News Column

RELIANCE STEEL & ALUMINUM CO - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

February 27, 2014

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview

Although we faced challenging market conditions in 2013, our teams in the field did an excellent job servicing their customers, allowing us to maintain our gross profit margins at 26%. We also completed our largest acquisition to-date in April 2013, with a transaction value of $1.25 billion, and generated strong cash flow to end the year with a healthy balance sheet and ample liquidity to continue our growth.

Our sales increased 9.3% from 2012 mainly due to our acquisition of Metals USA, with our tons sold up 21.4%. Unfortunately, however, metals pricing was 10% lower in 2013 which had a significant impact on our profitability, resulting in lower net income in 2013 from 2012 despite the meaningful contributions from Metals USA.

We did see slight improvement in our same-store tons sold in 2013, with more positive momentum in the second half that has continued into 2014. In 2013, our sales to the auto industry, mainly through our toll processing operations, were up from 2012 levels. Our sales into the aerospace and energy (oil and gas) end markets were strong in 2013, though down from prior periods. Non-residential construction remains our largest end market, and although we saw some indications of improving demand from some of our customers during 2013, overall activity levels in the non-residential construction end market remain well below the peak levels in 2006.

As mentioned, we acquired Metals USA in April 2013 which contributed $1.24 billion to our 2013 sales. We also acquired Haskins Steel in November 2013 and, also in April, we acquired a real estate holding company that owns 18 real estate properties that we had been leasing. We invested $168 million in capital expenditures in 2013, with the majority related to growth activities, including the expansion and relocation of existing facilities, enhancing and adding processing capabilities, penetrating new geographic markets and expanding product offerings at existing locations. We materially increased our return of cash to shareholders, with a 57.5% increase in our dividend paid per share in 2013 compared to 2012.

To fund these activities, we amended and extended our $1.5 billion revolving credit facility and added a $500 million term loan, both with five year terms and favorable pricing. We also issued $500 million of 4.5% senior notes due in 2023. In 2013, we repaid $330 million of borrowings subsequent to the $1.25 billion used to fund the Metals USA transaction.

As of December 31, 2013, our net debt-to-capital ratio was 34.3%, down from 39.4% upon funding the Metals USA acquisition in April 2013.

We believe we have significantly higher earnings capacity due to our exposure to industries that are poised for growth in the years ahead, our broad and diverse product base, and our wide geographic footprint. We are cautiously optimistic that the U.S. economy will continue its recovery throughout 2014, resulting in better demand and pricing for our products.

We will continue to focus on working capital management, maximizing profitability of our existing businesses and achieving profitable growth through both acquisitions and internal investment. Our operating and growth strategies have helped us achieve industry-leading operating results on a consistent basis and we remain confident in our ability to continue our track record of success going forward.

Effect of Demand and Pricing Changes on our Operating Results

Customer demand can have a significant impact on our results of operations. When volume increases our revenue dollars increase, which contributes to increased gross profit dollars. Variable costs also increase with volume including increases in our warehouse, delivery, selling, general and administrative expenses. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce

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our gross profit dollars. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.

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

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

2013 Acquisitions

On November 1, 2013, through our wholly-owned subsidiary American Metals Corporation, we acquired all of the issued and outstanding capital stock of Haskins Steel Co., Inc. ("Haskins Steel"), located in Spokane, Washington. Founded in 1955, Haskins Steel processes and distributes primarily carbon steel and aluminum products of various shapes and sizes to a diverse customer base in the Pacific Northwest. Their in-house processing capabilities include shearing, sawing, burning and forming. Net sales of Haskins Steel during the period from November 1, 2013 through December 31, 2013 were $4.3 million.

On April 30, 2013, we acquired Travel Main Holdings, LLC ("Travel Main"), a real estate holding company with a portfolio of 18 real estate properties, all of which are leased by certain of our subsidiaries. The transaction value of $78.9 million included the assumption of $43.8 million of indebtedness.

On April 12, 2013, we acquired all of the issued and outstanding capital stock of Metals USA Holdings Corp. ("Metals USA"). Metals USA is one of the largest metals service center businesses in the United States and a leading provider of value-added processed aluminum, brass, copper, carbon steel, stainless steel, manufactured metal components and inventory management services. Metals USA sells its products and services to a diverse customer base and broad range of end markets, including the aerospace, auto, defense, heavy equipment, marine transportation, commercial construction, office furniture manufacturing, energy and oilfield service industries, among several others. This acquisition added a total of 44 service centers strategically located throughout the United States to our existing operations and complements our existing customer base, product mix and geographic footprint. Net sales of Metals USA during the period from April 13, 2013 through December 31, 2013 were $1.24 billion.

2012 Acquisitions

On October 1, 2012, through our wholly owned subsidiary Feralloy Corporation ("Feralloy"), we acquired all of the issued and outstanding capital stock of GH Metal Solutions, Inc. (formerly known as The Gas House, Inc.) ("GH"), a value added processor and fabricator of carbon steel products located in Fort Payne, Alabama that will allow Feralloy to better serve the increasing demands of its diverse customer base. GH operates as a wholly owned subsidiary of Feralloy and had net sales of $59.1 million for the year ended December 31, 2013.

On October 1, 2012, we acquired all the outstanding limited liability company interests of Sunbelt Steel Texas, LLC ("Sunbelt"), a value added distributor of special alloy steel bar and heavy-wall tubing products to the oil and gas industry, headquartered in Houston, Texas with an additional location in Lafayette, Louisiana. Sunbelt had net sales of $43.2 million for the year ended December 31, 2013.

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On July 6, 2012, we acquired substantially all of the assets of Airport Metals (Australia) Pty Ltd., a subsidiary of Samuel Son & Co., Limited, through our newly-formed subsidiary Bralco Metals (Australia) Pty Ltd. ("Airport Metals"). Airport Metals, based in Melbourne, operates as a stocking distributor of aircraft materials and supplies. Airport Metals had net sales of $2.8 million for the year ended December 31, 2013.

On April, 27, 2012, through our wholly owned subsidiary Precision Strip, Inc. ("PSI"), we acquired the assets of the Worthington Steel Vonore, Tennessee plant, a processing facility owned by Worthington Industries, Inc. The Vonore plant operates as a PSI location which processes and delivers carbon steel, aluminum and stainless steel products on a "toll" basis, processing the metal for a fee without taking ownership of the metal. The Vonore location had net sales of $2.7 million for the year ended December 31, 2013.

On April 3, 2012, we acquired all the issued and outstanding limited liability company interests of National Specialty Alloys, LLC ("NSA"), a global specialty alloy processor and distributor of premium stainless steel and nickel alloy bars and shapes, headquartered in Houston, Texas with additional locations in Anaheim, California; Buford, Georgia; Tulsa, Oklahoma and Mexico City, Mexico. NSA had net sales of $77.2 million for the year ended December 31, 2013.

On February 1, 2012, through our wholly owned subsidiary Diamond Manufacturing Company, we acquired McKey Perforating Co., Inc. ("McKey"), headquartered in New Berlin, Wisconsin and its subsidiary, McKey Perforated Products Co., Inc., located in Manchester, Tennessee. McKey provides a full range of metal perforating and fabrication services to customers located primarily in the U.S. McKey had net sales of $18.9 million for the year ended December 31, 2013.

Internal Growth Activities

We continued to maintain our focus on internal growth by opening new facilities, building or expanding existing facilities and adding processing equipment with total capital expenditures of $168.0 million in 2013, with the majority of this spent on growth activities. We added and upgraded processing equipment to enable us to provide higher quality services to our existing and potential customers. We also built or purchased 19 new facilities in 2013 and expanded and reconfigured certain other facilities. In addition to gaining market share from these growth activities, we also improved our operating efficiencies.

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Results of Operations

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

2013 2012 2011 % of % of % of $ Net Sales $ Net Sales $ Net Sales Net sales $ 9,223.8 100.0 % $ 8,442.3 100.0 % $ 8,134.7 100.0 % Cost of sales (exclusive of depreciation and amortization expense shown below) 6,826.2 74.0 6,235.4 73.9 6,148.7 75.6 Gross profit(1) 2,397.6 26.0 2,206.9 26.1 1,986.0 24.4 Warehouse, delivery, selling, general and administrative expense ("S,G&A") 1,638.4 17.8 1,396.2 16.5 1,280.1 15.7 Depreciation expense 137.5 1.5 106.1 1.3 97.3 1.2 Amortization expense 54.9 0.6 42.9 0.5 35.8 0.4 Impairment of intangible asset 14.9 0.2 2.5 0.0 0.0 0.0 Operating income $ 551.9 6.0 % $ 659.2 7.8 % $ 572.8 7.0 %



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(1) Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales. The majority of our orders are basic distribution with no processing services performed. For the remainder of our sales orders, we perform "first-stage" processing, which is generally not labor intensive as we are simply cutting the metal to size. Because of this, the amount of related labor and overhead, including depreciation and amortization, is not significant and is excluded from our cost of sales. Therefore, our cost of sales is primarily comprised of the cost of the material we sell. We use gross profit and gross profit margin as shown above as measures of operating performance. Gross profit and gross profit margin are important operating and financial measures as their fluctuations can have a significant impact on our earnings. Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies.



Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Net Sales Year Ended December 31, Dollar Percentage 2013 2012 Change Change (in millions) Net sales $ 9,223.8$ 8,442.3$ 781.5 9.3 % Net sales, same-store $ 7,777.8$ 8,327.8$ (550.0 ) (6.6 )% Year Ended December 31, Tons Percentage 2013 2012 Change Change (in thousands) Tons sold 5,388.8 4,440.3 948.5 21.4 % Tons sold, same-store 4,458.8 4,420.0 38.8 0.9 % Year Ended December 31, Price Percentage 2013 2012 Change Change Average selling price per ton sold $ 1,712$ 1,903$ (191.0 ) (10.0 )% Average selling price per ton sold, same-store $ 1,745$ 1,886$ (141.0 ) (7.5 )% 32



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Tons sold and average selling price per ton sold amounts exclude our toll processing sales. Same-store amounts exclude the results of our 2013 and 2012 acquisitions.

Our consolidated sales and tons are up significantly in 2013 compared to 2012, mainly due to our acquisition of Metals USA in April of 2013. Metals USA contributed $1.24 billion of net sales. In general, business activity in most all of our end markets was flat in 2013 compared to 2012 as our same-store tons sold increased by only 0.9% in 2013 compared to 2012, consistent with industry data reported by the Metals Service Center Institute ("MSCI"), which was up 0.3% during the same period. During the 2013 fourth quarter we experienced a normal seasonal slowdown, however the fall-off from the 2013 third quarter was less than typical. One end market that grew for us in 2013 as compared to 2012 was auto, primarily through our toll processing businesses in the U.S. and Mexico. Our other major industries that performed reasonably well were aerospace and farm equipment. The energy (oil and gas) market, although down from 2012 and 2011 levels, still continues to be one of our strongest. Non-residential construction, our largest end market, exhibited slight improvement, although at significantly reduced demand levels from its peak in 2006.

Since we primarily purchase and sell our inventories in the "spot" market, the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase. The mix of products sold can also have an impact on our average selling prices.

Our 2013 average selling prices declined from 2012 mainly due to lower mill pricing as a result of lower raw material costs, increased imports and domestic increases in capacity for certain of the products we sell. Lower London Metal Exchange aluminum prices and reduced nickel surcharges were primarily responsible for the drop in common alloy aluminum and stainless steel prices, respectively.

As a result of decreasing mill prices during most of the year, we sold most products at lower average selling prices compared to 2012 levels. Our major product same-store selling prices decreased in 2013 from 2012 levels as follows: carbon steel down 7.8%; aluminum down 4.2%; stainless steel down 9.7%; and alloy down 8.2%. As carbon steel sales represent slightly more than 50% of our sales dollars, changes in carbon steel prices have a significant impact on changes in our overall average price per ton sold.

Our acquisition of Metals USA in 2013 contributed to the overall increase in our carbon steel products from 51% of total sales dollars in 2012 to 53% in 2013, which contributed to our company-wide average selling price per ton decline of 10.0% as compared to a 7.5% decline on a same-store basis.

Cost of Sales Year Ended December 31, 2013 2012 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Cost of sales $ 6,826.2 74.0 % $ 6,235.4 73.9 % $ 590.8 9.5 %



The increase in cost of sales in 2013 compared to 2012 is mainly due to increases in our tons sold resulting from our 2012 and 2013 acquisitions offset by lower mill pricing for most of our products. See "Net Sales" above for trends in both demand and costs of our products.

Our inventory LIFO valuation reserve adjustment, which is included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a credit, or income, of $50.2 million in 2013 compared to a credit, or income, of $64.1 million in 2012. Our LIFO valuation reserve as of December 31, 2013 and 2012 was $88.6 million and $138.8 million, respectively. Lower metal costs across all our major products in 2013 as compared to December 31, 2012 levels resulted in LIFO income.

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Table of Contents Gross Profit Year Ended December 31, 2013 2012 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Gross profit $ 2,397.6 26.0 % $ 2,206.9 26.1 % $ 190.7 8.6 %



The increase in our gross profit is primarily due to the contribution from our acquisition of Metals USA on April 12, 2013 offseting the impact of the overall decline in our selling prices. See "Net Sales" and "Cost of Sales" for discussion on product pricing trends and our LIFO valuation reserve adjustments, respectively.

Our gross profit margin was consistent and in our historical range of 25% to 27%. Our local managers were able to maintain margins in a declining price environment by providing high quality products and customer service.

Expenses Year Ended December 31, 2013 2012 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) S,G&A expense $ 1,638.4 17.8 % $ 1,396.2 16.5 % $ 242.2 17.3 % Depreciation & amortization expense $ 192.4 2.1 % $ 149.0 1.8 % $ 43.4 29.1 % Impairment of intangible asset $ 14.9 0.2 % $ 2.5 0.0 % $ 12.4 496.0 %



Our expenses increased mainly due to the additional expenses of our 2013 and 2012 acquisitions and Metals USA acquisition related costs. The additional expenses provided by our 2013 and 2012 acquisitions were somewhat offset by lower variable costs, including profit-based compensation, as a result of lower levels of demand and profitability. Our S,G&A expense as a percent of net sales increased mainly due to reduced pricing in 2013.

The increase in depreciation and amortization expense was mainly due to our 2013 and 2012 acquisitions and depreciation expense from our recent capital expenditures.

We recorded impairment charges of $14.9 million and $2.5 million related to one of our trade name intangibles for the years ended December 31, 2013 and 2012, respectively. The 2013 impairment charge resulted from combining two of our operations to more efficiently service our customers in their markets, with the trade name associated with one of the operations no longer being used.

Operating Income Year Ended December 31, 2013 2012 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Operating income $ 551.9 6.0 % $ 659.2 7.8 % $ (107.3 ) (16.3 )%



Our operating income was lower in 2013 due to declines in our average selling prices, which were offset by contributions of our 2013 and 2012 acquisitions. Our operating income margin declined in 2013 mainly due to declines in our selling prices along with non-recurring acquisition related expenses, restructuring costs, and an impairment charge.

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Table of Contents Other Income and Expense Year Ended December 31, 2013 2012 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Interest $ (77.5 ) (0.8 )% $ (58.4 ) (0.7 )% $ (19.1 ) 32.7 % Other income (expense), net $ 3.9 0.0 % $ 8.6 0.1 % $ (4.7 ) (54.7 )%



Interest expense increased in 2013 compared to 2012 primarily due to additional borrowings to fund our $1.25 billion acquisition of Metals USA in April 2013, including our new $500.0 million 4.5% senior notes. See discussion in the "Liquidity and Capital Resources" section of our "Management's Discussion and Analysis of Financial Condition and Results of Operations."

The change in other income (expense), net in 2013 compared to 2012 was primarily due to foreign currency gains in 2012 on our intercompany balances with our Canadian operations that decreased significantly in 2013 due to positive cash flow from our Canadian operations.

Income Tax Rate

Our effective income tax rate in 2013 was 32.1% compared to our 2012 rate of 33.0%. Permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different in amounts during both years and relate mainly to company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lower than the U.S. statutory rate of 35%.

Net Income Year Ended December 31, 2013 2012 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Net income attributable to Reliance $ 321.6 3.5 % $ 403.5 4.8 % $ (81.9 ) (20.3 )%



The decrease in our net income was primarily the result of lower gross profit dollars offset by contributions from our 2013 and 2012 acquisitions. The decline in our net income as a percentage of net sales is due to declines in our selling prices along with non-recurring acquisition related expenses, restructuring costs, and an impairment charge.

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Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net Sales Year Ended December 31, Dollar Percentage 2012 2011 Change Change (in millions) Net sales $ 8,442.3$ 8,134.7$ 307.6 3.8 % Net sales, same-store $ 7,885.4$ 7,930.0$ (44.6 ) (0.6 )% Year Ended December 31, Tons Percentage 2012 2011 Change Change (in thousands) Tons sold 4,440.3 4,213.5 226.8 5.4 % Tons sold, same-store 4,299.1 4,157.0 142.1 3.4 % Year Ended December 31, Price Percentage 2012 2011 Change Change



Average selling price per ton sold $ 1,894.0$ 1,930.0$ (36.0 ) (1.9 )% Average selling price per ton sold, same-store

$ 1,827.0$ 1,907.0$ (80.0 ) (4.2 )%



Tons sold and average selling price per ton sold amounts exclude our toll processing sales. Same-store amounts exclude the results of our 2012 and 2011 acquisitions.

In general, business activity in most all of our end markets was better in 2012 than in 2011, albeit, the improvement in tons shipped decreased sequentially in each of the first three quarters of 2012 and in the fourth quarter declined due to extended holiday related closures at many of our customers. We also believe that certain of our customers reduced purchasing activity near the end of the year as the U.S. economy approached the "fiscal cliff". The combination of extended holiday closures and the pending "fiscal cliff" concerns caused our fourth quarter demand to decline more than typical seasonal slowdowns. In 2012, our strongest markets were aerospace, farm and heavy equipment, and auto (through our toll processing businesses). The energy (oil and gas) market, although down from 2011 levels, still continued to be one of our strongest. Non-residential construction, our largest end market, exhibited moderate improvement, although at significantly reduced demand levels from its peak in 2006.

Since we primarily purchase and sell our inventories in the "spot" market, the changes in our average selling prices generally fluctuate in accordance with the changes in the costs of the various metals we purchase. The mix of products sold can also have an impact on our average selling prices. Our 2011 and 2012 acquisitions, particularly Continental and NSA which specialize in various alloy steel products, favorably impacted our 2012 average selling prices as their specialty products have higher selling prices than our company average; however, not enough to offset the overall decline in our selling prices.

Our 2012 average selling prices declined from 2011 due to lower mill pricing for most of our products as a result of decreases in raw material and scrap costs at the mills as well as high import levels and domestic overcapacity that needed to be absorbed in the marketplace. Lower London Metal Exchange aluminum prices and reduced nickel surcharges were primarily responsible for the drop in common alloy aluminum and stainless steel prices, respectively.

As a result of decreasing mill prices during most of 2012, we sold most products at lower average selling prices compared to 2011 levels. Our major product same-store selling prices decreased in 2012 from 2011 levels as follows: carbon steel down 3.9%; aluminum down 2.1%; stainless steel down 10.4%; and alloy up 2.6%. As carbon steel sales represent slightly more than 50% of our sales dollars, changes in carbon steel prices have a significant impact on changes in our overall average price per ton sold.

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Table of Contents Cost of Sales Year Ended December 31, 2012 2011 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Cost of sales $ 6,235.4 73.9 % $ 6,148.7 75.6 % $ 86.7 1.4 %



The increase in cost of sales in 2012 compared to 2011 is due to increased tons sold, partially offset by lower product costs. See "Net Sales" above for trends in both demand and costs of our products.

Our inventory LIFO valuation reserve adjustment, which is included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a credit, or income, of $64.1 million in 2012 compared to a charge, or expense, of $85.3 million in 2011. Our LIFO valuation reserve as of December 31, 2012 and 2011 was $138.8 million and $202.9 million, respectively.

Gross Profit Year Ended December 31, 2012 2011 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Gross profit $ 2,206.9 26.1 % $ 1,986.0 24.4 % $ 220.9 11.1 %



Higher gross profit margins in 2012 contributed approximately 60% of the total increase in our gross profit of $220.9 million. The remaining increase in gross profit was from higher sales levels. The improvement in our gross profit margin was primarily due to our ability to effectively manage our selling prices in an environment of declining mill prices. See "Net Sales" and "Cost of Sales" for discussion on product pricing trends and our LIFO valuation reserve adjustments, respectively.

Expenses Year Ended December 31, 2012 2011 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) S,G&A expense $ 1,396.2 16.5 % $ 1,280.1 15.7 % $ 116.1 9.1 % S,G&A expense, same-store $ 1,321.2 16.8 % $ 1,262.1 15.9 % $ 59.1 4.7 % Depreciation & amortization expense $ 149.0 1.8 % $ 133.1 1.6 % $ 15.9 11.9 % Impairment of intangible asset $ 2.5 0.0 % $ 0.0 0.0 % $ 2.5 100.0 %



The additional expenses of our 2012 and 2011 acquisitions along with increases in certain warehouse and delivery expenses resulting from increased staffing levels due to improved demand and increased fuel and healthcare costs accounted for most of the increase in S,G&A expense during 2012 compared to 2011. Our S,G&A expense as a percent of net sales increased as compared to 2011 primarily due to the lower selling prices in 2012 compared to 2011.

The increase in depreciation and amortization expense was mainly due to our 2012 and 2011 acquisitions and depreciation expense from our recent capital expenditures.

We recorded an impairment charge of $2.5 million related to one of our trade name intangible assets for the year ended December 31, 2012.

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Table of Contents Operating Income Year Ended December 31, 2012 2011 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Operating income $ 659.2 7.8 % $ 572.8 7.0 % $ 86.4 15.1 %



The higher gross profit dollars generated on higher sales, offset by only moderate increases in S,G&A expenses and the contributions of our 2011 and 2012 acquisitions improved our operating income level in 2012. Our operating income margin improved in 2012 mainly because of our improved gross profit margins and contributions from some of our 2012 and 2011 acquisitions, which produced higher operating returns due to the specialty nature of their products and processing services.

Other Income and Expense Year Ended December 31, 2012 2011 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Other income (expense), net $ 8.6 0.1 % $ (1.4 ) (0.0 )% $ 10.0 (714.3 )%



The change in other income (expense), net in 2012 compared to 2011 was primarily due to higher foreign currency gains due to the weakening of the U.S. dollar in 2012 compared to 2011 and higher investment returns on our life insurance assets.

Income Tax Rate

Our effective income tax rate in 2012 was 33.0% compared to our 2011 rate of 31.7%. The increase in our income tax rate was mainly due to higher income levels in 2012 as permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different in amounts during both years and relate mainly to company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lower than the U.S. statutory rate of 35%.

Net Income Year Ended December 31, 2012 2011 % of % of Dollar Percentage $ Net Sales $ Net Sales Change Change (dollars in millions) Net income attributable to Reliance $ 403.5 4.8 % $ 343.8 4.2 % $ 59.7 17.4 %



The increase in our net income was primarily the result of higher gross profit dollars with relatively lower increases in our operating expenses, and contributions from our 2011 and 2012 acquisitions.

Liquidity and Capital Resources

Operating Activities

Net cash provided by operating activities was $633.3 million in 2013 compared to $601.9 million in 2012. The increase of $31.4 million was mainly due to Metals USA generating $84 million in cash flow through inventory reduction initiatives implemented post-acquisition, which offset our lower profitability levels in 2013 compared to 2012.

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To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate, as receivables and inventory are the two most significant elements of our working capital. At December 31, 2013, our days sales outstanding rate was approximately 41.3 days compared to 42.1 days at December 31, 2012. Our inventory turn rate (based on dollars) during 2013 was about 4.2 times (or 2.9 months on hand), compared to our 2012 rate of 4.0 times (or 3.0 months on hand).

Investing Activities

Net cash used in investing activities of $979.0 million was mainly comprised of our acquisitions and capital expenditures. We spent $821.1 million on acquisitions, net of cash acquired, in 2013. Capital expenditures were $168.0 million in 2013 compared to $214.0 million in 2012. The majority of our 2013 capital expenditures related to growth initiatives to expand or relocate existing facilities, to add or upgrade equipment, and to meet ongoing maintenance requirements.

Financing Activities

Our net cash provided by financing activities of $332.1 million was mainly comprised of net borrowings and proceeds received from the exercise of employee stock options offset by increased dividend payments to our shareholders. Our 2013 net borrowings of $370.4 million was primarily used to fund our acquisitions. We paid dividends to our shareholders of $96.9 million in 2013, an increase of $36.7 million from 2012, due to increases in our regular quarterly dividend rate. Our proceeds from exercises of stock options in 2013 were $70.1 million, a significant increase from $42.1 million in 2012.

Our Board of Directors increased the quarterly dividend to $0.30 from $0.25 per share of common stock in February 2013, and increased it again in July 2013 to $0.33 per share. On February 18, 2014, our Board of Directors declared the 2014 first quarter regular cash dividend of $0.35 per share of common stock, an increase of 6% from $0.33 per share. We have increased our dividend 21 times since our IPO in 1994 and have paid regular quarterly dividends to our shareholders for 54 consecutive years.

Liquidity

Our primary sources of liquidity are our internally generated funds from operations and our $1.5 billion revolving credit facility. Our total outstanding debt at December 31, 2013 was $2.11 billion, up from $1.21 billion at December 31, 2012. At December 31, 2013, we had $480.0 million in outstanding borrowings on our $1.5 billion revolving credit facility. As of December 31, 2013, our net debt-to-capital ratio was 34.3%, up from 23.8% as of December 31, 2012 and down from 39.4% upon funding the Metals USA acquisition in April 2013.

On April 4, 2013, we entered into a syndicated Third Amended and Restated Credit Agreement ("Credit Agreement") with 26 banks as lenders. The Credit Agreement amended and restated our existing $1.5 billion unsecured revolving credit facility and provided for a $500.0 million term loan, expiring April 4, 2018. The Credit Agreement includes an option to increase the revolving credit facility for up to an additional $500.0 million at our request subject to approval of the lenders and certain other conditions. We intend to use the revolving credit facility for working capital and general corporate purposes, including, but not limited to, capital expenditures, dividend payments, repayment of debt, stock repurchases, internal growth initiatives and acquisitions.

We also have other revolving credit facilities in place for our operations in Asia and Europe with a combined credit limit of approximately $21.6 million and with combined outstanding balances of $9.5 million and $8.3 million as of December 31, 2013 and December 31, 2012, respectively.

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Capital Resources

On November 20, 2006, we entered into an indenture (the "2006 Indenture"), for the issuance of $600 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, maturing on November 15, 2016 and (b) $250 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036.

On April 12, 2013, we entered into an indenture (the "2013 Indenture" and, together with the 2006 Indenture, the "Indentures"), for the issuance of $500.0 million aggregate principal amount of senior unsecured notes at the rate of 4.50% per annum, maturing on April 15, 2023. The net proceeds from the issuance were used to partially fund the acquisition of Metals USA.

Under the Indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The notes are guaranteed by our named 100%-owned domestic subsidiaries that guarantee our borrowings under the Credit Agreement. The senior unsecured notes include provisions that require us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest in the event of a change in control and a downgrade of our credit rating.

The $500.0 million term loan due April 4, 2018 amortizes in quarterly installments, with an annual amortization of 5% during the first year, 5% during the second year, 10% during the third year, 10% during the fourth year and 10% during the fifth year, with the balance to be paid at maturity. The term loan may be prepaid without penalty.

Pursuant to our acquisition of Metals USA, we assumed industrial revenue bonds with combined outstanding balances of $11.9 million as of December 31, 2013 and maturities through 2027. Additionally, we assumed mortgage obligations pursuant to our acquisition of Travel Main, which have outstanding balances of $43.0 million as of December 31, 2013. The mortgages, which are secured by the underlying properties, have a fixed interest rate of 6.40% and scheduled amortization payments with a lump sum payment of $39.2 million due October 2016.

Our net debt-to-total capital ratio was 34.3% at December 31, 2013; up from December 31, 2012 rate of 23.8% (net debt-to-total capital is calculated as total debt, net of cash, divided by Reliance shareholders' equity plus total debt, net of cash). The increase is mainly due to indebtedness incurred in connection with our acquisition of Metals USA. Upon funding of the $1.25 billionMetals USA acquisition, our net debt-to-total capital ratio was 39.4%. Since that time, we have repaid approximately $330 million of debt.

As of December 31, 2013, we had $573.4 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on April 4, 2018. We are comfortable that we will be able to fund our debt obligations as well as our working capital, capital expenditure, dividend, growth and other needs with a combination of cash flow from operations and borrowings on our revolving credit facility, as well as raising additional funds in the bank or capital markets, as appropriate. We expect to continue our acquisition and other growth activities in the future and anticipate that we will be able to fund such activities as they arise. Our investment grade credit rating enhances our ability to effectively raise funding, if needed.

Covenants

Our Credit Agreement, including our term loan, requires us to maintain a minimum interest coverage ratio and a maximum leverage ratio and includes a change of control provision, among other things. Our interest coverage ratio for the twelve-month period ended December 31, 2013 was approximately 7.3 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as net income attributable to Reliance plus interest expense and provision for income taxes and plus or minus any non-operating non-recurring loss or gain, respectively, divided by interest expense). Our leverage ratio

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as of December 31, 2013 calculated in accordance with the terms of the Credit Agreement was 35.8% compared to the financial covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of capital lease obligations and outstanding letters of credit, divided by Reliance shareholders' equity plus total debt).

Additionally, all of our 100%-owned domestic subsidiaries, which constitute the substantial majority of our subsidiaries, guarantee the borrowings under the Credit Agreement and the Indentures. The subsidiary guarantors, together with Reliance, are required collectively to account for at least 80% of our consolidated EBITDA and 80% of consolidated tangible assets. Reliance and the subsidiary guarantors accounted for approximately 91% of our total consolidated EBITDA for the last twelve months and approximately 88% of total consolidated tangible assets as of December 31, 2013.

We were in compliance with all debt covenants as of December 31, 2013.

Off-Balance Sheet Arrangements

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

As of December 31, 2013 and 2012, we were contingently liable under standby letters of credit in the aggregate amounts of $59.2 million and $31.6 million, respectively. The letters of credit are related to insurance policies, construction projects, and outstanding bonds.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of December 31, 2013. Certain of these contractual obligations are reflected on our balance sheet, while others are disclosed as future obligations under U.S. generally accepted accounting principles.

Payments Due by Period Less than More than Contractual Obligations Total 1 year 1 - 3 years 3 - 5 years 5 years (in millions) Long-Term Debt Obligations $ 2,112.3$ 36.5$ 486.4$ 829.8$ 759.6 Estimated Interest on Long-Term Debt(1) 740.7 77.7 149.7 93.4 419.9 Operating Lease Obligations 249.5 58.8 90.0 56.1 44.6 Purchase Obligations-Other(2) 107.0 53.4 47.6 5.3 0.7 Other Long-Term Liabilities Reflected on the Balance Sheet under GAAP(3) 59.1 8.6 4.8 17.4 28.3 Total $ 3,268.6$ 235.0$ 778.5$ 1,002.0$ 1,253.1



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(1) Interest is estimated using applicable rates as of December 31, 2013 for our outstanding fixed and variable rate debt based on their respective scheduled maturities. Also, the entire outstanding balance on the revolving credit facility of $480 million is assumed to remain unchanged until its maturity date in April 2018. (2) The majority of our inventory purchases are completed within 30 to 120 days and therefore are not included in this table except for certain purchases where we have significant lead times or corresponding long-term sales commitments, typically for aerospace-related materials. 41



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Table of Contents (3) Includes the estimated benefit payments for the next ten years for various long-term retirement plans. For qualified defined benefit plans we have only included the estimated employer contribution amounts for 2014 as funding projections beyond 2014 are not practical to estimate. We have excluded deferred income taxes of $690.8 million, long-term tax contingencies of $19.4 million and other long-term liabilities of $16.5 million from the amounts presented, as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.



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

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

Inflation

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

Seasonality

Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. Our geographic, product and customer diversity reduces the impact of seasonal trends on our operating results. However, revenues in the months of July, November and December traditionally have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from vacation and holiday closures at some of our customers. We cannot assure you that period-to-period fluctuations will not occur in the future. Results of any one or more quarters are therefore not necessarily indicative of annual results.

Goodwill and Other Intangible Assets

Effective January 1, 2012, we revised our internal reporting package for our Chief Operating Decision Maker (our Chief Executive Officer) and our Board of Directors in order to better align internal reporting with the way performance is measured and key resource allocation decisions are made, which are primarily based on enterprise level data. As part of the segment reassessment process triggered by this change in accordance with the guidance provided within the Segment Reporting topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("Codification"), we concluded that we have one operating segment and also one reporting unit for goodwill impairment purposes. There was no change in our reportable segments; we have one reportable segment, metals service centers.

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $1.69 billion as of December 31, 2013, or approximately 23% of total assets or 44% of Reliance shareholders' equity. Additionally, other intangible assets, net amounted to $1.21 billion at December 31, 2013, or approximately 17% of total assets or 31% of Reliance shareholders' equity. Goodwill and other

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intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. Other intangible assets with finite useful lives are amortized over their useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Refer to Critical Accounting Policies and Estimates for further discussion regarding judgments involved in testing for recoverability of our goodwill and other intangible assets.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations discuss our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain. Our most critical accounting estimates include those related to accounts receivable, inventories, income taxes, goodwill and intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

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

Accounts Receivable We maintain an allowance for doubtful accounts to reflect our estimate of the uncollectability of accounts receivable based on an evaluation of specific potential customer risks. Assessments are based on legal issues (such as bankruptcy status), our past collection history, and current financial and credit agency reports along with current economic pressures impacting that customer or industry. Accounts that we determine to be uncollectible are reserved for or written off in the period in which the determination is made. Additional reserves are maintained based on our historical and probable future bad debt experience. If the financial condition of our customers were to deteriorate beyond our estimates, resulting in an impairment of their ability to make payments, we might be required to increase our allowance for doubtful accounts. Inventories A significant portion of our inventory is valued using the last-in, first-out ("LIFO") method. Under this method, older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in our cost of material sold, which is influenced by the inflation or deflation existing within the metals industry as well as fluctuations in our product mix and on-hand inventory levels. At December 31, 2013, cost on the first-in, first-out ("FIFO") method exceeded our LIFO value of inventories by $88.6 million. The calculation of LIFO does not require us to make subjective estimates or judgments, except at interim reporting periods. Furthermore, considering that our current inventory values as reflected in our 43



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Table of Contents financial statements on a LIFO basis are significantly below FIFO costs, valuation of our inventories at the lower of cost or market is also not subject to significant estimates or judgments. However, we do maintain allowances for estimated obsolescence or unmarketable inventory to reflect the difference between the cost of inventory and the estimated market value based on an evaluation of slow moving products and current replacement costs. If actual market conditions are less favorable than those anticipated by management, additional allowances may be required. Income Taxes We currently have significant deferred tax assets, which are subject to periodic recoverability assessments. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change. For information regarding our deferred tax assets and liabilities, provision for income taxes as well as information regarding differences between our effective income tax rate and statutory rates, see Note 9 of the Notes to Consolidated Financial Statements. Our income tax rate may be affected by future acquisitions, changes in the geographic composition of our income from operations, changes in our estimates of credits or deductions, changes in our assessment of tax exposure items, and the resolution of issues arising from tax audits with various tax authorities, among others. Long-Lived Assets-Goodwill and Indefinite-Lived Intangible Assets We review the recoverability of goodwill and intangible assets deemed to have indefinite lives annually or whenever significant events or changes occur, which might impair the recovery of recorded costs. Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill and intangible assets may not be recoverable, include a decline in our stock price and market capitalization, declines in the market conditions of our products, reductions in our future cash flow estimates, and slower growth rates in our industry, among others. We review the recoverability of our intangible assets deemed to have indefinite lives by making assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets, as necessary. We test for impairment of goodwill by assessing various qualitative factors with respect to developments in our business and the overall economy and calculating the fair value of a reporting unit using the discounted cash flow method, as necessary. We perform the required annual goodwill and intangible asset impairment evaluation as of November 1 of each year. No impairment of goodwill was determined to exist for the years ended December 31, 2013, 2012 or 2011. We recognized impairment losses of $14.9 million and $2.5 million related to one of our trade name intangible assets for the years ended December 31, 2013 and 2012, respectively. No impairment of intangible assets with indefinite lives was recognized for the year ended December 31, 2011. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Additionally, considerable declines in the market conditions for our products from current levels as well as in the price of our common stock could also significantly impact our impairment analysis. An impairment charge, if incurred, could be material. Long-Lived Assets-Other We review the recoverability of our other long-lived assets, primarily property, plant and equipment and intangible assets subject to amortization, and must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If 44



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Table of Contents these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets not previously recorded.



Impact of Recently Issued Accounting Standards

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


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