RELIANCE STEEL & ALUMINUM CO - Quarter Report: 2015 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, 2015

 

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 ¨

Non-accelerated filer ¨

Smaller reporting company ¨

 

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 April 30, 2015, 74,287,418 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 March 31, 2015 and December 31, 2014	1
	Unaudited Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014	2
	Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	3
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
PART II -- OTHER INFORMATION		27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	27
SIGNATURES		28
EXHIBIT INDEX		29

 

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

 

		March 31,			December 31,
		2015			2014*
Current assets:
Cash and cash equivalents		$	101.6		$	106.2
Accounts receivable, less allowance for doubtful accounts of $19.9 at March 31, 2015 and $18.3 at December 31, 2014		1,214.1			1,144.6
Inventories		1,803.3			1,752.1
Prepaid expenses and other current assets		49.6			71.8
Deferred income taxes		46.4			46.4
Total current assets		3,215.0			3,121.1
Property, plant and equipment:
Land		197.5			197.5
Buildings		986.7			983.2
Machinery and equipment		1,502.0			1,479.8
Accumulated depreciation		(1,042.3		)	(1,004.1		)
		1,643.9			1,656.4
Goodwill		1,730.3			1,736.4
Intangible assets, net		1,220.2			1,241.6
Cash surrender value of life insurance policies, net		43.9			46.4
Other assets		34.3			34.7
Total assets		$	7,887.6		$	7,836.6
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	417.4		$	286.5
Accrued expenses		93.8			98.2
Accrued compensation and retirement costs		95.1			128.4
Accrued insurance costs		45.1			46.6
Current maturities of long-term debt and short-term borrowings		100.2			93.9
Income taxes payable		33.2			9.2
Total current liabilities		784.8			662.8
Long-term debt		2,268.5			2,222.3
Long-term retirement costs		103.7			102.2
Other long-term liabilities		28.3			28.5
Deferred income taxes		691.7			692.9
Commitments and contingencies
Equity:
Preferred stock, no par value:
Authorized shares — 5,000,000
None issued or outstanding		—			—
Common stock, no par value:
Authorized shares — 200,000,000
Issued and outstanding shares — 74,749,917 at March 31, 2015 and 77,337,251 at December 31, 2014, stated capital		656.6			819.4
Retained earnings		3,397.8			3,328.5
Accumulated other comprehensive loss		(73.7		)	(48.9		)
Total Reliance shareholders’ equity		3,980.7			4,099.0
Noncontrolling interests		29.9			28.9
Total equity		4,010.6			4,127.9
Total liabilities and equity		$	7,887.6		$	7,836.6

 

* 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,
		2015			2014
Net sales		$	2,614.4		$	2,553.0
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		1,943.7			1,905.8
Warehouse, delivery, selling, general and administrative		446.1			441.0
Depreciation and amortization		55.3			51.9
		2,445.1			2,398.7
Operating income		169.3			154.3
Other income (expense):
Interest		(20.6		)	(20.2		)
Other income, net		1.9			—
Income before income taxes		150.6			134.1
Income tax provision		47.7			46.2
Net income		102.9			87.9
Less: Net income attributable to noncontrolling interests		1.6			0.7
Net income attributable to Reliance		$	101.3		$	87.2
Earnings per share attributable to Reliance shareholders:
Diluted		$	1.30		$	1.11
Basic		$	1.31		$	1.13
Cash dividends per share		$	0.40		$	0.35

 

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,
		2015			2014
Net income		$	102.9		$	87.9
Other comprehensive (loss) income:
Foreign currency translation loss		(24.9		)	(8.9		)
Unrealized gain on investments, net of tax		0.1			0.1
Total other comprehensive loss		(24.8		)	(8.8		)
Comprehensive income		78.1			79.1
Less: comprehensive income attributable to noncontrolling interests		1.6			0.7
Comprehensive income attributable to Reliance		$	76.5		$	78.4

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

		Three Months Ended
		March 31,
		2015			2014
Operating activities:
Net income		$	102.9		$	87.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		55.3			51.9
Deferred income tax benefit		(0.2		)	(0.7		)
Gain on sales of property, plant and equipment		(0.1		)	(0.5		)
Share-based compensation expense		3.7			4.9
Other		1.0			1.5
Changes in operating assets and liabilities:
Accounts receivable		(73.6		)	(177.6		)
Inventories		(57.6		)	(114.6		)
Prepaid expenses and other assets		23.1			43.9
Accounts payable and other liabilities		116.9			172.1
Net cash provided by operating activities		171.4			68.8
Investing activities:
Purchases of property, plant and equipment		(31.3		)	(28.9		)
Other		4.1			(9.1		)
Net cash used in investing activities		(27.2		)	(38.0		)
Financing activities:
Net short-term debt borrowings		1.1			0.3
Proceeds from long-term debt borrowings		363.0			160.0
Principal payments on long-term debt		(311.0		)	(141.7		)
Dividends paid		(31.7		)	(27.1		)
Exercise of stock options		6.1			8.4
Share repurchases		(171.2		)	—
Other		(2.3		)	0.3
Net cash (used in) provided by financing activities		(146.0		)	0.2
Effect of exchange rate changes on cash		(2.8		)	(1.0		)
(Decrease) increase in cash and cash equivalents		(4.6		)	30.0
Cash and cash equivalents at beginning of year		106.2			83.6
Cash and cash equivalents at end of period		$	101.6		$	113.6
Supplemental cash flow information:
Interest paid during the period		$	5.3		$	5.2
Income taxes paid during the period, net		$	23.2		$	5.3

 

See accompanying notes to unaudited consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

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 (“U.S. GAAP”) 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. GAAP 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, 2015 are not necessarily indicative of the results for the full year ending December 31, 2015. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2014, 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. GAAP 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

 

Impact of Recently Issued Accounting Standards—Not Yet Adopted

 

Simplifying the Presentation of Debt Issuance Costs—In April 2015, the Financial Accounting Standards Board (“FASB”) issued accounting changes which simplify the presentation of debt issuance costs. The guidance requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. The guidance will be effective for fiscal years beginning after December 15, 2015 and is to be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. We do not believe the new standard will have a material impact on our consolidated financial statements.

 

Income Statement - Extraordinary and Unusual Items—In January 2015, the FASB issued accounting changes which simplify the income statement presentation by eliminating the concept of extraordinary items but does not change the requirement to disclose material items that are unusual or infrequent in nature. Under the new guidance unusual or infrequent items can either be presented as a separate component of income from continuing operations or, alternatively, disclosed in notes to the financial statements. The guidance will be effective for fiscal years beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We do not believe the new standard will have a material impact on our consolidated financial statements.

 

Revenue from Contracts with Customers—In May 2014, the FASB issued accounting changes which replace most of the detailed guidance on revenue recognition that currently exists under U.S. GAAP. Under the new guidance, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for fiscal years beginning after December 15, 2017. Early adoption is permitted for fiscal years beginning after December 15, 2016. We are evaluating the new standard, but do not expect this standard will have a material impact on our consolidated financial statements.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

3.  Acquisitions

 

2014 Acquisitions

 

On December 1, 2014, we acquired Fox Metals and Alloys, Inc. (“Fox”), a Houston, Texas-based steel distributor specializing in alloy, carbon and stainless steel bar and plate products, primarily servicing OEMs and machine shops that manufacture or support the manufacturing of equipment for the oil, gas and petrochemical industries. Fox’s in-house processing services include saw cutting, plate burning and testing. Net sales of Fox for the three months ended March 31, 2015 were $9.8 million.

 

On August 1, 2014, we acquired Aluminium Services UK Limited, the parent holding company of All Metal Services (“AMS”). AMS provides comprehensive materials management solutions to aerospace and defense OEMs and their subcontractors on a global basis, supporting customers in more than 40 countries worldwide. AMS offers a broad range of aerospace metals including aluminum, steel, titanium, nickel alloys and aluminum bronze, offering full or cut to size materials. AMS also offers in-house machining and water-jet cutting for more complex requirements. AMS has eight locations in four countries including China, France, Malaysia, and the United Kingdom. Net sales of AMS for the three months ended March 31, 2015 were $68.1 million.

 

On August 1, 2014, we acquired Northern Illinois Steel Supply Co. (“NIS”), a value-added distributor and fabricator of a variety of steel and non-ferrous metal products, primarily structural steel components and parts, located in Channahon, Illinois. Net sales of NIS for the three months ended March 31, 2015 were $4.5 million.

 

We funded these acquisitions with borrowings on our revolving credit facility and cash on hand.

 

The preliminary allocation of the total purchase price of our 2014 acquisitions to the fair values of the assets acquired and liabilities assumed was as follows:

 

		(in millions)
Cash		$	1.6
Accounts receivable		67.1
Inventories		89.2
Property, plant and equipment		23.4
Goodwill		51.2
Intangible assets subject to amortization		37.5
Intangible assets not subject to amortization		39.0
Other current and long-term assets		1.5
Total assets acquired		310.5
Deferred taxes		9.0
Current and long-term debt		39.2
Other current and long-term liabilities		53.1
Total liabilities assumed		101.3
Net assets acquired		$	209.2

 

Purchase price allocations

 

All of 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 March 31, 2015 and December 31, 2014.  The purchase price allocations for the 2014 acquisitions are preliminary and are pending the completion of various pre-acquisition period income tax returns. The measurement periods for purchase price allocations do not exceed 12 months from the acquisition date.

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

4.  Goodwill

 

The change in the carrying amount of goodwill is as follows:

 

		(in millions)
Balance at January 1, 2015		$	1,736.4
Acquisition		0.3
Purchase price allocation adjustment		(0.4		)
Effect of foreign currency translation		(6.0		)
Balance at March 31, 2015		$	1,730.3

 

We had no accumulated impairment losses related to goodwill at March 31, 2015.

 

5.  Intangible Assets, net

 

Intangible assets, net consisted of the following:

 

				March 31, 2015						December 31, 2014
		Weighted Average		Gross						Gross
		Amortizable		Carrying			Accumulated			Carrying			Accumulated
		Life in Years		Amount			Amortization			Amount			Amortization
				(in millions)
Intangible assets subject to amortization:
Covenants not to compete		4.3		$	2.3		$	(1.7	)	$	2.3		$	(1.7	)
Loan fees		3.8		41.5			(28.2		)	41.5			(27.3		)
Customer lists/relationships		14.2		689.1			(260.4		)	694.7			(249.3		)
Software – internal use		10.0		8.1			(7.3		)	8.1			(7.1		)
Other		5.1		7.1			(4.8		)	7.2			(4.5		)
				748.1			(302.4		)	753.8			(289.9		)
Intangible assets not subject to amortization:
Trade names				774.5			—			777.7			—
				$	1,522.6		$	(302.4	)	$	1,531.5		$	(289.9	)

 

We recognized amortization expense for intangible assets of $14.3 million and $14.1 million for the three months ended March 31, 2015 and 2014, respectively. Other changes in intangible assets, net during the three months ended March 31, 2015 are due to foreign currency translation losses of $7.1 million.

 

The following is a summary of estimated aggregate amortization expense for the remaining nine months of 2015 and each of the succeeding five years:

 

		(in millions)
2015		$	42.5
2016		55.0
2017		50.5
2018		44.4
2019		43.7
2020		43.7

 

6.  Income Taxes

 

Our effective income tax rates for the three-month periods ended March 31, 2015 and 2014 were 31.7% and 34.5%, respectively. Permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different in amounts during both years and relate mainly to company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lower than the

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

U.S. statutory rate of 35%. Lower income tax rates in certain states and foreign jurisdictions contributed to our lower effective income tax rate for the three months ended March 31, 2015.

 

7.  Debt

 

Debt consisted of the following:

 

		March 31,			December 31,
		2015			2014
		(in millions)
Unsecured revolving credit facility due April 4, 2018		$	734.0		$	675.0
Unsecured term loan due from June 30, 2015 to April 4, 2018		436.3			442.5
Senior unsecured notes due November 15, 2016		350.0			350.0
Senior unsecured notes due April 15, 2023		500.0			500.0
Senior unsecured notes due November 15, 2036		250.0			250.0
Other notes and revolving credit facilities		101.2			101.6
Total		2,371.5			2,319.1
Less: unamortized discount		(2.8		)	(2.9		)
Less: amounts due within one year and short-term borrowings		(100.2		)	(93.9		)
Total long-term debt		$	2,268.5		$	2,222.3

 

Unsecured Credit Facility

 

On April 4, 2013, we entered into a syndicated Third Amended and Restated Credit Agreement with 26 banks as lenders (“Credit Agreement”). The Credit Agreement amended and restated our existing $1.5 billion unsecured revolving credit facility and provided for a $500.0 million term loan and an option to increase the revolving credit facility for up to $500.0 million at our request, subject to approval of the lenders and certain other conditions. The term loan due April 4, 2018 amortizes in quarterly installments, with an annual amortization of 10% until March 2018, with the balance to be paid at maturity. Interest on borrowings from the revolving credit facility and term loan during the three-month period ended March 31, 2015 was at variable rates based on LIBOR plus 1.25% or the bank prime rate plus 0.25% and included a commitment fee at an annual rate of 0.20% on the unused portion of revolver borrowings. The applicable margins 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 and term loan were 1.43% and 1.42% as of March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, we had $734.0 million of outstanding borrowings, $58.9 million of letters of credit issued and $707.1 million available on the revolving credit facility.

 

Senior Unsecured Notes

 

On November 20, 2006 we entered into an indenture (the “2006 Indenture”), for the issuance of $600.0 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350.0 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) $250.0 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 Holdings Corp. (“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 certain of our 100%-owned domestic subsidiaries that guarantee our revolving credit facility. The senior unsecured notes include

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

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

 

Other revolving credit facilities with a combined credit limit of approximately $76.7 million are in place for operations in Asia and Europe with combined outstanding balances of $48.3 million as of March 31, 2015 and December 31, 2014.

 

Pursuant to our acquisition of Metals USA, we assumed industrial revenue bonds with combined outstanding balances of $11.5 million as of March 31, 2015 that have maturities through 2027. Additionally, we assumed mortgage obligations pursuant to our acquisition of a portfolio of real estate properties that we were leasing, which have outstanding balances of $41.4 million as of March 31, 2015. The mortgages, which are secured by the underlying properties, have a fixed interest rate of 6.40% and scheduled amortization payments with a lump sum payment of $39.2 million due October 2016.

 

Covenants

 

The Credit Agreement requires us to maintain an interest coverage ratio and a maximum leverage ratio, among other things.

 

Our obligations under the Credit Agreement and Indentures are required to be guaranteed by certain of our 100%-owned domestic subsidiaries.  The subsidiary guarantors, together with Reliance, are required to collectively account for at least 80% of our consolidated EBITDA and 80% of consolidated tangible assets.

 

We were in compliance with all material covenants in our debt agreements at March 31, 2015.

 

8.  Equity

 

Common Stock

 

During the three months ended March 31, 2015, we issued 109,556 shares of common stock in connection with the exercise of employee stock options for total proceeds of approximately $6.1 million. In addition, we issued 258,719 shares of common stock pursuant to vested performance and time-based restricted stock units (“RSUs”) that were granted in 2012.

 

Dividends

 

On April 21, 2015, our Board of Directors declared the 2015 second quarter cash dividend of $0.40 per share. The dividend is payable on June 19, 2015 to shareholders of record as of May 29, 2015.

 

During the three months ended March 31, 2015 we declared and paid a quarterly dividend of $0.40 per share, or $30.7 million in total, compared to a quarterly dividend of $0.35 per share, or $27.1 million in total, for the same period in 2014. During the three months ended March 31, 2015 we also paid $1.0 million in dividend equivalents with respect to vested RSUs.

 

Share-Based Compensation

 

We annually grant RSUs to officers and key employees. Each RSU 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. On March 27, 2015, we granted 507,760 RSUs (“2015 RSUs”) that have a time-based condition and cliff vest on December 31, 2017, if the recipient is an employee on that date.  In addition to the time-based condition, 185,450 of the 2015 RSUs also have performance goals and vest only upon the satisfaction of the time-based condition and certain three-year performance targets. We also granted 10,000 time-based and 40,000 performance-based RSUs to our CEO as a result of his expected retirement in July 2016 that have a time-based condition and eighteen-month performance

 

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

targets ending June 30, 2016.  The fair value of the RSUs is determined based on the closing stock price of our common stock on the grant date.

 

A summary of the status of our unvested restricted stock grants and time-based and performance-based RSUs as of March 31, 2015 and changes during the period then ended is as follows:

 

				Weighted
				Average
				Grant Date
Unvested Shares		Shares		Fair Value
Unvested at January 1, 2015		846,760		$	65.10
Granted		557,760		59.27
Vested		(63,000	)	57.42
Canceled		(82,850	)	58.66
Unvested at March 31, 2015		1,258,670		$	63.33
Shares reserved for future grants (all plans)		2,356,894

 

Share Repurchase Plan

 

During March 2015, we repurchased 3,187,235 shares of our common stock at an average cost of $58.02 per share for $184.9 million through open market purchases, including 231,626 shares for $13.7 million that were pending settlement at March 31, 2015, under a plan complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In April 2015, we repurchased an additional 251,165 shares at an average cost of $59.97 per share for $15.1 million. Since initiating the share repurchase plan in 1994 we have purchased approximately 19.4 million shares at an average cost of $27.31 per share. As of May 1, 2015, we had authorization under the plan to purchase an additional 3,684,833 shares (or about 5% of shares currently outstanding) under our existing share repurchase plan. Repurchased shares are restored to the status of authorized but unissued shares.

 

Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss included the following:

 

					Unrealized			Pension and			Accumulated
		Foreign Currency			Gain on			Postretirement			Other
		Translation			Investments,			Benefit Adjustments,			Comprehensive
		Loss			Net of Tax			Net of Tax			Loss
		(in millions)
Balance as of January 1, 2015		$	(23.2	)	$	0.4		$	(26.1	)	$	(48.9	)
Current-period change		(24.9		)	0.1			—			(24.8		)
Balance as of March 31, 2015		$	(48.1	)	$	0.5		$	(26.1	)	$	(73.7	)

 

Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. Unrealized gain on investments and pension and postretirement benefit adjustments are net of taxes of $0.1 million and $15.6 million, respectively, as of March 31, 2015 and December 31, 2014.

 

9.  Commitments and Contingencies

 

Environmental Contingencies

 

We are currently involved with certain environmental remediation projects related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our 100%-owned subsidiary, that were sold many years prior to Reliance’s acquisition of EMJ in 2006. Although the potential cleanup costs could be

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

significant, EMJ had insurance policies in place at the time they owned the manufacturing operations that have covered costs incurred to-date, and are expected to continue to cover the majority of the related costs. We do not expect that these obligations will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

 

Legal Matters

 

From time to time, we are named as a defendant in legal actions. Generally, these actions arise out of our normal course of business. We are not a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these other matters will be resolved without a material adverse effect on our results of operations or financial condition. We maintain liability insurance against risks arising out of our ordinary course of business.

 

10.  Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share:

 

		Three Months Ended March 31,
		2015			2014
		(in millions, except share and per share amounts)
Numerator:
Net income attributable to Reliance		$	101.3		$	87.2
Denominator:
Weighted average shares outstanding		77,119,266			77,507,406
Dilutive effect of share-based awards		713,054			850,426
Weighted average diluted shares outstanding		77,832,320			78,357,832
Earnings per share attributable to Reliance shareholders:
Diluted		$	1.30		$	1.11
Basic		$	1.31		$	1.13

 

The computations of earnings per share for the three months ended March 31, 2015 and 2014 do not include 207,400 and 17,625 weighted average shares, respectively, for RSU’s and stock options, because their inclusion would have been anti-dilutive.

 

11.  Condensed Consolidating Financial Statements

 

In November 2006 and April 2013, we issued senior unsecured notes in the aggregate principal amount of $1.1 billion, at fixed interest rates that are guaranteed by certain of our 100%-owned domestic subsidiaries that also guarantee borrowings under the Credit Agreement. 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.

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

Condensed Unaudited Consolidating Balance Sheet
As of March 31, 2015

(in millions)

 

								Non-
					Guarantor			Guarantor			Consolidating
		Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Assets
Cash and cash equivalents		$	26.6		$	(3.5	)	$	78.5		$	—		$	101.6
Accounts receivable, net		85.8			975.9			169.9			(17.5		)	1,214.1
Inventories		59.7			1,502.1			241.5			—			1,803.3
Income taxes receivable		21.3			—			—			(21.3		)	—
Other current assets		118.9			36.1			17.6			(76.6		)	96.0
Total current assets		312.3			2,510.6			507.5			(115.4		)	3,215.0
Investments in subsidiaries		5,004.5			286.1			—			(5,290.6		)	—
Property, plant and equipment, net		103.1			1,325.6			215.2			—			1,643.9
Goodwill		23.8			1,570.9			135.6			—			1,730.3
Intangible assets, net		28.9			1,045.6			145.7			—			1,220.2
Intercompany receivables		1,187.1			29.6			26.5			(1,243.2		)	—
Other assets		23.4			49.4			5.4			—			78.2
Total assets		$	6,683.1		$	6,817.8		$	1,035.9		$	(6,649.2	)	$	7,887.6
Liabilities & Equity
Accounts payable		$	36.1		$	323.1		$	75.7		$	(17.5	)	$	417.4
Accrued compensation and retirement costs		13.5			72.7			8.9			—			95.1
Other current liabilities		69.1			56.6			68.5			(22.1		)	172.1
Deferred income taxes		—			75.2			0.6			(75.8		)	—
Current maturities of long-term debt and short-term borrowings		50.0			—			50.2			—			100.2
Total current liabilities		168.7			527.6			203.9			(115.4		)	784.8
Long-term debt		2,217.4			5.7			45.4			—			2,268.5
Intercompany borrowings		—			1,083.5			159.7			(1,243.2		)	—
Other long-term liabilities		316.3			455.6			51.8			—			823.7
Total Reliance shareholders’ equity		3,980.7			4,738.7			551.9			(5,290.6		)	3,980.7
Noncontrolling interests		—			6.7			23.2			—			29.9
Total equity		3,980.7			4,745.4			575.1			(5,290.6		)	4,010.6
Total liabilities and equity		$	6,683.1		$	6,817.8		$	1,035.9		$	(6,649.2	)	$	7,887.6

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

 

Condensed Unaudited Consolidating Balance Sheet
As of December 31, 2014

(in millions)

 

								Non-
					Guarantor			Guarantor			Consolidating
		Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Assets
Cash and cash equivalents		$	41.9		$	(8.3	)	$	72.6		$	—		$	106.2
Accounts receivable, net		72.7			923.1			164.8			(16.0		)	1,144.6
Inventories		57.6			1,454.2			240.3			—			1,752.1
Other current assets		139.3			38.5			16.1			(75.7		)	118.2
Total current assets		311.5			2,407.5			493.8			(91.7		)	3,121.1
Investments in subsidiaries		4,891.8			299.9			—			(5,191.7		)	—
Property, plant and equipment, net		103.8			1,333.7			218.9			—			1,656.4
Goodwill		23.8			1,571.0			141.6			—			1,736.4
Intangible assets, net		30.3			1,056.7			154.6			—			1,241.6
Intercompany receivables		1,361.7			26.1			18.2			(1,406.0		)	—
Other assets		22.7			52.5			5.9			—			81.1
Total assets		$	6,745.6		$	6,747.4		$	1,033.0		$	(6,689.4	)	$	7,836.6
Liabilities & Equity
Accounts payable		$	29.2		$	212.3		$	60.6		$	(15.6	)	$	286.5
Accrued compensation and retirement costs		23.9			89.9			14.6			—			128.4
Other current liabilities		65.2			26.1			62.6			0.1			154.0
Deferred income taxes		—			75.1			0.6			(75.7		)	—
Current maturities of long-term debt and short-term borrowings		43.8			—			50.1			—			93.9
Total current liabilities		162.1			403.4			188.5			(91.2		)	662.8
Long-term debt		2,170.8			5.7			45.8			—			2,222.3
Intercompany borrowings		—			1,242.5			163.5			(1,406.0		)	—
Other long-term liabilities		313.7			456.2			54.1			(0.4		)	823.6
Total Reliance shareholders’ equity		4,099.0			4,633.4			558.4			(5,191.8		)	4,099.0
Noncontrolling interests		—			6.2			22.7			—			28.9
Total equity		4,099.0			4,639.6			581.1			(5,191.8		)	4,127.9
Total liabilities and equity		$	6,745.6		$	6,747.4		$	1,033.0		$	(6,689.4	)	$	7,836.6

 

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