1
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 March 31, 1997
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
(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] No [ ]
As of April 30, 1997, 10,101,672 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) .................. 3
Notes to Consolidated Financial Statements (Unaudited) ............. 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .............................. 7
PART II -- OTHER INFORMATION ............................................... 10
SIGNATURES ................................................................. 11
3
PART I -- FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
Consolidated Balance Sheets
(In thousands except share amounts)
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
(unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 48 $ 815
Accounts receivable, less allowance for doubtful accounts
of $2,719 at March 1997 and $2,899 at December 1996 90,429 73,092
Inventories 119,890 122,778
Prepaid expenses and other current assets 4,979 6,700
Deferred income taxes 7,806 7,515
--------- ---------
Total current assets 223,152 210,900
Property, plant and equipment, at cost:
Land 21,054 21,054
Buildings 80,855 80,687
Machinery and equipment 91,621 88,551
Allowances for depreciation (58,912) (56,678)
--------- ---------
134,618 133,614
Investment in 50%-owned company 28,931 28,958
Other assets 16,874 17,704
--------- ---------
Total assets $ 403,575 $ 391,176
========= =========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 64,085 $ 59,367
Wages and related accruals 2,347 4,636
Income taxes payable 3,088 90
Deferred income taxes 7,864 7,587
Current maturities of long-term debt 100 2,455
--------- ---------
Total current liabilities 77,484 74,135
Long-term debt 117,450 107,450
Deferred income taxes 16,949 16,949
Shareholders' equity:
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 - 10,101,672 at
March 1997 and 10,326,287 at December 1996,
stated capital 60,238 61,131
Retained earnings 131,454 131,511
--------- ---------
Total shareholders' equity 191,692 192,642
--------- ---------
Total liabilities and shareholders' equity $ 403,575 $ 391,176
========= =========
See Notes to Consolidated Financial Statements.
NOTE: The Balance Sheet at December 31, 1996 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.
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RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
---------------------------
Net sales $ 201,591 $ 157,634
Gain on sale of real estate -- 1,519
Other income 361 529
----------- -----------
201,952 159,682
Costs and expenses:
Cost of sales 155,454 120,585
Warehouse, delivery, selling, administrative
and general 31,613 24,977
Depreciation and amortization 2,700 1,600
Interest 1,936 429
----------- -----------
191,703 147,591
Income before equity in earnings of 50%-owned
company and income taxes 10,249 12,091
Equity in earnings of 50%-owned company 1,272 1,215
----------- -----------
Income before income taxes 11,521 13,306
Income taxes:
Federal 3,687 4,224
State 910 1,238
----------- -----------
4,597 5,462
----------- -----------
Net income $ 6,924 $ 7,844
=========== ===========
Earnings per share $ .67 $ .76
=========== ===========
Weighted average shares outstanding 10,336,000 10,369,000
=========== ===========
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RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------------------
OPERATING ACTIVITIES
Net income $ 6,924 $ 7,844
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,700 1,600
Deferred income taxes (14) --
Loss on sales of machinery and equipment 55 32
Net gain on sale of real estate -- (1,519)
Equity in earnings of 50%-owned company (1,189) (1,215)
Changes in operating assets and liabilities:
Accounts receivable (17,337) (3,894)
Inventories 2,888 4,959
Prepaid expenses and other assets 2,338 3,194
Income taxes 2,998 1,464
Accounts payable and accrued expenses 2,429 (804)
-------- --------
Net cash provided by operating activities 1,792 11,661
-------- --------
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment (3,571) (5,372)
Proceeds from sales of property and equipment 24 33
Dividends received from 50% owned company 1,217 165
-------- --------
Net cash used in investing activities (2,330) (5,174)
-------- --------
FINANCING ACTIVITIES
Proceeds from borrowings 85,000 --
Principal payments on long-term debt and short-term
borrowings (77,355) (17,400)
Dividends paid (1,061) (923)
Issuance of common stock 620 467
Repurchase of common stock (7,433) --
-------- --------
Net cash used in financing activities (229) (17,856)
-------- --------
Decrease in cash (767) (11,369)
Cash and cash equivalents at beginning of period 815 8,012
-------- --------
Cash and cash equivalents at end of period $ 48 $ 6,643
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
Interest paid during the period $ 1,634 $ 479
Income taxes paid during the period 233 3,998
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RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1997
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 period ended March 31, 1997 are not necessarily
indicative of the results for the full year ending December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1996, 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 (increased to 1,000,000
shares in February 1995) 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 March 31, 1997, the Company
had repurchased a total of 901,000 shares of its Common Stock under the Stock
Repurchase Plan, at an average cost of $17.06 per share. Of these shares,
249,200 shares were repurchased by the Company during the three month period
ended March 31, 1997 at an average cost of $29.82 per share.
In March 1997, 14,785 shares of Common Stock were issued to division managers
and officers of the Company under the 1996 Key Man Incentive Plan.
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.
3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the first quarter ended March 31, 1997 of $.01
per share, and no impact for the first quarter ended March 31, 1996. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
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RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited) - (continued)
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(unaudited) (audited)
Revolving line of credit ($125,000 limit), due July 31,
1999, interest at variable rates, payable monthly $ 39,000 $ 39,000
Senior unsecured notes due January 2, 2004 to
January 2, 2009, average interest rate 7.22% 75,000 --
Promissory notes, paid January 2, 1997 -- 65,000
Variable Rate Demand Industrial Development
Revenue Bonds, Series 1989 A, due July 1, 2014,
with interest payable quarterly 3,550 3,550
9% Senior Notes, paid March 1, 1997 -- 1,800
Revolving line of credit ($10,000 limit), paid
February 28, 1997 -- 555
--------- ---------
117,550 109,905
Less current portion (100) (2,455)
--------- ---------
$ 117,450 $ 107,450
========= =========
The Company's revolving line of credit, as amended, was increased to
$125,000,000 during March 1997. In connection with the acquisition of Siskin on
October 1, 1996, the Company issued $65,000,000 of promissory notes to the
shareholders of Siskin. The notes were collateralized by standby letters of
credit obtained under the Company's revolving line of credit. The promissory
notes were redeemed on January 2, 1997 from the proceeds of the issuance of
$75,000,000 in senior unsecured notes in a private placement of debt. The latter
notes mature at various dates during the period January 2, 2004 to January 2,
2009 and bear interest at an average interest rate of 7.22%.
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.
5. EMPLOYEE BENEFITS
The Company has a noncontributory defined benefit pension plan covering salaried
and certain hourly employees of the Company. Benefits are based upon the
employees' earnings. On July 5, 1996, benefits under the pension plan were
frozen, as the Company elected to replace the pension plan with a 401(k) plan.
The Board of Directors of the Company approved the termination of the pension
plan in February 1997.
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6. SUBSEQUENT EVENTS
On April 2, 1997, the Company completed the purchase of AMI Metals, Inc.
("AMI"), for $38,500,000. AMI is a privately-held metals service center company
headquartered in Brentwood, Tennessee, with additional locations in Fontana,
California; Wichita, Kansas; Fort Worth, Texas; Kent, Washington; and
Swedesboro, New Jersey. AMI is operating as a wholly-owned subsidiary of the
Company. This acquisition was funded with borrowings under the Company's
revolving line of credit. For the fiscal year ended February 28, 1997, AMI's net
sales were approximately $77,000,000.
On April 30, 1997, the Company purchased Amalco Metals, Inc. ("Amalco"). Amalco
is a privately-held metals service center located in Union City, California.
This acquisition was funded with borrowings under the Company's revolving line
of credit. For the fiscal year ended April 30, 1997, Amalco's net sales were
approximately $25,000,000.
On April 25, 1997, the Company realized a gain of approximately $1,000,000 on
the sale of the real estate at the Santa Clara, California metals service
center, which will be moved to a new facility being constructed in Union City,
California, where it will be combined with Amalco into a single operation. This
new facility is scheduled to be completed in early 1998.
6.
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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 Company's
metals service centers and Valex Corp. for the three month periods ended March
31, 1997 and March 31, 1996 (dollars are shown in thousands and certain amounts
may not calculate due to rounding):
1997 1996
------------------- ------------------------
% OF % OF
$ NET SALES $ NET SALES
-------- --------- -------- ---------
NET SALES
Metals service centers $191,060 94.8% $140,842 89.3%
Valex Corp. 10,531 5.2 16,792 10.7
-------- ----- -------- -----
Total sales 201,591 100.0 157,634 100.0
GROSS PROFIT:
Metals service centers 42,901 21.3 30,078 19.1
Valex Corp. 3,236 1.6 6,971 4.4
-------- ----- -------- -----
Total gross profit 46,137 22.9 37,049 23.5
OPERATING EXPENSES:
Metals service centers 32,102 15.9 23,654 15.0
Valex Corp. 2,211 1.1 2,923 1.9
-------- ----- -------- -----
Total operating expenses 34,313 17.0 26,577 16.9
INCOME FROM OPERATIONS:
Metals service centers 10,799 5.4 6,424 4.1
Valex Corp. 1,025 .5 4,048 2.6
======== ===== ======== =====
Total operating income $ 11,824 5.9% $ 10,472 6.7%
======== ===== ======== =====
FIFO INCOME FROM OPERATIONS $ 11,824 5.9% $ 11,325 7.2%
======== ===== ======== =====
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 MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales increased $43,957, or 27.9%, compared to the first three
months of 1996. The increase in metals service centers' net sales of $50,218, or
35.7%, was due to the inclusion of sales from CCC Steel, Inc. ("CCC Steel"),
which was acquired on April 3, 1996, and from Siskin Steel & Supply Company,
Inc. ("Siskin"), which was acquired on October 1, 1996. The sales increase
reflects an increase of 92.7% in tons sold which was offset by a decrease in the
average sales price per ton of 28.9% for the first three months of 1997 compared
to the corresponding period of 1996. The increase in tons sold was primarily due
to the inclusion of the sales of CCC Steel and Siskin, which accounted for 86.6%
of the increase in net sales. In addition, same store service centers reported a
6.1% increase in tons sold in the first three months of 1997 as compared to the
same period of 1996. The
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average selling prices decreased for the 1997 period due mainly to the change in
product mix from the first three months of 1996 caused by the inclusion in 1997
of the net sales of CCC Steel and Siskin. These operations primarily sell carbon
steel products, which have lower prices than most other products sold by the
Company, principally aluminum and stainless steel. Excluding these acquisitions,
the average selling price per pound decreased by 6.9% for the 1997 period
compared to the 1996 period for the metals service centers. The average selling
price has decreased in response to decreased costs of certain metals, generally
lower selling prices and changes in product mix.
Net sales of Valex decreased to $10,531 in the first three months of 1997,
compared to $16,792 in the same period of 1996. The decrease in Valex's sales is
due to the slowdown in the construction activities of the semiconductor
manufacturing industry. The Company expects this slowdown to last at least
through the first half of 1997.
Included in other income for the first three months of 1996 is a net gain of
$1.5 million realized on the sale of real property near Los Angeles
Total gross profit increased $9,088, or 24.5%, in the first three months of 1997
compared to the first three months of 1996. Expressed as a percentage of sales,
gross profit decreased from 23.5% in 1996 to 22.9% in 1997. The decrease was due
to declining margins for Valex. On a FIFO basis, gross profit for the metals
service centers increased to 22.5% of sales for the first three months of 1997,
from 22.0% for the first three months of 1996. This increase was mainly due to
firming prices of the Company's products in 1997 compared to 1996. The LIFO
reserve was unchanged during the first three months of 1997 due to an estimated
flatness in the costs of the Company's raw materials for 1997. Valex's gross
profit of $3,236 for the 1997 period decreased 53.6% from the same period of
1996 and Valex's margin decreased from 41.5% to 30.7%. This decrease was due to
lower sales volume, a more competitive sales environment and increased customer
demand for certain lower margin products experienced in 1997, as compared to the
first three months of 1996.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $6,636, or 26.6%, in the first three months of 1997 compared to the
corresponding period of 1996 and amounted to 15.7% and 15.8% of sales,
respectively. The dollar increase in expenses reflects the increase in sales
volume for the 1997 period, which includes the sales and related expenses of CCC
Steel and Siskin.
Depreciation and amortization expense increased 68.8% during the three months
ended March 31, 1997 compared to the corresponding period of 1996. This increase
is primarily due to the inclusion of depreciation expense related to the assets
of CCC Steel and Siskin, along with the amortization of goodwill resulting from
these acquisitions.
Interest expense increased by $1,507 due to increased borrowings during the
first three months of 1997 as compared to the corresponding period of 1996 to
fund the acquisitions of CCC Steel and Siskin.
Earnings per share for the three month period ended March 31, 1996 of $.76
includes $.09 per share attributable to the sale of the real property.
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LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE
AND PER SHARE AMOUNTS)
At March 31, 1997, working capital amounted to $145,668 compared to $136,765 at
December 31, 1996. The increase was primarily due to an increase in accounts
receivable resulting from higher sales levels in the first quarter of 1997. 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 line of credit. The Company's
borrowing limit under the revolving line of credit was increased to $125,000 in
March 1997. In November 1996, the Company entered into agreements with insurance
companies for a private placement of debt in the amount of $75,000. This debt
was funded in January 1997 and the proceeds were used to pay off the $65,000 of
promissory notes issued for the acquisition of Siskin with the balance of
$10,000 applied to reduce the borrowings under the Company's revolving credit
facility.
The decrease in cash provided by operations of $9,869 during the three month
period ended March 31, 1997 compared to the corresponding 1996 period was due
principally to the increase in net accounts receivable, which is primarily due
to higher sales in the first quarter of 1997, as compared to the fourth quarter
of 1996.
Capital expenditures were $3,571 for the three months ended March 31, 1997. The
Company had no material commitments for capital expenditures as of March 31,
1997. The Company anticipates that funds generated from operations and funds
available under its existing bank line of credit will be more than sufficient to
meet its working capital needs for the foreseeable future, including the
expansion of its facilities at certain of its metals service centers planned for
1997.
In December 1994, the Board of Directors approved a Stock Repurchase Plan,
authorizing the Company to purchase up to 500,000 shares (increased to 1,000,000
in February 1995) of its outstanding Common Stock. As of March 31, 1997, the
Company had repurchased a total of 901,000 shares of its Common Stock, at an
average purchase price of $17.06 per share, all of which are being treated as
authorized but unissued shares. The Company repurchased 249,200 shares of its
Common Stock during the three month period ending March 31, 1997, at an average
cost of $29.82 per share. The Company believes such purchases enhance
shareholder value and reflect its confidence in the long-term growth potential
of the Company.
The acquisitions of AMI Metals, Inc. and Amalco Metals, Inc. in April 1997 were
funded by borrowings under the Company's revolving line of credit.
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, 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.
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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.
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
10.01 Amendment No. Five to First Amended and Restated Business Loan
Agreement dated March 19, 1997 between the Company and Bank of
America.*
10.02 Amendment No. Six to First Amended and Restated Business Loan
Agreement Dated March 26, 1997.
* Incorporated by reference from Annual Report on Form 10-K dated
December 31, 1996.
(b) Registrant filed a Report on Form 8-K dated January 2, 1997, reporting
the issuance of $75,000,000 of senior unsecured notes to insurance companies in
a private placement.
10.
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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: May 9, 1997 By: /s/ David H. Hannah
----------------------------
David H. Hannah
President
By: /s/ Steven S. Weis
----------------------------
Steven S. Weis
Chief Financial Officer
11.