UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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RELIANCE STEEL & ALUMINUM CO.
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares which are reflected in thousands and par value)
September 30, | December 31, | ||||
2023 |
| 2022* | |||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | | $ | | |
Accounts receivable, less allowance for credit losses of $ | | | |||
Inventories | | | |||
Prepaid expenses and other current assets | | | |||
Income taxes receivable | | | |||
Total current assets | | | |||
Property, plant and equipment: | |||||
Land | | | |||
Buildings | | | |||
Machinery and equipment | | | |||
Accumulated depreciation | ( | ( | |||
Property, plant and equipment, net | | | |||
Operating lease right-of-use assets | | | |||
Goodwill | | | |||
Intangible assets, net | | | |||
Cash surrender value of life insurance policies, net | | | |||
Other assets | | | |||
Total assets | $ | | $ | | |
LIABILITIES AND EQUITY | |||||
Current liabilities: | |||||
Accounts payable | $ | | $ | | |
Accrued expenses | | | |||
Accrued compensation and retirement benefits | | | |||
Accrued insurance costs | | | |||
Current maturities of long-term debt and short-term borrowings | | | |||
Current maturities of operating lease liabilities | | | |||
Total current liabilities | | | |||
Long-term debt | | | |||
Operating lease liabilities | | | |||
Long-term retirement benefits | | | |||
Other long-term liabilities | | | |||
Deferred income taxes | | | |||
Commitments and contingencies | |||||
Equity: | |||||
Preferred stock, $ | |||||
Common stock and additional paid-in capital, $ | |||||
and shares— | | | |||
Retained earnings | | | |||
Accumulated other comprehensive loss | ( | ( | |||
Total Reliance stockholders’ equity | | | |||
Noncontrolling interests | | | |||
Total equity | | | |||
Total liabilities and equity | $ | | $ | |
* Amounts derived from audited financial statements.
See accompanying notes to unaudited consolidated financial statements.
1
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except number of shares which are reflected in thousands and per share amounts)
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net sales | $ | | $ | | $ | | $ | | |||
Costs and expenses: | |||||||||||
Cost of sales (exclusive of depreciation and amortization shown below) | | | | | |||||||
Warehouse, delivery, selling, general and administrative (“SG&A”) | | | | | |||||||
Depreciation and amortization | | | | | |||||||
| | | | ||||||||
Operating income | | | | | |||||||
Other (income) expense: | |||||||||||
Interest expense | | | | | |||||||
Other (income) expense, net | ( | | ( | | |||||||
Income before income taxes | | | | | |||||||
Income tax provision | | | | | |||||||
Net income | | | | | |||||||
Less: net income attributable to noncontrolling interests | | | | | |||||||
Net income attributable to Reliance | $ | | $ | | $ | | $ | | |||
Earnings per share attributable to Reliance stockholders: | |||||||||||
Basic | $ | | $ | | $ | | $ | | |||
Diluted | $ | | $ | | $ | | $ | | |||
Shares used in computing earnings per share: | |||||||||||
Basic | | | | | |||||||
Diluted | | | | |
See accompanying notes to unaudited consolidated financial statements.
2
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net income | $ | | $ | | $ | | $ | | |||
Other comprehensive (loss) income: | |||||||||||
Foreign currency translation loss | ( | ( | ( | ( | |||||||
Postretirement benefit plan adjustments, net of tax | ( | | ( | | |||||||
Total other comprehensive loss | ( | ( | ( | ( | |||||||
Comprehensive income | | | | | |||||||
Less: comprehensive income attributable to noncontrolling interests | | | | | |||||||
Comprehensive income attributable to Reliance | $ | | $ | | $ | | $ | |
See accompanying notes to unaudited consolidated financial statements.
3
RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per share amounts)
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Total equity, beginning balances | $ | | $ | | $ | | $ | | |||
Common stock and additional paid-in capital: | |||||||||||
Beginning balances | | ||||||||||
Stock-based compensation | |||||||||||
Taxes paid related to net share settlement of restricted stock units | ( | ( | ( | ( | |||||||
Repurchase of common shares | ( | ( | ( | ( | |||||||
Excise tax on repurchase of common shares | ( | — | ( | — | |||||||
Ending balances | | | |||||||||
Retained earnings: | |||||||||||
Beginning balances | | | |||||||||
Net income attributable to Reliance | | | |||||||||
Cash dividends and dividend equivalents | ( | ( | ( | ( | |||||||
Repurchase of common shares | ( | ( | ( | ( | |||||||
Ending balances | | | | | |||||||
Accumulated other comprehensive loss: | |||||||||||
Beginning balances | ( | ( | ( | ( | |||||||
Other comprehensive loss | ( | ( | ( | ( | |||||||
Ending balances | ( | ( | ( | ( | |||||||
Total Reliance stockholders' equity, ending balances | | | | | |||||||
Noncontrolling interests: | |||||||||||
Beginning balances | |||||||||||
Comprehensive income | | ||||||||||
Capital contribution | — | — | — | ||||||||
Dividends paid | — | ( | ( | ( | |||||||
Ending balances | | | | | |||||||
Total equity, ending balances | $ | | $ | | $ | | $ | | |||
Cash dividends declared per common share | $ | $ | $ | $ |
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Nine Months Ended | |||||
September 30, | |||||
2023 |
| 2022 | |||
Operating activities: | |||||
Net income | $ | | $ | | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||||
Depreciation and amortization expense | | | |||
Provision for credit losses | | | |||
Stock-based compensation expense | | | |||
Net loss on life insurance policies and deferred compensation plan assets | | | |||
Other | ( | | |||
Changes in operating assets and liabilities (excluding effect of businesses acquired): | |||||
Accounts receivable | ( | ( | |||
Inventories | ( | ( | |||
Prepaid expenses and other assets | | | |||
Accounts payable and other liabilities | ( | ( | |||
Net cash provided by operating activities | | | |||
Investing activities: | |||||
Acquisition, net of cash acquired | ( | — | |||
Purchases of property, plant and equipment | ( | ( | |||
Proceeds from sales of property, plant and equipment | | | |||
Other | | ( | |||
Net cash used in investing activities | ( | ( | |||
Financing activities: | |||||
Net short-term debt repayments | ( | ( | |||
Principal payments on long-term debt | ( | — | |||
Cash dividends and dividend equivalents | ( | ( | |||
Share repurchases | ( | ( | |||
Taxes paid related to net share settlement of restricted stock units | ( | ( | |||
Other | ( | | |||
Net cash used in financing activities | ( | ( | |||
Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||
(Decrease) increase in cash and cash equivalents | ( | | |||
Cash and cash equivalents at beginning of year | | | |||
Cash and cash equivalents at end of the period | $ | | $ | | |
Supplemental cash flow information: | |||||
Interest paid during the period | $ | | $ | | |
Income taxes paid during the period, net | $ | | $ | |
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Reliance Steel & Aluminum Co. and its subsidiaries (collectively “Reliance”, the “Company”, “we”, “our” or “us”). These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) 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. GAAP for complete financial statements. In the opinion of management, the consolidated financial statements reflect all material adjustments, which are of a normal recurring nature, necessary for presentation of financial statements for interim periods in accordance with U.S. GAAP. Interim results are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Investments in unconsolidated subsidiaries are recorded under the equity method of accounting. These consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and accompanying notes included in Reliance’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Inventories
The majority of our inventory is valued using the last-in, first-out (“LIFO”) method, which is not in excess of market. Under this method, older costs are included in inventory, which may be higher or lower than current costs. We estimate the effect of LIFO on interim periods by allocating the projected year-end LIFO calculation to interim periods on a pro rata basis.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. The IRA includes a new 15% minimum tax on book income of certain large corporations. Additionally, the IRA imposes a 1% excise tax, which is paid annually and recorded in paid-in-capital, on the excess of the fair market value of our share repurchases over the fair market value of share issuances, made after December 31, 2022. See our consolidated statements of equity for further information on our accrued 2023 excise tax.
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Note 2. Revenues
The following table presents our net sales disaggregated by product and service:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in millions) | |||||||||||
Carbon steel | $ | | $ | | $ | | $ | | |||
Aluminum | | | | | |||||||
Stainless steel | | | | | |||||||
Alloy | | | | | |||||||
Toll processing and logistics | | | | | |||||||
Copper and brass | | | | | |||||||
Other and eliminations | | | | | |||||||
Total | $ | | $ | | $ | | $ | |
Note 3. Goodwill
The change in the carrying amount of goodwill is as follows:
| (in millions) | ||||
Balance at January 1, 2023 | $ | | |||
Acquisition | | ||||
Effect of foreign currency translation | | ||||
Balance at September 30, 2023 | $ | |
We had
Note 4. Intangible Assets, net
Intangible assets, net consisted of the following:
September 30, 2023 | December 31, 2022 | ||||||||||||
Weighted Average | Gross | Gross | |||||||||||
Amortizable | Carrying | Accumulated | Carrying | Accumulated | |||||||||
Life in Years |
| Amount |
| Amortization |
| Amount |
| Amortization | |||||
(in millions) | |||||||||||||
Intangible assets subject to amortization: | |||||||||||||
Customer lists/relationships | $ | | $ | ( | $ | | $ | ( | |||||
Backlog of orders | | ( | | ( | |||||||||
Other | | ( | | ( | |||||||||
| ( | | ( | ||||||||||
Intangible assets not subject to amortization: | |||||||||||||
Trade names | | — | | — | |||||||||
$ | | $ | ( | $ | | $ | ( |
Amortization expense for intangible assets was $
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The following is a summary of estimated future amortization expense:
| (in millions) | ||||
2023 (remaining three months) | $ | | |||
2024 | | ||||
2025 | | ||||
2026 | | ||||
2027 | | ||||
Thereafter | | ||||
$ | |
Note 5. Debt
Debt consisted of the following:
September 30, | December 31, | ||||
2023 |
| 2022 | |||
(in millions) | |||||
Unsecured revolving credit facility maturing September 3, 2025 | $ | — | $ | — | |
Senior unsecured notes, interest payable semi-annually at | | | |||
Senior unsecured notes, interest payable semi-annually at | | | |||
Senior unsecured notes, interest payable semi-annually at | | | |||
Senior unsecured notes, interest payable semi-annually at | | | |||
Other notes and revolving credit facilities | | | |||
Total | | | |||
Less: unamortized discount and debt issuance costs | ( | ( | |||
Less: amounts due within one year and short-term borrowings | ( | ( | |||
Total long-term debt | $ | | $ | |
The weighted average interest rate on the Company’s outstanding borrowings as of September 30, 2023 and December 31, 2022 was
Unsecured Credit Facility
On September 3, 2020, we entered into a $
As of September 30, 2023 and December 31, 2022, we had
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Senior Unsecured Notes
On January 15, 2023, we redeemed in full the $
Under the indentures for each series of our senior notes (the “indentures”), the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase each series of the notes at a price equal to
Other Notes, Revolving Credit and Letter of Credit/Letters of Guarantee Facilities
A revolving credit facility with a credit limit of $
Various industrial revenue bonds had combined outstanding balances of $
We have a $
Covenants
The Credit Agreement and the indentures include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things,
Note 6. Leases
Our metals service center leases are comprised of processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. We also lease various office spaces. Our leases of facilities and other spaces expire at various times through 2045 and our ground leases expire at various times through 2068. Nearly all of our leases are operating leases; we have recognized finance right-of-use assets and of less than $
The following is a summary of our lease cost:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in millions) | |||||||||||
Operating lease cost | $ | | $ | | $ | | $ | |
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Supplemental cash flow and balance sheet information is presented below:
Nine Months Ended | |||||
September 30, | |||||
2023 |
| 2022 | |||
(in millions) | |||||
Supplemental cash flow information: | |||||
Cash payments for operating leases | $ | $ | |||
Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | |||
September 30, | December 31, | ||||
2023 | 2022 | ||||
Other lease information: | |||||
Weighted average remaining lease term—operating leases | |||||
Weighted average discount rate—operating leases |
Maturities of operating lease liabilities as of September 30, 2023 are as follows:
(in millions) | |||||
2023 (remaining three months) | $ | ||||
2024 | |||||
2025 | |||||
2026 | |||||
2027 | |||||
Thereafter | |||||
Total operating lease payments | | ||||
Less: imputed interest | ( | ||||
Total operating lease liabilities | $ | |
Note 7. Income Taxes
Our effective income tax rates for the third quarter and nine months ended September 30, 2023 were
Note 8. Equity
Dividends
On October 24, 2023, our Board of Directors declared the 2023 fourth quarter cash dividend of $
During the third quarters of 2023 and 2022, we declared and paid quarterly dividends of $
Stock-Based Compensation
We make annual grants of long-term equity incentive awards to officers and key employees under our Second Amended and Restated 2015 Incentive Award Plan in the forms of service-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) that each have approximately
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Directors fully vested stock awards under our Directors Equity Plan. The fair values of the RSUs, PSUs and stock awards are determined based on the closing stock price of our common stock on the grant date.
In the nine months ended September 30, 2023 and 2022, we made payments of $
A summary of the status of our unvested RSUs and PSUs as of September 30, 2023, and changes during the nine months then ended is as follows:
Weighted | |||||
Average | |||||
RSU and PSU | Grant Date | ||||
Aggregate Units | Fair Value | ||||
Unvested at January 1, 2023 | | $ | |||
Granted(1) | | ||||
Vested | ( | ||||
Cancelled or forfeited | ( | ||||
Unvested at September 30, 2023 | $ | ||||
Shares reserved for future grants (all plans) |
(1) | Comprised of |
As of September 30, 2023, there was $
Share Repurchases
Our share repurchase activity during the nine months ended September 30, 2023 and 2022 was as follows:
2023 | 2022 | |||||||||||||||
Average Cost | Average Cost | |||||||||||||||
Shares | Per Share | Amount | Shares | Per Share | Amount | |||||||||||
(in millions) | (in millions) | |||||||||||||||
First quarter | $ | $ | $ | $ | ||||||||||||
Second quarter | ||||||||||||||||
Third quarter | ||||||||||||||||
$ | $ | $ | $ |
From October 2, 2023 through October 24, 2023, we repurchased
We may repurchase shares through a variety of methods including, but not limited to, open market purchases, accelerated share repurchases, negotiated block purchases and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss included the following:
Pension and | ||||||||
Foreign Currency | Postretirement Benefit | Accumulated Other | ||||||
Translation | Plan Adjustments, | Comprehensive | ||||||
Loss |
| Net of Tax |
| Loss | ||||
(in millions) | ||||||||
Balance as of January 1, 2023 | $ | ( | $ | ( | $ | ( | ||
Current-period change | ( | ( | ( | |||||
Balance as of September 30, 2023 | $ | ( | $ | ( | $ | ( |
Foreign currency translation adjustments have not been adjusted for income taxes. Pension and postretirement benefit plan adjustments are amortized over service periods and reflected in the amortization of net loss component of our net periodic benefit cost or are otherwise recognized as a loss as a result of plan settlements. Pension and postretirement benefit plan adjustments are net of taxes of $
Note 9. Commitments and Contingencies
Environmental Contingencies
We are currently involved with an environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our
subsidiary, that were sold many years prior to our acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ maintained insurance policies during the time it owned the manufacturing operations that have covered costs incurred to date and are expected to continue to cover the majority of the related costs. We do not expect that this obligation will have a material adverse impact on our consolidated financial position, results of operations or cash flows.Legal Matters
From time to time, we are named as a defendant in legal actions. These actions generally arise in the ordinary course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse impact on our consolidated financial position, results of operations or cash flows. We maintain general liability insurance against risks arising in the ordinary course of business.
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Note 10. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, | September 30, | ||||||||||
2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in millions, except number of shares which are reflected in thousands and per share amounts) | |||||||||||
Numerator: | |||||||||||
Net income attributable to Reliance | $ | $ | $ | $ | |||||||
Denominator: | |||||||||||
Weighted average shares outstanding | |||||||||||
Dilutive effect of stock-based awards | |||||||||||
Weighted average diluted shares outstanding | |||||||||||
Earnings per share attributable to Reliance stockholders: | |||||||||||
Basic | $ | $ | $ | $ | |||||||
Diluted | $ | $ |