<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................... to .....................
Commission file number: 001-13122
RELIANCE STEEL & ALUMINUM CO.
-----------------------------
(Exact name of registrant as specified in its charter)
California 95-1142616
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 East 25th Street
Los Angeles, California 90058
(213) 582-2272
--------------------------------------------------------
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
As of October 25, 1996, 10,326,287 shares of the registrant's common
stock, no par value, were outstanding.
<PAGE> 2
INDEX
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II -- OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
RELIANCE STEEL & ALUMINUM CO.
Consolidated Balance Sheets
(In thousands except share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
-------------------------------------------
(unaudited) (Note)
<S> <C> <C>
ASSETS (Note 5)
Current assets:
Cash and cash equivalents $2,698 $ 18,012
Accounts receivable, less allowance for doubtful
accounts of $3,003 at September 1996 and $3,253 at
December 1995 67,047 68,874
Inventories 84,257 71,976
Prepaid expenses and other assets 4,070 5,550
Deferred income taxes 1,163 2,525
-------------------------------------------
Total current assets 159,235 166,937
Property, plant and equipment, at cost:
Land 16,383 14,873
Buildings 51,017 36,688
Machinery and equipment 73,947 67,802
Allowances for depreciation (54,557) (53,077)
-------------------------------------------
86,790 66,286
Investment in 50%-owned company 27,890 25,561
Intangibles 10,715 1,689
-------------------------------------------
Total assets $284,630 $260,473
===========================================
LIABILITIES AND SHAREHOLDERS' EQUITY (Note 5)
Current liabilities:
Accounts payable and accrued expenses $ 51,469 $ 52,878
Wages and related accruals 3,898 5,292
Income taxes payable 1,163 5,136
Current maturities of long-term debt 1,900 2,900
-------------------------------------------
Total current liabilities 58,430 66,206
Long-term debt (Note 3) 40,450 30,350
Shareholders' equity (Note 2):
Preferred stock, no par value:
Authorized shares - 5,000,000
None issued or outstanding --- ---
Common stock, no par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 10,326,287 at
September 1996 and 10,272,307 at December 1995,
stated capital 61,131 60,344
Retained earnings 124,619 103,573
-------------------------------------------
Total shareholders' equity 185,750 163,917
-------------------------------------------
Total liabilities and shareholders' equity $284,630 $260,473
===========================================
</TABLE>
See Notes to Consolidated Financial Statements.
NOTE: The Balance Sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
1.
<PAGE> 4
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1996 1995
-------------------------------------------
<S> <C> <C>
Net sales $153,395 $135,317
Other income 354 582
-------------------------------------------
153,749 135,899
Costs and expenses:
Cost of sales 115,767 103,749
Warehouse, delivery, selling, administrative
and general 24,387 22,174
Depreciation and amortization 2,064 1,288
Interest 737 443
-------------------------------------------
142,955 127,654
Income before equity in earnings of 50%-owned
company and joint venture and income taxes 10,794 8,245
Equity in earnings of 50%-owned company
and joint venture 1,052 1,532
-------------------------------------------
Income before income taxes 11,846 9,777
Income taxes:
Federal 3,772 3,192
State 1,101 909
-------------------------------------------
4,873 4,101
-------------------------------------------
Net income $6,973 $ 5,676
===========================================
Earnings per share $ .67 $ .55
===========================================
Weighted average shares outstanding 10,464,000 10,309,000
===========================================
</TABLE>
2.
<PAGE> 5
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Income (Unaudited)
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
-------------------------------------------
<S> <C> <C>
Net sales $475,657 $412,572
Other income 3,768 1,782
-------------------------------------------
479,425 414,354
Costs and expenses:
Cost of sales 361,858 318,959
Warehouse, delivery, selling, administrative
and general 74,976 64,211
Depreciation and amortization 5,773 3,777
Interest 2,045 916
-------------------------------------------
444,652 387,863
Income before equity in earnings of 50%-owned
company and joint venture and income taxes 34,773 26,491
Equity in earnings of 50%-owned company and joint venture 3,532 2,560
-------------------------------------------
Income before income taxes 38,305 29,051
Income taxes:
Federal 12,160 9,485
State 3,562 2,702
--------------------------------------
15,722 12,187
-------------------------------------------
Net income $22,583 $ 16,864
===========================================
Earnings per share $ 2.16 $ 1.62
===========================================
Weighted average shares outstanding 10,446,000 10,414,000
===========================================
</TABLE>
3.
<PAGE> 6
RELIANCE STEEL & ALUMINUM CO.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $22,583 $16,864
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,773 3,777
Gain on sales of machinery and equipment --- (14)
Net gain on sale of real estate (1,266) ---
(Decrease) increase in LIFO inventory reserve (2,150) 7,506
Equity in earnings of 50%-owned company and joint venture (3,532) (2,560)
Changes in operating assets and liabilities:
Accounts receivable 6,560 (7,866)
Inventories 4,187 (13,503)
Prepaid expenses and other assets 4,654 730
Income taxes (3,973) 3,408
Accounts payable and accrued
expenses (5,026) 6,204
----------------------------------------
Net cash provided by operating activities 27,810 14,546
----------------------------------------
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment (16,082) (6,210)
Proceeds from sales of property and equipment 997 112
Acquisition of CCC Steel, Inc. (24,974) ---
Purchase of 50% interest in American Steel, L.L.C. --- (19,250)
Dividends received from 50%-owned company 1,203 750
----------------------------------
Net cash used in investing activities (38,856) (24,598)
-----------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 33,000 17,000
Payments on long-term debt (36,518) (3,231)
Dividends paid (1,536) (1,299)
Issuance of common stock 383 312
Stock options exercised 403 103
Repurchase of common stock --- (7,628)
----------------------------------------
Net cash (used in) provided by financing activities (4,268) 5,257
----------------------------------------
Decrease in cash (15,314) (4,795)
Cash and cash equivalents at beginning of period 18,012 8,343
----------------------------------------
Cash and cash equivalents at end of period $ 2,698 $3,548
========================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Interest paid during the period $ 1,819 $ 820
Income taxes paid during the period 18,980 8,779
</TABLE>
4.
<PAGE> 7
RELIANCE STEEL & ALUMINUM CO.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for fair
presentation, with respect to the interim financial statements have been
included. The results of operations for the three month and nine month periods
ended September 30, 1996 are not necessarily indicative of the results for the
full year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1995, included in the Reliance Steel & Aluminum Co. Form 10-K.
2. SHAREHOLDERS' EQUITY
In December 1994, the Board of Directors approved a Stock Repurchase Plan,
authorizing the Company to purchase up to 500,000 shares of its Common Stock
from time to time in the open market or in privately-negotiated transactions.
Repurchased shares are redeemed and treated as authorized but unissued shares.
In February 1995, the Board of Directors authorized the Company to purchase up
to an additional 500,000 shares. As of September 30, 1996, the Company had
repurchased a total of 651,800 shares of its Common Stock under the Stock
Repurchase Plan at an average cost per share of $12.18. No shares were
purchased by the Company during the nine month period ended September 30 1996.
In March 1996, 16,573 shares of Common Stock were issued to officers of the
Company under the 1995 Key Man Incentive Plan.
Earnings per share are computed using the weighted average number of shares of
common stock and common stock equivalents attributable to stock options, which
are not material, outstanding during each period. Common stock equivalents
were calculated using the treasury stock method.
5.
<PAGE> 8
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------------------------------------
(unaudited) (audited)
<S> <C> <C>
Revolving line of credit ($140,000 limit), due July 31, 1999,
interest at variable rates, payable monthly $37,000 $25,000
Variable Rate Demand Industrial Development
Revenue Bonds, Series 1989 A, due July 1, 2014,
with interest payable quarterly 3,550 3,650
9% Senior Notes, due March 1, 1997, semiannual
payments of $1,400, with interest payable quarterly 1,800 4,600
-----------------------------------------
42,350 33,250
Less current portion (1,900) (2,900)
-----------------------------------------
$40,450 $30,350
=========================================
</TABLE>
The Company's long-term loan agreements include certain restrictions on the
amount of corporate borrowings, leasehold obligations, investments, cash
dividends, capital expenditures, and acquisition of the Company's Common Stock,
among other things. In addition, the agreements require the maintenance of
certain financial ratios. In June 1996, the Company's borrowing limit under
the revolving line of credit was increased from $65 million to $100 million.
During September 1996, the Company's revolving line of credit was amended to
increase the borrowing limit, including letters of credit, from $100 million to
$140 million, and to allow for the financing of standby letters of credit
incurred in relation to the acquisition of Siskin Steel & Supply Company, Inc.
(see Note 5), reducing to $100 million upon the earlier of a Private Placement
of Debt or January 31, 1997. A Private Placement is defined as the private
placement of one or more debt instruments evidencing obligations that are
unsecured and in an amount between $50 million and $100 million. A third
amendment was entered into on October 1, 1996 to reduce the rate of the
issuance fee for the letters of credit.
On October 25, 1996, the Company received verbal commitments, subject to due
diligence procedures and documentation, for $75 million from insurance
companies for a Private Placement of Debt ("Private Placement of Debt") for
periods of seven to twelve years at an average rate of interest of
approximately 7.25%. The Company expects to enter into a definitive loan
agreement during November 1996.
4. ACQUISITIONS
On April 3, 1996, the Company purchased 100% of the outstanding capital stock
of CCC Steel, Inc. for approximately $25 million in cash. CCC Steel, Inc., was
a privately-held, carbon steel service center, which has facilities in Los
Angeles and Salt Lake City. The pre-tax income and assets of CCC Steel
represented less than 10% of the pre-tax income and assets of the Company at
the date of acquisition. This acquisition was funded by borrowings under the
Company's revolving line of credit.
On January 9, 1996, the Company purchased certain assets of a metals service
center in Albuquerque, New Mexico. These assets were combined with the
Company's existing non-ferrous metal center operations in Albuquerque. This
transaction had no material effect on the Company's results of operations or
financial position.
6.
<PAGE> 9
5. SUBSEQUENT EVENTS
On October 1, 1996, the Company acquired 100% of the outstanding voting and
non-voting common stock of Siskin Steel & Supply Company, Inc. ("Siskin"), a
Tennessee corporation, which operates four metals service centers in
Chattanooga and Nashville, Tennessee, Spartanburg, South Carolina, and
Birmingham, Alabama. The Company paid $6 million in cash, a portion of which
will be retained in escrow, and delivered promissory notes, due January 2,
1997, in the aggregate amount of $65 million, collateralized by letters of
credit. Siskin will operate as a wholly owned subsidiary of the Company, with
substantially all of Siskin's current management remaining in place to continue
to operate the business. The Company expects to finance the purchase price
from the proceeds of the Private Placement referred to in Note 3.
7.
<PAGE> 10
RELIANCE STEEL & ALUMINUM CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain income statement data for the Company's
metals service centers and Valex Corp. for the three month and nine month
periods ended September 30, 1996 and September 30, 1995 (dollars are shown in
thousands and certain amounts may not calculate due to rounding):
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- --------------------------------
1996 1995 1996 1995
----------------------------------- --------------------------------
% of % of % of % of
$ Net Sales $ Net Sales $ Net Sales $ Net Sales
-----------------------------------------------------------------------------
<S> <C> <C>
NET SALES:
Metals service centers .$146,074 95.2% $126,365 93.4% $437,812 92.0% $386,114 93.6%
Valex Corp. . . . . . . . 7,321 4.8 8,952 6.6 37,845 8.0 26,458 6.4
------------------------------------------------------------------------------
Total sales . . . . 153,395 100.0 135,317 100.0 475,657 100.0 412,572 100.0
GROSS PROFIT:
Metals service centers . 35,969 23.4 28,437 21.0 100,177 21.1 84,370 20.4
Valex Corp. . . . . . . . 1,659 1.1 3,131 2.3 13,622 2.9 9,243 2.2
-----------------------------------------------------------------------------
Total gross profit . 37,628 24.5 31,568 23.3 113,799 23.9 93,613 22.7
OPERATING EXPENSES:
Metals service centers . 24,816 16.2 21,428 15.8 73,248 15.4 62,577 15.2
Valex Corp. . . . . . . . 1,635 1.1 2,034 1.5 7,501 1.6 5,411 1.3
-----------------------------------------------------------------------------
Total operating
expenses . . . . . 26,451 17.2 23,462 17.3 80,749 17.0 67,988 16.5
INCOME FROM OPERATIONS:
Metals service centers . 11,153 7.3 7,009 5.2 26,929 5.7 21,793 5.3
Valex Corp. . . . . . . . 24 .0 1,097 .8 6,121 1.3 3,832 .9
-----------------------------------------------------------------------------
Total operating
income . . . . . . $11,177 7.3% $ 8,106 6.0% $ 33,050 6.9% $ 25,625 6.2%
==============================================================================
FIFO INCOME FROM OPERATIONS . . $ 9,027 5.9% $10,325 7.6% $ 30,900 6.5% $ 33,131 8.0%
==============================================================================
</TABLE>
Inventories for the Company's metals service centers have been stated on the
last-in, first-out ("LIFO") method, which is not in excess of market. The
Company uses the LIFO method of inventory valuation because it results in a
better matching of costs and revenues. Under the LIFO method, the effect of
suppliers' price increases or decreases is reflected directly in the cost of
goods sold. During periods of increasing prices, LIFO accounting will cause
reported income to be lower than would otherwise result from the use of the
first-in, first-out ("FIFO") method of inventory valuation. The table above
and the discussions which follow present certain information as if the Company
used the FIFO method. This information is for supplementary purposes only in
order to facilitate a comparison of the Company's results of operations with
those of other similar companies who use the FIFO method. Inventories for
Valex Corp. have been stated on the FIFO method, which is not in excess of
market.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales for the three month period ended September 30, 1996
increased $18,078, or 13.4 %, compared to the same period of 1995. The
increase in metals service centers' net sales of $19,709, or 15.6 %, reflects
an increase of 64.0% in tons sold, which is offset by a decrease in the average
selling price per ton of 29.4% for the three month period ended September 30,
1996 compared to the corresponding period of 1995. The increase in tons sold
was primarily due to the inclusion of the sales of CCC Steel which was acquired
on April 3, 1996, and the sales of the Los Angeles facility received upon the
dissolution of the Feralloy Reliance Company, L.P. ("FRLP") joint venture,
which occurred on September 30, 1995. The decrease in average selling price
per ton resulted primarily from the change in product mix during the 1996
period due to the inclusion of these operations. Both of these operations sell
primarily carbon steel products, which generally have lower selling prices than
other products sold by the Company, such as aluminum or stainless steel. This
resulted in an increased volume, accompanied by a lower average sales price per
ton. Excluding the sales of these two operations reflects (1) an increase of
5.0% in tons sold due to an increase in market share and the expansion of
certain product lines, and (2) a decrease of 9.6% in the average selling price
per ton due to overall declining prices of aluminum and stainless steel
products, offset in part by increased carbon steel prices.
8.
<PAGE> 11
The consolidated net sales also includes the net sales of Valex, which
decreased $1,631, or 18.2%, in the three months ended September 30, 1996
compared to the corresponding period of 1995. As expected, Valex's sales
decreased during the three months ended September 30, 1996 due to the effects
of the slowdown in the semiconductor industry. The Company believes this
slowdown will continue through the second quarter of 1997. In response to the
current slowdown, Valex decreased its workforce by approximately 40% during the
three months ended September 30, 1996. During September 1996, Valex opened a
marketing and sales office in France, to provide better customer service and to
increase its market share in Europe.
Total gross profit increased $6,060, or 19.2%, in the three month period ended
September 30, 1996 compared to the corresponding period of 1995. Expressed as
a percentage of sales, gross profit increased from 23.3% in 1995 to 24.5% in
1996. On a FIFO basis, gross profit for the metals service centers was 23.2%
of sales for the three month period ended September 30, 1996, compared to 24.3%
for the corresponding period of 1995, which is due to the change in product mix
discussed above and declining prices for certain products. The decrease in the
LIFO reserve of $2,150 during the three month period ended September 30, 1996
was caused by a decrease in the costs of the Company's raw materials,
especially for aluminum and stainless steel products. Valex's gross profit was
22.7% of sales for the three month period ended September 30, 1996, compared
to 34.4% for the same period in 1995. The decline in gross profit is a result
of the slowdown in the semiconductor industry, resulting in lower selling
prices and fixed overhead costs being spread over a lower sales volume.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $2,213, or 10.0 %, in the three months ended September 30, 1996
compared to the corresponding period of 1995 and amounted to 15.9% and 16.4% of
sales, respectively. The dollar increase in expenses includes the expenses for
CCC Steel and the Los Angeles service center received upon the dissolution of
FRLP in the 1996 period.
Interest expense increased by $294 due to an increase in the average debt
outstanding during the three months ended September 30, 1996 as compared to the
corresponding period of 1995. The increased debt relates primarily to
borrowings for the acquisition of CCC Steel in April 1996.
Equity in earnings of a 50%-owned company and joint venture decreased $480 in
the three months ended September 30, 1996, as compared to the same period in
1995. This decrease is primarily due to the 1995 non-recurring earnings for
FRLP.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)
Consolidated net sales increased $63,085, or 15.3%, compared to the first nine
months of 1995. The increase in metals service centers' net sales of $51,698,
or 13.4 %, reflects an increase of 44.0% in tons sold and a decrease in the
average selling price per ton of 21.1% for the first nine months of 1996
compared to the corresponding period of 1995. These changes resulted from
additional sales volume and the change in product mix occuring during 1996.
These changes are primarily due to the inclusion of six months of net sales of
CCC Steel, and nine months of net sales of the Los Angeles facility received
upon the dissolution of FRLP. Such sales were not included in the first nine
months of 1995. Both of these facilities sell a significant volume of carbon
steel products, which generally have lower selling prices than other products
sold by the Company. Excluding these sales results in an increase of 1.0% in
tons sold and a decrease in the average selling price per ton of 2.9%. The
average selling prices decreased for all products for the 1996 period compared
to 1995, with the most significant decreases in aluminum and stainless steel
products.
The consolidated net sales amount also includes the net sales of Valex, which
increased $11,387, or 43.0%, during the first nine months of 1996 compared to
the corresponding period of 1995. The rate of increase in Valex's sales in
1996 over 1995 has decreased during the year, with increases (decreases) of
98.8%, 51.6% and (18.2%) for the first, second, and third quarters,
respectively. Declining sales in 1996 were due to the general slowdown in the
construction activities in the semiconductor industry. The Company currently
estimates that this slowdown in the semiconductor industry will last through
the second quarter of 1997. While the Company has responded to the slowdown
by reducing theValex workforce, the Company is also positioning Valex for
expected longer term growth.
Included in other income for the first nine months of 1996 is a net gain of
$1,519 realized on the sale of the property at the existing Bralco Metals
facility near Los Angeles. Land was purchased in 1995 and construction is in
progress to relocate the Bralco Metals facility, which will occur during the
fourth quarter of 1996.
9.
<PAGE> 12
Total gross profit increased $20,186, or 21.6%, in the first nine months of
1996 compared to the first nine months of 1995. Expressed as a percentage of
sales, gross profit increased from 22.7% in 1995 to 23.9% in 1996 on a
consolidated basis, and from 21.9% to 22.9% for the metals service centers. On
a FIFO basis, gross profit for the metals service centers was 22.4% of sales
for the first nine months of 1996, compared to 23.8% for the first nine months
of 1995. The decline in FIFO gross profit for the metals service centers
resulted primarily from declining prices for stainless steel and aluminum
products during 1996. The decrease in the LIFO reserve of $2,150 during the
first nine months of 1996 was caused by a decrease in the costs of the
Company's raw materials, especially for aluminum and stainless steel products.
Valex's gross profit was 36.0% of sales for the first nine months of 1996,
compared to 34.7% for the same period in 1995. The 1996 gross profit improved
slightly from 1995 due to high margins in the first six months of 1996 due to
the increased sales volume and production efficiency gains realized from
capital improvements.
Warehouse, delivery, selling and general and administrative ("G&A") expenses
increased $10,765, or 16.8%, in the first nine months of 1996 compared to the
corresponding period of 1995 and amounted to 15.8% and 15.6% of sales,
respectively. The dollar increase in expenses reflects the increase in sales
volume for the 1996 period which includes the expenses of CCC Steel and the Los
Angeles service center received upon the dissolution of FRLP.
Interest expense increased by $1,129, or 123.3%, due to an increase in the
average debt outstanding during the first nine months of 1996 as compared to
the corresponding period of 1995. This increase was due primarily to
borrowings made for the acquisition of CCC Steel, Inc. in April 1996, and for
borrowings made in the third quarter of 1995 to fund a portion of the
acquisition of American Steel and to pay off debt related to the Los Angeles
operaton received upon the dissolution of the FRLP joint venture.
Equity in earnings of a 50%-owned company and joint venture increased $972 in
the first nine months of 1996 as compared to the corresponding period of 1995,
due to the acquisition of a 50% interest in American Steel in July 1995, and
the dissolution of the FRLP joint venture in September 1995.
Earnings per share for the nine month period ended September 30, 1996 of $2.16
includes $.09 per share attributable to the sale of the Bralco Metals property.
LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE
AND PER SHARE AMOUNTS)
At September 30, 1996, working capital amounted to $100,805 compared to
$100,731 at December 31, 1995. The Company's capital requirements are
primarily for working capital, acquisitions and capital expenditures for
continued improvements in plant capacities and material handling and processing
equipment.
The Company's primary sources of liquidity are from internally generated funds
from operations and the Company's revolving credit facility. The Company's
borrowing limit under the revolving line of credit was increased from $65,000
to $100,000 in June 1996, and increased to $140,000 in September 1996. On
October 25, 1996, the Company received verbal commitments for $75,000 from
insurance companies for a Private Placement of Debt to finance the purchase of
Siskin . The Company expects to enter into a definitive loan agreement during
November 1996.
The increase in cash provided by operations of $13,264 during the nine month
period ended September 30, 1996 compared to the corresponding 1995 period was
due primarily to the increase in net income and decreases in the Company's net
working capital requirements.
In December 1994, the Company adopted a Stock Repurchase Plan, authorizing the
Company to purchase up to 500,000 shares of its outstanding Common Stock. In
February 1995, the Company authorized the purchase of up to an additional
500,000 shares. As of September 30, 1996, the Company had repurchased a
total of 651,800 shares of its Common Stock, at an average purchase price of
$12.18 per share, all of which are being treated as authorized but unissued
shares. The Company did not repurchase any shares of its Common Stock during
the nine months ended September 30, 1996. The Company believes such purchases
enhance shareholder value and reflect its confidence in the long-term growth
potential of the Company.
10.
<PAGE> 13
The majority of capital expenditures of $16,082 for the nine months ended
September 30, 1996 (excluding acquisitions) were for the construction of and
equipment for three new facilities. The Bralco operation is expected to
complete its move to the new facility in the fourth quarter of 1996.
Construction is also in progress for a new facility in Salt Lake City, Utah for
the Affiliated Metals operation.
The Company purchased CCC Steel for approximately $25,000. The acquisition of
CCC Steel in April 1996, including the repayment of certain of CCC Steel's
debt, was funded by borrowings under the Company's revolving line of credit.
The acquisition of Siskin for $71,000 in October 1996 was funded by a $6,000
cash payment on October 1, 1996 borrowed under the Company's revolving line of
credit and the issuance of promissory notes of $65,000 due in January 1997.
The notes will be repaid by the Private Placement of Debt. The Company had no
material commitments for capital expenditures as of September 30, 1996. The
Company anticipates that funds generated from operations and funds available
under its existing bank line of credit and Private Placement of Debt will be
more than sufficient to meet its working capital needs in the foreseeable
future.
SEASONALITY
The Company recognizes that some of its customers may be in seasonal
businesses, especially customers in the construction industry. As a result of
the Company's geographic, industry and customer diversity, however, the
Company's operations have not shown any material seasonal trends, although the
months of November and December traditionally have been less profitable because
of a reduced number of working days on which the Company is able to ship its
products and seasonal closures for some of its customers. There can be no
assurance that period-to- period fluctuations will not occur. Results of any
one or more quarters are therefore not necessarily indicative of annual
results.
ACQUISITIONS
On April 3, 1996, the Company purchased 100% of the outstanding capital stock
of CCC Steel, Inc., a privately-held, carbon steel service center with
facilities in Los Angeles and Salt Lake City, for approximately $25 million in
cash. CCC Steel is one of the largest structural steel distribution companies
in the Western U.S.
On January 9, 1996, the Company purchased certain assets of a metals service
center in Albuquerque, New Mexico. These assets were combined with the
Company's existing non-ferrous metal center operation in Albuquerque. This
transaction had no material effect on the Company's results of operations or
financial position.
SUBSEQUENT EVENTS
On October 1, 1996, the Company acquired 100% of the outstanding voting and
non-voting common stock of Siskin Steel & Supply Company, Inc. ("Siskin") for
$71 million. Siskin is a metals service center company comprised of four
locations in Chattanooga, Tennessee; Nashville, Tennessee; Spartanburg, South
Carolina; and Birmingham, Alabama. Siskin was formed in Chattanooga in 1949,
and the majority of its current operations include the processing and sale of
carbon steel products, consisting of plate, bars, structurals, pipe and tubing.
Siskin also has a growing presence in stainless steel, alloy and aluminum
products. Siskin's revenues for the fiscal year ended June 30, 1996 were
approximately $151 million.
11.
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
(a) Not applicable.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Amendment No. One to First Amended and Restated Business Loan
Agreement dated September 25, 1996 between the Company and Bank of
America.
10.02 Amendment No. Two to First Amended and Restated Business Loan
Agreement dated September 27, 1996 between the Company and Bank of
America.
10.03 Amendment No. Three to First Amended and Restated Business Loan
Agreement dated October 1, 1996 between the Company and Bank of
America.
(b) Form 8-K
No reports on Form 8-K have been filed during the period for which
this report was filed.
12.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RELIANCE STEEL & ALUMINUM CO.
Dated: October 28, 1996 By: /s/ David H. Hannah
--------------------------------
David H. Hannah
President
By: /s/ Steven S. Weis
--------------------------------
Steven S. Weis
Chief Financial Officer
13.
<PAGE> 1
AMENDMENT NO. ONE TO FIRST AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT
This Amendment No. One (the "Amendment") dated as of September 25,
1996, is between Bank of America National Trust and Savings Association (the
"Bank") and Reliance Steel & Aluminum Co. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain First Amended
and Restated Business Loan Agreement dated as of June 26, 1996, (the
"Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Subparagraph 1.1(a) is amended and restated in its
entirety to read as follows:
"(a) During the availability period described below,
the Bank will provide a line of credit ('Facility No. 1') to the
Borrower. The amount of the line of credit (the 'Facility No. 1
Commitment') is One Hundred Forty Million Dollars ($140,000,000) from
and including the date this Agreement to and including the earlier of
December 31, 1996, or the Private Placement Date, and One Hundred
Million Dollars ($100,000,000) thereafter. For purposes of this
Agreement, 'Private Placement Date' means the date on which the
Private Placement (defined below) is funded."
2.2 Paragraph 8.6 is amended and restated in their
entirety to read as follows:
"8.6 Positive Liquidity Formula. To maintain at all
times total liquidity in an amount greater than Zero Dollars ($0),
calculated as follows:
- 1 -
<PAGE> 2
(a) The sum of (i) eighty percent (80%) of
the Borrower's account receivable that have not been
outstanding more than 90 days from their due dates,
(ii) sixty percent (60%) of the sum of Borrower's
inventory plus LIFO reserves, and (iii) thirty-five
percent (35%) of the Borrower's net fixed assets;
minus
(b) The Borrower's total interest bearing debt."
2.3 In Paragraph 8.7, the following is added as
subparagraph (f):
"(f) Additional indebtedness incurred under the
Private Placement. For purposes of this Agreement, 'Private
Placement' means the private placement of one or more debt instruments
evidencing obligation(s) that (1) are unsecured, (2) are not less than
a total of Fifty Million Dollars ($50,000,000), (3) do not exceed a
total of One Hundred Million Dollars ($100,000,000), (4) provide for
payments of interest only during the first three years, and (5) are
otherwise subject to terms and conditions mutually acceptable to the
Borrower and the Bank."
2.4 In subparagraph 8.19(c), the words "(excluding the
acquisition of CCC Steel, Inc.)" are amended to read "(excluding the
acquisitions of CCC Steel, Inc. and Sisken Steel & Co.)."
3. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there is
no event which is, or with notice or lapse of time or both would be, a default
under the Agreement, (b) the representations and warranties in the Agreement
are true as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers, and (d) this Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. Effect of Amendment. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
- 2 -
<PAGE> 3
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/Donald G. Farris
----------------------------
Donald G. Farris
Title: Vice President
RELIANCE STEEL & ALUMINUM CO.
By: /s/David H. Hannah
----------------------------
Title: President
-------------------------
By: /s/Steven S. Weis
----------------------------
Title: Chief Financial Officer
-------------------------
- 3 -
<PAGE> 1
AMENDMENT NO. TWO TO FIRST AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT
This Amendment No. Two to First Amended and Restated Business Loan
Agreement (this "Amendment") dated as of September 27, 1996, is between Bank of
America National Trust and Savings Association (the "Bank") and Reliance Steel
& Aluminum Co. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain First Amended
and Restated Business Loan Agreement dated as of June 26, 1996, as modified by
an Amendment No. One to First Amended and Restated Business Loan Agreement (as
amended, the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Subparagraph 1.1(a) is amended and restated in its
entirety to read as follows:
"(a) During the availability period described below,
the Bank will provide a line of credit ('Facility No. 1') to the
Borrower with a within line facility for standby letters of credit.
The amount of the line of credit (the 'Facility No. 1 Commitment') is
One Hundred Forty Million Dollars ($140,000,000) from and including
the date this Agreement to and including the earlier of January 31,
1997, or the Private Placement Date, and One Hundred Million Dollars
($100,000,000) thereafter. For purposes of this Agreement, 'Private
Placement Date' means the date on which the Private Placement (defined
below) is funded."
2.2 Subparagraph 1.1(c) is amended and restated in its
entirety to read as follows:
- 1 -
<PAGE> 2
"(c) The Borrower agrees not to permit the
outstanding principal balance of the line of credit plus the
outstanding amounts of any letters of credit (including amounts drawn
on letters of credit and not yet reimbursed) to exceed the Facility
No. 1 Commitment."
2.3 The following is added as a new Paragraph 1.6:
"1.6 Letters of Credit. This line of credit may be
used for financing standby letters of credit with a maximum maturity
of January 15, 1997. The amount of letters of credit outstanding at
any one time (including amounts drawn on letters of credit and not yet
reimbursed) may not exceed Seventy Million Dollars ($70,000,000).
The Borrower agrees:
"(a) Any sum drawn under a letter of credit
may, at the option of the Bank, be added to the principal amount
outstanding under this Agreement. The amount will bear interest and
be due as described elsewhere in this Agreement.
"(b) If there is a default under this
Agreement, to immediately prepay and make the Bank whole for any
outstanding letters of credit.
"(c) The issuance of any letter of credit
and any amendment to a letter of credit is subject to the Bank's
written approval and must be in form and content satisfactory to the
Bank and in favor of a beneficiary acceptable to the Bank.
"(d) To sign the Bank's standard form
Application and Agreement for Standby Letter of Credit.
"(e) To pay, upon issuance of each letter of
credit, an issuance fee equal to 0.875% of the face amount of such
letter of credit.
"(f) To allow the Bank to automatically
charge its checking account for applicable fees, discounts, and other
charges."
2.4 In Paragraph 8.7, the following is added as a new
subparagraph (g):
"(g) Additional indebtedness, owing to the sellers
to the Borrower of the stock of Sisken Steel & Co., not to exceed a
total of Seventy Million Dollars
- 2 -
<PAGE> 3
($70,000,000), which indebtedness shall be due and payable in full on
or before January 15, 1997, and shall otherwise be subject to terms
and conditions acceptable to the Bank."
3. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there is
no event which is, or with notice or lapse of time or both would be, a default
under the Agreement, (b) the representations and warranties in the Agreement
are true as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers, and (d) this Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. Effect of Amendment. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/Donald G. Farris
--------------------------------
Donald G. Farris
Title: Vice President
RELIANCE STEEL & ALUMINUM CO.
By: /s/David H. Hannah
--------------------------------
Title: President
-----------------------------
By: /s/Steven S. Weis
--------------------------------
Title: Chief Financial Officer
-----------------------------
- 3 -
<PAGE> 1
AMENDMENT NO. THREE TO FIRST AMENDED AND RESTATED
BUSINESS LOAN AGREEMENT
This Amendment No. Three to First Amended and Restated Business Loan
Agreement (this "Amendment") dated as of October 1, 1996, is between Bank of
America National Trust and Savings Association (the "Bank") and Reliance Steel
& Aluminum Co. (the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain First Amended
and Restated Business Loan Agreement dated as of June 26, 1996, as modified by
amendments dated as of September 25, 1996, and September 27, 1996 an Amendment
No. One to First Amended and Restated Business Loan Agreement (as amended, the
"Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
In Paragraph 1.6(e) of the Agreement, "0.875" is amended to
read "0.625."
3. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that: (a) there is
no event which is, or with notice or lapse of time or both would be, a default
under the Agreement, (b) the representations and warranties in the Agreement
are true as of the date of this Amendment as if made on the date of this
Amendment, (c) this Amendment is within the Borrower's powers, has been duly
authorized, and does not conflict with any of the Borrower's organizational
papers, and (d) this Amendment does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
4. Effect of Amendment. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and
effect.
- 1 -
<PAGE> 2
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/Donald G. Farris
--------------------------------
Donald G. Farris
Title: Vice President
RELIANCE STEEL & ALUMINUM CO.
By: /s/David H. Hannah
--------------------------------
Title: President
-----------------------------
By: /s/Steven S. Weis
--------------------------------
Title: Chief Financial Officer
----------------------------
- 2 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,698
<SECURITIES> 0
<RECEIVABLES> 70,050
<ALLOWANCES> (3,003)
<INVENTORY> 84,257
<CURRENT-ASSETS> 159,235
<PP&E> 141,347
<DEPRECIATION> (54,557)
<TOTAL-ASSETS> 284,630
<CURRENT-LIABILITIES> 58,430
<BONDS> 0
0
0
<COMMON> 61,131
<OTHER-SE> 124,619
<TOTAL-LIABILITY-AND-EQUITY> 284,630
<SALES> 475,657
<TOTAL-REVENUES> 479,425
<CGS> 361,858
<TOTAL-COSTS> 361,858
<OTHER-EXPENSES> 80,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,045
<INCOME-PRETAX> 38,305
<INCOME-TAX> 15,722
<INCOME-CONTINUING> 22,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,583
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 0
</TABLE>
