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019 A
2
VALUE-ADDED PROCESSING
In our 2018 Annual Report we highlighted our value-added
processing initiatives primarily focused in our Western Canada and
JMS Jackson, Tennessee operations. During 2019, these initiatives
continued with the addition of Fiber Lasers in Boucherville,
Quebec; Halifax, Nova Scotia and Prince George, BC along with
Oxy/Plasma Machines in Delta, BC and Milwaukee, Wisconsin.
OUR CYCLICAL JOURNEY
OUR CYCLICAL JOURNEY
CITY PIPE & SUPPLY CORP.
On October 1, 2019, we purchased 100% of the issued
and outstanding shares of City Pipe & Supply Corp.
City Pipe distributes pipe, valves and fittings to oil and
gas customers primarily in the Permian basin in Texas
and New Mexico. Together with our Apex Remington
operation, City Pipe has added breadth to our U.S. energy
field stores and the combined business will operate
under the new business name Elite Supply Partners.
HEALTH & SAFETY
The Health & Safety of our employees and other stakeholders
is of paramount importance. Our commitment to continuous
improvement in areas such as lost time incidents, injury
prevention, training and early return to work programs
were
in 2019 with several new
initiatives such as our new Learning Management Training
System, E-Maintenance and Job Observational Audits.
further enhanced
NON-FERROUS GROWTH
We continue to focus on the growth of non-ferrous products
across our metals service center regions. In 2019 we relocated
our Saskatoon, Calgary, BC and Winnipeg locations to new and/or
larger facilities. A combination of additional storage capacity and
improved material handling capabilities will allow us to increase our
product offering and more importantly improve customer service.
TABLE OF CONT EN TS
Financial Highlights
A Message from our President & CEO
Management’s Responsibility for Financial Reporting
1
2
4
Management’s Discussion and Analysis
Independent Auditor’s Report
Consolidated Financial Statements
5
22
24
FINANCIAL HIGHLIGHTS
OPERATING RESULTS (millions)
Revenues
Net earnings
EBIT
EBIT as a % of revenue
EBITDA
EBITDA as a % of revenue
Basic earnings per common share ($)
BALANCE SHEET INFORMATION (millions)
Metals
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and accruals
Net working capital - Metals
Fixed assets
Right-of-use assets
Goodwill and intangibles
Lease obligations
Net assets employed in metals operations
Other operating assets
Net income tax assets (liabilities)
Pension and benefit assets (liabilities)
Other corporate assets and liabilities
Total net assets employed
CAPITALIZATION (millions)
Bank indebtedness, net of (cash)
Long-term debt (incl. current portion)
Total interest bearing debt, net of (cash)
Market capitalization
Total firm value
OTHER INFORMATION (Notes)
Shareholders' equity (millions)
Book value per share ($)
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 capital employed
Return on equity
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----------------------------------------------->
2019
2018
2017
2016
2015
$3,675.9
76.6
146.3
4.0%
203.0
5.5%
$1.23
$457.9
883.6
18.2
(307.9)
1,051.8
288.9
90.1 (1)
137.0
(111.6) (1)
1,456.2
1.7
10.2
(5.0)
(27.5)
$1,435.6
$46.2
444.8
491.0
1,378.4
$1,869.4
$944.6
$15.19
$136.7
$34.8
$56.7
18.0
12.8
9.2
2.2
34%
146%
10%
8%
$4,165.0
219.0
330.9
7.9%
366.6
8.8%
$3.53
$566.4
1,052.5
14.1
(470.6)
1,162.4
268.0
-
86.2
-
1,516.6
0.7
(32.3)
(5.8)
(26.5)
$1,452.7
$4.2
443.6
447.8
1,324.7
$1,772.5
$1,004.9
$16.18
$300.1
$41.3
$35.7
6.0
5.4
4.8
1.2
31%
132%
23%
22%
$3,296.0
123.8
206.4
6.3%
240.6
7.3%
$2.00
$445.8
819.9
17.2
(347.4)
935.5
246.5
-
90.5
-
1,272.5
(0.8)
(30.0)
(12.0)
(24.4)
$1,205.3
$82.0
296.5
378.5
1,805.3
$2,183.8
$826.8
$13.36
$180.4
$35.7
$34.2
14.6
10.6
9.1
1.2
31%
218%
17%
15%
$2,578.6
62.8
119.0
4.6%
154.1
6.0%
$1.02
$358.9
615.8
8.5
(276.3)
706.9
239.7
-
85.7
-
1,032.3
(1.1)
(7.3)
(11.0)
(38.5)
$974.4
$(146.8)
295.9
149.1
1,579.2
$1,728.3
$825.3
$13.37
$77.4
$16.7
$35.1
25.1
14.5
11.2
1.9
26%
191%
12%
8%
$3,111.6
(87.6)
(86.1)
nm
(51.0)
nm
($1.42)
$333.4
712.5
10.7
(269.7)
786.9
267.8
-
92.0
-
1,146.7
(1.9)
25.4
(21.7)
(33.1)
$1,115.4
$(49.2)
295.7
246.5
991.6
$1,238.1
$868.9
$14.08
$0.6
$38.3
$35.1
nm
nm
nm
nm
25%
114%
(8%)
(10%)
62,173,430
62,132,030
6.9%
$1.52
69%
$25.22
$18.47
$22.17
62,106,895
62,028,991
7.1%
$1.52
31%
$32.65
$19.72
$21.33
61,890,197
61,788,013
5.2%
$1.52
52%
$29.78
$23.67
$29.17
61,735,485
61,704,990
5.9%
$1.52
121%
$27.78
$13.95
$25.58
61,702,560
61,696,592
9.5%
$1.52
nm
$27.81
$14.36
$16.07
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.
(1) Effective January 1, 2019, the Company adopted IFRS 16 - Leases
RUSSEL METALS12019 ANNUAL REPORT
A MESSAGE FROM OUR PRESIDENT & CHIEF EXECUTIVE OFFICER
Fellow Shareholders,
Our 2019 front cover highlights the cyclical nature of our industry that we navigate daily.
During the last two years we experienced trade actions which impacted pricing, irrespective
of demand, and added complexity to our already cyclical industry. These trade actions, that
had dramatically increased steel prices in 2018, were resolved by the market in 2019 but
created a rapid whipsaw effect on steel prices. In 2019, demand in all our segments
decreased modestly and most of our operating units adapted quickly to produce a profitable
year. Our counter-cyclical cash flows generated cash from operations of $250 million as
working capital needed to support business activity was lower in 2019.
The 2019 acquisition of City Pipe & Supply, an oil & gas field store operation located
primarily in the Permian basin, complemented our existing Apex Remington operations and
further expanded our energy services footprint. I would like to take this opportunity to
welcome Brett Lossin and the entire City Pipe team to the Russel family of companies.
At the end of the 2019, City Pipe & Supply merged with Apex Remington to form Elite Supply
Partners under the leadership of Brett Lossin. We look forward to the success and continued
growth of the merged entity.
OPERATIONS
Our metals service centers generated revenues of $2.0 billion and operating profit of $74
million. Our metals service centers experienced an overall stellar year in 2018, making the
2019 comparable a challenge. Color Steels had record earnings in 2019 and several of our
regions turned in very solid years in what proved to be a difficult environment. We continue
to expand our value-added processing offerings and corresponding customer base. Our
employees have raised the bar by meeting and exceeding our health & safety initiatives.
Our energy products segment generated revenues of $1.3 billion and operating profit of $69
million. Our Comco Pipe and Apex field store operations turned in yet another solid year
with Comco exceeding 2018. Our line pipe and OCTG operations experienced a challenging
year as rigs counts dropped to levels reminiscent of 2015/2016. This created an oversupply
of product in the distribution channel, ultimately pressuring prices and led to inventory
provisions predominately in our U.S. operations.
Our steel distributor segment generated revenues of $0.4 billion and operating profit of $16
million. Our Canadian operation, Wirth Steel had results that exceeded 2018 as the
business model for this operation involves preselling a large majority of inventory purchases.
Our U.S. steel distributor operation, Sunbelt Group, had a more difficult year as the
transactional nature of their business model leaves them exposed to inventory price
volatility.
MANAGEMENT
In our metals service centers, Michel Vaillancourt, our Regional General Manager - Quebec,
retired after 48 years of service. I would like to personally thank Michel for his leadership
and his ability to keenly direct our operations in the unique Quebec marketplace along with
developing a worthy successor. Succeeding Michel is Annick Cadieux who started her
career at Acier Leroux in 2001 and has excelled at every level during her career from finance
to operational to managerial roles within the region.
RUSSEL METALS22019 ANNUAL REPORT
In our steel distributors segment, Doug Thompson Chairman - Wirth Steel, retired in 2019. Doug originally
started his affiliation with Wirth Steel in the 1960's before leaving to form his own company, Lackner Thompson,
and then rejoining Wirth Steel in 1989. Doug's extensive industry knowledge and ability to anticipate market
changes were instrumental in the success of our Wirth Steel operation over his tenure. Fernando Ferreira, who
has served Wirth Steel for 35 years under Doug's tutelage and was promoted to President during 2016 as part
of our succession plan will succeed Doug.
On September 9, 2019 we announced that Marion Britton will be retiring as CFO after more than 35 years with
our Company. Marion's professionalism, integrity and dedication were evident in our continuous disclosure
documents and the numerous transactions during her tenure. Marion's tireless effort and keen intellectually
ability make her unique and it has been an absolute pleasure to work with her since I joined Russel Metals in
2007.
Please join me in saluting their accomplishments, appreciating their indelible mark in their respective areas and
wishing them a wonderful and well-deserved retirement.
I also want to welcome Martin Juravsky who joins us in May and will succeed Marion as CFO. Marty brings
extensive CFO experience in finance, capital markets and M&A.
Finally, I would like to thank our Board of Directors for their representation of our shareholders' interests. Our
open and honest discussions around the Board table have provided support, guidance and healthy debate for
the entire management team.
FUTURE
We saw steel prices stabilize and improve very late in 2019 and into early 2020. We believe the 2019 steel
prices marginally over-corrected and this was compounded by a dip in industrial demand and a slide in the North
American rig count. We are experiencing demand levels consistent with early 2019 as we kickoff 2020. Prices
appear to have found solid footing and inventory levels throughout the service center and steel distributor
operations have returned to sustainable levels. The energy distribution supply chains are moving toward
acceptable levels. We look forward to a successful 2020.
John G. Reid
President and Chief Executive Officer
RUSSEL METALS32019 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, 2019, 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 11, 2020
J. G. Reid
President and
Chief Executive Officer
M. E. Britton
Executive Vice President and
Chief Financial Officer
RUSSEL METALS42019 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2019
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, 2019, 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 11, 2020.
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:
volatility in metal prices; cyclicality of the metals industry; volatility in oil and natural gas prices; capital budgets
in the energy industry; climate change; product claims; significant competition; sources of metals supply;
manufacturers selling directly; material substitution; credit risk; currency exchange risk; restrictive debt
covenants; asset impairments; the unexpected loss of key individuals; decentralized operating structure; future
acquisitions; the failure of our key computer-based systems, labour interruptions; laws and governmental
regulations; litigious environment; environmental liabilities; carbon emissions; health and safety laws and
regulations and common share risk.
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 under the heading
"Risk Management and Risks Affecting Our Business" in our most recent Annual Information Form and are
otherwise disclosed in our filings with securities regulatory authorities which are available on SEDAR at
www.sedar.com.
RUSSEL METALS52019 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.
Revenues for the year ended December 31, 2019 were $3.7 billion compared to $4.2 billion in 2018. Demand
declined in all three segments in 2019. Steel prices declined in 2019 resulting in margin pressure compared to
rising prices and inventory holding gains experienced in 2018. Our net earnings for 2019 of $77 million were
65% lower than our net earnings of $219 million in 2018. Basic earnings per share was $1.23 for 2019 compared
to $3.53 for 2018.
Management believes that adjusted net earnings and adjusted earnings per share are useful measures that can
facilitate comparisons between periods as they exclude items that are not part of our normal operations and
could distort the analysis of trends in business performance. The exclusion of these items does not necessarily
imply that they are non-recurring. These measures do not have any standardized meaning in GAAP and
therefore may not be comparable to similar measures presented by other companies.
Our adjusted net earnings for the year ended December 31, 2019 were $99 million or $1.59 per share, which
excludes $18 million of inventory provisions on an after-tax basis and $4 million in acquisition-related charges
on an after-tax basis for our October 1, 2019 City Pipe acquisition.
We recorded an inventory provision of $5 million related to the decline in OCTG prices and an inventory provision
of $14 million related to the decline in line pipe prices, both in our U.S. operations that are part of our energy
products segment. In our steel distributor segment, we recorded inventory provisions of $5 million. Also, during
2019, we recorded a pre-tax charge of $4 million related to the fair value adjustment on inventories and expenses
of $2 million for our City Pipe acquisition.
The following table provides a reconciliation of net earnings and earnings per share for the year ended December
31, 2019 to adjusted net earnings and adjusted net earnings per share.
2019
Net earnings
Inventory provisions, after tax
City Pipe acquisition, after tax
Adjusted net earnings
millions
$ 77
18
4
$ 99
per share
$ 1.23
0.29
0.07
$ 1.59
Adjusted net earnings and adjusted net earnings per share are non-GAAP measures that exclude non-recurring
items; inventory provisions and acquisition related charges. We believe that adjusted net earnings and adjusted
net earnings per share may be useful in assessing our operating performance but should not be considered as
an alternative to net earnings or net earnings per share.
UPDATE ON TARIFFS AND CANADIAN SAFEGUARDS
Trade actions by government authorities in recent years have increased the volatility in steel prices and have
created uncertainty in the industry. The following is a summary of the major actions by government authorities.
RUSSEL METALS62019 ANNUAL REPORT
In April 2017, the U.S. Department of Commerce self-initiated an investigation under section 232 of the Trade
Expansion Act of 1962 to determine whether imports of foreign-made steel were harming U.S. national security.
On March 8, 2018, the U.S. President signed executive orders to implement import tariffs of 25% on steel and
10% on aluminum. These tariffs were implemented on March 23, 2018. Canada and Mexico were initially
excluded from the tariffs; however, the exclusion was lifted, and the tariffs were implemented on material from
Canada and Mexico on June 1, 2018. Canada subsequently implemented retaliatory tariffs on steel and
aluminum products from the U.S. effective July 1, 2018. These steel and aluminum tariffs on products produced
in Canada, the U.S. and Mexico were eliminated on May 20, 2019.
On September 30, 2018, the U.S., Canada and Mexico reached an agreement to replace NAFTA. On January
29, 2020, the new agreement was signed into law in the U.S. but still requires the approval of the Canadian
Parliament prior to implementation. The new agreement should result in a more stable business environment
after ratification by all parties.
On October 22, 2018, the Canadian Department of Finance announced provisional safeguards of 25% on seven
steel product categories. Material imported into Canada from sources other than the U.S., Israel, Chile, Mexico
and a number of developing countries were subject to provisional surcharges once the import volumes exceeded
an allowable quota. Formal hearings were conducted in January 2019 and recommendations were announced
in April 2019 at which time it was recommended that tariff rate quotas be continued on heavy plate and stainless-
steel wire products for three years. On May 10, 2019, the final safeguard order was implemented on these two
product categories. No remedy was recommended on the other five product categories, thus the provisional
safeguards on these goods were removed effective April 29, 2019.
During the 2019 first quarter, the U.S. International Trade Commission ("ITC") made a preliminary determination
that fabricated structural steel from Canada, China and Mexico materially injured the U.S. fabricated steel
industry. On January 24, 2020, the Department of Commerce announced affirmative final determinations on
anti-dumping duties of imports from Canada at rates of 0-6.70%. As the Department of Commerce reached a
negative countervailing determination on exports from Canada, this investigation was terminated, and no
countervailing duties will be collected on imports from Canada. The ITC is scheduled to make its final anti-
dumping injury determination on March 9, 2020. If the ITC determines that no injury occurred due to imports
from Canada, then no order to collect anti-dumping duties will be issued.
SUMMARIZED FINANCIAL INFORMATION
The following tables disclose selected information related to revenues, earnings and common shares over the
last three years.
2019
(in millions, except per share data and volumes)
Revenues
Earnings before interest, finance expense and taxes
Net earnings (loss)
Mar. 31
$ 1,032.6
58.2
34.3
Quarters Ended
June 30
$ 936.7
50.9
30.8
Sept. 30
$ 869.2
34.9
18.1
Dec. 31
$ 837.4
2.3
(6.6)
Year
Ended
Dec. 31
$ 3,675.9
146.3
76.6
Basic earnings (loss) per common share
$ 0.55
$ 0.50
$ 0.29
$ (0.11)
$ 1.23
Diluted earnings (loss) per common share
$ 0.55
$ 0.50
$ 0.29
$ (0.11)
$ 1.23
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
$ 2,199.2
$ 540.0
$ 0.38
$ 2,115.9
$ 541.1
$ 0.38
$ 2,074.9
$ 538.9
$ 0.38
$ 1,929.0
$ 539.2
$ 0.38
$ 1,929.0
$ 539.2
$ 1.52
$ 25.22
$ 20.75
$ 24.61
$ 20.90
$ 22.56
$ 18.47
$ 23.35
$ 19.85
$ 25.22
$ 18.47
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded on the TSX
62,109,395 62,109,395 62,173,430 62,173,430 62,173,430
62,107,839 62,108,622 62,170,481 62,173,430 62,132,030
13,787,516 10,661,704 12,814,804 14,601,555 51,865,579
RUSSEL METALS72019 ANNUAL REPORT
2018
(in millions, except per share data and volumes)
Revenues
Earnings before interest, finance expense and taxes
Net earnings
Mar. 31
$ 931.3
60.6
38.5
Quarters Ended
June 30
$ 978.2
97.3
66.1
Sept. 30
$ 1,140.1
101.6
68.2
Dec. 31
$ 1,115.4
71.4
46.2
Year
Ended
Dec. 31
$ 4,165.0
330.9
219.0
Basic earnings per common share
$ 0.62
$ 1.07
$ 1.10
$ 0.74
$ 3.53
Diluted earnings per common share
$ 0.62
$ 1.06
$ 1.09
$ 0.74
$ 3.52
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
$ 1,924.2
$ 442.6
$ 0.38
$ 2,057.8
$ 443.0
$ 0.38
$ 2,140.9
$ 443.3
$ 0.38
$ 2,130.4
$ 443.6
$ 0.38
$ 2,130.4
$ 443.6
$ 1.52
$ 32.65
$ 27.08
$ 31.33
$ 26.24
$ 30.99
$ 26.20
$ 28.20
$ 19.72
$ 32.65
$ 19.72
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded on the TSX
61,965,644 62,077,045 62,090,045 62,106,895 62,106,895
61,921,421 62,012,928 62,081,187 62,097,921 62,028,991
8,981,225 10,136,481 14,371,151 49,516,725
16,027,868
2017
(in millions, except per share data and volumes)
Revenues
Earnings before interest, finance expense and taxes
Net earnings
Mar. 31
$ 803.5
47.9
29.6
Quarters Ended
June 30
$ 816.5
54.1
32.5
Sept. 30
$ 850.9
57.5
33.7
Dec. 31
$ 825.1
46.9
28.0
Year
Ended
Dec. 31
$ 3,296.0
206.4
123.8
Basic earnings per common share
$ 0.48
$ 0.52
$ 0.55
$ 0.45
$ 2.00
Diluted earnings per common share
$ 0.48
$ 0.52
$ 0.55
$ 0.45
$ 2.00
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
$ 1,611.4
$ 296.0
$ 0.38
$ 1,665.4
$ 296.1
$ 0.38
$ 1,796.7
$ 296.3
$ 0.38
$ 1,759.1
$ 296.5
$ 0.38
$ 1,759.1
$ 296.5
$ 1.52
$ 29.78
$ 25.13
$ 28.65
$ 23.67
$ 28.47
$ 24.61
$ 29.51
$ 27.16
$ 29.78
$ 23.67
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded on the TSX
61,792,194 61,792,194 61,792,194 61,890,197 61,890,197
61,754,827 61,733,614 61,779,875 61,812,162 61,788,013
9,812,965 50,514,518
17,146,636 12,951,578 10,603,339
RUSSEL METALS82019 ANNUAL REPORT
RESULTS OF OPERATIONS
The following table provides earnings before interest, other finance expense and income taxes, which is a non-
GAAP measure. The corporate expenses included are not allocated to specific operating segments. Gross
margins (revenues 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.
(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
Asset impairment
Other
Earnings before interest, finance expense and income taxes
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
variance
as a %
of 2018
(7%)
(18%)
(13%)
(12%)
(56%)
(49%)
(67%)
17%
(56%)
2019
2018
$ 1,958.0
1,310.7
395.9
11.3
$ 3,675.9
$ 73.7
68.8
15.8
(17.0)
-
5.0
$ 146.3
$ 2,100.8
1,597.5
456.5
10.2
$ 4,165.0
$ 169.4
133.6
47.2
(20.4)
(3.3)
4.4
$ 330.9
18.8%
16.6%
11.0%
17.4%
3.8%
5.2%
4.0%
4.0%
23.3%
18.6%
19.1%
21.2%
8.1%
8.4%
10.3%
7.9%
On January 1, 2019, we adopted IFRS 16 - Leases which resulted in an increase in our segment operating
profits and interest expense but had no impact on net income.
EFFECTS OF IFRS 16
(millions)
Segment Operating Profits
Metals service centers
Energy products
Steel distributors
Corporate expenses
Other
Interest
Provision for taxes
Net earnings
2019
As reported
Pre-IFRS 16
$ 73.7
68.8
15.8
(17.0)
5.0
$ 146.3
40.9
28.8
$ 76.6
$ 70.0
65.0
15.4
(17.0)
4.9
$ 138.3
33.2
28.5
$ 76.6
Results of our U.S. operations for the year ended December 31, 2019 were converted at $1.3268 per US$1
compared to $1.2961 per US$1 for the year ended December 31, 2018. Our U.S. operations represented
approximately 30% of our total revenues. The exchange rate used to translate the balance sheet at December
31, 2019 was $1.2988 per US$1 versus $1.3642 per US$1 at December 31, 2018.
RUSSEL METALS92019 ANNUAL REPORT
ANNUAL FINANCIAL HIGHLIGHTS
(millions, except per share amounts)
Revenues
Earnings before interest, finance expense and income taxes
Net earnings
Basic earnings per share
2019
$ 3,676
146
77
1.23
2018
$ 4,165
331
219
3.53
2017
$ 3,296
206
124
2.00
Description of operations
METALS SERVICE CENTERS
a)
We provide processing and distribution services to a broad base of approximately 33,000 end users through a
network of 48 Canadian locations and 16 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, Alberta Industrial Metals, B&T Steel, Color Steels, Leroux Steel, Mégantic Métal, Pemco
Steel, Russel Metals Processing, Russel Metals Specialty Products, Métaux Russel Produits Spécialisés,
McCabe Steel and York-Ennis. Our U.S. service centers operate under the names Russel Metals Williams
Bahcall, DuBose Steel, 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 2019 and 2018 is found in the section that follows.
Steel prices fluctuate significantly throughout the steel cycle. Steel prices are influenced by overall international
demand, domestic demand, trade sanctions, iron ore prices, scrap steel prices and product availability.
Changing metal prices cause fluctuations in our operating margins. Hot rolled coil products and sheet prices
softened during 2019 and U.S. long products and plate pricing softened in the 2019 third quarter. Price increases
for hot rolled sheet and plate were announced late in the 2019 fourth quarter. During the second half of 2018
and early 2019, due to tariffs on material between Canada and the U.S., product prices in Canada for coil,
structural tubing and hot rolled plate were not based on the currency adjusted U.S. pricing as had been the
historical practice of the mills. Canadian coil and structural tubing prices were lower than the equivalent U.S.
price whereas plate prices were higher until tariffs were removed in May 2019 when the prices reverted to
currency-adjusted prices.
In 2018, the implementation by the U.S. of import tariffs on steel led to a substantial increase in North American
steel prices, as further described in the "Update on Tariffs and Canadian Safeguards" included in this MD&A.
During 2019, the market adjusted to these tariffs and the U.S., Mexico and Canada agreed to remove import
tariffs in May 2019. Steel prices consequently decreased in the year.
Supply side management, practiced by steel producers in North America, and international supply and demand,
which impact steel imports, have historically affected product availability. Trade sanctions on specific products
have been initiated either by steel mills or by North American government agencies.
Our operating results are affected by the cyclicality of the metals industry and the industries that purchase our
products. Demand for our products is significantly affected by economic cycles. Revenues and operating profits
fluctuate with the level of general business activity in the markets we serve. We are most impacted by several
sectors of the North American economy including natural resources, oil and gas, manufacturing and
construction.
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 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.
RUSSEL METALS102019 ANNUAL REPORT
Our U.S. operations, which have approximately 14,000 customers, are also impacted by the local economic
conditions in the regions that they serve. In April 2018, we acquired DuBose Steel which expanded our
geographic presence in the Southeastern United States.
Results of our Canadian operations can be affected by the U.S. dollar exchange rate since some products are
sourced outside of Canada in U.S. dollars. Movement in the Canadian dollar has a short-term impact on
inventory prices.
c)
Metals service centers segment results -- 2019 compared to 2018
(millions)
Financial Highlights
Revenues
Gross margin ($)
Gross margin (%)
Earnings from operations
2019
2018
% Change
$ 1,958
368
18.8%
74
$ 2,101
490
23.3%
169
(7%)
(25%)
(56%)
Our 2019 revenues decreased compared to 2018 due to lower steel prices and demand. The average selling
price was 1% lower than 2018 and same store tons shipped in 2019 were approximately 6% lower than tons
shipped in 2018. Based on 2019 data obtained from the Metals Service Center Institute, the Canadian and U.S.
service center industries both had a reduction in shipments of 7%. All of our regions had volume declines except
Alberta and Color Steels. Our Manitoba/Saskatchewan and British Columbia regions had lower demand than
our other regions due to declines in the agriculture and forestry industries.
The reduction of gross margin as a percentage of revenues was due to the absence of inventory holding gains
relating to the rising price environment experienced in 2018 offset by an increase in value-added processing
which has a positive impact on margins.
Our average revenue per invoice for 2019 was approximately $2,371 compared to $2,422 for 2018, reflecting
decreased steel prices and demand. We handled approximately 3,303 transactions per day in 2019 compared
to 3,274 per day in 2018.
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 in the U.S., in Colorado and Texas. 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 49 Canadian and 24 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 Elite Supply Partners networks. 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 Western Fiberglass, Comco Pipe & Supply Company, Elite
Supply Partners, 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 2019 and 2018 is found in the section that follows.
The prices of oil, including the Western Canadian select discount, and natural gas can impact rig count and
drilling activities, which in turn affects demand for our products. Oil prices increased throughout the beginning
of 2019 but decreased at the end of the second quarter and was range bound for the balance of 2019. During
2019, rig activity in the U.S. and Canada was lower than the same period in 2018.
On October 1, 2019, we completed the acquisition of City Pipe and on December 31, 2019 City Pipe merged
with Apex Remington to form Elite Supply Partners.
RUSSEL METALS112019 ANNUAL REPORT
Prices for pipe products are influenced by overall demand, trade sanctions, product availability and metal prices.
Trade sanctions are initiated either by steel mills or by North American government agencies. Both the Canadian
and U.S. governments have imposed duties on certain Chinese pipe, which remain in effect and have reduced
imports of these products. In August 2018, anti-dumping duties were imposed by the U.S. on imported large
diameter pipe from six countries including Canada. The U.S. section 232 investigation and the resulting tariffs
and retaliatory tariffs increased pipe prices. The subsequent removal of these tariffs and retaliatory tariffs in
North America and quotas on Korean product has led to decreased pipe prices. Large projects such as the
Kitimat LNG project should result in stronger demand in our industry. Valves and fittings prices are not as
sensitive to steel price fluctuations because they are highly engineered products.
Results of 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. Drilling related to oil and natural gas in Western Canada historically peaks during
the period from October to March.
c)
Energy products segment results -- 2019 compared to 2018
(millions)
Financial Highlights
Revenues
Gross margin ($)
Gross margin (%)
Earnings from operations
2019
2018
% Change
$ 1,311
217
16.6%
69
$ 1,598
298
18.6%
134
(18%)
(27%)
(49%)
Revenues in our energy products segment decreased in 2019 due to lower activity from reduced rig counts and
large line pipe projects in 2018 which were not replicated in 2019. Our oilfield stores and Comco Pipe operation
had solid results in 2019 with Comco Pipe's results exceeding 2018.
Gross margin as a percentage of revenues was lower than 2018 mainly due to lower industry-wide OCTG and
line pipe prices in reaction to lower demand caused by reduced North American rig counts. The lower line pipe
prices resulted in a $14 million inventory provision and the lower OCTG prices resulted in a $5 million inventory
provision.
The October 1, 2019 acquisition of City Pipe resulted in revenues of $34 million and operating earnings of $2
million in the 2019 fourth quarter. The acquisition accounting resulted in a charge of $6 million consisting of a
decrease in gross margin of $4 million and an increase in operating expenses of $2 million.
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 operating
under the name Arrow Steel, located in Houston, Texas where it processes coil for its customers. Our steel
distributors source their steel both domestically and offshore.
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 processes and levels coil products.
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 2019 and 2018 is found in the section that follows.
RUSSEL METALS122019 ANNUAL REPORT
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. Trade
actions currently exist on plate and pipe from specified countries. The imposition of steel tariffs under the section
232 investigation, discussed in more detail under "Update on Tariffs and Canadian Safeguards", led to higher
prices and shifted supply channels for steel distributor customers in the second half of 2018. Certain products
purchased by our Canadian steel distributors operation were subject to the Canadian provisional safeguards
that went into effect October 25, 2018. On May 10, 2019, these safeguards were removed, and provisional
surcharges were implemented on heavy plate and stainless-steel wire products.
Demand for steel that is sourced offshore 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 operation sources product outside of Canada that is priced in U.S. dollars and may be impacted
by movements in the Canadian dollar.
c)
Steel distributors segment results -- 2019 compared to 2018
(millions)
Financial Highlights
Revenues
Gross margin ($)
Gross margin (%)
Earnings from operations
2019
2018
% Change
$ 396
43
11.0%
16
$ 457
87
19.1%
47
(13%)
(50%)
(66%)
Steel distributors' 2019 revenues decreased compared to 2018, due to reduced volumes and selling prices
primarily at our U.S. steel distributor operation.
Gross margin as a percentage of revenues decreased in our U.S. operation due to lower steel prices. There
was no change in our gross margin as a percentage of revenues in our Canadian operation as their model
incorporates pre-selling prior to purchase of material in contrast to the U.S. operation which is more
transactional. Our U.S. operation recorded an inventory provision of $5 million in 2019.
CORPORATE EXPENSES -- 2019 COMPARED TO 2018
Corporate expenses were $17 million in 2019 compared to $20 million in 2018 due to lower variable
compensation attributable to lower net earnings.
LOSS ON ASSET IMPAIRMENT
During the quarter ended March 31, 2018, we recorded an asset impairment charge of $3 million relating to
costs associated with our ERP modernization project, as we decided to move in another direction to meet the
needs of the business.
CONSOLIDATED RESULTS -- 2019 COMPARED TO 2018
Operating profits of $146 million in 2019 compared to $331 million in 2018 due to decreased steel prices and
demand.
INTEREST EXPENSE
Net interest expense was $41 million for 2019 compared to $32 million for 2018 reflecting additional interest
expense of $8 million related to the new lease accounting standard IFRS 16.
OTHER FINANCE EXPENSE
We recorded finance expenses of $1 million in 2018 related to the fair value of the contingent consideration on
our Apex Distribution acquisition. This reflected the final payment under the agreement.
RUSSEL METALS132019 ANNUAL REPORT
INCOME TAXES
We recorded a provision for income taxes of $29 million for 2019 compared to a provision of $79 million for 2018.
Our effective income tax rate for 2019 was 27.3% compared to 26.5% for 2018. The increase in the 2019
effective tax rate was due to losses in our U.S. operations which were at a lower effective rate compared to our
Canadian operations offset in part by the Alberta corporate rate reduction.
NET EARNINGS
Net earnings for 2019 were $77 million compared to $219 million in 2018. Basic earnings per share for 2019
was $1.23 per share compared to $3.53 per share in 2018 as the decline in steel prices and stagnant demand
led to decreased results in all segments.
SHARES OUTSTANDING AND DIVIDENDS
The weighted average number of common shares outstanding for 2019 was 62,132,030 compared to 62,028,991
for 2018 as a result of the exercise of options. Common shares outstanding at December 31, 2019 and February
11, 2020 were 62,173,430.
We paid common share dividends of $94 million or $1.52 per share in 2019 and 2018.
We have $150 million of 6% Senior Notes due March 16, 2026. The indenture for these Senior Notes has
restrictions related to the payment of quarterly dividends in excess of $0.38 per share. These notes can be
redeemed at par on or after March 16, 2024.
We have $300 million of 6% Senior Notes due April 19, 2022. The indenture for these Senior Notes has
restrictions related to the payment of quarterly dividends in excess of $0.35 per share. At the current dividend
rate, there is sufficient room to continue to pay the dividend to the maturity of these 2022 Senior Notes which
can be redeemed at par on or after April 19, 2020.
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. In addition, if our excess borrowing base were to be insufficient, we believe we would be able to
obtain a waiver or finance our short-term cash requirements with alternative financing structures and pay the
dividend.
EBIT AND EBITDA
The following table shows the reconciliation of net earnings to EBIT and EBITDA:
(millions)
Net earnings
Provision for income taxes
Interest and finance expense, net
Earnings before interest, finance expense and income taxes (EBIT)
Depreciation and amortization
Earnings before interest, income taxes, depreciation and amortization (EBITDA)
2019
$ 76.6
28.8
40.9
146.3
56.7
$ 203.0
2018
$ 219.0
79.1
32.8
330.9
35.7
$ 366.6
We believe that 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 EBITDA are significant in assessing our operating results and
liquidity. Therefore, 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. EBITDA increased
by $25 million as a result of the new lease accounting standard IFRS 16.
CAPITAL EXPENDITURES
Capital expenditures were $35 million in 2019 compared to $41 million in 2018. We continue to invest in value-
added processing equipment in our metals service centers. Depreciation expense was $32 million compared to
$29 million for the comparable period in 2018. The implementation of the new lease accounting standard IFRS
16 resulted in additional depreciation of $17 million in 2019.
RUSSEL METALS142019 ANNUAL REPORT
LIQUIDITY
At December 31, 2019, we had net bank indebtedness, defined as cash less bank indebtedness, of $46 million
compared to $4 million at December 31, 2018. We generated cash of $171 million from operations during 2019
and $144 million from working capital. We invested $35 million for capital expenditures, utilized $66 million for
income tax payments and returned $94 million in dividends to our shareholders.
Due to our cyclicality, we experience significant swings in working capital, which impact cash flow. Inventory
and accounts receivable represent a large percentage of our total assets employed and utilize cash at the peak
of each cycle and generate cash from working capital reductions at the bottom of each cycle. Accounts
receivable and inventory comprise our largest liquidity risks and generated $324 million in cash in 2019 due to
decreased business activity triggering strong cash flows as we focused on optimizing working capital levels.
Total assets were $1.9 billion at December 31, 2019, compared to $2.1 billion at December 31, 2018. At
December 31, 2019, current assets excluding cash represented 72% of our total assets excluding cash,
compared to 80% at December 31, 2018. This ratio was impacted by the addition of $90 million in right-of-use
assets as a result of IFRS 16.
Reduced inventory levels yielded cash of $203 million in 2019. Inventories were lower due to both decreased
tons and steel prices. Inventories represented 46% of our total assets at December 31, 2019 compared to 49%
at December 31, 2018.
Inventory by Segment (millions)
Metals service centers
Energy products
Steel distributors
Total
Inventory Turns (quarters ended)
Metals service centers
Energy products
Steel distributors
Total
Dec. 31
2019
$ 295
494
95
$ 884
Dec. 31
2019
4.5
2.5
3.3
3.2
Sept. 30
2019
$ 334
507
123
$ 964
Sept. 30
2019
4.6
2.0
2.7
3.0
June 30
2019
$ 378
506
124
$ 1,008
June 30
2019
4.6
1.9
2.8
3.0
Mar. 31
2019
$ 429
465
137
$ 1,031
Mar. 31
2019
4.1
2.6
3.1
3.3
Dec. 31
2018
$ 427
475
150
$ 1,052
Dec. 31
2018
3.9
3.0
3.6
3.4
At December 31, 2019, our metals service inventory tons and average cost per ton were lower compared to
December 31, 2018 as our operations reduced purchases consistent with business levels.
During 2019 inventory levels decreased in our energy products operations, excluding City Pipe, due to
decreased demand in the sector caused by lower rig counts.
Inventory levels at steel distributors were lower due to decreased demand and lower costs per ton.
Accounts receivable generated cash of $121 million in 2019 reflecting lower revenues in the 2019 fourth quarter.
Accounts receivable represented 24% of our total assets excluding cash at December 31, 2019 compared to
28% in 2018.
During 2019, we made income tax payments of $66 million compared to $78 million for 2018 due to lower
earnings.
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 METALS152019 ANNUAL REPORT
FREE CASH FLOW
(millions)
Cash from operating activities before non-cash working capital
Purchase of property, plant and equipment
2019
$ 171.5
(34.8)
$ 136.7
2018
$ 341.4
(41.3)
$ 300.1
We believe that free cash flow may be useful in assessing our ability to pay dividends, interest, 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. The purchase of property, plant and equipment excludes the
non-cash addition of right-of-use assets.
DEBT
As at December 31 (millions)
Long-term debt
6% $300 million Unsecured Senior Notes due April 19, 2022
6% $150 million Unsecured Senior Notes due March 16, 2026
CASH AND BANK CREDIT FACILITY
(millions)
Bank loans
Cash net of outstanding cheques
Net debt
Letters of credit
Facility
Borrowings and letters of credit
Letters of credit
Facility availability
Available line based on borrowing base
2019
2018
$ 298
147
$ 445
$ 297
147
$ 444
2019
$ (57)
11
(46)
(33)
$ (79)
$ 400
50
$ 450
$ 450
2018
$ (148)
144
(4)
(76)
$ (80)
$ 500
50
$ 550
$ 550
On February 6, 2018, we increased and extended our credit facility to $450 million expiring September 21, 2021.
The facility with a syndicate of Canadian and U.S. banks provides $50 million for letters of credit and $400 million
which can be utilized for borrowings or additional letters of credit. On August 31, 2018, we amended our credit
facility to increase availability by $100 million for borrowings or additional letters of credit for a period of one year
for a total availability of $550 million. On August 30, 2019, this increase expired and the availability reverted
back to $450 million. 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
$450 million.
As of December 31, 2019, we were entitled to borrow and issue letters of credit totaling $450 million under this
facility. At December 31, 2019, we had $57 million in borrowings and $33 million of letters of credit outstanding.
At December 31, 2018 we had $148 million in borrowings and letters of credit of $76 million.
At December 31, 2019, we were in compliance with all of our financial covenants.
With our cash, cash equivalents and our bank facility we have access to approximately $354 million of cash
based on our December 31, 2019 balances. The use of our bank facilities has been predominantly to fund
working capital requirements, acquisitions and trade letters of credit for inventory purchases.
RUSSEL METALS162019 ANNUAL REPORT
CONTRACTUAL OBLIGATIONS
As at December 31, 2019, we were contractually obligated to make payments as per the following table:
Contractual Obligations
(millions)
Bank loans
Accounts payable
Debt
Long-term debt interest
Operating leases
Total
Payments due in
2021
and 2022
$ -
-
300
44
42
$ 386
2023
and 2024
$ -
-
-
18
31
$ 49
2025 and
thereafter
$ -
-
150
14
59
$ 223
2020
$ 57
331
-
27
26
$ 441
Total
$ 57
331
450
103
158
$ 1,099
We provide defined contribution pension plans for a majority of our Canadian and U.S. employees; however, we
have obligations related to multiple defined benefit pension plans in Canada, as disclosed in Note 15 of our 2019
consolidated financial statements. During 2019 we contributed $4 million to these plans. We expect to contribute
approximately $5 million to these plans during 2020. 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 $11 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 $6 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, which are not
material, 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 short-term and low value operating lease obligations disclosed in the contractual obligations table. On
January 1, 2019, we adopted the new lease accounting standard IFRS 16 and our leases, excluding short-term
and low value leases, that were previously off-balance sheet were recorded on the balance sheet.
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 valuation, 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 reserves are estimated in the period in which revenue is recorded. 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, 2019
approximated our reserve level at December 31, 2018. Bad debt expense for 2019 as a percentage of revenues
was less than 1%.
RUSSEL METALS172019 ANNUAL REPORT
Inventories
We review our inventories to ensure that the cost of inventories is not in excess of 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. When
recent selling prices are not available, future selling prices are estimated using current replacement cost plus an
applicable margin. The inventory reserve level at December 31, 2019 was $24 million greater than the level at
December 31, 2018.
Other areas involving significant estimates and judgements include:
Goodwill Impairment
The determination of whether goodwill and intangibles are impaired requires the estimation of future cash flows
and an appropriate discount rate to determine value in use. An impairment occurs when the book value of the
assets associated with a particular cash-generating unit is greater than the value in use. The assessment of
future cash flows and the discount rate requires significant judgement. Goodwill is tested for impairment on an
annual basis which resulted in no impairment for the years ended December 31, 2019 and 2018.
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, if
any, 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
obligation. 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 our financial position, cash flows or operations.
Employee Benefit Plans
At least every three years, our actuaries perform a valuation 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 $153 million in plan assets at December 31, 2019, which is approximately $18 million
higher than December 31, 2018. The discount rate used on the employee benefit plan obligation for December
31, 2019 was 3.0%, which is 75 basis points lower than the discount rate at December 31, 2018.
RUSSEL METALS182019 ANNUAL REPORT
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 & Chief Executive Officer and the Executive Vice President & 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, 2019. The
design and evaluation of internal controls was completed using the framework and criteria established in "Internal
Control - Integrated 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. We believe we enhance profitability
by operating with the lowest possible net assets. This reduces borrowings and minimizes interest expense in
all periods of the economic cycle and creates returns on net assets that are more stable. 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 average profits and that we
will generate earnings over the cycle in the top quartile of the industry.
Growth from selective acquisitions is also part of our strategy. We focus on investment opportunities in metals
and energy distribution 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.
In addition, we will continue to invest in value-added processing that allows for growth and will further stabilize
our returns. We completed the acquisition of Color Steels in 2017 which provided a new product line to our
Canadian service center operations. On April 16, 2018, we completed the acquisition of the operating assets
and facilities of DuBose Steel which adds a new geographic area to our U.S. service center operations. On
October 1, 2019, we completed the acquisition of City Pipe & Supply Corp. which added energy field service
facilities, primarily in the Permian basin, to our existing Apex Remington strength in Oklahoma, Texas and North
Dakota. We continue to review opportunities for additional acquisitions.
We believe that the steel-based pricing cycle will continue to be short and volatile, and that our decentralized
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.
RUSSEL METALS192019 ANNUAL REPORT
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 cyclical nature of the steel industry, fluctuation in capacity utilization rates for North
American steel producers and high import levels. The tariffs implemented under the section 232 investigation
supported higher steel prices and North American production in 2018. The removal of the North American tariffs
reduced steel prices for 2019 below those experienced in late 2017. Future changes to country or product
exemptions may impact steel prices and product availability
We are one of the largest energy services companies in Canada. Approximately 40% of our North American
revenues are dependent on the oil and gas industry whose activity fluctuates with oil and gas prices. Our oil
field store operations provide a more stable stream of earnings as their products are used in maintenance and
repair as well as new drilling activity. Our OCTG and line pipe operations are experiencing an increasingly price
competitive market place with the North American supply channel evolving as certain pipe manufacturers have
elected to hold inventory in an effort to bypass the distributors. This has reduced margins and created an
oversupply of inventories throughout the supply chain during a period of reduced demand driven by lower rig
counts.
We have implemented an enterprise risk management program. The enterprise risk management program and
a summary of the risks affecting our business is described under the heading "Risk Management and Risks
Affecting Our Business" in our most recent Annual Information Form, which section is incorporated by reference
in this "Risk" section of our MD&A.
FOURTH QUARTER RESULTS
Revenues in the fourth quarter of 2019 were 25% lower than the same quarter in 2018. Operating income was
$2 million compared to $71 million in 2018 and our net loss was $7 million compared to net income of $46 million
in 2018.
During the quarter ended December 31, 2019, we recorded inventory provisions of $14 million related to the
decline in line pipe prices in our U.S. energy product operation and $4 million on various products at our U.S.
steel distributor operation. Also during the fourth quarter we recorded a pre-tax charge of $6 million attributed
to the fair value adjustment and expenses on our City Pipe acquisition.
Management believes that adjusted net earnings and adjusted earnings per share are useful measures that can
facilitate comparisons between periods as they exclude items that are not part of our normal operations and
could distort the analysis of trends in business performance. The exclusion of these items does not necessarily
imply that they are non-recurring. These measures do not have any standardized meaning in GAAP and
therefore may not be comparable to similar measures presented by other companies.
Our adjusted net earnings for the quarter ended December 31, 2019 were $11 million or $0.19 per share which
excludes $14 million of inventory provisions on an after-tax basis and $4 million in acquisition-related charges
on an after-tax basis for our October 1, 2019 City Pipe acquisition.
The following table provides a reconciliation of net earnings and earnings per share for the quarter ended
December 31, 2019 to adjusted net earnings and adjusted earnings per share.
2019 Fourth Quarter
Net earnings (loss)
Inventory provisions, net of tax
City Pipe acquisition, net of tax
Adjusted net earnings
millions
$ (7)
14
4
$ 11
per share
$ (0.11)
0.23
0.07
$ 0.19
RUSSEL METALS202019 ANNUAL REPORT
The following table provides earnings before interest, taxes and other income or expense in a format consistent
with our annual results.
(millions, except percentages)
Segment Revenues
Metals service centers
Energy products
Steel distributors
Other
Segment Operating Profits (Loss)
Metals service centers
Energy products
Steel distributors
Corporate expenses
Other
Earnings before interest, finance expense and income taxes
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
Quarters Ended
December 31
2019
2018
variance
as a %
of 2018
$ 411.6
342.6
80.6
2.6
$ 837.4
$ 8.8
(1.8)
(3.2)
(2.6)
1.1
$ 2.3
$ 524.3
431.7
156.8
2.6
$ 1,115.4
$ 28.3
32.5
10.8
(1.6)
1.4
$ 71.4
(21%)
(21%)
(49%)
(25%)
(69%)
(105%)
(130%)
(97%)
18.8%
11.4%
3.6%
14.6%
2.1%
(0.5%)
(4.0%)
0.3%
20.9%
17.8%
13.3%
18.8%
5.4%
7.5%
6.9%
6.4%
Metals service centers revenues were 21% lower than the same quarter in 2018 as a result of decreased activity
and lower selling prices. Tons shipped in the fourth quarter of 2019 for metals service centers were 7% lower
than the fourth quarter of 2018 and selling prices were 15% lower than the fourth quarter of 2018. Gross margin
as a percentage of revenues decreased to 18.8% for the fourth quarter of 2019 from 20.9% for the fourth quarter
of 2018 but were consistent with year to date margins at September 30, 2019 and improved over the 2019 third
quarter.
Revenues at our energy products segment were 21% lower than 2018. Lower demand was experienced in the
2019 fourth quarter as a result of lower North American rig counts and large line pipe projects in 2018 that were
not replicated. The energy products segment had an operating loss in the fourth quarter due to inventory
provisions of $14 million at our U.S. line pipe operation.
Our steel distributors reported an operating loss in the 2019 fourth quarter due to inventory provisions of $4
million at our U.S. operation.
Corporate expenses were higher than 2018 due to stock-based compensation.
Loss per share for the fourth quarter of 2019 was $0.11 compared to earnings of $0.74 for the fourth quarter of
2018.
OUTLOOK
Late in the 2019 fourth quarter and early 2020, we experienced an increase in steel prices which will benefit our
metals service center and steel distributor operations. Demand remains consistent with early 2019. In energy
products, pipe prices have not yet recovered as the North American distribution network remains overstocked
and capital spending in the industry remains under pressure due to lower rig counts, particularly in the U.S.
RUSSEL METALS212019 ANNUAL REPORT
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and the Board of Directors of Russel Metals Inc.
Opinion
We have audited the consolidated financial statements of Russel Metals Inc. (the "Company"), which comprise
the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated
statements of earnings, comprehensive income, changes in equity and cash flows for the years then ended, and
notes to the consolidated financial statements, including a summary of significant accounting policies
(collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position
of the Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for the
years then ended in accordance with International Financial Reporting Standards ("IFRS").
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian
GAAS"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for
the Audit of the Financial Statements section of our report. We are independent of the Company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
Management's Discussion and Analysis
The information, other than the financial statements and our auditor's report thereon, in the Annual
Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express
any form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement of this
other information, we are required to report that fact in this auditor’s report. We have nothing to report in this
regard.
The Annual Report is expected to be made available to us after the date of the auditor's report. If, based on the
work we will perform on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact to those charged with governance.
Responsibility of Management and those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
RUSSEL METALS222019 ANNUAL REPORT
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the Company to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the financial statements. We are responsible for
the direction, supervision and performance of the group audit. We remain solely responsible for our
audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Stacey Nagle.
Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Ontario
February 11, 2020
RUSSEL METALS232019 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 7)
Employee expenses (Note 19)
Other operating expenses (Note 19)
Asset impairment (Note 8)
Earnings before interest, finance expense and provision for income taxes
Interest expense (Note 20)
Other finance expense (Note 20)
Earnings before provision for income taxes
Provision for income taxes (Note 21)
Net earnings for the year
Basic earnings per common share (Note 18)
Diluted earnings per common share (Note 18)
2019
$ 3,675.9
3,035.9
295.9
197.8
-
146.3
40.9
-
105.4
28.8
$ 76.6
2018
$ 4,165.0
3,280.4
335.1
215.3
3.3
330.9
31.6
1.2
298.1
79.1
$ 219.0
$ 1.23
$ 3.53
$ 1.23
$ 3.52
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31
(in millions of Canadian dollars)
Net earnings for the year
Other comprehensive income (loss)
Items that may be reclassified to earnings
Unrealized foreign exchange (losses) 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 of $nil million (2018: $1.2 million)
Other comprehensive (loss) income
Total comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
2019
$ 76.6
2018
$ 219.0
(27.8)
44.8
(0.1)
(27.9)
$ 48.7
3.4
48.2
$ 267.2
RUSSEL METALS242019 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31
(in millions of Canadian dollars)
ASSETS
Current
Cash and cash equivalents (Note 5)
Accounts receivable (Note 6)
Inventories (Note 7)
Prepaids and other
Income taxes receivable
Property, Plant and Equipment (Note 8)
Right-of-Use Assets (Note 9)
Deferred Income Tax Assets (Note 21)
Pension and Benefits (Note 15)
Financial and Other Assets (Note 10)
Goodwill and Intangibles (Note 11)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (Note 12)
Accounts payable and accrued liabilities (Note 13)
Short-term lease obligations (Note 9)
Income taxes payable
Long-Term Debt (Note 14)
Pensions and Benefits (Note 15)
Deferred Income Tax Liabilities (Note 21)
Long-term Lease Obligations (Note 9)
Provisions and Other Non-Current Liabilities (Note 22)
Shareholders' Equity (Note 16)
Common shares
Retained earnings
Contributed surplus
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
ON BEHALF OF THE BOARD,
J. Clark
Director
A. Benedetti
Director
2019
2018
$ 16.0
458.1
883.6
18.1
18.9
1,394.7
288.9
90.1
4.8
5.4
4.0
137.0
$ 1,924.9
$ 62.1
326.4
17.1
0.3
405.9
444.8
10.4
13.2
94.4
11.6
980.3
543.7
284.5
15.7
100.7
944.6
$ 1,924.9
$ 124.3
567.5
1,052.5
14.1
5.2
1,763.6
268.9
-
4.2
3.1
4.4
86.2
$ 2,130.4
$ 128.5
494.7
-
21.5
644.7
443.6
8.9
20.1
-
8.2
1,125.5
542.1
318.6
15.7
128.5
1,004.9
$ 2,130.4
RUSSEL METALS252019 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
Provision for income taxes
Interest expense
(Gain) loss on sale of property, plant and equipment
Share-based compensation
Difference between pension expense and amount funded
Debt accretion, amortization and other
Change in fair value of contingent consideration
Interest paid, including interest on lease obligations
Cash from operating activities before non-cash working capital
Changes in non-cash working capital items
Accounts receivable
Inventories
Accounts payable and accrued liabilities
Other
Change in non-cash working capital
Income tax paid, net
Cash from operating activities
Financing activities
Decrease in bank indebtedness
Issue of common shares
Dividends on common shares
Issuance of long-term debt
Lease obligations
Deferred financing costs
Cash used in financing activities
Investing activities
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Payment of contingent consideration
Purchase of business
Cash used in investing activities
Effect of exchange rates on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
The accompanying notes are an integral part of these consolidated financial statements.
2019
2018
$ 76.6
56.7
28.8
40.9
(0.5)
0.3
(0.9)
1.2
-
(31.6)
171.5
$ 219.0
35.7
79.1
31.6
2.8
0.5
(1.6)
1.0
1.2
(27.9)
341.4
121.1
202.5
(175.7)
(3.8)
144.1
(65.9)
249.7
(66.3)
1.3
(94.5)
-
(17.2)
-
(176.7)
(101.0)
(195.5)
117.7
3.2
(175.6)
(77.9)
87.9
(79.3)
4.7
(94.3)
146.0
-
(1.1)
(24.0)
(34.8)
1.4
-
(139.4)
(172.8)
(8.5)
(108.3)
124.3
$ 16.0
(41.3)
2.4
(4.5)
(36.8)
(80.2)
14.8
(1.5)
125.8
$ 124.3
RUSSEL METALS262019 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions of Canadian dollars)
Balance, January 1, 2019
Payment of dividends
Change in accounting policy (Note 3)
Net income for the year
Other comprehensive loss for the year
Recognition of share-based compensation
Share options exercised
Transfer of net actuarial losses on defined benefit plans
Balance, December 31, 2019
Common
Shares
$ 542.1
-
-
-
-
-
1.6
-
$ 543.7
Retained
Earnings
$ 318.6
(94.5)
(16.1)
76.6
-
-
-
(0.1)
$ 284.5
(in millions of Canadian dollars)
Balance, January 1, 2018
Payment of dividends
Net income for the year
Other comprehensive income for the year
Recognition of share-based compensation
Share options exercised
Transfer of net actuarial gains on defined benefit plans
Balance, December 31, 2018
Common
Shares
$ 536.6
-
-
-
-
5.5
-
$ 542.1
Retained
Earnings
$ 190.5
(94.3)
219.0
-
-
-
3.4
$ 318.6
The accompanying notes are an integral part of these consolidated financial statements.
Accumulated
Other
Contributed Comprehensive
Income
Surplus
$ 15.7
-
-
-
-
0.3
(0.3)
-
$ 15.7
Total
$ 128.5 $ 1,004.9
(94.5)
(16.1)
76.6
(27.9)
0.3
1.3
-
$ 944.6
-
-
-
(27.9)
-
-
0.1
$ 100.7
Accumulated
Other
Contributed Comprehensive
Income
Surplus
$ 16.0
-
-
-
0.5
(0.8)
-
$ 15.7
Total
$ 83.7 $ 826.8
(94.3)
219.0
48.2
0.5
4.7
-
$ 128.5 $ 1,004.9
-
-
48.2
-
-
(3.4)
RUSSEL METALS272019 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. The Company purchases these products primarily from North American steel
producers and packages and sells 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. The
Company purchases these products primarily from the pipe divisions of North American steel mills or from
independent manufacturers.
Steel Distribution
The Company's steel distributors act as master distributors, selling steel in large volumes to other metals service
centers and large equipment manufacturers. This segment sources its steel both domestically and offshore.
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 statements 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 11,
2020.
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 METALS282019 ANNUAL REPORT
Impairment of long lived non-financial assets
b)
Non-financial tangible and definite life intangible assets 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 from contracts with customers
c)
Revenue is recognized at an amount that reflects the expected consideration receivable in exchange for
transferring goods or services to a customer applying the following steps:
Identify the contract with a customer
Identify the performance obligation
1.
2.
3. Determine the transaction price
4. Allocate the transaction price to the performance obligation in the contract
5. Recognize revenue when (or as) the entity satisfies a performance obligation
The Company generates revenue primarily from the delivery of metal and metal products to customers. The
primary contracts to provide goods and services to customers are purchase orders (written or verbal) which
provide the Company's performance obligations and transaction prices. The primary performance obligation in
the Company's contracts is to provide metal products to customers in accordance with their specifications.
These specifications could require the Company to cut, bend and provide other metal processing prior to
delivery. The Company's performance obligation is satisfied upon transfer of control of product to the customers,
which occurs when it has been packed and loaded for delivery. Credit terms for customers are short-term in
nature.
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 closing rate in effect at the statement of financial position date, which was $1.2988
per US$1 at December 31, 2019 (December 31, 2018: $1.3642 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 year. For the year ended December 31, 2019, the average U.S. dollar Bank of Canada closing
exchange rate was $1.3268 per US$1 (2018: $1.2961 per US$1). The resulting gains or losses from the
translation of 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.
RUSSEL METALS292019 ANNUAL REPORT
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, long-lived asset and goodwill impairment, decommissioning
obligations, lease 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 POLICIES
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16, Leases ("IFRS 16"), which set out the principles for the recognition,
measurement, presentation and disclosure of leases for both parties to a contract, i.e. the lessee and the lessor.
Effective January 1, 2019, the Company adopted this standard using the modified retrospective approach under
which the cumulative effect of initial application was recognized in retained earnings at January 1, 2019. The
majority of the Company's off balance sheet leases became on balance sheet liabilities. The impact of this
change in accounting policy is noted below.
For contracts entered into before January 1, 2019, the Company determined whether the arrangement contained
a lease under IAS 17 and IFRIC 4. Prior to the adoption of IFRS 16, these leases were classified as operating
or finance leases based on an assessment of whether the lease transferred significantly all the risks and rewards
of ownership of the underlying asset. The Company leases warehouse locations, field stores, office space, land,
equipment, trucks and other vehicles.
On transition, the Company elected to apply the practical expedient to grandfather the determination of which
contract was or contained a lease and applied IFRS 16 to those contracts that were previously identified as
leases. Upon transition to the new standard, lease liabilities were measured at the present value of the remaining
lease payments discounted by the Company's incremental borrowing rate as at January 1, 2019. Right-of-use
assets and lease liabilities were recognized on the statement of financial position with the cumulative difference
recognized in retained earnings.
The Company has elected not to recognize right-of-use assets and lease liabilities for leases with a lease term
of less than 12 months or low value assets and recognizes the lease payments associated with these leases in
other operating expenses on a straight-line basis over the lease term, as permitted by IFRS 16.
Impact of Change in Accounting Policy
At transition, lease liabilities of $112.7 million, right-of-use assets of $90.8 million and reduction in net deferred
tax liabilities of $5.8 million were recognized in the statement of financial position. The difference of $16.1 million
was recognized as a reduction of retained earnings.
The Company's lease commitments as disclosed in its December 31, 2018 notes to its consolidated financial
statements of $138.4 million compare to the transitional lease obligation of $112.7 million. The lease obligation
commitments decreased by $45.3 million due to the discounting of the obligations using the Company's
incremental borrowing rate and increased by $24.0 million due to the assessment of extension options on certain
real estate leases. The remaining difference relates to variable payments, low value leases and short-term
leases which are not recorded on the balance sheet.
RUSSEL METALS302019 ANNUAL REPORT
NOTE 4
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 provided, 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
The fair value of assets acquired and liabilities assumed in a business combination are 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 models, 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
2019 Acquisition
On October 1, 2019, the Company completed its acquisition of 100% of the issued and outstanding shares of
City Pipe & Supply Corp. ("City Pipe"), a distributor of pipe, valves and fittings to oil and gas companies primarily
in the Permian basin through its five distribution locations in Odessa, Big Spring, Weatherford and Longview,
Texas and Hobbs, New Mexico. The transaction costs for this acquisition were $1.4 million. The following
summarizes the preliminary allocation of the consideration for this acquisition:
(millions)
Inventory
Accounts receivable
Prepaid and other
Property, plant and equipment
Intangibles
Goodwill
Accounts payable and accrued liabilities
Income tax payable
Net identifiable assets acquired
Consideration:
Cash
$ 46.6
16.9
0.5
22.2
45.5
14.2
(6.3)
(0.2)
$ 139.4
$ 139.4
The preliminary allocation is subject to change following the final settlement of the holdbacks which may result
in an adjustment to working capital. Accounts receivable of $16.9 million represented gross contractual accounts
receivable of which none was considered uncollectible at the time of acquisition.
RUSSEL METALS312019 ANNUAL REPORT
Goodwill represents the expansion of our geographical footprint in the Permian basin and the expected growth
potential of the business. City Pipe complements our Apex Remington operation and on December 31, 2019
City Pipe was merged with Apex Remington to form Elite Supply Partners Inc. ("Elite Supply Partners"). The
goodwill is deductible for tax purposes.
The consolidated statements of earnings for the year ended December 31, 2019 includes supplementary
revenues of $33.5 million and earnings before interest, acquisition costs, finance expense and provision for
income taxes of $1.9 million attributable to the business acquired.
If the acquisition had taken place at the beginning of the 2019 fiscal year, management estimates that the
acquired business would have provided revenues of $184 million and earnings before interest, acquisition costs,
finance expense and provision for income taxes of $19.9 million.
2018 Acquisition
On April 16, 2018, the Company completed its acquisition of certain operating assets and facilities of DuBose
Steel, a general line service center operation with value-added processing capabilities located in Roseboro,
North Carolina. The following summarizes the allocation of the consideration for this acquisition:
(millions)
Inventory
Accounts receivable
Prepaid and other
Property, plant and equipment
Accounts payable and accrued liabilities
Net identifiable assets acquired
Consideration:
Cash
$ 15.4
10.1
0.9
10.2
(0.1)
$ 36.5
$ 36.5
Accounts receivable of $10.1 million represented gross contractual accounts receivable of which none was
considered uncollectible at the time of acquisition. All accounts receivable have subsequently been collected.
This acquisition adds another geographic region and value-added processing capabilities to the Company’s
existing U.S. metals service centers segment. There was no goodwill included in the assets acquired.
The consolidated statements of earnings for the year ended December 31, 2018 includes supplementary
revenues of $63.6 million and earnings before interest, finance expense and provision for income taxes of $1.9
million attributable to the business acquired.
If the acquisition had taken place at the beginning of the 2018 fiscal year, management estimates that the
acquired business would have provided revenues of $70.4 million and earnings before interest, finance expense
and provision for income taxes of $2.3 million.
NOTE 5
CASH AND CASH EQUIVALENTS
ACCOUNTING POLICIES
Cash includes demand deposits and cash equivalents includes 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
Cash equivalents
2019
$ 11.4
4.6
$ 16.0
2018
$ 12.6
111.7
$ 124.3
RUSSEL METALS322019 ANNUAL REPORT
NOTE 6
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 the impairment of trade receivables.
The expense relating to doubtful accounts is included within "Other operating expenses" in the consolidated
statements 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
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
2019
$ 449.7
8.4
$ 458.1
2018
$ 556.6
10.9
$ 567.5
2019
2018
$ 4.9
2.1
(2.1)
0.2
$ 5.1
$ 3.6
3.2
(2.1)
0.2
$ 4.9
At December 31, 2019 and 2018, the allowance for doubtful accounts was less than 2% of accounts receivable.
An increase in the allowance of 1% of accounts receivable would decrease pre-tax earnings by approximately
$4.5 million for the year ended December 31, 2019 (2018: $5.6 million).
As at December 31, 2019 (millions)
Current
Past Due
1-30 Days
Past Due
Past Due
31-60 Days Over 60 Days
Total Trade
Receivables
Trade Receivables
Gross trade receivables
Allowance for doubtful accounts
Total net trade receivables
As at December 31, 2018 (millions)
Trade Receivables
Gross trade receivables
Allowance for doubtful accounts
Total net trade receivables
$ 251.4
(0.1)
$ 251.3
$ 128.1
(0.1)
$ 128.0
$ 55.0
(0.2)
$ 54.8
$ 20.3
(4.7)
$ 15.6
$ 454.8
(5.1)
$ 449.7
Current
Past Due
1-30 Days
Past Due
Past Due
31-60 Days Over 60 Days
Total Trade
Receivables
$ 291.7
-
$ 291.7
$ 179.9
(0.1)
$ 179.8
$ 61.4
(0.2)
$ 61.2
$ 28.5
(4.6)
$ 23.9
$ 561.5
(4.9)
$ 556.6
RUSSEL METALS332019 ANNUAL REPORT
NOTE 7
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 to be greater than the recoverable amount 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
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. 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 costs to sell and when product is
determined to be slow moving or obsolete. Where the selling prices cannot be estimated based on recent
transactional information, they are estimated using current replacement cost plus an applicable margin.
There is measurement uncertainty in these estimates. Actual selling prices and costs to sell could differ from
these estimates.
SUPPORTING INFORMATION
(millions)
Inventory expensed in cost of materials
Inventory impairment charge, net of reversals
Metals service centers
Energy products
Steel distributors
2019
$ 3,035.9
2018
$ 3,280.4
2.3
28.0
4.8
$ 35.1
1.0
4.2
0.4
$ 5.6
NOTE 8
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 an estimated useful life that is significantly different 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.
RUSSEL METALS342019 ANNUAL REPORT
SUPPORTING INFORMATION
Cost (millions)
Balance, December 31, 2017
Business acquisition (Note 4)
Additions
Asset impairment
Disposals
Foreign exchange
Balance, December 31, 2018
Business acquisition (Note 4)
Additions
Disposals
Foreign exchange
Balance, December 31, 2019
Accumulated depreciation and amortization
(millions)
Balance, December 31, 2017
Depreciation and amortization
Disposals
Foreign exchange
Balance, December 31, 2018
Depreciation and amortization
Disposals
Foreign exchange
Balance, December 31, 2019
Net Book Value (millions)
December 31, 2018
December 31, 2019
Land and
Machinery
Buildings and Equipment
$ 361.8
1.7
36.4
(3.3)
(11.7)
8.1
$ 393.0
4.4
27.9
(20.3)
(5.3)
$ 399.7
$ 243.4
8.5
3.7
-
(0.3)
3.8
$ 259.1
17.8
5.7
(0.3)
(2.4)
$ 279.9
Machinery
Land and
Buildings and Equipment
$ 256.0
20.6
(10.7)
5.0
$ 270.9
23.1
(19.4)
(3.1)
$ 271.5
$ 107.9
8.1
(0.3)
1.5
$ 117.2
8.4
(0.3)
(0.8)
$ 124.5
Leasehold
Improvements
$ 27.4
-
1.2
-
(7.7)
0.3
$ 21.2
-
1.2
(0.1)
(0.2)
$ 22.1
Leasehold
Improvements
$ 21.9
0.6
(6.8)
0.6
$ 16.3
0.7
(0.1)
(0.1)
$ 16.8
Total
$ 632.6
10.2
41.3
(3.3)
(19.7)
12.2
$ 673.3
22.2
34.8
(20.7)
(7.9)
$ 701.7
Total
$ 385.8
29.3
(17.8)
7.1
$ 404.4
32.2
(19.8)
(4.0)
$ 412.8
$ 268.9
$ 288.9
All items of property, plant and equipment are recorded and held at cost.
At December 31, 2019, land, included in land and buildings, was $46.8 million (2018: $44.4 million).
(millions)
Depreciation - cost of materials
Depreciation - other operating expenses
2019
$ 7.8
24.4
$ 32.2
2018
$ 7.5
21.8
$ 29.3
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 the first quarter of 2018, the Company recorded an asset impairment charge of $3.3 million relating to
the costs associated with its ERP modernization project, as the Company decided to move in another direction
to meet the needs of the business.
NOTE 9
RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS
ACCOUNTING POLICIES
The Company recognizes right-of-use assets at the commencement date of the lease. The Company leases
warehouse locations, field stores, office space, land, equipment, trucks and other vehicles. The right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted by any initial
direct costs and costs to dismantle and remove the underlying asset less any lease incentives. The right-of use
asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of
the end of the useful life of the underlying asset or the end of the lease term. In addition, the right-of-use assets
are subject to impairment and adjusted for any remeasurement of lease liabilities. Amortization expense is
recorded in other operating expenses.
RUSSEL METALS352019 ANNUAL REPORT
The lease liability is initially measured at the present value of lease payments to be paid and discounted either
at the interest rate implicit in the lease or the Company's incremental borrowing rate. The lease payments
measured in the initial lease liability include payments for an optional renewal period, if any, if the Company is
reasonably certain that it will exercise a renewal extension option. The liability is measured at amortized cost
using the effective interest method and will be remeasured when there is a change in either the future lease
payments or assessment of whether an extension or other option will be exercised. The lease liability is
subsequently adjusted for lease payments and interest on the obligation. Interest expense on the lease
obligation is included in interest expense in the consolidated statements of earnings.
In the consolidated statements of cash flow the Company records the principal portion of lease payments in
financing activities and the interest portion in operating activities.
Lease payments on short-term leases and leases of low-value assets are recognized in other operating expense
on a straight-line basis over the lease term.
ACCOUNTING ESTIMATES AND JUDGEMENTS
In determining the lease term, the Company considers all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise a termination option. Extension options (or period
covered by termination options) are only included in the lease term if the lease is reasonably certain to be
extended (or terminated). The assessment is reviewed if a significant event or a significant change in
circumstances occurs which affects this assessment and that is within the control of the lessee. The Company's
determination of lease liability requires the use of assumptions to determine incremental borrowing rates.
The Company adopted IFRS 16, Leases on January 1, 2019.
SUPPORTING INFORMATION
(millions)
Transition, January 1, 2019
Additions
Disposals and modifications
Depreciation and amortization
Lease payments
Foreign exchange
Balance December 31, 2019
Current portion
Long-term portion
Right-of-use
Assets
$ 90.8
15.9
1.5
(17.0)
-
(1.1)
$ 90.1
Lease
Obligations
$ 112.7
15.9
1.5
-
(17.2)
(1.4)
$ 111.5
$ 17.1
$ 94.4
The carrying value of right-of-use assets and depreciation by class of underlying assets at January 1, 2019 and
December 31, 2019 are as follows:
Right-of-use Assets (millions)
Land and buildings
Machinery and equipment
Depreciation Expense (millions)
Land and buildings
Machinery and equipment
December 31
2019
$ 72.3
17.8
$ 90.1
January 1
2019
$ 75.2
15.6
$ 90.8
2019
$ 11.3
5.7
$ 17.0
For the year ended December 31, 2019, the Company expensed $0.4 million for short-term and low value leases.
RUSSEL METALS362019 ANNUAL REPORT
NOTE 10
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.
SUPPORTING INFORMATION
(millions)
Deferred charges on revolving credit facility
Other assets
2019
$ 0.5
3.5
$ 4.0
2018
$ 1.1
3.3
$ 4.4
For the year ended December 31, 2019, the amortization of deferred financing charges was $0.6 million (2018:
$0.5 million).
NOTE 11
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 or 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 and trademarks. 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 lives of 12 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 the fair value 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.
The determination of impairment of goodwill and intangibles involves estimates and assumptions regarding cash
flow projections and estimated discount rates. There is measurement uncertainty inherent in this analysis.
SUPPORTING INFORMATION
(millions)
Goodwill
Intangibles
2019
$ 50.6
86.4
$ 137.0
2018
$ 37.4
48.8
$ 86.2
RUSSEL METALS372019 ANNUAL REPORT
Goodwill
a)
The continuity of goodwill is as follows:
Goodwill (millions)
Balance, beginning of the year
Business acquisition (Note 4)
Foreign exchange
Balance, end of the year
2019
$ 37.4
14.2
(1.0)
$ 50.6
2018
$ 36.3
-
1.1
$ 37.4
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)
Metals service centers
U.S.
Southeast
Canadian
Alberta
Ontario
Atlantic
Energy products
U.S.
2019
2018
$ 13.5
$ 14.2
11.0
10.2
2.0
11.0
10.2
2.0
13.9
$ 50.6
-
$ 37.4
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 subsequent
to 2020, of 2% 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
groups of CGUs. 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 2019, the pre-tax weighted average cost of capital used was 15.1% (2018: 13.9%). To monitor potential
impairment exposure, the Company performs a sensitivity analysis. For 2019 and 2018 a 1% increase in the
respective discount rate would not trigger a goodwill impairment.
The Company performed goodwill impairment tests to determine recoverable amounts during the fourth quarter
of 2019 and 2018. The recoverable amounts were determined based on a value in use calculation. In 2019
and 2018, the estimated recoverable amount of all units exceeded their carrying values. As a result, no
impairment was recorded.
Intangibles
c)
The continuity of intangibles within the metals service centers and energy products segments is as follows:
Cost (millions)
Balance, beginning of the year
Business acquisitions (Note 4)
Foreign exchange
Balance, end of the year
Metals
Service Centers
$ 20.1
-
(0.1)
$ 20.0
Energy
Products
$ 70.7
45.5
(0.9)
$ 115.3
Total
2019
$ 90.8
45.5
(1.0)
$ 135.3
Total
2018
$ 90.2
0.3
0.3
$ 90.8
RUSSEL METALS382019 ANNUAL REPORT
Accumulated amortization (millions)
Balance, beginning of the year
Amortization
Balance, end of the year
Metals
Service Centers
$ (12.0)
(1.3)
$ (13.3)
Energy
Products
$ (30.0)
(5.6)
$ (35.6)
Total
2019
$ (42.0)
(6.9)
$ (48.9)
Total
2018
$ (36.0)
(6.0)
$ (42.0)
Carrying amount
December 31, 2018
December 31, 2019
$ 48.8
$ 86.4
The carrying amount of intangible assets as at December 31, 2019 relates to customer relationships arising from
the acquisition of Alberta Industrial Metals, Apex Distribution, Apex Western Fiberglass, Color Steels, City Pipe,
JMS Metals Services, Norton Metals Products and other entities. The remaining amortization period for
customer relationships is 5 to 13 years.
NOTE 12
REVOLVING CREDIT FACILITY
The Company increased and extended its credit agreement in February 2018 to provide $450 million for
borrowings and letters of credit with an expiry of September 21, 2021. The syndicated facility consists of
availability of $400 million under Tranche I to be utilized for borrowings and letters of credit and $50 million under
Tranche II to be utilized only for letters of credit. Letters of credit are issued under Tranche II first and additional
needs are issued under Tranche I.
On August 31, 2018, the Company increased its credit available for borrowings and letters of credit by $100
million under the same terms as the credit agreement. The additional credit availability expired on August 30,
2019 at which time the availability reverted back to $450 million. 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 $450 million. The obligations of the Company
under this agreement are secured by a pledge of trade accounts receivable and inventories.
The Company was in compliance with the financial covenants at December 31, 2019. At December 31, 2019,
the Company had borrowings of $57.0 million (2018: $148.0 million) and letters of credit of $32.5 million (2018:
$76.1 million) under this facility.
NOTE 13
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
Accrued interest
NOTE 14
LONG-TERM DEBT
2019
$ 319.9
6.5
$ 326.4
2018
$ 488.6
6.1
$ 494.7
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.
RUSSEL METALS392019 ANNUAL REPORT
SUPPORTING INFORMATION
(millions)
6% $300 million Senior Notes due April 19, 2022
6% $150 million Senior Notes due March 16, 2026
2019
$ 298.0
146.8
$ 444.8
2018
$ 297.2
146.4
$ 443.6
a)
On March 16, 2018, the Company issued, through a private placement, $150 million 6% Unsecured
Senior Notes due March 16, 2026 for net proceeds of $146.0 million. Interest is due semi-annually on March 16
and September 16 of each year.
The Company may redeem up to 40% of these notes prior to March 16, 2021 with the net proceeds of certain
equity offerings at the redemption price of 106% of their principal amount, plus accrued and unpaid interest.
Prior to March 16, 2021 the Company may redeem these notes in whole or in part at an amount equal to 100%
of the principal amount plus the applicable premium which is the greater of 1% of the called principal of these
notes or the excess of (i) the discounted value of the remaining scheduled payments over (ii) the called principal
of these notes. The Company may redeem the notes in whole or in part at any time after March 16, 2021 at
104.5% of the principal amount declining rateably to 100% of the principal amount on or after March 16, 2024.
These notes contain certain restrictions on the payment of common share dividends in excess of $0.38 per share
per quarter. These notes also contain certain covenants that limit the Company's ability to incur additional debt.
The Company was in compliance with these financial covenants at December 31, 2019.
b)
On April 19, 2012, the Company issued, through a private placement, $300 million 6% Unsecured Senior
Notes due April 19, 2022 for net proceeds of $293 million. Interest is due on April 19 and October 19 of each
year.
The Company may redeem these notes, in whole or in part, at any time at 101% of the principal amount declining
rateably to 100% of the principal amount on or after April 19, 2020.
These notes contain certain restrictions on the payment of common share dividends in excess of $0.35 per share
per quarter. These 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, 2019.
NOTE 15
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 statements 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 statements 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 statements 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 three multi-employer pension plans
which are accounted for as defined contribution plans.
RUSSEL METALS402019 ANNUAL REPORT
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)
The Company maintains a defined contribution pension plan ("DCPP") for most of its Canadian salaried
employees as its defined benefits plans were closed for new employees over 20 years ago. The Company
merged six of its defined benefit plans into the DCPP and maintains one other defined benefit plan. The
Company also maintains executive plans, post-retirement benefit plans and two additional defined contribution
plans in Canada and two 401(k) defined contribution plans in the United States.
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 defined benefit pension plans expose the Company to actuarial risk, currency risk, interest rate risk and
market risk.
The merged plan had a valuation date of January 1, 2017 and the remaining defined benefit plan had a valuation
date of January 1, 2018.
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.
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
Post-retirement benefits
Defined contribution plans
Pension and benefit expense
2019
2018
$ 3.0
-
0.2
3.2
0.1
6.3
$ 9.6
$ 3.6
0.2
0.2
4.0
0.1
5.4
$ 9.5
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 loss due to demographic assumption changes
Return on plan assets greater (less) than the discount rate
Remeasurement effect recognized in other comprehensive income
Cumulative actuarial losses relating to pensions and benefits
Balance of actuarial losses at January 1
Net actuarial gains (losses) recognized in the year
Balance of actuarial losses at December 31
2019
2018
$ (0.2)
(15.6)
-
15.7
$ (0.1)
$ 2.4
10.2
(1.4)
(6.6)
$ 4.6
$ (10.1)
(0.1)
$ (10.2)
$ (14.7)
4.6
$ (10.1)
RUSSEL METALS412019 ANNUAL REPORT
There were no adjustments related to asset ceiling limits in other comprehensive income for the years ended
December 31, 2019 and 2018.
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
2019
3.00%
3.00%
3.00%
2018
3.75%
3.00%
3.00%
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 $5.7 million as of
December 31, 2019 (2018: $4.9 million).
The mortality assumptions used to assess the defined benefit obligation are based on the 2017 Mortality
Improvement Scale (MI-2017). Informal practices that give rise to constructive obligations are included in the
measurement of the defined benefit obligation.
The Company has obligations included under other benefit plans for dental and medical costs for a group of
retired employees. The health care cost trend rates used were 5% for dental and 5% for medical. 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.
The sensitivity analysis presented above may not be representative of the actual change in defined benefit
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
statements of financial position.
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
Actuarial losses (gains)
Balance, end of the year
(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 (less) greater than discount rate
Balance, end of the year
Pension Plans
2018
2019
Other Benefit Plans
2018
2019
$ 137.9
3.0
0.2
5.1
(6.9)
15.6
$ 154.9
$ 146.4
3.6
0.1
4.7
(6.5)
(10.4)
$ 137.9
$ 2.9
-
-
0.1
(0.2)
0.1
$ 2.9
$ 3.9
-
-
0.1
(0.3)
(0.8)
$ 2.9
Pension Plans
2018
2019
Other Benefit Plans
2018
2019
$ 135.0
5.1
3.9
0.2
(6.9)
(0.2)
15.7
$ 152.8
$ 138.3
4.5
5.4
0.1
(6.5)
(0.2)
(6.6)
$ 135.0
$ -
-
0.2
-
(0.2)
-
-
$ -
$ -
-
0.3
-
(0.3)
-
-
$ -
Defined benefit obligation, net
$ 2.1
$ 2.9
$ 2.9
$ 2.9
RUSSEL METALS422019 ANNUAL REPORT
The fair values 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
2019
$ 1.8
2018
$ 2.4
68.8
45.5
114.3
60.7
37.1
97.8
13.7
12.6
10.4
36.7
$ 152.8
10.9
11.8
12.1
34.8
$ 135.0
The following table provides the defined benefit obligation for plans with surplus, partially funded pension plans
and unfunded plans.
(millions)
Defined benefit obligation
Plans with surplus
Partially funded plans
Unfunded plans
Defined benefit obligation
Pension Plans
2018
2019
Other Benefit Plans
2018
2019
$ (5.4)
7.5
-
$ 2.1
$ (3.1)
6.0
-
$ 2.9
$ -
-
2.9
$ 2.9
$ -
-
2.9
$ 2.9
As at December 31, 2019 approximately 76% (2018: 73%) of the fair value of all pension plan assets
c)
was invested in equities, 23% (2018: 25%) in fixed income securities, and 1% (2018: 2%) 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 40% - 80% in equities, 20% - 40% in fixed income securities and 0% - 10%
in cash and cash equivalents.
d)
The weighted average duration of defined benefit obligations is 15.9 years (2018: 15.1 years) for defined
benefit pension plans, 10.1 years (2018: 9.7 years) for executive pension arrangements and 7.1 years (2018:
7.1 years) for other post retirement benefit plans. The Company expects to make contributions of $4.5 million
to its defined benefit pension plans and $0.3 million to its post retirement benefits medical plans in the next
financial year.
NOTE 16
SHAREHOLDERS' EQUITY
a)
At December 31, 2019 and 2018, the authorized share capital of the Company consisted of:
(i)
an unlimited number of common shares without nominal or par value;
(ii)
an unlimited number of Class I preferred shares without nominal or par value, issuable in series;
and
(iii)
an unlimited number of Class II preferred shares without nominal or par value, issuable in series.
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.
RUSSEL METALS432019 ANNUAL REPORT
b)
The number of common shares issued and outstanding was as follows:
Balance, December 31, 2017
Share options exercised
Balance, December 31, 2018
Share options exercised
Balance, December 31, 2019
The continuity of contributed surplus is as follows:
(millions)
Balance, December 31, 2017
Share-based compensation expense
Exercise of options
Balance, December 31, 2018
Share-based compensation expense
Exercise of options
Balance, December 31, 2019
Number
of Shares
61,890,197
216,698
62,106,895
66,535
62,173,430
Amount
(millions)
$ 536.6
5.5
$ 542.1
1.6
$ 543.7
$ 16.0
0.5
(0.8)
15.7
0.3
(0.3)
$ 15.7
Dividends paid and declared were as follows:
Dividends paid (millions)
Dividends per share
Quarterly dividend per share declared on February 11, 2020 (February 7, 2019)
2019
$ 94.5
$ 1.52
$ 0.38
2018
$ 94.3
$ 1.52
$ 0.38
NOTE 17
SHARE-BASED COMPENSATION
ACCOUNTING POLICIES
The Company accounts for Share Options and Share Appreciation Rights ("SARs") at fair value. The Company
utilizes the Black-Sholes option pricing model to estimate the fair value of SARs and share options on the grant
date.
Compensation expense is recognized for share 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 options 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 options 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.
Changes in the fair value of outstanding SARs are calculated at each reporting period as well as at settlement
dates. The fair value of the award is recorded over the award vesting period.
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.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The inputs for the Black-Scholes option pricing model require significant judgements including share price
volatility, expected dividends, expected life of the options and the risk free interest rate.
RUSSEL METALS442019 ANNUAL REPORT
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
vest over a period of four years in the amount of one quarter each year and expire ten years from their grant
date. Other terms and conditions of the plan include a 10 year life and immediate vesting under certain change
of control provisions. The consideration paid by employees for the purchase of common shares is added to
share capital. From 2014, employees other than certain senior officers no longer receive share options.
The following is a continuity of options outstanding:
Balance, beginning of year
Granted
Exercised
Expired or forfeited
Balance, end of the year
Exercisable
Number of Options
2019
1,691,086
53,708
(66,535)
(11,725)
1,666,534
2018
1,941,719
64,815
(216,698)
(98,750)
1,691,086
Weighted Average
Exercise Price
2019
$ 25.75
23.69
19.09
18.17
$ 26.00
2018
$ 25.13
31.46
21.43
26.73
$ 25.75
1,399,579
1,256,599
$ 26.28
$ 26.34
The weighted average share price for the options exercised during the year was $19.09 (2018: $21.43)
The outstanding options have exercise price ranges as follows:
(number of options)
$ 29.00 - $ 31.46
$ 25.37 - $ 28.99
$ 16.58 - $ 25.36
Options outstanding
2019
213,987
849,785
602,762
1,666,534
2018
213,987
851,285
625,814
1,691,086
The options expire in the years 2020 to 2029 and have a weighted average remaining contractual life of 3.4
years (2018: 4.1 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
2019
5%
30%
5 yrs
1.94%
$ 3.91
2018
5%
29%
5 yrs
2.28%
$ 5.04
Expected volatility is based on historical volatility over the last five years.
Share Appreciation Rights
In February 2017, the Board of Directors approved a Share Appreciation Rights Plan. Under this plan the
Company may award SARs to officers and full-time employees as determined by the Board of Directors. The
SARs are cash settled and vest over a period of four years in the amount of one quarter each year and expire
ten years from their grant date.
The continuity of SARs is as follows:
Balance, beginning of year
Granted
Balance, end of the year
Number of SARs
2019
131,147
101,724
232,871
2018
63,291
67,856
131,147
Weighted Average
Exercise Price
2019
$ 30.12
23.69
$ 27.31
2018
$ 28.99
31.17
$ 30.12
RUSSEL METALS452019 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 volume weighted average price of
a common share on the Toronto Stock Exchange for the last five trading days immediately prior to the grant
date. DSUs are granted quarterly to the account of each non-executive director 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.
The continuity of DSUs is as follows:
(number of units)
Balance, beginning of the year
Granted
Paid out
Balance, end of the year
2019
254,790
62,199
(28,959)
288,030
2018
250,021
48,839
(44,070)
254,790
The liability and fair value of DSUs was $6.4 million at December 31, 2019 (2018: $5.4 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. 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 the first and second anniversary after the
grant date and the remaining one third on the expiry date. RSUs expire on the earlier of: (i) December 5 of the
third calendar year following the year in which the services were provided to which such grant of RSU's relates;
and (ii) the third anniversary of the grant date. 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 volume weighted average price of a
common share 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
2019
183,588
259,287
(53,446)
389,429
2018
74,145
179,202
(69,759)
183,588
The RSU liability at December 31, 2019 was $5.8 million (2018: $2.6 million). The fair value of RSUs was $8.6
million at December 31, 2019 (2018: $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 an amount equal to 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.
Components of share-based compensation expense are as follows:
(millions)
Share options
DSUs, SARs and RSUs
Employee Share Purchase Plan
2019
$ 0.3
5.3
0.7
$ 6.3
2018
$ 0.5
1.9
0.6
$ 3.0
RUSSEL METALS462019 ANNUAL REPORT
NOTE 18
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 share 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 and diluted earnings per share
(number of shares)
Weighted average shares outstanding
Dilution impact of share options
Diluted weighted average shares outstanding
NOTE 19
EXPENSES
(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
Gain on sale of property, plant and equipment
Foreign exchange losses (gains)
NOTE 20
INTEREST AND FINANCE EXPENSE
(millions)
Interest on 6% $300 million Senior Notes
Interest on 6% $150 million Senior Notes
Interest on lease obligations
Other interest expense
Interest expense
Other finance expense
2019
$ 76.6
2018
$ 219.0
2019
62,132,030
42,931
62,174,961
2018
62,028,991
106,690
62,135,681
2019
2018
$ 250.5
45.4
$ 295.9
$ 290.5
44.6
$ 335.1
$ 113.7
54.7
14.5
11.5
5.5
(0.5)
(1.6)
$ 197.8
$ 126.8
56.6
13.7
12.7
4.7
(0.5)
1.3
$ 215.3
2019
$ 18.8
9.4
7.7
5.0
40.9
2018
$ 18.7
7.5
-
5.4
31.6
$ -
$ 1.2
Long-term debt interest expense is charged to earnings using the effective interest method. 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. Debt accretion and issue cost amortization for the year
ended December 31, 2019 was $1.2 million (2018: $1.0 million).
NOTE 21
INCOME TAXES
ACCOUNTING POLICIES
Income tax expense comprises current and deferred tax. Income tax is recognized in the consolidated
statements of earnings except to the extent that it relates to items recognized directly in equity in which case the
related tax is recognized in equity.
RUSSEL METALS472019 ANNUAL REPORT
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 statements 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 at acquisition.
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.
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 for a full year by jurisdiction. The estimated average annual
effective income tax rates are reviewed at each reporting date, based on projections of full year 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 expense
Statutory rate adjustment
2019
$ 30.8
(1.0)
(1.0)
$ 28.8
2018
$ 77.4
1.7
-
$ 79.1
RUSSEL METALS482019 ANNUAL REPORT
b)
The Company's effective income tax rate was derived as follows:
Applicable combined Canadian statutory rate
Rate difference of U.S. companies
Share-based compensation and non-deductible items
Statutory tax rate change – Alberta rate reduction
Other
Average effective tax rate
2019
26.8%
0.3%
0.9%
(0.9%)
0.2%
27.3%
2018
27.0%
(1.3%)
0.3%
-
0.5%
26.5%
The combined Canadian statutory rate is the aggregate of the federal income tax rate of 15.0% for both 2019
and 2018 and the average provincial rates of 11.8% (2018: 12.0%). The 2019 and 2018 average effective tax
rate differed from the average Canadian corporate tax rate principally due to differing tax rules applicable to
certain of the Company's subsidiaries outside Canada.
On July 1, 2019, the province of Alberta reduced its general corporate tax rate from 12% to 11% with a further
1% rate reduction every year on January 1 until the general corporate tax rate is reduced to 8% on January 1,
2022. This led to a reduction in the Company's Canadian income tax provision in 2019.
c)
Deferred income tax assets and liabilities were as follows:
Deferred Income Tax Assets
(millions)
Balance December 31, 2017
Benefit (expense) to consolidated
statement of earnings
Balance December 31, 2018
Benefit (expense) to consolidated
statement of earnings
Reclass assets/liabilities and other
Effect of adoption- IFRS16 (Note 3)
Balance December 31, 2019
Property
Plant and
Equipment
$ 0.8
Pension
And
Benefits
$ 0.3
Goodwill
And
Intangibles
$ 3.0
Other
Timing
Total
$ 0.6 $ 4.7
Losses
$ -
-
$ -
(0.1)
$ 0.7
(0.1)
$ 0.2
(0.2)
$ 2.8
(0.1)
(0.5)
$ 0.5 $ 4.2
4.9
0.9
-
$ 5.8
(2.1)
(7.1)
2.2
$ (6.3)
(0.1)
-
-
$ 0.1
(1.4)
(0.3)
-
$ 1.1
0.7
2.9
-
2.0
(3.6)
2.2
$ 4.1 $ 4.8
Deferred Income Tax Liabilities
(millions)
Balance December 31, 2017
(Benefit) expense to consolidated
statement of earnings
Reclass assets/liabilities and other
Benefits to other comprehensive income
Balance December 31, 2018
(Benefit) expense to consolidated
statement of earnings
Reclass assets/liabilities and other
Benefits to other comprehensive income
Effect of adoption- IFRS16 (Note 3)
Balance December 31, 2019
Property
Plant and
Equipment
$ 15.0
2.3
0.5
-
$ 17.8
2.4
(7.3)
-
(3.6)
$ 9.3
Pension
And
Benefits
$ (2.6)
0.3
-
1.2
$ (1.1)
0.2
-
0.1
-
$ (0.8)
Losses
$ (1.1)
0.4
(0.2)
-
$ (0.9)
-
0.9
-
-
$ -
Goodwill
And
Intangibles
Other
Timing
Total
$ 10.9 $ (4.5) $ 17.7
(0.3)
(0.1)
-
1.2
-
1.2
$ 10.5 $ (6.2) $ 20.1
(1.5)
(0.2)
-
(2.0)
(0.2)
-
-
0.1
(3.5)
0.1
(3.6)
$ 8.3 $ (3.6) $ 13.2
(0.5)
3.1
-
-
Net deferred liability at December 31, 2018
Net deferred liability at December 31, 2019
$ 15.9
$ 8.4
d)
At December 31, 2019, the Company had U.S. state tax losses carried forward which, at U.S. state tax
rates, have an estimated value of $1.3 million (2018: $0.9 million) and U.S Federal tax loss benefit of $4.5 million.
The majority of the state tax losses carried forward will expire between 2030 and 2037, if not utilized. The U.S.
Federal taxable loss benefit can be carried forward indefinitely. 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.
RUSSEL METALS492019 ANNUAL REPORT
At December 31, 2019 and 2018, the Company had $5.9 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 in respect
of these losses of $0.8 million has not been recognized.
e)
At December 31, 2019, the aggregate amount of temporary differences associated with undistributed
earnings of non-Canadian subsidiaries was $396 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.
NOTE 22
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 decommissioning
and rehabilitation costs are 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 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)
Provision for decommissioning liabilities
Deferred compensation and employee incentives (Note 17)
Less: current portion
2019
$ 1.8
12.2
14.0
(2.4)
$ 11.6
2018
$ 2.0
8.0
10.0
(1.8)
$ 8.2
a)
The following table presents the change in the provision for decommissioning liabilities:
(millions)
Balance, beginning of the year
Utilization
Balance, end of the year
2019
$ 2.0
(0.2)
$ 1.8
2018
$ 2.4
(0.4)
$ 2.0
Deferred compensation includes the RSU and DSU liabilities. The RSU and DSU liabilities that will be
b)
paid within the current year amounting to $2.4 million have been classified as current accrued liabilities.
RUSSEL METALS502019 ANNUAL REPORT
NOTE 23
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 offshore.
RUSSEL METALS512019 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 $58.0 million
(2018: $62.2 million). These sales, which are at market rates, are eliminated in the following tables.
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
Earnings before finance expense and provision for income taxes
Finance expense, net
Provision for income taxes
Net earnings
Capital Expenditures
Metals service centers
Energy products
Steel distributors
Other
Depreciation and Amortization Expense
Metals service centers
Energy products
Steel distributors
Corporate and other
2019
2018
$ 1,958.0
1,310.7
395.9
3,664.6
11.3
$ 3,675.9
$ 2,100.8
1,597.5
456.5
4,154.8
10.2
$ 4,165.0
$ 73.7
68.8
15.8
158.3
(17.0)
-
5.0
146.3
(40.9)
(28.8)
$ 76.6
$ 169.4
133.6
47.2
350.2
(20.4)
(3.3)
4.4
330.9
(32.8)
(79.1)
$ 219.0
$ 27.9
5.4
0.8
0.7
$ 34.8
$ 32.7
7.1
0.8
0.7
$ 41.3
$ 34.5
19.8
1.6
0.8
$ 56.7
$ 24.8
9.2
1.1
0.6
$ 35.7
RUSSEL METALS522019 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 taxes receivable and deferred income tax assets
Financial and other assets
Pension and benefits
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
Total liabilities
b)
Results by geographic segment:
(millions)
Segment Revenues
Canada
United States
Segment Operating Profits
Canada
United States
Identifiable Assets
Canada
United States
2019
2018
$ 482.9
747.6
131.3
1,361.8
$ 675.4
744.5
216.0
1,635.9
318.3
187.3
7.5
1,874.9
280.8
66.5
6.9
1,990.1
16.0
23.7
4.0
5.4
0.9
$ 1,924.9
124.3
9.4
4.4
3.1
(0.9)
$ 2,130.4
$ 220.1
181.0
18.3
419.4
$ 270.8
171.0
30.0
471.8
62.1
13.5
444.8
10.4
30.1
$ 980.3
128.5
41.6
443.6
5.8
31.1
$ 1,122.4
2019
2018
$ 2,561.2
1,103.4
$ 3,664.6
$ 2,721.0
1,433.8
$ 4,154.8
$ 166.8
(8.5)
$ 158.3
$ 237.9
112.3
$ 350.2
$ 1,248.7
626.2
$ 1,874.9
$ 1,375.9
614.2
$ 1,990.1
RUSSEL METALS532019 ANNUAL REPORT
c)
Revenues by product:
(millions)
Carbon
Structurals (WF & I Beams, Angles, Channels, Hollow Tubes)
Plate (Discrete & Plate in Coil)
Flanges, Valves, Fittings and other Energy Products
Tubing/Pipe (Standard, Oil Country Tubular Goods, Line Pipe)
Bars (Hot Rolled and Cold Finished)
Flat Rolled (Sheet & Coil)
Grating/ Expanded/Rails
Total Carbon
Total Non-Ferrous (Sheet, Extrusion, Tubes, etc.)
Other
2019
2018
$ 875.7
664.8
695.4
638.5
184.4
289.2
36.2
3,384.2
135.0
156.7
$ 3,675.9
$ 901.4
791.7
672.5
929.4
197.1
321.2
35.3
3,848.6
131.6
184.8
$ 4,165.0
NOTE 24
RELATED PARTY TRANSACTIONS
During the years ended December 31, 2019 and 2018 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, 2019, there were no loans or credit transactions outstanding with key management personnel
or directors. Key management personnel includes the Chief Executive Officer, Chief Financial Officer and
certain Vice Presidents. Compensation costs of key management personnel and directors were as follows:
(millions)
Salaries and other benefits
Share based compensation cost
Post-employment benefits
2019
$ 5.5
3.0
0.3
$ 8.8
2018
$ 9.9
5.8
0.4
$ 16.1
NOTE 25
FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT
Fair value measurement
ACCOUNTING POLICIES
a)
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.
RUSSEL METALS542019 ANNUAL REPORT
Financial assets
b)
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:
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 statements 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.
Financial liabilities and equity instruments
c)
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 bank indebtedness, 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.
Derivative financial instruments
d)
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 statements of earnings.
RUSSEL METALS552019 ANNUAL REPORT
Impairment of financial assets
e)
At each financial position date, the Company 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.
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.
SUPPORTING INFORMATION
a)
Financial assets and liabilities
Financial assets and liabilities were as follows:
December 31, 2019 (millions)
Cash and cash equivalents
Accounts receivable
Financial assets
Bank indebtedness
Accounts payable and accrued liabilities
Lease obligations
Long-term debt
Total
December 31, 2018 (millions)
Cash and cash equivalents
Accounts receivable
Financial assets
Bank indebtedness
Accounts payable and accrued liabilities
Long-term debt
Total
Loans and
Receivables
$ 16.0
458.1
3.5
-
-
-
-
$ 477.6
Loans and
Receivables
$ 124.3
567.5
3.3
-
-
-
$ 695.1
Other
Financial
Liabilities
$ -
-
-
(62.1)
(326.4)
(111.5)
(444.8)
$ (944.8)
Other
Financial
Liabilities
$ -
-
-
(128.5)
(494.7)
(443.6)
$ (1,066.8)
Total
$ 16.0
458.1
3.5
(62.1)
(326.4)
(111.5)
(444.8)
$ (467.2)
Total
$ 124.3
567.5
3.3
(128.5)
(494.7)
(443.6)
$ (371.7)
For the year ended December 31, 2019, the fair value loss from derivative financial instruments on the
consolidated statements of earnings was $3.7 million (2018: loss of $0.9 million) including embedded derivative
and forward contracts.
Fair value
b)
The fair value of cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and
accrued liabilities approximate their carrying amounts because of the short-term maturity of these instruments.
The fair value of long-term debt is set forth below.
Carrying Amounts
Amounts recorded in the consolidated statements 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, 2019 and 2018 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.
RUSSEL METALS562019 ANNUAL REPORT
The following summary reflects the fair value of long-term debt:
December 31, 2019 (millions)
6% $300 million Senior Notes due April 19, 2022
6% $150 million Senior Notes due March 16, 2026
Total
Current portion
Long-term portion
December 31, 2018 (millions)
6% $300 million Senior Notes due April 19, 2022
6% $150 million Senior Notes due March 16, 2026
Total
Current portion
Long-term portion
Carrying
Amount
Fair Value
Level 2
$ 303.9
157.2
$ 461.1
$ 298.0
146.8
$ 444.8
$ -
$ 444.8
Carrying
Amount
Fair Value
Level 2
$ 299.6
145.9
$ 445.5
$ 297.2
146.4
$ 443.6
$ -
$ 443.6
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, 2019, nearly all cash and cash equivalents were held in institutions that
were R1 High by DBRS;
Counterparties to derivative contracts are members of the syndicated banking facility (Note 12);
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, 2019 and 2018, other than
the allowance for doubtful accounts (Note 6). As at December 31, 2019, trade accounts receivable greater than
90 days represented less than 5% of trade accounts receivable (2018: 4%).
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, 2019, the Company had outstanding forward foreign exchange contracts in the amount of US$9.4 million,
maturing in 2020 (2018: US$19.5 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.
RUSSEL METALS572019 ANNUAL REPORT
As at December 31, 2019, the Company was contractually obligated to make payments under its financial
liabilities that come due during the following periods:
(millions)
2020
2021
2022
2023
2024
2025 and beyond
Total
Accounts
Payable
$ 326.4
-
-
-
-
-
$ 326.4
Long-Term
Debt Maturities
$ -
-
300.0
-
-
150.0
$ 450.0
Long-Term
Debt Interest
$ 27.0
27.0
17.3
9.0
9.0
13.9
$ 103.2
Lease
Obligations
$ 25.9
22.8
19.0
16.8
14.2
59.0
$ 157.7
Total
$ 379.3
49.8
336.3
25.8
23.2
222.9
$ 1,037.3
At December 31, 2019, the Company was contractually obligated to repay its bank borrowings and letters of
credit under its bank facilities (Note 12).
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.
NOTE 26
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 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 the 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.
RUSSEL METALS582019 ANNUAL REPORT
CORPORATE HEAD OFFICE
6600 Financial Drive
Mississauga, Ontario
L5N 7J6
www.russelmetals.com
ANNUAL MEETING
The Annual Meeting of Shareholders will
be held at the Corporate Head office on
Tuesday, May 5, 2020 at 10:00 am
TRANSFER AGENT AND REGISTRAR
AST TRUST COMPANY (CANADA)
1 Toronto Street, Suite 1200
Toronto, Ontario, Canada M5C 2V6
T: 416.682.3860 F: 1.888.249.6189
inquiries@astfinancial.com
www.astfinancial.com
The Toronto Stock Exchange - RUS
BOARD OF DIRECTORS
OFFICERS
JAMES F. DINNING
Chair of the Board
JOHN G. REID
President &
Chief Executive Officer
MARION E. BRITTON
Executive Vice President,
Chief Financial Officer &
Secretary
LESLEY M. COLEMAN
Vice President,
Controller &
Assistant Secretary
RYAN W. MACDERMID
Vice President,
Risk Management & Legal
SHERRI L. MCKELVEY
Assistant Secretary
ALAIN BENEDETTI
Corporate Director
JOHN M. CLARK
President
Investment and Technical
Management Corp.
JAMES F. DINNING
Chair of the Board
BRIAN R. HEDGES
Corporate Director
BARBARA S. JEREMIAH
Corporate Director
ALICE D. LABERGE
Corporate Director
WILLIAM M. O’REILLY
Corporate Director
JOHN G. REID
President &
Chief Executive Officer
ANNIE THABET
Corporate Director &
Partner at Celtis Capital
JOHN R. TULLOCH
Corporate Director
CORPORATE & SOCIAL RESPONSIBILITY
Our decentralized and entrepreneurial culture in our local operations
lends itself to community-based initiatives. We invite you to our
Corporate and Social Responsibility section of our web site, where we
highlight examples of community involvement by our terrific teams at
some of our local operations and certain corporate initiatives in this area.
The Velociraptor was produced by John Cabral and his
CAD operators on a fiber laser at our Aberfoyle, Ontario
operation. The branch can cut customer files, adapt open
source files and scan to recreate parts from existing items.
GLOSSARY
Book Value Per Share - Shareholders’ equity divided common shares outstanding at December 31
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 - Dividend per share divided by common share price at December 31
Earnings Multiple - Common share price at December 31 divided by basic earnings per common share
EBIT - Earnings before deduction of interest and income taxes
EBITDA - Earnings before deduction of interest, income taxes, depreciation and amortization
Free Cash Flow - Cash from operating activities before change in working capital less capital expenditures
Interest Bearing 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 - EBIT over net assets employed
6600 Financial Drive
Mississauga, Ontario
L5N 7J6
905-819-7777
1-800-268-0750
www.russelmetals.com