RELIANCE, INC. (RS)

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

​

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A. “Risk Factors” of this Annual Report on Form 10-K.

​

Overview

​

In 2024, demand was relatively healthy in the majority of our end markets, supported by same-store growth in tons sold compared to 2023. Despite growing our tons sold, our operating results declined mainly due to lower metals prices and our net sales of $13.84 billion declined 6.6% compared to $14.81 billion in 2023.

​

Our same-store and total tons sold increases of 1.0% and 4.0%, respectively, in 2024 compared to 2023 benefited from one additional shipping day and outperformed the 2.0% decline in industry shipments reported by the Metals Service Center Institute (“MSCI”). We believe our outperformance of industry peers is supported by our organic growth activities along with our customer service.

​

Gross profit margin was 29.7% in 2024 compared to 30.7% in 2023. Our gross profit margin remained strong but was impacted by declines in metals pricing. However, we believe the impact from the decline in metals pricing was mitigated by effective inventory management, our focus on small orders with quick turnaround and value-added processing services.

​

Earnings per diluted share of $15.56 in 2024 declined 31.3% compared to $22.64 in 2023. Despite increases in our same-store tons sold and total tons sold, our earnings per share declined mainly due to lower metals prices.

​

Although cash flow from operations of $1.43 billion in 2024 was the third highest in our history, it decreased $241.5 million, or 14.4%, from $1.67 billion in 2023, the second highest in our history, mainly due to lower net income partially offset by lower working capital investment.

​

Returns to stockholders in 2024 totaled $1.34 billion, comprised of a record $1.09 billion of share repurchases which reduced our outstanding common shares by six percent year-over-year, and $249.7 million of cash dividends, which reflected a 10.0% increase in our regular quarterly dividend rate.

​

Organic growth activities were substantially comprised of capital expenditures of $430.6 million in 2024 compared to $468.8 million in 2023. We also invested $364.6 million in four acquisitions in 2024.

​

Effect of Demand and Pricing Changes on our Operating Results

​

Customer demand has a significant impact on our results of operations. When volume increases, our revenue dollars generally increase, which contributes to increased gross profit dollars. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. Variable costs such as certain warehouse, delivery and selling, general and administrative expenses also increase with volume. While we can and do reduce certain variable expenses when volumes decline, we cannot easily reduce our fixed costs.

​

Pricing for our products generally has a much more significant impact on our results of operations than customer demand. Our revenues generally increase as a result of pricing increases as overall customer demand is not usually impacted by typical mill pricing increases, although customer buying patterns may change. Our selling prices generally increase when the cost of the metals we purchase increase as we are typically able to pass higher metals costs on to our customers. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. For more information, see Item 1A. “Risk Factors”.

​

28

Table of Contents

In addition, when volume or pricing increases, our working capital requirements typically increase which decreases operating cash flow. Conversely, when customer demand or pricing falls, our investment in working capital typically decreases which improves operating cash flow.

​

Acquisitions

​

2024 Acquisitions

​

To further our growth strategy, we completed four acquisitions in 2024. The consideration of each acquisition in 2024 was funded with cash on hand. Our acquisition strategy enhances our product breadth and value-added processing capabilities, with a continued focus on the diversification of our products, end markets and geographies. Our 2024 acquisitions broaden our geographic base and processing capabilities in new and existing markets.

​

​

​

​

​

Our 2024 acquisitions contributed $286.2 million to our 2024 net sales.

​

2023 Acquisition

​

On May 1, 2023, with cash on hand, we acquired Southern Steel Supply, LLC (“Southern Steel”). Headquartered in Memphis, Tennessee, Southern Steel distributes and processes merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Southern Steel contributed $36.1 million to our 2024 net sales.

​

Internal Growth Activities

​

In 2024, we continued to maintain our focus on internal growth by building new facilities, expanding existing facilities, relocating leased facilities to facilities we own, expanding our processing capabilities and capacity, upgrading processing equipment to increase efficiency, improving the safety and energy efficiency of our operations and enhancing the working environments of our employees. Our capital expenditure budgets have been at historically high levels in recent years and, we believe, significantly contribute to our industry leading financial results. During 2024 and 2023, we spent $430.6 million and $468.8 million on capital expenditures.

​

We believe the increase in our level of orders that include value-added processing over time has provided stability to our gross profit margin during periods of declining metals prices and contributed to a higher sustainable gross profit margin level. We have made significant investments in capital expenditures in recent years that have expanded our value-added processing capabilities and increased the level of our sales orders that include value-added processing to at least 50%,

29

Table of Contents

which we believe has been supportive to increases in our sustainable gross profit margin, which is currently estimated at 29%-31%. Our current processing and estimated sustainable gross profit margin level is significantly higher than what we believe to be our historical levels from approximately a decade ago in which our orders that included value-added processing ranged from 40%-45% and our gross profit margins were approximately 25%-27%.

​

We believe that our ability to make significant investments in processing equipment and facilities is a competitive advantage, as we can expand our services and provide higher quality product to our customers. We believe many metals service center company competitors do not have the ability to expand their processing services in response to their customers’ needs as quickly and at the same scale as Reliance.

​

Results of Operations

​

The following sets forth certain income statement data for each of the last three fiscal years (dollars are shown in millions, except per share amounts, and certain percentages may not calculate due to rounding):

​

​

​

​

​

30

Table of Contents

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

​

Net Sales

​

​

Our tons sold and average selling price per ton sold exclude our toll processed tons. Our average selling price per ton sold includes intercompany transactions that are eliminated from our consolidated net sales. Same-store amounts exclude the contributions from our 2024 and 2023 acquisitions.

​

Our same-store net sales declined from 2023 mainly due to declines in carbon steel pricing that lowered our average selling price per ton sold despite an increase in tons sold. Demand remained relatively healthy in the majority of the end markets we serve, supported by same-store growth in tons sold.

​

Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate with changes in replacement costs of the various metals we purchase. The mix of products sold can also have an impact on our overall average selling price per ton sold. As carbon steel sales represented 53% of our gross sales in 2024, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

​

The mix of our total sales by major commodity products and year-over-year changes in selling prices are presented below:

​

​

Our 2024 acquisitions did not significantly impact the selling prices of our major commodity products.

​

31

Table of Contents

​

Cost of Sales and Gross Profit

​

​

The decrease in cost of sales was attributable to lower average costs per ton sold, mainly due to declines in replacement costs for carbon steel products, partially offset by an increase in tons sold.

​

Gross profit decreased despite contributions from four acquisitions and an increase in same-store tons sold mainly due to lower net sales as a result of a decrease in average selling price per ton sold.

​

Our gross profit margin remained strong, but was pressured by lower metals pricing which we believe was mitigated by effective inventory management, our focus on small orders with quick turnaround and value-added processing services.

​

In addition, we record in cost of sales non-cash adjustments to our LIFO method inventory valuation reserve that, in effect, reflects cost of sales at current replacement costs. The inventory caption of our consolidated balance sheet includes a LIFO method inventory valuation reserve of $434.9 million at December 31, 2024.

​

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

​

Expenses

​

​

Our SG&A expense is made up largely of compensation costs (approximately 60-65% historically), which fluctuate based on changes in our headcount levels in response to demand and general inflation, and incentive-based compensation.

​

Same-store SG&A expense increased mainly due to higher costs associated with wage inflation and increased headcount related to our organic growth activities offset by lower incentive-based compensation resulting from lower profitability. Our SG&A expense as a percentage of sales increased mainly due to lower sales levels.

​

In addition, same-store SG&A expense in 2024 included non-recurring net settlement charges of $4.1 million, mainly related to our withdrawal from certain multiemployer pension plans, and 2023 included $3.8 million of nonrecurring gains related to the sale of non-core property, plant and equipment.

​

The increase in same-store depreciation and amortization expense is mainly due to significant increases in capital expenditures in 2023.

​

32

Table of Contents

Included in Expenses are $11.7 million of impairment losses in 2024, which included $11.2 million related to the discontinued use of a trade name intangible asset in connection with an operational restructuring.

​

Operating Income

​

​

Operating income declined mainly as a result of lower metals pricing that decreased gross profit along with a moderate increase in same-store SG&A expense, partially offset by operating income contributions from acquisitions. Our operating income margin was lower mainly due to decreased operating leverage of our SG&A expense due to lower net sales and a lower gross profit margin.

​

See “Net Sales” above for discussion of trends in demand and product costs and “Expenses” for trends in our operating expenses.

​

Other (Income) Expense, Net

​

​

The change in other income, net was mainly due to a decrease in interest income as a result of lower cash and cash equivalent balances and interest earned thereon. See Note 16—“Other (Income) Expense, Net” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on other (income) expense, net.

​

Income Tax Rate

​

Our effective income tax rate was 23.0% in 2024 and 2023. The difference between our effective income tax rate and the U.S. federal statutory rate of 21.0% was mainly due to state income taxes partially offset by the net effects of company-owned life insurance policies. See Note 12—“Income Taxes” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on the differences between our effective income tax rates and the U.S. federal statutory rate.

​

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

​

See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023.

​

Financial Condition

​

Operating Activities

​

Net cash provided by operations of $1.43 billion in 2024 decreased $241.5 million from $1.67 billion in 2023. The decrease was mainly due to a $462.1 million decline in net income partially offset by lower working capital investment. 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. Our average days sales outstanding rates were 41.5

33

Table of Contents

days and 40.5 days in 2024 and 2023, respectively. Our inventory turnover rate (based on tons) during 2024 was 4.6 times (or 2.6 months on hand) compared to 4.7 times (or 2.6 months on hand) in 2023.

​

Income taxes paid of $244.9 million in 2024 decreased from $386.3 million in 2023, mainly due to our lower pretax income.

​

Investing Activities

​

Net cash used in investing activities of $803.7 million in 2024 increased $319.8 million compared to $483.9 million in 2023. The significant increase was mainly due to $364.6 million spent on acquisitions in 2024 compared to $24.0 million in 2023, partially offset by a $38.2 million decrease in capital expenditures. The majority of our capital expenditures in 2024 and 2023 were related to growth initiatives.

​

Financing Activities

​

Net cash used in financing activities of $1.38 billion in 2024 increased $94.1 million from $1.28 billion in 2023. The increase was mainly the result of increased share repurchases partially offset by decreased net debt repayments. Net debt repayments were $0.3 million in 2024 compared to $508.3 million in 2023, which included the redemption of $500.0 million of senior notes. In 2024, we repurchased a record $1.09 billion of our common stock compared to $479.5 million in 2023. Our returns to stockholders also included a 10% increase in our quarterly dividend rate in February 2024 with total dividend payments of $249.7 million in 2024 compared to $238.1 million in 2023.

​

We have paid regular quarterly dividends to our stockholders for 65 consecutive years and increased the quarterly dividend on our common stock 32 times since our 1994 IPO, with the most recent increase of 9.1% from $1.10 per share to $1.20 per share effective in the first quarter of 2025. We have never reduced or suspended our regular quarterly dividend.

​

Share Repurchase Plan

​

See Note 15—“Equity” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information on our share repurchases.

​

On October 22, 2024, our Board of Directors amended our share repurchase program to replenish the repurchase authorization to $1.5 billion. As of February 25, 2025, we had remaining authorization under the plan to repurchase $1.15 billion of our common stock. The share repurchase program does not obligate us to repurchase any specific number of shares in any prescribed period, does not have a specific expiration date and may be suspended or discontinued at any time.

​

Purchase Obligations

​

We had $275.6 million of operating lease obligations as of December 31, 2024, for processing and distribution facilities, equipment, automobiles, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. Our expected payments over the next 12 months under these operating leases are $72.5 million. See Note 11—“Leases” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding the maturities of our operating lease obligations.

​

We have obligations pursuant to pension and postretirement benefit plans. A total of $10.7 million of net liabilities was recognized on the balance sheet at December 31, 2024 and the Company expects to make plan contributions of $0.8 million during 2025. See Note 14—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding our expected payments under these plans.

​

As of December 31, 2024, we had entered into contracts related to capital expenditures in the amount of $97.7 million, of which $91.4 million is expected to be paid over the next 12 months. 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.

​

34

Table of Contents

We primarily purchase and sell in the spot market and consequently our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods (lead times). In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months. The total amount of commitments under long-term inventory purchase agreements is estimated at approximately $276.2 million, with amounts in 2025, 2026 and thereafter being $193.4 million, $57.2 million and $25.6 million, respectively.

​

We have other contractual commitments under long-term service agreements, totaling $74.6 million at December 31, 2024, with amounts in 2025, 2026 and thereafter being $25.8 million, $22.1 million and $26.7 million, respectively.

​

Debt

​

On September 10, 2024, we entered into a $1.5 billion unsecured five-year Second Amended and Restated Credit Agreement (“Credit Agreement”) that amended and restated our then-existing $1.5 billion unsecured revolving credit facility. There was no outstanding balance under our revolving credit facility at December 31, 2024 and 2023. 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 December 31, 2024.

​

See Note 10—“Debt” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our amended credit agreement, debt maturities and indentures governing our debt securities.

​

Liquidity and Capital Resources

​

We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond. As of December 31, 2024, we had $318.1 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 10.2%.

​

As of December 31, 2024, we had $401.1 million of debt obligations coming due before our $1.5 billion unsecured revolving credit facility matures on September 10, 2029, including $400.0 million of senior notes due in August 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 approximately $1.5 billion available under our unsecured revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired. We believe our investment grade credit ratings enhance our ability to effectively raise capital. 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 repurchase our common stock.

​

Covenants

​

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, a financial maintenance covenant that requires us to comply with a maximum total net leverage ratio. As of December 31, 2024, our total net leverage ratio, calculated in accordance with the Credit Agreement, was 13% compared to the debt covenant maximum of 60%.

​

We were in compliance with the financial maintenance covenant under our Credit Agreement at December 31, 2024.

​

Goodwill and Other Intangible Assets

​

We have one operating segment and also one reporting unit for goodwill impairment purposes. There have been no changes in our reportable segments; we have one reportable segment – metals service centers.

35

Table of Contents

​

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.16 billion at December 31, 2024, or approximately 22% of total assets and 30% of total equity. Additionally, other intangible assets, net amounted to $1.01 billion at December 31, 2024, 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. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Refer to Critical Accounting Estimates for further information regarding judgments involved in testing for recoverability of our goodwill and other intangible assets.

​

Critical Accounting Estimates

​

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The Company’s significant accounting policies, including recently issued accounting pronouncements, are fully described in Note 1—“Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.” When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

​

We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

​

Goodwill and Other Indefinite-Lived Intangible Assets

​

We annually test for impairment of goodwill and intangible assets deemed to have indefinite lives and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value. The qualitative factors we review include a decline in our stock price and market capitalization, a decline in the market conditions of our products and viability of end markets, and developments in our business and the overall economy. We make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, including calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and indefinite-lived intangible asset impairment test as of November 1 of each year. No impairment of goodwill was determined to exist during the periods presented in the consolidated financial statements. In 2024, we recorded an $11.2 million impairment loss on a trade name intangible asset with an indefinite life. No impairment of intangible assets with indefinite lives was recognized in 2023 and 2022. See Note 8—“Intangible Assets, Net” of Part II, Item 8 “Financial Statements and Supplementary Data” for further details of our impairment loss.

​

Long-Lived Assets

​

We periodically review the recoverability of our other long-lived assets, primarily property, plant and equipment and intangible assets subject to amortization. The evaluation is performed at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. An impairment loss may be recognized if the estimated undiscounted cash flows are less than the carrying amount of the assets. We must make assumptions regarding estimated future cash flows and other factors to estimate the fair value of the respective assets to determine the amount of the impairment loss. If these estimates or their related assumptions change in the future, we may be required to record

36

Table of Contents

impairment charges. We recorded $0.5 million of impairment losses on property, plant and equipment in 2024. No impairment of long-lived assets was recognized in 2023 and 2022.

​

Impairment tests inherently involve judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analyses. An impairment charge, if incurred, could be material.

​

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

​

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A. “Risk Factors” of this Annual Report on Form 10-K.

​

Overview

​

In 2023, our earnings per diluted share of $22.64 and operating cash flow of $1.67 billion were the second highest in our history.

​

Tons sold increased 3.7% in 2023 compared to 2022 due to healthy demand in our key end markets, including non-residential construction (our largest end market), automotive and aerospace, as well as contributions from our organic growth activities. The increase in our tons sold in 2023 significantly outperformed the 1.5% increase in shipments for the industry as reported by the Metals Service Center Institute (“MSCI”).

​

Our net sales of $14.81 billion declined 13.0% in 2023 compared to record levels of $17.03 billion in 2022 due to a decline in our average selling price per ton sold of 16.4% that was partially offset by an increase in our tons sold.

​

We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

​

Gross profit margin of 30.7% in 2023 compared to 30.8% in 2022.

​

Second highest annual earnings per diluted share of $22.64 in 2023 compared to record earnings per diluted share of $29.92 in 2022. Lower gross profit, driven by lower metals prices that outweighed an increase in tons sold, contributed to a decrease in earnings per share from our 2022 record.

​

Cash flow from operations of $1.67 billion in 2023, also the second highest in our history, decreased from a record $2.12 billion in 2022 due to lower profitability, partially offset by lower working capital needs.

​

Organic growth activities were substantially comprised of capital expenditures of $468.8 million in 2023 compared to $341.8 million in 2022. We also acquired Southern Steel Supply, LLC (“Southern Steel”) in May 2023.

​

Returns to stockholders totaled $717.6 million in 2023, comprised of $238.1 million of cash dividends and $479.5 million of share repurchases.

​

Effect of Demand and Pricing Changes on our Operating Results

​

Customer demand can have a significant impact on our results of operations. When volume increases, our revenue dollars generally increase, which contributes to increased gross profit dollars. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. Variable costs also increase with volume, primarily our warehouse, delivery, selling, general and administrative expenses. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.

​

Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels. As discussed above, our record profitability in 2022 was mainly driven by increases in metals prices to record levels and to a lesser extent the moderate increase in our tons sold. Our revenues generally increase as a result of pricing increases as overall customer demand is not usually impacted by typical mill pricing increases, although customer buying patterns may change. Our selling prices generally increase when the cost of the metals we purchase increase as we are typically able to pass higher prices on to our customers. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely,

27

Table of Contents

if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. For more information, see Item 1A. “Risk Factors”.

​

In addition, when volume or pricing increases, our working capital requirements typically increase which decreases operating cash flow. Conversely, when customer demand falls, our working capital needs typically decrease which has the effect of increasing operating cash flow.

​

Acquisitions

​

2024 Acquisitions

​

On February 1, 2024, we acquired Cooksey Iron & Metal Company (“Cooksey Steel”), a metals service center that processes and distributes finished steel products, including tubing, beams, plates and bars, with cash on hand. Headquartered in Tifton, Georgia, Cooksey Steel operates three locations, servicing a diverse range of customers in Georgia, Florida, Alabama and South Carolina.

​

On February 14, 2024, we announced that we had entered into a definitive agreement to acquire American Alloy Steel, Inc. (“American Alloy”) subject to regulatory approval and other customary closing conditions, which have not yet occurred. American Alloy is headquartered in Houston, Texas and is a distributor of specialty carbon and alloy steel plate and round bar, including pressure vessel quality (PVQ) material.

​

Combined unaudited revenues for Cooksey Steel and American Alloy for the twelve months ended December 31, 2023 were approximately $400 million.

​

2023 Acquisition

​

On May 1, 2023, we acquired Southern Steel with cash on hand. Southern Steel is headquartered in Memphis, Tennessee and offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Included in our net sales for the year ended December 31, 2023 were net sales of $30.6 million from Southern Steel.

​

2021 Acquisitions

​

In the fourth quarter of 2021, we acquired each of United Pipe & Steel Corp. (formerly known as Merfish United, Inc.), Admiral Metals Servicenter Company, Incorporated, Nu-Tech Precision Metals Inc. and Rotax Metals Inc. with cash on hand for a combined transaction value of $440.3 million. Included in our net sales for the year ended December 31, 2023 were combined net sales of $722.1 million from our 2021 acquisitions.

​

Internal Growth Activities

​

We continued to maintain our focus on internal growth by building new facilities, expanding existing facilities, replacing leased facilities with those we own and adding to our processing capabilities, upgrading processing equipment, improving the safety and energy efficiency of our operations and enhancing the working environments of our employees. Our capital expenditure budgets have been at historically high levels in recent years. Our 2024 capital expenditure budget is approximately $425 million.

​

We have made significant capital expenditure investments totaling approximately $2.2 billion over the past nine years. These significant investments have expanded our value-added processing capabilities that our managers in the field have successfully leveraged to increase the percentage of our orders with value-added processing, which has significantly contributed to increased gross profit margins compared to our historical range. In 2023 and 2022, we performed value-added processing on approximately 50% to 51% of the orders we shipped, significantly higher than our historical range of 40% to 45%, with a gross profit margin of 30.7% in 2023 that was approximately 400 basis points higher than our historical range of 25% to 27%. For reference, in 2014 and 2013, our value-added processing percentages/gross profit margins were 45%/25.1% and 40%/26.0%, respectively.

28

Table of Contents

​

We believe that our ability to make significant investments in processing equipment and facilities provides a competitive advantage for us, as we can provide our customers with a higher quality product and expand our services to them. We believe many metals service center company competitors do not have the ability to expand their processing services in response to their customers’ needs as quickly and at the same scale as Reliance.

​

Results of Operations

​

The following sets forth certain income statement data for each of the last three years ended December 31, 2023 (dollars are shown in millions, except per share amounts, and certain percentages may not calculate due to rounding):

​

​

​

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

​

Net Sales

​

​

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.

​

29

Table of Contents

Our 2023 net sales declined from 2022 record levels due to declines in our average selling price per ton sold that were partially offset by increases in tons sold. The increases in our tons sold were due to healthy demand in our key end markets, including non-residential construction (our largest end market), aerospace, and automotive as well as contributions from our organic growth activities.

​

Our average selling price per ton sold peaked in the second quarter of 2022 and subsequently declined thereafter, including throughout 2023. We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

​

Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate similarly with the changes in the costs of the various metals we purchase; the mix of products sold can also have an impact on our overall average selling price per ton sold. As carbon steel sales represented 53% of our gross sales in 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold. Year-over-year changes in the selling prices of our major commodity products and related mix of our tons sold are presented below:

​

​

Cost of Sales and Gross Profit

​

​

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

​

In addition, we record in cost of sales non-cash adjustments to our LIFO method inventory valuation reserve that, in effect, reflects cost of sales at current replacement costs. The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $579.3 million at December 31, 2023.

​

Furthermore, cost of sales in 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions that decreased gross profit margin by 10 basis points.

​

We were able to achieve stable gross profit margins despite the significantly different metals pricing environments in 2023 and 2022, with our year-over-year average selling price per ton sold declining 16.4% in 2023 compared to an 18.5% increase in 2022. We believe that our gross profit margins are supported by our product diversity, small order sizes, investments in value-added processing capabilities and healthy demand in the majority of end markets we serve.

​

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

​

30

Table of Contents

Expenses

​

​

Our SG&A expense is made up largely of  compensation costs (approximately 60-65% historically), which fluctuate based on changes in our headcount levels in response to demand levels and general inflation, and the level of incentive-based compensation.

​

The increase in our SG&A expense in 2023 compared to 2022 was mainly due to higher variable costs associated with an increase in our tons sold, including increased headcount, and inflationary impacts on wages, which were partially offset by lower incentive-based compensation.

​

Our 2023 SG&A expense as a percentage of sales increased compared to 2022 mainly due to lower sales levels.

​

Operating Income

​

​

The decrease in our operating income in 2023 as compared to 2022 was mainly a result of lower gross profit, driven by a lower average selling price per ton sold that outweighed an increase in tons sold, along with moderate increases in volume-related SG&A expenses and inflationary impacts on wages.

​

Our 2023 gross profit margin was generally consistent with 2022 and consequently the decrease in our operating income margin in 2023 from a record level in 2022 was mainly due to lower net sales that decreased operating leverage of our SG&A expense.

​

See “Net Sales” above for discussion of trends in demand and product costs and “Expenses” for trends in our operating expenses.

​

Other (Income) Expense, Net

​

​

The change in other (income) expense, net in 2023 compared to 2022 was mainly due to an increase in interest income as a result of higher cash and cash equivalent balances and interest earned thereon. See Note 15—“Other (Income) Expense, Net” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on other (income) expense, net.

​

31

Table of Contents

Income Tax Rate

​

Our effective income tax rate in 2023 was 23.0%, compared to 24.1% in 2022. The decrease in our effective income tax rate was mainly due to the effects of company-owned life insurance policies and lower income taxes on our foreign earnings.

​

The difference between our 2023 effective income tax rate and the U.S. federal statutory rate of 21.0% was mainly due to state income taxes partially offset by the effects of company-owned life insurance policies. See Note 11—“Income Taxes” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on the differences between our effective income tax rates and the U.S. federal statutory rate.

​

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

​

See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022.

​

Financial Condition

​

Operating Activities

​

Net cash provided by operations of $1.67 billion in 2023 decreased from $2.12 billion in 2022. The impact of lower profitability on operating cash flow was partially offset by lower working capital needs. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. Our average days sales outstanding rate was 40.5 days in 2023 compared to 39.9 days in 2022. Our inventory turnover rate (based on tons) during 2023 was 4.7 times (or 2.6 months on hand) compared to 4.4 times (or 2.7 months on hand) in 2022.

​

Income taxes paid were $386.3 million in 2023, a significant decrease from $692.4 million in 2022, mainly due to our lower pretax income.

​

Investing Activities

​

Net cash used in investing activities of $483.9 million in 2023 compared to $348.5 million in 2022 was substantially comprised of capital expenditures and the purchase price for an acquisition in 2023. Capital expenditures were $468.8 million in 2023 compared to $341.8 million in 2022. The majority of our capital expenditures in 2023 and 2022 were related to growth initiatives.

​

Financing Activities

​

Net cash used in financing activities was $1.28 billion in 2023 compared to $892.6 million in 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023 offset by decreased share repurchases. In 2023, we repurchased $479.5 million of our common stock, which reduced our common shares 3.2%, compared to $630.3 million of share repurchases in 2022. Our other stockholder returns in 2023 included an increase in our quarterly dividend rate of 14.3% with total dividend payments of $238.1 million compared to $217.1 million in 2022.

​

We have paid regular quarterly dividends to our stockholders for 64 consecutive years and increased the quarterly dividend on our common stock 31 times since our IPO in 1994, with the most recent increase of 10.0% from $1.00 per share to $1.10 per share effective in the first quarter of 2024. We have never reduced or suspended our regular quarterly dividend.

​

​

32

Table of Contents

Share Repurchases

​

See Note 14—“Equity” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our 2023 share repurchases.

​

On October 24, 2023, our Board of Directors renewed our share repurchase program to increase the remaining repurchase authorization to $1.5 billion effective October 30, 2023. As of December 31, 2023, we had remaining authorization under the plan to repurchase $1.44 billion of shares of our common stock. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.

​

During the last five years, we reduced our issued and outstanding shares of common stock by 17.6% through the repurchase of approximately 11.8 million shares at an average cost of $154.59 per share, for a total of $1.82 billion.

​

Purchase Obligations

​

We had $235.1 million of operating lease obligations as of December 31, 2023 for processing and distribution facilities, equipment, automobiles, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. Our expected payments over the next 12 months under these operating leases are $64.9 million. See Note 10—“Leases” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding the maturities of our operating lease obligations.

​

We have obligations pursuant to pension and postretirement benefit plans. A total of $16.4 million of net liabilities was recognized on the balance sheet at December 31, 2023 and the Company expects to make plan contributions and benefit payments totaling $0.8 million over the next 12 months. See Note 13—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding our expected payments under these plans.

​

Our capital expenditures have been at elevated levels in recent years and our 2024 capital expenditure budget is $425 million. As of December 31, 2023, we had entered into contracts related to capital expenditures in the amount of $126.3 million, of which $111.1 million is expected to be paid over the next 12 months. 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.

​

We primarily purchase and sell in the spot market and consequently our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods (lead times). In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months. The total amount of commitments under long-term inventory purchase agreements is estimated at approximately $301.4 million, with amounts in 2024, 2025 and thereafter being $195.7 million, $54.7 million and $51.0 million, respectively.

​

We have other contractual commitments under long-term service agreements, totaling $24.6 million at December 31, 2023, with amounts in 2024, 2025 and thereafter being $12.9 million, $6.9 million and $4.8 million, respectively.

​

Debt

​

We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at December 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 December 31, 2023.

​

See Note 9—“Debt” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our amended credit agreement, debt maturities and indentures governing our debt securities.

33

Table of Contents

​

Liquidity and Capital Resources

​

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 December 31, 2023, we had $1.1 billion in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 0.8%, down from 6.3% as of December 31, 2022.

​

As of December 31, 2023, we had $400.3 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 approximately $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 repurchase shares. Additionally, we believe our investment grade credit ratings enhance our ability to effectively raise capital, if desired.

​

Covenants

​

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. Our interest coverage ratio for the twelve-month period ended December 31, 2023 was 45.9 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (“EBIT”), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of December 31, 2023, calculated in accordance with the terms of the Credit Agreement, was 11.4% compared to the debt covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of finance lease obligations and outstanding letters of credit, minus the lesser of cash held by our domestic subsidiaries and $200.0 million, divided by Reliance stockholders’ equity plus total debt).

​

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

​

Goodwill and Other Intangible Assets

​

We have one operating segment and also one reporting unit for goodwill impairment purposes. There have been no changes in our reportable segments; we have one reportable segment – metals service centers.

​

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at December 31, 2023, or approximately 20% of total assets and 27% of total equity. Additionally, other intangible assets, net amounted to $1.0 billion at December 31, 2023, or approximately 9% 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. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Refer to Critical Accounting Estimates for further information regarding judgments involved in testing for recoverability of our goodwill and other intangible assets.

​

Critical Accounting Estimates

​

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The Company’s significant accounting policies, including recently issued accounting pronouncements, are fully described in Note 1—“Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.” When we prepare these consolidated financial statements, we are

34

Table of Contents

required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

​

We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

​

Goodwill and Other Indefinite-Lived Intangible Assets

​

We test for impairment of goodwill and intangible assets deemed to have indefinite lives annually and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value. The qualitative factors we review include a decline in our stock price and market capitalization, a decline in the market conditions of our products and viability of end markets, and developments in our business and the overall economy. We make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, including calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and indefinite-lived intangible asset impairment test as of November 1 of each year. No impairment of goodwill was determined to exist during the periods presented in the consolidated financial statements. We recorded $4.7 million of impairment losses on our intangible assets with indefinite lives in 2021. No impairment of intangible assets with indefinite lives was recognized in 2023 and 2022.

​

Long-Lived Assets

​

We periodically review the recoverability of our other long-lived assets, primarily property, plant and equipment and intangible assets subject to amortization. The evaluation is performed at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. An impairment loss may be recognized if the estimated undiscounted cash flows are less than the carrying amount of the assets. We must make assumptions regarding estimated future cash flows and other factors to estimate the fair value of the respective assets to determine the amount of the impairment loss. If these estimates or their related assumptions change in the future, we may be required to record impairment charges. No impairment of long-lived assets was recognized during the periods presented in the consolidated financial statements.

​

Impairment tests inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analyses. An impairment charge, if incurred, could be material.

​

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

​

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A “Risk Factors” of this Annual Report on Form 10-K.

​

Overview

​

We again generated record financial performance in 2022 across nearly every key metric. Outstanding execution resulted in record profitability in the face of declining metals pricing throughout the second half of 2022 and supply chain disruptions on us, our customers and suppliers. We believe our record performance in 2022 demonstrated the resiliency of our business model during a year that included significant volatility and varying trends in metals pricing, but fundamentally strong demand in most of our end markets.

​

Key results in 2022:

​

​

​

​

​

Our record net sales in 2022 were mainly the result of a record average selling price per ton sold of $3,073, up 18.5% from our previous record set last year, and a 1.8% increase in tons sold. However, unlike in 2021, during which metals pricing improved throughout the year, our average selling price per ton sold reached a quarterly record of $3,240 in the second quarter of 2022 and declined for the remainder of the year. We experienced healthy demand across a majority of our end markets, however our same-store tons sold decreased slightly from 2021. We believe that the continued, though diminishing, supply chain disruptions on our customers continue to constrain economic activity and negatively impact our tons sold.

​

Our record profitability in 2022 was the result of our ability to maintain a strong gross profit margin and exercise effective expense control in an environment of elevated metals pricing and healthy demand.

​

We believe our success in generating strong gross profit margins during periods of economic strength and weakness, and during increasing and declining metal pricing cycles is supported by our continued significant capital expenditure investments. See further discussion, below, under “Internal Growth Activities.”

​

In 2022, we generated over $2 billion of operating cash flow for the first time in our history as a result of record profitability and reduced working capital investment mainly as a result of the declining metals pricing trends in the second half of 2022. The strong cash flow generation enabled us to grow our business and provide additional returns to our stockholders. During 2022, we invested into our future growth with $341.8 million of capital expenditures and returned $847.4 million to our stockholders through record levels of cash dividends and share repurchases. We also increased our regular quarterly dividend rate by 14.3%, effective in the first quarter of 2023.

​

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

​

27

Table of Contents

Effect of Demand and Pricing Changes on our Operating Results

​

Customer demand can have a significant impact on our results of operations. When volume increases, our revenue dollars generally increase, which contributes to increased gross profit dollars. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. Variable costs also increase with volume, primarily our warehouse, delivery, selling, general and administrative expenses. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.

​

Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels. As discussed above, our record profitability in 2022 was primarily driven by record metals prices. Our revenues generally increase as a result of pricing increases as customer demand is not usually impacted by typical mill pricing increases. Our selling prices usually increase when the cost of the metals we purchase increase. We are typically able to pass higher prices on to our customers. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. Because changes in metals pricing do not require us to adjust our expense structure other than for profit-based incentive compensation, the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes. For more information, see Item 1A. “Risk Factors” under the caption “The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers.”

​

In addition, when volume or pricing increases, our working capital (primarily accounts receivable and inventories less accounts payable) requirements typically increase, resulting in lower levels of cash flow from operations, which may also require us to increase our outstanding debt and incur higher interest expense. Conversely, when customer demand falls, our operations typically generate increased cash flow as our working capital needs decrease.

​

Acquisitions

​

2021 Acquisitions

​

In the fourth quarter of 2021, we acquired each of Merfish United, Inc., Admiral Metals Servicenter Company, Incorporated, Nu-Tech Precision Metals Inc. and Rotax Metals Inc. with cash on hand for a combined transaction value of $440.3 million. Included in our net sales for the year ended December 31, 2022 were combined net sales of $863.0 million from our 2021 acquisitions.

​

Internal Growth Activities

​

We continued to maintain our focus on internal growth by building new facilities, expanding existing facilities, replacing leased facilities with those we own and adding to our processing capabilities, upgrading processing equipment, improving the safety and energy efficiency of our operations and enhancing the working environments of our employees. Our capital expenditure budgets have been at historically high levels in recent years. Our 2023 capital expenditure budget, is $500 million, the highest in our history.

​

We have made significant capital expenditure investments totaling over $1.7 billion over the past eight years. These significant investments have expanded our value-added processing capabilities that our managers in the field have successfully leveraged to increase the percentage of our orders with value-added processing, which has significantly contributed to increased gross profit margins in recent years. In 2022 and 2021, we performed value-added processing on about 50% of the orders we shipped, significantly higher than our historical range of 40% to 45%, with a gross profit margin of 30.8% in 2022 that was approximately 400 basis points higher than our historical gross profit margin range of 25% to 27% that existed prior to our undertaking of these significant capital expenditure investments.

​

We believe that our ability to make significant investments in processing equipment and facilities provides a competitive advantage for us, as we can provide our customers with a higher quality product and expand our services to

28

Table of Contents

them. We believe many metals service center company competitors do not have the ability to expand their processing services in response to their customer’ needs as quickly and at the same scale as Reliance.

​

Results of Operations

​

The following sets forth certain income statement data for each of the last three years ended December 31, 2022 (dollars are shown in millions and certain percentages may not calculate due to rounding):

​

​

​

​

29

Table of Contents

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

​

Net Sales

​

​

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 and average selling price per ton sold in 2022 were the highest in our history, surpassing our previous records set in 2021. Our sales in 2022 were supported by ongoing healthy demand in most of the end markets we serve and elevated metals pricing. However, we believe our tons sold continue to be limited by supply chain disruptions on our customers that constrained economic activity.

​

Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate similarly as the changes in the costs of the various metals we purchase. Our average selling price per ton sold in 2022 was significantly higher than in 2021, mainly due to significant mill price increases for our major product categories in the first half of 2022 that offset declining metal prices in the second half of 2022.

​

The mix of products sold can also have an impact on our overall average selling price per ton sold. Year-over-year changes in selling prices of our major commodity products and related mix of gross sales dollars are presented below:

​

​

​

30

Table of Contents

Cost of Sales and Gross Profit

​

We generated record gross profit in 2022 mainly as a result of a significant increase in our average selling price per ton sold that outpaced the increase in average cost per ton sold.

​

In addition, non-cash adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a credit, or an increase to gross profit, of $76.6 million in 2022 compared to a charge, or a decrease to gross profit, of $704.8 million in 2021. Our 2022 and 2021 gross profit was further reduced by $8.1 million and $13.7 million, respectively, of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions. As of December 31, 2022, the LIFO method inventory valuation reserve on our balance sheet was $743.8 million.

​

Our gross profit margin in 2022 was strong and higher than pre-pandemic levels, but declined from our record level in 2021 mainly due to different product pricing trends during the respective periods. Our gross profit margin in 2021 benefited from rapid and significant increases in metals prices and limited metals supply throughout the year, while our gross profit margin in 2022 compressed as our average selling price per ton sold reached a peak in the second quarter of 2022 and declined throughout the remainder of the year.

​

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

​

​

Expenses

​

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

​

Our SG&A expense is made up largely of people-related compensation costs (approximately 60-65% historically), which change based on our headcount levels in response to demand levels and general inflation, and the level of incentive-based compensation that is primarily tied to first-in, first-out (“FIFO”) pretax income profitability at our operating locations and to a lesser extent our overall profitability for our executive officers and senior management.

​

The increase in our same-store SG&A expense in 2022 compared to 2021 was mainly due to higher variable expenses associated with inflationary impacts on wage rates, fuel, freight and packaging costs, partially offset by lower incentive-based compensation as our FIFO pretax income declined 9.0% in 2022 compared to 2021. See “Cost of Sales and Gross Profit” above for discussion of our LIFO method inventory valuation reserve.

​

​

31

Table of Contents

Operating Income

​

​

The increase in our operating income in 2022 compared to 2021 was mainly due to record gross profit driven by a record average selling price per ton sold and fundamentally strong demand that offset a decline in our gross profit margin and inflationary increases in certain SG&A expenses.

​

Our operating income margin for 2022 was a record and increased from 2021 mainly due to better operating leverage relating to the significant increase in our net sales as our operating expenses as a percentage of sales decreased approximately 200 basis points, despite a significant increase in our SG&A expense, that offset the 110 basis point decline in our gross profit margin.

​

See “Net Sales” above for discussion of trends in demand and product costs and “Expenses” for trends in our operating expenses.

​

Income Tax Rate

​

Our effective income tax rate in 2022 was 24.1%, compared to 24.7% in 2021. The decrease in our effective income tax rate was due to lower state income taxes as a result of changes in the allocation of our U.S. income to the states in which we operate and an increase in tax benefit realized from our stock-based compensation plans.

​

The difference between our effective income tax rate and the U.S. federal statutory rate of 21.0% was mainly due to state income taxes and higher foreign income tax rates partially offset by the effects of company-owned life insurance policies. See Note 11—“Income Taxes” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on the differences between our effective income tax rates and the U.S. federal statutory rate in 2022 and 2021.

​

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

​

See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.

​

Financial Condition

​

Operating Activities

​

We generated record net cash provided by operations of $2.12 billion in 2022, compared to $799.4 million in 2021. Our record operating cash flow in 2022 was mainly due to a $426.8 million, or 30.1%, increase in net income and reduced working capital investment when compared with 2021. During 2021, significant and rapid increases in metals pricing and limited metals availability required a significantly higher investment in working capital than in 2022 during which our working capital needs peaked during the second quarter and as metals prices and our tons sold declined for the remainder of the year, we reduced our working capital levels and, as consequence, generated significant operating cash flow. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. Our average days sales outstanding rate was 39.9 days in 2022 compared to 38.9 days in 2021. Our inventory turnover rate (based on tons) during 2022 was 4.4 times (or 2.7 months on hand), a decrease from 4.8 times (or 2.5 months on hand) in 2021.

​

32

Table of Contents

Income taxes paid were $692.4 million in 2022, a significant increase from $444.4 million in 2021, due to our significantly higher pretax income.

​

Investing Activities

​

Net cash used in investing activities of $348.5 million in 2022 compared to $652.3 million in 2021 was substantially comprised of reduced spending on acquisitions and lower proceeds from sales of property, plant and equipment partially offset by increased capital expenditures. In 2022, we had no acquisition spending compared to $439.3 million spent in 2021. Capital expenditures were $341.8 million in 2022 compared to $236.6 million in 2021. The majority of our capital expenditures in 2022 and 2021 were related to growth initiatives.

​

Financing Activities

​

Net cash used in financing activities was $892.6 million in 2022 compared to $528.9 million in 2021, mainly due to increased share repurchases. In 2022, we spent $630.3 million to repurchase shares of our common stock compared to $323.5 million in 2021. Our other stockholder return activities in 2022 included an increase in our quarterly dividend rate with total cash dividends and dividend equivalents of $217.1 million compared to $177.0 million in 2021.

​

We have paid regular quarterly dividends to our stockholders for 63 consecutive years and increased the quarterly dividend on our common stock 30 times since our IPO in 1994, with the most recent increase of 14.3% from $0.875 per share to $1.00 per share effective in the first quarter of 2023. We have never reduced or suspended our regular quarterly dividend.

​

Share Repurchases

​

See Note 14—“Equity” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information on our share repurchases.

​

On July 26, 2022, our Board of Directors amended our share repurchase program to increase the remaining repurchase authorization to $1.0 billion. As of December 31, 2022, we had remaining authorization under the plan to repurchase $680.7 million of our common shares. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.

​

During the last 5 years, we have repurchased approximately 16 million shares at an average cost of $114.38 per share, for a total of $1.83 billion, resulting in a 22% reduction in our common shares issued and outstanding.

​

Purchase Obligations

​

The Company had $217.7 million of operating lease obligations as of December 31, 2022 for processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. Our expected payments over the next 12 months under these operating leases are $59.1 million. See Note 10—“Leases” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding the maturities of our operating lease obligations.

​

The Company has obligations pursuant to pension and postretirement benefit plans. A total of $17.1 million of net liabilities was recognized on the balance sheet at December 31, 2022 and the Company expects to make plan contributions and benefit payments totaling $0.8 million over the next 12 months. See Note 13—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for information regarding our expected payments under these plans.

​

Our capital expenditures have been at elevated levels in recent years and our 2023 capital expenditure budget is a record $500 million. As of December 31, 2022, we had entered into contracts related to capital expenditures in the amount of $133.2 million which is all expected to be paid over the next 12 months. Our actual capital expenditure spending over

33

Table of Contents

the next 12 months is ultimately dependent on market conditions, lead times and availability of property, plant and equipment when the capital project is initiated.

​

We primarily purchase and sell in the spot market and consequently our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods (lead times). In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months. The total amount of commitments under long-term inventory purchase agreements is estimated at approximately $320.1 million, with amounts in 2023, 2024 and thereafter being $179.1 million, $44.9 million and $96.1 million, respectively.

​

We have other contractual commitments under long-term agreements, generally for services, totaling $39.3 million at December 31, 2022, with amounts in 2023, 2024 and thereafter being $22.3 million, $12.2 million and $4.8 million, respectively.

​

Debt

​

We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at December 31, 2022 under our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”). We also had an aggregate of $1.65 billion principal amount of senior unsecured note obligations with various maturities through 2036 issued under indentures as of December 31, 2022.

​

In January 2023, we redeemed the $500.0 million aggregate outstanding principal amount of our 4.50% senior notes due 2023 in full. We funded this redemption using cash on hand. See Note 9—“Debt” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our amended credit agreement, debt obligations and indentures governing our debt securities.

​

Liquidity and Capital Resources

​

We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond. As of December 31, 2022, we had $1.2 billion in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 6.3%, down from 18.1% as of December 31, 2021.

​

As of December 31, 2022, we had $908.5 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025; $500.0 million of these debt obligations were redeemed in January 2023.

​

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

​

Covenants

​

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. Our interest coverage ratio for the twelve-month period ended December 31, 2022 was 41.2 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (“EBIT”), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of December 31, 2022, calculated in accordance with the terms of the Credit Agreement, was 17.3% compared to the debt covenant maximum

34

Table of Contents

amount of 60% (leverage ratio is calculated as total debt, inclusive of finance lease obligations and outstanding letters of credit, minus the lesser of cash held by our domestic subsidiaries and $200.0 million, divided by Reliance stockholders’ equity plus total debt).

​

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

​

Goodwill and Other Intangible Assets

​

We have one operating segment and also one reporting unit for goodwill impairment purposes. There have been no changes in our reportable segments; we have one reportable segment – metals service centers.

​

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at December 31, 2022, or approximately 20% of total assets and 30% of total equity. Additionally, other intangible assets, net amounted to $1.02 billion at December 31, 2022, or approximately 10% of total assets and 14% of total equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests and further evaluation when certain events occur. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Refer to Critical Accounting Estimates for further information regarding our 2021 and 2020 impairment charges and discussion regarding judgments involved in testing for recoverability of our goodwill and other intangible assets.

​

Critical Accounting Estimates

​

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The Company’s significant accounting policies, including recently issued accounting pronouncements, are fully described in Note 1—“Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.” When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

​

We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

​

Goodwill and Other Indefinite-Lived Intangible Assets

​

We test for impairment of goodwill and intangible assets deemed to have indefinite lives annually and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value. The qualitative factors we review include a decline in our stock price and market capitalization, a decline in the market conditions of our products and viability of end markets, and developments in our business and the overall economy. We make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, including calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and indefinite-lived intangible asset impairment test as of November 1 of each year. No impairment of goodwill was determined to exist in 2022, 2021 or 2020. We recorded impairment losses on our intangible assets with indefinite lives in the amounts of $4.7 million and $67.8 million in 2021 and 2020, respectively. No impairment of intangible assets with indefinite lives was recognized in 2022. See

35

Table of Contents

Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data” for further information on our impairment charges.

​

Long-Lived Assets

​

We periodically review the recoverability of our other long-lived assets, primarily property, plant and equipment and intangible assets subject to amortization. The evaluation is performed at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. An impairment loss may be recognized if the estimated undiscounted cash flows are less than the carrying amount of the assets. We must make assumptions regarding estimated future cash flows and other factors to estimate the fair value of the respective assets to determine the amount of the impairment loss. If these estimates or their related assumptions change in the future, we may be required to record impairment charges. In 2020, we recorded impairment charges on intangible assets subject to amortization and property, plant and equipment of $30.7 million and $9.3 million, respectively. There were no impairments of long-lived assets recognized in 2022 and 2021. See Note 19—"Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data” for further information on our impairment charges.

​

Impairment tests inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analyses. An impairment charge, if incurred, could be material.

​

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

​

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of cautionary statements and significant risks to the Company’s business under Item 1A “Risk Factors” of this Annual Report on Form 10-K.

​

Overview

​

We generated record financial performance in 2021 across nearly every key metric. Outstanding execution again resulted in record profitability in the face of significant operational challenges that included supply chain challenges, including raw material shortages and labor constraints on us, our customers and suppliers. We believe that our resilient business model enables us to increase our average selling price and gross profit margin during operating environments that include rising prices and low levels of metal inventories and availability.

​

Certain key results for 2021 included the following:

​

​

​

​

​

​

​

​

Our record net sales in 2021 were the result of a record average selling price per ton sold of $2,594, up 54.3% from 2020, which surpassed our previous average selling price per ton sold record set in 2008 by 24.9%, and a 4.6% increase in tons sold. However, our tons sold were below pre-pandemic levels of 2019 and record levels during 2018. We believe our tons sold in 2021 in most end markets we served was limited by factors that constrained economic activity such as metal supply constraints, labor shortages and other supply chain disruptions.

​

Our record profitability in 2021 was driven by record metals prices, fundamentally strong underlying demand in most end markets, a record gross profit margin, despite a significant LIFO charge of $704.8 million, and effective expense control. Our gross profit margins in each quarter of 2021 exceeded an approximate range of 29% to 31%. Our same-store SG&A expense increased 22.1% in 2021 compared to 2020 primarily due to increased incentive compensation as a result of our record gross profit and earnings; higher variable expenses associated with increased shipment levels. Same-store SG&A expense also increased to a lesser extent due to increases in headcount and inflationary increases in certain warehouse and delivery expenses including, fuel, trucking services and packaging costs.

​

30

Table of Contents

Our SG&A expense is largely comprised of people-related compensation costs (approximately 60-65% historically) with changes from period to period being comprised of both changes in our incentive compensation and costs associated with changes in our headcount levels. In 2021, a larger portion of the increase in compensation expense was attributable to the significant increase in our earnings more so than changes in our headcount with our 2021 same-store headcount 4.4% higher than 2020, consistent with the increase in our tons sold, but 10.2% below our pre-pandemic levels in 2019 with our same-store tons sold down only 7.2%.

​

Our success in generating strong gross profit margins during periods of economic strength and weakness, and during increasing and declining metal pricing cycles is supported by our continued significant capital expenditure investments. We have made significant capital expenditure investments totaling approximately $1.40 billion over the past seven years, with approximately 50% spent on processing equipment. These significant investments have expanded our processing capabilities and enhanced the quality of our products through improvements in processing equipment technology. Our family of companies have been successful in increasing our gross profit margins utilizing these operational enhancements as they provide our managers the ability to focus on sales of higher margin value-added services, which is reflected in the increase in the percentage of orders that include these services. Our gross profit margin of 31.9% in 2021 was a record and approximately 500 basis points above our historical range of approximately 25% to 27% with 50% of our sales orders including value-added processing compared to our historical range of approximately 40% to 45%.

​

Our business model enables us to increase our average selling price and gross profit margin during operating environments that include rising prices and low levels of metal inventories and availability. Consequently, we were able

to generate a record gross profit margin and record pretax income margin in 2021 during which period we observed ongoing strength in metals pricing with historically high levels for carbon steel products (58% of our gross sales dollars in 2021) and stainless steel products (16% of our gross sales dollars in 2021) due to solid demand, increased input costs and limited metal supply.

​

During 2020, we recorded significant impairment and restructuring charges of $157.8 million, mainly due to our reduced long-term outlook for our businesses serving the energy (oil and natural gas) market and to a lesser extent charges related to the closure of certain locations where our outlook had turned negative based on the impacts from COVID-19, and postretirement benefit plan settlement charges of $19.4 million related to the termination of a frozen defined benefit plan. We recorded $4.8 million of impairment and restructuring charges in 2021. See Note 19—“Impairment and Restructuring Charges” and Note 13—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data” for further information on our impairment and restructuring, and postretirement benefit plan settlement charges.

​

We generated cash flow from operations in 2021 of $799.4 million compared to $1.17 billion in 2020, despite significant investments in working capital resulting from significantly higher metals prices and to a lesser extent the increase in our tons sold.

​

The strong cash flow generation inherent in our business model enabled us to execute on our capital allocation priorities during 2021. During 2021, we acquired four companies for $439.3 million that aligned with our business model and strategy of investing in profitable, high quality businesses that expand our product, end market and geographic diversity. We also invested into our future growth with $236.6 million of capital expenditures in 2021 compared to $172.0 million in 2020. During 2021, our stockholder return activity totaled $500.5 million, generally consistent with 2020 in amount, and was comprised of $177.0 million of dividends and $323.5 million of share repurchases. In addition, we increased our regular quarterly dividend rate by 27.3% from $0.6875 to $0.8750 per share for the first quarter of 2022.

​

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

​

We initially experienced adverse impacts to our operations from COVID-19 during 2020, and in 2021 continued to face a challenging operating environment presented by the pandemic and its related impacts, including supply chain disruptions and labor shortages for us and our customers. While our results of operations and customer demand in most of

31

Table of Contents

our end markets have returned to or exceeded pre-pandemic levels, we will continue to evaluate the nature and extent of future impacts of COVID-19 on our business. Given the dynamic nature of COVID-19 and the related circumstances, including any potential resurgences of the virus or its variants or the failure to contain the spread of the pandemic by governments, we cannot reasonably estimate the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall financial performance.

​

We believe our industry-leading results are due to our unique business model and strong operational execution of our strategies. We believe our business model characteristics, including broad end market exposure, a wide geographical footprint, diverse product offerings with significant value-added processing capabilities, and focus on small order sizes and when-needed delivery, differentiate us from our metals service center industry peers. We believe these unique business model characteristics and strong operational execution of our strategies that include pricing discipline, concentrating on higher margin business and cross selling inventory within our operating locations enabled us to persevere during the pandemic in 2020 and were the cornerstone of our record financial results in 2021.

​

Effect of Demand and Pricing Changes on our Operating Results

​

Customer demand can have a significant impact on our results of operations. When volume increases, our revenue dollars generally increase, which contributes to increased gross profit dollars. Variable costs also increase with volume, primarily our warehouse, delivery, selling, general and administrative expenses. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.

​

Pricing for our products generally has a much more significant impact on our results of operations than customer demand levels. As discussed above, our record profitability in 2021 was driven by record metals prices. Our revenues generally increase in conjunction with pricing increases as customer demand is not usually impacted by typical mill pricing increases. Our pricing usually increases when the cost of our materials increases. We are typically able to pass higher prices on to our customers. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pretax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pretax income dollars. Because changes in metals pricing do not require us to adjust our expense structure other than for profit-based compensation, the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes. For more information, see Item 1A. “Risk Factors” under the caption “The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers.”

​

In addition, when volume or pricing increases, our working capital (primarily accounts receivable and inventories) requirements typically increase, resulting in lower levels of cash flow from operations, which may also require us to increase our outstanding debt and incur higher interest expense. Conversely, when customer demand falls, our operations typically generate increased cash flow as our working capital needs decrease.

​

Acquisitions

​

2021 Acquisitions

​

On October 1, 2021, we acquired Merfish United, Inc. (“Merfish United”), a leading master distributor of tubular building products that are distributed to its independent wholesale distributor customers across a variety of end markets in the United States. Merfish United, headquartered in Ipswich, Massachusetts, serves 47 U.S. states through its twelve strategically located distribution centers.

​

On December 10, 2021, we acquired Admiral Metals Servicenter Company, Inc. (“Admiral Metals”), a leading distributor of non-ferrous metals products in the Northeastern U.S. Admiral Metals, headquartered in Woburn, Massachusetts, serves a variety of end markets, including semiconductor, automotive, medical, infrastructure, aerospace and industrial markets through its eight strategically located service centers.

​

32

Table of Contents

On December 10, 2021, we acquired Nu-Tech Precision Metals Inc. (“Nu-Tech Precision Metals”), a custom manufacturer of specialty extruded metals, fabricated parts and welded components. Nu-Tech Precision Metals, services the nuclear energy, aerospace and defense end markets from its location near Ottawa, Ontario, Canada.

​

On December 17, 2021, we acquired Rotax Metals, Inc. (“Rotax Metals”), a metals service center specializing in copper, bronze and brass alloys. Located in Brooklyn, New York, Rotax Metals will operate as a subsidiary of Yarde Metals, Inc., a wholly owned subsidiary of Reliance.

​

Included in our net sales for the three months ended December 31, 2021 were $171.0 million of net sales from our 2021 acquisitions. Full year 2021 pro forma sales of these acquisitions were approximately $900 million.

​

We funded our 2021 acquisitions with cash on hand.

​

2019 Acquisition

​

On December 31, 2019, we acquired Fry Steel Company (“Fry Steel”). Fry Steel is a general line and long bar distributor located in Santa Fe Springs, California. Fry Steel performs cutting services on its diverse product assortment and provides “in-stock” next day delivery of its products. Fry Steel’s net sales in 2021 were $92.1 million.

​

Internal Growth Activities

​

We continued to maintain our focus on internal growth by opening new facilities, building or expanding existing facilities, adding and upgrading processing equipment, improving the safety and energy efficiency of our operations, and enhancing the working environments of our employees. Our capital expenditure budgets have been at historically high levels in recent years. Our 2022 capital expenditure budget is $350 million, the highest in our history.

​

We have made significant capital expenditure investments totaling approximately $1.40 billion over the past seven years. In 2021, we performed value-added processing on 50% of the orders we shipped, up from 49% in 2020 and significantly higher than our historical range of approximately 40% to 45%. These significant investments have expanded our value-added processing capabilities that our managers in the field have successfully leveraged to increase the percentage of our orders with value-added processing, which has significantly contributed to increased gross profit margins in recent years and a record gross profit margin of 31.9% in 2021 that is approximately 500 basis points above our historical range of approximately 25% to 27%.

​

We believe that our ability to make significant investments in processing equipment and facilities provides a competitive advantage for us, as we can provide our customers with a higher quality product and expand our services to them, which we believe many metal service center competitors do not have the ability to provide.

​

​

33

Table of Contents

Results of Operations

​

The following table sets forth certain income statement data for each of the last three years ended December 31, 2021 (dollars are shown in millions and certain percentages may not calculate due to rounding):

​

​

​

​

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

​

Net Sales

​

34

Table of Contents

​

Our tons sold and average selling price per ton sold exclude the volumes processed by our toll processing operations. Our average selling price per ton sold includes insignificant intercompany transactions that are eliminated from our consolidated net sales. Same-store amounts exclude the results of our 2021 acquisitions.

​

Our net sales and average selling price per ton sold in 2021 were the highest in our history, surpassing our previous records set in 2018 and 2008, respectively. Underlying demand was fundamentally strong in most of the end markets we served in 2021. However, we believe our tons sold were limited by factors that constrained economic activity such as metal supply constraints, labor shortages and other supply chain disruptions.

​

Since we primarily purchase and sell our inventories in the spot market, the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase. Our same-store average selling price per ton sold in 2021 was significantly higher than 2020, mainly due to several and significant mill price increases for carbon and stainless steel products in 2021.

​

The mix of products sold can also have an impact on our overall average selling price per ton sold. During 2021, as a result of significant increases in prices for the carbon and stainless steel products we sell, our mix of carbon products sales increased to 58% from 51% in 2020 and sales of aluminum products decreased to 14% from 19% in 2020.

​

Our major commodity selling prices changed year-over-year from 2020 to 2021 as follows:

​

​

Cost of Sales

​

The increase in cost of sales in 2021 compared to 2020 was mainly due to higher average costs per ton sold and higher tons sold. See “Net Sales” above for trends in both demand and costs of our products.

​

Cost of sales in 2021 included $13.7 million of amortization of inventory step-up related to our 2021 acquisitions. Cost of sales in 2020 included $38.2 million of net inventory provisions relating to the planned closure of certain energy-related operations. See Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 “Financial Statements and Supplementary Data" for further information on our 2020 restructuring charges.

​

In addition, adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in expense of $704.8 million and income of $22.0 million in 2021 and 2020, respectively. Higher metal costs in our inventory as of December 31, 2021 as compared to December 31, 2020 resulted in significant LIFO expense in 2021.

​

As of December 31, 2021, the LIFO method inventory valuation reserve on our balance sheet was $820.4 million.

​

​

35

Table of Contents

Gross Profit

​

We generated record gross profits in 2021 as a result of a record average selling price per ton sold, a record gross profit margin, and increases in tons sold compared to 2020. Throughout 2021, we experienced ongoing strength in metals pricing, led by several mill price increases for carbon steel products (58% of our gross sales dollars in 2021), and stainless steel products (16% of our gross sales dollars in 2021), along with fundamentally strong underlying demand.

​

The $13.7 million of amortization of inventory step-up related to our 2021 acquisitions reduced our gross profit margin 10 basis points. The $38.2 million of net inventory provisions in 2020 reduced our gross profit margin 40 basis points. See Net Sales” and “Cost of Sales” above for further discussion on product pricing trends and our LIFO inventory valuation reserve adjustments, respectively.

​

Our gross profit margin in 2021 was a record, despite significant LIFO expense that reduced our gross profit margin by 500 basis points, surpassing our previous record set in 2020. We were able to increase our gross profit margin in 2021 compared to 2020 through the strong execution of our managers in the field, the strong metals pricing environment in 2021, the continuous improvements in our business and our ongoing investments in value-added processing equipment.

​

Expenses

​

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

​

Our same-store SG&A expense was higher in 2021 compared to 2020 primarily due to increased incentive compensation as a result of our record gross profit and earnings; higher variable expenses associated with increased shipment levels. Same-store SG&A expense also increased to a lesser extent due to increases in headcount and inflationary increases in certain warehouse and delivery expenses including, fuel, trucking services and packaging costs.

​

Our SG&A expense is largely comprised of people-related compensation costs (approximately 60-65% historically) with changes from period to period being comprised of both changes in our incentive compensation and costs associated with changes in our headcount levels. In 2021, a larger portion of the increase in compensation expense was attributable to the significant increase in our earnings more so than changes in our headcount with our 2021 same-store headcount 4.4% higher than 2020, consistent with the increase in our tons sold, but 10.2% below our pre-pandemic levels in 2019 with our same-store tons sold down only 7.2%.

​

Included in Expenses are $4.8 million of impairment and restructuring charges in 2021 compared to impairment and restructuring charges of $119.6 million in 2020. Our 2020 charges were mainly due to closures of certain energy-related businesses (oil and natural gas) and our reduced long-term outlook for certain of our remaining energy-related businesses. Please refer to Note 7—“Intangible Assets, net” and Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our impairment and restructuring charges.

36

Table of Contents

​

Operating Income

​

​

The increase in our operating income in 2021 compared to 2020 was due to record gross profit, as the result of a record average selling price per ton sold, fundamentally strong demand and a record gross profit margin, which was partially offset by higher incentive compensation, increases in certain SG&A expenses related to our increased shipments and to a lesser extent inflationary increases for certain warehouse and delivery expenses.

​

Excluding the impact of significant impairment and restructuring charges in 2020, our operating income of $1.95 billion in 2021 increased $1.23 billion, or 169.3%, compared to $723.6 million in 2020, and our operating income margin improved 560 basis points. The increase in our operating income margin, as adjusted, was mainly due to our significantly higher sales that decreased our SG&A expense as a percentage of sales, despite a significant increase in our SG&A expense.

​

See Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our impairment and restructuring charges. See “Net Sales” above for trends in both demand and costs of our products and “Expenses” for trends in our operating expenses.

​

Other Expense (Income), net

​

​

The decrease in other expense, net in 2021 compared to 2020 was mainly due to postretirement benefit plan settlement charges of $19.4 million in 2020. See Note 13—“Employee Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data" for further information on our 2020 postretirement benefit plan settlement charges.

​

Income Tax Rate

​

Our effective income tax rate in 2021 was 24.7%, compared to 22.1% in 2020. The increase in our effective income tax rate was mainly due to the significant increase in our profitability. The differences between our effective income tax rate and the U.S. federal statutory rate of 21.0% was mainly due to state income taxes partially offset by the effects of company-owned life insurance policies.

​

Net Income

​

37

Table of Contents

​

The increases in our net income and net income margin in 2021 compared to 2020 were mainly due to increased operating income and operating income margin as a result of record gross profit and a record gross profit margin partially offset by a significantly higher SG&A expense and higher effective income tax rate.

​

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

​

See discussion in the “Results of Operations” and “Liquidity and Capital Resources” section of Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.

​

Liquidity and Capital Resources

​

Operating Activities

​

Net cash provided by operations of $799.4 million in 2021 decreased from $1.17 billion in 2020. Our decreased operating cash flow was mainly the result of significantly increased working capital requirements in 2021 compared to 2020, mainly due to strong demand and rising metals pricing during 2021 that achieved record levels compared to the declining demand and pricing trends in 2020 related to the initial impacts from the COVID-19 pandemic. The strong demand and rising metals pricing environment required more investment in accounts receivable and inventories partially offset by an increase in accounts payable. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate as receivables and inventory are the two most significant elements of our working capital. Our average days sales outstanding rate was 38.9 days in 2021 compared to 41.9 days in 2020. Our inventory turnover rate (based on tons) during 2021 was 4.8 times (or 2.5 months on hand), an increase from 4.7 times (or 2.6 months on hand) in 2020.

​

Income taxes paid were $444.4 million in 2021, a significant increase from $87.5 million in 2020, due to our significantly higher pretax income.

​

Investing Activities

​

Net cash used in investing activities of $652.3 million in 2021 increased $463.9 million from $188.4 million used in 2020, mainly due to $439.3 million spent to fund our 2021 acquisitions and increased capital expenditures partially offset by increased proceeds from sales of property, plant and equipment. Capital expenditures were $236.6 million in 2021 compared to $172.0 million in 2020. The majority of our 2021 and 2020 capital expenditures related to growth initiatives. Proceeds from sales of property, plant and equipment were $36.0 million in 2021 compared to $6.7 million in 2020 and included $29.7 million from the sale of non-core assets for which we recognized $5.7 million of gains.

​

Financing Activities

​

Net cash used in financing activities of $528.9 million in 2021 increased from $483.0 million used in 2020, mainly due to decreased net debt borrowings. Net debt repayments were $1.5 million in 2021 compared to net debt borrowings of $58.8 million in 2020. Our shareholder return activities in 2021 included $177.0 million of dividends and $323.5 million of share repurchases compared to $164.1 million of dividends and $337.3 million of share repurchases in 2020.

​

We have paid regular quarterly dividends to our stockholders for 62 consecutive years and increased the quarterly dividend on our common stock 29 times since our IPO in 1994, with the most recent increase of 27.3% from $0.6875 per share to $0.8750 per share effective in the first quarter of 2022. We increased our dividend from $0.50 per share to $0.55 per share in February 2019, to $0.625 in February 2020, and to $0.6875 in February 2021. We have never reduced or suspended our regular quarterly dividend.

​

On July 20, 2021, our Board of Directors authorized a $1.0 billion share repurchase program that amended and restated our prior share repurchase program authorized in October 2018. The share repurchase program does not obligate us to

38

Table of Contents

repurchase any specific amount or number of shares, does not have a specific expiration date and may be suspended or discontinued at any time.

​

We repurchase shares through open market purchases, privately negotiated transactions and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 or Rule 10b-18 under the Exchange Act. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.

​

During 2021, we repurchased approximately 2.1 million shares of our common stock at an average cost of $153.55 per share, for a total of $323.5 million. During 2020, we repurchased approximately 3.7 million shares of our common stock at an average cost of $91.80 per share, for a total of $337.3 million. As of December 31, 2021, we had remaining authorization under the plan to repurchase approximately $712.6 million of our common stock. Through December 31, 2021, we have repurchased approximately 34.9 million shares at an average cost of $54.56 per share for a total of $1.91 billion since the inception of our share repurchase programs in 1994, including approximately 12.8 million shares repurchased at an average cost of $95.54 for a total of $1.22 billion during the last five years. We expect to continue to be opportunistic in our approach to repurchasing shares of our common stock.

​

Liquidity

​

We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our $1.5 billion revolving credit facility, will be sufficient to satisfy our cash requirements and shareholder return activities over the next 12 months and beyond. Our total outstanding debt at December 31, 2021 was $1.66 billion which was unchanged from December 31, 2020. As of December 31, 2021, we had no outstanding borrowings and $8.9 million of letters of credit issued. As of December 31, 2021, we had $300.5 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as total debt, net of cash, divided by total Reliance stockholders’ equity plus total debt, net of cash) was 18.1%, up from 15.8% as of December 31, 2020.

​

On September 3, 2020, we entered into a $1.5 billion unsecured five-year Amended and Restated Credit Agreement (“Credit Agreement”) that amended and restated our existing $1.5 billion unsecured revolving credit facility. At December 31, 2021, borrowings under the Credit Agreement were available at variable rates based on LIBOR plus 1.25% or the bank prime rate plus 0.25% and we pay a commitment fee at an annual rate of 0.20% on the unused portion of the revolving credit facility. The applicable margins over LIBOR and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined in the Credit Agreement. All borrowings under the Credit Agreement may be prepaid without penalty. Our Credit Agreement includes provisions to change the reference rate to the then-prevailing market convention for similar agreements if a replacement rate for LIBOR is necessary during its term.

​

A revolving credit facility with a credit limit of $8.5 million is in place for an operation in Asia with an outstanding balance of $4.7 million and $5.4 million as of December 31, 2021 and 2020, respectively.

​

The Company had $221.1 million of operating lease obligations as of December 31, 2021 for processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. Our expected payments over the next 12 months under these operating leases are $62.1 million. See Note 10—“Leases” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.") for information regarding the maturities of our operating lease obligations.

​

The Company has obligations pursuant to certain qualified and non-qualified pension plans. A total of $40.0 million of liabilities was recognized on the balance sheet at December 31, 2021 and the Company expects to make plan contributions and benefit payments totaling $15.2 million over the next 12 months. See Note 13—“Benefits” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.") for information regarding our expected payments under these plans.

​

Our capital expenditures have been at elevated levels in recent years and our 2022 capital expenditure budget, including unspent amounts from 2021, is a record $350 million. As of December 31, 2021, we had entered into contracts related to capital expenditures in the amount of $69.2 million which is all expected to be paid over the next 12 months.

​

39

Table of Contents

We primarily purchase and sell in the spot market and consequently our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods (lead times). In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months. The total amount of commitments under long-term inventory purchase agreements is estimated at approximately $442.2 million, with amounts in 2022, 2023 and thereafter being $196.1 million, $131.0 million and $115.1 million, respectively.

​

We have other contractual commitments under long-term agreements, generally for services, totaling $38.7 million at December 31, 2021, with amounts in 2022, 2023 and thereafter being $18.0 million, $13.8 million and $6.9 million, respectively.

​

In addition, the Company maintains a $1.0 billion share repurchase program with $712.6 million of remaining repurchase authorization as of December 31, 2021, which does not obligate the Company to acquire a specific amount or number of shares. We have also paid regular quarterly cash dividends on our common stock for 62 consecutive years. Our Board of Directors increased the quarterly dividend to $0.55 per share in February 2019 from $0.50 per share, to $0.625 per share in February 2020, to $0.6875 per share in February 2021 and to $0.8750 per share in February 2022. The holders of Reliance common stock are entitled to one vote per share on each matter submitted to a vote of stockholders.

​

Capital Resources

​

On November 20, 2006, we entered into an indenture (the “2006 Indenture”) for the issuance of $600.0 million of unsecured debt securities. The total issuance was comprised of (a) $350.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, which matured and were repaid on November 15, 2016 and (b) $250.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036.

​

On April 12, 2013, we entered into an indenture (the “2013 Indenture”) for the issuance of $500.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 4.50% per annum, maturing on April 15, 2023.

​

On August 3, 2020, we entered into an indenture (the “2020 Indenture” and, together with the 2013 Indenture and 2006 Indenture, the “Indentures”) for the issuance of $900.0 million of unsecured debt securities. The total issuance under the 2020 Indenture was comprised of (a) $400.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 1.30% (1.53% effective interest rate) per annum, maturing on August 15, 2025 and (b) $500.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 2.15% per annum, maturing on August 15, 2030.

​

Under the Indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest.

​

Various industrial revenue bonds had combined outstanding balances of $7.7 million and $8.3 million as of December 31, 2021 and 2020, respectively, and have maturities through 2027.

​

As of December 31, 2021, we had $911.3 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 3, 2025.

​

We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due. In addition to funds generated from operations and funds available under our revolving credit facility, we expect to continue to be able to access the capital markets to raise funds, if desired. 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. We

40

Table of Contents

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.

​

Covenants

​

The Credit Agreement and the Indentures include customary representations, warranties, covenants, acceleration, indemnity 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. Our interest coverage ratio for the twelve-month period ended December 31, 2021 was 32.4 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (“EBIT”), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of December 31, 2021, calculated in accordance with the terms of the Credit Agreement, was 20.4% compared to the debt covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of finance lease obligations and outstanding letters of credit, minus the lesser of cash held by our domestic subsidiaries and $200.0 million, divided by Reliance stockholders’ equity plus total debt).

​

We were in compliance with all financial covenants in our Credit Agreement at December 31, 2021.

​

Goodwill and Other Intangible Assets

​

We have one operating segment and also one reporting unit for goodwill impairment purposes. There have been no changes in our reportable segments; we have one reportable segment – metals service centers.

​

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at December 31, 2021, or approximately 22% of total assets and 35% of total equity. Additionally, other intangible assets, net amounted to $1.08 billion at December 31, 2021, or approximately 11% of total assets and 18% 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. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Refer to Critical Accounting Policies and Estimates for further information regarding our 2021 and 2020 impairment charges and discussion regarding judgments involved in testing for recoverability of our goodwill and other intangible assets.

​

Critical Accounting Estimates

​

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The Company’s significant accounting policies, including recently issued accounting pronouncements, are fully described in Note 1—“Summary of Significant Accounting Policies” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data.” When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies are critical due to the fact that they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation. Our most critical accounting estimates include those related to the recoverability of goodwill and other indefinite-lived intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

​

We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements. There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements.

​

41

Table of Contents

Goodwill and Other Indefinite-Lived Intangible Assets

​

We test for impairment of goodwill and intangible assets deemed to have indefinite lives annually and, between annual tests, whenever significant events or changes occur based on an assessment of qualitative factors to determine if it is more likely than not that the fair value is less than the carrying value. The qualitative factors we review include a decline in our stock price and market capitalization, a decline in the market conditions of our products and viability of end markets, and developments in our business and the overall economy. We make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, including calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and indefinite-lived intangible asset impairment test as of November 1 of each year. No impairment of goodwill was determined to exist in 2021, 2020 or 2019. We recorded impairment losses on our intangible assets with indefinite lives in the amount of $4.7 million and $67.8 million in 2021 and 2020, respectively. No impairment of intangible assets with indefinite lives was recognized in 2019. See Note 19—“Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data” for further information on our impairment charges.

​

Long-Lived Assets

​

We periodically review the recoverability of our other long-lived assets, primarily property, plant and equipment and intangible assets subject to amortization. The evaluation is performed at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. An impairment loss is recognized if the estimated undiscounted cash flows are less than the carrying amount of the assets. We must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges. We recorded impairment charges on property, plant and equipment of $9.3 million and $1.2 million in 2020 and 2019, respectively. No impairment of property, plant and equipment was recognized in 2021. We recorded impairment charges of $30.7 million on our intangible assets subject to amortization in 2020. No impairment of intangible assets subject to amortization was recognized in 2021 and 2019. See Note 19—"Impairment and Restructuring Charges” to our consolidated financial statements in Part II, Item 8 "Financial Statements and Supplementary Data” for further information on our impairment charges.

​

Impairment tests inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analysis. An impairment charge, if incurred, could be material. In 2021, the evaluation of our indefinite-lived intangible assets and long-lived assets included estimates regarding the eventual recovery of the commercial aerospace market for cash-generating units that have incurred losses in recent years. If the commercial aerospace market does not recover as we currently anticipate, an impairment charge may be incurred, that could be significant.

​