito

 Executive Officer

Richard T. Marabito

 

Chief Executive Officer

   
 

By:

By:

/s/ Richard T. Marabito

A. Manson

 

Richard T. Marabito

A. Manson

 

Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 

30

37