01—Abstract
Summary
Summary of the 10-K filed March 15, 2004. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. (filed under this name; now Reliance, Inc.) reported net sales of $1.88 billiona and net income of $34.0 million for fiscal 2003, compared with $1.75 billion and $30.2 million in 2002.
Diluted earnings per share from continuing operations were $1.07b, versus $0.95 in 2002. The company describes itself as one of the five largest metals service centers in the United States, operating 106 processing and distribution facilities in 30 states, Belgium, France and South Korea. Gross margin slipped to 27.1% of sales from 27.3% as competitive pricing pressure in the first half of 2003 gave way to improving demand from September 2003 onward.
The largest event of the year was the July 1, 2003 acquisition of Precision Strip, Inc. for approximately $220 millionc in cash plus about $26 million of assumed debt. It was funded with $113.0 million drawn on the syndicated credit facility and $135.0 million of new senior secured notes. Partly as a result, long-term debt rose to $469.3 million from $344.1 million, and the net debt-to-total capital ratio increased to 43.1% from 35.4%.
Operating cash flow improved to $106.4 milliond from $90.1 million, and the company reduced borrowings during the year. Management expects demand and pricing to remain firm through the first quarter of 2004, but says tight supply and rising costs could pressure margins if pass-through slows. The filing also highlights a stronger position in the market: sales volumes fell 1.1% in 2003, yet average selling price per ton rose 5.7%, and management believes the company gained market share.
The company has paid dividends of $0.24 per share annually for 2002 and 2003. Leverage is elevated after the acquisition, and management does not plan further acquisitions until leverage declines, which it expects by the end of 2004.
02—Key points
Key Highlights
- Net sales of $1.88 billion in 2003, up from $1.75 billion in 2002; net income of $34.0 million versus $30.2 million.
- Diluted EPS from continuing operations of $1.07, compared with $0.95 in 2002.
- Acquired Precision Strip, Inc. on July 1, 2003 for about $220 million in cash plus roughly $26 million of assumed debt, the company's largest acquisition to date.
- Long-term debt increased to $469.3 million from $344.1 million; net debt-to-total capital rose to 43.1% from 35.4%.
- Operating cash flow of $106.4 million in 2003, up from $90.1 million, used in part to pay down debt.
- Gross profit margin of 27.1% in 2003 versus 27.3% in 2002, reflecting pricing pressure in the first half of 2003 before demand improved in September 2003.
- Quarterly dividend of $0.06 per share ($0.24 annually); management does not plan further acquisitions until leverage is reduced, expected by the end of 2004.
03—Questions
Frequently Asked Questions
How did Reliance Steel & Aluminum perform financially in 2003?
Net sales rose to $1.88 billion from $1.75 billion, and net income increased to $34.0 million from $30.2 million. Diluted earnings per share from continuing operations were $1.07, compared with $0.95 in 2002. Operating profit rose to $80.1 million from $70.3 million, mainly due to the 2003 acquisition.
What was the most significant transaction in 2003?
On July 1, 2003, the company acquired Precision Strip, Inc. for about $220 million in cash plus the assumption of approximately $26 million of debt. Precision Strip is a toll metals processor with facilities in Ohio, Indiana, Kentucky and Alabama, and had net sales of about $62 million for the six months ended December 31, 2003.
How did the acquisition affect the company's balance sheet and leverage?
The acquisition was funded with $113.0 million from the syndicated credit facility and $135.0 million of new senior secured notes. Long-term debt rose to $469.3 million at December 31, 2003, from $344.1 million, and the net debt-to-total capital ratio increased to 43.1% from 35.4%. Management expects to reduce leverage and does not plan further acquisitions until that is achieved, expected by the end of 2004.
What is the outlook for 2004 described in the filing?
Management said demand and pricing improved in January and February 2004, and it expects demand to remain strong through the first quarter of 2004 and prices to keep rising in the first half. Supply of many products is expected to be tight for most of 2004. The company warned that failure to pass on cost increases, a decline in demand, or an inability to obtain sufficient metal could pressure gross margins and results.
Are the dividends stable, and what restricts them?
The company paid $0.06 per share quarterly, or $0.24 per share, in both 2002 and 2003, and has paid quarterly cash dividends for 44 years. The filing notes that the Board may revise the policy, and that the senior note and syndicated credit agreements include minimum net worth requirements and limits on cash dividends based on earnings.
04—Continue