What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 109 added, 92 removed, 85 unchanged (70% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The terms “Company,” “Reliance,” “we,” “our,” and “us” refer to Reliance Steel & Aluminum Co.

and all its subsidiaries that are consolidated in accordance with U.S.

generally accepted accounting principles, unless otherwise indicated.

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”).

5 unchanged sentences

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

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

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

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

Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, slowing growth, COVID-19 or outbreaks of other infectious disease, 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”).

3 unchanged sentences

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 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.

Key results for the second quarter and first half of 2023 included the following:

● Increases in tons sold of 1.9% and 4.5% for the second quarter and six months ended June 30, 2023, respectively.

● Quarterly net sales of $3.88 billion were down 17.1% from the second quarter of 2022, reflecting a 19.0% decrease in average selling price per ton sold.

Net sales of $7.85 billion for the six months ended June 30, 2023 were down 14.4% from the same period in 2022, reflecting a 18.3% decrease in average selling price per ton sold.

● Gross profit margins for the second quarter and six months ended June 30, 2023 of 31.5% and 31.2%, respectively, were slightly lower compared to the prior year periods that benefitted from a rising metals pricing environment.

● Earnings per diluted share of $6.49 and $12.92 for the second quarter and six months ended June 30, 2023, respectively, compared to $9.15 and $17.49 for the respective 2022 periods.

● Cash flow from operations of $679.7 million for the six months ended June 30, 2023 increased slightly from $674.2 million for the same period in 2022, despite lower net income.

● Inventory turnover rate (based on tons) of 4.8x exceeded our Company-wide annual goal of 4.7x and our 4.4x rate in the prior year period.

● Returns to stockholders of $233.4 million, comprised of $120.6 million of cash dividends and $112.8 million of share repurchases for the six months ended June 30, 2023.

Our net sales declined in the second quarter and six months ended June 30, 2023 compared to record levels in the same 2022 periods due to declines in our average selling price per ton sold that were partially offset by moderate increases in our tons sold.

Our average selling price per ton sold peaked at an ultimate record in the second quarter of 2022 and subsequently declined throughout the second half of 2022 and down overall for the first quarter of 2023.

Our second quarter of 2023 average selling price per ton sold was relatively flat as a result of the mix of our products sold as an increase in our carbon selling price per ton sold offset declines in prices for the stainless and common alloy aluminum products we 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 continuing COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

The increases in our tons sold reflected solid demand in the vast majority of our end markets, driven in part by our investments in organic growth, with particular strength in non-residential construction, Reliance’s largest end market, and commercial aerospace.

Our gross profit margins in the second quarter and six months ended June 30, 2023 of 31.5% and 31.2%, respectively, were generally consistent with the comparable 2022 periods and supported by investments in value-added processing capabilities in recent years, stable metals pricing at historically elevated levels and healthy demand in the end markets we serve.

Our SG&A expense for the second quarter and six months ended June 30, 2023 increased 0.3% and 3.3%, respectively;

which increases were of lower magnitude than the increases in our tons sold of 1.9% and 4.5%, respectively.

The main drivers of our moderately increased SG&A expense were incremental variable costs associated with increases in our tons sold and inflationary impacts on wages and transportation costs, partially offset by decreased incentive-based compensation from lower profitability.

Our cash flow from operations of $679.7 million for the six months ended June 30, 2023 increased slightly from $674.2 million for the same period in 2022 despite a 29.8% decline in net income.

We were able to grow our operating

cash flow despite a significant decline in net income through effective management of our working capital.

Our significant cash flow generation supported returns to our stockholders and our growth initiatives, which included the acquisition of Southern Steel Supply, LLC (“Southern Steel”) and $233.1 million of capital expenditures.

We believe our liquidity position that includes substantial cash on hand, significant 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.

On May 1, 2023, we acquired Southern Steel, a metals service center that offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts.

Located in Memphis, Tennessee, Southern Steel now operates as a subsidiary of Siskin Steel & Supply Company, Inc., a wholly owned subsidiary of Reliance.

The acquisition was funded with cash on hand.

Included in our net sales for the six months ended June 30, 2023 were net sales of $8.9 million from Southern Steel.

Results of Operations

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,

The following sets forth certain income statement data for the second quarter and six months ended June 30, 2023 and 2022 (dollars are shown in millions, except per share amounts, and certain amounts may not calculate due to rounding):

Three Months Ended

Six Months Ended

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

5 unchanged sentences

Diluted earnings per share attributable to Reliance stockholders

(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 for 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 expense associated with the corresponding sales.

6 unchanged sentences

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

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

Second Quarter and Six Months Ended June 30, 2023 Compared to Second Quarter and Six Months Ended June 30, 2022

(dollars in millions)

Net sales (three months ended)

Net sales (six months ended)

(tons in thousands)

Tons sold (three months ended)

Tons sold (six months ended)

Average selling price per ton sold (three months ended)

Average selling price per ton sold (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 intercompany transactions that are eliminated from our consolidated net sales.

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.

Our net sales declined from record levels in the comparable 2022 periods due to declines in our average selling price per ton sold that were partially offset by moderate increases in tons sold.

Demand was healthy in the vast majority of our end markets, driven in part by our investments in organic growth, with particular strength in non-residential construction (our largest) and commercial 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.

Our average selling price per ton sold peaked in the second quarter of 2022 and subsequently declined throughout the second half of 2022 and down overall for 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.

Our second quarter of 2023 average selling price per ton sold was relatively flat with the prior quarter as an increase in our carbon selling price per ton sold offset declines in prices for the stainless and common alloy aluminum products we sold.

As c arbon steel sales represented 52% of our gross sales for the six months ended June 30, 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:

Three Months Ended

Six Months Ended

Average Selling

Percentage of

Average Selling

Percentage of

Stainless steel

Cost of Sales and Gross Profit

Three Months Ended March 31,

(dollars in millions)

Cost of sales

LIFO (income) expense

Cost of sales (three months ended)

Cost of sales (six months ended)

Gross profit (three months ended)

Gross profit (six months ended)

LIFO (income) expense (three months ended)

LIFO (income) expense (six months ended)

* 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.

Gross profit in the second quarter and six months ended June 30, 2023 decreased from the same periods in 2022 mainly due to lower sales as a result of decreases in average selling price per ton sold that outpaced moderate increases 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.

The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $683.8 million at June 30, 2023.

Furthermore, cost of sales for the six months ended June 30, 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 ten basis points.

Decreases in pricing for certain products we sold during the second quarter and six months ended June 30, 2023 resulted in slightly lower gross profit margins compared to the prior year periods that benefitted from rising metals prices.

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

Three Months Ended March 31,

(dollars in millions)

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.

SG&A expense (three months ended)

SG&A expense (six months ended)

Depreciation & amortization expense (three months ended)

Depreciation & amortization expense (six months ended)

The increases in our SG&A expense for the second quarter and six months ended June 30, 2023 compared to the same periods in 2022 were mainly due to higher variable costs associated with increases in our tons sold and inflationary impacts on wages and transportation costs, which were partially offset by lower incentive-based compensation that is primarily tied to first-in, first-out pretax income profitability, which declined 39.9% and 36.5%, respectively.

Our SG&A expense as a percentage of sales for the second quarter and six months ended June 30, 2023 compared to the same periods in 2022 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

Three Months Ended March 31,

(dollars in millions)

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.

Operating income (three months ended)

Operating income (six months ended)

The decreases in our operating income for the second quarter and six months ended June 30, 2023 as compared to the same periods in 2022 were mainly a result of lower gross profit, driven by lower metals prices, along with moderate increases in SG&A expense attributable to increases in our tons sold and inflationary impacts on wages and transportation costs.

As our gross profit margins were generally consistent with the same periods in 2022, the decreases in our operating income margins for the second quarter and six months ended June 30, 2023 were mainly due to our lower sales levels that decreased operating leverage of our SG&A expenses.

Income Tax Rate

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

Our effective income tax rate for each of the second quarter and six months ended June 30, 2023 was 24.4%, compared to 24.7% for the same 2022 periods.

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

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

federal statutory rate of 21.0% were mainly due to state income taxes.

Financial Condition

Operating Activities

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.

Net cash provided by operations of $679.7 million for the six months ended June 30, 2023 increased slightly from $674.2 million for the same period in 2022.

The impact of lower profitability on operating cash flow was offset by lower working capital needs, resulting in relatively consistent levels of operating cash flow in both periods.

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

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

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

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.

As of June 30, 2023 and 2022, our days sales outstanding rates were 40.2 days and 39.2 days, respectively.

Our inventory turnover rate (based on tons) during the six months ended June 30, 2023 was 4.8 times (or 2.5 months on hand), compared to 4.4 times (or 2.7 months on hand) for the same period in 2022.

Income taxes paid were $191.0 million in the six months ended June 30, 2023 compared to $427.2 million in the same period in 2022.

The decrease in our taxes paid was mainly due to lower estimated tax payments in the six months ended June 30, 2023 compared to the same period in 2022 as a result of decreased pretax income and to a lesser extent income tax extension payments made during the six months ended June 30, 2022.

Investing Activities

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.

Net cash used in investing activities was $255.0 million for the six months ended June 30, 2023 compared to $149.4 million for the same period in 2022 and was substantially comprised of capital expenditures and the purchase price for our acquisition of Southern Steel on May 1, 2023.

The majority of our capital expenditures in the six months ended June 30, 2023 and 2022 were related to growth initiatives.

Financing Activities

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.

Net cash used in financing activities was $780.4 million for the six months ended June 30, 2023 compared to $316.5 million for the same period in 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023 .

In the six months ended June 30, 2023, we spent $112.8 million to repurchase

shares of our common stock compared to $211.0 million in the same period in 2022.

Our other stockholder return activities included an increase in our quarterly dividend rate with total dividend payments of $120.6 million in the six months ended June 30, 2023 compared to $110.6 million in the same period in 2022.

We also spent $37.3 million on taxes relating to net share settlement of restricted stock units in the six months ended June 30, 2023 compared to $17.1 million in the same period in 2022.

On July 25, 2023, our Board of Directors declared the 2023 third 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.

2 unchanged sentences

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.

At June 30, 2023, $567.9 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 2018, we have repurchased approximately 16.4 million shares at an average cost of $117.98 per share, for a total of $1.94 billion, resulting in a 22.6% reduction in our common shares outstanding.

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

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.

We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at June 30, 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 June 30, 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.

1 unchanged sentence

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.

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 our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our Credit Agreement, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond.

As of June 30, 2023, we had $816.3 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 4.1%, down from 6.3% as of December 31, 2022.

As of June 30, 2023, we had $400.6 million of debt obligations coming due before our Credit Agreement matures 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.

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

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

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

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 March 31, 2023.

We were in compliance with all financial maintenance covenants in our Credit Agreement at June 30, 2023.

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

2 unchanged sentences

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

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 $2.11 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, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at June 30, 2023, or approximately 20% of total assets and 28% of total equity.

Additionally, other intangible assets, net amounted to $1.00 billion at June 30, 2023, or approximately 10% of total assets and 13% 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.

8 unchanged sentences

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

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.

During the quarter ended June 30, 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.

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 .

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 .

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

The website is for informational purposes only and is not intended for use as a hyperlink.

The Company is not incorporating any material on its website into this report.

The Company is not incorporating any material on its website into this quarterly report on Form 10-Q.

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