Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

     (Mark One)

For the quarterly period ended June 30, 2002

OR

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   x                 No  o

     As of July 31, 2002, 31,717,962 shares of the registrant’s common stock, no par value, were outstanding.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PART  I  —   FINANCIAL INFORMATION				1
	Consolidated Balance Sheets at June 30, 2002 (Unaudited) and December 31, 2001			1
	Unaudited Consolidated Statements of Income for the Three Months in the Periods Ended   June 30, 2002 and 2001			2
	Unaudited Consolidated Statements of Income for the Six Months in the Periods Ended   June 30, 2002 and 2001			3
	Unaudited Consolidated Statements of Cash Flows for the Six Months in the Periods Ended   June 30, 2002 and 2001			4
	Notes to Consolidated Financial Statements			5
	Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
	Market Risk			13
PART II  —  OTHER INFORMATION				14
SIGNATURES				15

 i

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)

				June 30,				December 31,
				2002				2001
				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	5,644			$	9,931
	Accounts receivable, less allowance for doubtful accounts of $6,828 at June 30, 2002 and $5,417 at December 31, 2001				213,315				172,603
	Inventories				301,266				308,093
	Prepaid expenses and other current assets				8,168				8,903
	Deferred income taxes				18,648				18,463
		Total current assets			547,041				517,993
Property, plant and equipment, at cost:
	Land				49,730				48,598
	Buildings				176,489				168,963
	Machinery and equipment				239,603				207,243
	Accumulated depreciation				(168,469	)			(134,451	)
					297,353				290,353
Investment in 50%-owned company					—				12,352
Goodwill, net of accumulated amortization of $33,024 at June 30, 2002 and December 31, 2001					282,897				250,103
Other assets					13,704				11,492
		Total assets		$	1,140,995			$	1,082,293
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	88,804			$	69,870
	Accrued expenses				41,523				32,822
	Wages and related accruals				16,384				17,430
	Deferred income taxes				7,555				7,555
	Current maturities of long-term debt				325				10,325
		Total current liabilities			154,591				138,002
Long-term debt					345,015				331,975
Deferred income taxes					28,433				28,433
Minority interest					10,611				—
Commitments and contingencies					—				—
Shareholders’ equity:
	Preferred stock, no par value:
		Authorized shares — 5,000,000 None issued and outstanding			—				—
	Common stock, no par value:
		Authorized shares — 100,000,000 Issued and outstanding shares 31,714,962 at June 30, 2002 and 31,572,601 at December 31, 2001, stated capital			293,781				290,798
	Retained earnings				309,051				294,091
	Accumulated other comprehensive loss				(487	)			(1,006	)
		Total shareholders’ equity			602,345				583,883
		Total liabilities and shareholders’ equity		$	1,140,995			$	1,082,293

See accompanying notes to consolidated financial statements.

1

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

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

			Three Months Ended
			June 30,
			2002				2001
Net sales			$	450,166			$	411,982
Other income, net				603				1,047
				450,769				413,029
Costs and expenses:
	Cost of sales			324,123				297,170
	Warehouse, delivery, selling, general and administrative			96,214				82,249
	Depreciation and amortization			7,111				7,831
	Interest			5,668				7,245
				433,116				394,495
Income before equity in earnings of 50%-owned company, minority interest and income taxes				17,653				8,534
Equity in earnings of 50%-owned company				140				99
Minority interest				43				—
Income before provision for income taxes				17,836				18,633
Provision for income taxes				7,062				7,215
Net income			$	10,774			$	11,418
Earnings per share — diluted			$	.34			$	.45
Weighted average shares outstanding — diluted				31,920,602				25,395,527
Earnings per share — basic			$	.34			$	.45
Weighted average shares outstanding — basic				31,683,600				25,218,012
Cash dividends per share			$	.06			$	.06

See accompanying notes to consolidated financial statements.

2

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

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

			Six Months Ended
			June 30,
			2002				2001
Net sales			$	855,652			$	844,887
Other income, net				1,236				1,584
				856,888				846,471
Costs and expenses:
	Cost of sales			618,064				609,748
	Warehouse, delivery, selling, general and administrative			183,922				167,096
	Depreciation and amortization			13,932				15,494
	Interest			11,037				14,892
				826,955				807,230
Income before equity in earnings of 50%-owned company, minority interest and income taxes				29,933				39,241
Equity in earnings of 50%-owned company				263				383
Minority interest				43				—
Income before provision for income taxes				30,239				39,624
Provision for income taxes				11,974				15,454
Net income			$	18,265			$	24,170
Earnings per share — diluted			$	.57			$	.95
Weighted average shares outstanding — diluted				31,824,993				25,355,432
Earnings per share — basic			$	.58			$	.96
Weighted average shares outstanding — basic				31,637,483				25,195,319
Cash dividends per share			$	.12			$	.12

See accompanying notes to consolidated financial statements.

3

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

				Six Months Ended
				June 30,
				2002				2001
Operating activities:
Net income				$	18,265			$	24,170
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				13,932				15,494
	Deferred taxes				—				(256	)
	Loss on sales of machinery and equipment				1				179
	Equity in earnings of 50%-owned company				(263	)			(383	)
	Minority interest				173				—
	Changes in operating assets and liabilities:
		Accounts receivable			(29,075	)			8,663
		Inventories			23,880				5,097
		Prepaid expenses and other assets			1,942				(755	)
		Accounts payable and accrued expenses			17,486				(13,818	)
Net cash provided by operating activities					46,341				38,391
Investing activities:
Purchases of property, plant and equipment, net					(8,664	)			(13,363	)
Proceeds from sales of property and equipment					123				1,044
Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired					(24,144	)			(43,186	)
Dividends received from 50%-owned company					444				6,177
Net cash used in investing activities					(32,241	)			(49,328	)
Financing activities:
Proceeds from borrowings					62,800				182,000
Principal payments on long-term debt and short-term borrowings					(79,505	)			(159,504	)
Payments to minority partner					(1,879	)			—
Dividends paid					(3,797	)			(3,025	)
Issuance of common stock					3,475				1,921
Net cash (used in) provided by financing activities					(18,906	)			21,392
Effect of exchange rate changes on cash					519				(977	)
(Decrease) increase in cash and cash equivalents					(4,287	)			9,478
Cash and cash equivalents at beginning of period					9,931				3,107
Cash and cash equivalents at end of period				$	5,644			$	12,585
Supplemental cash flow information:
Interest paid during the period				$	6,319			$	15,439
Income taxes paid during the period				$	11,016			$	14,354

See accompanying notes to consolidated financial statements.

4

Table of Contents

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 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 fair presentation, with respect to the interim financial statements have been included. The results of operations for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results for the full year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2001, included in the Reliance Steel & Aluminum Co. Annual Report on Form 10-K. Certain reclassifications have been made to the 2001 balances to conform to the 2002 presentation.

2. Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 is effective for any business combinations completed after June 30, 2001 and SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

The Company has adopted the provisions of SFAS No. 141 for acquisitions completed subsequent to June 30, 2001 and has adopted SFAS No. 142 effective January 1, 2002. The Company has performed a transitional assessment of impairment of goodwill by applying fair-value-based tests and has determined that no impairment existed at January 1, 2002. The pro forma effect of these new accounting rules on net income and earnings per share for the three and six months ended June 30, 2001 is as follows:

5

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

3. Acquisitions

On April 1, 2002, the Company, through a newly-formed subsidiary, purchased substantially all of the business and net assets of Central Plains Steel Co., a privately-held, full-line carbon steel service center, with facilities in Kansas City and Wichita, Kansas. Central Plains Steel Co. had sales of approximately $39 million for the year ended December 31, 2001, and now operates as a wholly-owned subsidiary of the Company. This purchase was funded with borrowings under the Company’s line of credit.

Also on April 1, 2002, the Company acquired all of the outstanding stock of Olympic Metals, Inc., a privately-held metals service center in Denver, Colorado. Olympic specializes in the processing and distribution of aluminum, red metals and stainless steel products and had sales of approximately $8 million for the twelve months ended December 31, 2001. Olympic operates as a wholly-owned subsidiary of the Company. This acquisition was funded with cash generated from operations.

These transactions have been accounted for under the purchase method of accounting. Accordingly, the accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date. The consolidated financial statements reflect the preliminary allocation of the purchase price. The allocations of purchase price were based upon the preliminary estimation of fair values of the net assets purchased.

Effective May 1, 2002, the Operating Agreement of American Steel, L.L.C. (“American Steel”) was amended and one additional membership unit was issued to the Company, giving the Company 50.5% of the outstanding membership units. As part of the amendment, all super-majority and unanimous voting rights included in the Operating Agreement were eliminated, among other changes. Due to this change in ownership structure, the Company began consolidating American Steel’s financial results as of May 1, 2002. American Steel will continue to maintain a separate credit facility and had outstanding debt of $20.2 million at June 30, 2002. All significant inter-company transactions are eliminated in consolidation.

6

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

4. Long-Term Debt

Long-term debt consists of the following:

			June 30,				December 31,
			2002				2001
			(In thousands)
Revolving line of credit ($335,000,000 limit) due October 24, 2006, interest at variable rates, weighted average rate of 3.16% during the six months ended June 30, 2002			$	40,000			$	47,000
Senior unsecured notes due from January 2, 2004 to January 2, 2009, average fixed interest rate 7.22%				75,000				75,000
Senior unsecured notes due from January 2, 2002 to January 2, 2008, average fixed interest rate 7.06%				55,000				65,000
Senior unsecured notes due from October 15, 2005 to October 15, 2010, average fixed interest rate 6.55%				150,000				150,000
Variable Rate Demand Industrial Development Revenue Bonds, Series 1989 A, due July 1, 2014, with interest payable quarterly; average interest rate during the six months ended June 30, 2002 of 1.33%				2,900				2,900
Variable Rate Demand Revenue Bonds, Series 1999, due March 1, 2009, with average interest rate during the six months ended June 30, 2002 of 1.69%				2,225				2,400
American Steel, L.L.C. revolving line of credit ($24,000,000 limit) due June 30, 2004, interest at variable rates, weighted average rate of 6.15% during the two months ended June 30, 2002				20,215				—
	Total			345,340				342,300
Less amounts due within one year				(325	)			(10,325	)
	Total long-term debt		$	345,015			$	331,975

The Company has a five-year syndicated credit agreement with nine banks for an unsecured revolving line of credit with a borrowing limit of $335 million which may be increased to $400 million. The Company has $280 million of outstanding senior unsecured notes issued in private placements of debt. The outstanding senior notes bear interest at an average fixed rate of 6.83% and have an average life of 5.3 years, maturing from 2004 to 2010. American Steel has a two-year syndicated credit agreement, as amended, effective June 30, 2002, that is secured by its working capital with a borrowing limit of $24 million.

The Company’s long-term loan agreements require the Company to maintain a minimum net worth 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 0.25%.

5. Shareholders’ Equity

In March 2002, 8,334 shares of common stock were issued to division managers and certain officers of the Company under the Key-Man Incentive Plan for 2001.

Accumulated other comprehensive loss of $0.5 million ($0.3 million net of tax) and $1.0 million ($0.6 million net of tax) at June 30, 2002 and December 31, 2001, respectively, consists of foreign currency translation adjustments.

7

Table of Contents

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 exclude 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:

					Three Months Ended June 30,								Six Months Ended June 30,
					2002				2001				2002				2001
					(In thousands except per share amounts)
Numerator:
	Net income				$	10,774			$	11,418			$	18,265			$	24,170
Denominator:
	Denominator for basic earnings per share:
			Weighted average shares			31,684				25,218				31,637				25,195
Effect of dilutive securities:
	Stock options					237				178				188				160
Denominator for dilutive earnings per share:
		Adjusted weighted average shares and assumed conversions				31,921				25,396				31,825				25,355
Earnings per share — diluted					$	.34			$	.45			$	.57			$	.95
Earnings per share — basic					$	.34			$	.45			$	.58			$	.96

7. Subsequent Events

On August 7, 2002 the Company announced that it had signed agreements to acquire from Metals USA, Inc. the assets of two of its businesses. The transactions are subject to the final approval of the U.S. Bankruptcy Court, in connection with Metals USA’s bankruptcy filing. These asset purchase agreements are subject to a thirty-day Court required auction process which will conclude by early September 2002. During this period additional offers can be received through the Court process.

The businesses include Metals USA Specialty Metals Northwest, Inc. based in Portland, Oregon, with additional divisions in Eugene, Oregon; Kent (Seattle) and Spokane, Washington; Billings, Montana and Boise, Idaho. This business was formerly known as Pacific Metal Company and is primarily involved in the processing and distribution of aluminum and coated carbon steel products. Sales for this business were $76.2 million for the year ended December 31, 2001.

The second business is the Milwaukee, Wisconsin operation of Metals USA Plates and Shapes Northcentral, Inc. This operation was previously known as Williams Steel & Supply Co., Inc. and processes and distributes mainly carbon steel plate, bar and structural products with sales of $37.4 million for the year ended December 31, 2001.

8

Table of Contents

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):

		Three Months Ended June 30,																Six Months Ended June 30,
		2002								2001								2002								2001
						% of								% of								% of								% of
		$				Net Sales				$				Net Sales				$				Net Sales				$				Net Sales
Net sales		$	450,166				100.0	%		$	411,982				100.0	%		$	855,652				100.0	%		$	844,887				100.0	%
Gross profit			126,043				28.0				114,812				27.9				237,588				27.8				235,139				27.8
S,G&A expenses			96,214				21.4				82,249				20.0				183,922				21.5				167,096				19.8
Depreciation expense			6,809				1.5				5,640				1.4				13,202				1.5				11,361				1.3
Income from operations		$	23,020				5.1	%		$	26,923				6.5	%		$	40,464				4.7	%		$	56,682				6.7	%

2002 Acquisitions

On April 1, 2002, we purchased substantially all of the business and net assets of Central Plains Steel Co. through a newly-formed subsidiary. Central Plains Steel Co., a full-line carbon steel service center with facilities in Kansas City and Wichita, Kansas, had sales of approximately $39 million for the year ended December 31, 2001. This purchase was funded with borrowings under our line of credit.

Also on April 1, 2002, we acquired all of the outstanding stock of Olympic Metals, Inc., a metals service center in Denver, Colorado. Olympic Metals, Inc. specializes in the processing and distribution of aluminum, red metals and stainless steel products and had sales of approximately $8 million for the twelve months ended December 31, 2001. We funded this acquisition with cash generated from operations.

Effective May 1, 2002, we obtained one additional membership unit of American Steel, L.L.C. (“American Steel”) giving us a 50.5% ownership interest. The Operating Agreement was amended to eliminate all super-majority and unanimous voting rights, among other changes. Due to this change in ownership structure, we began consolidating American Steel’s financial results as of May 1, 2002. There was no cost involved in this transaction, which was completed to facilitate the renewal of American Steel’s credit facility. American Steel had sales of $72 million for the twelve months ended December 31, 2001.

2001 Acquisitions

On July 2, 2001, we purchased the net assets of the steel service centers division of Pitt-Des Moines, Inc., through our newly-formed subsidiary, PDM Steel Service Centers, Inc. (“PDM”). PDM processes and distributes carbon steel products consisting primarily of structurals and plate for the capital goods and construction industries and had net sales of approximately $86 million for the six months ended December 31, 2001. PDM operates six metals service center facilities in Fresno, Santa Clara and Stockton (headquarters), California; Sparks, Nevada; Spanish Fork, Utah; and Woodlands, Washington. This acquisition included a seventh metals service center facility in Cedar Rapids, Iowa that became a division of our subsidiary Liebovich Bros., Inc. on April 1, 2002.

Effective January 19, 2001, we acquired 100% of the outstanding stock of Aluminum and Stainless, Inc., that operates a metals service center based in Lafayette, Louisiana. Aluminum and Stainless provides non-ferrous products primarily related to the marine industry for use in the production of large commercial vessels that provide various services for offshore oil rigs. In March 2001, we opened a branch operation of Aluminum and Stainless in New Orleans, Louisiana, through the purchase of certain assets of an existing metals service center. Aluminum and Stainless had net sales of approximately $30 million for the period January 20, 2001 to December 31, 2001, including the sales of the New Orleans branch.

9

Table of Contents

Effective January 18, 2001, we purchased 100% of the stock of Viking Materials, Inc., based in Minneapolis, Minnesota, and a related company, Viking Materials of Illinois, Inc., based near Chicago, Illinois. These service centers provide primarily carbon steel flat-rolled products to their customers in the Midwest region of the United States and had consolidated revenues of approximately $68 million for the period January 19, 2001 to December 31, 2001. Viking Materials of Illinois, Inc. has been merged into Viking Materials, Inc.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

In the three months ended June 30, 2002, our consolidated net sales increased 9.3% to $450.2 million, compared to the same period of 2001. This includes an increase of 22.4% in tons sold and a decrease in the average selling price per ton of 11.0%. The increase in tons sold was primarily due to the sales generated by the companies we acquired in 2002 and 2001. The decrease in our average selling price per ton of 11.0% resulted mainly from lower metals costs for many of our products as compared to the same period of 2001 and because of a shift in product mix, with an increase of 8.0% in carbon steel product sales during the three months ended June 30, 2002 as compared to the three months ended June 30, 2001. This shift was mainly due to our acquisitions but was also impacted by the decreased sales of mostly aluminum and stainless steel products to the semiconductor, electronics and aerospace industries in the 2002 second quarter.

Same-store sales (excluding sales generated by the companies we acquired since the beginning of 2001) decreased $28.6 million, or 7.4% in the three months ended June 30, 2002, reflecting a decrease of 2.8% in tons sold, and a decrease of 5.0% in average selling price per ton from the 2001 period. The decrease in same-store tons sold resulted from the continued general downturn in the economy, especially related to the aerospace industry. Our sales to the aerospace industry decreased 32.3% in the 2002 second quarter as compared to the 2001 second quarter, with a 23.7% decrease in tons sold and an 11.4% decrease in the average selling price.

Total gross profit increased 9.8% to $126.0 million for the second quarter of 2002 compared to $114.8 million in the second quarter of 2001. As a percentage of sales, gross profit was 28.0% in the three months ended June 30, 2002, comparable to 27.9% in the three months ended June 30, 2001. We were able to maintain our gross margin as a percentage of sales during a period when the costs of certain carbon steel products were rising, because of our ability to increase our selling prices. We do not know if we will be able to continue to maintain our gross margin percentage in future quarters since the increases in costs have not been driven by demand.

Warehouse, delivery, selling, general and administrative (“S,G&A”) expenses increased $14.0 million, or 17%, in the second quarter of 2002 compared to the corresponding period of 2001, and amounted to 21.4% of sales in the 2002 second quarter and 20.0% of sales in the 2001 second quarter. The dollar increase in S,G&A expenses includes the expenses of the businesses we acquired after the second quarter of 2001. The second quarter of 2002 S,G&A expense as a percent of sales is up from the 2001 second quarter mainly due to the effect of the lower sales prices for our products during the 2002 period.

Depreciation and amortization expense decreased $0.7 million, or 9.2%, during the three months ended June 30, 2002, compared to the corresponding period of 2001. This decrease is primarily due to the change in accounting rules for the amortization of goodwill that were effective for us on January 1, 2002. The second quarter of 2001 included $1.8 million, or $.03 per diluted share, of goodwill amortization expense compared to none in the second quarter of 2002.

Interest expense decreased by 21.8% to $5.7 million in the 2002 second quarter compared to $7.2 million in the 2001 second quarter, due to both lower borrowing levels and lower interest rates.

Because of our increased ownership in American Steel, and the elimination of all super-majority and unanimous voting rights included in the Operating Agreement, we began to consolidate its results beginning May 1, 2002 rather than account for our investment on the equity method. On our income statement, the 2002 equity in earnings of 50%-owned company represents our 50% of American Steel’s net income from January 1 through April 30. The minority interest amount represents 49.5% of American Steel’s net loss, beginning May 1, 2002 for the portion we do not own. Our consolidated balance sheet at June 30, 2002 includes the assets and liabilities of American Steel, including $24.5 million of goodwill and $20.2 million of debt. The minority interest liability on our balance sheet includes the 49.5% of American Steel that we do not own.

10

Table of Contents

Our effective income tax rate increased to 39.6% for the 2002 second quarter, compared to 38.7% for the 2001 second quarter, primarily due to shifts in our geographic composition.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Consolidated net sales were $855.7 million for the six months ended June 30, 2002, an increase of 1.3% from the six months ended June 30, 2001. The 2002 six-month sales represent an increase of 16.8% in tons sold and a decrease in the average selling price per ton of 13.5%. The increase in our tons sold was primarily due to the sales of the companies we acquired in 2002 and 2001. The decrease in our average selling price per ton of 13.5% resulted mainly from lower metals costs for many of our products as compared to the same period of 2001 and because of a shift in product mix, with an increase of 8.0% in carbon steel product sales during the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. This shift was mainly due to our acquisitions but was also impacted by the decreased sales of aluminum and stainless steel products to the semiconductor, electronics and aerospace industries in the 2002 second quarter.

Our same-store sales decreased $98.9 million, or 12.4%, in the 2002 six-month period. Same-store tons sold decreased by 4.4% due to the continued general downturn in the economy, especially in the aerospace industry. Our sales to the aerospace industry decreased 28.4% in the six months ended June 30, 2002 as compared to the same period in 2001, with a 21.8% decrease in tons sold and an 8.5% decrease in the average selling price.

Total gross profit was $237.6 million for the first six months of 2002, a 1.0% increase, compared to $235.1 million in the first six months of 2001. As a percentage of sales, gross profit was consistent at 27.8% for the six months ended June 30, 2002 and 2001.

S,G&A expenses for the six months ended June 30, 2002 increased $16.8 million, or 10.1% compared to the corresponding period of 2001, mainly because we included the S,G&A expenses of the businesses we acquired in 2002 and 2001. S,G&A expenses were 21.5% as a percent of sales for the six-month period of 2002, up from 19.8% for the same six-month period of 2001. The increase as a percent of sales was because of the lower sales prices for our products being experienced company-wide. On a same-store basis, S,G&A expense decreased $5.7 million, or 3.6% for the 2002 six-month period compared to the 2001 period. The majority of the same-store expense decrease resulted from headcount reductions, as we reduced our workforce by 7.7% during the twelve months ended June 30, 2002.

Depreciation and amortization expense decreased $1.6 million during the six months ended June 30, 2002, compared to the corresponding period of 2001. This decrease is due to the change in accounting rules for the amortization of goodwill that were effective for us on January 1, 2002. The first six months of 2001 included $3.5 million, or $.07 per diluted share, of goodwill amortization expense compared to none for the 2002 six-month period.

Interest expense decreased by 25.9% to $11.0 million in the first six months of 2002 compared to $14.9 million in the 2001 period, due to both lower borrowing levels and lower interest rates.

Our effective income tax rate was 39.6% for the first six months of 2002, compared to 39.0% for the first six months of 2001. The increase in our effective rate was primarily due to shifts in our geographic composition.

Liquidity and Capital Resources

At June 30, 2002, working capital amounted to $392.5 million compared to $380.0 at December 31, 2001. The increase was mainly due to companies we acquired in 2002. Excluding the effect of these acquisitions, we experienced an increase in our accounts receivable resulting from improved sales levels in the first six months of 2002 compared to the fourth quarter of 2001 levels. This increase in sales, along with our focus on inventory management, resulted in a decrease in our inventory of $23.9 million, excluding the effect of our 2002 acquisitions. In addition, accounts payable increased by $17.5 million, also excluding the effect of our 2002 acquisitions. Our capital requirements are primarily for working capital, acquisitions, and capital expenditures for continued improvements in plant capacities and materials handling and processing equipment.

11

Table of Contents

Our primary sources of liquidity are generally from internally generated funds from operations and our revolving line of credit. In 2001, we also raised net proceeds of $149.8 million in a secondary equity offering. These funds were used to pay down debt. Cash of $46.3 million was provided by operations in the six months ended June 30, 2002, as compared to $38.4 million of cash provided by operations during the corresponding period of 2001. This increase was primarily due to the working capital changes discussed above. Cash provided by our 2002 operations was used to pay down debt including debt incurred to fund our 2002 acquisitions. At June 30, 2002 our net debt-to-total capital ratio was 36.1% compared to 51.3% at June 30, 2001.

Our syndicated credit facility has a borrowing limit of $335.0 million, which can be increased to $400.0 million. At June 30, 2002, $40.0 million was outstanding under this credit facility. American Steel’s syndicated credit facility, as amended, effective June 30, 2002, has a borrowing limit of $24.0 million. At June 30, 2002, $20.2 million was outstanding under this credit facility. We also have senior unsecured notes outstanding in the aggregate amount of $280.0 million. During the first quarter of 2002, we paid off a $10.0 million note upon its maturity. The senior notes have maturity dates ranging from 2004 to 2010, with an average life of 5.3 years. The senior notes bear interest at an average fixed rate of 6.83% per annum.

Our capital expenditures, excluding acquisitions, were $8.7 million for the six months ended June 30, 2002. We had no material commitments for capital expenditures as of June 30, 2002. We anticipate that funds generated from our operations and funds available under our line of credit will be sufficient to meet our working capital needs for the foreseeable future.

Seasonality

Some of our customers are 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 $282.9 million at June 30, 2002, or approximately 24.8% of total assets or 47.0% of consolidated shareholders’ equity.

In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill deemed to have indefinite lives is no longer amortized, but is subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. We have adopted the provisions of SFAS No. 141 for acquisitions completed subsequent to June 30, 2001 and have adopted SFAS No. 142 effective January 1, 2002. Pursuant to SFAS No. 142, we have performed a transitional assessment of impairment of goodwill by applying fair-value-based tests to our identified operating segments and have determined that no impairment of goodwill existed at January 1, 2002.

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, equity investment, goodwill and intangible 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.

12

Table of Contents

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, 2001 Form 10-K.

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 metal 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 our market value of 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.

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 and the Company’s Prospectus dated June 28, 2001 filed under Rule 424(b).

13

Table of Contents

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.

	(a)		The annual meeting of Reliance Steel & Aluminum Co. shareholders was held on May 15, 2002.
	(b)		[Need not be answered because (1) proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Act of 1934, (2) there was no solicitation in opposition to management’s nominees as listed in the proxy statement, and (3) all such nominees were elected.]
	(c)		The following is a brief description of matters voted upon at the meeting:
			Five directors were elected at the annual meeting. Joe D. Crider: 28,960,648 shares were voted for election and 109,231 shares were withheld. Thomas W. Gimbel: 29,025,473 shares were voted for election and 44,406 shares were withheld. David H. Hannah: 22,758,828 shares were voted for election and 6,311,051 shares were withheld. Gregg J. Mollins: 22,758,834 shares were voted for election and 6,311,045 shares were withheld. William I. Rumer: 29,026,774 shares were voted for election and 43,105 shares were withheld.
			The Board of Directors, based upon the recommendation of the Audit Committee, selected Ernst & Young LLP as independent auditors to audit the financial statements of the Company and its subsidiaries for 2002, subject to ratification by the shareholders. The selection was approved: 28,506,574 shares were voted for the proposal, 559,532 shares were voted against it and 3,773 shares abstained.

Item 5. Other Information.

       Not applicable.

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

	(a)		Exhibits: 99.1 Certification Pursuant to Section 906 of the Sarbanes—Oxley Act of 2002
	(b)		Reports on Form 8-K: None.

14

Table of Contents

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.

15