<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 DECEMBER 31, 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
----
Outstanding common stock, par value $.01 per share, at December 31, 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 December 31, 1998 (unaudited) and 2
March 31, 1998
Consolidated Statements of Operations for the Three Months and
Nine Months Ended December 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 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>
<PAGE>
PART I - FINANCIAL INFORMATION
EARLE M. JORGENSEN COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1998
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(UNAUDITED)
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ASSETS
Current assets:
Cash $13,877 $20,763
Accounts receivable, less allowance for doubtful accounts of $871 and
$406 at December 31, 1998 and March 31, 1998, respectively 80,809 105,303
Inventories 200,735 180,403
Other current assets 5,024 4,963
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Total current assets 300,445 311,432
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Property, plant and equipment, net of accumulated depreciation of $52,930
and $53,385 at December 31, 1998 and March 31, 1998, respectively 103,135 106,643
Net cash surrender value of life insurance policies 14,744 16,470
Debt issue costs, net of accumulated amortization 6,954 7,316
Other assets 1,443 1,960
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Total assets $426,721 $443,821
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $52,225 $ 92,061
Accrued employee compensation and related taxes 7,312 12,587
Accrued employee benefits 10,084 10,004
Other accrued liabilities 13,899 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 106,983 153,648
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Long term debt 328,470 310,734
Deferred income taxes 13,514 12,709
Other long-term liabilities 3,950 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 115,525 116,789
Accumulated other comprehensive loss--foreign currency
translation adjustments (442) (278)
Accumulated deficit (141,279) (153,430)
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Total stockholder's equity (26,196) (36,919)
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Total liabilities and stockholder's equity $426,721 $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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ------------------- ------------------- ------------------
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Revenues $211,241 $256,049 $687,784 $775,483
Cost of sales 151,525 185,268 491,370 559,329
------------------- ------------------- ------------------- ------------------
Gross profit 59,716 70,781 196,414 216,154
Expenses:
Warehouse and delivery 29,598 32,497 90,957 96,443
Selling 7,864 8,890 25,682 27,942
General and administrative 10,104 14,487 35,889 44,056
------------------- ------------------- ------------------- ------------------
Total expenses 47,566 55,874 152,528 168,441
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Income from operations 12,150 14,907 43,886 47,713
Interest expense, net 10,581 9,980 30,890 30,489
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Income before income taxes 1,569 4,927 12,996 17,224
Income tax expense 136 673 845 1,173
------------------- ------------------- ------------------- ------------------
Net income 1,433 4,254 12,151 16,051
Other comprehensive loss (income) , net of income
taxes- foreign currency translation adjustments (5) 28 164 113
------------------- ------------------- ------------------- ------------------
Comprehensive income $1,438 $4,226 $11,987 $15,938
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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>
NINE MONTHS ENDED
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DECEMBER 31, 1998 December 31, 1997
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OPERATING ACTIVITIES
Net income $12,151 $16,051
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 6,784 7,182
Amortization of debt issue costs and discount on senior notes 970 1,420
Gain on sale of property, plant and equipment (2,207) (341)
ESOP contribution 2,444 2,183
Provision for bad debts 826 934
Changes in assets and liabilities:
Accounts receivable 23,668 4,949
Inventories (20,332) (28,890)
Decrease in cash surrender value of life insurance 2,426 3,438
Accounts payable and accrued liabilities and expenses (47,871) (13,558)
Accrued postretirement benefits 360 360
Current and deferred income taxes 805 481
Other 188 485
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Net cash used in operating activities (19,788) (5,306)
INVESTING ACTIVITIES
Additions to property, plant and equipment (6,789) (4,948)
Proceeds from the sale of property, plant and equipment 5,843 7,179
Proceeds from sale of subsidiary --- 1,700
Premiums paid on life insurance policies (1,543) (1,944)
Proceeds from redemption of life insurance policies 843 467
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Net cash provided by (used in) investing activities (1,646) 2,454
FINANCING ACTIVITIES
Net borrowings under revolving loan agreements 18,986 7,644
Payments on other debt (1,250) (712)
Cash dividend to parent (1,264) (11,463)
Payment of debt issue costs (1,846) ---
--------------------- ------------------
Net cash provided by (used in) financing activities 14,626 (4,531)
Effect of exchange rate changes on cash (78) 53
--------------------- ------------------
NET DECREASE IN CASH (6,886) (7,330)
Cash at beginning of period 20,763 21,477
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CASH AT END OF PERIOD $13,877 $14,147
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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
DECEMBER 31, 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 December 31, 1998 and the consolidated results of
operations for the three months and nine months ended December 31, 1998 and
1997 and consolidated cash flows for the nine months ended December 31,
1998 and 1997. The consolidated results of operations for the three months
and nine months ended December 31, 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/A 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 loss
(income) included foreign currency translation adjustments of ($5,000) and
$28,000 for the comparative three months and $164,000 and $113,000 for the
comparative nine months ended December 31, 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: NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE
MONTHS ENDED DECEMBER 31, 1997.
REVENUE. Revenues for the first nine months of fiscal 1999 were $687.8 million,
compared to $775.5 million for the same period in fiscal 1998. Revenues from
domestic operations decreased $66.7 million (9.1%) to $665.5 million in the
first nine months of fiscal 1999 when compared to $732.2 million for the same
period in fiscal 1998. Revenues from domestic stock sales decreased
approximately 8.6% as the result of decreases in tonnage shipped and average
price. In general, domestic revenues during the first nine months of fiscal
1999 were adversely affected by continuing weakness in significant industries
that the Company serves, such as agricultural equipment, oil services and
aerospace, which have suffered from global economic uncertainty caused in part
by the Asian financial crisis. Revenues from international operations decreased
$21.0 million to $22.3 million in the first nine months of fiscal 1999 when
compared to $43.3 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 nine months of fiscal 1999 was $196.4
million, compared to $216.2 million for the same period in fiscal 1998.
Consolidated gross margin for the first nine months of fiscal 1999 increased to
28.6% compared to 27.9% for the same period in fiscal 1998. Gross profit for the
fiscal 1999 and 1998 periods included a LIFO charge of $0.9 million and $1.9
million, respectively. Gross profit from international operations was $4.9
million and gross margin was 22.0% during the first nine months of fiscal 1999,
compared to $9.1 million and 21.0%, 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 28.9% for the first nine months of fiscal 1999
compared to 28.5% 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 nine months of fiscal 1999 were
$152.5 million (22.2% of revenues), compared to $168.4 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 nine months of fiscal 1999 were
$91.0 million (13.2% of revenues), compared to $96.4 million (12.4% of revenues)
for the same period in fiscal 1998. The fiscal 1999 period reflects lower
compensation and employee benefit expenses resulting primarily from headcount
reduction and reduced overtime, 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 nine months of fiscal 1999 were $25.7 million
(3.7% of revenues), compared to $27.9 million (3.6% of revenues) for the same
period in fiscal 1998. The fiscal 1999 period reflects lower incentive
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 nine months of fiscal 1999
were $35.8 million (5.2% of revenues), compared to $44.1 million (5.7% of
revenues) for the same period in fiscal 1998. The fiscal 1999 period reflects
lower professional services expense attributable to reengineering projects,
larger realized gains from the sale of assets, 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 and lower purchase discounts due to reduced inventory purchases.
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: NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE
MONTHS ENDED DECEMBER 31, 1997. (CONTINUED)
NET INTEREST EXPENSE. Net interest expense was $30.9 million for the first
nine months of fiscal 1999 compared to $30.5 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 $23.0 million for the first nine
months of fiscal 1999 compared to $23.8 million for the same period in fiscal
1998. The average outstanding indebtedness during the first nine months of
fiscal 1999 was $340.6 million, compared to $302.3 million for the same period
in fiscal 1998. The weighted average interest rate on such indebtedness was
8.51% during the first nine months of fiscal 1999 versus 9.67% during the same
period in fiscal 1998. During the nine months ended December 31, 1998 and 1997,
borrowings under the Company's Revolving Credit Facility averaged $118.2 million
and $129.1 million and the average interest rate on such borrowings was 7.54%
and 8.62%, respectively.
Interest expense associated with borrowings against the cash surrender value of
certain life insurance policies maintained by the Company was $7.9 million for
the fiscal 1999 period compared to $6.7 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 (7.01% and 8.47%, respectively, as of December 31, 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 (the "Fixed Rate"). 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 three month London Interbank Offered Rate and 3.25%
("Floating LIBOR") and the Fixed Rate, if the Floating LIBOR is greater than the
Fixed Rate on a per diem basis. If Floating LIBOR is lower than the Fixed Rate,
the Company is required to pay Bankers Trust Company an amount equal to the
product of the notional amount and the difference between the Fixed Rate and
Floating LIBOR on a per diem basis. During fiscal 1999, the Company has paid
Bankers Trust Company $0.1 million of interest as calculated under the
provisions described above.
INCOME TAXES. Income tax expense for the first nine months of fiscal 1999 and
1998 included provisions for state franchise and foreign income taxes. Federal
tax provisions for the first nine months of fiscal 1999 and 1998 were offset by
recognition of tax benefits associated with the Company's loss carryforwards.
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 DECEMBER 31, 1998 COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 1997
REVENUE. Revenues for the third quarter of fiscal 1999 were $211.2 million,
compared to $256.0 million for the same period in fiscal 1998. Revenues from
domestic operations decreased $38.2 million (15.8%) to $204.1 million in the
third quarter of fiscal 1999 when compared to $242.3 million for the same period
in fiscal 1998. Revenues from domestic stock sales decreased approximately 31%
as the result of decreases in tonnage shipped and average price. In general,
domestic revenues during the third quarter of fiscal 1999 were adversely
affected by continuing weakness in significant industries that the Company
serves, such as agricultural equipment, oil services and aerospace, which have
suffered from global economic uncertainty caused in part by the Asian financial
crisis. Revenues from international operations decreased $6.6 million to $7.2
million in the third quarter of fiscal 1999 when compared to $13.8 million for
the same period in fiscal 1998 due to the sale of the Company's subsidiary in
the U.K. during fiscal 1998.
GROSS PROFIT. Gross profit for the third quarter of fiscal 1999 was $59.7
million, compared to $70.8 million for the same period in fiscal 1998.
Consolidated gross margin for the fiscal 1999 and 1998 periods was 28.3% and
27.7%, respectively. The third quarters of fiscal 1999 and 1998 included a LIFO
charge of $0.2 million and $0.6 million, respectively. Gross profit from
international operations was $1.6 million and gross margin was 22.2% for the
third quarter of fiscal 1999 compared to $2.8 million and 20.3%, 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 subsidiary
in the U.K. during fiscal 1998. Exclusive of international operations and LIFO
charges, the gross margin from domestic operations from the third quarter of
fiscal 1999 improved to 28.5% as compared to 28.3% for the same period in fiscal
1998 due to changes in product mix.
EXPENSES. Total operating expenses for the third quarter of fiscal 1999 were
$47.6 million, compared to $55.9 million for the same period in fiscal 1998. As
a percentage of revenues, these expenses were 22.5% in the fiscal 1999 period
and 21.8% in the fiscal 1998 period.
Warehouse and delivery expenses for the third quarter of fiscal 1999 were $29.6
million (14.0% of revenues), compared with $32.5 million (12.7% of revenues) for
the same period in fiscal 1998. The fiscal 1999 period reflects lower
compensation and freight expense and the impact from the sale of the U.K.
subsidiary in fiscal 1998.
Selling expenses for the third quarter of fiscal 1999 were $7.9 million (3.7% of
revenues), compared with $8.9 million (3.5% of revenues) for the same period in
fiscal 1998. The fiscal 1999 period reflects lower incentive compensation
expense and the impact from the sale of the U.K. subsidiary in fiscal 1998.
General and administrative expenses for the third quarter of fiscal 1999 were
$10.1 million (4.8% of revenues), compared with $14.5 million (5.7% of revenues)
for the same period in fiscal 1998. The fiscal 1999 period reflects larger
realized gains on sales of assets and lower professional services expense.
NET INTEREST EXPENSE. Net interest expense was $10.6 million and $10.0 million
for the third quarter in fiscal 1999 and fiscal 1998, respectively. The
Company's average outstanding indebtedness during the third quarter of fiscal
1999 was $335.9 million, compared to $307.7 million for the same period in
fiscal 1998, and the average interest rate on such indebtedness was 8.61% and
9.66% respectively.
INCOME TAXES. Income tax expense for the three months ended December 31, 1998
and 1997 included provisions for state franchise and foreign income taxes.
Federal tax provisions for the three months ended December 31, 1998 and 1997
were offset by recognition of tax benefits associated with the Company's loss
carryforwards.
8
<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
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 December 31, 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 December 31, 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 December 31, 1998, the Company's primary sources of liquidity were
available borrowings of $57.4 million under its Revolving Credit Facility,
available borrowings of approximately $2.2 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
nine months of fiscal 1999, dividend income earned under the policies totaled
$7.1 million, compared to $7.0 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 December 31, 1998, there was
approximately $14.7 million of cash surrender value in all life insurance
policies maintained by the Company, net of borrowings.
For fiscal 1999, the Company had 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 was for the purchase of a
leased facility (the Company subsequently cancelled such planned expenditure)
and $1.9 million is for further additions to the Company's management
information systems. During the first nine months of fiscal 1999, the
Company spent $6.8 million for capital expenditures.
The Company's working capital at December 31, 1998 increased $35.7 million to
$193.5 million when compared to $157.8 million at March 31, 1998. The increase
resulted primarily from higher inventories ($20.3 million) and lower accounts
payable and accrued liabilities ($46.7 million) offset by lower accounts
receivable ($24.5 million).
Net cash used in operating activities during the first nine months of fiscal
1999 was $19.8 million, compared to $5.3 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 $1.6 million during the first nine
months of fiscal 1999, compared to net cash provided of $2.5 million in the same
period of fiscal 1998. Investing activities during the fiscal 1999 period were
impacted by higher capital expenditures and lower proceeds from asset
dispositions.
Net cash provided by financing activities during the first nine months of
fiscal 1999 totaled $14.6 million, compared to net cash used in financing
activities of $4.5 million in the same period of fiscal 1998. The change was
primarily attributable to higher borrowings under the Company's Revolving
Credit Facility and lower dividends paid to parent, partially offset by
payments of debt issue costs associated with a series of refinancing
transactions consummated in March 1998.
As of December 31, 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.
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 Company has substantially completed a review of its management information
systems and network and has determined that the vast majority of the related
software is Year 2000 compliant. In addition, the Company is reviewing Year 2000
compliance representations received from hardware vendors providing the network
server and personal computer systems and has begun preliminary testing of its
management information systems and hardware. The Company expects that its Year
2000 compliance review and systems testing will be completed by June 1999.
The Company is currently reviewing information received from its key material
vendors and service providers who have responded to a Company prepared survey
addressing Year 2000 standards. Information provided from responses to these
surveys will be compiled and furnished to the Company's merchandising
department and each facility for use in evaluating the ability of such key
vendors and service providers to provide goods and services as the 2000
approaches.
10
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 COMPLIANCE (CONTINUED)
The Company has developed checklists to assist each facility in its review,
identification and investigation of potential Year 2000 compliance issues
related to non-information systems, operations and equipment. Each facility
will be responsible for contacting equipment vendors and ensuring Year 2000
compliance at the operational level. Identification of items requiring
enhancement or replacement will be completed by February 1999.
All costs associated with Year 2000 compliance issues are being expensed as
incurred and 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. In the unlikely event that a failure caused by noncompliance of Year 2000
standards impacts the ability of the Company, its major customers, suppliers and
vendors (including those vendors providing necessary telecommunications, energy
and utilities) to conduct normal business activities, an adverse effect on the
Company's results of operations, liquidity or financial position would occur.
However, the Company believes its "most reasonably likely worst case Year 2000
scenario" would involve the partial failure in systems used in the procurement
and sale of inventory that would require those transactions to be manually
performed by the Company and its suppliers until the problem is corrected. The
impact from this type of problem is not likely to have a material adverse effect
on the Company's results of operations, liquidity or financial condition.
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 December 31, 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: February 9, 1999 Maurice S. Nelson, Jr.
President, Chief Executive Officer
/s/ William S. Johnson
------------------------------------
Date: February 9, 1999 William S. Johnson
Acting Vice President and
Chief Financial Officer, and
Secretary (Principal Financial and
Accounting Officer)
12
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<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 ENDING DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,877
<SECURITIES> 0
<RECEIVABLES> 81,680
<ALLOWANCES> 871
<INVENTORY> 200,735
<CURRENT-ASSETS> 300,445
<PP&E> 156,065
<DEPRECIATION> 52,930
<TOTAL-ASSETS> 426,721
<CURRENT-LIABILITIES> 106,983
<BONDS> 328,470
0
0
<COMMON> 0
<OTHER-SE> (26,196)
<TOTAL-LIABILITY-AND-EQUITY> 426,721
<SALES> 687,784
<TOTAL-REVENUES> 687,784
<CGS> 491,370
<TOTAL-COSTS> 491,370
<OTHER-EXPENSES> 90,957
<LOSS-PROVISION> 826
<INTEREST-EXPENSE> 30,890
<INCOME-PRETAX> 12,996
<INCOME-TAX> 845
<INCOME-CONTINUING> 12,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,151
<EPS-PRIMARY> 0
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