Reliance Steel & Aluminum Co. Reports Record 2006 Fiscal Year Results; Net Income up 73%

Reliance Steel & Aluminum Co. (NYSE:RS) reported today its financial results for the fiscal year and fourth quarter ended December 31, 2006. For the fiscal year ended December 31, 2006, net income amounted to a record $354.5 million, up 73% compared with net income of $205.4 million for the same period in 2005. Earnings per diluted share were a record $4.82 for the year ended December 31, 2006, compared with earnings of $3.10 per diluted share for the year ended December 31, 2005. Sales for the 2006 fiscal year were also a record at $5.7 billion, an increase of 71% compared with 2005 fiscal year sales of $3.4 billion. The 2006 fiscal year financial results include in cost of sales a pre-tax LIFO expense amount of $94.1 million, or $.79 per diluted share, compared with a pre-tax LIFO expense amount of $16.6 million, or $.15 per diluted share in the 2005 period. All share and per share amounts have been adjusted for the two-for-one common stock split effective July 19, 2006. The 2006 financial results include positive contributions to sales and earnings from the Company’s 2006 acquisitions, primarily Yarde Metals, Inc. that was acquired on August 1, 2006 and Earle M. Jorgensen Company that was acquired on April 3, 2006. The Jorgensen acquisition included the issuance of approximately nine million shares of Reliance’s common stock, representing a 14% increase in diluted shares outstanding. For the 2006 fourth quarter, net income was $74.6 million, up 23% compared with net income of $60.6 million for the 2005 fourth quarter. Earnings per diluted share were $.98 for the 2006 fourth quarter and $.91 for the 2005 fourth quarter. 2006 fourth quarter sales were $1.6 billion, an increase of 81% compared with 2005 fourth quarter sales of $868.7 million. The 2006 fourth quarter financial results include in cost of sales a pre-tax LIFO expense amount of $37.9 million, or $.31 per diluted share, compared with a pre-tax LIFO expense amount of $91,000 recorded in the 2005 fourth quarter. David H. Hannah, Chief Executive Officer of Reliance said, "We are very pleased with our fiscal year 2006 results. All of our end markets were strong with a very favorable operating environment throughout our network of facilities. We completed four acquisitions during 2006, including the acquisition of Earle M. Jorgensen Company on April 3, 2006 that was our largest acquisition to-date and our first acquisition of a public company. The purchase price consisted of approximately 50% common stock and 50% cash. We also acquired Yarde Metals, Inc. on August 1, 2006, our second largest acquisition. The combined sales of Jorgensen and Yarde contributed $1.6 billion to our 2006 revenues. "We have completed three additional acquisitions in January and February of 2007 that further increase our product and geographic diversification. We acquired Crest Steel Corporation with 2006 revenues of approximately $133 million and Industrial Metals and Surplus, Inc. with 2006 revenues of approximately $105 million, on January 2, 2007. Crest has facilities in California and Arizona and processes and distributes carbon steel products including flat-rolled, plate, bars and structurals. Industrial Metals is located in Georgia and specializes in the processing and distribution of carbon steel structurals, flat-rolled and ornamental iron products. We acquired the Encore Group of metals service centers located mainly in Western Canada as of February 1, 2007. Encore, with 2006 revenues of approximately C$259 million, specializes in the processing and distribution of alloy and carbon bar and tube, as well as stainless steel sheet, plate and bar and carbon steel flat-rolled products that serve, among others, the robust energy, oil and gas industries,” Hannah said. "We experienced the normal seasonal slowdown during the 2006 fourth quarter. However, gross profit margins were slightly below our earlier expectations due to some inventory de-stocking that resulted in added competitive pressures. Also, our LIFO expense during the quarter was substantially higher than we anticipated, despite the fact that we reduced our inventories during that time. Stainless steel prices continued to increase from their historical highs in the third quarter which we did not expect to happen, resulting in the significant LIFO expense of $37.9 million, or $.31 per diluted share in the fourth quarter, exceeding our earlier estimate by $19.1 million, or $.16 per diluted share,” said Hannah. "In November of 2006, we replaced our $700 million credit facility with a $1.1 billion five-year, unsecured syndicated credit facility that provides increased availability of funds and more favorable pricing. This facility may be increased to up to $1.6 billion at our request with approval from the lenders. We used funds from the increased line to purchase approximately $250 million of the Jorgensen 9.75% senior secured notes in a tender offer. We then issued $600 million of senior unsecured notes and used the proceeds to pay down the borrowings under our credit facility. This included $350 million of 10 year notes at 6.20% and $250 million of 30 year notes at 6.85%. The notes are investment grade rated Baa3 by Moody’s and BBB- by Standard & Poor’s. These activities lowered our cost of capital and significantly increased our availability to fund our working capital and general corporate needs, including acquisitions, capital expenditures, debt repayments, dividend payments and stock repurchases,” Hannah stated. "We are optimistic regarding 2007 business conditions. We generally see continued growth in the markets we serve, but at a slower rate than in 2006. Pricing should be relatively stable with steel trending upwards and aluminum slightly softer as the year progresses. Our 2006 and 2007 acquisitions to-date should increase 2007 revenues by about $1 billion compared to 2006, assuming no significant changes in the operating environment. As a result, we expect record sales and earnings again in 2007 and currently estimate earnings per diluted share for the 2007 first quarter in a range of $1.25 to $1.35,” Hannah concluded. On February 14, 2007, the Board of Directors declared a 33% increase in the regular quarterly cash dividend to $.08 per share of common stock. The 2007 first quarter dividend is payable on March 30, 2007 to shareholders of record March 9, 2007. The Company has paid regular quarterly dividend payments for 47 consecutive years. Reliance will host a conference call that will be broadcast live over the Internet (listen only mode) regarding the fourth quarter and fiscal year financial results for the period ended December 31, 2006. All interested parties are invited to listen to the web cast on February 15, 2007 at 11:00 a.m. Eastern Time at: http://www.rsac.com/investorinformation or http://www.streetevents.com. Player format: Windows Media. The web cast will remain on the Reliance web site at: www.rsac.com through March 15, 2007 and a printed transcript will be posted on the Reliance web site after the completion of the conference call. Reliance Steel & Aluminum Co., headquartered in Los Angeles, California, is one of the largest metals service center companies in the United States. Through a network of more than 180 locations in 37 states and Belgium, Canada, China and South Korea, the Company provides value-added metals processing services and distributes a full line of over 100,000 metal products. These products include galvanized, hot-rolled and cold-finished steel; stainless steel; aluminum; brass; copper; titanium and alloy steel sold to more than 125,000 customers in various industries. Reliance Steel & Aluminum Co.’s press releases and additional information are available on the Company’s web site at www.rsac.com. The Company was named to the 2006 Fortune 100 Fastest Growing Companies List and the 2007 Forbes Platinum 400 List of America’s Best Big Companies. This release may contain forward-looking statements relating to future financial results. Actual results may differ materially as a result of factors over which Reliance Steel & Aluminum Co. has no control. These risk factors and additional information are included in the Company’s reports on file with the Securities and Exchange Commission. RELIANCE STEEL & ALUMINUM CO. SELECTED FINANCIAL DATA (In thousands except share and per share amounts)   Three Months Twelve Months Ended December 31, Ended December 31, 2006  2005  2006  2005  Income Statement Data: Net sales $ 1,569,192  $ 868,678  $ 5,742,608  $ 3,367,051  Gross profit 389,095  251,152  1,511,222  918,051  Operating profit1 139,565  107,780  634,245  367,640  EBITDA2 156,775  117,341  695,298  405,065  EBIT2 139,433  105,516  632,824  358,434  Pre-tax income 119,737  99,584  571,132  333,212  Net income 74,642  60,588  354,507  205,437  EPS – diluted3 $ 0.98  $ 0.91  $ 4.82  $ 3.10  Weighted average shares outstanding - Diluted3 76,053,725  66,765,624  73,599,681  66,194,724  Gross profit margin 24.8% 28.9% 26.3% 27.3% Operating profit margin1 8.9% 12.4% 11.0% 10.9% EBITDA margin2 10.0% 13.5% 12.1% 12.0% EBIT margin2 8.9% 12.1% 11.0% 10.6% Pre-tax margin 7.6% 11.5% 9.9% 9.9% Net margin 4.8% 7.0% 6.2% 6.1% Cash dividends per share3 $ .06  $ .05  $ .22  $ .19  December 31, December 31, 2006  2005  Balance Sheet Data: Current assets $ 1,675,389  $ 847,348  Working capital 1,124,650  513,529  Net fixed assets 742,672  479,719  Total assets 3,614,173  1,769,070  Current liabilities 550,739  333,819  Long-term debt4 1,088,051  306,790  Shareholders’ equity 1,746,398  1,029,865  Capital expenditures 108,742  53,740  Net debt-to-total capital5 37.6% 23.8% Return on equity6 27.3% 25.0% Current ratio 3.0  2.5  Book value per share3 $ 23.07  $ 15.56  Cash flow from operations per share3 $ 2.59  $ 4.11  (1) Operating profit is calculated as net sales less cost of sales, warehouse, delivery, selling, general and administrative expenses and depreciation expense.   (2) See Consolidated Statements of Income for reconciliation of EBIT and EBITDA. EBIT is defined as the sum of income before interest expense and income taxes. EBITDA is defined as the sum of income before interest expense, income taxes, depreciation expense and amortization of intangibles. We believe that EBIT and EBITDA are commonly used as a measure of performance for companies in our industry and are frequently used by analysts, investors, lenders and other interested parties to evaluate a company's financial performance and its ability to incur and service debt. EBIT and EBITDA should not be considered as a measure of financial performance under accounting principles generally accepted in the United States. The items excluded from EBIT and EBITDA are significant components in understanding and assessing financial performance. EBIT or EBITDA should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of operating performance or as a measure of liquidity.   (3) All periods have been adjusted to reflect the two-for-one stock split effected in the form of a 100% stock dividend that was declared on May 17, 2006 and distributed on July 19, 2006 to shareholders of record on July 5, 2006.   (4) Long-term debt includes capital lease obligations of $4,956 and $5,515 as of December 31, 2006 and December 31, 2005, respectively.   (5) Net debt-to-total capital is calculated as total debt (net of cash) divided by shareholders' equity plus total debt (net of cash).   (6) Calculations are based on the latest twelve months net income and beginning shareholders' equity, adjusted for $360.5 million of common stock and stock options issued to fund an acquisition on April 3, 2006. RELIANCE STEEL & ALUMINUM CO. CONSOLIDATED BALANCE SHEETS (In thousands except share amounts)   ASSETS December 31, December 31, 2006  2005  Current assets: Cash and cash equivalents $ 57,475  $ 35,022  Accounts receivable, less allowance for doubtful accounts of $16,755 at December 31, 2006 and $10,511 at December 31, 2005 666,273  369,931  Inventories 904,318  387,385  Prepaid expenses and other current assets 22,179  19,009  Deferred income taxes —  36,001  Income taxes receivable   25,144    —  Total current assets 1,675,389  847,348  Property, plant and equipment, at cost: Land 108,022  60,207  Buildings 385,851  281,986  Machinery and equipment 565,951  403,403  Accumulated depreciation   (317,152)   (265,877) 742,672  479,719    Goodwill 784,871  384,730  Intangible assets, net 354,195  44,384  Cash surrender value of life insurance policies, net 41,190  7,299  Other assets   15,856    5,590  Total assets $ 3,614,173  $ 1,769,070    LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 340,356  $ 188,584  Accrued expenses 36,481  19,234  Accrued compensation and retirement costs 92,905  52,354  Accrued insurance costs 34,475  23,372  Deferred income taxes 23,706  214  Current maturities of long-term debt 22,257  49,525  Current maturities of capital leases   559    536  Total current liabilities 550,739  333,819  Long-term debt 1,083,095  301,275  Capital lease obligations 4,956  5,515  Long-term retirement costs and other long-term liabilities 46,111  15,660  Deferred income taxes 181,628  65,808  Minority interest 1,246  17,128  Commitments and contingencies —  —  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 — 75,702,046 at December 31, 2006 and 66,217,998 at December 31, 2005, respectively, stated capital 701,690  325,010  Retained earnings 1,046,339  704,530  Accumulated other comprehensive (loss)/income   (1,631)   325  Total shareholders’ equity   1,746,398    1,029,865  Total liabilities and shareholders’ equity $ 3,614,173  $ 1,769,070  RELIANCE STEEL & ALUMINUM CO. CONSOLIDATED STATEMENTS OF INCOME (In thousands except share and per share amounts)   Three Months Twelve Months Ended December 31, Ended December 31, 2006  2005  2006  2005    Net sales $ 1,569,192  $ 868,678  $ 5,742,608  $ 3,367,051  Other income, net   2,127    962    5,768    3,671  1,571,319  869,640  5,748,376  3,370,722    Costs and expenses: Cost of sales (exclusive of depreciation and amortization shown below) 1,180,097  617,526  4,231,386  2,449,000  Warehouse, delivery, selling, general and administrative 234,368  132,292  821,386  507,905  Depreciation and amortization 17,342  11,825  62,474  46,631  Interest expense   19,696    5,932    61,692    25,222  1,451,503  767,575  5,176,938  3,028,758  Income before minority interest and income taxes 119,816  102,065  571,438  341,964  Minority interest   (79)   (2,481)   (306)   (8,752) Income from continuing operations before income taxes 119,737  99,584  571,132  333,212  Provision for income taxes   45,095    38,996    216,625    127,775  Net income $ 74,642  $ 60,588  $ 354,507  $ 205,437    Earnings per share: Income from continuing operations - diluted $ .98  $ .91  $ 4.82  $ 3.10  Weighted average shares outstanding - diluted   76,053,725    66,765,624    73,599,681    66,194,724  Income from continuing operations - basic $ .99  $ .92  $ 4.85  $ 3.12  Weighted average shares outstanding - basic   75,562,384    66,144,896    73,134,102    65,870,068  Cash dividends per share $ .06  $ .05  $ .22  $ .19        Reconciliation of EBIT and EBITDA   Income from continuing operations before income taxes $ 119,737  $ 99,584  $ 571,132  $ 333,212  Interest expense   19,696    5,932    61,692    25,222  EBIT   139,433    105,516    632,824    358,434  Depreciation expense 15,162  11,080  55,591  42,506  Amortization expense   2,180    745    6,883    4,125  EBITDA $ 156,775  $ 117,341  $ 695,298  $ 405,065  RELIANCE STEEL & ALUMINUM CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)   Twelve Months Ended December 31, 2006  2005  Operating activities: Net income $ 354,507  $ 205,437  Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 62,474  46,631  Debt premium amortization (2,149) —  Deferred income taxes 7,295  (1,059) Gain on sales of property and equipment (723) —  Gain on debt extinguishment (2,264) —  Minority interest 306  8,751  Stock based compensation expense 6,060  —  Tax benefit of stock options exercised —  3,476  Excess tax benefits from stock based compensation (3,447) —  Increase in cash surrender value of life insurance policies (582) —  Changes in operating assets and liabilities (excluding effect of businesses acquired): Accounts receivable (50,565) (15,391) Inventories (89,414) (11,345) Prepaid expenses and other assets 6,569  (2,624) Accounts payable and accrued expenses   (97,103)   38,343  Net cash provided by operating activities 190,964  272,219    Investing activities: Purchases of property, plant and equipment, net (108,742) (53,740) Acquisitions of metals service centers and net asset purchases of metals service centers, net of cash acquired (542,604) (94,377) Tax distributions made related to a prior acquisition (894) —  Proceeds from sales of property and equipment 3,487  1,485  Proceeds from redemption of life insurance policies 1,415  —  Net investment in life insurance policies   (3,096)   —  Net cash used in investing activities (650,434) (146,632)   Financing activities: Proceeds from borrowings 2,547,316  393,000  Principal payments on long-term debt and short-term borrowings (2,063,656) (486,511) Debt issue costs (8,170) —  Payments to former minority shareholders (1,291) (7,159) Net refunds from letters of credit 12,919  —  Dividends paid (16,145) (12,530) Excess tax benefits from stock based compensation 3,446  —  Exercise of stock options 7,115  10,811  Issuance of common stock   222    246  Net cash provided by (used in) financing activities 481,756  (102,143) Effect of exchange rate changes on cash   167    (81) Increase in cash and cash equivalents 22,453  23,363  Cash and cash equivalents at beginning of period   35,022    11,659  Cash and cash equivalents at end of period $ 57,475  $ 35,022    Supplemental cash flow information: Interest paid during the period $ 70,306  $ 25,309  Income taxes paid during the period $ 213,234  $ 118,909    Non-cash investing and financing activities: Issuance of common stock and stock options in connection with acquisition of metals service center $ 360,453  $ —  Issuance of common stock to employee retirement savings plan $ 2,830  $ —