What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 105 added, 134 removed, 72 unchanged (77% of the section changed)

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

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

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

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

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Forward-looking statements involve known and unknown risks and uncertainties and are not guarantees of future performance.

Actual outcomes and results may differ materially from what is expressed or forecasted in 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.

political and economic conditions (including as a result of COVID-19, rising interest rates, stock market volatility, 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 or sustained supply disruptions, labor shortages and inflation.

Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements as a result of various important factors, including, but not limited to, actions taken by us, as well as developments beyond our control, including, but not limited to, the impacts of labor constraints and supply chain disruptions, the continuing pandemic and changes in worldwide and U.S.

political and economic conditions such as inflation, a prolonged higher interest rate environment and the possibility of an economic recession that could materially impact us, our customers and suppliers and demand for our products and services.

Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, COVID-19, the conflict between Russia and Ukraine or otherwise, could lead to a decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing.

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

Important risks and uncertainties about our business can be found elsewhere in this Quarterly Report on Form 10-Q, including in Item 1A “Risk Factors,” and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC and in other documents Reliance files or furnishes with the SEC.

Important risks and uncertainties about our business can be found elsewhere in this Quarterly Report on Form 10-Q and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC and in other documents Reliance files or furnishes with the SEC.

The statements contained in this quarterly report on Form 10-Q speak only as of the date that they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

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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 produced another quarter of solid financial performance through outstanding operational execution despite declining metal prices trends compared to the preceding quarter that led to a temporary contraction in our gross profit margin.

We believe key elements of our strategic business model helped stabilize our operating results during the quarter amid challenging macroeconomic circumstances, including value-added processing capabilities that support our sale of higher priced products, prioritizing purchases from our domestic suppliers to shorten the supply chain and ensure metal availability, and focus on smaller order sizes with quick turnaround.

Certain key results for the third quarter and nine months ended September 30, 2022 included the following:

● Quarterly net sales of $4.25 billion were up 10.4% from the third quarter of 2021.

Net sales of $13.41 billion in the nine months ended September 30, 2022 were up 32.8% from the same period in 2021.

● Record third quarter earnings per share of $6.45 were up 4.9% from the third quarter of 2021.

Earnings per share of $23.98 in the nine months ended September 30, 2022 were up 56.2% from the same period in 2021.

● Record quarterly cash flow from operations of $635.7 million in the third quarter of 2022.

● $547.7 million of share repurchases in the nine months ended September 30, 2022 compared to $155.0 million in the same nine-month period in 2021.

Our third quarter of 2022 share repurchases were $336.7 million compared to $131.0 million in the third quarter of 2021.

We experienced ongoing healthy demand across a majority of our end markets.

However, we believe our tons sold and tons toll processed continue to be limited by continued supply chain-related challenges.

Our gross profit margins in the third quarter and nine months ended September 30, 2022 were lower compared to the same periods in 2021 mainly due to the 2021 periods benefiting from rapid and significant sequential quarterly increases in our average selling price per ton sold.

In the 2022 periods, our inventory costs were more in-line with replacement costs with our average selling prices per ton sold peaking at record levels in the second quarter of 2022 and declining throughout the third quarter of 2022, with further decline expected in the fourth quarter of 2022.

Our same-store SG&A expense in the third quarter and nine months ended September 30, 2022 increased $2.3 million, or 0.4%, and $137.2 million, or 8.1%, from the same periods in 2021.

Our third quarter SG&A expense reflected lower incentive-based compensation from lower first-in, first-out (FIFO) pretax income that offset inflationary impacts for wages, fuel and plant supply costs, while our nine-month increase was primarily due to these same inflationary cost increases.

Despite increases in our SG&A expense, increased metals pricing decreased our SG&A expenses as a percentage of sales, resulting in our operating and net income margins for the nine months ended September 30, 2022 remaining at record levels despite a lower gross profit margin.

Our cash flow from operations of $1.31 billion in the nine months ended September 30, 2022 increased $904.3 million compared to the same period in 2021, driven by an increase in net income of $497.8 million and reduced investment in working capital during 2021, primarily accounts receivable and inventory.

The working capital investment decline from the prior year was driven by declining metal pricing trends during the third quarter of 2022 compared to the rapid and significant increases in metals prices and limited metal availability throughout 2021.

We delivered solid financial performance in the first quarter of 2023.

Our first quarter of 2023 results included an increase in tons sold, a strong gross profit margin that was consistent with the first quarter of 2022 and strong operating cash flow through outstanding operational execution in an uncertain business environment.

We believe our ability to maintain a strong gross profit margin in the first quarter of 2023 was supported by our diversified business model, value-added processing capabilities and ability to service small order sizes with quick turnaround.

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

● 7.2% increase in tons sold.

● Net sales of $3.97 billion were down 11.6%;

reflecting a 17.7% decrease in average selling price per ton sold.

● Gross profit margin of 30.9%.

● Earnings per diluted share of $6.43.

● Cash flow from operations of $384.6 million.

● Inventory turnover rate (based on tons) of 4.9x exceeded our Company-wide goal of 4.7x and our 4.4x rate in the prior year quarter.

● Returns to stockholders of $100.9 million, comprised of $62.0 million of cash dividends and $38.9 million of share repurchases.

Our net sales decline in the first quarter of 2023 was primarily due to a 17.7% decline in our average selling price per ton sold that offset a strong 7.2% increase in tons sold compared to the first quarter of 2022.

The increase in tons sold was due to solid demand in the vast majority of our end markets, with particular strength in non-residential construction, the toll processing services we provide to the automotive market, general manufacturing and aerospace.

We continued to execute our strategy in a dynamic operating environment featuring metal pricing volatility, ongoing inflationary headwinds, recessionary concerns, supply chain disruptions and labor shortages.

Our gross profit margin of 30.9% in the first quarter of 2023 was consistent with the first quarter of 2022.

Pricing for most of the aluminum, carbon and stainless steel products we sell declined throughout the fourth quarter of 2022;

however, early in the first quarter of 2023 the metals pricing declines had generally stabilized, and we operated in a relatively flat pricing environment during most of the quarter.

We believe that announced carbon flat-rolled steel price increases during the quarter incentivized some of our customers to increase their purchases to buy ahead of further price increases.

Our inventory turnover rate accelerated and our inventory costs on hand continued to align with lower replacement costs as our tons sold improved 17.7% compared to the fourth quarter of 2022, which was one of the best first quarter starts we have seen in our history.

Our SG&A expense in the first quarter of 2023 increased $39.4 million, or 6.4%, from the first quarter of 2022.

The increase was primarily due to incremental variable costs associated with a strong 7.2% increase in tons sold, including headcount increases and inflationary pressure on wages, fuel, freight and warehouse costs, offset by decreased incentive-based compensation from lower profitability.

Our cash flow from operations of $384.6 million in the first quarter of 2023 decreased only $19.4 million, or 4.8%, compared to record first quarter levels in 2022 despite a 26.7% decline in net income.

The decrease in our profitability in the first quarter of 2023 from then-record levels in the first quarter of 2022 was generally offset by decreased working capital requirements mainly due to lower metals pricing and volatility.

Our strong cash flow generation enabled us to grow our business and increase returns to stockholders.

During the first quarter of 2023, we invested in our future growth with a quarterly record $102.9 million invested in capital expenditures and we increased our returns to stockholders by 36.7%.

Additionally, in the first quarter of 2023 we completed the redemption of $500.0 million aggregate principal amount of senior unsecured notes with cash on hand.

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

We believe our industry-leading results are attributable to our unique business model and 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.

We believe these unique business model characteristics and strong operational execution of our strategies, including pricing discipline, concentrating on higher margin business and cross selling inventory within our operating locations provide the foundation of our strong financial results.

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.

Included in our net sales for the nine months ended September 30, 2022 were combined net sales of $681.7 million from our 2021 acquisitions.

Results of Operations

The following table sets forth certain income statement data for the third quarter and nine months ended September 30, 2022 and 2021 (dollars are shown in millions, except for per share amounts and certain amounts may not calculate due to rounding):

Three Months Ended

Nine Months Ended

September 30,

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

Three Months Ended March 31,

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

Gross profit (2)

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Diluted earnings per share attributable to Reliance stockholders

(1) 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.

(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.

(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.

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.

Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from our cost of sales.

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.

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

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

Third Quarter and Nine Months Ended September 30, 2022 Compared to Third Quarter and Nine Months Ended September 30, 2021

September 30,

(dollars in millions)

Net sales (three months ended)

Net sales, same-store (three months ended)

Net sales (nine months ended)

Net sales, same-store (nine months ended)

September 30,

(tons in thousands)

Tons sold (three months ended)

Tons sold, same-store (three months ended)

Tons sold (nine months ended)

Tons sold, same-store (nine months ended)

September 30,

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 (nine months ended)

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

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

Three Months Ended March 31,

(dollars in millions, tons in thousands)

Average selling price per ton sold

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

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

Same-store amounts exclude the results of our 2021 acquisitions.

Our net sales in the third quarter and nine months ended September 30, 2022 increased from the same periods in 2021 due to increased average selling prices per ton sold and modest increases in tons sold compared to the same periods in 2021.

Our strong sales in the 2022 periods were supported by ongoing healthy demand in most of the end markets we serve and elevated metals pricing.

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

Our average selling price per ton sold in the nine months ended September 30, 2022 was significantly higher than the comparable 2021 period mainly due to significant mill price increases for our major product categories.

However, our quarterly year-over-year average selling price per ton sold increase was more moderate mainly due to a 4.3% decline in pricing for the carbon steel products we sold.

The mix of products sold has an impact on our overall average selling prices per ton sold.

Y ear-over-year changes in selling prices of our major commodity products and related mix of gross sales dollars are presented below:

Three Months Ended

Nine Months Ended

Average Selling

Our net sales decreased from record first quarter levels of 2022 due to a significant decline in our average selling price per ton sold that was partially offset by a strong increase in tons sold.

Demand was healthy in the vast majority of our end

markets, with particular strength in non-residential construction, the toll processing services we provide to the automotive market, general manufacturing and aerospace.

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

Our average selling price in the first quarter of 2022 was a quarterly record for us, which peaked at an ultimate record in the second quarter of 2022 and then declined for the subsequent three quarters mainly due to mill price decreases for our major product categories ;

however, metals pricing remained relatively higher versus historical levels throughout the first quarter of 2023.

The mix of products sold can also have an impact on our overall average selling price per ton sold.

As carbon steel sales represented approximately 52% of our gross sales for the first quarter of 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

Y ear-over-year changes in the selling prices of our major commodity products and related mix of our tons sold are presented below:

Average Selling

Percentage of

Stainless steel

Gross Profit and Cost of Sales

September 30,

Cost of Sales and Gross Profit

Three Months Ended March 31,

(dollars in millions)

Gross profit (three months ended)

Gross profit (nine months ended)

Cost of sales (three months ended)

Cost of sales (nine months ended)

Gross profit in the nine months ended September 30, 2022 increased from the same period in 2021 mainly due to a significant increase in our average selling price per ton sold that outpaced higher average cost per ton sold.

Additionally, 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 $27.5 million in the third quarter of 2022 compared to a charge, or a decrease to gross profit, of $262.5 million in the third quarter of 2021.

We recorded LIFO expense that lowered gross profit by $22.5 million and $562.5 million in the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the LIFO method inventory valuation reserve on our balance sheet was $842.9 million.

Furthermore, g ross profit in the nine months ended September 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 margins in the third quarter and nine months ended September 30, 2022 were strong, but declined from the same periods in 2021 due to different product pricing trends during the periods.

Our gross profit margins in the third quarter and nine months ended September 30, 2021 benefited from the rapid and significant increases in metal prices and limited metal supply throughout the periods, while our gross profit margins in the 2022 periods compressed as our average selling price reached a peak in the second quarter of 2022 and declined throughout the third quarter of 2022.

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

September 30,

Cost of sales

LIFO (income) expense

* Not meaningful.

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

In addition, we record non-cash adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs.

The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $728.8 million at March 31, 2023.

Furthermore, cost of sales in the first quarter of 2022 was reduced by $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions that decreased gross profit margin 20 basis points.

Our gross profit margin in the first quarter of 2023 was strong and unchanged from the first quarter of 2022.

We believe our strong and consistent gross profit margin was supported by investments in value-added processing equipment in recent years, relatively higher metal pricing versus historical levels and healthy demand.

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

Three Months Ended March 31,

(dollars in millions)

SG&A expense (three months ended)

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

SG&A expense (nine months ended)

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

Depreciation & amortization expense (three months ended)

Depreciation & amortization expense (nine months ended)

The increase in our same-store SG&A expense in the nine months ended September 30, 2022 was mainly due to higher variable expenses associated with inflationary impacts for wages, fuel, freight and packaging costs.

Our same-store SG&A expense in the third quarter of 2022 included the same inflationary cost pressures, but was offset by a reduction in incentive compensation as a significant majority of our incentive compensation programs are tied to FIFO profitability, which declined from the same period in 2021.

The decreases in our SG&A expense as a percentage of sales in the third quarter and nine months ended September 30, 2022 compared to the same periods in 2021 were due to our higher sales providing us with better operating leverage.

Depreciation & amortization expense

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

Our SG&A expense as a percentage of sales mainly increased due to lower sales levels.

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

Operating Income

September 30,

Three Months Ended March 31,

(dollars in millions)

Operating income (three months ended)

Operating income (nine months ended)

The increase in our operating income in the nine months ended September 30, 2022 compared to the same period in 2021 was due to increased gross profit, mainly as a result of a significant increase in 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 in the third quarter of 2022 decreased 130 basis points from the third quarter of 2021 mainly due to a 230 basis point decrease in our gross profit margin that was partially offset by a 100 basis point decrease in our SG&A expense as a percentage of sales due to our higher sales and better operating leverage.

Our operating income margin in the nine months ended September 30, 2022 was at a record level and increased 160 basis points from the same period in 2021 mainly due to our higher sales that decreased our SG&A expense as a percentage of sales by 260 basis points, offsetting a 140 basis point decrease in our gross profit margin.

Operating income

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

Our operating income margin decline was consistent with the increase in our SG&A expense as a percentage of sales that was mainly due to our lower sales.

Income Tax Rate

Our effective income tax rate of 24.7% for each of the third quarter and nine months ended September 30, 2022 declined from 25.5% in each of the same 2021 periods 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.

Our effective income tax rates for the first quarters of 2023 and 2022 were 24.4% and 24.8%, respectively.

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

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

federal statutory rate of 21.0% were mainly due to state income taxes and higher foreign income tax rates, partially offset by the effects of company-owned life insurance policies.

Financial Condition

Operating Activities

Net cash provided by operations of $1.31 billion in the nine months ended September 30, 2022 increased $904.3 million, or 223.0%, from the same period in 2021.

The increase was mainly due to a $497.8 million, or 50.0%, increase in net income that required moderate additional working capital investment in the nine months ended September 30, 2022 when compared to the same period in 2021 which had significant and rapid increases in metals pricing and limited metal availability that required a significantly higher investment in working capital.

Net cash provided by operations of $384.6 million in the first quarter of 2023 was slightly less than record first quarter cash flow of $404.0 million in 2022.

We were able to achieve consistent operating cash flow as the decline in our net income required a similar decrease in working capital investment in the first quarter of 2023 compared to the same period in 2022, due to the relatively flat pricing environment in the first quarter of 2023 compared to the same period in 2022 in which our average selling price had increased significantly to a record level.

To manage our working capital, we focus on our days sales outstanding and inventory turnover rate as receivables and inventory are the two most significant elements of our working capital.

As of September 30, 2022 and 2021, our days sales outstanding rate was 39.6 days and 39.1 days, respectively.

Our inventory turnover rate (based on tons) during the nine months ended September 30, 2022 was 4.3 times (or 2.8 months on hand), compared to 4.9 times (or 2.4 months on hand) in the same period in 2021.

Income taxes paid were $596.8 million in the nine months ended September 30, 2022 compared to $297.3 million in the same period in 2021.

The significant increase in our tax payments was mainly due to higher estimated tax payments in the nine months ended September 30, 2022 compared to the same period in 2021, as a result of our significantly higher pretax income.

As of March 31, 2023 and 2022, our days sales outstanding rate was 40.0 days and 39.1 days, respectively.

Our inventory turnover rate (based on tons) during the first quarter of 2023 was 4.9 times (or 2.4 months on hand), compared to 4.4 times (or 2.7 months on hand) in the first quarter of 2022.

Income taxes paid were $21.2 million in the first quarter of 2023 compared to $89.8 million in the first quarter of 2022.

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

Investing Activities

Net cash used in investing activities was $244.4 million in the nine months ended September 30, 2022 compared to $148.2 million in the same period in 2021 and was substantially comprised of capital expenditures partially offset by proceeds from sales of property, plant and equipment.

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

Net cash used in investing activities was $102.6 million in the first quarter of 2023 compared to $63.3 million in the first quarter of 2022 and were substantially comprised of capital expenditures.

The majority of our capital expenditures in the first quarters of 2023 and 2022 were related to growth initiatives.

Financing Activities

Net cash used in financing activities was $711.1 million in the nine months ended September 30, 2022, compared to $301.8 million of net cash used in financing activities for the same period in 2021, mainly due to increased share repurchases.

In the nine months ended September 30, 2022, we spent $547.7 million to repurchase shares of our common stock compared to $155.0 million in the same period in 2021.

Our other stockholder return activities included an increase in our quarterly dividend rate with total dividend payments of $163.5 million in the nine months ended September 30, 2022 compared to $132.3 million in the same period in 2021.

On October 25, 2022, our Board of Directors declared the 2022 fourth quarter cash dividend of $0.875 per share.

Net cash used in financing activities was $639.2 million in the first quarter of 2023 compared to $92.0 million in the first quarter of 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023 .

In the first quarter of 2023, we spent $38.9 million to repurchase shares of our common stock compared to $17.1 million in the first quarter of 2022.

Our other stockholder return activities included an increase in our quarterly dividend rate with total dividend payments of $62.0 million in the first quarter of 2023 compared to $56.7 million in the first quarter of 2022.

We also spent $37.2 million on taxes relating to net share settlement of performance-based restricted stock units in the first quarter of 2023 compared to $17.1 million in the first quarter of 2022.

On April 25, 2023, our Board of Directors declared the 2023 second quarter cash dividend of $1.00 per share.

We have increased our quarterly dividend 30 times since our IPO in 1994, with the most recent increase of 14.3% from $0.875 per share to $1.00 per share effective in the first quarter of 2023.

We have paid quarterly cash dividends on our common stock for 64 consecutive years and have never reduced or suspended our regular quarterly dividend.

See Note 9—“Equity” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for information on our stock repurchases.

On July 26, 2022, our Board of Directors amended our share repurchase program to increase the remaining repurchase authorization to $1.0 billion.

At September 30, 2022, $763.3 million of our common stock remained authorized for repurchase.

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

On July 26, 2022, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $1.0 billion.

At March 31, 2023, $641.8 million of our common stock remained authorized for repurchase.

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

Since 2017, we have repurchased approximately 15.9 million shares at an average cost of $111.51 per share, for a total of $1.77 billion, resulting in a 21.8% reduction in our common shares issued and outstanding.

Since 2018, we have repurchased approximately 16.1 million shares at an average cost of $115.65 per share, for a total of $1.86 billion, resulting in a 22.2% reduction in our common shares outstanding.

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

Purchase Obligations

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.

Our actual capital expenditure spending over 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.

The Company’s debt obligations have not changed significantly since December 31, 2021.

We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at March 31, 2023 under our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”).

We also had an aggregate of $1.15 billion principal amount of senior unsecured note obligations with various maturities through 2036 issued under indentures as of March 31, 2023.

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

See Note 5—“Debt” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for further information on our debt obligations.

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We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond.

As of September 30, 2022, we had $643.7 million in cash and cash equivalents with no outstanding borrowings on the revolving credit facility 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 12.8%, down from 18.1% as of December 31, 2021.

As of September 30, 2022, we had $910.1 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.

As of March 31, 2023, we had $816.2 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 4.3%, down from 6.3% as of December 31, 2022.

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

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

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

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

Additionally, we believe our investment grade credit ratings enhance our ability to effectively raise capital, if needed.

We expect to continue our acquisition and internal growth and stockholder return activities and anticipate that we will be able to fund such activities as they arise.

The Credit Agreement and the Indentures include customary representations, warranties, covenants and events of default provisions.

The Credit Agreement and indentures governing our debt securities include customary representations, warranties, covenants and events of default provisions.

The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio.

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

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

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

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The number of shipping days in each quarter also has an impact on our quarterly sales and profitability.

Particularly in light of the COVID-19 pandemic, we cannot predict whether period-to-period fluctuations will be consistent with historical patterns.

Results of any one or more quarters are therefore not necessarily indicative of annual results.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.10 billion at September 30, 2022, or approximately 21% of total assets and 31% of total equity.

Additionally, other intangible assets, net amounted to $1.03 billion at September 30, 2022, or approximately 10% of total assets and 15% of total equity.

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at March 31, 2023, or approximately 21% of total assets and 29% of total equity.

Additionally, other intangible assets, net amounted to $1.01 billion at March 31, 2023, or approximately 10% of total assets and 14% of total equity.

Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests and further evaluation when certain events occur.

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Our actual results may differ from these estimates under different assumptions or conditions.

The impacts of the COVID-19 pandemic increase uncertainty, which has reduced our ability to use past results to estimate future performance.

Accordingly, our estimates and judgments may be subject to greater volatility than in the past.

During the quarter ended September 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.

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

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

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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