SECURITIES AND EXCHANGE COMMISSION

FORM 10-K/A

 

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

RELIANCE STEEL & ALUMINUM CO.

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

		Name of each exchange on
Title of each class		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 oNo 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 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

     Large accelerated filer þ            Accelerated filer o                    Non-accelerated filer o                    Smaller 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). Yeso 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, 2007 was approximately $3,700,000,000.

     As of January 31, 2008, 72,488,824 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 21, 2008 (the “Proxy Statement”) are incorporated by reference into Part III of this report.

 

 

EXPLANATORY NOTE

Reliance Steel & Aluminum Co. (the “Company” or “we,” “us” and “our”) is filing this Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the “Original Filing”) to remove a reference to a third-party valuation specialist included in its notes to consolidated financial statements (Note 3, Acquisitions). The Company received a comment letter from the Securities and Exchange Commission with respect to its reference to an unnamed third-party valuation specialist. We believe that we have ultimate responsibility over the work performed by the third-party valuation specialist, and accordingly, we are amending our Annual Report on Form 10-K to delete the reference to the third-party valuation specialist. The following items have been updated in this amended filing:

PART II

	•		Item 8. – Financial Statements and Supplementary Data
	•		Item 9A. – Controls and Procedures
	•		Item 9A (T). – Controls and Procedures

PART IV

•

Item 15. – Exhibits, Financial Statement Schedules

All of the information in this Form 10-K/A is as of December 31, 2007 and does not reflect events or circumstances that may have occurred after the Original Filing.

INDEX

			Page
PART II
Item 8. Financial Statements and Supplementary Data			1
Item 9A. Controls and Procedures			44
Item 9A(T). Controls and Procedures			44
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K			46
SIGNATURES			48
EXHIBIT 23
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

PART II

Item 8. Financial Statements and Supplementary Data.

RELIANCE STEEL & ALUMINUM CO.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

			Page
Report of Independent Registered Public Accounting Firm			2
Consolidated Balance Sheets at December 31, 2007 and 2006			3
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005			4
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005			5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005			6
Notes to Consolidated Financial Statements			7
Quarterly Results of Operations (Unaudited)			42
FINANCIAL STATEMENT SCHEDULE:
Schedule II – Valuation and Qualifying Accounts			43

     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 of
Reliance Steel & Aluminum Co.

     We have audited the accompanying consolidated balance sheets of Reliance Steel & Aluminum Co. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule 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 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 consolidated financial position of Reliance Steel & Aluminum Co. and subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, 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 financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     As discussed in Note 1 to the consolidated financial statements, Reliance Steel & Aluminum Co. changed its method of accounting for Share-Based Payments in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) on January 1, 2006.

     Additionally, as discussed in Note 11 to the consolidated financial statements, Reliance Steel & Aluminum Co. changed its method of accounting for Defined Benefit Pension and Other Postretirement Plans in accordance with Statement of Financial Accounting Standards No. 158 on December 31, 2006.

     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, 2007, 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 28, 2008 expressed an unqualified opinion thereon.

     /s/ ERNST & YOUNG LLP

Los Angeles, California
February 28, 2008

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS

		December 31,				December 31,
		2007				2006
Current assets:
Cash and cash equivalents		$	77,023			$	57,475
Accounts receivable, less allowance for doubtful accounts of $16,153 at December 31, 2007 and $16,755 at December 31, 2006			691,462				666,273
Inventories			911,315				904,318
Prepaid expenses and other current assets			24,028				22,179
Income taxes receivable			17,575				25,144
Total current assets			1,721,403				1,675,389
Property, plant and equipment, at cost:
Land			115,294				108,022
Buildings			417,677				385,851
Machinery and equipment			669,671				565,951
Accumulated depreciation			(378,007	)			(317,152	)
			824,635				742,672
Goodwill			886,152				784,871
Intangible assets, net			464,291				354,195
Cash surrender value of life insurance policies, net			73,953				41,190
Other assets			13,043				15,856
Total assets		$	3,983,477			$	3,614,173
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	333,986			$	340,356
Accrued expenses			37,863				36,481
Accrued compensation and retirement costs			95,539				92,905
Accrued insurance costs			36,884				34,475
Deferred income taxes			23,136				23,706
Current maturities of long-term debt			71,815				22,257
Current maturities of capital lease obligations			641				559
Total current liabilities			599,864				550,739
Long-term debt			1,008,765				1,083,095
Capital lease obligations			4,495				4,956
Long-term retirement costs and other long-term liabilities			62,224				46,111
Deferred income taxes			200,181				181,628
Minority interest			1,699				1,246
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value:
Authorized shares — 5,000,000
None issued or outstanding			¾				¾
Common stock, no par value:			646,406				701,690
Authorized shares — 100,000,000
Issued and outstanding shares — 74,906,824 at December 31, 2007 and 75,702,046 at December 31, 2006, stated capital
Retained earnings			1,439,598				1,046,339
Accumulated other comprehensive income /(loss)			20,245				(1,631	)
Total shareholders’ equity			2,106,249				1,746,398
Total liabilities and shareholders’ equity		$	3,983,477			$	3,614,173

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,
		2007				2006				2005
Net sales		$	7,255,679			$	5,742,608			$	3,367,051
Other income, net			9,931				5,768				3,671
			7,265,610				5,748,376				3,370,722
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)			5,418,161				4,231,386				2,449,000
Warehouse, delivery, selling, general and administrative			1,034,139				821,386				507,905
Depreciation and amortization			79,873				62,474				46,631
Interest			78,710				61,692				25,222
			6,610,883				5,176,938				3,028,758
Income before minority interest and income taxes			654,727				571,438				341,964
Minority interest			(334	)			(306	)			(8,752	)
Income from continuing operations before income taxes			654,393				571,132				333,212
Provision for income taxes			246,438				216,625				127,775
Net income		$	407,955			$	354,507			$	205,437
Earnings per share:
Income from continuing operations — diluted		$	5.36			$	4.82			$	3.10
Weighted average shares outstanding — diluted			76,064,616				73,599,681				66,194,724
Income from continuing operations — basic		$	5.39			$	4.85			$	3.12
Weighted average shares outstanding — basic			75,622,799				73,134,102				65,870,068
Cash dividends per share		$	.32			$	.22			$	.19

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

														Accumulated
														Other
		Common Stock								Retained				Comprehensive
		Shares				Amount				Earnings				Income (Loss)				Total
Balance at January 1, 2005			65,339,934			$	313,953			$	508,147			$	452			$	822,552
Net income for the year			—				—				205,437				—				205,437
Other comprehensive income (loss):
Foreign currency translation gain			—				—				—				1				1
Unrealized gain on investments			—				—				—				40				40
Minimum pension liability			—				—				—				(168	)			(168	)
Comprehensive income																			205,310
Stock options exercised			866,900				10,811				3,476				—				14,287
Stock issued under incentive bonus plan			11,164				246				—				—				246
Cash dividends — $.19 per share			—				—				(12,530	)			—				(12,530	)
Balance at December 31, 2005			66,217,998				325,010				704,530				325				1,029,865
Net income for the year			—				—				354,507				—				354,507
Other comprehensive income (loss):
Foreign currency translation gain			—				—				—				1,221				1,221
Unrealized gain on investments			—				—				—				116				116
Minimum pension liability			—				—				—				423				423
Comprehensive income																			356,267
Adjustment to initially apply SFAS No. 158, net of tax			—				—				—				(3,716	)			(3,716	)
Stock options exercised			438,290				7,115				3,446				—				10,561
Stock based compensation			—				6,060				—				—				6,060
Stock and stock options issued in connection with business acquisition			8,962,268				360,453				—				—				360,453
Stock issued to a retirement savings plan			78,288				2,830				—				—				2,830
Stock issued under incentive bonus plan			5,202				222				—				—				222
Cash dividends — $.22 per share			—				—				(16,144	)			—				(16,144	)
Balance at December 31, 2006			75,702,046				701,690				1,046,339				(1,631	)			1,746,398
Net income for the year			—				—				407,955				—				407,955
Other comprehensive income (loss):
Foreign currency translation gain			—				—				—				24,681				24,681
Unrealized loss on investments			—				—				—				(54	)			(54	)
Minimum pension liability			—				—				—				(2,751	)			(2,751	)
Comprehensive income																			429,831
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			$	2,106,249

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2007				2006				2005
Operating activities:
Net income		$	407,955			$	354,507			$	205,437
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			79,873				62,474				46,631
Debt premium amortization			—				(2,149	)			—
Deferred income taxes			12,042				7,295				(1,059	)
Gain on debt extinguishment			—				(2,264	)			—
Gain on sales of property and equipment			(1,181	)			(723	)			—
Minority interest			334				306				8,752
Stock based compensation expense			10,120				6,060				—
Tax benefit of stock options exercised			—				—				3,476
Excess tax benefits from stock based compensation			(9,511	)			(3,446	)			—
Decrease/(increase) in cash surrender values of life insurance policies			231				(582	)			—
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable			61,265				(50,566	)			(15,391	)
Inventories			129,582				(89,414	)			(11,345	)
Prepaid expenses and other assets			11,087				6,569				(2,624	)
Accounts payable and accrued expenses			(62,833	)			(97,103	)			38,342
Net cash provided by operating activities			638,964				190,964				272,219
Investing activities:
Purchases of property, plant and equipment			(124,127	)			(108,742	)			(53,740	)
Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired			(269,957	)			(542,604	)			(94,377	)
Proceeds from sales of property and equipment			5,045				3,487				1,485
Tax reimbursements made related to prior acquisitions			(619	)			(894	)			—
Net investment in life insurance policies			(31,028	)			(3,096	)			—
Proceeds from redemption of life insurance policies			878				1,415				—
Net cash used in investing activities			(419,808	)			(650,434	)			(146,632	)
Financing activities:
Proceeds from borrowings			658,770				2,547,316				393,000
Principal payments on long-term debt and short-term borrowings			(778,520	)			(2,063,656	)			(486,511	)
Payment of debt issue costs			—				(8,170	)			—
Payments to minority shareholders			—				(1,291	)			(7,159	)
Net refunds from letters of credit			—				12,919				—
Dividends paid			(24,207	)			(16,145	)			(12,530	)
Excess tax benefit from stock based compensation			9,511				3,446				—
Exercise of stock options			16,483				7,115				10,811
Issuance of common stock			281				222				246
Common stock repurchase			(82,168	)			—				—
Net cash (used in) provided by financing activities			(199,850	)			481,756				(102,143	)
Effect of exchange rate changes on cash			242				167				(81	)
Increase in cash and cash equivalents			19,548				22,453				23,363
Cash and cash equivalents at beginning of year			57,475				35,022				11,659
Cash and cash equivalents at end of year		$	77,023			$	57,475			$	35,022
Supplemental cash flow information:
Interest paid during the period		$	78,167			$	70,306			$	25,309
Income taxes paid during the period		$	221,145			$	213,901			$	118,909
Non-cash investing and financing activities:
Issuance of common stock and stock options in connection with acquisition of metals service center		$	—			$	360,453			$	—
Issuance of short-term notes payable in connection with acquisition of metals service center		$	6,713			$	—			$	—
Issuance of common stock to employee retirement savings plan		$	—			$	2,830			$	—

See accompanying notes to consolidated financial statements.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of Reliance Steel & Aluminum Co. and its subsidiaries, which include Allegheny Steel Distributors, Inc., Aluminum and Stainless, Inc., American Metals Corporation, American Steel, L.L.C. (50.5%-owned until January 3, 2006 when it became wholly-owned), AMI Metals, Inc., CCC Steel, Inc., Central Plains Steel Co. (until September 1, 2006 when it was merged into Reliance), Chapel Steel Corp., Chatham Steel Corporation, Clayton Metals, Inc., Crest Steel Corporation, Durrett Sheppard Steel Co., Inc., Earle M. Jorgensen Company, Encore Group Limited, Encore Metals (USA) Inc., Liebovich Bros., Inc., Lusk Metals, Metalweb Limited, Pacific Metal Company, PDM Steel Service Centers, Inc., Phoenix Corporation, Precision Strip, Inc., Reliance Pan Pacific Pte., Ltd. (70%-owned), RSAC Management Corp., Service Steel Aerospace Corp., Siskin Steel & Supply Company, Inc., Toma Metals, Inc., Valex Corp. (97%-owned), Viking Materials, Inc., and Yarde Metals, Inc., on a consolidated basis (“Reliance” or “the Company”). All subsidiaries of Reliance, other than American Steel, L.L.C., Earle M. Jorgensen Company, Encore Group Limited, Encore Metals (USA) Inc., and Reliance Pan Pacific Pte., Ltd. are held by RSAC Management Corp. All significant intercompany transactions have been eliminated in consolidation. The Company consolidates its 70% investment in Reliance Pan Pacific Pte., Ltd. and its 88% investment in Valex Holdings Limited. Effective January 3, 2006, the Company purchased the remaining 49.5% interest in American Steel, L.L.C. Prior to that, the Company consolidated its 50.5% investment in American Steel, L.L.C.

Business

     In 2007, the Company operated a metals service center network of more than 180 locations in 37 states, Belgium, Canada, China, South Korea and the United Kingdom that provided value-added metals processing services and distributed a full line of more than 100,000 metal products.

Accounting Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable and Concentrations of Credit Risk

     Concentrations of credit risk with respect to trade receivables are limited due to the geographically diverse customer base and various industries into which the Company’s products are sold. Trade receivables are typically non-interest bearing and are initially recorded at cost. Sales to the Company’s recurring customers are generally made on open account terms while sales to occasional customers may be made on a C.O.D. basis when collectibility is not assured. Past due status of customer accounts is determined based on how recently payments have been received in relation to payment terms granted. Credit is generally extended based upon an evaluation of each customer’s financial condition, with terms consistent in the industry and no collateral required. Losses from credit sales are provided for in the financial statements and consistently have been within the allowance provided. The allowance is an estimate of the uncollectibility of accounts receivable based on an evaluation of specific customer risks along with additional reserves based on historical and probable bad debt experience. Amounts are written off against the allowance in the period the Company determines that the receivable is uncollectible. As a result of the above factors, the Company does not consider itself to have any significant concentrations of credit risk.

Inventory

     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.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

Fair Values of Financial Instruments

     Fair values of cash and cash equivalents, trade accounts receivable and the current portion of long-term debt approximate cost due to the short period of time to maturity. Fair values of long-term debt, which have been determined based on borrowing rates currently available to the Company, or to other companies with comparable credit ratings, for loans with similar terms or maturity, approximate the carrying amounts in the consolidated financial statements with the exception of our $600,000,000 senior unsecured notes issued in November 2006. In April 2007, these notes were exchanged for publicly traded notes registered with the Securities and Exchange Commission. The fair market value of these senior unsecured notes at December 31, 2007 was approximately $567,000,000.

Cash Equivalents

     The Company considers all highly liquid instruments with an original maturity of three months or less when purchased to be cash equivalents. The Company maintains cash and cash equivalents with high-credit, quality financial institutions. The Company, by policy, limits the amount of credit exposure to any one financial institution. At times, cash balances held at financial institutions were in excess of federally-insured limits.

Long-Lived Assets

     In accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, the Company no longer amortizes goodwill which is deemed to have an indefinite life but is subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives. Indefinite-lived intangible assets are not subject to amortization.

     For purposes of performing annual impairment tests, the Company identified reporting units in accordance with the guidance provided within SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. As of November 1, 2007 and 2006, the dates of our annual impairment testing, the Company identified 45 and 41 reporting units, respectively. Each reporting unit constitutes a business under the definition provided by EITF 98-3, Determining Whether a Non-Monetary Transaction Involves Receipt of Productive Assets or of a Business. The Company assigns goodwill at the business unit/reporting unit level at the time of acquisition, where applicable, as each business unit operates independently from the other business units and is evaluated at the business unit level for financial performance.

     The Company tests for impairment of goodwill by calculating the fair value of a reporting unit using the discounted cash flow method. Under this method, the fair market 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. Year five of these projections is considered the terminal year. 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. An annual assessment was performed and the Company determined that no impairment existed at November 1, 2007 or November 1, 2006.

     Property, plant and equipment is recorded at cost and the provision for depreciation of these assets is generally computed on the straight-line method at rates designed to distribute the cost of assets over the useful lives, estimated as follows:

Buildings		311/2 years
Machinery and equipment		3 – 20 years

     The Company reviews the recoverability of its long-lived assets as required by SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about future operating performance, and may differ from actual cash flows. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made. The Company has determined that no impairment of long-lived assets exists as of December 31, 2007 or 2006.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

Revenue Recognition

     The Company recognizes revenue from product or processing sales upon concluding that all of the fundamental criteria for product revenue recognition have been met. Such criteria are usually met at the time title to the product passes to the customer, typically upon delivery, or at the time services are performed for its toll processing services. Shipping and handling charges are included as revenue in net sales. Costs incurred in connection with shipping and handling the Company’s products which are related to third-party carriers are not material and are typically included in cost of sales. Costs incurred in connection with shipping and handling the Company’s products that are performed by Company personnel are typically included in operating expenses. For the years ended December 31, 2007, 2006 and 2005, shipping and handling costs included in “Warehouse, delivery, selling, general and administrative expenses” were approximately $184,449,000, $142,697,000, and $75,868,000, respectively.

Segment Information

     The Company has one reportable business segment – metals service centers. The acquisitions made during 2007 did not result in new segments. Although a variety of products or services are sold at each of the Company’s various locations, in total, sales were comprised of the following in each of the three years ended December 31:

		2007				2006				2005
Carbon steel			46	%			49	%			55	%
Aluminum			19				18				20
Stainless and alloy steel			28				24				15
Toll processing			2				2				4
Other			5				7				6
Total			100	%			100	%			100	%

     The following table summarizes consolidated financial information of the Company’s operations by geographic location based on where sales originated from:

						Foreign
		United States				Countries				Total
						(in thousands)
Year-Ended December 31, 2007
Net Sales		$	6,902,040			$	353,639			$	7,255,679
Long Lived Assets			2,088,342				173,732				2,262,074
Year-Ended December 31, 2006
Net Sales			5,576,183				166,425				5,742,608
Long Lived Assets			1,894,446				44,338				1,938,784
Year-Ended December 31, 2005
Net Sales			3,315,319				51,732				3,367,051
Long Lived Assets			913,304				8,418				921,722

Stock-Based Compensation

     Effective January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective transition method. SFAS No. 123R revises SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R is supplemented by SEC Staff Accounting Bulletin (“SAB”) No. 107, Share Based Payment. SAB No. 107 expresses the SEC staff’s views regarding the interaction between SFAS No. 123R and certain SEC rules and regulations including the valuation of share-based payment arrangements.

      The Company recognizes the cost of all employee and director stock options on a straight-line basis over their respective vesting periods, net of estimated forfeitures. Since the Company has selected the modified prospective method of transition, the prior periods have not been restated. Prior to adopting SFAS No. 123R, the Company applied APB Opinion No. 25, and related interpretations in accounting for its stock-based compensation plans. All stock options were granted at or above the grant date market price. Accordingly, no compensation cost was recognized for stock option grants prior to 2006.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     Under this transition method, stock based compensation cost recognized for the years ended December 31, 2007 and 2006 respectively, includes: (i) compensation cost for all stock-based payments granted prior to, but not yet vested, as of January 1, 2006, and (ii) compensation cost for all stock-based payments granted or modified subsequent to January 1, 2006. The stock- based compensation expense recorded in accordance with SFAS No. 123R was $10,120,000 and $6,060,000 for the years ended December 31, 2007 and 2006, respectively included in “Warehouse, delivery, selling, general and administrative expense” caption of the Company’s Consolidated Statements of Income.

     The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123R during the prior periods presented. For the purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and amortized to expense over the options’ vesting periods.

		Year Ended
		December 31,
		2005
		(in thousands,
		except per
		share amounts)
Reported net income		$	205,437
Stock-based compensation cost, net of tax			2,954
Pro forma net income		$	202,483
Earnings per share from continuing operations:
Basic – reported		$	3.12
Basic – pro forma		$	3.07
Diluted – reported		$	3.10
Diluted – pro forma		$	3.06

Environmental Remediation Costs

     The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remediation feasibility study. Such accruals are adjusted as further information develops or circumstances change. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. The Company’s management is not aware of any environmental remediation obligations which would materially affect the operations, financial position or cash flows of the Company.

Foreign Currencies

     The currency effects of translating the financial statements of those foreign subsidiaries of the Company which operate in local currency environments are included in the “Accumulated Other Comprehensive Income (Loss)” component of shareholders’ equity. Gains and losses resulting from foreign currency transactions are included in the results of operations in “Other income, net” caption and amounted to a net gain of approximately $7,337,000 for the year ended December 31, 2007. Foreign currency transaction gains and losses were not material in the prior periods presented.

Impact of Recently Issued Accounting Standards

     In July 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Company adopted the provision of this interpretation effective January 1, 2007. The adoption of FIN No. 48 did not have a material impact on the Company’s consolidated financial position and results of operations. See Note 9, Income Taxes, for further discussion.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statement No. 87, 88, 106 and 132(R). This Standard requires recognition of the funded status of a benefit plan in the statement of financial position. The Standard also requires recognition in other comprehensive income of certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. The Company adopted the recognition provisions of SFAS No. 158 and applied them to the funded status of its defined benefit and postretirement plans as of December 31, 2006. The initial recognition of the funded status of its defined benefit and postretirement plans resulted in a decrease in “Shareholders’ equity” of $3,716,000, which was net of a tax benefit of $2,293,000.

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

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which is the year beginning January 1, 2008 for the Company. The adoption of SFAS No. 159 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations, which is a revision of SFAS No. 141, Business Combinations. In accordance with the new standard, upon initially obtaining control, the acquiring entity in a business combination must recognize 100% of the fair values of the acquired assets, including goodwill, and assumed liabilities, with only limited exceptions even if the acquirer has not acquired 100% of its target. As a consequence, the current step acquisition model will be eliminated. Also, contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration. In addition, all transaction costs will be expensed as incurred. SFAS No. 141R is effective as of the beginning of an entity’s first fiscal year beginning after December 15, 2008 which is the year beginning January 1, 2009 for the Company. Adoption is prospective and early adoption is not permitted. The Company is currently evaluating the impact that the adoption of SFAS 141R will have on its consolidated financial statements and notes thereto.

2. Investments in Joint Venture Companies

     From inception on July 1, 1995 through April 30, 2002, the Company owned a 50% interest in the Membership Units of American Steel, L.L.C. (“American Steel”), which operates metals service centers in Portland, Oregon and Kent (Seattle), Washington, and processes and distributes primarily carbon steel products. American Industries, Inc. (“Industries”) owned the other 50% interest in American Steel. The Operating Agreement (“Agreement”) gave the Company operating control over the assets and operations of American Steel. However, due to the existence of super-majority veto rights in favor of Industries prior to May 1, 2002, the Company accounted for this investment under the equity method and recorded its share of earnings based upon the terms of the Agreement.

     Effective May 1, 2002, the Agreement was amended and one additional membership unit was issued to the Company, giving the Company 50.5% of the outstanding membership units. As part of the amendment, all super-majority and unanimous voting rights included in the Agreement were eliminated, among other changes. Due to this change in ownership structure, the Company began consolidating American Steel’s financial results as of May 1, 2002. In January 2006, the Company purchased the remaining 49.5% interest in American Steel and began including 100% of American Steel’s earnings in its consolidated results of operations.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     In October 2005, the Company, with its partner Manufacturing Network Pte. Ltd. (“MNPL”), a Singapore company, formed Reliance Pan Pacific Pte., Ltd. (“Reliance Pan Pacific”). Reliance Pan Pacific, a Singapore company, is 70%-owned by the Company and 30%-owned by MNPL. Reliance Pan Pacific had no activity in 2005. In March 2006, Reliance Pan Pacific purchased Everest Metals (Suzhou) Co., Ltd. (“Everest Metals”), a metals service center company based near Shanghai, China. The Company consolidates the financial results of Everest Metals. Net sales during 2007 were approximately $6,000,000.

     In October 2007, Valex Corp., a subsidiary of the Company, formed Valex Holdings Limited (“Valex Holdings”), a Hong Kong Company. The Company owns 88% of Valex Holdings. Valex Holdings formed Valex China Co. Ltd. (“Valex China”) in the People’s Republic of China as a wholly-owned subsidiary. Valex China operates a processing and distribution facility in China in the Nanhui district of Shanghai. The Company consolidates the financial results of Valex China. Activity during 2007 was minimal.

3. Acquisitions

2007 Acquisitions

Acquisition of Metalweb plc

     As of October 1, 2007, the Company acquired all of the outstanding capital stock of Metalweb plc (“Metalweb”), a metals service center company headquartered in Birmingham, England. Metalweb, established in 2001, specializes in the processing and distribution of primarily aluminum products for non-structural aerospace components and general engineering parts and has three additional service centers located in London, Manchester and Oxford, England. The company acquired Metalweb through RSAC Management Corp., the Company’s wholly-owned subsidiary. Metalweb now operates as a wholly-owned subsidiary of RSAC Management Corp. Metalweb has been re-registered as Metalweb Limited.

Acquisition of Clayton Metals, Inc.

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

Acquisition of Encore Group

     As of February 1, 2007, the Company acquired the net assets and business of the Encore Group of metals service center companies (Encore Metals, Encore Metals (USA), Inc., Encore Coils, and Team Tube in Canada) headquartered in Edmonton, Alberta, Canada. Encore was organized in 2004 in connection with the buyout by management and a private equity fund of certain former Corus CIC and Corus America businesses. Encore specializes in the processing and distribution of alloy and carbon bar and tube, as well as stainless steel sheet, plate and bar and carbon steel flat-rolled products, through its 17 facilities located mainly in Western Canada. The Company acquired the Encore Group assets through RSAC Canada Limited (now Encore Group Limited), the Company’s wholly-owned Canadian subsidiary, and RSAC Canada (Tube) ULC (now Team Tube Canada ULC), a subsidiary of RSAC Canada Limited. Encore Group Limited and Encore Metals (USA), Inc. now operate as wholly-owned subsidiaries of Reliance. As discussed in Note 16, Subsequent Events, on January 1, 2008 the Company sold certain assets and the business of the Encore Coils division.

Acquisition of Crest Steel Corporation

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

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

Acquisition of Industrial Metals and Surplus, Inc.

     Also on January 2, 2007, the Company, through its wholly-owned subsidiary Siskin Steel & Supply Company, Inc. (“Siskin”), purchased the outstanding capital stock of Industrial Metals and Surplus, Inc. (“Industrial Metals”), a metals service center company headquartered in Atlanta, Georgia and a related company, Athens Steel, Inc. (“Athens Steel), located in Athens, Georgia. Industrial Metals was founded in 1978 and specializes in the processing and distribution of carbon steel structurals, flat-rolled and ornamental iron products. Industrial Metals and Athens Steel now operate as divisions of Siskin.

Summary purchase price allocations for 2007 acquisitions

     The total cost of the acquisitions of Clayton Metals, Crest, Industrial Metals, Encore Group and Metalweb of approximately $281,443,000 was funded with borrowings on the Company’s syndicated credit facility. Total debt assumed, net of cash, in connection with these acquisitions was approximately $81,849,000. The allocation of the total purchase price to the fair values of the assets acquired and liabilities assumed is as follows:

		(in thousands)
Cash consideration, including direct acquisition costs		$	274,730
Debt issued			6,713
Total purchase price		$	281,443
Allocation of the total purchase price to the fair values of assets acquired and liabilities assumed:
Cash		$	4,773
Accounts Receivable			82,373
Inventory			130,814
Property, plant and equipment			27,685
Goodwill			91,720
Intangible assets subject to amortization			63,690
Intangible assets not subject to amortization			47,218
Other current and long-term assets			5,485
Total assets acquired			453,758
Total liabilities assumed			(172,315	)
Net assets acquired/Purchase price		$	281,443

     The consolidated financial statements reflect the allocations of each acquisition’s purchase price, which is preliminary as of December 31, 2007 for Metalweb.

2006 Acquisitions

Acquisition of Yarde Metals, Inc.

     On August 1, 2006, the Company acquired 100% of the outstanding capital stock of Yarde Metals, Inc. (“Yarde Metals”), a metals service center company headquartered in Southington, Connecticut for approximately $100,000,000 plus the assumption of approximately $101,000,000 of Yarde Metals’ outstanding debt, net of cash acquired. The Yarde Metals sellers were paid an additional amount in 2007 related to the Company’s election of Section 338(h)(10) treatment for income tax purposes, resulting in a goodwill addition of approximately $600,000 for the year ended December 31, 2007. Yarde Metals was founded in 1976 and specializes in the processing and distribution of stainless steel and aluminum plate, rod and bar products. Yarde has additional metals service centers in Pelham, New Hampshire; East Hanover, New Jersey; Hauppauge, New York; High Point, North Carolina; Streetsboro, Ohio; and Limerick, Pennsylvania and a sales office in Ft. Lauderdale, Florida. Yarde Metals operates as a wholly-owned subsidiary of RSAC Management Corp.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

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

		(in thousands)
Allocation of the total purchase price to the fair values of assets acquired and liabilities assumed:
Cash		$	10,244
Accounts receivable			53,448
Inventory			79,987
Property, plant and equipment			18,062
Goodwill			47,657
Intangible assets subject to amortization			3,100
Intangible assets not subject to amortization			22,900
Other current and long-term assets			5,743
Total assets acquired			241,141
Current and long-term debt			(111,168	)
Other current and long-term liabilities			(29,204	)
Total liabilities assumed			(140,372	)
Net assets acquired/Purchase price		$	100,769

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

Acquisition of Earle M. Jorgensen Company

     On April 3, 2006, the Company acquired Earle M. Jorgensen Company (“EMJ”). EMJ, headquartered in Lynwood, California, is one of the largest distributors of metal products in North America with 40 service and processing centers. The Company paid $6.50 in cash and issued .1784 of a share of Reliance common stock for each outstanding share of EMJ common stock. The fraction of the share of Reliance common stock issued in exchange for each share of EMJ common stock as a result of the acquisition was determined by the average daily closing sale price for Reliance common stock reported on the New York Stock Exchange for the 20-day trading period ending with and including the second complete trading day prior to the date that the acquisition became effective (“Average Stock Price”). The Average Stock Price for that 20-day period exceeded the upper limit of the 15% symmetrical collar established in the merger agreement. In accordance with this formula, Reliance issued 8,962,268 shares of its common stock in exchange for the 50,237,094 shares of outstanding EMJ common stock. The recorded value of the cash and stock consideration, in accordance with purchase accounting rules, was $13.64 per EMJ share, the stock portion of which was calculated using a Reliance per share price of $40.00 which was the 3-day average closing price as of the date the Average Stock Price exceeded the upper limit of the collar. The purchase also included the assumption of approximately $252,900,000 of EMJ outstanding debt, including $250,000,000 of 9.75% senior secured notes and $2,900,000 of other debt. In addition, the Company cashed out certain EMJ stock option holders for aggregate consideration of approximately $29,456,000 and incurred direct acquisition costs of approximately $12,882,000.

     The Company assumed an EMJ stock option plan and converted the outstanding EMJ options to options to acquire 287,886 shares of Reliance common stock on the same terms and conditions as were applicable to such options under the EMJ plan, with adjusted exercise price and number of shares to reflect the difference in the value of the stock. The Company also assumed an obligation resulting from EMJ’s settlement with the U.S. Department of Labor to contribute 258,006 shares of Reliance common stock to a phantom stock plan supplementing the EMJ Retirement Savings Plan. At December 31, 2007 the remaining obligation to contribute cash to this phantom plan supplementing the EMJ Retirement Savings Plan consisted of the cash equivalent of 157,756 shares of Reliance common stock. This obligation will be satisfied by future cash contributions as allowed under the Internal Revenue Code and ERISA requirements. EMJ now operates as a wholly-owned subsidiary of Reliance.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

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

		(in thousands)
Cash consideration		$	326,546
Value of common stock and vested stock options			360,453
Cash out of certain EMJ stock options			29,456
Direct acquisition costs			12,882
Total purchase price		$	729,337
Allocation of the total purchase price to the fair values of assets acquired and liabilities assumed:
Cash		$	46,091
Accounts receivable			191,203
Inventory			344,446
Property, plant and equipment			185,366
Goodwill			354,077
Intangible assets subject to amortization			93,800
Intangible assets not subject to amortization			187,900
Other current and long-term assets			65,177
Total assets acquired			1,468,060
Current and long-term debt			(274,745	)
Deferred income taxes			(156,689	)
Other current and long-term liabilities			(307,289	)
Total liabilities assumed			(738,723	)
Net assets acquired/Purchase price		$	729,337

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

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

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

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

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

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

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

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

2005 Acquisition

Acquisition of Chapel Steel Corp.

     On July 1, 2005, the Company acquired 100% of the outstanding capital stock of Chapel Steel Corp. (“Chapel Steel”), headquartered in Spring House (Philadelphia), Pennsylvania. The Company paid approximately $94,200,000 in cash for the equity of Chapel Steel and assumed approximately $16,800,000 of Chapel Steel’s debt. The Chapel Steel sellers were paid an additional amount in 2006 related to the Company’s election of Section 338(h)(10) treatment for income tax purposes, resulting in a goodwill addition of $894,000 for the year ended December 31, 2006.

     Chapel Steel was a privately held metals service center company founded in 1972 that processes and distributes carbon and alloy steel plate products from five facilities in Pottstown (Philadelphia), Pennsylvania; Bourbonnais (Chicago), Illinois; Houston, Texas; Birmingham, Alabama; and Portland, Oregon. Chapel Steel also warehouses and distributes its products in Cincinnati, Ohio and Hamilton, Ontario, Canada. Chapel Steel operates as a wholly-owned subsidiary of RSAC Management Corp.

     The acquisition was funded on July 1, 2005 with borrowings on the Company’s syndicated credit facility. The following table summarizes the allocation of the total purchase price to the fair values of the assets acquired and liabilities assumed of Chapel Steel at the date of the acquisition:

		(in thousands)
Cash		$	21
Accounts receivable			24,549
Inventory			26,261
Property, plant and equipment			11,076
Goodwill			43,843
Intangible assets subject to amortization			10,700
Intangible assets not subject to amortization			19,000
Other current and long-term assets			1,293
Total assets acquired			136,743
Capital lease obligations			(6,332	)
Borrowings on line of credit			(16,780	)
Other current liabilities			(18,342	)
Total liabilities assumed			(41,454	)
Net assets acquired		$	95,289

Summary purchase price allocation information for all acquisitions

     All of the acquisitions discussed in this note have been accounted for under the purchase method of accounting and, accordingly, each purchase price has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of each acquisition. The accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date. The consolidated financial statements reflect the allocations of each acquisition’s purchase price as of December 31, 2007 or 2006, as applicable.

     As part of the purchase price allocations of the 2007, 2006, and 2005 acquisitions, $47,218,000, $210,800,000 and $19,000,000, respectively, were allocated to the trade names acquired, none of which is subject to amortization. The Company determined that the trade name acquired in connection with these acquisitions had indefinite lives since their economic lives are expected to approximate the life of each company acquired. Additionally, the Company recorded other identifiable intangible assets related to customer relationships for 2007, 2006, and 2005 acquisitions of $62,038,000, $89,300,000 and $10,600,000, respectively, with weighted average lives of 23.6, 25.1 and 8.5 years, respectively. The goodwill amounts from all of the acquisitions are expected to be deducted for tax purposes in future years with the exception of the Crest and EMJ goodwill amounts.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

Pro forma financial information

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

		Year Ended December, 31
		2007				2006
		(in thousands, except per share amounts)
Pro forma (unaudited):
Net sales		$	7,378,044			$	7,089,813
Net income		$	411,158			$	395,896
Earnings per share — diluted		$	5.41			$	5.22
Earnings per share — basic		$	5.44			$	5.25

4. Inventories

     Inventories of the Company have primarily been stated on the last-in, first-out (“LIFO”) method, which is not in excess of market. The Company uses the LIFO method of inventory valuation because it results in a better matching of costs and revenues. At December 31, 2007 and 2006, cost on the first-in, first-out (“FIFO”) method exceeds the LIFO value of inventories by $278,609,000 and $234,853,000, respectively. Inventories of $174,189,000 and $111,865,000 at December 31, 2007 and 2006, respectively, were stated on the FIFO method, which is not in excess of market.

5. Goodwill

     The changes in the carrying amount of goodwill for each of the three years in the period ended December 31, 2007 are as follows:

		(in thousands)
Balance as of January 1, 2005		$	341,780
Acquisition			42,950
Balance as of December 31, 2005			384,730
Acquisitions			399,247
Adjustment related to tax distributions for a prior acquisition			894
Balance as of December 31, 2006			784,871
Acquisitions			91,720
Adjustments related to tax distributions and other			3,370
Effect of foreign currency translation			6,191
Balance as of December 31, 2007		$	886,152

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

6. Intangible Assets, net

     At December 31, 2007 and 2006, intangible assets, net, consisted of the following:

		December 31, 2007								December 31, 2006
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
						(in thousands)
Intangible assets subject to amortization:
Covenants not to compete		$	6,803			$	(6,175	)		$	6,353			$	(6,005	)
Loan fees			16,147				(6,808	)			15,001				(5,237	)
Customer list/relationships			176,124				(18,967	)			107,200				(9,749	)
Software – internal use			8,100				(1,417	)			8,100				(607	)
Other			1,748				(657	)			421				(382	)
			208,922				(34,024	)			137,075				(21,980	)
Intangible assets not subject to amortization:
Trade names			289,393				—				239,100				—
		$	498,315			$	(34,024	)		$	376,175			$	(21,980	)

     Amortization expense for intangible assets amounted to approximately $12,007,000, $6,859,000 and $4,125,000 for the years ended December 31, 2007, 2006 and 2005, respectively. The following is a summary of estimated aggregate amortization expense for each of the next five years (in thousands):

2008		$	12,520
2009			11,804
2010			11,659
2011			11,243
2012			10,262

7. Cash Surrender Value of Life Insurance, net

     The Company’s wholly-owned subsidiary, EMJ, is the owner and beneficiary of life insurance policies on all former nonunion employees of a predecessor company including certain current employees of EMJ. These policies, by providing payments to EMJ upon the death of covered individuals, were designed to provide cash to EMJ in order to repurchase shares held by employees in EMJ’s former Stock Bonus Plan (now Retirement Savings Plan) and shares held individually by employees upon the termination of their employment. The Company is also the owner and beneficiary of key man life insurance policies on certain current and former executives of the Company, its subsidiaries and predecessor companies.

     Cash surrender value of the life insurance policies increases by a portion of the amount of premiums paid and by dividend income earned under the policies. Dividend rates for most of the policies held by EMJ are fixed at 11.26%. Income earned under the policies held by EMJ totaled $27,954,000 during the year ended December 31, 2007 and $20,346,000 during the period from April 3, 2006 through December 31, 2006, and is recorded in the “Other income, net” caption in the accompanying statements of income.

     Prior to 2007, EMJ had borrowed against the cash surrender value of certain policies to pay a portion of the premiums and accrued interest on loans against those policies, for repurchases of shares, and to fund working capital needs. No additional borrowings against the cash surrender values of the policies were made during 2007. The annual payment of accrued interest on the outstanding loans was financed by cash flows from operations. Interest rates on borrowings under the life insurance policies are fixed at 11.76%. As of December 31, 2007 and 2006, loans and accrued interest outstanding on EMJ’s life insurance policies were approximately $251,218,000 and $251,841,000 respectively. Also, at the end of each period, approximately $34,800,000 and $8,700,000 were available for future borrowings. Interest expense on borrowings on cash surrender values made by EMJ totaled $28,956,000 during the year ended December 31, 2007 and $20,230,000 from April 3, 2006 through December 31, 2006, and is included in the “Other income, net” caption in the accompanying statements of income.

     The cash surrender value of all life insurance policies held by the Company, net of loans and related accrued interest, were $73,953,000 and $41,190,000 as of December 31, 2007 and 2006, respectively.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

8. Long-Term Debt

     Long-term debt consists of the following:

		December 31,				December 31,
		2007				2006
		(in thousands)
Revolving line of credit ($1,100,000,000 limit) due November 9, 2011, interest at variable rates (based on LIBOR plus 0.55% or the bank’s prime rate as of December 31, 2007 and December 31, 2006), weighted average rate of 5.46% and 5.93% at December 31, 2007 and 2006, respectively		$	185,000			$	203,000
Senior unsecured notes due January 2, 2009, weighted average fixed interest rate of 7.37% and 7.33% at December 31, 2007 and 2006, respectively			10,000				30,000
Senior unsecured notes due January 2, 2008, fixed interest rate of 7.08% at December 31, 2007 and 2006			30,000				30,000
Senior unsecured notes due from October 15, 2008 to October 15, 2010, weighted average fixed interest rate of 6.66% at December 31, 2007 and 2006			103,000				103,000
Senior unsecured notes due from July 1, 2011 to July 2, 2013, weighted average fixed interest rate of 5.14% at December 31, 2007 and 2006			135,000				135,000
Senior unsecured notes due November 15, 2016, fixed interest rate of 6.20%, comprised of $350,000,000 of principal balance net of $860,000 and $957,000 of unamortized debt discount at December 31, 2007 and 2006, respectively			349,140				349,043
Senior unsecured notes due November 15, 2036, fixed interest rate of 6.85%, comprised of $250,000,000 of principal balance net of $1,360,000 and $1,407,000 of unamortized debt discount at December 31, 2007 and 2006, respectively			248,640				248,593
Senior unsecured notes due June 1, 2012, fixed rate of 9.75%, comprised of $150,000 and $250,000 of principal balance and $9,000 and $19,000 of unamortized debt premium at December 31, 2007 and 2006, respectively			159				269
Variable Rate Demand Industrial Development Revenue Bonds, Series 1989 A, due July 1, 2014, with interest payable quarterly; variable interest rate of 3.43% and 3.80% at December 31, 2007 and 2006, respectively			1,850				2,050
Variable Rate Demand Revenue Bonds, Series 1999, due March 1, 2009, with interest payable quarterly; variable interest rate of 3.62% and 4.11% at December 31, 2007 and 2006, respectively			900				1,225
Industrial Development Revenue Bonds, payable in annual installments of $715,000 on December 1st of each year, fixed interest rate of 5.25%			1,440				2,155
Revolving line of credit ($4,000,000 limit) for operations in China, weighted average interest rate of 6.01% and 6.00% (based on LIBOR plus 1.00%) at December 31, 2007 and 2006, respectively			1,641				1,017
Short-term notes issued in connection with acquisition of a metals service center in 2007, due April 2, 2008, fixed interest rate of 4.00% at December 31, 2007			6,548				—
Revolving line of credit for operations in England (GBP£4,250,000 or $8,490,000 limit at December 31, 2007), due February 2009, weighted average interest rate of 6.71% at December 31, 2007			7,262				—
Total			1,080,580				1,105,352
Less amounts due within one year			(71,815	)			(22,257	)
Total long-term debt		$	1,008,765			$	1,083,095

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

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

     At December 31, 2007, the Company had $37,831,000 of letters of credit outstanding under the syndicated credit facility with availability to issue an additional $87,169,000 of letters of credit. The syndicated credit facility includes a commitment fee on the unused portion, at an annual rate of 0.125% at December 31, 2007.

     On November 20, 2006, the Company entered into an Indenture (the “Indenture”), for the issuance of $600,000,000 of unsecured debt securities which are guaranteed by all of the direct and indirect, wholly-owned domestic subsidiaries of the Company and any entities that become such subsidiaries during the term of the Indenture (collectively, the “Subsidiary Guarantors”). None of Reliance’s foreign subsidiaries or its non-wholly-owned domestic subsidiaries is a guarantor. See Note

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

15, Condensed Consolidating Financial Statements, for information regarding guarantor and non-guarantor subsidiary condensed financial information. The total debt issued was comprised of two tranches, (a) $350,000,000 aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, maturing on November 15, 2016 and (b) $250,000,000 aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036. The notes are senior unsecured obligations of Reliance and rank equally with all other existing and future unsecured and unsubordinated debt obligations of Reliance. Reliance, at its option, may redeem all or part of the notes of either series at any time prior to their maturity by paying a redemption price equal to the greater of 100% of the aggregate principal amount of the notes to be redeemed or the sum of the present values of the remaining scheduled payments (as defined in the Indenture), plus, in each case, accrued and unpaid interest thereon to, but not including, the redemption date. The proceeds from the notes in 2006 were used to pay down outstanding borrowings on the $1,100,000,000 credit facility. In April 2007, these notes were exchanged for publicly traded notes registered with the Securities and Exchange Commission.

     The Company also has $278,000,000 of outstanding senior unsecured notes issued in private placements of debt. The outstanding senior notes bear interest at a weighted average fixed rate of 6.0% and have a weighted average remaining life of 3.1 years, maturing from 2008 to 2013.

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

     The following is a summary of aggregate maturities of long-term debt for each of the next five years and thereafter (in thousands):

2008		$	71,816
2009			11,425
2010			78,250
2011			245,250
2012			450
Thereafter			675,600
		$	1,082,791

9. Income Taxes

     On January 1, 2007, the Company adopted the provisions of FIN No. 48. As a result of the implementation of FIN No. 48, the Company recognized no material adjustment to the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007, the Company had approximately $5,026,000 of unrecognized tax benefits and $770,000 of accrued interest and penalties related to uncertain tax positions. At December 31, 2007, the Company had approximately $3,795,000 of unrecognized tax benefits all of which would impact the effective tax rate if recognized. Accrued interest and penalties related to uncertain tax positions were approximately $1,660,000 at December 31, 2007. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense which amounted to approximately $890,000 during 2007.

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

     The Internal Revenue Service (“IRS”) is currently examining the Company’s 2002 through 2004 federal income tax returns. The IRS has issued significant proposed adjustments related to certain of the Company’s inventory costing and LIFO methods. The IRS has also issued a proposed adjustment for a pre-acquisition refund claim filed by one of the Company’s subsidiaries. The Company has not accepted any of the IRS proposed adjustments and is currently contesting them through the IRS administrative proceedings. The Company is also under audit by various foreign jurisdictions but does not anticipate any material adjustments from these examinations. Certain of the current proposed adjustments are merely a timing impact or relate to pre-acquisition contingencies and therefore would not have an effect on the Company’s effective tax rate. The Company does not anticipate that the proposed IRS adjustments, when resolved, would result in a material charge to its results of operations or financial condition.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     Reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):

Gross unrecognized tax benefits at January 1, 2007		$	5,026
Increases in tax positions for prior years			14
Decreases in tax positions for prior years			(1,301	)
Increases in tax positions for current years			479
Settlements			(341	)
Lapse in statute of limitations			(82	)
Gross unrecognized tax benefits at December 31, 2007		$	3,795

     Deferred income taxes are computed using the liability method and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. The provision for income taxes reflects the taxes to be paid for the period and the change during the period in the deferred tax assets and liabilities.

     As of December 31, 2007, the Company had available state net operating loss carryforwards (“NOL’s”) of $526,000 to offset future income taxes, expiring in years 2008 through 2026. Additionally, as of December 31, 2007, the Company had $28,835,000 of minimum tax credits and $248,000 of other miscellaneous tax credits. The minimum tax credits were from the acquisition of EMJ and are subject to an annual limitation amount. The ultimate realization of the federal and state benefits of the credit carryforwards are dependent on future profitable operations. The Company believes that it will be able to realize its NOL’s and credits within their respective carryforward periods.

     Significant components of the Company’s deferred tax assets and liabilities are as follows:

		December 31,
		2007				2006
		(in thousands)
Deferred tax assets:
Accrued expenses not currently deductible for tax		$	41,122			$	34,859
Inventory costs capitalized for tax purposes			11,121				10,896
Bad debt			5,345				5,643
Tax credits			29,083				32,415
Net operating loss carryforwards			342				7,910
Other			14,592				9,701
Total deferred tax assets			101,605				101,424
Deferred tax liabilities:
Tax over book depreciation			(91,635	)			(82,451	)
Goodwill and other intangible assets			(160,881	)			(142,017	)
LIFO inventory			(69,687	)			(81,967	)
Other			(2,719	)			(323	)
Total deferred tax liabilities			(324,922	)			(306,758	)
Net deferred tax liabilities		$	(223,317	)		$	(205,334	)

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     Significant components of the provision for income taxes attributable to continuing operations are as follows:

		Year Ended December 31,
		2007				2006				2005
		(in thousands)
Current:
Federal		$	194,225			$	166,577			$	108,612
State			32,966				23,013				16,156
Foreign			7,014				3,397				820
			234,205				192,987				125,588
Deferred:
Federal			8,917				16,654				1,935
State			1,113				6,660				(671	)
Foreign			2,203				324				923
			12,233				23,638				2,187
		$	246,438			$	216,625			$	127,775

     The reconciliation of income tax at the U.S. federal statutory tax rates to income tax expense is as follows:

		Year Ended December 31,
		2007				2006				2005
Income tax at U.S. federal statutory tax rate			35.0	%			35.0	%			35.0	%
State income tax, net of federal tax effect			3.4				3.9				3.2
Other			(0.7	)			(1.0	)			0.1
Effective tax rate			37.7	%			37.9	%			38.3	%

     At December 31, 2007, unremitted earnings of subsidiaries outside of the United States were approximately $55,137,000, on which no United States taxes had been provided. The Company’s current intention is to reinvest these earnings outside the United States. It is not practicable to estimate the amount of additional taxes that might be payable upon repatriation of foreign earnings. Valex Korea qualifies for a tax holiday in Korea which consists of a seven-year full exemption from corporate income tax followed by a 50% exemption for the succeeding three years. The exemption is limited to the amount of the Company’s initial investment in Valex Korea. The tax holiday began the first year the subsidiary generated taxable income after utilization of any carryforward losses, which was in 2003. The dollar effect of the tax savings from the tax holiday were $494,000, or $0.01 per diluted share in 2007, $552,000, or $0.01 per diluted share in 2006, and $973,000, or $0.01 per diluted share in 2005.

     The American Jobs Creation Act of 2004 (the “Jobs Act”) introduced a number of changes to the income tax laws which may affect the Company in future years. A special one-time tax deduction was created relating to the repatriation of certain foreign earnings to the United States, provided certain conditions are met. The Company did not repatriate any earnings that were subject to this deduction. The Jobs Act also provides for a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. Although the Company has not taken any deductions for qualified domestic production activities, the Company will continue to evaluate what, if any, benefits may result from this deduction in future years.

10. Stock Option Plans

     In 1994, the Board of Directors of the Company adopted an Incentive and Non-Qualified Stock Option Plan (“the 1994 Plan”). The 1994 Plan expired by its terms on December 31, 2003. There are 359,875 options granted and outstanding under the 1994 Plan as of December 31, 2007. The 1994 Plan provided for granting of stock options that were either “incentive stock options” within the meaning of Section 422A of the Internal Revenue Code of 1986 (the “Code”) or “non-qualified stock options,” which do not satisfy the provisions of Section 422A of the Code. Options were required to be granted at an option price per share not less than the fair market value of common stock on the date of grant. Stock options could not be granted longer than 10 years from the date of the 1994 Plan. All options granted had five-year terms and vested at the rate of 25% per year, commencing one year from the date of grant.

     In May 2004, the Board of Directors of the Company (the “Board”) adopted, and the shareholders approved, an Incentive and Non-Qualified Stock Option Plan (the “2004 Plan”). This 2004 Plan reserved 6,000,000 shares of the Company’s Common Stock for issuance upon exercise of stock options granted under the 2004 Plan. On May 17, 2006 the 2004 Plan was amended to

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

allow the Board to extend the term of subsequently granted stock options to up to 10 years, to increase the number of shares available for future grants of options or restricted stock from 6,000,000 shares to 10,000,000 shares, and to provide for the grant of restricted shares of the Company’s common stock, in addition to or in lieu of stock options. There are 9,520,750 shares available for issuance with 2,473,250 options granted and outstanding under the 2004 Plan as of December 31, 2007. The 2004 Plan, as amended, provides for granting of stock options that may be either “incentive stock options” within the meaning of Section 422A of the Code or “non-qualified stock options,” which do not satisfy the provisions of Section 422A of the Code. Options are required to be granted at an option price per share not less than the fair market value of common stock on the date of grant, except that the exercise price of incentive stock options granted to any employee who owns (or, under pertinent Code provisions, is deemed to own) more than 10% of the outstanding common stock of the Company, must equal at least 110% of fair market value on the date of grant. Stock options cannot be granted longer than 10 years from the date of the plan. All options granted as of December 31, 2007 have five-year terms with the exception of March 2007 grants which have seven-year terms, and all vest at the rate of 25% per year, commencing one year from the date of grant.

     In May 1998, the shareholders approved the adoption of a Directors Stock Option Plan for non-employee directors (the “Directors Plan”), which provides for automatic grants of options to non-employee directors. In February 1999, the Directors Plan was amended to allow the Board authority to grant additional options to acquire the Company’s common stock to non-employee directors. In May 2004 the Directors Plan was amended so that any unexpired stock options granted under the Directors Plan to a non-employee director that retires from the Board of Directors at or after the age of 75 become immediately vested and exercisable, and the director, if he or she so desires, must exercise those options within ninety (90) days after such retirement or the options shall expire automatically. In May 2005, after approval of the Company’s shareholders, the Directors Plan was further amended and restated providing that options to acquire 6,000 shares of Common Stock would be automatically granted to each non-employee director each year and would become 100% exercisable after one year. Once exercisable, the options would remain exercisable until that date which is ten years after the date of grant. In addition, the amendment increased the number of shares available for future grants of options from the 374,000 shares reserved as of May 2005 to 500,000 shares. Options under the Directors Plan are non-qualified stock options, with an exercise price at least equal to fair market value at the date of grant. All options granted prior to May 2005 expire five years from the date of grant. None of these stock options become exercisable until one year after the date of grant, unless specifically approved by the Board. In each of the following four years, 25% of the options become exercisable on a cumulative basis. As of December 31, 2007, there were 434,000 shares available for issuance with 159,000 options granted and outstanding under the Directors Plan.

     In connection with the EMJ acquisition, the Company assumed the EMJ incentive stock option plan (“EMJ Plan”) and converted the outstanding EMJ options to options to acquire 287,886 shares of Reliance common stock on the same terms and conditions as were applicable to such options under the EMJ plan, with adjusted exercise prices and numbers of shares to reflect the difference in the value of the stock. The exchange of the options was accounted for similar to a modification in accordance with SFAS 123(R). The value of the vested options assumed was included as part of the EMJ purchase price and the value of the unvested options is being recognized to expense over the remaining vesting periods of the respective options. Options granted under the EMJ plan have ten-year terms and vest at the rate of 25% per year. As of December 31, 2007, there were 160,130 options granted and outstanding under the EMJ Plan.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     Stock option activity under all the plans is as follows:

										Weighted
										Average
										Remaining
						Weighted				Contractual				Aggregate Intrinsic
						Average				Term				Value
Stock Options		Shares				Exercise Price				(In years)				(In thousands)
Outstanding at January 1, 2005			2,052,900			$	12.56
Granted			2,021,000			$	24.46
Exercised			(866,900	)		$	12.47
Expired or forfeited			(48,000	)		$	12.47
Outstanding at December 31, 2005			3,159,000			$	20.20
Granted			42,000			$	43.34
Assumed in acquisition			287,886			$	25.13
Exercised			(438,290	)		$	16.23
Expired or forfeited			(43,184	)		$	22.36
Outstanding at December 31, 2006			3,007,412			$	21.54
Granted			1,068,500			$	45.51
Exercised			(872,001	)		$	18.90
Expired or forfeited			(51,656	)		$	29.57
Outstanding at December 31, 2007			3,152,255			$	30.27				4.1			$	75,446,000
Exercisable at December 31, 2007			1,016,021			$	20.53				2.7			$	34,206,000

     The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:

		Year Ended December 31,
		2007				2006				2005
Weighted average assumptions used:
Risk free interest rate			4.5	%			4.75	%			4.25	%
Expected life in years			4.8				5.8				4.0
Expected volatility			.40				.38				.27
Expected dividend yield			.71	%			.46	%			.80	%

     The total intrinsic value of all options exercised during the years ended December 31, 2007, 2006, and 2005 were $28,069,000, $9,594,000 and $9,110,000, respectively.

     A summary of the status of the Company’s non-vested stock options as of December 31, 2007 and changes during the year then ended is as follows:

						Weighted
						Average Grant
Non-vested Options		Shares				Date Fair Value
Non-vested at December 31, 2006			2,055,084			$	8.05
Granted			1,068,500			$	17.43
Forfeited or expired			(51,656	)		$	12.25
Vested			(935,694	)		$	7.12
Non-vested at December 31, 2007			2,136,234			$	13.05

     As of December 31, 2007, there was approximately $21,800,000 of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the stock option plans. That cost is expected to be recognized over approximately a 3-year period or a weighted average period of 1.8 years.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     Proceeds from option exercises under all stock option plans for the years ended December 31, 2007, 2006 and 2005 were $16,483,000, $7,115,000, and $10,811,000, respectively. The tax benefit realized from option exercises during the years ended December 31, 2007, 2006 and 2005 were $10,708,000, $3,555,000, and $3,476,000, respectively.

     The following tabulation summarizes certain information concerning outstanding and exercisable options at December 31, 2007:

						Options Outstanding								Options Exercisable
						Weighted Average
						Remaining				Weighted								Average Exercise
Range of		Outstanding at				Contractual Life				Average				Exercisable at				Price of Options
Exercise Price		December 31, 2007				In Years				Exercise Price				December 31, 2007				Exercisable
$8–$13			374,875				0.8			$	12.38				374,875			$	12.38
$15–$19			60,000				4.4			$	17.24				48,750			$	17.51
$24–$28			1,620,380				3.3			$	24.62				550,396			$	24.61
$43–$45			1,055,000				6.3			$	44.80				42,000			$	43.34
$61–$62			42,000				9.3			$	61.33				—			$	—
$8–$62			3,152,255				4.1			$	30.27				1,016,021			$	20.53

11. Employee Benefits

Employee Stock Ownership Plan

     The Company has an employee stock ownership plan (“the ESOP”) and trust that has been approved by the Internal Revenue Service as a qualified plan. The ESOP is a noncontributory plan that covers certain salaried and hourly employees of the Company. The amount of the annual contribution is at the discretion of the Board, except that the minimum amount must be sufficient to enable the ESOP trust to meet its current obligations.

Defined Contribution Plans

     Effective in 1998, the Reliance Steel & Aluminum Co. Master 401(k) Plan (the “Master Plan”) was established which combined several of the various 401(k) and profit-sharing plans of the Company and its subsidiaries into one plan. Salaried and certain hourly employees of the Company and its participating subsidiaries are covered under the Master Plan. The Master Plan allows each subsidiary’s Board to determine independently the annual matching percentage and maximum compensation limits or annual profit-sharing contribution. Eligibility occurs after three months of service, and the Company contribution vests at 25% per year, commencing one year after the employee enters the Master Plan. Other 401(k) and profit-sharing plans exist as certain subsidiaries have not combined their plans into the Master Plan as of December 31, 2007. The EMJ defined contribution plan is expected to be combined into the Master Plan during 2008.

Supplemental Executive Retirement Plans

     Effective January 1996, the Company adopted a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified pension plan that provides postretirement pension benefits to certain key officers of the Company. The SERP is administered by the Compensation and Stock Option Committee of the Board. Benefits are based upon the employees’ earnings. Life insurance policies were purchased for most individuals covered by the SERP and are funded by the Company. Separate SERP plans exist for certain wholly-owned subsidiaries of the Company, each of which provides postretirement pension benefits to certain current and former key employees. All of the subsidiary plans have been frozen to include only existing participants. The SERP plans do not maintain their own plan assets, therefore plan assets and related disclosures have been omitted. However, the Company does maintain on its balance sheet assets to fund the SERP plans with values of $13,229,000 and $12,556,000 at December 31, 2007 and 2006, respectively.

Defined Benefit Plans

     The Company, through certain of its subsidiaries maintains defined benefit pension plans for certain of its employees. These plans generally provide benefits of stated amounts for each year of service or provide benefits based on the participant’s hourly wage rate and years of service. The plans permit the sponsor, at any time, to amend or terminate the plans subject to union approval, if applicable.

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2007

     The Company uses a December 31 measurement date for its plans. The following is a summary of the status of the funding of the SERP and Defined Benefit Plans:

		SERP								Defined Benefit Plan
		2007				2006				2007				2006
		(in thousands)								(in thousands)
Change in benefit obligation
Benefit obligation at beginning of year		$	20,072			$	15,839			$	28,080			$	9,789
Assumed in acquisition			—				665				—				20,573
Service cost			964				568				795				721
Interest cost			1,568				1,125				1,586				1,227
Actuarial losses			6,473				2,632				547				632
Change in assumptions			(15	)			—				(2,467	)			—
Benefits paid			(767	)			(757	)			(747	)			(4,132	)
Plan Amendments			—				—				121				—
Curtailments or settlements			—				—				(1,031	)			(1,275	)
Discount rate changes			—				—				—				545
Benefit obligation at end of year		$	28,295			$	20,072			$	26,884			$	28,080
Change in plan assets
Fair value of plan assets			N/A				N/A			$	21,539			$	7,636
Acquired in acquisition			N/A				N/A				—				13,659
Actual return on plan assets			N/A				N/A				2,447				2,125
Employer contributions			N/A				N/A				3,460				2,250
Benefits paid			N/A				N/A				(2,000	)			(4,132	)
Fair value of plan assets at end of year			N/A				N/A			$	25,446			$	21,538
Funded status
Unfunded status of the plans		$	(28,295	)		$	(20,072	)		$	(1,438	)		$	(6,542	)
Items not yet recognized as component of net periodic pension expense
Unrecognized net actuarial losses/(gain)			10,621				5,415				(1,790	)			610
Unamortized prior service cost			196				391				—				62
		$	10,817			$	5,806			$	(1,790	)		$	672