01—Abstract
Summary
Summary of the 10-K filed March 27, 1998. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record 1997 results, driven mainly by four acquisitions completed during the year and two in early 1998.
Net sales rose to $961.5 milliona in 1997 from $654.0 million in 1996, an increase of 47.0%, while net income increased to $34.2 million from $29.8 million. Diluted earnings per share were $2.15 versus $1.90. The filing attributes the growth to the inclusion of acquired companies, including CCC Steel, Siskin, AMI, Amalco, Service Steel Aerospace and Georgia Steel, and notes that gross margin declined to 23.3% of sales from 24.7% as raw material selling prices fell.
The company's balance sheet expanded considerably. Total assets grew to $583.9 millionb from $391.2 million, long-term debt rose to $143.4 million from $107.5 million, and shareholders' equity increased to $313.2 million from $192.6 million, largely reflecting a November 1997 public offering of 3,595,000 shares that netted $93.9 million. Working capital was $213.3 million at year-end.
Management stated that cash from operations and its $200 millionc syndicated credit facility should meet working capital needs for the foreseeable future. Operating risks highlighted in the filing include exposure to cyclical end markets, particularly the semiconductor industry, which the company says has suffered a significant slowdown, offset by an improving aerospace sector.
The filing also flags higher leverage after its acquisitions and restrictions on dividends under its debt covenants, which limit cash dividends to 25%d of prior-year net income beginning in 1998. The company stated that its Year 2000 issue is not expected to have a material impact.
02—Key points
Key Highlights
- Net sales increased to $961.5 million in 1997 from $654.0 million in 1996, a 47.0% increase, driven by acquisitions.
- Net income rose to $34.2 million, or $2.15 diluted EPS, compared with $29.8 million, or $1.90 diluted EPS, in 1996.
- Income from operations increased to $59.4 million from $43.7 million, with operating margin of 6.2% of sales versus 6.7% in 1996.
- Gross profit margin declined to 23.3% of sales from 24.7%, reflecting lower selling prices for certain raw materials.
- Total assets rose to $583.9 million and long-term debt to $143.4 million, reflecting acquisitions financed partly by debt.
- A November 1997 public offering of 3,595,000 shares generated net proceeds of $93.9 million, which were used to pay down debt and fund acquisitions.
- Two acquisitions, Phoenix Metals Company for $21 million and Durrett-Sheppard Steel for $30.5 million, were completed on January 30, 1998.
03—Questions
Frequently Asked Questions
What drove the company's revenue growth in 1997?
The filing attributes the 47.0% increase in consolidated net sales primarily to the inclusion of sales from acquired companies, including CCC Steel, Siskin, AMI, Amalco, Service Steel Aerospace and Georgia Steel. Excluding those acquisitions, the company reported a 9.8% increase in tons sold, although its average selling price declined 3.0%.
How did the company finance its 1997 acquisitions?
The company funded acquisitions through its revolving line of credit, a private placement of $65 million in senior unsecured notes in September 1997, and a public equity offering of 3,595,000 shares in November 1997 that netted about $93.9 million. In October 1997 it also entered into a $200 million syndicated credit facility.
What risks does the filing identify for investors?
The filing cites exposure to cyclical industries, including semiconductor manufacturing, which has experienced a significant slowdown. It also notes higher leverage following acquisitions, fluctuations in raw material prices, intense price competition, and the possibility that recent acquisitions may not perform as anticipated.
What are the company's dividend policy and restrictions?
The company paid quarterly dividends totaling $0.16 per share in 1997 and increased the regular quarterly dividend to $0.06 per share in February 1998. Its debt agreements require a minimum net worth and the syndicated credit line limits cash dividends to no more than 25% of prior-year net income beginning in 1998.
How much of the company's sales come from a single customer or from California?
In 1997, only one customer accounted for more than 1% of sales, representing 4.1% of total company sales. California was the largest market, representing 45% of 1997 sales.
04—Continue