(Exact name of registrant as specified in its charter) | | | | Delaware (State or other jurisdiction of incorporation or organization) | | 95-1142616 (I.R.S. Employer Identification No.) |
350 South Grand Avenue,16100 N. 71st Street, Suite 5100400
Los Angeles, California 90071Scottsdale, Arizona85254
(Address of principal executive offices, including zip code) (213) 687-7700(480)564-5700
(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: | | | | | Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered | Common Stock, $0.001 par value | | RS | | New York Stock Exchange |
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 ☒No ☐ Yes ☒ No ☐
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Act. Large accelerated filer ☒ | Accelerated filer ☐ | Large acceleratedNon-accelerated filer ☒☐
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| Smaller reporting company ☐ | | Emerging growth company ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒ As of October 30, 2017, 72,915,294April 28, 2023, there were 58,793,188 shares of the registrant’s common stock, $0.001 par value, were outstanding. RELIANCE STEEL & ALUMINUM CO. TABLE OF CONTENTS 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) | | | | | | | March 31, | | December 31, | | 2023 | | 2022* | ASSETS | Current assets: | | | | | | Cash and cash equivalents | $ | 816.2 | | $ | 1,173.4 | Accounts receivable, less allowance for credit losses of $28.7 at March 31, 2023 and $26.1 at December 31, 2022 | | 1,800.3 | | | 1,565.7 | Inventories | | 1,981.4 | | | 1,995.3 | Prepaid expenses and other current assets | | 114.2 | | | 115.6 | Income taxes receivable | | — | | | 36.6 | Total current assets | | 4,712.1 | | | 4,886.6 | Property, plant and equipment: | | | | | | Land | | 263.3 | | | 262.7 | Buildings | | 1,381.0 | | | 1,359.3 | Machinery and equipment | | 2,507.9 | | | 2,446.9 | Accumulated depreciation | | (2,127.4) | | | (2,094.3) | Property, plant and equipment, net | | 2,024.8 | | | 1,974.6 | Operating lease right-of-use assets | | 217.3 | | | 216.4 | Goodwill | | 2,106.1 | | | 2,105.9 | Intangible assets, net | | 1,008.0 | | | 1,019.6 | Cash surrender value of life insurance policies, net | | 37.6 | | | 42.0 | Other assets | | 97.3 | | | 84.8 | Total assets | $ | 10,203.2 | | $ | 10,329.9 | | | | | | | LIABILITIES AND EQUITY | | | | | | | Current liabilities: | | | | | | Accounts payable | $ | 545.0 | | $ | 412.4 | Accrued expenses | | 113.7 | | | 118.8 | Accrued compensation and retirement benefits | | 143.7 | | | 240.0 | Accrued insurance costs | | 45.2 | | | 43.4 | Current maturities of long-term debt and short-term borrowings | | 8.2 | | | 508.2 | Current maturities of operating lease liabilities | | 53.2 | | | 52.5 | Income taxes payable | | 66.4 | | | — | Total current liabilities | | 975.4 | | | 1,375.3 | Long-term debt | | 1,140.2 | | | 1,139.4 | Operating lease liabilities | | 165.5 | | | 165.2 | Long-term retirement benefits | | 29.6 | | | 26.1 | Other long-term liabilities | | 61.9 | | | 51.4 | Deferred income taxes | | 476.2 | | | 476.6 | Commitments and contingencies | | | | | | Equity: | | | | | | Preferred stock, $0.001 par value: 5,000 shares authorized; none issued or outstanding | | — | | | — | Common stock and additional paid-in capital, $0.001 par value and 200,000 shares authorized | | | | | | Issued and outstanding shares—58,840 at March 31, 2023 and 58,787 at December 31, 2022 | | 0.1 | | | 0.1 | Retained earnings | | 7,432.1 | | | 7,173.6 | Accumulated other comprehensive loss | | (86.5) | | | (86.3) | Total Reliance stockholders’ equity | | 7,345.7 | | | 7,087.4 | Noncontrolling interests | | 8.7 | | | 8.5 | Total equity | | 7,354.4 | | | 7,095.9 | Total liabilities and equity | $ | 10,203.2 | | $ | 10,329.9 |
* Amounts derived from audited financial statements. See accompanying notes to unaudited consolidated financial statements. RELIANCE STEEL & ALUMINUM CO. UNAUDITED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF INCOME (in millions, except number of shares which are reflected in thousands and per share amounts) | | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | Net sales | $ | 3,965.3 | | $ | 4,485.8 | | | | | | | Costs and expenses: | | | | | | Cost of sales (exclusive of depreciation and amortization shown below) | | 2,739.3 | | | 3,098.7 | Warehouse, delivery, selling, general and administrative (“SG&A”) | | 651.3 | | | 611.9 | Depreciation and amortization | | 61.1 | | | 59.1 | | | 3,451.7 | | | 3,769.7 | | | | | | | Operating income | | 513.6 | | | 716.1 | | | | | | | Other (income) expense: | | | | | | Interest expense | | 10.9 | | | 15.6 | Other (income) expense, net | | (5.8) | | | 3.3 | Income before income taxes | | 508.5 | | | 697.2 | Income tax provision | | 124.1 | | | 172.6 | Net income | | 384.4 | | | 524.6 | Less: net income attributable to noncontrolling interests | | 1.3 | | | 1.3 | Net income attributable to Reliance | $ | 383.1 | | $ | 523.3 | | | | | | | Earnings per share attributable to Reliance stockholders: | | | | | | Basic | $ | 6.51 | | $ | 8.46 | Diluted | $ | 6.43 | | $ | 8.33 | | | | | | | Shares used in computing earnings per share: | | | | | | Basic | | 58,832 | | | 61,833 | Diluted | | 59,534 | | | 62,784 |
| | | | | | | September 30, | | December 31, | | 2017 | | 2016* | ASSETS | Current assets: | | | | | | Cash and cash equivalents | $ | 170.2 | | $ | 122.8 | Accounts receivable, less allowance for doubtful accounts of $17.0 at September 30, 2017 and $15.3 at December 31, 2016 | | 1,166.0 | | | 960.2 | Inventories | | 1,772.5 | | | 1,532.6 | Prepaid expenses and other current assets | | 60.4 | | | 72.9 | Total current assets | | 3,169.1 | | | 2,688.5 | Property, plant and equipment: | | | | | | Land | | 232.8 | | | 228.2 | Buildings | | 1,087.1 | | | 1,059.2 | Machinery and equipment | | 1,712.2 | | | 1,647.3 | Accumulated depreciation | | (1,381.0) | | | (1,272.5) | Property, plant and equipment, net | | 1,651.1 | | | 1,662.2 | | | | | | | Goodwill | | 1,834.0 | | | 1,827.4 | Intangible assets, net | | 1,116.8 | | | 1,151.3 | Cash surrender value of life insurance policies, net | | 36.8 | | | 46.9 | Other assets | | 39.1 | | | 35.0 | Total assets | $ | 7,846.9 | | $ | 7,411.3 | | | | | | | LIABILITIES AND EQUITY | | | | | | | Current liabilities: | | | | | | Accounts payable | $ | 407.2 | | $ | 302.2 | Accrued expenses | | 103.5 | | | 83.7 | Accrued compensation and retirement costs | | 128.5 | | | 140.8 | Accrued insurance costs | | 42.6 | | | 40.6 | Current maturities of long-term debt and short-term borrowings | | 79.7 | | | 82.5 | Income taxes payable | | 19.7 | | | 6.2 | Total current liabilities | | 781.2 | | | 656.0 | Long-term debt | | 1,896.0 | | | 1,846.7 | Long-term retirement costs | | 86.2 | | | 89.6 | Other long-term liabilities | | 13.0 | | | 13.0 | Deferred income taxes | | 624.6 | | | 626.9 | Commitments and contingencies | | | | | | Equity: | | | | | | Preferred stock, $0.001 par value: | | | | | | Authorized shares — 5,000,000 | | | | | | None issued or outstanding | | — | | | — | Common stock and additional paid-in capital, $0.001 par value: | | | | | | Authorized shares — 200,000,000 | | | | | | Issued and outstanding shares – 72,913,683 at September 30, 2017 and 72,682,793 at December 31, 2016 | | 616.2 | | | 590.3 | Retained earnings | | 3,876.6 | | | 3,663.2 | Accumulated other comprehensive loss | | (77.9) | | | (104.7) | Total Reliance stockholders’ equity | | 4,414.9 | | | 4,148.8 | Noncontrolling interests | | 31.0 | | | 30.3 | Total equity | | 4,445.9 | | | 4,179.1 | Total liabilities and equity | $ | 7,846.9 | | $ | 7,411.3 |
* Amounts were derived from audited financial statements.
See accompanying notes to unaudited consolidated financial statements. RELIANCE STEEL & ALUMINUM CO. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions, except per share amounts)millions) | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | September 30, | | September 30, | | 2017 | | 2016 | | 2017 | | 2016 | Net sales | $ | 2,450.1 | | $ | 2,185.2 | | $ | 7,344.6 | | $ | 6,551.8 | | | | | | | | | | | | | Costs and expenses: | | | | | | | | | | | | Cost of sales (exclusive of depreciation | | | | | | | | | | | | and amortization shown below) | | 1,764.6 | | | 1,530.6 | | | 5,235.4 | | | 4,575.4 | Warehouse, delivery, selling, general and | | | | | | | | | | | | administrative | | 470.0 | | | 453.0 | | | 1,422.1 | | | 1,357.7 | Depreciation and amortization | | 54.0 | | | 55.1 | | | 164.2 | | | 166.7 | Impairment of long-lived assets | | 2.8 | | | 51.7 | | | 2.8 | | | 51.7 | | | 2,291.4 | | | 2,090.4 | | | 6,824.5 | | | 6,151.5 | | | | | | | | | | | | | Operating income | | 158.7 | | | 94.8 | | | 520.1 | | | 400.3 | | | | | | | | | | | | | Other (income) expense: | | | | | | | | | | | | Interest expense | | 19.1 | | | 22.2 | | | 54.9 | | | 65.6 | Other (income) expense, net | | (2.6) | | | 2.1 | | | 2.1 | | | 3.4 | Income before income taxes | | 142.2 | | | 70.5 | | | 463.1 | | | 331.3 | Income tax provision | | 43.2 | | | 19.9 | | | 145.9 | | | 85.1 | Net income | | 99.0 | | | 50.6 | | | 317.2 | | | 246.2 | Less: Net income attributable to noncontrolling interests | | | | | | | | | | | | interests | | 1.7 | | | 1.1 | | | 5.2 | | | 3.6 | Net income attributable to Reliance | $ | 97.3 | | $ | 49.5 | | $ | 312.0 | | $ | 242.6 | | | | | | | | | | | | | Earnings per share attributable to Reliance stockholders: | | | | | | | | | | | | Diluted | $ | 1.32 | | $ | 0.68 | | $ | 4.24 | | $ | 3.32 | Basic | $ | 1.33 | | $ | 0.68 | | $ | 4.28 | | $ | 3.36 | | | | | | | | | | | | | Cash dividends per share | $ | 0.45 | | $ | 0.425 | | $ | 1.35 | | $ | 1.225 |
| | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | Net income | $ | 384.4 | | $ | 524.6 | Other comprehensive income (loss): | | | | | | Foreign currency translation gain | | 0.6 | | | 0.7 | Postretirement benefit plan adjustments, net of tax | | (0.8) | | | (0.1) | Total other comprehensive (loss) income | | (0.2) | | | 0.6 | Comprehensive income | | 384.2 | | | 525.2 | Less: comprehensive income attributable to noncontrolling interests | | 1.3 | | | 1.3 | Comprehensive income attributable to Reliance | $ | 382.9 | | $ | 523.9 |
See accompanying notes to unaudited consolidated financial statements. RELIANCE STEEL & ALUMINUMALUMINUM CO. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEEQUITY (in millions)millions, except per share amounts) | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | September 30, | | September 30, | | 2017 | | 2016 | | 2017 | | 2016 | Net income | $ | 99.0 | | $ | 50.6 | | $ | 317.2 | | $ | 246.2 | Other comprehensive income (loss): | | | | | | | | | | | | Foreign currency translation gain (loss) | | 10.5 | | | (3.2) | | | 24.5 | | | 7.7 | Pension and postretirement benefit adjustments, net of tax | | — | | | — | | | 2.3 | | | — | Total other comprehensive income (loss) | | 10.5 | | | (3.2) | | | 26.8 | | | 7.7 | Comprehensive income | | 109.5 | | | 47.4 | | | 344.0 | | | 253.9 | Less: Comprehensive income attributable to noncontrolling interests | | 1.7 | | | 1.1 | | | 5.2 | | | 3.6 | Comprehensive income attributable to Reliance | $ | 107.8 | | $ | 46.3 | | $ | 338.8 | | $ | 250.3 |
| | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | Total equity, beginning balances | $ | 7,095.9 | | $ | 6,093.7 | | | | | | | Common stock and additional paid-in capital: | | | | | | Beginning balances | | 0.1 | | | 0.1 | Stock-based compensation | | 13.5 | | | 11.8 | Taxes paid related to net share settlement of restricted stock units | | (37.2) | | | (17.1) | Repurchase of common shares | | 23.7 | | | 5.3 | Ending balances | | 0.1 | | | 0.1 | | | | | | | Retained earnings: | | | | | | Beginning balances | | 7,173.6 | | | 6,155.3 | Net income attributable to Reliance | | 383.1 | | | 523.3 | Cash dividends and dividend equivalents | | (62.0) | | | (56.7) | Repurchase of common shares | | (62.6) | | | (22.4) | Ending balances | | 7,432.1 | | | 6,599.5 | | | | | | | Accumulated other comprehensive loss: | | | | | | Beginning balances | | (86.3) | | | (68.9) | Other comprehensive (loss) income | | (0.2) | | | 0.6 | Ending balances | | (86.5) | | | (68.3) | | | | | | | Total Reliance stockholders' equity, ending balances | | 7,345.7 | | | 6,531.3 | | | | | | | Noncontrolling interests: | | | | | | Beginning balances | | 8.5 | | | 7.2 | Comprehensive income | | 1.3 | | | 1.3 | Dividends paid | | (1.1) | | | (1.1) | Ending balances | | 8.7 | | | 7.4 | | | | | | | Total equity, ending balances | $ | 7,354.4 | | $ | 6,538.7 | | | | | | | Cash dividends declared per common share | $ | 1.00 | | $ | 0.875 |
See accompanying notes to unaudited consolidated financial statements. RELIANCE STEEL & ALUMINUM CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) | | | | | | | Nine Months Ended | | September 30, | | 2017 | | 2016 | Operating activities: | | | | | | Net income | $ | 317.2 | | $ | 246.2 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Depreciation and amortization expense | | 164.2 | | | 166.7 | Impairment of long-lived assets | | 2.8 | | | 51.7 | Deferred income tax (benefit) provision | | (4.7) | | | 0.5 | Gain on sales of property, plant and equipment | | (8.4) | | | (1.1) | Stock-based compensation expense | | 23.3 | | | 17.8 | Other | | 4.9 | | | 5.9 | Changes in operating assets and liabilities (excluding effect of businesses acquired): | | | | | | Accounts receivable | | (202.6) | | | (112.0) | Inventories | | (235.5) | | | (95.5) | Prepaid expenses and other assets | | 12.6 | | | 35.2 | Accounts payable and other liabilities | | 124.5 | | | 72.2 | Net cash provided by operating activities | | 198.3 | | | 387.6 | | | | | | | Investing activities: | | | | | | Purchases of property, plant and equipment | | (118.1) | | | (110.6) | Acquisitions, net of cash acquired | | (1.3) | | | (349.0) | Proceeds from sales of property, plant and equipment | | 14.0 | | | 5.7 | Other | | 5.6 | | | (4.1) | Net cash used in investing activities | | (99.8) | | | (458.0) | | | | | | | Financing activities: | | | | | | Net short-term debt borrowings (repayments) | | 3.6 | | | (11.9) | Proceeds from long-term debt borrowings | | 674.0 | | | 1,713.0 | Principal payments on long-term debt | | (634.5) | | | (1,525.2) | Debt issuance costs | | — | | | (6.8) | Dividends and dividend equivalents paid | | (99.3) | | | (89.5) | Exercise of stock options | | 3.4 | | | 31.3 | Other | | (5.3) | | | (4.1) | Net cash (used in) provided by financing activities | | (58.1) | | | 106.8 | Effect of exchange rate changes on cash | | 7.0 | | | 2.6 | Increase in cash and cash equivalents | | 47.4 | | | 39.0 | Cash and cash equivalents at beginning of year | | 122.8 | | | 104.3 | Cash and cash equivalents at end of period | $ | 170.2 | | $ | 143.3 | | | | | | | Supplemental cash flow information: | | | | | | Interest paid during the period | $ | 44.2 | | $ | 47.0 | Income taxes paid during the period, net | $ | 135.2 | | $ | 67.2 | | | | | | | Non-cash investing and financing activities: | | | | | | Debt assumed in connection with acquisition | $ | — | | $ | 6.1 |
| | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | Operating activities: | | | | | | Net income | $ | 384.4 | | $ | 524.6 | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Depreciation and amortization expense | | 61.1 | | | 59.1 | Stock-based compensation expense | | 13.5 | | | 11.8 | Other | | (0.1) | | | 8.0 | Changes in operating assets and liabilities (excluding effect of businesses acquired): | | | | | | Accounts receivable | | (237.1) | | | (399.6) | Inventories | | 13.5 | | | 54.0 | Prepaid expenses and other assets | | 50.0 | | | 19.5 | Accounts payable and other liabilities | | 99.3 | | | 126.6 | Net cash provided by operating activities | | 384.6 | | | 404.0 | | | | | | | Investing activities: | | | | | | Purchases of property, plant and equipment | | (102.9) | | | (66.7) | Proceeds from sales of property, plant and equipment | | 8.3 | | | 8.2 | Deferred compensation plan contributions, net | | (7.4) | | | (7.5) | Other | | (0.6) | | | 2.7 | Net cash used in investing activities | | (102.6) | | | (63.3) | | | | | | | Financing activities: | | | | | | Principal payment on long-term debt | | (500.0) | | | — | Cash dividends and dividend equivalents | | (62.0) | | | (56.7) | Share repurchases | | (38.9) | | | (17.1) | Taxes paid related to net share settlement of restricted stock units | | (37.2) | | | (17.1) | Other | | (1.1) | | | (1.1) | Net cash used in financing activities | | (639.2) | | | (92.0) | Effect of exchange rate changes on cash and cash equivalents | | — | | | (1.2) | (Decrease) increase in cash and cash equivalents | | (357.2) | | | 247.5 | Cash and cash equivalents at beginning of year | | 1,173.4 | | | 300.5 | Cash and cash equivalents at end of the period | $ | 816.2 | | $ | 548.0 | | | | | | | Supplemental cash flow information: | | | | | | Interest paid during the period | $ | 14.4 | | $ | 9.6 | Income taxes paid during the period, net | $ | 21.2 | | $ | 89.8 |
See accompanying notes to unaudited consolidated financial statements. RELIANCE STEEL & ALUMINUM CO. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2017March 31, 2023
Note 1. BasisSummary of PresentationSignificant 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, consisting onlywhich are of a normal recurring adjustmentsnature, necessary for a fair presentation with respect to the interimof financial statements have been included. Thefor interim periods in accordance with U.S. GAAP. Interim results of operations for the nine months ended September 30, 2017 are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The ownership of the full year ending December 31, 2017.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 footnotes theretoaccompanying notes included in Reliance’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, included in Reliance Steel & Aluminum Co.’s (“Reliance”, the “Company”, “we”, “our” or “us”) Annual Report on Form 10-K.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. Our consolidated financial statements includeInventories
The majority of our inventory is valued using the assets, liabilities and operating resultslast-in, first-out (“LIFO”) method, which is not in excess of majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The ownershipmarket. 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 other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Our investments in unconsolidated subsidiaries are recorded under the equity method of accounting. 2. Impact of Recently Issued Accounting Guidance
Impact of Recently Issued Accounting Standards—Adopted
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost—In March 2017, the Financial Accounting Standards Board (“FASB”) issued accounting changesprojected year-end LIFO calculation to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost in the income statement, and to narrow the amounts eligible for capitalization in assets. The amendments require the service cost component of net periodic benefit cost be reported in the same line as other compensation costs and the other components of net periodic benefit cost be presented in the income statement outside of operating income. We adopted these changes in the three months ended March 31, 2017interim periods on a retrospectivepro rata basis. As a result of the adoption, we retrospectively adjusted the presentation of our income statement for the three-month and nine-month periods ended September 30, 2016, decreasing Warehouse, delivery, selling, general and administrative expense by $1.3 million and $3.9 million, respectively, and increasing Other (income) expense, net by $1.3 million and $3.9 million, respectively.
Note 2. Revenues The adjustment to the income statement presentation for the 2016 periods was estimated using the components of net periodic benefit cost other than service cost included in Note 11— “Employee Benefits” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. We include the components of net periodic benefit cost other than service cost in Other (income) expense, net in all periods presented. The amendment requiring only the service cost component of net periodic benefit cost to be eligible for capitalization in assets did not impact our asset capitalization policies. The adoption of these changes did not have a material impact on our consolidated financial statements. Clarifying the Definition of a Business—In January 2017, the FASB issued accounting changes to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The accounting changes provide a framework to determine when a set of assets and activities is not a business. These accounting changes, which will be applied to our future acquisitions, were adopted during the three months ended March 31, 2017. The adoption of these accounting changes did not have a material impact on our consolidated financial statements.
Impact of Recently Issued Accounting Standards—Not Yet Adopted
Classification of Certain Cash Receipts and Cash Payments—In August 2016, the FASB issued accounting changes that clarifies the presentation and classification of certain cash receipts and payments in the statement of cash flows with the objective of reducing the existing diversity in practice with respect to eight types of cash flows. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2017, or January 1, 2018 for the Company. Early adoption is permitted. The adoption of this standard will not have a material impact on our consolidated financial statements.
Leases—In February 2016, the FASB issued accounting changes which will require lessees to recognize most long-term leases on-balance sheet through the recognition of a right-of-use asset and a lease liability. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2018, or January 1, 2019 for the Company. Early adoption is permitted. We have implemented a lease management system and are developing processes necessary to implement these accounting changes. We expect the adoption of these accounting changes will materially increase our assets and liabilities, but will not have a material impact onfollowing table presents our net income or equity. We anticipate adopting this new standard on January 1, 2019 with modified retrospective application, using the available practical expedients. Full retrospective application is prohibited.sales disaggregated by product and service:
| | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | | | (in millions) | Carbon steel | $ | 2,128.5 | | $ | 2,547.5 | Aluminum | | 670.2 | | | 692.8 | Stainless steel | | 657.3 | | | 764.9 | Alloy | | 191.4 | | | 183.7 | Toll processing and logistics | | 155.4 | | | 135.1 | Copper and brass | | 82.0 | | | 86.6 | Other and eliminations | | 80.5 | | | 75.2 | Total | $ | 3,965.3 | | $ | 4,485.8 |
Revenue from Contracts with Customers—In May 2014, the FASB issued accounting changes, which replace most of the detailed guidance on revenue recognition that currently exists under U.S. GAAP. Under the new guidance, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company will adopt the new guidance on January 1, 2018 using the modified retrospective method, which requires that we recognize the cumulative effect of initially applying the accounting changes as an adjustment to opening retained earnings on the adoption date. We primarily sell our inventories in the “spot market” pursuant to fixed price purchase orders and do not enter into transactions with multiple performance obligations. As such, we do not expect this standard to have a material impact on our consolidated financial statements. We will continue to evaluate this standard and update the disclosures on its impact.
3. Acquisitions
2016 Acquisitions
On August 1, 2016, through our wholly owned subsidiary American Metals Corporation, we acquired Alaska Steel Company (“Alaska Steel”), a full-line metal distributor headquartered in Anchorage, Alaska. Our acquisition of Alaska Steel was our first entry into the Alaska market. Alaska Steel provides steel, aluminum, stainless and specialty metals and related processing services to a variety of customers in diverse industries including infrastructure and energy, throughout Alaska. Alaska Steel’s net sales for the nine months ended September 30, 2017 were $17.3 million.
On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator of steel and aluminum products on both a direct and toll basis. Best Manufacturing, headquartered in Jonesboro, Arkansas, provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. Best Manufacturing’s net sales for the nine months ended September 30, 2017 were $16.8 million.
On January 1, 2016, we acquired Tubular Steel, Inc. (“Tubular Steel”), a distributor and processor of carbon, alloy and stainless steel pipe, tubing and bar products. Tubular Steel, headquartered in St. Louis, Missouri, has six locations and a fabrication business that supports its diverse customer base. Tubular Steel’s net sales for the nine months ended September 30, 2017 were $102.5 million.
We funded our 2016 acquisitions with borrowings on our revolving credit facility and cash on hand.
Note 3. Goodwill The allocation of the total purchase price of our 2016 acquisitions to the fair values of the assets acquired and liabilities assumed was as follows:
| | | | (in millions)
| Cash
| $
| 1.5 | Accounts receivable
| | 14.1 | Inventories
| | 66.6 | Property, plant and equipment
| | 62.2 | Goodwill
| | 104.7 | Intangible assets subject to amortization
| | 77.1 | Intangible assets not subject to amortization
| | 38.2 | Other current and long-term assets
| | 0.5 | Total assets acquired
| | 364.9 | Current and long-term debt
| | 6.1 | Other current and long-term liabilities
| | 7.3 | Total liabilities assumed
| | 13.4 | Net assets acquired
| $
| 351.5 |
The acquisitions discussed in this note have been accounted for under the acquisition method of accounting and, accordingly, the respective purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated 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. The consolidated balance sheets reflect the allocation of each acquisition’s purchase price as of September 30, 2017 and December 31, 2016. The measurement periods for purchase price allocations do not exceed 12 months from the acquisition date.
4. Goodwill
The change in the carrying amount of goodwill is as follows: | | | | (in millions) | Balance at January 1, 2017 | $ | 1,827.4 | Acquisition | | 1.3 | Effect of foreign currency translation | | 5.3 | Balance at September 30, 2017 | $ | 1,834.0 |
| | | | | | | | | | (in millions) | Balance at January 1, 2023 | | | | $ | 2,105.9 | Effect of foreign currency translation | | | | | 0.2 | Balance at March 31, 2023 | | | | $ | 2,106.1 |
We had no accumulated impairment losses related to goodwill at September 30, 2017. March 31, 2023 and December 31, 2022. 5.Note 4. Intangible Assets, net
Intangible assets, net consisted of the following: | | | | | | | | | | | | | | | | | | March 31, 2023 | | December 31, 2022 | | | Weighted Average | | Gross | | | | | Gross | | | | | | Amortizable | | Carrying | | Accumulated | | Carrying | | Accumulated | | | Life in Years | | Amount | | Amortization | | Amount | | Amortization | | | | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | | | Weighted Average | | Gross | | | | Gross | | | | | Amortizable | | Carrying | | Accumulated | | Carrying | | Accumulated | | | Life in Years | | Amount | | Amortization | | Amount | | Amortization | | | | | (in millions) | | | | | | (in millions) | Intangible assets subject to amortization: | | | | | | | | | | | | | | | | | | | | | | | Covenants not to compete | 4.7 | | $ | 0.9 | | $ | (0.5) | | $ | 1.1 | | $ | (0.6) | | Customer lists/relationships | 14.6 | | | 741.7 | | | (379.9) | | 736.7 | | | (338.9) | 14.2 | | $ | 713.8 | | $ | (490.5) | | $ | 713.6 | | $ | (479.3) | Software | 10.0 | | | 8.1 | | | (8.1) | | 8.1 | | | (8.1) | | Backlog of orders | | 7.9 | | | 22.3 | | | (3.8) | | | 22.3 | | | (3.1) | Other | 5.4 | | | 6.4 | | | (5.8) | | | 6.3 | | | (5.5) | 9.2 | | | 9.9 | | | (9.5) | | | 9.9 | | | (9.5) | | | | | 757.1 | | | (394.3) | | 752.2 | | | (353.1) | | | | | | 746.0 | | | (503.8) | | | 745.8 | | | (491.9) | Intangible assets not subject to amortization: | | | | | | | | | | | | | | | | | | | | | | | | | Trade names | | | | 754.0 | | | — | | | 752.2 | | | — | | | | 765.8 | | | — | | | 765.7 | | | — | | | | $ | 1,511.1 | | $ | (394.3) | | $ | 1,504.4 | | $ | (353.1) | | | | | | $ | 1,511.8 | | $ | (503.8) | | $ | 1,511.5 | | $ | (491.9) |
We recognized amortizationAmortization expense for intangible assets of $38.9was $11.8 million and $40.6$12.2 million for the nine months ended September 30, 2017first quarters of 2023 and 2016,2022, respectively. Foreign currency translation gains related to intangible assets, net were $4.4$0.2 million duringand $0.4 million for the nine months ended September 30, 2017.first quarters of 2023 and 2022, respectively.
The following is a summary of estimated aggregatefuture amortization expense for the remaining three monthsexpense: | | | | | | | | | | (in millions) | 2023 (remaining nine months) | | | | $ | 31.8 | 2024 | | | | | 40.1 | 2025 | | | | | 35.9 | 2026 | | | | | 26.4 | 2027 | | | | | 25.8 | Thereafter | | | | | 82.2 | | | | | $ | 242.2 |
Note 5. Debt | | | | (in millions) | 2017 (remaining three months) | $ | 11.6 | 2018 | | 46.3 | 2019 | | 46.2 | 2020 | | 46.2 | 2021 | | 42.2 | 2022 | | 34.0 |
6. Debt
Debt consisted of the following: | | | | | | | | March 31, | | December 31, | | | 2023 | | 2022 | | | | | | | | | September 30, | | December 31, | | | 2017 | | 2016 | | | (in millions) | | Unsecured revolving credit facility due September 30, 2021 | $ | 610.0 | | $ | 540.0 | | Unsecured term loan due from December 29, 2017 to September 30, 2021 | | 570.0 | | | 600.0 | | Senior unsecured notes due April 15, 2023 | | 500.0 | | | 500.0 | | Senior unsecured notes due November 15, 2036 | | 250.0 | | | 250.0 | | | | (in millions) | Unsecured revolving credit facility maturing September 3, 2025 | | $ | — | | $ | — | Senior unsecured notes, interest payable semi-annually at 4.50%, effective rate of 4.63%, redeemed on January 15, 2023 | | | — | | 500.0 | Senior unsecured notes, interest payable semi-annually at 1.30%, effective rate of 1.53%, maturing August 15, 2025 | | | 400.0 | | 400.0 | Senior unsecured notes, interest payable semi-annually at 2.15%, effective rate of 2.27%, maturing August 15, 2030 | | | 500.0 | | 500.0 | Senior unsecured notes, interest payable semi-annually at 6.85%, effective rate of 6.91%, maturing November 15, 2036 | | | 250.0 | | 250.0 | Other notes and revolving credit facilities | | 59.5 | | | 55.0 | | 9.6 | | | 9.6 | Total | | 1,989.5 | | | 1,945.0 | | 1,159.6 | | 1,659.6 | Less: unamortized discount and debt issuance costs | | (13.8) | | | (15.8) | | (11.2) | | (12.0) | Less: amounts due within one year and short-term borrowings | | (79.7) | | | (82.5) | | (8.2) | | | (508.2) | Total long-term debt | $ | 1,896.0 | | $ | 1,846.7 | $ | 1,140.2 | | $ | 1,139.4 |
The weighted average interest rate on the Company’s outstanding borrowings as of March 31, 2023 and December 31, 2022 was 2.89% and 3.37%, respectively. Unsecured Credit Facility On September 30, 2016,3, 2020, we entered into a $2.1$1.5 billion unsecured five-year credit agreement (“Amended and Restated Credit Agreement”) comprised of aAgreement that amended and restated our then-existing $1.5 billion unsecured revolving credit facility and a $600.0 million unsecured term loan, with an optionfacility. On January 12, 2023, the agreement was further amended to increasechange the revolving facility upreference rate from LIBOR to an additional $500.0 million at our request, subject to approvalSOFR (as amended, the “Credit Agreement”). As of March 31, 2023, borrowings under the lenders and certain other customary conditions. The term loan due September 30, 2021 amortizes in quarterly installments, with an annual amortization of 5% through September 2018 and 10% thereafter until June 2021, with the balance to be paid at maturity. Interest on borrowings from the revolving credit facility and term loan at September 30, 2017 wasCredit Agreement were available at variable rates based on LIBORSOFR plus 1.25%1.10% or the bank prime rate plus 0.25% and includedwe currently pay a commitment fee at an annual rate of 0.15%0.175% on the unused portion of the revolving credit facility. The applicable margins over LIBORSOFR and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined in the Credit Agreement. All borrowings under the Credit Agreement may be prepaid without penalty.penalty. Weighted average interest rates onAs of March 31, 2023 and December 31, 2022, we had no outstanding borrowings outstanding on the revolving credit facility were 2.49% and 2.16% asfacility. As of September 30, 2017March 31, 2023 and December 31, 2016, respectively. Weighted average interest rates on borrowings outstanding on the term loan were 2.49% and 2.02% as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017,2022, we had $610.0 million of outstanding borrowings, $63.0$7.7 million of letters of credit issued and $827.0 million available for borrowing onoutstanding under the revolving credit facility.
Senior Unsecured Notes On November 20, 2006,January 15, 2023, we entered into an indenture (the “2006 Indenture”), forredeemed in full the issuance of $600.0 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350.0$500.0 million aggregate outstanding principal amount of our 4.50% senior unsecured notes bearing interest at the rate of 6.20% per annum, which matured and were repaid on November 15, 2016 and (b) $250.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036. On April 12, 2013, we entered into an indenture (the “2013 Indenture” and, together with the 2006 Indenture, the “Indentures”), for the issuance of $500.0 million aggregate principal amount of senior unsecured notes at the rate of 4.50% per annum, maturing ondue April 15, 2023. 2023 using cash on hand.
Under the Indentures,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. The senior unsecured notes include provisions that require us 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 101% of their principal amount plus accrued and unpaid interest in the event of both a change in control and a downgrade of our credit rating.interest.
Other Notes, and Revolving Credit and Letter of Credit/Letters of Guarantee Facilities RevolvingA revolving credit facilitiesfacility with a combined credit limit of approximately $69.8$7.9 million areis in place for operationsan operation in Asia and Europe with combinedan outstanding balancesbalance of $49.2 million and $44.4$2.2 million as of September 30, 2017March 31, 2023 and December 31, 2016, respectively.2022.
Various industrial revenue bonds had combined outstanding balances of $10.3$7.4 million as of September 30, 2017March 31, 2023 and $10.6 million as of December 31, 2016,2022 and have maturities through 2027. CovenantsA standby letters of credit/letters of guarantee agreement with one of the lenders under our Credit Agreement provides letters of credit and/or letters of guarantee in an amount not to exceed $50.0 million in the aggregate. As of March 31, 2023, a total of $19.5 million of letters of credit/guarantee were outstanding under this facility.
Covenants The Credit Agreement and the Indenturesindentures include customary representations, warranties, covenants acceleration, indemnity and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial statementmaintenance covenants that require us to maintain ancomply with a minimum interest coverage ratio and a maximum leverage ratio. We were in compliance with all financial maintenance covenants in our Credit Agreement at March 31, 2023. 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 obligations of less than $1.0 million. The following is a summary of our lease cost: | | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | | | (in millions) | Operating lease cost | $ | 23.6 | | $ | 23.0 |
Supplemental cash flow and balance sheet information is presented below: | | | | | | | Three Months Ended March 31, | | 2023 | | 2022 | | | (in millions) | Supplemental cash flow information: | | | | | | Cash payments for operating leases | $ | 23.5 | | $ | 21.8 | Right-of-use assets obtained in exchange for operating lease obligations | $ | 15.6 | | $ | 7.1 | | | | | | | | March 31, | | December 31, | | 2023 | | 2022 | Other lease information: | | | | | | Weighted average remaining lease term—operating leases | | 6.5 years | | | 6.6 years | Weighted average discount rate—operating leases | | 3.9% | | | 3.8% |
Maturities of operating lease liabilities as of March 31, 2023 are as follows: | | | | | | | | | | (in millions) | 2023 (remaining nine months) | | | | $ | 46.3 | 2024 | | | | | 52.7 | 2025 | | | | | 39.9 | 2026 | | | | | 27.6 | 2027 | | | | | 19.6 | Thereafter | | | | | 68.5 | Total operating lease payments | | | | | 254.6 | Less: imputed interest | | | | | (35.9) | Total operating lease liabilities | | | | $ | 218.7 |
Note 7. Income Taxes Our effective income tax rates for the three months ended September 30, 2017first quarters of 2023 and 20162022 were 30.4%24.4% and 28.2%24.8%, respectively. Our effective income tax rates for the nine months ended September 30, 2017 and 2016 were 31.5% and 25.7%, respectively. Our 2016 nine-month period effective income tax rate was favorably impacted by the resolution of a tax position that was previously uncertain, which lowered our 2016 nine-month income tax provision by $17.6 million and our effective income tax rate by 5.3 percentage points. Other permanent items that loweredThe differences between our effective income tax rates fromand the U.S. federal statutory rate of 21.0% were not materially different during both yearsmainly due to state income taxes and relate mainly tohigher foreign income tax rates, partially offset by the effects of company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lower than the U.S. statutory rate of 35%.policies. Note 8. Equity Common Stock Dividends
As of September 30, 2017, we had authorization to purchase a total of approximately 8.4 million shares under our existing share repurchase plan, or about 12% of outstanding shares. There were no share repurchases in the nine months ended September 30, 2017. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.
Common stock and additional paid-in capital activity included the following:
| | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | September 30, 2017 | | September 30, 2017 | | | | Weighted Average | | | | Weighted Average | | Shares | | Amount | | Exercise Price | | Shares | | Amount | | Exercise Price | | (in millions, except share and per share amounts) | Stock-based compensation(1) | 2,133 | | $ | 8.4 | | | | | 164,435 | | $ | 22.5 | | | | Stock options exercised | 9,925 | | | 0.5 | | $ | 55.73 | | 66,455 | | | 3.4 | | $ | 50.81 | Total | 12,058 | | $ | 8.9 | | | | | 230,890 | | $ | 25.9 | | | |
| (1)
| | The nine months ended September 30, 2017 amount is comprised of stock-based compensation expense of $23.3 million reduced by $0.8 million of payments we made to tax authorities on our employees’ behalf for shares withheld related to net share settlements.
|
Dividends
On October 24, 2017,April 25, 2023, our Board of Directors declared the 2017 fourth2023 second quarter cash dividend of $0.45$1.00 per share. The dividend isshare of common stock, payable on December 8, 2017June 9, 2023 to stockholders of record as of November 17, 2017.May 26, 2023. During the thirdfirst quarters of 20172023 and 2016,2022, we declared and paid quarterly dividends of $0.45$1.00 and $0.425$0.875 per share, or $32.8$59.0 million and $31.5$54.2 million in total, respectively. During the nine months ended September 30, 2017 and 2016,In addition, we declared and paid quarterly dividends of $1.35 and $1.225 per share, or $98.4$3.0 million and $88.6 million in total, respectively. During the nine months ended September 30, 2017 and 2016, we paid $0.9$2.5 million in dividend equivalents with respect to vested restricted stock units (“RSUs”).during the first quarters of 2023 and 2022, respectively. Stock-Based Compensation We make annual grants of long-term incentive awards to officers and key employees under our Second Amended and Restated 2015 Incentive Award Planin the forms of service-based restricted stock units (“RSUs”) and performance-based RSUsrestricted stock units (“PSUs”) that generallyeach have approximately 3-year vesting periods. The performance-based RSU awards are subjectPSUs include the right to bothreceive a maximum payout of two shares of our common stock based on performance goals tied to achieving a 3-year return on assets result and include service and performance goal criteria. We also make annual grants of restricted stock togrant the non-employeenon-management members of theour Board of Directors that include dividend rights and vest immediately upon grant.fully vested stock awards under our Directors Equity Plan. The fair valuevalues of the RSUs, PSUs and restricted stock awards isare determined based on the closing stock price of our common stock on the grant date. AIn the first quarters of 2023 and 2022, we made payments of $37.2 million and $17.1 million, respectively, to tax authorities on our employees’ behalf for shares withheld related to net share settlement of vested restricted stock units.
The following is a summary of changes in our unvested RSUs and PSUs during the first quarter of 2023: | | | | | | | | | | Weighted | | | | | Average | | | RSU and PSU | | Grant Date | | | Aggregate Units | | Fair Value | Unvested at January 1, 2023 | | 582,012 | | $ | 164.60 | Granted(1) | | 193,812 | | | 247.90 | Vested | | (870) | | | 152.93 | Cancelled or forfeited | | (2,002) | | | 170.84 | Unvested at March 31, 2023 | | 772,952 | | $ | 185.48 | Shares reserved for future grants (all plans) | | 1,457,448 | | | |
(1) | Comprised of 109,683 RSUs and 84,129 PSUs granted in February 2023. The service-based RSUs cliff vest on December 1, 2025 and the performance-based RSUs are subject to a 3-year performance period ending December 31, 2025. |
As of March 31, 2023, there was $123.9 million of total unrecognized compensation cost related to unvested RSUs and PSUs in an aggregate amount of 772,952 units that are expected to be settled through the issuance of 993,124 shares of our common stock. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.0 years. Share Repurchases Our share repurchase activity during the first quarters of 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 | | 160,224 | | $ | 242.86 | | $ | 38.9 | | 113,529 | | $ | 150.97 | | $ | 17.1 |
On July 26, 2022, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $1.0 billion. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares. As of March 31, 2023, we had remaining authorization under the program to repurchase $641.8 million of our unvested service-basedcommon stock. We repurchase shares through open market purchases and performance-based RSUs as of September 30, 2017 and changes duringtransactions structured through investment banking institutions under plans relying on Rule 10b5-1 and/or Rule 10b-18 under the nine-month period then ended is as follows:Exchange Act. | | | | | | | | | | Weighted | | | | | Average Grant | Unvested Shares | | Shares | | Date Fair Value | Unvested at January 1, 2017 | | 985,540 | | $ | 64.34 | Granted(1) | | 446,525 | | | 79.60 | Vested | | (8,159) | | | 62.49 | Cancelled | | (38,274) | | | 67.84 | Unvested at September 30, 2017 | | 1,385,632 | | $ | 69.18 | Shares reserved for future grants (all plans) | | 1,650,458 | | | |
| (1)
| | 446,525 RSUs, including 169,009 performance-based RSUs.
|
Accumulated Other Comprehensive Loss Accumulated other comprehensive loss included the following: | | | | | | | | | | | | | Pension and | | Accumulated | | Foreign Currency | | Postretirement | | Other | | Translation | | Benefit Adjustments, | | Comprehensive | | (Loss) Gain | | Net of Tax | | (Loss) Income | | (in millions) | Balance as of January 1, 2017 | $ | (79.9) | | $ | (24.8) | | $ | (104.7) | Current-period change | | 24.5 | | | 2.3 | | | 26.8 | Balance as of September 30, 2017 | $ | (55.4) | | $ | (22.5) | | $ | (77.9) |
| | | | | | | | | | | | | Pension and | | | | Foreign Currency | | Postretirement Benefit | | Accumulated Other | | Translation | | Plan Adjustments, | | Comprehensive | | (Loss) Gain | | Net of Tax | | Loss | | | | | (in millions) | | | | Balance as of January 1, 2023 | $ | (84.0) | | $ | (2.3) | | $ | (86.3) | Current-period change | | 0.6 | | | (0.8) | | | (0.2) | Balance as of March 31, 2023 | $ | (83.4) | | $ | (3.1) | | $ | (86.5) |
Foreign currency translation adjustments arehave not generallybeen adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. 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 $13.5 million and $14.9$1.3 million as of September 30, 2017March 31, 2023 and December 31, 2016, respectively.2022. The income tax effects are released from accumulated other comprehensive loss and included in our income tax provision as obligations under our pension and postretirement plans are settled. Note 9. Commitments and Contingencies Environmental Contingencies We are currently involved with a certainan environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our wholly owned subsidiary, whichthat were sold many years prior to Reliance’sour acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ had 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. Generally, theseThese actions generally arise out of our normalin 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 effectimpact on our consolidated financial position, results of operations financial condition or cash flows. We maintain general liability insurance against risks arising out of our normalin the ordinary course of business. Risks and Uncertainties We continue to monitor the impact of the COVID-19 pandemic, and government actions and measures taken to prevent its spread, and the potential to affect our operations. In addition to COVID-19, the conflict between Russia and Ukraine and macroeconomic disruptions such as inflation and the potential for an economic recession or slowdown could also significantly impact the demand for our products and services, as well as those of our customers and suppliers, and our estimates and judgments may be subject to greater volatility than in the past. Refer to Part I, Item1A“Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2022 for further discussion of risks that could adversely affect our estimates and judgments. Note 10. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: | | | | | | | | Three Months Ended March 31, | | | 2023 | | 2022 | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, | | September 30, | | | 2017 | | 2016 | | 2017 | | 2016 | | | (in millions, except share and per share amounts) | | | | (in millions, except number of shares which are reflected in thousands and per share amounts) | Numerator: | | | | | | | | | | | | | | | | | Net income attributable to Reliance | $ | 97.3 | | $ | 49.5 | | $ | 312.0 | | $ | 242.6 | $ | 383.1 | | $ | 523.3 | | | | | | | | Denominator: | | | | | | | | | | | | | | | | | Weighted average shares outstanding | | 72,908,979 | | | 72,542,873 | | | 72,881,000 | | | 72,282,537 | | 58,832 | | | 61,833 | Dilutive effect of stock-based awards | | 708,500 | | | 737,924 | | | 630,427 | | | 752,401 | | 702 | | | 951 | Weighted average diluted shares outstanding | | 73,617,479 | | | 73,280,797 | | | 73,511,427 | | | 73,034,938 | | 59,534 | | | 62,784 | | | | | | | | | | | | | | | | | Earnings per share attributable to Reliance stockholders: | | | | | | | | | | | | | Basic | | $ | 6.51 | | $ | 8.46 | Diluted | $ | 1.32 | | $ | 0.68 | | $ | 4.24 | | $ | 3.32 | $ | 6.43 | | $ | 8.33 | Basic | $ | 1.33 | | $ | 0.68 | | $ | 4.28 | | $ | 3.36 | |
Potentially dilutive securities whose effectearnings per share for the first quarters of 2023 and 2022 do not include 194,304 and 314,042 weighted average shares, respectively, in respect of outstanding RSUs and PSUs, because their inclusion would have been antidilutive were not significant for the three-monthanti-dilutive.
Note 11. Subsequent Event On May 1, 2023, we acquired Southern Steel Supply, LLC (“Southern Steel”), a metals service center that offers merchant and nine-month periods ended September 30, 2017structural steel, pipe and 2016. 11. Impairmenttube, steel plate, ornamental products and Restructuring Charges
We recorded impairmentlaser cut and restructuring charges of $2.1 million and $2.4 millionfabricated parts. Located in the three months and nine months ended September 30, 2017, respectively, compared to $67.3 million in the comparable 2016 periods. The 2016 charges mainly related to certain of our energy-related businessesMemphis, Tennessee, Southern Steel will operate as a resultsubsidiary of the impact to our business from continued low crude oil prices that reduced drilling activity and the resulting decline in demand for the products we sell to the energy market (oil and gas).
The impairment and restructuring charges (credits) consisted of the following:
| | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | September 30, | | September 30, | | 2017 | | 2016 | | 2017 | | 2016 | | (in millions) | Property, plant and equipment | $ | 2.8 | | $ | 15.3 | | $ | 2.8 | | $ | 15.3 | Intangible assets, net | | — | | | 36.4 | | | — | | | 36.4 | Total impairment charges | | 2.8 | | | 51.7 | | | 2.8 | | | 51.7 | Restructuring––cost of sales | | — | | | 11.7 | | | (0.2) | | | 11.7 | Restructuring––warehouse, delivery, selling, general and administrative expense | | (0.7) | | | 2.9 | | | (0.2) | | | 2.9 | Restructuring––non-operating expense | | — | | | 1.0 | | | — | | | 1.0 | Total impairment and restructuring charges | $ | 2.1 | | $ | 67.3 | | $ | 2.4 | | $ | 67.3 |
12. Subsequent Events
On October 2, 2017, through ourSiskin Steel & Supply Company, Inc., a wholly owned subsidiary Diamond Manufacturing Company, we acquired Ferguson Perforating Company (“Ferguson”). Ferguson, headquartered in Providence, Rhode Island, specializes in manufacturing highly engineered and complex perforated metal parts that have application in diverse end markets including industrial machinery, automotive, aerospace, sugar producers and consumer electronics manufacturers.of Reliance. The acquisition was funded with borrowingscash on our revolving credit facility.hand. For the yeartwelve months ended December 31, 2016, Ferguson’s2022, annual net sales for Southern Steel were approximately $31.0$62.9 million.
RELIANCE STEEL & ALUMINUM CO. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This report contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). Our forward-looking statements may include, but are not limited to, discussions of our industry ourand end markets, our business strategies and our expectations concerning future demand and major commodity product pricing and our results of operations, margins, profitability, impairment charges,taxes, liquidity, macroeconomic conditions, including inflation and the possibility of an economic recession or slowdown, litigation matters and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”“potential,” “preliminary,” “range,” “intend” and “continue,” the negative of these terms, and similar expressions. All statements contained in this report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date of such statements. We caution readers not to place undue reliance on forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties and are not guarantees of future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements as a result of various important factors, including, but not limited to, actions taken by us, as well as developments beyond our control, including, but not limited to, the impacts of labor constraints and supply chain disruptions, the continuing pandemic and changes in worldwide and U.S. political and economic conditions such as inflation, a prolonged higher interest rate environment and the possibility of an economic recession that could materially impact us, our customers and suppliers and demand for our products and services. Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, COVID-19, the conflict between Russia and Ukraine or otherwise, could lead to a decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing. Other factors which could cause actual results to differ materially from our forward-looking statements include those disclosed in this report and in other reports we have filed with the United States Securities and Exchange Commission (the “SEC”). As a result, theseImportant risks and uncertainties about our business can be found elsewhere in this Quarterly Report on Form 10-Q and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SECand in other documents Reliance files or furnishes with the SEC. The statements contained in this quarterly report on Form 10-Q speak only as of the date that they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Important risksExcept as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based. You should review any additional disclosures we make in any subsequent press releases and uncertainties about our business can be found in “Item 1A. Risk Factors” of our Annual Report on FormForms 10-K, for the year ended December 31, 201610-Q and 8-K filed with or furnished to the SEC. Overview We haddelivered solid financial performance in the first quarter of 2023. Our first quarter of 2023 results included an increase in tons sold, a strong gross profit margin that was consistent with the first quarter of 2022 and strong operating cash flow through outstanding operational execution in an uncertain business environment. We believe our ability to maintain a strong gross profit margin in the three-monthfirst quarter of 2023 was supported by our diversified business model, value-added processing capabilities and nine-month periods ended September 30, 2017. Salesability to service small order sizes with quick turnaround. Key results for the three-month period ended September 30, 2017first quarter of 2023 compared with the first quarter of 2022 were $2.45 billion, up 12.1% from $2.19 billion in the same period in 2016. During the nine months ended September 30, 2017, sales were $7.34 billion, up 12.1% from $6.55 billion in the same period in 2016. Both pricing and demand levels improved from 2016. Pricing levels were higher in the nine months ended September 30, 2017 compared to the same period in 2016, especially for carbon (52% of our sales) and stainless steel (14% of our sales) products, which had a favorable impact on our revenues. We achieved several operational successes in the three-month and nine-month periods ended September 30, 2017:as follows: | · ● | 7.2% increase in tons sold. |
| ● | Net sales of $3.97 billion were down 11.6%; reflecting a 17.7% decrease in average selling price per ton sold. |
| ● | Gross profit was $685.5 million in the third quartermargin of 2017, the third highest quarterly result in our history, trailing only the first and second quarters of 2017; 30.9%. |
| · ● | | Our gross profit margin in each of the first three quarters of 2017 was within or above our target range of 27% to 29%; and
|
| ·
| | Our earningsEarnings per diluted share of $1.32 $6.43.
|
| ● | Cash flow from operations of $384.6 million. |
| ● | Inventory turnover rate (based on tons) of 4.9x exceeded our Company-wide goal of 4.7x and our 4.4x ratein the third quarterprior year quarter. |
| ● | Returns to stockholders of 2017 was the highest third quarter result since September 2008.$100.9 million, comprised of $62.0 million of cash dividends and $38.9 million of share repurchases. |
Our tons sold increased 5.3% and 3.0%net sales decline in the three-month and nine-month periods ended September 30, 2017, respectively, comparedfirst quarter of 2023 was primarily due to the same periodsa 17.7% decline in 2016, exceeding or meeting the industry increases reported by the Metals Service Center Institute (“MSCI”) of 1.6% and 3.0%, respectively, during the same periods. We believe our strong performance is attributable to our focus on small orders requiring high levels of quality and service on a just-in-time basis, as well as our significant investments in value-added processing equipment over the past few years. Our same-store average selling price per ton sold that offset a strong 7.2% increase in the three-month and nine-month periods ended September 30, 2017 increased 6.8% and 9.3%, respectively,tons sold compared to the same periodsfirst quarter of 2022. The increase in 2016. tons sold was due to solid demand in the vast majority of our end markets, with particular strength in non-residential construction, the toll processing services we provide to the automotive market, general manufacturing and aerospace. We continued to execute our strategy in a dynamic operating environment featuring metal pricing volatility, ongoing inflationary headwinds, recessionary concerns, supply chain disruptions and labor shortages.
Our same-store average selling price per ton sold has increased sequentiallygross profit margin of 30.9% in eachthe first quarter of 2023 was consistent with the first quarter of 2022. Pricing for most of the past six quarters, mainly for certainaluminum, carbon and stainless steel products. Metal prices beganproducts we sell declined throughout the fourth quarter of 2022; however, early in the first quarter of 2023 the metals pricing declines had generally stabilized, and we operated in a relatively flat pricing environment during most of the quarter. We believe that announced carbon flat-rolled steel price increases during the quarter incentivized some of our customers to increase their purchases to buy ahead of further price increases. Our inventory turnover rate accelerated and our inventory costs on hand continued to align with lower replacement costs as our tons sold improved 17.7% compared to the fourth quarter of 2022, which was one of the best first quarter starts we have seen in our history. Our SG&A expense in the secondfirst quarter of 2016 which we believe2023 increased $39.4 million, or 6.4%, from the first quarter of 2022. The increase was primarily due to improved demandincremental variable costs associated with a strong 7.2% increase in tons sold, including headcount increases and increased raw material costs.inflationary pressure on wages, fuel, freight and warehouse costs, offset by decreased incentive-based compensation from lower profitability. Our same-store S,G&A expense as a percent of sales of 19.1% and 19.3% in the three-month and nine-month periods ended September 30, 2017, respectively, decreased from 20.6% in each of the same 2016 periods mainly due to higher metals pricing levels and effective expense control during the 2017 periods that increased our sales levels. We generated cash flow from operations of $198.3$384.6 million in the nine months ended September 30, 2017, down from $387.6first quarter of 2023 decreased only $19.4 million, or 4.8%, compared to record first quarter levels in 2022 despite a 26.7% decline in net income. The decrease in our profitability in the same periodfirst quarter of 2016 primarily due to increased2023 from then-record levels in the first quarter of 2022 was generally offset by decreased working capital requirements from higher metal pricesmainly due to lower metals pricing and an improved demand environmentvolatility. Our strong cash flow generation enabled us to grow our business and increase returns to stockholders. During the first quarter of 2023, we invested in 2017. Asour future growth with a quarterly record $102.9 million invested in capital expenditures and we increased our returns to stockholders by 36.7%. Additionally, in the first quarter of September 30, 2017, our net debt-to-total capital ratio was 29.0%, down from 30.3% as2023 we completed the redemption of December 31, 2016. We believe we have sufficient liquidity as$500.0 million aggregate principal amount of September 30, 2017,senior unsecured notes with approximately $827.0 million available for borrowingcash on our revolving credit facility.hand.
We believe our strong liquidity position that our exposure to diverse end markets, broad product base,includes substantial cash on hand, strong cash flow generation and wide geographic footprint will continue to lessen earnings volatility compared to many$1.5 billion of our competitors. We will continue to focus on working capital management and maximizing profitability of our existing businesses, as well as executing our proven growth strategies.
2017 Acquisition
On October 2, 2017, through our wholly owned subsidiary Diamond Manufacturing Company, we acquired Ferguson Perforating Company (“Ferguson”). Ferguson, headquartered in Providence, Rhode Island, specializes in manufacturing highly engineered and complex perforated metal parts that have application in diverse end markets including industrial machinery, automotive, aerospace, sugar producers and consumer electronics manufacturers. The acquisition was funded with borrowings on our revolving credit facility. For the year ended December 31, 2016, Ferguson’s net sales were approximately $31.0 million.
2016 Acquisitions
On August 1, 2016, through our wholly owned subsidiary American Metals Corporation, we acquired Alaska Steel Company (“Alaska Steel”), a full-line metal distributor headquartered in Anchorage, Alaska. Our acquisition of Alaska Steel was our first entry into the Alaska market. Alaska Steel provides steel, aluminum, stainless and specialty metals and related processing services to a variety of customers in diverse industries including infrastructure and energy, throughout Alaska. Alaska Steel’s net sales for the nine months ended September 30, 2017 were $17.3 million.
On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator of steel and aluminum products on both a direct and toll basis. Best Manufacturing, headquartered in Jonesboro, Arkansas, provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. Best Manufacturing’s net sales for the nine months ended September 30, 2017 were $16.8 million.
On January 1, 2016, we acquired Tubular Steel, Inc. (“Tubular Steel”), a distributor and processor of carbon, alloy and stainless steel pipe, tubing and bar products. Tubular Steel, headquartered in St. Louis, Missouri, has six locations and a fabrication business that supports its diverse customer base. Tubular Steel’s net sales for the nine months ended September 30, 2017 were $102.5 million.
We funded our 2016 acquisitions with borrowings onavailability under our revolving credit facility will support our continued prudent use of capital as we maintain a flexible approach focused on growth, both organically and cash on hand.through acquisitions, and stockholder return activities.
Operations Three Months and Nine Months Ended September 30, 2017 Compared to Three Months and Nine Months Ended September 30, 2016
The following table sets forth certain income statement data for the three-monthfirst quarters of 2023 and nine-month periods ended September 30, 2017 and 20162022 (dollars are shown in millions, except for per share amounts and certain amounts may not calculate due to rounding): | | | | | | | | | | | | | Three Months Ended March 31, | | | 2023 | | | 2022 | | | | | | % of | | | | | | % of | | | $ | | Net Sales | | | $ | | Net Sales | | Net sales | $ | 3,965.3 | | 100.0 | % | | $ | 4,485.8 | | 100.0 | % | Cost of sales (exclusive of depreciation and amortization expense shown below)(1) | | 2,739.3 | | 69.1 | | | | 3,098.7 | | 69.1 | | Gross profit(2) | | 1,226.0 | | 30.9 | | | | 1,387.1 | | 30.9 | | Warehouse, delivery, selling, general and administrative expense (“SG&A”) | | 651.3 | | 16.4 | | | | 611.9 | | 13.6 | | Depreciation and amortization expense | | 61.1 | | 1.5 | | | | 59.1 | | 1.3 | | Operating income | $ | 513.6 | | 13.0 | % | | $ | 716.1 | | 16.0 | % | | | | | | | | | | | | | Net income attributable to Reliance | $ | 383.1 | | 9.7 | % | | $ | 523.3 | | 11.7 | % | Diluted earnings per share attributable to Reliance stockholders | $ | 6.43 | | | | | $ | 8.33 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | % of | | | | | | % of | | | | | | % of | | | | | | % of | | | $ | | Net Sales | | | $ | | Net Sales | | | $ | | Net Sales | | | $ | | Net Sales | | Net sales | $ | 2,450.1 | | 100.0 | % | | $ | 2,185.2 | | 100.0 | % | | $ | 7,344.6 | | 100.0 | % | | $ | 6,551.8 | | 100.0 | % | Cost of sales (exclusive of depreciation and amortization expense shown below) (1) | | 1,764.6 | | 72.0 | | | | 1,530.6 | | 70.0 | | | | 5,235.4 | | 71.3 | | | | 4,575.4 | | 69.8 | | Gross profit (2) | | 685.5 | | 28.0 | | | | 654.6 | | 30.0 | | | | 2,109.2 | | 28.7 | | | | 1,976.4 | | 30.2 | | Warehouse, delivery, selling, general and administrative expense ("S,G&A") (3) (4) | | 470.0 | | 19.2 | | | | 453.0 | | 20.7 | | | | 1,422.1 | | 19.4 | | | | 1,357.7 | | 20.7 | | Depreciation expense | | 41.8 | | 1.7 | | | | 41.6 | | 1.9 | | | | 125.3 | | 1.7 | | | | 126.1 | | 1.9 | | Amortization expense | | 12.2 | | 0.5 | | | | 13.5 | | 0.6 | | | | 38.9 | | 0.5 | | | | 40.6 | | 0.6 | | Impairment of long-lived assets (5) | | 2.8 | | 0.1 | | | | 51.7 | | 2.4 | | | | 2.8 | | — | | | | 51.7 | | 0.8 | | Operating income (3) | $ | 158.7 | | 6.5 | % | | $ | 94.8 | | 4.3 | % | | $ | 520.1 | | 7.1 | % | | $ | 400.3 | | 6.1 | % |
(1) | (1)
| | Cost of sales includes $11.7in the first quarter of 2022 included $8.1 million of inventory-related restructuring charges relatingnon-recurring amortization of inventory step-up to the planned closure or sale of certain locations in the three months and nine months ended September 30, 2016. fair value adjustments for our 2021 acquisitions. |
(2) | (2)
| | Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales. The majorityAbout half of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform “first-stage” processing, which is generally not labor intensive as we are simply cutting the metal to size. Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from our cost of sales. Therefore, our cost of sales is substantially comprised of the cost of the material we sell. We use gross profit and gross profit margin as shown above as measures of operating performance. Gross profit and gross profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings. Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies. |
| (3)
| | The 2016 amounts have been retrospectively adjusted pursuant to our adoption of accounting changes related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. See Note 2 to the Unaudited Consolidated Financial Statements for further information.
|
| (4)
| | S,G&A expense includes $4.6 million and $8.1 million of gains related to the sale of non-core machinery and equipment in the three months and nine months ended September 30, 2017, respectively.
|
| (5)
| | Impairment of long-lived assets includes $2.8 million related to property, plant and equipment for the three months and nine months ended September 30, 2017. The three months and nine months ended September 30, 2016 include $15.3 million related to property, plant and equipment and $36.4 million related to intangible assets. See Expenses for further discussion.
|
First Quarter Ended March 31, 2023 Compared to First Quarter Ended March 31, 2022 Net Sales | | | | | | | | | | | | | | | | | | | | | | | | | September 30, | | Dollar | | Percentage | | | 2017 | | 2016 | | Change | | Change | | | (in millions) | | | | | | | Net sales (three months ended) | $ | 2,450.1 | | $ | 2,185.2 | | $ | 264.9 | | 12.1 | % | Net sales (nine months ended) | $ | 7,344.6 | | $ | 6,551.8 | | $ | 792.8 | | 12.1 | % | Net sales, same-store (three months ended) | $ | 2,403.9 | | $ | 2,147.1 | | $ | 256.8 | | 12.0 | % | Net sales, same-store (nine months ended) | $ | 7,208.0 | | $ | 6,448.7 | | $ | 759.3 | | 11.8 | % |
| | | | | | | | | | | | | Three Months Ended March 31, | | | | Percentage | | | 2023 | | 2022 | | Change | | Change | | | | (dollars in millions, tons in thousands) | | | | | | | Net sales | $ | 3,965.3 | | $ | 4,485.8 | | $ | (520.5) | | (11.6) | % | Tons sold | | 1,520.1 | | | 1,417.7 | | | 102.4 | | 7.2 | % | Average selling price per ton sold | $ | 2,623 | | $ | 3,186 | | $ | (563) | | (17.7) | % |
| | | | | | | | | | | | | September 30, | | Tons | | Percentage | | | 2017 | | 2016 | | Change | | Change | | | (in thousands) | | | | | | | Tons sold (three months ended) | | 1,521.7 | | | 1,445.5 | | | 76.2 | | 5.3 | % | Tons sold (nine months ended) | | 4,602.4 | | | 4,467.9 | | | 134.5 | | 3.0 | % | Tons sold, same-store (three months ended) | | 1,500.1 | | | 1,426.3 | | | 73.8 | | 5.2 | % | Tons sold, same-store (nine months ended) | | 4,537.5 | | | 4,415.8 | | | 121.7 | | 2.8 | % | | | | | | | | | | | | | | September 30, | | Price | | Percentage | | | 2017 | | 2016 | | Change | | Change | | Average selling price per ton sold (three months ended) | $ | 1,603 | | $ | 1,501 | | $ | 102 | | 6.8 | % | Average selling price per ton sold (nine months ended) | $ | 1,588 | | $ | 1,454 | | $ | 134 | | 9.2 | % | Average selling price per ton sold, same-store (three months ended) | $ | 1,595 | | $ | 1,494 | | $ | 101 | | 6.8 | % | Average selling price per ton sold, same-store (nine months ended) | $ | 1,581 | | $ | 1,447 | | $ | 134 | | 9.3 | % |
TonsOur tons sold and average selling price per ton sold amounts exclude our tons toll processing sales (as we process the metal for a fee, without taking ownership of the metal). Same-store amounts exclude the results of our 2016 acquisitions.
processed. Our consolidated sales were higher in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016 due to both higher tons sold and higher metals prices. Prices for most products we sell improved in both the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016. Our same-store average selling price has increased sequentiallyper ton sold includes intercompany transactions that are eliminated from our consolidated net sales. Our net sales decreased from record first quarter levels of 2022 due to a significant decline in each of the past six quarters. U.S. millour average selling price increases have been supportedper ton sold that was partially offset by increasesa strong increase in raw material costs, including scrap. The automotive (primarily through our toll operationstons sold. Demand was healthy in the U.S. and Mexico) and aerospacevast majority of our end
markets, continued to perform well for uswith particular strength in non-residential construction, the first nine months of 2017. Heavy industry demand remained relatively steady at the low levelstoll processing services we experienced in 2016. Non-residential construction demand, including infrastructure, continued its slow improvement, although it remains at significantly reduced demand levels from its peak levels experienced in 2006. Demand for the products we sellprovide to the energy (oilautomotive market, general manufacturing and gas) end market improved in the nine months ended September 30, 2017 compared to the same period in 2016, but remains significantly lower than the recent peak in 2014. For the three-month and nine-month periods ended September 30, 2017, our tons sold increased 5.3% and 3.0%, respectively, from the comparable 2016 periods, exceeding or meeting the industry increases reported by the MSCI of 1.6% and 3.0%, respectively, during the same periods.aerospace. Since we primarily purchase and sell our inventories in the “spot”spot market, the changes in our average selling prices generally fluctuate in accordancesimilarly with the changes in the costs of the various metals we purchase. Our average selling price in the first quarter of 2022 was a quarterly record for us, which peaked at an ultimate record in the second quarter of 2022 and then declined for the subsequent three quarters mainly due to mill price decreases for our major product categories; however, metals pricing remained relatively higher versus historical levels throughout the first quarter of 2023. The mix of products sold can also have an impact on our average selling prices. Our same-storeoverall average selling price per ton sold in the three-month and nine-month periods ended September 30, 2017 increased 6.8% and 9.3%, respectively, from the comparable 2016 periods given increased mill pricing for most products we sell. sold. As carbon steel sales representrepresented approximately 52% of our gross sales dollars,for the first quarter of 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold. OurYear-over-year changes in the selling prices of our major commodity selling prices changed year-over-year as follows:
| | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | | September 30 | | September 30 | | | | | Same-store | | | Same-store | | | | Average Selling | | Average Selling | | Average Selling | | Average Selling | | | | Price per Ton Sold | | Price per Ton Sold | | Price per Ton Sold | | Price per Ton Sold | | | | (percentage change) | | (percentage change) | | Carbon steel | | 6.6 | % | 6.6 | % | 10.7 | % | 10.6 | % | Aluminum | | 4.0 | % | 4.0 | % | 3.6 | % | 3.6 | % | Stainless steel | | 8.9 | % | 8.9 | % | 12.5 | % | 12.5 | % | Alloy | | 6.5 | % | 6.5 | % | 1.6 | % | 1.5 | % |
our tons sold are presented below: | | | | | | | | | Change in | | | Change in | | | | Average Selling | | | Percentage of | | | | Price Per | | | Total | | | | Ton Sold | | | Tons Sold | | Carbon steel | | (23.6) | % | | 1.6 | % | Aluminum | | (1.3) | % | | (0.5) | % | Stainless steel | | (2.9) | % | | (1.1) | % | Alloy | | 13.9 | % | | (0.4) | % |
Cost of Sales and Gross Profit | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | | | | | | 2023 | | | 2022 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | | (dollars in millions) | | | | | | | | Cost of sales | $ | 2,739.3 | | 69.1 | % | | $ | 3,098.7 | | 69.1 | % | | $ | (359.4) | | (11.6) | % | Gross profit | $ | 1,226.0 | | 30.9 | % | | $ | 1,387.1 | | 30.9 | % | | $ | (161.1) | | (11.6) | % | LIFO (income) expense | $ | (15.0) | | (0.4) | % | | $ | 37.5 | | 0.8 | % | | $ | (52.5) | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, | | | | | | | | | 2017 | | | 2016 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | (dollars in millions) | | | | | | | Cost of sales (three months ended) | $ | 1,764.6 | | 72.0 | % | | $ | 1,530.6 | | 70.0 | % | | $ | 234.0 | | 15.3 | % | Cost of sales (nine months ended) | $ | 5,235.4 | | 71.3 | % | | $ | 4,575.4 | | 69.8 | % | | $ | 660.0 | | 14.4 | % |
* Not meaningful. The increase in cost of sales
Gross profit in the three-month and nine-month periods ended September 30, 2017 compared tofirst quarter of 2023 decreased from the same periods in 2016 isfirst quarter of 2022 mainly due to higher tons sold andlower sales as a higherresult of a decrease in average costselling price per ton sold. See “Net Sales” above for trendssold that outpaced an increase in both demand and costs oftons sold. In addition, we record non-cash adjustments to our products. Cost of sales included $11.7 million of inventory-related restructuring charges relating to the planned closure or sale of certain locations in the three months and nine months ended September 30, 2016.
Also, our last-in, first-out (“LIFO”)LIFO method inventory valuation reserve, adjustment, which isare included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted incosts. The inventory caption of our consolidated balance sheet included a charge, or expense, of $6.3 million and $26.3 million in the three-month and nine-month periods ended September 30, 2017, respectively, compared to credits, or income, of $11.3 million in the three-month and nine-month periods ended September 30, 2016.
Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, | | | | | | | | | 2017 | | | 2016 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | (dollars in millions) | | | | | | | Gross profit (three months ended) | $ | 685.5 | | 28.0 | % | | $ | 654.6 | | 30.0 | % | | $ | 30.9 | | 4.7 | % | Gross profit (nine months ended) | $ | 2,109.2 | | 28.7 | % | | $ | 1,976.4 | | 30.2 | % | | $ | 132.8 | | 6.7 | % |
Our gross profit increased in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016 due to higher tons sold and higher metals prices. See “Net Sales” and “Cost of Sales” abovefor further discussion on product pricing trends and our LIFO method inventory valuation reserve of $728.8 million at March 31, 2023. Furthermore, cost of sales in the first quarter of 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments respectively.related to our 2021 acquisitions that decreased gross profit margin 20 basis points.
Our gross profit margin in the three-monthfirst quarter of 2023 was strong and nine-month periods ended September 30, 2016 benefitedunchanged from a rising metals price environment during which we were able to pass higher prices on tothe first quarter of 2022. We believe our customers before we received the higher cost metal in our inventory. The pricing environment was more stable in the three monthsstrong and nine months ended September 30, 2017 compared to the same periods in 2016. Ourconsistent gross profit margin was supported by investments in value-added processing equipment in recent years, relatively higher metal pricing versus historical levels and healthy demand. See “Net Sales” above for the three month and nine month periods ended September 30, 2017 was within our target range of 27% to 29%. Our third quarter of 2017 gross profit of $685.5 million was the third highest in our history, trailing only the first and second quarters of 2017.further discussion on product pricing trends. Expenses | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | | | | | | 2023 | | | 2022 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | | (dollars in millions) | | | | | | | | SG&A expense | $ | 651.3 | | 16.4 | % | | $ | 611.9 | | 13.6 | % | | $ | 39.4 | | 6.4 | % | Depreciation & amortization expense | $ | 61.1 | | 1.5 | % | | $ | 59.1 | | 1.3 | % | | $ | 2.0 | | 3.4 | % |
Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, | | | | | | | | | 2017 | | | 2016 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | (dollars in millions) | | | | | | | | S,G&A expense (three months ended) | $ | 470.0 | | 19.2 | % | | $ | 453.0 | | 20.7 | % | | $ | 17.0 | | 3.8 | % | S,G&A expense (nine months ended) | $ | 1,422.1 | | 19.4 | % | | $ | 1,357.7 | | 20.7 | % | | $ | 64.4 | | 4.7 | % | S,G&A expense, same-store (three months ended) | $ | 459.1 | | 19.1 | % | | $ | 443.0 | | 20.6 | % | | $ | 16.1 | | 3.6 | % | S,G&A expense, same-store (nine months ended) | $ | 1,389.9 | | 19.3 | % | | $ | 1,329.5 | | 20.6 | % | | $ | 60.4 | | 4.5 | % | Depreciation & amortization expense (three months ended) | $ | 54.0 | | 2.2 | % | | $ | 55.1 | | 2.5 | % | | $ | (1.1) | | (2.0) | % | Depreciation & amortization expense (nine months ended) | $ | 164.2 | | 2.2 | % | | $ | 166.7 | | 2.5 | % | | $ | (2.5) | | (1.5) | % | Impairment of long-lived assets (three months ended) | $ | 2.8 | | 0.1 | % | | $ | 51.7 | | 2.4 | % | | $ | (48.9) | | (94.6) | % | Impairment of long-lived assets (nine months ended) | $ | 2.8 | | 0.0 | % | | $ | 51.7 | | 0.8 | % | | $ | (48.9) | | (94.6) | % |
Same-store amounts exclude the results of our 2016 acquisitions.
The increase in our S,GSG&A expense in the three-monthwas mainly due to higher variable costs associated with higher tons sold and nine-month periods ended September 30, 2017 compared to the same periods in 2016inflationary wage increases, which were partially offset by lower incentive-based compensation that is primarily duetied to increases in certain warehouse and delivery expenses due to improved demand and increases in profit-based incentive compensation, as a result of higher levels offirst-in, first-out (“FIFO”) pretax income profitability, as well as general inflationary factors. The decrease in our S,Gwhich declined 32.8%. Our SG&A expense as a percentage of sales over these same periods ismainly increased due to lower sales levels. See “Cost of Sales and Gross Profit” above for discussion of our higher sales levels, asLIFO method inventory valuation reserve. Operating Income | | | | | | | | | | | | | | | | | | | Three Months Ended March 31, | | | | | | | | | 2023 | | | 2022 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | | (dollars in millions) | | | | | | | | Operating income | $ | 513.6 | | 13.0 | % | | $ | 716.1 | | 16.0 | % | | $ | (202.5) | | (28.3) | % |
The decrease in our operating income was mainly a result of higherlower gross profit, driven by lower sales due mainly to lower metals pricing. S,Gprices along with a moderate increase in SG&A expense includes $4.6 million and $8.1 million of gains related tothat was generally consistent with the sale of non-core machinery and equipmentincrease in the three months and nine months ended September 30, 2017.
We recorded a $2.8 million charge for impairment of long-lived assets in the three-month and nine-month periods ended September 30, 2017 compared to a $51.7 million charge in the comparable 2016 periods. The 2016 charge mainly related to certain of our energy-related businesses as a result of low crude oil prices resulting in a significant decline in the demand for the products we sell to the energy (oil and gas) market. See Note 11 of the Notes to the Unaudited Consolidated Financial Statements for further information on our impairment charges.
Operating Income
| | | | | | | | | | | | | | | | | | | September 30, | | | | | | | | | 2017 | | | 2016 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | (dollars in millions) | | | | | | | Operating income (three months ended) | $ | 158.7 | | 6.5 | % | | $ | 94.8 | | 4.3 | % | | $ | 63.9 | | 67.4 | % | Operating income (nine months ended) | $ | 520.1 | | 7.1 | % | | $ | 400.3 | | 6.1 | % | | $ | 119.8 | | 29.9 | % |
Our operating income was higher in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016 primarily due to higher gross profit dollars from both higher tons sold and higher average selling prices and lower impairment and restructuring charges.sold. Our operating income margin indecline was consistent with the three-month and nine-month periods ended September 30, 2017 increased due to the declineincrease in our S,GSG&A expense and impairment and restructuring charges as a percentage of sales outweighing the decline in our gross profit margin.
Other (Income) Expense
| | | | | | | | | | | | | | | | | | | September 30, | | | | | | | | | 2017 | | | 2016 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | (dollars in millions) | | | | | | | Interest expense (three months ended) | $ | 19.1 | | 0.8 | % | | $ | 22.2 | | 1.0 | % | | $ | (3.1) | | (14.0) | % | Interest expense (nine months ended) | $ | 54.9 | | 0.7 | % | | $ | 65.6 | | 1.0 | % | | $ | (10.7) | | (16.3) | % | Other (income) expense, net (three months ended) | $ | (2.6) | | (0.1) | % | | $ | 2.1 | | 0.1 | % | | $ | (4.7) | | (223.8) | % | Other expense, net (nine months ended) | $ | 2.1 | | 0.0 | % | | $ | 3.4 | | 0.1 | % | | $ | (1.3) | | (38.2) | % |
Interest expensethat was lower in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016mainly due to the repayment in November 2016 of $350.0 million in aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum with borrowings under our credit agreement that have lower weighted average interest rates.sales.
The change in Other (income) expense, net in the three-month period ended September 30, 2017 compared to the same period in 2016 was primarily due to higher investment returns on our life insurance assets and foreign exchange gains in the 2017 period compared to foreign exchange losses in the 2016 period.
Income Tax Rate Our effective income tax rates for the three months ended September 30, 2017first quarters of 2023 and 20162022 were 30.4%24.4% and 28.2%24.8%, respectively. Our effective income tax rates for the nine months ended September 30, 2017 and 2016 were 31.5% and 25.7%, respectively. Our 2016 nine-month period effective income tax rate was favorably impacted by the resolution of a tax position that was previously uncertain, which lowered our 2016 nine-month income tax provision by $17.6 million and our effective income tax rate by 5.3 percentage points. Other permanent items that loweredThe differences between our effective income tax rates fromand the U.S. federal statutory rate of 21.0% were not materially different during both yearsmainly due to state income taxes and relate mainly tohigher foreign income tax rates, partially offset by the effects of company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lowerpolicies. Financial Condition Operating Activities Net cash provided by operations of $384.6 million in the first quarter of 2023 was slightly less than record first quarter cash flow of $404.0 million in 2022. We were able to achieve consistent operating cash flow as the U.S. statutory rate of 35%. Net Income
| | | | | | | | | | | | | | | | | | | September 30, | | | | | | | | | 2017 | | | 2016 | | | | | | | | | | | | % of | | | | | | % of | | | Dollar | | Percentage | | | $ | | Net Sales | | | $ | | Net Sales | | | Change | | Change | | | (dollars in millions) | | | | | | | Net income attributable to Reliance (three months ended) | $ | 97.3 | | 4.0 | % | | $ | 49.5 | | 2.3 | % | | $ | 47.8 | | 96.6 | % | Net income attributable to Reliance (nine months ended) | $ | 312.0 | | 4.2 | % | | $ | 242.6 | | 3.7 | % | | $ | 69.4 | | 28.6 | % |
The increasesdecline in our net income and net income asrequired a percentage of salessimilar decrease in working capital investment in the three-month and nine-month periods ended September 30, 2017first quarter of 2023 compared to the same periodsperiod in 2016 were primarily2022, due to increases in operating income and operating income margin, resulting from higher gross profit dollars and lower impairment and restructuring charges, and lower interest expense partially offset by a higher effective income tax rate.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities was $198.3 millionthe relatively flat pricing environment in the nine months ended September 30, 2017first quarter of 2023 compared to $387.6 million in the same period in 2016. Our decreased operating cash flow2022 in 2017 comparedwhich our average selling price had increased significantly to 2016 was due to increased working capital requirements (primarily accounts receivable and inventory less accounts payable) due to higher metals prices and increased shipping volumes.a record level. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. At September 30, 2017,As of March 31, 2023 and 2022, our days sales outstanding rate was 42.240.0 days consistent with ourand 39.1 days, sales outstanding rate at December 31, 2016.respectively. Our inventory turnturnover rate (based on tons) during the ninefirst quarter of 2023 was 4.9 times (or 2.4 months ended September 30, 2017 was approximately 4.5on hand), compared to 4.4 times (or 2.7 months on hand), compared to 4.6 times (or 2.6 months on hand) in the same periodfirst quarter of 2016.2022.
Income taxes paid were $135.2$21.2 million in the nine months ended September 30, 2017, a significant increase from $67.2first quarter of 2023 compared to $89.8 million paid in the nine months ended September 30, 2016.first quarter of 2022. The increase isdecrease in our taxes paid was mainly due to higher estimated taxable income for 2017 compared to 2016,tax extension of time to file payments for the 2016 tax year paid during the nine months ended September 30, 2017 and the utilization of tax overpayments for the 2015 tax year that lowered taxes paid in the nine months ended September 30, 2016.first quarter of 2022 which were not required in the first quarter of 2023. Investing Activities Net cash used in investing activities of $99.8was $102.6 million in the nine months ended September 30, 2017 decreased significantly from $458.0first quarter of 2023 compared to $63.3 million in the same period in 2016 due to $349.0 million used to fund acquisitions during the 2016 period. Capital expendituresfirst quarter of 2022 and were $118.1 million for the nine months ended September 30, 2017 compared to $110.6 million during the same period in 2016.substantially comprised of capital expenditures. The majority of both our 2017 and 2016 capital expenditures relatein the first quarters of 2023 and 2022 were related to organic growth initiatives. Financing Activities Net cash used in financing activities of $58.1was $639.2 million in the nine months ended September 30, 2017 changed from $106.8first quarter of 2023 compared to $92.0 million net cash provided by financing activities in the nine months ended September 30, 2016first quarter of 2022, mainly due to net debt borrowingsthe redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023. In the first quarter of 2023, we spent $38.9 million to fund acquisitions during the 2016 period. Net debt borrowings in the nine months ended September 30, 2017 were $43.1 million, lower thanrepurchase shares of our net debt borrowings of $175.9common stock compared to $17.1 million in the same period in 2016. We paid dividends and dividend equivalentsfirst quarter of $99.3 million during the nine months ended September 30, 2017,2022. Our other stockholder return activities included an increase of $9.8 million from the same period in 2016, mainly due to increases in our regular quarterly dividend rate with total dividend payments of $62.0 million in July 2016 and February 2017.the first quarter of 2023 compared to $56.7 million in the first quarter of 2022. We also spent $37.2 million on taxes relating to net share settlement of performance-based restricted stock units in the first quarter of 2023 compared to $17.1 million in the first quarter of 2022. On October 24, 2017,April 25, 2023, our Board of Directors declared the 2017 fourth2023 second quarter cash dividend of $0.45$1.00 per share. We have increased our quarterly dividend 2430 times since our IPO in 1994, with the most recent increase of 5.9%14.3% from $0.425$0.875 per share to $0.45$1.00 per share effective in the first quarter of 2017. 2023. We have paid quarterly cash dividends on our common stock for 64 consecutive years and have never reduced or suspended our regular quarterly dividends dividend. See Note 8—“Equity” to our stockholders consolidated financial statements in Part I, Item 1 “Financial Statements” for 58 consecutive years.further information on our stock repurchases. On October 20, 2015,July 26, 2022, our Board of Directors increasedamended our share repurchase program to increase the repurchase authorization to $1.0 billion. At March 31, 2023, $641.8 million of our common stock remained authorized for repurchase. The share repurchase program does not obligate us to repurchase any specific number of shares, authorized todoes not have a specific expiration date and may be repurchased under our share repurchase plan by 7.5 million shares and extended the duration of the plan through December 31, 2018. suspended or discontinued at any time. Since initiating the share repurchase plan in 1994,2018, we have repurchased approximately 22.116.1 million shares at an average cost of $30.93$115.65 per share. There were no share, repurchasesfor a total of $1.86 billion, resulting in the nine months ended September 30, 2017. As of September 30, 2017, we had authorization under the plan to purchase approximately 8.4 milliona 22.2% reduction in our common shares or about 12% of our current outstanding shares.outstanding. We expect to continue evaluatingto be opportunistic repurchases ofin our approach to repurchasing shares of our common stock in the future.stock. Debt Liquidity
Our primary sources of liquidity are funds generated from operations and our $1.5 billion revolving credit facility. Our total outstanding debt at September 30, 2017 was $1.99 billion, up from $1.95 billion at December 31, 2016. As of September 30, 2017, we had $610.0 million of outstanding borrowings, $63.0 million of letters of credit issued and $827.0 million available for borrowing on the revolving credit facility.
As of September 30, 2017, our net debt-to-total capital ratio was 29.0%, down from 30.3% as of December 31, 2016. Our acquisition of Ferguson on October 2, 2017, funded with borrowings on our revolving credit facility, did not significantly impact our net debt-to-total capital ratio.
On September 30, 2016, we entered into a $2.1 billion unsecured five-year credit agreement (“Credit Agreement”) comprised ofWe have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at March 31, 2023 under our Amended and a $600.0 million unsecured term loan, with an option to increase the revolving facility up to an additional $500.0 million at our request, subject to approval of the lenders and certain other customary conditions. We intend to use the credit facility for working capital and general corporate purposes, including, but not limited to, capital expenditures, dividend payments, repayment of debt, share repurchases, internal growth initiatives and acquisitions. The $600.0 million term loan due September 30, 2021 amortizes in quarterly installments, with an annual amortization of 5% through September 2018 and 10% thereafter until June 2021, with the balance to be paid at maturity. All borrowings under theRestated Credit Agreement may be prepaid without penalty.
Revolving credit facilities with a combined credit limit(as amended, the “Credit Agreement”). We also had an aggregate of approximately $69.8 million are in place for operations in Asia and Europe with combined outstanding balances of $49.2 million and $44.4 million as of September 30, 2017 and December 31, 2016, respectively.
Capital Resources
On November 20, 2006, we entered into an indenture (the “2006 Indenture”), for the issuance of $600.0 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350.0 million aggregate$1.15 billion principal amount of senior unsecured notes bearing interest atnote obligations with various maturities through 2036 issued under indentures as of March 31, 2023.
On January 15, 2023, we redeemed in full the rate of 6.20% per annum, which matured and were repaid on November 15, 2016 and (b) $250.0$500.0 million aggregate outstanding principal amount of our 4.50% senior unsecured notes bearing interest atdue April 15, 2023 using cash on hand. See Note 5—“Debt” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for further information on our debt obligations. Liquidity and Capital Resources We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the ratenext 12 months and beyond. As of 6.85% per annum, maturing on November 15, 2036. On April 12, 2013,March 31, 2023, we entered into an indenture (the “2013 Indenture”had $816.2 million in cash and together with the 2006 Indenture, the “Indentures”), for the issuance of $500.0 million aggregate principalcash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of senior unsecured notes at the ratedebt, net of 4.50% per annum, maturing on April 15, 2023.
Under the Indentures, the notes are senior unsecured obligations and rank equally in rightcash, divided by total Reliance stockholders’ equity plus carrying amount of payment with alldebt, net of our existing and future unsecured and unsubordinated obligations.
The senior unsecured notes include provisions that require us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest in the event of both a change in control and a downgrade of our credit rating.
Various industrial revenue bonds had combined outstanding balances of $10.3 million as of September 30, 2017 and $10.6 millioncash) was 4.3%, down from 6.3% as of December 31, 2016, and have maturities through 2027.2022.
As of September 30, 2017,March 31, 2023, we had $246.4$408.5 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 30, 2021. 3, 2025. We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due.due. In addition to funds generated from operations and fundsnearly $1.5 billion available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired. We believe our sources of liquidity will continue to be adequate to maintain operations, make necessary capital expenditures, finance strategic growth through acquisitions and internal initiatives, pay dividends and opportunistically repurchase shares. Additionally, we believe our investment grade credit rating enhancesratings enhance our ability to effectively raise capital, if needed. We expect to continue our acquisition and other growth activities in the future and anticipate that we will be able to fund such activities as they arise. Covenants Covenants
The Credit Agreement and the Indenturesindentures governing our debt securities include customary representations, warranties, covenants acceleration, indemnity and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial statementmaintenance covenants that require us to maintaincomply with a minimum interest coverage ratio and a maximum leverage ratio. Our interest coverage ratio for the twelve-month period ended September 30, 2017 was approximately 8.9 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (EBIT), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of September 30, 2017, calculated in accordance with the terms of the Credit Agreement, was 31.6% 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 stockholders’ equity plus total debt). We were in compliance with all financial maintenance covenants in our Credit Agreement at September 30, 2017.March 31, 2023. Off-Balance Sheet ArrangementsSeasonality
We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
As of September 30, 2017 and December 31, 2016, we were contingently liable under standby letters of credit in the aggregate amount of $52.6 million and $51.9 million, respectively. The letters of credit relate to insurance policies and construction projects.
Contractual Obligations and Other Commitments
We had no material changes in commitments for capital expenditures, operating lease obligations or purchase obligations as of September 30, 2017, 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, 2016.
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 are in seasonal businesses, especially customers in the construction industry and related businesses. OurHowever, our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers. ReducedThe number of shipping days in each quarter also have a significanthas an impact on our quarterly sales and profitability. We cannot predict whether period-to-period fluctuations will be consistent with historical patterns. 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 $1.83$2.11 billion at September 30, 2017,March 31, 2023, or approximately 23%21% of total assets or 42%and 29% of Reliance stockholders’total equity. Additionally, other intangible assets, net amounted to $1.12$1.01 billion at September 30, 2017,March 31, 2023, or approximately 14%10% of total assets or 25%and 14% of Reliance stockholders’total equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests.tests and further evaluation when certain events occur. Other intangible assets with finite useful lives continue to beare amortized over their estimated 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. Critical Accounting Policies and Estimates Management’s 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. GAAP. When we prepare these consolidated 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. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical accounting estimates include those related to accounts receivable, inventories, income taxes, goodwill and other indefinite-lived 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. Our actual results may differ from these estimates under different assumptions or conditions. See “Critical Accounting PoliciesDuring the quarter ended March 31, 2023, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Estimates”Analysis of Financial Condition
and Results of Operations contained inPart II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016 for further2022. Website Disclosure The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the accounting policies that we believe to be critical accounting policiesCompany is routinely posted on and that affect our more significant judgmentsaccessible through the Company’s website at www.investor.rsac.com. In addition, you may automatically receive email alerts and estimates used in preparing our consolidated financial statements. We doother information about the Company when you enroll your email address by visiting the “Email Alerts” section at www.investor.rsac.com. The website is for informational purposes only and is not believe that the new accounting guidance implemented in 2017 changed our critical accounting policies.intended for use as a hyperlink. The Company is not incorporating any material on its website into this report. New Accounting Guidance
See Note 2 — “Impact of Recently Issued Accounting Guidance” to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for disclosure on new accounting guidance issued or implemented.
Item 3. Quantitative Andand 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 and metals pricing, demand and availability. There have been no significant changes in our market risk exposures since December 31, 2016. See “Item 7A - Quantitative“Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 20162022 for further discussion on quantitative and qualitative disclosures about market risk. Item 4. Controls Andand Procedures Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation ofwe have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to and as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.Act. 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 Company’s disclosure controls and procedures are effective.effective to ensure information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes in the Company’s internal control over financial reporting during the first quarter ended September 30, 2017of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II — OTHER INFORMATION Item 1. Legal Proceedings The information contained under the heading “Legal Matters” in Note 9 — 9—“Commitments and Contingencies” to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1. Item 1A. Risk Factors There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds We repurchase shares of our common stock from time to time pursuant to a combination of one or more open market repurchases and transactions structured through investment banking institutions in reliance upon Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act. Our share repurchase activity for the first quarter of 2023 was as follows: | | | | | | | | | | | | | | | | | | Total Number of | | Maximum Dollar | | | Total Number | | Average Price | | Shares Purchased | | Value That May | | | of Shares | | Paid | | as Part of Publicly | | Yet Be Purchased | Period | | Purchased | | Per Share | | Announced Plan | | Under the Plan(1) | | | | | | | | | | (in millions) | January 1 - January 31, 2023 | | 3,860 | | $ | 199.85 | | 3,860 | | $ | 680.0 | February 1 - February 28, 2023 | | 52,190 | | $ | 245.06 | | 52,190 | | $ | 667.2 | March 1 - March 31, 2023 | | 104,174 | | $ | 243.35 | | 104,174 | | $ | 641.8 | Total | | 160,224 | | $ | 242.86 | | 160,224 | | | |
(1) | The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time. Under the share repurchase plan, shares may be repurchasedpursuant to pre-set trading plans meeting the requirements of Rule 10b5-1 and/or 10b-18 under the Securities Exchange Act of 1934, in the open market, in privately negotiated transactions or otherwise. |
None.
Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information None. Item 6. Exhibits | | Exhibit Number | | Description |
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10.1†* | | |
| | Registrant’s Second Amendment to Deferred Compensation Plan (Amended and Restated Effective January 1, 2013) dated as of February 14, 2023. | Exhibit No.10.2
| | Description
| | | Amendment No. 1, dated as of January 12, 2023, to Amended and Restated Credit Agreement, dated as of September 3, 2020, among Reliance Steel & Aluminum Co., as Borrower, Bank of America N.A., as the Administrative Agent, and each of the lenders party thereto (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on February 28, 2023). | 31.1* | | 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. | | | | 31.2* | | 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. | | | | 32** | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | 101* | | The following unaudited financial information from Reliance Steel & Aluminum Co.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 formatted in iXBRL (Inline eXtensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these consolidated financial statements. | 101.INS*104*
| | Cover Page Interactive Data File (formatting as Inline XBRL Instance Document.and contained in Exhibit 101). | | | | 101.SCH*
| | XBRL Taxonomy Extension Schema Document.
| | | | 101.CAL*
| | XBRL Taxonomy Calculation Linkbase Document.
| | | | 101.DEF*
| | XBRL Taxonomy Extension Definition Linkbase Document.
| | | | 101.LAB*
| | XBRL Taxonomy Label Linkbase Document.
|
| | | Exhibit No.
| | Description
| | | | 101.PRE*
| | XBRL Taxonomy Presentation Linkbase Document.
|
† Indicates management contract or compensatory plan or arrangement. * Filed herewith. ** Furnished herewith. SIGNATURE SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | RELIANCE STEEL & ALUMINUM CO. | | (Registrant) | | | | | | | Dated: November 1, 2017Date: May 4, 2023
| By: | /s/ Gregg J. Mollins Arthur Ajemyan | | | | | Arthur Ajemyan | | | Gregg J. Mollins
| | | President and Chief Executive Officer
| | | (Principal Executive Officer)
| | | | | | | | | | By:
| /s/ Karla R. Lewis
| | | | Karla R. Lewis
| | | Senior Executive Vice President and Chief Financial Officer | | | (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) | | |
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