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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2023

OR

For the transition period from                           to                          

Commission file number: 001-13122

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16100 N. 71st Street, Suite 400

Scottsdale, Arizona 85254

(Address of principal executive offices, including zip code)

(480) 564-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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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 every Interactive Data File required to be submitted 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 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 27, 2023, there were 57,471,229 shares of the registrant’s common stock, $0.001 par value, outstanding.

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RELIANCE STEEL & ALUMINUM CO.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in millions, except number of shares which are reflected in thousands and par value)

* Amounts derived from audited financial statements.

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except number of shares which are reflected in thousands and per share amounts)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per share amounts)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

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See accompanying notes to unaudited consolidated financial statements.

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RELIANCE STEEL & ALUMINUM CO.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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Note 1. Summary of Significant Accounting Policies

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Principles of Consolidation

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The accompanying unaudited consolidated financial statements include the accounts of Reliance Steel & Aluminum Co. and its subsidiaries (collectively “Reliance”, the “Company”, “we”, “our” or “us”). These 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, the consolidated financial statements reflect all material adjustments, which are of a normal recurring nature, necessary for presentation of financial statements for interim periods in accordance with U.S. GAAP. Interim results are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Investments in unconsolidated subsidiaries are recorded under the equity method of accounting. These consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and accompanying notes included in Reliance’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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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. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

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Inventories

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The majority of our inventory is valued using the last-in, first-out (“LIFO”) method, which is not in excess of market. Under this method, older costs are included in inventory, which may be higher or lower than current costs. We estimate the effect of LIFO on interim periods by allocating the projected year-end LIFO calculation to interim periods on a pro rata basis.  

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Inflation Reduction Act

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On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. The IRA includes a new 15% minimum tax on book income of certain large corporations. Additionally, the IRA imposes a 1% excise tax, which is paid annually and recorded in paid-in-capital, on the excess of the fair market value of our share repurchases over the fair market value of share issuances, made after December 31, 2022. See our consolidated statements of equity for further information on our accrued 2023 excise tax.

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Note 2. Revenues

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The following table presents our net sales disaggregated by product and service:

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Note 3. Goodwill

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

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We had no accumulated impairment losses related to goodwill at September 30, 2023 and December 31, 2022.

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Note 4. Intangible Assets, net

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Intangible assets, net consisted of the following:

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Amortization expense for intangible assets was $33.6 million and $36.3 million for the nine months ended September 30, 2023 and 2022, respectively. As part of the purchase price allocation of our acquisition of Southern Steel Supply, LLC on May 1, 2023, we allocated a total of $4.0 million to the intangible assets acquired. Foreign currency translation gain related to Intangible assets, net was $0.1 million for the nine months ended September 30, 2023 compared to foreign currency translation loss of $5.0 million for the nine months ended September 30, 2022.

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The following is a summary of estimated future amortization expense:

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Note 5. Debt

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Debt consisted of the following:

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The weighted average interest rate on the Company’s outstanding borrowings as of September 30, 2023 and December 31, 2022 was 2.88% and 3.37%, respectively.

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Unsecured Credit Facility

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On September 3, 2020, we entered into a $1.5 billion unsecured five-year Amended and Restated Credit Agreement that amended and restated our then-existing $1.5 billion unsecured revolving credit facility. On January 12, 2023, the agreement was amended to change the reference rate from LIBOR to SOFR (as amended, the “Credit Agreement”). As of September 30, 2023, borrowings under the Credit Agreement were available at variable rates based on SOFR plus 1.10% or the bank prime rate and we currently pay a commitment fee at an annual rate of 0.175% on the unused portion of the revolving credit facility. The applicable margins over SOFR 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.

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As of September 30, 2023 and December 31, 2022, we had no outstanding borrowings on the revolving credit facility. We had $1.7 million and $7.7 million of letters of credit outstanding under the revolving credit facility as of September 30, 2023 and December 31, 2022, respectively.

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Senior Unsecured Notes

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On January 15, 2023, we redeemed in full the $500.0 million aggregate outstanding principal amount of our 4.50% senior notes due April 15, 2023 using cash on hand.

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Under the indentures for each series of our senior notes (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. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase each series of the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest.

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Other Notes, Revolving Credit and Letter of Credit/Letters of Guarantee Facilities

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A revolving credit facility with a credit limit of $7.5 million is in place for an operation in Asia with no outstanding balance as of September 30, 2023 and $2.2 million outstanding as of December 31, 2022.

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Various industrial revenue bonds had combined outstanding balances of $1.7 million and $7.4 million as of September 30, 2023 and December 31, 2022, respectively, and have maturities through 2027.

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We have a $50.0 million standby letters of credit/letters of guarantee agreement with one of the lenders under our Credit Agreement. A total of $41.4 million and $18.7 million were outstanding under this facility as of September 30, 2023 and December 31, 2022, respectively.

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Covenants

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The Credit Agreement and the indentures include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio. We were in compliance with all financial maintenance covenants in our Credit Agreement at September 30, 2023.

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Note 6.  Leases

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Our metals service center leases are comprised of processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. We also lease various office spaces. Our leases of facilities and other spaces expire at various times through 2045 and our ground leases expire at various times through 2068. Nearly all of our leases are operating leases; we have recognized finance right-of-use assets and obligations of less than $1.0 million.

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The following is a summary of our lease cost:

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Supplemental cash flow and balance sheet information is presented below:

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Maturities of operating lease liabilities as of September 30, 2023 are as follows:

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Note 7.  Income Taxes

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Our effective income tax rates for the third quarter and nine months ended September 30, 2023 were 23.7% and 24.2%, respectively, compared to 24.7% for the same 2022 periods. The differences between our effective income tax rates and the U.S. federal statutory rate of 21.0% were mainly due to state income taxes.

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Note 8. Equity

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Dividends

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On October 24, 2023, our Board of Directors declared the 2023 fourth quarter cash dividend of $1.00 per share of common stock, payable on December 1, 2023 to stockholders of record as of November 17, 2023.

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During the third quarters of 2023 and 2022, we declared and paid quarterly dividends of $1.00 and $0.875 per share, or $58.5 million and $52.5 million in total, respectively. During the nine months ended September 30, 2023 and 2022, we declared and paid aggregate quarterly dividends of $3.00 and $2.625 per share, or $176.1 million and $160.6 million in total, respectively. In addition, we paid $3.2 million and $2.9 million in dividend equivalents with respect to vested restricted stock units during the nine months ended September 30, 2023 and 2022, respectively.

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Stock-Based Compensation

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We make annual grants of long-term equity incentive awards to officers and key employees under our Second Amended and Restated 2015 Incentive Award Plan in the forms of service-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) that each have approximately 3-year vesting periods. The PSUs include the right to receive a maximum payout of two shares of our common stock based on performance goals tied to achieving a 3-year return on assets result and include service criteria. We also grant the non-management members of our Board of Directors fully vested stock awards under our Directors Equity Plan.

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The fair values of the RSUs, PSUs and stock awards are determined based on the closing stock price of our common stock on the grant date.

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In the nine months ended September 30, 2023 and 2022, we made payments of $41.3 million and $21.6 million, respectively, to tax authorities on our employees’ behalf for shares withheld related to net share settlement of vested restricted stock units.

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A summary of the status of our unvested RSUs and PSUs as of September 30, 2023, and changes during the nine months then ended is as follows:

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As of September 30, 2023, there was $82.5 million of total unrecognized compensation cost related to unvested RSUs and PSUs that is expected to be recognized, net of actual forfeitures and cancellations, over a weighted average period of 1.7 years.

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Share Repurchases

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Our share repurchase activity during the nine months ended September 30, 2023 and 2022 was as follows:

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From October 2, 2023 through October 24, 2023, we repurchased 575,060 shares at an average cost per share of $255.15, for a total of $146.7 million, resulting in $294.8 million of our common stock remaining available for repurchase under our July 2022 authorization. Our Board of Directors subsequently amended our share repurchase program to increase the repurchase authorization to $1.5 billion effective October 30, 2023. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares.

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We may repurchase shares through a variety of methods including, but not limited to, open market purchases, accelerated share repurchases, negotiated block purchases and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Accumulated Other Comprehensive Loss

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Accumulated other comprehensive loss included the following:

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Foreign currency translation adjustments have not been adjusted for income taxes. Pension and postretirement benefit plan adjustments are amortized over service periods and reflected in the amortization of net loss component of our net periodic benefit cost or are otherwise recognized as a loss as a result of plan settlements. Pension and postretirement benefit plan adjustments are net of taxes of $1.3 million as of September 30, 2023 and December 31, 2022. The income tax effects are released from accumulated other comprehensive loss and included in our income tax provision as obligations under our pension and postretirement plans are settled.

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Note 9.  Commitments and Contingencies

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Environmental Contingencies

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We are currently involved with an environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our wholly owned subsidiary, that were sold many years prior to our acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ 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.

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Legal Matters

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From time to time, we are named as a defendant in legal actions. These actions generally arise in the ordinary course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse impact on our consolidated financial position, results of operations or cash flows. We maintain general liability insurance against risks arising in the ordinary course of business.

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Note 10.  Earnings Per Share

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

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The computations of earnings per share for the nine months ended September 30, 2023 and 2022 do not include 68,453 and 111,251 weighted average shares, respectively, in respect of outstanding RSUs and PSUs, because their inclusion would have been anti-dilutive.

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RELIANCE STEEL & ALUMINUM CO.

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

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The terms “Company,” “Reliance,” “we,” “our,” and “us” refer to Reliance Steel & Aluminum Co. and all its subsidiaries that are consolidated in accordance with U.S. generally accepted accounting principles, unless otherwise indicated.

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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 (the “Exchange Act”). Our forward-looking statements may include, but are not limited to, discussions of our industry and end markets, our business strategies and our expectations concerning future demand and major commodity product pricing and our results of operations, margins, profitability, taxes, liquidity, macroeconomic conditions, including inflation and the possibility of an economic recession or slowdown, 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,” “preliminary,” “range,” “intend” 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. We caution readers not to place undue reliance on forward-looking statements.

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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, actions taken by us, as well as developments beyond our control, including, but not limited to, the impacts of labor constraints and supply chain disruptions and changes in worldwide and U.S. political and economic conditions such as inflation, a prolonged higher interest rate environment and the possibility of an economic recession that could materially impact us, our customers and suppliers and demand for our products and services. Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, slowing growth, outbreaks of infectious disease, conflicts such as the war in Ukraine and the evolving events in Israel and Gaza or otherwise, could lead to a decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing. Other factors which could cause actual results to differ materially from our forward-looking statements include those disclosed in this report and in other reports we have filed with the United States Securities and Exchange Commission (the “SEC”). Important risks and uncertainties about our business can be found elsewhere in this Quarterly Report on Form 10-Q and in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC and in other documents Reliance files or furnishes with the SEC. 

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The statements contained in this quarterly report on Form 10-Q 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. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based. You should review any additional disclosures we make in any subsequent press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC.

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Overview

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Tons sold increased 1.1% and 3.4% for the third quarter and nine months ended September 30, 2023 compared to the same periods in 2022, respectively, due to healthy demand in our key end markets, including non-residential construction (our largest end market) and aerospace, as well as contributions from our organic growth activities. The 3.4% increase in our tons sold for the nine months ended September 30, 2023 outperformed the 1.0% increase in industry shipments as reported by the Metals Service Center Institute (“MSCI”).

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Our net sales declined in the third quarter and nine months ended September 30, 2023 compared to the same periods in 2022 due to declines in our average selling price per ton sold that were partially offset by increases in our tons sold. Our average selling price per ton sold peaked at an ultimate record in the second quarter of 2022 and subsequently declined thereafter, including through the nine months ended September 30, 2023.

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We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

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Gross profit margins for the third quarter and nine months ended September 30, 2023 were 29.7% and 30.7%, respectively, compared to 29.2% and 30.7% for the respective 2022 periods.  

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Earnings per diluted share were $4.99 and $17.92 for the third quarter and nine months ended September 30, 2023, respectively, compared to $6.45 and $23.98 for the respective 2022 periods. Lower gross profit, driven by lower metals prices that more than offset increases in tons sold, contributed to decreases in earnings per share.

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Cash flow from operations of $1.15 billion for the nine months ended September 30, 2023 decreased from $1.31 billion for the same period in 2022 due to lower profitability partially offset by lower working capital needs.  

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Organic growth activities were substantially comprised of capital expenditures of $358.6 million for the nine months ended September 30, 2023 compared to $249.7 million for the same period in 2022.

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Returns to stockholders for the nine months ended September 30, 2023 totaled $418.5 million, comprised of $179.3 million of cash dividends and $239.2 million of share repurchases.

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Acquisition

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On May 1, 2023, we acquired Southern Steel Supply, LLC (“Southern Steel”), a metals service center that offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Located in Memphis, Tennessee, Southern Steel now operates as a subsidiary of Siskin Steel & Supply Company, Inc., a wholly owned subsidiary of Reliance. The acquisition was funded with cash on hand. Included in our net sales for the nine months ended September 30, 2023 were net sales of $20.2 million from Southern Steel.

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Results of Operations

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The following sets forth certain income statement data for the third quarter and nine months ended September 30, 2023 and 2022 (dollars are shown in millions, except per share amounts, and certain amounts may not calculate due to rounding):

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