2014
ANNUAL REPORT
OPERATING SEGMENTS
2014
METALS SERVICE CENTERS
Our network of metals service centers carries a broad
line of metal products in a wide range of sizes, shapes
and specifications, including carbon hot rolled and cold
finished steel, pipe and tubular products, stainless steel
and aluminum. We purchase these products primarily
from North American steel producers and package and sell
them to end users in accordance with their specific needs.
We service all major geographical regions of Canada and
the Southeastern and Midwestern regions of the United
States.
ENERGY PRODUCTS
These operations distribute oil country tubular goods
(OCTG), line pipe, tubes, valves and fittings in Canada
and in the United States. We purchase these products
either from the pipe division of North American steel
mills or from independent manufacturers of pipe and
pipe accessories.
STEEL DISTRIBUTORS
Our steel distributors act as master distributors, selling steel
in large volumes to other steel service centers and large
equipment manufacturers mainly on an “as is” basis. The
main steel products sourced by this segment are carbon
steel plate, beams, channel, flat rolled products, rails and
pipe products.
TABLE OF CONTEN TS
A Message from our President & CEO
A Message from our Chair of the Board
Financial Highlights
Management’s Responsibility for Financial Reporting
Management’s Discussion & Analysis
Independent Auditor’s Report
Consolidated Financial Statements
1
2
3
4
5
22
23
A MESSAGE FROM OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER
From an operations perspective, 2014 was our best year since 2008. All three of our
operating segments had strong results as prices held and demand strengthened. Our
recently acquired operations grew, our investments in equipment and facilities helped us
continue to capture market share and our process improvements lowered our operating
costs, all of which contributed to the strong growth in earnings.
Against the backdrop of our successes we experienced the single largest economic event
since 2009 with the downward movement in the price of crude oil late in 2014. Brent
Crude Oil prices dropped from a 2013 close of US$110 per barrel to below US$50 per
barrel in early 2015. On the positive side, we have significantly less inventory valuation
exposure than in 2009 due to much lower current steel prices. Following the price of
crude lower was the Canadian dollar and our Company’s share price, despite our positive
earnings growth.
MANAGEMENT
In our management ranks, I would like to thank Ed Peckham general manager of our
Atlantic Region for his many years of strong leadership and personal friendship. Ed
retired this year; he will be missed. We will also miss two outstanding long term senior
managers who have announced their retirement – Dave Gallo and Terry Vanstone.
Several key individuals have joined or been promoted to our management team in 2014.
Gregg Bryant has replaced Ed as General Manager of our Atlantic Region. Gregg has
been an integral part of our Atlantic region since our acquisition of Leroux in 2003 and has
more than 28 years of experience in our industry. Also joining our management group is
Jason Kaiser who will head our Fedmet Tubular operation in Calgary. We would also like
to welcome Brian Classen who is the new leader of our Siemen’s Laserworks operation in
Saskatchewan.
I would also like to welcome the teams from Big West Valve and B.R. Chisholm, our two
acquisitions completed in 2014.
THE FUTURE
Our service center and steel distributor segments sell to the broader North American
economy and will continue to perform as the underlying economy performs. The current
pricing pressures on steel should lessen as the year progresses and the industry inventory
buildup due to imported products is corrected.
The recent decline in oil prices will cause energy activity levels to drop and we expect the
first quarter, which is traditionally a seasonally strong period, to be lower than the 2014
first quarter. Our profitabily in the energy segment should be more stable since commodity
prices are not inflated and with the addition of the Apex Distribution group of companies.
This group supports maintenance, repair and operations activities and is less impacted by
the decline in drilling activities. We have no clarity, however, on what to expect for 2015.
Our results will depend on the price of oil and its impact on energy projects, corresponding
activity in the oil patch and the overall economy.
Our cash flow from operations, the cash generated from working capital reductions and
existing liquidity from our bank facility will enable the payment of our industry-leading
dividend and continued investments in our growth through acquisitions and capital
spending.
Brian R. Hedges
President and Chief Executive Officer
RUSSEL METALS INC.12014 ANNUAL REPORT
A MESSAGE FROM OUR CHAIR OF THE BOARD
Fellow Shareholders,
Our Company's financial success last year made 2014 one of our best years ever. Our
core businesses continued to show strong growth, and we are pleased that our newest
acquisition, Apex Distribution and its related companies reduced the volatility of our
energy products segment.
Living in Alberta, I often say "experience is what you get when you don’t get what you
want". We all have plenty of 'experience' at Russel so we know that the drop in oil and
gas prices will have a serious impact on our energy customers. We are confident we
will weather the downturn, as we have a strong balance sheet and geographically
diverse holdings.
Our confidence is anchored in the efforts of our senior management team and the
leadership of our CEO, Brian Hedges. In an industry known for its turbulence and not-
quite-so-predictable turns, Russel’s management has agility and acumen on its side.
They respond quickly to take advantage of market turns and avoid major pitfalls. Our
Board says thank you to the management team and all of our employees who serve our
customers every day.
Success in these economic conditions is hard-won. Our industry is competitive and
there is no shortage of uncertainty. The American economy is back in growth mode for
now. The Canadian picture is much less certain as we face a changing landscape and
indeed a riskier environment. Your Board is working closely with Brian and his team to
fully understand and assess our risk map. We'll take a measured approach and ensure
we have strong processes and we are always mindful that risk-taking - done right - is
how we earn a living and deliver shareholder returns.
I was honoured this year to become the Chair at Russel Metals. Since I joined as a
director in 2003, our Board has provided sound, strategic guidance to management as
the Company has grown and prospered. I want to thank all the directors for their
diligence and their continued commitment to the Company, our shareholders and our
people.
Finally, my director colleagues join me in thanking Mr. Anthony Griffiths, our former
Chair who retired last May after 17 years of astute leadership at Russel. We all felt
fortunate to have Tony's quietly strong, 'no-drama' guidance through the tumult and the
highs and lows of steel and energy throughout his tenure. Tony Griffiths is one-of-a-
kind.
All of us at Russel thank you, our shareholders, for your continued support. We will
remain vigilant in working on your behalf in 2015 and beyond.
James F. Dinning
Chair of the Board
RUSSEL METALS INC.22014 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
OPERATING RESULTS (millions)
Revenues
Net earnings
EBIT
Adjusted EBIT (Note)
Adjusted EBIT as a % of revenue
Adjusted EBITDA (Note)
EBITDA as a % of revenue
Basic earnings per common share ($)
BALANCE SHEET INFORMATION (millions)
Metals
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accruals
Net working capital - Metals
Fixed assets
Goodwill and intangibles
Net assets employed in metals operations
Other operating assets
Net income tax assets (liabilities)
Pension and benefit assets (liabilities)
Other corporate assets and (liabilities)
Total net assets employed
CAPITALIZATION (millions)
Bank indebtedness, net of (cash)
Long-term debt (incl. current portion)
Total interest bearing debt, net of (cash)
Market capitalization
Total firm value
OTHER INFORMATION (Notes)
Shareholders' equity (millions)
Book value per share ($)
Free cash flow (millions)
Capital expenditures (millions)
Depreciation and amortization (millions)
Earnings multiple
Firm value as a multiple of EBIT
Firm value as a multiple of EBITDA
Interest bearing debt/EBITDA
Debt as a % of capitalization
Market capitalization as a % of book value
Return on equity
Return on capital employed
COMMON SHARE INFORMATION
Ending outstanding common shares
Average outstanding common shares
Dividend yield
Dividend per share
Dividends paid as a % of free cash flow
Share price - High
Share price - Low
Share price - Ending
<---------------------------------------Years ended--------------------------------------->
2010
2012
2014
2013
2011
$3,869.3
123.6
217.0
226.9 (1)
5.9%
261.7
6.8%
$2.01
$3,187.8
83.3
146.0
151.2 (1)
4.7%
184.8 (1)
5.8%
$1.37
$3,000.1
97.9 (2)
175.3 (2)
175.3 (2)
5.8%
200.8
6.7%
$1.63 (2)
$2,693.3
118.3
197.5
197.5
7.3%
221.0
8.2%
$1.97
$2,178.0
57.3
110.8
111.5 (1)
5.1%
136.8 (1)
6.3%
$0.96
$566.6
930.8
11.6
(486.0)
1,023.0
249.8
214.3
1,487.1
1.5
(23.4)
(26.1)
(42.3)
$1,396.8
($29.2)
461.0
431.8
1,597.4
$2,029.2
$965.0
$15.65
$124.8
$48.2
$34.8
12.9
8.9
7.8
1.8
32%
166%
13%
16%
$455.9
766.3
5.9
(383.7)
844.4
228.4
218.7
1,291.5
10.1
(11.3)
(23.1)
(42.6)
$1,224.6
($116.2)
458.4
342.2
1,913.1
$2,255.3
$882.4
$14.48
$91.9
$27.2
$33.6
22.9
14.9
12.2
2.5
34%
217%
9%
12%
$455.6
764.0
7.1
(381.5)
845.2
225.3
192.1
1,262.6
16.0
(8.2)
(38.7)
(47.3)
$1,184.4
($100.8)
455.8
355.0
1,662.2
$2,017.2
$829.4
$13.78
$99.4
$33.7
$25.5
16.9
11.5
10.0
2.3
35%
200%
12%
15%
$381.7
645.6
4.3
(343.6)
688.0
184.1
24.7
896.8
17.1
(12.0)
(33.3)
(22.1)
$846.5
$300.5
544.1
2.9
(259.8)
587.7
187.2
24.9
799.8
17.6
(11.5)
(17.2)
(11.9)
$776.8
($270.7)
297.8
27.1
1,346.8
$1,373.9
($323.7)
319.7
(4.0)
1,373.5
$1,369.5
$819.4
$13.64
$129.5
$18.1
$23.5
11.4
7.0
6.2
1.3
27%
164%
14%
23%
-
$772.8
$12.88
$85.7
$11.6
$25.3
23.9
12.3 (1)
10.0 (1)
2.3 (1)
29%
178%
7%
14% (1)
61,674,228
61,321,767
5.9%
$1.52
72%
$37.63
$25.07
$25.90
60,946,393
60,780,520
4.5%
$1.40
93%
$31.62
$23.23
$31.39
60,204,636
60,128,534
5.1%
$1.40
82%
$28.97
$22.52
$27.61
60,071,698
60,043,222
5.4%
$1.20
53%
$27.75
$18.90
$22.42
59,978,173
59,717,629
4.8%
$1.10
70%
$23.94
$16.25
$22.90
Notes:
(1) Adjusted EBIT and EBITDA excludes the asset impairment charge in 2014 of $9.9 million, 2013 of $5.2 million and the inventory reversal of $1.9
million and plant closure costs of $2.6 million in 2010.
(2) Restated due to adoption of IAS 19 (Amended 2011)
(3) This chart includes certain financial measures that are not prescribed by Canadian generally accepted accounting principles (GAAP) or have
standardized meanings, and thus, may not be comparable to similar measures presented by other companies, for example EBIT and EBITDA and Other
Information. Management believes that EBIT and EBITDA may be useful in assessing our operating performance and as an indicator of our ability to
service or incur indebtedness, make capital expenditures and finance working capital requirements. EBIT and EBITDA should not be considered in
isolation or as an alternative to cash from operating activities or other combined income or cash flow data. EBIT, EBITDA and a number of the ratios
provided under Other Information are used by debt and equity analysts to compare our performance against other public companies. This terminology
is defined on the inside back cover of our Annual Report. See financial statements for GAAP earnings.
RUSSEL METALS INC.32014 ANNUAL REPORT MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements, Management's Discussion and Analysis of Financial
Condition and all information in the Annual Report have been prepared by management and approved by the
Audit Committee and the Board of Directors of the Company.
These consolidated financial statements were prepared in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board, and, where appropriate, reflect
management's best estimates and judgements. Management is responsible for the accuracy, integrity and
objectivity of the consolidated financial statements and Management's Discussion and Analysis of Financial
Condition within reasonable limits of materiality and for the consistency of financial data included in the text of
the Annual Report with that contained in the consolidated financial statements.
To assist management in the discharge of these responsibilities, the Company has developed, documented
and maintained a system of internal controls in order to provide reasonable assurance that its assets are
safeguarded; that only valid and authorized transactions are executed; and that accurate, timely and
comprehensive financial information is prepared in accordance with International Financial Reporting
Standards. In addition, the Company has developed and maintained a system of disclosure controls in order
to provide reasonable assurance that the financial information is relevant, reliable and accurate. The
Company has evaluated its internal and disclosure controls for the year ended December 31, 2014, and has
disclosed the results of this evaluation in its Management Discussion and Analysis of Financial Condition.
The Company's Audit Committee is appointed annually by the Board of Directors. The Audit Committee, which
is composed entirely of outside directors, meets with management to satisfy itself that management is properly
discharging its financial reporting responsibilities and to review the consolidated financial statements and the
Management's Discussion and Analysis of Financial Condition. The Audit Committee reports its findings to the
Board of Directors for consideration in approving the consolidated financial statements and the Management's
Discussion and Analysis of Financial Condition for presentation to the shareholders.
The consolidated financial statements have been audited on behalf of the shareholders by the external
auditors, Deloitte LLP, in accordance with Canadian generally accepted auditing standards. Deloitte LLP has
full and free access to the Audit Committee.
February 18, 2015
B. R. Hedges
President and
Chief Executive Officer
M. E. Britton
Executive Vice President and
Chief Financial Officer
RUSSEL METALS INC.42014 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") of
Russel Metals Inc. and its subsidiaries provides information to assist readers of our audited Consolidated
Financial Statements for the year ended December 31, 2014, including the notes thereto and should be read in
conjunction with these financial statements. All dollar references in our financial statements and in this report
are in Canadian dollars unless otherwise stated.
Additional information related to Russel Metals Inc., including our Annual Information Form, may be obtained
from SEDAR at www.sedar.com or on our website at www.russelmetals.com.
Unless otherwise stated, the discussion and analysis contained in this MD&A are as of February 18, 2015.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A constitute forward-looking statements or information within the
meaning of applicable securities laws, including statements as to our future capital expenditures, our outlook,
the availability of future financing and our ability to pay dividends. Forward-looking statements relate to future
events or our future performance. All statements, other than statements of historical fact, are forward-looking
statements. Forward-looking statements are often, but not always, identified by the use of words such as
"seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential",
"targeting", "intend", "could", "might", "should", "believe" and similar expressions. Forward-looking statements
are necessarily based on estimates and assumptions that, while considered reasonable by us, inherently
involve known and unknown risks, uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking statements, including the factors described
below.
We are subject to a number of risks and uncertainties which could have a material adverse effect on our future
profitability and financial position, including the risks and uncertainties listed below, which are important factors
in our business and the metals distribution industry. Such risks and uncertainties include, but are not limited to:
the current economic climate; volatility in metal prices; volatility in oil and natural gas prices; cyclicality of the
metals industry and the industries that purchase our products; lack of credit availability that may limit the ability
of our customers to obtain credit or expand their businesses; significant competition that could reduce our
market share; the interruption in sources of metals supply; the integration of future acquisitions, including
successfully adapting to a public company control environment and retaining key acquisition management
personnel; failure to renegotiate any of our collective agreements and work stoppages; disruption in our
customer or suppliers' operations due to labour disruptions or the existence of events or circumstances that
cause a force majeure; environmental liabilities; environmental concerns or changes in government regulations
in general, and those related to oil sands production, shale fracking or oil distribution in particular; changes in
government regulations relating to workplace safety and worker health; product claims from customers;
currency exchange risk, particularly between the Canadian and U.S. dollar; the failure of our key computer-
based systems, including our enterprise resource and planning systems; the failure to implement new
technologies; the loss of key individuals; the inability to access affordable financing, capital or insurance;
interest rate risk; dilution; and change of control.
While we believe that the expectations reflected in our forward-looking statements are reasonable, no
assurance can be given that these expectations will prove to be correct, and our forward-looking statements
included in this MD&A should not be unduly relied upon. These statements speak only as of the date of this
MD&A and, except as required by law, we do not assume any obligation to update our forward-looking
statements. Our actual results could differ materially from those anticipated in our forward-looking statements
including as a result of the risk factors described above and under the heading "Risk" later in this MD&A, and in
our filings with securities regulatory authorities which are available on SEDAR at www.sedar.com. Specific
reference is made to our most recent Annual Information Form for a further discussion of some of the factors
underlying our forward-looking statements.
RUSSEL METALS INC.52014 ANNUAL REPORT
NON-GAAP MEASURES
This MD&A includes a number of measures that are not prescribed by Canadian generally accepted accounting
principles ("GAAP") and as such may not be comparable to similar measures presented by other companies.
We believe these measures are commonly employed to measure performance in our industry and are used by
analysts, investors, lenders and other interested parties to evaluate financial performance and our ability to
incur and service debt to support our business activities. The measures we use are specifically defined where
they are first used in this report.
While we believe that non-GAAP measures are helpful supplemental information, they should not be
considered in isolation as an alternative to net income, cash flows generated by operating, investing or
financing activities, or other financial statement data presented in accordance with GAAP.
OVERVIEW
We are one of the largest metals distribution companies in North America. We conduct business primarily in
three metals distribution segments: metals service centers, energy products, and steel distributors.
Our earnings for 2014 were $124 million compared to $83 million in 2013. Earnings per share were $2.01 for
2014 compared to $1.37 for 2013. Our return on equity was 13%.
Our earnings increase was driven by an increase in revenues in all segments. Revenues increased in our
metals service centers segment by 12%, in our energy products segment by 24% and in our steel distributors
segment by 56% for the year ended 2014 compared to 2013. Stronger gross margins and cost containment
resulted in a 50% increase in operating profits; more than double the rate of revenue increase.
SUMMARIZED FINANCIAL INFORMATION
The table discloses selected information related to revenues, earnings and common share information over the
last three years.
2014
(in millions, except
per share data and volumes)
Revenues
Earnings from operations
Net earnings
Quarters Ended
Mar. 31
June 30
Sept. 30
Dec. 31
Year
Ended
Dec. 31
$ 924.0
53.5
29.0
$ 893.3
56.4
30.5
$ 1,038.8
63.4
33.0
$ 1,013.2
53.6
31.1
$ 3,869.3
226.9
123.6
Basic earnings per common share
$ 0.47
$ 0.50
$ 0.54
$ 0.50
$ 2.01
Diluted earnings per common share
$ 0.46
$ 0.48
$ 0.52
$ 0.49
$ 1.95
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
$ 1,883.9
$ 489.6
$ 0.35
$ 1,900.1
$ 490.0
$ 0.35
$ 2,019.8
$ 493.5
$ 0.38
$ 2,042.8
$ 487.8
$ 0.38
$ 2,042.8
$ 487.8
$ 1.46
$ 31.50
$ 27.78
$ 34.43
$ 29.90
$ 37.63
$ 33.50
$ 35.11
$ 25.07
$ 37.63
$ 25.07
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded
61,026,590
60,966,768
9,008,334
61,414,260
61,159,759
9,379,761
61,632,896
61,497,827
10,266,671
61,674,228
61,653,232
18,618,067
61,674,228
61,321,767
47,272,833
RUSSEL METALS INC.62014 ANNUAL REPORT
2013
(in millions, except
per share data and volumes)
Revenues
Earnings from operations
Net earnings
Quarters Ended
Mar. 31
June 30
Sept. 30
Dec. 31
Year
Ended
Dec. 31
$ 821.8
41.5
21.7
$ 758.1
40.2
19.9
$ 796.8
36.5
18.9
$ 811.1
33.0
22.8
$ 3,187.8
151.2
83.3
Basic earnings per common share
$ 0.36
$ 0.33
$ 0.31
$ 0.37
$ 1.37
Diluted earnings per common share
$ 0.36
$ 0.33
$ 0.31
$ 0.37
$ 1.37
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
$ 1,844.5
$ 486.1
$ 0.35
$ 1,809.1
$ 488.0
$ 0.35
$ 1,792.2
$ 490.3
$ 0.35
$ 1,817.8
$ 497.5
$ 0.35
$ 1,817.8
$ 497.5
$ 1.40
$ 29.59
$ 27.86
$ 29.47
$ 23.23
$ 28.25
$ 23.91
$ 31.62
$ 25.81
$ 31.62
$ 23.23
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded
60,818,240
60,490,430
9,940,048
60,866,902
60,844,045
12,806,749
60,890,252
60,872,628
7,978,646
60,946,393
60,909,358
9,523,684
60,946,393
60,780,520
40,249,127
2012
(in millions, except
per share data and volumes)
Revenues
Earnings from operations
Net earnings
Quarters Ended
Mar. 31
June 30
Sept. 30
Dec. 31
Year
Ended
Dec. 31
$ 802.9
52.8
32.9
$ 718.7
46.0
22.5
$ 712.6
40.2
22.4
$ 765.9
36.0
20.1
$ 3,000.1
175.0
97.9
Basic earnings per common share
$ 0.55
$ 0.37
$ 0.37
$ 0.34
$ 1.63
Diluted earnings per common share
$ 0.53
$ 0.37
$ 0.37
$ 0.34
$ 1.62
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
$ 1,549.1
$ 294.6
$ 0.30
$ 1,689.3
$ 450.8
$ 0.35
$ 1,679.5
$ 451.5
$ 0.35
$ 1,795.1
$ 484.6
$ 0.35
$ 1,795.1
$ 484.6
$ 1.35
$ 27.95
$ 22.52
$ 27.92
$ 23.61
$ 28.20
$ 23.73
$ 28.97
$ 25.90
$ 28.97
$ 22.52
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded
60,102,823
60,080,755
14,759,969
60,129,973
60,089,859
9,475,372
60,155,948
60,139,308
10,831,800
60,204,636
60,181,444
10,378,377
60,204,636
60,128,534
45,445,518
RUSSEL METALS INC.72014 ANNUAL REPORT
RESULTS OF OPERATIONS
The following table provides operating profits before interest, other finance expense or income, asset
impairment and income taxes. The corporate expenses included are not allocated to specific operating
segments. Gross margins (revenue minus cost of sales) as a percentage of revenues for the operating
segments are also shown below. The table shows the segments as they are reported to management and are
consistent with the segment reporting in our consolidated financial statements.
(in millions, except percentages)
Segment Revenues
Metals service centers
Energy products
Steel distributors
Other
Segment Operating Profits
Metals service centers
Energy products
Steel distributors
Corporate expenses
Other
Operating profits
2014
$ 1,630.4
1,792.1
441.0
5.8
2013
2014 change
as a % of 2013
$ 1,455.6
1,442.8
283.2
6.2
12%
24%
56%
$ 3,869.3
$ 3,187.8
21%
$ 82.1
124.0
38.2
(18.2)
0.8
$ 71.7
79.3
19.0
(17.8)
(1.0)
15%
56%
101%
(1%)
$ 226.9
$ 151.2
50%
Segment Gross Margin as a % of Revenues
Metals service centers
Energy products
Steel distributors
Total operations
Segment Operating Profit as a % of Revenues
Metals service centers
Energy products
Steel distributors
Total operations
20.5%
16.8%
14.2%
18.2%
5.0%
6.9%
8.7%
5.9%
20.5%
15.4%
12.5%
17.7%
4.9%
5.5%
6.7%
4.7%
RUSSEL METALS INC.82014 ANNUAL REPORT
Description of operations
METALS SERVICE CENTERS
a)
We provide processing and distribution services to a broad base of approximately 38,000 end users through a
network of 52 Canadian locations and 13 U.S. locations. Our metals service centers carry a broad line of
products in a wide range of sizes, shapes and specifications, including carbon hot rolled and cold finished steel,
pipe and tubular products, stainless steel and aluminum. We purchase these products primarily from steel
producers in North America and process and package them in accordance with end user specifications. We
service all major geographic regions of Canada and the Southeastern and Midwestern regions in the United
States. Within Canada, our service centers operate under the names Russel Metals, Métaux Russel, A.J.
Forsyth, Acier Leroux, Acier Loubier, Alberta Industrial Metals, B&T Steel, Leroux Steel, Mégantic Métal, Russel
Metals Specialty Products, Métaux Russel Produits Spécialisés, McCabe Steel, Siemens Laserworks and York-
Ennis. Our U.S. service centers operate under the names Russel Metals Williams Bahcall, JMS Russel Metals,
Norton Metals and Baldwin International.
Factors affecting results
b)
The following is a general discussion of the significant factors affecting our metals service centers results. More
specific information on how these factors impacted 2014 and 2013 is found in the section that follows.
Steel prices fluctuate significantly throughout the steel cycle. Steel prices are influenced by overall international
demand, trade sanctions, iron ore prices, scrap steel prices and product availability. Volatile metal prices cause
fluctuations in our operating results. Steel prices increased during the first half of 2014, plateaued in the 2014
third quarter and began to soften at the end of 2014.
Supply side management, practiced by steel producers in North America, and international supply and demand,
which impact steel imports, affects product availability. Trade sanctions are initiated either by steel mills or by
government agencies in North America.
Our operating results are affected by the inherent risk of the cyclicality of the metals industry and the industries
that purchase our products. Demand for our product is significantly affected by economic cycles. Revenues
and operating profits fluctuate with the level of general business activity in the markets served. We are most
impacted by the manufacturing, resource including oil and gas, and construction segments of the North
American economy.
Canadian service centers, which represent the majority of our metals service center operations, have
operations in all regions of Canada and are affected by general regional economic conditions. Our large market
share and diverse customer base of approximately 19,000 Canadian customers mean that our results tend to
mirror the performance of the regional economies of Canada. Our U.S. operations, which also have
approximately 19,000 customers, are impacted by the local economic conditions in the regions that they serve.
Our Canadian operations can be affected by the U.S. dollar exchange rate since some products are sourced
outside of Canada and are priced in U.S. dollars. Movement in the Canadian dollar has a short-term impact on
inventory prices.
The decline in the Canadian dollar in 2014 versus 2013 increased revenues and profits for our U.S. operations
translated to Canadian dollars. Revenues and profits of our U.S. operations reported for 2014 were converted
at $1.1047 per US$1 compared to $1.0301 per US$1 for 2013. The exchange rate at December 31, 2014 used
to translate the balance sheet was $1.1601 per US$1 versus $1.0636 per US$1 at December 31, 2013.
Metals service centers segment results -- 2014 compared to 2013
c)
Revenues for 2014 increased 12% to $1.6 billion compared to 2013 revenues of $1.5 billion. Tons shipped in
the metals service centers segment in 2014 were approximately 5% higher than 2013. The average selling
price of metal for 2014 was approximately 7% higher than the average selling price for 2013. The increase in
tons shipped was primarily generated by higher volumes in Alberta and at our U.S. operations. In both our
results and the Metals Service Center Institute industry statistics the U.S. market was stronger than the
Canadian market. Based on these industry statistics, our growth exceeded the industry as we continued to
capture market share.
RUSSEL METALS INC.92014 ANNUAL REPORT
Gross margin as a percentage of revenues was consistent at 20.5% for both 2014 and 2013. Gross margin
dollars for 2014 were $35 million higher than 2013 due to stronger revenues.
Our average revenue per invoice for 2014 was approximately $1,788 compared to $1,635 for 2013, reflecting
higher selling prices. We handled approximately 3,648 transactions per day in 2014 compared to 3,562 per day
for 2013, an increase of 2%.
Operating expenses as a percentage of revenues were consistent with 2013. Operating expenses for 2014
increased $25 million or 11%, from 2013, mainly related to the increase in activity, the increase caused by
foreign exchange on translation of our U.S. metals service centers and variable compensation due to stronger
results.
Metals service centers operating profits for 2014 of $82 million compares to $72 million for 2013 and reflects the
improved market conditions.
Description of operations
ENERGY PRODUCTS
a)
We distribute oil country tubular goods (OCTG), line pipe, tubes, valves and fittings, primarily to the energy
industry in Western Canada and the United States. A significant portion of our business units are clustered in
Alberta and Saskatchewan, Canada, and Colorado and Texas in the U.S. A large portion of our inventories are
located in third party yards ready for distribution to customers throughout North America. In addition, we
operate from 55 Canadian and 22 U.S. facilities mainly to support our valve and fitting operations. The majority
of these facilities are oil field stores which form the Apex Distribution and Apex Remington network. We
purchase our products from the pipe division of North American steel mills, independent manufacturers of pipe,
valves and fittings, international steel mills and other distributors. Our energy products segment operates under
the names Apex Distribution, Apex Monarch, Apex Remington, Comco Pipe and Supply Company, Fedmet
Tubulars, Triumph Tubular & Supply, Pioneer Pipe and Spartan Energy Tubulars.
Factors affecting results
b)
The following is a general discussion of the factors affecting our energy products segment operations. More
specific information on how these factors impacted 2014 and 2013 is found in the section that follows.
The price of natural gas and oil can impact rig count and drilling activities, particularly in Western Canada. Rig
activity affects demand for our products. The price of oil and gas for most of 2014 resulted in stronger rig
activity in 2014 compared to 2013. Oil and gas prices started to fall at the end of the third quarter of 2014 and
continued to fall into 2015 leading to lower rig counts. This severe drop in the price of oil has caused our
energy product customers to announce reductions in their projects for 2015 which will result in reduced demand
for our products in 2015. Fracking technology, applied to horizontal drilling, enables producers to economically
drill in oil and gas-rich shale fields and remains the focus of our OCTG sales efforts; however, fracking has a
greater risk of environmental concerns and changes in government regulations.
Prices for pipe products are influenced by overall demand, trade sanctions and product availability. Trade
sanctions are initiated either by steel mills or by government agencies in North America. Both the Canadian
and U.S. governments have imposed duties on certain Chinese pipe, which remain in effect and reduce imports
of these products. The U.S. government has initiated reviews of pipe from a number of other countries and in
July 2014 announced additional duties. Prices of valves and fittings are not as sensitive to steel price
fluctuations because they are highly engineered value-added products.
Our Canadian operations can be affected by the U.S. dollar exchange rate since some products are sourced
outside of Canada and are priced in U.S. dollars. Movement in the Canadian dollar impacts the cost of
inventory and cost of sales.
Drilling related to oil and natural gas in Western Canada historically peaks during the period from October to
March.
RUSSEL METALS INC.102014 ANNUAL REPORT
Energy products segment results -- 2014 compared to 2013
c)
Revenues in our energy products segment increased to $1.8 billion for 2014, an increase of 24%, compared to
2013 due to strong activity in the sector. Revenues from our Canadian operations servicing oil and gas drilling
activity increased 50% compared to 2013 due to increased activity. Our other operations in this segment were
also up a combined 15%.
Gross margin as a percentage of revenue was 16.8% for 2014 compared to 15.4% in 2013 due to higher
margins at most of our energy products operations, partially offset by increased inventory obsolescence
provisions of $13 million. Margins improved due to increased revenues at our operations selling valves and
fittings which have higher margins than our pipe operations.
Operating expense as a percentage of revenue was 10% for 2014 and 2013. Operating expenses increased
23% compared to 2013 due to increased activity, higher variable compensation and the increase caused by
foreign exchange on translation of our U.S. operations.
This segment generated a 56% increase in operating profit to $124 million for 2014 compared to $79 million for
2013, mainly related to volume increases in our Alberta-based operations.
Description of operations
STEEL DISTRIBUTORS
a)
Our steel distributors act as master distributors selling steel in large volumes to other steel service centers and
equipment manufacturers mainly on an "as is" basis. Our U.S. operation has a cut-to-length facility in Houston,
Texas where it processes coil for its customers. Our steel distributors source their steel both domestically and
off shore.
The main steel products sourced by this segment are structural beam, plate, coils, pipe and tubing; however,
product volumes vary based on the economy and trade actions in North America. Our steel distributors operate
under the names Wirth Steel and Sunbelt Group. Arrow Steel, a division of Sunbelt Group, processes coils.
Factors affecting results
b)
The following is a general discussion of the significant factors affecting our steel distributors. More specific
information on how these factors impacted 2014 and 2013 is found in the section that follows.
Steel prices are influenced by overall demand, trade sanctions and product availability both domestically and
worldwide. Trade sanctions are initiated either by steel mills or government agencies in North America. Non-
trade related sanctions may also be initiated by governments on countries where our suppliers are located.
Trade actions currently exist on plate and pipe from specified countries. Steel imports are affected both by mill
capacity by product line in North America, as well as international supply and demand. In addition, these
factors significantly affect product availability in North America. The increase in economic activity in the metals
service center sector in 2014 led to increased activity at steel distributors.
Demand for steel that is sourced off shore fluctuates significantly and is mainly driven by price and product
availability in North America. Our steel distributors have a significant number of customers who buy product
from them on a periodic basis which can result in large fluctuations in revenues reported from period to period.
Our Canadian operations source product outside of Canada that is priced in U.S. dollars and may be subject to
movement in the Canadian dollar.
Steel distributors segment results -- 2014 compared to 2013
c)
Steel distributors revenues increased 56% to $441 million for 2014 compared to $283 million in 2013 due to
higher volumes and prices. The increase related to stronger demand in North America, higher steel prices and
more competitively priced off shore product offerings.
Gross margin as a percentage of revenues improved to 14.2% for 2014 compared to 12.5% for 2013.
Operating expenses as a percentage of revenues was 6% for 2014 and 2013. Operating expenses for 2014
were $8 million higher than 2013 as a result of higher variable compensation and the increase caused by
foreign exchange on translation of our U.S. operations.
RUSSEL METALS INC.112014 ANNUAL REPORT
Operating profits for 2014 doubled to $38 million compared to $19 million in 2013, reflecting higher volumes and
selling prices.
CORPORATE EXPENSES -- 2014 COMPARED TO 2013
Corporate expenses were $18 million in 2014 and 2013 and improved as a percentage of revenues. The higher
performance based bonuses in 2014 were offset by lower stock based compensation as a result of share price
declines in the fourth quarter of 2014.
CONSOLIDATED RESULTS -- 2014 COMPARED TO 2013
Operating profits were $227 million in 2014, 50% higher than the $151 million in 2013. Volume and price
increases in all three segments was the most significant factor in the increase in operating profits.
ASSET IMPAIRMENT
During 2014 we recorded a $10 million asset impairment charge related to our bulk handling terminal in
Thunder Bay, Ontario. In 2013, we had recorded an asset impairment charge of $5 million. The 2013
impairment charge related to volume declines and in 2014 we recorded an additional impairment due to higher
than expected future maintenance costs. During the third quarter of 2014 we received a positive outcome to
our property tax appeal resulting in non-recurring income of $1 million.
INTEREST EXPENSE AND INCOME
Net interest expense was $37 million for 2014 compared to $36 million for 2013.
OTHER FINANCE EXPENSE AND INCOME
Other finance expense was $4 million for 2014 compared to income of $5 million for 2013. Other finance
expense or income relates to the change in fair value of the contingent consideration due to imputed interest
and change in the expected payouts associated with the Apex Distribution and Apex Monarch acquisitions. The
change in the estimated future payments related to an increase in the 2014 payment due to stronger results
recorded in 2014 offset by a decrease in the expected future payments due to lower projected earnings in the
Apex Group in 2015 and beyond. This decrease is due to lower projected future activity at its customer base
caused by oil price declines.
The following table shows the components of other finance income and expense:
(millions)
Imputed interest
Change in expected future payments
2014
2013
$ 7
(3)
$ 6
(11)
$ 4
$ (5)
INCOME TAXES
We recorded a provision for income taxes of $52 million in 2014 compared to $32 million for 2013. Our
effective income tax rate for 2014 was 29.8% compared to 27.6% for 2013. Higher earnings in the U.S. which
has higher tax rates and the change in fair value of the contingent consideration which is not tax effected
resulted in an increase in our effective tax rate in 2014 compared to 2013.
NET EARNINGS
Net earnings for 2014 were $124 million compared to $83 million in 2013. Basic earnings per share for 2014
were $2.01 per share compared to $1.37 per share in 2013.
SHARES OUTSTANDING AND DIVIDENDS
The weighted average number of common shares outstanding for 2014 was 61,321,767 compared to
60,780,520 for 2013. The weighted average number of common shares outstanding has increased as a result
of the exercise of options. Common shares outstanding at December 31, 2014 and February 18, 2015 were
61,674,228.
RUSSEL METALS INC.122014 ANNUAL REPORT
We paid common share dividends of $90 million or $1.46 per share in 2014 compared to $85 million or $1.40
per share in 2013.
We have $174 million of 7.75% Convertible Unsecured Subordinated Debentures outstanding which mature on
September 30, 2016. Each debenture is convertible into common shares at the option of the holder at any time
on or prior to the business day immediately preceding (i) the maturity date, or (ii) the date specified for
redemption of the Convertible Debentures, at a conversion price of $25.75 per share being a conversion rate of
38.8350 common shares per $1,000 principal amount of Convertible Debentures. During the year ended
December 31, 2014, Convertible Debentures having a principal amount of $0.5 million were converted into
19,840 common shares.
We have $300 million 6.0% Senior Notes due April 19, 2022. The indenture for our Senior Notes has
restrictions related to the payment of quarterly dividends in excess of $0.35 per share. We currently have a
basket of approximately $245 million available for restricted payments, which is adjusted for 50% of our net
earnings or losses on a quarterly basis. This basket would be available for increased dividend payments.
Under our syndicated bank facility, the payment of dividends is subject to excess borrowing base availability of
not less than four times the declared dividend. We do not believe this requirement will restrict our ability to pay
dividends as our borrowing base, which is based on percentages of accounts receivable and inventories, has
traditionally been in excess of our borrowings plus four times the current dividend. In addition, we believe we
would be able to finance our short-term cash requirements with alternate financing structures and pay the
dividend.
EBITDA
The following table shows the reconciliation of net earnings to adjusted EBITDA:
(millions)
Net earnings
Provision for income taxes
Interest and finance expense, net
Asset impairment charges
Adjusted earnings before interest, finance and income taxes (adjusted EBIT)
Depreciation and amortization
Adjusted earnings before interest, finance, income taxes,
depreciation and amortization (adjusted EBITDA)
2014
2013
$ 123.6
52.4
41.0
9.9
226.9
34.8
$ 83.3
31.8
30.9
5.2
151.2
33.6
$ 261.7
$ 184.8
We believe that adjusted EBITDA, a non-GAAP measure, may be useful in assessing our operating
performance and as an indicator of our ability to service or incur indebtedness, make capital expenditures and
finance working capital requirements. The items excluded in determining adjusted EBITDA are significant in
assessing our operating results and liquidity. Therefore, adjusted EBITDA should not be considered in isolation
or as an alternative to cash from operating activities or other combined income or cash flow data prepared in
accordance with GAAP.
CAPITAL EXPENDITURES
Capital expenditures were $48 million in 2014 compared to $27 million in 2013. During 2014, $13 million was
expended to purchase land for the expansion of our Edmonton, Alberta metals service center facilities and $6
million on new processing equipment. Depreciation expense was $28 million in 2014 compared to $27 million
in 2013. We expect capital expenditures to exceed depreciation in the short term due to the purchase of
additional processing equipment and the relocation and expansion of service center locations.
LIQUIDITY
At December 31, 2014, we had net cash defined as, cash less bank indebtedness, of $29 million compared to
$116 million at December 31, 2013.
We generated $173 million from operations during 2014 and utilized $145 million for working capital to support
our growth as well as $48 million for capital expenditures and $90 million for dividends to shareholders.
RUSSEL METALS INC.132014 ANNUAL REPORT
To support revenue levels we experience significant swings in working capital which impact cash flow. Our
recent strong revenue growth has resulted in increased working capital requirements. Inventory and accounts
receivable represent a large percentage of our total assets employed and vary throughout each cycle.
Accounts receivable and inventory comprise our largest liquidity risks. Our customers are impacted by the
economic climate and thus it is possible to experience additional bad debts and increased days outstanding for
accounts receivable, which may affect the timing of collections.
Total assets were $2.0 billion at December 31, 2014 compared to $1.8 billion at December 31, 2013. At
December 31, 2014 current assets excluding cash represented 77% of our total assets excluding cash versus
73% at December 31, 2013.
Increases in inventory utilized cash of $146 million in 2014. This inventory increase was primarily a result of
increased activity at our metals service centers and steel distributors in support of increased activity for the
quarter. Inventories represented 46% of our total assets at December 31, 2014 and compared to 42% at
December 31, 2013.
Inventory by Segment (millions)
Metals service centers
Energy products
Steel distributors
Dec. 31
2014
$ 329
437
165
Sept. 30
2014
$ 301
418
153
June 30
2014
$ 265
455
142
Mar. 31
2014
$ 275
412
86
Dec. 31
2013
$ 259
433
74
Total
$ 931
$ 872
$ 862
$ 773
$ 766
Inventory Turns (quarters ended)
Dec. 31
2014
Sept. 30
2014
June 30
2014
Mar. 31
2014
Dec. 31
2013
Metals service centers
Energy products
Steel distributors
Total
4.0
3.7
2.6
3.6
4.4
4.0
2.7
3.9
5.0
2.6
2.6
3.3
4.5
3.6
3.5
3.9
4.3
3.0
3.3
3.5
At December 31, 2014, our metals service centers had higher inventory tons priced at higher values compared
to December 31, 2013. Lower fourth quarter revenues and timing of purchases resulted in a decline in turns
from September 30, 2014.
Our energy products operations had higher inventory at the end of 2014 due to strong sales relating to the
higher level of activity in the Canadian oil patch. A combination of lower inventory and strong revenues
improved turns compared to December 31, 2013.
At December 31, 2014, our steel distributors segment had doubled its inventory levels compared to December
31, 2013 as strong demand led to increased purchases. We expect these levels to decrease during 2015.
Accounts receivable utilized cash of $107 million due to increased revenues in 2014. Accounts receivable
represented 28% of our total assets at December 31, 2014 compared to 25% of our total assets at December
31, 2013.
During 2014, we made income tax payments of $38 million compared to $35 million for 2013.
The balances disclosed in our consolidated cash flow statements are adjusted to remove the non-cash
component related to foreign exchange rate fluctuations impacting inventory, accounts receivable, accounts
payable and income tax balances of our U.S. operations.
RUSSEL METALS INC.142014 ANNUAL REPORT
FREE CASH FLOW
(millions)
Cash from operating activities before non-cash working capital
Purchase of property, plant and equipment
2014
2013
$ 173.0
(48.2)
$ 119.2
(27.2)
$ 124.8
$ 92.0
We believe that free cash flow may be useful in assessing our ability to pay dividends, reduce outstanding debt
and fund working capital growth. Free cash flow is a non-GAAP measure regularly used by investors and
analysts to evaluate companies.
CASH, DEBT AND CREDIT FACILITIES
As at December 31 (millions)
Long-term debt
6.0% $300 million Senior Notes due April 19, 2022
7.75% $174 million Convertible Debentures due September 30, 2016
Finance leases obligations, maturing 2014 to 2017
Current portion
2014
2013
$ 295
165
1
461
(1)
$ 294
161
3
458
(1)
$ 460
$ 457
Our Convertible Debentures have been split between debt and equity. The debt allocated to equity is accreted
as a charge through interest expense over the life of the debentures. The amount allocated to equity
represented the valuation of the holders' option to convert the Convertible Debentures into common shares. If
the Convertible Debentures were to be converted to equity at redemption or maturity it would result in 6,770,757
common shares being issued.
Cash and Bank Credit Facilities
As at December 31, 2014 (millions)
Bank loans
Cash net of outstanding cheques
Net cash
Letters of credit
Facilities
Borrowings and letters of credit
Letters of credit
Facilities availability
Available line based on borrowing base
Russel Metals
Facility
U.S. Subsidiary
Facility
$ (32)
45
13
(43)
$ -
16
16
(26)
Total
$ (32)
61
29
(69)
$ (30)
$ (10)
$ (40)
$ 275
50
$ 325
$ 325
$ 46
-
$ 321
50
$ 46
$ 371
$ 46
$ 371
We have a credit facility with a syndicate of Canadian and U.S. banks totaling $325 million which expires June
24, 2017. The syndicated facility consists of availability of $275 million under Tranche I to be utilized for
borrowings and letters of credit, and $50 million under Tranche II to be utilized for letters of credit only. Letters
of credit are issued under Tranche II first and additional needs are issued under Tranche I. The borrowings
and letters of credit are available on a revolving basis, up to an amount equal to the sum of specified
percentages of our eligible accounts receivable and inventories, to a maximum of $325 million. As of
December 31, 2014, we were entitled to borrow and issue letters of credit totaling $325 million under this
facility. At December 31, 2014, we had $32 million in borrowings and $43 million of letters of credit outstanding.
At December 31, 2013 we had no borrowings and letters of credit of $24 million.
RUSSEL METALS INC.152014 ANNUAL REPORT
One of our U.S. subsidiaries has their own bank facility. The maximum borrowings under this facility, including
letters of credit, are US$40 million. At December 31, 2014, our U.S. subsidiary had no borrowings under this
facility and had letters of credit of US$23 million. At December 31, 2013, this subsidiary had no borrowings
under this facility and had letters of credit of US$4 million.
At December 31, 2014, we were in compliance with all of our financial covenants.
With our cash, cash equivalents and our bank facilities we have access to approximately $315 million of cash
based on our December 31, 2014 balances. The use of our bank facilities has been predominantly to fund
working capital requirements, acquisitions and trade letters of credit for inventory purchases. These lines may
be used to support increased working capital needs when volumes and steel prices increase.
CONTRACTUAL OBLIGATIONS
As at December 31, 2014, we were contractually obligated to make payments as per the following table:
Contractual Obligations
(millions)
Accounts payable
Debt
Long-term debt interest
Finance lease obligations
Operating leases
Payments due in
2015
$ 500
-
32
-
25
2016
and 2017
2018
and 2019
2020 and
thereafter
$ -
174
50
1
42
$ -
-
36
-
23
$ -
300
46
-
31
Total
$ 500
474
164
1
121
Total
$ 557
$ 267
$ 59
$ 377
$ 1,260
As part of the purchase consideration for Apex Distribution and Apex Monarch we agreed to pay additional cash
consideration during the five years ending 2017 and 2018, respectively, based on earnings before interest and
taxes and return on net assets. During the first quarter of 2014 we paid $4 million in satisfaction of the Apex
Distribution obligation for 2013. The obligation was increased by $4 million in 2014 related to the change in fair
value due to the net of imputed interest of $7 million and a decrease in the expected payment of $3 million. The
fair value of the contingent consideration was $44 million at December 31, 2014 and 2013. The amount is
reviewed quarterly and adjusted through income for increases or decreases in the liability.
We have obligations related to multiple defined benefit pension plans in Canada, as disclosed in Note 16 of our
2014 consolidated financial statements. During 2014, we contributed $7 million to these plans. We expect to
contribute approximately $7 million to these plans during 2015. The defined benefit obligations reported in the
consolidated financial statements use different assumptions than the going concern actuarial valuations
prepared for funding. In addition, the actuarial valuations provide a solvency valuation, which is a valuation
assuming the plan is wound up at the valuation date. Our reported funding obligations would increase by $6
million on a solvency basis and thus additional funding could be required based on solvency if the plans were
wound up. We estimate the impact of a 0.25% change in the discount rate on the solvency obligation would be
approximately $5 million.
We have disclosed our obligations related to environmental litigation, regulatory actions and remediation in our
Annual Information Form under the heading "Environmental Regulation". These obligations relate to previously
divested or discontinued operations and do not relate to the metals distribution business.
OFF-BALANCE SHEET ARRANGEMENTS
Our off-balance sheet arrangements consist of the letters of credit disclosed in the bank credit facilities table
and operating lease obligations disclosed in the contractual obligations table.
RUSSEL METALS INC.162014 ANNUAL REPORT
ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements requires management to make estimates and
judgements that affect the reported amounts. On an ongoing basis, we evaluate our estimates, including those
related to bad debts, inventory net realizable value and obsolescence, useful lives of fixed assets, asset
impairment, fair values, income taxes, pensions and benefits obligations, guarantees, decommissioning
liabilities, contingencies, contingent consideration, litigation and assigned values on net assets acquired. We
base our estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgements about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
Our most significant assets are accounts receivable and inventories.
Accounts Receivable
An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of our
customers to make required payments. Assessments are based on aging of receivables, legal issues
(bankruptcy status), past collection experience, current financials, credit agency reports and the experience of
our credit personnel. Accounts receivable which we determine to be uncollectible are reserved in the period in
which the determination is made. If the financial condition of our customers was to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. Our reserve for bad debts
at December 31, 2014 approximates our reserve at December 31, 2013. Bad debt expense for 2014 as a
percentage of revenue approximates that of 2013.
Inventories
We review our inventories to ensure that the cost of inventories is not in excess of its estimated net realizable
value and for obsolete and slow moving product. Inventory reserves or write-downs are recorded when cost
exceeds the estimated selling price less cost to sell and when product is determined to be slow moving or
obsolete. The inventory reserve level at December 31, 2014 approximated the level at December 31, 2013.
Other areas involving significant estimates and judgements include:
Income Taxes
We believe that we have adequately provided for income taxes based on all of the information that is currently
available. The calculation of income taxes in many cases requires significant judgement in interpreting tax rules
and regulations, which are constantly changing. Our tax filings are also subject to audits, which could materially
change the amount of current and future income tax assets and liabilities. Any change would be recorded as a
charge or reduction in income tax expense.
Business Combinations
For each acquisition we review the fair value of assets acquired. Where we deem it appropriate, we hire
outside business valuators to assist in the assessment of the fair value of property, plant, equipment,
intangibles and contingent consideration of acquired businesses. The assessment of fair values for contingent
consideration is completed quarterly and requires significant judgement.
Contingent Liabilities
Provisions for claims and potential claims are determined on a case by case basis. We recognize contingent
loss provisions when it is determined that a loss is probable and when we are able to reasonably estimate the
loss. This determination takes significant judgement and actual cash outflows might be materially different from
estimates. In addition, we may receive claims in the future that could have a material impact on our financial
results.
The Company and certain of its subsidiaries have been named defendants in a number of legal actions.
Although the outcome of these legal actions cannot be determined, management intends to defend all such
legal actions and has recorded provisions, as required, based on its best estimate of the potential losses. In the
opinion of management, the resolution of these legal actions is not expected to have a material adverse effect
on the Company's financial position, cash flows or operations.
RUSSEL METALS INC.172014 ANNUAL REPORT
The Company and the manufacturer of certain energy products have received notice of a customer claim
relating to product that was distributed by the Company between 2010 and 2012. The customer alleges that
the product was defective and that the manufacturer did not meet the specifications for the goods distributed by
the Company. The Company is currently evaluating the claim but has not been provided with information to
make a reliable estimate of any potential liability and consequently no provision has been recorded. The
Company intends to vigorously defend against this claim and to assert its rights against the manufacturer.
Employee Benefit Plans
Our actuaries perform a valuation, at least every three years, for each defined benefit plan to determine the
actuarial present value of the benefits. The valuation uses management's assumptions for the interest rate,
rate of compensation increase, rate of increase in government benefits and expected average remaining years
of service of employees. While we believe that these assumptions are reasonable, differences in actual results
or changes in assumptions could materially affect employee benefit obligations and future net benefit plan cost.
We account for differences between actual and assumed results by recognizing differences in benefit
obligations and plan performance immediately in other comprehensive income.
We had approximately $106 million in plan assets at December 31, 2014, which is an increase of approximately
$12 million from December 31, 2013. The discount rate used on the employee benefit plan obligation for
December 31, 2014 was 4% which is 0.75% lower than the interest rate at December 31, 2013 resulting in an
increase in our accrued benefit obligation of $15 million.
CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information
is gathered and reported to senior management on a timely basis so that appropriate decisions can be made
regarding public disclosure.
The purpose of internal controls over financial reporting as defined by the Canadian Securities Administrators is
to provide reasonable assurance that:
(i)
financial statements prepared for external purposes are in accordance with the Company's generally
accepted accounting principles,
(ii) transactions are recorded as necessary to permit the preparation of financial statements, and records are
maintained in reasonable detail,
(iii) receipts and expenditures of the Company are made only in accordance with authorizations of the
Company's management and directors, and
(iv) unauthorized acquisitions, uses or dispositions of the Company's assets that could have a material effect on
the financial statements will be prevented or detected in order to prevent material error in financial
statements.
The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer have
caused management and other employees to design and document our disclosure controls and procedures and
our internal controls over financial reporting. An evaluation of the design and operating effectiveness of the
disclosure controls and internal controls over financial reporting was conducted as at December 31, 2014. The
design and evaluation of internal controls was completed using the framework and criteria established in
"Internal Control - Integrated Framework" (the "2013 Framework") issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on our evaluation, we have concluded that our disclosure controls and procedures and our internal
controls over financial reporting were effective to provide reasonable assurance that information related to our
consolidated results and decisions to be made on those results were appropriate.
VISION AND STRATEGY
The metals distribution business is a segment of a mature, cyclical industry. The use of service centers by both
manufacturers and end users has grown over the last decade.
RUSSEL METALS INC.182014 ANNUAL REPORT
We strive to deal with the cyclical nature of the business by operating with the lowest possible net assets
throughout the course of a cycle. This intensive asset management reduces borrowings and therefore interest
expense in declining periods in the economic cycle. This in turn creates higher, more stable returns on net
assets over a cycle. Our conservative management approach creates relatively stronger trough earnings but
could cause potential peak earnings to be somewhat muted. Management believes that this strategy will result
in higher profits throughout a cycle and we will have average earnings over the full range of the cycle in the top
deciles of the industry.
Growth from selective acquisitions is also part of our strategy. We focus on investment opportunities in metals
businesses that have strong market niches or provide mass to our existing operations. New acquisitions could
be either major stand-alone operations or ones that complement our existing operations. We made acquisitions
in both 2013 and 2014. We continue to review opportunities for acquisitions.
We believe that the steel-based pricing cycle will continue to be short and volatile, and a management structure
and philosophy that allows the fastest reaction to changes that affect the industry will be the most successful.
We will continue to invest in our business systems to enable faster reaction times to changing business
conditions. In addition, management believes the high level of service and flexibility provided by service
centers will enable this distribution channel to capture an increasing percentage of the total metal revenues to
end users, allowing for increased growth within the sector.
RISK
The timing and extent of future price changes from steel producers and their impact on us cannot be predicted
with any certainty due to the inherent cyclical nature of the steel industry and modest capacity utilization rates
for North American steel producers.
Our acquisitions between 2012 and 2014 increased our exposure to the Western Canadian oil and gas
segment. We believe that this continues to be an area of growth long term; however, our exposure to the
cyclicality of oil and gas pricing has increased. Management believes the acquisition in the oil field operations
of Apex Distribution provides a more stable stream of revenues and earnings for the energy products segment.
Our Annual Information Form includes a summary of risks related to our business.
RUSSEL METALS INC.192014 ANNUAL REPORT
FOURTH QUARTER RESULTS
The following table provides operating profit before interest, taxes and other income or expense in a format
consistent with our annual results.
Quarters Ended December 31
(millions, except percentages)
2014
2013
Segment Revenues
Metals service centers
Energy products
Steel distributors
Other
Segment Operating Profits
Metals service centers
Energy products
Steel distributors
Corporate expenses
Other
Operating profits
Segment Gross Margin as a % of Revenues
Metals service centers
Energy products
Steel distributors
Total operations
Segment Operating Profit as a % of Revenues
Metals service centers
Energy products
Steel distributors
Total operations
2014
change as
a % of 2013
14%
25%
77%
$ 402.6
484.1
124.9
1.6
$ 351.9
387.3
70.4
1.5
$ 1,013.2
$ 811.1
25%
$ 13.4
31.5
11.5
(2.9)
0.1
$ 13.4
21.5
4.3
(5.5)
(0.7)
- %
46%
167%
47%
$ 53.6
$ 33.0
62%
19.2%
16.1%
14.7%
17.3%
3.3%
6.5%
9.2%
5.3%
20.2%
15.5%
12.4%
17.5%
3.8%
5.6%
6.1%
4.1%
Revenue increases in the fourth quarter were consistent with the revenue increases throughout 2014.
Operating profits of $54 million for the fourth quarter 2014 were 62% higher compared to the fourth quarter of
2013. Tons shipped in the fourth quarter of 2014 for metals service centers were approximately 5% higher than
for the fourth quarter of 2013 and selling prices were 10% higher than the fourth quarter of 2013. Gross margin
as a percentage of revenues declined from 20.2% for the fourth quarter of 2013 to 19.2% for the fourth quarter
of 2014. Inventory costs rose faster than we were able to increase selling prices. The energy products
segment had strong volumes and gross margins which resulted in operating profits improving 46%. Steel
distributors operating profits more than doubled reflecting higher volumes and selling prices.
During the fourth quarter of 2014 we recorded finance income of $6 million related to contingent consideration
on the Apex Distribution and Apex Monarch acquisitions based on fair value adjustment for future payments
due to anticipated reduced earnings caused by declining oil prices. Also during the fourth quarter we recorded
an asset impairment charge of $10 million on our Thunder Bay Terminals operation due to a reduction in
expected future cash flows. Earnings per share for the fourth quarter of 2014 was $0.50 compared to $0.37 for
the fourth quarter of 2013 and $0.54 for the third quarter of 2014.
RUSSEL METALS INC.202014 ANNUAL REPORT
OUTLOOK
We believe the current oil price levels, reductions in rig counts and announced capital spending reductions will
significantly impact our energy sector business. We believe the addition of Apex Distribution with their heavier
concentration on repair and maintenance-based energy business will provide a more stable revenue and
earnings stream compared to our historical results in the energy products segment. We believe that current off
shore supply imbalances will cause continued downward pressure on steel prices in the first half of 2015. We
believe there is a lower risk of a severe drop in metal prices in 2015 compared to 2009, as metal prices in the
current environment are much lower compared to 2008. It is difficult to predict how all of these factors will
impact our results.
RUSSEL METALS INC.212014 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Russel Metals Inc.
We have audited the accompanying consolidated financial statements of Russel Metals Inc., which comprise
the consolidated statements of financial position as at December 31, 2014 and December 31, 2013, and the
consolidated statements of earnings, consolidated statements of comprehensive income, consolidated
statements of cash flow and consolidated statements of changes in equity for the years then ended, and a
summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Russel Metals Inc. as at December 31, 2014 and December 31, 2013, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
February 18, 2015
Toronto, Ontario
RUSSEL METALS INC.222014 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31
(in millions of Canadian dollars, except per share data)
Revenues
Cost of materials (Note 9)
Employee expenses (Note 20)
Other operating expenses (Note 20)
Asset impairment (Note 10)
Gain on sale of business (Note 6)
Earnings before interest, finance expense and provision for income taxes
Interest expense (Note 21)
Interest income (Note 21)
Other finance expense (income) (Note 21)
Earnings before provision for income taxes
Provision for income taxes (Note 22)
Net earnings for the year
Net earnings attributed to:
Equity holders
Non-controlling interest
Basic earnings per common share (Note 19)
Diluted earnings per common share (Note 19)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31
(in millions of Canadian dollars)
Net earnings for the year
Other comprehensive income
Items that may be reclassified to earnings
Unrealized foreign exchange gains on translation of foreign operations
Items that may not be reclassified to earnings
Actuarial (losses) gains on pension and similar obligations, net of taxes (Note 28)
Other comprehensive income
Total comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
2014
2013
$ 3,869.3
3,166.0
287.8
189.3
9.9
(0.7)
$ 3,187.8
2,624.6
248.8
163.2
5.2
-
217.0
36.9
-
4.1
176.0
52.4
146.0
36.0
(0.4)
(4.7)
115.1
31.8
$ 123.6
$ 83.3
$ 123.5
0.1
$ 83.2
0.1
$ 123.6
$ 83.3
$ 2.01
$ 1.37
$ 1.95
$ 1.37
2014
2013
$ 123.6
$ 83.3
35.1
(4.5)
30.6
23.2
11.3
34.5
$ 154.2
$ 117.8
RUSSEL METALS INC.232014 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31
(in millions of Canadian dollars)
ASSETS
Current
Cash and cash equivalents (Note 7)
Accounts receivable (Note 8)
Inventories (Note 9)
Prepaid expenses
Income taxes receivable
Property, Plant and Equipment (Note 10)
Deferred Income Tax Assets (Note 22)
Pensions and Benefits (Note 16)
Financial and Other Assets (Note 11)
Goodwill and Intangibles (Note 12)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (Note 13)
Accounts payable and accrued liabilities (Note 14)
Income taxes payable
Current portion long-term debt (Note 15)
Long-Term Debt (Note 15)
Pensions and Benefits (Note 16)
Deferred Income Tax Liabilities (Note 22)
Provisions and Other Non-Current Liabilities (Note 23)
Shareholders' Equity (Note 17)
Common shares
Retained earnings
Contributed surplus
Accumulated other comprehensive income
Equity component of convertible debentures (Note 15)
Total Shareholders' Equity Attributable to Equity Holders
Non-controlling interest
Total Shareholders' Equity
2014
2013
$ 53.4
569.3
930.8
11.6
2.8
$ 116.2
456.2
766.3
5.9
6.3
1,567.9
1,350.9
249.8
4.9
-
5.9
214.3
238.9
3.0
0.2
6.1
218.7
$ 2,042.8
$ 1,817.8
$ 24.2
500.4
14.1
0.5
$ -
384.1
0.2
1.2
539.2
460.5
26.1
17.0
35.0
1,077.8
531.2
344.0
14.1
47.1
28.6
965.0
-
965.0
385.5
457.2
23.3
20.5
48.9
935.4
509.5
314.6
16.2
12.0
28.7
881.0
1.4
882.4
Total Liabilities and Shareholders' Equity
$ 2,042.8
$ 1,817.8
The accompanying notes are an integral part of these consolidated financial statements.
ON BEHALF OF THE BOARD,
A. Laberge
Director
J. A. Hanna
Director
RUSSEL METALS INC.242014 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOW
For the years ended December 31
(in millions of Canadian dollars)
Operating activities
Net earnings for the year
Depreciation and amortization
Deferred income taxes
Loss (gain) on sale of property, plant and equipment
Gain on sale of business
Stock based compensation
Difference between pension expense and amount funded
Asset impairment
Debt accretion, amortization and other
Change in fair value of contingent consideration
2014
2013
$ 123.6
34.8
(3.0)
1.0
(0.7)
1.6
(3.2)
9.9
4.9
4.1
$ 83.3
33.6
(4.4)
(0.4)
-
2.4
(0.1)
5.2
4.3
(4.7)
Cash from operating activities before non-cash working capital
173.0
119.2
Changes in non-cash working capital items
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Income tax receivable/payable
Other
Change in non-cash working capital
Cash from operating activities
Financing activities
Increase (decrease) in bank indebtedness
Issue of common shares
Dividends on common shares
Issuance of long-term debt
Repayment of long-term debt
Deferred financing
Cash used in financing activities
Investing activities
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Purchase of business
Proceeds from sale of business
Payment of contingent consideration
Cash used in investing activities
Effect of exchange rates on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year
(106.6)
(146.4)
96.5
17.2
(5.6)
(144.9)
28.1
24.2
17.4
(89.6)
-
(0.9)
-
(48.9)
(48.2)
1.7
(1.6)
2.3
(4.1)
(49.9)
7.9
(62.8)
116.2
18.7
22.3
(21.9)
2.2
1.2
22.5
141.7
(14.3)
18.0
(85.2)
1.0
(2.8)
(1.3)
(84.6)
(27.2)
2.6
(42.6)
-
-
(67.2)
11.2
1.1
115.1
Cash and cash equivalents, end of the year
$ 53.4
$ 116.2
Supplemental cash flow information:
Income taxes paid
Interest paid (net)
The accompanying notes are an integral part of these consolidated financial statements.
$ 37.6
$ 36.8
$ 34.7
$ 36.0
RUSSEL METALS INC.252014 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions of Canadian dollars)
Balance, January 1, 2014
Changed during the year
Payment of dividends
Net earnings for the year
Other comprehensive income
for the year
Recognition of stock-based
compensation
Stock options exercised
Conversion of debentures
Sale of business (Note 6)
Transfer of net actuarial losses
on defined benefit plans
Non-
Common Retained Contributed Comprehensive of Convertible Controlling
Interest
Debentures
Earnings
Surplus
Income
Shares
Accumulated
Other
Equity
Component
Total
$ 509.5
-
-
-
$ 314.6
-
(89.6)
123.5
$ 16.2
-
-
-
$ 12.0
-
-
-
$ 28.7
-
-
-
$ 1.4
(0.1)
-
0.1
$ 882.4
(0.1)
(89.6)
123.6
-
-
21.2
0.5
-
-
-
-
-
-
-
(4.5)
-
1.6
(3.7)
-
-
-
30.6
-
-
30.6
-
-
-
-
4.5
-
-
(0.1)
-
-
-
-
-
(1.4)
-
1.6
17.5
0.4
(1.4)
-
Balance, December 31, 2014
$ 531.2
$ 344.0
$ 14.1
$ 47.1
$ 28.6
$ -
$ 965.0
(in millions of Canadian dollars)
Balance, January 1, 2013
Changed during the year
Payment of dividends
Net earnings for the year
Other comprehensive income
for the year
Recognition of stock-based
compensation
Stock options exercised
Conversion of debentures
Transfer of net actuarial gains
on defined benefit plans
Non-
Common Retained Contributed Comprehensive of Convertible Controlling
Interest
Income (Loss)
Debentures
Earnings
Surplus
Shares
Accumulated
Other
Equity
Component
Total
$ 487.9
-
-
-
$ 305.3
-
(85.2)
83.2
$ 17.3
-
-
-
-
-
21.5
0.1
-
-
-
-
-
11.3
-
2.4
(3.5)
-
-
$ (11.2)
-
-
-
34.5
-
-
-
(11.3)
$ 28.7
-
-
-
$ 1.4
(0.1)
-
0.1
$ 829.4
(0.1)
(85.2)
83.3
-
-
-
-
-
-
-
-
-
-
34.5
2.4
18.0
0.1
-
Balance, December 31, 2013
$ 509.5
$ 314.6
$ 16.2
$ 12.0
$ 28.7
$ 1.4
$ 882.4
The accompanying notes are an integral part of these consolidated financial statements.
RUSSEL METALS INC.262014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
GENERAL BUSINESS DESCRIPTION
Russel Metals Inc. (the "Company"), a Canadian corporation with common shares listed on the Toronto Stock
Exchange ("TSX"), is a metals distribution company operating in various locations within North America.
The Company primarily distributes steel and other metal products in three principal business segments:
Metals Service Centers
The Company's network of metals service centers carries a broad line of metal products in a wide range of
sizes, shapes and specifications. We purchase these products primarily from North American steel producers
and package and sell them to end users in accordance with their specific needs.
Energy Products
These operations carry a specialized product line focused on the needs of its energy industry customers. We
purchase these products primarily from the pipe divisions of North American steel mills or from independent
manufactures.
Steel Distribution
The Company's steel distributors act as master distributors, selling steel in large volumes to other metal
service centers and large equipment manufactures. This segment sources its steel both domestically and off
shore.
The Company's registered office is located at 6600 Financial Drive, Mississauga, Ontario, L5N 7J6.
NOTE 2
BASIS OF PRESENTATION
These consolidated financial statements, including comparatives, have been prepared in accordance with
International Financial Reporting Standards ("IFRS").
These consolidated financial statements have been prepared on a going concern basis under the historical
cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative
instruments) at fair value through the consolidated statement of earnings. Historical cost is generally based on
the fair value of the consideration given in exchange for assets at the time of the transaction.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise judgment in applying the Company's accounting policies.
These consolidated financial statements are presented in Canadian dollars, which is the Company's functional
currency.
These consolidated financial statements were authorized for issue by the Board of Directors on February 18,
2015.
Basis of consolidation
ACCOUNTING POLICIES
a)
The consolidated financial statements include the accounts of Russel Metals Inc. and its subsidiaries.
Subsidiaries are entities controlled by the Company. Control is achieved when the Company has the power to
govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial
statements of subsidiaries are included in the consolidated financial statements from the date the control
commences until the date the control ceases. Accounting policies for all subsidiaries are consistent with those
of the parent and all intercompany transactions, balances, income and expenses are eliminated on
consolidation.
To facilitate a better understanding of the Company's consolidated financial statements, significant accounting
policies, estimates and judgements are disclosed with the related financial note disclosure.
RUSSEL METALS INC.272014 ANNUAL REPORT
Impairment of long lived non-financial assets
b)
Non-financial tangible and definite life intangible assets (other than goodwill) are reviewed for an indication of
impairment at each statement of financial position date. If an indication of impairment exists, the asset's
recoverable amount is estimated.
An impairment loss is recognized when the carrying amount of an asset or cash generating unit ("CGU")
exceeds its recoverable amount. Impairment losses are recognized in net earnings for the period. Impairment
losses recognized relating to CGUs are allocated first to reduce the carrying amount of any goodwill allocated
to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis.
The recoverable amount is the greater of the asset's fair value less costs to sell and its value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is
determined for the CGU to which the asset belongs.
An impairment loss is reversed if there is an indication that there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortization, if no impairment loss had been recognized. An impairment loss with respect to goodwill is never
reversed.
Revenue recognition
c)
Revenue is measured at the fair value of the consideration received or receivable, net of discounts, and after
eliminating intercompany sales. Freight and shipping costs billed to customers are also included in revenue.
Revenue from the sale of goods is recognized when the Company has transferred to the buyer the significant
risks and rewards of ownership of the goods, no longer retains control over the goods sold, the amount of
revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will
flow to the Company, and the costs incurred or to be incurred in respect of the transaction can be measured
reliably.
Foreign currency
d)
The accounts of foreign subsidiaries whose functional currency is the U.S. dollar are translated from U.S.
dollars to Canadian dollars at the noon spot rate in effect at the statement of financial position date, which was
$1.1601 per US$1 at December 31, 2014 (December 31, 2013: 1.0636 per US$1). Monetary items receivable
or payable to a foreign subsidiary for which settlement is neither planned nor likely to occur form part of the net
investment in the foreign subsidiary. Revenues and expenses are translated at the average rate of exchange
during the period. For the year ended December 31, 2014, the average U.S. dollar published exchange rate
was $1.1047 per US$1 (2013: $1.0301 per US$1). The resulting gains or losses from the translation of the
foreign subsidiaries and those items forming part of the net investment are included in other comprehensive
income.
Goodwill, intangibles and fair value adjustments arising on the acquisition of a foreign subsidiary are treated as
assets and liabilities of the foreign subsidiary and translated at the rate in effect at the statement of financial
position date.
Non-controlling interests
e)
Non-controlling interest in the Company's subsidiaries are classified as a separate component of equity. Each
period the net income or loss and the components of other comprehensive income or loss are attributed to the
Company and non-controlling interest in proportion to their shareholdings.
Non-current assets held for sale and discontinued operations
f)
The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will
be recovered principally through a sale rather than through continuing use. Such non-current assets and
disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value
less costs to sell.
RUSSEL METALS INC.282014 ANNUAL REPORT
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the
assets or disposal group is available for the immediate sale in its present condition. Actions required to
complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the
sale will be withdrawn. Additionally, the sale should be expected within one year from the date of the
classification.
Property, plant and equipment and intangible assets are not depreciated or amortized once classified as held
for sale. Assets and liabilities classified as held for sale are presented separately as current items in the
consolidated statement of financial position.
A disposal group qualifies as a discontinued operation if it is:
A component of the Company that is a CGU or a group of CGUs;
Classified as disposed of or held for sale; and
A major line of business or major geographical area.
Discontinued operations are excluded from the results of continuing operations and are presented as a single
amount, net of tax, as income from discontinued operations in the consolidated statement of earnings.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements requires management to make certain judgements and estimates
about the future. Judgement is commonly used in determining whether a balance or transaction should be
recognized in the consolidated financial statements and estimates and assumptions are more commonly used
in determining the measurement of recognized transactions and balances. However, judgement and estimates
are often interrelated. Estimates and assumptions are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
The Company's management also makes estimates for net realizable value and obsolescence provisions
relating to inventory, fair values, guarantees, asset impairment, decommissioning obligations, contingencies
and litigation. These estimates are based on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgements
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
NOTE 3
CHANGE IN ACCOUNTING POLICY
IFRIC Interpretation 21 - Levies (IFRIC 21)
IFRIC 21 was issued by the IASB in May 2013. IFRIC 21 provides guidance on when to recognize a liability
for a levy imposed by a government both for levies that are accounted for in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is
certain. A levy is an outflow of resources embodying economic benefits that is imposed by governments on
entities in accordance with legislation, other than income taxes within the scope of IAS 12 Income Taxes and
fines or other penalties imposed for breaches of the legislation. The interpretation identifies the obligating
event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the
relevant legislation. It provides the following guidance on recognition of a liability to pay levies: (i) the liability is
recognized progressively if the obligation event occurs over a period of time, and (ii) if an obligation is triggered
on reaching a minimum threshold, the liability is recognized when that minimum threshold is reached. The
Company adopted this standard on January 1, 2014. The adoption of this standard did not have a significant
impact on the Company's financial position or results of operation.
RUSSEL METALS INC.292014 ANNUAL REPORT
NOTE 4
FUTURE ACCOUNTING CHANGES
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB released IFRS 15 Revenue from Contracts with Customers, which establishes
principles for reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an
entity's contracts with customers. It provides a single model in order to depict the transfer of promised goods
or services to customers. The core principle of IFRS 15 is that an entity recognizes revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which an
entity expects to be entitled in exchange for those goods and services. IFRS 15 also requires more
comprehensive disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising
from an entity's contracts with customers.
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and a number of revenue-related
interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real
Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue - Barter Transactions Involving
Advertising Service). IFRS 15 is effective for annual periods beginning on or after January 1, 2017, with earlier
adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its
consolidated financial statements.
NOTE 5
BUSINESS ACQUISITIONS
ACCOUNTING POLICIES
The Company accounts for its acquisitions using the acquisition method whereby assets acquired and
liabilities assumed are recorded at their estimated fair values with the surplus of the aggregate consideration
relative to the fair value for the identifiable net assets recorded as goodwill.
The acquisition method of accounting is used to account for the acquisition of subsidiaries as follows:
(i)
cost of consideration is measured as the fair value of the assets given, equity instruments issued,
liabilities incurred or assumed and any non-controlling interest acquired at the acquisition date;
(ii)
identifiable assets acquired and liabilities assumed are measured at fair value at the acquisition date;
(iii)
(iv)
the excess of acquisition cost over the fair value of the identifiable net assets acquired is recorded as
goodwill;
if the acquisition cost is less than the fair value of the net assets acquired, the fair value of the net
assets is re-assessed and any residual difference is recognized directly in net earnings;
(v) any costs directly attributable to the business combination are expensed as incurred; and
(vi) contingent consideration is measured at fair value at the acquisition date and changes in fair value are
recognized in net earnings.
ACCOUNTING ESTIMATES AND JUDGEMENTS
Fair value of assets acquired and liabilities assumed in a business combination is estimated based on
information available at the date of acquisition and involves considerable judgement in determining the fair
values assigned to property, plant, equipment and intangible assets acquired and liabilities, including
contingent consideration, assumed on acquisition. The determination of these fair values involves analysis
including the use of discounted cash flow analysis, estimated future margins, future growth rates and
estimated future customer attrition. There is measurement uncertainty inherent in this analysis, particularly in
the fair value measurement of contingent consideration, and actual results could differ from estimates.
SUPPORTING INFORMATION
2014 Acquisitions
On November 6, 2014, the Company completed an acquisition of the operating assets of Big West Valve
Partnership ("BWV"), a mobile field valve service operation servicing Drayton Valley, Alberta, for $0.9 million.
This operation is part of the Company's energy products segment.
On September 3, 2014, the Company completed an acquisition of all of the outstanding shares of B.R.
Chisholm Industrial ("Chisholm"), a metals service center operation located in Burlington, Ontario, for $0.7
million.
RUSSEL METALS INC.302014 ANNUAL REPORT
2013 Acquisitions
a)
Supply ("Monarch"), an oilfield supply operation servicing the Drayton Valley, Alberta area.
On December 2, 2013, the Company completed its acquisition of certain operating assets of Monarch
b)
On September 14, 2013, the Company completed its acquisition of Northern Valve Services
("Northern") a valve service center with operations in Fort St. John, British Columbia, through a share
purchase.
c)
oilfield supply company with stores operating
Saskatchewan, through a share purchase.
On September 12, 2013, the Company completed its acquisition of Keystone Oilfield ("Keystone") an
in Virden, Manitoba and Moosomin and Wawaota,
d)
follows:
The combined purchase price allocation of the Monarch, Keystone and Northern acquisitions was as
(millions)
Net working capital
Property, plant and equipment
Deferred income tax liability
Intangibles
Goodwill
Monarch
Keystone
and Northern
$ 12.2
0.7
(0.9)
13.9
12.6
$ 5.5
1.8
(0.7)
1.8
2.2
Total
$ 17.7
2.5
(1.6)
15.7
14.8
Net identifiable assets acquired
$ 38.5
$ 10.6
$ 49.1
Consideration:
Cash
Fair value of contingent consideration
$ 32.3
6.2
$ 10.3
0.3
$ 42.6
6.5
$ 38.5
$ 10.6
$ 49.1
The fair value of accounts receivable acquired was $12.2 million, which was included in net working capital.
Any accounts receivable which were not collected resulted in a reduction of the consideration.
The contingent consideration of $6.5 million is contingent on future earnings over the five year period ending
December 31, 2018. The fair value of the contingent consideration was calculated by applying the income
approach using the probability weighted expected contingent consideration and a discount rate of 16.1%. The
undiscounted expected cash outflow relating to contingent consideration was estimated to be $9.9 million.
e)
These three acquisitions are part of the energy products segment and complement the Company's
energy products operations. They were acquired in order to expand the Company's geographical presence
and to penetrate new markets. The amount of goodwill, of which $4.2 million is deductible for tax purposes,
reflects the expected future growth potential due to the strategic locations of the operations acquired.
f)
following the final settlement of various holdbacks which may impact net working capital.
The allocation described above for the Monarch acquisition was preliminary and subject to change
The operating results of the acquired businesses, which were included in the consolidated statement of
earnings of the Company for the year ended December 31, 2013, were as follows:
(millions)
Keystone
Northern
Monarch
Total 2013
Revenue
Earnings before interest, finance and income taxes
$ 3.5
0.6
$ 1.0
0.3
$ 2.7
0.3
$ 7.2
1.2
If the acquisitions had taken place at the beginning of the fiscal year 2013, the acquired businesses would
have provided revenues of $60.7 million and earnings before interest, finance and provision for income tax of
$4.7 million. The transaction costs for the three acquisitions of $0.3 million were expensed.
RUSSEL METALS INC.312014 ANNUAL REPORT
NOTE 6
SALE OF BUSINESS
On October 21, 2014, the Company sold its interest in Apex Advanced Solutions Inc. for a net proceeds of
$2.3 million resulting in a pre-tax gain of $0.7 million.
NOTE 7
CASH AND CASH EQUIVALENTS
ACCOUNTING POLICIES
Cash and cash equivalents include demand deposits, bank term deposits and short-term investments with a
maturity of less than three months at time of purchase. The financial instrument designation for cash and cash
equivalents is loans and receivables.
SUPPORTING INFORMATION
(millions)
Cash on deposit
Short-term investments
2014
2013
$ 36.2
17.2
$ 116.2
-
$ 53.4
$ 116.2
NOTE 8
ACCOUNTS RECEIVABLE
ACCOUNTING POLICIES
Trade receivables are amounts due from customers from the sale of goods or rendering of services in the
ordinary course of business. Trade receivables are classified as current assets if payment is due within one
year or less. The financial instrument designation for trade receivables is loans and receivables. Trade
receivables are measured at amortized cost, which approximates fair value.
The Company maintains an allowance for doubtful accounts to provide for impairment of trade receivables.
The expense relating to doubtful accounts is included within "Other operating expenses" in the consolidated
statement of earnings.
In order to minimize the risk of uncollectability of trade receivables, the Company performs regular credit
reviews for all customers with significant credit limits. Trade receivables are analyzed on a case by case basis
taking into account a customer's past credit history as well as its current ability to pay and uncollectible
amounts are recorded as an allowance for doubtful accounts.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company assesses the collectability of accounts receivable. An allowance for doubtful accounts is
estimated based on customer creditworthiness, current economic trends and past experience.
SUPPORTING INFORMATION
(millions)
Trade receivables
Other receivables
2014
2013
$ 564.8
4.5
$ 447.7
8.5
$ 569.3
$ 456.2
RUSSEL METALS INC.322014 ANNUAL REPORT
The following is the continuity of the allowance for doubtful accounts:
(millions)
Allowance for Doubtful Accounts
Balance, beginning of the year
Increases to reserve
Amounts written off
Adjustments
Balance, end of the year
2014
2013
$ 3.8
1.3
(1.4)
0.2
$ 3.1
2.5
(1.9)
0.1
$ 3.9
$ 3.8
At December 31, 2014 and 2013 the allowance was less than 1.0%, of accounts receivable. An increase in
the reserve of 1% of accounts receivable would decrease pre-tax earnings by approximately $5.6 million for
the year ended December 31, 2014 (2013: $4.5 million).
As at December 31, 2014 (millions)
Current
Past Due
1-30 Days
Past Due
31-60 Days
Past Due
Over 60 Days
Total Trade
Receivables
Trade Receivables
Gross trade receivables
Allowance for doubtful accounts
$ 320.2
-
$ 177.6
(0.1)
$ 49.8
(0.2)
$ 21.1
(3.6)
$ 568.7
(3.9)
Total net trade receivables
$ 320.2
$ 177.5
$ 49.6
$ 17.5
$ 564.8
As at December 31, 2013 (millions)
Current
Past Due
1-30 Days
Past Due
31-60 Days
Past Due
Over 60 Days
Total Trade
Receivables
Trade Receivables
Gross trade receivables
Allowance for doubtful accounts
$ 239.4
-
$ 155.0
(0.1)
$ 42.6
(0.2)
$ 14.5
(3.5)
$ 451.5
(3.8)
Total net trade receivables
$ 239.4
$ 154.9
$ 42.4
$ 11.0
$ 447.7
NOTE 9
INVENTORIES
ACCOUNTING POLICIES
Inventories are recorded at the lower of cost and net realizable value. Cost is determined on an average cost
basis. Net realizable value is the estimated selling price in the ordinary course of business less the estimated
costs necessary to make the sale. Inventories are written down to net realizable value when the cost of
inventories is estimated not to be recoverable due to declining selling prices. When circumstances that
previously caused inventories to be written down below cost no longer exist, the amount of the write-down
previously recorded is reversed.
ACCOUNTING ESTIMATES AND JUDGEMENTS
Inventories are reviewed to ensure that the cost of inventories is not in excess of its estimated net realizable
value and for obsolete and slow moving product. Inventory reserves or write-downs are recorded when cost
exceeds the estimated selling price less cost to sell and when product is determined to be slow moving or
obsolete.
The Company's determination of the net realizable value of inventory requires the use of assumptions such as
future selling prices and costs to sell. There is measurement uncertainty in these estimates. Actual selling
prices and costs to sell could differ from these estimates.
SUPPORTING INFORMATION
During the year ended December 31, 2014, the Company recorded an inventory impairment charge of $14.6
million (2013: $18.4 million). Inventories of $3.2 billion (2013: $2.6 billion) were expensed in cost of materials.
The Company did not have any reversals of previous inventory impairment charges taken during 2014 and
2013.
RUSSEL METALS INC.332014 ANNUAL REPORT
NOTE 10
PROPERTY, PLANT AND EQUIPMENT
ACCOUNTING POLICIES
Property, plant, equipment and leasehold improvements are recorded at cost. Component accounting is used
for both buildings and machinery and equipment. Components that make up a material portion of the original
cost of the asset and have a significantly different estimated useful life than the parent asset are considered to
be significant components. For buildings, roofs are the only significant component. For machinery and
equipment there are various significant components depending on the asset. Depreciation starts when the
asset or significant component is ready for use and is provided on a straight-line basis at rates that charge the
original cost of such asset, less residual values, to operations over their estimated useful lives. Periods of
depreciation are 15 to 25 years for roofs, 20 to 40 years for buildings, 3 to 10 years for machinery and
equipment components, 10 to 25 years for machinery and equipment, and over the lease term for leasehold
improvements. Depreciation ceases at the earlier of when the asset or component is derecognized, or when it
is held for sale or included in a group that is classified as held for sale. Residual values and useful lives are
reviewed at the end of each annual reporting period and whenever facts and circumstances indicate a
reduction in residual value or useful life. Changes in the estimates of residual values and useful lives are
reflected in earnings in the period of the change and future periods, as appropriate.
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are
capitalized as part of the cost of that asset. Other borrowing costs not directly attributable to a qualifying asset
are expensed in the period incurred.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company reviews the estimated useful lives of property, plant and equipment at the end of each annual
reporting period, and whenever events or circumstances indicate a change in useful life. Estimated useful
lives of items of property, plant and equipment are based on a best estimate and the actual useful lives may be
different.
SUPPORTING INFORMATION
Cost (millions)
Balance, December 31, 2012
Business acquisition (Note 5)
Additions
Disposals
Asset impairment
Foreign exchange
Balance, December 31, 2013
Business acquisition (Note 5)
Additions
Disposals
Asset impairment
Sale of business (Note 6)
Foreign exchange
Land and
Buildings
Machinery
and Equipment
Leasehold
Improvements
$ 210.9
0.8
3.1
(0.6)
(0.1)
2.3
216.4
-
19.2
-
(1.2)
-
3.2
$ 297.9
1.7
23.8
(9.7)
(0.6)
2.2
315.3
0.3
27.6
(11.3)
(8.0)
(4.7)
4.4
$ 28.7
-
0.3
(0.1)
(4.5)
-
24.4
-
3.2
(1.2)
(0.7)
-
0.2
Total
$ 537.5
2.5
27.2
(10.4)
(5.2)
4.5
556.1
0.3
50.0
(12.5)
(9.9)
(4.7)
7.8
Balance, December 31, 2014
$ 237.6
$ 323.6
$ 25.9
$ 587.1
RUSSEL METALS INC.342014 ANNUAL REPORT
Accumulated depreciation and amortization
(millions)
Land and
Buildings
Machinery
and Equipment
Leasehold
Improvements
Balance, December 31, 2012
Depreciation and amortization
Disposals
Foreign exchange
Balance, December 31, 2013
Depreciation and amortization
Disposals
Sale of business
Foreign exchange
$ 79.9
7.1
-
0.7
$ 195.2
19.8
(8.1)
1.6
$ 20.6
0.5
(0.1)
-
87.7
7.4
-
-
1.1
208.5
19.7
(8.7)
(1.2)
2.0
21.0
0.8
(1.1)
-
0.1
Total
$ 295.7
27.4
(8.2)
2.3
317.2
27.9
(9.8)
(1.2)
3.2
Balance, December 31, 2014
$ 96.2
$ 220.3
$ 20.8
$ 337.3
Net Book Value (millions)
December 31, 2013
December 31, 2014
$ 238.9
$ 249.8
All items of property, plant and equipment are recorded and held at cost.
Land, included in land and buildings, was $45.3 million (2013: $32.6 million). During 2014 additions to
leasehold improvements included $1.8 million of leasehold inducements.
Depreciation of $8.1 million was included in cost of materials (2013: $7.7 million) and depreciation of $19.8
million (2013: $19.7 million) was included in other operating expense.
Impairment of Assets
The Company reviews the carrying value of long-lived assets for impairment whenever there are events or
changes in circumstances that indicate that the carrying amount may not be recoverable. During 2013, the
Company completed an impairment review on its Thunder Bay Terminal operation ("the terminal") because the
financial performance of the terminal had deteriorated due to reduced volumes from its existing customer base
and the inability to secure replacement tonnage from alternative customers. During 2014, the Company
recorded a further asset impairment charge due to lower expected future cash flows from operations caused
by higher than expected future maintenance costs.
The Company used a discounted cash flow technique to determine the value in use. Key assumptions used
by management included forecasted cash flows, and an assessment of expected growth rate in future earnings
of 1% (2013: 2%). The Company used a pre-tax weighted average cost of capital of 14.5% (2013: 14.6%) to
calculate the present value of the projected cash flows. The recoverability was measured by comparing the
carrying value of the assets to the estimated value in use. The estimated value in use was determined by
measuring the pre-tax cash flows expected to be generated from the terminal's assets over their estimated
useful lives, discounted by the pre-tax discount rate.
The Company determined that the future expected discounted cash flows of this operation were insufficient to
recover the carrying value of the long-lived assets, resulting in an asset impairment charge of $9.9 million
(2013: $5.2 million).
This asset impairment charge is included in the consolidated statement of earnings and reduced the carrying
value of the associated assets on a pro-rated basis.
NOTE 11
FINANCIAL AND OTHER ASSETS
ACCOUNTING POLICIES
Eligible costs incurred relating to the short-term revolving credit facility are deferred and amortized on a
straight-line basis over the period of the related financing. Deferred financing charges are recorded at cost
less accumulated amortization. Eligible costs related to long-term debt financing are capitalized to the carrying
amount of the associated debt and amortized using the effective interest method.
RUSSEL METALS INC.352014 ANNUAL REPORT
SUPPORTING INFORMATION
(millions)
Deferred charges on revolving credit facility
Investments and advances
Other
2014
2013
$ 1.0
2.1
2.8
$ 1.2
2.3
2.6
$ 5.9
$ 6.1
Amortization of deferred financing charges was $0.2 million (2013: $0.5 million). Investments and advances
were acquired in the acquisitions and have been initially recorded at fair value.
NOTE 12
GOODWILL AND INTANGIBLES
ACCOUNTING POLICIES
Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets
acquired at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. The
Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances
indicate that the assets might be impaired. When testing goodwill, the carrying values of the CGUs or group of
CGUs including goodwill are compared with their respective recoverable amounts (higher of fair value less
costs to sell and value in use) and an impairment loss, if any, is recognized for the excess. A CGU is the
smallest identifiable group of assets that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets.
Intangible assets are comprised of customer relationships, trademarks and non-competition agreements. They
are recorded at cost, which for business acquisitions represents the fair value at the date of acquisition less
accumulated amortization and accumulated impairment losses. Customer relationships are amortized on a
straight line basis over their estimated useful life of 15 to 17 years. Non-competition agreements are
amortized over the period of the agreement. Useful lives are reviewed at the end of each reporting period and
adjusted if appropriate.
Trademarks are not amortized as they have an indefinite life; however, they are tested for impairment annually
or more frequently if events or changes in circumstances indicate that the assets might be impaired. When
testing indefinite life intangibles for impairment, the carrying values of related CGUs or group of CGUs
excluding goodwill, are compared to their recoverable amounts.
ACCOUNTING ESTIMATES AND JUDGEMENTS
Intangible assets and goodwill arise from business combinations. Upon acquisition, the Company identifies
and attributes fair values and estimated useful lives of intangible assets with the residual value allocated to
goodwill acquired. These determinations involve estimates and assumptions regarding cash flow projections,
economic risk and the weighted average cost of capital. If future events or results differ adversely from these
estimates and assumptions, the Company could record increased amortization or impairment charges.
SUPPORTING INFORMATION
(millions)
Goodwill
Trademarks
Intangibles
2014
2013
$ 128.5
5.0
80.8
$ 126.9
5.0
86.8
$ 214.3
$ 218.7
The entire trademarks balance relates to the energy products segment.
RUSSEL METALS INC.362014 ANNUAL REPORT
Goodwill
a)
The continuity of goodwill is as follows:
Goodwill (millions)
Balance, beginning of the year
Business acquisitions (Note 5)
Foreign exchange
Metals
Service Centers
$ 37.6
0.4
1.0
Energy
Products
$ 89.3
0.2
-
Total
2014
Total
2013
$ 126.9
0.6
1.0
$ 110.7
15.5
0.7
Balance, end of the year
$ 39.0
$ 89.5
$ 128.5
$ 126.9
Impairment of goodwill
b)
In determining whether goodwill is impaired, the Company estimates the recoverable amount of CGUs or
groups of CGUs to which goodwill is allocated. Management considers the operations below to be CGUs or
groups of CGUs as they represent the lowest level at which goodwill is monitored for internal management
purposes. Accordingly, goodwill was allocated to each CGU or group of CGUs as follows:
Allocation of Goodwill (millions)
Energy Products
Apex
Metals service centers
U.S.
Southeast
Canadian
Alberta
Manitoba/Saskatchewan
Quebec/Atlantic/Ontario
$ 89.5
11.8
11.0
7.7
8.5
$ 128.5
The Company uses a discounted cash flow technique to determine the value in use for the above noted CGUs
or groups of CGUs. Key assumptions used by management include forecasted cash flows based on financial
plans approved by management covering a five year period and expected growth in future earnings of 1 % to
3% in line with expected inflation and discount rates. The assumptions are based on historical data, industry
cyclicality and expected market developments.
The Company uses a weighted average cost of capital (WACC) to calculate the present value of its projected
cash flows. WACC reflects the current market assessment of the time value of money and the risks specific to
that asset. This is an estimate of the overall required rate of return on an investment and serves as the basis
for developing an appropriate discount rate. Determination of the WACC requires separate analysis of the cost
of equity and debt, and considers a risk premium based on an assessment of risks related to each unit.
For 2014, the pre-tax weighted average cost of capital used was 14.5% (2013: 14.6%) for metals service
centers and 18.0% (2013: 19.4%) for energy products. To monitor potential impairment exposure, the
Company performs a sensitivity analysis. For 2014 and 2013 a 1% increase in the respective discount rate
would not trigger a goodwill or trademark impairment. The Company's management does not expect that a
negative change in material assumptions will occur.
The Company performed goodwill impairment tests during the fourth quarter of 2014 and 2013. The estimated
recoverable amount of all units exceeded their carrying values. As a result, no impairment was recorded.
RUSSEL METALS INC.372014 ANNUAL REPORT
Intangibles
c)
The continuity of intangibles, which are comprised of customer relationships and non-competition agreements
acquired through business combinations, within the metals service centers and energy products segments, is
as follows:
Cost (millions)
Balance, beginning of the year
Business acquisitions (Note 5)
Foreign exchange
Metals
Service Centers
$ 18.3
0.2
0.5
Energy
Products
$ 79.5
-
-
Total
2014
Total
2013
$ 97.8
0.2
0.5
$ 81.7
15.7
0.4
Balance, end of the year
$ 19.0
$ 79.5
$ 98.5
$ 97.8
Accumulated amortization (millions)
Metals
Service Centers
Energy
Products
Total
2014
Total
2013
Balance, beginning of the year
Amortization
$ (5.9)
(1.2)
$ (5.1)
(5.5)
$ (11.0)
(6.7)
$ (5.3)
(5.7)
Balance, end of the year
$ (7.1)
$ (10.6)
$ (17.7)
$ (11.0)
Carrying amount
December 31, 2013
December 31, 2014
$ 86.8
$ 80.8
The carrying amount of intangible assets as at December 31, 2014 relates to customer relationships and non-
competition agreements arising from the acquisition of JMS Metals Services, Norton Metal Products, Siemens
Laserworks, Alberta Industrial Metals, Apex Distribution, Keystone, Northern, Monarch, Chisholm and BWV.
The remaining amortization period for customer relationships is 9 to 16 years and for non-competition
agreements is two years.
NOTE 13
REVOLVING CREDIT FACILITIES
The Company has a credit agreement with a syndicate of banks which provides a credit facility of $275.0
million available for borrowings and letters of credit and an additional $50.0 million for letters of credit. The
syndicated facility with a term to June 24, 2017 consists of availability of $275.0 million under Tranche I to be
utilized for borrowings and letters of credit and $50.0 million under Tranche II to be utilized for letters of credit
only. Letters of credit are issued under Tranche II first and additional needs are issued under Tranche I. The
borrowings and letters of credit are available on a revolving basis, up to an amount equal to the sum of
specified percentages of the Company's eligible accounts receivable and inventories, to a maximum of $325.0
million. The obligations of the Company under this agreement are secured by a pledge of trade accounts
receivable and inventories of a significant portion of the Company's operations.
The Company was in compliance with the financial covenants at December 31, 2014. At December 31, 2014,
the Company had borrowings of $32.0 million (2013: $nil) and letters of credit of $42.6 million (2013: $23.9
million) under this facility.
In September 2014, the Company increased its U.S. subsidiary credit facility from US $20.0 million to US$40.0
million. At December 31, 2014, this subsidiary had no borrowings (2013: $nil) and letters of credit of US$22.6
million (2013: US$3.6 million) under this facility.
RUSSEL METALS INC.382014 ANNUAL REPORT
NOTE 14
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
ACCOUNTING POLICIES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business. Trade payables are classified as current liabilities if payment is due within one year or less. Trade
payables are recognized initially at fair value and subsequently measured at amortized cost.
SUPPORTING INFORMATION
(millions)
Trade accounts payable and accrued expenses
Contingent consideration (Note 23)
Accrued interest
2014
2013
$ 476.0
17.1
7.3
$ 373.0
4.0
7.1
$ 500.4
$ 384.1
NOTE 15
LONG-TERM DEBT
ACCOUNTING POLICIES
Long-term debt is recognized initially at fair value, net of transaction costs incurred. Long-term debt is
subsequently recorded at amortized cost with any difference between the proceeds (net of transactions costs)
and the redemption value recognized in net earnings over the term of the debt using the effective interest
method.
Debt is classified as a current liability unless the Company has an unconditional right to defer settlement for at
least 12 months after the end of the reporting period.
SUPPORTING INFORMATION
(millions)
6.0% $300 million Senior Notes due April 19, 2022
7.75% $174 million Convertible Debentures due September 30, 2016
Finance lease obligations (Note 26)
Less: current portion
2014
2013
$ 294.5
165.4
1.1
(0.5)
$ 293.9
161.6
2.9
(1.2)
$ 460.5
$ 457.2
a)
On April 19, 2012, the Company issued through a private placement, $300 million 6.0% Senior Notes
(the "Notes") due April 19, 2022, for total net proceeds of $293 million. Interest is due on April 19 and October
19 of each year.
Prior to April 19, 2017, the Company may redeem the Notes in whole or in part at an amount which is the
greater of (i) the present value of future interest and principal payments based on Canada bond yield or (ii)
101% of the principal amount plus accrued and unpaid interest. After April 19, 2017, the Company may
redeem the Notes in whole or in part at any time at 103% of the principal amount declining rateably to 100% of
the principal amount on or after April 19, 2020.
The Notes contain certain restrictions on the payment of common share dividends in excess of $0.35 per share
per quarter. The Notes also contain certain covenants that limit the Company's ability to incur additional
indebtedness. The Company was in compliance with these covenants at December 31, 2014. Fees
associated with the issue of the debt are included in the carrying amount of debt and are amortized using the
effective interest method.
RUSSEL METALS INC.392014 ANNUAL REPORT
b)
In October 2009, the Company issued $175 million of 7.75% Convertible Unsecured Subordinated
Debentures (the "Convertible Debentures") for net proceeds of $167.1 million. The Convertible Debentures
mature on September 30, 2016, and interest is payable semi-annually on March 31 and September 30 in each
year. Each debenture is convertible into common shares of the Company at the option of the holder at any
time on or prior to the business day immediately preceding (i) maturity date; or (ii) the date specified for
redemption of the Convertible Debentures, at a conversion price of $25.75 being a conversion rate of 38.8350
common shares per $1,000 principal amount of Convertible Debentures. During the year ended December 31,
2014, Convertible Debentures of $511,000 principal (2013: $132,000) were converted to 19,840 shares (2013:
5,124 shares).
NOTE 16
PENSIONS AND BENEFITS
ACCOUNTING POLICIES
For defined benefit pension plans and other post-employment benefits, the net periodic pension and benefit
expense is actuarially determined on an annual basis by independent actuaries using the projected benefit
method, prorated on service and is charged to expense as services are rendered. The determination of a
benefit expense requires assumptions such as the discount rate to measure obligations, the expected
mortality, the expected rate of future compensation increases and the expected healthcare cost trend rate.
The past service costs arising from plan amendments is recognized immediately in net earnings. The asset or
liability recognized in the consolidated statement of financial position is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for
asset ceiling limits. The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity
approximating the terms of the related pension liability. All actuarial gains and losses that arise in calculating
the present value of the defined benefit obligation and the fair value of plan assets are recognized immediately
in the consolidated statement of other comprehensive income. Net interest on the defined benefit liability
(asset) represents the net defined benefit liability (asset), multiplied by the discount rate and is recorded in
employee expenses in the consolidated statement of earnings. The net interest expense (income) on the net
defined benefit liability (asset) is comprised of interest cost on the defined benefit obligation and interest
income on plan assets. Any defined benefit asset resulting from this calculation is limited to the total of
unrecognized net actuarial losses and the present value of any economic benefit in the form of refunds from
the plan or reduction in future contributions to the plan. The Company contributes to certain multi-employer
pension plans which are accounted for as defined contribution plans.
The Company closes out actuarial gains and losses recognized in other comprehensive income into retained
earnings at the end of each reporting period.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company's determination of employee benefit expenses and obligations requires the use of assumptions
such as the discount rate to measure obligations, expected mortality, the expected rate of increase of future
compensation and the expected healthcare cost trend rate. Since the determination of the costs and
obligations associated with employee future benefits requires the use of various assumptions, there is
measurement uncertainty inherent in the actuarial valuation process. Actual results could differ from estimated
results.
SUPPORTING INFORMATION
a)
On January 1, 2013, the Company initiated a new defined contribution pension plan ("DCPP") for most
of its Canadian salaried employees who were previously members of a group RRSP. On December 31, 2013,
the Company merged five of its defined benefit plans into the DCPP, subject to regulatory approval. The
Company maintains two additional defined benefit pension plans in Canada for a total of three defined benefit
plans. Two of the plans provide benefits on an average earnings basis and the other plan provides benefits on
a flat rate per years of pensionable service basis. The Company also maintains executive plans, post-
retirement benefit plans and a defined contribution plan in Canada and 401(k) defined contribution plans in the
United States.
In addition, under three labour contracts, the Company participates in multi-employer pension plans
established for the benefit of certain employees covered by collective bargaining contracts in both Canada and
U.S. One of the multi-employer plans is a defined benefit plan; however, this is accounted for as a defined
contribution plan as the Company has insufficient information to apply defined benefit plan accounting.
RUSSEL METALS INC.402014 ANNUAL REPORT
The defined benefit pension plans are administered by a master trust, which is legally separate from the
Company and is monitored by a pension committee. The pension committee is responsible for policy setting.
The pension plans expose the Company to actuarial risk, currency risk, interest rate risk and market risk.
The Company's defined benefit pension plans had a valuation date of January 1, 2014.
The components of the Company's pension and benefit expense recorded in net earnings included the
following:
(millions)
Defined benefit pension plans
Current service cost
Net interest cost
Plan administration cost
Other
Post-retirement benefits
Defined contribution plans
Pension and benefit expense
2014
2013
$ 3.0
0.7
0.4
-
$ 3.6
1.2
0.3
0.5
4.1
0.2
5.9
5.6
0.2
6.4
$ 10.2
$ 12.2
The components of the Company's pension and benefit changes recorded in other comprehensive income
included the following:
(millions)
Remeasurements on the net defined benefit liability
Actuarial (losses) gains due to actuarial experience
Actuarial (losses) gains due to financial assumption changes
Actuarial gains (losses) due to demographic assumption changes
Return on plan assets greater than the discount rate
2014
2013
$ (0.3)
(12.8)
1.3
5.7
$ 2.7
13.1
(4.7)
4.4
Remeasurement effect recognized in other comprehensive income
$ (6.1)
$ 15.5
Cumulative actuarial losses relating to pensions and benefits
Balance of actuarial losses at January 1
Net actuarial (losses) gains recognized in the year
Balance of actuarial losses at December 31
$ (9.2)
(6.1)
$ (24.7)
15.5
$ (15.3)
$ (9.2)
There were no adjustments related to asset ceiling limits in other comprehensive income for the years ended
December 31, 2014 and 2013.
The actuarial determinations were based on the following assumptions:
Assumed discount rate - year end
Rate of increase in future compensation
Rate of increase in future government benefits
2014
4.00%
3.50%
3.25%
2013
4.75%
3.50%
3.25%
The discount rate is based on a review of current market interest rates of AA corporate bonds with a similar
duration as the expected future cash outflows for the pension payments. A 0.25% increase or decrease in the
discount rate would decrease or increase the defined benefit obligation by approximately $4.7 million as of
December 31, 2014 (2013: $4.0 million).
The health care cost trend rates used were 5% for dental and 7% graded out for medical, which is reduced
0.5% per year until 5% and 5% thereafter. A 1% change in trend rates would not result in a significant
increase or decrease in either the present value of the defined benefit obligation or the net periodic cost.
RUSSEL METALS INC.412014 ANNUAL REPORT
The sensitivity analysis presented above may not be representative of the actual change in defined benefits
obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of
the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present
value of the defined benefit obligation has been calculated using the projected benefit method at the end of the
reporting period, which is consistent with the defined benefit obligation liability calculation recognized in the
consolidated statement of financial position.
The mortality assumptions used to assess the defined benefit obligation are based on 2014 Private Sector
Canadian Pensioners' Mortality Table (CPM2014Priv) using improvement scale CPM-B.
Informal practices that give rise to constructive obligations are included in the measurement of the defined
benefit obligation.
b)
excluding those which are in the process of being wound up.
The following information pertains to the Company's defined benefit pension and other benefit plans,
(millions)
Reconciliation of present value of the
defined benefit obligation
Balance, beginning of the year
Current service costs
Participant contributions
Interest cost
Benefits paid
Plan amendments
Actuarial losses (gains)
Pension Plans
2013
2014
Other Benefit Plans
2013
2014
$ 111.5
3.0
0.2
5.2
(4.9)
-
12.0
$ 119.3
3.6
0.2
4.6
(5.8)
0.2
(10.6)
$ 4.7
-
-
0.2
(0.2)
-
(0.1)
$ 5.2
-
-
0.2
(0.2)
-
(0.5)
Balance, end of the year
$ 127.0
$ 111.5
$ 4.6
$ 4.7
(millions)
Reconciliation of present value of the plan assets
Balance, beginning of the year
Interest income
Employer contributions
Employee contributions
Benefits paid
Plan administration costs
Return on plan assets greater than discount rate
Pension Plans
2013
2014
Other Benefit Plans
2013
2014
$ 93.1
4.5
7.2
0.2
(4.9)
(0.4)
5.8
$ 85.8
3.4
5.4
0.2
(5.8)
(0.3)
4.4
$ -
-
0.2
-
(0.2)
-
-
$ -
-
0.2
-
(0.2)
-
-
Balance, end of the year
$ 105.5
$ 93.1
$ -
$ -
Defined benefit obligation, net
$ 21.5
$ 18.4
$ 4.6
$ 4.7
RUSSEL METALS INC.422014 ANNUAL REPORT
The fair value of the defined benefit pension plan assets at the end of the reporting period for each category, are
as follows:
(millions)
Cash and cash equivalents
Equities
Canadian equity
Global equity fund
Fixed income investments categorized by type of issuer
Government guaranteed
Provincials
Corporate
2014
2013
$ 4.0
$ 5.0
53.9
15.8
69.7
9.5
8.7
13.6
31.8
45.9
13.7
59.6
11.8
5.8
10.9
28.5
$ 105.5
$ 93.1
As at December 31, 2014, all three of the defined benefit pension plans in the above table had unfunded
obligations. As at December 31, 2013, five of the seven defined benefit pension plans had unfunded
obligations. The following table provides the defined benefit obligation for plans with surplus, partially funded
plans and unfunded plans.
(millions)
Defined benefit obligation
Plans with surplus
Partially funded plans
Unfunded plans
Pension Plans
2013
2014
Other Benefit Plans
2013
2014
$ -
21.5
-
$ (0.2)
18.6
-
$ -
-
4.6
$ -
-
4.7
Defined benefit obligation
$ 21.5
$ 18.4
$ 4.6
$ 4.7
As at December 31, 2014 approximately 70% (2013: 68%) of the fair value of all pension plan assets
c)
were invested in equities, 23% (2013: 25%) in fixed income securities, and 7% (2013: 7%) in cash and cash
equivalents. The plan assets are not invested in derivatives or real estate assets. Management endeavours to
have an asset mix of approximately 20% - 80% in equities, 20% - 70% in fixed income securities and 0% -
30% in cash and cash equivalents.
d)
The weighted average duration of defined benefit obligations is 14.8 years (2013: 14.5 years) for
defined benefit pension plans, 10.3 years (2013: 10.2 years) for executive pension arrangements and 8.1
years (2013: 8.5 years) for other post retirement benefit plans. The Company expects to make contributions of
$6.9 million to its defined benefit pension plans and $0.2 million to its post retirement benefits medical plans in
the next financial year.
NOTE 17
SHAREHOLDERS' EQUITY
a)
At December 31, 2014 and 2013, the authorized share capital of the Company consisted of:
(i)
an unlimited number of common shares without nominal or par value;
(ii)
(iii)
an unlimited number of Class I preferred shares without nominal or par value, issuable in
series; and
an unlimited number of Class II preferred shares without nominal or par value, issuable in
series.
RUSSEL METALS INC.432014 ANNUAL REPORT
The Directors have the authority to issue the Class I and Class II preferred shares in series and fix the
designation, rights, privileges and conditions to be attached to each series, except that the Class I shares shall
be entitled to preference over the Class II shares with respect to the payment of dividends and the distribution
of assets in the event of liquidation, dissolution or winding-up of the Company.
b)
The number of common shares issued and outstanding was as follows:
Balance, December 31, 2012
Stock options exercised
Debentures converted
Balance, December 31, 2013
Stock options exercised
Debentures converted
Balance, December 31, 2014
The continuity of contributed surplus is as follows:
(millions)
Balance, December 31, 2012
Stock-based compensation expense
Exercise of options
Balance, December 31, 2013
Stock-based compensation expense
Exercise of options
Balance, December 31, 2014
Dividends paid and declared were as follows:
Dividends paid (millions)
Dividends per share
Quarterly dividend per share declared on
February 18, 2015 (February 19, 2014)
Number
of Shares
60,204,636
736,633
5,124
60,946,393
707,995
19,840
Amount
(millions)
$ 487.9
21.5
0.1
509.5
21.2
0.5
61,674,228
$ 531.2
$ 17.3
2.4
(3.5)
16.2
1.6
(3.7)
$ 14.1
2014
2013
$ 89.6
$ 1.46
$ 85.2
$ 1.40
$ 0.38
$ 0.35
NOTE 18
STOCK BASED COMPENSATION
ACCOUNTING POLICIES
The Company accounts for stock based compensation at fair value.
Compensation expense is recognized for stock options on a graded vesting basis, where the fair value of each
tranche is determined at the grant date based on the Company's estimate of equity instruments that will
eventually vest and is recognized over its respective vesting period, except for employees who are eligible to
retire during the vesting period whose options are expensed immediately. At the end of each reporting period,
the Company revises its estimate of the number of equity instruments expected to vest. The impact of the
revision of the original estimate, if any, is recognized in net earnings such that the cumulative expense reflects
the revised estimate with a corresponding adjustment to contributed surplus.
Compensation expense for deferred share units is recognized when the units are issued and for changes in
the quoted market price from the issue date to the reporting date until the units are redeemed. Compensation
expense for restricted share units is recognized over the vesting period and for changes in the quoted market
price from the issue date to the reporting period date until the units mature.
RUSSEL METALS INC.442014 ANNUAL REPORT
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company utilizes the Black-Scholes option pricing model to estimate the fair value of share options. The
inputs to this pricing model require significant judgements including stock price volatility, expected dividends,
expected life of the options and the risk free interest rate.
SUPPORTING INFORMATION
Share Options
The Company has a shareholder approved share option plan, the purpose of which is to provide the
employees of the Company and its subsidiaries with the opportunity to participate in the growth and
development of the Company. The number of common shares that may be issued under the share option plan
is 4,498,909 and any options will be exercisable on a cumulative basis to an extent of 25% per year of total
options granted in years two to five after the date of grant. Other terms and conditions of the plan include a 10
year life and immediate vesting under certain change of control provisions. The options issued prior to 2012,
representing 1,224,638 options, are exercisable on a cumulative basis to the extent of 20% per year of total
options granted. The consideration paid by employees for the purchase of common shares is added to share
capital. Commencing on January 1, 2014, employees other than senior officers no longer receive stock
options.
The following is a continuity of options outstanding:
Balance, beginning of year
Granted
Exercised
Expired or forfeited
Number of Options
2013
2014
Weighted Average
Exercise Price
2013
2014
2,606,430
149,172
(707,995)
(28,300)
3,055,428
389,607
(736,633)
(101,972)
$ 26.77
30.00
24.64
30.78
$ 25.92
28.99
24.24
28.01
Balance, end of the year
2,019,307
2,606,430
$ 27.70
$ 26.77
Exercisable
1,366,999
1,803,063
$ 27.44
$ 26.67
The weighted average share price for the options exercised during the year was $33.93 (2013: $28.70)
The outstanding options had exercise price ranges as follows:
(number of options)
$ 25.75 - $ 33.81
$ 15.86 - $ 25.74
$ 9.15 - $ 15.85
Options outstanding
2014
2013
1,604,122
385,785
29,400
1,970,587
588,943
46,900
2,019,307
2,606,430
The options expire in the years 2015 to 2024 and have a weighted average remaining contractual life of 3.0
years (2013: 5.9 years)
The Black-Scholes option-pricing model assumptions used to compute compensation expense are as follows:
Dividend yield
Expected volatility
Expected life
Risk free rate of return
Weighted average fair value of options granted
Expected volatility is based on historical volatility over the last five years.
2014
2013
5%
32%
5 yrs
2.75%
$ 5.43
5%
40%
5 yrs
3.5%
$ 7.21
RUSSEL METALS INC.452014 ANNUAL REPORT
Deferred Share Units
The Company has a Deferred Share Unit ("DSU") Plan for non-executive directors. A DSU is a unit of
equivalent value to one common share based on market price, which is defined as the daily average of the
high and low board lot on the Toronto Stock Exchange for the last five trading days immediately prior to the
grant date. DSUs are granted quarterly to each non-executive director's account by dividing the quarterly
allocation by the market price. At the option of the individual director, they may elect to receive other board
fees in the form of DSUs. DSUs vest immediately and are redeemable for cash only when a non-executive
director leaves the Board.
At December 31, 2014, there were 113,057 DSUs outstanding (2013: 104,413). During 2014, 16,529 DSUs
were redeemed (2013: 14,391). The liability and fair value of DSUs was $2.9 million at December 31, 2014
(2013: $3.3 million). Dividends declared on common shares accrue to units in the DSU plan in the form of
additional DSUs.
Restricted Share Units
The Company has a Restricted Share Unit ("RSU") Plan for eligible employees as designated by the Board of
Directors. Prior to 2014, RSUs were only issued to senior officers. Commencing on January 1, 2014, RSUs
were issued to other eligible employees in lieu of stock options. The plan was established to provide medium-
term compensation. RSUs are awarded by the Board of Directors to eligible employees annually. RSUs vest
one third on each of the first, second and third anniversary after the grant date. RSUs expire on the third
anniversary of the grant date and the Company is obligated to pay in cash an amount equal to the number of
RSUs multiplied by the market price, which is defined as the daily average of the high and low board lot on the
Toronto Stock Exchange for the last five trading days immediately prior to the expiry date. Continuity of RSUs
outstanding is as follows:
(number of units)
Balance, beginning of the year
Granted
Paid out
Balance, end of the year
2014
2013
123,673
88,421
(14,825)
69,610
54,063
-
197,269
123,673
The RSU liability at December 31, 2014 was $3.8 million (2013: $3.0 million). The fair value of RSUs was $5.1
million at December 31, 2014 (2013: $3.9 million). Dividends declared on common shares accrue to units in
the RSU plan in the form of additional RSUs.
Employee Share Purchase Plan
The Company has an Employee Share Purchase Plan to provide employees with the opportunity to purchase
common shares. Employees may make contributions of between 1% and 5% of their base pay and the
Company will contribute one-third of the employee's contribution. Employees are eligible to make
contributions above the 5% of base pay threshold but the Company contributes only to a maximum of one-third
of 5% of base pay. The plan does not provide for a discount for employee purchases and is administered by a
trustee who purchases shares for the plan through the TSX. Dividends paid on the shares are used to
purchase additional shares.
Total costs for stock-based compensation are as follows:
(millions)
Stock options
DSU and RSUs
Employee Share Purchase Plan
2014
2013
$ 1.6
1.1
0.8
$ 2.4
2.3
0.7
$ 3.5
$ 5.4
RUSSEL METALS INC.462014 ANNUAL REPORT
NOTE 19
EARNINGS PER SHARE
ACCOUNTING POLICIES
Basic earnings per common share is calculated using the weighted average number of common shares
outstanding. Diluted earnings per share is calculated using the treasury stock method.
SUPPORTING INFORMATION
The following table provides the numerator and denominator used to compute basic and diluted earnings per
share:
(millions)
Net income used in calculation of basic earnings per share
Interest and accretion expense, net of income taxes
2014
2013
$ 123.5
10.0
$ 83.2
-
Net income used in calculation of diluted earnings per share
$ 133.5
$ 83.2
In determining the diluted weighted average shares outstanding for the year ended December 31, 2013,
6,790,602 shares related to convertible debentures were excluded since the effect was anti-dilutive. Interest
and accretion related to convertible debentures for the year ended December 31, 2013 were excluded from net
earnings used in the calculation of diluted earnings per share.
(number of shares)
Weighted average shares outstanding
Dilution impact of stock options
Dilution impact of Convertible Debentures
2014
2013
61,321,767
160,917
6,770,757
60,780,520
109,639
-
Diluted weighted average shares outstanding
68,253,441
60,890,159
NOTE 20
EXPENSES
Details of expense items on the consolidated statement of earnings are as follows:
(millions)
Employee Expenses
Wages and salaries
Other employee related costs
Other Operating Expenses
Plant and other expenses
Delivery expenses
Repairs and maintenance
Selling expenses
Professional fees
Loss (gain) on sale of property, plant and equipment
Foreign exchange losses (gains)
2014
2013
$ 251.3
36.5
$ 213.1
35.7
$ 287.8
$ 248.8
$ 95.5
57.0
11.2
12.4
10.6
1.0
1.6
$ 87.6
49.7
10.3
10.0
6.4
(0.4)
(0.4)
$ 189.3
$ 163.2
RUSSEL METALS INC.472014 ANNUAL REPORT
NOTE 21
FINANCE EXPENSE
Finance expense is comprised of the following:
(millions)
Interest on 6.0% Senior Notes
Interest on 7.75% Convertible Debentures
Other interest expense
Interest expense
Interest income
Other finance expense (income) (Note 23)
2014
2013
$ 18.6
17.8
0.5
$ 18.5
17.3
0.2
36.9
-
4.1
36.0
(0.4)
(4.7)
Finance expense, net
$ 41.0
$ 30.9
Interest expense on long-term debt is comprised of the interest calculated on the face value of long-term debt,
issue costs and accretion of the carrying value of the long-term debt. Long-term debt interest expense is
charged to earnings using the effective interest method. Debt accretion and issue cost amortization for the
year ended December 31, 2014 was $4.9 million (2013: $4.4 million).
NOTE 22
INCOME TAXES
ACCOUNTING POLICIES
Income tax expense comprises current and deferred tax. Income tax is recognized in the consolidated
statement of earnings except to the extent it relates to items recognized directly in equity in which case the
related tax is recognized in equity.
Current income tax expense is based on the results for the period which is adjusted for items that are not
taxable or not deductible for tax. Current income tax is calculated using tax rates and laws that were enacted
or substantively enacted at the end of the reporting period.
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated statement of financial position. Deferred
tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the
reporting period, and which are expected to apply when the related deferred income tax asset is realized or the
deferred income tax liability is settled.
Deferred tax liabilities
generally recognized for all taxable temporary differences;
recognized for taxable temporary differences arising on investments in subsidiaries, except where the
reversal of the temporary difference can be controlled and it is probable that the difference will not
reverse in the foreseeable future; and
not recognized on differences that arise from goodwill.
Deferred tax assets
recognized to the extent it is probable that taxable income will be available against which the
deductible temporary differences and the carry forward of unused tax losses and credits can be
utilized; and
reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that
sufficient taxable income will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial
recognition of assets and liabilities acquired other than in a business combination.
RUSSEL METALS INC.482014 ANNUAL REPORT
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company computes an income tax provision in each of the jurisdictions in which it operates. Actual
amounts of income tax expense are finalized upon filing and acceptance of the tax return by the relevant
authorities, which occurs subsequent to the issuance of the consolidated financial statements. Additionally,
the estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an
assessment of the ability to use the underlying future tax deductions before they expire against future taxable
income. The assessment is based upon existing tax laws and estimates of future taxable income. To the
extent estimates differ from the final tax return, earnings would be affected in a subsequent period. In interim
periods, the income tax provision is based on an estimate of earnings in a full year by jurisdiction. The
estimated average annual effective income tax rates are reviewed at each reporting date, based on full year
projections of earnings. To the extent that forecasts differ from actual results, adjustments are recorded
through earnings in subsequent periods.
The Company is subject to taxation in numerous jurisdictions. There are many transactions and calculations
for which the ultimate tax determination is uncertain during the ordinary course of business. The Company
maintains provisions for uncertain tax positions that it believes appropriately reflect its risk with respect to tax
matters under active discussion, audit, dispute or appeal with tax authorities, or which are otherwise
considered to involve uncertainty. These provisions are made using the best estimate of the amount expected
to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of
these provisions at the end of the reporting period. It is possible that at some future date an additional liability
could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different
from the amounts that were initially recorded, such differences will affect the tax provision in the period in
which such determination is made.
SUPPORTING INFORMATION
a)
The components of the provision for income taxes are as follows:
(millions)
Current tax expense
Deferred tax recovery
b)
The Company's effective income tax rate was derived as follows:
Applicable combined Canadian statutory rate
Rate difference of U.S. companies
Stock compensation and non-deductible items
Change in contingent consideration
Other
Average effective tax rate
2014
2013
$ 55.4
(3.0)
$ 36.2
(4.4)
$ 52.4
$ 31.8
2014
25.9%
3.8%
- %
0.6%
(0.5%)
29.8%
2013
25.9%
2.8%
0.8%
(1.1%)
(0.8%)
27.6%
The combined Canadian statutory rate is the aggregate of the federal income tax rate of 15.0% (2013: 15.0%)
and the average provincial rate of 10.9% (2013: 10.9%). In 2014, there were no changes in the Canadian
statutory rates. The average effective tax rate was higher than the average Canadian corporate tax rate
principally due to differing tax rules applicable to certain of the Company's subsidiaries outside Canada.
RUSSEL METALS INC.492014 ANNUAL REPORT
c)
The movements of deferred income tax assets and liabilities were as follows:
Deferred Income Tax Assets
(millions)
Balance December 31, 2012
Benefit (expense) to consolidated
statement of earnings
Reclass assets/liabilities and other
Property
Plant and
Losses Equipment
Pension
And
Benefits
Goodwill
Item
And Charged
Intangibles To Equity
Other
Timing
Total
$ 0.9
$ (9.6) $ 11.0
$ 4.3 $ (3.5) $ 1.5 $ 4.6
0.5
-
0.1
3.6
-
(10.3)
0.1
0.8
-
3.5
(1.5)
1.6
(0.8)
(0.8)
Balance December 31, 2013
Benefit (expense) to consolidated
statement of earnings
Business acquisition (Note 5)
Reclass assets/liabilities and other
Benefits to other comprehensive income
$ 1.4
$ (5.9) $ 0.7
$ 5.2 $ - $ 1.6 $ 3.0
(0.5)
-
0.1
-
2.8
(0.1)
(5.8)
-
(0.7)
-
5.4
1.6
(1.3)
-
(0.4)
-
0.3
-
(2.6)
-
1.1
-
2.0
-
1.7
(0.1)
(1.3)
1.6
Balance December 31, 2014
$ 1.0
$ (9.0) $ 7.0
$ 3.5
$ (2.3) $ 4.7 $ 4.9
Deferred Income Tax Liabilities
(millions)
Balance December 31, 2012
(Benefit) expense to consolidated
statement of earnings
Benefit to other comprehensive income
Business acquisition (Note 5)
Reclass assets/liabilities and other
Balance December 31, 2013
Benefit to consolidated
statement of earnings
Sale of business
Reclass assets/liabilities and other
Property
Plant and
Equipment
Pension
And
Benefits
Goodwill
Item
And Charged
Intangibles To Equity
Other
Timing
Total
$ 3.2 $ -
$ 17.9 $ - $ (0.6) $ 20.5
(1.2)
-
0.2
3.9
0.7
4.2
-
(10.3)
(1.9)
-
1.3
1.1
(0.9)
-
-
3.5
(1.9)
-
0.1
1.2
(5.2)
4.2
1.6
(0.6)
$ 6.1 $ (5.4)
$ 18.4 $ 2.6 $ (1.2) $ 20.5
-
(0.4)
(5.4)
-
-
5.4
(1.1)
-
(0.8)
-
-
(2.6)
(0.2)
(0.1)
1.7
(1.3)
(0.5)
(1.7)
Balance December 31, 2014
$ 0.3
$ -
$ 16.5
$ - $ 0.2 $ 17.0
Net deferred liability at December 31, 2013
Net deferred liability at December 31, 2014
$ (17.5)
(12.1)
$
d)
At December 31, 2014, the Company had U.S. state tax losses carried forward which, at U.S. state tax
rates, have an estimated value of $0.7 million (2013: $1 million). The majority of the tax losses carried forward
will expire between 2029 and 2034, if not utilized. Deferred tax assets are recognized for tax loss carry-
forwards to the extent that the realization of the related tax benefit through future taxable profits is probable.
The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the
probability of generating taxable income from operations in the future in the jurisdictions in which the tax losses
arose.
At December 31, 2014 and 2013, the Company had $9 million of capital losses carried forward which may only
be used to offset future capital gains. These losses have no expiry date. The deferred tax asset not
recognized in respect of these losses was $1.2 million.
e)
At December 31, 2014, the aggregate amount of temporary differences associated with undistributed
earnings of non-Canadian subsidiaries was $307 million. No liability has been recognized in respect of these
differences because the Company is in a position to control the timing of the reversal of the temporary
differences, and it is probable that such differences will not reverse in the foreseeable future.
RUSSEL METALS INC.502014 ANNUAL REPORT
NOTE 23
PROVISIONS AND OTHER NON-CURRENT LIABILITIES
ACCOUNTING POLICIES
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are
recognized when the Company has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and the amount can be reliably
estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present
value of the expected expenditures to settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. Any increase in the provision
due to the passage of time is recognized in other finance expense.
The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with
the retirement of property, plant and equipment, when those obligations result from the acquisition,
construction, development or normal operation of the assets. The net present value of the estimated future
rehabilitation cost is capitalized to the related asset along with a corresponding increase in the provision in the
period incurred. Pre-tax discount rates that reflect the time value of money are used to calculate the net
present value.
The estimates of decommissioning costs could change as a result of changes in regulatory requirements and
assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly
to the related asset or net earnings with a corresponding adjustment to the provision. The estimates are
reviewed annually for changes in regulatory requirements and changes in estimates. Changes in the net
present value are recognized in net earnings.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company has recorded the liability for contingent consideration at fair value. The determination of fair
value involves analysis including the use of discounted cash flows expected future earnings, expected future
net assets and discount rates. There is measurement uncertainty inherent in this analysis and actual results
could differ from estimates.
The Company has recorded a provision for decommissioning liabilities. The determination of these liabilities
involved analysis to estimate expected cash outflows over a long period of time which is inherently uncertain.
SUPPORTING INFORMATION
(millions)
Contingent consideration
Provision for decommissioning liabilities
Deferred compensation and employee incentives
2014
2013
$ 27.3
2.5
5.2
$ 40.3
2.8
5.8
$ 35.0
$ 48.9
a)
The continuity of contingent consideration obligation is as follows:
(millions)
Balance, beginning of the year
Business acquisitions (Note 5)
Paid during the year
Accretion expense
Change in fair value excluding accretion
Other
Less: current portion
Apex
Monarch
Total
2014
Total
2013
$ 38.1
-
(4.1)
5.2
(2.3)
0.1
(14.5)
$ 6.2
-
-
1.3
(0.1)
-
(2.6)
$ 44.3
-
(4.1)
6.5
(2.4)
0.1
(17.1)
$ 42.9
6.5
(0.3)
6.1
(10.8)
(0.1)
(4.0)
$ 22.5
$ 4.8
$ 27.3
$ 40.3
RUSSEL METALS INC.512014 ANNUAL REPORT
The change in fair value includes a reduction of the liability of $2.4 million relating to a decrease in the
expected future payment for Apex Distribution and Monarch. The liability for contingent consideration relating
to Apex Distribution and Monarch will end on December 31, 2017 and December 31, 2018, respectively. The
Company's contingent consideration obligations for Apex Distribution and Monarch are uncapped.
The undiscounted expected cash outflow relating to contingent consideration obligations are estimated to be
$43.7 million (2013: $50.5 million) for Apex Distribution and $9.4 million (2013: $9.9 million) for Monarch.
b)
The following table presents the movement in the provision for decommissioning liabilities:
(millions)
Balance, beginning of the year
Utilization
Balance, end of the year
2014
2013
$ 2.8
(0.3)
$ 5.0
(2.2)
$ 2.5
$ 2.8
Deferred compensation includes the RSU and DSU liabilities. The RSU liabilities that will be paid in
c)
2015 amounting to $1.5 million were reclassified to current accrued liabilities.
NOTE 24
SEGMENTED INFORMATION
ACCOUNTING POLICIES
The Company's operating segments are organized around the markets it serves and are reported in a manner
consistent with the internal reporting provided to the chief operating decision-maker which is the Chief
Executive Officer.
SUPPORTING INFORMATION
For the purpose of segment reporting, operating segments are identified as a component of an entity:
that engages in business activities from which it may earn revenues and incur expenses;
whose operating results are regularly reviewed by the Company's Chief Executive Officer to make
decisions about resources to be allocated to the segment and assess its performance; and
for which discrete financial information is available.
Accordingly, the Company conducts business in Canada and the U.S. in three reportable segments.
Metals service centers
i)
The Company's network of metals service centers provides processing and distribution services on a
broad line of metal products in a wide range of sizes, shapes and specifications, including carbon hot
rolled and cold finished steel, pipe and tubular products, stainless steel and aluminium. The Company
services all major geographic regions of Canada and certain regions in the Southeastern and
Midwestern regions in the United States.
Energy products
ii)
The Company's energy products operations distribute oil country tubular products, line pipe, tubes,
valves, flanges and fittings, primarily to the energy industry in Western Canada and the United States.
Steel distributors
iii)
The Company's steel distributors act as master distributors selling steel to customers in large volumes,
mainly on an "as is" basis. Steel distributors source their steel domestically and off shore.
RUSSEL METALS INC.522014 ANNUAL REPORT
The Company has segmented its operations on the basis of management reporting and geographic segments
in which it operates. The inter-segment sales from steel distributors to metals service centers were $58.4
million (2013: $30.1 million). These sales, which are at market rates, are eliminated in the following table.
a)
Results by business segment:
(millions)
Segment Revenues
Metals service centers
Energy products
Steel distributors
Other
Segment Operating Profits
Metals service centers
Energy products
Steel distributors
Corporate expenses
Asset impairment
Other income (expense)
Earnings before interest and income taxes
Finance expense, net
Provision for income taxes
Net earnings
Capital Expenditures
Metals service centers
Energy products
Steel distributors
Other
Depreciation Expense
Metals service centers
Energy products
Steel distributors
Other
2014
2013
$ 1,630.4
1,792.1
441.0
3,863.5
5.8
$ 1,455.6
1,442.8
283.2
3,181.6
6.2
$ 3,869.3
$ 3,187.8
$ 82.1
124.0
38.2
$ 71.7
79.3
19.0
244.3
(18.2)
(9.9)
0.8
217.0
(41.0)
(52.4)
170.0
(17.8)
(5.2)
(1.0)
146.0
(30.9)
(31.8)
$ 123.6
$ 83.3
$ 38.8
8.4
1.0
-
$ 19.5
6.5
1.1
0.1
$ 48.2
$ 27.2
$ 21.8
4.9
0.5
0.7
$ 21.4
4.8
0.3
0.9
$ 27.9
$ 27.4
RUSSEL METALS INC.532014 ANNUAL REPORT
(millions)
Current Identifiable Assets
Metals service centers
Energy products
Steel distributors
Non-Current Identifiable Assets
Metals service centers
Energy products
Steel distributors
Total identifiable assets included in segments
Assets not included in segments
Cash and cash equivalents
Income tax assets
Deferred financing charges
Other assets
Corporate and other operating assets
Total assets
Liabilities
Metals service centers
Energy products
Steel distributors
Liabilities by segment
Liabilities not included in segments
Bank indebtedness
Income taxes payable and deferred income tax liabilities
Long-term debt
Pension and benefits
Corporate and other liabilities
2014
2013
$ 521.2
768.4
220.5
$ 426.7
698.3
105.8
1,510.1
1,230.8
261.6
195.9
5.8
241.4
200.9
4.8
1,973.4
1,677.9
53.4
7.7
1.0
4.9
2.4
116.2
9.3
1.2
4.9
8.3
$ 2,042.8
$ 1,817.8
$ 184.1
276.0
25.9
$ 155.7
212.5
9.7
486.0
377.9
24.2
31.1
461.0
26.1
49.4
-
20.7
458.4
23.3
55.1
Total liabilities
$ 1,077.8
$ 935.4
b)
Results by geographic segment:
(millions)
Segment Revenues
Canada
United States
Segment Operating Profits
Canada
United States
2014
2013
$ 2,692.2
1,171.3
$ 2,163.9
1,017.7
$ 3,863.5
$ 3,181.6
$ 188.8
55.5
$ 134.7
35.3
$ 244.3
$ 170.0
RUSSEL METALS INC.542014 ANNUAL REPORT
(millions)
Identifiable Assets
Canada
United States
2014
2013
$ 1,494.3
479.1
$ 1,269.2
408.7
$ 1,973.4
$ 1,677.9
NOTE 25
RELATED PARTY TRANSACTIONS
During the years ended December 31, 2014 and 2013 the Company did not have any transactions with
subsidiaries outside the normal course of business. All subsidiaries are wholly owned and all transactions with
subsidiaries are recorded at fair value and have been eliminated upon consolidation.
At December 31, 2014 there were no loans or credit transactions outstanding with key management personnel
or directors. Key management personnel includes the Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and certain Vice Presidents. Compensation cost of key management personnel and directors
were as follows:
(millions)
Salaries and other benefits
Share based compensation cost
Post-employment benefits
2014
2013
$ 6.1
4.0
0.4
$ 4.2
2.6
0.7
$ 10.5
$ 7.5
NOTE 26
FINANCIAL INSTRUMENTS AND RELATED RISK MANAGMENT
ACCOUNTING POLICIES
a) Fair Value Measurement
The Company measures certain financial and non-financial assets and liabilities at fair value at each statement
of financial position date. In addition, fair value measurements are disclosed for certain financial and non-
financial assets and liabilities.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In estimating the fair value of an asset or a
liability, the Company takes into account the characteristics of the asset or liability if market participants would
take those characteristics into account when pricing the asset or liability at the measurement date.
Assets and liabilities, for which fair value is measured or disclosed in the consolidated financial statements, are
classified using a three-level fair value hierarchy that reflects the significance and transparency of the inputs
used in making the fair value measurements. Each level is based on the following:
Level 1 Values based on unadjusted quoted prices in active markets that are accessible at the measurement
date for identical assets or liabilities.
Level 2 Values based on quoted prices in markets that are not active or model inputs that are observable
either directly or indirectly for substantially the full term of the asset or liability.
Level 3 Values based on prices or valuation techniques that require inputs which are both unobservable and
significant to the overall fair value measurement.
b) Financial Assets
Purchases and sales of financial assets are recognized on the settlement date, which is the date on which the
asset is delivered to or by the Company. Financial assets are derecognized when the rights to receive cash
flows from the instruments have expired or have transferred and the Company has transferred substantially all
risks and rewards of ownership. Financial assets are classified in the following categories at the time of initial
recognition based on the purpose for which the financial assets were acquired:
RUSSEL METALS INC.552014 ANNUAL REPORT
Financial assets at fair value through profit or loss
Classification
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is
classified in this category if acquired principally for the purpose of selling in the short-term or if so designated
by management. Assets in this category include forward exchange contracts and embedded derivatives in
inventory purchases.
Recognition and measurement
Financial assets carried at fair value are initially recognized, and subsequently carried, at fair value with
changes recognized in net earnings. Transaction costs are expensed.
Loans and receivables
Classification
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in current assets, except for those with maturities greater than
12 months after the end of the reporting period which are classified as non-current assets. Assets in this
category include cash and cash equivalents and accounts receivable and are classified as current assets in
the consolidated statement of financial position.
Recognition and measurement
Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried at
amortized cost, less impairment.
c) Financial liabilities and equity instruments
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
Other financial liabilities
Classification
Other financial liabilities include accounts payable and accrued liabilities, long-term debt and contingent
consideration.
Recognition and measurement
Short-term borrowings are recorded at the fair value of the proceeds received. Long-term debt is measured at
amortized cost using the effective interest method, with interest expense recognized in net earnings. Eligible
costs related to long-term debt financing are carried at amortized cost and amortized using the effective
interest method over the period of the related financing. Contingent consideration is measured at fair value at
the acquisition date and is subsequently re-measured at fair value, by applying the income approach using the
probability weighted expected return on net assets with changes in fair value recognized in net earnings.
d) Derivative financial instruments
Derivatives are initially recognized at fair value on the date a contract is entered into and are subsequently re-
measured at fair value. The method of recognizing the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument and the nature of the item being hedged.
Embedded derivatives
An embedded derivative is a feature within a contract, where the cash flows associated with that feature
behave in a similar fashion to a stand-alone derivative. The Company has embedded foreign currency
derivatives in certain purchase contracts where the currency of the contract is different from the functional or
local currencies of the parties involved. These derivatives are accounted for as separate instruments and are
measured at fair value and included in accounts payable and accrued liabilities at the end of the reporting
period. Changes in their fair values are recognized within "Other operating expense" in the consolidated
statement of earnings.
Impairment of financial assets
e)
The Company, at each financial position date, assesses whether there is objective evidence that a financial
asset or a group of financial assets is impaired. When impairment has occurred, the asset's carrying value is
reduced with the loss recognized in net earnings.
RUSSEL METALS INC.562014 ANNUAL REPORT
For financial assets carried at amortized cost, the amount of the impairment is the difference between the
asset's carrying amount and the present value of the estimated future cash flows discounted at the financial
asset's original effective interest rate.
In a subsequent period, if the impairment loss decreases and the decrease relates to an event occurring after
the impairment was recognized, the previously recognized impairment loss is reversed through net earnings.
On the date of impairment reversal, the carrying amount of the financial asset cannot exceed its amortized cost
had impairment not been recognized.
f) Leases
Leases are classified as finance or operating depending on the terms and conditions of the contracts. Leases
which transfer substantially all the risks and rewards of ownership are classified as finance leases. An asset
held under a finance lease is initially recognized at the inception of the lease at an amount equal to the lower
of its fair value and the present value of the minimum lease payments. The corresponding liability to the lessor
is included in the consolidated statement of financial position as a finance lease obligation. Subsequent to its
initial recognition, the costs are depreciated in accordance with the accounting policy of the applicable asset.
Obligations recorded under finance leases are reduced by lease payments, net of imputed interest. Interest
expense is recognized in net earnings.
Leases that do not meet the criteria for finance leases are classified as operating leases. Payments made
under operating leases are expensed on a straight-line basis over the term of the lease.
SUPPORTING INFORMATION
a)
Financial assets and liabilities
Financial assets and liabilities are as follows:
December 31, 2014 (millions)
Cash and cash equivalents
Accounts receivable
Financial assets
Bank indebtedness
Accounts payables and accrued liabilities
Current portion of long-term debt
Contingent consideration
Long-term debt
Loans and
Receivables
$ 53.4
569.3
1.0
-
-
-
-
-
Other
Financial
Liabilities
$ -
-
-
(24.2)
(500.4)
(0.5)
(27.3)
(460.5)
Total
$ 53.4
569.3
1.0
(24.2)
(500.4)
(0.5)
(27.3)
(460.5)
Total
$ 623.7
$ (1,012.9)
$ (389.2)
December 31, 2013 (millions)
Cash and cash equivalents
Accounts receivable
Financial assets
Accounts payables and accrued liabilities
Current portion long-term debt
Contingent consideration
Long-term debt
Loans and
Receivables
$ 116.2
456.2
1.2
-
-
-
-
Other
Financial
Liabilities
$ -
-
-
(384.1)
(1.2)
(40.3)
(457.2)
Total
$ 116.2
456.2
1.2
(384.1)
(1.2)
(40.3)
(457.2)
Total
$ 573.6
$ (882.8)
$ (309.2)
The impact of fair value gains and losses from derivative financial instruments on the consolidated statement
of earnings was as follows:
(millions)
Embedded derivatives
Forward contracts
2014
2013
$ 0.6
0.4
$ (0.2)
0.1
RUSSEL METALS INC.572014 ANNUAL REPORT
Fair Value
b)
The fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate their carrying amounts because of the short-term maturity of these instruments.
The fair value measurements of contingent consideration obligations arising from business combinations were
determined by applying the income approach using the probability weighted expected return on assets and a
discount rate of 12.9% (2013: 13.2%). The calculation uses unobservable (level 3) inputs including (i) the
estimated amount and timing of projected cash flows; (ii) the probability of the achievement of the factors on
which the contingency is based; (iii) average net assets; and (iv) the risk-adjusted discount rate used to
present value the projected cash flows. Significant changes in any of these inputs in isolation can result in a
significantly higher or lower fair value measurement.
The fair values of long-term debt are set forth below.
Carrying Amounts
Amounts recorded in the consolidated statement of financial position are referred to as "carrying amounts".
The carrying amounts of primary debt are reflected in "Long-term debt" and "Current portion long-term debt".
Fair Value
The Company records its debt at amortized cost using the effective interest method. The fair value of long-
term debt as at December 31, 2014 and 2013 was estimated based on the last quoted trade price, where it
exists, or based on current rates available to the Company for similar debt with the same period to maturity.
The following summary reflects the fair value of the long-term debt:
December 31, 2014 (millions)
Primary Debt Instrument
Carrying
Amount
Fair Value
Level 1
Fair Value
Level 2
6.0% $300 million Senior Notes due April 19, 2022
7.75% $174 million Convertible Debentures due September 30, 2016
Finance lease obligations
$ 294.5
165.4
1.1
$ -
191.8
-
$ 301.5
-
1.1
Total
Current portion
Long-term portion
December 31, 2013 (millions)
$ 461.0
$ 191.8
$ 302.6
$ 0.5
$ 460.5
Primary Debt Instrument
Carrying
Amount
Fair Value
Level 1
Fair Value
Level 2
6.0% $300 million Senior Notes due April 19, 2022
7.75% $175 million Convertible Debentures due September 30, 2016
Finance lease obligations
$ 293.9
161.6
2.9
$ -
218.7
-
$ 303.0
-
2.9
Total
Current portion
Long-term portion
$ 458.4
$ 218.7
$ 305.9
$ 1.2
$ 457.2
Credit risk
c)
Credit risk is the risk of financial loss to the Company if the counterparty to a financial instrument fails to meet
its contractual obligation. Credit risk arises from cash and cash equivalents and derivative financial
instruments, as well as credit exposure to customers including accounts receivable.
The Company attempts to minimize credit exposure as follows:
Cash investments are placed with high-quality financial institutions with limited exposure to any one
institution. At December 31, 2014, nearly all cash and cash equivalents held were issued by
institutions that were R1 High by DBRS;
Counterparties to derivative contracts are members of the syndicated banking facility (Note 13);
RUSSEL METALS INC.582014 ANNUAL REPORT
Credit limits minimize exposure to any one customer; and
The customer base is geographically diverse and in different industries.
No allowance for credit losses on financial assets was required as of December 31, 2014 (2013: $nil), other
than the allowance for doubtful accounts (Note 8). As at December 31, 2014, trade accounts receivable greater
than 90 days represented less than 4% of trade accounts receivable (2013: 3%).
Interest rate risk
d)
Interest rate risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate
because of changes in market rates of interest. The Company is not exposed to significant interest rate risk.
The Company's long-term debt is at fixed rates. The Company's bank borrowings, net of cash and cash
equivalents used to finance working capital which is short-term in nature, is at floating interest rates.
Foreign exchange risk
e)
Foreign exchange risk is the risk that the fair value of the future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates. The Company uses foreign exchange contracts with
maturities of less than a year to manage foreign exchange risk on certain future committed cash outflows. As
at December 31, 2014, the Company had outstanding forward foreign exchange contracts in the amount of
US$32.8 million and €11.4 million, maturing in 2014 (2013: US$24.5 million). A 1% change in foreign
exchange rates would not result in a significant increase or decrease in accounts payable or net earnings.
Liquidity risk
f)
Liquidity risk is the risk that the Company will not meet its financial obligations when due. Liquidity adequacy is
assessed in view of seasonal needs, growth requirements, capital expenditures, and the maturity profile of
indebtedness. Cash is managed by the centralized treasury function and is invested in money market
instruments or bank deposits, with durations ranging up to sixty days. A centralized treasury function ensures
that the Company maintains funding flexibility by assessing future cash flow expectations and by maintaining
its committed borrowing facilities.
As at December 31, 2014, the Company was contractually obligated to make payments under its financial
liabilities that come due during the following periods:
(millions)
2015
2016
2017
2018
2019
2020 and beyond
Accounts
Payable
Long-Term
Debt Maturities
Long-Term
Debt Interest
$ 500.4
-
-
-
-
-
$ -
174.3
-
-
-
300.0
$ 31.6
31.6
18.0
18.0
18.0
45.8
Operating
Lease
Obligations
$ 24.7
22.2
19.8
13.6
9.8
30.8
Total
$ 556.7
228.1
37.8
31.6
27.8
376.6
Total
$ 500.4
$ 474.3
$ 163.0
$ 120.9
$ 1,258.6
Operating lease expense for the year ended December 31, 2014 was $21.1 million (2013: $21.3 million).
At December 31, 2014, the Company was contractually obligated to repay its letters of credit under its bank
facilities at maturity (Note 13).
Capital management
g)
The Company manages capital in order to safeguard its ability to continue as a going concern, provide returns
to shareholders through its dividend policy and provide the ability to finance future growth. Capital includes
shareholders' equity, bank indebtedness and long-term debt, net of cash. The Company manages its capital
structure and may make adjustments to the amount of dividends paid to shareholders, purchase shares for
cancellation pursuant to issuer bids, issue new shares, issue new debt, repurchase existing debt and extend or
amend its banking facilities.
RUSSEL METALS INC.592014 ANNUAL REPORT
NOTE 27
CONTINGENCIES, COMMITMENTS AND GUARANTEES
Lawsuits and legal claims
a)
The Company recognizes contingent loss provisions for losses that are probable when management is able to
reasonably estimate the loss. When the estimated loss lies within a range, the Company records a contingent
loss provision based on its best estimate of the probable loss. If no particular amount within that range is a
better estimate than any other amount, the minimum amount is recorded. Estimates of losses may be
developed significantly before the ultimate loss is known, and are revalued each accounting period as
additional information becomes known. In instances where the Company is unable to develop a reasonable
loss estimate, no contingent loss provision is recorded at that time. A contingent loss provision is recorded
when a reasonable estimate can be made. Estimates are reviewed quarterly and revised when expectations
change. An outcome that deviates from the Company’s estimate may result in an additional expense or
income in a future accounting period.
The Company and certain of its subsidiaries have been named defendants in a number of legal actions.
Although the outcome of these legal actions cannot be determined, management intends to defend all such
legal actions and has recorded provisions, as required, based on its best estimate of the potential losses. In
the opinion of management, the resolution of these legal actions is not expected to have a material adverse
effect on the Company's financial position, cash flows or operations.
The Company and the manufacturer of certain energy products have received notice of a customer claim
relating to product that was distributed by the Company between 2010 and 2012. The customer alleges that
the product was defective and that the manufacturer did not meet the specifications for the goods distributed
by the Company. The Company is currently evaluating the claim but has not been provided with information to
make a reliable estimate of any potential liability and consequently no provision has been recorded. The
Company intends to vigorously defend against this claim and to assert its rights against the manufacturer.
The Company has also entered into other agreements that provide indemnifications to counterparties in certain
transactions including underwriting agreements. These indemnifications generally require the Company to
indemnify the counterparties for costs incurred as a result of losses from litigation that may be suffered by
counterparties arising from those transactions except in the case of gross negligence by the counterparties.
Decommissioning liability
b)
The Company is incurring site cleanup and restoration costs related to properties not utilized in current
operations. Remedial actions are currently underway at two sites. Decommissioning liabilities have been
estimated using discounted cash flow valuation techniques for cleanup costs based on management's best
estimates of the amount required to settle the liability.
The Company has asset retirement obligations relating to the land lease for its Thunder Bay Terminal
operation whose lease term expires in 2031. The landlord has the option to retain the equipment or to require
the Company to remove it. In addition, the Company has end-of-lease obligations in certain service center
operations.
Business combinations and investments
c)
The Company has a contractual obligation to pay additional consideration for its acquisitions of Apex
Distribution and Monarch, based upon achievement of performance measures during the first five years of
ownership.
NOTE 28
OTHER COMPREHENSIVE INCOME
Income taxes on other comprehensive income are as follows:
(millions)
Tax on items that may not be reclassified to earnings
Income tax on actuarial gains/losses on pension and similar obligations
2014
2013
1.6
(4.2)
RUSSEL METALS INC.602014 ANNUAL REPORT
DIRECTORY
HEAD OFFICE
TRANSFER AGENT AND REGISTRAR
SHAREHOLDER INFORMATION
6600 Financial Drive
Mississauga, Ontario, Canada L5N 7J6
T: 905.819.7777 F: 905.819.7409
info@russelmetals.com
www.russelmetals.com
CIBC Mellon Trust Company
c/o Canadian Stock Transfer Company Inc.
P.O. Box 700, Station B
Montreal, Quebec, Canada H3B 3K3
T: 416.682.3860 F: 1.800.387.0825
inquiries@canstockta.com
www.canstockta.com
The Toronto Stock Exchange - RUS
- RUS.DB
BOARD OF DIRECTORS
ALAIN BENEDETTI
Corporate Director
JOHN M. CLARK
President
Investment and Technical
Management Corp.
JAMES F. DINNING
Chair of the Board
JOHN A. HANNA
Corporate Director
BRIAN R. HEDGES
President & Chief
Executive Officer
Russel Metals Inc.
ALICE D. LABERGE
Corporate Director
LISE LACHAPELLE
Corporate Director
WILLIAM M. O’REILLY
Corporate Director
JOHN R. TULLOCH
Corporate Director
OFFICERS
JAMES F. DINNING
Chair of the Board
BRIAN R. HEDGES
President & Chief
Executive Officer
JOHN G. REID
Executive Vice President &
Chief Operating Officer
MARION E. BRITTON
Executive Vice President,
Chief Financial Officer &
Secretary
LESLEY M.S. COLEMAN
Vice President, Controller &
Assistant Secretary
SHERRI L. MOOSER
Assistant Secretary
CORPORATE DIRECTORY
Please refer to our website at www.russelmetals.com for a listing of all Company locations.
CORPORATE GOVERNANCE
Detailed disclosure concerning the Company’s governance practices may be found in the Information Circular.
GLOSSARY
Adjusted EBIT - Earnings before deduction of interest and income taxes excluding assets impairments
Adjusted EBITDA - Earnings before deduction of interest, income taxes, depreciation and amortization and asset impairments
Book Value Per Share - Equity value divided by ending common shares outstanding
Debt as % of Capitalization - Total net interest bearing debt excluding cash on hand divided by common shareholders’ equity plus interest bearing
debt excluding cash on hand
Dividend Yield - The dividend per share divided by the year end common share price
Earnings Multiple - Period ending common share price divided by basic earnings per common share
EBIT - Earnings before deduction of interest and income taxes
Free Cash Flow - Cash from operating activities before change in working capital less capital expenditures
Interest Bearning Debt to EBITDA - Total interest bearing debt excluding cash on hand divided by EBITDA
Market Capitalization - Outstanding common shares times market price of a common share at December 31
Return on Capital Employed - Adjusted EBIT for period annualized over net assets employed
6600 FINANCIAL DRIVE, MISSISSAUGA, ON L5N 7J6
www.russelmetals.com