RELIANCE INC

Previous wording

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, prevailing elevated interest rates and slowing macroeconomic growth, 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,” “explore,” “estimate,” “predict,” “potential,” “preliminary,” “range,” “intend” and “continue,” the negative of these terms, and similar expressions. All statements contained in this report that are not 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.

Current wording

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, prevailing elevated interest rates and slowing macroeconomic growth, 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 that are not 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.

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this quarterly report on Form 10-Q, including the consolidated financial statements and related notes contained in Item 1.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 and other sections of this quarterly report on Form 10-Q, including the consolidated financial statements and related notes contained in Item 1.

Previous wording

In the first quarter of 2024, demand was healthy in the majority of our end markets. However, our operating results in the first quarter of 2024 declined from the first quarter of 2023, mainly due to lower metals prices and a decrease in tons sold, which was impacted by one less shipping day.

Current wording

In the second quarter and first half of 2024, demand was relatively healthy in the majority of our end markets with our same-store tons sold relatively consistent with the prior year periods. However, our operating results declined from the comparable 2023 periods, despite earnings contributions from three closed acquisitions, mainly due to lower metals prices and declines in gross profit margin from a declining metals pricing environment.

Previous wording

Organic growth activities were substantially comprised of capital expenditures of $108.7 million for the first quarter of 2024 compared to $102.9 million for the first quarter of 2023. We also completed an acquisition in February 2024 for $53.7 million.

Current wording

Organic growth activities were substantially comprised of capital expenditures of $206.9 million for the first half of 2024 compared to $233.1 million for the first half of 2023. We completed two acquisitions in April 2024 for $292.8 million, following an acquisition in February 2024 for $53.7 million.

Previous wording

On May 1, 2023, we acquired, with cash on hand, Southern Steel Supply, LLC (“Southern Steel”). Southern Steel is headquartered in Memphis, Tennessee and offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Included in our net sales for the first quarter of 2024 were net sales of $10.6 million from Southern Steel.

Current wording

On May 1, 2023, we acquired, with cash on hand, Southern Steel Supply, LLC (“Southern Steel”). Southern Steel is headquartered in Memphis, Tennessee and offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Included in our net sales for the six months ended June 30, 2024 were net sales of $20.1 million from Southern Steel.

Previous wording

The following sets forth certain income statement data for the first quarters of 2024 and 2023 (dollars are shown in millions, except per share amounts, and certain percentages may not calculate due to rounding):

Current wording

The following sets forth certain income statement data for the second quarter and six months ended June, 30 2024 and 2023 (dollars are shown in millions, except per share amounts, and certain percentages may not calculate due to rounding):

Previous wording

Our tons sold and average selling prices per ton sold exclude our tons toll processed. Our average selling prices per ton sold includes intercompany transactions that are eliminated from our consolidated net sales. Same-store amounts exclude the results of our 2024 and 2023 acquisitions.

Current wording

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. Same-store amounts exclude the results of our 2024 and 2023 acquisitions.

Previous wording

Demand remained relatively healthy in the majority of end markets we serve. Our same-store net sales declined from the first quarter of 2023 mainly due to lower selling prices and a decrease in tons sold, which was impacted by one less shipping day.

Current wording

Our same-store net sales declined from the comparable 2023 periods mainly due to declines in carbon steel pricing that lowered our average selling price per ton sold. Demand remained relatively healthy in the majority of end markets we serve. The decline in same-store tons sold for the six months ended June 30, 2024 mainly resulted from one less shipping day compared to the same period in 2023.

Previous wording

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; the mix of products sold can also have an impact on our overall average selling price per ton sold. As carbon steel sales represented 53% of our gross sales for the first quarter of 2024, 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:

Current wording

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; the mix of products sold can also have an impact on our overall average selling price per ton sold. As carbon steel sales represented 54% of our gross sales for the six months ended June 30, 2024, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

Previous wording

Gross profit in the first quarter of 2024 decreased from the first quarter of 2023 mainly due to lower sales as a result of decreases in average selling price per ton sold and tons sold, which were impacted by one less shipping day.

Current wording

Gross profit in the second quarter and six months ended June 30, 2024 decreased from the same periods in 2023 mainly due to lower sales as a result of decreases in average selling price per ton sold partially offset by gross profit contributions from our acquisitions.

Previous wording

In addition, we record in cost of sales non-cash adjustments to our LIFO method inventory valuation reserve that, 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 $529.3 million at March 31, 2024.

Current wording

In addition, we record in cost of sales non-cash adjustments to our LIFO method inventory valuation reserve that, 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 $479.3 million at June 30, 2024.

Previous wording

Our same-store SG&A expense as a percentage of sales increased mainly due to a decrease in sales.

Current wording

Our same-store SG&A expense for each of the second quarter and six months ended June 30, 2024 were relatively consistent with the same periods in 2023. Our SG&A expense in the 2024 periods reflected lower incentive-based compensation resulting from lower profitability offset by higher costs associated with wage inflation and increased headcounts related to our organic growth activities. SG&A expense as a percentage of sales mainly increased due to lower sales levels.

Previous wording

Our effective income tax rates for the first quarters of 2024 and 2023 were 23.3% and 24.4%, 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.

Current wording

Our effective income tax rate for each of the second quarter and six months ended June 30, 2024 was 23.3%, compared to 24.4% for the same 2023 periods. 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.

Previous wording

Net cash provided by operations of $126.3 million in the first quarter of 2024 decreased from $384.6 million in the first quarter of 2023. The decrease in cash flow from operations was mainly due to lower profitability and increased spending on working capital. 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, 2024 and 2023, our days sales outstanding rates were 40.8 days and 40.0 days, respectively. Our inventory turnover rate (based on tons) during the first quarter of 2024 was 4.6 times (or 2.6 months on hand), compared to 4.9 times (or 2.4 months on hand) in the first quarter of 2023.

Current wording

Net cash provided by operations of $492.6 million in the six months ended June 30, 2024 decreased $187.1 million from $679.7 million in the same period in 2023. The year-over-year decrease was mainly due to a decline of $198.6 million in net income with relatively consistent working capital spend. 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 June 30, 2024 and 2023, our days sales outstanding rates were 41.1 days and 40.2 days, respectively. Our

Previous wording

Net cash used in investing activities was $177.4 million in the first quarter of 2024 compared to $102.6 million in the first quarter of 2023 and was substantially comprised of capital expenditures and the purchase price for an acquisition in February 2024. The majority of our capital expenditures in the first quarters of 2024 and 2023 were related to growth initiatives.

Current wording

Net cash used in investing activities of $562.0 million for the six months ended June 30, 2024 increased $307.0 million from $255.0 million used in the same period in 2023. The significant increase was mainly due to $346.5 million spent on three acquisitions in 2024 partially offset by $26.2 million less of capital expenditures. The majority of our capital expenditures in the six months ended June 30, 2024 and 2023 were related to growth initiatives.

Previous wording

On April 23, 2024, our Board of Directors declared the 2024 second quarter cash dividend of $1.10 per share. We have increased our quarterly dividend 31 times since our IPO in 1994, with the most recent increase of 10.0% from $1.00 to $1.10 per share effective in the first quarter of 2024. We have paid quarterly cash dividends on our common stock for 65 consecutive years and have never reduced or suspended our regular quarterly dividend.

Current wording

On July 23, 2024, our Board of Directors declared the 2024 third quarter cash dividend of $1.10 per share. We have increased our quarterly dividend 31 times since our IPO in 1994, with the most recent increase of 10.0% from $1.00 to $1.10 per share effective in the first quarter of 2024. We have paid quarterly cash dividends on our common stock for 65 consecutive years and have never reduced or suspended our regular quarterly dividend.

Previous wording

As of March 31, 2024, we had remaining authorization to repurchase $1.44 billion of our common stock under our $1.5 billion share repurchase program authorized by our Board of Directors on October 24, 2023. 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.

Current wording

Subsequent to quarter end, we repurchased an additional 637,669 shares at an average cost of $285.36, for a total of $182.0 million, resulting in $738.5 million remaining as of July 25, 2024 under our $1.5 billion share repurchase program authorized by our Board of Directors effective October 30, 2023. 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.

Previous wording

We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our Credit Agreement, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond. As of March 31, 2024, we had $934.9 million in cash and cash equivalents and our net debt-to-total capital ratio was 2.6%, up from 0.8% as of December 31, 2023.

Current wording

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 June 30, 2024, we had $350.8 million in cash and cash equivalents and our net debt-to-total capital ratio was 9.4%, up from 0.8% as of December 31, 2023.

Previous wording

As of March 31, 2024, we had $400.3 million of debt obligations coming due before our Credit Agreement matures on September 3, 2025.

Current wording

As of June 30, 2024, we had $400.3 million of debt obligations coming due before our $1.5 billion revolving credit facility matures on September 3, 2025.

Previous wording

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.13 billion at March 31, 2024, or approximately 20% of total assets and 27% of total equity. Additionally, other intangible assets, net amounted to $986.1 million at March 31, 2024, or approximately 9% of total assets and 12% 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 estimated useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Current wording

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.17 billion at June 30, 2024, or approximately 21% of total assets and 28% of total equity. Additionally, other intangible assets, net amounted to $1.04 billion at June 30, 2024, 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 estimated useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Previous wording

reported amounts of revenues and expenses during the reporting period. Some of our accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

Current wording

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 are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.