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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 5-10065
EARLE M. JORGENSEN COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-0886610
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3050 East Birch Street, Brea, California 92621
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 579-8823
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. NONE
Number of shares outstanding of the registrant's common stock, par value $.01
per share at May 31, 1996 - 128 shares
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PART I
SAFE HARBOR ACT STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995: SOME OF THE INFORMATION CONTAINED IN THIS REPORT IS FORWARD LOOKING
AND INVOLVES RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY IMPACT EXPECTED
RESULTS. WHILE IT IS IMPOSSIBLE TO ITEMIZE THE MANY FACTORS AND SPECIFIC
EVENTS THAT COULD AFFECT THE COMPANY'S OUTLOOK, THE STATEMENTS CONTAINED
HEREIN ARE BASED ON EXPECTATIONS REGARDING FUTURE SALES, COMMITMENTS,
EXPENSES AND THE COSTS OF GOODS SOLD. EACH OF SUCH ITEMS COULD BE FURTHER
AFFECTED BY THE IMPACT OF GENERAL ECONOMIC FACTORS AND CONDITIONS IN THE
METALS DISTRIBUTION INDUSTRY AND IN THE INDUSTRIES IN WHICH THE COMPANY'S
CUSTOMERS OPERATE.
ITEM 1. BUSINESS
Earle M. Jorgensen Company (the "Company") is the largest independent
distributor (and second largest distributor overall) of metal products in the
United States. The Company was formed on May 3, 1990, in a transaction
structured by Kelso & Companies Inc. ("Kelso"), through the combination of
two leading metals distributors, Earle M. Jorgensen Company ("EMJ") (founded
in 1921) and Kilsby-Roberts Holding Co. ("Kilsby") (successor to C.A. Roberts
Company, founded in 1915). In connection with the combination of EMJ and
Kilsby, the Company became a wholly owned subsidiary of Earle M. Jorgensen
Holding Company, Inc. ("Holding"). The events, activities and transactions
associated with the Company becoming a wholly owned subsidiary of Holding are
together sometimes hereinafter referred to as the "Acquisition."
THE COMPANY
The Company is the largest independent distributor (and second largest
distributor overall) of metals products in the United States, with
approximately 2,600 employees. The Company operates a domestic network of 32
domestic service centers, one sales office, one merchandising office, one
cutting center, one flat-rolled processing center, two tube honing
facilities, four plate processing centers and five foreign service centers.
The Company sells metal in a wide variety of capital goods related
industries. Sales are made both from inventory maintained at company
facilities (stock sales) and by arranging direct shipments from mills to the
Company's customers (mill-direct sales). The Company operates foreign service
centers in the United Kingdom, Canada and Mexico through subsidiaries that
together accounted for approximately 6.5% of revenues in fiscal 1996. See
"Business--Foreign Operations."
The Company's primary business goal is to increase market share while
maintaining its gross margins. The Company believes its market penetration,
reputation for quality and customer service, economies of scale and broad
product lines make it a strong competitor in the metals distribution
industry. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--General." The Company has invested
significant resources to upgrade its management information and financial
reporting system. The Company experienced start-up operational difficulties
in the implementation due primarily to data conversion errors, hardware
failures and isolated software application errors. All substantial
difficulties encountered have been resolved. The new system, named "WIN",
for "worldwide information network", was brought on line in February 1995.
Management believes the WIN system provides the Company with improved
information processing capabilities over its former systems. The Company is
using WIN to support electronic commerce, including electronic data
interchange ("EDI"), remote inquiry and order ("RIO") and other productivity
enhancing functions, to better serve its customers and suppliers..
CUSTOMERS AND MARKETS
The Company services the steel or aluminum requirements of over 40,000
active customers throughout the United States in a wide variety of
industries, including machinery manufacturing, transportation, fabricated
metal products, aerospace, oil tools, construction, shipbuilding, plastics,
chemicals, petrochemicals, farm equipment, food processing, energy and
environmental control. The Company is not dependent on any single customer,
and during fiscal 1996 no single customer accounted for more than 3% of its
revenues.
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The Company handles approximately 6,900 transactions per business day,
and has an average revenue of $595 per transaction. Sales out of stock
represent approximately 83% of Company revenues. In addition to stock sales,
the customers' special requirements are met by arranging for direct shipments
from mills and by making buy-outs from other distributors of items the
Company does not stock. Such sales generally have lower margins than stock
sales, but provide a valuable customer service.
The vast majority of sales are from individual orders and are not
subject to ongoing contracts; however, the Company enters into contracts with
some customers to purchase and supply specific products over a period of a
year or longer. Such contracts provide the customer with greater certainty as
to timely delivery, price stability and continuity of supply, and sometimes
satisfy particular processing or inventory management requirements. Such
contracts have resulted in new customer relationships and increased sales
volumes for the Company, but generally have a slightly lower gross margin
than ordinary sales. Such contracts, in the aggregate, represented less than
10% of Company revenues in fiscal 1996. In addition, the Company is
aggressively seeking strategic alliances with customers which will provide
customers with the benefits discussed above and other solutions to
ensure them the highest quality material at the lowest delivered cost.
SEASONAL FLUCTUATIONS AND BACKLOG
Seasonal fluctuations in the Company's business generally occur in the
summer months and in November and December, when many customers' plants are
closed for vacations. Order backlog is not a significant factor in the
business of the Company, as orders are generally filled within 24 hours.
PRODUCTS
The Company has designated certain carbon and alloy, aluminum, and
stainless commodities as core product offerings under its Bar, Tubing and
Pipe, Plate, and Sheet product lines. The Company is committed to stocking a
broad range of shapes and sizes of each of these commodities in each service
center (unless there is no market for the product line at a particular
location), and each service center is expected to be a market leader in the
Company's core product lines in its geographic area. In addition to stocking
core products, each service center tailors its inventory to the customer and
market requirements of its geographic area. During fiscal 1996, the Company
broadened its product lines by establishing an aluminum and stainless
flat-rolled processing center in Tulsa, Oklahoma.
Major markets for the Company's products include construction, farm and
other special machinery, aircraft and aerospace components, biomedical,
defense, automotive and truck manufacturing, shipbuilding and repair, oil
refining and exploration, chemical and petrochemical and utilities. Carbon
steel products (hot-rolled and cold-finished) are used in construction
equipment, farm equipment, automotive and truck manufacturing, shipbuilding
and oil exploration as well as a wide range of other products. Stainless
steel is used widely in the chemical, petrochemical, oil refining and
biomedical industries where resistance to corrosion is important. Aluminum is
frequently used in aircraft and aerospace applications where weight is a
factor. Different tubing products are appropriate for particular uses based
on different characteristics of the tubing materials, including strength,
weight, resistance to corrosion and cost. Carbon pipe and tubing are used in
general manufacturing. Alloy tubing is used primarily in the manufacturing of
oil field equipment and farm equipment. Stainless steel pipe and tubing are
used in applications requiring a high resistance to corrosion, such as food
processing. Aluminum pipe and tubing are used in applications that put a
premium on light weight (such as aerospace manufacturing).
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The following table sets forth a percentage breakdown of stock revenues
(excluding mill-direct shipments and buy-outs) by product group for U.S.
operations for the last three fiscal years ended March 31, 1996.
PERCENTAGE BREAKDOWN OF
OUT OF STOCK REVENUES BY PRODUCT GROUP
(PERCENTAGES)
FISCAL YEAR ENDED
MARCH 31,
--------------------------
1996 1995 1994
--------------------------
BARS:
Carbon and Alloy....................... 32.6 37.1 36.3
Stainless.............................. 14.2 12.0 12.2
Aluminum............................... 5.7 6.6 5.8
----- ----- -----
Total............................... 52.5 55.7 54.3
----- ----- -----
TUBING AND PIPE:
Carbon and Alloy....................... 26.4 26.0 26.1
Stainless.............................. 3.8 3.5 4.1
Aluminum............................... 3.7 3.3 3.9
----- ----- -----
Total............................... 33.9 32.8 34.1
----- ----- -----
PLATE:
Carbon................................. 5.4 4.8 5.1
Stainless.............................. 2.2 1.1 1.1
Aluminum............................... 2.8 2.2 2.3
----- ----- -----
Total............................... 10.4 8.1 8.5
----- ----- -----
SHEET:
Carbon................................. 0.6 1.0 0.9
Stainless.............................. 0.9 0.7 0.7
Aluminum............................... 1.5 1.3 1.2
----- ----- -----
Total............................... 3.0 3.0 2.8
----- ----- -----
Other............................... 0.2 0.4 0.3
----- ----- -----
100.0 100.0 100.0
----- ----- -----
----- ----- -----
Out of stock revenues as a percentage
of total revenues . . . . ............... 83.4 79.5 79.6
----- ----- -----
----- ----- -----
INTELLECTUAL PROPERTY AND LICENSES
During fiscal 1996 the Company registered "EMJ" as a trademark and
service mark in the United States and in other countries where it does or
expects to do business.
The Company considers certain other information owned by it to be trade
secrets and the Company takes measures to protect the confidentiality and
control the disclosure of such information. The Company believes that these
safeguards adequately protect its proprietary rights and the Company
vigorously defends these rights. While the Company considers all of its
intellectual property rights as a whole to be important, the Company does not
consider any single right to be essential to its operations.
MANAGEMENT INFORMATION SYSTEMS
In February 1995, the Company implemented a new management information
system that integrated three different systems the Company had operated in
prior years into one system for most Company operations. While the
transition to the new system was disruptive and required a Company-wide
training effort and changes in operational processes, the new system is
designed to increase the Company's ability to analyze and manage the
operations and improve the productivity of the Company and its customers and
suppliers. The new system enhances the Company's ability to utilize
electronic commerce in dealing with its customers and suppliers, including
EDI, RIO, bar coding and other functions that can result in more efficiency
and greater productivity for all users.
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SUPPLIERS
The Company has centralized purchasing facilities in Chicago and Brea.
Purchases are made by specialists in each of the major products that the
Company markets. The Company concentrates on developing close working
relationships with high-quality suppliers to ensure quality and timely
delivery to the Company's customers.
The vast majority of the Company's purchases are made by purchase order
and the Company has no significant supply contracts with periods in excess of
one year. The Company is not dependent on any single supplier for a material
portion of its purchases, and in fiscal year 1996 no single supplier
represented more than 5% of its total purchases. The Company purchased
approximately 3% of its inventory requirements from foreign suppliers in
fiscal 1996.
EMPLOYEES
As of May 31, 1996, the Company employed approximately 2,600 persons, of
whom approximately 1,500 were in production or shipping, 600 served in
executive, administrative or office capacities and 500 were sales personnel.
Approximately 800 of the Company's employees from nineteen locations are
represented by four different unions. The related collective bargaining
agreements expire on staggered dates between October 1996 and March 1999.
The Company believes that it has a good overall relationship with its
employees.
FOREIGN OPERATIONS
The Company's five service centers outside the United States operate
through three wholly-owned foreign subsidiaries: Kilsby Jorgensen Steel &
Aluminium Ltd., a United Kingdom limited liability company; Earle M.
Jorgensen (Canada) Inc., a Canadian limited liability company; and Kilsby
Jorgensen Steel & Aluminum S.A. de C.V., a Mexican limited liability company.
The foreign service centers carry product lines tailored to the customers
and the markets they serve. For the fiscal years ended March 31, 1996, 1995
and 1994, revenues from foreign operations totaled $66.7 million, $58.7
million and $35.0 million or 6.5%, 5.7% and 4.1% of the Company's total
revenues, respectively. The Company believes the foreign operations are
valuable for forging closer relationships with certain multi-national
customers and may provide opportunities for future growth.
COMPETITION
The metals service center industry is highly fragmented and generally
competes on price, product availability, timely delivery, reliability,
quality and processing capability. Apart from price, these services are all
"value-added" services provided by metals service centers to lower customers'
overall costs. The industry includes both general-line distributors, which
handle a wide range of metal products, and specialty distributors, which
specialize in particular categories of metal products. Metals service
centers range from nationwide to regional and local in geographic coverage.
Although the Company is the second largest distributor of metals in the
United States, some of its competitors have greater financial resources than
the Company.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, local
and foreign laws and regulations designed to protect the environment and
human health and safety, including those relating to the use, handling,
storage, discharge and disposal of hazardous substances and the remediation
of environmental contamination. As a result, the Company is from time to
time involved in administrative and judicial proceedings and inquiries
relating to environmental matters.
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During fiscal 1996, expenditures made in connection with environmental
matters totaled approximately $0.8 million, principally for remediation and
investigation activities at sites where contamination of soil and/or
groundwater is present. Of these sites, only those environmental matters
related to former facilities of the Company are expected to require
significant future expenditures. As of March 31, 1996, the Company had
accrued approximately $1.7 million for future investigation and remediation
expenditures to the extent such expenditures could be reasonably estimated.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all
pending environmental matters, management believes that, based upon all
currently available information, the resolution of such environmental matters
will not have a material adverse effect on the Company's financial condition,
results of operations and liquidity. The possibility exists, however, that
new environmental legislation and/or environmental regulations may be
adopted, or other environmental conditions may be found to exist, that may
require expenditures not currently anticipated and that may be material. See
Note 8 to the Company's Consolidated Financial Statements included elsewhere
herein for a more detailed discussion of specific environmental contingencies.
ITEM 2. PROPERTIES
The Company maintains 32 domestic service centers, one merchandising
office, one sales office, one cutting center, one flat-rolled processing
center, four plate processing centers and two tube honing facilities at
various locations throughout the United States and is headquartered in Brea,
California. The Company also maintains five metals service centers through
its subsidiaries in Canada, Mexico and the United Kingdom. The Company's
facilities are in good condition and are equipped to provide efficient
processing of customer orders. The Company's facilities generally are capable
of being utilized at higher capacities, if necessary. Most leased facilities
have initial terms of more than one year and include renewal options. While
some of the leases expire in the near term, the Company does not believe that
it will have difficulty renewing such leases or finding alternative sites.
Set forth below is a table summarizing certain information with respect
to the Company's facilities.
OWNED/ FACILITY
COUNTRY/CITY/STATE LEASED (SQ. FT.)
- ------------------ ------ ---------
United States
Birmingham, Alabama Owned 69,900
Atlanta, Georgia Leased 27,300
Phoenix, Arizona Owned 72,200
Little Rock, Arkansas Leased 28,800
Hayward, California Leased 86,000
Los Angeles, California Owned 632,700
Los Angeles, California Leased 83,600
Denver, Colorado Leased 78,800
Hartford, Connecticut Owned 48,000
Honolulu, Hawaii Owned 109,200
Blue Island, Illinois Leased 20,500
Chicago, Illinois Owned 554,000
Roselle, Illinois Leased 4,900
Plainfield, Indiana Owned 142,700
Davenport, Iowa Leased 59,200
Boston, Massachusetts Owned 64,200
Detroit, Michigan Owned 116,400
Minneapolis, Minnesota Owned 160,000
Kansas City, Missouri Owned 126,500
Kansas City, Missouri Leased 66,500
St. Louis, Missouri Leased 106,700
Buffalo, New York Owned 37,000
Charlotte, North Carolina Owned 178,200
Cincinnati, Ohio Leased 137,000
Cleveland, Ohio Owned 199,600
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OWNED/ FACILITY
COUNTRY/CITY/STATE LEASED (SQ. FT.)
- ------------------ ------ ---------
Cleveland, Ohio Owned 134,500
Tulsa, Oklahoma Owned 106,500
Tulsa, Oklahoma Leased 37,000
Tulsa, Oklahoma Owned 137,900
Portland, Oregon Leased 31,300
Philadelphia, Pennsylvania Leased 234,800
Memphis, Tennessee Leased 56,500
Dallas, Texas Owned 132,200
Dallas, Texas Owned 72,000
Houston, Texas Owned 276,000
Kent, Washington Leased 83,700
Canada
Toronto, Ontario Leased 38,600
Montreal, Quebec Leased 57,000
Mexico
Toluca Leased 27,000
United Kingdom
Sheffield Leased 78,400
Arbroath, Scotland Leased 10,000
Other Properties
Brea, California (headquarters) Leased 38,300
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and branches are occasionally involved
in ordinary, routine litigation incidental to their normal course of
business, none of which they believe to be material to their financial
condition or results of operations. The Company and its subsidiaries and
branches maintain various liability insurance coverages to protect their
assets from losses arising out of or involving activities associated with
ongoing and normal business operations. See also "Item 1. Business --
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY
The Company has 128 shares of common stock par value $.01 per share, all
of which is owned by Holding. On each of March 31, 1996, 1995 and 1994, the
Company paid dividends of $22,289,000, $3,654,000 and $5,898,000,
respectively, to Holding in connection with Holding's repurchasing of its
capital stock from employees of the Company whose employment had terminated,
as required by the terms of Holding's Stockholders Agreement and the ESOP.
The Company has not declared or paid any other dividends on its capital
stock since the Acquisition.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from the
audited consolidated financial statements of the Company. The consolidated
financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors. All information contained in the following table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 1995 1994 1993 1992 (1)
----------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $1,025,659 $1,022,884 $843,380 $781,926 $845,556
Gross profit (2) 261,021 305,909 249,758 238,951 248,535
Operating expenses exclusive of restructuring
and consolidation expenses and loss on sale of
Republic Supply 245,619 247,184 222,750 214,790 218,994
Restructuring and consolidation expenses 12,776 715 1,282 9,063 ----
Loss on disposal of Republic Supply ---- ---- ---- ---- 9,788
Income from operations 2,626 58,010 25,726 15,098 17,253
Net interest expense 40,874 34,604 30,032 42,941 45,953
Extraordinary item and cumulative effect
of accounting changes --- --- --- 68,320 ---
Net income (loss) (29,311) 19,919 (4,306) (89,463) (26,200)
BALANCE SHEET DATA:
Working capital $166,587 $243,738 $176,280 $146,861 $184,564
Property, plant & equipment (net) 134,259 139,705 143,099 154,317 159,345
Total assets 484,911 543,548 505,928 479,303 507,377
Long-term debt (including current portion) 279,952 296,274 294,136 273,128 323,472
Stockholder's equity 25,141 76,400 54,708 59,632 89,624
OTHER SUPPLEMENTAL DATA:
Depreciation and amortization (3) $ 12,022 $ 14,135 $ 14,680 $ 17,000 $ 19,679
Non-cash ESOP expense (4) 3,401 7,694 6,005 5,919 6,677
Net cash interest expense (5) 37,310 31,592 26,457 48,422 44,400
Capital expenditures 16,658 16,177 12,371 5,898 6,013
Ratio of earnings to fixed charges (6) --- 1.58 --- --- ---
Dividends paid (7) 22,289 3,654 5,898 2,908 ---
</TABLE>
_______________
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(1) The Company sold its Republic Supply division on March 31, 1992, with net
assets of $21.5 million, for net cash proceeds of $11.7 million. In an
unrelated transaction, the Company sold its Forge division on July 2,
1992, with net assets of $12.3 million, for $5.0 million in net cash
proceeds (after a post-closing adjustment of a $1.6 million refund) and
an $8.7 million secured, subordinated note issued by the purchaser which
has been collected in its entirety as of March 31, 1996. Excluding the
results of operations of the Republic Supply division and the Forge
division, the Company's revenues, gross profit and income from operations
were $740,725, $230,932 and $29,325, respectively, in 1992.
(2) In February 1995, the Company began the implementation of a new enhanced
inventory and management information system. To ensure the accuracy of
the conversion of the perpetual inventory records, the Company performed
physical inventory counts and other procedures at all of its locations
during the second, third and fourth quarters of fiscal 1996. The Company
identified a difference between the perpetual inventory records and the
general ledger amounting to $26.9 million and, accordingly, has recorded
a special charge to cost of sales for this difference in the fourth
quarter of fiscal 1996.
(3) Depreciation and amortization excludes amortization of debt issue costs
aggregating $2,112, $2,117, $2,040, $4,229 and $4,046 for the years ended
March 31, 1996, 1995, 1994, 1993 and 1992, respectively, and debt issue
costs of $550 and $2,500 written off in connection with amendments to the
Company's debt agreements in fiscal 1996 and 1992, respectively, reflected
in the Company's consolidated statements of operations as interest
expense.
(4) Non-cash ESOP expense represents the amount of ESOP expense charged to
operations that were or will be paid in the form of Holding's equity
securities.
(5) Net cash interest expense represents net interest expense adjusted to
exclude (i) non-cash interest expense (consisting of interest paid in kind
on the Company's Variable Rate Senior Subordinated Notes (the
"Subordinated Notes") of $2,475 in fiscal 1992), (ii) the amortization and
write-off of debt issue costs referred to in note (3) above and bond
discount, and (iii) accrued interest.
(6) In computing the ratio of earnings to fixed charges, "earnings" represents
pre-tax income (loss) plus fixed charges except capitalized interest, if
any. "Fixed charges" represents interest whether expended or capitalized,
debt cost amortization, and 33% of rent expense, which is representative
of the interest factor. Earnings were insufficient to cover fixed charges
for the fiscal years ended March 31, 1996, 1994, 1993 and 1992 by $38,248,
$4,306, $27,843 and $26,200, respectively. Earnings were sufficient to
cover fixed charges for the fiscal year ended March 31, 1995.
(7) Dividends to Holding in connection with Holding's repurchasing of its
capital stock from terminated employees. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and the consolidated financial statements of the
Company, and the notes related thereto appearing elsewhere in this Form 10-K.
GENERAL
In May 1990, Kelso and its affiliates acquired control of EMJ and Kilsby
in the Acquisition and combined their operations to form the Company. As a
result of the Acquisition, the Company incurred substantial indebtedness and
remains highly leveraged.
Fiscal 1996 has been a transitional year for the Company. It began with
a change to a new management information system followed by regional and
workforce realignments which took place in the second quarter. These events
temporarily disrupted the Company's normal business operations, but were
implemented to improve productivity and enhance customer and supplier
services. The implementation of the new computer system adversely affected
the Company's results of operations, including start-up difficulties which
impacted sales, purchasing, receivables and inventory management causing the
Company to incur additional expense in correcting errors arising in the
transition process. The effect of the change to the new computer system is
not possible to quantify. However, all substantial difficulties encountered
have been resolved, and as a result of the changes, management believes it is
now in a stronger competitive position.
The Company's results of operations have been affected by trends in the
metals distribution industry which is generally cyclical. Tonnage shipped by
the steel distribution industry declined by 9.2% in calendar 1991, and
increased by 3.6%, 10.4% ,10.3% and 2.7% in calendar years 1992, 1993,1994
and 1995, respectively, in each case compared to the prior year. The industry
experienced declining prices during calendar 1991 and 1992 as the result of
price reductions by steel producers. However, beginning in the second quarter
of calendar 1993 and continuing through the first quarter of calendar 1995,
steel producers implemented selective price increases on carbon and alloy
flat rolled, bar and tubing products. Increases in raw material prices
generally result in increased revenues; however, the ability to sustain gross
and operating margins also depends on the ability of the Company to pass such
price increases on to its customers.
While economic and industry trends have an important effect on the
Company's results of operations, the Company believes its results have been
less sensitive to economic trends affecting certain segments of the industry
due to its geographically diversified operations, its broad customer base and
the variety of industries served. In addition, the Company had concentrated
on higher margin specialty products, such as bar and tubing which have
historically been less vulnerable to industry cycles. More recently the
Company has expanded its plate and sheet product lines to enhance services to
its customer base.
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STATEMENT OF OPERATIONS INFORMATION
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED
MARCH 31, 1995
REVENUES. Revenues for fiscal 1996 increased 0.3% to $1,025.7
million, compared to $1,022.9 million in fiscal 1995.
Revenues from domestic operations for fiscal 1996 decreased $5.2
million (0.5%) to $959.0 million compared to $964.2 million in fiscal 1995.
Foreign revenues increased $8.0 million (13.7%) to $66.7 million. The
decrease in domestic revenues was related to a weakening of the U.S. economy,
primarily in the northeast and midwest regions, softening in prices for
certain of the Company's products, and changes in product mix. Demand
flattened in the second quarter and declined in the third and fourth quarters
of fiscal 1996 when compared to the same periods in the prior year. In
addition, the transition to the Company's new management information system
in 1996 was disruptive to operations and contributed to the decrease in
domestic revenues.
GROSS PROFIT. Gross profit decreased $44.9 million (14.7%) to $261.0
million compared to $305.9 million fiscal 1995 while gross margin decreased
to 25.4% compared to 29.9%. The decrease was primarily attributable to an
inventory adjustment of $26.9 million (see Note 2 to Consolidated Financial
Statements). Fiscal 1996 included a LIFO charge of $9.7 million reflecting
higher material costs and product mix changes compared to a corresponding
LIFO charge of $7.6 million in fiscal 1995. Gross profit from foreign
operations was $15.6 million and gross margin was 23.4%, compared to $14.0
million and 23.9%, respectively, in fiscal 1995. Exclusive of foreign
operations, LIFO charges and the inventory adjustment, the domestic
operations gross margin was 29.4% for fiscal 1996 compared to 31.1% in the
prior year. The difference is primarily due to changes in product mix
resulting from domestic cyclical changes in industrial production, higher
scrap charges recognized in fiscal 1996 versus 1995 and competitive pricing
pressures.
EXPENSES. Total operating expenses in fiscal 1996 included a second
quarter restructuring charge of $12.8 million for workforce realignment ($3.6
million) and asset write-downs or write-offs ($9.2 million) (see Note 1 to
Consolidated Financial Statements). Excluding such charges total operating
expenses decreased $1.6 million (0.6%) to $245.6 million compared to $247.2
million in fiscal 1995. As a percentage of revenues, these expenses
decreased to 23.9% compared to 24.2% in fiscal 1995.
Warehouse and delivery expenses increased $4.3 million (3.4%) to
$130.0 million and to 12.7% as a percentage of revenue in fiscal 1996 compared
to $125.7 million or 12.3% in fiscal 1995. The increases are primarily
attributable to additional costs incurred in connection with physical
inventory counts and higher freight costs resulting from an inventory
balancing program implemented during the year to better serve geographic
demand and designed to reduce inventories.
Selling, general and administrative expenses decreased $5.8 million
(4.8%) to $115.7 million and to 11.3% as a percentage of revenues in fiscal
1996 compared to $121.5 million or 11.9% in fiscal 1995. In fiscal 1996,
selling expenses decreased $2.8 million (6.3%) to $41.8 million and
decreased, as a percentage of revenue, to 4.1% from 4.4% in fiscal 1995,
primarily due to lower compensation costs. General and administrative
expenses decreased by $3.0 million (3.9%) to $73.9 million compared to fiscal
1995, and decreased, as a percentage of revenue, to 7.2% from 7.5% in fiscal
1995. The decrease in general and administrative expenses was primarily due
to lower insurance and communication costs, lower amortization of step-up of
property, plant and equipment resulting from a change in accounting estimate
(see Note 1 to Consolidated Financial Statements), and higher dividend income
earned from life insurance policies maintained by the Company, partially
offset by higher professional services costs incurred in connection with
environmental, information technology, marketing and human resource projects.
10
<PAGE>
NET INTEREST EXPENSE. Net interest expense during fiscal 1996
increased $6.3 million to $40.9 million compared to $34.6 million in fiscal
1995. Such increase was primarily the result of higher average outstanding
indebtedness ($305.4 million versus $290.4 million in fiscal 1995), a higher
weighted average interest rate (9.83% versus 9.44% in fiscal 1995), and
higher interest costs associated with increased borrowings against the cash
surrender value of life insurance policies. The increase in the average
outstanding indebtedness and the weighted average interest rate is primarily
attributable to the Company's Revolving Credit Facility borrowings. The
average borrowings under the Revolver increased to $131.6 million compared to
$124.1 million in fiscal 1995 and the average interest rate increased from
8.02% in fiscal 1995 to 9.09% in fiscal 1996. The increased average
borrowings under the Revolver are primarily attributable to the higher level
of receivables in the first quarter of fiscal 1996 in part arising from the
transition to the new computer system. The outstanding principal amount of
borrowings against the cash surrender value of life insurance policies was
$65.9 million at March 31, 1996 versus $55.6 million at March 31, 1995, and
the interest expense on such borrowings increased to $7.2 million in fiscal
1996 compared to $4.7 million in fiscal 1995.
Almost all of the interest expense of the Company is payable in
respect of three items of indebtedness: the Senior Notes, the life insurance
policy borrowings, and the Revolving Credit Facility. The interest rate of
the Senior Notes, representing approximately $154.5 million (or 55.2%) in the
aggregate in principal amount of the indebtedness of the Company, at March
31, 1996, is fixed, as is the interest rate on the life insurance policy
borrowings. The interest rate on the Revolving Credit Facility, representing
approximately $105.9 million (or 37.8%) in principal amount of the
indebtedness of the Company at March 31, 1996, is at a floating rate (8.3% as
of March 31, 1996). The interest rate payable by the Company on $20.2
million of such indebtedness was effectively capped at 9-3/4% pursuant to an
interest rate protection agreement entered into with Bankers Trust Company on
April 14, 1993 and expiring on April 6, 1996. Such interest rate protection
agreement required Bankers Trust Company to make payments to the Company each
quarter, in an amount equal to the product of the notional amount of $20.2
million and the difference between the three month London interbank offered
rate and the cap rate of 7%, if the London interbank offered rate exceeds the
cap rate. The three month London interbank offered rate at March 31, 1996
was 5.47% and no payments to the Company were required under the agreement
since it was entered into. The Company paid a one time fee of $101,000 when
it entered into the agreement, which was included in interest expense in
fiscal 1994.
During fiscal 1996, the Company borrowed $10.3 million against
certain life insurance policies to pay annual premiums on such policies and
to pay interest on previous borrowings (see Liquidity and Capital
Resources). As a result of this borrowing, the Company's interest expense
increased in the second half of fiscal 1996 due to the higher incremental
borrowings. As specified in the terms of the insurance policies, the rates
for dividends payable on the policies correspondingly increase when
borrowings are outstanding under the policies. This increase in dividends is
greater than the increase in the incremental borrowing rate. Dividend income
is reported in general and administrative expenses in the Company's
statements of operations and is not offset against the interest expense.
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 1995 COMPARED TO YEAR ENDED
MARCH 31, 1994
REVENUES. Revenues for fiscal 1995 increased $179.5 million (21.3%)
to $1,022.9 million compared to $843.4 million in fiscal 1994.
Revenues from domestic operations for fiscal 1995 increased $155.8
million (19.3%) to $964.2 million compared to $808.4 million in fiscal 1994.
Foreign revenues increased $23.7 million (67.7%) to $58.7 million compared to
$35.0 million in fiscal 1994. The primary reason for the increase in domestic
revenues was the general improvement of the U.S. economy and the resulting
increase in demand and prices for the Company's products. The increase in
foreign revenues was attributable to the general improvement in the economies
served by the Company's subsidiaries, the addition of a new facility in the
United Kingdom and the growth of the Company's operations in Mexico.
Shipments (measured in tons) increased during fiscal 1995 by approximately
18.9%. In addition, average mill prices on purchases by the Company increased
by approximately 5% during fiscal 1995 compared to an average increase of 2%
during fiscal 1994. Most mill price changes were passed on to customers
unless otherwise provided for in contractual arrangements.
11
<PAGE>
GROSS PROFIT. Gross profit for fiscal 1995 increased $56.1 million
(22.5%) to $305.9 million compared to $249.8 million in fiscal 1994 . Gross
margin improved slightly to 29.9% compared to 29.6% in the prior year. Fiscal
1995 includes a LIFO charge of $7.6 million reflecting higher material costs
compared to a corresponding LIFO charge of $3.6 million in fiscal 1994. Gross
profit from foreign operations was $14.0 million and gross margin was 23.9%,
compared to $8.2 million and 23.4%, respectively, in fiscal 1994. Exclusive
of foreign operations and LIFO charges, gross margin was 31.1% for fiscal
1995 compared to 30.3% in the prior year. The 0.8% difference is primarily
due to changes in product and customer mix.
EXPENSES. During fiscal 1995, total operating expenses (exclusive of
consolidation expenses) increased $24.4 million (11.0%) to $247.2 million
compared to $222.8 million in fiscal 1994, primarily due to the higher volume
of business, as discussed above under revenues. As a percentage of revenues,
these expenses decreased to 24.2% compared to 26.4% in fiscal 1994.
Warehouse and delivery expenses increased by $14.2 million (12.7%)
compared to fiscal 1994, but decreased, as a percentage of revenue, to 12.3%
compared to 13.2% in fiscal 1994. Selling expenses increased by $6.8 million
(18.0%) compared to fiscal 1994, but decreased, as a percentage of revenue,
to 4.4% from 4.5% in fiscal 1994. General and administrative expenses
increased by $3.4 million (4.7%) compared to fiscal 1994, but decreased, as a
percentage of revenue, to 7.5% from 8.7% in fiscal 1994. The increase in
general and administrative expenses was primarily due to increases in
compensation and professional services of $1.4 million and $1.1 million,
respectively.
NET INTEREST EXPENSE. Net interest expense during fiscal 1995
increased $4.6 million to $34.6 million, compared to $30.0 million in fiscal
1994. Net interest expense also included interest payable on loans against
the cash surrender value of life insurance policies. The outstanding
principal amount of such borrowings increased to $55.6 million at March 31,
1995 versus $27.3 million at March 31, 1994, and interest expense on such
loans increased to $4.7 million in fiscal 1995 compared to $2.3 million in
fiscal 1994. Such increases were partially offset by a $3.4 million decrease
in the average outstanding indebtedness under the Revolving Credit Facility.
The weighted average interest rate increased in fiscal 1995 to 9.44% from
8.74% in fiscal 1994, primarily due to an increase in the average interest
rate applicable to the Company's Revolving Credit Facility borrowings from
6.44% in fiscal 1994 to 8.02% in fiscal 1995 and the increase in the
outstanding principal amount of the life insurance policy loans that bear
interest at 11.76%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ongoing cash requirements for debt service and capital
expenditures through fiscal 1997 will consist primarily of interest payments
under its Revolving Credit Facility, interest payments on the Senior Notes,
dividend payments to Holding in connection with the required repurchase of
its capital stock from departing stockholders pursuant to Holding's
Stockholders Agreement and the ESOP, capital expenditures and principal and
interest payments on the Company's industrial revenue bond and purchase money
indebtedness. Principal payments required by the Company's currently
outstanding industrial revenue bonds and purchase money indebtedness amount
to $1.0 million in fiscal 1997 and 1998, $1.5 million in fiscal 1999 and
$16.1 million in the aggregate thereafter through 2010. The Company will not
be required to make any principal payments in respect of the Senior Notes
until 2000 or in respect of the Revolving Credit Facility until it matures in
1998. On June 20, 1996, the Company requested and received an amendment to
the Revolving Credit Facility with respect to it's financial covenants
relating to consolidated net worth and fixed charge coverage ratio. The
Company was required to pay a fee of approximately $0.5 million to the bank
syndicate in connection with such amendment. Although compliance with such
covenants in the future is largely dependent on the future performance of the
Company and general economic conditions, for which there can be no assurance,
the Company expects that it will continue to be in compliance with such
covenants for the foreseeable future. The Company is not in default under the
Senior Note Indenture and does not anticipate any default thereunder for the
foreseeable future.
At March 31, 1996, the Company's primary sources of liquidity were
available borrowings of $63.9 million under the Revolving Credit Facility,
borrowings against life insurance policies and internally generated funds.
Borrowings under the Revolving Credit Facility are secured by the Company's
domestic inventory and accounts receivable, and future availability under the
facility is determined by prevailing levels of the Company's accounts
receivable and inventory.
12
<PAGE>
In November 1995, the Company borrowed $10.3 million against certain
life insurance policies maintained by the Company with respect to certain
employees and former employees and applied the proceeds of such borrowing to
pay annual premiums on such policies and to pay the interest on previous
borrowings. The insurance policy loans are secured by the cash surrender
value of the policies and are non-recourse to the Company. The interest rate
on the loans is 0.5% greater than the dividend income rate on the policies.
As of March 31, 1996, there was approximately $11.6 million of cash surrender
value in such life insurance policies, net of borrowings.
The Company's capital expenditures were $16.7 million in fiscal
1996, $16.2 million in fiscal 1995 and $12.4 million in fiscal 1994. Capital
expenditures in fiscal 1996 and 1995 included $6.3 million and $5.7 million,
respectively, of expenditures financed through purchase money and industrial
revenue bond indebtedness. During the year ended March 31, 1996,
capital expenditures were primarily for routine replacement of machinery and
equipment, the expansion of service centers and the development of system
software. For fiscal 1997, the Company has budgeted approximately $10.0
million for similar capital expenditures. Approximately $7.6 million is for
the acquisition of equipment and machinery, and $2.4 million of the budget is
for further enhancement of the Company's information technology systems. The
Company expects to finance such expenditures from internal cash flows.
During fiscal 1996, as required by the terms of the Company's ESOP
and Holding's Stockholders Agreement, the Company redeemed $22.3 million of
its capital stock from retiring employees and other employees leaving the
Company. The amount of capital stock redeemed was higher than usual due to
the retirement of several senior employees with relatively large stock
holdings. The Company expects that such redemptions for fiscal 1997 will be
comparable to the years prior to fiscal 1996, although the timing of such
expenditures is not within the control of the Company and there can be no
assurance in this regard.
Working capital and cashflows of the Company over the past three
fiscal years are summarized below:
<TABLE>
<CAPTION>
SELECTED DATA FISCAL YEAR
----------------------------
1996 1995 1994
----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Working capital.......................................... $166,587 $243,738 $176,280
Net cash provided by (used in) operating activities...... 67,058 (15,201) (4,240)
Net cash provided by (used in) investing activities...... (16,105) (10,352) 490
Net cash provided by (used in) financing activities...... (38,745) 23,384 14,701
</TABLE>
The Company's working capital decreased $77.2 million to $166.6
million at March 31, 1996 versus $243.7 million at March 31, 1995, primarily
as the result of the inventory adjustment for $26.9 million discussed in Note
2 to the Consolidated Financial Statements, a decrease of $41.4 million in
accounts receivable in fiscal 1996, and higher accounts payable and accrued
liabilities. Accounts receivable were higher at March 31, 1995, in part, due
to the transition to the new computer system.
Net cash provided by operations increased $82.3 million in fiscal
1996 compared to fiscal 1995 primarily due to changes in accounts receivable
in fiscal 1995 and fiscal 1996, and improved management of other working
capital items. The Company plans to continue its strategy of aggressively
managing working capital.
Net cash used in investing activities increased $5.8 million in 1996
compared to 1995 primarily resulting from lower proceeds from asset
dispositions, notes receivable and redemptions of life insurance policies,
partially offset by lower premiums paid on life insurance policies.
Net cash used in financing activities increased $62.1 million in
1996 compared to 1995 primarily as a result of higher funding requirements
for the repurchase of capital stock from retiring and departing employees
pursuant to the Company's ESOP and Holding's Stockholders Agreement and
higher payments against the Revolving Credit Facility.
13
<PAGE>
As of March 31, 1996, the Company believes its sources of liquidity
and capital resources are sufficient to meet all currently anticipated
operating cash requirements, including debt service payments on the revolving
loans and the Senior Notes prior to their respective maturities. However, the
Company anticipates that it will be necessary to replace the Revolving Credit
Facility on or prior to its maturity in March 1998 and to refinance all or a
portion of the Senior Notes on or prior to their maturity in March 2000. The
Company's ability to make interest payments on the revolving loans and the
Senior Notes will be dependent on improvements in the Company's future
operating performance above historical levels which will be dependent on a
number of factors, many of which are beyond its control, and the continued
availability of revolving credit borrowings. There can be no assurance that
the Company will be able to effect any improvements in its operating results
or that any improvements achieved will be realized in time or will be of
sufficient magnitude to enable the Company to meet its debt service
obligations. If the Company is unable to generate sufficient cash flow from
operations or otherwise comply with the terms of the revolving loans, the
Senior Notes, and the Company's other obligations to Holding, it will be
required to refinance all or a portion of its existing debt or obtain
additional financing, although there can be no assurance on what terms, if
any, the Company would be able to obtain such refinancing or additional
financing. Alternatively, the Company might be required to dispose of
material assets or operations to meet its obligations under the terms of the
Company's indebtedness; however, there can be no assurance as to the timing
of such sales, the proceeds which the Company could realize therefrom or that
such proceeds would be adequate to meet the obligations then due.
ENVIRONMENTAL CONTINGENCIES
The Company is currently involved with remediation and/or
investigation activities at several former facilities where soil and/or
groundwater contamination is present. As of March 31, 1996, reserves
totaling $1.7 million have been established to cover those future
environmental costs which are known or can be reasonably estimated. See Note
8 to the Company's Consolidated Financial Statements included elsewhere
herein for a more detailed discussion of specific environmental contingencies.
Although it is possible that new information or future developments
could require the Company to reassess its potential exposure relating to all
pending environmental matters, management believes that, based upon all
currently available information, the resolution of such environmental matters
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that may require
expenditures not currently anticipated and that may be material. See "Item
1. Business--Environmental Matters."
FOREIGN EXCHANGE EXPOSURE
The functional currency for the Company's foreign subsidiaries is
the applicable local currency. Exchange adjustments resulting from foreign
currency transactions are recognized in net earnings, whereas adjustments
resulting from the translation of financial statements are reflected as a
separate component of stockholder's equity. The Company does not hedge its
exposure to foreign currency fluctuations. Net foreign currency transaction
gains or losses have not been material in any of the years presented. See
"Item 1. Business--Foreign Operations." However, the 1995 devaluation of the
Mexican peso and ongoing instability of the peso and the Mexican economy has
had a negative impact on the Company's operations. Nevertheless, the Company
believes these events have not impaired the long-term value of the Company's
investment in its Mexican subsidiary.
INFLATION
The Company's operations have not been, nor are they expected to be,
materially affected by inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by this Item 8
are set forth as indicated in Item 14(a)(1) and (2) below.
14
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age (at March 31, 1996),
principal occupation and business experience during the last five years of
each of the directors and executive officers of the Company and Holding. The
directors and executive officers of the Company and Holding are identical.
The executive officers serve at the pleasure of the Board of Directors of
the Company and Holding, respectively.
Each member of the Board of Directors of the Company and of Holding
holds office until the next annual meeting of the stockholders thereof or
until his successor is elected and qualified. The election of directors of
Holding is subject to the provisions of a Stockholders' Agreement described
below.
Non-officer directors of the Company, other than Messrs. Schuchert
and Nickell, are paid an annual retainer of $25,000 plus $1,000 for each
board meeting attended. In addition, all out-of-pocket expenses of outside
directors related to meetings attended are reimbursed by the Company. In
consideration of his service as Chairman of the Board, Holding has entered
into an incentive compensation agreement with Mr. Roderick pursuant to which
he has been granted 50,000 shares of Holding Common Stock, 30,000 of which
have vested and the remainder of which may vest through fiscal 1997, upon the
Company's achievement of certain financial targets. Pursuant to the
agreement, Mr. Roderick was paid a cash payment in fiscal 1996 totaling
$145,309 equal to the federal, state and local income tax liability payable
by him by reason of the initial payment to him of 20,000 shares of Holding
Common Stock and such cash payment. The directors receive no additional
compensation for their services as directors of Holding. Officers of the
Company and Holding who serve as directors do not receive compensation for
their services as directors other than the compensation they receive as
officers of the Company and Holding.
There are no family relationships among directors and executive
officers of the Company and Holding. For information regarding the stock
ownership of Holding by the Company's and Holding's directors and executive
officers, see "Item 12. Security Ownership of Certain Beneficial Owners and
Management."
On December 23, 1992, Kelso and its chief executive officer, Joseph
S. Schuchert, a director of the Company and Holding, without admitting or
denying the findings contained therein, consented to the entry of an
administrative order in respect of a Securities and Exchange Commission (the
"Commission") inquiry relating to the Acquisition. The order found that the
tender offer filing of Kelso & Companies, Inc. in connection with the
Acquisition did not comply fully with the Commission's tender offer reporting
requirements, and required Kelso and Companies, Inc. and Mr. Schuchert to
comply with those requirements in the future.
15
<PAGE>
NAME AGE POSITION
---- --- --------
Earle M. Jorgensen 97 Chairman Emeritus and Director
David M. Roderick 72 Chairman and Director
Neven C. Hulsey 61 President, Chief Executive Officer and Director
Lonnie R. Terry 55 Executive Vice President, Chief Operating Officer
and Director
Charles P. Gallopo 54 Vice President and Chief Financial Officer
Randal J. Haas 47 Vice President Quality and Secretary
John W. Ruck 56 Vice President, Chief Value Officer
Joseph S. Schuchert 67 Director
William A. Marquard 76 Director
Frank Nickell 48 Director
John Rutledge 47 Director
Mr. Jorgensen founded EMJ and was Chairman of the Board of EMJ and
its successor, the Company, from 1924 until April 1994. He was also Chairman
of the Board of Holding from May 1990 until April 1994. Mr. Jorgensen was
Chief Executive Officer of EMJ from 1924 to June 1986. Until February 1990,
Mr. Jorgensen was a director of Northrop Corporation. Mr. Jorgensen has been
a director of Holding since May 1990. In April 1994, Mr. Jorgensen became
Chairman Emeritus of the Board of the Company and Holding.
Mr. Roderick has been Chairman of the Board of the Company and
Holding since April 1994 and a director since January 1994. Mr. Roderick also
serves as director of American Standard Companies Inc., General Medical
Corporation and Kelso & Companies Inc. Previously, Mr. Roderick served as
Director, Chairman, and CEO of the USX Corporation. Mr. Roderick joined USX
in 1959, was Chairman of USX Finance Committee and a Director from 1973 to
1975, was President and Director from 1975 until 1979 and was CEO and
Chairman from 1979 to 1989.
Mr. Hulsey has been President and Chief Executive Officer of the
Company since April 1990, and of Holding since May 1990. Mr. Hulsey was
Chairman of the Board, Director, President and Chief Executive Officer of
Kilsby from 1984 until May 1990. Mr. Hulsey has been a director of the
Company since March 1990, and a director of Holding since May 1990. Mr.
Hulsey also serves as a director of International House of Pancakes, Inc. and
Webco Industries Inc.
Mr. Terry has been Executive Vice President and Chief Operating
Officer of the Company since April 1990, and of Holding since May 1990. Mr.
Terry was also President of JSA from May 1990 until November 1991. Prior to
his appointment as Executive Vice President and Chief Operating Officer of
the Company, Mr. Terry was Senior Vice President, Marketing of EMJ, since
January 1987. Prior thereto, Mr. Terry was Secretary of EMJ. Mr. Terry was a
director of EMJ and its successor, the Company, since 1987. Mr. Terry has
been a director of Holding since May 1990.
Mr. Gallopo has been Vice President and Chief Financial Officer of
the Company and Holding since December, 1993. Prior thereto, Mr. Gallopo was
Chief Financial Officer of Severin Montres, Ltd., since July 1989. Severin
Montres, Ltd. is a manufacturer and distributor of Gucci watches.
Mr. Haas has been Vice President, Quality and Secretary of the
Company and Holding since 1993 and Vice President Administration and Human
Resources and Secretary since May 1990 and Vice President and Secretary of
EMJ from July 1987 to May 1990.
Mr. Ruck has been Vice President, Chief Value Officer since April 1,
1995. Prior to such appointment, he was Vice President, Planning for the
Company since April 1990, and of Holding since May 1990. Prior to his
appointment as Vice President, Planning, Mr. Ruck was Manager of Planning of
Kilsby since May 1983.
16
<PAGE>
Mr. Schuchert has been Chairman and Chief Executive Officer and a
director of Kelso & Companies Inc. since March 1989. Kelso & Companies Inc.
is the general partner of Kelso, a Delaware limited partnership. Prior to the
formation of Kelso & Companies Inc. in 1989, Mr. Schuchert was Managing
General Partner of Kelso. Mr. Schuchert is a director of American Standard
Companies Inc. and Kelso Insurance Services, Inc. Mr. Schuchert has been a
director of the Company since March 1990, and a director of Holding since May
1990.
Mr. Marquard has been a director of the Company since March 1990,
and a director of Holding since May 1990. Mr. Marquard also serves as a
director and Chairman of the Board of Arkansas Best Corporation and Mosler,
Inc., and as a director of Americold Corporation, Kelso and Companies Inc.,
Treadco, Inc. and EarthShell Container Corporation.
Mr. Nickell has served as director of the Company and Holding since
August 1993. He has been President and a director of Kelso & Companies Inc.
since March 1989. Kelso & Companies Inc. is the general partner of Kelso, a
Delaware limited partnership. Prior to the formation of Kelso & Companies
Inc., from 1984 to 1989, Mr. Nickell was a general partner of Kelso. He is
also a director of American Standard Companies, Inc., CCA Holdings Corp., CCT
Holdings Corporation, Tyler Holdings Corporation, Peebles Inc., Kelso
Insurance Services, Inc., and The Bear Stearns Companies.
Dr. Rutledge has been a director of the Company and Holding since
June 1992. Dr. Rutledge has been Chairman of Rutledge & Company, Inc., a
merchant banking firm, since January 1991. He is the founder of Claremont
Economics Institute, and has been Chairman since January 1979. Dr. Rutledge
is also a director of American Standard Companies, Inc., Amerindo Investment
Advisers, Inc., Utendahl Capital Partners, Lazard Freres Funds, and Medical
Specialties Group, and is a consultant to Kelso.
In June 1995, Mr. Von Arx, Executive Vice President of Holding and
the Company since October 1993, retired.
STOCKHOLDERS' AGREEMENT
Holding's Bylaws provide for one to nine directors. The Board of
Directors of Holding currently consists of eight directors. Certain of
Holding's shareholders have agreed, pursuant to the Stockholders' Agreement
dated as of September 14, 1990, as amended ( the "Stockholders'
Agreement"), that two directors shall be designated by the Management
Stockholders (as defined in the Stockholders' Agreement), so long as they are
reasonably acceptable to Kelso, and that five directors shall be designated
by Kelso. Messrs. Hulsey and Terry are the directors designated by the
Management Stockholders and the remaining directors were designated by Kelso.
The current vacancy is for one of the directors to be designated by Kelso.
The Stockholders' Agreement also provides that (i) prior to the earlier of
May 3, 1995 or the occurrence of an initial public offering of at least 50%
of the outstanding shares of Holding Common Stock pursuant to an effective
registration statement under the Securities Act, sales of shares of Holding
Common Stock by a Management Stockholder are subject to a right of first
refusal granted to Holding, Kelso and certain Management Stockholders who are
parties to the Stockholders' Agreement and, (ii) in the event of termination
of employment, under certain circumstances, the Management Stockholders are
entitled to sell their shares of Holding Common Stock to Holding and Holding
is required to repurchase such shares at their appraised value.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is information concerning the current compensation
levels for the current executive officers of Holding and the Company.
Officers of the Company receive no additional compensation for their services
as officers of Holding.
CASH COMPENSATION. The following table sets forth compensation for
the three fiscal years ended March 31, 1996 for the five most highly
compensated executive officers of the Company as of March 31, 1996, including
the Chief Executive Officer.
SUMMARY OF COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
NAME AND ------------------- COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (1) AWARDS (#)(2) COMPENSATION (3)
- ------------------ ---- -------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Neven C. Hulsey
President, Chief 1996 $421,997 $ 62,500 $153,380
Executive Officer 1995 379,382 607,987 129,034
and Director 1994 363,182 312,500 70,718
Lonnie R. Terry
Executive Vice 1996 272,688 68,125 63,452
President, Chief 1995 270,706 355,970 125,773
Operating Officer 1994 265,996 140,625 41,493
and Director
Charles P. Gallopo
Vice President and 1996 195,023 12,102 32,397
Chief Financial 1995 186,351 241,555 16,000 35,881
Officer (3) 1994 63,103 12,500 7,683
Randal J. Haas
Vice President, Quality 1996 138,425 47,500 27,768
and Secretary 1995 138,682 193,953 48,533
1994 136,663 97,500 22,972
John W. Ruck
Vice President, Chief 1996 150,329 13,750 33,838
Value Officer 1995 136,589 163,953 32,882
1994 127,461 68,750 24,958
</TABLE>
- --------------------
18
<PAGE>
(1) Amounts reflect cash compensation earned by executive officers in
each of the fiscal years presented, including amounts received after
fiscal yearend, or deferred at the election of those officers. Bonus
includes (i) a cash bonus payable each year to all management investors
pursuant to the Company's Management Stock Bonus Plan (or, in the case
of Mr. Gallopo, equivalent policy) in proportion to their ownership of
Holding Common Stock, and (ii) a cash bonus payable each year pursuant
to the Company's Key Employee Incentive Compensation Plan ("Incentive
Plan") which became effective April 1, 1994. The following bonuses
were paid to Messrs. Hulsey, Terry, Gallopo, Haas and Ruck under the
Company's Management Stock Bonus Plan (a) in fiscal 1996: $62,500,
$18,125, $12,102, $12,500 and $13,750, (b) in fiscal 1995: $250,000,
$72,500, $48,408, $50,000 and $55,000, and (c) in fiscal 1994:
$312,000, $90,625, none, $62,500 and $68,570, respectively. The
following allocations were made under the Incentive Plan to Messrs.
Hulsey, Terry, Gallopo, Haas and Ruck, respectively, (a) in fiscal
1996: none, and (b) in fiscal 1995: $357,987, $233,470, $155,647,
$108,953 and $108,953. In addition, Mr. Terry received payments of
$50,000 in all years shown, and Mr. Haas received payments of $35,000
in all years shown, pursuant to a plan providing for fixed bonuses
payable to employees of EMJ in lieu of a bonus payable to them pursuant
to an incentive bonus plan terminated after the Acquisition. Mr.
Gallopo received discretionary incentive bonuses of $37,500 and $12,500
in fiscal 1995 and 1994, respectively.
(2) Holding has granted Mr. Gallopo 16,000 phantom stock units which
will vest on the earlier of November 29, 1997, Mr. Gallopo's death or
disability, and the occurrence of a terminating transaction involving
Holding, provided Mr. Gallopo is employed by Holding on such date.
Each phantom stock unit when vested entitles the holder to receive an
amount equal to the difference between the fair market value of a share
of Holding Common Stock on the date of redemption and a base price,
subject to adjustment, of $9.23.
(3) Amounts shown include allocations to the accounts of each of the
named officers of contributions made by the Company to the ESOP and to
the Company's 401(a)(17) Supplemental Contribution Plan ("401(a)(17)
Plan") and of premiums paid by the Company for long-term disability
and life insurance policies. The following allocations were made in
fiscal 1996 to Messrs. Hulsey, Terry, Gallopo, Haas and Ruck,
respectively: (i) ESOP (estimated)--$7,500 each; (ii) 401(a)(17)
Plan--$31,057, $17,425, $9,996, $4,698 and $5,262; (iii) long term
disability--$13,990, $9,578, $6,351, $3,586 and $7,950; and (iv) life
insurance--$100,833, $28,949, $8,550, $11,985 and $13,126. In fiscal
1995, the following allocations were made to Messrs. Hulsey, Terry,
Gallopo, Haas and Ruck, respectively: (i) ESOP--$16,500 each; (ii)
401(a)(17) Plan--$23,021, $12,652, $7,722, none and none ; (iii) long
term disability--$11,824, $8,835, $6,133, $3,225 and $7,950; and (iv)
life insurance--$77,689, $21,915, $5,526, $9,056 and $10,413. In
fiscal 1994, the following allocations were made to Messrs. Hulsey,
Terry, Gallopo, Haas and Ruck, respectively: (i) ESOP--$23,584,
$23,584, none, $13,774 and $12,476; (ii) long-term disability--$11,749,
$2,301, $6,133, $3,204 and $7,938; and (iii) life insurance--$35,385,
$15,608, $1,550, $5,994 and $4,544. The amounts in respect of life
insurance represent the estimated value of the premiums paid by the
Company on certain disability and life insurance policies in respect of
each executive. Some of the policies are managed on a split-dollar
basis and the Company will receive the premiums it has paid from the
proceeds of such insurance. In such cases the amount of the other
compensation attributed to the executive was calculated by treating the
premiums paid by the Company as a demand loan, and the amount of
compensation is equal to the imputed interest expense on the cumulative
outstanding premiums paid by the Company, assuming an interest rate
equal to the short-term federal funds rate, from time to time. Amounts
shown also include payments of $65,871 and $19,752 to Messrs. Terry and
Haas, respectively, in fiscal 1995, as a lump sum distribution in
connection with the termination of the Supplemental Benefit Plan
established by EMJ effective January 1, 1986.
(4) Mr. Gallopo joined the Company in December 1993 and his
compensation in fiscal 1994 represents actual compensation for a period
of approximately four months.
19
<PAGE>
THE ESOP
The Company maintains an employee stock ownership plan in respect of the
Company's nonunion employees who meet certain service requirements. the
Company's annual contributions to the ESOP are a percentage (between 5% and
15% based on a formula rewarding the achievement of certain Company
performance objectives) of total cash compensation (as defined in the ESOP)
determined by the Board of Directors of Holding and may be made by the
Company in cash or by Holding in shares of Holding capital stock.
Participants become 20% vested in their account balances after one year of
continuous service. Participants vest an additional 20% for each year of
service thereafter and become fully vested upon completion of five years of
service, retirement, disability or death. Upon the occurrence of a
participant's termination (as defined), retirement, disability, or death, the
ESOP is required to either distribute the vested balance in stock or
repurchase the vested balance. If stock is distributed, it is accompanied by
a put option to Holding under terms defined in the ESOP. At March 31, 1996,
shares of Holding's Series A and Series B Preferred Stock and Holding Common
Stock held by the ESOP totaled 113,246, 17,957 and 3,089,774 shares,
respectively. Contributions payable to the ESOP totaled $3,401,000,
$7,694,000, $6,005,000, $5,919,000 and $6,677,000, as of March 31, 1996,
1995, 1994, 1993 and 1992 respectively. Contributions were made by Holding
in the form of Series B Preferred Stock for fiscal 1992, a combination of
cash ($632,000) and Series B Preferred Stock ($5,287,000) for fiscal 1993,
and Holding Common Stock for fiscal 1994 and fiscal 1995. The contribution
for fiscal 1996 will be made in the form of equity.
Although Holding has not expressed any intent to terminate the ESOP, it
has the right to do so at any time. In the event of such termination,
participants become fully vested to the extent of the balances in their
separate accounts and receive put options with respect to Holding stock
allocated to their accounts.
In 1984, 1985 and 1986, K-R purchased life insurance policies to
provide, among other things, a separate source for funds to repurchase
capital stock, including capital stock distributed by the ESOP, from
departing employees. In 1996 and 1995, the Company borrowed $42.5 million in
the aggregate against the cash surrender value of such policies (including
$17.2 million for renewal premiums and accrued interest and $25.3 million to
reduce borrowings under its Revolving Credit Facility). The net cash
surrender value of certain life insurance policies available for future
borrowings as of March 31, 1996 was approximately $4.3 million. Other
resources of the Company, such as the Revolving Credit Facility, are
available, subject to certain limitations, to satisfy stock repurchase
obligations as they arise.
PENSION PLANS
Prior to September 30, 1992, the Company maintained a salaried employees
pension plan (the "Pension Plan") for the benefit of employees within JSA,
providing for benefits to retirees based upon length of service and average
annual compensation over the term of employment. The Pension Plan was
terminated on September 30, 1992. Upon such termination, retirees and
participants who terminated employment prior to October 15, 1992 were given a
deferred Group Annuity Contract purchased from Transamerica, Inc.
Participants who had not terminated employment prior to October 15, 1992 were
entitled to elect to take distribution of their accrued benefits in one of
the following forms: (i) a deferred Group Annuity Contract from Transamerica,
Inc., (ii) a transfer of the present value of their accrued benefits to the
Company's 401(k) plan, or (iii) a lump sum distribution of the present value
of their accrued benefit. Messrs. Terry and Haas each elected to have the
present value of his accrued benefit ($234,429.46 and $112,681.68,
respectively) transferred to the Company's 401(k) plan.
In addition, a Supplemental Benefit Plan (the "Supplemental Pension
Plan") was established by EMJ effective January 1, 1986. Under a change in
law, applicable to the Pension Plan but not the Supplemental Pension Plan,
effective January 1, 1989, participants could no longer accrue benefits with
respect to compensation in excess of $200,000, as adjusted for inflation.
Pursuant to an amendment to the Supplemental Pension Plan, any amount that
would have been payable under the Pension Plan but for this limitation on
includable compensation will be paid from the Supplemental Pension Plan.
Amounts payable under the Supplemental Pension Plan were fixed (except for
cost of living adjustments) upon termination of the Pension Plan.
20
<PAGE>
Under the Pension Plan, the compensation for the executive officers
employed by EMJ prior to the Acquisition and named in the Cash Compensation
Table was their total aggregate direct compensation at the time of
termination of the Pension Plan. Mr. Terry had 28 and Mr. Haas had 18 years
of credited service under the plan. The benefits payable to Messrs. Terry and
Haas under the Supplemental Pension Plan were fixed (except for cost of
living adjustment) at the time of termination of the Pension Plan. Assuming
they retire at age 65, Mr. Terry will be entitled to a monthly benefit of
$918.23, and Mr. Haas will be entitled to a monthly benefit of $377.39, in
each case subject to an annual cost of living adjustment after such
retirement. Such payments would be actuarially adjusted for payments
beginning at other than age 65.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neven C. Hulsey, David M. Roderick and Joseph S. Schuchert are members
of the Management and Compensation Committee of Holding and the Company. Mr.
Hulsey is and was during fiscal 1994 President and Chief Executive Officer of
Holding and the Company.
Kelso affiliates beneficially own shares of the capital stock of Holding
as described under "Security Ownership of Certain Beneficial Owners." Mr.
Schuchert is a stockholder of Kelso and a general partner of Kelso Partners
I, L.P. ("KP I"), Kelso Partners III, L.P. ("KP III"), and Kelso Partners
IV, L.P. ("KP IV"). KP I, KP III and KP IV are the general partners of
Kelso Investment Associates, Limited Partnership ("KIA I"), KIA III-Earle
M. Jorgensen, L.P. ("KIA III-EMJ") and Kelso Investment Associates IV, L.P.
("KIA IV"), respectively. Mr. Schuchert is a director of Holding and the
Company and shares investment and voting power with respect to shares of the
capital stock of Holding held by KIA I, KIA III-EMJ and KIA IV as described
under "Security Ownership of Certain Beneficial Owners."
In connection with the Acquisition, the Company agreed to pay Kelso an
annual fee of $1,250,000 each year for financial advisory services and to
reimburse it for out-of-pocket expenses incurred in connection with rendering
such services. Two principals of Kelso serve on the Boards of Directors of
the Company and Holding. A fee of $1,250,000 was paid in each of fiscal 1996
and 1995. In addition, Kelso has been reimbursed for out-of-pocket expenses
in fiscal years 1996 and 1995 totaling $154,000 and $164,000, respectively.
The Company expects to continue to pay Kelso's annual fee and to reimburse it
for its expenses in connection with such services in the future in accordance
with the terms of its agreement.
Holding has issued to KIA IV two warrants, each entitling KIA IV to
purchase at a purchase price of $.01 per share, shares of Holding Common
Stock representing 10% of the issued and outstanding Holding Common Stock on
a fully diluted basis.
In January 1996, the Company amended its agreement with Kelso Insurance
Services, Inc. (an affiliate of Kelso) ("Kelso Insurance"), and American
Telephone and Telegraph Company ("AT&T") pursuant to which the Company as
well as other Kelso affiliated companies participates in a telecommunications
network under which AT&T provides communications services to the group at a
special tariff rate. Pursuant to such agreement, as amended, the Company has
guaranteed a minimum annual usage for communication services, which it has
consistently exceeded, for a period ending December 31, 1999 and Kelso
Insurance has guaranteed the Company's minimum usage to AT&T. No fee was
paid by the Company to Kelso Insurance in connection with this transaction.
Mr. Hulsey is a general partner of two California partnerships:
Kilsby-Roberts Group ("KRG"), and East 31st Street North ("31st St."), and
has an interest in such partnerships of 3.704% and 3.279%, respectively. KRG
owns a facility leased to the Company and has received approximately $38,000
of rent monthly from the Company. The Company believes such rent is a market
rent and is not higher than would otherwise be paid if such premises were
leased from an independent third party. On April 18, 1995, the Company
purchased the facility located in Tulsa, Oklahoma owned by "31st St." for
approximately $2.1 million. The Company believes, based on a current
independent appraisal, that such purchase price was equal to the fair market
value of the property and was not higher than would otherwise be paid if the
property was purchased from an independent third party. Prior to such
purchase the Company leased the facility from 31st St. for a monthly rent of
approximately $26,000. The Company believes such rent was a market rent and
was not higher than would otherwise be paid if the premises were leased from
an independent third party.
Mr. Roderick has an incentive compensation agreement with Holding
pursuant to which he has been granted 50,000 shares of Holding Common Stock,
30,000 of which have vested and the remainder of which may vest through
fiscal 1997, if Holding achieves certain financial targets.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK OF THE COMPANY
All of the issued and outstanding voting stock of the Company,
consisting of 128 shares of common stock, is owned by Holding.
CAPITAL STOCK OF HOLDING
The following table sets forth information with respect to the
beneficial ownership of shares of Holding Common Stock and Series A Preferred
Stock as of March 31, 1996, by all stockholders of Holding known to be
beneficial owners of more than 5% of any such class, by each director, by
each executive officer of the Company named in the Summary Compensation Table
and by all directors and executive officers as a group as determined in
accordance with Rule 13d-3(i) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As of March 31, 1996, 26,213 shares of Series B
Preferred Stock of Holding have been issued (and 4,641 shares have been
accrued but not declared), of which 17,957 were owned by the ESOP and 8,073
were owned by Holding.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF NUMBER OF SHARES OF SERIES
NUMBER OF SHARES OF SHARES A PREFERRED
NAME AND ADDRESS OF SHARES OF COMMON STOCK OF SERIES A STOCK
BENEFICIAL OWNER COMMON STOCK OUTSTANDING(a) PREFERRED STOCK OUTSTANDING
---------------- ------------ ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Kelso Investment Associates, IV, L.P. (c) 9,465,287(d) 60.9%(d) 0 0.0%
KIA III - Earle M. Jorgensen, L.P. (c) 1,704,740 13.5% 0 0.0%
Joseph S. Schuchert (c) 11,181,643(d)(e) 72.0%(d)(e) 24,519(f) 14.3%(f)
Frank T. Nickell (c) 11,202,142(d)(e) 72.1%(d)(e) 24,519(f) 14.3%(f)
George E. Matelich (c) 11,186,643(d)(e) 72.0%(d)(e) 24,519(f) 14.3%(f)
Thomas R. Wall, IV (c) 11,186,643(d)(e) 72.0%(d)(e) 24,519(f) 14.3%(f)
Earle M. Jorgensen (g) 200,000 1.6% 0 0.0%
Neven C. Hulsey (g) 250,000 2.0% 24,519 14.3%
Lonnie R. Terry (g) 72,500 0.6% 0 0.0%
Charles P. Gallopo (g) 50,000 0.4% 0 0.0%
Randal J. Haas (g) 50,000 0.4% 0 0.0%
John W. Ruck (g) 55,000 0.4% 2,942 1.7%
David M. Roderick (g) 30,000 0.2% 0 0.0%
John Rutledge (h) 5,000 0.0% 0 0.0%
William A. Marquard (c) 10,000 0.1% 0 0.0%
Earle M. Jorgensen Company Employee
StockOwnership Plan (g) 2,921,934(i) 23.2%(i) 105,181(i) 61.2%(i)
All directors and executive officers
of the Company as a group 752,999(j) 6.0%(j) 27,461(k) 16.0%(k)
</TABLE>
- ------------
(a) The percentage of shares of Holding Common Stock outstanding for KIA IV,
and Messrs. Schuchert, Nickell, Matelich and Wall was calculated assuming
the total outstanding shares of Holding Common Stock was 15,538,650, (i)
including shares of Holding Common Stock which would be outstanding
assuming KIA IV exercised the two Warrants referred to in note (d) below
in succession and there had been no other dilution events prior to such
exercise and (ii) excluding the 607,188 shares of Holding Common Stock
currently held in the Holding treasury. The percentage of shares of Holding
Common Stock outstanding for all other holders was calculated assuming the
total outstanding shares of Holding Common Stock was 12,586,306, excluding
shares issuable upon the exercise of the Warrants held by KIA IV and the
607,188 shares of Holding Common Stock held in the Holding treasury as of
March 31, 1996.
22
<PAGE>
(b) The percentage of shares of Series A Preferred Stock outstanding was
calculated assuming the total outstanding shares of Series A Preferred
Stock was 171,744, excluding 75,802 shares of Series A Preferred Stock held
in the Holding treasury as of March 31, 1996.
(c) The business address for such person(s) is c/o Kelso & Company, Inc.
320 Park Avenue, 24th Floor, New York, New York 10022. Kelso & Company,
Inc. is a merchant banking firm that engages in leveraged acquisitions.
(d) Includes 2,952,343 shares of the Holding Common Stock that KIA IV is
entitled to purchase pursuant to two Warrants issued to KIA IV, one of
which was issued pursuant to the terms of the Subordinated Notes because
the Subordinated Notes were not refinanced within one year of issuance
and one of which was issued in connection with the exchange of the
Subordinated Notes for the Holding Notes. Each warrant entitles the holder
to purchase up to 10% of the Holding Common Stock on a fully diluted basis
at an exercise price of $.01 per share.
(e) Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share
beneficial ownership of shares of Holding Common Stock owned of record by
(i) KIA IV and an affiliated entity by virtue of their status as general
partners of KP IV, the general partner of KIA IV, and such affiliate, and
(ii) KIA III-EMJ by virtue of their status as general partners of KP III,
the general partner of KIA III-EMJ. Messrs. Schuchert, Nickell, Matelich
and Wall share investment and voting power with respect to securities owned
by the Kelso affiliates. Messrs. Schuchert, Nickell, Matelich and Wall
disclaim beneficial ownership of the shares of Holding Common Stock owned
by the Kelso affiliates.
(f) Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share
beneficial ownership of shares of Series A Preferred Stock owned of record
by KIA I by virtue of their status as general partners of KP I, the general
partner of KIA I. Messrs. Schuchert, Nickell, Matelich and Wall disclaim
beneficial ownership of the shares of Series A Preferred Stock owned by
KIA I.
(g) The business address of such person(s) or entity is 3050 East Birch
Street, Brea, California 92621.
(h) The business address for Dr. Rutledge is One Greenwich Office Park,
Greenwich, Connecticut 06831.
(i) Excludes 167,840 shares of Holding Common Stock and 8,065 shares of
Series A Preferred Stock held by the ESOP in directed accounts that may be
deemed to be beneficially owned by any of the directors or executive
officers or other employees of the Company.
(j) Excludes (i) 11,181,643 shares of Holding Common Stock held by Kelso
affiliates that may be deemed to be beneficially owned by Mr. Schuchert and
Mr. Nickell, and (ii) shares held by the ESOP, except for shares held in
directed accounts that may be deemed to be beneficially owned by any of the
directors and executive officers of the Company.
(k) Excludes (i) 24,519 shares of Series A Preferred Stock held by KIA I
that may be deemed to be beneficially owned by Mr. Schuchert and
Mr. Nickell, and (ii) shares held by the ESOP, except for shares held
in directed accounts that may be deemed to be beneficially owned by any
of the directors or executive officers of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kelso affiliates beneficially own shares of the capital stock of Holding
as described under "Item 12. Security Ownership of Certain Beneficial Owners
and Management." Messrs. Schuchert, Nickell, Matelich and Wall are
stockholders of Kelso and general partners of Kelso KP I, KP III and KP IV.
KP I, KP III and KP IV are the general partners of KIA I, KIA III-EMJ and KIA
IV, respectively. Messrs. Schuchert and Nickell are directors of Holding and
the Company. Although Messrs. Schuchert, Nickell, Matelich and Wall share
investment and voting power with respect to securities of Holding owned by
Kelso affiliates, they disclaim beneficial ownership of such shares. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management."
The Company, Holding and Kelso and its affiliates entered into certain
agreements in connection with the Acquisition. Such agreements and
transactions are described under "Item 11. Executive
Compensation--Compensation Committee Interlocks and Insider Participation."
23
<PAGE>
KIA IV is the holder of two Holding warrants which are described under
"Item 11. Executive Compensation --Compensation Committee Interlocks and
Insider Participation."
In September 1995 the Company terminated its agreement with Dr.
Rutledge pursuant to which Dr. Rutledge provided an ongoing business
management program to the Company and its employees. Dr. Rutledge was paid
$50,000 under the agreement in fiscal 1996 prior to its termination and
$100,000 in fiscal 1995. Dr. Rutledge continues to provide similar services
to the Company for which he is reimbursed for his travel expenses.
Mr. Gallopo has borrowed $403,000 from Holding by issuing two separate
notes, one of which is non-recourse, each in the principal amount of
$201,500, to Holding in payment for 50,000 shares of Holding Common Stock.
The notes mature on March 31, 2001, bear interest at the rate of 6% per
annum, and are secured by a pledge of Mr. Gallopo's Holding Common Stock.
Mr. Gallopo has also received 16,000 phantom stock units. Such award is
described in the Summary Compensation Table under "Item 11. Executive
Compensation."
Mr. Roderick has an incentive compensation agreement with Holding. Such
agreement is described under "Item 11. Executive Compensation --Compensation
Committee Interlocks and Insider Participation."
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
---------------------
See "Index to Financial Statements" (page F-1).
(a)(2) Financial Statement Schedules.
------------------------------
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because the information is not
applicable or is not material or because the information required is set
forth in the financial statements or the notes thereto.
(a)(3) Exhibits.
--------
See "Index to Exhibits" for listing of those exhibits included in
this filing.
24
<PAGE>
Exhibit
Number Description
- ------ -----------
3.1* Certificate of Incorporation of the Company. Incorporated by reference
to Exhibit 3.1 of the Company's Registration Statement on Form S-1 as
filed on January 15, 1993 (Registration No. 33-57134) (the "Company's
1993 Registration Statement").
3.2* By-laws of the Company. Incorporated by reference to Exhibit 3.2 of
the Company's 1993 Registration Statement.
4.1* Form of Indenture with respect to the Notes. Incorporated by reference
to Exhibit 4.1 of Amendment No. 3 to the Company's 1993 Registration
Statement ("Amendment No. 3").
4.2* Form of certificate for the Notes (included in Exhibit 4.1 to Amendment
No. 3).
4.3* Credit Agreement ("Revolving Credit Facility"), as dated March 3, 1993
among the Company, Holding, Various Financial Institutions, and BT
Commercial Corporation and Chemical Bank, as Agents (the "Agents").
Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K as
filed March 24, 1993 with the Commission (Registration No. 33-57134).
4.4* Form of Restructuring Agreement among Holding, the Company and KIA IV.
Incorporated by reference to Exhibit 4.25 of Amendment No. 3.
4.5* Form of Security Agreement between the Company and BT Commercial
Corporation, as Collateral Agent, Incorporated by Reference to Exhibit
4.27 of Amendment No. 3.
10.1* Stockholders Agreement, amended and restated as of September 14, 1990,
among Holding, KIA III-EMJ, KIA IV, Kelso Equity Partners II, L.P. and
the Management Stockholders and Other Investors named therein.
Incorporated by reference to Exhibit 4.1 of Holding's Post-Effective
Amendment No. 1 to the Form S-1 Registration Statement as filed with
the Commission on October 12, 1990 (Registration No. 33-35022)
("Holding's Post-Effective Amendment No. 1 to the 1990 Form S-1").
10.2* Amendment to the Stockholders Agreement, dated as of January 20, 1992.
Incorporated by reference to Exhibit 10.2 of the Company's 1993
Registration Statement.
10.3* Management Stockholders Bonus Plan. Incorporated by reference to
Exhibit 4.7 of Holding's Post-Effective Amendment No. 1 to the 1990
Form S-1.
10.5* Services Agreement, between Acquisition and Kelso, dated March 19,
1990. Incorporated by reference to Exhibit 10.2 of Holding's
Registration Statement on Form S-1 as filed May 30, 1990 with the
Commission (Registration No. 33-35022) ("Holding's 1990 Registration
Statement").
10.6* Trust Agreement applicable to the EMJ Employee Stock Ownership and
Capital Accumulation Plan, dated as of May 25, 1984, by and between
Crocker National Bank ("Crocker"), as Trustee, and EMJ. Incorporated
by referenced to Exhibit 4.1 to Form 8 (Amendment No. 1 to EMJ's Annual
Report on Form 10-K, Registration No. L-7537, for the fiscal year ended
December 31, 1984)(the "Form 8").
10.7* Amendment 1985-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan effective as of January 1985. Incorporated by
reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to EMJ's
Registration Statement on Form S-8, Registration No. 2-87991, filed
August 21, 1985.
10.8* Amendment 1986-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan and Plan Trust Agreement executed December 1986
between EMJ and Wells Fargo Bank, N.A., as Trustee (formerly Crocker).
Incorporated by reference to Exhibit 4.2 to the Form 8.
25
<PAGE>
Exhibit
Number Description
- ------ -----------
10.9* Amendment 1988-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed February 29, 1988. Incorporated by
reference to Exhibit (10)d to EMJ's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987.
10.10* Amendment 1988-II to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed June 22, 1988. Incorporated by reference
to Exhibit 8 to EMJ's Schedule 14D-9 filed on February 5, 1990 ("EMJ's
1990 Schedule 14D-9").
10.11* Amendment 1989-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed March 20, 1989. Incorporated by reference
to Exhibit 8 to EMJ's 1990 Schedule 14D-9.
10.12* EMJ Supplemental Benefit Plan 1989 Amendment in Toto. Incorporated by
reference to Exhibit (10)p to EMJ's 1989 Form 10-K.
10.13* Amendment 1989-II to the EMJ Employee Stock Ownership and Capital
Accumulation Plan executed December 29, 1989. Incorporated by reference
to Exhibit (10)q to EMJ's 1989 Form 10-K.
10.14* Amendment 1990-I to the EMJ Employee Stock Ownership and Capital
Accumulation Plan Trust Agreement executed March 19, 1990. Incorporated
by reference to Exhibit (10)r to EMJ's Annual Report on Form 10-K for
fiscal year ended December 31, 1989.
10.15* C. A. Roberts Pension Plan, amended and restated as of January 1, 1986,
with amendments thereto. Incorporated by reference to Exhibit 10.22 of
Holding's 1990 Registration Statement.
10.16* Kilsby Executive Life Insurance Plan. Incorporated by reference to
Exhibit 10.25 of Holding's 1990 Registration Statement.
10.17* Kilsby Executive Long-Term Disability Plan. Incorporated by reference
to Exhibit 10.26 of Holding's 1990 Registration Statement.
10.18* Holding's ESOP. Incorporated by reference to Exhibit 10.31 of
Holding's Annual Report on Form 10-K for the year ended March 31, 1991
(Registration No. 33-35022) ("Holding's Form 10-K").
10.19* Amendment No. 1 to Holding's ESOP, dated October 21, 1991. Incorporated
by reference to Exhibit 10.24 of the Company's 1993 Registration
Statement.
10.20* Amendment No. 2 to Holding's ESOP, dated October 21, 1991.
Incorporated by reference to Exhibit 10.25 of the Company's 1993
Registration Statement.
10.21* Amendment No. 3 to Holding's ESOP, dated February 18, 1992.
Incorporated by reference to Exhibit 10.26 of the Company's 1993
Registration Statement.
10.22* Amendment No. 4 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.21 to Holding's
Registration Statement on Form S-1 as filed October 19, 1994 with
the Commission (Registration No. 33-85364) ("Holding's 1994
Registration Statement").
10.23* Amendment No. 5 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.22 to Holding's 1994
Registration Statement.
10.24* Amendment No. 6 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.23 to Holding's 1994
Registration Statement.
26
<PAGE>
Exhibit
Number Description
- ------ -----------
10.25* Amendment No. 7 to Holding's ESOP, dated January 25, 1993.
Incorporated by reference to Exhibit No. 10.24 to Holding's 1994
Registration Statement.
10.26* Amendment No. 8 to Holding's ESOP, dated July 27, 1993. Incorporated
by reference to Exhibit No. 10.25 to Holding's 1994 Registration
Statement.
10.27* Amendment No. 9 to Holding's ESOP, dated October 7, 1994. Incorporated
by reference to Exhibit No. 10.26 to Holding's 1994 Registration
Statement.
10.28* Holding's ESOP Trust Agreement. Incorporated by reference to Exhibit
10.32 of Holding's Form 10-K.
10.29* Jorgensen Compensation Policy, dated as of April 1, 1991, including
description of Return on Net Operating Assets Incentive Plan.
Incorporated by reference to Exhibit 10.34 of Holding's 1991 Form 10-K.
10.30* Lease and Agreement, dated as of August 1, 1991, between Advantage
Corporate Income Fund L.P. and the Company, relating to the sale and
lease-back of K-R's Kansas City, Missouri property. Incorporated by
reference to Exhibit 10.30 of the Company's 1993 Registration
Statement.
10.31* Lease and Agreement, dated as of September 1, 1991, between Advantage
Corporate Income Fund L.P. and the Company, relating to the sale and
lease-back of the Cincinnati, Ohio property. Incorporated by reference
to Exhibit 10.31 of the Company's 1993 Registration Statement.
10.32* Industrial Building Lease, dated as of October 16, 1991, between Ira
Houston Jones and Helen Mansfield Jones, Roderick M. Jones and Cherilyn
Jones, Roger G. Jones and Norma Jean Jones, Robert M. Jones and Olga F.
Jones and the Company, relating to the sale and lease-back of the
Alameda Street property in Lynwood, California. Incorporated by
reference to Exhibit 10.32 of the Company's 1993 Registration
Statement.
10.33* Stock Purchase Agreement, dated as of January 21, 1992, between
McJunkin Corporation and the Company, relating to the sale of the
Company's Republic Supply division. Incorporated by reference to
Exhibit 10.33 of the Company's 1993 Registration Statement.
10.34* Contract of Sale, dated as of January 21, 1992, between the Company and
Hansford Associates Limited Partnership, relating to the sale of the
warehouse properties and the sale of the Company's Republic Supply
division. Incorporated by reference to Exhibit 10.34 of the Company's
1993 Registration Statement.
10.35* Stock Purchase Agreement, dated as of June 30, 1992, among Forge
Acquisition Corporation, The Jorgensen Forge Corporation and the
Company, relating to the sale of the Company's Forge division.
Incorporated by reference to Exhibit 10.35 of the Company's 1993
Registration Statement.
10.36* Industrial Real Estate Lease, dated June 25, 1992, between Paul
Nadzikewycz and the Company, relating to the sale and lease-back of
JSA's Denver, Colorado property. Incorporated by reference to Exhibit
10.36 of the Company's 1993 Registration Statement.
10.37* Industrial Real Estate Lease, dated October 19, 1992, between Fiorito
Enterprises, Inc. and the Company, relating to the sale and lease-back
of the Portland, Oregon facility. Incorporated by reference to Exhibit
10.27 of the Company's 1993 Registration Statement.
27
<PAGE>
Exhibit
Number Description
- ------ -----------
10.38* Truck Lease and Service Agreement, dated as of November 1, 1984,
between Ryder Truck Rental, Inc. ("Ryder") and EMJ and all amendments
thereto, between Ryder and the Company (amendments dated January 1,
1992, January 30, 1992 and undated (executed by the Company)).
Incorporated by reference to Exhibit 10.38 of the Company's 1993
Registration Statement.
10.39* Lease, dated March 14, 1986, between 31st St. and the Company, relating
to K-R's Tulsa, Oklahoma property. Incorporated by reference to
Exhibit 10.39 of the Company's 1993 Registration Statement.
10.40* Lease, dated July 30, 1982, between California Canadian Bank, as
Trustee of the Fluor Employees' Trust Fund and Kilsby-Roberts Co.,
relating to the Hayward, California property (the "Hayward Lease").
Incorporated by reference to Exhibit 10.40 of the Company's 1993
Registration Statement.
10.41* Amendment No. 1 to the Hayward Lease, dated as of December 31, 1986,
among Barclays Bank of California, as Trustee of the Fluor Employees'
Trust Fund, Kilsby-Roberts co. and KRG. Incorporated by reference to
Exhibit 10.41 of the Company's 1993 Registration Statement.
10.42* Lease, dated July 30, 1982, between Republic Bank, Dallas N.A., as
Ancillary Trustee of the Fluor Employees' Trust Fund and Kilsby-Roberts
Co., relating to K-R's Houston, Texas property (the "Houston Lease").
Incorporated by reference to Exhibit 10.42 of the Company's 1993
Registration Statement.
10.43* Amendment No. 1 to the Houston Lease, dated as of December 31, 1986,
among Barclays Bank of California, as Trustee for Republic Bank,
Dallas, N.A., as Ancillary Trustee of the Fluor Employees' Trust Fund,
KRG and Kilsby-Roberts Co. Incorporated by reference to Exhibit 10.43
of the Company's 1993 Registration Statement.
10.44* Form of Management Agreement between the Company and Holding.
Incorporated by reference to Exhibit 10.46 of Amendment No. 2 to the
Company's 1993 Registration Statement.
10.45* Form of Tax Allocation Agreement between the Company and Holding.
Incorporated by reference to Exhibit 10.47 of Amendment No. 3.
10.46* Second Amendment dated as January 26, 1994 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents. Incorporated by reference to the Company's quarterly report
on Form 10-Q, Commission File No. S-10065 for the fiscal quarter ended
January 3, 1994.
10.47* Third Amendment dated as of February 25, 1994 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents.
10.48* Fourth Amendment dated as of May 4, 1994 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents.
10.49* Earle M. Jorgensen Holding Company, Inc. Phantom Stock Plan adopted
January 11, 1995. Incorporated by reference to Exhibit 10.39 to
Amendment No.1 to Holding's 1994 Registration Statement as filed with
the commission on January 19, 1995 (Registration No. 33-85364)
("Amendment No. 1 to Holding's 1994 Registration Statement").
28
<PAGE>
Exhibit
Number Description
- ------ -----------
10.50* Industrial Real Estate Lease, dated July 15, 1993, between Jorgensen
and 58 Cabot L.P., relating to the Langhorne, Pennsylvania facility.
Incorporated by reference to Exhibit 10.27 to Holding's 1994
Registration Statement.
10.51* Amendment to the Stockholders Agreement, dated as of September 30,
1994. Incorporated by reference to Exhibit 10.41 to Amendment No. 1 to
Holding's 1994 Registration Statement.
10.52* Stock Compensation Agreement, dated as of December 13, 1994, between
Holding and David M. Roderick. Incorporated by reference to Exhibit
10.42 to Amendment No. 1 to Holding's 1994 Registration Statement.
10.53* Holding's Key Employee Incentive Compensation Plan, effective April 1,
1994. Incorporated by reference to the Company's Annual Report on Form
10-K, Commission File No. S-10065 for the fiscal year ended March 31,
1995 (the "Company's 1995 Form 10-K").
10.54* Holding's 401(a)(17) Supplemental Contribution Plan, effective April 1,
1994. Incorporated by reference to the Company's 1995 Form 10-K.
10.55* Holding's Deferred Compensation Plan, effective April 1, 1994.
Incorporated by reference to the Company's 1995 Form 10-K.
10.56* Fifth Amendment dated as of August 17, 1995 to the revolving credit
facility among the Company, Holding, certain financial institutions
named therein and BT Commercial Corporation and Chemical Bank, as
agents. Incorporated by reference to the Company's Quarterly Report
on Form 10-Q, Commission File No. S-10065 for the fiscal quarter ended
September 29, 1995.
10.57* Form of Sixth Amendment dated as of January 30, 1996 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and Chemical
Bank, as agents. Incorporated by reference to the Company's Quarterly
Report on Form 10-Q, Commission File No. S-10065 for the fiscal quarter
ended January 3, 1996.
10.58** Form of Seventh Amendment dated as of June 20, 1996 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and Chemical
Bank, as agents.
12.1** Statement of Computation of Number of Times Fixed Charges Earned.
22.1** Listing of the Company's subsidiaries.
27** Financial Data Schedule
(b) Reports on Form 8-K.
None
_______________
*Previously filed.
**Included in this filing.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brea, State of
California, on the 28th day of June, 1996.
EARLE M. JORGENSEN COMPANY
By /s/ Charles P. Gallopo
----------------------
Charles P. Gallopo
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- -----
<S> <C> <C>
- ----------------------------- Director and Chairman Emeritus
Earle M. Jorgensen
/s/David M. Roderick
- ----------------------------- Director and Chairman June 28th, 1996
David M. Roderick
/s/Neven C. Hulsey President, Chief Executive Officer
- ----------------------------- and Director (Principal Executive June 28th, 1996
Neven C. Hulsey Officer)
/s/Lonnie R. Terry Executive Vice President, Chief
- ----------------------------- Operating Officer and Director June 28th, 1996
Lonnie R. Terry
/s/Charles P. Gallopo Vice President and Chief Financial
- ----------------------------- Officer (Principal Financial and June 28th, 1996
Charles P. Gallopo Accounting Officer)
/s/Joseph S. Schuchert
- ----------------------------- Director June 28th, 1996
Joseph S. Schuchert
/s/Frank Nickell
- ----------------------------- Director June 28th, 1996
Frank Nickell
/s/William A. Marquard
- ----------------------------- Director June 28th, 1996
William A. Marquard
/s/John Rutledge
- ----------------------------- Director June 28th, 1996
Dr. John Rutledge
</TABLE>
30
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
31
<PAGE>
FINANCIAL STATEMENTS
PAGE
----
EARLE M. JORGENSEN COMPANY:
Report of Independent Auditors F-2
Consolidated Balance Sheets at March 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholder's Equity for the
years ended March 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995, 1994 F-6
Notes to Consolidated Financial Statements F-8
F-1
32
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholder
Earle M. Jorgensen Company
We have audited the accompanying consolidated balance sheets of Earle M.
Jorgensen Company as of March 31, 1996 and 1995, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of
the three years in the period ended March 31, 1996. Our audits also included
the financial statement schedule listed in the index at item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Earle M.
Jorgensen Company at March 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ERNST & YOUNG LLP
Orange County, California
June 4, 1996, except for Note 5,
as to which the date is June 20, 1996
F-2
33
<PAGE>
Earle M. Jorgensen Company
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1996 1995
----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 22,823 $ 10,615
Accounts receivable, less allowance for doubtful accounts 113,664 155,091
Inventories 188,452 210,089
Other current assets 4,513 7,434
----------------------------------
Total current assets 329,452 383,229
----------------------------------
Net property, plant and equipment, at cost 134,259 139,705
Cash surrender value of life insurance policies 11,599 9,100
Debt issue costs, net of accumulated amortization 5,996 8,108
Other assets 3,605 3,406
----------------------------------
Total assets $484,911 $543,548
----------------------------------
----------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $112,551 $ 99,176
Other accrued liabilities 31,002 25,136
Deferred income taxes 18,362 14,169
Current portion of long-term debt 950 1,010
----------------------------------
Total current liabilities 162,865 139,491
----------------------------------
Long-term debt 279,002 295,264
Deferred income taxes 14,448 28,291
Other long-term liabilities 3,455 4,102
Commitments and contingencies
Stockholder's equity
Preferred stock, $.01 par value; 200 shares authorized
and unissued --- ---
Common stock, $.01 par value; 2,800 share authorized;
128 shares issued and outstanding --- ---
Capital in excess of par value 173,523 192,411
Foreign currency translation adjustment (5,748) (2,688)
Accumulated deficit (142,634) (113,323)
----------------------------------
Total stockholder's equity 25,141 76,400
----------------------------------
Total liabilities and stockholder's equity $484,911 $543,548
----------------------------------
----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
34
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Operations
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $1,025,659 $1,022,884 $843,380
Cost of sales, before inventory adjustment 737,756 716,975 593,622
------------------------------------
287,903 305,909 249,758
Inventory adjustment (26,882) -- --
------------------------------------
Gross profit 261,021 305,909 249,758
Expenses:
Warehouse and delivery 129,966 125,683 111,490
Selling 41,794 44,627 37,824
General and administrative 73,859 76,874 73,436
Restructuring and consolidation
expenses 12,776 715 1,282
------------------------------------
Total expenses 258,395 247,899 224,032
------------------------------------
Income from operations 2,626 58,010 25,726
Interest expense, net 40,874 34,604 30,032
------------------------------------
Income (loss) before income taxes (38,248) 23,406 (4,306)
Income tax provision (benefit) (8,937) 3,487 --
------------------------------------
Net income (loss) $ (29,311) $ 19,919 $ (4,306)
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
35
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Stockholder's Equity
(dollars in thousands)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK CAPITAL CURRENCY
--------------- IN EXCESS TRANSLATION ACCUMULATED
SHARES AMOUNT OF PAR VALUE ADJUSTMENT DEFICIT TOTAL
------ ------ ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 128 $ -- $188,897 $ (329) $(128,936) $ 59,632
Dividend to parent -- -- (5,898) -- -- (5,898)
Capitalization of ESOP
contribution, net -- -- 5,372 -- -- 5,372
Foreign currency translation
adjustment -- -- -- (92) -- (92)
Net loss -- -- -- -- (4,306) (4,306)
------ ------ ------------ ----------- ----------- ---------
Balance at March 31, 1994 128 -- 188,371 (421) (133,242) 54,708
Dividend to parent -- -- (3,654) -- -- (3,654)
Capitalization of ESOP
contribution, net -- -- 7,694 -- -- 7,694
Foreign currency translation
adjustment -- -- -- (2,267) -- (2,267)
Net income -- -- -- -- 19,919 19,919
------ ------ ------------ ----------- ----------- ---------
Balance at March 31, 1995 128 -- 192,411 (2,688) (113,323) 76,400
Dividend to parent -- -- (22,289) -- -- (22,289)
Capitalization of ESOP
contribution, net -- -- 3,401 -- -- 3,401
Foreign currency translation
adjustment -- -- -- (3,060) -- (3,060)
Net loss -- -- -- -- (29,311) (29,311)
------ ------ ------------ ----------- ----------- ---------
Balance at March 31, 1996 128 $ -- $173,523 $(5,748) $(142,634) $ 25,141
------ ------ ------------ ----------- ----------- ---------
------ ------ ------------ ----------- ----------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
36
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (29,311) $ 19,919 $ (4,306)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Inventory adjustment 26,882 -- --
Asset write-downs 9,205 -- --
Depreciation and amortization 12,022 14,135 14,680
Amortization of debt issue costs and discount on
senior notes included in interest expense 2,279 2,253 2,040
Accrued postretirement benefits (256) (360) (268)
ESOP expense contributed to capital 3,401 7,694 6,005
Deferred income taxes (9,650) 2,060 --
Gain on sale of property, plant and equipment (559) (665) (387)
Debt forgiveness charge from pre-payment of note
receivable -- 51 530
Provision for bad debts 1,362 1,456 1,414
Increase in cash surrender value of life insurance
over premiums paid (1,894) (1,381) (1,909)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 40,065 (42,384) (11,842)
Increase in inventories, excluding inventory
adjustment (5,245) (27,524) (17,554)
Decrease (increase) in other current assets 2,921 (2,489) (490)
Increase in accounts payable and accrued liabilities 19,241 14,360 10,690
Other (3,405) (2,326) (2,843)
---------- ---------- ----------
Net cash provided by (used in) operating activities 67,058 (15,201) (4,240)
---------- ---------- ----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (16,658) (16,177) (12,371)
Proceeds from the sale of property, plant and equipment 1,158 3,851 10,731
Proceeds from note receivable -- 1,695 6,395
Premiums paid on life insurance policies (1,530) (2,661) (4,265)
Proceeds from redemption of life insurance policies 925 2,940 --
---------- ---------- ----------
Net cash provided by (used in) investing activities (16,105) (10,352) 490
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
37
<PAGE>
Earle M. Jorgensen Company
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving loan
agreements $ (19,747) $ (4,309) $ 21,927
Borrowings on cash surrender value of life insurance
policies -- 25,331 --
Proceeds from issuance of industrial revenue bonds -- 4,500 4,300
Other borrowings (payments), net 3,291 1,811 (5,365)
Increase in debt issue costs -- (295) (263)
Cash dividend to Parent (22,289) (3,654) (5,898)
---------- ---------- ----------
Net cash provided by (used in) financing activities (38,745) 23,384 14,701
---------- ---------- ----------
Net increase (decrease) in cash 12,208 (2,169) 10,951
Cash at beginning of period 10,615 12,784 1,833
---------- ---------- ----------
Cash at end of period $ 22,823 $ 10,615 $ 12,784
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
38
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements
March 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION--The Company became a wholly-owned
subsidiary of Earle M. Jorgensen Holding Company, Inc. (the Parent) as the
result of a series of business combinations and mergers effective April 1,
1990.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries including Kilsby Jorgensen
Steel and Aluminium Ltd. (EMJ (UK)) (formerly Kilsby-Roberts Ltd.), Kilsby
Jorgensen Steel & Aluminum S.A. de C.V. (EMJ (Mexico)), and Earle M.
Jorgensen (Canada) Inc. (EMJ (Canada)) (formerly Kilsby Jorgensen Steel and
Aluminum Inc.) operating in the United Kingdom, Mexico and Canada,
respectively. Net losses from these foreign operations totaled $3,454,000 in
1994 and $114,000 in 1995. In fiscal 1996, foreign operations generated
$357,000 of net income. All significant intercompany accounts and
transactions have been eliminated.
Certain amounts reported in prior years have been reclassified to conform to
the 1996 presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION--The Company recognizes revenue when products are
shipped.
RESTRUCTURING AND CONSOLIDATIONS--In September 1995, the Company implemented
a plan designed to enhance operating productivity and efficiencies. As a
result, a restructuring charge of $12,776,000 was recorded to cover the costs
associated with a 7% reduction in the Company's workforce ($3,571,000) and
included write-downs or write-offs of certain property, plant and equipment
($9,205,000), a portion of which ($3,330,000) was the excess purchase price
or "step-up" allocated to the net book values of such assets at the time of
the Company's merger in 1990.
Commencing in fiscal 1993, the Company implemented a consolidation program
to combine certain service centers serving the same market. The Company
recorded charges of $715,000 and $1,282,000 during fiscal 1995 and 1994,
respectively, related to the physical relocation of employees, equipment,
inventory, severance costs and costs to dispose of facilities.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is recorded at
cost. Additions, renewals and betterments are capitalized; maintenance and
repairs which do not extend useful lives are expensed as incurred. Gains or
losses from disposals are reflected in income and the related costs and
accumulated depreciation are removed from the accounts. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of 10 to 40 years for buildings and improvements and 3 to 20
years for machinery and equipment. Leasehold improvements are amortized over
the terms of the respective leases.
Effective July 1, 1995, the Company extended the useful lives for the step-up
of property, plant and equipment resulting from the 1990 merger through
fiscal 2008. As a result, amortization expense in fiscal 1996 was reduced
approximately $3.3 million on a comparative basis, and such reduced
amortization will continue through each of the fiscal years ending 1997
through 2000.
F-8
39
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK--The Company sells the majority of its products
throughout the United States, Canada, Mexico and Europe. Sales to the
Company's recurring customers are generally made on open account terms while
sales to occasional customers are made on a C.O.D. basis. The Company
performs periodic credit evaluations of its ongoing customers and generally
does not require collateral. The Company establishes an allowance for
potential credit losses based upon factors surrounding the credit risk for
specific customers, historical trends and other information; such losses have
been within management's expectations. The Company's receivable allowances
at March 31, 1996 and 1995 were $1,017,000 and $1,146,000, respectively.
Management believes there are no concentrations of credit risk as of March
31, 1996.
DEBT ISSUE COST--Debt issue costs are deferred and amortized to interest
expense over the life of the underlying indebtedness, ranging from five to
seven years as of March 31, 1996. The amortization of debt issue costs
aggregated $2,112,000, $2,117,000 and $2,040,000 for the years ended March
31, 1996, 1995 and 1994, respectively. Accumulated amortization of debt
issue costs was $6,436,000 and $4,324,000 at March 31, 1996 and 1995,
respectively.
FOREIGN CURRENCY TRANSLATION--The assets and liabilities of the foreign
subsidiaries have been translated into U.S. dollars using the year-end
exchange rates. Revenues, costs and expenses have been translated at average
exchange rates for each year. Adjustments resulting from translation of
foreign currency financial statements are reflected as a separate component
of stockholder's equity. Exchange gains and losses from foreign currency
transactions are included in operations in the period in which they occur.
CASH AND STATEMENTS OF CASH FLOWS--Cash represents disbursements and deposits
not yet funded by or applied to the Company's Revolving Credit Facility as of
a balance sheet date. The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
For the years ended March 31, 1996, 1995 and 1994 cash paid for interest on
borrowings was $37,310,000, $31,592,000 and $26,457,000, and cash paid for
income taxes was $677,000, $1,056,000 and $484,000, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In fiscal 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations or are expected to be disposed of, when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets. There were no impairment losses
recorded in fiscal 1996 as the result of adopting SFAS No. 121.
2. INVENTORIES
Inventories represent materials held for sale at the Company's service center
locations. Substantially all inventories are valued at the lower of cost
(using the last-in, first-out (LIFO) method) or market. If the first-in,
first-out (FIFO) method of inventory valuation had been used by the Company,
inventories would have been higher by $5,187,000 at March 31, 1996 and lower
by $4,523,000 at March 31, 1995.
In February 1995, the Company began the implementation of a new enhanced
inventory and management information system. To ensure the accuracy of the
conversion of the perpetual inventory records, the Company performed physical
inventory counts and other procedures at all of its locations during the
second, third and fourth quarters of fiscal 1996. The Company identified a
difference between the perpetual inventory records and the general ledger
amounting to $26.9 million and, accordingly, has recorded a charge to cost
of sales for this difference in the fourth quarter of fiscal 1996.
F-9
40
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
3. NET PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation at March 31, 1996
and 1995 consisted of the following:
--------------------------
1996 1995
------------ ------------
Land $ 34,178,000 $ 38,972,000
Buildings and improvements 51,895,000 45,742,000
Machinery and equipment 103,012,000 103,182,000
------------ ------------
189,085,000 187,896,000
Less accumulated depreciation 54,826,000 48,191,000
------------ ------------
Net property, plant and equipment $134,259,000 $139,705,000
------------ ------------
------------ ------------
4. CASH SURRENDER VALUE OF LIFE INSURANCE
The Company is the owner and beneficiary of life insurance policies on all
former nonunion employees of a predecessor company including certain current
employees of the Company and its Parent. The Company is also the owner and
beneficiary of key man life insurance policies on certain current and former
executives of the Company and predecessor companies. These policies are
designed to provide cash to the Company to repurchase shares held by
employees in the ESOP and shares held individually by employees upon the
termination of their employment.
The Company uses borrowings from the cash surrender value of certain policies
to pay a portion of the premiums and accrued interest on those policies
and to fund working capital needs. As of March 31, 1996, approximately
$4,300,000 was available for future borrowings.
SURRENDER VALUE LOANS NET CASH
BEFORE LOANS OUTSTANDING SURRENDER VALUE
---------------------------------------------
BALANCE AT MARCH 31, 1996 $77,527,000 $65,928,000 $11,599,000
Balance at March 31, 1995 64,691,000 55,591,000 9,100,000
Interest expense on outstanding loans in fiscal 1996, 1995 and 1994 totaled
$7,173,000, $4,709,000 and $2,284,000, respectively.
F-10
41
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
Long-term debt at March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revolving loans due March 3, 1998 $105,862,000 $125,609,000
10-3/4% Senior Notes due March 1, 2000 154,473,000 154,339,000
Industrial Development Revenue Bonds:
Payable in annual installments of $500,000
commencing June 1, 1998, interest at 9% 4,000,000 4,000,000
Payable in annual installments of $625,000,
interest at 68% of prime -- 210,000
Payable in annual installments of $440,000,
interest at 65% of prime -- 440,000
Payable in annual installments of $715,000
commencing December 1, 2004, interest at 5.25% 4,300,000 4,300,000
Payable in annual installments of $900,000
commencing September 1, 2000, interest at 8.5% 4,500,000 4,500,000
Purchase money financing, payable in monthly
installments of principal of $79,000 plus interest
through July, 2003; interest at one month
LIBOR plus 3.25% 6,817,000 2,876,000
------------ ------------
279,952,000 296,274,000
Less current portion 950,000 1,010,000
------------ ------------
$279,002,000 $295,264,000
------------ ------------
------------ ------------
</TABLE>
Aggregate maturities of long-term debt are as follows: $950,000 in 1997;
$106,812,000 in 1998; $1,450,000 in 1999; $155,923,000 in 2000; $2,350,000 in
2001; and $12,467,000 thereafter.
The fair value of the Company's Senior Notes at March 31, 1996 was
$151,187,000 based on the quoted market price as of that date. The carrying
values of all other long-term debt and other financial instruments at March
31, 1996 approximate fair value.
10-3/4% SENIOR NOTES
In March 1993, the Company refinanced its revolving and term loans by issuing
$155 million of 10-3/4% Senior Notes and entering into a new $175 million
revolving credit facility (Credit Agreement). The 10-3/4% Senior Notes were
sold at 99.392% of face value resulting in a discount of $942,000 and an
effective yield to maturity of 10-7/8%.
CREDIT AGREEMENT
The revolving loans, which allow maximum borrowings of $175 million,
including letters of credit ($2.6 million outstanding at March 31, 1996),
bear interest at a base rate (generally defined as the bank's prime lending
rate plus 1-1/2% or LIBOR plus 2.75%). At March 31, 1996, the bank's prime
lending rate was 8.25% and LIBOR was 5.47%. In addition, borrowings under
the revolving loans are limited to an amount equal to 85% of eligible trade
receivables plus 46% of eligible inventories (as defined). Unused available
borrowings under the revolving loans totaled $63.9 million at March 31, 1996.
The revolving loans mature on March 3, 1998. Borrowings under the revolving
loans are secured by a lien on all domestic inventory and accounts receivable
of the Company.
F-11
42
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
CREDIT AGREEMENT (CONTINUED)
Under the Credit Agreement the Company is obligated to pay certain fees
including an unused commitment fee of 0.5%, payable quarterly in arrears, and
letter of credit fees of 2-3/4% per annum of the maximum amount available to
be drawn under each letter of credit, payable quarterly in arrears, plus
issuance, fronting, amendment and other standard fees. The Company paid loan
commitment fees totaling $218,000 in 1996, $193,000 in 1995 and $128,000 in
1994.
The Credit Agreement contains financial covenants in respect of maintenance
of minimum consolidated net worth, working capital and fixed charge coverage
ratio (as defined). The Credit Agreement also limits, among other things, the
incurrence of liens and other indebtedness, mergers, consolidations, the sale
of assets, annual capital expenditures, advances, investments and loans by
the Company and its subsidiaries, dividends and other restricted payments by
the Company and its subsidiaries in respect to their capital stock, and
certain transactions with affiliates. On June 20, 1996, the Company
requested and received amendments to the covenants relating to consolidated
net worth and fixed charge ratio.
OTHER
The Company issues industrial revenue bonds in connection with significant
facility improvements or construction projects. The purchase money financing
of $6,817,000 represents the net borrowings under a loan agreement entered
into on March 27, 1995 which provided up to $7,500,000 for the expansion or
acquisition of facilities and purchase of equipment. These obligations are
secured by the underlying assets acquired or constructed with the proceeds
from such agreements.
6. INCOME TAXES
The Company is included in the consolidated tax returns of the Parent.
Pursuant to an agreement with the Parent, the Company calculates its tax
provision as though it filed separate returns.
The Company records deferred taxes based upon differences between the
financial statement and tax basis of assets and liabilities. Deferred taxes
are also recorded for the future benefit of tax loss and tax credit
carryforwards. Consistent with SFAS No. 109, "Accounting for Income Taxes" a
valuation allowance has been recognized for certain deferred tax assets,
which management believes are not likely to be realized.
At March 31, 1996, the Company has net operating loss carryforwards of
$70,000,000 for Federal income tax purposes. These carryforwards resulted
from the Company's losses during 1993 and 1996, and expire in years 2009 and
2011, respectively. The ultimate realization of the benefits of these loss
carryforwards is dependent on future profitable operations. In addition, use
of the Company's net operation loss carryforwards and other tax attributes
may be substantially limited if a cumulative change in ownership of more than
50% occurs within any three year period subsequent to a loss year.
At March 31, 1996, the Company had foreign loss carryforwards of
approximately $4,946,000 for income tax which are available to offset future
income indefinitely and loss carryforwards of approximately $2,903,000 which
have certain limitations. Deferred tax assets have not been recognized for
the loss carryforwards of the Company's foreign subsidiaries.
F-12
43
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The Company's federal income tax returns for the years ended 1993 and 1994
are currently under examination by the Internal Revenue Service (the
"Service"). During fiscal 1996, the Service concluded its examination of the
Company's income tax returns for the years ended 1991 and 1992 with no
material adjustments.
Significant components of the Company's deferred income tax assets and
liabilities at March 31, 1996 and 1995 are as follows:
1996 1995
------------ -----------
Deferred tax liabilities:
Tax over book depreciation $ 12,970,000 $12,200,000
Purchase price adjustments 45,380,000 48,460,000
------------ -----------
Total deferred tax liabilities 58,350,000 60,660,000
------------ -----------
Deferred tax assets:
Net operating loss carryforwards 27,550,000 16,000,000
Other 7,990,000 6,300,000
Valuation allowance for deferred tax assets (10,000,000) (4,100,000)
------------ -----------
Net deferred tax assets 25,540,000 18,200,000
------------ -----------
Net deferred tax liabilities $ 32,810,000 $42,460,000
------------ -----------
------------ -----------
Income before taxes consists primarily of income (loss) from the Company's
domestic operations and also includes pre-tax income (loss) of $359,000,
$(114,000) and $(3,454,000) from the Company's foreign operations for fiscal
1996, 1995 and 1994, respectively.
Significant components of the provision for income taxes attributable to
continuing operations for the years ended March 31, 1996, 1995 and 1994 are
as follows:
1996 1995 1994
------------ ----------- ----------
Current:
Federal $ -- $ 516,000 $ --
State 676,000 991,000 --
Foreign -- -- --
------------ ----------- ----------
Total current 676,000 1,507,000 --
------------ ----------- ----------
Deferred:
Federal (12,240,000) 3,079,000 --
State (3,235,000) 1,101,000 --
Foreign -- -- --
Valuation allowances 5,862,000 (2,200,000) --
------------ ----------- ----------
Total deferred (9,613,000) 1,980,000 --
------------ ----------- ----------
$ (8,937,000) $ 3,487,000 $ --
------------ ----------- ----------
------------ ----------- ----------
F-13
44
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The reconciliation of the income tax provision (benefit) differs from that
which would result from applying the U.S. statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Expected tax (benefit) at statutory rate $(13,387,000) $ 8,192,000 $(1,507,000)
State tax expense (benefit), net of Federal taxes (1,876,000) 942,000 (224,000)
Net increase in cash surrender values of life insurance (1,607,000) (1,306,000) (574,000)
State franchise and capital taxes 423,000 421,000 412,000
Effect of Internal Revenue Service examination 792,000 -- --
Benefit of foreign tax loss carryforward (126,000) -- --
Financial statement net operating loss without current tax
benefit -- -- 1,911,000
Tax benefit of credit carryovers -- (846,000) --
Change in valuation reserve 5,862,000 (2,200,000) --
Other 982,000 (1,716,000) (18,000)
------------ ----------- -----------
Income tax (benefit) expense $ (8,937,000) $ 3,487,000 $ --
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The change of $5,862,000 in the valuation allowance for deferred tax assets
was due to the uncertainty of realizing the benefit during the tax loss
carryforward period.
7. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company and its Parent have an Employee Stock Ownership Plan (ESOP) which
covers nonunion employees of the Company who meet certain service
requirements. The cost of the ESOP is borne by the Company through annual
contributions to an Employee Stock Ownership Trust (ESOT) in amounts
determined by the Plan Administrative Committee (the Committee).
Contributions may be made in cash or shares of the Parent's stock as the
Parent's Board of Directors may from time to time determine. Participants
vest at a rate of 20% per year of service and become fully vested upon
retirement, disability or death. Upon the occurrence of a participant's
termination (as defined), retirement, disability, or death, the ESOP is
required, by the terms of the ESOP, to either distribute the vested balance
in stock or repurchase the vested balance (as determined by the Committee).
If stock is distributed, it is accompanied by a put option to the Parent
under terms defined in the ESOP. Shares of the Parent's Series A and B
preferred and common stock held by the ESOP totaled 113,246, 17,957
and 3,089,774 at March 31, 1996, respectively. Contributions payable to the
ESOT totaled $3,401,000, $7,694,000 and $6,005,000 in 1996, 1995 and 1994,
which represents 5% of eligible compensation in 1996, 11% in 1995 and 10% in
1994. The contribution for fiscal 1996 will be in the form of equity. The
contribution for fiscal 1995 and 1994 was made in the form of common stock.
Although the Parent has not expressed any intent to terminate the plan, it
has the right to do so at any time. In the event of such termination,
participants become fully vested to the extent of the balances in their
separate accounts and come under the put options as previously discussed.
F-14
45
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND POSTRETIREMENT BENEFIT PLANS
The Company historically maintained noncontributory defined benefit pension
plans covering substantially all former employees of a predecessor company
not covered by union plans. The Hourly Plan and Salaried Plan provide
benefits on years of service and the employee's compensation during the last
ten years of employment. Net pension expense (income) for the Hourly Plan for
the years ended March 31 1996, 1995 and 1994 was $500,000, $286,000, and
($27,000), respectively. There was no pension expense or income for the
Salaried Plan for the years ended March 31, 1996, 1995 and 1994.
In September 1991, the Company's Board of Directors (Board) approved a
restructuring of the Company's benefit package. In March 1992, the Salaried
Plan was amended to set the benefits obligation equal to the overfunded value
of the plan assets and in November 1992, such benefits were distributed to
participants in settlement of the Salaried Plan obligations. In June 1993,
the Company transferred the obligations and assets related to the non-union
participants of the Hourly Plan to a newly created plan and amended the
Plan's provisions to set the benefit obligation equal to the overfunded value
of the plan assets. In November 1993, benefits totaling $7.2 million were
paid to participants in settlement of these obligations. The assets of the
Hourly Plan for union participants are held in trust and consist of bonds,
equity securities and insurance contracts and the Company contributes at
least the minimum required annually under ERISA.
The Company maintains an unfunded Supplemental Plan which provides benefits
to highly compensated employees whose basic pension plan benefit is limited
by the Internal Revenue Code. Net pension expense for the Supplemental Plan
for the years ended March 31, 1996, 1995 and 1994 was $67,000, $228,000 and
$90,000, respectively. This plan is being dissolved since its benefits
related to those provided by the Salaried Plan.
In addition to the Company's defined benefit pension plans, the Company
sponsors a defined benefit health care plan that provides postretirement
medical and dental benefits to eligible full time employees. The plan is
contributory, with retiree contributions adjusted annually, and contains
other cost-sharing features such as deductibles and coinsurance. The
accounting for the plan anticipates future cost-sharing changes to the
written plan that are consistent with the Company's expressed intent to
increase the retiree contribution rate annually to compensate for the
expected health care trend rate. The Company's policy is to fund the cost of
medical benefits under this plan as they are submitted for reimbursement.
Gains and losses realized from the remeasurement of the plan's liability are
amortized to income over 3 years.
Information as of March 31, 1996, regarding the Hourly Plan, Supplemental Plan,
and Postretirement Benefit Plan follows:
<TABLE>
<CAPTION>
HOURLY SUPPLEMENTAL POSTRETIREMENT
PLAN PLAN PLAN
----------- ------------ --------------
<S> <C> <C> <C>
Projected benefit obligation $(8,498,000) $(774,000) $(2,779,000)
Fair value of plan assets 8,094,000 -- --
Prepaid (accrued) pension costs 244,000 (751,000) (3,433,000)
Discount rate 7.25% 7.25% 7.25%
Expected long-term rate of return on assets 8.00% -- --
Rate of increase in compensation levels 5.00% 5.00% --
</TABLE>
The discount rate, expected long-term rate of return on assets, and rate of
increase in compensation levels used to calculate the expense under these
plans for fiscal 1996, 1995 and 1994 were 8.25%, 8.00% and 5.00%;. 7.25%,
8.00% and 5.00% and 8.00%, 8.00% and 5.00%, respectively.
F-15
46
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION AND POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The health care cost trend rate used in the calculation of cost (income)
related to the postretirement health care plans was 9.5% grading down ratably
to 5.5% by March 2004. A 1% increase in the assumed health care cost trend
rate would have increased postretirement costs in fiscal 1996 by $52,000.
The health care cost trend rate used to calculate the accumulated
postretirement benefit obligation was 9.5% for 1996, grading down ratably to
5.5% by March 2004. The health care cost trend rate assumption can have a
significant effect on the amounts reported. A 1% increase in the assumed
health care cost trend rate in each year would increase the projected benefit
obligation as of March 31, 1996 by $364,000.
In accordance with union agreements, the Company also contributes to
multiemployer defined benefit retirement plans covering substantially all
union employees of the Company. Expenses incurred in connection with these
plans totaled $1,771,000, $1,496,000 and $1,075,000 in 1996, 1995 and 1994,
respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases, under several agreements with varying terms, certain
office and warehouse facilities, equipment and vehicles. Rent expense
totaled $17,844,000, $16,636,000 and $16,053,000 for the years ended March
31, 1996, 1995 and 1994, respectively. The portion of rent expense paid to
related parties totaled $443,000, $762,000 and $1,800,000 for the years
ended March 31, 1996, 1995 and 1994, respectively. Minimum rentals of certain
leases escalate from time to time based on certain indices. At March 31,
1996 the Company was obligated under noncancelable operating leases for
future minimum rentals as follows:
PAYABLE TO
PAYABLE TO RELATED
OTHERS PARTIES
----------- ----------
Fiscal year:
1997 $14,125,000 $489,000
1998 12,140,000 514,000
1999 9,910,000 514,000
2000 7,750,000 514,000
2001 6,186,000 514,000
Thereafter 21,775,000 386,000
OTHER COMMITMENTS
In connection with the 1990 merger, the Company agreed to pay Kelso &
Company, Inc. (Kelso), affiliates of which own the majority of Parent's
common stock, an annual fee of $1.25 million each year for financial advisory
services and to reimburse it for out-of-pocket expenses incurred in
connection with rendering such services. The Company also agreed to
indemnify Kelso and its affiliates against certain claims, losses, damages
and liabilities and expenses which may arise in connection with the merger.
Fees and expenses paid to Kelso in connection with these agreements totaled
$1,404,000, $1,414,000 and $1,376,000 during the years ended March 31, 1996,
1995 and 1994, respectively.
F-16
47
<PAGE>
Earle M. Jorgensen Company
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL CONTINGENCIES
The Company is currently involved with investigation and/or remediation
activities at several current and formerly-owned facilities where soil
and/or groundwater contamination is present or alleged. As of March 31,
1996, reserves totaling $1.7 million have been established to cover those
future environmental costs which are known or can be reasonably estimated
based on findings and recommendations from independent environmental
consultants. In addition to the matters specified below, the Company is
involved with several smaller clean up efforts for which it has reserved
$25,000.
ALAMEDA STREET (LOS ANGELES). Remediation was completed in fiscal 1996 and
the Company has received final approval from the County of Los Angeles
authorities. Total costs incurred by the Company in connection with this
project were $3.4 million, of which $1.7 million has been capitalized to the
property. The Company was reimbursed $1.5 million of such costs by the
lessee in accordance with a cost sharing agreement.
BRISTOL (PENNSYLVANIA). A remedial action plan was submitted and approved by
the Pennsylvania regulatory agency. The Company has an agreement with the
former owner of the property who has agreed to pay 75% of certain remediation
costs up to $3.0 million. The project's cost to date has been $3.8 million,
which has been paid by the Company. Estimated remaining costs approximate
$350,000, which amount has been reserved at March 31, 1996. The former
owner's share of total remediation costs incurred or to be incurred is $1.5
million of which $200,000 has been paid and $1.3 million is recorded as a
receivable as of March 31, 1996.
FORGE (SEATTLE/KENT, WA). The Company has indemnified the purchasers of its
former Forge facility for remediation of certain conditions at the facility
and at an off-site disposal site existing at the date of purchase. In
addition, the Company indemnified such purchasers for up to $2.5 million of
remediation and investigation costs associated with or related to the
environmental conditions existing at the time of sale and discovered after
the closing and for which claims were made prior to July 2, 1995. No such
claims were made. As of March 31, 1996, the remediation and investigation
costs of the Forge facility have totaled $1.9 million with an estimated
$1,025,000 needed for completion. As of March 31, 1996, remediation and
investigation costs at the disposal site have totaled $303,000 with a
remaining $65,000 estimated for completion of the cleanup. The Company has
reserved $1,090,000 at March 31, 1996 for such remaining remediation costs.
UNION (NEW JERSEY). During fiscal 1994, the Company was notified by the
current owner that it has potential responsibility for the environmental
contamination of a property formerly owned by a subsidiary and disposed of by
such subsidiary prior to its acquisition by the Company. The prior owner of
such subsidiary has also been notified of its potential responsibility. At
this time, the Company does not have sufficient information regarding the
site evaluation and other relevant factors to estimate its liability, if any.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all
pending environmental matters, management believes that, based upon all
currently available information, the resolution of such environmental matters
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity. The possibility exists, however, that
new environmental legislation and/or environmental regulations may be
adopted, or other environmental conditions may be found to exist, that many
require expenditures not currently anticipated and that may be material.
OTHER
The Company is involved in litigation in the normal course of business. In
the opinion of management, these matters will be resolved without a material
impact on the Company's financial position or results of operations.
F-17
48
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule Sequentially
Number Description of Schedules* Numbered Page
------ ------------------------- -------------
EARLE M. JORGENSEN COMPANY:
Schedule II Valuation and Qualifying Accounts and Reserves S-2
_______________
* All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related notes.
S-1
49
<PAGE>
EARLE M. JORGENSEN COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------------- ------------------- ------------------ ----------------------- ----------
BALANCE AT CHARGES TO BAD DEBTS CHARGED BALANCE AT
DESCRIPTION BEGINNING OF PERIOD COSTS AND EXPENSES OFF (NET OF RECOVERIES) END OF PERIOD
--------------------------------- ------------------- ------------------ ----------------------- -------------
<S> <C> <C> <C> <C>
Year ended March 31, 1996
Allowance for doubtful accounts.... $1,146,000 $1,362,000 $(1,491,000) $1,017,000
Year ended March 31, 1995
Allowance for doubtful accounts.... 972,000 1,456,000 (1,282,000) 1,146,000
Year ended March 31, 1994
Allowance for doubtful accounts.... 902,000 1,414,000 (1,344,000) 972,000
</TABLE>
S-2
50
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
------ ---------------------- -------------
<S> <C> <C>
EARLE M. JORGENSEN COMPANY:
10.58 Form of Seventh Amendment dated as of June 20, 1996 to the revolving
credit facility among the Company, Holding, certain financial
institutions named therein and BT Commercial Corporation and
Chemical Bank, as agents.
12.1 Statement of Computation of Number of Times Fixed Charges Earned.
22.1 Listing of the Company's Subsidiaries
27 Financial Data Schedule
</TABLE>
51
<PAGE>
SEVENTH AMENDMENT
SEVENTH AMENDMENT (this "Amendment"), dated as of June 20, 1996, among
EARLE M. JORGENSEN HOLDING COMPANY, INC., a Delaware corporation ("Holding"),
EARLE M. JORGENSEN COMPANY, a Delaware corporation (the "Borrower"), the
financial institutions party to the Credit Agreement referred to below (the
"Lenders") and BT COMMERCIAL CORPORATION and CHEMICAL BANK, as Agents. All
capitalized terms used herein and not otherwise defined herein shall have the
respective meanings provided such terms in the Credit Agreement referred to
below.
W I T N E S S E T H :
WHEREAS, Holding, the Borrower, the Agents and the Lenders are parties
to a Credit Agreement, dated as of March 3, 1993, as amended, modified and
supplemented to the date hereof (as so amended, modified and supplemented,
the "Credit Agreement"); and
WHEREAS, the parties to the Credit Agreement wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 1.1 of the Credit Agreement is hereby amended by (a) deleting
the definitions "EBITDA", "Fixed Charges" and "Interest Expense" contained
therein and (b) inserting the following new definitions in lieu thereof:
"EBITDA shall mean, in any fiscal period, the Consolidated Net
Income (other than extraordinary items of the Borrower and its
Subsidiaries for such period but including any Inventory adjustments),
(i) plus the amount of all Interest Expense, income tax expense,
depreciation and amortization, including amortization of any goodwill or
other intangibles for such period, (ii) less gains and plus losses
attributable to any fixed asset sales, (iii) plus or minus (as the case
may be) any other non-cash charges (other than any reserve established
by the Borrower against Accounts and/or Inventory) which have been
subtracted or added, as the case may be, in calculating Consolidated Net
Income for such period, all determined in accordance with GAAP,
(iv) plus or minus (as the
<PAGE>
case may be) any decrease or increase in the amount of deferred taxes as
shown on the balance sheet as of the end of such period since the first
day of the same period, (v) plus ESOP contributions during such period
which are paid in cash and subsequently invested in the capital stock of,
or otherwise contributed to, the Borrower, (vi) plus any LIFO expense
and (vii) minus any LIFO income.''
* * *
"FIXED CHARGES for any period (x) prior to and including the period
ended March 31, 1996, shall mean the sum of (i) Interest Expense and
amortization of debt discounts in respect of all Indebtedness for such
period (excluding the aggregate amount of fees paid by the Borrower to
the Banks on the Fourth Amendment Effective Date) and (ii) for purposes
of calculating the Fixed Charge Coverage Ratio as used in Section
8.6(b)(iv)(C), Dividends paid from Available Amounts calculated for such
period (other than Dividends the proceeds of which are promptly
contributed to the Borrower) plus the amount of the Dividend proposed to
be paid pursuant to Section 8.6(b)(iv)(C) at the time of the
calculation of the Fixed Charge Coverage Ratio for such purpose, and
(y) thereafter, shall mean the sum of (i) Interest Expense and (ii) for
purposes of calculating the Fixed Charged Coverage Ratio as used in
Section 8.6(b)(iv)(C), Dividends paid from Available Amounts calculated
for such period (other than Dividends the proceeds of which are promptly
contributed to the Borrower) plus the amount of the Dividend proposed to
be paid pursuant to Section 8.16(b)(iv)(C) at such time of the
calculation of such purpose.''
"INTEREST EXPENSE shall mean the aggregate consolidated interest
expense of the Borrower and its Subsidiaries in respect of Indebtedness
determined on a consolidated basis in accordance with GAAP, including,
without limitation, amortization of original issue discount on any
Indebtedness and of all fees payable in connection with the incurrence
of such Indebtedness (to the extent included in interest expense), the
interest portion of any deferred payment obligation and the interest
component of any Capital Lease Obligations, PROVIDED, that for the
purpose of clause (y) of the definition "Fixed Charges", amortization
of original issue discount and debt issuance costs on any Indebtedness
and all fees payable in connection with the incurrence of such
Indebtedness (to the extent included in interest expense) shall be
excluded in calculating Interest Expense.
- 2 -
<PAGE>
2. Section 8.9 of the Credit Agreement is hereby amended by (a)
deleting such section in its entirety and (b) inserting the following new
Section 8.9 in lieu thereof:
"8.9 CONSOLIDATED NET WORTH. The Borrower shall at all times
maintain a Consolidated Net Worth at any time during any period set
forth below of not less than the amount set forth opposite such
period set forth below:
Minimum
Consolidated
Period Net Worth
- ------ ------------
March 31, 1996 to June 27, 1996 $75,000,000
June 28, 1996 to September 26, 1996 75,000,000
September 27, 1996 to December 30, 1996 75,000,000
December 31, 1996 to March 30, 1997 75,000,000
March 31, 1997 to June 26, 1997 75,000,000
June 27, 1997 to September 25, 1997 77,000,000
September 26, 1997 to December 29, 1997 78,000,000
Each fiscal quarter occurring on and
after December 30, 1997 79,000,000".
3. Section 8.11 of the Credit Agreement is hereby amended by (a)
deleting such section in its entirety and (b) inserting the following new
Section 8.11 in lieu thereof:
"8.11 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit
the Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters (or, if shorter, the period beginning on April 1, 1996
and ending on the last day of each fiscal quarter of the Borrower
specified below), in each case taken as one accounting period, ended
on a date set forth below to be less than the ratio set forth
opposite such date:
Fiscal Quarter
Ended Ratio
-------------- -----
March 31, 1996 .55 to 1
June 28, 1996 1.00 to 1
September 27, 1996 1.00 to 1
December 31, 1996 1.05 to 1
March 31, 1997 1.10 to 1
June 27, 1997 1.10 to 1
- 3 -
<PAGE>
September 26, 1997 1.15 to 1
December 30, 1997 and each
quarter thereafter 1.20 to 1".
4. In order to induce the Lenders to enter into this Amendment, (i)
each Credit Party hereby makes each of the representations, warranties and
agreements contained in Section 6 of the Credit Agreement on the Seventh
Amendment Effective Date (as defined in Section 8), after giving effect to
this Amendment and (ii) the Borrower agrees to pay a fee to each Lender equal
to .25% of such Lender's Commitment, such fee to be payable on the Seventh
Amendment Effective Date.
5. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
6. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with Holding and the Payments Administrator.
7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF
THE STATE OF NEW YORK.
8. This Amendment shall become effective on the date (the "Seventh
Amendment Effective Date"), when Holding, the Borrower, the Agents, the
Issuing Bank and the Required Lenders shall have signed a copy hereof
(whether the same or different copies) and shall have delivered (including by
way of facsimile transmission) the same to the Payments Administrator at the
Payment Office.
-4-
<PAGE>
9. From and after the Seventh Amendment Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit
Agreement shall be deemed to be references to such Credit Agreement as
amended hereby.
* * *
-5-
<PAGE>
EXHIBIT 12.1
EARLE M. JORGENSEN COMPANY
STATEMENT OF COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
Year Ended March 31,
---------------------------------
1996 1995 1994
---------- ------- ---------
(Loss) income before income taxes $ (38,248) $23,406 $ (4,306)
Fixed charges to be added back
to earnings:
Interest and debt expense 41,153 34,971 30,467
Rentals (one-third of all
rent and related costs
charged to income) 5,948 5,545 5,351
--------- ------- -------
Total fixed charges 47,101 40,516 35,818
--------- ------- -------
Earnings before income taxes
and fixed charges $ 8,853 $63,922 $31,512
--------- ------- -------
--------- ------- -------
Ratio of earnings to fixed charges .19 1.58 .88
--------- ------- -------
--------- ------- -------
Amount by which earnings are
inadequate to cover fixed
charges $ (38,248) $ --- $(4,306)
--------- ------- -------
--------- ------- -------
53
<PAGE>
EXHIBIT 22.1
EARLE M. JORGENSEN COMPANY
LISTING OF THE COMPANY'S SUBSIDIARIES
<TABLE>
<CAPTION>
DATE STATE/
NATURE OF ACQUIRED % COUNTRY OF
NAME BUSINESS OR CREATED OWNED INCORPORATION
- ---- -------- ---------- ----- -------------
<S> <C> <C> <C> <C>
Kilsby Jorgensen Steel & Aluminum, S.A. de C.V. Metal 06/18/92 100% Mexico
Distributor
Kilsby Jorgensen Steel & Aluminium Ltd. Metal 05/03/90 100% United Kingdom
Distributor
Earle M. Jorgensen (Canada) Inc. (formerly Kilsby Metal
Jorgensen Steel & Aluminum Inc.) Distributor 11/13/90 100% 100%
Stainless Insurance Ltd. Captive 03/20/96 100% Bermuda
Insurance
</TABLE>
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS
OF AND FOR THE YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 22,823
<SECURITIES> 0
<RECEIVABLES> 114,681
<ALLOWANCES> 1,017
<INVENTORY> 188,452
<CURRENT-ASSETS> 329,452
<PP&E> 189,085
<DEPRECIATION> 54,826
<TOTAL-ASSETS> 484,911
<CURRENT-LIABILITIES> 162,865
<BONDS> 279,002
0
0
<COMMON> 0
<OTHER-SE> 25,141
<TOTAL-LIABILITY-AND-EQUITY> 484,911
<SALES> 1,025,659
<TOTAL-REVENUES> 1,025,659
<CGS> 764,638
<TOTAL-COSTS> 764,638
<OTHER-EXPENSES> 142,742
<LOSS-PROVISION> 1,362
<INTEREST-EXPENSE> 40,874
<INCOME-PRETAX> (38,248)
<INCOME-TAX> (8,937)
<INCOME-CONTINUING> (29,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,311)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
