reliance steel & aluminum 2008_Q2_Conference_Call_Transcript

FINAL TRANSCRIPT

Conference Call Transcript
RS - Q2 2008 Reliance Steel Earnings Conference Call

Event Date/Time: Jul. 17. 2008 / 10:00AM CT

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FINAL TRANSCRIPT
Jul. 17. 2008 / 10:00AM CT, RS - Q2 2008 Reliance Steel Earnings Conference Call

CORPORATE PARTICIPANTS
David Hannah
Reliance Steel & Aluminum Co. - Chairman and CEO
Gregg Mollins
Reliance Steel & Aluminum Co. - President and COO
Karla Lewis
Reliance Steel & Aluminum Co. - EVP and CFO

CONFERENCE CALL PARTICIPANTS
Timna Tanners
UBS - Analyst
Brett Levy
Jefferies & Company - Analyst
Sal Tharani
Goldman Sachs - Analyst
Tony Rizzuto
Dahlman Rose & Co. - Analyst
Michael Willemse
CIBC World Markets - Analyst
Bob Richard
Longbow Research - Analyst
Mark Parr
KeyBanc Capital Markets - Analyst
Tim Hayes
Davenport & Company - Analyst
Jonathan Goldberg
Highline Capital Management, L.L.C. - Analyst

PRESENTATION

Operator

Good morning, ladies and gentlemen, and welcome to the Reliance Steel and Aluminum 2008 second quarter financial results conference call. At
this time, all lines have been placed on a listen-only mode, and we will open the floor for your questions and comments following the
presentation. It is now my pleasure to turn the floor over to your host, Mr. David Hannah, Chairman and CEO. Sir, the floor is yours.

David Hannah - Reliance Steel & Aluminum Co. - Chairman and CEO

Thank you. Good morning, and thank you all for taking the time to listen to our conference call for the second quarter and six months ended June
30 of 2008. Gregg Mollins, our President and Chief Operating Officer, and Karla Lewis, our Executive Vice President and CFO, are also here
with me today.

This conference call may contain forward-looking statements relating to future financial results. Actual results may differ materially as a result of
factors over which Reliance Steel and Aluminum Company has no control. These risk factors and additional information are included in the
Company's annual report on Form 10-K, for the year ended December 31, 2007, and other reports on file with the Securities and Exchange
Commission. A transcript of this conference call, including Regulation G reconciliation, will be posted on our website at
www.rsac.com/investorinformation.



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Okay. For the 2008 second quarter, our net income was a record $156.6 million. That's up 27.5% compared with net income of $122.8 million for
the 2007 second quarter. And it's up 45.8% from $107.4 million for the 2008 first quarter. Earnings per diluted share were also a record at $2.12
compared to $1.59 for the 2007 second quarter, and $1.46 for the 2008 first quarter. 2008 second quarter sales were a record $2.1 billion, an
increase of 10.5% compared with 2007 second quarter sales of $1.9 billion and up 9.8% from our 2008 first quarter.

For the first six months ended June 30, 2008, net income amounted to a record $264 million, up 12.6% compared with net income of $234.5
million for the same period in 2007. Earnings per diluted share were a record $3.58 compared with earnings of $3.06 per diluted share for the six
months ended June 30, 2007.

Sales for the 2008 year-to-date period were a record $4.0 billion, an increase of 7.1% compared with 2007 six-month sales of $3.74 billion. For
the 2008 second quarter, our volume decreased 2.2% and average prices increased 13.2% compared to the 2007 second quarter. Our volume was
down about 1.1%, and average pricing was up 11.2% compared to the 2008 first quarter. For the 2008 second quarter, carbon steel products were
51% of our revenue dollars; aluminum was 17%; stainless steel was 16%; alloy, 9%; toll processing 2%; and the remaining 5% was
miscellaneous, including titanium, copper, and brass.

The second quarter turned out to be quite a bit better than we had originally anticipated, which resulted in our updated guidance on June 24. The
main reason for the increased earnings was the higher carbon steel prices, which resulted in higher gross profit margins as we quickly passed
through the increases to our customers. While we expected carbon steel pricing to continue upwards during the second quarter, the increases were
larger than we had anticipated.

Additionally, these higher-than-expected prices led us to adjust our LIFO expense estimate for the year from $70 million at the end of the first
quarter to $115 million currently, resulting in pretax LIFO expense of $40 million or $0.34 per diluted share(1) in the second quarter.

Our gross profit margins, as reported on a LIFO basis, increased to 28% in the 2008 second quarter from 25.8% in the 2008 first quarter. On a
FIFO basis, our gross profit margins were 29.9%, up from 26.7% in the 2008 first quarter. Once again, our managers and our sales personnel did
an outstanding job managing our margins. Demand in the second quarter was about even with the first quarter, as evidenced by our tons sold
decrease of only about 1%, which was in line with our expectations. We continued to manage our working capital well, with receivables in good
shape and inventory still representing between 2.6 and 2.7 months on hand. Our net debt to total capital was 32% at the end of the quarter.

Now, looking at the third quarter, we expect pricing to be slightly above second quarter levels. While we do not expect any unusual changes in
demand, we do expect the normal seasonal softness compared to the 2008 second quarter, and we recognize there is still a good deal of
uncertainty surrounding overall economic activity. We therefore are anticipating our volume to decrease slightly, and our gross profit margins to
be a bit lower because the rate of carbon steel price increases will be below that of the 2008 second quarter.

As a result, we currently estimate earnings per diluted share for the 2008 third quarter to be in a range of $1.80 to $1.90. Now this guidance does
not include the impact of the acquisition of PNA or any of the related financing activities. We expect the PNA acquisition and the related
financing activities to close in early August and to be accretive to our third quarter earnings.

During the quarter, we were very excited to announce that we had reached an agreement to acquire PNA Group Holding Corporation, a leading
steel service center group. PNA is an outstanding company that fits well with the Reliance family and our strategic goals for product, geographic,
and customer diversification. We've known and respected the management teams at the PNA operations for many years, and we're looking
forward to the opportunities that this combination presents.

The transaction is valued at approximately $1.1 billion, comprised of about $315 million for PNA's equity, plus up to $750 million of debt. PNA
processes and distributes primarily carbon steel plate, bars, structural and flat-rolled products. 2007 and first quarter 2008 revenues for PNA were
about $1.6 billion and $474 million, respectively.

PNA has 23 steel service centers throughout the United States, as well as five joint ventures that operate a total of seven service centers in the US
and Mexico. The major markets served by PNA include infrastructure, non-residential construction, machinery and equipment manufacturing, oil
and gas, telecom and utilities.

We plan to finance the transaction, including the repayment of PNA's existing debt, through a combination of borrowings under our existing
credit facility and by raising approximately $750 million through a new bank debt, and the proceeds from an equity financing that we announced



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this morning. All of the outstanding PNA notes were validly tendered, and we expect them to be retired, subject to the closing of the PNA
acquisition.

On April 16 of 2008, our Board of Directors declared a regular quarterly cash dividend of $0.10 per share of common stock. The 2008 second
quarter dividend was paid June 23 to shareholders of record June 2. The Company has paid regular quarterly dividends for 47 consecutive years.

Once again, we're proud of our performance and our leadership position in the industry, and believe that our proven ability to grow both
internally and by successful, accretive acquisitions on a consistent basis, and through varying market conditions will result in continued strong
operating results going forward.

I will now turn the floor over to Gregg for some additional comments on our operations and market conditions. Thank you. Gregg?

Gregg Mollins - Reliance Steel & Aluminum Co. - President and COO

Thank you, Dave. Good morning. We are very pleased with our record sales and profits in the second quarter. Once again, our managers did an
outstanding job passing through historically high price increases to our customers and expanding our margins. We improved our gross profit
margins to 28% in the quarter, up from 25.8% in the first quarter. This is by no means an easy task. With our focus on outstanding customer
service, our breadth of inventory, along with the disciplined approach to managing our gross profit, we were able to accomplish this improvement
in margin.

Our inventory turn was consistent with the first quarter. As always, we will keep a close eye on our inventory and make a concerted effort to
improve our turns.

From a demand standpoint, our same-store tons sold in the first half of 2008 compared to the first half of 2007 fell 1%. The MSCI reported
member volume down 3.8% for the first half 2008 versus 2007. This supports our belief that you can increase margins and market shares
simultaneously through outstanding customer service.

We still see strength in many of the key markets and industries we support. These include aerospace, energy, electronics, wind towers, barge and
shipbuilding, railcar, agricultural equipment, non-residential construction, infrastructure and heavy equipment. The three industries that continue
to struggle are domestic auto, residential construction, and appliance. Fortunately, we do very little business in these industries.

The most significant change in the quarter and the year thus far has been the increase in our cost of goods. It looks like carbon steel prices will
continue to increase in the third quarter, with price increases already announced for August and September. Skyrocketing raw material costs, the
weak dollar, low imports, low service and their inventories, and high energy and freight rates are all impacting the price of steel.

Carbon plate, as an example, was at $820 a ton in January and will be just shy of $1,500 a ton in August, an increase of almost 80%. Every time
we believe the prices have peaked, they go up again. The important thing is passing these increases through to our customers, which we have
done.

As for aluminum, Midwest spot ingot is up $0.36 a pound since the first of January at roughly $1.50 a pound. Demand for commercial grade
aluminum is relatively flat at reasonable levels. Aerospace for us, in spite of the delays in the 787, is still quite strong.

Stainless demand is off from a year ago and nickel surcharges are trending down. Our inventory is in good shape in expectation of further
reduction in surcharges and/or base prices.

To summarize, demand in most of the major industries we support is still pretty good. Pricing, particularly in carbon steel, is at record levels with
signs of further increases. We will continue to focus our attention on superior customer service, managing our gross profit margins, and turning
our inventory. We look forward to another good year at Reliance.

Now I'll turn the program over to Karla to review our financials. Karla?

Karla Lewis - Reliance Steel & Aluminum Co. - EVP and CFO



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Thanks, Gregg. Good morning. Our 2008 second quarter consolidated sales were a record at $2.1 billion, as were our 2008 six-month
consolidated sales of $4 billion. Our 2008 six-month sales include a 1.5% decrease in tons sold, and a 9% increase in our average selling price per
tons sold, compared to the first half of 2007. And please note that our tons sold and average selling price amount exclude the sales of Precision
Strip because of the toll processing nature of their business.

For the 2008 six-month period same-store sales, which exclude the sale of our 2007 and 2008 acquisitions, were $3.7 billion, up 4.9% from the
2007 first half, with a 1% decrease in our tons sold and a 6.3% increase in our average selling price per tons sold. As the numbers indicate, we
believe that demand is still at reasonable levels for the markets that we sell to. Our average selling price increased mainly because of the
significant price increases for carbon steel products experienced in the 2008 second quarter.

Our 2008 second quarter gross profit was a record $586.9 million, up 18% from the 2007 second quarter. For the six-month period, our gross
profit margin was 27.0% in 2008, up from 25.9% in 2007. The improvement in our 2008 gross profit margin is mainly due to the carbon steel
price increases, effective mostly in the 2008 second quarter. Typically, when our suppliers announce price increases, we push these increases
through to our customers at that time, before we receive the higher cost of metal into our inventory.

This results in a temporary improvement in our gross profit margins. Because the significant and rapid carbon steel mill price increases in the
2008 second quarter were, for the most part, accepted by our customers, we were able to significantly increase our gross profit margins. As the
mill pricing levels off in the future, we expect our gross profit margin spread to compress somewhat, as our cost and inventory will have caught
up with our selling prices.

Our 2007 second quarter LIFO expense was $40 million or $0.34 per diluted share(1) compared to $13.75 million or $0.11 per diluted share(1) in
the 2007 second quarter. In the 2008 six-month period, we reported LIFO expense of $57.5 million or $0.49 earnings per diluted share(1), up from
our 2007 six-month LIFO expense of $32.5 million or $0.26 earnings per diluted share(1).

The 2008 LIFO expense is due to our increased costs for carbon steel products in 2008 as compared to 2007 levels. We have increased our full
year LIFO expense estimate to $115 million, based upon the carbon steel price increases announced through August, along with additional
increases now expected for certain carbon steel products announced just last week, and after our revised second quarter guidance was issued. We
also anticipate further increases in aluminum prices in 2008, due to recent LME aluminum price increases. Our LIFO expense is included in our
cost of sales.

Our warehouse delivery, selling, general, and administrative expenses have increased 11.4% in the first half of 2008 compared to 2007, due to the
expenses in our 2007 and 2008 acquisitions, increased cost for energy and fuel, and higher incentive pay due to our improved operating
performance. As a percent of sales, our 2008 second quarter expenses were 14.2% compared to 14.0% in the 2007 second quarter, and 14.5% in
the 2008 first half compared to 13.9% in the 2007 first half.

Our 2008 six-month depreciation and amortization expense increased $5.1 million over 2007, and includes the depreciation from our 2007 and
2008 acquisitions, and from our capital expenditures made since June of 2007. Operating income for the 2008 second quarter was $267.9 million
or 12.8% compared to $213.7 million or 11.3% in the 2007 second quarter. Our operating income improved because of our higher gross profit
margins achieved in 2008. Interest expense for the 2008 six-months decreased $7 million or 17.5%, due to both lower interest rates in 2008 and
lower average borrowings during 2008 as compared to 2007. Our effective income tax rate for the 2008 period was 37.7% compared to 37.5% in
the 2007 period, and our annual 2007 rate was 37.6%.

Our working capital needs increased significantly in the 2008 second quarter because of the significant increases in carbon steel prices. Net of
acquisitions, our accounts receivable balance increased $257.2 million, and our inventory levels increased $205 million at June 30, 2008, from
our year-end 2007 amounts. Our accounts receivable day sales outstanding rate was approximately 40 days for the 2008 first half, consistent with
our 2007 rate. Although we have not seen a deterioration in our customers' payment pattern as might be expected because of their increased
working capital needs and general economic uncertainty, many of our customers are requesting increased credit limits and payment terms. And
we continue to closely monitor our customer exposure.

Our inventory turn rate was 4.5 times for the 2008 first half compared to 4.4 turns for 2007. And our high earnings levels offset by our increased
working capital needs provided cash flow from operations of $21.2 million in the 2008 second quarter and $128.4 million in the 2008 first half.
Our outstanding debt at June 30, 2008 was $1.16 billion, which included $292 million borrowed on our $1.1 billion revolving line of credit, and
our net debt to total capital ratio was 32.0%(2) at June 30, 2008, down from our year-end 2007 rate of 32.4%(2). In the 2008 first half, we used our
borrowings and cash flow to fund our increased working capital needs. Capital expenditures were approximately $88.3 million, an acquisition for
approximately $13.3 million, and stock repurchases of approximately $114.8 million.



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In the 2008 first quarter and the 2007 third quarter, we repurchased shares of our common stock, resulting in approximately 4% fewer shares
outstanding in the 2008 first half compared to 2007 first half. Book value per share was $30.93 per share at June 30, 2008, up from $28.12 per
share at December 31, 2007.

We expect to fund the approximately $1.1 billion purchase of PNA Group Holding Corporation with the proceeds from our proposed equity
financing and approximately $250 million from a new term loan. We'll fund the remaining balance with borrowings under our existing credit
facility.

The $1.1 billion transaction value for the purchase of PNA includes the repayment or refinancing of up to $750 million of their outstanding debt
at the closing. This includes their secured credit facility, as well as $250 million of 10.75% outstanding fixed-rate notes, and $170 million of
outstanding floating rate notes. We initiated tender offers and consent solicitations for both of these series of notes, and 100% of the notes were
tendered as of the expiration of our consent period on July 15. The settlement date for the tendered notes is August 4, 2008. Although we paid a
premium for the tender of the fixed-rate notes, we expect to save approximately $13 million compared to the make-whole premium amount, and
expect to realize savings for our lower borrowing costs immediately for the $420 million of PNA notes that have been tendered.

Earlier today, we filed with the SEC, a Form 8-K that includes certain financial statements of the PNA, and pro forma financial information
reflecting the PNA acquisition and related financing activities for the respective periods included in the filing. We also filed a Form S-3
registration statement related to the proposed equity financing.

Thank you. And we'll now open the discussion for questions.

Regulation G Reconciliations

(1) LIFO expense is included in cost of sales. The per diluted share effect is calculated as follows (in thousands except for share and
per share data):

2008 2007
Three months ended June 30:
LIFO expense/(income) $ 40,000 $ 13,750
Tax rate 37.7% 37.5%
Net LIFO expense/(income) $ 24,920 $ 8,594
Weighted average shares
outstanding – diluted 73,757,864 77,181,651
Per share effect $.34 $.11

Six months ended June 30:
LIFO expense/(income) $ 57,500 $ 32,500
Tax rate 37.7% 37.5%
Net LIFO expense/(income) $ 35,823 $ 20,313
Weighted average shares
outstanding – diluted 73,651,222 76,691,529
Per share effect $.49 $.26

(2) Net debt-to-total capital is calculated as total debt (net of cash) divided by shareholders’ equity plus total debt (net of cash).

QUESTION AND ANSWER

Operator

(OPERATOR INSTRUCTIONS). Timna Tanners, UBS.



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Timna Tanners - UBS - Analyst

Just really appreciate all the great detail on the call. Really, I think what I'd like to hear more about is if you could give us some more detail on
the end markets. I know you said that auto, residential and appliance were really where you're seeing weakness, but you don't seem to have a lot
of exposure there. And since you did report a decline in volume, I'm just wondering if you can give a little bit more of even within non-residential
construction a little further breakdown of what you see happening?


Sure. Yes, we don't have really any sales at all of any significance of any type of metal into the auto industry or the appliance or the residential-
related construction industries.

We do some toll processing, however, for the auto industry -- well, actually, we do it on behalf of the domestic mills. And we have seen some
slowdown in terms of tonnage being processed through our toll processing business, but at the same time, our people there have really done an
outstanding job replacing that tonnage with new business really coming from other applications.

So, the weakness, if you want to call it that, in our tons sold, which was down about 1% -- actually, less than 1% on a same-store type basis; it
was about six-tenths or seven-tenths of a percent. The stronger part of that is our carbon steel business, actually. We've seen the largest decrease
in the aluminum side.


And stainless.


And stainless, as well. But aluminum has been -- it's off a little more than 5% in terms of tons, first quarter to second quarter this year.

So -- and that goes hand-in-hand with kind of the slowdown in the aerospace side. It's still a very good -- as Gregg mentioned in his discussion --
that aerospace is still strong by historical standards for us. But certainly not what it was in 2006 or 2007. So, I don't know that that answers your
question exactly, Timna, but we really haven't seen any meaningful reductions in the non-res[identical contruction] side.


Okay. That's really helpful. Can you fill in a little bit more maybe on what you're seeing in stainless, if you could?


Mainly, we're being affected in stainless flat roll, okay, than -- in just in the general manufacturing purposes, okay. Stainless has gone up, as you
know, Timna, for the last few years to pretty high levels. And our customers, we think, are postponing any programs that they can, especially
when they start seeing the decrease in the surcharge taking place, which they have over the past few months. And their feeling is, is that they
expect that to continue. We happen to agree with that, by the way. So they're buying only what they need, and they're not in any projects that they
can delay until they see prices down at a more reasonable level, they're doing.


I think one other thing to point out, too, Timna, is that the service center industry overall, I think second quarter volume was down about a little
less than 4%, I think from an industry standpoint. And we're down around 1% -- less than 1% on a same-store basis.

So I think that we are very selective in our quest to increase our gross profit margins. We're being very selective in how we sell that material. So,
could we sell more? Yes, we could sell more, but we think we can make more money selling less at higher prices.



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Okay, that makes sense. And then the only other thing I really wanted to ask is that in the last conference call, you also talked about you're not
seeing a lot of weakness in non-res, but given the preponderance of leading indicators and the chatter that you're hearing, you're still forced to talk
about conservatism in your forecast. Is there anything that's changed there that you might be seeing, indeed, and what your customers are
exhibiting right now, given -- for their outlook?


No. I think -- we're still in the same position that we were three months ago. And that is, we hear a lot about the reasons why it should be slowing
down but we really haven't witnessed that yet.


Okay, great. Thank you again very much.

Operator

Brett Levy, Jefferies & Company.

Brett Levy - Jefferies & Company - Analyst

Hey, guys, good quarter. After the PNA transaction, are you guys taking the foot off the pedal a little bit on the acquisition front? And then are
you seeing any kind of distressed offerings of kind of mom-and-pop-size guys because of liquidity issues because of the high prices?


You know, with it -- are we taking our foot off the pedal? There aren't a lot of $2 billion companies out there, Brett, as you probably know. So,
we will continue to look for acquisition opportunities. And actually, acquisition opportunities seek us out on a regular basis.

But obviously, with the size of the PNA transaction, we will -- we'll need some time to digest that certainly before anything other -- any other
transaction of any significance should come along. But are we going to stop looking? I think the answer to that is no. We've looked continually
for over -- well, longer than I've been with the Company, and that's 27 years. So, it predates our IPO.

Brett Levy - Jefferies & Company - Analyst

And second question is -- and maybe I wasn't following the headlines closely enough, but I thought initially when you announced the PNA
transaction, it looked like it was going to be funded with banks and bonds. Is the market for Triple B bonds that weak at this point?


Brett, basically what we announced initially, when we announced the transaction, was that we would raise $750 million through a combination
of debt and equity. We were considering all the different markets at that time. One of our goals was to maintain enough prepayable debt because
we feel that cash flow will be strong over the near-term. And that was one of the main reasons we went to the bank debt market as opposed to a
long-term bond market.

Operator



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Sal Tharani, Goldman Sachs.

Sal Tharani - Goldman Sachs - Analyst

Gregg, you mentioned that you expect -- if I heard correctly -- that you expect base prices of stainless also to come down?


I think that's a possibility. That's just one guy's idea, Sal, but I think it's possible.


Is that because you're seeing demand declining very rapidly there?


Yes.


Okay. Also on the pricing, the -- you're still seeing the long product prices rising further, plates, beams?


Yes. Their price increases have been announced and are in place. We had many mill and beam price increases that took place in July that stuck.
And then there was a -- basically, Nucor announced the $65 a ton increase on long products, which is directly associated with the $65 scrap
increase. And that's in place for August.


What are you seeing on the flat side?


On the flat side, there's a $40 a ton increase announced by AK and U.S. for the September timeframe. Both held their prices in place by July and
August. Nucor had an increase; they held their prices in July and they had an increase of $30 a ton in August. I don't believe Nucor is yet to
follow that $40 a ton increase announced by U.S. and AK for September, but I think it's pretty likely that they will.


So on the hot-rolled, the average price is about more than 1,100, 1,120, 1,130, something like that?


Yes, it's about 1,120 for August with potentially that $40 increase going in, in September.




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And are you seeing any pushback from the client in terms of already any hedges where people may be postponing their projects or canceling the
projects when the demand and such is going on?


Not really. I think when you get into some of the long products, we would expect that some of the non-residential construction projects would
have been delayed, some infrastructure work been delayed. But really, our sales have held up very well with that.

So, everything that you read would suggest that projects are -- and maybe future ones that they never were purchasing any steel for it to begin
with, are being delayed. And I'm sure some of those are, but I've got to tell you, the structural business has held up very well for us. We're very
pleased with it.

And of course, plate -- you know, there was a plate increase that was announced, about $100 a ton for August, which puts plate just below $1,500
a ton. But that market is -- that's the strongest of all the steel segments, is the plate business.


And last question on inventory -- how do you see inventories over the next four, five, six months on the second half? You see that increasing,
staying steady?


We'd like to think that at Reliance, our inventories are going to be going down the next six months, okay, which they generally do historically,
where they've always done that. So, we're going to have a big push on, on getting our inventories lower than they are today going forward, with
the understanding that there is some price increases that are going to take place. So, that certainly is going to affect your inventory, but hopefully,
it will -- our turns themselves will improve.


Great. Thank you very much.

Operator

Tony Rizzuto, Dahlman Rose & Co.

Tony Rizzuto - Dahlman Rose & Co. - Analyst

I've got several questions here. Just the first one is kind of a house cleaning a little bit, but you mentioned the aluminum tons were down 5%
sequentially. I didn't hear the number for carbon tons and stainless steel tons.


Yes, you didn't hear it because we didn't say it, Tony. I just remembered the aluminum number when I saw it and it was big. The other ones are
right around -- I think stainless tons are pretty flat and carbon is off about 1%. So, the aluminum ones stuck in my mind because it was bigger.


All right. If you could -- if, you know, in all those markets that you're seeing continued strength and with the exception of the three that you
really don't dabble in, if you could look at all those markets that you mentioned, generally what percentage of your overall business or revenues
would those markets comprise?



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Gosh, that's tough --


Yes, that's a tough one, Tony, because as we've said many times before, most of our customers are job shops and fabricators, and we just don't
know what they're doing with a lot of our material. So, as much as we'd like to give you an answer, I don't know that we can come up with any
meaningful answer for you, because it's just too hard for us to tell.


Understood. But I've got a question on the margins. You guys indicated that the third quarter margin, gross margin overall, would be a bit lower.
Should we be using somewhere in the 26 to 27 more of your normalized range overall?


Karla, you want --?


I don't know that we can get that specific with you, Tony. I think what we maybe can say is that pricing levels are still strong and there are still
more price increases happening in the third quarter. So, oftentimes we are a bit above that historical range during that type of a pricing
environment. But as we said, we don't expect to be at the same levels the second quarter.


That's helpful, Karla. I appreciate that. And then I would just follow-up -- I wanted to -- I'm sorry, David?


No, you're good.


All right. I wanted to also just ask you about -- how should we look at the PNA margins relative to Reliance overall?


Well, they're --


They have public filings that are out there with the SEC through the first quarter.




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We just filed some.


And yes, we just filed some this morning on our 8-K, incorporated those by reference, but they were out there anyway. 10-Q's at the PNA Group
Inc. level, which are their operating entities. And then they also have filings at the PNA Intermediate level, which holds some of their debt. And
then their S-1 filings were at the PNA Group Holding Corporation level. If you look at those, though, you can see that their gross profit returns
were lower than historically in their filings than Reliance's have been.


Okay, we'll take a look at that. And then my final question would be on one of my favorites, the heat treat market for aluminum. And you
indicated that the market while we've seen obvious weakness in the common alloy area, heat treat has been holding in there in spite of delays with
the 787 and the A380. What -- have you seen any discernible changes at all? Are margins still pretty good in that market? Have you seen any
diminishing of margins?

And secondly, I didn't hear anything about defense. Are you also able to supply some of the demand for armor plate?


We're not involved really in the armor plate business, although I wish we were, Tony, but we're not.

As far as the demand for the heat treat plate business, that's still pretty strong for us. The difference is, is that when material was on allocation --
which, by the way, aluminum plate, on 2 and 7, in particular, is still being allocated. But when it was -- when demand was very, very strong in
2006 and plate was on allocation, the difference between today and then is that our margins were significantly high. Okay? They were higher in
2006 and we had ever had margins on heat treat plate in all of our years in the business.

But now because of the delays and what-not and the increases in production capacity, in particular, Alcoa and Kaiser Aluminum, there has been
more supply out there. So, because of that fact, margins have dropped from those super-high levels of 2006 down to more historically normal
margins in 2007 and '08.


All right, Gregg. And how would you characterize the inventories within the chain on the heat treat side?


They're a little lower than what we report, like our 4.5 turns, they would be somewhere around the 4 turn level at this point in time. Yes, about
3.8 to 4.0 for us. I can't speak to the rest of the industry on it because I really don't know if they publish that. But our inventories in the heat treat
plate market are -- they're around 3.8 to 4.0 turns.


All right, Gregg. Listen, I appreciate it. Thank you.

Operator

Michael Willemse, CIBC.

Michael Willemse - CIBC World Markets - Analyst



FINAL TRANSCRIPT

In the press release, you mentioned your guidance does not include the PNA Group acquisition. Do you think the PNA Group acquisition will be
accretive in the third quarter?


Yes, Michael. I had mentioned in my remarks briefly that yes, the combination of the PNA acquisition and the proposed financing that we
announced today, the new share offering, that the net of those two will still be accretive to our third quarter. We didn't include any guidance in
there because we don't know exactly when it will close or at what price the new shares might be issued.

So, our guidance includes only Reliance as we are today. But the answer is a very strong yes. It will be accretive in our third quarter.


Okay. I'm not sure, maybe Karla you mentioned, how much will the charges be related to the retirement of the notes held by PNA?


We didn't actually give that; we gave the savings, but in the -- it will be part of the purchase price, so it will flow through the balance sheet in our
purchase price allocation. In the Form 8-K filing that we filed this morning, you can see that the premium costs about $54.8 million combined for
both series of notes.


Okay. Just going on more in the industry, what's the availability like for steel right now? Are you having trouble -- do you think some of your
competitors might be having trouble getting steel from the mills? Or are the order books fair enough that people can still get steel?


All but plate. The flat roll is the weakness of the commodities and it's readily available. But mini-mill product, beam product, mini-mills
leadtimes are six weeks, which is fairly normal. So all the steel-related items are pretty easy to access. I don't think people are having problems
with it, with the exception of plate. And in particular, if you want to get into even more detail, the heat treat plate is much more difficult to get
than any other product.

It's being allocated. It's difficult for us to get. We're getting what we need, okay, but it's not easy. And I would guess that if we're having difficulty
getting it, everybody is having difficulty getting it.


Okay. How would you characterize inventories, maybe not for yourselves, but maybe for the rest of the industry, in a rising steel pricing
environment like -- sometimes you see some service centers try to speculate and overbuy in inventory. Any sense of any service centers that
might have built up inventory too much over the last couple months? Or do you think everyone is still trying to stay as low as possible?


I think, for the most part, at least the data from the MSCI suggests that everybody is keeping their inventories in line at pretty low levels, I mean,
like ten-year low levels.

It's actually in pretty good shape; better than we -- as you alluded to -- better then we typically see in this kind of a rising price environment on
the steel side. But one of the reasons might be a very big reason why it might be that way, is because there really aren't any low priced imports to



FINAL TRANSCRIPT

run out and buy. And usually that's what drives inventories up, is when prices start to go up here, people run offshore and buy large quantities of
cheaper imports. And then that creates this inventory bubble that we've seen on and on again.

But that's not happening. So, the industry itself is in pretty darn good shape with respect to inventories. And the environment is kind of protecting
the industry from itself or its desire to run off and buy too much from somewhere else.


Okay, and just one last question. Do you see any competitors that are really struggling in this environment? Perhaps if they don't have the
liquidity or if they're getting squeezed between the steel mills and some of their own customers?


Not really. No. You'd think that that would probably be the case. Common sense tells you that some of the smaller, privately-held companies this
day of age with prices double or whatever they are, would have a negative impact on their cash flow. But I haven't heard anything really that
would suggest that.

I will say that we have seen holes in inventories, okay, but that's because we think that -- we passed on business that was very, very competitive
when prices were going up. And then we saw those same customers come back to us and give us orders at the prices that we had quoted that we
had originally lost.

And we assume that to be that our competitors, who were selling it at a lower level, ran out of stock, and then our customers came back to us to
get the material. That's one of the reasons why our margins go up, because that's a bit of a modus operandi on how we operate.


Okay, great. Thank you very much.

Operator

Bob Richard, Longbow Research.

Bob Richard - Longbow Research - Analyst

Good morning, and thanks for taking our call. With relation to the MSCI statistics, one category that did stand out a little bit was the inventory
on flat-roll seemed to be up and it's on a continuing trend for the last three months. Again, not nearly to the levels that we're seeing since the
liquidations started, but can you give any insight? Is that kind of parallel with what you guys are seeing? Or can you give any insight as to why
maybe those might be ticking up?


I guess your guess is probably as good as ours. Our flat-roll inventories have not risen. They've maintained themselves at a good level -- good
meaning a low level. And there's availabilities out there. The product is very readily available to get. So, I would suggest that maybe the only
reason why that would be taking place, if in fact, people are trying to second-guess price increases and maybe over-buying a little bit for that
reason.

But there's a very cautious atmosphere out there amongst service centers just because of all the negative press that you hear. So, I would only
think that people would -- they're not increasing their inventories because demand is increasing, let's put it that way. So they must be trying to
dive underneath price increases.




FINAL TRANSCRIPT

Okay, thank you, and that's helpful. And my follow-up, aluminum pricing, a little more robust than what your expectations were on a prior
conference call. Some pretty bullish estimates out there for next year. Where do you guys -- can you guys provide your take on that?


Well, only what you read. You hear about aluminum smelters and being shut down or taken out of production in China. You've got some energy-
related problems down in South Africa and all that. We didn't think that -- we thought ingot had every chance -- Midwest spot, I should say, of
going down in the quarter. And it did just the opposite; it went from like $1.38 to $1.50 in a heartbeat because of those announcements that I just
described.

Will it stay up? I don't know. I wouldn't want to say anything because the last call, I said I thought it was going down and it went up $0.12; it
went up, so I'm probably not a very good person to ask. Sorry about that.


I understand, sir. But all things being equal, that provides you some tailwind, right?


(multiple speakers) Yes. You bet. We like it when the prices are going up and that's a nice surprise to have.


Okay. I'll leave it at that. Thank you very much.

Operator

Mark Parr, KeyBanc Capital Markets.


Hi, Mark, how are you?

Mark Parr - KeyBanc Capital Markets - Analyst

Terrific. It's even a nice day in Cleveland. It's always a nice day in Southern California. Two questions. It's been -- just -- I want to congratulate
you on the quarter and thanks for all the great color. And not are you helpful in making your stock act well, but I think you really help us with
color on the rest of the industry. So, I really appreciate that. Thank you very much.

Just -- this is a housekeeping question for Karla. I think what I heard was with your updated LIFO expectation for the full year that you've got,
what -- did you say $57 million year-to-date?


Yes, we had $57.5 million for the first six months. So, based on our current estimate, it would be the same amount booked for the last half of the
year. So, $28.75 million per quarter.




FINAL TRANSCRIPT

Okay, so, on a sequential basis then, the LIFO charge will come down about $12 million compared to the second quarter?


Correct. Yes.


Okay. I wanted to make sure I had that right. So I appreciate that. And then I had a question for Gregg. I was wondering if you could give us
some sense -- we've got a fairly subdued demand environment. We've got a fairly easy supply situation or call it normal to easy, I guess would be
a fair way of describing it.

How are the service centers -- how's the competitive environment out there? Do you think that there's a lot of low price material in the pipeline?
Or do you think people are maybe thinking about giving away material because the demand is a little soft? Are you seeing supply discipline on
the service center side of the supply chain?


It depends on the competitor. And it depends on the product mix.


Is it getting worse or is it getting better?


No, it's not getting worse. I'd say if anything, it's gotten better. Okay? Well, with -- you know, really the most competitive item that we have and
one of the things that we were struggling with is stainless flat-roll. As Dave mentioned earlier on the call, we could have more tons of stainless;
there's no question about it. We're not going to sell in single digit profit margins. It's just not a part of our culture. But in general, to answer your
question, I think that margins being held by competitors in the marketplace are probably a little bit better than they are on a normal basis.


Most of the service centers we know, Mark, are making more money than they've ever made before. I mean, you go to an MCSI meeting or
another conference, and most of the people running around there have smiles on their face. So, it's a pretty good environment out there.


I'd certainly hope so.


Yes. I mean, what the exciting thing is, is that here we are in the midst of this market that everybody kind of just -- they're kind of stomping
through it, thinking that it's probably should be worse than it is and demand isn't that robust. I mean, this is what you hear out there. But here we
are, along with others in the industry, doing very, very well. So, that's exciting for us, because when these economic uncertainties resolve
themselves, think about what's going to happen then.

I mean, we're not going to see prices coming down in carbon steel to the low levels that we've had before. So if you have a better economic
environment with pricing at maybe not the levels we're at now, but certainly not $700 or $600 a ton, you've got some really exciting times.



FINAL TRANSCRIPT


Okay, well, it's good to see -- clearly, you can see the supply discipline at the mills pretty easily. It's a little harder to see it at the service center
level. So I really appreciate that color. Thanks so much and good luck on the balance of the year. And good luck on your deal, too.

Operator

Tim Hayes, Davenport & Company.

Tim Hayes - Davenport & Company - Analyst

Just some housekeeping questions. Again, what was your same-store sales compared to the first quarter of '08, the percent change?


Same-store on a tons basis, we were down 0.7% and our pricing was up 10.2%.


Okay. And then could you go through those comparisons to the year-ago quarter again, please?


To the -- oh, I'm sorry, you know what, Tim? I just gave you --


Yes, that 2Q '08, 2Q '07.


Right. I just gave you same-store -- okay. So, on a consolidated basis, Q2 '08 to Q2 '07, tons were down 2.2% and pricing was up 13.2%.


Okay. And then your average daily sales -- how did that trend in each of the months of the second quarter?


It trended up pretty much every month. We went in -- let's see --


Average sales per day.




FINAL TRANSCRIPT

Yes, average sales per day is what we're talking about; the revenue dollars per day. But each of the months, April, May and June, went up. And
April was up the most significant amount compared to March. So, it's been trending up, which you would expect with price increases the way that
they've been.


Okay, very good. Thank you.

Operator

Tony Rizzuto.


I just have a question about the acquisition front. I know you mentioned about it's a good thing that you're seeing continued resilience on the part
of the customer base that you serve, but I'm wondering with the administration going to change in the election year, and there's a lot of concern
about state taxes changing very, very substantially, I wonder if that's a concern that maybe getting a lot of these folks to think about what that's
going to do and maybe causing them to get to the table a little bit more quickly. Are you guys sensing any of that?


Yes, Tony, we have had some discussions with folks, as we do on a regular basis. And there is some concern out there about tax rates going up
and maybe that will spur them to make some decisions to sell businesses this year sometime as opposed to next year. But yes, people out there are
thinking about that.


Thanks, Dave.

Operator

(OPERATOR INSTRUCTIONS). Jonathan Goldberg, Highline Capital Management.

Jonathan Goldberg - Highline Capital Management, L.L.C. - Analyst

A question for you -- you touched on this a little bit, but on carbon products, could you just talk a little bit more about the import situation in
terms of what the quantity of offers is like, what the pricing is like, what the leadtimes are like? And are you buying any?


We're buying very, very, very little. Less probably today than we have years and years and years -- maybe ever. The import offerings are just --
they're just not there. And if they are there, they're not very attractive. And also, in addition to that, okay, because of the uncertainty with
everything -- all the negative press that you read about, people are just not wanting to go and take a chance of going offshore and having it come
in when prices may have gone down. But in a nutshell, what's being offered is very, very small quantities, and the prices are not attractive enough
to spur any interest.

Jonathan Goldberg - Highline Capital Management, L.L.C. - Analyst



FINAL TRANSCRIPT

And would you say that's equally true between long products and flat products? Or is that --?


Yes.

Operator

Our next question today is a follow-up from Sal Tharani.


A quick question -- your sequential prices, if you look at between April, May, June and now July, they have continuously been rising
sequentially. Is that correct to say?


Yes. (multiple speakers)


Okay, great. Thank you.

Operator

Thank you. There appear to be no further questions in the queue at this time. Do you have any closing comments you'd like to finish with?


No, that's good. We're excited about the next quarter. We've got a lot of work to do. We've got a business to run as well as a company to acquire
and an offering to undertake. So, we're going to get out of here and go do some work. Thank you very much and we'll talk to you all three months
from now.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a
wonderful day. Thank you for your participation.



FINAL TRANSCRIPT

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