What changed in RELIANCE, INC.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of RELIANCE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+298 added−314 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)
Top changes in RELIANCE, INC.'s 2023 10-K
298 paragraphs added · 314 removed · 87 edited across 7 sections
- Item 1A. Risk Factors+70 / −139
- Item 1. Business+194 / −71 · 61 edited
- Item 7. Management's Discussion & Analysis+9 / −81 · 4 edited
- Item 5. Market for Registrant's Common Equity+12 / −10 · 9 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+8 / −8 · 8 edited
Item 1. Business
Business — how the company describes what it does
61 edited+133 added−10 removed41 unchanged
Item 1. Business
Business — how the company describes what it does
61 edited+133 added−10 removed41 unchanged
2022 filing
2023 filing
Biggest changeWe believe that our significant scale and relationships with suppliers enable significant purchasing power and product availability in all market conditions. Our business is relationship-based and we operate under the following trade names: Trade Name No. of Locations Reliance Divisions Bralco Metals Bralco Metals 6 Affiliated Metals 1 MetalCenter 1 Olympic Metals 1 Central Plains Steel Co. 1 Reliance Metalcenter 8 Reliance Steel Company 2 Smith Pipe & Steel Company 1 Tube Service Co. 6 Admiral Metals Servicenter Company, Incorporated 7 All Metals Processing & Logistics, Inc. 2 All Metal Services All Metal Services Limited (United Kingdom) 4 All Metal Services France 1 All Metal Services India Private Limited 1 All Metal Services Ltd.
Biggest changeWe believe that our significant scale and relationships with suppliers enable significant purchasing power and product availability in all market conditions and allows for effective management of our inventories. ● Collaboration While Reliance has a decentralized structure with many different models operating independently from each other, we are now exploring commercial opportunities for our companies to work together and leverage the larger Reliance resources and capabilities to pursue and grow sales opportunities, better manager our inventory, provide opportunities to our employees, and share best practices. Our business is relationship-based, and we operate under the following trade names: Trade Name No. of Locations Reliance Divisions Bralco Metals Bralco Metals 6 Affiliated Metals 1 MetalCenter 1 Olympic Metals 1 Central Plains Steel Co. 1 Reliance Metalcenter 1 Reliance Metals Group Reliance Metalcenter 5 Smith Pipe & Steel Company 1 Reliance Steel Company 2 Tube Service Co. 6 Admiral Metals Servicenter Company, Incorporated 7 All Metal Services All Metal Services Limited (United Kingdom) 4 All Metal Services France 1 All Metal Services India Private Limited 1 All Metal Services Ltd.
In addition, our safety professionals monitor compliance with regulatory requirements and conduct safety assessments and training to improve safety practices. ● Organic growth and innovation through our industry-leading investments in state-of-the-art value-added processing equipment to better service our customers.
In addition, our safety professionals monitor compliance with regulatory requirements and conduct safety assessments and training to improve safety practices. ● Organic growth and innovation through industry-leading investments in state-of-the-art value-added processing equipment to better service our customers.
Bhd. 1 Allegheny Steel Distributors, Inc. 1 American Metals Corporation American Metals 2 American Steel 2 Alaska Steel Company 3 Haskins Steel Company 1 Lampros Steel 1 LSI Plate 1 Plate Sales 1 AMI Metals, Inc. AMI Metals 6 AMI Metals UK, Limited 1 AMI Metals Europe (Belgium) 1 2 Table of Contents Trade Name No. of Locations AMI Metals Aero Services Ankara Havacılık Anonim Şirketi (Turkey) 1 Best Manufacturing, Inc. 1 CCC Steel, Inc. CCC Steel 1 IMS Steel Co. 1 Chapel Steel Corp. Chapel Steel Corp. 6 Chapel Steel Canada, Ltd. 1 Chatham Steel Corporation 5 Clayton Metals, Inc. 2 Continental Alloys & Services Continental Alloys & Services Limited (UK) 2 Continental Alloys & Services Middle East FZE (Dubai) 1 Continental Alloys & Services (Malaysia) Sdn.
Bhd. 1 Allegheny Steel Distributors, Inc. 1 American Metals Corporation American Metals 2 American Steel 2 Alaska Steel Company 3 Haskins Steel Company 1 Lampros Steel 1 LSI Plate 1 2 Table of Contents Trade Name No. of Locations Plate Sales 1 AMI Metals, Inc. AMI Metals 6 AMI Metals Aero Services Ankara Havacılık Anonim Şirketi (Turkey) 1 AMI Metals Europe SPRL (Belgium) 1 AMI Metals UK Limited 1 Best Manufacturing, Inc. 1 CCC Steel, Inc. CCC Steel 1 IMS Steel Co. 1 Chapel Steel Corp. Chapel Steel Corp. 6 Chapel Steel Canada, Ltd. 1 Chatham Steel Corporation 5 Clayton Metals, Inc. 2 Continental Alloys & Services Continental Alloys & Services Limited (UK) 2 Continental Alloys & Services Middle East FZE (Dubai) 1 Continental Alloys & Services (Malaysia) Sdn.
Due to our focus on small orders, our decentralized operating structure and the diversity of the markets we serve, customer concentrations are not significant. ● A focus on when-needed inventory management and small orders with quick turnaround and increasing levels of value-added processing which generate higher profit margins as compared to a focus on large volume orders.
Due to our focus on small orders, our decentralized operating structure and the diversity of the markets we serve, customer concentrations are not significant. ● A focus on as-needed inventory management and small orders with quick turnaround and increasing levels of value-added processing which generate higher profit margins as compared to a focus on large volume orders.
We believe our focused growth strategy and increasing the level of value-added services we provide our customers makes us less vulnerable to regional or industry-specific economic volatility and somewhat lessens the negative impact of volatility experienced in commodity pricing and cyclicality of our customer end markets, as well as general economic trends. We expect to continue growing our business through acquisitions and internal growth initiatives, particularly those that diversify our products, customer base and geographic locations and increase our sales of high-margin specialty products and value-added processing services. Sales and Marketing Sales personnel are organized by division or subsidiary and are divided into two groups.
We believe our focused growth strategy and increasing the level of value-added services we provide our customers makes us less vulnerable to regional or industry-specific economic volatility and somewhat lessens the negative impact of volatility experienced in commodity pricing and cyclicality of our customer end markets, as well as general economic trends. We expect to continue growing our business through acquisitions and internal growth initiatives, particularly those that diversify our product mix, customer base and geographic locations and increase our sales of high-margin specialty products and value-added processing services. Sales and Marketing Sales personnel are organized by division or subsidiary and are divided into two groups.
We distribute a full line of over 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium and specialty steel products. We have more than 125,000 customers in a variety of industries, including general manufacturing, non-residential construction (including infrastructure), transportation (rail, truck trailer and shipbuilding), aerospace (commercial; military, defense and space), energy (oil and natural gas), electronics and semiconductor fabrication, and heavy industry (agricultural, construction and mining equipment).
We distribute a full line of over 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium and other specialty steel products. We have more than 125,000 customers in a variety of industries, including general manufacturing, non-residential construction (including infrastructure and renewable energy), transportation (rail, truck trailer and shipbuilding), aerospace (commercial; military, defense and space), energy (oil and natural gas), electronics and semiconductor fabrication, and heavy industry (agricultural, construction and mining equipment).
We believe that maintaining our own fleet of trucks and drivers provides a competitive advantage as there has been a shortage of qualified drivers and third-party freight costs have been at elevated levels in recent years. Moreover, our order entry systems and flexible production scheduling enable us to meet customer requirements for short lead times and quick delivery, when needed.
We believe that maintaining our own fleet of trucks and drivers provides a competitive advantage as there has been a shortage of qualified drivers and third-party freight costs have been at elevated levels in recent years. Moreover, our order entry systems and flexible production scheduling enable us to meet customer requirements for short lead times and quick delivery.
Further information about our reportable segment, including geographic information, appears in Note 18—“Segment information” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data.” Industry Overview Metals service centers acquire carbon steel, aluminum, stainless and alloy steel and other metal products from mills, and then process and distribute these materials to meet customer specifications. 4 Table of Contents Customers purchase from metals service centers for a variety of reasons, including the ability to obtain value-added metals processing, readily available inventory, reliable and timely delivery, flexible minimum order size, and quality control.
Further information about our reportable segment, including geographic information, appears in Note 18—“Segment Information” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data.” Industry Overview Metals service centers acquire carbon steel, aluminum, stainless and alloy steel and other metal products from mills, and then process and distribute these materials to meet customer specifications. Customers purchase metal products from metals service centers for a variety of reasons, including the ability to obtain value-added metals processing, readily available inventory, reliable and timely delivery, flexible minimum order size, and quality control.
Our domestic service center competitors are generally smaller than we are, but we also face strong competition from national, regional and local independent metals distributors and the producers themselves, some of which have greater resources than we do. We compete with other companies on price, service, quality, processing capability and availability of products and services.
Our domestic service center competitors are generally smaller than we are, but we also face strong competition from national, regional and local independent metals distributors and the mills themselves, some of which have greater resources than we do. We compete with other companies on price, service, quality, processing capability and availability of products and services.
We encourage investors to visit our website. 11 Table of Contents The website addresses presented above and elsewhere in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing.
We encourage investors to visit our website. 11 Table of Contents The website addresses presented above and elsewhere in this Annual Report on Form 10-K are not intended to function as hyperlinks, and the information contained in our website and in the SEC’s website is not intended to be a part of this filing. Item 1A.
We also service the auto industry, primarily through our toll processing operations where we process the metal for a fee, without taking ownership of the metal. Our diversification by product, end market and geography helps mitigate volatility in metals pricing and changing end market conditions.
We also service the auto industry, primarily through our toll processing operations where we process the metal for a fee, without taking ownership of the metal. We believe that our diversification by product, end market and geography helps mitigate volatility in metals pricing and changing end market conditions.
We believe that maintaining high standards for accepting metals ultimately results in reduced return rates from our customers. We maintain various quality certifications throughout our operations. Approximately 50% of our operating locations have earned International Organization for Standardization (ISO 9001:2015) certifications.
We believe that maintaining high standards for accepting metals ultimately results in reduced return rates from our customers. We maintain various quality certifications throughout our operations. Approximately 55% of our operating locations have earned International Organization for Standardization (ISO 9001:2015) certifications.
Our customizable program integrates web-based tools, phone and mail-based communications, local activities and is designed to support the diverse and individualized needs of our employees in order to help them improve or maintain their health status and ongoing engagement in healthy behaviors. ● Compensation and Benefits To help attract and retain the best employees, we strive to offer competitive compensation and best-in-class benefits.
Our customizable program integrates web-based tools, phone and mail-based 9 Table of Contents communications, local activities and is designed to support the diverse and individualized needs of our employees in order to help them improve or maintain their health status and ongoing engagement in healthy behaviors. ● Compensation and Benefits To help attract and retain the best employees, we strive to offer competitive compensation and best-in-class benefits.
However, the measurement of our market share based on the shipment levels of the metals service center industry published by the MSCI, who does not also publish estimated industry revenues, was at 14.5%, which we believe is due to the inclusion of non-metal service center companies in the broader metals wholesaling industry as defined by IBISWorld Inc.
However, the measurement of our market share based on the shipment levels of the metals service center industry published by the MSCI, who does not also publish estimated industry revenues, was 14.5% in 2023, which we believe is due to the inclusion of non-metals service center companies in the broader metals wholesaling industry as defined by IBISWorld Inc.
(Singapore) 1 Crest Steel Corporation 1 Delta Steel, Inc. 4 Diamond Manufacturing Company Diamond Manufacturing 2 Ferguson Perforating Company 2 McKey Perforating Co. 1 Perforated Metals Plus 1 DuBose DuBose National Energy Fasteners & Machined Parts, Inc. 1 DuBose National Energy Services, Inc. 1 Durrett Sheppard Steel Co., Inc . 1 Earle M.
(Singapore) 1 Crest Steel Corporation 1 Diamond Manufacturing Company Diamond Manufacturing 2 Ferguson Perforating Company 2 McKey Perforating Co. 1 Perforated Metals Plus 1 DuBose DuBose National Energy Fasteners & Machined Parts, Inc. 1 DuBose National Energy Services, Inc. 1 Durrett Sheppard Steel Co., Inc . 1 Earle M.
Metals service centers respond to a niche market created because of the focus on when-needed inventory management and materials management outsourcing in the capital goods and related industries.
Metals service centers respond to a niche market created because of the focus on as-needed inventory management and materials management outsourcing in the capital goods and related industries.
The core tenets of our differentiated approach include: ● Our commitment to safety which is our top priority and an important element of our culture and day-to-day operational focus. Our executive team supports a safety management system that includes policies, standard practices and goals at our facilities.
The core tenets of our differentiated approach include: ● Our commitment to safety which is our top priority and an important element of our culture and day-to-day operational focus. Our executive team supports a safety management system that includes policies, standard 5 Table of Contents practices and goals at our facilities.
We strive to have zero fatalities and no life-threatening or life-altering injuries and illnesses from working at our facilities. 8 Table of Contents Our executive team supports a safety management system that includes policies, standard practices and goals at our facilities, including: o conducting regular safety assessments; o monitoring best practices and compliance with regulatory requirements; o training our employees to improve safety practices; o integrating video-based technology and safety programs into substantially all Company-operated trucks; and o maintaining emergency preparedness and response plans. The Company utilizes a mixture of indicators to assess the health and safety performance of its domestic operations.
We strive to have zero fatalities and no life-threatening or life-altering injuries and illnesses from working at our facilities. Our executive team supports a safety management system that includes policies, standard practices and goals at our facilities, including: o conducting regular safety assessments; o monitoring best practices and compliance with regulatory requirements; o training our employees to improve safety practices; o integrating video-based technology and safety programs into substantially all Company-operated trucks; and o maintaining emergency preparedness and response plans. We utilize a mixture of indicators to assess the health and safety performance of our domestic operations.
Expanding our value-added capabilities (including toll processing) and increasing the percentage of our total sales represented by the higher margin orders generated from those capabilities, helps reduce the volatility in our profitability ratios during periods of unfavorable metals demand and/or pricing. 1 Table of Contents ● Industry leader According to the Metals Service Center Institute (“MSCI”) reporting of industry tons sold in the U.S., our 2022 tons sold from our U.S. locations represented approximately 14.5% of the total tons sold by the U.S. metals service center industry.
Expanding our value-added capabilities (including toll processing) and increasing the percentage of our total sales represented by the higher margin orders generated from those capabilities, helps reduce the volatility in our profitability ratios during periods of unfavorable metals demand and/or pricing. 1 Table of Contents ● Industry leader According to the Metals Service Center Institute (“MSCI”) reporting of industry tons sold in the U.S., our 2023 tons sold from our U.S. locations represented 14.5% of the total tons sold by the U.S. metals service center industry compared to 14.2% for 2022.
We believe our relatively low level of market share shown by MSCI leaves significant opportunity for further strategic growth within the industry. ● Pricing Power We primarily operate in the spot market for both the purchase and sale of our products.
We believe our relatively low level of market share leaves significant opportunity for further strategic growth within the industry. ● Pricing Power We primarily operate in the spot market for both the purchase and sale of our products.
Jorgensen (Canada) 7 Encore Metals 7 Service Steel Aerospace Corp. Service Steel Aerospace 3 Dynamic Metals International 1 United Alloys Aircraft Metals 1 Siskin Steel & Supply Company, Inc. Siskin Steel 4 East Tennessee Steel Supply Company 1 Steel Store 1 Sugar Steel Corporation 3 Tubular Steel, Inc. Tubular Steel 4 Metalcraft Enterprises 1 United Pipe & Steel Corp./Merfish United, Inc. 12 Valex Corp. Valex 1 Valex Semiconductor Materials (Zhejiang) Co., Ltd. 1 Valex Korea Co., Ltd.
Jorgensen (Canada) 7 Encore Metals 7 Service Steel Aerospace Corp. Service Steel Aerospace 3 Dynamic Metals International 1 United Alloys Aircraft Metals 1 Siskin Steel & Supply Company, Inc. Siskin Steel 4 East Tennessee Steel Supply Company 1 Southern Steel Supply 1 The Steel Store 1 Sugar Steel Corporation 3 Tubular Steel, Inc. Tubular Steel 4 Metalcraft Enterprises 1 United Pipe & Steel Corp. 12 Valex Corp. Valex 2 Valex Semiconductor Materials (Zhejiang) Co., Ltd. 1 Valex Korea Co., Ltd.
We maintain comprehensive health and safety policies and encourage our employees to follow established safety practices. We are subject to the conflict mineral provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
We maintain comprehensive health and safety policies and train employees to follow established safety practices. We are subject to the conflict mineral provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
We believe our focus on maintaining pricing discipline related to our processing services coupled with our investments in state-of-the-art equipment and advanced technology were significant contributors to the substantial increases in gross profit margin over the past several years. ● Minimal contractual sales help us effectively manage working capital and minimize the impact of changing metal prices. Growth Strategy Our growth strategy is based on increasing our operating results through organic growth activities and strategic acquisitions that enhance our product, customer and geographic diversification.
We believe our focus on maintaining pricing discipline related to our processing services coupled with our investments in state-of-the-art equipment and advanced technology were significant contributors to substantial increases in gross profit margin compared to our historical range. ● Minimal contractual sales help us effectively manage working capital and minimize the impact of changing metal prices. Growth Strategy Our growth strategy is based on increasing our operating results through organic growth activities and strategic acquisitions that enhance our product, customer and geographic diversification.
We have made significant investments in our businesses in recent years, including investments in advanced, state-of-the-art value-added processing equipment. 5 Table of Contents ● We believe our diversification of products, end markets and geography reduces volatility. We maintain a wide variety of products in inventory and believe this differentiates us from all other North American service center companies.
We have made significant investments in our businesses in recent years, including investments in advanced, state-of-the-art value-added processing equipment that enhance our diversification. ● We believe our diversification of products, end markets and geography reduces volatility. We maintain a wide variety of products in inventory and believe this differentiates us from all other North American service center companies.
(China) 1 All Metal Services (Malaysia) Sdn.
(Xi’an, China) 1 All Metal Services (Malaysia) Sdn.
In addition, the manufacture and production of the materials we source from mills can be a carbon-intensive activity, and adoption of more stringent carbon regulations or policies may increase the prices of these materials. As a processor and distributor of metals, and not a producer, we acknowledge and embrace our role in protecting the environment and are currently assessing our impacts.
In addition, the manufacture and production of the materials we source from mills can be a carbon-intensive activity, and adoption of more stringent carbon regulations or policies may increase the prices of these materials. As a processor and distributor of metals, and not a producer, we acknowledge and embrace our role in protecting the environment and continue to assess our impacts.
Inside sales personnel generally receive incentive compensation based on the gross profit and/or pretax income of their particular location. We acquire well-run businesses with strong customer relationships and solid reputations within the marketplace.
Inside sales personnel generally receive incentive compensation based on the gross profit and/or pretax income of their particular location. 6 Table of Contents We endeavor to acquire well-run businesses with strong customer relationships and solid reputations within the marketplace.
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers, including our Company, that file reports electronically with the SEC. The public can obtain any reports that we file with the SEC at http://www.sec.gov . Our Investor Relations website is located at http://investor .rsac.com .
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers, including our Company, that file reports electronically with the SEC. The public can obtain any reports that we file with the SEC at https://sec.gov . Our Investor Relations website is located at https://investor.reliance.com .
Jorgensen 31 Steel Bar 1 Feralloy Corporation Feralloy 4 Acero Prime S. de R.L. de C.V. 4 Feralloy AP Sinton Processing Center 1 Feralloy Processing Company 1 GH Metal Solutions 4 Indiana Pickling and Processing Company (56%-owned) 1 Oregon Feralloy Partners (40%-owned) 1 Fox Metals and Alloys, Inc. 1 Fry Steel Company 2 Infra-Metals Co. Infra-Metals 5 Athens Steel 1 Infra-Metals / IMS Steel / Industrial Metals Supply / Georgia Steel Company 2 KMS KMS Fab, LLC 1 KMS South, Inc. 1 Liebovich Bros., Inc. Liebovich Steel & Aluminum Company 4 Custom Fab Company 1 Good Metals Company 1 Hagerty Steel & Aluminum Company 1 Metalweb Limited 3 Metals USA, Inc. 3 Table of Contents Trade Name No. of Locations Gregor Technologies 1 Lynch Metals 2 Metals USA 22 Port City Metal Services 1 The Richardson Trident Company, LLC 3 National Specialty Alloys, Inc. National Specialty Alloys 3 Aleaciones Especiales de Mexico, S. de R.L. de C.V. 1 Northern Illinois Steel Supply Co. 2 Nu-Tech Precision Metals Inc. 1 Pacific Metal Company 5 PDM Steel Service Centers, Inc. PDM Steel Service Centers 8 Feralloy PDM Steel Service 1 Phoenix Corporation Phoenix Metals Company 14 Precision Flamecutting and Steel, Inc. 1 Precision Strip Inc. 15 Reliance Metalcenter Asia Pacific Pte.
Jorgensen 30 Steel Bar 1 Feralloy Corporation Feralloy 4 Acero Prime Feralloy Sinton Processing Center 1 Acero Prime S. de R.L. de C.V. 4 All Metals Processing & Logistics, Inc. 2 Feralloy Processing Company 1 GH Metal Solutions 4 Indiana Pickling and Processing Company (56%-owned) 1 Oregon Feralloy Partners (40%-owned) 1 Fox Metals and Alloys, Inc. 1 Fry Steel Company 2 Infra-Metals Co. Infra-Metals 5 Delta Steel 4 Infra-Metals / IMS Steel / Georgia Steel Company 2 KMS, Inc. 2 Liebovich Bros., Inc. Liebovich Steel & Aluminum Company 4 Custom Fab Company 1 Good Metals Company 1 3 Table of Contents Trade Name No. of Locations Hagerty Steel & Aluminum Company 1 Metals USA, Inc. Metals USA 22 Cooksey Steel 3 Gregor Technologies 1 i-Solutions 1 Lynch Metals 2 Port City Metal Services 1 The Richardson Trident Company, LLC 2 Altair Electronics, LLC 1 Metalweb Limited 3 National Specialty Alloys, Inc. National Specialty Alloys 2 Aleaciones Especiales de Mexico, S. de R.L. de C.V. 1 Northern Illinois Steel Supply Co. 2 Nu-Tech Precision Metals Inc. 1 Pacific Metal Company 5 PDM Steel Service Centers, Inc. PDM Steel Service Centers 8 Feralloy PDM Steel Service 1 Phoenix Corporation Phoenix Metals Company 15 Reliance Metalcenter 2 Precision Flamecutting and Steel, Inc. 1 Precision Strip Inc. 15 Reliance Aerospace Solutions 1 Reliance Metalcenter Asia Pacific Pte.
Our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity.
Our overall operations have not shown any material seasonal trends as a result of our geographic, product and 7 Table of Contents customer diversity.
Our operations are subject to the laws and regulations of the jurisdictions in which we conduct our business that seek to prevent corruption and bribery in the marketplace, including the United States’ Foreign Corrupt Practices Act (the “FCPA”) and the United Kingdom’s Bribery Act 2010.
Our operations are subject to the laws and regulations of the jurisdictions in which we conduct our business that seek to prevent corruption and bribery in the marketplace, including the U.S. Foreign Corrupt Practices Act (the “FCPA”) 10 Table of Contents and the United Kingdom’s Bribery Act 2010.
Because of this, we find value in the acquired trade name and continue to use the business name and maintain the customer relationships. Customers Although we sell directly to many large original equipment manufacturer customers, the majority of our sales are to small machine shops and fabricators, in small quantities with frequent deliveries, helping them manage their working 6 Table of Contents capital and credit needs more efficiently.
Because of this, we find value in the acquired trade name and continue to use the business name and maintain the customer relationships. Customers Although we have many large original equipment manufacturer customers, the majority of our sales are to small machine shops and fabricators, in small quantities with frequent deliveries, ensuring as-needed logistics and helping them manage their working capital and credit needs more efficiently.
The proximity of our service centers to our customers helps reduce total road miles and carbon emissions, promote efficient routing and provide quick delivery. With our fleet of approximately 1,720 trucks (some of which are leased), we are able to service many smaller customers and provide quick turnaround deliveries.
The proximity of our service centers to our customers helps reduce total road miles and carbon emissions, promote efficient routing and provide quick delivery. With our fleet of approximately 1,750 trucks (some of which are leased), we are able to service many smaller customers and provide quick turnaround deliveries with approximately 40% of our orders delivered within 24 hours.
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. 7 Table of Contents Competition The metals service center industry is highly fragmented and competitive within localized areas or regions.
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. Competition The metals service center industry is highly fragmented and competitive within localized areas or regions. Many of our competitors operate single, stand-alone service centers.
As a distributor and “first-stage” processor of metal products, our operations, by their nature, have a limited environmental impact as we do not emit significant amounts of carbon dioxide or other greenhouse gases. In addition, the overwhelming majority of our operations involve the processing and distribution of inherently sustainable aluminum and steel products that we believe (i) are some of the most commonly-recycled materials in the United States and (ii) can be 100% recycled without loss of quality.
As a distributor and “first-stage” processor of metal products, our operations, by their nature, have a limited environmental impact as we do not emit significant amounts of carbon dioxide or other greenhouse gases. The overwhelming majority of our operations involve the processing and distribution of inherently sustainable aluminum and steel products that we believe (i) are some of the most commonly-recycled materials on the planet—more than plastic, paper, and glass combined each year and (ii) can be 100% recycled without loss of quality.
Providing prompt and efficient services and quality products at reasonable prices are important factors in maintaining and expanding these relationships. We have built and opened international locations in recent years to service specific industries, typically making limited investments to support existing key U.S. customers that also operate in those international markets.
Providing prompt and efficient services and quality products at reasonable prices are important factors in maintaining and expanding these relationships. We have built and opened international locations to service specific industries, typically making limited investments to support existing key U.S. customers that also operate in those international markets. Accordingly, our exposure to risks associated with such investments is minimal.
We believe our industry-leading financial results in recent years were due to our strong financial condition, the high quality of products and services we are able to offer as a result of our significant investments in our acquired businesses, facilities and equipment, as well as our continued focus on small order sizes with quick turnaround. Human Capital At December 31, 2022, we employed approximately 14,500 persons worldwide, of which approximately 12,800 were employed in the United States.
We believe our industry-leading financial results in recent years were due to our strong financial condition, the high quality of products and services we are able to offer as a result of our significant investments in our acquired businesses, facilities and equipment, as well as our continued focus on small order sizes with quick turnaround. Human Capital At December 31, 2023, we employed approximately 15,000 persons worldwide, of which approximately 13,400 were employed in the U.S.
In 2022, approximately 97% of our orders were from repeat customers and we delivered approximately 40% of our orders within 24 hours of the customer placing the order with us. ● Value-Added Solutions Provider We provide a wide variety of processing services to meet our customers’ specifications and deliver products to fabricators, manufacturers and other end users.
In 2023, approximately 98% of our orders were from repeat customers and we delivered approximately 40% of our orders within 24 hours. ● Value-Added Solutions Provider We provide a wide variety of processing services to meet our customers’ specifications and deliver products to fabricators, manufacturers and other end users.
Business We are a leading diversified metal solutions provider and the largest metals service center company in North America (U.S. and Canada) based on revenues, with 2022 net sales of $17.03 billion. We have been in business over 80 years since our original organization on February 3, 1939, operating a single metals service center in Los Angeles, California fabricating steel reinforcing bar.
Business We are a network of companies providing diversified metal solutions and the largest metals service center company in North America (U.S. and Canada) based on revenues, with 2023 net sales of $14.81 billion. We have been in business 85 years since our original organization on February 3, 1939, operating a single metals service center in Los Angeles, California fabricating steel reinforcing bar.
Lagging indicators include the Occupational Safety & Health Administration (“OSHA”) Total Recordable Incident Rate (“TRIR”) and average Department of Transportation Recordable Accident Rate per million miles (“DOT Rate”). Year Ended December 31, 2022 2021 2020 Safety Indicator: TRIR 1.61 2.12 1.86 DOT Rate 0.55 0.54 0.60 Our focus on safety is evident in our 2022 TRIR being our lowest ever and lower than 3.5, as reported in the most recent Metals Service Center Institute survey performed in 2020.
Lagging indicators include the Occupational Safety & Health Administration (“OSHA”) Total Recordable Incident Rate (“TRIR”) and average Department of Transportation Recordable Accident Rate per million miles (“DOT Rate”). Year Ended December 31, 2023 2022 2021 Safety Indicator: TRIR 1.96 1.61 2.12 DOT Rate 0.64 0.55 0.54 Our focus on safety is evident in our 2023 TRIR, which is lower than the MSCI average of 3.5 as reported in their most recent survey conducted in 2020.
Our metals service centers wrote and delivered over 4.6 million orders during 2022 or an average of 18,460 per day, with an average price of approximately $3,670 per order. Most of our metals service center customers are located within a 200-mile radius of the Reliance metals service center serving them.
Our metals service centers wrote and delivered over 4.6 million orders during 2023 or an average of 18,280 per day, with an average price of approximately $3,210 per order. Most of our metals service center customers are located within 200 miles of the metals service center serving them.
However sales to international customers (based on the shipping destination) were approximately 8% of our consolidated 2022 net sales, or $1.37 billion, with approximately 29%, or $398.0 million, to Canadian customers. Customer demand changes from time to time based on, among other things, general economic conditions and industry capacity.
However, sales to international customers (based on the shipping destination) were approximately 9% of our consolidated 2023 net sales, or $1.38 billion, with approximately 27%, or $372.2 million, to Canadian customers. Customer demand changes from time to time based on, among other things, general economic conditions and industry capacity.
Many of our competitors operate single, stand-alone service centers. According to IBISWorld Inc., there were approximately 11,200 metal wholesaling locations operated by approximately 8,800 companies in the United States in 2022. Our 2022 tons sold from our U.S. locations represented approximately 14.5% of the total tons sold by the U.S. metals service center industry according to MSCI reporting.
According to IBISWorld Inc., there were approximately 11,200 metal wholesaling locations operated by approximately 8,800 companies in the U.S. in 2023. According to the MSCI reporting of U.S. metals service center industry shipments, our 2023 tons sold from our U.S. locations represented approximately 14.5% of the industry total compared to 14.2% in 2022.
(96%-owned) 1 Viking Materials, Inc. 2 Yarde Metals, Inc. Yarde Metals 7 Rotax Metals 1 We have one operating and reportable segment —metals service centers .
(96%-owned) 1 Viking Materials, Inc. 2 Yarde Metals, Inc. Yarde Metals 8 FastMetals 1 Rotax Metals 1 4 Table of Contents We have one operating and reportable segment —metals service centers .
In 2022, approximately 97% of our orders were from repeat customers. We believe that our long-term relationships with many of our customers significantly contribute to the success of our business.
We believe long-term relationships with many of our customers significantly contribute to the success of our business with approximately 98% of our 2023 orders being from repeat customers.
Our largest customer represented only 1.2% of our net sales in 2022. In 2022, we generated sales greater than $25 million from only 44 customers. Suppliers We primarily purchase our inventory from the major metals producers in North America. Our U.S. operations do, however, also purchase minimal amounts of certain products from foreign producers.
Our largest customer represented only 1.0% of our net sales in 2023. In 2023, we generated sales greater than $30 million from only 31 customers. Suppliers We strategically purchase the majority of our inventory from the major domestic metals producers. Our U.S. operations do, however, also purchase minimal amounts of certain products from foreign producers.
We verify with our suppliers the origins of all metals used in our products. 10 Table of Contents We sell metals to foreign customers and otherwise operate abroad, subjecting us to various countries’ trade regulations concerning the import and export of materials and finished products.
We verify with our suppliers the origins of all metals used in our products. We sell metals to foreign customers from our domestic locations and operate metals service centers in 12 foreign countries, subjecting us to various countries’ trade regulations concerning the import and export of materials and finished products.
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “RS” and was first traded on September 16, 1994. We believe we have a unique and sustainable business model predicated on the following key attributes: ● Diversity of Products, Customers and Services We operate through a network of approximately 315 locations in 40 U.S. states and in 12 foreign countries.
Our common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “RS” for approximately 30 years since our September 16, 1994 initial public offering. We believe we have a unique and sustainable business model predicated on the following key attributes: ● Diversity of Products, Customers and Services As of December 31, 2023, we operated through a network of over 315 locations in 40 U.S. states and 12 foreign countries.
In order to align our environmental initiatives with our broader strategy, we completed a materiality assessment in 2021 to determine the environmental matters that are most critical to our business and our stakeholders. As a result of the materiality assessment, we determined that the most material environmental issues are: (i) emissions from company-owned trucks that deliver our products; and (ii) our overall energy usage.
As a result of the materiality assessment, we determined that the most material environmental issues to our business are: (i) emissions from company-owned trucks that deliver our products; and (ii) our overall energy usage.
As a limited portion of our business is dependent on long-term contractual commitments, we have the ability to quickly pass on raw material price increases to our customers and maintain consistency in our gross profit margin. ● Purchasing Power We believe we are one of the largest customers of the North American mills.
We have the ability to quickly pass on raw material price increases to our customers and maintain consistency in our gross profit margin as only a small portion of our business is subject to long-term contractual arrangements. ● Purchasing Power We strategically source the vast majority of our metal purchases from domestic producers and believe we are one of the largest customers of the North American primary metals producers (“mills”).
We expect to update this materiality assessment on a periodic basis to ensure it reflects changes in our business and the external environment. Available Information We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
We expect to update this materiality assessment on a periodic basis to ensure it reflects changes in our business and the external environment. In addition, prolonged disruption in the supply and/or distribution of metals due to weather, climate change or, natural disasters connected to climate change could increase costs, limit the availability of materials critical to our operations and have a significant impact on operating results. Available Information We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
IBISWorld Inc. expects the largest industry participants to represent less than 10% of the estimated $219 billion industry total in 2022. Our 2022 U.S. revenues of approximately $16 billion represented about 7% of the entire U.S. metals wholesaling market based on IBISWorld Inc.’s estimated 2022 industry revenues.
Our 2023 and 2022 U.S. revenues of approximately $14 billion and $16 billion, respectively, represented about 5% of the entire U.S. metals wholesaling market based on IBISWorld Inc.’s estimated 2023 and 2022 industry revenues.
Accordingly, our exposure to risks associated with such investments is minimal. Sales from our foreign operations were 6% of our net sales for the year ended December 31, 2022, or $1.05 billion.
Sales from our foreign operations were 7% of our net sales for the year ended December 31, 2023, or $1.02 billion.
We believe aluminum and steel are some of the most recycled materials on the planet—more than plastic, paper, and glass combined each year. In 2022, we reintroduced over 197,500 tons of recycled scrap material into the manufacturing life cycle. We continue to evaluate and implement energy conservation and other initiatives to reduce the environmental impact of our business.
We reintroduced over 221,900 tons of recycled scrap material into the manufacturing life cycle in 2023. We continue to evaluate and implement energy conservation and other initiatives to reduce the environmental impact of our business. However, enactment of more stringent environmental regulations could have an adverse impact on our financial results.
Among the critical elements included in the People category are the following: ● Focus on Safety The health and safety of our employees, customers, suppliers and communities is our most important core value. Our safety programs are designed around recognized standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our operations.
Our safety programs are designed around recognized standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our operations. Our SMART Safety program focuses on embedding our culture of safety across all of our operations.
We seek to create an environment that values the health, safety and wellbeing of our employees, their families and the communities in which we live and do business. We strive to equip our employees with the knowledge, skills and resources to maintain or improve their personal health, develop professionally and operate safely within our businesses.
We strive to equip our employees with the knowledge, skills and resources to maintain or improve their personal health, develop professionally and operate safely within our businesses. A highlight of our commitment to our employees is the inclusion of “People” as one of our six core values that represent key areas of focus for our company.
We seek to increase profitability through our customer service, operational efficiencies, pricing discipline, innovation and inventory management as well as by providing increased levels of value-added processing. Approximately 40% of our orders were delivered within 24 hours from receipt of the order.
We seek to ensure as-needed logistics through our customer service, operational efficiencies, innovation and inventory management. In 2023, our average order size was $3,210 and we delivered approximately 40% of orders within 24 hours.
Our total workforce of approximately 15,000 persons at December 31, 2022 includes approximately 500 contract and temporary workers. As of December 31, 2022, approximately 13% of our employees were represented by unions under collective bargaining agreements. We have entered into collective bargaining agreements with 42 union locals at 52 of our locations.
We manage to align our workforce levels with the pace of business and management believes it has sufficient human capital to operate our business successfully. As of December 31, 2023, approximately 12% of our employees were represented by unions under collective bargaining agreements. We have entered into collective bargaining agreements with 41 union locals at 52 of our locations.
Metals service centers purchase, process, and deliver metals to end-users in a more efficient and cost-effective manner than the end-user could achieve by dealing directly with the primary producer.
We believe that metals service centers purchase, process and deliver metals to end-users in a more efficient and cost-effective manner than the end-user could achieve by dealing directly with the primary producer. According to IBISWorld Inc.’s October 2023 report, the U.S. metals wholesale industry (comprised of metals service centers of the MSCI and other metal wholesaling distributors) revenues were expected to decline approximately 11% from $331 billion in 2022 to approximately $296 billion in 2023, primarily due to lower metals prices.
We believe that we provide industry-leading healthcare 9 Table of Contents benefits to our employees and fund approximately 86% of the costs associated with our U.S. employees’ health insurance coverage. ● Community Service Reliance is committed to investing in and enriching the communities in which we live and work .
We believe that we provide industry-leading healthcare benefits to our employees and funded approximately 85% of the costs associated with our domestic employees’ health insurance coverage in 2023. ● Employee Development We believe employees should have an opportunity for ongoing development through challenging daily contributions and structured development programs.
We reincorporated in the State of Delaware in 2015.
We reincorporated in the State of Delaware in 2015. In February 2024, we changed our corporate name to Reliance, Inc. from Reliance Steel & Aluminum Co.
Removed
Metals service centers are the largest single customer group for the North America primary metals producers (“mills”) in the broader metals wholesale industry with estimated sales of approximately $219 billion according to IBISWorld Inc.’s July 2022 report, a global intelligence publication.
Added
Our total workforce of approximately 15,500 persons at December 31, 2023 includes approximately 500 contract and temporary workers.
Removed
The metals service centers of the MSCI comprise the largest customer group for North American mills, buying and reselling almost 50% of all the carbon, alloy, stainless and specialty steels, aluminum, copper, brass, bronze and superalloys produced in the United States according to a July 2022 report on the metals wholesaling industry issued by IBISWorld Inc., a global intelligence publication. According to IBISWorld Inc.’s July 2022 report, the United States metals wholesale industry (comprised of metals service centers of the MSCI and other metal wholesaling distributors) revenues were expected to grow approximately 15% from $191 billion in 2021 to approximately $219 billion in 2022, primarily due to increases in metal prices.
Added
Approximately 700 employees are covered by 19 different collective bargaining agreements that expire in 2024 unless renewed. We seek to create an environment that values the health, safety and wellbeing of our employees, their families and the communities in which we live and do business.
Removed
Approximately 500 employees are covered by 23 different collective bargaining agreements that expire in 2023. As a result of a materiality assessment, we determined that Reliance’s most significant social issues are: (i) the health and safety of our colleagues; and (ii) human capital management.
Added
For more information on the Company’s core values, see the Company’s Code of Conduct available at https://investor.reliance.com . 8 Table of Contents Among the critical elements included in the People category are the following: ● Focus on Safety The health and safety of our employees, customers, suppliers and communities is our most important core value.
Removed
A highlight of our commitment to our employees is the inclusion of “People” as one of our six core values that represent key areas of focus for our company. For more information on the Company’s core values, see the Company’s Code of Conduct available at investor.rsac.com .
Added
We believe that circularity and low emissions are key attributes of our business model.
Removed
Our SMART Safety program focuses on embedding our culture of safety across all of our operations.
Added
Our strong desire is to identify and prioritize areas of improvement. In order to align our environmental initiatives with our broader strategy, we completed a materiality assessment to determine the environmental matters that are most critical to our business and our stakeholders.
Removed
Giving back to those in need and enriching people's lives is a deep-rooted philosophy ingrained in our corporate culture primarily through our support of non-profit organizations that provide active duty, veterans, transitioning service members and their families with advanced manufacturing training and other support services.
Added
Risk Factor s Set forth below are the risks that we believe are material to our investors. Our business, results of operations and financial condition may be materially adversely affected due to any of the following risks. The risks described below are not the only ones we face.
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Our dedication to each and every member of our Family of Companies is the foundation for “Reliance Cares,” our emergency assistance fund dedicated to supporting employees impacted by natural disasters.
Added
Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business. Risks Related to Our Business and Industry The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly decreases in metals prices. We purchase large quantities of aluminum, carbon, stainless and alloy steel and other metals, which we sell to a variety of customers.
Removed
Through employee funded contributions, matched dollar-for-dollar by Reliance, we have been able to provide approximately 1,000 grants to employees (including approximately 170 grants to support employees and their families responding to COVID-19 related personal impacts) since the inception of Reliance Cares in 2017. ● Employee Development We believe employees should have an opportunity for ongoing development through challenging daily contributions and structured development programs.
Added
Our profitability is largely dependent upon the prices of the steel, aluminum and other metals we sell our customers.
Removed
However, enactment of more stringent environmental regulations could have an adverse impact on our financial results.
Added
The price of metals we purchase and the price we charge our customers for the products we sell fluctuate based on many factors outside of our control, including general economic conditions (both domestic and international), competition, production levels, raw material costs, customer demand levels, import duties and other trade restrictions, currency fluctuations and surcharges imposed by our suppliers. Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels.
Removed
Our strong desire is to identify and prioritize areas of improvement.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
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Item 1A. Risk Factors
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2022 filing
2023 filing
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Item 1A. Risk Factor s Set forth below are the risks that we believe are material to our investors. Our business, results of operations and financial condition may be materially adversely affected due to any of the following risks. The risks described below are not the only ones we face.
Added
Item 1A. “Risk Factors ”. In addition, when volume or pricing increases, our working capital requirements typically increase which decreases operating cash flow.
Removed
Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business. Risks Related to Our Business and Industry The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers. We purchase large quantities of aluminum, carbon, stainless and alloy steel and other metals, which we sell to a variety of customers.
Added
Conversely, when customer demand falls, our working capital needs typically decrease which has the effect of increasing operating cash flow. Acquisitions 2024 Acquisitions On February 1, 2024, we acquired Cooksey Iron & Metal Company (“Cooksey Steel”), a metals service center that processes and distributes finished steel products, including tubing, beams, plates and bars, with cash on hand.
Removed
Our profitability is largely dependent upon the prices of the steel, aluminum, and other metals we sell our customers.
Added
Headquartered in Tifton, Georgia, Cooksey Steel operates three locations, servicing a diverse range of customers in Georgia, Florida, Alabama and South Carolina. On February 14, 2024, we announced that we had entered into a definitive agreement to acquire American Alloy Steel, Inc. (“American Alloy”) subject to regulatory approval and other customary closing conditions, which have not yet occurred.
Removed
The price of metals we purchase and the price we charge our customers for the products we sell change based on many factors outside of our control, including general economic conditions (both domestic and international), competition, production levels, raw material costs, customer demand levels, import duties and other trade restrictions, currency fluctuations and surcharges imposed by our suppliers.
Added
American Alloy is headquartered in Houston, Texas and is a distributor of specialty carbon and alloy steel plate and round bar, including pressure vessel quality (PVQ) material. Combined unaudited revenues for Cooksey Steel and American Alloy for the twelve months ended December 31, 2023 were approximately $400 million. 2023 Acquisition On May 1, 2023, we acquired Southern Steel with cash on hand.
Removed
Prolonged disruption in the supply and/or distribution of metals due to weather, climate change, natural disasters, COVID-19, labor disputes or interruption of service by carriers could increase costs, limit the availability of materials critical to our operations and have a significant impact on results.
Added
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.
Removed
We attempt to pass cost increases on to our customers with higher selling prices, but we are not always able to do so, particularly when the cost increases are not demand driven.
Added
Included in our net sales for the year ended December 31, 2023 were net sales of $30.6 million from Southern Steel. 2021 Acquisitions In the fourth quarter of 2021, we acquired each of United Pipe & Steel Corp.
Removed
When metal prices decrease, we often cannot replace our higher cost inventory with the lower cost metal at a rate that would allow us to maintain a consistent gross profit margin, which would reduce our profitability during that interim period. Metal prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability and related pricing, metals consumption, tariffs, import levels into the U.S., governmental regulations, and the strength of the U.S. dollar relative to other currencies.
Added
(formerly known as Merfish United, Inc.), Admiral Metals Servicenter Company, Incorporated, Nu-Tech Precision Metals Inc. and Rotax Metals Inc. with cash on hand for a combined transaction value of $440.3 million.
Removed
Future changes in global general economic conditions or in production, consumption or export of metals could cause fluctuations in metal prices globally, which could adversely affect our profitability and cash flows.
Added
Included in our net sales for the year ended December 31, 2023 were combined net sales of $722.1 million from our 2021 acquisitions. Internal Growth Activities We continued to maintain our focus on internal growth by building new facilities, expanding existing facilities, replacing leased facilities with those we own and adding to our processing capabilities, upgrading processing equipment, improving the safety and energy efficiency of our operations and enhancing the working environments of our employees.
Removed
We generally do not enter into long-term agreements with our suppliers or hedging arrangements that could lessen the impact of metal price fluctuations. We maintain substantial inventories of metal to accommodate the short lead times and delivery requirements of our customers.
Added
Our capital expenditure budgets have been at historically high levels in recent years. Our 2024 capital expenditure budget is approximately $425 million. We have made significant capital expenditure investments totaling approximately $2.2 billion over the past nine years.
Removed
Our customers typically purchase products from us pursuant to purchase orders and typically do not enter into long-term purchase agreements or arrangements with us. Accordingly, we purchase metal in quantities we believe to be appropriate to satisfy the anticipated needs of our customers based on information derived from customers, market conditions, historic usage and industry research.
Added
These significant investments have expanded our value-added processing capabilities that our managers in the field have successfully leveraged to increase the percentage of our orders with value-added processing, which has significantly contributed to increased gross profit margins compared to our historical range.
Removed
Commitments for metal purchases are generally at prevailing market prices in effect at the time orders are placed or at the time of shipment.
Added
In 2023 and 2022, we performed value-added processing on approximately 50% to 51% of the orders we shipped, significantly higher than our historical range of 40% to 45%, with a gross profit margin of 30.7% in 2023 that was approximately 400 basis points higher than our historical range of 25% to 27%.
Removed
During periods of rising metal costs, our results may be negatively impacted by increases in the costs of the metals we purchase if we are unable to make equivalent increases in the selling prices of the products we sell.
Added
For reference, in 2014 and 2013, our value-added processing percentages/gross profit margins were 45%/25.1% and 40%/26.0%, respectively. 28 Table of Contents We believe that our ability to make significant investments in processing equipment and facilities provides a competitive advantage for us, as we can provide our customers with a higher quality product and expand our services to them.
Removed
In addition, when metal prices decline, our selling prices generally decline and, as we sell inventory purchased at higher costs, results in lower gross profit margins.
Added
We believe many metals service center company competitors do not have the ability to expand their processing services in response to their customers’ needs as quickly and at the same scale as Reliance. Results of Operations The following sets forth certain income statement data for each of the last three years ended December 31, 2023 (dollars are shown in millions, except per share amounts, and certain percentages may not calculate due to rounding): Year Ended December 31, 2023 2022 2021 % of % of % of $ Net Sales $ Net Sales $ Net Sales Net sales $ 14,805.9 100.0 % $ 17,025.0 100.0 % $ 14,093.3 100.0 % Cost of sales (exclusive of depreciation and amortization expense shown below) (1) 10,258.6 69.3 11,773.7 69.2 9,603.0 68.1 Gross profit (2) 4,547.3 30.7 5,251.3 30.8 4,490.3 31.9 Warehouse, delivery, selling, general and administrative expense (“SG&A”) 2,562.4 17.3 2,504.2 14.7 2,306.5 16.4 Depreciation and amortization expense 245.4 1.7 240.2 1.4 230.2 1.6 Impairment of intangible assets — — — — 4.7 — Operating income $ 1,739.5 11.7 % $ 2,506.9 14.7 % $ 1,948.9 13.8 % Net income attributable to Reliance $ 1,335.9 9.0 % $ 1,840.1 10.8 % $ 1,413.0 10.0 % Diluted earnings per share attributable to Reliance stockholders $ 22.64 $ 29.92 $ 21.97 (1) Cost of sales included $8.1 million and $13.7 million of amortization of inventory step-up to fair value adjustments in 2022 and 2021, respectively, relating to our 2021 acquisitions. (2) Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales.
Removed
Consequently, during periods in which we sell this existing inventory, the effects of changing metal prices could adversely affect our operating results. Global economic conditions, including inflation, and supply chain disruptions, have adversely affected, and could continue to adversely affect, our operations. Our financial condition and results of operations are impacted by global markets and economic conditions over which we do not have control.
Added
About half of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform “first-stage” processing, which is generally not labor intensive as we are simply cutting the metal to size.
Removed
A general global economic downturn or other adverse macroeconomic trends, including heightened inflation, capital markets volatility, currency rate fluctuations, an economic slowdown or recession, or a slowing or stalled 12 Table of Contents recovery therefrom, have in the past resulted in and may in the future result in unfavorable conditions that negatively affect demand for our products and exacerbate some of the other risks that affect our business, financial condition and results of operations.
Added
Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from cost of sales. Therefore, our cost of sales is substantially comprised of the cost of the material we sell. We use gross profit and gross profit margin as shown above as measures of operating performance.
Removed
Both domestic and international markets experienced significant inflationary pressures in fiscal year 2022 and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near-term.
Added
Gross profit and gross profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings.
Removed
In addition, the Federal Reserve in the U.S. and other central banks in various countries have raised, and may again raise, interest rates in response to concerns about inflation, which, coupled with reduced government spending and volatility in financial markets, has had and may continue to have the effect of further increasing economic uncertainty and heightening these risks.
Added
Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies. Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net Sales Year Ended December 31, Percentage 2023 2022 Change Change (dollars in millions; tons in thousands) Net sales $ 14,805.9 $ 17,025.0 $ (2,219.1) (13.0) % Tons sold 5,779.2 5,570.8 208.4 3.7 % Average selling price per ton sold $ 2,570 $ 3,073 $ (503) (16.4) % Our tons sold and average selling price per ton sold exclude our tons toll processed.
Removed
Interest rate increases or other government actions taken to reduce inflation have resulted in recessionary pressures in many parts of the world. Recent inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our operations.
Added
Our average selling price per ton sold includes intercompany transactions that are eliminated from our consolidated net sales. 29 Table of Contents Our 2023 net sales declined from 2022 record levels due to declines in our average selling price per ton sold that were partially offset by increases in tons sold.
Removed
If we are unable to pass any increases in costs along to our customers, it could adversely affect our operating results. The 2022 Russian military invasion of Ukraine has led, is currently leading, and for an unknown period of time will continue to lead to disruptions in local, regional, national, and global markets and economies affected thereby.
Added
The increases in our tons sold were due to healthy demand in our key end markets, including non-residential construction (our largest end market), aerospace, and automotive as well as contributions from our organic growth activities. Our average selling price per ton sold peaked in the second quarter of 2022 and subsequently declined thereafter, including throughout 2023.
Removed
These disruptions caused by the invasion have included, and may continue to include, political, social, and economic disruptions and uncertainties and material increases in certain commodity prices that may affect our business operations. Excess capacity and over-production by foreign metal producers or decreases in tariffs could increase the level of metal imports into the U.S., resulting in lower domestic prices, which would adversely affect our sales, margins and profitability. Global metal-making capacity exceeds demand for metal products in some regions around the world.
Added
We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China. 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.
Removed
Rather than reducing employment by rationalizing capacity with consumption, we believe metal manufacturers in many countries (often with government assistance or subsidies in various forms) have periodically exported metal at prices which may not reflect their costs of production or capital.
Added
As c arbon steel sales represented 53% of our gross sales in 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.
Removed
Excessive imports of metal into the U.S. have exerted, and may continue to exert, downward pressure on U.S. metal prices. On March 1, 2018, the United States announced a plan to indefinitely impose a 25 percent tariff on certain imported steel products and a 10 percent tariff on certain imported aluminum products under Section 232 of the Trade Expansion Act of 1962 (the “Section 232”) tariffs. These tariffs have triggered retaliatory actions by certain affected countries, and other foreign governments have initiated or are considering imposing trade measures on steel and aluminum produced in the United States.
Added
Y ear-over-year changes in the selling prices of our major commodity products and related mix of our tons sold are presented below: Change in Change in Average Selling Percentage of Price Per Total Ton Sold Tons Sold Carbon steel (19.0) % 1.0 % Aluminum (6.6) % (0.3) % Stainless steel (10.6) % (0.7) % Alloy 5.1 % (0.3) % Cost of Sales and Gross Profit Year Ended December 31, 2023 2022 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Cost of sales $ 10,258.6 69.3 % $ 11,773.7 69.2 % $ (1,515.1) (12.9) % Gross profit $ 4,547.3 30.7 % $ 5,251.3 30.8 % $ (704.0) (13.4) % LIFO income $ (164.5) (1.1) % $ (76.6) (0.4) % $ (87.9) Gross profit in 2023 decreased from 2022 mainly due to lower sales as a result of a decrease in average selling price per ton sold that exceeded the increase in tons sold. 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.
Removed
To the extent these tariffs and other trade actions result in a decrease in international demand for steel and aluminum produced in the United States or otherwise negatively impact demand for our products, our business may be adversely impacted. We expect that these tariffs, while in effect, will discourage metal imports from non-exempt countries.
Added
The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $579.3 million at December 31, 2023. Furthermore, cost of sales in 2022 included $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 by 10 basis points. We were able to achieve stable gross profit margins despite the significantly different metals pricing environments in 2023 and 2022, with our year-over-year average selling price per ton sold declining 16.4% in 2023 compared to an 18.5% increase in 2022.
Removed
These tariffs have had a favorable impact on the prices of the products we sell and our results of operations.
Added
We believe that our gross profit margins are supported by our product diversity, small order sizes, investments in value-added processing capabilities and healthy demand in the majority of end markets we serve . See “Net Sales” above for further discussion on product pricing trends. 30 Table of Contents Expenses Year Ended December 31, 2023 2022 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) SG&A expense $ 2,562.4 17.3 % $ 2,504.2 14.7 % $ 58.2 2.3 % Depreciation & amortization expense $ 245.4 1.7 % $ 240.2 1.4 % $ 5.2 2.2 % Our SG&A expense is made up largely of compensation costs (approximately 60-65% historically), which fluctuate based on changes in our headcount levels in response to demand levels and general inflation, and the level of incentive-based compensation. The increase in our SG&A expense in 2023 compared to 2022 was mainly due to higher variable costs associated with an increase in our tons sold, including increased headcount, and inflationary impacts on wages, which were partially offset by lower incentive-based compensation . Our 2023 SG&A expense as a percentage of sales increased compared to 2022 mainly due to lower sales levels. Operating Income Year Ended December 31, 2023 2022 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Operating income $ 1,739.5 11.7 % $ 2,506.9 14.7 % $ (767.4) (30.6) % The decrease in our operating income in 2023 as compared to 2022 was mainly a result of lower gross profit, driven by a lower average selling price per ton sold that outweighed an increase in tons sold, along with moderate increases in volume-related SG&A expenses and inflationary impacts on wages . Our 2023 gross profit margin was generally consistent with 2022 and consequently the decrease in our operating income margin in 2023 from a record level in 2022 was mainly due to lower net sales that decreased operating leverage of our SG&A expense. See “Net Sales ” above for discussion of trends in demand and product costs and “ Expenses ” for trends in our operating expenses. Other (Income) Expense, Net Year Ended December 31, 2023 2022 % of % of Dollar $ Net Sales $ Net Sales Change (dollars in millions) Other (income) expense, net $ (41.3) (0.3) % $ 14.2 0.1 % $ (55.5) The change in other (income) expense, net in 2023 compared to 2022 was mainly due to an increase in interest income as a result of higher cash and cash equivalent balances and interest earned thereon.
Removed
If these or other tariffs or duties expire or if others are relaxed or repealed, or if relatively higher U.S. metal prices make it attractive for foreign metal producers to export their products to the U.S., despite the presence of duties or tariffs, the resurgence of substantial imports of foreign metal could create downward pressure on U.S. metal prices which could have a material adverse effect on our earnings and future results of operations. We operate in an industry that is subject to cyclical fluctuations and any downturn in general economic conditions or in our customers’ specific industries could negatively impact our profitability and cash flows. The metals service center industry is cyclical and impacted by both market demand and metals supply.
Added
See Note 15—“Other (Income) Expense, Net” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on other (income) expense, net. 31 Table of Contents Income Tax Rate Our effective income tax rate in 2023 was 23.0%, compared to 24.1% in 2022.
Removed
Periods of economic slowdown (such as global or regional recessions) decrease the demand for our products and adversely affect our pricing.
Added
The decrease in our effective income tax rate was mainly due to the effects of company-owned life insurance policies and lower income taxes on our foreign earnings. The difference between our 2023 effective income tax rate and the U.S. federal statutory rate of 21.0% was mainly due to state income taxes partially offset by the effects of company-owned life insurance policies.
Removed
If either demand or pricing were to decline from the current levels, this could reduce our profitability and cash flows. 13 Table of Contents We sell many products to industries that are cyclical, such as the non-residential construction, semiconductor, energy, automotive, aerospace and heavy equipment industries.
Added
See Note 11—“Income Taxes” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on the differences between our effective income tax rates and the U.S. federal statutory rate. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. Financial Condition Operating Activities Net cash provided by operations of $1.67 billion in 2023 decreased from $2.12 billion in 2022.
Removed
Although many of our direct sales are to sub-contractors or job shops that may serve many customers and industries, the demand for our products is directly related to, and quickly impacted by, demand for the finished goods manufactured by customers in these industries, which may change as a result of changes in the general U.S. or worldwide economy, inflation, domestic exchange rates, energy prices or other factors beyond our control. Our business may continue to be negatively impacted by the coronavirus (COVID-19) pandemic and could be negatively impacted by other pandemics and outbreaks. Our operations were adversely affected in 2022 by the impacts of the COVID-19 pandemic and related macroeconomic effects, including labor shortages, raw material constraints and other supply chain disruptions.
Added
The impact of lower profitability on operating cash flow was partially offset by lower working capital needs. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital.
Removed
The ongoing impacts of the COVID-19 pandemic could further affect general economic conditions, our business and results of operations.
Added
Our average days sales outstanding rate was 40.5 days in 2023 compared to 39.9 days in 2022.
Removed
Future developments would dictate the type and level of these potential impacts, which are highly uncertain and are difficult to predict. In addition, the COVID-19 pandemic has resulted in a widespread health crisis that is adversely affecting the economies and financial markets of many countries, which could result in a prolonged economic downturn that may negatively affect demand for our products and services.
Added
Our inventory turnover rate (based on tons) during 2023 was 4.7 times (or 2.6 months on hand) compared to 4.4 times (or 2.7 months on hand) in 2022. Income taxes paid were $386.3 million in 2023, a significant decrease from $692.4 million in 2022, mainly due to our lower pretax income. Investing Activities Net cash used in investing activities of $483.9 million in 2023 compared to $348.5 million in 2022 was substantially comprised of capital expenditures and the purchase price for an acquisition in 2023.
Removed
The imposition of quarantine and travel restrictions has negatively affected and, if reimposed, may continue to negatively affect our business. The extent to which COVID-19 continues to impact our business, results of operations and financial condition is highly uncertain and will depend on future developments.
Added
Capital expenditures were $468.8 million in 2023 compared to $341.8 million in 2022.
Removed
Such developments may include the geographic spread and duration of the virus, including the emergence of new variants, the severity of the disease, vaccination rates and the actions that may be taken by various governmental authorities and other third parties in response to the pandemic.
Added
The majority of our capital expenditures in 2023 and 2022 were related to growth initiatives. Financing Activities Net cash used in financing activities was $1.28 billion in 2023 compared to $892.6 million in 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023 offset by decreased share repurchases.
Removed
Other outbreaks of contagious diseases, or other adverse public health developments in countries where we operate or our customers are located, could similarly adversely affect our business, results of operations and financial condition in the future. We compete with a large number of companies in the metals service center industry, and, if we are unable to compete effectively, our profitability and cash flows may decline. We compete with a large number of other general-line distributors and processors, and specialty distributors in the metals service center industry.
Added
In 2023, we repurchased $479.5 million of our common stock, which reduced our common shares 3.2%, compared to $630.3 million of share repurchases in 2022.
Removed
Competition is based principally on price, inventory availability, timely delivery, customer service, quality and processing capabilities. Competition in the various markets in which we participate comes from companies of various sizes, some of which have more established brand names in the local markets that we serve.
Added
Our other stockholder returns in 2023 included an increase in our quarterly dividend rate of 14.3% with total dividend payments of $238.1 million compared to $217.1 million in 2022. We have paid regular quarterly dividends to our stockholders for 64 consecutive years and increased the quarterly dividend on our common stock 31 times since our IPO in 1994, with the most recent increase of 10.0% from $1.00 per share to $1.10 per share effective in the first quarter of 2024.
Removed
To compete for customer sales, we may lower prices or offer increased services at a higher cost, which could reduce our profitability and cash flows. Rapidly declining prices and/or demand levels may escalate competitive pressures, with service centers selling at substantially reduced prices, and sometimes at a loss, in an effort to reduce their high-cost inventory and generate cash.
Added
We have never reduced or suspended our regular quarterly dividend. 32 Table of Contents Share Repurchases See Note 14—“Equity ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our 2023 share repurchases. On October 24, 2023, our Board of Directors renewed our share repurchase program to increase the remaining repurchase authorization to $1.5 billion effective October 30, 2023.
Removed
Any increased and/or sustained competitive pressure could cause our share of industry sales to decline along with our profitability and cash flows. If we were to lose any of our primary suppliers or otherwise be unable to obtain sufficient amounts of necessary metals on a timely basis, we may not be able to meet our customers’ needs and may suffer reduced sales. We have few long-term contracts to purchase metals.
Added
As of December 31, 2023, we had remaining authorization under the plan to repurchase $1.44 billion of shares of our common stock.
Removed
Therefore, our primary suppliers of aluminum, carbon, stainless and alloy steel or other metals could curtail or discontinue their delivery of these metals to us in the quantities we need with little or no notice.
Added
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. During the last five years, we reduced our issued and outstanding shares of common stock by 17.6% through the repurchase of approximately 11.8 million shares at an average cost of $154.59 per share, for a total of $1.82 billion. Purchase Obligations We had $235.1 million of operating lease obligations as of December 31, 2023 for processing and distribution facilities, equipment, automobiles, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers.
Removed
Our ability to meet our customers’ needs and provide value-added inventory management services depends on our ability to maintain an uninterrupted supply of high-quality metal products from our suppliers.
Added
Our expected payments over the next 12 months under these operating leases are $64.9 million. See Note 10—“Leases ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding the maturities of our operating lease obligations. We have obligations pursuant to pension and postretirement benefit plans.
Removed
If our suppliers experience production problems, lack of capacity or transportation disruptions, the lead times for receiving our supply of metal products could be extended and the cost of our inventory may increase.
Added
A total of $16.4 million of net liabilities was recognized on the balance sheet at December 31, 2023 and the Company expects to make plan contributions and benefit payments totaling $0.8 million over the next 12 months.
Removed
If, in the future, we are unable to obtain sufficient amounts of the necessary metals at competitive prices and on a timely basis from our customary suppliers, we may not be able to obtain these metals from acceptable alternative sources at competitive prices to meet our delivery schedules.
Added
See Note 13—“Employee Benefits ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding our expected payments under these plans. Our capital expenditures have been at elevated levels in recent years and our 2024 capital expenditure budget is $425 million.
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Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
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2022 filing
2023 filing
Biggest changeTotal square footage on all company-owned properties is approximately 29.6 million and represents approximately 81% of the total square footage of our operating facilities. Our leases of facilities and other spaces expire at various times through 2045 and certain ground leases expire at various times through 2068. The aggregate monthly rent amount for these properties is approximately $2.9 million.
Biggest changeTotal square footage on all company-owned properties is approximately 31.0 million and represents approximately 84% of the aggregate square footage of our operating facilities. Our leases of facilities and other spaces expire at various times through 2045 and certain ground leases expire at various times through 2068.
These facilities currently operate at about 50-60% of capacity based upon a 24-hour seven-day week, 23 Table of Contents with each location averaging approximately two shifts operating at full capacity for a five-day work week.
These facilities currently operate at about 50-60% of capacity based upon a 24-hour seven-day week, with each location averaging approximately two shifts operating at full capacity for a five-day work week.
We have the ability to increase our operating capacity significantly without further investment in facilities or equipment if demand levels increase. We leased 97 of our metals service center facilities as of December 31, 2022. In addition, we have ground leases and other leased spaces, such as depots, sales offices and storage, totaling 6.9 million square feet.
We have the ability to increase our operating capacity significantly without further investment in facilities or equipment if demand levels increase. We leased 86 of our metals service center facilities as of December 31, 2023. In addition, we have ground leases and other leased spaces, such as depots, sales offices and storage, totaling 6.0 million square feet.
Item 2. Propertie s As of December 31, 2022, we operated a network of approximately 315 locations in 40 states and in 12 foreign countries. In the opinion of management, all of our facilities are in good or excellent condition and are adequate for our existing operations.
Item 2. Propertie s As of December 31, 2023, we operated a network of over 315 locations in 40 U.S. states and 12 foreign countries. In the opinion of management, all of our facilities are in good condition and are adequate for our existing operations.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
9 edited+3 added−1 removed6 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
9 edited+3 added−1 removed6 unchanged
2022 filing
2023 filing
Biggest changeAs of December 31, 2022, we had remaining authorization under the plan to repurchase $680.7 million of our common shares. 24 Table of Contents Our share repurchase activity during the three months ended December 31, 2022 was as follows: Total Number of Maximum Dollar Total Number Average Price Shares Purchased Value That May of Shares Paid as Part of Publicly Yet Be Purchased Period Purchased Per Share Announced Plan Under the Plan (in millions) October 1 - October 31, 2022 335,430 $ 182.61 335,430 $ 702.1 November 1 - November 30, 2022 67,004 $ 198.30 67,004 $ 688.8 December 1 - December 31, 2022 40,413 $ 199.35 40,413 $ 680.7 Total 442,847 $ 186.51 442,847 Information relating to compensation plans under which our equity securities are authorized for issuance will be in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be held on May 17, 2023 and is incorporated herein by reference. Stock Performance Graph This graph is not deemed to be “filed” with the United States Securities and Exchange Commission (“SEC”) or subject to the liabilities of Section 18 of the Exchange Act and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act. The following graph compares the performance of our common stock with that of the S&P 500, the Russell 2000 and an industry peer group consisting of publicly-traded metals service center companies (the “industry peer group”) for the five-year period from December 31, 2017 through December 31, 2022.
Biggest changeAs of December 31, 2023, we had remaining authorization under the program to repurchase $1.44 billion of shares of our common stock. Our share repurchase activity during the three months ended December 31, 2023 was as set forth below: Total Number of Maximum Dollar Total Number Average Price Shares Purchased Value That May of Shares Paid as Part of Publicly Yet Be Purchased Period Purchased Per Share Announced Plan Under the Plan (in millions) October 1 - October 31, 2023 811,380 $ 253.78 811,380 $ 1,474.2 November 1 - November 30, 2023 118,717 $ 262.75 118,717 $ 1,443.0 December 1 - December 31, 2023 12,310 $ 264.61 12,310 $ 1,439.7 Total 942,407 $ 255.05 942,407 The table above excludes taxes paid for shares withheld to settle employees’ tax withholding obligations related to net share settlements upon the vesting of restricted stock units. Information relating to compensation plans under which our equity securities are authorized for issuance will be included in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 15, 2024 and is incorporated herein by reference. Stock Performance Graph This graph is not deemed to be “filed” with the United States Securities and Exchange Commission (“SEC”) or subject to the liabilities of Section 18 of the Exchange Act and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933 or the Exchange Act. The following graph compares the performance of our common stock with that of the S&P 500, the Russell 2000 and an industry peer group consisting of publicly-traded metals service center companies (the “industry peer group”) for the five-year period from December 31, 2018 through December 31, 2023.
Our stockholders of record exclude those stockholders whose shares are held for them in street name through banks, brokers or other nominee accounts. We have paid quarterly cash dividends on our common stock for 63 consecutive years and have never reduced or suspended our regular quarterly dividend.
Our stockholders of record exclude those stockholders whose shares are held for them in street name through banks, brokers or other nominee accounts. We have paid quarterly cash dividends on our common stock for 64 consecutive years and have never reduced or suspended our regular quarterly dividend.
As of December 31, 2022, the industry peer group consisted of Olympic Steel Inc., which has securities listed for trading on NASDAQ; Ryerson Holding Corporation and Worthington Industries, Inc., each of which has securities listed for trading on the NYSE; and Russel Metals Inc., which has securities listed for trading on the Toronto Stock Exchange.
As of December 31, 2023, the industry peer group consisted of Olympic Steel Inc., which has securities listed for trading on NASDAQ; Ryerson Holding Corporation, Worthington Enterprises, Inc., each of which has securities listed for trading on the NYSE; and Russel Metals Inc., which has securities listed for trading on the Toronto Stock Exchange.
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. During 2022, we repurchased approximately 3.5 million shares of our common stock at an average cost of $178.81 per share, for a total of $630.3 million.
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. 24 Table of Contents During 2023, we repurchased approximately 1.9 million shares of our common stock under our repurchase program at an average cost of $255.30 per share, for a total of $479.5 million.
All rights reserved. Copyright© 2023 Russell Investment Group.
All rights reserved. Copyright© 2024 Russell Investment Group.
Our payment of dividends in the future will depend on business conditions, our financial condition, earnings, liquidity and capital requirements and other factors. On July 26, 2022, our Board of Directors amended our share repurchase program authorized on July 20, 2021 to increase the remaining repurchase authorization to $1.0 billion.
Our payment of dividends in the future will depend on business conditions, our financial condition, earnings, liquidity and capital requirements and other factors. On October 24, 2023, our Board of Directors renewed our then existing share repurchase program to increase the remaining repurchase authorization from $261.5 million to $1.5 billion effective October 30, 2023.
The returns of each member of the industry peer group are weighted according to that member’s stock market capitalization. 25 Table of Contents The stock price performance shown on the graph below is not necessarily indicative of future price performance. Comparison of 5 Year Cumulative Total Return Among Reliance Steel & Aluminum Co., the S&P 500 Index, the Russell 2000 Index and an Industry Peer Group Copyright© 2023 Standard & Poor’s, a division of S&P Global.
The newly traded Worthington Steel, Inc. common stock received by the holders of Worthington Enterprises, Inc. common stock at the distribution date is not included in the cumulative total return of the industry peer group. 25 Table of Contents The stock price performance shown on the graph below is not necessarily indicative of future price performance. Comparison of 5 Year Cumulative Total Return Among Reliance, Inc., the S&P 500 Index, the Russell 2000 Index and an Industry Peer Group Copyright© 2024 Standard & Poor’s, a division of S&P Global.
In February 2023, our Board of Directors increased the regular quarterly dividend amount 14.3% to $1.00 per share from $0.875 per share. This recent increase is the 30 th increase in our regular quarterly dividend rate since our IPO in 1994.
In February 2024, our Board of Directors increased the regular quarterly dividend amount 10.0% to $1.10 per share from $1.00 per share. We have increased our regular quarterly dividend rate 31 times since our IPO in 1994.
Item 5. Market for Registrant’s Common Equity , Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is owned by 171 stockholders of record as of February 24, 2023. Our common stock has traded for the past 29 years on the NYSE under the symbol “RS” and was first traded September 16, 1994.
Item 5. Market for Registrant’s Common Equity , Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is owned by 163 stockholders of record as of February 23, 2024.
Removed
All rights reserved. 2017 2018 2019 2020 2021 2022 Reliance Steel & Aluminum Co. $ 100.00 $ 84.86 $ 146.17 $ 149.83 $ 206.49 $ 262.31 S&P 500 100.00 95.62 125.72 148.85 191.58 156.89 Russell 2000 100.00 88.99 111.70 134.00 153.85 122.41 Industry Peer Group 100.00 98.21 95.32 112.11 166.30 147.30 Item 6. [Reserved] 26 Table of Contents
Added
Our common stock has traded on the New York Stock Exchange (“NYSE”) under the symbol “RS” for approximately 30 years since our September 16, 1994 initial public offering.
Added
The returns of each member of the industry peer group are weighted according to that member’s stock market capitalization. In December 2023, Worthington Industries, Inc., which was included in the industry peer group at December 31, 2022, split into Worthington Enterprises, Inc. and Worthington Steel, Inc.
Added
All rights reserved. 2018 2019 2020 2021 2022 2023 Reliance, Inc. $ 100.00 $ 172.25 $ 176.56 $ 243.33 $ 309.10 $ 433.66 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 Russell 2000 100.00 125.52 150.58 172.90 137.56 160.85 Industry Peer Group 100.00 97.06 114.15 169.33 149.98 205.95 Item 6. [Reserved] 26 Table of Contents
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
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Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
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2022 filing
2023 filing
Biggest changeItem 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36 Item 8. Financial Statements and Supplementary Data 38
Biggest changeItem 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35 Item 8. Financial Statements and Supplementary Data 37
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
4 edited+5 added−77 removed1 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
4 edited+5 added−77 removed1 unchanged
2022 filing
2023 filing
Biggest changeOur revenues generally increase as a result of pricing increases as customer demand is not usually impacted by typical mill pricing increases. Our selling prices usually increase when the cost of the metals we purchase increase. We are typically able to pass higher prices on to our customers.
Biggest changeOur selling prices generally increase when the cost of the metals we purchase increase as we are typically able to pass higher prices on to our customers. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts.
Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A “Risk Factors” of this Annual Report on Form 10-K. Overview We again generated record financial performance in 2022 across nearly every key metric.
Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A.
We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs. Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels. As discussed above, our record profitability in 2022 was primarily driven by record metals prices.
We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs. Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels.
If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars.
Conversely, 27 Table of Contents if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. For more information, see
Removed
Outstanding execution resulted in record profitability in the face of declining metals pricing throughout the second half of 2022 and supply chain disruptions on us, our customers and suppliers.
Added
“Risk Factors” of this Annual Report on Form 10-K. Overview In 2023, our earnings per diluted share of $22.64 and operating cash flow of $1.67 billion were the second highest in our history. Tons sold increased 3.7% in 2023 compared to 2022 due to healthy demand in our key end markets, including non-residential construction (our largest end market), automotive and aerospace, as well as contributions from our organic growth activities.
Removed
We believe our record performance in 2022 demonstrated the resiliency of our business model during a year that included significant volatility and varying trends in metals pricing, but fundamentally strong demand in most of our end markets. Key results in 2022: ● Record net sales of $17.03 billion in 2022, up from $14.09 billion in 2021. ● Record earnings per diluted share of $29.92 were up from $21.97 in 2021 and were nearly triple our pre-pandemic earnings per diluted share in 2019. ● Record cash generated by our operations of $2.12 billion eclipsed our previous record of $1.30 billion in 2019. ● Record stockholder returns of $847.4 million, comprised of $217.1 million of dividends and $630.3 million of share repurchases, increased from $500.5 million of such returns in 2021. Our record net sales in 2022 were mainly the result of a record average selling price per ton sold of $3,073, up 18.5% from our previous record set last year, and a 1.8% increase in tons sold.
Added
The increase in our tons sold in 2023 significantly outperformed the 1.5% increase in shipments for the industry as reported by the Metals Service Center Institute (“MSCI”). Our net sales of $14.81 billion declined 13.0% in 2023 compared to record levels of $17.03 billion in 2022 due to a decline in our average selling price per ton sold of 16.4% that was partially offset by an increase in our tons sold. We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China. Gross profit margin of 30.7% in 2023 compared to 30.8% in 2022. Second highest annual earnings per diluted share of $22.64 in 2023 compared to record earnings per diluted share of $29.92 in 2022.
Removed
However, unlike in 2021, during which metals pricing improved throughout the year, our average selling price per ton sold reached a quarterly record of $3,240 in the second quarter of 2022 and declined for the remainder of the year. We experienced healthy demand across a majority of our end markets, however our same-store tons sold decreased slightly from 2021.
Added
Lower gross profit, driven by lower metals prices that outweighed an increase in tons sold, contributed to a decrease in earnings per share from our 2022 record. Cash flow from operations of $1.67 billion in 2023, also the second highest in our history, decreased from a record $2.12 billion in 2022 due to lower profitability, partially offset by lower working capital needs. Organic growth activities were substantially comprised of capital expenditures of $468.8 million in 2023 compared to $341.8 million in 2022.
Removed
We believe that the continued, though diminishing, supply chain disruptions on our customers continue to constrain economic activity and negatively impact our tons sold. Our record profitability in 2022 was the result of our ability to maintain a strong gross profit margin and exercise effective expense control in an environment of elevated metals pricing and healthy demand. We believe our success in generating strong gross profit margins during periods of economic strength and weakness, and during increasing and declining metal pricing cycles is supported by our continued significant capital expenditure investments.
Added
We also acquired Southern Steel Supply, LLC (“Southern Steel”) in May 2023. Returns to stockholders totaled $717.6 million in 2023, comprised of $238.1 million of cash dividends and $479.5 million of share repurchases. Effect of Demand and Pricing Changes on our Operating Results Customer demand can have a significant impact on our results of operations.
Removed
See further discussion, below, under “ Internal Growth Activities. ” In 2022, we generated over $2 billion of operating cash flow for the first time in our history as a result of record profitability and reduced working capital investment mainly as a result of the declining metals pricing trends in the second half of 2022.
Added
As discussed above, our record profitability in 2022 was mainly driven by increases in metals prices to record levels and to a lesser extent the moderate increase in our tons sold. Our revenues generally increase as a result of pricing increases as overall customer demand is not usually impacted by typical mill pricing increases, although customer buying patterns may change.
Removed
The strong cash flow generation enabled us to grow our business and provide additional returns to our stockholders. During 2022, we invested into our future growth with $341.8 million of capital expenditures and returned $847.4 million to our stockholders through record levels of cash dividends and share repurchases.
Removed
We also increased our regular quarterly dividend rate by 14.3%, effective in the first quarter of 2023. We believe our strong liquidity position that includes significant cash on hand, strong cash flow generation and $1.5 billion of availability under our revolving credit facility will support our continued disciplined use of capital as we maintain a flexible approach focused on growth, both organically and through acquisitions, and stockholder return activities. 27 Table of Contents Effect of Demand and Pricing Changes on our Operating Results Customer demand can have a significant impact on our results of operations.
Removed
Because changes in metals pricing do not require us to adjust our expense structure other than for profit-based incentive compensation, the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes. For more information, see Item 1A.
Removed
“Risk Factors ” under the caption “The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers.” In addition, when volume or pricing increases, our working capital (primarily accounts receivable and inventories less accounts payable) requirements typically increase, resulting in lower levels of cash flow from operations, which may also require us to increase our outstanding debt and incur higher interest expense.
Removed
Conversely, when customer demand falls, our operations typically generate increased cash flow as our working capital needs decrease. Acquisitions 2021 Acquisitions In the fourth quarter of 2021, we acquired each of Merfish United, Inc., Admiral Metals Servicenter Company, Incorporated, Nu-Tech Precision Metals Inc. and Rotax Metals Inc. with cash on hand for a combined transaction value of $440.3 million.
Removed
Included in our net sales for the year ended December 31, 2022 were combined net sales of $863.0 million from our 2021 acquisitions. Internal Growth Activities We continued to maintain our focus on internal growth by building new facilities, expanding existing facilities, replacing leased facilities with those we own and adding to our processing capabilities, upgrading processing equipment, improving the safety and energy efficiency of our operations and enhancing the working environments of our employees.
Removed
Our capital expenditure budgets have been at historically high levels in recent years. Our 2023 capital expenditure budget, is $500 million, the highest in our history. We have made significant capital expenditure investments totaling over $1.7 billion over the past eight years.
Removed
These significant investments have expanded our value-added processing capabilities that our managers in the field have successfully leveraged to increase the percentage of our orders with value-added processing, which has significantly contributed to increased gross profit margins in recent years.
Removed
In 2022 and 2021, we performed value-added processing on about 50% of the orders we shipped, significantly higher than our historical range of 40% to 45%, with a gross profit margin of 30.8% in 2022 that was approximately 400 basis points higher than our historical gross profit margin range of 25% to 27% that existed prior to our undertaking of these significant capital expenditure investments. We believe that our ability to make significant investments in processing equipment and facilities provides a competitive advantage for us, as we can provide our customers with a higher quality product and expand our services to 28 Table of Contents them.
Removed
We believe many metals service center company competitors do not have the ability to expand their processing services in response to their customer’ needs as quickly and at the same scale as Reliance. Results of Operations The following sets forth certain income statement data for each of the last three years ended December 31, 2022 (dollars are shown in millions and certain percentages may not calculate due to rounding): Year Ended December 31, 2022 2021 2020 % of % of % of $ Net Sales $ Net Sales $ Net Sales Net sales $ 17,025.0 100.0 % $ 14,093.3 100.0 % $ 8,811.9 100.0 % Cost of sales (exclusive of depreciation and amortization expense shown below) (1) 11,773.7 69.2 9,603.0 68.1 6,036.8 68.5 Gross profit (2) 5,251.3 30.8 4,490.3 31.9 2,775.1 31.5 Warehouse, delivery, selling, general and administrative expense ("SG&A") 2,504.2 14.7 2,306.5 16.4 1,874.0 21.3 Depreciation and amortization expense 240.2 1.4 230.2 1.6 227.3 2.6 Impairment of long-lived assets — — 4.7 - 108.0 1.2 Operating income $ 2,506.9 14.7 % $ 1,948.9 13.8 % $ 565.8 6.4 % Net income attributable to Reliance $ 1,840.1 10.8 % $ 1,413.0 10.0 % $ 369.1 4.2 % Diluted earnings per share attributable to Reliance stockholders $ 29.92 $ 21.97 $ 5.66 (1) Cost of sales included $8.1 million and $13.7 million of amortization of inventory step-up to fair value adjustments in 2022 and 2021, respectively, relating to our 2021 acquisitions.
Removed
Cost of sales included $38.2 million of inventory provisions relating to the planned closure of certain energy-related operations in 2020. (2) Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales.
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About half of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform “first-stage” processing, which is generally not labor intensive as we are simply cutting the metal to size.
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Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from cost of sales. Therefore, our cost of sales is substantially comprised of the cost of the material we sell. We use gross profit and gross profit margin as shown above as measures of operating performance.
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Gross profit and gross profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings.
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Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies. 29 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Sales Year Ended December 31, Dollar Percentage 2022 2021 Change Change (dollars in millions) Net sales $ 17,025.0 $ 14,093.3 $ 2,931.7 20.8 % Net sales, same-store $ 16,162.0 $ 13,922.2 $ 2,239.8 16.1 % Year Ended December 31, Tons Percentage 2022 2021 Change Change (tons in thousands) Tons sold 5,570.8 5,472.9 97.9 1.8 % Tons sold, same-store 5,404.5 5,438.1 (33.6) (0.6) % Year Ended December 31, Price Percentage 2022 2021 Change Change Average selling price per ton sold $ 3,073 $ 2,594 $ 479 18.5 % Average selling price per ton sold, same-store $ 3,001 $ 2,578 $ 423 16.4 % Our tons sold and average selling price per ton sold exclude our tons toll processed.
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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 2021 acquisitions. Our net sales and average selling price per ton sold in 2022 were the highest in our history, surpassing our previous records set in 2021.
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Our sales in 2022 were supported by ongoing healthy demand in most of the end markets we serve and elevated metals pricing.
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However, we believe our tons sold continue to be limited by supply chain disruptions on our customers that constrained economic activity. Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate similarly as the changes in the costs of the various metals we purchase.
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Our average selling price per ton sold in 2022 was significantly higher than in 2021, mainly due to significant mill price increases for our major product categories in the first half of 2022 that offset declining metal prices in the second half of 2022. The mix of products sold can also have an impact on our overall average selling price per ton sold.
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Y ear-over-year changes in selling prices of our major commodity products and related mix of gross sales dollars are presented below: Change in Average Selling Price Per % of Ton Sold Total Sales Carbon steel 10.1 % 54 % Stainless steel 28.8 % 17 % Aluminum 22.3 % 15 % Alloy 31.7 % 4 % 30 Table of Contents Cost of Sales and Gross Profit Year Ended December 31, 2022 2021 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Cost of sales $ 11,773.7 69.2 % $ 9,603.0 68.1 % $ 2,170.7 22.6 % Gross profit $ 5,251.3 30.8 % $ 4,490.3 31.9 % $ 761.0 16.9 % We generated record gross profit in 2022 mainly as a result of a significant increase in our average selling price per ton sold that outpaced the increase in average cost per ton sold. In addition, 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, resulted in a credit, or an increase to gross profit, of $76.6 million in 2022 compared to a charge, or a decrease to gross profit, of $704.8 million in 2021.
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Our 2022 and 2021 gross profit was further reduced by $8.1 million and $13.7 million, respectively, of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions.
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As of December 31, 2022, the LIFO method inventory valuation reserve on our balance sheet was $743.8 million. Our gross profit margin in 2022 was strong and higher than pre-pandemic levels, but declined from our record level in 2021 mainly due to different product pricing trends during the respective periods.
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Our gross profit margin in 2021 benefited from rapid and significant increases in metals prices and limited metals supply throughout the year, while our gross profit margin in 2022 compressed as our average selling price per ton sold reached a peak in the second quarter of 2022 and declined throughout the remainder of the year. See “Net Sales” above for further discussion on product pricing trends. Expenses Year Ended December 31, 2022 2021 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) SG&A expense $ 2,504.2 14.7 % $ 2,306.5 16.4 % $ 197.7 8.6 % SG&A expense, same-store $ 2,419.2 15.0 % $ 2,288.6 16.4 % $ 130.6 5.7 % Depreciation & amortization expense $ 240.2 1.4 % $ 230.2 1.6 % $ 10.0 4.3 % Impairment of long-lived assets $ — — % $ 4.7 — % $ (4.7) (100.0) % Same-store amounts exclude the results of our 2021 acquisitions. Our SG&A expense is made up largely of people-related compensation costs (approximately 60-65% historically), which change based on our headcount levels in response to demand levels and general inflation, and the level of incentive-based compensation that is primarily tied to first-in, first-out (“FIFO”) pretax income profitability at our operating locations and to a lesser extent our overall profitability for our executive officers and senior management. The increase in our same-store SG&A expense in 2022 compared to 2021 was mainly due to higher variable expenses associated with inflationary impacts on wage rates, fuel, freight and packaging costs, partially offset by lower incentive-based compensation as our FIFO pretax income declined 9.0% in 2022 compared to 2021.
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See “Cost of Sales and Gross Profit” above for discussion of our LIFO method inventory valuation reserve. 31 Table of Contents Operating Income Year Ended December 31, 2022 2021 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Operating income $ 2,506.9 14.7 % $ 1,948.9 13.8 % $ 558.0 28.6 % The increase in our operating income in 2022 compared to 2021 was mainly due to record gross profit driven by a record average selling price per ton sold and fundamentally strong demand that offset a decline in our gross profit margin and inflationary increases in certain SG&A expenses. Our operating income margin for 2022 was a record and increased from 2021 mainly due to better operating leverage relating to the significant increase in our net sales as our operating expenses as a percentage of sales decreased approximately 200 basis points, despite a significant increase in our SG&A expense, that offset the 110 basis point decline in our gross profit margin. See “Net Sales ” above for discussion of trends in demand and product costs and “ Expenses ” for trends in our operating expenses. Income Tax Rate Our effective income tax rate in 2022 was 24.1%, compared to 24.7% in 2021.
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The decrease in our effective income tax rate was due to lower state income taxes as a result of changes in the allocation of our U.S. income to the states in which we operate and an increase in tax benefit realized from our stock-based compensation plans. The difference between our effective income tax rate and the U.S. federal statutory rate of 21.0% was 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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See Note 11—“Income Taxes” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on the differences between our effective income tax rates and the U.S. federal statutory rate in 2022 and 2021. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021. Financial Condition Operating Activities We generated record net cash provided by operations of $2.12 billion in 2022, compared to $799.4 million in 2021.
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Our record operating cash flow in 2022 was mainly due to a $426.8 million, or 30.1%, increase in net income and reduced working capital investment when compared with 2021.
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During 2021, significant and rapid increases in metals pricing and limited metals availability required a significantly higher investment in working capital than in 2022 during which our working capital needs peaked during the second quarter and as metals prices and our tons sold declined for the remainder of the year, we reduced our working capital levels and, as consequence, generated significant operating cash flow.
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To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. Our average days sales outstanding rate was 39.9 days in 2022 compared to 38.9 days in 2021.
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Our inventory turnover rate (based on tons) during 2022 was 4.4 times (or 2.7 months on hand), a decrease from 4.8 times (or 2.5 months on hand) in 2021. 32 Table of Contents Income taxes paid were $692.4 million in 2022, a significant increase from $444.4 million in 2021, due to our significantly higher pretax income. Investing Activities Net cash used in investing activities of $348.5 million in 2022 compared to $652.3 million in 2021 was substantially comprised of reduced spending on acquisitions and lower proceeds from sales of property, plant and equipment partially offset by increased capital expenditures.
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In 2022, we had no acquisition spending compared to $439.3 million spent in 2021. Capital expenditures were $341.8 million in 2022 compared to $236.6 million in 2021.
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The majority of our capital expenditures in 2022 and 2021 were related to growth initiatives. Financing Activities Net cash used in financing activities was $892.6 million in 2022 compared to $528.9 million in 2021, mainly due to increased share repurchases.
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In 2022, we spent $630.3 million to repurchase shares of our common stock compared to $323.5 million in 2021.
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Our other stockholder return activities in 2022 included an increase in our quarterly dividend rate with total cash dividends and dividend equivalents of $217.1 million compared to $177.0 million in 2021. We have paid regular quarterly dividends to our stockholders for 63 consecutive years and increased the quarterly dividend on our common stock 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.
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We have never reduced or suspended our regular quarterly dividend. Share Repurchases See Note 14—“Equity ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information on our share repurchases. On July 26, 2022, our Board of Directors amended our share repurchase program to increase the remaining repurchase authorization to $1.0 billion.
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As of December 31, 2022, we had remaining authorization under the plan to repurchase $680.7 million of our common shares.
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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. During the last 5 years, we have repurchased approximately 16 million shares at an average cost of $114.38 per share, for a total of $1.83 billion, resulting in a 22% reduction in our common shares issued and outstanding. Purchase Obligations The Company had $217.7 million of operating lease obligations as of December 31, 2022 for processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers.
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Our expected payments over the next 12 months under these operating leases are $59.1 million. See Note 10—“Leases ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding the maturities of our operating lease obligations. The Company has obligations pursuant to pension and postretirement benefit plans.
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A total of $17.1 million of net liabilities was recognized on the balance sheet at December 31, 2022 and the Company expects to make plan contributions and benefit payments totaling $0.8 million over the next 12 months.
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See Note 13—“Employee Benefits ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding our expected payments under these plans. Our capital expenditures have been at elevated levels in recent years and our 2023 capital expenditure budget is a record $500 million.
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As of December 31, 2022, we had entered into contracts related to capital expenditures in the amount of $133.2 million which is all expected to be paid over the next 12 months.
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Our actual capital expenditure spending over 33 Table of Contents the next 12 months is ultimately dependent on market conditions, lead times and availability of property, plant and equipment when the capital project is initiated. We primarily purchase and sell in the spot market and consequently our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods (lead times).
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In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months.
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The total amount of commitments under long-term inventory purchase agreements is estimated at approximately $320.1 million, with amounts in 2023, 2024 and thereafter being $179.1 million, $44.9 million and $96.1 million, respectively. We have other contractual commitments under long-term agreements, generally for services, totaling $39.3 million at December 31, 2022, with amounts in 2023, 2024 and thereafter being $22.3 million, $12.2 million and $4.8 million, respectively. Debt We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at December 31, 2022 under our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”).
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We also had an aggregate of $1.65 billion principal amount of senior unsecured note obligations with various maturities through 2036 issued under indentures as of December 31, 2022. In January 2023, we redeemed the $500.0 million aggregate outstanding principal amount of our 4.50% senior notes due 2023 in full. We funded this redemption using cash on hand.
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See Note 9—“Debt ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our amended credit agreement, debt obligations and indentures governing our debt securities. Liquidity and Capital Resources 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.
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As of December 31, 2022, we had $1.2 billion 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 6.3%, down from 18.1% as of December 31, 2021. As of December 31, 2022, we had $908.5 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025; $500.0 million of these debt obligations were redeemed in January 2023. 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.
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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.
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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.
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Additionally, we believe our investment grade credit ratings enhance our ability to effectively raise capital, if needed. Covenants The Credit Agreement and indentures governing our debt securities include customary representations, warranties, covenants and events of default provisions.
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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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Our interest coverage ratio for the twelve-month period ended December 31, 2022 was 41.2 times compared to the debt covenant minimum requirement of 3.0 times ( interest coverage ratio is calculated as earnings before interest and taxes (“EBIT”), as defined in the Credit Agreement, divided by interest expense).
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Our leverage ratio as of December 31, 2022, calculated in accordance with the terms of the Credit Agreement, was 17.3% compared to the debt covenant maximum 34 Table of Contents amount of 60% (leverage ratio is calculated as total debt, inclusive of finance lease obligations and outstanding letters of credit, minus the lesser of cash held by our domestic subsidiaries and $200.0 million, divided by Reliance stockholders’ equity plus total debt). We were in compliance with all financial maintenance covenants in our Credit Agreement at December 31, 2022. Goodwill and Other Intangible Assets We have one operating segment and also one reporting unit for goodwill impairment purposes.
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There have been no changes in our reportable segments; we have one reportable segment – metals service centers . Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at December 31, 2022, or approximately 20% of total assets and 30% of total equity.
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Additionally, other intangible assets, net amounted to $1.02 billion at December 31, 2022, 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.
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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 that the carrying amount of the assets may not be recoverable.
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Refer to Critical Accounting Estimates for further information regarding our 2021 and 2020 impairment charges and discussion regarding judgments involved in testing for recoverability of our goodwill and other intangible assets. Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles.
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The Company’s significant accounting policies, including recently issued accounting pronouncements, are fully described in Note 1—“Summary of Significant Accounting Policies ” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.” 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.
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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 operation.
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Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets.
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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.
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Our actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements.
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There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements. Goodwill and Other Indefinite-Lived Intangible Assets We test for impairment of goodwill and intangible assets deemed to have indefinite lives annually and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value.
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The qualitative factors we review include a decline in our stock price and market capitalization, a decline in the market conditions of our products and viability of end markets, and developments in our business and the overall economy.
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We make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, including calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and indefinite-lived intangible asset impairment test as of November 1 of each year.
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No impairment of goodwill was determined to exist in 2022, 2021 or 2020. We recorded impairment losses on our intangible assets with indefinite lives in the amounts of $4.7 million and $67.8 million in 2021 and 2020, respectively. No impairment of intangible assets with indefinite lives was recognized in 2022.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
8 edited+0 added−0 removed4 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
8 edited+0 added−0 removed4 unchanged
2022 filing
2023 filing
Biggest changeHowever, when prices stabilize and our inventories on hand reflect more current prices, our gross profit margins tend to return to more normalized levels. Foreign exchange rate risk Because sales to international customers (based on the shipping destination) were approximately 8% of our consolidated 2022 net sales, we are exposed to foreign currency exchange gains and losses.
Biggest changeHowever, when prices stabilize and our inventories on hand reflect more current prices, our gross profit margins tend to return to more normalized levels. Foreign exchange rate risk Some of our sales transactions with international customers are denominated in foreign currencies that are different than the primary economic environment of the Reliance metals service center serving them, which exposes our operations to foreign currency transaction gains and losses.
Quantitative and Qualitative Disclosures About Market Ris k In the ordinary course of business, we are exposed to various market risk factors, including changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates, and metals pricing, demand and availability. Commodity price risk Metals prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability, metals consumption, import levels into the U.S., global economic factors and foreign currency exchange rates.
Quantitative and Qualitative Disclosures About Market Ris k In the ordinary course of business, we are exposed to various market risk factors, including changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates, and metals pricing, demand and availability. Commodity price risk Metals prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability, metals consumption, import levels into the U.S., global economic factors and foreign currency 35 Table of Contents exchange rates.
Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars.
Conversely, if metals pricing declines, we will typically generate lower levels of gross profit and pretax income dollars.
As of December 31, 2022, we had an insignificant amount of variable interest rate debt outstanding. However, as of December 31, 2022, we had approximately $1.5 billion available for borrowing on our revolving credit facility at variable interest rates.
As of December 31, 2023, we had an insignificant amount of variable interest rate debt outstanding. However, as of December 31, 2023, we had approximately $1.5 billion available for borrowing on our revolving credit facility at variable interest rates.
Consequently, any future borrowings on our revolving credit facility will increase market risk resulting from potential interest rate volatility. 37 Table of Contents
Consequently, any future borrowings on our revolving credit facility will increase market risk resulting from potential interest rate volatility. 36 Table of Contents
We do not currently hedge our net investments in foreign subsidiaries due to the long-term nature of those investments. 36 Table of Contents Total foreign currency transaction losses included in our 2022, 2021, and 2020 earnings were $6.2 million, $4.0 million and $2.3 million, respectively. Interest rate risk We are exposed to market risk related to our fixed-rate and variable-rate long-term debt.
We do not currently hedge our net investments in foreign subsidiaries due to the long-term nature of the investments. Total foreign currency transaction losses included in our 2023, 2022, and 2021 earnings were $1.3 million, $6.2 million and $4.0 million, respectively. Interest rate risk We are exposed to market risk related to our fixed-rate and variable-rate long-term debt.
Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes and we do not currently anticipate repayment of our fixed-rate long-term debt prior to scheduled maturities other than our redemption of $500.0 million of senior notes in January 2023. Market risk related to our variable-rate debt is estimated as the potential decrease in pretax earnings resulting from an increase in interest rates.
Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes and we do not currently anticipate repayment of our fixed-rate long-term debt prior to scheduled maturities. Market risk related to our variable-rate debt is estimated as the potential decrease in pretax earnings resulting from an increase in interest rates.
This strategy also limits our exposure to commodity prices to our inventories on hand. In an environment of increasing material costs our pricing usually increases as we try to maintain the same gross profit percentage and typically generate higher levels of gross profit and pretax income dollars for the same operational efforts.
This strategy also limits our exposure to commodity prices to our inventories on hand. In an environment of increasing material costs, our selling prices usually increase, and we typically generate higher levels of gross profit and pretax income dollars for the same operational efforts.