01—Abstract
Summary
Summary of the 10-K/A filed May 3, 2004. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported net sales of $1.88 billiona and net income of $34.0 million for fiscal 2003, up from $1.75 billion in sales and $30.2 million of net income 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. Management characterizes 2003 as a year of low customer demand and competitive pricing pressure in the first half, followed by improved demand and pricing beginning in September 2003 that continued through February 2004. Diluted earnings per share from continuing operations were $1.07b, compared with $0.95 in 2002.
The largest event of the year was the July 1, 2003 acquisition of Precision Strip, Inc. for $220 millionc in cash plus the assumption of approximately $26 million of debt. The acquisition was funded with $113.0 million drawn on 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 a year earlier, and the company states that its net debt-to-total capital ratio was 43.1% compared with 35.4% at December 31, 2002.
Management says strong 2003 cash flow allowed faster-than-expected debt reduction, and it does not expect further acquisitions until leverage is reduced, which it expects by the end of 2004. The company also notes risks for 2004, including the potential for rising metal costs that it may not be able to pass through to customers, tight supply of many products, and the sensitivity of results to demand in cyclical end markets such as semiconductors and aerospace.
Management expects demand and prices to remain strong through the first quarter of 2004 and expects prices to continue rising in the first half. Goodwill stood at $325.3 milliond, about 23.8% of total assets, and the company reported no goodwill impairment in its annual testing.
02—Key points
Key Highlights
- Net sales rose to $1.88 billion in 2003 from $1.75 billion in 2002, with net income of $34.0 million versus $30.2 million.
- Diluted earnings per share from continuing operations were $1.07 in 2003, compared with $0.95 in 2002.
- The company acquired Precision Strip, Inc. on July 1, 2003 for $220 million in cash plus about $26 million of assumed debt, its largest acquisition to date.
- Long-term debt increased to $469.3 million at year-end 2003 from $344.1 million, and the net debt-to-total capital ratio rose to 43.1% from 35.4%.
- Gross margin was 27.1% of sales in 2003, compared with 27.3% in 2002, as competitive pricing pressure in the first half of 2003 offset improvement in the second half.
- Operating cash flow was $106.4 million in 2003, compared with $90.1 million in 2002, and the company reduced debt during the year.
- Management expects demand and pricing to remain strong in early 2004, but warns that tight supply and rising metal costs could pressure gross margins if cost increases cannot be passed through.
03—Questions
Frequently Asked Questions
What drove the increase in sales and profit in 2003?
Net sales increased to $1.88 billion from $1.75 billion, which the company attributes mainly to sales from businesses acquired in 2002 and 2003, along with a 5.7% increase in the average selling price per ton. Tons sold declined 1.1%. Operating profit rose to $80.1 million from $70.3 million, mainly due to operating profit from the 2003 acquisition.
How was the Precision Strip acquisition financed, and how did it affect the balance sheet?
The company paid $220 million in cash and assumed about $26 million of debt on July 1, 2003. It was funded with $113.0 million borrowed on the syndicated credit facility and $135.0 million of new senior secured notes. Long-term debt rose to $469.3 million, and the net debt-to-total capital ratio increased to 43.1% from 35.4%.
What does management expect for 2004?
Management said demand and pricing improved in January and February 2004, that it anticipates demand will remain strong through the first quarter of 2004 and prices will continue to increase in the first half, and that supply of many products will be tight for most of 2004. It warned that failure to pass cost increases to customers or a decline in demand could pressure gross margins. The 2004 capital expenditure budget is $36 million.
What are the main risks identified in the filing?
The filing cites interest rate increases on variable-rate debt, foreign currency movements affecting metal prices and foreign operations, acquisitions that may fail to perform or lead to goodwill impairment, metal price and availability fluctuations, cyclical customer industries, competition that could reduce gross margins, dependence on senior management and operating employees, and environmental regulation.
Does the company pay dividends, and what are the restrictions?
The company paid cash dividends of $0.06 per share quarterly, totaling $0.24 per share in both 2003 and 2002. Dividends represented 22% of earnings in 2003 and 25% in 2002. The syndicated credit facility and senior note agreements require a minimum net worth and limit cash dividends based on earnings.
04—Continue