Russel Metals Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For The Six Months Ended June 30, 1995
The following management discussion and analysis of financial condition and
results of operations should be read in conjunction with the audited
Consolidated Financial Statements for the year ended December 31, 1994,
including the notes thereto, and the accompanying condensed unaudited
Consolidated Financial Statements for the quarter and six months ended June 30,
1995. In the opinion of management, such interim information contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of such periods. The results of operations for
the periods shown are not necessarily indicative of the results for the full
year. All dollar references in this report are in Canadian dollars.
<TABLE>
<CAPTION>
Quarter Ended Six Months
Ended June 30
June 30 1995 1994 1995
1994 (restated)
(restated) (in thousands)
<S> <C> <C> <C> <C>
Revenues
Metals $353,051 $262,169 $703,199
$487,139 Transport 51,241 75,804 98,766
133,758 TOTAL $404,292 $337,973
$801,965 $620,897
Segment Operating Margins (Losses)
Metals $17,632 $15,188 $37,221
$26,899 Transport 4,325 6,811 5,535
6,491 TOTAL $21,957 $21,999
$42,756 $33,390
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1994
</TABLE>
Segment Information
Metals - Metals operations revenues increased by $90.9 million, or 34.7%, for
the three months ended June 30, 1995, compared to the three months ended June
30, 1994. Service center operations sales increased $103.9 million compared to
1994 with approximately 47% of this increase related to internal growth and the
remainder related to acquisitions in the second half of 1994. The internal
growth related to higher volumes and prices in all regions of Canada and the
United States. Total Distributors doubled its revenue in the second quarter of
1995, compared to the second quarter of 1994, primarily due to the opening of a
new distribution center in Houston, Texas in the Fall of 1994. Trading
operations sales decreased $13.0 million due to lower imports of wire rod into
the U.S. compared to the same quarter of 1994.
Operating margins of the Metals operations increased $2.4 million or 16.1% for
the three months ended June 30, 1995, compared to the three months ended June
30, 1994. The improvement relates to acquisitions made in the second half of
1994.
Transport - Transport operations revenues decreased by $24.6 million to $51.2
million for the three months ended June 30, 1995, compared with the second
quarter of 1994. Transport revenues represented 12.7% of consolidated 1995
second quarter revenues compared to 22.4% in the second quarter of 1994. The
reduction in revenues in the quarter primarily relates to the sale of the White
Pass petroleum operations effective May 31, 1995 and the sale of Consolidated
Fastfrate effective September 1, 1994.
Segment operating margins for the transport operations decreased $2.5 million to
$4.3 million for the second quarter of 1995, compared with the second quarter of
1994. The reduced segment margin is primarily a result of the sale of White
Pass' petroleum operations and Consolidated Fastfrate.
Consolidated Results
Revenues - For the reasons discussed above, consolidated revenues increased by
$66.3 million, or 19.6%, to $404.3 million in the three months ended June 30,
1995 from $338.0 million in the three months ended June 30, 1994.
Operating Margins - Segment operating margin for the three months ended June
30, 1995, of $22.0 million from continuing operations, is identical to the
segment margin for the three months ended June 30, 1994. However, the Metals
operations represented 80.3% of the second quarter 1995 segment margin versus
69.0% in the comparable period of 1994.
Interest Expense - Interest expense for the second quarter of 1995 is $2.6
million higher than the second quarter of 1994. The increase relates to higher
borrowings, to support the increased working capital in the Metals operations
and capital expenditures, and higher short-term borrowings costs on our floating
rate debt.
Earnings from Continuing Operations - Earnings from continuing operations for
the quarter ended June 30, 1995 were $4.7 million compared to $5.7 million for
the same quarter in 1994. The reduced earnings from continuing operations are
related to higher interest expense in 1995 compared to 1994.
Discontinued Operations - As at December 31, 1994, the Company announced a plan
to discontinue its Consumer operations. These operations had no impact on
consolidated earnings in the second quarter of 1995, compared to a loss from
discontinued operations of $3.3 million, net of income taxes in the second
quarter of 1994.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Segment Information
Metals - Metals operations revenues increased $216.1 million, or 44.4%, for the
six months ended June 30, 1995, compared to the six months ended June 30, 1994.
The combination of increased volumes and selling prices resulted in
approximately 56% of the growth being generated internally by our existing
businesses. The remaining increase in revenues resulted from acquisitions made
during the second half of 1994. Revenues have increased for most service center
locations in Canada and the U.S.
Operating earnings of the Metals operations increased $10.3 million in the six
months ended June 30, 1995, compared to the same period in 1994, primarily due
to higher service center sales volumes and prices.
Transport - Transport revenues decreased $35.0 million to $98.8 million for the
six months ended June 30, 1995, compared to the six months ended June 30, 1994.
The decrease relates to the sale of Consolidated Fastfrate effective September
1, 1994, partially offset by increased revenues at Triline Expressways of 11.6%
generated by higher volume and pricing compared to the first six months of 1994.
Segment operating margins of the Transport operations for the six months ended
June 30, 1995, compared to the six months ended June 30, 1994, decreased by $1.0
million, or 14.7%. The decrease relates to the sale of Consolidated
Fastfrate.
Consolidated Results
Revenues - For the reasons discussed above, consolidated revenues from
continuing operations increased $181.1 million in the six months ended June 30,
1995, compared to the six months ended June 30, 1994. Metals revenues
represented approximately 88% of consolidated revenues for the first half of
1995 compared to 78% for the first half of 1994.
Operating Margins - Segment operating margins increased $9.4 million to $42.8
million for the six months ended June 30, 1995, compared to the same period in
1994. The increase is entirely attributable to the Metals operations.
Interest Expense - Interest expense for the six months ended June 30, 1995 is
$5.5 million higher than interest for the six months ended June 30, 1994. The
increase relates to higher borrowings for capital expenditures and for working
capital requirements to support the increased sales in the Metals operations,
and higher short-term borrowing costs on the Corporation's floating rate debt.
Earnings from Continuing Operations- Earnings from continuing operations
increased $2.6 million to $9.1 million for the six months ended June 30, 1995.
As discussed above, the increase relates to higher segment operating margins
from Metals offset by higher interest expense.
Discontinued Operations - These operations had no impact on consolidated
earnings for the first half of 1995, compared to a loss from discontinued
operations of $8.5 million, net of income taxes for the first half of 1994.
Liquidity and Capital Resources
During the six months ended June 30, 1995, the Company generated $16.5 million
in cash from continuing operations. The growth in revenues in the Metals
operations required increased working capital of $30.9 million. The sale of the
White Pass petroleum operations generated cash of $31.3 million, while capital
spending utilized $37.0 million. First half expenditures also included $4.9
million to acquire three specialty Metals service center operations.
Discontinued operations consumed $26.8 million in cash during the period,
primarily related to seasonal accounts receivable and inventory buildup at
Cashway Building Centres.
For the six months ended June 30, 1994, the Company utilized $46.8 million of
cash in continuing operations and $3.4 million of cash in discontinued
operations. Continuing operations generated cash from operations of $21.2
million and $80.4 million from the issue of common shares, with $55 million of
the common share issue used to redeem preference shares. Cash utilized by
continuing operations included $13.3 million to acquire Total Distributors,
$30.7 million to repay our Australian debenture and $34.1 million for increased
working capital requirements. The cash utilized in discontinued operations
related to seasonal increases in working capital and the funding of operating
losses offset by the sale of SmithBooks in May 1994.
The Company currently has a $275 million demand banking facility, of which $85.0
million was available for future draw down as at June 30, 1995. The use of the
demand banking facility peaked in the quarter but was reduced through Metals
inventory reductions and asset sales by June 30, 1995. <PAGE>
The Company has no
significant long-term debt repayments scheduled before 1998.
The $16.6 million in current long-term debt as at June 30, 1995, represents the
10.2% debentures retractable annually until due on July 13, 1998. The full
amount of these debentures is included as a commitment against our $275 million
operating line even though it is not anticipated that the remaining single
holder of the debentures will retract the debentures before maturity.
The ratio of current assets to current liabilities was 1.6 at June 30, 1995 and
December 31, 1994. The debt to equity ratio was 0.9 at June 30, 1995 compared
to 0.8 at December 31, 1994.
<TABLE>
<CAPTION>
Russel Metals Inc.
Reconciliation of Net Income to U.S. GAAP
Quarter and Six Months Ended June 30, 1995
(000)
Quarter Ended Six Months Ended
June 30 June 30
1995 1994 1995
1994 <S> <C> <C> <C> <C>
Net income as shown on the
financial statements $4,652 $2,464 $9,068 $(1,994)
Items having the effect of
increasing reported income
Amortization of unrealized
exchange loss (gain) on
long-term debt (24) 19 6 90
Items having the effect of decreasing
reported income
Unrealized exchange gain (loss)
on long-term debt 217 52 240 (488)
______ ______ ______ ______
Net income according to U.S. GAAP $4,845 $2,535 $9,314 $(2,392)
</TABLE>
Report to Shareholders
The rate of increase in demand for the Company's goods and services reduced in
the second quarter, reflecting the slowing North American economy. This effect
was particularly felt in the flat rolled sector, which serves automobile and
durable goods producers, with steel price reductions adversely affecting selling
margins.
SECOND QUARTER RESULTS
Second quarter revenues increased over the same period a year ago by 20% to
$404.3 million, led by the Metals segment revenues which grew by 35% to $353.1
million.
For the six months ended June 30, 1995, revenues of $802.0 million were 29%
higher than the first six months of 1994, again led by Metals, which increased
44% to $703.2 million.
Transport sales declined due to the divestiture in September 1994 of our
Consolidated Fastfrate poolcar operations and in June 1995 of our White Pass
petroleum operations.
Second quarter 1995 operating margins for Metals increased by 16% to $17.6
million when compared with the second quarter of 1994. First half operating
margins increased by 38% to $37.2 million. Transport operating margins declined
due to the divestitures noted above.
Unaudited net income from continuing operations was $4.7 million for the second
quarter of 1995, compared to $5.7 million in the comparable quarter of 1994.
The major factor contributing to this reduction was a rise in interest costs,
due to higher floating debt rates and increased borrowings to support asset
growth. Year to date net income from continuing operations was $9.1 million
compared to $6.5 million for the six months ended June 30, 1994.
After preferred share dividends the unaudited net income per common share was
$0.08 in the second quarter compared with $0.04 in the second quarter of 1994
and $0.16 for the six months ended June 30, 1995, compared with a loss of $0.09
during the first half of last year.
2
<TABLE>
<CAPTION>
REPORT ON OPERATIONS
Quarter Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
(millions)
<S> <C> <C> <C> <C>
Metals Operations
Revenues $353.1 $262.2 $703.2 $487.1
Segment margins 17.6 15.1 37.2 26.9
Transport Operations
Revenues $51.2 $75.8 $98.8 $133.8
Segment margins 4.3 6.8 5.5 6.5
The growth in Metals service center revenues achieved in the second quarter was
attributable equally to internal growth and to acquisitions.
</TABLE>
DIVESTITURE
In June 1995, the Company sold the petroleum distribution business of The White
Pass and Yukon Corporation for proceeds of approximately $35 million. After
this divestiture, White Pass continues to operate its profitable tourist railway
out of Skagway, Alaska.
OUTLOOK
The rapid economic expansion experienced over the last 18 to 24 months abated
during the second quarter, and it is not clear which direction the economy will
take following this pause in the growth.
Your management team is focussed on positioning the Company to achieve optimal
results under whatever economic conditions evolve.
<TABLE>
<CAPTION>
RUSSEL METALS INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($000)
June 30 December 31
1995 1994
<S> <C> <C> Current
assets
Accounts receivable $232,165 $223,729
Income taxes recoverable 17,888 17,888
Inventories 255,889 239,629
Prepaid expenses and other assets 6,849 3,583
Current assets - discontinued operations 88,825 79,258
601,616 564,087 Fixed assets
Property, plant and equipment 164,792 153,309
Property, plant and equipment - discontinued
operations 64,658 68,549
229,450 221,858 Other
assets
Long-term receivable 32,301 34,245
Other investments 4,872 11,258
Deferred charges 12,984 14,233
Goodwill 12,744 11,471
Deferred income taxes 47,165 50,141
Other assets - discontinued operations 14,838 15,125
124,904 136,473
$955,970 $922,418
Current liabilities
Bank indebtedness $135,699 $ 99,122
Accounts payable and accrued liabilities 185,719 170,543
Current portion of long-term debt 16,582 16,985
Current liabilities - discontinued operations 40,153 62,150
378,153 348,800
Long-Term Debt 187,719 191,388
Convertible Debentures and Shareholders' Equity 390,098 382,230
$955,970 $922,418
</TABLE>
ON BEHALF OF THE BOARD,
Director Director
<TABLE>
<CAPTION>
RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Quarter ended June 30
($000, except for per share amounts and average shares outstanding)
Quarter Ended Six
Months Ended June 30
June 30 1995 1994
1995 1994
(Restated) (Restated) <S>
<C> <C> <C> <C>
Sales and services $404,292 $337,973 $801,965
$620,897
Cost of sales and operating expenses 384,561 318,261 763,435
591,726 Interest on long-term debt 7,377 7,805
14,948 15,951 Other interest expense 4,253
1,269 7,547 1,039 Other expense (income)
21 (116) (7) (199)
396,212 327,219 785,923
608,517
Earnings before income taxes 8,080 10,754 16,042
12,380
Provision for income taxes 3,428 5,025 6,974
5,862
Earnings from continuing operations 4,652 5,729 9,068
6,518
Loss from discontinued operations - net
of related income taxes - (3,265) -
(8,512)
Net earnings (loss) for the period $4,652 $2,464 $9,068
$(1,994)
Earnings per common share from
continuing operations
Basic $0.08 $0.11 $0.16
$0.09 Fully diluted $0.08 $0.11
$0.16 $0.09
Net earnings (loss) per common share
Basic $0.08 $0.04 $0.16
$(0.09) Fully diluted $0.08 $0.04
$0.16 $(0.09)
Average shares outstanding 51,007,864 47,619,577 51,007,864
47,619,577 </TABLE>
<TABLE>
<CAPTION>
RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(UNAUDITED)
Six Months ended June 30
($000)
1995 1994
(Restated) <S>
<C> <C> Operating activities
Net earnings from continuing operations $9,068 $6,518
Depreciation and amortization 8,617 8,244 Deferred
income taxes 2,909 6,834 Accrued revenue -
deferred income taxes (391) (368) Gain on sale of fixed
assets (7) (199) Cash from continuing operations
20,196 21,029
Changes in working capital items
Accounts receivable (9,730) (46,813)
Income taxes recoverable - 1,873
Inventories (32,694) (38,337) Accounts
payable and accrued liabilities 25,500 49,978 Other
(3,258) (627) Cash from (used in) continuing
operating activities 14 (12,897)
Financing activities
Decrease in long-term debt (1,227) (30,673)
(Increase) decrease in long-term receivable 2,335 (4,684) Issue of
common shares - 80,396 Redemption of
preferred shares - (55,000) Dividends
(1,126) (2,336) Cash used in financing activities
(18) (12,297)
Investing activities
Purchase of fixed assets (40,368) (4,490)
Proceeds on sale of fixed assets 416 308 Proceeds
on sale of subsidiary company 34,074 - Purchase of
subsidiary companies (4,857) (13,257) Other
1,548 (4,187) Cash used in investing activities
(9,187) (21,626)
Decrease in cash from continuing operations (9,191) (46,820)
Cash used in discontinued operations (27,386) (3,423)
Decrease in cash (36,577) (50,243) Cash
position, beginning of the period (99,122) 37,372
Cash position, end of the period $(135,699) $(12,871)
NOTE: Cash position represents cash or bank indebtedness. </TABLE>
RUSSEL METALS/NEWS
FOR IMMEDIATE RELEASE
STOCK SYMBOL: TSE: RUS.A NASDAQ: RUSAF
RUSSEL METALS REPORTS SECOND QUARTER RESULTS
Metals Operations Up From Last Year
TORONTO (August 8, 1995) -- Russel Metals today reported increased revenues and
earnings for the second quarter of 1995. The Metals operations posted gains in
the quarter of 34% in sales and 16% in operating profits compared to the second
quarter of 1994.
The Company s consolidated revenues for the quarter increased by 20% to $404.3
million. The 34% increase in Metals revenue growth was offset by a decline in
revenues in the Transport segment due to divestitures completed in the last
year. Approximately one half of the Metals revenue growth was derived from
expansion of existing service center and trading operations, and one half
through acquisitions in Canada and the United States.
The 16% increase in operating margins for Metals was offset by a corresponding
decline in Transport margins due to the divestitures noted above. As a result
consolidated operating margins of $19.7 million were virtually unchanged from
the second quarter of 1994.
Consolidated net income from continuing operations was $4.7 million for the
quarter compared to $5.7 million in the comparable quarter of 1994. The major
factor contributing to this reduction was a rise in interest costs, due to
higher floating debt rates and increased borrowings to support asset growth.
Year to date net income from continuing operations of $9.1 million was ahead of
the $6.5 million earned in the first six months of 1994.
After preferred share dividends, the net income per share for the Company
improved to $0.08 for the three months ended June 30, 1995, compared to $0.04
for the second quarter of 1994.
Russel Metals Chairman and Chief Executive Officer, John S. Pelton, commented,
The Metals operations enjoyed another strong quarter. The rate of increase in
demand for the Company s products and services showed signs of slowing in the
quarter, reflecting the pause in the North American economy. This effect was
particularly felt in the flat rolled sector which accounts for less than one
third of Metals sales. Demand for the majority of Metals products - general
line, structural products, plate, pipe and tubing - remains firm.
Russel Metals is one of the five largest processors of metal and metal products
in North America through its network of 45 Canadian and 12 U.S. service centers.
The Company s operating units trade under various names including Russel Metals,
Russelsteel, Drummond McCall, Russel Drummond, Baldwin International, I. Bahcall
Steel & Pipe, Total Distributors, Fedmet Trading, Pioneer Steel & Tube, Comco
Pipe and Supply and Wirth Limited. Russel Metals also has investments in the
transportation sector.
-30-
For further information, contact:
John S. Pelton
Chairman and CEO,
Russel Metals
(905) 819 - 7777
RUSSEL METALS/NEWS
FOR IMMEDIATE RELEASE
STOCK SYMBOL: TSE: RUS.A NASDAQ: RUSAF
RUSSEL METALS DECLARES DIVIDEND
FOR CLASS II PREFERRED SHARES, SERIES C
TORONTO (August 8, 1995) -- Russel Metals Inc., announced today that it has
declared a dividend of 46.875 cents per share on its Convertible Class II
Preferred Shares, Series C, payable on September 15, 1995 to shareholders of
record at the close of business on August 22, 1995.
Russel is one of North America's five largest metals distribution and processing
organizations, with a network of 45 Canadian and 12 U.S. service centres, which
provide and process a wide range of carbon steel and alloy metal products.
-30-
For further information, contact:
John S. Pelton
Chairman and CEO,
Russel Metals
(905) 819 - 7777
