Back to GetFilings.com




1

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-K
------------------------
(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

OR

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

FOR THE TRANSITION PERIOD FROM __________ TO __________ .

COMMISSION FILE NUMBER: 001-13122

RELIANCE STEEL & ALUMINUM CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------



CALIFORNIA 95-1142616
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)


2550 EAST 25TH STREET
LOS ANGELES, CALIFORNIA 90058
(323) 582-2272
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND TELEPHONE NUMBER)
------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

COMMON STOCK NEW YORK STOCK EXCHANGE


SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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 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. [ ].

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
February 29, 2000 was $508,569,550.63.

As of February 29, 2000, 27,767,301 shares of the registrant's common
stock, no par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held May 17, 2000 (the "Proxy Statement") are
incorporated by reference into Part III of this report.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2

INDEX



PAGE
----

PART I

Item 1. Business.................................................... 1
Industry Overview........................................... 1
History of Reliance......................................... 1
Customers................................................... 5
Suppliers................................................... 6
Backlog..................................................... 6
Products and Processing Services............................ 6
Marketing................................................... 8
50%-Owned Company........................................... 8
Industry and Market Cycles.................................. 8
Competition................................................. 9
Quality Control............................................. 9
Systems..................................................... 10
Government Regulation....................................... 10
Employees................................................... 11
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 43

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 43
Item 11. Executive Compensation...................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
Item 13. Certain Relationships and Related Transactions.............. 43

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 43
SIGNATURES............................................................ 46


i
3

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

This Annual Report on Form 10-K may include forward-looking statements that
involve risks and uncertainties. Reliance Steel & Aluminum Co. ("the Company")
is subject to risks inherent in the industries which the Company serves, such
as, the volatility of the transportation, construction, general manufacturing,
aerospace and semiconductor fabrication industries to which the Company sells
products. These industries, and therefore the Company, are subject to changes in
the economy in general. The Company has increased its long-term debt as a result
of its recent acquisitions and is subject to increased risks as a result of this
higher leverage. The Company's metals service centers are subject to
fluctuations in the price of raw materials, although the Company is generally
able to pass-through increases in costs of raw materials to its customers. The
Company's relationship to and business dealings with significant vendors and
customers and the intense price competition in the Company's markets also may
affect the Company's results. Recent acquisitions of the Company may not perform
as the Company anticipates after the change in ownership. Accordingly, the
actual results realized by the Company could differ materially from the
statements made herein. You should not rely on the forward-looking statements
made in this Annual Report on Form 10-K.

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

ii
4

PART I

ITEM 1. BUSINESS.

Reliance Steel & Aluminum Co. ("Reliance" or the "Company") is one of the
largest metals service center companies in the United States. The Company has a
network of 23 divisions and 12 subsidiaries operating metals service centers,
with 72 processing and distribution facilities (excluding American Steel,
L.L.C.'s two facilities) in 21 states and France. Through this network, the
Company provides value-added materials management and metals processing services
and distributes a full line of more than 75,000 metal products, including
carbon, alloy, stainless and specialty steel, aluminum, brass and copper
products to more than 65,000 customers in a broad range of industries. Some of
these metals service centers provide processing services for specialty metals
only. The Company's products are currently delivered from facilities in Alabama,
Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland,
Michigan, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania,
South Carolina, Tennessee, Texas, Utah and Washington. In addition, one of the
Company's subsidiaries has an international subsidiary operating a distribution
center in Fuveau, France. The Company also has a 50% ownership interest in and
operational control of American Steel, L.L.C., which operates two metals service
centers in the Pacific Northwest.

Industry Overview

Metals service centers acquire products from primary metals producers and
then process carbon steel, aluminum, stainless steel and other metals to meet
customer specifications, using techniques such as cutting-to-length (or
leveling), slitting, blanking, shape cutting, shearing, sawing, precision plate
sawing, twin milling, skin milling, tee splitting and straightening, forming,
pipe threading, welding, bending, grinding, wheelabrating, punching,
electropolishing and fabricating. These processing services help customers save
time, labor and expense which reduces overall manufacturing costs. Specialized
equipment used to process the metals requires high-volume production to be cost
effective. Many manufacturers are not able or willing to invest in the necessary
technology, equipment and inventory to process the metals for their own
manufacturing operations. Accordingly, industry forces have created a niche in
the market to allow metals service centers, such as Reliance, to purchase,
process and deliver metals to end users in a more efficient and cost-effective
manner than the end user could achieve in dealing directly with the primary
producer, or with an intermediate steel processor. Industry analysts estimate
that, historically in the United States, based on tonnage, metals service
centers and processors purchased approximately 30% of all carbon industrial
steel products, 45% of all stainless steel produced in the United States and 36%
of all aluminum sold in the mill/distributor shared markets (which excludes that
sold for aluminum cans, among other things). The metals distribution industry is
currently estimated at more than $75 billion in revenues in the United States.

The metals service center industry is highly fragmented and intensely
competitive within localized areas or regions. Many of the Company's competitors
operate single stand-alone service centers. According to industry sources, the
number of intermediate steel processors and metals service center facilities in
the United States has been reduced from approximately 7,000 in 1980 to
approximately 3,400 in 1999. The Company believes that this consolidation trend
creates new opportunities for acquisitions.

History of Reliance

Reliance was organized as a California corporation on February 3, 1939, and
commenced business in Los Angeles fabricating steel reinforcing bar. Within ten
years, it had become a full-line distributor of steel and aluminum, operating a
single metals service center in Los Angeles, California. In the early 1950's,
the Company automated its materials handling operations and began to provide
processing services to meet its customers' requirements. In the 1960's, the
Company began to expand its operations through acquisitions of other companies
and the development of additional service centers and began to establish branch
metals service centers in other geographic areas.

In the mid-1970's, the Company began to establish specialty metals service
centers stocked with inventories of selected metals such as aluminum, stainless
steel, brass and copper, and equipped with

1
5

automated materials handling and precision cutting equipment and has continued
to expand its network through acquisitions. The Company currently has 61
specialty metals service centers and eleven full-line facilities, not including
American Steel, L.L.C., which processes and distributes primarily carbon steel
products from two metals service centers. The Company's metals service centers
are operated under the following trade names:



NO. OF
TRADE NAME LOCATIONS PRIMARY PRODUCTS PROCESSED & DISTRIBUTED
---------- --------- ----------------------------------------

RELIANCE DIVISIONS
Affiliated Metals..................... 1 Plate and Flat-Rolled Aluminum and
Stainless Steel
Arrow Metals.......................... 2 Aluminum, Brass and Copper
Bralco Metals......................... 2 Aluminum, Brass, Copper and Stainless
Steel
Engbar Pipe & Steel Co. .............. 1 Carbon Steel Bars, Pipe and Tubing
MetalCenter........................... 1 Flat-Rolled Aluminum and Stainless Steel
Reliance Metalcenter.................. 11 Variety of Carbon Steel and Non-Ferrous
Metal Products
Reliance Steel Company................ 2 Carbon Steel
Tube Service Co. ..................... 6 Specialty Tubing
ALLEGHENY STEEL DISTRIBUTORS, INC. ..... 1 Carbon Steel
AMERICAN METALS CORPORATION............. 3 Carbon Steel
AMI METALS, INC. ....................... 6 Heat-Treated Aluminum Sheet and Plate
CCC STEEL, INC.
CCC Steel............................. 1 Structural Steel
IMS Steel Co. ........................ 1 Structural Steel
CHATHAM STEEL CORPORATION
Chatham Steel......................... 5 Full-Line Service Center
Chatham Processing Services........... 1 Metal Fabrication
DURRETT SHEPPARD STEEL CO., INC. ....... 1 Carbon Steel Plate, Bar and Structural
LIEBOVICH BROS., INC.
Liebovich Steel & Aluminum Company.... 1 Full-Line Service Center
Architectural Metals, Inc. ........... 1 Metal Fabrication
Good Metals, Inc. .................... 1 Tool and Alloy Steels
Hagerty Steel & Aluminum Company...... 1 Carbon Steel Flat-Roll and Plate
Liebovich Custom Fabricating 1 Metal Fabrication
Company............................
LUSK METALS............................. 1 Precision Cut Aluminum Plate and
Aluminum Sheet and Extrusions
PHOENIX CORPORATION
Phoenix Metals Company................ 5 Flat-Rolled Aluminum, Stainless Steel
and Coated Carbon Steel
Steel Bar Corporation................. 1 Carbon Steel Bars and Tubing
SERVICE STEEL AEROSPACE CORP. .......... 3 Stainless and Alloy Specialty Steels
SISKIN STEEL & SUPPLY COMPANY, INC.
Siskin Steel.......................... 4 Full-Line Service Centers
Georgia Steel Supply Company.......... 1 Full-Line Service Center
VALEX CORP. ............................ 7 Specialty Tubing


The Company serves its customers primarily by providing quick delivery,
metals processing and inventory management services. The Company purchases a
variety of metals from primary producers and sells these products in smaller
quantities. For approximately 50% of its sales, the Company performs metals
processing services, or first stage processing, before distributing the product
to manufacturers and other end users, generally within 24 hours from receipt of
an order, for orders that do not require extensive or customized

2
6

processing. Metals processing services include leveling, slitting, blanking,
shape cutting, shearing, sawing, precision plate sawing, twin milling, skin
milling, tee splitting and straightening, forming, pipe threading, welding,
bending, grinding, wheelabrating, punching, electropolishing and fabricating,
all to customer specifications. See "Business -- Products and Processing
Services". These services save time, labor and expense for customers and reduce
customers' overall manufacturing costs. During 1999, the Company's metals
service centers handled approximately 7,135 transactions per business day, with
an average revenue of approximately $860 per transaction. Total revenues of the
Company for 1999 were $1.51 billion.

The Company has a history of expansion through acquisitions, as well as
from internal growth. Since its initial public offering in September 1994,
Reliance has successfully completed eighteen accretive acquisitions and two
strategic asset purchases. The acquisition of Hagerty Steel & Aluminum Company
occurred in 2000. The Company has historically been aggressive in making
acquisitions, with twenty acquisitions from 1984 to September 1994.

On February 5, 2000, through its newly-formed company Hagerty Steel &
Aluminum Company ("Hagerty"), the Company purchased the assets and business of
the metals service center division of Hagerty Brothers Company, located in
Peoria, Illinois. Hagerty processes and distributes primarily carbon steel
products and operates as a wholly-owned subsidiary of Liebovich Bros., Inc.
("Liebovich"), a wholly-owned subsidiary of the Company. Net sales of the metals
service center business of Hagerty Brothers Company were approximately $30
million for the year ended December 31, 1999.

On October 1, 1999, the Company purchased the assets and business of Arrow
Metals, a division of Arrow Smelters, Inc. The privately-held metals service
center business was based in Garland (Dallas), Texas, with additional facilities
in Houston and San Antonio. Arrow Metals specializes in non-ferrous metals
processing and distribution of mainly aluminum plate and bar products, with 1998
sales of approximately $22 million. The Arrow Metals locations are operating as
divisions of the Company, with the Houston location operating under the trade
name of Reliance Metalcenter.

On September 3, 1999, the Company acquired 100% of the stock of Allegheny
Steel Distributors, Inc. ("Allegheny"), a privately-held metals service center.
Allegheny is based in Indianola (Pittsburgh), Pennsylvania and specializes in
cutting-to-length and blanking primarily carbon steel flat-rolled products.
Allegheny had sales of approximately $31 million in the year ended December 31,
1998.

On March 1, 1999, the Company acquired 100% of the outstanding shares of
Liebovich, a privately-held metals service center company headquartered in
Rockford, Illinois, for $60 million in cash. This acquisition provided the
Company an entry into a new market, the Midwest area of the United States.
Liebovich provides primarily carbon steel products and has a metals service
center facility and two metal fabrication facilities in Rockford, Illinois, as
well as a service center in Wyoming (Grand Rapids), Michigan. Liebovich's sales
for the ten months ended December 31, 1999, were approximately $98 million.

On October 5, 1998, the Company acquired Engbar Pipe & Steel Co.
("Engbar"), a privately-held metals service center company headquartered in
Denver, Colorado. Engbar's products primarily include carbon steel bars, pipe
and tubing. Net sales of Engbar for the twelve months ended December 31, 1999,
were approximately $14 million. Engbar was merged into the Company effective
January 1, 2000, and now operates as a division of the Company.

On October 1, 1998, Phoenix Corporation, a wholly-owned subsidiary of the
Company, acquired Steel Bar Corporation ("Steel Bar"), a privately-held metals
service center in Greensboro, North Carolina. Steel Bar's products include,
primarily, carbon steel bars and tubing. Steel Bar's net sales for the twelve
months ended December 31, 1999, were approximately $8 million.

Also on October 1, 1998, the Company acquired American Metals Corporation
("American Metals"), based in West Sacramento, California, with additional
service centers in Redding and Fresno, California. American Metals was
previously owned by American Steel, L.L.C. ("American Steel"), in which the
Company owns a 50% interest. American Metals' net sales for the twelve months
ended December 31, 1999, were approximately $57 million, which include,
primarily, sales of carbon steel plate, bars, structurals, sheet and aluminum
and stainless steel sheet products.
3
7

On September 18, 1998, the Company acquired 100% of the stock of Lusk
Metals, a privately-held metals service center with headquarters in Hayward,
California (near San Francisco). Lusk Metals had net sales of approximately $28
million for the twelve months ended December 31, 1999, and processes and
distributes primarily precision cut aluminum plate and aluminum sheet and
extrusions.

Effective July 1, 1998, the Company acquired 100% of the stock of Chatham
Steel Corporation ("Chatham"), a privately-held metals service center company
headquartered in Savannah, Georgia. Chatham has additional facilities in
Columbia, South Carolina; Durham, North Carolina; Orlando, Florida;
Jacksonville, Florida; and Birmingham, Alabama. Chatham's products include
primarily carbon steel structurals, plate, pipe and tube, bars, sheet and coil
and some stainless steel. Chatham's net sales for the year ended December 31,
1999, were approximately $146 million.

On January 30, 1998, the Company acquired all of the outstanding capital
stock of Phoenix Corporation, doing business as Phoenix Metals Company ("Phoenix
Metals"). Phoenix Metals operates metals service centers specializing in
flat-rolled aluminum, stainless steel and coated carbon steel products in
Birmingham, Alabama; Norcross (Atlanta), Georgia; Tampa, Florida; and Charlotte,
North Carolina. Phoenix Metals had net sales of approximately $145 million in
the twelve months ended December 31, 1999.

Also on January 30, 1998, the Company purchased the assets and business of
Durrett-Sheppard Steel Co., L.L.C. and its subsidiary Durrett-Sheppard Steel of
Pennsylvania, Inc., through its newly-formed subsidiary, Durrett Sheppard Steel
Co., Inc. ("Durrett"). Durrett consists of one carbon steel metals service
center located in Baltimore, Maryland. Durrett had revenues of approximately $52
million for the twelve months ended December 31, 1999.

Valex Corp. ("Valex"), a 97%-owned subsidiary of the Company that is a
leading domestic manufacturer of electropolished stainless steel tubing and
fittings primarily used in the construction and maintenance of semiconductor
manufacturing plants, formed its first foreign subsidiary and opened an
international distribution center in 1999 in Fuveau, France. This replaces
Valex's international sales office which was maintained in Marseilles, France
since 1996. Valex has also formed a joint venture establishing a Korean company,
Valex Korea Co., Ltd. ("Valex Korea"). The joint venture consists of a 66.5%
interest held by Valex and a 33.5% interest held by the individual who owns the
company that has been acting as an independent distributor of Valex's products
in Korea. Valex Korea will establish the Company's first manufacturing facility
outside of the United States. Valex Korea will be the only ultra high-purity
stainless steel tubing and fittings manufacturing plant in Korea, and will be
ideally positioned to service the Korean semiconductor industry. A facility is
currently being built, with Valex Korea expected to begin operations in late
2000. Also, in February 1999, Valex purchased certain of the assets of one of
its leading domestic competitors, Advanced MicroFinish, Inc., which further
strengthens Valex's dominant position in supplying the U.S. market for the
semiconductor manufacturing industry.

The Company's executive officers maintain financial controls and establish
general policies and operating guidelines, while its division managers and
subsidiary officers have virtual autonomy with respect to day-to-day operations.
This balanced, yet entrepreneurial management style has enabled the Company to
improve the productivity and profitability both of acquired businesses and of
its own expanded operations. Successful division managers and other management
personnel are awarded incentive compensation based in part on the profitability
of their particular division or subsidiary and in part on the overall
profitability of the Company.

The Company seeks to increase its profitability through expansion of its
existing operations and acquisitions of businesses that diversify or enhance the
Company's customer base, product range and geographic coverage. The Company has
developed an excellent reputation in the industry for its integrity and the
quality and timeliness of its service to customers.

4
8

Customers

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

The Company has more than 65,000 customers. In 1999, only one customer
accounted for more than 1% of the Company's sales, with sales to this one
customer representing 2.4% of total Company sales. During 1999, more than 90% of
the Company's orders were from repeat customers. Reliance's customers are
manufacturers and end users in the general manufacturing, construction (both
commercial and residential), transportation (rail, truck and auto after-market),
aerospace and semiconductor manufacturing industries. The Company's metals
service centers wrote and delivered over 1,765,000 orders during 1999 at an
average price of approximately $860. Most of the customers who purchase from the
Company's various metals service centers are located within a 150-mile radius of
the metals service centers; the proximity of the centers to the customers
assists the Company in providing just-in-time delivery to its customers on its
fleet of 493 owned or leased trucks. Moreover, Reliance's computerized order
entry system and flexible production scheduling also enables the Company to meet
customer requirements for short lead times and just-in-time delivery. Less than
2% of the Company's sales were to international customers in 1999. Valex has a
network of distribution centers throughout the United States which provide quick
and personal service to its customers, which the Company believes is unmatched
by any of Valex's competitors. To provide support to the European market, Valex
opened an international distribution center during 1999, and is currently
building a manufacturing facility in Korea to service its Asian market.

The Company believes that its long-term relationships with many of its
customers significantly contribute to the success of its business. Providing
prompt and efficient services and quality products at a reasonable price is an
important factor in maintaining these relationships.

The Company's customers are subject to changes in demand based on, among
other things, general economic conditions and industry capacity. Many of the
industries in which the Company's customers compete are cyclical in nature and
are subject to changes in demand based on general economic conditions. Because
the Company sells to a wide variety of customers in several industries,
management believes that the effect of such changes on the Company is
significantly reduced. The Company can give no assurance, however, that it will
be able to increase or maintain its level of sales in periods of economic
downturn. The semiconductor manufacturing industry in which Valex's customers
operate, which is highly cyclical in nature and subject to changes in demand
based on, among other things, general economic conditions and industry capacity,
suffered a significant slowdown in 1998 and the first half of 1999. However, a
general improvement in sales to the semiconductor and related industries in the
second half of 1999 has continued into 2000. This has also impacted the
Company's other locations which service the Silicon Valley of California.
Conversely, the aerospace industry which experienced a significant improvement
during 1998 and 1997 and represented a significant portion of the Company's
sales during those periods, slowed during 1999. The decline in sales to the
aerospace industry during 1999 occurred primarily due to decreased buying
patterns of certain of the Company's major aerospace customers during 1999. The
Company's sales to the aerospace industry decreased approximately 17% in 1999
compared to 1998 levels. This trend is expected to continue into 2000.

Historically, the Company's largest market for its products has been
California, representing 32% of the Company's 1999 sales, decreasing
significantly from 45% of 1997 sales. Although California continues to be the
largest market, the Company has expanded its facilities geographically as a
result of strategic acquisitions and has increased its physical capabilities
through capital expenditures to reduce the impact of any regional economic
recession on the Company's operations. The Southwest region of the United States
also represented about 32% of 1999 sales.

5
9

Suppliers

Reliance purchases its products from the major metals producers, both
domestic and foreign, and has multiple suppliers for all of its product lines.
The Company's major suppliers of domestic carbon steel products include
California Steel Industries, Huntco Steel, Mannesmann Pipe & Steel, Nucor Steel,
Nucor Yamato and USS-POSCO Industries. Allegheny Ludlum Steel Corp.,
International Stainless Steel Co., Mexinox U.S.A., Inc. and North American
Stainless supply stainless steel products. The Company is a recognized
distributor for various major aluminum companies, including Aluminum Company of
America ("Alcoa"), Alcan Aluminum Limited, Commonwealth Aluminum, Kaiser
Aluminum, McCook Metals L.L.C., Ormet Aluminum Mill Products Corporation,
Pechiney Rolled Products and Scottsboro Aluminum. The Company's total volume of
purchases enables it to purchase substantially all of its inventory at the best
prices offered by the suppliers, given the order size. The Company believes that
it is not dependent on any one of its suppliers for metals and that its
relationships with its suppliers are very strong. The Company has worked closely
with its suppliers in order to become an important customer for each major
supplier of the Company's metals for its core product lines.

Backlog

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

Products and Processing Services

The Company has reduced its dependence on any particular customer group or
industry by processing a variety of metals. This diversification of product type
and material has reduced the Company's exposure to fluctuations or other
weaknesses in the financial or economic stability of particular customers or
industries, as well as reducing its dependence on particular suppliers. At its
metals service centers, the Company provides processing services, such as
leveling, slitting, blanking, shape cutting, shearing, sawing, precision plate
sawing, twin milling, skin milling, tee splitting and straightening, forming,
pipe threading, welding, bending, grinding, wheelabrating, punching,
electropolishing or fabricating to each customer's specifications and delivers
the products to manufacturers and other end users. For orders other than those
requiring extensive or specialized processing, delivery to the customer
generally occurs within 24 hours from receipt of the initial order. The
Company's sales of its more than 75,000 products in 1999 comprised the following
approximate percentages by commodity and product:

- 13% heat treated aluminum plate, sheet and coil

- 13% carbon steel structurals

- 10% carbon steel plate

- 8% stainless steel plate, sheet and coil

- 8% common alloy aluminum plate, sheet and coil

- 8% carbon steel tubing

- 8% carbon steel bar

- 7% galvanized steel sheet and coil

- 6% aluminum bar and tube

- 5% stainless steel bar and tube

- 4% cold rolled steel sheet and coil

- 4% hot rolled steel sheet and coil

- 2% electropolished stainless steel tubing and fittings

- 4% miscellaneous, such as brass and copper.

6
10

The Company maintains a wide variety of products in inventory. For the
Company's largest product type (sheet and coil), the Company purchases coiled
metal from primary producers in the form of a continuous sheet, typically 36 to
60 inches wide, between .25 and .015 inches thick, and rolled into 3- to 20-ton
coils. The size and weight of these coils require specialized equipment to move
and process the coils into smaller sizes and various products. Few of the
Company's customers have the capability of processing the metal into the desired
products.

Reliance enters its customer orders, once received, in a computerized order
entry system, selects appropriate inventory and schedules the processing in
accordance with the specified delivery date, generally within 24 hours for more
than half of its orders. The Company attempts to maximize the yield from the
various metals that it processes by combining customer orders to use each
purchased product to the fullest extent practicable.

Few metals service centers offer the full scope of processing services and
metals that Reliance uses to produce the desired end products. Following are
descriptions of the primary processing services performed by the Company:

- Leveling (cutting-to-length) involves cutting metal along the width of a
coil into specified lengths of sheets or plates.

- Slitting involves cutting metal to specified widths along the length of
the coil.

- Blanking cuts the metal into close tolerance, square or rectangular
shapes.

- Shape cutting, or burning, can produce various shapes according to
customer-supplied drawings through the use of CNC controlled machinery.
This procedure can include the use of oxy-fuel, plasma, high-definition
plasma, laser burning or water jet cutting for carbon, aluminum and
stainless steel plate. Routing for aluminum plate is also performed.

- Shearing cuts the metal into small precise pieces.

- Precision plate sawing involves sawing plate (primarily aluminum plate
products) into square or rectangular shapes to tolerances as close as
0.003 of an inch.

- Twin milling grinds one or all six sides of a small square or rectangular
piece of aluminum plate into close tolerance.

- Skin milling grinds the top and/or bottom of a large aluminum plate into
close tolerance.

- Tee splitting involves splitting metal beams. Tee straightening is the
process of straightening split beams.

- Forming involves bending and forming plate or sheet products into
customer specified shapes and sizes with press brakes.

- Pipe threading cuts threads around the circumference of the pipe.

- Welding is the joining of two or more pieces of metal.

- Bending is the forming of metals into various angles.

- Grinding or blanchard grinding involves grinding the top and/or bottom of
carbon or alloy steel plate or bars into close tolerance.

- Wheelabrating, shotblasting and bead blasting involves pressure blasting
metal grid into carbon steel products to remove rust and scale from the
surface.

- Punching cuts holes into carbon steel beams or plates by pressing or
welding per customer specifications.

- Electropolishing is the process used on stainless steel tubing and
fittings to simultaneously smooth, brighten, clean, and passivate the
interior surfaces of these components. Electropolishing is a selective

7
11

electrochemical removal process that selectively removes a thin layer of
metal, including surface flaws and imbedded impurities. Electropolishing
is now a required surface treatment process for all Ultra High-Purity
components used in the gas distribution systems of semiconductor
manufacturers worldwide and many sterile water distribution systems of
pharmaceutical and biotechnology companies.

- Fabricating includes performing second and/or third stage processing per
customer specifications, typically to provide a part, casing or kit,
which is used in the customer's end product.

Reliance generally processes specific metals to non-standard sizes only at
the request of customers pursuant to purchase orders rather than maintaining an
inventory of finished products. The Company is required to carry a wide range of
inventories of metals, however, to meet the short lead time and just-in-time
delivery requirements of its customers. Each of the Company's metals service
centers maintains inventory and equipment selected to meet the needs of that
facility's customers.

Marketing

Reliance's 585 sales personnel are located in twenty-four states and France
to provide marketing services throughout each of the geographic locations
served. The sales personnel are organized by division or subsidiary among the
Company's profit centers and are divided into two groups: those who travel
throughout a specified geographic territory to maintain relationships with the
Company's existing customers and to develop new customers ("outside sales
personnel") and those who remain at the facilities to write and price orders
("inside sales personnel"). The inside sales personnel generally receive
incentive compensation, in addition to their base salary, based on the
respective profit center's gross profit, and the outside sales personnel
generally receive incentive compensation based on gross profit from their
respective geographic territories.

50%-Owned Company

Since July 1, 1995, the Company has maintained a 50% interest in and
operational control of American Steel, L.L.C. ("American Steel"), a limited
liability company. American Steel operates metals service centers in Portland,
Oregon, and Kent (Seattle), Washington. American Industries, Inc. ("Industries")
owns the other 50% interest in American Steel. The Operating Agreement provides
that the Company may purchase the remaining 50% of American Steel during a term
of three years following the earlier of the death of the owner of Industries or
December 31, 2005. This 50% investment in American Steel is accounted for by the
equity method, whereby the Company includes 50% of American Steel's earnings in
the Company's net income and earnings per share amounts. American Metals, which
operates three metals service centers located in the Central Valley of
California, was a wholly-owned subsidiary of American Steel, until October 1,
1998, when the Company obtained 100% of the stock of American Metals through a
stock distribution.

Industry and Market Cycles

The Company distributes metal products to customers in a variety of
industries, including manufacturing, construction, transportation, aerospace and
semiconductor fabrication. Many of the industries in which the Company's
customers compete are cyclical in nature and are subject to changes in demand
based on general economic conditions. Because the Company sells to a wide
variety of customers in several industries, management believes that the effect
of such changes on the Company is significantly reduced. The Company can give no
assurance, however, that it will be able to increase or maintain its level of
sales in periods of economic downturn.

The semiconductor fabrication industry is highly cyclical in nature and is
subject to changes in demand based on, among other things, general economic
conditions and industry capacity. After a significant period of growth from 1993
to 1996, this industry experienced a significant slowdown from mid-1996 through
mid-1999. In the second half of 1999, an improvement began in the semiconductor
industry, which has continued into 2000. The aerospace industry experienced a
significant slowdown during 1999 from its strong markets experienced during 1997
and 1998. The slowdown in the aerospace industry in 1999 occurred primarily due
to decreased buying patterns of certain of the major aerospace companies due to
overcapacity and lower demand.
8
12

This trend is expected to continue throughout 2000. These industries are subject
to changes in demand based on, among other things, general economic conditions
and industry capacity.

The Company is also subject to fluctuations in the costs of its materials,
which affects the prices the Company can charge to its customers. Because the
Company sells a diverse product mix, fluctuations in the costs of its materials
are somewhat offset. However, during 1998 and through the first half of 1999,
metals costs of most products reached their lowest levels experienced in the
past fifty years. This occurred due to overcapacity in both domestic and foreign
markets. During 1999, imports slowed significantly for several metal products
due to trade cases filed by many domestic steel producers with the International
Trade Commission against specified countries. This, along with continued strong
demand, allowed domestic producers to announce increases in metal costs for most
of the Company's products. The increased metals costs began to take effect in
late 1999 and have continued into 2000. The Company is typically able to pass
the increases in metal costs on to its customers; however, the Company does not
expect the spread between its metal costs and selling prices to continue at the
levels experienced during 1999. Increased metals costs and related selling
prices should, however, allow the Company to record increased revenue and gross
margin dollars on a consistent volume basis.

The Company's largest market for its products is California. The Company
has continued to expand its facilities geographically by strategic acquisitions
and through capital expenditures to reduce the impact of any regional economic
recession on the Company's operations.

Competition

The metals distribution industry is highly fragmented and competitive. The
Company has numerous competitors in each of its product lines and geographic
locations, although competition is most frequently local or regional. Most of
these competitors are smaller than the Company. Nonetheless, the Company faces
strong competition from national, regional and local independent metals
distributors, subsidiaries of metal producers and the producers themselves, some
of which have greater resources than the Company. Based on an industry report,
it is estimated that there were approximately 3,400 intermediate steel
processors and metals service center facilities in the United States in 1999.
The Company believes that it is one of the five largest service center companies
in the United States. Competition is based on price, service, quality and
availability of products. The Company maintains centralized relationships with
its suppliers and a decentralized operational structure. The Company believes
that this division of responsibility has increased its ability to obtain
competitive prices of metals and to provide more responsive service to its
customers. In addition, Reliance believes that the size of inventory it
maintains, the different metals and products it has available and the wide
variety of processing services it provides distinguish the Company from its
competition.

Quality Control

The procurement of high quality metal from suppliers on a consistent basis
is critical to the Company's business. The Company has instituted strict quality
control measures to assure that the quality of purchased metals will enable the
Company to meet the specifications of its customers and to reduce the costs of
production interruptions. Physical and chemical analyses are performed in-house
and by outside parties on selected metals to verify that their mechanical and
dimensional properties, cleanliness and surface characteristics meet the
Company's requirements. Similar analyses are conducted on processed metal on a
selected basis before delivery to the customer. The Company believes that
maintenance of high standards for accepting metals ultimately results in reduced
return rates from its customers.

The Company established a program to obtain certification of its Reliance
divisions and certain of its subsidiaries under the ISO 9002
internationally-accepted quality standard. ISO 9002 certification has been
attained at all of these locations. The Company has identified additional
subsidiaries which are currently in the process of obtaining their ISO 9002
certification. Management continues to believe that obtaining such certification
is beneficial for its business and operations and will continue to identify
subsidiaries to obtain this certification. Management anticipates that all of
the Company's locations will be ISO 9002 certified at some point in the future.

9
13

Systems

The Company has converted its Reliance divisions, with the exception of
Arrow Metals and Engbar, and certain of its subsidiaries to the Stelplan
manufacturing and distribution information system, which uses IBM RS6000
multi-processor based hardware. Conversion of Arrow Metals and Engbar are in
process and are scheduled to be completed during 2000. Stelplan is an integrated
business application system with functions ranging from order entry to the
generation of financial statements. Stelplan is a registered trademark of Invera
Inc. Stelplan was developed specifically for the metals service center and
processor industry, providing real time availability of information such as
inventory availability, location and cost. Access to this information allows the
Company's marketing and sales personnel to respond to the customer's needs more
efficiently and more effectively and to provide quickly a product price. The
Company experienced no significant disruptions in its information technology and
non-information technology systems and believes those systems responded
successfully to the Year 2000 date change.

During 1999, e-commerce was introduced to the steel industry. Reliance is
addressing e-commerce with a few different approaches. First, Reliance has
joined the Supplier Network of MaterialNet(sm), Inc. ("MaterialNet"), which is a
business-to-business Internet marketplace for raw materials, with more than
eighty metals service centers in this network. Through MaterialNet, Reliance
will be included in a supplier list which responds to inquiries placed by
customers over the Internet. The Company believes this may provide access to new
customers and new geographic markets. Second, an e-commerce package that
directly interfaces with Stelplan is currently being developed by the Stelplan
vendor. The Company has reviewed this package and believes this approach will
primarily be used with existing customers, who will be able to place orders,
inquire as to order status and verify account balances directly over the
Internet. Finally, Reliance has a Web site that allows customers, both existing
and potential, to obtain general information about the Company and each of its
locations, and to submit a credit application or order inquiry directly through
its Web site. The Web site also contains the Company's financial information and
press releases. Although the Company is developing e-commerce approaches, it is
uncertain as to the future impact of e-commerce on its results of operations or
financial position.

Government Regulation

The Company's metals service centers are subject to many federal, state and
local requirements relating to the protection of the environment including
hazardous waste disposal and underground storage tank regulations. The only
hazardous wastes that the Company uses in its operations are lubricants and
cleaning solvents. The Company frequently examines ways to minimize any impact
on the environment and to effect cost savings relating to environmental
compliance. The Company pays state certified private companies to haul and
dispose of its hazardous waste.

Management believes that the Company is in material compliance with all
applicable environmental laws and that the Company's products and processes do
not present any unusual environmental concerns. The Company does not anticipate
any material expenditures to meet environmental requirements. Some of the
properties owned or leased by the Company are located in industrial areas,
however, with histories of heavy industrial use. The location of these
properties may result in the Company incurring environmental liabilities that
arise from causes other than the operations of the Company, but the Company does
not expect that any such liabilities will have a material adverse impact on the
Company's results of operations, financial condition or liquidity. In addition,
environmental audits are performed during the due diligence process for
acquisitions, so that the Company mitigates any material environmental exposure
resultant from an acquisition.

The Company's operations are also governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Health and
Safety Act and regulations thereunder, which, among other requirements,
establish noise, dust and safety standards. Reliance has established a strict
safety policy, which it believes is one of the best in the industry. Management
believes that the Company is in material compliance with applicable laws and
regulations and does not anticipate that future compliance with such laws and
regulations will have a material adverse effect on the results of operations or
financial condition of the Company.

10
14

Employees

As of March 1, 2000, the Company had a total of approximately 4,000
employees. Approximately 650 of these employees are covered by collective
bargaining agreements, which expire at various times over the next four years.
The Company has entered into collective bargaining agreements with fourteen
different union locals at fourteen of its locations. The Company has not found
that these collective bargaining agreements have had a material impact either
favorably or unfavorably on the Company's revenues or profitability at its
various locations. The Company has always maintained excellent relations with
its employees and has never experienced a significant work stoppage.

ITEM 2. PROPERTIES.

The Company maintains 72 metals service center processing and distribution
facilities (not including American Steel) in 21 states and France, plus its
corporate headquarters. All of the Company's properties are in good or excellent
condition and are adequate for its existing operations. These facilities
generally operate at about 60% of capacity, with each location averaging
slightly less than two shifts operating at full capacity for a five-day work
week. Twenty-eight of these facilities are leased. Siskin leases a portion of
its facilities in Chattanooga, Tennessee, as does Liebovich in Rockford,
Illinois. In addition, Durrett leases off-site space near its facility in
Baltimore, Maryland, and AMI leases its corporate office space in Brentwood,
Tennessee. The leases are for terms expiring at various times through 2013 and
have an aggregate monthly rent of approximately $390,000. The Company owns all
other properties. The following table sets forth certain information with
respect to each facility:

FACILITIES AND PLANT SIZE



PLANT SIZE
LOCATION (SQ. FT.)
-------- ----------

Alabama:
Birmingham
(Chatham).............................................. 131,000
(Phoenix Metals)....................................... 40,000
(Siskin)............................................... 107,000
Arizona:
Phoenix
(Bralco Metals)........................................ 46,000
(Reliance Metalcenter)................................. 104,000
(Tube Service)......................................... 23,000
(Valex)................................................ 2,100*
California:
El Cajon (Tube Service)................................... 18,000
Fontana (AMI)............................................. 103,000
Fresno (American Metals).................................. 83,000*
Hayward (Lusk Metals)..................................... 47,000*
La Mirada (Bralco Metals)................................. 140,000
Long Beach (SSA).......................................... 8,000*
Los Angeles
(Corporate Office)..................................... 22,000
(Reliance Steel Company)............................... 270,000*
Milpitas (Tube Service)................................... 58,000
National City (Reliance Metalcenter)...................... 74,000


11
15



PLANT SIZE
LOCATION (SQ. FT.)
-------- ----------

California (continued):
Rancho Dominguez (CCC Steel).............................. 316,000
Redding (American Metals)................................. 42,000*
Santa Clara (Valex)....................................... 6,000*
Santa Fe Springs
(MetalCenter).......................................... 155,000
(Tube Service)......................................... 66,000
Union City (Reliance Metalcenter)......................... 145,000
Ventura (Valex)........................................... 122,000
West Sacramento (American Metals)......................... 108,000*
Colorado:
Colorado Springs (Reliance Metalcenter)................... 68,000
Denver
(Engbar)............................................... 36,000*
(Tube Service)......................................... 21,000*
Florida:
Jacksonville (Chatham).................................... 30,000
Orlando (Chatham)......................................... 127,000
Tampa (Phoenix Metals).................................... 32,000
Georgia:
Atlanta (Georgia Steel)................................... 83,000
Forest Park (AMI)......................................... 41,000*
Norcross (Phoenix Metals)................................. 170,000
Savannah (Chatham)........................................ 178,000
Illinois:
Peoria (Hagerty).......................................... 223,000
Rockford (Liebovich)...................................... 387,000
Rockford (Liebovich)...................................... 30,000
Rockford (Liebovich)...................................... 10,000
Kansas:
Wichita
(AMI).................................................. 35,000*
(Reliance Metalcenter)................................. 45,000*
Maryland:
Baltimore (Durrett)....................................... 260,000
Michigan:
Wyoming (Liebovich)....................................... 65,000
New Jersey:
Swedesboro (AMI).......................................... 36,000*
New Mexico:
Albuquerque
(Reliance Metalcenter)................................. 44,000
(Reliance Steel Company)............................... 34,000
North Carolina:
Charlotte (Phoenix Metals)................................ 41,000*
Durham (Chatham).......................................... 110,000
Greensboro (Steel Bar).................................... 43,000*


12
16



PLANT SIZE
LOCATION (SQ. FT.)
-------- ----------

Ohio:
Massillon (SSA)........................................... 27,000
Oregon:
Portland
(Reliance Metalcenter)................................. 44,000
(Tube Service)......................................... 17,000*
(Valex)................................................ 8,000*
Pennsylvania:
Allentown (Valex)......................................... 5,000*
Indianola (Allegheny)..................................... 53,000*
South Carolina:
Columbia (Chatham)........................................ 81,000*
Spartanburg (Siskin)...................................... 96,000
Tennessee:
Brentwood (Phoenix Metals)................................ 16,000*
Chattanooga (Siskin)...................................... 439,000
Nashville (Siskin)........................................ 117,000
Texas:
Arlington (Reliance Metalcenter).......................... 107,000
Austin (Valex)............................................ 8,000*
Fort Worth (AMI).......................................... 75,000*
Garland (Arrow Metals).................................... 45,000
Houston (Reliance Metalcenter)............................ 30,000
San Antonio (Arrow Metals)................................ 23,000*
San Antonio (Reliance Metalcenter)........................ 77,000
Utah:
Salt Lake City
(Affiliated Metals).................................... 86,000
(CCC Steel)............................................ 51,000
(Reliance Metalcenter)................................. 105,000
Washington:
Algona (AMI).............................................. 27,000*
Tacoma (SSA).............................................. 26,000*
International Distribution Center
Fuveau, France (Valex)...................................... 2,500*


- ---------------
* Leased. All other facilities owned.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company is named as a defendant in legal actions
arising out of its normal course of business. The Company is not a party to any
pending legal proceedings other than routine litigation incidental to the
business. Management believes that the resolution of such matters will not have
a material adverse effect on the Company's results of operations or financial
condition. The Company maintains liability insurance against risks arising out
of its normal course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

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

13
17

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock is listed for trading on the New York Stock
Exchange and was first traded on September 16, 1994. The following table
reflects the range of high and low selling prices of the Company's Common Stock
by quarter for 1999 and 1998. This information is based on closing composite
selling prices reported by the New York Stock Exchange.



1999 1998
------------------ ------------------
HIGH* LOW* HIGH* LOW*
------- ------- ------- -------

First Quarter............................... $19.583 $16.917 $25.667 $19.250
Second Quarter.............................. 26.542 18.125 27.250 24.083
Third Quarter............................... 25.750 20.375 25.333 19.167
Fourth Quarter.............................. 24.375 17.813 21.959 17.000


- ---------------
* Adjusted to reflect the 3-for-2 common stock split in September 1999.

As of March 20, 2000, there were approximately 305 record owners of
Reliance Common Stock.

The Company has paid quarterly cash dividends on its Common Stock for
approximately 40 years. In 1998, the Company paid quarterly dividends of $.04
per share, after the effect of the 3-for-2 common stock split in September 1999.
The 1999 quarterly dividend was increased to $.043 per share and then further
increased to $.05 per share in the fourth quarter. The Board of Directors of the
Company again increased the quarterly dividend by 10% to $.055 per share in
February 2000. From time to time, the Company has also paid stock dividends.
Most recently, the Company effected a 3-for-2 stock split in the form of a 50%
stock dividend in September 1999, which is reflected in the above dividend
amounts.

At the present time, the Company intends to continue paying regular
quarterly cash dividends, but the Board of Directors may reconsider or revise
this policy from time to time based on conditions then existing, including the
Company's earnings, financial condition and capital requirements, as well as
other factors the Board of Directors may deem relevant. It is likely that the
Board of Directors will continue to declare and pay dividends in the future,
provided that earnings are legally available for dividends, but the Board also
intends to continue its present policy of retaining a portion of earnings for
reinvestment in the operations of the Company and the expansion of its business.
The Company can give no assurance, however, that either cash or stock dividends
will be paid in the future, or that, if paid, the dividends will be at the same
amount or frequency as paid in the past.

The private placement debt agreements for the unsecured senior notes
contain covenants which, among other things, require the maintenance of a
minimum net worth that may restrict the Company's ability to pay dividends.
Since its initial public offering in September 1994, the Company has paid
between 6% and 10% of its earnings to its shareholders as dividends.

The following table sets forth certain information with respect to cash
dividends paid by the Company during the past two fiscal years:



DATE OF DECLARATION RECORD DATE PAYMENT DATE DIVIDENDS(1)
------------------- ----------- ------------ ---------------

11/22/99 12/17/99 1/5/00 $.05 per share
7/29/99 8/16/99 9/1/99 $.043 per share
4/27/99 5/12/99 5/28/99 $.043 per share
2/18/99 3/8/99 3/31/99 $.043 per share
11/19/98 12/18/98 1/8/99 $.04 per share
8/27/98 9/8/98 9/15/98 $.04 per share
5/20/98 6/2/98 6/12/98 $.04 per share
2/23/98 3/16/98 4/6/98 $.04 per share


- ---------------
(1) Amounts have been restated to reflect the September 1999 3-for-2 common
stock split.

14
18

ITEM 6. SELECTED FINANCIAL DATA.

The Selected Consolidated Financial Data presented below should be read in
connection with the accompanying Consolidated Financial Statements of the
Company and the notes related thereto and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

SELECTED CONSOLIDATED FINANCIAL DATA



YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Income Statement Data:
Net sales(1)........................... $1,511,065 $1,352,807 $961,518 $653,975 $561,341
Cost of sales.......................... 1,097,437 1,024,214 737,500 492,199 432,059
---------- ---------- -------- -------- --------
Gross profit........................... 413,628 328,593 224,018 161,776 129,282
Warehouse, delivery, selling, general
and administrative expenses(2)...... 304,150 239,651 164,580 118,089 94,609
---------- ---------- -------- -------- --------
Income from operations................. 109,478 88,942 59,438 43,687 34,673
Other income (expense):
Interest expense.................... (23,299) (17,585) (10,861) (3,940) (1,595)
Other income........................ 6,365 3,042 3,611 4,464 2,318(3)
Equity earnings of 50%-owned company
and joint venture................... 3,866 5,873 5,798 5,340 3,199
---------- ---------- -------- -------- --------
Income before income taxes............. 96,410 80,272 57,986 49,551 38,595
Income taxes........................... (38,800) (32,597) (23,810) (19,761) (15,893)
---------- ---------- -------- -------- --------
Net income............................. $ 57,610 $ 47,675 $ 34,176 $ 29,790 $ 22,702
========== ========== ======== ======== ========
Earnings per share -- diluted(4)(5).... $ 2.07 $ 1.68 $ 1.44 $ 1.27 $ .97
Earnings per share -- basic(4)(5)...... $ 2.08 $ 1.69 $ 1.45 $ 1.28 $ .97
Weighted average common shares
outstanding -- diluted(4)........... 27,892 28,305 23,812 23,520 23,387
Weighted average common shares
outstanding -- basic(4)............. 27,748 28,153 23,604 23,190 23,280
Cash dividends per
share -- diluted(4)................. $ .18 $ .16 $ .11 $ .08 $ .07
Balance Sheet Data (December 31):
Working capital........................ $ 273,040 $ 289,147 $213,252 $136,765 $100,731
Total assets........................... 900,005 841,395 583,866 391,176 260,473
Long-term debt......................... 318,050 343,250 143,350 107,450 30,350
Shareholders' equity................... 400,328 345,802 313,164 192,642 163,917


- ---------------
(1) Does not include consolidated revenues of $113.0 million, $177.2 million,
$183.7 million, $178.9 million and $86.4 million for American Steel, L.L.C.
for the twelve months ended December 31, 1999, 1998, 1997 and 1996, and the
period July 1 to December 31, 1995, respectively. This 50% investment is
accounted for by the equity method, so the Company includes 50% of American
Steel's earnings in the Company's net income and earnings per share amounts.

(2) Includes depreciation and amortization amounts.

(3) Includes income received from rental agreements with and services provided
to Feralloy Reliance Company, L.P., a joint venture in which the Company
owned a 50% interest, which was dissolved effective September 30, 1995.

(4) Amounts have been retroactively adjusted to reflect the June 1997 3-for-2
stock split and the September 1999 3-for-2 stock split.

(5) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion of earnings per share and the impact of
Statement No. 128, see Note 11 to the Consolidated Financial Statements.

15
19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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

OVERVIEW

The metals service center industry was faced with a difficult market from a
pricing standpoint during most of 1999. However, the Company experienced record
sales and earnings results, primarily due to the inclusion of sales and earnings
from the four companies acquired by Reliance in 1999 and the seven companies
acquired by Reliance in 1998, as well as generally strong demand, product
diversity and effective sales management. Although pricing for most of the
Company's products remained near all-time lows during most of 1999, the Company
was able to increase its gross margins during this period by lowering its
selling prices at a slower rate than the reductions in metal costs. In the
second half of the year, as increases in certain metal costs were announced, the
Company began increasing selling prices for these products before the increases
in the costs of these materials were effective. Again, this allowed the Company
to increase gross margin percentages. The expanded product and geographic
diversity obtained through recent acquisitions also contributed to the record
results. In 1999, the Company was impacted by reduced sales to the aerospace
industry due mainly to decreased purchasing patterns by certain of its large
aerospace customers. During 1998, aerospace sales were a large contributor to
the Company's revenues and earnings. Improvements in the semiconductor and
electronics industries, along with continued strong demand in construction and
related industries, allowed the Company to replace the loss in aerospace related
business with increased sales to these industries. The Company believes its
results have been less volatile to the economic trends affecting the industry
because its operations are geographically diversified, it has a wide range of
products, and its customer base and the industries to which it sells are highly
diversified.

Reliance's diversification and financial performance have benefited from
several significant acquisitions during the reported periods, each of which has
been immediately accretive to earnings. Additionally, the Company's successful
efforts to continue to expand through strategic acquisitions and to increase its
efficiencies and physical capacities through capital expenditure programs have
enabled it to lessen the impact of regional economic recessions on the overall
results of its operations. Management believes that the Company is positioned to
take full advantage of improved economic environments, while at the same time it
is poised to operate efficiently in less favorable economies because of its
tight cost controls, high inventory turnover and diversification. Management
does not anticipate the same rate of growth in gross margins and net income in
2000 as in recent years, due to increasing costs of materials for most of its
products, net of the impact of any acquisitions which may be made during 2000.

RECENT DEVELOPMENTS

The Company completed four acquisitions during 1999, and has already
completed one acquisition in 2000. Through these acquisitions, the Company made
its entry into the Midwest market of the United States. In addition, two new
facilities were opened, two existing facilities were closed, and two foreign
companies were formed.

On February 5, 2000, the Company, through a newly-formed, wholly-owned
subsidiary of Liebovich Bros., Inc. ("Liebovich"), a wholly-owned subsidiary of
the Company, acquired the assets and business of the service center division of
Hagerty Brothers Company, located in Peoria, Illinois. The newly-formed company,
Hagerty Steel & Aluminum Company ("Hagerty"), sells primarily carbon steel
products. Net sales of the service center business of Hagerty Brothers Company
were approximately $30 million for the year ended December 31, 1999.

On October 1, 1999, the Company acquired the service center assets and
business of Arrow Metals, a division of Arrow Smelters, Inc. The privately-held
metals service center business was based in Garland (Dallas), Texas, with
additional facilities in Houston and San Antonio. Arrow Metals specializes in
non-ferrous metals processing and distribution of mainly aluminum plate and bar
products, with 1998 annual sales of approximately $22 million. The Arrow Metals
facilities operate as divisions of the Company.

16
20

On September 3, 1999, the Company acquired 100% of the stock of Allegheny
Steel Distributors, Inc. ("Allegheny"), a privately-held metals service center
based in Indianola (Pittsburgh), Pennsylvania. Allegheny specializes in
cutting-to-length and blanking primarily carbon steel flat-rolled products.
Allegheny had sales of approximately $31 million in the year ended December 31,
1998.

On March 1, 1999, the Company acquired 100% of the outstanding shares of
Liebovich Bros., Inc., a privately-held metals service center company
headquartered in Rockford, Illinois, for approximately $60 million in cash. This
acquisition provided the Company an entry into a new market, the Midwest area of
the United States. Liebovich provides primarily carbon steel products and has a
metals service center facility and two metal fabrication facilities in Rockford,
Illinois, as well as a service center in Wyoming (Grand Rapids), Michigan.
Liebovich is operated as a wholly-owned subsidiary of the Company. Liebovich's
1998 annual sales were approximately $130 million.

In February 1999, the Company's subsidiary, Valex Corp. ("Valex"),
purchased certain assets of one of its leading domestic competitors, Advanced
MicroFinish, Inc. Although the purchase price amount was not material, this
purchase increased Valex's product diversification and provided additional
technology to service the semiconductor industry.

In June 1999, Phoenix Corporation ("Phoenix Metals"), a wholly-owned
subsidiary of the Company, expanded its market presence by opening a new service
center location in Brentwood (Nashville), Tennessee. During December 1999, the
Company opened a new Tube Service Co. facility in Portland, Oregon. The Tube
Service products were previously being sold through a Reliance Metalcenter
division in Portland. Opening these facilities allowed the Company to expand its
product diversification in existing geographic markets. The Company closed two
facilities in 1999, a Reliance Metalcenter division in Casper, Wyoming, and a
Chatham Steel Corporation ("Chatham") processing facility in Birmingham,
Alabama, as they were not performing at levels acceptable to the Company.

The Company expanded its foreign presence in 1999 through Valex, by
establishing a corporation in France, Valex S.A.R.L., and by forming a joint
venture in Korea, Valex Korea Co., Ltd. ("Valex Korea"). Valex had previously
opened a sales office in France; however, in 1999, Valex began stocking material
in France to better serve the European market, and created a French corporation
at such time. Valex owns a 66.5% interest in Valex Korea, which will be based in
Seoul, Korea. Although the joint venture has been formed, Valex Korea will not
be operational until the second half of 2000, as the facility is currently being
built.

RESULTS OF OPERATIONS

The following table sets forth certain income statement data for each of
the three years in the period ended December 31, 1999 (dollars are shown in
thousands and certain amounts may not calculate due to rounding):



1999 1998 1997
----------------------- ----------------------- ---------------------
% OF % OF % OF
$ NET SALES $ NET SALES $ NET SALES
---------- --------- ---------- --------- -------- ---------

Net sales............... $1,511,065 100.0% $1,352,807 100.0% $961,518 100.0%
Gross profit............ 413,628 27.4 328,593 24.3 224,018 23.3
Operating expenses...... 278,552 18.4 220,205 16.3 151,415 15.7
Depreciation expense.... 18,794 1.2 14,810 1.1 10,404 1.1
---------- ----- ---------- ----- -------- -----
Income from
operations............ $ 116,282 7.7% $ 93,578 6.9% $ 62,199 6.5%
========== ===== ========== ===== ======== =====


YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 (DOLLAR
AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)

Consolidated net sales increased $158,258, or 11.7%, for the year 1999
compared to 1998, which reflects an increase in tons sold of 35.1% and a
decrease in the average selling price per ton of 17.4%. The increase in sales
volume during 1999 was primarily due to the inclusion of twelve months of sales
from the 1998

17
21

acquisitions along with sales from the 1999 acquisitions, as follows: Phoenix
Metals, acquired January 30, 1998; Durrett Sheppard Steel Co., Inc. ("Durrett"),
acquired January 30, 1998; Chatham, acquired July 1, 1998; Lusk Metals, acquired
September 18, 1998; American Metals Corporation ("American Metals"), acquired
October 1, 1998; Steel Bar Corporation ("Steel Bar"), acquired October 1, 1998;
Engbar Pipe & Steel Co. ("Engbar"), acquired October 5, 1998; Liebovich,
acquired March 1, 1999; Allegheny, acquired September 1, 1999; and Arrow Metals,
acquired October 1, 1999 (collectively, the "Acquisitions"). The increased sales
volume was somewhat offset due to a decrease of approximately 17.1% in tons sold
to the aerospace market during 1999. The average selling price for 1999
decreased 17.4% from the 1998 average selling price due to lower costs of
material for most of the Company's products, and a shift in product mix. As most
of the companies acquired during 1999 and 1998 sell primarily carbon steel
products, which generally have a lower selling price than other products sold by
the Company, the shift in product mix has contributed to lower average selling
prices. Reduced aerospace sales volume also contributed to the lower average
selling price, as the heat-treated aluminum products sold to the aerospace
industry are among the most high priced products sold by the Company. Further,
prices of heat treated aluminum products decreased during 1999, which also
lowered the average selling price.

Excluding sales of the Acquisitions, sales declined $110,588 primarily due
to lower selling prices and changes in product mix. The lower sales amount
includes a 2.4% increase in tons sold, which is primarily due to general
economic improvements, especially in the semiconductor and electronics
industries. The average selling price decreased by 12.4% in 1999 as compared to
1998, primarily due to reduced selling prices of most of the Company's products,
a greater shift toward carbon steel products, and reduced sales to the aerospace
market in 1999.

The Company recorded a one-time net gain of $2,341 from a life insurance
policy, which was not taxable to the Company, in connection with the Company's
Supplemental Executive Retirement Plan ("SERP") during 1999. The life insurance
proceeds related to the death of one of the Company's executive officers in
January 1999 and are net of the amount to be paid to his beneficiary under the
terms of the SERP.

Total gross profit increased to $413,628 in 1999, compared to $328,593 in
1998, an increase of 25.9%, due mainly to the additional gross profit generated
by the Acquisitions. Expressed as a percentage of sales, gross profit increased
to 27.4% for 1999, compared to 24.3% in 1998. This increase was primarily due to
costs of raw materials declining at a more rapid rate than selling prices for
most of the Company's products during most of 1999. Also, in the latter half of
1999, when price increases for many of the Company's materials were announced,
the Company's sales force was able to increase selling prices to its customers
in advance of the increased costs taking effect. This allowed the Company to
expand its gross margin percentage during this period of changing prices. In
addition, certain of the Acquisitions typically operate at higher gross margin
percentages than the Company has historically operated at on a consolidated
basis. This positively contributed to the improvement in gross margin as a
percentage of sales in the 1999 period.

Warehouse, delivery, selling, and general and administrative expenses
increased $58,347, or 26.5%, for 1999 due to the increased sales volume
primarily from the Acquisitions. These expenses represented 18.4% and 16.3% of
sales in 1999 and 1998, respectively. The increase in expenses as a percentage
of sales is primarily due to the lower selling prices experienced during 1999,
and due to certain of the Acquisitions typically operating at higher expense
levels than those historically experienced by the Company on a consolidated
basis. These acquired companies also operate at higher gross margin levels, as
discussed above. Excluding the Acquisitions, these expenses decreased by $1,300
in 1999 compared to 1998, on an increased sales volume of 2.4% which illustrates
the impact of lower selling prices on these expenses expressed as a percentage
of sales.

Depreciation and amortization expense increased $6,152 for 1999 compared to
1998. The increase is primarily due to the inclusion of both the depreciation
expense and the amortization of goodwill related to the Acquisitions.

Income from operations increased to $116,282 in 1999 from $93,578 in 1998.
The increase was mainly attributable to increased gross profit margins and the
inclusion of operating income from the Acquisitions.

18
22

Interest expense increased by 32.5% in 1999 compared to 1998 due to an
increase in the average debt outstanding to fund primarily acquisitions made in
the second half of 1998. This increased the 1999 beginning debt outstanding,
which was then reduced slightly during the year.

The effective income tax rate of the Company decreased from 40.6% in 1998
to 40.2% in 1999, mainly due to the Company's receipt of tax free life insurance
proceeds during 1999. The effect of this benefit was somewhat offset by
increased non-deductible amortization of goodwill for certain of the
Acquisitions.

Included in pre-tax income for 1999 is a one-time net gain of $2,341 from
life insurance proceeds discussed above. This resulted in net income of $.05 per
diluted share in the 1999 period.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 (DOLLAR
AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)

Consolidated net sales increased $391,289, or 40.7%, for the year 1998
compared to 1997, which reflects an increase in tons sold of 47.2% and a
decrease in the average selling price per ton of 4.5%. The increase in sales
volume during 1998 was primarily due to the inclusion of twelve months of sales
from AMI Metals, Inc. ("AMI"), Service Steel Aerospace Corp. ("SSA"), and
Georgia Steel Supply Company ("Georgia Steel"), which were acquired during 1997,
along with sales from companies acquired in 1998, which include Phoenix Metals,
Durrett, Chatham, Lusk Metals, American Metals, Steel Bar and Engbar,
(collectively, the "1998 Acquisitions"). The average selling price for 1998
decreased 4.5% from the 1997 average selling price due to lower selling prices
based on lower costs of material for most of the Company's products, a shift in
product mix and continued lower selling prices for electropolished stainless
steel tubing and fittings sold to the semiconductor manufacturing industry in
1998, as compared to 1997. As most of the companies acquired during 1998 sell
primarily carbon steel products, which generally have a lower selling price than
other products sold by the Company, the shift in product mix has contributed to
lower selling prices. Also, because the selling prices of electropolished
stainless steel tubing and fittings sold to the semiconductor manufacturing
industry are significantly higher than most other products sold by the Company,
the reduced quantities of this product sold during 1998 resulted in a
significant decline in the overall average selling price. Excluding sales of the
1998 Acquisitions, the Company reported a 0.7% increase in tons sold, which is
primarily due to general economic improvements and an increased market share in
the Company's market areas, especially in the southeastern United States market,
and a 3.9% decrease in the average selling price from 1997 to 1998 primarily due
to reduced selling prices of electropolished stainless steel tubing and
fittings, as discussed above, and a greater shift toward carbon steel products.

Included in other income for 1997 is a net gain of $1,008 realized on the
sale of real property at the former Santa Clara, California location.

Total gross profit increased $104,575, or 46.7%, compared to 1997, due
mainly to the additional gross profit generated by the 1998 Acquisitions.
Expressed as a percentage of sales, gross profit increased to 24.3% for 1998,
compared to 23.3% in 1997. This increase was primarily due to costs of raw
materials declining at a more rapid rate than selling prices for most of the
Company's products during 1998, from 1997 levels. In addition, the Company's
ability to turn its inventory faster than most of its competitors allowed the
Company to maximize its gross margins during this period of declining prices.

Warehouse, delivery, selling, and general and administrative expenses
increased $68,790, or 45.4%, for 1998 compared to 1997. These expenses
represented 16.3% and 15.8% of sales in 1998 and 1997, respectively. The dollar
increase in expenses reflects the increase in sales volume for the 1998 period,
which includes the sales and related operating expenses of the 1998
Acquisitions. The increase in expenses as a percentage of sales is primarily due
to selling prices declining throughout 1998, while volume was increasing, and
fixed costs remained constant.

Depreciation and amortization expense increased 47.7% for 1998 compared to
1997. The increase is primarily due to the inclusion of depreciation expense and
the amortization of goodwill related to the 1998 Acquisitions.

19
23

Income from operations increased 50.5% from $62,199 in 1997 to $93,578 in
1998. The increase was mainly attributable to increased gross profit and the
inclusion in 1998 of operating income from the 1998 Acquisitions.

Interest expense increased $6,724 in 1998 compared to 1997 due to an
increase in the average debt outstanding to fund the 1998 Acquisitions.

The effective income tax rate of the Company decreased from 41.0% in 1997
to 40.6% in 1998, mainly due to the election of a tax treatment that allows the
amortization of goodwill for certain of the 1998 Acquisitions.

LIQUIDITY AND CAPITAL RESOURCES (DOLLAR AMOUNTS IN THOUSANDS OTHER THAN SHARE
AND PER SHARE AMOUNTS)

At December 31, 1999, working capital amounted to $273,040, compared to
$289,147 at December 31, 1998. Cash flow from operations increased significantly
for 1999 as compared to 1998 mainly due to the Company's continued focus on
inventory turnover, resulting in 1999 inventory levels decreasing by $46,115,
excluding the addition of inventories from companies acquired in 1999, from
December 31, 1998. Also contributing to this increase were increased net income,
improved accounts receivable collectibility, and an increase in accounts payable
and accrued expenses, which resulted primarily from the timing of year end
purchases. The Company's capital requirements are primarily for working capital,
acquisitions, and capital expenditures for continued improvements in plant
capacities and material handling and processing equipment.

The Company's primary sources of liquidity are generally from internally
generated funds from operations and the Company's revolving line of credit. The
syndicated credit facility has a borrowing limit of $200,000 with an allowance
to use up to $175,000 of the line of credit to make acquisitions. As of December
31, 1999, $25,000 was outstanding under this credit facility. The Company also
has an agreement that allows the Company to issue and have outstanding letters
of credit in an amount not to exceed $10,000. Additionally, the Company has
agreements with insurance companies for private placements of senior unsecured
notes in the aggregate amount of $290,000. The senior notes that were issued in
the private placements have maturity dates ranging from 2002 to 2010, with an
average life of 9.1 years, and bear interest at an average fixed rate of 6.83%
per annum.

Such sources of liquidity, as discussed above, were sufficient to fund the
Acquisitions. The purchase price of the acquisitions made in 1999 totaled
approximately $83,650. See "Recent Developments" section for a complete
discussion of the acquisitions made in 1999.

Net capital expenditures, excluding acquisitions, were $19,524 for the 1999
year. The Company had no material commitments for capital expenditures as of
December 31, 1999. The Company anticipates that the funds generated from
operations and funds available under its line of credit will be sufficient to
meet its working capital needs for the foreseeable future. The purchase of
Hagerty was funded with borrowings on the Company's line of credit.

The Board of Directors declared a 3-for-2 common stock split, in the form
of a 50% stock dividend, effective September 24, 1999, to shareholders of record
September 2, 1999.

On August 31, 1998, the Board of Directors of the Company approved the
purchase of up to an additional 3,750,000 shares of the Company's outstanding
Common Stock through its Stock Repurchase Plan, for a total of 6,000,000 shares.
The Company has purchased a total of 2,672,325 shares of its Common Stock, at an
average purchase price of $9.91 per share, as of December 31, 1999, all of which
are being treated as authorized but unissued shares. In February 2000, the
Company repurchased 36,850 shares of its Common Stock at an average purchase
price of $18.08 per share, which are being treated as authorized but unissued
shares. The Company did not repurchase any shares during 1999. The Company
believes such purchases enhance shareholder value and reflect its confidence in
the long-term growth potential of the Company.

20
24

INFLATION

The Company's operations have not been, nor are they expected to be,
materially affected by general inflation. Historically, the Company has been
successful in adjusting prices to its customers to reflect changes in metal
prices.

SEASONALITY

The Company recognizes that some of its customers may be in seasonal
businesses, especially customers in the construction industry. As a result of
the Company's geographic, product and customer diversity, however, the Company's
operations have not shown any material seasonal trends. Revenues in the months
of November and December traditionally have been lower than in other months
because of a reduced number of working days for shipments of the Company's
products and holiday closures for some of its customers. There can be no
assurance that period-to-period fluctuations will not occur in the future.
Results of any one or more quarters are therefore not necessarily indicative of
annual results.

GOODWILL

Goodwill, which represents the excess of cost over the fair value of net
assets acquired, amounted to $215,247,000 at December 31, 1999, or approximately
24% of total assets or 54% of consolidated shareholders' equity. The
amortization of goodwill amounted to $5,796,000, or approximately 6% of pretax
income. The Company's estimate of the useful life of goodwill of 40 years is
considered appropriate due to the long-term nature of the business, including
its customers, supply sources and longevity of operations. The risk associated
with the carrying value of goodwill is whether future operating income (before
amortization of goodwill) will be sufficient on an undiscounted basis to recover
the carrying value. The Company reviews the recoverability of goodwill whenever
significant events or changes occur which might impair the recovery of recorded
costs. The measurement of possible impairment is either based upon significant
losses of an entity or on the ability to recover the balance of the long-lived
asset from expected future operating cash flows on an undiscounted basis. If an
impairment exists, the amount of such impairment is calculated based upon the
discounted cash flows or the market values as compared to the recorded costs. In
management's opinion, the recorded amounts for goodwill are recoverable and no
impairment exists at December 31, 1999. However, any significant change in the
useful lives of goodwill, as estimated by management, could have a material
adverse effect on future results of operations and financial condition.

IMPACT OF YEAR 2000

In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In 1999, the Company completed its conversions,
testing and modifications of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of business, the Company is exposed to various
market risk factors, including changes in general economic conditions, domestic
and foreign competition, and metal pricing and availability. Additionally, the
Company is exposed to market risk primarily related to its fixed rate long-term
debt. Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates. Decreases in interest rates may affect
the Company's market value of fixed rate debt. Under its current policies, the
Company does not use interest rate derivative instruments to manage exposure to
interest rate changes. Based on the current holdings of debt, the exposure to
interest rate risk is not considered to be material. Fixed rate debt obligations
currently issued by the Company are not callable until maturity.

21
25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

RELIANCE STEEL & ALUMINUM CO.

AUDITED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



PAGE
----

Report of Independent Auditors.............................. 23
Consolidated Balance Sheets at December 31, 1999 and 1998... 24
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.......................... 25
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... 27
Notes to Consolidated Financial Statements.................. 28


22
26

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Reliance Steel & Aluminum Co.

We have audited the accompanying consolidated balance sheets of Reliance
Steel & Aluminum Co. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. Our audits
also included the financial statement schedule listed in the Index at Item
14(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 auditing standards generally
accepted in the 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 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presented fairly, in all material
respects the information set forth therein.

LOGO

Long Beach, California
February 10, 2000

23
27

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)

ASSETS



DECEMBER 31,
--------------------
1999 1998
-------- --------

Current assets:
Cash and cash equivalents................................. $ 9,862 $ 6,496
Accounts receivable, less allowance for doubtful accounts
of $6,351 in 1999 and $5,816 in 1998................... 167,674 156,150
Inventories............................................... 232,911 240,697
Prepaid expenses and other current assets................. 5,472 2,048
Deferred income taxes..................................... 12,999 12,899
-------- --------
Total current assets.............................. 428,918 418,290
Property, plant and equipment, at cost:
Land...................................................... 31,583 31,202
Buildings................................................. 132,165 125,051
Machinery and equipment................................... 159,390 137,841
Allowances for depreciation............................... (95,756) (81,013)
-------- --------
227,382 213,081
Investment in 50%-owned company............................. 19,306 24,942
Goodwill, net of accumulated amortization of $12,957 in 1999
and $7,161 in 1998........................................ 215,247 176,949
Other assets................................................ 9,152 8,133
-------- --------
Total assets...................................... $900,005 $841,395
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $103,968 $ 91,615
Accrued expenses.......................................... 27,820 17,768
Wages and related accruals................................ 16,191 10,010
Deferred income taxes..................................... 7,749 9,650
Current maturities of long-term debt...................... 150 100
-------- --------
Total current liabilities......................... 155,878 129,143
Long-term debt.............................................. 318,050 343,250
Deferred income taxes....................................... 25,749 23,200
Commitments................................................. -- --
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 5,000,000
None issued or outstanding............................. -- --
Common stock, no par value:
Authorized shares -- 100,000,000
Issued and outstanding shares 27,798,151 in 1999 and
27,674,703 in 1998, stated capital.................... 153,120 151,903
Retained earnings......................................... 247,208 193,899
-------- --------
Total shareholders' equity........................ 400,328 345,802
-------- --------
Total liabilities and shareholders' equity........ $900,005 $841,395
======== ========


See accompanying notes.
24
28

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------

Net sales........................................... $ 1,511,065 $ 1,352,807 $ 961,518
Gain from SERP...................................... 2,341 -- --
Gain on sale of real estate......................... -- -- 1,008
Other income........................................ 4,024 3,042 2,603
----------- ----------- -----------
1,517,430 1,355,849 965,129
Costs and expenses:
Cost of sales..................................... 1,097,437 1,024,214 737,500
Warehouse, delivery, selling, administrative and
general........................................ 278,552 220,205 151,415
Depreciation and amortization..................... 25,598 19,446 13,165
Interest.......................................... 23,299 17,585 10,861
----------- ----------- -----------
1,424,886 1,281,450 912,941
----------- ----------- -----------
Income before equity in earnings of 50%-owned
company and income taxes.......................... 92,544 74,399 52,188
Equity in earnings of 50%-owned company............. 3,866 5,873 5,798
----------- ----------- -----------
Income before income taxes.......................... 96,410 80,272 57,986
Income taxes........................................ 38,800 32,597 23,810
----------- ----------- -----------
Net income.......................................... $ 57,610 $ 47,675 $ 34,176
=========== =========== ===========
Earnings per share -- diluted....................... $ 2.07 $ 1.68 $ 1.44
=========== =========== ===========
Weighted average shares outstanding -- diluted...... 27,891,883 28,305,187 23,812,026
=========== =========== ===========
Earnings per share -- basic......................... $ 2.08 $ 1.69 $ 1.45
=========== =========== ===========
Weighted average shares outstanding -- basic........ 27,748,307 28,152,550 23,604,361
=========== =========== ===========
Cash dividends declared............................. $ .18 $ .16 $ .11
=========== =========== ===========


See accompanying notes.
25
29

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



COMMON STOCK
---------------------- RETAINED
SHARES AMOUNT EARNINGS
---------- -------- --------

Balance at January 1, 1997................................ 23,234,145 $ 61,131 $131,511
Net income for the year................................. -- -- 34,176
Stock options exercised................................. 146,850 787 1,243
Stock issued under incentive bonus plan................. 33,267 449 --
Cash dividends -- $.11 per share........................ -- -- (2,605)
Repurchase of stock..................................... (559,575) (1,514) (5,922)
Issuance of stock, net of offering costs of $371........ 5,392,500 93,908 --
---------- -------- --------
Balance at December 31, 1997.............................. 28,247,187 154,761 158,403
Net income for the year................................. -- -- 47,675
Stock options exercised................................. 65,189 527 --
Stock issued under incentive bonus plan................. 8,527 196 --
Cash dividends -- $.16 per share........................ -- -- (4,502)
Repurchase of stock..................................... (646,200) (3,581) (7,677)
---------- -------- --------
Balance at December 31, 1998.............................. 27,674,703 151,903 193,899
Net income for the year................................. -- -- 57,610
Stock options exercised................................. 112,775 1,034 648
Stock split -- fractional shares........................ (163) (5) --
Stock issued under incentive bonus plan................. 10,836 188 --
Cash dividends -- $.18 per share........................ -- -- (4,949)
---------- -------- --------
Balance at December 31, 1999.............................. 27,798,151 $153,120 $247,208
========== ======== ========


See accompanying notes.
26
30

RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)



YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------

OPERATING ACTIVITIES
Net income.............................................. $ 57,610 $ 47,675 $ 34,176
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 25,598 19,446 13,165
Deferred taxes........................................ (190) (199) 1,299
Loss (gain) on sales of equipment..................... 200 345 (265)
Net gain from SERP benefit............................ (2,341) -- --
Net gain on sale of real estate....................... -- -- (1,008)
Equity in earnings of 50%-owned company............... (3,866) (5,644) (5,109)
Changes in operating assets and liabilities:
Accounts receivable................................ 7,843 15,187 (16,302)
Inventories........................................ 35,004 (3,256) 548
Prepaid expenses and other assets.................. (6,407) (3,497) 1,075
Accounts payable and accrued expenses.............. 17,904 (39,122) 12,179
--------- --------- ---------
Net cash provided by operating activities..... 131,355 30,935 39,758
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment.............. (19,524) (23,671) (26,561)
Proceeds from life insurance............................ 3,397 -- --
Proceeds from sales of equipment........................ 5,542 2,415 3,276
Acquisitions of metals service centers, net of cash
acquired, and asset purchases of metals service
centers............................................... (92,955) (152,350) (80,514)
Dividends received from 50%-owned company............... 9,503 1,200 5,307
--------- --------- ---------
Net cash used in investing activities......... (94,037) (172,406) (98,492)
FINANCING ACTIVITIES
Proceeds from borrowings................................ 79,000 363,000 256,000
Principal payments on long-term debt and short-term
borrowings............................................ (109,868) (234,043) (250,380)
Dividends paid.......................................... (4,949) (4,502) (2,605)
Issuance of common stock................................ 188 723 95,144
Exercise of stock options............................... 1,677 -- 1,243
Repurchase of common stock.............................. -- (11,258) (7,436)
--------- --------- ---------
Net cash (used in) provided by financing activities..... (33,952) 113,920 91,966
--------- --------- ---------
Increase (decrease) in cash and cash equivalents........ 3,366 (27,551) 33,232
Cash and cash equivalents at beginning of year.......... 6,496 34,047 815
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 9,862 $ 6,496 $ 34,047
========= ========= =========


SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:

During 1997, certain assets of the Company were exchanged in non-monetary
transactions. The asset values exchanged were approximately $1,900 and $1,200,
respectively.

See accompanying notes.
27
31

RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Reliance Steel & Aluminum Co. and its wholly-owned subsidiaries, which include
Allegheny Steel Distributors, Inc., American Metals Corporation, AMI Metals,
Inc., CCC Steel, Inc., Chatham Steel Corporation, Durrett Sheppard Steel Co.,
Inc., Engbar Pipe & Steel Co., Liebovich Bros., Inc., Lusk Metals, Phoenix
Corporation (including Steel Bar Corporation), Service Steel Aerospace Corp.,
and Siskin Steel & Supply Company, Inc., and 97%-owned Valex Corp., on a
consolidated basis ("the Company"). All significant intercompany transactions
have been eliminated in consolidation. The Company accounts for its 50%
investment in American Steel, L.L.C. on the equity method of accounting.

Business

The Company operates a metals service center network of 72 processing and
distribution facilities (not including American Steel, L.L.C.) within 21 states
and France, which provide value-added metals processing services and distribute
a full line of more than 75,000 metal products.

Accounting Estimates

The preparation of financial statements in conformity with 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.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, cash equivalents and
trade receivables. 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. 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. 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. As a result of the above factors, the Company does not
consider itself to have any significant concentrations of credit risk.

Fair Values of Financial Instruments

Fair values of cash and cash equivalents, short-term borrowings 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 for loans with
similar terms or maturity, approximate the carrying amounts in the consolidated
financial statements.

Cash Equivalents

The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash and
cash equivalents are held by major financial institutions.

28
32
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Long-Lived Assets

The provision for depreciation of property, plant and equipment 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................................................... 31 1/2 years
Machinery and equipment..................................... 3 - 10 years


Goodwill, representing the excess of the purchase price over the fair
values of the net assets of acquired entities, is being amortized on a straight
line basis over the period of expected benefit of 40 years. Covenants not to
compete and other intangible assets are being amortized over the period of
expected benefit, generally five years.

The Company reviews the recoverability of its long-lived assets, including
goodwill as required by Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of whenever significant events or changes occur which
might impair the recovery of recorded costs. The measurement of possible
impairment is either based upon significant losses of an entity or on the
ability to recover the balance of the long-lived asset from expected future
operating cash flows on an undiscounted basis. If an impairment exists, the
amount of such impairment is calculated based upon the discounted cash flows or
the market values as compared to the recorded costs. In management's opinion, no
impairment exists at December 31, 1999.

Revenue Recognition

The Company recognizes revenue from product sales at the time of shipment.
Provisions are made currently for estimated returns.

Stock-Based Compensation

The Company grants stock options with an exercise price equal to the fair
value of the stock at the date of grant. The Company elected to continue to
account for stock-based compensation plans using the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
("APB25"), Accounting for Stock Issued to Employees and related interpretations.
Under APB25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock at the date of grant, no
compensation expense is recognized.

Environmental Remediation Costs

The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimatable. 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.

Impact of Recently Issued Accounting Standards

In the current year, the Company adopted the provisions of Statement of
Position (SOP) 98-1, effective for fiscal years beginning after December 15,
1998. SOP 98-1 requires capitalization and amortization of qualified computer
software costs over their estimated useful life. There has been no impact on the
Company's earnings or financial position due to the adoption of SOP 98-1.

29
33
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities (as
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of SFAS No. 133). SFAS No. 133
requires all derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair values are
required to be recognized immediately in net income (loss) to the extent the
derivatives are not effective as hedges. SFAS No. 137 delayed the effective date
to fiscal years beginning after June 15, 2000, and is effective for interim
periods in the initial year of adoption. At the present time, the Company does
not expect SFAS No. 133 to have any effect on the Company's financial position,
results of operations, or cash flows because the Company does not presently use
derivatives or engage in hedging activities.

Reclassifications

Certain reclassifications have been made to the 1998 balances to conform to
the 1999 presentation.

2. ACQUISITIONS

On October 1, 1999, the Company purchased the assets and business of Arrow
Metals, a division of Arrow Smelters, Inc. The privately-held metals service
center business was based in Garland (Dallas), Texas, with additional facilities
in Houston and San Antonio. Arrow Metals specializes in non-ferrous metals
processing and distribution of mainly aluminum plate and bar products, with 1998
sales of approximately $22,000,000. The Arrow Metals locations are operating as
divisions of the Company. Arrow Metals was acquired with cash generated from
operations.

On September 3, 1999, the Company acquired 100% of the stock of Allegheny
Steel Distributors, Inc. ("Allegheny"), a privately-held metals service center.
Allegheny is based in Indianola (Pittsburgh), Pennsylvania and specializes in
cutting-to-length and blanking primarily carbon steel flat-rolled products.
Allegheny had sales of approximately $31,000,000 in the year ended December 31,
1998. Allegheny operates as a wholly-owned subsidiary of the Company. Allegheny
was acquired with funds from borrowings under the Company's syndicated credit
facility.

On March 1, 1999, the Company acquired 100% of the outstanding shares of
Liebovich Bros., Inc. ("Liebovich"), for approximately $60,000,000 in cash.
Liebovich was a privately-held metals service center company with one full-line
metals service center and two metals fabrication facilities in Rockford,
Illinois, and a metals service center in Wyoming (Grand Rapids), Michigan.
Liebovich reported sales of approximately $130,000,000 for the twelve months
ended December 31, 1998. Liebovich operates as a wholly-owned subsidiary of the
Company. The purchase of Liebovich was funded with cash generated from
operations and borrowings on the Company's syndicated credit facility.

In February 1999, Valex Corp. ("Valex"), a 97%-owned subsidiary of the
Company, purchased certain assets and the business of Advanced MicroFinish,
Inc., a leading domestic competitor of Valex.

On October 5, 1998, the Company acquired 100% of the outstanding stock of
Engbar Pipe & Steel Co. ("Engbar"), a privately-held metals service center
company headquartered in Denver, Colorado. Engbar operated as a wholly-owned
subsidiary of the Company, until its merger into the Company effective January
1, 2000. The purchase of Engbar was funded with borrowings under the Company's
line of credit.

On October 1, 1998, Phoenix Corporation, which is a wholly-owned subsidiary
of the Company, acquired 100% of the outstanding stock of Steel Bar Corporation
("Steel Bar"), a privately-held metals service center in Greensboro, North
Carolina. Steel Bar operates as a wholly-owned subsidiary of Phoenix
Corporation. The purchase of Steel Bar was funded with borrowings under the
Company's line of credit.

30
34
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Also effective October 1, 1998, American Steel, L.L.C. ("American Steel")
distributed equally to its members, the Company and American Industries, Inc.
("Industries"), 100% of the outstanding stock of its wholly-owned subsidiary,
American Metals Corporation ("American Metals"). Simultaneously with the
distribution, American Metals redeemed the stock owned by Industries in exchange
for real property of approximately $6,670,000 and cash of $1,800,000. The real
property is being leased back to American Metals. American Metals is based in
West Sacramento, California, with additional service centers in Redding and
Fresno, California. American Metals operates as a wholly-owned subsidiary of the
Company. The Company will continue to account for its investment in American
Steel using the equity method of accounting.

On September 18, 1998, the Company acquired 100% of the stock of Lusk
Metals, a privately-held metals service center in Hayward, California (near San
Francisco), for approximately $22,000,000 in cash. Lusk Metals is operating as a
wholly-owned subsidiary of the Company. The purchase of Lusk Metals was funded
with borrowings under the Company's line of credit.

Effective July 1, 1998, the Company acquired 100% of the stock of Chatham
Steel Corporation ("Chatham"), a privately-held metals service center company
headquartered in Savannah, Georgia for approximately $68,000,000 in cash.
Chatham has additional facilities in Columbia, South Carolina; Durham, North
Carolina; Orlando, Florida; Jacksonville, Florida; and Birmingham, Alabama.
Chatham is operating as a wholly-owned subsidiary of the Company. The purchase
of Chatham was funded with borrowings under the Company's line of credit.

On January 30, 1998, the Company acquired 100% of the outstanding capital
stock of Phoenix Corporation, doing business as Phoenix Metals Company ("Phoenix
Metals"), for approximately $21,000,000 in cash. Phoenix Metals is headquartered
in Norcross (Atlanta), Georgia, with additional metals service centers in
Birmingham, Alabama; Tampa, Florida; and Charlotte, North Carolina. Phoenix
Metals is operating as a wholly-owned subsidiary of the Company. The purchase of
Phoenix Metals was funded with a portion of the proceeds from the 1997 equity
offering and borrowings under the Company's line of credit.

Also on January 30, 1998, the Company purchased the assets and business of
Durrett-Sheppard Steel Co., L.L.C. and its subsidiary, Durrett-Sheppard Steel of
Pennsylvania, Inc., through its newly-formed subsidiary, Durrett Sheppard Steel
Co., Inc. ("Durrett"), for approximately $30,500,000 in cash. Durrett is a
metals service center located in Baltimore, Maryland, which is operating as a
wholly-owned subsidiary of the Company. This purchase was funded with a portion
of the proceeds from the 1997 equity offering and borrowings under the Company's
line of credit.

Effective December 1, 1997, the Company purchased 100% of the outstanding
common stock of Georgia Steel Supply Company ("Georgia Steel"), a privately-held
metals service center in Atlanta, Georgia. This purchase was funded with a
portion of the proceeds of a public equity offering in November 1997. Georgia
Steel operated as a wholly-owned subsidiary of Siskin Steel & Supply Company,
Inc. ("Siskin"), until its merger into Siskin effective January 1, 1999.

Effective October 1, 1997, the Company acquired 100% of the outstanding
common stock of Service Steel Aerospace Corp. ("SSA") for approximately
$26,000,000 in cash. SSA operates metals service centers in Tacoma, Washington;
Massillon, Ohio; and Long Beach, California. SSA is operating as a wholly-owned
subsidiary of the Company. The purchase of SSA was funded through the Company's
line of credit, which was paid off with a portion of the proceeds from the
public equity offering in November 1997.

Effective April 30, 1997, the Company purchased 100% of the outstanding
shares of Amalco Metals, Inc. ("Amalco"), a privately-held metals service center
located in Union City, California. This purchase was funded by borrowings under
the Company's revolving line of credit, which were later replaced by the
issuance of a private placement of debt. Amalco operated as a wholly-owned
subsidiary of the Company until it was

31
35
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

merged with Reliance in April 1998, and relocated to a new facility, combining
operations with an existing Reliance operation.

Effective April 2, 1997, the Company acquired 100% of the outstanding
capital stock of AMI Metals, Inc. ("AMI") for $38,500,000 in cash. AMI is
headquartered in Brentwood, Tennessee, with service center locations in Fontana,
California; Forest Park (Atlanta), Georgia; Wichita, Kansas; Fort Worth, Texas;
Algona (Kent), Washington; and Swedesboro, New Jersey. In November 1998, AMI
transferred its Brentwood warehouse operations to Forest Park, with its
corporate headquarters remaining in Brentwood. AMI operates as a wholly-owned
subsidiary of the Company. The purchase of AMI was funded by borrowings under
the Company's revolving line of credit, which were later replaced with the
issuance of a private placement of debt.

These transactions were accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on the estimated fair values at the date of
the acquisition. The excess of purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill, resulting in goodwill
additions of $44,094,000 and $109,100,000, for the years ended December 31, 1999
and 1998, respectively. Amortization expense for goodwill and other intangible
assets amounted to approximately $6,804,000, $4,636,000 and $2,761,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.

The operating results of these acquisitions are included in the Company's
consolidated results of operations from the date of each acquisition. The
following unaudited proforma summary presents the consolidated results of
operations as if the acquisitions had occurred at the beginning of each period
after the effect of certain adjustments, including amortization of goodwill,
interest expense on the acquisition debt and related income tax effects. These
proforma results have been presented for comparative purposes only and are not
indicative of what would have occurred had the acquisitions been made as of
January 1, 1999, 1998, or 1997, appropriately, or of any potential results which
may occur in the future.



YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Proforma (unaudited):
Net sales...................................... $1,551,194 $1,705,160 $1,510,628
Net income..................................... $ 58,623 $ 56,308 $ 43,409
Earnings per share -- diluted.................. $ 2.10 $ 1.99 $ 1.82
Earnings per share -- basic.................... $ 2.11 $ 2.00 $ 1.84


3. 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, 1999 and 1998, cost on the first-in,
first-out ("FIFO") method exceeds the LIFO value of inventories by $13,664,000
and $24,774,000, respectively. Inventories of $47,775,000 and $41,011,000 at
December 31, 1999 and 1998, respectively, were stated on the FIFO method, which
is not in excess of market.

4. INVESTMENT IN 50%-OWNED COMPANY

The Company maintains 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. American Industries, Inc.
("Industries") owns the other 50% interest in American Steel. The Operating
Agreement

32
36
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

provides that the Company may purchase the remaining 50% of American Steel
during a term of three years following the earlier of the death of the owner of
Industries, or December 31, 2005. The price shall be the greater of Industries'
current Capital Account or 50% of the fair market value of American Steel. The
Operating Agreement gives the Company operating control over the assets and
operations of American Steel. However, due to the existence of super-majority
veto rights, the Company is required to account for this investment under the
equity method and records its share of earnings based upon the terms of the
Operating Agreement. Additionally, until October 1, 1998, American Steel owned
100% of American Metals, which was previously a joint venture between the
Company and Industries. As discussed in Note 2 to the consolidated financial
statements, the Company now owns 100% of the stock of American Metals.

The consolidated retained earnings of the Company includes the
undistributed earnings of American Steel. The Company's share of undistributed
earnings included in consolidated retained earnings amounted to $3,800,000 and
$9,437,000 as of December 31, 1999 and 1998, respectively.

5. LONG-TERM DEBT

Long-term debt consists of the following:



DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)

Revolving line of credit ($200,000,000 limit) due October
22, 2002, interest at variable rates, weighted average
rate of 5.5% during 1999.................................. $ 25,000 $ 50,000
Senior unsecured notes due January 2, 2004 to January 2,
2009, average fixed interest rate 7.22%................... 75,000 75,000
Senior unsecured notes due January 2, 2002 to January 2,
2008, average fixed interest rate 7.02%................... 65,000 65,000
Senior unsecured notes due October 15, 2005 to October 15,
2010, average fixed interest rate 6.55%................... 150,000 150,000
Variable Rate Demand Industrial Development Revenue Bonds,
Series 1989 A, due July 1, 2014, with interest payable
quarterly; average interest rate during 1999 of 3.0%...... 3,200 3,350
-------- --------
318,200 343,350
Less amounts due within one year............................ (150) (100)
-------- --------
$318,050 $343,250
======== ========


The Company has entered into a syndicated credit agreement with five banks
for a revolving line of credit with a borrowing limit of $200,000,000. The
syndicated credit agreement allows the Company to use up to $175,000,000 of the
revolving line of credit for acquisitions. The weighted average interest rates
on the line of credit were 5.5% and 5.8% as of December 31, 1999 and 1998,
respectively. The Company has $290,000,000 of outstanding senior unsecured notes
issued in private placements of debt. These notes bear interest at an average
fixed rate of 6.83% and have an average life of 9.1 years, maturing from 2002 to
2010. The Company also entered into a credit agreement that allows the Company
to issue and have outstanding up to a maximum of $10,000,000 of letters of
credit.

The Company's long-term loan agreements require the maintenance of a
minimum net worth and include certain restrictions on the amount of cash
dividends payable, among other things.

Interest paid during 1999, 1998, and 1997 amounted to $22,842,000,
$15,595,000, and $12,079,000, respectively. The syndicated credit facility
includes a commitment fee on the unused portion at an annual rate of 0.125%.

33
37
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

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



2000........................................................ $ 150
2001........................................................ 150
2002........................................................ 35,150
2003........................................................ 150
2004........................................................ 22,150
Thereafter.................................................. 260,450
--------
$318,200
========


6. INCOME TAXES

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



DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)

Deferred tax assets:
Accrued expenses not currently deductible for tax......... $ 9,101 $ 9,647
Unicap.................................................... 1,813 1,376
Bad debt.................................................. 2,085 1,876
-------- --------
Total deferred tax assets......................... 12,999 12,899
-------- --------
Deferred tax liabilities:
Tax over book depreciation................................ (16,417) (16,074)
Book basis in excess of tax basis on:
Inventory acquired..................................... (7,739) (7,906)
Property, plant and equipment acquired................. (9,465) (7,591)
Goodwill............................................... (1,928) (282)
Other, net................................................ 2,051 (997)
-------- --------
Total deferred tax liabilities.................... (33,498) (32,850)
-------- --------
Net deferred tax liabilities...................... $(20,499) $(19,951)
======== ========


34
38
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Significant components of the provision for income taxes are as follows:



YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)

Current:
Federal............................................. $30,704 $27,004 $17,927
State............................................... 8,286 5,792 4,584
------- ------- -------
38,990 32,796 22,511
Deferred:
Federal............................................. 1,279 (164) 1,269
State............................................... (1,469) (35) 30
------- ------- -------
(190) (199) 1,299
------- ------- -------
$38,800 $32,597 $23,810
======= ======= =======


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



YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----

Income tax at U.S. statutory tax rates...................... 35.0% 35.0% 35.0%
State income tax, net of federal tax effect................. 4.7 5.0 5.0
Other....................................................... .5 .6 1.0
---- ---- ----
Effective tax rate.......................................... 40.2% 40.6% 41.0%
==== ==== ====


Income tax payments during 1999, 1998, and 1997 were $39,720,000,
$34,760,000 and $20,551,000, respectively.

7. STOCK OPTION PLANS

During 1989, the Company adopted a Non-Qualified Stock Option Plan that
provided for the granting of options to key employees to purchase up to 945,000
shares of the Company's Common Stock at a price at least equal to the fair
market value of the stock at the grant date. The Plan expired on December 31,
1993. No options were exercisable until after one year from the grant date, and
in each of the following four years, 25% of the options became exercisable on a
cumulative basis. Options were exercisable for a period of five years from the
date of grant. During 1997, options to purchase 122,664 shares were exercised at
$4.79 per share, and 9,450 options expired under this plan. All unexercised
options outstanding under the 1989 Plan expired during 1997.

In 1994, the Board of Directors of the Company adopted an Incentive and
Non-Qualified Stock Option Plan (the "1994 Plan"). There are 1,687,500 shares of
Common Stock reserved for issuance under the 1994 Plan. The 1994 Plan provides
for granting of stock options that may be 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 are required to be granted at an option price
per share equal to 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 may not be granted
longer than 10 years from the date of the 1994 Plan. All options granted have
five year terms and vest at the rate of 25% per year, commencing one year from
the date of grant.

35
39
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Transactions under the 1994 Plan are as follows:



WEIGHTED AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE
------------- --------- ----------------

Outstanding at January 1, 1997........................... 498,375 $ 8.11
Granted................................................ 123,750 $17.14
Exercised.............................................. (24,562) $ 8.11
Expired................................................ (57,938) $ 8.11
--------- ------
Outstanding at December 31, 1997......................... 539,625 $10.18
Granted................................................ 289,500 $21.85
Exercised.............................................. (64,875) $ 8.11
Expired................................................ (29,625) $ 9.12
--------- ------
Outstanding at December 31, 1998......................... 734,625 $15.01
Granted................................................ 578,250 $19.52
Exercised.............................................. (111,275) $ 9.04
Expired................................................ (63,187) $13.84
--------- ------
Outstanding at December 31, 1999......................... 1,138,413 $17.94
========= ======


In May 1998, the shareholders approved the adoption of a Directors Stock
Option Plan for non-employee directors (the "Directors Plan"). There are 300,000
shares of the Company's Common Stock reserved for issuance under the Directors
Plan. In February 1999, the Directors Plan was amended to allow the Board of
Directors of the Company to grant additional options to acquire the Company's
Common Stock to non-employee directors. Options under the Directors Plan are
non-qualified stock options, with an exercise price at fair market value at the
date of grant. All options granted expire five years from the date of grant.
None of the stock options become exercisable until one year after the date of
the grant, unless specifically approved by the Board of Directors. In each of
the following four years, 25% of the options become exercisable on a cumulative
basis. Of the options granted in 1999, for 105,000 options, 20% were immediately
exercisable upon grant, with 20% becoming exercisable in each of the following
four years, as specifically approved by the Board of Directors.

Transactions under the Directors Plan are as follows:



WEIGHTED AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE
------------- ------- ----------------

Outstanding at January 1, 1998............................. -- $ --
Granted.................................................. 37,500 $26.08
Exercised................................................ -- $ --
Expired.................................................. -- $ --
------- ------
Outstanding at December 31, 1998........................... 37,500 $26.08
Granted.................................................. 120,000 $18.77
Exercised................................................ (1,500) $18.83
Expired.................................................. -- $ --
------- ------
Outstanding at December 31, 1999........................... 156,000 $20.52
======= ======


36
40
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The following tabulation summarizes certain information concerning
outstanding and exercisable options at December 31, 1999:



OPTIONS OUTSTANDING
--------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE EXERCISABLE AT AVERAGE
OUTSTANDING AT CONTRACTUAL LIFE EXERCISE DECEMBER 31, EXERCISE PRICE
RANGE OF EXERCISE PRICE DECEMBER 31, 1999 IN YEARS PRICE 1999 OPTIONS EXERCISABLE
- ----------------------- -------------------- ---------------- -------- -------------- --------------------

$ 8 - $13............. 227,538 1.2 $ 8.83 111,381 $ 8.71
18 - 20............. 823,875 4.1 $19.03 78,750 $19.48
23 - 26............. 243,000 3.6 $24.45 45,750 $24.12
- ----------- --------- --- ------ ------- ------
$ 8 - $26............. 1,294,413 3.5 $18.26 235,881 $15.30


If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed by Statement of
Financial Accounting Standards No. 123, net income and earnings per share would
have been reduced to the pro forma amounts shown below:



YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

Pro forma:
Net income.......................................... $56,596 $47,223 $33,803
Earnings per share:
Diluted.......................................... $ 2.03 $ 1.67 $ 1.42
Basic............................................ $ 2.04 $ 1.68 $ 1.43


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:



1999 1998 1997
---- ---- ----

Risk free interest rate.................................... 4.80% 6.00% 6.00%
Expected life in years..................................... 4 4 4
Expected volatility........................................ .30 .11 .37
Expected dividend yield.................................... .70% .50% .20%


8. EMPLOYEE BENEFITS

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 salaried and certain hourly employees
of the Company. The amount of the annual contribution is at the discretion of
the Board of Directors of the Company, except that the minimum amount must be
sufficient to enable the ESOP Trust to meet its current obligations.

Various 401(k) and profit sharing plans were maintained by the Company and
its subsidiaries. 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
will continue to allow each subsidiary's Board of Directors 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

37
41
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

sharing plans exist as certain subsidiaries have not yet combined their plans
into the Master Plan as of December 31, 1999.

Effective January 1996, the Company adopted a Supplemental Executive
Retirement Plan ("SERP"), which is a nonqualified pension plan that provides
post-retirement benefits to key officers of the Company. The SERP is
administered by the Compensation and Stock Option Committee of the Board of
Directors. 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. The Company recorded a one-time net gain of $2,341,000 due to
life insurance proceeds related to the death of one of its executives in January
1999. This gain is net of the death benefit to be received by the deceased
executive's beneficiary, under the terms of the SERP. The proceeds from the life
insurance claim will be used to fund the death benefit and other payments under
the SERP. The proceeds are recorded in other current assets, and the liability
for the death benefit is recorded in current liabilities. The SERP does not
maintain its own plan assets, therefore plan assets and related disclosures have
been omitted. Assets with a value of $5,834,000 related to the SERP are included
in the Company's balance sheet at December 31, 1999. A separate SERP plan exists
for one of the companies acquired during 1998, which provides post-retirement
benefits to its key employees.

The net periodic pension cost for the plan was as follows:



YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------- ----- -----
(IN THOUSANDS)

Service cost................................................ $ 286 $195 $142
Interest cost............................................... 459 263 147
Recognized gains or (losses)................................ 66 (21) (61)
Prior service cost recognized............................... 196 196 196
------ ---- ----
$1,007 $633 $424
====== ==== ====


38
42
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The following is a summary of the status of the funding of the SERP plan:



DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year............... $ 5,764 $ 2,247 $ 2,883
Benefit obligation from acquired company.............. -- 2,137 --
Service cost.......................................... 286 195 142
Interest cost......................................... 459 263 147
Actuarial losses (gains).............................. 816 1,005 (847)
Benefits paid......................................... (232) (83) (78)
------- ------- -------
Benefit obligation at end of year........... $ 7,093 $ 5,764 $ 2,247
======= ======= =======
FUNDED STATUS
Funded status of the plan (underfunded)............... $(7,093) $(5,764) $(2,247)
Unrecognized net actuarial losses (gains)............. 990 240 (786)
Unamortized prior service cost........................ 1,761 1,957 2,152
------- ------- -------
Net amount recognized....................... $(4,342) $(3,567) $ (881)
======= ======= =======
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION
Accrued benefit liability............................. $(4,804) $(3,713) $(1,339)
Intangible asset...................................... 462 146 458
------- ------- -------
Net amount recognized....................... $(4,342) $(3,567) $ (881)
======= ======= =======


In determining the actuarial present value of projected benefit obligations
for the Company's SERP, the assumptions were as follows:



DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----

Weighted average assumptions
Discount rate............................................. 7.0% 6.5% 7.5%
Rate of compensation increase............................. 6.0% 6.0% 6.0%


The Company's contribution expense for Company sponsored retirement plans
were as follows:



YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(IN THOUSANDS)

Master 401(k) Plan....................................... $2,596 $2,965 $ 972
Employee Stock Ownership Plan............................ 800 800 800
Supplemental Executive Retirement Plans.................. 1,007 681 644
------ ------ ------
$4,403 $4,446 $2,416
====== ====== ======


The Company participates in various multi-employer pension plans covering
certain employees not covered under the Company's benefit plans pursuant to
agreements between the Company and collective bargaining units who are members
of such plans. The Company is unable to determine its relative position with
regard to defined benefit plans to which contributions are made as a result of
collective bargaining agreements.

The Company has a "Key-Man Incentive Plan" (the "Incentive Plan") for
division managers and officers, which is administered by the Compensation and
Stock Option Committee of the Board of Directors.
39
43
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

For 1999, 1998 and 1997, this incentive compensation bonus was payable 75% in
cash and 25% in the Company's Common Stock, with the exception of the bonus to
officers, which may be paid 100% in cash at the discretion of the individual.
The Company accrued $2,031,000, $1,993,000, and $1,797,000 under the Incentive
Plan as of December 31, 1999, 1998, and 1997, respectively. In March 1999 and
1998, the Company issued 10,836 and 8,527 shares of Common Stock to employees
under the incentive bonus plan for the years ended December 31, 1998 and 1997,
respectively.

9. SHAREHOLDERS' EQUITY

The Board of Directors authorized a 3-for-2 common stock split effected in
the form of a 50% stock dividend distributed on September 24, 1999, to
shareholders of record on September 2, 1999. All references in the financial
statements to number of shares and per share amounts have been retroactively
adjusted to reflect this stock split.

In August 1998, the Board of Directors approved the purchase of up to an
additional 3,750,000 shares of the Company's outstanding Common Stock through
its Stock Repurchase Plan, for a total of up to 6,000,000 shares. The Stock
Repurchase Plan was initially established in December 1994 and authorizes the
Company to purchase shares of its Common Stock from time to time in the open
market or in privately-negotiated transactions. Repurchased shares are redeemed
and treated as authorized but unissued shares. As of December 31, 1999, the
Company had repurchased a total of 2,672,325 shares of its Common Stock under
the Stock Repurchase Plan, at an average cost of $9.91 per share. During 1999,
the Company did not repurchase any shares. In February 2000, 36,850 shares were
repurchased by the Company at an average price of $18.08 per share.

In May 1998, the Company amended its Articles of Incorporation to increase
the number of authorized common shares from 20,000,000 to 100,000,000.

In November 1997, the Company issued 5,392,500 new shares at an offering
price of $18.42 per share in a secondary public offering. The proceeds of
$93,908,000 (net of underwriter commissions and offering costs) were used to pay
down bank debt, to fund the acquisition of Georgia Steel, and to fund a portion
of the acquisitions of Durrett and Phoenix Metals.

10. COMMITMENTS AND CONTINGENCIES

The Company leases land, buildings and equipment under noncancelable
operating leases expiring in various years through 2013. Several of the leases
have renewal options providing for additional lease periods. Future minimum
payments, by year and in the aggregate, under the noncancelable leases with
initial or remaining terms of one year or more, consisted of the following at
December 31, 1999 (in thousands):



2000........................................................ $10,002
2001........................................................ 8,777
2002........................................................ 7,187
2003........................................................ 5,270
2004........................................................ 3,540
Thereafter.................................................. 6,761
-------
$41,537
=======


Total rental expense amounted to $9,992,000, $7,563,000, and $6,228,000 for
1999, 1998, and 1997, respectively.

40
44
RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on the financial position,
results of operations or cash flow of the Company.

11. EARNINGS PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to the SFAS No. 128 requirements. The following table sets forth the
computation of basic and diluted earnings per share:



YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)

Numerator:
Net income.......................................... $57,610 $47,675 $34,176
======= ======= =======
Denominator:
Denominator for basic earnings per share -- weighted
average shares................................... 27,748 28,152 23,604
======= ======= =======
Effect of dilutive securities:
Employee stock options.............................. 144 153 208
------- ------- -------
Denominator for dilutive earnings per share:
Adjusted weighted average shares and assumed
conversions...................................... 27,892 28,305 23,812
======= ======= =======
Earnings per share -- diluted......................... $ 2.07 $ 1.68 $ 1.44
======= ======= =======
Earnings per share -- basic........................... $ 2.08 $ 1.69 $ 1.45
======= ======= =======


All weighted shares and per-share amounts have been adjusted for the
3-for-2 common stock splits that occurred in September 1999 and June 1997. The
computations of earnings per share for 1999 and 1998 do not include 243,000 and
190,000 shares, respectively, of stock options because their inclusion would
have been anti-dilutive.

12. SUBSEQUENT EVENTS

Through its newly-formed company, Hagerty Steel & Aluminum Company
("Hagerty"), the Company purchased the assets and business of the metals service
center division of Hagerty Brothers Company, located in Peoria, Illinois, on
February 5, 2000. Hagerty processes and distributes primarily carbon steel
products, and operates as a subsidiary of Liebovich Bros., Inc., a wholly-owned
subsidiary of the Company. Net sales of the metals service center business of
Hagerty Brothers Company were approximately $30,000,000 for the year ended
December 31, 1999. The Hagerty assets were acquired with funds from borrowings
under the Company's line of credit.

41
45

RELIANCE STEEL & ALUMINUM CO.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the
years ended December 31, 1999, 1998 and 1997:



MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

1999:
Net sales......................... $371,884 $384,714 $380,070 $374,397
Cost of sales..................... 278,489 282,496 275,320 261,132
Net income........................ 14,057 13,658 14,755 15,140
Earnings per share -- diluted..... .51 .49 .53 .54
1998:
Net sales......................... $315,468 $326,184 $357,819 $353,336
Cost of sales..................... 241,722 248,390 271,486 262,616
Net income........................ 11,759 12,504 11,938 11,474
Earnings per share -- diluted..... .41 .44 .42 .41
1997:
Net sales......................... $201,591 $243,824 $254,236 $261,867
Cost of sales..................... 155,454 187,922 197,718 196,406
Net income........................ 6,924 8,374 8,415 10,464
Earnings per share -- diluted..... .30 .37 .37 .40


Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year shown elsewhere in the annual report
and SEC Form 10-K. The first three quarters of 1997 earnings per share amounts
have been restated to comply with Statement of Financial Accounting Standards
No. 128, Earnings per Share. All per share amounts have been adjusted for the
September 1999 and June 1997 3-for-2 common stock splits.

42
46

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There have been no changes in or disagreements with the Company's
accountants on any accounting or financial disclosure issues.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The narrative and tabular information included under the caption
"Management" on pages 6 through 7 and under the caption "Compliance with Section
16(a)" on page 17 of the Proxy Statement are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The narrative and tabular information, including footnotes thereto,
included under the caption "Executive Compensation" on pages 11 through 15 of
the Proxy Statement are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The narrative and tabular information, including footnotes thereto,
included under the caption "Securities Ownership of Certain Beneficial Owners
and Management" on pages 3 and 4 of the Proxy Statement are incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The narrative information included under the caption "Certain Transactions"
on page 17 of the Proxy Statement is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this report:

(1) Financial Statements (Included in Item 8.)

Report of Independent Auditors

Consolidated Balance Sheets at December 31, 1999 and 1998

Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997

Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997

Notes to Consolidated Financial Statements

Quarterly Results of Operations (Unaudited) for the Years Ended December
31, 1999, 1998 and 1997

(2) Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts

All other schedules have been omitted since the required information is
not significant or is included in the Consolidated Financial Statements
or notes thereto or is not applicable.

43
47

(3) Exhibits



EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.01 Registrant's Restated Articles of Incorporation(1)
3.02 Registrant's Amended and Restated Bylaws(1)
10.01 Registrant's 1994 Incentive and Non-Qualified Stock Option
Plan and the Forms of Agreements related thereto(1)
10.02 Registrant's Form of Indemnification Agreement for officers
and directors(1)
10.03 Incentive Bonus Plans(1)
10.04 Registrant's Supplemental Executive Retirement Plan dated
January 1, 1996(2)
10.05 Credit Agreement for the $200 Million Syndicated Credit
Facility dated October 22, 1997(3)
10.06 Amendment No. Two to Credit Agreement dated October 22,
1997(4)
10.07 Amendment No. Three to Credit Agreement dated October 22,
1997(4)
10.08 Amendment to Registrant's Restated Articles of Incorporation
dated May 20, 1998(5)
21.01 Subsidiaries of Registrant
23.01 Consent of Ernst & Young LLP
24.01 Power of Attorney(6)


- ---------------
(1) Incorporated by reference from Exhibits to Registrant's Registration
Statement on Form S-1, as amended, originally filed on May 25, 1994
as Commission File No. 33-79318.

(2) Incorporated by reference from Exhibits to Registrant's Form 10-K,
for the year ended December 31, 1996.

(3) Incorporated by reference from Exhibits to Registrant's Form 10-Q,
for the quarter ended September 30, 1997.

(4) Incorporated by reference from Exhibits to Registrant's Form 10-Q,
for the quarter ended September 30, 1998.

(5) Incorporated by reference from Exhibits to Registrant's Proxy
Statement for Annual Meeting of Shareholders held May 20, 1998.

(6) Set forth on page 46 of this report.

(b) Reports on Form 8-K

None.

44
48

RELIANCE STEEL & ALUMINUM CO. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)



ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------

Year Ended December 31, 1997
Reserve and allowances deducted from asset
accounts...............................
Allowance for uncollectible accounts...... $2,899 $1,277 $ 692 $ 525(1) $4,343
Year Ended December 31, 1998
Reserve and allowances deducted from asset
accounts...............................
Allowance for uncollectible accounts...... $4,343 $2,206 $1,736 $2,469(1) $5,816
Year Ended December 31, 1999
Reserve and allowances deducted from asset
accounts...............................
Allowance for uncollectible accounts...... $5,816 $2,226 $ 290 $1,982(1) $6,350


- ---------------
(1) Uncollectible accounts written off, net of recoveries.

45
49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on this 27th
day of March, 2000.

RELIANCE STEEL & ALUMINUM CO.

By: /s/ DAVID H. HANNAH
------------------------------------
David H. Hannah
President and Chief Executive
Officer

POWER OF ATTORNEY

The officers and directors of Reliance Steel & Aluminum Co. whose
signatures appear below hereby constitute and appoint David H. Hannah and Gregg
J. Mollins, or either of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for each of them in any and all
capacities, to sign any amendments to this report and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or substitute or substitutes, may do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons in the
capacities and on the dates indicated.



SIGNATURES TITLE DATE
---------- ----- ----

/s/ DAVID H. HANNAH President and Chief Executive March 27, 2000
- ----------------------------------------------------- Officer (Principal Executive
David H. Hannah Officer); Director

/s/ GREGG J. MOLLINS Executive Vice President and March 27, 2000
- ----------------------------------------------------- Chief Operating Officer;
Gregg J. Mollins Director

/s/ KARLA R. MCDOWELL Senior Vice President and Chief March 27, 2000
- ----------------------------------------------------- Financial Officer (Principal
Karla R. McDowell Financial Officer; Principal
Accounting Officer)

/s/ JOE D. CRIDER Chairman of the Board; Director March 27, 2000
- -----------------------------------------------------
Joe D. Crider

/s/ THOMAS W. GIMBEL Director March 27, 2000
- -----------------------------------------------------
Thomas W. Gimbel

/s/ DOUGLAS M. HAYES Director March 27, 2000
- -----------------------------------------------------
Douglas M. Hayes

/s/ ROBERT HENIGSON Director March 27, 2000
- -----------------------------------------------------
Robert Henigson


46
50



SIGNATURES TITLE DATE
---------- ----- ----

/s/ KARL H. LORING Director March 27, 2000
- -----------------------------------------------------
Karl H. Loring

/s/ WILLIAM I. RUMER Director March 27, 2000
- -----------------------------------------------------
William I. Rumer

/s/ LESLIE A. WAITE Director March 27, 2000
- -----------------------------------------------------
Leslie A. Waite


47
51

EXHIBIT INDEX



EXHIBIT
NUMBER DESCRIPTION
------- -----------

3.01 Registrant's Restated Articles of Incorporation(1)
3.02 Registrant's Amended and Restated Bylaws(1)
10.01 Registrant's 1994 Incentive and Non-Qualified Stock Option
Plan and the Forms of Agreements related thereto(1)
10.02 Registrant's Form of Indemnification Agreement for officers
and directors(1)
10.03 Incentive Bonus Plan(1)
10.04 Registrant's Supplemental Executive Retirement Plan dated
January 1, 1996(2)
10.05 Credit Agreement for the $200 Million Syndicated Credit
Facility Dated October 22, 1997(3)
10.06 Amendment No. Two to Credit Agreement dated October 22,
1997(4)
10.07 Amendment No. Three to Credit Agreement dated October 22,
1997(4)
10.08 Amendment to Registrant's Restated Articles of Incorporation
dated May 20, 1998(5)
21.01 Subsidiaries of Registrant
23.01 Consent of Ernst & Young LLP
24.01 Power of Attorney(6)


- ---------------
(1) Incorporated by reference from Exhibits to Registrant's Registration
Statement on Form S-1, as amended, originally filed on May 25, 1994 as
Commission File No. 33-79318.

(2) Incorporated by reference from Exhibits to Registrant's Form 10-K, for
the year ended December 31, 1996.

(3) Incorporated by reference from Exhibits to Registrant's Form 10-Q, for
the quarter ended September 30, 1997.

(4) Incorporated by reference from Exhibits to Registrant's Form 10-Q, for
the quarter ended September 30, 1998.

(5) Incorporated by reference from Exhibits to Registrant's Proxy Statement
for Annual Meeting of Shareholders held May 20, 1998.

(6) Set forth on page 46 of this report.

48