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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 124 added, 113 removed, 109 unchanged (68% of the section changed)

1 unchanged sentence

This report contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Our forward-looking statements may include, but are not limited to, discussions of our industry and end markets, our business strategies and our expectations concerning future demand and metal pricing and our results of operations, margins, profitability, impairment and restructuring charges, taxes, liquidity, litigation matters and capital resources.

Our forward-looking statements may include, but are not limited to, discussions of our industry and end markets, our business strategies and our expectations concerning future demand and metal pricing and our results of operations, margins, profitability, taxes, liquidity, macroeconomic conditions, including inflation and the possibility of an economic recession or slowdown, litigation matters and capital resources.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “preliminary,” “range,” “intend” and “continue,” the negative of these terms, and similar expressions.

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Actual outcomes and results may differ materially from what is expressed or forecasted in our forward-looking statements as a result of various important factors, including, but not limited to, actions taken by us, including restructuring and impairment charges, as well as developments beyond our control, including, but not limited to, the impact of the COVID-19 pandemic, as well as the impact of actions taken or contemplated by government authorities to mitigate the spread of the COVID-19 pandemic, and changes in worldwide and U.S.

economic conditions (including as a result of COVID-19 or the ongoing conflict between Russia and Ukraine) that materially impact our customers, the demand and availability of our products and services, including further supply disruptions, labor shortages and inflation.

political and economic conditions (including as a result of COVID-19, an economic recession or the ongoing conflict between Russia and Ukraine) that materially impact our customers, the demand and availability of our products and services, including further supply disruptions, labor shortages and inflation.

Other factors which could cause actual results to differ materially from our forward-looking statements include those disclosed in this report and in other reports we have filed with the United States Securities and Exchange Commission (the “SEC”).

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You should review any additional disclosures we make in any subsequent press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC.

We generated record financial performance in the first quarter of 2022 and in each of the previous four quarters.

Outstanding operational execution of our strategies under our resilient business model during a quarter that included strong demand and ongoing strength in metals pricing once again resulted in record profitability in the face of continuing operational challenges that included volatile (though improving) metals pricing trends and limited product availability.

Certain key results for the first quarter of March 31, 2022 included the following:

● Record quarterly net sales of $4.49 billion were up 58.0% from $2.84 billion in the first quarter of 2021.

We generated record quarterly financial performance in the second quarter of 2022 for the sixth consecutive quarter as a result of continued elevated metals pricing and outstanding operational execution of our strategies under our business model, which continues to prove resilient amidst challenging macroeconomic circumstances bolstered by our diverse array of products, end markets and geographies, as well as consistent support from our domestic suppliers and deep-rooted relationships with our customers.

Certain key results for the second quarter and six months ended June 30, 2022 included the following:

● Record quarterly net sales of $4.68 billion were up 36.9% from the second quarter of 2021.

Net sales of $9.17 billion in the six months ended June 30, 2022 were up 46.5% from the same period in 2021.

● Record quarterly average selling price per ton sold of $3,240.

● Record quarterly gross profit of $1.39 billion increased 45.4% from $953.7 million in the first quarter of 2021.

Our strong first quarter of 2022 gross profit margin of 30.9% declined 270 basis points compared to our record gross profit margin in the first quarter of 2021.

● Record quarterly pretax income and margin of $697.2 million and 15.5% increased $338.2 million and 290 basis points, respectively, compared to the first quarter of 2021.

● Record quarterly earnings per share of $8.33 was more than double our earnings per share of $4.12 in the first quarter of 2021.

● Record first quarter cash flow from operations of $404.0 million in the first quarter of 2022 increased $242.2 million, or 149.7%, from $161.8 million in the first quarter of 2021.

Our record quarterly net sales in the first quarter of 2022 were the result of a record quarterly average selling price per ton sold that increased 57.7% compared to the first quarter of 2021 and a 0.6% increase in tons sold.

Our record profitability in the first quarter of 2022 was driven by record metals prices, fundamentally strong underlying demand in most end markets, a strong gross profit margin and careful expense control.

Our gross profit margin in the first quarter of 2022 of 30.9% was strong, but declined from record quarterly gross profit margin of 33.6% in the first quarter of 2021 as our inventory costs approached replacement costs.

Our same-store SG&A expense in the first quarter of 2022 increased $70.1 million, or 13.5%, compared to the first quarter of 2021 due to higher variable expenses associated with inflationary impacts for wages, fuel, freight and packaging costs and to a lesser extent higher incentive-based compensation attributable to our record gross profit and pretax income.

We generated record first quarter cash flow from operations of $404.0 million in the first quarter of 2022 compared to $161.8 million of cash flow from operations in the first quarter of 2021 as a result of our increased profitability.

● Our gross profit in the second quarter (also a quarterly record) and six months ended June 30, 2022 increased 38.2% and 41.6%, respectively, from the same periods in 2021 due to record metals pricing that offset the impact of lower gross margins in the 2022 periods.

Our gross profit margin for the six months ended June 30, 2022 declined 110 basis points from the same period in 2021, mainly due to a record gross profit margin of 33.6% in the first quarter of 2021, which benefited from rapid and significant increases in metals prices and limited metal supply.

● Record quarterly earnings per share of $9.15 were up 80.1% from the second quarter of 2021.

Earnings per share of $17.49 in the six months ended June 30, 2022 were up 90.1% from the same period in 2021.

● $193.9 million of share repurchases in the second quarter of 2022 compared to $24.0 million in the second quarter of 2021.

Our record quarterly net sales in the second quarter of 2022 were the result of a record quarterly average selling price per ton sold that increased 34.0% compared to the second quarter of 2021 and a 2.2% increase in tons sold.

Our net sales for the six months ended June 30, 2022 were the result of a 44.7% increase in our average selling price per ton sold and a 1.4% increase in tons sold.

We experienced ongoing healthy demand across all of our end markets.

However, our tons sold and tons toll processed continue to be limited by macroeconomic challenges including inflation, recessionary concerns and labor and supply-related pressures.

Despite our sequential record financial performance since the first quarter of 2021, our tons sold in the second quarter of 2022 remained below pre-pandemic levels in 2019.

Our record profitability in the second quarter of 2022 was driven by record metals prices, ongoing strength in demand for most of the products we sell across most of the end markets we serve, a strong gross profit margin and careful expense control.

Our gross profit margin in the second quarter of 2022 of 31.9% increased 20 basis points from the second quarter of 2021.

Our same-store SG&A expense in the second quarter and six months ended June 30, 2022 increased $64.8 million, or 11.5%, and $134.9 million, or 12.5%, from the same periods in 2021.

Our SG&A expense levels continue to increase from inflationary impacts for wages, fuel, freight and packaging costs and to a lesser extent higher incentive-based compensation attributable to our sequential gross profit and pretax income record results.

Despite increases in our SG&A expense, record metals pricing decreased our SG&A expense as a percentage of sales and resulted in record operating income and pretax income margins.

Our cash flow from operations of $674.2 million in the six months ended June 30, 2022 increased $410.8 million compared to the same period in 2021, relatively in-line with the increase in net income of $500.1 million over the same period, demonstrating the high cash flow conversion present in our business.

We believe our strong liquidity position that includes significant cash on hand, strong cash flow generation and $1.5 billion revolving credit facility with no borrowings outstanding will support our continued prudent use of capital as we maintain a flexible approach focused on growth, both organically and through acquisitions, and stockholder return activities.

We believe our industry-leading results are due to our unique business model and the strong operational execution of our strategies.

We believe our business model characteristics, including broad end market exposure, a wide geographical footprint, diverse product offerings, significant value-added processing capabilities, and focus on small order sizes and when-needed delivery differentiate us from our industry peers.

We believe these unique business model characteristics and strong operational execution of our strategies that include pricing discipline, concentrating on higher margin business and cross selling inventory within our operating locations enabled us to persevere during the pandemic in 2020 and were the cornerstone of our record quarterly financial results in each of the past five quarters.

We believe our industry-leading results are due to our unique business model and the strong execution of our strategies.

We believe our business model characteristics, including broad end market exposure, a wide geographical footprint, diverse product offerings, significant value-added processing capabilities, strong relationships with suppliers, and focus on small order sizes and when-needed delivery differentiate us from our industry peers.

2021 Acquisitions

On October 1, 2021, we acquired Merfish United, Inc.

(“Merfish United”), a leading master distributor of tubular building products that are distributed to its independent wholesale distributor customers across a variety of end markets in the United States.

Merfish United, headquartered in Ipswich, Massachusetts, serves 47 U.S.

states through its twelve strategically located distribution centers.

On December 10, 2021, we acquired Admiral Metals Servicenter Company, Incorporated (“Admiral Metals”), a leading distributor of non-ferrous metals products in the Northeastern U.S.

Admiral Metals, headquartered in Woburn, Massachusetts, serves a variety of end markets, including semiconductor, automotive, medical, infrastructure, aerospace and industrial markets through its eight strategically located service centers.

On December 10, 2021, we acquired Nu-Tech Precision Metals Inc.

(“Nu-Tech Precision Metals”), a custom manufacturer of specialty extruded metals, fabricated parts and welded components.

Nu-Tech Precision Metals, services the nuclear energy, aerospace and defense end markets from its location near Ottawa, Ontario, Canada.

On December 17, 2021, we acquired Rotax Metals, Inc.

(“Rotax Metals”), a metals service center specializing in copper, bronze and brass alloys.

Located in Brooklyn, New York, Rotax Metals operates as a subsidiary of Yarde Metals, Inc., a wholly owned subsidiary of Reliance.

Included in our net sales for the first quarter of 2022 were combined net sales of $226.5 million from our 2021 acquisitions.

We funded our 2021 acquisitions with cash on hand.

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.

Included in our net sales for the six months ended June 30, 2022 were combined net sales of $473.7 million from our 2021 acquisitions.

Results of Operations

The following table sets forth certain income statement data for the first quarters of 2022 and 2021 (dollars are shown in millions and certain amounts may not calculate due to rounding):

Three Months Ended March 31,

The following table sets forth certain income statement data for the second quarter and six months ended June 30, 2022 and 2021 (dollars are shown in millions and certain amounts may not calculate due to rounding):

Three Months Ended

Six Months Ended

Cost of sales (exclusive of depreciation and amortization expenses shown below) (1)

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Operating income

(1) Cost of sales in the first quarter of 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments for our 2021 acquisitions.

(1) Cost of sales in the six months ended June 30, 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments for 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 expenses associated with the corresponding sales.

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Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies.

First Quarter Ended March 31, 2022 Compared to First Quarter Ended March 31, 2021

Three Months Ended

Second Quarter and Six Months Ended June 30, 2022 Compared to Second Quarter and Six Months Ended June 30, 2021

(in millions)

Net sales, same-store

Three Months Ended

Net sales (three months ended)

Net sales, same-store (three months ended)

Net sales (six months ended)

Net sales, same-store (six months ended)

(tons in thousands)

Tons sold, same-store

Three Months Ended

Average selling price per ton sold

Average selling price per ton sold, same-store

Tons sold (three months ended)

Tons sold, same-store (three months ended)

Tons sold (six months ended)

Tons sold, same-store (six months ended)

Average selling price per ton sold (three months ended)

Average selling price per ton sold, same-store (three months ended)

Average selling price per ton sold (six months ended)

Average selling price per ton sold, same-store (six months ended)

Our tons sold and average selling price per ton sold exclude our tons toll processed.

Our average selling price per ton sold includes insignificant intercompany transactions that are eliminated from our consolidated net sales.

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 in the first quarter of 2022 were the highest in our history due to a record quarterly average selling price per ton sold and a modest increase in tons sold compared to the first quarter of 2021.

During the months of January and February, prices for certain carbon and stainless steel products fell sharply, and certain customers adjusted their purchasing patterns due to the uncertainty surrounding the direction of metals prices.

The Omicron surge in January and to a lesser extent in February further decreased demand by exacerbating existing labor and other supply chain disruptions on us, our customers and suppliers.

In early March, these trends and headwinds subsided and metal prices increasing significantly, mainly for the aluminum and stainless steel products we sell, and our shipment levels accelerated with our March daily tons sold being the highest since the start of the pandemic.

Our net sales in the second quarter and six months ended June 30, 2022 were the highest in our history due to record average selling prices per ton sold and modest increases in tons sold compared to the same periods in 2021.

Our record sales in the 2022 periods were supported by ongoing healthy demand in most of the end markets we serve and elevated pricing during the second quarter of 2022.

Since we primarily purchase and sell our inventories in the spot market, the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase.

Our same-store average selling price per ton sold in the first quarter of 2022 was significantly higher than the first quarter of 2021 mainly due to several significant mill price increases for our major product categories.

Our same-store average selling prices per ton sold in the second quarter and six months ended June 30, 2022 were significantly higher than the comparable 2021 periods mainly due to significant mill price increases for our major product categories.

The mix of products sold can also have an impact on our average selling prices.

As carbon steel sales represented approximately 55% of our gross sales for the first quarter of 2022, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

As carbon steel sales represented approximately 54% and 55% of our gross sales for the second quarter and six months ended June 30, 2022, respectively, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

Our major commodity selling prices changed year-over-year as follows:

Three Months Ended

Six Months Ended

Average Selling

Price per Ton Sold

(percentage change)

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Cost of Sales

Three Months Ended

(dollars in millions)

Cost of sales

The increase in cost of sales in the first quarter of 2022 compared to the first quarter of 2021 was mainly due to a higher average cost per ton sold and to a lesser extent, higher tons sold.

Cost of sales (three months ended)

Cost of sales (six months ended)

The increases in cost of sales in the second quarter and six months ended June 30, 2022 compared to the same periods in 2021 were mainly due to higher average costs per ton sold and to a lesser extent, increases in tons sold.

See “Net Sales” above for trends in both demand and costs of our products .

Cost of sales in the first quarter of 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions.

In addition, 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 expenses of $37.5 million and $100.0 million in the first quarters of 2022 and 2021, respectively.

As of March 31, 2022, the LIFO method inventory valuation reserve on our balance sheet was $857.9 million.

Three Months Ended

Cost of sales in the six months ended June 30, 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments for our 2021 acquisitions.

In addition, 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 expenses of $12.5 million and $200.0 million in the second quarters of 2022 and 2021, respectively, and expenses of $50.0 million and $300.0 million in the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the LIFO method inventory valuation reserve on our balance sheet was $870.4 million.

(dollars in millions)

We generated record gross profit in the first quarter of 2022 mainly as a result of a record quarterly average selling price per ton sold, a strong gross profit margin and a slight increase in tons sold compared to the first quarter of 2021.

Gross profit in the first quarter of 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions.

Excluding the impact of the non-recurring amortization, our gross profit margin declined 250 basis points in the first quarter of 2022 compared to the first quarter of 2021.

The decline in our gross profit margin was mainly due to our inventory costs approaching replacement costs.

Gross profit (three months ended)

Gross profit (six months ended)

We generated record gross profit in the second quarter and six months ended June 30, 2022 mainly as a result of record average selling prices per ton sold, strong gross profit margins and increases in tons sold compared to the same periods in 2021.

Gross profit in the six months ended June 30, 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions.

Our gross profit margin in the second quarter ended June 30, 2022 was strong and supported by ongoing healthy demand for the majority of the products we sell.

The decline in our gross profit margin in the six months ended June 30, 2022 compared to the same period in 2021 was mainly due to the 2021 six-month period benefiting from rapid and significant increases in metal prices and limited metal supply.

See “Net Sales” and “Cost of Sales” above for further discussion on product pricing trends and our LIFO inventory valuation reserve adjustments, respectively.

Three Months Ended

(dollars in millions)

SG&A expense, same-store

Depreciation & amortization expense

Our same-store SG&A expense increase was due to higher variable expenses associated with inflationary impacts for wages, fuel, freight and packaging costs and to a lesser extent higher incentive-based compensation attributable to our

record gross profit and pretax income.

The decrease in our SG&A expense as a percentage of sales in the first quarter of 2022 compared to the first quarter of 2021 was mainly due to our record net sales.

SG&A expense (three months ended)

SG&A expense, same-store (three months ended)

SG&A expense (six months ended)

SG&A expense, same-store (six months ended)

Depreciation & amortization expense (three months ended)

Depreciation & amortization expense (six months ended)

Our same-store SG&A expense increases in the second quarter and six months ended June 30, 2022 were mainly due to higher variable expenses associated with inflationary impacts for wages, fuel, freight and packaging costs and to a lesser extent higher incentive-based compensation attributable to our record gross profit and pretax income.

The decreases in our SG&A expense as a percentage of sales in the second quarter and six months ended June 30, 2022 compared to the same periods in 2021 were mainly due to our record net sales.

Operating Income

Three Months Ended

(dollars in millions)

Operating income

The increase in our operating income in the first quarter of 2022 compared to the first quarter of 2021 was due to record gross profit, as a result of a record quarterly average selling price per ton sold, fundamentally strong demand and a strong gross profit margin, that was partially offset by inflationary increases in certain SG&A expenses and higher incentive compensation.

The increase in our operating margin in the first quarter of 2022 was mainly due to our significantly higher sales that decreased our SG&A expense as a percentage of sales, despite an increase in our SG&A expense.

Operating income (three months ended)

Operating income (six months ended)

The increases in our operating income in the second quarter and six months ended June 30, 2022 compared to the same periods in 2021 were due to record gross profit, as a result of record average selling prices per ton sold, fundamentally strong demand and strong gross profit margins, that were partially offset by inflationary increases in certain SG&A expenses and higher incentive compensation.

The increases in our operating margins in the second quarter and six months ended June 30, 2022 were mainly due to our significantly higher sales that decreased our SG&A expense as a percentage of sales, despite increases in our SG&A expense.

Income Tax Rate

Our effective income tax rate for the first quarter of 2022 was 24.8%, compared to 25.3% in the same 2021 period.

Our effective income tax rate for each of the second quarter and six months ended June 30, 2022 was 24.7%, compared to 25.6% and 25.5% in the same 2021 periods, respectively.

The differences between our effective income tax rates and the U.S.

federal statutory rate of 21.0% were mainly due to state income taxes, partially offset by the effects of Company-owned life insurance policies.

Three Months Ended

(dollars in millions)

Net income attributable to Reliance

The increase in our net income and net income margin in the first quarter of 2022 compared to the first quarter of 2021 were mainly due to increased operating income and operating income margin as a result of record gross profit and a strong gross profit margin partially offset by higher SG&A expense.

Net income attributable to Reliance (three months ended)

Net income attributable to Reliance (six months ended)

The increases in our net income and net income margin in the second quarter and six months ended June 30, 2022 compared to the same periods in 2021 were mainly due to record operating income and operating income margins as a result of record gross profit and strong gross profit margins, partially offset by higher SG&A expenses.

Liquidity and Capital Resources

Operating Activities

Net cash provided by operations of $404.0 million in the first quarter of 2022 was the highest first quarter result in our history;

increasing $242.2 million, or 149.7%, from $161.8 million in the first quarter of 2021.

The increase in our operating cash flow was mainly the result of cash generated from our record profitability.

Net cash provided by operations of $674.2 million in the six months ended June 30, 2022 increased $410.8 million, or 156.0%, from $263.4 million in the same period in 2021.

The increase was mainly due to the $500.1 million, or 83.6%, increase in net income that required moderate additional working capital investment in the six months ended June 30, 2022 when compared to the same period in 2021, mainly due to significantly higher metals pricing and to a lesser extent, the increase in tons sold.

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.

As of March 31, 2022 and 2021, our days sales outstanding rate was 39.1 days and 41.1 days, respectively.

Our inventory turn rate (based on tons) during the first quarter of 2022 was 4.4 times (or 2.7 months on hand), compared to 5.4 times (or 2.2 months on hand) in the first quarter of 2021.

Income taxes paid were $89.8 million in the first quarter of 2022, a significant increase from $6.9 million in the first quarter of 2021, mainly due to the first quarter of 2022 including income tax extension payments for the 2021 tax year compared to the first quarter of 2021 that did not include similar income tax extension payments.

As of June 30, 2022 and 2021, our days sales outstanding rate was 39.2 days and 39.8 days, respectively.

Our inventory turnover rate (based on tons) during the six months ended June 30, 2022 was 4.4 times (or 2.7 months on hand), compared to 5.2 times (or 2.3 months on hand) in the same period in 2021.

Income taxes paid were $427.2 million in the six months ended June 30, 2022 compared to $181.3 million in the same period in 2021.

The significant increase in our tax payments was mainly due to higher estimated tax payments in the six months ended June 30, 2022 compared to the same period in 2021, relating to our significantly higher pretax income, and to a lesser extent income tax extension payments for the 2021 tax year made in the 2022 six-month period without similar income tax extension payments in the same period in 2021.

Investing Activities

Net cash used in investing activities was $63.3 million in the first quarter of 2022 compared to $27.7 million in the first quarter of 2021 and was substantially comprised of our capital expenditures partially offset by proceeds from sales of property, plant and equipment.

Capital expenditures were $66.7 million in the first quarter of 2022 compared to $43.7 million in the first quarter of 2021.

The majority of our first quarter 2022 and 2021 capital expenditures related to growth initiatives.

Proceeds from sales of property, plant and equipment were $8.2 million in the first quarter of 2022 compared to $20.6 million in the same period in 2021.

Our proceeds from sales of property, plant and equipment included $7.4 million of proceeds and $2.0 million of gains from sales of non-core assets in the first quarter of 2022 compared to $20.0 million of proceeds and $2.0 million of gains from similar sales in the first quarter of 2021.

Net cash used in investing activities was $149.4 million in the six months ended June 30, 2022 compared to $98.6 million in the same period in 2021 and was substantially comprised of our capital expenditures partially offset by proceeds from sales of property, plant and equipment.

Capital expenditures were $154.2 million in the six months ended June 30, 2022 compared to $123.8 million in the same period in 2021.

The majority of our capital expenditures in the six months ended June 30, 2022 and 2021 were related to growth initiatives.

Proceeds from sales of property, plant and equipment were $9.2 million in the six months ended June 30, 2022 compared to $26.1 million in the same period in 2021.

Our proceeds from sales of property, plant and equipment included $7.4 million of proceeds and $2.0 million of gains from sales of non-core assets in the six months ended June 30, 2022 compared to $24.4 million of proceeds and $3.3 million of gains from similar sales in the same period in 2021.

Financing Activities

Net cash used in financing activities of $92.0 million in the first quarter of 2022 decreased from $56.4 million net cash used in the first quarter of 2021 mainly due to share repurchases and increased payments for dividends and taxes relating to net share settlements of restricted stock units.

In the first quarter of 2022, we spent $17.1 million to repurchase shares of our common stock compared to no repurchases in the first quarter of 2021.

Our other shareholder return activities included increased dividend payments of $56.7 million in the first quarter of 2022 compared to $44.8 million in the first quarter of 2021.

In addition, in the first quarter of 2022, we spent $17.1 million on taxes relating to net share settlements of restricted stock units compared to $8.2 million in the first quarter of 2021.

On April 26, 2022, our Board of Directors declared the 2022 second quarter cash dividend of $0.8750 per share.

Net cash used in financing activities of $316.5 million in the six months ended June 30, 2022 increased from $122.4 million net cash used in the same period in 2021, mainly due to increased share repurchases.

In the six months ended June 30, 2022, we spent $211.0 million to repurchase shares of our common stock compared to $24.0 million spent in the same

period in 2021.

Our other stockholder return activities included an increase in our quarterly dividend with total dividend payments of $110.6 million in the six months ended June 30, 2022 compared to $88.6 million in the same period in 2021.

On July 26, 2022, our Board of Directors declared the 2022 third quarter cash dividend of $0.875 per share.

We have increased our quarterly dividend 29 times since our IPO in 1994, with the most recent increase of 27.3% from $0.6875 per share to $0.875 per share effective in the first quarter of 2022.

We have paid quarterly cash dividends on our common stock for 63 consecutive years and have never reduced or suspended our regular quarterly dividend.

On July 20, 2021, our Board of Directors authorized a $1.0 billion share repurchase program.

As of March 31, 2022, we had remaining authorization under the plan to repurchase $695.5 million of our common stock.

Our share repurchase activity during the six months ended June 30, 2022 and 2021 was as follows:

(in millions)

First quarter

Second quarter

The $1.0 billion share repurchase program that was authorized by our Board of Directors on July 20, 2021 and had remaining authorization to repurchase $401.6 million of our common stock as of July 25, 2022 following our repurchase of 581,648 shares at an average cost of $171.94 per share, for a total of $100.0 million, subsequent to the end of the second quarter of 2022 was increased again on July 26, 2022 to $1.0 billion.

The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.

We may repurchase shares through open market purchases, privately negotiated transactions and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 or Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

We may repurchase shares through open market purchases, privately negotiated transactions and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.

During the first quarter of 2022, we repurchased 113,529 shares of our common stock at an average cost of $150.97 per share, for a total of $17.1 million, compared to no repurchases in the first quarter of 2021.

Since the inception of our share repurchase programs in 1994 through March 31, 2022, we have repurchased approximately 35.0 million shares at an average cost of $54.88 per share, for a total of $1.92 billion, including approximately 12.9 million shares repurchased over the past five years at an average cost of $96.02, for a total of $1.24 billion.

Since 2017, we have repurchased approximately 14.6 million shares at an average cost of $105.22 per share, for a total of $1.53 billion.

We expect to continue to be opportunistic in our approach to repurchasing shares of our common stock.

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 shareholder return activities over the next 12 months and beyond.

Our total outstanding debt as of March 31, 2022 was $1.66 billion, which was consistent with December 31, 2021.

As of March 31, 2022, we had no outstanding borrowings on the revolving credit facility.

As of March 31, 2022, we had $548.0 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as total debt, net of cash, divided by total Reliance stockholders’ equity plus total debt, net of cash) was 14.4%, down from 18.1% as of December 31, 2021.

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.

Our total outstanding debt as of June 30, 2022 was $1.66 billion, which was consistent with December 31, 2021.

As of June 30, 2022, we had no outstanding borrowings on the revolving credit facility.

As of June 30, 2022, we had $504.5 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus total debt, net of cash) was 14.3%, down from 18.1% as of December 31, 2021.

On September 3, 2020, we entered into a $1.5 billion unsecured five-year Amended and Restated Credit Agreement (“Credit Agreement”) that amended and restated our then-existing $1.5 billion unsecured revolving credit facility and includes a $150.0 million letter of credit sublimit.

As of March 31, 2022, borrowings under the Credit Agreement were available at variable rates based on LIBOR plus 1.25% or the bank prime rate plus 0.25% and we currently pay a commitment fee at an annual rate of 0.20% on the unused portion of the revolving credit facility.

As of June 30, 2022, borrowings under the Credit Agreement were available at variable rates based on LIBOR plus 1.00% or the bank prime rate and we currently pay a commitment fee at an annual rate of 0.175% on the unused portion of the revolving credit facility.

The applicable margins over LIBOR and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our total net leverage ratio, as defined in the Credit Agreement.

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Our Credit Agreement includes provisions to change the reference rate to the then-prevailing market convention for similar agreements if a replacement rate for LIBOR is necessary during its term.

A revolving credit facility with a combined credit limit of $8.6 million is in place for an operation in Asia with an outstanding balance of $4.7 million as of March 31, 2022 and December 31, 2021, respectively.

A revolving credit facility with a combined credit limit of $8.1 million is in place for an operation in Asia with an outstanding balance of $3.7 million and $4.7 million as of June 30, 2022 and December 31, 2021, respectively.

During the first quarter of 2022, we increased our 2022 capital expenditure budget, including unspent amounts from prior years, to $455 million from $350 million.

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If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase each series of the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest.

Various industrial revenue bonds had combined outstanding balances of $7.7 million as of March 31, 2022 and December 31, 2021 and have maturities through 2027.

As of March 31, 2022, we had $911.4 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025.

We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due.

In addition to funds generated from operations and funds available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired.

Various industrial revenue bonds had combined outstanding balances of $7.7 million as of June 30, 2022 and December 31, 2021 and have maturities through 2027.

As of June 30, 2022, we had $910.4 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025.

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, including $500.0 million of senior notes that mature in April 2023.

In addition to funds generated from operations and nearly $1.5 billion available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired.

We believe our sources of liquidity will continue to be adequate to maintain operations, make necessary capital expenditures, finance strategic growth through acquisitions and internal initiatives, pay dividends and opportunistically repurchase shares of our common stock.

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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.

We were in compliance with all financial maintenance covenants in our Credit Agreement at March 31, 2022.

We were in compliance with all financial maintenance covenants in our Credit Agreement at June 30, 2022.

Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses.

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Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at March 31, 2022, or approximately 21% of total assets and 32% of total equity.

Additionally, other intangible assets, net amounted to $1.06 billion at March 31, 2022, or approximately 10% of total assets and 16% of total equity.

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at June 30, 2022, or approximately 20% of total assets and 31% of total equity.

Additionally, other intangible assets, net amounted to $1.05 billion at June 30, 2022, or approximately 10% of total assets and 15% 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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Accordingly, our estimates and judgments may be subject to greater volatility than in the past.

During the quarter ended March 31, 2022, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

During the quarter ended June 30, 2022, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Website Disclosure

The Company may use its website as a distribution channel of material company information.

Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website

at www.investor.rsac.com .

Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at www.investor.rsac.com .

In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section at www.investor.rsac.com .

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis