-----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, FxsfZavuwoV5/1t96SZF7nEswW4BO7L0tFV//ytfHXALiUsDeZZKe90FXznSpqwI bwpUDqnFWjWBAz/Qvqm++A== 0000950150-97-001172.txt : 19970814 0000950150-97-001172.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950150-97-001172 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97659462 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 FOR THE PERIOD ENDED JUNE 30, 1997 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 June 30, 1997 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 July 31, 1997, 15,160,671 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)
JUNE 30, DECEMBER 31, 1997 1996 --------- --------- (unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 1,363 $ 815 Accounts receivable, less allowance for doubtful accounts of $3,578 at June 1997 and $2,899 at December 1996 114,036 73,092 Inventories 141,550 122,778 Prepaid expenses and other current assets 3,361 6,700 Deferred income taxes 7,975 7,515 --------- --------- Total current assets 268,285 210,900 Property, plant and equipment, at cost: Land 24,390 21,054 Buildings 84,364 80,687 Machinery and equipment 98,086 88,551 Allowances for depreciation (60,664) (56,678) --------- --------- 146,176 133,614 Investment in 50%-owned company 30,205 28,958 Intangibles 47,790 17,704 --------- --------- Total assets $ 492,456 $ 391,176 ========= ========= Liabilities and shareholders' equity Current liabilities: Accounts payable and accrued expenses $ 86,790 $ 59,367 Wages and related accruals 3,999 4,636 Income taxes payable (685) 90 Deferred income taxes 7,864 7,587 Current maturities of long-term debt 100 2,455 --------- --------- Total current liabilities 98,068 74,135 Long-term debt 177,450 107,450 Deferred income taxes 17,169 16,949 Shareholders' equity: 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 - 15,160,671 at June 1997 and 15,489,431 at December 1996, stated capital 60,297 61,131 Retained earnings 139,472 131,511 --------- --------- Total shareholders' equity 199,769 192,642 --------- --------- Total liabilities and shareholders' equity $ 492,456 $ 391,176 ========= =========
See Notes to Consolidated Financial Statements. NOTE: The Balance Sheet at December 31, 1996 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 JUNE 30, 1997 1996 ----------- ----------- Net sales $ 243,824 $ 164,628 Gain on sale of real estate 1,008 -- Other income 638 1,366 ----------- ----------- 245,470 165,994 Costs and expenses: Cost of sales 187,922 125,506 Warehouse, delivery, selling, administrative and general 38,907 25,612 Depreciation and amortization 3,247 2,109 Interest 2,862 879 ----------- ----------- 232,938 154,106 Income before equity in earnings of 50%-owned company and income taxes 12,532 11,888 Equity in earnings of 50%-owned company 1,401 1,265 ----------- ----------- Income before income taxes 13,933 13,153 Income taxes: Federal 4,458 4,164 State 1,101 1,223 ----------- ----------- 5,559 5,387 ----------- ----------- Net income $ 8,374 $ 7,766 =========== =========== Earnings per share $ .55 $ .49 =========== =========== Weighted average shares outstanding 15,364,000 15,704,000 =========== ===========
2. 5 RELIANCE STEEL & ALUMINUM CO. Consolidated Statements of Income (Unaudited) (In thousands except share and per share amounts)
SIX MONTHS ENDED JUNE 30, ---------------------------- 1997 1996 ----------- ----------- Net sales $ 445,415 $ 322,262 Gain on sale of real estate 1,008 1,519 Other income 999 1,895 ----------- ----------- 447,422 325,676 Costs and expenses: Cost of sales 343,376 246,091 Warehouse, delivery, selling, administrative and general 70,520 50,589 Depreciation and amortization 5,947 3,709 Interest 4,798 1,308 ----------- ----------- 424,641 301,697 Income before equity in earnings of 50%-owned company and income taxes 22,781 23,979 Equity in earnings of 50%-owned company 2,673 2,480 ----------- ----------- Income before income taxes 25,454 26,459 Income taxes: Federal 8,145 8,388 State 2,011 2,461 ----------- ----------- 10,156 10,849 ----------- ----------- Net income $ 15,298 $ 15,610 =========== =========== Earnings per share $ .99 $ 1.00 =========== =========== Weighted average shares outstanding 15,456,000 15,681,000 =========== ===========
3. 6 RELIANCE STEEL & ALUMINUM CO. Consolidated Statements of Cash Flows (Unaudited) (In Thousands)
SIX MONTHS ENDED JUNE 30, -------------------------- 1997 1996 --------- --------- OPERATING ACTIVITIES Net income $ 15,298 $ 15,610 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,947 3,709 Deferred income taxes (110) -- Loss on sales of machinery and equipment 50 101 Deferred gain on sale of real estate (1,008) (1,519) Equity in earnings of 50%-owned company (2,464) (2,480) Changes in operating assets and liabilities: Accounts receivable (22,170) 101 Inventories (1,116) 9,725 Prepaid expenses and other assets 738 4,522 Income taxes (1,050) (4,231) Accounts payable and accrued expenses 9,561 (4,367) --------- --------- Net cash provided by operating activities 3,676 21,171 --------- --------- INVESTMENT ACTIVITIES Purchases of property, plant and equipment (7,623) (10,693) Proceeds from sales of property and equipment 123 106 Acquisitions of metals service centers (46,266) (24,974) Dividends received from 50%-owned company 1,217 165 --------- --------- Net cash used in investing activities (52,549) (35,396) --------- --------- FINANCING ACTIVITIES Proceeds from borrowings 155,000 33,000 Principal payments on long-term debt and short-term borrowings (97,410) (30,018) Dividends paid (1,415) (1,231) Issuance of common stock 679 657 Repurchase of common stock (7,433) -- --------- --------- Net cash provided by financing activities 49,421 2,408 --------- --------- Increase (decrease) in cash 548 (11,815) Cash and cash equivalents at beginning of period 815 18,012 --------- --------- Cash and cash equivalents at end of period $ 1,363 $ 6,197 ========= ========= SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES: Interest paid during the period $ 5,780 $ 1,080 Income taxes paid during the period 10,840 14,730
4. 7 RELIANCE STEEL & ALUMINUM CO. Notes to Consolidated Financial Statements (Unaudited) June 30, 1997 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 six month periods ended June 30, 1997 are not necessarily indicative of the results for the full year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 1996, included in the Reliance Steel & Aluminum Co. Form 10-K. 2. ACQUISITIONS On April 2, 1997, the Company completed the purchase of AMI Metals, Inc. ("AMI"), for $38,500,000. AMI was a privately-held metals service center company headquartered in Brentwood, Tennessee, with additional locations in Fontana, California; Wichita, Kansas; Fort Worth, Texas; Kent, Washington; and Swedesboro, New Jersey. AMI is operating as a wholly-owned subsidiary of the Company. This acquisition was funded with borrowings under the Company's revolving line of credit. For the fiscal year ended February 28, 1997, AMI's net sales were approximately $77,000,000. On April 30, 1997, the Company purchased Amalco Metals, Inc. ("Amalco"). Amalco was a privately-held metals service center located in Union City, California. This acquisition was funded with borrowings under the Company's revolving line of credit. For the fiscal year ended April 30, 1997, Amalco's net sales were approximately $25,000,000. On April 25, 1997, the Company realized a gain of approximately $1,000,000 on the sale of the real estate at its Santa Clara, California metals service center, which will be moved to a new facility being constructed in Union City, California, where it will be combined with Amalco into a single operation. This new facility is scheduled to be completed in early 1998. The purchases of AMI and Amalco were accounted for by the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the date of the acquisition. 3. STOCK SPLIT On May 28, 1997, the Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend on the Company's Common Stock, payable June 27, 1997 to shareholders of record June 6, 1997. All share and per share data, as appropriate, reflect this split. 4. SHAREHOLDERS' EQUITY In December 1994, the Board of Directors approved a Stock Repurchase Plan, authorizing the Company to purchase up to 750,000 shares (increased to 1,500,000 shares in February 1995) 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. As of June 30, 1997, the Company had repurchased a total of 1,351,500 shares of its Common 5. 8 RELIANCE STEEL & ALUMINUM CO. Notes to Consolidated Financial Statements (Unaudited) - (continued) Stock under the Stock Repurchase Plan, at an average cost of $11.37 per share. Of these shares, 373,800 shares were repurchased by the Company during the six month period ended June 30, 1997 at an average cost of $19.88 per share. In March 1997, 22,177 shares of Common Stock were issued to division managers and officers of the Company under the 1996 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. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("FAS 128"), Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The calculation of fully diluted earnings per share under FAS 128 is not deemed to have a significant impact on primary earnings per share for the six month and three month periods ended June 30, 1997 and June 30, 1996 6. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
JUNE 30, DECEMBER 31, 1997 1996 --------- ------------ (unaudited) (audited) Revolving line of credit ($125,000 limit), due July 31, 1999, interest at variable rates, payable monthly $ 99,000 $ 39,000 Senior unsecured notes due January 2, 2004 to January 2, 2009, average interest rate 7.22% 75,000 -- Promissory notes, paid January 2, 1997 -- 65,000 Variable Rate Demand Industrial Development Revenue Bonds, Series 1989 A, due July 1, 2014, with interest payable quarterly 3,550 3,550 9% Senior Notes, paid March 1, 1997 -- 1,800 Revolving line of credit ($10,000 limit), paid February 28, 1997 -- 555 --------- ----------- 177,550 109,905 Less current portion (100) (2,455) --------- ----------- $ 177,450 $ 107,450 ========= =========
The Company's revolving line of credit, as amended, was increased to $125,000,000 during March 1997. In connection with the acquisition of Siskin on October 1, 1996, the Company issued $65,000,000 of promissory notes to the shareholders of Siskin. The notes were collateralized by standby letters of credit obtained under the Company's revolving line of credit. The promissory notes were redeemed on January 2, 1997 from the proceeds of the issuance of $75,000,000 in senior unsecured notes in a private placement of debt. 6. 9 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. 7. EMPLOYEE BENEFITS The Company has a noncontributory defined benefit pension plan covering salaried and certain hourly employees of the Company. Benefits are based upon the employees' earnings. On July 5, 1996, benefits under the pension plan were frozen, as the Company elected to replace the pension plan with a 401(k) plan. The Board of Directors of the Company approved the termination of the pension plan in February 1997. Distributions from the pension plan commenced in July 1997. 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 six month periods ended June 30, 1997 and June 30, 1996 (dollars are shown in thousands and certain amounts may not calculate due to rounding):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------------------- ----------------------------------------------- 1997 1996 1997 1996 ------------------ ----------------- ------------------- ---------------------- % of % of % of % of $ Net Sales $ Net Sales $ Net Sales % Net Sales -------- --------- -------- --------- -------- --------- -------- --------- NET SALES: Metals service centers.... $235,431 96.6% $150,896 91.7% $426,491 95.8% $291,738 90.5% Valex Corp. .............. 8,393 3.4 13,732 8.3 18,924 4.2 30,524 9.5 -------- ---- -------- ---- -------- ---- -------- ---- Total sales........ 243,824 100.0 164,628 100.0 445,415 100.0 322,262 100.0 GROSS PROFIT: Metals service centers.... 53,140 21.8 34,128 20.7 96,041 21.6 64,208 19.9 Valex Corp. .............. 2,762 1.1 4,994 3.0 5,998 1.3 11,963 3.7 -------- ---- -------- ---- -------- ---- -------- ---- Total gross profit...... 55,902 22.9 39,122 23.8 102,039 22.9 76,171 23.6 OPERATING EXPENSES: Metals service centers.... 40,188 16.5 24,778 15.1 72,290 16.2 48,432 15.0 Valex Corp. .............. 1,966 .8 2,943 1.8 4,177 .9 5,866 1.8 -------- ---- -------- ---- -------- ---- -------- ---- Total operating expenses 42,154 17.3 27,721 16.8 76,467 17.2 54,298 16.8 INCOME FROM OPERATIONS: Metals service centers.... 12,952 5.3 9,350 5.7 23,751 5.3 15,776 4.9 Valex Corp. .............. 796 .3 2,051 1.2 1,821 .4 6,097 1.9 -------- ---- -------- ---- -------- ---- -------- ---- Total operating income.. $ 13,748 5.6% $ 11,401 6.9% $ 25,572 5.7% $ 21,873 6.8% ======== ==== ======== ==== ======== ==== ======== ==== FIFO INCOME FROM OPERATIONS...... $ 15,987 6.6% $ 10,548 6.4% $ 27,811 6.2% $ 21,873 6.8% ======== ==== ======== ==== ======== ==== ======== ====
Substantially all 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, with the exception of the inventory of AMI Metals, Inc. ("AMI"). 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, which the Company is currently experiencing, 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. As AMI purchases the majority of its inventory for specific customer orders, the LIFO method is not considered an appropriate method of 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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS) Consolidated net sales increased $79,196, or 48.1%, for the three months ended June 30, 1997 compared to the same period of 1996. The increase in metals service centers' net sales of $84,535, or 56.0%, was primarily due to the inclusion of sales from CCC Steel, Inc. ("CCC Steel"), which was acquired on April 3, 1996; from Siskin Steel & Supply Company, Inc. ("Siskin"), which was acquired on October 1, 1996; from AMI Metals, Inc. ("AMI"), which was acquired April 2, 1997; and from Amalco Metals, Inc. ("Amalco"), which was acquired April 30, 1997. The sales increase reflects an increase of 60.6% in tons sold which was offset by a decrease in the average sales price per ton of 1.7% for the three months ended June 30, 1997 compared to the corresponding period of 1996. The 8. 11 increase in tons sold was primarily due to the inclusion of the net sales of CCC Steel, Siskin, AMI and Amalco ("the Acquisitions"). In addition, excluding the effect of the Acquisitions, metals service centers reported a 10.3% increase in tons sold in the three months ended June 30, 1997 as compared to the same period of 1996. The average selling prices decreased slightly for the 1997 period due mainly to the changes in product mix. Excluding the Acquisitions, the average selling price per ton decreased by 1.1% for the 1997 period compared to the 1996 period for the metals service centers primarily in response to changes in product mix and also due to generally lower selling prices for certain of the Company's products. Net sales of Valex decreased to $8,393 in the three months ended June 30,1997, compared to $13,732 in the same period of 1996. The decrease in Valex's sales is due to the continued slowdown in the construction activities of the semiconductor manufacturing industry, which the Company expects to last at least through the remainder of 1997. Included in other income for the three months ended June 30, 1997 is a net gain of $1,008 realized on the sale of real property at the Santa Clara, California location. Total gross profit increased $16,780, or 42.9%, in the three month period ended June 30, 1997 compared to the same period of 1996. Expressed as a percentage of sales, gross profit decreased from 23.8% in 1996 to 22.9% in 1997. The decrease was primarily due to declining margins for Valex and the impact of LIFO. On a FIFO basis, gross profit for the metals service centers increased to 23.5% of sales for the three months ended June 30, 1997, from 22.1% for the same period of 1996. This increase was mainly due to firming prices of the Company's products in 1997 compared to 1996, with increased prices in certain products, especially heat treated aluminum. The LIFO reserve increased $2,239 during the three months ended June 30, 1997 due to increases in the costs of certain of the Company's raw materials for 1997, along with overall quantity increases. Valex's gross profit of $2,762 for the 1997 period decreased 44.7% from the same period of 1996 and Valex's margin decreased from 36.4% to 32.9%. This decrease was due to lower sales volume, a more competitive sales environment and increased customer demand for certain lower margin products experienced in 1997, as compared to the same period of 1996. Warehouse, delivery, selling and general and administrative ("G&A") expenses increased $13,295, or 51.9%, in the 1997 period compared to the 1996 period and amounted to 16.0% and 15.6% of sales, respectively. The dollar increase in expenses reflects the increase in sales volume for the 1997 period, which includes the sales and related expenses of Siskin, AMI and Amalco. This increase also includes acquisition costs for AMI and Amalco. Depreciation and amortization expense increased 54.0% during the three months ended June 30, 1997 compared to the corresponding period of 1996. This increase is primarily due to the inclusion of depreciation expense related to the assets of Siskin, AMI and Amalco, along with the amortization of goodwill resulting from the acquisitions of Siskin, AMI and Amalco. Interest expense increased by $1,983 due to increased borrowings during the three months ended June 30, 1997 as compared to the corresponding period of 1996 to fund the acquisitions of Siskin, AMI and Amalco. Earnings per share for the three months ended June 30, 1997 of $.55 includes $.04 per share attributable to the sale of the real property at the Santa Clara location. SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS) Consolidated net sales increased $123,153, or 38.2%, compared to the first six months of 1996. The increase in metals service centers' net sales of $134,753, or 46.2%, was due primarily to the inclusion of sales from the Acquisitions. The sales increase reflects an increase of 74.7% in tons sold which was offset by a decrease in the average sales price per ton of 15.4% for the first six months of 1997 compared to the corresponding period of 1996. The increase in tons sold was primarily due to the inclusion of the sales of the Acquisitions; however, excluding the 9. 12 sales of the Acquisitions, metals service centers reported an 8.2% increase in tons sold in the first six months of 1997 as compared to the same period of 1996. The average selling price has decreased in response to generally lower selling prices and changes in product mix. Net sales of Valex decreased to $18,924 in the first six months of 1997, compared to $30,524 in the same period of 1996. The decrease in Valex's sales is due to the slowdown in the construction activities of the semiconductor manufacturing industry. The Company expects this slowdown to last at least through the remainder of 1997, but has seen signs throughout the semiconductor manufacturing industry of a slight improvement in the second half of 1997. Included in other income for the first six months of 1997 is a net gain of $1,008 realized on the sale of real property at the Santa Clara, California location. Included in the first six months of 1996 is a net gain of $1,519 realized on the sale of real property near Los Angeles. Total gross profit increased $25,868, or 34.0%, in the first six months of 1997 compared to the first six months of 1996. Expressed as a percentage of sales, gross profit decreased from 23.6% in 1996 to 22.9% in 1997. The decrease was primarily due to declining margins for Valex and the LIFO effect. On a FIFO basis, gross profit for the metals service centers increased to 23.0% of sales for the first six months of 1997, from 22.0% for the first six months of 1996. This increase was mainly due to firming prices of the Company's products in 1997 compared to 1996. The LIFO reserve increased $2,239 during the first six months of 1997 due to increased costs and quantities of certain of the Company's raw materials for 1997, especially heat treated aluminum products. Valex's gross profit of $5,998 for the 1997 period decreased 49.9% from the same period of 1996 and, as a percentage of sales decreased from 39.2% to 31.7%. The decreases were due to lower sales volume, a more competitive sales environment and increased customer demand for certain lower margin products experienced in 1997, as compared to the first six months of 1996. Warehouse, delivery, selling and general and administrative ("G&A") expenses increased $19,931, or 39.4%, in the first six months of 1997 compared to the corresponding period of 1996 and amounted to 15.8% and 15.7% of sales, respectively. The dollar increase in expenses reflects the increase in sales volume for the 1997 period, which includes the sales and related expenses of the Acquisitions. Depreciation and amortization expense increased 60.3% during the six months ended June 30, 1997 compared to the corresponding period of 1996. This increase is primarily due to the inclusion of depreciation expense along with the amortization of goodwill related to the Acquisitions. Interest expense increased by $3,490 due to increased borrowings during the first six months of 1997 as compared to the corresponding period of 1996 to fund the Acquisitions. Earnings per share for the six month periods ended June 30, 1997 and 1996 of $.99 and $1.00, respectively, includes $.04 and $.06 per share, respectively, attributable to the sale of the real property in each of those periods. LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS) At June 30, 1997, working capital amounted to $170,217 compared to $136,765 at December 31, 1996. The increase was primarily due to an increase in accounts receivable resulting from higher sales levels in the first six months of 1997, as well as working capital obtained from the Acquisitions. 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 line of credit. The Company's borrowing limit under the revolving line of credit was increased to 10. 13 $125,000 in March 1997. In November 1996, the Company entered into agreements with insurance companies for a private placement of debt in the amount of $75,000. This debt was funded in January 1997 and the proceeds were used to pay off the $65,000 of promissory notes issued for the acquisition of Siskin with the balance of $10,000 applied to reduce the borrowings under the Company's revolving credit facility. The decrease in cash provided by operations of $17,495 during the six month period ended June 30, 1997 compared to the corresponding 1996 period was due principally to the increase in net accounts receivable, which is primarily due to higher sales in the first six months of 1997, including the Company's 1997 acquisitions. Capital expenditures were $7,623 for the six months ended June 30, 1997. `The Company had no material commitments for capital expenditures as of June 30, 1997. The Company anticipates that funds generated from operations and funds available under its existing bank line of credit, which was increased during March 1997, will be more than sufficient to meet its working capital needs for the foreseeable future, including the expansion of its facilities at certain of its metals service centers planned for 1997. In December 1994, the Board of Directors approved a Stock Repurchase Plan, authorizing the Company to purchase up to 750,000 shares (increased to 1,500,000 in February 1995) of its outstanding Common Stock. As of June 30, 1997, the Company had repurchased a total of 1,351,500 shares of its Common Stock, at an average purchase price of $11.37 per share, all of which are being treated as authorized but unissued shares. The Company repurchased 373,800 shares of its Common Stock during the six month period ending June 30, 1997, at an average cost of $19.88 per share. The Company believes such purchases enhance shareholder value and reflect its confidence in the long-term growth potential of the Company. The acquisitions of AMI Metals, Inc. and Amalco Metals, Inc. in April 1997 were funded by borrowings under the Company's revolving line of credit. 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, product 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. 11. 14 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Not applicable. ITEM 2. CHANGES IN SECURITIES. (a) Not applicable. (b) Not applicable. (c) 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. Seven to First Amended and Restated Business Loan Agreement dated June 9, 1997. (b) Form 8-K Registrant filed a Report on Form 8-K dated April 2, 1997, reporting the acquisition of AMI Metals, Inc. 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: August 9, 1997 By: /s/ David H. Hannah ------------------------ David H. Hannah President By: /s/ Steven S. Weis ------------------------ Steven S. Weis Senior Vice President & Chief Financial Officer 13. EX-10.01 2 AMNDMNT NO.7 TO 1ST AMENDED & RESTATED LOAN AGRMNT 1 AMENDMENT NO. SEVEN TO FIRST AMENDED AND RESTATED BUSINESS LOAN AGREEMENT This Amendment No. Seven to First Amended and Restated Business Loan Agreement (this "Amendment") dated as of July 9, 1997, 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, September 27, 1996, October 1, 1996, February 1, 1997, March 19, 1997, and March 26, 1997 (as amended, the "Agreement"). B. The Bank and the Borrower desire to further 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 Effective March 26, 1997, in Paragraph 1.6(e), the words "a per annum issuance fee equal to 0.875%" are amended to read "a per annum issuance fee equal to 0.625%." 2.2 Effective April 1, 1997, in Paragraph 2.3(f) of the Agreement, the words "a non-refundable fee equal to 7/8% per annum" are amended to read "a non-refundable fee equal to 5/8% per annum." 2.3 Paragraph 8.2(c) of the Agreement is amended in full to read as follows: "(c) Intentionally deleted." 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 -1- 2 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/ Steven S. Weis ------------------------- Title: Chief Financial Officer By: /s/ David H. Hannah ------------------------- Title: President -2- EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1,363 0 117,614 (3,578) 141,550 268,285 206,840 (60,664) 492,456 98,068 0 0 0 60,297 139,472 492,456 243,824 245,470 187,922 187,922 42,154 0 2,862 13,933 5,559 0 0 0 0 8,374 .55 0
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