RELIANCE STEEL & ALUMINUM CO - Quarter Report: 2012 March (Form 10-Q)

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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 March 31, 2012

 

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)

 

 

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:

 

 

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 April 30, 2012, 75,135,657 shares of the registrant’s common stock, no par value, were outstanding.

 

 

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RELIANCE STEEL & ALUMINUM CO.

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

PART I — FINANCIAL INFORMATION			1
	Item 1.	Unaudited Consolidated Balance Sheets at March 31, 2012 and December 31, 2011	1
		Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011	2
		Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011	3
		Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011	4
		Notes to Unaudited Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
	Item 4.	Controls and Procedures	23
PART II — OTHER INFORMATION			24
	Item 1A.	Risk Factors	24
	Item 6.	Exhibits	24
SIGNATURES			25
EXHIBIT INDEX			26

 

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PART I — FINANCIAL INFORMATION

 

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

		March 31, 2012			December 31, 2011*
ASSETS
Current assets:
Cash and cash equivalents		$	70.0		$	84.6
Accounts receivable, less allowance for doubtful accounts of $23.3 at March 31, 2012 and $22.2 at December 31, 2011		1,044.2			896.2
Inventories		1,399.4			1,212.8
Prepaid expenses and other current assets		38.9			47.8
Deferred income taxes		33.4			33.3
Total current assets		2,585.9			2,274.7
Property, plant and equipment:
Land		147.5			145.8
Buildings		660.9			656.8
Machinery and equipment		1,013.9			982.9
Accumulated depreciation		(701.7		)	(680.0		)
		1,120.6			1,105.5
Goodwill		1,249.6			1,244.3
Intangible assets, net		890.9			895.9
Cash surrender value of life insurance policies, net		40.3			41.9
Investments in unconsolidated entities		16.4			16.2
Other assets		28.1			27.4
Total assets		$	5,931.8		$	5,605.9
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	433.7		$	335.2
Accrued expenses		62.6			54.0
Accrued compensation and retirement costs		73.6			111.0
Accrued insurance costs		44.1			42.1
Current maturities of long-term debt and short-term borrowings		12.1			12.2
Income taxes payable		49.6			21.9
Total current liabilities		675.7			576.4
Long-term debt		1,419.0			1,319.0
Long-term retirement costs		91.5			88.6
Other long-term liabilities		29.0			30.1
Deferred income taxes		442.1			439.8
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 — 75,122,110 at March 31, 2012 and 75,007,694 at December 31, 2011, stated capital		666.6			657.1
Retained earnings		2,599.8			2,495.6
Accumulated other comprehensive loss		(1.0		)	(8.8		)
Total Reliance shareholders’ equity		3,265.4			3,143.9
Noncontrolling interests		9.1			8.1
Total equity		3,274.5			3,152.0
Total liabilities and equity		$	5,931.8		$	5,605.9

 

* Amounts were derived from audited financial statements.

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)

 

		Three Months Ended
		March 31,
		2012			2011
Net sales		$	2,288.3		$	1,912.7
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		1,710.5			1,406.4
Warehouse, delivery, selling, general and administrative		357.7			318.5
Depreciation and amortization		35.5			33.0
		2,103.7			1,757.9
Operating income		184.6			154.8
Other income (expense):
Interest		(14.5		)	(14.6		)
Other income, net		6.5			0.2
Income before income taxes		176.6			140.4
Income tax provision		58.7			46.8
Net income		117.9			93.6
Less: Net income attributable to noncontrolling interests		1.7			1.3
Net income attributable to Reliance		$	116.2		$	92.3
Earnings per share:
Diluted earnings per common share attributable to Reliance shareholders		$	1.54		$	1.23
Basic earnings per common share attributable to Reliance shareholders		$	1.55		$	1.24
Cash dividends per share		$	0.15		$	0.12

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

 

		Three Months Ended
		March 31,
		2012			2011
Net income		$	117.9		$	93.6
Other comprehensive income:
Foreign currency translation gain		7.6			6.6
Unrealized gain on investments, net of tax		0.2			0.1
Total other comprehensive income		7.8			6.7
Comprehensive income		125.7			100.3
Less: comprehensive income attributable to noncontrolling interests		(1.7		)	(1.3		)
Comprehensive income attributable to Reliance		$	124.0		$	99.0

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

UNUAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

		Three Months Ended March 31,
		2012			2011
Operating activities:
Net income		$	117.9		$	93.6
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization expense		35.5			33.0
Deferred income tax benefit		(1.2		)	(1.2		)
Gain on sales of property, plant and equipment		(0.1		)	¾
Equity in earnings of unconsolidated entities		(0.5		)	(0.7		)
Dividends received from unconsolidated entities		0.3			0.3
Share-based compensation expense		4.9			4.8
Tax deficit from share-based compensation		0.1			¾
Net (gain) loss from life insurance policies		(1.2		)	1.6
Changes in operating assets and liabilities (excluding effect of business acquired):
Accounts receivable		(143.6		)	(215.1		)
Inventories		(182.2		)	(228.2		)
Prepaid expenses and other assets		9.0			34.6
Accounts payable and other liabilities		97.9			175.9
Net cash used in operating activities		(63.2		)	(101.4		)
Investing activities:
Purchases of property, plant and equipment		(34.6		)	(35.8		)
Acquisition of a metals service center, net of cash acquired		(10.0		)	¾
Proceeds from sales of property, plant and equipment		0.2			0.9
Net proceeds from redemption of life insurance policies		2.8			0.1
Net cash used in investing activities		(41.6		)	(34.8		)
Financing activities:
Net short-term debt repayments		(0.4		)	¾
Proceeds from long-term debt borrowings		221.0			197.0
Principal payments on long-term debt		(122.2		)	(52.0		)
Payments to noncontrolling interest holders		(0.7		)	(0.8		)
Dividends paid		(11.2		)	(9.0		)
Tax deficit from share-based compensation		(0.1		)	¾
Exercise of stock options		4.6			3.9
Net cash provided by financing activities		91.0			139.1
Effect of exchange rate changes on cash		(0.8		)	1.0
(Decrease) increase in cash and cash equivalents		(14.6		)	3.9
Cash and cash equivalents at beginning of year		84.6			72.9
Cash and cash equivalents at end of period		$	70.0		$	76.8
Supplemental cash flow information:
Interest paid during the period		$	5.2		$	2.9
Income taxes paid during the period		$	32.6		$	4.2

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.  Basis of Presentation

 

Principles of Consolidation

 

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 three months ended March 31, 2012 are not necessarily indicative of the results for the full year ending December 31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2011, 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 our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

 

Our 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. Our 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, 2012, we adopted changes issued by the Financial Accounting Standards Board (“FASB”), 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. We elected to adopt the two-statement option. The new guidance eliminated the option to present the components of other comprehensive income as part of the statement of equity. Other than the change in presentation, the adoption of these changes had no material impact on our consolidated financial statements. The new guidance also required entities to present reclassification adjustments from accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. However, in December 2011, the FASB issued guidance which indefinitely defers the guidance related to the presentation of reclassification adjustments.

 

On January 1, 2012, we adopted changes issued by the FASB to provide a consistent definition of fair value and to ensure that the fair value measurement and disclosure requirements are similar between U.S. generally accepted accounting principles and International Financial Reporting Standards. The new guidance changed certain fair value measurement principles and enhanced the disclosure requirements particularly for level 3 fair value measurements. The adoption of these changes did not have a material impact on our consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3.  Acquisitions

 

2012 Acquisition

 

Effective February 1, 2012, through our wholly-owned subsidiary Diamond Manufacturing Company, we acquired McKey Perforating Co., Inc. (“McKey”), headquartered in New Berlin, Wisconsin and its subsidiary, McKey Perforated Products Co., Inc., located in Manchester, Tennessee. McKey was founded in 1867 and is a contract manufacturer that provides a full range of metal perforating and fabrication services to customers located primarily in the U.S. McKey had net sales of $3.6 million for the two months ended March 31, 2012.

 

2011 Acquisition

 

Effective August 1, 2011, we acquired all the outstanding capital securities of Continental Alloys & Services, Inc. (“Continental”), headquartered in Houston, Texas, and certain affiliated companies for a combined transaction value of approximately $440.8 million.  Continental is 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 has 12 locations in seven countries including Canada, Malaysia, Mexico, Singapore, the U.A.E., the United Kingdom, and the United States.  This acquisition aligns well with our diversification strategy by increasing our exposure to the fast growing energy market, including the addition of Oil Country Tubular Goods (“OCTG”) products, new processing capabilities, and entry into new international markets.  Continental and its affiliates had combined net sales of approximately $125.0 million for the three months ended March 31, 2012.

 

The purchase price allocation for Continental and McKey are preliminary and are pending the completion of various pre- and post-acquisition period income tax returns.

 

4.  Goodwill

 

The change in the carrying amount of goodwill for the three months ended March 31, 2012 is as follows:

 

		(in millions)
Balance as of December 31, 2011		$	1,244.3
Acquisition		3.1
Effect of foreign currency translation		2.2
Balance as of March 31, 2012		$	1,249.6

 

We had no accumulated impairment losses related to goodwill as of March 31, 2012.

 

5.  Intangible Assets, net

 

The following table summarizes our intangible assets, net:

 

		March 31, 2012						December 31, 2011
		Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
		(in millions)
Intangible assets subject to amortization:
Covenants not to compete		$	7.6		$	(7.0	)	$	7.3		$	(6.9	)
Loan fees		31.2			(18.3		)	31.2			(17.6		)
Customer lists/relationships		480.7			(123.6		)	477.7			(114.2		)
Software – internal use		8.1			(4.9		)	8.1			(4.7		)
Other		6.7			(2.2		)	6.6			(2.2		)
		534.3			(156.0		)	530.9			(145.6		)
Intangible assets not subject to amortization:
Trade names		512.6			—			510.6			—
		$	1,046.9		$	(156.0	)	$	1,041.5		$	(145.6	)

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Intangible assets recorded in connection with the McKey acquisition were $2.3 million (see Note 3). We recognized amortization expense for intangible assets of $10.2 million and $7.9 million for the three months ended March 31, 2012 and 2011, respectively. Other changes in intangible assets, net during the three months ended March 31, 2012 are due to foreign currency translation gains of $2.9 million.

 

The following is a summary of estimated aggregated amortization expense for the remaining nine months of 2012 and each of the succeeding five years:

 

		(in millions)
2012		$	30.6
2013		40.7
2014		38.7
2015		37.1
2016		35.4
2017		30.0

 

6.  Income Taxes

 

Our effective income tax rates for the three months ended March 31, 2012 and 2011 were 33.2% and 33.3%, respectively. Permanent items that impacted our effective income tax rates were not materially different in amounts during these periods and relate mainly to company-owned life insurance policies and domestic production activities deductions.

 

7.  Debt

 

Debt consists of the following:

 

		March 31,			December 31,
		2012			2011
		(in millions)
Unsecured revolving credit facility due July 26, 2016		$	745.0		$	645.0
Senior unsecured notes due July 2, 2013		75.0			75.0
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		12.7			12.8
Total		1,432.7			1,332.8
Less: unamortized discount		(1.6		)	(1.6		)
Less: amounts due within one year and short-term borrowings		(12.1		)	(12.2		)
Total long-term debt		$	1,419.0		$	1,319.0

 

Unsecured Revolving Credit Facility

 

On July 26, 2011, we amended and restated the existing syndicated credit agreement to increase the borrowing limit from $1.1 billion to $1.5 billion, and to extend the maturity date of the credit facility for a five-year term to July 26, 2016.  The amended and restated revolving credit facility has 26 banks as lenders. Interest on borrowings from the amended and restated revolving credit facility is at variable rates based on LIBOR plus 1.50% or the bank prime rate plus 0.50% as of March 31, 2012.  The amended and restated revolving credit facility includes a commitment fee on the unused portion, at an annual rate of 0.25% as of March 31, 2012. The applicable margin over LIBOR rate and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined.

 

Weighted average rates on borrowings outstanding on the revolving credit facility were 1.74% and 1.78% as of March 31, 2012 and December 31, 2011, respectively. As of March 31, 2012, we had $35.5 million of letters of credit outstanding under the revolving credit facility with availability to issue an additional $214.5 million of letters of credit.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 $11.6 million and $11.8 million as of March 31, 2012 and December 31, 2011, respectively.

 

Senior Unsecured Notes — Private Placements

 

We have $75.0 million of outstanding senior unsecured notes issued in private placements of debt as of March 31, 2012. At March 31, 2012, the outstanding senior notes bear interest at a fixed rate of 5.35% and have a remaining life of 1.3 years, maturing in July 2013.

 

Senior Unsecured Notes — Publicly Traded

 

On November 20, 2006, we 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 our credit rating, require us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued interest.

 

Covenants

 

The amended and restated revolving credit facility and the senior unsecured note agreements collectively require us 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. Our interest coverage ratio for the twelve-month period ended March 31, 2012 was approximately 10.1 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). Our leverage ratio as of March 31, 2012 calculated in accordance with the terms of the revolving credit facility was 31.0% 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 March 31, 2012 was $1.09 billion compared to Reliance shareholders’ equity balance of $3.27 billion as of March 31, 2012.

 

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 our consolidated EBITDA and 80% of consolidated tangible assets. Reliance and the subsidiary guarantors accounted for approximately 86% of our total consolidated EBITDA for the last twelve months and approximately 89% of total consolidated tangible assets as of March 31, 2012.

 

We were in compliance with all debt covenants as of March 31, 2012.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

8.  Equity

 

Common Stock

 

During the three months ended March 31, 2012, we issued 114,416 shares of common stock in connection with the exercise of stock options for total proceeds of approximately $4.6 million.

 

Share Based Compensation

 

On March 16, 2012, we granted 391,050 restricted stock units (“RSUs”) to key employees pursuant to the Amended and Restated Stock Option and Restricted Stock Plan. Each RSU has a service condition and cliff vests at December 31, 2014 and consists of the right to receive one share of our common stock and dividend equivalent rights, subject to forfeiture, equal to the accrued cash or stock dividends where the record date for such dividends is after the grant date but before the shares vest.  In addition to the service criteria, 138,700 of the RSUs also have performance goals and vest only upon the satisfaction of the service and performance criteria.  The fair value of the restricted stock units granted was $57.42 per share, determined based on the closing price of our common stock on the grant date.

 

Share Repurchase Program

 

As of March 31, 2012, 7,883,033 shares of common stock remain authorized for repurchase under our stock repurchase program. No shares were repurchased in 2012 or 2011. Repurchased shares are redeemed and treated as authorized but unissued shares.

 

Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss included the following:

 

		March 31,			December 31,
		2012			2011
		(in millions)
Foreign currency translation gain		$	18.0		$	10.4
Unrealized loss on investments, net of tax		(0.2		)	(0.4		)
Minimum pension liability, net of tax		(18.8		)	(18.8		)
Total accumulated other comprehensive loss		$	(1.0	)	$	(8.8	)

 

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 $11.5 million, respectively, as of March 31, 2012 and December 31, 2011.

 

9.  Commitments and Contingencies

 

We are currently involved with certain environmental remediation projects related to activities at former manufacturing operations of our wholly-owned subsidiary Earle M. Jorgensen Company (“EMJ”) that were sold many years prior to our 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. We do not expect that these obligations will have a material adverse impact on our financial position, results of operations or cash flows.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 March 31,
		2012			2011
		(in millions except for share and per share amounts)
Numerator:
Net income attributable to Reliance		$	116.2		$	92.3
Denominator:
Denominator for basic earnings per share — Weighted average shares		74,922,487			74,619,804
Effect of dilutive securities:
Stock options and restricted stock		504,065			404,062
Denominator for dilutive earnings per share:
Adjusted weighted average shares and assumed conversions		75,426,552			75,023,866
Net income per share attributable to Reliance shareholders — diluted		$	1.54		$	1.23
Net income per share attributable to Reliance shareholders — basic		$	1.55		$	1.24

 

The computations of earnings per share for the three months ended March 31, 2012 and 2011 do not include 2,475,395 and 3,098,100 shares reserved for issuance upon exercise of stock options or vesting of restricted shares, respectively, because their inclusion would have been anti-dilutive.

 

11. Subsequent Events

 

Effective April, 27, 2012, through our wholly-owned subsidiary Precision Strip, Inc., we acquired the assets of the Worthington Steel Vonore, Tennessee plant, a processing facility owned by Worthington Industries, Inc.  The Vonore plant operates as a Precision Strip, Inc. location which processes and delivers carbon steel, aluminum and stainless steel products on a “toll” basis, processing the metal for a fee without taking ownership of the metal.

 

Effective April 4, 2012, we acquired all the outstanding limited liability company interests of National Specialty Alloys, LLC (“NSA”), a global specialty alloy processor and distributor of premium stainless steel and nickel alloy bars and shapes, headquartered in Houston, Texas. NSA was founded in 1985 and has additional locations in Anaheim, California, Buford, Georgia and Tulsa, Oklahoma. Net sales of NSA for the twelve months ended October 31, 2011 were approximately $96.0 million.

 

We funded these acquisitions with borrowings of approximately $101.9 million on our revolving credit facility.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

12. Condensed Consolidating Financial Statements

 

In November 2006, we issued senior unsecured notes in the aggregate principal amount of $600 million at fixed interest rates that are guaranteed by our 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 our ability 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.

 

Condensed Unaudited Consolidating Balance Sheet
As of March 31, 2012

(in millions)

 

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents		$	15.0		$	11.3		$	43.7		$	—		$	70.0
Accounts receivable, less allowance for doubtful accounts		84.0			860.0			100.2			—			1,044.2
Inventories		57.1			1,173.2			169.1			—			1,399.4
Intercompany receivables		0.4			12.4			2.2			(15.0		)	—
Other current assets		123.1			28.3			9.9			(89.0		)	72.3
Total current assets		279.6			2,085.2			325.1			(104.0		)	2,585.9
Investments in subsidiaries		3,292.2			292.5			—			(3,584.7		)	—
Property, plant and equipment, net		99.9			943.7			77.0			—			1,120.6
Goodwill		23.8			1,119.0			106.8			—			1,249.6
Intangible assets, net		12.9			742.4			135.6			—			890.9
Intercompany receivables		1,342.4			36.6			—			(1,379.0		)	—
Other assets		14.4			68.7			1.7			—			84.8
Total assets		$	5,065.2		$	5,288.1		$	646.2		$	(5,067.7	)	$	5,931.8
Liabilities & Equity
Accounts payable		$	40.3		$	355.2		$	53.2		$	(15.0	)	$	433.7
Accrued compensation and retirement costs		9.7			58.4			5.5			—			73.6
Other current liabilities		60.0			98.4			11.9			(14.0		)	156.3
Deferred income taxes		—			75.0			—			(75.0		)	—
Current maturities of long-term debt and short-term borrowings		0.3			0.2			11.6			—			12.1
Total current liabilities		110.3			587.2			82.2			(104.0		)	675.7
Long-term debt		1,419.0			—			—			—			1,419.0
Intercompany borrowings		—			1,214.4			164.6			(1,379.0		)	—
Other long-term liabilities		270.5			267.7			24.4			—			562.6
Total Reliance shareholders’ equity		3,265.4			3,213.6			371.1			(3,584.7		)	3,265.4
Noncontrolling interests		—			5.2			3.9			—			9.1
Total equity		3,265.4			3,218.8			375.0			(3,584.7		)	3,274.5
Total liabilities and equity		$	5,065.2		$	5,288.1		$	646.2		$	(5,067.7	)	$	5,931.8

 

11

Table of Contents

 

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Consolidating Balance Sheet
As of December 31, 2011

(in millions)

 

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Assets
Cash and cash equivalents		$	15.1		$	10.8		$	58.7		$	—		$	84.6
Accounts receivable, less allowance for doubtful accounts		69.6			739.1			87.5			—			896.2
Inventories		43.7			1,017.4			151.7			—			1,212.8
Intercompany receivables		0.3			11.6			0.9			(12.8		)	—
Other current assets		108.7			28.0			7.5			(63.1		)	81.1
Total current assets		237.4			1,806.9			306.3			(75.9		)	2,274.7
Investments in subsidiaries		3,217.0			273.9			—			(3,490.9		)	—
Property, plant and equipment, net		100.0			931.5			74.0			—			1,105.5
Goodwill		23.8			1,115.7			104.8			—			1,244.3
Intangible assets, net		13.6			748.0			134.3			—			895.9
Intercompany receivables		1,229.9			35.9			—			(1,265.8		)	—
Other assets		13.7			70.0			1.8			—			85.5
Total assets		$	4,835.4		$	4,981.9		$	621.2		$	(4,832.6	)	$	5,605.9
Liabilities & Equity
Accounts payable		$	31.2		$	270.6		$	46.2		$	(12.8	)	$	335.2
Accrued compensation and retirement costs		22.0			81.4			7.6			—			111.0
Other current liabilities		49.3			41.4			15.4			11.9			118.0
Deferred income taxes		—			75.0			—			(75.0		)	—
Current maturities of long-term debt and short-term borrowings		0.2			0.2			11.8			—			12.2
Total current liabilities		102.7			468.6			81.0			(75.9		)	576.4
Long-term debt		1,319.0			—			—			—			1,319.0
Intercompany borrowings		—			1,097.2			168.6			(1,265.8		)	—
Other long-term liabilities		269.8			264.9			23.8			—			558.5
Total Reliance shareholders’ equity		3,143.9			3,146.8			344.1			(3,490.9		)	3,143.9
Noncontrolling interests		—			4.4			3.7			—			8.1
Total equity		3,143.9			3,151.2			347.8			(3,490.9		)	3,152.0
Total liabilities and equity		$	4,835.4		$	4,981.9		$	621.2		$	(4,832.6	)	$	5,605.9

 

12

Table of Contents

 

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Condensed Unaudited Consolidating Statement of Income
For the three months ended March 31, 2012
(in millions)

 

		Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales		$	192.7		$	1,972.1		$	191.6		$	(68.1	)	$	2,288.3
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		153.7			1,487.8			137.2			(68.2		)	1,710.5
Warehouse, delivery, selling, general and administrative		15.0			344.4			24.8			(26.5		)	357.7
Depreciation and amortization		3.5			29.2			2.8			—			35.5
		172.2			1,861.4			164.8			(94.7		)	2,103.7
Operating income		20.5			110.7			26.8			26.6			184.6
Other income (expense):
Interest		(14.4		)	(3.9		)	(0.7		)	4.5			(14.5		)
Other income, net		33.9			2.7			1.0			(31.1		)	6.5
Income before equity in earnings of subsidiaries and income taxes		40.0			109.5			27.1			—			176.6
Equity in earnings of subsidiaries		68.0			9.9			—			(77.9		)	—
Income before income taxes		108.0			119.4			27.1			(77.9		)	176.6
Income tax (benefit) provision		(8.2		)	62.2			4.7			—			58.7
Net income		116.2			57.2			22.4			(77.9		)	117.9
Less: Net income attributable to noncontrolling interests		—			1.5			0.2			—			1.7
Net income attributable to Reliance		$	116.2		$	55.7		$	22.2		$	(77.9	)	$	116.2

 

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