Reliance Steel & Aluminum Co. Reports Record 2008 Second Quarter and Six Months Results
Reliance Steel & Aluminum Co. (NYSE:RS) reported today its financial results for the second quarter and six months ended June 30, 2008. For the 2008 second quarter, net income was a record $156.6 million, up 27.5% compared with net income of $122.8 million for the 2007 second quarter, and up 45.8% from $107.4 million for the 2008 first quarter. Earnings per diluted share were $2.12 for the 2008 second quarter, up 33% from $1.59 for the 2007 second quarter and up 45% from $1.46 for the 2008 first quarter. 2008 second quarter sales were a record $2.1 billion, an increase of 10.5% compared with 2007 second quarter sales of $1.9 billion. The 2008 second quarter financial results include in cost of sales a pre-tax LIFO expense amount of $40.0 million, or $.34 per diluted share, compared with a pre-tax LIFO expense amount of $13.75 million, or $.11 per diluted share in the 2007 second quarter.
For the six months ended June 30, 2008, net income amounted to a record $264.0 million, up 12.6% compared with net income of $234.5 million for the same period in 2007. Earnings per diluted share were a record $3.58 for the six months ended June 30, 2008, compared with earnings of $3.06 per diluted share for the six months ended June 30, 2007. Sales for the 2008 year-to-date period were a record $4.0 billion, an increase of 7.1% compared with 2007 six month sales of $3.74 billion. The 2008 six month financial results include in cost of sales a pre-tax LIFO expense amount of $57.5 million, or $.49 per diluted share, compared with a pre-tax LIFO expense amount of $32.5 million, or $.26 per diluted share in the 2007 year-to-date period.
David H. Hannah, Chairman and Chief Executive Officer of Reliance said, “The 2008 second quarter turned out to be quite a bit better than we had originally anticipated. The main reason for the increased earnings was higher carbon steel prices, which resulted in higher gross profit margins as we quickly passed through the increases to our customers. While we expected carbon steel pricing to continue upwards during the second quarter, the increases were larger than we had anticipated.”
“Looking at the third quarter, we expect pricing to be slightly above second quarter levels. While we do not expect any unusual changes in demand, we do expect the normal seasonal softness compared to the 2008 second quarter, and we recognize there is still a good deal of uncertainty surrounding overall economic activity. We, therefore, are anticipating our volume to decrease slightly and our gross profit margins to be a bit lower because the rate of carbon steel price increases will be below that of the second quarter. We currently estimate earnings per diluted share for the 2008 third quarter to be in a range of $1.80 to $1.90. This guidance does not include the impact of the acquisition of PNA or any of the related financing activities discussed below. We expect to complete the acquisition and the related financing activities in early August,” Hannah stated.
On June 16, 2008, Reliance entered into an agreement to acquire the outstanding capital stock of PNA Group Holding Corporation, a leading steel service center group. The transaction is valued at approximately $1.1 billion, comprised of approximately $315 million for PNA’s equity plus up to $750 million of debt. PNA’s subsidiaries include the operating entities Delta Steel, LP, Feralloy Corporation, Infra-Metals Co., Metals Supply Company, Ltd., Precision Flamecutting and Steel, LP and Sugar Steel Corporation. Through its subsidiaries, PNA processes and distributes primarily carbon steel plate, bar, structural and flat-rolled products. Full year 2007 and first quarter 2008 revenues for PNA were about $1.6 billion and $474 million, respectively. PNA has 23 steel service centers throughout the United States, as well as five joint ventures that operate a total of seven service centers in the United States and Mexico.
The PNA acquisition is expected to be completed in early August, subject to the satisfaction of certain conditions, including obtaining required regulatory approvals. Reliance expects to finance the acquisition and the repayment or refinancing of PNA’s existing debt, through a combination of borrowings under Reliance’s existing credit facility and by raising approximately $750 million through the new bank debt and a financing detailed in a separate press release issued by us this morning.
On July 15, 2008, Reliance announced that its tender offers for any and all of the outstanding PNA Group, Inc. 10.75% Senior Notes due 2016 (the “Fixed Rate Notes”) and the outstanding PNA Intermediate Holding Corporation Senior Floating Rate Toggle Notes due 2013 (the “Floating Rate Notes”, collectively the “Notes”) had been fully subscribed. As of July 15, 2008, all the $250 million aggregate outstanding principal amount of Fixed Rate Notes and all the $170 million aggregate outstanding principal amount of Floating Rate Notes had been validly tendered and not withdrawn pursuant to the tender offers therefore. The tender offers and the related consent solicitations are conditional on the closing of the PNA acquisition, however the completion of the tender offers and consent solicitations are not conditions to the completion of the PNA acquisition or financing thereof. Because all of the Notes have been tendered, Reliance expects to surrender the Notes to the trustees for retirement following the acceptance of such Notes for payment, making it unnecessary for the indentures for the Notes to be amended pursuant to the consent solicitations.
On April 16, 2008, the Board of Directors declared a regular quarterly cash dividend of $.10 per share of common stock. The 2008 second quarter dividend was paid on June 23, 2008 to shareholders of record June 2, 2008. 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 second quarter and six months financial results for the period ended June 30, 2008. All interested parties are invited to listen to the web cast on July 17, 2008 at 11:00 a.m. Eastern Time at: http://www.rsac.com/investorinformation or http://www.streetevents.com. Player format: Windows Media and RealPlayer. The web cast will remain on the Reliance web site at: www.rsac.com through August 17, 2008 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 the largest metals service center company in North America (United States and Canada). 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 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 2008 “Fortune 500″ List, the Fortune 2008 List of “America’s Most Admired Companies,” the 2008 Forbes “America’s Best Managed Companies” List, and the 2008 Forbes “Platinum 400 List of America’s Best Big Companies.”
This release contains forward-looking statements, including the earnings guidance, which statements are subject to inherent risks and uncertainties. Actual results and events may differ materially as a result of a variety of factors, many of which are outside of Reliance Steel & Aluminum Co.’s control. Risk factors and additional information are included in Reliance Steel & Aluminum Co.’s reports on file with the Securities and Exchange Commission, including Reliance Steel & Aluminum Co.’s Annual Report on Form 10-K for the year ended December 31, 2007, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.
RELIANCE STEEL & ALUMINUM CO. SELECTED FINANCIAL DATA (In thousands, except share and per share amounts) Three Months Six Months Ended June 30, Ended June 30, ————————- ————————- 2008 2007 2008 2007 ———— ———— ———— ———— Income Statement Data: Net sales $ 2,095,068 $ 1,896,036 $ 4,003,238 $ 3,737,926 Gross profit 586,934 497,497 1,079,213 969,949 Operating income 267,907 213,738 457,129 412,187 EBITDA(1) 288,853 235,281 499,053 452,555 EBIT(1) 267,408 216,071 456,243 414,894 Pre-tax income 251,247 196,456 423,469 375,169 Net income 156,596 122,784 263,991 234,480 EPS – diluted $ 2.12 $ 1.59 $ 3.58 $ 3.06 Weighted average shares outstanding – diluted 73,757,864 77,181,651 73,651,222 76,691,529 Gross margin 28.0% 26.2% 27.0% 25.9% Operating income margin 12.8% 11.3% 11.4% 11.0% EBITDA margin(1) 13.8% 12.4% 12.5% 12.1% EBIT margin(1) 12.8% 11.4% 11.4% 11.1% Pre-tax margin 12.0% 10.4% 10.6% 10.0% Net margin 7.5% 6.5% 6.6% 6.3% Cash dividends per share $ .10 $ .08 $ .20 $ .16
June 30, December 31, 2008 2007 ———– ———— Balance Sheet and Other Data: Current assets $2,166,371 $1,721,403 Working capital 1,335,874 1,121,539 Property, plant and equipment, net 871,569 824,635 Total assets 4,473,253 3,983,477 Current liabilities 830,497 599,864 Long-term debt(2) 1,109,565 1,013,260 Shareholders’ equity 2,264,933 2,106,249 Capital expenditures (year-to-date) 88,305 124,127 Net debt-to-total capital(3) 32.0% 32.4% Return on equity(4) 20.8% 23.4% Current ratio 2.6 2.9 Book value per share $ 30.93 $ 28.12 Cash flow from operations per share(5) $ 7.98 $ 8.40
(1) See Unaudited 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 use EBITDA as a liquidity performance measure and believe EBITDA is useful in evaluating our liquidity because the calculation generally eliminates the effects of financing costs and income taxes and the accounting effects of capital spending and acquisitions, which are assessed and evaluated through other operating performance measures. EBITDA is also commonly used as a measure of operating and liquidity performance for companies in our industry and is frequently used by analysts, investors, lenders, rating agencies and other interested parties to evaluate a company’s financial performance and its ability to incur and service debt. EBITDA is not a recognized measurement under U.S. generally accepted accounting principles and, therefore, represents a non-GAAP financial measure. EBITDA should not be considered in isolation or as a substitute for consolidated statements of income and cash flows data prepared in accordance with U.S. generally accepted accounting principles as it excludes components that are significant in understanding and assessing our results of operations and cash flows. EBITDA as presented is not necessarily comparable with similarly titled measures for other companies.
(2) Long-term debt includes capital lease obligations of $4,179 and $4,495 as of June 30, 2008 and December 31, 2007, respectively.
(3) Net debt-to-total capital is calculated as total debt (net of cash) divided by shareholders’ equity plus total debt (net of cash).
(4) Calculations are based on the latest twelve months net income and beginning shareholders’ equity.
(5) Calculations are based on the latest twelve months.
RELIANCE STEEL & ALUMINUM CO. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) ASSETS June 30, December 31, 2008 2007 ———– ———— (Unaudited) Current assets: Cash and cash equivalents $ 89,843 $ 77,023 Accounts receivable, less allowance for doubtful accounts of $20,887 at June 30, 2008 and $16,153 at December 31, 2007 946,081 691,462 Inventories 1,106,532 911,315 Prepaid expenses and other current assets 23,915 24,028 Income taxes receivable — 17,575 ———– ———— Total current assets 2,166,371 1,721,403 Property, plant and equipment, at cost: Land 118,816 115,294 Buildings 450,089 417,677 Machinery and equipment 712,497 669,671 Accumulated depreciation (409,833) (378,007) ———– ———— 871,569 824,635 Goodwill 890,727 886,152 Intangible assets, net 464,312 464,291 Cash surrender value of life insurance policies, net 67,396 73,953 Other assets 12,878 13,043 ———– ———— Total assets $4,473,253 $3,983,477 =========== ============ LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 486,630 $ 333,986 Accrued expenses 125,982 37,863 Accrued compensation and retirement costs 85,900 95,539 Accrued insurance costs 36,625 36,884 Income taxes payable 26,064 — Deferred income taxes 23,143 23,136 Current maturities of long-term debt 45,522 71,815 Current maturities of capital lease obligations 631 641 ———– ———— Total current liabilities 830,497 599,864 Long-term debt 1,105,386 1,008,765 Capital lease obligations 4,179 4,495 Long-term retirement costs and other long- term liabilities 67,129 62,224 Deferred income taxes 199,358 200,181 Minority interest 1,771 1,699 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 — 73,230,947 at June 30, 2008 and 74,906,824 at December 31, 2007, stated capital 555,543 646,406 Retained earnings 1,695,722 1,439,598 Accumulated other comprehensive income 13,668 20,245 ———– ———— Total shareholders’ equity 2,264,933 2,106,249 ———– ———— Total liabilities and shareholders’ equity $4,473,253 $3,983,477 =========== ============
RELIANCE STEEL & ALUMINUM CO. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share and per share amounts) Three Months Six Months Ended June 30, Ended June 30, ————————- ————————- 2008 2007 2008 2007 ———— ———— ———— ———— Net sales $ 2,095,068 $ 1,896,036 $ 4,003,238 $ 3,737,926 Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 1,508,134 1,398,539 2,924,025 2,767,977 Warehouse, delivery, selling, general and administrative 297,582 264,549 579,274 520,101 Depreciation and amortization 21,445 19,210 42,810 37,661 ———— ———— ———— ———— 1,827,161 1,682,298 3,546,109 3,325,739 Operating income 267,907 213,738 457,129 412,187 Other income (expense): Interest (16,161) (19,615) (32,774) (39,725) Other income (expense), net (499) 2,333 (886) 2,707 ———— ———— ———— ———— Income from continuing operations before income taxes 251,247 196,456 423,469 375,169 Provision for income taxes 94,651 73,672 159,478 140,689 ———— ———— ———— ———— Net income $ 156,596 $ 122,784 $ 263,991 $ 234,480 ============ ============ ============ ============ Earnings per share: Income from continuing operations – diluted $ 2.12 $ 1.59 $ 3.58 $ 3.06 ============ ============ ============ ============ Weighted average shares outstanding – diluted 73,757,864 77,181,651 73,651,222 76,691,529 ============ ============ ============ ============ Income from continuing operations – basic $ 2.14 $ 1.61 $ 3.62 $ 3.08 ============ ============ ============ ============ Weighted average shares outstanding – basic 73,015,855 76,219,670 72,936,666 76,041,932 ============ ============ ============ ============ Cash dividends per share $ .10 $ .08 $ .20 $ .16 ============ ============ ============ ============ Reconciliation of EBIT and EBITDA Net cash provided by operating activities $ 21,185 $ 99,470 $ 128,381 $ 170,239 Provision for income taxes 94,651 73,672 159,478 140,689 Interest expense 16,161 19,615 32,774 39,725 Other non cash adjustments 4,337 6,228 4,314 7,663 Changes in assets and liabilities (excluding effect of businesses acquired) 152,519 36,296 174,106 94,239 ———— ———— ———— ———— EBITDA $ 288,853 $ 235,281 $ 499,053 $ 452,555 ———— ———— ———— ———— Less, Depreciation and amortization expense 21,445 19,210 42,810 37,661 ———— ———— ———— ———— EBIT $ 267,408 $ 216,071 $ 456,243 $ 414,894 ============ ============ ============ ============
RELIANCE STEEL & ALUMINUM CO. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended June 30, ———————- 2008 2007 ———- ———- Operating activities: Net income $ 263,991 $ 234,480 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,810 37,661 Provision for deferred income taxes (2,249) (5,519) Gain on sales of property and equipment (174) (1,022) Minority interest 72 204 Stock based compensation expense 6,771 4,680 Excess tax benefits from stock based compensation (9,187) (5,929) Decrease (increase) in cash surrender value of life insurance policies 453 (77) Changes in operating assets and liabilities (excluding effect of businesses acquired): Accounts receivable (257,165) (114,824) Inventories (204,991) (95,029) Prepaid expenses and other assets 15,489 31,521 Accounts payable and other liabilities 272,561 84,093 ———- ———- Net cash provided by operating activities 128,381 170,239 Investing activities: Purchases of property, plant and equipment (88,305) (58,645) Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired (13,250) (217,712) Proceeds from sales of property and equipment 17,902 2,572 Proceeds from redemption of life insurance policies 2,532 — Net investment in life insurance policies (96) (262) ———- ———- Net cash used in investing activities (81,217) (274,047) Financing activities: Proceeds from borrowings 339,897 542,850 Principal payments on long-term debt and short-term borrowings (270,499) (426,601) Dividends paid (14,575) (12,174) Excess tax benefits from stock based compensation 9,187 5,929 Exercise of stock options 16,856 10,796 Issuance of common stock 284 281 Common stock repurchase (114,774) — ———- ———- Net cash (used in) provided by financing activities (33,624) 121,081 Effect of exchange rate changes on cash (720) 202 ———- ———- Increase in cash and cash equivalents 12,820 17,475 Cash and cash equivalents at beginning of period 77,023 57,475 ———- ———- Cash and cash equivalents at end of period $ 89,843 $ 74,950 ========== ========== Supplemental cash flow information: Interest paid during the period $ 28,675 $ 33,861 Income taxes paid during the period $ 107,464 $ 111,957