10-Q: Quarterly report [Sections 13 or 15(d)]
Published on
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, 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
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(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
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(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, 2000, 27,786,030 shares of the registrant's common
stock, no par value, were outstanding.
INDEX
PART I -- FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
Consolidated Balance Sheets
(In thousands except share amounts)
See Notes to Consolidated Financial Statements.
NOTE: The Balance Sheet at December 31, 1999 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.
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
2.
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
3.
RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 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
period ended March 31, 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
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 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.
3. LONG-TERM DEBT
Long-term debt consists of the following:
4.
The Company has a syndicated credit agreement with five banks for a 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.
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 March 31, 2000, the Company
had repurchased a total of 2,709,175 shares of its Common Stock under the Stock
Repurchase Plan, at an average cost of $10.02 per share. During the three month
period ended March 31, 2000, the Company repurchased 36,850 shares of its Common
Stock under this plan at an average cost of $18.08 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.
5.
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
periods ended March 31, 2000 and March 31, 1999 (dollars are shown in thousands
and certain amounts may not calculate due to rounding):
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
In the three months ended March 31, 2000, consolidated net sales increased 15.9%
to $430,841, compared to the first three months of 1999, which reflects an
increase of 19.4% in tons sold and a decrease in the average sales price per ton
of 2.9%. The increase in tons sold was primarily due to the inclusion of a full
three months of the sales of Liebovich Bros., Inc. ("LBI"), acquired March 1,
1999; Allegheny Steel Distributors, Inc. ("Allegheny"), acquired September 1,
1999; and Arrow Metals, acquired October 1, 1999; and the sales of Hagerty Steel
& Aluminum Company ("Hagerty"), formed February 5, 2000 (collectively, the
"Acquisitions") during the period ended March 31, 2000. The increase also
reflects improvements in sales to the semiconductor and electronics industries.
The increase was somewhat offset by a reduction in tons sold to the aerospace
industry of 5% in the 2000 first quarter as compared to the 1999 first quarter.
The average selling prices decreased for the 2000 period due mainly to the
change in product mix from the first three months of 1999. The change in product
mix resulted mainly due to the inclusion in 2000 of the net sales of the
Acquisitions, which, except for Arrow Metals, primarily sell carbon steel
products. Carbon steel products generally have lower prices than non-ferrous
products and represented 55% of sales in the 2000 quarter compared to 42% in the
1999 quarter.
Excluding the Acquisitions, the Company reported an increase in sales of
$19,034, which includes an increase of 2.2% in tons sold, with the average
selling price per ton increasing 2.9%. 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. The selling price
increases were based upon increased metal costs, with most of the cost increases
effective in the quarter ended March 31, 2000. The reduced sales volume to the
aerospace industry affected the average selling price, as the heat treated
aluminum products sold to the aerospace industry are typically among the most
high priced products sold by the Company. In addition, the prices of the heat
treated aluminum products declined by approximately 13.8% in the 2000 period, as
compared to the 1999 period. Excluding the Company's sales to the aerospace
industry and the Acquisitions, the average selling price would have increased by
8.1%.
6.
During the three months ended March 31, 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").
Total gross profit increased $23,593, or 25.3%, in the first three months of
2000 compared to the first three months of 1999, primarily due to the inclusion
of the gross profit of the Acquisitions and increased selling prices. Expressed
as a percentage of sales, gross profit increased to 27.2% in 2000 from 25.1% in
1999. The improvement was primarily due to increasing selling prices in advance
of increased metal costs. The Company's sales force has been successful in
increasing selling prices at a rate ahead of the receipt of higher cost material
for most products sold by the Company. As the price increases slow and the
higher cost material is received, the margins are reduced, as occurred in the
three months ended March 31, 2000, as compared to the margins realized in the
latter half of 1999. Significant improvements in demand in the semiconductor and
related electronics industries resulted in increased gross margins for products
sold to these industries. In addition, certain of the Acquisitions operate at
higher gross margin percentages than the Company has historically operated at on
a consolidated basis.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $16,835, or 27.0%, in the first three months of 2000 compared to the
corresponding period of 1999 and amounted to 18.4% and 16.8% of sales,
respectively. 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. The increase as a percent of sales is consistent with the latter
half of 1999 and is primarily due to certain of the Acquisitions operating at
higher expense levels than those historically experienced by the Company on a
consolidated basis. In addition, expenses as a percentage of sales increased at
those locations with reduced sales volume to the aerospace industry, due to the
fixed cost component of their expenses.
Depreciation and amortization expense increased $912 during the three months
ended March 31, 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, along with the amortization of goodwill resulting from the
Acquisitions.
Interest expense decreased by 3.7% in the three months ended March 31, 2000, due
to a lower level of borrowings outstanding, as the 1999 acquisition activity was
reduced as compared to the 1998 activity, and due to the Company's ability to
pay down debt during 1999, primarily by reducing inventory levels.
The effective income tax rate was 40.0% for the three months ended March 31,
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 $.51 for the three month period ended March 31,
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 March 31, 2000, working capital amounted to $304,089 compared to $273,040 at
December 31, 1999. The slight increase was primarily due to the working capital
of Hagerty, which was acquired in 2000, and 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
syndicated credit facility has a borrowing limit of $200,000. As of March 31,
2000, $45,000 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
7.
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.
Cash was used in operations during the three month period ended March 31, 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 $5,710 for the three months
ended March 31, 2000. The Company had no material commitments for capital
expenditures as of March 31, 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 purchase of
Hagerty was 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 three months ended March 31, 2000, the Company repurchased 36,850 shares of
its Common Stock at an average purchase price of $18.08 per share. The Company
has purchased a total of 2,709,175 shares of its Common Stock, at an average
purchase price of $10.02 per share, as of March 31, 2000, all of which were
treated as authorized but unissued shares. 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.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In 1999, the Company completed its conversions, testing
and modifications of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers throughout the Year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
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.
8.
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
None
(b) Reports on Form 8-K
None
9.
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 15, 2000 By: /s/ David H. Hannah
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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
10.