01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. described itself as the largest metals service center company in North America, operating more than 200 locations in 38 states and several other countries, distributing more than 100,000 metal products to more than 125,000 customers.
The company said 2009 was one of the worst years in its industry, with net sales of $5.32 billiona, down from $8.72 billion in 2008, and net income attributable to Reliance of $148.2 million, down from $482.8 million. Management focused on liquidity during 2009: cash flow from operations was $943.0 million, debt was reduced by $831.2 million, and long-term debt ended the year at $939.6 million, with a net debt-to-total capital ratio of 25.6% versus 41.4% a year earlier. Acquisitions were suspended in 2009, though management expects acquisition opportunities to emerge in the second half of 2010.
The filing describes demand as still at low levels at year-end, with pricing stabilizing somewhat since mid-2009. Gross profit margin was 26.3% in 2009 versus 24.8% in 2008, aided by a LIFO credit of $305.0 millionb. Operating expenses fell 14.9% in warehouse, delivery, selling, general and administrative costs, while the workforce was reduced by about 2,500 employees (22%) since September 2008.
The company reported a 2010 capital expenditure budget of approximately $140 millionc and stated that its credit facility amendment restricts acquisition cash use and dividends through June 30, 2010. For investors, the key items are the sharp earnings decline, the substantial deleveraging, and management's expectation that demand will recover slowly through 2010, with gross profit margins expected in a range of 25% to 27%. Risks highlighted include metal price volatility, customer credit exposure, covenant compliance, and the refinancing of $147.1 million in debt maturities before the November 2012 credit facility expiry.
02—Key points
Key Highlights
- Net sales of $5.32 billion in 2009, down from $8.72 billion in 2008; net income attributable to Reliance of $148.2 million versus $482.8 million in 2008.
- Cash flow from operations of $943.0 million in 2009, used largely to reduce debt by $831.2 million.
- Long-term debt of $939.6 million at December 31, 2009, down from $1.77 billion; net debt-to-total capital ratio of 25.6% versus 41.4%.
- Gross profit margin of 26.3% in 2009 versus 24.8% in 2008, helped by a $305.0 million LIFO credit to cost of sales.
- Workforce reduced by approximately 2,500 employees, or 22%, since September 30, 2008; S,G&A expenses fell 14.9% in 2009.
- Acquisitions were placed on hold in 2009; management expects many companies in the industry to be offered for sale later in 2010.
- 2010 capital expenditure budget of approximately $140 million, and quarterly dividend of $.10 per share declared for the first quarter of 2010.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Reliance kept $0.03.
- Revenue$5.32B100.0%
- Cost of revenue−$3.92B73.7%
- Gross profit$1.40B26.3%
- Operating costs−$1.15B21.6%
- Operating income$250.4M4.7%
- Interest, other & tax−$101.2M1.9%
- Net income$149.2M2.8%
Where FY2009 revenue went
$5.32B- Cost of revenue: $3.92B, 74% of revenue
- SG&A: $1.03B, 19% of revenue
- Net income: $149.2M, 2.8% of revenue
- Other operating costs: $118.9M, 2.2% of revenue
- Interest, other & tax: $101.2M, 1.9% of revenue
Kept 2.8% as net incomeNet income $149.2M · 2.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $5.32B$8.72B | −39.0% |
| Cost of Revenue | $3.92B$6.56B | −40.2% |
| Gross Profit | $1.40B$2.16B | −35.3% |
| SG&A Expenses | $1.03B$1.21B | −14.9% |
| Operating Expenses | $5.07B$7.87B | −35.6% |
| Operating Income | $250.40M$852.97M | −70.6% |
| Interest Expense | $67.50M$82.58M | −18.3% |
| Net Income | $149.20M$482.78M | −69.1% |
| EPS (Basic) | $2.02$6.60 | −69.4% |
| EPS (Diluted) | $2.01$6.56 | −69.4% |
| Shares Outstanding (Basic) | 73.45M73.10M | +0.5% |
| Shares Outstanding (Diluted) | 73.70M73.60M | +0.1% |
05—Questions
Frequently Asked Questions
How did Reliance perform financially in 2009 compared with 2008?
Net sales fell to $5.32 billion from $8.72 billion, and net income attributable to Reliance fell to $148.2 million from $482.8 million. Diluted earnings per share were $2.01 versus $6.56. The filing attributes the decline mainly to lower sales, gross profit and operating income resulting from the global recession.
How much debt did Reliance pay down, and where does its leverage stand?
The company repaid $831.2 million of debt in 2009. Long-term debt was $939.6 million at December 31, 2009, down from $1.77 billion a year earlier, and the net debt-to-total capital ratio was 25.6%, compared with 41.4% at December 31, 2008. Only $115.0 million was borrowed on the $1.1 billion revolving credit facility at year-end.
What is the outlook for demand, pricing and margins?
Management said demand improved in January and February 2010 over the second half of 2009 but expects overall recovery to be slow. It expects prices to remain at or near current levels at least through the first quarter of 2010 and expects gross profit margins in a range of 25% to 27%, consistent with the past ten years. Further declines in demand or pricing could reduce margins.
What are the main risks to investors identified in the filing?
Key risks include volatile metal prices that may not be passed on to customers, cyclical end markets, intense competition, and customer credit exposure, with write-offs of $19.6 million in 2009. Indebtedness of $939.6 million, financial covenants under the credit facility, and $147.1 million of debt maturities before November 2012 are also flagged, along with restrictions on acquisitions and dividends through June 30, 2010.
Will Reliance resume acquisitions and dividends?
No acquisitions were completed in 2009, and management expects acquisition opportunities to become attractive later in 2010, subject to its disciplined criteria and credit facility restrictions on cash used for acquisitions through June 30, 2010. The Board declared a $.10 per share quarterly dividend for the first quarter of 2010, and the company has paid quarterly dividends for 50 years, although the Board may revise this policy.
06—Continue