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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 March 31, 2000
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23320
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OLYMPIC STEEL, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1245650
- ------------------------------ ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5096 Richmond Road, Bedford Heights, Ohio 44146
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 292-3800
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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 the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of May 5, 2000
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Common stock, without par value 9,904,300
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OLYMPIC STEEL, INC.
INDEX TO FORM 10-Q
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2000 and 3
December 31, 1999
Consolidated Statements of Income - for the three
months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows - for the three
months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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Part I. FINANCIAL INFORMATION
Olympic Steel, Inc.
Consolidated Balance Sheets
(in thousands)
March 31, December 31,
2000 1999
--------- ---------
(unaudited)
Assets
Cash $ 1,185 $ 1,433
Accounts receivable 17,911 9,802
Inventories 123,370 119,585
Prepaid expenses and other 5,552 6,693
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Total current assets 148,018 137,513
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Property and equipment 157,879 156,849
Accumulated depreciation (34,816) (32,645)
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Net property and equipment 123,063 124,204
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Unexpended IRB funds 1,558 1,668
Goodwill 3,596 3,622
Joint venture investments and advances (68) (42)
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Total assets $ 276,167 $ 266,965
========= =========
Liabilities
Current portion of long-term debt $ 6,046 $ 6,061
Accounts payable 26,500 20,671
Accrued payroll 3,282 3,595
Other accrued liabilities 6,542 5,921
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Total current liabilities 42,370 36,248
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Revolving credit agreement 49,871 47,892
Term loans 28,667 29,076
Industrial revenue bonds 10,397 10,397
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Total long-term debt 88,935 87,365
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Deferred income taxes 7,165 6,532
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Total liabilities 138,470 130,145
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Shareholders' Equity
Preferred stock -- --
Common stock 101,637 102,237
Retained earnings 36,060 34,583
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Total shareholders' equity 137,697 136,820
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Total liabilities and shareholders' equity $ 276,167 $ 266,965
========= =========
The accompanying notes are an integral part of these balance sheets.
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Olympic Steel, Inc.
Consolidated Statements of Income
For the Three Months Ended March 31,
(in thousands, except per share and tonnage data)
2000 1999
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(unaudited)
Tons sold
Direct 289,323 251,550
Toll 50,675 52,424
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339,998 303,974
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Net sales $ 144,687 $ 129,392
Cost of sales 111,078 99,031
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Gross margin 33,609 30,361
Operating expenses
Warehouse and processing 8,469 7,974
Administrative and general 7,757 7,046
Distribution 5,485 4,546
Selling 3,357 3,760
Occupancy 1,286 1,233
Depreciation and amortization 2,268 1,876
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Total operating expenses 28,622 26,435
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Operating income 4,987 3,926
Loss from joint ventures (172) (262)
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Income before financing costs and taxes 4,815 3,664
Interest expense 1,586 870
Receivable securitization expense 847 692
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Income before taxes 2,382 2,102
Income taxes 905 809
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Net income $ 1,477 $ 1,293
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Basic and diluted income per share $ 0.15 $ 0.12
========= =========
Weighted average shares outstanding 10,034 10,692
========= =========
The accompanying notes are an integral part of these statements.
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Olympic Steel, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(in thousands)
2000 1999
-------- --------
(unaudited)
Cash flows from operating activities:
Net income $ 1,477 $ 1,293
Adjustments to reconcile net income to net
cash from (used for) operating activities-
Depreciation and amortization 2,268 1,876
Loss from joint ventures 172 262
Long-term deferred income taxes 633 764
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4,550 4,195
Changes in working capital:
Accounts receivable (8,109) (12,837)
Inventories (3,785) 8,890
Prepaid expenses and other 1,124 36
Accounts payable 5,829 338
Accrued payroll and other accrued liabilities 309 931
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(4,632) (2,642)
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Net cash from (used for) operating activities (82) 1,553
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Cash flows from investing activities:
Facility construction and improvements (183) (1,144)
Equipment purchases and deposits (757) (651)
Other capital expenditures, net (144) (392)
Investment in joint venture (147) --
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Net cash used for investing activities (1,231) (2,187)
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Cash flows from financing activities:
Revolving credit agreement 1,979 (27)
Repayments of term loans and IRB's (424) (350)
Repurchase of common stock (600) --
Unexpended IRB funds 110 --
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Net cash from (used for) financing activities 1,065 (377)
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Cash:
Net decrease (248) (1,011)
Beginning balance 1,433 1,825
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Ending balance $ 1,185 $ 814
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The accompanying notes are an integral part of these statements.
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OLYMPIC STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
The accompanying consolidated financial statements have been prepared from the
financial records of Olympic Steel, Inc. (Olympic or the Company) and its
wholly-owned subsidiaries, without audit and reflect all adjustments which are,
in the opinion of management, necessary to fairly present the results of the
interim periods covered by this report. All significant intercompany
transactions and balances have been eliminated in consolidation. Investments in
the Company's joint ventures are accounted for under the equity method. Certain
amounts in the 1999 consolidated financial statements have been reclassified to
conform to the 2000 presentation.
(1) SHARES OUTSTANDING AND EARNINGS PER SHARE:
In April 1999, the Company's board of directors authorized a one-year program to
purchase up to 1 million shares of Olympic common stock. Through the first
quarter of 2000, the Company repurchased 733 thousand shares at an average price
of $6.39. On April 26, 2000, the Company's board of directors extended the time
period to complete the program for an additional 4 months. Repurchased shares
are held in treasury and are available for general corporate purposes.
Earnings per share have been calculated based on the weighted average number of
shares outstanding. Basic and diluted earnings per share are the same, as the
effect of outstanding stock options is not dilutive.
(2) ACCOUNTS RECEIVABLE:
As of March 31, 2000, and December 31, 1999, $54 million and $52 million,
respectively, of receivables were sold under the Company's accounts receivable
securitization program. Receivables sold are reflected as a reduction of
accounts receivable in the accompanying consolidated balance sheets.
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(3) LONG -TERM DEBT:
Interest rates under the Company's various credit agreements are generally based
on LIBOR plus a premium determined quarterly, which varies with the Company's
operating performance and financial leverage. Commencing December 1, 1999, the
LIBOR premium increased from 1.5% to 2.0%. The overall effective interest rate
for all debt for the quarters ended March 31, 2000 and 1999 was 7.9% and 6.6%,
respectively.
Included in the revolving credit balances on the accompanying consolidated
balance sheets are $7.4 million and $6.3 million of checks issued that have not
cleared the bank as of March 31, 2000, and December 31, 1999, respectively.
(4) STOCK OPTIONS:
On April 26, 2000, additional non-qualified options to purchase 151,500 shares
of common stock were issued to the Company's outside directors, executive
officers and senior managers at an option price of $4.84, the average market
value of a share of common stock at the grant date. After issuance of the new
grants, options to purchase 421,833 shares were outstanding, of which 152,011
were exercisable at prices ranging from $7.18 to $15.50 per share. Shares
available under the stock option plan were increased to 950,000 from 450,000, by
shareholder vote on April 26, 2000.
(5) JOINT VENTURE:
In February 2000, the Company advanced $147 thousand to its Trumark Steel &
Processing joint venture.
(6) SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the three months ended March 31, 2000 and 1999 totaled $1.5
million and $1.0 million, respectively. Income taxes paid during the March 31,
2000 and 1999 quarters totaled $27 thousand and $58 thousand, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's results of operations are affected by numerous external
factors, such as general economic and political conditions, competition, steel
pricing and availability, and work stoppages by automotive manufacturers.
Olympic sells a broad range of products, many of which have different
gross margins. Products that have more value-added processing generally have a
greater gross margin. Accordingly, the Company's overall gross margin is
affected by product mix and the amount of processing performed, as well as
volatility in selling prices and material purchase costs. The Company performs
toll processing of customer-owned steel, the majority of which is performed by
its Detroit and Georgia operations. Toll processing generally results in lower
selling prices and gross margin dollars per ton but higher gross margin
percentages than the Company's direct sales.
The Company's two joint ventures include Olympic Laser Processing
(OLP), a company formed in April 1997 to process laser welded sheet steel blanks
for the automotive industry and Trumark Steel & Processing (TSP), a company
formed in December 1997, to support the flat-rolled steel requirements of the
automotive industry as a Minority Business Enterprise (MBE). The Company's 50%
interest in OLP and 49% interest in TSP are accounted for under the equity
method. The Company guarantees portions of outstanding debt under both of the
joint ventures' bank credit facilities. As of March 31, 2000, Olympic guaranteed
50% of OLP's $18.3 million and 49% of TSP's $2.8 million of outstanding debt on
a several basis.
OLP constructed a new facility and has initially equipped it with two
laser-welding lines. Production has begun on both lines and OLP has plans to
purchase two additional manual lines in 2000. Start-up costs for OLP have been
expensed as incurred.
Financing costs include interest expense on debt and costs associated
with the Company's accounts receivable securitization program (the Financing
Costs). Interest rates paid by the Company under its credit agreement are
generally based on LIBOR plus a premium (the Premium) determined quarterly,
which varies based on the Company's operating performance
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and financial leverage. Receivable securitization costs are based on commercial
paper rates calculated on the amount of receivables sold.
The Company sells certain products internationally, primarily in Mexico
and Puerto Rico. All international sales and payments are made in United States
dollars. These sales historically involve the Company's direct representation of
steel producers and may be covered by letters of credit or trade receivable
insurance. Typically, international sales are more transactional in nature with
lower gross margins than domestic sales. Domestic steel producers generally
supply domestic customers before meeting foreign demand, particularly during
periods of supply constraints.
RESULTS OF OPERATIONS
Tons sold increased 11.9% to 340 thousand in the first quarter of 2000
from 304 thousand for the first quarter of 1999. Tons sold in the first quarter
of 2000 included 289 thousand from direct sales and 51 thousand from toll
processing, compared with 252 thousand direct tons and 52 thousand tolling tons
in the comparable period of last year. The increase in direct tons sold is
primarily attributable to the ramp up of the Company's startup operations in
Bettendorf, Iowa and Chambersburg, Pennsylvania, as well as four additional
shipping days in this year's first quarter. On a per ship day basis, tons sold
increased 4.9%.
Net sales increased 11.8% to $144.7 million for the first quarter of
2000 from $129.4 million for 1999. Average selling prices remained constant
between years.
As a percentage of net sales, gross margin decreased to 23.2% for the
first quarter of 2000 from 23.5% for 1999. The decrease reflects supply side
price increases not fully passed on to all customers.
Operating expenses increased 8.2% to $28.6 million from $26.4 million.
However, on a per ton basis, operating expenses decreased to $84.18 for the
first quarter of 2000 from $86.96 for 1999. As a percentage of net sales,
operating expenses decreased to 19.8% for the first quarter of 2000 from 20.4%
for 1999. Operating expenses in the first quarter of 2000 were negatively
impacted by rising fuel costs, the effect of additional shipping days, and over
$500 thousand of strategic consulting fees. Fees associated with the strategic
planning firm's services ended in April 2000, and the Company has not engaged
additional strategic consulting work at this time.
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Losses from joint ventures totaled $172 thousand in the first quarter
of 2000, compared to $262 thousand in 1999.
Financing costs for the first quarter of 2000 increased to $2.4 million
from $1.6 million in the first quarter of 1999. Average borrowings outstanding
in the 2000 period increased primarily as a result of higher inventory levels
and the repurchase of the Company's common stock (Stock Purchase). Receivable
securitization expense increased due to higher commercial paper interest rates.
The Company's effective bank borrowing rate increased to 7.9% in the 2000
period, from 6.6% for 1999. The Company's Premium increased to 2.0% over LIBOR
commencing December 1, 1999.
Income before taxes for the first quarter of 2000 increased to $2.4
million from $2.1 million for 1999. Income taxes approximated 38.0% in the first
quarter of 2000 compared to 38.5% for 1999.
Net income for the first quarter of 2000 totaled $1.5 million, or $.15
per share, compared to $1.3 million, or $.12 per share for 1999. During the
first quarter of 2000, the Company repurchased 132 thousand shares of its common
stock. Average shares outstanding totaled 10.0 million in the first quarter of
2000 compared to 10.7 million in last year's first quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including strategic acquisitions and joint ventures, the purchase and upgrading
of processing equipment and services, the construction and upgrading of related
facilities, and additional working capital requirements. The Company uses cash
generated from operations, long-term debt obligations, equity offerings, and
leasing transactions to fund these requirements. Historically, the Company has
used revolving credit borrowings and proceeds from its accounts receivable
securitization program to finance working capital requirements.
Net cash from operating activities primarily represents net income plus
non-cash charges for depreciation, amortization and losses from joint ventures,
as well as changes in working capital. During the first three months of 2000,
$82 thousand of net cash was used for operating activities, consisting of $4.5
million of cash generated from net income and non-cash charges offset by $4.6
million of cash used for working capital purposes.
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Working capital at March 31, 2000 increased by $4.4 million since
December 31, 1999. The increase is primarily attributable to a $8.1 million
increase in accounts receivable and a $3.8 million increase in inventories,
offset by an $5.8 million increase in accounts payable. The accounts receivable
increase is the result of traditionally stronger March sales as compared to
December sales. December historically represents the lowest sales period of each
year for the Company. The inventory increase is attributable to increased steel
prices.
As of March 31, 2000, and December 31, 1999, $54 million and $52
million, respectively, of eligible receivables were sold under the Company's
accounts receivable securitization program. The amount of trade receivables sold
by the Company typically changes monthly depending upon the level of defined
eligible receivables available for sale at each month end.
During the first three months of 2000, net cash used for investing
activities totaled $1.2 million, primarily consisting of progress payments made
for a new slitter in Detroit as well as construction payments for the
Chambersburg plate processing and machining facility.
Cash flows from financing activities primarily consisted of net
borrowings under the Company's revolving credit agreement, the Stock Purchase,
and scheduled payments under its other existing long-term agreements. On April
23, 1999, the Company's board of directors authorized a one-year program to
purchase up to 1 million shares of Olympic common stock. On April 26, 2000, the
Company's board of directors extended the time period to complete the program
for an additional 4 months. The cost of purchasing such shares has been funded
from the Company's revolving credit facility.
As of March 31, 2000, approximately $34.1 million in unused
availability existed under the Company's revolving credit and accounts
receivable securitization facilities. The Company believes that funds available
under its revolving credit facility, other credit and financing agreements and
funds generated from operations will be sufficient to provide the Company with
the liquidity necessary to fund its anticipated working capital, capital
expenditure requirements and the Stock Purchase over the next 12 months. Capital
requirements are subject to change as business conditions warrant and
opportunities arise. In connection with its internal and external expansion
strategies, the Company may from time to time seek additional funds to finance
other new facilities, acquisitions and significant improvements to processing
equipment to respond to customers' demands.
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FORWARD-LOOKING INFORMATION
This document contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "expect," "believe," "anticipate," "plan" and 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 statements are subject to certain risks, uncertainties
and assumptions including, but not limited to, general business and economic
conditions; competitive factors such as the availability and pricing of steel
and fluctuations in demand, specifically in the automotive and agriculture
markets; work stoppages by automotive or steel manufacturers; potential
equipment malfunction; equipment installation and facility construction delays,
particularly for the Chambersburg expansion project; and the successes of its
joint ventures. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those expected, believed, anticipated or planned. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
republish revised forward-looking statements to reflect the occurrence of
unanticipated events or circumstances after the date hereof.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
OLYMPIC STEEL, INC.
(Registrant)
Date: May 5, 2000 By: /s/ Michael D. Siegal
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MICHAEL D. SIEGAL
Chief Executive Officer
By: /s/ Richard T. Marabito
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RICHARD T. MARABITO
Chief Financial Officer
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