UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended | |
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:
(Exact name of registrant as specified in its charter)
|
|
(
(Address of principal executive offices, including zip code, and Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price on the New York Stock Exchange on June 30, 2021 was approximately $
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2022 annual meeting of stockholders to be held on May 18, 2022 are incorporated by reference into Part III of this report. The Proxy Statement for the 2022 annual meeting will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
INDEX
i
FORWARD-LOOKING STATEMENTS
Unless otherwise indicated or required by the context, as used in this Annual Report on Form 10-K, the terms “Company,” “Reliance,” “we,” “our,” and “us” refer to Reliance Steel & Aluminum Co. and all of its subsidiaries that are consolidated in accordance with U.S. generally accepted accounting principles. This Annual Report on Form 10-K and the information incorporated by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may also provide oral or written forward-looking information in other materials we release to the public. Our forward-looking statements may include, but are not limited to, discussions of our industry and end markets, our business strategies and our expectations concerning future demand and metals pricing and our results of operations, margins, profitability, impairment charges, taxes, liquidity, litigation matters and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “preliminary,” “range,” “intend” and “continue,” the negative of these terms, and similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those in the future that are implied by these forward-looking statements. These risks and other factors include those described in “Risk Factors” (Part I, Item 1A of this Form 10-K) and “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A). In addition, other factors of which the Company is not currently aware may affect the accuracy of our forward-looking information and may cause actual results to differ from those discussed. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or forecasted in our forward-looking statements as a result of various important factors, including, but not limited to, actions taken by us, including restructuring and impairment charges, as well as developments beyond our control, including, but not limited to, the impact of the COVID-19 pandemic, as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of COVID-19 pandemic (such as vaccine mandates and anticipated Occupational Health and Safety Administration safety directives, mask mandates, social distancing or other requirements) and changes in worldwide and U.S. economic conditions that materially impact our customers, the demand and availability of our products and services, including supply disruptions, labor shortages and inflation. Further deteriorations in economic conditions, as a result of COVID-19 or otherwise, could lead to a further or prolonged decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing. We cannot at this time predict the extent of the impact of the COVID-19 pandemic and resulting economic impact, but it could have a material adverse effect on our business, financial position, results of operations and cash flows.
We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events, or for any other reason, except as may be required by law. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. You should review any additional disclosures we make in our press releases and other documents we file or furnish with the United States Securities and Exchange Commission (the “SEC”), including our Forms 10-Q and 8-K.
This Annual Report on Form 10-K includes registered trademarks, trade names and service marks of the Company and its subsidiaries.
ii
PART I
Item 1. Business
We are a leading diversified metal solutions provider and the largest metals service center company in North America (U.S. and Canada), serving our customers for more than 80 years. Through a network of approximately 315 locations in 40 U.S. states and in 13 countries outside the U.S., Reliance provides value-added metals processing services and distributes a full line of over 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium and specialty steel products, to more than 125,000 customers in a broad range of industries. Our network of metals service centers focuses on small orders with quick turnaround and increasing levels of value-added processing. We have made significant investments in our businesses in recent years, including investments in advanced, state-of-the-art value-added processing equipment to better service our customers that led to our achieving financial records in 2021 across nearly every metric, including average selling price per ton sold, gross profit margin, pretax income and earnings per share.
In 2021, our results included record net sales of $14.09 billion, record net income attributable to Reliance of $1.41 billion and record earnings per diluted share of $21.97. We generated a record annual gross profit margin of 31.9% while our tons sold and average selling price per ton sold increased 4.6% and 54.3%, respectively. We were able to achieve these results despite the challenging operating environment that included labor shortages, raw material and other supply chain constraints on us, our customers and suppliers. Our cash flow from operations of $799.4 million in 2021 declined $373.6 million, or 31.8%, from $1.17 billion in 2020, primarily due to over $950.0 million in additional working capital requirements, mainly accounts receivable and inventory, in 2021. We believe our ability to generate strong gross profit margins and cash flow during periods of both increasing and declining metals pricing and economic strength and weakness is due to the strength and resiliency of our business model.
Our gross profit margin has improved over time from our historical range of about 25%-27% to 29%-31%, in recent years, as we have increased the percentage of our orders that include value-added processing. Over the past seven years, we have made significant investments in our business through approximately $1.40 billion of capital expenditures with about 50% comprised of new metal processing equipment. In 2021, we generated a record gross profit margin of 31.9% with 50% of orders including value-added processing compared to our historical range of approximately 40% to 45%.
Reliance has a proud heritage and demonstrated commitment to ethical business practices, sustainability and community engagement.
Our primary business strategy is to provide the highest levels of quality and service to our customers in the most efficient operational manner, allowing us to maximize our financial results. Our growth strategy is based on increasing our operating results through organic growth activities and strategic acquisitions that enhance our product, customer and geographic diversification. We continue to expand our value-added capabilities (including toll processing) and increase the percentage of our total sales represented by the higher margin orders generated from those capabilities, which reduces the volatility in our profitability ratios during periods of unfavorable metals demand and/or pricing. We focus on improving the operating performance at acquired locations by integrating them into our operational model and providing them access to capital and other resources to promote growth and efficiencies. We believe our focused growth strategy of diversifying our products, customers and geographic locations and increasing the level of value-added services we provide our customers makes us less vulnerable to regional or industry-specific economic volatility and somewhat lessens the negative impact of volatility experienced in commodity pricing and cyclicality of our customer end markets, as well as general economic trends. We also believe that our focus on servicing customers with small order sizes and quick turnaround, along with our growth and diversification strategy have been instrumental in our ability to produce industry-leading operating results among publicly traded metals service center companies in North America.
In 2021, Reliance acquired four companies: (1) Admiral Metals Servicenter Company, Inc. (“Admiral Metals”), a leading distributor of non-ferrous metals products in the Northeastern U.S., headquartered in Woburn, Massachusetts; (2) Merfish United, Inc. (“Merfish United”), a leading master distributor of tubular building products that are distributed to its independent wholesale distributor customers across a variety of end markets in the United States, headquartered in Ipswich, Massachusetts; (3) Nu-Tech Precision Metals Inc. (“Nu-Tech Precision Metals”), a custom manufacturer of specialty extruded metals, fabricated parts and welded components headquartered in Ontario, Canada; and (4) Rotax Metals, Inc.
1
(“Rotax Metals”), a metals service center specializing in copper, bronze and brass alloys, headquartered in Brooklyn, New York.
We have one operating and reportable segment—metals service centers. Further information about our reportable segment, including geographic information, appears in Note 18—“Segment information” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data.”
Industry Overview
Metals service centers acquire carbon steel, aluminum, stainless and alloy steel and other metal products from primary metals producers, which we also refer to as mills, and then process and distribute these materials to meet customer specifications using techniques such as bending, beveling, blanking, blasting, burning, chamfering, cutting-to-length, deburring, drilling, electropolishing, fabricating, flattening, forming, grinding, heat-treating, honing, laser burning and cutting, leveling, machining, milling, normalizing, notching, painting, perforating, polishing, punching, quenching, rolling, sawing, scribing, shearing, slitting, stamping, stress relieving, tempering, threading, turning and water jet cutting, among others. As a distributor and “first-stage” processor of metal products, our operations, by their nature, have a limited environmental impact as we do not emit significant amounts of carbon dioxide or other greenhouse gases.
Customers purchase from service centers for a variety of reasons, including the ability to obtain value-added metals processing, readily available inventory, reliable and timely delivery, flexible minimum order size, and quality control. Many customers deal exclusively with service centers because the quantities of metal products that they purchase are smaller than the minimum order sizes specified by mills or because those customers require intermittent deliveries over long or irregular periods. Metals service centers respond to a niche market created because of the focus on when-needed inventory management and materials management outsourcing in the capital goods and related industries. In general, metals service center customers have placed increased emphasis on carrying lower amounts of inventory, especially during declining price environments. We believe that many customers have also reduced their in-house processing capabilities, opting to source processed metal from service centers like us. We believe that such customer practices benefit metals services centers and we have invested significantly in innovative, state-of-the-art processing equipment in recent years. These investments have increased our ability to raise our selling prices and increase our gross profit margins as we provide higher quality products and increase the efficiency of our customers’ manufacturing operations.
The processing services we provide save our customers time, labor, and expense, reducing their overall manufacturing costs. Specialized metals processing equipment requires high utilization to be cost effective. We believe many manufacturers and their suppliers are not able or willing to invest in the necessary technology, equipment, and warehousing of inventory to perform efficient and effective metal processing themselves for their own operations. Accordingly, we believe industry dynamics have created a niche in the market for metals service centers. Metals service centers purchase, process, and deliver metals to end-users in a more efficient and cost-effective manner than the end-user could achieve by dealing directly with the primary producer. Service centers comprise the largest customer group for North American mills, buying and reselling almost 50% of all the carbon, alloy, stainless and specialty steels, aluminum, copper, brass, bronze and superalloys produced in the United States according to an October 2021 report on the metals wholesaling industry issued by IBISWorld Inc., a global intelligence publication.
We believe that metals service centers are generally less susceptible to market cycles than metals producers because service centers are generally able to pass on all or a portion of increases in metal costs to their customers. As we have a limited long-term contractual business and focus on rapid inventory turnover, we believe that we are generally less vulnerable to changing metals prices than metals producers. However, fluctuations in metals pricing have a significant impact on our revenue and profit.
The metals service center industry is highly fragmented and competitive within localized areas or regions. Many of our competitors operate single, stand-alone service centers. According to IBISWorld Inc., there were approximately 9,300 metal wholesaling locations operated by approximately 6,900 companies in the United States in 2021. The significant number of metals service centers that exist in this fragmented market creates opportunities for us to expand by making acquisitions.
According to IBISWorld Inc.’s October 2021 report, the United States metals wholesale industry (which includes metals service centers) revenues were expected to grow approximately 28% from $178.56 billion in 2020 to approximately
2
$229.31 billion in 2021, primarily due to increases in metal prices. The four largest U.S. metals service center companies were expected by IBISWorld Inc. to represent less than 10% of the estimated $229.31 billion industry total in 2021. While we remain the largest metals service center company in the United States on a revenue basis, our 2021 U.S. revenues of $13.37 billion represented only about 5.8% of the entire U.S. market based on IBISWorld Inc.’s estimated 2021 industry revenues. According to the Metals Service Center Institute (“MSCI”) reporting of industry tons sold in the U.S., our 2021 tons sold from our U.S. locations represented approximately 14.0% of the total tons sold by the U.S. metals service center industry. We believe revenues reported for the metals wholesale industry by IBISWorld Inc. include those of companies that sell to downstream industrial sectors which are not included in the metals service centers industry reporting by the MSCI. We believe our relatively low level of market share presented in IBISWorld Inc.’s and MSCI’s respective industry totals leaves significant opportunity for further strategic growth within the industry.
History and Overview of Reliance
We have been in business over 80 years since our original organization on February 3, 1939, operating a single metals service center in Los Angeles, California fabricating steel reinforcing bar. Within ten years of our founding, our metals service center had become a full-line distributor of steel and aluminum. In the early 1950s, we automated our materials handling operations and began to provide processing services to meet our customers’ requirements. In the 1960s, we began to acquire other companies to establish additional service centers, expanding into other geographic areas.
In the mid-1970s, we began to establish specialty metals centers stocked with inventories of selected metals such as aluminum, stainless steel or brass and copper, and equipped with automated materials handling and precision cutting equipment specific to the selected metals. In the mid-1990s, we began to expand nationally and continued to focus on acquiring well-run, profitable metals service center companies, and we continue to expand our network, with a focus on providing increased levels of value-added services and specialty products to our customers as opposed to merely distributing metal. We reincorporated in the State of Delaware in 2015. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “RS” and was first traded on September 16, 1994.
We continue to execute our growth strategy and have become the largest North American (U.S. and Canada) metals service center company based on revenues, with approximately 315 locations and 2021 net sales of $14.09 billion. We continue to expand the types of metals that we sell and the processing services that we perform. We currently operate under the following trade names:
Trade Name |
| No. of Locations |
|---|---|---|
Reliance Divisions | ||
Bralco Metals | ||
Bralco Metals | 6 | |
Affiliated Metals | 1 | |
Airport Metals (Australia) | 1 | |
MetalCenter | 1 | |
Olympic Metals | 1 | |
Central Plains Steel Co. | 1 | |
Reliance Metalcenter | 8 | |
Reliance Steel Company | 2 | |
Smith Pipe & Steel Company | 1 | |
Tube Service Co. | 6 | |
Admiral Metals Servicenter Company, Incorporated | 8 | |
All Metals Processing & Logistics, Inc. | 2 | |
All Metal Services | ||
All Metal Services Ltd. (China) | 1 | |
All Metal Services France | 1 | |
All Metals Services India Private Limited | 1 | |
All Metal Services Limited (United Kingdom) | 4 | |
All Metal Services (Malaysia) Sdn. Bhd. | 1 | |
Allegheny Steel Distributors, Inc. | 1 | |
American Metals Corporation |
3
Trade Name |
| No. of Locations |
|---|---|---|
American Metals | 2 | |
American Steel | 2 | |
Alaska Steel Company | 3 | |
Haskins Steel Company | 1 | |
Lampros Steel | 1 | |
LSI Plate | 1 | |
Plate Sales | 1 | |
AMI Metals, Inc. | ||
AMI Metals | 6 | |
AMI Metals UK, Limited | 1 | |
AMI Metals Europe (Belgium) | 1 | |
AMI Metals Aero Services Ankara Havacılık Anonim Şirketi (Turkey) | 1 | |
Best Manufacturing, Inc. | 1 | |
CCC Steel, Inc. | ||
CCC Steel | 1 | |
IMS Steel Co. | 1 | |
Chapel Steel Corp. | ||
Chapel Steel Corp. | 6 | |
Chapel Steel Canada, Ltd. | 1 | |
Chatham Steel Corporation | 5 | |
Clayton Metals, Inc. | 2 | |
Continental Alloys & Services Inc. | ||
Continental Alloys & Services Limited (UK) | 2 | |
Continental Alloys & Services Middle East FZE (Dubai) | 1 | |
Continental Alloys & Services (Malaysia) Sdn. Bhd. | 1 | |
Continental Alloys & Services Pte. Ltd. (Singapore) | 1 | |
Crest Steel Corporation | 1 | |
Delta Steel, Inc. | 4 | |
Diamond Manufacturing Company | ||
Diamond Manufacturing | 2 | |
Ferguson Perforating Company | 2 | |
McKey Perforating Co. | 1 | |
McKey Perforated Products Co. | 1 | |
Perforated Metals Plus | 1 | |
DuBose | ||
DuBose National Energy Services, Inc. | 1 | |
DuBose National Energy Fasteners & Machined Parts, Inc. | 1 | |
Durrett Sheppard Steel Co., Inc. | 1 | |
Earle M. Jorgensen Company | ||
Earle M. Jorgensen | 33 | |
Steel Bar | 1 | |
FastMetals, Inc. | 1 | |
Feralloy Corporation | ||
Feralloy | 4 | |
Acero Prime S. de R.L. de C.V. | 4 | |
Feralloy AP Sinton Processing Center | 1 | |
Feralloy Processing Company | 1 | |
GH Metal Solutions | 4 | |
Indiana Pickling and Processing Company (56%-owned) | 1 | |
Oregon Feralloy Partners (40%-owned) | 1 | |
Fox Metals and Alloys, Inc. | 1 | |
Fry Steel Company | 1 | |
Infra-Metals Co. |
4
Trade Name |
| No. of Locations |
|---|---|---|
Infra-Metals | 5 | |
Athens Steel | 1 | |
Infra-Metals / IMS Steel / Industrial Metals Supply / Georgia Steel Company | 2 | |
KMS | ||
KMS Fab, LLC | 1 | |
KMS South, Inc. | 1 | |
Liebovich Bros., Inc. | ||
Liebovich Steel & Aluminum Company | 4 | |
Custom Fab Company | 1 | |
Good Metals | 1 | |
Hagerty Steel & Aluminum Company | 1 | |
Metalweb Limited | 3 | |
Merfish United, Inc. | 12 | |
Metals USA, Inc. | ||
Gregor Technologies | 1 | |
Lynch Metals | 2 | |
Metals USA | 21 | |
Port City Metal Services | 1 | |
The Richardson Trident Company, LLC | 3 | |
National Specialty Alloys, Inc. | ||
National Specialty Alloys | 3 | |
Aleaciones Especiales de Mexico, S. de R.L. de C.V. | 1 | |
Northern Illinois Steel Supply Co. | 2 | |
Nu-Tech Precision Metals Inc. | 1 | |
Pacific Metal Company | 5 | |
PDM Steel Service Centers, Inc. | ||
PDM Steel Service Centers | 8 | |
Feralloy PDM Steel Service | 1 | |
Phoenix Corporation | ||
Phoenix Metals Company | 12 | |
Aluminum and Stainless | 2 | |
Precision Flamecutting and Steel, Inc. | 1 | |
Precision Strip Inc. | 15 | |
Reliance Metalcenter Asia Pacific Pte. Ltd. (Singapore) | 1 | |
Reliance Metals Canada Limited | ||
Earle M. Jorgensen (Canada) | 6 | |
Encore Metals | 5 | |
Team Tube | 3 | |
Service Steel Aerospace Corp. | ||
Service Steel Aerospace | 3 | |
Dynamic Metals International | 1 | |
United Alloys Aircraft Metals | 1 | |
Siskin Steel & Supply Company, Inc. | ||
Siskin Steel | 3 | |
East Tennessee Steel Supply Company | 1 | |
Steel Store | 1 | |
Sugar Steel Corporation | 3 | |
Tubular Steel, Inc. | ||
Tubular Steel | 4 | |
Metalcraft Enterprises | 1 | |
Valex Corp. | ||
Valex | 1 | |
Valex Semiconductor Materials (Zhejiang) Co., Ltd. | 1 |
5
Trade Name |
| No. of Locations |
|---|---|---|
Valex Korea Co., Ltd. (96%-owned) | 1 | |
Viking Materials, Inc. | 2 | |
Yarde Metals, Inc. | ||
Yarde Metals | 8 | |
Rotax Metals | 1 |
Operational Strategy
Our executive officers maintain a control environment that is focused on integrity and ethical behavior. In addition, our executive officers establish policies, financial controls and operating guidelines, monitor performance, provide oversight and promote adherence to policies, guidelines and financial controls, while our division managers and subsidiary officers have autonomy with respect to day-to-day operations. This balanced yet entrepreneurial management style has enabled us to improve our safety performance and the productivity and profitability of both our acquired businesses and of our existing operations. Key management personnel are eligible for incentive compensation based, in part, on the profitability of their particular division or subsidiary and, in part, on the Company’s overall profitability.
Safety is our top priority and an important element of our culture and day-to-day operational focus. Our executive team supports a safety management system that includes policies, standard practices and goals at our facilities, including: (i) conducting regular safety assessments; (ii) monitoring best practices and compliance with regulatory requirements; (iii) integrating video-based safety programs into substantially all Company owned trucks; and (iv) including safety performance in compensation decisions. In addition, our safety professionals monitor compliance with regulatory requirements and conduct safety assessments and training to improve safety practices.
We seek to increase profitability through continuous improvements in our customer service, operational efficiencies, pricing discipline, innovation and inventory management as well as by providing increased levels of value-added processing. We continue to adjust our business practices to leverage our size and gain efficiencies which contribute to our profitability. We believe that we have an excellent reputation in the industry and are known for our integrity, strong employee relations and the quality and timeliness of our service.
Historically, we have expanded through both acquisitions and internal growth. Since our initial public offering in September 1994, we have successfully purchased 71 businesses. Our capital expenditure budgets have been at historically high levels in recent years. Our 2022 capital expenditure budget is $350 million. Our capital expenditures have consisted of opening new facilities, adding to our processing capabilities, upgrading processing equipment, strategic relocations of existing operations within our existing facilities, improving the safety and energy efficiency of our operating facilities and enhancing the working environments of our employees. Our investments in processing equipment have allowed us to increase the range of value-added services that we provide to our customers, which we believe has contributed to the recent increases in our gross profit margin. We believe these significant investments differentiate us from our metal service center competitors. We expect to continue growing our business through acquisitions and internal growth initiatives, particularly those that diversify our products, customer base and geographic locations and increase our sales of high-margin specialty products and value-added processing services.
Customers and Markets
We have more than 125,000 customers in a variety of industries, including general manufacturing, non-residential construction (including infrastructure), transportation (rail, truck trailer and shipbuilding), aerospace (commercial; military, defense and space), energy (oil and natural gas), electronics and semiconductor fabrication, and heavy industry (agricultural, construction and mining equipment). We also service the auto industry, primarily through our toll processing operations where we process the metal for a fee, without taking ownership of the metal.
Although we sell directly to many large original equipment manufacturer customers, the majority of our sales are to small machine shops and fabricators, in small quantities with frequent deliveries, helping them manage their working capital and credit needs more efficiently. Our metals service centers wrote and delivered over 4,621,000 orders during 2021 or an average of 18,510 per day, with an average price of approximately $3,050 per order. Most of our metals service
6
center customers are located within a 200-mile radius of the Reliance metals service center serving them. The proximity of our service centers to our customers helps reduce total road miles and carbon emissions, promote efficient routing and provide quick delivery. With our fleet of approximately 1,720 trucks (some of which are leased), we are able to service many smaller customers and provide quick turnaround deliveries. We believe that maintaining our own fleet of trucks and drivers provides a competitive advantage in the current environment as third-party freight costs have been at elevated levels in recent years. Moreover, our order entry systems and flexible production scheduling enable us to meet customer requirements for short lead times and quick delivery, when needed. In 2021, approximately 97% of our orders were from repeat customers. We believe that our long-term relationships with many of our customers significantly contribute to the success of our business. Providing prompt and efficient services and quality products at reasonable prices are important factors in maintaining and expanding these relationships.
We have built and opened international locations in recent years to service specific industries, typically making limited investments to support existing key U.S. customers that also operate in those international markets. Accordingly, our exposure to risks associated with such investments is minimal. Net sales of our international locations (based on where the shipments originated) accounted for approximately 5% of our consolidated 2021 net sales, or $721.6 million. However, our net sales to international customers (based on the shipping destination) were approximately 7% of our consolidated 2021 net sales or $951.3 million, with approximately 30% of our international sales, or $285.6 million, to Canadian customers.
Customer demand changes from time to time based on, among other things, general economic conditions and industry capacity. Many of the industries in which our customers compete are cyclical in nature. Because we sell to a wide variety of customers in a wide variety of industries, we believe that we are able to somewhat mitigate earnings volatility. In addition, many of our customers are small job shops and fabricators who also have a diverse customer base and the versatility to service different end markets when an existing market slows. Given our business model and focus on small, quick turnaround orders, we primarily operate in the spot market for both the purchase and sale of our products. As we have limited contractual business, this enables us to better pass on higher metal prices to our customers and maintain consistency in our gross profit margin.
Due to our focus on small orders, decentralized operating structure and the diversity of the markets we serve, customer concentrations are not significant. Our largest customer represented only 1.0% of our net sales in 2021. In 2021, we generated sales greater than $25 million from only 31 customers.
The geographic breakout of our sales based on the location of our metals service center facilities in each of the three years ended December 31 was as follows:
2021 | 2020 | 2019 | ||||||
Midwest | 35 | % | 31 | % | 30 | % | ||
Southeast | 21 | % | 19 | % | 19 | % | ||
West/Southwest | 20 | % | 22 | % | 23 | % | ||
Mid-Atlantic | 7 | % | 7 | % | 7 | % | ||
International | 5 | % | 7 | % | 8 | % | ||
Northeast | 5 | % | 7 | % | 6 | % | ||
Pacific Northwest | 4 | % | 4 | % | 4 | % | ||
Mountain | 3 | % | 3 | % | 3 | % | ||
Total | 100 | % | 100 | % | 100 | % |
See Note 18—“Segment information” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” for further information on U.S. and foreign revenues and assets.
Human Capital
At December 31, 2021, we employed approximately 13,700 persons worldwide, of which approximately 12,200 were employed in the United States. Our total workforce of approximately 14,200 persons at December 31, 2021 includes approximately 500 contract and temporary workers.
7
As of December 31, 2021, approximately 12% of our employees were represented by unions under collective bargaining agreements. We have entered into collective bargaining agreements with 42 union locals at 52 of our locations. These collective bargaining agreements have not had a material impact on our revenues or profitability. From time to time, our collective bargaining agreements expire and come up for renegotiation. Approximately 400 employees are covered by 19 different collective bargaining agreements that expire in 2022.
In 2021, we completed a materiality assessment to determine the social issues that are most critical to our business and our stakeholders. As a result of the materiality assessment, we determined that Reliance’s most significant social issues are: (i) the health and safety of our colleagues; and (2) human capital management. We seek to create an environment that values the health, safety and wellbeing of our employees, their families and the communities in which we live and do business. We strive to equip our employees with the knowledge, skills and resources to maintain or improve their personal health, develop professionally and safely operate our business. A highlight of our commitment to our employees is the inclusion of “People” as one of our six core values that represent key areas of focus for our company. For more information on the Company’s core values, see the Company’s Code of Conduct available at investor.rsac.com. Among the critical elements included in the People category are the following:
| ● | Focus on Safety: The safety of our employees is our top priority and an important element of our day-to-day operational focus. In 2017, Reliance launched the SMART Safety program, which focuses on embedding our culture of safety across all of our operations. |
Rooted in our fundamental commitment to the health, safety and wellness of our employees, their families and the communities in which we live and do business, we leveraged the core values of our culture of safety to respond to the COVID-19 pandemic:
| o | We implemented new, supplemental safety protocols, policies and procedures (based on health and safety regulations and standards issued by Centers for Disease Control and Prevention and other public health authorities) to promote health and safety and increase safety awareness, including temperature monitoring, physical distancing and wearing of face coverings in the workplace; enhanced cleaning, sanitation and hygiene practices at our facilities; detailed contact tracing procedures and provision of at-home COVID-19 test kits to identify and isolate potential exposures within and outside of the workplace. |
| o | We engaged an M.D. consultant to obtain professional medical advice about the virus and to inform our efforts to reduce risk of COVID-19 exposure to our employees, subcontractors and customers in and beyond the workplace. |
| o | We utilized technology solutions and embraced remote work where feasible and modified the way we conduct many aspects of our business to reduce the number of in-person interactions within and outside our facilities. We significantly expanded the use of virtual interactions in all aspects of our business, including customer facing activities, internal meetings and our annual meeting of stockholders. |
| o | We invested in new technologies such as touchless thermal temperature screening devices and contact tracing wristbands to increase safe behavior and mitigate the spread of the virus in our operating facilities. |
| o | We encouraged our employees to stay home if they did not feel well or might have been exposed to the COVID-19 virus. We adopted policies to address exclusion from the workplace due to COVID-19 illness or known or suspected exposure, and stringent return to work protocols. |
| o | We implemented a special COVID-19 aid policy providing paid leave for employees impacted by the virus and provide our employees paid time off to obtain COVID-19 vaccinations. |
8
For a detailed discussion of the risks of the continuing COVID-19 pandemic on our human capital resources, see the risk factor captioned “The COVID-19 global pandemic may materially and adversely impact our business, financial condition, results of operations and cash flows” Item 1A. “Risk Factors” of this Form 10-K.
| ● | Diversity, Equity and Inclusion: We believe that superior Company performance requires contributions from a diverse workforce that includes a variety of employee experiences, backgrounds, and characteristics. We are committed to providing fair and unbiased opportunities and hiring, developing and supporting a diverse and inclusive workplace. Our commitment to diversity and inclusion is also reinforced by our Code of Conduct, which prohibits employment discrimination or harassment based on race, color, sex (including pregnancy, childbirth, and related medical conditions), national origin, religion, age, disability, genetic information, veteran status, sexual orientation, marital status, or any other characteristic protected by applicable law. |
| ● | Employee Wellness: The health, wellness and wellbeing of our employees is critical to our success. We are committed to providing our employees with resources to help them achieve their personal health, wellness, and wellbeing goals. As part of our comprehensive benefits offering, we provide employees and their covered spouses/domestic partners with a robust employee assistance program (EAP), individualized assessments, access to lab or on-site health screenings and personalized wellness coaching. Our customizable program integrates web-based tools, phone and mail-based communications, local activities and is designed to support the diverse and individualized needs of our employees in order to help them improve or maintain their health status and ongoing engagement in healthy behaviors. |
| ● | Compensation and Benefits: To help attract and retain the best employees, we strive to offer competitive compensation and best-in-class benefits. In addition to base salaries, our compensation programs can include annual bonuses, stock-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare insurance and welfare benefits, health savings and flexible spending accounts. We believe that we provide industry-leading healthcare benefits to our employees and fund approximately 86% of the costs associated with our U.S. employees’ health insurance coverage. |
| ● | Community Service: Reliance is committed to investing in and enriching the communities in which we live and work. Giving back to those in need and enriching people's lives is a deep-rooted philosophy ingrained in our corporate culture that extends to our employees around the world primarily through our support of non-profit organizations that provide active duty, veterans, transitioning service members and their families with advanced manufacturing training and other support services. Our dedication to each and every member of our Family of Companies is the foundation for “Reliance Cares,” our emergency assistance fund dedicated to supporting employees impacted by natural disasters. Through employee funded contributions, matched dollar-for-dollar by Reliance, we have been able to provide approximately 1,000 grants to employees (including approximately 170 grants to support employees and their families responding to COVID-19 related personal impacts) since the inception of Reliance Cares in 2017. |
Suppliers
We primarily purchase our inventory from the major domestic metals producers. We do, however, also purchase limited amounts of certain products from foreign producers. We have multiple suppliers for all of our products.
Because of our total volume of purchases and our long-term relationships with our suppliers, we believe that we are generally able to purchase inventory at the best prices offered by our suppliers. We believe that these relationships provide us an advantage in our ability to source product and have it available for our customers in accelerated timeframes when needed, and also allows us to more efficiently manage our inventory. In 2020, our suppliers supported our efforts to rightsize our inventory following COVID-19-related shutdowns and project delays. In 2020 and 2021 they continued to provide us an uninterrupted supply of high-quality metal products during periods when conditions decreased the availability of some products in the marketplace. We believe that we are not dependent on any one supplier for our metal inventory. We believe both our size and our long-term relationships with our suppliers continue to be important because mill consolidation has reduced the number of suppliers.
9
Backlog
Because of the when-needed delivery and the short lead-time nature of our business, we do not believe information on our backlog of orders is meaningful to an understanding of our business.
Capital Expenditures
We maintained our focus on internal growth in 2021 by opening new facilities, building or expanding existing facilities, adding processing equipment, improving the safety of our operations and enhancing the working environments of our employees with capital expenditures of $236.6 million, the majority of which were growth-related. Our 2022 capital expenditure budget is a record $350 million. The majority of our capital expenditure budget consists of expanding and upgrading our operating facilities, including the installation of energy-efficient lighting and solar panels, and the purchase of additional metal processing equipment. The amount of our capital expenditure budget reflects our confidence in our long-term prospects; however, we will continue to evaluate and execute each growth project and consider the economic conditions and outlook at the time of investment. We estimate our annual maintenance capital expenditures at approximately $100 to $130 million, which allows us to significantly reduce our capital expenditures if economic conditions warrant a more conservative approach to capital allocation and provides flexibility to redirect capital to other strategic priorities.
Products and Processing Services
We provide a wide variety of processing services to meet our customers’ specifications and deliver products to fabricators, manufacturers and other end users. In recent years, we have made significant investments to enhance our toll processing and value-added metal processing capabilities. We maintain a wide variety of products in inventory and believe this differentiates us from all other North American service centers. Approximately 40% of our orders were delivered within 24 hours from receipt of the order. This provides a competitive advantage to us, and, for the remainder of our orders we typically have shorter lead times than our competitors given our decentralized structure and investments in processing equipment. Our product mix has become more diverse mainly as a result of our targeted growth strategy to acquire companies that distribute mainly specialty products and provide increased levels of value-added processing services. We have made significant capital expenditure investments totaling approximately $1.40 billion over the past seven years. In 2021, we performed value-added processing on approximately 50% of the orders we shipped, compared to our historical rate of approximately 40%. These significant investments have expanded our processing capabilities and enhanced the quality of our products through improvements in processing equipment technology. Our family of companies have been successful in increasing our gross profit margins utilizing these operational enhancements as they provide our managers the ability to focus on sales of higher margin value-added services. In 2021, we generated a record gross profit margin of 31.9% which is approximately 500 basis points above our historical range of 25% to 27% with 50% of orders including value-added processing compared to our historical range of approximately 40% to 45%. We believe our investments in state-of-the-art equipment and advanced technology coupled with our focus on maintaining pricing discipline related to our processing services were significant contributors to the substantial increases in gross profit margin over the past several years. We also believe expansion of our value-added capabilities (including toll processing) and increasing the percentage of our total sales represented by the higher-margin orders generated from those capabilities reduces the volatility in our profitability ratios during periods of unfavorable metals demand and/or pricing.
10
Our gross sales dollars by product type as a percentage of total sales in each of the three years ended December 31 were as follows:
2021 | 2020 | 2019 | |||||
12 | % | 10 | % | 11 | % | carbon steel plate | |
12 | % | 11 | % | 11 | % | carbon steel tubing | |
10 | % | 7 | % | 7 | % | hot-rolled steel sheet and coil | |
9 | % | 10 | % | 10 | % | carbon steel structurals | |
6 | % | 4 | % | 4 | % | galvanized steel sheet and coil | |
5 | % | 6 | % | 6 | % | carbon steel bar | |
4 | % | 3 | % | 3 | % | cold-rolled steel sheet and coil | |
Carbon steel | 58 | % | 51 | % | 52 | % | |
8 | % | 6 | % | 5 | % | stainless steel sheet and coil | |
6 | % | 8 | % | 7 | % | stainless steel bar and tube | |
2 | % | 2 | % | 2 | % | stainless steel plate | |
Stainless steel | 16 | % | 16 | % | 14 | % | |
4 | % | 5 | % | 5 | % | aluminum bar and tube | |
4 | % | 5 | % | 5 | % | common alloy aluminum sheet and coil | |
4 | % | 7 | % | 7 | % | heat-treated aluminum plate | |
1 | % | 1 | % | 1 | % | common alloy aluminum plate | |
1 | % | 1 | % | 1 | % | heat-treated aluminum sheet and coil | |
Aluminum | 14 | % | 19 | % | 19 | % | |
3 | % | 4 | % | 4 | % | alloy bar and rod | |
1 | % | 1 | % | 1 | % | alloy tube | |
— | % | — | % | 1 | % | alloy plate, sheet and coil | |
Alloy | 4 | % | 5 | % | 6 | % | |
5 | % | 5 | % | 5 | % | miscellaneous, including brass, copper, titanium, manufactured parts, pvc pipe and scrap | |
3 | % | 4 | % | 4 | % | toll processing—aluminum, carbon steel and stainless steel(1) | |
Other | 8 | % | 9 | % | 9 | % | |
Total | 100 | % | 100 | % | 100 | % |
| (1) | Includes revenues for logistics services provided by our toll processing companies. |
We are not dependent on any particular customer group or industry because we process and distribute a variety of metals. This diversity of product type and material reduces our exposure to fluctuations or other weaknesses in the financial stability of particular customers or industries. We are also less dependent on any particular suppliers as a result of our product diversification.
For sheet and coil products, we purchase coiled metal from primary producers in the form of a continuous sheet, typically 36 to 60 inches wide, between 0.015 and 0.25 inches thick, and rolled into 3-to-20-ton coils. The size and weight of these coils require specialized equipment to move and process the material into smaller sizes and various products. Many of the other products that we carry also require specialized equipment for material handling and processing. We believe few of our customers have the capability to process the metal into the desired sizes or the capital available to acquire the necessary equipment.
11
We believe that few metals service centers offer the broad range of processing services and metals that we provide. In addition to a focus on growing our revenues from specialty products, we have also increased the amount of value-added processing services we provide through recent acquisitions and significant investments in new equipment over the past few years.
After receiving an order, we enter it into one of our order entry systems, select appropriate inventory and schedule processing to meet the specified delivery date. In 2021, we delivered approximately 40% of our orders within 24 hours of the customer placing the order with us. We attempt to maximize the yield from the various metals that we process by combining customer orders to use each product that we purchase to the fullest extent practicable.
In 2021, we performed processing services for approximately 50% of our sales orders. Our primary processing services range from cutting, leveling or sawing to more complex processes such as machining or electropolishing. Throughout our service centers we perform most processes available in the marketplace, without encroaching upon the services performed by our customers. Consistent with our growth strategy, we continue to increase our offering of higher-margin value-added services, including certain fabrication processes in select geographic areas at the request of our customers.
We generally only process specific metals to non-standard sizes pursuant to customer purchase order specifications. In addition, we typically acquire standard size and grade products that can be processed into many different sizes to meet the needs of many different customers. We do not maintain a significant inventory of finished products, but we carry a wide range of metals to meet our customers’ short lead time and when-needed delivery requirements. Our metals service centers maintain inventory and equipment selected to meet the needs of that facility’s customers. We work with our customers to understand their needs and identify areas where we can provide additional value, increasing our importance to them.
Sales and Marketing
As of December 31, 2021, we had approximately 1,850 sales personnel. We believe that our sales force has extensive product, service, market and customer knowledge. Sales personnel are organized by division or subsidiary and are divided into two groups. Outside sales personnel travel throughout a specified geographic territory and maintain relationships with our existing customers and develop new customers. Inside sales personnel remain at the facilities to price and write orders. Outside sales personnel generally receive incentive compensation based on the gross profit from their particular geographic territories. Inside sales personnel generally receive incentive compensation based on the gross profit and/or pretax income of their particular location.
Our business is relationship-based and because of that, we operate under many different trade names. We acquire well-run businesses with strong customer relationships and solid reputations within the marketplace. Because of this, we find value in the acquired trade name and continue to use the business name and maintain the customer relationships.
Competition
The metals service center industry is highly fragmented and competitive. We have numerous competitors in each of our product lines and geographic locations, and competition is most frequently local or regional. Our domestic service center competitors are generally smaller than we are, but we also face strong competition from national, regional and local independent metals distributors and the producers themselves, some of which have greater resources than we do.
We compete with other companies on price, service, quality, processing capability and availability of products and services. We maintain relationships with our major suppliers at the executive and local levels. We believe that this division of responsibility has increased our ability to obtain competitive prices of metals by leveraging our total size and to provide more responsive service to our customers by allowing our local management teams to make the purchasing decisions. In addition, we believe that the size of our inventory, the diversity of metals products we have available, and the wide variety of processing services we provide distinguish us from our competition. We believe our competitors are generally unable to offer the same high-quality products and services we provide using state-of-the-art equipment and advanced technology as they do not have the financial ability or risk tolerance to grow their businesses at the same rate as Reliance. We believe our industry-leading financial results in recent years were due to our strong financial condition, the high quality of products
12
and services we are able to offer as a result of our significant investments in our acquired businesses, facilities and equipment, as well as our continued focus on small order sizes with quick turnaround.
Quality Control
Procuring high-quality metal from suppliers on a consistent basis is critical to our business. We maintain strict quality control measures to assure that the quality of purchased raw materials will enable us to meet our customers’ specifications and to reduce the costs of production interruptions. In certain instances, we perform physical and chemical analyses on selected raw materials, typically through a third-party testing lab, to verify that mechanical and dimensional properties, cleanliness and surface characteristics meet our requirements and our customers’ specifications. We also conduct certain analyses of surface characteristics on selected processed metal before delivery to the customer. We believe that maintaining high standards for accepting metals ultimately results in reduced return rates from our customers.
We maintain various quality certifications throughout our operations. Approximately 50% of our operating locations have earned International Organization for Standardization (ISO 9001:2015) certifications. Many of our locations maintain additional certifications specific to the industries they serve, such as aerospace, auto, nuclear, and others, including certain international certifications.
Government Regulation
Our operations are subject to many foreign, federal, state and local requirements to protect the environment, including hazardous waste disposal and underground storage tank regulations. The only hazardous substances that we generally use in our operations are lubricants, cleaning solvents and diesel for fueling our trucks. We pay state-certified private companies to haul and dispose of the limited amounts of hazardous waste our operations produce. Beyond our compliance requirements with environmental regulations, compliance with other government regulations has not had, and based on laws and regulations currently in effect, is not expected to have a material effect on the Company’s capital expenditures, earnings or competitive position.
Our operations are also subject to laws and regulations relating to workplace safety and worker health, principally the Occupational Safety and Health Act and related regulations, which, among other requirements, establish noise, dust and safety standards. We maintain comprehensive health and safety policies and encourage our employees to follow established safety practices. Safety of our employees and others is critical to our success. We continue to expand and improve our internal safety resources, which has contributed positively to our safety metrics and financial results. We encourage social well-being by instituting these high-quality labor, health and safety standards.
We are subject to the conflict mineral provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We are required to undertake due diligence, disclose and report whether the products we sell originate from the Democratic Republic of Congo and adjoining countries. We verify with our suppliers the origins of all metals used in our products.
We sell metals to foreign customers and otherwise operate abroad, subjecting us to various countries’ trade regulations concerning the import and export of materials and finished products. Our operations are subject to the laws and regulations of the jurisdictions in which we conduct our business that seek to prevent corruption and bribery in the marketplace, including the United States’ Foreign Corrupt Practices Act (the “FCPA”) and the United Kingdom’s Bribery Act 2010. We have developed and implemented company-wide export and anti-corruption policies designed to provide our employees clear statements of our compliance requirements and to ensure compliance with applicable export and anti-corruption regulations. For information about risks related to government regulation, please see the risk factors set forth under the caption Item 1A. “Risk Factors” including the Risk Factors captioned “We are subject to various environmental, employee safety and health, and customs and export laws and regulations, which could subject us to significant liabilities and compliance expenditures;” “We operate internationally and are subject to exchange rate fluctuations, exchange controls, political risks and other risks relating to international operations;” and “Our international operations continue to expand, exposing us to additional risks.”
13
Environmental
We are committed to mitigating the impact that our products and operations may have on the environment. We are not a metals producer or mill – we operate metals service centers. As a distributor and “first-stage” processor of metal products, our operations, by their nature, have a limited environmental impact as we do not emit significant amounts of carbon dioxide or other greenhouse gases.
In addition, the overwhelming majority of our operations involve the distribution and processing of inherently sustainable steel and aluminum products that are (i) are some of the most commonly-recycled materials in the United States and (ii) can be 100% recycled without loss of quality. We believe steel, one of our most significant products, is the most recycled material on the planet—more than plastic, paper, and glass combined each year. In 2021, we reintroduced over 193,000 tons of recycled scrap material into the manufacturing life cycle.
We continue to evaluate and implement energy conservation and other initiatives to reduce the environmental impact of our business. However, enactment of more stringent environmental regulations could have an adverse impact on our financial results. In addition, the manufacture and production of the materials we source from mills can be a carbon-intensive activity, and adoption of more stringent carbon regulations or policies may increase the prices of these materials.
As a processor and distributor of metals, and not a producer, we acknowledge and embrace our role in protecting the environment and are currently assessing our impacts. Our strong desire is to identify and prioritize areas of improvement. In order to align our environmental initiatives with our broader strategy, we completed a materiality assessment in 2021 to determine the environmental matters that are most critical to our business and our stakeholders.
As a result of the materiality assessment, we determined that the most material environmental issues are: (i) emissions from company-owned trucks that deliver our products; and (2) our overall energy usage. We expect to update this materiality assessment on a periodic basis to ensure it reflects changes in our business and the external environment. We continue to analyze the detail of our direct emissions (Scope 1 and 2) across the majority of our facilities. We look forward to communicating our progress over time as we continue to maintain focus on ESG matters. Please refer to the ESG section of our website at https://www.rsac.com/environmental-social-and-governance/ for further information on environmental, social and governance matters and initiatives.
Some of our owned and leased properties are located in industrial areas with histories of heavy industrial use. We may incur some environmental liabilities because of the location of these properties. In addition, we are currently involved with a certain environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our wholly owned subsidiary, that were sold many years prior to our 2006 acquisition of EMJ. Although the potential cleanup costs could be significant, EMJ maintained insurance policies during the time they owned the manufacturing operations that have covered substantially all of our expenditures related to this matter to date, and are expected to continue to cover the majority of the related costs. We do not expect that these obligations will have a material adverse impact on our financial position, results of operations or cash flows.
Seasonality
Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. Our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers. The number of shipping days in each quarter also has an impact on our quarterly sales and profitability. Particularly in light of COVID-19, we cannot predict whether period-to-period fluctuations will be consistent with historical patterns. Results of any one or more quarters are therefore not necessarily indicative of annual results.
14
Available Information
We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended (the Exchange Act). The SEC maintains a website that contains reports, proxy statements and other information regarding issuers, including our Company, that file reports electronically with the SEC. The public can obtain any reports that we file with the SEC at http://www.sec.gov.
Our Investor Relations website is located at http://investor.rsac.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made available, free of charge, through our website as soon as reasonably practical after we electronically file or furnish the reports to the SEC. Information about Reliance’s ESG-related programs and initiatives is available under the “ESG” section of the Company’s website. Additional corporate governance information, including our restated certificate of incorporation, amended and restated bylaws, principles of corporate governance, Board committee charters, code of conduct and anti-bribery and anti-corruption policy, is available under Corporate Governance in the “Investors” section of the Company’s website. We encourage investors to visit our website.
The website addresses presented above and elsewhere in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing.
Item 1A. Risk Factors
Set forth below are the risks that we believe are material to our investors. Our business, results of operations and financial condition may be materially adversely affected due to any of the following risks. The risks described below are not the only ones we face. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business.
Risks Related to Our Business and Industry
The COVID-19 global pandemic has adversely impacted our business, financial condition, results of operations and cash flows, and may have material and adverse effects in the future.
Our operations were adversely affected in 2021 by the impacts of the COVID-19 pandemic and related macroeconomic effects, including labor shortages, raw material constraints and other supply chain disruptions. Our customers and suppliers were similarly impacted by the effects of the pandemic. While our financial performance improved in each quarter of 2021, resurgences of the virus or its variants, including the Omicron variant, evolving government restrictions and requirements, including vaccination mandates, and the broader impacts of the continuing pandemic, could significantly impact our workforce and performance as well as those of our customers and suppliers, and our estimates and judgments may be subject to greater volatility than in the past.
While most of our facilities operated as essential businesses under the United States Department of Homeland Security Cybersecurity and Infrastructure Security Agency guidance when other businesses were closed during the initial outbreak of the pandemic, facility closures, work slowdowns or temporary stoppages could occur at all or some of our facilities due to new government regulations or decreased demand for our products and services. Any prolonged slowdown or stoppage at our facilities may adversely affect our business, financial condition and results of operations and such impact may be material. We may face unpredictable increases in demand for certain of our products when restrictions on business and travel end. If demand for our products exceeds our capacity, it could adversely affect our customer relationships. In addition, the ability of our employees and our suppliers’ and customers’ employees to work may be impacted by individuals contracting or being exposed to COVID-19, and any such impact may be material. If a significant number of our employees were to contract the virus or be quarantined, we may not be able to complete key or critical tasks, not limited to, but including key financial, reporting, and operational controls. There is considerable uncertainty regarding such measures and potential future measures which may result in labor disruptions, employee attrition, and could negatively impact our ability to attract and retain qualified employees, all of which could have a material adverse effect on our results of operations, cash flows, and financial condition.
15
Limitations on travel and doing business in-person has increased the Company’s exposure to cybersecurity risks and could negatively impact the Company’s innovation and sales efforts, challenge the ability to deliver against the Company’s strategic priorities and to otherwise transact business in a timely manner, or create operational or other challenges, any of which could harm our business.
We continue to work with our stakeholders (including customers, employees, suppliers, business partners and local communities) to responsibly address this global pandemic. We will continue to monitor the situation and assess possible implications to our business and our stakeholders and will take appropriate actions in an effort to mitigate adverse consequences, including through adjusting our capital allocation priorities to focus on cash preservation, if warranted. We cannot assure you that we will be successful in any such mitigation efforts. Although the duration and ultimate impact of these factors is unknown at this time, the decline in economic conditions due to COVID-19, or another disease that causes similar impacts, may adversely affect our business, financial condition and results of operations and such impact may be material. Further deteriorations in economic and public health conditions, as a result of the COVID-19 pandemic or otherwise, could lead to disruptions in our supply chain and metals commodities pricing. A prolonged decline in demand for our products, facility closures, or recognition of additional impairment charges could materially and adversely impact our business or operating results. We have a substantial amount of indebtedness outstanding, and if we experience continued significant declines in sales as a result of the pandemic, our business may not be able to generate cash flow from operations or access additional borrowings on our revolving credit facility in amounts sufficient to enable us to pay our debts and fund our other liquidity needs. The initial spread of COVID-19 also led to disruption and volatility in the global capital markets and credit markets, which depending on future developments could impact our capital resources and liquidity in the future. In addition, we may be susceptible to increased litigation related to, among other things, the financial impacts of COVID-19 on our business, our ability to meet contractual obligations due to the pandemic, employment practices or policies adopted during the pandemic, or litigation related to individuals contracting COVID-19 as a result of alleged exposures on our premises.
The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers.
We purchase large quantities of aluminum, carbon, stainless and alloy steel and other metals, which we sell to a variety of customers. Our profitability is largely dependent upon the prices of the steel, aluminum, and other metals we sell our customers. The price of metals we purchase and the price we charge our customers for the products we sell change based on many factors outside of our control, including general economic conditions (both domestic and international), competition, production levels, raw material costs, customer demand levels, import duties and other trade restrictions, currency fluctuations and surcharges imposed by our suppliers. Prolonged disruption in the supply and/or distribution of metals due to weather, climate change, natural disasters, COVID-19, labor disputes or interruption of service by carriers could increase costs, limit the availability of materials critical to our operations and have a significant impact on results. We attempt to pass cost increases on to our customers with higher selling prices, but we are not always able to do so, particularly when the cost increases are not demand driven. When metal prices decrease, we often cannot replace our higher cost inventory with the lower cost metal at a rate that would allow us to maintain a consistent gross profit margin, which would reduce our profitability during that interim period.
Metal prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability and related pricing, metals consumption, tariffs, import levels into the U.S., governmental regulations, and the strength of the U.S. dollar relative to other currencies. Future changes in global general economic conditions or in production, consumption or export of metals could cause fluctuations in metal prices globally, which could adversely affect our profitability and cash flows. We generally do not enter into long-term agreements with our suppliers or hedging arrangements that could lessen the impact of metal price fluctuations.
We maintain substantial inventories of metal to accommodate the short lead times and delivery requirements of our customers. Our customers typically purchase products from us pursuant to purchase orders and typically do not enter into long-term purchase agreements or arrangements with us. Accordingly, we purchase metal in quantities we believe to be appropriate to satisfy the anticipated needs of our customers based on information derived from customers, market conditions, historic usage and industry research. Commitments for metal purchases are generally at prevailing market
16
prices in effect at the time orders are placed or at the time of shipment. During periods of rising metal costs, our results may be negatively impacted by increases in the costs of the metals we purchase if we are unable to make equivalent increases in the selling prices of the products we sell. In addition, when metal prices decline, our selling prices generally decline and, as we sell inventory purchased at higher costs, results in lower gross profit margins. Consequently, during periods in which we sell this existing inventory, the effects of changing metal prices could adversely affect our operating results.
Excess capacity and over-production by foreign metal producers or decreases in tariffs could increase the level of metal imports into the U.S., resulting in lower domestic prices, which would adversely affect our sales, margins and profitability.
Global metal-making capacity exceeds demand for metal products in some regions around the world. Rather than reducing employment by rationalizing capacity with consumption, we believe metal manufacturers in many countries (often with government assistance or subsidies in various forms) have periodically exported metal at prices which may not reflect their costs of production or capital. Excessive imports of metal into the U.S. have exerted, and may continue to exert, downward pressure on U.S. metal prices.
On March 1, 2018, the United States announced a plan to indefinitely impose a 25 percent tariff on certain imported steel products and a 10 percent tariff on certain imported aluminum products under Section 232 of the Trade Expansion Act of 1962 (the “Section 232”) tariffs. Application of the tariffs commenced March 23, 2018, with temporary or long-term exemptions for a number of countries and subject to a product exemption process.
These tariffs have triggered retaliatory actions by certain affected countries, and other foreign governments have initiated or are considering imposing trade measures on steel and aluminum produced in the United States. To the extent these tariffs and other trade actions result in a decrease in international demand for steel and aluminum produced in the United States or otherwise negatively impact demand for our products, our business may be adversely impacted.
We expect that these tariffs, while in effect, will discourage metal imports from non-exempt countries. These tariffs have had a favorable impact on the prices of the products we sell and our results of operations. Moreover, in light of the U.S. government leadership changes resulting from the November 2020 federal congressional and presidential elections, further changes in U.S. international trade policy may be forthcoming. For example, the U.S. government and the European Union recently agreed to a tariff rate quota system that will allow more European Union imports to enter the U.S. market free of Section 232 tariffs. The U.S. government may also negotiate reductions or eliminations of Section 232 duties with other trading partners. If these or other tariffs or duties expire or if others are relaxed or repealed, or if relatively higher U.S. metal prices make it attractive for foreign metal producers to export their products to the U.S., despite the presence of duties or tariffs, the resurgence of substantial imports of foreign metal could create downward pressure on U.S. metal prices which could have a material adverse effect on our earnings and future results of operations.
Currency fluctuations and changes in the worldwide balance of supply and demand could negatively impact our profitability and cash flows.
Significant currency fluctuations in the United States or abroad could negatively impact our cost of metals and the pricing of our products. A decline in the U.S. dollar relative to foreign currencies may result in increased prices for metals and metal products in the United States and reduce the amount of metal imported into the U.S. as imported metals become relatively more expensive. We may not be able to pass these increased costs on to our customers. If the value of the U.S. dollar improves relative to foreign currencies, this may result in increased metal being imported into the U.S., which in turn may pressure existing domestic prices for metal. This could also occur if global economies are weaker than the U.S. economy, creating a significant price spread between the U.S. and foreign markets.
We operate in an industry that is subject to cyclical fluctuations and any downturn in general economic conditions or in our customers’ specific industries could negatively impact our profitability and cash flows.
The metals service center industry is cyclical and impacted by both market demand and metals supply. Periods of economic slowdown (such as global or regional recessions) decrease the demand for our products and adversely affect our
17
pricing. If either demand or pricing were to decline from the current levels, this could reduce our profitability and cash flows.
We sell many products to industries that are cyclical, such as the non-residential construction, semiconductor, energy, aerospace and heavy equipment industries. Although many of our direct sales are to sub-contractors or job shops that may serve many customers and industries, the demand for our products is directly related to, and quickly impacted by, demand for the finished goods manufactured by customers in these industries, which may change as a result of changes in the general U.S. or worldwide economy, domestic exchange rates, energy prices or other factors beyond our control.
We compete with a large number of companies in the metals service center industry, and, if we are unable to compete effectively, our profitability and cash flows may decline.
We compete with a large number of other general-line distributors and processors, and specialty distributors in the metals service center industry. Competition is based principally on price, inventory availability, timely delivery, customer service, quality and processing capabilities. Competition in the various markets in which we participate comes from companies of various sizes, some of which have more established brand names in the local markets that we serve. To compete for customer sales, we may lower prices or offer increased services at a higher cost, which could reduce our profitability and cash flows. Rapidly declining prices and/or demand levels may escalate competitive pressures, with service centers selling at substantially reduced prices, and sometimes at a loss, in an effort to reduce their high-cost inventory and generate cash. Any increased and/or sustained competitive pressure could cause our share of industry sales to decline along with our profitability and cash flows.
If we were to lose any of our primary suppliers or otherwise be unable to obtain sufficient amounts of necessary metals on a timely basis, we may not be able to meet our customers’ needs and may suffer reduced sales.
We have few long-term contracts to purchase metals. Therefore, our primary suppliers of aluminum, carbon, stainless and alloy steel or other metals could curtail or discontinue their delivery of these metals to us in the quantities we need with little or no notice. Our ability to meet our customers’ needs and provide value-added inventory management services depends on our ability to maintain an uninterrupted supply of high-quality metal products from our suppliers. If our suppliers experience production problems, lack of capacity or transportation disruptions, the lead times for receiving our supply of metal products could be extended and the cost of our inventory may increase. If, in the future, we are unable to obtain sufficient amounts of the necessary metals at competitive prices and on a timely basis from our customary suppliers, we may not be able to obtain these metals from acceptable alternative sources at competitive prices to meet our delivery schedules. Even if we do find acceptable alternative suppliers, the process of locating and securing these alternatives may be disruptive to our business, which could have an adverse impact on our ability to meet our customers’ needs and reduce our profitability and cash flows. In addition, if a significant domestic supply source is discontinued and we cannot find acceptable domestic alternatives, we may need to find foreign sources of supply. Using foreign sources of supply could result in longer lead times, increased price volatility, less favorable payment terms, increased exposure to foreign currency movements and certain tariffs and duties and require greater levels of working capital. Alternative sources of supply may not maintain the quality standards that are in place with our current suppliers that could impact our ability to provide the same quality of products to our customers that we have provided in the past, which could cause our customers to move their business to our competitors or to file claims against us, and such claims may be more difficult to pass through to foreign suppliers.
There has been significant consolidation at the metal producer level both globally and within the U.S. This consolidation has reduced the number of suppliers available to us, which may limit our ability to obtain the necessary metals to service our customers. The number of available suppliers may be further reduced if the general economy enters into another recession. Lower metal prices and lower demand levels may cause certain mills to reduce their production capacity; and, in that case, the mill may operate at a loss, which could cause one or more mills to discontinue operations if the losses continue over an extended period of time or if the mill cannot obtain the necessary financing to fund its operating costs.
18
We rely upon our suppliers as to the specifications of the metals we purchase from them.
We rely on mill certifications that attest to the physical and chemical specifications of the metal received from our suppliers for resale and generally, consistent with industry practice, we do not undertake independent testing of such metals unless independent tests are required by customers. We rely on customers to notify us of any metal that does not conform to the specifications certified by the supplying mill. Although our primary sources of products have been domestic mills, we have and will continue to purchase product from foreign suppliers when we believe it is appropriate. In the event that metal purchased from domestic suppliers is deemed to not meet quality specifications as set forth in the mill certifications or customer specifications, we generally have recourse against these suppliers for both the cost of the products purchased and possible claims from our customers. However, such recourse will not compensate us for the damage to our reputation that may arise from substandard products and possible losses of customers. Moreover, there is a greater level of risk that similar recourse will not be available to us in the event of claims by our customers related to products from foreign suppliers that do not meet the specifications set forth in the mill certifications. In such circumstances, we may be at greater risk of loss for claims for which we do not carry, or carry insufficient, insurance.
Climate change might adversely impact our supply chain or our operations.
Concern about climate change might result in new legal and regulatory requirements to reduce or mitigate the effects of climate change. While we believe our operations do not emit significant amounts of carbon dioxide or other greenhouse gases, legal or regulatory changes related to climate change may result in higher prices for metal, higher prices for utilities required to run our facilities, higher fuel costs for us and our suppliers, increased compliance costs and other adverse impacts. To the extent that new legislation or regulations increase our costs, we may not be able to fully pass these costs on to our customers without a resulting decline in sales and adverse impact to our profits.
Changing market dynamics, global policy developments, and the increasing frequency and impact of extreme weather events on critical infrastructure in the U.S. and elsewhere have the potential to disrupt our business, the business of our third-party suppliers, and the business of our customers, and may cause us to experience higher attrition, losses and additional costs to maintain or resume operations.
There is also increased focus by governmental and non-governmental entities on sustainability matters. Any perception that we have failed to act responsibly regarding climate change could result in negative publicity and adversely affect our business and reputation.
There also has been increased stakeholder focus, including by U.S. and foreign governmental authorities, investors, customers, media and nongovernmental organizations, on environmental sustainability matters, such as climate change, the reduction of greenhouse gases and water consumption. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in taxes, restrictions on or increases in the costs of supplies, transportation and utilities, any of which could increase our operating costs, and necessitate future investments in facilities and equipment. Further, our customers we serve may impose emissions reduction or other environmental standards and requirements. As a result, we may experience increased compliance burdens and the sourcing of our products may be adversely affected. These risks also include the increased pressure to make commitments, set targets, or establish additional goals to take actions to meet them, which could expose us to market, operational, execution and reputational costs or risks. Conversely, if we are not effective in addressing social and environmental sustainability matters, consumer trust and investor confidence in our Company may suffer.
We face increased competition from alternative materials and risks concerning innovation, new technologies, products and increasing customer requirements.
As a result of increasingly stringent regulatory requirements, designers, engineers and industrial manufacturers, especially those in the automotive industry, are increasing their use of lighter weight and alternative materials, such as composites, plastics, glass and carbon fiber. In addition, higher sustained market prices of metal products could cause new alternative material producers to enter the market. New or increased use of such materials could reduce the demand for metal products, which may reduce our profitability and cash flow.
19
If metals prices increase compared to certain substitute materials, the demand for our products could be negatively impacted, which could have an adverse effect on our financial results.
In certain applications, metal products compete with other materials, such as composites, glass, carbon fiber, wood and plastic. Prices of all of these materials fluctuate widely, and differences between the prices of these materials and the price of metal products may adversely affect demand for our products and/or encourage material substitution, which could adversely affect the prices of and demand for metal products. The higher cost of metal relative to certain other materials may make material substitution more attractive for certain uses.
Our insurance coverage, customer indemnifications or other liability protections may be unavailable or inadequate to cover all of our significant risks or our insurers may deny coverage of or be unable to pay for material losses we incur, which could adversely affect our profitability and overall financial position.
We strive to obtain insurance agreements from financially solid, highly rated counterparties in established markets to cover significant risks and liabilities. Not every risk or liability can be insured, and for risks that are insurable, the policy limits and terms of coverage reasonably obtainable in the market may not be sufficient to cover all actual losses or liabilities incurred. Even if insurance coverage is available, we may not be able to obtain it at a price or on terms acceptable to us. Disputes with insurance carriers, including over policy terms, reservation of rights, the applicability of coverage (including exclusions), compliance with provisions (including notice) and/or the insolvency of one or more of our insurers may significantly affect the amount or timing of recovery.
In some circumstances we may be entitled to certain legal protections or indemnifications from our customers through contractual provisions, laws, regulations or otherwise. However, these protections are not always available, are typically subject to certain terms or limitations, including the availability of funds, and may not be sufficient to cover all losses or liabilities incurred.
If insurance coverage, customer indemnifications and/or other legal protections are not available or are not sufficient to cover our risks or losses, it could have a material adverse effect on our financial position, results of operations and/or cash flows.
An increase in delinquencies or net losses of customers could adversely affect our results.
Inherent in the operation of our business is the credit risk associated with our customers. The creditworthiness of each customer and the rate of delinquencies and net losses on customer obligations are directly impacted by several factors, including relevant industry and economic conditions, the availability of capital, the experience and expertise of the customer’s management team, commodity prices and political events. Any increase in delinquencies and credit losses on customer obligations could have a material adverse effect on our earnings and cash flows. In addition, although we evaluate and adjust allowances for credit losses related to past due and non-performing receivables on a regular basis, adverse economic conditions or other factors that might cause deterioration of the financial health of our customers could change the timing and level of payments received and thus necessitate an increase in our estimated losses, which could also have a material adverse effect on our earnings and cash flows.
If we do not successfully implement our growth strategy, our ability to grow our business could be impaired.
We may not be able to identify suitable acquisition candidates or successfully complete any acquisitions or integrate any other businesses into our operations. If we cannot identify suitable acquisition candidates or are otherwise unable to complete acquisitions, we may not be able to continue to grow our business as expected and, if we cannot successfully integrate recently acquired businesses, we may incur increased or redundant expenses. Moreover, any additional indebtedness we incur to pay for these acquisitions could adversely affect our liquidity and financial condition.
We have invested a significant amount of capital in new locations and new processing capabilities. We may not be able to identify sufficient opportunities for internal growth to be able to sustain growth at similar levels. In addition, we may not realize the expected returns from these investments.
20
Acquisitions present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of each transaction.
Since our initial public offering in September 1994, we have successfully purchased 71 businesses. We continue to evaluate acquisition opportunities and expect to continue to grow our business through acquisitions in the future. Risks we may encounter in acquisitions include:
| ● | the acquired company may not perform as anticipated or expected strategic benefits may not be realized, which could result in an impairment charge or otherwise impact our results of operations; |
| ● | we may not realize the anticipated increase in our revenues if a larger than predicted number of customers decline to continue purchasing products from us; |
| ● | we may have to delay or not proceed with a substantial acquisition if we cannot obtain the necessary funding to complete the acquisition in a timely manner; |
| ● | we may significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition or assume existing debt of an acquired company, which, among other things, may result in a downgrade of our credit ratings; |
| ● | we may have multiple and overlapping product lines that may be offered, priced and supported differently, which could cause our gross profit margin to decline; |
| ● | we may have increased inventory exposure for a short time period if the acquired company has significant amounts of material on order; |
| ● | our relationship with current and new employees, customers and suppliers could be impaired; |
| ● | our due diligence process may fail to identify risks that could negatively impact our financial condition; |
| ● | we may lose anticipated tax benefits or have additional legal or tax exposures if we have prematurely or improperly combined entities; |
| ● | we may face contingencies related to product liability, intellectual property, financial disclosures, environmental issues, violations of regulations/policies, tax positions and accounting practices or internal controls; |
| ● | the acquisition may result in litigation from terminated employees or third parties; |
| ● | our management’s attention may be diverted by transition or integration issues; |
| ● | investments in excess of our expectations may be required to implement necessary compliance processes and related systems, including IT systems, accounting systems and internal controls over financial reporting; |
| ● | we may pay more than the acquired company is worth; |
| ● | we may be unable to obtain timely approvals from governmental authorities under competition and antitrust laws; |
| ● | we may assume substantial additional environmental exposures, commitments, contingencies and remediation and reclamation projects; and |
21
| ● | we may undertake acquisitions financed in part through public offerings or private placements of debt or equity securities, or other arrangements. Such acquisition financing could result in a decrease in our earnings and adversely affect other leverage measures. If we issue equity securities or equity-linked securities, the issued securities may have a dilutive effect on the interests of the holders of our common stock. |
These factors could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or the completion of a number of acquisitions in any short period of time.
In addition, most of the acquisition agreements we have entered into require the former owners to indemnify us against certain liabilities related to the operation of those companies before we acquired them. In most of these agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. Similarly, the purchasers of our non-core businesses may from time to time agree to indemnify us for operations of such businesses after the closing. We cannot be assured that any of these indemnification provisions will fully protect us, and as a result we may face unexpected liabilities that adversely affect our consolidated results of operations, financial condition and cash flows.
We are a decentralized company, which presents certain risks.
With a diverse geographic footprint in both North America and internationally, we believe our decentralized structure has catalyzed our growth and enabled us to remain responsive to opportunities and to our customers’ needs by leaving significant control and decision-making authority and accountability in the hands of local management. Because we are decentralized, we may be slower to detect compliance-related problems (e.g., a rogue employee undertaking activities that are prohibited by applicable law or by our internal policies) and “company-wide” business initiatives, such as the integration of disparate information technology systems, are often more challenging and costly to implement than they would be in a more centralized environment. Depending on the nature of the problem or initiative in question, such failure could materially adversely affect our business, financial condition or results of operations.
We are subject to various environmental, employee safety and health, and customs and export laws and regulations, which could subject us to significant liabilities and compliance expenditures.
We are subject to foreign, federal, state and local environmental laws and regulations concerning air emissions, wastewater discharges, underground storage tanks and solid and hazardous waste disposal at or from our facilities. Our operations are also subject to various employee safety and health laws and regulations, including those concerning occupational injury and illness, employee exposure to hazardous materials and employee complaints. We are also subject to customs and export laws and regulations for international shipment of our products. Environmental, employee safety and health, and customs and export laws and regulations are comprehensive, complex and frequently changing. Some of these laws and regulations are subject to varying and conflicting interpretations. We are subject from time to time to administrative and/or judicial proceedings or investigations brought by private parties or governmental agencies with respect to environmental matters, employee safety and health issues or customs and export issues. Proceedings and investigations with respect to environmental matters, any employee safety and health issues or customs and export issues could result in substantial costs to us, divert our management’s attention and result in significant liabilities, fines or the suspension or interruption of our service center activities. Some of our current properties are located in industrial areas with histories of heavy industrial use. The location of these properties may require us to incur environmental expenditures and to establish accruals for environmental liabilities that arise from causes other than our operations. In addition, we are currently remediating contamination in connection with a certain property related to activities at former manufacturing operations of a subsidiary we acquired. Future events, such as changes in existing laws and regulations or their enforcement, new laws and regulations or the discovery of conditions not currently known to us, could result in material environmental or export compliance or remedial liabilities and costs, constrain our operations or make such operations more costly.
22
We operate internationally and are subject to exchange rate fluctuations, exchange controls, political risks and other risks relating to international operations.
Seven percent of our 2021 sales were to international customers, subjecting us to the risks of doing business on a global level. These risks include fluctuations in currency exchange rates, economic instability and disruptions, restrictions on the transfer of funds and the imposition of duties and tariffs. Additional risks from our multinational business include transportation delays and interruptions, war, terrorist activities, epidemics, pandemics, political instability, import and export controls, local regulation, changes in governmental policies, labor unrest and current and changing regulatory environments. In addition, government policies on international trade and investment such as import quotas, tariffs, and capital controls, whether adopted by individual governments or addressed by regional trade blocs, can affect the demand for our customers’ products and services. The implementation of more restrictive trade policies, such as higher tariffs or new barriers to entry, in countries in which our customers sell large quantities of products and services could negatively impact our business, results of operations and financial condition.
Our operating results could be negatively affected by the global laws, rules and regulations, as well as political environments in the jurisdictions in which we operate. There could be reduced demand for our products, decreases in the prices at which we can sell our products and disruptions of production or other operations. Additionally, there may be substantial capital and other costs to comply with regulations and/or increased security costs or insurance premiums, any of which could negatively impact our operating results.
Our international operations continue to expand, exposing us to additional risks.
Our international presence has grown, so the risk of incurring liabilities or fines resulting from non-compliance with various U.S. or international laws and regulations has increased. For example, we are subject to the FCPA, and similar worldwide anti-bribery laws in non-U.S. jurisdictions such as the United Kingdom’s Bribery Act 2010, which generally prohibit companies and their intermediaries from corruptly paying, offering to pay, or authorizing the payment of money, a gift, or anything of value, to a foreign official or foreign political party, for purposes of obtaining or retaining business. A company can be held liable under these anti-bribery laws not just for its own direct actions, but also for the actions of its foreign subsidiaries or other third parties, such as agents or distributors. In addition, we could be held liable for actions taken by employees or third parties on behalf of a company that we acquire. If we fail to comply with the requirements under these laws and other laws, we are subject to due to our international operations, we may face possible civil and/or criminal penalties, which could have a material adverse effect on our business or financial results.
We rely on information management systems and any damage, interruption or compromise of our information management systems or data could disrupt and harm our business.
We rely upon information technology systems and networks, some of which are managed by third parties, to process, transmit, and store electronic information in connection with the operation of our business. Additionally, we collect and store data that is sensitive to our company. Operating these information technology systems and networks and processing and maintaining this data, in a secure manner, is critical to our business operations and strategy. Our information management systems and the data contained therein are vulnerable to damage, including interruption due to power loss, system and network failures, operator negligence and similar causes.
In addition, our systems and data are susceptible to security breaches, viruses, malware, and other cybersecurity attacks. Cybersecurity attacks are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced threats. These threats pose a risk to the security of our information technology systems and networks and the confidentiality, availability and integrity of our data. We have experienced cybersecurity events such as viruses and attacks on our IT systems. To date, none of these events has had a material impact on our operations or financial results. However, future threats could, among other things, cause harm to our business and our reputation; disrupt our operations; expose us to potential liability, regulatory actions and loss of business; and impact our results of operations materially. Our insurance coverage may not be adequate to cover all the costs related to cybersecurity attacks or disruptions resulting from such events.
23
Given the unpredictability of the timing, nature and scope of cybersecurity attacks or potential disruptions, we could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Any significant compromise of our information management systems or data could impede or interrupt our business operations and may result in negative consequences including loss of revenue, fines, penalties, litigation, reputational damage, inability to accurately and/or timely complete required filings with government entities including the SEC and the Internal Revenue Service, unavailability or disclosure of confidential information (including personal information) and negative impact on our stock price.
Data privacy and information security may require significant resources and present certain risks.
We collect, store, have access to and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to privacy and security laws, regulations and/or customer-imposed controls. Despite our efforts to protect such data, we cannot guarantee protection from all material security breaches, theft, misplaced or lost data, programming errors, or employee errors that could potentially lead to the compromise of such data, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, any of which could result in costly litigation and liability or reputational harm. Furthermore, we may be required to expend significant attention and financial resources to protect against physical or cybersecurity breaches that could result in the misappropriation of our information or the information of our employees and customers.
Our enterprise data practices, including the collection, use, sharing, and security of the personal identifiable information of our customers, employees, or suppliers are subject to increasingly complex, restrictive, and punitive regulations in all key market regions.
Under these regulations, the failure to maintain compliant data practices could result in consumer complaints and regulatory inquiry, resulting in civil or criminal penalties, as well as brand impact or other harm to our business. In addition, increased consumer sensitivity to real or perceived failures in maintaining acceptable data practices could damage our reputation and deter current and potential users or customers from using our products and services. Because many of these laws are new, there is little clarity as to their interpretation, as well as a lack of precedent for the scope of enforcement. The cost of compliance with these laws and regulations will be high and is likely to increase in the future. For example, in Europe, the General Data Protection Regulation applies to all of our ongoing operations in the EU as well as some of our operations outside of the EU that involve the processing of EU personal data. This regulation imposes significant potential financial penalties for noncompliance, including fines of up to 4% of worldwide revenue. Similar regulations are coming into effect in Brazil and China. Other foreign, state and local jurisdictions have adopted and are considering adopting, laws and regulations imposing obligations regarding personal data. In some cases, these laws provide a private right of action that would allow customers to bring suit directly against us for mishandling their data.
Our financial results may be affected by various legal and regulatory proceedings, including those involving antitrust, tax, environmental, or other matters.
We are subject to a variety of litigation and legal compliance risks. These risks include, among other things, possible liability relating to product liability, personal injuries, intellectual property rights, contract-related claims, government contracts, taxes, environmental matters and compliance with U.S. and foreign laws, including competition laws and laws governing improper business practices. We or one of our subsidiaries could be charged with wrongdoing as a result of such matters. If convicted or found liable, we could be subject to significant fines, penalties, repayments, or other damages (in certain cases, treble damages). As a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time and so may their related interpretations. Changes in laws or regulations could result in higher expenses and payments, and uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights.
24
The volatility of the stock market could result in a material impairment of goodwill or indefinite-lived intangible assets.
We review the recoverability of goodwill and indefinite-lived intangible assets annually or whenever significant events or changes in circumstances occur that might impair the recovery of recorded costs. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or indefinite-lived intangible assets may not be recoverable, include a decline in stock price and market capitalization, declines in the market conditions for our products, viability of end markets (such as the energy (oil and natural gas) market in which we recognized $137.5 million of impairment and restructuring charges in the first quarter of 2020 due to our reduced long-term outlook for our energy-related businesses – see discussion of our 2020 impairment charges in Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data”), loss of customers, reduced future cash flow estimates, and slower growth rates in our industry. If prices for the products our customers sell fall substantially or remain low for a sustained period, we may be (i) unable to realize a profit from businesses that service such customers, (ii) required to record additional impairments, or (iii) required to suspend or reorganize operations that service such customers. An impairment charge, if incurred, could be material.
Our business operations and financial performance could be adversely affected by changes in our relationship with our employees or changes to U.S. or foreign employment regulations.
We had approximately 13,700 employees worldwide as of December 31, 2021. This means we have a significant exposure to changes in domestic and foreign laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship requirements and payroll taxes, which likely would have a direct impact on our operating costs. A significant increase in minimum wage or overtime rates in jurisdictions where we have employees could have a significant impact on our operating costs and may require that we relocate those operations or take other steps to mitigate such increases, all of which may cause us to incur additional costs, expend resources responding to such increases and lower our profitability.
We face certain risks associated with potential labor disruptions.
Approximately 12% of our employees are covered by collective bargaining agreements and/or are represented by unions or workers’ councils. Approximately 400 employees are covered by 19 different collective bargaining agreements that expire in 2022. While we believe that our relations with our employees are generally good, we cannot provide assurances that we will be completely free of labor disruptions such as work stoppages, work slowdowns, union organizing campaigns, strikes, lockouts or that any existing labor disruption will be favorably resolved. We could incur additional costs and/or experience work stoppages that could adversely affect our business operations through a loss of revenue and strained relationships with customers.
Risks Related to our Indebtedness
Our indebtedness could impair our financial condition or cause a downgrade of our credit rating and reduce the funds available to us for other purposes and our failure to comply with the covenants contained in our debt instruments could result in an event of default that could adversely affect our operating results.
We have substantial debt service obligations. As of December 31, 2021, we had aggregate outstanding indebtedness of approximately $1.66 billion. This indebtedness could adversely affect us in the following ways:
| ● | additional financing may not be available to us in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes and, if available, may be considerably more costly than our current debt costs; |
| ● | a significant portion of our cash flow from operations must be dedicated to the payment of interest and principal on our debt, which reduces the funds available to us for our operations, dividends or other purposes; |
25
| ● | our leverage may increase our vulnerability to economic downturns and limit our ability to withstand adverse events in our business by limiting our financial alternatives; and |
| ● | our ability to capitalize on significant business opportunities, including potential acquisitions, and to plan for, or respond to, competition and changes in our business may be limited due to our indebtedness. |
Our existing debt agreements contain financial and restrictive covenants that limit the total amount of debt that we may incur and may limit our ability to engage in other activities that we may believe are in our long-term best interests. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or prevent us from accessing additional funds under our revolving credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned. See discussion regarding our financial covenants in the “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We may not be able to generate sufficient cash flow to meet our existing debt service obligations.
Our ability to generate sufficient cash flow from operations, draw on our revolving credit facility or access the capital markets to make scheduled payments on our debt obligations, including our $500 million of senior notes that mature in 2023, will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. For example, we may not generate sufficient cash flow from our operations to repay amounts due on our debt securities when they mature in 2023, 2025, 2030 and 2036. If we do not generate sufficient cash flow from operations or have availability to borrow on our revolving credit facility to satisfy our debt obligations, we would expect to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We may not be able to consummate any such transactions at all or on a timely basis or on terms, and for proceeds, that are acceptable to us. These transactions may not be permitted under the terms of our various debt instruments then in effect. Our inability to generate sufficient cash flow to satisfy our debt obligations or to timely refinance our obligations on acceptable terms could adversely affect our ability to serve our customers or we may not be able to continue our operations as planned.
Changes in the Company’s credit ratings could increase cost of funding.
Our credit ratings are important to our cost of capital. The major rating agencies routinely evaluate our credit profile and assign debt ratings to Reliance. This evaluation is based on a number of factors, which include financial strength, business and financial risk, as well as transparency with rating agencies and timeliness of financial reporting. Any downgrade in our credit rating could increase our cost of capital and have a material adverse effect on our business, financial condition, results of operations or cash flows.
We are permitted to incur more debt, which may intensify the risks associated with our current leverage, including the risk that we will be unable to service our debt or that our credit rating may be downgraded.
We may incur substantial additional indebtedness in the future. Although the terms governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to numerous qualifications and exceptions, and the indebtedness we may incur in compliance with these restrictions could be substantial. If we incur additional debt, the risks associated with our leverage, including the risk that we will be unable to service our debt or that we may be subject to a credit rating downgrade, may increase.
Our acquisition strategy and growth capital expenditures may require access to external capital, and limitations on our access to external financing sources could impair our ability to grow.
We may have to rely on external financing sources, including commercial borrowings and issuances of debt and equity securities, to fund our acquisitions and growth capital expenditures. Limitations on our access to external financing sources, whether due to tightened capital markets, more expensive capital or otherwise, could impair our ability to execute our growth strategy.
26
Because all of our available borrowing capacity on our revolving credit facility bears interest at rates that fluctuate with changes in certain prevailing short-term interest rates, if we increase our leverage in the future, we are vulnerable to increases in interest rates.
The available borrowing on our revolving credit facility bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates, primarily based on the London Interbank Offered Rate for deposits of U.S. dollars (“LIBOR”). LIBOR tends to fluctuate based on general interest rates, rates set by the Federal Reserve and other central banks, the supply of and demand for credit in the London interbank market and general economic conditions. As of December 31, 2021, we had $1.49 billion available for borrowing on our revolving credit facility with interest on borrowings at variable rates based on LIBOR. We currently do not use derivative financial instruments to manage the potential impact of interest rate risk. Accordingly, our interest expense for any particular period will fluctuate based on LIBOR and other variable interest rates if we borrow on our revolving credit facility.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2021, we operated a network of approximately 315 locations in 40 states and in 13 other countries. In the opinion of management, all of our facilities are in good or excellent condition and are adequate for our existing operations. These facilities currently operate at about 50-60% of capacity based upon a 24-hour seven-day week, with each location averaging approximately two shifts operating at full capacity for a five-day work week. We have the ability to increase our operating capacity significantly without further investment in facilities or equipment if demand levels increase.
We leased 99 of our metals service center facilities as of December 31, 2021. In addition, we have ground leases and other leased spaces, such as depots, sales offices and storage, totaling 6.9 million square feet. Total square footage on all company-owned properties is approximately 29.5 million and represents approximately 81% of the total square footage of our operating facilities. Our leases of facilities and other spaces expire at various times through 2045 and certain ground leases expire at various times through 2068. The aggregate monthly rent amount for these properties is approximately $3.0 million.
Item 3. Legal Proceedings
The information contained under the captions “Legal Matters” and “Environmental Contingencies” in Note 16—“Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” is incorporated by reference herein.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is owned by 171 stockholders of record as of February 18, 2022. Our common stock has traded for the past 28 years on the NYSE under the symbol “RS” and was first traded September 16, 1994. Our stockholders of record exclude those stockholders whose shares are held for them in street name through banks, brokers or other nominee accounts.
We have paid quarterly cash dividends on our common stock for 62 consecutive years and have never reduced or suspended our regular quarterly dividend. In February 2022, our Board of Directors increased the regular quarterly dividend amount 27.3% to $0.8750 per share from $0.6875 per share. This recent increase is the 29th increase in our regular quarterly dividend rate since our IPO in 1994. Further increases in the quarterly dividend rate will be evaluated by the
27
Board based on conditions then existing, including our earnings, cash flows, financial condition and capital requirements, or other factors the Board may deem relevant. We expect to continue to declare and pay dividends in the future, if earnings are available to pay dividends, but we also intend to continue to retain a portion of earnings for reinvestment in our operations and expansion of our businesses. We cannot assure you that any dividends will be paid in the future or that, if paid, the dividends will be at the same amount or frequency as paid in the past. Our payment of dividends in the future will depend on business conditions, our financial condition, earnings, liquidity and capital requirements and other factors.
On July 20, 2021, our Board of Directors authorized a $1.0 billion share repurchase program that amended and restated our prior share repurchase program authorized on October 23, 2018. Our share repurchase plan does not obligate us to acquire any specific amount or number of shares. We repurchase shares of our common stock from time to time pursuant to a combination of one or more open market repurchases and transactions structured through investment banking institutions in reliance upon Rule 10b5-1 or Rule 10b-18 under the Exchange Act.
During 2021, we repurchased approximately 2.1 million shares of our common stock at an average cost of $153.55 per share, for a total of $323.5 million. As of December 31, 2021, we had remaining authorization under the plan to repurchase $712.6 million of our common shares.
Our share repurchase activity during the three months ended December 31, 2021 was as follows:
Period | Total Number of | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Plan | Maximum Dollar Value That May Yet Be Purchased Under the Plan(1) | ||||||
October 1 – October 31, 2021 | 39,208 | $ | 139.74 | 39,208 | $ | 875,606,809 | ||||
November 1 – November 30, 2021 | 595,576 | $ | 158.69 | 595,576 | $ | 781,096,692 | ||||
December 1 – December 31, 2021 | 439,307 | $ | 155.88 | 439,307 | $ | 712,616,106 | ||||
Total | 1,074,091 | $ | 156.85 | 1,074,091 | ||||||
Additional information regarding securities authorized for issuance under all stock-based compensation plans will be included under the caption “EXECUTIVE COMPENSATION TABLES—Equity Compensation Plan Information” in our definitive Proxy Statement for the 2022 annual meeting of stockholders to be held on May 18, 2022.
28
Stock Performance Graph
This graph is not deemed to be “filed” with the U.S. Securities and Exchange Commission (SEC) or subject to the liabilities of Section 18 of the Exchange Act and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act.
The following graph compares the performance of our common stock with that of the S&P 500, the Russell 2000 and an industry peer group consisting of publicly-traded metals service center companies (the “industry peer group”) for the five-year period from December 31, 2016 through December 31, 2021. The graph assumes, in each case, that an initial investment of $100 is made at the beginning of the five-year period. The cumulative total return reflects market prices at the end of each year and the reinvestment of dividends. Since there is no nationally-recognized industry index consisting of metals service center companies to be used as a peer group index, Reliance constructed the industry peer group. As of December 31, 2021, the industry peer group consisted of Olympic Steel Inc., which has securities listed for trading on NASDAQ; Ryerson Holding Corporation and Worthington Industries, Inc., each of which has securities listed for trading on the NYSE; and Russel Metals Inc., which has securities listed for trading on the Toronto Stock Exchange. The returns of each member of the industry peer group are weighted according to that member’s stock market capitalization.
The stock price performance shown on the graph below is not necessarily indicative of future price performance.
Comparison of 5 Year Cumulative Total Return Among Reliance Steel & Aluminum Co.,
the S&P 500 Index, the Russell 2000 Index and an Industry Peer Group
Copyright© 2022 Standard & Poor’s, a division of S&P Global. All rights reserved.
Copyright© 2022 Russell Investment Group. All rights reserved.
2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 | |||||||
Reliance Steel & Aluminum Co. | $ | 100.00 | $ | 110.47 | $ | 93.75 | $ | 161.48 | $ | 165.52 | $ | 228.12 | |||||
S&P 500 | 100.00 | 121.83 | 116.49 | 153.17 | 181.35 | 233.41 | |||||||||||
Russell 2000 | 100.00 | 114.65 | 102.02 | 128.06 | 153.62 | 176.39 | |||||||||||
Industry Peer Group | 100.00 | 100.90 | 76.68 | 97.96 | 116.64 | 154.40 | |||||||||||
Item 6. [Reserved]
29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A “Risk Factors” of this Annual Report on Form 10-K.
Overview
We generated record financial performance in 2021 across nearly every key metric. Outstanding execution again resulted in record profitability in the face of significant operational challenges that included supply chain challenges, including raw material shortages and labor constraints on us, our customers and suppliers. We believe that our resilient business model enables us to increase our average selling price and gross profit margin during operating environments that include rising prices and low levels of metal inventories and availability.
Certain key results for 2021 included the following:
| ● | Record net sales of $14.09 billion in 2021, up $5.28 billion, or 59.9%, from $8.81 billion in 2020 with a record average selling price per ton sold of $2,594 in 2021. |
| ● | Record gross profit of $4.49 billion in 2021 eclipsed our previous, pre-pandemic record gross profit of $3.33 billion in 2019. |
| ● | Record gross profit margin of 31.9% in 2021 eclipsed our previous record of 31.5% set in 2020, despite a significant last-in, first-out (“LIFO”) charge in 2021. |
| ● | Record pretax income and margin of $1.88 billion and 13.4% in 2021, which increased by 293.8% and 800 basis points, respectively. Excluding $177.2 million of impairment, restructuring and postretirement benefit plan settlement charges in 2020, our 2021 pretax income and margin improved 187.3% and 600 basis points, respectively, compared to 2020. |
| ● | Record earnings per diluted share of $21.97 were more than triple that of 2020. As adjusted for the 2020 nonrecurring charges noted above, our 2021 earnings per diluted share increased 185.7% from 2020. |
| ● | $177.0 million of dividends and $323.5 million of share repurchases compared to $164.1 million of dividends and $337.3 million of share repurchases in 2020. |
| ● | We improved our inventory turnover rate (based on tons) to 4.8 times from 4.7 times in 2020 despite significant supply chain disruptions. |
Our record net sales in 2021 were the result of a record average selling price per ton sold of $2,594, up 54.3% from 2020, which surpassed our previous average selling price per ton sold record set in 2008 by 24.9%, and a 4.6% increase in tons sold. However, our tons sold were below pre-pandemic levels of 2019 and record levels during 2018. We believe our tons sold in 2021 in most end markets we served was limited by factors that constrained economic activity such as metal supply constraints, labor shortages and other supply chain disruptions.
Our record profitability in 2021 was driven by record metals prices, fundamentally strong underlying demand in most end markets, a record gross profit margin, despite a significant LIFO charge of $704.8 million, and effective expense control. Our gross profit margins in each quarter of 2021 exceeded an approximate range of 29% to 31%. Our same-store SG&A expense increased 22.1% in 2021 compared to 2020 primarily due to increased incentive compensation as a result of our record gross profit and earnings; higher variable expenses associated with increased shipment levels. Same-store SG&A expense also increased to a lesser extent due to increases in headcount and inflationary increases in certain warehouse and delivery expenses including, fuel, trucking services and packaging costs.
30
Our SG&A expense is largely comprised of people-related compensation costs (approximately 60-65% historically) with changes from period to period being comprised of both changes in our incentive compensation and costs associated with changes in our headcount levels. In 2021, a larger portion of the increase in compensation expense was attributable to the significant increase in our earnings more so than changes in our headcount with our 2021 same-store headcount 4.4% higher than 2020, consistent with the increase in our tons sold, but 10.2% below our pre-pandemic levels in 2019 with our same-store tons sold down only 7.2%.
Our success in generating strong gross profit margins during periods of economic strength and weakness, and during increasing and declining metal pricing cycles is supported by our continued significant capital expenditure investments. We have made significant capital expenditure investments totaling approximately $1.40 billion over the past seven years, with approximately 50% spent on processing equipment. These significant investments have expanded our processing capabilities and enhanced the quality of our products through improvements in processing equipment technology. Our family of companies have been successful in increasing our gross profit margins utilizing these operational enhancements as they provide our managers the ability to focus on sales of higher margin value-added services, which is reflected in the increase in the percentage of orders that include these services. Our gross profit margin of 31.9% in 2021 was a record and approximately 500 basis points above our historical range of approximately 25% to 27% with 50% of our sales orders including value-added processing compared to our historical range of approximately 40% to 45%.
Our business model enables us to increase our average selling price and gross profit margin during operating environments that include rising prices and low levels of metal inventories and availability. Consequently, we were able
to generate a record gross profit margin and record pretax income margin in 2021 during which period we observed ongoing strength in metals pricing with historically high levels for carbon steel products (58% of our gross sales dollars in 2021) and stainless steel products (16% of our gross sales dollars in 2021) due to solid demand, increased input costs and limited metal supply.
During 2020, we recorded significant impairment and restructuring charges of $157.8 million, mainly due to our reduced long-term outlook for our businesses serving the energy (oil and natural gas) market and to a lesser extent charges related to the closure of certain locations where our outlook had turned negative based on the impacts from COVID-19, and postretirement benefit plan settlement charges of $19.4 million related to the termination of a frozen defined benefit plan. We recorded $4.8 million of impairment and restructuring charges in 2021. See Note 19—“Impairment and Restructuring Charges” and Note 13—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” for further information on our impairment and restructuring, and postretirement benefit plan settlement charges.
We generated cash flow from operations in 2021 of $799.4 million compared to $1.17 billion in 2020, despite significant investments in working capital resulting from significantly higher metals prices and to a lesser extent the increase in our tons sold.
The strong cash flow generation inherent in our business model enabled us to execute on our capital allocation priorities during 2021. During 2021, we acquired four companies for $439.3 million that aligned with our business model and strategy of investing in profitable, high quality businesses that expand our product, end market and geographic diversity. We also invested into our future growth with $236.6 million of capital expenditures in 2021 compared to $172.0 million in 2020. During 2021, our stockholder return activity totaled $500.5 million, generally consistent with 2020 in amount, and was comprised of $177.0 million of dividends and $323.5 million of share repurchases. In addition, we increased our regular quarterly dividend rate by 27.3% from $0.6875 to $0.8750 per share for the first quarter of 2022.
We believe our strong liquidity position that includes significant cash on hand, strong cash flow generation and $1.5 billion revolving credit facility with no borrowings outstanding will support our continued prudent use of capital as we maintain a flexible approach focused on growth, both organically and through acquisitions, and stockholder return activities.
We initially experienced adverse impacts to our operations from COVID-19 during 2020, and in 2021 continued to face a challenging operating environment presented by the pandemic and its related impacts, including supply chain disruptions and labor shortages for us and our customers. While our results of operations and customer demand in most of
31
our end markets have returned to or exceeded pre-pandemic levels, we will continue to evaluate the nature and extent of future impacts of COVID-19 on our business. Given the dynamic nature of COVID-19 and the related circumstances, including any potential resurgences of the virus or its variants or the failure to contain the spread of the pandemic by governments, we cannot reasonably estimate the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall financial performance.
We believe our industry-leading results are due to our unique business model and strong operational execution of our strategies. We believe our business model characteristics, including broad end market exposure, a wide geographical footprint, diverse product offerings with significant value-added processing capabilities, and focus on small order sizes and when-needed delivery, differentiate us from our metals service center industry peers. We believe these unique business model characteristics and strong operational execution of our strategies that include pricing discipline, concentrating on higher margin business and cross selling inventory within our operating locations enabled us to persevere during the pandemic in 2020 and were the cornerstone of our record financial results in 2021.
Effect of Demand and Pricing Changes on our Operating Results
Customer demand can have a significant impact on our results of operations. When volume increases, our revenue dollars generally increase, which contributes to increased gross profit dollars. Variable costs also increase with volume, primarily our warehouse, delivery, selling, general and administrative expenses. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.
Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels. As discussed above, our record profitability in 2021 was driven by record metals prices. Our revenues generally increase in conjunction with pricing increases as customer demand is not usually impacted by typical mill pricing increases. Our pricing usually increases when the cost of our materials increases. We are typically able to pass higher prices on to our customers. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. Because changes in metals pricing do not require us to adjust our expense structure other than for profit-based compensation, the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes. For more information, see Item 1A. “Risk Factors” under the caption “The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers.”
In addition, when volume or pricing increases, our working capital (primarily accounts receivable and inventories) requirements typically increase, resulting in lower levels of cash flow from operations, which may also require us to increase our outstanding debt and incur higher interest expense. Conversely, when customer demand falls, our operations typically generate increased cash flow as our working capital needs decrease.
Acquisitions
2021 Acquisitions
On October 1, 2021, we acquired Merfish United, Inc. (“Merfish United”), a leading master distributor of tubular building products that are distributed to its independent wholesale distributor customers across a variety of end markets in the United States. Merfish United, headquartered in Ipswich, Massachusetts, serves 47 U.S. states through its twelve strategically located distribution centers.
On December 10, 2021, we acquired Admiral Metals Servicenter Company, Inc. (“Admiral Metals”), a leading distributor of non-ferrous metals products in the Northeastern U.S. Admiral Metals, headquartered in Woburn, Massachusetts, serves a variety of end markets, including semiconductor, automotive, medical, infrastructure, aerospace and industrial markets through its eight strategically located service centers.
32
On December 10, 2021, we acquired Nu-Tech Precision Metals Inc. (“Nu-Tech Precision Metals”), a custom manufacturer of specialty extruded metals, fabricated parts and welded components. Nu-Tech Precision Metals, services the nuclear energy, aerospace and defense end markets from its location near Ottawa, Ontario, Canada.
On December 17, 2021, we acquired Rotax Metals, Inc. (“Rotax Metals”), a metals service center specializing in copper, bronze and brass alloys. Located in Brooklyn, New York, Rotax Metals will operate as a subsidiary of Yarde Metals, Inc., a wholly owned subsidiary of Reliance.
Included in our net sales for the three months ended December 31, 2021 were $171.0 million of net sales from our 2021 acquisitions. Full year 2021 pro forma sales of these acquisitions were approximately $900 million.
We funded our 2021 acquisitions with cash on hand.
2019 Acquisition
On December 31, 2019, we acquired Fry Steel Company (“Fry Steel”). Fry Steel is a general line and long bar distributor located in Santa Fe Springs, California. Fry Steel performs cutting services on its diverse product assortment and provides “in-stock” next day delivery of its products. Fry Steel’s net sales in 2021 were $92.1 million.
Internal Growth Activities
We continued to maintain our focus on internal growth by opening new facilities, building or expanding existing facilities, adding and upgrading processing equipment, improving the safety and energy efficiency of our operations, and enhancing the working environments of our employees. Our capital expenditure budgets have been at historically high levels in recent years. Our 2022 capital expenditure budget is $350 million, the highest in our history.
We have made significant capital expenditure investments totaling approximately $1.40 billion over the past seven years. In 2021, we performed value-added processing on 50% of the orders we shipped, up from 49% in 2020 and significantly higher than our historical range of approximately 40% to 45%. These significant investments have expanded our value-added processing capabilities that our managers in the field have successfully leveraged to increase the percentage of our orders with value-added processing, which has significantly contributed to increased gross profit margins in recent years and a record gross profit margin of 31.9% in 2021 that is approximately 500 basis points above our historical range of approximately 25% to 27%.
We believe that our ability to make significant investments in processing equipment and facilities provides a competitive advantage for us, as we can provide our customers with a higher quality product and expand our services to them, which we believe many metal service center competitors do not have the ability to provide.
33
Results of Operations
The following table sets forth certain income statement data for each of the last three years ended December 31, 2021 (dollars are shown in millions and certain percentages may not calculate due to rounding):
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | 2019 | |||||||||||||||
% of | % of | % of | |||||||||||||||
$ | Net Sales | $ | Net Sales | $ | Net Sales | ||||||||||||
Net sales | $ | 14,093.3 | 100.0 | % | $ | 8,811.9 | 100.0 | % | $ | 10,973.8 | 100.0 | % | |||||
Cost of sales (exclusive of depreciation and amortization expense shown below)(1) | 9,603.0 | 68.1 | 6,036.8 | 68.5 | 7,644.4 | 69.7 | |||||||||||
Gross profit(2) | 4,490.3 | 31.9 | 2,775.1 | 31.5 | 3,329.4 | 30.3 | |||||||||||
Warehouse, delivery, selling, general and administrative expense (“SG&A”)(3) | 2,306.5 | 16.4 | 1,874.0 | 21.3 | 2,095.4 | 19.1 | |||||||||||
Depreciation expense | 191.5 | 1.4 | 187.7 | 2.1 | 176.2 | 1.6 | |||||||||||
Amortization expense | 38.7 | 0.3 | 39.6 | 0.4 | 43.1 | 0.4 | |||||||||||
Impairment of long-lived assets | 4.7 | 0.0 | 108.0 | 1.2 | 1.2 | — | |||||||||||
Operating income | $ | 1,948.9 | 13.8 | % | $ | 565.8 | 6.4 | % | $ | 1,013.5 | 9.2 | % | |||||
| (1) | Cost of sales included $13.7 million of inventory step-up amortization in 2021 and $38.2 million of inventory provisions relating to the planned closure of certain energy-related operations in 2020. |
| (2) | Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales. About half of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform “first-stage” processing, which is generally not labor intensive as we are simply cutting the metal to size. Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from cost of sales. Therefore, our cost of sales is substantially comprised of the cost of the material we sell. We use gross profit and gross profit margin as shown above as measures of operating performance. Gross profit and gross profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings. Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies. |
| (3) | SG&A includes $5.7 million and $0.9 million of gains related to the sale of non-core property, plant and equipment in 2021 and 2019, respectively. |
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Net Sales
Year Ended December 31, | Dollar | Percentage | |||||||||
2021 |
| 2020 | Change | Change | |||||||
(in millions) | |||||||||||
Net sales | $ | 14,093.3 |
| $ | 8,811.9 | $ | 5,281.4 |
| 59.9 | % | |
Net sales, same-store | $ | 13,922.2 |
| $ | 8,811.9 | $ | 5,110.3 | 58.0 | % | ||
Year Ended December 31, | Percentage | ||||||||||
2021 |
| 2020 | Change | Change | |||||||
(tons in thousands) | |||||||||||
Tons sold |
| 5,472.9 |
| 5,230.5 |
| 242.4 |
| 4.6 | % | ||
Tons sold, same-store |
| 5,438.1 |
| 5,230.5 |
| 207.6 |
| 4.0 | % | ||
Year Ended December 31, |
| Price |
| Percentage | |||||||
2021 |
| 2020 |
| Change |
| Change | |||||
Average selling price per ton sold | $ | 2,594 |
| $ | 1,681 |
| $ | 913 |
| 54.3 | % |
Average selling price per ton sold, same-store | $ | 2,578 |
| $ | 1,681 |
| $ | 897 |
| 53.4 | % |
34
Our tons sold and average selling price per ton sold exclude the volumes processed by our toll processing operations. Our average selling price per ton sold includes insignificant intercompany transactions that are eliminated from our consolidated net sales. Same-store amounts exclude the results of our 2021 acquisitions.
Our net sales and average selling price per ton sold in 2021 were the highest in our history, surpassing our previous records set in 2018 and 2008, respectively. Underlying demand was fundamentally strong in most of the end markets we served in 2021. However, we believe our tons sold were limited by factors that constrained economic activity such as metal supply constraints, labor shortages and other supply chain disruptions.
Since we primarily purchase and sell our inventories in the spot market, the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase. Our same-store average selling price per ton sold in 2021 was significantly higher than 2020, mainly due to several and significant mill price increases for carbon and stainless steel products in 2021.
The mix of products sold can also have an impact on our overall average selling price per ton sold. During 2021, as a result of significant increases in prices for the carbon and stainless steel products we sell, our mix of carbon products sales increased to 58% from 51% in 2020 and sales of aluminum products decreased to 14% from 19% in 2020.
Our major commodity selling prices changed year-over-year from 2020 to 2021 as follows:
Same-store | ||||
Average Selling | Average Selling | |||
Price per Ton Sold | Price per Ton Sold | |||
(percentage change) | ||||
Carbon steel | 76.0 | % | 75.6 | % |
Stainless steel | 43.3 | % | 43.3 | % |
Aluminum | 15.7 | % | 15.7 | % |
Alloy | 16.9 | % | 16.9 | % |
Cost of Sales
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
| % of | % of | Dollar | Percentage | |||||||||||||
$ |
| Net Sales |
| $ |
| Net Sales |
| Change |
| Change | |||||||
(dollars in millions) |
| ||||||||||||||||
Cost of sales | $ | 9,603.0 | 68.1 | % |
| $ | 6,036.8 | 68.5 | % |
| $ | 3,566.2 | 59.1 | % | |||
The increase in cost of sales in 2021 compared to 2020 was mainly due to higher average costs per ton sold and higher tons sold. See “Net Sales” above for trends in both demand and costs of our products.
Cost of sales in 2021 included $13.7 million of amortization of inventory step-up related to our 2021 acquisitions. Cost of sales in 2020 included $38.2 million of net inventory provisions relating to the planned closure of certain energy-related operations. See Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data" for further information on our 2020 restructuring charges.
In addition, adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in expense of $704.8 million and income of $22.0 million in 2021 and 2020, respectively. Higher metal costs in our inventory as of December 31, 2021 as compared to December 31, 2020 resulted in significant LIFO expense in 2021.
As of December 31, 2021, the LIFO method inventory valuation reserve on our balance sheet was $820.4 million.
35
Gross Profit
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
| % of | % of | Dollar | Percentage | |||||||||||||
$ |
| Net Sales |
| $ |
| Net Sales |
| Change |
| Change | |||||||
(dollars in millions) |
| ||||||||||||||||
Gross profit | $ | 4,490.3 | 31.9 | % |
| $ | 2,775.1 | 31.5 | % |
| $ | 1,715.2 | 61.8 | % | |||
We generated record gross profits in 2021 as a result of a record average selling price per ton sold, a record gross profit margin, and increases in tons sold compared to 2020. Throughout 2021, we experienced ongoing strength in metals pricing, led by several mill price increases for carbon steel products (58% of our gross sales dollars in 2021), and stainless steel products (16% of our gross sales dollars in 2021), along with fundamentally strong underlying demand.
The $13.7 million of amortization of inventory step-up related to our 2021 acquisitions reduced our gross profit margin 10 basis points. The $38.2 million of net inventory provisions in 2020 reduced our gross profit margin 40 basis points. See Net Sales” and “Cost of Sales” above for further discussion on product pricing trends and our LIFO inventory valuation reserve adjustments, respectively.
Our gross profit margin in 2021 was a record, despite significant LIFO expense that reduced our gross profit margin by 500 basis points, surpassing our previous record set in 2020. We were able to increase our gross profit margin in 2021 compared to 2020 through the strong execution of our managers in the field, the strong metals pricing environment in 2021, the continuous improvements in our business and our ongoing investments in value-added processing equipment.
Expenses
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
| % of | % of | Dollar | Percentage | |||||||||||||
$ |
| Net Sales |
| $ |
| Net Sales |
| Change |
| Change | |||||||
(dollars in millions) | |||||||||||||||||
SG&A expense | $ | 2,306.5 | 16.4 | % |
| $ | 1,874.0 | 21.3 | % |
| $ | 432.5 | 23.1 | % | |||
SG&A expense, same-store | $ | 2,288.6 | 16.4 | % |
| $ | 1,874.0 | 21.3 | % |
| $ | 414.6 | 22.1 | % | |||
Depreciation & amortization expense | $ | 230.2 | 1.6 | % |
| $ | 227.3 | 2.6 | % |
| $ | 2.9 | 1.3 | % | |||
Impairment of long-lived assets | $ | 4.7 | — | % | $ | 108.0 | 1.2 | % | $ | (103.3) | (95.6) | % | |||||
Same-store amounts exclude the results of our 2021 acquisitions.
Our same-store SG&A expense was higher in 2021 compared to 2020 primarily due to increased incentive compensation as a result of our record gross profit and earnings; higher variable expenses associated with increased shipment levels. Same-store SG&A expense also increased to a lesser extent due to increases in headcount and inflationary increases in certain warehouse and delivery expenses including, fuel, trucking services and packaging costs.
Our SG&A expense is largely comprised of people-related compensation costs (approximately 60-65% historically) with changes from period to period being comprised of both changes in our incentive compensation and costs associated with changes in our headcount levels. In 2021, a larger portion of the increase in compensation expense was attributable to the significant increase in our earnings more so than changes in our headcount with our 2021 same-store headcount 4.4% higher than 2020, consistent with the increase in our tons sold, but 10.2% below our pre-pandemic levels in 2019 with our same-store tons sold down only 7.2%.
Included in Expenses are $4.8 million of impairment and restructuring charges in 2021 compared to impairment and restructuring charges of $119.6 million in 2020. Our 2020 charges were mainly due to closures of certain energy-related businesses (oil and natural gas) and our reduced long-term outlook for certain of our remaining energy-related businesses. Please refer to Note 7—“Intangible Assets, net” and Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our impairment and restructuring charges.
36
Operating Income
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
% of | % of | Dollar | Percentage | ||||||||||||||
$ |
| Net Sales |
| $ |
| Net Sales |
| Change |
| Change | |||||||
(dollars in millions) | |||||||||||||||||
Operating income | $ | 1,948.9 | 13.8 | % | $ | 565.8 | 6.4 | % | $ | 1,383.1 | 244.5 | % | |||||
Impairment and restructuring charges | $ | 4.8 | — | % | $ | 157.8 | 1.8 | % | $ | (153.0) | (97.0) | % | |||||
The increase in our operating income in 2021 compared to 2020 was due to record gross profit, as the result of a record average selling price per ton sold, fundamentally strong demand and a record gross profit margin, which was partially offset by higher incentive compensation, increases in certain SG&A expenses related to our increased shipments and to a lesser extent inflationary increases for certain warehouse and delivery expenses.
Excluding the impact of significant impairment and restructuring charges in 2020, our operating income of $1.95 billion in 2021 increased $1.23 billion, or 169.3%, compared to $723.6 million in 2020, and our operating income margin improved 560 basis points. The increase in our operating income margin, as adjusted, was mainly due to our significantly higher sales that decreased our SG&A expense as a percentage of sales, despite a significant increase in our SG&A expense.
See Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our impairment and restructuring charges. See “Net Sales” above for trends in both demand and costs of our products and “Expenses” for trends in our operating expenses.
Other Expense (Income), net
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
% of | % of | Dollar | Percentage | ||||||||||||||
$ |
| Net Sales |
| $ |
| Net Sales |
| Change |
| Change | |||||||
(dollars in millions) | |||||||||||||||||
Other expense, net | $ | 3.1 | — | % | $ | 24.7 | 0.3 | % | $ | (21.6) | (87.4) | % | |||||
The decrease in other expense, net in 2021 compared to 2020 was mainly due to postretirement benefit plan settlement charges of $19.4 million in 2020. See Note 13—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our 2020 postretirement benefit plan settlement charges.
Income Tax Rate
Our effective income tax rate in 2021 was 24.7%, compared to 22.1% in 2020. The increase in our effective income tax rate was mainly due to the significant increase in our profitability. The differences between our effective income tax rate and the U.S. federal statutory rate of 21.0% was mainly due to state income taxes partially offset by the effects of company-owned life insurance policies.
Net Income
Year Ended December 31, | |||||||||||||||||
2021 | 2020 | ||||||||||||||||
% of | % of | Dollar | Percentage | ||||||||||||||
$ |
| Net Sales |
| $ |
| Net Sales |
| Change |
| Change | |||||||
(dollars in millions) | |||||||||||||||||
Net income attributable to Reliance | $ | 1,413.0 | 10.0 | % | $ | 369.1 | 4.2 | % | $ | 1,043.9 | 282.8 | % | |||||
37
The increases in our net income and net income margin in 2021 compared to 2020 were mainly due to increased operating income and operating income margin as a result of record gross profit and a record gross profit margin partially offset by a significantly higher SG&A expense and higher effective income tax rate.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operations of $799.4 million in 2021 decreased from $1.17 billion in 2020. Our decreased operating cash flow was mainly the result of significantly increased working capital requirements in 2021 compared to 2020, mainly due to strong demand and rising metals pricing during 2021 that achieved record levels compared to the declining demand and pricing trends in 2020 related to the initial impacts from the COVID-19 pandemic. The strong demand and rising metals pricing environment required more investment in accounts receivable and inventories partially offset by an increase in accounts payable. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. Our average days sales outstanding rate was 38.9 days in 2021 compared to 41.9 days in 2020. Our inventory turnover rate (based on tons) during 2021 was 4.8 times (or 2.5 months on hand), an increase from 4.7 times (or 2.6 months on hand) in 2020.
Income taxes paid were $444.4 million in 2021, a significant increase from $87.5 million in 2020, due to our significantly higher pretax income.
Investing Activities
Net cash used in investing activities of $652.3 million in 2021 increased $463.9 million from $188.4 million used in 2020, mainly due to $439.3 million spent to fund our 2021 acquisitions and increased capital expenditures partially offset by increased proceeds from sales of property, plant and equipment. Capital expenditures were $236.6 million in 2021 compared to $172.0 million in 2020. The majority of our 2021 and 2020 capital expenditures related to growth initiatives. Proceeds from sales of property, plant and equipment were $36.0 million in 2021 compared to $6.7 million in 2020 and included $29.7 million from the sale of non-core assets for which we recognized $5.7 million of gains.
Financing Activities
Net cash used in financing activities of $528.9 million in 2021 increased from $483.0 million used in 2020, mainly due to decreased net debt borrowings. Net debt repayments were $1.5 million in 2021 compared to net debt borrowings of $58.8 million in 2020. Our shareholder return activities in 2021 included $177.0 million of dividends and $323.5 million of share repurchases compared to $164.1 million of dividends and $337.3 million of share repurchases in 2020.
We have paid regular quarterly dividends to our stockholders for 62 consecutive years and increased the quarterly dividend on our common stock 29 times since our IPO in 1994, with the most recent increase of 27.3% from $0.6875 per share to $0.8750 per share effective in the first quarter of 2022. We increased our dividend from $0.50 per share to $0.55 per share in February 2019, to $0.625 in February 2020, and to $0.6875 in February 2021. We have never reduced or suspended our regular quarterly dividend.
On July 20, 2021, our Board of Directors authorized a $1.0 billion share repurchase program that amended and restated our prior share repurchase program authorized in October 2018. The share repurchase program does not obligate us to
38
repurchase any specific amount or number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.
We repurchase shares through open market purchases, privately negotiated transactions and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 or Rule 10b-18 under the Exchange Act. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.
During 2021, we repurchased approximately 2.1 million shares of our common stock at an average cost of $153.55 per share, for a total of $323.5 million. During 2020, we repurchased approximately 3.7 million shares of our common stock at an average cost of $91.80 per share, for a total of $337.3 million. As of December 31, 2021, we had remaining authorization under the plan to repurchase approximately $712.6 million of our common stock. Through December 31, 2021, we have repurchased approximately 34.9 million shares at an average cost of $54.56 per share for a total of $1.91 billion since the inception of our share repurchase programs in 1994, including approximately 12.8 million shares repurchased at an average cost of $95.54 for a total of $1.22 billion during the last five years. We expect to continue to be opportunistic in our approach to repurchasing shares of our common stock.
Liquidity
We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and shareholder return activities over the next 12 months and beyond. Our total outstanding debt at December 31, 2021 was $1.66 billion which was unchanged from December 31, 2020. As of December 31, 2021, we had no outstanding borrowings and $8.9 million of letters of credit issued. As of December 31, 2021, we had $300.5 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as total debt, net of cash, divided by total Reliance stockholders’ equity plus total debt, net of cash) was 18.1%, up from 15.8% as of December 31, 2020.
On September 3, 2020, we entered into a $1.5 billion unsecured five-year Amended and Restated Credit Agreement (“Credit Agreement”) that amended and restated our existing $1.5 billion unsecured revolving credit facility. At December 31, 2021, borrowings under the Credit Agreement were available at variable rates based on LIBOR plus 1.25% or the bank prime rate plus 0.25% and we pay a commitment fee at an annual rate of 0.20% on the unused portion of the revolving credit facility. The applicable margins over LIBOR and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined in the Credit Agreement. All borrowings under the Credit Agreement may be prepaid without penalty. Our Credit Agreement includes provisions to change the reference rate to the then-prevailing market convention for similar agreements if a replacement rate for LIBOR is necessary during its term.
A revolving credit facility with a credit limit of $8.5 million is in place for an operation in Asia with an outstanding balance of $4.7 million and $5.4 million as of December 31, 2021 and 2020, respectively.
The Company had $221.1 million of operating lease obligations as of December 31, 2021 for processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. Our expected payments over the next 12 months under these operating leases are $62.1 million. See Note 10—“Leases” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.") for information regarding the maturities of our operating lease obligations.
The Company has obligations pursuant to certain qualified and non-qualified pension plans. A total of $40.0 million of liabilities was recognized on the balance sheet at December 31, 2021 and the Company expects to make plan contributions and benefit payments totaling $15.2 million over the next 12 months. See Note 13—“Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.") for information regarding our expected payments under these plans.
Our capital expenditures have been at elevated levels in recent years and our 2022 capital expenditure budget, including unspent amounts from 2021, is a record $350 million. As of December 31, 2021, we had entered into contracts related to capital expenditures in the amount of $69.2 million which is all expected to be paid over the next 12 months.
39
We primarily purchase and sell in the spot market and consequently our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods (lead times). In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months. The total amount of commitments under long-term inventory purchase agreements is estimated at approximately $442.2 million, with amounts in 2022, 2023 and thereafter being $196.1 million, $131.0 million and $115.1 million, respectively.
We have other contractual commitments under long-term agreements, generally for services, totaling $38.7 million at December 31, 2021, with amounts in 2022, 2023 and thereafter being $18.0 million, $13.8 million and $6.9 million, respectively.
In addition, the Company maintains a $1.0 billion share repurchase program with $712.6 million of remaining repurchase authorization as of December 31, 2021, which does not obligate the Company to acquire a specific amount or number of shares. We have also paid regular quarterly cash dividends on our common stock for 62 consecutive years. Our Board of Directors increased the quarterly dividend to $0.55 per share in February 2019 from $0.50 per share, to $0.625 per share in February 2020, to $0.6875 per share in February 2021 and to $0.8750 per share in February 2022. The holders of Reliance common stock are entitled to one vote per share on each matter submitted to a vote of stockholders.
Capital Resources
On November 20, 2006, we entered into an indenture (the “2006 Indenture”) for the issuance of $600.0 million of unsecured debt securities. The total issuance was comprised of (a) $350.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, which matured and were repaid on November 15, 2016 and (b) $250.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036.
On April 12, 2013, we entered into an indenture (the “2013 Indenture”) for the issuance of $500.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 4.50% per annum, maturing on April 15, 2023.
On August 3, 2020, we entered into an indenture (the “2020 Indenture” and, together with the 2013 Indenture and 2006 Indenture, the “Indentures”) for the issuance of $900.0 million of unsecured debt securities. The total issuance under the 2020 Indenture was comprised of (a) $400.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 1.30% (1.53% effective interest rate) per annum, maturing on August 15, 2025 and (b) $500.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 2.15% per annum, maturing on August 15, 2030.
Under the Indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest.
Various industrial revenue bonds had combined outstanding balances of $7.7 million and $8.3 million as of December 31, 2021 and 2020, respectively, and have maturities through 2027.
As of December 31, 2021, we had $911.3 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025.
We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due. In addition to funds generated from operations and funds available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired. We believe our sources of liquidity will continue to be adequate to maintain operations, make necessary capital expenditures, finance strategic growth through acquisitions and internal initiatives, pay dividends and opportunistically repurchase shares. Additionally, we believe our investment grade credit ratings enhance our ability to effectively raise capital, if needed. We
40
expect to continue our acquisition and internal growth and stockholder return activities and anticipate that we will be able to fund such activities as they arise.
Covenants
The Credit Agreement and the Indentures include customary representations, warranties, covenants, acceleration, indemnity and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio. Our interest coverage ratio for the twelve-month period ended December 31, 2021 was 32.4 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (“EBIT”), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of December 31, 2021, calculated in accordance with the terms of the Credit Agreement, was 20.4% compared to the debt covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of finance lease obligations and outstanding letters of credit, minus the lesser of cash held by our domestic subsidiaries and $200.0 million, divided by Reliance stockholders’ equity plus total debt).
We were in compliance with all financial covenants in our Credit Agreement at December 31, 2021.
Goodwill and Other Intangible Assets
We have one operating segment and also one reporting unit for goodwill impairment purposes. There have been no changes in our reportable segments; we have one reportable segment – metals service centers.
Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at December 31, 2021, or approximately 22% of total assets and 35% of total equity. Additionally, other intangible assets, net amounted to $1.08 billion at December 31, 2021, or approximately 11% of total assets and 18% of total equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests and further evaluation when certain events occur. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Refer to Critical Accounting Policies and Estimates for further information regarding our 2021 and 2020 impairment charges and discussion regarding judgments involved in testing for recoverability of our goodwill and other intangible assets.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The Company’s significant accounting policies, including recently issued accounting pronouncements, are fully described in Note 1—“Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.” When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.
41
Goodwill and Other Indefinite-Lived Intangible Assets
We test for impairment of goodwill and intangible assets deemed to have indefinite lives annually and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value. The qualitative factors we review include a decline in our stock price and market capitalization, a decline in the market conditions of our products and viability of end markets, and developments in our business and the overall economy. We make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, including calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and indefinite-lived intangible asset impairment test as of November 1 of each year. No impairment of goodwill was determined to exist in 2021, 2020 or 2019. We recorded impairment losses on our intangible assets with indefinite lives in the amount of $4.7 million and $67.8 million in 2021 and 2020, respectively. No impairment of intangible assets with indefinite lives was recognized in 2019. See Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data” for further information on our impairment charges.
Long-Lived Assets
We periodically review the recoverability of our other long-lived assets, primarily property, plant and equipment and intangible assets subject to amortization. The evaluation is performed at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. An impairment loss is recognized if the estimated undiscounted cash flows are less than the carrying amount of the assets. We must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges. We recorded impairment charges on property, plant and equipment of $9.3 million and $1.2 million in 2020 and 2019, respectively. No impairment of property, plant and equipment was recognized in 2021. We recorded impairment charges of $30.7 million on our intangible assets subject to amortization in 2020. No impairment of intangible assets subject to amortization was recognized in 2021 and 2019. See Note 19—"Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data” for further information on our impairment charges.
Impairment tests inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analysis. An impairment charge, if incurred, could be material. In 2021, the evaluation of our indefinite-lived intangible assets and long-lived assets included estimates regarding the eventual recovery of the commercial aerospace market for cash-generating units that have incurred losses in recent years. If the commercial aerospace market does not recover as we currently anticipate, an impairment charge may be incurred, that could be significant.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of business, we are exposed to various market risk factors, including changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates, and metals pricing, demand and availability.
Commodity price risk
Metal prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability, metals consumption, import levels into the U.S., global economic factors and foreign currency exchange rates. We do not currently use financial derivatives to hedge our exposure to metal price volatility. Decreases in metal prices could adversely affect our revenues, gross profit and net income. We primarily purchase and sell in the spot market and consequently are generally able to react quickly to changes in metals pricing. This strategy also limits our exposure to commodity prices to our inventories on hand. In an environment of increasing material costs our pricing
42
usually increases as we try to maintain the same gross profit percentage and typically generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. In periods where demand deteriorates rapidly and metal prices are declining significantly in a compressed period of time, a portion of our inventory on hand may be at higher costs than our selling prices, causing a significant adverse effect on our gross profit and pretax income margins. However, when prices stabilize and our inventories on hand reflect more current prices, our gross profit margins tend to return to more normalized levels. As more fully discussed in Item 1A “Risk Factors” of this Annual Report on Form 10-K, the Section 232 tariffs have led to a decrease in the level of imported metal into the U.S. The removal of the Section 232 tariffs could lead to increased levels of imported metals into the U.S. and result in domestic steel producers decreasing the prices of the metals they sell. A rapid decline in metal prices from current levels could result in a significant adverse effect on our revenues, gross profit and net income.
Foreign exchange rate risk
Because sales to international customers (based on the shipping destination) were approximately 7% of our consolidated 2021 net sales, we are exposed to foreign currency exchange gains and losses. The currency effects of translating the financial statements of our foreign subsidiaries, which operate in local currency environments, are included in accumulated other comprehensive loss and do not impact earnings unless there is a liquidation or sale of those foreign subsidiaries. We do not currently hedge our net investments in foreign subsidiaries due to the long-term nature of those investments.
Total foreign currency transaction losses included in our 2021, 2020 and 2019 earnings were $4.0 million, $2.3 million and $4.1 million, respectively.
Interest rate risk
We are exposed to market risk related to our fixed-rate and variable-rate long-term debt. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. Changes in interest rates may affect the market value of our fixed-rate debt. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes and we do not currently anticipate repayment of our fixed-rate long-term debt prior to scheduled maturities.
Market risk related to our variable-rate debt is estimated as the potential decrease in pretax earnings resulting from an increase in interest rates. As of December 31, 2021, our exposure to changes in variable interest rates was not significant as we had only $12.4 million of variable interest rate debt outstanding. However, as of December 31, 2021, we had approximately $1.5 billion available for borrowing on our revolving credit facility at variable interest rates. Consequently, any future borrowings on our revolving credit facility will increase market risk resulting from potential interest rate volatility.
LIBOR Phase Out
Amounts drawn under our Credit Agreement may bear interest rates in relation to LIBOR, depending on our selection of repayment options. On December 31, 2021, ICE Benchmark Administration Limited (“IBA”), the administrator of USD LIBOR, announced the ceasing of publication of one-week and two-month USD LIBOR while continuing the publication of the remaining USD LIBOR tenors until June 30, 2023, providing additional time for existing contracts that are dependent on LIBOR to mature.
Our Credit Agreement includes provisions to change the reference rate to the then-prevailing market convention for similar agreements if a replacement rate for LIBOR is necessary during its term. The International Swaps and Derivatives Association has developed provisions for SOFR-based fallback rates to apply upon permanent cessation of LIBOR and has published a protocol to enable market participants to include the new provisions in existing swap agreements.
We currently do not expect the transition from LIBOR to have a material impact on us.
43
Item 8. Financial Statements and Supplementary Data
RELIANCE STEEL & ALUMINUM CO.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Page | |
Report of Independent Registered Public Accounting Firm (PCAOB ID: | 45 | |
47 | ||
48 | ||
49 | ||
50 | ||
51 | ||
52 | ||
FINANCIAL STATEMENT SCHEDULE: | ||
80 |
All other schedules are omitted because either they are not applicable, not required or the information required is included in the Consolidated Financial Statements, including the notes thereto.
44
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Reliance Steel & Aluminum Co.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Reliance Steel & Aluminum Co. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II of valuation and qualifying accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
45
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recoverability of Long-Lived Assets and Indefinite-Lived Intangible Assets
As discussed in Notes 1 and 7 to the consolidated financial statements, property and equipment, net and intangible assets, net as of December 31, 2021 were $1,836.8 million and $1,077.7 million, respectively. The Company reviews the recoverability of property and equipment, net and amortizable intangible assets (long-lived assets) whenever significant events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets (asset groups). The Company tests the recoverability of indefinite-lived intangible assets annually or whenever significant events or changes in circumstances occur based on an analysis of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value.
We identified the assessment of the recoverability of long-lived assets and indefinite-lived intangible assets as a critical audit matter. Evaluating the Company’s identification of significant events or changes in circumstances, which indicate these assets may not be recoverable, involved subjective auditor judgment. The judgments included consideration of factors that are external and internal to the Company, such as declines in the market for the Company’s products or plans to close a physical location.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the identification of significant events or changes in circumstances indicating the long-lived and indefinite-lived intangible assets may not be recoverable. We evaluated the Company’s identification of significant events or changes in circumstances that have occurred indicating the underlying long-lived assets and indefinite-lived intangible assets may not be recoverable by performing an independent assessment. The independent assessment included analyzing the historical operating performance of the asset groups and evaluating other events or changes in circumstances based on our knowledge of the Company and experience of the industry in which it operates. This included reading and evaluating industry articles, public information related to competitor activity, Company press releases and board of director minutes.
/s/ |
We have served as the Company’s auditor since 2008.
February 24, 2022
46
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares which are reflected in thousands and par value)
December 31, | December 31, | ||||
2021 |
| 2020 | |||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | | $ | | |
Accounts receivable, less allowance for credit losses of $ | | | |||
Inventories | | | |||
Prepaid expenses and other current assets | | | |||
Income taxes receivable | — | | |||
Total current assets | | | |||
Property, plant and equipment: | |||||
Land | | | |||
Buildings | | | |||
Machinery and equipment | | | |||
Accumulated depreciation | ( | ( | |||
Property, plant and equipment, net | | | |||
Operating lease right-of-use assets | | | |||
Goodwill | | | |||
Intangible assets, net | | | |||
Cash surrender value of life insurance policies, net | | | |||
Other assets | | | |||
Total assets | $ | | $ | | |
LIABILITIES AND EQUITY | |||||
Current liabilities: | |||||
Accounts payable | $ | | $ | | |
Accrued expenses | | | |||
Accrued compensation and retirement costs | | | |||
Accrued insurance costs | | | |||
Current maturities of long-term debt and short-term borrowings | | | |||
Current maturities of operating lease liabilities | | | |||
Income taxes payable | | — | |||
Total current liabilities | | | |||
Long-term debt | | | |||
Operating lease liabilities | | | |||
Long-term retirement costs | | | |||
Other long-term liabilities | | | |||
Deferred income taxes | | | |||
Commitments and contingencies | |||||
Equity: | |||||
Preferred stock, $ | |||||
Common stock and additional paid-in capital, $ | |||||
and shares— | | | |||
Retained earnings | | | |||
Accumulated other comprehensive loss | ( | ( | |||
Total Reliance stockholders’ equity | | | |||
Noncontrolling interests | | | |||
Total equity | | | |||
Total liabilities and equity | $ | | $ | | |
See accompanying notes to consolidated financial statements.
47
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except number of shares which are reflected in thousands and per share amounts)
Year Ended December 31, | ||||||||
2021 | 2020 | 2019 | ||||||
Net sales | $ | | $ | | $ | | ||
Costs and expenses: | ||||||||
Cost of sales (exclusive of depreciation and amortization shown below) | | | | |||||
Warehouse, delivery, selling, general and administrative | | | | |||||
Depreciation and amortization | | | | |||||
Impairment of long-lived assets | | | | |||||
| | | ||||||
Operating income | | | | |||||
Other (income) expense: | ||||||||
Interest expense | | | | |||||
Other expense (income), net | | | ( | |||||
Income before income taxes | | | | |||||
Income tax provision | | | | |||||
Net income | | | | |||||
Less: net income attributable to noncontrolling interests | | | | |||||
Net income attributable to Reliance | $ | | $ | | $ | | ||
Earnings per share attributable to Reliance stockholders: | ||||||||
Diluted | $ | $ | $ | |||||
Basic | $ | $ | $ | |||||
Shares used in computing earnings per share: | ||||||||
Diluted | ||||||||
Basic | ||||||||
Cash dividends per share | $ | $ | $ | |||||
See accompanying notes to consolidated financial statements.
48
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Year Ended December 31, | ||||||||
2021 | 2020 | 2019 | ||||||
Net income | $ | | $ | | $ | | ||
Other comprehensive income (loss): | ||||||||
Foreign currency translation (loss) gain | ( | | | |||||
Pension and postretirement benefit adjustments, net of tax | | | ( | |||||
Total other comprehensive income (loss) | | | ( | |||||
Comprehensive income | | | | |||||
Less: comprehensive income attributable to noncontrolling interests | | | | |||||
Comprehensive income attributable to Reliance | $ | | $ | | $ | | ||
See accompanying notes to consolidated financial statements.
49
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except number of shares which are reflected in thousands and per share amounts)
Reliance Stockholders’ Equity | ||||||||||||||||
Common Stock | Accumulated | |||||||||||||||
and Additional | Other | Non- | ||||||||||||||
Paid-In Capital | Retained | Comprehensive | controlling | |||||||||||||
Shares |
| Amount |
| Earnings |
| Income (Loss) |
| Interests |
| Total | ||||||
Balance at January 1, 2019 | | $ | | $ | | $ | ( | $ | | $ | | |||||
Net income | — | — | | — | | | ||||||||||
Other comprehensive loss | — | — | — | ( | — | ( | ||||||||||
Noncontrolling interest purchased | — | — | — | — | ( | ( | ||||||||||
Dividends to noncontrolling interest holders | — | — | — | — | ( | ( | ||||||||||
Stock-based compensation, net | | | — | — | — | | ||||||||||
Stock options exercised | | | — | — | — | | ||||||||||
Repurchase of common shares | ( | ( | — | — | — | ( | ||||||||||
Cash dividends—$ | — | — | ( | — | — | ( | ||||||||||
Balance at December 31, 2019 | | | | ( | | | ||||||||||
Net income | — | — | | — | | | ||||||||||
Other comprehensive income | — | — | — | | — | | ||||||||||
Noncontrolling interest purchased | — | ( | — | — | ( | ( | ||||||||||
Dividends to noncontrolling interest holders | — | — | — | — | ( | ( | ||||||||||
Stock-based compensation, net | | | — | — | — | | ||||||||||
Stock options exercised | | | — | — | — | | ||||||||||
Repurchase of common shares | ( | ( | ( | — | — | ( | ||||||||||
Cash dividends—$ | — | — | ( | — | — | ( | ||||||||||
Balance at December 31, 2020 | | | | ( | | | ||||||||||
Net income | — | — | | — | | | ||||||||||
Other comprehensive income | — | — | — | | — | | ||||||||||
Dividends to noncontrolling interest holders | — | — | — | — | ( | ( | ||||||||||
Stock-based compensation, net | | | — | — | — | | ||||||||||
Repurchase of common shares | ( | ( | ( | — | — | ( | ||||||||||
Cash dividends—$ | — | — | ( | — | — | ( | ||||||||||
Balance at December 31, 2021 | | $ | | $ | | $ | ( | $ | | $ | | |||||
See accompanying notes to consolidated financial statements.
50
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
Operating activities: | ||||||||
Net income | $ | | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization expense | | | | |||||
Impairment of long-lived assets | | | | |||||
Provision for credit losses | | | | |||||
Deferred income tax (benefit) provision | ( | ( | | |||||
Gain on sales of property, plant and equipment | ( | ( | ( | |||||
Stock-based compensation expense | | | | |||||
Postretirement benefit plan settlement expense | — | | — | |||||
Other | | | | |||||
Changes in operating assets and liabilities (excluding effect of businesses acquired): | ||||||||
Accounts receivable | ( | | | |||||
Inventories | ( | | | |||||
Prepaid expenses and other assets | | | | |||||
Accounts payable and other liabilities | | ( | ( | |||||
Net cash provided by operating activities | | | | |||||
Investing activities: | ||||||||
Acquisitions, net of cash acquired | ( | ( | ( | |||||
Purchases of property, plant and equipment | ( | ( | ( | |||||
Proceeds from sales of property, plant and equipment | | | | |||||
Other | ( | ( | ( | |||||
Net cash used in investing activities | ( | ( | ( | |||||
Financing activities: | ||||||||
Net short-term debt (repayments) borrowings | ( | | ( | |||||
Proceeds from long-term debt borrowings | | | | |||||
Principal payments on long-term debt | ( | ( | ( | |||||
Debt issuance costs | — | ( | — | |||||
Dividends and dividend equivalents paid | ( | ( | ( | |||||
Share repurchases | ( | ( | ( | |||||
Noncontrolling interests purchased | — | ( | ( | |||||
Other | ( | ( | ( | |||||
Net cash used in financing activities | ( | ( | ( | |||||
Effect of exchange rate changes on cash and cash equivalents | ( | | | |||||
(Decrease) increase in cash and cash equivalents | ( | | | |||||
Cash and cash equivalents at beginning of year | | | | |||||
Cash and cash equivalents at end of year | $ | | $ | | $ | | ||
Supplemental cash flow information: | ||||||||
Interest paid during the year | $ | | $ | | $ | | ||
Income taxes paid during the year, net | $ | | $ | | $ | | ||
See accompanying notes to consolidated financial statements.
51
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Reliance Steel & Aluminum Co. and its subsidiaries (collectively referred to as “Reliance”, “the Company”, “we”, “our” or “us”). Our consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Our investments in unconsolidated subsidiaries are recorded under the equity method of accounting. All significant intercompany accounts and transactions have been eliminated.
Business
As a global diversified metal solutions provider, we operate a network of approximately
Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, such as allowances for credit losses, net realizable values of inventories, fair values and/or impairment of goodwill and other indefinite-lived intangible assets, long-lived assets, the amount of unrecognized tax benefits and other contingencies, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable and Concentrations of Credit Risk
Trade receivables are typically non-interest bearing and are recorded at amortized cost. Sales to our recurring customers are generally made on open account terms while sales to occasional customers may be made on a collect on delivery basis. Past due status of customer accounts is determined based on how recently payments have been received in relation to payment terms granted. Credit is generally extended based upon an evaluation of each customer’s financial condition, with terms consistent in the industry and no collateral is required. The allowance for credit losses reflects the expected losses on our trade receivables and is determined based on customer-specific facts and the consideration of historical loss information, current conditions and reasonable and supportable forecasts using a loss-rate approach. Amounts are written-off against the allowance in the period we determine that the receivable is uncollectible.
Concentrations of credit risk with respect to trade receivables are limited due to the geographically diverse customer base, with limited exposure to any single customer account, and various industries into which our products are sold. We do not consider ourselves to have any significant concentrations of credit risk.
Inventories
The majority of our inventory is valued using the last-in, first-out (“LIFO”) method, which is not in excess of market. Under this method, older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals industry as well as fluctuations in our product mix and on-hand inventory levels.
52
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, current maturities of operating lease liabilities approximate carrying values due to the short period of time to maturity. Fair values of long-term debt, which have been determined based on borrowing rates currently available to us or to other companies with comparable credit ratings, for loans with similar terms or maturity, approximate the carrying amounts in the consolidated financial statements, with the exception of our publicly traded senior unsecured notes with face values of $
Cash Equivalents
We consider all highly liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. We maintain cash and cash equivalents with high credit quality financial institutions. The Company, by policy, limits the amount of credit exposure to any one financial institution.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill is the excess of purchase price over the fair value of identified assets and liabilities of businesses acquired. Other indefinite-lived intangible assets include amounts allocated to the trade names of businesses acquired. Goodwill and other indefinite-lived intangible assets are not amortized but are tested for impairment at least annually.
We test for impairment of goodwill and intangible assets deemed to have indefinite lives annually and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value. We have
Long-Lived Assets
Property, plant and equipment is recorded at cost (or at fair value for assets acquired in connection with business combinations) and the provision for depreciation of these assets is generally computed on the straight-line method at rates designed to distribute the cost of assets over the useful lives, estimated as follows: buildings, including leasehold improvements, over to
Intangible assets with finite useful lives are amortized over their useful lives. We periodically review the recoverability of our property, plant and equipment and intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We recognize any impairment losses for long-lived assets in 2021. We recognized $
53
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
property, plant and equipment in 2020 and 2019, respectively, and $
Leases
We determine if an arrangement is a lease at inception. Our lease agreements generally contain only lease components. Our lease payments are generally fixed with certain leases containing variable payments related to Consumer Price Index (CPI) annual adjustments.
Right-of-use assets and lease liabilities are recognized on the balance sheet at the present value of the future lease payments at the lease commencement date. Certain of our lease terms include periods under renewal options when it is reasonably certain that we will exercise that option. We generally include optional renewal periods when determining our lease terms and future lease payments. The interest rate used to determine the present value of future lease payments is our incremental borrowing rate that is estimated to approximate the interest rate on a collateralized basis with similar terms and payments.
Operating lease cost is recognized on a straight-line basis over the lease term.
Revenue Recognition
We recognize revenue when control of metal products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. There are no significant judgments or estimates made to determine the amount or timing of our reported revenues. The amount of transaction price associated with unperformed performance obligations is not significant as of December 31, 2021 and 2020.
Metal Sales
We have minimal long-term contract sales with our customers as we primarily transact in the spot market under fixed price sales orders. The majority of our metal product sales orders generally have only
Toll Processing and Logistics
Toll processing services relate to the processing of customer-owned metal. Logistics services primarily include transportation and storage services for metal we toll process. Revenue for these services is recognized over time as the toll processing or logistics services are performed. The toll processing services are generally short-term in nature with the service being performed in less than
54
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Seasonality
Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. Our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers. The number of shipping days in each quarter also has an impact on our quarterly sales and profitability. Particularly in light of COVID-19, we cannot predict whether period-to-period fluctuations will be consistent with historical patterns. Results of any one or more quarters are therefore not necessarily indicative of annual results.
Stock-Based Compensation
All of our stock-based compensation plans are considered equity plans. The fair value of stock awards and restricted stock units is determined based on the fair value of our common stock on the grant date. The fair value of stock awards and restricted stock units is expensed on a straight-line basis over their respective vesting periods, net of forfeitures when they occur. Stock-based compensation expense was $
Environmental Remediation Costs
We accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remediation feasibility study. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. We are not aware of any environmental remediation obligations that would materially affect our operations, financial position or cash flows. See Note 16—“Commitments and Contingencies” for further discussion on our environmental remediation matters.
Income Taxes
We file a consolidated U.S. federal income tax return with our wholly owned domestic subsidiaries. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax reporting bases of assets and liabilities using the enacted tax rates expected to be in effect when such differences are realized or settled. The effect on deferred taxes from a change in tax rates is recognized in income in the period that includes the enactment date of the change. The provision for income taxes reflects the taxes to be paid for the period and the change during the period in the deferred tax assets and liabilities. We evaluate on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the deferred tax asset will not be realized.
We make a comprehensive review of our uncertain tax positions on a quarterly basis. Tax benefits are recognized when it is more likely than not that a tax position will be sustained upon examination by the authorities. The benefit from a position that has surpassed the more-likely-than-not threshold is the largest amount of benefit that is more than 50% likely to be realized upon settlement. We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense.
55
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Foreign Currencies
The currency effects of translating the financial statements of our foreign subsidiaries, which operate in local currency environments, are included in other comprehensive income (loss). Losses resulting from foreign currency transactions are included in the results of operations in the Other expense (income), net caption and amounted to $
Impact of Recently Issued Accounting Standards—Adopted
Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers—In October 2021, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that requires companies to measure contract assets and contract liabilities from contracts with customers acquired in a business combination in accordance with revenue recognition accounting guidance, creating an exception to the fair value recognition and measurement principles in the business combinations accounting guidance. We adopted the accounting changes during the three months ended December 31, 2021 and utilized the guidance in the purchase price allocations for our 2021 acquisitions. The adoption of this accounting change did not have a material impact on our consolidated financial statements.
Income Taxes—In December 2019, the FASB issued accounting changes that simplify the accounting for income taxes as part of the FASB’s overall initiative to reduce complexity in accounting standards. We adopted the accounting changes on January 1, 2021. The adoption of these accounting changes did not have a material impact on our consolidated financial statements.
Impact of Recently Issued Accounting Standards—Not Yet Adopted
Reference Rate Reform—In March 2020, the FASB issued accounting changes that provide optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The accounting changes may be applied prospectively through December 31, 2022. We do not expect the transition from LIBOR to have a material impact on our consolidated financial statements.
Note 2. Acquisitions
2021 Acquisitions
On October 1, 2021, we acquired Merfish United, Inc. (“Merfish United”), a leading master distributor of tubular building products that are distributed to its independent wholesale distributor customers across a variety of end markets in the United States. Merfish United, headquartered in Ipswich, Massachusetts, serves
On December 10, 2021, we acquired Admiral Metals Servicenter Company, Inc. (“Admiral Metals”), a leading distributor of non-ferrous metals products in the Northeastern U.S. Admiral Metals, headquartered in Woburn, Massachusetts, serves a variety of end markets, including semiconductor, automotive, medical, infrastructure, aerospace and industrial markets through its
56
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
On December 10, 2021, we acquired Nu-Tech Precision Metals Inc. (“Nu-Tech Precision Metals”), a custom manufacturer of specialty extruded metals, fabricated parts and welded components. Nu-Tech Precision Metals, services the nuclear energy, aerospace and defense end markets from its location near Ottawa, Ontario, Canada.
On December 17, 2021, we acquired Rotax Metals, Inc. (“Rotax Metals”), a metals service center specializing in copper, bronze and brass alloys. Located in Brooklyn, New York, Rotax Metals will operate as a subsidiary of Yarde Metals, Inc., a wholly owned subsidiary of Reliance.
We funded our 2021 acquisitions with cash on hand. Included in our net sales for the year ended December 31, 2021 were combined net sales of $
The preliminary allocations of the total purchase price for our 2021 acquisitions to the fair values of the assets acquired and liabilities assumed were as follows:
(in millions) | ||
Cash | $ | |
Accounts receivable | | |
Inventories | | |
Property, plant and equipment | | |
Operating lease right-of-use assets | | |
Goodwill | | |
Intangible assets subject to amortization | | |
Intangible assets not subject to amortization | | |
Other current and long-term assets | | |
Total assets acquired | | |
Deferred taxes | | |
Operating lease liabilities | | |
Other current and long-term liabilities | | |
Total liabilities assumed | | |
Net assets acquired | $ | |
The purchase price allocations for our 2021 acquisitions are pending the completion of purchase price adjustments, based on tangible asset and intangible asset valuations, and the completion of pre-acquisition period tax returns.
2019 Acquisition
On December 31, 2019, we acquired Fry Steel Company (“Fry Steel”). Fry Steel is a general line and long bar distributor located in Santa Fe Springs, California. Fry Steel performs cutting services on its diverse product assortment and provides “in-stock” next day delivery of its products. Fry Steel’s net sales in 2021 were $
We funded our acquisition of Fry Steel with borrowings on our revolving credit facility and cash on hand.
57
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
The allocation of the total purchase price for our 2019 acquisition of Fry Steel to the fair values of the assets acquired and liabilities assumed was as follows:
(in millions) | ||
Cash | $ | |
Accounts receivable | | |
Inventories | | |
Property, plant and equipment | | |
Goodwill | | |
Intangible assets subject to amortization | | |
Intangible assets not subject to amortization | | |
Other current and long-term assets | | |
Total assets acquired | | |
Other current and long-term liabilities | | |
Total liabilities assumed | | |
Net assets acquired | $ | |
Summary purchase price allocation information for all acquisitions
All of the acquisitions discussed in this note have been accounted for under the acquisition method of accounting and, accordingly, each purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of each acquisition. The accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date. The consolidated balance sheets reflect the allocations of each acquisition’s purchase price as of December 31, 2021 or 2020, as applicable. The measurement periods for purchase price allocations do not exceed 12 months from the acquisition date.
In 2021 and 2020, as part of the purchase price allocations for the 2021 and 2019 acquisitions, we allocated $
Unaudited Pro forma financial information for all acquisitions
The following unaudited pro forma summary financial results present the consolidated results of operations as if our 2021 acquisitions had occurred as of January 1, 2020, after the effect of certain adjustments, including non-recurring acquisition-related costs, amortization of inventory step-up to fair value included in cost of sales, depreciation and amortization of certain identifiable property, plant and equipment and intangible assets, and lease cost fair value adjustments. The pro forma summary financial results for the year ended December 31, 2021 excluded $
The pro forma results have been presented for comparative purposes only and are not indicative of what would have
58
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
occurred had the 2021 acquisitions been made as of January 1, 2020, or of any potential results which may occur in the future.
Year Ended December 31, | |||||
2021 | 2020 | ||||
(in millions, except per share amounts) | |||||
Pro forma: | |||||
Net sales | $ | | $ | | |
Net income attributable to Reliance | $ | | $ | | |
Earnings per share attributable to Reliance stockholders: | |||||
Diluted | $ | | $ | | |
Basic | $ | | $ | | |
The pro forma amounts presented for the year ended December 31, 2020 include $
Note 3. Joint Ventures and Noncontrolling Interests
The equity method of accounting is used where our investment in voting stock gives us the ability to exercise significant influence over the investee, generally
Operations that are majority owned by us are as follows: Indiana Pickling and Processing Company (
On March 31, 2020, through our wholly owned subsidiary, Feralloy Corporation, we purchased the remaining
Note 4. Inventories
Our inventories are primarily stated on the LIFO method, which is not in excess of market. We use the LIFO method of inventory valuation because it results in a better matching of costs and revenues. The cost of inventories stated on the first-in, first-out (“FIFO”) method is not in excess of net realizable value.
59
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Inventories consisted of the following:
December 31, | December 31, | ||||
2021 |
| 2020 | |||
(in millions) | |||||
LIFO inventories - cost on FIFO method | $ | | $ | | |
Cost on FIFO method higher than LIFO value | ( | ( | |||
Inventories - stated on LIFO method | | | |||
Inventories - stated on FIFO method | | | |||
$ | | $ | | ||
The changes in the LIFO inventory valuation reserve were as follows:
Year Ended December 31, | ||||||||
2021 | 2020 | 2019 | ||||||
(in millions) | ||||||||
LIFO inventory valuation reserve expense (income) | $ | | $ | ( | $ | ( | ||
Cost increases for the majority of our products were the primary cause of the 2021 LIFO inventory valuation reserve adjustment charge. Cost decreases for the majority of our products were the primary cause of the 2020 and 2019 LIFO inventory valuation reserve adjustment income. There were insignificant liquidations of LIFO inventory quantities for all years presented.
Note 5. Revenues
The following table presents our sales disaggregated by product and service. Certain sales taxes or value-added taxes collected from customers are excluded from our reported sales.
Year Ended December 31, | ||||||||
2021 | 2020 | 2019 | ||||||
(in millions) | ||||||||
Carbon steel | $ | | $ | | $ | | ||
Stainless steel | | | | |||||
Aluminum | | | | |||||
Alloy | | | | |||||
Toll processing and logistics | | | | |||||
Other and eliminations | | | | |||||
Total | $ | | $ | | $ | | ||
60
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Note 6. Goodwill
The changes in the carrying amount of goodwill are as follows:
(in millions) | ||
Balance at January 1, 2019 | $ | |
Acquisitions | | |
Purchase price allocation adjustments | ( | |
Effect of foreign currency translation | | |
Balance at December 31, 2019 | | |
Acquisition | | |
Purchase price allocation adjustments | ( | |
Effect of foreign currency translation | | |
Balance at December 31, 2020 | | |
Acquisitions | | |
Effect of foreign currency translation | | |
Balance at December 31, 2021 | $ | |
The 2020 purchase price allocation adjustments relate to the completion of the accounting of our 2019 acquisition of Fry Steel.
We had
Note 7. Intangible Assets, net
Intangible assets, net, consisted of the following:
December 31, 2021 | December 31, 2020 | ||||||||||||
Weighted Average | Gross | Gross | |||||||||||
Amortizable | Carrying | Accumulated | Carrying | Accumulated | |||||||||
Life in Years |
| Amount |
| Amortization |
| Amount |
| Amortization | |||||
(in millions) | |||||||||||||
Intangible assets subject to amortization: | |||||||||||||
Covenants not to compete | $ | | $ | ( | $ | | $ | ( | |||||
Customer lists/relationships | | ( | | ( | |||||||||
Other | | ( | | ( | |||||||||
| ( | | ( | ||||||||||
Intangible assets not subject to amortization: | |||||||||||||
Trade names | | — | | — | |||||||||
$ | | $ | ( | $ | | $ | ( | ||||||
Intangible assets recorded in connection with our 2021 acquisitions were $
In 2021,we recognized impairment losses of $
61
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
million for our customer relationship intangible assets. See Note 19—“Impairment and Restructuring Charges” for further discussion of our impairment losses.
Amortization expense for intangible assets amounted to $
The following is a summary of estimated aggregate amortization expense for each of the next five years:
(in millions) | ||
2022 | | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
Note 8. Cash Surrender Value of Life Insurance Policies, net
The cash surrender value of all life insurance policies held by us, net of loans and related accrued interest, was $
Our wholly owned subsidiary, Earle M. Jorgensen Company (“EMJ”), is the owner and beneficiary of life insurance policies on all former nonunion employees of a predecessor company, including certain current employees of EMJ. These policies, by providing payments to EMJ upon the death of covered individuals, were designed to provide cash to EMJ in order to repurchase shares held by employees in EMJ’s former employee stock ownership plan and shares held individually by employees upon the termination of their employment. Reliance is also the beneficiary of key person life insurance policies held by a rabbi trust for the benefit of participants of the Reliance Supplemental Executive Retirement Plan.
Cash surrender value of the life insurance policies increases by a portion of the amount of premiums paid and by investment income earned under the policies and decreases by the amount of cost of insurance charges, investment losses and interest on policy loans, as applicable.
Annually, we borrow against the cash surrender value of policies to pay a portion of the premiums and accrued interest on loans against those policies. We borrowed $
As of December 31, 2021 and 2020, loans and accrued interest outstanding on EMJ’s life insurance policies were $
Income earned on our life insurance policies, cost of insurance charges and interest expense on borrowings against cash surrender values are included in the Other expense (income), net caption in the accompanying consolidated statements of income. See Note 15—“Other Expense (Income), net” for further information on our life insurance policy earnings and expenses.
62
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Note 9. Debt
Debt consisted of the following:
December 31, | December 31, | ||||
2021 |
| 2020 | |||
(in millions) | |||||
Unsecured revolving credit facility maturing September 3, 2025 | $ | — | $ | — | |
Senior unsecured notes, interest payable semi-annually at | | | |||
Senior unsecured notes, interest payable semi-annually at | | | |||
Senior unsecured notes, interest payable semi-annually at | | | |||
Senior unsecured notes, interest payable semi-annually at | | | |||
Other notes and revolving credit facilities | | | |||
Total | | | |||
Less: unamortized discount and debt issuance costs | ( | ( | |||
Less: amounts due within one year and short-term borrowings | ( | ( | |||
Total long-term debt | $ | | $ | | |
Unsecured Credit Facility
On September 3, 2020, we entered into a $
As of December 31, 2021 and 2020, we had
Senior Unsecured Notes
Under the indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase the notes at a price equal to
Other Notes, Revolving Credit and Letters of Credit/Guarantee Facilities
A revolving credit facility with a credit limit of $
63
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Various industrial revenue bonds had combined outstanding balances of $
A standby letters of credit/letters of guarantee agreement with one of the lenders under our Credit Agreement provides letters of credit or letters of guarantee in an amount not to exceed $
Covenants
The Credit Agreement and the Indentures include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things,
Debt Maturities
The following is a summary of aggregate maturities of long-term debt for each of the next five years and thereafter:
(in millions) | ||
2022 | $ | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
Thereafter | | |
$ | | |
Note 10. Leases
Our metals service center leases are comprised of processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. We also lease various office spaces. Our leases of facilities and other spaces expire at various times through 2045 and our ground leases expire at various times through 2068. Nearly all of our leases are operating leases; we have recognized finance right-of-use assets and of less than $
The following is a summary of our lease cost:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
(in millions) | ||||||||
Operating lease cost | $ | | $ | | $ | | ||
64
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Our operating lease costs include payments to various related parties that are not executive officers of the Company, in the amounts of $
Supplemental cash flow and balance sheet information is presented below:
Year Ended December 31, | |||||
2021 |
| 2020 | |||
(in millions) | |||||
Supplemental cash flow information: | |||||
Cash payments for operating leases | $ | $ | |||
Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | |||
December 31, | December 31, | ||||
2021 | 2020 | ||||
Other lease information: | |||||
Weighted average remaining lease term—operating leases | |||||
Weighted average discount rate—operating leases | |||||
Maturities of operating lease liabilities as of December 31, 2021 are as follows:
(in millions) | ||
2022 | $ | |
2023 | ||
2024 | ||
2025 | ||
2026 | ||
Thereafter | ||
Total operating lease payments | | |
Less: imputed interest | ( | |
Total operating lease liabilities | $ | |
65
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Note 11. Income Taxes
Reliance and its subsidiaries file numerous consolidated and separate income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. We are no longer subject to U.S. federal tax examinations for years before 2018 and state and local tax examinations before 2017. Significant components of the provision for income taxes attributable to continuing operations were as follows:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
(in millions) | ||||||||
Current: | ||||||||
Federal | $ | | $ | | $ | | ||
State | | | | |||||
Foreign | | | | |||||
| | | ||||||
Deferred: | ||||||||
Federal | ( | ( | | |||||
State | ( | | | |||||
Foreign | | ( | ( | |||||
( | ( | | ||||||
$ | | $ | | $ | | |||
Components of U.S. and international income before income taxes were as follows:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
(in millions) | ||||||||
U.S. | $ | | $ | | $ | | ||
International | | | | |||||
Income before income taxes | $ | | $ | | $ | | ||
The reconciliation of income tax at the U.S. federal statutory tax rate to income tax expense is as follows:
Year Ended December 31, | ||||||
2021 |
| 2020 |
| 2019 | ||
Income tax at U.S. federal statutory tax rate | | % | | % | | % |
State income tax, net of federal tax effect | | | | |||
Foreign earnings taxed at higher rates | | | | |||
Net effect of life insurance policies | ( | ( | ( | |||
Net effect of changes in unrecognized tax benefits | | ( | — | |||
Stock-based compensation | | | | |||
Other, net | ( | ( | ( | |||
Effective tax rate | | % | | % | | % |
66
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Significant components of our deferred tax assets and liabilities are as follows:
December 31, | |||||
2021 |
| 2020 | |||
(in millions) | |||||
Deferred tax assets: |
| ||||
Accrued expenses not currently deductible for tax | $ | | $ | | |
Inventory costs capitalized for tax purposes | | | |||
Stock-based compensation | | | |||
Allowance for doubtful accounts | | | |||
Tax credits carryforwards | | | |||
Net operating loss carryforwards | | | |||
Total deferred tax assets | | | |||
Deferred tax liabilities: | |||||
Property, plant and equipment, net | ( | ( | |||
Goodwill and other intangible assets | ( | ( | |||
LIFO inventories | ( | ( | |||
Other | ( | ( | |||
Total deferred tax liabilities | ( | ( | |||
Net deferred tax liabilities | $ | ( | $ | ( | |
As of December 31, 2021, we had $
The Company believes it is more likely than not that it will generate sufficient future taxable income to realize its deferred tax assets.
Unrecognized Tax Benefits
We are under audit by various state jurisdictions for years 2017 through 2019, but do not anticipate any material adjustments from these examinations. Reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits is as follows:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
(in millions) | ||||||||
Unrecognized tax benefits at January 1 | $ | | $ | | $ | | ||
Increases in tax positions for prior years | — | — | | |||||
Increases in tax positions for current year | | — | — | |||||
Settlements | — | ( | ( | |||||
Lapse of statute of limitations | ( | ( | ( | |||||
Unrecognized tax benefits at December 31 | $ | | $ | | $ | | ||
As of December 31, 2021, $
67
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Note 12. Stock-Based Compensation Plans
We grant stock-based compensation to our employees and directors. At December 31, 2021, an aggregate of
On May 20, 2020, our stockholders approved an amendment to the Reliance Steel & Aluminum Co. Amended and Restated 2015 Incentive Award Plan to, in part, increase the number of shares available for issuance under the plan by
Stock Options
Stock option activity was as follows:
Option | Weighted Average | ||||
Stock Options |
| Shares |
| Exercise Price | |
Outstanding at January 1, 2019 | | $ | | ||
Exercised | ( | | |||
Outstanding at December 31, 2019 | | | |||
Exercised | ( | | |||
Outstanding and exercisable at December 31, 2020 and 2021 | — | $ | — | ||
There were
Restricted Stock Units
In 2021, 2020 and 2019, we granted to key employees equity awards consisting of service-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) in aggregate amounts of
In 2021, 2020 and 2019, we granted
68
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
2021, 2020 and 2019, was $
In 2021, 2020 and 2019, we made payments of $
A summary of the status of our unvested RSUs and PSUs as of December 31, 2021 and changes during the year then ended is as follows:
Weighted | ||||||||
Average | ||||||||
Grant Date | Aggregate | |||||||
Fair Value | Fair Value | |||||||
RSUs and PSUs |
| Per RSU | (in millions) | |||||
Unvested at January 1, 2021 | | $ | ||||||
Granted | | |||||||
Vested | ( | |||||||
Canceled or forfeited | ( | |||||||
Unvested at December 31, 2021 | $ | $ | | |||||
The fair value as of the respective vesting dates of RSUs and PSUs during 2021, 2020 and 2019 was $
Unrecognized Compensation Cost and Tax Benefits
As of December 31, 2021, there was $
The tax benefit realized from our stock-based compensation plans in 2021, 2020 and 2019 was $
Note 13. Employee Benefits
Defined Contribution Plans
Effective in 1998, the Reliance Steel & Aluminum Co. Master 401(k) Plan (the “Master 401(k) Plan”) was established, which combined several of the various 401(k) and profit-sharing plans of the Company and its subsidiaries into one plan. Salaried and certain hourly employees of the Company and its participating subsidiaries are covered under the Master 401(k) Plan. Eligibility occurs after 30 days of service and the Company contribution vests at
We also sponsor the Reliance Steel & Aluminum Co. Employee Stock Ownership Plan, a tax-qualified noncontributory employee stock ownership plan, for certain salaried and hourly employees of the Company. The plan is closed to new enrollees and the Company is not currently making annual contributions to the plan.
69
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Supplemental Executive Retirement Plans
Effective January 1996, we adopted a Supplemental Executive Retirement Plan (“Reliance SERP”), which is a nonqualified pension plan that provides postretirement pension benefits to certain key officers of the Company. The Reliance SERP is administered by the Compensation Committee of the Board. Benefits are based upon the employees’ earnings. Life insurance policies were purchased for most individuals covered by the Reliance SERP and held within a rabbi trust. See Note 8—“Cash Surrender Value of Life Insurance Policies, net” for further discussion of our life insurance policies. Separate supplemental executive retirement plans exist for certain wholly owned subsidiaries of the Company (together with the Reliance SERP, the “SERPs”), each of which provides postretirement pension benefits to certain former key employees. All SERPs have been frozen to new participants.
Deferred Compensation Plan
In December 2008, the Reliance Deferred Compensation Plan was established for certain officers and key employees of the Company. Account balances from various compensation plans of subsidiaries were contributed and consolidated into this new deferred compensation plan. Plan participants may contribute a portion of their eligible compensation to the plan and Reliance currently makes contributions to the plan for certain participants.
During 2021, we established a rabbi trust to fund our obligations under the Reliance Deferred Compensation Plan. The rabbi trust is an irrevocable grantor trust to which we may contribute assets for the purpose of funding the Reliance Deferred Compensation Plan. Although we may not use the assets of the rabbi trust for any purpose other than meeting our obligations under the Reliance Deferred Compensation Plan, the assets of the rabbi trust remain subject to the claims of our creditors. The balance in the Reliance Deferred Compensation Plan as of December 31, 2021 and 2020 was $
Multiemployer Plans
Certain of our union employees participate in plans collectively bargained and maintained by multiple employers and a labor union. We do not recognize on our balance sheet any amounts relating to these plans. For 2021, 2020 and 2019 our contributions to these plans were $
Defined Benefit Plans
Our wholly owned subsidiary, EMJ, maintains a qualified defined benefit pension plan (the “EMJ Defined Benefit Plan”) for certain union employees. The plan generally provides benefits of stated amounts for each year of service or provides benefits based on the participant’s hourly wage rate and years of service. The plan permits the sponsor, at any time, to amend or terminate the plan. We also maintained frozen defined benefit plans (together with the EMJ Defined Benefit Plan, the “Defined Benefit Plans”), which were merged into a single plan that was terminated during 2020, which resulted in our recognition of a $
70
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
We use a December 31 measurement date for our plans. The following is a summary of the status of the funding of the SERPs and Defined Benefit Plans:
SERPs | Defined Benefit Plans | ||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | |||||
(in millions) | (in millions) | ||||||||||
Change in benefit obligation | |||||||||||
Benefit obligation at beginning of year | $ | | $ | | $ | | $ | | |||
Service cost | | | | | |||||||
Interest cost | | | | | |||||||
Actuarial (gain) loss | ( | | ( | | |||||||
Benefits paid | ( | ( | ( | ( | |||||||
Plan settlements | — | ( | — | ( | |||||||
Benefit obligation at end of year | $ | | $ | | $ | | $ | | |||
Change in plan assets | |||||||||||
Fair value of plan assets at beginning of year | N/A | N/A | $ | | $ | | |||||
Actual return on plan assets | N/A | N/A | | | |||||||
Employer contributions | N/A | N/A | — | — | |||||||
Benefits paid | N/A | N/A | ( | ( | |||||||
Other | N/A | N/A | — | ( | |||||||
Fair value of plan assets at end of year | N/A | N/A | $ | | $ | | |||||
Funded status | |||||||||||
Funded status of the plans | $ | ( | $ | ( | $ | ( | $ | ( | |||
Items not yet recognized as component of net periodic pension expense | |||||||||||
Unrecognized net actuarial losses | $ | | $ | | $ | | $ | | |||
Unamortized prior service cost | — | — | | | |||||||
$ | | $ | | $ | | $ | | ||||
As of December 31, 2021 and 2020, the following amounts were recognized on the balance sheet:
SERPs | Defined Benefit Plans | ||||||||||
2021 |
| 2020 |
| 2021 |
| 2020 | |||||
(in millions) | (in millions) | ||||||||||
Amounts recognized in the statement of financial position | |||||||||||
Current liabilities | $ | ( | $ | ( | $ | — | $ | — | |||
Noncurrent liabilities | ( | ( | ( | ( | |||||||
Accumulated other comprehensive loss | | | | | |||||||
Net amount recognized | $ | ( | $ | ( | $ | | $ | | |||
The accumulated benefit obligation for the SERPs was $
71
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Accumulated benefit obligation information of our Defined Benefit Plans is presented below:
Year Ended December 31, | |||||
2021 |
| 2020 | |||
(in millions) | |||||
Information for defined benefit plans with an accumulated benefit obligation and projected benefit obligation in excess of plan assets | |||||
Accumulated benefit obligation | $ | | $ | | |
Projected benefit obligation | | | |||
Fair value of plan assets | | | |||
Details of net periodic benefit cost related to the SERPs and Defined Benefit Plans are presented below:
SERPs | Defined Benefit Plans | ||||||||||||||||
Year Ended December 31, | Year Ended December 31, | ||||||||||||||||
2021 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2019 | |||||||
(in millions) | (in millions) | ||||||||||||||||
Service cost | $ | | $ | | $ | | $ | | $ | | $ | | |||||
Interest cost | | | | | | | |||||||||||
Expected return on plan assets | — | — | — | ( | ( | ( | |||||||||||
Settlement loss | — | | — | — | | — | |||||||||||
Prior service cost | — | — | — | | | | |||||||||||
Amortization of net loss | | | | | | | |||||||||||
$ | | $ | | $ | | $ | | $ | | $ | | ||||||
Net periodic benefit cost related to the SERPs and the Defined Benefit Plans is presented in our consolidated statements of income, as summarized below:
SERPs | Defined Benefit Plans | ||||||||||||||||
Year Ended December 31, | Year Ended December 31, | ||||||||||||||||
2021 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2019 | |||||||
(in millions) | (in millions) | ||||||||||||||||
Amounts recognized in the statement of income | |||||||||||||||||
Warehouse, delivery, selling, general and administrative expense | $ | | $ | | $ | | $ | | $ | | $ | | |||||
Other expense (income), net | | | | ( | | ( | |||||||||||
$ | | $ | | $ | | $ | | $ | | $ | | ||||||
Assumptions used to determine net periodic benefit cost are detailed below:
SERPs | Defined Benefit Plans | |||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||
2021 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2019 |
| |
Weighted average assumptions to determine net cost | ||||||||||||
Discount rate | | % | | % | | % | | % | | % | | % |
Expected long-term rate of return on plan assets | N/A | N/A | N/A | | % | | % | | % | |||
Rate of compensation increase | | % | | % | | % | N/A | N/A | N/A | |||
72
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Assumptions used to determine the benefit obligation are detailed below:
SERPs | Defined Benefit Plans | |||||||
December 31, | December 31, | |||||||
2021 |
| 2020 |
| 2021 |
| 2020 |
| |
Weighted average assumptions to determine benefit obligations | ||||||||
Discount rate | | % | | % | | % | | % |
Expected long-term rate of return on plan assets | N/A | N/A | | % | | % | ||
Rate of compensation increase | | % | | % | N/A | N/A | ||
Employer contributions of $
Plan Assets and Investment Policy
The weighted-average asset allocations of our Defined Benefit Plans by asset category were as follows:
December 31, | ||||
2021 |
| 2020 | ||
Plan Assets | ||||
Equity securities | | % | | % |
Debt securities | | % | | % |
Cash and cash equivalents | | % | | % |
Total | | % | | % |
Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. The investment goal is a return on assets that is at least equal to the assumed actuarial rate of return over the long-term within reasonable and prudent levels of risk. We establish our estimated long-term return on plan assets assumption considering various factors including the targeted asset allocation percentages, historic returns and expected future returns.
73
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
The fair value measurements of the investment held by our Defined Benefit Plans fall within the following levels of the fair value hierarchy as of December 31, 2021 and 2020:
Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
(in millions) | |||||||||||
December 31, 2021 | |||||||||||
Common stock(1) | $ | | $ | — | $ | — | $ | | |||
U.S. government, state and agency | — | | — | | |||||||
Corporate debt securities(2) | — | | — | | |||||||
Mutual funds(3) | | — | — | | |||||||
Interest bearing cash | | — | — | | |||||||
Total investments at fair value | $ | | $ | | $ | — | $ | | |||
December 31, 2020 | |||||||||||
Common stock(1) | $ | | $ | — | $ | — | $ | | |||
U.S. government, state and agency | — | | — | | |||||||
Corporate debt securities(2) | — | | — | | |||||||
Mutual funds(3) | | — | — | | |||||||
Interest bearing cash | | — | — | | |||||||
Total investments at fair value | $ | | $ | | $ | — | $ | | |||
| (1) | Comprised primarily of securities of large domestic and foreign companies. Valued at the closing price reported on the active market on which the individual securities are traded on national exchanges. |
| (2) | Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing values on a combination of inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. |
| (3) | Mutual funds held are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The mutual funds held are deemed to be actively traded. |
| (4) | Certain investments, including common collective trusts, are measured at fair value using the NAV practical expedient. The fair value of these investments is excluded from the fair value hierarchy and are presented in the tables above to permit reconciliation of the investments classified within the fair value hierarchy to the total investments at fair value. |
Summary Disclosures—SERPs and Defined Benefit Plan
The following is a summary of benefit payments under the SERPs and the Defined Benefit Plans, which reflect expected future employee service, as appropriate, expected to be paid in the periods indicated:
Defined | |||||
SERPs |
| Benefit Plans | |||
(in millions) | |||||
2022 | $ | | $ | | |
2023 | | | |||
2024 | | | |||
2025 | | | |||
2026 | | | |||
2027-2031 | | | |||
74
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Contributions to Reliance Sponsored Retirement Plans
Our expense for Reliance-sponsored retirement plans was as follows:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
(in millions) | ||||||||
Master 401(k) Plan | $ | | $ | | $ | | ||
Other Defined Contribution Plans | | | | |||||
Deferred Compensation Plan | | ( | | |||||
Supplemental Executive Retirement Plans | | | | |||||
Defined Benefit Plans | | | | |||||
$ | | $ | | $ | | |||
Note 14. Equity
Common Stock
We have paid regular quarterly cash dividends on our common stock for
Share Repurchase Plan
On July 20, 2021, our Board of Directors authorized a $
During 2021, we repurchased approximately
Preferred Stock
We are authorized to issue
75
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss included the following:
Foreign Currency | Postretirement Benefit | Accumulated Other | ||||||
Translation | Plan Adjustments, | Comprehensive | ||||||
Loss |
| Net of Tax |
| (Loss) Income | ||||
(in millions) | ||||||||
Balance as of January 1, 2021 | $ | ( | $ | ( | $ | ( | ||
Current-year change | ( | | | |||||
Balance as of December 31, 2021 | $ | ( | $ | ( | $ | ( | ||
Foreign currency translation adjustments have not been adjusted for income taxes. Pension and postretirement benefit adjustments are net of taxes of $
Note 15. Other Expense (Income), net
Significant components of Other expense (income), net are as follows:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
(in millions) | ||||||||
Investment income from life insurance policies | $ | ( | $ | ( | $ | ( | ||
Interest expense on life insurance policy loans | | | | |||||
Life insurance policy cost of insurance | | | | |||||
Income from life insurance policy redemptions | ( | ( | ( | |||||
Foreign currency transaction losses | | | | |||||
Net periodic benefit cost—settlement loss | — | | — | |||||
Net periodic benefit cost—components other than service cost and settlement loss | | | | |||||
Income from marketable securities | ( | ( | ( | |||||
All other, net | ( | ( | ( | |||||
| $ | | $ | | $ | ( | ||
Note 16. Commitments and Contingencies
Purchase Commitments
As of December 31, 2021, we had commitments to purchase minimum quantities of certain metal products, which we entered into to secure material for corresponding long-term sales commitments we have entered into with our customers. The total amount of the minimum commitments based on current pricing is estimated at approximately $
76
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Collective Bargaining Agreements
As of December 31, 2021, approximately
Environmental Contingencies
We are subject to extensive and changing federal, state, local and foreign laws and regulations designed to protect the environment, including those relating to the use, handling, storage, discharge and disposal of hazardous substances and the remediation of environmental contamination. Our operations use minimal amounts of such substances.
We believe we are in material compliance with environmental laws and regulations; however, we are from time to time involved in administrative and judicial proceedings and inquiries relating to environmental matters. Some of our owned or leased properties are located in industrial areas with histories of heavy industrial use. We may incur some environmental liabilities because of the location of these properties. In addition, we are currently involved with an environmental remediation project related to activities at former manufacturing operations of EMJ, our wholly owned subsidiary, that were sold many years prior to our acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ maintained insurance policies during the time it owned the manufacturing operations that have covered costs incurred to date and are expected to continue to cover the majority of the related costs. We do not expect that this obligation will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
Legal Matters
From time to time, we are named as a defendant in legal actions. These actions generally arise in the ordinary course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse impact on our consolidated financial condition, results of operations or cash flows. We maintain general liability insurance against risks arising in the ordinary course of business.
COVID-19 Risks and Uncertainties
The global COVID-19 outbreak and associated actions implemented by governments around the world, as well as the related increased business uncertainty and economic contraction, had an adverse impact on our financial results during 2020. We took a variety of actions during 2020 to help mitigate the financial impact, including rightsizing our inventory and reducing our workforce. Activity in many of the end markets we serve sequentially improved as 2020 progressed, however we believe our financial results for the year ended December 31, 2021 were limited by impacts of the COVID-19 pandemic and related macroeconomic effects, including, labor shortages, raw material constraints and other supply chain disruptions. Our customers and suppliers were similarly impacted by the effects of the pandemic. While our financial performance improved in each quarter of 2021, resurgences of the virus or its variants, including the Omicron variant, evolving government restrictions and requirements, including vaccination mandates, and the broader impacts of the continuing pandemic, could significantly impact our workforce and performance as well as those of our customers and suppliers, and our estimates and judgments may be subject to greater volatility than in the past.
77
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
Note 17. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31, | ||||||||
2021 | 2020 | 2019 | ||||||
(in millions, except share amounts which are reflected in thousands and per share amounts) | ||||||||
Numerator: | ||||||||
Net income attributable to Reliance | $ | $ | $ | |||||
Denominator: | ||||||||
Weighted average shares outstanding | ||||||||
Dilutive effect of stock-based awards | ||||||||
Weighted average diluted shares outstanding | ||||||||
Earnings per share attributable to Reliance stockholders: | ||||||||
Diluted | $ | $ | $ | |||||
Basic | $ | $ | $ | |||||
The computations of earnings per share for 2021, 2020 and 2019 do not include
Note 18. Segment Information
We have
2021 | 2020 | 2019 | ||||
Carbon steel | | % | | % | | % |
Stainless steel | | % | | % | | % |
Aluminum | | % | | % | | % |
Alloy | | % | | % | | % |
Other | | % | | % | | % |
Toll processing and logistics | | % | | % | | % |
Total | | % | | % | | % |
78
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2021
The following table summarizes consolidated financial information of our operations by geographic location based on where sales originated from:
United States |
| Foreign Countries |
| Total | ||||
(in millions) | ||||||||
Year Ended December 31, 2021: | ||||||||
Net sales | $ | | $ | | $ | | ||
Long-lived assets | | | | |||||
Year Ended December 31, 2020: | ||||||||
Net sales | | | | |||||
Long-lived assets | | | | |||||
Year Ended December 31, 2019: | ||||||||
Net sales | | | | |||||
Long-lived assets | | | | |||||
Note 19. Impairment and Restructuring Charges
Our impairment and restructuring charges consisted of the following:
Year Ended December 31, | ||||||||
2021 |
| 2020 |
| 2019 | ||||
| (in millions) | |||||||
Intangible assets, net | $ | | $ | | $ | — | ||
Property, plant and equipment | — | | | |||||
Operating lease right-of-use assets | — | | — | |||||
Total impairment charges | | | | |||||
Restructuring––cost of sales | — | | — | |||||
Restructuring––SG&A | | | — | |||||
Total impairment and restructuring charges | $ | | $ | | $ | | ||
We recorded impairment and restructuring charges of $
The measurement of intangible assets at fair value in 2021 and 2020 was determined using discounted cash flow techniques. The use of discounted cash flow models requires judgment and the use of inputs by management that are unobservable, including revenue forecasts, discount rates and long-term growth rates. Unobservable inputs also include the Company’s expectations of the assumptions market participants would use in pricing the eventual recovery of the oil and natural gas and aerospace industries based on the best available information in the circumstances at that time.
79
RELIANCE STEEL & ALUMINUM CO.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Additions | Amounts | ||||||||||||||
Balance at | Charged to | Charged to | Balance at | ||||||||||||
Beginning | Costs and | Other | End of | ||||||||||||
| of Year |
| Expenses |
| Deductions(1) | Accounts |
| Year | |||||||
Year Ended December 31, 2021: | |||||||||||||||
Allowance for credit losses | $ | | $ | | $ | | $ | | $ | | |||||
Year Ended December 31, 2020: | |||||||||||||||
Allowance for credit losses | $ | | $ | | $ | | $ | — | $ | | |||||
Year Ended December 31, 2019: | |||||||||||||||
Allowance for credit losses | $ | | $ | | $ | | $ | — | $ | | |||||
| (1) | Uncollectible accounts written off. |
See accompanying report of independent registered public accounting firm.
80
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer, or CEO, and chief financial officer, or CFO, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of the Company’s management, including our CEO and CFO, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this annual report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2021 at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
An evaluation was also performed under the supervision and with the participation of our management, including our CEO and CFO, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their audit report, which is included herein.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
81
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Reliance Steel & Aluminum Co.:
Opinion on Internal Control Over Financial Reporting
We have audited Reliance Steel & Aluminum Co. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II of valuation and qualifying accounts (collectively, the consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
82
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP |
Los Angeles, California
February 24, 2022
83
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The narrative and tabular information included under the captions “Management,” and “Delinquent Section 16(a) Reports” of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 18, 2022 (the “Proxy Statement”) are incorporated herein by reference.
Item 11. Executive Compensation
The narrative and tabular information, including footnotes thereto, included under the captions “Compensation Discussion & Analysis,” “Compensation Committee Report,” “Executive Compensation,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” of the Proxy Statement are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The narrative and tabular information, including footnotes thereto, included under the captions “Securities Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” of the Proxy Statement are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The narrative information included under the captions “Related Person Transactions and Indemnification” and “Board of Directors and Corporate Governance” of the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The narrative and tabular information included under the caption “Ratification of Independent Registered Public Accounting Firm” of the Proxy Statement are incorporated herein by reference.
84
PART IV
Item 15. Exhibits, Financial Statement Schedules
| (a) | The following documents are filed as part of this report: |
| (1) | Financial Statements (included in Item 8). |
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
| (2) | Financial Statement Schedules |
Schedule II—Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is not significant or is included in the Consolidated Financial Statements or notes thereto or is not applicable.
| (3) | Exhibits |
Incorporated by Reference | ||||||||
|---|---|---|---|---|---|---|---|---|
Exhibit |
| Description |
| Form |
| Exhibit |
| Filing Date/ Period End Date |
3.01 | 8-K | 3.1 | 6/1/2015 | |||||
3.02 | 8-K | 3.2 | 6/1/2015 | |||||
3.03 | First Amendment, dated February 16, 2016 to Registrant’s Amended and Restated Bylaws. | 8-K | 3.1 | 2/16/2016 | ||||
4.01 | 8-K | 10.01 | 11/20/2006 | |||||
4.02 | Forms of the Notes and the Exchange Notes under the Indenture. | 8-K | 10.02 | 11/20/2006 | ||||
4.03 | 8-K | 4.1 | 4/12/2013 | |||||
4.04 | 8-K | 4.2 | 4/12/2013 | |||||
4.05 | Description of Registrant’s Securities Registered Pursuant to Section 12 of the Exchange Act. | 10-K | 4.05 | 12/31/2019 | ||||
4.06 | 8-K | 4.1 | 8/3/2020 | |||||
85
Incorporated by Reference | ||||||||
|---|---|---|---|---|---|---|---|---|
Exhibit |
| Description |
| Form |
| Exhibit |
| Filing Date/ Period End Date |
4.07 | 8-K | 4.2 | 8/3/2020 | |||||
10.01† | Registrant’s Form of Indemnification Agreement for officers and directors. | 8-K | 10.1 | 2/16/2016 | ||||
10.02† | Registrant’s Supplemental Executive Retirement Plan dated January 1, 1996. | 10-K | 10.06 | 12/31/1996 | ||||
10.03† | Registrant’s Amended and Restated Directors Stock Option Plan. | DEF 14A | Appendix A | 4/15/2005 | ||||
10.04† | Registrant’s Amended and Restated Stock Option and Restricted Stock Plan. | S-8 | 4.1 | 8/4/2006 | ||||
10.05† | S-8 | 4.2 | 8/4/2006 | |||||
10.06† | Registrant’s Amendment No. 1 to Amended and Restated Stock Option and Restricted Stock Plan. | 8-K | 4.1 | 5/15/2013 | ||||
10.07† | Registrant’s Amended and Restated Deferred Compensation Plan effective January 1, 2013. | 10-K | 10.09 | 12/31/2012 | ||||
10.08† | 10-K | 10.15 | 12/31/2008 | |||||
10.09† | DEF 14A | Appendix A | 4/1/2011 | |||||
10.10† | Form of Restricted Stock Unit Award Agreement – ROA Performance. | 10-Q | 10.3 | 3/31/2016 | ||||
10.11† | 10-Q | 10.4 | 3/31/2016 | |||||
10.12 | 8-K | 10.1 | 9/10/2020 | |||||
10.13† | Registrant’s Second Amended and Restated 2015 Incentive Award Plan. | 8-K | 10.1 | 5/22/2020 | ||||
10.14† | 8-K | 10.2 | 5/22/2020 | |||||
10.15† | Registrant’s First Amendment to Deferred Compensation Plan effective December 22, 2020. | 10-K | 10.15 | 12/31/2020 | ||||
21* | ||||||||
23* | Consent of Independent Registered Public Accounting Firm—KPMG LLP. | |||||||
24* | ||||||||
31.1* | ||||||||
31.2* | ||||||||
32** | ||||||||
101* | The following financial information from Reliance Steel & Aluminum Co.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) related notes to these consolidated financial statements. | |||||||
101.INS* | XBRL Instance Document. | |||||||
101.SCH* | XBRL Taxonomy Extension Schema Document. | |||||||
86
Incorporated by Reference | ||||||||
|---|---|---|---|---|---|---|---|---|
Exhibit |
| Description |
| Form |
| Exhibit |
| Filing Date/ Period End Date |
101.CAL* | XBRL Taxonomy Calculation Linkbase Document. | |||||||
101.DEF* | XBRL Taxonomy Extension Definition Linkbase. | |||||||
101.LAB* | XBRL Taxonomy Label Linkbase Document. | |||||||
101.PRE* | XBRL Taxonomy Presentation Linkbase Document. | |||||||
104* | The cover page from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL (included in Exhibit 101). | |||||||
* Filed herewith. | ||||||||
** Furnished herewith. † Indicates management contract or compensatory plan or arrangement. | ||||||||
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 24, 2022.
RELIANCE STEEL & ALUMINUM CO. | ||
By: | /s/ Arthur Ajemyan | |
Arthur Ajemyan | ||
Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
POWER OF ATTORNEY
The officers and directors of Reliance Steel & Aluminum Co. whose signatures appear below hereby constitute and appoint James D. Hoffman, Karla R. Lewis and Arthur Ajemyan, or any of them, to act severally as attorneys-in-fact and agents, with power of substitution and resubstitution, for each of them in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signatures |
| Title |
| Date |
|---|---|---|---|---|
/s/ Mark V. Kaminski | Chairman of the Board; Director | February 24, 2022 | ||
Mark V. Kaminski | ||||
/s/ James D. Hoffman | Chief Executive Officer (Principal Executive Officer); Director | February 24, 2022 | ||
James D. Hoffman | ||||
/s/ Karla R. Lewis | President; Director | February 24, 2022 | ||
Karla R. Lewis |
87
/s/ Sarah J. Anderson | Director | February 24, 2022 | ||
Sarah J. Anderson | ||||
/s/ Lisa L. Baldwin | Director | February 24, 2022 | ||
Lisa L. Baldwin | ||||
/s/ Karen W. Colonias | Director | February 24, 2022 | ||
Karen W. Colonias | ||||
/s/ Frank J. Dellaquila | Director | February 24, 2022 | ||
Frank J. Dellaquila | ||||
/s/ John G. Figueroa | Director | February 24, 2022 | ||
John G. Figueroa | ||||
/s/ Robert A. McEvoy | Director | February 24, 2022 | ||
Robert A. McEvoy | ||||
/s/ David W. Seeger | Director | February 24, 2022 | ||
David W. Seeger | ||||
/s/ Andrew G. Sharkey, III | Director | February 24, 2022 | ||
Andrew G. Sharkey, III | ||||
/s/ Douglas W. Stotlar | Director | February 24, 2022 | ||
Douglas W. Stotlar | ||||
88