RELIANCE STEEL & ALUMINUM CO - Quarter Report: 2011 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
o 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: 001-13122
RELIANCE STEEL & ALUMINUM CO.
(Exact name of registrant as specified in its charter)
California (State or other jurisdiction of incorporation or organization) |
|
95-1142616 (I.R.S. Employer Identification No.) |
350 South Grand Avenue, Suite 5100
Los Angeles, California 90071
(213) 687-7700
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of July 29, 2011, 74,881,048 shares of the registrants common stock, no par value, were outstanding.
RELIANCE STEEL & ALUMINUM CO.
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PART I FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
|
|
June 30, |
|
December 31, |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
92.0 |
|
$ |
72.9 |
|
Accounts receivable, less allowance for doubtful accounts of $23.0 at June 30, 2011 and $17.2 at December 31, 2010 |
|
958.1 |
|
697.0 |
| ||
Inventories |
|
1,160.4 |
|
860.2 |
| ||
Prepaid expenses and other current assets |
|
46.1 |
|
42.5 |
| ||
Income taxes receivable |
|
¾ |
|
28.3 |
| ||
Total current assets |
|
2,256.6 |
|
1,700.9 |
| ||
Property, plant and equipment: |
|
|
|
|
| ||
Land |
|
138.8 |
|
137.1 |
| ||
Buildings |
|
612.8 |
|
594.3 |
| ||
Machinery and equipment |
|
926.4 |
|
898.1 |
| ||
Accumulated depreciation |
|
(639.3 |
) |
(604.2 |
) | ||
|
|
1,038.7 |
|
1,025.3 |
| ||
|
|
|
|
|
| ||
Goodwill |
|
1,110.8 |
|
1,109.6 |
| ||
Intangible assets, net |
|
741.3 |
|
755.8 |
| ||
Cash surrender value of life insurance policies, net |
|
38.0 |
|
42.0 |
| ||
Investments in unconsolidated entities |
|
16.5 |
|
18.3 |
| ||
Other assets |
|
16.6 |
|
17.0 |
| ||
Total assets |
|
$ |
5,218.5 |
|
$ |
4,668.9 |
|
|
|
|
|
|
| ||
LIABILITIES AND EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable |
|
$ |
398.8 |
|
$ |
245.0 |
|
Accrued expenses |
|
55.2 |
|
45.7 |
| ||
Accrued compensation and retirement costs |
|
84.4 |
|
85.1 |
| ||
Accrued insurance costs |
|
36.7 |
|
37.0 |
| ||
Current maturities of long-term debt and short-term borrowings |
|
99.6 |
|
86.2 |
| ||
Income taxes payable |
|
18.3 |
|
¾ |
| ||
Deferred income taxes |
|
9.6 |
|
9.6 |
| ||
Total current liabilities |
|
702.6 |
|
508.6 |
| ||
Long-term debt |
|
1,012.8 |
|
855.1 |
| ||
Long-term retirement costs |
|
74.3 |
|
74.7 |
| ||
Other long-term liabilities |
|
27.2 |
|
27.8 |
| ||
Deferred income taxes |
|
371.0 |
|
372.6 |
| ||
Commitments and contingencies |
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
Preferred stock, no par value: |
|
|
|
|
| ||
Authorized shares 5,000,000 None issued or outstanding |
|
¾ |
|
¾ |
| ||
Common stock, no par value: |
|
|
|
|
| ||
Authorized shares 100,000,000 Issued and outstanding shares 74,875,228 at June 30, 2011 and 74,639,223 at December 31, 2010, stated capital |
|
644.9 |
|
624.7 |
| ||
Retained earnings |
|
2,360.7 |
|
2,188.7 |
| ||
Accumulated other comprehensive income |
|
16.8 |
|
10.3 |
| ||
Total Reliance shareholders equity |
|
3,022.4 |
|
2,823.7 |
| ||
Noncontrolling interests |
|
8.2 |
|
6.4 |
| ||
Total equity |
|
3,030.6 |
|
2,830.1 |
| ||
Total liabilities and equity |
|
$ |
5,218.5 |
|
$ |
4,668.9 |
|
See accompanying notes to unaudited consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
$ |
2,049.5 |
|
$ |
1,620.6 |
|
$ |
3,962.2 |
|
$ |
3,074.7 |
|
|
|
|
|
|
|
|
|
|
| ||||
Costs and expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of sales (exclusive of depreciation and amortization shown below) |
|
1,538.7 |
|
1,203.8 |
|
2,945.1 |
|
2,279.8 |
| ||||
Warehouse, delivery, selling, general and administrative |
|
313.7 |
|
272.2 |
|
632.2 |
|
541.4 |
| ||||
Depreciation and amortization |
|
31.5 |
|
30.0 |
|
64.5 |
|
59.1 |
| ||||
|
|
1,883.9 |
|
1,506.0 |
|
3,641.8 |
|
2,880.3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
165.6 |
|
114.6 |
|
320.4 |
|
194.4 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
| ||||
Interest |
|
(15.5 |
) |
(15.6 |
) |
(30.1 |
) |
(30.7 |
) | ||||
Other income (expense), net |
|
4.1 |
|
(2.3 |
) |
4.3 |
|
(1.2 |
) | ||||
Income before income taxes |
|
154.2 |
|
96.7 |
|
294.6 |
|
162.5 |
| ||||
Income tax provision |
|
54.0 |
|
33.9 |
|
100.8 |
|
54.7 |
| ||||
Net income |
|
100.2 |
|
62.8 |
|
193.8 |
|
107.8 |
| ||||
Less: Net income attributable to noncontrolling interests |
|
1.5 |
|
1.3 |
|
2.8 |
|
1.6 |
| ||||
Net income attributable to Reliance |
|
$ |
98.7 |
|
$ |
61.5 |
|
$ |
191.0 |
|
$ |
106.2 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per common share attributable to Reliance shareholders |
|
$ |
1.31 |
|
$ |
0.83 |
|
$ |
2.54 |
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per common share attributable to Reliance shareholders |
|
$ |
1.32 |
|
$ |
0.83 |
|
$ |
2.56 |
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends per share |
|
$ |
0.12 |
|
$ |
0.10 |
|
$ |
0.24 |
|
$ |
0.20 |
|
See accompanying notes to unaudited consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
Six Months Ended |
| ||||
|
|
2011 |
|
2010 |
| ||
Operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
193.8 |
|
$ |
107.8 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
64.5 |
|
59.1 |
| ||
Depreciation and amortization expense |
|
|
|
|
| ||
Deferred income tax benefit |
|
(2.5 |
) |
(1.8 |
) | ||
(Gain) loss on sales of property, plant and equipment |
|
(2.1 |
) |
0.8 |
| ||
Equity in earnings of unconsolidated entities |
|
(1.1 |
) |
(0.6 |
) | ||
Dividends received from unconsolidated entity |
|
0.6 |
|
0.3 |
| ||
Share based compensation expense |
|
10.8 |
|
8.1 |
| ||
Tax deficit (excess benefit) from share based compensation |
|
0.3 |
|
(2.9 |
) | ||
Net loss from life insurance policies |
|
1.7 |
|
1.5 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
|
(259.9 |
) |
(202.9 |
) | ||
Inventories |
|
(299.0 |
) |
(177.4 |
) | ||
Prepaid expenses and other assets |
|
27.2 |
|
48.8 |
| ||
Accounts payable and other liabilities |
|
180.2 |
|
123.7 |
| ||
Net cash used in operating activities |
|
(85.5 |
) |
(35.5 |
) | ||
|
|
|
|
|
| ||
Investing activities: |
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
(66.3 |
) |
(39.4 |
) | ||
Proceeds from sales of property, plant and equipment |
|
7.3 |
|
0.7 |
| ||
Net proceeds from redemption of life insurance policies |
|
2.3 |
|
3.9 |
| ||
Net cash used in investing activities |
|
(56.7 |
) |
(34.8 |
) | ||
|
|
|
|
|
| ||
Financing activities: |
|
|
|
|
| ||
Net short-term debt borrowings |
|
0.8 |
|
0.4 |
| ||
Proceeds from long-term debt borrowings |
|
286.0 |
|
262.0 |
| ||
Principal payments on long-term debt |
|
(117.1 |
) |
(188.3 |
) | ||
Payments to noncontrolling interest holders |
|
(1.0 |
) |
(0.5 |
) | ||
Dividends paid |
|
(17.9 |
) |
(14.8 |
) | ||
(Tax deficit) excess benefit from share based compensation |
|
(0.3 |
) |
2.9 |
| ||
Exercise of stock options |
|
9.4 |
|
12.9 |
| ||
Net cash provided by financing activities |
|
159.9 |
|
74.6 |
| ||
Effect of exchange rate changes on cash |
|
1.4 |
|
0.1 |
| ||
Increase in cash and cash equivalents |
|
19.1 |
|
4.4 |
| ||
Cash and cash equivalents at beginning of year |
|
72.9 |
|
43.0 |
| ||
Cash and cash equivalents at end of period |
|
$ |
92.0 |
|
$ |
47.4 |
|
|
|
|
|
|
| ||
Supplemental cash flow information: |
|
|
|
|
| ||
Interest paid during the period |
|
$ |
26.4 |
|
$ |
27.0 |
|
Income taxes paid during the period |
|
$ |
60.9 |
|
$ |
15.1 |
|
See accompanying notes to unaudited consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements, have been included. The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results for the full year ending December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2010, included in Reliance Steel & Aluminum Co.s (We, Reliance or the Company) Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Companys consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
The Companys consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. The Companys investments in unconsolidated subsidiaries are recorded under the equity method of accounting. All significant intercompany accounts and transactions have been eliminated.
2. Impact of Recently Issued Accounting Guidance
Accounting Guidance Recently Adopted
On January 1, 2011, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) related to the calculation of the carrying amount of a reporting unit when performing the first step of a goodwill impairment test. More specifically, the changes require an entity to use an equity premise when performing the first step of a goodwill impairment test. If a reporting unit has a zero or negative carrying amount, the entity must assess and consider qualitative factors and whether it is more likely than not that a goodwill impairment exists. The adoption of these changes did not have a material impact on the Companys financial position, results of operations or cash flows.
Impact of Recently Issued Accounting Standards Not Yet Adopted
In June 2011, the FASB issued accounting guidance which requires companies to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. The new guidance is effective for the Companys interim and annual reporting periods beginning in the first quarter of 2012 and will be applied retrospectively, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the Companys consolidated financial statements, other than the change in presentation described in the new guidance.
In May 2011, the FASB issued accounting guidance to provide a consistent definition of fair value and to ensure that the fair value measurement and disclosure requirements are similar between generally accepted accounting principles in the United States and International Financial Reporting Standards. The new guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The new guidance is effective for the Companys interim and annual reporting periods beginning in the first quarter of 2012 and will be applied prospectively. The Company is currently evaluating the impact of adopting the new guidance, but currently believes there will be no significant impact on its consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions
On December 1, 2010, through our subsidiary American Metals Corporation, we acquired all of the outstanding capital stock of Lampros Steel, Inc. (LSI) and a related interest in Lampros Steel Plate Distribution, LLC (LSPD). LSI specializes in structural steel shapes with a facility located in Portland, Oregon. LSPD owned a 50% interest in an unconsolidated partnership, LSI Plate, that is a distributor of carbon steel plate with locations in California and Oregon. Effective March 2011, the business conducted by LSI Plate was moved to LSI in order to achieve certain operational efficiencies. Net sales of LSI during the six months ended June 30, 2011 were approximately $17.4 million.
On October 1, 2010, we acquired all of the outstanding capital stock of Diamond Consolidated Industries, Inc. and affiliated companies (Diamond), which now operate under the corporate name Diamond Manufacturing Company. The operating divisions consist of Diamond Manufacturing Company located in Wyoming, Pennsylvania and Diamond Manufacturing Midwest in Michigan City, Indiana, both of which specialize in the manufacture and sale of specialty engineered perforated materials; Perforated Metals Plus, a distributor of perforated metals located in Charlotte, North Carolina; and Dependable Punch, a manufacturer of custom punches for tools and dies also located in Wyoming, Pennsylvania. This acquisition expanded our product and processing offerings with the addition of perforated metals. An operating division of Diamond was opened near Dallas, Texas in early 2011 to expand Diamonds geographic reach. Net sales of Diamond during the six months ended June 30, 2011 were approximately $51.8 million.
4. Goodwill
The change in the carrying amount of goodwill for the six months ended June 30, 2011 is as follows (in millions):
Balance as of December 31, 2010 |
|
$ |
1,109.6 |
|
Purchase price allocation adjustments |
|
0.2 |
| |
Effect of foreign currency translation |
|
1.0 |
| |
Balance as of June 30, 2011 |
|
$ |
1,110.8 |
|
The Company had no accumulated impairment losses related to goodwill as of June 30, 2011.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Intangible Assets, net
The following table summarizes the Companys intangible assets, net:
|
|
June 30, 2011 |
|
December 31, 2010 |
| ||||||||
|
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
| ||||
|
|
(in millions) |
| ||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
| ||||
Covenants not to compete |
|
$ |
7.1 |
|
$ |
(6.8 |
) |
$ |
7.1 |
|
$ |
(6.7 |
) |
Loan fees |
|
23.9 |
|
(15.8 |
) |
23.9 |
|
(14.1 |
) | ||||
Customer lists/relationships |
|
380.3 |
|
(97.1 |
) |
379.3 |
|
(83.7 |
) | ||||
Software internal use |
|
8.1 |
|
(4.3 |
) |
8.1 |
|
(3.8 |
) | ||||
Other |
|
4.9 |
|
(1.9 |
) |
4.9 |
|
(1.7 |
) | ||||
|
|
424.3 |
|
(125.9 |
) |
423.3 |
|
(110.0 |
) | ||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
| ||||
Trade names |
|
442.9 |
|
|
|
442.5 |
|
|
| ||||
|
|
$ |
867.2 |
|
$ |
(125.9 |
) |
$ |
865.8 |
|
$ |
(110.0 |
) |
The Company recognized amortization expense for intangible assets of approximately $15.8 million and $14.5 million for the six months ended June 30, 2011 and 2010, respectively. Other changes in intangible assets during the six months ended June 30, 2011 are due to foreign currency translation gains of $1.3 million.
The following is a summary of estimated aggregated amortization expense for the remaining six months of 2011 and each of the succeeding five years (in millions):
2011 |
|
$ |
15.6 |
|
2012 |
|
30.8 |
| |
2013 |
|
28.1 |
| |
2014 |
|
26.1 |
| |
2015 |
|
24.6 |
| |
2016 |
|
23.8 |
|
6. Income Taxes
The Companys effective tax rates for the six months ended June 30, 2011 and 2010 were 34.2% and 33.7%, respectively. The Companys effective income tax rates for the three months ended June 30, 2011 and 2010 were 35.0% and 35.1%, respectively. The fluctuations in the Companys effective tax rates are mainly because of varying income levels over these periods. Permanent items that impacted the Companys effective tax rates as compared to the U.S. federal statutory rate of 35% were not materially different in amounts during these periods and relate mainly to company-owned life insurance policies and domestic production activities deductions.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. Debt
Debt consists of the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
|
|
(in millions) |
| ||||
|
|
|
|
|
| ||
Unsecured revolving credit facility due November 9, 2012 |
|
$ |
365.0 |
|
$ |
195.0 |
|
Senior unsecured notes due from July 1, 2011 to July 2, 2013 |
|
135.0 |
|
135.0 |
| ||
Senior unsecured notes due November 15, 2016 |
|
350.0 |
|
350.0 |
| ||
Senior unsecured notes due November 15, 2036 |
|
250.0 |
|
250.0 |
| ||
Other notes and revolving credit facilities |
|
14.1 |
|
13.1 |
| ||
Total |
|
1,114.1 |
|
943.1 |
| ||
Less: unamortized discount |
|
(1.7 |
) |
(1.8 |
) | ||
Less: amounts due within one year and short-term borrowings |
|
(99.6 |
) |
(86.2 |
) | ||
Total long-term debt |
|
$ |
1,012.8 |
|
$ |
855.1 |
|
Unsecured Revolving Credit Facility
The Companys $1.1 billion unsecured revolving credit facility has 16 banks as lenders. On September 28, 2009, the Company amended its syndicated credit agreement to extend the maturity date of $1.02 billion of commitments with 14 extending lenders through November 9, 2012, while the maturity date for $80.0 million of commitments with non-extending lenders remained at November 9, 2011. Interest on borrowings from extending lenders is at variable rates based on LIBOR plus 3.50% or the bank prime rate plus 2.50% as of June 30, 2011. Interest on borrowings from non-extending lenders is at variable rates based on LIBOR plus 0.45% or the bank prime rate as of June 30, 2011. The revolving credit facility includes a commitment fee on the unused portion, at an annual rate of 0.40% and 0.10% for extending and non-extending lenders, respectively, as of June 30, 2011. The applicable margin over LIBOR rate and base rate borrowings along with commitment fees are subject to adjustment every quarter based on the Companys leverage ratio, as defined.
Weighted average rates on borrowings outstanding on the revolving credit facility were 3.46% and 3.54% as of June 30, 2011 and December 31, 2010, respectively.
As of June 30, 2011, the Company had $41.8 million of letters of credit outstanding under the revolving credit facility with availability to issue an additional $83.2 million of letters of credit.
On July 26, 2011, the Company amended and restated the existing syndicated credit agreement to increase the borrowing limit to $1.5 billion and to extend the maturity date of the credit facility to July 26, 2016. The amended and restated revolving credit facility has 26 banks as lenders. As of July 26, 2011, under this amended and restated revolving credit facility, interest on borrowings is at variable rates based on LIBOR plus 1.50% or the bank prime rate plus 0.50% and a commitment fee on the unused portion is charged at an annual rate of 0.25%. The applicable margin over LIBOR rate and base rate borrowings along with commitment fees are subject to adjustment every quarter based on the Companys leverage ratio, as defined.
Revolving Credit Facilities Foreign Operations
Various other separate revolving credit facilities with a combined credit limit of approximately $24.2 million are in place for operations in Asia and Europe with combined outstanding balances of $12.8 million and $11.8 million as of June 30, 2011 and December 31, 2010, respectively.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Senior Unsecured Notes Private Placements
The Company has $135.0 million of outstanding senior unsecured notes issued in private placements of debt as of June 30, 2011. At June 30, 2011, the outstanding senior notes bear interest at a weighted average fixed rate of 5.1% and have a weighted average remaining life of 1.1 years, maturing from July 2011 to July 2013. On July 1, 2011, $60.0 million of the notes matured and we paid off the notes with borrowings on our credit facility.
Senior Unsecured Notes Publicly Traded
On November 20, 2006, the Company entered into an Indenture (the Indenture), for the issuance of $600 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, maturing on November 15, 2016 and (b) $250 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036. The notes are senior unsecured obligations of Reliance and rank equally with all other existing and future unsecured and unsubordinated debt obligations of Reliance. The senior unsecured notes include provisions that, in the event of a change in control and a downgrade of the Companys credit rating, require the Company to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued interest.
Covenants
The revolving credit facility and the senior unsecured note agreements collectively require the Company to maintain a minimum net worth and interest coverage ratio and a maximum leverage ratio and include a change of control provision, among other things. The Companys interest coverage ratio for the twelve-month period ended June 30, 2011 was approximately 8.0 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as net income attributable to Reliance plus interest expense and provision for income taxes and plus or minus any non-operating non-recurring loss or gain, respectively, divided by interest expense). The Companys leverage ratio as of June 30, 2011 calculated in accordance with the terms of the revolving credit facility was 27.7% compared to the financial covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of capital lease obligations and outstanding letters of credit, divided by Reliance shareholders equity plus total debt). The minimum net worth requirement as of June 30, 2011 was $999.2 million compared to Reliance shareholders equity balance of $3.02 billion as of June 30, 2011.
Additionally, all of our wholly-owned domestic subsidiaries, which constitute the substantial majority of our subsidiaries, guarantee the borrowings under the revolving credit facility, the Indenture and the private placement notes. The subsidiary guarantors, together with Reliance, are required collectively to account for at least 80% of the Companys consolidated EBITDA and 80% of consolidated tangible assets. Reliance and the subsidiary guarantors accounted for approximately 90% of our total consolidated EBITDA for the last twelve months and approximately 92% of total consolidated tangible assets as of June 30, 2011.
The Company was in compliance with all debt covenants as of June 30, 2011. There are no material modifications to the covenant requirements under the amended and restated $1.5 billion revolving credit facility.
8. Equity
Common Stock
During the six months ended June 30, 2011, the Company issued 219,926 shares of common stock in connection with the exercise of stock options for total proceeds of approximately $9.4 million.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Share Based Compensation
On May 18, 2011, pursuant to the May 2011 Directors Equity Plan, which has been approved by the shareholders, 16,079 shares of restricted stock were automatically granted to the non-employee members of the Board of Directors. The awards include dividend rights and vest immediately upon grant. The recipients are restricted from trading the restricted stock for one year from date of grant. The fair value of the restricted stock granted was $52.24 per share, determined based on the closing price of the Companys common stock on the grant date.
On February 23, 2011, the Company granted 1,037,250 options to acquire its common stock to key employees with an exercise price equal to the fair market value as of the date of the grant. The stock options vest ratably over a period of four years and expire seven years after the date of grant. The fair value of stock options granted of $26.98 per share was estimated using the Black-Scholes option-pricing model with the following assumptions: Expected life 4.8 years; Expected volatility 60.2%; Dividend yield 0.9%; Risk-free interest rate 2.2%; Exercise price - $55.73.
Share Repurchase Program
Under the Companys current stock repurchase program 7,883,033 shares of common stock remain authorized for repurchase as of June 30, 2011. No shares were repurchased in 2011 or 2010. Repurchased shares are redeemed and treated as authorized but unissued shares.
Other Comprehensive Income
Other comprehensive income included the following:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
(in millions) |
| ||||||||||
Net income |
|
$ |
100.2 |
|
$ |
62.8 |
|
$ |
193.8 |
|
$ |
107.8 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation (loss) gain |
|
(0.2 |
) |
(6.1 |
) |
6.4 |
|
(1.0 |
) | ||||
Unrealized (loss) gain on investments, net of tax |
|
|
|
(0.2 |
) |
0.1 |
|
|
| ||||
Total other comprehensive (loss) income |
|
(0.2 |
) |
(6.3 |
) |
6.5 |
|
(1.0 |
) | ||||
Comprehensive income |
|
100.0 |
|
56.5 |
|
200.3 |
|
106.8 |
| ||||
Comprehensive income attributable to noncontrolling interests |
|
(1.5 |
) |
(1.3 |
) |
(2.8 |
) |
(1.6 |
) | ||||
Comprehensive income attributable to Reliance |
|
$ |
98.5 |
|
$ |
55.2 |
|
$ |
197.5 |
|
$ |
105.2 |
|
Accumulated Other Comprehensive Income
Accumulated other comprehensive income included the following:
|
|
June 30, |
|
December 31, |
| ||
|
|
2011 |
|
2010 |
| ||
|
|
(in millions) |
| ||||
Foreign currency translation gain |
|
$ |
26.7 |
|
$ |
20.3 |
|
Unrealized loss on investments, net of tax |
|
(0.1 |
) |
(0.2 |
) | ||
Minimum pension liability, net of tax |
|
(9.8 |
) |
(9.8 |
) | ||
Total accumulated other comprehensive income |
|
$ |
16.8 |
|
$ |
10.3 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. Unrealized loss on investments and minimum pension liability are net of taxes of $0.1 million and $6.6 million, respectively, as of June 30, 2011 and December 31, 2010.
9. Commitments and Contingencies
The Company is currently involved with certain environmental remediation projects related to activities at former manufacturing operations of Earle M. Jorgensen Company (EMJ), a wholly-owned subsidiary of the Company, that were sold many years prior to Reliances acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ had insurance policies in place at the time they owned the manufacturing operations that are expected to cover the majority of the related costs. The Company does not expect that these obligations will have a material adverse impact on its financial position, results of operations or cash flows.
10. Earnings Per Share
Basic earnings per share exclude any dilutive effects of options, restricted stock, warrants and convertible securities. Diluted earnings per share are calculated including the dilutive effects of options, restricted stock, warrants and convertible securities, if any.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
(in millions, except share and per share amounts) |
| ||||||||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net income attributable to Reliance |
|
$ |
98.7 |
|
$ |
61.5 |
|
$ |
191.0 |
|
$ |
106.2 |
|
Denominator: |
|
|
|
|
|
|
|
|
| ||||
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Weighted average shares |
|
74,773,715 |
|
74,220,164 |
|
74,697,185 |
|
74,042,293 |
| ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
| ||||
Stock options and restricted stock |
|
377,083 |
|
297,579 |
|
390,572 |
|
312,474 |
| ||||
Denominator for diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Adjusted weighted average shares and assumed conversions |
|
75,150,798 |
|
74,517,743 |
|
75,087,757 |
|
74,354,767 |
| ||||
Net income per share attributable to Reliance shareholders diluted |
|
$ |
1.31 |
|
$ |
0.83 |
|
$ |
2.54 |
|
$ |
1.43 |
|
Net income per share attributable to Reliance shareholders basic |
|
$ |
1.32 |
|
$ |
0.83 |
|
$ |
2.56 |
|
$ |
1.43 |
|
The computations of earnings per share for the three months ended June 30, 2011 and 2010 do not include 3,084,925 and 2,186,425 shares reserved for issuance upon exercise of stock options, respectively, because their inclusion would have been anti-dilutive.
The computations of earnings per share for the six months ended June 30, 2011 and 2010 do not include 3,091,513 and 2,171,400 shares reserved for issuance upon exercise of stock options, respectively, because their inclusion would have been anti-dilutive.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Events
Effective August 1, 2011, the Company acquired all the outstanding capital securities of Continental Alloys & Services, Inc. (Continental), headquartered in Houston, Texas, and certain affiliated companies, for a total transaction value of approximately $415 million, net of cash acquired and subject to certain adjustments. We funded the acquisition with proceeds from our revolving credit facility. Continental and its affiliates combined form a leading global materials management company focused on high-end steel and alloy pipe, tube and bar products and precision manufacturing of various tools designed for well completion programs of global energy service companies and have 12 locations in seven countries including the United States, Canada, United Kingdom, Singapore, Malaysia, Dubai and Mexico. Continental and its affiliates had unaudited combined net sales of approximately $196.0 million for the six month ended June 30, 2011. There is no impact of this acquisition on our June 30, 2011 financial results.
On July 26, 2011, the Company amended and restated the existing syndicated credit agreement to increase the borrowing limit to $1.5 billion and to extend the maturity date of the credit facility to July 26, 2016. See Note 7 for additional discussion.
12. Condensed Consolidating Financial Statements
In November 2006, the Company issued senior unsecured notes in the aggregate principal amount of $600 million at fixed interest rates that are guaranteed by its wholly-owned domestic subsidiaries. The accompanying consolidating financial information has been prepared and presented pursuant to Rule 3-10 of SEC Regulation S-X Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The guarantees are full and unconditional and joint and several obligations of each of the guarantor subsidiaries. There are no significant restrictions on the ability of the Company to obtain funds from any of the guarantor subsidiaries by dividends or loans. The supplemental consolidating financial information has been presented in lieu of separate financial statements of the guarantors as such separate financial statements are not considered meaningful.
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Balance Sheet
As of June 30, 2011
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations & |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
15.2 |
|
$ |
21.2 |
|
$ |
55.6 |
|
$ |
|
|
$ |
92.0 |
|
Accounts receivable, less allowance for doubtful accounts |
|
79.4 |
|
807.2 |
|
71.5 |
|
|
|
958.1 |
| |||||
Inventories |
|
56.0 |
|
1,021.2 |
|
83.2 |
|
|
|
1,160.4 |
| |||||
Intercompany receivables |
|
0.4 |
|
15.5 |
|
0.1 |
|
(16.0 |
) |
|
| |||||
Other current assets |
|
69.0 |
|
27.8 |
|
8.4 |
|
(59.1 |
) |
46.1 |
| |||||
Total current assets |
|
220.0 |
|
1,892.9 |
|
218.8 |
|
(75.1 |
) |
2,256.6 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investments in subsidiaries |
|
1,910.5 |
|
221.6 |
|
|
|
(2,132.1 |
) |
|
| |||||
Property, plant and equipment, net |
|
97.1 |
|
884.0 |
|
57.6 |
|
|
|
1,038.7 |
| |||||
Goodwill |
|
23.8 |
|
1,029.1 |
|
57.9 |
|
|
|
1,110.8 |
| |||||
Intangible assets, net |
|
8.1 |
|
668.1 |
|
65.1 |
|
|
|
741.3 |
| |||||
Intercompany receivables |
|
2,200.3 |
|
|
|
|
|
(2,200.3 |
) |
|
| |||||
Other assets |
|
5.0 |
|
65.2 |
|
0.9 |
|
|
|
71.1 |
| |||||
Total assets |
|
$ |
4,464.8 |
|
$ |
4,760.9 |
|
$ |
400.3 |
|
$ |
(4,407.5 |
) |
$ |
5,218.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities & Equity |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
38.6 |
|
$ |
334.9 |
|
$ |
41.3 |
|
$ |
(16.0 |
) |
$ |
398.8 |
|
Accrued compensation and retirement costs |
|
13.5 |
|
66.0 |
|
4.9 |
|
|
|
84.4 |
| |||||
Other current liabilities |
|
40.0 |
|
45.4 |
|
6.5 |
|
|
|
91.9 |
| |||||
Income taxes payable |
|
|
|
5.9 |
|
5.9 |
|
6.5 |
|
18.3 |
| |||||
Deferred income taxes |
|
|
|
75.2 |
|
|
|
(65.6 |
) |
9.6 |
| |||||
Current maturities of long-term debt and short-term borrowings |
|
86.8 |
|
|
|
12.8 |
|
|
|
99.6 |
| |||||
Total current liabilities |
|
178.9 |
|
527.4 |
|
71.4 |
|
(75.1 |
) |
702.6 |
| |||||
Long-term debt |
|
1,012.6 |
|
0.2 |
|
|
|
|
|
1,012.8 |
| |||||
Intercompany borrowings |
|
|
|
2,165.8 |
|
34.5 |
|
(2,200.3 |
) |
|
| |||||
Deferred taxes and other long-term liabilities |
|
250.9 |
|
216.6 |
|
5.0 |
|
|
|
472.5 |
| |||||
Total Reliance shareholders equity |
|
3,022.4 |
|
1,846.1 |
|
286.0 |
|
(2,132.1 |
) |
3,022.4 |
| |||||
Noncontrolling interests |
|
|
|
4.8 |
|
3.4 |
|
|
|
8.2 |
| |||||
Total equity |
|
3,022.4 |
|
1,850.9 |
|
289.4 |
|
(2,132.1 |
) |
3,030.6 |
| |||||
Total liabilities and equity |
|
$ |
4,464.8 |
|
$ |
4,760.9 |
|
$ |
400.3 |
|
$ |
(4,407.5 |
) |
$ |
5,218.5 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
As of December 31, 2010
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations & |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
14.4 |
|
$ |
8.0 |
|
$ |
50.5 |
|
$ |
|
|
$ |
72.9 |
|
Accounts receivable, less allowance for doubtful accounts |
|
58.1 |
|
586.2 |
|
52.7 |
|
|
|
697.0 |
| |||||
Inventories |
|
33.6 |
|
770.4 |
|
56.2 |
|
|
|
860.2 |
| |||||
Intercompany receivables |
|
0.3 |
|
12.4 |
|
|
|
(12.7 |
) |
|
| |||||
Other current assets |
|
99.8 |
|
27.3 |
|
5.1 |
|
(61.4 |
) |
70.8 |
| |||||
Total current assets |
|
206.2 |
|
1,404.3 |
|
164.5 |
|
(74.1 |
) |
1,700.9 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investments in subsidiaries |
|
1,783.2 |
|
202.8 |
|
|
|
(1,986.0 |
) |
|
| |||||
Property, plant and equipment, net |
|
97.5 |
|
870.3 |
|
57.5 |
|
|
|
1,025.3 |
| |||||
Goodwill |
|
23.8 |
|
1,029.0 |
|
56.8 |
|
|
|
1,109.6 |
| |||||
Intangible assets, net |
|
9.8 |
|
681.1 |
|
64.9 |
|
|
|
755.8 |
| |||||
Intercompany receivables |
|
1,956.5 |
|
|
|
|
|
(1,956.5 |
) |
|
| |||||
Other assets |
|
4.9 |
|
71.4 |
|
1.0 |
|
|
|
77.3 |
| |||||
Total assets |
|
$ |
4,081.9 |
|
$ |
4,258.9 |
|
$ |
344.7 |
|
$ |
(4,016.6 |
) |
$ |
4,668.9 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities & Equity |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
24.5 |
|
$ |
204.6 |
|
$ |
28.6 |
|
$ |
(12.7 |
) |
$ |
245.0 |
|
Accrued compensation and retirement costs |
|
14.9 |
|
64.8 |
|
5.4 |
|
|
|
85.1 |
| |||||
Other current liabilities |
|
37.6 |
|
40.2 |
|
4.9 |
|
|
|
82.7 |
| |||||
Deferred income taxes |
|
|
|
71.0 |
|
|
|
(61.4 |
) |
9.6 |
| |||||
Current maturities of long-term debt and short-term borrowings |
|
74.4 |
|
|
|
11.8 |
|
|
|
86.2 |
| |||||
Total current liabilities |
|
151.4 |
|
380.6 |
|
50.7 |
|
(74.1 |
) |
508.6 |
| |||||
Long-term debt |
|
854.9 |
|
0.2 |
|
|
|
|
|
855.1 |
| |||||
Intercompany borrowings |
|
|
|
1,926.9 |
|
29.6 |
|
(1,956.5 |
) |
|
| |||||
Deferred taxes and other long-term liabilities |
|
251.9 |
|
218.2 |
|
5.0 |
|
|
|
475.1 |
| |||||
Total Reliance shareholders equity |
|
2,823.7 |
|
1,729.5 |
|
256.5 |
|
(1,986.0 |
) |
2,823.7 |
| |||||
Noncontrolling interests |
|
|
|
3.5 |
|
2.9 |
|
|
|
6.4 |
| |||||
Total equity |
|
2,823.7 |
|
1,733.0 |
|
259.4 |
|
(1,986.0 |
) |
2,830.1 |
| |||||
Total liabilities and equity |
|
$ |
4,081.9 |
|
$ |
4,258.9 |
|
$ |
344.7 |
|
$ |
(4,016.6 |
) |
$ |
4,668.9 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Statement of Income
For the three months ended June 30, 2011
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
$ |
182.8 |
|
$ |
1,804.0 |
|
$ |
116.4 |
|
$ |
(53.7 |
) |
$ |
2,049.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales (exclusive of depreciation and amortization shown below) |
|
129.2 |
|
1,386.4 |
|
76.8 |
|
(53.7 |
) |
1,538.7 |
| |||||
Warehouse, delivery, selling, general and administrative |
|
19.8 |
|
293.7 |
|
20.7 |
|
(20.5 |
) |
313.7 |
| |||||
Depreciation and amortization |
|
3.5 |
|
26.2 |
|
1.8 |
|
|
|
31.5 |
| |||||
|
|
152.5 |
|
1,706.3 |
|
99.3 |
|
(74.2 |
) |
1,883.9 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
|
30.3 |
|
97.7 |
|
17.1 |
|
20.5 |
|
165.6 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest |
|
(15.3 |
) |
(12.0 |
) |
|
|
11.8 |
|
(15.5 |
) | |||||
Other income, net |
|
30.3 |
|
6.1 |
|
|
|
(32.3 |
) |
4.1 |
| |||||
Income before equity in earnings of subsidiaries and income taxes |
|
45.3 |
|
91.8 |
|
17.1 |
|
|
|
154.2 |
| |||||
Equity in earnings of subsidiaries |
|
51.6 |
|
7.9 |
|
|
|
(59.5 |
) |
|
| |||||
Income before income taxes |
|
96.9 |
|
99.7 |
|
17.1 |
|
(59.5 |
) |
154.2 |
| |||||
Income tax (benefit) provision |
|
(1.8 |
) |
51.9 |
|
3.9 |
|
|
|
54.0 |
| |||||
Net income |
|
98.7 |
|
47.8 |
|
13.2 |
|
(59.5 |
) |
100.2 |
| |||||
Less: Net income attributable to noncontrolling interests |
|
|
|
1.3 |
|
0.2 |
|
|
|
1.5 |
| |||||
Net income attributable to Reliance |
|
$ |
98.7 |
|
$ |
46.5 |
|
$ |
13.0 |
|
$ |
(59.5 |
) |
$ |
98.7 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Statement of Income
For the three months ended June 30, 2010
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
$ |
153.5 |
|
$ |
1,432.2 |
|
$ |
82.5 |
|
$ |
(47.6 |
) |
$ |
1,620.6 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales (exclusive of depreciation and amortization shown below) |
|
110.7 |
|
1,085.7 |
|
55.0 |
|
(47.6 |
) |
1,203.8 |
| |||||
Warehouse, delivery, selling, general and administrative |
|
21.4 |
|
250.0 |
|
18.3 |
|
(17.5 |
) |
272.2 |
| |||||
Depreciation and amortization |
|
3.2 |
|
25.2 |
|
1.6 |
|
|
|
30.0 |
| |||||
|
|
135.3 |
|
1,360.9 |
|
74.9 |
|
(65.1 |
) |
1,506.0 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
|
18.2 |
|
71.3 |
|
7.6 |
|
17.5 |
|
114.6 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest |
|
(16.0 |
) |
(11.2 |
) |
(0.2 |
) |
11.8 |
|
(15.6 |
) | |||||
Other income (expense), net |
|
28.7 |
|
(1.6 |
) |
(0.1 |
) |
(29.3 |
) |
(2.3 |
) | |||||
Income before equity in earnings of subsidiaries and income taxes |
|
30.9 |
|
58.5 |
|
7.3 |
|
|
|
96.7 |
| |||||
Equity in earnings of subsidiaries |
|
27.6 |
|
4.1 |
|
|
|
(31.7 |
) |
|
| |||||
Income before income taxes |
|
58.5 |
|
62.6 |
|
7.3 |
|
(31.7 |
) |
96.7 |
| |||||
Income tax (benefit) provision |
|
(3.0 |
) |
35.7 |
|
1.2 |
|
|
|
33.9 |
| |||||
Net income |
|
61.5 |
|
26.9 |
|
6.1 |
|
(31.7 |
) |
62.8 |
| |||||
Less: Net income attributable to noncontrolling interests |
|
|
|
1.2 |
|
0.1 |
|
|
|
1.3 |
| |||||
Net income attributable to Reliance |
|
$ |
61.5 |
|
$ |
25.7 |
|
$ |
6.0 |
|
$ |
(31.7 |
) |
$ |
61.5 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Statement of Income
For the six months ended June 30, 2011
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
$ |
358.5 |
|
$ |
3,487.9 |
|
$ |
225.7 |
|
$ |
(109.9 |
) |
$ |
3,962.2 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales (exclusive of depreciation and amortization shown below) |
|
268.3 |
|
2,639.6 |
|
147.1 |
|
(109.9 |
) |
2,945.1 |
| |||||
Warehouse, delivery, selling, general and administrative |
|
39.4 |
|
597.3 |
|
40.9 |
|
(45.4 |
) |
632.2 |
| |||||
Depreciation and amortization |
|
6.9 |
|
54.1 |
|
3.5 |
|
|
|
64.5 |
| |||||
|
|
314.6 |
|
3,291.0 |
|
191.5 |
|
(155.3 |
) |
3,641.8 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
|
43.9 |
|
196.9 |
|
34.2 |
|
45.4 |
|
320.4 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest |
|
(29.8 |
) |
(18.6 |
) |
(0.4 |
) |
18.7 |
|
(30.1 |
) | |||||
Other income, net |
|
62.3 |
|
6.1 |
|
|
|
(64.1 |
) |
4.3 |
| |||||
Income before equity in earnings of subsidiaries and income taxes |
|
76.4 |
|
184.4 |
|
33.8 |
|
|
|
294.6 |
| |||||
Equity in earnings of subsidiaries |
|
104.7 |
|
15.7 |
|
|
|
(120.4 |
) |
|
| |||||
Income before income taxes |
|
181.1 |
|
200.1 |
|
33.8 |
|
(120.4 |
) |
294.6 |
| |||||
Income tax (benefit) provision |
|
(9.9 |
) |
102.9 |
|
7.8 |
|
|
|
100.8 |
| |||||
Net income |
|
191.0 |
|
97.2 |
|
26.0 |
|
(120.4 |
) |
193.8 |
| |||||
Less: Net income attributable to noncontrolling interests |
|
|
|
2.3 |
|
0.5 |
|
|
|
2.8 |
| |||||
Net income attributable to Reliance |
|
$ |
191.0 |
|
$ |
94.9 |
|
$ |
25.5 |
|
$ |
(120.4 |
) |
$ |
191.0 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Statement of Income
For the six months ended June 30, 2010
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
$ |
293.0 |
|
$ |
2,715.2 |
|
$ |
155.2 |
|
$ |
(88.7 |
) |
$ |
3,074.7 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cost of sales (exclusive of depreciation and amortization shown below) |
|
220.5 |
|
2,040.1 |
|
108.0 |
|
(88.8 |
) |
2,279.8 |
| |||||
Warehouse, delivery, selling, general and administrative |
|
48.5 |
|
496.7 |
|
34.1 |
|
(37.9 |
) |
541.4 |
| |||||
Depreciation and amortization |
|
6.3 |
|
50.0 |
|
2.8 |
|
|
|
59.1 |
| |||||
|
|
275.3 |
|
2,586.8 |
|
144.9 |
|
(126.7 |
) |
2,880.3 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
|
17.7 |
|
128.4 |
|
10.3 |
|
38.0 |
|
194.4 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest |
|
(31.3 |
) |
(21.7 |
) |
(0.4 |
) |
22.7 |
|
(30.7 |
) | |||||
Other income (expense), net |
|
60.2 |
|
(0.6 |
) |
(0.1 |
) |
(60.7 |
) |
(1.2 |
) | |||||
Income before equity in earnings of subsidiaries and income taxes |
|
46.6 |
|
106.1 |
|
9.8 |
|
|
|
162.5 |
| |||||
Equity in earnings of subsidiaries |
|
50.1 |
|
4.6 |
|
|
|
(54.7 |
) |
|
| |||||
Income before income taxes |
|
96.7 |
|
110.7 |
|
9.8 |
|
(54.7 |
) |
162.5 |
| |||||
Income tax (benefit) provision |
|
(9.5 |
) |
62.6 |
|
1.6 |
|
|
|
54.7 |
| |||||
Net income |
|
106.2 |
|
48.1 |
|
8.2 |
|
(54.7 |
) |
107.8 |
| |||||
Less: Net income attributable to noncontrolling interests |
|
|
|
1.5 |
|
0.1 |
|
|
|
1.6 |
| |||||
Net income attributable to Reliance |
|
$ |
106.2 |
|
$ |
46.6 |
|
$ |
8.1 |
|
$ |
(54.7 |
) |
$ |
106.2 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Cash Flow Statement
For the six months ended June 30, 2011
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
$ |
191.0 |
|
$ |
97.2 |
|
$ |
26.0 |
|
$ |
(120.4 |
) |
$ |
193.8 |
|
Equity in earnings of subsidiaries |
|
(104.7 |
) |
(16.8 |
) |
|
|
120.4 |
|
(1.1 |
) | |||||
Adjustments to reconcile net income to cash provided by (used in) operating activities |
|
0.4 |
|
(252.3 |
) |
(26.3 |
) |
|
|
(278.2 |
) | |||||
Cash provided by (used in) operating activities |
|
86.7 |
|
(171.9 |
) |
(0.3 |
) |
|
|
(85.5 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property, plant and equipment |
|
(5.9 |
) |
(58.6 |
) |
(1.8 |
) |
|
|
(66.3 |
) | |||||
Net advances to subsidiaries |
|
(243.8 |
) |
|
|
|
|
243.8 |
|
|
| |||||
Other investing activities, net |
|
2.6 |
|
6.9 |
|
0.1 |
|
|
|
9.6 |
| |||||
Cash used in investing activities |
|
(247.1 |
) |
(51.7 |
) |
(1.7 |
) |
243.8 |
|
(56.7 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net borrowings (repayments) of debt |
|
170.0 |
|
(1.1 |
) |
0.8 |
|
|
|
169.7 |
| |||||
Dividends paid |
|
(17.9 |
) |
|
|
|
|
|
|
(17.9 |
) | |||||
Net intercompany borrowings |
|
|
|
238.9 |
|
4.9 |
|
(243.8 |
) |
|
| |||||
Other financing activities, net |
|
9.1 |
|
(1.0 |
) |
|
|
|
|
8.1 |
| |||||
Cash provided by financing activities |
|
161.2 |
|
236.8 |
|
5.7 |
|
(243.8 |
) |
159.9 |
| |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
1.4 |
|
|
|
1.4 |
| |||||
Increase in cash and cash equivalents |
|
0.8 |
|
13.2 |
|
5.1 |
|
|
|
19.1 |
| |||||
Cash and cash equivalents at beginning of year |
|
14.4 |
|
8.0 |
|
50.5 |
|
|
|
72.9 |
| |||||
Cash and cash equivalents at end of period |
|
$ |
15.2 |
|
$ |
21.2 |
|
$ |
55.6 |
|
$ |
|
|
$ |
92.0 |
|
RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Unaudited Consolidating Cash Flow Statement
For the six months ended June 30, 2010
(in millions)
|
|
Parent |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
$ |
106.2 |
|
$ |
48.1 |
|
$ |
8.2 |
|
$ |
(54.7 |
) |
$ |
107.8 |
|
Equity in earnings of subsidiaries |
|
(50.1 |
) |
(5.2 |
) |
|
|
54.7 |
|
(0.6 |
) | |||||
Adjustments to reconcile net income to cash provided by (used in) operating activities |
|
8.8 |
|
(145.3 |
) |
(6.2 |
) |
|
|
(142.7 |
) | |||||
Cash provided by (used in) operating activities |
|
64.9 |
|
(102.4 |
) |
2.0 |
|
|
|
(35.5 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Purchases of property, plant and equipment |
|
(3.1 |
) |
(31.7 |
) |
(4.6 |
) |
|
|
(39.4 |
) | |||||
Net advances to subsidiaries |
|
(126.2 |
) |
|
|
|
|
126.2 |
|
|
| |||||
Other investing activities, net |
|
(5.1 |
) |
4.6 |
|
|
|
5.1 |
|
4.6 |
| |||||
Cash used in investing activities |
|
(134.4 |
) |
(27.1 |
) |
(4.6 |
) |
131.3 |
|
(34.8 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Net borrowings (repayments) of debt |
|
74.0 |
|
(0.4 |
) |
0.5 |
|
|
|
74.1 |
| |||||
Dividends paid |
|
(14.8 |
) |
|
|
|
|
|
|
(14.8 |
) | |||||
Intercompany borrowings |
|
|
|
125.9 |
|
0.3 |
|
(126.2 |
) |
|
| |||||
Other financing activities, net |
|
15.8 |
|
(0.5 |
) |
5.1 |
|
(5.1 |
) |
15.3 |
| |||||
Cash provided by financing activities |
|
75.0 |
|
125.0 |
|
5.9 |
|
(131.3 |
) |
74.6 |
| |||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
0.1 |
|
|
|
0.1 |
| |||||
Increase (decrease) in cash and cash equivalents |
|
5.5 |
|
(4.5 |
) |
3.4 |
|
|
|
4.4 |
| |||||
Cash and cash equivalents at beginning of year |
|
9.0 |
|
6.9 |
|
27.1 |
|
|
|
43.0 |
| |||||
Cash and cash equivalents at end of period |
|
$ |
14.5 |
|
$ |
2.4 |
|
$ |
30.5 |
|
$ |
|
|
$ |
47.4 |
|
RELIANCE STEEL & ALUMINUM CO.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q may contain forward-looking statements relating to future financial results. Actual results may differ materially as a result of factors over which Reliance Steel & Aluminum Co. has no control. These risk factors and additional information are included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
2010 Acquisitions
On December 1, 2010, through our subsidiary American Metals Corporation, we acquired all of the outstanding capital stock of Lampros Steel, Inc. (LSI) and a related interest in Lampros Steel Plate Distribution, LLC (LSPD). LSI specializes in structural steel shapes with a facility located in Portland, Oregon. LSPD owned a 50% interest in an unconsolidated partnership, LSI Plate, that is a distributor of carbon steel plate with locations in California and Oregon. Effective March 2011, the business conducted by LSI Plate was moved to LSI in order to achieve certain operational efficiencies. Net sales of LSI during the six months ended June 30, 2011 were approximately $17.4 million.
On October 1, 2010, we acquired all of the outstanding capital stock of Diamond Consolidated Industries, Inc. and affiliated companies (Diamond), which now operate under the corporate name Diamond Manufacturing Company. The operating divisions consist of Diamond Manufacturing Company located in Wyoming, Pennsylvania and Diamond Manufacturing Midwest in Michigan City, Indiana, both of which specialize in the manufacture and sale of specialty engineered perforated materials; Perforated Metals Plus, a distributor of perforated metals located in Charlotte, North Carolina; and Dependable Punch, a manufacturer of custom punches for tools and dies also located in Wyoming, Pennsylvania. This acquisition expanded our product and processing offerings with the addition of perforated metals. An operating division of Diamond was opened near Dallas, Texas in early 2011 to expand Diamonds geographic reach. Net sales of Diamond during the six months ended June 30, 2011 were approximately $51.8 million.
2011 Acquisitions
Effective August 1, 2011, we acquired all of the outstanding capital securities of Continental Alloys & Services, Inc. (Continental), headquartered in Houston, Texas, and certain affiliated companies, for a total transaction value of approximately $415 million, net of cash acquired and subject to certain adjustments. Continental and its affiliates combined form a leading global materials management company focused on high-end steel and alloy pipe, tube and bar products and precision manufacturing of various tools designed for well completion programs of global energy service companies and have 12 locations in seven countries including the United States, Canada, United Kingdom, Singapore, Malaysia, Dubai and Mexico. Continental and its affiliates had unaudited combined net sales of approximately $196.0 million for the six months ended June 30, 2011. There is no impact of this acquisition on our June 30, 2011 financial results.
Three Months and Six Months Ended June 30, 2011 Compared to Three Months and Six Months Ended June 30, 2010
The following table sets forth certain income statement data for the three-month and six-month periods ended June 30, 2011 and 2010 (dollars are shown in millions and certain amounts may not calculate due to rounding):
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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% of |
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% of |
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% of |
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% of |
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$ |
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Net Sales |
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$ |
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Net Sales |
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$ |
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Net Sales |
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$ |
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Net Sales |
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Net sales |
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$ |
2,049.5 |
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100.0 |
% |
$ |
1,620.6 |
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100.0 |
% |
$ |
3,962.2 |
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100.0 |
% |
$ |
3,074.7 |
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100.0 |
% |
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Cost of sales (exclusive of depreciation and amortization expense shown below) |
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1,538.7 |
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75.1 |
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1,203.8 |
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74.3 |
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2,945.1 |
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74.3 |
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2,279.8 |
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74.1 |
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Gross profit (1) |
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510.8 |
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24.9 |
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416.8 |
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25.7 |
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1,017.1 |
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25.7 |
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794.9 |
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25.9 |
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S,G&A expenses |
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313.7 |
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15.3 |
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272.2 |
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16.8 |
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632.2 |
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16.0 |
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541.4 |
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17.6 |
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Depreciation expense |
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23.6 |
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1.2 |
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22.7 |
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1.4 |
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48.7 |
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1.2 |
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44.6 |
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1.5 |
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Amortization expense |
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7.9 |
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0.4 |
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7.3 |
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0.5 |
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15.8 |
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0.4 |
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14.5 |
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0.5 |
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Operating income |
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$ |
165.6 |
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8.1 |
% |
$ |
114.6 |
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7.1 |
% |
$ |
320.4 |
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8.1 |
% |
$ |
194.4 |
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6.3 |
% |
(1) Gross profit, calculated as Net sales less Cost of sales, and Gross profit margin, calculated as Gross profit divided by Net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales. The majority of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform first-stage processing, which is generally not labor intensive as we are simply cutting the metal to size. Because of this, the amount of related labor and overhead, including depreciation and amortization, are not significant and are excluded from our Cost of sales. Therefore, our Cost of sales is primarily comprised of the cost of the material we sell. The Company uses Gross profit and Gross profit margin as shown above as measures of operating performance. Gross profit and Gross profit margin are important operating and financial measures, as fluctuations in our Gross profit and Gross profit margin can have a significant impact on our earnings. Gross profit and Gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies.
Net Sales
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June 30, |
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Dollar |
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Percentage |
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2011 |
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2010 |
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Change |
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Change |
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Net sales (three months ended) |
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$ |
2,049.5 |
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$ |
1,620.6 |
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$ |
428.9 |
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26.5 |
% |
Net sales (six months ended) |
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$ |
3,962.2 |
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$ |
3,074.7 |
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$ |
887.5 |
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28.9 |
% |
Net sales, same-store (three months ended) |
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$ |
2,011.7 |
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$ |
1,620.6 |
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$ |
391.1 |
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24.1 |
% |
Net sales, same-store (six months ended) |
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$ |
3,893.0 |
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$ |
3,074.7 |
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$ |
818.3 |
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26.6 |
% |
The three- and six-month periods ended June 30, 2011 included increases of 9.6% and 10.9% in our tons sold and increases of 15.8% and 16.6% in our average selling price per ton sold, respectively. (Tons sold and average selling price per ton sold amounts exclude our toll processing sales.) On a same-store basis, our three- and six-month periods ended June 30, 2011 include increases in our tons sold of 7.8% and 9.3% and increases in our average selling price per ton sold of 15.6% and 16.4%, respectively, compared to the same periods in 2010.
We have continued to see steady improvement in our tons sold in 2011, most notably in March 2011, when we had our highest monthly tons shipped per day since November 2008. During the 2011 first quarter, when the mills were announcing price increases our customers bought a little more than needed and when the mills announced declining prices during the 2011 second quarter, customers reduced their buying. Business activity in most all of our markets is better in 2011 than in the same periods in 2010. In 2011 our strongest markets have been energy, oil and gas, aerospace, farm and heavy equipment, mining, general manufacturing and semiconductor and electronics. Non-residential construction, our largest end market, continues to be our weakest, however, we have seen some improvements in demand so far in 2011 for certain non-residential construction related products in certain areas around the country.
As a result of increased mill prices, most of the products we sell had higher average selling prices during the three-month period ended June 30, 2011 compared to the same period in 2010. Our major commodity selling prices increased during the three-month period ended June 30, 2011 from the same period in 2010 as follows: carbon steel up 19.7%; aluminum up 7.1%; stainless steel up 15.4%; and alloy up 12.3%. Our selling prices for the 2011 six-month period trended similarly compared to the same period in 2010: carbon steel up 20.2%; aluminum up 6.4%; stainless up 17.2%;
and alloy up 11.4%. The 2011 mill price increases have primarily been due to rises in scrap and other input costs at the mills, in addition to modest improvements in end-use demand.
Cost of Sales
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June 30, |
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2011 |
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2010 |
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$ |
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% of |
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$ |
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% of |
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Dollar |
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Percentage |
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Cost of sales (three months ended) |
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$ |
1,538.7 |
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75.1 |
% |
$ |
1,203.8 |
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74.3 |
% |
$ |
334.9 |
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27.8 |
% |
Cost of sales (six months ended) |
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$ |
2,945.1 |
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74.3 |
% |
$ |
2,279.8 |
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74.1 |
% |
$ |
665.3 |
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29.2 |
% |
The increases in cost of sales in the three- and six-month periods ended June 30, 2011 are due to increases in tons sold as well as increased costs for most products we sell from the same period in 2010 (see Net Sales above for trends in both demand and costs of our products).
Our LIFO reserve adjustment, which is included in our cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a charge, or expense, of $25.0 million in the three-month period ended June 30, 2011 compared to a charge, or expense, of $10.0 million in the same period in 2010. Our LIFO reserve adjustment in the 2011 six-month period resulted in a charge, or expense, of $45.0 million compared to a charge, or expense, of $15.0 million in the 2010 six-month period.
We currently estimate our full year 2011 LIFO adjustment to be a charge, or expense, of $90.0 million as we expect that both our quantities and our average cost of inventory at December 31, 2011 will be higher than at December 31, 2010.
Gross Profit
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June 30, |
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2011 |
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2010 |
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$ |
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% of |
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$ |
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% of |
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Dollar |
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Percentage |
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Gross profit (three months ended) |
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$ |
510.8 |
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24.9 |
% |
$ |
416.8 |
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25.7 |
% |
$ |
94.0 |
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22.6 |
% |
Gross profit (six months ended) |
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$ |
1,017.1 |
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25.7 |
% |
$ |
794.9 |
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25.9 |
% |
$ |
222.2 |
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28.0 |
% |
Our three-month period ended June 30, 2011 gross profit margin decreased slightly compared to the same period in 2010 due to softening mill pricing announcements, which we experienced throughout the 2011 three-month period. This type of pricing environment puts negative pressure on our gross profit margins as we may have to lower our selling prices prior to receiving the lower cost inventory on hand. In the 2010 three- and six-month periods as well as the 2011 first quarter, increases in mill prices supported our increased selling prices, resulting in slightly higher gross profit margins in those periods. See also Cost of Sales above for discussion of our LIFO reserve adjustments.
Expenses
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