EX-99 6 finanresq12005usfinaledgar.htm RMI Q1 2005 FINANCIAL STATEMENTS RUSSEL METALS INC

Management's Report to the Shareholders

The accompanying interim consolidated financial statements of Russel Metals Inc. for the quarter ended March 31, 2005, have been prepared by management and approved by the Audit Committee and the Board of Directors of the Company.  These interim consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles and, where appropriate, reflect management's best estimates and judgements.  Management is responsible for the accuracy, integrity and objectivity of the interim consolidated financial statements within reasonable limits of materiality with that contained in the consolidated financial system.

To assist management in the discharge of these responsibilities, the Company maintains a system of internal controls designed to provide reasonable assurance that its assets are safeguarded; that only valid and authorized transactions are executed; and that accurate, timely and comprehensive financial information is prepared.

The Company's Audit Committee is appointed annually by the Board of Directors and is comprised of unrelated Directors.  The Audit Committee meets with management to satisfy itself that management is properly discharging its financial reporting responsibilities and to review the interim consolidated financial statements, the management's discussion and analysis and the report to shareholders.  The Audit Committee reports its findings to the Board of Directors for consideration in approving the consolidated financial statements, the management discussion and analysis and the report to shareholders for presentation to the shareholders.

The interim consolidated financial statements have not been reviewed by the Company's external auditors Deloitte & Touche LLP.

Dated April 27, 2005

(signed) E. M. Siegel, Jr.

 

 

(signed) Brian R. Hedges

 

 

President and Chief Executive Officer

 

 

Executive Vice President and

     

 

 

Chief Financial Officer


RUSSEL METALS INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

     

     

     

     

March 31,

December 31,

($000)

2005

2004

ASSETS

     

     

Current

     

     

      Cash

$          1,831

$             634

      Accounts receivable

419,173

360,696

      Inventories

527,581

553,915

     Prepaid expenses and other assets

6,028

7,069

     Income taxes recoverable

1,878

5,996

     Discontinued operations (Note 4)

-

9,483

     

956,491

937,793

     

     

     

Property, Plant and Equipment

181,572

180,655

Assets Held For Sale (Note 4)

3,084

6,291

Deferred Financing Charges

8,128

8,357

Goodwill

9,205

9,205

Future Income Tax Assets

1,709

1,614

Other Assets

2,805

2,566

     

$  1,162,994

$  1,146,481

LIABILITIES AND SHAREHOLDERS' EQUITY

     

     

Current

     

     

      Bank indebtedness (Note 8)

$     118,137

$      33,242

      Accounts payable and accrued liabilities

315,329

348,166

     Income taxes payable

3,666

60,049

      Discontinued operations (Note 4)

3,016

9,403

     

440,148

450,860

     

     

     

Other Accrued Liabilities

10,840

11,440

Long-Term Debt

211,680

210,630

Pensions and Benefits (Note 9)

10,025

10,146

Future Income Tax Liabilities

6,199

6,831

     

678,892

689,907

     

     

     

Shareholders' Equity (Note 10)

     

     

      Shareholders' equity

484,102

456,574

     

484,102

456,574

     

$  1,162,994

$   1,146,481

ON BEHALF OF THE BOARD,

(signed) C.R. Fiora

 

 

(signed) R. Hartog

 

 

Director

 

 

Director

     

 

 

     

RUSSEL METALS INC.

CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

(UNAUDITED)

     

     

     

Quarters ended March 31,

($000, except per share data)

2005

2004

Revenues

$   694,667

$   512,879

Cost of sales and operating expenses

635,871

452,988

Earnings before the following

58,796

59,891

Restructuring costs (Note 11)

(405)

(832)

Debt restructuring costs

-

(11,310)

Interest expense (Note 3)

(4,899)

(5,156)

Earnings before income taxes

53,492

42,593

Provision for income taxes

(20,010)

(16,997)

Earnings from continuing operations

33,482

25,596

Loss from discontinued operations

(38)

(292)

Net earnings for the period

33,444

25,304

     

     

Retained earnings --

     

     

Dividends on preferred shares

-

(611)

     

     

     

Earnings available to common

     

     

      shareholders

33,444

24,693

Dividends on common shares

(10,015)

(3,915)

Retained earnings, beginning of the period

262,733

110,502

Retained earnings, end of the period

$   286,162

$   131,280

Basic earnings per common share - continuing operations

$         0.67

$         0.54

Basic earnings per common share

$         0.67

$         0.53

Diluted earnings per common share - continuing operations

$         0.66

$         0.53

Diluted earnings per common share

$         0.66

$         0.52



RUSSEL METALS INC.

CONSOLIDATED CASH FLOW STATEMENTS

(UNAUDITED)

     

     

Quarters ended March 31,

($000)

2005

2004

Operating activities

     

     

      Earnings from continuing operations

$     33,482

$     25,596

      Depreciation and amortization

4,637

4,632

      Future income taxes

5,686

(349)

     (Gain) loss on sale of fixed assets

(1)

139

      Stock-based compensation

193

390

      Debt redemption costs

-

2,096

Cash from operating activities before working capital

43,997

32,504

Changes in non-cash working capital items

     

     

      Accounts receivable

(58,296)

(92,428)

      Inventories

26,635

(18,346)

      Accounts payable and accrued liabilities

(32,251)

48,432

      Current income taxes

(58,719)

8,157

      Other

1,041

(1,088)

Change in non-cash working capital

(121,590)

(55,273)

Cash used in operating activities

(77,593)

(22,769)

Financing activities

     

     

     Increase (decrease) in bank borrowing

84,895

(70,916)

      Issue of common shares

3,716

50,125

      Issuance of long-term debt

-

235,200

      Redemption of long-term debt

-

(157,618)

      Redemption of preferred shares

-

(30,000)

      Dividends on common shares

(10,015)

(3,915)

      Dividends on preferred shares

-

(611)

      Deferred financing costs

(125)

(6,959)

Cash from financing activities

78,471

15,306

Investing activities

     

     

      Purchase of fixed assets

(5,076)

(6,706)

      Proceeds on sale of fixed assets

123

239

      Other

1,221

(318)

Cash used in investing activities

(3,732)

(6,785)

Discontinued operations

     

     

      Operating activities

(38)

(221)

      Investing activities

4,089

(13)

Cash from (used in) discontinued operations

4,051

(234)

Increase (decrease) in cash

1,197

(14,482)

Cash position, beginning of the period

634

19,008

Cash position, end of the period

$       1,831

$      4,526

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005

     

1.       

These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles; however, they do not include all of the disclosure requirements for annual consolidated financial statements.  These interim consolidated financial statements follow the same accounting policies disclosed in Note 1 to the 2004 annual consolidated financial statements.  These interim consolidated financial statements should be read in conjunction with the 2004 annual consolidated financial statements including notes thereto.  These interim consolidated financial statements contain all adjustments necessary for a fair presentation of the results for the periods reported.

2.      

Economic Cycle

     

       

All three of the metals operating segments are significantly affected by economic cycles in the markets where they operate.  Revenues and operating profits in the energy sector are also affected by oil and gas drilling in western Canada, which is predominantly carried out during the period from October to March.  For these reasons, the results of operations for the periods shown are not necessarily indicative of the results for the full year.

3.       

Interest Expense

     

     

Quarters ended March 31,

     

($000)

2005

2004

     

     

Interest on long-term debt

$     3,770

$     4,479

     

Other interest expense

1,129

677

     

     

Total Interest

$     4,899

$     5,156

     

       

Interest paid in the quarter ended March 31, 2005 was $10.4 million (2004: $4.4 million).

4.      

Discontinued Operations and Divestiture

     

     

On February 23, 2005, the Company sold its investment in Poutrelles Delta Inc., previously classified as discontinued, for $4.1 million in cash.  The write-down to fair value at December 31, 2004 resulted in no additional gain or loss on sale in the quarter.  The revenue generated by this operation prior to sale was $3.0 million (2004:  $3.0 million) and pre-tax loss was $71,000 (2004:  $0.5 million).  The revenue and results of operations for the prior period have been reclassified as discontinued.

5.      

Stock-based Compensation

     

        

During the quarter ended March 31, 2005, the Company did not issue stock options.  During the quarter ended March 31, 2004, the Company issued 888,500 stock options at an exercise price of $9.15.

     

6.      

Asset Retirement Obligation

     

        

During the quarter ended March 31, 2005, the Company re-evaluated its estimated probabilities relating to its asset retirement obligation at its Thunder Bay Terminals operation.  This resulted in an increase in the discounted probability-weighted asset retirement obligation of $277,000 and the undiscounted probability-weighted obligation of $1.2 million.

7.      

Segmented Information

     

     

Quarters ended March 31,

     

($000)

     

2005

2004

     

     

Segment Revenues

     

     

     

     

Metals service centers

     

$     400,810

$     335,118

     

Energy tubular products

     

162,259

96,123

     

Steel distributors

     

130,114

79,786

     

     

     

     

693,183

511,027

     

Other

     

1,484

1,852

     

     

     

     

$     694,667

$     512,879

     

     

Segment Operating Profits

     

     

     

     

Metals service centers

     

$       31,406

$       41,773

     

Energy tubular products

     

17,391

7,727

     

Steel distributors

     

14,997

15,298

     

     

     

     

63,794

64,798

     

Other income (loss)

     

(930)

(564)

     

Corporate expenses

     

(4,068)

(4,343)

     

     

     

     

$         58,796

$        59,891

     

     

     

     

March 31,

December 31,

     

($000)

     

2005

2004

     

     

Identifiable Assets

     

     

     

     

Metals service centers

     

$      672,866

$      662,422

     

Energy tubular products

     

268,650

228,325

     

Steel distributors

     

177,217

192,383

     

     

Identifiable assets by segment

     

1,118,733

1,083,130

     

     

     

     

     

     

Assets not included in segments

     

     

     

     

           Cash

     

1,831

634

     

           Income tax assets

     

3,587

7,610

     

           Deferred financing charges

     

8,128

8,357

     

           Other assets

     

2,805

2,566

     

           Corporate and other operating assets

     

27,910

44,184

     

     

Total assets

     

$   1,162,994

$  1,146,481

     

8.      

Revolving Credit Facilities

     

        

On February 25, 2005, the Company entered into an agreement with its banking syndicate to provide, in addition to existing facilities, a $50 million bridge facility for a term of one year.  The provisions of the existing credit facilities, including financial covenants therein, apply to the new bridge facility.

     

9.      

Pension and Benefits

     

       

For the quarter ended March 31, 2005 the total benefit cost relating to employee future benefits was $0.8 million (2004: $0.7 million).

10.     

Shareholders' Equity

     

        

The components of shareholders' equity are as follows:

     

     

March 31,

December 31,

     

($000)

2005

2004

        

     

Common shares

$   207,440

$   203,090

     

Contributed surplus

5

446

     

Retained earnings

286,162

262,733

     

Cumulative translation adjustment

(9,505)

(9,695)

        

     

     

$   484,102

$   456,574

        

       

The number of common shares issued and outstanding was as follows:

     

     

Number

Amount

     

     

of Shares

($000)

     

     

Balance December 31, 2004

49,887,659

$  203,090

     

Stock options exercised

655,817

4,350

     

     

Balance March 31, 2005

50,543,476

$  207,440

     

     

     

Quarters ended March 31,

     

     

2005

2004

     

     

Average shares outstanding

          

     

     

     Basic

      50,040,378

46,199,719

     

     Diluted

      50,520,359

47,130,428

     

11.    

Restructuring

     

     

For the quarter ended March 31, 2005, the Company incurred a restructuring charge of $0.4 million  (2004:  $0.8 million) relating to the on-going costs of the Lachine property classified as an Asset Held for Sale and other restructuring relating to Russel Metals' operations as a result of the acquisition of Acier Leroux.

       

For the year ended December 31, 2003, the Company incurred a charge of $3.6 million relating to the restructuring of the Russel Metals' operations as a result of the acquisition of Acier Leroux.  The continuity of this restructuring provision since December 31, 2004 is as follows:

        

     

        

($000)

     

     

     

     

     

     

     

Special

  

Contractual

  

     

     

     

Termination

  

Termination

  

     

     

     

Costs

  

Costs

Other

  

Total

     

     

Balance December 31, 2004

$     -

  

$  500

$     -

  

$  500

     

Restructuring charged in the quarter

-

  

-

-

  

-

     

Cash payments

-

  

(73)

-

  

(73)

     

Non-cash changes to the provision

-

  

-

-

  

-

     

     

Balance March 31, 2005

$     -

  

$  427

$     -

  

$  427

     

12.    

Supplemental Cash Flow Information

     

     

     

Income tax paid in the quarter ended March 31, 2005 was $72.9 million (2004: $8.2 million).