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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED JUNE 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND 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
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State the aggregate market value of the voting stock held by non-affiliates
of the registrant. NONE
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Outstanding common stock, par value $.01 per share, at July 31, 2000 -
128 SHARES
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EARLE M. JORGENSEN COMPANY
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 29, 2000 (unaudited) and
March 31, 2000 2
Consolidated Statements of Operations and Comprehensive Income
for the Three Months Ended June 29, 2000 and
June 30, 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the Three Months Ended
June 29, 2000 and June 30, 1999 (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 9
SIGNATURES 10
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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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JUNE 29, 2000 MARCH 31, 2000
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(UNAUDITED)
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ASSETS
Current assets:
Cash $ 14,555 $ 21,660
Accounts receivable, less allowance for doubtful accounts of $561
and $416 at June 29, 2000 and March 31, 2000, respectively 119,313 108,247
Inventories 237,165 205,016
Other current assets 6,641 5,622
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Total current assets 377,674 340,545
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Property, plant and equipment, net of accumulated depreciation of $59,178
and $56,651 at June 29, 2000 and March 31, 2000, respectively 94,505 95,041
Net cash surrender value of life insurance policies 27,525 22,894
Debt issue costs, net of accumulated amortization 4,403 4,773
Other assets 948 1,121
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Total assets $505,055 $464,374
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $130,948 $119,499
Accrued employee compensation and related taxes 8,109 12,411
Accrued employee benefits 9,391 8,927
Accrued interest 12,950 7,031
Other accrued liabilities 6,316 5,939
Deferred income taxes 18,986 18,986
Current portion of long-term debt 2,400 2,604
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Total current liabilities 189,100 175,397
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Long term debt 303,044 282,943
Deferred income taxes 16,829 16,400
Other long-term liabilities 3,620 3,999
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 91,348 91,348
Accumulated other comprehensive loss (1,062) (763)
Accumulated deficit (97,824) (104,950)
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Total stockholder's equity (7,538) (14,365)
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Total liabilities and stockholder's equity $505,055 $464,374
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See accompanying notes.
2
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
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THREE MONTHS ENDED
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JUNE 29, 2000 JUNE 30, 1999
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(UNAUDITED)
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Revenues $268,424 $220,889
Cost of sales 193,928 156,858
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Gross profit 74,496 64,031
Expenses:
Warehouse and delivery 33,995 29,422
Selling 9,735 8,259
General and administrative 12,393 12,346
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Total expenses 56,123 50,027
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Income from operations 18,373 14,004
Interest expense, net 10,770 9,698
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Income before income taxes 7,603 4,306
Income tax expense 477 312
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Net income 7,126 3,994
Other comprehensive income (loss), net of income tax (299) 62
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Comprehensive income $6,827 $4,056
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See accompanying notes.
3
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
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THREE MONTHS ENDED
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JUNE 29, 2000 JUNE 30, 1999
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(UNAUDITED)
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OPERATING ACTIVITIES
Net income $ 7,126 $ 3,994
Adjustments to reconcile net income to net cash used for operating
activities
Depreciation and amortization 2,679 2,442
Amortization of debt issue costs and discount on senior notes 370 371
(Gain) loss on sale of property, plant and equipment 22 (256)
ESOP contribution 1,036 886
Provision for bad debts 309 231
Changes in assets and liabilities:
Accounts receivable (11,375) (754)
Inventories (32,149) (6,164)
Increase in cash surrender value of life insurance (4,768) (3,792)
Accounts payable and accrued liabilities and expenses 12,871 (10,711)
Accrued postretirement benefits --- 120
Current and deferred income taxes 429 241
Non-trade receivable (804) (1,500)
Other (697) 320
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Net cash used in operating activities (24,951) (14,572)
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INVESTING ACTIVITIES
Additions to property, plant and equipment (2,185) (1,043)
Proceeds from the sale of property, plant and equipment 9 387
Premiums paid on life insurance policies (237) (276)
Proceeds from redemption of life insurance policies 374 ---
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Net cash used in investing activities (2,039) (932)
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FINANCING ACTIVITIES
Net borrowings under revolving loan agreements 20,647 15,943
Payments on other debt (750) (750)
Cash dividend to parent --- (2,300)
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Net cash provided by financing activities 19,897 12,893
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Effect of exchange rate changes on cash (12) 23
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NET DECREASE IN CASH (7,105) (2,588)
Cash at beginning of period 21,660 17,860
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CASH AT END OF PERIOD $14,555 $15,272
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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
JUNE 29, 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
normally recurring accruals) and disclosures considered necessary for a
fair presentation of the consolidated financial position of the Earle M.
Jorgensen Company at June 29, 2000 and the consolidated results of
operations and comprehensive income and cash flows for the three months
ended June 29, 2000 and June 30, 1999. The consolidated results of
operations and comprehensive income for the three months ended June 29,
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, 2000.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. COMPREHENSIVE INCOME
For the three months ended June 29, 2000 and June 30, 1999, comprehensive
income (loss) included foreign currency translation adjustments of
($299,000) and $62,000, respectively.
5
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 29, 2000 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1999.
REVENUE. Revenues for the first quarter of fiscal 2001 were $268.4 million,
compared to $220.9 million for the same period in fiscal 2000. Revenues from
our domestic operations increased $45.3 million (21.3%) to $257.5 million in
the first quarter of fiscal 2001 when compared to $212.2 million for the same
period in fiscal 2000. This increase was attributable to a 25% increase in
tonnage shipped, partially offset by weaker prices. Revenue from our Canadian
operations increased 25.3% to $10.9 million in the first quarter of fiscal
2001 when compared to $8.7 million in the same period in fiscal 2000.
GROSS PROFIT. Gross profit for the first quarter of fiscal 2001 was $74.5
million, compared to $64.0 million for the same period in fiscal 2000, while
consolidated gross margins were 27.8% and 29.0%, respectively. Gross profit for
the fiscal 2000 period included a LIFO credit of $1.0 million; there was no LIFO
credit recorded in the fiscal 2001 period. Gross profit from our Canadian
operations was $2.6 million and gross margin was 23.9% during the first quarter
of fiscal 2001, compared to $2.0 million and 23.0%, respectively, for the same
period in fiscal 2000. Exclusive of our Canadian operations and LIFO
adjustments, gross margin was 27.9% for the first quarter of fiscal 2001
compared to 28.8% for the same period in fiscal 2000. The decrease of 0.9% was
the result of changes in customer and product mixes.
EXPENSES. Total operating expenses for the first quarter of fiscal 2001 were
$56.1 million (20.9% of revenues), compared to $50.0 million (22.6% of revenues)
for the same period in fiscal 2000. The higher operating expenses generally
reflect variable expenses incurred to support increased tonnage shipped and
costs associated with new or expanded facilities.
Warehouse and delivery expenses for the first quarter of fiscal 2001 were $34.0
million (12.7% of revenues), compared to $29.4 million (13.3% of revenues) for
the same period in fiscal 2000. The fiscal 2001 period included higher
compensation expense and transportation and freight costs resulting from the
increase in tonnage shipped, and higher lease costs associated with new or
expanded facilities. As of June 29, 2000, 1,220 employees were involved in
warehouse and delivery activities, compared to 1,114 as of June 30, 1999.
Selling expenses for the first quarter of fiscal 2001 were $9.7 million (3.6% of
revenues), compared to $8.3 million (3.8% of revenues) for the same period in
fiscal 2000. The increase resulted from higher accruals for incentive
compensation based on sales and gross profit levels.
General and administrative expenses were $12.4 million (4.6% of revenues)
during the first quarter of 2001 compared to $12.3 million (5.6% of revenues)
for the same period in fiscal 2000. The fiscal 2001 period was impacted by
higher accruals for incentive compensation offset by proceeds received on
life insurance policies. In addition, the first quarter of fiscal 2000
included a gain on sale of assets that did not reoccur during the same period
in fiscal 2001.
NET INTEREST EXPENSE. Net interest expense was $10.8 million for the first
quarter of fiscal 2001 compared to $9.7 million in the same period in fiscal
2000. 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.
6
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PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 29, 2000 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1999. (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 $7.3 million for the first
quarter of fiscal 2001 compared to $6.7 million for the same period in fiscal
2000. The average outstanding indebtedness during the first quarter of fiscal
2001 was $310.7 million, compared to $308.5 million for the same period in
fiscal 2000. The weighted average interest rate on such indebtedness was 9.04%
during the first quarter of fiscal 2001 versus 7.72% during the same period in
fiscal 2000. During the three months ended June 29, 2000 and June 30, 1999,
borrowings under the Revolving Credit Facility averaged $96.0 million and $92.4
million and the average interest rate on such borrowings was 8.33% and 6.88%,
respectively.
Interest expense associated with borrowings against the cash surrender value of
certain life insurance policies maintained was $3.4 million during the first
quarter of fiscal 2001 period compared to $3.0 million for the same period in
fiscal 2000.
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
(8.30% and 10.06%, respectively, as of June 29, 2000).
Pursuant to our interest rate swap agreement with Bankers Trust Company
covering a notional amount of $95 million under the Term Loan, we received
$0.1 million during the first quarter of fiscal 2001 versus paying $0.2
million in interest during the same period in fiscal 2000.
INCOME TAXES. Income tax expense for the first quarter of fiscal 2001 and 2000
included provisions for state franchise and foreign income taxes. Federal tax
provisions for the first quarter of fiscal 2001 and 2000 were offset by
recognition of tax benefits associated with our loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $188.6 million at June 29, 2000 when compared to
$165.1 million at March 31, 2000 primarily as the result of higher inventories
and accounts receivable. Our primary sources of cash during the first quarter of
fiscal 2001 consisted of funds provided by borrowings under our Revolving Credit
Facility of $20.6 million. The primary uses of cash consisted of: (i) cash used
in operations, $25.0 million; and (ii) capital expenditures, $2.2 million.
Cash used in operating activities was $25.0 million (9.3% of revenues) in the
first quarter of fiscal 2001 compared to $14.5 million (6.6% of revenues) in the
same period of fiscal 2000. The increase is primarily due to changes in working
capital necessary to support current sales levels.
For fiscal 2001, we have planned approximately $14.0 million of capital
expenditures to be financed from internally generated funds. Approximately $11.3
million is for routine replacement of machinery and equipment and facility
improvements and expansions, and $2.7 million is for further additions to our
management information systems. During the first three months of fiscal 2001, we
spent $2.2 million for planned capital expenditures.
7
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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
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Our cash requirements for debt service and related obligations through the end
of fiscal 2001 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 June 29, 2000, principal payments required by our outstanding
industrial revenue bond indebtedness amount to $0.9 million in fiscal 2001, $1.4
million in fiscal years 2002 through 2004 and $6.2 million in the aggregate
thereafter through 2010. We will not be required to make any principal payments
on our 9 1/2% 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
June 29, 2000, we were in compliance with all covenants under the Revolving
Credit Facility, the Term Loan and the 9 1/2% 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 June 29, 2000, our primary sources of liquidity were available borrowings of
$121.5 million under the Revolving Credit Facility, available borrowings of
approximately $10.2 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 quarter of fiscal 2001, dividend income earned under the policies
totaled $3.1 million, compared to $2.9 million for the same period in fiscal
2000 and is reported as an offset to general and administrative expenses in the
accompanying statements of operations. As of June 29, 2000, there was
approximately $27.5 million of cash surrender value in all life insurance
policies we maintained, net of borrowings.
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 9 1/2% 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.
8
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On July 19, 2000, our sole stockholder executed and delivered a
written consent of stockholder.
(b) The consent provided for the re-election of our Board of
Directors, including the re-election of Mr. G. Robert Durham to
our Board of Directors pursuant to the rights of the holders of
Holding's Series A 13% Cumulative Preferred Stock. The consent
also provided for the appointment of Ernst & Young LLP as our
auditors for the fiscal year ending March 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Registrant was not required to file a Form 8-K during the
quarter ended June 29, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EARLE M. JORGENSEN COMPANY
/s/ Maurice S. Nelson, Jr.
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Date: July 27, 2000 Maurice S. Nelson, Jr.
President, Chief Executive Officer
/s/ William S. Johnson
Date: July 27, 2000 ---------------------------------------
William S. Johnson
Vice President, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
10
