Russel Metals Inc. Earnings Recover in Third Quarter
TORONTO--Oct. 25, 2001--Russel Metals Inc. today announced unaudited earnings per share of $0.08 for the quarter ended September 30, 2001, unchanged from the $0.08 recorded in the third quarter of 2000 and up from the $0.03 loss recorded in the second quarter of 2001.The earnings per share for the nine months ended September 30, 2001 was $0.13. Adjusting to eliminate the unusual items recorded in the second quarter of 2001, the earnings per share increases by $0.15 to earnings per share of $0.28 for the nine months ended September 30, 2001 compared with $0.44 for the same period in 2000.
Bud Siegel, President and CEO commented, "To record higher net earnings for the period on 9.4% lower sales and after exchange and debt repurchase costs of $949,000 is a tribute to how hard our staff has focused on cost containment and the reduction of working capital to reduce interest charges in an extremely difficult market."
Mr. Siegel continued, "The recent acquisition of A.J. Forsyth in British Columbia and Spartan Steel in the United States were achieved due to the availability of cash generated by our operations."
Russel Metals Inc. has net cash available of $59.0 million and two bank facilities with $284 million of unused borrowing capacity available to reflate the balance sheet when the economic recovery occurs or to opportunistically acquire companies that may become available during the current economic downturn.
The Company announced its normal quarterly common share dividend of $0.05 per share payable December 15, 2001. However, the Company also announced that it anticipates fourth quarter charges, the amount of which is not yet determined, related to the rationalization of its British Columbia operations as a result of the acquisition of A.J. Forsyth. The Company said that it currently expects that, as a result of these charges, restrictions attaching to its 10% Senior Notes will require the Company to suspend its common share dividends commencing with the first quarter of 2002.
The Company believes that the Note Indenture limitations on common share dividends are unduly restrictive having regard to the operating performance of the Company currently and in the period since the Senior Notes were issued, and having regard to the strength of the Company's current liquidity position. The Company has approached the Noteholders with a request to amend the restrictions in a way which would permit the continuation of its current common share dividend, but has not yet been able to obtain the consent of the requisite percentage of Noteholders on terms satisfactory to the Company.
The Company will be holding an Investor Conference Call on Friday, October 26, 2001 at 9:00 a.m. EST to review its third quarter results for 2001. The dial in telephone number for the call is 1-888-413-1936.
For those unable to participate in the Conference Call, it will be recorded and available for listening at 416-626-4100 until midnight, November 2nd. You will be required to enter reservation number 16934656 in order to access the Call.
Russel Metals is one of the largest metals distribution companies in North America. It carries on business in three metals distribution segments: service center, energy sector and steel import/export, under various names including Russel Metals, A. J. Forsyth, B&T Steel, Bahcall Group, Baldwin International, Comco Pipe and Supply, Drummond McCall, Fedmet Tubulars, Metaux Russel, Pioneer Pipe, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply and Wirth Steel.
RUSSEL METALS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Sept. 30, Dec. 31,
($000) 2001 2000
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ASSETS
Current
Cash $ 60,494 $ 8,923
Accounts receivable 227,536 248,296
Income taxes recoverable 10,908 10,735
Inventories 257,196 290,991
Prepaid expenses and other assets 4,984 4,319
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561,118 563,264
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Fixed
Property, plant and equipment 94,945 99,247
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Other
Deferred financing charges 6,532 7,613
Goodwill 7,202 7,843
Future income tax assets 11,037 11,292
Other assets 2,549 5,198
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122,265 31,946
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$ 683,383 $ 694,457
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ 1,491 $ 21,234
Accounts payable and accrued liabilities 203,793 192,486
Current income taxes payable 283 513
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205,567 214,233
Long-Term Debt 215,533 217,525
Pensions and Benefits 9,571 9,143
Future Income Taxes 5,612 5,501
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436,283 446,402
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Shareholders' Equity
Preferred shares 30,000 30,000
Shareholders' equity 217,100 218,055
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247,100 248,055
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$ 683,383 $ 694,457
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
Quarters ended Nine months ended
Sept. 30, Sept. 30,
($000) 2001 2000 2001 2000
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Segment Revenues
Service center
distribution 169,675 195,528 540,310 624,016
Energy sector
distribution 85,582 75,746 288,445 236,135
Steel import/export 77,980 98,096 250,542 289,201
Other 3,595 2,608 9,063 7,220
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336,832 371,978 1,088,360 1,156,572
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Segment Operating
Profits
Service center
distribution 4,728 6,280 17,154 28,793
Energy sector
distribution 4,151 2,876 14,324 10,354
Steel import/export 4,024 4,414 11,271 17,911
Other 1,407 791 3,015 1,545
Corporate expenses (1,972) (1,939) (6,513) (6,195)
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Earnings before the
following 12,338 12,422 39,251 52,408
Foreign exchange
loss (613) - (1,080) -
Debt repurchase
costs (336) - (336) -
Interest expense
(Note 4) (5,338) (6,061) (17,998) (17,424)
Loss on sale of
business (Note 3) - - (6,500) -
Acquisition costs
(Note 3) - - (1,688) -
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Earnings before
income taxes 6,051 6,361 11,649 34,984
Provision for income
taxes (Note 5) 2,511 2,854 5,201 14,883
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Net earnings for the
period 3,540 3,507 6,448 20,101
Retained earnings--
Dividends on
preferred shares (563) (563) (1,688) (1,688)
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Earnings available
to common
shareholders 2,977 2,944 4,760 18,413
Dividends on common
shares (1,899) (1,960) (5,697) (3,954)
Amount related to
common shares
purchased
for cancellation - (563) - (8,700)
Retained earnings,
beginning of the
period 99,684 100,185 101,699 76,182
Adjustment for
income taxes - - - 18,665
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Retained earnings,
end of the period 100,762 100,606 100,762 100,606
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Basic and diluted
earnings per
common share $ 0.08 $ 0.08 $ 0.13 $ 0.44
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Number of Shares
Common shares
Average for the
period 37,981,501 39,054,803 37,981,501 42,075,795
End of the period 37,981,501 38,721,512 37,981,501 38,721,512
Class II preferred
shares, Series C 1,200,000 1,200,000 1,200,000 1,200,000
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RUSSEL METALS INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)
Quarters ended Nine months ended
Sept. 30, Sept. 30,
($000) 2001 2000 2001 2000
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Operating activities
Net earnings for the
period 3,540 3,507 6,448 20,101
Depreciation and
amortization 3,817 3,596 11,164 10,375
Future income taxes 1,089 2,422 3,073 12,215
Loss (gain) on sale
of fixed assets 10 341 (1) 384
Loss on sale of
business (Note 3) - - 6,500 -
Acquisition (Note 3) - - 1,688 -
Foreign exchange
loss 323 - 790 -
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Cash from operating
activities before
working capital 8,779 9,866 29,662 43,075
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Changes in working
capital items of
operations
Accounts receivable 10,717 3,887 29,052 (16,768)
Inventories 4,391 329 34,497 (37,816)
Accounts payable and
accrued liabilities 16,309 (6,086) 2,181 2,751
Current income taxes (2,252) (935) (3,295) (3,670)
Other 3 329 (718) (572)
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Change in non-cash
working capital 29,168 (2,476) 61,717 (56,075)
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Cash from (used in)
operating activities 37,947 7,390 91,379 (13,000)
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Financing activities
Repurchase of bonds (11,833) - (11,833) -
Increase (decrease)
in bank borrowing (13,637) 1,612 (23,099) 20,816
Dividends on common
shares (1,899) (1,960) (5,697) (3,954)
Dividends on
preferred shares (563) (563) (1,688) (1,688)
Purchase of common
shares - (3,137) - (36,825)
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Cash used in
financing activities (27,932) (4,048) (42,317) (21,651)
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Investing activities
Purchase of fixed
assets (1,845) (3,126) (7,014) (9,540)
Proceeds on sale of
fixed assets 33 78 141 87
Proceeds on sale of
business (Note 3) - - 9,588 -
Acquisition costs
(Note 3) - - (1,688) -
Purchase of
businesses (Note 3) (3,001) (4,500) (3,001) (4,500)
Proceeds from assets
held for sale - 1,291 - 36,919
Other 3,309 1,242 4,483 3,568
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Cash from (used in)
investing activities (1,504) (5,015) 2,509 26,534
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Increase (decrease)
in cash 8,511 (1,673) 51,571 (8,117)
Cash position,
beginning of the
period 51,983 13,524 8,923 19,968
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Cash position, end
of the period 60,494 11,851 60,494 11,851
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001
1. SIGNIFICANT ACCOUNTING POLICIES
(a) These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles; however, they do not include all of the disclosure requirements for annual consolidated financial statements. These interim consolidated financial statements follow the same accounting policies disclosed in note 1 to the 2000 annual consolidated financial statements except for changes disclosed in note 2. These interim consolidated financial statements should be read in conjunction with the 2000 annual consolidated financial statements including notes thereto. These interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the periods reported.
(b) All three of the metals operating segments are significantly affected by economic cycles. Revenues and operating profits in the energy sector are also affected by oil and gas drilling in western Canada, which is predominately carried out during the period from October to March. For these reasons, the results of operations for the periods shown are not necessarily indicative of the results for the full year.
2. CHANGE IN ACCOUNTING POLICIES
(a) Effective July 1, 2001, the Company adopted the new accounting standard for business combinations and for goodwill and other intangibles for all business combinations initiated on or after July 1, 2001. The Company has applied this new standard in its acquisition of Spartan Steel Products, Inc. and accordingly the goodwill generated from this acquisition will not be amortized but will be subject to an impairment test.
(b) Effective January 1, 2001, the Company adopted the new Canadian accounting standards for earnings per share. Under the new standard, the treasury stock method is used instead of the current imputed earnings approach for determining the dilutive effect of stock options issued. The effect of the change in the accounting policy is not significant to the earnings per share amounts reported in the periods.
(c) Effective January 1, 2001, the Company changed its accounting policy for amortization of goodwill to amortize over a period not exceeding 40 years. The change in the accounting policy reduced amortization by approximately $135,000 for the quarter ended September 30, 2001 and $404,000 for the nine months ended September 30, 2001.
3. ACQUISITIONS AND DIVESTITURE
(a) Effective August 16, 2001, the Company purchased 100% of the shares of Spartan Steel Products, Inc., a U.S. distributor of energy sector pipe for cash consideration of $3.0 million and assumed bank debt of $3.3 million.
The acquisition is accounted for by the purchase method and is included in the accounts of the Company from the date of acquisition. The net assets acquired, at assigned values at the acquisition date are as follows:
($000) ------------------------------------------------------------------- Accounts receivable $ 2,098 Inventories 5,585 Fixed assets 80 Goodwill 462 ------------------------------------------------------------------- Total assets 8,225 Accounts payable and accrued liabilities (1,955) ------------------------------------------------------------------- Net identifiable assets 6,270 Bank debt assumed (3,269) ------------------------------------------------------------------- Net assets acquired $ 3,001 ------------------------------------------------------------------- -------------------------------------------------------------------
(b) In June 2001, the Company divested the inventory and fixed assets of Total Distributors, its Tulsa based energy sector operation for cash of $9.6 million. This sale resulted in a loss on sale of business of $6.5 million.
(c) In May 2001, the Company announced that it had been unsuccessful in finalizing an agreement for the acquisition of a U.S. service center operation. The due diligence process and legal expenses resulted in a write-off of costs of $1.7 million.
4. INTEREST EXPENSE
Quarters Ended Nine Months Ended
Sept. 30, Sept. 30,
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($000) 2001 2000 2001 2000
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Long-term debt
interest expense $5,424 $5,242 $16,207 $16,168
Short-term debt
interest expense (income) (86) 819 1,791 1,256
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Total interest $5,338 $6,061 $17,998 $17,424
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Total interest paid by the Company in the quarter ended September 30, 2001 was $1,817,000 (2000 - $712,000) and for the nine months ended September 30, 2001 was $18,099,000 (2000 - $20,672,000).
5. INCOME TAXES
Income taxes paid in the quarter ended September 30, 2001 were $1,262,000 (2000 - $487,000) and for the nine months ended September 30, 2001 were $2,517,000 (2000 - $3,931,000). Income tax expense is net of a recovery of $0.4 million related to an Ontario tax rate adjustment, substantially enacted in the second quarter, applicable to timing differences on the balance sheet.
6. SUBSEQUENT EVENT
On October 15, 2001, the Company acquired 100% of the shares of A. J. Forsyth and Company Limited, a Canadian service center operation, for cash. The cash consideration paid consists of approximately $22.0 million for the shares and $14.0 million for debt assumed.