-----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, JbXUYl5hUV86JZN8RSBmXmk8UVR1032nBSHFE/GzwXN4QtgdRTGiPSMP/RcSvRlp GehiznaB2BZOzoJ7WnF10A== 0000903657-96-000003.txt : 19960308 0000903657-96-000003.hdr.sgml : 19960308 ACCESSION NUMBER: 0000903657-96-000003 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960307 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSSEL METALS INC CENTRAL INDEX KEY: 0000903657 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS SERVICE CENTERS & OFFICES [5051] STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22774 FILM NUMBER: 96531989 BUSINESS ADDRESS: STREET 1: 180 ATTWELL DR STE 400 STREET 2: TOBICOKE CITY: ONTARIO CANADA M9W 6 STATE: A6 BUSINESS PHONE: 4166758200 MAIL ADDRESS: STREET 1: 1900 MINNESOTA COURT STREET 2: SUITE 210 CITY: MISSISSAUGA ONTARIO STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: FEDERAL INDUSTRIES LTD DATE OF NAME CHANGE: 19930505 6-K 1 Russel Metals Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Years Ended December 31 The following management discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements. The following tables provide a summary of revenues and operating earnings for the Company's continuing operations by business segment, and certain related information, for the December 31 year ends. See Note 16 to the Consolidated Financial Statements for additional segment information. The 1995 year shows a furthering of the Company's movement towards a Metals operating company. In May 1995, the Shareholders approved the change of the Company's name to Russel Metals Inc. The sale of the White Pass Petroleum business for net proceeds of $34.1 million as well as the sale of the remaining discontinued consumer group operations for $27.5 million cash plus $15.5 million of debt and equity, significantly reduced the Company's investment in non-metals businesses. In 1995, 88.4% of revenues were from Metals operations compared to 80.3% in 1994. With Metals representing the principal business, the Company is including additional segment information within the Metals operations. Certain costs previously reported under the Metals segment are now included in Corporate. Metals segment operating margins for 1994 and 1993 have been adjusted to reflect this change.
Revenues ($000's) 1995 Change 1994 Change 1995 1994 1993 As % of 1994 As % of 1993 Metals $1,318,375 $1,072,751 $ 703,871 22.9 % 52.4 % Transport 173,300 263,419 263,015 (34.2) % 0.2 % Total $1,491,675 $1,336,170 $ 966,886 11.6 % 38.2 % Segment Operating Margins ($000's) 1995 Change 1994 Change 1995 1994 1993 As % of 1994 As % of 1993 Metals $52,596 $59,167 $21,428 (11.1) % 176.1% Transport 10,985 18,777 20,904 (41.5 )% (10.2) % Total $63,581 $77,944 $42,332 (18.4 )% 84.1%
Return on Average Net Assets ($000's) Operating Margin Return Actual Average Net Assets on Average Net Assets Dec 31, 1995 1995 1994 1995 1994 Metals $349,200 $373,800 $261,200 14.1 % 22.7 % Transport 100,400 118,800 115,600 9.3 % 16.2 % Corporate and Discontinued 187,100 197,900 231,600 $636,700 $690,500 $608,400 9.2 % 12.8 % Average net assets are calculated based on opening and closing monthly position.
Segment Information Metals - The following table shows the revenues and operating margins and the changes for the business segments of the Metals operations for the periods indicated:
($000's) 1995 Change 1994 Change 1995 1994 1993 As % of 1994 As % of 1993 Revenues Service Centers $ 825,267 $ 731,438 $515,386 12.8 % 41.9% Specialty Metals and Trading 493,108 341,313 188,485 44.5 % 81.1% $1,318,375 $1,072,751 $703,871 22.9 % 52.4% Segment Operating Margins Service Centers $28,999 $37,785 $12,100 (23.3) % 212.3% Specialty Metals and Trading 23,597 21,382 9,328 10.4 % 129.2% $52,596 $59,167 $21,428 (11.1) % 176.1%
Metals revenues increased 22.9% in 1995 compared to 1994. This increase compares to an increase of 52.4% in 1994 compared to 1993. The Company has segmented its Metals operations between service center operations and specialty metals and trading operations. Specialty metals operations include pipe and tubular distributors and processing and distribution operations with specialized niches. These businesses typically have a different margin and cost profile than the service center segment. The majority of the Company's acquisitions in the last two years have been in specialty businesses. Acquisitions made during 1994 accounted for approximately 88% of the revenue increase in specialty metals and trading during 1995. Trading revenues for 1995 were approximately 6% higher than 1994. The high demand for steel and corresponding short fall of domestic mill capacity in the first quarter of 1995 led to bookings which were delivered and converted into sales in the second and third quarter. Import bookings decreased after the second quarter, reflecting softer North American demand and a corresponding increase in the ability of the domestic mills to supply their customers' needs. The service center segment includes general line and flat rolled steel operations as well as other ferrous and non-ferrous metals products sold through locations in Canada and the United States. The increase in service center revenue of 12.8% in 1995 compared to 1994 relates to higher average selling prices per ton sold in 1995 compared to 1994. The actual tons sold in 1995 were approximately the same as 1994. The reduced profitability of the service center operations in 1995 compared to 1994 has been caused by a change in the supply pricing trends, primarily in flat rolled products. During 1994, rapidly increasing prices generated inventory gains which contributed to stronger operating margins. In 1995, as prices stabilized or, as in the case of flat rolled products, declined, the Company experienced inventory losses which have contributed to lower operating margins. High inventory levels experienced throughout the industry in the second quarter of 1995 in the service center sector further lowered the margins as inventory positions were reduced. The Company reduced Metals inventory levels from the peak of $270.0 million at May 31, 1995 to $238.5 million at year end. Metals revenues for 1994 increased 52.4% compared to 1993. Approximately two- thirds of the 52.4% increase was fueled through internal growth and one-third through acquisitions. Service center revenues increased by 41.9% while specialty metals and trading increased 81.1%. The service center increase was mainly internal growth related primarily to increased volume and metals prices across Canada. Trading revenues increased 20.1% primarily as a result of higher imports to North America due to increased demand for steel compared to 1993. Specialty metals revenues more than doubled in 1994 compared to 1993 with approximately 56% of the increase related to acquisitions. Segment operating margins from Metals tripled in 1994 compared to 1993. Similar to revenues, internal growth (higher volumes and prices) accounted for approximately two- thirds of the segment operating margin increase and acquisitions one-third. Transport - The reduced revenue from Transport operations in 1995 compared to 1994 relates to the sale of the White Pass Petroleum operations effective May 31, 1995 and the sale of Consolidated Fastfrate effective September 1, 1994. Tri-Line trucking operations had increased revenue of 7.2% related to increased volumes in 1995 compared to 1994. Thunder Bay Terminals and White Pass Rail experienced revenues in 1995 similar to those of 1994. The reduced segment operating margin relates to the sale of the businesses noted above as well as a provision of $4.0 million in the fourth quarter of 1995 to cover anticipated environmental and other regulatory expenditures related to the White Pass operation. The remaining operations, Thunder Bay Terminals, White Pass Rail and Tri-Line trucking operations, experienced an increase in operating margins of approximately 11% compared to 1994. In the fourth quarter of 1995, the trucking operations experienced a softening of volumes indicating the peak in the transport cycle may have been reached. Total revenues from Transport operations in 1994 approximated 1993 revenues. However, the 1994 revenues represent higher sales in the White Pass Petroleum and Rail operations and lower coal throughput at Thunder Bay Terminals. Also, higher sales at Tri-Line Expressways' truckload operations offset the reduction in pool car revenues due to the sale of Consolidated Fastfrate effective September 1, 1994. Segment operating margins of $18.8 million for 1994 were $2.1 million lower than 1993. The reduction mainly relates to the lower volumes at Thunder Bay Terminals partially offset by higher margins at Tri-Line Expressways. Consolidated Results Revenues - The increase in consolidated revenues of 11.6% in 1995 compared to 1994 represents an increase in revenues from Metals offset by a decrease in revenues from Transport. The increase in 1994 revenues compared to 1993 revenues of 38.2% related to higher volumes and prices in the Metals operations. Operating Margins - The decrease in segment operating margins of 18.4% is a combination of decreased segment operating margins in Metals and Transport operations as discussed above. The 1994 segment operating margins almost doubled compared to 1993. The increase in operating earnings is a result of substantially increased sales levels and strong operating margins in Metals. Interest Expense - The following table shows the components of interest expense. The most significant factor affecting interest expense in 1995 was the high level of borrowings under the Company's short-term debt. The floating rate long-term interest relates primarily to the U.S. note which was previously swapped from fixed to floating rates. The reduction of floating rate long-term interest expense is primarily due to a stronger Canadian dollar. The decrease in fixed rate interest in 1995 relates to the repayment of the 8.79% debentures in May 1994. The table of average net assets employed shows that the average net assets for 1995 were $82.1 million higher than 1994. The additional borrowings were primarily to support the higher working capital level in Metals and for the replacement dock facility (see discussion in Liquidity section).
($000's) 1995 1994 1993 Interest expense Long-term Fixed Rate $12,594 $14,523 $22,166 Floating Rate 16,291 16,762 8,103 Short-term Standby and Operating Loans 13,040 4,012 5,073 $41,925 $35.297 $35,342
Earnings from Continuing Operations - The 1995 earnings from continuing operations of $7.3 million compares to $16.7 million for 1994. The decrease is a result of lower segment operating margins in both Metals and Transport and higher interest costs in 1995 compared to 1994. The earnings of $16.7 million in 1994 compares to a loss of $1.9 million for 1993. Discontinued Operations - As at December 31, 1994, the Company announced a plan to discontinue its Consumer operations. The 1994 loss from discontinued operations of $25.5 million, net of income taxes, includes a provision of $13.8 million, net of income taxes, to cover the estimated loss on disposal and estimated results to date of disposal. This loss compares to earnings from discontinued operations of nil for 1995 and 1993. Cyclicality The Company's operations are engaged in businesses that are substantially affected by changes in economic cycles and whose revenues and earnings vary with the level of general economic activity in the markets they serve. The Metals operations service a wide variety of customers in both Canada and the United States, representing a cross section of all major industrial segments. The revenues will fluctuate with the level of general business activity in Canada and selected regional markets in the United States. The Canadian service centers, which represent a larger portion of the Company's operations, are most significantly affected by economic conditions in Ontario and Quebec, where demand for general line and flat rolled steel products from the construction and capital goods sectors fluctuates considerably through an economic cycle. The cyclical nature of the Metals operations is evident from the segment margins of Metals during 1991 and 1992 compared to 1993 and 1994, with the later period reflecting an economic recovery. Liquidity and Capital Resources The average net assets employed, shown earlier, indicate the operating assets of the Company for the Metals and Transport operations. The remaining $197.9 million of corporate assets are not productively employed by the Company. The monetization of these assets represents a significant liquidity opportunity as the funds will be used to expand the Metals operation, or alternatively, to reduce interest bearing debt. On November 6, 1995, the Company completed the sale of its Cashway Building Centres business to a group led by management for proceeds of approximately $36.5 million. Under the terms of sale, the Company has leased real property, valued at $23.0 million, to the purchaser and has retained a minority equity interest and subordinated debt in the new company valued at $11.5 million. This transaction has reduced corporate assets by approximately $21.5 million. Corporate and discontinued assets are comprised of the following items: 1995 1994 Deferred Tax Debits and Taxes Recoverable $ 69.0 $ 68.0 Working Capital - Discontinued Operations - 17.1 Property held for resale 57.2 68.5 Minority Equity Interest in Divested Operations 13.4 13.1 Debt in Divested Operations 22.7 7.7 Deferred Financing costs 9.1 8.6 Other 15.7 5.8 TOTAL $187.1 $188.8 In 1995, the Company capitalized $20.0 million related to a dock facility which was destroyed in an underwater avalanche in November 1994 in Skagway, Alaska. The remaining amount expended on the dock, net of $10.0 million insurance proceeds advanced in December 1995, is included in accounts receivable. The Company believes that it has a valid insurance claim for the replacement costs of this facility and that it is entitled to recover substantially all of the amounts expended to date. The Company has recently commenced legal action against its insurers for the recovery of these costs. During 1995, the Company utilized $8.4 million cash in continuing operations. Continuing operations generated $16.5 million cash from operations and $5.3 million from working capital. The sale of the White Pass Petroleum operations generated cash of $34.1 million, while capital spending utilized $46.1 million. During 1995, expenditures also included $4.9 million to acquire three specialty Metals processing businesses and a $7.5 million increase in long - -term receivables, primarily related to divestitures. Discontinued operations generated $43.6 million in cash during the period, primarily related to the sale of Cashway Building Centres and Willson Stationers. During 1994, the Company utilized $139.8 million of cash in continuing operations and generated $3.3 million of cash from discontinued operations. Continuing operations generated cash from operations of $57.6 million and $80.4 million from the issue of common shares, with $55.0 million of the common share issue used to redeem preference shares. Cash utilized by continuing operations included $44.4 million to acquire three pipe distributors, $30.2 million to repay the Australian debenture and $120.0 million for increased working capital requirements. The $120.0 million increase in working capital in 1994 resulted primarily from revenue growth in the Metals operations. During 1993, the Company generated cash flows of $49.0 million from the issue of common shares, $132.4 million from the issue of the 10.25% Senior Notes and $17.3 million from continuing operations. The Company used $34.4 million in cash to fund increased working capital and $87.7 million to repay long-term debt. In December 1995, the Company replaced its revolving credit facility, arranged with a new syndicate of Canadian and U.S. banks. The Company now has a $350 million banking facility, including letters of credit, which matures on December 19, 1999 and may be extended for an additional one year period on each anniversary, with the permission of the syndicate. The first anniversary for an additional one year extension is December 19, 1996. The Company is entitled to borrow, on a revolving basis, up to an amount equal to the sum of specified percentages of eligible accounts receivable and inventories, less an amount equal to the principal amounts of the Company's 10.2% debentures, to a maximum of $350 million. The Company has no significant long-term debt repayments scheduled before 1998. The $16.6 million in current long-term debt as at December 31, 1995, represents the 10.2% debentures retractable annually until due on July 13, 1998. The 1998 repayment of $20.4 million relates to the 8.61% Series C First Mortgage Bonds of Thunder Bay Terminals which will be offset by a long-term receivable from Ontario Hydro. Fixed charges were approximately $47.4 million in 1995, $39.8 million in 1994 and $39.4 million in 1993. For this purpose, fixed charges consist of interest expenses on all debt, amortization of deferred financing costs and a portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of minimum operating lease rentals of continuing operations). The ratio of earnings (earnings (loss) before income taxes plus fixed charges) to fixed charges was 1.24 for 1995, 1.81 for 1994 and 0.91 for 1993. The Company's earnings from continuing operations were reduced by depreciation and amortization of $17.4 million in 1995, $16.6 million in 1994 and $18.6 million in 1993. Based upon the Company's current performance and management's estimates of operations prepared for internal planning purposes, for the period to December 31, 1999, the Company believes that it will generate a sufficient amount of cash flow from operations to pay all of its preferred share dividends, interest obligations on its indebtedness and operating costs as they become due during that period. The Company also believes that future borrowings under the Revolving Credit Facility will provide sufficient financial resources to meet its obligations as they come due. Outlook The pricing stability of steel products will continue to be the major factor influencing fiscal 1996 results. Imports and additional mill capacity scheduled to come on-line later this year and in 1997 are providing uncertainty as to steel pricing directions. Accounting Policies In certain respects, Canadian GAAP may differ from U.S. GAAP. Relevant differences between Canadian GAAP and U.S. GAAP are provided in Note 20 to the Consolidated Financial Statements. RUSSEL METALS/NEWS FOR IMMEDIATE RELEASE STOCK SYMBOL: TSE: RUS.A NASDAQ: RUSAF RUSSEL METALS REPORTS 1995 RESULTS TORONTO (March 7, 1996) -- Russel Metals Inc. today reported improved overall results for the year ending December 31, 1995. The Company's continuing operations reported a decline in earnings in 1995 due to lower operating profits and higher interest costs. Consolidated revenues for the year increased by 12% to $1.49 billion of which 88% was derived from Metals operations compared to 80% in 1994. Year-over-year Metals sales grew 23% offset by a decline in revenues in the Transport segment due to divestitures. Operating margins for Metals declined 11% to $52.6 million in 1995. The lower Metals margins in 1995 were caused by a sharp decline in steel prices, primarily in flat rolled products, experienced in the second half of 1995. As prices declined, the Company incurred inventory losses which contributed to the lower operating margins. Transport total segment margins declined 42% to $11.0 million in 1995 caused by the divested operations discussed above as well as a $4.0 million provision in the fourth quarter of 1995 to cover environmental expenditures related to the White Pass operation. Comparable remaining Transport operations generated an 11% higher operating margin in the year compared to fiscal 1994. The Company's overall net income for 1995 improved to $7.3 million, or $0.10 per share, from a loss in 1994 of $8.8 million, or ($0.25) per share. The prior year results are after a provision for discontinued operations. The comparable continuing operations in the prior year earned $16.7 million or $0.27 per share. Russel Metals Chairman and Chief Executive Officer, John S. Pelton, commented, "1995 was a year of progress and disappointment. We strengthened and expanded our core business, disposed of the last under-performing non-Metals businesses and put in place an innovative $350 million banking facility. In addition our focus on cash flow management allowed us to effectively deal with the changing market conditions in the second half of the year. While real progress was made in pursuit of the Company's strategies, the expected improvement in earnings per share did not occur." Mr. Pelton added, "The decline in steel prices, which was the principal cause of disappointing results, appears to have abated. Future pricing concerns relate primarily to additional steel production capacity scheduled to come on stream over the next two to three years." Russel Metals is one of the five largest processors of metal and metal products in North America through its network of 58 service centers. The Company's operating units trade under various names including Russel Metals, Drummond McCall, Baldwin International, Bahcall Group, Total Distributors, Pioneer Steel & Tube, Copco Steel, Comco Pipe and Supply and Wirth Limited. Russel Metals also has investments in the transportation sector. -30- For further information, contact: David Fine Vice President Planning and Communications, Russel Metals (905) 819 - 7402
RUSSEL METALS INC. CONSOLIDATED BALANCE SHEETS At December 31 ($000) 1995 1994 Current assets Accounts receivable $206,419 $223,729 Income taxes recoverable 11,940 17,888 Inventories 242,568 239,629 Prepaid expenses and other assets 3,247 3,583 Current assets - discontinued operations - 79,258 464,174 564,087 Fixed assets Property, plant and equipment 161,526 153,309 Property held for resale 57,224 68,549 218,750 221,858 Other assets Long-term receivables 22,676 13,870 Other investments 16,441 11,258 Deferred charges 14,218 14,233 Goodwill 12,160 11,471 Deferred income taxes 57,089 50,141 Other assets - discontinued operations - 15,125 122,584 116,098 $805,508 $902,043 Current liabilities Bank indebtedness $ 63,987 $ 99,122 Accounts payable and accrued liabilities 171,360 170,543 Current portion of long-term debt 16,585 16,985 Current liabilities - discontinued operations - 62,150 251,932 348,800 Long-Term Debt 166,520 171,013 Convertible Debentures and Shareholders' Equity 387,056 382,230 $805,508 $902,043
RUSSEL METALS INC. CONSOLIDATED STATEMENTS OF EARNINGS For The Years Ended December 31 ($000)
1995 1994 1993 Sales and services Metals $1,318,375 $1,072,751 $ 703,871 Transport 173,300 263,419 263,015 $1,491,675 $1,336,170 $ 966,886 Earnings before interest and taxes Metals 52,596 59,167 21,428 Transport 10,985 18,777 20,904 Corporate (10,048) (10,270) (10,366) 53,533 67,674 31,966 Interest 41,925 35,297 35,342 Earnings (loss) before income taxes 11,608 32,377 (3,376) Provision for (recovery of) income taxes 4,286 15,726 (1,433) Earnings (loss) from continuing operations 7,322 16,651 (1,943) Earnings (loss) from discontinued operations - net of related income taxes - (25,454) 28 Net earnings (loss) for the year $ 7,322 $ (8,803) $ (1,915) Earnings (loss) per common share from continuing operations Basic $0.10 $0.27 $(0.24) Fully diluted $0.10 $0.27 $(0.24) Net earnings (loss) per common share Basic $0.10 $(0.25) $(0.23) Fully diluted $0.10 $(0.25) $(0.23)
RUSSEL METALS INC. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION For The Years Ended December 31 ($000)
1995 1994 1993 Operating activities Net earnings (loss) from continuing operations $ 7,322 $ 16,651 $ (1,943) Depreciation and amortization 17,447 16,570 18,611 Deferred income taxes (7,015) 24,812 4,742 Accrued revenue in respect of deferred income taxes (1,318) (899) (2,809) Loss (gain) on sale of fixed assets 54 438 (1,343) Cash from continuing operations 16,490 57,572 17,258 Changes in working capital items of continuing operations Accounts receivable 16,016 (64,127) (41,800) Income taxes recoverable 5,948 (2,306) 6,335 Inventories (19,373) (70,288) (27,613) Current portion of long-term receivable - - 9,625 Accounts payable and accrued liabilities 2,379 14,995 21,189 Other 344 2,029 (2,177) Cash from (used in) continuing operating activities 21,804 (62,125) (17,183) Financing activities Increase (decrease) in long-term debt (1,228) (30,899) 44,695 Increase in long-term receivable (7,488) (13,010) (2,273) Issue of common shares - 80,396 48,959 Redemption of preferred shares - (55,000) - Dividends (2,250) (3,461) (6,375) Cash from (used in) financing activities (10,966) (21,974) 85,006 Investing activities Purchase of fixed assets (46,111) (15,367) (11,580) Proceeds on sale of fixed assets 4,627 4,011 6,890 Proceeds on sale of subsidiary company 34,074 6,885 - Purchase of subsidiary companies (4,857) (44,395) - Other (6,994) (6,790) (17,098) Cash used in investing activities (19,261) (55,656) (21,788) Increase (decrease) in cash from continuing operations (8,423) (139,755) 46,035 Cash from discontinued operations 43,558 3,261 29,184 Increase (decrease) in cash 35,135 (136,494) 75,219 Cash position, beginning of the year (99,122) 37,372 (37,847) Cash position, end of the year $(63,987) $(99,122) $ 37,372 NOTE: For 1994 and 1995 cash position represents bank indebtedness.
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