e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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o |
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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)
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California
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95-1142616 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
350 South Grand Avenue, Suite 5100
Los Angeles, California 90071
(213) 687-7700
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See the definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
Yes o No þ
As of July 31, 2009, 73,476,270 shares of the registrants common stock, no par value, were
outstanding.
RELIANCE STEEL & ALUMINUM CO.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
i
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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June 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
179,413 |
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$ |
51,995 |
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Accounts receivable, less allowance for doubtful accounts of
$22,669 at June 30, 2009 and $22,018 at December 31, 2008 |
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561,355 |
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851,214 |
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Inventories |
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817,154 |
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1,284,468 |
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Prepaid expenses and other current assets |
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27,995 |
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33,782 |
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Income taxes receivable |
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21,078 |
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9,980 |
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Deferred income taxes |
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70,842 |
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70,933 |
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Total current assets |
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1,677,837 |
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2,302,372 |
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Property, plant and equipment: |
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Land |
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128,515 |
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125,096 |
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Buildings |
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521,380 |
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506,781 |
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Machinery and equipment |
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830,931 |
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810,054 |
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Accumulated depreciation |
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(486,145 |
) |
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(443,225 |
) |
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994,681 |
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998,706 |
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Goodwill |
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1,075,476 |
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1,065,527 |
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Intangible assets, net |
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730,280 |
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741,681 |
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Cash surrender value of life insurance policies, net |
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55,466 |
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57,410 |
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Investments in unconsolidated entities |
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20,874 |
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20,605 |
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Other assets |
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9,845 |
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9,184 |
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Total assets |
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$ |
4,564,459 |
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$ |
5,195,485 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
203,621 |
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$ |
248,312 |
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Accrued expenses |
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54,597 |
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59,982 |
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Deferred revenue |
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48,310 |
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82,949 |
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Accrued compensation and retirement costs |
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55,047 |
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123,707 |
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Accrued insurance costs |
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41,221 |
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40,700 |
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Current maturities of long-term debt |
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81,411 |
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93,877 |
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Current maturities of capital lease obligations |
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647 |
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638 |
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Total current liabilities |
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484,854 |
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650,165 |
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Long-term debt |
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1,181,303 |
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1,671,732 |
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Capital lease obligations |
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3,513 |
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3,833 |
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Long-term retirement costs and other long-term liabilities |
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103,139 |
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94,361 |
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Deferred income taxes |
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338,607 |
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340,326 |
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Commitments and contingencies |
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Reliance shareholders equity: |
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Preferred stock, no par value: |
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Authorized shares 5,000,000 |
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None issued or outstanding |
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Common stock, no par value: |
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Authorized shares 100,000,000 |
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Issued and outstanding shares 73,464,297 at June 30, 2009
and 73,312,714 at December 31, 2008, stated capital |
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572,515 |
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563,092 |
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Retained earnings |
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1,900,534 |
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1,900,360 |
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Accumulated other comprehensive loss |
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(22,648 |
) |
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(32,016 |
) |
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Total Reliance shareholders equity |
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2,450,401 |
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2,431,436 |
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Noncontrolling interests |
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2,642 |
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3,632 |
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Total equity |
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2,453,043 |
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2,435,068 |
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Total liabilities and equity |
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$ |
4,564,459 |
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$ |
5,195,485 |
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See accompanying notes to unaudited consolidated financial statements.
1
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
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Three Months Ended |
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June 30, |
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2009 |
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2008 |
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Net sales |
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$ |
1,242,978 |
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$ |
2,095,068 |
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Costs and expenses: |
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Cost of sales (exclusive of depreciation and amortization shown below) |
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960,093 |
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1,508,134 |
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Warehouse, delivery, selling, general and administrative |
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247,875 |
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297,573 |
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Depreciation and amortization |
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29,580 |
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21,445 |
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1,237,548 |
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1,827,152 |
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Operating income |
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5,430 |
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267,916 |
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Other income (expense): |
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Interest |
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(16,698 |
) |
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(16,161 |
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Other income (expense), net |
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1,832 |
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(499 |
) |
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(Loss) income from continuing operations before income taxes |
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(9,436 |
) |
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251,256 |
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Income tax (benefit) provision |
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(3,880 |
) |
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94,651 |
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Net (loss) income |
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(5,556 |
) |
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156,605 |
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Less: Net income attributable to the noncontrolling interests |
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231 |
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9 |
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Net (loss) income attributable to Reliance |
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$ |
(5,787 |
) |
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$ |
156,596 |
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(Loss) earnings per share: |
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(Loss) income from continuing operations attributable to Reliance diluted |
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$ |
(0.08 |
) |
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$ |
2.12 |
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Weighted average shares outstanding diluted |
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73,376,023 |
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73,757,864 |
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(Loss) income from continuing operations attributable to Reliance basic |
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$ |
(0.08 |
) |
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$ |
2.14 |
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Weighted average shares outstanding basic |
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73,376,023 |
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73,015,855 |
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Cash dividends per share |
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$ |
.10 |
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$ |
.10 |
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See accompanying notes to unaudited consolidated financial statements.
2
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
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Six Months Ended |
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June 30, |
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2009 |
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2008 |
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Net sales |
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$ |
2,801,513 |
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$ |
4,003,238 |
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Costs and expenses: |
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Cost of sales (exclusive of depreciation and amortization shown below) |
|
|
2,164,186 |
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|
2,924,025 |
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Warehouse, delivery, selling, general and administrative |
|
|
524,509 |
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|
579,202 |
|
Depreciation and amortization |
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|
59,427 |
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|
|
42,810 |
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|
|
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|
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2,748,122 |
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3,546,037 |
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Operating income |
|
|
53,391 |
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|
457,201 |
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|
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Other income (expense): |
|
|
|
|
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Interest |
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(36,014 |
) |
|
|
(32,774 |
) |
Other income (expense), net |
|
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3,756 |
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(886 |
) |
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Income from continuing operations before income taxes |
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|
21,133 |
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|
423,541 |
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Income tax provision |
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|
6,301 |
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159,478 |
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Net income |
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14,832 |
|
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|
264,063 |
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Less: Net income attributable to the noncontrolling interests |
|
|
501 |
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|
72 |
|
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Net income attributable to Reliance |
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$ |
14,331 |
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$ |
263,991 |
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Earnings per share: |
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Income from continuing operations attributable to Reliance diluted |
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$ |
.19 |
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$ |
3.58 |
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Weighted average shares outstanding diluted |
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|
73,527,944 |
|
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|
73,651,222 |
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Income from continuing operations attributable to Reliance basic |
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$ |
.20 |
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$ |
3.62 |
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Weighted average shares outstanding basic |
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|
73,346,744 |
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|
|
72,936,666 |
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|
|
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Cash dividends per share |
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$ |
.20 |
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$ |
.20 |
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See accompanying notes to unaudited consolidated financial statements.
3
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Six Months Ended |
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|
June 30, |
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|
2009 |
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2008 |
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|
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Operating activities: |
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Net income |
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$ |
14,832 |
|
|
$ |
264,063 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
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|
Depreciation and amortization expense |
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|
59,427 |
|
|
|
42,810 |
|
Deferred income tax benefit |
|
|
(2,906 |
) |
|
|
(2,249 |
) |
Gain on sales of property, plant and equipment |
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|
(38 |
) |
|
|
(174 |
) |
Equity in earnings of unconsolidated entities |
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|
(269 |
) |
|
|
|
|
Stock based compensation expense |
|
|
7,447 |
|
|
|
6,771 |
|
Excess tax benefits from stock based compensation |
|
|
(513 |
) |
|
|
(9,187 |
) |
Net (gain) loss from life insurance policies |
|
|
(2,450 |
) |
|
|
453 |
|
Changes in operating assets and liabilities (excluding
effect of businesses acquired): |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
291,842 |
|
|
|
(257,165 |
) |
Inventories |
|
|
470,160 |
|
|
|
(204,991 |
) |
Prepaid expenses and other assets |
|
|
(4,793 |
) |
|
|
15,489 |
|
Accounts payable and other liabilities |
|
|
(151,480 |
) |
|
|
272,561 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
681,259 |
|
|
|
128,381 |
|
|
|
|
|
|
|
|
|
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Investing activities: |
|
|
|
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|
|
|
|
Purchases of property, plant and equipment |
|
|
(40,789 |
) |
|
|
(88,305 |
) |
Acquisition of metals service center and net asset purchase of
metals service center, net of cash acquired |
|
|
|
|
|
|
(13,250 |
) |
Proceeds from sales of property, plant and equipment |
|
|
684 |
|
|
|
17,902 |
|
Net proceeds from redemption of life insurance policies |
|
|
4,394 |
|
|
|
2,532 |
|
Net investment in life insurance policies |
|
|
|
|
|
|
(96 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(35,711 |
) |
|
|
(81,217 |
) |
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
102,058 |
|
|
|
339,897 |
|
Principal payments on long-term debt and short-term borrowings |
|
|
(605,989 |
) |
|
|
(270,499 |
) |
Dividends paid |
|
|
(14,670 |
) |
|
|
(14,575 |
) |
Payments to noncontrolling interest holders |
|
|
(588 |
) |
|
|
|
|
Excess tax benefits from stock based compensation |
|
|
513 |
|
|
|
9,187 |
|
Exercise of stock options |
|
|
3,476 |
|
|
|
16,856 |
|
Issuance of common stock |
|
|
258 |
|
|
|
284 |
|
Noncontrolling interests purchased |
|
|
(2,661 |
) |
|
|
|
|
Common stock repurchases |
|
|
|
|
|
|
(114,774 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(517,603 |
) |
|
|
(33,624 |
) |
Effect of exchange rate changes on cash |
|
|
(527 |
) |
|
|
(720 |
) |
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
127,418 |
|
|
|
12,820 |
|
Cash and cash equivalents at beginning of period |
|
|
51,995 |
|
|
|
77,023 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
179,413 |
|
|
$ |
89,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid during the period |
|
$ |
40,731 |
|
|
$ |
28,675 |
|
Income taxes paid during the period |
|
$ |
25,466 |
|
|
$ |
107,464 |
|
See accompanying notes to unaudited consolidated financial statements.
4
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 U.S. 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 U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments necessary for a fair presentation with respect to the interim
financial statements, have been included. The results of operations for the six months ended June
30, 2009 are not necessarily indicative of the results for the full year ending December 31, 2009.
For further information, refer to the consolidated financial statements and footnotes thereto for
the year ended December 31, 2008, included in Reliance Steel & Aluminum Co.s (Reliance or the
Company) Annual Report on Form 10-K.
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
and the disclosure of contingent amounts in the Companys consolidated financial statements and the
accompanying notes. Actual results could differ from those estimates.
The Companys consolidated financial statements include the assets, liabilities and operating
results of majority-owned subsidiaries. The ownership of the other interest holders of consolidated
subsidiaries is reflected as noncontrolling interests. The Companys investments in unconsolidated
subsidiaries are recorded under the equity method of accounting. All significant intercompany
accounts and transactions have been eliminated. The Company has evaluated all subsequent events
through the date of the filing of this Form 10-Q.
2. Impact of Recently Issued Accounting Principles
Accounting Principles Already Adopted
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This Standard defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, which is the year
beginning January 1, 2008 for the Company. In February 2008, the FASB issued FSP FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP FAS 157-2), which permits a one-year deferral of the
application of SFAS No. 157 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The Company adopted SFAS No. 157 and FSP FAS 157-2 effective January 1,
2008. Accordingly, the provisions of SFAS No. 157 were not applied to goodwill and other intangible
assets held by the Company and measured annually for impairment testing purposes only. The adoption
of SFAS No. 157 on January 1, 2008 for all other assets and liabilities held by the Company did not
have a material effect on the Companys financial statements or notes thereto. The Company adopted
SFAS No. 157 for non-financial assets and non-financial liabilities on January 1, 2009, which also
did not have a material effect on its financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations, which
is a revision of SFAS No. 141, Business Combinations. In accordance with the new standard, upon
initially obtaining control, the acquiring entity in a business combination must recognize 100% of
the fair values of the acquired assets, including goodwill, and assumed liabilities, with only
limited exceptions even if the acquirer has not acquired 100% of its target. As a consequence, the
step acquisition model has been eliminated. Also, contingent consideration arrangements will be
fair valued at the acquisition date and included on that basis in the purchase price consideration.
In addition, all transaction costs will be expensed as incurred. SFAS No. 141(R) is effective on
a prospective basis for all business combinations for which the acquisition date is on or after the
beginning of the first annual period subsequent to December 15, 2008, or January 1, 2009 for the
Company, with the exception of the accounting for valuation allowances on deferred taxes and
acquired tax contingencies. SFAS No. 141(R) amends
5
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired
tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No.
141(R) would also apply the provisions of FAS 141(R). All other provisions of SFAS No. 141(R) will
only impact the Company if it is a party to a business combination after the pronouncement has been
adopted. The adoption of this standard did not have a material impact on the Companys financial
position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial StatementsAn Amendment of ARB No. 51. SFAS No. 160 establishes new accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 or
January 1, 2009 for the Company. In accordance with SFAS No. 160, the Company classified
noncontrolling interests as equity on its consolidated balance sheets as of June 30, 2009 and
December 31, 2008 and presented net income attributable to noncontrolling interests separately on
the consolidated statements of income for the three and six months ended June 30, 2009 and 2008,
respectively.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 sets forth the
period after the balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance sheet date. SFAS
No. 165 will be effective for interim or annual periods ending after June 15, 2009 and will be
applied prospectively. The Company adopted the requirements of this pronouncement for the quarter
ended June 30, 2009. The adoption of SFAS No. 165 did not have a material impact on the Companys
financial position, results of operations or cash flow.
Accounting Principles Not Yet Adopted
In December 2008, the FASB issued FSP No. FAS 132(R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets, which requires enhanced disclosures about plan assets in an
employers defined benefit pension or other postretirement plans. These disclosures are intended to
provide users of financial statements with a greater understanding of how investment allocation
decisions are made, the major categories of plan assets, the inputs and valuation techniques used
to measure the fair value of plan assets and significant concentrations of risk within plan assets.
FSP No. FAS 132(R)-1 will apply to the Companys plan asset disclosures for the fiscal year ending
December 31, 2009.
6
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Acquisitions
2008 Acquisitions
Acquisition of HLN Metal Centre Pte. Ltd.
In August 2008, the Company formed Reliance Metalcenter Asia Pacific Pte. Ltd. (RMAP), a
Singapore corporation. On September 17, 2008, RMAP acquired the assets, including the inventory,
machinery, and equipment, of the Singapore operation of HLN Metal Centre Pte. Ltd. RMAP focuses
primarily on supplying metal to the electronics, semiconductor, and solar energy markets. The all
cash purchase price was funded with borrowings on the Companys revolving credit facility. Net
sales of RMAP during the six months ended June 30, 2009 were approximately $0.9 million.
Acquisition of PNA Group Holding Corporation
On August 1, 2008, the Company acquired all of the outstanding capital stock of PNA Group
Holding Corporation, a Delaware corporation (PNA), in accordance with the Stock Purchase
Agreement dated June 16, 2008. The Company paid cash consideration of approximately $321.0 million,
net of purchase price adjustments, repaid or refinanced debt of PNA or its subsidiaries in the
amount of approximately $725.0 million, paid related tender offer and consent solicitation premium
payments of approximately $55.0 million, and incurred direct acquisition costs of approximately
$3.0 million for a total transaction value of approximately $1.1 billion. The Company funded the
acquisition with proceeds from its new $500 million senior unsecured term loan and borrowings under
its existing $1.1 billion syndicated unsecured revolving credit facility.
PNAs subsidiaries include the operating entities Delta Steel, Inc., Feralloy Corporation,
Infra-Metals Co., Metals Supply Company, Ltd., Precision Flamecutting and Steel, Inc. and Sugar
Steel Corporation. Through its subsidiaries, PNA processes and distributes primarily carbon steel
plate, bar, structural and flat-rolled products. PNA currently operates 21 steel service centers
throughout the United States, as well as four joint ventures with six additional service centers in
the United States and Mexico. PNAs net sales for the six months ended June 30, 2009 were
approximately $567.1 million.
The allocation of the total purchase price of PNA to the fair values of the assets acquired
and liabilities assumed is as follows:
|
|
|
|
|
|
|
(In thousands) |
|
Cash |
|
$ |
9,845 |
|
Accounts receivable |
|
|
336,369 |
|
Inventories |
|
|
584,307 |
|
Property, plant and equipment |
|
|
113,627 |
|
Goodwill |
|
|
235,667 |
|
Intangible assets subject to amortization |
|
|
167,200 |
|
Intangible assets not subject to amortization |
|
|
126,000 |
|
Other current and long-term assets |
|
|
59,062 |
|
|
|
|
|
Total assets acquired |
|
|
1,632,077 |
|
|
|
|
|
Current and long-term debt |
|
|
(780,043 |
) |
Deferred income taxes |
|
|
(127,213 |
) |
Other current and long-term liabilities |
|
|
(400,841 |
) |
|
|
|
|
Total liabilities assumed |
|
|
(1,308,097 |
) |
|
|
|
|
Net assets acquired |
|
$ |
323,980 |
|
|
|
|
|
7
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Acquisition of Dynamic Metals International LLC
Effective April 1, 2008, the Company, through its subsidiary Service Steel Aerospace Corp.,
acquired the business of Dynamic Metals International LLC (Dynamic) based in Bristol,
Connecticut. Dynamic was founded in 1999 and is a specialty metal distributor. Dynamic has been
merged into and currently operates as a division of Service Steel Aerospace Corp. headquartered in
Tacoma, Washington. The all cash purchase price was funded with borrowings on the Companys
revolving credit facility. Dynamics net sales for the six months ended June 30, 2009 were
approximately $5.2 million.
Purchase price allocations
The acquisitions of all the companies have been accounted for under the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on the fair values at the date of each acquisition. The accompanying
consolidated statements of income include the revenues and expenses of each acquisition since its
respective acquisition date.
Pro forma financial information
The following unaudited pro forma summary financial results present the consolidated results
of operations as if the acquisition of PNA had occurred at the beginning of the reporting period
being presented, after the effect of certain adjustments, including increased depreciation expense
resulting from recording fixed assets at fair value, interest expense on the acquisition debt, and
amortization of certain identifiable intangible assets. The pro forma summary financial results
reflect the acquired companies historical method for inventory valuation which was the first-in,
first-out (FIFO) method through the acquisition date. All domestic acquisitions adopted the
last-in, first-out (LIFO) method of inventory valuation upon acquisition.
The pro forma results have been presented for comparative purposes only and are not indicative
of what would have occurred had the PNA acquisition been made as of January 1, 2008, or of any
potential results which may occur in the future.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, 2008 |
|
June 30, 2008 |
|
|
(In thousands, except |
|
(In thousands, except |
|
|
per share amounts) |
|
per share amounts) |
Pro forma (unaudited): |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,735,213 |
|
|
$ |
5,117,420 |
|
Net income attributable to Reliance |
|
$ |
204,982 |
|
|
$ |
327,294 |
|
Earnings per share diluted |
|
$ |
2.78 |
|
|
$ |
4.44 |
|
Earnings per share basic |
|
$ |
2.81 |
|
|
$ |
4.49 |
|
4. Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2009 are as
follows:
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of December 31, 2008 |
|
$ |
1,065,527 |
|
Purchase price allocation adjustments |
|
|
7,850 |
|
Effect of foreign currency translation |
|
|
2,099 |
|
|
|
|
|
Balance as of June 30, 2009 |
|
$ |
1,075,476 |
|
|
|
|
|
The adjustments recorded in the six month period ended June 30, 2009 pertained to the
finalization of the PNA purchase price allocation with respect to income taxes payable and deferred
income taxes.
8
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Intangible Assets, net
The following table summarizes the Companys intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
(In thousands) |
|
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants not to compete |
|
$ |
6,853 |
|
|
$ |
(6,461 |
) |
|
$ |
6,853 |
|
|
$ |
(6,363 |
) |
Loan fees |
|
|
19,460 |
|
|
|
(9,992 |
) |
|
|
19,460 |
|
|
|
(8,759 |
) |
Customer lists/relationships |
|
|
341,449 |
|
|
|
(46,446 |
) |
|
|
339,518 |
|
|
|
(34,231 |
) |
Software internal use |
|
|
8,100 |
|
|
|
(2,633 |
) |
|
|
8,100 |
|
|
|
(2,228 |
) |
Other |
|
|
4,895 |
|
|
|
(1,027 |
) |
|
|
5,146 |
|
|
|
(1,036 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380,757 |
|
|
|
(66,559 |
) |
|
|
379,077 |
|
|
|
(52,617 |
) |
Intangible assets not subject to
amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
416,082 |
|
|
|
|
|
|
|
415,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
796,839 |
|
|
$ |
(66,559 |
) |
|
$ |
794,298 |
|
|
$ |
(52,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized amortization expense for intangible assets of approximately $14.1
million and $6.2 million for the six months ended June 30, 2009 and 2008, respectively. Based on
the current amount of intangibles subject to amortization, the estimated amortization expense for
the remaining six months of 2009 and each of the succeeding five years is as follows:
|
|
|
|
|
|
|
(In thousands) |
2009 |
|
$ |
13,884 |
|
2010 |
|
|
27,618 |
|
2011 |
|
|
27,053 |
|
2012 |
|
|
25,246 |
|
2013 |
|
|
25,175 |
|
2014 |
|
|
23,074 |
|
6. Income Taxes
The Companys effective tax rates for the six months ended June 30, 2009 and 2008 were 29.8%
and 37.7%, respectively. Permanent items that impacted the Companys effective tax rates as
compared to the U.S. federal statutory rate of 35% were not materially different in amount during
both periods. However, the same type of permanent items have a much larger favorable impact on the
2009 effective tax rate due to the Companys lower income levels in 2009 compared to 2008.
9
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility due November 9, 2011 |
|
$ |
|
|
|
$ |
453,000 |
|
Senior unsecured term loan due from September 30, 2009 to
November 9, 2011 |
|
|
443,750 |
|
|
|
481,250 |
|
Senior unsecured notes paid January 2, 2009 |
|
|
|
|
|
|
10,000 |
|
Senior unsecured notes due October 15, 2010 |
|
|
78,000 |
|
|
|
78,000 |
|
Senior unsecured notes due from July 1, 2011 to July 2, 2013 |
|
|
135,000 |
|
|
|
135,000 |
|
Senior unsecured notes due November 15, 2016 |
|
|
350,000 |
|
|
|
350,000 |
|
Senior unsecured notes due November 15, 2036 |
|
|
250,000 |
|
|
|
250,000 |
|
Other notes and revolving credit facilities |
|
|
7,961 |
|
|
|
10,427 |
|
|
|
|
|
|
|
|
Total |
|
|
1,264,711 |
|
|
|
1,767,677 |
|
Less unamortized discount |
|
|
(1,997 |
) |
|
|
(2,068 |
) |
Less amounts due within one year |
|
|
(81,411 |
) |
|
|
(93,877 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
1,181,303 |
|
|
$ |
1,671,732 |
|
|
|
|
|
|
|
|
Unsecured Revolving Credit Facility
The Companys $1.1 billion unsecured revolving credit facility has fifteen banks as lenders.
Interest is at variable rates based on LIBOR plus 0.55% or the bank prime rate for the period ended
June 30, 2009. This margin on LIBOR based borrowings is subject to an adjustment every quarter
prospectively based on the Companys leverage ratio. The applicable margin can be a maximum of
1.00% over the LIBOR rate if the Companys leverage ratio is greater than or equal to 55%. The
minimum applicable margin is 0.375% if the leverage ratio is less than 25%. Base rate borrowings
are not subject to adjustments and are based on the banks prime rate. Weighted average rates on
borrowings outstanding on the revolving credit facility were 2.67% at December 31, 2008. Weighted
average interest rates on the revolving credit facility were 3.25% and 3.21% during the three
months ended June 30, 2009 and 2008, respectively, and 1.88% and 3.72% during the six months ended
June 30, 2009 and 2008, respectively.
At June 30, 2009, the Company had $49.5 million of letters of credit outstanding under the
revolving credit facility with availability to issue an additional $75.5 million of letters of
credit. The revolving credit facility includes a commitment fee on the unused portion, at an
annual rate of 0.125% at June 30, 2009.
Revolving Credit Facilities Foreign Operations
The Company also has two separate revolving credit facilities for operations in Canada with a
combined credit limit of CAD$35.0 million. There were no borrowings outstanding on these revolving
credit facilities at June 30, 2009 and December 31, 2008. Various other separate revolving credit
facilities with a combined credit limit of approximately $23.0 million are in place for operations
in: a) Asia with outstanding balances of $1.3 million and $1.6 million at June 30, 2009 and
December 31, 2008, respectively, and b) the United Kingdom with outstanding balances of $4.1
million and $5.8 million at June 30, 2009 and December 31, 2008, respectively.
Senior Unsecured Term Loan
In connection with the PNA acquisition, the Company entered into a $500 million senior
unsecured term loan on July 31, 2008. The loan carries interest at variable rates based on LIBOR
plus 2.0% as of June 30, 2009 and requires quarterly installment payments of principal in the
amount of approximately $18.8 million beginning December 31, 2008, with the remaining balance due
on November 9, 2011. The LIBOR margins are also subject to quarterly
10
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
adjustments under this unsecured term loan agreement based on the Companys leverage ratios. The
applicable margin can be a maximum of 2.50% over the LIBOR rate if the Companys leverage ratio is
greater than or equal to 55%. The minimum applicable margin is 1.50% over the LIBOR rate if the
leverage ratio is less than 25%. Base rate borrowings are also subject to quarterly adjustments
based on the Companys leverage ratios and can be as high as 1.25% or as low as 0.25% over the
banks prime rate. Weighted average interest rates on the term loan were 2.42% and 3.23% during
the three and six months ended June 30, 2009, respectively.
Senior Unsecured Notes Private Placements
The Company also has $213.0 million of outstanding senior unsecured notes issued in private
placements of debt. The outstanding senior notes bear interest at a weighted average fixed rate of
5.71% and have a weighted average remaining life of 2.4 years, maturing from 2010 to 2013.
Senior Unsecured Notes Publicly Traded
On November 20, 2006, the Company entered into an Indenture (the Indenture), for the
issuance of $600 million of unsecured debt securities. The total debt issued was comprised of two
tranches, (a) $350 million aggregate principal amount of senior unsecured notes bearing interest at
the rate of 6.20% per annum, maturing on November 15, 2016 and (b) $250 million aggregate principal
amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on
November 15, 2036. The notes are senior unsecured obligations of Reliance and rank equally with
all other existing and future unsecured and unsubordinated debt obligations of Reliance. The
senior unsecured notes include provisions which, in the event of a change in control, require the
Company to make an offer to repurchase the notes at a price equal to 101% of their principal amount
plus accrued interest.
Covenants
The $1.1 billion revolving credit facility, the $500 million senior unsecured term loan, and
the senior unsecured note agreements collectively require the Company to maintain a minimum net
worth and interest coverage ratio and a maximum leverage ratio, and include a change of control
provision, among other things. The Companys interest coverage ratio for the last twelve-month
period ended June 30, 2009 was approximately 5.2 times compared to the debt covenant minimum
requirement of 3.0 times (interest coverage ratio is calculated as net income attributable to
Reliance plus interest expense and provision for income taxes, less equity in earnings of
unconsolidated subsidiaries, divided by interest expense). The Companys leverage ratio at June
30, 2009 calculated in accordance with the terms of the credit agreement was 34.9% compared to the
debt covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of
capital lease obligations and outstanding letters of credit, divided by Reliance shareholders
equity plus total debt). The minimum net worth requirement at June 30, 2009 was $913.6 million
compared to Reliance shareholders equity balance of $2.45 billion at June 30, 2009. Although we
believe we may be able to satisfy the minimum interest coverage ratio requirement during future
periods in 2009, our ability to do so can be affected by events beyond our control such as the
continual weak economic environment. As a result, we have entered into discussions with our lead
lender to consider an amendment to our credit facility to avoid any potential event of default.
All of our wholly-owned domestic subsidiaries, which constitute the substantial majority of
our subsidiaries, guarantee the borrowings under the revolving credit facility, the term loan and
the private placement notes. The requirement with respect to the subsidiary guarantors is that they
collectively account for at least 80% of consolidated EBITDA and 80% of consolidated tangible
assets. Reliance and the subsidiary guarantors accounted for approximately 97% of our total
consolidated EBITDA for the last twelve months and approximately 94% of total consolidated tangible assets as of June 30, 2009. The Company was in compliance with all debt
covenants at June 30, 2009.
11
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Reliance Shareholders Equity
Common Stock
During the six months ended June 30, 2009, the Company issued 141,223 shares of common stock
in connection with the exercise of employee stock options for total proceeds of approximately $3.5
million. Also, 10,360 shares of common stock valued at approximately $0.3 million were issued to
division managers of the Company in February 2009 under the Key Man Incentive Plan as a portion of
their bonuses for 2008.
Stock Based Compensation
On April 27, 2009, the Company granted 941,300 options to acquire its common stock to key
employees with an exercise price equal to the fair market value. The stock options vest ratably
over a period of four years and expire seven years after the date of grant. The fair value of stock
options granted was estimated using the Black-Scholes option-pricing model with the following
assumptions: Expected life 4.75 years; Expected volatility 58.6%; Dividend yield 1.2%;
Risk-free interest rate 1.9%; Exercise price $33.70.
On May 20, 2009, the Company granted 36,000 options to acquire its common stock to the
non-employee members of the Board of Directors with an exercise price equal to the fair market
value. The stock options cliff vest after one year and expire ten years after the date of grant.
The fair value of stock options granted was estimated using the Black-Scholes option-pricing model
with the following assumptions: Expected life 5.5 years; Expected volatility 58.8%; Dividend
yield 1.1%; Risk-free interest rate 2.0%; Exercise price $38.00.
Share Repurchase Program
The Company has a Stock Repurchase Plan (Repurchase Plan) under which it is authorized to
purchase up to 12,000,000 shares, of which, 7,883,033 shares remain available for repurchase as of
June 30, 2009. No shares were repurchased in the six months ended June 30, 2009.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Net (loss) income |
|
$ |
(5,556 |
) |
|
$ |
156,605 |
|
|
$ |
14,832 |
|
|
$ |
264,063 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
14,381 |
|
|
|
989 |
|
|
|
9,159 |
|
|
|
(6,571 |
) |
Unrealized gain (loss) on investments,
net of tax |
|
|
140 |
|
|
|
172 |
|
|
|
240 |
|
|
|
(6 |
) |
Minimum pension liability, net of tax |
|
|
(12 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive gain (loss) |
|
|
14,509 |
|
|
|
1,161 |
|
|
|
9,368 |
|
|
|
(6,577 |
) |
Comprehensive income attributable to the
noncontrolling interests |
|
|
(231 |
) |
|
|
(9 |
) |
|
|
(501 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Reliance |
|
$ |
8,722 |
|
|
$ |
157,757 |
|
|
$ |
23,699 |
|
|
$ |
257,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss included the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Foreign currency translation adjustments |
|
$ |
(6,063 |
) |
|
$ |
(15,222 |
) |
Unrealized loss on investments, net of tax |
|
|
(732 |
) |
|
|
(972 |
) |
Minimum pension liability, net of tax |
|
|
(15,853 |
) |
|
|
(15,822 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(22,648 |
) |
|
$ |
(32,016 |
) |
|
|
|
|
|
|
|
Foreign currency translation adjustments are not generally adjusted for income taxes as they
relate to indefinite investments in foreign subsidiaries. Unrealized loss on investments and
minimum pension liability are net of deferred income tax assets of approximately $0.5 million and
$9.8 million as of June 30, 2009 and December 31, 2008, respectively.
9. Earnings (Loss) Per Share
The Company calculates basic and diluted earnings per share as required by SFAS No. 128,
Earnings Per Share. Basic earnings per share exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share are calculated including the dilutive effects
of options, warrants and convertible securities, if any.
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except share and per share amounts) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Reliance |
|
$ |
(5,787 |
) |
|
$ |
156,596 |
|
|
$ |
14,331 |
|
|
$ |
263,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
73,376 |
|
|
|
73,016 |
|
|
|
73,347 |
|
|
|
72,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
742 |
|
|
|
181 |
|
|
|
714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for dilutive earnings per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average shares and
assumed conversions |
|
|
73,376 |
|
|
|
73,758 |
|
|
|
73,528 |
|
|
|
73,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share from continuing
operations attributable to Reliance
diluted |
|
$ |
(0.08 |
) |
|
$ |
2.12 |
|
|
$ |
0.19 |
|
|
$ |
3.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share from continuing
operations attributable to Reliance
basic |
|
$ |
(0.08 |
) |
|
$ |
2.14 |
|
|
$ |
0.20 |
|
|
$ |
3.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Due to the net loss for the three months ended June 30, 2009, no shares reserved for issuance
upon exercise of stock options were included in the computation of diluted loss per share as their
inclusion would have been anti-dilutive. For the three months ended June 30, 2008, the computation
of earnings per share does not include 1,213,872 weighted average shares reserved for issuance upon
exercise of stock options as their inclusion would have been anti-dilutive.
The computation of earnings per share also does not include 3,121,332 and 1,220,748 weighted
average shares reserved for issuance upon exercise of stock options for the six months ended June
30, 2009 and 2008, respectively, as their inclusion would have been anti-dilutive.
10. Condensed Consolidating Financial Statements
In November 2006, the Company issued senior unsecured notes in the aggregate principal amount
of $600 million at fixed interest rates that are guaranteed by its wholly-owned domestic
subsidiaries. The accompanying consolidating financial information has been prepared and presented
pursuant to Rule 3-10 of SEC Regulation S-X Financial Statements of Guarantors and Issuers of
Guaranteed Securities Registered or Being Registered. The guarantees are full and unconditional
and joint and several obligations of each of the guarantor subsidiaries. There are no significant
restrictions on the ability of the Company to obtain funds from any of the guarantor subsidiaries
by dividends or loans. The supplemental consolidating financial information has been presented in
lieu of separate financial statements of the guarantors as such separate financial statements are
not considered meaningful.
Effective January 1, 2009, RSAC Management Corp., a wholly-owned subsidiary of Reliance, was
merged with and into Reliance. The results of RSAC Management Corp. are now reflected as part of
the Parent in these condensed consolidating financial statements. In accordance with SEC rules,
prior period amounts were retroactively restated for this change in the guarantors.
14
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Unaudited Consolidating Balance Sheet (In thousands)
As of June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
156,174 |
|
|
$ |
8,261 |
|
|
$ |
14,978 |
|
|
$ |
|
|
|
$ |
179,413 |
|
Accounts receivable, less allowance for
doubtful accounts |
|
|
50,805 |
|
|
|
479,839 |
|
|
|
30,711 |
|
|
|
|
|
|
|
561,355 |
|
Inventories |
|
|
20,736 |
|
|
|
732,249 |
|
|
|
64,169 |
|
|
|
|
|
|
|
817,154 |
|
Intercompany receivables |
|
|
4,887 |
|
|
|
10,066 |
|
|
|
208 |
|
|
|
(15,161 |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
85,644 |
|
|
|
28,365 |
|
|
|
5,906 |
|
|
|
|
|
|
|
119,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
318,246 |
|
|
|
1,258,780 |
|
|
|
115,972 |
|
|
|
(15,161 |
) |
|
|
1,677,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
2,088,671 |
|
|
|
155,039 |
|
|
|
612 |
|
|
|
(2,244,322 |
) |
|
|
|
|
Property, plant and equipment |
|
|
90,429 |
|
|
|
864,553 |
|
|
|
39,699 |
|
|
|
|
|
|
|
994,681 |
|
Goodwill |
|
|
9,615 |
|
|
|
1,014,589 |
|
|
|
51,272 |
|
|
|
|
|
|
|
1,075,476 |
|
Intangible assets, net |
|
|
9,467 |
|
|
|
668,490 |
|
|
|
52,323 |
|
|
|
|
|
|
|
730,280 |
|
Intercompany receivables |
|
|
1,436,561 |
|
|
|
|
|
|
|
|
|
|
|
(1,436,561 |
) |
|
|
|
|
Other assets |
|
|
3,247 |
|
|
|
81,943 |
|
|
|
995 |
|
|
|
|
|
|
|
86,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,956,236 |
|
|
$ |
4,043,394 |
|
|
$ |
260,873 |
|
|
$ |
(3,696,044 |
) |
|
$ |
4,564,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
12,736 |
|
|
$ |
192,741 |
|
|
$ |
13,305 |
|
|
$ |
(15,161 |
) |
|
$ |
203,621 |
|
Accrued compensation and retirement costs |
|
|
7,437 |
|
|
|
44,819 |
|
|
|
2,791 |
|
|
|
|
|
|
|
55,047 |
|
Other current liabilities |
|
|
47,924 |
|
|
|
91,307 |
|
|
|
4,897 |
|
|
|
|
|
|
|
144,128 |
|
Current maturities of long-term debt |
|
|
75,250 |
|
|
|
725 |
|
|
|
5,436 |
|
|
|
|
|
|
|
81,411 |
|
Current maturities of capital lease obligations |
|
|
|
|
|
|
621 |
|
|
|
26 |
|
|
|
|
|
|
|
647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
143,347 |
|
|
|
330,213 |
|
|
|
26,455 |
|
|
|
(15,161 |
) |
|
|
484,854 |
|
Long-term debt |
|
|
1,181,147 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
1,181,303 |
|
Intercompany borrowings |
|
|
|
|
|
|
1,412,302 |
|
|
|
24,259 |
|
|
|
(1,436,561 |
) |
|
|
|
|
Deferred taxes and other long-term liabilities |
|
|
181,341 |
|
|
|
261,305 |
|
|
|
2,613 |
|
|
|
|
|
|
|
445,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reliance shareholders equity |
|
|
2,450,401 |
|
|
|
2,037,526 |
|
|
|
206,796 |
|
|
|
(2,244,322 |
) |
|
|
2,450,401 |
|
Noncontrolling interests |
|
|
|
|
|
|
1,892 |
|
|
|
750 |
|
|
|
|
|
|
|
2,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
2,450,401 |
|
|
|
2,039,418 |
|
|
|
207,546 |
|
|
|
(2,244,322 |
) |
|
|
2,453,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
3,956,236 |
|
|
$ |
4,043,394 |
|
|
$ |
260,873 |
|
|
$ |
(3,696,044 |
) |
|
$ |
4,564,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Consolidating Balance Sheet (In thousands)
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
21,263 |
|
|
$ |
19,201 |
|
|
$ |
11,531 |
|
|
$ |
|
|
|
$ |
51,995 |
|
Accounts receivable, less allowance for
doubtful accounts |
|
|
73,871 |
|
|
|
731,696 |
|
|
|
45,647 |
|
|
|
|
|
|
|
851,214 |
|
Inventories |
|
|
43,553 |
|
|
|
1,175,595 |
|
|
|
65,320 |
|
|
|
|
|
|
|
1,284,468 |
|
Intercompany receivables |
|
|
469 |
|
|
|
21,772 |
|
|
|
366 |
|
|
|
(22,607 |
) |
|
|
|
|
Prepaid expenses and other current assets |
|
|
80,397 |
|
|
|
31,047 |
|
|
|
3,251 |
|
|
|
|
|
|
|
114,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
219,553 |
|
|
|
1,979,311 |
|
|
|
126,115 |
|
|
|
(22,607 |
) |
|
|
2,302,372 |
|
Investments in subsidiaries |
|
|
2,104,631 |
|
|
|
|
|
|
|
459 |
|
|
|
(2,105,090 |
) |
|
|
|
|
Property, plant and equipment |
|
|
90,005 |
|
|
|
876,539 |
|
|
|
32,162 |
|
|
|
|
|
|
|
998,706 |
|
Goodwill |
|
|
9,614 |
|
|
|
1,009,697 |
|
|
|
46,216 |
|
|
|
|
|
|
|
1,065,527 |
|
Intangible assets, net |
|
|
10,701 |
|
|
|
680,639 |
|
|
|
50,341 |
|
|
|
|
|
|
|
741,681 |
|
Intercompany receivables |
|
|
2,019,729 |
|
|
|
|
|
|
|
|
|
|
|
(2,019,729 |
) |
|
|
|
|
Other assets |
|
|
3,572 |
|
|
|
82,810 |
|
|
|
817 |
|
|
|
|
|
|
|
87,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,457,805 |
|
|
$ |
4,628,996 |
|
|
$ |
256,110 |
|
|
$ |
(4,147,426 |
) |
|
$ |
5,195,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities & Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
26,758 |
|
|
$ |
226,804 |
|
|
$ |
17,357 |
|
|
$ |
(22,607 |
) |
|
$ |
248,312 |
|
Accrued compensation and retirement costs |
|
|
19,477 |
|
|
|
100,147 |
|
|
|
4,083 |
|
|
|
|
|
|
|
123,707 |
|
Other current liabilities |
|
|
45,093 |
|
|
|
134,294 |
|
|
|
4,244 |
|
|
|
|
|
|
|
183,631 |
|
Current maturities of long-term debt |
|
|
85,250 |
|
|
|
1,175 |
|
|
|
7,452 |
|
|
|
|
|
|
|
93,877 |
|
Current maturities of capital lease obligations |
|
|
|
|
|
|
608 |
|
|
|
30 |
|
|
|
|
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
176,578 |
|
|
|
463,028 |
|
|
|
33,166 |
|
|
|
(22,607 |
) |
|
|
650,165 |
|
Long-term debt |
|
|
1,671,575 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
1,671,732 |
|
Intercompany borrowings |
|
|
|
|
|
|
1,995,747 |
|
|
|
23,982 |
|
|
|
(2,019,729 |
) |
|
|
|
|
Deferred taxes and other long-term liabilities |
|
|
178,216 |
|
|
|
257,878 |
|
|
|
2,426 |
|
|
|
|
|
|
|
438,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reliance shareholders equity |
|
|
2,431,436 |
|
|
|
1,910,269 |
|
|
|
194,821 |
|
|
|
(2,105,090 |
) |
|
|
2,431,436 |
|
Noncontrolling interests |
|
|
|
|
|
|
1,917 |
|
|
|
1,715 |
|
|
|
|
|
|
|
3,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
2,431,436 |
|
|
|
1,912,186 |
|
|
|
196,536 |
|
|
|
(2,105,090 |
) |
|
|
2,435,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
4,457,805 |
|
|
$ |
4,628,996 |
|
|
$ |
256,110 |
|
|
$ |
(4,147,426 |
) |
|
$ |
5,195,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Unaudited Consolidating Statement of Operations (In thousands)
For the three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
120,539 |
|
|
$ |
1,110,583 |
|
|
$ |
46,564 |
|
|
$ |
(34,708 |
) |
|
$ |
1,242,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of
depreciation and amortization shown
below) |
|
|
81,786 |
|
|
|
877,345 |
|
|
|
35,691 |
|
|
|
(34,729 |
) |
|
|
960,093 |
|
Warehouse, delivery, selling,
general and administrative |
|
|
30,818 |
|
|
|
220,549 |
|
|
|
12,406 |
|
|
|
(15,898 |
) |
|
|
247,875 |
|
Depreciation and amortization |
|
|
2,909 |
|
|
|
25,554 |
|
|
|
1,117 |
|
|
|
|
|
|
|
29,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,513 |
|
|
|
1,123,448 |
|
|
|
49,214 |
|
|
|
(50,627 |
) |
|
|
1,237,548 |
|
Operating income (loss) |
|
|
5,026 |
|
|
|
(12,865 |
) |
|
|
(2,650 |
) |
|
|
15,919 |
|
|
|
5,430 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(16,971 |
) |
|
|
(9,257 |
) |
|
|
(134 |
) |
|
|
9,664 |
|
|
|
(16,698 |
) |
Other income (expense), net |
|
|
25,581 |
|
|
|
(170 |
) |
|
|
2,004 |
|
|
|
(25,583 |
) |
|
|
1,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in
losses of subsidiaries and income
taxes |
|
|
13,636 |
|
|
|
(22,292 |
) |
|
|
(780 |
) |
|
|
|
|
|
|
(9,436 |
) |
Equity in losses of subsidiaries |
|
|
(16,292 |
) |
|
|
(1,688 |
) |
|
|
|
|
|
|
17,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
before income taxes |
|
|
(2,656 |
) |
|
|
(23,980 |
) |
|
|
(780 |
) |
|
|
17,980 |
|
|
|
(9,436 |
) |
Provision (benefit) for income taxes |
|
|
3,131 |
|
|
|
(6,739 |
) |
|
|
(272 |
) |
|
|
|
|
|
|
(3,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(5,787 |
) |
|
|
(17,241 |
) |
|
|
(508 |
) |
|
|
17,980 |
|
|
|
(5,556 |
) |
Less: Net income attributable to
the noncontrolling interests |
|
|
|
|
|
|
225 |
|
|
|
6 |
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Reliance |
|
$ |
(5,787 |
) |
|
$ |
(17,466 |
) |
|
$ |
(514 |
) |
|
$ |
17,980 |
|
|
$ |
(5,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Unaudited Consolidating Statement of Operations (In thousands)
For the three months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
238,153 |
|
|
$ |
1,772,673 |
|
|
$ |
104,846 |
|
|
$ |
(20,604 |
) |
|
$ |
2,095,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of
depreciation and amortization
shown below) |
|
|
168,600 |
|
|
|
1,286,257 |
|
|
|
73,902 |
|
|
|
(20,625 |
) |
|
|
1,508,134 |
|
Warehouse, delivery, selling,
general and administrative |
|
|
(41,942 |
) |
|
|
354,092 |
|
|
|
19,315 |
|
|
|
(33,892 |
) |
|
|
297,573 |
|
Depreciation and amortization |
|
|
2,399 |
|
|
|
18,107 |
|
|
|
939 |
|
|
|
|
|
|
|
21,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,057 |
|
|
|
1,658,456 |
|
|
|
94,156 |
|
|
|
(54,517 |
) |
|
|
1,827,152 |
|
Operating income |
|
|
109,096 |
|
|
|
114,217 |
|
|
|
10,690 |
|
|
|
33,913 |
|
|
|
267,916 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(17,118 |
) |
|
|
(1,934 |
) |
|
|
(405 |
) |
|
|
3,296 |
|
|
|
(16,161 |
) |
Other income (expense), net |
|
|
36,884 |
|
|
|
(664 |
) |
|
|
490 |
|
|
|
(37,209 |
) |
|
|
(499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of
subsidiaries and income taxes |
|
|
128,862 |
|
|
|
111,619 |
|
|
|
10,775 |
|
|
|
|
|
|
|
251,256 |
|
Equity in earnings of subsidiaries |
|
|
33,620 |
|
|
|
3,062 |
|
|
|
|
|
|
|
(36,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
|
162,482 |
|
|
|
114,681 |
|
|
|
10,775 |
|
|
|
(36,682 |
) |
|
|
251,256 |
|
Provision for income taxes |
|
|
5,886 |
|
|
|
85,335 |
|
|
|
3,430 |
|
|
|
|
|
|
|
94,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
156,596 |
|
|
|
29,346 |
|
|
|
7,345 |
|
|
|
(36,682 |
) |
|
|
156,605 |
|
Less: Net income attributable
to the noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Reliance |
|
$ |
156,596 |
|
|
$ |
29,346 |
|
|
$ |
7,336 |
|
|
$ |
(36,682 |
) |
|
$ |
156,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Unaudited Consolidating Statement of Operations (In thousands)
For the six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
260,024 |
|
|
$ |
2,503,598 |
|
|
$ |
107,355 |
|
|
$ |
(69,464 |
) |
|
$ |
2,801,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation
and amortization shown below) |
|
|
189,182 |
|
|
|
1,962,679 |
|
|
|
81,830 |
|
|
|
(69,505 |
) |
|
|
2,164,186 |
|
Warehouse, delivery, selling, general and
administrative |
|
|
49,601 |
|
|
|
483,067 |
|
|
|
26,641 |
|
|
|
(34,800 |
) |
|
|
524,509 |
|
Depreciation and amortization |
|
|
5,638 |
|
|
|
51,621 |
|
|
|
2,168 |
|
|
|
|
|
|
|
59,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,421 |
|
|
|
2,497,367 |
|
|
|
110,639 |
|
|
|
(104,305 |
) |
|
|
2,748,122 |
|
Operating income (loss) |
|
|
15,603 |
|
|
|
6,231 |
|
|
|
(3,284 |
) |
|
|
34,841 |
|
|
|
53,391 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(36,797 |
) |
|
|
(22,222 |
) |
|
|
(282 |
) |
|
|
23,287 |
|
|
|
(36,014 |
) |
Other income, net |
|
|
58,259 |
|
|
|
1,858 |
|
|
|
1,767 |
|
|
|
(58,128 |
) |
|
|
3,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in losses of
subsidiaries and income taxes |
|
|
37,065 |
|
|
|
(14,133 |
) |
|
|
(1,799 |
) |
|
|
|
|
|
|
21,133 |
|
Equity in losses of subsidiaries |
|
|
(11,800 |
) |
|
|
(2,083 |
) |
|
|
|
|
|
|
13,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
25,265 |
|
|
|
(16,216 |
) |
|
|
(1,799 |
) |
|
|
13,883 |
|
|
|
21,133 |
|
Income tax provision (benefit) |
|
|
10,934 |
|
|
|
(4,160 |
) |
|
|
(473 |
) |
|
|
|
|
|
|
6,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
14,331 |
|
|
|
(12,056 |
) |
|
|
(1,326 |
) |
|
|
13,883 |
|
|
|
14,832 |
|
Less: Net income (loss) attributable
to the noncontrolling interests |
|
|
|
|
|
|
562 |
|
|
|
(61 |
) |
|
|
|
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Reliance |
|
$ |
14,331 |
|
|
$ |
(12,618 |
) |
|
$ |
(1,265 |
) |
|
$ |
13,883 |
|
|
$ |
14,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Unaudited Consolidating Statement of Operations (In thousands)
For the six months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
454,428 |
|
|
$ |
3,375,003 |
|
|
$ |
213,054 |
|
|
$ |
(39,247 |
) |
|
$ |
4,003,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of
depreciation and amortization
shown below) |
|
|
331,459 |
|
|
|
2,478,829 |
|
|
|
153,025 |
|
|
|
(39,288 |
) |
|
|
2,924,025 |
|
Warehouse, delivery, selling,
general and administrative |
|
|
(41,717 |
) |
|
|
646,238 |
|
|
|
39,090 |
|
|
|
(64,409 |
) |
|
|
579,202 |
|
Depreciation and amortization |
|
|
4,880 |
|
|
|
35,743 |
|
|
|
2,187 |
|
|
|
|
|
|
|
42,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,622 |
|
|
|
3,160,810 |
|
|
|
194,302 |
|
|
|
(103,697 |
) |
|
|
3,546,037 |
|
Operating income |
|
|
159,806 |
|
|
|
214,193 |
|
|
|
18,752 |
|
|
|
64,450 |
|
|
|
457,201 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(34,651 |
) |
|
|
(4,331 |
) |
|
|
(1,086 |
) |
|
|
7,294 |
|
|
|
(32,774 |
) |
Other income (expense), net |
|
|
71,069 |
|
|
|
545 |
|
|
|
(756 |
) |
|
|
(71,744 |
) |
|
|
(886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of
subsidiaries and income taxes |
|
|
196,224 |
|
|
|
210,407 |
|
|
|
16,910 |
|
|
|
|
|
|
|
423,541 |
|
Equity in earnings of subsidiaries |
|
|
75,128 |
|
|
|
4,076 |
|
|
|
|
|
|
|
(79,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
|
271,352 |
|
|
|
214,483 |
|
|
|
16,910 |
|
|
|
(79,204 |
) |
|
|
423,541 |
|
Provision for income taxes |
|
|
7,361 |
|
|
|
146,645 |
|
|
|
5,472 |
|
|
|
|
|
|
|
159,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
263,991 |
|
|
|
67,838 |
|
|
|
11,438 |
|
|
|
(79,204 |
) |
|
|
264,063 |
|
Less: Net income attributable
to the noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Reliance |
|
$ |
263,991 |
|
|
$ |
67,838 |
|
|
$ |
11,366 |
|
|
$ |
(79,204 |
) |
|
$ |
263,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Unaudited Consolidating Cash Flow Statement (In thousands)
For the six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
14,331 |
|
|
$ |
(12,056 |
) |
|
$ |
(1,326 |
) |
|
$ |
13,883 |
|
|
$ |
14,832 |
|
Equity in losses of subsidiaries |
|
|
11,800 |
|
|
|
2,083 |
|
|
|
|
|
|
|
(13,883 |
) |
|
|
|
|
Adjustments to reconcile net income (loss) to
cash provided by operating activities |
|
|
40,390 |
|
|
|
610,522 |
|
|
|
15,515 |
|
|
|
|
|
|
|
666,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
|
|
66,521 |
|
|
|
600,549 |
|
|
|
14,189 |
|
|
|
|
|
|
|
681,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(3,932 |
) |
|
|
(31,474 |
) |
|
|
(5,383 |
) |
|
|
|
|
|
|
(40,789 |
) |
Net advances from subsidiaries |
|
|
583,168 |
|
|
|
|
|
|
|
|
|
|
|
(583,168 |
) |
|
|
|
|
Other investing activities, net |
|
|
77 |
|
|
|
4,779 |
|
|
|
222 |
|
|
|
|
|
|
|
5,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities |
|
|
579,313 |
|
|
|
(26,695 |
) |
|
|
(5,161 |
) |
|
|
(583,168 |
) |
|
|
(35,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of debt |
|
|
(500,500 |
) |
|
|
(761 |
) |
|
|
(2,670 |
) |
|
|
|
|
|
|
(503,931 |
) |
Dividends paid |
|
|
(14,670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,670 |
) |
Net intercompany (repayments) borrowings |
|
|
|
|
|
|
(583,445 |
) |
|
|
277 |
|
|
|
583,168 |
|
|
|
|
|
Other financing activities |
|
|
4,247 |
|
|
|
(588 |
) |
|
|
(2,661 |
) |
|
|
|
|
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
(510,923 |
) |
|
|
(584,794 |
) |
|
|
(5,054 |
) |
|
|
583,168 |
|
|
|
(517,603 |
) |
Effect of exchange rate changes on cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(527 |
) |
|
|
|
|
|
|
(527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
134,911 |
|
|
|
(10,940 |
) |
|
|
3,447 |
|
|
|
|
|
|
|
127,418 |
|
Cash and cash equivalents at beginning of
period |
|
|
21,263 |
|
|
|
19,201 |
|
|
|
11,531 |
|
|
|
|
|
|
|
51,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
156,174 |
|
|
$ |
8,261 |
|
|
$ |
14,978 |
|
|
$ |
|
|
|
$ |
179,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Condensed Unaudited Consolidating Cash Flow Statement (In thousands)
For the six months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
263,991 |
|
|
$ |
67,838 |
|
|
$ |
11,438 |
|
|
$ |
(79,204 |
) |
|
$ |
264,063 |
|
Equity in earnings of subsidiaries |
|
|
(75,128 |
) |
|
|
(4,076 |
) |
|
|
|
|
|
|
79,204 |
|
|
|
|
|
Adjustments to reconcile net income to cash
(used in) provided by operating activities |
|
|
(44,138 |
) |
|
|
(86,107 |
) |
|
|
(5,437 |
) |
|
|
|
|
|
|
(135,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
|
|
144,725 |
|
|
|
(22,345 |
) |
|
|
6,001 |
|
|
|
|
|
|
|
128,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(9,328 |
) |
|
|
(75,057 |
) |
|
|
(3,920 |
) |
|
|
|
|
|
|
(88,305 |
) |
Acquisition of metals service center and
net asset purchase of metals service
center, net of cash acquired |
|
|
|
|
|
|
(13,250 |
) |
|
|
|
|
|
|
|
|
|
|
(13,250 |
) |
Net advances from subsidiaries |
|
|
(85,498 |
) |
|
|
|
|
|
|
|
|
|
|
85,498 |
|
|
|
|
|
Other investing activities, net |
|
|
1,020 |
|
|
|
3,231 |
|
|
|
16,087 |
|
|
|
|
|
|
|
20,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by investing activities |
|
|
(93,806 |
) |
|
|
(85,076 |
) |
|
|
12,167 |
|
|
|
85,498 |
|
|
|
(81,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (repayments) borrowings of debt |
|
|
70,451 |
|
|
|
(1,310 |
) |
|
|
257 |
|
|
|
|
|
|
|
69,398 |
|
Dividends paid |
|
|
(14,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,575 |
) |
Net intercompany borrowings (repayments) |
|
|
|
|
|
|
103,206 |
|
|
|
(17,708 |
) |
|
|
(85,498 |
) |
|
|
|
|
Other financing activities, net |
|
|
26,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,327 |
|
Common stock repurchase |
|
|
(114,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,774 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in financing activities |
|
|
(32,571 |
) |
|
|
101,896 |
|
|
|
(17,451 |
) |
|
|
(85,498 |
) |
|
|
(33,624 |
) |
Effect of exchange rate changes on cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(720 |
) |
|
|
|
|
|
|
(720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
18,348 |
|
|
|
(5,525 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
12,820 |
|
Cash and cash equivalents at beginning of
period |
|
|
35,369 |
|
|
|
23,527 |
|
|
|
18,127 |
|
|
|
|
|
|
|
77,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
53,717 |
|
|
$ |
18,002 |
|
|
$ |
18,124 |
|
|
$ |
|
|
|
$ |
89,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
RELIANCE STEEL & ALUMINUM CO.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following table sets forth certain income statement data for the three- and six-month
periods ended June 30, 2009 and 2008 (dollars are shown in thousands and certain amounts may not
calculate due to rounding):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
$ |
|
|
Net Sales |
|
|
$ |
|
|
Net Sales |
|
|
$ |
|
|
Net Sales |
|
|
$ |
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,242,978 |
|
|
|
100.0 |
% |
|
$ |
2,095,068 |
|
|
|
100.0 |
% |
|
$ |
2,801,513 |
|
|
|
100.0 |
% |
|
$ |
4,003,238 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (1) |
|
|
282,885 |
|
|
|
22.8 |
|
|
|
586,934 |
|
|
|
28.0 |
|
|
|
637,327 |
|
|
|
22.7 |
|
|
|
1,079,213 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S,G&A expenses |
|
|
247,875 |
|
|
|
19.9 |
|
|
|
297,573 |
|
|
|
14.2 |
|
|
|
524,509 |
|
|
|
18.7 |
|
|
|
579,202 |
|
|
|
14.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
22,559 |
|
|
|
1.8 |
|
|
|
18,415 |
|
|
|
0.9 |
|
|
|
45,371 |
|
|
|
1.6 |
|
|
|
36,571 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
7,021 |
|
|
|
0.6 |
|
|
|
3,030 |
|
|
|
0.1 |
|
|
|
14,056 |
|
|
|
0.5 |
|
|
|
6,239 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
5,430 |
|
|
|
0.4 |
% |
|
$ |
267,916 |
|
|
|
12.8 |
% |
|
$ |
53,391 |
|
|
|
1.9 |
% |
|
$ |
457,201 |
|
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Gross profit is Net sales less Cost of sales. |
2008 Acquisitions
Acquisition of HLN Metal Centre Pte. Ltd.
On September 17, 2008, through our newly-formed Singapore company Reliance Metalcenter Asia
Pacific, Pte, Ltd. (RMAP), we acquired the assets, including the inventory, machinery, and
equipment, of the Singapore operation of HLN Metal Centre Pte. Ltd. RMAP focuses primarily on
supplying metal to the electronics, semiconductor, and solar energy markets. We entered this market
primarily to support existing customers that moved to or expanded their operations in Asia. Net
sales of RMAP during the six months ended June 30, 2009 were approximately $0.9 million.
Acquisition of PNA Group Holding Corporation
On August 1, 2008, we acquired all of the outstanding capital stock of PNA Group Holding
Corporation, a Delaware corporation (PNA), in accordance with the Stock Purchase Agreement dated
June 16, 2008. We paid cash consideration of approximately $321.0 million, net of purchase price
adjustments, repaid or refinanced debt of PNA or its subsidiaries in the amount of approximately
$725.0 million, paid related tender offer and consent solicitation premium payments of
approximately $55.0 million and incurred direct acquisition costs of approximately $3.0 million for
a total transaction value of approximately $1.1 billion. We funded the acquisition with proceeds
from our new $500 million senior unsecured term loan and borrowings under our existing $1.1 billion
syndicated revolving credit facility.
PNAs subsidiaries include the operating entities Delta Steel, Inc., Feralloy Corporation,
Infra-Metals Co., Metals Supply Company, Ltd., Precision Flamecutting and Steel, Inc. and Sugar
Steel Corporation. Through its subsidiaries, PNA processes and distributes primarily carbon steel
plate, bar, structural and flat-rolled products. PNA currently operates 21 steel service centers
throughout the United States, as well as four joint ventures with six additional service centers in
the United States and Mexico.
PNAs net sales for the six months ended June 30, 2009 were approximately $567.1 million and
net sales for the five month-period ended December 31, 2008 were approximately $888.0 million.
21
Acquisition of Dynamic Metals International LLC
Effective April 1, 2008, through our subsidiary Service Steel Aerospace Corp., we acquired the
business of Dynamic Metals International, LLC (Dynamic) based in Bristol, Connecticut. Dynamic
was founded in 1999 and is a specialty metal distributor. Dynamic has been merged into and
currently operates as a division of Service Steel Aerospace Corp. headquartered in Tacoma,
Washington. This strategic acquisition expands Reliances existing Service Steel Aerospace
specialty product offerings in the Northeastern area of the U.S. The all cash purchase price was
funded with borrowings on our revolving credit facility. Dynamics net sales for the six months
ended June 30, 2009 were approximately $5.2 million.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Net Sales. In the three months ended June 30, 2009, our consolidated net sales decreased 40.7%
to $1.24 billion compared to $2.10 billion for the three months ended June 30, 2008. This includes
a 7.4% decrease in tons sold and a 34.8% decrease in our average selling price per ton sold. (Tons
sold and average selling price per ton sold amounts exclude the toll processing sales of Precision
Strip and Feralloy Corporation.) Our 2009 second quarter sales included $249.8 million from PNA
Group that we acquired on August 1, 2008. The decrease in our average selling price in the 2009
second quarter is mainly due to prices for carbon steel products falling dramatically beginning in
the 2008 fourth quarter and continuing to decline through most of the 2009 second quarter. Our
largest product groups are carbon steel structurals and plate, that combined made up 26% of our
2009 second quarter sales. The most significant mill price declines for these products occurred
early in the 2009 second quarter, significantly reducing our average selling price. A change in our
product mix resulting from our acquisition of PNA also contributed to the reduction in our average
selling price per ton. Carbon steel products represented 57% of our 2009 second quarter sales,
compared to 51% of our 2008 second quarter sales and carbon steel products typically have lower
selling prices than the other products that we sell.
Same-store sales, which exclude the sales of our 2008 acquisitions, were $990.7 million in the
2009 second quarter, down 52.7% from the 2008 second quarter, with a 38.8% decrease in our tons
sold and a 21.2% decrease in our average selling price per ton sold. The decline in our same-store
tons sold in the 2009 first quarter compared to the 2008 first quarter was due to the lower demand
in all markets that we sell to mainly because of the global recession that significantly impacted
our business activity beginning in November 2008.
Gross Profit. Total gross profit decreased 51.8% to $282.9 million for the 2009 second
quarter, compared to $586.9 million in the 2008 second quarter. Our gross profit as a percentage
of sales in the 2009 second quarter was 22.8%, compared to 28.0% in the 2008 second quarter. The
continued mill price declines for carbon steel products throughout the 2009 second quarter
contributed to our lower gross profit margins in the quarter especially for carbon steel plate and
long products. Also, because our customer demand levels fell so significantly and so rapidly at the
same time that the replacement cost for our products was falling, our FIFO inventory costs on hand
were generally higher than current replacement cost during the 2009 second quarter. This, along
with on-going inventory de-stocking, as well as our reduced purchasing activity, delayed the impact
of the lower replacement costs on our average inventory costs in the 2009 second quarter further
contributing to lower gross profit margins.
On the other hand, in the 2008 second quarter, we were experiencing higher gross profit
margins than our historical average because of significant price increases being announced by our
suppliers at that time. Typically, when our suppliers announce price increases, we push these
increases through to our customers at that time, before we receive the higher cost metal into our
inventory. This results in a temporary improvement in our gross profit margins.
Our 2009 second quarter gross profit margin was also impacted by our acquisition of PNA on
August 1, 2008. The PNA companies have operated at lower gross profit levels historically than the
Reliance companies. We expect to improve the margins of the PNA companies to levels more consistent
with Reliances historical levels once demand and pricing stabilize and begin to improve.
Our LIFO reserve adjustment, which is included in our cost of sales and therefore impacts
gross profit, resulted in a credit, or income of $75.0 million in the 2009 second quarter compared
to a charge, or expense of $40.0 million in the 2008 second quarter. We currently estimate our full
year 2009 LIFO adjustment to be a credit, or income, of $300.0 million mainly due to the
significant reductions in carbon steel prices in the 2009 first half that will be reflected in our
2009 year-end average inventory cost, as well as the significant reductions in inventory volumes
22
from December 31, 2008. Our LIFO reserve at June 30, 2009 and December 31, 2008 was $237.8
million and $387.8 million, respectively.
Expenses. Our 2009 second quarter warehouse, delivery, selling, general and administrative
(S,G&A) expenses decreased $49.7 million, or 16.7%, from the 2008 second quarter and were 19.9% as
a percentage of sales, up from 14.2% in the 2008 second quarter. On a same-store basis, our S,G&A
expenses decreased $90.0 million, or 30.3% compared to the 2008 second quarter. However, our 2009
second quarter expenses as a percent of sales increased substantially because of our lower sales
compared to the same period in 2008.
Our cost structure is highly variable, with about 60% of our expenses personnel-related. Since
September 30, 2008, we have reduced our workforce by 2,340 employees, or 21%. In addition to the
headcount reductions, we have many employees working reduced hours resulting in additional savings.
Further, throughout our workforce, employees have a significant portion of compensation tied to
profitability. Because of the lower profitability levels in 2009 our compensation expense has
declined.
Depreciation expense for the 2009 second quarter was $22.6 million compared to $18.4 million
in the 2008 second quarter. The increase was mostly due to the additional depreciation expense
from the PNA acquisition along with depreciation on new assets placed in service throughout 2008
and so far in 2009. Amortization expense increased $4.0 million in the 2009 second quarter
primarily due to additional amortization expense from the PNA acquisition.
Operating Income. Our 2009 second quarter operating income was $5.4 million, resulting in an
operating income margin of 0.4%, compared to $267.9 million, or a 12.8% operating income margin in
the same period of 2008. The lower sales amounts combined with our compressed gross profit margins
in the 2009 second quarter have significantly reduced our operating income.
Other Income and Expense. Interest expense for the 2009 second quarter increased $0.5 million,
or 3.3%, mainly due to the $1.1 billion of borrowings incurred to finance the acquisition of PNA on
August 1, 2008 offset by lower borrowing costs during the 2009 second quarter.
Income Tax Rate. Our effective tax rate in the 2009 second quarter was 41.1% (benefit on a
loss) compared to our 2008 second quarter rate of 37.7% (provision on income). The permanent items
impacting our effective tax rate did not change materially in amount in 2009 compared to the 2008
levels. However, the same type of permanent items have a much larger impact on our effective rate
in 2009 due to the lower income levels in 2009.
Net Income (Loss). A net loss attributable to Reliance was incurred for the 2009 second
quarter compared to net income in the 2008 period, a decrease of $162.4 million. The decrease was
primarily due to lower gross profit and operating income dollars generated as a result of the
global economic recession.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Net Sales. In the six months ended June 30, 2009, our consolidated net sales decreased 30.0%
to $2.80 billion from our record sales of $4.00 billion for the six months ended June 30, 2008.
This includes a 4.3% decrease in tons sold and a 25.6% decrease in our average selling price per
ton sold. (Tons sold and average selling price per ton sold amounts exclude the toll processing
sales of Precision Strip and Feralloy Corporation.) Our sales for the 2009 six-month period
included $567.1 million from PNA Group that we acquired on August 1, 2008. Our average selling
price declined mainly because of the significant mill price reductions for most products that we
sell. Prices for most carbon steel products were rising during the first half of 2008 and then
began to fall in the 2008 fourth quarter and continued to decline throughout the first half of
2009. Our 2009 product mix also contributed to our lower average selling prices with carbon steel
products, which typically sell at lower prices than most other products that we sell, representing
58% of our 2009 six-month sales compared to 49% of the 2008 period, mainly due to the PNA
acquisition in August 2008.
Same-store sales, which exclude the sales of our 2008 acquisitions, were $2.23 billion in the
2009 six-month period, down 44.3% from the 2008 six-month period, with a 36.3% decrease in our tons
sold and a 10.9% decrease in our average selling price per ton sold. The decline in 2009 volumes
was due to lower demand in all markets that we sell to mainly because of the global recession that
significantly impacted our business activity beginning in
23
November 2008. According to the Metal Service Center Institute, tons sold for the 2009
six-month period were down approximately 44% for the industry compared to the 2008 six-month
period. The decrease in average selling price from the 2008 six-month period is primarily due to
the continued price declines for carbon steel products throughout the first half of 2009.
Gross Profit. Total gross profit decreased 40.9% to $637.3 million for the 2009 six-month
period compared to $1.08 billion in the 2008 six-month period. Our gross profit as a percentage of
sales in the 2009 six-month period was 22.7% compared to 27.0% in the 2008 six-month period. Our
gross profit margins have been negatively impacted because our selling prices have declined at a
more rapid rate than our average inventory costs have declined, mainly due to the lower customer
demand levels and mill price reductions discussed previously.
Our LIFO reserve adjustment, which is included in our cost of sales and therefore impacts
gross profit, in the 2009 six-month period resulted in a credit, or income of $150.0 million
compared to a charge, or expense of $57.5 million in the 2008 six-month period.
Expenses. Our 2009 six-month period S,G&A expenses decreased $54.7 million, or 9.4%, from the
2008 six-month period and were 18.7% as a percentage of sales, up from 14.5% in the 2008 six-month
period. On a same-store basis, our S,G&A expenses decreased $137.8 million, or 23.8% compared to
the 2008 six-month period.
In the 2009 six-month period, we reduced our workforce by approximately 1,500 employees, or
14.2%. Since September 30, 2008, we have reduced our workforce by 2,340 employees, or 21%. Our
expenses for the 2009 six-month period include $11.4 million related to potentially uncollectible
accounts receivable, an increase of $4.5 million from the 2008 six-month period. Please see
Liquidity and Capital Resources for further discussion with respect to our credit exposure on trade
accounts receivable.
Depreciation expense for the 2009 six-month period was $45.4 million compared to $36.6 million
in the 2008 six-month period. The increase was mostly due to the additional depreciation expense
from the PNA acquisition along with depreciation on new assets placed in service throughout 2008
and in the first half of 2009. Amortization expense increased $7.8 million in the 2009 six-month
period primarily due to additional amortization expense from the PNA acquisition.
Operating Income. Our 2009 six-month period operating income was $53.4 million, resulting in
an operating income margin of 1.9%, compared to $457.2 million, or an 11.4% operating income margin
in the same period of 2008. The lower sales combined with our compressed gross profit margins in
2009 have significantly reduced our operating income.
Other Income and Expense. Interest expense for the 2009 six-month period increased $3.2
million, or 9.9%, mainly due to the $1.1 billion of borrowings incurred to finance the acquisition
of PNA on August 1, 2008.
Income Tax Rate. Our effective tax rate in the 2009 six-month period of 29.8% was lower than
our 2008 six-month rate of 37.7%. The permanent items impacting our effective tax rate did not
change materially in amount in 2009 compared to the 2008 levels. However, the same type of
permanent items have a much larger favorable impact on our effective tax rate in 2009 due to our
lower income levels in 2009 compared to 2008.
Net Income. Net income attributable to Reliance for the 2009 six-month period decreased $249.7
million, or 94.6%. The decrease was primarily due to lower gross profit and operating income
dollars generated as a result of the global economic recession discussed previously.
Liquidity and Capital Resources
At June 30, 2009, our working capital was $1.19 billion, down from $1.65 billion at December
31, 2008. In the 2009 six-month period, we continued to significantly reduce our working capital
and generated $681.3 million of cash flow from operations, compared to $128.4 million in the 2008
six-month period. Our accounts receivable balance decreased $291.8 million and our inventory levels
decreased $470.2 million while our accounts payable and accrued expenses decreased $151.5 million.
24
To manage our working capital, we focus on our days sales outstanding to monitor accounts
receivable and on our inventory turnover rate to monitor our inventory levels, as receivables and
inventory are our two most significant elements of working capital. As of June 30, 2009, our days
sales outstanding rate was approximately 43.5 days compared to 42 days at December 31, 2008. (We
calculate our days sales outstanding rate as an average of the most recent two-month period.) Our
DSO rate has trended up as sales have decreased and we have seen some of our customers pay us more
slowly. In the 2009 six-month period, we wrote-off $10.8 million of customer receivables as
uncollectible. Our full year 2008 write-offs were $8.1 million. Our allowance for uncollectible
accounts at June 30, 2009 was $22.7 million. Although we anticipate some further receivable
write-offs, we believe that our allowance is adequate to absorb any such losses.
Our inventory turn rate during the 2009 six-month period was about 3.4 times (or 3.5 months on
hand), compared to our 2008 rate of 3.9 times (or 3.1 months on hand). Because customer demand
decreased so dramatically and has continued to fall, we have not been able to reduce our inventory
balance as quickly as our shipments have decreased. Our inventory turns have also declined somewhat
because of our 2008 acquisition of PNA, as they historically turned their inventory at lower rates
than Reliance. We expect those inventory turns to improve as we continue to focus on those
businesses, and as business conditions improve. If commodity prices and demand begin to improve, we
expect to finance increases in working capital needs through operating cash flow or with borrowings
on our revolving credit facility.
Our primary sources of liquidity are generally our internally generated funds from operations
and our revolving credit facility. Cash flow provided by operations was $681.3 million in the six
months ended June 30, 2009 compared to $128.4 million in the six months ended June 30, 2009. Our
strong cash flow from operations funded our reductions of outstanding debt of $503.9 million,
capital expenditures of approximately $40.8 million and dividends to our shareholders of $14.7
million during the 2009 six-month period.
Our outstanding debt (including capital lease obligations) at June 30, 2009 was $1.27 billion,
down from $1.77 billion at December 31, 2008. On August 1, 2008, we increased our borrowings by
approximately $1.1 billion to finance the acquisition of PNA and the related repayment or
refinancing of PNAs outstanding indebtedness. We funded this with $500 million from a new senior
unsecured term loan (bearing interest initially at LIBOR plus 2.25%, with quarterly principal
installment payments of $18.8 million and the balance due November 9, 2011) and with borrowings
under our existing credit facility (bearing interest at LIBOR plus 0.55% or the bank prime rate,
due November 9, 2011). Over the past nine months, we have paid down approximately $1.0 billion of
debt with cash flow from operations and increased our cash position to approximately $179.4 million
at June 30, 2009. Also, at June 30, 2009, we had no outstanding borrowings on our $1.1 billion
revolving credit facility.
Our net debt-to-total capital ratio was 30.7% at June 30, 2009; down from our 2008 year-end
rate of 41.4% (net debt-to-total capital is calculated as total debt, net of cash, divided by
Reliance shareholders equity plus total debt, net of cash). At June 30, 2009, we had availability
of $1.1 billion on our revolving credit facility. We are confident that with this level of
liquidity we will be able to fund our working capital needs and service our debt in the near term;
however, because of the global recession, we are currently limiting our uses of cash to the most
important capital expenditure items and maintaining dividends to our shareholders. We will continue
to increase our cash position or reduce debt, when appropriate, with our free cash flow.
On November 20, 2006 we entered into an Indenture (the Indenture), for the issuance of $600
million of unsecured debt securities which are guaranteed by all of our direct and indirect,
wholly-owned domestic subsidiaries and any entities that become such subsidiaries during the term
of the Indenture (collectively, the Subsidiary Guarantors). None of our foreign subsidiaries or
our non-wholly-owned domestic subsidiaries is a guarantor. The total debt issued was comprised of
two tranches, (a) $350 million aggregate principal amount of senior unsecured notes bearing
interest at the rate of 6.20% per annum, maturing on November 15, 2016 and (b) $250 million
aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per
annum, maturing on November 15, 2036. The notes are senior unsecured obligations and rank equally
with all of our other existing and future unsecured and unsubordinated debt obligations. In April
2007, these notes were exchanged for publicly traded notes registered with the Securities and
Exchange Commission.
At June 30, 2009, we also had $213.0 million of outstanding senior unsecured notes issued in
private placements of debt. The outstanding senior notes bear interest at an average fixed rate of
5.7% and have an average remaining
25
life of 2.4 years, maturing from 2010 to 2013. In early January 2009, $10.0 million of these
notes matured and were paid off.
We also have two separate revolving credit facilities for operations in Canada with a combined
credit limit of CAD$35 million. There were no borrowings outstanding on these credit facilities at
June 30, 2009 and December 31, 2008. Two other separate revolving facilities are in place for
operations in China and another one for operations in the United Kingdom with total combined
outstanding balances of $5.4 million and $7.4 million at June 30, 2009 and December 31, 2008,
respectively.
Our $1.1 billion syndicated credit facility, $500 million senior unsecured term loan and
senior notes collectively require that we maintain a minimum net worth and interest coverage ratio,
and a maximum leverage ratio and include change of control provisions, among other things. The
interest coverage ratio for the last twelve-month period ended June 30, 2009 was approximately 5.2
times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is
calculated as net income attributable to Reliance plus interest expense and provision for income
taxes, less equity in earnings of unconsolidated subsidiaries, divided by interest expense). The
leverage ratio at June 30, 2009 calculated in accordance with the terms of the credit agreement was
34.9% compared to the debt covenant maximum amount of 60% (leverage ratio is calculated as total
debt, inclusive of capital lease obligations and outstanding letters of credit, divided by Reliance
shareholders equity plus total debt). The minimum net worth requirement at June 30, 2009 was
$913.6 million compared to the Reliance shareholders equity balance of $2.45 billion at June 30,
2009. Although we believe we may be able to satisfy the minimum interest coverage ratio requirement
during future periods in 2009, our ability to do so can be affected by events beyond our control
such as the continual weak economic environment. As a result, we have entered into discussions
with our lead lender to consider an amendment to our credit facility to avoid any potential event
of default.
All of our wholly-owned domestic subsidiaries, which constitute the substantial majority of
our subsidiaries, guarantee the borrowings under our $1.1 billion revolving credit facility, the
term loan and our private placement notes. The requirement with respect to the subsidiary
guarantors is that they collectively account for at least 80% of consolidated EBITDA and 80% of
consolidated tangible assets. Reliance and the subsidiary guarantors accounted for approximately
97% of our consolidated EBITDA for the last twelve months and approximately 94% of total
consolidated tangible assets. The Company was in compliance with all debt covenants at June 30,
2009.
Capital expenditures were $40.8 million for the six months ended June 30, 2009 compared to
$88.3 million during the same period of 2008. We had no material changes in commitments for
capital expenditures, operating lease obligations or purchase obligations as of June 30, 2009, as
compared to those disclosed in our table of contractual obligations included in our Annual Report
on Form 10-K for the year ended December 31, 2008.
On July 22, 2009, our Board of Directors declared the 2009 third quarter cash dividend of $.10
per share. We have paid regular quarterly dividends to our shareholders for 49 consecutive years.
In May 2005, our Board of Directors amended and restated our stock repurchase program
authorizing the repurchase of up to an additional 12.0 million shares of our common stock, of
which, 7.9 million shares remain available for repurchase as of June 30, 2009. Repurchased shares
are treated as authorized but unissued shares. We did not repurchase any shares of our common
stock in the 2009 six-month period. We repurchased approximately 2.4 million shares of our common
stock during the 2008 six-month period, at an average cost of $46.97 per share. Since initiating
our Stock Repurchase Plan in 1994, we have repurchased approximately 15.2 million shares at an
average cost of $18.41 per share. We believe such purchases, given appropriate circumstances,
enhance shareholder value and reflect our confidence in the long-term growth potential of our
Company.
Inflation
Our operations have not been, and we do not expect them to be, materially affected by general
inflation. Historically, we have been successful in adjusting prices to our customers to reflect
changes in metal prices.
Seasonality
Some of our customers may be in seasonal businesses, especially customers in the construction
industry. As a result of our geographic, product and customer diversity, our operations have not
shown any material seasonal trends
26
except that revenues in the months of July, November and December traditionally have been
lower than in other months because of a reduced number of working days for shipments of our
products, resulting from vacation and holiday closures at some of our customers. We cannot assure
you that period-to-period fluctuations will not occur in the future. The results of any one or
more quarters are therefore not necessarily indicative of annual results.
Goodwill and Other Intangible Assets
Goodwill, which represents the excess of cost over the fair value of net assets acquired,
amounted to $1.08 billion at June 30, 2009, or approximately 23.6% of total assets, or 43.9% of
Reliance shareholders equity. Additionally, other intangible assets, net amounted to $730.3
million at June 30, 2009, or approximately 16.0% of total assets, or 29.8% of Reliance
shareholders equity. Pursuant to SFAS No. 142, we review the recoverability of goodwill and other
intangible assets deemed to have indefinite lives annually or whenever significant events or
changes occur which might impair the recovery of recorded amounts. Most recently completed annual
impairment tests of goodwill were performed as of November 1, 2008 and it was determined that the
recorded amounts for goodwill are recoverable and that no impairment existed. Our 2009 annual
impairment tests of goodwill will be performed as of November 1, 2009 or more frequently, as
appropriate. Other intangible assets with finite useful lives continue to be amortized over their
useful lives. We review the recoverability of our long-lived assets whenever events or changes in
circumstances indicate the carrying amount of such assets may not be recoverable.
Impairment assessment inherently involves judgment as to assumptions about expected future
cash flows and the impact of market conditions on those assumptions. Future events and the current
changing market conditions may impact our assumptions as to commodity prices, demand and future
growth rates or other factors that may result in changes in our estimates of future cash flows.
Although we believe the assumptions used in testing for impairment are reasonable, significant
changes in any one of our assumptions could produce a significantly different result. Furthermore,
continuous declines in the market conditions for our products as well as significant decreases in
the price of our common stock could also impact our impairment analysis. However, as of June 30,
2009, we have noted no indications of impairment.
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations
discusses our unaudited Consolidated Financial Statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. When we prepare these financial statements, we
are required to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. On an
on-going basis, we evaluate our estimates and judgments, including those related to accounts
receivable, inventories, deferred tax assets, goodwill and intangible assets and long-lived assets.
We base our estimates and judgments on historical experience and on various other factors that we
believe to be reasonable under the circumstances, the results of which form the basis for our
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or
conditions.
For further information regarding the accounting policies that we believe to be critical
accounting policies and that affect our more significant judgments and estimates used in preparing
our consolidated financial statements see our December 31, 2008 Annual Report on Form 10-K. We do
not believe that any of the new accounting standards implemented during 2009 changed our critical
accounting policies.
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New Accounting Pronouncements
See Notes to Consolidated Financial Statements for disclosure on new accounting
pronouncements.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
In the ordinary course of business, we are exposed to various market risk factors, including
fluctuations in interest rates, changes in general economic conditions, domestic and foreign
competition, foreign currency exchange rates, metals pricing, demand and availability. There have
been no significant changes in our market risk factors since December 31, 2008. Please refer to
Item 7A Quantitative and Qualitative Disclosures About Market Risk, contained in our December 31,
2008 Annual Report on Form 10-K for further discussion on quantitative and qualitative disclosures
about market risk.
Item 4. Controls And Procedures
Under the supervision and with the participation of the Companys management, including the
Companys Chief Executive Officer and Chief Financial Officer, the Company carried out an
evaluation of the effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to and as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Act
of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that, as of the end of the period covered in this report, the Companys
disclosure controls and procedures are effective.
There have been no changes in the Companys internal control over financial reporting during
the quarter ended June 30, 2009, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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 Companys
Annual Report on Form 10-K for the year ended December 31, 2008.
28
PART II OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in our Annual Report on Form
10-K for the year ended December 31, 2008.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) |
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The annual meeting of Reliance Steel & Aluminum Co. shareholders was held on May 20,
2009. |
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(b) |
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Need not be answered because (1) proxies for the meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, (2) there was no solicitation in
opposition to managements nominees as listed in the proxy statement, and (3) all such
nominees were elected. |
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(c) |
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The following is a brief description of matters voted upon at the meeting: |
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Four Class I directors were elected at the annual meeting. Thomas W. Gimbel: 65,716,571
shares were voted for election and 1,278,347 shares were withheld. Douglas M. Hayes:
48,408,070 shares were voted for election and 18,586,848 shares were withheld. Franklin R.
Johnson: 65,730,036 shares were voted for election and 1,264,882 shares were withheld.
Leslie A. Waite: 48,400,588 shares were voted for election and 18,594,330 shares were
withheld. |
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Based upon the recommendation of the Audit Committee, KPMG LLP was selected as the
Companys independent registered public accounting firm to perform the annual audit of the
financial statements of the Company and its subsidiaries for 2009. The selection was
ratified: 66,603,136 shares were voted for the proposal, 371,476 shares were voted against
it and 20,306 shares abstained. |
Item 6. Exhibits
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31.1 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended. |
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31.2 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended. |
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32 |
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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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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.
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RELIANCE STEEL & ALUMINUM CO.
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Dated: August 7, 2009 |
By: |
/s/ David H. Hannah
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David H. Hannah |
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Chairman and
Chief Executive Officer |
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By: |
/s/ Karla Lewis
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Karla Lewis |
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Executive Vice President and
Chief Financial Officer |
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