Russel Metals Inc. (TSX: RUS) today announced a second quarter loss
of $0.41 per share. This includes an inventory write-down of $0.59
per share. Excluding this write-down and a gain on sale of a
property of $4 million, adjusted earnings per share was $0.10 for
the quarter compared to $1.25 per share for the second quarter of
2008.
The net loss for the second quarter was $25 million compared to
net earnings of $79 million for the second quarter of 2008. The
2009 results include a pretax inventory write-down of $56 million
primarily in the energy tubular products segment. In addition, the
2009 results were impacted by volume declines in all three
operating segments and lower margins due to pricing pressure from
declining mill prices and excess inventory in the supply chain.
Metals service centers reported an operating profit of $2
million for the quarter compared to an operating profit of $72
million for the second quarter of 2008. Volumes were 40% lower in
the second quarter of 2009 compared to 2008 and were consistent
with the first quarter of 2009. A $2 million inventory write-down
was taken in this segment. The improvement in write-downs from the
first quarter reflects that pricing for most products stabilized in
the second quarter of 2009.
Our energy tubular products segment reported a second quarter
operating loss of $49 million including an inventory write-down of
$55 million. The segment operating profit was $6 million before
inventory write-downs compared to an operating profit of $29
million for the second quarter of 2008. Revenues declined 45% from
the second quarter of 2008 due to lower drilling activity driven by
the low price of oil and natural gas. Excess inventory in the
industry has resulted in price pressures and based on current
activity, we have taken an inventory write-down.
Our steel distributors segment reported operating profits of $5
million despite a revenue decline of 53% for the second quarter of
2009 compared to 2008. The segment operating profit was $26 million
for the second quarter of 2008.
Brian R. Hedges, President and CEO, stated, "I am encouraged by
the results of our metals service centers as they have reported an
operating profit for the quarter despite a 40% drop in demand from
last year. As previously stated, we are managing operations as if
the volume declines are permanent. Our managers are reacting to the
challenging market and continue to reduce expenses in line with
current volumes.
In the third quarter of 2009, the steel mills have announced
price increases, which should result in margin improvements. Demand
levels remain unchanged and this needs to improve for us to achieve
more normalized profit levels."
Marion E. Britton, Vice President and CFO, stated "Operating
expenses are $40 million lower compared to the second quarter of
2008. Our highly variable compensation model has been a significant
factor in reducing expenses in all segments."
The Board of Directors approved a quarterly dividend of $0.25
per common share payable September 15, 2009 to shareholders of
record as of August 24, 2009.
The Company will be holding an Investor Conference Call on
Thursday, August 6, 2009 at 9:00 a.m. ET to review its second
quarter results for 2009. The dial-in telephone numbers for the
call are 416-641-6130 (Toronto and International callers) and
1-866-226-1793 (U.S. and Canada). Please dial in 10 minutes prior
to the call to ensure that you get a line.
A replay of the call will be available at 416-695-5800 (Toronto
and International callers) and 1-800-408-3053 (U.S. and Canada)
until midnight, Thursday, August 20, 2009. You will be required to
enter pass code 3284122 in order to access the call.
Additional supplemental financial information is available in
our investor conference call package located on our website at
www.russelmetals.com.
Russel Metals is one of the largest metals distribution
companies in North America. It carries on business in three
distribution segments: metals service centers, energy tubular
products and steel distributors, under various names including
Russel Metals, A.J. Forsyth, Acier Leroux, Acier Loubier, Acier
Richler, Arrow Steel Processors, B&T Steel, Baldwin
International, Comco Pipe and Supply, Fedmet Tubulars, JMS Russel
Metals, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel,
Metaux Russel Produits Specialises, Milspec Industries, Norton
Metals, Pioneer Pipe, Russel Metals Specialty Products, Russel
Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group,
Triumph Tubular & Supply, Wirth Steel and York-Ennis.
Statements contained in this press release or on the related
conference call that relate to Russel Metals' beliefs or
expectations as to certain future events are not statements of
historical fact and are forward-looking statements. Russel Metals
cautions readers that there are important factors, risks and
uncertainties, including but not limited to economic, competitive
and governmental factors affecting Russel Metals' operations,
markets, products, services and prices that could cause its actual
results, performance or achievements to be materially different
from those forecasted or anticipated in such forward-looking
statements.
The forward-looking statements in this document reflect
management's current beliefs and are based on information currently
available to management. The material assumptions applied in making
the forward-looking statements in this document include the
following: demand from the manufacturing, resource and construction
segments of the Canadian economy, oil and gas prices and the price
of steel have all been significantly negatively impacted by the
economic conditions and these conditions will impact these factors
for the foreseeable future. The value of the Canadian dollar
relative to the U.S. dollar will be consistent with what we
experienced at the end of the second quarter of 2009. Although the
forward-looking statements contained in this document are based
upon what management believes to be reasonable estimates and
assumptions, Russel Metals cannot ensure that actual results will
not be materially different from those expressed or implied by
these forward-looking statements.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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June 30 December 31
(millions) 2009 2008
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ASSETS
Current
Cash and cash equivalents $ 113.7 $ 44.9
Accounts receivable 243.7 429.3
Inventories 644.1 925.1
Prepaid expenses and other assets 6.2 8.1
Income taxes 65.7 7.1
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1,073.4 1,414.5
Property, Plant and Equipment 239.7 249.9
Future Income Tax Assets 1.0 1.0
Pensions and Benefits 6.9 6.5
Other Assets 8.5 7.0
Goodwill and Intangibles 68.4 71.8
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$ 1,397.9 $ 1,750.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ 44.3 $ 64.9
Accounts payable and accrued liabilities 245.5 420.7
Income taxes payable 2.4 30.3
Current portion long-term debt 1.4 1.4
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293.6 517.3
Derivatives 21.1 22.1
Long-Term Debt 205.9 217.5
Pensions and Benefits 5.9 5.8
Future Income Tax Liabilities 11.8 7.9
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538.3 770.6
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Shareholders' Equity
Common shares 478.8 478.8
Retained earnings 357.6 467.0
Contributed surplus 10.3 9.4
Accumulated other comprehensive income 12.9 24.9
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859.6 980.1
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$ 1,397.9 $ 1,750.7
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CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS (UNAUDITED)
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(millions, except per Quarters ended June 30 Six months ended June 30
share data) 2009 2008 2009 2008
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Revenues $ 462.5 $ 856.3 $ 1,104.8 $ 1,568.6
Cost of sales and
operating expenses 506.7 734.9 1,229.9 1,395.1
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(Loss) earnings before the
following (44.2) 121.4 (125.1) 173.5
Other income (expense) 4.3 0.7 4.3 (2.5)
Interest expense, net (4.4) (2.3) (9.2) (4.4)
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(Loss) earnings before
income taxes (44.3) 119.8 (130.0) 166.6
Recovery of (provision
for) income taxes 19.7 (41.0) 50.4 (58.6)
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Net (loss) earnings for
the period $ (24.6) $ 78.8 $ (79.6) $ 108.0
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Basic (loss) earnings per
common share $ (0.41) $ 1.25 $ (1.33) $ 1.71
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)
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Quarters ended June 30 Six months ended June 30
(millions) 2009 2008 2009 2008
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Retained earnings,
beginning of the period $ 397.1 $ 412.5 $ 467.0 $ 411.7
Net (loss) earnings for
the period (24.6) 78.8 (79.6) 108.0
Dividends on common shares (14.9) (28.5) (29.8) (56.9)
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Retained earnings, end of
the period $ 357.6 $ 462.8 $ 357.6 $ 462.8
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
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Quarters Six months
Ended June 30 Ended June 30
(millions) 2009 2008 2009 2008
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Net (loss) earnings for the period $ (24.6) $ 78.8 $ (79.6) $ 108.0
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Other comprehensive (loss) income
Unrealized foreign exchange (losses)
gains on translation of self-
sustaining foreign operations
(U.S. subsidiaries) (34.9) (2.6) (21.3) 9.6
Unrealized gains (losses) on items
designated as net investment hedges 5.3 0.5 3.4 (1.6)
Unrealized gains (losses) on items
designated as cash flow hedges 1.3 (2.2) 0.5 (2.7)
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Other comprehensive (loss) income (28.3) (4.3) (17.4) 5.3
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Comprehensive (loss) income $ (52.9) $ 74.5 $ (97.0) $ 113.3
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CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS) (UNAUDITED)
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Quarters Six months
Ended June 30 Ended June 30
(millions) 2009 2008 2009 2008
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Accumulated net unrealized foreign
currency translation gains and losses
Balance, beginning of period $ 50.5 $ (33.5) $ 36.9 $ (45.7)
Unrealized foreign exchange
(losses) gains on translation of
self-sustaining foreign operations (34.9) (2.6) (21.3) 9.6
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Balance, end of period 15.6 (36.1) 15.6 (36.1)
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Accumulated net unrealized (loss) gain
on cash flow and net investment hedges
Balance, beginning of period (9.3) 4.8 (12.0) 7.4
Transitional adjustment (net of
tax of $2.0) - - 5.4 -
Unrealized gains (losses) on items
designated as net investment hedges 5.3 0.5 3.4 (1.6)
Unrealized gains (losses) on items
designated as cash flow hedges 1.3 (2.2) 0.5 (2.7)
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Balance, end of period (2.7) 3.1 (2.7) 3.1
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Accumulated other comprehensive
income (loss) $ 12.9 $ (33.0) $ 12.9 $ (33.0)
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CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED)
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Quarters ended Six months
June 30 ended June 30
(millions) 2009 2008 2009 2008
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Operating activities
Net (loss) earnings from continuing
operations $ (24.6) $ 78.8 $ (79.6) $ 108.0
Depreciation and amortization 6.5 5.7 13.0 11.4
Future income taxes 1.9 1.2 4.0 1.3
(Gain) loss on sale of fixed assets (4.3) 0.1 (4.5) 0.1
Stock-based compensation 0.5 0.4 0.9 2.9
Pension expense (funding) (0.2) - (0.3) (0.1)
Other 0.1 (0.7) 0.4 2.7
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Cash (used in) from operating
activities before non-cash working
capital (20.1) 85.5 (66.1) 126.3
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Changes in non-cash working capital
items
Accounts receivable 77.0 (62.4) 182.2 (133.7)
Inventories - change in NRV reserve 56.2 - 150.7 -
Inventories 99.1 (55.3) 114.1 (42.6)
Accounts payable and accrued
liabilities (115.4) 90.1 (172.2) 145.8
Current income taxes (16.2) 13.1 (84.9) 21.9
Other 0.8 (0.9) 1.9 0.2
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Change in non-cash working capital 101.5 (15.4) 191.8 (8.4)
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Cash from operating activities 81.4 70.1 125.7 117.9
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Financing activities
Increase (decrease) in bank
borrowing 7.0 - (17.9) -
Issue of common shares - 1.5 - 2.5
Dividends on common shares (14.9) (28.5) (29.8) (56.9)
Repayment of long-term debt (0.3) (0.2) (0.7) (0.4)
Deferred financing (2.3) - (2.3) -
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Cash used in financing activities (10.5) (27.2) (50.7) (54.8)
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Investing activities
Purchase of fixed assets (2.9) (6.1) (6.7) (10.4)
Proceeds on sale of fixed assets 5.0 0.1 5.6 0.1
Other (6.0) (0.8) (4.8) (0.3)
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Cash used in investing activities (3.9) (6.8) (5.9) (10.6)
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Effect of exchange rate changes on
cash and cash equivalents (0.4) (0.2) (0.3) 1.2
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Increase in cash and cash
equivalents 66.6 35.9 68.8 53.7
Cash and cash equivalents,
beginning of the period 47.1 199.6 44.9 181.8
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Cash and cash equivalents,
end of the period $ 113.7 $ 235.5 $ 113.7 $ 235.5
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Contacts: Russel Metals Inc. Marion E. Britton, C.A. Vice
President and Chief Financial Officer (905) 819-7407
info@russelmetals.com www.russelmetals.com
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