RELIANCE STEEL & ALUMINUM CO - Quarter Report: 2013 June (Form 10-Q)

Table of Contents

 

 

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, 2013

 

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  þ  No  ¨

 

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  þ  No  ¨

 

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 þ

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 Exchange Act).

Yes  ¨  No  þ

 

As of July 31, 2013, 76,994,489 shares of the registrant’s common stock, no par value, were outstanding.

 

 

 

Table of Contents

 

RELIANCE STEEL & ALUMINUM CO.

TABLE OF CONTENTS

 

PART I -- FINANCIAL INFORMATION		1
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets at June 30, 2013 and December 31, 2012	1
	Unaudited Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2013 and 2012	2
	Unaudited Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2013 and 2012	3
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II -- OTHER INFORMATION		29
Item 1A.	Risk Factors	29
Item 6.	Exhibits	29
SIGNATURES		30
EXHIBIT INDEX		31

 

 

 

Table of Contents

 

PART I -- FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

 

ASSETS
			June 30, 2013					December 31, 2012*
Current assets:
Cash and cash equivalents			$	100.8				$	97.6
Accounts receivable, less allowance for doubtful accounts of $22.9 at June 30, 2013 and $20.5 at December 31, 2012			1,143.5					807.7
Inventories			1,587.1					1,272.3
Prepaid expenses and other current assets			47.7					40.9
Income taxes receivable			17.6					28.4
Deferred income taxes			35.8					30.5
Total current assets			2,932.5					2,277.4
Property, plant and equipment:
Land			170.8					155.6
Buildings			925.5					725.1
Machinery and equipment			1,305.0					1,124.7
Accumulated depreciation			(815.0		)			(764.7		)
			1,586.3					1,240.7
Goodwill			1,658.8					1,314.6
Intangible assets, net			1,313.9					936.5
Cash surrender value of life insurance policies, net			38.6					45.2
Investments in unconsolidated entities			16.0					15.5
Other assets			29.5					27.8
Total assets			$	7,575.6				$	5,857.7
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	419.3				$	255.6
Accrued expenses			97.4					87.4
Accrued compensation and retirement costs			98.6					112.8
Accrued insurance costs			46.9					38.8
Current maturities of long-term debt and short-term borrowings			114.6					83.6
Total current liabilities			776.8					578.2
Long-term debt			2,219.9					1,123.8
Long-term retirement costs			100.9					94.9
Other long-term liabilities			34.1					27.1
Deferred income taxes			721.1					466.3
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 — 200,000,000
Issued and outstanding shares — 76,920,713 at June 30, 2013 and 76,042,546 at December 31, 2012, stated capital			779.1					722.2
Retained earnings			2,955.6					2,837.7
Accumulated other comprehensive loss			(21.2		)			(1.5		)
Total Reliance shareholders’ equity			3,713.5					3,558.4
Noncontrolling interests			9.3					9.0
Total equity			3,722.8					3,567.4
Total liabilities and equity			$	7,575.6				$	5,857.7

 

* 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										Six Months
			Ended June 30,										Ended June 30,
			2013					2012					2013					2012
Net sales			$	2,448.3				$	2,209.7				$	4,473.6				$	4,498.0
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			1,826.7					1,640.3					3,323.2					3,350.8
Warehouse, delivery, selling, general and administrative			426.0					346.7					783.7					704.4
Depreciation and amortization			50.1					36.5					91.2					72.0
			2,302.8					2,023.5					4,198.1					4,127.2
Operating income			145.5					186.2					275.5					370.8
Other income (expense):
Interest			(22.1		)			(15.0		)			(35.2		)			(29.5		)
Other (expense) income, net			(0.6		)			(3.5		)			2.3					3.0
Income before income taxes			122.8					167.7					242.6					344.3
Income tax provision			40.9					57.5					76.2					116.2
Net income			81.9					110.2					166.4					228.1
Less: Net income attributable to noncontrolling interests			0.9					1.4					1.7					3.1
Net income attributable to Reliance			$	81.0				$	108.8				$	164.7				$	225.0
Earnings per share:
Diluted earnings per common share attributable to Reliance shareholders			$	1.05				$	1.44				$	2.13				$	2.98
Basic earnings per common share attributable to Reliance shareholders			$	1.06				$	1.45				$	2.15				$	3.00
Cash dividends per share			$	0.30				$	0.15				$	0.60				$	0.30

 

 

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 June 30,										Six Months Ended June 30,
			2013					2012					2013					2012
Net income			$	81.9				$	110.2				$	166.4				$	228.1
Other comprehensive loss:
Foreign currency translation loss			(9.8		)			(9.2		)			(19.9		)			(1.6		)
Unrealized (loss) gain on investments, net of tax			—					(0.2		)			0.2					—
Total other comprehensive loss			(9.8		)			(9.4		)			(19.7		)			(1.6		)
Comprehensive income			72.1					100.8					146.7					226.5
Less: Comprehensive income attributable to noncontrolling interests			0.9					1.4					1.7					3.1
Comprehensive income attributable to Reliance			$	71.2				$	99.4				$	145.0				$	223.4

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

			Six Months Ended  June 30,
			2013					2012
Operating activities:
Net income			$	166.4				$	228.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense			91.2					72.0
Deferred income tax provision (benefit)			0.6					(2.5		)
Loss (gain) on sales of property, plant and equipment			1.0					(0.2		)
Equity in earnings of unconsolidated entities			(0.9		)			(1.1		)
Dividends received from unconsolidated entities			0.4					0.6
Share-based compensation expense			14.5					11.5
Other			(0.5		)			0.8
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable			(133.2		)			(98.6		)
Inventories			62.8					(183.4		)
Prepaid expenses and other assets			11.3					8.8
Accounts payable and other liabilities			70.3					(14.8		)
Net cash provided by operating activities			283.9					21.2
Investing activities:
Purchases of property, plant and equipment			(74.3		)			(86.8		)
Acquisitions, net of cash acquired			(794.7		)			(82.3		)
Proceeds from sales of property, plant and equipment			0.8					2.8
Net proceeds from redemptions of life insurance policies			6.9					0.7
Other			0.8					(1.7		)
Net cash used in investing activities			(860.5		)			(167.3		)
Financing activities:
Net short-term debt repayments			(469.3		)			(29.4		)
Proceeds from long-term debt borrowings			2,257.9					458.0
Principal payments on long-term debt			(1,191.6		)			(259.5		)
Debt issuance costs			(10.3		)			¾
Payments to noncontrolling interest holders			(1.4		)			(1.4		)
Dividends paid			(46.0		)			(22.5		)
Tax (deficit) benefit from share-based compensation			(0.3		)			0.2
Exercise of stock options			42.4					9.7
Net cash provided by financing activities			581.4					155.1
Effect of exchange rate changes on cash			(1.6		)			¾
Increase in cash and cash equivalents			3.2					9.0
Cash and cash equivalents at beginning of year			97.6					84.6
Cash and cash equivalents at end of period			$	100.8				$	93.6
Supplemental cash flow information:
Interest paid during the period			$	29.9				$	29.0
Income taxes paid during the period			$	65.7				$	142.4
Non-cash investing and financing activities:
Debt assumed in connection with acquisitions			$	529.9				$	29.5

 

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

 

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 six months ended June 30, 2013 are not necessarily indicative of the results for the full year ending December 31, 2013. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2012, included in Reliance Steel & Aluminum Co.’s (“Reliance”, the “Company”, “we”, “our” or “us”) 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, 2013, we adopted changes issued by the Financial Accounting Standards Board (“FASB”), which require additional disclosures for the reclassification of significant amounts from accumulated comprehensive income to net income. This guidance requires that the effect of certain significant amounts be presented either on the face of the consolidated statements of income or in a single note. For other amounts, we are required to cross-reference disclosures that provide additional detail about those amounts.  The adoption of these changes did not have a material impact on our consolidated financial statements.

 

3.  Acquisitions

 

2013 Acquisitions

 

On April 30, 2013, we acquired Travel Main Holdings, LLC (“Travel Main”), a real estate holding company with a portfolio of 18 real estate properties, all of which are leased by certain of our subsidiaries. The transaction value of $75.6 million included the assumption of $43.8 million of net indebtedness. The cash portion of the purchase price was funded with borrowings on our revolving credit facility.

 

On April 12, 2013, we acquired all the outstanding shares of Metals USA Holdings Corp. (“Metals USA”) for $20.65 per share in cash, pursuant to which Metals USA has become a wholly owned subsidiary. Metals USA is one of the largest metal service center businesses in the United States and a leading provider of value-added processed aluminum, brass, copper, carbon steel, stainless steel, manufactured metal components and inventory management services. Metals USA sells its products and services to a diverse customer base and broad range of end markets, including the aerospace, auto, defense, heavy equipment, marine transportation, commercial construction, office furniture manufacturing, energy and oilfield service industries, among several others.  This acquisition adds a total of 48 service centers strategically located throughout the United States to our existing operations and complements our existing customer base, product mix and geographic footprint. Net sales of Metals USA during the period from April 13, 2013 through June 30, 2013 were $396.5 million.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

 

The purchase price for Metals USA of $766.8 million along with assumed debt of $486.1 million represents a total transaction value of approximately $1.25 billion. We funded the transaction and refinanced all but $12.3 million of Metals USA’s debt with proceeds from our new $500.0 million term loan and our $500.0 million senior notes offering, with the balance drawn on our existing $1.5 billion credit facility (see Note 7).  In the six-month period ended June 30, 2013, we incurred approximately $11.4 million in transaction related costs, which are included in warehouse, delivery, selling, general and administrative expenses.

 

The preliminary allocation of the total purchase price of Metals USA to the fair values of assets acquired and liabilities assumed is as follows:

 

 

2012 Acquisitions

 

Effective October 1, 2012, through our wholly owned subsidiary Feralloy Corporation (“Feralloy”), we acquired all the outstanding capital stock of GH Metal Solutions, Inc. (formerly known as The Gas House, Inc.) (“GH”), a value added processor and fabricator of carbon steel products located in Fort Payne, Alabama that will allow Feralloy to better serve the increasing demands of its diverse customer base.  GH operates as a wholly owned subsidiary of Feralloy and had net sales of $30.6 million for the six months ended June 30, 2013.

 

Effective October 1, 2012, we acquired all the outstanding limited liability company interests of Sunbelt Steel Texas, LLC (“Sunbelt”), a value added distributor of special alloy steel bar and heavy-wall tubing products to the oil and gas industry headquartered in Houston, Texas with an additional location in Lafayette, Louisiana. Sunbelt had net sales of $22.3 million for the six months ended June 30, 2013.

 

On July 6, 2012, we acquired substantially all of the assets of Airport Metals (Australia) Pty Ltd., a subsidiary of Samuel Son & Co., Limited, through our newly-formed subsidiary Bralco Metals (Australia) Pty Ltd. (“Airport Metals”).  Airport Metals, based in Melbourne, operates as a stocking distributor of aircraft materials and supplies. Airport Metals had net sales of $1.6 million for the six months ended June 30, 2013.

 

Effective April, 27, 2012, through our wholly owned subsidiary Precision Strip, Inc. (“PSI”), 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 PSI 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.  The Vonore location had net sales of $1.4 million for the six months ended June 30, 2013.

 

Effective April 3, 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 with additional locations in Anaheim, California; Buford, Georgia; Tulsa, Oklahoma and Mexico City, Mexico. NSA had net sales of $41.6 million for the six months ended June 30, 2013.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

 

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 provides a full range of metal perforating and fabrication services to customers located primarily in the U.S.  McKey had net sales of $10.0 million for the six months ended June 30, 2013.

 

The combined transaction value of our 2012 acquisitions was $226.5 million, which included the assumption and/or repayment of $59.4 million of debt. We funded these acquisitions with borrowings on our revolving credit facility.

 

Purchase price allocation

 

The acquisitions discussed in this note have been accounted for under the acquisition method of accounting and, accordingly, the respective purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of each acquisition.  The accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date.  The consolidated balance sheets reflect the allocation of each acquisition’s purchase price as of June 30, 2013, as applicable.  The purchase price allocations for the 2013 acquisitions are preliminary and are pending the completion of certain purchase price adjustments based on tangible and intangible asset valuations and various pre-acquisition period tax returns.

 

Pro forma financial information

 

The following pro forma summary financial results present the consolidated results of operations as if the acquisition of Metals USA had occurred at the beginning of the reporting period being presented, after the effect of certain adjustments, including interest expense on the acquisition debt, non-recurring acquisition related costs, and amortization of certain identifiable intangible assets. The pro forma summary financial results reflect Metals USA’s historical method for inventory valuation, which was the first-in, first-out (FIFO) method for the majority of its inventories.  Metals USA adopted the last-in, first-out (LIFO) method of inventory valuation upon acquisition.

 

The pro forma results have been presented for comparative purposes only and are not indicative of what would have occurred had the Metals USA acquisition been made as of January 1, 2013 or 2012, or of any potential results which may occur in the future.

 

		Three Months Ended June 30, 2013					Three Months Ended June 30, 2012
		(in millions, except per share amounts)					(in millions, except per share amounts)
Pro forma:
Net sales			$	2,519.2				$	2,746.8
Net income attributable to Reliance			$	84.7				$	125.2
Diluted earnings per common share attributable to Reliance shareholders			$	1.09				$	1.66
Basic earnings per common share attributable to Reliance shareholders			$	1.10				$	1.67

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

 

 

4.  Goodwill

 

The change in the carrying amount of goodwill for the six months ended June 30, 2013 is as follows:

 

 

We had no accumulated impairment losses related to goodwill as of June 30, 2013.

 

5.  Intangible Assets, net

 

The following table summarizes our intangible assets, net:

 

			June 30, 2013										December 31, 2012
			Gross Carrying Amount					Accumulated Amortization					Gross Carrying Amount					Accumulated Amortization
			(in millions)
Intangible assets subject to amortization:
Covenants not to compete			$	7.9				$	(7.1	)			$	8.0				$	(7.1	)
Loan fees			41.4					(22.4		)			31.2					(20.2		)
Customer lists/relationships			701.6					(175.9		)			524.0					(153.3		)
Software – internal use			8.1					(5.9		)			8.1					(5.5		)
Other			2.8					(1.4		)			6.4					(2.5		)
			761.8					(212.7		)			577.7					(188.6		)
Intangible assets not subject to amortization:
Trade names			764.8					—					547.4					—
			$	1,526.6				$	(212.7	)			$	1,125.1				$	(188.6	)

 

Intangible assets recorded in connection with our acquisition of Metals USA were $402.0 million (see Note 3). A total of $220.0 million was allocated to the trade names acquired, none of which is subject to amortization. We also recorded $10.3 million of intangible assets in connection with the amendment of our syndicated credit agreement and the new indenture (see Note 7). We recognized amortization expense for intangible assets of $26.4 million and $20.9 million for the six months ended June 30, 2013 and 2012, respectively.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

 

The following is a summary of estimated aggregated amortization expense for the remaining six months of 2013 and each of the succeeding five years:

 

		(in millions)
2013		$	29.9
2014		57.8
2015		56.2
2016		55.4
2017		51.3
2018		45.1

 

6.  Income Taxes

 

Our effective income tax rates for the three-month periods ended June 30, 2013 and 2012 were 33.3% and 34.3%, respectively. Our effective income tax rates for the six-month periods ended June 30, 2013 and 2012 were 31.4% and 33.7%, respectively. Permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different in amounts during these periods and related mainly to company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at lower rates. Our 2013 six-month period effective income tax rate was favorably impacted by the settlement of certain tax matters.

 

7.  Debt

 

Debt consists of the following:

 

		June 30,					December 31,
		2013					2012
		(in millions)
Unsecured revolving credit facility due April 4, 2018		$	600.0				$	525.0
Senior unsecured term loan due from September 30, 2013 to April 4, 2018		493.8					—
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 April 15, 2023		500.0					—
Senior unsecured notes due November 15, 2036		250.0					250.0
Other notes and revolving credit facilities		69.2					8.9
Total		2,338.0					1,208.9
Less: unamortized discount		(3.5		)			(1.5		)
Less: amounts due within one year and short-term borrowings		(114.6		)			(83.6		)
Total long-term debt		$	2,219.9				$	1,123.8

 

Unsecured Revolving Credit Facility

 

On April 4, 2013, we entered into a syndicated Third Amended and Restated Credit Agreement (“Credit Agreement”) with 26 banks as lenders. The Credit Agreement amends and restates our existing $1.5 billion unsecured revolving credit facility and provides for a $500.0 million term loan, maturing on April 4, 2018. The term loan will amortize in quarterly installments, resulting in an annual amortization of 5% during the first year, 5% during the second year, 10% during the third year, 10% during the fourth year and 10% during the fifth year with the balance to be paid at maturity. The Credit Agreement includes an option to increase the revolving credit facility for up to an additional $500.0 million at our request, subject to approval of the lenders and certain other conditions. Interest on borrowings from the amended and restated revolving credit facility during the three-month period ending June 30, 2013 are at variable rates based on LIBOR plus 1.50% or the bank prime rate plus 0.50% and includes a commitment fee on the unused portion, 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 our leverage ratio, as defined.

 

Weighted average rates on borrowings outstanding on the revolving credit facility were 1.69% and 1.46% as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013, we had $57.0 million of letters of credit outstanding under the revolving credit facility with availability to issue an additional $193.0 million of letters of credit.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

 

Senior Unsecured Notes – Private Placements

 

We had $75.0 million of outstanding senior unsecured notes at a fixed rate of 5.35% issued in private placements of debt as of June 30, 2013.  On July 2, 2013, the outstanding notes matured and we paid off the notes with borrowings under our credit facility.

 

Senior Unsecured Notes – Publicly Traded

 

On November 20, 2006 we entered into an indenture (the “2006 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.

 

On April 12, 2013, we entered into an indenture (the “2013 Indenture” and, together with the 2006 Indenture, the “Indentures”), for the issuance of $500.0 million aggregate principal amount of senior unsecured notes at the rate of 4.50% per annum, maturing on April 15, 2023.  The net proceeds from the issuance were used to partially fund the acquisition of Metals USA.

 

Under the Indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The notes are guaranteed by our named 100%-owned domestic subsidiaries that guarantee our revolving credit facility. The senior unsecured notes include provisions that require us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest in the event of a change in control and a downgrade of our credit rating.

 

Other Notes and Revolving Credit Facilities

 

Various other separate revolving credit facilities with a combined credit limit of approximately $20.3 million are in place for operations in Asia and Europe with combined outstanding balances of $12.7 million and $8.3 million as of June 30, 2013 and December 31, 2012, respectively.

 

Pursuant to our acquisition of Metals USA, we assumed industrial revenue bonds with combined outstanding balances of $12.3 million as of June 30, 2013 that have maturities through 2027. Additionally, we assumed mortgage obligations pursuant to our acquisition of Travel Main which have outstanding balances of $43.6 million as of June 30, 2013. The mortgages, which are secured by the underlying properties, have a fixed interest rate of 6.4% and scheduled amortization payments with a lump sum payment of $39.2 million due October 2016.

 

Covenants

 

The Credit Agreement and the note purchase agreements related to our privately placed senior secured notes 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.

 

Additionally, our named 100%-owned domestic subsidiaries, which constitute the substantial majority of our subsidiaries, guarantee the borrowings under the revolving credit facility, the Indentures 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.

 

We were in compliance with all debt covenants as of June 30, 2013.

 

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