-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GlF3U6CDuJBKhBkZ19WWayv/uzfGEsWOFsMac46OhqGUkIoaFq1bxHbMAEbjqRpf l0HPPeQCoSvfaRY/2er+wA== 0000950150-96-001202.txt : 19961030 0000950150-96-001202.hdr.sgml : 19961030 ACCESSION NUMBER: 0000950150-96-001202 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961029 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RELIANCE STEEL & ALUMINUM CO CENTRAL INDEX KEY: 0000861884 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS SERVICE CENTERS & OFFICES [5051] IRS NUMBER: 951142616 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13122 FILM NUMBER: 96649473 BUSINESS ADDRESS: STREET 1: 2550 EAST 25TH ST CITY: LOS ANGELES STATE: CA ZIP: 90058 BUSINESS PHONE: 2135822272 MAIL ADDRESS: STREET 1: 2550 E. 25TH STREET CITY: LOS ANGELES STATE: CA ZIP: 90058 10-Q 1 FORM 10-Q 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. 2 INDEX 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
3 PART I -- FINANCIAL INFORMATION RELIANCE STEEL & ALUMINUM CO. Consolidated Balance Sheets (In thousands except share amounts)
SEPTEMBER 30 DECEMBER 31 1996 1995 ------------------------------------------- (unaudited) (Note) 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 ===========================================
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. 4 RELIANCE STEEL & ALUMINUM CO. Consolidated Statements of Income (Unaudited) (In thousands except share and per share amounts)
THREE MONTHS ENDED SEPTEMBER 30 1996 1995 ------------------------------------------- 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 ===========================================
2. 5 RELIANCE STEEL & ALUMINUM CO. Consolidated Statements of Income (Unaudited) (In thousands except share and per share amounts)
NINE MONTHS ENDED SEPTEMBER 30 1996 1995 ------------------------------------------- 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 ===========================================
3. 6 RELIANCE STEEL & ALUMINUM CO. Consolidated Statements of Cash Flows (Unaudited) (In thousands)
NINE MONTHS ENDED SEPTEMBER 30 1996 1995 ---------------------------------- 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
4. 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. 8 3. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
September 30 December 31 1996 1995 ------------------------------------------ (unaudited) (audited) 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 =========================================
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. 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. 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):
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 ----------------------------------------------------------------------------- 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% ==============================================================================
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. 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. 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. 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. 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. 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. EX-10.01 2 AMENDMENT NO. 1 TO BUSINESS LOAN AGREEMENT 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 - 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 - 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 - EX-10.02 3 AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT 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 - 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 - 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 - EX-10.03 4 AMENDMENT NO. 3 TO BUSINESS LOAN AGREEMENT 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 - 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 - EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 2,698 0 70,050 (3,003) 84,257 159,235 141,347 (54,557) 284,630 58,430 0 0 0 61,131 124,619 284,630 475,657 479,425 361,858 361,858 80,749 0 2,045 38,305 15,722 22,583 0 0 0 22,583 2.16 0
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