UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

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

Commission file number: 001-13122

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.)

Title of each class		Name of each exchange on which registered
Common Stock		New York Stock Exchange

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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		Small reporting company o
				(Do not check if a smaller reporting company)

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

     The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the closing price on the New York Stock Exchange on June 30, 2009 was approximately $2,420,000,000. As of January 31, 2010, 73,810,882 shares of the registrant’s common stock, no par value, were outstanding.

Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 19, 2010 (the “Proxy Statement”) are incorporated by reference into Part III of this report.

 

 

INDEX

						Page
				PART I
		Item 1.		Business			1
				Industry Overview			1
				History of Reliance			2
				Customers			5
				Suppliers			6
				Backlog			7
				Products and Processing Services			8
				Marketing			10
				Industry and Market Cycles			10
				Competition			11
				Quality Control			11
				Systems			12
				Government Regulation			12
				Environmental			13
				Employees			13
				Available Information			13
		Item 1A.		Risk Factors			13
		Item 1B.		Unresolved Staff Comments			23
		Item 2.		Properties			23
		Item 3.		Legal Proceedings			23
		Item 4.		Submission of Matters to a Vote of Security Holders			23
				PART II
		Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			24
		Item 6.		Selected Financial Data			26
		Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
		Item 7A.		Quantitative and Qualitative Disclosures About Market Risk.			38
		Item 8.		Financial Statements and Supplementary Data			39
		Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			83
		Item 9A.		Controls and Procedures			83
		Item 9B.		Other Information			83
				PART III
		Item 10.		Directors and Executive Officers and Corporate Governance			85
		Item 11.		Executive Compensation			85
		Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			85
		Item 13.		Certain Relationships and Related Transactions and Director Independence			85
		Item 14.		Principal Accountant Fees and Services			85
				PART IV
		Item 15.		Exhibits, Financial Statement Schedules			86
SIGNATURES							88

SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

     Unless otherwise indicated or required by the context, as used in this Annual Report on Form 10-K, the terms “Company”, “we,” “our,” and “us” refer to Reliance Steel & Aluminum Co. and all of its subsidiaries that are consolidated in conformity with U.S. generally accepted accounting principles. This Annual Report on Form 10-K and the documents incorporated by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements include discussions of our business strategies and our expectations concerning future operations, margins, profitability, liquidity and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “potential” and similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those in the future that are implied by these forward-looking statements. These risks and other factors include those described under “Risk Factors” and elsewhere in this Annual Report on Form 10-K and the documents incorporated by reference. These factors, among others, could cause our actual results and performance to differ materially from the results and performance projected in, or implied by, the forward-looking statements. As you read and consider this Annual Report and the documents incorporated by reference, you should understand that the forward-looking statements are not guarantees of performance or results.

     All future written and oral forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this Annual Report as a result of new information, future events or developments, except as required by the federal securities laws.

     Forward-looking statements involve known and unknown risks and uncertainties. Various factors, such as the factors listed below and further discussed in detail in “Risk Factors” may cause our actual results, performance, or achievements to be materially different from those expressed or implied by any forward-looking statements. Among the factors that could cause our results to differ are the following:

	•		Our future operating results depend on a number of factors beyond our control, such as the prices for and the availability of metals, which could cause our results to fluctuate significantly over time. During periods of low customer demand it could be more difficult for us to pass through price increases to our customers, which could reduce our gross profit and net income. A significant or rapid increase or decrease in costs from current levels could also have a severe negative impact on our gross profit.
	•		We service industries that are highly cyclical, and downturns in our customers’ industries could reduce our revenue and profitability.
	•		The success of our business is affected by general economic conditions and, accordingly, our business was adversely impacted by the recent economic recession. In the 2008 fourth quarter the effects of the depressed economy impacted our industry in a very significant and rapid manner from both demand and pricing perspectives, which continued throughout 2009. Although pricing and demand stabilized somewhat during the latter part of 2009 and so far in 2010, demand for our products continues to be at low levels. We do not know if, or when, demand levels will return to pre-recession levels. Lower demand levels could cause our financial condition to worsen.
	•		We operate in a very competitive industry and increased competition could reduce our gross profit margins and net income. The inventory destocking that occurred in our industry beginning in late 2008 and continuing through 2009, as a result of price reductions from our suppliers and significant decreases in demand from our customers, significantly increased competitive pressures and negatively impacted our gross profit margins.
	•		Global economic factors may cause increased imports of metal products to the U.S., which may cause the cost of the metals we purchase to decline and could also cause our selling prices and gross profits to decline.
	•		Producers of carbon steel products have reduced production capacity to react to end demand levels. If the producers increase production levels without offsetting increases in end demand, metal costs could decline, which may cause our selling prices and gross profits to decline.
	•		As a decentralized business, we depend on both senior management and our operating employees; if we are unable to attract and retain well-qualified individuals, our results of operations may decline.

	•		Foreign currency exchange rates could change, which could affect the price we pay for certain metals and the results of our foreign operations, which have grown as a percentage of our total operations to approximately 4% of net sales in 2009 (based on where sales originated from).
	•		The interest rates on our $1.1 billion revolving credit facility are variable. Although our outstanding borrowings on the $1.1 billion revolving credit facility were only $115.0 million at December 31, 2009, the impact of interest rate changes on our financial results could increase if we increase our borrowings on our $1.1 billion revolving credit facility to finance future acquisitions or increases in working capital.
	•		The recent financial crisis has reduced credit availability for certain of our customers. The amount of customer receivables that we wrote off as uncollectible in 2009 increased significantly compared to prior years. If our customers are unable to obtain the credit necessary to fund their operations and their purchases from us, our financial results could be negatively affected. If credit is limited, our ability to obtain funds for future growth activities may also be limited.
	•		We may not be able to consummate future acquisitions, and those acquisitions that we do complete may be difficult to integrate into our business, or may fail to successfully adopt our operating strategies.
	•		Our acquisitions might fail to perform as we anticipate or there could be significant negative events in our industry or the general economy that fundamentally alter our business model and outlook. This could result in an impairment charge to write off some or all of the goodwill and/or other intangible assets for that entity. Acquisitions may also result in our becoming responsible for unforeseen liabilities that may adversely affect our financial condition and liquidity. If our acquisitions do not perform as anticipated, our operating results also may be adversely affected.
	•		Various environmental and other governmental regulations may require us to expend significant capital and incur substantial costs or may impact the customers we serve, which may have a negative impact on our financial results.
	•		We may discover internal control deficiencies in our decentralized operations or in an acquisition that must be reported in our SEC filings, which may result in a negative impact on the market price of our common stock or the ratings of our debt.
	•		If existing shareholders with substantial holdings of our common stock sell their shares, the market price of our common stock could decline.
	•		Principal shareholders who own a significant number of our shares may have interests that conflict with yours.
	•		We have implemented a staggered or classified Board that may impact your rights as a shareholder.
	•		We may pursue growth opportunities that require us to increase our leverage ratios. This may cause our stock price to decline.
	•		The volatility of our stock price has increased significantly. This volatility may continue in the future and may increase from current levels.

     The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future performance or results. We are not obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should consider these risks when reading any forward-looking statements and review carefully the section captioned “Risk Factors” in Item 1A. of this Annual Report on Form 10-K for a more complete discussion of the risks of an investment in the Company’s securities.

This Annual Report on Form 10-K includes registered trademarks, trade names and service marks of the Company and its subsidiaries.

PART I

Item 1. Business

     We are the largest metals service center company in North America (U.S. and Canada). Our network of metals service centers operates more than 200 locations in 38 states, Belgium, Canada, China, Mexico, Singapore, South Korea and the United Kingdom. Through this network, we provide metals processing services and distribute a full line of more than 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium and specialty steel products, to more than 125,000 customers in a broad range of industries. Many of our metals service centers process and distribute only specialty metals. In addition to being diversified by products and customers, we are geographically diversified. We deliver products from facilities located across the United States and Canada, and have a growing international presence to support the globalization of our customers.

     Our primary business strategy is to enhance our operating results through strategic acquisitions, expansion of our existing operations and improved operating performance at our locations. Because of the difficult economic conditions in 2009, we placed acquisitions on hold and focused on improving our liquidity position by reducing debt mainly through lowering our working capital. We were successful in these efforts and generated approximately $943.0 million in cash flow from operating activities and used $831.2 million of the cash flow to pay down debt. Our total long-term debt was $939.6 million at December 31, 2009 (with a net debt-to-total capital ratio of 25.6%), down from $1.77 billion at December 31, 2008 (with a net debt-to-total capital ratio of 41.4%). Despite experiencing one of the worst years in the metals service center industry with respect to both unparalleled demand and price declines, Reliance was profitable in 2009. We believe our focused growth strategy of diversifying our products, customers and geographic locations makes us less vulnerable to regional or industry specific economic volatility and somewhat lessened the negative impact of the recent recession.

Industry Overview

     Metals service centers acquire products from primary metals producers and then process carbon steel, aluminum, stainless steel and other metals to meet customer specifications, using techniques such as blanking, leveling (or cutting-to-length), sawing, shape cutting, shearing and slitting. These processing services save our customers time, labor, and expense and reduce their overall manufacturing costs. Specialized equipment used to process the metals requires high-volume production to be cost effective. Many manufacturers are not able or willing to invest in the necessary technology, equipment, and inventory to process the metals for their own manufacturing operations. Accordingly, industry dynamics have created a niche in the market. Metals service centers purchase, process, and deliver metals to end-users in a more efficient and cost-effective manner than the end-user could achieve by dealing directly with the primary producer or with an intermediate steel processor. Service centers comprise the largest single customer group for North American mills, buying and reselling more than 43% of all the carbon, alloy, stainless and specialty steels, aluminum, copper, brass and bronze, and superalloys produced in the U.S. and Canada last year (Purchasing magazine, April 2009).

     In April 2009, the magazine Purchasing also reported that the North American (U.S. and Canada) metals distribution industry was estimated to have generated net sales of $153 billion in 2008 (the latest year for which such information is available), or about 7% more than the $143 billion generated in 2007.

     The metals service center industry is highly fragmented and intensely competitive within localized areas or regions. Many of our competitors operate single stand-alone service centers. According to Purchasing, the number of intermediate steel processors and metal center facilities in North America has decreased from approximately 7,000 locations in 1980 to approximately 3,300 locations operated by more than 1,200 companies in 2008. This consolidation trend continues to create opportunities for us to expand by making acquisitions.

     Metals service centers are generally less susceptible to market cycles than producers of the metals, because service centers are usually able to pass on all or a portion of increases in metal costs to their customers, unless they are selling to their customers on a contractual basis. In recent years, consolidation at the carbon steel mill level has led to capacity rationalization and elevated the pricing levels for these products. We believe that service centers, like Reliance, with the most rapid inventory turnover are generally the least vulnerable to changing metals prices.

     Customers purchase from service centers to obtain value-added metals processing, readily available inventory, reliable and timely delivery, flexible minimum order size, and quality control. Many customers deal exclusively with service centers because the quantities of metal products that they purchase are smaller than the minimum orders specified by mills or because those customers require intermittent deliveries over long or irregular periods. Metals service centers respond to a niche market created because of the focus of the capital goods and related industries on just-in-time inventory management and materials management outsourcing, and because integrated mills have reduced in-house direct sales efforts to small sporadic purchasers to enhance their production efficiency.

History of Reliance

     Reliance Steel & Aluminum Co. was organized as a California corporation on February 3, 1939, and commenced business in Los Angeles, California fabricating steel reinforcing bar. Within ten years, we had become a full-line distributor of steel and aluminum, operating a single metals service center in Los Angeles. In the early 1950’s, we automated our materials handling operations and began to provide processing services to meet our customers’ requirements. In the 1960’s, we began to acquire other companies to establish additional service centers, expanding into other geographic areas.

     In the mid-1970’s, we began to establish specialty metals centers stocked with inventories of selected metals such as aluminum, stainless steel, brass, and copper, and equipped with automated materials handling and precision cutting equipment. We have continued to expand our network, with a focus on servicing our customers as opposed to merely distributing metal. In the mid-1990’s we began to expand nationally and focused on acquiring well-run, profitable service center companies. We have continued that strategy and have become the largest North American (U.S. and Canada) metals service center company based on revenues, with over 200 locations and net 2009 sales of $5.32 billion. We have not diversified outside of our core business and we strive to consistently perform as one of the best in our industry. We currently operate metals service centers under the following trade names:

		No. of
Trade Name		Locations		Primary Products Processed & Distributed
Reliance Divisions
Affiliated Metals		1		Plate and flat-rolled aluminum and stainless steel
Bralco Metals		6		Aluminum, brass, copper and stainless steel
Central Plains Steel Co.		1		Carbon steel
Lusk Metals		1		Precision cut aluminum plate and aluminum sheet and extrusions
MetalCenter		1		Flat-rolled aluminum and stainless steel
Olympic Metals		1		Aluminum, brass, copper and stainless steel
Reliance Metalcenter		9		Variety of carbon steel and non-ferrous metal products
Reliance Steel Company		2		Carbon steel flat-rolled and plate
Tube Service Co.		6		Specialty tubing
Allegheny Steel Distributors, Inc.		1		Carbon steel
Aluminum and Stainless, Inc.		2		Aluminum sheet, plate and bar
American Metals Corporation
American Metals		3		Carbon steel bar, flat-rolled, plate, structural and tubing
American Steel		2		Carbon steel bar, flat-rolled, plate, structural and tubing
AMI Metals, Inc.
AMI Metals		6		Heat-treated aluminum sheet and plate
AMI Metals Europe S.P.R.L.		1		Heat-treated aluminum sheet and plate
CCC Steel, Inc.
CCC Steel		1		Carbon steel bar, plate, structural and tubing
IMS Steel		1		Carbon steel bar, plate, structural and tubing
Chapel Steel Corp.		5		Carbon steel plate
Chatham Steel Corporation		5		Carbon and stainless steel
Clayton Metals, Inc.		3		Aluminum and stainless steel flat-rolled products and custom extrusions
Crest Steel Corporation		2		Carbon steel flat-rolled, plate, bar and structural
Delta Steel, Inc.
Delta Steel		5		Carbon steel bar, flat-rolled, plate, structural and tubing
Smith Pipe & Steel Company		1		Carbon steel bar, flat-rolled, plate, structural and tubing
Durrett Sheppard Steel Co., Inc.		1		Carbon steel bar, flat-rolled, plate, structural and tubing

		No. of
Trade Name		Locations		Primary Products Processed & Distributed
Earle M. Jorgensen Company
Earle M. Jorgensen		31		Specialty bar and tubing
Encore Metals USA		3		Stainless and alloy bar, plate and tube
Steel Bar		1		Carbon steel bars and tubing
Everest Metals (Suzhou) Co., Ltd.		1		Aluminum plate and bar
Feralloy Corporation
Acero Prime (40%-owned)		3		Toll processing (slitting and leveling) of carbon steel
Feralloy		5		Flat-rolled steel service centers
Feralloy Processing Company (51%-owned)		1		Toll processing (leveling and blanking) of carbon steel
Indiana Pickling & Processing (56%-owned)		1		Toll processing (pickling) of carbon steel
Oregon Feralloy Partners (40%-owned)		1		Toll processing (leveling and blanking) of carbon steel
Infra — Metals Co.		6		Carbon steel, bar, plate, structural and tubing
Liebovich Bros., Inc.
Liebovich Steel & Aluminum Company		3		Full-line service centers
Custom Fab Company		1		Metal fabrication
Good Metals Company		1		Tool and alloy steels
Hagerty Steel & Aluminum Company		1		Plate and flat-rolled carbon steel
Metals Supply Company, Ltd.		2		Carbon steel bar, flat-rolled, plate, structural and tubing
Metalweb Limited		4		Aluminum sheet, plate and bar
Pacific Metal Company		6		Aluminum and coated carbon steel
PDM Steel Service Centers, Inc.		8		Carbon steel bars, flat-rolled, plate, structural and tubing
Phoenix Corporation
Phoenix Metals Company		11		Flat-rolled aluminum, stainless steel and coated carbon steel
Precision Flamecutting and Steel, Inc.		1		Carbon, alloy, and HSLA steel plate
Precision Strip, Inc.
Precision Strip		10		Toll processing (slitting, leveling, blanking) of aluminum, stainless steel and carbon steel
Precision Strip de Mexico		1		Toll processing (slitting, leveling, blanking) of aluminum, stainless steel and carbon steel
Reliance Metalcenter Asia Pacific Pte. Ltd.		1		Aluminum plate, sheet and coil
Reliance Metals Canada Ltd.
Earle M. Jorgensen (Canada)		5		Specialty bar and tubing
Encore Metals		4		Stainless and alloy bar, plate and tube
Team Tube Canada ULC		5		Alloy and carbon steel tubing
Service Steel Aerospace Corp.
Service Steel Aerospace		2		Stainless and alloy specialty steels
Dynamic Metals International		1		Maraging and specialty steels
United Alloys Aircraft Metals		1		Titanium products
Sugar Steel Corporation		1		Carbon steel bar, plate, structural and tubing
Siskin Steel & Supply Company, Inc.
Siskin Steel		5		Full-line service centers
Athens Steel		1		Carbon steel structural, flat-rolled and ornamental iron
East Tennessee Steel Supply		1		Carbon steel plate, bar and structural
Industrial Metals and Surplus/Georgia Steel		1		Carbon steel structural, flat-rolled and ornamental iron
Toma Metals, Inc.		1		Stainless steel sheet and coil

		No. of
Trade Name		Locations		Primary Products Processed & Distributed
Valex Corp.
Valex		1		Electropolished stainless steel tubing and fittings
Valex China Co., Ltd.		1		Electropolished stainless steel tubing and fittings
Valex Korea Co., Ltd.		1		Electropolished stainless steel tubing and fittings
Viking Materials, Inc.		2		Flat-rolled carbon steel
Yarde Metals, Inc.		7		Stainless steel and aluminum plate, rod and bar

     We serve our customers primarily by providing quick delivery, metals processing and inventory management services. We purchase a variety of metals from primary producers and sell these products in small quantities based on our customers’ needs. We performed metals processing services, or first-stage processing, on approximately 37% of our sales orders in 2009 before distributing the product to manufacturers and other end-users. For approximately 45% of our 2009 orders we delivered the metal to our customer within 24 hours from receipt of an order. These services save time, labor, and expense for our customers and reduce their overall manufacturing costs. During 2009, we handled approximately 17,200 transactions per business day, with an average price of approximately $1,220 per transaction. Our net sales were $5.32 billion for the 2009 year. We believe that our focus on small orders with quick turnaround differentiates us from many of the other large metals service center companies and allows us to better service our customers, resulting in higher profits than those generated by the other large metals service center companies.

     Historically, we have expanded both through acquisitions and internal growth. Since our initial public offering in September 1994, we have successfully purchased more than 40 businesses. From 1984 to September 1994, we acquired 20 businesses. Our internal growth activities during the last few years have been at historically high levels for us and have included the opening of new facilities, adding to our processing capabilities and relocating existing operations to larger, more efficient facilities. We will continue to evaluate acquisition opportunities and we expect to continue to grow our business through acquisitions and internal growth initiatives, particularly those that will diversify our products, customer base and geographic locations.

Acquisitions

     We did not complete any acquisitions during 2009 because of the uncertain economic climate. There were very few companies in our industry offered for sale in 2009 and those that were in the market were not attractive to us. We do, however, expect many companies in our industry to be offered for sale later in 2010. We will actively evaluate these opportunities and pursue those that meet our disciplined acquisition criteria. Please see Note 2 of the consolidated financial statements for a discussion on acquisitions completed during 2008 and 2007, including our largest acquisition to date completed August 1, 2008.

Internal Growth Activities

     Despite the continued deterioration of the economy in 2009, we maintained our focus on organic growth by opening new facilities, building or expanding existing facilities and adding processing equipment with total capital expenditures of $69.9 million. We continued to expand our geographic presence in 2009 with Phoenix Metals Company opening a new location in Richmond, Virginia, Earle M. Jorgensen Company starting construction on a new facility in Nusajaya, Malaysia, which is scheduled to open in 2010 and Chatham Steel Corporation buying land for a new facility to be built in Ironton, Ohio. Operations in existing markets were also expanded during 2009, with PDM Steel Service Centers moving into a newly constructed, larger and more efficient facility in Las Vegas, Nevada and Precision Strip expanding and improving an existing facility in Kenton, Ohio. We expect to continue to expand our existing operations in 2010, with new facilities planned, or currently under construction, for Yarde Metals in Limerick, Pennsylvania, Reliance Metals Canada in Edmonton, Alberta, Canada, and Earle M. Jorgensen in Orlando, Florida and Memphis, Tennessee. During 2009 we also consolidated and closed a few small operations that did not impact our ability to service our customers.

     Our 2010 capital expenditure budget is approximately $140 million with much of this related to internal growth activities comprised of expansions of existing facilities and purchases of equipment as well as establishing a presence in new geographic markets. We also plan to exercise purchase options on various facilities that we currently lease. We will continue to evaluate and execute additional growth projects as appropriate, given the economic conditions and outlook at the time.

     Our executive officers maintain a control environment that is focused on integrity and ethical behavior, establish general policies and operating guidelines and monitor adherence to proper financial controls, while our division managers and subsidiary officers have autonomy with respect to day-to-day operations. This balanced, yet entrepreneurial, management style has enabled us to improve the productivity and profitability both of acquired businesses and of our own expanded operations. Key management personnel are eligible for incentive compensation based, in part, on the profitability of their particular division or subsidiary and, in part, on the Company’s overall profitability.

     We seek to increase our profitability by expanding our existing operations and acquiring businesses that diversify or enhance our customer base, product range, processing services and geographic coverage. We have developed and maintained an excellent reputation in the industry for our integrity and the quality and timeliness of our service to customers.

Customers

     Our customers purchase from us and other metals service centers to obtain value-added metals processing, readily available inventory, reliable and timely delivery, flexible minimum order size and quality control. Many of our customers deal exclusively with service centers because the quantities of metal products that they purchase are smaller than the minimum orders specified by mills, because those customers require intermittent deliveries over long or irregular periods, or because those customers require specialized processing services. We believe that metals service centers have also enjoyed an increasing share of total metal shipments due to the focus of the capital goods and other manufacturing industries on just-in-time inventory management and materials management outsourcing, and because metal producers have reduced in-house direct sales efforts to small sporadic purchasers in order to enhance their production efficiency. The consolidation of carbon steel mills that occurred during the 2001 to 2003 period has further reduced the number of potential sources of metal available to customers purchasing small quantities of metal.

     We have more than 125,000 metals service center customers in various industries. Our customers are manufacturers and end-users in the general manufacturing, non-residential construction, transportation (rail, truck trailer and shipbuilding), aerospace, energy, electronics and semiconductor fabrication and related industries. In 2003, many of our suppliers also became our customers as a result of our purchase of Precision Strip, which typically sells processing services, but not metal, to larger customers, such as mills and original equipment manufacturers (“OEM’s”), and in larger annual volumes than we have experienced historically. Precision Strip also has indirectly increased our participation in the auto and appliance end markets with the auto exposure primarily relating to the processing and delivery of metal for the transplants, or “New Domestic” companies.

     Our metals service centers wrote and delivered over 4,365,000 orders during 2009 at an average price of approximately $1,220 per order. Most of our metals service center customers are located within a 200-mile radius of the metals service center serving them. The proximity of our centers to our customers helps us provide just-in-time delivery to our customers as well as increases the likelihood of repeat business. In 2009, approximately 85% of our orders were from repeat customers. With our fleet of approximately 1,500 trucks (some of which are leased), we are able to service many smaller customers. Moreover, our computerized order entry system and flexible production scheduling enable us to meet customer requirements for short lead times and just-in-time delivery. We believe that our long-term relationships with many of our customers significantly contribute to the success of our business. Providing prompt and efficient services and quality products at reasonable prices are important factors in maintaining these relationships.

     Our acquisitions in recent years have increased our international exposure both from a customer and physical location perspective. In addition, we have built and opened international locations in recent years to service specific industries, typically to support key customers that are producing in those international markets. Net sales of our international locations (based on where the shipments originated from) accounted for approximately 4% of our 2009 net sales, or $195.9 million. However, our net sales to international customers (based on the shipping destination) were approximately 6% of our 2009 net sales or $313.0 million, with approximately 59% of these sales, or $184.1 million, to Canadian customers.

     Customer demand may change from time to time based on, among other things, general economic conditions and industry capacity. Many of the industries in which our customers compete are cyclical in nature. Because we sell to a wide variety of customers in many industries, we believe that the effect of such changes on us is significantly reduced. In addition, many of our customers are small job shops and fabricators who also have a diverse customer base and have the versatility to service different end markets when an existing market slows. However, our diversity could not overcome the negative impact of the current global economic downturn and financial crisis as the recession significantly affected all industries and geographic regions.

     Furthermore, due to the economic recession and tightening of the credit markets, we continue to closely monitor the viability of our customers and their credit worthiness in all of our end markets and geographic areas. We sell very little metal to the auto and residential housing markets, which were severely impacted beginning in 2007. Because of this, our business was strong through most of 2008 until the industrial economy tightened in the 2008 fourth quarter. Beginning with the 2008 fourth quarter and throughout the first half of 2009 we saw a rapid and precipitous decline in demand and prices for almost all of our products. Our customers began buying minimal amounts of metal and many continue to have limited access to capital.

     The reduced buying patterns of our customers created extremely competitive markets for service centers. As a result, we lowered selling prices to retain volume, negatively impacting our profit margins, primarily in the first half of 2009 when the industry was in an inventory destocking mode. Even though pricing for most products we sell has increased somewhat from the bottoms they reached in the summer of 2009, demand still continues to be at low levels. We believe that our ability to service customer orders in small quantities and with next day service provides a substantial advantage to metal buyers in the current environment. We are uncertain as to when demand from our customers will improve and believe that increased demand is needed to support increased prices for metal products.

     Although many customers requested extended payment terms in 2009, our 2009 days sales outstanding (“DSO”) in receivables was at 42 days as of December 31, 2009, unchanged from December 31, 2008. Most customers pay in 30 to 60 days. Although our 2009 year-end DSO remained unchanged from last year, we did experience increased closures and bankruptcy filings in the customer end markets, which resulted in our highest ever write-offs of uncollectible customer accounts. Our total accounts receivable write-offs in 2009 were $19.6 million, or 0.4% of sales, compared to $8.1 million or 0.1% of sales and $5.9 million or 0.1% of sales in 2008 and 2007, respectively. We continue to monitor the financial health of all of our customers across all of our end markets and geographic areas and may continue to see increased write-offs in 2010 compared to our historical amounts, especially if business conditions improve and our customers need to increase their working capital levels. The diversity of our customer base somewhat reduces the impact of any single customer, as our largest customer in 2009 represented 2.7% of our sales, and all other customers were less than 1% of our sales. Only five customers had total 2009 purchases greater than $25 million.

     California was our largest market for many years, but we have expanded our geographic coverage in recent years and the Midwest region of the United States has become our largest market. Although our sales dollars in each of the regions we serve have generally increased, the percent of total sales in each region has changed as we have expanded our network. California represented 13% of our 2009 sales, which is a significant decrease from 45% of our 1997 sales. The Midwest region, which we entered in 1999, represented 25% of our 2009 sales.

     The geographic breakout of our sales based on the location of our metals service center facilities in each of the three years ended December 31 was as follows:

			2009				2008				2007
Midwest			25	%			26	%			25	%
Southeast			18	%			19	%			19	%
West/Southwest			18	%			16	%			12	%
California			13	%			14	%			16	%
Northeast			8	%			6	%			6	%
Mid-Atlantic			6	%			5	%			4	%
Pacific Northwest			5	%			6	%			8	%
Mountain			3	%			4	%			5	%
International			4	%			4	%			5	%
Total			100	%			100	%			100	%

Suppliers

     We purchase our inventory from the major metals mills, both domestic and foreign, and have multiple suppliers for all of our product lines. Our major suppliers of domestic carbon steel products include California Steel Industries, Inc., Gerdau Ameristeel Corporation (including Chaparral Steel Company), Evraz Claymont Steel, Evraz Oregon Steel Mills, ArcelorMittal, Nucor Corporation, Steel Dynamics, Inc., SSAB and United States Steel Corporation. Allegheny Technologies Incorporated, AK Steel, North American Stainless and ThyssenKrupp AG supply stainless steel products. We are a recognized distributor for various major aluminum companies, including Alcoa Inc., Alcan Aluminum Limited, Aleris International, Inc., Kaiser Aluminum Corp., Novelis Inc. and Sapa Group.

     From 2001 through 2003, many domestic steel mills entered bankruptcy proceedings, which resulted in significant consolidation at the carbon steel mill level. The primary domestic mills have exercised pricing discipline since this time resulting in generally higher prices for carbon steel products beginning in 2004. The mills have exercised their discipline by reducing their

production capacity when a supply demand imbalance was anticipated. In general, the higher prices for carbon steel have been supported since 2004 by limited imports to the U.S. due to strong global demand and a weak U.S. dollar, and increased raw material costs. Although there has been significant volatility in carbon steel pricing since 2004, the low end of the pricing has been at historically high levels. Our operating results are sensitive to changes in the costs of our products as our selling prices usually change when metal costs change. If costs and selling prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pre-tax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pre-tax income dollars. Because changes in pricing do not require us to adjust our expense structure, other than any impact on incentive-based compensation, the impact on our results of operations from changes in pricing is much greater than the effect of volume changes.

     In 2008, mill pricing for carbon steel products almost doubled in the first half of the year and then declined precipitously beginning in the 2008 fourth quarter and throughout the first half of 2009 due to the poor global demand levels. Average pricing for the benchmark carbon hot rolled steel product in 2009 declined by about 44% from 2008 averages (according to American Metal Market). Although only about 5% of our 2009 sales dollars were in carbon steel hot rolled coil, pricing for this product is commonly used by Reliance and others in the industry as an indicator of overall carbon steel pricing. During the period of decline, the mills reduced their capacity to less than 50% as they saw the significant deterioration in demand levels. We believe this reduction in capacity prevented carbon steel pricing from falling further and supported a “bottom” in pricing for the benchmark carbon hot rolled steel product at about $390 a ton in May 2009 (according to American Metal Market), which was still at a relatively high level compared to pricing levels experienced for the same benchmark product during the last recessionary period from 2001 to 2003. February 2010 prices for the same hot rolled carbon steel product were approximately $600 a ton (according to American Metal Market). The higher costs for carbon steel products experienced during the second half of 2009 and so far in 2010 have been primarily driven by increasing raw material costs as opposed to higher end use demand. Similarly, costs for most aluminum and stainless steel products were declining throughout the first half of 2009 until the trend generally reversed during the second half of 2009 and so far in 2010. Although aluminum and stainless costs have remained somewhat more volatile in the second half of 2009, their average prices have generally been higher during the second half of 2009 as compared to the first half. Costs for products that experienced the least volatility were primarily heat treated aluminum and alloy steel products because of their specialty nature. Until there is a meaningful improvement in demand we do not anticipate that metal prices will increase significantly from current levels. Further demand weakening, domestic mills increasing production without offsetting demand increases or increased imports to the U.S. could weaken pricing.

     Because of our total volume of purchases and our long-term relationships with our suppliers, we believe that we are generally able to purchase inventory at the best prices offered by the suppliers, given the order size. We believe that we are not dependent on any one of our suppliers for metals. In recent years, when the supply of certain metals was tight, we believe that these relationships provided an advantage to us in our ability to source product and have it available for our customers. Our size and strong relationships with our suppliers is now more important because mill consolidation has somewhat reduced the number of suppliers.

Backlog

     Because of the just-in-time delivery and the short lead-time nature of our business, we do not believe information on our backlog of orders is material to an understanding of our metals service center business.

Products and Processing Services

     We provide a wide variety of processing services to meet each customer’s specifications and deliver products to fabricators, manufacturers and other end users. We maintain a wide variety of products in inventory. We often deliver orders that do not require extensive or specialized processing to the customer within 24 hours of receiving the order. Our product mix has changed mainly as a result of our acquisitions. Flat-rolled carbon steel products, which generally have the most volatile and competitive pricing, accounted for only 11% of our 2009 sales. Our sales dollars by product type as a percentage of total sales in each of the three years ended December 31 were as follows:

			2009				2008				2007
			13	%			10	%			7	%		carbon steel structurals
			12	%			13	%			11	%		carbon steel plate
			11	%			12	%			9	%		carbon steel tubing
			9	%			10	%			10	%		carbon steel bar
			5	%			5	%			3	%		hot rolled steel sheet and coil
			4	%			3	%			4	%		galvanized steel sheet and coil
			2	%			2	%			2	%		cold rolled steel sheet and coil
Carbon Steel			56	%			55	%			46	%
			6	%			6	%			7	%		aluminum bar and tube
			6	%			4	%			5	%		heat-treated aluminum plate
			4	%			4	%			4	%		common alloy aluminum sheet and coil
			1	%			1	%			2	%		common alloy aluminum plate
			1	%			1	%			1	%		heat-treated aluminum sheet and coil
Aluminum			18	%			16	%			19	%
			6	%			7	%			10	%		stainless steel bar and tube
			5	%			5	%			6	%		stainless steel sheet and coil
			2	%			2	%			3	%		stainless steel plate
Stainless Steel			13	%			14	%			19	%
			5	%			6	%			7	%		alloy bar and rod
			1	%			1	%			1	%		alloy tube
			1	%			1	%			1	%		alloy plate, sheet and coil
Alloy			7	%			8	%			9	%
			2	%			2	%			2	%		toll processing of aluminum, carbon steel and stainless steel
			4	%			5	%			5	%		miscellaneous, including brass,
														copper and titanium
Total			100	%			100	%			100	%

     We are not dependent on any particular customer group or industry because we process and distribute a variety of metals. Because of this diversity of product type and material, we believe that we are less exposed to fluctuations or other weaknesses in the financial or economic stability of particular customers or industries. We are also less dependent on particular suppliers.

     For sheet and coil products, we purchase coiled metal from primary producers in the form of a continuous sheet, typically 36 to 60 inches wide, between .015 and .25 inches thick, and rolled into 3- to 20-ton coils. The size and weight of these coils require specialized equipment to move and process the coils into smaller sizes and various products. Many of the other products that we carry also require specialized equipment. Few of our customers have the capability to process the metal into the desired sizes.

     After receiving an order, we enter it into our computerized order entry system, select appropriate inventory and schedule the processing to meet the specified delivery date. In 2009, we delivered approximately 45% of our orders within 24 hours of the customer placing the order with us. We attempt to maximize the yield from the various metals that we process by combining customer orders to use each product that we purchase to the fullest extent practicable.

     Few metals service centers offer the full scope of processing services and metals that we provide. In 2009, we performed processing services for approximately 37% of our sales orders. Our primary processing services are described below:

	•		Bar turning involves machining a metal bar into a smaller diameter.
	•		Bending is the forming of metals into various angles.
	•		Blanking is the cutting of metals into close-tolerance square or rectangular shapes.
	•		Deburring is the process used to smooth the sharp, jagged edges of a cut piece of metal.
	•		Electropolishing is the process used on stainless steel tubing and fittings to simultaneously smooth, brighten, clean and passivate the interior surfaces of these components. Electropolishing is an electrochemical removal process that selectively removes a thin layer of metal, including surface flaws and imbedded impurities. Electropolishing is a required surface treatment for all ultra high-purity components used in the gas distribution systems of semiconductor manufacturers worldwide and many sterile water distribution systems of pharmaceutical and biotechnology companies.
	•		Fabricating includes performing second- and/or third-stage processing per customer specifications, typically to provide a part, casing or kit, which is used in the customer’s end product.
	•		Forming involves bending and forming plate or sheet products into customer-specified shapes and sizes with press brakes.
	•		Grinding or blanchard grinding involves grinding the top and/or bottom of carbon or alloy steel plate or bars into close tolerance.
	•		Leveling (cutting-to-length) involves cutting metal along the width of a coil into specified lengths of sheets or plates.
	•		Machining refers to performing multiple processes to a piece of metal to produce a customer-specified component part.
	•		Oscillate slitting involves slitting the metal into specified widths and then oscillating the slit coil when it is wound. The oscillated coil winds the strip metal similar to the way fishing line is wound on a reel rather than standard ribbon winding. An oscillate coil can typically hold five to six times more metal than a standard coil, which allows customers to achieve longer production run times by reducing the number of equipment shut-downs to change coils.
	•		Pickling involves treating metal surfaces with chemicals to remove impurities, such as stains, inorganic contaminants, and rust or scale, from ferrous metals, copper, and aluminum alloys.
	•		Pipe threading refers to the cutting of threads around the circumference of the pipe.
	•		Polishing changes the texture of the surface of the metal to specific finishes in accordance with customer specifications.
	•		Precision plate sawing involves sawing plate (primarily aluminum plate products) into square or rectangular shapes to tolerances as close as 0.003 of an inch.
	•		Punching is the cutting of holes into carbon steel beams or plates by pressing or welding per customer specifications.
	•		Routing produces various sizes and shapes of aluminum plate according to customer-supplied drawings through the use of CNC controlled machinery.
	•		Sawing involves cutting metal into customer-specified lengths, shapes or sizes.
	•		Shape cutting, or burning, can produce various shapes according to customer-supplied drawings through the use of CNC controlled machinery. This procedure can include the use of oxy-fuel, plasma, high-definition plasma, laser burning or water jet cutting for carbon, aluminum and stainless steel sheet and plate.
	•		Shearing is the cutting of metal into small, precise square or rectangular pieces.
	•		Skin milling grinds the top and/or bottom of a large aluminum plate into close tolerance.
	•		Slitting involves cutting metal to specified widths along the length of the coil.
	•		Tee splitting involves splitting metal beams. Tee straightening is the process of straightening split beams.
	•		Trepanning involves removing the desired diameter from sheet metal, plates, or structural sections by cutting out a solid disk.
	•		Twin milling grinds one or all six sides of a small square or rectangular piece of aluminum plate into close tolerance.
	•		Welding is the joining of one or more pieces of metal.
	•		Wheelabrating, shotblasting and bead-blasting involve pressure blasting metal grid onto carbon steel products to remove rust and scale from the surface.

     We generally process specific metals to non-standard sizes only at the request of customers pursuant to purchase orders. We do not maintain a significant inventory of finished products, but we carry a wide range of metals to meet the short lead time and just-in-time delivery requirements of our customers. Our metals service centers maintain inventory and equipment selected to meet the needs of that facility’s customers.

Marketing

     As of year-end 2009, we had approximately 1,460 sales personnel located in 42 states, Belgium, Canada, China, France, Malaysia, Mexico, Singapore, South Korea and the United Kingdom that provide marketing services throughout each of those areas, as well as nearby locations. The sales personnel are organized by division or subsidiary among our profit centers and are divided into two groups. Our outside sales personnel are considered those personnel who travel throughout a specified geographic territory to maintain relationships with our existing customers and develop new customers. Those sales personnel who remain at the facilities to write and price orders are our inside sales personnel. The inside sales personnel generally receive incentive compensation, in addition to their base salary, based on the gross profit or pretax profit of their particular profit center. The outside sales personnel generally receive incentive compensation based on the gross profit from their particular geographic territories.

Industry and Market Cycles

     We distribute metal products to our customers in a variety of industries, including non-residential construction, manufacturing, transportation, aerospace, energy and semiconductor fabrication. Many of the industries in which our customers compete are cyclical in nature and are subject to changes in demand based on general economic conditions. We sell to a wide variety of customers in diverse industries to reduce the effect of changes in these cyclical industries on our results. However, our diversity could not overcome the negative impact of the current global economic downturn and financial crisis as the recession significantly affected all industries.

     Beginning with the 2008 fourth quarter, when our industry first felt the impact of the global economic recession, and continuing through the first half of 2009, we saw a rapid and precipitous decline in demand and prices for almost all of our products. According to the Metals Service Center Institute, tons sold during 2009 were down approximately 37% for the metals service center industry in North America compared to 2008. Our 2009 tons sold on a same-store basis were down approximately 32% from 2008.

     All major industries and end markets that we sell to were negatively impacted during 2009. Aerospace held up better for us than most other end markets that we sell to, as a large portion of our aerospace business is military and defense related. Also, we believe that the impact on us from the auto and residential construction markets, which were impacted earlier and more severely than most other markets, was limited during this downturn because we have minimal direct exposure to these markets. The auto industry improved in mid-2009 though activity is still at relatively low levels, and although we did not directly benefit from the demand improvement, we did benefit indirectly from price stability. We believe about one-third of our business is related to non-residential construction, which was negatively impacted during this downturn and we do not expect any meaningful recovery in this area until 2011. We saw some improvement in the electronics and semiconductor areas in the second half of 2009 that we believe will continue into next year. We have also seen some increased quoting activity in infrastructure in the second half of 2009 and remain hopeful that work in that area will begin to materialize soon. All other major end markets that we serve, including manufacturing, energy (oil and gas) and transportation (heavy truck, truck trailer, and rail car industries) experienced similar demand declines during 2009 compared to 2008 with slight improvements in the amount of metal they are buying from us in the second half of 2009 that have, so far, continued into 2010.

     Managing through both price and demand volatility is a normal part of our business and we have successfully managed through such cycles for many years. However, the 2008 and 2009 cycles were more dramatic than those we have experienced historically. Because of the dramatic reduction in demand beginning in the 2008 fourth quarter and continuing throughout the first half of 2009, mills cut prices, leaving most service centers with large amounts of inventory on hand at a higher cost than replacement cost. In reaction to this, service centers, including Reliance, entered an inventory destocking mode to try to clear out their higher cost material. However, poor customer demand required that selling prices be lowered, which resulted in significant deterioration in gross profit margins, causing many service center companies to operate at a loss during 2009. Pricing for most products we sell has increased somewhat from the bottoms reached in the summer of 2009; however, demand continues to be at low levels.

     Fluctuations in the cost of our materials affect the prices we can charge to our customers. We have historically been able to pass increases in metal costs on to our customers, as costs typically increase due to strong demand. In the current environment of relatively stable prices and demand, we expect to be able to maintain relatively normal gross profit margins; however there could be pressure on our gross profit margins due to the weak demand levels. We cannot predict whether the margin between our metal

costs and selling prices will improve, decline from or remain at the levels experienced during the 2009 fourth quarter, especially if demand declines further or if costs of domestic metals decline. However, if metals demand and costs, as well as related selling prices, remain at current levels or increase, we expect to remain profitable.

Competition

     The metals distribution industry is highly fragmented and competitive. We have numerous competitors in each of our product lines and geographic locations, and competition is most frequently local or regional. Most of our competitors are smaller than we are, but we still face strong competition from national, regional and local independent metals distributors and the producers themselves, some of which have greater resources than we do. As reported in the April 2009 issue of Purchasing magazine, it is estimated that there were approximately 3,300 intermediate steel processors and metals service center facilities in North America in 2008. Purchasing magazine has identified Reliance as the largest metals service center company in North America (based upon 2008 revenue). According to the April 2009 issue of Purchasing magazine, the 2008 revenues for the five largest North American metals service center companies ranged from $3.15 billion to $8.72 billion for total revenues of $25.59 billion, which represents approximately 16.7% of the estimated $153 billion total revenue for the metals service center industry in 2008. Our 2008 sales of $8.72 billion represented approximately 5.7% of the estimated $153 billion industry total. We continue to be the largest North American metals service center company on a revenue basis.

     We compete with other companies on price, service, quality and availability of products. We maintain centralized relationships with our major suppliers and a decentralized operational structure. We believe that this division of responsibility has increased our ability to obtain competitive prices of metals and to provide more responsive service to our customers. In addition, we believe that the size of our inventory, the different metals and products we have available, and the wide variety of processing services we provide, distinguish us from our competition. We believe that we have increased our market share during recent years due to our strong financial condition, our high quality of service, our acquisitions and opportunities created by activities of certain of our competitors, as well as our focus on small order sizes with quick turnaround.

     Starting in the fourth quarter of 2008 and through the first half of 2009 when both customer demand and metal pricing were rapidly deteriorating, competition in the metals service center industry reached a level that we had not experienced before. Because of the sudden slowing in demand, service centers had higher quantities of metal on hand than they would typically carry to support their demand base. In addition, the inventory on hand was at a higher cost than the replacement cost of the metal being sold by the mills. This environment allowed customers to demand that service centers lower their prices to be more in line with current replacement cost, even if the service center had to fill the order with higher cost metal. This eroded gross profit margins on these orders. The competition was further heightened because of the general lack of credit availability, motivating many service centers to liquidate as much inventory as possible. These competitive forces continued well into the 2009 third quarter. Both demand and pricing have stabilized somewhat and during the 2009 fourth quarter we achieved FIFO gross profit margins consistent with our historical levels; however, demand is still weak, which contributes to a vulnerable pricing environment. Although inventory destocking is over for the most part, because of low demand levels, some service centers are still converting inventory to cash without regard to profit levels, which generally requires us to lower our prices to be competitive. This has, and could continue to, reduce our profit margins.

Quality Control

     Procuring high quality metal from suppliers on a consistent basis is critical to our business. We have instituted strict quality control measures to assure that the quality of purchased raw materials will enable us to meet our customers’ specifications and to reduce the costs of production interruptions. In certain instances, we perform physical and chemical analyses on selected raw materials, typically through a third party testing lab, to verify that their mechanical and dimensional properties, cleanliness and surface characteristics meet our requirements. We also conduct certain analyses of surface characteristics on selected processed metal before delivery to the customer. We believe that maintaining high standards for accepting metals ultimately results in reduced return rates from our customers.

     In 2009, a total of 108 of our facilities maintained ISO 9001:2000 or ISO 9001:2008 certifications. The ISO 9001:2000 quality standard includes a matrix to record and review customer satisfaction and organizes the quality standard requirements to about eight elements. The certification takes approximately one year to obtain. Each facility seeking ISO certification is required to establish a quality system that is documented in a quality control manual that affects all aspects of the facility’s operations, including sales, product inspections, product storage, delivery and documentation. A certifying agent performs a physical audit of each facility every six months to determine that the facility is in fact following the procedures set forth in the quality control manual. A recertification is required for each facility every three years. At the next recertification period, our locations that currently maintain ISO 9001:2000 certifications will recertify to ISO 9001:2008, which replaces ISO 9001:2000 quality standards. There are no new significant requirements under ISO 9001:2008.

     Initially in 1996, when we first began the certification process, we expected that more customers would require such certification, but we have learned that for the types of products and services that most of our facilities provide, very few of our customers require such certification and most of our customers have responded that they would purchase products from Reliance or its subsidiaries regardless of such certification. However, we believe that going through the certification process allows our facilities to improve their efficiency and the quality of products and services provided to our customers.

     Our Precision Strip subsidiary maintains ISO/TS 16949:2002 certifications at its eleven facilities. ISO/TS 16949:2002 is an ISO Technical Specification, which aligns existing American (QS-9000), German (VDA6.1), French (EAQF) and Italian (AVSQ) automotive quality systems standards within the global automotive industry. Quality System Requirements QS-9000 (“QS-9000”) is the common quality standard for automotive suppliers and is based upon the 1994 edition of ISO 9001, with additional requirements specific to the automotive industry. Our Bralco Metals division, and our AMI Metals, Inc. and Service Steel Aerospace Corporation subsidiaries maintain AS 9100 certification at all of their facilities. AS 9100 is a standardized quality management system specific to the aerospace industry. The standards emphasize areas that impact process and service, safety, quality and reliability for aerospace products. Many aerospace organizations require their suppliers to have AS 9100 certification. Our Valex Korea subsidiary maintains ISO 14001:2004 certification at its operating facility in South Korea. ISO 14001:2004 gives the generic requirements for an environmental management system. The intention of ISO 14001:2004 is to provide a framework for a strategic approach to the organization’s environmental policy, plans and actions.

Systems

     Our Reliance divisions and certain of our subsidiaries use the StelplanÔ and eStelplanÔ manufacturing and distribution information systems. StelplanÔ and eStelplanÔ are registered trademarks of Invera, Inc. StelplanÔ and eStelplanÔ are integrated business application systems with functions ranging from order to cash and procure to pay cycles. These systems were developed specifically for the metals service center and processor industry and provide information in real time, such as inventory availability, location and cost. With this information, our marketing and sales personnel can respond to our customers’ needs more efficiently and more effectively.

     Almost fifty of our 200-plus locations use a suite of software products purchased and developed by our subsidiary Earle M. Jorgensen Company (“EMJ”). In 2009, the Reliance Corporate and EMJ IT departments merged and the combined team modified certain aspects of the software to allow it to support multiple entities. This system was rolled out to certain Reliance subsidiaries in 2009, in addition to the EMJ locations, and we expect more subsidiaries to convert to this system in 2010. Other subsidiaries use other vendor or in-house developed systems to support their operations. The basic functionality of the various systems is similar to StelplanÔ but in many instances has been customized for each of their operations with features to accommodate the products that they carry, automated equipment interfaces, or other specialized needs. These systems are included in our internal control testing.

     A common financial reporting system, as well as certain other accounting and tax packages are used company-wide. We have initiated efforts to allow us to identify the appropriate system solutions to provide a common ERP platform across our operating companies and to develop more efficient means of consolidating data. This is a multi-phased, multi-year project that will be pursued and implemented in a manner to limit both operational and financial risk.

Government Regulation

     Our metals service centers are subject to many foreign, federal, state and local requirements to protect the environment, including hazardous waste disposal and underground storage tank regulations. The only hazardous substances that we generally use in our operations are lubricants, cleaning solvents and petroleum for fueling our trucks. We pay state-certified private companies to haul and dispose of our hazardous waste.

     Our operations are also subject to laws and regulations relating to workplace safety and worker health, principally the Occupational Health and Safety Act and related regulations, which, among other requirements, establish noise, dust and safety standards. We maintain comprehensive health and safety policies and encourage our employees to follow established safety practices. We encourage social well being by instituting these high quality labor, health and safety standards. We do not anticipate that future compliance with such laws and regulations will have a material adverse effect on our results of operations or financial condition.

     Certain of our operations sell metal to foreign customers, subjecting us to various export compliance regulations. We have implemented a company-wide export compliance function to monitor adherence to our export compliance policy and to provide appropriate training to our operating personnel. Although the actual dollar amounts of our sales that are subject to these regulations are not material, penalties assessed to any violations may be material. Although we have implemented policies and procedures to comply with export compliance regulations, we cannot guarantee that we will not incur any violations and resulting penalties from such activity.

Environmental

     Some of the properties we own or lease are located in industrial areas with histories of heavy industrial use. We may incur some environmental liabilities because of the location of these properties. In addition, we are currently investigating and remediating contamination at certain properties we have acquired or that acquired subsidiaries own or previously owned, but we do not expect that these liabilities would have a material adverse impact on our results of operations. All scrap metal produced by our operations is sold to independent scrap metal companies and we believe is recycled. We continue to evaluate and implement energy conservation and other initiatives to reduce pollution. If more stringent environmental regulations are enacted this could have an adverse impact on our financial results.

Employees

     As of December 31, 2009, we had approximately 8,870 employees. Approximately 11% of the employees are covered by collective bargaining agreements, which expire at various times over the next four years. We have entered into collective bargaining agreements with 39 union locals at 39 of our locations. These collective bargaining agreements have not had a material impact either favorably or unfavorably on our revenues or profitability at our various locations. We have always maintained excellent relations with our employees. Over the years we have experienced minor work stoppages by our employees at certain of our locations, but due to the small number of employees and the short time periods involved, these stoppages have not had a material impact on our operations. Employees at certain of our locations have recently de-certified with their local unions and are now non-union employees. We have never experienced a significant work stoppage.

     As a result of the global economic recession that significantly impacted our business activity beginning in the 2008 fourth quarter, we have made significant reductions in our workforce in order for us to maintain profitability as personnel costs represent the most significant variable operating expense that we have and are also the most impacted by changes in our order volumes. During 2009, we reduced our workforce by approximately 1,700 employees, or 16%. Since September 30, 2008, we reduced our workforce by approximately 2,500 employees, or 22%. In addition, we have taken many other cost cutting measures including certain changes that impact our employees such as voluntary time off and reduced work weeks. Many of our employees participate in various bonus programs based upon the financial results of a particular operation or the Company as a whole. Because of our lower profitability levels in 2009, our compensation expense was lower as our employees generally received no or lower bonuses than in 2008.

Available Information

     We file annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a Website that contains reports, proxy information statements and other information regarding issuers, including our Company, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

     We also make available free of charge on or through our Internet Website (http://www.rsac.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Reference to our Website is not intended to incorporate anything on the Website into this report.

Item 1A. Risk Factors

Set forth below are the risks that we believe are material to our investors. Our business, results of operations and financial condition may be materially adversely affected due to any of the following risks. The risks described below are not the only ones

we face. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements set forth at the beginning of this Report.

Risks Related to Our Business and Industry

Our indebtedness could impair our financial condition and reduce the funds available to us for other purposes and our failure to comply with the covenants contained in our debt instruments could result in an event of default that could adversely affect our operating results.

     We have substantial debt service obligations. As of December 31, 2009, we had aggregate outstanding indebtedness of approximately $939.6 million. This indebtedness could adversely affect us in the following ways:

	•		our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may not be available and if available, may be considerably more costly than our current debt costs;
	•		a significant portion of our cash flow from operations must be dedicated to the payment of interest and principal on our debt, which reduces the funds available to us for our operations or other purposes;
	•		some of the interest on debt is, and will continue to be, accrued at variable rates, which may result in higher interest expense in the event of increases in interest rates, which may occur in future periods;
	•		because we may be more leveraged than some of our competitors, our debt may place us at a competitive disadvantage;
	•		our leverage may increase our vulnerability to economic downturns and limit our ability to withstand adverse events in our business by limiting our financial alternatives; and
	•		our ability to capitalize on significant business opportunities, including potential acquisitions, and to plan for, or respond to, competition and changes in our business may be limited.

     Our existing debt agreements contain financial and restrictive covenants that limit our ability to incur additional debt, including restrictions on our ability to make acquisitions or to finance future operations or other capital needs, and to engage in other activities that we may believe are in our long-term best interests, including the disposition or acquisition of assets or other companies or the payment of dividends to our shareholders. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or prevent us from accessing availability under our credit facility. If the maturity of our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned. See discussion regarding our financial covenants in the “Liquidity and Capital Resources” section of Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We may not be able to generate sufficient cash flow to meet our existing debt service obligations.

     Our annual debt service obligations until November 2012, when our revolving credit facility is scheduled to mature, will be primarily limited to interest and principal payments on multiple series of privately placed senior notes and our outstanding debt securities, with an aggregate principal amount of $813.0 million, and on borrowings under our $1.1 billion credit facility. Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. For example, we may not generate sufficient cash flow from our operations or new acquisitions to repay amounts drawn under our revolving credit facility when it matures in 2012, our private notes when they mature on various dates between 2010 and 2013 or our debt securities when they mature in 2016 and 2036. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, we expect to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We may not be able to consummate any such transaction at all or on a timely basis or on terms, and for proceeds, that are acceptable to us. These transactions may not be permitted under the terms of our various debt instruments then in effect, however; our inability to generate sufficient cash flow to satisfy our debt obligations or to timely refinance our obligations on acceptable terms could adversely affect our ability to serve our customers and could cause us to reduce or discontinue our planned operations.

The costs that we pay for metals fluctuate due to a number of factors beyond our control, and such fluctuations could adversely affect our operating results, particularly if we cannot pass on higher metal prices to our customers.

     We purchase large quantities of aluminum, carbon, alloy and stainless steel and other metals, which we sell to a variety of end-users. The costs to us for these metals and the prices that we charge customers for our products may change depending on many factors outside of our control, including general economic conditions (both domestic and international), competition, production levels, raw material costs, customer demand levels, import duties and other trade restrictions, currency fluctuations and surcharges imposed by our suppliers. We attempt to pass cost increases on to our customers with higher selling prices but we may not always be able to do so.

     We maintain substantial inventories of metal to accommodate the short lead times and delivery requirements of our customers. Our customers typically purchase products from us pursuant to purchase orders and typically do not enter into long-term purchase agreements or arrangements with us. Accordingly, we purchase metal in quantities we believe to be appropriate to satisfy the anticipated needs of our customers based on information derived from customers, market conditions, historic usage and industry research. Commitments for metal purchases are generally at prevailing market prices in effect at the time orders are placed or at the time of shipment. During periods of rising prices for metal, we may be negatively impacted by delays between the time of increases in the cost of metals to us and increases in the prices that we charge for our products if we are unable to pass these increased costs on to our customers immediately. In addition, when metal prices decline, this could result in lower selling prices for our products and, as we use existing inventory that we purchased at higher metal prices, lower margins. Consequently, during periods in which we sell this existing inventory, the effects of changing metal prices could adversely affect our operating results.

Our business could be adversely affected by economic downturns.

     Demand for our products is affected by a number of general economic factors. A decline in economic activity in the U.S. and other markets in which we operate could materially affect our financial condition and results of operations. The U.S. economy technically entered an economic recession in December 2007 and the economic recession spread to many global markets in 2008. Beginning in the 2008 fourth quarter and throughout 2009, the metals industry, including service centers and Reliance, felt the effects of the recession. Both demand for our products and pricing levels declined rapidly and significantly. In addition to reducing our direct business activity, many of our customers were not able to pay us amounts when they became due, further affecting our financial condition and results of operations. Although demand and pricing levels stabilized somewhat during the second half of 2009, demand for our products continues to be at low levels. We have little visibility as to the duration of the economic downturn, which may cause our financial condition to worsen from current levels and may continue to threaten the financial viability of our customers and their ability to pay us.

The prices of metals are subject to fluctuations in the supply and demand for metals worldwide and changes in the worldwide balance of supply and demand could negatively impact our revenues, gross profit and net income.

     Metal prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability, metals consumption and foreign currency rates. For example, in the past few years, China has significantly increased both its consumption and production of metals and metal products. Initially, China’s large and growing demand for metals significantly affected the metals industry by diverting supply to China and contributing to the global increases in metal prices. With China’s increased production of metals, it has become a significant buyer of natural resources and a net exporter of certain metals. While these developments can affect global pricing, China has not yet had a significant impact on U.S. pricing or the pricing for our products. Future changes in China’s general economic conditions or in its production or export of metals could cause fluctuations in metal prices globally, which could adversely affect our revenues, gross profit and net income. Due to the recent global recession, U.S. mills have significantly reduced their production capacities by idling production lines in an effort to more closely match supply with current demand. Domestic carbon steel mills were operating at less than 50% of capacity in early 2009, which we believe supported pricing levels well above pricing levels that would have developed if capacity had not been reduced. Since mid-year 2009, mill capacity rates have increased to about 70% by the end of 2009 led mainly by increased demand for flat-rolled products by the auto industry. Pricing for most products has experienced modest increases since mid-year 2009 mostly driven by increasing raw material costs as opposed to demand. However, if mills continue to increase production without a corresponding increase in demand, prices may decline. Global mills, including those in China, may react more irrationally than domestic mills.

     Additionally, significant currency fluctuations in the United States or abroad could negatively impact our cost of metals and the pricing of our products. A decline in the dollar relative to foreign currencies may result in increased prices for metals and metal products in the United States and reduce the amount of metal imported into the U.S. as imported metals become relatively more expensive. If the value of the dollar improves relative to foreign currencies, this may result in increased metal being

imported into the U.S. that may pressure existing domestic prices for metal. In addition, when prices for metal products in the U.S. are lower than in foreign markets, metals may be sold in the foreign markets rather than in the U.S., reducing the availability of metal products in the U.S., which may allow the domestic mills to increase their prices.

We operate in an industry that is subject to cyclical fluctuations and any downturn in general economic conditions or in our customers’ specific industries could negatively impact our revenues, gross profit and net income.

     The metals service center industry is cyclical and impacted by both market demand and metals supply. Periods of economic slowdown or recession in the United States or other countries, or the public perception that these may occur, could decrease the demand for our products and adversely affect our pricing. For example, the recent economic recession significantly impacted our revenue levels due to both demand and pricing level deterioration beginning in the 2008 fourth quarter and through the first half of 2009. This deterioration also impacted our gross profit and net income levels as we had to lower our selling prices to our customers faster than we received lower cost metal into our inventory. Our inventory costs are currently in line with our replacement costs, allowing us to improve our gross profit margins to more normal historical levels in the second half of 2009. However, if either demand or pricing were to decline further, this could further reduce our revenues, gross profit and net income.

     We sell many products to industries that are cyclical, such as the non-residential construction, semiconductor, energy and transportation industries, including aerospace. Although many of our direct sales are to sub-contractors or job shops that may serve many customers and industries, the demand for our products is directly related to, and quickly impacted by, demand for the finished goods manufactured by customers in these industries, which may change as a result of changes in the general U.S. or worldwide economy, domestic exchange rates, energy prices or other factors beyond our control. If we are unable to accurately project the product needs of our customers over varying lead times or if there is a limited availability of products through allocation by the mills or otherwise, we may not have sufficient inventory to be able to provide products desired by our customers on a timely basis. In addition, if we are not able to diversify our customer base and/or increase sales of products to customers in other industries when one or more of the cyclical industries that we serve are experiencing a decline, our revenues, gross profit and net income may be adversely affected.

We compete with a large number of companies in the metals service center industry, and, if we are unable to compete effectively, our revenues, gross profit and net income may decline.

     We compete with a large number of other general-line distributors and specialty distributors in the metals service center industry. Competition is based principally on price, inventory availability, timely delivery, customer service, quality and processing capabilities. Competition in the various markets in which we participate comes from companies of various sizes, some of which have more established brand names in the local markets that we serve. Accordingly, these competitors may be better able to withstand adverse changes in conditions within our customers’ industries and may have greater operating and financial flexibility than we have. To compete for customer sales, we may lower prices or offer increased services at a higher cost, which could reduce our revenues, gross profit and net income. The significantly lower demand levels during 2009 have escalated competitive pressures, with service centers selling at substantially reduced prices, and sometimes at a loss, in an effort to reduce their high cost inventory and generate cash. These competitive pressures could continue to increase as demand and pricing remain at low levels or fall further. Any increased competitive pressure could cause our revenues, gross profit and net income to decline further.

If we were to lose any of our primary suppliers or otherwise be unable to obtain sufficient amounts of necessary metals on a timely basis, we may not be able to meet our customers’ needs and may suffer reduced sales.

     We have few long-term contracts to purchase metals. Therefore, our primary suppliers of carbon steel, alloy steel, stainless steel, aluminum or other metals could curtail or discontinue their delivery of these metals to us in the quantities we need with little or no notice. Our ability to meet our customers’ needs and provide value-added inventory management services depends on our ability to maintain an uninterrupted supply of high quality metal products from our suppliers. If our suppliers experience production problems, lack of capacity or transportation disruptions, the lead times for receiving our supply of metal products could be extended and the cost of our inventory may increase. If, in the future, we are unable to obtain sufficient amounts of the necessary metals at competitive prices and on a timely basis from our customary suppliers, we may not be able to obtain these metals from acceptable alternative sources at competitive prices to meet our delivery schedules. Even if we do find acceptable alternative suppliers, the process of locating and securing these alternatives may be disruptive to our business, which could have an adverse impact on our ability to meet our customers’ needs and reduce our sales, gross profit and net income. In addition, if a significant domestic supply source is discontinued and we cannot find acceptable domestic alternatives, we may need to find a foreign source of supply. Dependence on foreign sources of supply could result in longer lead times, increased price volatility, less favorable payment terms, increased exposure to foreign currency movements and certain tariffs and duties and require greater levels of working capital. Alternative sources of supply may not maintain the quality standards that are in place with our

current suppliers that could impact our ability to provide the same quality of products to our customers that we have provided in the past, which could cause our customers to move their business to our competitors or to file claims against us. There has been significant consolidation at the metal producer level both globally and within the U.S. This consolidation has reduced the number of suppliers available to us, which could result in increased metals costs to us that we may not be able to pass on to our customers and may limit our ability to obtain the necessary metals to service our customers. The number of available suppliers may be further reduced if the current economic downturn continues. Lower metal prices and lower demand levels caused certain mills to reduce their production capacity and, in many cases, to operate at a loss, which could cause one or more mills to discontinue operations if the losses continue over an extended period of time or if the mill cannot obtain the necessary financing to fund its operating costs.

We rely upon our suppliers as to the specifications of the metals we purchase from them.

     We rely on mill certifications that attest to the physical and chemical specifications of the metal received from our suppliers for resale and generally, consistent with industry practice, do not undertake independent testing of such metals. We rely on our customers to notify us of any metal that does not conform to the specifications certified by the supplying mill. Although our primary sources of products have been domestic mills, we have and will continue to purchase product from foreign suppliers when we believe it is appropriate. In the event that metal purchased from domestic suppliers is deemed to not meet quality specifications as set forth in the mill certifications or customer specifications, we generally have recourse against these suppliers for both the cost of the products purchased and possible claims from our customers. However, such recourse will not compensate us for the damage to our reputation that may arise from sub-standard products and possible losses of customers. Moreover, there is a greater level of risk that similar recourse will not be available to us in the event of claims by our customers related to products from foreign suppliers that do not meet the specifications set forth in the mill certifications. In such circumstances, we may be at greater risk of loss for claims for which we do not carry, or do not carry sufficient, insurance.

If we do not successfully implement our acquisition growth strategy, our ability to grow our business could be impaired.

     We may not be able to identify suitable acquisition candidates or successfully complete any acquisitions or integrate any other businesses into our operations. If we cannot identify suitable acquisition candidates or are otherwise unable to complete acquisitions, we are unlikely to sustain our historical growth rates, and, if we cannot successfully integrate these businesses, we may incur increased or redundant expenses. Moreover, any additional indebtedness we incur to pay for these acquisitions could adversely affect our liquidity and financial condition. In September 2009, we amended our $1.1 billion credit facility mainly to adjust certain financial covenants through June 30, 2010. The amendment also includes certain restrictions on our uses of cash for acquisitions, among other things. Through June 30, 2010, we are limited to cash consideration for an acquisition of one times our latest twelve months EBITDA. This restriction could prevent us from completing certain large acquisitions that are attractive to us, or could increase the cost of the acquisition if we are required to obtain a waiver or further amendment from our bank group to approve the acquisition.

     Because of the recent economic downturn and uncertainty regarding the timing and extent of the eventual recovery, it may be difficult to reach agreement with potential sellers on the appropriate valuation of target companies, which may delay or cancel potential acquisitions.

Acquisitions present many risks, and we may not realize the financial and strategic goals that were contemplated at the time of any transaction.

     Historically, we have expanded both through acquisitions and internal growth. Since our initial public offering in September 1994, we have successfully purchased more than 40 businesses. From 1984 to September 1994, we acquired 20 businesses. We continue to evaluate acquisition opportunities and, although we placed acquisitions on hold in 2009 because of the poor economic climate, we expect to continue to grow our business through acquisitions. Risks we may encounter in acquisitions include:

	•		the acquired company may not further our business strategy, or we may pay more than it is worth;
	•		the acquired company may not perform as anticipated, which could result in an impairment charge or otherwise impact our results of operations;
	•		we may not realize the anticipated increase in our revenues if a larger than predicted number of customers decline to continue purchasing products from us;

	•		we may have to delay or not proceed with a substantial acquisition if we cannot obtain the necessary funding to complete the acquisition in a timely manner;
	•		we may significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition or assume existing debt of an acquired company, which, among other things, may result in a downgrade of our credit ratings;
	•		we may have multiple and overlapping product lines that may be offered, priced and supported differently, which could cause our gross profit margins to decline;
	•		our relationship with current and new employees, customers and suppliers could be impaired;
	•		our due diligence process may fail to identify risks that could negatively impact our financial condition;
	•		we may lose anticipated tax benefits or have additional legal or tax exposures if we have prematurely or improperly combined entities;
	•		we may face contingencies related to product liability, intellectual property, financial disclosures, tax positions and accounting practices or internal controls;
	•		the acquisition may result in litigation from terminated employees or third parties;
	•		our management’s attention may be diverted by transition or integration issues; and
	•		we may be unable to obtain timely approvals from governmental authorities under competition and antitrust laws.

     These factors could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or a number of acquisitions.

As a decentralized business, we depend on both senior management and our key operating employees; if we are unable to attract and retain these individuals, our ability to operate and grow our business may be adversely affected.

     Because of our decentralized operating style, we depend on the efforts of our senior management, including our chairman and chief executive officer, David H. Hannah, our president and chief operating officer, Gregg J. Mollins, and our executive vice president and chief financial officer, Karla Lewis, as well as our key operating employees. We may not be able to retain these individuals or attract and retain additional qualified personnel when needed. We do not have employment agreements with any of our corporate officers or most of our key employees, so they may have less of an incentive to stay with us when presented with alternative employment opportunities. The compensation of our officers and key employees is heavily dependent on our profitability and in times of reduced profitability this may cause our employees to seek employment opportunities that provide a more stable compensation structure. In addition, our senior management and key operating employees hold stock options that have vested and may also hold common stock in our employee stock ownership plan. These individuals may, therefore, be more likely to leave us if the shares of our common stock significantly appreciate in value. The loss of any key officer or employee will require remaining officers and employees to direct immediate and substantial attention to seeking a replacement. Our inability to retain members of our senior management or key operating employees or to find adequate replacements for any departing key officer or employee on a timely basis could adversely affect our ability to operate and grow our business.

We are subject to various environmental, employee safety and health and customs and export laws and regulations, which could subject us to significant liabilities and compliance expenditures.

     We are subject to various foreign, federal, state and local environmental laws and regulations concerning air emissions, wastewater discharges, underground storage tanks and solid and hazardous waste disposal at or from our facilities. Our operations are also subject to various employee safety and health laws and regulations, including those concerning occupational injury and illness, employee exposure to hazardous materials and employee complaints. We are also subject to customs and exporting laws and regulations for international shipment of our products. Environmental, employee safety and health and customs and export laws and regulations are comprehensive, complex and frequently changing. Some of these laws and regulations are subject to varying and conflicting interpretations. We may be subject from time to time to administrative and/or judicial proceedings or investigations brought by private parties or governmental agencies with respect to environmental matters, employee safety and health issues or customs and exporting issues. Proceedings and investigations with respect to environmental matters, any employee safety and health issues or customs and exporting issues could result in substantial costs to us, divert our

management’s attention and result in significant liabilities, fines or the suspension or interruption of our service center activities. Some of our current properties are located in industrial areas with histories of heavy industrial use. The location of these properties may require us to incur environmental expenditures and to establish accruals for environmental liabilities that arise from causes other than our operations. In addition, we are currently investigating and remediating contamination in connection with certain properties we have acquired. Our international presence has grown, so the risk of incurring liabilities or fines resulting from non-compliance with customs or export laws has increased. We are currently investigating and remediating potential violations, most of which occurred at companies prior to Reliance acquiring them; however, we may incur fines or penalties for any such violations. Future events, such as changes in existing laws and regulations or their enforcement, new laws and regulations or the discovery of conditions not currently known to us, could result in material environmental or export compliance or remedial liabilities and costs, constrain our operations or make such operations more costly.

Proposed legislation aimed at regulating and taxing carbon emissions may impact both the prices we pay for materials and the volume of business from our customers involved in fossil fuel exploration.

     We purchase large quantities of metal from mills whose production costs may increase because of proposed increases in taxation on carbon emissions as a byproduct of the milling process. Such regulation, if passed, may consequently result in higher prices charged to us by the mills for most every type of metal that we sell. The price that we pay for utilities such as electricity to run our warehouse equipment and fuel to run our delivery trucks and forklifts may rise as well due to increased taxation on the companies who produce and supply these commodities. We may not be able to fully pass on these costs to our customers without a resulting decline in order volumes, which may adversely impact our profits.

     Carbon-related regulation may also negatively impact domestic exploration efforts. Should such a reduction in domestic exploration occur, we would expect to see a resulting slow down in sales to our energy end market in general, thus negatively impacting our revenues, gross profit and net income.

Our operating results have fluctuated, and are expected to continue fluctuating, depending on the season.

     Many of our customers are in seasonal businesses, including customers in the construction and related industries. In addition, our revenues in the months of July, November and December traditionally have been lower than in other months because of increased vacation days and holiday closures for various customers. Consequently, you should not rely on our results of operations during any particular quarter as an indication of our results for a full year or any other quarter.

Ongoing tax audits may result in additional taxes.

     Reliance and our subsidiaries are undergoing various tax audits. These tax audits could result in additional taxes, plus interest and penalties being assessed against Reliance or any of our subsidiaries and the amounts assessed could be material.

Damage to our computer infrastructure and software systems could harm our business.

     The unavailability of any of our primary information management systems for any significant period of time could have an adverse effect on our operations. In particular, our ability to deliver products to our customers when needed, collect our receivables and manage inventory levels successfully largely depend on the efficient operation of our computer hardware and software systems. Through information management systems, we provide inventory availability to our sales and operating personnel, improve customer service through better order and product reference data and monitor operating results. Difficulties associated with upgrades, installations of major software or hardware, and integration with new systems could lead to business interruptions that could harm our reputation, increase our operating costs and decrease our profitability. In addition, these systems are vulnerable to, among other things, damage or interruption from power loss, computer system and network failures, loss of tele-communications services, operator negligence, physical and electronic loss of data, or security breaches and computer viruses.

     We have contracted with third-party service providers that provide us with backup systems in the event that our major information management systems are damaged. The backup facilities and other protective measures we take could prove to be inadequate.

The value of your investment may be subject to sudden decreases due to the potential volatility of the price of our common stock.

     The market price of our common stock may be highly volatile and subject to wide fluctuations in response to various factors, including variations in our quarterly results of operations and our leverage position, as well as a general economic downturn.

During the last two years our stock price was extremely volatile reaching an all-time high of $78 per share in July 2008 and then declining to $13 per share in November 2008. Other factors may include matters discussed in other risk factors and the following factors:

	•		changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors or changes in estimates that we provide in our quarterly earnings release and conference call;
	•		developments affecting our Company, our customers or our suppliers;
	•		changes in the legal or regulatory environment affecting our business;
	•		press releases, earnings releases or publicity relating to us or our competitors or relating to trends in the metals service center industry;
	•		inability to meet securities analysts’ and investors’ quarterly or annual estimates or targets of our performance;
	•		a decline in our credit rating by the rating agencies;
	•		the operating and stock performance of other companies that investors may deem comparable;
	•		sales of our common stock by large shareholders or insiders;
	•		general domestic or international economic, market and political conditions.

     These factors may adversely affect the trading price of our common stock, regardless of our actual operating performance. In addition, stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. In the past, some shareholders have brought securities class action lawsuits against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation, regardless of whether our defense is ultimately successful, could result in substantial costs and divert management’s attention and resources.

The volatility of the market could result in a material impairment of goodwill.

     We review the recoverability of goodwill annually or whenever significant events or changes occur which might impair the recovery of recorded costs, making certain assumptions regarding future operating performance. We test for impairment of goodwill by calculating the fair value of a reporting unit using the discounted cash flow method. Under this method, the fair value of each reporting unit is estimated based on expected future economic benefits discounted to a present value at a rate of return commensurate with the risk associated with the investment. Projected cash flows are discounted to present value using an estimated weighted average cost of capital, which considers both returns to equity and debt investors. Significant changes in any one of the assumptions made as part of our analysis, which could occur as a result of actual events, or further declines in the market conditions for our products or our common stock could significantly impact our impairment analysis. An impairment charge, if incurred, could be material.

Principal shareholders who own a significant number of shares may have interests that conflict with yours.

     Periodically, we have one or more shareholders that control 5% or more of the outstanding shares of our common stock. Individually or together, they may have the ability to significantly influence matters requiring shareholder approval. In deciding how to vote on such matters, these shareholders may be influenced by interests that conflict with yours.

We have implemented anti-takeover provisions that may adversely impact your rights as a holder of Reliance common stock.

     Certain provisions in our articles of incorporation and our bylaws could delay, defer or prevent a third party from acquiring Reliance, despite the possible benefit to our shareholders, or otherwise adversely affect the price of our common stock and the rights of our shareholders. We are authorized to issue 5,000,000 shares of preferred stock, no par value, with the rights, preferences, privileges and restrictions of such stock to be determined by our board of directors, without a vote of the holders of common stock. Our board of directors could grant rights to holders of preferred stock to reduce the attractiveness of Reliance as a potential takeover target or make the removal of management more difficult. In addition, our restated articles of incorporation and amended and restated bylaws (1) impose advance notice requirements for shareholder proposals and nominations of directors

to be considered at shareholder meetings and (2) establish a staggered or classified board of directors. These provisions may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors other than the candidates nominated by our board of directors. In addition, our credit facility and the provisions of our senior private notes and debt securities contain limitations on our ability to enter into change of control transactions.

Risks Related to our Debt Securities

Because our senior debt securities and the related guarantees are not secured and are effectively subordinated to the rights of secured creditors, the debt securities and the related guarantees will be subject to the prior claims of any secured creditors, and if a default occurs, we may not have sufficient funds to fulfill our obligations under the debt securities or the related guarantees.

     The notes and the guarantees are unsecured obligations, ranking equally with other senior unsecured indebtedness. The indenture governing the notes, as well as our credit facility and private placement notes, permit us and the subsidiary guarantors to incur additional secured or unsecured debt under specified circumstances. If we or the subsidiary guarantors incur additional secured debt, our assets and the assets of the subsidiary guarantors securing such debt will be subject to prior claims by our secured creditors. In the event of bankruptcy, insolvency, liquidation, reorganization, dissolution or other winding up of either Reliance or any of the subsidiary guarantors, assets that secure debt will be available to pay obligations on the notes and guarantees only after all debt secured by those assets has been repaid in full. Holders of the notes will participate in any remaining assets ratably with all of the respective unsecured and unsubordinated creditors of Reliance and the subsidiary guarantors, including trade creditors. If Reliance or any of the subsidiary guarantors incurs any additional unsecured obligations that rank equally with the notes, including trade payables, the holders of those obligations will be entitled to share ratably with the holders of the notes in any proceeds distributed as a result of bankruptcy, insolvency, liquidation, reorganization, dissolution or other winding up. If we do not have sufficient assets to pay all creditors of these entities, a portion of the notes outstanding would remain unpaid.

The guarantees may be unenforceable due to fraudulent conveyance statutes and, accordingly, the holders of our debt securities may not have a claim against the subsidiary guarantors.

     The obligations of each subsidiary guarantor under its guarantee will be limited as necessary to prevent that guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law. However, a court in some jurisdictions could, under fraudulent conveyance laws, further subordinate or void the guarantee of any subsidiary guarantor if it found that such guarantee was incurred with actual intent to hinder, delay or defraud creditors, or such subsidiary guarantor did not receive fair consideration or reasonably equivalent value for the guarantee and that the subsidiary guarantor was any of the following: insolvent or rendered insolvent because of the guarantee, engaged in a business or transaction for which its remaining assets constituted unreasonably small capital, or intended to incur, or believed that it would incur, debts beyond its ability to pay such debts at maturity.

     If a court were to void the guarantee of a subsidiary guarantor as the result of a fraudulent conveyance, or hold it unenforceable for any other reason, holders of the notes would cease to have a claim against that subsidiary guarantor on its guarantee and would be creditors solely of Reliance and any other subsidiary guarantor whose guarantee is not voided or held to be unenforceable.

The guarantees will be released under certain circumstances.

     The debt securities will be guaranteed by any subsidiary guarantor for so long as such subsidiary guarantor is a borrower or a guarantor of obligations under our credit agreement and our private notes. In the event that, for any reason, the obligations of any subsidiary guarantor terminate as a borrower or guarantor under our credit agreement and our private notes, that subsidiary guarantor will be deemed released from all of its obligations under the indenture and its guarantee of the notes will terminate. A subsidiary guarantor’s guarantee will also terminate and such subsidiary guarantor will be deemed released from all of its obligations under the indenture with respect to the notes of a series upon legal defeasance of such series or satisfaction and discharge of the indenture as it relates to such series. A subsidiary guarantor’s guarantee will also terminate and such subsidiary guarantor will be deemed released from all of its obligations under the indenture with respect to each series of notes in connection with any sale or other disposition by Reliance of all of the capital stock of that subsidiary guarantor (including by way of merger or consolidation) or other transaction such that after giving effect to such transaction such subsidiary guarantor is no longer a domestic subsidiary of Reliance. If the obligations of any subsidiary guarantor as a guarantor terminate or are released, the risks applicable to our subsidiaries that are not guarantors will also be applicable to such subsidiary guarantor.

We depend on the receipt of dividends or other intercompany transfers from our subsidiaries to meet our obligations under the notes. Claims of creditors of our subsidiaries may have priority over your claims with respect to the assets and earnings of our subsidiaries.

     We conduct a substantial portion of our operations through our subsidiaries. We will therefore be dependent upon dividends or other intercompany transfers of funds from our subsidiaries in order to meet our obligations under the notes and to meet our other obligations. Generally, creditors of our subsidiaries will have claims to the assets and earnings of our subsidiaries that are superior to the claims of our creditors, except to the extent the claims of our creditors are guaranteed by our subsidiaries. All of our wholly-owned domestic subsidiaries, which constitute the substantial majority of our subsidiaries, guarantee the notes. As of December 31, 2009, Reliance and the subsidiary guarantors accounted for approximately $4.03 billion, or 93%, of our total consolidated assets. Reliance and the subsidiary guarantors accounted for approximately $5.10 billion, or 96%, of our total consolidated revenues for the year ended December 31, 2009. If Reliance expands its international presence at a greater pace than it expands its U.S. presence, a smaller percentage of its consolidated assets may be subject to the guarantee obligations.

     In the event of the bankruptcy, insolvency, liquidation, reorganization, dissolution or other winding up of Reliance, the holders of our notes may not receive any amounts with respect to the notes until after the payment in full of the claims of creditors of our subsidiaries that are not subsidiary guarantors.

We are permitted to incur more debt, which may intensify the risks associated with our current leverage, including the risk that we will be unable to service our debt.

     Subject to certain limitations, our existing credit facility and private notes permit us to incur additional debt. The indenture governing the notes does not limit the amount of additional debt that we may incur. If we incur additional debt, the risks associated with our leverage, including the risk that we will be unable to service our debt, will increase.

The provisions in the indenture that governs the notes relating to change of control transactions will not necessarily protect the holders of our notes in the event of a highly leveraged transaction.

     The provisions contained in the indenture will not necessarily afford the holders of our notes protection in the event of a highly leveraged transaction that may adversely affect them, including a reorganization, restructuring, merger or other similar transaction involving Reliance. These transactions may not involve a change in voting power or beneficial ownership or, even if they do, may not involve a change of the magnitude required under the definition of change of control repurchase event in the indenture to trigger these provisions, notably, that the transactions are accompanied or followed within 60 days by a downgrade in the rating of the notes. Except in the event of a change of control, the indenture does not contain provisions that permit the holders of the notes to require us to repurchase the notes in the event of a takeover, recapitalization or similar transaction.

Reliance may not be able to repurchase all of the notes upon a change of control repurchase event.

     We will be required to offer to repurchase certain outstanding senior notes upon the occurrence of a change of control repurchase event as defined in the indenture dated November 20, 2006 (see Exhibit 4.01 included in this Annual Report on Form 10-K). We may not have sufficient funds to repurchase the notes in cash at such time or have the ability to arrange necessary financing on acceptable terms. In addition, our ability to repurchase the notes for cash may be limited by law or the terms of other agreements relating to our indebtedness outstanding at the time. Under the terms of our credit facility, we are prohibited from repurchasing the notes if we are in default under such credit facility.

Ratings of our notes may change and affect the market price and marketability of the notes.

     The notes are rated by Moody’s Investors Service Inc. and Standard & Poor’s. Such ratings are limited in scope, and do not address all material risks relating to an investment in the notes, but rather reflect only the view of each rating agency at the time the rating is issued and subsequently updated or affirmed. An explanation of the significance of such rating may be obtained from such rating agency. There is no assurance that our current credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant. It is also possible that such ratings may be lowered in connection with future events, such as future acquisitions. Holders of our notes have no recourse against us or any other parties in the event of a change in or suspension or withdrawal of such ratings. Any lowering, suspension or withdrawal of such ratings may have an adverse effect on the market price or marketability of the notes. In addition, any decline in the ratings of the notes may make it more difficult for us to raise capital on acceptable terms.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     As of December 31, 2009, we maintained more than 200 metals service center processing and distribution facilities in 38 states, and in Belgium, Canada, China, Mexico, Singapore, South Korea and the United Kingdom, a sales office in France, and our corporate headquarters. We are in the process of building additional facilities, including a metals service center in Malaysia that is expected to begin operations in the 2010 second quarter. All of our service center facilities are in good or excellent condition and are adequate for our existing operations. These facilities generally operate at about 60% of capacity based upon a 24-hour seven-day week, with each location averaging about two shifts operating at full capacity for a five-day work week. During 2009, however, we had many employees working reduced hours or locations running at reduced shifts in response to low demand levels, which lowered our capacity utilization to about 50%.

     We lease 128 of our processing and distribution facilities with total square footage of approximately 9.2 million. Total square footage on all company-owned properties is approximately 14.1 million. In addition, we lease our corporate headquarters in Los Angeles, California and several of our subsidiaries lease other sales offices or non-operating locations. The leases expire at various times through 2031 and the aggregate monthly rent amount is approximately $3.1 million.

Item 3. Legal Proceedings.

     From time to time, we are named as a defendant in legal actions. Generally, these actions arise out of our normal course of business. We are not a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse effect on our results of operations or financial condition. We maintain liability insurance against risks arising out of our normal course of business.

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

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

     Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “RS” and was first traded on September 16, 1994. The following table sets forth the high and low reported closing sale prices of the common stock on the NYSE Composite Tape for the stated calendar quarters.

		2009								2008
		High				Low				High				Low
First Quarter		$	29.07			$	18.72			$	61.07			$	44.50
Second Quarter		$	43.10			$	28.05			$	77.09			$	59.78
Third Quarter		$	43.80			$	33.71			$	78.11			$	36.26
Fourth Quarter		$	45.42			$	36.42			$	36.78			$	12.63

     As of February 17, 2010, there were 283 record holders of our common stock. We have paid quarterly cash dividends on our common stock for 50 years. In February 2007, the regular quarterly dividend was increased 33% from $.06 to $.08 per share of common stock. In February 2008 the Board again increased the quarterly dividend amount 25% from $.08 to $.10 per share of common stock. Our Board of Directors has increased the quarterly dividend rate on a periodic basis. The Board may reconsider or revise this policy from time to time based on conditions then existing, including our earnings, cash flows, financial condition and capital requirements, or other factors the Board may deem relevant. In September 2009, we amended our credit facility resulting in certain restrictions on the amount of dividends that we may pay to our shareholders through June 30, 2010. We expect to continue to declare and pay dividends in the future, if earnings are available to pay dividends, but we also intend to continue to retain a portion of earnings for reinvestment in our operations and expansion of our businesses. We cannot assure you that either cash or stock dividends will be paid in the future or that, if paid, the dividends will be at the same amount or frequency as paid in the past.

     We had no repurchases of our common stock in 2009. In January 2008, we repurchased approximately 2,443,500 shares of our common stock at an average cost per share of $46.97. Since initiating the Stock Repurchase Plan in 1994 we have purchased approximately 15,200,000 shares at an average cost of $18.41 per share. As of December 31, 2009 we had authorization to purchase an additional 7,883,033 shares under our existing Repurchase Plan.

     The private placement debt agreements for our senior notes and our syndicated credit facility contain covenants which, among other things, require us to maintain a minimum net worth, which may restrict our ability to pay dividends. Since our initial public offering in September 1994 through 2009, we have paid between 5% and 25% of earnings to our shareholders as dividends. The wide range is due mainly to volatility of our earnings over this period more than volatility of our dividend rate. In 2009, our dividend payments represented 20% of earnings due to the low earnings in 2009 as a result of the poor economic conditions.

     The following table contains certain information with respect to our cash dividends declared during the past two fiscal years:

Date of Declaration		Record Date		Payment Date		Dividends
10/21/09		12/4/09		1/6/10		$.10 per share
7/22/09		8/21/09		9/14/09		$.10 per share
4/21/09		6/1/09		6/22/09		$.10 per share
2/18/09		3/6/09		3/27/09		$.10 per share
10/15/08		12/5/08		1/5/09		$.10 per share
7/16/08		8/22/08		9/12/08		$.10 per share
4/16/08		6/2/08		6/23/08		$.10 per share
2/13/08		3/7/08		3/28/08		$.10 per share

     Although we have not offered any securities for sale in the last three years, we have issued restricted stock on exercise of stock options granted pursuant to the Directors’ Stock Option Plan, as amended, which was approved by shareholders. Proceeds from the exercise of these options were used for working capital. Shares of our common stock were issued only to non-management directors in the following transactions exempt from registration under Sections 4(2) and 4(6) of the Securities Act:

Number of Shares		Exercise Price		Date of Exercise
3,750		$17.16		7/28/09

     Restricted shares of common stock were also issued as bonuses under the Key-Man Incentive Plan, which we have maintained since 1965. The recipients of the restricted stock are fully vested in the shares on the date of the grant; however, they

are restricted from trading the shares for a period of two years from the date of the grant. There were no proceeds received from the restricted stock granted under the Key-Man Incentive Plan. Shares of our common stock were issued only to a limited number of key employees in the following transactions exempt from registration under Sections 4(2) and 4(6) of the Securities Act:

Number of Shares		Market Value		Date of Grant
10,360		$24.86		2/23/09
5,052		$56.04		3/3/08

     We also have securities authorized for issuance under our Amended and Restated Stock Option and Restricted Stock Plan (the “2004 Plan”) and the EMJ incentive stock option plan (the “EMJ Plan”). For a description of securities authorized for issuance under these equity compensation plans and the Directors’ Stock Option Plan, see Note 10 to the consolidated financial statements.

Stock Performance Graph

     The following graph compares the performance of our Common Stock with that of the S&P 500, the Russell 2000 and the peer group that we selected for the five-year period from December 31, 2004 through December 31, 2009. The comparison of total return assumes that a fixed investment of $100 was invested on December 31, 2004 in all common stock and assumes the reinvestment of dividends. Since there is no nationally-recognized industry index consisting of metals service center companies to be used as a peer group index, Reliance constructed its own peer group. As of December 31, 2009, the peer group consisted of Olympic Steel Inc. and Gibraltar Industries, Inc., each of which has securities listed for trading on NASDAQ; A.M. Castle & Co. and Worthington Industries, Inc., each of which has securities listed for trading on the New York Stock Exchange; and Russell Metals Inc., which has securities listed for trading on the Toronto Stock Exchange (collectively, “Peer Group”). The returns of each member of the peer group are weighted according to that member’s stock market capitalization as of the period measured. The stock price performance shown on the graph below is not necessarily indicative of future price performance.

Comparison of 5 Year Cumulative Total Return Among Reliance Steel & Aluminum Co., The S&P 500 Index,
The Russell 2000 Index, and a Peer Group

		2004				2005				2006				2007				2008				2009
Reliance Steel & Aluminum Co.			100.00				158.14				205.00				283.91				105.59				231.67
S&P 500			100.00				104.91				121.48				128.16				80.74				102.11
Russell 2000			100.00				104.55				123.76				121.82				80.66				102.58
Peer Group			100.00				115.95				124.04				128.84				82.28				104.25

Item 6. Selected Financial Data.

     We have derived the following selected summary consolidated financial and operating data for each of the five years ended December 31, 2009 from our audited consolidated financial statements. You should read the information below with our Consolidated Financial Statements, including the notes related thereto, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

SELECTED CONSOLIDATED FINANCIAL DATA

		Year Ended December 31,
		2009				2008				2007				2006				2005
		(In thousands, except per share data)
Income Statement Data:
Net sales		$	5,318,132			$	8,718,844			$	7,255,679			$	5,742,608			$	3,367,051
Cost of sales (exclusive of depreciation and amortization expenses included in operating expenses)			3,918,611				6,556,748				5,418,161				4,231,386				2,449,000
Gross profit (1)			1,399,521				2,162,096				1,837,518				1,511,222				918,051
Operating expenses (2)			1,149,129				1,309,125				1,114,012				883,860				554,536
Operating income			250,392				852,971				723,506				627,362				363,515
Other income (expense):
Interest expense			(67,523	)			(82,575	)			(78,710	)			(61,692	)			(25,222	)
Other income (expense), net			12,624				(3,840	)			9,931				5,768				3,671
Income before income taxes			195,493				766,556				654,727				571,438				341,964
Provision for income taxes			46,317				282,921				246,438				216,625				127,775
Net income			149,176				483,635				408,289				354,813				214,189
Less: Net income attributable to noncontrolling interests (3)			1,018				858				334				306				8,752
Net income attributable to Reliance		$	148,158			$	482,777			$	407,955			$	354,507			$	205,437
Earnings per Share:
Net income per share attributable to Reliance shareholders — diluted (4)		$	2.01			$	6.56			$	5.36			$	4.82			$	3.10
Net income per share attributable to Reliance shareholders — basic (4)		$	2.02			$	6.60			$	5.39			$	4.85			$	3.12
Weighted average common shares outstanding — diluted (4)			73,702				73,598				76,065				73,600				66,195
Weighted average common shares outstanding — basic (4)			73,446				73,102				75,623				73,134				65,870
Other Data:
Cash flow from operations		$	942,996			$	664,684			$	638,964			$	190,964			$	272,219
Capital expenditures			69,901				151,890				124,127				108,742				53,740
Cash dividends per share (4)			.40				.40				.32				.22				.19
Balance Sheet Data (December 31):
Working capital		$	973,335			$	1,652,207			$	1,121,539			$	1,124,650			$	513,529
Total assets			4,306,777				5,195,485				3,983,477				3,614,173				1,769,070
Long-term debt (5)			852,557				1,675,565				1,013,260				1,088,051				306,790
Reliance shareholders’ equity			2,606,432				2,431,436				2,106,249				1,746,398				1,029,865

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Overview

     2009 marked Reliance’s seventieth year as a metals service center company and fifteenth year as an NYSE-listed public company. 2009 also marked what we consider to be the most difficult operating environment that our company has ever experienced and also, we believe, the worst in our industry for at least the last seventy years. Typically we focus on maximizing profitability of our existing businesses and continued profitable growth through both acquisitions and internal initiatives. During 2009 we shifted our focus to maximizing liquidity, mainly by reducing inventory levels and using the cash to pay down debt. In addition to significant uncertainty regarding the extent of the downturn on our business levels in 2009, financial markets were unstable creating uncertainty as to continued credit availability for us, our customers and our suppliers. We were successful in our efforts as we generated record cash flow from operations of $943 million in 2009 and paid down approximately $830 million of debt, providing us with ample liquidity not only to survive the recession, but to emerge as a financially stronger and leaner company. In 2009 we once again outperformed our peers with pre-tax income of $195 million.

     Due to our focus on debt reduction, we suspended acquisition activity during 2009. However, we do not believe that we missed any opportunities that fit our acquisition criteria during this period and we are now well positioned to execute our acquisition strategy as opportunities arise. We believe there may be opportunities to acquire companies in our industry that are attractive to us beginning in the second half of 2010. We continued our internal growth activities during 2009 with $70 million of capital expenditures that included opening service centers in new geographic areas as well as expanding or enhancing existing facilities and equipment. We also took advantage of opportunities to expand our customer base arising from certain actions of other service centers in 2009.

     The U.S. economy technically entered an economic recession in December 2007, which quickly spread to the global economy. Our 2008 business activity and profitability continued at record levels until November 2008, which was later than many other companies felt the severe impact of the downturn. We believe our strategic product, geographic and customer diversity somewhat delayed the effects of the downturn on our financial results, especially with our minimal exposure to the auto and residential construction markets. However, we were not immune. Significant and rapid declines in both prices and demand for our products began in the 2008 fourth quarter and continued through the 2009 first half. We were deeply affected in the 2009 second quarter mainly due to steep price reductions for carbon steel products sold primarily to the non-residential construction market, which represents about one-third of our business. Further, we had completed our largest acquisition to-date (based on transaction value) on August 1, 2008. This acquisition increased our debt by $1.1 billion and also intensified the effect of the unprecedented declines in inventory values and demand as our newly-acquired subsidiary historically carried higher levels of inventory than Reliance, mainly of carbon steel products.

     Steel producers reacted to the downturn in demand by reducing production capacity to less than 50% in order to somewhat maintain pricing levels. Although prices for most metal products, and especially carbon steel products, declined significantly during this period, without the discipline exercised by the mills we believe prices may have fallen much lower than they did, resulting in an even greater negative impact on the financial results of Reliance and the metals industry in general. Domestic pricing levels were also supported because of relatively low imports into the U.S. during 2009 due to the weak dollar.

     Service centers, including Reliance, went into a destocking mode, trying to convert inventory to cash. Because demand was falling as fast as pricing, service centers were chasing the price down, sometimes selling product at a loss in a very competitive market. This significantly reduced our gross profit margins. Both demand and pricing began to stabilize somewhat, albeit at low levels, late in the 2009 second quarter. In the 2009 third quarter, mill prices began to increase and we began purchasing more metal from mills as our inventory levels better matched our shipment levels. This better aligned our inventory costs with current replacement cost, allowing us to focus on improving our gross profit margins rather than chasing business to maximize cash flow. The third quarter carbon steel price increases were mainly driven by improved auto demand, which caused some domestic mills to restart production that then increased supply and pressured pricing in the 2009 fourth quarter. However, raw material costs then began to increase and the mills announced price increases for the 2010 first quarter, which helped to maintain our selling prices and improve our gross profit margins in the fourth quarter.

     Beginning in the 2008 fourth quarter, we began to aggressively reduce our operating costs. Our most significant operating expense is personnel costs and in reaction to reduced activity levels we have reduced our workforce by 22% since September 2008. We believe that we are quick to react to changes in business conditions and that our response to such changes allows us to operate efficiently and profitably even in less favorable economies.

     We generated record cash flow from operations of $943 million in 2009. As of December 31, 2009, our net debt-to-total capital ratio was down to 25.6% from 41.4% at December 31, 2008. In 2009 we repaid $831.2 million of debt and had only $115 million borrowed on our $1.1 billion credit facility at December 31, 2009. In September 2009 we amended our credit facility mainly to provide relief under our interest coverage ratio covenant and also extended $1.02 billion of our commitments to November 2012 from November 2011. From now through November 2012, we have $147.1 million of scheduled debt maturities. We expect to fund these obligations with our cash flow from operations and availability on our credit facility.

     We believe our consistent focus on cost controls and inventory turnover and our product, customer and geographic diversification allowed us to weather the recent economic crisis better than most of our competitors and that this will provide longer-term growth opportunities for us.

     We expect to further grow the Company in 2010 both through accretive acquisitions, if available, and internal growth opportunities that enhance our product, geographic and customer diversity. We believe the somewhat improved business climate and credit markets should result in acquisition opportunities that are attractive to us beginning later in the year. We will evaluate these opportunities and pursue those that meet our disciplined acquisition criteria. Our 2010 capital expenditure budget is $140 million, a good portion of which will be invested in new or expanded facilities and state-of-the art equipment that will allow us to continue to provide superior customer service and the highest quality of processed metals to our existing customers as well as to expand our market share.

     Demand for us has improved in January and February 2010 over the second half of 2009 and we expect that demand overall will recover slowly as the year progresses. We expect prices to remain at or near current levels at least through the 2010 first quarter and believe that there must be a meaningful improvement in demand before we will see any material improvements in pricing. With demand and pricing at relatively stable levels, we will again focus on servicing our customers in a manner that allows us to maximize profitability. We expect our gross profit margins to be in a range of 25% to 27%, consistent with our historical results over the past ten years. Further declines in demand or pricing for our products could further reduce our gross profit margins.

     Customer demand can have a significant impact on our results of operations. When volume increases our revenue dollars increase, which then contributes to increased gross profit dollars. Variable costs may also increase with volume including increases in our warehouse, delivery, selling, general and administrative expenses. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.

     Pricing for our products can have a more significant impact on our results of operations than customer demand levels. As pricing increases, so do our revenue dollars. Our pricing usually increases when the cost of our materials increases. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pre-tax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pre-tax income dollars. Because changes in pricing do not require us to adjust our expense structure other than for profit-based compensation, the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes.

     In addition, when volume or pricing increases, our working capital requirements typically increase, which may require us to increase our outstanding debt. This could increase our interest expense. When our customer demand falls, we can typically generate stronger levels of cash flow from operations as our working capital needs decrease.

2008 Acquisitions

     On September 17, 2008, through our newly-formed Singapore company Reliance Metalcenter Asia Pacific, Pte, Ltd. (“RMAP”), we acquired the assets, including the inventory, machinery, and equipment, of the Singapore operation of HLN Metal Centre Pte. Ltd. RMAP focuses primarily on supplying metal to the electronics, semiconductor, and solar energy markets. We entered this market primarily to support existing U.S. customers that moved to or expanded their operations in Asia. Net sales of RMAP for the year ended December 31, 2009 and during the period from September 17, 2008 through December 31, 2008 were approximately $3.0 million and $1.0 million, respectively.

     On August 1, 2008, we acquired all of the outstanding capital stock of PNA Group Holding Corporation, a Delaware corporation (“PNA”), for a total transaction value of approximately $1.10 billion. We funded the acquisition with proceeds from a new $500 million senior unsecured term loan and borrowings under our existing $1.1 billion syndicated revolving credit facility.

     PNA’s subsidiaries include the operating entities Delta Steel, Inc., Feralloy Corporation, Infra-Metals Co., Metals Supply Company, Ltd., Precision Flamecutting and Steel, Inc. and Sugar Steel Corporation. We operate PNA as six distinct businesses that process and distribute primarily carbon steel plate, bar, structural and flat-rolled products with 21 steel service centers throughout the United States, as well as four joint ventures with six additional service centers in the United States and Mexico. PNA’s net sales for the year ended December 31, 2009 and the five months ended December 31, 2008 were approximately $1.01 billion and $887.6 million, respectively.

     Effective April 1, 2008, through our subsidiary Service Steel Aerospace Corp., we acquired the business of Dynamic Metals International, LLC (“Dynamic”) based in Bristol, Connecticut. Dynamic was founded in 1999 and is a specialty metal distributor. Dynamic has been merged into and currently operates as a division of Service Steel Aerospace Corp. headquartered in Tacoma, Washington. This strategic acquisition expanded Reliance’s existing Service Steel Aerospace specialty product offerings in the Northeastern area of the U.S. The all cash purchase price was funded with borrowings on our revolving credit facility. Dynamic’s net sales for the year ended December 31, 2009 and the nine months ended December 31, 2008 were approximately $9.6 million and $8.7 million, respectively.

Internal Growth Activities

     Despite the continued deterioration of the economy in 2009, we maintained our focus on organic growth by opening new facilities, building or expanding existing facilities and adding processing equipment with total capital expenditures of $69.9 million. We continued to expand our geographic presence in 2009 with Phoenix Metals Company opening a new location in Richmond, Virginia, Earle M. Jorgensen Company starting construction on a new facility in Nusajaya, Malaysia, which is scheduled to open in 2010, and Chatham Steel Corporation buying land for a new facility to be built in Ironton, Ohio. Operations in existing markets were also expanded during 2009, with PDM Steel Service Centers moving into a newly constructed, larger and more efficient facility in Las Vegas, Nevada and Precision Strip expanding and improving an existing facility in Kenton, Ohio. During 2009 we also consolidated and closed a few small operations that did not impact our ability to service our customers. We expect to continue to expand our existing operations in 2010, with new facilities planned, or currently under construction, for Yarde Metals in Limerick, Pennsylvania, Reliance Metals Canada in Edmonton, Alberta, Canada, and Earle M. Jorgensen in Orlando, Florida and Memphis, Tennessee. Our 2010 capital expenditure budget is $140 million.

Results of Operations

     The following table sets forth certain income statement data for each of the three years ended December 31 (dollars are shown in thousands and certain amounts may not calculate due to rounding):

		2009								2008								2007
						% of								% of								% of
		$				Net Sales				$				Net Sales				$				Net Sales
Net sales		$	5,318,132				100.0	%		$	8,718,844				100.0	%		$	7,255,679				100.0	%
Cost of sales (exclusive of depreciation and amortization expense shown below)			3,918,611				73.7				6,556,748				75.2				5,418,161				74.7
Gross profit (1)			1,399,521				26.3				2,162,096				24.8				1,837,518				25.3
S,G&A expenses			1,030,245				19.4				1,211,201				13.9				1,034,139				14.3
Depreciation expense			89,068				1.7				78,853				0.9				67,866				0.9
Amortization expense			29,816				0.6				19,071				0.2				12,007				0.2
Operating income		$	250,392				4.7	%		$	852,971				9.8	%		$	723,506				10.0	%

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

     Net Sales. Our 2009 annual consolidated sales of $5.32 billion were down 39.0% from 2008, with a 15.4% decrease in tons sold and a 27.5% decrease in our average selling price per ton sold. (Tons sold and average selling price per ton sold amounts exclude the toll processing sales of Precision Strip, Inc. and Feralloy Corporation.) Our sales for 2009 and 2008 included $1.01 billion and $887.6 million, respectively, from the PNA companies that we acquired on August 1, 2008.

     Our average selling prices during 2009 have declined mainly because of the significant mill price reductions for most products that we sell compared to 2008. Prices for most carbon steel products were rising significantly during the first half of 2008 and reached record levels in July 2008. Subsequently, prices fell rapidly beginning in the 2008 fourth quarter and continued to decline through the first half of 2009. In the 2009 second half there were modest increases in mill prices for certain products. Our diverse product mix somewhat tempered the effect of the carbon and stainless steel price declines, as aluminum products made up about 18.0% of our 2009 sales, and our average selling price for aluminum products was down only 11.5% in 2009 compared to 2008.

     Same-store sales, which exclude the sales of our 2008 acquisitions, were $4.30 billion in 2009, down 45.1% from 2008, with a 31.9% decrease in our tons sold and an 18.8% decrease in our average selling price per ton sold. The decline in our same-store tons sold was due to the lower demand in all markets that we sell to, mainly because of the global economic recession that significantly impacted our business activity beginning in the 2008 fourth quarter. According to the Metals Service Center Institute, tons sold in 2009 were down approximately 37% for the metals service center industry in North America compared to 2008.

     The decline in the same-store average selling price per ton sold of 18.8% was lower than the 27.5% for the entire company mainly due to a change in our product mix towards a higher proportion of carbon steel products resulting from the acquisition of PNA. Since carbon steel products typically have lower selling prices than other products that we sell and were most impacted during 2009, they contributed to the relatively higher reduction in our consolidated average selling price per ton sold.

     Cost of Sales. Our total cost of sales decreased 40.2% in 2009 to $3.92 billion compared to $6.56 billion in 2008. The decrease in cost of sales in 2009 compared to 2008 is due to decreases in tons sold resulting from the global economic recession along with decreases in mill prices, which impact our costs, that began in the 2008 fourth quarter and continued to decline through the first half of 2009. Our cost per ton sold decreased 29.7%, relatively consistent with the decrease in our average selling price per ton sold of 27.5%.

     Also, our LIFO reserve adjustment, which is included in our cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a credit, or income of $305.0 million in 2009 compared to a charge, or expense of $109.2 million in 2008. The LIFO credit or income that we recorded in 2009 was the result of significant decreases in our inventory costs at year-end 2009 as compared to year-end 2008 levels, especially for carbon steel products. Our LIFO reserve as of December 31, 2009 and 2008 was $82.8 million and $387.8 million, respectively.

     Gross Profit. Total gross profit decreased 35.3% to $1.40 billion for 2009, compared to $2.16 billion in 2008. Our gross profit as a percentage of sales in 2009 was 26.3% compared to 24.8% in 2008.

     During the first half of 2009, we were selling higher cost inventory into a declining price market that significantly reduced our gross profit margins. Beginning in the 2009 third quarter, mill prices began to increase and we began purchasing more metal from mills as our inventory levels better matched our shipment levels. This better aligned our inventory costs with current replacement costs resulting in improved gross profit margins. Our LIFO reserve adjustment was income, or a credit, to cost of sales in 2009, compared to expense, or a charge, in 2008 which also impacted our gross profit margins. See “Cost of Sales” above for discussion of our LIFO reserve adjustments.

     Our 2009 and 2008 gross profit margins were also impacted by our acquisition of PNA on August 1, 2008. The PNA companies have historically operated at lower gross profit levels than the Reliance companies. The PNA companies have also historically carried higher levels of inventory than the Reliance companies, which further pressured their gross profit margins during 2009 as it took the PNA companies longer to reduce their high cost inventory and replace it with inventory at current replacement cost. We expect to improve the margins of the PNA companies to levels more consistent with Reliance’s historical levels as demand and pricing improve.

     Expenses. Warehouse, delivery, selling, general and administrative expenses (“S,G&A expenses”) for 2009 decreased $181.0 million, or 14.9%, from 2008 and were 19.4% as a percentage of sales, up from 13.9% in 2008. On a same-store basis, our 2009 expenses decreased $247.8 million, or 22.2% from 2008 primarily due to lower compensation expense levels. Our 2009 expenses as a percent of sales increased substantially because of our lower sales compared to 2008.

     Our cost structure is highly variable, with about 60% of our expenses being personnel-related. In 2009, we reduced our workforce by approximately 1,700 employees, or 16.2%, with most reductions occurring in the first half of the year. Since September 30, 2008, we have reduced our workforce by approximately 2,500 employees, or 21.9%. In addition to the headcount reductions, we have many employees working reduced hours resulting in additional savings. Furthermore, throughout our workforce, employees have a significant portion of compensation tied to profitability. Because of the lower profitability levels in 2009 our compensation expense has declined. Additionally, our 2009 expenses include $18.8 million related to potentially uncollectible accounts receivable, an increase of $12.7 million from 2008. In 2009, we wrote-off $19.6 million of customer receivables as uncollectible, an increase of $11.6 million compared to 2008. Our allowance for uncollectible accounts at December 31, 2009 was $21.3 million. Although we anticipate some further receivable write-offs, we believe that our allowance is adequate to absorb any such losses.

     Depreciation and amortization expense for 2009 of $118.9 million increased 21.4% from 2008. The increase was mainly due to our 2008 acquisition of PNA and due to depreciation of our 2009 capital expenditures.

     Operating Income. Operating income was $250.4 million in 2009, resulting in an operating profit margin of 4.7%, compared to 2008 operating income of $853.0 million and an operating profit margin of 9.8%. The lower sales amounts in 2009 have significantly reduced our operating income.

     Other Income and Expense. Interest expense was $67.5 million, a decrease of $15.1 million from $82.6 million in 2008. Although we significantly increased our borrowings for the $1.1 billion purchase of PNA in August 2008, we were able to quickly reduce our debt level because of our strong cash flows over the past fifteen months as we aggressively reduced our working capital levels. Other income (expense), net was income of $12.6 million in 2009 compared to expense of $3.8 million in 2008, a net increase in income of $16.5 million. Higher interest and dividend income on company-owned life insurance policies as well as related policy redemption gains resulted in $8.8 million higher income from life-insurance policies in 2009 compared to 2008. Also, 2008 results were impacted with foreign currency transaction losses of approximately $6.0 million.

     Income Tax Rate. Our 2009 effective income tax rate was 23.7% compared to 36.9% for 2008. The decrease in our effective rate is mainly due to the same type of permanent items having a much greater impact on our effective rate in 2009 as a result of lower income levels and due to the favorable resolution of certain tax matters in 2009.

     Net Income. Net income attributable to Reliance in 2009 was $148.2 million compared to $482.8 million in 2008. The decrease was primarily due to the lower sales, gross profit and operating income dollars generated as a result of the global economic recession.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

     Net Sales. Our 2008 annual consolidated sales of $8.72 billion were our highest ever, up 20.2% from 2007, with an 11.8% increase in tons sold and an 8.2% increase in our average selling price per ton sold. Our 2008 acquisition of PNA on August 1, 2008, contributed significantly to the increase in our 2008 sales levels.

     Same-store sales, which exclude the sales of our 2007 and 2008 acquisitions, were $7.21 billion in 2008, up 7.0% from 2007, with a 5.3% decrease in our tons sold and a 13.7% increase in our average selling price per ton sold. For the first ten months of 2008 we experienced some overall weakening in our end markets from 2007 levels but beginning in November the decline in demand became much more dramatic as general economic conditions weakened across all of our end markets.

     As previously discussed, mill pricing for carbon steel products increased rapidly in the first half of 2008, almost doubling during that period. We were able to pass these increases on to our customers through increased selling prices during that time, causing a significant increase in our 2008 average selling price per ton sold over 2007 levels. Then, beginning in October 2008, carbon steel prices came spiraling down, ending the year at a level approximately where they started the year. The decreases occurred in a more compressed time period than the increases, which, when combined with the demand deterioration, caused significant competitive pressures that caused us to reduce our selling prices faster than our costs were declining.

     In addition, our 2008 average selling price was impacted by the change in product mix resulting from our acquisition of PNA, with carbon steel products representing 55.3% of our total 2008 sales, compared to 45.8% in 2007. Because carbon steel product prices are generally lower than aluminum, alloy and stainless steel prices, the increase in our consolidated average selling price in 2008 was substantially less than the increase in our same-store average selling price.

     Cost of Sales. Our total cost of sales increased 21.0% in 2008 to $6.56 billion compared to $5.42 billion in 2007. The increase in cost of sales in 2008 compared to 2007 is due to the PNA acquisition in August 2008 and higher metal costs. Our cost per ton sold increased approximately 8.6%, relatively consistent with the change in our average selling price per ton sold.

     Furthermore, our LIFO reserve adjustment was significantly larger in 2008 than in 2007. Our year-end LIFO reserve adjustment resulted in expense of $109.2 million during 2008, compared to $43.8 million in 2007. The significant increases in carbon steel prices in 2008 as compared to year-end 2007 levels resulted in net LIFO expense for the year.

     Gross Profit. Our total gross profit of $2.16 billion, up 17.7% from 2007, increased mainly because of our higher net sales level in 2008. Our gross profit as a percentage of sales was 24.8% in 2008, down from 25.3% in 2007. The mill pricing volatility experienced in 2008 was the primary driver of our gross profit margins. During the first half of 2008 when the mills were announcing significant price increases for carbon steel products, we were able to increase our selling prices to our customers before we received the higher cost metal in our inventory, which allowed us to expand our gross profit margins in that period. However, when the mills rapidly reduced prices beginning in October 2008, we had to significantly reduce our selling prices to remain competitive. Service centers went into an inventory destocking mode, attempting to clean out higher cost inventory and replace it with lower cost inventory. Doing this in an environment of rapidly deteriorating customer demand caused extreme competitive pressure in the industry that had a very negative impact on our gross profit margin, especially as we were also in a destocking mode.

     Our 2008 gross profit margin was also impacted by our acquisition of PNA on August 1st. Excluding the PNA companies from our 2008 results would have resulted in a gross profit margin of 26.0%.

     Expenses. S,G&A expenses for 2008 increased $177.1 million, or 17.1% from 2007 mainly due to our 2007 and 2008 acquisitions and general cost increases. The expenses as a percent of sales in 2008 were 13.9%, lower than the 2007 period. The overall increase in average carbon steel pricing in 2008 helped to lower the ratio of our expenses as a percent of sales. Also, the acquisition of the PNA companies favorably impacted our SG&A expenses as a percentage of sales as they have historically operated at lower operating expense levels than the Reliance companies. During the 2008 fourth quarter we reduced our workforce by about 7.0% in addition to other personnel cost saving actions in reaction to the deteriorating business activity levels in our industry.

     Depreciation expense increased $11.0 million in 2008 mainly because of our 2007 and 2008 acquisitions, along with depreciation expense of our 2008 capital expenditures. Amortization expense increased $7.1 million, or 58.8%, because of the amortization of our intangibles from our 2007 and 2008 acquisitions.

     Operating Income. Operating income was $853.0 million in 2008, resulting in an operating profit margin of 9.8%, compared to 2007 operating income of $723.5 million and an operating profit margin of 10.0%. The increased profit is mainly due to higher gross profit dollars resulting from increased sales levels; however, our operating income margins deteriorated because of our lower gross profit margins in 2008. Our operating income reflects the strong environment for pricing that existed during most of 2008 and our ability to take advantage of this environment, along with the effect of the deteriorating business climate in our 2008 fourth quarter results.

     Other Income and Expense. Interest expense was $82.6 million in 2008 compared to $78.7 million in 2007. The increase is mainly due to borrowings to fund our $1.10 billion acquisition of PNA on August 1, 2008 offset by lower interest rates during 2008.

     Income Tax Rate. Our 2008 effective income tax rate was 36.9% compared to 37.7% for 2007. The decrease in our effective rate was mainly due to a lower state rate because of the PNA acquisition that shifted a portion of our taxable income to states with lower rates.

     Net Income. Net income attributable to Reliance in 2008 was $482.8 million compared to $408.0 million during 2007. The increase was primarily due to higher gross profit and operating income dollars generated from the higher commodity prices during 2008 as well as the impact of our 2008 acquisitions.

Liquidity and Capital Resources

Operating Activities

     At December 31, 2009, our working capital was $973.3 million, down from $1.65 billion as of December 31, 2008. In 2009, we continued to significantly reduce our working capital and generated $943.0 million of cash flow from operations, compared to $664.7 million in 2008, with $549.3 million of this amount generated in the 2008 fourth quarter. In the environment of declining demand and pricing that we experienced from November 2008 through most of 2009, working capital needs decreased significantly. The majority of our $943.0 million of cash flow generated from operations came from working capital reductions. Decreases of $332.2 million in our accounts receivable balance and $869.6 million in our FIFO inventory level were the primary contributors to our record cash flows from operations during 2009.

     To manage our working capital, we focus on our days sales outstanding (“DSO”) to monitor accounts receivable and on our inventory turnover rate to monitor our inventory levels, as receivables and inventory are the two most significant elements of our working capital. As of December 31, 2009, our DSO rate was approximately 42 days, unchanged from December 31, 2008. (We calculate our DSO as an average of the most recent two-month period.) Although our DSO rate has stayed relatively unchanged from last year, our accounts receivable balance has decreased significantly from December 31, 2008 due to lower sales levels in 2009.

     In response to the rapid decline in both demand and pricing, we focused on inventory reduction with a decrease of $869.6 million, or 52%, in our FIFO inventory balance in 2009. However, our shipment levels fell even more rapidly than we could reduce our inventory balance resulting in an inventory turn rate during 2009 of about 3.7 times (or 3.2 months on hand; calculated on FIFO inventory amounts), compared to our 2008 rate of 3.9 times (or 3.1 months on hand).

     Our inventory turns were also impacted by our 2008 acquisition of PNA, as PNA historically turned inventory at lower rates than Reliance. We expect those inventory turns to improve as we continue to focus on those businesses, and as business conditions improve.

     When commodity prices or demand begin to improve, we expect to finance increases in working capital needs through operating cash flow or with borrowings on our revolving credit facility.

Investing Activities

     Capital expenditures were $69.9 million in 2009 compared to $151.9 million during 2008. Because of our focus on liquidity and our uncertainty as to 2009 business conditions, we reduced our capital projects but still invested in growth initiatives to expand or relocate existing facilities and to add or upgrade equipment in addition to meeting ongoing maintenance requirements. Our 2010 capital expenditures are budgeted at approximately $140.0 million, which includes several growth activities to enhance existing facilities and equipment and also includes purchases of various existing leased facilities.

Financing Activities

     Our strong cash flow from operations funded our reductions of outstanding debt of $831.2 million and dividends to our shareholders of $29.4 million in 2009. On February 17, 2010, our Board of Directors declared the 2010 first quarter cash dividend of $.10 per share. We have paid regular quarterly dividends to our shareholders for 50 consecutive years.

     In May 2005, our Board of Directors amended and restated our stock repurchase program authorizing the repurchase of up to an additional 12,000,000 shares of our common stock, of which 7,883,033 shares remain available for repurchase as of December 31, 2009. Repurchased shares are treated as authorized but unissued shares. We did not repurchase any shares of our common stock in 2009. We repurchased approximately 2,443,500 and 1,673,467 shares of our common stock in 2008 and 2007, respectively, at an average cost of $46.97 and $49.10 per share, respectively. Since initiating our Stock Repurchase Plan in 1994, we have repurchased approximately 15,200,000 shares at an average cost of $18.41 per share. We believe such purchases, given appropriate circumstances, enhance shareholder value and reflect our confidence in the long-term growth potential of our company.

Liquidity

     Our primary sources of liquidity are generally our internally generated funds from operations and our revolving credit facility. Cash flow provided by operations was $943.0 million in 2009 compared to $664.7 million in 2008.

     Our outstanding debt (including capital lease obligations) as of December 31, 2009 was $939.6 million, down from $1.77 billion as of December 31, 2008. On August 1, 2008, we increased our borrowings by approximately $1.10 billion to finance the acquisition of PNA through cash consideration and the related repayment or refinancing of PNA’s outstanding indebtedness. We funded this by raising $500 million from a senior unsecured term loan and borrowings on our revolving credit facility.

     On September 28, 2009, we amended our $1.1 billion revolving credit facility to adjust certain financial covenants. Our interest coverage ratio requirement was reduced to a minimum 2.0 times from 3.0 times and our leverage ratio requirement was reduced to a maximum of 50% from a maximum of 60% until June 30, 2010, at which time these ratios adjust back to the pre-amendment levels. With the amendment, our pricing was adjusted to market rates. Restrictions were placed on certain uses of cash including cash used for acquisitions, dividends, investments and stock repurchases through June 30, 2010. Additionally, with the amendment of our credit facility, we extended the maturity date by one year from November 2011 to November 2012 for $1.02 billion of commitments. Concurrent with the amendment and extension of our revolving credit facility, we also paid off the remaining balance on our term loan of $443.8 million with $193.8 million of cash on hand and $250.0 million of borrowings on our revolving credit facility. Over the past fifteen months, we have paid down approximately $1.34 billion of debt with cash flow from operations resulting in a cash position of approximately $43.0 million as of December 31, 2009. As of December 31, 2009, we had $115.0 million in outstanding borrowings on our $1.1 billion revolving credit facility.

     Our net debt-to-total capital ratio was 25.6% as of December 31, 2009; down from our 2008 year-end rate of 41.4% (net debt-to-total capital is calculated as total debt, net of cash, divided by Reliance shareholders’ equity plus total debt, net of cash).

     On November 20, 2006 we entered into an indenture (the “Indenture”), for the issuance of $600 million of unsecured debt securities, which are guaranteed by all of our direct and indirect, wholly-owned domestic subsidiaries and any entities that become such subsidiaries during the term of the Indenture (collectively, the “Subsidiary Guarantors”). None of our foreign subsidiaries or our non-wholly-owned domestic subsidiaries is a guarantor. The total debt issued was comprised of two tranches, (a) $350 million 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 million 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 and rank equally with all of our other existing and future unsecured and unsubordinated debt obligations. In April 2007, these notes were exchanged for publicly traded notes registered with the Securities and Exchange Commission.

     At December 31, 2009, we also had $213.0 million of outstanding senior unsecured notes issued in private placements of debt. The outstanding private placement notes bear interest at an average fixed rate of 5.7% and have an average remaining life of 1.9 years, maturing from 2010 to 2013. In early January 2009, $10.0 million of these notes matured and were paid off.

     We also had two separate revolving credit facilities for operations in Canada with a combined credit limit of CAD$35 million as of December 31, 2009. There were no borrowings outstanding on these credit facilities as of December 31, 2009 and December 31, 2008. In January 2010, the credit facilities were combined into one facility with a credit limit of CAD$5 million. Various other separate revolving credit facilities are in place for our operations in Asia and for our operations in the United Kingdom with total combined outstanding balances of $8.1 million and $7.4 million as of December 31, 2009 and December 31, 2008, respectively.

     Our $1.1 billion syndicated revolving credit facility and senior notes collectively require that we maintain a minimum net worth and interest coverage ratio, and a maximum leverage ratio and include change of control provisions, among other things. The interest coverage ratio for the twelve-month period ended December 31, 2009 was approximately 3.9 times compared to the debt covenant minimum requirement of 2.0 times (interest coverage ratio is calculated as net income attributable to Reliance plus interest expense and provision for income taxes and plus or minus any non-operating non-recurring loss or gain, respectively, divided by interest expense). The leverage ratio as of December 31, 2009 calculated in accordance with the terms of the credit agreement was 27.5% compared to the debt covenant maximum amount of 50% (leverage ratio is calculated as total debt, inclusive of capital lease obligations and outstanding letters of credit, divided by Reliance shareholders’ equity plus total debt). The minimum net worth requirement as of December 31, 2009 was $950.6 million compared to the Reliance shareholders’ equity balance of $2.61 billion.

     Additionally, all of our wholly-owned domestic subsidiaries, which constitute the substantial majority of our subsidiaries, guarantee the borrowings under the revolving credit facility, the Indenture and the private placement notes. The subsidiary guarantors also guaranteed the borrowings under the term loan prior to its repayment and termination. The subsidiary guarantors, together with Reliance, are required collectively to account for at least 80% of the Company’s consolidated EBITDA and 80% of consolidated tangible assets. Reliance and the subsidiary guarantors accounted for approximately 100% of our total 2009 consolidated EBITDA and approximately 93% of total consolidated tangible assets as of December 31, 2009. We were in compliance with all other debt covenants at December 31, 2009.

     We have $147.1 million of debt obligations coming due before our credit facility expires in November 2012. We are comfortable that we will have adequate cash flow and capacity on our revolving credit facility to fund our debt obligations as well as our working capital, capital expenditures, growth and other needs. We expect to continue our acquisition and other growth activities in the future and anticipate that we will be able to fund such activities with borrowings under our revolving credit facility, subject to the restrictions on the use of cash described above. If we were to pursue a significant acquisition that could not be funded under our existing credit facility, we would consider using our equity as consideration or raising additional funds from debt or equity markets.

Off-Balance-Sheet Arrangements

     During 2009 and 2008, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

     As of December 31, 2009 and 2008, we were contingently liable under standby letters of credit in the aggregate amount of $50.5 million and $51.1 million, respectively. The letters of credit related to insurance policies, construction projects, and outstanding bonds.

Contractual Obligations and Other Commitments

     The following table summarizes our contractual cash obligations as of December 31, 2009. Certain of these contractual obligations are reflected on our balance sheet, while others are disclosed as future obligations under U.S. generally accepted accounting principles.

		Payments due by Year
		(in thousands)
						Less than												More than
Contractual Obligations		Total				1 year				1-3 years				3-5 years				5 years
Long Term Debt Obligations		$	937,684			$	86,383			$	175,701			$	75,600			$	600,000
Estimated interest on long-term debt (1)			646,936				54,214				95,226				81,926				415,570
Capital Lease Obligations			4,276				814				1,585				1,539				338
Operating Lease Obligations			300,078				57,328				85,309				51,802				105,639
Purchase Obligations — Other (2)			77,653				48,885				27,369				1,364				35
Other Long-Term Liabilities Reflected on the Balance Sheet under GAAP (3)			70,741				9,526				12,573				10,998				37,644
Total		$	2,037,368			$	257,150			$	397,763			$	223,229			$	1,159,226

     Contractual obligations for purchases of goods or services are defined as agreements that are enforceable and legally binding on our Company and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current needs and are typically fulfilled by our vendors within short time periods. In addition, some of our purchase orders represent authorizations to purchase rather than binding agreements. We do not have significant agreements for the purchase of goods specifying minimum quantities and set prices that exceed our expected requirements for three months. Therefore, agreements for the purchase of goods and services are not included in the table above except for certain purchases where we have significant lead times or corresponding long-term sales commitments, typically for aerospace materials.

     The expected timing of payments of the obligations above is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.

Inflation

     Our operations have not been, and we do not expect them to be, materially affected by general inflation. Historically, we have been successful in adjusting prices to our customers to reflect changes in metal prices.

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 July, November and December traditionally have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from vacation and holiday closures at some of our customers. We cannot assure you that period-to-period fluctuations will not occur in the future. Furthermore, the impact of the current economic recession was so significant on our business during 2009 that our period-to-period fluctuations experienced throughout the year were not representative of typical seasonal trends experienced in the past. Results of any one or more quarters are therefore not necessarily indicative of annual results.

Goodwill and Other Intangible Assets

     Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $1.08 billion as of December 31, 2009, or approximately 25.1% of total assets or 41.5% of Reliance shareholders’ equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. Other intangible assets with finite useful lives continue to be amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

     We review the recoverability of goodwill annually or whenever significant events or changes occur which might impair the recovery of recorded costs, making certain assumptions regarding future operating performance. We test for impairment of goodwill by calculating the fair value of a reporting unit using the discounted cash flow method. Under this method, the fair value of each reporting unit is estimated based on expected future economic benefits discounted to a present value at a rate of return commensurate with the risk associated with the investment. Projected cash flows are discounted to present value using an estimated weighted average cost of capital, which considers both returns to equity and debt investors. We perform the required annual goodwill impairment evaluation as of November 1 of each year. No impairment of goodwill was determined to exist for the years ended December 31, 2009, 2008 or 2007.

     Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and the current changing market conditions may impact our assumptions as to commodity prices, demand and future growth rates or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analysis. An impairment charge, if incurred, could be material.

Critical Accounting Estimates

     Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. When we prepare these consolidated 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. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical accounting estimates include those related to accounts receivable, inventories, income taxes, goodwill and intangible assets and long-lived assets. 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. Our actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting estimates, as discussed with our Audit Committee, affect our more significant judgments and estimates used in preparing our consolidated financial statements. (See Note 1 of the Notes to Consolidated Financial Statements for our Summary of Significant Accounting Policies.) There have been no material changes made to the critical accounting estimates during the periods presented in the Consolidated Financial Statements. We also have other policies that we consider key accounting policies, such as for revenue recognition, however these policies do not require us to make subjective estimates or judgments.

Accounts Receivable

We maintain an allowance for doubtful accounts to reflect our estimate of the uncollectability of accounts receivable based on an evaluation of specific potential customer risks. Assessments are based on legal issues (such as bankruptcy status), our past collection history, and current financial and credit agency reports along with current economic pressures impacting that customer or industry. Accounts that we determine to be uncollectible are reserved for or written off in the period in which the determination is made. Additional reserves are maintained based on our historical and probable future bad debt experience. If the financial condition of our customers were to deteriorate beyond our estimates, resulting in an impairment of their ability to make payments, we might be required to increase our allowance for doubtful accounts.

Inventories

A significant portion of our inventory is valued using the last-in, first-out (“LIFO”) method. Under this method, older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals industry as well as fluctuations in our product mix and on-hand inventory levels. At December 31, 2009 cost on the first-in, first-out (“FIFO”) method exceeds our LIFO value of inventories by $82.8 million. The calculation of LIFO does not require us to make subjective estimates or judgments, except at interim reporting periods. Furthermore, considering that our current inventory values as reflected in our financial statements on a LIFO basis are below FIFO costs, valuation of our inventories at the lower of cost or market is also not subject to significant estimates or judgments.

However, we do maintain allowances for estimated obsolescence or unmarketable inventory to reflect the difference between the cost of inventory and the estimated market value based on an evaluation of slow moving products and current replacement costs. If actual market conditions are less favorable than those anticipated by management, additional allowances may be required.

Income Taxes

We currently have significant deferred tax assets, which are subject to periodic recoverability assessments. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.

For information regarding our deferred tax assets and liabilities, provision for income taxes as well as information regarding differences between our effective tax rate and statutory rates, see Note 9 of the Notes to Consolidated Financial Statements. Our tax rate may be affected by future acquisitions, changes in the geographic composition of our income from operations, changes in our estimates of credits or deductions, changes in our assessment of tax exposure items, and the resolution of issues arising from tax audits with various tax authorities.

Goodwill and Intangible Assets

In assessing the recoverability of our goodwill and other intangibles we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. We perform an annual review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. Our impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. We estimate the reporting unit’s fair value based on a discounted future cash flow approach that requires us to estimate income from operations based on historical results and discount rates based on a weighted average cost of capital of comparable companies. If these estimates or their related assumptions for commodity prices and demand change in the future, we may be required to record impairment charges for these assets not previously recorded.

We reconcile the aggregate fair value of our reporting units to our market capitalization. The reconciliation includes such factors as historical and industry multiples, industry performance statistics, and recent comparable transaction pricing among other information.

Long-Lived Assets

We review the recoverability of our long-lived assets and must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded.

Impact of Recently Issued Accounting Standards

     Please refer to Note 1 of the Notes to Consolidated Financial Statements for discussion of the impact of recently issued accounting standards.

Item 7A. 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.

Commodity price risk

     Metal prices are volatile due to, among other things, fluctuations in foreign and domestic production capacity, raw material availability, metals consumption and foreign currency rates. Decreases in metal prices could adversely affect our revenues, gross profit and net income. Because we primarily purchase and sell in the “spot” market we are able to react quickly to changes in metals pricing. This strategy also limits our exposure to commodity prices to our inventories on hand. In an environment of increasing material costs our pricing usually increases as we try to maintain the same gross profit percentage and typically generate higher levels of gross profit and pre-tax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pre-tax income dollars. In periods where demand deteriorates rapidly and metal prices are declining significantly in a compressed period of time, such as during the last three months of 2008 and first half of 2009, a portion of our inventory on hand may be at higher costs than our selling prices, causing a significant adverse effect on our gross profit and pre-tax income margins. However, when prices stabilize and our inventories on hand reflect more current prices, our gross profit margins tend to return to more normalized levels.

Foreign exchange rate risk

     Because we have foreign operations, we are exposed to foreign currency exchange gains and losses. Since the functional currency of our foreign operations is predominantly in their local currency, the currency effects of translating the financial statements of those foreign subsidiaries, which operate in local currency environments, are included in the “Accumulated Other Comprehensive Loss” component of consolidated equity and do not impact earnings. However, foreign currency transaction gains and losses do impact earnings and resulted in approximately $0.2 million of gains in 2009 and $6.0 million of losses during 2008. During 2008 our primary exposure to foreign currency rates related to our Canadian operations that had certain outstanding intercompany borrowings denominated in the U.S. dollar that were not hedged. This exposure was significantly reduced at the end of 2008 as the related balances were paid off.

Interest rate risk

     We are exposed to market risk related to our fixed-rate and variable-rate long-term debt. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. Changes 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 and we do not currently anticipate repayment of our fixed-rate long-term debt prior to scheduled maturities.

     Market risk related to our variable-rate debt is estimated as the potential decrease in pre-tax earnings resulting from an increase in interest rates. As of December 31, 2009, our total variable interest rate debt outstanding amounted to approximately $124.5 million, which was primarily comprised of the borrowings on our revolving credit facility of $115.0 million. A hypothetical 1% increase in interest rates on $124.5 million of debt would result in approximately $1.2 million of additional interest expense on an annual basis.

Item 8.		Financial Statements and Supplementary Data.

RELIANCE STEEL & ALUMINUM CO.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

		Page
Reports of Independent Registered Public Accounting Firms			40
Consolidated Balance Sheets at December 31, 2009 and 2008			42
Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007			43
Consolidated Statements of Equity for the Years Ended December 31, 2009, 2008 and 2007			44
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007			45
Notes to Consolidated Financial Statements			46
Quarterly Results of Operations (Unaudited)			81
FINANCIAL STATEMENT SCHEDULE:
Schedule II — Valuation and Qualifying Accounts			82

     All other schedules are omitted because either they are not applicable, not required or the information required is included in the Consolidated Financial Statements, including the notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Reliance Steel & Aluminum Co.:

We have audited the accompanying consolidated balance sheets of Reliance Steel & Aluminum Co. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, equity, and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we also have audited the 2009 and 2008 information in the related financial statement schedule. These consolidated financial statements and the financial statement schedule are the responsibility of Reliance Steel & Aluminum Co.’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Reliance Steel & Aluminum Co. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the 2009 and 2008 information set forth therein.

As discussed in note 1 to the consolidated financial statements, in 2009 Reliance Steel & Aluminum Co. changed the manner in which it accounts for business combinations.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Reliance Steel & Aluminum Co.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2010 expressed an unqualified opinion on the effectiveness of Reliance Steel & Aluminum Co.’s internal control over financial reporting.

/s/ KPMG LLP

Los Angeles, California
February 26, 2010

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Reliance Steel & Aluminum Co.

We have audited the accompanying consolidated statements of income, equity, and cash flows of Reliance Steel & Aluminum Co. and subsidiaries for the year ended December 31, 2007. Our audit also included the financial statement schedule for the year ended December 31, 2007 listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Reliance Steel & Aluminum Co. and subsidiaries for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2007, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Los Angeles, California
February 28, 2008

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

		December 31,				December 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	43,002			$	51,995
Accounts receivable, less allowance for doubtful accounts of $21,269 at December 31, 2009 and $22,018 at December 31, 2008			533,871				851,214
Inventories			719,915				1,284,468
Prepaid expenses and other current assets			37,855				33,782
Income taxes receivable			54,020				9,980
Deferred income taxes			2,241				70,933
Total current assets			1,390,904				2,302,372
Property, plant and equipment:
Land			131,009				125,096
Buildings			543,590				506,781
Machinery and equipment			829,154				810,054
Accumulated depreciation			(522,494	)			(443,225	)
			981,259				998,706
Goodwill			1,081,324				1,065,527
Intangible assets, net			726,255				741,681
Cash surrender value of life insurance policies, net			92,860				57,410
Investments in unconsolidated entities			20,880				20,605
Other assets			13,295				9,184
Total assets		$	4,306,777			$	5,195,485
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	169,113			$	248,312
Accrued expenses			51,730				59,982
Deferred revenue			3,534				82,949
Accrued compensation and retirement costs			67,012				123,707
Accrued insurance costs			39,134				40,700
Current maturities of long-term debt			86,383				93,877
Current maturities of capital lease obligations			663				638
Total current liabilities			417,569				650,165
Long-term debt			849,375				1,671,732
Capital lease obligations			3,182				3,833
Long-term retirement costs and other long-term liabilities			92,632				94,361
Deferred income taxes			335,897				340,326
Commitments and contingencies
Reliance 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 — 73,750,771 at December 31, 2009 and 73,312,714 at December 31, 2008, stated capital			587,612				563,092
Retained earnings			2,020,343				1,900,360
Accumulated other comprehensive loss			(1,523	)			(32,016	)
Total Reliance shareholders’ equity			2,606,432				2,431,436
Noncontrolling interests			1,690				3,632
Total equity			2,608,122				2,435,068
Total liabilities and equity		$	4,306,777			$	5,195,485

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

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

		Year Ended December 31,
		2009				2008				2007
Net sales		$	5,318,132			$	8,718,844			$	7,255,679
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			3,918,611				6,556,748				5,418,161
Warehouse, delivery, selling, general and administrative			1,030,245				1,211,201				1,034,139
Depreciation and amortization			118,884				97,924				79,873
			5,067,740				7,865,873				6,532,173
Operating income			250,392				852,971				723,506
Other income (expense):
Interest			(67,523	)			(82,575	)			(78,710	)
Other income (expense), net			12,624				(3,840	)			9,931
Income before income taxes			195,493				766,556				654,727
Income tax provision			46,317				282,921				246,438
Net income			149,176				483,635				408,289
Less: Net income attributable to noncontrolling interests			1,018				858				334
Net income attributable to Reliance		$	148,158			$	482,777			$	407,955
Earnings per share:
Diluted earnings per common share attributable to Reliance shareholders		$	2.01			$	6.56			$	5.36
Weighted average shares outstanding — diluted			73,701,979				73,597,717				76,064,616
Basic earnings per common share attributable to Reliance shareholders		$	2.02			$	6.60			$	5.39
Weighted average shares outstanding — basic			73,445,583				73,102,215				75,622,799
Cash dividends per share		$	.40			$	.40			$	.32

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

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

		Reliance Shareholders
														Accumulated
														Other				Non-
		Common Stock								Retained				Comprehensive				controlling
		Shares				Amount				Earnings				Income (Loss)				Interests				Total
Balance at January 1, 2007			75,702,046			$	701,690			$	1,046,339			$	(1,631	)		$	1,246			$	1,747,644
Net income			—				—				407,955				—				334				408,289
Other comprehensive income (loss):
Foreign currency translation gain			—				—				—				24,681				—				24,681
Unrealized loss on investments, net of tax			—				—				—				(54	)			—				(54	)
Minimum pension liability, net of tax			—				—				—				(2,751	)			—				(2,751	)
Comprehensive income																							430,165
Capital contribution from noncontrolling interest			—				—				—				—				119				119
Stock based compensation			—				10,120				—				—				—				10,120
Stock options exercised			872,001				16,483				9,511				—				—				25,994
Stock repurchased			(1,673,467	)			(82,168	)			—				—				—				(82,168	)
Stock issued under incentive bonus plan			6,244				281				—				—				—				281
Cash dividends — $.32 per share			—				—				(24,207	)			—				—				(24,207	)
Balance at December 31, 2007			74,906,824				646,406				1,439,598				20,245				1,699				2,107,948
Net income			—				—				482,777				—				858				483,635
Other comprehensive loss:
Foreign currency translation loss			—				—				—				(42,624	)			—				(42,624	)
Unrealized loss on investments, net of tax			—				—				—				(1,163	)			—				(1,163	)
Minimum pension liability, net of tax			—				—				—				(8,474	)			—				(8,474	)
Comprehensive income																							431,374
Noncontrolling interests acquired			—				—				—				—				2,300				2,300
Payment to noncontrolling interest holder			—				—				—				—				(1,225	)			(1,225	)
Stock based compensation			—				13,189				—				—				—				13,189
Stock options exercised			844,338				17,987				9,693				—				—				27,680
Stock repurchased			(2,443,500	)			(114,774	)			—				—				—				(114,774	)
Adjustment to initially apply EITF 06-10			—				—				(2,479	)			—				—				(2,479	)
Stock issued under incentive bonus plan			5,052				284				—				—				—				284
Cash dividends — $.40 per share			—				—				(29,229	)			—				—				(29,229	)
Balance at December 31, 2008			73,312,714				563,092				1,900,360				(32,016	)			3,632				2,435,068
Net income			—				—				148,158				—				1,018				149,176
Other comprehensive income:
Foreign currency translation gain			—				—				—				25,870				—				25,870
Unrealized gain on investments, net of tax			—				—				—				524				—				524
Minimum pension liability, net of tax			—				—				—				4,099				—				4,099
Comprehensive income																							179,669
Noncontrolling interests purchased			—				(1,758	)			—				—				(903	)			(2,661	)
Payments to noncontrolling interest holder			—				—				—				—				(2,057	)			(2,057	)
Stock based compensation			—				15,530				—				—				—				15,530
Stock options exercised			427,697				10,490				1,208				—				—				11,698
Stock issued under incentive bonus plan			10,360				258				—				—				—				258
Cash dividends — $.40 per share			—				—				(29,383	)			—				—				(29,383	)
Balance at December 31, 2009			73,750,771			$	587,612			$	2,020,343			$	(1,523	)		$	1,690			$	2,608,122