Patience Will Be Rewarded

Measured Approach RELIANCE STEEL & ALUMINUM (NEW YORK: RS) Industry: Misc. Fabricated Products

Data as of: 12/04/09

Current Data $42.14 PEG $3,099.4 EPS TTM ($) 73.4 P/E TTM 75.2 EPS Estimated 2009 ($) 13.3 P/Estimated EPS 1.47 MA Value ($) 09/30/09 Dividend Yield %

Current Price Market Cap ($M) Shares Outstanding (M) Institutional Holdings % Insider Holdings % Beta Latest Quarter Reported

0.4 $1.67 25.2 $1.12 37.6 $87.56 0.9

Patience Will Be Rewarded The patient, long term investor would rather be early to the party than late to it. The economy is struggling through the early stages of recovery. Looking out beyond the next quarter or even the next year, the reindustrialization of America will come. With this in mind, we are initiating coverage of Reliance Steel and Aluminum Company with a buy opinion. Our target price is $87.56. Highlights  For 3Q09, Reliance reported diluted earnings of $41.8 million, or $0.57 per diluted share as compared to $152.5 million ($2.07/share) in 3Q08. Sales in 3Q09 were $1.24 billion, down from $2.57 billion in 3Q08.  For the nine months ending September 30, 2009, net income amounted to $56.1 million ($0.76/share), compared with net income of $416.5 million ($5.65/share) for the same period in 2008.  Reliance Steel and Aluminum (RS) Upgraded By UBS  Reliance Steel & Aluminum Co. announced that on October 21, 2009, the Board of Directors declared a regular quarterly cash dividend of $0.10 per share of common stock. The dividend is payable on January 6, 2010 to shareholders of record December 4, 2009. From the company’s website: Reliance Steel & Aluminum Co. (NYSE:RS) is one of the largest metals service center companies in the United States. Through a network of more than 200 locations in 38 states, Belgium, Canada, China, Mexico, Singapore, South Korea and the United Kingdom, the Company provides value-added metals processing services and distributes a full line of more than 100,000 metal products. These products include galvanized, hot-rolled and cold-finished steel, stainless steel, aluminum, brass, copper, titanium and alloy steel sold to more than 125,000 customers in a broad range of industries. Some of these metals service centers provide processing services for specialty metals only. A summary of the Company's 2008 sales by product, commodity and region follows:

2008 Sales by Region Midwest Southeast West/Southwest California Pacific Northwest Northeast Mid-Atlantic

26% 19% 16% 14% 6% 6% 5% Please visit http://measuredapproach.wordpress.com for important disclosures. © Copyright 2009 Ronald Sommer. All Rights Reserved.

International Mountain

4% 4%

2008 Sales by Product Carbon steel plate Carbon steel tubing Carbon steel bar Carbon steel structurals Hot rolled steel sheet & coil Galvanized steel sheet & coil Cold rolled steel sheet & coil Aluminum bar & tube Heat treated aluminum plate Common alloy aluminum sheet & coil Common alloy aluminum plate Heat treated aluminum sheet & coil Stainless steel bar & tube Stainless steel sheet & coil Stainless steel plate Alloy bar, rod & tube Alloy, plate sheet & coil Miscellaneous, including brass, copper & titanium Toll processing of aluminum, carbon and stainless steel

13% 12% 10% 10% 5% 3% 2% 6% 4% 4% 1% 1% 7% 5% 2% 7% 1% 5% 2%

2008 Sales by Commodity Carbon steel Aluminum Stainless steel Alloy Other Toll processing

55% 16% 14% 8% 5% 2%

Reliance Steel & Aluminum Co. is a metals service center company. The Company's network of metals service centers operates more than 200 locations in 38 states, Belgium, Canada, China, Mexico, Singapore, South Korea and the United Kingdom. Through this network, it provides metals processing services and distributes a line of more than 100,000 metal products, including alloy, aluminum, brass, copper, carbon steel, titanium, stainless steel and specialty steel products, to more than 125,000 customers in a range of industries. Many of the Company's metals service centers process and distribute only specialty metals. Reliance Steel & Aluminum Co. delivers products from facilities located across the United States and Canada. In March 2009, New Wave Holdings Ltd. completed the sale of the entire 30% interest in Reliance Pan Pacific Pte. Ltd. (RPP) held by its wholly owned subsidiary, Manufacturing Network Pte Ltd, to the Company. ANALYSIS OF THE BALANCE SHEET The schedule presented below shows the year-end balance sheets for the years between December 31, 2004 and December 31, 2008 and for the period ending September 30, 2009. Accounts receivable and inventory comprise approximately 88 percent of the business’s current assets. The amount of current assets increased steadily during the period 12/2004 to 12/2008. The period ending 9/2009 reflects declines in both inventory and accounts receivable. Inventory levels declined approximately 38 percent and accounts receivables declined approximately 32 percent, roughly in line with the decline is sales. Fixed assets (Net Property, Plant, Equipment) include all of the company’s production machinery and equipment. On September 30, 2009, they made up approximately 34 percent of non-current assets.

Please visit http://measuredapproach.wordpress.com for important disclosures. © Copyright 2009 Ronald Sommer. All Rights Reserved.

Overall, RS’s total assets have nearly tripled during the nearly six year period under review. No single category of asset is responsible for the baseline growth. Accounts payable comprise the largest segment of current liabilities. As reliance’s business grew in sales, so did its equity. The company increased book value per share by 169 percent during the period 12/2004 to 9/2009. Balance Sheet (Amounts in Millions) Assets Cash ST Investments Accounts Receivable Inventory Other Current Assets Total Current Assets Net Property,Plant & Equip. LT Investments Goodwill/Intangibles Other LT Assets Total Assets

TTM 09/30/09 87.9 0.0 588.3 792.1 107.9 1,576.2 987.7 20.2 1,810.8 69.5 4,464.3

FYE 12/2008 52.0 0.0 861.2 1,284.5 104.7 2,302.4 998.7 0.0 1,807.2 87.2 5,195.5

FYE 12/2007 77.0 0.0 709.0 911.3 24.0 1,721.4 824.6 0.0 1,350.4 87.0 3,983.5

FYE 12/2006 57.5 0.0 691.4 904.3 22.2 1,675.4 742.7 0.0 1,139.1 57.0 3,614.2

FYE 12/2005 35.0 0.0 369.9 387.4 55.0 847.3 479.7 0.0 429.1 12.9 1,769.1

FYE 12/2004 11.7 0.0 330.0 349.8 41.8 733.2 458.8 0.0 358.5 12.8 1,563.3

221.8 8.5 218.0 448.3 1,065.7 450.4 1,964.3 0.0 2,500.0 4,464.3 34.02

248.3 94.5 307.3 650.2 1,675.6 438.3 2,764.0 0.0 2,431.4 5,195.4 33.26

334.0 72.5 193.4 599.9 1,013.3 264.1 1,877.2 0.0 2,106.2 3,983.4 27.85

340.4 22.8 187.6 550.7 1,088.1 229.0 1,867.8 0.0 1,746.4 3,614.2 23.88

188.6 50.1 95.2 333.8 306.8 98.6 739.2 0.0 1,029.9 1,769.1 15.64

140.3 46.4 88.0 274.7 380.9 85.3 740.8 0.0 822.6 1,563.4 12.66

Liabilities Accounts Payable Short Term Debt Other Current Liabilities Total Current Liabilities LT Debt Other LT Liabilities Total Liabilities Preferred Stock Common Stock Equity Total Liabilities & Equity Book Value Per Share

ANALYSIS OF THE INCOME STATEMENTS Presented below are income statements for the five year period beginning December 31, 2004 and ending December 31, 2008. In addition, we show the income statement for the twelve month period ending September 30, 2009. For the five year period ending December 2008, sales grew at the rate of 35.8 percent. During the economic meltdown reflected in the period ending 9/2009, sales declined 25.3 percent year-over-year. During this entire period, including the past year, gross margins remained remarkably stable.

Please visit http://measuredapproach.wordpress.com for important disclosures. © Copyright 2009 Ronald Sommer. All Rights Reserved.

Income Statement Amounts in Millions

Sales Cost of Goods Sold Gross Income Depreciation & Amortization Research/Development Interest Expense Unusual Expenses/(Income) Total Operating Expenses Operating Income Interest Expense - Non-Op. Other Expenses/(Income) Pretax Income Income Taxes Income After Taxes Adjustments to Income Income for Primary EPS Nonrecurring Items Net Income EPS Basic EPS Diluted

TTM 09/30/09 6,187.7 4,735.0 1,452.7 117.9 n/a 0.0 n/a 5,933.4 254.2 77.8 (3.8) 180.2 57.1 123.2 (0.8) 122.4 0.0 122.4 1.66 1.67

FYE 12/2008 8,718.8 6,556.7 2,162.1 97.9 n/a 82.6 n/a 7,948.4 770.4 n/a 4.7 765.7 282.9 482.8 0.0 482.8 0.0 482.8 6.60 6.56

FYE 12/2007 7,255.7 5,418.2 1,837.5 79.9 n/a 78.7 n/a 6,610.9 644.8 n/a (9.6) 654.4 246.4 408.0 0.0 408.0 0.0 408.0 5.39 5.36

FYE 12/2006 5,742.6 4,231.4 1,511.2 62.5 n/a 61.7 n/a 5,176.9 565.7 n/a (5.4) 571.1 216.6 354.5 0.0 354.5 0.0 354.5 4.85 4.82

FYE 12/2005 3,370.7 2,449.0 921.7 46.6 n/a 25.2 n/a 3,028.8 341.9 n/a 8.7 333.2 127.8 205.4 0.0 205.4 0.0 205.4 3.12 3.10

FYE 12/2004 2,947.2 2,110.8 836.4 44.6 n/a 28.7 n/a 2,668.1 279.1 n/a 9.1 270.0 100.2 169.7 0.0 169.7 0.0 169.7 2.61 2.6

INDUSTRY COMPARATIVE ANALYSIS The following schedule presents a comparative ratio analysis of Reliance Steel & Aluminum and the median company in the same industry. Four categories of ratios (profitability, liquidity, debt management and asset management) are presented to compare the operating results of Reliance with that of the industry. Reliance Steel is compared to the median ratio for the miscellaneous fabricated products industry. Liquidity ratios give an indication of Reliance’s ability to meet current obligations with the use of current assets. As indicated by the comparative ratio analysis, RS liquidity ratios are strong, meaning that RS should have no problem meeting its current obligations. The debt management ratios indicate the extent to which the business’s assets are funded by debt. The operating ratios measure management’s effectiveness in overseeing the business resources. In spite of widespread problems in the economy, Reliance has maintained gross margins and relative to the industry median, is doing better in generating returns.

Please visit http://measuredapproach.wordpress.com for important disclosures. © Copyright 2009 Ronald Sommer. All Rights Reserved.

COMPARATIVE RATIOS FYE FYE FYE 12/2007 12/2006 12/2005 25.30 26.30 27.30 23.70 24.60 21.10

TTM 09/30/09 23.50 19.20

FYE 12/2008 24.80 23.30

Operating Margin % Industry Median

4.10 1.00

8.80 6.30

8.90 7.20

9.90 9.00

10.10 7.90

9.50 6.50

Net Profit Margin % Industry Median

2.00 0.90

5.50 3.30

5.60 4.20

6.20 5.00

6.10 4.70

5.80 3.10

Return on Equity % Industry Median

5.00 5.20

21.30 10.70

21.20 16.60

25.50 17.80

22.20 12.40

23.10 6.60

Return on Assets % Industry Median

2.60 1.10

10.50 4.20

10.70 5.50

13.20 5.50

12.30 5.40

11.60 3.10

Liquidity Quick Ratio (X) Industry Median

1.70 1.60

1.60 1.30

1.40 1.20

1.40 1.20

1.40 1.20

1.40 1.30

Current Ratio (X) Industry Median

3.50 2.50

3.50 2.10

2.90 2.10

3.00 2.10

2.50 2.00

2.70 2.40

Payout Ratio (X) Industry Median

24.10 8.30

6.10 1.50

5.90 4.70

4.50 4.90

6.10 0.00

5.00 1.10

3.30 0.80

10.30 4.10

9.30 5.20

10.30 6.20

14.20 7.50

10.40 3.90

Debt Management Total Liabilities to Total Assets % Industry Median

44.00 51.60

53.20 52.90

47.10 51.80

51.70 54.30

41.80 54.80

47.40 50.70

Long-Term Debt to Capital % Industry Median

29.90 15.00

40.80 19.30

32.50 19.20

38.40 23.60

22.90 25.10

31.60 26.90

Long-Term Debt to Equity % Industry Median

42.60 11.00

68.90 21.80

48.10 22.80

62.30 29.70

29.80 25.90

46.30 25.80

Asset Management Receivables Turnover (X) Industry Median

9.00 6.80

11.10 7.10

10.40 6.90

10.80 6.80

9.60 6.50

10.70 6.60

Inventory Turnover (X) Industry Median

4.80 4.60

6.00 5.20

6.00 5.30

6.60 5.20

6.60 5.00

6.60 4.70

Asset Turnover (X) Industry Median

1.30 1.00

1.90 1.30

1.90 1.20

2.10 1.30

2.00 1.30

2.00 1.10

Profitability Gross Profit Margin % Industry Median

Times Interest Earned (X) Industry Median

Please visit http://measuredapproach.wordpress.com for important disclosures. © Copyright 2009 Ronald Sommer. All Rights Reserved.

FYE 12/2004 28.40 20.90

VALUATION CONCLUSIONS We place a target price of $87.56 on the common shares of Reliance Steel & Aluminum Company. We recognize this implies very high multiples to forecasted earnings and sales. However, we feel this target is justified. Though future earnings are the chief determinant of value, we also take into consideration a number of other factors. These factors are considered in determining a capitalization rate. We consider the long-term prospects of a company. We do not know what the future will be but there are disconnects between the value of individual companies and an industry. In the case of Reliance, we believe the company’s ability to sustain margins superior to the industry is a contributing factor to justifying premium multiples. The role of management is one of those qualitative factors that are difficult to measure. However, if past is prologue, then a company’s past performance provides some indication of what we can expect in the future. Reliance has consistently reported growing profits and free cash flow. There is something to be said for a company that is financially strong and has a sound capital structure. Stock of a company with a lot of surplus cash and nothing ahead of the common is clearly a better purchase than another one with the same per share earnings but large bank loans and senior securities. One measure of quality is a company’s ability to provide a safe dividend. Reliance pays a dividend well covered by earnings as the payout ratio is a low 24.1 percent. The current dividend yield is about 0.9 percent.

Disclosure: The author has no position in TECH.

Please visit http://measuredapproach.wordpress.com for important disclosures. © Copyright 2009 Ronald Sommer. All Rights Reserved.