1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X]/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................... to.......................to .....................
Commission file number: 001-13122
RELIANCE STEEL & ALUMINUM CO.
-----------------------------
(Exact name of registrant as specified in its charter)
California 95-1142616
- ---------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 East 25th Street
Los Angeles, California 90058
(213) 582-2272
-----------------------------------------------------------------------------------------------------------------------
(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]X No [ ] .
As of July 31,October 25, 1996, 10,314,21210,326,287 shares of the registrant's common
stock, no par value, were outstanding.
2
INDEX
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. . 8
PART II -- OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. . . 13
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PART I -- FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
Consolidated Balance Sheets
(In thousands except share amounts)
JUNESEPTEMBER 30 DECEMBER 31
1996 1995
-------------------------------------------
(unaudited) (Note)
ASSETS (Note 5)
Current assets:
Cash and cash equivalents $ 6,197$2,698 $ 18,012
Accounts receivable, less allowance for doubtful
accounts of $3,182$3,003 at JuneSeptember 1996 and $3,253 at
December 1995 73,50667,047 68,874
Inventories 76,56984,257 71,976
Prepaid expenses and other assets 4,2574,070 5,550
Deferred income taxes 1,163 2,525
-------------------------------------------
Total current assets 161,692159,235 166,937
Property, plant and equipment, at cost:
Land 16,68316,383 14,873
Buildings 49,16151,017 36,688
Machinery and equipment 71,70373,947 67,802
Allowances for depreciation (53,262)(54,557) (53,077)
-------------------------------------------
84,28586,790 66,286
Investment in 50%-owned company 27,87527,890 25,561
Purchase price in excess of cost 10,880Intangibles 10,715 1,689
-------------------------------------------
Total assets $284,732$284,630 $260,473
===========================================
LIABILITIES AND SHAREHOLDERS' EQUITY (Note 5)
Current liabilities:
Accounts payable and accrued expenses $ 52,38451,469 $ 52,878
Wages and related accruals 3,6413,898 5,292
Income taxes payable 9051,163 5,136
Current maturities of long-term debt 2,9001,900 2,900
-------------------------------------------
Total current liabilities 59,83058,430 66,206
Long-term debt (Note 3) 45,95040,450 30,350
Shareholders' equity (Note 2):
Preferred stock, no par value:
Authorized shares - 5,000,000
None issued or outstanding --- ---
Common stock, no par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 10,314,21210,326,287 at
JuneSeptember 1996 and 10,272,307 at December 1995,
stated capital 61,00161,131 60,344
Retained earnings 117,951124,619 103,573
-------------------------------------------
Total shareholders' equity 178,952185,750 163,917
-------------------------------------------
Total liabilities and shareholders' equity $284,732$284,630 $260,473
===========================================
See Notes to Consolidated Financial Statements.
NOTE: The Balance Sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
1.
4
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
THREE MONTHS ENDED
JUNESEPTEMBER 30
1996 1995
-------------------------------------------
Net sales $164,628 $140,753$153,395 $135,317
Other income 1,366 569354 582
-------------------------------------------
165,994 141,322153,749 135,899
Costs and expenses:
Cost of sales 125,506 109,512115,767 103,749
Warehouse, delivery, selling, administrative
and general 25,612 21,02724,387 22,174
Depreciation and amortization 2,109 1,2582,064 1,288
Interest 879 217737 443
-------------------------------------------
154,106 132,014142,955 127,654
Income before equity in earnings of 50%-owned
company and joint venturesventure and income taxes 11,888 9,30810,794 8,245
Equity in earnings of 50%-owned company
and joint ventures 1,265 376venture 1,052 1,532
-------------------------------------------
Income before income taxes 13,153 9,68411,846 9,777
Income taxes:
Federal 4,164 3,1623,772 3,192
State 1,223 9011,101 909
-------------------------------------------
5,387 4,0634,873 4,101
-------------------------------------------
Net income $6,973 $ 7,766 $ 5,6215,676
===========================================
Earnings per share $ .74.67 $ .55
===========================================
Weighted average shares outstanding 10,469,000 10,296,00010,464,000 10,309,000
===========================================
2.
5
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30
1996 1995
-------------------------------------------
Net sales $322,262 $277,255$475,657 $412,572
Other income 3,414 1,2003,768 1,782
-------------------------------------------
325,676 278,455479,425 414,354
Costs and expenses:
Cost of sales 246,091 215,210361,858 318,959
Warehouse, delivery, selling, administrative
and general 50,589 42,03774,976 64,211
Depreciation and amortization 3,709 2,4895,773 3,777
Interest 1,308 4732,045 916
-------------------------------------------
301,697 260,209444,652 387,863
Income before equity in earnings of 50%-owned
company and joint venturesventure and income taxes 23,979 18,24634,773 26,491
Equity in earnings of 50%-owned company and joint ventures 2,480 1,028venture 3,532 2,560
-------------------------------------------
Income before income taxes 26,459 19,27438,305 29,051
Income taxes:
Federal 8,388 6,29312,160 9,485
State 2,461 1,793
-------------------------------------------
10,849 8,0863,562 2,702
--------------------------------------
15,722 12,187
-------------------------------------------
Net income $22,583 $ 15,610 $ 11,18816,864
===========================================
Earnings per share $ 1.492.16 $ 1.071.62
===========================================
Weighted average shares outstanding 10,454,000 10,458,00010,446,000 10,414,000
===========================================
3.
6
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30
1996 1995
--------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $15,610 $11,188$22,583 $16,864
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,709 2,489
(Gain) loss5,773 3,777
Gain on sales of machinery and equipment 101 (2)--- (14)
Net gain on sale of real estate (1,519)(1,266) ---
Increase(Decrease) increase in LIFO inventory reserve --- 5,287(2,150) 7,506
Equity in earnings of 50%-owned company and joint ventures (2,480) (1,028)venture (3,532) (2,560)
Changes in operating assets and liabilities:
Accounts receivable 101 (10,507)6,560 (7,866)
Inventories 9,725 (11,481)4,187 (13,503)
Prepaid expenses and other assets 4,522 1,2284,654 730
Income taxes (4,231) 349(3,973) 3,408
Accounts payable and accrued
expenses (4,367) 12,155(5,026) 6,204
----------------------------------------
Net cash provided by operating activities 21,171 9,67827,810 14,546
----------------------------------------
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment (10,693) (4,708)(16,082) (6,210)
Proceeds from sales of property and equipment 106 70997 112
Acquisition of CCC Steel, Inc. (24,974) ---
Purchase of 50% interest in American Steel, L.L.C. --- (19,250)
Dividends received from 50%-owned company 165 ---
----------------------------------------1,203 750
----------------------------------
Net cash used in investing activities (35,396) (4,638)
----------------------------------------(38,856) (24,598)
-----------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 33,000 ---17,000
Payments on long-term debt (30,018) (1,731)(36,518) (3,231)
Dividends paid (1,231) (1,042)(1,536) (1,299)
Issuance of common stock 657383 312
Stock options exercised 403 103
Repurchase of common stock --- (7,628)
----------------------------------------
Net cash (used in) provided by (used in) financing activities 2,408 (10,089)(4,268) 5,257
----------------------------------------
Decrease in cash (11,815) (5,049)(15,314) (4,795)
Cash and cash equivalents at beginning of period 18,012 8,343
----------------------------------------
Cash and cash equivalents at end of period $ 6,197 $ 3,2942,698 $3,548
========================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Interest paid during the period $ 1,0801,819 $ 399820
Income taxes paid during the period 14,730 7,75718,980 8,779
4.
7
RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited)
JuneSeptember 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with 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 generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for fair
presentation, with respect to the interim financial statements have been
included. The results of operations for the three month and sixnine month periods
ended JuneSeptember 30, 1996 are not necessarily indicative of the results for the
full year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1995, included in the Reliance Steel & Aluminum Co. Form 10-K.
2. SHAREHOLDERS' EQUITY
In December 1994, the Board of Directors approved a Stock Repurchase Plan,
authorizing the Company to purchase up to 500,000 shares of its Common Stock
from time to time in the open market or in privately-negotiated transactions.
Repurchased shares are redeemed and treated as authorized but unissued shares.
In February 1995, the Board of Directors authorized the Company to purchase up
to an additional 500,000 shares. As of JuneSeptember 30, 1996, the Company had
repurchased a total of 651,800 shares of its Common Stock under the Stock
Repurchase Plan at an average cost per share of $12.18. No shares were
repurchasedpurchased by the Company during the sixnine month period ended JuneSeptember 30 1996.
In March 1996, 16,573 shares of Common Stock were issued to officers of the
Company under the 1995 Key Man Incentive Plan.
In January 1996, non-qualified stock options to purchase 221,500 shares of the
Company's Common Stock at $18.25 per share were granted at the fair market
value at the date of grant under the Incentive and Non-Qualified Stock Option
Plan. The options become exercisable on a cumulative basis at the rate of 25%
per year, commencing one year from the date of grant and expire five years from
the date of grant.
Earnings per share are computed using the weighted average number of shares of
common stock and common stock equivalents attributable to stock options, which
are not material, outstanding during each period. Common stock equivalents
were calculated using the treasury stock method.
5.
8
RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
JuneSeptember 30 December 31
1996 1995
------------------------------------------
(unaudited) (audited)
Revolving line of credit ($100,000140,000 limit), due July 31, 1999,
interest at variable rates, payable monthly $42,000$37,000 $25,000
Variable Rate Demand Industrial Development
Revenue Bonds, Series 1989 A, due July 1, 2014,
with interest payable quarterly 3,6503,550 3,650
9% Senior Notes, due March 1, 1997, semiannual
payments of $1,400, with interest payable quarterly 3,2001,800 4,600
--------------------------------------------
48,850-----------------------------------------
42,350 33,250
Less current portion (2,900)(1,900) (2,900)
-----------------------------------------
$45,950$40,450 $30,350
=========================================
The Company's long-term loan agreements include certain restrictions on the
amount of corporate borrowings, leasehold obligations, investments, cash
dividends, capital expenditures, and acquisition of the Company's Common Stock,
among other things. In addition, the agreements require the maintenance of
certain financial ratios. In June 1996, the Company's borrowing limit under
the revolving line of credit was increased from $65 million to $100 million.
During September 1996, the Company's revolving line of credit was amended to
increase the borrowing limit, including letters of credit, from $100 million to
$140 million, and to allow for the subsidiariesfinancing of standby letters of credit
incurred in relation to the acquisition of Siskin Steel & Supply Company, Inc.
(see Note 5), reducing to $100 million upon the earlier of a Private Placement
of Debt or January 31, 1997. A Private Placement is defined as the private
placement of one or more debt instruments evidencing obligations that are
unsecured and in an amount between $50 million and $100 million. A third
amendment was entered into on October 1, 1996 to reduce the rate of the
Company issued guaranties underissuance fee for the lineletters of credit.
On October 25, 1996, the Company received verbal commitments, subject to due
diligence procedures and documentation, for $75 million from insurance
companies for a Private Placement of Debt ("Private Placement of Debt") for
periods of seven to twelve years at an average rate of interest of
approximately 7.25%. The Company expects to enter into a definitive loan
agreement during November 1996.
4. ACQUISITIONACQUISITIONS
On April 3, 1996, the Company purchased 100% of the outstanding capital stock
of CCC Steel, Inc. for approximately $25 million in cash. CCC Steel, Inc., was
a privately-held, carbon steel service center, which has facilities in Los
Angeles and Salt Lake City. The pre-tax income and assets of CCC Steel
represented less than 10% of the pre-tax income and assets of the Company at
the date of acquisition. This acquisition was funded by borrowings under the
Company's revolving line of credit.
On January 9, 1996, the Company purchased certain assets of a metals service
center in Albuquerque, New Mexico. These assets were combined with the
Company's existing non-ferrous metal center operations in Albuquerque. This
transaction had no material effect on the Company's results of operations or
financial position.
6.
9
5. SUBSEQUENT EVENTS
On October 1, 1996, the Company acquired 100% of the outstanding voting and
non-voting common stock of Siskin Steel & Supply Company, Inc. ("Siskin"), a
Tennessee corporation, which operates four metals service centers in
Chattanooga and Nashville, Tennessee, Spartanburg, South Carolina, and
Birmingham, Alabama. The Company paid $6 million in cash, a portion of which
will be retained in escrow, and delivered promissory notes, due January 2,
1997, in the aggregate amount of $65 million, collateralized by letters of
credit. Siskin will operate as a wholly owned subsidiary of the Company, with
substantially all of Siskin's current management remaining in place to continue
to operate the business. The Company expects to finance the purchase price
from the proceeds of the Private Placement referred to in Note 3.
7.
10
RELIANCE STEEL & ALUMINUM CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain income statement data for the Company's
metals service centers and Valex Corp. for the three month and sixnine month
periods ended JuneSeptember 30, 1996 and JuneSeptember 30, 1995 (dollars are shown in
thousands and certain amounts may not calculate due to rounding):
Three Months Ended JuneSeptember 30 SixNine Months Ended JuneSeptember 30
------------------------------------------------------------------------- --------------------------------
1996 1995 1996 1995
------------------------------------------------------------------------- --------------------------------
% of % of % of % of
$ Net Sales $ Net Sales $ Net Sales $ Net Sales
-------------------------------------------------------------------------------------------------------------------------------------------------------------
NET SALES:
Metals service centers . . $150,896 91.7% $131,693.$146,074 95.2% $126,365 93.4% $437,812 92.0% $386,114 93.6% $291,738 90.5% $259,749 93.7%
Valex Corp. . . . . . . . . 13,732 8.3 9,0607,321 4.8 8,952 6.6 37,845 8.0 26,458 6.4
30,524 9.5 17,506 6.3
-------------------------------------------------------------------------------------------------------------------------------------------------------------
Total sales . . . . . . . 164,628153,395 100.0 140,753135,317 100.0 322,262475,657 100.0 277,255412,572 100.0
GROSS PROFIT:
Metals service centers . . 34,128 20.7 28,426 20.2 64,208 19.9 55,933 20.235,969 23.4 28,437 21.0 100,177 21.1 84,370 20.4
Valex Corp. . . . . . . . . 4,994 3.0 2,815 2.0 11,963 3.7 6,1121,659 1.1 3,131 2.3 13,622 2.9 9,243 2.2
------------------------------------------------------------------------------------------------------------------------------------------------------------
Total gross profit . . . 39,122 23.8 31,241 22.2 76,171 23.6 62,045 22.437,628 24.5 31,568 23.3 113,799 23.9 93,613 22.7
OPERATING EXPENSES:
Metals service centers . . 24,778 15.1 20,539 14.6 48,432 15.0 41,178 14.924,816 16.2 21,428 15.8 73,248 15.4 62,577 15.2
Valex Corp. . . . . . . . . 2,943 1.8 1,745 1.2 5,866 1.8 3,348 1.2
-------------------------------------------------------------------------------1,635 1.1 2,034 1.5 7,501 1.6 5,411 1.3
-----------------------------------------------------------------------------
Total operating
expenseexpenses . 27,721 16.8 22,284 15.8 54,298 16.8 44,526 16.1. . . . 26,451 17.2 23,462 17.3 80,749 17.0 67,988 16.5
INCOME FROM OPERATIONS:
Metals service centers.centers . . 9,35011,153 7.3 7,009 5.2 26,929 5.7 7,887 5.6 15,776 4.9 14,75521,793 5.3
Valex Corp. . . . . . . . . 2,051 1.2 1,07024 .0 1,097 .8 6,097 1.9 2,764 1.0
-------------------------------------------------------------------------------6,121 1.3 3,832 .9
-----------------------------------------------------------------------------
Total operating
income.income . $11,401. . . . . $11,177 7.3% $ 8,106 6.0% $ 33,050 6.9% $ 8,957 6.4% $ 21,873 6.8% $ 17,519 6.3%
===============================================================================25,625 6.2%
==============================================================================
FIFO INCOME FROM OPERATIONS . . $10,548 6.4% $11,653 8.3% $ 21,873 6.8%9,027 5.9% $10,325 7.6% $ 22,806 8.2%
===============================================================================30,900 6.5% $ 33,131 8.0%
==============================================================================
Inventories for the Company's metals service centers have been stated on the
last-in, first-out ("LIFO") method, which is not in excess of market. The
Company uses the LIFO method of inventory valuation because it results in a
better matching of costs and revenues. Under the LIFO method, the effect of
suppliers' price increases or decreases is reflected directly in the cost of
goods sold. During periods of increasing prices, LIFO accounting will cause
reported income to be lower than would otherwise result from the use of the
first-in, first-out ("FIFO") method of inventory valuation. The table above
and the discussions which follow present certain information as if the Company
used the FIFO method. This information is for supplementary purposes only in
order to facilitate a comparison of the Company's results of operations with
those of other similar companies who use the FIFO method. Inventories for
Valex Corp. have been stated on the FIFO method, which is not in excess of
market.
THREE MONTHS ENDED JUNESEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED JUNESEPTEMBER
30, 1995 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales for the three month period ended JuneSeptember 30, 1996
increased $23,875,$18,078, or 17.0%,13.4 %, compared to the same period of 1995. These amounts include
net sales of Valex, which increased $4,672, or 51.6%, in the 1996 period,
compared to the 1995 period. Valex's increase over the first quarter of 1995
is due to an increase in the construction activities of the semiconductor
manufacturing industry. The
increase in metals service centers' net sales of $19,203,$19,709, or 14.6%,15.6 %, reflects
an increase of 50.6%64.0% in tons sold, which wasis offset by a decrease in the average
salesselling price per ton of 23.8%29.4% for the three month period ended JuneSeptember 30,
1996 compared to the corresponding period of 1995. The increase in tons increased and average selling prices decreased for the 1996 period due
mainly to the change in product mix from the 1995 period. The change in
product mix occurredsold
was primarily due to the inclusion in 1996 of the net sales of CCC Steel Inc.,which was acquired
on April 3, 1996, and the sales of the Los Angeles service
center which Reliancefacility received upon the
dissolution of the Feralloy Reliance Company, L.P. ("FRLP") joint venture,
which occurred on September 30, 1995. These facilitiesThe decrease in average selling price
per ton resulted primarily from the change in product mix during the 1996
period due to the inclusion of these operations. Both of these operations sell
a significant volume ofprimarily carbon steel products, which generally have lower selling prices than
other products sold by the Company, such as aluminum andor stainless steel. This
resulted in an increased volume, accompanied by a lower average sales price per
ton. Excluding the sales from CCC Steel and the Los Angeles service center
results in a decreaseof these two operations reflects (1) an increase of
5.0% in tons sold due to an increase in market share and the expansion of
0.7%certain product lines, and (2) a decrease of 9.6% in the average selling price
per ton due to overall declining prices of 1.1% foraluminum and stainless steel
products, offset in part by increased carbon steel prices.
8.
11
The consolidated net sales also includes the net sales of Valex, which
decreased $1,631, or 18.2%, in the three months ended September 30, 1996 period
compared to the 1995 period.corresponding period of 1995. As expected, Valex's sales
decreased during the three months ended September 30, 1996 due to the effects
of the slowdown in the semiconductor industry. The average selling price per ton has decreased inCompany believes this
slowdown will continue through the second quarter of 1997. In response to the
softening of
costs of certain metals,current slowdown, Valex decreased its workforce by approximately 40% during the
three months ended September 30, 1996. During September 1996, Valex opened a
marketing and changessales office in the product mix.
7.
10France, to provide better customer service and to
increase its market share in Europe.
Total gross profit increased $7,881,$6,060, or 25.2%19.2%, in the three month period ended
JuneSeptember 30, 1996 compared to the corresponding period of 1995. Expressed as
a percentage of sales, gross profit increased from 22.2%23.3% in 1995 to 23.8%24.5% in
1996. The increase was due primarily to the gross profit contributed by Valex. On a FIFO basis, gross profit for the metals service centers decreased to 22.1%was 23.2%
of sales for the three month period ended JuneSeptember 30, 1996, from 23.6%compared to 24.3%
for the corresponding period of 1995. This decrease was mainly1995, which is due to the inclusion of
the sales of CCC Steel and the Los Angeles service center, whose products
generally have lower margins overall; and the change in pricing of aluminumproduct mix
discussed above and stainless steel products, which had a restricted supply in the 1995 period but
not in the 1996 period, resulting in a more competitive sales market in 1996.
However, the FIFO gross profit margindeclining prices for the metals service centers, excluding
CCC Steel, improved slightly in the second quarter of 1996 as compared to first
quarter of 1996.certain products. The decrease in the
LIFO reserve of $853$2,150 during the three month period ended JuneSeptember 30, 1996
was caused by a softening ofdecrease in the costs of the Company's raw materials,
during the 1996 period. Valex's gross profit of $4,994especially for the 1996 period increased 77.4% from the same period in 1995. This
increase was due to the increase in Valex sales volume experienced in 1996.aluminum and stainless steel products. Valex's gross profit was
36.4%22.7% of sales for the three month period ended JuneSeptember 30, 1996, compared
to 31.1%34.4% for the same period in 1995. The increasedecline in gross profit in 1996 as compared to 1995 was due primarily to increased sales and
production efficiencies. Valex's gross profit percentage declined from 41.5%
inis a result
of the first quarter of 1996 due to a more competitive sales market in the
second quarter of 1996 caused by a general slowdown in the semiconductor manufacturing industry.industry, resulting in lower selling
prices and fixed overhead costs being spread over a lower sales volume.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $4,585,$2,213, or 21.8%,10.0 %, in the three months ended JuneSeptember 30, 1996
compared to the corresponding period of 1995 and amounted to 15.6%15.9% and 14.9%16.4% of
sales, respectively. The dollar increase in expenses reflects the increase in sales
volume for the 1996 period, which includes the sales and related expenses offor
CCC Steel and the Los Angeles facilityservice center received upon the dissolution of
FRLP.FRLP in the 1996 period.
Interest expense increased by $662$294 due to an increase in the average debt
outstanding during the three months ended JuneSeptember 30, 1996 as compared to the
corresponding period of 1995. The increased debt outstanding relatedrelates primarily to the
borrowings for the acquisition of CCC Steel in April 1996, and
borrowings made in the third quarter of 1995 to fund a portion of the
acquisition of American Steel, L.L.C. and to pay off debt related to the Los
Angeles operations received upon the dissolution of the FRLP joint venture.1996.
Equity in earnings of a 50%-owned company and joint ventures increased $889venture decreased $480 in
the three months ended JuneSeptember 30, 1996, as compared to the same period in
1995. This increasedecrease is primarily due to the acquisition of a 50% interest in American Steel in
July 1995 and the dissolution of the FRLP joint venture in September 1995.
SIXnon-recurring earnings for
FRLP.
NINE MONTHS ENDED JUNESEPTEMBER 30, 1996 COMPARED TO SIXNINE MONTHS ENDED JUNESEPTEMBER
30, 1995 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales increased $45,007,$63,085, or 16.2%15.3%, compared to the first sixnine
months of 1995. These amounts include net sales of Valex, which increased
$13,018, or 74.4%, due to the increased construction activities of the
semiconductor manufacturing industry in 1996. The rate of increase in Valex's
net sales declined from 98.8% in the first quarter of 1996 compared to 51.6% in
the second quarer of 1996 as a result of a general slowing in construction
activity in the second quarter of 1996, which is expected to last through the
third quarter of 1996. The increase in metals service centers' net sales of $31,989,$51,698,
or 12.3%,13.4 %, reflects an increase of 34.6%44.0% in tons sold offset byand a decrease in the
average salesselling price per ton of 15.5%21.1% for the first sixnine months of 1996
compared to the corresponding period of 1995. The tons increasedThese changes resulted from
additional sales volume and
the average selling prices decreased for the 1996 period due mainly to the change in product mix from the first six months of 1995. The change in product
mix occurred mainlyoccuring during 1996.
These changes are primarily due to the inclusion in 1996 of thesix months of net sales of
CCC Steel, acquired by the Company in April 1996, and thenine months of net sales of the Los Angeles service centerfacility received
upon the dissolution of FRLP. Such sales were not included in the FRLP joint venture on
September 30,first nine
months of 1995. TheseBoth of these facilities sell a significant volume of carbon
steel products, which generally have lower selling prices than other products
sold by the Company, such as aluminum and stainless steel. If theCompany. Excluding these sales results in an increase of CCC Steel and
the Los Angeles service center were excluded from the calculation, this would
result in a decrease1.0% in
tons sold of 0.8% and an increasea decrease in the average selling price per ton of 0.4%2.9%. The
average selling prices decreased for all products for the 1996 period compared
to 1995, with the most significant decreases in aluminum and stainless steel
products.
The consolidated net sales amount also includes the net sales of Valex, which
increased $11,387, or 43.0%, during the first nine months of 1996 compared to
the corresponding period of 1995. The rate of increase in Valex's sales in
1996 over 1995 periodhas decreased during the year, with increases (decreases) of
98.8%, 51.6% and (18.2%) for the metals service centers.first, second, and third quarters,
respectively. Declining sales in 1996 were due to the general slowdown in the
construction activities in the semiconductor industry. The Company currently
estimates that this slowdown in the semiconductor industry will last through
the second quarter of 1997. While the Company has responded to the slowdown
by reducing theValex workforce, the Company is also positioning Valex for
expected longer term growth.
Included in other income for the first sixnine months of 1996 is a net gain of
$1,519 realized on the sale of the property at the existing Bralco Metals
facility near Los Angeles. Land was purchased in 1995 and construction is in
progress to relocate the Bralco Metals facility, which is expected towill occur during the
fourth quarter of 1996.
8.9.
1112
Total gross profit increased $14,126,$20,186, or 22.8%21.6%, in the first sixnine months of
1996 compared to the first sixnine months of 1995. Expressed as a percentage of
sales, gross profit increased from 22.4%22.7% in 1995 to 23.6%23.9% in 1996. The increase was
primarily due1996 on a
consolidated basis, and from 21.9% to LIFO inventory accounting and22.9% for the gross profit contributed by
Valex.metals service centers. On
a FIFO basis, gross profit for the metals service centers declined
to 22.0%was 22.4% of sales
for the first sixnine months of 1996, compared to 23.6%23.8% for the first sixnine months
of 1995; however, the1995. The decline in FIFO gross profit margin, excluding CCC
Steel,for the metals service centers
resulted primarily from declining prices for stainless steel and aluminum
products during 1996. The decrease in the LIFO reserve of $2,150 during the
first nine months of 1996 was caused by a decrease in the costs of the
Company's raw materials, especially for aluminum and stainless steel products.
Valex's gross profit was 36.0% of sales for the first nine months of 1996,
compared to 34.7% for the same period in 1995. The 1996 gross profit improved
slightly in the second quarter of 1996 as comparedfrom 1995 due to the first
quarter of 1996. The LIFO reserve remained constant duringhigh margins in the first six months of 1996 due to
a softening of the costs of the Company's raw materials
during the second quarter of 1996. Valex's gross profit increased by $5,851,
or 95.7%, during the first six months of 1996, as compared to the same period
of 1995 and was 39.2% of sales for the first six months of 1996, compared to
34.9% for the same period in 1995. These increases were due to the increase in
Valex sales volume experienced in 1996 and production efficiency gains realized from
capital improvements.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $8,552,$10,765, or 20.3%16.8%, in the first sixnine months of 1996 compared to the
corresponding period of 1995 and amounted to 15.7%15.8% and 15.2%15.6% of sales,
respectively. The dollar increase in expenses reflects the increase in sales
volume for the 1996 period which includes the sales and related expenses of CCC Steel and the Los
Angeles facilityservice center received upon the dissolution of FRLP.
Interest expense increased by $835$1,129, or 123.3%, due to an increase in the
average debt outstanding during the first sixnine months of 1996 as compared to
the corresponding period of 1995. This increase was due primarily to
borrowings made for the acquisition of CCC Steel, Inc. in April 1996, and for
borrowings made in the third quarter of 1995 to fund a portion of the
acquisition of American Steel and to pay off debt related to the Los Angeles
operationsoperaton received upon the dissolution of the FRLP joint venture.
Equity in earnings of a 50%-owned company and joint venturesventure increased $1,452$972 in
the first sixnine months of 1996 as compared to the corresponding period of 1995,
due to the acquisition of a 50% interest in American Steel in July 1995, and
the dissolution of the FRLP joint venture in September 1995.
The FRLP
joint venture was not performing at desired levels for the Company's return on
investment.
Earnings per share for the sixnine month period ended June 30,1996September 30, 1996 of $1.49$2.16
includes $.09 per share attributable to the sale of the Bralco Metals property.
LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE
AND PER SHARE AMOUNTS)
At JuneSeptember 30, 1996, working capital amounted to $101,862$100,805 compared to
$100,731 at December 31, 1995. The Company's capital requirements are
primarily for working capital, acquisitions and capital expenditures for
continued improvements in plant capacities and material handling and processing
equipment.
The Company's primary sources of liquidity are from internally generated funds
from operations and the Company's revolving credit facility. In June 1996, theThe Company's
borrowing limit under the revolving line of credit was increased from $65,000
to $100,000 in June 1996, and the subsidiaries ofincreased to $140,000 in September 1996. On
October 25, 1996, the Company issued guaranties
underreceived verbal commitments for $75,000 from
insurance companies for a Private Placement of Debt to finance the linepurchase of
credit.Siskin . The Company expects to enter into a definitive loan agreement during
November 1996.
The increase in cash provided by operations of $11,493$13,264 during the sixnine month
period ended JuneSeptember 30, 1996 compared to the corresponding 1995 period was
due primarily to reductions in inventory and accounts receivable, and anthe increase in net income.income and decreases in the Company's net
working capital requirements.
In December 1994, the Company adopted a Stock Repurchase Plan, authorizing the
Company to purchase up to 500,000 shares of its outstanding Common Stock. In
February 1995, the Company authorized the purchase of up to an additional
500,000 shares. As of JuneSeptember 30, 1996, the Company had repurchased a
total of 651,800 shares of its Common Stock, at an average purchase price of
$12.18 per share, all of which are being treated as authorized but unissued
shares. The Company did not repurchase any shares of its Common Stock during
the sixnine months ended JuneSeptember 30, 1996. The Company believes such purchases
enhance shareholder value and reflect its confidence in the long-term growth
potential of the Company.
Capital10.
13
The majority of capital expenditures were $10,693of $16,082 for the sixnine months ended
JuneSeptember 30, 1996 (excluding acquisitions) were for the construction of and
equipment for three new facilities. The Bralco operation is expected to
complete its move to the new facility in the fourth quarter of 1996.
Construction is also in progress for a new facility in Salt Lake City, Utah for
the Affiliated Metals operation.
The Company purchased CCC Steel for approximately $25,000. The Company had no
material commitments for capital expenditures as of June 30, 1996. The acquisition of
CCC Steel in April 1996, including the repayment of certain of CCC Steel's
debt, was funded by borrowings under the Company's revolving line of credit.
The acquisition of Siskin for $71,000 in October 1996 was funded by a $6,000
cash payment on October 1, 1996 borrowed under the Company's revolving line of
credit and the issuance of promissory notes of $65,000 due in January 1997.
The notes will be repaid by the Private Placement of Debt. The Company had no
material commitments for capital expenditures as of September 30, 1996. The
Company anticipates that funds generated from operations and funds 9.
12
available
under its existing bank line of credit and Private Placement of Debt will be
more than sufficient to meet its working capital needs in the foreseeable
future.
SEASONALITY
The Company recognizes that some of its customers may be in seasonal
businesses, especially customers in the construction industry. As a result of
the Company's geographic, productindustry and customer diversity, however, the
Company's operations have not shown any material seasonal trends, although the
months of November and December traditionally have been less profitable because
of a reduced number of working days on which the Company is able to ship its
products and seasonal closures for some of its customers. There can be no
assurance that period-to- period fluctuations will not occur. Results of any
one or more quarters are therefore not necessarily indicative of annual
results.
ACQUISITIONACQUISITIONS
On April 3, 1996, the Company purchased 100% of the outstanding capital stock
of CCC Steel, Inc., a privately-held, carbon steel service center with
facilities in Los Angeles and Salt Lake City, for approximately $25 million in
cash. CCC Steel is one of the largest structural steel distribution companies
in the Western U.S.
10.On January 9, 1996, the Company purchased certain assets of a metals service
center in Albuquerque, New Mexico. These assets were combined with the
Company's existing non-ferrous metal center operation in Albuquerque. This
transaction had no material effect on the Company's results of operations or
financial position.
SUBSEQUENT EVENTS
On October 1, 1996, the Company acquired 100% of the outstanding voting and
non-voting common stock of Siskin Steel & Supply Company, Inc. ("Siskin") for
$71 million. Siskin is a metals service center company comprised of four
locations in Chattanooga, Tennessee; Nashville, Tennessee; Spartanburg, South
Carolina; and Birmingham, Alabama. Siskin was formed in Chattanooga in 1949,
and the majority of its current operations include the processing and sale of
carbon steel products, consisting of plate, bars, structurals, pipe and tubing.
Siskin also has a growing presence in stainless steel, alloy and aluminum
products. Siskin's revenues for the fiscal year ended June 30, 1996 were
approximately $151 million.
11.
1314
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
(a) Not applicable.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of Reliance Steel & Aluminum Co. shareholders was
held on May 24, 1995.
(b) [Need not be answered because (1) proxies for the meeting were
solicited pursuant to Regulation 14 under the Securities Exchange Act
of 1934, (2) there was no solicitation in opposition to management's
nominees as listed in the proxy statement, and (3) all such nominees
were elected.]
(c) The following is a brief description of matters voted upon at the
meeting:
Four Directors were elected at the annual meeting. Joe D. Crider:
8,862,791 shares were voted for election and 66,836 shares were
withheld. William T. Gimbel: 8,864,991 shares were voted for
election and 64,636 shares were withheld. David H. Hannah:
8,824,151 shares were voted for election and 105,476 shares were
withheld. William I. Rumer: 8,927,291 shares were voted for election
and 2,336 shares were withheld.
The Board of Directors selected Ernst & Young as independent auditors
to audit the financial statements of the Company and its subsidiaries
for 1996, subject to ratification by the shareholders. The selection
was approved: 8,924,259 shares were voted for the proposal, 100
shares were voted against it, and 5,268 shares abstained.Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Amendment No. One to First Amended and Restated Business Loan
Agreement dated June 26,September 25, 1996 between the Company and Bank of
America.
10.02 Amendment No. Two to First Amended and Restated Business Loan
Agreement dated September 27, 1996 between the Company and Bank of
America.
10.03 Amendment No. Three to First Amended and Restated Business Loan
Agreement dated October 1, 1996 between the Company and Bank of
America.
(b) Form 8-K
The Company filed aNo reports on Form 8-K dated April 3,1996, reportinghave been filed during the acquisition of CCC Steel, Inc.
11.period for which
this report was filed.
12.
1415
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIANCE STEEL & ALUMINUM CO.
Dated: August 6,October 28, 1996 By: /s/ David H. Hannah
---------------------------------------------------------------
David H. Hannah
President
By: /s/ Steven S. Weis
---------------------------------------------------------------
Steven S. Weis
Chief Financial Officer
12.13.