01—Abstract
Summary
Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.
Reliance Steel & Aluminum Co. reported 2012 net sales of $8.44 billiona, up from $8.13 billion in 2011, and net income attributable to Reliance of $403.5 million, compared with $343.8 million in 2011.
Diluted earnings per share were $5.33b, versus $4.58 in 2011. Gross profit margin rose to 26.1% from 24.4%, and operating income reached $659.2 million. Same-store tons shipped increased 3.4%, while same-store average selling prices declined 4.2% as mill prices fell through most of the year.
Management said demand weakened in the fourth quarter, with same-store volumes down 5.1% from the prior-year period, partly due to customers reducing purchases ahead of the "fiscal cliff." The company ended 2012 with total outstanding debt of $1.21 billionc, down from $1.33 billion, and a net debt-to-capital ratio of 23.8%, down from 28.4%. Capital expenditures were a record $214.0 million, and the company completed six acquisitions in 2012. The board raised the quarterly dividend to $0.30 per share in February 2013, and 2012 dividend payments represented 15% of earnings.
The company was in compliance with all debt covenants at year end. A pending acquisition of Metals USA Holdings Corp. for $20.65d per share in cash, a total enterprise value of approximately $1.2 billion, is expected to close in the second quarter of 2013.
Funding is expected through revolving credit facility borrowings and additional bank and debt capital markets funding. The filing also notes that a lawsuit has been filed in connection with the transaction, which management expects will be resolved without material adverse effect.
02—Key points
Key Highlights
- 2012 net sales of $8.44 billion, up from $8.13 billion in 2011; net income attributable to Reliance of $403.5 million, up from $343.8 million.
- Gross profit margin improved to 26.1% from 24.4%, with gross profit of $2.21 billion, and operating income of $659.2 million (7.8% of net sales).
- Same-store tons sold rose 3.4%, while same-store average selling price per ton fell 4.2%; fourth-quarter same-store volumes declined 5.1%.
- Net debt-to-capital ratio fell to 23.8% from 28.4%, and total debt decreased to $1.21 billion from $1.33 billion.
- Record 2012 capital expenditures of $214.0 million; 2013 capital expenditure budget of approximately $180 million.
- Agreed in February 2013 to acquire Metals USA Holdings Corp. for approximately $1.2 billion total enterprise value, expected to close in the second quarter of 2013.
- Quarterly dividend raised to $0.30 per share in February 2013, the 19th increase since the 1994 IPO.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Reliance kept $0.05.
- Revenue$8.44B100.0%
- Cost of revenue−$6.24B73.9%
- Gross profit$2.21B26.1%
- Operating costs−$1.55B18.3%
- Operating income$659.2M7.8%
- Interest, other & tax−$255.7M3.0%
- Net income$403.5M4.8%
Where FY2012 revenue went
$8.44B- Cost of revenue: $6.24B, 74% of revenue
- SG&A: $1.40B, 17% of revenue
- Net income: $403.5M, 4.8% of revenue
- Other operating costs: $151.5M, 1.8% of revenue
- Interest, other & tax: $255.7M, 3.0% of revenue
Kept 4.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 27, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $8.44B$8.13B | +3.8% |
| Cost of Revenue | $6.24B$6.15B | +1.4% |
| Gross Profit | $2.21B$1.99B | +11.1% |
| SG&A Expenses | $1.40B$1.28B | +9.1% |
| Operating Expenses | $7.78B$7.56B | +2.9% |
| Operating Income | $659.20M$572.80M | +15.1% |
| Interest Expense | $58.40M$59.80M | −2.3% |
| Net Income | $403.50M$343.80M | +17.4% |
| EPS (Basic) | $5.36$4.60 | +16.5% |
| EPS (Diluted) | $5.33$4.58 | +16.4% |
| Shares Outstanding (Basic) | 75.22M74.77M | +0.6% |
| Shares Outstanding (Diluted) | 75.69M75.04M | +0.9% |
05—Questions
Frequently Asked Questions
What drove the improvement in 2012 profitability?
Net income attributable to Reliance rose to $403.5 million from $343.8 million, mainly because gross profit dollars increased with relatively smaller increases in operating expenses. The gross profit margin improved to 26.1% from 24.4%, which management attributed to its ability to manage selling prices while mill prices declined. Contributions from 2011 and 2012 acquisitions also helped.
How did demand and pricing trend during 2012?
Same-store tons sold grew 3.4% for the year, but demand weakened as the year progressed, and the fourth quarter declined more than typical seasonal slowdowns. Average selling prices fell, with same-store prices down 4.2%, as mill prices declined due to lower raw material costs, high imports and domestic overcapacity. Carbon steel, which represents slightly more than 50% of sales, had a significant impact on overall pricing.
What are the key terms and risks of the pending Metals USA acquisition?
Reliance agreed to pay $20.65 per Metals USA share in cash, for about $786 million in equity value plus about $452 million of assumed debt, or roughly $1.2 billion total enterprise value. The deal requires Metals USA stockholder approval, regulatory clearances and other customary conditions, and includes a 30-day go-shop period. The filing notes the transaction could be the company's largest acquisition, and that customers may diversify suppliers after the deal, which could affect retention.
How strong is the company's balance sheet and debt position?
Total debt was $1.21 billion at December 31, 2012, down from $1.33 billion, and the net debt-to-capital ratio was 23.8%. The revolving credit facility had $525.0 million outstanding against a $1.5 billion limit, maturing July 26, 2016. The interest coverage ratio was approximately 11.3 times versus a 3.0 times minimum, and the leverage ratio was 25.8% versus a 60% maximum. The company stated it was in compliance with all debt covenants.
What is the company's dividend policy and capital return record?
The company has paid quarterly cash dividends for 53 years. Dividends declared per share rose to $0.80 in 2012 from $0.48 in 2011, and the February 2013 quarterly dividend was increased to $0.30 per share. Dividends paid were 15% of 2012 earnings. No shares were repurchased in 2012, 2011 or 2010, and 7,883,033 shares remained authorized for repurchase at year end.
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