SECURITIES AND EXCHANGE COMMISSION

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, 2004

OR

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

For the transition period from ......................................... to .............................................

Commission file number: 001-13122

RELIANCE STEEL & ALUMINUM CO.

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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o

     As of October 31, 2004, 32,619,217 shares of the registrant’s common stock, no par value, were outstanding.

RELIANCE STEEL & ALUMINUM CO.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 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 month periods ended September 30, 2004 are not necessarily indicative of the results for the full year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2003, included in the Reliance Steel & Aluminum Co. Annual Report on Form 10-K/A.

2. Long-Term Debt

Long-term debt consists of the following:

The Company has a five-year syndicated credit agreement, as amended effective July 1, 2003, with ten banks for a secured revolving line of credit with a borrowing limit of $335,000,000 which may be increased to $400,000,000. At September 30, 2004, the Company also had $14,700,000 of letters of credit outstanding under the syndicated credit facility with availability to issue an additional $35,300,000 of letters of credit. The Company has $393,000,000 of outstanding senior secured notes issued in private placements of debt. The outstanding senior notes bear interest at an average fixed rate of 6.23% and have an average life of 4.9 years, maturing from 2005 to 2013.

On July 1, 2003, the Company amended, among other things, certain financial covenant ratios of its syndicated bank credit agreement dated as of October 24, 2001. This amendment required similar amendments to already outstanding senior notes from the Company’s prior private placements. The amendments to both the syndicated bank credit agreement and the senior notes adjusted the financial covenants to provide for the increased leverage that resulted from an acquisition and included a grant of a security interest in personal property to the lenders and purchasers thereof, respectively. The personal property pledged as collateral includes, but is not limited to, the outstanding securities of

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RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

each of the Company’s material corporate subsidiaries. The security interest will terminate when the Company meets certain conditions, including a required leverage ratio after the period ended December 31, 2004.

The Company’s syndicated credit agreement and senior note agreements, as amended, require the Company to maintain a minimum net worth and interest coverage ratio, a maximum leverage ratio, and include certain restrictions on the amount of cash dividends that the Company may pay, among other things. The syndicated credit facility includes a commitment fee on the unused portion, currently at an annual rate of .175%.

3. Shareholders’ Equity

In March 2004, 7,295 shares of common stock were issued to division managers of the Company under the Key-Man Incentive Plan for 2003.

SFAS No. 130, Reporting Comprehensive Income, defines comprehensive income (loss) as non-stockholder changes in equity. Accumulated other comprehensive income (loss) included the following:

Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. The adjustments to unrealized loss on investments and minimum pension liability are net of taxes of $(17,000) and $628,000, respectively, as of September 30, 2004 and $(11,000) and $628,000, respectively, as of December 31, 2003.

4. Stock Option Plans

In accordance with SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, the Company continues to account for stock-based compensation plans using the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees and related interpretations. Under APB No. 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock at the date of grant, no compensation expense is recognized.

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RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

If the Company had elected to recognize compensation cost based on the estimated fair value of the options granted at the grant date as prescribed by SFAS No. 148, net income and earnings per share would have been reduced to the pro forma amounts shown below:

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RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

5. Employee Benefits

The Company maintains a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified pension plan that provides post-retirement pension benefits to key officers of the Company. A separate SERP plan exists for one of the companies acquired during 1998 and for the Company’s 50.5%-owned company, 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. On September 30, 2004, the Company resolved to terminate one of these defined benefit pension plans effective December 31, 2004.

The net periodic pension costs for the SERP and defined benefit plans for the three and nine months ended September 30 were as follows (in thousands):

The Company previously disclosed in its financial statements for the year ended December 31, 2003, included in its Form 10-K/A, that it expected to contribute $437,000 to its defined benefit plans in 2004. As of September 30, 2004, contributions of $512,000 have been made. No additional contributions are expected to be made in 2004.

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RELIANCE STEEL & ALUMINUM CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6. 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 excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is 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:

There were no anti-dilutive shares reserved for issuance upon exercise of stock options for the three and nine months ended September 30, 2004. The computations of earnings per share for the three and nine months ended September 30, 2003 do not include 548,625 and 680,750 shares reserved for issuance upon exercise of stock options, respectively, because their inclusion would have been anti-dilutive.

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RELIANCE STEEL & ALUMINUM CO.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth certain income statement data for each of the periods indicated (dollars are shown in thousands and certain amounts may not calculate due to rounding):

(1)

Excludes other income, amortization expense, minority interest and interest expense.

2003 Acquisition

On July 1, 2003, we purchased all of the outstanding stock of Precision Strip, Inc. and its related entity, Precision Strip Transport, Inc. (collectively “Precision Strip”) for $220 million in cash, plus the assumption of approximately $26 million of debt. In addition, we paid the sellers of Precision Strip $16.5 million in April 2004 to reimburse them for the tax differential related to our election of Section 338(h)(10) treatment. Precision Strip is a privately-held metals processing company founded in 1977 whose processing activities consist primarily of slitting and blanking carbon steel, stainless steel and aluminum flat-rolled products on a “toll” basis, processing the metal for a fee without taking ownership of the metal. The business has facilities in Minster, Kenton, Middletown and Tipp City, Ohio; Anderson and Rockport, Indiana; Bowling Green, Kentucky; and Talladega, Alabama. Precision Strip’s customers include carbon steel, stainless steel and aluminum mills, as well as companies in the automotive, appliance, metal furniture and capital goods industries. On a volume basis, Precision Strip processes approximately $2 billion of metal per year.

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

For the three months ended September 30, 2004, our consolidated net sales increased 59.7% to $783.7 million, compared to the same period of 2003. This includes an increase of 0.9% in tons sold and an increase in the average selling price per ton sold of 62.7% (the tons sold and average selling price per ton sold exclude amounts related to Precision Strip). The increase in our average selling price per ton sold of 62.7% resulted mainly from increases in the costs of most products that we sell. Aluminum and stainless steel costs have continued to increase steadily throughout 2004. Carbon steel costs increased significantly in the 2004 third quarter as compared to the 2003 period mainly due to increased raw material costs for the producers. Because of improved customer demand, we have been able to pass through our cost increases by raising our selling prices to our customers.

Same-store sales (excluding sales generated by the company we acquired in 2003) were $751.3 million in the third quarter of 2004, an increase of 63.7% from the 2003 third quarter.

Total gross profit increased 54.7% to $214.9 million for the third quarter of 2004 compared to $139.0 million in the third quarter of 2003. As a percentage of sales, gross profit was 27.4% for the three months ended September 30, 2004, compared to 28.3% for the three months ended September 30, 2003. The increase in gross profit dollars is mainly due to the increased pricing levels experienced in 2004. During the third quarter of 2004, our gross profit percentage declined as we received higher cost material into our inventory at a rate that exceeded our price increases to our customers. Our increased costs of metals resulted in LIFO expense of $32.5 million included in cost of sales in the 2004 third quarter, compared to $2.1 million of LIFO income in the 2003 third quarter.

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Warehouse, delivery, selling, general and administrative (“S,G&A”) expenses increased $20.8 million, or 20.8%, in the third quarter of 2004 compared to the corresponding period of 2003, and amounted to 15.4% of sales in the 2004 third quarter and 20.4% of sales in the 2003 third quarter. The dollar increase in S,G&A expenses was mainly due to the expenses of Precision Strip, which we acquired after the second quarter of 2003, and due to expenses to support our increased sales volume in 2004. The expenses declined as a percentage of sales mainly due to the increased selling prices experienced in 2004.

Depreciation expense in the 2004 third quarter was $10.2 million, comparable to the 2003 period.

Interest expense was $7.1 million in the 2004 third quarter compared to $8.0 million in the 2003 period due to somewhat lower outstanding borrowings and due to our ability to decrease the interest rate margin on borrowings on our syndicated line of credit because of our improved financial results.

Minority interest expense for the 2004 third quarter increased from the 2003 period mainly due to the improved operating performance at our 50.5%-owned company, American Steel, L.L.C. Minority interest also includes expense for the profit contribution from Valex Korea through July 29, 2004 that is attributable to our 30.5% partner. On July 30, 2004, we purchased an additional interest in Valex Korea for $0.5 million bringing our ownership to 99%.

Our 2004 third quarter effective income tax rate was 39.4%, comparable to the 2003 third quarter rate of 39.3%.

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Consolidated net sales were $2.2 billion for the nine months ended September 30, 2004, an increase of 57.4% from the nine months ended September 30, 2003. The 2004 nine-month sales includes an increase of 8.7% in tons sold and an increase in the average selling price per ton sold of 41.6%. The increase in tons sold was primarily due to the strong demand levels experienced for most of our products compared to 2003. The increase in our average selling price per ton sold of 41.6% resulted mainly from increases in the costs of most products that we sell and due to limited availability of certain of these products. Aluminum and stainless steel costs have continued to increase steadily through 2004. Carbon steel costs increased significantly in the first nine months of 2004, with the increases in the 2004 third quarter at a lower rate than in the first half. Our increased costs have been driven by increased raw material costs for the producers and supply limitations. These factors, along with improved customer demand, have allowed us to pass through our cost increases by raising our selling prices. Our same-store sales increased $735.1 million, or 53.8%, to $2.1 billion in the 2004 nine-month period.

Total gross profit was $630.8 million for the first nine months of 2004, a 67.0% increase compared to $377.7 million in the first nine months of 2003. As a percentage of sales, gross profit increased to 28.7% for the nine months ended September 30, 2004 compared to 27.0% in the 2003 period. Our gross margin percentage has increased during the 2004 period as compared to the 2003 period, mainly because of our ability to increase our selling prices to our customers due to the higher costs of most of our products. The improved customer demand in 2004, along with limited supplies of many metals and the efforts of our sales force allowed us to pass through increased pricing to our customers. We were able to expand our gross margin percentage in the first half of 2004 because we passed these increases on to our customers before we received the higher cost material in our inventory. However, during the 2004 third quarter, we received the higher cost material into our inventory and the rate of mill price increases, along with our selling prices, slowed, which caused our gross margin percentage to decline. Our increased costs of metals resulted in LIFO expense of $92.5 million included in cost of sales for the nine months ended September 30, 2004, compared to $2.3 million of LIFO income in the 2003 nine month period.

S,G&A expenses for the nine months ended September 30, 2004 increased $65.0 million, or 22.0% compared to the corresponding period of 2003, due to the inclusion of the S,G&A expenses of Precision Strip acquired on July 1, 2003, and due to expenses to support our increased sales volume. S,G&A expenses were 16.4% as a percent of sales for the nine-month period of 2004 compared to 21.1% for the same period in 2003. The decrease as a percent of sales is due to the significant increases in our selling prices.

Depreciation expense increased $6.0 million during the nine months ended September 30, 2004 to $30.7 million, compared to the corresponding period of 2003, mainly due to the depreciation expense of Precision Strip and due to the depreciation of our capital expenditure additions.

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Interest expense was $21.8 million in the first nine months of 2004 compared to $19.1 million in the 2003 period due to increased borrowings to fund our increased working capital needs in 2004 and to fund the Precision Strip acquisition on July 1, 2003.

Our effective income tax rate was 39.3% for the first nine months of 2004 and 2003. The full-year 2003 rate was 38.0%, as 2003 included a slight reduction due to the resolution of open tax issues.

Liquidity and Capital Resources

At September 30, 2004, our working capital was $478.8 million compared to $341.8 million at December 31, 2003. The increase was mainly due to an increase in our accounts receivable of $136.8 million and an increase in our inventory of $88.6 million resulting from improved sales levels, offset by an increase in our accounts payable and accrued expenses of $90.0 million due to our increased costs of inventory in the first nine months of 2004 compared to the fourth quarter of 2003 levels.

To manage our working capital, we focus on our days sales outstanding to monitor accounts receivable and on our inventory turnover rate to monitor our inventory levels, as receivables and inventory are our two most significant elements of working capital. At September 30, 2004, our accounts receivable days sales outstanding were 41 days, down from our rate of 44 days at December 31, 2003. (We calculate our days sales outstanding as an average of the most recent two-month period.) Our inventory turnover rate was about 5.4 times for the first nine months of 2004, improved from our full year 2003 rate of about 4.7 times.

Our primary sources of liquidity are generally from internally generated funds from operations and our revolving line of credit. Cash of $31.2 million was provided by operations in the nine months ended September 30, 2004, as compared to $99.5 million during the corresponding period of 2003. The decline was due mainly to the increases in working capital in 2004 that resulted from improved business conditions. During 2003 we were reducing our inventory levels due to the poor customer demand, which generated a significant amount of cash flow from operations. We borrowed funds from our revolving line of credit to pay off $22.0 million of private placement notes on January 2, 2004 (date of maturity) and to fund the $16.5 million paid to the Precision Strip sellers related to the election of Section 338(h)(10) treatment. At September 30, 2004 our net debt-to-total capital ratio was 39.1% compared to 43.1% at December 31, 2003.

Our syndicated credit facility, as amended effective July 1, 2003, is with ten banks and has a borrowing limit of $335.0 million, which may be increased to $400.0 million. As of September 30, 2004, $105.0 million was outstanding under this credit facility compared to $72.0 million at December 31, 2003. We also had $14.7 million of letters of credit outstanding under our syndicated credit agreement as of September 30, 2004. We have agreements with insurance companies for private placements of senior secured notes in the aggregate amount of $393.0 million. The outstanding senior notes have maturity dates ranging from 2005 to 2013, with an average remaining life of 4.9 years, and bear interest at an average fixed rate of 6.23% per annum. The syndicated credit facility and senior note agreements were amended effective July 1, 2003 to provide, among other things, for the Company to grant a security interest in certain personal property to the lenders named therein. The security interest will terminate when we meet certain conditions after December 31, 2004, including a required leverage ratio. The syndicated credit facility and senior note agreements, as amended, also require that we maintain a minimum net worth and interest coverage ratio, and a maximum leverage ratio, and include restrictions on the amount of cash dividends we may pay.

Capital expenditures were $27.7 million for the nine months ended September 30, 2004. We had no material changes in commitments for capital expenditures, operating lease obligations or purchase obligations as of September 30, 2004, as compared to those disclosed in our table of contractual obligations included in our Form 10-K/A for the year ended December 31, 2003. We anticipate that funds generated from operations and funds available under our line of credit will be sufficient to meet our working capital and capital expenditure needs and to fund acquisitions in the foreseeable future.

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Seasonality

Some of our customers may be in seasonal businesses, especially customers in the construction industry. As a result of our geographic, product and customer diversity, however, our operations have not shown any material seasonal trends. Revenues in the months of November and December traditionally have been lower than in other months because of a reduced number of working days for shipments of our products and holiday closures for some of our customers. We cannot assure you that period-to-period fluctuations will not occur in the future. Results of any one or more quarters are, therefore, not necessarily indicative of annual results.

Goodwill

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $341.8 million at September 30, 2004, or approximately 21.3% of total assets or 43.9% of consolidated shareholders’ equity.

Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 142, we review the recoverability of goodwill annually or whenever significant events or changes occur which might impair the recovery of recorded costs. Our annual impairment tests of goodwill were performed as of November 1, 2003 and it was determined that the recorded amounts for goodwill are recoverable and that no impairment existed. We are not aware of any significant events or changes that would affect the recoverability of those amounts as of September 30, 2004.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. When we prepare these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates and judgments, including those related to accounts receivable, inventories, deferred tax assets, goodwill and intangible assets, long-lived assets and revenue recognition. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For further information regarding the accounting policies that we believe to be critical accounting policies and that affect our more significant judgments and estimates used in preparing our consolidated financial statements see our December 31, 2003 Form 10-K/A.

Quantitative and Qualitative Disclosures About Market Risk.

In the ordinary course of business, we are exposed to various market risk factors, including changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates, and metals pricing and availability. Additionally, we are exposed to market risk primarily related to our fixed rate long-term debt. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. Decreases in interest rates may affect the market value of our fixed rate debt. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Based on our debt, we do not consider the exposure to interest rate risk to be material. Our fixed rate debt obligations are not callable until maturity.

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Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered in this report, the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic filings with the SEC. There have been no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are in the process of performing a detailed assessment of our internal controls as required by the Sarbanes-Oxley Act of 2002. We are in the testing and remediation phase and have identified potential control deficiencies in our system of internal controls and are implementing policies and procedures to remediate these issues. To ensure that we address these issues thoroughly, effectively and timely, we have supplemented our internal project team with the services of outside specialists. Although we have made this project a top priority for the Company, there can be no assurances that all control deficiencies identified and validated will be remediated before the end of the Company’s fiscal year or that the remaining unresolved control deficiencies will not rise to the level of significant deficiencies or material weaknesses.

This Form 10-Q may contain forward-looking statements relating to future financial results. Actual results may differ materially as a result of factors over which Reliance Steel & Aluminum Co. has no control. These risk factors and additional information are included in the Company’s Annual Report on Form 10-K/A.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

     Not applicable.

Item 2. Changes in Securities.

     (a) Not applicable.

     (b) Not applicable.

     (c) Not applicable.

     (d) Not applicable.

Item 3. Defaults Upon Senior Securities.

     (a) Not applicable.

     (b) Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

     Not applicable.

Item 5. Other Information.

     Not applicable.

Item 6. Exhibits and Reports on Form 8-K.

     (a) Exhibits:

     (b) Reports on Form 8-K:

The Company filed a report on Form 8-K dated July 15, 2004, disclosing its press release dated July 15, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RELIANCE STEEL & ALUMINUM CO.

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