10-Q: Quarterly report [Sections 13 or 15(d)]
Published on
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2001
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 April 30, 2001, 25,209,476 shares of the registrant's common
stock, no par value, were outstanding.
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RELIANCE STEEL & ALUMINUM CO.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
i
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
See accompanying notes to consolidated financial statements.
1
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except share and per share amounts)
See accompanying notes to consolidated financial statements.
2
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
See accompanying notes to consolidated financial statements.
3
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 months in
the period ended March 31, 2001 are not necessarily indicative of the results
for the full year ending December 31, 2001. For further information, refer to
the consolidated financial statements and footnotes thereto for the year ended
December 31, 2000, included in the Reliance Steel & Aluminum Co. Form 10-K.
2. ACQUISITIONS
On January 19, 2001, the Company acquired Aluminum and Stainless, Inc. ("A&S"),
a privately-held metals service center in Lafayette, Louisiana. A&S processes
and distributes primarily aluminum sheet, plate and bar products and had sales
of approximately $22,000,000 for the year ended December 31, 2000. A&S operates
as a wholly-owned subsidiary of the Company. The acquisition of A&S was funded
with borrowings under the Company's line of credit. In March 2001, A&S opened a
branch in New Orleans, Louisiana, established by the purchase of certain assets
of an existing metals service center.
On January 18, 2001, the Company acquired Viking Materials, Inc. ("Viking"), a
privately-held metals service center in Minneapolis, Minnesota, and a related
company, Viking Materials of Illinois, Inc. ("Viking Illinois"), near Chicago,
Illinois. Viking provides value-added processing and distribution of primarily
carbon steel flat-rolled products and with Viking Illinois, had combined sales
of approximately $90,000,000 for the year ended December 31, 2000. Viking
Illinois operates as a wholly-owned subsidiary of Viking, and Viking operates as
a wholly-owned subsidiary of the Company. The acquisition of Viking and Viking
Illinois was funded with borrowings under the Company's line of credit.
These 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.
4
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
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 is currently in the process of
refinancing its existing $200,000,000 line of credit to an increased amount to
support its future operations and expected growth opportunities. 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 has a
credit agreement that allows the Company to issue and have outstanding up to a
maximum of $10,000,000 of letters of credit. On October 20, 2000, the Company
executed an amendment to this credit agreement, providing a cash advance
facility of $50,000,000 due April 20, 2001. In February 2001, the cash advance
was paid off through an exchange of debt using the Company's revolving line of
credit. As of March 31, 2001, there were no borrowings outstanding under the
cash advance facility. An additional amendment was executed in April 2001,
extending the $50,000,000 cash advance facility to December 31, 2001. This
incremental financing agreement was provided to allow the Company to meet its
anticipated short-term financing requirements until the refinancing of its
existing syndicated facility (discussed above) is completed.
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
In March 2001, 8,334 shares of common stock were issued to division managers of
the Company under the Key-Man Incentive Plan for 2000.
5
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 a trust, which is one of the Company's
largest shareholders. Thomas W. Gimbel, a member of the Board, is a co-trustee
of the trust from which the shares were acquired. The Stock Repurchase Plan
allows the Company to purchase up to 6,000,000 shares of its common stock from
time to time in the open market or in privately-negotiated transactions.
Repurchased shares are redeemed and treated as authorized but unissued shares.
As of March 31, 2001, the Company had repurchased a total of 5,538,275 shares of
its common stock under the Stock Repurchase Plan, at an average cost of $14.94
per share. The Company did not repurchase any shares during the three months
ended March 31, 2001.
Accumulated other comprehensive loss of $1,381,000 and $308,000 at March 31,
2001 and December 31, 2000, respectively, consists of foreign currency
translation adjustments.
5. EARNINGS PER SHARE
The Company calculates basic and diluted earnings per share as required by SFAS
No. 128, Earnings Per Share. Basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is calculated including the dilutive effects of warrants, options, and
convertible securities, if any. The following table sets forth the computation
of basic and diluted earnings per share:
The computations of earnings per share for the three months ended March 31, 2001
and 2000 do not include 37,500 and 388,000 shares, respectively, of stock
options because their inclusion would have been anti-dilutive.
6
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, 2001 and March 31, 2000 (dollars are shown in thousands
and certain amounts may not calculate due to rounding):
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
In the three months ended March 31, 2001, consolidated net sales increased 0.5%
to $432,905, compared to the first three months of 2000, which reflects a
decrease of 3.0% in tons sold and an increase in the average sales price per ton
of 4.1%. The decrease in tons sold was primarily due to the continued general
economic slowing, which was somewhat offset by the inclusion during the 2001
period of a full three months sales of Hagerty Steel & Aluminum Company
("Hagerty"), acquired February 5, 2000; Toma Metals, Inc. ("Toma"), acquired
June 1, 2000; United Alloys Aircraft Metals, Inc. ("United"), acquired August 7,
2000; East Tennessee Steel Supply, Inc. ("East Tennessee"), acquired December 1,
2000; and the sales of Viking Materials, Inc. ("Viking"), acquired January 18,
2001 and Aluminum and Stainless, Inc. ("A&S"), acquired January 19, 2001
(collectively, the "Acquisitions"). This slowdown in business activity was
experienced in all areas of the Company, except for sales to the aerospace
industry. The Company's sales to the aerospace industry on a tons sold basis
increased 12.9% in the 2001 first quarter as compared to the 2000 first quarter.
The average selling price increased for the 2001 period primarily due to
increased sales to the aerospace industry, as selling prices of the products
sold into the aerospace market are typically higher than most other products
sold by the Company.
Same-store sales (excluding sales of the Acquisitions) decreased $32,232, or
7.5%, with the 2001 period tons sold decreasing by 11.6%, and the average
selling price per ton increasing by 4.6% from the 2000 period. The decrease in
tons sold resulted from the continued general downturn in the economy. The
Company's sales were affected by this downturn in all areas except aerospace.
The average selling price increased mainly due to the increased sales to the
aerospace industry. The Company also experienced a sudden slowdown in the 2001
first quarter in the semiconductor and electronics industries as compared to the
late 2000 levels.
Total gross profit increased 2.9% to $120,327 for the first three months of 2001
compared to $116,988 in the first three months of 2000, which includes the gross
profit on sales from the Acquisitions. As a percentage of sales, gross profit
increased to 27.8% in the three months ended March 31, 2001, from 27.2% in the
three months ended March 31, 2000. The improved gross profit percentage is
consistent with the 2000 fourth quarter gross profit percentage of 28.0% and
resulted primarily from a shift in product mix to a greater portion of sales to
the semiconductor, electronics and aerospace markets than the first quarter of
2000. Sales of carbon steel products as a percentage of total sales decreased
4.6% in the first quarter of 2001 as compared to the first quarter of 2000, and
were replaced by sales of higher priced aluminum and stainless steel products
that typically produce greater gross profit dollars.
7
Warehouse, delivery, selling, general and administrative ("S,G&A") expenses
increased $5,551, or 7.0%, in the first three months of 2001 compared to the
corresponding period of 2000 and amounted to 19.6% and 18.4% of sales,
respectively. The dollar increase in expenses includes the expenses of the
Acquisitions. The 2001 S,G&A expense as a percent of sales is consistent with
the fourth quarter of 2000 level of 19.5%. The 2001 first quarter increase
compared to the 2000 first quarter is primarily due to the effect of lower sales
volumes on a consistent fixed cost component. The Company's variable cost
component of S,G&A expense is mainly payroll related. Since December 31, 2000,
the Company has reduced its workforce by 5% as the result of lower sales volume.
Depreciation and amortization expense increased $784 during the three months
ended March 31, 2001 compared to the corresponding period of 2000. 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 increased by 36.0% to $7,647 in the first quarter of 2001
compared to the 2000 quarter, mainly due to increased borrowings used to fund
the Acquisitions and to fund the October 2000 common stock repurchase of
$43,925.
Equity in earnings of 50%-owned company decreased $683 in the 2001 period
compared to the 2000 period due to the continued weakness in the Pacific
Northwest region, mainly related to the truck trailer and rail car markets.
The effective income tax rate decreased to 39.2% for the first quarter of 2001,
compared to 40.0% for the 2000 period, primarily due to shifts in the Company's
geographic composition and the implementation of certain tax planning strategies
during 2000.
LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS)
At March 31, 2001, working capital amounted to $381,807 compared to $347,659 at
December 31, 2000. The increase was primarily due to the additional working
capital of the Acquisitions and slight increases in receivables and inventory
resulting primarily from the sudden decline in sales to the semiconductor and
related electronics industries late in the first quarter of 2001. 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. At March 31, 2001,
$175,000 was outstanding under this credit facility. The Company is currently in
the process of refinancing its existing $200,000 line of credit to increase the
amount to support its future operations and expected growth opportunities. The
Company also has an agreement that allows the Company to issue and have
outstanding letters of credit in an amount not to exceed $10,000. In October
2000, this agreement was amended to provide an additional credit facility in the
form of a cash advance with a limit of $50,000, which was implemented as a
six-month bridge facility to allow the Company to meet its short-term objectives
until the refinancing of the syndicated credit facility is completed. In
February 2001, the cash advance was paid off through an exchange of debt using
the Company's revolving line of credit. As of March 31, 2001, no amounts were
outstanding under the cash advance facility. In April 2001, this bridge facility
was extended through December 31, 2001. 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.
Cash of $11,930 was provided by operations in the three months ended March 31,
2001, as compared to $4,006 of cash used in operations during the corresponding
period of 2000, primarily due to the working capital level necessary to support
the lower sales volume experienced during the 2001 period.
Capital expenditures, excluding acquisitions, were $8,479 for the three months
ended March 31, 2001. The Company had no material commitments for capital
expenditures as of March 31, 2001. 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
A&S and Viking were funded with borrowings on the Company's line of credit.
8
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, the Company is exposed to various market
risk factors, including changes in general economic conditions, domestic and
foreign competition, foreign currency exchange rates, and metal pricing and
availability. Additionally, the Company is exposed to market risk primarily
related to its fixed rate long-term debt. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as interest rates.
Decreases in interest rates may affect the Company's market value of fixed rate
debt. Under its current policies, the Company does not use interest rate
derivative instruments to manage exposure to interest rate changes. Based on the
current holdings of debt, the exposure to interest rate risk is not considered
to be material. Fixed rate debt obligations currently issued by the Company are
not callable until maturity.
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.
9
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
None
(b) Reports on Form 8-K
None
10
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 10, 2001 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
11