Reliance Reports Record Results for 2006

Feb. 16, 2007 — Reliance Steel & Aluminum Co. reported net income of $74.6 million on sales of $1.6 billion for the fourth quarter and record net income of $354.5 million on record sales of $5.7 billion for the fiscal year ended December 31, 2006.

All share and per-share amounts have been adjusted for the two-for-one common stock split effective July 19, 2006. The 2006 financial results include positive contributions to sales and earnings from the company’s 2006 acquisitions, primarily Yarde Metals, Inc. that was acquired on August 1, 2006, and Earle M. Jorgensen Co. that was acquired on April 3, 2006. The Jorgensen acquisition included the issuance of approximately nine million shares of Reliance’s common stock, representing a 14% increase in diluted shares outstanding.

Fourth Quarter Results—The $74.6 million net income reflects a 23% increase compared with net income of $60.6 million for the fourth quarter of 2005. Earnings per diluted share were $.98, which compares to earnings of $.91 for the year-ago fourth quarter. Sales of $1.6 billion, reflects an increase of 81% compared with fourth-quarter 2005 sales of $868.7 million. Results include a $37.9-million pre-tax LIFO expense ($.31 per diluted share), compared with a $91,000 pre-tax LIFO expense recorded in the fourth quarter of 2005.

Full Year Results—The record $354.5 million net income reflects a 73% increase compared with net income of $205.4 million for the same period in 2005. record earnings per diluted share were $4.82, compared with earnings of $3.10 per diluted share for the year ended December 31, 2005. Sales, a record at $5.7 billion, reflect an increase of 71% compared with 2005 fiscal year sales of $3.4 billion. Results include a $94.1-million pre-tax LIFO expense ($.79 per diluted share), which compares to a $16.6 million pre-tax LIFO expense ($.15 per diluted share) in 2005.

Management Comments—“We are very pleased with our fiscal year 2006 results,” said David H. Hannah, CEO of Reliance. “All of our end markets were strong with a very favorable operating environment throughout our network of facilities. We completed four acquisitions during 2006, including the acquisition of Earle M. Jorgensen Co. on April 3, 2006 that was our largest acquisition to-date and our first acquisition of a public company. The purchase price consisted of approximately 50% common stock and 50% cash. We also acquired Yarde Metals, Inc. on August 1, 2006, our second largest acquisition. The combined sales of Jorgensen and Yarde contributed $1.6 billion to our 2006 revenues.

“We have completed three additional acquisitions in January and February of 2007 that further increase our product and geographic diversification. We acquired Crest Steel Corp. with 2006 revenues of approximately $133 million and Industrial Metals and Surplus, Inc. with 2006 revenues of approximately $105 million, on January 2, 2007. Crest has facilities in California and Arizona and processes and distributes carbon steel products including flat-rolled, plate, bars and structurals. Industrial Metals is located in Georgia and specializes in the processing and distribution of carbon steel structurals, flat-rolled and ornamental iron products. We acquired the Encore Group of metals service centers located mainly in Western Canada as of February 1, 2007. Encore, with 2006 revenues of approximately C$259 million, 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 that serve, among others, the robust energy, oil and gas industries,” Hannah said.

“We experienced the normal seasonal slowdown during the 2006 fourth quarter. However, gross profit margins were slightly below our earlier expectations due to some inventory de-stocking that resulted in added competitive pressures. Also, our LIFO expense during the quarter was substantially higher than we anticipated, despite the fact that we reduced our inventories during that time. Stainless steel prices continued to increase from their historical highs in the third quarter which we did not expect to happen, resulting in the significant LIFO expense of $37.9 million, or $.31 per diluted share in the fourth quarter, exceeding our earlier estimate by $19.1 million, or $.16 per diluted share,” said Hannah.

“In November of 2006, we replaced our $700-million credit facility with a $1.1 billion five-year, unsecured syndicated credit facility that provides increased availability of funds and more favorable pricing. This facility may be increased to up to $1.6 billion at our request with approval from the lenders. We used funds from the increased line to purchase approximately $250 million of the Jorgensen 9.75% senior secured notes in a tender offer. We then issued $600 million of senior unsecured notes and used the proceeds to pay down the borrowings under our credit facility. This included $350 million of 10 year notes at 6.20% and $250 million of 30 year notes at 6.85%. The notes are investment grade rated Baa3 by Moody’s and BBB- by Standard & Poor’s. These activities lowered our cost of capital and significantly increased our availability to fund our working capital and general corporate needs, including acquisitions, capital expenditures, debt repayments, dividend payments and stock repurchases,” Hannah stated.

Outlook—“We are optimistic regarding 2007 business conditions. We generally see continued growth in the markets we serve, but at a slower rate than in 2006. Pricing should be relatively stable with steel trending upwards and aluminum slightly softer as the year progresses. Our 2006 and 2007 acquisitions to-date should increase 2007 revenues by about $1 billion compared to 2006, assuming no significant changes in the operating environment. As a result, we expect record sales and earnings again in 2007 and currently estimate earnings per diluted share for the 2007 first quarter in a range of $1.25 to $1.35,” Hannah concluded.

Headquartered in Los Angeles, Calif., Reliance Steel & Aluminum Co. is one of the largest metals service center companies in the United States. Through a network of more than 180 locations in 37 states and Belgium, Canada, China and South Korea, the company provides value-added metals processing services and distributes a full line of over 100,000 metal products. These products include galvanized, hot-rolled and cold-finished steel; stainless steel; aluminum; brass; copper; titanium and alloy steel sold to more than 125,000 customers in various industries.