Item 8. Financial Statements and Supplementary Dat
a
RELIANCE STEEL & ALUMINUM CO.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Reliance Steel & Aluminum Co.:
We have audited the accompanying consolidated balance sheets of Reliance Steel & Aluminum Co. and subsidiaries as of December 31, 2016 and 2015, and 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, 2016. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reliance Steel & Aluminum Co. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Reliance Steel & Aluminum Co.’s internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control
—
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 24, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Los Angeles, California
February 24, 2017
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED BALANCE SHEET
S
(in millions, except share amounts)
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2016
|
|
2015
|
ASSETS
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
122.8
|
|
$
|
104.3
|
Accounts receivable, less allowance for doubtful accounts of $15.3 at December 31, 2016 and $16.3 at December 31, 2015
|
|
960.2
|
|
|
916.6
|
Inventories
|
|
1,532.6
|
|
|
1,436.0
|
Prepaid expenses and other current assets
|
|
72.9
|
|
|
60.8
|
Income taxes receivable
|
|
—
|
|
|
36.5
|
Total current assets
|
|
2,688.5
|
|
|
2,554.2
|
Property, plant and equipment:
|
|
|
|
|
|
Land
|
|
228.2
|
|
|
196.2
|
Buildings
|
|
1,059.2
|
|
|
1,006.3
|
Machinery and equipment
|
|
1,647.3
|
|
|
1,569.8
|
Accumulated depreciation
|
|
(1,272.5)
|
|
|
(1,136.8)
|
Property, plant and equipment, net
|
|
1,662.2
|
|
|
1,635.5
|
|
|
|
|
|
|
Goodwill
|
|
1,827.4
|
|
|
1,724.8
|
Intangible assets, net
|
|
1,151.3
|
|
|
1,125.4
|
Cash surrender value of life insurance policies, net
|
|
46.9
|
|
|
45.8
|
Other assets
|
|
35.0
|
|
|
35.9
|
Total assets
|
$
|
7,411.3
|
|
$
|
7,121.6
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
302.2
|
|
$
|
247.0
|
Accrued expenses
|
|
83.7
|
|
|
83.0
|
Accrued compensation and retirement costs
|
|
140.8
|
|
|
118.7
|
Accrued insurance costs
|
|
40.6
|
|
|
40.2
|
Current maturities of long-term debt and short-term borrowings
|
|
82.5
|
|
|
500.8
|
Income taxes payable
|
|
6.2
|
|
|
—
|
Total current liabilities
|
|
656.0
|
|
|
989.7
|
Long-term debt
|
|
1,846.7
|
|
|
1,427.9
|
Long-term retirement costs
|
|
89.6
|
|
|
103.8
|
Other long-term liabilities
|
|
13.0
|
|
|
30.4
|
Deferred income taxes
|
|
626.9
|
|
|
627.1
|
Commitments and contingencies
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Preferred stock, $0.001 par value:
|
|
|
|
|
|
Authorized shares — 5,000,000
|
|
|
|
|
|
None issued or outstanding
|
|
—
|
|
|
—
|
Common stock and additional paid-in capital, $0.001 par value:
|
|
|
|
|
|
Authorized shares — 200,000,000
|
|
|
|
|
|
Issued and outstanding shares – 72,682,793 at December 31, 2016 and 71,739,072 at December 31, 2015
|
|
590.3
|
|
|
533.8
|
Retained earnings
|
|
3,663.2
|
|
|
3,480.0
|
Accumulated other comprehensive loss
|
|
(104.7)
|
|
|
(99.7)
|
Total Reliance stockholders’ equity
|
|
4,148.8
|
|
|
3,914.1
|
Noncontrolling interests
|
|
30.3
|
|
|
28.6
|
Total equity
|
|
4,179.1
|
|
|
3,942.7
|
Total liabilities and equity
|
$
|
7,411.3
|
|
$
|
7,121.6
|
See accompanying notes to consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF INCOM
E
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
$
|
8,613.4
|
|
$
|
9,350.5
|
|
$
|
10,451.6
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown below)
|
|
6,023.1
|
|
|
6,803.6
|
|
|
7,830.6
|
Warehouse, delivery, selling, general and administrative
|
|
1,803.3
|
|
|
1,728.5
|
|
|
1,789.8
|
Depreciation and amortization
|
|
222.0
|
|
|
218.5
|
|
|
213.8
|
Impairment of long-lived assets
|
|
52.4
|
|
|
53.3
|
|
|
—
|
|
|
8,100.8
|
|
|
8,803.9
|
|
|
9,834.2
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
512.6
|
|
|
546.6
|
|
|
617.4
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest
|
|
(84.6)
|
|
|
(84.3)
|
|
|
(81.9)
|
Other income (expense), net
|
|
1.2
|
|
|
(3.6)
|
|
|
10.8
|
Income before income taxes
|
|
429.2
|
|
|
458.7
|
|
|
546.3
|
Income tax provision
|
|
120.1
|
|
|
142.5
|
|
|
170.0
|
Net income
|
|
309.1
|
|
|
316.2
|
|
|
376.3
|
Less: Net income attributable to noncontrolling interests
|
|
4.8
|
|
|
4.7
|
|
|
4.8
|
Net income attributable to Reliance
|
$
|
304.3
|
|
$
|
311.5
|
|
$
|
371.5
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Reliance stockholders:
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
4.16
|
|
$
|
4.16
|
|
$
|
4.73
|
Basic
|
$
|
4.21
|
|
$
|
4.20
|
|
$
|
4.78
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
$
|
1.65
|
|
$
|
1.60
|
|
$
|
1.40
|
See accompanying notes to consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOM
E
(in millions)
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Net income
|
$
|
309.1
|
|
$
|
316.2
|
|
$
|
376.3
|
Other comprehensive income (loss) :
|
|
|
|
|
|
|
|
|
Foreign currency translation loss
|
|
(5.7)
|
|
|
(51.0)
|
|
|
(26.4)
|
Unrealized (loss) gain on investments, net of tax
|
|
—
|
|
|
(0.4)
|
|
|
0.2
|
Pension and postretirement benefit adjustments, net of tax
|
|
0.7
|
|
|
0.6
|
|
|
(16.0)
|
Total other comprehensive loss
|
|
(5.0)
|
|
|
(50.8)
|
|
|
(42.2)
|
Comprehensive income
|
|
304.1
|
|
|
265.4
|
|
|
334.1
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
4.8
|
|
|
4.7
|
|
|
4.8
|
Comprehensive income attributable to Reliance
|
$
|
299.3
|
|
$
|
260.7
|
|
$
|
329.3
|
See accompanying notes to consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF EQUIT
Y
(in millions, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reliance Stockholders’ Equity
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
and Additional
|
|
|
|
|
Other
|
|
Non-
|
|
|
|
|
Paid-In Capital
|
|
Retained
|
|
Comprehensive
|
|
controlling
|
|
|
|
|
Shares
|
|
Amount
|
|
Earnings
|
|
Loss
|
|
Interests
|
|
Total
|
Balance at January 1, 2014
|
77,492,017
|
|
$
|
818.3
|
|
$
|
3,063.0
|
|
$
|
(6.7)
|
|
$
|
9.8
|
|
$
|
3,884.4
|
Net income
|
—
|
|
|
—
|
|
|
371.5
|
|
|
—
|
|
|
4.8
|
|
|
376.3
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(42.2)
|
|
|
—
|
|
|
(42.2)
|
Consolidation of joint venture
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.6
|
|
|
22.6
|
Noncontrolling interest purchased
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.2)
|
|
|
(4.2)
|
Payments to noncontrolling interest holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.1)
|
|
|
(4.1)
|
Stock-based compensation
|
11,830
|
|
|
22.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22.3
|
Stock options exercised
|
593,204
|
|
|
28.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28.8
|
Repurchase of common shares
|
(759,800)
|
|
|
(50.0)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50.0)
|
Stock-based compensation tax benefit
|
—
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
2.7
|
Cash dividends — $1.40 per share
|
—
|
|
|
—
|
|
|
(108.7)
|
|
|
—
|
|
|
—
|
|
|
(108.7)
|
Balance at December 31, 2014
|
77,337,251
|
|
|
819.4
|
|
|
3,328.5
|
|
|
(48.9)
|
|
|
28.9
|
|
|
4,127.9
|
Net income
|
—
|
|
|
—
|
|
|
311.5
|
|
|
—
|
|
|
4.7
|
|
|
316.2
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(50.8)
|
|
|
—
|
|
|
(50.8)
|
Noncontrolling interest purchased
|
—
|
|
|
(0.6)
|
|
|
—
|
|
|
—
|
|
|
(2.0)
|
|
|
(2.6)
|
Payments to noncontrolling interest holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.0)
|
|
|
(3.0)
|
Stock-based compensation
|
271,438
|
|
|
16.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.8
|
Stock options exercised
|
325,024
|
|
|
15.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.1
|
Repurchase of common shares
|
(6,194,641)
|
|
|
(355.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(355.5)
|
Stock-based compensation tax deficit
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
—
|
|
|
—
|
|
|
(1.3)
|
Delaware reincorporation
|
—
|
|
|
38.6
|
|
|
(38.6)
|
|
|
—
|
|
|
—
|
|
|
—
|
Cash dividends — $1.60 per share and dividend equivalents
|
—
|
|
|
—
|
|
|
(120.1)
|
|
|
—
|
|
|
—
|
|
|
(120.1)
|
Balance at December 31, 2015
|
71,739,072
|
|
|
533.8
|
|
|
3,480.0
|
|
|
(99.7)
|
|
|
28.6
|
|
|
3,942.7
|
Net income
|
—
|
|
|
—
|
|
|
304.3
|
|
|
—
|
|
|
4.8
|
|
|
309.1
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.0)
|
|
|
—
|
|
|
(5.0)
|
Payments to noncontrolling interest holders
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.1)
|
|
|
(3.1)
|
Stock-based compensation
|
188,576
|
|
|
18.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18.0
|
Stock options exercised
|
755,145
|
|
|
37.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37.5
|
Cumulative effect of change in accounting for stock-based compensation
|
—
|
|
|
1.0
|
|
|
(0.6)
|
|
|
—
|
|
|
—
|
|
|
0.4
|
Cash dividends — $1.65 per share and dividend equivalents
|
—
|
|
|
—
|
|
|
(120.5)
|
|
|
—
|
|
|
—
|
|
|
(120.5)
|
Balance at December 31, 2016
|
72,682,793
|
|
$
|
590.3
|
|
$
|
3,663.2
|
|
$
|
(104.7)
|
|
$
|
30.3
|
|
$
|
4,179.1
|
See accompanying notes to consolidated financial statements.
RELIANCE STEEL & ALUMINUM CO.
CONSOLIDATED STATEMENTS OF CASH FLOW
S
(in millions)
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
$
|
309.1
|
|
$
|
316.2
|
|
$
|
376.3
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
222.0
|
|
|
218.5
|
|
|
213.8
|
Impairment of long-lived assets
|
|
52.4
|
|
|
53.3
|
|
|
—
|
Deferred income tax benefit
|
|
(0.5)
|
|
|
(17.1)
|
|
|
(18.2)
|
Gain on sales of property, plant and equipment
|
|
(1.2)
|
|
|
(2.2)
|
|
|
(12.9)
|
Stock-based compensation expense
|
|
24.4
|
|
|
21.3
|
|
|
22.8
|
Other
|
|
7.7
|
|
|
9.8
|
|
|
(4.9)
|
Changes in operating assets and liabilities (excluding effect of businesses acquired):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(31.2)
|
|
|
222.5
|
|
|
(97.2)
|
Inventories
|
|
(30.4)
|
|
|
306.8
|
|
|
(131.0)
|
Prepaid expenses and other assets
|
|
26.7
|
|
|
(25.2)
|
|
|
31.5
|
Accounts payable and other liabilities
|
|
47.5
|
|
|
(78.9)
|
|
|
(24.2)
|
Net cash provided by operating activities
|
|
626.5
|
|
|
1,025.0
|
|
|
356.0
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(154.9)
|
|
|
(172.2)
|
|
|
(190.4)
|
Acquisitions, net of cash acquired
|
|
(348.7)
|
|
|
(0.4)
|
|
|
(208.2)
|
Proceeds from sale of business, net
|
|
—
|
|
|
—
|
|
|
26.2
|
Other
|
|
(1.5)
|
|
|
2.7
|
|
|
7.4
|
Net cash used in investing activities
|
|
(505.1)
|
|
|
(169.9)
|
|
|
(365.0)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net short-term debt (repayments) borrowings
|
|
(12.6)
|
|
|
12.7
|
|
|
1.7
|
Proceeds from long-term debt borrowings
|
|
2,073.0
|
|
|
573.0
|
|
|
719.0
|
Principal payments on long-term debt
|
|
(2,061.4)
|
|
|
(962.3)
|
|
|
(552.2)
|
Debt issuance costs
|
|
(6.8)
|
|
|
—
|
|
|
—
|
Dividends and dividend equivalents paid
|
|
(120.4)
|
|
|
(120.1)
|
|
|
(108.7)
|
Exercise of stock options
|
|
37.5
|
|
|
15.1
|
|
|
28.8
|
Share repurchases
|
|
—
|
|
|
(355.5)
|
|
|
(50.0)
|
Other
|
|
(9.5)
|
|
|
(11.4)
|
|
|
(5.6)
|
Net cash (used in) provided by financing activities
|
|
(100.2)
|
|
|
(848.5)
|
|
|
33.0
|
Effect of exchange rate changes on cash
|
|
(2.7)
|
|
|
(8.5)
|
|
|
(1.4)
|
Increase (decrease) in cash and cash equivalents
|
|
18.5
|
|
|
(1.9)
|
|
|
22.6
|
Cash and cash equivalents at beginning of year
|
|
104.3
|
|
|
106.2
|
|
|
83.6
|
Cash and cash equivalents at end of year
|
$
|
122.8
|
|
$
|
104.3
|
|
$
|
106.2
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid during the year
|
$
|
81.4
|
|
$
|
82.0
|
|
$
|
82.4
|
Income taxes paid during the year, net
|
$
|
95.1
|
|
$
|
204.9
|
|
$
|
134.2
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Debt assumed in connection with acquisitions
|
$
|
6.1
|
|
$
|
—
|
|
$
|
39.2
|
See accompanying notes to consolidated financial statements.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Note 1. Summary of Significant Accounting Policie
s
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
We operate a metals service center network of more than 300 locations in 39 states in the U.S. and in 12 other countries (Australia, Belgium, Canada, China, France, Malaysia, Mexico, Singapore, South Korea, Turkey, the United Arab Emirates and the United Kingdom) that provides value‑added metals processing services and distributes a full line of more than 100,000 metal products. Since our inception in 1939, we have not diversified outside our core business as a metals service center operator.
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 accounts receivable collectability, valuation of inventories, goodwill, long‑lived assets, income tax 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
Concentrations of credit risk with respect to trade receivables are limited due to the geographically diverse customer base and various industries into which our products are sold. Trade receivables are typically non‑interest bearing and are initially recorded at cost. Sales to our recurring customers are generally made on open account terms while sales to occasional customers may be made on a C.O.D. basis when collectability is not assured. 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. Losses from credit sales are provided for in the financial statements and consistently have been within the allowance provided. The allowance is an estimate of the uncollectability of accounts receivable based on an evaluation of specific customer risks along with additional reserves based on historical and probable bad debt experience. Amounts are written-off against the allowance in the period we determine that the receivable is uncollectible. As a result of the above factors, 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.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities, and the current portion of long‑term debt 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 of $750.0 million and $1.1 billion as of December 31, 2016 and 2015, respectively. The fair values of these senior unsecured notes based on quoted market prices as of December 31, 2016 and 2015, were $773.2 million and $1.08 billion, respectively, compared to their carrying values of $743.2 million and $1.09 billion as of the end of each respective fiscal year. These estimated fair values are based on Level 2 inputs.
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
Goodwill is the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized but is tested for impairment at least annually. We have one operating segment and one reporting unit for goodwill impairment purposes.
We test for impairment of goodwill by assessing qualitative factors to determine if the fair value of the reporting unit is more likely than not below the carrying value of the reporting unit. We also calculate the fair value of the reporting unit using our market capitalization or the discounted cash flow method, as necessary, and compare the fair value to the carrying value of the reporting unit to determine if impairment exists. We perform the required annual goodwill impairment evaluation on November 1 of each year. No impairment of goodwill was determined to exist in any of the years presented.
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 five to 50 years and machinery and equipment over three to 20 years.
Other intangible assets with finite useful lives are amortized over their useful lives. Other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. We review the recoverability of our long‑lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We recognized impairment losses of $14.4 million on our other intangible assets with finite lives in 2015 and $36.4 million and $21.2 million related to our other intangible assets with indefinite lives in 2016 and 2015, respectively. We recognized impairment losses of $16.0 million and $17.7 million for property, plant, and equipment in 2016 and 2015, respectively. See Note 17 – “Impairment and Restructuring Charges” for further discussion of our impairment losses.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Revenue Recognition
We recognize revenue from product or processing sales upon concluding that all of the fundamental criteria for product revenue recognition have been met, such as a fixed or determinable sales price; reasonable assurance of collectability; and passage of title and risks of ownership to the buyer. Such criteria are usually met upon delivery to the customer for orders with FOB destination terms or upon shipment for orders with FOB shipping point terms, or after toll processing services are performed. Considering the close proximity of our customers to our metals service center locations, shipment and delivery of our orders generally occur on the same day. Billings for orders where the revenue recognition criteria are not met, which primarily include certain bill and hold transactions (in which our customers request to be billed for the material but request delivery at a later date), are recorded as deferred revenue.
Shipping and handling charges to our customers are included in Net sales. Costs incurred in connection with shipping and handling our products that are performed by third-party carriers and costs incurred by our personnel are typically included in operating expenses. In 2016, 2015 and 2014, shipping and handling costs included in Warehouse, delivery, selling, general and administrative expenses were $346.2 million, $319.1 million, and $312.6 million, respectively.
Stock‑Based Compensation
All of our stock‑based compensation plans are considered equity plans. We calculate the fair value of stock option awards on the grant date based on the closing market price of our common stock, using a Black‑Scholes option‑pricing model. The fair value of restricted stock grants is determined based on the fair value of our common stock on the grant date. The fair value of stock option and restricted stock awards is expensed on a straight‑line basis over their respective vesting periods, net of forfeitures when they occur. The stock-based compensation expense recorded was $24.4 million, $21.3 million, and $22.8 million in 2016, 2015 and 2014, respectively, and is included in the Warehouse, delivery, selling, general and administrative expense caption of our consolidated statements of income.
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 14 – “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. The deferred tax assets and/or liabilities are determined by multiplying the differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered 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.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
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.
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). Gains and losses resulting from foreign currency transactions are included in the results of operations in the Other income (expense), net caption and amounted to net gains of $1.8 million and $3.1 million in 2016 and 2014, respectively. Gains and losses resulting from foreign currency transactions were insignificant in 2015.
Impact of Recently Issued Accounting Standards
—
Adopted
Improvements to Employee Share-Based Payment Accounting—
In March 2016, the Financial Accounting Standards Board (“FASB”) issued accounting changes intended to improve various aspects of the accounting for share-based payment transactions as part of its simplification initiative. We adopted these changes as of January 1, 2016. The adoption of these changes did not have a material impact on our consolidated financial statements. For further discussion of our adoption of these accounting changes, see Note 12 — “Equity”.
Impact of Recently Issued Accounting Standards—Not Yet Adopted
Classification of Certain Cash Receipts and Cash Payments
—In August 2016, the FASB issued accounting changes that clarifies the presentation and classification of certain cash receipts and payments in the statement of cash flows with the objective of reducing the existing diversity in practice with respect to eight types of cash flows. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard will not have a material impact on our consolidated financial statements.
Leases
—In February 2016, the FASB issued accounting changes which will require lessees to recognize most long-term leases on-balance sheet through the recognition of a right-of-use asset and a lease liability. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. We have implemented a lease management system and are developing processes necessary to implement these accounting changes. We expect the adoption of these accounting changes will materially increase our assets and liabilities, but will not have a material impact on equity. We have not yet made any decision with respect to the timing or method of adoption of these accounting changes.
Revenue from Contracts with Customers
—
In May 2014, the FASB issued accounting changes, which replace most of the detailed guidance on revenue recognition that currently exists under U.S. GAAP. Under the new guidance an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance will be effective for fiscal years beginning after December 15, 2017. Early adoption is permitted after December 15, 2016. We primarily sell our inventories in the “spot market” pursuant to fixed price purchase orders and do not enter into transactions with multiple performance obligations. As such, even though we are evaluating the impact of the adoption of the new standard, we do not expect this standard to have a material impact on our consolidated financial statements.
We have not yet made any decision with respect to the timing or method of adoption of these accounting changes.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Note 2. Acquisitions
2016 Acquisitions
On August 1, 2016, through our wholly owned subsidiary American Metals Corporation, we acquired Alaska Steel Company (“Alaska Steel”), a full-line metal distributor headquartered in Anchorage, Alaska. Our acquisition of Alaska Steel was our first entry into the Alaska market. Alaska Steel provides steel, aluminum, stainless and specialty metals and related processing services to a variety of customers in diverse industries including infrastructure and energy throughout Alaska. Net sales of Alaska Steel during the period from August 1, 2016 to December 31, 2016 were $8.5 million.
On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator of steel and aluminum products on both a direct and toll basis. Best Manufacturing, headquartered in Jonesboro, Arkansas, provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. Net sales of Best Manufacturing during the period from April 1, 2016 to December 31, 2016 were $13.8 million.
On January 1, 2016, we acquired Tubular Steel, Inc. (“Tubular Steel”), a distributor and processor of carbon, alloy and stainless steel pipe, tubing and bar products. Tubular Steel, headquartered in St. Louis, Missouri, has six locations and a fabrication business that supports its diverse customer base. Net sales of Tubular Steel for the year ended December 31, 2016 were $116.0 million.
We funded our 2016 acquisitions with borrowings on our revolving credit facility and cash on hand.
The preliminary allocation of the total purchase price of our 2016 acquisitions to the fair values of the assets acquired and liabilities assumed was as follows:
|
|
|
|
(in millions)
|
Cash
|
$
|
1.5
|
Accounts receivable
|
|
14.1
|
Inventories
|
|
66.6
|
Property, plant and equipment
|
|
62.2
|
Goodwill
|
|
103.4
|
Intangible assets subject to amortization
|
|
77.1
|
Intangible assets not subject to amortization
|
|
38.2
|
Other current and long-term assets
|
|
0.5
|
Total assets acquired
|
|
363.6
|
Current and long-term debt
|
|
6.1
|
Other current and long-term liabilities
|
|
7.3
|
Total liabilities assumed
|
|
13.4
|
Net assets acquired
|
$
|
350.2
|
2014 Acquisitions
On December 1, 2014, we acquired Fox Metals and Alloys, Inc. (“Fox Metals”), a Houston, Texas-based steel distributor specializing in alloy, carbon and stainless steel bar and plate products, primarily servicing original equipment manufacturers (“OEM”s) and machine shops that manufacture or support the manufacturing of equipment for the oil, gas
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
and petrochemical industries. Fox Metals' in-house processing services include saw cutting, plate burning and testing. Net sales of Fox Metals in 2016 were $8.2 million.
On August 1, 2014, we acquired Aluminium Services UK Limited, the parent holding company of All Metal Services (“AMS”). AMS provides comprehensive materials management solutions to aerospace and defense OEMs and their subcontractors on a global basis, supporting customers in more than 40 countries worldwide. AMS offers a broad range of aerospace metals including aluminum, steel, titanium, nickel alloys and aluminum bronze, offering full or cut to size materials. AMS also offers in-house machining and water-jet cutting for more complex requirements. AMS has eight locations in four countries including China, France, Malaysia, and the United Kingdom. Net sales of AMS in 2016 were $268.7 million.
On August 1, 2014, we acquired Northern Illinois Steel Supply Co. (“NIS”), a value-added distributor and fabricator of a variety of steel and non-ferrous metal products, primarily structural steel components and parts, located in Channahon, Illinois. Net sales of NIS in 2016 were $18.7 million.
We funded our 2014 acquisitions with borrowings on our revolving credit facility and cash on hand.
The allocation of the total purchase price of our acquisitions completed in 2014 to the fair values of the assets acquired and liabilities assumed was as follows:
|
|
|
|
(in millions)
|
Cash
|
$
|
1.6
|
Accounts receivable
|
|
67.1
|
Inventories
|
|
89.2
|
Property, plant and equipment
|
|
23.4
|
Goodwill
|
|
51.3
|
Intangible assets subject to amortization
|
|
37.5
|
Intangible assets not subject to amortization
|
|
39.0
|
Other current and long-term assets
|
|
1.5
|
Total assets acquired
|
|
310.6
|
Current and long-term debt
|
|
39.2
|
Deferred taxes
|
|
9.0
|
Other current and long-term liabilities
|
|
53.1
|
Total liabilities assumed
|
|
101.3
|
Net assets acquired
|
$
|
209.3
|
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, 2016 or 2015, as applicable. The purchase price allocations for the 2016 acquisitions of Alaska Steel and Best Manufacturing are preliminary and are pending the completion of various pre-acquisition income tax returns. The measurement periods for purchase price allocations do not exceed 12 months from the acquisition date.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
As part of the purchase price allocations of the acquisitions completed in 2016 and 2014, $38.2 million and $39.0 million, respectively, were allocated to the trade names acquired. We determined that substantially all of the trade names acquired in connection with these acquisitions had indefinite lives since their economic lives are expected to approximate the life of each company acquired. Additionally, we recorded other identifiable intangible assets related to customer relationships for the 2016 and 2014 acquisitions of $76.8 million and $37.3 million, respectively, with weighted average lives of 15.5 and 13.6 years, respectively. The goodwill arising from our 2016 and 2014 acquisitions consists largely of expected strategic benefits, including enhanced financial and operational scale, as well as expansion of acquired product and processing know-how across our enterprise. Tax deductible goodwill from our 2016 and 2014 acquisitions amounted to $103.4 million and $20.3 million, respectively. Total tax deductible goodwill amounted to $662.5 million as of December 31, 2016.
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 20% to 50%. The financial results of investees are generally consolidated when the ownership interest is greater than 50%.
We have two joint venture arrangements with noncontrolling interests: Oregon Feralloy Partners LLC (40%-owned) and Eagle Steel Products, Inc. (45%-owned). These investments are accounted for using the equity method. The corresponding investments in these entities are reflected in the Other assets caption of the consolidated balance sheets. Equity in earnings of these entities and related distribution of earnings have not been material to our results of operations or cash flows.
Operations that are majority owned by us are as follows: Acero Prime S. de R.L. de C.V. (60%-owned), Feralloy Processing Company (51%-owned), Indiana Pickling and Processing Company (56%-owned), and Valex Corp.’s operations in South Korea, in which Valex Corp. has 95% ownership. The results of these majority‑owned operations are consolidated in our financial results. The portion of the earnings related to the noncontrolling shareholder interests has been reflected in the Net income attributable to noncontrolling interests caption in the accompanying consolidated statements of income.
On December 15, 2015, we purchased the noncontrolling interest of Valex Corp., which increased our ownership from 97% to 100%, and on September 11, 2015 Valex Corp. purchased the noncontrolling interest in its operation in the People’s Republic of China, which increased its ownership interest from 92% to 100%.
On October 1, 2014, we acquired a controlling interest in our joint venture partnership Acero Prime S. de R.L. de C.V. (“Acero Prime”), a toll processor in Mexico, and subsequently purchased additional interests on November 3, 2014, which, together, increased our ownership from 40% to 60%. Concurrent with this acquisition achieved in stages, we recognized an $11.4 million gain on our previously held equity interest remeasured at fair value. The allocation of the total purchase price to the fair values of the assets acquired and liabilities assumed included $57.6 million of total assets and noncontrolling interest of $22.6 million.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
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 FIFO method is not in excess of realizable value.
Inventories consisted of the following:
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
LIFO inventories - cost on the FIFO method
|
$
|
1,219.0
|
|
$
|
1,157.5
|
|
|
|
|
|
|
LIFO inventory valuation reserve adjustment
|
|
51.5
|
|
|
43.0
|
Lower of cost or market adjustment
|
|
(42.6)
|
|
|
(69.1)
|
Cost on FIFO method lower (higher) than LIFO value
|
|
8.9
|
|
|
(26.1)
|
|
|
|
|
|
|
Inventories - stated on LIFO method
|
|
1,227.9
|
|
|
1,131.4
|
Inventories - stated on FIFO method
|
|
304.7
|
|
|
304.6
|
|
$
|
1,532.6
|
|
$
|
1,436.0
|
The lower of cost or market charges in 2016 and 2015 were due to a significant decline in metals pricing that resulted in our LIFO inventory valuation exceeding current replacement cost. In 2016, we also recorded a lower of cost or market charge of $7.6 million relating to certain inventories of a foreign subsidiary that are remeasured into the U.S. dollar.
The changes in the LIFO valuation reserve and impact of LIFO liquidations were as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
LIFO inventory valuation reserve adjustment (income) charge
|
$
|
(8.5)
|
|
$
|
(186.1)
|
|
$
|
54.5
|
Liquidation of LIFO inventory quantities that increased cost of sales
|
|
**
|
|
$
|
38.7
|
|
|
**
|
** Insignificant liquidations of LIFO inventory quantities.
Cost decreases for the majority of our products were the primary cause of the 2016 and 2015 reductions in the LIFO valuation reserve. Cost increases for the majority of our products were the primary cause of the 2014 increase in the LIFO valuation reserve.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Note 5. Goodwill
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
(in millions)
|
|
|
|
Balance at January 1, 2014
|
$
|
1,691.6
|
Acquisitions
|
|
51.3
|
Consolidation of a joint venture entity
|
|
15.2
|
Purchase price allocation adjustments
|
|
2.1
|
Sale of business
|
|
(17.1)
|
Effect of foreign currency translation
|
|
(6.7)
|
Balance at December 31, 2014
|
|
1,736.4
|
Acquisitions
|
|
0.4
|
Purchase price allocation adjustments
|
|
(0.4)
|
Effect of foreign currency translation
|
|
(11.6)
|
Balance at December 31, 2015
|
|
1,724.8
|
Acquisitions
|
|
103.4
|
Disposal of businesses
|
|
(1.0)
|
Effect of foreign currency translation
|
|
0.2
|
Balance at December 31, 2016
|
$
|
1,827.4
|
All of the goodwill recorded from our 2016 acquisitions is tax deductible.
We had no accumulated impairment losses related to goodwill at December 31, 2016.
Note 6. Intangible Assets, net
Intangible assets, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
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
|
4.8
|
|
$
|
1.1
|
|
$
|
(0.6)
|
|
$
|
1.3
|
|
$
|
(1.0)
|
Customer lists/relationships
|
14.6
|
|
|
736.7
|
|
|
(338.9)
|
|
|
659.0
|
|
|
(285.7)
|
Software – internal use
|
10.0
|
|
|
8.1
|
|
|
(8.1)
|
|
|
8.1
|
|
|
(7.9)
|
Other
|
5.2
|
|
|
6.3
|
|
|
(5.5)
|
|
|
6.3
|
|
|
(5.0)
|
|
|
|
|
752.2
|
|
|
(353.1)
|
|
|
674.7
|
|
|
(299.6)
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
|
752.2
|
|
|
—
|
|
|
750.3
|
|
|
—
|
|
|
|
$
|
1,504.4
|
|
$
|
(353.1)
|
|
$
|
1,425.0
|
|
$
|
(299.6)
|
Intangible assets recorded in connection with our 2016 acquisitions were $115.3 million (see Note 2 – “Acquisitions”). A total of $38.2 million was allocated to the trade names acquired, which is not subject to amortization.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Impairment losses of $36.4 million related to eight of our trade names were recognized in 2016. Impairment losses of $21.2 million related to five of our trade name intangible assets and $14.4 million related to two of our customer relationship intangible assets were recognized in 2015. See Note 17 – “Impairment and Restructuring Charges” for further discussion of our impairment losses.
Amortization expense for intangible assets amounted to $54.1 million, $53.7 million and $56.7 million in 2016, 2015 and 2014, respectively. Foreign currency translation gains related to intangible assets, net in 2016 were $1.1 million.
The following is a summary of estimated aggregate amortization expense for each of the next five years:
|
|
|
|
(in millions)
|
2017
|
|
50.3
|
2018
|
|
46.0
|
2019
|
|
45.9
|
2020
|
|
45.9
|
2021
|
|
42.0
|
Note 7. 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 $46.9 million and $45.8 million as of December 31, 2016 and 2015, respectively.
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. We are also the owner and beneficiary of key man life insurance policies on certain current and former executives of the Company, its subsidiaries and predecessor companies.
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.
Income earned on all of our life insurance policies is recorded in the Other income (expense), net caption in the accompanying consolidated statements of income (see Note 13 – “Other Income (Expense), net”).
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 $51.3 million, $47.9 million and $44.5 million against the cash surrender value of certain policies, which was used to partially pay premiums and accrued interest owed of $64.7 million, $60.4 million and $56.0 million in 2016, 2015 and 2014, respectively. Interest rates on borrowings under some of the EMJ life insurance policies are fixed at 11.76% and the portion of the policy cash surrender value that the borrowings relate to earns interest and dividend income at 11.26%. The unborrowed portion of the policy cash surrender value earns income at rates commensurate with certain risk‑free U.S. Treasury bond yields but not less than 4.0%. All other life insurance policies earn investment income or incur losses based on the performance of the underlying investments held by the policies.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
As of December 31, 2016 and 2015, loans and accrued interest outstanding on EMJ’s life insurance policies were $577.6 million and $535.2 million, respectively. There were no borrowings available as of December 31, 2016 and December 31, 2015. Interest expense on borrowings against cash surrender values is included in the Other income (expense), net caption in the accompanying consolidated statements of income (see Note 13 – “Other Income (Expense), net”).
Note 8. Debt
Debt consisted of the following:
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Unsecured revolving credit facility due September 30, 2021
|
$
|
540.0
|
|
$
|
332.0
|
Unsecured term loan due from January 3, 2017 to September 30, 2021
|
|
600.0
|
|
|
398.8
|
Senior unsecured notes due November 15, 2016
|
|
—
|
|
|
350.0
|
Senior unsecured notes due April 15, 2023
|
|
500.0
|
|
|
500.0
|
Senior unsecured notes due November 15, 2036
|
|
250.0
|
|
|
250.0
|
Other notes and revolving credit facilities
|
|
55.0
|
|
|
111.3
|
Total
|
|
1,945.0
|
|
|
1,942.1
|
Less: unamortized discount and debt issuance costs
|
|
(15.8)
|
|
|
(13.4)
|
Less: amounts due within one year and short-term borrowings
|
|
(82.5)
|
|
|
(500.8)
|
Total long-term debt
|
$
|
1,846.7
|
|
$
|
1,427.9
|
Unsecured Credit Facility
On September 30, 2016, we entered into a $2.1 billion unsecured five-year credit agreement (“Credit Agreement”) comprised of a $1.5 billion unsecured revolving credit facility and a $600.0 million unsecured term loan, with an option to increase the revolving facility for up to $500.0 million at our request, subject to approval of the lenders and certain other customary conditions. The term loan due September 30, 2021 amortizes in quarterly installments, with an annual amortization of 5% through September 2018 and 10% thereafter until June 2021, with the balance to be paid at maturity. Interest on borrowings from the revolving credit facility and term loan at December 31, 2016 was at variable rates based on LIBOR plus 1.25% or the bank prime rate plus 0.25% and included a commitment fee at an annual rate of 0.15% on the unused portion of the revolving credit facility. The applicable margins over LIBOR rate 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 repaid without penalty.
Weighted average interest rates on borrowings outstanding on the revolving credit facility were 2.16% and 1.81% as of December 31, 2016 and December 31, 2015, respectively. Weighted average interest rates on borrowings outstanding on the term loan were 2.02% and 1.67% as of December 31, 2016 and December 31, 2015, respectively. As of December 31, 2016, we had $540.0 million of outstanding borrowings, $62.6 million of letters of credit issued and $897.4 million available for borrowing on the revolving credit facility.
Senior Unsecured Notes
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 debt issued was comprised of two tranches, (a) $350.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, matured and repaid on November 15,
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
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” and, together with the 2006 Indenture, the “Indentures”), for the issuance of $500.0 million aggregate principal amount of senior unsecured notes at the rate of 4.50% per annum, maturing on April 15, 2023.
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. The subsidiary guarantors guaranteeing the notes under the Indentures were automatically released on September 30, 2016 upon entering into the Credit Agreement, which does not require subsidiary guarantees.
The senior unsecured notes include provisions that require us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest in the event of both a change in control and a downgrade of our credit rating.
Other Notes and Revolving Credit Facilities
Revolving credit facilities with a combined credit limit of approximately $64.9 million are in place for operations in Asia and Europe with combined outstanding balances of $44.4 million and $59.9 million as of December 31, 2016 and December 31, 2015, respectively.
Various industrial revenue bonds had combined outstanding balances of $10.6 million and $11.0 million as of December 31, 2016 and December 31, 2015, respectively, and maturities through 2027. Additionally, we assumed mortgage obligations pursuant to our acquisition of a portfolio of real estate properties that we were leasing, which had outstanding balances of $40.4 million as of December 31, 2015. The mortgages, which were secured by the underlying properties, had a fixed interest rate of 6.40% and scheduled amortization payments with a lump sum payment of $39.2 million due October 2016. We repaid all of the mortgage obligations without penalty on July 1, 2016 with borrowings on our revolving credit facility.
Covenants
The Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including, among other things, two financial covenants. The financial covenants require us to maintain an interest coverage ratio and a maximum leverage ratio.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
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)
|
2017
|
$
|
82.5
|
2018
|
|
38.0
|
2019
|
|
60.6
|
2020
|
|
60.6
|
2021
|
|
945.6
|
Thereafter
|
|
757.7
|
|
$
|
1,945.0
|
Note 9. 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 2013 and state and local tax examinations before 2012.
Significant components of the provision for income taxes attributable to continuing operations were as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
91.1
|
|
$
|
129.5
|
|
$
|
153.2
|
State
|
|
18.9
|
|
|
21.3
|
|
|
25.2
|
Foreign
|
|
10.6
|
|
|
8.8
|
|
|
9.8
|
|
|
120.6
|
|
|
159.6
|
|
|
188.2
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
3.0
|
|
|
(11.7)
|
|
|
(18.7)
|
State
|
|
1.0
|
|
|
(4.5)
|
|
|
(2.2)
|
Foreign
|
|
(4.5)
|
|
|
(0.9)
|
|
|
2.7
|
|
|
(0.5)
|
|
|
(17.1)
|
|
|
(18.2)
|
|
$
|
120.1
|
|
$
|
142.5
|
|
$
|
170.0
|
Components of U.S. and international income before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
411.0
|
|
$
|
427.3
|
|
$
|
488.5
|
International
|
|
18.2
|
|
|
31.4
|
|
|
57.8
|
Income before income taxes
|
$
|
429.2
|
|
$
|
458.7
|
|
$
|
546.3
|
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
The reconciliation of income tax at the U.S. federal statutory tax rates to income tax expense is as follows:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
Income tax at U.S. federal statutory tax rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
State income tax, net of federal tax effect
|
3.1
|
|
2.0
|
|
2.6
|
|
Foreign earnings taxed at lower rates
|
(0.8)
|
|
(0.8)
|
|
(1.9)
|
|
Net effect of life insurance policies
|
(4.2)
|
|
(3.6)
|
|
(2.6)
|
|
Net effect of changes in unrecognized tax benefits
|
(4.3)
|
|
0.7
|
|
0.2
|
|
Domestic production activity deduction
|
(1.7)
|
|
(2.0)
|
|
(1.7)
|
|
Other, net
|
0.9
|
|
(0.2)
|
|
(0.5)
|
|
Effective tax rate
|
28.0
|
%
|
31.1
|
%
|
31.1
|
%
|
Significant components of our deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Deferred tax assets:
|
|
|
|
|
|
Accrued expenses not currently deductible for tax
|
$
|
77.6
|
|
$
|
75.0
|
Inventory costs capitalized for tax purposes
|
|
29.2
|
|
|
27.1
|
Stock-based compensation
|
|
12.0
|
|
|
17.1
|
Allowance for doubtful accounts
|
|
5.3
|
|
|
5.5
|
Tax credits carryforwards
|
|
1.3
|
|
|
1.1
|
Net operating loss carryforwards
|
|
4.7
|
|
|
5.4
|
Total deferred tax assets
|
|
130.1
|
|
|
131.2
|
Deferred tax liabilities:
|
|
|
|
|
|
Property, plant and equipment, net
|
|
(238.6)
|
|
|
(245.5)
|
Goodwill and other intangible assets
|
|
(451.2)
|
|
|
(458.2)
|
LIFO inventories
|
|
(54.1)
|
|
|
(34.0)
|
Deferred income
|
|
(7.1)
|
|
|
(13.4)
|
Other
|
|
(6.0)
|
|
|
(7.2)
|
Total deferred tax liabilities
|
|
(757.0)
|
|
|
(758.3)
|
Net deferred tax liabilities
|
$
|
(626.9)
|
|
$
|
(627.1)
|
As of December 31, 2016, we had available state net operating loss carryforwards (“NOL”) of $6.3 million to offset future income taxes expiring in years 2017 through 2036. We believe that it is more likely than not that we will be able to realize these NOL’s within their respective carryforward periods.
The Company believes it is more likely than not that it will generate sufficient future taxable income to realize its deferred tax assets.
Taxes on Foreign Income
Unremitted earnings of foreign subsidiaries on which no U.S. taxes have been provided were $209.3 million as of December 31, 2016. Our intention is to indefinitely reinvest these earnings outside the United States. It is not practicable to estimate the amount of additional taxes that would be payable upon repatriation of foreign earnings.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Unrecognized Tax Benefits
We are under audit by various state jurisdictions 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,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Unrecognized tax benefits at January 1
|
$
|
22.9
|
|
$
|
20.2
|
|
$
|
19.4
|
Increases in tax positions for prior years
|
|
0.4
|
|
|
0.3
|
|
|
0.3
|
Decreases in tax positions for prior years
|
|
(0.6)
|
|
|
(1.7)
|
|
|
(0.4)
|
Increases in tax positions for current year
|
|
0.1
|
|
|
4.2
|
|
|
3.8
|
Settlements
|
|
(17.6)
|
|
|
(0.1)
|
|
|
(0.1)
|
Lapses in statutes-of-limitation periods
|
|
—
|
|
|
—
|
|
|
(2.8)
|
Unrecognized tax benefits at December 31
|
$
|
5.2
|
|
$
|
22.9
|
|
$
|
20.2
|
As of December 31, 2016, $5.2 million of unrecognized tax benefits would impact the effective tax rate if recognized. Accrued interest and penalties, net of applicable tax effect, related to uncertain tax positions were $0.7 million and $1.3 million as of December 31, 2016 and 2015, respectively.
Note 10. Stock‑Based Compensation Plans
We grant stock‑based compensation to our employees and directors. At December 31, 2016, an aggregate of 2,000,955 shares were authorized for future grant under our various stock‑based compensation plans, including stock options, restricted stock units, and restricted stock awards. Awards that expire or are canceled without delivery of shares generally become available for issuance under the plans. Upon exercises of stock options, vesting of restricted stock units and vesting of restricted shares under all of our stock plans, we issue new shares of Reliance common stock.
Stock Options
Stock option activity under all the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
|
Option
|
|
Weighted Average
|
|
Contractual Term
|
|
Intrinsic Value
|
Stock Options
|
|
Shares
|
|
Exercise Price
|
|
(in years)
|
|
(in millions)
|
Outstanding at January 1, 2014
|
|
1,937,241
|
|
$
|
49.35
|
|
|
|
|
|
Exercised
|
|
(593,204)
|
|
|
48.58
|
|
|
|
|
|
Expired or forfeited
|
|
(16,625)
|
|
|
52.13
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
1,327,412
|
|
|
49.66
|
|
|
|
|
|
Exercised
|
|
(390,606)
|
|
|
48.19
|
|
|
|
|
|
Expired or forfeited
|
|
(2,481)
|
|
|
51.96
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
934,325
|
|
|
50.26
|
|
|
|
|
|
Exercised
|
|
(753,645)
|
|
|
49.70
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
180,680
|
|
$
|
52.61
|
|
1.3
|
|
$
|
4.9
|
Exercisable at December 31, 2016
|
|
180,680
|
|
$
|
52.61
|
|
1.3
|
|
$
|
4.9
|
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
All options outstanding at December 31, 2016 had four-year vesting periods and seven-year terms, with the exception of 54,000 options granted to our non‑employee directors that had one-year vesting periods and ten-year terms.
There were no unvested stock options at December 31, 2016 and 2015.
Proceeds from stock options exercised under all stock option plans in 2016, 2015 and 2014 were $37.5 million, $15.1 million and $28.8 million, respectively. The total intrinsic values of all options exercised in 2016, 2015 and 2014 were $16.3 million, $4.8 million and $13.5 million, respectively.
The tax benefit realized from option exercises during the years ended December 31, 2016, 2015 and 2014 were $14.3 million, $7.6 million and $10.7 million, respectively.
The following tabulation summarizes certain information concerning outstanding and exercisable options as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Remaining
|
|
Weighted
|
|
|
|
Exercise
|
Range of
|
|
Outstanding at
|
|
Contractual Life
|
|
Average
|
|
Exercisable at
|
|
Price of Options
|
Exercise Price
|
|
December 31, 2016
|
|
in Years
|
|
Exercise Price
|
|
December 31, 2016
|
|
Exercisable
|
$38
|
|
12,000
|
|
2.4
|
|
$
|
38.00
|
|
12,000
|
|
$
|
38.00
|
$42 - $45
|
|
45,225
|
|
1.4
|
|
|
43.68
|
|
45,225
|
|
|
43.68
|
$55 - $56
|
|
99,455
|
|
1.1
|
|
|
55.73
|
|
99,455
|
|
|
55.73
|
$61 - $67
|
|
24,000
|
|
0.9
|
|
|
63.81
|
|
24,000
|
|
|
63.81
|
$38 - $67
|
|
180,680
|
|
1.3
|
|
$
|
52.61
|
|
180,680
|
|
$
|
52.61
|
Restricted Stock
In 2016, 2015 and 2014, we granted 512,895, 507,760 and 349,380, respectively, restricted stock units (“RSUs”) to key employees pursuant to the Amended and Restated Stock Option and Restricted Stock Plan. Each RSU consists of the right to receive one share of our common stock and dividend equivalent rights, subject to forfeiture, equal to the accrued cash or stock dividends where the record date for such dividends is after the grant date but before the shares vest. Additionally, each 2016, 2015 and 2014 RSU granted has a service-based condition and cliff vests at December 31, 2018, December 31, 2017 and December 31, 2016, respectively, if the recipient is an employee on those dates. In addition to the service-based condition, 190,175, 185,450, and 136,162 of the RSUs granted in 2016, 2015 and 2014, respectively, also have performance goals and vest only upon the satisfaction of the service-based condition and certain three-year performance targets. In addition to the 2015 RSUs described above, we also granted 10,000 service-based and 40,000 performance-based RSUs to our former CEO as a result of his planned retirement in July 2016 that had a service-based condition and eighteen-month performance targets ended June 30, 2016. The fair value of the 2016, 2015 and 2014 RSUs granted was $69.16 per share, $59.27 per share and $71.15 per share, respectively, determined based on the closing price of our common stock on the grant date.
In 2016, 2015 and 2014, 11,851, 12,719, and 11,830 shares of restricted stock, respectively, were granted to the non‑employee members of the Board of Directors pursuant to the Directors Equity Plan. The fair value of the restricted stock granted in 2016, 2015, and 2014, was $70.88 per share, $66.03 per share, and $70.99 per share, respectively, determined based on the closing price of our common stock on the grant date.
The awards include dividend rights and vest immediately upon grant. The recipients are restricted from trading the restricted stock for one year from date of grant.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
In 2016, 2015 and 2014, we made payments of $6.4 million, $4.5 million and $0.5 million, respectively, to tax authorities on our employees’ behalf for shares withheld related to net share settlements. These payments are reflected in the Stock-based compensation caption of the statement of equity.
A summary of the status of our unvested restricted stock grants and service and performance based RSUs as of December 31, 2016 and changes during the year then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average Grant
|
|
Unvested Shares
|
|
Shares
|
|
Date Fair Value
|
|
Unvested at January 1, 2016
|
|
900,410
|
|
$
|
63.26
|
|
Granted
|
|
524,746
|
|
|
69.20
|
|
Forfeited
|
|
(93,814)
|
|
|
67.90
|
|
Vested
|
|
(345,802)
|
|
|
67.96
|
|
Unvested at December 31, 2016
|
|
985,540
|
|
$
|
64.34
|
|
Unrecognized Compensation Cost
As of December 31, 2016, there was $34.6 million of total unrecognized compensation cost related to unvested stock‑based compensation awards granted under all stock‑based compensation plans. That cost is expected to be recognized over a weighted average period of 1.12 years.
Note 11. Employee Benefits
Employee Stock Ownership Plan
We have a tax-qualified employee stock ownership plan (the “ESOP”) that is a noncontributory plan that covers certain salaried and hourly employees of the Company. The amount of the annual contribution is at the discretion of the Board, except that the minimum amount must be sufficient to enable the ESOP trust to meet its current obligations.
Defined Contribution Plans
Effective in 1998, the Reliance Steel & Aluminum Co. Master 401(k) Plan (the “Master 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 Plan. The Master Plan allows each subsidiary’s Board to determine independently the annual matching percentage and maximum compensation limits or annual profit‑sharing contribution. Eligibility occurs after three months of service, and the Company contribution vests at 25% per year, commencing one year after the employee enters the Master Plan. Other 401(k) and profit‑sharing plans exist as certain subsidiaries have not combined their plans into the Master Plan as of December 31, 2016.
Supplemental Executive Retirement Plans
Effective January 1996, we adopted a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified pension plan that provides postretirement pension benefits to certain key officers of the Company. The 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 SERP. Separate SERP’s exist for certain wholly
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
owned subsidiaries of the Company, each of which provides postretirement pension benefits to certain current and former key employees. All of the plans have been frozen to include only existing participants.
Deferred Compensation Plan
In December 2008, a deferred compensation plan was put in place for certain officers and key employees of the Company. Account balances from various compensation plans of subsidiaries were transferred and consolidated into this new deferred compensation plan. The balance in the Reliance Deferred Compensation Plan as of December 31, 2016 and 2015 was $16.6 million and $16.0 million, respectively. The balance of the assets set aside for funding future payouts under the deferred compensation plan amounted to $15.8 million as of December 31, 2016.
Defined Benefit Plans
We, through certain subsidiaries, maintain qualified defined benefit pension plans for certain of our union employees. These plans generally provide benefits of stated amounts for each year of service or provide benefits based on the participant's hourly wage rate and years of service. The plans permit the sponsor, at any time, to amend or terminate the plans subject to union approval, if applicable. Certain of these plans are frozen as of December 31, 2016.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
We use a December 31 measurement date for our plans. The following is a summary of the status of the funding of the various SERP’s and Defined Benefit Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP’s
|
|
Defined Benefit Plans
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(in millions)
|
|
(in millions)
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
49.4
|
|
$
|
45.9
|
|
$
|
96.3
|
|
$
|
100.5
|
Service cost
|
|
1.1
|
|
|
1.0
|
|
|
1.6
|
|
|
1.7
|
Interest cost
|
|
1.6
|
|
|
1.3
|
|
|
3.9
|
|
|
3.7
|
Actuarial loss (gain)
|
|
1.1
|
|
|
2.5
|
|
|
0.6
|
|
|
(7.4)
|
Benefits paid
|
|
(1.3)
|
|
|
(1.3)
|
|
|
(6.1)
|
|
|
(3.4)
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.2
|
Plan settlements
|
|
(3.4)
|
|
|
—
|
|
|
(0.4)
|
|
|
—
|
Benefit obligation at end of year
|
$
|
48.5
|
|
$
|
49.4
|
|
$
|
95.9
|
|
$
|
96.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
N/A
|
|
|
N/A
|
|
$
|
70.2
|
|
$
|
72.4
|
Actual return on plan assets
|
|
N/A
|
|
|
N/A
|
|
|
3.9
|
|
|
(0.6)
|
Employer contributions
|
|
N/A
|
|
|
N/A
|
|
|
5.5
|
|
|
1.8
|
Benefits paid
|
|
N/A
|
|
|
N/A
|
|
|
(6.3)
|
|
|
(3.4)
|
Fair value of plan assets at end of year
|
|
N/A
|
|
|
N/A
|
|
$
|
73.3
|
|
$
|
70.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
$
|
(48.5)
|
|
$
|
(49.4)
|
|
$
|
(22.6)
|
|
$
|
(26.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Items not yet recognized as component of net
|
|
|
|
|
|
|
|
|
|
|
|
periodic pension expense
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial losses
|
$
|
14.1
|
|
$
|
15.3
|
|
$
|
25.4
|
|
$
|
25.8
|
Unamortized prior service cost
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
2.7
|
|
$
|
14.1
|
|
$
|
15.3
|
|
$
|
27.7
|
|
$
|
28.5
|
As of December 31, 2016 and 2015, the following amounts were recognized in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP’s
|
|
Defined Benefit Plans
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(in millions)
|
|
(in millions)
|
Amounts recognized in the statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
(14.8)
|
|
$
|
(4.4)
|
|
$
|
—
|
|
$
|
—
|
Noncurrent liabilities
|
|
(33.7)
|
|
|
(45.0)
|
|
|
(22.6)
|
|
|
(26.1)
|
Accumulated other comprehensive loss
|
|
14.1
|
|
|
15.3
|
|
|
27.7
|
|
|
28.5
|
Net amount recognized
|
$
|
(34.4)
|
|
$
|
(34.1)
|
|
$
|
5.1
|
|
$
|
2.4
|
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
The accumulated benefit obligation for all SERP’s was $44.2 million and $44.7 million as of December 31, 2016 and 2015, respectively. The accumulated benefit obligation for all defined benefit pension plans was $95.9 million and $96.3 million as of December 31, 2016 and 2015, respectively.
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Information for defined benefit plans with an accumulated benefit obligation and projected benefit obligation in excess of plan assets
|
|
|
|
|
|
Accumulated benefit obligation
|
$
|
95.9
|
|
$
|
96.3
|
Projected benefit obligation
|
|
95.9
|
|
|
96.3
|
Fair value of plan assets
|
|
73.3
|
|
|
70.2
|
Following are the details of net periodic benefit cost related to the SERP’s and Defined Benefit Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP’s
|
|
Defined Benefit Plans
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
|
(in millions)
|
Service cost
|
$
|
1.1
|
|
$
|
1.0
|
|
$
|
0.9
|
|
$
|
1.6
|
|
$
|
1.7
|
|
$
|
1.3
|
Interest cost
|
|
1.6
|
|
|
1.3
|
|
|
1.5
|
|
|
3.9
|
|
|
3.7
|
|
|
3.8
|
Expected return on plan assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.6)
|
|
|
(5.0)
|
|
|
(5.1)
|
Curtailment/settlement expense
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
Prior service (credit) cost
|
|
—
|
|
|
(0.3)
|
|
|
(0.5)
|
|
|
0.3
|
|
|
0.2
|
|
|
0.2
|
Amortization of net loss
|
|
1.4
|
|
|
1.5
|
|
|
0.7
|
|
|
1.5
|
|
|
1.8
|
|
|
0.4
|
|
$
|
5.1
|
|
$
|
3.5
|
|
$
|
2.6
|
|
$
|
2.8
|
|
$
|
2.4
|
|
$
|
0.6
|
Assumptions used to determine net periodic benefit cost are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP’s
|
|
Defined Benefit Plans
|
|
|
Year Ended December 31,
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
Weighted average assumptions to determine net cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.45
|
%
|
3.02
|
%
|
4.07
|
%
|
4.13
|
%
|
3.87
|
%
|
4.70
|
%
|
Expected long-term rate of return on plan assets
|
N/A
|
|
N/A
|
|
N/A
|
|
6.57
|
%
|
6.59
|
%
|
7.22
|
%
|
Rate of compensation increase
|
6.00
|
%
|
6.00
|
%
|
6.00
|
%
|
N/A
|
|
N/A
|
|
N/A
|
|
Assumptions used to determine the benefit obligation are detailed below:
|
|
|
|
|
|
|
|
|
|
SERP’s
|
|
Defined Benefit Plans
|
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Weighted average assumptions to determine benefit obligations
|
|
|
|
|
|
|
|
|
Discount rate
|
3.34
|
%
|
3.42
|
%
|
3.93
|
%
|
4.13
|
%
|
Expected long-term rate of return on plan assets
|
N/A
|
|
N/A
|
|
6.57
|
%
|
6.59
|
%
|
Rate of compensation increase
|
6.00
|
%
|
6.00
|
%
|
N/A
|
|
N/A
|
|
Employer contributions to the SERP’s and Defined Benefit Plans during 2017 are expected to be $14.8 million and $3.2 million, respectively.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Plan Assets and Investment Policy
The weighted‑average asset allocations of our Defined Benefit Plans by asset category are as follows:
|
|
|
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
Plan Assets
|
|
|
|
|
Equity securities
|
58
|
%
|
56
|
%
|
Debt securities
|
38
|
%
|
38
|
%
|
Other
|
4
|
%
|
6
|
%
|
Total
|
100
|
%
|
100
|
%
|
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. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate risk including quality and diversification standards. Asset allocation targets are reviewed periodically with investment advisors to determine the appropriate investment strategies for acceptable risk levels. Our target allocation ranges are as follows: equity securities 50% to 80%, debt securities 20% to 60% and other assets of 0% to 10%. We establish our estimated long‑term return on plan assets considering various factors including the targeted asset allocation percentages, historic returns and expected future returns.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
The fair value measurements of our Defined Benefit Plan assets fall within the following levels of the fair value hierarchy as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in millions)
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
(1)
|
$
|
23.5
|
|
$
|
—
|
|
$
|
—
|
|
$
|
23.5
|
U.S. government, state, and agency
|
|
—
|
|
|
7.3
|
|
|
—
|
|
|
7.3
|
Corporate debt securities
(2)
|
|
—
|
|
|
10.3
|
|
|
—
|
|
|
10.3
|
Mutual funds
(3)
|
|
26.3
|
|
|
3.0
|
|
|
—
|
|
|
29.3
|
Interest and non-interest bearing cash
|
|
2.9
|
|
|
—
|
|
|
—
|
|
|
2.9
|
|
$
|
52.7
|
|
$
|
20.6
|
|
$
|
—
|
|
$
|
73.3
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
(1)
|
$
|
24.8
|
|
$
|
—
|
|
$
|
—
|
|
$
|
24.8
|
U.S. government, state, and agency
|
|
—
|
|
|
7.9
|
|
|
—
|
|
|
7.9
|
Corporate debt securities
(2)
|
|
—
|
|
|
9.7
|
|
|
—
|
|
|
9.7
|
Mutual funds
(3)
|
|
21.1
|
|
|
2.3
|
|
|
—
|
|
|
23.4
|
Interest and non-interest bearing cash
|
|
4.4
|
|
|
—
|
|
|
—
|
|
|
4.4
|
|
$
|
50.3
|
|
$
|
19.9
|
|
$
|
—
|
|
$
|
70.2
|
|
(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.
|
|
(2)
|
|
Valued using 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)
|
|
Level 1 assets are comprised of exchange traded funds, money market funds, and stock and bond funds. These assets are valued at closing price for exchange traded funds and Net Asset Value (NAV) for open‑end and closed‑end mutual funds. Level 2 assets are comprised of fixed income funds and pooled separate accounts and are valued at the net asset value per unit based on either the observable net asset value of the underlying investment or the net asset value of the underlying pool of securities.
|
Summary Disclosures for All Defined Benefit Plans
The following is a summary of benefit payments under our various defined benefit plans, which reflect expected future employee service, as appropriate, expected to be paid in the periods indicated:
|
|
|
|
|
|
|
|
|
|
Defined
|
|
SERP’s
|
|
Benefit Plans
|
|
|
(in millions)
|
2017
|
$
|
14.8
|
|
$
|
4.0
|
2018
|
|
1.2
|
|
|
4.2
|
2019
|
|
1.2
|
|
|
4.5
|
2020
|
|
12.7
|
|
|
4.6
|
2021
|
|
1.1
|
|
|
4.8
|
2022 – 2026
|
|
12.1
|
|
|
27.5
|
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
Defined
|
|
SERP’s
|
|
Benefit Plans
|
|
(in millions)
|
Actuarial loss
|
$
|
1.1
|
|
$
|
1.5
|
Prior service cost
|
|
—
|
|
|
0.3
|
Total
|
$
|
1.1
|
|
$
|
1.8
|
Supplemental Bonus Plan
In connection with the acquisition of EMJ in April 2006, Reliance assumed the obligation resulting from EMJ’s settlement with the U.S. Department of Labor to contribute 258,006 shares of Reliance common stock to EMJ’s Supplemental Bonus Plan, a phantom stock bonus plan supplementing the EMJ Retirement Savings Plan. In 2005, EMJ had reached a settlement with the U.S. Department of Labor regarding a change in its methodology for annual valuations of its stock while it was a private company, for the purpose of making contributions in stock to its retirement plan. As of December 31, 2016, the remaining obligation to the EMJ Supplemental Bonus Plan consisted of the cash equivalent of 82,354 shares of Reliance common stock totaling $6.6 million. The adjustments to reflect this obligation at fair value based on the closing price of our common stock at the end of each reporting period are included in Warehouse, delivery, selling, general and administrative expense. The expense (income) from mark to market adjustments to this obligation in each of the years ended December 31, 2016, 2015 and 2014 amounted to $2.1 million, $(0.2) million and $(1.3) million, respectively. This obligation will be satisfied by future cash payments to participants upon their termination of employment.
Contributions to Reliance Sponsored Retirement Plans
Our expense for Reliance‑sponsored retirement plans was as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Master Plan
|
$
|
22.3
|
|
$
|
21.4
|
|
$
|
21.5
|
Other Defined Contribution Plans
|
|
8.5
|
|
|
7.9
|
|
|
7.0
|
Employee Stock Ownership Plan
|
|
1.8
|
|
|
1.5
|
|
|
1.8
|
Deferred Compensation Plan
|
|
0.7
|
|
|
0.6
|
|
|
0.6
|
Supplemental Executive Retirement Plans
|
|
5.1
|
|
|
3.5
|
|
|
2.6
|
Defined Benefit Plans
|
|
2.8
|
|
|
2.4
|
|
|
0.6
|
|
$
|
41.2
|
|
$
|
37.3
|
|
$
|
34.1
|
Note 12. Equity
Reincorporation
During the second quarter of 2015, the Company’s shareholders approved the reincorporation of the Company from California to Delaware by means of a merger with and into a wholly owned Delaware subsidiary. The reincorporation did not result in any change in the Company’s business, physical location, management, assets, liabilities, net worth or number of authorized shares. In the reincorporation, the Company’s Restated Certificate of Incorporation established par value of the Company’s common stock and unissued preferred stock of $0.001 per share.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Common Stock
We paid regular quarterly cash dividends on our common stock in 2016 and have done so for the past 57 years. Our Board of Directors increased the quarterly dividend to $0.35 per share from $0.33 per share in February 2014, increased it to $0.40 per share in February 2015 and increased it again in July 2016 to $0.425 per share. In February 2017, the Board further increased the quarterly dividend rate to $0.45 per share. The holders of Reliance common stock are entitled to one vote per share on each matter submitted to a vote of stockholders.
Share Repurchase Plan
On October 21, 2014, our Board of Directors extended our share repurchase plan to December 31, 2017. On October 20, 2015, our Board of Directors again amended our share repurchase plan increasing by 7,500,000 shares the total number of shares authorized to be repurchased and extending the program through December 31, 2018. We did not repurchase any of our common stock in 2016. In 2015, we repurchased 6,194,641 shares of our common stock at an average cost of $57.39, per share, for a total of $355.5 million, through open market purchases under a plan complying with Rule10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We repurchased 759,800 shares of our common stock at an average cost of $65.80 per share for $50.0 million through open market purchases in 2014. Since initiating the share repurchase plan in 1994 we have purchased approximately 22.1 million shares at an average cost of $30.93 per share. As of December 31, 2016, we had authorization to purchase an additional 8,428,592 shares under our existing share repurchase plan.
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock, $0.001 per share. No shares of our preferred stock are issued and outstanding. Our restated articles of incorporation provide that shares of preferred stock may be issued from time to time in one or more series by the Board. The Board can fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of each series of preferred stock. The rights of preferred stockholders may supersede the rights of common stockholders.
Stock-Based Compensation
Effective January 1, 2016, we adopted accounting changes issued by the FASB for stock-based compensation that allow us to account for forfeitures of RSUs as they occur rather than estimating the number of forfeitures. As a result of the adoption, we recorded a cumulative-effect adjustment that reduced beginning retained earnings by $0.6 million, net of tax.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
|
|
Accumulated
|
|
Foreign Currency
|
|
Postretirement
|
|
Other
|
|
Translation
|
|
Benefit Adjustments,
|
|
Comprehensive
|
|
Loss
|
|
Net of Tax
|
|
Loss
|
|
(in millions)
|
Balance as of January 1, 2016
|
$
|
(74.2)
|
|
$
|
(25.5)
|
|
$
|
(99.7)
|
Current-year change
|
|
(5.7)
|
|
|
0.7
|
|
|
(5.0)
|
Balance as of December 31, 2016
|
$
|
(79.9)
|
|
$
|
(24.8)
|
|
$
|
(104.7)
|
Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. Pension and postretirement benefit adjustments are net of taxes of $14.9 million and $15.6 million as of December 31, 2016 and December 31, 2015, respectively.
See Note 11 – “Employee Benefits” for information regarding reclassification of amounts from accumulated comprehensive loss to net income.
Note 13. Other Income (Expense), net
Significant components of Other income (expense), net are as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Investment income from life insurance policies
|
$
|
60.8
|
|
$
|
55.3
|
|
$
|
51.3
|
Interest expense on life insurance policy loans
|
|
(62.1)
|
|
|
(57.4)
|
|
|
(52.5)
|
Gain on acquisition achieved in stages
|
|
—
|
|
|
—
|
|
|
11.4
|
Life insurance policy cost of insurance
|
|
(10.9)
|
|
|
(10.1)
|
|
|
(9.2)
|
Income from life insurance policy redemptions
|
|
4.4
|
|
|
4.2
|
|
|
—
|
Foreign currency transaction gains
|
|
1.8
|
|
|
—
|
|
|
3.1
|
Rental income
|
|
2.3
|
|
|
1.9
|
|
|
1.9
|
Interest income
|
|
1.0
|
|
|
1.0
|
|
|
1.4
|
Equity in earnings of unconsolidated entities
|
|
0.7
|
|
|
—
|
|
|
2.2
|
All other, net
|
|
3.2
|
|
|
1.5
|
|
|
1.2
|
|
$
|
1.2
|
|
$
|
(3.6)
|
|
$
|
10.8
|
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Note 14. Commitments and Contingencies
Lease Commitments
We lease land, buildings and equipment under non‑cancelable operating leases expiring in various years through 2028. Rent expense for leases that contain scheduled rent increases are recorded on a straight‑line basis. Several of the leases have renewal options providing for additional lease periods. Future minimum payments, by year and in the aggregate, under the non‑cancelable leases with initial or remaining terms of one year or more, consisted of the following as of December 31, 2016:
|
|
|
|
Operating
|
|
Leases
|
|
(in millions)
|
2017
|
$
|
59.3
|
2018
|
|
48.6
|
2019
|
|
36.4
|
2020
|
|
23.9
|
2021
|
|
14.3
|
Thereafter
|
|
14.8
|
|
$
|
197.3
|
Total rental expense amounted to $78.9 million, $80.0 million and $79.3 million in 2016, 2015 and 2014, respectively.
Included in the amounts for operating leases are lease payments to various related parties, who are not executive officers of the Company, in the amounts of $3.6 million, $5.2 million and $5.5 million in 2016, 2015 and 2014, respectively. These related party leases are for buildings leased to certain of the companies we have acquired and expire in various years through 2021.
Purchase Commitments
As of December 31, 2016, 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 $124.4 million, with amounts in 2017, 2018 and thereafter being $18.1 million, $15.1 million, and $91.2 million, respectively.
Collective Bargaining Agreements
As of December 31, 2016, approximately 11%, or 1,640, of our total employees are covered by 41 collective bargaining agreements at 52 of our different locations, which expire at various times over the next five years. Approximately 600 of our employees are covered by 21 different collective bargaining agreements that will expire during 2017.
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.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
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 a certain environmental remediation project related to activities at former manufacturing operations of EMJ, our wholly owned subsidiary, that were sold many years prior to Reliance’s acquisition of EMJ in 2016. Although the potential cleanup costs could be significant, EMJ had 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 these obligations will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
Legal Matters
In 2014, Reliance and its wholly owned subsidiary Chapel Steel Corp. (“Chapel”) were defendants in an antitrust lawsuit filed in the United States District Court for the Southern District of Texas brought by two former employees who claimed that Reliance, Chapel and the co-defendants engaged in anticompetitive activities. Following a judgment against all the defendants, Reliance and Chapel settled all claims against them relating to this matter for $23.0 million.
From time to time, we are named as a defendant in legal actions. Generally, these actions arise out of our normal 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 effect on our results of operations or financial condition. We maintain liability insurance against risks arising out of our normal course of business.
Note 15. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions, except share and per share amounts)
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to Reliance
|
$
|
304.3
|
|
$
|
311.5
|
|
$
|
371.5
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
72,362,513
|
|
|
74,096,349
|
|
|
77,682,943
|
Dilutive effect of stock-based awards
|
|
758,405
|
|
|
805,715
|
|
|
932,996
|
Weighted average diluted shares outstanding
|
|
73,120,918
|
|
|
74,902,064
|
|
|
78,615,939
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Reliance stockholders:
|
|
|
|
|
|
|
|
|
Diluted
|
$
|
4.16
|
|
$
|
4.16
|
|
$
|
4.73
|
Basic
|
$
|
4.21
|
|
$
|
4.20
|
|
$
|
4.78
|
Potentially dilutive securities whose effect would have been antidilutive were not significant for 2016, 2015, and 2014.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Note 16. Segment Information
We have one reportable segment, metals service centers. All of our recent acquisitions were metals service centers and did not result in new reportable segments. Although a variety of products or services are sold at our various locations, in total, sales were comprised of the following in each of the three years ended December 31:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Carbon steel
|
52
|
%
|
52
|
%
|
54
|
%
|
Aluminum
|
20
|
%
|
19
|
%
|
15
|
%
|
Stainless steel
|
14
|
%
|
14
|
%
|
14
|
%
|
Alloy
|
5
|
%
|
7
|
%
|
9
|
%
|
Toll processing
|
3
|
%
|
3
|
%
|
2
|
%
|
Other
|
6
|
%
|
5
|
%
|
6
|
%
|
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
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, 2016
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
7,867.3
|
|
$
|
746.1
|
|
$
|
8,613.4
|
Long-lived assets
|
|
4,385.2
|
|
|
337.6
|
|
|
4,722.8
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
Net sales
|
|
8,617.7
|
|
|
732.8
|
|
|
9,350.5
|
Long-lived assets
|
|
4,211.5
|
|
|
355.9
|
|
|
4,567.4
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
Net sales
|
|
9,801.0
|
|
|
650.6
|
|
|
10,451.6
|
Long-lived assets
|
|
4,327.2
|
|
|
388.3
|
|
|
4,715.5
|
Note 17. Impairment and Restructuring Charges
We recorded impairment and restructuring charges of $69.1 million and $56.3 million in the years ended December 31, 2016 and 2015, respectively. These charges mainly relate to certain of our energy-related businesses as a result of the impact to our businesses from continued low crude oil prices that reduced drilling activity and the resulting decline in demand for the products we sell to the energy market (oil and gas). Also included are charges relating to the planned closure or sale of certain locations.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
The impairment and restructuring charges consisted of the following:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Property, plant and equipment
|
$
|
16.0
|
|
$
|
17.7
|
Intangible assets, net
|
|
36.4
|
|
|
35.6
|
Total impairment charges
|
|
52.4
|
|
|
53.3
|
Restructuring - cost of sales
|
|
12.8
|
|
|
1.6
|
Restructuring - warehouse, delivery, selling, general and administrative expense
|
|
2.9
|
|
|
1.0
|
Restructuring - depreciation expense
|
|
—
|
|
|
0.4
|
Restructuring - non-operating expense
|
|
1.0
|
|
|
—
|
Total impairment and restructuring charges
|
$
|
69.1
|
|
$
|
56.3
|
The property, plant and equipment and restructuring – cost of sales charges relate to the planned closure or sale of certain locations where we anticipate losses on disposition of certain real property, machinery and equipment and inventories. The intangible assets, net charge is due to lowered expectations of future profitability of certain of our energy-related businesses.
Note 18. Condensed Consolidating Financial Statements
In November 2006 and April 2013, we issued senior unsecured notes in the aggregate principal amount of $1.1 billion, at fixed interest rates that were guaranteed by certain of our 100%-owned domestic subsidiaries that also guaranteed borrowings under our then existing credit agreement.
We previously provided consolidated financial statements pursuant to Rule 3-10 of Regulation S-X
“Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
The subsidiary guarantors guaranteeing the notes issued under the Indentures were automatically released on September 30, 2016 upon entering into the Credit Agreement, which does not require subsidiary guarantees.
Table of Contents
RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Note 19. Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly results of operations for 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
(in millions, except per share amounts)
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,162.7
|
|
$
|
2,203.9
|
|
$
|
2,185.2
|
|
$
|
2,061.6
|
Cost of sales
|
|
1,526.0
|
|
|
1,518.8
|
|
|
1,530.6
|
|
|
1,447.7
|
Gross profit
(1)
|
|
636.7
|
|
|
685.1
|
|
|
654.6
|
|
|
613.9
|
Net income
|
|
93.5
|
|
|
102.1
|
|
|
50.6
|
|
|
62.9
|
Net income attributable to Reliance
|
|
92.2
|
|
|
100.9
|
|
|
49.5
|
|
|
61.7
|
Earnings per share attributable to Reliance stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
1.27
|
|
|
1.38
|
|
|
0.68
|
|
|
0.84
|
Basic
|
|
1.28
|
|
|
1.39
|
|
|
0.68
|
|
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
2015:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
2,614.4
|
|
$
|
2,423.7
|
|
$
|
2,286.2
|
|
$
|
2,026.2
|
Cost of sales
|
|
1,943.7
|
|
|
1,767.8
|
|
|
1,647.9
|
|
|
1,444.2
|
Gross profit
(1)
|
|
670.7
|
|
|
655.9
|
|
|
638.3
|
|
|
582.0
|
Net income
|
|
102.9
|
|
|
91.6
|
|
|
52.8
|
|
|
68.9
|
Net income attributable to Reliance
|
|
101.3
|
|
|
90.2
|
|
|
51.4
|
|
|
68.6
|
Earnings per common share attributable to Reliance stockholders
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
1.30
|
|
|
1.20
|
|
|
0.69
|
|
|
0.94
|
Basic
|
|
1.31
|
|
|
1.21
|
|
|
0.70
|
|
|
0.96
|
|
(1)
|
|
Gross profit, calculated as net sales less cost of sales, is a non‑GAAP financial measure as it excludes depreciation and amortization expense associated with the corresponding sales. The majority 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, are not significant and are excluded from our cost of sales. Therefore, our cost of sales is substantially comprised of the cost of the material we sell. We use gross profit as shown above as a measure of operating performance. Gross profit is an important operating and financial measure, as fluctuations in gross profit can have a significant impact on our earnings. Gross profit, as presented, is not necessarily comparable with similarly titled measures for other companies.
|
Quarterly and year‑to‑date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the years shown elsewhere in this Annual Report on Form 10‑K.