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 September 30, 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 September 30, 1997, 15,209,858 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..................................... 8
PART II -- OTHER INFORMATION................................................... 13
SIGNATURES..................................................................... 14
3
PART I -- FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
Consolidated Balance Sheets
(In thousands except share amounts)
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------------------
(unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 3,529 $ 815
Accounts receivable, less allowance for doubtful accounts
of $4,020 at September 1997 and $2,899 at December 1996 123,911 73,092
Inventories 140,089 122,778
Prepaid expenses and other current assets 1,528 6,700
Deferred income taxes 7,975 7,515
----------------------
Total current assets 277,032 210,900
Property, plant and equipment, at cost:
Land 25,745 21,054
Buildings 89,474 80,687
Machinery and equipment 100,153 88,551
Allowances for depreciation (63,189) (56,678)
----------------------
152,183 133,614
Investment in 50%-owned company 28,803 28,958
Intangibles 47,215 17,704
----------------------
Total assets $ 505,233 $ 391,176
======================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 86,513 $ 59,367
Wages and related accruals 5,765 4,636
Income taxes payable (781) 90
Deferred income taxes 7,864 7,587
Current maturities of long-term debt 100 2,455
----------------------
Total current liabilities 99,461 74,135
Long-term debt 179,350 107,450
Deferred income taxes 17,169 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 - 15,209,858 at
September 1997 and 15,489,431 at December 1996,
stated capital 61,898 61,131
Retained earnings 147,355 131,511
----------------------
Total shareholders' equity 209,253 192,642
----------------------
Total liabilities and shareholders' equity $ 505,233 $ 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.
1.
4
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
--------------------------
Net sales $ 254,236 $ 153,395
Gain on sale of real estate -- --
Other income 671 354
--------------------------
254,907 153,749
Costs and expenses:
Cost of sales 197,718 115,767
Warehouse, delivery, selling, administrative
and general 37,386 24,387
Depreciation and amortization 3,330 2,064
Interest 3,009 737
--------------------------
241,443 142,955
Income before equity in earnings of 50%-owned
company and income taxes 13,464 10,794
Equity in earnings of 50%-owned company 1,002 1,052
--------------------------
Income before income taxes 14,466 11,846
Income taxes:
Federal 4,948 3,772
State 1,103 1,101
--------------------------
6,051 4,873
--------------------------
Net income $ 8,415 $ 6,973
==========================
Earnings per share $ .55 $ .45
==========================
Weighted average shares outstanding 15,346,000 15,696,000
==========================
2.
5
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
--------------------------
Net sales $ 699,651 $ 475,657
Gain on sale of real estate 1,008 1,519
Other income 1,670 2,249
--------------------------
702,329 479,425
Costs and expenses:
Cost of sales 541,094 361,858
Warehouse, delivery, selling, administrative
and general 107,907 74,976
Depreciation and amortization 9,277 5,773
Interest 7,807 2,045
--------------------------
666,085 444,652
Income before equity in earnings of 50%-owned
company and income taxes 36,244 34,773
Equity in earnings of 50%-owned company 3,675 3,532
--------------------------
Income before income taxes 39,919 38,305
Income taxes:
Federal 13,093 12,160
State 3,114 3,562
--------------------------
16,207 15,722
--------------------------
Net income $ 23,712 $ 22,583
==========================
Earnings per share $ 1.54 $ 1.44
==========================
Weighted average shares outstanding 15,403,000 15,669,000
==========================
3.
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RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
----------------------
OPERATING ACTIVITIES
Net income $ 23,712 $ 22,583
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,277 5,773
Deferred income taxes (110) --
(Gain)/loss on sales of machinery and equipment (362) --
Deferred gain on sale of real estate (1,008) (1,266)
Equity in earnings of 50%-owned company (3,345) (3,532)
Changes in operating assets and liabilities:
Accounts receivable (32,045) 6,560
Inventories 345 2,037
Prepaid expenses and other assets 2,267 4,654
Income taxes (1,146) (3,973)
Accounts payable and accrued expenses 11,051 (5,026)
----------------------
Net cash provided by operating activities 8,636 27,810
----------------------
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment (19,159) (16,082)
Proceeds from sales of property and equipment 1,816 997
Acquisitions of metals service centers (44,466) (24,974)
Dividends received from 50%-owned company 3,500 1,203
----------------------
Net cash used in investing activities (58,309) (38,856)
----------------------
FINANCING ACTIVITIES
Proceeds from borrowings 225,000 33,000
Principal payments on long-term debt and short-term
borrowings (165,510) (36,518)
Dividends paid (1,948) (1,536)
Issuance of common stock 1,037 786
Repurchase of common stock (7,435) --
Exercise of stock options 1,243 --
----------------------
Net cash provided by financing activities 52,387 4,268
----------------------
Increase (decrease) in cash 2,714 (15,314)
Cash and cash equivalents at beginning of period 815 18,012
----------------------
Cash and cash equivalents at end of period $ 3,529 $ 2,698
======================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Interest paid during the period $ 7,407 $ 1,819
Income taxes paid during the period 15,564 18,980
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RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 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 and nine month periods ended September 30, 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. ACQUISITIONS
On April 2, 1997, the Company completed the purchase of AMI Metals, Inc.
("AMI"), for $38,500,000. AMI was 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 was 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. It is expected that the business of
Amalco will be combined with the Company's existing metals service center in
Santa Clara, California. The combined operation will be housed in a new,
larger, state-of-the-art facility in Union City, California, which is
scheduled to be completed early in 1998.
The purchases of AMI and Amalco were accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based on the estimated fair values
at the date of the acquisition.
3. STOCK SPLIT
On May 28, 1997, the Board of Directors declared a three-for-two stock split in
the form of a 50% stock dividend on the Company's Common Stock, payable June
27, 1997 to shareholders of record June 6, 1997. All share and per share data,
as appropriate, reflect this split.
4. SHAREHOLDERS' EQUITY
In December 1994, the Board of Directors approved a Stock Repurchase Plan,
authorizing the Company to purchase up to 750,000 shares (increased to
1,500,000 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 September 30,
1997, the Company had repurchased a total of 1,351,500 shares of its
5.
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RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited) - (continued)
Common Stock under the Stock Repurchase Plan, at an average cost of $11.37 per
share. Of these shares, 373,800 shares were repurchased by the Company during
the nine month period ended September 30, 1997 at an average cost of $19.88 per
share. No shares were repurchased during the three months ended September 30,
1997.
In March 1997, 22,177 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.
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("FAS 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 calculation
of fully diluted earnings per share under FAS 128 is not deemed to have a
significant impact on primary earnings per share for the nine month and three
month periods ended September 30, 1997 and 1996.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------------------------
(unaudited) (audited)
Revolving line of credit ($125,000 limit), due July 31,
1999, interest at variable rates, payable monthly $ 36,000 $ 39,000
Senior unsecured notes due January 2, 2004 to
January 2, 2009, average interest rate 7.22% 75,000 --
Senior unsecured notes due January 2, 2002 to January 2,
2008, average interest rate 7.02% 65,000 --
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 3,450 3,550
9% Senior Notes, paid March 1, 1997 -- 1,800
Revolving line of credit ($10,000 limit), paid
February 28, 1997 -- 555
---------------------------
179,450 109,905
Less current portion (100) (2,455)
---------------------------
$ 179,350 $ 107,450
===========================
6.
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In October 1997, the Company entered into a credit agreement with six banks.
This syndicated credit facility replaced the Company's existing revolving line
of credit, increasing the Company's borrowing limit to $200,000,000. Prior to
the syndicated line of credit, the Company's borrowing limit with one lender
had been increased to $125,000,000 during March 1997. In September 1997 and
November 1996, the Company entered into agreements with insurance companies for
private placements of debt in the aggregate amounts of $65,000,000 and
$75,000,000, respectively. The proceeds of the debt funded in September 1997
were used to refinance the borrowings under the Company's revolving credit
facility made to fund the acquisitions of AMI and Amalco and borrowings for
general working capital purposes. The proceeds of the debt funded in January
1997 were used to pay off $65,000,000 of promissory notes issued for the
acquisition of Siskin, with the balance of $10,000,000 applied to reduce
borrowings under the Company's revolving line of credit.
The Company's long-term loan agreements include certain restrictions on the
amount of corporate borrowings, cash dividends, and acquisition of the
Company's Common Stock, among other things. In addition, the agreements
require the maintenance of certain financial ratios.
7. EMPLOYEE BENEFITS
The Company had 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. Distributions from the pension plan commenced in July
1997, with the final distribution made October 7, 1997.
8. SUBSEQUENT EVENTS
On October 1, 1997, the Company acquired 100% of the outstanding shares of
Service Steel Aerospace Corp. ("SSA"), which is a metals service center with
facilities located in Tacoma, Washington; North Canton, Ohio; and Long Beach,
California. SSA specializes in stainless and alloy specialty steels for the
aerospace industry. SSA's net sales for the twelve months ended December 31,
1996 were approximately $43,000,000. The Company paid $26,000,000 in cash,
which was funded by borrowings under the Company's existing revolving line of
credit.
On October 8, 1997, the Company announced that it has agreed in principle to
acquire all of the outstanding capital stock of Phoenix Metals Company
("Phoenix"), subject to negotiation of a definitive agreement and successful
completion of due diligence. Phoenix operates metals service centers
specializing in non-ferrous products in Birmingham, Alabama; Atlanta, Georgia;
Charlotte, North Carolina; and Tampa, Florida. For the twelve months ended
February 28, 1997, Phoenix's net sales were approximately $112,000,000.
On October 10, 1997, the Company filed a registration statement with the
Securities and Exchange Commission relating to a proposed offering of up to
3,795,000 shares of the Company's Common Stock, including 200,000 shares to be
sold by certain shareholders and up to 495,000 shares that may be purchased by
the underwriters to cover over-allotments, if any. The net proceeds to the
Company will be used to pay down debt incurred in connection with recent
acquisitions, to fund potential acquisitions and capital expenditures and for
working capital and general corporate purposes.
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 nine month
periods ended September 30, 1997 and September 30, 1996 (dollars are shown in
thousands and certain amounts may not calculate due to rounding):
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------- -----------------------------------------
1997 1996 1997 1996
------------------------------------------- -----------------------------------------
% OF % OF % OF % OF
NET SALES: $ NET SALES $ NET SALES $ NET SALES $ NET SALES
-------------------------------------------------------------------------------------
Metals service centers ... $245,176 96.4% $146,074 95.2% $671,667 96.0% $437,812 92.0%
Valex Corp. .............. 9,060 3.6 7,321 4.8 27,984 4.0 37,845 8.0
-------------------------------------------------------------------------------------
Total sales ........ 254,236 100.0 153,395 100.0 699,651 100.0 475,657 100.0
GROSS PROFIT:
Metals service centers ... 53,761 21.1 35,969 23.4 149,802 21.4 100,177 21.1
Valex Corp. .............. 2,757 1.1 1,659 1.1 8,755 1.3 13,622 2.9
-------------------------------------------------------------------------------------
Total gross profit ..... 56,518 22.2 37,628 24.5 158,557 22.7 113,799 23.9
OPERATING EXPENSES:
Metals service centers ... 38,947 15.3 24,816 16.2 111,237 15.9 73,248 15.4
Valex Corp. .............. 1,770 .7 1,635 1.1 5,947 .8 7,501 1.6
-------------------------------------------------------------------------------------
Total operating expenses 40,717 16.0 26,451 17.2 117,183 16.7 80,749 17.0
INCOME FROM OPERATIONS:
Metals service centers ... 14,814 5.8 11,153 7.3 38,565 5.5 26,929 5.7
Valex Corp. .............. 987 .4 24 .0 2,808 .4 6,121 1.3
-------------------------------------------------------------------------------------
Total operating income . $ 15,801 6.2% $ 11,177 7.3% $ 41,373 5.9% $ 33,050 6.9%
=====================================================================================
FIFO INCOME FROM OPERATIONS ..... $ 16,412 6.5% $ 9,027 5.9% $ 44,223 6.3% $ 30,900 6.5%
=====================================================================================
Substantially all inventories for the Company's metals service centers have
been stated on the last-in, first-out ("LIFO") method. The Company uses the
LIFO method of inventory valuation for these inventories 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 of metals, which the Company is
currently experiencing, 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. As AMI Metals, Inc. ("AMI") purchases the
majority of its inventory for specific customer orders, the FIFO method is used
because it more appropriately matches revenues and costs. The table above
includes income from operations and the discussions which follow include
analysis 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.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales increased $100,841, or 65.7%, for the three months ended
September 30, 1997 compared to the same period of 1996. The increase in metals
service centers' net sales of $99,102, or 67.8%, was primarily due to the
inclusion of sales from CCC Steel, Inc. ("CCC Steel"), which was acquired on
April 3, 1996; from Siskin Steel & Supply Company, Inc. ("Siskin"), which was
acquired on October 1, 1996; from AMI Metals, Inc. ("AMI"), which was acquired
April 2, 1997; and from Amalco Metals, Inc. ("Amalco"), which was acquired
April 30, 1997. The sales increase reflects an increase of 60.3% in tons sold
and an increase in the average sales price per ton of 5.7% for the three months
ended September 30, 1997 compared to the corresponding period of 1996. The
increase in tons sold was primarily due to the inclusion of the net sales of
CCC Steel, Siskin, AMI and Amalco ("the Acquisitions"). Excluding the effect of
the Acquisitions, metals service centers reported an 11.2% increase in tons
8.
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sold in the three months ended September 30, 1997 as compared to the same
period of 1996. The average selling prices increased for the 1997 period
primarily as a result of changes in product mix due to the inclusion of sales
from AMI and Amalco, whose products generally have higher selling prices than
most other products sold by the Company. Excluding the Acquisitions, the
average selling price per ton increased by 2.1% for the 1997 period compared to
the 1996 period for the metals service centers primarily in response to changes
in product mix and increasing selling prices for certain of the Company's
products.
Net sales of Valex increased to $9,060 in the three months ended September
30, 1997, compared to $7,321 in the same period of 1996. The increase in
Valex's sales is due to a slight improvement in the semiconductor manufacturing
industry as compared to the same period of 1996 when a general slowdown in the
construction activities of the semiconductor manufacturing industry occurred.
Total gross profit increased $18,890, or 50.2%, in the three month period ended
September 30, 1997 compared to the same period of 1996. Expressed as a
percentage of sales, gross profit decreased from 24.5% in 1996 to 22.2% in 1997.
The decrease was primarily due to the impact of LIFO. For the 1997 period, the
LIFO reserve increased $611 due to increases in the costs of certain of the
Company's raw materials, while the LIFO reserve decreased during the 1996
period, increasing gross margin during that period by $2,150. The 1997 increase
in the LIFO reserve was mainly due to firming prices of the Company's products
in 1997 compared to 1996, with increased prices in certain products, especially
heat treated aluminum and certain carbon products. On a FIFO basis, gross
profit for the metals service centers decreased to 22.2% of sales for the three
months ended September 30, 1997, from 23.2% for the same period of 1996. Valex's
gross profit of $2,757 for the 1997 period increased 66.2% from the same period
of 1996 with Valex's margin increasing from 22.7% to 30.4%. This increase was
due to cost reductions and fixed costs being spread over a larger sales volume
during the 1997 period.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $13,000, or 53.3%, in the 1997 period compared to the 1996 period and
amounted to 14.7% and 15.9% of sales in each respective period. The dollar
increase in expenses reflects the increase in sales volume for the 1997 period,
which includes the sales and related expenses of Siskin, AMI and Amalco. The
decrease in expenses as a percentage of sales is a result of fixed costs being
spread over a larger sales volume during the 1997 period.
Depreciation and amortization expense increased 61.3% during the three months
ended September 30, 1997 compared to the corresponding period of 1996. This
increase is primarily due to the inclusion of depreciation expense related to
the assets of Siskin, AMI and Amalco, along with the amortization of goodwill
resulting from the acquisitions of Siskin, AMI and Amalco.
Interest expense increased by $2,272 due to increased borrowings during the
three months ended September 30, 1997 as compared to the corresponding period
of 1996 to fund the acquisitions of Siskin, AMI and Amalco.
The effective income tax rate increased to 40.6% in 1997, from 39.9% in 1996.
This increase is primarily due to increased amortization of goodwill related to
the Acquisitions and stock option exercises under FAS 123. Income taxes were
recorded at a rate of 41.8% in the three months ended September 30, 1997, to
adjust the year to date amount to the 40.6% rate expected for the year.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales increased $223,994, or 47.1%, compared to the first nine
months of 1996. The increase in metals service centers' net sales of $233,855,
or 53.4%, was due primarily to the inclusion of sales from the Acquisitions.
The sales increase reflects an increase of 69.4% in tons sold which was offset
by a decrease in the average sales price per ton of 8.5% for the first nine
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 the Acquisitions;
however, excluding the
9.
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sales of the Acquisitions, metals service centers reported a 9.2% increase in
tons sold in the first nine months of 1997 as compared to the same period of
1996. The average selling price has decreased in response to changes in product
mix, with CCC Steel and Siskin adding sales of carbon steel products which
typically have lower selling prices than most of the Company's other products,
which was offset in 1997 by adding AMI and Amalco's sales of high end aluminum
products, which generally have higher selling prices than most of the Company's
other products. Excluding sales of the Acquisitions, the average selling price
decreased by 2.1% in the 1997 period compared to 1996, primarily due to lower
selling prices for common alloy aluminum and stainless steel products during
the 1997 period.
Net sales of Valex decreased to $27,984 in the first nine months of 1997,
compared to $37,845 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 which began in the second half of 1996. Signs of a
slight improvement in the semiconductor manufacturing industry have been seen
during 1997, as compared to the second half of 1996.
Included in other income for the first nine months of 1997 is a net gain of
$1,008 realized on the sale of real property at the Santa Clara, California
location. Included in the first nine months of 1996 is a net gain of $1,519
realized on the sale of real property near Los Angeles.
Total gross profit increased $44,758, or 39.3%, in the first nine months of
1997 compared to the first nine months of 1996. Expressed as a percentage of
sales, gross profit decreased from 23.9% in 1996 to 22.7% in 1997. The
decrease was primarily due to declining margins for Valex and the change in
LIFO. The LIFO reserve increased $2,850 during the first nine months of 1997
due to increased costs and quantities of certain of the Company's raw materials
for 1997, especially heat treated aluminum products. During the 1996 period,
LIFO had the reverse effect, decreasing by $2,150. This resulted in additional
costs in the 1997 period and increased margin in the 1996 period. On a FIFO
basis, gross profit for the metals service centers remained relatively constant
at 22.7% of sales for the first nine months of 1997, and 22.4% for the first
nine months of 1996. Valex's gross profit of $8,755 for the 1997 period
decreased 35.7% from the same period of 1996 and, as a percentage of sales,
decreased from 36.0% to 31.3%. The decreases were 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 nine months
of 1996.
Warehouse, delivery, selling and general and administrative expenses increased
$32,931, or 43.9%, in the first nine months of 1997 compared to the
corresponding period of 1996 and constituted 15.4% and 15.8% of sales for each
respective period. The dollar increase in expenses reflects the increase in
sales volume for the 1997 period, which includes the sales and related expenses
of the Acquisitions.
Depreciation and amortization expense increased 60.7% during the nine months
ended September 30, 1997 compared to the corresponding period of 1996. This
increase is primarily due to the inclusion of depreciation expense, along with
the amortization of goodwill, related to the Acquisitions.
Interest expense increased by $5,762 due to increased borrowings during the
first nine months of 1997 as compared to the corresponding period of 1996 to
fund the Acquisitions.
The effective income tax rate increased from 39.9% in 1996 to 40.6% in 1997,
mainly due to the increased amortization of goodwill from the Acquisitions and
stock option exercises under FAS 123.
Earnings per share for the nine month periods ended September 30, 1997 and 1996
of $1.54 and $1.44, respectively, includes $.04 and $.06 per share,
respectively, attributable to the sale of the real property in each of those
periods.
10.
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LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE
AND PER SHARE AMOUNTS)
At September 30, 1997, working capital amounted to $177,571 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 nine
months of 1997, as well as working capital obtained from the Acquisitions. 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. In October 1997,
the Company entered into a credit agreement with six banks. The Company's
borrowing limit under the revolving line of credit established under this
agreement was increased to $200,000. Prior to the syndicated line of credit,
the Company's borrowing limit with one lender had been increased to $125,000 in
March 1997. In September 1997 and November 1996, the Company entered into
agreements with insurance companies for private placements of debt in the
aggregate amounts of $65,000 and 75,000, respectively. The proceeds of the debt
funded in September 1997 were used to refinance the borrowings under the
Company's revolving credit facility made to fund the acquisitions of AMI and
Amalco and borrowings for general working capital purposes. The proceeds of
the debt funded in January 1997 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
senior notes that were issued in the private placements have maturity dates
ranging from 2002 to 2009 and bear interest at rates ranging from 6.76% to
7.37% per annum.
The decrease in cash provided by operations of $19,174 during the nine month
period ended September 30, 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 nine months of 1997, including the Company's
1997 acquisitions.
Capital expenditures, excluding acquisitions, were $19,159 for the nine months
ended September 30, 1997. The Company had no material commitments for capital
expenditures as of September 30, 1997. The Company anticipates that funds
generated from operations and funds available under its 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 currently in progress.
In December 1994, the Board of Directors approved a Stock Repurchase Plan,
authorizing the Company to purchase up to 750,000 shares (increased to
1,500,000 in February 1995) of its outstanding Common Stock. As of September
30, 1997, the Company had repurchased a total of 1,351,500 shares of its Common
Stock, at an average purchase price of $11.37 per share, all of which are being
treated as authorized but unissued shares. The Company repurchased 373,800
shares of its Common Stock during the nine month period ending September 30,
1997, at an average cost of $19.88 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. The
acquisition of Service Steel Aerospace Corp. was also funded by borrowings
under the revolving line of credit in October 1997.
11.
14
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.
12.
15
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) 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 Form of Note Purchase Agreement dated September 15, 1997
between each of the purchasers listed on Schedule "A"
attached thereto and the Registrant.
10.02 Credit Agreement for the $200 Million Syndicated Credit
Facility dated October 22, 1997.
(b) Form 8-K
No reports on Form 8-K have been filed during the period for which
this report was filed.
13.
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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: October 23, 1997 By: /s/ Joe D. Crider
-----------------------------
Joe D. Crider
Chief Executive Officer
By: /s/ Steven S. Weis
-----------------------------
Steven S. Weis
Senior Vice President &
Chief Financial Officer
14.