Reliance(RS) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements This chapter presents the company's unaudited consolidated financial statements and related notes as of September 30, 2021, detailing financial position and operating performance Unaudited Consolidated Balance Sheets Key Consolidated Balance Sheet Data (As of September 30, 2021 vs December 31, 2020) | Metric | September 30, 2021 (Million USD) | December 31, 2020 (Million USD) | | :-------------------------------- | :----------------------- | :----------------------- | | Assets | | | | Cash and Cash Equivalents | 638.4 | 683.5 | | Accounts Receivable, net | 1,693.5 | 926.3 | | Inventories | 1,877.8 | 1,420.4 | | Total Current Assets | 4,284.0 | 3,112.8 | | Property, Plant, and Equipment, net | 1,802.6 | 1,792.2 | | Goodwill | 1,935.3 | 1,935.2 | | Intangible Assets, net | 919.5 | 947.1 | | Liabilities and Equity | | | | Accounts Payable | 519.4 | 259.3 | | Total Current Liabilities | 1,007.1 | 613.0 | | Long-Term Debt | 1,641.4 | 1,638.9 | | Total Equity Attributable to Reliance Shareholders | 5,860.7 | 5,115.4 | | Total Liabilities and Equity | 9,252.4 | 8,106.8 | Unaudited Consolidated Statements of Income Key Consolidated Statements of Income Data (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | | :--------------------------------- | :------------------ | :------------------ | :----------------------- | :----------------------- | | Net Sales | 3,847.4 | 2,085.6 | 10,104.6 | 6,677.8 | | Cost of Sales | 2,636.3 | 1,409.5 | 6,857.6 | 4,606.3 | | Operating Income | 547.6 | 160.5 | 1,386.3 | 382.4 | | Net Income Attributable to Reliance | 395.7 | 97.6 | 991.7 | 239.5 | | Diluted Earnings Per Share | 6.15 | 1.51 | 15.35 | 3.66 | | Basic Earnings Per Share | 6.25 | 1.53 | 15.61 | 3.71 | | Cash Dividends Per Share | 0.6875 | 0.6250 | 2.0625 | 1.8750 | Unaudited Consolidated Statements of Comprehensive Income Key Consolidated Statements of Comprehensive Income Data (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | | :--------------------------------------- | :------------------ | :------------------ | :----------------------- | :----------------------- | | Net Income | 396.7 | 98.3 | 995.1 | 241.9 | | Foreign Currency Translation (Loss) Gain | (8.3) | 11.5 | (5.0) | (11.2) | | Retirement Benefit Plan Adjustments | — | 15.8 | — | 19.5 | | Comprehensive Income Attributable to Reliance | 387.4 | 124.9 | 986.7 | 247.8 | Unaudited Consolidated Statements of Equity Key Consolidated Statements of Equity Data (As of September 30, 2021) | Metric | January 1, 2021 (Million USD) | September 30, 2021 (Million USD) | | :--------------------------------- | :---------------------- | :---------------------- | | Common Stock and Additional Paid-in Capital | 0.1 | 0.1 | | Retained Earnings | 5,193.2 | 5,943.5 | | Accumulated Other Comprehensive Loss | (77.9) | (82.9) | | Total Equity Attributable to Reliance Shareholders | 5,122.7 | 5,860.7 | | Noncontrolling Interests | 7.3 | 7.2 | | Total Equity | 5,122.7 | 5,867.9 | Unaudited Consolidated Statements of Cash Flows Key Consolidated Statements of Cash Flows Data (As of September 30, 2021) | Metric | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | | :--------------------------------- | :----------------------- | :----------------------- | | Net Cash Provided by Operating Activities | 405.6 | 942.8 | | Net Cash Used in Investing Activities | (148.2) | (127.7) | | Net Cash Used in Financing Activities | (301.8) | (394.9) | | Net (Decrease) Increase in Cash and Cash Equivalents | (45.1) | 417.3 | | Cash and Cash Equivalents at End of Period | 638.4 | 591.6 | Notes to Unaudited Consolidated Financial Statements Note 1. Basis of Presentation This note explains that financial statements are prepared under U.S. GAAP for interim financial information, highlighting management's estimates and assumptions, and the principles of consolidation - Financial statements are prepared in accordance with U.S. GAAP and Form 10-Q instructions, including all material adjustments deemed necessary by management[22] - Consolidated financial statements include assets, liabilities, and operating results of majority-owned subsidiaries, eliminating all significant intercompany accounts and transactions[23] Note 2. Impact of Recently Issued Accounting Guidance This note discusses recently adopted and unadopted accounting guidance, including income tax changes adopted on January 1, 2021, with no material impact, and anticipated future adoption of reference rate reform changes, also with no expected material impact - The company adopted FASB accounting changes simplifying income tax accounting on January 1, 2021, with no material impact on consolidated financial statements[24] - The company expects to adopt FASB accounting changes for reference rate reform, with the LIBOR transition currently not expected to materially impact consolidated financial statements[25] Note 3. Acquisition This note discloses the October 1, 2021, acquisition of Merfish United, Inc., a leading distributor of various pipes and related products, expanding the company's offerings in commercial, residential, municipal, and industrial construction markets, funded by available cash - The company acquired Merfish United, Inc., a leading distributor of carbon steel, copper, plastic, and electrical conduit pipes and related products, on October 1, 2021[26][180] - Merfish United's total assets were approximately $215 million as of September 30, 2021, with revenues of approximately $600 million for the twelve months then ended[28][182] - The acquisition was funded with the company's available cash in the fourth quarter of 2021[28][182] Note 4. Revenues This note presents the company's net sales by product and service category, detailing the contribution of carbon steel, stainless steel, aluminum, alloy products, and processing and logistics services to total revenue Net Sales by Product and Service (Million USD) | Product and Service | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :---------------------- | :------- | :------- | :---------- | :---------- | | Carbon Steel | 2,406.4 | 1,100.8 | 6,163.7 | 3,490.8 | | Stainless Steel | 621.3 | 341.8 | 1,613.7 | 1,083.1 | | Aluminum | 534.9 | 394.3 | 1,496.5 | 1,299.9 | | Alloy | 143.8 | 91.0 | 396.0 | 342.3 | | Processing and Logistics | 119.7 | 105.7 | 350.9 | 279.6 | | Other and Eliminations | 21.3 | 52.0 | 83.8 | 182.1 | | Total | 3,847.4 | 2,085.6 | 10,104.6 | 6,677.8 | Note 5. Goodwill This note discloses changes in the company's goodwill carrying value, primarily influenced by foreign currency translation gains, confirming no goodwill impairment losses as of September 30, 2021 Changes in Goodwill Carrying Value (Million USD) | Metric | Amount | | :---------------------- | :----- | | Balance as of January 1, 2021 | 1,935.2 | | Foreign Currency Translation Gain | 0.1 | | Balance as of September 30, 2021 | 1,935.3 | - As of September 30, 2021, the company had no accumulated impairment losses related to goodwill[31][185] Note 6. Intangible Assets, net This note details the company's intangible assets, categorizing them as amortizable and non-amortizable, and provides information on amortization expense, foreign currency translation losses, and impairment losses incurred in 2020 Composition of Intangible Assets, net (Million USD) | Category | Gross Carrying Amount as of Sep 30, 2021 | Accumulated Amortization as of Sep 30, 2021 | Gross Carrying Amount as of Dec 31, 2020 | Accumulated Amortization as of Dec 31, 2020 | | :--------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Amortizable Intangible Assets | | | | | | Non-compete Agreements | 0.7 | (0.5) | 0.7 | (0.5) | | Customer Lists/Relationships | 623.2 | (424.1) | 623.2 | (396.7) | | Software | 8.1 | (8.1) | 8.1 | (8.1) | | Other | 0.6 | (0.6) | 1.1 | (0.9) | | Subtotal | 632.6 | (433.3) | 633.1 | (406.2) | | Non-amortizable Intangible Assets | | | | | | Trade Names | 720.2 | — | 720.2 | — | | Total | 1,352.8 | (433.3) | 1,353.3 | (406.2) | - Amortization expense for intangible assets was $27.5 million for the nine months ended September 30, 2021, compared to $30.3 million for the same period in 2020[33][187] - For the nine months ended September 30, 2020, the company recognized $98.5 million in impairment losses on trade names and customer lists/relationships intangible assets, primarily related to energy-related businesses[34][188] Note 7. Debt This note provides detailed information on the company's debt, including its unsecured revolving credit facility, senior unsecured notes, and other notes and credit arrangements, confirming compliance with all financial covenants as of September 30, 2021 Composition of Debt (Million USD) | Debt Type | September 30, 2021 | December 31, 2020 | | :--------------------------------- | :----------- | :----------- | | Unsecured Revolving Credit Facility (Due September 2025) | — | — | | Senior Unsecured Notes (Due April 2023) | 500.0 | 500.0 | | Senior Unsecured Notes (Due August 2025) | 400.0 | 400.0 | | Senior Unsecured Notes (Due August 2030) | 500.0 | 500.0 | | Senior Unsecured Notes (Due November 2036) | 250.0 | 250.0 | | Other Notes and Revolving Credit Facilities | 12.6 | 13.7 | | Total Debt | 1,662.6 | 1,663.7 | | Less: Unamortized Discount and Issuance Costs | (16.3) | (18.8) | | Less: Amounts Due Within One Year and Short-Term Borrowings | (4.9) | (6.0) | | Total Long-Term Debt | 1,641.4 | 1,638.9 | - As of September 30, 2021, the company had no outstanding borrowings under its $1.5 billion unsecured revolving credit facility and $16.0 million in letters of credit[39][193] - The company was in compliance with all financial maintenance covenants in its credit agreements, including minimum interest coverage and maximum leverage ratio requirements[44][198] Note 8. Leases This note outlines the company's lease arrangements, primarily operating leases for facilities and equipment, detailing lease costs, cash flow information, weighted-average lease terms and discount rates, and future operating lease liability maturities Lease Costs (Million USD) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :------------- | :------- | :------- | :---------- | :---------- | | Operating Lease Costs | 19.9 | 20.4 | 58.8 | 61.9 | Operating Lease Liability Maturities (As of September 30, 2021, Million USD) | Year | Amount | | :---------------------- | :----- | | 2021 (Remaining Three Months) | 14.7 | | 2022 | 52.6 | | 2023 | 42.9 | | 2024 | 34.4 | | 2025 | 24.3 | | Thereafter | 61.1 | | Total Operating Lease Payments | 230.0 | | Less: Estimated Interest | (29.2) | | Total Operating Lease Liability | 200.8 | - As of September 30, 2021, the weighted-average remaining lease term was 6.1 years, with a weighted-average discount rate of 3.6%[200] Note 9. Income Taxes This note explains the company's effective income tax rates for Q3 and the nine months ended 2021, comparing them to 2020, and attributes the increase primarily to significantly improved profitability - The effective income tax rate for both Q3 and the nine months ended 2021 was 25.5%, higher than 22.6% and 22.5% for the respective periods in 2020[48][202] - The increase in the effective tax rate is primarily attributed to significantly improved profitability in 2021, with the difference from the 21.0% U.S. federal statutory rate mainly impacted by state income taxes, partially offset by company-owned life insurance policy effects[48][202] Note 10. Equity This note details the company's dividend policy, equity incentive plans, and share repurchase activities, including the Q4 2021 dividend declaration, historical dividend payments, RSU grants and changes, and the execution of the $1 billion share repurchase program - The Board of Directors declared a Q4 2021 cash dividend of $0.6875 per share on October 26, 2021[50][204] Share Repurchase Activity (As of September 30, 2021) | Period | Shares Repurchased (Shares) | Average Repurchase Cost (USD/Share) | Total Repurchase Amount (Million USD) | | :----------------------- | :---------------- | :------------------- | :------------------ | | Q3 2021 | 885,606 | 147.89 | 131.0 | | Q3 2020 | 2,466 | 100.00 | 0.2 | | Nine Months 2021 | ~1,000,000 | 150.12 | 155.0 | | Nine Months 2020 | ~3,300,000 | 90.10 | 300.2 | - The company authorized a $1 billion share repurchase program on July 20, 2021, with no specific expiration date, subject to suspension or termination at any time[54][208] Note 11. Commitments and Contingencies This note covers the company's environmental contingencies, legal matters, and COVID-19 risks, with no anticipated material adverse impact on financial condition, results of operations, or cash flows - The company is involved in an environmental remediation project, with insurance expected to cover most related costs, posing no material adverse impact on financial condition[58][212] - The company faces routine litigation, but these legal matters are not expected to materially adversely impact its financial condition, results of operations, or cash flows[59][213] - The COVID-19 pandemic adversely impacted the company's financial performance in 2020, and while 2021 saw improvement, labor shortages, raw material, and supply chain constraints may still affect future performance[60][214][217] Note 12. Earnings Per Share This note provides the calculation methodology for the company's basic and diluted earnings per share, along with the weighted-average shares used in the computation Earnings Per Share Calculation (As of September 30, 2021) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--------------------------------- | :------- | :------- | :---------- | :---------- | | Net Income Attributable to Reliance (Million USD) | 395.7 | 97.6 | 991.7 | 239.5 | | Weighted-Average Shares Outstanding (Thousand Shares) | 63,275 | 63,758 | 63,526 | 64,578 | | Diluted Earnings Per Share (USD) | 6.15 | 1.51 | 15.35 | 3.66 | | Basic Earnings Per Share (USD) | 6.25 | 1.53 | 15.61 | 3.71 | Note 13. Impairment and Restructuring Charges This note details impairment and restructuring charges recognized in 2020, primarily due to deteriorating long-term prospects for energy-related businesses and COVID-19 impacts, with no significant impairments in the comparable 2021 period Impairment and Restructuring Charges (Million USD) | Category | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--------------------------------- | :------- | :------- | :---------- | :---------- | | Intangible Assets, net | — | 9.5 | — | 98.5 | | Property, Plant, and Equipment | — | 0.5 | — | 9.2 | | Operating Lease Right-of-Use Assets | — | — | — | 0.2 | | Total Impairment Charges | — | 10.0 | — | 107.9 | | Restructuring – Cost of Sales | — | (0.2) | — | 39.6 | | Restructuring – Selling, General and Administrative Expenses | — | 4.8 | 0.1 | 10.2 | | Total Impairment and Restructuring Charges | — | 14.6 | 0.1 | 157.7 | - For the nine months ended September 30, 2020, the company recorded $157.7 million in impairment and restructuring charges, primarily due to declining long-term prospects for energy (oil and natural gas) businesses and COVID-19 impacts[221] Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter provides management's in-depth analysis of the company's financial condition and operating results, covering performance highlights, influencing factors, liquidity and capital resource management, and critical accounting policies and estimates for Q3 and the nine months ended 2021 Forward-Looking Statements This section contains forward-looking statements regarding industry, market, business strategies, and future performance expectations, cautioning investors that actual results may differ materially due to various risks and uncertainties, including COVID-19 impacts, economic conditions, supply chain disruptions, labor shortages, and inflation - Forward-looking statements are based on management's estimates, forecasts, and assumptions, with actual results potentially differing materially due to factors like COVID-19, economic conditions, supply chain disruptions, labor shortages, and inflation[71][72] Overview The company achieved record financial results in the first nine months of 2021, with net sales, gross profit, pre-tax income, and EPS reaching all-time highs, driven by rising metal prices, strong market demand, and effective cost control, despite supply chain disruptions and labor shortages - The company achieved record financial results in the first nine months of 2021, with net sales, gross profit, pre-tax income, and earnings per share reaching all-time highs[74][228] Key Performance Overview for Q3 and Nine Months 2021 | Metric | Q3 2021 | Q3 2020 | Change % | Nine Months 2021 | Nine Months 2020 | Change % | | :------------------- | :------- | :------- | :----- | :---------- | :---------- | :----- | | Net Sales | $3.85B | $2.09B | +84.5% | $10.10B | $6.68B | +51.3% | | Gross Profit | $1.21B | $0.68B | +79.1% | $3.25B | $2.07B | +56.7% | | Pre-Tax Income | $532.6M | $127.0M | +319.4% | $1.34B | $312.1M | +329.6% | | Diluted EPS | $6.15 | $1.51 | +307.3% | $15.35 | $3.66 | +319.4% | | Share Repurchases | $131.0M | $0.2M | +65400% | $155.0M | $300.2M | -48.4% | | Inventory Turns (based on tons) | N/A | N/A | N/A | 4.9 times | 4.7 times | +4.3% | - The company's strong liquidity, including ample cash, robust cash flow generation, extended long-term debt maturities, and a $1.5 billion revolving credit facility, will support prudent capital deployment focused on growth and shareholder returns[83][237] Acquisition The company completed the acquisition of Merfish United, Inc. on October 1, 2021, a leading distributor of various pipes and related products, expanding its offerings in commercial, residential, municipal, and industrial construction markets - The company acquired Merfish United, Inc., a leading distributor of carbon steel, copper, plastic, and electrical conduit pipes and related products, on October 1, 2021[86][240] - Merfish United's total assets were approximately $215 million as of September 30, 2021, with revenues of approximately $600 million for the twelve months then ended[86][240] - The acquisition was funded with the company's available cash in the fourth quarter of 2021[87][241] Results of Operations This section analyzes the company's operating results for Q3 and the nine months ended 2021, covering changes and drivers in net sales, cost of sales, gross profit, expenses, operating income, other (income) expense, income tax rate, and net income Net Sales The company achieved record net sales in Q3 and the nine months ended 2021, primarily driven by significantly higher average selling prices and increased tons sold, despite limitations from metal supply constraints, labor shortages, and supply chain disruptions Net Sales and Related Metrics (As of September 30, 2021) | Metric | Q3 2021 | Q3 2020 | Change % | Nine Months 2021 | Nine Months 2020 | Change % | | :----------------------- | :------- | :------- | :----- | :---------- | :---------- | :----- | | Net Sales (Million USD) | 3,847.4 | 2,085.6 | +84.5% | 10,104.6 | 6,677.8 | +51.3% | | Tons Sold (Thousand Tons) | 1,358.2 | 1,283.5 | +5.8% | 4,191.9 | 3,964.1 | +5.7% | | Average Selling Price Per Ton (USD) | 2,862 | 1,609 | +77.9% | 2,428 | 1,680 | +44.5% | - Significant growth in average selling prices was primarily due to multiple price increases for carbon steel and stainless steel products in 2021, with carbon steel sales accounting for 59% of total sales[252][253] - Tons sold were constrained by metal supply limitations, labor shortages, and other supply chain disruptions[251] Cost of Sales Cost of sales significantly increased in Q3 and the nine months ended 2021, primarily due to higher average cost per ton and increased tons sold, notably with substantial LIFO inventory valuation charges in 2021 compared to gains in 2020 Cost of Sales (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Change % | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | Change % | | :----------- | :------------------ | :------------------ | :----- | :----------------------- | :----------------------- | :----- | | Cost of Sales | 2,636.3 | 1,409.5 | +87.0% | 6,857.6 | 4,606.3 | +48.9% | - LIFO inventory valuation adjustments resulted in charges of $262.5 million and $562.5 million for Q3 and the nine months ended 2021, respectively, compared to gains of $12.5 million and $37.5 million for the same periods in 2020[255] Gross Profit The company achieved record gross profit in Q3 and the nine months ended 2021, driven by record average selling prices, strong gross margins, and increased tons sold, maintaining robust gross margins between 31% and 32% despite significant LIFO charges Gross Profit (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Change % | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | Change % | | :----------- | :------------------ | :------------------ | :----- | :----------------------- | :----------------------- | :----- | | Gross Profit | 1,211.1 | 676.1 | +79.1% | 3,247.0 | 2,071.5 | +56.7% | | Gross Margin | 31.5% | 32.4% | -0.9pp | 32.1% | 31.0% | +1.1pp | - Gross margins for Q3 and the nine months ended 2021 remained in a strong range of 31% to 32%, despite significant LIFO charges during the periods[233] Expenses Selling, General and Administrative (SG&A) expenses increased in Q3 and the nine months ended 2021, primarily due to incentive compensation, variable expenses from higher shipping volumes, and inflationary impacts on fuel, freight, and packaging costs, though SG&A as a percentage of sales decreased due to significant sales growth Expense Overview (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Change % | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | Change % | | :--------------------------------- | :------------------ | :------------------ | :----- | :----------------------- | :----------------------- | :----- | | SG&A Expenses | 606.8 | 449.2 | +35.1% | 1,688.6 | 1,410.4 | +19.7% | | SG&A Expenses as % of Net Sales | 15.8% | 21.5% | -5.7pp | 16.7% | 21.1% | -4.4pp | | Depreciation and Amortization Expense | 56.7 | 56.4 | +0.5% | 172.1 | 170.8 | +0.8% | | Impairment of Long-Lived Assets | — | 10.0 | -100.0% | — | 107.9 | -100.0% | - SG&A expenses increased primarily due to incentive compensation, variable expenses from higher shipping volumes, and inflationary impacts on fuel, freight, and packaging costs[259] Operating Income The company's operating income and margin significantly increased in Q3 and the nine months ended 2021, driven by record gross profit and strong gross margins, partially offset by higher SG&A expenses, with margin improvement primarily due to substantial sales growth Operating Income (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Change % | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | Change % | | :----------- | :------------------ | :------------------ | :----- | :----------------------- | :----------------------- | :----- | | Operating Income | 547.6 | 160.5 | +241.2% | 1,386.3 | 382.4 | +262.5% | | Operating Margin | 14.2% | 7.7% | +6.5pp | 13.7% | 5.7% | +8.0pp | - Excluding the impact of significant impairment and restructuring charges in the nine months ended 2020, adjusted operating income increased by 156.7%, and operating margin improved by 560 basis points[263] Other (Income) Expense, Net Changes in other (income) expense, net, for Q3 and the nine months ended 2021 were primarily influenced by retirement benefit plan settlement charges in the comparable 2020 periods Other (Income) Expense, Net (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Change % | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | Change % | | :----------------------- | :------------------ | :------------------ | :----- | :----------------------- | :----------------------- | :----- | | Other (Income) Expense, Net | (0.6) | 17.8 | -103.4% | 3.6 | 23.1 | -84.4% | - The change was primarily attributed to retirement benefit plan settlement charges of $14.6 million and $19.4 million incurred in the comparable 2020 periods, respectively[264] Income Tax Rate The company's effective income tax rate for Q3 and the nine months ended 2021 both rose to 25.5%, primarily due to significantly improved profitability, with the difference from the U.S. federal statutory rate mainly influenced by state income taxes and company-owned life insurance policy effects - The effective income tax rate for both Q3 and the nine months ended 2021 was 25.5%, higher than 22.6% and 22.5% for the respective periods in 2020[265] - The increase in the tax rate is primarily attributed to significantly improved profitability in 2021, with the difference from the 21.0% U.S. federal statutory rate mainly impacted by state income taxes, partially offset by company-owned life insurance policy effects[265] Net Income The company's net income and net income margin significantly increased in Q3 and the nine months ended 2021, driven by improved operating income and margin, partially offset by higher SG&A expenses and an increased effective tax rate Net Income Attributable to Reliance (As of September 30, 2021) | Metric | Q3 2021 (Million USD) | Q3 2020 (Million USD) | Change % | Nine Months 2021 (Million USD) | Nine Months 2020 (Million USD) | Change % | | :----------------------- | :------------------ | :------------------ | :----- | :----------------------- | :----------------------- | :----- | | Net Income | 395.7 | 97.6 | +305.4% | 991.7 | 239.5 | +314.1% | | Net Income Margin | 10.3% | 4.7% | +5.6pp | 9.8% | 3.6% | +6.2pp | - Excluding pre-tax impairment, restructuring, and retirement benefit plan settlement charges totaling $177.1 million in the nine months ended 2020, adjusted net income increased by 166.4%, and net income margin rose from 5.6% to 9.8%[267] Liquidity and Capital Resources This section discusses the company's liquidity sources and capital resources, including cash flows from operating, investing, and financing activities, debt structure, credit arrangements, and share repurchase plans, confirming ample liquidity for future operations, strategic growth, and shareholder returns Operating Activities Net cash provided by operating activities significantly decreased in the nine months ended 2021, primarily due to increased working capital requirements driven by rising metal prices and strong demand, particularly higher investments in accounts receivable and inventories - Net cash provided by operating activities for the nine months ended 2021 was $405.6 million, a 57.0% decrease from $942.8 million in the comparable 2020 period[268] - The decrease in cash flow was primarily due to significantly increased working capital requirements in 2021, driven by rising metal prices and strong demand, necessitating greater investment in accounts receivable and inventories[268] - Income taxes paid for the nine months ended 2021 were $297.3 million, a significant increase from $68.3 million in the comparable 2020 period, primarily due to substantially higher pre-tax income[269] Investing Activities Net cash used in investing activities increased in the nine months ended 2021, primarily for capital expenditures supporting growth initiatives, partially offset by proceeds from the sale of non-core assets - Net cash used in investing activities for the nine months ended 2021 was $148.2 million, an increase from $127.7 million in the comparable 2020 period[270] - Capital expenditures for the nine months ended 2021 were $178.9 million, primarily for growth initiatives[270] - Proceeds from the sale of property, plant, and equipment were $26.8 million, including $24.4 million from the sale of non-core assets, recognizing a gain of $3.3 million[270] Financing Activities Net cash used in financing activities decreased in the nine months ended 2021, primarily due to fewer share repurchases and lower net debt repayments, while the company continued to pay dividends and execute its share repurchase program - Net cash used in financing activities for the nine months ended 2021 was $301.8 million, a decrease from $394.9 million in the comparable 2020 period[272] - The company repurchased $155.0 million of common stock in the nine months ended 2021, compared to $300.2 million in the comparable 2020 period[272] - The Board of Directors declared a Q4 2021 cash dividend of $0.6875 per share on October 26, 2021, and authorized a $1 billion share repurchase program on July 20, 2021[273] Liquidity The company maintains strong liquidity, primarily from operating cash flow, cash on hand, and a $1.5 billion revolving credit facility, with no outstanding borrowings, ample cash and cash equivalents, and a reduced net debt-to-capital ratio as of September 30, 2021 - The company's primary liquidity sources include funds generated from operations, cash on hand, and a $1.5 billion revolving credit facility[276] - As of September 30, 2021, the company's cash and cash equivalents totaled $638.4 million, with a net debt-to-capital ratio of 14.7%, down from 15.8% as of December 31, 2020[276] - As of September 30, 2021, the company had no outstanding borrowings under its $1.5 billion revolving credit facility[276] Capital Resources The company obtains capital through senior unsecured notes and industrial revenue bonds, expecting continued ample liquidity for operational needs, capital expenditures, strategic growth, dividends, and share repurchases, with its investment-grade credit rating enhancing financing capabilities - The company obtains capital through senior unsecured notes (due 2023, 2025, 2030, and 2036) and industrial revenue bonds (due 2027)[280][281][282] - The company expects to continue having ample liquidity to meet future operational needs, capital expenditures, strategic growth, dividend payments, and share repurchases[283] - The company's investment-grade credit ratings enhance its ability to raise capital effectively[283] Covenants The company's credit agreements and indentures contain customary representations, warranties, covenants, and events of default, requiring compliance with financial maintenance covenants like minimum interest coverage and maximum total net leverage ratios, all of which were met as of September 30, 2021 - Credit agreements and indentures contain financial maintenance covenants requiring compliance with minimum interest coverage and maximum total net leverage ratios[284] - As of September 30, 2021, the company was in compliance with all financial maintenance covenants in its credit agreements[284] Off-Balance Sheet Arrangements The company has no off-balance sheet arrangements with unconsolidated entities or financial partnerships, and as of September 30, 2021, had $30.9 million in contingent liabilities under standby letters of credit and surety bonds - The company has no off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as structured finance or variable interest entities[285] - As of September 30, 2021, the company had $30.9 million in contingent liabilities under standby letters of credit and surety bonds, primarily related to insurance policies and construction projects[287] Contractual Obligations and Other Commitments As of September 30, 2021, the company reported no material changes in capital expenditure or purchase obligations, consistent with disclosures in its 2020 annual report - As of September 30, 2021, the company reported no material changes in capital expenditure or purchase obligations, consistent with disclosures in its 2020 annual report[288] Seasonality Despite seasonal aspects in some customer businesses like construction, the company's diversified operations show no significant overall seasonality, though COVID-19 has increased uncertainty regarding future period volatility - The company's overall operations do not exhibit significant seasonal trends, primarily due to its geographic, product, and customer diversity[289] - Revenues are typically lower in July, November, and December due to fewer business days and customer holidays or extended shutdowns[289] - The COVID-19 pandemic has increased uncertainty regarding period-to-period volatility, making it unpredictable whether it will align with historical patterns[289] Goodwill and Other Intangible Assets As of September 30, 2021, goodwill and other intangible assets represent a significant portion of the company's total assets and equity; indefinite-lived assets are not amortized but tested annually for impairment, while finite-lived assets are amortized, with impairment losses recorded in 2020 - As of September 30, 2021, goodwill was $1.94 billion, representing 21% of total assets and 33% of total equity[290] - Other intangible assets, net, were $919.5 million, representing 10% of total assets and 16% of total equity[290] - For the nine months ended September 30, 2020, the company recorded impairment losses of $67.8 million on indefinite-lived intangible assets and $30.7 million on amortizable intangible assets[290] Critical Accounting Policies and Estimates This section highlights the subjective judgments and estimates required in preparing financial statements, particularly those related to goodwill, other indefinite-lived intangible assets, and long-lived assets, with COVID-19 increasing the uncertainty and volatility of these estimates - The company makes estimates and assumptions in preparing financial statements, with critical accounting estimates including goodwill, other indefinite-lived intangible assets, and long-lived assets[291] - The COVID-19 pandemic has increased uncertainty, potentially leading to more volatile estimates and judgments than in prior periods[291] New Accounting Guidance This section directs readers to Note 2 of the unaudited consolidated financial statements for disclosures on new accounting guidance issued or adopted - Disclosures regarding new accounting guidance are provided in Note 2 to the unaudited consolidated financial statements[140][294] Website Disclosure The company may use its website as a channel for disseminating important corporate information, including financial and other material details, and offers email alert services - The company may use its website, investor.rsac.com, as a channel for disseminating important corporate information[141][295] Quantitative and Qualitative Disclosures About Market Risk The company faces various market risk factors in its daily operations, including interest rate fluctuations, economic condition changes, domestic and international competition, foreign currency exchange rates, and volatility in metal prices, demand, and supply; further details are in the 2020 annual report - The company faces market risk factors including interest rate fluctuations, changes in economic conditions, domestic and international competition, foreign currency exchange rates, and volatility in metal prices, demand, and supply[142][296] - Further information on quantitative and qualitative disclosures about market risk is available in Item 7A of the company's Annual Report on Form 10-K for the year ended December 31, 2020[142][296] Controls and Procedures Company management assessed the effectiveness of disclosure controls and procedures, concluding they were effective as of the end of the reporting period, with no material changes in internal control during the quarter - Company management assessed the effectiveness of disclosure controls and procedures, concluding they were effective as of the end of the reporting period[143][297] - No material changes in the company's internal control occurred as of September 30, 2021[144][298] PART II — OTHER INFORMATION Legal Proceedings This section references disclosures on legal matters and environmental contingencies in Note 11 to the financial statements, indicating no material legal proceedings beyond routine litigation - Information regarding legal proceedings is incorporated by reference from the 'Legal Matters' section of Note 11, 'Commitments and Contingencies,' to the financial statements[145][299] Risk Factors This section indicates no material changes to the risk factors disclosed in the company's 2020 annual report - No material changes occurred to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020[146][300] Unregistered Sales of Equity Securities and Use of Proceeds This section discloses the company's share repurchase activities in Q3 2021, including the number of shares, average price, and total amount repurchased, reaffirming the $1 billion share repurchase program Q3 2021 Share Repurchase Activity | Period | Total Shares Repurchased (Shares) | Average Price Paid Per Share (USD) | Total Shares Repurchased Under Publicly Announced Plans (Shares) | Maximum Dollar Value of Shares That May Yet Be Repurchased Under the Plans | | :----------------------- | :---------------- | :-------------------- | :-------------------------- | :------------------------- | | July 1 - July 31, 2021 | 94,768 | 148.38 | 94,768 | 998,000,094 | | August 1 - August 31, 2021 | 170,728 | 149.66 | 170,728 | 972,449,048 | | September 1 - September 30, 2021 | 620,110 | 147.33 | 620,110 | 881,085,737 | | Total | 885,606 | 147.89 | 885,606 | | - The company amended and restated its share repurchase program on July 20, 2021, increasing the authorization to $1 billion[303] Defaults Upon Senior Securities This section states that the company has not experienced any defaults upon senior securities - The company has not experienced any defaults upon senior securities[304] Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company's operations[304] Other Information This section states that no other information requires disclosure - No other information requires disclosure[304] Exhibits This section lists the exhibits filed with the report, including certifications from the CEO and CFO, Sarbanes-Oxley Act Section 906 certifications, and financial information in XBRL format - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, Sarbanes-Oxley Act Section 906 certifications, and unaudited financial information in XBRL format[306] SIGNATURES This section contains the company's formal signatures for the report filing as required by the Securities Exchange Act of 1934, signed by Arthur Ajemyan, Vice President and Chief Financial Officer, on behalf of the company - The report was signed by Arthur Ajemyan, Vice President and Chief Financial Officer, on November 4, 2021, on behalf of Reliance Steel & Aluminum Co[307]