01—Abstract
Summary
Summary of the 10-K filed March 27, 2000. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record 1999 results, with net sales of $1.51 billiona (up from $1.35 billion in 1998) and net income of $57.6 million, or $2.07 per diluted share (versus $1.68 in 1998).
The company is one of the largest metals service center companies in the United States, operating 72 processing and distribution facilities in 21 states and France and distributing more than 75,000 metal products to more than 65,000 customers. Management attributes the growth primarily to the inclusion of sales and earnings from acquisitions made in 1998 and 1999, though pricing for most products remained near all-time lows for much of 1999. Net sales per ton fell 17.4%b as tons sold rose 35.1%, and the filing notes that management does not anticipate the same rate of growth in gross margins and net income in 2000 due to rising material costs.
The balance sheet grew to $900.0 millionc in total assets, with long-term debt of $318.1 million and shareholders' equity of $400.3 million. Goodwill of $215.2 million represented about 24% of total assets. Cash flow from operations increased to $131.4 million in 1999 from $30.9 million in 1998, aided by a $46.1 million reduction in inventories excluding acquired inventory.
Net capital expenditures were $19.5 milliond, and the company spent about $83.7 million on 1999 acquisitions. Subsequent to year end, the company acquired Hagerty Steel & Aluminum Company's Peoria, Illinois operations on February 5, 2000, funded through its line of credit.
The company disclosed a 3-for-2 stock split in September 1999 and raised its quarterly dividend to $.055 per share in February 2000. Risk factors highlighted in the filing include the cyclical nature of end markets such as aerospace and semiconductor manufacturing, which saw sales to aerospace decline about 17% in 1999, increased leverage from acquisitions, and exposure to metal price fluctuations.
02—Key points
Key Highlights
- Record net sales of $1.51 billion in 1999, up from $1.35 billion in 1998, with net income of $57.6 million ($2.07 diluted EPS vs. $1.68 in 1998).
- Gross margin improved to 27.4% of net sales in 1999 from 24.3% in 1998, aided by raw material costs falling faster than selling prices during most of the year.
- Operating cash flow rose to $131.4 million from $30.9 million in 1998, helped by a $46.1 million inventory reduction excluding acquired inventory.
- Four acquisitions in 1999 (including Liebovich, for about $60 million cash, which entered the Midwest market), plus the February 2000 Hagerty purchase, with net sales of acquired businesses cited as the main driver of growth.
- Aerospace sales declined about 17% in 1999, and management expects this trend to continue into 2000.
- Management does not anticipate the same rate of growth in gross margins and net income in 2000 due to rising material costs, though it expects to benefit from higher selling prices in the near term.
- Total debt of $318.2 million at year-end, including $290 million of senior unsecured notes at an average fixed rate of 6.83%, with a $200 million revolving credit facility ($25 million outstanding).
03—Questions
Frequently Asked Questions
How did Reliance Steel & Aluminum perform financially in 1999?
Net sales rose 11.7% to $1.51 billion, gross profit increased 25.9% to $413.6 million, and income from operations reached $109.5 million. Net income was $57.6 million, or $2.07 per diluted share, compared with $47.7 million, or $1.68 per diluted share, in 1998. The filing attributes the increase largely to acquisitions and a higher gross margin.
What drove the growth in sales and profits?
Tons sold increased 35.1%, mainly from the inclusion of twelve months of sales from 1998 acquisitions and sales from 1999 acquisitions, while the average selling price per ton fell 17.4% due to lower material costs and a shift in product mix toward carbon steel. Excluding acquisitions, sales declined $110.6 million, primarily due to lower selling prices.
What is the company's debt and liquidity position?
Long-term debt was $318.1 million at December 31, 1999, down from $343.3 million a year earlier. Debt consists mainly of $290 million of senior unsecured notes at an average fixed rate of 6.83% and a $25 million balance on a $200 million revolving credit facility. Management states that operating cash flow and line of credit availability are sufficient for working capital needs for the foreseeable future.
What are the key risks described in the filing?
The filing cites cyclical demand in end markets such as aerospace and semiconductor fabrication, fluctuations in metal prices, higher leverage from acquisitions, and intense price competition. It also notes that acquisitions may not perform as anticipated, and that the company does not expect the spread between metal costs and selling prices to continue at 1999 levels.
Is the company returning cash to shareholders?
Yes. The company has paid quarterly cash dividends for about 40 years, and the Board raised the quarterly dividend to $.055 per share in February 2000, a 10% increase. Dividends paid in 1999 totaled $4.9 million, and the company repurchased 2,672,325 shares in total under its plan at an average of $9.91 per share through December 31, 1999, with 36,850 more shares repurchased in February 2000.
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