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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number: 001-13122
RELIANCE STEEL & ALUMINUM CO.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-1142616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 East 25th Street
Los Angeles, California 90058
(323) 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] No [ ]
As of October 31, 2000, 25,047,530 shares of the registrant's common
stock, no par value, were outstanding.
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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 .............................. 8
PART II -- OTHER INFORMATION ................................................... 12
SIGNATURES ..................................................................... 13
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PART I -- FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
Consolidated Balance Sheets
(In thousands except share amounts)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 5,578 $ 9,862
Accounts receivable, less allowance for doubtful accounts
of $8,007 at September 2000 and $6,351 at December 1999 213,996 167,674
Inventories 275,861 232,911
Prepaid expenses and other current assets 8,289 5,472
Deferred income taxes 12,997 12,999
----------- ---------
Total current assets 516,721 428,918
Property, plant and equipment, at cost:
Land 35,037 31,583
Buildings 142,424 132,165
Machinery and equipment 172,513 159,390
Allowances for depreciation (107,829) (95,756)
----------- ---------
242,145 227,382
Investment in 50%-owned company 18,820 19,306
Goodwill, net of accumulated amortization of $17,540 at
September 2000 and $12,957 at December 1999 232,215 215,247
Other assets 9,556 9,152
----------- ---------
Total assets $ 1,019,457 $ 900,005
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 95,098 $ 103,968
Accrued expenses 35,577 27,820
Wages and related accruals 15,248 16,191
Deferred income taxes 7,749 7,749
Current maturities of long-term debt 150 150
----------- ---------
Total current liabilities 153,822 155,878
Long-term debt 405,650 318,050
Deferred income taxes 26,586 25,749
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 5,000,000
None issued or outstanding -- --
Common stock, no par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 27,296,155 at
September 2000 and 27,798,151 at December 1999,
stated capital 150,854 153,120
Retained earnings 282,545 247,208
----------- ---------
Total shareholders' equity 433,399 400,328
----------- ---------
Total liabilities and shareholders' equity $ 1,019,457 $ 900,005
=========== =========
See Notes to Consolidated Financial Statements.
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RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
Net sales $ 443,652 $ 380,070
Other income 822 1,095
----------- -----------
444,474 381,165
Costs and expenses:
Cost of sales 325,254 275,320
Warehouse, delivery, selling, administrative
and general 79,038 70,317
Depreciation and amortization 7,247 6,613
Interest 6,909 5,699
----------- -----------
418,448 357,949
Income before equity in earnings of 50%-owned
company and income taxes 26,026 23,216
Equity in earnings of 50%-owned company 345 1,173
----------- -----------
Income before income taxes 26,371 24,389
Income taxes:
Federal 9,230 8,268
State 1,318 1,366
----------- -----------
10,548 9,634
----------- -----------
Net income $ 15,823 $ 14,755
=========== ===========
Earnings per share - diluted $ .57 $ .53
=========== ===========
Weighted average shares outstanding - diluted 27,601,000 27,953,000
=========== ===========
Earnings per share - basic $ .58 $ .53
=========== ===========
Weighted average shares outstanding - basic 27,504,000 27,779,000
=========== ===========
Cash dividends per share $ .055 $ .04
=========== ===========
See Notes to Consolidated Financial Statements.
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RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
Net sales $ 1,315,396 $ 1,136,668
Gain from SERP benefit -- 2,341
Other income 2,438 2,912
----------- -----------
1,317,834 1,141,921
Costs and expenses:
Cost of sales 960,845 836,305
Warehouse, delivery, selling, administrative
and general 238,336 201,963
Depreciation and amortization 21,120 19,054
Interest 18,586 17,609
----------- -----------
1,238,887 1,074,931
Income before equity in earnings of 50%-owned
company and income taxes 78,947 66,990
Equity in earnings of 50%-owned company 2,136 3,208
----------- -----------
Income before income taxes 81,083 70,198
Income taxes:
Federal 28,379 23,797
State 4,054 3,931
----------- -----------
32,433 27,728
----------- -----------
Net income $ 48,650 $ 42,470
=========== ===========
Earnings per share - diluted $ 1.75 $ 1.52
=========== ===========
Per share gain from SERP benefit - diluted $ -- $ .05
=========== ===========
Weighted average shares outstanding - diluted 27,796,000 27,879,000
=========== ===========
Earnings per share - basic $ 1.76 $ 1.53
=========== ===========
Weighted average shares outstanding - basic 27,694,000 27,733,000
=========== ===========
Cash dividends per share $ .165 $ .13
=========== ===========
See Notes to Consolidated Financial Statements.
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RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net income $ 48,650 $ 42,470
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 21,120 19,054
Gain from SERP benefit -- (2,341)
Deferred income taxes 839 (13)
Loss on sales of machinery and equipment 431 113
Equity in earnings of 50%-owned company (2,136) (3,208)
Changes in operating assets and liabilities:
Accounts receivable (37,794) (3,829)
Inventories (30,009) 51,743
Prepaid expenses and other assets (3,587) (2,561)
Accounts payable and accrued expenses (8,204) (238)
--------- ---------
Net cash (used in) provided by operating activities (10,690) 101,190
--------- ---------
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment (22,111) (15,389)
Proceeds from sales of property and equipment 542 1,386
Acquisitions of metals service centers and asset purchases of
metals service centers (39,512) (85,370)
Dividends received from 50%-owned company 2,622 8,622
--------- ---------
Net cash used in investing activities (58,459) (90,751)
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 163,250 70,500
Principal payments on long-term debt and short-term
borrowings (82,806) (74,541)
Dividends paid (4,622) (3,605)
Issuance of common stock 1,403 1,501
Repurchase of Common Stock (12,360) --
--------- ---------
Net cash provided by (used in) financing activities 64,865 (6,145)
--------- ---------
(Decrease) increase in cash (4,284) 4,294
Cash and cash equivalents at beginning of period 9,862 6,496
--------- ---------
Cash and cash equivalents at end of period $ 5,578 $ 10,790
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Interest paid during the period $ 13,368 $ 12,465
Income taxes paid during the period 34,850 29,568
See Notes to Consolidated Financial Statements.
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RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States 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
nine month periods ended September 30, 2000 are not necessarily indicative of
the results for the full year ending December 31, 2000. For further information,
refer to the consolidated financial statements and footnotes thereto for the
year ended December 31, 1999, included in the Reliance Steel & Aluminum Co. Form
10-K.
2. ACQUISITIONS
On August 7, 2000, through its newly-formed company, United Alloys Aircraft
Metals, Inc. ("United"), the Company purchased the assets and business of the
Aircraft Division of United Alloys, Inc. United will operate as a wholly-owned
subsidiary of Service Steel Aerospace Corp., a wholly-owned subsidiary of the
Company. United is located in Vernon, California, and provides its customers
with value-added processed titanium products. The Aircraft Division of United
Alloys, Inc. had 1999 annual sales of approximately $18,000,000. The purchase of
United was funded with borrowings under the Company's line of credit.
On June 1, 2000, the Company acquired 100% of the outstanding stock of Toma
Metals, Inc. ("Toma"), a privately-held metals service center based in
Johnstown, Pennsylvania. Toma processes and distributes primarily stainless
steel flat-rolled products and had sales of approximately $9,800,000 for the six
months ended March 31, 2000. The acquisition of Toma was funded with borrowings
under the Company's line of credit.
Through its newly-formed company, Hagerty Steel & Aluminum Company ("Hagerty"),
the Company purchased the assets and business of the metals service center
division of Hagerty Brothers Company, located in Peoria, Illinois, on February
5, 2000. Hagerty processes and distributes primarily carbon steel products, and
operates as a wholly-owned subsidiary of Liebovich Bros., Inc., a wholly-owned
subsidiary of the Company. Net sales of the metals service center business of
Hagerty Brothers Company were approximately $30,000,000 for the year ended
December 31, 1999. The Hagerty assets were acquired with funds from borrowings
under the Company's line of credit.
All of the above transactions have been accounted for under the purchase method
of accounting. Accordingly, the accompanying consolidated statements of income
include the revenues and expenses of each acquisition since its respective
acquisition date. The consolidated financial statements reflect the preliminary
allocation of the purchase price. The allocations of purchase price were based
upon the preliminary fair values of the net assets purchased.
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3. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
Revolving line of credit ($200,000,000 limit) due October 22,
2002, interest at variable rates, weighted average rate of
6.8% during the nine months ended September 30, 2000 ............. $ 112,750 $ 25,000
Senior unsecured notes due January 2, 2004 to January 2,
2009, average fixed interest rate 7.22% .......................... 75,000 75,000
Senior unsecured notes due January 2, 2002 to January 2,
2008, average fixed interest rate 7.02% .......................... 65,000 65,000
Senior unsecured notes due October 15, 2005 to October 15,
2010, average fixed interest rate 6.55% .......................... 150,000 150,000
Variable Rate Demand Industrial Development Revenue
Bonds, Series 1989 A, due July 1, 2014, with interest
payable quarterly, average interest rate of 3.5% during
the nine months ended September 30, 2000 ......................... 3,050 3,200
--------- ---------
405,800 318,200
Less amounts due within one year ................................. (150) (150)
--------- ---------
$ 405,650 $ 318,050
========= =========
The Company has a syndicated credit agreement with four banks for an unsecured
revolving line of credit with a borrowing limit of $200,000,000. The syndicated
credit agreement allows the Company to use up to $175,000,000 of the revolving
line of credit for acquisitions. The Company has $290,000,000 of outstanding
senior unsecured notes issued in private placements of debt. These notes bear
interest at an average fixed rate of 6.83% and have an average life of 9.1
years, maturing from 2002 to 2010. The Company also entered into a credit
agreement that allows the Company to issue and have outstanding up to a maximum
of $10,000,000 of letters of credit.
The Company's long-term loan agreements require the maintenance of a minimum net
worth and include certain restrictions on the amount of cash dividends payable,
among other things, which are measured quarterly.
4. SHAREHOLDERS' EQUITY
The Board of Directors authorized a 3-for-2 common stock split effected in the
form of a 50% stock dividend distributed on September 24, 1999, to shareholders
of record on September 2, 1999. All references in the financial statements to
number of shares and per share amounts have been retroactively adjusted to
reflect this stock split.
In August 1998, the Board of Directors approved the purchase of up to an
additional 3,750,000 shares of the Company's outstanding Common Stock through
its Stock Repurchase Plan, for a total of up to 6,000,000 shares. The Stock
Repurchase Plan was initially established in December 1994 and authorizes the
Company to purchase 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. As of September 30, 2000, the
Company had repurchased a total of 3,268,275 shares of its Common Stock under
the Stock Repurchase Plan, at an average cost of $11.88 per share. During the
nine month period ended September 30, 2000, the Company repurchased 595,950
shares of its Common Stock under this plan at an average cost of $20.74 per
share.
In March 2000, 10,854 shares of Common Stock were issued to division managers
and officers of the Company under the 1999 Key-Man Incentive Plan.
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5. SUBSEQUENT EVENTS
On October 30, 2000, the Company purchased 2,270,000 shares of its common stock
at a cost of $19.35 per share under its Stock Repurchase Plan in a private
transaction. The stock was purchased from the trust of one of the Company's
largest shareholders. Thomas W. Gimbel, a member of the Board of Directors of
the Company, is a co-trustee of the trust from which the shares were acquired.
The purchase was financed under the Company's existing revolving credit line,
which was increased by $50,000,000 through "Amendment No. Four to Credit
Agreement," dated October 20, 2000. This amendment has a term of six months. The
incremental financing allowed the Company to repurchase the above-mentioned
stock, without affecting its capital sources for short-term acquisition
opportunities. The Company is currently in the process of refinancing its
existing $200,000,000 line of credit to an increased amount to support its
current activity level, including future growth opportunities.
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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 three month
and nine month periods ended September 30, 2000 and September 30, 1999 (dollars
are shown in thousands and certain amounts may not calculate due to rounding):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------- --------------------------------------------------
2000 1999 2000 1999
-------------------- --------------------- ----------------------- -----------------------
% OF % OF % OF % OF
$ NET SALES $ NET SALES $ NET SALES $ NET SALES
-------- --------- -------- --------- ---------- --------- ---------- ---------
NET SALES .................. $443,652 100.0% $380,070 100.0% $1,315,396 100.0% $1,136,668 100.0%
GROSS PROFIT ............... 118,398 26.7 104,750 27.6 354,551 27.0 300,363 26.4
OPERATING EXPENSES ......... 79,038 17.8 70,317 18.5 238,336 18.1 201,963 17.8
DEPRECIATION EXPENSE ....... 5,345 1.2 4,923 1.3 15,697 1.2 14,077 1.2
-------- ----- -------- ----- ---------- ----- ---------- -----
INCOME FROM OPERATIONS ..... $ 34,015 7.7% $ 29,510 7.8% $ 100,518 7.6% $ 84,323 7.4%
======== ===== ======== ===== ========== ===== ========== =====
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
In the three months ended September 30, 2000, consolidated net sales increased
16.7% to $443,652, from $380,070 in the same period of 1999, which reflects an
increase of 4.6% in tons sold and an increase in the average sales price per ton
of 11.2%. The increase in tons sold was primarily due to the inclusion during
the 2000 period of a full three months of the sales of Allegheny Steel
Distributors, Inc. ("Allegheny"), acquired September 1, 1999; Arrow Metals,
acquired October 1, 1999; Hagerty Steel & Aluminum Company ("Hagerty"), formed
February 5, 2000; and Toma Metals, Inc. ("Toma"), acquired June 1, 2000; along
with two months' sales of United Alloys Aircraft Metals, Inc. ("United"), formed
August 7, 2000 (collectively, along with Liebovich Bros., Inc. ("Liebovich")
acquired March 1, 1999, the "Acquisitions"). The increase also reflects
improvements in sales of the Company's products to the semiconductor,
electronics and related industries, along with increased sales to the aerospace
industry. These improvements were somewhat offset by continued weak sales to the
truck trailer and rail car markets and recent weakness in the Pacific Northwest
and Eastern regions of the United States. The average selling prices increased
for the 2000 period due mainly to a shift in product mix of approximately 4%
away from carbon steel products to stainless steel products. The stainless steel
products include products sold to the semiconductor industry, which are
typically among the most high priced products sold by the Company. There was
also an increase in tons sold to the aerospace industry of 12% during the third
quarter of 2000 that contributed to the increased average sales price, as the
products sold to the aerospace industry are among the higher priced products
sold by the Company.
Excluding the sales of the Acquisitions ("same store sales"), the Company
reported an increase in same store sales of $36,896, or 10.5% on a 1.6% decrease
in tons sold, with the average selling price per ton increasing 12.2%. The
decrease in tons sold was primarily due to softer demand, primarily for carbon
steel products, in the Eastern portion of the United States during the 2000
period. However, this decrease was offset by increased demand in the
semiconductor, electronics and aerospace industries. The increase in the average
selling price is primarily due to increased selling prices of most of the
Company's products related to increased metal costs during the 2000 period, as
compared to the 1999 period. Improved sales to the semiconductor, electronics
and related industries, and to the aerospace industry, also contributed to the
increase in the average selling price, due to the materials sold to these
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industries being among the higher priced products sold by the Company.
Total gross profit increased to $118,398 for the quarter ended September 30,
2000, an increase of 13.0% over the same period of 1999. The increase in gross
profit was primarily due to the inclusion of the gross profit of the
Acquisitions. Expressed as a percentage of sales, gross profit decreased to
26.7% in 2000 from 27.6% in 1999. This reduction in gross margin was anticipated
as selling prices and material costs for most products began to decline in the
second quarter of 2000, which, along with slowing demand in certain regions and
industries, has caused several other service center companies to have excess
inventory. As these conditions persist through the fourth quarter of 2000,
margins are expected to continue to tighten due to the impact on the market from
inventory reductions.
Warehouse, delivery, selling and general and administrative ("operating")
expenses increased $8,721, or 12.4%, in the third quarter of 2000 compared to
the corresponding period of 1999. The dollar increase in expenses reflects the
increase in sales volume for the 2000 period, which includes the sales and
related expenses of the Acquisitions. As a percent of sales, these expenses
decreased to 17.8% in the 2000 period, from 18.5% in the comparable 1999 period.
This improvement was primarily due to the increase in average selling prices
discussed above.
Depreciation and amortization expense increased 9.6% during the three months
ended September 30, 2000 compared to the corresponding period of 1999. This
increase is primarily due to the inclusion of depreciation expense related to
the assets of the Acquisitions and the amortization of goodwill resulting from
the Acquisitions.
Interest expense increased 21.2% in the 2000 quarter as compared to the 1999
quarter. This increase is primarily due to a higher level of outstanding debt in
the 2000 quarter, related to funding the acquisitions made subsequent to the
corresponding 1999 quarter, which include Arrow Metals, Hagerty, Toma and
United. The outstanding debt also increased due to borrowings to repurchase
$12,360 of the Company's common stock during 2000, and to fund working capital
needs.
Equity earnings from 50%-owned company decreased by $828 during the 2000 quarter
as compared to the 1999 quarter. This decrease was primarily due to the weakness
in demand experienced in the Pacific Northwest region, related mainly to the
truck trailer and rail car markets.
The effective income tax rate was 40.0% for the three months ended September 30,
2000, compared to 39.5% for the 1999 period. The 1999 period reflected the
estimated benefit of the tax free life insurance proceeds received under the
Company's Supplemental Executive Retirement Plan ("SERP").
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales increased 15.7% to $1,315,396, for the nine months ended
September 30, 2000, compared to the first nine months of 1999. The 2000 period
includes an increase of 10.3% in tons sold and an increase in the average
selling price per ton of 4.8%. The increase in tons sold was primarily due to
the inclusion of the sales of the Acquisitions during the nine months ended
September 30, 2000. The increase also reflects improvements in sales to the
semiconductor and electronics industries, along with recent improvements in
sales to the aerospace industry. Declining demand has recently been noted in the
Pacific Northwest and Eastern regions of the United States, along with the
continued slow demand in the truck trailer and rail car markets. The average
selling price increase of 4.8% for the 2000 period resulted mainly from general
price increases for most products during the 2000 period as compared to the 1999
period, along with shifts in product mix to the higher priced products discussed
above.
Same store sales of $1,161,953 increased by 8.3%, which reflects tons sold
consistent with the 1999 period, and an increase in the average selling price
per ton of 8.3%. The increase in the average selling price is primarily due to
increased selling prices of most of the Company's products during the 2000
period, as compared to the 1999 period. Increased sales to the semiconductor and
related industries, and to the aerospace industry, also contributed to the
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increase in average selling price in 2000, due to the products sold to these
markets being among the highest priced products sold by the Company.
During the nine months ended September 30, 1999, the Company recorded a one-time
gain of $2,341 from a life insurance policy, which was not taxable to the
Company, in connection with the Company's Supplemental Executive Retirement Plan
("SERP").
In the nine months ended September 30, 2000, total gross profit increased
$54,188, or 18.0%, compared to the first nine months of 1999, primarily due to
the inclusion of the gross profit of the Acquisitions. Gross profit increased to
27.0% in 2000 from 26.4% in 1999 as a percentage of sales. The improvement was
primarily due to strong demand and increasing prices in the first part of 2000,
along with the Company's ability to increase selling prices in advance of
increased metal costs. The Company's sales force was successful in increasing
selling prices at a rate ahead of the receipt of higher cost material for most
products sold by the Company during the early part of 2000.
Warehouse, delivery, selling and general and administrative ("operating")
expenses increased $36,373, or 18.0%, in the 2000 period, as compared to the
1999 period. The dollar increase in expenses reflects the increase in sales
volume for the 2000 period, which includes the sales and related expenses of the
Acquisitions. As a percentage of sales, these operating expenses remained
comparable at 18.1% in 2000 and 17.8% in 1999. Certain of the companies acquired
in 1999 and 2000 operate at higher expense levels than those historically
experienced by the Company on a consolidated basis, which has resulted in a
slight increase in operating expenses as a percentage of sales.
Depreciation and amortization expense increased $2,066, or 10.8%, during the
nine months ended September 30, 2000, compared to the corresponding period of
1999. This increase resulted from the inclusion of depreciation expense related
to the assets of the Acquisitions, the amortization of goodwill resulting from
the Acquisitions, and the depreciation expense for current year fixed asset
additions.
Interest expense increased by 5.6% in the nine months ended September 30, 2000,
primarily due to the average borrowings outstanding during the first nine months
of 2000 being higher than the average 1999 level. The 2000 borrowings increased
due to funding the acquisitions made in 2000, repurchases of Company stock, and
general working capital needs.
The effective income tax rate was 40.0% for the nine months ended September 30,
2000, compared to 39.5% for the 1999 period. The 1999 period included the
benefit of the tax free life insurance proceeds discussed above.
Earnings per diluted share of $1.52 for the nine month period ended September
30, 1999 included $.05 related to the tax free gain on the life insurance policy
discussed above.
LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE
AND PER SHARE AMOUNTS)
At September 30, 2000, working capital amounted to $362,899 compared to $273,040
at December 31, 1999. The increase was primarily due to increases in receivables
and inventory resulting from the increased sales activity. 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 generally from internally
generated funds from operations and the Company's revolving line of credit. The
unsecured syndicated credit facility has a borrowing limit of $200,000. As of
September 30, 2000, $112,750 was outstanding under this credit facility. The
Company also has agreements with insurance companies for private placements of
senior unsecured notes in the aggregate amount of $290,000. The senior notes
that were issued in the private placements have maturity dates ranging from 2002
to 2010, with an average life of 9.1 years, and bear interest at an average
fixed rate of 6.83% per annum.
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Cash was used in operations during the nine month period ended September 30,
2000, as compared to cash provided by operations during the corresponding 1999
period, primarily due to increased working capital needs during the 2000 period
necessary to support the increased sales activity.
Capital expenditures, excluding acquisitions, were $22,111 for the nine months
ended September 30, 2000. The Company had no material commitments for capital
expenditures as of September 30, 2000. The Company anticipates that funds
generated from operations and funds available under its line of credit will be
sufficient to meet its working capital needs for the foreseeable future. The
purchases of Hagerty, Toma and United were funded with borrowings on the
Company's line of credit.
The Board of Directors declared a 3-for-2 common stock split, in the form of a
50% stock dividend, effective September 24, 1999, to shareholders of record
September 2, 1999.
On August 31, 1998, the Board of Directors of the Company approved the purchase
of up to an additional 3,750,000 shares of the Company's outstanding Common
Stock through its Stock Repurchase Plan, for a total of 6,000,000 shares. During
the nine months ended September 30, 2000, the Company repurchased 595,950 shares
of its Common Stock at an average purchase price of $20.74 per share. The
Company has purchased a total of 3,268,275 shares of its Common Stock, at an
average purchase price of $11.88 per share, as of September 30, 2000, all of
which were treated as authorized but unissued shares. The Company generally
repurchases its stock when the stock price falls to a level that causes the use
of capital to repurchase stock to be more accretive than the use of capital for
an acquisition. The Company believes such purchases enhance shareholder value
and reflect its confidence in the long-term growth potential of the Company.
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, product and customer diversity, however, the Company's operations
have not shown any material seasonal trends. Revenues in the months of November
and December traditionally have been lower than in other months because of a
reduced number of working days for shipments of the Company's products and
holiday closures for some of its customers. There can be no assurance that
period-to-period fluctuations will not occur in the future. Results of any one
or more quarters are therefore not necessarily indicative of annual results.
THIS FORM 10-Q MAY CONTAIN FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
FINANCIAL RESULTS. ACTUAL RESULTS MAY DIFFER MATERIALLY AS A RESULT OF FACTORS
OVER WHICH RELIANCE STEEL & ALUMINUM CO. HAS NO CONTROL. THESE RISK FACTORS AND
ADDITIONAL INFORMATION ARE INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) 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.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.09 Amendment No. Four to Credit Agreement dated October 22, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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: November 13, 2000 By: /s/ David H. Hannah
------------------------------------------
David H. Hannah
President and Chief Executive Officer
By: /s/ Karla R. McDowell
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Karla R. McDowell
Senior Vice President and
Chief Financial Officer
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