UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2018

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

For the transition period from to

Commission file number: 001-13122

RELIANCE STEEL & ALUMINUM CO.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

95-1142616

(I.R.S. Employer

Identification No.)

350 South Grand Avenue, Suite 5100

Los Angeles, California 90071

(Address of principal executive offices, including zip code)

(213) 687-7700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

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


Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐
Emerging growth company ☐

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

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

Yes ☐ No ☒

As of ~~October 30, 2017, 72,915,294~~April 27, 2018, 72,336,378 shares of the registrant’s common stock, $0.001 par value, were outstanding.

Table of Contents

RELIANCE STEEL & ALUMINUM CO.

TABLE OF CONTENTS


PART I -- FINANCIAL INFORMATION			1

	Item 1.	Financial Statements

		Unaudited Consolidated Balance Sheets	1

		Unaudited Consolidated Statements of Income	2

		Unaudited Consolidated Statements of Comprehensive Income	3

		Unaudited Consolidated Statements of Cash Flows	4

		Notes to Unaudited Consolidated Financial Statements	5

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

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2321

	Item 4.	Controls and Procedures	2322

PART II -- OTHER INFORMATION			2422

	Item 1.	Legal Proceedings	2422

	Item 1A.	Risk Factors	2422

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2423

	Item 3.	Defaults Upon Senior Securities	2423

	Item 4.	Mine Safety Disclosures	2423

	Item 5.	Other Information	2423

	Item 6.	Exhibits	2423

SIGNATURES			25

Table of Contents

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value amounts)


	September 30,		December 31,		March 31,		December 31,
	2017		2016*		2018		2017*
ASSETS	ASSETS				ASSETS
Current assets:
Cash and cash equivalents	$	170.2	$	122.8	$	145.4	$	154.4
Accounts receivable, less allowance for doubtful accounts of $17.0 at September 30, 2017 and $15.3 at December 31, 2016		1,166.0		960.2
Accounts receivable, less allowance for doubtful accounts of $18.4 at March 31, 2018 and $15.5 at December 31, 2017						1,323.7		1,087.3
Inventories		1,772.5		1,532.6		1,902.9		1,726.0
Prepaid expenses and other current assets		60.4		72.9		65.6		80.7
Income taxes receivable						—		2.9
Total current assets		3,169.1		2,688.5		3,437.6		3,051.3
Property, plant and equipment:
Land		232.8		228.2		229.5		229.7
Buildings		1,087.1		1,059.2		1,106.6		1,095.3
Machinery and equipment		1,712.2		1,647.3		1,765.4		1,738.6
Accumulated depreciation		(1,381.0)		(1,272.5)		(1,447.2)		(1,407.3)
Property, plant and equipment, net		1,651.1		1,662.2		1,654.3		1,656.3

Goodwill		1,834.0		1,827.4		1,850.4		1,842.6
Intangible assets, net		1,116.8		1,151.3		1,115.5		1,112.1
Cash surrender value of life insurance policies, net		36.8		46.9		44.3		47.8
Other assets		39.1		35.0		45.8		40.9
Total assets	$	7,846.9	$	7,411.3	$	8,147.9	$	7,751.0

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY				LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	407.2	$	302.2	$	483.9	$	346.7
Accrued expenses		103.5		83.7		91.5		83.6
Accrued compensation and retirement costs		128.5		140.8		108.4		139.3
Accrued insurance costs		42.6		40.6		48.3		42.1
Current maturities of long-term debt and short-term borrowings		79.7		82.5		101.2		92.0
Income taxes payable		19.7		6.2		40.8		—
Total current liabilities		781.2		656.0		874.1		703.7
Long-term debt		1,896.0		1,846.7		1,947.1		1,809.4
Long-term retirement costs		86.2		89.6		87.0		85.4
Other long-term liabilities		13.0		13.0		14.3		11.8
Deferred income taxes		624.6		626.9		441.8		440.8
Commitments and contingencies
Equity:
Preferred stock, $0.001 par value:
Authorized shares — 5,000,000
None issued or outstanding		—		—		—		—
Common stock and additional paid-in capital, $0.001 par value:
Authorized shares — 200,000,000
Issued and outstanding shares – 72,913,683 at September 30, 2017 and 72,682,793 at December 31, 2016		616.2		590.3
Issued and outstanding shares – 72,342,804 at March 31, 2018 and 72,609,540 at December 31, 2017						549.1		594.6
Retained earnings		3,876.6		3,663.2		4,275.9		4,144.1
Accumulated other comprehensive loss		(77.9)		(104.7)		(74.5)		(71.6)
Total Reliance stockholders’ equity		4,414.9		4,148.8		4,750.5		4,667.1
Noncontrolling interests		31.0		30.3		33.1		32.8
Total equity		4,445.9		4,179.1		4,783.6		4,699.9
Total liabilities and equity	$	7,846.9	$	7,411.3	$	8,147.9	$	7,751.0

* Amounts were derived from audited financial statements.

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2018		2017
Net sales	$	2,450.1	$	2,185.2	$	7,344.6	$	6,551.8	$	2,757.1	$	2,419.3

Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization shown below)		1,764.6		1,530.6		5,235.4		4,575.4
Warehouse, delivery, selling, general and
administrative		470.0		453.0		1,422.1		1,357.7
Cost of sales (exclusive of depreciation and amortization shown below)										1,937.2		1,697.7
Warehouse, delivery, selling, general and administrative										519.4		476.2
Depreciation and amortization		54.0		55.1		164.2		166.7		54.1		55.2
Impairment of long-lived assets		2.8		51.7		2.8		51.7
		2,291.4		2,090.4		6,824.5		6,151.5		2,510.7		2,229.1

Operating income		158.7		94.8		520.1		400.3		246.4		190.2

Other (income) expense:
Other expense:
Interest expense		19.1		22.2		54.9		65.6		19.3		17.3
Other (income) expense, net		(2.6)		2.1		2.1		3.4
Other expense, net										1.9		4.4
Income before income taxes		142.2		70.5		463.1		331.3		225.2		168.5
Income tax provision		43.2		19.9		145.9		85.1		54.1		55.1
Net income		99.0		50.6		317.2		246.2		171.1		113.4
Less: Net income attributable to noncontrolling interests										2.1		1.7
interests		1.7		1.1		5.2		3.6
Net income attributable to Reliance	$	97.3	$	49.5	$	312.0	$	242.6	$	169.0	$	111.7

Earnings per share attributable to Reliance stockholders:
Diluted	$	1.32	$	0.68	$	4.24	$	3.32	$	2.30	$	1.52
Basic	$	1.33	$	0.68	$	4.28	$	3.36	$	2.32	$	1.53

Cash dividends per share	$	0.45	$	0.425	$	1.35	$	1.225	$	0.50	$	0.45

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2018		2017
Net income	$	99.0	$	50.6	$	317.2	$	246.2	$	171.1	$	113.4
Other comprehensive income (loss):
Foreign currency translation gain (loss)		10.5		(3.2)		24.5		7.7
Other comprehensive (loss) income:
Foreign currency translation (loss) gain										(2.9)		7.6
Pension and postretirement benefit adjustments, net of tax		—		—		2.3		—		—		2.3
Total other comprehensive income (loss)		10.5		(3.2)		26.8		7.7
Total other comprehensive (loss) income										(2.9)		9.9
Comprehensive income		109.5		47.4		344.0		253.9		168.2		123.3
Less: Comprehensive income attributable to noncontrolling interests		1.7		1.1		5.2		3.6		2.1		1.7
Comprehensive income attributable to Reliance	$	107.8	$	46.3	$	338.8	$	250.3	$	166.1	$	121.6

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2017		2016		2018		2017
Operating activities:
Net income	$	317.2	$	246.2	$	171.1	$	113.4
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense		164.2		166.7		54.1		55.2
Impairment of long-lived assets		2.8		51.7
Deferred income tax (benefit) provision		(4.7)		0.5
Deferred income tax provision						1.1		0.2
Gain on sales of property, plant and equipment		(8.4)		(1.1)		(0.1)		(3.9)
Stock-based compensation expense		23.3		17.8		6.4		5.5
Other		4.9		5.9		3.0		4.0
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable		(202.6)		(112.0)		(230.6)		(186.7)
Inventories		(235.5)		(95.5)		(169.8)		(146.5)
Prepaid expenses and other assets		12.6		35.2		15.9		9.2
Accounts payable and other liabilities		124.5		72.2		162.2		128.9
Net cash provided by operating activities		198.3		387.6
Net cash provided by (used in) operating activities						13.3		(20.7)

Investing activities:
Purchases of property, plant and equipment		(118.1)		(110.6)		(41.8)		(34.1)
Acquisitions, net of cash acquired		(1.3)		(349.0)		(39.6)		(1.3)
Proceeds from sales of property, plant and equipment		14.0		5.7
Other		5.6		(4.1)		4.1		3.4
Net cash used in investing activities		(99.8)		(458.0)		(77.3)		(32.0)

Financing activities:
Net short-term debt borrowings (repayments)		3.6		(11.9)		1.0		(3.8)
Proceeds from long-term debt borrowings		674.0		1,713.0		398.0		339.0
Principal payments on long-term debt		(634.5)		(1,525.2)		(253.7)		(242.1)
Debt issuance costs		—		(6.8)
Dividends and dividend equivalents paid		(99.3)		(89.5)		(38.5)		(33.7)
Exercise of stock options		3.4		31.3		2.8		2.8
Share repurchases						(49.3)		—
Other		(5.3)		(4.1)		(5.4)		(1.8)
Net cash (used in) provided by financing activities		(58.1)		106.8
Effect of exchange rate changes on cash		7.0		2.6
Increase in cash and cash equivalents		47.4		39.0
Net cash provided by financing activities						54.9		60.4
Effect of exchange rate changes on cash and cash equivalents						0.1		3.3
(Decrease) increase in cash and cash equivalents						(9.0)		11.0
Cash and cash equivalents at beginning of year		122.8		104.3		154.4		122.8
Cash and cash equivalents at end of period	$	170.2	$	143.3	$	145.4	$	133.8

Supplemental cash flow information:
Interest paid during the period	$	44.2	$	47.0	$	9.0	$	8.1
Income taxes paid during the period, net	$	135.2	$	67.2	$	9.0	$	3.0

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

See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2017~~March 31, 2018

1. Basis of Presentation

Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements, have been included. The results of operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results for the full year ending December 31, ~~2017.~~2018. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto for the year ended December 31, ~~2016,~~2017, included in Reliance Steel & Aluminum Co.’s (“Reliance”, the “Company”, “we”, “our” or “us”) Annual Report on Form 10-K.

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

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

2. Impact of Recently Issued Accounting Guidance

Impact of Recently Issued Accounting Standards—Adopted

~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost—~~Revenue from Contracts with Customers—In ~~March 2017,~~May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting changes that replaced most of the detailed guidance on revenue recognition that previously existed under U.S. GAAP. Under the new standard, an entity should recognize revenue when goods or services are transferred to ~~improve~~ the ~~presentation~~customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of ~~net periodic pension cost~~revenue and net periodic postretirement benefit cost in the income statement, and to narrow the amounts eligible for capitalization in assets. The amendments require the service cost component of net periodic benefit cost be reported in the same line as other compensation costs and the other components of net periodic benefit cost be presented in the income statement outside of operating income. cash flows arising from an entity’s contracts with customers.We adopted these changes ~~in the three months ended March 31, 2017 on a retrospective basis. As a result~~as of the adoption, we retrospectively adjusted the presentation of our income statement for the three-month and nine-month periods ended September 30, 2016, decreasing Warehouse, delivery, selling, general and administrative expense by $1.3 million and $3.9 million, respectively, and increasing Other (income) expense, net by $1.3 million and $3.9 million, respectively. The adjustment to the income statement presentation for the 2016 periods was estimatedJanuary 1, 2018 using the ~~components of net periodic benefit cost other than service cost included in~~ modified retrospective method. See Note 114—“Revenues” — ~~“Employee Benefits” to our consolidated financial statements included in our Annual Report on Form 10-K~~ for the year ended December 31, 2016. We include the components of net periodic benefit cost other than service cost in Other (income) expense, net in all periods presented. The amendment requiring only the service cost component of net periodic benefit cost to be eligible for capitalization in assets did not impact our asset capitalization policies. The adoption of these changes did not have a material impact on our consolidated financial statements.further details.

~~Clarifying the Definition of a Business—~~In January 2017, the FASB issued accounting changes to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The accounting changes provide a framework to determine when a set of assets and activities is not a business. These accounting changes, which will be applied to our future acquisitions, were adopted during the three months ended March 31, 2017. The adoption of these accounting changes did not have a material impact on our consolidated financial statements.

~~Table of Contents~~

~~Impact of Recently Issued Accounting Standards—Not Yet Adopted~~

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

Impact of Recently Issued Accounting Standards—Not Yet Adopted

Leases—In February 2016, the FASB issued accounting changes which will require lessees to recognize most long-term leases ~~on-balance~~on the balance sheet through the recognition of a right-of-use asset and a lease liability. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2018, or January 1, 2019 for the Company. Early adoption is permitted. We have implemented a lease management system and are developing processes necessary to implement these accounting changes. We expect the adoption of these accounting changes will materially increase our assets and liabilities, but will not have a material impact on our net income, equity, or ~~equity.~~cash flows. We anticipate adopting this new standard on January 1, 2019 with modified retrospective application, using the available practical expedients. ~~Full retrospective application is prohibited.~~

~~Revenue from Contracts with Customers~~—In May 2014, the FASB issued accounting changes, which replace most of the detailed guidance on revenue recognition that currently exists under U.S. GAAP. Under the new guidance, an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company will adopt the new guidance on January 1, 2018 using the modified retrospective method, which requires that we recognize the cumulative effect of initially applying the accounting changes as an adjustment to opening retained earnings on the adoption date. We primarily sell our inventories in the “spot market” pursuant to fixed price purchase orders and do not enter into transactions with multiple performance obligations. As such, we do not expect this standard to have a material impact on our consolidated financial statements. We will continue to evaluate this standard and update the disclosures on its impact.

~~3. Acquisitions~~

~~2016 Acquisitions~~

On August 1, 2016, through our wholly owned subsidiary American Metals Corporation, we acquired Alaska Steel Company (“Alaska Steel”), a full-line metal distributor headquartered in Anchorage, Alaska. Our acquisition of Alaska Steel was our first entry into the Alaska market. Alaska Steel provides steel, aluminum, stainless and specialty metals and related processing services to a variety of customers in diverse industries including infrastructure and energy, throughout Alaska. Alaska Steel’s net sales for the nine months ended September 30, 2017 were $17.3 million.

On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator of steel and aluminum products on both a direct and toll basis. Best Manufacturing, headquartered in Jonesboro, Arkansas, provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. Best Manufacturing’s net sales for the nine months ended September 30, 2017 were $16.8 million.

On January 1, 2016, we acquired Tubular Steel, Inc. (“Tubular Steel”), a distributor and processor of carbon, alloy and stainless steel pipe, tubing and bar products. Tubular Steel, headquartered in St. Louis, Missouri, has six locations and a fabrication business that supports its diverse customer base. Tubular Steel’s net sales for the nine months ended September 30, 2017 were $102.5 million.

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

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Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—In February 2018, the FASB issued accounting changes that allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Reform”). The ~~allocation~~guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period. The adoption of ~~the total purchase price~~this standard will not have a material impact on our consolidated financial statements.

3. Acquisitions

On March 1, 2018, we acquired DuBose National Energy Services, Inc. (“DuBose Energy”) and its affiliate, DuBose National Energy Fasteners & Machined Parts, Inc. (“DuBose Fasteners” and, together with DuBose Energy, “DuBose”). DuBose was founded in 1990 and is headquartered in Clinton, North Carolina. DuBose specializes in fabrication, supply and distribution of ~~our 2016 acquisitions~~metal and metal products to the ~~fair values of~~nuclear industry, including utilities, component manufacturers and contractors. DuBose’s net sales during the ~~assets acquired and liabilities assumed was as follows:~~period from March 1, 2018 to March 31, 2018 were $2.3 million.

On October 2, 2017, through our wholly owned subsidiary Diamond Manufacturing Company, we acquired Ferguson Perforating Company (“Ferguson”). Ferguson, headquartered in Providence, Rhode Island, specializes in manufacturing highly engineered and complex perforated metal parts for diverse end markets including industrial machinery, automotive, aerospace, sugar products and consumer electronics manufacturers. Ferguson’s net sales were $9.5 million for the first quarter of 2018. We funded our acquisitions of DuBose and Ferguson with borrowings on our revolving credit facility and cash on hand.
	~~(in millions)~~
~~Cash~~	$	~~1.5~~
~~Accounts receivable~~		~~14.1~~
~~Inventories~~		~~66.6~~
~~Property, plant and equipment~~		~~62.2~~
~~Goodwill~~		~~104.7~~
~~Intangible assets subject to amortization~~		~~77.1~~
~~Intangible assets not subject to amortization~~		~~38.2~~
~~Other current and long-term assets~~		~~0.5~~
~~Total assets acquired~~		~~364.9~~
~~Current and long-term debt~~		~~6.1~~
~~Other current and long-term liabilities~~		~~7.3~~
~~Total liabilities assumed~~		~~13.4~~
~~Net assets acquired~~	$	~~351.5~~

The acquisitions discussed in this note have been accounted for under the acquisition method of accounting and, accordingly, the respective purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of each acquisition. The accompanying consolidated statements of income include the revenues and expenses of each acquisition since its respective acquisition date. The consolidated balance sheets reflect the allocation of each acquisition’s purchase price as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017, as applicable. The purchase price allocations for our acquisitions of DuBose and Ferguson are preliminary and are pending the completion of pre-acquisition income tax returns. The measurement periods for purchase price allocations do not exceed 12 months from the acquisition date.

4. Revenues

Revenue from Contracts with Customers

On January 1, 2018, we adopted new accounting guidance relating to the recognition of revenue from contracts with our customers using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. We did not record a cumulative-effect adjustment to retained earnings upon adoption and comparable period financial statement amounts have not been adjusted. Our reported results for the first quarter of 2018 would not have been different if reported under the previous accounting standard.

Revenue Recognition

We recognize revenue when control of metal products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. There are no significant judgments or estimates made to determine the amount or timing of our reported revenues. The amount of transaction price associated with unperformed performance obligations and the amount of our contract balances is not significant.

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The following table presents our sales disaggregated by product and service. Certain sales taxes or value-added taxes collected from customers are excluded from our reported sales.


	Three Months Ended
	March 31,
	2018		2017
	(in millions)
Carbon Steel	$	1,461.2	$	1,285.5
Aluminum		550.2		483.1
Stainless Steel		403.2		347.3
Alloy		169.0		145.3
Toll processing and logistics		101.1		87.2
Other and eliminations		72.4		70.9
Total	$	2,757.1	$	2,419.3

Metal Sales

Metal product sales represented approximately 94% of our first quarter of 2018 revenues. We have minimal contract sales with our customers as we primarily sell our inventories in the “spot market” under fixed price sales orders. The contracts with our customers generally have only one performance obligation. Control of the metal products we sell transfers to our customers upon delivery for orders with FOB destination terms or upon shipment for orders with FOB shipping point terms. Shipping and handling charges to our customers are included in net sales. We account for all shipping and handling of our products as fulfillment activities and not as a promised good or service. Costs incurred in connection with the shipping and handling of our products are typically included in operating expenses whether we use a third-party carrier or our own trucks. Shipment and delivery of our orders generally occur on the same day due to the close proximity of our customers and our metals service center locations.

Toll Processing and Logistics

Toll processing services relate to the processing of customer-owned metal. Logistics services primarily include transportation services for metal we toll-process. Revenue for these services is recognized over time as the toll processing or logistics services are performed. These services are generally short-term in nature with the service being performed in less than one day.

Seasonality

Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses. However, our overall operations have not shown any material seasonal trends as a result of our geographic, product and customer diversity. Typically, revenues in the months of July, November and December have been lower than in other months because of a reduced number of working days for shipments of our products, resulting from holidays observed by the Company as well as vacation and extended holiday closures at some of our customers.

5. Goodwill

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


	(in millions)		(in millions)
Balance at January 1, 2017	$	1,827.4
Balance at January 1, 2018			$	1,842.6
Acquisition		1.3		9.1
Effect of foreign currency translation		5.3		(1.3)
Balance at September 30, 2017	$	1,834.0
Balance at March 31, 2018			$	1,850.4

We had no accumulated impairment losses related to goodwill at ~~September 30, 2017.~~March 31, 2018.

~~5. Intangible Assets, net~~The goodwill recorded from our acquisition of DuBose is tax deductible.

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

September 30, 2017

December 31, 2016

Weighted Average

Gross

Gross

Amortizable

Carrying

Accumulated

Carrying

Accumulated

Life in Years

Amount

Amortization

Amount

Amortization

(in millions)
Intangible assets subject to amortization:

Covenants not to compete
4.7

$
0.9

$
(0.5)

$
1.1

$
(0.6)
Customer lists/relationships
14.6

741.7

(379.9)

736.7

(338.9)
Software
10.0

8.1

(8.1)

8.1

(8.1)
Other
5.4

6.4

(5.8)

6.3

(5.5)

757.1

(394.3)

752.2

(353.1)
Intangible assets not subject to amortization:

Trade names

754.0

—

752.2

—

$
1,511.1

$
(394.3)

$
1,504.4

$
(353.1)

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6. Intangible Assets, net

Intangible assets, net consisted of the following:


		March 31, 2018				December 31, 2017
	Weighted Average	Gross				Gross
	Amortizable	Carrying		Accumulated		Carrying		Accumulated
	Life in Years	Amount		Amortization		Amount		Amortization
		(in millions)
Intangible assets subject to amortization:
Covenants not to compete	4.8	$	0.8	$	(0.4)	$	0.8	$	(0.4)
Customer lists/relationships	14.5		752.6		(402.4)		745.0		(391.3)
Software	10.0		8.1		(8.1)		8.1		(8.1)
Other	5.7		7.6		(6.6)		6.3		(5.9)
			769.1		(417.5)		760.2		(405.7)
Intangible assets not subject to amortization:
Trade names			763.9		—		757.6		—
		$	1,533.0	$	(417.5)	$	1,517.8	$	(405.7)

Intangible assets recorded in connection with our acquisition of DuBose were $15.7 million as of March 31, 2018 (see Note 3—“Acquisitions”). A total of $6.6 million was allocated to the trade names acquired, which are not subject to amortization.

We recognized amortization expense for intangible assets of ~~$38.9~~$11.8 million and ~~$40.6~~$13.4 million for the ~~nine months ended September 30,~~first quarters of 2018 and 2017, ~~and 2016,~~ respectively. Foreign currency translation ~~gains~~losses related to intangible assets, net, were ~~$4.4~~$0.9 million ~~during~~for the ~~nine months ended September 30, 2017.~~first quarter of 2018.

The following is a summary of estimated aggregate amortization expense for the remaining ~~three~~nine months of ~~2017~~2018 and each of the succeeding five years:


	(in millions)		(in millions)
2017 (remaining three months)	$	11.6
2018		46.3
2018 (remaining nine months)			$	35.7
2019		46.2		47.5
2020		46.2		47.5
2021		42.2		43.4
2022		34.0		35.2
2023				29.1

6.7. Debt

Debt consisted of the following:


	September 30,		December 31,		March 31,		December 31,
	2017		2016		2018		2017
	(in millions)				(in millions)
Unsecured revolving credit facility due September 30, 2021	$	610.0	$	540.0	$	690.0	$	538.0
Unsecured term loan due from December 29, 2017 to September 30, 2021		570.0		600.0
Unsecured term loan due from June 29, 2018 to September 30, 2021						555.0		562.5
Senior unsecured notes due April 15, 2023		500.0		500.0		500.0		500.0
Senior unsecured notes due November 15, 2036		250.0		250.0		250.0		250.0
Other notes and revolving credit facilities		59.5		55.0		65.7		64.0
Total		1,989.5		1,945.0		2,060.7		1,914.5
Less: unamortized discount and debt issuance costs		(13.8)		(15.8)		(12.4)		(13.1)
Less: amounts due within one year and short-term borrowings		(79.7)		(82.5)		(101.2)		(92.0)
Total long-term debt	$	1,896.0	$	1,846.7	$	1,947.1	$	1,809.4

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Unsecured Credit Facility

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

Weighted average interest rates on borrowings outstanding on the revolving credit facility were ~~2.49%~~3.37% and ~~2.16%~~2.96% as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. Weighted average interest rates on borrowings outstanding on the term loan were ~~2.49%~~3.13% and ~~2.02%~~2.82% as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. As of ~~September 30, 2017,~~March 31, 2018, we had ~~$610.0~~$690.0 million of outstanding borrowings, ~~$63.0~~$52.9 million of letters of credit issued and ~~$827.0~~$757.1 million available for borrowing on the revolving credit facility.

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Senior Unsecured Notes

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

On April 12, 2013, we entered into an indenture (the “2013 Indenture” and, together with the 2006 Indenture, the “Indentures”), for the issuance of $500.0 million aggregate principal amount of senior unsecured notes at the rate of 4.50% per annum, maturing on April 15, 2023.

Under the Indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations.

The senior unsecured notes include provisions that require us to make an offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest in the event of both a change in control and a downgrade of our credit rating.

Other Notes and Revolving Credit Facilities

Revolving credit facilities with a combined credit limit of approximately ~~$69.8~~$66.5 million are in place for operations in Asia and Europe with combined outstanding balances of ~~$49.2~~$55.6 million and ~~$44.4~~$53.9 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

Various industrial revenue bonds had combined outstanding balances of ~~$10.3~~$10.1 million as of ~~September 30, 2017~~March 31, 2018 and ~~$10.6 million as of~~ December 31, ~~2016,~~2017, and have maturities through 2027.

Covenants

~~7. Income Taxes~~

Our effective income tax rates for the three months ended September 30, 2017 and 2016 were 30.4% and 28.2%, respectively. Our effective income tax rates for the nine months ended September 30, 2017 and 2016 were 31.5% and 25.7%, respectively. Our 2016 nine-month period effective income tax rate was favorably impacted by the resolution of a tax position that was previously uncertain, which lowered our 2016 nine-month income tax provision by $17.6 million and our effective income tax rate by 5.3 percentage points. Other permanent items that lowered our effective income tax rates from the federal statutory rate were not materially different during both years and relate mainly to company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lower than the U.S. statutory rate of 35%.

~~8. Equity~~

~~Common Stock~~

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

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8. Income Taxes

Our effective income tax rates for the first quarters of 2018 and 2017 were 24.0% and 32.7%, respectively. Our first quarter of 2018 effective income tax rate was favorably impacted by Tax Reform, which included significant changes to the taxation of U.S. corporations, including a reduction of the U.S. federal statutory rate from 35% to 21% effective January 1, 2018. Based on our preliminary assessment of the impact of Tax Reform, we recognized a one-time, provisional net tax benefit of $207.3 million in the fourth quarter of 2017, primarily related to the remeasurement of deferred tax assets and liabilities at the lowered federal statutory tax rate, which was partially offset by repatriation and related liabilities. Given the substantial changes to the Internal Revenue Code as a result of Tax Reform, our estimated financial impacts from Tax Reform are subject to further analysis, interpretation and clarification of the new law, which could result in changes to our estimates in future quarters in 2018. We did not make an adjustment during the first quarter of 2018 to our provisional estimate recognized in 2017. State income taxes offset by the effects of company-owned life insurance policies mainly accounted for the difference between our effective income tax rate and the federal statutory rate for the first quarter of 2018.

9. Equity

Common Stock and Share Repurchase Plan

On October 20, 2015, our Board of Directors increased the number of shares authorized to be repurchased under our share repurchase plan by 7.5 million shares and extended the duration of the plan through December 31, 2018. We repurchase shares through open market purchases under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Since initiating the share repurchase plan in 1994, we have repurchased approximately 23.1 million shares at an average cost of $32.94 per share. As of March 31, 2018, we had authorization under the plan to purchase approximately 7.5 million shares, or about 10% of our current outstanding shares. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.

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


	Three Months Ended					Nine Months Ended					Three Months Ended
	September 30, 2017					September 30, 2017					March 31, 2018
				Weighted Average					Weighted Average					Weighted Average
	Shares	Amount		Exercise Price		Shares	Amount		Exercise Price		Shares	Amount		Exercise Price
	(in millions, except share and per share amounts)										(in millions, except share and per share amounts)
Stock-based compensation(1)	2,133	$	8.4			164,435	$	22.5			269,433	$	1.0
Stock options exercised	9,925		0.5	$	55.73	66,455		3.4	$	50.81	48,275		2.8	$	57.91
Share repurchases(2)											(592,564)		(50.0)
Total	12,058	$	8.9			230,890	$	25.9			(274,856)	$	(46.2)

⁽¹⁾

~~The nine months ended September 30, 2017 amount is comprised of stock-based~~Stock-based compensation expense of ~~$23.3~~$6.4 million reduced by ~~$0.8~~$5.4 million of payments we made to tax authorities on our employees’ behalf for shares withheld related to net share settlements.

⁽²⁾

Includes 8,120 shares for $0.7 million pending settlement at March 31, 2018.

Dividends

On ~~October 24, 2017,~~April 25, 2018, our Board of Directors declared the ~~2017 fourth~~2018 second quarter cash dividend of ~~$0.45~~$0.50 per share. The dividend is payable on ~~December 8, 2017~~June 15, 2018 to stockholders of record as of ~~November 17, 2017.~~May 25, 2018.

During the ~~third~~first quarters of ~~2017~~2018 and ~~2016,~~2017, we declared and paid quarterly dividends of ~~$0.45~~$0.50 and ~~$0.425~~$0.45 per share, or ~~$32.8~~$36.5 million and ~~$31.5~~$32.8 million in total, respectively. During the ~~nine months ended September 30,~~first quarters of 2018 and 2017, ~~and 2016,~~ we ~~declared and~~ paid ~~quarterly dividends of $1.35 and $1.225 per share, or $98.4~~$2.0 million and ~~$88.6 million in total, respectively. During the nine months ended September 30, 2017 and 2016, we paid~~ $0.9 million in dividend equivalents with respect to vested restricted stock units (“RSUs”)., respectively.

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Stock-Based Compensation

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

A summary of the status of our unvested service-based and performance-based RSUs as of ~~September 30, 2017~~March 31, 2018 and changes during the ~~nine-month period~~quarter then ended is as follows:


		Weighted			Weighted
		Average Grant			Average Grant
Unvested Shares	Shares	Date Fair Value		Shares	Date Fair Value
Unvested at January 1, 2017	985,540	$	64.34
Unvested at January 1, 2018				924,575	$	74.09
Granted(1)	446,525		79.60	474,715		84.26
Vested	(8,159)		62.49	(3,032)		71.59
Cancelled	(38,274)		67.84
Unvested at September 30, 2017	1,385,632	$	69.18
Cancelled or forfeited				(10,018)		73.84
Unvested at March 31, 2018				1,386,240	$	77.58
Shares reserved for future grants (all plans)	1,650,458			1,379,291

⁽¹⁾

~~446,525~~474,715 RSUs, including ~~169,009~~178,970 performance-based ~~RSUs.~~RSUs, were granted in March 2018.

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Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss included the following:

Pension and

Accumulated

Foreign Currency

Postretirement

Other

Translation

Benefit Adjustments,

Comprehensive

(Loss) Gain

Net of Tax

(Loss) Income

(in millions)
Balance as of January 1, 2017
$
(79.9)

$
(24.8)

$
(104.7)
Current-period change

24.5

2.3

26.8
Balance as of September 30, 2017
$
(55.4)

$
(22.5)

$
(77.9)


			Pension and		Accumulated
	Foreign Currency		Postretirement		Other
	Translation		Benefit Adjustments,		Comprehensive
	Loss		Net of Tax		Loss
	(in millions)
Balance as of January 1, 2018	$	(51.1)	$	(20.5)	$	(71.6)
Current-period change		(2.9)		—		(2.9)
Balance as of March 31, 2018	$	(54.0)	$	(20.5)	$	(74.5)

Foreign currency translation adjustments ~~are~~have not ~~generally~~been adjusted for income ~~taxes as they relate to indefinite investments in foreign subsidiaries.~~taxes. Pension and postretirement benefit adjustments are net of taxes of ~~$13.5 million and $14.9~~$13.6 million as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016, respectively.~~2017.

9.10. Commitments and Contingencies

Environmental Contingencies

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

Legal Matters

From time to time, we are named as a defendant in legal actions. Generally, these actions arise out of our normal course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental

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to the business. We expect that these matters will be resolved without having a material adverse effect on our results of operations, financial condition or cash flows. We maintain general liability insurance against risks arising out of our normal course of business.

~~10.~~11. Earnings Per Share

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2018		2017
	(in millions, except share and per share amounts)								(in millions, except share and per share amounts)
Numerator:
Net income attributable to Reliance	$	97.3	$	49.5	$	312.0	$	242.6	$	169.0	$	111.7
Denominator:
Weighted average shares outstanding		72,908,979		72,542,873		72,881,000		72,282,537		72,818,336		72,841,878
Dilutive effect of stock-based awards		708,500		737,924		630,427		752,401		632,029		573,487
Weighted average diluted shares outstanding		73,617,479		73,280,797		73,511,427		73,034,938		73,450,365		73,415,365

Earnings per share attributable to Reliance stockholders:
Diluted	$	1.32	$	0.68	$	4.24	$	3.32	$	2.30	$	1.52
Basic	$	1.33	$	0.68	$	4.28	$	3.36	$	2.32	$	1.53

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Potentially dilutive securities whose effect would have been antidilutive were not significant for the ~~three-month~~first quarters of 2018 and ~~nine-month periods ended September 30, 2017 and 2016.~~

~~11. Impairment and Restructuring Charges~~

We recorded impairment and restructuring charges of $2.1 million and $2.4 million in the three months and nine months ended September 30, 2017, respectively, compared to $67.3 million in the comparable 2016 periods. The 2016 charges mainly related to certain of our energy-related businesses as a result of the impact to our business from continued low crude oil prices that reduced drilling activity and the resulting decline in demand for the products we sell to the energy market (oil and gas).

~~The impairment and restructuring charges (credits) consisted of the following:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(in millions)
Property, plant and equipment
$
2.8

$
15.3

$
2.8

$
15.3
Intangible assets, net

—

36.4

—

36.4
Total impairment charges

2.8

51.7

2.8

51.7
Restructuring––cost of sales

—

11.7

(0.2)

11.7
Restructuring––warehouse, delivery, selling, general and administrative expense

(0.7)

2.9

(0.2)

2.9
Restructuring––non-operating expense

—

1.0

—

1.0
Total impairment and restructuring charges
$
2.1

$
67.3

$
2.4

$
67.3

~~12. Subsequent Events~~

On October 2, 2017, through our wholly owned subsidiary Diamond Manufacturing Company, we acquired Ferguson Perforating Company (“Ferguson”). Ferguson, headquartered in Providence, Rhode Island, specializes in manufacturing highly engineered and complex perforated metal parts that have application in diverse end markets including industrial machinery, automotive, aerospace, sugar producers and consumer electronics manufacturers. The acquisition was funded with borrowings on our revolving credit facility. For the year ended December 31, 2016, Ferguson’s net sales were approximately $31.0 million.2017.

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RELIANCE STEEL & ALUMINUM CO.

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

This report contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our forward-looking statements may include, but are not limited to, discussions of our industry, our end markets, our business strategies and our expectations concerning future demand and our results of operations, margins, profitability, impairment charges, taxes, liquidity, litigation matters and capital resources. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, and similar expressions. All statements contained in this report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date of such statements.

Forward-looking statements involve known and unknown risks and uncertainties and are not guarantees of future performance. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements as a result of various important factors, including, but not limited to, those disclosed in this report and in other reports we have filed with the Securities and Exchange Commission (the “SEC”). As a result, these statements speak only as of the date that they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Important risks and uncertainties about our business can be found in ~~“Item 1A. Risk~~Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 filed with the SEC.

Overview

We had strong operational execution in the ~~three-month~~first quarter of 2018 resulting in our highest net sales and ~~nine-month periods ended September 30, 2017. Sales~~gross profit in our history. Net sales for the ~~three-month period ended September 30, 2017~~first quarter of 2018 were ~~$2.45~~$2.76 billion, up ~~12.1%~~14.0% from ~~$2.19~~$2.42 billion infor the ~~same period in 2016. During the nine months ended September 30, 2017, sales were $7.34 billion, up 12.1% from $6.55 billion in the same period in 2016. Both~~first quarter of 2017. The positive pricing and demand ~~levels improved from 2016.~~fundamentals experienced in the fourth quarter of 2017 continued through the first quarter of 2018, with pricing momentum building throughout the quarter. Our gross profit margin in the first quarter of 2018 was 29.7%, which exceeded our estimated range of 27% to 29% and drove record quarterly gross profit dollars of $819.9 million. Pricing levels were significantly higher in the ~~nine months ended September 30, 2017~~first quarter of 2018 compared to the ~~same period in 2016, especially~~first quarter of 2017 for ~~carbon (52% of our sales) and stainless steel (14% of our sales) products,~~nearly every product we sell, which had a favorable impact on our ~~revenues.~~revenues and earnings. We achieved several ~~operational~~ successes in the ~~three-month and nine-month periods ended September 30, 2017:~~first quarter of 2018:

Net sales of $2.76 billion and 1.6 million tons sold, both the highest in our history;

Gross profit was ~~$685.5~~$819.9 million, in the ~~third quarter of 2017, the third~~ highest ~~quarterly result~~ in our ~~history, trailing only the first and second quarters of 2017;~~history;

Our gross profit margin ~~in each of the first three quarters of 2017~~ was ~~within or~~29.7%, above our ~~target~~estimated range of 27% to 29%;

Pre-tax income of $225.2 million, the third highest in our history, surpassed only by pre-tax income levels during two quarters in 2008; and

Our earnings per diluted share of ~~$1.32~~$2.30 were the second highest in our history, surpassed only by the ~~third~~fourth quarter of 2017 ~~was~~which benefited from the ~~highest third quarter result since September 2008.~~impact of tax reform.

Our same-store tons sold increased ~~5.3% and 3.0%~~3.5% in the ~~three-month and nine-month periods ended September 30, 2017, respectively,~~first quarter of 2018 compared to the ~~same periods in 2016,~~first quarter of 2017, exceeding ~~or meeting~~ the industry ~~increases~~increase reported by the Metals Service Center Institute (“MSCI”) of ~~1.6% and 3.0%, respectively,~~2.6% during the same ~~periods.~~period. We believe our strong performance is attributable to our focus on small orders requiring high levels of quality and service on a just-in-time basis, as well as our significant investments in value-added processing equipment over the past few years.

Our ~~same-store average selling price per ton~~increase in tons sold ~~in the three-month and nine-month periods ended September 30, 2017 increased 6.8% and 9.3%, respectively, compared~~is also attributable to ~~the same periods in 2016. Our same-store average selling price per ton sold has increased sequentially in each~~anticipated Section 232 of the ~~past six quarters, mainly for~~Trade Expansion Act of 1962 (“Section 232”) actions, which created concern about metal availability and resulted in a limited amount of pre-buying activity from certain ~~carbon and stainless steel products. Metal prices began to increase in the second quarter~~ of ~~2016 which we believe was primarily due to improved demand and increased raw material costs.~~our customers.

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Our same-store average selling price per ton sold in the first quarter of 2018 increased 10.0% compared to the first quarter of 2017. Our same-store average selling price per ton sold has increased sequentially in each of the past eight quarters, with the most significant price increases for certain carbon and stainless steel products. In the first quarter of 2018, pricing increased rapidly due to strong demand and accelerated Section 232 activity which drove higher metal pricing on nearly every product we sell.

Our S,G&A expense as a percent of sales of ~~19.1% and 19.3%~~18.8% in the ~~three-month and nine-month periods ended September 30, 2017, respectively,~~first quarter of 2018 decreased from ~~20.6%~~19.7% in ~~each~~the first quarter of ~~the same 2016 periods mainly~~2017 due to higher metals pricing ~~levels~~ and ~~effective expense control during the 2017 periods~~record tons sold that increased our sales levels.

We generated cash flow from operations of ~~$198.3~~$13.3 million in the ~~nine months ended September 30, 2017, down~~first quarter of 2018, up from ~~$387.6~~$20.7 million used in operations in the ~~same period~~first quarter of ~~2016 primarily~~2017 due to ~~increased~~our strong gross profit margin coupled with the higher pricing and demand environment. We typically use cash from operations to build our working capital ~~requirements~~during the first half of the year, however, our strong earnings generated cash flow from ~~higher metal prices and an improved demand environment~~operations in ~~2017.~~the first quarter of 2018. As of ~~September 30, 2017,~~March 31, 2018, our net debt-to-total capital ratio was ~~29.0%~~28.6%, ~~down~~up from ~~30.3%~~27.2% as of December 31, ~~2016.~~2017. We believe we have sufficient liquidity as of ~~September 30, 2017,~~March 31, 2018, with approximately ~~$827.0~~$757.1 million available for borrowing on our revolving credit facility.

In the first quarter of 2018, we completed one acquisition, invested $41.8 million in capital expenditures, and continued our stockholder return activities with an 11.1% increase in our regular quarterly dividend rate and $50.0 million of common stock repurchases.

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

We will continue to focus on working capital management and maximizing profitability of our existing businesses, as well as executing our proven growth ~~strategies.~~strategies and stockholder return activities.

~~2017 Acquisition~~Acquisitions

On March 1, 2018, we acquired DuBose National Energy Services, Inc. (“DuBose Energy”) and its affiliate, DuBose National Energy Fasteners & Machined Parts, Inc. (“DuBose Fasteners” and, together with DuBose Energy, “DuBose”). DuBose was founded in 1990 and is headquartered in Clinton, North Carolina. DuBose specializes in fabrication, supply and distribution of metal and metal products to the nuclear industry, including utilities, component manufacturers and contractors. DuBose’s net sales during the period from March 1, 2018 to March 31, 2018 were $2.3 million.

On October 2, 2017, through our wholly owned subsidiary Diamond Manufacturing Company, we acquired Ferguson Perforating Company (“Ferguson”). Ferguson, headquartered in Providence, Rhode Island, specializes in manufacturing highly engineered and complex perforated metal parts ~~that have application in~~for diverse end markets including industrial machinery, automotive, aerospace, sugar producers and consumer electronics manufacturers. ~~The acquisition was funded with borrowings on our revolving credit facility. For the year ended December 31, 2016,~~ Ferguson’s net sales were ~~approximately $31.0 million.~~

~~2016 Acquisitions~~

On August 1, 2016, through our wholly owned subsidiary American Metals Corporation, we acquired Alaska Steel Company (“Alaska Steel”), a full-line metal distributor headquartered in Anchorage, Alaska. Our acquisition of Alaska Steel was our first entry into the Alaska market. Alaska Steel provides steel, aluminum, stainless and specialty metals and related processing services to a variety of customers in diverse industries including infrastructure and energy, throughout Alaska. Alaska Steel’s net sales$9.5 million for the ~~nine months ended September 30, 2017 were $17.3 million.~~

~~On April 1, 2016, we acquired Best Manufacturing, Inc. (“Best Manufacturing”), a custom sheet metal fabricator~~first quarter of steel and aluminum products on both a direct and toll basis. Best Manufacturing, headquartered in Jonesboro, Arkansas, provides various precision fabrication services including laser cutting, shearing, computer numerated control (“CNC”) punching, CNC forming and rolling, as well as welding, assembly, painting, inventory management and engineering expertise. Best Manufacturing’s net sales for the nine months ended September 30, 2017 were $16.8 million.

We funded our ~~2016~~2018 and 2017 acquisitions with borrowings on our revolving credit facility and cash on hand.

Table of Contents

Three Months ~~and Nine Months~~ Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months ~~and Nine Months~~ Ended ~~September 30, 2016~~March 31, 2017

The following table sets forth certain income statement data for the ~~three-month~~first quarters of 2018 and ~~nine-month periods ended September 30,~~ 2017, ~~and 2016~~respectively (dollars are shown in millions and certain amounts may not calculate due to rounding):


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
	2017				2016				2017				2016				2018				2017
			% of				% of				% of				% of				% of				% of
	$		Net Sales		$		Net Sales		$		Net Sales		$		Net Sales		$		Net Sales		$		Net Sales
Net sales	$	2,450.1	100.0	%	$	2,185.2	100.0	%	$	7,344.6	100.0	%	$	6,551.8	100.0	%	$	2,757.1	100.0	%	$	2,419.3	100.0	%
Cost of sales (exclusive of depreciation and amortization expense shown below) ~~(1)~~		1,764.6	72.0			1,530.6	70.0			5,235.4	71.3			4,575.4	69.8			1,937.2	70.3			1,697.7	70.2
Gross profit ~~(2)~~(1)		685.5	28.0			654.6	30.0			2,109.2	28.7			1,976.4	30.2			819.9	29.7			721.6	29.8
Warehouse, delivery, selling, general and administrative expense ("S,G&A") (3) (4)		470.0	19.2			453.0	20.7			1,422.1	19.4			1,357.7	20.7
Warehouse, delivery, selling, general and administrative expense ("S,G&A")																		519.4	18.8			476.2	19.7
Depreciation expense		41.8	1.7			41.6	1.9			125.3	1.7			126.1	1.9			42.3	1.5			41.8	1.7
Amortization expense		12.2	0.5			13.5	0.6			38.9	0.5			40.6	0.6			11.8	0.4			13.4	0.6
Impairment of long-lived assets (5)		2.8	0.1			51.7	2.4			2.8	—			51.7	0.8
Operating income (3)	$	158.7	6.5	%	$	94.8	4.3	%	$	520.1	7.1	%	$	400.3	6.1	%
Operating income																	$	246.4	8.9	%	$	190.2	7.9	%

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

The 2016 amounts have been retrospectively adjusted pursuant to our adoption of accounting changes related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. See Note 2 to the Unaudited Consolidated Financial Statements for further information.

⁽⁴⁾

~~S,G&A expense includes $4.6 million and $8.1 million of gains related to the sale of non-core machinery and equipment in the three months and nine months ended September 30, 2017, respectively.~~

⁽⁵⁾

Impairment of long-lived assets includes $2.8 million related to property, plant and equipment for the three months and nine months ended September 30, 2017. The three months and nine months ended September 30, 2016 include $15.3 million related to property, plant and equipment and $36.4 million related to intangible assets. See ~~Expenses for further discussion~~.

~~Table of Contents~~

Net Sales

September 30,

Dollar

Percentage

2017

2016

Change

Change

(in millions)

Net sales (three months ended)
$
2,450.1

$
2,185.2

$
264.9

12.1
%
Net sales (nine months ended)
$
7,344.6

$
6,551.8

$
792.8

12.1
%
Net sales, same-store (three months ended)
$
2,403.9

$
2,147.1

$
256.8

12.0
%
Net sales, same-store (nine months ended)
$
7,208.0

$
6,448.7

$
759.3

11.8
%


	Three Months Ended
	March 31,				Dollar		Percentage
	2018		2017		Change		Change
	(in millions)
Net sales	$	2,757.1	$	2,419.3	$	337.8	14.0	%
Net sales, same-store	$	2,745.2	$	2,419.3	$	325.9	13.5	%

September 30,

Tons

Percentage

2017

2016

Change

Change

(in thousands)





Tons sold (three months ended)

1,521.7


1,445.5


76.2

5.3
%
Tons sold (nine months ended)

4,602.4


4,467.9


134.5

3.0
%
Tons sold, same-store (three months ended)

1,500.1


1,426.3


73.8

5.2
%
Tons sold, same-store (nine months ended)

4,537.5


4,415.8


121.7

2.8
%

September 30,

Price

Percentage

2017

2016

Change

Change

Average selling price per ton sold (three months ended)
$
1,603

$
1,501

$
102

6.8
%
Average selling price per ton sold (nine months ended)
$
1,588

$
1,454

$
134

9.2
%
Average selling price per ton sold, same-store (three months ended)
$
1,595

$
1,494

$
101

6.8
%
Average selling price per ton sold, same-store (nine months ended)
$
1,581

$
1,447

$
134

9.3
%


	Three Months Ended March 31,				Tons		Percentage
	2018		2017		Change		Change
	(in thousands)
Tons sold		1,595.7		1,540.4		55.3	3.6	%
Tons sold, same-store		1,593.7		1,540.4		53.3	3.5	%

	Three Months Ended March 31,				Price		Percentage
	2018		2017		Change		Change
Average selling price per ton sold	$	1,724	$	1,563	$	161	10.3	%
Average selling price per ton sold, same-store	$	1,719	$	1,563	$	156	10.0	%

Tons sold and average selling price per ton sold amounts exclude our toll processing sales (as we process the metal for a fee, without taking ownership of the metal). Same-store amounts exclude the results of our ~~2016~~2018 and 2017 acquisitions.

Table of Contents

Our consolidated net sales ~~were higher~~increased in the ~~three-month and nine-month periods ended September 30, 2017~~first quarter of 2018 compared to the ~~same periods in 2016~~first quarter of 2017 due to ~~both higher~~record tons sold and higher metals prices. Prices for ~~most products~~nearly every product we sell improved in ~~both~~ the ~~three-month and nine-month periods ended September 30, 2017~~first quarter of 2018 compared to the ~~same periods in 2016.~~first quarter of 2017. Our same-store average selling price per ton sold has increased sequentially in ~~each of~~ the past ~~six~~eight quarters. ~~U.S. mill price increases have been supported by increases in raw material costs, including scrap.~~Accelerated Section 232 activity favorably impacted both tons sold and metal prices.

The automotive ~~(primarily~~(that we serve primarily through our toll processing operations in the U.S. and Mexico) and aerospace end markets continued to perform well for us in the first ~~nine months~~quarter of ~~2017.~~2018. Heavy industry demand ~~remained relatively steady at~~was up from the low levels we experienced in ~~2016.~~the first quarter of 2017. Non-residential construction demand, including infrastructure, ~~continued its slow improvement,~~grew at a steady rate, although it remains at significantly reduced demand levels from its peak levels experienced in 2006. Demand for the products we sell to the energy (oil and gas) end market ~~improved~~continued to gradually improve in the ~~nine months ended September 30, 2017~~first quarter of 2018 compared to ~~the same period in 2016,~~2017, but remains significantly lower than the recent peak in 2014. ~~For~~In the ~~three-month and nine-month periods ended September 30, 2017,~~first quarter of 2018, our same-store tons sold increased ~~5.3% and 3.0%, respectively, from~~3.5% compared to the ~~comparable 2016 periods,~~first quarter of 2017, exceeding ~~or meeting~~ the industry ~~increases~~increase reported by the MSCI of ~~1.6% and 3.0%, respectively,~~2.6% during the same ~~periods.~~period.

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

Our same-store average selling price per ton sold in the ~~three-month and nine-month periods ended September 30,~~first quarter of 2018 increased 10.0% compared to the first quarter of 2017 ~~increased 6.8% and 9.3%, respectively, from the comparable 2016 periods~~ given increased mill pricing for most products we sell. As carbon steel sales represent approximately 52% of our sales dollars, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold. Our major commodity selling prices changed year-over-year as follows:

~~Table of Contents~~



	Three Months Ended				Nine Months Ended
	September 30				September 30
			Same-store				Same-store				Same-store
	Average Selling		Average Selling		Average Selling		Average Selling		Average Selling		Average Selling
	Price per Ton Sold		Price per Ton Sold		Price per Ton Sold		Price per Ton Sold		Price per Ton Sold		Price per Ton Sold
	(percentage change)				(percentage change)				(percentage change)
Carbon steel	6.6	%	6.6	%	10.7	%	10.6	%	10.5	%	10.4	%
Aluminum	4.0	%	4.0	%	3.6	%	3.6	%	7.3	%	7.2	%
Stainless steel	8.9	%	8.9	%	12.5	%	12.5	%	7.6	%	7.0	%
Alloy	6.5	%	6.5	%	1.6	%	1.5	%	10.1	%	9.6	%

Cost of Sales

September 30,

2017


2016


% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales

Change

Change

(dollars in millions)


Cost of sales (three months ended)
$
1,764.6

72.0
%

$
1,530.6

70.0
%

$
234.0

15.3
%
Cost of sales (nine months ended)
$
5,235.4

71.3
%

$
4,575.4

69.8
%

$
660.0

14.4
%


	Three Months Ended
	March 31,
	2018				2017
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Cost of sales	$	1,937.2	70.3	%	$	1,697.7	70.2	%	$	239.5	14.1	%

The increase in cost of sales in the ~~three-month and nine-month periods ended September 30, 2017~~first quarter of 2018 compared to the ~~same periods in 2016~~first quarter of 2017 is mainly due to higher tons sold and a higher average cost per ton sold. See “Net Sales” above for trends in both demand and costs of our products.

Cost of sales included $11.7 million of inventory-related restructuring charges relating to the planned closure or sale of certain locations in the three months and nine months ended September 30, 2016.

Also, our last-in, first-out (“LIFO”) method inventory valuation reserve adjustment, which is included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a charge, or expense, of ~~$6.3 million and $26.3~~$25.0 million in the ~~three-month and nine-month periods ended September 30, 2017, respectively,~~first quarter of 2018 compared to ~~credits,~~a charge, or ~~income,~~expense, of ~~$11.3~~$10.0 million in the ~~three-month and nine-month periods ended September 30, 2016.~~first quarter of 2017.

Table of Contents

Gross Profit

September 30,

2017


2016


% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales

Change

Change

(dollars in millions)


Gross profit (three months ended)
$
685.5

28.0
%

$
654.6

30.0
%

$
30.9

4.7
%
Gross profit (nine months ended)
$
2,109.2

28.7
%

$
1,976.4

30.2
%

$
132.8

6.7
%


	Three Months Ended
	March 31,
	2018				2017
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Gross profit	$	819.9	29.7	%	$	721.6	29.8	%	$	98.3	13.6	%

Our gross profit ~~increased~~was higher in the ~~three-month and nine-month periods ended September 30, 2017~~first quarter of 2018 compared to the ~~same periods in 2016~~first quarter of 2017 due to higher tons sold and higher metals prices. Our first quarter of 2018 gross profit of $819.9 million was the highest in our history. See “Net Sales” and “Cost of Sales” above for further discussion on product pricing trends and our LIFO inventory valuation reserve adjustments, respectively.

Expenses


	Three Months Ended
	March 31,
	2018				2017
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
S,G&A expense	$	519.4	18.8	%	$	476.2	19.7	%	$	43.2	9.1	%
S,G&A expense, same-store	$	514.3	18.7	%	$	476.2	19.7	%	$	38.1	8.0	%
Depreciation & amortization expense	$	54.1	2.0	%	$	55.2	2.3	%	$	(1.1)	(2.0)	%

Same-store amounts exclude the results of our 2018 and 2017 acquisitions.

Our ~~gross profit margin~~S,G&A expense increased due to increases in certain warehouse and delivery expenses due to improved shipping volumes and increases in profit-based compensation, as a result of higher levels of profitability, as well as significant increases in freight expenses from rising fuel prices. Our S,G&A expense as a percentage of sales decreased mainly due to our higher sales levels, as a result of higher average selling prices and higher tons sold.

Operating Income


	Three Months Ended
	March 31,
	2018				2017
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Operating income	$	246.4	8.9	%	$	190.2	7.9	%	$	56.2	29.5	%

Our operating income was higher in the three-month and nine-month periods ended September 30, 2016 benefited from a rising metals price environment during which we were able to pass higher prices on to our customers before we received the higher cost metal in our inventory. The pricing environment was more stable in the three months and nine months ended September 30, 2017first quarter of 2018 compared to the ~~same periods in 2016. Our gross profit margin for the three month and nine month periods ended September 30, 2017 was within our target range of 27% to 29%. Our third~~first quarter of 2017 due to higher gross profit ~~of $685.5 million was~~dollars from both higher average selling prices and higher tons sold. Our operating income margin increased mainly due to the ~~third highest~~decline in our ~~history, trailing only~~S,G,&A expense as a percentage of sales due to our higher sales levels. See “Net Sales” above for trends in both demand and costs of our products and “Expenses” for trends in our operating expenses.

Income Tax Rate

Our effective income tax rates for the first ~~and second~~ quarters of ~~2017.~~

2018 and 2017 were 24.0% and 32.7%, respectively. During the first quarter of 2018, our effective income tax rate was favorably impacted by the Tax Cuts and Jobs Act of 2017 (“Tax Reform”), which included significant changes to the taxation of U.S. corporations, including a reduction of the U.S. federal statutory rate from 35% to 21% effective January 1, 2018. Based on our preliminary assessment of the impact of Tax Reform, we recognized a one-time, provisional net tax benefit of $207.3 million in the fourth quarter of 2017, primarily

Table of Contents

~~Expenses~~

September 30,

2017


2016


% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales

Change

Change

(dollars in millions)

S,G&A expense (three months ended)
$
470.0

19.2
%

$
453.0

20.7
%

$
17.0

3.8
%
S,G&A expense (nine months ended)
$
1,422.1

19.4
%

$
1,357.7

20.7
%

$
64.4

4.7
%
S,G&A expense, same-store (three months ended)
$
459.1

19.1
%

$
443.0

20.6
%

$
16.1

3.6
%
S,G&A expense, same-store (nine months ended)
$
1,389.9

19.3
%

$
1,329.5

20.6
%

$
60.4

4.5
%
Depreciation & amortization expense (three months ended)
$
54.0

2.2
%

$
55.1

2.5
%

$
(1.1)

(2.0)
%
Depreciation & amortization expense (nine months ended)
$
164.2

2.2
%

$
166.7

2.5
%

$
(2.5)

(1.5)
%
Impairment of long-lived assets (three months ended)
$
2.8

0.1
%

$
51.7

2.4
%

$
(48.9)

(94.6)
%
Impairment of long-lived assets (nine months ended)
$
2.8

0.0
%

$
51.7

0.8
%

$
(48.9)

(94.6)
%

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

~~The increase in our S,G&A expense in the three-month and nine-month periods ended September 30, 2017 compared~~related to the ~~same periods in 2016 is primarily due~~remeasurement of deferred tax assets and liabilities at the lowered federal statutory tax rate, which was partially offset by repatriation and related liabilities. Given the substantial changes to ~~increases in certain warehouse and delivery expenses due to improved demand and increases in profit-based incentive compensation,~~the Internal Revenue Code as a result of ~~higher levels~~Tax Reform, our estimated financial impacts from Tax Reform are subject to further analysis, interpretation and clarification of ~~profitability, as well as general inflationary factors. The decrease~~the new law, which could result in ~~our S,G&A expense as a percentage of sales over these same periods is due~~changes to our ~~higher sales levels, as a result~~estimates in future quarters in 2018. We did not make an adjustment during the first quarter of ~~higher metals pricing.~~

~~S,G&A expense includes $4.6 million and $8.1 million~~2018 to our provisional estimate recognized in 2017. State income taxes offset by the effects of ~~gains related to the sale of non-core machinery and equipment in the three months and nine months ended September 30, 2017.~~

We recorded a $2.8 million charge for impairment of long-lived assets in the three-month and nine-month periods ended September 30, 2017 compared to a $51.7 million charge in the comparable 2016 periods. The 2016 chargecompany-owned life insurance policies mainly ~~related to certain of our energy-related businesses as a result of low crude oil prices resulting in a significant decline in the demand~~accounted for the ~~products we sell to the energy (oil and gas) market. See Note 11 of the Notes to the Unaudited Consolidated Financial Statements for further information on our impairment charges.~~

~~Operating Income~~

September 30,

2017


2016

% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales


Change

Change

(dollars in millions)

Operating income (three months ended)
$
158.7

6.5
%

$
94.8

4.3
%

$
63.9

67.4
%
Operating income (nine months ended)
$
520.1

7.1
%

$
400.3

6.1
%

$
119.8

29.9
%

Our operating income was higher in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016 primarily due to higher gross profit dollars from both higher tons sold and higher average selling prices and lower impairment and restructuring charges. Our operating income margin in the three-month and nine-month periods ended September 30, 2017 increased due to the decline in our S,G&A expense and impairment and restructuring charges as a percentage of sales outweighing the decline in our gross profit margin.

~~Table of Contents~~

~~Other (Income) Expense~~

September 30,

2017


2016

% of




% of

Dollar

Percentage

$

Net Sales


$

Net Sales


Change

Change

(dollars in millions)

Interest expense (three months ended)
$
19.1

0.8
%

$
22.2

1.0
%

$
(3.1)

(14.0)
%
Interest expense (nine months ended)
$
54.9

0.7
%

$
65.6

1.0
%

$
(10.7)

(16.3)
%
Other (income) expense, net (three months ended)
$
(2.6)

(0.1)
%

$
2.1

0.1
%

$
(4.7)

(223.8)
%
Other expense, net (nine months ended)
$
2.1

0.0
%

$
3.4

0.1
%

$
(1.3)

(38.2)
%

Interest expense was lower in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016 due to the repayment in November 2016 of $350.0 million in aggregate principal amount of senior unsecured notes bearing interest at the rate of 6.20% per annum with borrowings under our credit agreement that have lower weighted average interest rates.

The change in Other (income) expense, net in the three-month period ended September 30, 2017 compared to the same period in 2016 was primarily due to higher investment returns on our life insurance assets and foreign exchange gains in the 2017 period compared to foreign exchange losses in the 2016 period.

~~Income Tax Rate~~

Our effective income tax rates for the three months ended September 30, 2017 and 2016 were 30.4% and 28.2%, respectively. Our effective income tax rates for the nine months ended September 30, 2017 and 2016 were 31.5% and 25.7%, respectively. Our 2016 nine-month period effective income tax rate was favorably impacted by the resolution of a tax position that was previously uncertain, which lowered our 2016 nine-month income tax provision by $17.6 million anddifference between our effective income tax rate ~~by 5.3 percentage points. Other permanent items that lowered our effective income tax rates from~~and the federal statutory rate were not materially different during both years and relate mainly to company-owned life insurance policies, domestic production activities deductions and foreign income levels that are taxed at rates lower thanfor the ~~U.S. statutory rate~~first quarter of ~~35%.~~2018.

Net Income

September 30,

2017


2016

% of



% of

Dollar

Percentage

$

Net Sales


$

Net Sales


Change

Change

(dollars in millions)

Net income attributable to Reliance (three months ended)
$
97.3

4.0
%

$
49.5

2.3
%

$
47.8

96.6
%
Net income attributable to Reliance (nine months ended)
$
312.0

4.2
%

$
242.6

3.7
%

$
69.4

28.6
%


	Three Months Ended
	March 31,
	2018				2017
			% of				% of		Dollar		Percentage
	$		Net Sales		$		Net Sales		Change		Change
	(dollars in millions)
Net income attributable to Reliance	$	169.0	6.1	%	$	111.7	4.6	%	$	57.3	51.3	%

The increases in our net income and net income as a percentage of sales ~~in the three-month and nine-month periods ended September 30, 2017 compared to the same periods in 2016~~ were primarily ~~due to increases in~~the result of higher operating income and ~~operating income margin, resulting from higher gross profit dollars and~~a lower ~~impairment and restructuring charges, and lower interest expense partially offset by a higher~~ effective income tax rate.

~~Table of Contents~~

Liquidity and Capital Resources

Operating Activities

Net cash ~~provided~~generated by operating activities was ~~$198.3~~$13.3 million in the ~~nine months ended September 30, 2017~~first quarter of 2018 compared to ~~$387.6~~net cash used in operating activities of $20.7 million in the ~~same period in 2016.~~first quarter of 2017. Our ~~decreased~~increased operating cash flow ~~in 2017 compared to 2016~~ was due to our significantly higher profitability, which was offset by increased working capital requirements (primarily accounts receivable and inventory less accounts payable) due to higher ~~metals~~metal prices and increased shipping volumes. To manage our working capital, we focus on our days sales outstanding and on our inventory turnover rate, as receivables and inventory are the two most significant elements of our working capital. At ~~September 30,~~March 31, 2018 and March 31, 2017, our days sales outstanding rate was 42.2 ~~days, consistent with our days sales outstanding rate at December 31, 2016.~~days. Our inventory turn rate (based on tons) during the ~~nine months ended September 30, 2017~~first quarter of 2018 was ~~approximately~~ 4.5 times (or 2.7 months on hand), compared to ~~4.6~~4.7 times (or 2.6 months on hand) in the ~~same period~~first quarter of ~~2016.~~

Income taxes paid were $135.2 million in the nine months ended September 30, 2017, a significant increase from $67.2 million paid in the nine months ended September 30, 2016. The increase is mainly due to higher estimated taxable income for 2017 compared to 2016, extension of time to file payments for the 2016 tax year paid during the nine months ended September 30, 2017 and the utilization of tax overpayments for the 2015 tax year that lowered taxes paid in the nine months ended September 30, 2016.2017.

Investing Activities

Net cash used in investing activities of ~~$99.8~~$77.3 million in the ~~nine months ended September 30, 2017 decreased significantly~~first quarter of 2018 increased from ~~$458.0~~$32.0 million in the ~~same period in 2016~~first quarter of 2017 due to ~~$349.0~~$39.6 million used to fund ~~acquisitions during~~an acquisition in the ~~2016 period.~~first quarter of 2018. Capital expenditures were ~~$118.1~~$41.8 million ~~for~~in the ~~nine months ended September 30, 2017~~first quarter of 2018 compared to ~~$110.6~~$34.1 million ~~during~~in the ~~same period in 2016.~~first quarter of 2017. The majority of ~~both~~ our ~~2017~~2018 and ~~2016~~2017 capital expenditures ~~relate~~related to organic growth initiatives.

Financing Activities

Net cash ~~used in financing activities of $58.1 million in the nine months ended September 30, 2017 changed from $106.8 million net cash~~ provided by financing activities of $54.9 million in the ~~nine months ended September 30, 2016 mainly due to net debt borrowings to fund acquisitions during~~first quarter of 2018 decreased slightly from $60.4 million in the ~~2016 period.~~first quarter of 2017. Net debt borrowings in the ~~nine months ended September 30, 2017~~first quarter of 2018 were ~~$43.1~~$145.3 million ~~lower than our net debt borrowings of $175.9~~compared to $93.1 million in the ~~same period~~first quarter of 2017. We used cash of $49.3 million to repurchase shares of our common stock in ~~2016.~~the first quarter of 2018. We paid dividends and dividend equivalents of ~~$99.3~~$38.5 million during the ~~nine months ended September 30, 2017,~~first quarter of 2018, an increase of ~~$9.8~~$4.8 million from the ~~same period in 2016, mainly~~first quarter of 2017, due to ~~increases~~an increase in our regular quarterly dividend rate in ~~July 2016 and~~ February ~~2017.~~2018.

On ~~October 24, 2017,~~April 25, 2018, our Board of Directors declared the ~~2017 fourth~~2018 second quarter cash dividend of ~~$0.45~~$0.50 per share. We have increased our dividend 2425 times since our IPO in 1994, with the most recent increase of ~~5.9%~~11.1% from ~~$0.425~~$0.45 per share to ~~$0.45~~$0.50 per share effective in the first quarter of ~~2017.~~2018. We have never reduced or suspended our dividend and have paid regular quarterly dividends to our stockholders for 5859 consecutive years.

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On October 20, 2015, our Board of Directors increased the number of shares authorized to be repurchased under our share repurchase plan by 7.5 million shares and extended the duration of the plan through December 31, 2018. During the first quarter of 2018, we repurchased 592,564 shares of our common stock at an average cost of $84.38 per share for a total of $50.0 million, including 8,120 shares for $0.7 million pending settlement at March 31, 2018. Since initiating the share repurchase plan in 1994, we have repurchased approximately ~~22.1~~23.1 million shares at an average cost of ~~$30.93~~$32.94 per share. ~~There were no share repurchases in the nine months ended September 30, 2017.~~ As of ~~September 30, 2017,~~March 31, 2018, we had authorization under the plan to purchase approximately ~~8.4~~7.5 million shares, or about ~~12%~~10% of our current outstanding shares. We expect to continue ~~evaluating opportunistic repurchases of~~opportunistically repurchasing shares of our common stock ~~in the future.~~going forward.

~~Table of Contents~~

Liquidity

Our primary sources of liquidity are funds generated from operations and our $1.5 billion revolving credit facility. Our total outstanding debt at ~~September 30, 2017~~March 31, 2018 was ~~$1.99~~$2.06 billion, up from ~~$1.95~~$1.91 billion at December 31, ~~2016.~~2017. As of ~~September 30, 2017,~~March 31, 2018, we had ~~$610.0~~$690.0 million of outstanding borrowings, ~~$63.0~~$52.9 million of letters of credit issued and ~~$827.0~~$757.1 million available for borrowing on ~~the~~our revolving credit facility.

As of ~~September 30, 2017,~~March 31, 2018, our net debt-to-total capital ratio (net debt-to-total capital is calculated as total debt, net of cash, divided by Reliance stockholders’ equity plus total debt, net of cash) was ~~29.0%~~28.6%, ~~down~~up from ~~30.3%~~27.2% as of December 31, ~~2016. Our acquisition of Ferguson on October 2, 2017, funded with borrowings on our revolving credit facility, did not significantly impact our net debt-to-total capital ratio.~~2017.

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

Tax Cuts and Jobs Act of 2017

Tax Reform enacted in December 2017 had a favorable impact on our profitability and cash flows in the first quarter of 2018 compared to the first quarter of 2017 through a reduction in our effective income tax rate. In 2017, we recognized a one-time, provisional net tax benefit of $207.3 million, primarily related to the remeasurement of deferred tax assets and liabilities at the lowered federal statutory tax rate, which was partially offset by repatriation and related liabilities.

Capital Resources

Under the Indentures, the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations.

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As of ~~September 30, 2017,~~March 31, 2018, we had ~~$246.4~~$237.7 million of debt obligations coming due before our $1.5 billion revolving credit facility expires on September 30, 2021. We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due. In addition to funds generated from operations and funds available under our revolving credit facility, we expect to be able to access the capital markets to raise funds, if desired. We believe our investment grade credit rating enhances our ability to effectively raise capital, if needed. We expect to continue our acquisition and other growth activities along with our stockholder return activities in the future and anticipate that we will be able to fund such activities as they arise.

~~Table of Contents~~

Covenants

The Credit Agreement and the Indentures include customary representations, warranties, covenants, acceleration, indemnity and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial statement covenants that require us to maintain a minimum interest coverage ratio and a maximum leverage ratio. Our interest coverage ratio for the twelve-month period ended ~~September 30, 2017~~March 31, 2018 was approximately ~~8.9~~9.8 times compared to the debt covenant minimum requirement of 3.0 times (interest coverage ratio is calculated as earnings before interest and taxes (EBIT), as defined in the Credit Agreement, divided by interest expense). Our leverage ratio as of ~~September 30, 2017,~~March 31, 2018, calculated in accordance with the terms of the Credit Agreement, was ~~31.6%~~30.7% compared to the debt covenant maximum amount of 60% (leverage ratio is calculated as total debt, inclusive of capital lease obligations and outstanding letters of credit, divided by Reliance stockholders’ equity plus total debt).

We were in compliance with all financial covenants in our Credit Agreement at ~~September 30, 2017.~~March 31, 2018.

Off-Balance Sheet Arrangements

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

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, we were contingently liable under standby letters of credit in the aggregate amount of ~~$52.6~~$42.7 million and ~~$51.9~~$43.1 million, respectively. The letters of credit relate to insurance policies and construction projects.

Contractual Obligations and Other Commitments

We had no material changes in commitments for capital expenditures, operating lease obligations or purchase obligations as of ~~September 30, 2017,~~March 31, 2018, as compared to those disclosed in our table of contractual obligations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Inflation

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

Table of Contents

Seasonality

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

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to ~~$1.83~~$1.85 billion at ~~September 30, 2017,~~March 31, 2018, or approximately 23% of total assets, or ~~42%~~39% of Reliance stockholders’ equity. Additionally, other intangible assets, net amounted to $1.12 billion at ~~September 30, 2017,~~March 31, 2018, or approximately 14% of total assets, or ~~25%~~23% of Reliance stockholders’ equity. Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests. Other intangible assets with finite useful lives continue to be amortized over their estimated useful lives. We review the recoverability of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

~~Table of Contents~~

Critical Accounting Policies and Estimates

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

See “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 for further information regarding the accounting policies that we believe to be critical accounting policies and that affect our more significant judgments and estimates used in preparing our consolidated financial statements. We do not believe that the new accounting guidance implemented in ~~2017~~2018 changed our critical accounting policies.

New Accounting Guidance

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

Item 3. Quantitative And Qualitative Disclosures About Market Risk

In the ordinary course of business, we are exposed to various market risk factors, including fluctuations in interest rates, changes in general economic conditions, domestic and foreign competition, foreign currency exchange rates and metals pricing, demand and availability. There have been no significant changes in our market risk exposures since December 31, ~~2016.~~2017. See “Item 7A ~~- Quantitative~~“Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 for further discussion on quantitative and qualitative disclosures about market risk.

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Item 4. Controls And Procedures

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

There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2017~~March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~There~~Except as set forth below, there have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Excess capacity and over-production by foreign metal producers could increase the level of metal imports into the U.S., resulting in lower domestic prices, which would adversely affect our sales, margins and profitability.

Global metal-making capacity exceeds demand for metal products in some regions around the world. Rather than reducing employment by rationalizing capacity with consumption, we believe metal manufacturers in these countries (often with government assistance or subsidies in various forms) have periodically exported metal at prices which may not reflect their costs of production or capital. Excessive imports of metal into the U.S. have exerted, and may continue to exert, downward pressure on U.S. metal prices.

On March 1, 2018, the President of the United States announced a plan to indefinitely impose a 25 percent tariff on certain imported steel products and a 10 percent tariff on certain imported aluminum products under Section 232 of the Trade Expansion Act of 1962. Application of the tariffs commenced March 23, 2018, with temporary or long-term exemptions for a number of countries and subject to a product exemption process. We expect that these tariffs, while in effect, will discourage metal imports from non-exempt countries. However, we do not yet have sufficient information to evaluate in detail the possible impact of these tariffs on our operations or financial results. When these or other tariffs or duties expire or if others are further relaxed or repealed, or if relatively higher U.S. metal prices make it attractive for foreign metal producers to export their products to the U.S., despite the presence of duties or tariffs, the resurgence of substantial imports of foreign steel could create downward pressure on U.S. metal prices which could have a material adverse effect on our potential earnings and future results of operations.

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

~~None.~~Share repurchase activity during the three months ended March 31, 2018 was as follows:


Period	Total Number of Shares Purchased	Average Price Paid Per Share ($)	Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares That May Yet Be Purchased Under the Plan(1)
January 1 - January 31, 2018	-	-	-	8,091,976
February 1 - February 28, 2018	-	-	-	8,091,976
March 1 - March 31, 2018	592,564	84.38	592,564	7,499,412
Total	592,564		592,564

⁽¹⁾

On October 20, 2015, our Board of Directors amended our share repurchase plan increasing by 7,500,000 shares the total number of shares authorized to be repurchased and extending the program through December 31, 2018. Our share repurchase plan does not obligate us to acquire any specific number of shares. Under the share repurchase plan, shares may be repurchased in the open market or privately negotiated transactions, including plans complying with Rule 10b5-1 under the Exchange Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit No.		Description

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

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

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

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Label Linkbase Document.

2423

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Exhibit No.		Description

101.PRE*		XBRL Taxonomy Presentation Linkbase Document.

* Filed herewith.

** Furnished herewith.

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SIGNATURES

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


	RELIANCE STEEL & ALUMINUM CO.
	(Registrant)


Dated: ~~November 1, 2017~~May 2, 2018	By:	/s/ Gregg J. Mollins
		Gregg J. Mollins
		President and Chief Executive Officer
		(Principal Executive Officer)



	By:	/s/ Karla R. Lewis
		Karla R. Lewis
		Senior Executive Vice President and Chief Financial Officer
		(Principal Financial ~~and~~Officer; Principal Accounting Officer)


		September 30, 2017				December 31, 2016
	Weighted Average	Gross				Gross
	Amortizable	Carrying		Accumulated		Carrying		Accumulated
	Life in Years	Amount		Amortization		Amount		Amortization
		(in millions)
Intangible assets subject to amortization:
Covenants not to compete	4.7	$	0.9	$	(0.5)	$	1.1	$	(0.6)
Customer lists/relationships	14.6		741.7		(379.9)		736.7		(338.9)
Software	10.0		8.1		(8.1)		8.1		(8.1)
Other	5.4		6.4		(5.8)		6.3		(5.5)
			757.1		(394.3)		752.2		(353.1)
Intangible assets not subject to amortization:
Trade names			754.0		—		752.2		—
		$	1,511.1	$	(394.3)	$	1,504.4	$	(353.1)