<PAGE>
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 SEPTEMBER 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-7537
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 92821
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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
--- ---
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 September 29, 1998 -
128 shares
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EARLE M. JORGENSEN
COMPANY TABLE OF CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 29, 1998 (unaudited) and 2
March 31, 1998
Consolidated Statements of Operations for the Three Months and Six
Months Ended September 29, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the Six Months Ended
September 29, 1998 and 1997 (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 11
SIGNATURES 12
</TABLE>
1
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PART I - FINANCIAL INFORMATION
EARLE M. JORGENSEN COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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SEPTEMBER 29, MARCH 31,
1998 1998
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(UNAUDITED)
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ASSETS
Current assets:
Cash $14,830 $20,763
Accounts receivable, less allowance for doubtful accounts of $715 and
$406 at September 29, 1998 and March 31, 1998, respectively 91,033 105,303
Inventories 217,554 180,403
Other current assets 3,958 4,963
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Total current assets 327,375 311,432
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Property, plant and equipment, net of accumulated depreciation of $54,563
and $53,385 at September 29, 1998 and March 31, 1998, respectively 104,123 106,643
Net cash surrender value of life insurance policies 21,434 16,470
Debt issue costs, net of accumulated amortization 7,159 7,316
Other assets 1,610 1,960
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Total assets $461,701 $443,821
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $67,232 $ 92,061
Accrued employee compensation and related taxes 6,908 12,587
Accrued employee benefits 9,725 10,004
Other accrued liabilities 27,023 15,533
Deferred income taxes 21,963 21,963
Current portion of long-term debt 1,500 1,500
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Total current liabilities 134,351 153,648
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Long term debt 337,563 310,734
Deferred income taxes 13,371 12,709
Other long-term liabilities 3,863 3,649
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 115,712 116,789
Accumulated other comprehensive loss--foreign currency
translation adjustments (447) (278)
Accumulated deficit (142,712) (153,430)
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Total stockholder's equity (27,447) (36,919)
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Total liabilities and stockholder s equity $461,701 $443,821
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</TABLE>
SEE ACCOMPANYING NOTES.
2
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
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SEPTEMBER 29, SEPTEMBER 29, SEPTEMBER 29, SEPTEMBER 29,
1998 1997 1998 1997
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Revenues $225,967 $259,501 $476,543 $519,434
Cost of sales 161,407 186,133 339,845 374,061
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Gross profit 64,560 73,368 136,698 145,373
Expenses:
Warehouse and delivery 30,866 31,661 61,359 63,946
Selling 8,624 9,600 17,818 19,052
General and administrative 12,274 15,382 25,785 29,569
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Total expenses 51,764 56,643 104,962 112,567
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Income from operations 12,796 16,725 31,736 32,806
Interest expense, net 10,261 10,481 20,309 20,509
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Income before income taxes 2,535 6,244 11,427 12,297
Income tax expense 129 --- 709 500
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Net income 2,406 6,244 10,718 11,797
Other comprehensive loss, net of income taxes
- -- foreign currency translation adjustments 102 161 169 85
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Comprehensive income $2,304 $6,083 $10,549 $11,712
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</TABLE>
SEE ACCOMPANYING NOTES.
3
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
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SEPTEMBER 29, September 29,
1998 1997
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OPERATING ACTIVITIES
Net income $10,718 $11,797
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 4,481 4,818
Amortization of debt issue costs and discount on senior notes 647 947
Gain on sale of property, plant and equipment (406) (376)
ESOP contribution 1,765 1,616
Provision for bad debts 531 612
Changes in assets and liabilities:
Accounts receivable 13,739 3,835
Inventories (37,151) (27,443)
Increase in cash surrender value of life insurance (5,766) (4,043)
Accounts payable and accrued liabilities and expenses (19,824) (844)
Accrued postretirement benefits 240 240
Current and deferred income taxes 662 500
Other 1,234 (1,007)
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Net cash used in operating activities (29,130) (9,348)
INVESTING ACTIVITIES
Additions to property, plant and equipment (4,280) (2,539)
Proceeds from the sale of property, plant and equipment 2,733 4,475
Proceeds from sale of subsidiary --- 1,700
Proceeds from redemption of life insurance policies 802 371
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Net cash provided by (used in) investing activities (745) 4,007
FINANCING ACTIVITIES
Net borrowings under revolving loan agreements 27,829 6,314
Payments on other debt (1,000) (475)
Cash dividend to parent (1,077) (784)
Payment of debt issue costs (1,728) ---
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Net cash provided by financing activities 24,024 5,055
Effect of exchange rate changes on cash (82) 4
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NET DECREASE IN CASH (5,933) (282)
Cash at beginning of period 20,763 21,477
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CASH AT END OF PERIOD $14,830 $21,195
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</TABLE>
SEE ACCOMPANYING NOTES.
4
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1998
1. BASIS OF PRESENTATION
The Earle M. Jorgensen Company (the "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. (which was sold in January 1998), Kilsby
Jorgensen S.A. de C.V. (which was sold in August 1997), Earle M. Jorgensen
(Canada) Inc. and Stainless Insurance Ltd., a captive insurance subsidiary.
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 September 29, 1998 and the consolidated results of
operations for the three months and six months ended September 29, 1998 and
1997 and consolidated cash flows for the six months ended September 29,
1998 and 1997. The consolidated results of operations for the three months
and six months ended September 29, 1998 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, 1998.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. COMPREHENSIVE INCOME
Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes rules for the reporting and
disclosure of comprehensive income and its components. Comprehensive income
included foreign currency translation adjustments of ($102,000) and
($161,000) for the comparative three months and ($169,000) and ($85,000)
for the comparative six months ended September 29, 1998 and 1997,
respectively. Prior to the adoption of SFAS No. 130, the Company's foreign
currency translation adjustments were reported separately in stockholder's
equity. The adoption of SFAS No. 130 had no impact on the Company's net
income or stockholder's equity.
5
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: SIX MONTHS ENDED SEPTEMBER 29, 1998 COMPARED TO SIX
MONTHS ENDED SEPTEMBER 29, 1997.
REVENUE. Revenues for the first six months of fiscal 1999 were $476.5
million, compared to $519.4 million for the same period in fiscal 1998.
Revenues from domestic operations decreased $28.5 million (5.8%) to $461.4
million in the first six months of fiscal 1999 when compared to $489.9
million for the same period in fiscal 1998. Revenues from domestic stock
sales decreased approximately 4% as the result of decreases in tonnage
shipped and average price. In general, domestic revenues during the first
six months of fiscal 1999 were impacted by repercussions from the financial
crisis in Asia, weakness in the oil industry and from the overall slowdown in
the U.S. economy. Revenues from international operations decreased $14.4
million to $15.1 million in the first six months of fiscal 1999 when compared
to $29.5 million for the same period in fiscal 1998 due to the sale of the
Company's subsidiaries in the U.K. and Mexico during fiscal 1998.
GROSS PROFIT. Gross profit for first six months of fiscal 1999 was $136.7
million, compared to $145.4 million for the same period in fiscal 1998.
Consolidated gross margin for the first six months of fiscal 1999 increased
to 28.7% compared to 28.0% for the same period in fiscal 1998. Gross profit
for the fiscal 1999 and 1998 periods included a LIFO charge of $0.7 million
and $1.3 million, respectively. Gross profit from international operations
was $3.3 million and gross margin was 21.9% during the first six months of
fiscal 1999, compared to $6.3 million and 21.4%, respectively, for the same
period in fiscal 1998. The changes in gross profit and gross margin from
international operations were due to the sale of the Company's subsidiaries
in the U.K. and Mexico during fiscal 1998. Exclusive of international
operations and LIFO adjustments, gross margin was 29.1% for the first six
months of fiscal 1999 compared to 28.7% for the same period in fiscal 1998.
The increase of 0.4% was attributable to changes in product mix, which do not
reflect any identifiable trends in industry demand or Company strategy.
EXPENSES. Total operating expenses for the first six months of fiscal 1999 were
$105.0 million (22.0% of revenues), compared to $112.6 million (21.7% of
revenues) for the same period in fiscal 1998. The lower operating expenses
generally reflect the impact from lower revenues, the Company's sale of its
foreign operations in the U.K. and Mexico in fiscal 1998, and the results of the
ongoing reengineering and cost reduction programs designed to improve asset and
employee productivity and operating profits.
Warehouse and delivery expenses for the first six months of fiscal 1999 were
$61.4 million (12.9% of revenues), compared to $63.9 million (12.3% of
revenues) for the same period in fiscal 1998. The fiscal 1999 period reflects
lower compensation expense, lower freight costs resulting from the decrease
in tonnage shipped and the impact from the sale of the Company's U.K. and
Mexican subsidiaries in fiscal 1998.
Selling expenses for the first six months of fiscal 1999 were $17.8 million
(3.7% of revenues), compared to $19.1 million (3.7% of revenues) for the same
period in fiscal 1998. The fiscal 1999 period reflects lower compensation
expense and the impact from the sale of the Company's U.K. and Mexican
subsidiaries in fiscal 1998.
General and administrative expenses for the first six months of fiscal 1999 were
$25.8 million (5.4% of revenues), compared to $29.6 million (5.7% of revenues)
for the same period in fiscal 1998. The fiscal 1999 period reflects lower
compensation expense and the impact from the sale of the Company's U.K. and
Mexican subsidiaries in fiscal 1998 partially offset by $1.0 million of expenses
accrued for the resolution of environmental issues related to a previously owned
subsidiary sold in 1992.
6
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: SIX MONTHS ENDED SEPTEMBER 29, 1998 COMPARED TO SIX
MONTHS ENDED SEPTEMBER 29, 1997. (CONTINUED)
NET INTEREST EXPENSE. Net interest expense was $20.3 million for the first six
months of fiscal 1999 compared to $20.5 for the same period in fiscal 1998. Such
amounts include interest and amortization of debt issue costs related to the
Company's revolving credit facility (the "Revolving Credit Facility"), its
9-1/2% senior notes (as applicable, the Company's 10 3/4% Senior Notes which
were redeemed on March 24, 1988 and its "9-1/2% Senior Notes"), its variable
rate term loan (the "Term Loan") (in the fiscal 1999 period only) and interest
on borrowings against the cash surrender value of certain life insurance
policies.
Interest expense and amortization of debt issue costs related to the Company's
outstanding indebtedness (excluding borrowings against the cash surrender value
of certain life insurance policies) totaled $15.2 million for the first six
months of fiscal 1999 compared to $15.6 million for the same period in fiscal
1998. The average outstanding indebtedness during the first six months of fiscal
1999 was $335.1 million, compared to $299.6 million for the same period in
fiscal 1998. The weighted average interest rate on such indebtedness was 8.64%
during the first six months of fiscal 1999 versus 9.67% during the same period
in fiscal 1998. During the six months ended September 29, 1998 and 1997,
borrowings under the Company's Revolving Credit Facility averaged $117.7 million
and $126.2 million and the average interest rate on such borrowings was 7.73%
and 8.60%, respectively.
Interest expense associated with borrowings against the cash surrender value of
certain life insurance policies maintained by the Company was $5.1 million for
the fiscal 1999 period compared to $4.9 million for the same period in fiscal
1998.
The interest rates on the Company's 9-1/2 Senior Notes and on the borrowings
under the life insurance policies are fixed at 9.50% and 11.76%, respectively.
The interest rates on the Company's Revolving Credit Facility and Term Loan are
floating (7.30% and 8.94%, respectively, as of September 29, 1998). In June
1998, the Company entered into an interest rate swap agreement with Bankers
Trust Company that effectively fixed the interest rate on the Term Loans at
approximately 9.05% through June 2003. Such agreement requires Bankers Trust
Company to make payments to the Company each quarter in an amount equal to the
product of the notional amount of $95 million and the difference between the
London Interbank Offered Rate for three month maturities ("Three Month LIBOR")
and a reference rate of 5.6875%, if the Three Month LIBOR is greater than such
reference rate on a per diem basis. If Three Month LIBOR is lower than a
reference rate of 5.795%, the Company is required to pay Bankers Trust Company
an amount equal to the product of the notional amount and the difference between
such reference rate and Three Month LIBOR on a per diem basis.
INCOME TAXES. Income tax expense for the first six months of fiscal 1999 and
1998 included provisions for state franchise and foreign income taxes. Federal
tax provisions for the first six months of fiscal 1999 and 1998 were offset by
recognition of tax benefits associated with the Company's loss carryforwards.
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 29, 1998 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 29, 1997.
REVENUE. Revenues for the second quarter of fiscal 1999 were $226.0 million,
compared to $259.5 million for the same period in fiscal 1998. Revenues from
domestic operations decreased $25.9 million (10.6%) to $219.0 million in the
second quarter of fiscal 1999 when compared to $244.9 million for the same
period in fiscal 1998. Revenues from domestic stock sales decreased
approximately 10% as the result of decreases in tonnage shipped and average
price. In general, domestic revenues during the second quarter of fiscal
1999 were impacted by repercussions from the financial crisis in Asia,
weakness in the oil industry and from the overall slowdown in the U.S.
economy. Revenues from international operations decreased $7.6 million to
$7.0 million in the second quarter of fiscal 1999 when compared to $14.6
million for the same period in fiscal 1998 due to the sale of the Company's
subsidiaries in the U.K. and Mexico during fiscal 1998.
7
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 29, 1998 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 29, 1997. (CONTINUED)
GROSS PROFIT. Gross profit for the second quarter of fiscal 1999 was $64.6
million, compared to $73.4 million for the same period in fiscal 1998.
Consolidated gross margin for the fiscal 1999 and 1998 periods was 28.6% and
28.3%, respectively. The second quarters of fiscal 1999 and 1998 included a
LIFO charge of $0.6 million and $0.5 million, respectively. Gross profit
from international operations was $1.5 million and gross margin was 21.4% for
the second quarter of fiscal 1999 compared to $3.0 million and 20.5%,
respectively, for the same period in fiscal 1998. The changes in gross
profit and gross margin from international operations were due to the sale of
the Company's subsidiaries in the U.K. and Mexico during fiscal 1998.
Exclusive of international operations and LIFO charges, the gross margin from
domestic operations from the second quarter of fiscal 1999 improved to 29.1%
as compared to 29.0% for the same period in fiscal 1998 due to changes in
product mix.
EXPENSES. Total operating expenses for the second quarter of fiscal 1999 were
$51.8 million, compared to $56.6 million for the same period in fiscal 1998. As
a percentage of revenues, these expenses were 22.9% in the fiscal 1999 period
and 21.8% in the fiscal 1998 period.
Warehouse and delivery expenses for the second quarter of fiscal 1999 were $30.9
million (13.7% of revenues), compared with $31.7 million (12.2% of revenues) for
the same period in fiscal 1998. The fiscal 1999 period reflects lower
compensation expense and the impact from the sale of the U.K. and Mexican
subsidiaries in fiscal 1998 partially offset by an increase in repair and
maintenance of warehouse equipment.
Selling expenses for the second quarter of fiscal 1999 were $8.6 million (3.8%
of revenues), compared with $9.6 million (3.7% of revenues) for the same period
in fiscal 1998. The fiscal 1999 period reflects lower compensation expense and
the impact from the sale of the U.K. and Mexican subsidiaries in fiscal 1998.
General and administrative expenses for the second quarter of fiscal 1999 were
$12.3 million (5.4% of revenues), compared with $15.4 million (5.9% of revenues)
for the same period in fiscal 1998. The fiscal 1999 period reflects realized
gains (versus losses in fiscal 1998) on sales of assets, lower compensation
expense and the impact from the sale of the U.K. and Mexican subsidiaries in
fiscal 1998 partially offset by $1.0 million of expenses accrued for the
resolution of environmental issues related to a previously owned subsidiary sold
in 1992.
NET INTEREST EXPENSE. Net interest expense was $10.3 million and $10.5
million for the second quarter in fiscal 1999 and fiscal 1998, respectively.
The Company's average outstanding indebtedness during the second quarter of
fiscal 1999 was $345.8 million, compared to $301.1 million for the same
period in fiscal 1998, and the average interest rate on such indebtedness was
8.60% and 9.66% respectively.
INCOME TAXES. Income tax expense for the three months ended September 29, 1998
and 1997 included provisions for state franchise and foreign income taxes.
Federal tax provisions for the three months ended September 29, 1998 and 1997
were offset by recognition of tax benefits associated with the Company's loss
carryforwards.
8
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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 1999 are expected to consist primarily of interest payments
under its Revolving Credit Facility, interest and principal payments on its Term
Loan, interest payments on the 9-1/2% 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 employee
stock ownership plan, capital expenditures and principal and interest payments
on the Company's industrial revenue bonds. As of September 29, 1998, principal
payments required by the Company's currently outstanding industrial revenue bond
indebtedness amount to $0.5 million in fiscal 2000, $1.4 million in fiscal years
2001 through 2004 and $6.2 million in the aggregate thereafter through 2010. The
Company will not be required to make any principal payments in respect of its
9-1/2% Senior Notes until 2005. The Company's Revolving Credit Facility will
mature in 2003 and its Term Loan will mature in 2004. The Term Loan requires
principal payments to be made in equal quarterly installments of $250,000. The
final installment due at maturity will repay in full all outstanding principal.
As of September 29, 1998, the Company was in compliance with all covenants under
its Revolving Credit Facility, its Term Loan and its 9-1/2% Senior Notes.
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 all of its debt covenants for the foreseeable future.
At September 29, 1998, the Company's primary sources of liquidity were
available borrowings of $69.7 million under its Revolving Credit Facility,
available borrowings of approximately $12.2 million against certain life
insurance policies and internally generated funds. Borrowings under the
Company's 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 such assets. The Company's Term Loan
is secured by a first priority lien on a substantial portion of the Company's
current and future acquired unencumbered property, plant and equipment. 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. For the first
six months of fiscal 1999, dividend income earned under the policies totaled
$4.4 million, compared to $4.6 million for the same period in fiscal 1998 and
is reported as an offset to general and administrative expenses in the
accompanying statements of operations. As of September 29, 1998, there was
approximately $21.4 million of cash surrender value in all life insurance
policies maintained by the Company, net of borrowings.
For fiscal 1999, the Company has planned approximately $15.3 million of capital
expenditures (including $4.3 million deemed carryover from the fiscal 1998
budget) to be financed from internally generated funds. Approximately $8.1
million is for routine replacement of machinery and equipment and facility
improvements and expansions, $5.3 million is for the purchase of a leased
facility, and $1.9 million is for further additions to the Company's management
information systems. During the first six months of fiscal 1999, the Company
spent $4.3 million for capital expenditures.
The Company's working capital at September 29, 1998 was $193.0 million when
compared to $157.8 million at March 31, 1998. The increase resulted from
higher inventories ($37.2 million) and lower accounts payable and accrued
liabilities ($19.3 million) offset by lower accounts receivable ($14.3
million).
Net cash used in operating activities during the first six months of fiscal 1999
was $29.1 million, compared to $9.3 million in the same period of fiscal 1998.
The change in net cash used reflects higher inventory levels and a reduction in
accounts payable and accrued liabilities and expenses offset by lower accounts
receivable.
9
<PAGE>
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 (CONTINUED)
Net cash used in investing activities was $0.7 million during the first six
months of fiscal 1999, compared to net cash provided of $4.0 million in the
same period of fiscal 1998. Investing activities during the fiscal 1999
period were impacted by higher capital expenditures and proceeds received
from redemption of life insurance policies and lower proceeds from fixed
asset dispositions.
Net cash provided by financing activities during the first six months of fiscal
1999 totaled $24.0 million, compared to $5.1 million in the same period of
fiscal 1998. The increase was primarily attributable to higher borrowings under
the Company's Revolving Credit Facility, offset by payments of debt issue costs
associated with a series of refinancing transactions consummated in March 1998.
As of September 29, 1998, 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 its Revolving Credit
Facility, its Term Loan and its 9-1/2% Senior Notes prior to their respective
maturities. However, the Company anticipates that it will be necessary to
replace its Revolving Credit Facility on or prior to its maturity in 2003 and to
refinance all or a portion of its Term Loan on or prior to its maturity in 2004
and its 9-1/2% Senior Notes on or prior to their maturity in March 2005,
although there can be no assurance on what terms, if any, the Company would be
able to obtain such refinancing or additional financing. The Company's ability
to make interest payments on its Revolving Credit Facility and 9-1/2% Senior
Notes and principal and interest payments on its Term Loan will be dependent on
maintaining the level of performance reflected in the last twelve months, which
will be dependent on a number of factors, many of which are beyond its control,
and the continued availability of revolving credit borrowings.
YEAR 2000 COMPLIANCE
The Company has established an internal project team to investigate, remedy and
confirm compliance with Year 2000 standards. The Company has identified three
major areas critical for such compliance: (1) the Company's core management
information systems and network, (2) third party relationships, particularly
with material suppliers and (3) operations of the Company at the facility level
that are not a part of the management information system and network.
The review of the Company's management information systems and network is
substantially complete and the vast majority of software systems are compliant.
The Company has requested confirmation from hardware vendors that the network
server and personal computer systems are compliant. The Company expects that all
open items in its compliance review will be completed by March 1999, including a
full systems test.
The Company has sent a survey to all key material vendors and service providers
requesting information regarding their compliance with Year 2000 standards. This
information will be compiled, updated and furnished to the Company's
merchandising department and each facility for use in making sourcing decisions
next year.
The Company is developing checklists for each facility to review to identify and
investigate potential Year 2000 compliance issues in noninformation systems
operations and equipment. Each facility is responsible for contacting equipment
vendors and ensuring compliance at the operational level. Identification of
items requiring enhancement or replacement will be completed by January 1999.
The costs of Year 2000 compliance have not been and are not expected to be
material to the Company's results of operations. The results of the Company's
investigations to date have not indicated any significant issues that cannot be
resolved well in advance of January 1, 2000 and, accordingly, the Company has
not developed a contingency plan.
10
<PAGE>
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 September 29, 1998.
11
<PAGE>
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: November 11, 1998 Maurice S. Nelson, Jr.
President, Chief Executive Officer
/s/ Charles P. Gallopo
----------------------
Date: November 11, 1998 Charles P. Gallopo
Vice President, Chief Financial Officer and
Secretary (Principal Financial and Accounting
Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AND THE UNAUDITED CONSOLIDATED STATEMENT
OF OPERATIONS AS OF AND FOR THE PERIOD ENDED SEPTEMBER 29, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-29-1998
<CASH> 14,830
<SECURITIES> 0
<RECEIVABLES> 91,748
<ALLOWANCES> 715
<INVENTORY> 217,554
<CURRENT-ASSETS> 327,375
<PP&E> 158,686
<DEPRECIATION> 54,563
<TOTAL-ASSETS> 461,701
<CURRENT-LIABILITIES> 134,351
<BONDS> 337,563
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 461,701
<SALES> 476,543
<TOTAL-REVENUES> 476,543
<CGS> 339,845
<TOTAL-COSTS> 339,845
<OTHER-EXPENSES> 61,359
<LOSS-PROVISION> 531
<INTEREST-EXPENSE> 20,309
<INCOME-PRETAX> 11,427
<INCOME-TAX> 709
<INCOME-CONTINUING> 10,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,718
<EPS-PRIMARY> 0
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