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Reliance Steel & Aluminum Co. Reports 2007 Third Quarter and Year-to-Date Results

Posted on: Thursday, 18 October 2007, 09:00 CDT

Reliance Steel & Aluminum Co. (NYSE:RS) reported today its financial results for the third quarter and nine months ended September 30, 2007. For the 2007 third quarter, net income was $93.6 million, compared with net income of $107.5 million for the 2006 third quarter. Earnings per diluted share were $1.22 for the 2007 third quarter, compared with $1.41 for the 2006 third quarter. 2007 third quarter sales were $1.81 billion, an increase of 11.4% compared with 2006 third quarter sales of $1.63 billion. The 2007 third quarter financial results include in cost of sales a pre-tax LIFO expense amount of $12.5 million, or $.10 per diluted share, compared with a pre-tax LIFO expense amount of $33.3 million, or $.27 per diluted share in the 2006 third quarter.

For the nine months ended September 30, 2007, net income amounted to a record $328.0 million, up 17.2% compared with net income of $279.9 million for the same period in 2006. Earnings per diluted share were $4.28 for the nine months ended September 30, 2007, compared with earnings of $3.83 per diluted share for the nine months ended September 30, 2006. Sales for the 2007 year-to-date period were a record $5.55 billion, an increase of 33% compared with 2006 nine month sales of $4.17 billion. The 2007 nine-month financial results include in cost of sales a pre-tax LIFO expense amount of $45.0 million, or $.37 per diluted share, compared with a pre-tax LIFO expense amount of $56.3 million, or $.48 per diluted share in the 2006 year-to-date period. All share and per share amounts have been adjusted for the two-for-one common stock split effective July 19, 2006.

David H. Hannah, Chief Executive Officer of Reliance said, "Considering the overall market factors, we are pleased with the 2007 third quarter results. Demand for our products was relatively steady for a third quarter with volume off as we expected only about 4% from our record 2007 second quarter amounts. We managed our receivables and inventory well, which, when combined with our operating profits, resulted in very strong cash flow. Gross profit management in an environment of falling prices is always a challenge. The significant and rapid drop in stainless steel prices resulting from the drop in nickel surcharges complicated the situation even further. This scenario caused our gross profit to decline 2% from the prior quarter, about double what we estimated for our third quarter earnings per share guidance."

"Effective July 1, 2007, we completed the acquisition of Clayton Metals, Inc., headquartered in Wood Dale, IL, with three additional service centers in California, North Carolina and New Jersey. Clayton's sales were $123 million for their year ended December 31, 2006. Effective October 1, 2007, we completed the acquisition of the outstanding capital stock of Metalweb plc, headquartered in Birmingham, England with three additional service centers located in London, Manchester and Oxford, England. Metalweb was established in 2001 and specializes in the processing and distribution of primarily aluminum products for non-structural aerospace components and general engineering parts used in high-end industrial applications. Metalweb's net sales for the fiscal year ended May 31, 2007 were approximately $53 million. Metalweb operates as a subsidiary of Reliance. "This transaction brings an additional global presence to Reliance and marks our first metals service center based in the United Kingdom," said Hannah.

"We still expect record sales and earnings for 2007. Our strong operating results, cash flow and solid balance sheet with net debt-to-total capital of 36.7% will continue to provide opportunities for future growth. We are proud of our performance and believe that our proven ability to grow both internally and by successful accretive acquisitions through varying market conditions will result in continued strong operating results going forward. We expect demand may soften further in the fourth quarter due to the normal seasonal holiday slowdown as well as cautious buying from our customers, leading us to anticipate relatively flat pricing. As a result, we currently estimate earnings per diluted share for the 2007 fourth quarter in a range of $.95 to $1.05," Hannah concluded.

Also during the quarter, the Company purchased 1,673,467 shares of its common stock at an average cost of $49.10 per share under the Stock Repurchase Plan. As of September 30, 2007, the Company had repurchased a total of 12,750,017 shares of its common stock at an average cost of $12.93 per share, since the Stock Repurchase Plan was first adopted in December 1994. Repurchased shares are redeemed and treated as authorized but unissued shares. At September 30, 2007 there were 10,326,533 shares of the Company's common stock authorized for repurchase under the Plan.

On July 18, 2007, the Board of Directors declared a regular quarterly cash dividend of $.08 per share of common stock. The 2007 third quarter dividend was paid on September 14, 2007 to shareholders of record August 24, 2007. The Company has paid regular quarterly dividends for 47 consecutive years.

Reliance will host a conference call that will be broadcast live over the Internet (listen only mode) regarding the third quarter and nine months results for the period ended September 30, 2007. All interested parties are invited to listen to the web cast on October 18, 2007 at 11:00 a.m. Eastern Time at: http://www.rsac.com/investorinformation or http://www.streetevents.com. Player format: Windows Media. The web cast will remain on the Reliance web site at: www.rsac.com through November 18, 2007 and a printed transcript will be posted on the Reliance web site after the completion of the conference call.

Reliance Steel & Aluminum Co., headquartered in Los Angeles, California, is one of the largest metals service center companies in the United States. Through a network of more than 180 locations in 37 states and Belgium, Canada, China, South Korea and the United Kingdom, the Company provides value-added metals processing services and distributes a full line of over 100,000 metal products. These products include galvanized, hot-rolled and cold-finished steel; stainless steel; aluminum; brass; copper; titanium and alloy steel sold to more than 125,000 customers in various industries.

Reliance Steel & Aluminum Co.'s press releases and additional information are available on the Company's web site at www.rsac.com. The Company was named to the 2007 "Fortune 500" List, the Fortune 2007 "100 Fastest Growing Companies" List, the Fortune 2007 List of "America's Most Admired Companies" and the 2007 Forbes "Platinum 400 List of America's Best Big Companies."

This release may contain forward-looking statements relating to future financial results. Actual results may differ materially as a result of factors over which Reliance Steel & Aluminum Co. has no control. These risk factors and additional information are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006 and other reports on file with the Securities and Exchange Commission.

RELIANCE STEEL & ALUMINUM CO.

SELECTED FINANCIAL DATA

(In thousands, except share and per share amounts)

Three Months

Nine Months

Ended September 30,

Ended September 30,

2007

2006

2007

2006

Income Statement Data:

Net sales

$

1,812,092

$

1,626,208

$

5,550,018

$

4,173,416

Gross profit

439,964

432,069

1,409,913

1,122,127

Operating profit1

170,943

192,478

588,193

494,453

EBITDA2

190,010

209,258

642,565

538,523

EBIT2

170,219

192,747

585,113

493,391

Pre-tax income

149,702

173,393

524,871

451,395

Net income

93,565

107,505

328,045

279,865

EPS -- diluted3

$

1.22

$

1.41

$

4.28

$

3.83

Weighted average shares outstanding -- diluted3

76,476,928

76,016,596

76,613,307

72,985,065

Gross margin

24.3

%

26.6

%

25.4

%

26.9

%

Operating profit margin1

9.4

%

11.8

%

10.6

%

11.8

%

EBITDA margin2

10.5

%

12.9

%

11.6

%

12.9

%

EBIT margin2

9.4

%

11.9

%

10.5

%

11.8

%

Pre-tax margin

8.3

%

10.7

%

9.5

%

10.8

%

Net margin

5.2

%

6.6

%

5.9

%

6.7

%

Cash dividends per share3

$

.08

$

.06

$

.24

$

.16

September 30,

December 31,

2007

2006

Balance Sheet Data:

Current assets

$

1,956,666

$

1,675,389

Working capital

1,317,548

1,124,650

Net fixed assets

795,973

742,672

Total assets

4,151,071

3,614,173

Current liabilities

639,118

550,739

Long-term debt4

1,244,208

1,088,051

Shareholders' equity

2,023,993

1,746,398

Capital expenditures (year-to-date)

88,350

108,742

Net debt-to-total capital5

36.7

%

37.6

%

Return on equity6

23.1

%

27.3

%

Current ratio

3.1

3.0

Book value per share3

$

27.12

$

23.07

Cash flow from operations per share3, 7

$

7.37

$

2.59

1 Operating profit is calculated as net sales less cost of sales, warehouse, delivery, selling, general and administrative expenses and depreciation expense.

2 See Consolidated Statements of Income for reconciliation of EBIT and EBITDA. EBIT is defined as the sum of income before interest expense and income taxes. EBITDA is defined as the sum of income before interest expense, income taxes, depreciation expense and amortization of intangibles. We believe that EBIT and EBITDA are commonly used as a measure of performance for companies in our industry and are frequently used by analysts, investors, lenders and other interested parties to evaluate a company's financial performance and its ability to incur and service debt. EBIT and EBITDA should not be considered as a measure of financial performance under accounting principles generally accepted in the United States. The items excluded from EBIT and EBITDA are significant components in understanding and assessing financial performance. EBIT or EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of operating performance or as a measure of liquidity.

3 All periods have been adjusted to reflect the two-for-one stock split effected in the form of a 100% stock dividend that was declared on May 17, 2006 and distributed on July 19, 2006 to shareholders of record on July 5, 2006.

4 Long-term debt includes capital lease obligations of $4,657 and $4,956 as of September 30, 2007 and December 31, 2006, respectively.

5 Net debt-to-total capital is calculated as total debt (net of cash) divided by shareholders' equity plus total debt (net of cash).

6 Calculations are based on the latest twelve months net income and beginning shareholders' equity. The 2006 calculation adjusted beginning shareholders' equity for $360.5 million of common stock and stock options issued to fund an acquisition on April 3, 2006.

7 Calculations are based on the latest twelve months.

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

ASSETS

September 30,

December 31,

2007

2006

(Unaudited)

Current assets:

Cash and cash equivalents

$

106,003

$

57,475

Accounts receivable, less allowance for doubtful accounts of $19,665 at September 30, 2007 and $16,755 at December 31, 2006, respectively

807,798

666,273

Inventories

1,007,349

904,318

Prepaid expenses and other current assets

20,820

22,179

Income taxes receivable

14,696

25,144

Total current assets

1,956,666

1,675,389

Property, plant and equipment, at cost:

Land

117,879

108,022

Buildings

415,263

385,851

Machinery and equipment

631,364

565,951

Accumulated depreciation

(368,533

)

(317,152

)

795,973

742,672

Goodwill

937,446

784,871

Intangible assets, net

402,000

354,195

Cash surrender value of life insurance policies, net

43,861

41,190

Other assets

15,125

15,856

Total assets

$

4,151,071

$

3,614,173

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

402,796

$

340,356

Accrued expenses

59,589

36,481

Accrued compensation and retirement costs

82,571

92,905

Accrued insurance costs

36,123

34,475

Deferred income taxes

23,721

23,706

Current maturities of long-term debt

33,684

22,257

Current maturities of capital lease obligations

634

559

Total current liabilities

639,118

550,739

Long-term debt

1,239,551

1,083,095

Capital lease obligations

4,657

4,956

Long-term retirement costs and other long-term liabilities

55,854

46,111

Deferred income taxes

186,369

181,628

Minority interest

1,529

1,246

Commitments and contingencies

Shareholders' equity:

Preferred stock, no par value:

Authorized shares -- 5,000,000

None issued or outstanding

--

--

Common stock, no par value:

Authorized shares -- 100,000,000

Issued and outstanding shares -- 74,618,149 at September 30, 2007 and 75,702,046 at December 31, 2006, respectively, stated capital

638,420

701,690

Retained earnings

1,362,230

1,046,339

Accumulated other comprehensive income/(loss)

23,343

(1,631

)

Total shareholders' equity

2,023,993

1,746,398

Total liabilities and shareholders' equity

$

4,151,071

$

3,614,173

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts)

Three Months

Nine Months

Ended September 30,

Ended September 30,

2007

2006

2007

2006

Net sales

$

1,812,092

$

1,626,208

$

5,550,018

$

4,173,416

Other income, net

2,063

1,987

4,770

3,641

1,814,155

1,628,195

5,554,788

4,177,057

Costs and expenses:

Cost of sales (exclusive of depreciation and amortization shown below)

1,372,128

1,194,139

4,140,105

3,051,289

Warehouse, delivery, selling, general and administrative

252,017

224,798

772,118

587,245

Depreciation and amortization

19,791

16,511

57,452

45,132

Interest

20,517

19,354

60,242

41,996

1,664,453

1,454,802

5,029,917

3,725,662

Income from continuing operations before income taxes

149,702

173,393

524,871

451,395

Provision for income taxes

56,137

65,888

196,826

171,530

Net income

$

93,565

$

107,505

$

328,045

$

279,865

Earnings per share:

Income from continuing operations -- diluted

$

1.22

$

1.41

$

4.28

$

3.83

Weighted average shares outstanding -- diluted

76,476,928

76,016,596

76,613,307

72,985,065

Income from continuing operations -- basic

$

1.24

$

1.42

$

4.32

$

3.87

Weighted average shares outstanding -- basic

75,609,783

75,451,585

75,896,299

72,315,779

Cash dividends per share

$

.08

$

.06

$

.24

$

.16

Reconciliation of EBIT and EBITDA

Income from continuing operations before income taxes

$

149,702

$

173,393

$

524,871

$

451,395

Interest expense

20,517

19,354

60,242

41,996

EBIT

170,219

192,747

585,113

493,391

Depreciation expense

17,004

14,793

49,602

40,429

Amortization expense

2,787

1,718

7,850

4,703

EBITDA

$

190,010

$

209,258

$

642,565

$

538,523

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended

September 30,

2007

2006

Operating activities:

Net income

$

328,045

$

279,865

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

57,452

45,132

Debt premium amortization

--

(1,779

)

Deferred income taxes

(2,333

)

(1,297

)

Gain on sales of machinery and equipment

(1,115

)

(990

)

Minority interest

283

227

Stock based compensation expense

7,569

4,336

Excess tax benefits from stock based compensation

(6,062

)

(1,769

)

Decrease in cash surrender value of life insurance policies

464

494

Changes in operating assets and liabilities (excluding effect of businesses acquired):

Accounts receivable

(66,632

)

(130,298

)

Inventories

16,454

(172,732

)

Prepaid expenses and other assets

15,586

9,593

Accounts payable and accrued expenses

34,976

(19,253

)

Net cash provided by operating activities

384,687

11,529

Investing activities:

Purchases of property, plant and equipment

(88,350

)

(84,720

)

Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired

(257,640

)

(559,393

)

Proceeds from sales of property and equipment

2,833

2,956

Tax distributions made related to a prior acquisition

(634

)

(894

)

Net investment in life insurance policies

(262

)

(279

)

Proceeds from redemption of life insurance policies

134

489

Net cash used in investing activities

(343,919

)

(641,841

)

Financing activities:

Proceeds from borrowings

648,554

993,316

Principal payments on long-term debt and short-term borrowings

(558,155

)

(368,123

)

Payments to former minority shareholders

--

(1,291

)

Dividends paid

(18,216

)

(11,608

)

Excess tax benefits from stock based compensation

6,062

1,769

Exercise of stock options

11,047

2,852

Issuance of common stock

281

222

Common stock repurchase

(82,167

)

--

Net cash provided by financing activities

7,406

617,137

Effect of exchange rate changes on cash

354

194

Increase/(decrease) in cash and cash equivalents

48,528

(12,981

)

Cash and cash equivalents at beginning of period

57,475

35,022

Cash and cash equivalents at end of period

$

106,003

$

22,041

Supplemental cash flow information:

Interest paid during the period

$

45,395

$

24,997

Income taxes paid during the period

$

183,734

$

155,221

Non-cash investing and financing activities:

Issuance of common stock and stock options in connection with acquisition of metals service center

$

--

$

360,453

Issuance of common stock to employee retirement savings plan

$

--

$

2,830

Source: Business Wire

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