Overview

Our 2012 results reflected growth over 2011, but not at the level we had anticipated. We began 2012 with positive momentum for both demand and pricing for the products we sell. However, we saw consistent deterioration in overall metals pricing beginning in February that continued throughout 2012. Demand also waned in most end markets we serve as the year progressed. We believe that U.S., as well as global, political and economic uncertainty caused demand to subside. These same factors also contributed to increased imports of metal products into the U.S. and reductions in raw material costs that led to lower metals pricing.

We did see continued strength in the aerospace, auto (mainly through our toll processing businesses) and energy (oil and gas) end markets during 2012, even though growth in the energy market slowed from 2011 levels and sequentially in each of the quarters during the year. Heavy industries such as mining equipment, barge and tank manufacturers, transmission towers and rail cars were also solid markets for us in 2012. Our sales into the agricultural equipment end market were strong in the 1st half of 2012 but slowed in the 2nd half. Our sales into the non-residential construction market improved somewhat over 2011 levels, primarily in the industrial construction market, but overall remain well below the peak levels in 2006.

Our 2012 sales of $8.44 billion were our second best ever, and our earnings per share were the third best ever. Through the efforts of our employees, we increased our 2012 same-store tons sold 3.4% over 2011 and increased our gross profit margin to 26.1% in a challenging business environment. We ended 2012 in a strong financial position with our net debt-to-capital ratio at 23.8%.

During 2012 we completed six acquisitions, with combined pro-forma annual sales of approximately $225 million. These companies generally sell specialty products or provide high-value processing, leading to higher selling prices and gross profit margins than the Company average. We also invested $214 million in capital expenditures, our highest ever. The majority of our capital expenditures related to growth activities, including the expansion and relocation of existing facilities, enhancing and adding processing capabilities, penetrating new geographic markets and expanding product offerings at existing locations.

We believe we have significantly higher earnings capacity from our current levels with exposure to industries that are poised for growth in the years ahead along with our broad and diverse product base and wide geographic footprint that positions us well in our industry. However, until there is a significant improvement in demand, especially in the non-residential construction market, we expect our results to be below what we believe our earnings power is, given the current size and breadth of the Company. We will continue to focus on maximizing the working capital management and profitability of our existing businesses and on profitable growth through both acquisitions and internal investment. We have also consistently returned capital to our shareholders through dividends, with substantial increases in our quarterly dividend rate over the past two years.

Looking forward, we expect that global economic uncertainty will continue to impact U.S. economic growth. However, we do expect pricing to improve from current levels and for volumes to steadily improve as we overcome the economic and political uncertainty and our customers gain more confidence. Our strong balance sheet provides a solid foundation for our operating activities and our growth strategies, both organic and through acquisitions, which we expect to aggressively pursue.

In February 2013, we announced our agreement to acquire Metals USA Holdings Corp. in an all cash transaction for approximately $1.2 billion. If completed, this would be our largest acquisition to date, adding 48 service center locations throughout the U.S. and further strengthen our broad range of products, significant customer diversification and wide geographic footprint. Our operating and growth strategies

have helped us achieve industry-leading operating results on a consistent basis and we remain confident in our ability to continue this track record of success going forward.

Effect of Demand and Pricing Changes on our Operating Results

Customer demand can have a significant impact on our results of operations. When volume increases our revenue dollars increase, which then contributes to increased gross profit dollars. Variable costs may also increase with volume including increases in our warehouse, delivery, selling, general and administrative expenses. Conversely, when volume declines, we typically produce fewer revenue dollars, which can reduce our gross profit dollars. We can reduce certain variable expenses when volumes decline, but we cannot easily reduce our fixed costs.

Pricing for our products can have a more significant impact on our results of operations than customer demand levels. As pricing increases, so do our revenue dollars. Our pricing usually increases when the cost of our materials increase. If prices increase and we maintain the same gross profit percentage, we generate higher levels of gross profit and pre-tax income dollars for the same operational efforts. Conversely, if pricing declines, we will typically generate lower levels of gross profit and pre-tax income dollars. Because changes in pricing do not require us to adjust our expense structure other than for profit-based compensation, the impact on our results of operations from changes in pricing is typically much greater than the effect of volume changes.

In addition, when volume or pricing increases, our working capital requirements typically increase, which may require us to increase our outstanding debt. This usually increases our interest expense. When our customer demand falls, we typically generate stronger levels of cash flow from operations as our working capital needs decrease.

Recent Developments

In February 2013, we entered into a definitive merger agreement to acquire all the outstanding shares of Metals USA Holdings Corp. ("Metals USA") for $20.65 per share in cash for a total equity purchase price of approximately $786 million and assumption of approximately $452 million of debt, for a total enterprise value of approximately $1.2 billion. The transaction is expected to close in the second quarter of 2013. Metals USA's total assets as of December 31, 2012 and sales for the year then ended were approximately $1.0 billion (unaudited) and $2.0 billion (unaudited), respectively.

The transaction has been unanimously approved by the respective Boards of Directors of Reliance and Metals USA. The transaction is subject to approval by Metals USA stockholders, along with the receipt of regulatory clearances and the satisfaction of other customary closing conditions, and includes a 30-day "go-shop" period. We anticipate funding the transaction with borrowings on our revolving credit facility, together with funds obtained from accessing the bank credit and debt capital markets.

2012 Acquisitions

Effective October 1, 2012, through our wholly owned subsidiary Feralloy Corporation ("Feralloy"), we acquired all the outstanding capital stock of GH Metal Solutions, Inc. (formerly known as The Gas House, Inc.) ("GH"), a value added processor and fabricator of carbon steel products, that will allow Feralloy to better serve the increasing demands of its diverse customer base. GH, located in Fort Payne, Alabama, was founded in 1958 and has grown its processing equipment to include flat-bed lasers, tube lasers, torches, shears, automatic band saws, CNC press brakes, coil-fed and hand-fed stampers, robotic and manual welders, and a painting line. GH operates as a wholly owned subsidiary of Feralloy and had net sales of $12.6 million for the three months ended December 31, 2012.

Effective October 1, 2012, we acquired all the outstanding limited liability company interests of Sunbelt Steel Texas, LLC ("Sunbelt"), a value added distributor of special alloy steel bar and heavy-wall

tubing products to the oil and gas industry. Sunbelt was founded in 1986 and is headquartered in Houston, Texas with an additional location in Lafayette, Louisiana. Sunbelt increases our growing exposure to the energy market in high end, niche products serving customers across multiple oil and gas well drilling types, including vertical, horizontal, directional, and deepwater drilling applications. Sunbelt had net sales of $12.5 million for the three months ended December 31, 2012.

On July 6, 2012, we acquired substantially all of the assets of Airport Metals (Australia) Pty Ltd., a subsidiary of Samuel Son & Co., Limited, through our newly-formed subsidiary Bralco Metals (Australia) Pty Ltd. ("Airport Metals"). Airport Metals, based in Melbourne, operates as a stocking distributor of aircraft materials and supplies. The addition of Airport Metals is our first entry into Australia and enhances our ability to service important aerospace customers in that area. Net sales of Airport Metals during the period from July 6, 2012 through December 31, 2012 were $1.4 million.

Effective April, 27, 2012, through our wholly owned subsidiary Precision Strip, Inc. ("PSI"), we acquired the assets of the Worthington Steel Vonore, Tennessee plant, a processing facility owned by Worthington Industries, Inc. The Vonore plant operates as a PSI location which processes and delivers carbon steel, aluminum and stainless steel products on a "toll" basis, processing the metal for a fee without taking ownership of the metal. The addition of the Vonore location to PSI's existing footprint of facilities allows PSI to better service its customer base in an important geographic area of the country. The Vonore location's net sales during the period from April 27, 2012 through December 31, 2012 were $1.6 million.

Effective April 3, 2012, we acquired all the outstanding limited liability company interests of National Specialty Alloys, LLC ("NSA"), a global specialty alloy processor and distributor of premium stainless steel and nickel alloy bars and shapes, headquartered in Houston, Texas. In addition to enhancing our existing product offerings with the addition of specialty stainless steel and nickel products, NSA also expands and complements our growing exposure to the energy market. NSA was founded in 1985 and has additional locations in Anaheim, California; Buford, Georgia; Tulsa, Oklahoma and Mexico City, Mexico. Net sales of NSA during the period from April 3, 2012 through December 31, 2012 were $68.0 million.

Effective February 1, 2012, through our wholly owned subsidiary Diamond Manufacturing Company, we acquired McKey Perforating Co., Inc. ("McKey"), headquartered in New Berlin, Wisconsin and its subsidiary, McKey Perforated Products Co., Inc., located in Manchester, Tennessee. McKey was founded in 1867 and provides a full range of metal perforating and fabrication services to customers located primarily in the U.S. McKey and Diamond Manufacturing Company are working together to leverage their combined expertise in the perforated metal market and further expand our presence within that market. McKey had net sales of $18.6 million for the eleven months ended December 31, 2012.

2011 Acquisition

Effective August 1, 2011, we acquired all the outstanding capital securities of Continental Alloys & Services, Inc. ("Continental"), headquartered in Houston, Texas, and certain affiliated companies. Continental is a leading global materials management company focused on high-end steel and alloy pipe, tube and bar products and precision manufacturing of various tools designed for well completion programs of global energy service companies and has 12 locations in seven countries including Canada, Malaysia, Mexico, Singapore, the U.A.E., the United Kingdom, and the United States. This acquisition aligns well with our diversification strategy by increasing our exposure to the energy (oil and gas) market, including the addition of Oil Country Tubular Goods ("OCTG") products, new processing capabilities, and entry into new international markets. Continental and its affiliates had combined net sales of $442.4 million for the year ended December 31, 2012.

Internal Growth Activities

We continued to maintain our focus on organic growth by opening new facilities, building or expanding existing facilities and adding processing equipment with total capital expenditures of $214.0 million in 2012, our highest to-date. This amount includes the purchase of six facilities that we previously leased, which will reduce our expenses. Our 2012 capital expenditure budget was $250 million. During 2012 we also consolidated and closed a few small operations that did not impact our ability to service our customers.

Our 2013 capital expenditure budget is approximately $180 million with much of this related to internal growth activities comprised of purchases of equipment and new facilities along with expansions of existing facilities. We also plan to move out of various leased facilities and into newly built and/or purchased ones. This reflects our confidence in our long-term prospects; however, we will continue to evaluate and execute each growth project and consider the economic conditions and outlook at the time. We estimate our maintenance capital expenditures at about $60 to $70 million, which allows us to significantly reduce our capital expenditure spending if and when necessary.

Results of Operations

The following table sets forth certain income statement data for each of the three years ended December 31 (dollars are shown in millions and certain amounts may not calculate due to rounding):

                              2012                      2011                      2010
                                    % of                      % of                      % of
                         $        Net Sales        $        Net Sales        $        Net Sales
Net sales            $ 8,442.3         100.0 % $ 8,134.7         100.0 % $ 6,312.8         100.0 %
Cost of sales
(exclusive of
depreciation and
amortization
expense shown
below)                 6,235.4          73.9     6,148.7          75.6     4,727.9          74.9
Gross profit(1)        2,206.9          26.1     1,986.0          24.4     1,584.9          25.1
Warehouse,
delivery, selling,
general and
administrative
expense ("S,G&A")      1,396.2          16.5     1,280.1          15.7     1,103.6          17.5
Depreciation
expense                  106.1           1.3        97.3           1.2        91.0           1.4
Amortization
expense                   45.4           0.5        35.8           0.4        29.6           0.5

Operating income     $   659.2           7.8 % $   572.8           7.0 % $   360.7           5.7 %

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Net Sales

                                       Year Ended
                                      December 31,        Dollar    Percentage
                                    2012        2011      Change      Change
                                      (in millions)
          Net sales               $ 8,442.3   $ 8,134.7   $ 307.6           3.8 %

                                       Year Ended
                                      December 31,         Tons      Percentage
                                    2012        2011      Change       Change
                                     (in thousands)
          Tons sold                 4,440.3     4,213.5     226.8            5.4 %
          Tons sold, same-store     4,299.1     4,157.0     142.1            3.4 %




                                                  Year Ended
                                                 December 31,       Price     Percentage
                                                2012      2011      Change      Change
Average selling price per ton sold             $ 1,894   $ 1,930    $   (36 )        (1.9 )%
Average selling price per ton sold,
same-store                                     $ 1,827   $ 1,907    $   (80 )        (4.2 )%

Tons sold and average selling price per ton sold amounts exclude our toll processing sales. Same-store amounts exclude the results of our 2012 and 2011 acquisitions.

In general, business activity in most all of our end markets was better in 2012 than in 2011, albeit, the improvement in tons shipped decreased sequentially in each of the first three quarters of 2012 and in the fourth quarter declined due to extended holiday related closures at many of our customers. We also believe that certain of our customers reduced purchasing activity near the end of the year as the U.S. economy approached the "fiscal cliff". The combination of extended holiday closures and the pending "fiscal cliff" concerns caused our fourth quarter demand to decline more than typical seasonal slowdowns. In 2012, our strongest markets were aerospace, farm and heavy equipment, and auto (through our toll processing businesses). The energy (oil and gas) market, although down from 2011 levels, still continued to be one of our strongest. Non-residential construction, our largest end market, exhibited moderate improvement, although at significantly reduced demand levels from its peak in 2006.

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 2011 and 2012 acquisitions, particularly Continental and NSA which specialize in various alloy steel products, favorably impacted our 2012 average selling prices as their specialty products have higher selling prices than our company average; however, not enough to offset the overall decline in our selling prices.

Our 2012 average selling prices declined from 2011 due to lower mill pricing for most of our products as a result of decreases in raw material and scrap costs at the mills as well as high import levels and domestic overcapacity that needed to be absorbed in the marketplace. Lower London Metal Exchange aluminum prices and reduced nickel surcharges were primarily responsible for the drop in common alloy aluminum and stainless steel prices, respectively.

As a result of decreasing mill prices during most of the year, we sold most products at lower average selling prices compared to 2011 levels. Our major product same-store selling prices decreased in 2012 from 2011 levels as follows:
carbon steel down 3.9%; aluminum down 2.1%; stainless steel down 10.4%; and

alloy up 2.6%. As carbon steel sales represent slightly more than 50% of our sales dollars, changes in carbon steel prices have a significant impact on changes in our overall average price per ton sold.

Cost of Sales

                                Year Ended December 31,
                            2012                      2011
                                  % of                      % of       Dollar     Percentage
                       $        Net Sales        $        Net Sales    Change       Change
                                      (dollars in millions)
   Cost of sales   $ 6,235.4          73.9 % $ 6,148.7          75.6 %  $ 86.7            1.4 %

The increase in cost of sales in 2012 compared to 2011 is due to increased tons sold, partially offset by lower product costs. See "Net Sales" above for trends in both demand and costs of our products.

Our inventory LIFO valuation reserve adjustment, which is included in cost of sales and, in effect, reflects cost of sales at current replacement costs, resulted in a credit, or income, of $64.1 million in 2012 compared to a charge, or expense, of $85.3 million in 2011. Our LIFO valuation reserve as of December 31, 2012 and 2011 was $138.8 million and $202.9 million, respectively.

Gross Profit

                                Year Ended December 31,
                            2012                      2011
                                  % of                      % of       Dollar    Percentage
                       $        Net Sales        $        Net Sales    Change      Change
                                      (dollars in millions)
    Gross profit   $ 2,206.9          26.1 % $ 1,986.0          24.4 % $ 220.9          11.1 %

Higher gross profit margins in 2012 contributed approximately 60% of the total increase in our gross profit of $220.9 million. The remaining increase in gross profit was from higher sales levels. The improvement in our gross profit margin was primarily due to our ability to effectively manage our selling prices in an environment of declining mill prices. See "Net Sales" and "Cost of Sales" for discussion on product pricing trends and our LIFO valuation reserve adjustments, respectively.

Expenses

                                    Year Ended December 31,
                                2012                      2011
                                      % of                      % of       Dollar    Percentage
                           $        Net Sales        $        Net Sales    Change      Change
                                          (dollars in millions)
 S,G&A expense         $ 1,396.2          16.5 % $ 1,280.1          15.7 % $ 116.1           9.1 %
 S,G&A expense,
 same-store            $ 1,321.2          16.8 % $ 1,262.1          15.9 % $  59.1           4.7 %
 Depreciation &
 amortization
 expense               $   151.5           1.8 % $   133.1           1.6 % $  18.4          13.8 %

The additional expenses of our 2012 and 2011 acquisitions along with increases in certain warehouse and delivery expenses resulting from increased staffing levels due to improved demand and increased fuel and healthcare costs accounted for most of the increase in S,G&A expense during 2012 compared to 2011. Our S,G&A expense as a percent of net sales increased as compared to 2011 primarily due to the lower selling prices in 2012 compared to 2011.

The increase in depreciation and amortization expense was mainly due to our 2012 and 2011 acquisitions and depreciation expense from our recent capital expenditures. Additionally, we recognized an impairment loss of $2.5 million related to one of our trade name intangible assets for the year ended December 31, 2012, which is included in amortization expense.

Operating Income

                                  Year Ended December 31,
                               2012                    2011
                                    % of                    % of       Dollar    Percentage
                          $       Net Sales       $       Net Sales    Change      Change
                                        (dollars in millions)
    Operating income   $ 659.2           7.8 % $ 572.8           7.0 %  $ 86.4          15.1 %

The higher gross profit dollars generated on higher sales, offset by only moderate increases in S,G&A expenses and the contributions of our 2011 and 2012 acquisitions improved our operating income level in 2012. Our operating income margin improved in 2012 mainly because of our improved gross profit margins and contributions from some of our 2012 and 2011 acquisitions, which produced higher operating returns due to the specialty nature of their products and processing services.

Other Income and Expense

                                    Year Ended December 31,
                                  2012                    2011
                                        % of                  % of       Dollar     Percentage
                             $       Net Sales      $       Net Sales    Change       Change
                                          (dollars in millions)
Other income (expense),
net                        $  8.6           0.1 % $ (1.4 )           -    $ 10.0         (714.3 )%

The change in other income (expense), net in 2012 compared to 2011 was primarily due to higher foreign currency gains due to the weakening of the U.S. dollar in 2012 compared to 2011 and higher investment returns on our life insurance assets.

Income Tax Rate

    Our effective income tax rate in 2012 was 33.0% compared to our 2011 rate of
31.7%. The increase in our income tax rate was mainly due to higher income
levels in 2012 as permanent items that lowered our effective income tax rates
from the federal statutory rate were not materially different in amounts 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%.

Net Income

                                      Year Ended December 31,
                                   2012                    2011
                                        % of                    % of       Dollar    Percentage
                              $       Net Sales       $       Net Sales    Change      Change
                                            (dollars in millions)
. . .