2020 ANNUAL REPORT
HEALTH & SAFETY
The Health and Safety of our employees, customers and suppliers
is always our priority and the 2020 global pandemic brought this
conviction to the forefront. As an organization that was deemed an
essential business, we implemented safety protocols and invested
resources to minimize health risks while remaining open for business.
In 2020, our Aberfoyle operation celebrated a Million Hour Club award
in recognition of 2 million hours without a lost time accident. Our
commitment to continuously improve our overall Health and Safety
results was highlighted this year with 96% of our locations experiencing
no Lost Time Incidents.
CAPITAL RE-ALLOCATION
During 2020, we furthered our strategy of reducing our line pipe/OCTG footprint, lowering overhead costs
and redeploying capital. We reduced our inventory in these operations by $73 million during 2020. This
capital reduction plan will continue into 2021. In November 2020, we merged our Calgary-based Triumph
Tubulars and Fedmet Tubulars operations which will continue to operate under the Triumph Tubular name.
In January 2021, we advanced the orderly liquidation of our U.S. line pipe and OCTG operations
ACQUISITION
On December 30, 2020, we completed our acquisition of Sanborn Tube
Sales of Wisconsin Inc. Sanborn provides us with enhanced value-added
processing capabilities in the Wisconsin region and will be managed by Chad
Schultz, who will report to Mark Fine, Regional Manager of Russel Metals
Williams Bahcall. We are pleased to welcome the entire Sanborn team to our
Russel Family.
FINANCIAL FLEXIBILITY
During the second half of 2020, we completed a series of debt refinancing transactions to enhance our
liquidity, financial flexibility and decrease interest costs. These transactions included the extension of our
$450 million credit facility, the issue of $150 million in new 5 3/4% Senior Notes due 2025 and the utilization
of our excess cash to redeem our $300 million Senior Notes due April 2022.
TRENTON EXPANSION
Since 2015, our JMS Russel Metals Trenton facility has doubled in size
including our recent 24,000 sq ft expansion in 2020 to accommodate
value-added processing equipment and a vertical stacker system. The
facility now operates Fiber Tube and Fiber Flat Lasers.
TABLE OF CONT EN TS
Financial Highlights
Question & Answer from our President & CEO
Management’s Responsibility for Financial Reporting
1
2
4
Management’s Discussion and Analysis
Independent Auditor’s Report
Consolidated Financial Statements
5
21
25
FINANCIAL HIGHLIGHTS
OPERATING RESULTS (millions)
Revenues
Net earnings
Adjusted EBIT (Note)
Adjusted EBIT as a % of revenue
Adjusted EBITDA (Note)
Adjusted EBITDA as a % of revenue
Basic earnings per common share ($)
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)
Shareholders' equity
Invested Captial
OTHER INFORMATION (Notes)
Book value per share ($)
Free cash flow (millions)
Capital expenditures (millions)
Depreciation and amortization (millions)
Interest bearing debt/Adjusted EBITDA
Net debt to invested capital
Return on invested capital
Return on equity
COMMON SHARE INFORMATION
Ending outstanding common shares
Average outstanding common shares
Dividend per share
Dividends paid as a % of free cash flow
Share price - High
Share price - Low
Share price - Ending
<----------------------------------------Years Ended----------------------------------------------->
2020
2019
2018
2017
2016
$2,688.3
24.5
98.4
3.7%
159.0
5.9%
$0.39
$343.4
716.4
13.7
(273.1)
800.4
269.5
81.4
109.6
(105.8)
1,155.1
0.8
12.5
(7.9)
(28.4)
$1,132.1
$(26.3)
293.7
267.4
864.7
$1,132.1
$13.88
$94.4
$24.9
$60.6
1.8
24%
9%
11%
$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
944.6
$1,435.6
$15.19
$136.7
$34.8
$56.7
2.2
35%
10%
15%
$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
1,004.9
$1,452.7
$16.18
$300.1
$41.3
$35.7
1.2
31%
23%
33%
$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
826.8
$1,205.3
$13.36
$180.4
$35.7
$34.2
1.2
34%
17%
25%
$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
825.3
$974.4
$13.37
$77.4
$16.7
$35.1
1.9
15%
12%
14%
62,295,441
62,191,208
$1.52
100%
$23.09
$10.97
$22.73
62,173,430
62,132,030
$1.52
69%
$25.22
$18.47
$22.17
62,106,895
62,028,991
$1.52
31%
$32.65
$19.72
$21.33
61,890,197
61,788,013
$1.52
52%
$29.78
$23.67
$29.17
61,735,485
61,704,990
$1.52
121%
$27.78
$13.95
$25.58
This chart
includes certain financial measures that are not prescribed by International Financial Reporting Standards (GAAP) or have
standardized meanings, and thus, may not be comparable to similar measures presented by other companies, for example Adjusted EBIT and
Adjusted EBITDA and Other Information. Management believes that Adjusted EBIT and Adjusted 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. Adjusted EBIT and Adjusted EBITDA should not be considered in isolation or as an alternative to cash from operating activities or
other combined income or cash flow data. Adjusted EBIT, Adjusted 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 herein and on the
inside back cover of our Annual Report. See financial statements for GAAP measures.
(1) Effective January 1, 2019, the Company adopted IFRS 16 - Leases
RUSSEL METALS12020 ANNUAL REPORT
A DISCUSSION…
WITH OUR PRESIDENT & CHIEF EXECUTIVE OFFICER
Q Many companies changed their standard practices and procedures due to the global
pandemic. Can you comment on the changes that you have implemented for the health
and safety of your employees and other stakeholders?
A As our operations were deemed essential in both Canada and the US, we implemented
many new procedures in accordance with WHO and CDC guidelines. In addition, we
implemented travel bans, quarantine restrictions and backpack spraying at several
locations, and contracted with testing labs for 24-hour turnaround time for our C19
testing. I want to thank all the Russel family for working diligently to protect each other
and the communities we serve.
Q A reduction of the capital allocated to your line pipe and OCTG operations was a stated
objective for 2020. Did you make significant progress during the year and is it still an
objective for 2021?
A
In mid-2020, we stated our goal of reducing the capital allocated to this segment by $100
million by the end of 2021. Over the last six months of 2020, we reduced our inventories
by $65 million, so we are well on our way to achieving our target. In 2020, we completed
the merger of our two Canadian line pipe and OCTG operations and in early 2021 we
advanced the orderly liquidation of our U.S. line pipe and OCTG operations.
Q 2020 was a difficult year for the energy sector. What do you see on the horizon for
Comco, Apex and Elite field stores?
A Energy experienced a double black swan event with C19 and the collapse of energy
prices. Our field store operations, which consist of Comco and Apex in Canada and
Elite Supply Partners in the U.S, were impacted yet outperformed their competitors. This
business looks, feels and operates very similar to our service center business and we
see a promising future for this segment as the energy sector recovers.
Q
In 2020, you acquired Sanborn as a complement to your Wisconsin service centers.
What was the purpose of the acquisition and how is the integration going? Are there
other acquisitions on the horizon?
A Sanborn was a natural extension to Russel Metals Williams Bahcall (RMWB), that
serves the Wisconsin, Minnesota and Illinois region as a general line service center with
a heavy emphasis in plate processing. Sanborn is a tube laser and processing operation
that allowed us to accelerate our value-added processing initiative in Wisconsin and
dovetails nicely with RMWB's sales force and expands Sanborn's commercial footprint.
Strategically, we want to continue to grow the value-added component of our service
centers organically or by acquisition.
Q Marty Juravsky has been at Russel for a year. Please comment on Marty's transition to
CFO and the capital structure changes that were implemented in the year.
A Marty proved to be an immediate and natural fit with the Russel cultural as if he had
been a member of the Russel family for years. He immediately made a positive impact
on our capital structure, by working closely with our team to take advantage of Russel's
countercyclical cash flow to further solidify our balance sheet by reducing long term debt
and the cost of borrowing while maintaining a high level of liquidity.
Q Have there been any other management or Board changes in 2020?
A Bruce Robb, our Regional General Manager of Alberta/Manitoba/Saskatchewan, moved
to his planned retirement at the end of 2020. Bruce left his mark throughout Western
Canada as a sound veteran businessman who cared passionately for his people, while
possessing tremendous commercial leadership throughout his tenure. Bruce's parting
gift to Russel was his transition to his long-term manager RJ Weisner, who seamlessly
assumed the reins in the regions.
RUSSEL METALS22020 ANNUAL REPORT
Derek Currah, our President of Comco, also embarked on his planned retirement in 2020. Derek left a strong
legacy of keen business acumen, exemplary people management and professionalism. Derek turned over
the reins to Steve St. Jean, who Derek had been grooming for this position over the last several years.
I wish to thank both Bruce and Derek for their contributions, efforts, leadership and most of all, their friendship.
You both epitomize what it means to lead a division for Russel Metals.
Alain Benedetti cycled off our board as part of our board renewal process. Ben's keen financial mind, ability
to synthesize the issues, straight forward approach, leadership and unique insight served the shareholders of
Russel well. Personally, I always appreciated Ben's wise counsel and mentoring over the years.
Q Diversity of Board composition has gained momentum over the last few years. What is your view on this
trend?
A Russel has been focused on diversity in the boardroom and in the management group for a long time and we
are also proud to say we have promoted the right person for the job. Our diversity is part of what has and will
continue to be a key component of our unique culture as it is our people who separate us from our competition.
Q How did the Company's employees benefit from the Canadian Wage Subsidy funds in 2020?
A Russel qualified for the wage subsidy and it allowed us to methodically navigate through the C19 challenges
and maintain employment levels across Russel’s businesses during the pandemic. This wage subsidy buffer
allowed us to weather the storm as the business environment gradually improved to sustainable levels.
Q How was Russel able to maintain its dividend during 2020?
A Our cash flows are countercyclical, and we threw off cash from effective working capital management during
the downturn. Maintaining our dividend has been a staple during previous cycles and our business model
continued to prove sound during 2020 as we maintained our dividend.
Q Please describe the expansion of your Trenton, Georgia location to a value-added processing center of
excellence occurred in 2020.
A Trenton, Georgia completed a warehouse expansion by adding a stacker system which expanded the breadth
of inventory available at the location. This expansion freed up space to add both tube and flat lasers serving
multiple JMS locations. This expansion came to fruition as our Jackson, Tennessee laser processing center
reached capacity and we continued to see market opportunities for further value-added processing in the
region. The facility is fully operational and both Trenton and Jackson continue to have tremendous back logs
of business. The JMS region will add further equipment in the coming year, as we continue to grow our value-
added business.
Q Please comment on the margin enhancement associated with value-added processing and any future projects
being contemplated.
A During previous market downturns our service centers have seen gross margin compression as the industry
fights to maintain market share. We were not only able to maintain our gross margins during this recent
downturn, but we were able to modestly grow our gross margin as a direct result of our expanding value-
added processing. The hub and spoke concept continues to garner market share and we are looking at
multiple value-added projects along with bolt on acquisitions, like Sanborn, to accelerate this initiative.
Q Your Annual Report cover features a light at the end of a dark tunnel. Do you see a light in 2021?
A 2020 obviously came with unique challenges, yet also with unique opportunities. We reduced capital in our
OCTG and Line Pipe segment while we redeployed capital to our value-added processing initiative. Our
people were thrust into leadership roles due to the circumstances and gained tremendous experience as they
were stretched professionally and rose to the challenge. We implemented a series of new health and safety
initiatives that are critical steps forward. In 2020, we became a better company as our leadership team was
molded through adversity. Not only is there light at the end of the tunnel, but we are charging forward in 2021
better equipped to seize new opportunities.
John G. Reid
President and Chief Executive Officer
RUSSEL METALS32020 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, 2020 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 10, 2021
J. G. Reid
President and
Chief Executive Officer
M. L. Juravsky
Executive Vice President and
Chief Financial Officer
RUSSEL METALS42020 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020
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, 2020, 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 10, 2021.
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 METALS52020 ANNUAL REPORT
NON-GAAP MEASURES
This MD&A includes a number of measures that are not prescribed by International Financial Reporting Standards
("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. These measures include Adjusted EBITDA which represents
earnings before long-lived asset impairment charges, interest, income taxes, depreciation and amortization; and
free cash flow which represents cash from operating activities before changes in working capital less capital
expenditures. We believe that Adjusted EBITDA and free cash flow 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. The items excluded in determining Adjusted EBITDA and free cash flow are significant
in assessing operating results and liquidity. Adjusted EBITDA and free cash flow should not be considered in
isolation or 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.
Adjusted net earnings and adjusted net earnings per share are non-GAAP measures that exclude non-cash long-
lived asset impairment. 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.
We are one of the largest metals distribution companies in North America. We conduct business primarily in
three segments: metals service centers, energy products, and steel distributors.
OVERVIEW OF THE FOURTH QUARTER AND 2020 ANNUAL RESULTS
Our net earnings for the year ended December 31, 2020, were $25 million or $0.39 per share compared to net
earnings of $77 million or $1.23 per share for 2019. Our adjusted net earnings (excluding the after-tax impact of
non-cash asset impairment charges of $26 million related to our U.S. energy operations) for the year ended
December 31, 2020 were $50 million or $0.81 per share. Revenues for the year ended December 31, 2020 were
$2.7 billion compared to $3.7 billion in 2019. Adjusted EBITDA was $159 million compared to $203 million in
2019.
In the 2020 fourth quarter, our revenues, Adjusted EBITDA and adjusted earnings per share were $671 million,
$41 million and $0.22 per share, respectively. Revenues during the quarter benefited from multiple steel price
increases and stronger seasonal demand in the metals service centers and steel distributors segments. During
the 2020 fourth quarter, items of note that negatively impacted Adjusted EBITDA included a net increase in our
inventory valuation reserves of $3 million related to our line pipe/OCTG operations and non-cash stock-based
compensation expense of $4 million due to our improved share price. During the 2020 fourth quarter, we
recognized $8 million in federal government wage subsidies, as compared to $20 million in the 2020 third quarter.
Market Conditions
The global pandemic created extraordinary market volatility in 2020, from a severe deterioration of activity in the
second quarter to gradual improvement through the third quarter and a stronger pick-up towards the end of the
fourth quarter in metals service centers and steel distributors. Our operations were deemed essential and
remained open throughout 2020. In the 2020 fourth quarter, rapid increases in raw material pricing, improved
demand and low inventory levels throughout the supply chain drove a substantial increase in steel prices.
Business Optimization
During 2020, we implemented a number of our value-added processing initiatives in several of our regions. On
December 30, 2020, we acquired Sanborn Tube Sales of Wisconsin, Inc. ("Sanborn "), a leader in value-added
manufacturing, for US$13 million. Sanborn operates three tube lasers from its facility located in Pewaukee,
Wisconsin and will complement our existing locations in that region. During 2020, we expanded our Trenton,
Georgia facility which now includes a bar storage facility, fiber tube and flat lasers. The rationalization of our B.C.
region was completed through the closure and sale of the real estate related to our Kelowna and Kitimat service
centers. The sale of these two facilities resulted in proceeds of $10 million and a gain on sale of $6 million which
was recorded in the 2020 third quarter.
RUSSEL METALS62020 ANNUAL REPORT
In our energy products segment, we furthered our objective of reducing capital employed in our line pipe/OCTG
operations. During the year, we completed the merger of our two Canadian line pipe/OCTG operations and
advanced the orderly liquidation of our U.S. line pipe/OCTG operations. As a result, we reduced our line
pipe/OCTG inventory by $73 million for the year, including $34 million in the 2020 fourth quarter. In our field
stores, we rationalized six Elite Supply Partners locations.
Liquidity and Capital Structure Improvements
During 2020, we generated $371 million of cash from operating activities and ended the year with total liquidity
of $406 million.
During September 2020, we updated and improved our credit facility to provide additional borrowing base
flexibility and extended its maturity. In October 2020, we issued $150 million 5 ¾% senior unsecured notes due
October 2025. In November 2020, we redeemed our $300 million 6% senior unsecured notes due 2022. The
combination of these initiatives will reduce our interest expense and extend our debt maturities. During the 2020
fourth quarter, our interest expense included $1.3 million in deferred financing costs related to the redemption of
senior unsecured notes due 2022.
RECONCILIATION OF NET EARNINGS TO ADJUSTED EBITDA
The following table provides a reconciliation of net earnings (loss) and earnings (loss) per share for the year and
quarter ended December 31, 2020 to adjusted net earnings and adjusted net earnings per share.
Millions
Per Share
December 31, 2020
Net earnings (loss)
Asset impairment, after tax
Adjusted net earnings
Provision for income taxes
Provision for income taxes on asset impairment
Interest and finance expense
Adjusted EBIT
Depreciation and amortization
Adjusted EBITDA
Quarter
Ended
$ (8.8)
22.6
13.8
(3.8)
7.5
9.0
26.5
14.6
$ 41.1
Year
Ended
$ 24.5
25.6
50.1
3.4
8.2
36.7
98.4
60.6
$ 159.0
Quarter
Ended
$ (0.14)
0.36
$ 0.22
Year
Ended
$ 0.39
0.42
$ 0.81
SUMMARIZED FINANCIAL INFORMATION
The following tables disclose selected information related to revenues, earnings and common shares over the
last three years.
2020
(in millions, except per share data and volumes)
Revenues
EBITDA
Adjusted EBITDA
Net earnings (loss)
Basic earnings (loss) per common share
Diluted earnings per common share
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
Mar. 31
$ 814.7
35.5
39.2
13.5
$ 0.17
$ 0.17
$ 2,010.5
$ 542.7
$ 0.38
Quarters Ended
June 30
$ 588.1
31.5
31.5
4.6
$ 0.07
$ 0.07
Sept. 30
$ 614.9
47.2
47.2
18.2
$ 0.29
$ 0.29
Dec. 31
$ 670.5
11.1
41.2
(8.8)
$ (0.14)
$ (0.14)
$ 1,824.5
$ 538.1
$ 0.38
$ 1,787.7
$ 536.0
$ 0.38
$ 1,596.3
$ 382.5
$ 0.38
Year
Ended
Dec. 31
$ 2,688.3
125.2
159.0
24.5
$ 0.39
$ 0.39
$ 1,596.3
$ 382.5
$ 1.52
$ 23.00
$ 10.97
$ 18.29
$ 12.51
$ 19.71
$ 16.23
$ 23.09
$ 17.34
$ 23.09
$ 10.97
Shares outstanding end of quarter
Average shares outstanding
Number of common shares traded on the TSX
62,184,978 62,184,978 62,184,978 62,295,441 62,295,441
62,179,130 62,182,055 62,183,036 62,215,545 62,191,208
19,490,294 24,546,823 12,319,978 13,239,649 69,596,744
RUSSEL METALS72020 ANNUAL REPORT
2019
(in millions, except per share data and volumes)
Revenues
EBITDA
Adjusted EBITDA
Net earnings (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
Mar. 31
$ 1,032.6
71.9
71.9
34.3
$ 0.55
$ 0.55
$ 2,199.2
$ 540.0
$ 0.38
Quarters Ended
June 30
$ 936.7
64.8
64.8
30.8
$ 0.50
$ 0.50
Sept. 30
$ 869.2
48.7
48.7
18.1
$ 0.29
$ 0.29
Dec. 31
$ 837.4
17.6
17.6
(6.6)
$ (0.11)
$ (0.11)
$ 2,115.9
$ 541.1
$ 0.38
$ 2,074.9
$ 538.9
$ 0.38
$ 1,929.0
$ 539.2
$ 0.38
Year
Ended
Dec. 31
$ 3,675.9
203.0
203.0
76.6
$ 1.23
$ 1.23
$ 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
On January 1, 2019, we retroactively adopted IFRS 16-Leases.
2018
(in millions, except per share data and volumes)
Revenues
EBITDA
Adjusted EBITDA
Net earnings
Basic earnings per common share
Diluted earnings per common share
Total assets
Non-current financial liabilities
Dividends paid
Market price of common shares
High
Low
Mar. 31
$ 931.3
69.0
69.0
38.5
$ 0.62
$ 0.62
$ 1,924.2
$ 442.6
$ 0.38
Quarters Ended
June 30
$ 978.2
106.0
106.0
66.1
$ 1.07
$ 1.06
Sept. 30
$ 1,140.1
110.6
110.6
68.2
$ 1.10
$ 1.09
$ 2,057.8
$ 443.0
$ 0.38
$ 2,140.9
$ 443.3
$ 0.38
Dec. 31
$ 1,115.4
81.0
81.0
46.2
$ 0.74
$ 0.74
$ 2,130.4
$ 443.6
$ 0.38
Year
Ended
Dec. 31
$ 4,165.0
366.6
366.6
219.0
$ 3.53
$ 3.52
$ 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
RUSSEL METALS82020 ANNUAL REPORT
RESULTS OF OPERATIONS
The following table provides earnings before interest and income taxes. 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
Gain on sale of assets
Asset impairment
Other
Earnings before interest 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 2019
(17%)
(39%)
(34%)
(27%)
41%
(105%)
(42%)
(14%)
(33%)
2020
2019
$ 1,621.8
797.5
261.9
7.1
$ 2,688.3
$ 103.9
(3.3)
9.2
(19.4)
6.1
(33.8)
1.9
$ 64.6
22.0%
15.1%
12.8%
19.3%
6.4%
(0.4%)
3.5%
3.7%
$ 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
18.8%
16.6%
11.0%
17.4%
3.8%
5.2%
4.0%
4.0%
Results of our U.S. operations for the year ended December 31, 2020 were converted at $1.3412 per US$1
compared to $1.3268 per US$1 for the year ended December 31, 2019. Our U.S. operations represented
approximately 32% of our total revenues. The exchange rate used to translate the balance sheet at December
31, 2020 was $1.2732 per US$1 versus $1.2988 per US$1 at December 31, 2019.
RUSSEL METALS92020 ANNUAL REPORT
Description of operations
METALS SERVICE CENTERS
a)
We provide processing and distribution services to a broad base of approximately 31,000 end users through a
network of 47 Canadian locations and 17 U.S. locations. Our metals service centers carry a broad line of products
in a wide range of sizes, shapes and specifications, including carbon hot rolled and cold finished steel, pipe and
tubular products, stainless steel and aluminum. We purchase these products primarily from steel producers in
North America and process and package them in accordance with end user specifications. We service all major
geographic regions of Canada as well as the Southeastern and Midwestern regions in the United States.
b)
Metals service centers segment results -- 2020 compared to 2019
(millions)
Financial Highlights
Revenues
Gross margin ($)
Gross margin (%)
Earnings from operations
2020
2019
% Change
$ 1,622
357
22.0%
104
$ 1,958
368
18.8%
74
(17%)
(3%)
41%
Tons shipped in 2020 were approximately 7% lower than 2019. Our U.S. service centers had a 1% increase in
tons with all Canadian regions experiencing decreased volumes. During the year ended December 31, 2020 our
reduction in tons shipped was lower than the average published by the Metals Service Center Institute as our
operations garnered market share. The average selling price per ton was 11% lower than 2019. The average
selling price in the 2020 fourth quarter increased 5% over the 2020 third quarter due to price increases late in the
fourth quarter.
Gross margin as a percentage of revenues of 22.0% for the year ended December 31, 2020 was higher than the
18.8% in 2019 due to value-added processing and the lower average cost of inventory.
Operating expenses for 2020 were $254 million, 14% lower than the $295 million in 2019 due to lower business
activity and government wage subsidies that allowed us to sustain employment levels. In July 2020 we launched
our multi-year ERP upgrade project. Operating expenses relating to the new ERP project were $4 million for the
year ended December 31, 2020.
Metals service centers operating profits for the year ended December 31, 2020 of $104 million were higher than
the $74 million reported for 2019. Our average revenue per invoice for 2020 was approximately $1,906 compared
to $2,371 for 2019, reflecting decreased steel prices. We handled approximately 3,403 transactions per day in
2020 compared to 3,303 per day in 2019.
Description of operations
ENERGY PRODUCTS
a)
We distribute tubes, valves, fittings, oil country tubular goods (OCTG) and line pipe, primarily to the energy
industry in Western Canada and the United States. A significant portion of our business units are clustered in
Alberta and Saskatchewan, Canada, and in the U.S., in Texas, Oklahoma and Colorado. A large portion of our
inventories are located in third party yards ready for distribution to customers throughout North America. In
addition, we operate from 48 Canadian and 14 U.S. facilities in our valve and fitting operations. We purchase our
products from the pipe division of North American steel mills, independent manufacturers of pipe, valves and
fittings, international steel mills and other distributors.
b)
Energy products segment results -- 2020 compared to 2019
(millions)
Financial Highlights
Revenues
Gross margin ($)
Gross margin (%)
(Loss) earnings from operations
2020
2019
% Change
$ 798
121
15.1%
(3)
$ 1,311
217
16.6%
69
(39%)
(44%)
(105%)
RUSSEL METALS102020 ANNUAL REPORT
The price of oil, including the Western Canadian select discount, and natural gas can impact rig count and drilling
activities, which affects demand for our products.
Depressed oil prices resulted in reduced rig counts and delayed energy projects that caused a significant
decrease in revenues particularly for our line pipe and OCTG operations. In 2020, the average Canadian rig
counts were 89 compared to 134 in 2019 and the average U.S. rig counts were 433 compared to 943 in 2019.
Gross margin as a percentage of revenues was 15.1% compared to 16.6% in 2019 mainly due to lower industry-
wide OCTG and line pipe prices in reaction to lower demand and excess inventories throughout the industry
created by reduced North American rig counts. The lower line pipe prices resulted in an increase in our energy
product inventory provisions of $12 million related to our line pipe and OCTG operations.
Operating expenses for the year ended 2020 were $124 million compared to $148 million in 2019. The decrease
was due to headcount reductions, location closures, work sharing arrangements and government employment
incentives.
Operating losses were $3 million for 2020 compared to profits of $69 million for 2019. Our field store operations
generated an operating income of $23 million in the year compared to $73 million in 2019. Our line pipe and
OCTG operations generated an operating loss of $26 million in the year compared to a loss of $4 million in 2019.
Description of operations
STEEL DISTRIBUTORS
a)
Our steel distributors act as master distributors selling steel in large volumes to other steel service centers and
equipment manufacturers mainly on an "as is" basis. Our U.S. operation has a cut-to-length facility located in
Houston, Texas, where it processes coil for its customers. Our steel distributors source their steel both
domestically and off shore.
The main steel products sourced by this segment are structural beam, plate, coils, pipe and tubing; however,
product volumes vary based on the economy and trade actions in North America.
b)
Steel distributors segment results -- 2020 compared to 2019
(millions)
Financial Highlights
Revenues
Gross margin ($)
Gross margin (%)
Earnings from operations
2020
2019
% Change
$ 262
34
12.8%
9
$ 396
43
11.0%
16
(34%)
(23%)
(42%)
Revenues in our steel distributors were 34% lower in 2020 compared to 2019 due to lower demand caused by
general economic conditions.
Gross margin as a percentage of revenues was 12.8% for the year ended December 31, 2020 compared to 11.1%
for the year ended December 31, 2019 due to an inventory provision recorded in our U.S. operation in 2019.
Operating expenses declined to $24 million in 2020 from $28 million in 2019. Operating profits for 2020 of $9
million were lower compared to $16 million for 2019 due to reduced demand.
CORPORATE EXPENSES -- 2020 COMPARED TO 2019
Corporate expenses were $19 million in 2020 compared to $17 million in 2019. During the year, the non-cash
stock-based compensation expense was $5 million due to our improved share price compared to $4 million in
2019.
RUSSEL METALS112020 ANNUAL REPORT
ASSET IMPAIRMENT
The challenging economic conditions experienced in 2020 due to the global pandemic and the oil price turmoil,
resulted in a triggering event and the need to test long-lived assets for impairment. The impairment tests resulted
in non-cash charges of $34 million. In the 2020 fourth quarter, we recorded an asset impairment charge of $30
million relating to our U.S. field store operations and in the 2020 first quarter, we recorded an asset impairment
charge of $4 million relating to our U.S. line pipe operation. The recoverable amounts for the rest of our operations
exceeded their carrying value and no other further impairment was recorded.
GAIN ON SALE OF ASSETS
During the third quarter of 2020, as part of our rationalization in the B.C. region, we sold the real estate associated
with our Kitimat and Kelowna branches for net proceeds of $10 million resulting in a gain on sale of $6 million.
INTEREST EXPENSE
Net interest expense was $37 million for 2020 compared to $41 million for 2019 due to reduced working capital
levels. The capital structure improvements are expected to further reduce our interest expense in 2021.
INCOME TAXES
We recorded a provision for income taxes of $3 million for 2020 compared to a provision of $29 million for 2019.
Our effective income tax rate for 2020 was 12.2% compared to 27.3% for 2019. The decrease in the 2020
effective tax rate was due to the utilization of capital losses for the gain on sale of assets and certain provisions
of the CARES Act.
NET EARNINGS
Net earnings for 2020 were $25 million compared to $77 million in 2019. Basic earnings per share for 2020 was
$0.39 per share compared to $1.23 per share in 2019.
SHARES OUTSTANDING AND DIVIDENDS
The weighted average number of common shares outstanding for 2020 was 62.2 million compared to 62.1 million
for 2019 as a result of the exercise of options. Common shares outstanding at December 31, 2020 and February
10, 2021 were 62.3 million.
We paid common share dividends of $95 million or $1.52 per share in 2020 and 2019.
We have $150 million of 6% senior unsecured notes due March 16, 2026. The indenture for these senior notes
has restrictions on 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 $150 million of 5 ¾% senior unsecured notes due October 27, 2025. The indenture for these senior
notes contains restrictions on the payment of quarterly dividends in excess of $1.60 per annum. These notes
can be redeemed at par on or after October 27, 2024.
Under our syndicated bank facility, the payment of dividends are 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.
ADJUSTED EBITDA
The following table shows the reconciliation of net earnings to Adjusted EBITDA:
(millions)
Net earnings
Provision for income taxes
Interest, net
Assets impairment
Earnings before asset impairment, interest,
finance expense and income taxes (Adjusted EBIT)
Depreciation and amortization
Earnings before asset impairment, interest, income taxes,
depreciation and amortization (Adjusted EBITDA)
2020
$ 24.5
3.4
36.7
33.8
2019
$ 76.6
28.8
40.9
-
98.4
60.6
146.3
56.7
$ 159.0
$ 203.0
RUSSEL METALS122020 ANNUAL REPORT
CAPITAL EXPENDITURES
Capital expenditures were $25 million in 2020 compared to $35 million in 2019. We continued to invest in value-
added processing with an investment of $5 million in the expansion of our Trenton, Georgia facility and $2 million
for a structural expansion to include plasma beam coping in our Edmonton, Alberta location.
We expect capital expenditures to be lower than depreciation of property, plant and equipment in 2021.
LIQUIDITY
During the cycle, we experience significant swings in working capital with accounts receivable and inventory
comprising our largest liquidity risks.
At December 31, 2020, we had net cash, defined as cash less bank indebtedness, of $26 million compared to
net bank indebtedness of $46 million at December 31, 2019. We generated cash of $119 million from operations
during 2020 and $257 million from working capital. We invested $25 million for capital expenditures, utilized $5
million for income tax payments and returned $95 million in dividends to our shareholders.
Total assets were $1.6 billion at December 31, 2020, compared to $1.9 billion at December 31, 2019. At
December 31, 2020, current assets excluding cash represented 70% of our total assets excluding cash, compared
to 72% at December 31, 2019.
Accounts receivable generated cash of $115 million in 2020, due to lower revenues. Accounts receivable
represented 22% of our total assets excluding cash, at December 31, 2020 compared to 24% at December 31,
2019.
Inventories generated cash of $169 million due to reduced purchases in response to lower demand and a
reduction in our line pipe and OCTG inventories as part of our initiative to reduce capital employed in those
businesses. Inventories represented 45% of our total assets at December 31, 2020 compared to 46% at
December 31, 2019.
Inventory by Segment (millions)
Metals service centers
Energy products
Steel distributors
Total
Inventory Turns (quarters ended)
Metals service centers
Energy products
Steel distributors
Dec. 31
2020
$ 279
373
64
$ 716
Dec. 31
2020
4.5
1.7
3.9
Sept. 30
2020
$ 267
436
87
$ 790
Sept. 30
2020
4.7
1.2
2.5
June 30
2020
$ 297
470
95
$ 862
June 30
2020
4.0
1.1
2.4
Mar. 31
2020
$ 320
487
100
$ 907
Mar. 31
2020
4.3
2.2
2.2
Dec. 31
2019
$ 295
494
95
$ 884
Dec. 31
2019
4.5
2.5
3.3
Total
3.0
2.5
2.2
2.9
3.2
At December 31, 2020, our metals service centers had lower inventory tons than at December 31, 2019 due to
reduced purchases in response to the economic downturn. Inventory levels increased in the fourth quarter due
to higher steel prices and improved demand. Inventory levels in our energy products segment decreased from
2019 due to slowing demand and reduced capital allocated to our line pipe and OCTG operations. In steel
distributors, the decrease in inventory value over 2019 was due to a reduction in purchases due to reduced
demand.
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 METALS132020 ANNUAL REPORT
FREE CASH FLOW
(millions)
Cash from operating activities before non-cash working capital
Purchase of property, plant and equipment
DEBT
As at December 31 (millions)
Long-term debt
5 ¾% $150 million Senior Notes due October 27, 2025
6% $150 million Senior Notes due March 16, 2026
6% $300 million Senior Notes due April 19, 2022
2020
$ 119.2
(24.9)
$ 94.3
2019
$ 171.5
(34.8)
$ 136.7
2020
2019
$ 147
147
-
$ 294
$ -
147
298
$ 445
In October 2020, we issued $150 million of 5 ¾% senior unsecured notes due 2025. In November 2020, we
redeemed our $300 million 6% senior unsecured notes due in 2022.
CASH AND BANK CREDIT FACILITY
(millions)
Bank loans
Cash net of outstanding cheques
Net cash (bank indebtedness)
Letters of credit
Facility
Borrowings and letters of credit
Letters of credit
Facility availability
Available line based on borrowing base
2020
$ -
26
26
(68)
$ (42)
$ 400
50
$ 450
$ 450
2019
$ (57)
11
(46)
(33)
$ (79)
$ 400
50
$ 450
$ 450
We have a committed credit facility with a syndicate of Canadian and U.S. banks that provides $50 million for
letters of credit and $400 million which can be utilized for borrowings or additional letters of credit. On September
29, 2020, the facility was amended to provide additional borrowing base flexibility and other improvements and
extended to expire on September 21, 2023. 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, 2020, we were entitled to borrow and issue letters of credit totaling $450 million under this
facility. At December 31, 2020, we had no borrowings and $68 million of letters of credit outstanding. At
December 31, 2019 we had $57 million in borrowings and letters of credit of $33 million.
At December 31, 2020, we were in compliance with all of our financial covenants.
With our cash, cash equivalents and our bank facility we have access to approximately $406 million of cash based
on our December 31, 2020 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 METALS142020 ANNUAL REPORT
CONTRACTUAL OBLIGATIONS
As at December 31, 2020, we were contractually obligated to make payments as per the following table:
Contractual Obligations
(millions)
Bank loans
Accounts payable
Debt
Long-term debt interest
Lease obligations
Total
Payments due in
2022
and 2023
$ -
-
-
35
38
$ 73
2024
and 2025
$ -
-
150
35
27
$ 212
2026 and
thereafter
$ -
-
150
5
55
$ 210
2021
$ -
291
-
18
24
$ 333
Total
$ -
291
300
93
144
$ 828
In addition, we are obligated to pay $68 million in letters of credit when they mature in 2021.
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 16 of our 2020
consolidated financial statements. During 2020 we contributed $3 million to these plans. We expect to contribute
approximately $3 million to these plans during 2021. 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. We do not have additional funding obligations on a solvency basis and no additional
funding would 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 only short-term and low value leases are
off-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, litigation and assigned
values on net assets acquired. We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making
judgements about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
Our most significant assets are accounts receivable and inventories.
Accounts Receivable
An allowance for doubtful accounts is maintained for estimated losses resulting from the inability of our customers
to make required payments. Assessments are based on aging of receivables, legal issues (bankruptcy status),
past collection experience, current financials, credit agency reports and the experience of our credit personnel.
Accounts receivable which we determine to be uncollectible are reserved in the period in which the determination
is made. If the financial condition of our customers was to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required. Our reserve for bad debts at December 31, 2020
approximated our reserve level at December 31, 2019. Bad debt expense for 2020 as a percentage of revenue
was less than 1%.
RUSSEL METALS152020 ANNUAL REPORT
Inventories
We review our inventories to ensure that the cost of inventories is not in excess of its estimated net realizable
value and for obsolete and slow-moving product. Inventory reserves or write-downs are recorded when cost
exceeds the estimated selling price less cost to sell and when product is determined to be slow moving or
obsolete. 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, 2020 was $7 million
greater than the level at December 31, 2019.
Other areas involving significant estimates and judgements include:
Long-lived Asset Impairment
The determination of whether long-lived assets, including 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 a discount rate requires significant judgement.
During 2020, we concluded that the rapid deterioration of the North American economic environment resulted in
a triggering event and the need to perform impairment testing of our long-lived assets including goodwill and
intangibles. We forecasted future cash flows by considering the reduced activity to determine recoverable
amounts. Based on this analysis, we recorded impairments in the 2020 first quarter and the 2020 fourth quarter.
There is no certainty that there will not be future impairments should the economic markets in which we operate
continue to deteriorate.
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.
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.
RUSSEL METALS162020 ANNUAL REPORT
We had approximately $159 million in plan assets at December 31, 2020, which is approximately $6 million higher
than at December 31, 2019. The discount rate used on the employee benefit plan obligation for December 31,
2020 was 2.50%, which is 50 basis points lower than the discount rate at December 31, 2019. The employee
benefit obligation at December 31, 2020 was approximately $164 million which is approximately $9 million higher
than at December 31, 2019.
Leases
We recognize right-of-use assets and lease obligations which includes our arrangements that contain a lease.
The determination of the asset and obligation requires an assessment of whether we are reasonably certain that
an extension option will be exercised, calculation of a discount rate inherent in the lease or an incremental
borrowing rate and whether the right-of-use asset is impaired. These determinations require significant
judgement.
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, 2020. 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 mature and cyclical industry. We believe we enhance returns by managing
costs and working capital throughout the cycle. Capital allocation priorities and limits are managed centrally with
day-to-day decision making delegated to the various operations. Furthermore, our variable compensation model
is based on the return on net assets for each business unit, which provides our business managers a basis to
proactively adjust costs and working capital to local market conditions. 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
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 further improves our returns.
RUSSEL METALS172020 ANNUAL REPORT
We believe that the steel pricing cycle will continue to be highly 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.
RISK
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.
The pandemic has created uncertainty in the health and welfare of the communities where we operate and
resulted in temporary business closures including certain of our customers and reduced economic activity. We
do not know when the uncertainty caused by the virus will cease and business conditions will return to normal
levels.
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, varying capacity utilization rates for North
American steel producers and changing import levels and tariffs. Future tariff changes to country or product
exemptions may impact steel prices and product availability.
A significant percentage of our revenues are dependent on the oil and gas industry whose activity fluctuates with
oil and gas prices. The oversupply of oil has resulted in reduced drilling and lower demand for OCTG and line
pipe. In addition, certain pipe manufacturers have attempted to bypass distributors which has further exacerbated
the competitive pricing environment. Our strategy includes a reduction of the capital allocated to our OCTG and
line pipe operations. 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.
The continued impact of the pandemic and prevailing oil price conditions may lead to changes in estimates in our
financial statements and the effect of such changes could be material and result in impairments of long-lived
assets, including goodwill and intangibles, provisions for inventory and credit losses.
The USMCA replaced NAFTA on July 1, 2020. It is expected that this agreement will have a positive effect on
the post pandemic demand for North American sourced metal products such as steel and aluminum.
On February 25, 2020, the U.S. International Trade Commission issued a final determination that fabricated
structural steel imports from Canada, China and Mexico do not materially injure the U.S. fabricated steel industry.
Therefore, no anti-dumping or countervailing duties will be applied on imports from these countries. This ruling
should lead to increased steel fabrication in Canada which should benefit our customer base.
On March 13, 2020, the Canadian Industrial Trade Tribunal (CITT) issued a report concluding that hot rolled plate
products from Brazil, Denmark, Indonesia, Italy, Japan and Korea would continue to be dumped into the Canadian
marketplace if current orders were lifted and that such actions would likely result in injury to the industry. The
Tribunal continued previous duties for an additional five years in respect to the subject goods.
On October 9, 2020, the Canada Border Services Agency (CBSA) made a preliminary determination that imports
of hot rolled plate products from Taiwan, Germany and Turkey were harmful to the Canadian market and set
provisional duties ranging from 3% to 97%. On the same date, the CBSA terminated its dumping investigation
on hot rolled plate imports from South Korea and Malaysia.
On October 13, 2020, the U.S. Department of Commerce imposed additional requirements on the importation of
steel products. When applying for an importer license, the importer must identify both the country or origin of the
steel product as well as where the steel used in the manufacture of the steel product was melted and poured.
RUSSEL METALS182020 ANNUAL REPORT
On November 16, 2020, the CITT issued its findings that corrosion resistant steel from Turkey, the UAE and
Vietnam (excluding specified facilities) have been dumped in the Canadian market and thus are subject to Anti-
Dumping duties and that the goods have been subsidized. Further analysis found that the volume of goods
exported from the UAE and Vietnam were negligible and therefore terminated the injury inquiry of these goods.
The result is that material from Turkey (excluding specified facilities) is now subject to both Anti-Dumping and
Countervailing duties.
On February 5, 2021, the CITT issued its findings that hot-rolled carbon steel heavy plate and high-strength low-
alloy steel heavy plate from Taiwan, Chinese Taipei and Germany that are being dumped into the Canadian
market have caused injury to the domestic industry. On the same date the CITT determined that the volume of
the above referenced goods being dumped from Turkey is negligible and terminated its inquiry on material
originating in or being exported from Turkey.
FOURTH QUARTER RESULTS
Revenues in the fourth quarter of 2020 were 20% lower than the same quarter in 2019. Operating income was
$27 million compared to $2 million in 2019. During the quarter ended December 31, 2020, Adjusted EBITDA was
$41 million compared to $18 million in 2019.
Our net loss for the quarter ended December 31, 2020 was $9 million or $0.14 per share. Our adjusted net
earnings for the quarter ended December 31, 2020 were $14 million or $0.22 per share.
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 asset impairment, interest 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
2020
2019
variance
as a %
of 2019
2%
(49%)
(9%)
(20%)
$ 419.2
175.9
73.6
1.9
$ 670.6
$ 35.6
(7.0)
4.9
(7.5)
0.5
$ 26.5
$ 411.6
342.6
80.6
2.6
$ 837.4
$ 8.8
(1.8)
(3.2)
(2.6)
1.1
$ 2.3
25.0%
12.2%
15.4%
20.8%
8.5%
(4.0%)
6.7%
4.0%
18.8%
11.4%
3.6%
14.6%
2.1%
(0.5%)
(4.0%)
0.3%
Metals service centers revenues were 2% higher than the same quarter in 2019 as a result of increased demand
and selling prices. Tons shipped in the fourth quarter of 2020 for metals service centers were 2% higher than the
fourth quarter of 2019 and selling prices were consistent with the fourth quarter of 2019. Gross margin as a
percentage of revenues increased to 25.0% for the fourth quarter of 2020 from 18.8% for the fourth quarter of
2019. At the end of the 2020 fourth quarter, steel prices increased significantly due to raw material input prices
and tight inventory levels in the supply chain.
RUSSEL METALS192020 ANNUAL REPORT
In the fourth quarter of 2020, revenues at our energy products segment were 49% lower than 2019. Lower
demand was experienced in the 2020 fourth quarter due to lower rig counts and resulted in an operating loss in
this segment in the fourth quarter.
Our steel distributors reported operating profits in the 2020 fourth quarter of $5 million compared to an operating
loss of $3 million in the 2019 fourth quarter due to an inventory provision recorded in 2019.
Corporate expenses were higher than 2019 due to non-cash stock-based compensation expense of $4 million in
the quarter from our improved share price.
OUTLOOK
Through the early stage of 2021, we have experienced continuing improvement in demand levels at our metals
service centers and steel distributors segments. In addition, steel prices and margins have remained at levels
well above the average in the 2020 fourth quarter. In energy products, inventory shortages have led to gradually
improved prices and modest demand increases.
RUSSEL METALS202020 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, 2020 and 2019, 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, 2020 and 2019, 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial statements for the year ended December 31, 2020. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Impairment of Assets - Refer to Notes 2, 8 and 12 to the Financial Statements
Key Audit Matter Description
The Company's evaluation of goodwill for impairment involves the comparison of the recoverable amount of
each cash generating unit ("CGU") to its carrying value. An impairment loss is recognized if the carrying values
of a CGU exceeds its recoverable amount. The recoverable amount is determined based on the higher of fair
value less cost of disposal and value in use, using a discounted cash flow model. Prior to impairment, the
Company had goodwill associated with the Elite Supply Partners ("Elite") CGU. The carrying value of the Elite
CGU exceeded its recoverable amount as of the measurement date and, therefore, an impairment loss was
recognized. This required management to make significant estimates and assumptions related to the projected
revenues and associated gross profit ("GP") margins and discount rate. Changes in these assumptions could
have a significant impact on the recoverable amount and thus, the amount of the goodwill impairment loss.
Given the significant judgements made by management to estimate the recoverable amount of the Elite CGU,
performing audit procedures to evaluate the reasonableness of the estimates and assumptions related to the
projected revenues and associated GP margins and discount rate required a high degree of auditor judgement
and an increased extent of effort, including the need to involve fair value specialists.
How the Key Audit Matter was Addressed in the Audit
Our audit procedures related to the projected revenues and associated GP margins and discount rate used by
management to estimate the recoverable amount of goodwill for the Elite CGU included the following, among
others:
Evaluated management's ability to accurately forecast projected revenues and GP margins by
comparing actual results to management's historical forecasts.
Evaluated the reasonableness of management's forecasts of projected revenues and GP margins by
comparing forecasts to:
• Historical revenues and operating margins.
•
Internal communications to management and the Board of Directors.
• Underlying analyses detailing business strategies and growth plans.
• Third party economic research and projected and historical growth of Elite's peer group.
RUSSEL METALS212020 ANNUAL REPORT
With the assistance of our fair value specialists, evaluated the reasonableness of:
• Revenue growth rates using models linked to third party data sources that benchmarks the
Company's performance against its peer group and industry trends and evaluates the impact of
current economic conditions on the forecasted projections and assumptions.
• The discount rate by testing the source information underlying the determination of the discount
rate and developing a range of independent estimates and comparing those to the discount rate
selected by management.
Valuation of Inventory - Refer to Note 7 to the Financial Statements
Key Audit Matter Description
The Company records inventory at the lower of cost and net realizable value, where net realizable value is the
estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.
Management evaluates the need for inventory impairment charges at a segment level and records these charges
based on certain factors, which include the age of the inventory, the market conditions in the geographies in
which products are sold and the physical condition of the products. The process of determining whether an
inventory impairment charge is required involves estimating selling prices in markets where recent transaction
activity may not have occurred and where standard pricing does not exist.
We identified inventory impairment charges related to the energy products segment (hereinafter, "inventory") as
a key audit matter because the estimation of inventory impairment charges involves complex judgements related
to future selling prices and product demand. This required a high degree of auditor judgement as these estimates
are subject to a high degree of estimation uncertainty.
How the Key Audit Matter was Addressed in the Audit
Our audit procedures related to future selling prices and product demand used in determining the inventory
impairment charges included the following, among others:
Performed a retrospective review on the prior year inventory impairment charge, including the prior year
expected demand, and compared it to current year activity to evaluate management's ability to
accurately estimate the reserve.
Evaluated the reasonableness of future selling prices and product demand by:
• Comparing selling price assumptions to a combination of external market sources, recent
transactions (including both sales and purchases of inventory) and historical data.
• Evaluating management's consideration of the age of inventory items, historic inventory trends,
historic write-off activity and the impact of market events related to commodity pricing (for steel
and oil).
• Evaluating write-off activity of inventory subsequent to year end.
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.
RUSSEL METALS222020 ANNUAL REPORT
Responsibilities 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.
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.
RUSSEL METALS232020 ANNUAL REPORT
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure
about the matter of when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is Kimberly MacDonald.
Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Ontario
February 10, 2021
RUSSEL METALS242020 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 20)
Other operating expenses (Note 20)
Impairment of goodwill and long-lived assets (Note 8)
Earnings before interest and provision for income taxes
Interest expense (Note 21)
Earnings before provision for income taxes
Provision for income taxes (Note 22)
Net earnings for the year
Basic earnings per common share (Note 19)
Diluted earnings per common share (Note 19)
2020
$ 2,688.3
2,169.6
231.3
189.0
33.8
64.6
36.7
27.9
3.4
$ 24.5
2019
$ 3,675.9
3,035.9
295.9
197.8
-
146.3
40.9
105.4
28.8
$ 76.6
$ 0.39
$ 1.23
$ 0.39
$ 1.23
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 on translation of foreign operations
Items that may not be reclassified to earnings
Actuarial losses on pension and similar obligations,
net of taxes of $0.7 million (2019: $nil)
Other comprehensive loss
Total comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
2020
$ 24.5
2019
$ 76.6
(10.4)
(27.8)
(2.0)
(12.4)
$ 12.1
(0.1)
(27.9)
$ 48.7
RUSSEL METALS252020 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 9)
Right-of-Use Assets (Note 10)
Deferred Income Tax Assets (Note 22)
Pension and Benefits (Note 16)
Financial and Other Assets (Note 11)
Goodwill and Intangibles (Note 12)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (Note 13)
Accounts payable and accrued liabilities (Note 14)
Short-term lease obligations (Note 10)
Income taxes payable
Long-Term Debt (Note 15)
Pensions and Benefits (Note 16)
Deferred Income Tax Liabilities (Note 22)
Long-term Lease Obligations (Note 10)
Provisions and Other Non-Current Liabilities (Note 23)
Shareholders' Equity (Note 17)
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. Laberge
Director
2020
2019
$ 26.3
344.0
716.4
13.6
19.8
1,120.1
269.5
81.4
5.9
5.1
4.7
109.6
$ 1,596.3
$ 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
$ -
294.6
16.9
3.7
315.2
$ 62.1
326.4
17.1
0.3
405.9
293.7
13.0
9.5
88.8
11.4
731.6
444.8
10.4
13.2
94.4
11.6
980.3
546.2
212.5
15.7
90.3
864.7
$ 1,596.3
543.7
284.5
15.7
100.7
944.6
$ 1,924.9
RUSSEL METALS262020 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
Impairment of goodwill and long-lived assets
Gain on sale of property, plant and equipment
Share-based compensation
Difference between pension expense and amount funded
Debt accretion, amortization and other
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 refund (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
Repayment of long-term debt
Deferred financing
Lease obligations
Cash used in financing activities
Investing activities
Purchase of property, plant and equipment
Proceeds on sale of property, plant and equipment
Purchase of business
Cash used in investing activities
Effect of exchange rates on cash and cash equivalents
Increase (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.
2020
2019
$ 24.5
60.6
3.4
36.7
33.8
(6.5)
0.3
0.3
2.5
(36.4)
119.2
$ 76.6
56.7
28.8
40.9
-
(0.5)
0.3
(0.9)
1.2
(31.6)
171.5
114.8
169.0
(31.3)
4.6
257.1
(5.3)
371.0
(62.1)
2.2
(94.5)
146.4
(300.0)
(1.2)
(17.9)
(327.1)
121.1
202.5
(175.7)
(3.8)
144.1
(65.9)
249.7
(66.3)
1.3
(94.5)
-
-
-
(17.2)
(176.7)
(24.9)
14.4
(16.8)
(27.3)
(6.3)
10.3
16.0
$ 26.3
(34.8)
1.4
(139.4)
(172.8)
(8.5)
(108.3)
124.3
$ 16.0
RUSSEL METALS272020 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions of Canadian dollars)
Balance, January 1, 2020
Payment of dividends
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, 2020
Common
Shares
$ 543.7
-
-
-
-
2.5
-
$ 546.2
Retained
Earnings
$ 284.5
(94.5)
24.5
-
-
-
(2.0)
$ 212.5
Accumulated
Other
Contributed Comprehensive
Income
$ 100.7
-
-
(12.4)
-
-
2.0
$ 90.3
Surplus
$ 15.7
-
-
-
0.3
(0.3)
-
$ 15.7
Total
$ 944.6
(94.5)
24.5
(12.4)
0.3
2.2
-
$ 864.7
(in millions of Canadian dollars)
Balance, January 1, 2019
Payment of dividends
Change in accounting policy
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
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
RUSSEL METALS282020 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 processes, 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 10, 2021.
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 METALS292020 ANNUAL REPORT
Revenue from contracts with customers
b)
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
c)
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 $1.2732
per US$1 at December 31, 2020 (December 31, 2019: $1.2988 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, 2020, the average U.S. dollar Bank of Canada closing
exchange rate was $1.3412 per US$1 (2019: $1.3268 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.
Government grants
d)
Government assistance is recognized when there is reasonable assurance that the Company will comply with
all the conditions associated with the assistance and where there is reasonable assurance that it will be received.
Government grants related to an expense or waiver of expenses are recognized as a reduction of related
expenses. Government grants receivable are recorded in accounts receivable on the consolidated statements
of financial position.
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.
RISKS AND UNCERTANTIES
On March 11, 2020, the World Health Organization declared the global outbreak of COVID-19 a pandemic.
Several jurisdictions where the Company operates announced restrictions for all but essential business. Our
operations have been deemed essential and have remained open but with reduced activity. No assurance can
be made that this will continue to be the case.
RUSSEL METALS302020 ANNUAL REPORT
While the precise impact of the pandemic remains unknown, it could have an adverse effect on the communities
in which the Company operates, its financial results and its ability to raise capital. Due to the Company's
business outlook being impacted by the pandemic and other economic factors, it is possible that estimates in
the Company's financial statements will change and the effect of any such changes could be material. This
could result in, among other things, further impairment of long-lived assets, additional inventory provisions or a
change in the estimated credit loss provisions.
The Canadian and U.S. governments have introduced measures to support companies experiencing financial
challenges resulting from the COVID-19 pandemic and to support employment. As at December 31, 2020, the
Company assessed its eligibility related to the Canada Emergency Wage Subsidy program and the U.S.
Employee Retention Credit and recorded the expected recoverable amount as a reduction of employee wages
and salaries (Note 20).
NOTE 3
FUTURE ACCOUNTING CHANGES
IAS 1 Presentation of Financial Statements
The amendments to IAS 1 provide a more general approach to the classification of liabilities based on the
contractual arrangements in place at the reporting date and clarify that the classification of liabilities as current
or non-current should be based on rights that are in existence at the end of the reporting period. The
amendments are to be applied retrospectively and are effective for annual reporting periods beginning on or
after January 1, 2022.
IAS 16 Property, Plant and Equipment
The amendments to IAS 16 prohibit deducting from the cost of an item of property, plant and equipment any
proceeds from selling items produced while bringing that asset to the location and condition necessary for it to
be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds
from selling such items, and the cost of producing those items. The amendments are effective for annual periods
beginning on or after January 1, 2022 and are to be applied retrospectively.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
The amendments to IAS 37 provide guidance regarding the costs a company should include as the cost of
fulfilling a contract when assessing whether a contract is onerous. The amendments are effective for annual
periods beginning on or after January 1, 2022 with comparative figures not restated.
The Company is still assessing the impact of adopting these amendments on its future financial statements.
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.
RUSSEL METALS312020 ANNUAL REPORT
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
2020 Acquisition
On December 30, 2020, the Company completed its acquisition of 100% of the issued and outstanding shares
of Sanborn Tube Sale of Wisconsin, Inc. ("Sanborn"). Sanborn is a metal service center with value-added
processing capabilities that will augment the Company's existing operations in that region. The Sanborn
operation is based in Pewaukee, Wisconsin. The following summarizes the preliminary allocation of the
consideration for this acquisition:
(millions)
Inventories
Accounts receivable
Prepaid and other
Right-of-use assets
Property, plant and equipment
Intangibles
Goodwill
Accounts payable and accrued liabilities
Lease obligations
Net identifiable assets acquired
Consideration:
Cash
$ 2.8
2.6
0.2
2.8
3.8
5.6
2.7
(0.9)
(2.8)
$ 16.8
$ 16.8
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 $2.6 million represented gross contractual accounts
receivable of which none was considered uncollectible at the time of acquisition.
Goodwill represents the expansion and additional value-added processing capabilities of the Company's existing
service centers in the Wisconsin region. The goodwill is deductible for tax purposes.
If the acquisition had taken place at the beginning of the 2020 fiscal year, management estimates that the
acquired business would have provided revenues of $22 million and earnings before interest, provision for
income taxes depreciation and amortization of $2 million.
RUSSEL METALS322020 ANNUAL REPORT
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)
Inventories
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
Accounts receivable of $16.9 million represented gross contractual accounts receivable of which none was
considered uncollectible at the time of acquisition.
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 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
and provision for income taxes of $19.9 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
2020
$ 19.9
6.4
$ 26.3
2019
$ 11.4
4.6
$ 16.0
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.
RUSSEL METALS332020 ANNUAL REPORT
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
2020
$ 333.7
10.3
$ 344.0
2019
$ 449.7
8.4
$ 458.1
2020
2019
$ 5.1
0.6
(1.6)
0.4
$ 4.5
$ 4.9
2.1
(2.1)
0.2
$ 5.1
At December 31, 2020 and 2019, 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
$3.4 million for the year ended December 31, 2020 (2019: $4.5 million).
As at December 31, 2020 (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, 2019 (millions)
Trade Receivables
Gross trade receivables
Allowance for doubtful accounts
Total net trade receivables
NOTE 7
INVENTORIES
$ 209.3
(0.1)
$ 209.2
$ 89.7
(0.1)
$ 89.6
$ 25.1
-
$ 25.1
$ 14.1
(4.3)
$ 9.8
$ 338.2
(4.5)
$ 333.7
Current
Past Due
1-30 Days
Past Due
Past Due
31-60 Days Over 60 Days
Total 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
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.
RUSSEL METALS342020 ANNUAL REPORT
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 their 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 impairments (before reversals)
Metals service centers
Energy products
Steel distributors
2020
$ 2,169.6
2019
$ 3,035.9
$ 0.9
24.0
0.2
$ 25.1
$ 2.3
28.0
4.8
$ 35.1
During the year ended December 31, 2020, we recorded reversals of inventory impairment charges of $12.4
million (2019: $9.0 million) resulting in a net charge $12.7 million (2019: $26.1 million).
NOTE 8
ASSET IMPAIRMENT
ACCOUNTING POLICIES
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.
ACCOUNTING ESTIMATES AND JUDGEMENTS
During each reporting period in 2020, the Company concluded that the rapid deterioration of the North American
economy due to the pandemic and excess oil supply resulted in a triggering event and the need to perform
impairment testing of our long-lived assets including goodwill and intangibles within CGUs. During 2019, the
Company did not have a triggering event and performed its annual goodwill impairment tests in the 2019 fourth
quarter to determine recoverable amounts.
RUSSEL METALS352020 ANNUAL REPORT
In determining whether long-lived assets are impaired, the Company estimates the recoverable amount of each
CGU or groups of CGUs by utilizing discounted cash flow techniques to determine the value in use. Key
assumptions used by management include forecasted cash flows based on financial plans approved by
management covering a five year period and expected growth of 2% in future years 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, debt and a risk premium based on an assessment of risks related to each unit.
In the quarter ending March 31, 2020, the recoverable amounts for one of the U.S. line pipe CGU in the energy
product segment was less than the carrying amount of the CGU which resulted in an impairment of $3.7 million
of the right-of-use assets of the CGU. The impairment was a result of continued operating losses in the CGU.
In the quarter ending December 31, 2020, the recoverable amount of $104.8 million for the Company's U.S. field
store operations, Elite Supply Partners, did not exceed the CGU's carrying amount which resulted in the
recognition of a pre-tax impairment charge of $30.1 million. The impairment was due to the continued difficult
economic conditions caused by the pandemic and uncertainty of the timing and extent of the recovery. In 2019,
the Company did not record a long-lived asset impairment since the estimated recoverable amount of all CGUs
exceeded their carrying values.
For 2020, the pre-tax WACC used was 12.2% (2019: 15.1%). To monitor potential impairment exposure, the
Company performs a sensitivity analysis. For 2020, a 1% increase in the discount rate would trigger a further
long-lived asset impairment charge for Elite Supply Partners of $14.6 million whereas a 1% decrease would
reduce the impairment charge by $9.6 million. The Company's management believes that its estimates are
reasonable but there is no certainty that there will not be impairments in future periods should the economic
conditions in which the Company operates continue to deteriorate.
SUPPORTING INFORMATION
The asset impairment charges within each CGU were included in the consolidated statements of earnings and
reduced the carrying value of the associated assets on a pro-rata basis.
Asset Impairment Allocation (millions)
Property, plant and equipment
Right-of-use assets
Intangibles
Goodwill
2020
$ 5.5
3.7
11.0
13.6
$ 33.8
NOTE 9
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.
RUSSEL METALS362020 ANNUAL REPORT
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are
capitalized as part of the cost of that asset. Other borrowing costs not directly attributable to a qualifying asset
are expensed in the period incurred.
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company reviews the estimated useful lives of property, plant and equipment at the end of each annual
reporting period and whenever events or circumstances indicate a change in useful life. Estimated useful lives
of items of property, plant and equipment are based on a best estimate and the actual useful lives may be
different.
SUPPORTING INFORMATION
Cost (millions)
Balance, December 31, 2018
Business acquisition (Note 4)
Additions
Disposals
Foreign exchange
Balance, December 31, 2019
Business acquisition (Note 4)
Additions
Asset impairment (Note 8)
Disposals
Foreign exchange
Balance, December 31, 2020
Accumulated depreciation and amortization
(millions)
Balance, December 31, 2018
Depreciation and amortization
Disposals
Foreign exchange
Balance, December 31, 2019
Depreciation and amortization
Disposals
Foreign exchange
Balance, December 31, 2020
Net Book Value (millions)
December 31, 2019
December 31, 2020
Land and
Machinery
Buildings and Equipment
$ 393.0
4.4
27.9
(20.3)
(5.3)
$ 399.7
3.8
18.8
-
(16.6)
(2.5)
$ 403.2
$ 259.1
17.8
5.7
(0.3)
(2.4)
$ 279.9
-
5.0
(5.5)
(7.2)
(1.8)
$ 270.4
Machinery
Land and
Buildings and Equipment
$ 270.9
23.1
(19.4)
(3.1)
$ 271.5
23.0
(13.7)
(1.3)
$ 279.5
$ 117.2
8.4
(0.3)
(0.8)
$ 124.5
8.9
(2.2)
(0.6)
$ 130.6
Leasehold
Improvements
$ 21.2
-
1.2
(0.1)
(0.2)
$ 22.1
-
1.1
-
(0.3)
0.3
$ 23.2
Leasehold
Improvements
$ 16.3
0.7
(0.1)
(0.1)
$ 16.8
0.8
(0.3)
(0.1)
$ 17.2
Total
$ 673.3
22.2
34.8
(20.7)
(7.9)
$ 701.7
3.8
24.9
(5.5)
(24.1)
(4.0)
$ 696.8
Total
$ 404.4
32.2
(19.8)
(4.0)
$ 412.8
32.7
(16.2)
(2.0)
$ 427.3
$ 288.9
$ 269.5
All items of property, plant and equipment are recorded and held at cost.
At December 31, 2020, land, included in land and buildings, was $42.9 million (2019: $46.8 million).
Depreciation expense (millions)
Depreciation - cost of materials
Depreciation - other operating expenses
2020
$ 7.4
25.3
$ 32.7
2019
$ 7.8
24.4
$ 32.2
RUSSEL METALS372020 ANNUAL REPORT
NOTE 10
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.
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
Additions
Business acquisitions (Note 4)
Disposals and modifications
Depreciation and amortization
Asset impairment (Note 8)
Lease payments
Foreign exchange
Balance December 31, 2020
Current portion
Long-term portion
Right-of-use
Assets
$ 90.8
15.9
1.5
(17.0)
-
(1.1)
$ 90.1
11.0
2.8
(0.9)
(17.6)
(3.7)
-
(0.3)
$ 81.4
Lease
Obligations
$ 112.7
15.9
1.5
-
(17.2)
(1.4)
$ 111.5
11.0
2.8
(2.3)
-
-
(17.9)
0.6
$ 105.7
$ 16.9
$ 88.8
RUSSEL METALS382020 ANNUAL REPORT
The carrying value of right-of-use assets and depreciation by class of underlying assets are as follows:
Right-of-use Assets (millions)
Land and buildings
Machinery and equipment
Depreciation Expense (millions)
Land and buildings
Machinery and equipment
2020
$ 66.8
14.6
$ 81.4
2020
$ 11.1
6.5
$ 17.6
2019
$ 72.3
17.8
$ 90.1
2019
$ 11.3
5.7
$ 17.0
For the year ended December 31, 2020, the Company expensed $0.5 million (2019: $0.4 million) for short-term
and low value leases.
NOTE 11
FINANCIAL AND OTHER ASSETS
ACCOUNTING POLICIES
Eligible costs incurred relating to the short-term revolving credit facility are deferred and amortized on a straight-
line basis over the period of the related financing. Deferred financing charges are recorded at cost less
accumulated amortization. Eligible costs related to long-term debt financing are capitalized to the carrying
amount of the associated debt and amortized using the effective interest method.
SUPPORTING INFORMATION
(millions)
Deferred charges on revolving credit facility
Other assets
2020
$ 1.3
3.4
$ 4.7
2019
$ 0.5
3.5
$ 4.0
For the year ended December 31, 2020, the amortization of deferred financing charges was $0.4 million (2019:
$0.6 million).
NOTE 12
GOODWILL AND INTANGIBLES
ACCOUNTING POLICIES
Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets
acquired at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. The
Company reviews goodwill for impairment annually or more frequently if events or changes in circumstances
indicate that the assets might be impaired. When testing goodwill, the carrying values of the CGUs or group of
CGUs including goodwill are compared with their respective recoverable amounts (higher of fair value less costs
to sell 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.
RUSSEL METALS392020 ANNUAL REPORT
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
Goodwill
a)
The continuity of goodwill is as follows:
Goodwill (millions)
Balance, beginning of the year
Business acquisition (Note 4)
Impairment of goodwill (Note 8)
Foreign exchange
Balance, end of the year
2020
$ 39.2
70.4
$ 109.6
2019
$ 50.6
86.4
$ 137.0
2020
$ 50.6
2.7
(13.6)
(0.5)
$ 39.2
2019
$ 37.4
14.2
-
(1.0)
$ 50.6
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.
Canadian
Alberta
Ontario
Atlantic
Energy products
U.S.
2020
2019
$ 16.0
$ 13.5
11.0
10.2
2.0
11.0
10.2
2.0
-
$ 39.2
13.9
$ 50.6
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)
Impairment of intangible assets (Note 8)
Foreign exchange
Balance, end of the year
Metals
Service Centers
$ 20.0
5.6
-
-
$ 25.6
Energy
Products
$ 115.3
-
(11.0)
(0.7)
$ 103.6
Total
2020
$ 135.3
5.6
(11.0)
(0.7)
$ 129.2
Total
2019
$ 90.8
45.5
(1.0)
$ 135.3
RUSSEL METALS402020 ANNUAL REPORT
Accumulated amortization (millions)
Balance, beginning of the year
Amortization
Balance, end of the year
Metals
Service Centers
$ (13.3)
(1.3)
$ (14.6)
Energy
Products
$ (35.6)
(8.6)
$ (44.2)
Total
2020
$ (48.9)
(9.9)
$ (58.8)
Total
2019
$ (42.0)
(6.9)
$ (48.9)
Carrying amount
December 31, 2019
December 31, 2020
$ 86.4
$ 70.4
The carrying amount of intangible assets as at December 31, 2020 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 Sanborn. The remaining amortization period for customer
relationships is 4 to 15 years.
NOTE 13
REVOLVING CREDIT FACILITY
The Company has a credit agreement which 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 September 29,
2020, this facility was extended to September 21, 2023 and amended to provide additional borrowing base
flexibility.
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, 2020. At December 31, 2020,
the Company had no borrowings (2019: $57.0 million) and letters of credit of $68.0 million (2019: $32.5 million)
under this facility.
NOTE 14
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
ACCOUNTING POLICIES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of
business. Trade payables are classified as current liabilities if payment is due within one year or less. Trade
payables are recognized initially at fair value and subsequently measured at amortized cost.
SUPPORTING INFORMATION
(millions)
Trade accounts payable and accrued expenses
Accrued interest
NOTE 15
LONG-TERM DEBT
2020
$ 290.4
4.2
$ 294.6
2019
$ 319.9
6.5
$ 326.4
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 METALS412020 ANNUAL REPORT
SUPPORTING INFORMATION
(millions)
5 ¾% $150 million Senior Notes due October 27, 2025
6% $150 million Senior Notes due March 16, 2026
6% $300 million Senior Notes due April 19, 2022
2020
$ 146.5
147.2
-
$ 293.7
2019
$ -
146.8
298.0
$ 444.8
Fees associated with the issue of the debt are included in the carrying amount of debt and are amortized using
the effective interest method.
On March 16, 2018, the Company issued, through a private placement, $150 million 6% Unsecured
a)
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, 2020.
b)
On October 27, 2020, the Company issued $150 million 5 ¾% senior unsecured notes due October 27,
2025, for total net proceeds of $147 million. Interest on these senior notes is due semi-annually on April 27 and
October 27 of each year.
The Company may redeem up to 40% of these notes prior to October 27, 2022, with the net proceeds of certain
equity offerings at the redemption price of 105.8% of their principal amount, plus accrued and unpaid interest.
Prior to October 27, 2022, 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 October 27, 2022 at
102.9% of the principal amount declining rateably to 100% of the principal amount on or after October 27, 2024.
These notes contain certain restrictions on the payment of common share dividends in excess of $1.60 per share
in any fiscal year. 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, 2020.
c)
In November, the Company redeemed its $300 million 6% U.S Senior Notes at par. The total payment
of $301.0 million included $300.0 million principal plus accrued interest. The after-tax charge to net earnings
relating to the redemption was $0.9 million due to the write-off of deferred financing charges.
NOTE 16
PENSIONS AND BENEFITS
ACCOUNTING POLICIES
For defined benefit pension plans and other post-employment benefits, the net periodic pension and benefit
expense is actuarially determined on an annual basis by independent actuaries using the projected benefit
method, prorated on service and is charged to expense as services are rendered. The determination of a benefit
expense requires assumptions such as the discount rate to measure obligations, the expected mortality, the
expected rate of future compensation increases and the expected healthcare cost trend rate.
RUSSEL METALS422020 ANNUAL REPORT
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.
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 a 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, 2020 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
Plan administration cost
Post-retirement benefits
Defined contribution plans
Pension and benefit expense
2020
2019
$ 3.6
0.2
3.8
0.1
5.9
$ 9.8
$ 3.0
0.2
3.2
0.1
6.3
$ 9.6
RUSSEL METALS432020 ANNUAL REPORT
The components of the Company's pension and benefit changes recorded in other comprehensive income
included the following:
(millions)
Remeasurements of the net defined benefit liability
Actuarial gains (losses) due to actuarial experience
Actuarial losses due to financial assumption changes
Actuarial loss due to demographic assumption changes
Return on plan assets greater 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 losses recognized in the year
Balance of actuarial losses at December 31
2020
2019
$ 4.2
(12.3)
(0.6)
6.0
$ (2.7)
$ (0.2)
(15.6)
-
15.7
$ (0.1)
$ (10.2)
(2.7)
$ (12.9)
$ (10.1)
(0.1)
$ (10.2)
There were no adjustments related to asset ceiling limits in other comprehensive income for the years ended
December 31, 2020 and 2019.
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
2020
2.50%
2.75%
2.50%
2019
3.00%
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 $6.0 million as of
December 31, 2020 (2019: $5.7 million).
The mortality assumptions used to assess the defined benefit obligation are based on the 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
Balance, end of the year
Pension Plans
2019
2020
Other Benefit Plans
2019
2020
$ 154.9
3.6
0.1
4.5
(8.1)
8.8
$ 163.8
$ 137.9
3.0
0.2
5.1
(6.9)
15.6
$ 154.9
$ 2.9
-
-
0.1
(0.2)
-
$ 2.8
$ 2.9
-
-
0.1
(0.2)
0.1
$ 2.9
RUSSEL METALS442020 ANNUAL REPORT
(millions)
Reconciliation of present value of the plan assets
Balance, beginning of the year
Interest income
Employer contributions
Employee contributions
Benefits paid
Plan administration costs
Return on plan assets greater than discount rate
Balance, end of the year
Pension Plans
2019
2020
Other Benefit Plans
2019
2020
$ 152.8
4.5
3.5
0.1
(8.1)
(0.2)
6.1
$ 158.7
$ 135.0
5.1
3.9
0.2
(6.9)
(0.2)
15.7
$ 152.8
$ -
-
0.2
-
(0.2)
-
-
$ -
$ -
-
0.2
-
(0.2)
-
-
$ -
Defined benefit obligation, net
$ 5.1
$ 2.1
$ 2.8
$ 2.9
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
2020
$ 1.2
2019
$ 1.8
69.0
50.3
119.3
68.8
45.5
114.3
7.8
15.7
14.7
38.2
$ 158.7
13.7
12.6
10.4
36.7
$ 152.8
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
2019
2020
Other Benefit Plans
2019
2020
$ (5.1)
10.2
-
$ 5.1
$ (5.4)
7.5
-
$ 2.1
$ -
-
2.8
$ 2.8
$ -
-
2.9
$ 2.9
c)
As at December 31, 2020 approximately 76% (2019: 76%) of the fair value of all pension plan assets
was invested in equities, 23% (2019: 23%) in fixed income securities, and 1% (2019: 1%) 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.
The weighted average duration of defined benefit obligations is 16.2 years (2019: 15.9 years) for defined
d)
benefit pension plans, 10.2 years (2019: 10.1 years) for executive pension arrangements and 7.1 years (2019:
7.1 years) for other post retirement benefit plans. The Company expects to make contributions of $3.1 million
to its defined benefit pension plans and $0.3 million to its post retirement benefits medical plans in the next
financial year.
RUSSEL METALS452020 ANNUAL REPORT
NOTE 17
SHAREHOLDERS' EQUITY
a)
At December 31, 2020 and 2019, 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.
b)
The number of common shares issued and outstanding was as follows:
Balance, December 31, 2018
Share options exercised
Balance, December 31, 2019
Share options exercised
Balance, December 31, 2020
The continuity of contributed surplus is as follows:
(millions)
Balance, December 31, 2018
Share-based compensation expense
Exercise of options
Balance, December 31, 2019
Share-based compensation expense
Exercise of options
Balance, December 31, 2020
Number
of Shares
62,106,895
66,535
62,173,430
122,011
62,295,441
Amount
(millions)
$ 542.1
1.6
$ 543.7
2.5
$ 546.2
$ 15.7
0.3
(0.3)
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 10, 2021 (February 11, 2020)
2020
$ 94.5
$ 1.52
$ 0.38
2019
$ 94.5
$ 1.52
$ 0.38
NOTE 18
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.
RUSSEL METALS462020 ANNUAL REPORT
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.
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 the
options 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
2020
1,666,534
109,615
(122,011)
(70,345)
1,583,793
2019
1,691,086
53,708
(66,535)
(11,725)
1,666,534
Weighted Average
Exercise Price
2020
$ 26.00
18.94
18.27
23.87
$ 26.20
2019
$ 25.75
23.69
19.09
18.17
$ 26.00
1,366,046
1,399,579
$ 26.66
$ 26.28
The outstanding options have exercise price ranges as follows:
(number of options)
$ 29.00 - $ 31.46
$ 25.37 - $ 28.99
$ 14.61 - $ 25.36
Options outstanding
2020
213,987
810,890
558,916
1,583,793
2019
213,987
849,785
602,762
1,666,534
The options expire in the years 2021 to 2030 and have a weighted average remaining contractual life of 3.0
years (2019: 3.4 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
2020
5%
32%
5 yrs
0.72%
$ 2.86
2019
5%
30%
5 yrs
1.94%
$ 3.91
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.
RUSSEL METALS472020 ANNUAL REPORT
The continuity of SARs is as follows:
Balance, beginning of year
Granted
Balance, end of the year
Number of SARs
2020
232,871
120,000
352,871
2019
131,147
101,724
232,871
Weighted Average
Exercise Price
2020
$ 27.31
21.94
$ 25.48
2019
$ 30.12
23.69
$ 27.31
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
2020
288,030
80,432
(15,404)
353,058
2019
254,790
62,199
(28,959)
288,030
The liability and fair value of DSUs was $8.0 million at December 31, 2020 (2019: $6.4 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
2020
389,429
166,911
(146,561)
409,779
2019
183,588
259,287
(53,446)
389,429
The RSU liability at December 31, 2020 was $7.1 million (2019: $5.8 million). The fair value of RSUs was $9.3
million at December 31, 2020 (2019: $8.6 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.
RUSSEL METALS482020 ANNUAL REPORT
Components of share-based compensation expense are as follows:
(millions)
Share options
DSUs, SARs and RSUs
Employee Share Purchase Plan
2020
$ 0.3
5.7
0.7
$ 6.7
2019
$ 0.3
5.3
0.7
$ 6.3
NOTE 19
EARNINGS PER SHARE
ACCOUNTING POLICIES
Basic earnings per common share is calculated using the weighted average number of common shares
outstanding. Diluted earnings per share is calculated using the treasury 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 20
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 gains
2020
$ 24.5
2019
$ 76.6
2020
62,191,208
-
62,191,208
2019
62,132,030
42,931
62,174,961
2020
2019
$ 188.7
42.6
$ 231.3
$ 250.5
45.4
$ 295.9
$ 116.8
50.5
13.2
7.6
8.0
(6.5)
(0.6)
$ 189.0
$ 113.7
54.7
14.5
11.5
5.5
(0.5)
(1.6)
$ 197.8
In response to the COVID-19 pandemic, the Government of Canada announced the Canadian Emergency Wage
Subsidy program ("CEWS") effective for the period of March 15, 2020 to December 19, 2020. For the period up
to August 29, 2020, CEWS provided a 75% wage subsidy to a maximum of $847 per employee per week to
eligible businesses. Subsequent to August 29, 2020, the maximum wage subsidy available declined. The
Government of Canada has announced plans for an additional extension to June 2021. The U.S. Employee
Retention Credit provides an employment tax credit under certain conditions to eligible employers. During the
year ended December 31, 2020, the Company recognized government grants of $47.3 million from CEWS and
the U.S. Employee Retention Credit as a reduction of wages and salaries.
RUSSEL METALS492020 ANNUAL REPORT
NOTE 21
INTEREST EXPENSE
(millions)
Interest on 6% $300 million Senior Notes
Interest on 6% $150 million Senior Notes
Interest on 5 ¾% $150 million Senior Notes
Interest on lease obligations
Other interest expense
Interest expense
2020
$ 17.3
9.4
1.6
7.4
1.0
$ 36.7
2019
$ 18.8
9.4
-
7.7
5.0
$ 40.9
Interest expense on long-term debt and lease obligations 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, 2020 was $1.2 million (2019: $1.2 million) and $1.3 million from
the write-off of issue costs relating to the $300 million 6% senior notes redeemed in 2020.
NOTE 22
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.
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.
RUSSEL METALS502020 ANNUAL REPORT
ACCOUNTING ESTIMATES AND JUDGEMENTS
The Company computes an income tax provision in each of the jurisdictions in which it operates. Actual amounts
of income tax expense are finalized upon filing and acceptance of the tax return by the relevant authorities, which
occurs subsequent to the issuance of the consolidated financial statements. Additionally, the estimation of
income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the ability
to use the underlying future tax deductions before they expire against future taxable income. The assessment
is based upon existing tax laws and estimates of future taxable income. To the extent estimates differ from the
final tax return, earnings would be affected in a subsequent period. In interim periods, the income tax provision
is based on an estimate of earnings 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 recovery
Statutory rate adjustment
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 – CARES Act
Other includes utilization of capital losses
Average effective tax rate
2020
$ 7.5
(4.1)
-
$ 3.4
2019
$ 30.8
(1.0)
(1.0)
$ 28.8
2020
26.2%
8.9%
2.9%
(21.2%)
(4.6%)
12.2%
2019
26.8%
0.3%
0.9%
(0.9%)
0.2%
27.3%
The combined Canadian statutory rate is the aggregate of the federal income tax rate of 15.0% for both 2020
and 2019 and the average provincial rates of 11.2% (2019: 11.8%). The 2020 and 2019 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 March 27, 2020, the U.S. CARES Act allowed for losses to be carried back to years when the statutory rate
was 14% higher. During 2020, the Company recorded a reduction in the provision for income taxes of $5 million
relating to our 2019 and 2020 tax losses. On October 1, 2020, the province of Alberta expedited the reduction
of its general corporate tax rate to July 1, 2020 to 8% instead of July 1, 2021. There was no significant impact
on our tax provision by this change.
RUSSEL METALS512020 ANNUAL REPORT
c)
Deferred income tax assets and liabilities were as follows:
Deferred Income Tax Assets
(millions)
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
Benefit (expense) to consolidated
statement of earnings
Reclass assets/liabilities and other
Balance December 31, 2020
Property
Plant and
Equipment
$ 0.7
Pension
And
Benefits
$ 0.2
Goodwill
And
Intangibles
$ 2.8
Other
Timing
Total
$ 0.5 $ 4.2
(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
Losses
$ -
4.9
0.9
-
$ 5.8
(4.6)
0.1
$ 1.3
(0.3)
0.2
$ (6.4)
-
-
$ 0.1
6.8
(0.3)
$ 7.6
(0.8)
-
1.1
-
$ 3.3 $ 5.9
Deferred Income Tax Liabilities
(millions)
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
(Benefit) expense to consolidated
statement of earnings
Benefits to other comprehensive income
Balance December 31, 2020
Property
Plant and
Equipment
$ 17.8
2.4
(7.3)
-
(3.6)
$ 9.3
Pension
And
Benefits
$ (1.1)
0.2
-
0.1
-
$ (0.8)
(0.6)
-
$ 8.7
(0.2)
(0.7)
$ (1.7)
Losses
$ (0.9)
-
0.9
-
-
$ -
-
-
$ -
Goodwill
And
Intangibles
Other
Timing
Total
$ 10.5 $ (6.2) $ 20.1
(2.0)
(0.2)
-
-
0.1
(3.5)
0.1
(3.6)
$ 8.3 $ (3.6) $ 13.2
(0.5)
3.1
-
-
(1.2)
-
(3.0)
(0.7)
$ 7.1 $ (4.6) $ 9.5
(1.0)
-
Net deferred liability at December 31, 2019
Net deferred liability at December 31, 2020
$ 8.4
$ 3.6
d)
At December 31, 2020, 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 (2019: $1.3 million). The majority of the state tax losses carried
forward will expire between 2031 and 2036, if not utilized. Deferred tax assets are recognized for tax loss carry-
forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The
ability to realize the tax benefits of these losses is dependent upon a number of factors, including the probability
of generating taxable income from operations in the future in the jurisdictions in which the tax losses arose.
At December 31, 2020, the Company had $0.9 million (2019: $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 $0.2 million (2019: $0.8 million) has not been recognized.
e)
At December 31, 2020, the aggregate amount of temporary differences associated with undistributed
earnings of non-Canadian subsidiaries was $353 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 23
PROVISIONS AND OTHER NON-CURRENT LIABILITIES
ACCOUNTING POLICIES
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are
recognized when the Company has a present legal or constructive obligation as a result of past events, it is
probable that an outflow of resources will be required to settle the obligation and the amount can be reliably
estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present
value of the expected expenditures to settle the obligation using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. Any increase in the provision
due to the passage of time is recognized in other finance expense.
RUSSEL METALS522020 ANNUAL REPORT
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 18)
Less: current portion
2020
$ 1.7
15.1
16.8
(5.4)
$ 11.4
2019
$ 1.8
12.2
14.0
(2.4)
$ 11.6
Deferred compensation includes the RSU and DSU liabilities. RSU and DSU liabilities of $5.4 million will be
paid within the current year and have been classified as current liabilities.
NOTE 24
SEGMENTED INFORMATION
ACCOUNTING POLICIES
The Company's operating segments are organized around the markets it serves and are reported in a manner
consistent with the internal reporting provided to the chief operating decision-maker which is the Chief Executive
Officer.
SUPPORTING INFORMATION
For the purpose of segment reporting, operating segments are identified as a component of an entity:
that engages in business activities from which it may earn revenues and incur expenses;
whose operating results are regularly reviewed by the Company's Chief Executive Officer to make
decisions about resources to be allocated to the segment and assess its performance; and
for which discrete financial information is available.
Accordingly, the Company conducts business in Canada and the U.S. in three reportable segments.
Metals service centers
i)
The Company's network of metals service centers provides processing and distribution services on a
broad line of metal products in a wide range of sizes, shapes and specifications, including carbon hot
rolled and cold finished steel, pipe and tubular products, stainless steel and aluminium. The Company
services all major geographic regions of Canada and certain regions in the Southeastern and
Midwestern regions in the United States.
Energy products
ii)
The Company's energy products operations distribute oil country tubular products, line pipe, tubes,
valves, flanges and fittings, primarily to the energy industry in Western Canada and the United States.
Steel distributors
iii)
The Company's steel distributors act as master distributors selling steel to customers in large volumes,
mainly on an "as is" basis. Steel distributors source their steel domestically and offshore.
RUSSEL METALS532020 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 $30.0 million
(2019: $58.0 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
Gain on sale of property, plant and equipment
Impairment of goodwill and long-lived assets
Other income
Earnings before interest and provision for income taxes
Interest expense
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
2020
2019
$ 1,621.8
797.5
261.9
2,681.2
7.1
$ 2,688.3
$ 1,958.0
1,310.7
395.9
3,664.6
11.3
$ 3,675.9
$ 103.9
(3.3)
9.2
109.8
(19.4)
6.1
(33.8)
1.9
64.6
(36.7)
(3.4)
$ 24.5
$ 73.7
68.8
15.8
158.3
(17.0)
-
-
5.0
146.3
(40.9)
(28.8)
$ 76.6
$ 21.4
2.5
0.6
0.4
$ 24.9
$ 27.9
5.4
0.8
0.7
$ 34.8
$ 35.7
22.6
1.6
0.7
$ 60.6
$ 34.5
19.8
1.6
0.8
$ 56.7
RUSSEL METALS542020 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
2020
2019
$ 473.6
506.8
97.4
1,077.8
$ 482.9
747.6
131.3
1,361.8
322.3
128.9
6.4
1,535.4
318.3
187.3
7.5
1,874.9
26.3
25.7
3.7
5.1
0.1
$ 1,596.3
16.0
23.7
4.0
5.4
0.9
$ 1,924.9
$ 243.3
116.8
17.0
377.1
$ 220.1
181.0
18.3
419.4
-
13.2
293.7
13.0
34.6
$ 731.6
62.1
13.5
444.8
10.4
30.1
$ 980.3
2020
2019
$ 1,815.8
865.4
$ 2,681.2
$ 2,561.2
1,103.4
$ 3,664.6
$ 118.9
(9.1)
$ 109.8
$ 166.8
(8.5)
$ 158.3
$ 1,070.8
464.6
$ 1,535.4
$ 1,248.7
626.2
$ 1,874.9
RUSSEL METALS552020 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
2020
2019
$ 735.1
463.2
416.5
418.5
159.1
235.9
28.9
2,457.2
116.8
114.3
$ 2,688.3
$ 875.7
664.8
695.4
638.5
184.4
289.2
36.2
3,384.2
135.0
156.7
$ 3,675.9
NOTE 25
RELATED PARTY TRANSACTIONS
During the years ended December 31, 2020 and 2019 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, 2020, 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
2020
$ 5.0
2.0
0.3
$ 7.3
2019
$ 5.5
3.0
0.3
$ 8.8
NOTE 26
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 METALS562020 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 and long-term debt.
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.
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 METALS572020 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
Financial assets and liabilities
a)
Financial assets and liabilities were as follows:
December 31, 2020 (millions)
Cash and cash equivalents
Accounts receivable
Financial assets
Accounts payable and accrued liabilities
Lease obligations
Long-term debt
Total
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
Loans and
Receivables
$ 26.3
344.0
3.4
-
-
-
$ 373.7
Loans and
Receivables
$ 16.0
458.1
3.5
-
-
-
-
$ 477.6
Other
Financial
Liabilities
$ -
-
-
(294.6)
(105.7)
(293.7)
$ (694.0)
Other
Financial
Liabilities
$ -
-
-
(62.1)
(326.4)
(111.5)
(444.8)
$ (944.8)
Total
$ 26.3
344.0
3.4
(294.6)
(105.7)
(293.7)
$ (320.3)
Total
$ 16.0
458.1
3.5
(62.1)
(326.4)
(111.5)
(444.8)
$ (467.2)
For the year ended December 31, 2020, the fair value loss from derivative financial instruments on the
consolidated statements of earnings was $1.0 million (2019: loss of $3.7 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".
RUSSEL METALS582020 ANNUAL REPORT
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, 2020 and 2019 was estimated based on the last quoted trade price, where it exists, or
based on current rates available to the Company for similar debt with the same period to maturity.
The following summary reflects the fair value of long-term debt:
December 31, 2020 (millions)
5 ¾% $150 million Senior Notes due October 27, 2025
6% $150 million Senior Notes due March 16, 2026
Total
Current portion
Long-term portion
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
Carrying
Amount
Fair Value
Level 2
$ 157.3
152.6
$ 309.9
$ 146.5
147.2
$ 293.7
$ -
$ 293.7
Carrying
Amount
Fair Value
Level 2
$ 303.9
157.2
$ 461.1
$ 298.0
146.8
$ 444.8
$ -
$ 444.8
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, 2020, 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 13);
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, 2020 and 2019, other than
the allowance for doubtful accounts (Note 6). As at December 31, 2020, trade accounts receivable greater than
90 days represented less than 5% of trade accounts receivable (2019: 5%).
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, 2020, the Company had outstanding forward foreign exchange contracts in the amount of US$134.0 million,
maturing in 2021 (2019: US$9.4 million). A 1% change in foreign exchange rates would not result in a significant
increase or decrease in accounts payable or net earnings.
RUSSEL METALS592020 ANNUAL REPORT
Liquidity risk
f)
Liquidity risk is the risk that the Company will not meet its financial obligations when due. Liquidity adequacy is
assessed in view of seasonal needs, growth requirements, capital expenditures, and the maturity profile of
indebtedness. Cash is managed by the centralized treasury function and is invested in money market
instruments or bank deposits, with durations ranging up to sixty days. A centralized treasury function ensures
that the Company maintains funding flexibility by assessing future cash flow expectations and by maintaining its
committed borrowing facilities.
As at December 31, 2020, the Company was contractually obligated to make payments under its financial
liabilities that come due during the following periods:
(millions)
2021
2022
2023
2024
2025
2026 and beyond
Total
Accounts
Payable
$ 294.6
-
-
-
-
-
$ 294.6
Long-Term
Debt Maturities
$ -
-
-
-
150.0
150.0
$ 300.0
Long-Term
Debt Interest
$ 17.7
17.6
17.6
17.6
17.5
5.0
$ 93.0
Lease
Obligations
$ 23.8
19.7
17.8
15.0
12.0
55.3
$ 143.6
Total
$ 336.1
37.3
35.4
32.6
179.5
210.3
$ 831.2
At December 31, 2020, the Company was contractually obligated to repay its bank borrowings and letters of
credit under its bank facilities (Note 13).
Capital management
g)
The Company manages capital in order to safeguard its ability to continue as a going concern, provide returns
to shareholders through its dividend policy and provide the ability to finance future growth. Capital includes
shareholders' equity, bank indebtedness and long-term debt, net of cash. The Company manages its capital
structure and may make adjustments to the amount of dividends paid to shareholders, purchase shares for
cancellation pursuant to issuer bids, issue new shares, issue new debt, repurchase existing debt and extend or
amend its banking facilities.
NOTE 27
CONTINGENCIES, COMMITMENTS AND GUARANTEES
Lawsuits and legal claims
a)
The Company recognizes contingent loss provisions for losses that are probable when management is able to
reasonably estimate the loss. When the estimated loss lies within a range, the Company records a contingent
loss provision based on its best estimate of the probable loss. If no particular amount within that range is a
better estimate than any other amount, the minimum amount is recorded. Estimates of losses may be developed
significantly before the ultimate loss is known, and are revalued each accounting period as additional information
becomes known. In instances where the Company is unable to develop a reasonable loss estimate, no
contingent loss provision is recorded at that time. A contingent loss provision is recorded when a reasonable
estimate can be made. Estimates are reviewed quarterly and revised when expectations change.
An outcome that deviates from the Company’s estimate may result in an additional expense or income in a future
accounting period.
The Company and certain of its subsidiaries have been named defendants in a number of legal actions. Although
the outcome of these legal actions cannot be determined, management intends to defend all such legal actions
and has recorded provisions, as required, based on its best estimate of the potential losses. In the opinion of
management, the resolution of these legal actions is not expected to have a material adverse effect on the
Company's financial position, cash flows or operations.
The Company 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.
RUSSEL METALS602020 ANNUAL REPORT
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 METALS612020 ANNUAL REPORT
BOARD OF DIRECTORS
OFFICERS
JOHN M. CLARK
President
Investment and Technical
Management Corp.
JAMES F. DINNING
Chair of the Board
BRIAN R. HEDGES
Corporate Director
ALICE D. LABERGE
Corporate Director
WILLIAM M. O’REILLY
Corporate Director
ROGER PAIVA
Corporate Director
JOHN G. REID
President &
Chief Executive Officer
ANNIE THABET
Corporate Director &
Partner at Celtis Capital
JOHN R. TULLOCH
Corporate Director
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
Wednesday, May 5, 2021 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
JAMES F. DINNING
Chair of the Board
JOHN G. REID
President &
Chief Executive Officer
MARTIN L. JURAVSKY
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
CORPORATE & SOCIAL RESPONSIBILITY
Our decentralized and entrepreneurial culture in our local operations
lends itself to community-based initiatives. We invite you to our
Community Initiatives 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.
GLOSSARY
Book Value Per Share - Shareholders’ equity divided common shares outstanding at December 31
Adjusted EBIT - Earnings before deduction of long-lived asset impairment, interest, provision for income taxes
Adjusted EBITDA - Earnings before deduction of long-lived asset impairment, interest, provision for income taxes,
depreciation and amortization
Free Cash Flow - Cash from operating activities before change in working capital less capital expenditures
Interest Bearing Debt to Adjusted EBITDA - Total interest bearing debt divided by Adjusted EBITDA
Invested Capital - Net debt plus shareholders’ equity
Net Debt - Total interest bearing debt, net of cash on hand
Return on Invested Capital - Adjusted EBIT divided by invested capital
Return on Equity - Adjusted EBIT divided by shareholders’ equity
6600 Financial Drive
Mississauga, Ontario
L5N 7J6
905-819-7777
1-800-268-0750
www.russelmetals.com