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 September 30, 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 (State or other jurisdiction of incorporation or organization)		95-1142616 (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 October 31, 2007, 74,830,074 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 September 30, 2007 (Unaudited) and December 31, 2006			1
		Unaudited Consolidated Statements of Income for the Three-Month Periods Ended September 30, 2007 and 2006			2
		Unaudited Consolidated Statements of Income for the Nine-Month Periods Ended September 30, 2007 and 2006			3
		Unaudited Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2007 and 2006			4
		Notes to Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			31
Item 4.		Controls and Procedures			31
PART II — OTHER INFORMATION					32
Item 1A.		Risk Factors			32
Item 6.		Exhibits			32
SIGNATURES					33
CERTIFICATIONS					34
Exhibit 31.1
Exhibit 31.2
Exhibit 32

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

ASSETS

		September 30,				December 31,
		2007				2006
		(Unaudited)
Current assets:
Cash and cash equivalents		$	106,003			$	57,475
Accounts receivable, less allowance for doubtful accounts of $19,665 at September 30, 2007 and $16,755 at December 31, 2006			807,798				666,273
Inventories			1,007,349				904,318
Prepaid expenses and other current assets			20,820				22,179
Income taxes receivable			14,696				25,144
Total current assets			1,956,666				1,675,389
Property, plant and equipment, at cost:
Land			117,879				108,022
Buildings			415,263				385,851
Machinery and equipment			631,364				565,951
Accumulated depreciation			(368,533	)			(317,152	)
			795,973				742,672
Goodwill			937,446				784,871
Intangible assets, net			402,000				354,195
Cash surrender value of life insurance policies, net			43,861				41,190
Other assets			15,125				15,856
Total assets		$	4,151,071			$	3,614,173
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	402,796			$	340,356
Accrued expenses			59,589				36,481
Accrued compensation and retirement costs			82,571				92,905
Accrued insurance costs			36,123				34,475
Deferred income taxes			23,721				23,706
Current maturities of long-term debt			33,684				22,257
Current maturities of capital lease obligations			634				559
Total current liabilities			639,118				550,739
Long-term debt			1,239,551				1,083,095
Capital lease obligations			4,657				4,956
Long-term retirement costs			55,854				46,111
Deferred income taxes			186,369				181,628
Minority interest			1,529				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 — 74,618,149 at September 30, 2007 and 75,702,046 at December 31, 2006, stated capital			638,420				701,690
Retained earnings			1,362,230				1,046,339
Accumulated other comprehensive income /(loss)			23,343				(1,631	)
Total shareholders’ equity			2,023,993				1,746,398
Total liabilities and shareholders’ equity		$	4,151,071			$	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
		September 30,
		2007				2006
Net sales		$	1,812,092			$	1,626,208
Other income, net			2,063				1,987
			1,814,155				1,628,195
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			1,372,128				1,194,139
Warehouse, delivery, selling, general and administrative			252,017				224,798
Depreciation and amortization			19,791				16,511
Interest			20,517				19,354
			1,664,453				1,454,802
Income from continuing operations before income taxes			149,702				173,393
Provision for income taxes			56,137				65,888
Net income		$	93,565			$	107,505
Earnings per share:
Income from continuing operations — diluted		$	1.22			$	1.41
Weighted average shares outstanding — diluted			76,476,928				76,016,596
Income from continuing operations — basic		$	1.24			$	1.42
Weighted average shares outstanding — basic			75,609,783				75,451,585
Cash dividends per share		$	.08			$	.06

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

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

		Nine Months Ended
		September 30,
		2007				2006
Net sales		$	5,550,018			$	4,173,416
Other income, net			4,770				3,641
			5,554,788				4,177,057
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			4,140,105				3,051,289
Warehouse, delivery, selling, general and administrative			772,118				587,245
Depreciation and amortization			57,452				45,132
Interest			60,242				41,996
			5,029,917				3,725,662
Income from continuing operations before income taxes			524,871				451,395
Provision for income taxes			196,826				171,530
Net income		$	328,045			$	279,865
Earnings per share:
Income from continuing operations — diluted		$	4.28			$	3.83
Weighted average shares outstanding — diluted			76,613,307				72,985,065
Income from continuing operations — basic		$	4.32			$	3.87
Weighted average shares outstanding — basic			75,896,299				72,315,779
Cash dividends per share		$	.24			$	.16

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

		Nine Months Ended
		September 30,
		2007				2006
Operating activities:
Net income		$	328,045			$	279,865
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			57,452				45,132
Debt premium amortization			—				(1,779	)
Gain on sales of machinery and equipment			(1,115	)			(990	)
Deferred income taxes			(2,333	)			(1,297	)
Minority interest			283				227
Stock based compensation expense			7,569				4,336
Excess tax benefits from stock based compensation			(6,062	)			(1,769	)
Decrease in cash surrender value of life insurance policies			464				494
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable			(66,632	)			(130,298	)
Inventories			16,454				(172,732	)
Prepaid expenses and other assets			15,586				9,593
Accounts payable and accrued expenses			34,976				(19,253	)
Net cash provided by operating activities			384,687				11,529
Investing activities:
Purchases of property, plant and equipment			(88,350	)			(84,720	)
Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired			(257,640	)			(559,393	)
Tax distributions made related to a prior acquisition			(634	)			(894	)
Proceeds from sales of property and equipment			2,833				2,956
Net proceeds from redemption of life insurance policies			134				489
Net investment in life insurance policies			(262	)			(279	)
Net cash used in investing activities			(343,919	)			(641,841	)
Financing activities:
Proceeds from borrowings			648,554				993,316
Principal payments on long-term debt and short-term borrowings			(558,155	)			(368,123	)
Payments to former minority shareholders			—				(1,291	)
Dividends paid			(18,216	)			(11,608	)
Excess tax benefits from stock based compensation			6,062				1,769
Exercise of stock options			11,047				2,852
Issuance of common stock			281				222
Common stock repurchase			(82,167	)			—
Net cash provided by financing activities			7,406				617,137
Effect of exchange rate changes on cash			354				194
Increase /(decrease) in cash and cash equivalents			48,528				(12,981	)
Cash and cash equivalents at beginning of period			57,475				35,022
Cash and cash equivalents at end of period		$	106,003			$	22,041
Supplemental cash flow information:
Interest paid during the period		$	45,395			$	24,997
Income taxes paid during the period		$	183,734			$	155,221
Non-cash investing and financing activities:
Issuance of common stock and stock options in connection with acquisition of metals service center		$	—			$	360,453
Issuance of common stock to employee retirement savings plan		$	—			$	2,830

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 and nine months ended September 30, 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 Clayton Metals, Inc.

On July 1, 2007, the Company acquired all of the outstanding capital stock of Clayton Metals, Inc. (“Clayton Metals”), an Illinois corporation headquartered in Wood Dale, Illinois. Clayton Metals, founded in 1976, specializes primarily in the processing and distribution of aluminum, stainless steel and red metal flat-rolled products, custom extrusions and aluminum circles through its metals service center locations in Wood Dale, Illinois; Cerritos, California; High Point, North Carolina; and Parsippany, New Jersey. The Company acquired Clayton Metals through RSAC Management Corp., the Company’s wholly-owned subsidiary.

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.

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, through its 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.

The total cost of the acquisitions of Clayton Metals, Crest, Industrial Metals, and Encore Group of approximately $257,640,000 was funded with borrowings on the Company’s syndicated credit facility. Total debt assumed, net of cash, in connection with these acquisitions was approximately $75,977,000. The consolidated financial statements reflect the allocations of each acquisition’s purchase price, which is preliminary as of September 30, 2007 for Encore Group and Clayton Metals.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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. In August 2007 the Yarde Metals sellers were paid an additional amount related to the Company’s election of Section 338(h)(10) treatment for income tax purposes, resulting in additional goodwill of $634,000.

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

		(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			47,657
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			241,141
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		$	100,769

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. EMJ’s net sales for the nine months ended December 31, 2006 were $1,450,000,000. 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,

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 majority of the $250,000,000 EMJ senior secured notes were subsequently redeemed in November 2006. The remaining principal balance of these notes outstanding at September 30, 2007 was $250,000. See Note 6.

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 Labor to contribute the equivalent of 258,006 shares of Reliance common stock to EMJ’s Retirement Savings Plan. At September 30, 2007 the remaining obligation to contribute cash to a phantom stock plan supplementing the EMJ Retirement Savings Plan consisted of the cash equivalent of 160,655 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:

		(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.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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.

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

Also in March 2006, Reliance Pan Pacific Pte., Ltd. (“Reliance Pan Pacific”) completed its purchase of Everest Metals, a metals service center company based near Shanghai, People’s Republic of 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. (“Manufacturing Network”), 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.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Pro forma financial information

The following unaudited pro forma summary financial results present the consolidated results of operations as if our acquisitions of Clayton Metals, 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. No pro forma results are required for the three month period ended September 30, 2007 as all acquisitions occurred prior to or effective July 1, 2007.

		Three Months Ended
		September 30, 2006
		(In thousands, except
		per share amounts)
Pro forma (unaudited):
Net sales		$	1,813,136
Net income		$	114,644
Earnings per share — diluted		$	1.51
Earnings per share — basic		$	1.52

		Nine Months Ended				Nine Months Ended
		September 30, 2007				September 30, 2006
		(In thousands, except				(In thousands, except
		per share amounts)				per share amounts)
Pro forma (unaudited):
Net sales		$	5,632,042			$	5,366,187
Net income		$	331,516			$	320,530
Earnings per share — diluted		$	4.33			$	4.22
Earnings per share — basic		$	4.37			$	4.25

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4. Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2007 are as
follows:

		(In thousands)
Balance as of December 31, 2006		$	784,871
Acquisitions			136,544
Effect of foreign currency translation			16,031
Balance as of September 30, 2007		$	937,446

5. Intangible Assets, net

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

		September 30, 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		$	6,753			$	(6,130	)		$	6,353			$	(6,005	)
Loan fees			15,985				(6,410	)			15,001				(5,237	)
Customer list/relationships			132,500				(15,641	)			107,200				(9,749	)
Software — internal use			8,100				(1,215	)			8,100				(607	)
Other			691				(433	)			421				(382	)
			164,029				(29,829	)			137,075				(21,980	)
Intangible assets not subject to amortization:
Trade names			267,800				—				239,100				—
		$	431,829			$	(29,829	)		$	376,175			$	(21,980	)

The Company recognized amortization expense for intangible assets of approximately $7,850,000 and $4,703,000 for the nine months ended September 30, 2007 and 2006, respectively. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for the remaining three months of 2007 and each of the succeeding five years is as follows:

		(In thousands)
2007		$	2,640
2008			10,565
2009			9,894
2010			9,821
2011			9,499
2012			8,564

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 September 30, 2007, the Company had approximately $4,820,000 of unrecognized tax benefits all of which would impact the effective tax rate if recognized.

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. The IRS has issued significant proposed adjustments related to certain of the Company’s inventory costing and LIFO methods. The IRS has also issued a proposed adjustment for a pre-acquisition refund claim filed by one of the Company’s subsidiaries. The Company has not accepted any of the IRS proposed adjustments and is currently contesting them through the IRS administrative proceedings. The Company is also under audit by various state and foreign jurisdictions but does not anticipate any material adjustments from these examinations. Certain of the current proposed adjustments are merely a timing impact or relate to pre-acquisition contingencies and therefore would not have an effect on the Company’s effective tax rate. The Company does not anticipate that the proposed IRS adjustments, when resolved, would result in a material charge to 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 September 30, 2007, there were approximately $770,000 and $1,800,000, 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:

		September 30,				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 September 30, 2007 and December 31, 2006), weighted average rate of 6.18% and 5.93% at September 30, 2007 and December 31, 2006, respectively		$	390,000			$	203,000
Senior unsecured notes due January 2, 2009, weighted average fixed interest rate of 7.37% and 7.33% at September 30, 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 September 30, 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 September 30, 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 September 30, 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 $884,000 and $957,000 of unamortized debt discount at September 30, 2007 and December 31, 2006, respectively			349,116				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 $1,372,000 and $1,407,000 of unamortized debt discount at September 30, 2007 and December 31, 2006, respectively			248,629				248,593
Senior notes due June 1, 2012, fixed rate of 9.75%, comprised of $250,000 of principal balance and $16,000 and $19,000 of unamortized debt premium at September 30, 2007 and December 31, 2006, respectively			266				269
Variable Rate Demand Industrial Development Revenue Bonds, Series 1989 A, due July 1, 2014, with interest payable quarterly; variable interest rate of 3.83% and 3.80% at September 30, 2007 and December 31, 2006, respectively			1,850				2,050
Variable Rate Demand Revenue Bonds, Series 1999, due March 1, 2009, with interest payable quarterly; variable interest rate of 4.04% and 4.11% at September 30, 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, weighted average interest rate of 6.09% and 6.00% (based on LIBOR plus 0.50%) at September 30, 2007 and December 31, 2006, respectively			2,319				1,017
Total			1,273,235				1,105,352
Less amounts due within one year			(33,684	)			(22,257	)
Total long-term debt		$	1,239,551			$	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.

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 September 30, 2007 and December 31, 2006.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

At September 30, 2007, the Company had $38,430,000 of letters of credit outstanding under the syndicated credit facility with availability to issue an additional $86,570,000 of letters of credit. The syndicated credit facility includes a commitment fee on the unused portion, at an annual rate of 0.125% at September 30, 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 a weighted average fixed rate of 6.0% and have a weighted average remaining life of 3.4 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

Common Stock Split

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.

Common Stock

Additionally, during the nine months ended September 30, 2007, the Company issued 583,326 shares of common stock in connection with the exercise of employee stock options for total proceeds of approximately $11,047,000. 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.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Share Repurchase Program

The Stock Repurchase Plan (“Repurchase Plan”) was initially established in December 1994 and authorized the Company to purchase shares of its common stock from time to time in the open market or in privately negotiated transactions. In May 2005, the Board amended and restated the Repurchase Plan to authorize the purchase of up to an additional 12,000,000 shares of the Company’s common stock and to extend the term of the Repurchase Plan for ten years, to December 31, 2014.

During the 2007 third quarter the Company repurchased 1,673,467 shares of its common stock at an average cost of $49.10 per share. This was the first time that the Company has repurchased its stock since 2000. Since initiating the Stock Repurchase Plan in 1994, the Company has repurchased 12,750,017 shares at an average cost of $12.93 per share. Repurchased shares are redeemed and treated as authorized but unissued shares. The Company currently has authorization to purchase an additional 10,326,533 shares under the Repurchase Plan.

Other Comprehensive Income

Statement of Financial Accounting Standards (“SFAS”) No. 130, Reporting Comprehensive Income, defines comprehensive income (loss) as non-stockholder changes in equity. Comprehensive income for each of the three- and nine-month periods ended September 30, 2007 and 2006, respectively, included the following:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
		(In thousands)
Net income		$	93,565			$	107,505			$	328,045			$	279,865
Other comprehensive income:
Foreign currency translation gain			9,858				198				24,866				1,980
Minimum pension liability, net of tax			—				—				—				574
Unrealized gain on investments, net of tax			41				54				108				52
Total other comprehensive income			9,899				252				24,974				2,606
Total comprehensive income		$	103,464			$	107,757			$	353,019			$	282,471

Accumulated other comprehensive income included the following:

		September 30,				December 31,
		2007				2006
		(In thousands)
Foreign currency translation adjustments		$	27,588			$	2,721
Unrealized gain on investments, net of tax			352				245
Minimum pension liability, net of tax			(4,597	)			(4,597	)
Total accumulated other comprehensive income		$	23,343			$	(1,631	)

Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. Unrealized gain on investments and minimum pension liability are net of taxes of ($217,000) and $2,836,000, respectively, as of September 30, 2007 and ($151,000) and $2,836,000, respectively, as of December 31, 2006.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 certain key employees. Certain other deferred compensation arrangements exist for key officers or employees at some of our subsidiary companies.

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.

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 September 30,		2007				2006				2007				2006
Service Cost		$	241			$	142			$	206			$	158
Interest Cost			392				283				411				348
Expected return on assets			—				—				(467	)			(390	)
Amortization of prior service cost			49				49				5				(17	)
Amortization of net loss/(gain)			313				119				4				(46	)
Settlement expense			—				—				—				(6	)
Net periodic pension cost		$	995			$	593			$	159			$	47

		SERP Plans								Defined Benefit Plans
Nine Months Ended September 30,		2007				2006				2007				2006
Service Cost		$	722			$	425			$	618			$	525
Interest Cost			1,176				841				1,232				869
Expected return on assets			—				—				(1,402	)			(905	)
Amortization of prior service cost			147				147				15				19
Amortization of net loss			938				376				13				87
Settlement expense			—				—				15				823
Net periodic pension cost		$	2,983			$	1,789			$	491			$	1,418

Post-retirement Plan

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.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Service Cost		$	123			$	100			$	368			$	200
Interest Cost			110				88				331				177
Amortization of net loss			21				(10	)			64				10
Net periodic pension cost		$	254			$	178			$	763			$	387

Contributions

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 September 30, 2007, contributions of approximately $2,841,000 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.

On May 16, 2007, the Company granted 42,000 options to acquire its common stock to the non-employee members of the Board of Directors with an exercise price equal to the fair market value. The stock options cliff vest after one year and expire ten 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 — 5.5 years; Volatility — 38.6%; Dividend yield — 0.5%; Risk-free interest rate — 4.6%; Grant date option fair value — $25.24.

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 nine months ended September 30, 2007, EMJ paid out cash of $341,000 in lieu of 9,378 Reliance shares to terminated employees. At September 30, 2007, the remaining obligation to contribute cash to a phantom stock plan supplementing the EMJ Retirement Savings Plan consisted of the cash equivalent of 160,655 shares of Reliance common stock. This obligation will be satisfied by future cash contributions as allowed under the Internal Revenue Code and ERISA requirements.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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 September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
		(In thousands, except per share amounts)
Numerator:
Net income		$	93,565			$	107,505			$	328,045			$	279,865
Denominator:
Denominator for basic earnings per:
Weighted average shares			75,610				75,452				75,896				72,316
Effect of dilutive securities:
Stock options			867				565				717				669
Denominator for dilutive earnings per share:
Adjusted weighted average shares and assumed conversions			76,477				76,017				76,613				72,985
Earnings per share from continuing operations — diluted		$	1.22			$	1.41			$	4.28			$	3.83
Earnings per share from continuing operations — basic		$	1.24			$	1.42			$	4.32			$	3.87

The computations of earnings per share for the three and nine months ended September 30, 2007 do not include 1,058,500 shares reserved for issuance upon exercise of stock options because their inclusion would have been anti-dilutive. The computations of earnings per share for the three and nine months ended September 30, 2006 do not include 278,288 and 42,000 shares reserved for issuance upon exercise of stock options, respectively, because their inclusion would have been anti-dilutive.

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 September 30, 2007
(in thousands)

						Guarantor				Non-Guarantor				Eliminations &
		Parent				Subsidiaries				Subsidiaries				Reclassifications				Consolidated
Assets
Cash and cash equivalents		$	2,898			$	90,197			$	12,908			$	—			$	106,003
Accounts receivable, less allowance for doubtful accounts			90,879				661,989				54,930				—				807,798
Inventories			73,019				846,161				88,169				—				1,007,349
Intercompany receivables			630				4,025				755				(5,410	)			—
Prepaid expenses and other current assets			272				43,705				1,591				(10,052	)			35,516
Total current assets			167,698				1,646,077				158,353				(15,462	)			1,956,666
Investments in subsidiaries			2,797,573				40,083				—				(2,837,656	)			—
Property, plant and equipment, net			80,926				696,556				18,491				—				795,973
Goodwill			13,392				818,521				105,533				—				937,446
Intangible assets, net			6,009				395,978				13				—				402,000
Intercompany receivables			—				183,485				—				(183,485	)			—
Other assets			55				56,371				2,560				—				58,986
Total assets		$	3,065,653			$	3,837,071			$	284,950			$	(3,036,603	)		$	4,151,071
Liabilities & Shareholders’ Equity
Accounts payable		$	45,431			$	332,852			$	29,923			$	(5,410	)		$	402,796
Accrued compensation and retirement costs			4,799				72,709				5,063				—				82,571
Other current liabilities			28,264				94,271				6,950				(10,052	)			119,433
Current maturities of long-term debt			30,200				1,165				2,319				—				33,684
Current maturities of capital lease obligations			—				577				57				—				634
Total current liabilities			108,694				501,574				44,312				(15,462	)			639,118
Long-term debt			847,394				392,157				—				—				1,239,551
Intercompany borrowings			124,507				—				58,978				(183,485	)			—
Deferred taxes and other long-term liabilities			—				245,665				2,744				—				248,409
Total shareholders’ equity			1,985,058				2,697,675				178,916				(2,837,656	)			2,023,993
Total liabilities and shareholders’ equity		$	3,065,653			$	3,837,071			$	284,950			$	(3,036,603	)		$	4,151,071

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		$	2,556			$	45,189			$	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			170,682				1,426,260				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		$	2,697,652			$	3,268,777			$	101,163			$	(2,453,419	)		$	3,614,173
Liabilities & Shareholders’ Equity
Accounts payable		$	42,162			$	279,927			$	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			80,159				444,778				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		$	2,697,652			$	3,268,777			$	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 September 30, 2007
(in thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	226,732			$	1,508,743			$	90,901			$	(14,284	)		$	1,812,092
Other income, net			31				18,910				2,479				(19,357	)			2,063
			226,763				1,527,653				93,380				(33,641	)			1,814,155
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			171,057				1,145,668				69,708				(14,305	)			1,372,128
Warehouse, delivery, selling, general and administrative			48,955				199,355				16,303				(12,596	)			252,017
Depreciation and amortization			1,951				17,393				447				—				19,791
Interest			15,679				10,771				807				(6,740	)			20,517
			237,642				1,373,187				87,265				(33,641	)			1,664,453
Income (loss) before equity in earnings of subsidiaries and income taxes			(10,879	)			154,466				6,115				—				149,702
Equity in earnings of subsidiaries			106,405				224				—				(106,629	)			—
Income from continuing operations before income taxes			95,526				154,690				6,115				(106,629	)			149,702
Provision for income taxes			1,961				53,004				1,172				—				56,137
Net income		$	93,565			$	101,686			$	4,943			$	(106,629	)		$	93,565

Condensed Unaudited Consolidating Statement of Income
For the three months ended September 30, 2006
(in thousands)

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	225,595			$	1,352,067			$	58,178			$	(9,632	)		$	1,626,208
Other income, net			91				27,928				837				(26,869	)			1,987
			225,686				1,379,995				59,015				(36,501	)			1,628,195
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			168,252				990,653				44,887				(9,653	)			1,194,139
Warehouse, delivery, selling, general and administrative			57,171				179,896				10,981				(23,250	)			224,798
Depreciation and amortization			1,891				14,338				282				—				16,511
Interest			6,221				16,582				149				(3,598	)			19,354
			233,535				1,201,469				56,299				(36,501	)			1,454,802
Income (loss) before equity in earnings of subsidiaries and income taxes			(7,849	)			178,526				2,716				—				173,393
Equity in earnings of subsidiaries			122,404				1,146				—				(123,550	)			—
Income from continuing operations before income taxes			114,555				179,672				2,716				(123,550	)			173,393
Provision for income taxes			7,050				57,990				848				—				65,888
Net income		$	107,505			$	121,682			$	1,868			$	(123,550	)		$	107,505