Russel Metals Inc.
TSX : RUS

Russel Metals Inc.

July 31, 2006 12:55 ET

Russel Metals Announces 97% Increase in Second Quarter Net Income and Raises Common Share Dividend by 14%

TORONTO, ONTARIO--(CCNMatthews - July 31, 2006) - Russel Metals Inc. (TSX:RUS) reported second quarter 2006 net earnings of $46 million or $0.75 per common share. Net earnings were 97% ahead of the second quarter 2005 net earnings of $24 million. Net earnings per common share were up 60% from the $0.47 per common share recorded in the second quarter of 2005. In the second quarter of 2006, revenues increased by 6% to $686 million, up from $644 million in the second quarter of 2005 due to increased revenue in the steel distributors segment.

Gross margins and operating profits as a percentage of revenues improved to 22.4% and 10.2%, respectively, in the second quarter of 2006. Margins were stronger due to historically high and stable steel prices. Inventory holding losses experienced in the metals service centers in the second quarter of 2005 did not reoccur in 2006.

The second quarter net earnings were also positively impacted by lower net interest expenses, which dropped to $1 million in the second quarter of 2006 from $5 million in the second quarter of 2005 as a result of the elimination of short-term borrowings and the strong cash position.

Net earnings for the six months ended June 30, 2006 were $84 million or $1.46 per common share versus $57 million or $1.13 per common share for the comparable period in 2005. Average common shares outstanding in the first six months of 2006 were 57.4 million versus 50.3 million in 2005. Total common shares outstanding at June 30, 2006 were 62.3 million.

Revenue for the first six months of 2006 increased 7% to $1.4 billion from $1.3 billion in 2005.

Bud Siegel, President and Chief Executive Officer, commented, "Russel Metals has experienced 10 consecutive quarters of strong financial performance and has one of the best balance sheets in the industry. The strong steel pricing environment led to further margin improvements, which were already at near record levels. I am very pleased with our second quarter performance by all of our operating segments.

This financial strength positions the Company to be a participant in the continuing consolidation of the distribution sector of the steel industry, but we remain cautious given the valuations at which transactions are being presently consummated."

The Board of Directors approved a quarterly dividend increase of 14% to $0.40 per common share payable September 15, 2006 to shareholders of record as of August 16, 2006.

The Company will be holding an Investor Conference Call on Tuesday, August 1, 2006 at 9:00 a.m. ET to review its second quarter results for 2006. The dial in telephone number for the call is 1-800-346-5998.

For those unable to participate in the conference call, it will be recorded and available for listening at 1-800-558-5253 until midnight, Tuesday, August 8, 2006. You will be required to enter reservation number 21268317 in order to access the call.

Additional supplemental financial information is available in our investor conference call package located on our website at www.russelmetals.com.

Russel Metals is one of the largest metals distribution companies in North America. It carries on business in three distribution segments: metals service centers, energy tubular products and steel distributors, under various names including Russel Metals, A.J. Forsyth, Acier Leroux, Acier Loubier, Acier Richler, Arrow Steel Processors, B&T Steel, Baldwin International, Comco Pipe and Supply, Fedmet Tubulars, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel, Milspec Industries, Pioneer Pipe, Russel Leroux, Russel Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply, Wirth Steel and York-Ennis.



RUSSEL METALS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
($000) 2006 2005
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ASSETS
Current
Cash and cash equivalents $ 270,857 $ 47,055
Accounts receivable 402,484 359,594
Inventories 555,818 474,034
Prepaid expenses and other assets 6,767 7,010
Income taxes receivable 573 304
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1,236,499 887,997

Property, Plant and Equipment 185,062 181,841
Assets Held For Sale - 5,085
Deferred Financing Charges 7,483 7,240
Goodwill 9,205 9,205
Future Income Tax Assets 960 994
Other Assets 2,821 2,821
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$ 1,442,030 $ 1,095,183
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $ - $ 2,098
Accounts payable and accrued liabilities 348,056 312,937
Income taxes payable 8,338 5,588
Discontinued operations 2,330 2,386
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358,724 323,009

Other Accrued Liabilities 20,300 15,210
Long-Term Debt 195,125 204,033
Pensions and Benefits 2,012 8,949
Future Income Tax Liabilities 8,544 5,285
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584,705 556,486
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Shareholders' Equity 857,325 538,697
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$ 1,442,030 $ 1,095,183
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RUSSEL METALS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

Quarters ended June 30, Six months ended June 30,
($000) 2006 2005 2006 2005
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Revenues $ 685,930 $ 644,463 $ 1,426,658 $ 1,338,072
Cost of sales and
operating
expenses 615,755 605,258 1,295,201 1,240,060
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Earnings before
the following 70,175 39,205 131,457 98,012
Restructuring 1,237 2,787 1,237 2,382
Interest expense,
net (1,169) (5,400) (4,328) (10,299)
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Earnings before
income taxes 70,243 36,592 128,366 90,095
Provision for
income taxes (23,802) (13,052) (44,549) (33,065)
---------------------------------------- ----------------------------
Earnings from
continuing
operations 46,441 23,540 83,817 57,030
Loss from
discontinued
operations - (16) - (62)
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Net earnings for
the period $ 46,441 $ 23,524 $ 83,817 $ 56,968
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CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(UNAUDITED)

Quarters ended June 30, Six months ended June 30,
($000, except per
share data) 2006 2005 2006 2005
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Retained earnings,
beginning of the
period $ 361,613 $ 286,162 $ 342,015 $ 262,733
Net earnings for
the period 46,441 23,524 83,817 56,968
Dividends on
common shares (21,787) (10,109) (39,565) (20,124)
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Retained earnings,
end of the period $ 386,267 $ 299,577 $ 386,267 $ 299,577
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Basic earnings per
common share
- continuing
operations $ 0.75 $ 0.47 $ 1.46 $ 1.13
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Basic earnings per
common share $ 0.75 $ 0.47 $ 1.46 $ 1.13
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Diluted earnings
per common share
- continuing
operations $ 0.74 $ 0.46 $ 1.44 $ 1.12
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Diluted earnings
per common share $ 0.74 $ 0.46 $ 1.44 $ 1.12
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RUSSEL METALS INC.
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)

Quarters ended June 30, Six months ended June 30,
($000) 2006 2005 2006 2005
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Operating activities
Earnings from
continuing
operations $ 46,441 $ 23,540 $ 83,817 $ 57,030
Depreciation and
amortization 4,821 4,766 9,618 9,403
Future income
taxes (828) 2,990 257 8,676
(Gain) loss on
sale of fixed
assets and assets
held for sale (1,391) (265) (1,446) (266)
Stock-based
compensation 627 658 1,547 851
Pension expense
(funding) 704 - (6,205) -
--------------- -----------------------------------------------------
Cash from operating
activities before
working capital 50,374 31,689 87,588 75,694
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Changes in non-cash
working capital
items
Accounts
receivable 6,132 33,811 (46,122) (24,485)
Inventories (41,422) 17,495 (86,582) 44,130
Accounts payable
and accrued
liabilities 21,951 (18,355) 37,560 (50,606)
Current income
taxes 1,664 (3,131) 5,447 (61,850)
Other (429) (181) 243 860
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Change in non-cash
working capital (12,104) 29,639 (89,454) (91,951)
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Cash from (used in)
operating
activities 38,270 61,328 (1,866) (16,257)
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Financing activities
(Decrease) increase
in bank borrowing - (48,701) (2,098) 36,194
Issue of common
shares - public
issue - - 271,420 -
Issue of common
shares - options
exercised 636 166 5,441 3,882
Dividends on common
shares (21,787) (10,109) (39,565) (20,124)
Deferred financing
costs (905) (31) (971) (156)
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Cash (used in) from
financing
activities (22,056) (58,675) 234,227 19,796
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Investing activities
Purchase of fixed
assets (6,950) (7,084) (13,521) (12,159)
Proceeds on sale
of fixed assets 1,427 1,242 1,488 1,365
Proceeds from
assets held for
sale and sale of
businesses 6,220 5,869 6,220 5,869
Other (1,565) (3,358) (2,746) (2,138)
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Cash used in
investing
activities (868) (3,331) (8,559) (7,063)
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Discontinued
operations
Operating
activities - (16) - (62)
Investing
activities - 2,415 - 6,504
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Cash from
discontinued
operations - 2,399 - 6,442
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Increase in cash
and cash
equivalents 15,346 1,721 223,802 2,918
Cash and cash
equivalents,
beginning of the
period 255,511 1,831 47,055 634
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Cash and cash
equivalents, end
of the period $ 270,857 $ 3,552 $ 270,857 $ 3,552
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