UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2016~~March 31, 2017

☐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)

Delaware

(State or other jurisdiction of

incorporation or organization)

95-1142616

(I.R.S. Employer

Identification No.)

350 South Grand Avenue, Suite 5100

Los Angeles, California 90071

(213) 687-7700

(Address of principal executive offices and telephone number)

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~October 26, 2016, 72,564,093~~May 1, 2017, 72,882,222 shares of the registrant’s common stock, $0.001 par value, were outstanding.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

TABLE OF CONTENTS


PART I -- FINANCIAL INFORMATION			1

	Item 1.	Financial Statements

		Unaudited Consolidated Balance Sheets	1

		Unaudited Consolidated Statements of Income	2

		Unaudited Consolidated Statements of Comprehensive Income	3

		Unaudited Consolidated Statements of Cash Flows	4

		Notes to Unaudited Consolidated Financial Statements	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 13

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23 21

	Item 4.	Controls and Procedures	24 21

PART II -- OTHER INFORMATION			24 22

	Item 1.	Legal Proceedings	22

	Item 1A.	Risk Factors	22
24
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

	Item 3.	Defaults Upon Senior Securities	22

	Item 4.	Mine Safety Disclosures	22

	Item 5.	Other Information	22

	Item 6.	Exhibits	24 22

SIGNATURES			25 23

EXHIBIT INDEX			26 24

Table of Contents

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)


	September 30,		December 31,		March 31,		December 31,
	2016		2015*		2017		2016*
ASSETS	ASSETS				ASSETS
Current assets:
Cash and cash equivalents	$	143.3	$	104.3	$	133.8	$	122.8
Accounts receivable, less allowance for doubtful accounts of $17.2 at September 30, 2016 and $16.3 at December 31, 2015		1,042.9		916.6
Accounts receivable, less allowance for doubtful accounts of $17.2 at March 31, 2017 and $15.3 at December 31, 2016						1,147.7		960.2
Inventories		1,600.1		1,436.0		1,680.2		1,532.6
Prepaid expenses and other current assets		57.5		60.8		63.9		72.9
Income taxes receivable		5.1		36.5
Total current assets		2,848.9		2,554.2		3,025.6		2,688.5
Property, plant and equipment:
Land		226.8		196.2		230.0		228.2
Buildings		1,045.7		1,006.3		1,067.9		1,059.2
Machinery and equipment		1,643.4		1,569.8		1,663.7		1,647.3
Accumulated depreciation		(1,250.5)		(1,136.8)		(1,310.2)		(1,272.5)
		1,665.4		1,635.5
Property, plant and equipment, net						1,651.4		1,662.2

Goodwill		1,828.9		1,724.8		1,829.2		1,827.4
Intangible assets, net		1,166.2		1,125.4		1,138.5		1,151.3
Cash surrender value of life insurance policies, net		36.8		45.8		44.0		46.9
Other assets		38.7		35.9		35.7		35.0
Total assets	$	7,584.9	$	7,121.6	$	7,724.4	$	7,411.3

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY				LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	312.2	$	247.0	$	402.4	$	302.2
Accrued expenses		101.8		83.0		94.7		83.7
Accrued compensation and retirement costs		120.0		118.7		96.5		140.8
Accrued insurance costs		43.5		40.2		43.5		40.6
Current maturities of long-term debt and short-term borrowings		426.2		500.8		71.3		82.5
Income taxes payable						57.6		6.2
Total current liabilities		1,003.7		989.7		766.0		656.0
Long-term debt		1,679.7		1,427.9		1,951.9		1,846.7
Long-term retirement costs		105.9		103.8		90.6		89.6
Other long-term liabilities		14.8		30.4		11.3		13.0
Deferred income taxes		627.6		627.1		628.6		626.9
Commitments and contingencies
Equity:
Preferred stock, $0.001 par value:
Authorized shares — 5,000,000
Authorized shares �� 5,000,000
None issued or outstanding		—		—		—		—
Common stock and additional paid-in capital, $0.001 par value:
Authorized shares — 200,000,000
Issued and outstanding shares – 72,563,344 at September 30, 2016 and 71,739,072 at December 31, 2015		582.2		533.8
Issued and outstanding shares – 72,879,606 at March 31, 2017 and 72,682,793 at December 31, 2016						597.9		590.3
Retained earnings		3,633.2		3,480.0		3,742.0		3,663.2
Accumulated other comprehensive loss		(92.0)		(99.7)		(94.8)		(104.7)
Total Reliance stockholders’ equity		4,123.4		3,914.1		4,245.1		4,148.8
Noncontrolling interests		29.8		28.6		30.9		30.3
Total equity		4,153.2		3,942.7		4,276.0		4,179.1
Total liabilities and equity	$	7,584.9	$	7,121.6	$	7,724.4	$	7,411.3

* Amounts were derived from audited financial statements.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2016		2015		2016		2015		2017		2016
Net sales	$	2,185.2	$	2,286.2	$	6,551.8	$	7,324.3	$	2,419.3	$	2,162.7

Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)		1,530.6		1,647.9		4,575.4		5,359.4		1,697.7		1,526.0
Warehouse, delivery, selling, general and administrative		454.3		428.9		1,361.6		1,315.8		476.2		449.5
Depreciation and amortization		55.1		54.4		166.7		164.6		55.2		56.1
Impairment of long-lived assets		51.7		53.3		51.7		53.3
		2,091.7		2,184.5		6,155.4		6,893.1		2,229.1		2,031.6

Operating income		93.5		101.7		396.4		431.2		190.2		131.1

Other income (expense):
Other expense:
Interest		(22.2)		(21.2)		(65.6)		(63.3)		(17.3)		(21.7)
Other (expense) income, net		(0.8)		(2.8)		0.5		(3.7)
Other expense, net										(4.4)		(0.2)
Income before income taxes		70.5		77.7		331.3		364.2		168.5		109.2
Income tax provision		19.9		24.9		85.1		116.9		55.1		15.7
Net income		50.6		52.8		246.2		247.3		113.4		93.5
Less: Net income attributable to noncontrolling interests		1.1		1.4		3.6		4.4		1.7		1.3
Net income attributable to Reliance	$	49.5	$	51.4	$	242.6	$	242.9	$	111.7	$	92.2

Earnings per share attributable to Reliance stockholders:
Diluted	$	0.68	$	0.69	$	3.32	$	3.21	$	1.52	$	1.27
Basic	$	0.68	$	0.70	$	3.36	$	3.24	$	1.53	$	1.28

Cash dividends per share	$	0.425	$	0.400	$	1.225	$	1.200	$	0.45	$	0.40

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015
Net income
$
50.6

$
52.8

$
246.2

$
247.3
Other comprehensive income (loss)

Foreign currency translation (loss) gain

(3.2)

(25.8)

7.7

(42.8)
Unrealized loss on investments, net of tax

—

—

—

(0.4)
Total other comprehensive (loss) income

(3.2)

(25.8)

7.7

(43.2)
Comprehensive income

47.4

27.0

253.9

204.1
Less: comprehensive income attributable to noncontrolling interests

1.1

1.4

3.6

4.4
Comprehensive income attributable to Reliance
$
46.3

$
25.6

$
250.3

$
199.7


	Three Months Ended
	March 31,
	2017		2016
Net income	$	113.4	$	93.5
Other comprehensive income:
Foreign currency translation gain		7.6		15.7
Pension and postretirement benefit adjustments, net of tax		2.3		—
Total other comprehensive income		9.9		15.7
Comprehensive income		123.3		109.2
Less: Comprehensive income attributable to noncontrolling interests		1.7		1.3
Comprehensive income attributable to Reliance	$	121.6	$	107.9

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2016		2015		2017		2016
Operating activities:
Net income	$	246.2	$	247.3	$	113.4	$	93.5
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization expense		166.7		164.6		55.2		56.1
Impairment of long-lived assets		51.7		53.3
Deferred income tax provision (benefit)		0.5		(3.2)
Deferred income tax provision						0.2		2.3
Gain on sales of property, plant and equipment		(1.1)		(1.9)		(3.9)		(0.5)
Stock-based compensation expense		17.8		17.6		5.5		3.3
Other		5.9		7.7		4.0		1.0
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable		(112.0)		65.4		(186.7)		(80.3)
Inventories		(95.5)		156.8		(146.5)		(29.3)
Prepaid expenses and other assets		35.2		(16.1)		9.2		17.0
Accounts payable and other liabilities		72.2		24.8		128.9		92.3
Net cash provided by operating activities		387.6		716.3
Net cash (used in) provided by operating activities						(20.7)		155.4

Investing activities:
Purchases of property, plant and equipment		(110.6)		(119.4)		(34.1)		(34.4)
Acquisitions, net of cash acquired		(349.0)		—		(1.3)		(290.9)
Other		1.6		5.6		3.4		(6.2)
Net cash used in investing activities		(458.0)		(113.8)		(32.0)		(331.5)

Financing activities:
Net short-term debt (repayments) borrowings		(11.9)		9.9
Net short-term debt repayments						(3.8)		(6.2)
Proceeds from long-term debt borrowings		1,713.0		510.0		339.0		399.0
Principal payments on long-term debt		(1,525.2)		(729.0)		(242.1)		(188.0)
Debt issuance costs		(6.8)		—
Dividends and dividend equivalents paid		(89.5)		(90.7)		(33.7)		(29.0)
Exercise of stock options		31.3		11.0		2.8		16.5
Share repurchases		—		(313.9)
Other		(4.1)		(5.5)		(1.8)		(2.6)
Net cash provided by (used in) financing activities		106.8		(608.2)
Net cash provided by financing activities						60.4		189.7
Effect of exchange rate changes on cash		2.6		(6.4)		3.3		2.6
Increase (decrease) in cash and cash equivalents		39.0		(12.1)
Increase in cash and cash equivalents						11.0		16.2
Cash and cash equivalents at beginning of year		104.3		106.2		122.8		104.3
Cash and cash equivalents at end of period	$	143.3	$	94.1	$	133.8	$	120.5

Supplemental cash flow information:
Interest paid during the period	$	47.0	$	46.5	$	8.1	$	5.1
Income taxes paid during the period, net	$	67.2	$	168.3	$	3.0	$	5.7

Non-cash investing and financing activities:
Debt assumed in connection with acquisition	$	6.1	$	—

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2016~~March 31, 2017

1. Basis of Presentation

Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements, have been included. The results of operations for the ~~nine months ended September 30, 2016~~first quarter of 2017 are not necessarily indicative of the results for the full year ending December 31, ~~2016.~~2017. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December 31, ~~2015,~~2016, included in Reliance Steel & Aluminum Co.’s (“Reliance”, the “Company”, “we”, “our” or “us”) Annual Report on Form 10-K.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Our consolidated financial statements include the assets, liabilities and operating results of majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Our investments in unconsolidated subsidiaries are recorded under the equity method of accounting.

2. Impact of Recently Issued Accounting Guidance

Impact of Recently Issued Accounting Standards—Adopted

~~Improvements to Employee Share-Based Payment Accounting~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost——In March ~~2016,~~2017, the Financial Accounting Standards Board (“FASB”) issued accounting changes ~~intended~~ to improve ~~various aspects~~the presentation of net periodic pension cost and net periodic postretirement benefit cost in the ~~accounting~~income statement, and to narrow the amounts eligible for ~~share-based payment transactions~~capitalization in assets. The amendments require the service cost component be reported in the same line as ~~part~~other compensation costs and the other components of ~~its simplification initiative.~~net periodic benefit cost be presented in the income statement outside of operating income. We adopted these changes asin the first quarter of ~~January 1,~~2017 on a retrospective basis. As a result of the adoption, we retrospectively adjusted the presentation of our 2016 first quarter income statement, decreasing Warehouse, delivery, selling, general and administrative expense by $1.3 million and increasing Other expense, net by $1.3 million. The adjustment to the income statement presentation for the first quarter of 2016 was estimated using the components of net periodic benefit cost other than service cost included in Note 11— “Employee Benefits” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. We include the components of net periodic benefit cost other than service cost in Other Expense, net in all periods presented. The amendment requiring only the service cost component of net periodic benefit cost to be eligible for capitalization in assets did not impact our asset capitalization policies. The adoption of these changes did not have a material impact on our consolidated financial statements. ~~For further discussion~~

Clarifying the Definition of a Business—In January 2017, the FASB issued accounting changes to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The accounting changes provide a screen to determine when a set of assets and activities is not a business. These accounting changes, which will be applied to our future acquisitions, were adopted during the first quarter of 2017. The adoption of these accounting changes ~~see Note 8 — “Equity”.~~will not have a material impact on our consolidated financial statements.

Table of Contents

Impact of Recently Issued Accounting Standards—Not Yet Adopted

Classification of Certain Cash Receipts and Cash Payments—In August 2016, the FASB issued accounting changes that clarifies the presentation and classification of certain cash receipts and payments in the statement of cash flows with the objective of reducing the existing diversity in practice with respect to eight types of cash flows. The guidance will be effective for fiscal years and interim periods beginning after December 15, ~~2017.~~2017, or January 1, 2018 for the Company. Early adoption is permitted. The adoption of this standard will not have a material impact on our consolidated financial statements.

Leases—In February 2016, the FASB issued accounting changes which will require lessees to recognize most long-term leases on-balance sheet through the recognition of a right-of-use asset and a lease liability. The guidance will be effective for fiscal years and interim periods beginning after December 15, ~~2018.~~2018, or January 1, 2019 for the Company. Early adoption is permitted. We have implemented a lease management system and are ~~evaluating the new standard and have not determined what impact~~developing processes necessary to implement these accounting changes. We expect the adoption of these accounting changes will materially increase our assets and liabilities, but will not have a material impact on our ~~consolidated financial statements.~~net income or equity. We have not yet made any decision with respect to the timing or method of adoption of these accounting changes.

Revenue from Contracts with Customers—In May 2014, the FASB issued accounting changes, which replace most of the detailed guidance on revenue recognition that currently exists under U.S. GAAP. Under the new guidance an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange

~~Table of Contents~~

for those goods or services. The ~~FASB issued additional clarifying guidance in March 2016 and April 2016. The guidance~~Company will ~~be effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted for fiscal years beginning after December 15, 2016. We are evaluating~~adopt the new ~~standard, but~~guidance on January 1, 2018. We primarily sell our inventories in the “spot market” pursuant to fixed price purchase orders and do not enter into transactions with multiple performance obligations. As such, we do not expect this standard to have a material impact on our consolidated financial statements. During 2017, we will continue to evaluate this standard and update the disclosures on its impact. We have not yet made any decision with respect to the method of adoption of these accounting changes.

3. Acquisitions

2016 Acquisitions

On August 1, 2016, through our wholly owned subsidiary American Metals Corporation, we acquired Alaska Steel Company (“Alaska Steel”), a full-line metal distributor headquartered in Anchorage, Alaska. Our acquisition of Alaska Steel was our first entry into the Alaska market. Alaska Steel provides steel, aluminum, stainless and specialty metals and related processing services to a variety of customers in diverse industries including infrastructure ~~energy~~ and ~~mining~~energy throughout Alaska. ~~For the two months ended September 30, 2016,~~ Alaska Steel’s net sales were ~~$3.9 million.~~$3.8 million for the first quarter of 2017.

On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator of steel and aluminum products on both a direct and toll basis. Best Manufacturing, headquartered in Jonesboro, Arkansas, provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. ~~For the six months ended September 30, 2016,~~ Best Manufacturing’s net sales were ~~$9.5 million.~~$5.6 million for the first quarter of 2017.

On January 1, 2016, we acquired Tubular Steel, Inc. (“Tubular Steel”), a distributor and processor of carbon, alloy and stainless steel pipe, tubing and bar products. Tubular Steel, headquartered in St. Louis, Missouri, has ~~seven~~six locations and a fabrication business that supports its diverse customer base. ~~For the nine months ended September 30, 2016,~~ Tubular Steel’s net sales were ~~$89.7 million.~~$34.1 million for the first quarter of 2017.

We funded our 2016 acquisitions with borrowings on our revolving credit facility and cash on hand.

Table of Contents

The preliminary allocation of the total purchase price of our 2016 acquisitions to the fair values of the assets acquired and liabilities assumed was as follows:


	(in millions)
Cash	$	1.5
Accounts receivable		14.1
Inventories		~~67.0~~66.6
Property, plant and equipment		62.2
Goodwill		~~103.5~~104.7
Intangible assets subject to amortization		77.1
Intangible assets not subject to amortization		38.2
Other current and long-term assets		~~0.1~~0.5
Total assets acquired		~~363.7~~364.9
Current and long-term debt		6.1
Other current and long-term liabilities		~~7.1~~7.3
Total liabilities assumed		~~13.2~~13.4
Net assets acquired	$	~~350.5~~351.5

The acquisitions discussed in this note have been accounted for under the acquisition method of accounting and, accordingly, the respective purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of each acquisition. The accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date. The consolidated balance ~~sheet reflects~~sheets reflect the allocation of each acquisition’s purchase price as of ~~September 30,~~March 31, 2017 and December 31, 2016. The purchase price ~~allocations~~allocation for the 2016 ~~acquisitions are~~acquisition of Alaska Steel is preliminary and ~~are~~is pending the completion of various pre-acquisition ~~period~~ income tax returns and related purchase price adjustments. The Alaska Steel acquisition purchase price allocation is also pending the completion of certain purchase price adjustments based on reviewed closing balance sheet amounts.returns. The measurement periods for ~~the~~ purchase price allocations do not exceed 12 months from the acquisition date.

~~Table of Contents~~

4. Goodwill

The change in the carrying amount of goodwill is as follows:

~~(in millions)~~

~~Balance at January 1, 2016~~


	(in millions)
Balance at January 1, 2017	$	1,827.4
Acquisition		1.3
Effect of foreign currency translation		0.5
Balance at March 31, 2017	$	1,829.2

~~1,724.8~~

~~Acquisitions~~

~~103.5~~

~~Effect of foreign currency translation~~

~~2.0~~

~~Impairment~~

~~(1.4)~~

~~Balance at September 30, 2016~~

~~1,828.9~~

~~Impairment losses of $1.4 million related to the Company’s planned sale of two subsidiaries were recognized during the three months and nine months ended September 30, 2016. See Note 11~~ — ~~“Impairment and Restructuring Charges” for further discussion of our impairment losses.~~

We had ~~$1.4 million of~~no accumulated impairment losses related to goodwill at ~~September 30, 2016.~~March 31, 2017.

~~All of the goodwill recorded from our 2016 acquisitions is tax deductible.~~

~~5. Intangible Assets, net~~

~~Intangible assets, net consisted of the following:~~

September 30, 2016

December 31, 2015

Weighted Average

Gross

Gross

Amortizable

Carrying

Accumulated

Carrying

Accumulated

Life in Years

Amount

Amortization

Amount

Amortization

(in millions)
Intangible assets subject to amortization:

Covenants not to compete
4.5

$
1.8

$
(1.2)

$
1.3

$
(1.0)
Customer lists/relationships
14.6

738.1

(326.2)

659.0

(285.7)
Software – internal use
10.0

8.1

(8.1)

8.1

(7.9)
Other
5.2

6.3

(5.5)

6.3

(5.0)

754.3

(341.0)

674.7

(299.6)
Intangible assets not subject to amortization:

Trade names

752.9

—

750.3

—

$
1,507.2

$
(341.0)

$
1,425.0

$
(299.6)

~~Intangible assets recorded in connection with our 2016 acquisitions were $115.3 million (see Note 3~~ ~~— “Acquisitions”). A total of $38.2 million was allocated to the trade names acquired, which is not subject to amortization.~~

We recognized amortization expense for intangible assets of $40.6 million and $41.0 million for the nine months ended September 30, 2016 and 2015, respectively. Foreign currency translation gains related to intangible assets, net, were approximately $2.5 million during the nine months ended September 30, 2016.

Impairment losses of $36.4 million related to eight of our trade names were recognized during the three months and nine months ended September 30, 2016. Impairment losses of $21.2 million related to five of our trade names and $14.4 million related to two of our customer relationships were recognized for the three months and nine months ended September 30, 2015. See Note 11 – “Impairment and Restructuring Charges” for further discussion of our impairment losses.

Table of Contents

5. Intangible Assets, net

Intangible assets, net consisted of the following:


		March 31, 2017				December 31, 2016
	Weighted Average	Gross				Gross
	Amortizable	Carrying		Accumulated		Carrying		Accumulated
	Life in Years	Amount		Amortization		Amount		Amortization
		(in millions)
Intangible assets subject to amortization:
Covenants not to compete	4.8	$	1.1	$	(0.7)	$	1.1	$	(0.6)
Customer lists/relationships	14.6		737.3		(352.3)		736.7		(338.9)
Software	10.0		8.1		(8.1)		8.1		(8.1)
Other	5.2		6.3		(5.6)		6.3		(5.5)
			752.8		(366.7)		752.2		(353.1)
Intangible assets not subject to amortization:
Trade names			752.4		—		752.2		—
		$	1,505.2	$	(366.7)	$	1,504.4	$	(353.1)

We recognized amortization expense for intangible assets of $13.4 million and $13.6 million for the first quarter of 2017 and 2016, respectively. Foreign currency translation gains related to intangible assets, net, were $0.6 million during the first quarter of 2017.

The following is a summary of estimated aggregate amortization expense for the remaining ~~three~~nine months of ~~2016~~2017 and each of the succeeding five years:


	(in millions)		(in millions)
2016	$	13.5
2017		50.4
2017 (remaining nine months)			$	37.0
2018		46.1		46.0
2019		46.0		45.9
2020		46.0		45.9
2021		42.0		42.0
2022				33.9

6. Debt

Debt consisted of the following:


	September 30,		December 31,		March 31,		December 31,
	2016		2015		2017		2016
	(in millions)				(in millions)
Unsecured revolving credit facility due September 30, 2021	$	366.0	$	332.0	$	652.0	$	540.0
Unsecured term loan due from December 30, 2016 to September 30, 2021		600.0		398.8
Senior unsecured notes due November 15, 2016		350.0		350.0
Unsecured term loan due from June 30, 2017 to September 30, 2021						585.0		600.0
Senior unsecured notes due April 15, 2023		500.0		500.0		500.0		500.0
Senior unsecured notes due November 15, 2036		250.0		250.0		250.0		250.0
Other notes and revolving credit facilities		56.4		111.3		51.3		55.0
Total		2,122.4		1,942.1		2,038.3		1,945.0
Less: unamortized discount and debt issuance costs		(16.5)		(13.4)		(15.1)		(15.8)
Less: amounts due within one year and short-term borrowings		(426.2)		(500.8)		(71.3)		(82.5)
Total long-term debt	$	1,679.7	$	1,427.9	$	1,951.9	$	1,846.7

Table of Contents

Unsecured Credit Facility

On September 30, 2016, we entered into a $2.1 billion unsecured five-year credit agreement (“Credit Agreement”) comprised of a $1.5 billion unsecured revolving credit facility and a $600.0 million unsecured term loan, with an option to increase the revolving facility for up to $500.0 million at our request, subject to approval of the lenders and certain other customary conditions. The term loan due September 30, 2021 amortizes in quarterly installments, with an annual amortization of 5% through September 2018 and 10% thereafter until June 2021, with the balance to be paid at maturity. Interest on borrowings from the revolving credit facility and term loan at ~~September 30, 2016~~March 31, 2017 was at variable rates based on LIBOR plus 1.25% or the bank prime rate plus 0.25% and included a commitment fee at an annual rate of 0.15% on the unused portion of the revolving credit facility. The applicable margins over LIBOR rate and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined in the Credit Agreement. All borrowings under the Credit Agreement may be ~~repaid~~prepaid without penalty.

Weighted average interest rates on borrowings outstanding on the revolving credit facility were ~~1.77%~~2.21% and ~~1.81%~~2.16% as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. Weighted average interest rates on borrowings outstanding on the term loan were ~~1.77%~~2.23% and ~~1.67%~~2.02% as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. As of ~~September 30, 2016,~~March 31, 2017, we had ~~$366.0~~$652.0 million of outstanding borrowings, ~~$63.1~~$62.5 million of letters of credit issued and ~~approximately $1.07 billion~~$785.5 million available for borrowing on the revolving credit facility.

~~Table of Contents~~

Senior Unsecured Notes

On November 20, 2006, we entered into an indenture (the “2006 Indenture”), for the issuance of $600.0 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, ~~maturing~~which matured and were repaid on November 15, 2016 and (b) $250.0 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.

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 subsidiary guarantors guaranteeing the notes under the Indentures were automatically released on September 30, 2016 upon entering into the Credit Agreement, which does not require subsidiary guarantees.

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 both a change in control and a downgrade of our credit rating.

Other Notes and Revolving Credit Facilities

Revolving credit facilities with a combined credit limit of approximately ~~$67.9~~$65.6 million are in place for operations in Asia and Europe with combined outstanding balances of ~~$45.7~~$40.8 million and ~~$59.9~~$44.4 million as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

Various industrial revenue bonds had combined outstanding balances of ~~$10.7~~$10.5 million and ~~$11.0~~$10.6 million as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively, and have maturities through 2027. Additionally, we assumed mortgage obligations pursuant to our acquisition of a portfolio of real estate properties that we were leasing, which had outstanding balances of $40.4 million as of December 31, 2015. The mortgages, which were secured by the underlying properties, had a fixed interest rate of 6.40% and scheduled amortization payments with a lump sum payment of $39.2 million due October 2016. We repaid all of the mortgage obligations without penalty on July 1, 2016 with borrowings on our revolving credit facility.

Covenants

Table of Contents

7. Income Taxes

Our effective income tax rates for the ~~three-month periods ended September 30,~~first quarter of 2017 and 2016 were 32.7% and ~~2015 were 28.2% and 32.1%~~14.4%, respectively. ~~Our effective income tax rates for~~During the ~~nine-month periods ended September 30,~~first quarter of 2016, ~~and 2015 were 25.7% and 32.1%, respectively. Our 2016 nine-month period effective income tax rate was favorably impacted by~~favorable developments occurred toward the resolution of a tax position that was previously ~~uncertain, which~~uncertain. The re-measurement of that tax position lowered our ~~2016 nine-month~~income tax provision by $17.6 million and our effective income tax rate by ~~5.3%.~~16.1% in the first quarter of 2016. Other permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different 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%.

~~Table of Contents~~

8. Equity

Common Stock

As of ~~September 30, 2016,~~March 31, 2017, we had authorization to purchase a total of approximately 8.4 million shares under our existing share repurchase plan, or about 12% of outstanding shares. There were no share repurchases in the ~~nine-month period ended September 30, 2016.~~first quarter of 2017. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.

Common stock and additional paid-in capital activity included the following:


	Three Months Ended					Nine Months Ended					Three Months Ended
	September 30, 2016					September 30, 2016					March 31, 2017
				Weighted Average					Weighted Average					Weighted Average
	Shares	Amount		Exercise Price		Shares	Amount		Exercise Price		Shares	Amount		Exercise Price
	(in millions, except share and per share amounts)										(in millions, except share and per share amounts)
Stock-based compensation(1)	37,240	$	5.9			187,402	$	16.1			141,508	$	4.8
Stock options exercised	22,125		1.2	$	52.80	636,870		31.3	$	49.14	55,305		2.8	$	49.82
Cumulative effect of change in accounting for stock-based compensation			—					1.0
Total	59,365	$	7.1			824,272	$	48.4			196,813	$	7.6

⁽¹⁾

Stock-based compensation expense reduced by $0.7 million of payments we made to tax authorities on our employees’ behalf for shares withheld related to net share settlements.

Dividends

On ~~October 19, 2016,~~April 25, 2017, our Board of Directors declared the ~~2016 fourth~~2017 second quarter cash dividend of ~~$0.425~~$0.45 per share. The dividend is payable on ~~December~~June 16, ~~2016~~2017 to stockholders of record as of ~~November 18, 2016.~~May 26, 2017.

During the ~~three months ended September 30,~~first quarters of 2017 and 2016, ~~and 2015,~~ we declared and paid a quarterly dividend of ~~$0.425~~$0.45 per share and $0.40 per share, or ~~$31.5~~$32.8 million and ~~$29.3~~$28.9 million in total, respectively. During the ~~nine months ended September 30,~~first quarters of 2017 and 2016, and 2015, we declared and paid quarterly dividends of $1.225 per share and $1.20 per share, or $88.6 million and $89.7 million in total, respectively. During the nine months ended September 30, 2016 and 2015, we paid $0.9 ~~million and $1.0~~ million in dividend equivalents with respect to vested restricted stock units (“RSUs”)~~, respectively.~~.

Stock-Based Compensation

Effective January 1, 2016, we adopted accounting changes issued by the FASB for stock-based compensation that allow us to account for forfeitures of RSUs as they occur rather than estimating the number of forfeitures. As a result of the adoption, we recorded a cumulative-effect adjustment that reduced beginning retained earnings by $0.6 million, net of tax.

We make annual grants of long-term incentive awards to officers and key employees in the forms of service-based and performance-based RSUs that generally have 3-year vesting periods. The performance-based RSU awards are subject to both service and performance goal criteria. We also grant restricted stock to the non-employee members of the Board of Directors. The fair value of the RSUs and restricted stock awards is determined based on the closing stock price of our common stock on the grant date.

Table of Contents

A summary of the status of our unvested restricted stock grants and service-based and performance-based RSUs as of ~~September 30, 2016~~March 31, 2017 and changes during the ~~nine-month period~~quarter then ended is as follows:


		Weighted			Weighted
		Average Grant			Average Grant
Unvested Shares	Shares	Date Fair Value		Shares	Date Fair Value
Unvested at January 1, 2016	900,410	$	63.26
Unvested at January 1, 2017				985,540	$	64.34
Granted(1)	524,746		69.20	446,525		79.60
Vested	(72,269)		56.25	(3,939)		61.45
Cancelled	(81,377)		68.12	(6,886)		64.31
Unvested at September 30, 2016	1,271,510	$	65.81
Unvested at March 31, 2017				1,421,240	$	69.15
Shares reserved for future grants (all plans)	1,930,139			1,635,660

(1) ~~512,895~~446,525 RSUs, including ~~190,175~~169,009 performance-based ~~RSUs, and 11,851 restricted stock grants.~~RSUs.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss included the following:

Pension and

Accumulated

Foreign Currency

Postretirement

Other

Translation

Benefit Adjustments,

Comprehensive

(Loss) Gain

Net of Tax

(Loss) Income

(in millions)
Balance as of January 1, 2016
$
(74.2)

$
(25.5)

$
(99.7)
Current-period change

7.7

—

7.7
Balance as of September 30, 2016
$
(66.5)

$
(25.5)

$
(92.0)


			Pension and		Accumulated
	Foreign Currency		Postretirement		Other
	Translation		Benefit Adjustments,		Comprehensive
	(Loss) Gain		Net of Tax		(Loss) Income
	(in millions)
Balance as of January 1, 2017	$	(79.9)	$	(24.8)	$	(104.7)
Current-period change		7.6		2.3		9.9
Balance as of March 31, 2017	$	(72.3)	$	(22.5)	$	(94.8)

Foreign currency translation adjustments are not generally adjusted for income taxes as they relate to indefinite investments in foreign subsidiaries. Pension and postretirement benefit adjustments are net of taxes of ~~$15.6~~$13.5 million and $14.9 million as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016, respectively.

9. Commitments and Contingencies

Environmental Contingencies

We are currently involved with ana certain environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our wholly owned subsidiary, which were sold many years prior to Reliance’s acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ had maintained insurance policies ~~in place at~~during the time ~~they~~it owned the manufacturing operations that have covered costs incurred to date, and are expected to continue to cover the majority of the ~~remaining~~related costs. We do not expect that ~~these obligations~~this obligation will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

Legal Matters

From time to time, we are named as a defendant in legal actions. Generally, these actions arise out of our normal course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse effect on our results of operations or financial ~~condition or cash flows.~~condition. We maintain general liability insurance against risks arising out of our ~~ordinary~~normal course of business.

Table of Contents

10. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2016		2015		2016		2015		2017		2016
	(in millions, except share and per share amounts)								(in millions, except share and per share amounts)
Numerator:
Net income attributable to Reliance	$	49.5	$	51.4	$	242.6	$	242.9	$	111.7	$	92.2
Denominator:
Weighted average shares outstanding		72,542,873		73,316,356		72,282,537		74,903,472		72,841,878		71,929,821
Dilutive effect of stock-based awards		737,924		819,837		752,401		770,124		573,487		778,528
Weighted average diluted shares outstanding		73,280,797		74,136,193		73,034,938		75,673,596		73,415,365		72,708,349

Earnings per share attributable to Reliance stockholders:
Diluted	$	0.68	$	0.69	$	3.32	$	3.21	$	1.52	$	1.27
Basic	$	0.68	$	0.70	$	3.36	$	3.24	$	1.53	$	1.28

Potentially dilutive securities whose effect would have been antidilutive were not significant for the ~~three-month~~first quarters of 2017 and ~~nine-month periods ended September 30, 2016 and 2015.~~2016.

~~11. Impairment and Restructuring Charges~~

We recorded impairment and restructuring charges of $67.3 million in the three months and nine months ended September 30, 2016 compared to $55.5 million and $56.3 million in the comparable 2015 periods, respectively. These charges mainly relate to certain of our energy-related businesses as a result of the impact to our businesses from continued low crude oil prices and the resulting decline in demand for the products we sell to the energy market (oil and gas). Also included are charges relating to the planned closure or sale of certain locations. The additional impairment and restructuring charges during the three months ended September 30, 2016 were primarily due to our revised long-term outlook of reduced demand and future profitability levels for certain of our energy-related businesses and additional planned location closures or sales.

~~The impairment and restructuring charges consisted of the following:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2015

2016

2015

(in millions)
Property, plant and equipment
$
13.9

$
17.7

$
13.9

$
17.7
Goodwill

1.4

—

1.4

—
Intangible assets, net

36.4

35.6

36.4

35.6
Total impairment charges

51.7

53.3

51.7

53.3
Restructuring - cost of sales

11.7

1.6

11.7

1.6
Restructuring - warehouse, delivery, selling, general and administrative expense

2.9

0.6

2.9

1.0
Restructuring - depreciation expense

—

—

—

0.4
Restructuring - non-operating expense

1.0

—

1.0

—
Total impairment and restructuring charges
$
67.3

$
55.5

$
67.3

$
56.3

The property, plant and equipment and restructuring – cost of sales charges relate to the planned closure or sale of certain locations where we anticipate losses on disposition of certain real property, machinery and equipment and inventories. The intangible assets, net charge is due to lowered expectations of future profitability of certain of our energy-related businesses.

Table of Contents

The measurement of these assets at fair value was determined using a combination of discounted cash flow techniques for non-amortizing intangible assets and the market approach for property, plant, and equipment and inventories.

~~12. Condensed Consolidating Financial Statements~~

In November 2006 and April 2013, we issued senior unsecured notes in the aggregate principal amount of $1.1 billion, at fixed interest rates that were guaranteed by certain of our 100%-owned domestic subsidiaries that also guaranteed borrowings under our then existing credit agreement.

~~We previously provided consolidated financial statements pursuant to Rule 3-10 of Regulation S-X~~ ~~“Financial Statements of Guarantors and Issuers of GuaranteedSecurities Registered or Being Registered.”~~

The subsidiary guarantors guaranteeing the notes issued under the Indentures were automatically released on September 30, 2016 upon entering into the Credit Agreement, which does not require subsidiary guarantees.

~~Table of Contents~~

RELIANCE STEEL & ALUMINUM CO.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our forward-looking statements include discussions of our industry, our end markets, our business strategies and our expectations concerning future operations, margins, profitability, liquidity and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, and similar expressions. All statements contained in this report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date of such statements.

Forward-looking statements involve known and unknown risks and uncertainties and are not guarantees of future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements as a result of various important factors, including, but not limited to, those disclosed in this report and in other reports we have filed with the Securities and Exchange Commission (the “SEC”). As a result, these statements speak only as of the date that they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Important risks and uncertainties about our business can be found in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 filed with the SEC.

Overview

We had strong operational execution in the ~~three-month and nine-month periods ended September 30, 2016~~first quarter of 2017 resulting in ~~improved gross profit margins.~~our highest net income and earnings per share since the first quarter of 2012. Our sales for the ~~three-month period ended September 30, 2016~~first quarter of 2017 were ~~$2.19~~$2.42 billion, ~~down 4.4%~~up 11.9% from ~~$2.29~~$2.16 billion for the first quarter of 2016. Higher metals pricing, improved demand, and continued focus on increasing levels of value-added processing resulted in a higher gross profit margin during the same period in 2015. During the nine-month period ended September 30, 2016, sales were $6.55 billion, down 10.5% from $7.32 billion in the same period in 2015. Demand was relatively consistent in the 2016 periodsfirst quarter of 2017 compared to the ~~2015 periods outside~~first quarter of ~~the energy and heavy industry end markets. However, pricing~~2016. Pricing levels ~~remained~~were significantly ~~lower~~higher in the ~~nine-month period ended September 30, 2016~~first quarter of 2017 compared to the ~~same period in 2015,~~first quarter of 2016, especially for carbon (52% of our sales) and stainless steel (14% of our sales) products, which had a ~~material~~favorable impact on our revenues and operating margins. Although pricing levels were improving throughout the second quarter of 2016, our three-month period ended September 30, 2016 average selling prices remained below our average selling price in the same period in 2015. Despite the challenges of lower average selling prices and lower shipment levels, we neverthelessWe achieved several operational successes in the ~~three-month period ended September 30, 2016:~~first quarter of 2017:

Our ~~gross~~net income of $111.7 million and earnings per diluted share of $1.52 in the first quarter of 2017 increased 21.1% and 19.7%, respectively, from the first quarter of 2016; representing our highest net income and earnings per diluted share since the first quarter of 2012;

Gross profit ~~margin remained above~~was $721.6 million, the highest in our ~~historical range of 25% to 27% for six consecutive quarters;~~history;

The ~~2016 third quarter~~first-in, first-out (“FIFO”) gross profit margin remained above 29% for the fifth consecutive quarter;

Our operating income of ~~30.0%~~$190.2 million and ~~the 2016 second quarter gross profit~~operating income margin of ~~31.1% mark~~7.9% for the first ~~time~~quarter of 2017 were significant improvements from $131.1 million and 6.1% in ~~our history that we have achieved consecutive gross profit margin quarters in excess~~the first quarter of ~~30%~~2016; and

Our inventory turn rate (based on tons) at ~~September 30, 2016~~March 31, 2017 was ~~4.6~~4.7 times, ~~nearing~~achieving our company-wide ~~goal of 4.7 times.~~goal.

Our ~~same-store~~ tons sold ~~decreased 4.0% and 2.7%~~increased 2.5% in the ~~three-month and nine-month periods ended September 30, 2016, respectively,~~first quarter of 2017 compared to the ~~same periods in 2015, significantly lower than~~first quarter of 2016, due to slightly improved customer demand levels across many industries, including the ~~industry decline reported by the Metals Service Center Institute (“MSCI”) of 6.6%~~energy (oil and 6.8%, respectively, over the same periods. We believe our industry outperformance is attributable to our focus on small orders requiring high levels of quality and service on a just-in-time basis, as well as our significant investments in value-added processing equipment over the past few years.gas) market.

Our ~~same-store~~ average selling price per ton sold ~~which had declined sequentially~~increased 9.7% in ~~each quarter from~~ the ~~2014 third quarter through the 2016~~ first quarter ~~has increased for~~of 2017 compared to the ~~past two quarters,~~first quarter of 2016, mainly for certain carbon and stainless steel products. We

~~Table of Contents~~

attribute the ~~recent~~ pricing improvement to ~~relatively stable~~improved demand ~~domestic mill production capacity discipline~~ and lower imports due to the impact of trade case filings by U.S. steel producers. We believe this stronger pricing environment

Table of Contents

along with ~~our improved~~effective inventory ~~position achieved through our inventory reduction efforts in 2015~~management and our investments in value-added processing equipment contributed to our ~~expanded gross profit margins during the three-month and nine-month periods ended September 30, 2016.~~

~~We have exceeded our historical~~increased gross profit margin ~~range~~during the first quarter of ~~25% to 27% in each of the past six quarters despite the difficult pricing environment.~~2017.

Our same-store S,G&A expense as a percent of sales of ~~20.7%~~19.6% in the ~~2016 three-month and nine-month periods, increased~~first quarter of 2017 decreased from ~~18.8% and 18.0%~~20.6% in the ~~same 2015 periods, respectively, mainly~~first quarter of 2016 due to ~~lower~~higher metals pricing levels ~~during the 2016 periods~~in 2017 that ~~reduced~~increased our ~~sales levels.~~sales.

The ~~increases~~higher metal prices and increase in our gross profit margin ~~and effective expense control held~~contributed to the significant increase in our operating income ~~margins steady in the lower metals pricing environment~~ during the ~~three-month and nine-month periods ended September 30, 2016~~first quarter of 2017 compared to the ~~same periods in 2015. However, our operating income and operating income margins were also impacted by impairment and restructuring charges. We recorded $67.3 million~~first quarter of ~~impairment and restructuring charges in the three months and nine months ended September 30, 2016 compared to $55.5 million and $56.3 million in the comparable 2015 periods, respectively. See Note 11~~2016.

As a result of the ~~Notes to the Unaudited Consolidated Financial Statements for further discussion.~~

~~We generated strong~~more favorable pricing and demand environment, we used cash flow from operations of ~~$182.4 million and $387.6~~$20.7 million in the ~~three-month and nine-month periods~~first quarter of ~~2016, respectively,~~2017, mainly due to ~~our strong gross profit margin and effective~~increased working capital ~~management.~~requirements. As of ~~September 30, 2016,~~March 31, 2017, our net debt-to-total capital ratio was ~~32.2%~~30.8%, up from ~~31.8%~~30.3% as of December 31, ~~2015, mainly due to increased borrowings to fund our 2016 acquisitions.~~2016. We have significant liquidity as of ~~September 30, 2016,~~March 31, 2017, with approximately ~~$1.07 billion~~$785.5 million available for borrowing on our revolving credit facility.

We believe that our exposure to diverse end markets, broad product base, and wide geographic footprint will continue to ~~mitigate~~lessen earnings volatility compared to many of our competitors.

We will continue to focus on working capital management and maximizing profitability of our existing ~~businesses. Our operating and~~businesses, as well as executing our proven growth ~~strategies have helped us achieve industry-leading operating results on a consistent basis, and we remain confident in our ability to maintain our track record of success going forward.~~strategies.

2016 Acquisitions

On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator of steel and aluminum products on both a direct and toll basis. ~~Headquartered~~Best Manufacturing, headquartered in Jonesboro, Arkansas, ~~Best Manufacturing~~ provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. ~~For the six months ended September 30, 2016,~~ Best Manufacturing’s net sales were ~~$9.5 million.~~$5.6 million for the first quarter of 2017.

On January 1, 2016, we acquired Tubular Steel, Inc. (“Tubular Steel”), a distributor and processor of carbon, alloy and stainless steel pipe, tubing and bar products. ~~Headquartered~~Tubular Steel, headquartered in St. Louis, Missouri, ~~Tubular Steel~~ has ~~seven~~six locations and a fabrication business that ~~support~~supports its diverse customer base. ~~For the nine months ended September 30, 2016,~~ Tubular Steel’s net sales were ~~$89.7 million.~~$34.1 million for the first quarter of 2017.

We funded our 2016 acquisitions with borrowings on our revolving credit facility and cash on hand.

1514

Table of Contents

Three Months ~~and Nine Months~~ Ended ~~September 30, 2016~~March 31, 2017 Compared to Three Months ~~and Nine Months~~ Ended ~~September 30, 2015~~March 31, 2016

The following table sets forth certain income statement data for the ~~three-month~~first quarter of 2017 and ~~nine-month periods ended September 30,~~ 2016 ~~and 2015~~ (dollars are shown in millions and certain amounts may not calculate due to rounding):


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
	2016				2015				2016				2015				2017				2016
			% of				% of				% of				% of				% of				% of
	$		Net Sales		$		Net Sales		$		Net Sales		$		Net Sales		$		Net Sales		$		Net Sales
Net sales	$	2,185.2	100.0	%	$	2,286.2	100.0	%	$	6,551.8	100.0	%	$	7,324.3	100.0	%	$	2,419.3	100.0	%	$	2,162.7	100.0	%
Cost of sales (exclusive of depreciation and amortization expense shown below) ~~(1)~~		1,530.6	70.0			1,647.9	72.1			4,575.4	69.8			5,359.4	73.2			1,697.7	70.2			1,526.0	70.6
Gross profit ~~(2)~~(1)		654.6	30.0			638.3	27.9			1,976.4	30.2			1,964.9	26.8			721.6	29.8			636.7	29.4
Warehouse, delivery, selling, general and administrative expense ("S,G&A") ~~(3)~~(2)		454.3	20.8			428.9	18.8			1,361.6	20.8			1,315.8	18.0			476.2	19.7			449.5	20.8
Depreciation expense		41.6	1.9			41.1	1.8			126.1	1.9			123.6	1.7			41.8	1.7			42.5	2.0
Amortization expense		13.5	0.6			13.3	0.6			40.6	0.6			41.0	0.6			13.4	0.6			13.6	0.6
Impairment of long-lived assets (4)		51.7	2.4			53.3	2.3			51.7	0.8			53.3	0.7
Operating income	$	93.5	4.3	%	$	101.7	4.4	%	$	396.4	6.1	%	$	431.2	5.9	%
Operating income (2)																	$	190.2	7.9	%	$	131.1	6.1	%

⁽¹⁾

Cost of sales includes $11.7 million of restructuring charges relating to the planned closure or sale of certain locations in the three months and nine months ended September 30, 2016 compared to $1.6 million in the three months and nine months ended September 30, 2015.

⁽²⁾

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~~substantially 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.

⁽³⁾⁽²⁾

~~S,G&A includes $2.9 million~~The 2016 amounts have been retrospectively adjusted pursuant to our adoption of ~~restructuring charges relating~~accounting changes related to the ~~planned closure or sale~~presentation of ~~certain locations in~~net periodic pension cost and net periodic postretirement benefit cost. See Note 2 to the three months and nine months ended September 30, 2016 compared to $0.6 million and $1.0 million in the three months and nine months ended September 30, 2015, respectively. The nine months ended September 30, 2016 also includes a $2.2 million settlement gain.

⁽⁴⁾

Impairment of long-lived assets includes $13.9 million related to machinery and equipment, $1.4 million related to goodwill and $36.4 million related to intangible assets for the three months and nine months ended September 30, 2016. The three months and nine months ended September 30, 2015 include $17.7 million related to property, plant and equipment and $35.6 million related to intangible assets. See ~~Expense~~sUnaudited Consolidated Financial Statements for further ~~discussion.~~information.

Net Sales



	Three Months Ended
	March 31,				Dollar		Percentage
	2017		2016		Change		Change
	(in millions)
Net sales	$	2,419.3	$	2,162.7	$	256.6	11.9	%
Net sales, same-store	$	2,375.9	$	2,132.9	$	243.0	11.4	%


	Three Months Ended
	March 31,				Tons		Percentage
	2017		2016		Change		Change
	(in thousands)
Tons sold		1,540.4		1,503.0		37.4	2.5	%
Tons sold, same-store		1,519.6		1,487.9		31.7	2.1	%

	Three Months Ended
	March 31,				Price		Percentage
	2017		2016		Change		Change
Average selling price per ton sold	$	1,563	$	1,425	$	138	9.7	%
Average selling price per ton sold, same-store	$	1,555	$	1,419	$	136	9.6	%

1615

Table of Contents

~~Net Sales~~

September 30,

Dollar

Percentage

2016

2015

Change

Change

(in millions)

Net sales (three months ended)
$
2,185.2

$
2,286.2

$
(101.0)

(4.4)
%
Net sales (nine months ended)
$
6,551.8

$
7,324.3

$
(772.5)

(10.5)
%
Net sales, same-store (three months ended)
$
2,147.1

$
2,286.2

$
(139.1)

(6.1)
%
Net sales, same-store (nine months ended)
$
6,448.7

$
7,324.3

$
(875.6)

(12.0)
%

September 30,

Tons

Percentage

2016

2015

Change

Change

(in thousands)





Tons sold (three months ended)

1,445.5


1,485.9


(40.4)

(2.7)
%
Tons sold (nine months ended)

4,467.9


4,538.6


(70.7)

(1.6)
%
Tons sold, same-store (three months ended)

1,426.3


1,485.9


(59.6)

(4.0)
%
Tons sold, same-store (nine months ended)

4,415.8


4,538.6


(122.8)

(2.7)
%

September 30,

Price

Percentage

2016

2015

Change

Change

Average selling price per ton sold (three months ended)
$
1,501

$
1,529

$
(28)

(1.8)
%
Average selling price per ton sold (nine months ended)
$
1,454

$
1,607

$
(153)

(9.5)
%
Average selling price per ton sold, same-store (three months ended)
$
1,494

$
1,529

$
(35)

(2.3)
%
Average selling price per ton sold, same-store (nine months ended)
$
1,447

$
1,607

$
(160)

(10.0)
%

Tons sold and average selling price per ton sold amounts exclude our toll processing sales (as we process the metal for a fee, without taking ownership of the metal). Same-store amounts exclude the results of our 2016 acquisitions.

Our consolidated sales ~~were lower~~increased in the ~~three-month and nine-month periods ended September 30, 2016~~first quarter of 2017 compared to the ~~same periods in 2015~~first quarter of 2016 due to both ~~lower~~higher tons sold and higher metals prices. Prices for most products we sell, except for alloy products, improved in the ~~2016 third~~first quarter of 2017 compared to ~~the 2016 second quarter. Beginning late in~~ the first quarter of ~~2016, U.S. carbon steel mills began to announce price increases that continued through the second quarter, resulting in higher~~2016. Our same-store average selling ~~prices~~price has increased sequentially in ~~place during~~ the third quarter, even though prices for most carbon steel products began to decline during the third quarter. Prices for stainless steel products also improved during the 2016 third quarter compared to the first two quarters of 2016. Thepast four quarters. U.S. mill price increases ~~were~~have been supported by increases in raw ~~materials~~material costs, including scrap, coupled with multiple trade cases filed in the U.S. that have resulted in reduced levels of imported carbon and stainless steel ~~products; however metals pricing during the three-month and nine-month periods ended September 30, 2016 remained significantly below the comparable 2015 periods.~~

The significant decline in our volume sold to the energy (oil and gas) market that began in 2014 and continued through the nine months ended September 30, 2016, contributed to the decline in our same-store tons sold in the three-month and nine-month periods ended September 30, 2016 compared to the same periods in 2015. In general, business activity in almost all of our end markets other than the energy and heavy industry end markets was relatively stable in the nine months ended September 30, 2016 compared to the same period in 2015. However, overall demand for metal products weakened in the third quarter more than we anticipated, which we believe was due to declining steel pricing as well as general economic and political uncertainty. For the three-month and nine-month periods ended September 30, 2016, same-store tons sold were down 4.0% and 2.7%, respectively, from the comparable 2015 periods; however, our performance outpaced the industry data reported by the MSCI, which indicated industry shipments were down 6.6% and 6.8%, respectively, during the same periods.products.

End markets that continued to perform well for us ~~in the three-month and nine-month periods ended September 30, 2016 when compared to the same 2015 periods were~~include automotive, primarily through our toll processing businesses in the U.S. and Mexico, and aerospace. Heavy industry ~~has declined further from~~demand remained relatively steady at the ~~already~~ low levels we experienced ~~throughout 2015.~~in 2016. Non-residential construction ~~our largest end market,~~demand continued its slow ~~but steady~~ improvement, ~~albeit~~although it remains at significantly reduced demand levels from its peak levels experienced in ~~2006~~2006. Our tons sold to the energy (oil and ~~2007.~~gas) end market increased in the first quarter of 2017 for the first time since the third quarter of 2014.

~~Table~~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 ~~Contents~~

the various metals we purchase. The mix of products sold can also have an impact on our average selling prices.

Our same-store average selling price per ton sold in the ~~three-month and nine-month periods ended September 30,~~first quarter of 2017 increased 9.6% compared to the first quarter of 2016 ~~decreased 2.3% and 10.0%, respectively, from the comparable 2015 periods~~ given ~~decreased~~increased mill pricing for most products we sell. As carbon steel sales represent approximately 52% of our sales dollars, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold. Our major commodity selling prices changed year-over-year as follows:



	Three Months Ended				Nine Months Ended
	September 30				September 30
			Same-store				Same-store				Same-store
	Average Selling		Average Selling		Average Selling		Average Selling		Average Selling		Average Selling
	Price per Ton Sold		Price per Ton Sold		Price per Ton Sold		Price per Ton Sold		Price per Ton Sold		Price per Ton Sold
	(percentage change)				(percentage change)				(percentage change)
Carbon steel	0.8	%	(0.4)	%	(9.7)	%	(10.7)	%	12.3	%	12.3	%
Aluminum	(2.2)	%	(2.2)	%	(4.3)	%	(4.3)	%	2.7	%	2.7	%
Stainless steel	(6.2)	%	(6.2)	%	(14.7)	%	(14.7)	%	13.4	%	13.4	%
Alloy	(4.1)	%	(4.5)	%	(5.6)	%	(6.0)	%	(3.8)	%	(3.9)	%

Cost of Sales

September 30,

2016


2015


% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales

Change

Change

(dollars in millions)


Cost of sales (three months ended)
$
1,530.6

70.0
%

$
1,647.9

72.1
%

$
(117.3)

(7.1)
%
Cost of sales (nine months ended)
$
4,575.4

69.8
%

$
5,359.4

73.2
%

$
(784.0)

(14.6)
%



	Three Months Ended
	March 31,
	2017				2016
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Cost of sales	$	1,697.7	70.2	%	$	1,526.0	70.6	%	$	171.7	11.3	%

The ~~decrease~~increase in cost of sales in the ~~three-month and nine-month periods ended September 30, 2016~~first quarter of 2017 is mainly due to ~~lower~~higher tons sold and a ~~lower~~higher average cost per ton sold. See “Net Sales” above for trends in both demand and costs of our products.

Cost of sales for the three-month and nine-month periods ended September 30, 2016 included $11.7 million of restructuring charges relating to the planned closure or sale of certain locations compared to $1.6 million in the three-month and nine-month periods ended September 30, 2015.

Also, our last-in, first-out (“LIFO”) method inventory valuation reserve adjustment, which is included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in ~~credits,~~a charge, or ~~income,~~expense, of ~~$11.3~~$10.0 million in the ~~three-month and nine-month periods ended September 30, 2016~~first quarter of 2017 compared to ~~credits,~~no LIFO expense or income ~~of $35.0 million and $75.0 million~~ in the ~~same periods~~first quarter of ~~2015, respectively.~~ 2016.

Table of Contents

Gross Profit

September 30,

2016


2015


% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales

Change

Change

(dollars in millions)


Gross profit (three months ended)
$
654.6

30.0
%

$
638.3

27.9
%

$
16.3

2.6
%
Gross profit (nine months ended)
$
1,976.4

30.2
%

$
1,964.9

26.8
%

$
11.5

0.6
%



	Three Months Ended
	March 31,
	2017				2016
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Gross profit	$	721.6	29.8	%	$	636.7	29.4	%	$	84.9	13.3	%

~~The increase in our~~Our gross profit ~~in the three-month and nine-month periods ended September 30, 2016 compared to the same periods in 2015 was mainly~~increased due to ~~our disciplined operational execution that focuses on small, quick-turn orders~~higher tons sold and ~~increased value-added processing along with improved inventory management.~~higher metals prices. See “Net Sales” and “Cost of Sales” for further discussion on product pricing trends and our LIFO inventory valuation reserve adjustments, respectively.

~~Table~~Higher metals pricing, improved demand, and continued focus on increasing levels of ~~Contents~~

value-added processing resulted in a higher gross profit margin during the first quarter of 2017 compared to the first quarter of 2016.

Expenses



	Three Months Ended
	March 31,
	2017				2016
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
S,G&A expense	$	476.2	19.7	%	$	449.5	20.8	%	$	26.7	5.9	%
S,G&A expense, same-store	$	465.8	19.6	%	$	440.2	20.6	%	$	25.6	5.8	%
Depreciation & amortization expense	$	55.2	2.3	%	$	56.1	2.6	%	$	(0.9)	(1.6)	%

September 30,

2016


2015


% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales

Change

Change

(dollars in millions)

S,G&A expense (three months ended)
$
454.3

20.8
%

$
428.9

18.8
%

$
25.4

5.9
%
S,G&A expense (nine months ended)
$
1,361.6

20.8
%

$
1,315.8

18.0
%

$
45.8

3.5
%
S,G&A expense, same-store (three months ended)
$
444.3

20.7
%

$
428.9

18.8
%

$
15.4

3.6
%
S,G&A expense, same-store (nine months ended)
$
1,333.4

20.7
%

$
1,315.8

18.0
%

$
17.6

1.3
%
Depreciation & amortization expense (three months ended)
$
55.1

2.5
%

$
54.4

2.4
%

$
0.7

1.3
%
Depreciation & amortization expense (nine months ended)
$
166.7

2.5
%

$
164.6

2.2
%

$
2.1

1.3
%
Impairment of long-lived assets (three months ended)
$
51.7

2.4
%

$
53.3

2.3
%

$
(1.6)

(3.0)
%
Impairment of long-lived assets (nine months ended)
$
51.7

0.8
%

$
53.3

0.7
%

$
(1.6)

(3.0)
%

Same-store amounts exclude the results of our 2016 acquisitions.

Our S,G&A expense increased due to increases in certain warehouse and delivery expenses due to improved demand and increases in profit-based compensation, as a ~~percent~~result of higher levels of profitability, as well as general inflationary factors. Our S,G&A expense as a percentage of sales ~~in the three-month and nine-month periods ended September 30, 2016 increased~~decreased mainly due to our ~~lower~~higher sales ~~levels.~~

~~The increase in depreciation and amortization expense was mainly due to depreciation expense from our recent capital expenditures and our 2016 acquisitions.~~

We recorded a $51.7 million charge for impairment of long-lived assets in the three-month and nine-month periods ended September 30, 2016 compared to $53.3 million in the comparable 2015 periods. These charges mainly related to the significant decline in the demand for the products we sell to the energy market (oil and gas) for certain of our energy-related businessesamount, as a result of the downturn in oil prices and drilling activity that began near the end of 2014 along with our updated long-term outlook of the future demand levels and profitability of these businesses. See Note 11 of the Notes to the Unaudited Consolidated Financial Statements for further information on our 2016 and 2015 impairment charges.higher metals pricing.

Operating Income

September 30,

2016


2015

% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales


Change

Change

(dollars in millions)

Operating Income (three months ended)

$
93.5

4.3
%

$
101.7

4.4
%

$
(8.2)

(8.1)
%
Operating Income (nine months ended)

$
396.4

6.1
%

$
431.2

5.9
%

$
(34.8)

(8.1)
%


	Three Months Ended
	March 31,
	2017				2016
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Operating Income	$	190.2	7.9	%	$	131.1	6.1	%	$	59.1	45.1	%

Our operating income was ~~lower~~higher in the ~~three-month period ended September 30, 2016~~first quarter of 2017 compared to the ~~same period in 2015~~first quarter of 2016 due to ~~restructuring charges, included in cost of sales and~~our gross profit dollars increasing more than S,G&A ~~expense, relating to the planned closure or sale of certain locations.~~expense. Our operating income ~~was lower in the nine-month period ended September 30, 2016 compared to the same period in 2015~~margin increased mainly due to ~~lower net sales as a result of lower metals pricing, offset by~~ higher metal prices and our improved gross profit margin. We maintained comparable operating income margins in the three-month and nine-month periods ended September 30, 2016 with those in the same periods of 2015 due to the increase in our gross profit margins.

Income Tax Rate

~~Table of Contents~~

resolution of a tax position that was previously ~~uncertain, which~~uncertain. The re-measurement of that tax position lowered our ~~2016 nine-month~~income tax provision by $17.6 million and our effective income tax rate by ~~5.3%.~~16.1% in the first quarter of 2016. Other permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different during both years and relate mainly to company-owned life insurance

Table of Contents

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

September 30,

2016


2015

% of



% of

Dollar

Percentage

$

Net Sales


$

Net Sales


Change

Change

(dollars in millions)

Net income attributable to Reliance (three months ended)

$
49.5

2.3
%

$
51.4

2.2
%

$
(1.9)

(3.7)
%
Net income attributable to Reliance (nine months ended)

$
242.6

3.7
%

$
242.9

3.3
%

$
(0.3)

(0.1)
%


	Three Months Ended
	March 31,
	2017				2016
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Net income attributable to Reliance	$	111.7	4.6	%	$	92.2	4.3	%	$	19.5	21.1	%

The increase in our net income and net income as a percentage of ~~net~~ sales ~~in the three-month and nine-month periods ended September 30, 2016 compared to the same periods in 2015~~ was primarily ~~the result of~~due to higher operating income and a ~~lower effective~~higher operating income margin somewhat offset by a higher income tax rate.

Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $20.7 million in the first quarter of 2017 compared to net cash provided by operating activities ~~was $387.6~~of $155.4 million in the ~~nine-month period ended September 30, 2016 compared to $716.3 million in the same period in 2015. The decrease~~first quarter of 2016. Our decreased operating cash flow was ~~mainly~~ due to ~~lower~~increased working capital requirements (primarily accounts receivable and ~~inventory) requirements~~inventory less accounts payable) in ~~2015~~2017, offset by increased net income, due to ~~significant declines in~~higher metals prices ~~continuing throughout the 2015 nine-month period as well as an increased focus on lowering our inventory levels in 2015.~~and improved demand. 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 ~~September 30, 2016,~~March 31, 2017, our days sales outstanding rate was ~~approximately 42.2 days compared to 42.4 days at~~consistent with the December 31, ~~2015.~~2016 rate of 42.2 days. Our inventory turn rate (based on tons) during the ~~nine-month period ended September 30, 2016~~first quarter of 2017 was approximately ~~4.6~~4.7 times (or 2.6 months on hand), compared to ~~4.4~~4.9 times (or ~~2.7~~2.4 months on hand) in the ~~same period in 2015.~~first quarter of 2016.

Investing Activities

Net cash used in investing activities of ~~$458.0~~$32.0 million in the ~~nine-month period ended September 30,~~first quarter of 2017 decreased significantly from $331.5 million in the first quarter of 2016 ~~was mainly comprised of our 2016~~due to $290.9 million used to fund acquisitions ~~and capital expenditures.~~during that quarter. Capital expenditures were ~~$110.6~~$34.1 million ~~for~~in the ~~nine-month period ended September 30, 2016~~first quarter of 2017 compared to ~~$119.4~~$34.4 million ~~during~~in the ~~same period in 2015.~~first quarter of 2016. The majority of our ~~2016~~2017 capital expenditures ~~relate~~related to organic growth initiatives.

Financing Activities

~~Our net~~Net cash provided by financing activities of ~~$106.8~~$60.4 million in the ~~nine-month period ended September 30,~~first quarter of 2017 decreased from $189.7 million in the first quarter of 2016 ~~was~~ mainly ~~comprised of net debt~~due to borrowings to fund ~~our 2016 acquisitions.~~acquisitions during that quarter. Net debt borrowings in the ~~nine-month period ended September 30, 2016~~first quarter of 2017 were ~~$175.9~~$93.1 million compared to net debt ~~repayments~~borrowings of ~~$209.1~~$204.8 million in the ~~same period in 2015.~~first quarter of 2016. We paid dividends and dividend equivalents of ~~$89.5~~$33.7 million during the ~~nine-month period ended September 30, 2016, a decrease~~first quarter of ~~$1.2~~2017, an increase of $4.7 million from the ~~same period in 2015~~first quarter of 2016 due to ~~a lower number of outstanding shares resulting from~~increases in our ~~repurchase of approximately 6.2 million shares at an average cost of $57.39 per share~~regular quarterly dividend rate in 2015. We used cash of $313.9 million to repurchase shares of our common stock in the nine-month period ended September 30, 2015, while there were no share repurchases during the same period in 2016. We expect to continue opportunistically repurchasing shares of our common stock going forward.July 2016 and February 2017.

~~Table of Contents~~

On ~~October 19, 2016,~~April 25, 2017, our Board of Directors declared the ~~2016 fourth~~2017 second quarter cash dividend of ~~$0.425~~$0.45 per share. We have increased our dividend 2324 times since our IPO in 1994, with the most recent increase of ~~6.3%~~5.9% from $0.425 per share to $0.45 per share effective in the ~~third~~first quarter of ~~2016.~~2017. We have paid regular quarterly dividends to our stockholders for 5758 consecutive years.

On October 20, 2015, our Board of Directors increased by 7.5 million shares the number of shares authorized to be repurchased under our share repurchase plan and extended the duration of the plan through December 31, 2018. Since initiating the share repurchase plan in 1994, we have repurchased approximately 22.1 million shares at an average cost of $30.93 per share. There were no share repurchases in the first quarter of 2017. As of ~~September 30, 2016,~~March 31, 2017, we had authorization

Table of Contents

under the plan to purchase approximately 8.4 million shares, or about 12% of our current outstanding shares. We expect to continue evaluating opportunistic repurchases of shares of our common stock in the future.

Liquidity

Our primary sources of liquidity are funds generated from operations and our $1.5 billion revolving credit facility. Our total outstanding debt at ~~September 30, 2016~~March 31, 2017 was ~~$2.12~~$2.04 billion, up from ~~$1.94~~$1.95 billion at December 31, ~~2015.~~2016. At ~~September 30, 2016,~~March 31, 2017, we had ~~$366.0~~$652.0 million of outstanding borrowings, ~~$63.1~~$62.5 million of letters of credit issued and ~~approximately $1.07 billion~~$785.5 million available for borrowing on our revolving credit facility. As of ~~September 30, 2016,~~March 31, 2017, our net debt-to-total capital ratio was ~~32.2%~~30.8%, up from ~~31.8%~~30.3% as of December 31, ~~2015 primarily due to borrowings to fund our 2016 acquisitions.~~2016.

On September 30, 2016, we entered into a $2.1 billion unsecured five-year credit agreement (“Credit Agreement”) comprised of a $1.5 billion unsecured revolving credit facility and a $600.0 million unsecured term loan, with an option to increase the revolving facility for up to $500.0 million at our request, subject to approval of the lenders and certain other customary conditions. We intend to use the credit facility for working capital and general corporate purposes, including, but not limited to, capital expenditures, dividend payments, repayment of debt, share repurchases, internal growth initiatives and acquisitions. The $600.0 million term loan due September 30, 2021 amortizes in quarterly installments, with an annual amortization of 5% through September 2018 and 10% thereafter until June 2021, with the balance to be paid at maturity. All borrowings under the Credit Agreement may be ~~repaid~~prepaid without penalty.

Capital Resources

On November 20, 2006, we entered into an indenture (the “2006 Indenture”), for the issuance of $600.0 million of unsecured debt securities. The total debt issued was comprised of two tranches, (a) $350.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum, ~~maturing~~which matured and were repaid on November 15, 2016; and (b) $250.0 million aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.85% per annum, maturing on November 15, 2036.

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 were guaranteed by certain of our 100%-owned domestic subsidiaries that also guaranteed borrowings under our then existing credit agreement. The guarantees of the notes were released on September 30, 2016 upon entering into the Credit Agreement, which does not require subsidiary guarantees.

~~Table of Contents~~

As of ~~September 30, 2016,~~March 31, 2017, we had ~~$622.8~~$253.4 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 30, 2021. We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become ~~due, including $350.0 million of senior notes that mature in November 2016.~~due. In addition to funds generated from operations and funds available under our revolving credit facility, we expect to be able to access the capital markets to raise funds, if desired. We believe our investment grade credit rating enhances our ability to effectively raise capital, if needed. 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.

Table of Contents

Covenants

The Credit Agreement includes customary representations, warranties and covenants, and acceleration, indemnity and events of default provisions, including, among other things, two financial covenants. The financial covenants require us to maintain a minimum interest coverage ratio and a maximum leverage ratio. Our interest coverage ratio for the twelve-month period ended ~~September 30, 2016~~March 31, 2017 was approximately ~~6.7~~8.2 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (EBIT), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of ~~September 30, 2016,~~March 31, 2017, calculated in accordance with the terms of the Credit Agreement, was ~~34.5%~~33.0% compared to the debt 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 stockholders’ equity plus total debt).

We were in compliance with all financial covenants in our Credit Agreement at ~~September 30, 2016.~~March 31, 2017.

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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, we were contingently liable under standby letters of credit in the aggregate amount of ~~$52.2~~$51.8 million and ~~$57.4~~$51.9 million, respectively. The letters of credit relate to insurance policies and construction projects.

Contractual Obligations and Other Commitments

We had no material changes in commitments for capital expenditures, operating lease obligations or purchase obligations as of ~~September 30, 2016,~~March 31, 2017, as compared to those disclosed in our table of contractual obligations included in our Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

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.

~~Table of Contents~~

Seasonality

Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. Our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from vacation and extended holiday closures at some of our customers. Reduced shipping days also have a significant impact on our profitability. We cannot predict whether period-to-period fluctuations will be consistent with historical patterns. Results of any one or more quarters are therefore not necessarily indicative of annual results.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $1.83 billion at ~~September 30, 2016,~~March 31, 2017, or approximately ~~24.1%~~24% of total assets, or ~~44.4%~~43% of Reliance stockholders’ equity. Additionally, other intangible assets, net amounted to ~~$1.17~~$1.14 billion at ~~September 30, 2016,~~March 31, 2017, or approximately ~~15.4%~~15% of total assets, or ~~28.3%~~27% of Reliance stockholders’ equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. Other intangible assets with finite useful lives continue to be amortized over their estimated useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. During the three months and nine months ended September 30, 2016, we recorded a $1.4 million charge related to our goodwill and a $36.4 million impairment charge related to our other intangible assets. See Note 11 – “Impairment and Restructuring Charges” to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information on our 2016 impairment charges.

Table of Contents

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our Unaudited 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.

See “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 for further information regarding the accounting policies that we believe to be critical accounting policies and that affect our more significant judgments and estimates used in preparing our consolidated financial statements. We do not believe that the new accounting guidance implemented in ~~2016~~2017 changed our critical accounting policies.

New Accounting Guidance

See Note 2 — “Impact of Recently Issued Accounting Guidance” to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for disclosure on new accounting guidance issued or implemented.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates, metals pricing, demand and availability. There have been no significant changes in our market risk exposures since December 31,

~~Table of Contents~~

~~2015.~~ 2016. See “Item 7A - Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 for further discussion on quantitative and qualitative disclosures about market risk.

Item 4. Controls And Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to and as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered in this report, the Company’s disclosure controls and procedures are effective.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2016~~March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information contained under the heading “Legal Matters” in Note 9 — Commitments and Contingencies to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.

2422

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	RELIANCE STEEL & ALUMINUM CO.



Dated: ~~October 31, 2016~~May 3, 2017	By:	/s/ Gregg J. Mollins
		Gregg J. Mollins
		President and Chief Executive Officer




	By:	/s/ Karla R. Lewis
		Karla R. Lewis
		Senior Executive Vice President and Chief Financial Officer

2523

Table of Contents

Exhibit Index


Exhibit No.		Description

~~10.1~~		Credit Agreement dated as of September 30, 2016, among Reliance Steel & Aluminum Co., as Borrower, Bank of America N.A., as the Administrative Agent, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association as Co-Syndication Agents, PNC Bank, National Association and TD Bank, N.A. as Co-Documentation Agents and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed with the Commission on October 4, 2016).

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32**		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Label Linkbase Document.

101.PRE*		XBRL Taxonomy Presentation Linkbase Document.

* Filed herewith.

** Furnished herewith.

2624


		September 30, 2016				December 31, 2015
	Weighted Average	Gross				Gross
	Amortizable	Carrying		Accumulated		Carrying		Accumulated
	Life in Years	Amount		Amortization		Amount		Amortization
		(in millions)
Intangible assets subject to amortization:
Covenants not to compete	4.5	$	1.8	$	(1.2)	$	1.3	$	(1.0)
Customer lists/relationships	14.6		738.1		(326.2)		659.0		(285.7)
Software – internal use	10.0		8.1		(8.1)		8.1		(7.9)
Other	5.2		6.3		(5.5)		6.3		(5.0)
			754.3		(341.0)		674.7		(299.6)
Intangible assets not subject to amortization:
Trade names			752.9		—		750.3		—
		$	1,507.2	$	(341.0)	$	1,425.0	$	(299.6)

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐(Do not check if a smaller reporting company)

Smaller reporting company ☐

Emerging growth company ☐

~~Accelerated filer ☐~~

~~Non-accelerated filer ☐~~

~~Smaller reporting company ☐~~