01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported record 2008 results: net sales of $8.72 billiona and net income of $482.8 million, up from $7.26 billion and $408.0 million in 2007.
Management described 2008 as a year of two halves. The first nine months were very strong, with rapid carbon steel price increases that expanded gross margins, but the fourth quarter brought a sharp and rapid decline in demand and pricing. The company said it remained profitable in the fourth quarter, while many service centers fell into operating losses.
Gross profit margin fell to 24.8% from 25.3%, and the company cited LIFO expense of $109.0 millionb, up from $43.8 million in 2007. The balance sheet grew mainly through the $1.1 billion acquisition of PNA Group Holding Corporation on August 1, 2008, which was funded with a new $500 million term loan and borrowings under the $1.1 billion credit facility. Total debt was $1.77 billion at year-end.
Operating cash flow was a record $664.7 millionc, which management used to repay $505 million of debt after the PNA closing. Net debt-to-total capital fell to 41.4% at December 31, 2008, from 48.1% at September 30, 2008. Management said it had sufficient liquidity for 2009 and 2010 obligations without accessing credit markets, and it suspended acquisitions and cut the 2009 capital expenditure budget to $80 million from $210 million in 2008.
Investors should weigh the strong 2008 earnings and cash generation against the outlook. Management said demand had not yet improved, carbon steel mills were operating below 50%d of capacity, and metal pricing was uncertain.
Competitive pressure on margins was expected to continue. The quarterly dividend was raised to $.10 per share in February 2008, and the stock fell from an all-time high of $78 per share in July 2008 to $13 per share in November 2008.
02—Key points
Key Highlights
- Record 2008 net sales of $8.72 billion, up from $7.26 billion in 2007, with net income of $482.8 million versus $408.0 million.
- Gross profit margin declined to 24.8% from 25.3%, with fourth-quarter pricing pressure and LIFO expense of $109.0 million compared with $43.8 million in 2007.
- Acquired PNA Group Holding Corporation on August 1, 2008 for a total transaction value of approximately $1.1 billion, its largest acquisition to date.
- Record operating cash flow of $664.7 million; debt was reduced by $505 million after the PNA closing, and net debt-to-total capital fell to 41.4% at year-end.
- Total debt of $1.77 billion at December 31, 2008; the $1.1 billion credit facility and $500 million term loan mature in November 2011.
- Cut 2009 capital expenditure budget to $80 million from $210 million in 2008 budget, suspended acquisitions, and eliminated about 800 jobs in the fourth quarter.
- Stock price ranged from a high of $78 per share in July 2008 to a low of $13 per share in November 2008; quarterly dividend increased to $.10 per share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Reliance kept $0.06.
- Revenue$8.72B100.0%
- Cost of revenue−$6.56B75.2%
- Gross profit$2.16B24.8%
- Operating costs−$1.31B15.0%
- Operating income$853.0M9.8%
- Interest, other & tax−$370.2M4.2%
- Net income$482.8M5.5%
Where FY2008 revenue went
$8.72B- Cost of revenue: $6.56B, 75% of revenue
- SG&A: $1.21B, 14% of revenue
- Net income: $482.8M, 5.5% of revenue
- Other operating costs: $97.9M, 1.1% of revenue
- Interest, other & tax: $370.2M, 4.2% of revenue
Kept 5.5% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
| Revenue | $8.72B |
| Cost of Revenue | $6.56B |
| Gross Profit | $2.16B |
| SG&A Expenses | $1.21B |
| Operating Expenses | $7.87B |
| Operating Income | $852.97M |
| Interest Expense | $82.58M |
| Net Income | $482.78M |
| EPS (Basic) | $6.60 |
| EPS (Diluted) | $6.56 |
| Shares Outstanding (Basic) | 73.10M |
| Shares Outstanding (Diluted) | 73.60M |
05—Questions
Frequently Asked Questions
How did Reliance perform in 2008 despite the economic downturn?
Reliance reported record 2008 net sales of $8.72 billion and net income of $482.8 million. The first nine months were very strong, driven by rapid carbon steel price increases. The fourth quarter was much weaker as demand and pricing fell sharply, but the company said it remained profitable in that quarter.
How much debt does Reliance carry, and when does it mature?
Total debt was $1.77 billion at December 31, 2008. The $1.1 billion revolving credit facility and the $500 million term loan both expire in November 2011. Scheduled debt maturities were $94 million in 2009 and $153 million in 2010, which management said it expected to fund from operating cash flow and credit facility availability.
What did Reliance do with its cash flow in 2008?
Operating cash flow was $664.7 million. The company spent $151.9 million on capital expenditures, about $330.2 million on acquisitions net of cash acquired, and $114.8 million on stock repurchases. After the PNA acquisition, it repaid $505 million of debt through December 31, 2008, and it reported $29.2 million in dividends paid.
What are the main risks to Reliance's outlook?
Management said demand had not yet improved from year-end 2008 levels and it was uncertain when meaningful improvement would occur. Metal prices could fall further if demand weakens or if domestic mills or imports increase supply. Competitive pressure from service centers liquidating inventory could continue to reduce margins, and customer credit risk had increased, with accounts receivable write-offs of $8.1 million in 2008.
06—Continue