<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 JANUARY 4, 2000
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
- -------------------------------------------- ---------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3050 EAST BIRCH STREET, BREA, CALIFORNIA 92821
- -------------------------------------------- ---------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number: (714) 579-8823
--------------
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 January 31, 2000 -
128 SHARES
- ----------
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EARLE M. JORGENSEN COMPANY
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at January 4, 2000 (unaudited) and
March 31, 1999 2
Consolidated Statements of Operations and Comprehensive Income
for the Three Months and Nine Months Ended January 4, 2000
and December 31, 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended
January 4, 2000 and December 31, 1998 (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 12
SIGNATURES 13
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
EARLE M. JORGENSEN COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 4, 2000 MARCH 31, 1999
--------------- --------------
(UNAUDITED)
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ASSETS
Current assets:
Cash $ 13,937 $ 17,860
Accounts receivable, less allowance for doubtful accounts of
$389 and $335 at January 4, 2000 and March 31, 1999, respectively 96,084 91,356
Inventories 208,685 183,968
Other current assets 8,168 4,890
--------- ---------
Total current assets 326,874 298,074
--------- ---------
Property, plant and equipment, net of accumulated depreciation of $54,161 and
$51,405 at January 4, 2000 and March 31, 1999, respectively 93,570 102,776
Net cash surrender value of life insurance policies 17,782 18,541
Debt issue costs, net of accumulated amortization 5,143 6,255
Other assets 785 1,221
--------- ---------
Total assets $ 444,154 $ 426,867
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 87,001 $ 87,108
Accrued employee compensation and related taxes 9,703 9,732
Accrued interest 3,718 7,638
Accrued employee benefits 11,493 9,402
Other accrued liabilities 6,168 5,752
Deferred income taxes 20,251 20,251
Current portion of long-term debt 2,400 1,500
--------- ---------
Total current liabilities 140,734 141,383
--------- ---------
Long term debt 315,346 295,006
Deferred income taxes 15,497 14,941
Other long-term liabilities 4,100 3,557
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 -- --
Capital in excess of par value 89,205 102,082
Accumulated other comprehensive loss (1,090) (1,165)
Accumulated deficit (119,638) (128,937)
--------- ---------
Total stockholder's equity (31,523) (28,020)
--------- ---------
Total liabilities and stockholder's equity $ 444,154 $ 426,867
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
2
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- --------------------------
JANUARY 4, DECEMBER 31, JANUARY 4, DECEMBER 31,
2000 1998 2000 1998
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenues $ 229,161 $ 211,241 $ 669,441 $ 687,784
Cost of sales 162,633 151,525 474,199 491,370
--------- --------- --------- ---------
Gross profit 66,528 59,716 195,242 196,414
Expenses:
Warehouse and delivery 30,599 29,598 89,825 90,957
Selling 8,252 7,864 24,597 25,682
General and administrative 14,651 10,104 39,327 35,889
--------- --------- --------- ---------
Total expenses 53,502 47,566 153,749 152,528
--------- --------- --------- ---------
Income from operations 13,026 12,150 41,493 43,886
Interest expense, net 11,251 10,581 31,367 30,890
--------- --------- --------- ---------
Income before income taxes 1,775 1,569 10,126 12,996
Income tax expense 225 136 827 845
--------- --------- --------- ---------
Net income 1,550 1,433 9,299 12,151
Other comprehensive income (loss), net of
income tax 28 5 75 (164)
--------- --------- --------- ---------
Comprehensive income $ 1,578 $ 1,438 $ 9,374 $ 11,987
========= ========= ========= =========
</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
--------------------------
JANUARY 4, December 31,
2000 1998
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OPERATING ACTIVITIES
Net income $ 9,299 $ 12,151
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 7,418 6,784
Amortization of debt issue costs 1,111 970
Accrued post-retirement benefits 360 360
ESOP contribution 1,954 2,444
Deferred income taxes 556 805
(Gain) loss on sale of property, plant and equipment 2,291 (2,207)
Provision for bad debts 886 826
Increase in cash surrender value of life insurance over
premiums paid 2,744 2,426
Changes in assets and liabilities:
Accounts receivable (5,614) 23,668
Inventories (25,890) (20,332)
Accounts payable and accrued liabilities and expenses (3,503) (47,871)
Non-trade receivable (2,174) --
Other (1,019) 188
-------- --------
Net cash used in operating activities (11,581) (19,788)
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment (5,521) (6,789)
Proceeds from the sale of property, plant and equipment 6,765 5,843
Premiums paid on life insurance policies (1,985) (1,543)
Proceeds from redemption of life insurance policies -- 843
-------- --------
Net cash used in investing activities (741) (1,646)
-------- --------
FINANCING ACTIVITIES
Net borrowings under revolving loan agreements 22,490 18,986
Payments on other debt (1,250) (1,250)
Cash dividend to parent (12,876) (1,264)
Payment of debt issue costs -- (1,846)
-------- --------
Net cash provided by financing activities 8,364 14,626
-------- --------
Effect of exchange rate changes on cash 35 (78)
-------- --------
NET DECREASE IN CASH (3,923) (6,886)
Cash at beginning of period 17,860 20,763
-------- --------
CASH AT END OF PERIOD $ 13,937 $ 13,877
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 4, 2000
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 (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 normal
recurring accruals) and disclosures considered necessary for a fair
presentation of the consolidated financial position of the Earle M.
Jorgensen Company at January 4, 2000, the consolidated results of
operations and comprehensive income for the three months and nine months
ended January 4, 2000 and December 31, 1998, and consolidated cash flows
for the nine months ended January 4, 2000 and December 31, 1998. The
consolidated results of operations and comprehensive income for the three
months and nine months ended January 4, 2000 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, 1999.
2. COMPREHENSIVE INCOME
Effective April 1, 1998, we adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes rules for the reporting and disclosure of
comprehensive income and its components. Comprehensive income (loss)
included foreign currency translation adjustments of $28,000 and $5,000 for
the comparative three months and $75,000 and ($164,000) for the comparative
nine months ended January 4, 2000 and December 31, 1998, respectively.
Prior to the adoption of SFAS No. 130, we reported foreign currency
translation adjustments separately in stockholder's equity. The adoption of
SFAS No. 130 had no impact on our 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 JANUARY 4, 2000 COMPARED TO NINE MONTHS
ENDED DECEMBER 31, 1998.
REVENUE. Revenues for the first nine months of fiscal 2000 were $669.4 million,
compared to $687.8 million for the same period in fiscal 1999. Revenues from our
domestic operations decreased $22.6 million (3.4%) to $642.9 million in the
first nine months of fiscal 2000 when compared to $665.5 million for the same
period in fiscal 1999. This decrease was attributable to lower metal prices.
Tonnage shipped during the first nine months of fiscal 2000 increased 5% when
compared to the same period in fiscal 1999, although demand was weaker in
certain core products and in key industries that we serve, particularly
agricultural equipment, oil services and aerospace. Revenues from our Canadian
operations increased $4.3 million (19.3%) to $26.6 million in the first nine
months of fiscal 2000 when compared to $22.3 million for the same period in
fiscal 1999 as the result of strong local economic conditions.
GROSS PROFIT. Gross profit for first nine months of fiscal 2000 was $195.2
million, compared to $196.4 million for the same period in fiscal 1999.
Consolidated gross margin for the first nine months of fiscal 2000 increased to
29.2% when compared to 28.6% for the same period in fiscal 1999. Gross profit
for the fiscal 2000 period included a LIFO credit of $4.1 million versus a LIFO
charge of $0.9 million in the fiscal 1999 period. Gross profit from our Canadian
operations was $6.1 million and gross margin was 22.9% during the first nine
months of fiscal 2000, compared to $4.9 million and 22.0%, respectively, for the
same period in fiscal 1999. Exclusive of Canadian operations and LIFO
adjustments, our gross margin was 28.8% for the first nine months of fiscal 2000
compared to 28.9% for the same period in fiscal 1999.
EXPENSES. Total operating expenses for the first nine months of fiscal 2000 were
$153.7 million (23.0% of revenues), compared to $152.5 million (22.2% of
revenues) for the same period in fiscal 1999. Excluding gains or losses from the
sale of fixed assets, our operating expenses were $151.4 million during the
first nine months of fiscal 2000, compared to $154.7 million for the same period
in fiscal 1999. The lower adjusted operating expenses reflect the benefits
realized from 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 2000 were
$89.8 million (13.4% of revenues), compared to $91.0 million (13.2% of revenues)
for the same period in fiscal 1999. The fiscal 2000 period benefited from lower
compensation expense and transportation costs resulting from improved production
and transportation scheduling capabilities. As of January 4, 2000, 1,135
employees were involved in warehouse and delivery activities, compared to 1,093
as of December 31, 1998.
Selling expenses for the first nine months of fiscal 2000 were $24.6 million
(3.7% of revenues), compared to $25.7 million (3.7% of revenues) for the same
period in fiscal 1999. The decrease resulted from lower accruals for incentive
compensation based on sales and gross profit levels and a 3% decrease in
headcount resulting from efficiencies realized in processing customer orders.
General and administrative expenses, excluding gains or losses from the sale of
fixed assets, were $37.0 million (5.5% of revenues) for the first nine months of
fiscal 2000, compared to $38.1 million (5.5% of revenues) for the same period in
fiscal 1999. The fiscal 2000 period included lower costs associated with
environmental matters, lower consulting charges and other expenses related to
reengineering and cost reduction programs implemented in fiscal 1999 and lower
compensation expenses resulting from a 9% decrease in headcount, partially
offset by lower income earned on redemption of life insurance policies. Losses
from sale of fixed assets, including the sale of our Hawaiian operations,
totaled $2.3 million during the first nine months of fiscal 2000, compared to
gains of $2.2 million for the same period in fiscal 1999.
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 JANUARY 4, 2000 COMPARED TO NINE MONTHS
ENDED DECEMBER 31, 1998. (CONTINUED)
NET INTEREST EXPENSE. Net interest expense was $31.4 million for the first nine
months of fiscal 2000 compared to $30.9 million in the same period in fiscal
1999. Such amounts include interest and amortization of debt issue costs related
to our revolving credit facility ("Revolving Credit Facility"), our 9 1/2%
senior notes ("Senior Notes"), our variable rate term loan ("Term Loan") and
interest on borrowings against the cash surrender value of certain life
insurance policies we maintain.
Interest expense and amortization of debt issue costs related to our outstanding
indebtedness (excluding those borrowings against the cash surrender value of
certain life insurance policies) totaled $22.2 million for the first nine months
of fiscal 2000 compared to $23.0 million for the same period in fiscal 1999. The
average outstanding indebtedness during the fiscal 2000 period was $314.8
million, compared to $340.6 million for the same period in fiscal 1999. The
weighted-average interest rate on such indebtedness was 8.40% during the first
nine months of fiscal 2000 versus 8.51% during the same period in fiscal 1999.
During the nine months ended January 4, 2000 and December 31, 1998, borrowings
under the Revolving Credit Facility averaged $99.0 million and $118.2 million
and the average interest rate on such borrowings was 7.22% and 7.54%,
respectively.
Interest expense on borrowings against the cash surrender value of certain life
insurance policies maintained was $9.2 million for the first nine months of
fiscal 2000 period compared to $7.9 million for the same period in fiscal 1999.
The interest rates on our 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 our Revolving Credit Facility and Term Loan are floating
(7.41% and 9.44%, respectively, as of January 4, 2000). Pursuant to an interest
rate swap agreement entered into with Bankers Trust Company in June 1998, the
interest rate on the Term Loan was fixed at approximately 9.05% through June
2003 (the "Fixed Rate"). The agreement requires Bankers Trust Company to make
payments to us 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 plus 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, we are 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 the nine months
ended January 4, 2000, we paid Bankers Trust Company $0.4 million of interest as
calculated under the provisions described above.
INCOME TAXES. Income tax expense for the first nine months of fiscal 2000 and
1999 included provisions for state franchise and foreign income taxes. Federal
tax provisions for the first nine months of fiscal 2000 and 1999 were offset by
recognition of tax benefits associated with our 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 JANUARY 4, 2000 COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 1998. (CONTINUED)
REVENUE. Revenues for the third quarter of fiscal 2000 were $229.2 million,
compared to $211.2 million for the same period in fiscal 1999. Revenues from our
domestic operations increased $15.5 million (7.6%) to $219.6 million in the
third quarter of fiscal 2000 when compared to $204.1 million for the same period
in fiscal 1999. This increase was attributable to a 17% increase in tonnage
shipped, partially offset by lower metal prices, although demand was weaker in
certain core products and in key industries that we serve, particularly
agricultural equipment, oil services and aerospace. Revenue from our Canadian
operations increased 33.3% to $9.6 million in the third quarter of fiscal 2000
when compared to $7.2 million in the same period in fiscal 1999 as the result of
strong local economic conditions.
GROSS PROFIT. Gross profit for the third quarter of fiscal 2000 was $66.5
million, compared to $59.7 million for the same period in fiscal 1999, while
consolidated gross margins were 29.0% and 28.3%, respectively. Gross profit for
the fiscal 2000 period included a LIFO credit of $1.6 million versus a LIFO
charge of $0.2 million in the fiscal 1999 period. Gross profit from our Canadian
operations was $2.1 million and gross margin was 21.9% during the third quarter
of fiscal 2000, compared to $1.6 million and 22.2%, respectively, for the same
period in fiscal 1999. Exclusive of our Canadian operations and LIFO
adjustments, gross margin was 28.8% for the third quarter of fiscal 2000
compared to 28.5% for the same period in fiscal 1999.
EXPENSES. Total operating expenses for the third quarter of fiscal 2000 were
$53.5 million (23.3% of revenues), compared to $47.6 million (22.5% of revenues)
for the same period in fiscal 1999. Excluding gains or losses from the sale of
fixed assets, our operating expenses were $51.3 million during the first nine
months of fiscal 2000, compared to $49.4 million for the same period in fiscal
1999. The increase in operating expenses generally reflects the impact on
variable expenses from higher sales volume.
Warehouse and delivery expenses for the third quarter of fiscal 2000 were $30.6
million (13.4% of revenues), compared to $29.6 million (14.0% of revenues) for
the same period in fiscal 1999. The fiscal 2000 period included higher
compensation expenses, partially offset by lower transportation costs resulting
from improved production and transportation scheduling capabilities.
Selling expenses for the third quarter of fiscal 2000 were $8.3 million (3.6% of
revenues), compared to $7.9 million (3.7% of revenues) for the same period in
fiscal 1999. The increase resulted from higher accruals for incentive
compensation based on sales and gross profit levels.
General and administrative expenses, excluding gains or losses from the sale of
fixed assets, were $12.5 million (5.5% of revenues) during the third quarter of
fiscal 2000 compared to $11.9 million (5.6% of revenues) for the same period in
fiscal 1999. The fiscal 2000 period included higher accruals for management
incentives, partially offset by lower expenses associated with information
technology projects. Losses from sale of fixed assets, including the sale of our
Hawaiian operations, totaled $2.2 million during the third quarter of fiscal
2000, compared to gains of $1.8 million for the same period in fiscal 1999.
NET INTEREST EXPENSE. Net interest expense was $11.3 million for the third
quarter of fiscal 2000 compared to $10.6 million in the same period in fiscal
1999. Such amounts include interest and amortization of debt issue costs related
to Revolving Credit Facility, our Senior Notes, our Term Loan and interest on
borrowings against the cash surrender value of certain life insurance policies
we maintain.
8
<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: THREE MONTHS ENDED JANUARY 4, 2000 COMPARED TO THREE
MONTHS ENDED DECEMBER 31, 1998. (CONTINUED)
Interest expense and amortization of debt issue costs related to the our
outstanding indebtedness (excluding those borrowings against the cash surrender
value of certain life insurance policies) totaled $8.0 million for the third
quarter of fiscal 2000 compared to $7.8 million for the same period in fiscal
1999. The average outstanding indebtedness during the third quarter of fiscal
2000 was $320.0 million, compared to $335.9 million for the same period in
fiscal 1999. The weighted average interest rate on such indebtedness was 8.91%
during the third quarter of fiscal 2000 versus 8.61% during the same period in
fiscal 1999. During the three months ended January 4, 2000 and 1998, borrowings
under the Revolving Credit Facility averaged $104.7 million and $119.2 million
and the average interest rate on such borrowings was 7.55% and 7.17%,
respectively.
Interest expense on borrowings against the cash surrender value of certain life
insurance policies maintained was $3.2 million during the third quarter of
fiscal 2000 period compared to $2.8 million for the same period in fiscal 1999.
During the three months ended January 4, 2000, we paid Bankers Trust Company
$0.1 million of interest as calculated under the provisions of our interest rate
swap agreement.
INCOME TAXES. Income tax expense for the third quarter of fiscal 2000 and 1999
included provisions for state franchise and foreign income taxes. Federal tax
provisions for the third quarter of fiscal 2000 and 1999 were offset by
recognition of tax benefits associated with our loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $186.1 million at January 4, 2000 when compared to
$156.7 million at March 31, 1999 primarily as the result of higher inventories
and accounts receivable. Our primary sources of cash during the first nine
months of fiscal 2000 consisted of funds provided by borrowings under our
Revolving Credit Facility, $22.5 million, and proceeds from the sale of assets,
$6.8 million, while the primary uses of cash consisted of: (i) dividends to
Holding, $12.9 million; (ii) cash used in operations, $11.6 million; and (iii)
capital expenditures, $5.5 million.
Cash used in operating activities was $11.6 million (1.7% of revenues) during
the first nine months of fiscal 2000 compared to $19.8 million (2.9% of
revenues) for the same period of fiscal 1999.
During the first nine months of fiscal 2000, we redeemed through dividends to
Holding, $12.9 million of capital stock from retiring and terminated employees,
as required by the terms of our ESOP and Holding's Stockholders Agreement. We do
not expect any additional significant redemptions for the remainder for fiscal
2000.
For fiscal 2000, we have planned approximately $10.0 million of capital
expenditures to be financed from internally generated funds. Approximately $7.2
million is for routine replacement of machinery and equipment and facility
improvements and expansions, and $2.8 million is for further additions to our
management information systems. During the first nine months of fiscal 2000, we
spent $5.5 million for planned capital expenditures.
9
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (continued)
Our cash requirements for debt service and related obligations through the end
of fiscal 2000 are expected to consist primarily of interest payments under the
Revolving Credit Facility, interest and principal payments on the 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 ESOP, capital
expenditures and principal and interest payments on our industrial revenue
bonds. As of January 4, 2000, principal payments required by our outstanding
industrial revenue bond indebtedness amount to $1.4 million in fiscal years 2001
through 2004 and $6.2 million in the aggregate thereafter through 2010. We will
not be required to make any principal payments on our Senior Notes until 2005.
Our Revolving Credit Facility will mature in 2003 and our 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 January 4, 2000, we were in compliance
with all covenants under the Revolving Credit Facility, the Term Loan and the
Senior Notes. Although compliance with such covenants in the future is largely
dependent on our future performance and general economic conditions, for which
there can be no assurance, we expect to be in compliance with all of our debt
covenants for the foreseeable future.
At January 4, 2000, our primary sources of liquidity were available borrowings
of $77.1 million under the Revolving Credit Facility, available borrowings of
approximately $2.1 million against certain life insurance policies, and
internally generated funds. Borrowings under our Revolving Credit Facility are
secured by domestic inventory and accounts receivable, and future availability
is determined by prevailing levels of those assets. Our Term Loan is secured by
a first priority lien on a substantial portion of current and future acquired
unencumbered property, plant and equipment. The life insurance policy loans are
secured by the cash surrender value of the policies, are non-recourse, and bear
interest at a rate 0.5% greater than the dividend income rate on the policies.
For the first nine months of fiscal 2000, dividend income earned under the
policies totaled $8.9 million, compared to $7.1 million for the same period in
fiscal 1999 and is reported as an offset to general and administrative expenses
in the accompanying statements of operations. As of January 4, 2000, there was
approximately $17.8 million of cash surrender value in the life insurance
policies we maintain, net of borrowings.
For the first nine months and third quarter of fiscal 2000, EBITDA totaled $47.2
million (7.1% of revenues) and $14.6 million (6.4% of revenues), compared to
$55.6 million (8.1% of revenues) and $15.5 million (7.3% of revenues),
respectively, for the same periods in fiscal 1999. EBITDA, which represents
income from operations before net interest expense, taxes, depreciation,
amortization, LIFO adjustments, and certain other non-cash expenses, including
ESOP and post-retirement accruals, is provided as an important measure of our
ability to service debt. However, EBITDA should not be considered in isolation
or as a substitute for consolidated results of operations and cash flows data
presented in the accompanying consolidated condensed financial statements.
We believe our sources of liquidity and capital resources are sufficient to meet
all currently anticipated operating cash requirements, including debt service
payments on the Revolving Credit Facility, the Term Loan and the 9 1/2% Senior
Notes prior to their maturities in 2003, 2004 and 2005, respectively; however,
we anticipate that it will be necessary to replace or to refinance all or a
portion of the Revolving Credit Facility, the Term Loan and the 9 1/2% Senior
Notes prior to their respective maturities, although there can be no assurance
on what terms, if any, we would be able to obtain such refinancing or additional
financing. Our ability to make interest payments on the Revolving Credit
Facility and the Senior Notes and principal and interest payments on the 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 our control, and the continued availability of revolving credit
borrowings.
10
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE
IMPACT OF YEAR 2000 -The Year 2000 issue exists because many computer systems,
applications and embedded microprocessors use two rather than four digit years
to define the applicable year. Because this issue has the potential to disrupt
our business operations, a company wide Year 2000 project was initiated to
identify and resolve the potential issues surrounding the Year 2000 problem. The
Year 2000 project addresses the problems that may arise in computer
technologies, which include both information technology ("IT") and non-IT
systems, and those Year 2000 issues related to third parties that are considered
significant to our business operations.
We named a project manager to coordinate Year 2000 issues and compliance. The
project manager's principal responsibilities include identifying, assessing,
remediating, testing, implementing and planning for contingencies related to
Year 2000 issues that could materially impact our results of operations,
liquidity, or capital resources if failure occurs.
STATE OF READINESS -Our systems principally consist of business information
systems (such as mainframe computers and distributed servers and associated
business application software) and infrastructure (such as personal computers,
operating systems, networks and devices such as hubs, switches, routers, and
phone systems). We have completed a review of our business information systems
and have identified "business critical" systems. In September 1999, we completed
testing of our business critical systems, including those that required
upgrading or replacement, and determined such systems are Year 2000 compliant.
Non-IT systems are those business tools that may contain embedded
microprocessors, such as elevators, security systems, production equipment, and
climate control systems. Our branch operations management was directed to
identify non-IT systems related to their respective facilities and to determine
the level of Year 2000 compliance or remediation required. This process was
completed in September 1999.
EXTERNAL RELATIONSHIPS - We also face a potential risk should one or more of our
principal suppliers, service providers or other parties with whom we have a
material business relationship suffer from a Year 2000 related problem. We have
identified key vendors whose Year 2000 compliance may be critical to us,
including those providing metal products, metal processing services and
transportation related services.
Surveys assessing Year 2000 compliance were distributed to these key vendors and
their responses have been compiled and reviewed. We have used the results of
these surveys to aid our contingency planning.
CONTINGENCY PLANNING - We recognize the need for contingency planning in those
areas where it is known, or is reasonably likely that an event or an uncertainty
will create a Year 2000 system related failure with a significant negative
impact on our business operations. Contingency planning has been completed for
IT and non-IT systems, and for principal suppliers or service providers, and
included among other actions, manual workarounds and staffing reassignments.
COSTS - We have spent approximately $500,000 to address our Year 2000 issues.
This amount included all costs to upgrade Year 2000 deficient business
information systems and infrastructure components, such as time and attendance
applications and phone systems.
11
<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE (continued)
RISKS - We have completed the risk assessment, remediation and contingency
planning for our internal IT and non-IT systems, and for those parties with whom
we have a material business relationship. Although we believe it is unlikely, it
is possible our results of operations or financial position could be materially
adversely impacted if we and our major customers or suppliers do not adequately
address Year 2000 issues. We believe our "reasonable likely worst case scenario"
would involve a partial failure in one or more of our systems, or systems
maintained by principal suppliers, service providers or other parties with whom
we have a material business relationship, which would require particular
transactions or processes to be handled manually, thereby causing delays and
resulting in additional costs being incurred until the problem is corrected.
Furthermore, the price of metal products purchased by us may increase if primary
suppliers could not provide product and we were forced to purchase from
alternative sources. In addition, interruptions in telecommunications, energy
and transportation services could also have an adverse impact on our results of
operations or financial position.
As of the date of this filing, we have not been affected by Year 2000 system
related failures that have had a significant negative impact on our business
operations.
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 January 4, 2000.
12
<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 7, 2000 Maurice S. Nelson, Jr.
President, Chief Executive Officer
/s/ William S. Johnson
----------------------
Date: February 7, 2000 William S. Johnson
Vice President, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
13
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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