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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2023

OR

For the transition period from                           to                          

Commission file number: 001-13122

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16100 N. 71st Street, Suite 400

Scottsdale, Arizona 85254

(Address of principal executive offices, including zip code)

(480) 564-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2023, there were 58,793,188 shares of the registrant’s common stock, $0.001 par value, outstanding.

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RELIANCE STEEL & ALUMINUM CO.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions, except number of shares which are reflected in thousands and par value)

* Amounts derived from audited financial statements.

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except number of shares which are reflected in thousands and per share amounts)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per share amounts)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

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Note 1. Summary of Significant Accounting Policies

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Principles of Consolidation

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The accompanying unaudited consolidated financial statements include the accounts of Reliance Steel & Aluminum Co. and its subsidiaries (collectively “Reliance”, the “Company”, “we”, “our” or “us”). These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the consolidated financial statements reflect all material adjustments, which are of a normal recurring nature, necessary for presentation of financial statements for interim periods in accordance with U.S. GAAP. Interim results are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Investments in unconsolidated subsidiaries are recorded under the equity method of accounting. These consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and accompanying notes included in Reliance’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

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Inventories

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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. We estimate the effect of LIFO on interim periods by allocating the projected year-end LIFO calculation to interim periods on a pro rata basis.  

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Note 2. Revenues

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The following table presents our net sales disaggregated by product and service:

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Note 3. Goodwill

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The change in the carrying amount of goodwill is as follows:

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We had no accumulated impairment losses related to goodwill at March 31, 2023 and December 31, 2022.

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Note 4. Intangible Assets, net

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Intangible assets, net consisted of the following:

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Amortization expense for intangible assets was $11.8 million and $12.2 million for the first quarters of 2023 and 2022, respectively. Foreign currency translation gains related to intangible assets, net were $0.2 million and $0.4 million for the first quarters of 2023 and 2022, respectively.

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The following is a summary of estimated future amortization expense:

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Note 5. Debt

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Debt consisted of the following:

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The weighted average interest rate on the Company’s outstanding borrowings as of March 31, 2023 and December 31, 2022 was 2.89% and 3.37%, respectively.

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Unsecured Credit Facility

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On September 3, 2020, we entered into a $1.5 billion unsecured five-year Amended and Restated Credit Agreement that amended and restated our then-existing $1.5 billion unsecured revolving credit facility. On January 12, 2023, the agreement was further amended to change the reference rate from LIBOR to SOFR (as amended, the “Credit Agreement”). As of March 31, 2023, borrowings under the Credit Agreement were available at variable rates based on SOFR plus 1.10% or the bank prime rate and we currently pay a commitment fee at an annual rate of 0.175% on the unused portion of the revolving credit facility. The applicable margins over SOFR and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined in the Credit Agreement. All borrowings under the Credit Agreement may be prepaid without penalty.

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As of March 31, 2023 and December 31, 2022, we had no outstanding borrowings on the revolving credit facility. As of March 31, 2023 and December 31, 2022, we had $7.7 million of letters of credit outstanding under the revolving credit facility.

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Senior Unsecured Notes

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On January 15, 2023, we redeemed in full the $500.0 million aggregate outstanding principal amount of our 4.50% senior notes due April 15, 2023 using cash on hand.

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Under the indentures for each series of our senior notes (the “indentures”), the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase each series of the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest.

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Other Notes, Revolving Credit and Letter of Credit/Letters of Guarantee Facilities

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A revolving credit facility with a credit limit of $7.9 million is in place for an operation in Asia with an outstanding balance of $2.2 million as of March 31, 2023 and December 31, 2022.

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Various industrial revenue bonds had combined outstanding balances of $7.4 million as of March 31, 2023 and December 31, 2022 and have maturities through 2027.

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A standby letters of credit/letters of guarantee agreement with one of the lenders under our Credit Agreement provides letters of credit and/or letters of guarantee in an amount not to exceed $50.0 million in the aggregate. As of March 31, 2023, a total of $19.5 million of letters of credit/guarantee were outstanding under this facility.

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Covenants

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The Credit Agreement and the indentures include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio. We were in compliance with all financial maintenance covenants in our Credit Agreement at March 31, 2023.

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Note 6.  Leases

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Our metals service center leases are comprised of processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. We also lease various office spaces. Our leases of facilities and other spaces expire at various times through 2045 and our ground leases expire at various times through 2068. Nearly all of our leases are operating leases; we have recognized finance right-of-use assets and obligations of less than $1.0 million.

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The following is a summary of our lease cost:

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Supplemental cash flow and balance sheet information is presented below:

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Maturities of operating lease liabilities as of March 31, 2023 are as follows:

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Note 7.  Income Taxes

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Our effective income tax rates for the first quarters of 2023 and 2022 were 24.4% and 24.8%, respectively. The differences between our effective income tax rates and the U.S. federal statutory rate of 21.0% were mainly due to state income taxes and higher foreign income tax rates, partially offset by the effects of company-owned life insurance policies.

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Note 8. Equity

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Dividends

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On April 25, 2023, our Board of Directors declared the 2023 second quarter cash dividend of $1.00 per share of common stock, payable on June 9, 2023 to stockholders of record as of May 26, 2023.

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During the first quarters of 2023 and 2022, we declared and paid quarterly dividends of $1.00 and $0.875 per share, or $59.0 million and $54.2 million in total, respectively. In addition, we paid $3.0 million and $2.5 million in dividend equivalents with respect to vested restricted stock units during the first quarters of 2023 and 2022, respectively.

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Stock-Based Compensation

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We make annual grants of long-term incentive awards to officers and key employees under our Second Amended and Restated 2015 Incentive Award Plan in the forms of service-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) that each have approximately 3-year vesting periods. The PSUs include the right to receive a maximum payout of two shares of our common stock based on performance goals tied to achieving a 3-year return on assets result and include service criteria. We also grant the non-management members of our Board of Directors fully vested stock awards under our Directors Equity Plan. The fair values of the RSUs, PSUs and stock awards are determined based on the closing stock price of our common stock on the grant date.

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In the first quarters of 2023 and 2022, we made payments of $37.2 million and $17.1 million, respectively, to tax authorities on our employees’ behalf for shares withheld related to net share settlement of vested restricted stock units.

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The following is a summary of changes in our unvested RSUs and PSUs during the first quarter of 2023:

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As of March 31, 2023, there was $123.9 million of total unrecognized compensation cost related to unvested RSUs and PSUs in an aggregate amount of 772,952 units that are expected to be settled through the issuance of 993,124 shares of our common stock. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.0 years.

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Share Repurchases

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Our share repurchase activity during the first quarters of 2023 and 2022 was as follows:

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On July 26, 2022, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $1.0 billion. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares. As of March 31, 2023, we had remaining authorization under the program to repurchase $641.8 million of our common stock. We repurchase shares through open market purchases and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act.

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Accumulated Other Comprehensive Loss

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Accumulated other comprehensive loss included the following:

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Foreign currency translation adjustments have not been adjusted for income taxes. Pension and postretirement benefit plan adjustments are amortized over service periods and reflected in the amortization of net loss component of our net periodic benefit cost or are otherwise recognized as a loss as a result of plan settlements.

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Pension and postretirement benefit plan adjustments are net of taxes of $1.3 million as of March 31, 2023 and December 31, 2022. The income tax effects are released from accumulated other comprehensive loss and included in our income tax provision as obligations under our pension and postretirement plans are settled.

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Note 9.  Commitments and Contingencies

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Environmental Contingencies

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We are currently involved with an environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our wholly owned subsidiary, that were sold many years prior to our acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ maintained insurance policies during the time it owned the manufacturing operations that have covered costs incurred to date and are expected to continue to cover the majority of the related costs. We do not expect that this obligation will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

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Legal Matters

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From time to time, we are named as a defendant in legal actions. These actions generally arise in the ordinary course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse impact on our consolidated financial position, results of operations or cash flows. We maintain general liability insurance against risks arising in the ordinary course of business.

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Risks and Uncertainties

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We continue to monitor the impact of the COVID-19 pandemic, and government actions and measures taken to prevent its spread, and the potential to affect our operations. In addition to COVID-19, the conflict between Russia and Ukraine and macroeconomic disruptions such as inflation and the potential for an economic recession or slowdown could also significantly impact the demand for our products and services, as well as those of our customers and suppliers, and our estimates and judgments may be subject to greater volatility than in the past. Refer to Part I, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2022 for further discussion of risks that could adversely affect our estimates and judgments.

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Note 10.  Earnings Per Share

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The following table sets forth the computation of basic and diluted earnings per share:

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The computations of earnings per share for the first quarters of 2023 and 2022 do not include 194,304 and 314,042 weighted average shares, respectively, in respect of outstanding RSUs and PSUs, because their inclusion would have been anti-dilutive.

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Note 11.  Subsequent Event

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On May 1, 2023, we acquired Southern Steel Supply, LLC (“Southern Steel”), a metals service center that offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Located in Memphis, Tennessee, Southern Steel will operate as a subsidiary of Siskin Steel & Supply Company, Inc., a wholly owned subsidiary of Reliance. The acquisition was funded with cash on hand. For the twelve months ended December 31, 2022, annual net sales for Southern Steel were $62.9 million.

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RELIANCE STEEL & ALUMINUM CO.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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This report contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our forward-looking statements may include, but are not limited to, discussions of our industry and end markets, our business strategies and our expectations concerning future demand and major commodity product pricing and our results of operations, margins, profitability, taxes, liquidity, macroeconomic conditions, including inflation and the possibility of an economic recession or slowdown, litigation matters and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “preliminary,” “range,” “intend” and “continue,” the negative of these terms, and similar expressions. All statements contained in this report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date of such statements. We caution readers not to place undue reliance on forward-looking statements.

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Forward-looking statements involve known and unknown risks and uncertainties and are not guarantees of future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements as a result of various important factors, including, but not limited to, actions taken by us, as well as developments beyond our control, including, but not limited to, the impacts of labor constraints and supply chain disruptions, the continuing pandemic and changes in worldwide and U.S. political and economic conditions such as inflation, a prolonged higher interest rate environment and the possibility of an economic recession that could materially impact us, our customers and suppliers and demand for our products and services. Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, COVID-19, the conflict between Russia and Ukraine or otherwise, could lead to a decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing. Other factors which could cause actual results to differ materially from our forward-looking statements include those disclosed in this report and in other reports we have filed with the United States Securities and Exchange Commission (the “SEC”). Important risks and uncertainties about our business can be found elsewhere in this Quarterly Report on Form 10-Q and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC and in other documents Reliance files or furnishes with the SEC. 

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The statements contained in this quarterly report on Form 10-Q speak only as of the date that they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based. You should review any additional disclosures we make in any subsequent press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC.

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Overview

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We delivered solid financial performance in the first quarter of 2023. Our first quarter of 2023 results included an increase in tons sold, a strong gross profit margin that was consistent with the first quarter of 2022 and strong operating cash flow through outstanding operational execution in an uncertain business environment. We believe our ability to maintain a strong gross profit margin in the first quarter of 2023 was supported by our diversified business model, value-added processing capabilities and ability to service small order sizes with quick turnaround.

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Key results for the first quarter of 2023 compared with the first quarter of 2022 were as follows:

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Our net sales decline in the first quarter of 2023 was primarily due to a 17.7% decline in our average selling price per ton sold that offset a strong 7.2% increase in tons sold compared to the first quarter of 2022. The increase in tons sold was due to solid demand in the vast majority of our end markets, with particular strength in non-residential construction, the toll processing services we provide to the automotive market, general manufacturing and aerospace. We continued to execute our strategy in a dynamic operating environment featuring metal pricing volatility, ongoing inflationary headwinds, recessionary concerns, supply chain disruptions and labor shortages.  

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Our gross profit margin of 30.9% in the first quarter of 2023 was consistent with the first quarter of 2022. Pricing for most of the aluminum, carbon and stainless steel products we sell declined throughout the fourth quarter of 2022; however, early in the first quarter of 2023 the metals pricing declines had generally stabilized, and we operated in a relatively flat pricing environment during most of the quarter. We believe that announced carbon flat-rolled steel price increases during the quarter incentivized some of our customers to increase their purchases to buy ahead of further price increases. Our inventory turnover rate accelerated and our inventory costs on hand continued to align with lower replacement costs as our tons sold improved 17.7% compared to the fourth quarter of 2022, which was one of the best first quarter starts we have seen in our history.

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Our SG&A expense in the first quarter of 2023 increased $39.4 million, or 6.4%, from the first quarter of 2022. The increase was primarily due to incremental variable costs associated with a strong 7.2% increase in tons sold, including headcount increases and inflationary pressure on wages, fuel, freight and warehouse costs, offset by decreased incentive-based compensation from lower profitability.

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Our cash flow from operations of $384.6 million in the first quarter of 2023 decreased only $19.4 million, or 4.8%, compared to record first quarter levels in 2022 despite a 26.7% decline in net income. The decrease in our profitability in the first quarter of 2023 from then-record levels in the first quarter of 2022 was generally offset by decreased working capital requirements mainly due to lower metals pricing and volatility. Our strong cash flow generation enabled us to grow our business and increase returns to stockholders. During the first quarter of 2023, we invested in our future growth with a quarterly record $102.9 million invested in capital expenditures and we increased our returns to stockholders by 36.7%. Additionally, in the first quarter of 2023 we completed the redemption of $500.0 million aggregate principal amount of senior unsecured notes with cash on hand.

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We believe our strong liquidity position that includes substantial cash on hand, strong cash flow generation and $1.5 billion of availability under our revolving credit facility will support our continued prudent use of capital as we maintain a flexible approach focused on growth, both organically and through acquisitions, and stockholder return activities.

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Results of Operations

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The following sets forth certain income statement data for the first quarters of 2023 and 2022 (dollars are shown in millions, except for per share amounts and certain amounts may not calculate due to rounding):

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First Quarter Ended March 31, 2023 Compared to First Quarter Ended March 31, 2022

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Net Sales

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Our tons sold and average selling price per ton sold exclude our tons toll processed. Our average selling price per ton sold includes intercompany transactions that are eliminated from our consolidated net sales.

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Our net sales decreased from record first quarter levels of 2022 due to a significant decline in our average selling price per ton sold that was partially offset by a strong increase in tons sold. Demand was healthy in the vast majority of our end markets, with particular strength in non-residential construction, the toll processing services we provide to the automotive market, general manufacturing and aerospace.

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Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate similarly with the changes in the costs of the various metals we purchase. Our average selling price in the first quarter of 2022 was a quarterly record for us, which peaked at an ultimate record in the second quarter of 2022 and then declined for the subsequent three quarters mainly due to mill price decreases for our major product categories; however, metals pricing remained relatively higher versus historical levels throughout the first quarter of 2023.

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The mix of products sold can also have an impact on our overall average selling price per ton sold. As carbon steel sales represented approximately 52% of our gross sales for the first quarter of 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold. Year-over-year changes in the selling prices of our major commodity products and related mix of our tons sold are presented below:

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Cost of Sales and Gross Profit

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* Not meaningful.

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Gross profit in the first quarter of 2023 decreased from the first quarter of 2022 mainly due to lower sales as a result of a decrease in average selling price per ton sold that outpaced an increase in tons sold.

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In addition, we record non-cash adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs. The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $728.8 million at March 31, 2023. Furthermore, cost of sales in the first quarter of 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions that decreased gross profit margin 20 basis points.

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Our gross profit margin in the first quarter of 2023 was strong and unchanged from the first quarter of 2022. We believe our strong and consistent gross profit margin was supported by investments in value-added processing equipment in recent years, relatively higher metal pricing versus historical levels and healthy demand.

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See “Net Sales” above for further discussion on product pricing trends.

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Expenses

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The increase in our SG&A expense was mainly due to higher variable costs associated with higher tons sold and inflationary wage increases, which were partially offset by lower incentive-based compensation that is primarily tied to first-in, first-out (“FIFO”) pretax income profitability, which declined 32.8%. Our SG&A expense as a percentage of sales mainly increased due to lower sales levels.

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See “Cost of Sales and Gross Profit” above for discussion of our LIFO method inventory valuation reserve.

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Operating Income

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The decrease in our operating income was mainly a result of lower gross profit, driven by lower sales due mainly to lower metals prices along with a moderate increase in SG&A expense that was generally consistent with the increase in our tons sold. Our operating income margin decline was consistent with the increase in our SG&A expense as a percentage of sales that was mainly due to our lower sales.

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Income Tax Rate

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Our effective income tax rates for the first quarters of 2023 and 2022 were 24.4% and 24.8%, respectively. The differences between our effective income tax rates and the U.S. federal statutory rate of 21.0% were mainly due to state income taxes and higher foreign income tax rates, partially offset by the effects of company-owned life insurance policies.

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Financial Condition

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Operating Activities

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Net cash provided by operations of $384.6 million in the first quarter of 2023 was slightly less than record first quarter cash flow of $404.0 million in 2022. We were able to achieve consistent operating cash flow as the decline in our net income required a similar decrease in working capital investment in the first quarter of 2023 compared to the same period in 2022, due to the relatively flat pricing environment in the first quarter of 2023 compared to the same period in 2022 in which our average selling price had increased significantly to a record level. To manage our working capital, we focus on our days sales outstanding and inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. As of March 31, 2023 and 2022, our days sales outstanding rate was 40.0 days and 39.1 days, respectively. Our inventory turnover rate (based on tons) during the first quarter of 2023 was 4.9 times (or 2.4 months on hand), compared to 4.4 times (or 2.7 months on hand) in the first quarter of 2022.

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Income taxes paid were $21.2 million in the first quarter of 2023 compared to $89.8 million in the first quarter of 2022. The decrease in our taxes paid was mainly due to income tax extension payments in the first quarter of 2022 which were not required in the first quarter of 2023.

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Investing Activities

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Net cash used in investing activities was $102.6 million in the first quarter of 2023 compared to $63.3 million in the first quarter of 2022 and were substantially comprised of capital expenditures. The majority of our capital expenditures in the first quarters of 2023 and 2022 were related to growth initiatives.

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Financing Activities

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Net cash used in financing activities was $639.2 million in the first quarter of 2023 compared to $92.0 million in the first quarter of 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023. In the first quarter of 2023, we spent $38.9 million to repurchase shares of our common stock compared to $17.1 million in the first quarter of 2022. Our other stockholder return activities included an increase in our quarterly dividend rate with total dividend payments of $62.0 million in the first quarter of 2023 compared to $56.7 million in the first quarter of 2022. We also spent $37.2 million on taxes relating to net share settlement of performance-based restricted stock units in the first quarter of 2023 compared to $17.1 million in the first quarter of 2022.

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On April 25, 2023, our Board of Directors declared the 2023 second quarter cash dividend of $1.00 per share. We have increased our quarterly dividend 30 times since our IPO in 1994, with the most recent increase of 14.3% from $0.875 per share to $1.00 per share effective in the first quarter of 2023. We have paid quarterly cash dividends on our common stock for 64 consecutive years and have never reduced or suspended our regular quarterly dividend.

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See Note 8—“Equity” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for further information on our stock repurchases.

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On July 26, 2022, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $1.0 billion. At March 31, 2023, $641.8 million of our common stock remained authorized for repurchase. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.

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Since 2018, we have repurchased approximately 16.1 million shares at an average cost of $115.65 per share, for a total of $1.86 billion, resulting in a 22.2% reduction in our common shares outstanding. We expect to continue to be opportunistic in our approach to repurchasing shares of our common stock.

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Debt

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We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at March 31, 2023 under our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”). We also had an aggregate of $1.15 billion principal amount of senior unsecured note obligations with various maturities through 2036 issued under indentures as of March 31, 2023.

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On January 15, 2023, we redeemed in full the $500.0 million aggregate outstanding principal amount of our 4.50% senior notes due April 15, 2023 using cash on hand. See Note 5—“Debt” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for further information on our debt obligations.

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Liquidity and Capital Resources

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We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond. As of March 31, 2023, we had $816.2 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 4.3%, down from 6.3% as of December 31, 2022.

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As of March 31, 2023, we had $408.5 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025.

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We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due. In addition to funds generated from operations and nearly $1.5 billion available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired. We believe our sources of liquidity will continue to be adequate to maintain operations, make necessary capital expenditures, finance strategic growth through acquisitions and internal initiatives, pay dividends and opportunistically repurchase shares. Additionally, we believe our investment grade credit ratings enhance our ability to effectively raise capital, if needed.

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Covenants

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The Credit Agreement and indentures governing our debt securities include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio.

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We were in compliance with all financial maintenance covenants in our Credit Agreement at March 31, 2023.

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Seasonality

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Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. However, our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers. The number of shipping days in each quarter also has an impact on our quarterly sales and profitability. Results of any one or more quarters are therefore not necessarily indicative of annual results.

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Goodwill and Other Intangible Assets

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Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at March 31, 2023, or approximately 21% of total assets and 29% of total equity. Additionally, other intangible assets, net amounted to $1.01 billion at March 31, 2023, or approximately 10% of total assets and 14% of total equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests and further evaluation when certain events occur. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

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Critical Accounting Estimates

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Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our Unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical accounting estimates include those related to goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

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During the quarter ended March 31, 2023, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition

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and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

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Website Disclosure

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The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at www.investor.rsac.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section at www.investor.rsac.com. The website is for informational purposes only and is not intended for use as a hyperlink. The Company is not incorporating any material on its website into this report.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates and metals pricing, demand and availability. See Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion on quantitative and qualitative disclosures about market risk.

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Item 4. Controls and Procedures

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Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to and as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered in this report, the Company’s disclosure controls and procedures are effective to ensure information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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There have been no changes in the Company’s internal control over financial reporting during the first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

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Item 1.  Legal Proceedings

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The information contained under the heading “Legal Matters” in Note 9—“Commitments and Contingencies” to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1.

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Item 1A.  Risk Factors

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There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  

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We repurchase shares of our common stock from time to time pursuant to a combination of one or more open market repurchases and transactions structured through investment banking institutions in reliance upon Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act.

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Our share repurchase activity for the first quarter of 2023 was as follows:

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Item 3.  Defaults Upon Senior Securities  

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None.

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Item 4.  Mine Safety Disclosures  

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Not applicable.

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Item 5.  Other Information  

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None.

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Item 6. Exhibits

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†      Indicates management contract or compensatory plan or arrangement.

*      Filed herewith.

**    Furnished herewith.

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SIGNATURE

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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