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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal quarter ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 5-10065
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EARLE M. JORGENSEN COMPANY
(Exact name of registrant as specified in its charter)
Delaware 95-0886610
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3050 East Birch Street, Brea, California 92822
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 579-8823
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. None
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Outstanding common stock, par value $.01 per share, at July 25, 1997 -
128 Shares
- - ----------
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EARLE M. JORGENSEN COMPANY
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 1997 (unaudited)
and March 31, 1997 2
Consolidated Statements of Operations for the
Three Months Ended June 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1997 and 1996 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II - OTHER INFORMATION 8
SIGNATURES 9
Page 1
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PART I - FINANCIAL INFORMATION
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EARLE M. JORGENSEN COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, March 31,
1997 1997
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(unaudited)
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ASSETS
Current assets:
Cash $ 14,840 $ 21,477
Accounts receivable, less allowance for doubtful
accounts of $1,017 and $963 at June 30, 1997
and March 31, 1997, respectively 112,269 113,544
Inventories 191,947 174,045
Other current assets 3,390 3,915
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Total current assets 322,446 312,981
Property, plant and equipment, net of accumulated
depreciation of $55,848 and $54,416 at June 30,
1997 and March 31, 1997, respectively 117,278 120,050
Net cash surrender value of life insurance policies 15,735 14,258
Debt issue costs, net of accumulated amortization 4,262 4,806
Other assets 2,861 2,787
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Total assets $ 462,582 $ 454,882
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 81,668 $ 87,519
Accrued restructuring expenses 5,679 10,632
Other accrued liabilities 34,745 25,973
Deferred income taxes 7,270 7,270
Current portion of long-term debt 1,450 950
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Total current liabilities 130,812 132,344
Long term debt 293,901 290,336
Deferred income taxes 27,242 26,742
Other long-term liabilities 3,600 3,533
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455,555 452,955
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Stockholder's equity:
Preferred stock, $.01 par value; 200 shares authorized and
unissued - -
Common stock, $.01 par value; 2,800 shares authorized;
128 shares issued and outstanding - -
Additional paid in capital 170,544 171,073
Foreign currency translation adjustment 120 44
Accumulated deficit (163,637) (169,190)
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Total stockholder's equity 7,027 1,927
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Total liabilities and stockholder's equity $ 462,582 $ 454,882
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SEE ACCOMPANYING NOTES.
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
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JUNE 30, June 30,
1997 1996
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(unaudited)
Revenues $ 259,933 $ 258,430
Cost of sales 187,928 184,744
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Gross profit 72,005 73,686
Expenses:
Warehouse and delivery 32,285 31,577
Selling 9,452 10,459
General and administrative 14,187 16,104
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Total expenses 55,924 58,140
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Income from operations 16,081 15,546
Interest expense, net 10,028 9,805
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Income before income taxes 6,053 5,741
Income tax expense 500 49
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Net income $ 5,553 $ 5,692
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SEE ACCOMPANYING NOTES.
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED
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JUNE 30, June 30,
1997 1996
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(unaudited)
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OPERATING ACTIVITIES
Net Income $ 5,553 $ 5,692
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization 2,431 2,627
Amortization of debt issue costs and discount on senior notes 474 502
Gain on sale of property, plant and equipment (680) (104)
ESOP contribution 849 1,671
Provision for bad debts 286 279
Changes in assets and liabilities:
Accounts receivable 989 (1,042)
Inventories (17,902) (6,054)
Increase in cash surrender value of life insurance (1,922) (3,454)
Accounts payable and accrued liabilities and expenses (2,881) (19,167)
Accrued postretirement benefits 120 -
Current and deferred income taxes 500 -
Other 404 (948)
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Net cash used for operating activities (11,779) (19,998)
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INVESTING ACTIVITIES
Additions to property, plant and equipment (1,080) (562)
Proceeds from the sale of property, plant and equipment 2,273 216
Proceeds from redemption of life insurance policies 445 -
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Net cash provided by (used for) investing activities 1,638 (346)
FINANCING ACTIVITIES
Borrowings under revolving loan agreements 4,269 12,537
Cash dividend to parent (527) -
Other payments (238) (238)
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Net cash provided by financing activities 3,504 12,299
NET DECREASE IN CASH (6,637) (8,045)
Cash at beginning of period 21,477 22,823
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CASH AT END OF PERIOD $ 14,840 $ 14,778
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SEE ACCOMPANYING NOTES.
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. BASIS OF PRESENTATION
The Earle M. Jorgensen Company is a wholly owned subsidiary of the Earle M.
Jorgensen Holding Company, Inc. ("Holding").
The accompanying consolidated condensed financial statements include the
accounts of the Company and its wholly owned subsidiaries including Earle
M. Jorgensen Company (UK) Ltd. (EMJ (UK)), Kilsby Jorgensen S.A. de C.V.
(EMJ (Mexico)), Earle M. Jorgensen (Canada) Inc. (EMJ (Canada)) and
Stainless Insurance Ltd., a captive insurance subsidiary (EMJ (Bermuda)).
All significant intercompany accounts and transactions have been
eliminated.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements have been prepared in accordance with the
instructions to Form 10-Q and include all adjustments (consisting of
normally recurring accruals) and disclosures considered necessary for a
fair presentation of the consolidated financial position of the Earle M.
Jorgensen Company at June 30, 1997 and the consolidated results of
operations and cash flows for the three months ended June 30, 1997 and
1996. The consolidated results of operations for the three months ended
June 30, 1997 are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the consolidated
financial statements and footnotes included in the Company's Annual Report
on Form 10-K for the year ended March 31, 1997.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1996.
REVENUE. Revenues for the first quarter of fiscal 1998 were $259.9 million,
compared to $258.4 million for the same period in fiscal 1997. Revenues from
U.S. and foreign operations were $245.0 million and $14.9 million, compared to
$242.8 million and $15.6 million, respectively, for the first quarter of fiscal
1997. Compared to the first quarter of fiscal 1997, revenues from U.S.
operations were influenced by higher tonnage volume and lower average selling
prices. Foreign revenues were adversely impacted primarily by local economic
conditions.
GROSS PROFIT. Gross profit for the first quarter of fiscal 1998 was $72.0
million, compared to $73.7 million for the same period in fiscal 1997.
Consolidated gross margin for the fiscal 1998 and 1997 periods was 27.7% and
28.5%, respectively. The first three months of fiscal 1998 included a LIFO
charge of $0.8 million compared to a credit of $0.2 million in the same period
of fiscal 1997. Foreign gross profits were $3.3 million and gross margin was
22.0%, compared to $3.7 million and 23.5%, respectively, for the comparable
period in fiscal 1997. Exclusive of foreign operations and LIFO adjustments,
the U.S. gross margin was 28.4% for the first quarter of fiscal 1998 compared to
28.8% for the comparable period in fiscal 1997.
EXPENSES. Total operating expenses for the first quarter of fiscal 1998 were
$55.9 million, compared to $58.1 million for the same period in fiscal 1997. As
a percentage of revenues, these expenses were 21.5% and 22.5% in the fiscal 1998
and 1997 periods, respectively.
Warehouse and delivery expenses for the first quarter of fiscal 1998 were $32.3
million (12.4% of revenues), compared to $31.6 million (12.2% of revenues) for
the same period in fiscal 1997. The fiscal 1998 period included higher freight
and related shipping costs, primarily attributable to higher volume shipped and
repositioning the inventory depots, partially offset by lower compensation
related expenses.
Selling expenses for the first quarter of fiscal 1998 were $9.5 million (3.6% of
revenues), compared to $10.5 million (4.1% of revenues) for the same period in
fiscal 1997. The decrease was primarily the result of lower compensation
related expenses.
General and administrative expenses were $14.2 million (5.5% of revenues) during
the first quarter of 1998 compared to $16.1 million (6.2% of revenues) for the
same period in fiscal 1997. The fiscal 1998 period was primarily impacted by
lower compensation and travel related expenses, and higher gains from sale of
fixed assets.
NET INTEREST EXPENSE. Net interest expense was $10.0 million for the first
quarter of fiscal 1998 compared to $9.8 million for the same period in fiscal
1997. The fiscal 1998 period was impacted primarily by higher interest expense
associated with increased levels of borrowings against the cash surrender value
of certain life insurance policies maintained by the Company in the fiscal 1998
period, offset by lower interest expense related to the Company's Revolving
Credit Facility as compared to the fiscal 1997 period. The average outstanding
indebtedness during the first quarter of fiscal 1998 was $297.9 million,
compared to $300.2 million for the same period in fiscal 1997, and the weighted
average interest rate on such indebtedness was 9.68% and 9.63%, respectively.
The Company's Revolving Credit Facility borrowings, representing $122.3 million
and $118.4 million in principal amount of total indebtedness at June 30, 1997
and 1996, respectively, is at a floating interest rate (8.65% at June 30, 1997).
The average interest rate on such indebtedness for the first quarter of fiscal
1998 was 8.57% as compared to 8.50% in fiscal 1997. The interest rates on the
10-3/4% Senior Notes and on the borrowings under the life insurance policies are
fixed.
INCOME TAXES. Income tax expense for the first quarter of fiscal 1998
represents a provision for state franchise taxes. The remaining tax provisions
for the first quarter of fiscal 1998 were offset by recognition of tax benefits
associated with the Company's loss carryforwards. The income tax expense for
the fiscal 1997 period was virtually eliminated by the recognition of tax
benefits associated with the Company's loss carryforwards.
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for debt service and related obligations through
the end of fiscal 1998 will consist primarily of interest payments under its
Revolving Credit Facility, interest payments on the Senior Notes, dividends to
Holding to provide for the repurchase of capital stock from departing
stockholders pursuant to Holding's Stockholder Agreement and the Company's
employee stock ownership plan ("ESOP"), and principal and interest payments on
the Company's industrial revenue bond and purchase money indebtedness. As of
June 30, 1997, principal payments required by the Company's currently
outstanding industrial revenue bond and purchase money indebtedness amount to
$0.7 million in fiscal 1998, $1.5 million in fiscal 1999 and 2000, and $14.7
million in the aggregate thereafter through 2010. The Company will not be
required to make any principal payments against the Revolving Credit Facility or
the Senior Notes until 1999 and 2000, respectively. The Company is in
compliance with the covenants contained in the Revolving Credit Facility, and
the Company is not in default under the indenture governing the Senior Notes and
the Company does not anticipate any default thereunder for the foreseeable
future.
At June 30, 1997, the Company's primary sources of liquidity were available
borrowings of $48.1 million under the Revolving Credit Facility, borrowings of
approximately $8.0 million against certain 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. The life 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 June 30, 1997, there was approximately $15.7
million of cash surrender value in all life insurance policies maintained by the
Company, net of borrowings.
For fiscal 1998, the Company has budgeted approximately $10.0 million for
capital expenditures. Approximately $7.6 million is for routine replacement of
machinery and equipment and facility improvements, and $2.4 million is for
further enhancement of the Company's information technology systems. The
Company expects to finance such expenditures from borrowings under the Revolving
Credit Facility and from internal cash flows.
The Company's working capital at June 30, 1997 increased $11.0 million to $191.6
million when compared to $180.6 million at March 31, 1997.
Net cash used for operating activities during the first quarter of fiscal 1998
was $11.8 million, compared to $20.0 million in the same period of fiscal 1997.
The change in net cash used reflects higher inventory levels during the fiscal
1998 period offset by the reduced impact on accounts payable resulting from
discounting supplier invoices that began during the first quarter of fiscal
1997.
Net cash provided by investing activities was $1.6 million during the first
quarter of fiscal 1998, compared to net cash used of $0.3 million in the same
period of fiscal 1997. The fiscal 1998 cash flows were primarily impacted by
higher proceeds from fixed asset dispositions.
Net cash provided by financing activities during the first quarter of fiscal
1998 was $3.5 million, compared to $12.3 million in the same period of fiscal
1997. The cash flows for the fiscal 1998 period were primarily impacted by
lower borrowings under the Company's Revolving Credit Facility.
As of June 30, 1997, 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 September 1999 and to refinance all or a portion
of the Senior Notes on or prior to their maturity in March 2000, although there
can be no assurance on what terms, if any, the Company would be able to obtain
such refinancing.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Registrant was not required to file a Form 8-K during the quarter
ended June 30, 1997.
Page 8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EARLE M. JORGENSEN COMPANY
/s/ Maurice S. Nelson, Jr.
Date: July 25, 1997 --------------------------
Maurice S. Nelson, Jr.
President, Chief Executive Officer
/s/ Charles P. Gallopo
Date: July 25, 1997 ----------------------
Charles P. Gallopo
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 9
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AND THE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF AND FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,840
<SECURITIES> 0
<RECEIVABLES> 113,286
<ALLOWANCES> 1,017
<INVENTORY> 191,947
<CURRENT-ASSETS> 322,446
<PP&E> 173,126
<DEPRECIATION> 55,848
<TOTAL-ASSETS> 462,582
<CURRENT-LIABILITIES> 130,812
<BONDS> 293,901
0
0
<COMMON> 0
<OTHER-SE> 7,027
<TOTAL-LIABILITY-AND-EQUITY> 462,582
<SALES> 259,933
<TOTAL-REVENUES> 259,933
<CGS> 187,928
<TOTAL-COSTS> 187,928
<OTHER-EXPENSES> 32,285
<LOSS-PROVISION> 286
<INTEREST-EXPENSE> 10,028
<INCOME-PRETAX> 6,053
<INCOME-TAX> 500
<INCOME-CONTINUING> 5,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,553
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
