Metals USA Reports Third Quarter 2010 Results

Metals USA Holdings Corp.
Unaudited Consolidated Statements of Operations
(In millions, except per share data)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2010

2009

2010

2010

2009

Revenues:

Net sales

$

345.3

$

255.4

$

335.0

$

968.2

$

853.4

Operating costs and expenses:

Cost of sales (exclusive of operating and delivery,
and depreciation and amortization shown below)

268.9

185.9

257.2

744.5

702.4

Operating and delivery

33.5

31.6

32.9

97.7

97.5

Selling, general and administrative

19.6

20.5

19.8

60.4

66.6

Depreciation and amortization

4.4

4.7

4.4

13.4

14.2

Gain on sale of property and equipment

-

-

-

(0.1)

-

Advisory agreement termination charge

-

-

3.3

3.3

-

Operating income (loss)

18.9

12.7

17.4

49.0

(27.3)

Other (income) expense:

Interest expense

8.7

14.0

9.5

29.9

50.5

Loss (gain) on extinguishment of debt

-

(0.7)

3.5

3.5

(89.1)

Other (income) expense, net

-

-

-

-

(0.3)

Income (loss) before income taxes

10.2

(0.6)

4.4

15.6

11.6

Provision for income taxes

4.4

1.2

1.9

7.2

3.7

Net income (loss)

$

5.8

$

(1.8)

$

2.5

$

8.4

$

7.9

Income (loss) per share:

Income (loss) per share - basic

$

0.16

$

(0.07)

$

0.07

$

0.26

$

0.32

Income (loss) per share - diluted

$

0.16

$

(0.07)

$

0.07

$

0.26

$

0.32

Number of common shares used in the per share calculation:

Basic

37.0

24.5

35.4

32.7

24.5

Diluted

37.3

24.5

35.7

33.0

24.5

Metals USA Holdings Corp.
Unaudited Consolidated Balance Sheets
(In millions, except share amounts)

September 30,

December 31,

2010

2009

Assets

Current assets:

Cash

$

12.4

$

6.0

Accounts receivable, net of allowance of $6.1 and $6.3, respectively

166.9

131.5

Inventories

265.3

216.0

Deferred income tax asset

14.8

14.5

Prepayments and other

4.5

6.5

Total current assets

463.9

374.5

Property and equipment, net

183.2

183.4

Intangible assets, net

6.3

8.4

Goodwill

47.5

45.6

Other assets, net

8.2

15.9

Total assets

$

709.1

$

627.8

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:

Accounts payable

$

65.0

$

56.4

Accrued liabilities

37.6

38.9

Current portion of long-term debt

0.1

0.1

Total current liabilities

102.7

95.4

Long-term debt, less current portion

307.5

468.2

Deferred income tax liability

89.4

84.8

Other long-term liabilities

22.2

23.1

Total liabilities

521.8

671.5

Commitments and contingencies

Stockholders' equity (deficit):

Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or

outstanding at September 30, 2010 and December 31, 2009, respectively

-

-

Common stock, $.01 par value, 140,000,000 shares authorized, 37,024,842 and 25,576,563

issued and outstanding at September 30, 2010 and December 31, 2009, respectively

0.4

0.2

Additional paid-in capital

229.3

7.5

Retained deficit

(42.6)

(51.0)

Accumulated other comprehensive income (loss)

0.2

(0.4)

Total stockholders' equity (deficit)

187.3

(43.7)

Total liabilities and stockholders' equity (deficit)

$

709.1

$

627.8

Metals USA Holding Corp.
Unaudited Consolidated Statements of Cash Flows
(In millions)

Nine Months Ended

September 30,

2010

2009

Cash flows from operating activities:

Net income

$

8.4

$

7.9

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Gain on sale of property and equipment

(0.1)

-

Provision for bad debts

1.3

2.7

Depreciation and amortization

14.9

15.9

Loss (gain) on extinguishment of debt

3.5

(89.1)

Amortization of debt issuance costs and discounts on long-term debt

2.9

4.1

Deferred income taxes

1.5

22.5

Stock-based compensation

0.7

0.3

Excess tax benefit from stock-based compensation

(0.1)

-

Non-cash interest on PIK option

6.2

17.6

Cash payment of interest on PIK option

(23.2)

-

Advisory agreement termination charge

3.3

-

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

(32.8)

59.1

Inventories

(43.2)

196.6

Prepayments and other

2.2

3.1

Accounts payable and accrued liabilities

5.2

(11.0)

Other operating

1.6

(1.3)

Net cash (used in) provided by operating activities

(47.7)

228.4

Cash flows from investing activities:

Sale of assets

0.2

0.2

Purchases of assets

(2.2)

(3.6)

Acquisition costs, net of cash acquired

(19.0)

(4.2)

Net cash used in investing activities

(21.0)

(7.6)

Cash flows from financing activities:

Borrowings on credit facility

60.0

79.0

Repayments on credit facility

(59.5)

(357.0)

Repayments of long-term debt

(146.7)

(89.4)

Excess tax benefit from stock-based compensation

0.1

-

Net proceeds from initial public stock offering

221.2

-

Net cash provided by (used in) financing activities

75.1

(367.4)

Net increase (decrease) in cash

6.4

(146.6)

Cash, beginning of period

6.0

166.7

Cash, end of period

$

12.4

$

20.1

Metals USA Holdings Corp.
Unaudited Supplemental Segment and Non-GAAP Information
(In millions, except shipments)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2010

2009

2010

2010

2009

Segment:

Flat Rolled and Non-Ferrous:

Net sales

$ 180.1

$ 115.5

$  177.0

$ 509.1

$ 374.0

Operating income

$   12.1

$     8.9

$    13.2

$   36.2

$     9.7

Depreciation and amortization

$     1.7

$     1.7

$      1.7

$     5.2

$     5.3

EBITDA       (1)

$   13.8

$   10.6

$    14.9

$   41.4

$   15.0

Adjusted EBITDA       (2)

$   13.8

$   10.6

$    14.9

$   41.4

$   15.0

Shipments    (3)

138

107

146

418

330

Plates and Shapes:

Net sales

$ 144.4

$ 115.8

$  136.5

$ 402.8

$ 413.1

Operating income (loss)

$     9.7

$     7.9

$    11.4

$   30.2

$ (17.8)

Depreciation and amortization

$     2.3

$     2.5

$      2.3

$     7.0

$     7.2

EBITDA       (1)

$   12.0

$   10.4

$    13.7

$   37.2

$ (10.6)

Adjusted EBITDA       (2)

$   12.0

$   11.1

$    13.7

$   37.2

$   (9.8)

Shipments    (3)

137

113

126

380

370

Building Products:

Net sales

$   23.2

$   26.1

$    24.3

$   63.7

$   73.0

Operating income (loss)

$     1.2

$     1.2

$      0.6

$     0.1

$   (2.6)

Depreciation and amortization (5)

$     0.6

$     0.9

$      0.6

$     1.8

$     2.1

EBITDA       (1)

$     1.8

$     2.1

$      1.2

$     1.9

$   (0.5)

Adjusted EBITDA       (2)

$     1.8

$     2.3

$      1.2

$     1.9

$     0.1

Shipments    (3)

-

-

-

$        -

-

Corporate and other:

Net sales

$   (2.4)

$   (2.0)

$     (2.8)

$   (7.4)

$   (6.7)

Operating loss

$   (4.1)

$   (5.3)

$     (7.8)

$ (17.5)

$ (16.6)

Depreciation and amortization

$     0.3

$     0.4

$      0.3

$     0.9

$     1.3

EBITDA       (1)

$   (3.8)

$   (4.9)

$     (7.5)

$ (16.6)

$ (15.3)

Adjusted EBITDA       (2)

$   (3.3)

$   (4.3)

$     (4.1)

$ (12.3)

$ (14.0)

Shipments    (3)  (4)

(2)

(2)

(2)

(6)

(6)

Consolidated:

Net sales

$ 345.3

$ 255.4

$  335.0

$ 968.2

$ 853.4

Operating income (loss)

$   18.9

$   12.7

$    17.4

$   49.0

$ (27.3)

Depreciation and amortization (5)

$     4.9

$     5.5

$      4.9

$   14.9

$   15.9

EBITDA       (1)

$   23.8

$   18.2

$    22.3

$   63.9

$ (11.4)

Adjusted EBITDA       (2)

$   24.3

$   19.7

$    25.7

$   68.2

$   (8.7)

Shipments    (3)

273

218

270

792

694

(1) EBITDA is the summation of Operating income (loss) and Depreciation and amortization.  We believe that EBITDA is commonly used as a measure of performance for companies in our industry and is frequently used by analysts, investors, lenders and other interested parties to evaluate a company's financial performance and its ability to incur and service debt.  EBITDA should not be considered as a measure of financial performance under accounting principles generally accepted in the United States.  The items excluded from EBITDA are significant components in understanding and assessing financial performance.  EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of operating performance or a measure of liquidity.

(2) Adjusted EBITDA, as contemplated by our credit documents, is used by our lenders for debt covenant compliance purposes. Adjusted EBITDA is EBITDA adjusted to eliminate management fees to related parties, one-time, non-recurring charges related to the use of purchase accounting, and other non-cash income or expenses, which are more particularly defined in our credit documents and the indentures governing our notes.

(3) Unaudited and is expressed in thousands of tons.  Not a meaningful measure for Building Products.

(4) Negative net sales and shipment information represent the elimination of intercompany transactions.

(5) Includes depreciation expense recorded in cost of sales.

EBITDA and Adjusted EBITDA Non-GAAP Measures, Reconciliations and Explanations

EBITDA represents net income before interest, income taxes, depreciation and amortization.  Adjusted EBITDA (as defined by the loan and security agreement governing the ABL facility and the indenture governing our notes) is defined as EBITDA further adjusted to exclude certain non-cash, non-recurring and realized (or in the case of the indenture, expected) future cost savings directly related to prior acquisitions.  EBITDA and Adjusted EBITDA are not defined terms under GAAP.  Neither EBITDA nor Adjusted EBITDA should be considered an alternative to operating income or net income as a measure of operating results or an alternative to cash flow as a measure of liquidity.  

There are material limitations associated with making the adjustments to our earnings to calculate EBITDA and Adjusted EBITDA and using these non-GAAP financial measures as compared to the most directly comparable GAAP financial measures. For instance, EBITDA and Adjusted EBITDA do not include:

* interest expense, and because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate revenue;

* depreciation and amortization expense, and because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue; and

* income tax expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate.

We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by our investors and other interested parties, as well as by our management, in the evaluation of companies in our industry, many of which present EBITDA when reporting their results.  In addition, EBITDA provides additional information used by our management and board of directors to facilitate internal comparisons to historical operating performance of prior periods.  Further, management believes EBITDA facilitates their operating performance comparisons from period to period because it excludes potential differences caused by variations in capital structure (affecting interest expense), tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting depreciation expense).

We believe that the inclusion of supplemental adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about the performance of the business, and we are required to reconcile net income to Adjusted EBITDA to demonstrate compliance with debt covenants.  Management uses Adjusted EBITDA as a key indicator to evaluate performance of certain employees.

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2010

2009

2010

2010

2009

(In millions)

Operating income (loss)

$             18.9

$             12.7

$             17.4

$               49.0

$       (27.3)

Depreciation and amortization (1)

4.9

5.5

4.9

14.9

15.9

EBITDA

23.8

18.2

22.3

63.9

(11.4)

Indenture defined adjustments to EBITDA:

Facility closure and severance costs

-

1.1

-

-

1.5

Stock options and grant expense

0.5

0.1

0.1

0.7

0.3

Management fees and other costs

-

0.3

3.3

3.6

0.9

Adjusted EBITDA

$             24.3

$             19.7

$             25.7

$               68.2

$         (8.7)

(1) Includes depreciation expense recorded in cost of sales for the Building Products Group.