UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | 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
OLYMPIC STEEL, INC.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | 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
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 August 6, 2021 | |||
| Common stock, without par value | ||||
Olympic Steel, Inc.
Index to Form 10-Q
| Page No. | |
| Part I. FINANCIAL INFORMATION | 3 |
| Item 1. Financial Statements | 3 |
| Consolidated Balance Sheets – June 30, 2021 and December 31, 2020 (unaudited) | 3 |
| Consolidated Statements of Comprehensive Income – for the three and six months ended June 30, 2021 and 2020 (unaudited) | 4 |
| Consolidated Statements of Cash Flows – for the six months ended June 30, 2021 and 2020 (unaudited) | 5 |
| Supplemental Disclosures of Cash Flow Information – for the six months ended June 30, 2021 and 2020 (unaudited) | 6 |
| Consolidated Statements of Shareholders’ Equity – for the three and six months ended June 30, 2021 and 2020 (unaudited) | 7 |
| Notes to Unaudited Consolidated Financial Statements | 8 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 31 |
| Item 4. Controls and Procedures | 32 |
| Part II. OTHER INFORMATION | 33 |
| Item 6. Exhibits | 34 |
| SIGNATURES | 35 |
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Olympic Steel, Inc.
Consolidated Balance Sheets
(in thousands)
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net (includes LIFO credit of and LIFO debit of as of June 30, 2021 and December 31, 2020, respectively) | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, at cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Right of use assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll | ||||||||
| Other accrued liabilities | ||||||||
| Current portion of lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Credit facility revolver | ||||||||
| Other long-term liabilities | ||||||||
| Deferred income taxes | ||||||||
| Lease liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders' Equity | ||||||||
| Preferred stock | ||||||||
| Common stock | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated statements.
Olympic Steel, Inc.
Consolidated Statements of Comprehensive Income (Loss)
For the Three and Six Months Ended June 30,
(in thousands, except per share data)
| Three months ended |
Six months ended |
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| June 30, |
June 30, |
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| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Costs and expenses |
||||||||||||||||
| Cost of materials sold (excludes items shown separately below) |
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| Warehouse and processing |
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| Administrative and general |
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| Distribution |
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| Selling |
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| Occupancy |
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| Depreciation |
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| Amortization |
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| Total costs and expenses |
||||||||||||||||
| Operating income (loss) |
( |
) | ( |
) | ||||||||||||
| Other income (loss), net |
( |
) | ( |
) | ( |
) | ||||||||||
| Income (loss) before interest and income taxes |
( |
) | ( |
) | ||||||||||||
| Interest and other expense on debt |
||||||||||||||||
| Income (loss) before income taxes |
( |
) | ( |
) | ||||||||||||
| Income tax provision (benefit) |
( |
) | ( |
) | ||||||||||||
| Net income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Gain (loss) on cash flow hedge |
( |
) | ( |
) | ||||||||||||
| Tax effect on cash flow hedge |
( |
) | ( |
) | ||||||||||||
| Total comprehensive income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Earnings per share: |
||||||||||||||||
| Net income (loss) per share - basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted average shares outstanding - basic |
||||||||||||||||
| Net income (loss) per share - diluted |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Weighted average shares outstanding - diluted |
||||||||||||||||
| Dividends declared per share of common stock |
$ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these consolidated statements.
Olympic Steel, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
(in thousands)
| 2021 | 2020 | |||||||
| Cash flows from (used for) operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash from (used for) operating activities - | ||||||||
| Depreciation and amortization | ||||||||
| (Gain) loss on disposition of property and equipment | ||||||||
| Stock-based compensation | ||||||||
| Other long-term assets | ( | ) | ||||||
| Other long-term liabilities | ( | ) | ||||||
| Changes in working capital: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Change in outstanding checks | ( | ) | ||||||
| Accrued payroll and other accrued liabilities | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Net cash from (used for) operating activities | ( | ) | ||||||
| Cash flows from (used for) investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Proceeds from disposition of property and equipment | ||||||||
| Net cash used for investing activities | ( | ) | ( | ) | ||||
| Cash flows from (used for) financing activities: | ||||||||
| Credit facility revolver borrowings | ||||||||
| Credit facility revolver repayments | ( | ) | ( | ) | ||||
| Principal payment under capital lease obligation | ( | ) | ||||||
| Credit facility fees and expenses | ( | ) | ||||||
| Repurchase of common stock | ( | ) | ||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Net cash from financing activities | ||||||||
| Cash and cash equivalents: | ||||||||
| Net change | ||||||||
| Beginning balance | ||||||||
| Ending balance | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated statements.
Olympic Steel, Inc.
Supplemental Disclosures of Cash Flow Information
For the Six Months Ended June 30,
(in thousands)
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
The Company incurred financing lease obligations of $1.0 million during the six months ended June 30, 2020. There were no new financing lease obligations during the six months ended June 30, 2021. This non-cash transaction has been excluded from the Consolidated Statements of Cash Flows for the six months ended June 30, 2020.
The accompanying notes are an integral part of these consolidated statements.
Olympic Steel, Inc.
Consolidated Statements of Shareholders’ Equity
(in thousands)
| For the Three Months Ended June 30, 2021 |
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| Accumulated |
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| Other |
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| Common |
Comprehensive |
Retained |
Total |
|||||||||||||
| Stock |
Loss |
Earnings |
Equity |
|||||||||||||
| Balance at March 31, 2021 |
$ | $ | ( |
) | $ | $ | ||||||||||
| Net income |
||||||||||||||||
| Payment of dividends |
( |
) | ( |
) | ||||||||||||
| Stock-based compensation |
||||||||||||||||
| Changes in fair value of hedges, net of tax |
||||||||||||||||
| Other |
( |
) | ( |
) | ||||||||||||
| Balance at June 30, 2021 |
$ | $ | ( |
) | $ | $ | ||||||||||
| For the Six Months Ended June 30, 2021 | ||||||||||||||||
| Accumulated | ||||||||||||||||
| Other | ||||||||||||||||
| Common | Comprehensive | Retained | Total | |||||||||||||
| Stock | Loss | Earnings | Equity | |||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | ) | $ | $ | ||||||||||
| Net income | ||||||||||||||||
| Payment of dividends | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation | ||||||||||||||||
| Changes in fair value of hedges, net of tax | ||||||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||
| For the Three Months Ended June 30, 2020 | ||||||||||||||||||||
| Accumulated | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Common | Treasury | Comprehensive | Retained | Total | ||||||||||||||||
| Stock | Stock | Loss | Earnings | Equity | ||||||||||||||||
| Balance at March 31, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Payment of dividends | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Restricted stock units converted to stock | ( | ) | ||||||||||||||||||
| Changes in fair value of hedges, net of tax | ( | ) | ( | ) | ||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| For the Six Months Ended June 30, 2020 | ||||||||||||||||||||
| Accumulated | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Common | Treasury | Comprehensive | Retained | Total | ||||||||||||||||
| Stock | Stock | Loss | Earnings | Equity | ||||||||||||||||
| Balance at December 31, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||
| Payment of dividends | ( | ) | ( | ) | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Restricted stock units converted to stock | ( | ) | ||||||||||||||||||
| Changes in fair value of hedges, net of tax | ( | ) | ( | ) | ||||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ||||||||||||||||
| Other | ( | ) | ||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
The accompanying notes are an integral part of these consolidated statements.
Olympic Steel, Inc.
Notes to Unaudited Consolidated Financial Statements
June 30, 2021
| 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 2021 annual results and these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. All intercompany transactions and balances have been eliminated in consolidation.
The Company operates in three reportable segments; carbon flat products, specialty metals flat products, and tubular and pipe products. The specialty metals flat products segment and the carbon flat products segment are at times consolidated and referred to as the flat products segments. Certain of the flat products segments’ assets and resources are shared by the 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. Due to the shared assets and resources, certain of the flat products segment expenses are allocated between the specialty metals flat products segment and the carbon flat products segment based upon an established allocation methodology. The specialty metals flat products segment sells and distributes processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. Through the acquisition of Action Stainless & Alloys, Inc. (Action Stainless) on December 14, 2020, the specialty metals flat products segment expanded its geographic footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tubing and pipe. Action Stainless offers a range of processing capabilities, including plasma, laser and waterjet cutting and computer numerical control (CNC) machining. The carbon flat products segment sells and distributes large volumes of processed carbon and coated flat-rolled sheet, coil and plate products, and fabricated parts. Through the acquisitions of McCullough Industries (McCullough) and certain assets related to the manufacturing of the EZ Dumper® hydraulic dump inserts (EZ Dumper) in 2019, the carbon flat products segment expanded its product offerings to include self-dumping metal hoppers and steel and stainless-steel dump inserts for pickup truck and service truck beds. The tubular and pipe products segment, which consists of the Chicago Tube and Iron subsidiary (CTI), distributes metal tubing, pipe, bar, valves and fittings and fabricates pressure parts supplied to various industrial markets.
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 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.
On March 11, 2020, the World Health Organization classified the novel coronavirus (COVID-19) outbreak as a pandemic. The Company is an essential business and remains open in all locations, adhering to all health guidelines to operate safely provided by the Center for Disease Control and Prevention and local authorities. The Company has implemented actions to maintain its financial health and liquidity. The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. However, as a result of the many uncertainties surrounding the COVID-19 pandemic, the Company is unable to predict the impact that it ultimately will have on its financial condition, results of operations, comprehensive income (loss), and cash flows.
Impact of Recently Issued Accounting Pronouncements
There were no recently issued accounting pronouncements that would have a material impact on the Company’s Consolidated Financial Statements.
| 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, and fabricated parts. The Company's contracts with customers are comprised of purchase orders with standard terms and conditions. Occasionally the Company may also have longer-term agreements with customers. Substantially all of the contracts 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 customer.
Transfer of control is assessed based on the use of the product distributed and rights to payment for performance under the contract terms. Transfer of control and revenue recognition for substantially all of the Company’s sales occur upon shipment or delivery of 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 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 the Company's consolidated results.
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 June 30, 2021 | ||||||||||||||||
| Carbon flat products | Specialty metals flat products | Tubular and pipe products | Total | |||||||||||||
| Hot Rolled | % | % | ||||||||||||||
| Plate | % | % | ||||||||||||||
| Cold Rolled | % | % | ||||||||||||||
| Coated | % | % | ||||||||||||||
| Specialty | % | % | ||||||||||||||
| Tube | % | % | ||||||||||||||
| Other | % | % | % | |||||||||||||
| Total | % | % | % | % | ||||||||||||
| Disaggregated Revenue by Products Sold | ||||||||||||||||
| For the Six Months Ended June 30, 2021 | ||||||||||||||||
| Carbon flat products | Specialty metals flat products | Tubular and pipe products | Total | |||||||||||||
| Hot Rolled | % | % | ||||||||||||||
| Plate | % | % | ||||||||||||||
| Cold Rolled | % | % | ||||||||||||||
| Coated | % | % | ||||||||||||||
| Specialty | % | % | ||||||||||||||
| Tube | % | % | ||||||||||||||
| Other | % | % | % | |||||||||||||
| Total | % | % | % | % | ||||||||||||
| Disaggregated Revenue by Products Sold | ||||||||||||||||
| For the Three Months Ended June 30, 2020 | ||||||||||||||||
| Carbon flat products | Specialty metals flat products | Tubular and pipe products | Total | |||||||||||||
| Hot Rolled | % | % | ||||||||||||||
| Plate | % | % | ||||||||||||||
| Cold Rolled | % | % | ||||||||||||||
| Coated | % | % | ||||||||||||||
| Specialty | % | % | ||||||||||||||
| Tube | % | % | ||||||||||||||
| Other | % | % | % | |||||||||||||
| Total | % | % | % | % | ||||||||||||
| Disaggregated Revenue by Products Sold | ||||||||||||||||
| For the Six Months Ended June 30, 2020 | ||||||||||||||||
| Carbon flat products | Specialty metals flat products | Tubular and pipe products | Total | |||||||||||||
| Hot Rolled | % | % | ||||||||||||||
| Plate | % | % | ||||||||||||||
| Cold Rolled | % | % | ||||||||||||||
| Coated | % | % | ||||||||||||||
| Specialty | % | % | ||||||||||||||
| Tube | % | % | ||||||||||||||
| Other | % | % | % | |||||||||||||
| Total | % | % | % | % | ||||||||||||
| 3. | Accounts Receivable: |
Accounts receivable are presented net of allowances for credit losses and unissued credits of $
| 4. | Inventories: |
Inventories consisted of the following:
| Inventory as of | ||||||||
| (in thousands) | June 30, 2021 | December 31, 2020 | ||||||
| Unprocessed | $ | $ | ||||||
| Processed and finished | ||||||||
| Totals | $ | $ | ||||||
The Company values certain of its tubular and pipe products inventory at the last-in, first-out (LIFO) method. At June 30, 2021 and December 31, 2020, approximately $
During the three and six months ended June 30, 2021, the Company recorded $
If the FIFO method had been in use, inventories would have been $
| 5. | Goodwill and Intangible Assets: |
The Company’s intangible assets were recorded in connection with its acquisitions that occurred between 2011 and 2020. The intangible assets were evaluated on the premise of highest and best use to a market participant, primarily utilizing the income approach valuation methodology. The useful life of the customer relationships was determined to be years, based primarily on the consistent and predictable revenue source associated with the existing customer base, the present value of which extends through the -year amortization period. The useful life of the non-compete agreements was determined to be the length of the non-compete agreements, which range from to years. The useful life of the trade names was determined to be indefinite primarily due to their history and reputation in the marketplace, the Company’s expectation that the trade names will continue to be used, and the conclusion that there are currently no other factors identified that would limit their useful life. The Company will continue to evaluate the useful life assigned to its amortizable customer relationships and noncompete agreements in future periods.
Goodwill, by reportable unit, was as follows as of June 30, 2021 and December 31, 2020, respectively. The goodwill is deductible for tax purposes. The change in goodwill during 2021 is related to adjustments to the preliminary purchase price allocation of the fair market values of the assets acquired and liabilities assumed for Action Stainless.
| (in thousands) | Carbon Flat Products | Specialty Metals Flat Products | Tubular and Pipe Products | Total | ||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ||||||||||||
| Acquisitions | ||||||||||||||||
| Impairments | ||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ||||||||||||
Intangible assets consisted of the following as of June 30, 2021 and December 31, 2020, respectively:
| As of June 30, 2021 | ||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Intangible Assets, Net | |||||||||
| Customer relationships - subject to amortization | $ | $ | ( | ) | $ | |||||||
| Covenant not to compete - subject to amortization | ( | ) | ||||||||||
| Trade name - not subject to amortization | - | |||||||||||
| $ | $ | ( | ) | $ | ||||||||
| As of December 31, 2020 | ||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Intangible Assets, Net | |||||||||
| Customer relationships - subject to amortization | $ | $ | ( | ) | $ | |||||||
| Covenant not to compete - subject to amortization | ( | ) | ||||||||||
| Trade name - not subject to amortization | - | |||||||||||
| $ | $ | ( | ) | $ | ||||||||
The Company estimates that amortization expense for its intangible assets subject to amortization will be approximately $
| 6. | Leases: |
The components of lease expense were as follows:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases was as follows:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Cash paid for lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
| Operating cash flows from finance leases | ||||||||||||||||
| Financing cash flows from finance leases | ||||||||||||||||
| Total cash paid for lease liabilities | $ | $ | $ | $ | ||||||||||||
Supplemental balance sheet information related to leases was as follows:
| June 30, | December 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Operating Leases | ||||||||
| Operating lease | $ | $ | ||||||
| Operating lease accumulated amortization | ( | ) | ( | ) | ||||
| Operating lease right-of-use asset, net | ||||||||
| Operating lease current liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance Leases | ||||||||
| Finance lease | $ | $ | ||||||
| Finance lease accumulated depreciation | ( | ) | ( | ) | ||||
| Finance lease, net | ||||||||
| Finance lease current liabilities | ||||||||
| Finance lease liabilities | ||||||||
| Total finance lease liabilities | $ | $ | ||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases (in years) | ||||||||
| Finance leases (in years) | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
Maturities of lease liabilities were as follows:
| Operating | Finance | |||||||
| (in thousands) | Leases | Leases | ||||||
| Year Ending December 31, | ||||||||
| 2021 | $ | $ | ||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total future minimum lease payments | $ | $ | ||||||
| Less remaining imputed interest | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| 7. | Debt: |
The Company’s debt is comprised of the following components:
| As of | ||||||||
| June 30, | December 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Asset-based revolving credit facility due December 8, 2022 | $ | $ | ||||||
| Asset-based revolving credit facility due June 16, 2026 | ||||||||
| Total debt | $ | $ | ||||||
On June 16, 2021, the Company entered into a Fourth Amendment to Third Amended and Restated Loan and Security Agreement (the “ABL Credit Facility”), which amended and extended the Company’s existing ABL Credit Facility. The $
The ABL Credit Facility contains customary representations and warranties and certain covenants that limit the ability of the Company to, among 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 or suffer to exist liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of their assets; and (viii) engage in transactions with affiliates. In addition, the ABL Credit Facility contains a financial covenant which includes: (i) if any commitments or obligations are outstanding and the Company’s availability is less than the greater of $
The Company has the option to borrow under its revolver based on the agent’s base rate plus a premium ranging from
On January 10, 2019, the Company entered into a -year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on $
As of June 30, 2021, the Company was in compliance with its covenants and had approximately $
As of June 30, 2021, and December 31, 2020, $
| 8. | Derivative Instruments: |
Metals swaps and embedded customer derivatives
During 2021 and 2020, the Company entered into nickel swaps indexed to the London Metal Exchange (LME) price of nickel with third-party brokers. The nickel swaps are accounted for as derivatives for accounting purposes. The Company entered into them to mitigate its customers’ risk of volatility in the price of metals. The outstanding nickel swaps mature in 2021. 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-party brokers to honor their agreements with the Company related to derivative instruments. If the customer or third-party brokers are unable to honor their agreements, the Company’s risk of loss is the fair value of the metals swaps.
These derivatives 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 (Loss). 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 (Loss). The cumulative change in fair value of the metals swaps that had not yet settled as of June 30, 2021 are included in “Accounts Receivable, net”, and the embedded customer derivatives are included in “Other accrued liabilities” on the Consolidated Balance Sheets as of June 30, 2021. There were no outstanding metals swaps or embedded customer derivatives as of December 31, 2020.
Fixed rate interest rate hedge
On January 10, 2019, the Company entered into a -year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on $
The table below shows the total impact to the Company’s Consolidated Statements of Comprehensive Income (Loss) through net income of the derivatives for the three and six months ended June 30, 2021 and 2020, respectively.
| Net Gain (Loss) Recognized | ||||||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Fixed interest rate hedge | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Metals swaps | ( | ) | ||||||||||||||
| Embedded customer derivatives | ( | ) | ( | ) | ( | ) | ||||||||||
| Total loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 9. | Fair Value of Assets and Liabilities: |
During the six months ended June 30, 2021, 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 June 30, 2021 since December 31, 2020.
The following table presents information about the Company’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 | ||||||||||||||||
| As of June 30, 2021 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Assets: | ||||||||||||||||
| Metal Swaps | $ | $ | $ | $ | ||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Embedded customer derivative | $ | $ | $ | $ | ||||||||||||
| Fixed interest rate hedge | ||||||||||||||||
| Total liabilities recorded at fair value | $ | $ | $ | $ | ||||||||||||
| Value of Items Recorded at Fair Value | ||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities: | ||||||||||||||||
| Fixed interest rate hedge | $ | $ | $ | $ | ||||||||||||
| Total liabilities recorded at fair value | $ | $ | $ | $ | ||||||||||||
The value of the items not recorded at fair value represent the carrying value of the liabilities.
The carrying value of the ABL Credit Facility was $
| 10. |
Accumulated Other Comprehensive Loss: |
On January 10, 2019, the Company entered into a -year forward starting fixed rate interest rate hedge in order to eliminate the variability of cash interest payments on $
| 11. | Equity Plans: |
Restricted Stock Units and Performance Share Units
Pursuant to the Amended and Restated Olympic Steel 2007 Omnibus Incentive Plan (the Incentive Plan), the Company may grant stock options, stock appreciation rights, restricted shares, restricted share units (RSUs), performance shares, and other stock- and cash-based awards to employees and directors of, and consultants to, the Company and its affiliates. Since adoption of the Incentive Plan,
On an annual basis, the compensation committee of the Company’s Board of Directors awards RSUs, to each non-employee director as part of their annual compensation. The annual awards for 2021 and 2020 per director were $
Prior to 2021, under the Incentive Plan, each eligible participant was awarded RSUs with a dollar value equal to
Under the Incentive Plan, the Company awards RSUs to newly-appointed executive officers, based upon a percentage of their base salary. Upon Mr. Greiff’s promotion to President and Chief Operating Officer on January 1, 2020, he received
Stock-based compensation expense recognized on RSUs for the three and six months ended June 30, 2021 and 2020, respectively, is summarized in the following table:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| RSU expense before taxes | $ | $ | $ | $ | ||||||||||||
| RSU expense after taxes | $ | $ | $ | $ | ||||||||||||
All pre-tax charges related to RSUs were included in the caption “Administrative and general” on the accompanying Consolidated Statements of Comprehensive Income (Loss).
The following table summarizes the activity related to RSUs for the six months ended June 30, 2021 and 2020, respectively:
| As of June 30, 2021 | As of June 30, 2020 | |||||||||||||||
| Number of | Weighted Average | Number of | Weighted Average | |||||||||||||
| Shares | Granted Price | Shares | Granted Price | |||||||||||||
| Outstanding at December 31 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Converted into shares | ( | ) | ( | ) | ||||||||||||
| Forfeited | ( | ) | ( | ) | ||||||||||||
| Outstanding at June 30 | $ | $ | ||||||||||||||
| Vested at June 30 | $ | $ | ||||||||||||||
| 12. | Income Taxes: |
For the three months ended June 30, 2021, the Company recorded an income tax provision of $
For the three and six months ended June 30, 2021, the tax provision or benefit 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. Due to the COVID-19 pandemic and the uncertainty around forecasting an annual effective tax rate, the tax provision was recorded based on the actual effective tax rate including discrete items for the three and six months ended June 30, 2020.
The quarterly tax provision and the quarterly estimate of the annual effective tax rate is subject to significant volatility due to several factors, including variability in accurately predicting the 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, the effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible expenses on the effective tax rate is lower when the pre-tax income is higher.
| 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 Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands, except per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Weighted average basic shares outstanding | ||||||||||||||||
| Assumed exercise of stock options and issuance of stock awards | ||||||||||||||||
| Weighted average diluted shares outstanding | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Basic earnings per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted earnings per share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Unvested RSUs | ||||||||||||||||
| 14. | Stock Repurchase Program: |
On October 2, 2015, the Company announced that its Board of Directors authorized a stock repurchase program of up to
There were
| 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’s chief operating decision maker (CODM) to assess performance and make operating and resource allocation decisions. The CODM evaluates performance and allocates resources based primarily on operating income (loss). The operating segments are based primarily on internal management reporting.
The Company operates in reportable segments; specialty metals flat products, carbon flat products, and tubular and pipe products. The 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 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.
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 directors’ expenses, audit expenses, and various other professional fees.
The following table provides financial information by segment and reconciles the Company’s operating income by segment to the consolidated income before income taxes for the three and six months ended June 30, 2021 and 2020, respectively.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net sales | ||||||||||||||||
| Specialty metals flat products | $ | $ | $ | $ | ||||||||||||
| Carbon flat products | ||||||||||||||||
| Tubular and pipe products | ||||||||||||||||
| Total net sales | $ | $ | $ | $ | ||||||||||||
| Restructuring and other charges | ||||||||||||||||
| Specialty metals flat products | $ | $ | $ | $ | ||||||||||||
| Carbon flat products | ||||||||||||||||
| Tubular and pipe products | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total restructuring and other charges | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Specialty metals flat products | $ | $ | $ | $ | ||||||||||||
| Carbon flat products | ||||||||||||||||
| Tubular and pipe products | ||||||||||||||||
| Corporate | ||||||||||||||||
| Total depreciation and amortization | $ | $ | $ | $ | ||||||||||||
| Operating income (loss) | ||||||||||||||||
| Specialty metals flat products | $ | $ | $ | $ | ||||||||||||
| Carbon flat products | ( | ) | ( | ) | ||||||||||||
| Tubular and pipe products | ||||||||||||||||
| Corporate expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other income (loss), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) before interest and income taxes | ( | ) | ( | ) | ||||||||||||
| Interest and other expense on debt | ||||||||||||||||
| Income (loss) before income taxes | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Capital expenditures | ||||||||
| Flat products segments | $ | $ | ||||||
| Tubular and pipe products | ||||||||
| Corporate | ||||||||
| Total capital expenditures | $ | $ | ||||||
| As of | ||||||||
| June 30, | December 31, | |||||||
| (in thouands) | 2021 | 2020 | ||||||
| Assets | ||||||||
| Flat products segments | $ | $ | ||||||
| Tubular and pipe products | ||||||||
| Corporate | ||||||||
| Total assets | $ | $ | ||||||
There were no material revenue transactions between the specialty metals products, carbon flat products and tubular and pipe products segments.
The Company sells certain products internationally, primarily in Canada and Mexico. International sales are immaterial to the consolidated financial results and to the individual segments’ results.
Item 2. Management’s 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’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, 2020. 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, 2020, 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’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 associated with supply chain disruption resulting from the imbalance of metal supply and end-user demands related to the novel corona virus, or COVID-19; 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; |
| ● |
risks associated with the COVID-19 pandemic, 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 adjustments and the impairment of intangible and long-lived assets, reduced 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 security breaches, information technology disruptions and other similar events, negative impacts on our liquidity position, inability to access our traditional financing sources on the same or reasonably similar terms as were available before the COVID-19 pandemic 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; |
| ● |
risks of falling metals prices and inventory devaluation; |
| ● |
supply disruptions and inflationary pressures, including the availability and rising costs of transportation and logistical services and labor; |
| ● |
general and global business, economic, financial and political conditions, including legislation passed under the new administration; |
| ● |
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; |
| ● |
supplier consolidation or addition of additional capacity; |
| ● |
customer, supplier and competitor consolidation, bankruptcy or insolvency; |
| ● |
reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; |
| ● |
the levels of imported steel in the United States and the tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and imposed tariffs and duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry; |
| ● |
cyclicality and volatility within the metals industry; |
| ● |
the adequacy of our efforts to mitigate cyber security risks and threats, especially with employees working remotely due to the COVID-19 pandemic; |
| ● |
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; |
| ● |
our ability to generate free cash flow through operations and repay debt; |
| ● |
the adequacy of our existing information technology and business system software, including duplication and security processes; |
| ● |
the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; |
| ● |
our ability to successfully integrate recent acquisitions into our business and risks inherent with the acquisitions in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; |
| ● |
events or circumstances that could adversely impact the successful operation of our processing equipment and operations; |
| ● |
rising interest rates and their impacts on our variable interest rate debt; |
| ● |
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; |
| ● |
risks and uncertainties associated with intangible assets, including impairment charges related to indefinite lived intangible assets; |
| ● |
the timing and outcomes of inventory lower of cost or net realizable value adjustments and last-in, first-out, or LIFO, income or expense; |
| ● |
the inflation or deflation existing within the metals industry, as well as product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; |
| ● |
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; 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. |
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; carbon flat products, specialty metals flat products, and tubular and pipe products. We provide metals processing and distribution services for a wide range of customers. 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 the acquisition of Action Stainless & Alloys, Inc., or Action Stainless, on December 14, 2020, our specialty metals flat products segment expanded its geographic footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tubing and pipe. Action Stainless offers a range of processing, including plasma, laser and waterjet cutting and computer numerical control, or CNC, machining. Our carbon flat products segment’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. Through the acquisitions of McCullough Industries, or McCullough, and the EZ Dumper® hydraulic dump inserts, or EZ Dumper, in 2019, our carbon flat products segment expanded its product offerings to include self-dumping metal hoppers and carbon and stainless-steel dump inserts for pickup truck and service truck beds. In addition, we distribute metal tubing, pipe, bar, valves and fittings and fabricate pressure parts supplied to various industrial markets through our tubular and pipe products segment. Products that require more 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. We also perform toll processing of customer-owned metals. We sell certain products internationally, primarily in Canada and Mexico. International sales are immaterial to our consolidated financial results and to the individual 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; transportation and energy costs; pricing and availability of raw materials used in the production of metals; global supply, the level of metals imported into the United States, tariffs, and inventory held in the supply chain; the availability, and increased costs of labor; customers’ ability to manage their credit line availability; and layoffs or work stoppages by our own, our suppliers’ or our customers’ personnel. 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. From time to time, we have entered into nickel 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 June 30, 2021, we employed approximately 1,705 people. Approximately 264 of the hourly plant personnel at the facilities listed below are represented by nine separate collective bargaining units. The table below shows the expiration dates of the collective bargaining agreements.
| Facility |
Expiration date |
| Milan, Illinois |
August 12, 2021 |
| Minneapolis (plate), Minnesota |
March 31, 2022 |
| Detroit, Michigan |
August 31, 2022 |
| Hammond, Indiana |
November 30, 2024 |
| Locust, North Carolina |
March 4, 2025 |
| St. Paul, Minnesota |
May 25, 2025 |
| Romeoville, Illinois |
May 31, 2025 |
| Minneapolis (coil), Minnesota |
September 30, 2025 |
| Indianapolis, Indiana |
January 29, 2026 |
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
We operate in three reportable segments; carbon flat products, specialty metals flat products and tubular and pipe products. The carbon flat products segment and the specialty metals flat products segment are at times consolidated and referred to as the flat products segment. Some of the flat products segments’ assets and resources are shared by the carbon and specialty metals 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 carbon flat products segment and the specialty metals 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 segments’ average selling price and the cost of materials sold. The tubular and pipe products segment generally has the highest average selling price among the three segments followed by the specialty metals flat products and carbon flat products segments. 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 highest in the tubular and pipe products segment, followed by the carbon and specialty metals flat products segments. 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 stainless and aluminum flat-rolled sheet and coil products, flat bar products and fabricated parts. Through the acquisition of Action Stainless on December 14, 2020, our specialty metals flat products segment expanded its geographic footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tubing and pipe. Through its acquisition of Berlin Metals, LLC, or Berlin Metals, on April 2, 2018, our specialty metals flat products segment expanded its product offerings to include differing types of stainless flat-rolled sheet and coil and prime tin mill products. 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. 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.
Combined, the carbon and specialty metals flat products segments have 27 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 consists of the Chicago Tube and Iron, or CTI, business. Through our tubular and pipe products segment, we distribute metal tubing, pipe, bar, valve and fittings and fabricate pressure parts supplied to various industrial markets. Founded in 1914, CTI operates from eight locations in the Midwestern and southeastern 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 directors’ expenses, audit expenses, and various other professional fees.
Results of Operations
Our results of operations are impacted by the market price of metals. Metals prices fluctuate 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. Since August 2020, metals prices have continuously increased and metals pricing in the second quarter of 2021 reached record levels. Hot rolled coil index prices were 249% higher in the second quarter of 2021 compared to the second quarter of 2020. The metals pricing gap between 2021 and 2020 increased in the second quarter as prices continued to increase in 2021 compared to the falling prices experienced in the second quarter of 2020 as a result of the COVID-19 pandemic. The increased industry metals pricing is primarily caused by disruptions in the domestic and global supply chain; increased raw material pricing; supply shortages, including increased lead times and delivery delays; increased transportation costs; and increased demand as the economy recovers from the COVID-19 pandemic.
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, and net sales increase, gross profit and operating expenses as a percentage of net sales will generally decrease. During the second quarter and first six months of 2021, our sales volumes were negatively impacted by supply chain disruptions, which limited our spot sales; however, our net sales were positively impacted by the price increases experienced in the quarter, in particular for carbon flat products, which increased our profitability during the second quarter and first six months of 2021.
Consolidated Operations
The following table presents consolidated operating results for the periods indicated (dollars are shown in thousands):
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||||||||||||||||||
| $ |
% of net sales |
$ |
% of net sales |
$ |
% of net sales |
$ |
% of net sales |
|||||||||||||||||||||||||
| Net sales |
$ | 556,077 | 100.0 | $ | 248,296 | 100.0 | $ | 1,019,201 | 100.0 |
$ | 602,676 | 100.0 | ||||||||||||||||||||
| Cost of materials sold (a) |
428,704 | 77.1 | 196,237 | 79.0 | 783,368 | 76.9 | 478,759 | 79.4 | ||||||||||||||||||||||||
| Gross profit (b) |
127,373 | 22.9 | 52,059 | 21.0 | 235,833 | 23.1 | 123,917 | 20.6 | ||||||||||||||||||||||||
| Operating expenses (c) |
84,936 | 15.3 | 59,544 | 24.0 | 161,807 | 15.9 | 128,351 | 21.3 | ||||||||||||||||||||||||
| Operating income (loss) |
42,437 | 7.6 | (7,485 | ) | (3.0 | ) | 74,026 | 7.3 | (4,434 | ) | (0.7 | ) | ||||||||||||||||||||
| Other income (loss), net |
1 | 0.0 | (26 | ) | 0.0 | (9 | ) | (0.0 | ) | (43 | ) | (0.0 | ) | |||||||||||||||||||
| Interest and other expense on debt |
2,017 | 0.4 | 1,891 | 0.8 | 3,671 | 0.4 | 4,130 | 0.7 | ||||||||||||||||||||||||
| Income (loss) before income taxes |
40,421 | 7.3 | (9,402 | ) | (3.8 | ) | 70,346 | 6.9 | (8,607 | ) | (1.4 | ) | ||||||||||||||||||||
| Income taxes |
10,772 | 1.9 | (2,948 | ) | (1.2 | ) | 18,689 | 1.8 | (2,746 | ) | (0.5 | ) | ||||||||||||||||||||
| Net income (loss) |
$ | 29,649 | 5.3 | $ | (6,454 | ) | (2.6 | ) | $ | 51,657 | 5.1 | $ | (5,861 | ) | (1.0 | ) | ||||||||||||||||
| (a) Includes $4,000 and $5,000 of LIFO expense for the three and six months ended June 30, 2021, respectively. Includes $500 and $1,000 of LIFO income for the three and six months ended June 30, 2020, respectively. |
| (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. Operating expenses for the three and six months ended June 30, 2020 includes $3.6 million of restructuring and other charges. |
Net sales increased 124.0% to $556.1 million in the second quarter of 2021 from $248.3 million in the second quarter of 2020. Specialty metals flat products net sales were 24.8% of total net sales in the second quarter of 2021 compared to 21.9% of total net sales in the second quarter of 2020. Carbon flat products net sales were 58.5% of total net sales in the second quarter of 2021 compared to 56.7% of total net sales in the second quarter of 2020. Tubular and pipe products net sales were 16.6% of total net sales in the second quarter of 2021 compared to 21.3% of total net sales in the second quarter of 2020. The increase in net sales was due to a consolidated 63.4% increase in average selling prices during the second quarter of 2021 compared to the second quarter of 2020, and a 37.1% consolidated increase in volume.
Net sales increased 69.1% to $1.0 billion in the first six months of 2021 from $602.7 million in the first six months of 2020. Specialty metals flat products net sales were 25.9% of total net sales in the first six months of 2021 compared to 23.7% of total net sales in the first six months of 2020. Carbon flat products net sales were 56.1% of total net sales in the first six months of 2021 compared to 57.0% of total net sales in the first six months of 2020. Tubular and pipe products net sales were 18.0% of total net sales in the first six months of 2021 compared to 19.2% of total net sales in the first six months of 2020. The increase in net sales was due to a consolidated 47.4% increase in average selling prices during the first six months of 2021 compared to the first six months of 2020, and a 14.8% consolidated increase in volume. We expect metals prices to remain elevated in the third quarter of 2021.
Cost of materials sold increased 118.5% to $428.7 million in the second quarter of 2021 from $196.2 million in the second quarter of 2020. The increase in cost of materials sold in the second quarter of 2021 is related to the increased metals pricing discussed above and increased sales volumes. Cost of materials sold increased 63.6% to $783.4 million in the first six months of 2021 from $478.8 million in the first six months of 2020. The increase in cost of materials sold in the second quarter and first six months of 2021 is related to the increased metals pricing discussed above in Results of Operations and increased sales volumes.
As a percentage of net sales, gross profit (as defined in footnote (b) in the table above) increased to 22.9% in the second quarter of 2021 from 21.0% in the second quarter of 2020. As a percentage of net sales, gross profit (as defined in footnote (b) in the table above) increased to 23.1% in the first six months of 2021 from 20.6% in the first six months of 2020. The increase in the gross profit as a percentage of net sales is due to the impact of the rapidly increasing average selling prices discussed above in Results of Operations, while the average costs of inventory did not increase as quickly as the average selling price.
Operating expenses in the second quarter of 2021 increased $25.4 million, or 42.6%, to $84.9 million from $59.5 million in the second quarter of 2020. As a percentage of net sales, operating expenses decreased to 15.3% for the second quarter of 2021 from 24.0% in the second quarter of 2020. Operating expenses in the specialty metals flat products segment increased $9.3 million, operating expenses in the carbon flat products segment decreased $9.8 million, operating expenses in the tubular and pipe products segment increased $3.8 million and Corporate expenses increased $2.5 million in the second quarter of 2021 compared to the second quarter of 2020. Operating expenses increased during the second quarter of 2021, as a result of inflationary impacts on labor, transportation and other product support costs, increased variable expenses related to increased sales volume, increased labor hours, and increased variable performance-based incentive compensation and the inclusion of operating expenses related to the December 2020 acquisition of Action Stainless, compared to the second quarter of 2020.
Operating expenses in the first six months of 2021 increased $33.4 million, or 26.0%, to $161.8 million from $128.4 million in the first six months of 2020. As a percentage of net sales, operating expenses decreased to 15.9% in the first six months of 2021 from 21.3% in the first six months of 2020. Operating expenses in the specialty metals flat products segment increased $14.6 million, operating expenses in the carbon flat products segment increased $9.7 million, operating expenses in the tubular and pipe products segment increased $5.4 million and Corporate expenses increased $3.8 million in the first six months of 2021 compared to the first six months of 2020. Operating expenses increased during the first six months of 2021, as a result of inflationary impacts on labor, transportation and other product support costs, increased variable expenses related to increased sales volume, increased labor hours, and increased variable performance-based incentive compensation and the inclusion of operating expenses related to the December 2020 acquisition of Action Stainless, compared to the first six months of 2020.
Interest and other expense on debt totaled $2.0 million, or 0.4% of net sales, in the second quarter of 2021 compared to $1.9 million, or 0.8% of net sales, in the second quarter of 2020. Interest and other expense on debt totaled $3.7 million, or 0.4% of net sales, in the first six months of 2021 compared to $4.1 million, or 0.7% of net sales, in the first six months of 2020. The decrease was due to lower borrowings and lower interest rates in the first six months of 2021 compared to the first six months of 2020. Our effective borrowing rate, exclusive of deferred financing fees and commitment fees, was 2.9% for the first six months of 2021 compared to 3.4% for the first six months of 2020.
In the second quarter of 2021, income before income taxes totaled $40.4 million compared to a loss before income taxes of $9.4 million in the second quarter of 2020. In the first six months of 2021, income before income taxes totaled $70.3 million compared to a loss before income taxes of $8.6 million in the first six months of 2020.
An income tax provision of 26.7% was recorded for the second quarter of 2021, compared to an income tax benefit of 31.4% for the second quarter of 2020. An income tax provision of 26.6% was recorded for the first six months of 2021, compared to an income tax benefit of 31.9% for the first six months of 2020. Our tax provision or benefit for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items that are considered 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. During the second quarter of 2020, due to the COVID-19 pandemic and our inability to accurately forecast the impact of the pandemic, we recorded the tax provision using an actual effective tax rate as of June 30, 2020.
Net income for the second quarter of 2021 totaled $29.6 million or $2.58 per basic share and diluted share, compared to a net loss of $6.5 million or $0.56 per basic and diluted share for the second quarter of 2020. Net income for the first six months of 2021 totaled $51.7 million or $4.50 per basic share and $4.49 per diluted share, compared to a net loss of $5.9 million or $0.51 per basic and diluted share for the first six months of 2020.
Segment Operations
Specialty metals flat 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 June 30, |
For the Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||||||||||||||||||
| % of net sales |
% of net sales |
% of net sales |
% of net sales |
|||||||||||||||||||||||||||||
| Direct tons sold |
38,198 | 21,081 | 77,795 | 53,453 | ||||||||||||||||||||||||||||
| Toll tons sold |
1,990 | 3,256 | 4,280 | 5,454 | ||||||||||||||||||||||||||||
| Total tons sold |
40,188 | 24,337 | 82,075 | 58,907 | ||||||||||||||||||||||||||||
| Net sales |
$ | 138,035 | 100.0 | $ | 54,495 | 100.0 | $ | 264,354 | 100.0 | $ | 142,983 | 100.0 | ||||||||||||||||||||
| Average selling price per ton |
3,435 | 2,239 | 3,221 | 2,427 | ||||||||||||||||||||||||||||
| Cost of materials sold |
107,587 | 77.9 | 45,083 | 82.7 | 211,121 | 79.9 | 121,318 | 84.8 | ||||||||||||||||||||||||
| Gross profit (a) |
30,448 | 22.1 | 9,412 | 17.3 | 53,233 | 20.1 | 21,665 | 15.2 | ||||||||||||||||||||||||
| Operating expenses (b) |
16,746 | 12.1 | 7,421 | 13.6 | 31,509 | 11.9 | 16,939 | 11.8 | ||||||||||||||||||||||||
| Operating income |
$ | 13,702 | 9.9 | $ | 1,991 | 3.7 | $ | 21,724 | 8.2 | $ | 4,726 | 3.3 | ||||||||||||||||||||
| (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 65.1% to 40 thousand in the second quarter of 2021 from 24 thousand in the second quarter of 2020. Tons sold by our specialty metals flat products segment increased 39.3% to 82 thousand in the first six months of 2021 from 59 thousand in the first six months of 2020. The increase in tons sold was due to the acquisition of Action Stainless as well as customer demand returning to more normalized levels, compared to suppressed sales in 2020 caused by the COVID-19 pandemic.
Net sales in our specialty metals flat products segment increased $83.5 million, or 153.3%, to $138.0 million in the second quarter of 2021 from $54.5 million in the second quarter of 2020. The increase in sales was due to a 65.1% increase in sales volume and a 53.4% increase in average selling prices during the second quarter of 2021 compared to the second quarter of 2020. Sales volumes in the second quarter of 2020 were adversely impacted by the COVID-19 pandemic. Average selling prices in the second quarter of 2021 were $3,435 per ton, compared with $2,239 per ton in the second quarter of 2020, and $3,016 per ton in the first quarter of 2021. The increase in the year over year average selling price per ton is a result of the increased industry metals pricing discussed above. We expect metals prices to remain elevated in the third quarter of 2021.
Net sales in our specialty metals flat products segment increased $121.4 million, or 84.9%, to $264.4 million in the first six months of 2021 from $143.0 million in the first six months of 2020. The increase in sales was due to a 39.3% increase in sales volume and a 32.7% increase in average selling prices during the first six months of 2021 compared to the first six months of 2020. Average selling prices in the first six months of 2021 were $3,221 per ton, compared with $2,427 per ton in the first six months of 2020. The increase in the year over year average selling price per ton is a result of the increased industry metals pricing discussed above in Results of Operations.
Cost of materials sold in our specialty metals flat products segment increased $62.5 million, or 138.6%, to $107.6 million in the second quarter of 2021 from $45.1 million in the second quarter of 2020. Cost of materials sold in our specialty metals flat products segment increased $89.8 million, or 74.0%, to $211.1 million in the first six months of 2021 from $121.3 million in the first six months of 2020. The increase in cost of materials sold was due to the increase in sales volume and increased industry metals pricing discussed above in Results of Operations.
As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) increased to 22.1% in the second quarter of 2021 from 17.3% in the second quarter of 2020. As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) increased to 20.1% in the first six months of 2021 from 15.2% in the first six months of 2020. The increase in the gross profit as a percentage of net sales is due to the impact of the rapidly increasing average selling prices discussed above in Results of Operations, while the average costs of inventory did not increase as quickly as the average selling price.
Operating expenses increased $9.3 million, or 125.7%, to $16.7 million in the second quarter of 2021 from $7.4 million in the second quarter of 2020. As a percentage of net sales, operating expenses decreased to 12.1% in the second quarter of 2021 compared to 13.6% in the second quarter of 2020. Operating expenses increased $14.6 million, or 86.0%, to $31.5 million in the first six months of 2021 from $16.9 million in the first six months of 2020. As a percentage of net sales, operating expenses increased to 11.9% in the first six months of 2021 compared to 11.8% in the first six months of 2020. The increase in operating expenses was primarily attributable to the inclusion of operating expenses related to the December 14, 2020 acquisition of Action Stainless, inflationary impacts on labor, transportation and other product support costs, increased variable expenses related to increased sales volume, increased labor hours and increased variable performance-based incentive compensation.
Operating income in the second quarter of 2021 totaled $13.7 million, or 9.9% of net sales, compared to $2.0 million, or 3.7% of net sales, in the second quarter of 2020. Operating income in the first six months of 2021 totaled $21.7 million, or 8.2% of net sales, compared to $4.7 million, or 3.3% of net sales, in the first six months of 2020.
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 June 30, |
For the Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||||||||||||||||||
| % of net sales |
% of net sales |
% of net sales |
% of net sales |
|||||||||||||||||||||||||||||
| Direct tons sold |
227,596 | 176,732 | 453,644 | 423,832 | ||||||||||||||||||||||||||||
| Toll tons sold |
16,787 | 8,092 | 30,587 | 24,102 | ||||||||||||||||||||||||||||
| Total tons sold |
244,383 | 184,824 | 484,231 | 447,934 | ||||||||||||||||||||||||||||
| Net sales |
$ | 325,511 | 100.0 | $ | 140,811 | 100.0 | $ | 571,884 | 100.0 | $ | 343,778 | 100.0 | ||||||||||||||||||||
| Average selling price per ton |
1,332 | 762 | 1,181 | 767 | ||||||||||||||||||||||||||||
| Cost of materials sold |
249,934 | 76.8 | 114,925 | 81.6 | 434,106 | 75.9 | 278,062 | 80.9 | ||||||||||||||||||||||||
| Gross profit (a) |
75,577 | 23.2 | 25,886 | 18.4 | 137,778 | 24.1 | 65,716 | 19.1 | ||||||||||||||||||||||||
| Operating expenses (b) |
45,143 | 13.9 | 35,314 | 25.1 | 86,145 | 15.1 | 76,490 | 22.2 | ||||||||||||||||||||||||
| Operating income (loss) |
$ | 30,434 | 9.3 | $ | (9,428 | ) | (6.7 | ) | $ | 51,633 | 9.0 | $ | (10,774 | ) | (3.1 | ) | ||||||||||||||||
| (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. Operating expenses for the three and six months ended June 30, 2020 includes $3.6 million of restructuring and other charges. |
Tons sold by our carbon flat products segment increased 32.2% to 244 thousand in the second quarter of 2021 from 185 thousand in the second quarter of 2020. Tons sold by our carbon flat products segment increased 8.1% to 484 thousand in the first six months of 2021 from 448 thousand in the first six months of 2020. The increase in tons sold is due to customer demand returning to more normalized levels, compared to suppressed sales in 2020 caused by the COVID-19 pandemic; however, our ability to ship is still limited due to supply chain disruptions, which limited spot sales.
Net sales in our carbon flat products segment increased $184.7 million, or 131.2%, to $325.5 million in the second quarter of 2021 from $140.8 million in the second quarter of 2020. The increase in sales was attributable to a 74.8% increase in average selling prices in the second quarter of 2021 compared to the second quarter of 2020, and a 32.2% increase in tons sold. Average selling prices in the second quarter of 2021 increased to $1,332 per ton, compared with $762 per ton in the second quarter of 2020 and $1,027 per ton in the first quarter of 2021. We expect metals prices to remain elevated in the third quarter of 2021.
Net sales in our carbon flat products segment increased $228.1 million, or 66.4%, to $571.9 million in the first six months of 2021 from $343.8 million in the first six months of 2020. The increase in sales was attributable to a 53.9% increase in average selling prices in the first six months of 2021 compared to the first six months of 2020, and a 8.1% increase in tons sold. Average selling prices in the first six months of 2021 increased to $1,181 per ton, compared with $767 per ton in the first six months of 2020.
Cost of materials sold increased $135.0 million, or 117.5%, to $249.9 million in the second quarter of 2021 from $114.9 million in the second quarter of 2020. Cost of materials sold increased $156.0 million, or 56.1%, to $434.1 million in the first six months of 2021 from $278.1 million in the first six months of 2020. The increase was due to the increased market price for metals discussed above in Results of Operations.
As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) increased to 23.2% in the second quarter of 2021 compared to 18.4% in the second quarter of 2020. As a percentage of net sales, gross profit (as defined in footnote (a) in the table above) increased to 24.1% in the first six months of 2021 compared to 19.1% in the first six months of 2020 The increase in the gross profit as a percentage of net sales is due to the impact of the rapidly increasing average selling prices discussed above in Results of Operations, while the average costs of inventory did not increase as quickly as the average selling price.
Operating expenses in the second quarter of 2021 increased $9.8 million, or 27.8%, to $45.1 million from $35.3 million in the second quarter of 2020. Operating expenses in the first six months of 2021 increased $9.7 million, or 12.6%, to $86.1 million from $76.5 million in the first six months of 2020. Operating expenses increased as a result of inflationary impacts on labor, transportation and other product support costs, increased variable expenses related to increased sales volume, increased labor hours and increased variable performance-based incentive compensation.
Operating income in the second quarter of 2021 totaled $30.4 million, or 9.3% of net sales, compared to operating loss of $9.4 million, or 6.7% of net sales, in the second quarter of 2020. Operating income in the first six months of 2021 totaled $51.6 million, or 9.0% of net sales, compared to operating loss of $10.8 million, or 3.1% of net sales, in the first six months of 2020.
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 June 30, |
For the Six Months Ended June 30, |
|||||||||||||||||||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||||||||||||||||||
| $ |
% of net sales |
$ |
% of net sales |
$ |
% of net sales |
$ |
% of net sales |
|||||||||||||||||||||||||
| Net sales |
$ | 92,531 | 100.0 | $ | 52,990 | 100.0 | $ | 182,963 | 100.0 | $ | 115,915 | 100.0 | ||||||||||||||||||||
| Cost of materials sold (a) |
71,183 | 76.9 | 36,229 | 68.4 | 138,141 | 75.5 | 79,379 | 68.5 | ||||||||||||||||||||||||
| Gross profit (b) |
21,348 | 23.1 | 16,761 | 31.6 | 44,822 | 24.5 | 36,536 | 31.5 | ||||||||||||||||||||||||
| Operating expenses (c) |
18,309 | 19.8 | 14,536 | 27.4 | 35,463 | 19.4 | 30,006 | 25.9 | ||||||||||||||||||||||||
| Operating income |
$ | 3,039 | 3.3 | $ | 2,225 | 4.2 | $ | 9,359 | 5.2 | $ | 6,530 | 5.7 | ||||||||||||||||||||
| (a) Includes $4,000 and $5,000 of LIFO expense for the three and six months ended June 30, 2021, respectively. Includes $500 and $1,000 of LIFO income for the three and six months ended June 30, 2020, respectively. |
| (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 $39.5 million, or 74.6%, to $92.5 million in the second quarter of 2021 from $53.0 million in the second quarter of 2020. The increase is a result of a 48.9% increase in shipping volume and a 17.3% increase in average selling prices during the second quarter of 2021 compared to the second quarter of 2020. Net sales increased $67.0 million, or 57.8%, to $183.0 million in the first six months of 2021 from $115.9 million in the first six months of 2020. The increase is a result of a 51.9% increase in shipping volume and a 3.9% increase in average selling prices during the second quarter of 2021 compared to the second quarter of 2020. We expect metals prices to remain elevated in the third quarter of 2021.
Cost of materials sold increased $35.0 million, or 96.5%, to $71.2 million in the second quarter of 2021 from $36.2 million in the second quarter of 2020. Cost of materials sold increased $58.8 million, or 74.0%, to $138.1 million in the first six months of 2021 from $79.4 million in the first six months of 2020. The increase in cost of materials sold is primarily a result of the increased sales volume in 2021 compared to 2020. As a result of rapidly increasing prices, during the second quarter of 2021, our tubular and pipe products segment recorded $4.0 million of LIFO expense, compared to $0.5 million of LIFO income recorded in the second quarter of 2020. During the first six months of 2021, our tubular and pipe products segment recorded $5.0 million of LIFO expense, compared to $1.0 million of LIFO income during the first six months of 2020.
As a percentage of net sales, gross profit (as defined in footnote (b) in the table above) decreased to 23.1% in the second quarter of 2021 compared to 31.6% in the second quarter of 2020. As a percentage of net sales, the LIFO expense recorded in the second quarter of 2021 decreased gross profit by 4.3% compared to the LIFO income recorded in the second quarter of 2020, which increased gross profit by 0.9%. As a percentage of net sales, gross profit (as defined in footnote (b) in the table above) decreased to 24.5% in the first six months of 2021 compared to 31.5% in the first six months of 2020. As a percentage of net sales, the LIFO expense recorded in the first six months of 2021 decreased gross profit by 2.7% compared to the LIFO income recorded in the first six months of 2020, which increased gross profit by 0.9%.
Operating expenses in the second quarter of 2021 increased $3.8 million, or 26.0%, to $18.3 million from $14.5 million in the second quarter of 2020. Operating expenses decreased to 19.8% of net sales in the second quarter of 2021 compared to 27.4% in the second quarter of 2020. Operating expenses in the first six months of 2021 increased $5.5 million, or 18.2%, to $35.5 million from $30.0 million in the first six months of 2020. Operating expenses decreased to 19.4% of net sales in the first six months of 2021 compared to 25.9% in the first six months of 2020. Operating expenses increased as a result of, inflationary impacts on labor, transportation and other product support costs, increased variable expenses related to increased sales volume and increased variable performance-based incentive compensation.
Operating income in the second quarter 2021 totaled $3.0 million, or 3.3% of net sales, compared to $2.2 million, or 4.2% of net sales, in the second quarter of 2020. Operating income in the first six months of 2021 totaled $9.4 million, or 5.2% of net sales, compared to $6.5 million, or 5.7% of net sales, in the first six months of 2020.
Corporate expenses
Corporate expenses increased $2.5 million, or 108.4%, to $4.7 million in the second quarter of 2021 from $2.3 million in the second quarter of 2020. Corporate expenses increased $3.8 million, or 76.8%, to $8.7 million in the first six months of 2021 from $4.9 million in the first six months of 2020. Corporate expense increased as a result of increased performance-based incentive compensation.
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 and borrowings under our credit facility to fund these requirements.
We believe that funds available under our asset-based credit facility, or ABL Credit 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. 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 six months ended June 30, 2021, we used $95.7 million of net cash for operations, of which $66.5 million was generated from operating activities and $162.2 million was used for working capital. For the six months ended June 30, 2020, we generated $3.5 million of net cash for operations, of which $4.6 million was generated from operating activities and $1.1 million was used for working capital.
Net cash from operations totaled $66.5 million during the first six months of 2021 and was mainly comprised of net income of $51.7 million, the non-cash depreciation and amortization addback of $10.9 million and a decrease in other long-term assets of $5.2 million, offset by changes in other long-term liabilities of $1.8 million. Net cash from operations totaled $4.6 million during the first half of 2020 and mainly consisted of depreciation and amortization of $10.1 million added back to the net loss of $5.9 million, loss on sale of fixed asset of $2.1 million, and stock-based compensation of $0.6 million, offset by changes in other long-term assets of $2.6 million.
Working capital at June 30, 2021 totaled $443.3 million, a $167.8 million increase from December 31, 2020. The increase was primarily attributable to a $133.3 million increase in inventories (resulting from increased metals prices and inventory tonnage during the first six months of 2021), a $112.9 million increase in accounts receivable (resulting from higher sales and increased average selling prices in the first six months of 2021 compared to the fourth quarter of 2020) and a $5.2 million increase in prepaid expenses and other, offset by a $67.1 million increase in accounts payable and outstanding checks and a $22.0 million increase in accrued payroll and other accrued liabilities.
Investing Activities
Net cash used for investing activities totaled $4.6 million during the six months ended June 30, 2021, compared to $5.6 million during the six months ended June 30, 2020. The capital expenditures in the six months of 2021 and 2020 were primarily attributable to additional processing equipment at our existing facilities. During 2021, we expect our capital spending to be less than our annual depreciation expense.
Financing Activities
During the first six months of 2021, $106.4 million of cash was generated from financing activities, which primarily consisted of $108.4 million of net borrowings under our ABL Credit Facility offset by $1.2 million of credit facility fees and expenses related to the amended ABL Credit Facility, $0.4 million of dividends paid and $0.4 million used for principal payments under capital lease obligations.
Dividends paid were $0.4 million for both the six months ended June 30, 2021 and June 30, 2020. In August 2021, our Board of Directors approved a regular quarterly dividend of $0.02 per share, which will be paid on September 15, 2021 to shareholders of record as of September 1, 2021. Regular dividend distributions in the future are subject to the availability of cash, the $5.0 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
In 2015, our Board of Directors authorized a stock repurchase program of up to 550,000 shares of our 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. Repurchased 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 $5.0 million in the aggregate during any trailing twelve months without restrictions. Purchases in excess of $5.0 million require us to (i) maintain availability in excess of 20% of the aggregate revolver commitments ($95.0 million at June 30, 2021) or (ii) to maintain availability equal to or greater than 15% of the aggregate revolver commitments ($71.3 million at June 30, 2021) and we must maintain a pro-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 June 30, 2021, 360,212 shares remain authorized for repurchase under the program.
There were no shares repurchased during the three or six months ended June 30, 2021. There were no shares repurchased during the three months ended June 30, 2020. During the six months ended June 30, 2020 we repurchased 15,000 shares, for an aggregate cost of $145 thousand.
Debt Arrangements
On June 16, 2021, we entered into a Fourth Amendment to Third Amended and Restated Loan and Security Agreement, which amended and extended our existing ABL Credit Facility. The $475 million ABL Credit Facility consists of: (i) a revolving credit facility of up to $445 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, we may, subject to the satisfaction of certain conditions, request additional commitments under the revolving credit facility in the 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 16, 2026.
The ABL Credit Facility contains customary representations and warranties and certain covenants that limit our ability to, among 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 or suffer to exist liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of their assets; and (viii) engage in transactions with affiliates. In addition, the ABL Credit Facility contains a financial covenant which includes: (i) if any commitments or obligations are outstanding and our availability is less than the greater of $30 million or 10.0% of the aggregate amount of revolver commitments ($47.5 million at June 30, 2021) or 10.0% of the aggregate borrowing base ($47.5 million at June 30, 2021), then we must maintain a ratio of 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.
We have 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 Offered Rate, or LIBOR, plus a premium ranging from 1.25% to 2.75%.
As of June 30, 2021, we were in compliance with our covenants and had approximately $202 million of availability under the ABL Credit Facility.
As of June 30, 2021, $1.6 million 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 Facility and are included in “Interest and other expense on debt” on the accompanying Consolidated Statements of Comprehensive Income (Loss).
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. The interest rate hedge fixed the rate at 2.57%.
Critical Accounting Policies
This Management’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’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, 2020.
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‑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‑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 market 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 our 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 producers’ 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 44% and 41% of our consolidated net sales during the first six months of 2021 and 2020, respectively, 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. General inflation, excluding increases in the price of metals and increased distribution expense, has not had a material effect on our financial results during the past two years.
We are exposed to the impact of fluctuating metals prices and interest rate changes. During 2021 and 2020, we entered into metals swaps at the request of customers. These derivatives have not been designated as hedging instruments. For certain customers, we enter into contractual relationships that entitle us to pass-through the economic effect of trading positions that we take with other third parties on our customers’ behalf.
Our primary interest rate risk exposure results from variable rate debt. We have the option to enter into 30- to 180-day fixed base rate LIBOR loans under the ABL Credit Facility. On January 10, 2019, we entered into a five-year interest rate swap that locked the interest rate at 2.57% on $75 million of our revolving debt.
Item 4. Controls and Procedures
The evaluation required by Rule 13a-15(e) of the Securities Exchange Act of 1934 of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) 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 June 30, 2021, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting that occurred during the second quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are continually monitoring and assessing the COVID-19 pandemic’s impact on our internal controls to minimize the impact on their design and operating effectiveness.
Part II. OTHER INFORMATION
Items 1, 1A, 2, 3, 4 and 5 of this Part II are either inapplicable or are answered in the negative and are omitted pursuant to the instructions to Part II.
Item 6. Exhibits
| Exhibit |
Description of Document |
Reference |
| 3.1 |
Filed herewith |
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| 4.1 |
4.30 to Registrant’s Form 8-K filed with the Commission on June 21, 2021 (Commission File No. 0-23320) |
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| 10.1 |
Filed herewith |
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| 31.1 |
Filed herewith |
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| 31.2 |
Filed herewith |
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| 32.1 |
Furnished herewith |
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| 32.2 |
Furnished herewith |
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| 101 |
The following materials from Olympic Steel’s Quarterly Report on Form 10-Q for the period ended June 30, 2021, formatted in Inline XBRL (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. |
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| 104 |
Cover Pager Interactive Data File (embedded with the Inline XBRL 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.
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OLYMPIC STEEL, INC. |
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(Registrant) |
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| Date: August 6, 2021 |
By: |
/s/ Richard T. Marabito |
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Richard T. Marabito |
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Chief Executive Officer |
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By: |
/s/ Richard A. Manson |
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Richard A. Manson |
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Chief Financial Officer |
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| (Principal Financial and Accounting Officer) | |||
Exhibit 3.1
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
On May 1, 2020, Olympic Steel, Inc., with the prior approval of its Board of Directors and shareholders, filed an amendment (the “Amendment”) to its Amended and Restated Articles of Incorporation (the “Articles”) with the Secretary of State for the State of Ohio. The Amendment, which became effective upon filing, added the following language as a new second paragraph under Article VI of the Amended and Restated Articles of Incorporation:
“At each meeting of shareholders at which directors are to be elected, a candidate for director shall be elected only if the votes “for” the candidate exceed the votes “against” the candidate. Abstentions and broker non-votes shall not be counted as votes “for” or “against” a candidate. Notwithstanding the foregoing, if the Board of Directors determines that the number of candidates exceeds the number of directors to be elected, then in that election the candidates receiving the greatest number of votes (up to the number of directors to be elected) shall be elected.”
Exhibit 10.1
OLYMPIC STEEL, INC.
AMENDED AND RESTATED 2007 OMNIBUS INCENTIVE PLAN,
AS AMENDED EFFECTIVE MAY 7, 2021
ARTICLE 1
GENERAL PURPOSE OF PLAN; DEFINITIONS
Section 1.1 Name and Purpose. The name of this Plan is the Amended and Restated Olympic Steel, Inc. 2007 Omnibus Incentive Plan. The Olympic Steel, Inc. 2007 Omnibus Incentive Plan was originally approved by Shareholders at the Annual Meeting of Shareholders held in 2007, reapproved by Shareholders at the Annual Meeting of Shareholders held in 2012, and amended effective May 7, 2021 (subject to approval by Shareholders at the Annual Meeting of Shareholders held in 2021). The purpose of this Plan is to enable Olympic Steel, Inc. and its Affiliates to (a) attract and retain skilled and qualified officers, other employees, directors and consultants who are expected to contribute to the Company’s success by providing long-term incentive compensation opportunities competitive with those made available by other companies, (b) motivate Plan participants to achieve the long-term success and growth of the Company, (c) facilitate ownership of shares of the Company and align the interests of the Plan participants with those of the Company’s public Shareholders.
Section 1.2 Certain Definitions. Unless the context otherwise indicates, the following words used herein shall have the following meanings whenever used in this instrument:
(a) The word “Affiliate” means any corporation, partnership, joint venture or other entity, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Company as determined by the Committee or the Board of Directors, as applicable, in its discretion.
(b) The word “Award” means any grant under this Plan of a Stock Option, a Stock Appreciation Right, Restricted Shares, Restricted Share Units, Performance Shares, Cash-Based Awards or Other Stock-Based Awards to any Plan participant.
(c) The words “Award Agreement” mean an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee that sets forth the terms and conditions of the Awards granted under the Plan. An Award Agreement may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless otherwise determined by the Committee, need not be signed by a representative of the Company or a participant.
(d) The words “Base Price” mean the price to be used as the basis for determining the excess of the Fair Market Value per Share on the date when a Stock Appreciation Right is exercised over the Exercise Price or Base Price provided for in the related Stock Option or independent Stock Appreciation Right, respectively, upon the exercise of an independent Stock Appreciation Right or a Stock Appreciation Right granted in conjunction with the grant of a Stock Option.
(e) The words “Board of Directors” mean the Board of Directors of the Company, as constituted from time to time.
(f) The words “Cash-Based Award” mean an Award, denominated in cash, granted to a participant as described in Article 10.
(g) The word “Code” means the Internal Revenue Code of 1986, as amended, and any regulations or pronouncements promulgated thereunder. Whenever reference is made to a specific Code section, such reference shall be deemed to be a reference to any successor Code section or sections with the same or similar purpose.
(h) The word “Committee” means the entity administering this Plan as provided in Section 2.1 hereof or, if none has been appointed, then the Board of Directors as a whole.
(i) The words “Common Shares” mean the Common Stock, without par value, of the Company.
(j) The word “Company” means Olympic Steel, Inc., a corporation organized under the laws of the State of Ohio, and any successor corporation or business organization which shall assume the duties and obligations of Olympic Steel, Inc. under this Plan.
(k) The words “Date of Grant” mean the date on which the Committee grants an Award or a future date that the Committee designates at the time of the Award.
(l) The word “Director” means a member of the Board of Directors.
(m) The word “Disability”, unless otherwise defined in an Award Agreement, means a medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months and which results in the participant: (i) being unable to engage in any substantial gainful activity; or (ii) receiving income replacement benefits for a period of not less than three (3) months under an accident or health plan covering employees of the Company.
(n) The words “Early Retirement”, unless otherwise defined in an Award Agreement, mean a participant’s retirement from active employment with the Company or an Affiliate on and after the attainment of age 55.
(o) The words “Eligible Director” mean a Director of the Company who is entitled to participate in the Plan pursuant to Section 4.1.
(p) The acronym “ERISA” means the Employee Retirement Income Security Act of 1974, as amended and any regulations or pronouncements promulgated thereunder. Whenever reference is made to a specific ERISA Section, such reference shall be deemed to be a reference to any successor, ERISA Section or Sections with the same or similar purpose.
(q) The words “Exchange Act” mean the Securities Exchange Act of 1934, as amended, and any regulations or pronouncements promulgated thereunder.
(r) The words “Exercise Price” mean the purchase price of a Share covered by a Stock Option.
(s) The words “Fair Market Value” mean the last closing price of a Share as reported on The Nasdaq Global Select Market, or, if applicable, on another national securities exchange on which the Common Shares are principally traded, on the date for which the determination of fair market value is made, or, if there are no sales of Common Shares on such date, then on the most recent immediately preceding date on which there were any sales of Common Shares on such principal trading exchange. If the Common Shares are not or cease to be traded on The Nasdaq Global Select Market or another national securities exchange, the “Fair Market Value” of Common Shares shall be determined in the manner prescribed by the Committee. Notwithstanding the foregoing, as of any date, the “Fair Market Value” of Common Shares shall be determined in a manner consistent with Section 409A of the Code and the guidance then existing thereunder.
(t) The words “Incentive Stock Option” and the acronym “ISO” mean a Stock Option that is clearly identified as such and that is intended to meet the requirements of Section 422 of the Code, or any successor provision, and therefore is intended to qualify for favorable tax treatment.
(u) The words “Non-Qualified Stock Option” and the acronym “NQSO” mean a Stock Option that: (i) is governed by Section 83 of the Code; and (ii) is not intended to meet the requirements of Section 422 of the Code.
(v) The words “Normal Retirement”, unless otherwise defined in an Award Agreement, mean retirement from active employment with the Company or an Affiliate on or after the age of 65.
(w) The words “Other Stock-Based Award” mean an equity-based or equity-related Award not otherwise described in this Plan, granted pursuant to Article 10.
(x) The words “Outside Director” mean a Director who meets the definitions of the terms “outside director” set forth in Section 162(m) of the Code, “independent director” set forth in The Nasdaq Stock Market, Inc. rules, and “non-employee director” set forth in Rule 16b-3 under the Exchange Act, or any successor definitions adopted by the Internal Revenue Service, The Nasdaq Stock Market, Inc. and Securities and Exchange Commission, respectively, and similar requirements under any other applicable laws and regulations.
(y) The word “Parent” means any corporation which qualifies as a “parent corporation” of the Company under Section 424(e) of the Code.
(z) The words “Performance Shares” are defined in Article 9.
(aa) The word “Plan” means this Amended and Restated Olympic Steel, Inc. 2007 Omnibus Incentive Plan, as may be amended from time to time.
(bb) The acronym “QDRO” means a qualified domestic relations order as defined by the Code.
(cc) The word “Retirement”, unless otherwise defined in an Award Agreement, means Normal Retirement or Early Retirement.
(dd) The words “Restricted Shares” are defined in Article 8.
(ee) The words “Restricted Share Units” are defined in Article 8.
(ff) The word “Share” or “Shares” means one or more of the Common Shares.
(gg) The word “Shareholder” means an individual or entity that owns one or more Shares.
(hh) The words “Stock Appreciation Rights” and the acronym “SAR” mean any right pursuant to an Award granted under Article 7.
(ii) The words “Stock Option” mean any right to purchase a specified number of Shares at a specified price which is granted pursuant to Article 5 herein and may be an Incentive Stock Option, a Non-Qualified Stock Option, or a combination of the foregoing.
(jj) The words “Stock Power” mean a power of attorney executed by a participant and delivered to the Company which authorizes the Company to transfer ownership of Restricted Shares, Performance Shares or Shares from the participant to the Company or a third party.
(kk) The word “Subsidiary” means any corporation which qualifies as a “subsidiary corporation” of the Company under Section 424(f) of the Code.
(ll) The word “Vested” means that the time has been reached, with respect to Stock Options, when the option to purchase Shares first becomes exercisable; with respect to Stock Appreciation Rights, when the Stock Appreciation Right first becomes exercisable for payment; with respect to Restricted Shares, when the Shares are no longer subject to forfeiture and restrictions on transferability, with respect to Restricted Share Units, Performance Shares, and Other Stock-Based Awards, when the units are no longer subject to forfeiture and are convertible to Shares; and with respect to Cash-Based Awards when the payment of a cash amount is non-forfeitable. The words “Vest” and “Vesting” have meanings correlative to the foregoing.
ARTICLE 2
ADMINISTRATION
Section 2.1 Authority and Duties of the Committee.
(a) The Plan shall be administered by a Committee of not less than three Directors who are appointed by the Board of Directors and serve at its pleasure. Unless otherwise determined by the Board of Directors, the Compensation Committee of the Board of Directors shall serve as the Committee, and all of the members of the Committee shall be Outside Directors. Notwithstanding the requirement that the Committee consist exclusively of Outside Directors, no action or determination by the Committee or an individual considered to be an Outside Director shall be deemed void because a member of the Committee or such individual fails to satisfy the requirements for being an Outside Director, except to the extent required by applicable law.
(b) The Committee has the power and authority to grant Awards pursuant to the terms of this Plan to officers, other employees, Eligible Directors and consultants.
(c) In particular, the Committee has the authority, subject to any limitations specifically set forth in this Plan, to:
(i) select the officers, employees, Eligible Directors and consultants to whom Awards are granted;
(ii) determine the types of Awards granted and the timing of such Awards;
(iii) determine the number of Shares to be covered by each Award granted hereunder;
(iv) determine whether an Award is, or is intended to be, “performance-based compensation” within the meaning of Section 162(m) of the Code;
(v) determine the other terms and conditions, not inconsistent with the terms of this Plan and any operative employment or other agreement, of any Award granted hereunder; such terms and conditions include, but are not limited to, the exercise price, the time or times when Stock Options or Stock Appreciation Rights may be exercised (which may be based on performance objectives), any vesting, acceleration or waiver of forfeiture restrictions, any performance criteria (including any performance criteria as described in Section 162(m)(4)(C) of the Code) applicable to an Award, and any restriction or limitation regarding any Stock Option or Stock Appreciation Right or the Common Shares relating thereto, based in each case on such factors as the Committee, in its sole discretion, shall determine;
(vi) determine whether any conditions or objectives related to Awards have been met, including any such determination required for compliance with Section 162(m) of the Code;
(vii) subsequently modify or waive any terms and conditions of Awards, not inconsistent with the terms of this Plan and any operative employment or other agreement;
(viii) determine whether, to what extent and under what circumstances, Shares and other amounts payable with respect to any Award are deferred either automatically or at the election of the participant;
(ix) adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan as it deems advisable from time to time;
(x) promulgate such administrative forms as they from time to time deem necessary or appropriate for administration of the Plan;
(xi) construe, interpret and implement the terms and provisions of this Plan, any Award, any Award Agreement and any other related agreements;
(xii) correct any defect, supply any omission and reconcile any inconsistency in or between the Plan, any Award, any Award Agreement and any other related agreements; and
(xiii) otherwise supervise the administration of this Plan.
(d) All decisions made by the Committee pursuant to the provisions of this Plan are final and binding on all persons, including the Company, its Shareholders and Plan participants, but may be made by their terms subject to ratification or approval by the Board of Directors, another committee of the Board of Directors or Shareholders.
Section 2.2 Delegation of Authority. The Committee may delegate its powers and duties under this Plan to a subcommittee thereof or the Chief Executive Officer of the Company, subject to applicable law and such terms, conditions and limitations as the Committee may establish in its sole discretion; provided, however, that the Committee may not delegate its powers and duties under this Plan to such officer for Awards granted to an employee who is an officer, Director, or more than 10% beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Committee in accordance with Section 16 of the Exchange Act, or any participant who is a “covered employee” as defined in Section 162(m) of the Code. The Company shall furnish the Committee with such clerical and other assistance as is necessary for the performance of the Committee’s duties under the Plan. In addition, the Committee may delegate ministerial duties to any other person or persons, and it may employ attorneys, consultants, accountants or other professional advisers.
Section 2.3 Non U.S. Participants. In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for Awards to participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America or who provide services to the Company under an agreement with a foreign nation or agency, as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or amendments, restatements or alternative versions of this Plan (including, without limitation, sub-plans) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the Shareholders.
ARTICLE 3
STOCK SUBJECT TO PLAN
Section 3.1 Total Shares Limitation. Subject to the provisions of this Article 3, the maximum number of Shares that may be issued pursuant to Awards granted under this Plan is 1,400,000 Shares, which may be newly-issued Shares or Shares that have been reacquired in the open market or in private transactions. The aggregate number of Shares available under this Plan will be reduced by one Share for every one Share subject to an Award granted under this Plan.
Section 3.2 Other Limitations.
(a) ISO Limitations. The maximum number of Shares available with respect to all Stock Options granted under this Plan that may be Incentive Stock Options is 1,000,000 Shares.
(b) Participant Limitation. The aggregate number of Shares underlying Awards granted under this Plan to any one participant in any fiscal year, regardless of whether such Awards are thereafter canceled, forfeited or terminated, shall not exceed 50,000 Shares. The maximum aggregate amount awarded or credited with respect to Cash-Based Awards to any one participant in any fiscal year may not exceed $3,000,000.00. The foregoing annual limitations are intended to include the grant of all Awards, including, but not limited to, Awards representing “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.
Section 3.3 Awards Not Exercised.
(a) In the event any outstanding Award, or portion thereof, expires, or is terminated, canceled or forfeited, the Shares that would otherwise be issuable with respect to the unexercised portion of such expired, terminated, canceled or forfeited Award shall be available for subsequent Awards under this Plan.
(b) Notwithstanding anything to the contrary contained herein: (i) Shares withheld by the Company in payment of the Exercise Price of a Stock Option will not be added back to the aggregate number of Shares available under Section 3.1 above; (ii) Shares tendered or otherwise used in payment of the Exercise Price of a Stock Option will not be added to the aggregate number of Shares available under Section 3.1 above; (iii) Shares withheld by the Company or tendered or otherwise used to satisfy a tax withholding obligation will not be added (or added back, as applicable) to the aggregate number of Shares available under Section 3.1 above; (iv) Shares subject to a Stock Appreciation Right that are not actually issued in connection with its Shares settlement on exercise thereof will not be added back to the aggregate number of Shares available under Section 3.1 above; and (v) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Stock Options will not be added to the aggregate number of Shares available under Section 3.1 above. If, under this Plan, a participant has elected to give up the right to receive compensation in exchange for Shares based on fair market value, such Shares will not count against the aggregate number of Shares available under Section 3.1 above.
Section 3.4 Dilution and Other Adjustments. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Committee or the Board of Directors shall, in such manner as it deems equitable, adjust any or all of (a) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (b) the number and type of Shares (or other securities or other property) subject to outstanding Awards, (c) the limitations set forth above, (d) the purchase or exercise price or any performance objective with respect to any Award and (e) any other Award terms; provided, however, that the number of Shares or other securities covered by any Award or to which such Award relates is always a whole number. Notwithstanding the foregoing, the foregoing adjustments shall be made in compliance with: (i) Sections 422 and 424 of the Code with respect to ISOs; (ii) Section 162(m) of the Code with respect to Performance Share Awards (and any other Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code) unless specifically determined otherwise by the Committee; and (iii) Section 409A of the Code, to the extent the Committee determines it is necessary to avoid its application or avoid adverse tax consequences thereunder.
ARTICLE 4
PARTICIPANTS
Section 4.1 Eligibility. Officers, all other regular active employees of the Company or any of its Affiliates, Eligible Directors and consultants to the Company or any of its Affiliates are eligible to participate in this Plan. The Plan participants shall be selected from time to time by the Committee in its sole discretion, or, with respect to employees other than executive officers or participants who are “covered employees” as defined in Section 162(m) of the Code or Directors, by the Chief Executive Officer in his sole discretion with proper delegation from the Committee.
ARTICLE 5
STOCK OPTION AWARDS
Section 5.1 Option Grant. Each Stock Option granted under this Plan (or delegation of authority to the Chief Executive Officer to grant Stock Options) will be evidenced by minutes of a meeting, or by a unanimous written consent without a meeting, of the Committee and by an Award Agreement containing such terms and provisions, consistent with this Plan, as the Committee (or the Chief Executive Officer) may approve.
Section 5.2 Terms and Conditions of Grants. Stock Options granted under this Plan are subject to the following terms and conditions and may contain such additional terms, conditions, restrictions and contingencies with respect to exercisability and/or with respect to the Shares acquired upon exercise, not inconsistent with the terms of this Plan and any operative employment or other agreement, as the Committee deems desirable:
(a) Exercise Price. The Exercise Price fixed at the time of grant (except with respect to awards under Article 17 of this Plan) will not be less than 100% of the Fair Market Value of the Shares as of the Date of Grant. If a variable Exercise Price is specified at the time of grant, the Exercise Price may vary pursuant to a formula or other method established by the Committee which provides a floor not less than Fair Market Value as of the Date of Grant. Except as otherwise provided in Section 3.4 hereof, no subsequent amendment of an outstanding Stock Option may reduce the Exercise Price to less than 100% of the Fair Market Value of the Shares as of the Date of Grant. Further, except in connection with a corporate transaction or event described in Section 3.4 hereof, the terms of outstanding Awards may not be amended to reduce the Exercise Price of outstanding Stock Options, or cancel outstanding Stock Options in exchange for cash, other awards or Stock Options with an Exercise Price that is less than the Exercise Price of the original Stock Options, without shareholder approval. This Section 5.2(a) is intended to prohibit the repricing of “underwater” Stock Options and will not be construed to prohibit the adjustments provided for in Section 3.4 of this Plan. Notwithstanding any provision of this Plan to the contrary, this Section 5.2(a) may not be amended without approval by the Shareholders
(b) Option Term. Any unexercised portion of a Stock Option granted hereunder shall expire at the end of the stated term of the Stock Option. The Committee shall determine the term of each Stock Option at the time of grant, which term shall not exceed ten years from the Date of Grant. The Committee may extend the term of a Stock Option, in its discretion, but not beyond the date immediately prior to the tenth anniversary of the original Date of Grant. If a definite term is not specified by the Committee at the time of grant, then the term is deemed to be ten years.
(c) Vesting. Stock Options, or portions thereof, are exercisable at such time or times as determined by the Committee in its discretion at or after grant; provided, that, except as otherwise described in this Plan, no grant of Stock Options may become exercisable sooner than after one year or a one-year performance period. If the Committee provides that any Stock Option becomes Vested over a period of time, in full or in installments, the Committee may waive or accelerate such Vesting provisions at any time.
(d) Method of Exercise. Vested portions of any Stock Option may be exercised in whole or in part at any time during the option term by giving written notice of exercise to the Company specifying the number of Shares to be purchased. The notice must be given by or on behalf of a person entitled to exercise the Stock Option, accompanied by payment in full of the Exercise Price, along with any required tax withholding pursuant to Section 16.3 hereof. The Exercise Price may be paid:
(i) in cash;
(ii) by tendering (by either actual delivery of Shares or by attestation) previously-owned Shares having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price applicable to such Stock Option exercise, and, with respect to the exercise of NQSOs, including Restricted Shares;
(iii) by a combination of cash and Shares;
(iv) by authorizing a broker to sell, on behalf of the participant, the appropriate number of Shares otherwise issuable to the participant upon the exercise of a Stock Option with the proceeds of sale applied to pay the Exercise Price and tax withholding;
(v) subject to any conditions or limitations established by the Committee, by the Company’s withholding of Shares otherwise issuable upon exercise of a Stock Option pursuant to a “net exercise” arrangement (it being understood that, solely for purposes of determining the number of treasury shares held by the Company, the Shares so withheld will not be treated as issued and acquired by the Company upon such exercise); or
(vi) by another method permitted by law which assures full and immediate payment of the Exercise Price.
The Committee may prohibit any method of payment for any reason, in its sole discretion, including, but not limited to, concerns that the proposed method of payment will result in adverse financial accounting treatment or adverse tax treatment for the Company.
If the Exercise Price of a NQSO is paid by tendering Restricted Shares, then the Shares received upon the exercise will contain identical restrictions as the Restricted Shares so tendered. Except as otherwise provided by law and in the Committee’s sole discretion, required tax withholding may be paid only by cash, through a same day sale transaction or by withholding Shares.
(e) Issuance of Shares. The Company will issue or cause to be issued such Shares promptly upon exercise of the Stock Option. No Shares will be issued until full payment has been made. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a Shareholder will exist with respect to the Shares, notwithstanding the exercise of the Stock Option.
(f) Form. Unless the grant of a Stock Option is designated at the time of grant as an ISO, it is deemed to be an NQSO. ISOs are also subject to the terms and conditions stated in Article 6 hereof.
(g) Special Limitations on Stock Option Awards. Unless an Award Agreement approved by the Committee provides otherwise, Stock Options awarded under this Plan are intended to meet the requirements for exclusion from coverage under Section 409A of the Code and all Stock Option Awards shall be construed and administered accordingly.
Section 5.3 Termination of Grants Prior to Expiration. Unless otherwise provided in an employment or other agreement entered into between the optionee and the Company and approved by the Committee, either before or after the Date of Grant, or otherwise specified at or after the time of grant, and subject to Article 6 hereof with respect to ISOs, the following early termination provisions apply to all Stock Options:
(a) Termination by Death. If an optionee’s employment or directorship with the Company or its Affiliates terminates by reason of his or her death, all Stock Options held by such optionee will immediately become Vested, but thereafter may only be exercised (by the legal representative of the optionee’s estate, or by the legatee or heir of the optionee pursuant to a will or the laws of descent and distribution) for a period of one year (or such other period as the Committee may specify at or after the time of grant) from the date of such death, or until the expiration of the original term of the Stock Option, whichever period is shorter.
(b) Termination by Reason of Disability. If an optionee’s employment or directorship with the Company or its Affiliates terminates by reason of his or her Disability, all Stock Options held by such optionee will immediately become Vested, but thereafter may only be exercised for a period of one year (or such other period as the Committee may specify at or after the time of grant) from the date of such termination of employment (or of directorship, if applicable), or until the expiration of the original term of the Stock Option, whichever period is shorter. If the optionee dies within such one-year period (or such other period as applicable), any unexercised Stock Option held by such optionee will thereafter be exercisable by the legal representative of the optionee’s estate, or by the legatee or heir of the optionee pursuant to a will or the laws of descent and distribution, for the greater of the remainder of the one-year period (or other period as applicable) or for a period of twelve months from the date of such death, but in no event shall any portion of the Stock Option be exercisable after its original stated expiration date.
(c) Termination by Reason of Retirement. If an optionee’s employment or directorship with the Company or its Affiliates terminates by reason of his or her Retirement, all Stock Options held by such optionee immediately become Vested but thereafter may only be exercised for a period of two years (or such other period as the Committee may specify at or after the time of grant) from the date of such Retirement, or until the expiration of the original term of the Stock Option, whichever period is shorter. If the optionee dies within such two-year period (or such other period as applicable), any unexercised Stock Option held by such optionee will thereafter be exercisable by the legal representative of the optionee’s estate, or by the legatee or heir of the optionee pursuant to a will or the laws of descent and distribution, for the greater of the remainder of the two-year period (or such other period as applicable) or for a period of twelve months from the date of such death, but in no event shall any portion of the Stock Option be exercisable after its original stated expiration date.
(d) Other Termination. If an optionee’s employment or directorship with the Company or its Affiliates terminates, voluntarily or involuntarily, for any reason other than death, Disability, Retirement or for Cause, any Vested portions of Stock Options held by such optionee at the time of termination may be exercised by the optionee for a period of three months (or such other period as the Committee may specify at or after the time of grant) from the date of such termination or until the expiration of the original term of the Stock Option, whichever period is shorter. No portion of any Stock Option which is not Vested at the time of such termination will thereafter become Vested.
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
Section 6.1 Eligibility. Notwithstanding any other provision of this Plan to the contrary, an ISO may only be granted to full or part-time employees (including officers and Directors who are also employees) of the Company or of an Affiliate, provided that the Affiliate is a Parent or Subsidiary.
Section 6.2 Special ISO Rules.
(a) Exercise Price. The Exercise Price fixed at the time of grant will not be less than 100% of the Fair Market Value of the Shares as of the Date of Grant. If a variable Exercise Price is specified at the time of grant, the Exercise Price may vary pursuant to a formula or other method established by the Committee which provides a floor not less than Fair Market Value as of the Date of Grant. Except as otherwise provided in Section 3.4 hereof, no subsequent amendment of an outstanding Stock Option may reduce the Exercise Price to less than 100% of the Fair Market Value of the Shares as of the Date of Grant.
(b) Term. No ISO may be exercisable on or after the tenth anniversary of the Date of Grant, and no ISO may be granted under this Plan on or after the tenth anniversary of the effective date of this Plan. (See Section 17.1 hereof.)
(c) Ten Percent Shareholder. No grantee may receive an ISO under this Plan if such grantee, at the time the Award is granted, owns (after application of the rules contained in Section 424(d) of the Code) equity securities possessing more than 10% of the total combined voting power of all classes of equity securities of the Company, its Parent or any Subsidiary, unless (i) the option price for such ISO is at least 110% of the Fair Market Value of the Shares as of the Date of Grant and (ii) such ISO is not exercisable on or after the fifth anniversary of the Date of Grant.
(d) Limitation on Grants. The aggregate Fair Market Value (determined with respect to each ISO at the time such ISO is granted) of the Shares with respect to which ISOs are exercisable for the first time by a grantee during any calendar year (under this Plan or any other plan adopted by the Company or its Parent or its Subsidiary) shall not exceed $100,000. If such aggregate fair market value shall exceed $100,000, such number of ISOs as shall have an aggregate fair market value equal to the amount in excess of $100,000 shall be treated as NQSOs.
(e) Non-Transferability. Notwithstanding any other provision herein to the contrary, no ISO granted hereunder (and, if applicable, related Stock Appreciation Right) may be transferred except by will or by the laws of descent and distribution, nor may such ISO (or related Stock Appreciation Right) be exercisable during a grantee’s lifetime other than by him (or his guardian or legal representative to the extent permitted by applicable law).
(f) Termination of Employment. No ISO may be exercised more than three months following termination of employment for any reason (including retirement) other than death or disability, nor more than one year following termination of employment for the reason of death or disability (as defined in Section 422 of the Code), or such option will no longer qualify as an ISO and shall thereafter be, and receive the tax treatment applicable to, an NQSO. For this purpose, a termination of employment is cessation of employment with the Company, a Parent or a Subsidiary.
(g) Fair Market Value. For purposes of any ISO granted hereunder (or, if applicable, related Stock Appreciation Right), the Fair Market Value of Shares shall be determined in the manner required by Section 422 of the Code.
Section 6.3 Subject to Code Amendments. The foregoing limitations are designed to comply with the requirements of Section 422 of the Code and shall be automatically amended or modified to comply with amendments or modifications to Section 422 or any successor provisions. Any ISO which fails to comply with Section 422 of the Code is automatically treated as a NQSO appropriately granted under this Plan provided it otherwise meets the Plan’s requirements for NQSOs.
ARTICLE 7
STOCK APPRECIATION RIGHTS
Section 7.1 SAR Grant and Agreement. Stock Appreciation Rights may be granted under this Plan, either independently or in conjunction with the grant of a Stock Option. Each SAR granted under this Plan (or delegation of authority to the Chief Executive Officer to grant SARs) will be evidenced by minutes of a meeting, or by a unanimous written consent without a meeting, of the Committee and by an Award Agreement containing such terms and provisions, consistent with this Plan, as the Committee (or the Chief Executive Officer) may approve.
Section 7.2 SARs Granted in Conjunction with Option. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under this Plan, either at the same time or after the grant of the Stock Option; provided, however, that a Stock Appreciation Right granted in conjunction with an ISO must be granted concurrently with such ISO. Each grant will be subject to the following terms and conditions:
(a) Term. Each Stock Appreciation Right, or applicable portion thereof, granted with respect to a given Stock Option or portion thereof terminates and is no longer exercisable upon the termination or exercise of the related Stock Option, or applicable portion thereof.
(b) Exercisability. A Stock Appreciation Right is exercisable only at such time or times and to the extent that the Stock Option to which it relates is Vested and exercisable in accordance with the provisions of Article 5 hereof or otherwise as the Committee may determine at or after the time of grant; provided, that, except as otherwise described in this Plan, no grant of Stock Appreciation Rights may become exercisable sooner than after one year or a one-year performance period. A grant of Stock Appreciation Rights may provide for the earlier exercise of such Stock Appreciation Rights, including in the event of the retirement, death, or Disability of a participant, or in the event of a Change of Control.
(c) Method of Exercise. A Stock Appreciation Right may be exercised by the surrender of the applicable portion of the related Stock Option. Stock Options which have been so surrendered, in whole or in part, are no longer exercisable to the extent the related Stock Appreciation Rights have been exercised and are deemed to have been exercised for the purpose of the limitation set forth in Article 3 hereof on the number of Shares to be issued under this Plan, but only to the extent of the number of Shares actually issued under the Stock Appreciation Right at the time of exercise. Upon the exercise of a Stock Appreciation Right, subject to satisfaction of tax withholding requirements pursuant to Section 16.3, the holder of the Stock Appreciation Right is entitled to receive up to, but not more than, an amount in cash or Shares equal in value to the excess of the Fair Market Value of one Share over the Exercise Price per Share specified in the related Stock Option, multiplied by the number of Shares in respect of which the Stock Appreciation Right is exercised, with the Committee having the right in its discretion to determine the form of payment. At any time the Exercise Price per Share of the related Stock Option does not exceed the Fair Market Value of one Share, the holder of the Stock Appreciation Right shall not be permitted to exercise such right.
Section 7.3 Independent SARs. Stock Appreciation Rights may be granted without related Stock Options, and independent Stock Appreciation Rights will be subject to the following terms and conditions:
(a) Term. Any unexercised portion of an independent Stock Appreciation Right granted hereunder shall expire at the end of the stated term of the Stock Appreciation Right. The Committee shall determine the term of each Stock Appreciation Right at the time of grant, which term shall not exceed ten years from the Date of Grant. The Committee may extend the term of a Stock Appreciation Right, in its discretion, but not beyond the date immediately prior to the tenth anniversary of the original Date of Grant. If a definite term is not specified by the Committee at the time of grant, then the term is deemed to be ten years.
(b) Exercisability. A Stock Appreciation Right is exercisable, in whole or in part, at such time or times as determined by the Committee at or after the time of grant; provided, that, except as otherwise described in this Plan, no grant of Stock Appreciation Rights may become exercisable sooner than after one year or a one-year performance period. A grant of Stock Appreciation Rights may provide for the earlier exercise of such Stock Appreciation Rights, including in the event of the retirement, death, or Disability of a participant, or in the event of a Change of Control.
(c) Method of Exercise. A Stock Appreciation Right may be exercised in whole or in part during the term by giving written notice of exercise to the Company specifying the number of Shares in respect of which the Stock Appreciation Right is being exercised. The notice must be given by or on behalf of a person entitled to exercise the Stock Appreciation Right. Upon the exercise of a Stock Appreciation Right, subject to satisfaction of tax withholding requirements pursuant to Section 16.3, the holder of the Stock Appreciation Right is entitled to receive an amount in cash or Shares equal in value to the excess of the Fair Market Value of a Share on the exercise date over the Fair Market Value of a Share on the Date of Grant multiplied by the number of Stock Appreciation Rights being exercised, with the Committee having the right in its discretion to determine the form of payment. At any time the Fair Market Value of a Share on a proposed exercise date does not exceed the Fair Market Value of a Share on the Date of Grant, the holder of the Stock Appreciation Right shall not be permitted to exercise such right.
(d) Early Termination Prior to Expiration. Unless otherwise provided in an employment or other agreement entered into between the holder of the Stock Appreciation Right and the Company and approved by the Committee, either before or after the Date of Grant, or otherwise specified at or after the Date of Grant, the early termination provisions set forth in Section 5.3 as applied to Non-Qualified Stock Options will apply to independent Stock Appreciation Rights.
Section 7.4 Other Terms and Conditions of SAR Grants. Stock Appreciation Rights are subject to such other terms and conditions, not inconsistent with the provisions of this Plan and any operative employment or other agreement, as are determined from time to time by the Committee.
Section 7.5 Special Limitations on SAR Awards. Unless an Award Agreement approved by the Committee provides otherwise, Stock Appreciation Rights awarded under this Plan are intended to meet the requirements for exclusion from coverage under Section 409A of the Code and all Stock Appreciation Rights Awards shall be construed and administered accordingly.
Section 7.6 Amendments. Except in connection with a corporate transaction or event described in Section 3.4 hereof, the terms of outstanding Awards may not be amended to reduce the Base Price of outstanding Stock Appreciation Rights, or cancel outstanding Stock Appreciation Rights in exchange for cash, other awards or Stock Appreciation Rights with a Base Price that is less than the Base Price of the original Stock Appreciation Rights, without shareholder approval. This Section 7.6 is intended to prohibit the repricing of “underwater” Stock Appreciation Rights and will not be construed to prohibit the adjustments provided for in Section 3.4 of this Plan. Notwithstanding any provision of this Plan to the contrary, this Section 7.6 may not be amended without approval by the Shareholders.
ARTICLE 8
RESTRICTED SHARE AND RESTRICTED SHARE UNIT AWARDS
Section 8.1 Restricted Share Grants and Agreements. Restricted Share Awards consist of Shares which are issued by the Company to a participant at no cost or at a purchase price determined by the Committee which may be below their Fair Market Value but which are subject to forfeiture and restrictions on their sale or other transfer by the participant. Each Restricted Share Award granted under this Plan (or delegation of authority to the Chief Executive Officer to make Restricted Share Awards) will be evidenced by minutes of a meeting, or by a unanimous written consent without a meeting, of the Committee and by an Award Agreement containing such terms and provisions, consistent with this Plan, as the Committee (or the Chief Executive Officer) may approve. The timing of Restricted Share Awards and the number of Shares to be issued (subject to Section 3.2 hereof) are to be determined by the Committee in its discretion. By accepting a grant of Restricted Shares, the participant agrees to remit to the Company when due any required tax withholding as provided in Section 16.3 hereof.
Section 8.2 Terms and Conditions of Restricted Share Grants. Restricted Shares granted under this Plan are subject to the following terms and conditions, which, except as otherwise provided herein, need not be the same for each participant, and may contain such additional terms, conditions, restrictions and contingencies not inconsistent with the terms of this Plan and any operative employment or other agreement, as the Committee deems desirable:
(a) Purchase Price. The Committee shall determine the prices, if any, at which Restricted Shares are to be issued to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such Shares at the Date of Grant.
(b) Restrictions. All Restricted Shares issued under this Plan will be subject to such restrictions as the Committee may determine, which may include, without limitation, the following:
(i) a prohibition against the sale, transfer, pledge or other encumbrance of the Restricted Shares, such prohibition to lapse at such time or times as the Committee determines (whether in installments, at the time of the death, Disability or Retirement of the holder of such shares, or otherwise, but subject to the Change of Control provisions in Article 12); provided, that if the lapse of prohibitions is based only on the passage of time, the period of time will be no shorter than one year. Notwithstanding anything to the contrary contained in this Plan (including minimum vesting requirements), any grant or sale of Restricted Shares may provide for the earlier lapse of such restrictions, including in the event of the retirement, death, or Disability of a participant, or in the event of a Change of Control; provided, however, that no award of Restricted Shares intended to be “performance-based compensation” under Section 162(m) of the Code will provide for such early termination of restrictions (other than in connection with the death or Disability of the participant or a Change of Control) to the extent such provisions would cause such award to fail to be a “performance-based compensation” under Section 162(m) of the Code;
(ii) a requirement that the participant forfeit such Restricted Shares in the event of termination of the participant’s employment or directorship with the Company or its Affiliates prior to Vesting;
(iii) a prohibition against employment or retention of the participant by any competitor of the Company or its Affiliates, or against dissemination by the participant of any secret or confidential information belonging to the Company or an Affiliate;
(iv) any applicable requirements arising under the Securities Act of 1933, as amended, other securities laws, the rules and regulations of The Nasdaq Global Select Market or any other stock exchange or transaction reporting system upon which such Restricted Shares are then listed or quoted and any state laws, rules and regulations, including “blue sky” laws; and
(v) such additional restrictions as are required to avoid adverse tax consequences under Section 409A of the Code.
The Committee may at any time waive such restrictions or accelerate the date or dates on which the restrictions will lapse. However, if the Committee determines that restrictions lapse upon the attainment of specified performance objectives, then the provisions of Sections 9.2 and 9.3 will apply (including, but not limited to, the enumerated performance objectives). If the Award Agreement governing Restricted Shares provides that such Award is intended to be “performance-based compensation,” it will be subject to Section 9.4(d) and all other provisions of Article 9 that apply to “performance-based compensation” under Section 162(m) of the Code.
(c) Delivery of Shares. Restricted Shares will be registered in the name of the participant and deposited, together with a Stock Power, with the Company. Each such certificate will bear a legend in substantially the following form:
“The transferability of this certificate and the Common Shares represented by it are subject to the terms and conditions (including conditions of forfeiture) contained in the Olympic Steel, Inc. 2007 Omnibus Incentive Plan, and an agreement entered into between the registered owner and the Company. A copy of this Plan and agreement are on file in the office of the Secretary of the Company.”
At the end of any time period during which the Restricted Shares are subject to forfeiture and restrictions on transfer, such Shares will be delivered free of all restrictions (except for any pursuant to Section 15.2 hereof) to the participant and with the foregoing legend removed.
(d) Forfeiture of Shares. If a participant who holds Restricted Shares fails to satisfy the restrictions, Vesting requirements and other conditions relating to the Restricted Shares prior to the lapse, satisfaction or waiver of such restrictions and conditions, except as may otherwise be determined by the Committee, the participant shall forfeit the Shares and transfer them back to the Company in exchange for a refund of any consideration paid by the participant or such other amount which may be specifically set forth in the Award Agreement. A participant shall execute and deliver to the Company one or more Stock Powers with respect to Restricted Shares granted to such participant.
(e) Voting and Other Rights. Except to the extent prohibited by Section 162(m) of the Code and the terms of the applicable Restricted Share Agreement, during any period in which Restricted Shares are subject to forfeiture and restrictions on transfer, the participant holding such Restricted Shares shall have all the rights of a Shareholder with respect to such Shares, including, without limitation, the right to vote such Shares and the right to receive any dividends paid with respect to such Shares.
Section 8.3 Restricted Share Unit Awards and Agreements. Restricted Share Unit Awards consist of Shares that will be issued to a participant at a future time or times at no cost or at a purchase price determined by the Committee which may be below their Fair Market Value if continued employment, continued directorship and/or other terms and conditions specified by the Committee are satisfied. Each Restricted Share Unit Award granted under this Plan (or delegation of authority to the Chief Executive Officer to make Restricted Share Unit Awards) will be evidenced by minutes of a meeting, or by a unanimous written consent without a meeting, of the Committee and by an Award Agreement containing such terms and provisions, consistent with this Plan, as the Committee (or the Chief Executive Officer) may approve. The timing of Restricted Share Unit Awards and the number of Restricted Share Units to be awarded (subject to Section 3.2 hereof) are to be determined by the Committee in its sole discretion. By accepting a Restricted Share Unit Award, the participant agrees to remit to the Company when due any required tax withholding as provided in Section 16.3 hereof.
Section 8.4 Terms and Conditions of Restricted Share Unit Awards. Restricted Share Unit Awards are subject to the following terms and conditions, which, except as otherwise provided herein, need not be the same for each participant, and may contain such additional terms, conditions, restrictions and contingencies not inconsistent with the terms of this Plan and any operative employment or other agreement, as the Committee deems desirable:
(a) Purchase Price. The Committee shall determine the prices, if any, at which Shares are to be issued to a participant after Vesting of Restricted Share Units, which may vary from time to time and among participants and which may be below the Fair Market Value of Shares at the Date of Grant.
(b) Restrictions. All Restricted Share Units awarded under this Plan will be subject to such restrictions as the Committee may determine, which may include, without limitation, the following:
(i) a prohibition against the sale, transfer, pledge or other encumbrance of the Restricted Share Unit; provided, that if the lapse of prohibitions is based only on the passage of time, the period of time will be no less than one year. Notwithstanding anything to the contrary contained in this Plan (including minimum vesting requirements), any grant of Restricted Share Units may provide for the earlier lapse of such restrictions, including in the event of the retirement, death, or Disability of a participant, or in the event of a Change of Control; provided, however, that no award of Restricted Share Units intended to be “performance-based compensation” under Section 162(m) of the Code will provide for such early lapse or modification of the restrictions (other than in connection with the death or Disability of the participant or a Change of Control) to the extent such provisions would cause such award to fail to be “performance- based compensation” under Section 162(m) of the Code.
(ii) a requirement that the participant forfeit such Restricted Share Unit in the event of termination of the participant’s employment or directorship with the Company or its Affiliates prior to Vesting;
(iii) a prohibition against employment of the participant by, or provision of services by the participant to, any competitor of the Company or its Affiliates, or against dissemination by the participant of any secret or confidential information belonging to the Company or an Affiliate;
(iv) any applicable requirements arising under the Securities Act of 1933, as amended, other securities laws, the rules and regulations of The Nasdaq Global Select Market or any other stock exchange or transaction reporting system upon which the Common Shares underlying such Restricted Share Unit Award are then listed or quoted and any state laws, rules and interpretations, including “blue sky” laws; and
(v) such additional restrictions as are required in order to avoid adverse tax consequences under Section 409A of the Code.
The Committee may at any time waive such restrictions or accelerate the date or dates on which the restrictions will lapse.
(c) Performance-Based Restrictions. The Committee may, in its sole discretion, provide restrictions that lapse upon the attainment of specified performance objectives. In such case, the provisions of Sections 9.2 and 9.3 will apply (including, but not limited to, the enumerated performance objectives). If the Award Agreement governing a Restricted Share Unit Award provides that such Award is intended to be “performance-based compensation,” it will be subject to Section 9.4(d) and all other provisions of Article 9 that apply to “performance-based compensation” under Section 162(m) of the Code.
(d) Voting and Other Rights. A participant holding Restricted Share Units shall not be deemed to be a Shareholder solely because of such units. Such participant shall have no rights of a Shareholder with respect to such units; provided that Restricted Share Units may provide for the payment of dividends or dividend equivalents if so provided in the Award Agreement governing such units; provided, however, that dividends or dividend equivalents or other distributions on Shares underlying Restricted Share Units with restrictions that lapse as a result of the achievement of performance objectives will be deferred until and paid contingent upon the achievement of the applicable performance objectives.
(e) Lapse of Restrictions. If a participant who holds Restricted Share Units satisfies the restrictions and other conditions relating to the Restricted Share Units prior to the lapse or waiver of such restrictions and conditions, the Restricted Share Units shall be converted to, or replaced with, Shares which are free of all restrictions except for any restrictions required pursuant to Section 15.2 hereof. Notwithstanding the foregoing, the Committee may, in lieu of the conversion and distribution of the Restricted Share Units, establish procedures to permit deferral of Restricted Share Units of one or more participants who are highly compensated employees or members of a select group of management in accordance with the terms of a deferred compensation plan sponsored by the Company.
(f) Forfeiture of Restricted Share Units. If a participant who holds Restricted Share Units fails to satisfy the restrictions, Vesting requirements and other conditions relating to the Restricted Share Units prior to the lapse, satisfaction or waiver of such restrictions and conditions, except as may otherwise be determined by the Committee, the participant shall forfeit the Restricted Share Units.
(g) Termination. Except to the extent otherwise provided for in an Award, a Restricted Share Unit Award or unearned portion thereof will terminate without the issuance of Shares on the termination date specified on the Date of Grant or upon the termination of employment or directorship of the participant during the time period or periods specified by the Committee during which any performance objectives must be met. With respect to Awards intended to be performance-based compensation (as described in Section 9.4(d)), distribution of the Shares shall not be made prior to certification of the attainment of the relevant performance objectives.
Section 8.5 Time Vesting of Restricted Share and Restricted Share Unit Awards. Restricted Shares or Restricted Share Units, or portions thereof, are exercisable at such time or times as determined by the Committee in its discretion at or after grant, subject to the restrictions on time Vesting set forth in this Article 8. If the Committee provides that any Restricted Shares or Restricted Share Unit Awards become Vested over time (with or without a performance component), the Committee may waive or accelerate such Vesting provisions at any time, subject to the restrictions on time Vesting set forth in this Section.
ARTICLE 9
PERFORMANCE SHARE AWARDS
Section 9.1 Performance Share Awards and Agreements. A Performance Share Award is a right to receive Shares in the future conditioned upon the attainment of specified performance objectives and such other conditions, restrictions and contingencies as the Committee may determine. Each Performance Share Award granted under this Plan (or delegation of authority to the Chief Executive Officer to make Performance Share Awards) will be evidenced by minutes of a meeting, or by a unanimous written consent without a meeting, of the Committee and by an Award Agreement containing such terms and provisions, consistent with this Plan, as the Committee (or the Chief Executive Officer) may approve. The timing of Performance Share Awards and the number of Shares covered by each Award (subject to Section 3.2 hereof) are to be determined by the Committee in its discretion. By accepting a grant of Performance Shares, the participant agrees to remit to the Company when due any required tax withholding or payment of cash as provided in Section 16.3 hereof.
Section 9.2 Performance Objectives. At the time of grant of a Performance Share Award, the Committee will specify the performance objectives which, depending on the extent to which they are met, will determine the number of Shares that will be distributed to the participant. The Committee also will specify the time period or periods (the “Performance Period”) during which the performance objectives must be met; provided, that such Performance Period will be for a period of at least one year as determined by the Committee at the time of grant, but may be subject to earlier lapse or other modification, including in the event of the retirement, death or Disability of a participant, or in the event of a Change in Control; provided, however, that no such adjustment will be made in the case of an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code (other than in connection with the death or Disability of the participant or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. The performance objectives and periods need not be the same for each participant nor for each Award. The Committee may use performance objectives based on one or more of the following metrics: stock price, market share, sales, earnings per share, return on equity, return on invested capital, costs, earnings, capital adjusted pre-tax earnings (economic profit), earnings before income taxes, depreciation, and amortization, net income, operating income, performance profit (operating income minus an allocated charge approximating the Company’s cost of capital, before or after tax), gross margin, revenue, working capital, total assets, net assets, return on assets, stockholders’ equity and cash flow. The Committee may designate a single goal criterion or multiple goal criteria for performance measurement purposes, with the measurement based on absolute Company or business unit performance and/or on performance as compared with that of other publicly-traded companies. The foregoing criteria may have any reasonable definitions that the Committee may specify, which may include or exclude any or all of the following items, as the Committee may specify: extraordinary, unusual, or non-recurring items; effects of accounting changes; effects of currency fluctuations; effects of financing activities (e.g., effect on earnings per share of issuing convertible debt securities); effects of price escalators; expenses for restructuring or productivity initiatives; non-operating items; acquisition expenses; and effects of divestitures. Any such performance criterion or combination of such criteria may apply to a participant’s Award opportunity in its entirety or to any designated portion or portions of the Award opportunity, as the Committee may specify.
The Committee may grant Awards subject to performance objectives that are either intended to represent “performance-based compensation” as described in Section 162(m)(4)(C) of the Code or are not intended to represent “performance-based compensation” as described in Section 162(m)(4)(C) of the Code. In the case of an Award that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code, each performance objective (i) will be based on one or more of the metrics listed above, (ii) will be objectively determinable to the extent required under Section 162(m) of the Code, and (iii) unless otherwise determined by the Committee and to the extent consistent with Section 162(m) of the Code, will exclude the effects of certain designated items identified at the time of grant.
Section 9.3 Adjustment of Performance Objectives. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the performance objectives unsuitable, the Committee may in its discretion modify such performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable, except in the case of an Award to a covered employee that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code (other than in connection with a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such case, the Committee will not make any modification of the performance objectives or minimum acceptable level of achievement with respect to such covered employee.
Section 9.4 Other Terms and Conditions. Performance Share Awards granted under this Plan are subject to the following terms and conditions and may contain such additional terms, conditions, restrictions and contingencies not inconsistent with the terms of this Plan and any operative employment or other agreement as the Committee deems desirable:
(a) Delivery of Award. As soon as practicable after the applicable Performance Period has ended, the participant will receive a distribution of the number of Shares earned during the Performance Period, depending upon the extent to which the applicable performance objectives were achieved. Such Shares will be registered in the name of the participant and will be free of all restrictions except for any pursuant to Section 15.2 hereof.
(b) Termination. Except to the extent otherwise provided for in an Award, a Performance Share Award or portion thereof that has not been earned will terminate and be forfeited without the issuance of Shares on the termination date specified at the time of grant or upon the termination of employment or directorship of the participant during the Performance Period. With respect to Awards intended to be “performance-based compensation” (as described in Section 9.4(d)), distribution of the Shares shall not be made prior to the certification of the attainment of the relevant performance objective.
(c) Voting and Other Rights. Awards of Performance Shares do not provide the participant with voting rights or rights to dividends prior to the participant becoming the holder of record of Shares issued pursuant to an Award. Prior to the issuance of Shares, Performance Share Awards may not be sold, transferred, pledged, assigned or otherwise encumbered.
(d) Performance-Based Compensation. The Committee may designate Performance Share Awards as being “remuneration payable solely on account of the attainment of one or more performance goals” as described in Section 162(m)(4)(C) of the Code. Such Awards may be granted to participants who are, or are determined by the Committee to be likely to become, a “covered employee” within the meaning of Section 162(m) of the Code (or any successor provision).
Section 9.5 Time Vesting of Performance Share Awards. Performance Share Awards, or portions thereof, are exercisable at such time or times as determined by the Committee in its discretion at or after grant, subject to the restrictions on time Vesting set forth in this Article 9. If the Committee provides that any Performance Shares become Vested over time (accelerated by a performance component), the Committee may waive or accelerate such Vesting provisions at any time, subject to the restrictions on time Vesting set forth in this Article.
Section 9.6 Special Limitations on Performance Share Awards. Unless an Award Agreement approved by the Committee provides otherwise, Performance Shares awarded under this Plan are intended to meet the requirements for exclusion from coverage under Section 409A of the Code and all Performance Share Awards shall be construed and administered accordingly.
ARTICLE 10
CASH-BASED AWARDS AND OTHER STOCK-BASED AWARDS
Section 10.1 Grant of Cash-Based Awards. Subject to the terms of the Plan, the Committee may, at any time and from time to time, grant Cash- Based Awards to participants in such amounts and upon such terms as the Committee may determine. The Committee may designate Cash-Based Awards to a participant as being “performance-based compensation” that are subject to Section 9.4(d) and all other provisions of Article 9 that apply to “performance-based compensation” under Section 162(m) of the Code.
Section 10.2 Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described in this Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions as the Committee shall determine. Such Awards may involve the transfer of actual Shares to participants, or payment in cash or otherwise of amounts based on the value of Shares. The Committee may designate Other Stock-Based Awards to a participant as being “performance-based compensation” that are subject to Section 9.4(d) and all other provisions of Article 9 that apply to “performance-based compensation” under Section 162(m) of the Code.
Section 10.3 Value of Cash-Based Awards and Other Stock-Based Awards. Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee. Each Other Stock-Based Award shall be expressed in terms of Shares or units based on Shares, as determined by the Committee. The Committee may establish performance objectives in its sole discretion. If the Committee exercises its discretion to establish performance objectives, then Sections 9.2 and 9.3 will apply.
Section 10.4 Payment of Cash-Based Awards and Other Stock-Based Awards. Any payment with respect to a Cash-Based Award or an Other Stock- Based Award shall be made in accordance with the terms of the Award, in cash or Shares, as the Committee determines.
Section 10.5 Termination of Employment. The Committee shall determine the extent to which a participant shall have the right to receive Cash- Based Awards or Other Stock-Based Awards following termination of the participant’s employment with, or provision of services to, the Company and Subsidiaries as the case may be. Such provisions shall be determined in the sole discretion of the Committee, such provisions may be included in an agreement entered into with each participant, but need not be uniform among all Awards of Cash-Based Awards or Other Stock-Based Awards issued pursuant to the Plan and may reflect distinctions based on the reasons for termination.
Section 10.6 Vesting of Cash-Based Awards and Other Stock-Based Awards. If the earning or vesting of, or elimination of restrictions applicable to, a Cash-Based Award or an Other Stock-Based Award is based only on the passage of time rather than the achievement of performance objectives, the period of time shall be no shorter than one year. If the earning or vesting of, or elimination of restrictions applicable to, a Cash-Based Award or an Other Stock-Based Award is based on the achievement of performance objectives, the earning, vesting or restriction period may not terminate sooner than after one year. Notwithstanding anything to the contrary contained in this Plan (including minimum vesting requirements), any grant of Cash-Based Awards and Other Stock-Based Awards may provide for the earning or vesting of, or earlier elimination of restrictions applicable to, such award, including in the event of the retirement, death, or Disability of a participant, or in the event of a Change of Control; provided, however, that no such adjustment will be made in the case of an Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code (other than in connection with the death or Disability of the participant or a Change of Control) where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code.
ARTICLE 11
TRANSFERS AND LEAVES OF ABSENCE
Section 11.1 Transfer of Participant. For purposes of this Plan, except as provided in Section 6.2(f) with respect to Incentive Stock Options, the transfer of a participant among the Company and its Affiliates is deemed not to be a termination of employment.
Section 11.2 Effect of Leaves of Absence. For purposes of this Plan, the following leaves of absence are deemed not to be a termination of employment:
(a) a leave of absence, approved in writing by the Company, for military service, sickness or any other purpose approved by the Company, if the period of such leave does not exceed 90 days;
(b) a leave of absence in excess of 90 days, approved in writing by the Company, but only if the employee’s right to reemployment is guaranteed either by a statute or by contract, and provided that, in the case of any such leave of absence, the employee returns to work within 30 days after the end of such leave; and
(c) any other absence determined by the Committee in its discretion not to constitute a break in service.
ARTICLE 12
EFFECT OF CHANGE OF CONTROL
Section 12.1 Change of Control Defined.
The words “Change of Control” shall mean:
(a) a person becomes a “beneficial owner” (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) of thirty percent (30%) or more of the Company’s Common Shares calculated as provided in paragraph (d) of said Rule 13d-3;
(b) the date of consummation of any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock, of any class or any securities convertible into such capital stock, of the Company would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of common stock of all classes of the Company immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger;
(c) the date of consummation of any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company;
(d) approval by the Shareholders of the liquidation (but not a partial liquidation) or dissolution of the Company; or
(e) the date (the “Measurement Date”) on which the individuals who at the beginning of a two consecutive year period ending on the Measurement Date, cease, for any reason, to constitute at least a majority of the Board of Directors of the Company, unless the election, or the nomination for election by the Company’s shareholders, of each new Director during such two-year period was approved by an affirmative vote of the Directors (including any participant) then still in office who were Directors at the beginning of said two-year period.
Notwithstanding the foregoing, (A) if any person’s ownership interest in the Company increases to 30% or more, solely as a result of the Company’s repurchase of its shares, or (B) Michael D. Siegal increases his ownership interest to 30% or more, such ownership shall not be considered a Change of Control for purposes of subparagraph (b) above.
Section 12.2 Acceleration of Award. Except as otherwise provided in this Plan or an Award Agreement, immediately upon the occurrence of a Change of Control:
(a) all outstanding Stock Options automatically become fully exercisable;
(b) all Restricted Share Awards automatically become fully Vested;
(c) all Restricted Share Unit Awards automatically become fully Vested (or, if such Restricted Share Unit Awards are subject to performance- based restrictions, shall become Vested on a prorated basis as described in Section 12.2(d)) and, to the extent Vested, convertible to Shares at the election of the holder;
(d) all participants holding Performance Share Awards become entitled to receive a partial payout in an amount which is the number of Shares which would have been earned by the participant if 100% of the performance objectives for the current Performance Period had been achieved prorated based on the ratio of the number of months of active employment in the Performance Period to the total number of months in the Performance Period;
(e) Stock Appreciation Rights automatically become fully Vested and fully exercisable;
(f) all participants holding Cash-Based Awards become entitled to a payout of such amounts; and
(g) Other Stock-Based Awards automatically become fully Vested.
Notwithstanding the foregoing, in no event shall the occurrence of a Change of Control accelerate the payment under any Award (which is not exempt from the requirements of Section 409A of the Code) unless such payment is either on account of the acceleration of vesting or a Change of Control which also satisfies a change in control event as defined in Treasury Regulation Section 1.409A-3(i)(5).
ARTICLE 13
TRANSFERABILITY OF AWARDS
Section 13.1 Awards Are Non-Transferable. Except as provided in Sections 13.2 and 13.3, Awards are non-transferable and any attempts to assign, pledge, hypothecate or otherwise alienate or encumber (whether by operation of law or otherwise) any Award shall be null and void.
Section 13.2 Inter-Vivos Exercise of Awards. During a participant’s lifetime, Awards are exercisable only by the participant or, as permitted by applicable law and notwithstanding Section 13.1 to the contrary, the participant’s guardian or other legal representative.
Section 13.3 Limited Transferability of Certain Awards. The Committee, in its discretion, may allow at or after the time of grant the transferability of Awards which are Vested, provided that the permitted transfer is made (a) pursuant to a QDRO or other applicable domestic relations order to the extent permitted by law; (b) if the Award is an Incentive Stock Option, the transfer is consistent with Section 422 of the Code; (c) to the Company (for example in the case of forfeiture of Restricted Shares), an Affiliate or a person acting as the agent of the foregoing or which is otherwise determined by the Committee to be in the interests of the Company; or (d) by the participant for no consideration to Immediate Family Members or to a bona fide trust, partnership or other entity controlled by and for the benefit of one or more Immediate Family Members. “Immediate Family Members” means the participant’s spouse, children, stepchildren, parents, stepparents, siblings (including half brothers and sisters), in-laws and other individuals who have a relationship to the participant arising because of a legal adoption. No transfer may be made to the extent that transferability would cause Form S-8 or any successor form thereto not to be available to register Shares related to an Award. The Committee in its discretion may impose additional terms and conditions upon transferability. In no event will any such Award granted under the Plan be transferred for value.
ARTICLE 14
AMENDMENT AND DISCONTINUATION
Section 14.1 Amendment or Discontinuation of this Plan. The Board of Directors or the Committee may amend, alter, or discontinue this Plan at any time; provided, that, no amendment, alteration, or discontinuance may be made which would materially and adversely affect the rights of a participant under any Award granted prior to the date such action is adopted by the Board of Directors or the Committee without the participant’s written consent thereto; provided further, that if an amendment to this Plan (a) would materially increase the benefits accruing to participants under this Plan, (b) would materially increase the number of securities which may be issued under this Plan, (c) would materially modify the requirements for participation in this Plan, or (d) must otherwise be approved by the Shareholders in order to comply with applicable law or the rules of The Nasdaq Global Select Market or, if the Shares are not traded on The Nasdaq Global Select Market, the principal national securities exchange upon which the Shares are traded or quoted, then, such amendment will be subject to Shareholder approval and will not be effective unless and until such approval has been obtained.
Section 14.2 Amendment of Grants. The Committee may amend, prospectively or retroactively, the terms of any outstanding Award, provided that no such amendment may be inconsistent with the terms of this Plan (specifically including the prohibition on granting Stock Options with an Exercise Price less than 100% of the Fair Market Value of the Common Shares on the Date of Grant) or would materially and adversely affect the rights of any holder without his or her written consent.
Section 14.3 Effect of Non-Approval of this Plan. This Plan shall cease to be operative if it is not approved by a majority of the outstanding Shares present (in person, telephonically, electronically, by proxy or its equivalent or as otherwise permitted by the Company’s governing documents) and entitled to vote on the approval of this Plan at a meeting of Shareholders of the Company. In the event of such a cessation, any Awards under the Plan shall be revoked and this Plan shall be deemed null and void ab initio. In the event of such a cessation, the Company, the Board of Directors and the Committee shall not be liable for any such Awards under this Plan.
ARTICLE 15
SHARE CERTIFICATED
Section 15.1 Delivery of Share Certificates. The Company is not required to issue or deliver any certificates for Shares issuable with respect to Awards under this Plan prior to the fulfillment of all of the following conditions:
(a) payment in full for the Shares and for any required tax withholding (See Section 16.3 hereof);
(b) completion of any registration or other qualification of such Shares under any Federal or state laws or under the rulings or regulations of the Securities and Exchange Commission or any other regulating body which the Committee in its discretion deems necessary or advisable;
(c) admission of such Shares to listing on The Nasdaq Select Global Market or any stock exchange on which the Shares are listed;
(d) in the event the Shares are not registered under the Securities Act of 1933, qualification as a private placement under said Act;
(e) obtaining of any approval or other clearance from any Federal or state governmental agency which the Committee in its discretion determines to be necessary or advisable; and
(f) the Committee is fully satisfied that the issuance and delivery of Shares under this Plan is in compliance with applicable Federal, state or local law, rule, regulation or ordinance or any rule or regulation of any other regulating body, for which the Committee may seek approval of counsel for the Company.
Section 15.2 Applicable Restrictions on Shares. Shares issued with respect to Awards may be subject to such stock transfer orders and other restrictions as the Committee may determine necessary or advisable under any applicable Federal or state securities law rules, regulations and other requirements, the rules, regulations and other requirements of The Nasdaq Select Global Market or any stock exchange upon which the Shares are then-listed, and any other applicable Federal or state law and will include any restrictive legends the Committee may deem appropriate to include.
Section 15.3 Book Entry. In lieu of the issuance of stock certificates evidencing Shares, the Company may use a “book entry” system in which a computerized or manual entry is made in the records of the Company to evidence the issuance of such Shares. Such Company records are, absent manifest error, binding on all parties.
ARTICLE 16
GENERAL PROVISIONS
Section 16.1 No Implied Rights to Awards, Employment or Directorship. No potential participant has any claim or right to be granted an Award under this Plan, and there is no obligation of uniformity of treatment of participants under this Plan. Neither this Plan nor any Award thereunder shall be construed as giving any individual any right to continued employment or continued directorship with the Company or any Affiliate. The Plan does not constitute a contract of employment, and the Company and each Affiliate expressly reserve the right at any time to terminate employees free from liability, or any claim, under this Plan, except as may be specifically provided in this Plan or in an Award Agreement.
Section 16.2 Other Compensation Plans. Nothing contained in this Plan prevents the Board of Directors from adopting other or additional compensation arrangements, subject to Shareholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases.
Section 16.3 Withholding. Each participant must, no later than the date as of which the value of an Award first becomes includible in the gross income of the participant for income tax purposes, pay, in cash, to the Company, or make arrangements satisfactory to the Company regarding payment of, any Federal, state or local taxes of any kind required by law or other amounts to be withheld with respect to the Award. Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares or sell Shares on the open market having a Fair Market Value on the date the withholding amount is to be determined in an amount not to exceed the total tax that could be imposed on the transaction. All such elections shall be irrevocable, made in writing, and signed by the participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. The obligations of the Company under this Plan are conditioned on such payment, and the Company, to the extent permitted by law, has the right to deduct any such taxes or other amounts from any payment of any kind otherwise due to a participant, with or without such participant’s consent.
Section 16.4 Rule 16b-3 Compliance. The Plan is intended to comply with all applicable conditions of Rule 16b-3 of the Exchange Act, as such rule may be amended from time to time. All transactions involving any participant subject to Section 16(a) shall be subject to the conditions set forth in Rule 16b-3, regardless of whether such conditions are expressly set forth in this Plan. Any provision of this Plan that is contrary to Rule 16b-3 does not apply to such participants.
Section 16.5 Code Section 162(m) Compliance. The Plan is intended to comply with all applicable requirements of Section 162(m) of the Code with respect to “performance-based compensation.” Unless the Committee shall otherwise determine, all transactions involving any participant the deductibility of whose compensation is subject to Section 162(m) of the Code shall be subject to such requirements, regardless of whether such requirements are expressly set forth in this Plan. Unless the Committee shall otherwise determine, any provision of this Plan that is contrary to such requirements does not apply to such participants.
Section 16.6 Successors. All obligations of the Company with respect to Awards granted under this Plan are binding on any successor to the Company, whether as a result of a direct or indirect purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of the Company.
Section 16.7 Severability. In the event any provision of this Plan, or the application thereof to any person or circumstances, is held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, or other applications, and this Plan is to be construed and enforced as if the illegal or invalid provision had not been included.
Section 16.8 Governing Law. To the extent not preempted by Federal law, this Plan and all Award Agreements pursuant thereto are construed in accordance with and governed by the laws of the State of Ohio. This Plan is not intended to be governed by ERISA and shall be so construed and administered.
Section 16.9 Termination of Employment. All references to “termination of employment” or forms and derivations thereof shall refer to events which constitute a “separation from service” as defined in Treasury Regulation §1.409A-1(h) and generally means:
(a) Employee. If the participant is an employee, the employee’s separation from service with the Company and all members of the controlled group, for any reason, including without limitation, quit, discharge, or retirement, or a leave of absence (including military leave, sick leave, or other bona fide leave of absence such as temporary employment by the government if the period of such leave exceeds the greater of six months or the period for which the employee’s right to reemployment is provided either by statute or by contract). “Separation from service” also means the permanent decrease in the employee’s service for the Company and all controlled group members to a level that is no more than 20% of its prior level. For this purpose, whether a “separation from service” has occurred is determined based on whether it is reasonably anticipated that no further services will be performed by the employee after a certain date or that the level of bona fide services the employee will perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than 20% of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services if the employee has been providing services less than 36 months).
(b) Director. If the participant is a Director, the expiration of his position as a Director and of all contracts under which services are performed for the Company and all members of the controlled group and the expiration is a good-faith and complete termination of the contractual relationship.
Section 16.10 Section 409A. It is intended that the Awards provided under this Plan shall either be exempt from application of, or comply with, the requirements of final regulations under Section 409A of the Code. This Plan shall be construed, administered, and governed in a manner that effects such intent, and neither the Company nor the Committee shall take any action that would be inconsistent with such intent and the Company shall make payments or delivery under Awards in such time and manner as the Company or Committee determines would minimize or reduce the risk of adverse taxation under Section 409A of the Code. In the event that the Company or Committee reasonably determines that the payment under any Award under this Plan may be subject to taxation under Section 409A of the Code, the Committee or Board of Directors, shall have the authority to adopt, prospectively or retroactively, such amendments to this Plan or to take any other actions it determines necessary or appropriate to (a) exempt the payment under any Award under this Plan from Section 409A of the Code or (b) comply with the requirements of Section 409A of the Code. In no event, however, shall this Section or any other provision of this Plan be construed to require the Company to provide any gross-up for the tax consequences of any provisions of, or payments under, this Plan and the Company shall have no responsibility for tax consequences to any participant (or his or her beneficiary) resulting from the terms or operation of this Plan. For purposes of Section 409A of the Code, any multiple payments made pursuant to an Award under this Plan are intended to constitute the right to a series of separate payments or benefits.
Section 16.11 Six Month Delay. Notwithstanding any other provision of this Plan or any Award Agreement, and solely to the extent that any payment under an Award issued pursuant to this Plan is not exempt from the requirements of Section 409A of the Code, if the participant is a “key employee” (as defined under Section 416(i) of the Code without regard to paragraph (5) thereof) on the date of a separation from service, and the Employer’s stock is publicly traded on an established securities market or otherwise, all payments under an Award issued pursuant to this Plan that would otherwise be paid or provided during the first six (6) months following such separation from service (other than payments exempted under Section 409A of the Code) shall be accumulated through and paid or provided (together with interest at the applicable federal rate under Section 7872(f)(2)(A) of the Code, in effect on the date of the separation from service) within thirty (30) days following the six (6) month anniversary of such separation from service.
Notwithstanding the foregoing, payments delayed pursuant to this paragraph shall commence as soon as practicable following the date of death of the participant prior to the end of the six (6) month period but in no event later than ninety (90) days following the date of death. Any provision or provisions in this Plan or any Award Agreement that provide that such non-exempt payments are to be made prior to the earlier of the expiration of the six-month delay period or death are of no effect and the Award Agreement shall be construed and enforced as if such provision had not been included.
Section 16.12 No Change or Acceleration. Notwithstanding any other provision of this Plan or any Award Agreement, no date or form of payment under an Award which is not exempted from the requirements of Section 409A of the Code shall be changed unless such change is permitted by this Plan or such Award Agreement and complies with Treasury Regulation Section 1.409A-2(b). In addition, no payment of any cash, Stock or other remuneration, which is deferred compensation under Section 409A of the Code and not exempted from the requirements of Section 409A of the Code, shall be accelerated unless such acceleration is permitted by this Plan or the Award Agreement and complies with Treasury Regulation Section 1.409A-3(j).
Section 16.13 Detrimental Activity and Recapture Provisions. Any Award Agreement may provide for the cancellation or forfeiture of an Award or the forfeiture and repayment to the Company of any gain related to an Award, or other provisions intended to have a similar effect, upon such terms and conditions as may be determined by the Committee from time to time, if a participant, either (a) during employment or other service with the Company or a Subsidiary or (b) within a specified period after termination of such employment or service, shall engage in any detrimental activity. In addition, notwithstanding anything in this Plan to the contrary, any Award Agreement may also provide for the cancellation or forfeiture of an Award or the forfeiture and repayment to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions as may be required by the Committee or under Section 10D of the Exchange Act and any applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Shares may be traded.
ARTICLE 17
SUBSTITUTION AWARDS
Section 17.1 Awards may be granted under this Plan in substitution for or in conversion of, or in connection with an assumption of, stock options, stock appreciation rights, restricted shares, restricted share units or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with the Company or any Subsidiary. Any conversion, substitution or assumption will be effective as of the close of the merger or acquisition, and, to the extent applicable, will be conducted in a manner that complies with Section 409A of the Code. The awards so granted may reflect the original terms of the awards being assumed or substituted or converted for and need not comply with other specific terms of this Plan, and may account for common shares substituted for the securities covered by the original awards and the number of shares subject to the original awards, as well as any exercise or purchase prices applicable to the original awards, adjusted to account for differences in stock prices in connection with the transaction.
Section 17.2 In the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary merges has shares available under a pre-existing plan previously approved by stockholders and not adopted in contemplation of such acquisition or merger, the shares available for grant pursuant to the terms of such plan (as adjusted, to the extent appropriate, to reflect such acquisition or merger) may be used for Awards made after such acquisition or merger under the Plan; provided, however, that Awards using such available shares may not be made after the date awards or grants could have been made under the terms of the pre-existing plan absent the acquisition or merger, and may only be made to individuals who were not employees or directors of the Company or any Subsidiary prior to such acquisition or merger.
Section 17.3 Any Shares that are issued or transferred by, or that are subject to any awards that are granted by, or become obligations of, the Company under Sections 17.2 or 17.3 above will not reduce the Shares available for issuance or transfer under the Plan or otherwise count against the limits contained in Article 3 of the Plan. In addition, no Shares that are issued or transferred by, or that are subject to any awards that are granted by, or become obligations of, the Company under Sections 17.2 or 17.3 above will be added to the aggregate plan limit contained in Article 3 of the Plan.
ARTICLE 18
EFFECTIVE DATE
Section 18.1 Effective Date/Termination. The effective date of this Olympic Steel, Inc. 2007 Omnibus Incentive Plan, as amended and restated, is the date of its approval by Shareholders on April 29, 2016. No grant will be made under this Plan on or after the tenth anniversary of such date, but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.
Exhibit 31.1
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Richard T. Marabito, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Olympic Steel, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
a. |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b. |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
By: /s/ Richard T. Marabito
Richard T. Marabito
Olympic Steel, Inc.
Chief Executive Officer
August 6, 2021
Exhibit 31.2
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Richard A. Manson, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Olympic Steel, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
a. |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
b. |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
By: /s/ Richard A. Manson
Richard A. Manson
Olympic Steel, Inc.
Chief Financial Officer
August 6, 2021
Exhibit 32.1
Certification of the Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Richard T. Marabito, the Chief Executive Officer of Olympic Steel, Inc. (the "Company"), certify that to the best of my knowledge, based upon a review of this report on Form 10-Q for the period ended June 30, 2021 of the Company (the “Report”):
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of the dates and for the periods expressed in this Report. |
By: /s/ Richard T. Marabito
Richard T. Marabito
Olympic Steel, Inc.
Chief Executive Officer
August 6, 2021
Exhibit 32.2
Certification of the Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Richard A. Manson, the Chief Financial Officer of Olympic Steel, Inc. (the "Company"), certify that to the best of my knowledge, based upon a review of this report on Form 10-Q for the period ended June 30, 2021 of the Company (the “Report”):
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in this Report. |
By: /s/ Richard A. Manson
Richard A. Manson
Olympic Steel, Inc.
Chief Financial Officer
August 6, 2021
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Inventory, LIFO debit | $ 2,885 | $ 2,115 |
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Net sales | $ 556,077 | $ 248,296 | $ 1,019,201 | $ 602,676 |
| Costs and expenses | ||||
| Cost of materials sold (excludes items shown separately below) | 428,704 | 196,237 | 783,368 | 478,759 |
| Warehouse and processing | 26,539 | 19,626 | 49,945 | 42,702 |
| Administrative and general | 26,463 | 17,011 | 49,517 | 36,070 |
| Distribution | 14,099 | 9,618 | 27,662 | 21,907 |
| Selling | 9,787 | 5,923 | 18,253 | 12,733 |
| Occupancy | 2,776 | 2,439 | 5,922 | 5,099 |
| Depreciation | 4,664 | 4,559 | 9,314 | 9,075 |
| Amortization | 608 | 368 | 1,194 | 765 |
| Total costs and expenses | 513,640 | 255,781 | 945,175 | 607,110 |
| Operating income (loss) | 42,437 | (7,485) | 74,026 | (4,434) |
| Other income (loss), net | 1 | (26) | (9) | (43) |
| Income (loss) before interest and income taxes | 42,438 | (7,511) | 74,017 | (4,477) |
| Interest and other expense on debt | 2,017 | 1,891 | 3,671 | 4,130 |
| Income (loss) before income taxes | 40,421 | (9,402) | 70,346 | (8,607) |
| Income tax provision (benefit) | 10,772 | (2,948) | 18,689 | (2,746) |
| Net income (loss) | 29,649 | (6,454) | 51,657 | (5,861) |
| Gain (loss) on cash flow hedge | 462 | (74) | 1,417 | (3,471) |
| Tax effect on cash flow hedge | (115) | 19 | (354) | 868 |
| Total comprehensive income (loss) | $ 29,996 | $ (6,509) | $ 52,720 | $ (8,464) |
| Earnings per share: | ||||
| Net income (loss) per share - basic (in dollars per share) | $ 2.58 | $ (0.56) | $ 4.50 | $ (0.51) |
| Weighted average shares outstanding - basic (in shares) | 11,492 | 11,446 | 11,491 | 11,445 |
| Net income (loss) per share - diluted (in dollars per share) | $ 2.58 | $ (0.56) | $ 4.49 | $ (0.51) |
| Weighted average shares outstanding - diluted (in shares) | 11,504 | 11,446 | 11,501 | 11,445 |
| Dividends declared per share of common stock (in dollars per share) | $ 0.02 | $ 0.02 | $ 0.04 | $ 0.04 |
Consolidated Statements of Cash Flows (Unaudited) (Parentheticals) $ in Millions |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
USD ($)
| |
| Finance lease obligations incurred | $ 1 |
Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands |
Common Stock [Member] |
AOCI Attributable to Parent [Member] |
Retained Earnings [Member] |
Treasury Stock [Member] |
Total |
|---|---|---|---|---|---|
| Balance at Dec. 31, 2019 | $ 131,647 | $ (2,281) | $ 179,321 | $ (335) | $ 308,352 |
| Net income (loss) | 0 | 0 | (5,861) | 0 | (5,861) |
| Payment of dividends | 0 | 0 | (442) | 0 | (442) |
| Stock-based compensation | 636 | 0 | 0 | 0 | 636 |
| Changes in fair value of hedges, net of tax | 0 | (2,603) | 0 | 0 | (2,603) |
| Other | 0 | (1) | 2 | 0 | 1 |
| Restricted stock units converted to stock | (480) | 0 | 0 | 480 | 0 |
| Repurchase of common stock | 0 | 0 | 0 | (145) | (145) |
| Balance at Jun. 30, 2020 | 131,803 | (4,885) | 173,020 | 0 | 299,938 |
| Balance at Mar. 31, 2020 | 132,006 | (4,829) | 179,695 | (480) | 306,392 |
| Net income (loss) | 0 | 0 | (6,454) | 0 | (6,454) |
| Payment of dividends | 0 | 0 | (222) | 0 | (222) |
| Stock-based compensation | 277 | 0 | 0 | 0 | 277 |
| Changes in fair value of hedges, net of tax | 0 | (55) | 0 | 0 | (55) |
| Other | 0 | (1) | 1 | 0 | 0 |
| Restricted stock units converted to stock | (480) | 0 | 0 | 480 | 0 |
| Balance at Jun. 30, 2020 | 131,803 | (4,885) | 173,020 | $ 0 | 299,938 |
| Balance at Dec. 31, 2020 | 132,382 | (4,215) | 172,843 | 301,010 | |
| Net income (loss) | 0 | 0 | 51,657 | 51,657 | |
| Payment of dividends | 0 | 0 | (443) | (443) | |
| Stock-based compensation | 534 | 0 | 0 | 534 | |
| Changes in fair value of hedges, net of tax | 0 | 1,063 | 0 | 1,063 | |
| Other | 0 | (1) | 0 | (1) | |
| Balance at Jun. 30, 2021 | 132,916 | (3,153) | 224,057 | 353,820 | |
| Balance at Mar. 31, 2021 | 132,644 | (3,499) | 194,630 | 323,775 | |
| Net income (loss) | 0 | 0 | 29,649 | 29,649 | |
| Payment of dividends | 0 | 0 | (222) | (222) | |
| Stock-based compensation | 272 | 0 | 0 | 272 | |
| Changes in fair value of hedges, net of tax | 0 | 347 | 0 | 347 | |
| Other | 0 | (1) | 0 | (1) | |
| Balance at Jun. 30, 2021 | $ 132,916 | $ (3,153) | $ 224,057 | $ 353,820 |
Note 1 - Basis of Presentation |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2021 | |||
| Notes to Financial Statements | |||
| Significant Accounting Policies [Text Block] |
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 2021 annual results and these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. All intercompany transactions and balances have been eliminated in consolidation.
The Company operates in three reportable segments; carbon flat products, specialty metals flat products, and tubular and pipe products. The specialty metals flat products segment and the carbon flat products segment are at times consolidated and referred to as the flat products segments. Certain of the flat products segments’ assets and resources are shared by the 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. Due to the shared assets and resources, certain of the flat products segment expenses are allocated between the specialty metals flat products segment and the carbon flat products segment based upon an established allocation methodology. The specialty metals flat products segment sells and distributes processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. Through the acquisition of Action Stainless & Alloys, Inc. (Action Stainless) on December 14, 2020, the specialty metals flat products segment expanded its geographic footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tubing and pipe. Action Stainless offers a range of processing capabilities, including plasma, laser and waterjet cutting and computer numerical control (CNC) machining. The carbon flat products segment sells and distributes large volumes of processed carbon and coated flat-rolled sheet, coil and plate products, and fabricated parts. Through the acquisitions of McCullough Industries (McCullough) and certain assets related to the manufacturing of the EZ Dumper® hydraulic dump inserts (EZ Dumper) in 2019, the carbon flat products segment expanded its product offerings to include self-dumping metal hoppers and steel and stainless-steel dump inserts for pickup truck and service truck beds. The tubular and pipe products segment, which consists of the Chicago Tube and Iron subsidiary (CTI), distributes metal tubing, pipe, bar, valves and fittings and fabricates pressure parts supplied to various industrial markets.
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 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.
On March 11, 2020, the World Health Organization classified the novel coronavirus (COVID-19) outbreak as a pandemic. The Company is an essential business and remains open in all locations, adhering to all health guidelines to operate safely provided by the Center for Disease Control and Prevention and local authorities. The Company has implemented actions to maintain its financial health and liquidity. The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. However, as a result of the many uncertainties surrounding the COVID-19 pandemic, the Company is unable to predict the impact that it ultimately will have on its financial condition, results of operations, comprehensive income (loss), and cash flows.
Impact of Recently Issued Accounting Pronouncements
There were no recently issued accounting pronouncements that would have a material impact on the Company’s Consolidated Financial Statements. |
Note 2 - Revenue Recognition |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Text Block] |
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, and fabricated parts. The Company's contracts with customers are comprised of purchase orders with standard terms and conditions. Occasionally the Company may also have longer-term agreements with customers. Substantially all of the contracts 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 customer.
Transfer of control is assessed based on the use of the product distributed and rights to payment for performance under the contract terms. Transfer of control and revenue recognition for substantially all of the Company’s sales occur upon shipment or delivery of 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 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 the Company's consolidated results.
Within the metals industry, revenue is frequently disaggregated by products sold. The table below disaggregates the Company’s revenues by segment and products sold.
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Note 3 - Accounts Receivable |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Notes to Financial Statements | |||
| Financing Receivables [Text Block] |
Accounts receivable are presented net of allowances for credit losses and unissued credits of $4.4 million and $3.6 million as of June 30, 2021 and December 31, 2020, respectively. The allowance for credit losses is maintained at a level considered appropriate based on historical experience, specific customer collection issues that have been identified, current market conditions and estimates for supportable forecasts when appropriate. Estimations are based upon a calculated percentage of accounts receivable, 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 credit losses and unissued credits. |
Note 4 - Inventories |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Text Block] |
Inventories consisted of the following:
The Company values certain of its tubular and pipe products inventory at the last-in, first-out (LIFO) method. At June 30, 2021 and December 31, 2020, approximately $50.1 million, or 13.4% of consolidated inventory, and $50.3 million, or 21.0% 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-out (FIFO) method.
During the three and six months ended June 30, 2021, the Company recorded $4.0 million and $5.0 million of LIFO expense, respectively, as current projections anticipate increased metals prices by December 31, 2021 compared to December 31, 2020. During the three and six months ended June 30, 2020, the Company recorded $0.5 million and $1.0 million of LIFO income, respectively.
If the FIFO method had been in use, inventories would have been $2.9 million higher and $2.1 million lower than reported at June 30, 2021 and December 31, 2020, respectively. |
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Note 5 - Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
The Company’s intangible assets were recorded in connection with its acquisitions that occurred between 2011 and 2020. The intangible assets were evaluated on the premise of highest and best use to a market participant, primarily utilizing the income approach valuation methodology. The useful life of the customer relationships was determined to be years, based primarily on the consistent and predictable revenue source associated with the existing customer base, the present value of which extends through the -year amortization period. The useful life of the non-compete agreements was determined to be the length of the non-compete agreements, which range from to years. The useful life of the trade names was determined to be indefinite primarily due to their history and reputation in the marketplace, the Company’s expectation that the trade names will continue to be used, and the conclusion that there are currently no other factors identified that would limit their useful life. The Company will continue to evaluate the useful life assigned to its amortizable customer relationships and noncompete agreements in future periods.
Goodwill, by reportable unit, was as follows as of June 30, 2021 and December 31, 2020, respectively. The goodwill is deductible for tax purposes. The change in goodwill during 2021 is related to adjustments to the preliminary purchase price allocation of the fair market values of the assets acquired and liabilities assumed for Action Stainless.
Intangible assets consisted of the following as of June 30, 2021 and December 31, 2020, respectively:
The Company estimates that amortization expense for its intangible assets subject to amortization will be approximately $1.5 million per year for the next two years and $1.4 million, $1.0 million and $0.5 million per year for the three years thereafter, respectively.
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Note 6 - Leases |
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| Lessee, Operating Leases [Text Block] |
The components of lease expense were as follows:
Supplemental cash flow information related to leases was as follows:
Supplemental balance sheet information related to leases was as follows:
Maturities of lease liabilities were as follows:
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Note 7 - Debt |
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Text Block] |
The Company’s debt is comprised of the following components:
On June 16, 2021, the Company entered into a Fourth Amendment to Third Amended and Restated Loan and Security Agreement (the “ABL Credit Facility”), which amended and extended the Company’s existing ABL Credit Facility. The $475 million ABL Credit Facility consists of: (i) a revolving credit facility of up to $445 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, the Company may, subject to the satisfaction of certain conditions, request additional commitments under the revolving credit facility in the 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 the Company’s discretion. The ABL Credit Facility matures on June 16, 2026.
The ABL Credit Facility contains customary representations and warranties and certain covenants that limit the ability of the Company to, among 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 or suffer to exist liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of their assets; and (viii) engage in transactions with affiliates. In addition, the ABL Credit Facility contains a financial covenant which includes: (i) if any commitments or obligations are outstanding and the Company’s availability is less than the greater of $30 million or 10.0% of the aggregate amount of revolver commitments ($47.5 million at June 30, 2021) or 10.0% of the aggregate borrowing base ($47.5 million at June 30, 2021), then the Company must maintain a ratio of Earnings 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.
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 Offered Rate (LIBOR) plus a premium ranging from 1.25% to 2.75%.
On January 10, 2019, the Company entered into a -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. The interest rate hedge fixed the rate at 2.57%. Although the Company is exposed to credit loss in the event of nonperformance by the other party to the interest rate hedge agreement, the Company anticipates performance by the counterparty.
As of June 30, 2021, the Company was in compliance with its covenants and had approximately $202 million of availability under the ABL Credit Facility.
As of June 30, 2021, and December 31, 2020, $1.6 million and $0.9 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 -year term of the ABL Credit Facility and are included in “Interest and other expense on debt” on the accompanying Consolidated Statements of Comprehensive Income (Loss). |
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Note 8 - Derivative Instruments |
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| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
Metals swaps and embedded customer derivatives
During 2021 and 2020, the Company entered into nickel swaps indexed to the London Metal Exchange (LME) price of nickel with third-party brokers. The nickel swaps are accounted for as derivatives for accounting purposes. The Company entered into them to mitigate its customers’ risk of volatility in the price of metals. The outstanding nickel swaps mature in 2021. 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-party brokers to honor their agreements with the Company related to derivative instruments. If the customer or third-party brokers are unable to honor their agreements, the Company’s risk of loss is the fair value of the metals swaps.
These derivatives 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 (Loss). 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 (Loss). The cumulative change in fair value of the metals swaps that had not yet settled as of June 30, 2021 are included in “Accounts Receivable, net”, and the embedded customer derivatives are included in “Other accrued liabilities” on the Consolidated Balance Sheets as of June 30, 2021. There were no outstanding metals swaps or embedded customer derivatives as of December 31, 2020.
Fixed rate interest rate hedge
On January 10, 2019, the Company entered into a -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. The interest rate hedge fixed the rate at 2.57%. The interest rate hedge is included in “Other long-term liabilities” on the Consolidated Balance Sheets as of June 30, 2021. Although the Company is exposed to credit loss in the event of nonperformance by the other party to the interest rate hedge agreement, the Company anticipates performance by the counterparty.
The table below shows the total impact to the Company’s Consolidated Statements of Comprehensive Income (Loss) through net income of the derivatives for the three and six months ended June 30, 2021 and 2020, respectively.
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Note 9 - Fair Value of Assets and Liabilities |
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| Fair Value Disclosures [Text Block] |
During the six months ended June 30, 2021, 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 June 30, 2021 since December 31, 2020.
The following table presents information about the Company’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:
The value of the items not recorded at fair value represent the carrying value of the liabilities.
The carrying value of the ABL Credit Facility was $269.0 million and $160.6 million at June 30, 2021 and December 31, 2020, respectively. As the ABL Credit Facility was amended on June 16, 2021, management believes that its carrying value approximates fair value. |
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Note 10 - Accumulated Other Comprehensive Loss |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Notes to Financial Statements | |||
| Comprehensive Income (Loss) Note [Text Block] |
On January 10, 2019, the Company entered into a -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. The interest rate hedge fixed the rate at 2.57%. The fair value of the interest rate hedge of $4.2 million, net of tax of $1.1 million is included in “Accumulated other comprehensive loss” on the Consolidated Balance Sheets at June 30, 2021. |
Note 11 - Equity Plans |
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Text Block] |
Restricted Stock Units and Performance Share Units
Pursuant to the Amended and Restated Olympic Steel 2007 Omnibus Incentive Plan (the Incentive Plan), the Company may grant stock options, stock appreciation rights, restricted shares, restricted share units (RSUs), performance shares, and other stock- and cash-based awards to employees and directors of, and consultants to, the Company and its affiliates. Since adoption of the Incentive Plan, 1,400,000 shares of common stock have been authorized for equity grants.
On an annual basis, the compensation committee of the Company’s Board of Directors awards RSUs, to each non-employee director as part of their annual compensation. The annual awards for 2021 and 2020 per director were $80,000. Subject to the terms of the Incentive Plan and the RSU agreement, the RSUs vest after 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 board of directors.
Prior to 2021, under the Incentive Plan, each eligible participant was 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 -year vesting period and the RSUs 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. Due to the COVID-19 pandemic, no awards were granted in 2020.
Under the Incentive Plan, the Company awards RSUs to newly-appointed executive officers, based upon a percentage of their base salary. Upon Mr. Greiff’s promotion to President and Chief Operating Officer on January 1, 2020, he received 15,694 RSUs. The RSUs will vest years from the grant date, or earlier upon death or disability or upon a change in control of the Company.
Stock-based compensation expense recognized on RSUs for the three and six months ended June 30, 2021 and 2020, respectively, is summarized in the following table:
All pre-tax charges related to RSUs were included in the caption “Administrative and general” on the accompanying Consolidated Statements of Comprehensive Income (Loss).
The following table summarizes the activity related to RSUs for the six months ended June 30, 2021 and 2020, respectively:
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Note 12 - Income Taxes |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Notes to Financial Statements | |||
| Income Tax Disclosure [Text Block] |
For the three months ended June 30, 2021, the Company recorded an income tax provision of $10.8 million, or 26.7%, compared to an income tax benefit of $2.9 million, or 31.4%, for the three months ended June 30, 2020. For the six months ended June 30, 2021, the Company recorded an income tax provision of $18.7 million, or 26.6%, compared to an income tax benefit of $2.7 million, or 31.9%, for the six months ended June 30, 2020.
For the three and six months ended June 30, 2021, the tax provision or benefit 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. Due to the COVID-19 pandemic and the uncertainty around forecasting an annual effective tax rate, the tax provision was recorded based on the actual effective tax rate including discrete items for the three and six months ended June 30, 2020.
The quarterly tax provision and the quarterly estimate of the annual effective tax rate is subject to significant volatility due to several factors, including variability in accurately predicting the 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, the effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible expenses on the effective tax rate is lower when the pre-tax income is higher. |
Note 13 - Shares Outstanding and Earnings Per Share |
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| Earnings Per Share [Text Block] |
Earnings per share have been calculated based on the weighted average number of shares outstanding as set forth below:
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Note 14 - Stock Repurchase Program |
6 Months Ended | ||
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Jun. 30, 2021 | |||
| Notes to Financial Statements | |||
| Treasury Stock [Text Block] |
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 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, the Company may repurchase common stock and pay dividends up to $5.0 million in the aggregate during any trailing twelve months without restrictions. Purchases of common stock or dividend payments in excess of $5.0 million in the aggregate require the Company to (i) maintain availability in excess of 20.0% of the aggregate revolver commitments ($95.0 million at June 30, 2021) or (ii) to maintain availability equal to or greater than 15.0% of the aggregate revolver commitments ($71.3 million at June 30, 2021) 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 and six months ended June 30, 2021. There were no shares repurchased during the three months ended June 30, 2020. During the six months ended June 30, 2020, the Company repurchased 15,000 shares for an aggregate cost of $145 thousand. As of June 30, 2021, 360,212 shares remain authorized for repurchase under the program. |
Note 15 - Segment Information |
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| Segment Reporting Disclosure [Text Block] |
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’s chief operating decision maker (CODM) to assess performance and make operating and resource allocation decisions. The CODM evaluates performance and allocates resources based primarily on operating income (loss). The operating segments are based primarily on internal management reporting.
The Company operates in reportable segments; specialty metals flat products, carbon flat products, and tubular and pipe products. The 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 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.
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 directors’ expenses, audit expenses, and various other professional fees.
The following table provides financial information by segment and reconciles the Company’s operating income by segment to the consolidated income before income taxes for the three and six months ended June 30, 2021 and 2020, respectively.
There were no material revenue transactions between the specialty metals products, carbon flat products and tubular and pipe products segments.
The Company sells certain products internationally, primarily in Canada and Mexico. International sales are immaterial to the consolidated financial results and to the individual segments’ results.
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Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 30, 2021 | |
| Accounting Policies [Abstract] | |
| New Accounting Pronouncements, Policy [Policy Text Block] | Impact of Recently Issued Accounting Pronouncements
There were no recently issued accounting pronouncements that would have a material impact on the Company’s Consolidated Financial Statements. |
Note 2 - Revenue Recognition (Tables) |
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| Disaggregation of Revenue [Table Text Block] |
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Note 4 - Inventories (Tables) |
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventory, Current [Table Text Block] |
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Note 5 - Goodwill and Intangible Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Goodwill [Table Text Block] |
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| Schedule of Finite and Indefinite Lived Intangible Assets [Table Text Block] |
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Note 6 - Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease, Cost [Table Text Block] |
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| Lease, Payment [Table Text Block] |
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| Lease, Balance Sheet Information [Table Text Block] |
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| Operating and Finance Lease, Liability, Maturity [Table Text Block] |
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Note 7 - Debt (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Debt [Table Text Block] |
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Note 8 - Derivative Instruments (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) [Table Text Block] |
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Note 9 - Fair Value of Assets and Liabilities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] |
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Note 11 - Equity Plans (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block] |
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| Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block] |
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Note 13 - Shares Outstanding and Earnings Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 15 - Segment Information (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Revenue from Segments to Consolidated [Table Text Block] |
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| Reconciliation of Other Significant Reconciling Items from Segments to Consolidated [Table Text Block] |
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Note 3 - Accounts Receivable (Details Textual) - USD ($) $ in Millions |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Accounts Receivable, Allowance for Credit Loss, Current | $ 4.4 | $ 3.6 |
Note 4 - Inventories (Details Textual) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
|
| LIFO Inventory Amount | $ 50.1 | $ 50.1 | $ 50.3 | ||
| Percentage of LIFO Inventory | 13.40% | 13.40% | 21.00% | ||
| Inventory, LIFO Reserve, Period Charge | $ 4.0 | $ 0.5 | $ 5.0 | $ 1.0 | |
| Inventory Difference Using FIFO Basis | $ 2.9 | $ 2.9 | $ (2.1) | ||
Note 4 - Inventories - Steel Inventories (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Unprocessed | $ 300,693 | $ 194,614 |
| Processed and finished | 72,584 | 45,387 |
| Totals | $ 373,277 | $ 240,001 |
Note 5 - Goodwill and Intangible Assets (Details Textual) $ in Millions |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Finite-Lived Intangible Asset, Expected Amortization, Year One | $ 1.5 |
| Finite-Lived Intangible Asset, Expected Amortization, Year Three | 1.4 |
| Finite-Lived Intangible Asset, Expected Amortization, Year Four | 1.0 |
| Finite-Lived Intangible Asset, Expected Amortization, Year Five | 0.5 |
| Finite-Lived Intangible Asset, Expected Amortization, Year Two | $ 1.5 |
| Customer Relationships [Member] | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 15 years |
| Finite-Lived Intangible Assets, Remaining Amortization Period (Year) | 15 years |
| Noncompete Agreements [Member] | Minimum [Member] | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 1 year |
| Noncompete Agreements [Member] | Maximum [Member] | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 5 years |
Note 5 - Goodwill and Intangible Assets - Goodwill, by Reportable Segment (Details) $ in Thousands |
6 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Balance | $ 5,123 |
| Acquisitions | 111 |
| Impairments | 0 |
| Balance | 5,234 |
| Carbon Flat Products [Member] | |
| Balance | 1,065 |
| Acquisitions | 0 |
| Impairments | 0 |
| Balance | 1,065 |
| Specialty Metals Flat Products [Member] | |
| Balance | 4,058 |
| Acquisitions | 111 |
| Impairments | 0 |
| Balance | 4,169 |
| Tubular and Pipe Products [Member] | |
| Balance | 0 |
| Acquisitions | 0 |
| Impairments | 0 |
| Balance | $ 0 |
Note 5 - Goodwill and Intangible Assets - Intangible Assets, Net (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Accumulated amortization | $ (10,020) | $ (9,287) |
| Intangible assets, gross | 41,686 | 41,880 |
| Intangible assets, net | 31,666 | 32,593 |
| Trade Names [Member] | ||
| Trade name - not subject to amortization | 20,168 | 20,179 |
| Customer Relationships [Member] | ||
| Finite-lived intangible assets, gross | 21,259 | 21,442 |
| Accumulated amortization | (9,812) | (9,101) |
| Finite-lived intangible assets, net | 11,447 | 12,341 |
| Noncompete Agreements [Member] | ||
| Finite-lived intangible assets, gross | 259 | 259 |
| Accumulated amortization | (208) | (186) |
| Finite-lived intangible assets, net | $ 51 | $ 73 |
Note 6 - Leases - Lease Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Operating lease cost | $ 1,741 | $ 1,778 | $ 3,415 | $ 3,555 |
| Finance lease cost: | ||||
| Amortization of right-of-use assets | 212 | 60 | 424 | 120 |
| Interest on lease liabilities | 26 | 12 | 53 | 26 |
| Total finance lease cost | $ 238 | $ 72 | $ 477 | $ 146 |
Note 6 - Leases - Lease Payments (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Operating cash flows from operating leases | $ 1,711 | $ 1,750 | $ 3,356 | $ 3,509 |
| Operating cash flows from finance leases | 26 | 12 | 53 | 26 |
| Financing cash flows from finance leases | 203 | 58 | 405 | 115 |
| Total cash paid for lease liabilities | $ 1,940 | $ 1,820 | $ 3,814 | $ 3,650 |
Note 6 - Leases - Balance Sheet Information Related to Leases (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Operating lease | $ 36,819 | $ 36,060 |
| Operating lease accumulated amortization | (13,294) | (10,706) |
| Operating lease right-of-use asset, net | 23,525 | 25,354 |
| Current portion of lease liabilities | 5,525 | 5,580 |
| Operating lease, operating lease liabilities | 18,251 | 19,965 |
| Total operating lease liabilities | 23,775 | 25,545 |
| Property and equipment, at cost | 434,506 | 434,579 |
| Accumulated depreciation | (282,487) | (277,379) |
| Finance lease, net | 2,825 | 3,249 |
| Finance lease current liabilities | 828 | 815 |
| Finance lease liabilities | 2,035 | 2,453 |
| Total finance lease liabilities | $ 2,863 | $ 3,268 |
| Operating leases (in years) (Year) | 6 years | 7 years |
| Finance leases (in years) (Year) | 4 years | 6 years |
| Operating leases | 3.74% | 3.76% |
| Finance leases | 3.50% | 3.80% |
| Assets Held Under Finance Leases [Member] | ||
| Property and equipment, at cost | $ 3,582 | $ 3,582 |
| Accumulated depreciation | $ (757) | $ (333) |
Note 6 - Leases - Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Operating lease, 2021 | $ 3,304 | |
| Finance lease, 2021 | 456 | |
| Operating lease, 2022 | 5,743 | |
| Finance lease, 2022 | 851 | |
| Operating lease, 2023 | 4,628 | |
| Finance lease, 2023 | 578 | |
| Operating lease, 2024 | 3,881 | |
| Finance lease, 2024 | 492 | |
| Operating lease, 2025 | 2,577 | |
| Finance lease, 2025 | 325 | |
| Operating lease, Thereafter | 6,602 | |
| Finance lease, Thereafter | 388 | |
| Operating lease, Total future minimum lease payments | 26,735 | |
| Finance lease, Total future minimum lease payments | 3,090 | |
| Operating lease, Less remaining imputed interest | (2,960) | |
| Finance lease, Less remaining imputed interest | (227) | |
| Operating lease, Total | 23,775 | $ 25,545 |
| Finance lease, Total | 2,863 | $ 3,268 |
| Current Portion and Lease Liabilities [Member] | ||
| Operating lease, Total | $ 23,775 |
Note 7 - Debt - Summary of Debt (Details) - USD ($) $ in Thousands |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Asset-based revolving credit facility | $ 268,975 | $ 160,609 |
| Credit facility revolver | 268,975 | 160,609 |
| Total debt | 268,975 | 0 |
| Asset Based Revolving Credit Facility Due December 8, 2022 [Member] | ||
| Asset-based revolving credit facility | 0 | 160,609 |
| Credit facility revolver | 0 | 160,609 |
| Asset Based Revolving Credit Facility Due June 16, 2026 [Member] | ||
| Asset-based revolving credit facility | 268,975 | 0 |
| Credit facility revolver | $ 268,975 | $ 0 |
Note 8 - Derivative Instruments (Details Textual) - Interest Rate Swap [Member] $ in Millions |
Jan. 10, 2019
USD ($)
|
|---|---|
| Debt Instrument, Term (Year) | 5 years |
| Derivative, Notional Amount | $ 75 |
| Derivative, Fixed Interest Rate | 2.57% |
Note 8 - Derivative Instruments - Impact from Derivatives on Consolidated Statements of Comprehensive Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Net Gain (Loss) Recognized | $ (468) | $ (394) | $ (931) | $ (596) |
| Interest Rate Swap [Member] | ||||
| Net Gain (Loss) Recognized | (468) | (394) | (931) | (596) |
| Metal Swaps [Member] | ||||
| Net Gain (Loss) Recognized | 245 | 85 | 228 | (27) |
| Embedded Customer Derivatives [Member] | ||||
| Net Gain (Loss) Recognized | $ (245) | $ (85) | $ (228) | $ 27 |
Note 9 - Fair Value of Assets and Liabilities (Details Textual) - USD ($) $ in Millions |
Jun. 30, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Revolving Credit Facility [Member] | ||
| Long-term Debt, Fair Value | $ 269.0 | $ 160.6 |
Note 10 - Accumulated Other Comprehensive Loss (Details Textual) - USD ($) $ in Millions |
Jan. 10, 2019 |
Jun. 30, 2021 |
|---|---|---|
| AOCI, Cash Flow Hedge, Cumulative Gain (Loss), after Tax | $ 4.2 | |
| Accumulated Other Comprehensive Income (Loss), Tax | $ 1.1 | |
| Interest Rate Swap [Member] | ||
| Debt Instrument, Term (Year) | 5 years | |
| Derivative, Notional Amount | $ 75.0 | |
| Derivative, Fixed Interest Rate | 2.57% |
Note 11 - Equity Plans - Stock-based Compensation Expense Recognized on Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| RSU expense before taxes | $ 258 | $ 327 | $ 520 | $ 687 |
| RSU expense after taxes | $ 189 | $ 199 | $ 382 | $ 468 |
Note 12 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Income Tax Expense (Benefit), Total | $ 10,772 | $ (2,948) | $ 18,689 | $ (2,746) |
| Effective Income Tax Rate Reconciliation, Percent, Total | 26.70% | 31.40% | 26.60% | 31.90% |
Note 13 - Shares Outstanding and Earnings Per Share - Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Weighted average basic shares outstanding (in shares) | 11,492 | 11,446 | 11,491 | 11,445 |
| Assumed exercise of stock options and issuance of stock awards (in shares) | 12 | 0 | 10 | 0 |
| Weighted average diluted shares outstanding (in shares) | 11,504 | 11,446 | 11,501 | 11,445 |
| Net income (loss) | $ 29,649 | $ (6,454) | $ 51,657 | $ (5,861) |
| Basic earnings per share (in dollars per share) | $ 2.58 | $ (0.56) | $ 4.50 | $ (0.51) |
| Diluted earnings per share (in dollars per share) | $ 2.58 | $ (0.56) | $ 4.49 | $ (0.51) |
| Unvested RSUs (in shares) | 210 | 236 | 210 | 236 |
Note 15 - Segment Information (Details Textual) |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Number of Reportable Segments | 3 |
Note 15 - Segment Information - Segment Reporting Information by Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Net sales | $ 556,077 | $ 248,296 | $ 1,019,201 | $ 602,676 |
| Restructuring and other charges | 0 | 3,586 | 0 | 3,586 |
| Depreciation and amortization | 5,272 | 4,927 | 10,508 | 9,840 |
| Operating income (loss) | 42,437 | (7,485) | 74,026 | (4,434) |
| Other income (loss), net | 1 | (26) | (9) | (43) |
| Income (loss) before interest and income taxes | 42,438 | (7,511) | 74,017 | (4,477) |
| Interest and other expense on debt | 2,017 | 1,891 | 3,671 | 4,130 |
| Income (loss) before income taxes | 40,421 | (9,402) | 70,346 | (8,607) |
| Specialty Metals Flat Products [Member] | ||||
| Net sales | 138,035 | 54,495 | 264,354 | 142,983 |
| Restructuring and other charges | 0 | 27 | 0 | 27 |
| Depreciation and amortization | 901 | 447 | 1,804 | 944 |
| Operating income (loss) | 13,702 | 1,991 | 21,724 | 4,726 |
| Carbon Flat Products [Member] | ||||
| Net sales | 325,511 | 140,811 | 571,884 | 343,778 |
| Restructuring and other charges | 0 | 3,559 | 0 | 3,559 |
| Depreciation and amortization | 2,949 | 3,070 | 5,872 | 6,080 |
| Operating income (loss) | 30,434 | (9,428) | 51,633 | (10,774) |
| Tubular and Pipe Products [Member] | ||||
| Net sales | 92,531 | 52,990 | 182,963 | 115,915 |
| Restructuring and other charges | 0 | 0 | 0 | 0 |
| Depreciation and amortization | 1,404 | 1,368 | 2,796 | 2,732 |
| Operating income (loss) | 3,039 | 2,225 | 9,359 | 6,530 |
| Corporate Segment [Member] | ||||
| Restructuring and other charges | 0 | 0 | 0 | 0 |
| Depreciation and amortization | 18 | 42 | 36 | 84 |
| Operating income (loss) | $ (4,738) | $ (2,273) | $ (8,690) | $ (4,916) |
Note 15 - Segment Information - Segment Reporting Information by Capital Expenditures and Assets (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Dec. 31, 2020 |
|
| Capital expenditures | $ 4,579 | $ 6,183 | $ 4,579 | $ 6,183 | |
| Assets | 887,689 | 887,689 | $ 640,605 | ||
| Flat Products Segment [Member] | |||||
| Capital expenditures | 3,496 | 5,628 | |||
| Assets | 640,826 | 640,826 | 404,269 | ||
| Tubular and Pipe Products [Member] | |||||
| Capital expenditures | 1,083 | 555 | |||
| Assets | 246,185 | 246,185 | 235,516 | ||
| Corporate Segment [Member] | |||||
| Capital expenditures | 0 | $ 0 | |||
| Assets | $ 678 | $ 678 | $ 820 | ||