Form: 10-K405

Annual report [Sections 13 and 15(d), S-K Item 405]

Documents

10-K405: Annual report [Sections 13 and 15(d), S-K Item 405]

Published on


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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
----------------

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

OR

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

FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 001-13122

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

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

2550 EAST 25TH STREET
LOS ANGELES, CALIFORNIA 90058
(213) 582-2272
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND TELEPHONE NUMBER)

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

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- -----------------------
Common Stock New York Stock Exchange


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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X].

The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing price on the New York Stock Exchange on
February 28, 1997 was $235,805,373.38.

As of February 28, 1997, 10,117,037 shares of the registrant's common
stock, no par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held May 21, 1997 (the "Proxy Statement") are incorporated
by reference into Part III of this report.

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INDEX




PART I
Item 1. Business........................................................................ 1
Industry Overview............................................................... 1
Background...................................................................... 2
Customers....................................................................... 4
Suppliers....................................................................... 4
Backlog......................................................................... 5
Products and Processing Services................................................ 5
Marketing....................................................................... 6
50%-Owned Company and Joint Venture............................................. 6
Cyclical Nature................................................................. 7
Competition..................................................................... 7
Quality Control................................................................. 7
Government Regulation........................................................... 8
Employees....................................................................... 8
Item 2. Properties...................................................................... 8
Item 3. Legal Proceedings............................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............................. 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 11
Item 6. Selected Financial Data......................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 13
Item 8. Financial Statements and Supplementary Data..................................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 36
Item 11. Executive Compensation.......................................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 36
Item 13. Certain Relationships and Related Transactions.................................. 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 36
SIGNATURES ................................................................................ 39


i
SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION REFORM ACT OF 1995




Certain of the matters discussed in this Annual Report on Form 10-K
include forward-looking statements that involve risks and uncertainties. Among
the risks and uncertainties to which Reliance Steel & Aluminum Co. (the
"Company") is subject are the risks inherent in the industries which the Company
serves, including, but not limited to, the volatility of the semiconductor
fabrication industry to which Valex Corp., a 97%-owned subsidiary of the
Company, sells its products and the transportation, construction, general
manufacturing and aerospace industries to which the metals service centers sell
products. These industries, and therefore the Company, are subject to changes in
the economy in general. In addition, the Company has increased its long-term
debt as a result of its recent acquisitions and is subject to increased risks as
a result of this higher leverage. The Company's metals service centers are
subject to fluctuations in the prices of raw materials, although the Company is
generally able to pass-through increases in costs of raw materials to its
customers. The Company's relationship to and business dealings with significant
vendors and customers and the intense price competition in the Company's markets
also may affect the Company's results. Recent acquisitions of the Company may
not perform as the Company anticipates after the change in ownership.
Accordingly, the actual results realized by the Company could differ materially
from the statements made herein. Potential investors are cautioned not to place
undue reliance on the forward-looking statements made in this Annual Report on
Form 10-K.


ii

PART I

ITEM 1. BUSINESS.

Reliance Steel & Aluminum Co. ("Reliance" or the "Company") is one of the
largest metals service center companies in the United States. Through a network
of 33 metals service centers in 13 states, including its 50%-owned and
operationally controlled company, American Steel, L.L.C., the Company provides
value-added metals processing services and distributes a full line of over
20,000 metal products. These products include galvanized, hot-rolled and
cold-finished steel, stainless steel, aluminum, brass, copper, and alloy steel
sold to more than 33,000 customers in a broad range of industries. Some of these
metals service centers provide processing services for specialty metals only.
The Company's service center products are currently delivered from facilities in
Alabama, Arizona, California, Colorado, Kansas, New Mexico, Oregon, South
Carolina, Tennessee, Texas, Utah, Washington and Wyoming.

The Company has entered into agreements to acquire AMI Metals, Inc. and
Amalco Metals, Inc., which are both expected to close in April 1997, subject to
the successful completion of due diligence. These acquisitions would increase
the Company's network of metals service centers to 40 in 14 states.

Through its subsidiary, Valex Corp., a California corporation ("Valex"),
the Company is a leading manufacturer and distributor in the United States of
electropolished and chemically cleaned stainless steel tubing and fittings for
use in the manufacturing of semiconductor devices. Valex's manufacturing
facilities are located in Ventura, California, and it has distribution centers
in Santa Clara, California; Albuquerque, New Mexico; Allentown, Pennsylvania;
Austin, Texas; Phoenix, Arizona; and Portland, Oregon. Valex also has an
international sales office in Marseille, France.

Industry Overview

Metals service centers acquire products from primary metals producers and
then process steel, aluminum, stainless steel and other metals to meet customer
specifications, including specified lengths, widths, shapes and surface
characteristics. These service centers use techniques such as cutting-to-length,
slitting, blanking, burning, shearing and sawing and save time, labor and
expense for customers, thereby reducing their overall manufacturing costs.
Specialized equipment used to process the metals requires high-volume production
to be cost effective. Many manufacturers are not able or willing to invest in
the necessary technology, equipment and inventory to process the metals for
their own manufacturing operations. Accordingly, industry forces have created a
niche in the market to allow metals service centers, such as Reliance, to
purchase, process and deliver metals to end-users in a more efficient and
cost-effective manner than the end-user could achieve in dealing directly with
the primary producer, or with an intermediate steel processor. Metals service
centers and distributors purchase approximately 30% of all carbon industrial
steel products, 35% of all aluminum sold in the mill/distributor shared markets
(which excludes that sold for aluminum cans, among other things), and 45% of all
stainless steel produced in the United States.

The market for Valex's products is the worldwide semiconductor
manufacturing industry. This industry experienced a significant slowdown in
mid-1996, but, according to Dataquest and other industry forecasting firms, is
expected to return to double-digit annual growth by the end of 1997.

Customers for Valex tubing and fittings include the semiconductor device
manufacturers, semiconductor equipment manufacturers, and other supporting
companies. The construction of new semiconductor plants is expected, according
to industry forecasting firms, to accelerate in 1998 and 1999. The operating
life of a semiconductor plant is only five to ten years, after which the
facility must be replaced or refurbished with new equipment capable of producing
the next generation of semiconductor devices. The construction of new plants and
the refurbishing of existing plants requires new tubing and fittings such as
those manufactured and distributed by Valex. In addition, routine maintenance of
existing semiconductor plants provides a large and steady demand for Valex
products.

1

Background

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

In the mid-1970's, the Company began to establish specialty metals centers
stocked with inventories of selected metals such as aluminum, stainless steel,
brass and copper, and equipped with automated materials handling and precision
cutting equipment. The members of the Reliance group of metals service centers
have been operated under the trade names of "Tube Service Co." (which processes
and distributes specialty tubing), "Bralco Metals" (which processes and
distributes aluminum, brass, copper and stainless steel products), "Reliance
Metalcenter" (which processes and distributes a variety of metals products),
"Reliance Steel Company" (which processes and distributes carbon steel
products), "Affiliated Metals" (which processes and distributes primarily
flatrolled aluminum and stainless steel products). Seven centers are full-line
metals service centers processing and distributing aluminum and carbon and
stainless steel; five are specialty metals centers processing and distributing
non-ferrous and stainless steel flatrolled, rod and bar products; five are
metals centers providing exclusively specialty tubing products; and four are
specialty metals centers processing and distributing carbon steel products.
MetalCenter, Inc. comprises one metals service center specializing in processing
and distributing non-ferrous products. CCC Steel comprises two metals service
centers specializing in processing and distributing structural steel products.
Siskin comprises four full-line metals service centers. The "American Steel" and
"American Metals" divisions of American Steel, L.L.C. process and distribute
primarily carbon steel products from five metals service centers.

The Company serves its customers primarily by providing quick delivery,
metals processing and inventory management services. The Company purchases large
quantities of metals from primary producers and sells these inventories in
smaller quantities. For approximately 70% of its sales, the Company then
performs metals processing services before distributing the product to
manufacturers and other end-users, generally within 24 hours from receipt of an
order. Metals processing services include cutting-to-length, blanking, slitting,
burning, sawing and shearing, all to customer specifications. See "Business --
Products and Processing Services". These services save time, labor and expense
for customers and reduce customers' overall manufacturing costs. During 1996,
the Company handled approximately 3,100 transactions per business day, with an
average revenue of approximately $990 per transaction.

The Company has a history of expansion through acquisitions, as well as
from internal growth. Since 1984, the Company has acquired twenty-three
businesses or divisions of other companies, including Valex, and began three new
businesses. The acquisitions of AMI Metals, Inc. ("AMI") and Amalco Metals, Inc.
("Amalco"), which have not yet been consummated, would increase this to
twenty-five acquisitions in the past thirteen years.

On March 13, 1997, the Company announced that it has reached an agreement
to acquire 100% of the outstanding capital stock of Amalco. Amalco is a
non-ferrous metals service center located in Union City, California. It is
expected that the business of Amalco will be combined with Reliance's existing
metals service center in Santa Clara, California upon completion of a new,
enlarged, state-of-the-art facility in Union City. This facility is scheduled to
be completed in early 1998.

On March 10, 1997, the Company entered into an agreement to purchase 100%
of the capital stock of AMI. AMI is headquartered in Brentwood, Tennessee, with
additional operating facilities in Fontana, California; Wichita, Kansas; Fort
Worth, Texas; Kent, Washington; and Swedesboro, New Jersey.


2

However, the Company can give no assurance that the acquisitions of AMI and
Amalco, which are subject to the successful completion of due diligence, will be
completed as described.

On October 1, 1996, the Company acquired 100% of the outstanding capital
stock of Siskin Steel & Supply Company, Inc. ("Siskin") for total consideration
of $71 million in cash, which was financed by a private placement of debt.
Siskin is based in Chattanooga, Tennessee; with additional operating facilities
in Birmingham, Alabama; Spartanburg, South Carolina; and Nashville, Tennessee.

In April 1996, the Company acquired 100% of the outstanding capital stock
of CCC Steel, Inc. ("CCC Steel"), a privately-held carbon steel service center,
for $25 million in cash. CCC Steel has facilities in Los Angeles and Salt Lake
City. CCC Steel is known as one of the largest structural steel distribution
companies in the Western United States.

In January 1996, the Company purchased certain assets of a metals service
center in Albuquerque, New Mexico. These assets were combined with the Company's
existing non-ferrous metalcenter operation in Albuquerque. Also in January 1996,
the Company opened a Tube Service facility in Denver, Colorado.

In the fourth quarter of 1996, the Company completed construction and
relocated the Bralco Metals operation near Los Angeles, California and the
Affiliated Metals operation in Salt Lake City, Utah to new, larger, more
efficient, state-of-the-art facilities. Valex opened its first international
sales office in 1996, located in Marseille, France.

In July 1995, the Company acquired a 50% interest in and operational
control of American Steel, L.L.C., which, together with its wholly-owned
subsidiary American Metals Corporation, operates six facilities in three states
and Vancouver, B.C. The Vancouver facility was sold in January 1997. In 1995,
Valex opened distribution centers in Phoenix, Arizona; Austin, Texas; and
Portland Oregon. During 1995 the Company also added its Tube Service specialty
tubing products in its Portland metalcenter, opening a gateway for Tube Service
products in the Pacific Northwest.

In September 1995, Feralloy Reliance Company, L.P., a joint venture in
which the Company held a 50% interest, was dissolved. Upon dissolution, the
Company received the Los Angeles, California business of the joint venture, and
certain assets and liabilities related thereto, as a distribution. The Los
Angeles business consisted of a steel service center operation and a steel
slitting operation. In November 1995, the Company sold certain assets of that
steel slitting operation, which was received upon the distribution of the assets
from the dissolved joint venture. The Company is operating the steel service
center operation received upon the dissolution of the joint venture as a
separate division.

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

The Company has adopted a long-term business strategy to increase its
profitability through expansion of its existing operations and acquisitions of
businesses that are strategically located or positioned to diversify or enhance
the Company's customer base, product range and geographic coverage. The Company
has developed an excellent reputation in the industry for its integrity and the
quality and timeliness of its service to customers.


3



Customers

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

The Company has more than 33,000 metals service center customers.
Approximately 17,000 customers actively purchase from the Company from month to
month. In 1996, no single metals service center customer accounted for more than
1% of the Company's sales, and more than 80% of the Company's orders were from
repeat customers. Reliance's customers are manufacturers and end-users in the
general manufacturing, construction (both commercial and residential),
transportation (rail, truck and auto after-market), and aerospace industries.
The Company's metals service centers wrote and delivered over 615,000 orders
from its customers, at an average price of approximately $990, during 1996. Most
of the customers who purchase from the Company's various metals centers are
located within a 120-mile radius of the metals service centers; the proximity of
the centers to the customers assists the Company in providing just-in-time
delivery to its customers on its fleet of 198 owned or leased trucks. Moreover,
Reliance's computerized order entry system and flexible production scheduling
also enables the Company to meet customer requirements for short lead times and
just-in-time delivery.

Valex manufactures and distributes electropolished and chemically cleaned
stainless steel tubing and fittings used in the construction of extremely clean
and sophisticated gas distribution systems within semiconductor plants. These
products are manufactured in accordance with its customers' specifications and
in compliance with ISO 9002, an international certified quality system. Valex
sells to virtually every major semiconductor company, semiconductor equipment
manufacturer, and supporting gas company in the world. Approximately 33% of
Valex's total sales in 1996 were to international customers.

Valex maintains strong ties with its domestic customers through a network
of distribution centers located throughout the United States. These centers
provide quick and personal service to the customers and allow Valex to provide
levels of customer support which the Company believes is unmatched by
competitors who market through independent distribution. Valex supports its
international markets primarily through independent distributors and
representatives, and, in 1996, began to support the European market from its
sales office in Marseille, France.

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

Suppliers

Reliance purchases the metals required to make its metals service center
products from the major metals mills, both domestic and foreign, and has
multiple suppliers for all of its product lines. The Company's major suppliers
of domestic carbon steel products include California Steel Industries, Geneva
Steel, Nucor Steel and USS-POSCO Industries; Allegheny Ludlum Steel Corp.,
International Stainless Steel Corp. and North American Stainless supply
stainless steel products. The Company is a recognized distributor for various
major aluminum companies, including Aluminum Company of America ("Alcoa"), Alcan
Aluminum Limited, Commonwealth Aluminum, Cressona Aluminum, Kaiser Aluminum and
Reynolds Metals. The Company's total volume of purchases allows it to purchase
substantially all of its raw materials at the lowest competitive prices. The
Company believes that it is not dependent on any one of its suppliers for raw
materials and that its relationships with its suppliers are very strong. Valex
purchases stainless steel


4

tubing from both domestic and foreign tubing manufacturers and has multiple
suppliers. The Company has worked closely with its suppliers in order to become
an important customer for each major supplier of the Company's raw materials for
its core product lines.

Backlog

Because of the just-in-time delivery policy and the short lead time nature
of its business, the Company does not believe the information on backlog of
orders is material to an understanding of its metals service center business. At
December 31, 1996, Valex had a backlog of orders for $3,300,000 of products,
compared to a backlog of orders for $13,391,000 on December 31, 1995.

Products and Processing Services

At its metals service centers, the Company provides processing services,
such as cutting-to-length, blanking, slitting, burning, sawing, or shearing, to
each customer's specifications and delivers the products to manufacturers and
other end-users, generally within 24 hours from receipt of the initial order.
The Company's sales of its 20,000 products in 1996 comprised the following
approximate percentages by commodity and product: 10% were common alloy aluminum
sheet and coil; 10% were stainless steel plate, sheet and coil; 9% were carbon
steel structural; 9% were aluminum bar and tube; 9% were heat treated aluminum
sheet and coil; 8% were carbon steel tubing; 7% were galvanized sheet and coil;
6% were carbon steel plate; 6% were carbon steel bar; 5% were stainless steel
bar and tube; 5% were cold rolled sheet and coil; 5% were miscellaneous, such as
brass and copper; 4% were hot rolled sheet and coil; and 7% were Valex products.
Not only does the Company regularly process and distribute a wide variety of
products, but the Company has reduced its dependence on any particular supplier
or industry by processing a variety of metals. This diversification, both of
product type and material, has reduced the Company's vulnerability to
fluctuations or other weaknesses in the financial or economic stability of
particular customers or industries, as well as reducing its dependence on
particular suppliers.

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

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

Few metals service centers offer the full scope of processing services and
metals that Reliance uses to produce the desired end products. Cutting-to-length
involves cutting metal along the width of a coil into sheets or plates. Slitting
involves cutting metal to specified widths along the length of the coil.
Blanking cuts the metal into close tolerance, square or rectangular shapes.
Shearing cuts the metal into small precise pieces. Burning, or flame cutting,
can produce various shapes according to customer-supplied drawings. Reliance
generally processes specific metals to non-standard sizes only at the request of
customers pursuant to purchase orders rather than maintaining a substantial
inventory of finished products. The Company is required to carry significant
inventories of raw materials, however, to meet the short lead time and
just-in-time delivery requirements of its customers.

The Valex product line includes tubing, tubular fittings and coaxial
components. Valex purchases tubing and cuts, shapes, chemically cleans and
electropolishes it for use by Valex customers. The characteristics that affect
performance of a tube or fitting in a gas system and that are becoming
increasingly important to semiconductor manufacturers throughout the world are
(i) low levels of particle


5

generation and retention; (ii) low levels of moisture generation and retention;
(iii) low levels of contamination outgassing; (iv) enhanced levels of corrosion
resistance; and (v) ease and economy of installation. If the tubing cannot meet
the high standards of the semiconductor industry, it may still be acceptable for
use in the pharmaceutical, biotech or fiber optic industries. In addition, the
semiconductor manufacturing industry has demand for other grades of products
that carry less critical gases than the high quality tubing and fittings used in
the transport of the high purity gases required in the semiconductor chip
manufacturing process. Valex continues to create new products that can be used
in more demanding semiconductor gas systems, as well as custom refined alloys
and improved processes.

Marketing

Reliance's more than 335 metals service center sales personnel are located
in fifteen states to provide marketing services throughout each of the
geographic locations served. The sales personnel are organized by division or
subsidiary among the Company's twenty-eight profit centers and are divided into
two groups: those who travel throughout a specified geographic territory to
maintain relationships with the Company's existing customers and to develop new
customers ("outside sales personnel"); and those who remain at the facilities to
write and price orders. The sales personnel receive incentive compensation, in
addition to their base salary, based on the Company's gross profit, with the
outside sales personnel receiving incentive compensation based on gross profit
from their respective geographic territories. The largest market for the
Company's products has been the Southwestern United States, with significant
growth in the Southeastern United States anticipated in 1997 due to the
acquisition of Siskin.

Valex markets its products to the worldwide semiconductor manufacturing
industry primarily from the Ventura, California facility and from the
company-owned distribution network located throughout the United States. Valex
distribution centers are located in Phoenix, Arizona; Santa Clara, California;
Albuquerque, New Mexico; Allentown, Pennsylvania; Portland, Oregon; and Austin.
Texas. These centers are strategically located in key, high-tech growth regions
of the country, and enable Valex to offer its customers local access to a broad
range of inventory, which management believes will translate into better
customer service and added market share for Valex. The first international sales
office was opened in 1996 in Marseille, France, to service the European market.

50%-Owned Company and Joint Venture

On July 1, 1995, the Company acquired a 50% interest in and operational
control of American Steel, L.L.C. ("American Steel"), a newly-formed limited
liability company, for $19.25 million in cash. American Steel consisted of three
metals service centers in the Pacific Northwest, that were previously
wholly-owned by American Industries, Inc. ("American"). Its operation in Canada
was sold in January 1997. As part of the acquisition, the Company and American
each contributed their 50% ownership in American Metals Corporation ("American
Metals"), a joint venture established between the Company and American in 1993,
which consists of three metals service centers located in the central valley of
California. As a result of this contribution, American Metals became a
wholly-owned subsidiary of American Steel. The purchase agreement allows the
Company to acquire the remaining 50% of American Steel at a future date. This
50% investment in American Steel is accounted for by the equity method whereby
the Company includes 50% of American Steel's consolidated earnings in the
Company's net income and earnings per share amounts.

Feralloy Reliance Company, L.P. ("FRLP"), a joint venture in which the
Company owned a 50% interest, was dissolved on September 30, 1995, as it was not
performing at desired levels for the Company's return on investment. Upon
formation of FRLP in December 1991, the Company contributed the assets of two of
its larger steel service centers (one in Los Angeles and one in Fremont,
California) in exchange for its 50% interest in the joint venture. Under
separate agreements, the Company leased real property and equipment to the FRLP
joint venture and provided data processing, accounting and certain
administrative services through September 30, 1995. Upon dissolution, the
Company received the Los Angeles business of FRLP, and certain assets and
liabilities related thereto, as a distribution. The Los Angeles business
consisted of a steel service center operation and




6

a steel slitting operation. On November 3, 1995, the Company sold certain assets
of the Los Angeles steel slitting operation. This transaction did not have a
material effect on the financial position or results of operations of the
Company. The Company continues to operate the steel service center business
received upon the dissolution of the FRLP joint venture.

Cyclical Nature

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

The Company's largest market for its products is California. The Company
has expanded its facilities geographically as a result of strategic acquisitions
and has increased its physical capabilities through capital expenditures to
reduce the impact of any regional economic recession on the Company's
operations.

The semiconductor manufacturing industry in which Valex's customers operate
is highly cyclical in nature and is subject to changes in demand based on, among
other things, general economic conditions and industry capacity.

Competition

The metals distribution industry is highly fragmented and competitive. The
Company has numerous competitors in each of its product lines and geographic
locations, although competition is most frequently local or regional. Most of
these competitors are smaller than the Company. Nonetheless, the Company faces
strong competition from national, regional and local independent metals
distributors, subsidiaries of metal producers and the producers themselves, some
of which have greater resources than the Company. The Company estimates that
there are more than 3,500 metals service center facilities and that the Company
is one of the ten largest in the United States. Competition is based on price,
service, quality and availability of products. Reliance believes that the size
of inventory it maintains and the different metals and products it has available
and the wide variety of processing services it provides distinguishes the
Company from its competition.

Management believes that Valex has few competitors in its major product
lines. Valex's competitors in the domestic market tend to concentrate on smaller
projects, quick turn business and projects with lower specification
requirements, while certain of its international competitors have the resources
to concentrate on large projects.

Quality Control

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

7



During 1996, two of the Company's metals service centers, as well as
Valex, attained ISO 9002 (International Standards Organization) certification.
All other members of the Reliance group of metals service centers are expected
to attain ISO 9002 certification in 1997. Management believes this certification
will provide access to additional customers.

Government Regulation

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

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

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

Employees

As of February 28, 1997, the Company had a total of approximately 1,900
employees. Approximately 510 of these employees are covered by collective
bargaining agreements, which expire at various times over the next four years.
The Company has entered into collective bargaining agreements with nine
different union locals at nine of its metals service center locations and at
Valex's manufacturing facility. The Company has not found that these collective
bargaining agreements have had a material impact either favorably or unfavorably
on the Company's revenues or profitability at its various locations. The Company
has always maintained excellent relations with its employees and has never
experienced a significant work stoppage.


ITEM 2. PROPERTIES.

The Company maintains twenty-eight metals service centers in thirteen
states, plus the corporate headquarters, and one manufacturing and six
distribution facilities in six states plus one international sales office for
Valex. All of the Company's properties are in good or excellent condition and
are adequate for its existing operations. These facilities generally operate at
about 60% of capacity, with each division averaging slightly less than two
shifts operating at full capacity for a five-day work week. All of the Valex
distribution and sales facilities are leased and four of the metals service
center facilities (in Los Angeles, California; Denver, Colorado; Wichita,
Kansas; and Casper, Wyoming) are leased. Facilities in Rancho Dominguez,
California and Chattanooga, Tennessee lease a portion of their space. In
addition, off-site space is leased near Valex's manufacturing facility in
Ventura, California, and near the Santa Clara,

8

California metals service center. The leases are for terms expiring at various
times through 2005 and have an aggregate monthly rent of $120,000. The Company
owns all other properties. The Company plans to build a new facility for its
Reliance Metalcenter location in Santa Clara, California during 1997. In 1996,
the Company relocated its Affiliated Metals operation in Salt Lake City, Utah
and its Bralco Metals operation in Pico Rivera, California to new, larger, more
efficient, state-of-the-art facilities. The following table sets forth certain
information with respect to each facility:

FACILITIES AND PLANT SIZE

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

Reliance Metalcenters
Alabama:
Birmingham (Siskin) ...................................... 107,000
Arizona:
Phoenix
(Metalcenter)........................................... 104,000
(Bralco Metals)......................................... 46,000
(Tube Service).......................................... 23,000
California:
El Cajon (Tube Service).................................... 18,000
Los Angeles (Corporate Office)............................. 22,000
(Reliance Steel Company)....................... 270,000
La Mirada (Bralco Metals) ................................. 135,000
Milpitas (Tube Service).................................... 58,000
National City.............................................. 74,000
Rancho Dominguez (CCC Steel) .............................. 316,000
Santa Clara................................................ 99,000
Santa Fe Springs
(MetalCenter)........................................... 155,000
(Tube Service).......................................... 66,000
Colorado:
Colorado Springs........................................... 68,000
Denver (Tube Service)...................................... 21,000
Kansas:
Wichita.................................................... 45,000
New Mexico:
Albuquerque
(Metalcenter)........................................... 44,000
(Reliance Steel Company)................................ 34,000
Oregon:
Portland................................................... 44,000
South Carolina:
Spartanburg (Siskin) ...................................... 96,000
Tennessee:
Chattanooga (Siskin) ..................................... 439,000
Nashville (Siskin) ....................................... 117,000
Texas:
Arlington.................................................. 97,000
San Antonio................................................ 77,000
Utah:
Salt Lake City
(Metalcenter)........................................... 105,000
(Affiliated)............................................ 86,000
(CCC Steel) ............................................ 51,000
Wyoming:
Casper..................................................... 11,000
VALEX CORP.
Ventura, CA (Headquarters and manufacturing facility)........ 117,000
Distribution Centers
Phoenix, AZ.................................................. 5,000
Santa Clara, CA.............................................. 5,000
Albuquerque, NM.............................................. 7,000
Portland, OR................................................. 8,000
Allentown, PA................................................ 5,000
Austin, TX................................................... 8,000
Sales Office
Marseille, France............................................ 700


9


ITEM 3. LEGAL PROCEEDINGS.

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

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

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



10


PART II

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

The Company's Common Stock is listed for trading on the New York Stock
Exchange and was first traded on September 16, 1994. The following table
reflects the range of high and low selling prices of the Company's Common Stock
by quarter for 1996 and 1995. This information is based on composite selling
prices reported by the New York Stock Exchange.



1996 1995
HIGH LOW HIGH LOW
------- ------- ------- -------

First Quarter........ $24.652 $18.000 $14.250 $11.375
Second Quarter....... 39.000 23.125 14.875 11.875
Third Quarter........ 38.250 31.750 20.000 14.625
Fourth Quarter....... 40.625 34.250 20.750 16.500


As of March 14, 1997, there were approximately 323 record owners of
Reliance Common Stock.

The Company has paid quarterly cash dividends on its Common Stock for 37
years. For more than each of the last six years, the Company paid at least $.025
per share per quarter. Additionally, for more than each of the last six years,
the Company has paid a special dividend of at least $.05 per share. In 1996, the
Company paid regular quarterly cash dividends at the rate of $.03 per share per
quarter, and paid a special dividend of $.06 per share. The Company has
announced that the 1997 regular quarterly dividends paid will be $.035 per share
per quarter, with a special dividend of $.07. From time to time, the Company has
also paid stock dividends.

The Board of Directors may reconsider or revise this policy from time to
time based on conditions then existing, including the Company's earnings,
financial condition, and capital requirements, as well as other factors the
Board of Directors may deem relevant. It is likely that the Board of Directors
will continue to declare and pay dividends in the future, provided that earnings
are legally available for dividends, but the Board also intends to continue its
present policy of retaining a portion of earnings for reinvestment in the
operations of the Company and the expansion of its business. In the past five
years, the Company has paid between 6% and 10% of its earnings to its
shareholders as dividends. The Company can give no assurance, however, that
either cash or stock dividends will be paid in the future, or that, if paid, the
dividends will be at the same amount or frequency as paid in the past.

The bank line of credit agreement and the private placement debt agreements
contain covenants which, among other things, require the maintenance of minimum
working capital and certain net worth ratios that may restrict the Company's
ability to pay dividends. In addition, these agreements limit cash dividends
payable by the Company based upon the Company's cumulative earnings. At December
31, 1996, the Company had retained earnings in the amount of $16,261,000
available for payment of cash dividends under these provisions.

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


DATE OF DECLARATION RECORD DATE PAYMENT DATE DIVIDENDS
------------------- ----------- ------------ ---------

11/25/96 12/10/96 1/10/97 $.030 per share
8/26/96 8/30/96 9/6/96 $.030 per share
5/23/96 6/3/96 6/10/96 $.030 per share
2/22/96 3/11/96 3/29/96 $.030 per share
2/22/96 3/11/96 3/29/96 $.060 per share
11/16/95 12/22/95 1/5/96 $.025 per share
8/21/95 9/1/95 9/8/95 $.025 per share
5/25/95 6/2/95 6/9/95 $.025 per share
2/27/95 3/10/95 3/31/95 $.025 per share
2/27/95 3/10/95 3/31/95 $.050 per share



11

ITEM 6. SELECTED FINANCIAL DATA.

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



SELECTED CONSOLIDATED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- ------------- ------------- ------------- ---------

Income Statement Data:
Net sales......................$653,975(5) $561,341(5) $446,866 $371,207 $345,702
Cost of sales...................492,199 432,059 344,705 287,090 271,070
------- ------- ------- ------- -------
Gross profit....................161,776 129,282 102,161 84,117 74,632
Warehouse, delivery, selling,
general and administrative
expenses.....................118,089 94,609 77,638 68,738 64,026
------- ------ ------ ------ ------
Income from operations...........43,687 34,673 24,523 15,379 10,606
Other income (expense):
Interest expense..............(3,940) (1,595) (2,120) (2,329) (2,543)
Other income...................4,464 2,318(4) 1,799(4) 1,921(4) 3,092(4)
Equity earnings (losses) of
50%-owned company and joint
venture........................5,340 3,199 48 (38) 1,788(1)
----- ----- ------ ------- ------
Income before income taxes.......49,551 38,595 24,250 14,933 12,943
Income taxes....................(19,761) (15,893) (9,840) (5,701) (5,370)
-------- -------- ------- ------- -------
Net income......................$29,790 $22,702 $14,410 $9,232 $7,573
======= ======= ======= ====== ======
Earnings per share(2)......... $ 2.85 2.18 $ 1.71 $ 1.23 $ 1.00

Weighted average common shares
outstanding(2)(3)............. 10,453 10,394 8,416 7,521 7,561
Cash dividends per share(2)..... $ .18 $ .15 $ .15 $ .15 $ .14
Balance Sheet Data (December 31):
Working capital................$136,765 $100,731 $84,490 $60,790 $44,396
Total assets....................391,176 260,473 199,421 163,369 145,416
Long-term debt..................107,450 30,350 8,532 37,989 19,600
Shareholders' equity............192,642 163,917 149,983 90,101 83,446

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

(1) Includes approximately $3,100 related to a one-time LIFO reserve reduction
resulting from the contribution of inventory to a 50%-owned joint venture
effective January 1, 1992.

(2) Amounts have been retroactively adjusted to reflect the March 1993 5%
stock dividend and the 2:1 stock split effective May 1994.

(3) Includes Common Stock equivalents attributable to stock options
outstanding, which are not material.

(4) Includes income received from rental agreements with and services provided
to FRLP (as defined in Note 3 to the Consolidated Financial Statements),
which was dissolved effective September 30, 1995.

(5) Does not include consolidated revenues of $178.9 million and $86.4 million
for American Steel, L.L.C. for 1996 and the period July 1 to December 31,
1995, respectively, as this 50% investment is accounted for by the equity
method, whereby the Company includes 50% of American Steel's consolidated
earnings in the Company's net income and earnings per share amounts.


12



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

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

OVERVIEW

The results for the Company's core metals service centers improved from
1995, although the Company experienced pricing pressures for many of its
products, particularly nonferrous and stainless steel products. Reductions in
the costs of those materials also resulted in declines in sales prices to
customers. Such pricing pressures generally resulted in lower gross profit
margins for those products compared to 1995. The Company believes its results
have been less sensitive to the economic trends affecting the industry because
its operations are geographically diversified, it has a wide range of products,
and its customer base and the industries to which it sells are highly
diversified.

Additionally, the Company's successful efforts to continue to expand
through strategic acquisitions and to increase its physical capacities through
\capital expenditure programs have enabled it to lessen the impact of regional
economic recessions on the overall results of its operations. Management
believes that the Company is positioned to take full advantage of improved
economic environments, while at the same time it is poised to operate
efficiently in less favorable economies because of its tight cost controls, high
inventory turnover and diversification.

RECENT DEVELOPMENTS

On March 13, 1997, the Company announced that it reached an agreement to
purchase 100% of the outstanding shares of Amalco Metals, Inc. ("Amalco"), which
is a privately-held metals service center located in the San Francisco area,
subject to the successful completion of due diligence. Amalco specializes in
precision cut aluminum plate and sheet products. It is expected that the
business of Amalco will be combined with the Company's existing metals service
center in Santa Clara, California. The combined operation will be housed in a
new, larger, state-of-the-art facility in Union City, which is scheduled to be
completed early in 1998. This transaction is expected to be completed in April
1997. Amalco's net sales for the twelve months ended April 30, 1996 were
approximately $31 million.

On March 10, 1997, the Company entered into an agreement to purchase 100%
of the outstanding capital stock of AMI Metals, Inc. ("AMI"), subject to
successful completion of due diligence. AMI is a privately-held company,
operating metals service centers in Fontana, California; Wichita, Kansas;
Brentwood, Tennessee; Fort Worth, Texas; Kent, Washington; and Swedesboro, New
Jersey. AMI specializes in the processing and distribution of aluminum plate,
sheet and bar products for the aerospace industry. This transaction is expected
to be completed in April 1997, at which time management intends to operate AMI
as a wholly-owned subsidiary of the Company. The Company plans to fund this
acquisition with borrowings under its revolving line of credit. AMI's net sales
for the twelve months ended February 28, 1997 were approximately $77 million.

On October 1, 1996, the Company acquired 100% of the outstanding capital
stock of Siskin Steel & Supply Company, Inc. ("Siskin"), a privately-held
company, for total consideration of $71 million in cash. Siskin is one of the
leading, full-line operators of metals service centers in the Southeastern
United States, operating from four different locations. The Company believes
Siskin represents an excellent strategic addition because it establishes a
strong presence for the Company in the Southeastern United States and increases
geographic diversification. The Company financed this acquisition with the
proceeds from a private placement of debt. Siskin's net sales for the three
months ended December 31, 1996 were $36.3 million.

On April 3, 1996, the Company purchased 100% of the outstanding capital
stock of CCC Steel, Inc. ("CCC Steel") for approximately $25 million in cash.
CCC Steel was a privately-held carbon steel service


13
center, with facilities in Los Angeles and Salt Lake City. CCC Steel is known as
one of the largest structural steel distribution companies in the Western United
States. CCC Steel's net sales for the nine months ended December 31, 1996 were
$40.9 million.

On January 9, 1996, the Company purchased certain assets of a metals
service center in Albuquerque, New Mexico. These assets were combined with the
Company's existing non-ferrous metalcenter operation in Albuquerque. The Company
also opened a Tube Service facility in Denver, Colorado in January 1996.

In the fourth quarter of 1996, the Company completed construction and
relocated the Bralco Metals operation near Los Angeles, California and the
Affiliated Metals operation in Salt Lake City, Utah to new, larger, more
efficient, state-of-the-art facilities.

On July 1, 1995, the Company acquired a 50% interest in and complete
control over the assets and operations of American Steel, L.L.C. ("American
Steel"), a newly formed limited liability company, for $19.25 million in cash.
American Steel consisted of three metals service centers in the Pacific
Northwest, including an operation in Canada, that were previously wholly-owned
by American Industries. The operation in Canada was sold in January 1997. As
part of the acquisition, the Company and American Industries each contributed to
American Steel their 50% ownership in American Metals Corporation ("American
Metals"), a joint venture established in 1993 between the Company and American
Industries, which consists of three metals service centers located in the
Central Valley of California. As a result of this contribution, American Metals
became a wholly-owned subsidiary of American Steel. The American Steel purchase
agreement allows the Company to acquire the remaining 50% of American Steel at a
future date. As the Company accounts for its investment in American Steel under
the equity method of accounting, 50% of the consolidated earnings of American
Steel were included in the Company's net income and earnings per share amounts
for the six month period ended December 31, 1995 and the twelve months ended
December 31, 1996. Consolidated revenues of American Steel for the period July
1, 1995 to December 31, 1995 and for the twelve months ended December 31, 1996
were $86.4 million and $178.9 million, respectively.

Feralloy Reliance Company, L.P. ("FRLP"), a joint venture in which the
Company owned a 50% interest, was dissolved on September 30, 1995. Upon
dissolution, the Company received the Los Angeles business of FRLP, and certain
assets and liabilities related thereto, as a distribution. The Los Angeles
business consisted of a steel service center operation and a steel slitting
operation. On November 3, 1995, the Company sold certain assets of the Los
Angeles steel slitting operation. This transaction did not have a material
effect on the financial position or results of operations of the Company. The
Company is operating the steel service center business received upon the
dissolution of the FRLP joint venture as a separate division. Revenues for the
period October 1, 1995 to December 31, 1995 and for the twelve months ended
December 31, 1996 were $8.9 million and $41.8 million, respectively.

In 1996, Valex Corp. ("Valex"), a 97%-owned subsidiary, opened an
international sales office in Marseille, France. The Company believes the
European region is one of the areas of great potential for Valex's products.
During 1995, the Company opened three additional distribution centers for Valex
in Portland, Oregon; Austin, Texas; and Phoenix, Arizona. These centers allow
Valex to provide customers local access to a broad range of products and to more
effectively market the products.






14





RESULTS OF OPERATIONS

The following table sets forth certain income statement data for the
Company's metals service centers and Valex Corp. for each of the three years in
the period ended December 31, 1996 (dollars are shown in thousands and certain
amounts may not calculate due to rounding):



1996 1995 1994
----------------- ------------------- ---------------------
% OF % OF % OF
$ NET SALES $ NET SALES $ NET SALES
-------- ------- -------- -------- -------- --------

Net sales:
Metals service centers ....................... $607,833 92.9% $520,384 92.7% $417,463 93.4%
Valex Corp. .................................. 46,142 7.1 40,957 7.3 29,403 6.6
-------- ------- -------- -------- -------- --------
Total sales .......................... 653,975 100.0 561,341 100.0 446,866 100.0
Gross profit:
Metals service centers ....................... 145,331 22.2 116,298 20.7 92,743 20.8
Valex Corp. .................................. 16,445 2.5 12,984 2.3 9,418 2.1
-------- ------- -------- -------- -------- --------
Total gross profit ................... 161,776 24.7 129,282 23.0 102,161 22.9
Operating expenses:
Metals service centers ....................... 108,076 16.5 86,839 15.5 71,695 16.0
Valex Corp. .................................. 10,013 1.5 7,770 1.4 5,943 1.3
-------- ------- -------- -------- -------- --------

Total operating expenses ............. 118,089 18.0 94,609 16.9 77,638 17.4
Income from operations:
Metals service centers ....................... 37,255 5.7 29,459 5.2 21,048 4.7
Valex Corp. .................................. 6,432 1.0 5,214 .9 3,475 .8
-------- -------- -------- -------- -------- --------
Total operating income ............... $ 43,687 6.7% $ 34,673 6.1% $ 24,523 5.5%
======== ======== ======== ======== ======== ========
FIFO income from operations .................... $ 38,436 5.9% $ 43,721 7.8% $ 25,846 5.8%
======== ======== ======== ======== ======== ======


Inventories for the Company's metals service centers have been stated on
the last-in, first-out ("LIFO") method, which is not in excess of market. The
Company uses the LIFO method of inventory valuation as the Company believes it
results in a better matching of costs and revenues. Under the LIFO method, the
effect of suppliers' price increases or decreases is reflected directly in the
cost of goods sold. During periods of decreasing prices, which the Company
experienced during 1996, LIFO accounting will cause reported income to be higher
than would otherwise result from the use of the first-in, first-out ("FIFO")
method of inventory valuation. The table above and the discussions that follow
present certain information as if the Company used the FIFO method. This
information is for supplementary purposes only in order to facilitate a
comparison of the Company's results of operations with those of other similar
companies who use the FIFO method. Inventories for Valex Corp. have been stated
on the FIFO method, which is not in excess of market.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 (DOLLAR
AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)

Consolidated net sales increased $92,634, or 16.5%, for the year 1996
compared to 1995. The increase in metals service centers' net sales of $87,449,
or 16.8%, reflects an increase in tons sold of 52.0% and a decrease in the
average selling price per ton of 22.6% for the 1996 period compared to 1995.
These changes are primarily due to additional sales volume and a change in
product mix during 1996. 1996 sales reflect the inclusion of three months of net
sales of Siskin (acquired October 1, 1996), nine months of net sales of CCC
Steel (acquired April 3, 1996), and twelve months of net sales of the Los
Angeles business received October 1, 1995, upon the dissolution of the FRLP
joint venture. These operations sell a significant volume of carbon steel
products, which generally have lower selling prices than other products sold by
the Company. The average selling prices decreased for all products for the 1996
period compared to 1995, with the most significant decreases in aluminum and
stainless steel products.

Consolidated net sales includes net sales of Valex, which increased $5,185,
or 12.7%, due to the accelerated construction activities of the semiconductor
manufacturing industry in 1996 as compared to 1995. However, the majority of
this increase occurred in the first half of 1996, with the rate of increase in
Valex's sales slowing in the second half of 1996. Declining sales in the second
half of 1996, as compared to the first half of 1996, were due to the slowdown in
the construction activities in the semiconductor

15

manufacturing industry. The Company currently estimates that this slowdown in
the semiconductor manufacturing industry will last at least through the second
quarter of 1997. While the Company has responded to the slowdown by reducing the
Valex workforce and other costs in 1996, the Company is also positioning Valex
for expected longer term growth.

Included in other income for 1996 is a gain of $1,519 realized on the sale
of the real estate at the Bralco Metals facility near Los Angeles.

Total gross profit increased $32,494, or 25.1%, compared to 1995. Expressed
as a percentage of sales, gross profit increased to 24.7% for 1996, compared to
23.0% in 1995. On a FIFO basis, gross profit in 1996 for the metals service
centers was 23.0% of sales, compared to 24.1% in 1995. The decline in FIFO gross
profit for the metals service centers resulted primarily from declining prices
for stainless steel and aluminum products during 1996. The decrease in the LIFO
reserve of $5,251 during 1996 was caused mainly by a decrease in the costs of
the Company's raw materials. Valex's gross profit percentage increased to 35.6%
of sales for 1996, compared to 31.7% for the 1995 year. The 1996 gross profit
percentage improved from 1995 due to, in the first six months of 1996, the
increased sales volume and production efficiency gains realized from recent
capital improvements.

Warehouse, delivery, selling, and general and administrative expenses
increased $20,224, or 22.6%, for 1996 compared to 1995. These expenses
represented 16.8% and 15.9% of sales in 1996 and 1995, respectively. The dollar
increase in expenses reflects the increase in sales volume for the 1996 period,
which includes the expenses for Siskin, CCC Steel and the Los Angeles service
center received upon the dissolution of FRLP. The percentage increase includes
expenses (approximately $1,000) associated with terminating the Company's
defined benefit pension plan. During 1996, the Company implemented a 401(k) plan
to replace its pension plan.

Income from operations increased 26% from $34,673 in 1995 to $43,687 in
1996. The increase was attributable to the decrease in the LIFO reserve, as
discussed above, and the inclusion of operating income from companies acquired
in 1996. Income from operations increased $7,796, or 26.5%, and $1,218, or
23.4%, in 1996, compared to 1995, for the metals service centers and Valex,
respectively.

Interest expense increased $2,345 in 1996 compared to 1995 due to an
increase in the average debt outstanding during 1996. This increase was due to
funding the acquisitions of CCC Steel in April 1996 and Siskin in October 1996
through the Company's revolving credit agreement and issuance of promissory
notes in connection with the Siskin acquisition.

Equity in earnings from a 50%-owned company and a joint venture increased
$2,141 in 1996 due to the acquisition of a 50% interest in American Steel as of
July 1, 1995, resulting in twelve months of earnings included in 1996 compared
to six months included in 1995. The increase was also due to the dissolution of
the FRLP joint venture in September 1995.

The effective income tax rate of the Company decreased from 41.2% in 1995
to 39.9% in 1996, mainly due to a decrease in the effective state tax rate due
to a change in the geographical sales mix.

Earnings per share for 1996 of $2.85 includes $.09 per share attributable
to the sale of real estate discussed above.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 (DOLLAR
AMOUNTS IN THOUSANDS OTHER THAN SHARE AND PER SHARE AMOUNTS)

Consolidated net sales increased $114,475, or 25.6%, for the year 1995
compared to 1994. These amounts include net sales of Valex, which increased
$11,554, or 39.3%, due to the accelerated construction activities of the
semiconductor manufacturing industry and Valex's increased capacity to meet
demand. The increase in metals service centers' net sales of $102,921, or 24.6%,
reflects an increase in tons sold of


16

8.4% and an increase in the average sales price per ton of 15.3%. For the first
nine months of 1995, there was an increase in tons sold of 1% and an increase in
the average sales price per ton of 23.7%. The primary reason these percentages
changed during the fourth quarter was due to the additional sales of the Los
Angeles business received upon the dissolution of the FRLP joint venture which
increased volume and reduced average sales prices, as this operation handles
carbon steel products which have a lower market value than aluminum or stainless
steel products. The volume increase in the metals service centers reflects a
general rise in overall economic activity in the Company's market areas. 1995
results also reflect increased costs of metals and stronger demand in most of
the industries to which the Company's products are sold, as compared to 1994.

Total gross profit increased $27,121, or 26.6%, in 1995 compared to 1994.
Expressed as a percentage of sales, gross profit remained relatively constant at
23.0% for 1995, compared to 22.9% in 1994. On a FIFO basis, gross profit in 1995
for the metals service centers was 24.1% of sales, compared to 22.5% in 1994.
The increase in the LIFO reserve of $9,048 during 1995 was caused by an increase
in the costs of the Company's raw materials, as well as an increase in inventory
quantities in response to the higher sales volume and the inventory received
upon the dissolution of the FRLP joint venture. Valex's gross profit remained
substantially the same at 31.7% of sales for 1995, compared to 32% for the 1994
year.

Warehouse, delivery, selling, and general and administrative expenses
increased $16,053, or 21.9%, for 1995 compared to 1994. These expenses
represented 16.9% and 17.4% of sales in 1995 and 1994, respectively. However,
the increase in expenses of 21.9% was less than the increase in sales of 25.6%,
due to the Company's efforts to control costs and the fixed cost components of
those expenses.

Income from operations increased from $24,523 in 1994 to $34,673 in 1995,
or 41.5%, because the increase in gross profit dollars from the increased sales
volume exceeded the related increase in operating expenses. Income from
operations increased $8,411, or 40.3%, and $1,739, or 49%, in 1995, compared to
1994, for the metals service centers and Valex, respectively.

Interest expense decreased $525 in 1995 compared to 1994 despite an
increase in the average debt outstanding during the last two quarters of 1995,
which was mostly offset by generally lower interest rates during that period.
Proceeds from the Company's initial public offering in September 1994 were used
to pay off all outstanding bank debt, which reduced average debt outstanding and
interest expense during the fourth quarter of 1994. Borrowings were made in the
third quarter of 1995 to fund a portion of the acquisition of a 50% interest in
American Steel and to pay off debt related to the Los Angeles operations upon
the dissolution of the FRLP joint venture.

Equity earnings from a 50%-owned company and joint ventures increased in
1995 due to the acquisition of a 50% interest in American Steel as of July 1,
1995, and due to the dissolution of the FRLP joint venture.

The effective income tax rate of the Company increased from 40.6% in 1994
to 41.2% in 1995, mainly due to the tax effect of the dissolution of the FRLP
joint venture.

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

At December 31, 1996, working capital amounted to $136,765, compared to
$100,731 at December 31, 1995. The increase in working capital is due to the
working capital of companies acquired during 1996 and cash generated from
operations. The Company's capital requirements are primarily for working
capital, acquisitions, and capital expenditures for continued improvements in
plant capacities and material handling and processing equipment.

The Company's primary sources of liquidity are from internally generated
funds from operations and the Company's revolving credit facility. The Company's
borrowing limit under the revolving line of credit



17

was increased from $65,000 to $100,000 in June 1996, and to $125,000 in March
1997. During 1996, the Company funded the acquisition of CCC Steel with
borrowings under the revolving line of credit. The acquisition of Siskin was
funded by the issuance of $65,000 of promissory notes by the Company and with
borrowings under the revolving line of credit. In November 1996, the Company
entered into agreements with insurance companies for a private placement of debt
in the amount of $75,000. This debt was funded in January 1997, and the proceeds
were used to pay off the $65,000 of promissory notes issued for the acquisition
of Siskin with the balance of $10,000 applied to reduce the borrowings under the
Company's revolving credit facility.

Net capital expenditures were $21,395 for the 1996 year. The Company did
not have any material commitments for capital expenditures as of December 31,
1996. The Company anticipates that the funds generated from operations and funds
available under its existing bank line of credit will be sufficient to meet its
working capital needs for the foreseeable future, including the expansion of its
facilities at certain of its metals service centers planned for the 1997 year.

In December 1994, the Company adopted a Stock Repurchase Plan, authorizing
the Company to purchase up to 500,000 shares of its Common Stock. Early in 1995,
the Board of Directors authorized the purchase of up to an additional 500,000
shares. The Company purchased a total of 651,800 shares of its Common Stock at
an average cost of $12.18 per share as of December 31, 1996, all of which were
redeemed and are being treated as authorized but unissued shares. 627,300 of
those shares were repurchased during 1995. In January and February 1997, the
Company purchased an additional 218,800 shares, at an average cost of $29.83 per
share. The Company believes such purchases enhance shareholder value and reflect
its confidence in the long-term growth potential of the Company.

It is expected that the acquisitions of Amalco and AMI, which are subject
to the successful completion of due diligence, would be funded under the
Company's revolving line of credit.

INFLATION

The Company's operations have not been, nor are they expected to be,
materially affected by inflation.

Historically, the Company has been successful in raising prices to its
customers in periods of increasing metal prices and has had to reduce prices to
its customers in periods of declining metal prices. Changes in metal prices,
therefore, affect the Company's sales and earnings.

SEASONALITY

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


18



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

RELIANCE STEEL & ALUMINUM CO.

AUDITED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PAGE
----
Report of Independent Auditors............................................. 20
Consolidated Balance Sheets at December 31, 1996 and 1995.................. 21
Consolidated Statements of Income for the Years ended December 31, 1996,
1995 and 1994............................................................. 22
Consolidated Statements of Shareholders' Equity for the Years ended
December 31, 1996, 1995 and 1994.......................................... 23
Consolidated Statements of Cash Flows for the Years ended December 31,
1996, 1995 and 1994....................................................... 24
Notes to Consolidated Financial Statements................................. 26
Quarterly Results of Operations (Unaudited) for the Years ended
December 31, 1996, 1995 and 1994.......................................... 35


19



REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Reliance Steel & Aluminum Co.

We have audited the accompanying consolidated balance sheets of Reliance
Steel & Aluminum Co. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Reliance Steel
& Aluminum Co. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presented fairly, in all material respects the
information set forth therein.


ERNST & YOUNG LLP


Long Beach, California
February 17, 1997, except for Note 10,
as to which the date is March 13, 1997



20


RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)

ASSETS


DECEMBER 31,
----------------------
1996 1995
------------ --------

Current assets:
Cash and cash equivalents.............................................. $ 815 $18,012
Accounts receivable, less allowance for doubtful accounts of $2,899
in 1996 and $3,253 in 1995.......................................... 73,092 68,874
Inventories............................................................ 122,778 71,976
Prepaid expenses and other current assets.............................. 6,700 5,550
Deferred income taxes.................................................. 7,515 2,525
----- -----
Total current assets..................................................... 210,900 166,937
Property, plant and equipment, at cost:
Land................................................................... 21,054 14,873
Buildings.............................................................. 80,687 36,688
Machinery and equipment................................................ 88,551 67,802
Allowances for depreciation............................................ (56,678) (53,077)
-------- --------
133,614 66,286
Investment in 50%-owned company.......................................... 28,958 25,561
Other assets............................................................. 17,704 1,689
------ -----
Total assets............................................................. $391,176 $260,473
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 50,274 $ 46,800
Accrued expenses....................................................... 9,093 6,078
Wages and related accruals............................................. 4,636 5,292
Income taxes payable................................................... 90 5,136
Deferred income taxes ................................................. 7,587 --
Current maturities of long-term debt................................... 2,455 2,900
----- -----
Total current liabilities................................................ 74,135 66,206
Long-term debt........................................................... 107,450 30,350
Deferred income taxes.................................................... 16,949 --
Commitments.............................................................. -- --
Shareholders' equity:
Preferred stock, no par value:
Authorized shares -- 5,000,000
None issued or outstanding.......................................... -- --
Common stock, no par value:
Authorized shares -- 20,000,000
Issued and outstanding shares -- 10,326,287 in 1996 and 10,272,307
in 1995, stated capital............................................ 61,131 60,344
Retained earnings...................................................... 131,511 103,573
------- -------
Total shareholders' equity............................................... 192,642 163,917
------- -------
Total liabilities and shareholders' equity............................... $391,176 $260,473
======== ========


See accompanying notes.


21



RELIANCE STEEL & ALUMINUM CO.

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


YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------ --------------- ------------

Net sales................................................... $653,975 $561,341 $446,866
Other income................................................ 4,464 2,318 1,799
---------- ----- -----
658,439 563,659 448,665
Costs and expenses:
Cost of sales............................................. 492,199 432,059 344,705
Warehouse, delivery, selling, administrative and general.. 109,625 89,401 73,348
Depreciation and amortization............................. 8,464 5,208 4,290
Interest.................................................. 3,940 1,595 2,120
-------- -------- --------
614,228 528,263 424,463
-------- -------- --------
Income before equity in earnings of 50%-owned
company and joint venture and income taxes................ 44,211 35,396 24,202
Equity in earnings of 50%-owned company and
joint venture............................................. 5,340 3,199 48
-------- -------- --------
Income before income taxes.................................. 49,551 38,595 24,250
Income taxes................................................ 19,761 15,893 9,840
-------- -------- --------
Net income.................................................. $29,790 $22,702 $14,410
======== ======== =======
Earnings per share.......................................... $2.85 $2.18 $1.71
======== ======== =======
Weighted average shares outstanding......................... 10,453,309 10,394,172 8,416,249
========== ========== =========


See accompanying notes.

22




RELIANCE STEEL & ALUMINUM CO.

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



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

Balance at January 1, 1994.............................. 7,341,618 $ 16,491 $ 73,610
Net income for the year............................... -- -- 14,410
Stock options exercised............................... 103,452 1,172 --
Stock issued under incentive bonus plan............... 11,134 190 --
Cash dividends-- $.15 per share....................... -- -- (1,192)
Repurchase of stock................................... (41,568) (184) (418)
Issuance of stock, net of offering costs of $612...... 3,450,000 45,904 --
---------- ------- --------
Balance at December 31, 1994............................ 10,864,636 63,573 86,410
Net income for the year............................... -- -- 22,702
Stock options exercised............................... 11,500 106 --
Stock issued under incentive bonus plan............... 23,471 311 --
Cash dividends-- $.15 per share....................... -- -- (1,556)
Repurchase of stock................................... (627,300) (3,646) (3,983)
---------- ------- --------
Balance at December 31, 1995............................ 10,272,307 60,344 103,573
Net income for the year............................... -- -- 29,790
Stock options exercised............................... 37,407 404 --
Stock issued under incentive bonus plan............... 16,573 383 --
Cash dividends-- $.18 per share....................... -- -- (1,852)
---------- ------- --------
Balance at December 31, 1996............................ 10,326,287 $61,131 $131,511
========== ======= ========



See accompanying notes.

23





RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
------------- ------------- ---------

OPERATING ACTIVITIES
Net income..................................................... $29,790 $22,702 $14,410
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 8,464 5,208 4,290
Deferred taxes............................................... 1,535 (1,777) 284
Losses on sales of equipment................................. 459 387 563
Net gain on sale of real estate.............................. (1,519) -- --
Equity in earnings of 50%-owned company and joint
venture................................................... (4,823) (3,199) (48)
Changes in operating assets and liabilities:
Accounts receivable....................................... 16,445 (32) (13,898)
Inventories............................................... (6,687) (3,175) (7,129)
Prepaid expenses and other assets......................... 3,625 1,343 (1,346)
Income taxes payable...................................... (5,051) 3,799 1,292
Accounts payable and accrued expenses..................... (5,812) 14,099 4,484
------- ------ ------
Net cash provided by operating activities...................... 36,426 39,355 2,902
INVESTMENT ACTIVITIES
Purchases of property, plant and equipment..................... (21,395) (7,867) (9,510)
Proceeds from sales of equipment............................... 1,082 68 1,126
Acquisition of CCC Steel, Inc. ................................ (24,974) -- --
Acquisition of Siskin Steel & Supply Company, Inc. ............ (70,935) -- --
Acquisition of certain assets of a metals service center....... -- -- (5,533)
Purchase of a 50%-owned company................................ -- (19,250) --
Dividends received from 50%-owned company ..................... 1,426 1,405 --
Change in investment in joint ventures......................... -- -- 1,952
Proceeds from the sale of certain assets of a metals service
center....................................................... -- 4,200 --
-- ----- --
Net cash used in investing activities.......................... (114,796) (21,444) (11,965)
FINANCING ACTIVITIES
Proceeds from borrowings....................................... 105,273 32,097 --
Principal payments on long-term debt and short-term
borrowings................................................... (43,035) (31,571) (29,695)
Dividends paid................................................. (1,852) (1,556) (1,103)
Issuance of common stock....................................... 787 417 47,266
Repurchase of common stock..................................... -- (7,629) (602)
------ ------ ------
Net cash provided by (used in) financing activities............ 61,173 (8,242) 15,866
------ ------ ------
(Decrease) increase in cash and cash equivalents............... (17,197) 9,669 6,803
Cash and cash equivalents at beginning of year................. 18,012 8,343 1,540
------ ----- -----
Cash and cash equivalents at end of year....................... $815 $18,012 $8,343
==== ======= ======


See accompanying notes.


24



RELIANCE STEEL & ALUMINUM CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:

During 1995, certain assets of the Company were exchanged in a non-monetary
transaction. The asset value exchanged was approximately $4,305. Additionally,
the Company's 50% interest in American Metals Corporation was contributed to
American Steel, L.L.C., of which the Company owns 50%.

Effective at the close of business on September 30, 1995, the Company
received the following assets and liabilities upon the dissolution of the
Feralloy Reliance Company, L.P. joint venture:

Inventory............................. $19,678
Accounts receivable................... 11,666
Fixed assets.......................... 2,567
Other assets.......................... 159
Liabilities........................... 4,881
Note payable.......................... 21,400

See accompanying notes.



25


RELIANCE STEEL & ALUMINUM CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Reliance Steel & Aluminum Co. and its wholly-owned subsidiaries, which include
CCC Steel, Inc., MetalCenter, Inc., Siskin Steel & Supply Company, Inc. and
97%-owned Valex Corp. on a consolidated basis ("the Company"). All significant
intercompany transactions have been eliminated in consolidation. The Company
accounts for its 50% investment in American Steel, L.L.C. and its investment in
joint ventures on the equity method of accounting.

Accounting Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Business

The Company, including its 50% investment in American Steel, L.L.C,
operates a network of 33 metals service centers in 13 states, which provide
value-added metals processing services and distribute a full line of over 20,000
metal products. Valex Corp. is a leading domestic manufacturer and international
distributor of electropolished stainless steel tubing and fittings for use in
the semiconductor industry. Valex operations include 6 distribution centers in 6
states and an international sales office in addition to its headquarters and
manufacturing facility.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to a geographically diverse customer base in various
industries. Credit is extended based upon an evaluation of each customer's
financial condition, with terms consistent in the industry and no collateral
required. Losses from credit sales are provided for in the financial statements
and consistently have been within the allowance provided.

Fair Values of Financial Instruments

Fair values of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the consolidated
financial statements.

Cash Equivalents

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


26

Inventories

Inventories for the Company's metals service centers have been stated on
the last-in, first-out ("LIFO") method, which is not in excess of market. The
Company uses the LIFO method of inventory valuation because it results in a
better matching of costs and revenues. At December 31, 1996 and 1995,
inventories would have been $25,312,000 and $30,563,000 higher, respectively,
had the first-in, first-out method ("FIFO") been used. Inventories of Valex
Corp. were $19,130,000 and $9,188,000 at December 31, 1996 and 1995,
respectively, and are stated on the FIFO method, which is not in excess of
market.

Depreciation

The provision for depreciation of property, plant and equipment is
generally computed on the straight-line method at rates designed to distribute
the cost of assets over the useful lives, estimated as follows:

Buildings................................. 31 1/2 years
Machinery and equipment................... 3-10 years

Other Assets

Goodwill, representing the excess of the purchase price over the fair
values of the net assets of acquired entities, is being amortized over the
period of expected benefit of 40 years. Other intangible assets are being
amortized over the period of expected benefit, generally 5 years.

Revenue Recognition

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

Stock-Based Compensation

The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB25"), "Accounting for Stock
Issued to Employees" and related interpretations. Management has determined that
the effect of applying Financial Accounting Standards Board Statement No. 123's
fair value method to the Company's stock-based awards results in net income and
earnings per share that are not materially different from amounts reported.
Under the provisions of APB 25, compensation expense is measured at the grant
date for the difference between the fair value of the stock and the exercise
price.

Earnings Per Share

Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents (attributable to stock options,
which are not material) outstanding during each period. Common stock equivalents
were calculated using the treasury stock method. All weighted shares and
per-share amounts have been adjusted for a 2 for 1 common stock split that
occurred in May 1994.

2. ACQUISITIONS

Effective October 1, 1996, the Company purchased 100% of the outstanding
voting and non-voting capital stock of Siskin Steel & Supply Company, Inc.
("Siskin") for $71,000,000. Siskin was a privately-held metals service center in
the Southeastern United States, with locations in Chattanooga and Nashville,
Tennessee; Spartanburg, South Carolina; and Birmingham, Alabama. The purchase of
Siskin was funded by drawing $6,000,000 on the Company's revolving line of
credit and issuing $65,000,000 of promissory notes. The promissory notes were
redeemed on January 2, 1997 from the proceeds of a private placement of debt of
$75,000,000.

27

Effective April 3,1996, the Company purchased 100% of the outstanding
capital stock of CCC Steel, Inc. ("CCC Steel") for approximately $25,000,000 in
cash. CCC Steel was a privately-held carbon steel service center, with
facilities in Los Angeles and Salt Lake City. The purchase was funded through
the Company's revolving line of credit.

These purchases were accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on the estimated fair values at the date of
the acquisition. The excess of purchase price over the estimated fair values of
the net assets acquired of $2,155,000 and $13,598,000 for Siskin and CCC Steel,
respectively, has been recorded as goodwill. Related amortization expense
amounted to approximately $300,000 for the year ended December 31, 1996.

The operating results of these acquisitions are included in the Company's
consolidated results of operations from the date of each acquisition. The
following unaudited proforma summary presents the consolidated results of
operations as if the acquisitions had occurred at the beginning of each period
after the effect of certain adjustments, including amortization of goodwill,
interest expense on the acquisition debt and related income tax effects. These
proforma results have been presented for comparative purposes only and are not
indicative of what would have occurred had the acquisition been made as of
January 1, 1995, or of any potential results which may occur in the future.


DECEMBER 31,
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
1996 1995
---- ----
Proforma:
Net sales.............................. $780,109 $767,401
Net income............................. 30,740 26,393
Earnings per share..................... $2.94 2.54


On January 9, 1996, the Company purchased certain assets of a metals
service center in Albuquerque, New Mexico. These assets were combined with the
Company's existing non-ferrous metalcenter operations in Albuquerque. In August
1994, the Company purchased certain assets of a metals service center in Salt
Lake City, Utah for a purchase price of approximately $5,500,000. These
acquisitions were accounted for using the purchase method and were not material
to the financial statements of the Company.

3. INVESTMENTS IN 50%-OWNED COMPANY AND JOINT VENTURE

On July 1, 1995, the Company acquired a 50% interest in the Membership
Units of American Steel, L.L.C. ("American Steel"), a newly-formed company, for
$19,250,000 in cash. American Steel is owned 50% each by American Industries,
Inc. ("American") and the Company and includes American's former metals service
centers in Portland, Oregon and Kent (Seattle), Washington. At the date of
acquisition, American Steel also owned a metals service center in Vancouver,
British Columbia, which was sold in January 1997. Additionally, American and the
Company each contributed their 50% interests in American Metals Corporation
("American Metals"), a joint venture created in 1993 between the Company and
American, to American Steel. American Metals consists of three metals service
centers in California. The Operating Agreement provides that the Company may
purchase the remaining 50% of American Steel during a term of three years
following the earlier of the death of the owner of American, or December 31,
2005. The price shall be the greater of American's current Capital Account or
50% of the fair market value of American Steel. The Operating Agreement gives
the Company complete control over the assets and operations of American Steel.
Summarized financial information for American Steel, accounted for by the equity
method, is as follows as of and for the twelve months ended December 31, 1996
and for the six months ended December 31, 1995 (in thousands):

28



1996 1995
---- ----

Current assets...................................... $ 46,462 $ 51,638
Property, plant, and equipment and other assets..... 48,373 48,864
Current liabilities................................. 9,553 34,398
Long-term liabilities............................... 3,319 4,068
Net sales........................................... 178,882 86,394
Gross profit........................................ 45,055 21,012
Income before income taxes.......................... 10,281 4,278
Net income.......................................... 9,247 3,954


At the close of business on September 30, 1995, the Company completed an
agreement with Feralloy Corporation to terminate their joint venture, Feralloy
Reliance Company, L. P. ("FRLP"). Under terms of the agreement, the net assets
and the business of the joint venture's service center operation based in
Fremont were distributed to Feralloy West Company. The net assets and the
business of the service center operation based in Los Angeles, which consisted
of a steel slitting operating and a service center operation, were distributed
to the Company. On November 3, 1995, the Company sold certain assets of the Los
Angeles steel slitting operation. This transaction did not have a material
effect on the financial position or results of operations of the Company. The
Company is operating the steel service center business received upon the
dissolution of the FRLP joint venture as a separate division. Revenues for the
period October 1, 1995 to December 31, 1995 and for the twelve months ended
December 31, 1996 were $8,900,000 and $41,800,000, respectively.

The Company leased buildings and cranes to FRLP through September 30, 1995
and through December 31, 1994 subleased a building to FRLP at a rate which was
equal to the Company's lease payments. For a fee, the Company also provided data
processing, accounting and certain administrative services to FRLP through
September 30, 1995.

4. LONG-TERM DEBT

Long-term debt consists of the following:


DECEMBER 31,
-----------------------
1996 1995
---------- ----------
(IN THOUSANDS)

Revolving line of credit ($100,000,000 limit), due July 31, 1999,
interest at variable rates (6.06% at December 31, 1996),
payable monthly..................................................... $39,000 $25,000
Promissory notes, due January 2, 1997, interest payable
at maturity at 6.16%............................................... 65,000 --
Variable Rate Demand Industrial Development Revenue Bonds, Series
1989 A, due July 1, 2014, with interest payable quarterly;
average interest rate during 1996 of 3.6%.......................... 3,550 3,650
9% Senior Notes, due March 1, 1997, semiannual payments of
$1,400,000, with interest payable quarterly......................... 1,800 4,600
Revolving line of credit ($10,000,000 limit), due February 28, 1997,
interest at variable rates (7.0% at December 31, 1996)............. 555 --
---------- ----------
109,905 33,250
Less amounts due within one year...................................... (2,455) (2,900)
---------- ----------
$107,450 $30,350
========== ==========


The Company's revolving line of credit, as amended, was increased to
$100,000,000 during 1996. In connection with the acquisition of Siskin, the
company issued $65,000,000 of promissory notes to the shareholders of Siskin.
The notes were collateralized by standby letters of credit obtained under the
Company's revolving line of credit. The promissory notes have been excluded from
current liabilities due to the refinancing of the obligation with the long-term
senior unsecured notes on January 2, 1997. The summary of aggregate maturities
of long-term debt summarized below include the payment terms of the senior
unsecured notes.

29

The promissory notes were redeemed on January 2, 1997 from the proceeds of
the issuance of $75,000,000 in senior unsecured notes in a private placement of
debt. The notes mature at various dates during the period January 2, 2004 to
January 2, 2009 and bear interest at an average interest rate of 7.22%.

The Company's long-term loan agreements include certain restrictions on the
amount of corporate borrowings, leasehold obligations, investments, cash
dividends, capital expenditures, and acquisition of the Company's Common Stock,
among other things. In addition, the agreements require the maintenance of
certain financial ratios. At December 31, 1996, retained earnings in the amount
of $16,261,000 were available for the payment of cash dividends.

Interest paid during 1996, 1995 and 1994 amounted to $2,550,000,
$1,434,000, and $2,208,000, respectively.

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


1997.......................... $2,455
1998.......................... 100
1999.......................... 39,100
2000.......................... 100
2001.......................... 100
Thereafter.................... 68,050
--------
$109,905
========


5. STOCK OPTION PLANS

During 1989, the Company adopted a Non-Qualified Stock Option Plan which
provided for the granting of options to key employees to purchase up to 420,000
shares of the Company's Common Stock at a price at least equal to the fair
market value of the stock at the grant date. The Plan, by its terms, expired on
December 31, 1993. No options are exercisable until after one year from the
grant date, and in each of the following four years, 25% of the options become
exercisable on a cumulative basis. Options are exercisable for a period of five
years from the date of grant. All options outstanding under the 1989 Plan expire
during 1997. Transactions under this plan are as follows:


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


Outstanding at January 1, 1994.............. 281,394 $8.88
Granted................................... -- --
Exercised................................. (103,452) $7.69
Expired................................... (64,018) $7.69
-------- ------
Outstanding at December 31, 1994............ 113,924 $10.62
Granted................................... -- --
Exercised................................. (11,500) $9.20
Expired................................... (3,150) $10.78
-------- ------
Outstanding at December 31, 1995............ 99,274 $10.78
Granted................................... -- --
Exercised................................. (37,407) $10.78
Expired................................... (3,150) $10.78
-------- ------
Outstanding at December 31, 1996............ 58,717 $10.78
======== ======



In 1994, the Board of Directors of the Company adopted an Incentive and
Non-Qualified Stock Option Plan (the "1994 Plan"). There were 750,000 shares of
Common Stock reserved for issuance under the 1994 Plan. The 1994 Plan provides
for granting of stock options that may be either "incentive stock options"
within the meaning of Section 422A of the Internal Revenue Code of 1986 (the
"Code") or "non-qualified stock options," which do not satisfy the provisions of
Section 422A of the Code. Options are required to be granted at an option price
per share equal to the fair market value of Common Stock on the date of grant,
except that the exercise price of incentive stock options granted to any
employee who owns (or, under pertinent Code provisions, is deemed to own) more
than 10% of the outstanding Common Stock of the




30

Company, must equal at least 110% of fair market value on the date of grant.
Stock options may not be granted longer than ten years from the date of the 1994
Plan. All options granted have five year terms and vest at the rate of 25% per
year, commencing one year from the date of grant.

On January 24, 1996, non-qualified stock options to purchase 221,500 shares
of the Company's Common Stock at $18.25 per share were granted under the 1994
Plan. No options were granted during 1995 or 1994. No options were exercisable
during 1996.

6. INCOME TAXES

Deferred income taxes are computed using the liability method and reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
income tax purposes. The provision for income taxes reflects the taxes to be
paid for the period and the change during the period in the deferred tax assets
and liabilities. Significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):



DECEMBER 31,
---------------------
1996 1995
--------- ---------

Deferred tax assets:
Accrued expenses not currently deductible for tax................ $6,287 $4,738
Tax basis in excess of book basis of assets transferred to the
Company upon dissolution of FRLP (Note 3)..................... -- 1,448
Unicap........................................................... 783 1,041
Goodwill ........................................................ 445 301
--------- ---------
Total deferred tax assets.......................................... 7,515 7,528
--------- ---------
Deferred tax liabilities:
Tax over book depreciation....................................... 9,030 4,600
Book basis in excess of tax basis on:
Inventory acquired............................................. 7,574 --
Property, plant and equipment acquired......................... 7,919 --
Other, net....................................................... 13 403
--------- ---------
Total deferred tax liabilities..................................... 24,536 5,003
--------- ---------
Net deferred (liabilities) assets.................................. $(17,021) $2,525
========= =========


Significant components of the provision for income taxes are as follows (in
thousands):



YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------

Current:
Federal.......... $14,598 $13,824 $7,559
State............ 3,628 3,846 1,997
----------- ----------- -----------
18,226 17,670 9,556
Deferred:
Federal.......... 1,232 (1,652) 61
State............ 303 (125) 223
----------- ----------- -----------
1,535 (1,777) 284
----------- ----------- -----------
$19,761 $15,893 $9,840
=========== =========== ===========


31

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



YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
----------- ----------- -----------


Income tax at U.S. statutory tax rates................... 35.0% 35.0% 35.0%
State income tax, net of federal tax effect.............. 5.0 5.6 6.0
Other.................................................... (.1) .6 (.4)
----------- ----------- -----------
Effective tax rate.......................................
39.9% 41.2% 40.6%
=========== =========== ===========



Income tax payments during 1996, 1995 and 1994 were $22,922,000,
$13,871,000 and $7,889,000, respectively.

7. SHAREHOLDERS' EQUITY

In September 1994, the Company sold 3,450,000 shares at an initial offering
price of $14.50 per share. The proceeds of $45,904,000 (net of underwriter
commissions and offering costs) were used for the pay down of bank debt, for
working capital purposes and to fund a portion of the acquisition of a 50%
interest in American Steel, L.L.C.

In December 1994, the Board of Directors approved a stock repurchase plan,
authorizing the Company to purchase up to 500,000 shares of its Common Stock
from time to time in the open market or in privately-negotiated transactions.
Repurchased shares are redeemed and treated as authorized but unissued shares.
In February 1995, the Board of Directors authorized the Company to purchase up
to an additional 500,000 shares. As of December 31, 1996, the Company
repurchased a total of 651,800 shares of its Common Stock at an average cost of
$12.18 per share. No shares were repurchased during 1996

8. LEASES

The Company leases land and buildings under noncancelable operating leases
expiring in various years through 2001. Several of the leases have renewal
options providing for additional lease periods. Future minimum payments, by year
and in the aggregate, under the noncancelable leases with initial or remaining
terms of one year or more, consisted of the following at December 31, 1996 (in
thousands):




1997................................. $2,884
1998................................. 2,393
1999................................. 1,119
2000................................. 848
2001................................. 565
Thereafter........................... 1,079
------
$8,888
======


Total rental expense amounted to $3,858,000, $2,099,000, and $1,881,000 for
1996, 1995 and 1994, respectively.

9. EMPLOYEE BENEFITS

The Company has an employee stock ownership plan ("the ESOP") and trust
that has been approved by the Internal Revenue Service as a qualified plan. The
ESOP is a noncontributory plan which covers salaried and certain hourly
employees of the Company. The amount of the annual contribution is at the
discretion of the Board of Directors of the Company, except that the minimum
amount must be sufficient to enable the ESOP Trust to meet its current
obligations.

The Company has a noncontributory defined benefit pension plan covering
salaried and certain hourly employees of the Company. Benefits are based upon
the employees' earnings. The annual contribution is based upon the minimum
funding requirement under Section 412 of the Internal Revenue Code. There is

32

no past service liability in connection with the pension plan. The assets of the
pension plan consist primarily of investments in short-term money market funds,
common stock of publicly traded companies and the Company's Common Stock. On
July 5, 1996, benefits under the pension plan were frozen, as the Company
elected to replace the pension plan with a 401(k) plan. During 1996, the Company
recorded an additional net pension expense of approximately $1,000,000 related
to termination of the plan. The Board of Directors of the Company approved the
termination of the pension plan in February 1997. Distributions under the
pension plan will be made in 1997.

The net periodic pension costs for the plans are as follows:


YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
----------- ----------- --------
(IN THOUSANDS)

Service costs -- benefits earned during the year........ $ 308 $443 $387
Interest cost on projected benefit obligation........... 525 444 400
Actual return on assets................................. (949) (752) (386)
Net amortization and deferral........................... 573 444 18
Curtailment/termination expense......................... 1,000 -- --
------ ------ ------
$1,457 $579 $419
====== ====== ======



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



DECEMBER 31,
-------------------------
1996 1995
------- ------
(IN THOUSANDS)

Actuarial present value of benefit obligations:
Vested benefit obligations.................................... $ 4,458 $4,022
Non-vested benefit obligations................................ 448 371
------- ------
Accumulated benefit obligations................................. $ 4,906 $4,393
------- ------
Projected benefit obligations................................... $ 4,906 $5,932
Assets of the plan at market.................................... 5,899 5,025
------- ------
Excess of plan assets over projected benefit obligation......... 993 (907)
Unrecognized net (gain) loss.................................... (109) 619
Unrecognized net transition obligation being recognized over 15
years......................................................... -- 124
Reserve for curtailment/termination............................. (884) --
------- ------
Prepaid (accrued) pension liabilities........................... $ -- $(164)
======= ======


In determining the actuarial present value of projected benefit obligations
for the Company's pension plan at December 31, 1996 and 1995, the Company
assumed a discount rate of 7.25%, an increase in annual future compensation
levels of 4.50%, and an expected long-term annual rate of return on assets of
8.25%.

The Company has various contributory 401(k) retirement plans that cover
substantially all of the Company's employees who meet minimum service
requirements and who are not covered by a collective bargaining agreement,
including a newly adopted 401(k) plan which replaced the Company's defined
benefit pension plan. Contributions to the plans are funded annually and are
determined at the discretion of the Company's Board of Directors.

Effective January 1996, the Company adopted a Supplemental Executive
Retirement Plan ("SERP"), which is a nonqualified pension plan that provides
post-retirement benefits to key officers of the Company. The SERP is
administered by the Compensation and Stock Option Committee of the Board of
Directors. Benefits are based upon the employees' earnings. At December 31,
1996, the unfunded projected benefit obligation for the plan amounted to
$2,883,000, of which $2,348,000 represents prior service costs which are subject
to later amortization. Life insurance policies will be purchased for most
individuals covered by the SERP and will be funded by the Company. The Company
recorded pension expense of $575,000 related to the SERP in 1996, of which
$195,000 and $191,000 represents amortization of prior service costs and
interest costs, respectively.



33

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



1996 1995 1994
------ ------ ------
(IN THOUSANDS)

Pension Plan................................................ $ 1,457 $ 579 $ 419
Employee Stock Ownership Plan............................... 600 600 555
401(k) Plans................................................ 546 100 72
Supplemental Executive Retirement Plan...................... 575 -- --
------ ------ ------
$3,178 $1,279 $1,046
====== ====== ======


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

The Company has a "Key-Man Incentive Plan" (the "Incentive Plan") for
division managers and officers, which is administered by the Compensation and
Stock Option Committee of the Board of Directors. For 1996, 1995, and 1994 this
incentive compensation bonus was payable 75% in cash and 25% in the Company's
Common Stock. The Company accrued $1,763,000, $1,533,000 and $1,254,000 under
the Incentive Plan as of December 31, 1996, 1995 and 1994, respectively. In
April 1996 and 1995, the Company issued 16,573 and 23,471 shares of Common Stock
to employees under the incentive bonus plan for the years ended December 31,
1995 and 1994, respectively.

10. SUBSEQUENT EVENTS

On March 13, 1997, the Company reached an agreement to purchase 100% of the
outstanding shares of Amalco Metals, Inc. ("Amalco"), subject to successful
completion of due diligence. Amalco is a privately-held metals service center
located in Union City, California. This transaction is expected to be completed
in April 1997. For the year ended April 30, 1996, Amalco's net sales were
approximately $31,000,000.

On March 10, 1997, the Company reached an agreement to purchase 100% of the
outstanding capital stock of AMI Metals, Inc. ("AMI"), subject to successful
completion of due diligence. AMI is a privately-held metals service center
company headquartered in Brentwood, Tennessee, with additional locations in
Fontana, California; Wichita, Kansas; Fort Worth, Texas; Kent, Washington; and
Swedesboro, New Jersey. The transaction is expected to be completed in April
1997, at which time AMI would operate as a wholly-owned subsidiary of the
Company. For the year ended February 28, 1997, AMI's net sales were
approximately $77,000,000.

During January and February 1997, the Company repurchased additional shares
of the Company's Common Stock, bringing the cumulative total to 870,600 shares
at an average cost of $16.63 per share.

34




RELIANCE STEEL & ALUMINUM CO.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the
years ended December 31, 1996, 1995 and 1994:


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

1996:
Net sales....................... $157,634 $164,628 $153,395 $178,318
Cost of sales................... 120,585 125,506 115,767 130,341
Net income...................... 7,844 7,766 6,973 7,207
Earnings per share.............. .76 .74 .67 .69
1995:
Net sales....................... $136,502 $140,753 $135,317 $148,769
Cost of sales................... 105,698 109,512 103,749 113,100
Net income...................... 5,567 5,621 5,676 5,838
Earnings per share.............. .52 .55 .55 .56
1994:
Net sales....................... $104,919 $109,082 $115,718 $117,147
Cost of sales................... 82,283 83,959 89,028 89,435
Net income...................... 3,068 3,739 3,775 3,828
Earnings per share.............. .41 .50 .47 .35


Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year shown elsewhere in the annual report
and SEC Form 10-K.


35



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

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The narrative and tabular information included under the caption
"Management" on pages 5 through 7 and under the caption "Compliance with Section
16(a)" on page 17 of the Proxy Statement are incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The narrative and tabular information, including footnotes thereto,
included under the caption "Executive Compensation" on pages 10 through 14 of
the Proxy Statement are incorporated herein by reference.

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The narrative information included under the caption "Certain Transactions"
on page 16 of the Proxy Statement is incorporated herein by reference.

PART IV

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

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

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

Report of Independent Auditors

Consolidated Balance Sheets at December 31, 1996 and 1995

Consolidated Statements of Income for the Years ended December 31,
1996, 1995 and 1994

Consolidated Statements of Shareholders' Equity for the Years ended
December 31, 1996, 1995 and 1994

Consolidated Statements of Cash Flows for the Years ended December
31, 1996, 1995 and 1994

Notes to Consolidated Financial Statements

Quarterly Results of Operations (Unaudited) for the Years ended
December 31, 1996, 1995 and 1994

36

(2) Financial Statement Schedules

Schedule II -- Valuation and Qualifying Accounts

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

(3) Exhibits


3.01 Registrant's Restated Articles of Incorporation*
3.02 Registrant's Amended and Restated Bylaws*
10.01 Registrant's 1994 Incentive and Non-Qualified Stock
Option Plan and the Forms of Agreements related thereto*
10.02 Registrant's Form of Indemnification Agreement for
officers and directors*
10.03 Incentive Bonus Plans*
10.04 Stock Purchase Agreement dated as of February 20, 1996
among Cayco Holding Co., Ltd., Wolfgang Grunewald, CCC
Steel, Inc. and the Registrant ***
10.05 Stock Purchase Agreement dated August 30, 1996 among the
persons and entities listed on Exhibit "A" attached
thereto, Siskin Steel & Supply Company, Inc. and the
Registrant****
10.06 Registrant's Supplemental Executive Retirement Plan
dated January 1, 1996
10.07 Form of Note Purchase Agreement dated November 1, 1996
between each of the purchasers listed on Schedule "A"
attached thereto and the Registrant*****
10.08 Amendment No. Five to First Amended and Restated
Business Loan Agreement dated March 19, 1997 between the
Company and Bank of America
21.01 Subsidiaries of Registrant
23.01 Consent of Ernst & Young LLP
24.01 Power of Attorney**
- ----------
* Incorporated by reference from Exhibits to Registrant's Registration
Statement on Form S-1, as amended, originally filed on May 25, 1994 as
Commission File No. 33-79318.

** Set forth on page 39 of this report.

*** Incorporated by reference from Report on Form 8-K dated April 3, 1996.

**** Incorporated by reference from Report on Form 8-K dated October 1, 1996.

***** Incorporated by reference from Report on Form 8-K dated January 2, 1997.

(b) Reports on Form 8-K

Registrant filed a Report on Form 8-K and a Form 8-K/A dated October 1,
1996, reporting the acquisition of Siskin Steel & Supply Company, Inc.

Registrant filed a Report on Form 8-K dated April 3, 1996, reporting the
acquisition of CCC Steel, Inc.

37



RELIANCE STEEL & ALUMINUM CO. AND SUBSIDIARIES

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



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

Year Ended December 31, 1994
Reserve and allowances deducted
from asset accounts
Allowance for uncollectible
accounts....................... $1,365 $1,681 $-- $996(1) $2,050
Year Ended December 31, 1995
Reserve and allowances deducted
from asset accounts
Allowance for uncollectible
accounts....................... $2,050 $2,532 $268 $1,597(1) $3,253
Year Ended December 31, 1996
Reserve and allowances deducted
from asset accounts
Allowance for uncollectible
accounts....................... $3,253 $ 723 $110 $1,187(1) $2,899

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

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


38



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on this 19th
day of March, 1997.

RELIANCE STEEL & ALUMINUM CO.


By: /s/ JOE D. CRIDER
------------------------------------
Joe D. Crider
Chairman and Chief Executive Officer



POWER OF ATTORNEY

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

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


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


/s/ JOE D. CRIDER Chairman of the Board and March 19, 1997
- -------------------------------------
Joe D. Crider Chief Executive Officer
(Principal Executive Officer); Director

/s/ DAVID H. HANNAH President; Director March 19, 1997
- -------------------------------------
David H. Hannah

/s/ STEVEN S. WEIS Chief Financial Officer March 19, 1997
- -------------------------------------
Steven S. Weis (Principal Financial Officer and
Principal Accounting Officer)

/s/ WILLIAM T. GIMBEL Director March 19, 1997
- -------------------------------------
William T. Gimbel

/s/ ROBERT HENIGSON Director March 19, 1997
- -------------------------------------
Robert Henigson

/s/ KARL H. LORING Director March 19, 1997
- -------------------------------------
Karl H. Loring

/s/ WILLIAM I. RUMER Director March 19, 1997
- -------------------------------------
William I. Rumer

/s/ LESLIE A. WAITE Director March 19, 1997
- -------------------------------------
Leslie A. Waite



39



EXHIBIT INDEX



SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ---------- ----------- ---------

3.01 Registrant's Restated Articles of Incorporation*...........................................
3.02 Registrant's Amended and Restated Bylaws*..................................................
10.01 Registrant's 1994 Incentive and Non-Qualified Stock Option Plan and the
Forms of Agreements related thereto*.......................................................
10.02 Registrant's Form of Indemnification Agreement for officers and directors*.................
10.03 Incentive Bonus Plan*......................................................................
10.04 Stock Purchase Agreement dated as of February 20, 1996 among Cayco Holding Co., Ltd.,
Wolfgang Grunewald, CCC Steel, Inc. and the Registrant ***.................................
10.05 Stock Purchase Agreement dated August 30, 1996 among the persons and entities listed on
Exhibit "A" attached thereto, Siskin Steel & Supply Company, Inc. and the Registrant ****..
10.06 Registrant's Supplemental Executive Retirement Plan dated January 1, 1996..................
10.07 Form of Note Purchase Agreement dated November 1, 1996 between each of the purchasers
listed on Schedule "A" attached thereto and the Registrant *****...........................
10.08 Amendment No. Five to First Amended and Restated Business Loan Agreement dated March 19,
1997 between the Company and Bank of America...............................................
21.01 Subsidiaries of Registrant.................................................................
23.01 Consent of Ernst & Young LLP...............................................................
24.01 Power of Attorney**........................................................................

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

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

** Set forth on page 39 of this report.

*** Incorporated by reference from Report on Form 8-K dated April 3, 1996.

**** Incorporated by reference from Report on Form 8-K dated October 1, 1996.

***** Incorporated by reference from Report on Form 8-K dated January 2, 1997.


40