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The Decatur facility previously operated a temper mill and a cut-to-length line but during the quarter ended June 30, 2020, the equipment was removed to allow the foundation to be prepared for a new stretcher leveler line that will be installed.
−Removed: Installation is expected to begin in December 2020 and commercial use is expected to start in February 2021.
−Removed: The estimated total cost of this project is $7,200,000 with approximately $5,427,000 having been spent as of September 30, 2020 .
−Removed: This estimated cost is greater than our previously disclosed cost of $5,800,000 due to additional components that have been added to the project to improve the efficiency and output of the equipment.
+Added: Installation commenced in December 2020 and commercial use is expected to start in March 2021.
+Added: The estimated total cost of this project is $7,200,000 with approximately $6,479,000 having been spent as of December 31, 2020 .
The new equipment will expand the coil segment’s processing capabilities to include material up to 96” wide and material of higher grades and will allow the Decatur facility to cut material that is up to ½” thick compared to the previous equipment’s capability of 5/16” thick.
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We do not yet know the full extent of the effects on the economy, the markets we serve, our business or our operations.
−Removed: We have experienced a small number of cases within our workforce with each case being isolated with no spread to other employees.
Results of Operations
−Removed: Six Months Ended September 30, 2020 Compared to Six Months Ended September 30, 2019
−Removed: During the six months ended September 30, 2020 (the “ 2020 period”), sales and costs of goods sold decreased $32,584,620 and $33,243,797, respectively, and gross profit increased $659,177 compared to the amounts recorded during the six months ended September 30, 2019 (the “ 2019 period”).
+Added: Nine Months Ended December 31, 2020 Compared to Nine Months Ended December 31, 2019
+Added: During the nine months ended December 31, 2020 (the “ 2020 period”), sales and costs of goods sold decreased $32,233,388 and $37,335,481, respectively, and gross profit increased $5,102,093 compared to the amounts recorded during the nine months ended December 31, 2019 (the “ 2019 period”).
The decrease in sales was related to both a decline in tons sold and a decrease in the average per ton selling price.
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Our operating results are significantly impacted by the market price of hot-rolled steel coil.
−Removed: Results for both the 2020 period and the 2019 period were negatively impacted by a declining steel price.
−Removed: The 2020 period experienced additional challenges related to the COVID-19 pandemic.
+Added: The improved results for the 2020 period were driven by increasing steel prices in the back half of the period while the 2019 period was negatively impacted by declining steel prices throughout the period.
+Added: During August 2020 hot-rolled steel pricing started to rise and as of the end of the 2020 period, pricing had increased approximately 124%.
+Added: The impact of this rise in steel prices on each of our segments is discussed further in the following paragraphs.
+Added: Results for the 2020 period also benefitted from gains on hot-rolled steel derivative contracts of approximately $401,000 that were reported as a reduction of costs of goods sold within the coil segment.
+Added: The use of derivative instruments to manage the commodity price risk inherent in our business is a new practice for the 2020 period.
+Added: Additional information related to our derivative instruments is provided in Note H.
+Added: The company did not have any derivative instruments in the 2019 period.
Coil product segment sales for the 2020 period totaled $55,561,017 compared to $77,603,435 for the 2019 period.
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Coil segment operations recorded operating profits of approximately $3,529,000 and $575,000 for the 2020 and 2019 periods, respectively.
−Removed: Operating results for both the 2020 period and the 2019 period were negatively impacted by declining hot-rolled steel prices but the 2020 period was impacted additionally by a decline in volume primarily related to impacts of the COVID-19 pandemic.
−Removed: Compared to the average monthly sales volume for the fiscal year ended March 31, 2020 , April 2020 volume was down approximately 51%, May 2020 volume was down approximately 33%, June 2020 volume was down approximately 3%, July 2020 volume was down approximately 6%, August 2020 volume was down approximately 19% and September 2020 volume was down approximately 12%.
−Removed: The coil segment sales volume has experienced a fairly rapid recovery during the 2020 period from the initial volume drop in April 2020.
−Removed: We expect monthly volume for the third quarter of fiscal 2021 to remain slightly below the average monthly fiscal 2020 volume.
−Removed: Coil segment sales volume for October 2020 was down approximately 10% compared to the fiscal 2020 monthly average.
+Added: Operating results for the 2020 period were negatively impacted during the first six months by a decline in volume primarily related to the impacts of the COVID-19 pandemic and by declining steel prices.
+Added: In the last three months of the 2020 period, operating results benefitted from steady margin improvement associated with the rapidly increasing steel prices.
+Added: The 2020 period benefitted additionally from the gains on hot-rolled steel derivative contracts mentioned above.
+Added: The 2019 period was negatively impacted by a general decline in steel prices throughout the period.
The Company’s coil segment purchases its inventory from a limited number of suppliers.
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The tubular segment operations recorded operating losses of approximately $16,000 and $1,670,000 for the 2020 and 2019 periods, respectively.
−Removed: Operating results for both the 2020 period and the 2019 period were negatively impacted by declining hot-rolled steel prices, but the 2020 period was impacted additionally by a decline in volume primarily related to impacts of the COVID-19 pandemic and challenging conditions for the U.S.
+Added: Operating results for the 2020 period were negatively impacted by the effect of declining steel prices, a decline in volume primarily related to impacts of the COVID-19 pandemic and challenging conditions for the U.S.
energy industry.
−Removed: Compared to the average monthly sales volume for the fiscal year ended March 31, 2020 , April 2020 volume was down approximately 4%, May 2020 volume was down approximately 36%, June 2020 volume was down approximately 27%, July 2020 volume was down approximately 20%, August 2020 volume was down approximately 51% and September 2020 volume was down approximately 25%.
−Removed: The volume for April was supported by the segment fulfilling manufactured pipe orders that were received prior to the COVID-19 pandemic’s broad impact on the U.S.
−Removed: The tubular segment volume has seen a challenging recovery with energy industry conditions being weak and, in recent months, additional challenges from increased imported pipe competition.
−Removed: October 2020 volume was down approximately 18% compared to the fiscal 2020 monthly average.
+Added: Tubular segment margins do not respond as quickly to changes in steel price when compared to the way coil segment margins respond.
+Added: Tubular segment margins did not see significant improvement until December 2020 due to the longer manufacturing lead time associated with tubular products and soft energy industry demand.
+Added: The 2019 period was negatively impacted by a general decline in steel prices throughout the period.
Operating results for both the 2020 and 2019 periods were also negatively impacted by inventory write downs related to the segment's manufactured pipe inventory.
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Steel announced the idling of their Lone Star Tubular Operations which is our sole supplier of mill reject pipe.
−Removed: At September 30, 2020 , we had approximately 30,500 tons of mill reject inventory which we believe to be approximately two years of inventory.
+Added: At December 31, 2020 , we had approximately 26,000 tons of mill reject inventory which we believe to be approximately two years of inventory.
We expect the idling to have a negative impact on our operations as we eventually sell out of inventory.
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The increase was related primarily to increased payroll, professional fees and restricted stock plan compensation expense.
−Removed: The income tax benefit for the 2020 period decreased $73,009 from the benefit recorded in the 2019 period.
−Removed: This decrease was related primarily to the smaller loss before taxes for the 2020 period compared to the 2019 period.
−Removed: Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
−Removed: During the three months ended September 30, 2020 (the “ 2020 quarter”), sales and costs of goods sold decreased $15,133,900, $17,007,647, respectively and gross profit increased $1,873,747 compared to the amounts recorded during the three months ended September 30, 2019 (the “ 2019 quarter”).
−Removed: The decrease in sales was related to both a decline in tons sold and a decrease in the average per ton selling price.
+Added: Income taxes increased from a benefit for the 2019 period of $678,043 to a provision for the 2020 period of $298,668.
+Added: This increase was related primarily to the shift from a loss before taxes for the 2019 period to having earnings before tax for the 2020 period.
+Added: Three Months Ended December 31, 2020 Compared to Three Months Ended December 31, 2019
+Added: During the three months ended December 31, 2020 (the “ 2020 quarter”), sales increased $351,232, costs of goods sold decreased $4,091,684 and gross profit increased $4,442,916 compared to the amounts recorded during the three months ended December 31, 2019 (the “ 2019 quarter”).
+Added: The increase in sales was primarily related to an increase in the average selling price of the coil segment's products.
+Added: This increase was partially offset by a lower average selling price for the tubular segment's products and a slight decline in overall tons sold.
Tons sold decreased from approximately 45,500 tons in the 2019 quarter to approximately 43,500 tons in the 2020 quarter.
−Removed: The drop in volume was primarily attributable to economic impacts of COVID-19.
Discussion of the change in sales is expanded upon at the segment level in the following paragraphs.
−Removed: Gross margin as a percentage of sales increased from a loss margin of approximately 2.0% in the 2019 quarter to a profit margin of approximately 4.4% in the 2020 quarter.
+Added: Gross profit as a percentage of sales increased from approximately 0.2% in the 2019 quarter to approximately 15.8% in the 2020 quarter.
Our operating results are significantly impacted by the market price of hot-rolled steel coil.
−Removed: Results for both the 2020 quarter and the 2019 quarter were negatively affected by the impact of declining steel prices.
−Removed: However, steel prices started increasing in the middle of the 2020 quarter which sparked margin improvement, especially for the coil segment where margin typically responds quicker to fluctuations in steel prices.
+Added: The improved results for the 2020 quarter were driven by increasing steel prices prior to and throughout the quarter while the 2019 quarter was negatively impacted by declining steel prices preceding the quarter and during part of the quarter.
+Added: During August 2020 hot-rolled steel pricing started to rise and as of the end of the 2020 quarter, pricing had increased approximately 124%.
+Added: The impact of this rise in steel prices on each of our segments is discussed further in the following paragraphs.
+Added: Results for the 2020 quarter also benefitted from gains on hot-rolled steel derivative contracts of approximately $397,000 that were reported as a reduction of costs of goods sold within the coil segment.
+Added: Additional information related to our derivative instruments is provided in Note H.
+Added: The company did not have any derivative instruments in the 2019 quarter.
Coil product segment sales for the 2020 quarter totaled $21,672,147 compared to $21,001,358 for the 2019 quarter.
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Inventory tons sold decreased from approximately 34,500 tons in the 2019 quarter to approximately 32,000 tons in the 2020 quarter.
−Removed: The average per ton selling price related to these shipments decreased from approximately $653 per ton in the 2019 quarter to approximately $548 per ton in the 2020 quarter.
−Removed: Coil segment operations recorded operating profits of approximately $751,000 and $324,000 for the 2020 and 2019 quarters, respectively.
−Removed: Operating results for both the 2020 quarter and the 2019 quarter were negatively impacted by low margins associated with declines in hot-rolled steel prices.
−Removed: However, margins did start to improve at the end of the 2020 quarter when hot-rolled steel pricing increased.
−Removed: The 2020 quarter was impacted additionally by a decline in volume primarily related to impacts of the COVID-19 pandemic.
+Added: The average per ton selling price related to these shipments increased from approximately $600 per ton in the 2019 quarter to approximately $665 per ton in the 2020 quarter.
+Added: Coil segment operations recorded an operating profit of approximately $3,238,000 for the 2020 quarter compared to an operating loss of approximately $93,000 for the 2019 quarter.
+Added: Operating results for the 2020 quarter benefitted from a significant increase in steel prices and associated improvement in our margins.
+Added: The 2020 quarter benefitted additionally from the gains on hot-rolled steel derivative contracts mentioned above.
+Added: The 2019 quarter was negatively impacted by low margins associated with declines in hot-rolled steel prices.
The Company’s coil segment purchases its inventory from a limited number of suppliers.
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Tubular product segment sales for the 2020 quarter totaled $6,829,902 compared to $7,149,459 for the 2019 quarter.
−Removed: Sales declined due to both a reduction in the volume sold and a decrease in the average selling price per ton.
−Removed: Tons sold decreased from approximately 15,500 tons in the 2019 quarter to approximately 10,000 tons in the 2020 quarter.
+Added: Sales declined due primarily to a decrease in the average selling price per ton.
+Added: Tons sold was approximately 11,000 tons in both the 2020 quarter and the 2019 quarter.
The average per ton selling price related to these shipments decreased from approximately $646 per ton in the 2019 quarter to approximately $616 per ton in the 2020 quarter.
−Removed: The tubular segment operations recorded operating losses of approximately $344,000 and $1,746,000 for the 2020 and 2019 quarters, respectively.
−Removed: Operating results for both the 2020 quarter and the 2019 quarter were negatively impacted by declines in hot-rolled steel prices, but the 2020 quarter was impacted additionally by a decline in volume primarily related to impacts of the COVID-19 pandemic and challenging conditions for the U.S.
−Removed: energy industry.
−Removed: Energy industry conditions remain challenging and, in recent months, we have seen increased competition from imported pipe.
−Removed: Operating results for the 2019 quarter were also negatively impacted by an inventory write down of $955,605 at September 30, 2019 related to the segment’s manufactured pipe inventory.
+Added: The tubular segment operations recorded an operating profit of approximately $269,000 for the 2020 quarter and an operating loss of approximately $468,000 for the 2019 quarter.
+Added: Even though steel prices increased significantly throughout the 2020 quarter, tubular segment margins did not see significant improvement until December 2020 due to the longer manufacturing lead time associated with tubular products and soft energy industry demand.
+Added: Operating results for the 2019 quarter were negatively impacted by compressed margins associated with declining steel prices and weak energy industry conditions.
The Company’s tubular segment purchases its inventory from a limited number of suppliers.
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Steel announced the idling of their Lone Star Tubular Operations which is our sole supplier of mill reject pipe.
−Removed: At September 30, 2020 , we had approximately 30,500 tons of mill reject inventory which we believe to be approximately two years of inventory.
+Added: At December 31, 2020 , we had approximately 26,000 tons of mill reject inventory which we believe to be approximately two years of inventory.
We expect the idling to have a negative impact on our operations as we eventually sell out of inventory.
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The increase was related primarily to increased payroll, professional fees and restricted stock plan compensation expense.
−Removed: The income tax benefit for the 2020 quarter decreased $425,276 from the benefit recorded in the 2019 quarter.
−Removed: This decrease was related primarily to the smaller loss before taxes for the 2020 quarter compared to the 2019 quarter.
+Added: Income taxes increased from a benefit for the 2019 quarter of $264,550 to a provision for the 2020 quarter of $639,152.
+Added: This increase was related primarily to the shift from a loss before taxes for the 2019 quarter to having earnings before tax for the 2020 quarter.
During August 2020 hot-rolled steel pricing started to rise and has continued a significant increase of approximately 165% as of the filing date of this Form 10-Q.
−Removed: Our coil segment margins started improving late in the second quarter and have continued to improve during the third quarter.
−Removed: Our tubular segment margins do not respond as quickly to the fluctuations in steel price but we have started to see improved margins for our manufactured pipe sales during November 2020.
−Removed: In general, we expect solid margins for the third quarter.
−Removed: We expect both coil segment and tubular segment sales volumes for the third quarter to be comparable to those of the second quarter with the potential to be slightly less due to typical seasonality associated with the holidays and fewer shipping days.
+Added: Our coil segment margins experienced improvement throughout the third quarter and we expect the fourth quarter to have strong margins.
+Added: Our tubular segment margins do not respond as quickly to the fluctuations in steel price but we did see significant improvement in December 2020 and we expect that margin strength to continue during the fourth quarter.
+Added: We expect both coil segment and tubular segment sales volumes for the fourth quarter to be slightly higher than the third quarter volumes.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
−Removed: The Company’s current ratio was 9.0 at September 30, 2020 and 6.8 at March 31, 2020 .
−Removed: Working capital was $51,947,484 at September 30, 2020 and $55,566,158 at March 31, 2020 .
−Removed: During the six months ended September 30, 2020 , the Company maintained assets and liabilities at levels it believed were commensurate with operations.
+Added: The Company’s current ratio was 7.5 at December 31, 2020 and 6.8 at March 31, 2020 .
+Added: Working capital was $55,706,092 at December 31, 2020 and $55,566,158 at March 31, 2020 .
+Added: During the nine months ended December 31, 2020 , the Company maintained assets and liabilities at levels it believed were commensurate with operations.
Changes in balance sheet amounts occurred in the ordinary course of business.
−Removed: Cash increased primarily from operating activities and from Paycheck Protection Program loan proceeds with these increases being partially offset by the purchase of property, plant and equipment, payment of cash dividends and the repurchase of common stock.
+Added: Cash decreased primarily from the purchase of property, plant and equipment, payment of cash dividends and the repurchase of common stock partially offset by cash provided by operating activities and from Paycheck Protection Program loan proceeds.
The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company’s operations.
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The interest rate on the PPP Loan is 0.98%.
−Removed: Under the terms of the PPP Loan, interest accrues from the funding date of the PPP Loan but payment of both principal and interest is deferred for six months.
+Added: Under the terms of the PPP Loan, interest accrues from the funding date of the PPP Loan but payments of both principal and interest payments are deferred for six months.
Pursuant to the terms of the CARES Act, the Company can apply for and may be granted forgiveness for all or a portion of the PPP Loan, if and to the extent that the Company satisfies certain requirements.
Such forgiveness is subject to use of the PPP Loan proceeds for qualifying purposes and is also subject to maintenance or achievement of certain employee and compensation levels.
−Removed: While the Company plans to apply for forgiveness of the PPP Loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and the Small Business Administration regulations and requirements, no assurance can be given that all or any portion of the PPP Loan will be forgiven.
−Removed: As of the filing date of this Form 10-Q, the Company was waiting to receive an invitation from the Bank to submit an application for forgiveness.
+Added: While the Company plans to apply for forgiveness of the PPP Loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and the Small Business Administration ("SBA") regulations and requirements, no assurance can be given that all or any portion of the PPP Loan will be forgiven.
+Added: Additional deferment of both principal and interest payments has been granted to provide ample time to submit a loan forgiveness application.
+Added: As of the filing date of this Form 10-Q, the Bank has paused their processing of forgiveness applications while they and the SBA make modifications to their systems and processes based on new provisions.
+Added: We plan to submit a forgiveness application as soon as allowed.
On June 25, 2020, our Board of Directors authorized a share repurchase program under which the Company may repurchase up to 1,062,067 shares of the Company’s outstanding common stock through June 30, 2023, which equates to 15% of the Company’s outstanding shares of common stock as of June 25, 2020.
−Removed: During the September 30, 2020 quarter we repurchased 67,281 shares at a total cost of $410,221.
+Added: As of December 31, 2020, we have repurchased 180,200 shares at a total cost of $1,143,356.
Repurchases under the program may be made from time to time at the Company’s discretion and may be made in open market transactions, through block trades, in privately negotiated transactions and pursuant to any trading plan that may be adopted by the Company’s management in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or otherwise.
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The Company believes that its current cash position along with cash flows from operations and borrowing capability due to its financial position are adequate to fund its expected cash requirements for the next 12 months.
−Removed: CRITICAL ACCOUNTING POLICIES
+Added: CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.