SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

RELIANCE STEEL & ALUMINUM CO.

(Exact name of registrant as specified in its charter)

California		95-1142616
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

350 South Grand Avenue, Suite 5100
Los Angeles, California 90071
(213) 687-7700
(Address of principal executive offices and telephone number)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     As of April 30, 2007, 76,231,621 shares of the registrant’s common stock, no par value, were outstanding.

 

 

RELIANCE STEEL & ALUMINUM CO.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PART I — FINANCIAL INFORMATION			1
Item 1. Consolidated Balance Sheets at March 31, 2007 (Unaudited) and December 31, 2006			1
Unaudited Consolidated Statements of Income for the Three-Month Periods Ended March 31, 2007 and 2006			2
Unaudited Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2007 and 2006			3
Notes to Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures about Market Risk			26
Item 4. Controls and Procedures			26
PART II — OTHER INFORMATION			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 6. Exhibits			27
SIGNATURES			28
CERTIFICATIONS			29
Exhibit 31.1
Exhibit 31.2
Exhibit 32

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

		March 31,				December 31,
		2007				2006
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	28,578			$	57,475
Accounts receivable, less allowance for doubtful accounts of $20,010 at March 31, 2007 and $16,755 at December 31, 2006			835,204				666,273
Inventories			1,063,840				904,318
Prepaid expenses and other current assets			24,980				22,179
Income taxes receivable			—				25,144
Total current assets			1,952,602				1,675,389
Property, plant and equipment, at cost:
Land			108,994				108,022
Buildings			396,412				385,851
Machinery and equipment			586,100				565,951
Accumulated depreciation			(333,188	)			(317,152	)
			758,318				742,672
Goodwill			932,281				784,871
Intangible assets, net			371,061				354,195
Cash surrender value of life insurance policies, net			44,162				41,190
Other assets			16,901				15,856
Total assets		$	4,075,325			$	3,614,173
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	445,002			$	340,356
Accrued expenses			58,662				36,481
Accrued compensation and retirement costs			63,613				92,905
Accrued insurance costs			36,673				34,475
Income taxes payable			36,741				—
Deferred income taxes			23,707				23,706
Current maturities of long-term debt			32,257				22,257
Current maturities of capital lease obligations			565				559
Total current liabilities			697,220				550,739
Long-term debt			1,266,806				1,083,095
Capital lease obligations			5,004				4,956
Long-term retirement costs and other long-term liabilities			52,233				46,111
Deferred income taxes			188,468				181,628
Minority interest			1,336				1,246
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value: Authorized shares — 5,000,000 None issued or outstanding			—				—
Common stock, no par value: Authorized shares — 100,000,000 Issued and outstanding shares — 76,005,439 at March 31, 2007 and 75,702,046 at December 31, 2006, stated capital			709,122				701,690
Retained earnings			1,154,352				1,046,339
Accumulated other comprehensive income/(loss)			784				(1,631	)
Total shareholders’ equity			1,864,258				1,746,398
Total liabilities and shareholders’ equity		$	4,075,325			$	3,614,173

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)

		Three Months Ended
		March 31,
		2007				2006
Net sales		$	1,841,890			$	987,986
Other income, net			374				1,278
			1,842,264				989,264
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			1,369,438				717,801
Warehouse, delivery, selling, general and administrative			255,552				137,095
Depreciation and amortization			18,451				11,821
Interest expense			20,110				5,709
			1,663,551				872,426
Income from continuing operations before income taxes			178,713				116,838
Provision for income taxes			67,017				44,983
Net income		$	111,696			$	71,855
Earnings per share:
Income from continuing operations – diluted		$	1.46			$	1.07
Weighted average shares outstanding – diluted			76,452,752				67,196,664
Income from continuing operations – basic		$	1.47			$	1.08
Weighted average shares outstanding – basic			75,862,219				66,279,524
Cash dividends per share		$	.08			$	.05

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

(In thousands)

		Three Months Ended
		March 31,
		2007				2006
Operating activities:
Net income		$	111,696			$	71,855
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			18,451				11,821
Deferred income taxes			(238	)			(436	)
Gain on sales of property and equipment			(591	)			(527	)
Minority interest			90				47
Stock based compensation expense			1,812				1,132
Excess tax benefits from stock based compensation			(2,390	)			(963	)
Increase in cash surrender value of life insurance policies			(118	)			—
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable			(113,562	)			(66,261	)
Inventories			(61,299	)			(53,935	)
Prepaid expenses and other assets			(1,335	)			(2,180	)
Accounts payable and accrued expenses			118,253				80,486
Net cash provided by operating activities			70,769				41,039
Investing activities:
Purchases of property, plant and equipment, net			(24,730	)			(26,109	)
Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired			(217,348	)			(34,826	)
Proceeds from sales of property and equipment			823				1,678
Net investment in life insurance policies			(64	)			—
Net cash used in investing activities			(241,319	)			(59,257	)
Financing activities:
Proceeds from borrowings			450,375				170,000
Principal payments on long-term debt and short-term borrowings			(310,610	)			(150,457	)
Payments to former minority shareholders			—				(1,291	)
Dividends paid			(6,073	)			(3,316	)
Excess tax benefits from stock based compensation			2,390				963
Exercise of stock options			5,339				1,236
Issuance of common stock			281				222
Net cash provided by financing activities			141,702				17,357
Effect of exchange rate changes on cash			(49	)			298
Decrease in cash and cash equivalents			(28,897	)			(563	)
Cash and cash equivalents at beginning of period			57,475				35,022
Cash and cash equivalents at end of period		$	28,578			$	34,459
Supplemental cash flow information:
Interest paid during the period		$	5,304			$	4,112
Income taxes paid during the period		$	2,514			$	5,427

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements have been included. The results of operations for the three-months ended March 31, 2007 are not necessarily indicative of the results for the full year ending December 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2006, included in Reliance Steel & Aluminum Co.’s Annual Report on Form 10-K.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in the Company’s consolidated financial statements and the accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.

The Company’s consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries. The ownership of the other interest holders of consolidated subsidiaries is reflected as minority interest. All significant intercompany accounts and transactions have been eliminated.

2. Impact of Recently Issued Accounting Principles

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN No. 48”) Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company adopted the provision of this interpretation effective January 1, 2007. The adoption of FIN No. 48 did not have a material impact on the Company’s consolidated financial position and results of operations. See Note 6, Income Taxes, for further discussion.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which is the year beginning January 1, 2008 for the Company. The adoption of SFAS No. 157 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which is the year beginning January 1, 2008 for the Company. The Company is evaluating the impact that the adoption of SFAS No. 159 will have on its consolidated results of operations and financial condition.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

3. Acquisitions

2007 Acquisitions

Acquisition of Crest Steel Corporation

On January 2, 2007, the Company purchased all of the outstanding capital stock of Crest Steel Corporation (“Crest”), a metals service center company headquartered in Carson, California with facilities in Riverside, California and Phoenix, Arizona. Crest now operates as a wholly-owned subsidiary of RSAC Management Corp. Crest was founded in 1963 and specializes in the processing and distribution of carbon steel products including flat-rolled, plate, bars and structurals.

Acquisition of Industrial Metals and Surplus, Inc.

Also, on January 2, 2007, the Company’s wholly-owned subsidiary, Siskin Steel & Supply Company, Inc., purchased the outstanding capital stock of Industrial Metals and Surplus, Inc. (“Industrial Metals”), a metals service center company headquartered in Atlanta, Georgia and a related company, Athens Steel, Inc. located in Athens, Georgia. Industrial Metals was founded in 1978 and specializes in the processing and distribution of carbon steel structurals, flat-rolled and ornamental iron products. Industrial Metals now operates as a wholly-owned subsidiary of Siskin. Athens Steel was merged into Industrial Metals and operates as a division of Industrial Metals. Siskin’s Georgia Steel Supply Company division located in Atlanta will be combined with the Industrial Metals operations.

Acquisition of Encore Group

As of February 1, 2007, the Company acquired the net assets and business of the Encore Group of metals service center companies (Encore Metals, Encore Metals (USA), Inc., Encore Coils, and Team Tube in Canada) headquartered in Edmonton, Alberta, Canada. Encore was organized in 2004 in connection with the buyout by management and a private equity fund managed by HSBC Capital (Canada) Inc. of certain former Corus CIC and Corus America businesses. Encore specializes in the processing and distribution of alloy and carbon bar and tube, as well as stainless steel sheet, plate and bar and carbon steel flat-rolled products, through its 17 facilities located mainly in Western Canada. The Company acquired the Encore Group assets through RSAC Canada Limited (now Encore Group Limited), the Company’s wholly-owned Canadian subsidiary, and RSAC Canada (Tube) ULC (now Team Tube Canada ULC), a subsidiary of RSAC Canada Limited. Encore Metals (USA), Inc. now operates as a wholly-owned subsidiary of Reliance.

The total cost of the acquisitions of Crest, Industrial Metals, and Encore Group of approximately $217,348,000 was funded with borrowings on the Company’s syndicated credit facility. Total debt assumed, net of cash, in connection with these acquisitions was approximately $51,500,000. The consolidated financial statements reflect the allocations of each acquisition’s purchase price, which is preliminary as of March 31, 2007 for Crest, Encore Group, and Industrial Metals.

2006 Acquisitions

Acquisition of Yarde Metals, Inc.

On August 1, 2006, the Company acquired 100% of the outstanding capital stock of Yarde Metals, Inc. (“Yarde Metals”), a metals service center company headquartered in Southington, Connecticut for approximately $100,000,000 plus the assumption of approximately $101,000,000 of Yarde Metals’ outstanding debt, net of cash acquired. Yarde Metals was founded in 1976 and specializes in the processing and distribution of stainless steel and aluminum plate, rod and bar products. Yarde has additional metals service centers in Pelham, New Hampshire; East Hanover, New Jersey; Hauppauge, New York; High Point, North Carolina; Streetsboro, Ohio; and Limerick, Pennsylvania and a sales office in Ft. Lauderdale, Florida. Yarde Metals operates as a wholly-owned subsidiary of RSAC Management Corp.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The allocation of the total purchase price of Yarde Metals to the fair values of the assets acquired and liabilities assumed is as follows:

		As of August 1, 2006
		(In thousands)
Allocation of the total purchase price to the fair values of assets acquired and liabilities assumed:
Cash		$	10,244
Accounts receivable			53,448
Inventory			79,987
Property, plant and equipment			18,062
Goodwill			47,049
Intangible assets subject to amortization			3,100
Intangible assets not subject to amortization			22,900
Other current and long-term assets			5,743
Total assets acquired			240,533
Current and long-term debt			(111,168	)
Other current and long-term liabilities			(29,204	)
Total liabilities assumed			(140,372	)
Net assets acquired/Purchase price		$	100,161

The acquisition of Yarde Metals was funded with borrowings on the Company’s syndicated credit facility and a short-term supplemental credit facility.

Acquisition of Earle M. Jorgensen Company

On April 3, 2006, the Company acquired Earle M. Jorgensen Company (“EMJ”). EMJ, headquartered in Lynwood, California, is one of the largest distributors of metal products in North America with 40 service and processing centers. The Company paid $6.50 in cash and issued 0.1784 of a share of Reliance common stock for each outstanding share of EMJ common stock. The fraction of the share of Reliance common stock issued in exchange for each share of EMJ common stock as a result of the acquisition was determined by the average daily closing sale price for Reliance common stock reported on the New York Stock Exchange for the 20-day trading period ending with and including the second complete trading day prior to the date that the acquisition became effective (“Average Stock Price”). The Average Stock Price for that 20-day period exceeded the upper limit of the 15% symmetrical collar established in the merger agreement. In accordance with this formula, Reliance issued 8,962,268 shares of its common stock in exchange for the 50,237,094 shares of outstanding EMJ common stock. The recorded value of the cash and stock consideration, in accordance with purchase accounting rules, was $13.64 per EMJ share, the stock portion of which was calculated using a Reliance per share price of $40.00 which was the 3-day average closing price as of the date the Average Stock Price exceeded the upper limit of the collar. The purchase also included the assumption of approximately $252,900,000 of EMJ outstanding debt, including $250,000,000 of 9.75% senior secured notes and $2,900,000 of other debt. In addition, the Company cashed out certain EMJ stock option holders for aggregate consideration of approximately $29,456,000 and incurred direct acquisition costs of approximately $12,882,000.

The Company assumed an EMJ stock option plan and converted the outstanding EMJ options to options to acquire 287,886 shares of Reliance common stock on the same terms and conditions as were applicable to such options under the EMJ plan, with adjusted exercise price and number of shares to reflect the difference in the value of the stock. The Company also assumed an obligation resulting from EMJ’s settlement with the U.S. Department of

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Labor to contribute 258,006 shares of Reliance common stock to EMJ’s Retirement Savings Plan. At March 31, 2007 the remaining obligation to contribute cash to a phantom stock plan supplementing the EMJ Retirement Savings Plan consisted of the cash equivalent of 163,474 shares of Reliance common stock. This obligation will be satisfied by future contributions as allowed under the Internal Revenue Code and ERISA requirements. EMJ now operates as a wholly-owned subsidiary of Reliance.

The total cost of the acquisition, including cash and stock consideration, direct acquisition costs and value of vested options assumed, and allocation of the total purchase price to the fair values of the assets acquired and liabilities assumed is as follows:

		As of April 3, 2006
		(In thousands)
Cash consideration		$	326,546
Value of common stock and vested stock options			360,453
Cash out of certain EMJ stock options			29,456
Direct acquisition costs			12,882
Total purchase price		$	729,337
Allocation of the total purchase price to the fair values of assets acquired and liabilities assumed:
Cash		$	46,091
Accounts receivable			191,203
Inventory			344,446
Property, plant and equipment			185,366
Goodwill			351,480
Intangible assets subject to amortization			93,800
Intangible assets not subject to amortization			187,900
Other current and long-term assets			69,023
Total assets acquired			1,469,309
Current and long-term debt			(274,745	)
Deferred income taxes			(157,938	)
Other current and long-term liabilities			(307,289	)
Total liabilities assumed			(739,972	)
Net assets acquired/Purchase price		$	729,337

The cash portion of the acquisition was funded with borrowings on the Company’s syndicated credit facility.

Acquisition of Flat Rock Metal Processing L.L.C.

In March 2006, Precision Strip, Inc., a wholly-owned subsidiary of the Company, acquired certain assets and business of Flat Rock Metal Processing L.L.C. (“Flat Rock”) based in Flat Rock, Michigan. Flat Rock was founded in 2001 and was a privately held toll processing company with facilities in Perrysburg, Ohio; Eldridge, Iowa; and Portage, Indiana. The Flat Rock facilities in Perrysburg, Ohio and Eldridge, Iowa began operating as Precision Strip locations immediately after the acquisition date. The Portage, Indiana location became operational in September 2006. In July 2006, Precision Strip made a decision to close the Eldridge, Iowa facility and did so by the end of November 2006. Costs associated with the closure were minimal. Both Perrysburg, Ohio and Portage, Indiana locations process and deliver carbon steel, aluminum and stainless steel products on a “toll” basis, processing the metal for a fee, without taking ownership of the metal. The purchase was funded with borrowings under the Company’s line of credit.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Acquisition of Everest Metals (Suzhou) Co., Ltd.

Also in March 2006, Reliance Pan Pacific Pte., Ltd. completed its purchase of Everest Metals, a metals service center company based near Shanghai, China. Reliance Pan Pacific is a joint venture company formed in October 2005 that is 70% owned by Reliance and 30% owned by Manufacturing Network Pte. Ltd., a Singapore based company. Manufacturing Network sold its 100% interest in Everest Metals to Reliance Pan Pacific on March 1, 2006. Everest Metals was formed in 2001 and began processing and distributing primarily aluminum products to the electronics industry in 2002.

Acquisition of the minority interest in American Steel, L.L.C.

In January 2006, the Company purchased the remaining 49.5% of American Steel L.L.C., from American Industries, Inc., the holder of the minority interest. As a result, effective January 3, 2006 the Company includes 100% of American Steel’s income in its financial results. American Steel operates as a wholly-owned subsidiary of Reliance.

Purchase price allocations

The acquisitions of all the companies have been accounted for under the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of each acquisition. The Company utilized the services of a third-party valuation specialist to assist in identifying and determining the fair market values and economic lives of acquired tangible and intangible assets. The accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date.

Pro forma financial information

The following unaudited pro forma summary financial results present the consolidated results of operations as if our significant acquisitions, Crest, EMJ, Encore Group, Industrial Metals, and Yarde Metals, had occurred at the beginning of each reporting period, after the effect of certain adjustments, including increased depreciation expense resulting from recording fixed assets at fair value, interest expense on the acquisition debt, amortization of certain identifiable intangible assets, debt premium amortization from recording the EMJ senior notes at fair value, and a provision for income taxes for the companies that were previously taxed as S-Corporations under Section 1361 of the Internal Revenue Code. The pro forma results have been presented for comparative purposes only and are not indicative of what would have occurred had these acquisitions been made as of January 1, 2007 or January 1, 2006, or of any potential results which may occur in the future.

		Three Months Ended				Three Months Ended
		March 31, 2007				March 31, 2006
		(In thousands, except				(In thousands, except
		per share amounts)				per share amounts)
Pro forma (unaudited):
Net sales		$	1,860,335			$	1,711,549
Net income		$	111,886			$	94,077
Earnings per share – diluted		$	1.46			$	1.24
Earnings per share – basic		$	1.47			$	1.25

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4. Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2007 are as follows:

		(In thousands)
Balance as of December 31, 2006		$	784,871
Acquisitions			145,451
Effect of foreign currency translation			1,959
Balance as of March 31, 2007		$	932,281

5. Intangible Assets, net

     The following table summarizes the Company’s intangible assets, net:

		March 31, 2007								December 31, 2006
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
		(In thousands)
Intangible assets subject to amortization:
Covenants not to compete		$	6,503			$	(6,035	)		$	6,353			$	(6,005	)
Loan fees			15,985				(5,638	)			15,001				(5,237	)
Customer list/relationships			110,200				(11,373	)			107,200				(9,749	)
Software – internal use			8,100				(810	)			8,100				(607	)
Other			421				(392	)			421				(382	)
			141,209				(24,248	)			137,075				(21,980	)
Intangible assets not subject to amortization:
Trade names			254,100				—				239,100				—
		$	395,309			$	(24,248	)		$	376,175			$	(21,980	)

     The Company recognized amortization expense for intangible assets of approximately $2,268,000 and $798,000 for the three-months ended March 31, 2007 and 2006, respectively. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for the remaining nine months of 2007 and each of the succeeding five years is as follows:

		(In thousands)
2007		$	6,740
2008			8,623
2009			7,951
2010			7,878
2011			7,556
2012			6,714

6. Income Taxes

On January 1, 2007, the Company adopted the provisions of FIN No. 48. As a result of the implementation of FIN No. 48, the Company recognized no material adjustment to the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, the Company had approximately $5,030,000 of unrecognized tax benefits. At March 31, 2007, the Company had approximately $4,760,000 of unrecognized tax benefits all of which would impact the effective tax rate if recognized.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Reliance and its subsidiaries file numerous consolidated and separate income tax returns in the United States federal jurisdiction and in many state and foreign jurisdictions. Except for various pre-acquisition periods of newly acquired subsidiaries, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations for years before 2002.

The Internal Revenue Service (“IRS”) is currently examining the Company’s 2002 through 2004 federal income tax returns. No formal adjustments have been issued by the IRS at this time. The IRS has issued a proposed adjustment of approximately $4,800,000 for a pre-acquisition refund claim filed by one of our subsidiaries. The Company is also under audit by various state and foreign jurisdictions but does not anticipate any material adjustments from these examinations. Reliance does not anticipate that any proposed IRS adjustments would result in a material charge to its results of operations or financial condition and expects to resolve any pending issues with the IRS in a manner that will not have a material impact on its results of operations or financial condition.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of January 1, 2007 and March 31, 2007, there were approximately $770,000 and $1,380,000, respectively, of accrued interest and penalties related to uncertain tax positions.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7. Long-Term Debt

Long-term debt consists of the following:

		March 31,				December 31,
		2007				2006
		(In thousands)
Revolving line of credit ($1,100,000,000 limit) due November 9, 2011, interest at variable rates (based on LIBOR plus 0.55% or the bank’s prime rate as of March 31, 2007 and December 31, 2006), weighted average rate of 6.09% and 5.74% during the three months ended March 31, 2007 and 2006, respectively		$	417,000			$	203,000
Senior unsecured notes due January 2, 2009, weighted average fixed interest rate of 7.37% and 7.33% at March 31, 2007 and December 31, 2006, respectively			10,000				30,000
Senior unsecured notes due January 2, 2008, weighted average fixed interest rate of 7.08% at March 31, 2007 and December 31, 2006			30,000				30,000
Senior unsecured notes due from October 15, 2008 to October 15, 2010, weighted average fixed interest rate of 6.66% at March 31, 2007 and December 31, 2006			103,000				103,000
Senior unsecured notes due from July 1, 2011 to July 2, 2013, weighted average fixed interest rate of 5.14% at March 31, 2007 and December 31, 2006			135,000				135,000
Senior unsecured notes due November 15, 2016, fixed interest rate of 6.20%, comprised of $350,000,000 of principal balance net of $932,000 and $957,000 of unamortized debt discount at March 31, 2007 and December 31, 2006, respectively			349,068				349,043
Senior unsecured notes due November 15, 2036, fixed interest rate of 6.85%, comprised of $250,000,000 of principal balance net of $1,395,000 and $1,407,000 of unamortized debt discount at March 31, 2007 and December 31, 2006, respectively			248,605				248,593
Senior notes due June 1, 2012, fixed rate of 9.75%, comprised of $250,000 of principal balance and $18,000 and $19,000 of unamortized debt premium at March 31, 2007 and December 31, 2006, respectively			268				269
Variable Rate Demand Industrial Development Revenue Bonds, Series 1989 A, due July 1, 2014, with interest payable quarterly; variable interest rate of 3.62% and 3.80% at March 31, 2007 and December 31, 2006, respectively			2,050				2,050
Variable Rate Demand Revenue Bonds, Series 1999, due March 1, 2009, with interest payable quarterly; variable interest rate of 3.85% and 4.11% at March 31, 2007 and December 31, 2006, respectively			900				1,225
Industrial Development Revenue Bonds, payable in annual installments of $715,000 on December 1st of each year, fixed interest rate of 5.25%			2,155				2,155
Revolving short term $4,000,000 credit facility for operations in China, variable interest rate of 5.86% and 6.00% (based on LIBOR plus 0.50%) at March 31, 2007 and December 31, 2006, respectively			1,017				1,017
Total			1,299,063				1,105,352
Less amounts due within one year			(32,257	)			(22,257	)
Total long-term debt		$	1,266,806			$	1,083,095

On November 9, 2006, the Company amended and restated its syndicated credit agreement to allow for increased borrowings of up to $1,100,000,000. This five-year, unsecured syndicated credit facility, which replaced the $700,000,000 and $100,000,000 existing bank credit lines, has fifteen banks as lenders and can be increased to $1,600,000,000 with their approval.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company also has two separate revolving credit facilities for operations in Canada with a combined credit limit of CDN$35,000,000. There were no borrowings outstanding on these credit facilities at March 31, 2007 and December 31, 2006.

At March 31, 2007, the Company had $32,303,000 of letters of credit outstanding under the syndicated credit facility with availability to issue an additional $92,697,000 of letters of credit. The syndicated credit facility includes a commitment fee on the unused portion, at an annual rate of 0.125% at March 31, 2007.

On November 20, 2006, the Company entered into an Indenture (the “Indenture”), for the issuance of $600,000,000 of unsecured debt securities which are guaranteed by all of the direct and indirect, wholly-owned domestic subsidiaries of the Company and any entities that become such subsidiaries during the term of the Indenture (collectively, the “Subsidiary Guarantors”). None of Reliance’s foreign subsidiaries or its non-wholly-owned domestic subsidiaries is a guarantor. The total debt issued was comprised of two tranches, (a) $350,000,000 aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, maturing on November 15, 2016 and (b) $250,000,000 aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036. The notes are senior unsecured obligations of Reliance and rank equally with all other existing and future unsecured and unsubordinated debt obligations of Reliance. Reliance, at its option, may redeem all or part of the notes of either series at any time prior to their maturity by paying a redemption price equal to the greater of 100% of the aggregate principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments (as defined in the Indenture), plus, in each case, accrued and unpaid interest thereon to, but not including, the redemption date. The proceeds from the notes were used to pay down outstanding borrowings on the $1,100,000,000 credit facility. In April 2007, these notes were exchanged for publicly traded notes registered with the Securities and Exchange Commission.

The Company also has $278,000,000 of outstanding senior unsecured notes issued in private placements of debt. The outstanding senior notes bear interest at an average fixed rate of 6.0% and have an average remaining life of 3.9 years, maturing from 2008 to 2013.

The $1,100,000,000 syndicated credit agreement and the senior unsecured note agreements require the Company to maintain a minimum net worth and interest coverage ratio and a maximum leverage ratio, and include a change of control provision, among other things.

8. Shareholders’ Equity

On May 17, 2006, Reliance’s Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend on the Company’s common stock. The common stock split was effected by issuing one additional share of common stock for each share held by shareholders of record on July 5, 2006. The additional shares were distributed on July 19, 2006. All share and per share data, including prior period data as appropriate, have been adjusted to reflect this split.

Additionally, during the three months ended March 31, 2007, the Company issued 297,149 shares of common stock in connection with the exercise of employee stock options for total proceeds of approximately $5,339,000. Also, 6,244 shares of common stock valued at approximately $280,000 were issued to division managers of the Company in March 2007 under the Key Man Incentive Plan for 2006. The Company has not repurchased any shares of its common stock since 2000.

On February 14, 2007, the Company’s Board of Directors declared a 33% increase in the regular quarterly cash dividend and approved a dividend of $.08 per share of common stock.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

SFAS No. 130, Reporting Comprehensive Income, defines comprehensive income (loss) as non-stockholder changes in equity. Comprehensive income for each of the three-month periods ended March 31, 2007 and 2006, included the following:

		Three Months Ended March 31,
		2007				2006
		(In thousands)
Net income		$	111,696			$	71,855
Other comprehensive income:
Foreign currency translation income			2,414				418
Unrealized gain on investments, net of tax			1				38
Total other comprehensive income			2,415				456
Total comprehensive income		$	114,111			$	72,311

Accumulated other comprehensive income/(loss) included the following:

		March 31,				December 31,
		2007				2006
		(In thousands)
Foreign currency translation adjustments		$	5,135			$	2,721
Unrealized gain on investments, net of tax			246				245
Minimum pension liability, net of tax			(4,597	)			(4,597	)
Total accumulated other comprehensive income/(loss)		$	784			$	(1,631	)

Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. The adjustments to unrealized gain on investments and minimum pension liability are net of deferred income taxes of ($151,000) and $2,836,000, respectively, as of March 31, 2007 and December 31, 2006.

9. Employee Benefits

Defined Benefit and Supplemental Executive Retirement Plans

The Company maintains a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified pension plan that provides post-retirement and certain pre-retirement pension benefits to key officers of the Company. Separate SERP plans exist for three of the Company’s subsidiaries, each of which provides post-retirement benefits to its respective key employees.

The Company maintains, through various subsidiaries, defined benefit pension plans for certain of its employees. These plans generally provide benefits of stated amounts for each year of service or provide benefits based on the participant’s hourly wage rate and years of service.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The net periodic pension costs for the SERP and defined benefit plans were as follows (in thousands):

		SERP Plans								Defined Benefit Plans
Three Months Ended March 31,		2007				2006				2007				2006
Service Cost		$	241			$	142			$	209			$	97
Interest Cost			392				275				411				121
Expected return on assets			—				—				(467	)			(115	)
Amortization of prior service cost			49				49				5				(1	)
Amortization of net loss			313				124				4				20
Settlement expense			—				—				—				132
Net periodic pension cost		$	995			$	590			$	162			$	254

In addition to the Company’s defined benefit pension plans as noted above, EMJ sponsors a defined benefit health care plan that provides post-retirement medical and dental benefits to eligible full time employees and their dependents (the “Post-retirement Plan”). The Post-retirement Plan is fully insured, with retirees paying a percentage of the annual premium. Such premiums are adjusted annually based on age and length of service of active and retired participants. The Post-retirement Plan contains other cost-sharing features such as deductibles and coinsurance. The Company recognizes the cost of future benefits earned by participants during their working careers, as determined using actuarial assumptions. Gains and losses realized from the remeasurement of the plan’s benefit obligation are amortized to income over three years.

Components of the net periodic pension expense associated with the Company’s Post-retirement Plan are as follows (in thousands):

		Three Months Ended
		March 31, 2007
Service Cost		$	123
Interest Cost			110
Expected return on assets			—
Amortization of prior service cost			—
Amortization of net loss			21
Net periodic pension cost		$	254

The Company previously disclosed in its financial statements for the year ended December 31, 2006, included in its Annual Report on Form 10-K, that it expected to contribute $1,515,000 to its defined benefit plans in 2007. As of March 31, 2007, no contributions had been made.

Share based compensation

On March 2, 2007, the Company granted 1,026,500 options to acquire its common stock to key employees with an exercise price equal to the fair market value. The stock options vest ratably over a period of four years and expire seven years after the date of grant. The fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following assumptions: Expected life — 4.75 years; Volatility – 39.6%; Dividend yield – 0.7%; Risk-free interest rate – 4.5%; Grant date option fair value – $17.11.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Supplemental Bonus Plan

In 2005, prior to Reliance’s acquisition, EMJ reached a settlement with the U.S. Department of Labor regarding a change in its methodology for annual valuations of its stock while it was a private company, for the purpose of making contributions in stock to its retirement plan. This resulted in a special additional contribution to the plan in shares of EMJ common stock. During the first quarter of 2007, EMJ paid out cash of $242,000 in lieu of 6,558 Reliance shares to terminated employees. At March 31, 2007 the remaining obligation to contribute cash to a phantom stock plan supplementing the EMJ Retirement Savings Plan consisted of the cash equivalent of 163,474 shares of Reliance common stock. This obligation will be satisfied by future contributions as allowed under the Internal Revenue Code and ERISA requirements.

10. Earnings Per Share

The Company calculates basic and diluted earnings per share as required by SFAS No. 128, Earnings Per Share. Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. Diluted earnings per share are calculated including the dilutive effects of warrants, options, and convertible securities, if any.

The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended March 31,
		2007				2006
		(In thousands, except per share amounts)
Numerator:
Net income		$	111,696			$	71,855
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding			75,862				66,280
Effect of dilutive securities:
Stock options			591				917
Denominator for dilutive earnings per share:
Adjusted weighted average shares and assumed conversions			76,453				67,197
Earnings per share from continuing operations – diluted		$	1.46			$	1.07
Earnings per share from continuing operations – basic		$	1.47			$	1.08

The computations of earnings per share for the three months ended March 31, 2007 do not include 1,068,500 shares reserved for issuance upon exercise of stock options because their inclusion would have been anti-dilutive. There were no anti-dilutive shares reserved for issuance upon exercise of stock options for the three months ended March 31, 2006.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

11. Condensed Consolidating Financial Statements

In November 2006, the Company issued senior unsecured notes in the aggregate principal amount of $600,000,000 at fixed interest rates that are guaranteed by its wholly-owned domestic subsidiaries. The accompanying combined and consolidating financial information has been prepared and presented pursuant to Rule 3-10 of SEC Regulation S-X “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” The guarantees are full and unconditional and joint and several obligations of each of the guarantor subsidiaries. There are no significant restrictions on the ability of the Company to obtain funds from any of the guarantor subsidiaries by dividends or loan. The supplemental consolidating financial information has been presented in lieu of separate financial statements of the guarantors as such separate financial statements are not considered meaningful. Certain prior year amounts have been adjusted to conform to current year presentation.

Condensed Unaudited Consolidating Balance Sheet
As of March 31, 2007
(in thousands)

						Guarantor				Non-Guarantor				Eliminations &
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Assets
Cash and cash equivalents		$	(23,486	)		$	38,867			$	13,197			$	—			$	28,578
Accounts receivable, less allowance for doubtful accounts			98,806				680,218				56,180				—				835,204
Inventories			93,738				891,259				78,843				—				1,063,840
Intercompany receivables			763				4,829				588				(6,180	)			—
Prepaid expenses and other current assets			2,838				21,033				1,109				—				24,980
Total current assets			172,659				1,636,206				149,917				(6,180	)			1,952,602
Investments in subsidiaries			2,438,153				32,775				—				(2,470,928	)			—
Property, plant and equipment, net			86,715				654,095				17,508				—				758,318
Goodwill			15,328				825,550				91,403				—				932,281
Intangible assets, net			6,343				364,698				20				—				371,061
Intercompany receivables			86,778				—				—				(86,778	)			—
Other assets			527				58,945				2,055				(464	)			61,063
Total assets		$	2,806,503			$	3,572,269			$	260,903			$	(2,564,350	)		$	4,075,325
Liabilities & Shareholders’ Equity
Accounts payable		$	47,311			$	368,390			$	35,481			$	(6,180	)		$	445,002
Accrued compensation and retirement costs			4,895				55,112				3,606				—				63,613
Other current liabilities			22,936				123,500				9,347				—				155,783
Current maturities of long-term debt			30,200				1,040				1,017				—				32,257
Current maturities of capital lease obligations			—				565				—				—				565
Total current liabilities			105,342				548,607				49,451				(6,180	)			697,220
Long-term debt			847,523				419,283				—				—				1,266,806
Intercompany borrowings			—				23,950				62,828				(86,778	)			—
Deferred taxes and other long-term liabilities			—				245,176				1,865				—				247,041
Total shareholders’ equity			1,853,638				2,335,253				146,759				(2,471,392	)			1,864,258
Total liabilities and shareholders’ equity		$	2,806,503			$	3,572,269			$	260,903			$	(2,564,350	)		$	4,075,325

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Condensed Consolidating Balance Sheet
As of December 31, 2006
(in thousands)

						Guarantor				Non-Guarantor				Eliminations &
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Assets
Cash and cash equivalents		$	(8,721	)		$	56,466			$	9,730			$	—			$	57,475
Accounts receivable, less allowance for doubtful accounts			87,570				545,931				32,585				187				666,273
Inventories			79,901				785,855				38,562				—				904,318
Intercompany receivables			655				2,781				338				(3,774	)			—
Prepaid expenses and other current assets			—				46,504				1,006				(187	)			47,323
Total current assets			159,405				1,437,537				82,221				(3,774	)			1,675,389
Investments in subsidiaries			2,308,683				31,021				—				(2,339,704	)			—
Property, plant and equipment, net			87,365				640,014				15,293				—				742,672
Goodwill			15,328				766,839				2,704				—				784,871
Intangible assets, net			5,591				348,581				23				—				354,195
Intercompany receivables			109,477				—				—				(109,477	)			—
Other assets			526				56,062				922				(464	)			57,046
Total assets		$	2,686,375			$	3,280,054			$	101,163			$	(2,453,419	)		$	3,614,173
Liabilities & Shareholders’ Equity
Accounts payable		$	30,885			$	291,204			$	22,041			$	(3,774	)		$	340,356
Accrued compensation and retirement costs			10,199				78,960				3,746				—				92,905
Other current liabilities			7,598				84,292				2,772				—				94,662
Current maturities of long-term debt			20,200				1,040				1,017				—				22,257
Current maturities of capital lease obligations			—				559				—				—				559
Total current liabilities			68,882				456,055				29,576				(3,774	)			550,739
Long-term debt			877,487				205,608				—				—				1,083,095
Intercompany borrowings			—				88,154				20,404				(108,558	)			—
Deferred taxes and other long-term liabilities			—				232,330				1,611				—				233,941
Total shareholders’ equity			1,740,006				2,297,907				49,572				(2,341,087	)			1,746,398
Total liabilities and shareholders’ equity		$	2,686,375			$	3,280,054			$	101,163			$	(2,453,419	)		$	3,614,173

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Condensed Unaudited Consolidating Statement of Income
For the three months ended March 31, 2007
(in thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	238,126			$	1,532,268			$	84,514			$	(13,018	)		$	1,841,890
Other income, net			109				29,111				86				(28,932	)			374
			238,235				1,561,379				84,600				(41,950	)			1,842,264
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			178,040				1,139,998				64,439				(13,039	)			1,369,438
Warehouse, delivery, selling, general and administrative			55,942				206,412				13,332				(20,134	)			255,552
Depreciation and amortization			2,171				15,903				377				—				18,451
Interest			15,607				12,717				563				(8,777	)			20,110
			251,760				1,375,030				78,711				(41,950	)			1,663,551
Income (loss) before equity in earnings of subsidiaries and income taxes			(13,525	)			186,349				5,889				—				178,713
Equity in earnings of subsidiaries			127,083				914				—				(127,997	)			—
Income from continuing operations before income taxes			113,558				187,263				5,889				(127,997	)			178,713
Provision for income taxes			1,862				64,003				1,152				—				67,017
Net income		$	111,696			$	123,260			$	4,737			$	(127,997	)		$	111,696

Condensed Unaudited Consolidating Statement of Income
For the three months ended March 31, 2006
(in thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	203,355			$	768,636			$	23,574			$	(7,579	)		$	987,986
Other income, net			677				22,088				(98	)			(21,389	)			1,278
			204,032				790,724				23,476				(28,968	)			989,264
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			146,886				561,163				17,352				(7,600	)			717,801
Warehouse, delivery, selling, general and administrative			51,273				101,468				3,853				(19,499	)			137,095
Depreciation and amortization			1,773				9,949				99				—				11,821
Interest			5,995				1,491				92				(1,869	)			5,709
			205,927				674,071				21,396				(28,968	)			872,426
Income (loss) before equity in earnings of subsidiaries and income taxes			(1,895	)			116,653				2,080				—				116,838
Equity in earnings of subsidiaries			79,624				636				—				(80,260	)			—
Income from continuing operations before income taxes			77,729				117,289				2,080				(80,260	)			116,838
Provision for income taxes			5,874				38,197				912				—				44,983
Net income		$	71,855			$	79,092			$	1,168			$	(80,260	)		$	71,855

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Condensed Unaudited Consolidating Cash Flow Statement
For the three months ended March 31, 2007
(in thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Operating activities:
Net income		$	111,696			$	123,260			$	4,737			$	(127,997	)		$	111,696
Equity in earnings of subsidiaries			(127,083	)			(914	)			—				127,997				—
Adjustments to reconcile net income to cash provided by (used in) operating activities			(2,807	)			(36,360	)			(1,760	)			—				(40,927	)
Cash provided by (used in) operating activities			(18,194	)			85,986				2,977				—				70,769
Investing activities:
Purchases of property, plant and equipment, net			(1,326	)			(22,613	)			(791	)			—				(24,730	)
Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired			—				(217,348	)			—				—				(217,348	)
Net advances from subsidiaries			22,699				—				—				(22,699	)			—
Other investing activities, net			82				646				31				—				759
Cash provided by (used in) investing activities			21,455				(239,315	)			(760	)			(22,699	)			(241,319	)
Financing activities:
Net borrowings (repayments) of long-term debt			(19,963	)			200,853				(41,125	)			—				139,765
Dividends paid			(6,073	)			—				—				—				(6,073	)
Intercompany borrowings (repayments)			—				(65,123	)			42,424				22,699				—
Other financing activities			8,010				—				—				—				8,010
Cash provided by (used in) financing activities			(18,026	)			135,730				1,299				22,699				141,702
Effect of exchange rate changes on cash and cash equivalents			—				—				(49	)			—				(49	)
Increase (decrease) in cash and cash equivalents			(14,765	)			(17,599	)			3,467				—				(28,897	)
Cash and cash equivalents at beginning of period			(8,721	)			56,466				9,730				—				57,475
Cash and cash equivalents at end of period		$	(23,486	)		$	38,867			$	13,197			$	—			$	28,578

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Condensed Unaudited Consolidating Cash Flow Statement
For the three months ended March 31, 2006
(in thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Operating activities:
Net income		$	71,855			$	79,092			$	1,168			$	(80,260	)		$	71,855
Equity in earnings of subsidiaries			(79,624	)			(636	)			—				80,260				—
Adjustments to reconcile net income to cash provided by (used in) operating activities			(12,865	)			(24,545	)			6,594				—				(30,816	)
Cash provided by (used in) operating activities			(20,634	)			53,911				7,762				—				41,039
Investing activities:
Purchases of property, plant and equipment, net			(14,846	)			(9,291	)			(1,972	)			—				(26,109	)
Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired			(12,034	)			(22,792	)			—				—				(34,826	)
Net advances from subsidiaries			66,280				—				—				(66,280	)			—
Other investing activities, net			772				906				—				—				1,678
Cash provided by (used in) investing activities			40,172				(31,177	)			(1,972	)			(66,280	)			(59,257	)
Financing activities:
Net borrowings (repayments) of long-term debt			(25,000	)			44,543				—				—				19,543
Dividends paid			(3,316	)			—				—				—				(3,316	)
Intercompany borrowings (repayments)			—				(62,315	)			(3,965	)			66,280				—
Other financing activities			1,130				—				—				—				1,130
Cash provided by (used in) financing activities			(27,186	)			(17,772	)			(3,965	)			66,280				17,357
Effect of exchange rate changes on cash and cash equivalents			—				—				298				—				298
Increase (decrease) in cash and cash equivalents			(7,648	)			4,962				2,123				—				(563	)
Cash and cash equivalents at beginning of period			(7,912	)			35,717				7,217				—				35,022
Cash and cash equivalents at end of period		$	(15,560	)		$	40,679			$	9,340			$	—			$	34,459