Olympic Steel Reports 2016 Fourth-Quarter and Full-Year Results

Market Share Increases to Record High

CLEVELAND--(BUSINESS WIRE)--Olympic Steel Inc., (Nasdaq: ZEUS), a national metals service center, today announced financial results for the fourth quarter and full year ended Dec. 31, 2016.

Net sales in the 2016 fourth quarter increased 7.3%, to $254.9 million, up from $237.5 million in the same quarter of the prior year. Full-year 2016 net sales declined 10.2%, to $1.1 billion, compared with $1.2 billion in 2015. LIFO income was $0.8 million in the final quarter of 2016, versus $1.6 million in the comparable quarter in 2015. Full-year reported results benefited from $1.5 million of LIFO income in 2016, which was down from $3.3 million of LIFO income recorded in 2015.

For the fourth quarter of 2016, the Company reported a net loss of $2.1 million, or $0.19 per share. This compares with a net loss of $5.0 million, or $0.45 per share, in 2015’s comparable quarter. For the full-year period, a net loss of $1.1 million, or $0.10 per share was recorded in 2016, versus a net loss of $26.8 million, or $2.39 per share, in 2015. Results in 2015 were negatively impacted by goodwill and intangible asset impairment charges totaling $25.0 million, or $1.93 per share.

“Despite another challenging year, we observed a definitive market swing during the fourth quarter,” said Chairman and Chief Executive Officer Michael D. Siegal. “Pricing, demand and customer sentiment all improved as the quarter progressed.”

“Our commitment to customer performance earned us record market share during 2016, per MSCI data,” Siegal added. “At the same time, our emphasis on continuous improvement led to reducing operating expenses by 3%, or $7 million, excluding 2015’s impairment charges.”

“The positive industry trends that began in last year’s fourth quarter have continued in the first quarter of 2017, validating optimism for the first half of this year,” Siegal concluded.

Conference Call and Webcast

A simulcast of Olympic Steel’s 2016 fourth-quarter and full-year earnings conference call can be accessed via the Investor Relations section of the Company’s website at www.olysteel.com. The simulcast will begin at 10 a.m. ET today, March 2, and a replay of the call will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company’s policy not to endorse any analyst’s sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases 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. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: general and global business, economic, financial and political conditions; competitive factors such as the availability, global production levels and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; cyclicality and volatility within the metals industry; the strengthening of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the levels of imported steel in the United States and any associated tariffs and duties; the availability and costs of transportation and logistical services; the successes of our strategic efforts and initiatives to increase sales volumes, maintain or improve working capital turnover and free cash flows, improve our customer service, and achieve cost savings, including our efforts to improve earnings; our ability to generate free cash flow through operations and repay debt within anticipated time frames; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including additional impairment charges related to indefinite lived intangible assets; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including our business information system implementations; the successes of our operational initiatives to improve our operating, cultural and management systems and reduce our costs; the ability to comply with the terms of our asset-based credit facility; the ability of our customers and third parties to honor their agreements related to derivative instruments; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; the impacts of union organizing activities and the success of union contract renewals; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income, especially during periods of declining market pricing; the ability of our customers (especially those that may be highly leveraged, and those with inadequate liquidity) to maintain their credit availability; the inflation or deflation existing within the metals industry, as well as our product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security risks and threats; access to capital and global credit markets; 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; unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies; and changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The Company’s CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 32 facilities in North America.

For additional information, please visit the Company’s website at www.olysteel.com or www.b2i.us/profiles/investor/ContactUs.asp?BzID=2195

-Financial Tables Follow-

Olympic Steel, Inc.
Consolidated Statements of Comprehensive Income
(in thousands, except per-share data)
	Three Months Ended Dec. 31,						Twelve Months Ended Dec. 31,
	2016			2015			2016			2015
	(unaudited)						(audited)
Net sales	$	254,904		$	237,505		$	1,055,116		$	1,175,543
Costs and expenses
Cost of materials sold (excludes items shown separately below)		203,494			188,265			820,040			942,214
Warehouse and processing		17,960			19,891			79,521			85,411
Administrative and general		15,001			15,701			63,054			64,987
Distribution		8,728			8,254			36,490			36,073
Selling		5,699			5,051			23,060			21,158
Occupancy		2,088			2,280			8,718			9,492
Depreciation		4,365			4,520			17,596			18,147
Amortization		222			222			889			889
Goodwill and intangible asset impairment		-			500			-			24,951
Total costs and expenses		257,557			244,684			1,049,368			1,203,322
Operating income (loss)		(2,653	)		(7,179	)		5,748			(27,779	)
Other income (loss), net		(13	)		16			(55	)		(125	)
Income (loss) before interest and income taxes		(2,666	)		(7,163	)		5,693			(27,904	)
Interest and other expense on debt		1,378			1,251			5,273			5,690
Income (loss) before income taxes		(4,044	)		(8,414	)		420			(33,594	)
Income tax provision (benefit)		(1,940	)		(3,426	)		1,498			(6,817	)
Net loss	$	(2,104	)	$	(4,988	)	$	(1,078	)	$	(26,777	)
Earnings per share:
Net loss per share - basic	$	(0.19	)	$	(0.45	)	$	(0.10	)	$	(2.39	)
Weighted average shares outstanding - basic		11,221			11,173			11,210			11,192
Net loss per share - diluted	$	(0.19	)	$	(0.45	)	$	(0.10	)	$	(2.39	)
Weighted average shares outstanding - diluted		11,221			11,173			11,210			11,192

Olympic Steel, Inc.
Consolidated Balance Sheets
(in thousands)
	At Dec. 31,
	2016			2015
	(audited)
Assets
Cash and cash equivalents	$	2,315		$	1,604
Accounts receivable, net		101,902			92,877
Inventories, net (includes LIFO debit of $8,045 and $6,555 as of Dec. 31, 2016, and 2015, respectively)		254,526			206,645
Prepaid expenses and other		6,197			7,820
Total current assets		364,940			308,946
Property and equipment, at cost		374,242			372,129
Accumulated depreciation		(218,476	)		(205,591	)
Net property and equipment		155,766			166,538
Intangible assets, net		23,869			24,757
Other long-term assets		11,493			11,639
Total assets	$	556,068		$	511,880
Liabilities
Current portion of long-term debt	$	1,825		$	2,690
Accounts payable		79,458			55,685
Accrued payroll		8,445			6,884
Other accrued liabilities		15,170			11,801
Total current liabilities		104,898			77,060
Credit facility revolver		164,599			145,800
Other long-term liabilities		10,062			9,829
Deferred income taxes		23,119			24,496
Total liabilities		302,678			257,185
Shareholders' Equity
Preferred stock		-			-
Common stock		128,619			128,129
Treasury stock		(609	)		(699	)
Accumulated other comprehensive loss		-			(70	)
Retained earnings		125,380			127,335
Total shareholders' equity		253,390			254,695
Total liabilities and shareholders' equity	$	556,068		$	511,880

Olympic Steel, Inc.
Segment Financial Information
(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)
	Three Months Ended Dec. 31:
	(unaudited)
	Carbon Flat							Specialty Metals Flat					Tubular and Pipe
	Products							Products					Products^1
	2016				2015			2016		2015			2016		2015
Tons Sold^1	244,938					229,530			19,012		16,520		NA		NA
Net Sales	$ 167,055				$	150,992		$	45,032	$	40,700		$	42,817	$	45,813
Average selling price per ton	682					658			2,369		2,464		NA		NA
Cost of materials sold^2	136,979					120,822			37,452		37,376			29,063		30,067
Gross profit^3	30,076					30,170			7,580		3,324			13,754		15,746
Operating expenses^4	34,327					36,458			5,065		4,058			13,190		13,606
Goodwill and intangible asset impairment^5	-					-			-		500			-		-
Operating income (loss)	$ (4,251			)	$	(6,288	)	$	2,515	$	(1,234	)	$	564	$	2,140
Depreciation and Amortization	2,953					2,987			211		173			1,398		1,556
	Twelve Months Ended Dec. 31:
	(audited)
	Carbon Flat							Specialty Metals Flat					Tubular and Pipe
	Products							Products					Products^1
	2016				2015			2016		2015			2016		2015
Tons Sold^1		1,026,768				1,037,525			82,285		72,077		NA		NA
Net Sales	$	670,983			$	765,400		$	189,930	$	192,516		$	194,203	$	217,627
Average selling price per ton		653				738			2,308		2,671		NA		NA
Cost of materials sold^2		529,021				618,674			160,185		176,686			130,834		146,854
Gross profit^3		141,962				146,726			29,745		15,830			63,369		70,773
Operating expenses^4		146,333				153,943			19,904		16,904			55,656		58,190
Goodwill and intangible asset impairment^5		-				-			-		500			-		24,451
Operating income (loss)	$	(4,371	)		$	(7,217	)	$	9,841	$	(1,574	)	$	7,713	$	(11,868	)
Depreciation and Amortization		11,690				12,200			797		698			5,896		6,036

^1	Tonnage is less meaningful for the Tubular and Pipe Products segment and therefore, is not reported.
^2	Includes $0.8 million, and $1.5 million, of LIFO income for the three and twelve months ended Dec. 31, 2016, respectively; and $1.6 million, and $3.3 million, of LIFO income for the three and twelve months ended Dec. 31, 2015, respectively.
^3	Gross profit is calculated as net sales less the cost of materials sold.
^4	Operating expenses are calculated as total costs and expenses less the cost of materials sold.
^5	Goodwill and intangible asset non-cash impairment charges are separately displayed for comparability purposes.

Olympic Steel, Inc.
Segment Financial Information Cont.
(audited, in thousands)
	At Dec. 31,
	2016			2015
Assets
Flat products	$	363,626		$	328,295
Tubular and pipe products		192,088			183,129
Corporate		354			456
Total assets	$	556,068		$	511,880
Other Information:
(audited, in thousands, except per-share data)	At Dec. 31,
	2016			2015
Shareholders' equity per share	$	23.11		$	23.25
Debt-to-equity ratio	0.66 to 1			0.58 to 1
	Twelve Months Ended
	Dec. 31,
	2016			2015
Net cash from (used for) operating activities	$	(9,813	)	$	107,485
Cash dividends per share	$	0.08		$	0.08