01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record 2007 results, with net sales of $7.26 billiona (up 26.3% from 2006) and net income of $408.0 million, compared with $354.5 million in 2006.
Growth came from acquisitions, including Earle M. Jorgensen Company and Yarde Metals in 2006 and Encore Group, Crest Steel, Industrial Metals and Surplus, Clayton Metals and Metalweb in 2007, along with higher tons sold (up 17.3%b) and a higher average selling price per ton (up 8.5%). Gross profit margin declined to 25.3% from 26.3%, mainly due to competitive pressures and a sharp decline in stainless steel prices in the second half of 2007.
Operating cash flow was a record $639.0 millionc, funding $124.1 million of capital expenditures, $270.0 million of acquisitions and $82.2 million of stock repurchases. Balance sheet and capital allocation were managed conservatively. Long-term debt was $1.01 billion, with a net debt-to-total capital ratio of 32.4%, down from 37.6% at year-end 2006.
The company had $185 milliond drawn on its $1.1 billion credit facility at year-end. Early 2008 actions included repurchasing 2.4 million shares at an average $46.97 and raising the quarterly dividend 25% to $.10 per share. The company also planned a record 2008 capital expenditure budget of $210 million.
Management expects demand may decline somewhat in 2008, particularly in non-residential construction, while pricing is supported by carbon steel increases announced for early 2008. The filing also flags risks including metal price volatility, cyclicality, indebtedness of about $1.1 billion, acquisition integration, and a pending IRS examination of 2002 to 2004 returns involving LIFO and inventory costing, which the company is contesting.
02—Key points
Key Highlights
- Record 2007 net sales of $7.26 billion, up 26.3% from 2006, and net income of $408.0 million versus $354.5 million in 2006.
- Gross profit margin fell to 25.3% from 26.3%, mainly due to competitive pressure and the sharp second-half 2007 decline in stainless steel prices.
- Record operating cash flow of $639.0 million, compared with $191.0 million in 2006.
- Net debt-to-total capital ratio improved to 32.4% from 37.6% at year-end 2006; $185 million was drawn on the $1.1 billion credit facility.
- Five acquisitions completed in 2007 for about $270.0 million in acquisitions cash flow, including Encore Group in Canada and Metalweb in the United Kingdom.
- Quarterly dividend raised 25% to $.10 per share in February 2008, and about 2.4 million shares were repurchased in early 2008 at an average $46.97.
- Record 2008 capital expenditure budget of $210 million, compared with $124.1 million spent in 2007.
03—Questions
Frequently Asked Questions
How did Reliance perform financially in 2007?
Net sales reached $7.26 billion, up 26.3% from 2006, and net income was $408.0 million, up from $354.5 million. Operating profit was $735.5 million, with an operating margin of 10.1% versus 11.0% in 2006.
What drove the decline in gross margin?
The filing attributes the drop to significant competitive pressures, especially in the first half of 2007, from industry-wide excess inventories, and to a sharp decline in stainless steel prices in the third quarter that reduced selling prices faster than inventory costs. LIFO expense was $43.8 million in 2007, down from $94.1 million in 2006.
How is the company's debt position?
Aggregate indebtedness was about $1.1 billion at December 31, 2007, and long-term debt was $1.01 billion. The net debt-to-total capital ratio was 32.4%, and $185 million was borrowed on the $1.1 billion revolving credit facility, which matures in November 2011.
What does management expect for 2008?
Management believes demand may decline somewhat in 2008 because of economic fears, particularly in non-residential construction. It is optimistic about pricing, with increases already in effect for many carbon steel products in early 2008, and it expects to continue growing through acquisitions and organic expansion.
Are there material legal or tax risks?
The company says it is not party to material pending legal proceedings beyond routine litigation. The IRS is examining its 2002 through 2004 federal returns, has proposed adjustments related to inventory costing and LIFO methods, and the company is contesting them. The company does not anticipate a material charge from these proposed adjustments.
04—Continue