Edgar Filing: JORGENSEN EARLE M CO /DE/

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934--For the fiscal year ended March 31, 2002

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 1-7537

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EARLE M. JORGENSEN COMPANY
(Exact name of registrant as specified in its charter)

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Delaware 95-0886610
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification No.)
organization)

3050 East Birch Street, 92821
Brea, California
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number: (714) 579-8823

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

State the aggregate market value of the voting stock held by non-affiliates
of the registrant. None

Number of shares outstanding of the registrant's common stock, par value
$.01 per share at April 30, 2002 - 128 shares

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PART I

All statements other than statements of historical facts that generally
include the words "believe", "expect", "intend", "estimate", "anticipate",
"will", and other similar expressions used in this report are considered
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and are based upon our management's then-current
views, understandings and assumptions regarding future events and operating
performance as of the dates of such statements. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors such as fluctuations in supply, demand and prices of steel and aluminum
products, changes in the industries that purchase metal products from our
company, such as oil services, agricultural equipment and aerospace, and
changes in the general economy. Changes in such factors could cause actual
results to differ materially from those contemplated in such forward-looking
statements. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to be correct. We undertake no
obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Item 1. BUSINESS

Earle M. Jorgensen Company, a Delaware corporation (the "Company" or "EMJ")
was formed on May 3, 1990, when Kelso & Company ("Kelso") and its affiliates
acquired control of and combined two leading metals distributors, EMJ (founded
in 1921) and Kilsby-Roberts Holding Co. ("Kilsby") (successor to C.A. Roberts
Company, founded in 1915). In connection with the combination of EMJ and
Kilsby, our company became a wholly-owned subsidiary of Earle M. Jorgensen
Holding Company, Inc. ("Holding").

We are one of the largest independent distributors of metal products in
North America, providing value-added metals processing services and
distributing over 25,000 different metals products. We have been distributing
metals products for over 80 years and we believe we are the leading distributor
of bar and tubing products in North America. We have over 35,000 customers
engaged in a wide variety of industries, including machine tools,
transportation, industrial equipment, fabricated metal, oil, gas and energy,
construction and farm equipment and aerospace. None of our customers represent
more than 3% of our gross revenues. These customers are serviced by our network
of 35 service and processing centers located throughout North America. For the
fiscal year ended March 31, 2002, we generated revenues of $895.1 million and
EBITDA (as defined) of $64.4 million.

We serve our customers by providing metals processing expertise and
inventory management services, as well as what we believe is a unique on-time
product delivery guaranty. We purchase metals products from primary producers
and sell these metals in smaller quantities to a wide variety of end users. We
process nearly all of the metals products we sell by cutting to length,
burning, sawing, honing, shearing, grinding, polishing, and performing other
similar services on them, all to customer specifications. During fiscal 2002,
we handled approximately 7,000 sales transactions per business day, at an
average of $507 per transaction.

Industry Overview and Competition

Primary metals producers, which manufacture and sell large volumes of steel,
aluminum and specialty metals in standard sizes and configurations, generally
sell only to those large end users and metals service centers who do not
require processing of the products and who can order in large quantities and
tolerate relatively long lead times. We do not believe that the role of the
primary metals producers will change in the foreseeable future and they will
continue to focus on providing efficient and volume-driven production of a
limited number of standardized metal products.

Metals service centers function as intermediaries between primary metals
producers and end users by selling products in smaller quantities and offering
value-added or specialized services ranging from pre-production

processing in accordance with specific customer requirements to storage and
distribution of unprocessed metal products. Metals service centers are the
single largest customer group of the U.S. domestic steel industry and serve the
metal supply needs of more than 300,000 manufacturers and fabricators through
service center locations nationwide. According to industry sources, metals
service centers purchase and distribute about 30% of all carbon steel products
and nearly 45% of all stainless steel products produced in the U.S. while
generating over $40 billion in annual revenues.

We believe that the metals service center industry will continue to increase
its role as a valuable intermediary between primary metals producers and end
users, principally as a result of (i) the metals producers' efforts to increase
sales to larger volume purchasers in order to increase production efficiency
and (ii) increased demand by end users for value-added services in order to
reduce their costs and capital expenditures associated with the production
process.

The metals service center industry is highly fragmented, consisting of a
large number of small companies, which are limited as to product line, size of
inventory and customers located within a specific geographic area, and a few
relatively large companies. Nevertheless, based on 2000 data, over $30 billion
of sales in the industry were controlled by the 50 largest metals service
centers in North America. The industry includes both general-line distributors,
like us, which handle a wide range of metals products, and specialty
distributors, which specialize in particular categories of metals products.
Geographic coverage by metals service centers is influenced by their national,
regional and local representation. Generally, the metals service center
industry competes on price and the ability to provide customers with
value-added services such as product selection, timely delivery, reliability,
quality and processing capability.

The larger and more sophisticated companies, like us, have certain
advantages over smaller companies, such as obtaining higher discounts
associated with large volume purchases, the ability to service customers with
operations in multiple locations and the use of more sophisticated information
systems.

Competitive Strengths

We believe that the following factors contribute to our success in the
metals service center industry:

Superior Service, Product Selection, and Quality. Over the last two years,
we implemented a program for our customers in which we guaranty on-time
delivery of our products or they are free. This program, which we believe is
unique among major distributors in North America, has been very successful,
with on-time performance of over 99% since its inception based on credits given
to our customers. We have been able to successfully offer this service because
of the combination of our leading inventory management information systems
technology, broad network of service and processing centers, and extensive
inventory of core products. We believe that we carry the broadest line of bar
and tubing products in North America. In addition to our on-time guaranty and
our broad product offering, we benefit from an excellent reputation for quality
and service built over our 80 years in operation, and have received numerous
quality and service awards from our customers. For example, we were among the
first in the metals distribution industry to receive multi-site ISO 9002
certification and had the first metals service center to receive QS 9000
certification established by the automobile industry.

Industry Leading Information Systems. Our industry leading proprietary
management information systems enable us to assess business conditions, monitor
operating results, track and allocate inventory among different locations,
optimize purchasing and improve customer service through better order and
product reference data. For example, we track our inventory system-wide on a
real-time basis through our systems. This tracking capability allows our
salespeople to integrate ordering and scheduling, and enables us to meet our
on-time delivery guaranty. Our proprietary systems have been developed and
implemented through the joint efforts of our highly trained 20 person
development team working closely with our operations personnel in the field.

Broad Network of Strategically Located Facilities and Diverse Customer
Base. Our service centers are strategically located throughout North America,
generally within one day's delivery time to almost all U.S.
manufacturing centers. Our broad service network gives us the ability to
provide services to national customers with multiple locations. We serve more
than 35,000 customers across a broad range of industries with no single
customer accounting for more than 3% of our gross revenues. Our largest ten
customers represented approximately 11% of our revenues in fiscal 2002, and the
average length of these customer relationships was approximately 10 years.

Technology Driven Process Improvements. We have installed an automated
inventory storage and retrieval system and modernized our storage facilities in
our Kansas City facility and are currently making similar improvements in our
Chicago facility. We believe that these systems, designed by Kasto, are the
best in the industry and will greatly reduce our inventory handling costs,
maximize order fill rates, and provide us with a significant competitive
advantage. When the Kasto system upgrade was installed in Kansas City, we added
20% more inventory storage capacity while using 41% less floor space and
reduced headcount approximately 14% to 82 from fiscal year end 1998 to fiscal
year end 2002. In Chicago, we are in the process of completing a 130,400 sq.
ft. expansion to our existing 473,300 sq. ft. facility and installing a similar
Kasto system. We believe the Kasto system being installed in Chicago will
enable us to achieve results similar to those in Kansas City. When fully
implemented, we expect that this system will enable the Chicago facility to
process and ship more than 4,000 inventory line items per day, compared to its
current capacity of about 2,200 inventory line items daily, while significantly
reducing labor costs. As of March 31, 2002, we have completed approximately
two-thirds of the capital expenditures required for this project. We expect
Chicago's Kasto system will begin to become operational during fiscal year 2003.

Experienced Management with Significant Equity Ownership. Our senior
management team has an average of 27 years of industry experience. Our chief
executive officer, Maurice S. Nelson, has spent over 40 years in the metals
industry with us and at Inland Steel Company and Alcoa. Mr. Nelson was named
the Service Center Executive of the Year for 2001 by Metal Center News and in
January 2002 was elected chairman of the Metal Service Center Institute. Our
chief financial officer, William S. Johnson, has served in numerous financial
positions during his 22 year career including most recently acting as our
controller from 1995 to 1999. Our employees directly, and indirectly through
our stock bonus and stock option plans beneficially own in the aggregate
approximately 27.3% (29.1% on a fully-diluted basis) of the outstanding common
stock of Holding (the ''Holding Common Stock") as of March 31, 2002.

Operating and Growth Strategy

Our primary business goals are to increase market share, expand services to
customers and to improve operating profits and cash flows. Our growth and
operating strategies consist of the following elements:

Focus on Value-Added Products and Services to Increase Market Share and
Gross Margins. We believe our commitment to provide on-time delivery service
will continue to differentiate us and our service capabilities from others in
the industry who generally offer only "best efforts" delivery service, which
customers find less reliable. We intend to continue to use this competitive
advantage to increase our market share. In addition, we seek to increase our
gross margins and grow our market share by combining sales from inventory with
value-added services such as inventory management and pre-production processing
activities, including cutting and honing operations. Accordingly, we will focus
on increasing our efficiencies and capacities in these value-added operations
and in aggressively marketing these services.

Leveraging Core Products. We have historically been a major purchaser and
distributor of various "long" products, namely cold finished carbon and alloy
bars, mechanical tubing, stainless bars and shapes, aluminum bars, shapes and
tubes, and hot-rolled carbon and alloy bars. Our core products are higher
margin products than widely available products, such as flat-rolled steel,
sheet and rebar. In addition, we believe our purchasing volumes for our core
products enable us to achieve the lowest available product acquisition costs
for these

products among service centers. As a result, we believe we realize higher gross
margins than many of our competitors for our core products. We believe we can
significantly grow market share and increase profitability by continuing to
focus our marketing efforts on our extensive selection of core products and
leveraging our procurement advantage. Leveraging our strength in our core
products should enable us to establish competitive advantages in all of our
local markets as well as allow us to successfully compete for larger national
programs with customers.

Maintain Technology Leadership. We have made and will continue to make
investments in technology in order to differentiate our service capabilities
from those of our competitors. We will continue to enhance our management
information systems by upgrading software and hardware to improve connectivity,
stability and reliability of our management information systems and data. These
planned improvements include (i) upgrading our customer relationship management
system to further improve customer satisfaction and sales productivity, (ii)
increasing the versatility of our electronic commerce capabilities for sales
and purchasing activities, (iii) creating a web-based capability to procure and
manage third party freight services for selected inbound and outbound
shipments, and (iv) enhancing our warehouse automation to further improve
productivity and efficiency.

Expand Satellite Operations. We believe a key aspect of serving our
customers is having a physical presence in those markets requiring our products
and services. Accordingly, we have formalized a strategy to target those
geographic areas where we can justify opening a "satellite" location. These
locations are managed locally by warehouse and delivery personnel, stock a
limited inventory of core products and require minimal initial and maintenance
capital expenditures, resulting in a low cost opportunity to serve select
markets. Each satellite operation is supported by inventory, inside salespeople
and the general management of our larger service center responsible for the
satellite's results of operations. Since the beginning of fiscal 2000, we have
opened five satellites.

Products And Suppliers

We have designated certain carbon and alloy, aluminum, and stainless
products as core product offerings under our bar and tubing lines. We also
offer certain plate and other products. Each of our service centers stocks a
broad range of shapes and sizes of each of these products, as dictated by
market demand, in an effort to be a market leader in all of the core product
lines in its geographic area.

Carbon steel bar products (hot-rolled and cold-finished) and carbon plate
and sheet are used in construction equipment, farm equipment, automotive and
truck manufacturing and oil exploration as well as a wide range of other
products. Stainless steel bar and plate are used widely in the chemical,
petrochemical, and oil refining and biomedical industries where resistance to
corrosion is important. Aluminum bar and plate are frequently used in aircraft
and aerospace applications where weight is a factor. Different tubing products
are appropriate for particular uses based on different characteristics of the
tubing materials, including strength, weight, resistance to corrosion and cost.
Carbon tubing and pipe are used in general manufacturing. Alloy tubing is used
primarily in the manufacturing of oil field equipment and farm equipment.
Stainless steel tubing and pipe are used in applications requiring a high
resistance to corrosion, such as food processing. Aluminum tubing and pipe are
used in applications that put a premium on lightweight (such as aerospace
manufacturing).

The majority of our procurement activities are handled by a centralized
merchandising office in our Chicago facility where specialists in major product
lines make the majority of inventory purchases on behalf of our service
centers. This merchandising group develops and evaluates the working
relationships with high-quality suppliers to ensure availability, quality and
timely delivery of product.

The majority of our inventory purchases are made by purchase order, and we
have no significant supply contracts with periods in excess of one year. We are
not dependent on any single supplier for any product or for a significant
portion of our purchases, and in fiscal year 2002 no single supplier
represented more than 10% of our total purchases. We purchased less than 15% of
our inventory requirements from foreign-based suppliers in fiscal 2002.

In March 2002, the United States enacted tariffs on certain metal products
from specified countries under Section 201 of the Trade Act of 1974 to provide
protection for the domestic steel industry. At this time, we cannot accurately
assess the impact that these tariffs may have on availability or pricing of
product we buy or on our future results in general. However, an increase in
prices of product purchased by us generally would result in higher prices for
product we sell to our customers.

Customers and Markets

We provide metal products and value-added metals processing services to over
35,000 customers throughout North America that do business in a wide variety of
industries, none of which represents more than 3% of our gross revenues. During
fiscal 2002, we processed approximately 7,000 sales transactions per business
day generating an average revenue of approximately $507 per transaction.

The following table provides a percentage breakdown of tonnage sold to key
industries for the fiscal years ended March 31, 2000, 2001 and 2002:

Year Ended March 31,
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2000 2001 2002
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Machine Tools.................................... 28.3% 29.5% 27.6%
Transportation................................... 8.1 7.5 8.6
Industrial Equipment............................. 8.9 8.5 7.8
Metal Service Centers & Wholesale Trade.......... 6.3 6.1 6.1
Fabricated Metal................................. 6.3 6.1 6.0
Oil, Gas & Energy................................ 3.0 5.2 5.7
Construction/Farm Equipment...................... 6.4 6.0 5.6
Fluid Power...................................... 5.7 4.9 5.0
Screw Machine Products........................... 3.5 3.8 3.8
Power Transmission Equipment..................... 2.7 2.6 2.7
Primary Metal, Mills, Forgings................... 2.2 2.3 2.3
Aerospace........................................ 1.8 1.9 2.3
All Other Industries............................. 16.8 15.6 16.5
----- ----- -----
Total......................................... 100.0% 100.0% 100.0%
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The majority of our sales originate from individual purchase orders and are
not subject to ongoing supply contracts; however, we make some of our sales
under contracts that fix the price for up to 12 months. When we enter into a
fixed price contract, we enter into a corresponding supply contract with our
supplier to cover the commitment to our customer. These corresponding supply
contracts substantially reduce the risk of fluctuating prices negatively
impacting our margins on these fixed price contracts. Such contracts provide
the customer with greater certainty as to timely delivery, price stability and
continuity of supply, and sometimes satisfy particular processing or inventory
management requirements. Such contracts have resulted in new customer
relationships and increased sales volumes, but can have a slightly lower gross
margin than our ordinary sales. We believe such contracts, in the aggregate,
represented less than 15% of our total revenues in fiscal 2002. In addition,
the pricing for most of our sales is set at the time of the sale.

Seasonal fluctuations in our business generally occur in the summer months
and in November and December, when many customers' plants and production levels
are impacted by retooling, vacations or holidays. Order backlog is not a
significant factor, as orders are generally filled within 24 hours.

Breakdown Of Revenues From Material Sales By Product Group

The following table sets forth a percentage breakdown of revenues generated
from sales of material by product group for the fiscal years ended March 31,
2000, 2001 and 2002.

Year Ended March 31,
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2000 2001 2002
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Bars:
Carbon and Alloy............. 37.0% 36.0% 36.6%
Stainless.................... 10.2 11.4 11.9
Aluminum..................... 7.1 7.8 7.7
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Total.................... 54.3 55.2 56.2
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Tubing:
Carbon and Alloy............. 26.6 24.9 24.6
Stainless.................... 3.3 2.9 3.0
Aluminum..................... 3.7 3.4 3.6
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Total.................... 33.6 31.2 31.2
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Plate:
Carbon and Alloy............. 4.8 4.0 3.9
Stainless.................... 1.5 2.2 1.5
Aluminum..................... 2.5 2.9 2.3
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Total.................... 8.8 9.1 7.7
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Other........................... 3.3 4.5 4.9
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100.0% 100.0% 100.0%
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In addition, sales of material out of our stock inventory (referred to as
"stock" sales) represented 88.6%, 90.2% and 89.7% of total revenues generated
from material sales for fiscal years 2000, 2001 and 2002, respectively. We
believe our ability to support this high proportion of stock sales is critical
in maintaining higher gross margins than would otherwise be possible. The
balance of revenues represents special customer requirements that we meet by
arranging mill-direct sales and by making buy-outs from other distributors of
inventory items we do not maintain as stock inventory. Such non-stock sales
generally have lower gross margins than stock sales, but provide a valuable
customer service.

Intellectual Property and Licenses

EMJ(R) is a registered trademark and, along with our name, is a service mark
in the U.S. and in other countries where we do or expect to do business. Other
service marks, including hallmarks, logos, taglines or mottos used to conduct
business are or will be registered as necessary to protect our proprietary
rights. We also own our internet domain name, emjmetals.com, and consider
certain information owned by us to be trade secrets, and we take measures to
protect the confidentiality and control the disclosure of such information. We
believe that these safeguards adequately protect our proprietary rights. While
we consider all of our intellectual property rights as a whole to be important,
we do not consider any single right to be essential to our operations.

Management Information Systems

Our industry leading proprietary management information systems enable us to
assess business conditions, monitor operating results, track and allocate
inventory among different locations, optimize purchasing and improve customer
service through better order and product reference data. For example, we track
our inventory system-wide on a real-time basis through our systems. This
tracking capability allows our salespeople to

integrate ordering and scheduling, and enables us to meet our on-time delivery
guaranty. Our proprietary systems have been developed and implemented through
the joint efforts of our highly trained 20 person development team working
closely with our operations personnel in the field.

Employees

As of March 31, 2002, EMJ employed approximately 1,725 persons, of whom
approximately 1,055 were employed in production or shipping, 365 were employed
in sales and 305 served in executive, administrative or district office
capacities. Three different unions represented approximately 760 of our
employees from 16 locations. Our collective bargaining agreements expire on
staggered dates between January 2003 and October 2006. We believe we have a
good overall relationship with our employees.

Foreign Operations

Through our wholly-owned subsidiary, Earle M. Jorgensen (Canada) Inc., a
Canadian limited liability company, we operate three service centers located in
Toronto, Montreal and Edmonton. Revenues from our Canadian operations totaled
$38.6 million in fiscal 2000, $42.8 million in fiscal 2001 and $43.7 million in
fiscal 2002.

Environmental Matters

We are subject to extensive and changing federal, state, local and foreign
laws and regulations designed to protect the environment and human health and
safety, including those relating to the use, handling, storage, discharge and
disposal of hazardous substances and the remediation of environmental
contamination. As a result, we are from time to time involved in administrative
and judicial proceedings and inquiries relating to environmental matters.

During fiscal years 2000, 2001 and 2002, expenditures made in connection
with environmental matters totaled approximately $0.3 million, $0.2 million and
$0.1 million, respectively, principally for settlement of claims, and
monitoring, remediation and investigation activities at sites with contaminated
soil and/or groundwater. As of March 31, 2002, there was no accrual for future
monitoring, investigation and remediation expenditures because such costs are
not yet known or reasonably estimable for the following pending environmental
matters. We also refer you to Note 8 to consolidated financial statements.

Forge (Seattle/Kent, WA). In November 1998, we paid the purchasers of our
former Forge facility and an off-site disposal site $2.2 million as an
indemnification settlement for liabilities related to the remediation of known
contamination at the Forge facility. We continue to monitor the disposal site
for environmental conditions in accordance with a consent decree issued by the
Washington Department of Ecology, or "Ecology." Annual costs associated with
such monitoring are not significant, and we do not anticipate significant
additional expenditures related to this matter.

The Forge property is located on the Lower Duwamish Waterway, which has been
identified by the United States Environmental Protection Agency, or the "EPA,"
as a Superfund Site, or the "Duwamish Site." Under the federal Comprehensive
Environmental Remediation, Compensation, and Liability Act, or "Superfund,"
owners or operators of facilities that have released hazardous substances to
the environment may be liable for remediation costs. Courts have held that such
liability may be joint and several; however, in many instances, the costs are
allocated among the parties, primarily based on their estimated contribution to
the contamination. The EPA, along with Ecology, have entered into an
Administrative Order of Consent with four major property owners with potential
liability for cleanup of the Duwamish Site that outline tasks required to be
completed to further investigate the nature and extent of the contamination and
cleanup alternatives. In November 2001, the current owners of the Forge
property notified us of a potential claim for indemnification for any liability
relating to contamination of the Duwamish Site. The notification stated that
the Forge facility, along with other

businesses located along the Duwamish Site, are expected be named as
potentially responsible parties for contamination of the Duwamish Site and
requested that EMJ participate under a joint defense. We are evaluating the
notification and remedies we may have, including insurance recoveries for any
monies to be spent as part of the investigation or cleanup of the Duwamish
Site. At this time, we cannot determine what liability, if any, we may have
relating to the investigation and remediation of the Duwamish Site.

Union (New Jersey). During fiscal 1994, we were notified by the current
owner that we have potential responsibility for the environmental contamination
of this property formerly owned by a subsidiary and disposed of by such
subsidiary prior to its acquisition by EMJ. The prior owner of such subsidiary
has also been notified of its potential responsibility. On March 27, 1997, the
current owner of the property informed us that it estimated the cost of
investigation and cleanup of the property at $0.9 million and requested
contribution to such costs from EMJ and the prior owner. We have contested
responsibility and commented on the proposed cleanup plan and have not received
any further demands or notifications. We do not have sufficient information to
determine what potential liability EMJ has, if any.

Tri-County Landfill (Illinois). In April 2001, we were served with a
complaint by the owner of this landfill (known as the Tri-County/Elgin
Landfills Superfund Site, or the "Site") alleging that EMJ, among others, was
responsible for certain contamination found at the Site, which resulted from
alleged disposal of waste transported from a predecessor of Kilsby prior to
Kilsby's merger with EMJ. The owner sought reimbursement of costs incurred or
to be incurred in connection with the investigation and remediation activities
required under orders from the EPA. This matter was settled in December 2001
and the court dismissed the case.

Although it is possible that new information or future developments could
require our company to reassess its potential exposure relating to all pending
environmental matters, we believe that, based upon all currently available
information, the resolution of such environmental matters will not have a
material adverse effect on our financial condition, results of operations or
liquidity. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or environmental conditions
may be found to exist, that may require expenditures not currently anticipated
and that may be material.

Item 2. PROPERTIES

We currently maintain 35 service centers (including three plate processing
centers, one cutting center and one tube honing facility), three sales offices
and one merchandising office at various locations throughout the U.S. and we
are headquartered in Brea, California. Our facilities generally are capable of
being utilized at higher capacities, if necessary. Most leased facilities have
initial terms of more than one year and include renewal options. While some of
the leases expire in the near term, we do not believe that we will have
difficulty renewing such leases or finding alternative sites.

Set forth below is a table summarizing certain information with respect to
our facilities.

Owned (O) Size
Country/City/State Leased (L) (Sq. Ft.)
------------------ ---------- ---------

United States:
Phoenix, Arizona............................... O 72,200
Little Rock, Arkansas.......................... L 27,700
Brea, California (headquarters)................ L 33,300
Hayward, California............................ L 91,000
Los Angeles, California........................ O 319,400
Denver, Colorado............................... L 77,400
Chicago, Illinois(a)........................... O 473,300
Plainfield, Indiana............................ O 225,000
Eldridge, Iowa................................. L 104,500
Boston, Massachusetts.......................... O 63,500
Roseville, Michigan(b)......................... L 28,700
Minneapolis, Minnesota......................... O 169,200
Kansas City, Missouri.......................... L 120,900
St. Louis, Missouri............................ L 108,100
Brighton, New York(b).......................... L 31,500
Charlotte, North Carolina...................... O 175,300
Cincinnati, Ohio............................... L 125,200
Cleveland, Ohio................................ O 200,200
Cleveland, Ohio................................ O 137,800
Tulsa, Oklahoma................................ O 108,000
Tulsa, Oklahoma................................ O 137,900
Portland, Oregon............................... L 33,800
Philadelphia, Pennsylvania(c).................. L 63,300
Wrightsville, Pennsylvania(b).................. L 83,900
Chattanooga, Tennessee(b)...................... L 27,000
Memphis, Tennessee............................. L 56,500
Dallas, Texas.................................. O 132,800
Houston, Texas................................. O 276,000
Salt Lake City, Utah(b)........................ L 25,400
Kent, Washington............................... L 83,600
Canada:
Toronto, Ontario............................... L 61,800
Montreal, Quebec............................... L 82,700
Edmonton, Alberta.............................. L 25,800

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(a) Not including an expansion of 130,400 square feet to be operational in July
2002.
(b) These locations are considered satellite operations.
(c) Excludes 160,500 square feet subleased to a third party under a long-term
agreement.

Item 3. LEGAL PROCEEDINGS

We are occasionally involved in ordinary, routine litigation incidental to
our normal course of business, none of which we believe to be material to our
financial condition or results of operations. We maintain various liability
insurance coverages to protect our assets from losses arising out of or
involving activities associated with ongoing and normal business operations.

The Internal Revenue Service, or the "IRS," conducted an audit of our
employee stock ownership plan, or the "Plan," for the fiscal years ended March
31, 1992, through March 31, 1996, and issued a preliminary report to the
Company in which the IRS asserted that certain contributions of stock by
Holding to the Plan violated provisions of the Internal Revenue Code because
the securities contributed were not "qualifying employer securities" as defined
by ERISA. In fiscal 2002, this matter was settled without EMJ admitting the
allegations of the IRS, and we paid $1.9 million of excise tax to the IRS.

The Department of Labor, or the "DOL," also investigated the same
transactions involving the Plan and came to conclusions similar to those
reached by the IRS. However, the DOL has not pursued those transactions. In the
course of its investigation, the DOL and its advisors reviewed the valuations
of Holding's common and preferred stock prepared for the Plan and criticized
the methodology used in preparing the valuations. We believe that the
methodology used in the valuations was appropriate, and in connection with
discussions with the DOL, we engaged a second independent appraiser that
generally corroborated the valuations and the methodology used by the first
appraiser.

On March 8, 2002, the DOL sued us, Holding, our Plan and former members of
our benefits committee in the federal district court for the Central District
of California. The DOL claims that the valuations of Holding's common stock
used to make annual contributions to our Plan in each of the years 1994 through
2000 contained significant errors that resulted in the common stock being
overvalued, and that the failure of the members of our benefits committee to
detect and correct the errors was a breach of their fiduciary duty under ERISA.
As a result of the alleged overvaluations, the DOL contends that the
contributions to our Plan were prohibited transactions under ERISA. The DOL has
sought to require us to repurchase the stock contributed to the Plan at the
value at which the stock was contributed plus interest. The aggregate value of
the common stock contributed to the Plan from 1994 through 2000 was
approximately $28.9 million. We intend to deny liability, and we believe we
have meritorious factual and legal defenses. We cannot assure you as to
ultimate outcome of this case, but we do not anticipate that the outcome would
have a material adverse effect on our business, financial condition or results
of operations. We have $3.0 million of fiduciary insurance coverage that will
cover defense costs and may provide coverage for the claims made by the DOL.

On April 22, 2002, we were sued by Champagne Metals, a small metals service
center distributing aluminum coil products in Oklahoma, alleging that we had
conspired with other metal service centers to induce or coerce aluminum
suppliers to refuse to designate Champagne Metals as a distributor. We have not
yet answered that complaint. We believe the claims are without merit and intend
to vigorously defend the claim.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY

We have 128 shares of common stock par value $.01 per share outstanding, all
of which are owned by Holding. For each of fiscal years ended March 31, 2000,
2001 and 2002, we paid cash dividends totaling $13.4 million, $5.5 million and
$15.0 million respectively, to Holding in connection with the repurchase of its
capital stock from employees of EMJ whose employment had terminated, as
required by the terms of Holding's Stockholders Agreement and the ESOP. In
addition, in fiscal 1998, we paid cash dividends of $45.4 million to Holding in
connection with a refinancing of the indebtedness of the Company and Holding.

Item 6. SELECTED FINANCIAL DATA

All information contained in the following table was derived from our
audited consolidated financial statements and should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and with our consolidated financial statements and the
related notes thereto included elsewhere in this Form 10-K.

Year Ended March 31,
----------------------------------------------------
1998 1999 2000 2001 2002
---------- -------- -------- ---------- --------
(dollars in thousands)

Statement of Operations Data:
Revenues............................................................. $1,050,005 $915,811 $938,252 $1,059,681 $895,058
Costs of goods sold.................................................. 755,381 649,851 662,803 767,263 641,991
Gross profit......................................................... 294,624 265,960 275,449 292,418 253,067
Operating expenses exclusive of restructuring and other non-recurring
charges............................................................. 225,019 198,465 205,626 223,222 200,933
Restructuring and other non-recurring charges........................ 2,838 286 2,432 5,320 1,861
Income from operations............................................... 66,767 67,209 67,391 63,876 50,273
Net interest expense(1).............................................. 41,059 41,181 41,595 44,855 42,545
Extraordinary loss(2)................................................ 9,075 -- -- -- --
Net income........................................................... 15,760 24,493 23,987 17,798 5,354

Other Data:
EBITDA(3)............................................................ $ 82,497 $ 76,761 $ 73,614 $ 81,129 $ 64,422
% Margin............................................................. 7.9 % 8.4 % 7.8 % 7.7 % 7.2 %
Depreciation and amortization(4)..................................... 9,475 9,175 9,951 11,035 11,449
Capital expenditures................................................. 7,264 8,957 9,525 14,475 24,531
Net cash flows provided by operating activities...................... 36,602 36,035 32,984 38,026 14,544
Net cash flows provided by (used in) investing activities............ 7,555 (3,646) (4,846) (15,048) (24,752)
Net cash flows provided by (used in) financing activities............ (44,515) (35,275) (24,331) (20,877) 7,748
Ratio of earnings to fixed charges(5)................................ 1.54x 1.55x 1.54x 1.36x 1.11x
Dividends paid(6).................................................... 56,888 17,701 13,372 5,514 14,963

Balance Sheet Data:
Cash and cash equivalents............................................ $ 20,763 $ 17,860 $ 21,660 $ 23,758 $ 21,300
Total working capital................................................ 157,784 156,691 165,148 156,309 154,936
Total assets......................................................... 443,821 426,867 464,374 484,264 443,998
Total debt........................................................... 312,234 296,506 285,547 270,184 292,895
Total stockholder's deficit.......................................... (36,919) (28,020) (14,365) (3,151) (15,786)

--------
(1) Net interest expense includes amortization and write-off of debt issue
costs aggregating $1,757, $1,481, $1,482, $1,482 and $1,792 for the fiscal
years ended March 31, 1998, 1999, 2000, 2001 and 2002, respectively, net of
interest income of $462, $570, $636, $1,179 and $164 for the fiscal years
ended March 31, 1998, 1999, 2000, 2001 and 2002, respectively.
(2) The extraordinary loss of $9,075 includes the write-off of deferred
financing costs and payments of call premiums and other expenses in
connection with early retirement of debt.
(3) "EBITDA" means income from operations before depreciation and amortization,
LIFO adjustments, non-recurring charges and certain other non-cash
expenses, including stock bonus plan and postretirement accruals. We
believe that EBITDA is generally accepted as useful information regarding a
company's ability to incur and service debt. While providing useful
information, EBITDA should not be considered in isolation or as a
substitute for consolidated statement of operations and cash flows data
prepared in accordance with generally accepted accounting principles.

(4) Depreciation and amortization excludes amortization or write-off of debt
issue costs referred to in Note (1) above, reflected in our consolidated
statements of operations as interest expense.
(5) In computing the ratio of earnings to fixed charges, "earnings" represents
pre-tax income (loss) plus fixed charges except capitalized interest, if
any. "Fixed charges" represents interest whether expended or capitalized,
debt cost amortization, and 33% of rent expense, which is representative of
the interest factor.
(6) Dividends paid to Holding were made in connection with the repurchase of
its capital stock from terminated employees. In fiscal 1998, our company
also paid a dividend to Holding of $45,419 that was used to repay a portion
of Holding Notes and accrued interest.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and our consolidated financial statements and the
notes related thereto appearing elsewhere in this Form 10-K.

General

We were formed on May 3, 1990 when affiliates of Kelso & Company acquired
control of and combined two leading metals distributors, EMJ (founded in 1921)
and Kilsby-Roberts Holding Co. (successor to C.A. Roberts Company, founded in
1915). Through our network of 35 service centers strategically located
throughout North America, we distribute the broadest line of bar and tubing
products in North America to over 35,000 customers.

Over the last several years we have streamlined our operations and lowered
our operating costs. We have focused our efforts on improving internal business
processes and systems, enhancing customer service, reducing headcount,
optimizing facility workflow, eliminating redundant facilities and eliminating
management layers and corporate overhead. These efforts have produced a more
flexible operating cost structure and significantly greater employee
productivity. As of March 31, 2002, our total headcount stood at 1,725.

The metals service center industry is generally considered cyclical (with
periods of strong demand and higher prices followed by periods of weaker demand
and lower prices), principally due to the nature of the industries in which the
largest consumers of metals operate. We believe our results have been less
sensitive to economic trends than some of our competitors due to our customer
base, product mix and the variety of industries we serve.

The pricing for most of our sales is set at the time of the sale. We make
some of our sales under contracts that fix the price for up to 12 months. When
we enter into a fixed price contract, we enter into a corresponding supply
contract with our supplier to cover the commitment to our customer. These
corresponding supply contracts eliminate the risk of fluctuating prices
negatively impacting our margins on these fixed price contracts.

Overview of Fiscal 2002

Beginning in 2001, the economic slowdown and recession in the United States
significantly impacted the metals service center industry as customer demand
and metals pricing reached historically low levels. Customers in key industries
served by metals service centers reduced their inventories and kept production
and reorder

levels low due to uncertainty of a recovery, while overcapacity in both
domestic and foreign mill markets, coupled with excess inventories held by
service centers, kept downward pressure on metal prices. These factors impacted
our operations beginning in the fourth quarter of our fiscal 2001 and
continuing through fiscal 2002, with revenues and tonnage shipped in fiscal
2002 decreasing 15.5% and 14%, respectively, when compared to fiscal 2001.
Every key industry we served, with the exception of instruments/testing
equipment and aerospace, showed lower revenues and tonnage shipped in fiscal
2002 when compared to fiscal 2001. However, our gross margins increased to
28.3% in fiscal 2002 when compared to 27.6% in fiscal 2001, and our operating
margins were 5.6% in fiscal 2002 compared to 6.0% in fiscal 2001.

We continued to focus on improving our business processes, including the
development or enhancement of systems that enabled us to reduce costs and
increase productivity related to order processing and scheduling, and inventory
processing and handling. During fiscal 2002, our average total number of
employees decreased 10% to 1,805 when compared to fiscal 2001.

We believe our ability to quickly align our cost structures with the
prevailing levels of business while continuing to provide customer service that
we believe is unequaled in the industry, together with our operating and growth
strategies, have positioned us to outperform the industry as general economic
conditions improve.

Statement of Operations Information

The following table sets forth certain of our consolidated statement of
operations data. The historical financial data for the fiscal years ended March
31, 2000, 2001 and 2002 are derived from the historical financial statements
included elsewhere herein.

Year Ended March 31,
------------------------------------------------
2000 % 2001 % 2002 %
-------- ----- ---------- ----- -------- -----
(dollars in thousands)

Statement of Operations Data:
Revenues..................................... $938,252 100.0% $1,059,681 100.0% $895,058 100.0%
Gross profit................................. 275,449 29.4 292,418 27.6 253,067 28.3
Operating expenses exclusive of restructuring
and other non-recurring charges............ 205,626 21.9 223,222 21.1 200,933 22.4
Restructuring and other non-recurring charges 2,432 0.3 5,320 0.5 1,861 0.2
Income from operations....................... 67,391 7.2 63,876 6.0 50,273 5.6
Net interest expense......................... 41,595 4.4 44,855 4.2 42,545 4.8
Net income................................... 23,987 2.6 17,798 1.7 5,354 0.6

Results of Operations--Year ended March 31, 2002 compared to year ended March
31, 2001

Revenues. Revenues for fiscal 2002 decreased 15.5% to $895.1 million,
compared to $1,059.7 million in fiscal 2001. Revenues from our domestic
operations decreased 16.3% to $851.4 million in fiscal 2002, compared to
$1,016.9 million in fiscal 2001 resulting from a 14% decrease in tonnage
shipped and a 2% decrease in average selling prices when compared to fiscal
2001 levels. Our domestic operations experienced lower levels of business in
core products and in key industries, such as transportation and industrial
tooling and machines, caused by the recession. Revenues from our international
operations increased 2.1% to $43.7 million compared to $42.8 million in fiscal
2001 due to the full year effect from our new service center in Edmonton,
Alberta, Canada that opened in September 2000.

Gross Profit. Gross profit decreased 13.4% to $253.1 million in fiscal 2002,
compared to $292.4 million in fiscal 2001. Gross margin improved to 28.3% when
compared to 27.6% in fiscal 2001. Fiscal 2002 included a LIFO charge of $0.6
million compared to a charge of $0.9 million in fiscal 2001. Gross profit and
gross margin from foreign operations were $9.5 million and 21.7% in fiscal 2002
compared to $9.9 million and 23.1% in fiscal

2001. Exclusive of foreign operations and LIFO, gross margin increased to 28.7%
in fiscal 2002, when compared to 27.9% in fiscal 2001; the increase was
attributable to a 2% decrease in material costs, improved product sourcing and
inventory management, and changes in customer and product mixes.

Expenses. Total operating expenses, exclusive of non-recurring charges, were
$200.9 million, or 22.4% of revenues in fiscal 2002, compared to $223.2
million, or 21.1% of revenues in fiscal 2001. The decrease in operating
expenses generally reflects the impact on variable expenses from lower tonnage
shipped in fiscal 2002. The non-recurring charges in fiscal 2002 were
associated with workforce reductions and costs incurred in connection with
facility consolidation; the non-recurring charges in fiscal 2001 were
associated primarily with workforce reductions and special compensation payable
to our chief executive officer.

Warehouse and delivery expenses decreased $12.3 million (9.0%) to $124.5
million in fiscal 2002, compared to $136.8 million in fiscal 2001. As a percent
of revenues, warehouse and delivery expenses were 13.9% in fiscal 2002,
compared to 12.9% in fiscal 2001. The decrease in these expenses was
attributable to lower compensation expense and freight costs resulting from the
decrease in tonnage shipped, decreased levels of expenditures for utilities,
maintenance and other production and facility expenses, partially offset by
higher lease and depreciation expense incurred to support added capacity and
services, including those related to facility expansions and satellite
operations. As of March 31, 2002, warehouse and delivery activities employed
approximately 1,055 employees, compared to 1,225 as of March 31, 2001.

Selling expenses decreased $4.5 million (12.4%) to $31.9 million in fiscal
2002, compared to $36.4 million in fiscal 2001, and increased as a percent of
revenues to 3.6% from 3.4% in fiscal 2001. The decrease in selling expenses was
attributable to lower compensation expense, including accruals for incentive
compensation based on revenue and gross profit levels.

General and administrative expenses, excluding non-recurring charges,
decreased $5.6 million (11.1%) to $44.5 million in fiscal 2002, compared to
$50.1 million in fiscal 2001. As a percentage of revenues, these expenses were
5.0% in fiscal year 2002 and 4.7% in fiscal 2001. The decrease in general and
administrative expenses was attributable to higher income recognized in
connection with our life insurance policies, lower compensation expense,
including accruals for management incentives and lower marketing costs, offset
by higher provisions for workers compensation and bad debt.

Net Interest Expense. Net interest expense was $42.5 million in fiscal 2002
and $44.9 million in fiscal 2001. Such amounts include interest on our credit
facilities, existing senior notes, term loan, industrial revenue bonds,
borrowings against the cash surrender value of certain life insurance policies,
and the amortization of debt issue costs ($1.8 million in fiscal 2002 and $1.5
million in fiscal 2001).

During fiscal 2002 the average outstanding indebtedness (excluding
borrowings against the cash surrender value of certain life insurance policies)
was $310.5 million versus $325.4 million in fiscal 2001. The weighted-average
interest rate on such indebtedness during fiscal 2002 was 7.09% versus 9.18% in
fiscal 2001. The average borrowings under our credit facility decreased to
$99.2 million from $112.0 million in fiscal 2001, and the average interest rate
decreased to 5.13% in fiscal 2002 from 8.48% in fiscal 2001.

The outstanding borrowings against the cash surrender value of life
insurance policies were $147.3 million at March 31, 2002 and $132.0 million at
March 31, 2001, and the total interest expense on such borrowings increased to
$16.0 million in fiscal 2002 compared to $14.4 million in fiscal 2001. Such
increases resulted primarily from borrowings of $17.3 million against the
increased cash surrender value of life insurance policies in November 2001 to
pay annual premiums on such policies and to pay interest on previous borrowings
(see "--Liquidity and Capital Resources"). As specified in the terms of the
insurance policies, the rates for dividends payable on the policies
correspondingly increase when borrowings are outstanding under the policies.
This increase in dividends is greater than the increase in the incremental
borrowing rate. Dividend income earned under the policies was $13.5 million in
fiscal 2002, $13.0 million in fiscal 2001 and $14.0 million in fiscal 2000 and
is reported as an offset to general and administrative expenses in the
consolidated statements of operations.

The interest rates on our existing senior notes and our life insurance
policy borrowings are fixed at 9.50% and 11.76%, respectively. The interest
rates on our credit facility and term loan are floating rates (3.82% and 5.31%,
respectively, as of March 31, 2002). Pursuant to an interest rate swap
agreement we entered with Deutsche Bank Trust Company Americas, or "DBTCA"
(formerly known as Bankers Trust Company), in June 1998, the interest rate on
our term loan was fixed at approximately 9.05% through June 2003. Such
agreement requires DBTCA 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 sum of the three-month London Interbank Offered Rate plus 3.25% ("Floating
LIBOR") and 9.05%, if the Floating LIBOR is greater than 9.05%, on a per diem
basis. If Floating LIBOR is lower than 9.05%, we are required to pay DBTCA an
amount equal to the product of the notional amount and the difference between
9.05% and Floating LIBOR on a per diem basis. During fiscal 2002, we paid DBTCA
$2.2 million of interest as calculated under the provisions described above.
Since inception of the interest rate swap agreement, we have paid DBTCA a net
amount of $2.0 million through March 31, 2002.

Results of Operations--Year ended March 31, 2001 compared to year ended March
31, 2000

Revenues. Revenues for fiscal 2001 increased 12.9% to $1,059.7 million,
compared to $938.3 million in fiscal 2000. Revenues from our domestic
operations increased 13.0% to $1,016.9 million in fiscal 2001, compared to
$899.7 million in fiscal 2000 and reflect a 12% increase in tonnage shipped and
a 1% increase in average selling prices when compared to fiscal 2000 levels.
Our domestic operations benefited from higher levels of business in core
products and in key industries, such as oil services, transportation and
industrial tooling and machines, although weakened demand caused by a general
economic slowdown was experienced in the fourth quarter of fiscal 2001.
Revenues from our international operations increased 10.9% to $42.8 million
compared to $38.6 million in fiscal 2000 due to stronger local economic
conditions and to the opening of a new service center in Edmonton, Alberta in
September 2000.

Gross Profit. Gross profit increased 6.2% to $292.4 million in fiscal 2001,
compared to $275.4 million in fiscal 2000. Gross margin declined to 27.6% when
compared to 29.4% in fiscal 2000. Fiscal 2001 included a LIFO charge of $0.9
million compared to a corresponding LIFO credit of $9.0 million in fiscal 2000.
Gross profit and gross margin from foreign operations were $9.9 million and
23.1% in fiscal 2001, compared to $8.7 million and 22.5% in fiscal 2000.
Exclusive of foreign operations and LIFO, gross margin was 27.9% in fiscal
2001, compared to 28.6% in fiscal 2000; the decrease was attributable to a 3%
increase in material costs, and to changes in product and customer mixes.

Expenses. Total operating expenses in fiscal 2001 were $228.5 million,
including $5.3 million of non-recurring charges associated primarily with
workforce reductions and special compensation payable to our chief executive
officer. Excluding non-recurring expenses, operating expenses were $223.2
million, or 21.1% of revenues, compared to $205.6 million, or 21.9% of
revenues, 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, including our satellite operations.

Warehouse and delivery expenses increased $13.2 million (10.7%) to $136.8
million in fiscal 2001, compared to $123.6 million in fiscal 2000. As a percent
of revenues, warehouse and delivery expenses were 12.9% in fiscal 2001,
compared to 13.2% in fiscal 2000. The increase in these expenses was
attributable to higher payroll and benefits costs, and to higher lease,
depreciation, fuel, maintenance, utilities and other production and facility
expenses incurred to support added capacity and services, including those
related to facility expansions and satellite operations. As of March 31, 2001,
warehouse and delivery activities employed approximately 1,225 employees,
compared to 1,150 as of March 31, 2000.

Selling expenses increased $2.3 million (6.7%) to $36.4 million in fiscal
2001, compared to $34.1 million in fiscal 2000, and decreased as a percent of
revenues to 3.4% from 3.6% in fiscal 2000. The increase in selling expenses was
attributable to higher accruals for incentive compensation based on revenue and
gross profit levels.

General and administrative expenses, excluding non-recurring charges and
gains or losses on sale of fixed assets, increased $2.2 million (4.6%) to $50.1
million in fiscal 2001, compared to $47.9 million in fiscal 2000. As a
percentage of revenues, these expenses were 4.7% in fiscal year 2001 and 5.1%
in fiscal 2000. The increase in general and administrative expenses was
attributable to higher payroll and benefits costs, higher accruals for
management incentives, increased provisions for bad debt and lower purchase
discounts offset by higher income recognized in connection with life insurance
policies. Our gains from sale of fixed assets were not significant in fiscal
2001 compared to losses from sale of fixed assets, including our Hawaiian
operations, totaling $2.3 million in fiscal 2000.

Net Interest Expense. Net interest expense was $44.9 million in fiscal 2001
and $41.6 million in fiscal 2000. Such amounts include interest on our credit
facilities, existing senior notes, term loan, industrial revenue bonds, and
borrowings against the cash surrender value of certain life insurance policies,
and the amortization of debt issue costs ($1.5 million in fiscal 2001 and in
fiscal 2000).

During fiscal 2001 the average outstanding indebtedness (excluding
borrowings against the cash surrender value of certain life insurance policies)
was $325.4 million versus $313.5 million in fiscal 2000. The weighted-average
interest rate on such indebtedness during fiscal 2001 was 9.18% versus 8.54% in
fiscal 2000. The average borrowings under our credit facility increased to
$112.0 million from $98.1 million in fiscal 2000, and the average interest rate
increased to 8.48% in fiscal 2001 from 7.42% in fiscal 2000.

The outstanding borrowings against the cash surrender value of life
insurance policies were $132.0 million at March 31, 2001 and $116.5 million at
March 31, 2000, and the total interest expense on such borrowings increased to
$14.4 million in fiscal 2001 compared to $12.6 million in fiscal 2000. Such
increases resulted from net borrowings of $15.5 million against the increased
cash surrender value of life insurance policies in November 2000 to pay annual
premiums on such policies and to pay interest on previous borrowings (see
"Liquidity and Capital Resources"). As specified in the terms of the insurance
policies, the rates for dividends payable on the policies correspondingly
increase when borrowings are outstanding under the policies. This increase in
dividends is greater than the increase in the incremental borrowing rate.
Dividend income earned under the policies was $13.0 million in fiscal 2001,
$14.0 million in fiscal 2000 and $10.9 million in fiscal 1999 and is reported
as an offset to general and administrative expenses in the consolidated
statements of operations.

The interest rates on our existing senior notes and on the life insurance
policy borrowings are fixed at 9.50% and 11.76%, respectively. The interest
rates on our credit facility and term loan are floating rates (7.23% and 8.19%,
respectively, as of March 31, 2001). Pursuant to an interest rate swap
agreement we entered with DBTCA in June 1998, the interest rate on our term
loan was fixed at approximately 9.05% through June 2003 (the "Fixed Rate").
Such agreement requires DBTCA 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 sum of 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 DBTCA 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 2001, DBTCA paid us $0.7 million of interest as
calculated under the provisions described above. Since inception of the
interest rate swap agreement, DBTCA has paid us a net amount of $0.2 million
through March 31, 2001.

Liquidity and Capital Resources

Working capital decreased to $154.9 million at March 31, 2002 when compared
to $156.3 million at March 31, 2001. Primary sources of cash in fiscal 2002
consisted of funds provided by operations of $14.5 million and borrowings under
the revolving loan agreement of $25.1 million. Primary uses of cash in fiscal
2002 consisted of (i) capital expenditures of $24.5 million and (ii) dividends
to Holding of $15.0 million for the redemption of stock from retired and
terminated employees.

Cash generated from operating activities was $14.5 million (1.6% of
revenues) in fiscal 2002 compared to $38.0 million (3.6% of revenues) in fiscal
2001 and $33.0 million (3.5% of revenues) in fiscal 2000.

The redemption of $15.0 million of capital stock from retiring and
terminated employees was required by the terms of our stock bonus plan and by
Holding's Stockholders' Agreement. This amount was higher than in fiscal years
2001 and 2000 due to the timing of distributions, the number and mix of shares
being purchased and changes in stock prices. We expect that such redemptions
for fiscal 2003 will be lower than the amount paid in fiscal 2002, although the
amount or timing of such expenditures is not within our control and there can
be no assurance in this regard.

Capital expenditures were $24.5 million in fiscal 2002, $14.5 million in
fiscal 2001 and $9.5 million in fiscal 2000. Capital expenditures in fiscal
2002 were primarily for routine replacement of machinery and equipment,
facility improvements and expansions, including the expansion and automation of
our facility in Chicago and the purchase of computer hardware and software. For
fiscal 2003, we have planned approximately $15.8 million of capital
expenditures to be financed from internally generated funds and borrowings
under our credit facility. Approximately $14.4 million is for facility
improvements and expansions (including a commitment of approximately $11.8
million for the Chicago project) and routine replacement of machinery and
equipment, and $1.4 million is for further additions and enhancements to our
management information systems.

In April 2002, we replaced our then-existing credit facility with an amended
and restated credit facility. See Note 5 to our consolidated financial
statements. The margin on loans under our new credit facility increased by
0.75% over the prior facility. At closing, we paid total structuring and
commitment fees of $1.0 million to the banks in connection with the replacement
of our credit facility.

Our ongoing debt service obligations are expected to consist primarily of
interest payments under our credit facility, interest payments on our senior
notes and principal and interest payments on our term loan and on our
industrial revenue bonds. As of March 31, 2002, annual principal payments
required by our outstanding industrial revenue bonds indebtedness amount to
$1.4 million in fiscal years 2003 and 2004, $2.1 million in fiscal year 2005,
$1.2 million in fiscal 2006 and $0.7 million in fiscal year 2007 and $2.2
million in the aggregate thereafter through fiscal year 2011. We will not be
required to make any principal payments on our notes until their maturity in
fiscal 2012. Our credit facility, as amended, will mature in April 2006. Our
credit facility has covenants that require maintenance of minimum working
capital and a fixed-charge coverage ratio; and although compliance with such
covenants in the future is largely dependent on the future performance of our
company 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.

As of March 31, 2002, our primary sources of liquidity will be available
borrowings of approximately $84.6 million under our credit facility, available
borrowings of approximately $8.1 million against certain life insurance
policies and internally generated funds. Borrowings under our credit facility
are secured by our domestic inventory and accounts receivable, and future
availability under the facility is determined by prevailing levels of such
accounts receivable and inventory. The term loan is secured by a first-priority
lien on a substantial portion of our 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. The interest
rate on the life insurance policy loans is 0.5% greater than the dividend
income rate on the policies. As of March 31, 2002, there was approximately
$27.6 million of cash surrender value in all life insurance policies
maintained, net of borrowings. In addition, our Canadian subsidiary has
available its own credit facilities of up to CDN $12.7 million, including a
revolving credit facility of CDN$5.0 million, a term financial instruments
facility of CDN$7.0 million, to be used for hedging foreign currency and rate
fluctuations, and a special credit facility of CDN$0.7 million for letters of
guaranty in connection with a lease for a newly constructed facility in
Toronto. As of March 31, 2002, CDN$1.9 million (USD$1.2 million) was
outstanding under the revolving credit facility and

a letter of guaranty for CDN$0.6 million (USD$0.4 million) was issued. None of
the term financial instruments facility was used as of March 31, 2002.

For fiscal 2002, EBITDA (as defined) totaled $64.4 million (7.2% of
revenues), compared to $81.1 million (7.7% of revenues) in fiscal 2001 and
$73.6 million (7.8% of revenues) in fiscal 2000. We define EBITDA as income
from operations before depreciation and amortization, LIFO adjustments,
non-recurring charges and certain other non-cash expenses, including stock
bonus plan and post-retirement accruals, and 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
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 our credit facility and notes, prior to their scheduled
maturities in fiscal years 2006 and 2012, respectively; however, we anticipate
that it will be necessary to replace or to refinance all or a portion of our
credit facility and the notes prior to their respective maturities, although
there can be no assurance on what terms, if any, that we would be able to
obtain such refinancing or additional financing. Our ability to make interest
payments on our credit facility and our notes will be dependent on maintaining
the level of performance reflected in the accompanying consolidated financial
statements, which will be dependent on a number of factors, many of which are
beyond our control, and the continued availability of revolving credit
borrowings. Our earnings were sufficient to cover fixed charges for fiscal
years 2000, 2001 and 2002.

Foreign Exchange Exposure

The currency used by our foreign subsidiaries is the applicable local
currency. Exchange adjustments resulting from foreign currency transactions are
recognized in net earnings, and adjustments resulting from the translation of
financial statements are included in accumulated other comprehensive income
(loss) within stockholder's equity. We do not expect to hedge our exposure to
foreign currency fluctuations in the foreseeable future. Net foreign currency
transaction gains or losses have not been material in any of the periods
presented. See "Item 1. Business--Foreign Operations."

Inflation

Our operations have not been, nor are they expected to be, materially
affected by inflation.

Critical Accounting Policies

Management's discussion and analysis of its financial position and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities, although no assurance can be given that actual results
will not differ from those estimates and judgments. Management believes the
critical accounting policies and areas that require the most significant
judgments and estimates to be used in the preparation of the consolidated
financial statements are revenue recognition, allowance for doubtful accounts,
inventory reserves, pension and other postretirement benefits, insurance
reserves, incentive compensation, contingencies and income tax accounting.

Revenue Recognition

We recognize revenue when products are shipped to our customers. Sales are
shown net of returns and allowances.

Accounts Receivable and Allowances for Doubtful Accounts

Accounts receivable consist primarily of amounts due to us from our normal
business activities. Allowances for doubtful accounts are established based on
estimates of losses related to customer receivable balances. Estimates are
developed by using standard quantitative measures based on accounts aging,
historical losses (adjusted for current economic conditions) and, in some
cases, evaluating specific customer accounts for risk of loss. The
establishment of reserves requires the use of judgment and assumptions
regarding the potential for losses on receivable balances. Changes in economic
conditions in specific markets in which we operate could have a material effect
on required reserve balances.

Inventory Reserves

Inventories largely consist of raw material purchased in bulk quantities
from various mill suppliers to be sold to our customers. An allowance for
excess inventory is maintained to reflect the expected unsaleability of
specific inventory items based on condition, recent sales activity and
projected market demand.

Pension and Postretirement Benefits

Our pension and postretirement benefit costs and credits are developed from
actuarial valuations. Inherent in these valuations are key assumptions
including discount rates and expected return on plan assets. We are required to
consider current market conditions, including changes in interest rates, in
selecting these assumptions. Changes in the related pension and postretirement
benefit costs or credits may occur in the future in addition to changes
resulting from fluctuations in our related headcount due to changes in the
assumptions.

Insurance Reserves

Our insurance for worker's compensation, general liability and vehicle
liability are effectively self-insured. A third-party administrator is used to
process all such claims. Claims for worker's compensation are used, along with
other factors, by our third-party administrator to establish reserves required
to cover our worker's compensation liability. Our reserves associated with the
exposure to these self-insured liabilities are reviewed by management and
third-party actuaries for adequacy at the end of each reporting period.

Incentive Compensation

Management incentive plans are tied to various financial performance
metrics. Bonus accruals made throughout the year based on management's best
estimate of the achievement of the specific financial metrics. Adjustments to
the accruals are made on a quarterly basis as forecasts of financial
performance are updated. At year-end, the accruals are adjusted to reflect the
actual results achieved.

Contingencies

We are subject to proceedings, lawsuits and other claims related to
environmental, labor, product and other matters. We assess the likelihood of
any adverse judgments or outcomes to these matters as well as potential ranges
of probable losses. A determination of the amount of reserves required, if any,
for these contingencies are made after careful analysis of each individual
issue. The required reserves may change in the future due to new developments
in each matter or changes in approach such as a change in settlement strategy
in dealing with these matters.

Income Taxes

We estimate our actual current tax exposure together with our temporary
differences resulting from differing treatment of items, such as depreciation,
for tax and accounting purposes. These temporary differences result in

deferred tax assets and liabilities. We then assess the likelihood that our
deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery is not likely, we will establish a valuation
allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we will include and expense the allowance within the tax
provision in the statement of operations. Significant management judgment is
required in determining our provision for income taxes, our deferred tax assets
and liabilities and any valuation allowance recorded against our net deferred
tax assets.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use derivative financial instruments or enter into hedging
transactions for speculative or trading purposes with respect to managing
market risks. However, we have used and will continue to evaluate the use of
derivative financial instruments to reduce our exposure to higher interest
costs during periods of rising interest rates. At March 31, 2002, our only
derivative financial instrument was a fixed rate interest rate swap agreement
covering $95.0 million of our Term Loans. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations." Our exposure to
changes in interest rates is not considered significant to our consolidated
financial statements in the foreseeable future.

Our exposure to market risk for changes in foreign currency exchange rates
is limited to our Canadian operations and the Canadian dollar. Changes in the
exchange rate of the Canadian dollar have not nor are expected to have a
material impact on our results of operations and cash flows. Due to our product
mix and the frequency of our buying and selling activities over normal business
cycles, our exposure to changes in commodity prices is not considered material.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data required by this Item 8 are set
forth as indicated in Item 14(a)(1) and (2) below.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age (at March 31, 2002), principal
occupation and business experience of each of our directors and executive
officers. Holding's directors and executive officers are identical to ours. The
executive officers serve at the pleasure of the board of directors of EMJ and
Holding, respectively.

Each member of our board of directors holds office until the next annual
meeting of the stockholders or until his successor is elected and qualified.
The election of Holding's directors is subject to the provisions of a
stockholders' agreement described below.

There are no family relationships among our directors and executive
officers. For information regarding the stock ownership of Holding by our
directors and executive officers, we refer you to "Item 12. Security Ownership
of Certain Beneficial Owners and Management."

From 1998 through 2001, each non-officer director other than Messrs.
Schuchert and Nickell was granted options to purchase 10,000 shares of Holding
Common Stock at their fair market value as established by the most recent
appraisal available at the date of grant. These options are fully vested.
Beginning April 1, 2002, each of our non-officer directors will be paid an
annual retainer of $20,000, payable quarterly. Effective April 1, 1997, April
1, 1998, April 1, 1999, April 1, 2000 and April 1, 2001, in consideration for
his service as a director, Chairman of the Executive Committee and Chairman of
the Board, Mr. Roderick was granted options to purchase 20,000 shares of
Holding Common Stock, in each case at their fair market value as established by
the most recent appraisal available at the date of the grant. These options are
fully vested. Beginning April 1, 2002, Mr. Roderick will be paid an annual
retainer of $30,000, payable quarterly.

In addition, all non-officer directors are reimbursed for all approved
out-of-pocket expenses related to meetings they attend. Our directors receive
no additional compensation for their services as directors of Holding. Our
officers who serve as directors do not receive compensation for their services
as directors other than the compensation they receive as officers.

Name Age Position
---- --- --------

David M. Roderick....... 78 Chairman of the Board and Chairman of the Executive
Committee and Director

Maurice S. Nelson, Jr... 64 President, Chief Executive Officer and Chief Operating
Officer, Director and Member of the Executive
Committee

William S. Johnson...... 44 Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer) and Secretary

Frank D. Travetto....... 49 Vice President, Merchandising

Kenneth L. Henry........ 55 Vice President

James D. Hoffman........ 43 Vice President

R. Neil McCaffery....... 52 Executive Vice President

Joseph S. Schuchert..... 73 Director

William A. Marquard..... 82 Director and Chairman of the Audit Committee

Frank T. Nickell........ 54 Director and Member of the Executive Committee and the
Audit Committee

John Rutledge........... 53 Director and Member of the Audit Committee

Earl L. Mason........... 54 Director and Member of the Audit Committee

David M. Roderick. Mr. Roderick became Chairman of the Board of EMJ and
Holding on January 21, 1998. Mr. Roderick has also served as Chairman of the
Executive Committee of EMJ and Holding since February 1, 1997. Mr. Roderick has
been a director of EMJ and Holding since January 1994. Mr. Roderick also serves
as a director of American Standard Companies Inc., Citation and Kelso &
Companies, Inc. Previously, Mr. Roderick served as Director, Chairman, and
Chief Executive Officer of the USX Corporation. Mr. Roderick joined USX in
1959, was Chairman of USX Finance Committee and a Director from 1973 to 1975,
was President and Director from 1975 until 1979 and was Chief Executive Officer
and Chairman from 1979 to 1989.

Maurice S. Nelson, Jr. Mr. Nelson was elected President, Chief Executive
Officer and Chief Operating Officer and a director of EMJ and Holding effective
February 1, 1997. Before that, Mr. Nelson served as President, Chief Executive
Officer and Chief Operating Officer of Inland Steel Company from 1992 until
April 1996. Before that, Mr. Nelson was the President of the Aerospace and
Commercial division of the Aluminum Company of America (Alcoa) from 1987 to
1992.

William S. Johnson. Mr. Johnson has been our Vice President and Chief
Financial Officer and Secretary since January 1999. Before that, Mr. Johnson
was EMJ's Controller since February 1995 and was EMJ's Assistant Controller
since February 1994. Prior to that, Mr. Johnson was the Corporate Finance
Manager for Severin Montres, Ltd. since 1991. Severin Montres, Ltd., owned by
Gucci Group N.V., is the manufacturer and distributor of Gucci watches.

Frank D. Travetto. Mr. Travetto has been our Vice President Merchandising
since March 1997. Before that, Mr. Travetto was EMJ's Vice President Western
Region since 1996, EMJ's Vice President Eastern Region from 1992 to 1996, and
EMJ's Division President, Canadian Operations from 1990 to 1992.

Kenneth L. Henry. Mr. Henry has been our Vice President and has been
responsible for operating our Chicago and Quad Cities facilities since January
1998. Before that, Mr. Henry was EMJ's Vice President Central Region since
1995. Before that, Mr. Henry was our Vice President Southern Region since 1994,
and Vice President of the Kilsby-Roberts Division of EMJ from April 1992 to
1994.

James D. Hoffman. Mr. Hoffman has been our Vice President since March 2001
and has been responsible for operations of our Cleveland, Indianapolis and
Cincinnati facilities since March 2001. Before that, Mr. Hoffman was our Vice
President Eastern Region since July 1996. Before that, Mr. Hoffman was District
Manager for our Cleveland and Buffalo operations since June 1992.

R. Neil McCaffery. Mr. McCaffery has been our Executive Vice President
since March 2001. Before that, Mr. McCaffery was our Vice President Western
Region since March 1997 and our Vice President Southern Region since April 1996.

Joseph S. Schuchert. Mr. Schuchert has been a director of EMJ since March
1990, and a director of Holding since May 1990. Mr. Schuchert has been Chairman
and a director of Kelso & Companies, Inc. since March 1989 and was Chief
Executive Officer from March 1989 to August 1997. Kelso & Companies, Inc. is
the general partner of Kelso & Company.

William A. Marquard. Mr. Marquard has been a director of EMJ since March
1990, and a director of Holding since May 1990. Mr. Marquard also serves as a
director and Chairman of the Board of Arkansas Best Corporation, as a director
of Kelso & Companies, Inc., and as a director of InfraReDx, Inc.

Frank T. Nickell. Mr. Nickell has served as director of EMJ and Holding
since August 1993. He has been President and a director of Kelso & Companies,
Inc. since March 1989 and Chief Executive Officer of Kelso & Companies, Inc.
since September 1997. Kelso & Companies, Inc. is the general partner of Kelso &
Company. He is also a director of Peebles Inc., The Bear Stearns Companies Inc.
and BlackRock, Inc.

John Rutledge. Dr. Rutledge has been a director of EMJ and Holding since
June 1992. Dr. Rutledge is the founder of Rutledge & Company, Inc., a merchant
banking firm, and has been Chairman since January 1991. He is the founder of
Claremont Economics Institute, and has been Chairman since January 1979. Dr.
Rutledge is also a director of Amerindo Investment Advisers, Inc., Lazard
Freres Funds, Strategic Optical Holdings, Inc. and StairMaster Sports/Medical
Products, Inc.

Earl L. Mason. Mr. Mason has been a director of EMJ and Holding since
January 2002. Mr. Mason retired from Alliant Exchange (formerly the
distribution business of Kraft Foods), after serving as Chief Executive Officer
and President since April 1999. Before that, Mr. Mason was Senior Vice
President and Chief Financial Officer of Compaq Computer Corporation from May
1996 to April 1999 and held the position of Senior Vice President and Chief
Financial Officer of Inland Steel Industries from June 1991 to May 1996. Mr.
Mason also served as Group Executive of Digital Equipment Corporation from June
1990 to June 1991 and as Chief Financial Officer of its European subsidiary
from October 1987 to June 1990, and held various positions over 15 years at
AT&T Corporation. Mr. Mason is also a director of Computer Horizons Corporation
and the Eye Ticket Corporation.

Robert G. Durham resigned as a director of EMJ in November 2001.

Stockholders' Agreement

Our By-laws provide for one to ten directors. Our board of directors
currently consists of seven directors. Certain of Holding's shareholders have
agreed, pursuant to the Stockholders' Agreement, dated as of September 14,
1990, as amended, or the "Stockholders' Agreement," that two directors will be
designated by the Management Stockholders (as defined in the Stockholders'
Agreement), so long as they are reasonably acceptable to Kelso Investment
Associates IV, L.P., or "KIA IV," an affiliate of Kelso & Company, and that at
least five directors will be designated by KIA IV. Mr. Nelson has been
designated by the Management Stockholders. In addition, the holders of Series A
Preferred Stock of Holding are entitled to designate one director pursuant to
the terms of the Series A Preferred Stock and Mr. Mason is currently serving in
that capacity. The Stockholders' Agreement also provides that in the event of
termination of employment, under certain circumstances, each Management
Stockholder is entitled to sell, and Holding can require such a Management
Stockholder to sell, their shares of Holding Common Stock to Holding at their
appraised Fair Market Value (as defined in the Stockholders' Agreement). The
Stockholders' Agreement expires on March 24, 2008.

Item 11. EXECUTIVE COMPENSATION

Set forth below is information concerning the compensation levels for the
executive officers of Holding and EMJ serving as of March 31, 2002. Our
officers receive no additional compensation for their services as officers of
Holding.

Cash Compensation. The following table sets forth compensation for the
three fiscal years ended March 31, 2002 for our Chief Executive Officer and our
four most highly compensated executive officers as of March 31, 2002.

Summary Compensation Table

Long-Term
Compensation
Annual Compensation Awards
------------------------ ---------------------
Securities Underlying
Stock Options/SAR All Other
Name and Principal Position Year Salary Bonus(1) (#)(2) Compensation(3)
--------------------------- ---- -------- ---------- --------------------- ---------------

Maurice S. Nelson, Jr.................. 2002 $555,762 $ 270,738 -- $ 47,150
President, Chief Executive Officer and 2001 555,844 2,374,014 -- 152,594
Chief Operating Officer 2000 555,567 393,264 -- 53,166

Frank D. Travetto...................... 2002 238,070 99,659 10,000 23,233
Vice President, Merchandising 2001 229,051 133,011 15,000 25,001
2000 220,215 134,316 10,000 20,325

Kenneth L. Henry....................... 2002 226,978 94,921 10,000 25,397
Vice President 2001 218,299 151,677 15,000 28,341
2000 209,808 127,920 10,000 26,192

R. Neil McCaffery...................... 2002 212,600 90,182 10,000 18,220
Executive Vice President 2001 206,352 120,343 15,000 19,515
2000 198,571 121,524 10,000 16,850

James D. Hoffman....................... 2002 214,137 90,182 10,000 17,313
Vice President 2001 205,955 120,343 15,000 18,531
2000 198,079 121,524 10,000 16,455

--------
(1) Amounts reflect cash compensation earned by executive officers in each of
the fiscal years presented, including amounts received after fiscal year
end, or deferred at the election of those officers. Bonus amounts include a
cash bonus payable pursuant to our Management Incentive Compensation Plan,
which became effective April 1, 1997. In addition, Mr. Nelson received a
special bonus of $2,000,000 in fiscal 2001.
(2) Holding has granted executive officers options to purchase shares of
Holding Common Stock at their fair market value on the date of grant. Mr.
Nelson's options have an exercise price of $5.41 per share; options granted
to Messrs. Travetto, Henry, McCaffery and Hoffman in fiscal years 2002,
2001 and 2000 have an exercise price of $8.16, $7.31 and $5.51 per share,
respectively. See "Holding Stock Option Plan" and "Stock Option Grants
Table" below for further information.
(3) Amounts shown include allocations to the accounts of each of the named
officers of contributions made by us to our stock bonus plan and to our
401(a)(17) Supplemental Contribution Plan ("401(a)(17) Plan") and of
premiums paid by us for long-term disability and life insurance policies.
The following allocations were made in fiscal 2002 for Messrs. Nelson,
Travetto, Henry, McCaffery and Hoffman, respectively (i) stock bonus
plan--$8,500, $8,500, $8,500, $8,500, and $8,500; (ii) 401(a)(17)
Plan--$32,538, $8,180, $7,387, $6,593 and $6,593; (iii) long term
disability--$4,509, $3,745, $6,779, $2,133 and $1,623; (iv) life
insurance--$1,603, $2,808, $2,731, $994 and $597. The following allocations
were made in fiscal 2001 for Messrs. Nelson, Travetto, Henry, McCaffery and
Hoffman, respectively (i) stock bonus plan--$8,500, $8,500, $8,500, $8,500,
and $8,500; (ii) 401(a)(17) Plan--$137,719, $9,398, $9,796, $7,694 and
$7,694;

(iii) long term disability--$4,509, $3,745, $6,779, $2,133 and $1,623; (iv)
life insurance--$1,866, $3,358, $3,266, $1,188 and $714. The following
allocations were made in fiscal 2000 for Messrs. Nelson, Travetto, Henry,
McCaffery and Hoffman, respectively (i) stock bonus plan--$8,000, $8,000,
$8,000, $8,000, and $8,000; (ii) 401(a)(17) Plan--$39,164, $9,531, $8,696,
$7,861 and $7,861; (iii) long term disability--$4,509, none, $6,779, none
and none; (iv) life insurance--$1,493, $2,794, $2,717, $989 and $594. The
amounts in respect of life insurance represent the estimated value of the
premiums paid by us on certain disability and life insurance policies
covering each executive. Some of the policies are managed on a split-dollar
basis and we will receive the premiums it has paid from the proceeds of such
insurance. In such cases the amount of the other compensation attributed to
the executive was calculated by treating the premiums paid by us as a demand
loan, and the amount of compensation is equal to the imputed interest
expense on the cumulative outstanding premiums paid by us, assuming an
interest rate equal to the short-term federal funds rate, from time to time.
Amounts shown also include a discretionary bonus of $10,000 paid to
Mr. Henry in fiscal 2001.

Holding Stock Option Plan

In fiscal 1998, Holding adopted the Earle M. Jorgensen Holding Company, Inc.
Stock Option Plan, as amended, or the "Stock Option Plan." Our Executive
Committee is authorized to grant options under the Stock Option Plan. Stock
options may be granted at not less than 100% of the fair market value of
Holding Common Stock on the date of grant and are generally exercisable for a
period not exceeding ten years. Option grants or the vesting of options may be
contingent upon such terms and conditions, such as the achievement of
performance measures or upon the passage of time, as our Executive Committee
determines. Our Executive Committee will make grants under the Stock Option
Plan to provide our executive officers and certain other managers with
additional incentives for outstanding individual performance and the
opportunity to acquire an ownership stake in the Company, thereby more closely
aligning their interests with those of the stockholders.

Our Executive Committee has the right, if the holders of options agree, to
grant replacement options which may contain terms more favorable than the
options they replace, such as a lower exercise price, and cancel the replaced
options.

The aggregate number of shares of Holding Common Stock available for grants
or subject to outstanding options, and the respective prices and/or vesting
criteria applicable to outstanding options, will be proportionately adjusted to
reflect any stock dividend on the Holding Common Stock, or any
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase the
Holding Common Stock at a price substantially below its fair market value. To
the extent deemed appropriate by our Executive Committee, subject to any
required action by the stockholders, in any merger, consolidation,
reorganization, liquidation, dissolution, or other similar transaction, any
option granted under the Stock Option Plan shall pertain to the securities and
any other property to which a holder of the number of shares of Common Stock
covered by the option would have been entitled to receive in connection with
such event.

Upon a change of control of Holding, with certain exceptions, all
outstanding stock options (whether or not then fully exercisable or vested)
will be cashed out at specified prices as of the date of the change of control,
except that any stock options outstanding for less than six months will not be
cashed out until six months after the applicable date of grant.

Generally, a participant who is granted a stock option will not be subject
to federal income tax at the time of grant and we will not be entitled to a tax
deduction by reason of such grant. Upon exercise of a nonqualified option,
generally the difference between the option price and the fair market value of
the Holding Common Stock on the date of exercise will be considered ordinary
income to the participant and generally we will be entitled to a corresponding
tax deduction.

Upon exercise of an incentive stock option, no taxable income will be
recognized by the participant and we are not entitled to a tax deduction by
reason of such exercise. However, if Holding Common Stock purchased pursuant to
the exercise of an incentive stock is sold within two years from the date of
grant or within one year after the transfer of such Holding Common Stock to the
participant, then the difference, with certain adjustments, between the fair
market value of the Holding Common Stock at the date of exercise and the option
price will be considered ordinary income to the participant and generally we
will be entitled to a corresponding tax deduction. If the participant disposes
of the Holding Common Stock after such holding periods, any gain or loss upon
such disposition will be treated as a capital gain or loss and we will not be
entitled to a deduction.

The maximum number of shares of Holding Common Stock reserved for issuance
under the Stock Option Plan is 2,100,000, subject to adjustment as provided in
the Stock Option Plan to reflect certain corporate transactions affecting the
number or type of outstanding shares.

Stock Option Grants Table

The following table sets forth certain information concerning stock options
granted during fiscal 2002 by Holding to our Chief Executive Officer and our
next four most highly compensated executive officers. In addition, there are
shown hypothetical gains that could be realized for the respective options,
based on assumed rates of annual compound price appreciation of 5% and 10% from
the date the options were granted over the ten-year term of the options. The
actual gain, if any, realized upon exercise of the options will depend upon the
market price of Holding's Common Stock relative to the exercise price of the
option at the time the option is exercised. There is no assurance that the
amounts reflected in this table will be realized.

Options Granted in Last Fiscal Year

Individual Grants
------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation for
Underlying Employees Option Term
Options in Fiscal Exercise Expiration ----------------------
Name Granted(1) Year Price/Sh. Date 5% 10%
---- ---------- ---------- --------- ---------- ------- --------

Maurice S. Nelson, Jr...... -- 0% N/A N/A N/A N/A
Frank D. Travetto.......... 10,000 7.8% $8.16 7/31/2011 $51,318 $130,049
Kenneth L. Henry........... 10,000 7.8% 8.16 7/31/2011 51,318 130,049
R. Neil McCaffery.......... 10,000 7.8% 8.16 7/31/2011 51,318 130,049
James D. Hoffman........... 10,000 7.8% 8.16 7/31/2011 51,318 130,049

--------
(1) Holding has not granted any stock appreciation rights. All the options
shown above become exercisable on August 1, 2003. All outstanding stock
options shall become fully exercisable and shall be cancelled and exchanged
for cash in an amount equal to the excess of the Change in Control Price
(as defined in the Stock Option Plan as defined below) over the exercise
price, in the event of any transaction or series of transactions, other
than a public offering, where a person or a group, excluding Holding, any
of its subsidiaries and Kelso and its affiliates, is or becomes the
beneficial owner, directly or indirectly, of securities representing 35% or
more of the voting power of Holding's then outstanding securities (an "SOP
Change of Control"), unless the Executive Committee determines prior to the
occurrence of such SOP Change of Control that such options shall be
honored, or assumed or new rights (having substantially equivalent or
better rights, terms and conditions and economic value) substituted
therefor.

Aggregated Stock Option Exercises and Fiscal Year-End Stock Option Value Table

The following table sets forth certain information concerning stock options
exercised during fiscal 2002 by the Chief Executive Officer and our next four
most highly compensated executive officers, and the value of their unexercised
stock options as of March 31, 2002.

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

Number of Securities Value of In-the-Money
Underlying Options at Options at Fiscal
Shares Value Fiscal Year-End Year-End(1)
Acquired on Realized ------------------------- -------------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ -------- ------------------------- -------------------------

Maurice S. Nelson, Jr........ -- -- 1,320,000/-- $3,630,000/$--
Frank D. Travetto............ -- -- 60,000/25,000 $ 157,750/$12,750
Kenneth L. Henry............. -- -- 60,000/25,000 $ 157,750/$12,750
R. Neil McCaffery............ -- -- 60,000/25,000 $ 157,750/$12,750
James D. Hoffman............. -- -- 60,000/25,000 $ 157,750/$12,750

--------
(1) Holding is a private company and its stock is not publicly traded. The fair
market value of Holding's common stock underlying the options shown above
is determined annually by a third-party appraiser. The value of
in-the-money options shown above was calculated using the most recent
appraisal available which was $8.16 per share as of March 31, 2001.

Equity Compensation Plan Information as of March 31, 2002

(a) (b) (c)
-------------------- ------------------ ---------------------
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price of compensation plans
exercise of outstanding (excluding securities
outstanding options, options, warrants reflected in column
Plan category warrants and rights and rights ($/Sh.) (a))
------------- -------------------- ------------------ ---------------------

Equity compensation plans approved by security
holders(1)...................................... 2,043,000 $5.79 57,000
Equity compensation plans not approved by security
holders......................................... -- -- --
--------- ----- ------
Total............................................. 2,043,000 $5.79 57,000
========= ===== ======

--------
(1) Includes 200,000 shares granted to non-employee directors under our Stock
Option Plan.

Our Stock Bonus Plan

We maintain a stock bonus plan, or the "Plan," in respect of our nonunion
employees who meet certain service requirements. Since April 1, 1999 (when our
employee stock ownership plan was amended and became a stock bonus plan), the
amount of annual contributions is calculated as a percentage (as determined by
our Board of Directors based on the achievement of EMJ performance objectives)
of total cash compensation (as defined in the Plan) and may be made by us in
cash or by Holding in shares of Holding capital stock. Participants become 20%
vested in their account balances after one year of continuous service.
Participants vest an additional 20% for each year of service thereafter and
become fully vested at age 65 or upon completion of five years of service,
retirement, disability or death. Following the occurrence of a participant's
termination of service (as defined in the Plan), retirement, disability, or
death, the Plan is required to either distribute the vested balance in stock or
cash. If stock is distributed, it is accompanied by a put option to Holding
under terms defined in the Plan. At March 31, 2002, shares of Holding's Series
A and Series B Preferred Stock and Holding Common Stock owned by the Plan
totaled 47,184, 26,056, and 3,142,576 shares, respectively. For the fiscal
years ended March 31,

2000, 2001 and 2002, contributions payable to the Plan totaled $2.7 million,
$3.2 million and $2.8 million, respectively. The contributions payable for
fiscal years 2002 and 2001 were paid in cash while the fiscal 2000 contribution
was paid in the form of Holding Common Stock.

Although Holding has not expressed any intent to terminate the Plan, it has
the right to terminate or amend the provisions of the Plan at any time. In the
event of any termination, participants become fully vested to the extent of the
balances in their separate accounts and receive put options with respect to
Holding stock allocated to their accounts.

In 1984, 1985 and 1986, Kilsby purchased life insurance policies to provide,
among other things, a separate source for funds to repurchase capital stock,
including capital stock distributed by the Plan, from departing employees.
Certain of these policies allow us to borrow against the cash surrender value
of such policies. As of March 31, 2002, we have borrowed $147.3 million against
the cash surrender value of such policies to fund renewal premiums, accrued
interest on previous borrowings and working capital needs. The net cash
surrender value available for future borrowings was approximately $8.1 million
as of March 31, 2002. Our credit facility and other resources are also
available, subject to certain limitations, to satisfy stock repurchase
obligations as they arise. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

On March 8, 2002, we were sued by the DOL for alleged breaches of fiduciary
duty by former members of our benefits committee in relying on the valuations
of our common stock prepared by our independent appraiser and allegedly
resulting in prohibited transactions. We refer you to "Item 1.
Business--Litigation."

Supplemental Contribution Plan

In fiscal 1996, we adopted a supplemental contribution plan, or the
"401(a)(17) Plan," for contributions not allowed under our Plan pursuant to
limitations of Sections 401(a)(17) and 415 of the Internal Revenue Code of
1986, as amended. Participants in the 401(a)(17) Plan include certain highly
compensated employees and other employees who are not eligible to participate
in the Plan. Contributions payable, vesting and distributions under the
401(a)(17) Plan are comparable with those under the Plan. Contributions under
the 401(a)(17) Plan are made in cash and are held in an irrevocable trust. For
the fiscal years ended March 31, 2000, 2001 and 2002, contributions payable
totaled $0.1 million, $0.2 million and $0.1 million, respectively.

Management Incentive Compensation Plan

Effective April 1, 1997, we adopted a new Management Incentive Compensation
Plan (the "Incentive Plan"). The Incentive Plan provides for payment of cash
bonuses to senior executives and other key management employees based on the
achievement of certain operating profit and cash flow objectives determined by
our Board of Directors or Executive Committee. Bonuses awarded are based on a
sliding scale based on the percentage of the objectives achieved. No bonus is
payable unless at least 80% of the objectives are achieved, and the maximum
bonus would be awarded for achievement of 150% or more of the established
objectives. In addition, our Chief Executive Officer may award bonuses from a
discretionary pool for exemplary service. The board of Directors ratified
bonuses pursuant to the Incentive Plan aggregating $5.4 million in fiscal 2000,
$5.9 million in fiscal 2001 and $4.0 million in fiscal 2002.

Compensation Committee Interlocks and Insider Participation

David M. Roderick, Frank T. Nickell and Maurice S. Nelson, Jr. are members
of the Executive Committee, which serves as our compensation committee.

Affiliates of Kelso & Company beneficially own shares of the capital stock
of Holding as described under "Security Ownership of Certain Beneficial Owners
and Management." Mr. Nickell and Mr. Schuchert are

stockholders of Kelso and general partners of Kelso Partners I, L.P., or "KP
I," Kelso Partners III, L.P., or "KP III," and Kelso Partners IV, L.P., or "KP
IV." KP I, KP III and KP IV are the general partners of Kelso Investment
Associates, Limited Partnership, or "KIA I," KIA III-Earle M. Jorgensen, L.P.,
or "KIA III-EMJ" and KIA IV, respectively. Mr. Nickell and Mr. Schuchert are
directors of Holding and the Company and share investment and voting power with
respect to shares of the capital stock of Holding held by KIA I, KIA III-EMJ
and KIA IV as described under "Item 12. Security Ownership of Certain
Beneficial Owners and Management."

In connection with the Acquisition, we agreed to pay Kelso & Company an
annual fee of $1,250,000 each year for financial advisory services and to
reimburse it for out-of-pocket expenses incurred in connection with rendering
such services. However, no such annual fee was payable for fiscal years 2000,
2001 and 2002 and other expenses paid to Kelso & Company in fiscal years 2000,
2001 and 2002 were not significant.

Holding has issued to KIA IV two warrants, entitling KIA IV to purchase
2,937,915 shares of Holding Common Stock in the aggregate at a purchase price
of $.01 per share.

Beginning April 1, 1998, and on each subsequent April 1, ending April 1,
2001, in consideration for his service as a director, Chairman of the Company's
Executive Committee and Chairman of the Board, the Company granted Mr. Roderick
options to purchase 20,000 shares of Holding Common Stock at a purchase price
equal to the fair market value as established by the most recent appraisal
available at the date of grant. For the grants issued April 1, 2000 and 2001,
the grant prices were $5.51 per share and $7.31 per share, respectively.
Beginning April 1, 2002, Mr. Roderick will be paid an annual retainer of
$30,000, payable quarterly.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Our Common Stock

All of our issued and outstanding voting stock, consisting of 128 shares of
common stock, is owned by Holding.

Capital Stock of Holding

The following table describes the beneficial ownership of shares of Holding
Common Stock and Series A Preferred Stock as of March 31, 2002, by all
stockholders of Holding known to be beneficial owners of more than 5% of any
such class, by each of our directors and executive officers named in the
Summary Compensation Table and by all directors and executive officers as a
group as determined in accordance with Rule 13d-3(i) under the Securities
Exchange Act of 1934, as amended. As of March 31, 2002, 26,791 shares of Series
B Preferred Stock of Holding were issued, of which 26,056 were owned by the
stock bonus plan.

Percentage of
Percentage of Number Shares of
Number of Shares of of Shares Series A
Shares of Common of Series A Preferred
Common Stock Preferred Stock
Name and Address of Beneficial Owner Stock Outstanding(a) Stock Outstanding(b)
------------------------------------ ---------- -------------- ----------- --------------

Kelso Investment Associates, IV, L.P.(c)... 9,462,475(d) 63.7%(d) 0 0.0%
KIA III--Earle M. Jorgensen, L.P.(c)....... 1,704,740 14.3% 0 0.0%
Joseph S. Schuchert(c)..................... 11,167,215(d)(e) 75.2%(d)(e) 24,519(f) 30.8%(f)
Frank T. Nickell(c)........................ 11,187,714(d)(e) 75.4%(d)(e) 24,519(f) 30.8%(f)
Michael B. Goldberg(c)..................... 9,462,475(d)(e) 63.7%(d)(e) 0 0.0%
George E. Matelich(c)...................... 11,172,215(d)(e) 75.3%(d)(e) 24,519(f) 30.8%(f)
Thomas R. Wall, IV(c)...................... 11,172,215(d)(e) 75.3%(d)(e) 24,519(f) 30.8%(f)
Frank K. Bynum(c).......................... 11,167,215(d)(e) 75.2%(d)(e) 0 0.0%
David I. Wahrhaftig(c)..................... 11,167,215(d)(e) 75.2%(d)(e) 0 0.0%
Philip E. Berney(c)........................ 11,167,215(d)(e) 75.2%(d)(e) 0 0.0%
Maurice S. Nelson(g)....................... 1,320,000(l) 11.1%(l) 0 0.0%
Frank D. Travetto(g)....................... 72,000 (l) 0.6%(l) 0 0.0%
Kenneth L. Henry(g)........................ 79,000 (l) 0.7%(l) 704 0.8%
R. Neil McCaffery(g)(l).................... 65,000 (l) 0.5%(l) 0 0.0%
James D. Hoffman(g)........................ 60,000 (l) 0.5%(l) 0 0.0%
David M. Roderick(g)....................... 134,000 (l) 1.1%(l) 0 0.0%
John Rutledge(h)........................... 42,500 (l) 0.4%(l) 0 0.0%
William A. Marquard(c)..................... 42,500 (l) 0.4%(l) 0 0.0%
Earl L. Mason(g)........................... 0 0.0% 0 0.0%
Earle M. Jorgensen Company Stock Bonus
Plan(g).................................. 3,118,854(i) 26.2%(i) 46,206(i) 58.1%(i)
All directors and executive officers of the
Company as a group....................... 1,875,499(j)(l) 15.8%(j)(l) 704(k) 0.9%(k)

--------
(a) The percentage of shares of Holding Common Stock outstanding for KIA IV,
and Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum
and Berney was calculated assuming the total outstanding shares of Holding
Common Stock was 14,844,813, (i) including shares of Holding Common Stock
which would be outstanding assuming KIA IV exercised the two Warrants
referred to in note (d) below in succession and there have been no other
dilution events prior to such exercise, and (ii) excluding 2,043,000 shares
subject to stock options referred to in note (l) below. The percentage of
shares of Holding Common Stock outstanding for all other holders was
calculated assuming the total outstanding shares of Holding Common Stock
was 11,906,898, excluding shares subject to stock options and shares
issuable upon the exercise of the Warrants held by KIA IV as of March 31,
2002.
(b) The percentage of shares of Series A Preferred Stock outstanding was
calculated assuming the total outstanding shares of Series A Preferred
Stock was 79,536, excluding 168,011 shares of Series A Preferred Stock held
in the Holding treasury as of March 31, 2002.
(c) The business address for such person(s) is c/o Kelso & Company, 320 Park
Avenue, 24th Floor, New York, New York, 10022. Kelso & Company is a private
investment firm.

(d) Includes 2,937,915 shares of the Holding Common Stock that KIA IV is
entitled to purchase pursuant to two Warrants issued to KIA IV. Each
Warrant entitles the holder to purchase up to 10% of the Holding Common
Stock on a fully-diluted basis at an exercise price of $.01 per share.
(e) Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum and
Berney may be deemed to share beneficial ownership of shares of Holding
Common Stock owned of record by (i) KIA IV and an affiliated entity by
virtue of their status as general partners of KP IV, the general partner of
KIA IV, and such affiliate, and (ii) except Mr. Goldberg, KIA III-EMJ by
virtue of their status as general partners of KP III, the general partner
of KIA III-EMJ. Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg,
Wahrhaftig, Bynum and Berney share investment and voting power with respect
to securities owned by the Kelso affiliates of which they are general
partners. Messrs. Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum and
Berney disclaim beneficial ownership of the shares of Holding Common Stock
owned by the affiliates of Kelso & Company.
(f) Messrs. Schuchert, Nickell, Wall and Matelich may be deemed to share
beneficial ownership of shares of Series A Preferred Stock owned of record
by KIA I by virtue of their status as general partners of KP I, the general
partner of KIA I. Messrs. Schuchert, Nickell, Wall and Matelich disclaim
beneficial ownership of the shares of Series A Preferred Stock owned by KIA
I.
(g) The business address of such person(s) or entity is 3050 East Birch Street,
Brea, California, 92821.
(h) The business address for Dr. Rutledge is 15 Locust Avenue, New Canaan,
Connecticut, 06840.
(i) Excludes 23,722 shares of Holding Common Stock and 978 shares of Series A
Preferred Stock held by our stock bonus plan in directed accounts that are
deemed to be beneficially owned by any of the directors or executive
officers or other of our employees.
(j) Excludes (i) 11,167,215 shares of Holding Common Stock held by Kelso
affiliates that may be deemed to be beneficially owned by Mr. Schuchert and
Mr. Nickell, and (ii) shares held by our stock bonus plan, except for
shares held in directed accounts that may be deemed to be beneficially
owned by any of the directors and our executive officers.
(k) Excludes (i) 24,519 shares of Series A Preferred Stock held by KIA I that
may be deemed to be beneficially owned by Mr. Schuchert and Mr. Nickell,
and (ii) shares held by our stock bonus plan, except for shares held in
directed accounts that may be deemed to be beneficially owned by any of our
directors or executive officers.
(l) Includes shares subject to stock options vested and exercisable as of March
31, 2002.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Affiliates of Kelso & Company beneficially own shares of the capital stock
of Holding as described under "Security Ownership of Certain Beneficial Owners
and Management." Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg,
Wahrhaftig, Bynum and Berney are indirect stockholders of Kelso & Company and
general partners of KP I (other than Messrs. Goldberg, Bynum, Wahrhaftig and
Berney), KP III (other than Mr. Goldberg) and KP IV. KP I, KP III and KP IV are
the general partners of KIA I, KIA III-EMJ and KIA IV, respectively. Messrs.
Schuchert and Nickell are directors of Holding and EMJ. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management."

EMJ, Holding and Kelso and its affiliates entered into certain agreements in
connection with the Acquisition. Such agreements and transactions are described
under "Item 11. Executive Compensation--Compensation Committee Interlocks and
Insider Participation."

KIA IV is the holder of two Holding warrants which are described under
"Management--Compensation Committee Interlocks and Insider Participation."

On each April 1, from 1998 through 2001, in consideration for his service as
a director, Chairman of the Company's Executive Committee and Chairman of the
Board, the Company granted Mr. Roderick options to purchase 20,000 shares of
Holding Common Stock at their fair market value as established by the most
recent appraisal available at the date of grant. In 2002, Mr. Roderick will
receive a retainer of $30,000, payable quarterly for his services as Chairman
and a member of our board of directors.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements.

See "Index to Audited Consolidated Financial Statements" (page F-1).

(a)(2) Financial Statement Schedules.

Schedule II--Valuation and Qualifying Accounts and Reserves (page S-2)

All other schedules have been omitted because the information is not
applicable or is not material or because the information required is set forth
in the financial statements or the notes thereto.

(a)(3) Exhibits.

See "Index to Exhibits" for listing of those exhibits included in this
filing.

Exhibit
Number Description
------ -----------

3.1* Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1 as filed on January 15, 1993 (Registration No.
33-57134) (the "Company's 1993 Registration Statement").

3.2* By-laws of the Company. Incorporated by reference to Exhibit 3.2 of the Company's 1993
Registration Statement.

4.1* Form of Indenture with respect to the Company's 9 1/2% Senior Notes.

4.2(a)* Form of Certificate for the Company's 91/2% Senior Notes, Series A, $100,000,000.

4.2(b)* Form of Certificate for the Company's 91/2% Senior Notes, $4,350,000.

4.2(c)* Form of Certificate for the Company's 91/2% Senior Notes, Series A, $650,000.

4.3* Purchase Agreement, dated as of March 19, 1998, among the Company, Donaldson, Lufkin &
Jenrette Securities Corporation and BT Alex, Brown Incorporated, for an aggregate of
$105,000,000 in principal amount of the Company's 9 1/2% Senior Notes due 2005.

4.4* Registration Rights Agreement, dated as of March 24, 1998, among the Company, Donaldson,
Lufkin & Jenrette Securities Corporation and BT Alex, Brown Incorporated.

4.5* Amended and Restated Credit Agreement dated as of March 3, 1993, amended and restated as of
March 24, 1998 (the "Credit Agreement"), among the Company, Holding, Various Financial
Institutions, and BT Commercial Corporation, as Agents (the "Agent").

4.6* Term Loan Agreement ("Term Loan Agreement"), dated as of March 24, 1998 among the Company,
Various Financial Institutions, as the Lender, DLJ Capital Funding, Inc., as the Syndication Agent
for the Lenders, Bankers Trust Company, as the Documentation Agent for the Lenders and Fleet
National Bank, as the Administrative Agent ("Administrative Agent") for the Lenders.

4.7* Form of Restructuring Agreement among Holding, the Company and KIA IV. Incorporated by
reference to Exhibit 4.25 of Amendment No. 3 to the Company's 1993 Registration Statement
("Amendment No. 3").

4.8* Amendment to Restructuring Agreement, dated as of March 3, 1993, by and between Holding and
KIA IV, amended as of March 24, 1998.

4.9* Form of Security Agreement between the Company and BT Commercial Corporation, as Collateral
Agent, Incorporated by Reference to Exhibit 4.27 of Amendment No. 3.

4.10* Form of Acknowledgement, Consent and Amendment, dated as of March 24, 1998, between the
Company and the Administrative Agent.

4.11* Form of Security Agreement, dated as of March 24, 1998 by the Company, in favor of the
Administrative Agent.

4.12* Form of Mortgage, dated as of March 24, 1998, made by the Company in favor of the Administrative
Agent.

4.13* Intercreditor Agreement, dated as of March 24, 1998, by and among Fleet National Bank, as the
Administrative Agent and BT Commercial Corporation.

4.14* First Amendment to Credit Agreement dated as of April 1, 2001.

4.15* Second Amendment to Credit Agreement dated as of February 12, 2002.

4.16** Second Amended and Restated Credit Agreement dated as of March 3, 1993, amended and restated as
of March 24, 1998, and further amended and restated as of April 12, 2002 (the "Credit Agreement"),
among the Company, Holding, Various Financial Institutions, BT Commercial Corporation, as
Agents (the "Agent"), and Deutsche Bank Alex. Brown Incorporated, as Lead Arranger and Sole
Book Runner.

10.1* Stockholders Agreement, amended and restated as of September 14, 1990, among Holding, KIA
III-EMJ, KIA IV, Kelso Equity Partners II, L.P. and the Management Stockholders and Other
Investors named therein. Incorporated by reference to Exhibit 4.1 of Holding's Post-Effective
Amendment No. 1 to the Form S-1 Registration Statement as filed with the Commission on
October 12, 1990 (Registration No. 33-35022) ("Holding's Post-Effective Amendment No. 1 to the
1990 Form S-1").

10.2* Amendment to the Stockholders Agreement, dated as of January 20, 1992. Incorporated by reference
to Exhibit 10.2 of the Company's 1993 Registration Statement.

10.3* Management Stockholders Bonus Plan. Incorporated by reference to Exhibit 4.7 of Holding's Post-
Effective Amendment No. 1 to the 1990 Form S-1.

10.4* Services Agreement, between Acquisition and Kelso, dated March 19, 1990. Incorporated by reference
to Exhibit 10.2 of Holding's Registration Statement on Form S-1 as filed May 30, 1990 with the
Commission (Registration No. 33-35022) ("Holding's 1990 Registration Statement").

10.5* Trust Agreement applicable to the EMJ Employee Stock Ownership and Capital Accumulation Plan,
dated as of May 25, 1984, by and between Crocker National Bank ("Crocker"), as Trustee, and
EMJ. Incorporated by reference to Exhibit 4.1 to Form 8 (Amendment No. 1 to EMJ's Annual
Report on Form 10-K, Registration No. L-7537, for the fiscal year ended December 31, 1984) (the
"Form 8").

10.6* Amendment 1985-I to the EMJ Employee Stock Ownership and Capital Accumulation Plan effective
as of January 1985. Incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to
EMJ's Registration Statement on Form S-8, Registration No. 2-87991, filed August 21, 1985.

10.7* Amendment 1986-I to the EMJ Employee Stock Ownership and Capital Accumulation Plan and Plan
Trust Agreement executed December 1986 between EMJ and Wells Fargo Bank, N.A., as Trustee
(formerly Crocker). Incorporated by reference to Exhibit 4.2 to the Form 8.

10.8* Amendment 1988-I to the EMJ Employee Stock Ownership and Capital Accumulation Plan executed
February 29, 1988. Incorporated by reference to Exhibit (10)d to EMJ's Annual Report on Form
10-K for the fiscal year ended December 31, 1987.

10.9* Amendment 1988-II to the EMJ Employee Stock Ownership and Capital Accumulation Plan executed
June 22, 1988. Incorporated by reference to Exhibit 8 to EMJ's Schedule 14D-9 filed on February 5,
1990 ("EMJ's 1990 Schedule 14D-9").

10.10* Amendment 1989-I to the EMJ Employee Stock Ownership and Capital Accumulation Plan executed
March 20, 1989. Incorporated by reference to Exhibit 8 to EMJ's 1990 Schedule 14D-9.

10.11* EMJ Supplemental Benefit Plan 1989 Amendment in Toto. Incorporated by reference to Exhibit (10)p
to EMJ's 1989 Form 10-K.

10.12* Amendment 1989-II to the EMJ Employee Stock Ownership and Capital Accumulation Plan executed
December 29, 1989. Incorporated by reference to Exhibit (10)q to EMJ's 1989 Form 10-K.

10.13* Amendment 1990-I to the EMJ Employee Stock Ownership and Capital Accumulation Plan Trust
Agreement executed March 19, 1990. Incorporated by reference to Exhibit (10)r to EMJ's Annual
Report on Form 10-K for fiscal year ended December 31, 1989.

10.14* C. A. Roberts Pension Plan, amended and restated as of January 1, 1986, with amendments thereto.
Incorporated by reference to Exhibit 10.22 of Holding's 1990 Registration Statement.

10.15* Kilsby Executive Life Insurance Plan. Incorporated by reference to Exhibit 10.25 of Holding's 1990
Registration Statement.

10.16* Kilsby Executive Long-Term Disability Plan. Incorporated by reference to Exhibit 10.26 of Holding's
1990 Registration Statement.

10.17* Holding's ESOP. Incorporated by reference to Exhibit 10.31 of Holding's Annual Report on Form 10-
K for the year ended March 31, 1991 (Registration No. 33-35022) ("Holding's Form 10-K").

10.18* Amendment No. 1 to Holding's ESOP, dated October 21, 1991. Incorporated by reference to
Exhibit 10.24 of the Company's 1993 Registration Statement.

10.19* Amendment No. 2 to Holding's ESOP, dated October 21, 1991. Incorporated by reference to
Exhibit 10.25 of the Company's 1993 Registration Statement.

10.20* Amendment No. 3 to Holding's ESOP, dated February 18, 1992. Incorporated by reference to
Exhibit 10.26 of the Company's 1993 Registration Statement.

10.21* Amendment No. 4 to Holding's ESOP, dated January 25, 1993. Incorporated by reference to
Exhibit No. 10.21 to Holding's Registration Statement on Form S-1 as filed October 19, 1994 with
the Commission (Registration No. 33-85364) ("Holding's 1994 Registration Statement").

10.22* Amendment No. 5 to Holding's ESOP, dated January 25, 1993. Incorporated by reference to
Exhibit No. 10.22 to Holding's 1994 Registration Statement.

10.23* Amendment No. 6 to Holding's ESOP, dated January 25, 1993. Incorporated by reference to
Exhibit No. 10.23 to Holding's 1994 Registration Statement.

10.24* Amendment No. 7 to Holding's ESOP, dated January 25, 1993. Incorporated by reference to
Exhibit No. 10.24 to Holding's 1994 Registration Statement.

10.25* Amendment No. 8 to Holding's ESOP, dated July 27, 1993. Incorporated by reference to Exhibit No.
10.25 to Holding's 1994 Registration Statement.

10.26* Amendment No. 9 to Holding's ESOP, dated October 7, 1994. Incorporated by reference to Exhibit
No. 10.26 to Holding's 1994 Registration Statement.

10.27* Holding's ESOP Trust Agreement. Incorporated by reference to Exhibit 10.32 of Holding's
Form 10-K.

10.28* Jorgensen Compensation Policy, dated as of April 1, 1991, including description of Return on Net
Operating Assets Incentive Plan. Incorporated by reference to Exhibit 10.34 of Holding's 1991
Form 10-K.

10.29* Lease and Agreement, dated as of August 1, 1991, between Advantage Corporate Income Fund L.P.
and the Company, relating to the sale and lease-back of Kilsby's Kansas City, Missouri property.
Incorporated by reference to Exhibit 10.30 of the Company's 1993 Registration Statement.

10.30* Lease and Agreement, dated as of September 1, 1991, between Advantage Corporate Income Fund
L.P. and the Company, relating to the sale and lease-back of the Cincinnati, Ohio property.
Incorporated by reference to Exhibit 10.31 of the Company's 1993 Registration Statement.

10.31* Industrial Building Lease, dated as of October 16, 1991, between Ira Houston Jones and Helen
Mansfield Jones, Roderick M. Jones and Cherilyn Jones, Roger G. Jones and Norma Jean Jones,
Robert M. Jones and Olga F. Jones and the Company, relating to the sale and lease-back of the
Alameda Street property in Lynwood, California. Incorporated by reference to Exhibit 10.32 of the
Company's 1993 Registration Statement.

10.32* Stock Purchase Agreement, dated as of January 21, 1992, between McJunkin Corporation and the
Company, relating to the sale of the Company's Republic Supply division. Incorporated by
reference to Exhibit 10.33 of the Company's 1993 Registration Statement.

10.33* Contract of Sale, dated as of January 21, 1992, between the Company and Hansford Associates
Limited Partnership, relating to the sale of the warehouse properties and the sale of the Company's
Republic Supply division. Incorporated by reference to Exhibit 10.34 of the Company's 1993
Registration Statement.

10.34* Stock Purchase Agreement, dated as of June 30, 1992, among Forge Acquisition Corporation, The
Jorgensen Forge Corporation and the Company, relating to the sale of the Company's Forge
division. Incorporated by reference to Exhibit 10.35 of the Company's 1993 Registration Statement.

10.35* Industrial Real Estate Lease, dated June 25, 1992, between Paul Nadzikewycz and the Company,
relating to the sale and lease-back of JSA's Denver, Colorado property. Incorporated by reference to
Exhibit 10.36 of the Company's 1993 Registration Statement.

10.36* Industrial Real Estate Lease, dated October 19, 1992, between Fiorito Enterprises, Inc. and the
Company, relating to the sale and lease-back of the Portland, Oregon facility. Incorporated by
reference to Exhibit 10.27 of the Company's 1993 Registration Statement.

10.37* Truck Lease and Service Agreement, dated as of November 1, 1984, between Ryder Truck Rental, Inc.
("Ryder") and EMJ and all amendments thereto, between Ryder and the Company (amendments
dated January 1, 1992, January 30, 1992 and undated (executed by the Company)). Incorporated by
reference to Exhibit 10.38 of the Company's 1993 Registration Statement.

10.38* Lease, dated July 30, 1982, between Republic Bank, Dallas N.A., as Ancillary Trustee of the Fluor
Employees' Trust Fund and Kilsby-Roberts Co., relating to Kilsby's Houston, Texas property (the
"Houston Lease"). Incorporated by reference to Exhibit 10.42 of the Company's 1993 Registration
Statement.

10.39* Amendment No. 1 to the Houston Lease, dated as of December 31, 1986, among Barclays Bank of
California, as Trustee for Republic Bank, Dallas, N.A., as Ancillary Trustee of the Fluor
Employees' Trust Fund, KRG and Kilsby-Roberts Co. Incorporated by reference to Exhibit 10.43 of
the Company's 1993 Registration Statement.

10.40* Form of Management Agreement between the Company and Holding. Incorporated by reference to
Exhibit 10.46 of Amendment No. 2 to the Company's 1993 Registration Statement.

10.41* Form of Tax Allocation Agreement between the Company and Holding. Incorporated by reference to
Exhibit 10.47 of Amendment No. 3.

10.42* Earle M. Jorgensen Holding Company, Inc. Phantom Stock Plan adopted January 11, 1995.
Incorporated by reference to Exhibit 10.39 to Amendment No.1 to Holding's 1994 Registration
Statement as filed with the commission on January 19, 1995 (Registration No. 33-85364)
("Amendment No. 1 to Holding's 1994 Registration Statement").

10.43* Industrial Real Estate Lease, dated July 15, 1993, between Jorgensen and 58 Cabot L.P., relating to the
Langhorne, Pennsylvania facility. Incorporated by reference to Exhibit 10.27 to Holding's 1994
Registration Statement.

10.44* Amendment to the Stockholders Agreement, dated as of September 30, 1994. Incorporated by
reference to Exhibit 10.41 to Amendment No. 1 to Holding's 1994 Registration Statement.

10.45* Stock Compensation Agreement, dated as of December 13, 1994, between Holding and David M.
Roderick. Incorporated by reference to Exhibit 10.42 to Amendment No. 1 to Holding's 1994
Registration Statement.

10.46* Holding's 401(a)(17) Supplemental Contribution Plan, effective April 1, 1994. Incorporated by
reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K, Commission File No.
5-10065 for the fiscal year ended March 31, 1995 (the "Company's 1995 Form 10-K").

10.47* Holding's Deferred Compensation Plan, effective April 1, 1994. Incorporated by reference to
Exhibit 10.55 to the Company's 1995 Form 10-K.

10.48* Amendment No. 2 to the Earle M. Jorgensen Company Capital Accumulation Plan and Trust dated as
of May 3, 1996. Incorporated by reference to Exhibit 10.55 to the Company's Annual Report on
Form 10-K, Commission File No. 5-10065 for the fiscal year ended March 31, 1996 (the
"Company's 1996 Form 10-K").

10.49* Earle M. Jorgensen Holding Company, Inc. Stock Option Plan effective January 30, 1997.
Incorporated by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K,
Commission File No. 5-10065 for the fiscal year ended March 31, 1997 (the "Company's 1997
Form 10-K").

10.50* Form of Holding Incentive and Non-Qualified Stock Option Agreement. Incorporated by reference to
Exhibit 10.58 to the Company's 1997 Form 10-K.

10.51* Earle M. Jorgensen Holding Company, Inc. Stock Option Plan, as amended July 21, 1997.
Incorporated by reference to Exhibit 10.61 to the Company's Quarterly Report on Form 10-Q,
Commission File No. 5-10065 for the fiscal quarter ended September 29, 1997.

10.52* Earle M. Jorgensen Company Management Incentive Compensation Plan. Incorporated by reference to
Exhibit 10.62 to the Company's Quarterly Report on Form 10-Q, Commission File No. 5-10065 for
the fiscal quarter ended December 31, 1997.

10.53* Earle M. Jorgensen Company Employee Stock Ownership Plan, as amended and restated effective as
of April 1, 1999.

10.54* Amendment No. 3 to the Earle M. Jorgensen Company Capital Accumulation Plan and Trust, as
amended and effective April 1, 2000.

10.55* Earle M. Jorgensen Hourly Employees Pension Plan, as amended and effective January 1, 2001.

10.56* Restatement of the Earle M. Jorgensen Hourly Employees Pension Plan, as amended in Toto effective
January 1, 2000.

12.1** Statement of Computation of Number of Times Fixed Charges Earned.

21 ** Listing of the Company's subsidiaries.

--------
* Previously filed.
** Included in this filing.

(b) Reports on Form 8-K.

None.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brea, State of
California, on the 6th of May, 2002.

EARLE M. JORGENSEN COMPANY

By /s/ WILLIAM S. JOHNSON
-----------------------------------
William S. Johnson
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer) and Secretary

Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities
and on the dates indicated.

Signatures Title Date
---------- ----- ----

/s/ DAVID M. RODERICK Chairman of the Board and Chairman of May 6, 2002
--------------------------- the Executive Committee and Director
David M. Roderick

/s/ MAURICE S. NELSON, JR. President, Chief Executive Officer May 6, 2002
--------------------------- and Chief Operating Officer and
Maurice S. Nelson, Jr. Director

/s/ WILLIAM S. JOHNSON Vice President and Chief Financial May 6, 2002
--------------------------- Officer (Principal Financial and
William S. Johnson Accounting Officer) and Secretary

/s/ JOSEPH S. SCHUCHERT Director May 6, 2002
---------------------------
Joseph S. Schuchert

/s/ WILLIAM A. MARQUARD Director May 6, 2002
---------------------------
William A. Marquard

/s/ FRANK T. NICKELL Director May 6, 2002
---------------------------
Frank T. Nickell

/s/ JOHN RUTLEDGE Director May 6, 2002
---------------------------
Dr. John Rutledge

/s/ EARL L. MASON Director May 6, 2002
---------------------------
Earl L. Mason

[THIS PAGE INTENTIONALLY LEFT BLANK]

EARLE M. JORGENSEN COMPANY

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report of Independent Auditors.................................................................... F-2

Consolidated Balance Sheets at March 31, 2001 and 2002............................................ F-3

Consolidated Statements of Operations and Comprehensive Income for the years ended March 31, 2000,
2001 and 2002................................................................................... F-4

Consolidated Statements of Stockholder's Equity for the years ended March 31, 2000, 2001 and 2002. F-5

Consolidated Statements of Cash Flows for the years ended March 31, 2000, 2001 and 2002........... F-6

Notes to Consolidated Financial Statements........................................................ F-7

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholder
Earle M. Jorgensen Company

We have audited the accompanying consolidated balance sheets of Earle M.
Jorgensen Company as of March 31, 2001 and 2002, and the related consolidated
statements of operations and comprehensive income, stockholder's equity, and
cash flows for each of the three years in the period ended March 31, 2002. Our
audits also included the financial statement schedule listed in the index at
item 14(a)(2). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Earle M.
Jorgensen Company at March 31, 2001 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 2002 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective
April 1, 2001, the Company changed its accounting for derivative financial
instruments.

/s/ ERNST & YOUNG LLP

Orange County, California
April 30, 2002

F-2

EARLE M. JORGENSEN COMPANY

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)

March 31,
------------------
2001 2002
-------- --------

ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 23,758 $ 21,300
Accounts receivable, less allowance for doubtful accounts.................... 107,223 89,279
Inventories.................................................................. 218,580 186,868
Other current assets......................................................... 7,540 4,899
-------- --------
Total current assets..................................................... 357,101 302,346
-------- --------
Net property, plant and equipment, at cost...................................... 98,236 111,243
Cash surrender value of life insurance policies................................. 25,114 27,625
Debt issue costs, net of accumulated amortization............................... 3,292 1,810
Other assets.................................................................... 521 974
-------- --------
Total assets............................................................. $484,264 $443,998
======== ========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................. $137,328 $ 88,484
Accrued employee compensation and related taxes.............................. 14,113 9,874
Accrued employee benefits.................................................... 11,203 11,533
Accrued interest............................................................. 7,275 8,079
Other accrued liabilities.................................................... 8,324 6,751
Deferred income taxes........................................................ 18,904 19,094
Current portion of long-term debt............................................ 3,645 3,595
-------- --------
Total current liabilities................................................ 200,792 147,410
-------- --------
Long-term debt.................................................................. 266,539 289,300
Deferred income taxes........................................................... 16,482 16,292
Other long-term liabilities..................................................... 3,602 6,782
Commitments and contingencies...................................................

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............................................... 85,834 70,871
Accumulated other comprehensive loss......................................... (1,833) (4,859)
Accumulated deficit.......................................................... (87,152) (81,798)
-------- --------
Total stockholder's equity (deficit)..................................... (3,151) (15,786)
-------- --------
Total liabilities and stockholder's equity............................... $484,264 $443,998
======== ========

See accompanying notes.

F-3

EARLE M. JORGENSEN COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(dollars in thousands)

Year Ended March 31,
-----------------------------
2000 2001 2002
-------- ---------- --------

Revenues........................................ $938,252 $1,059,681 $895,058
Cost of sales................................... 662,803 767,263 641,991
-------- ---------- --------
Gross profit.................................... 275,449 292,418 253,067

Expenses:
Warehouse and delivery....................... 123,566 136,752 124,457
Selling...................................... 34,147 36,391 31,932
General and administrative................... 50,345 55,399 46,405
-------- ---------- --------
Total expenses............................... 208,058 228,542 202,794
-------- ---------- --------
Income from operations.......................... 67,391 63,876 50,273
Interest expense, net........................... 41,595 44,855 42,545
Excise tax imposed under IRS settlement......... -- -- 1,919
-------- ---------- --------
Income before income taxes...................... 25,796 19,021 5,809
Income tax provision............................ 1,809 1,223 455
-------- ---------- --------
Net income...................................... 23,987 17,798 5,354
Other comprehensive income (loss):
Derivative--interest rate swap agreement..... -- -- (2,925)
Foreign currency translation adjustment...... 358 (1,047) (133)
Minimum pension liability.................... 44 (23) 32
-------- ---------- --------
Comprehensive income............................ $ 24,389 $ 16,728 $ 2,328
======== ========== ========

See accompanying notes.

F-4

EARLE M. JORGENSEN COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(dollars in thousands, except share data)

Accumulated
Common Stock Capital in other
------------- excess of comprehensive Accumulated
Shares Amount par value income (loss) deficit Total
------ ------ ---------- ------------- ----------- --------

Balance at March 31, 1999....... 128 $ -- $102,082 $(1,165) $(128,937) $(28,020)
Dividend to Parent........... -- -- (13,372) -- -- (13,372)
Capitalization of ESOP
contribution, net.......... -- -- 2,638 -- -- 2,638
Foreign currency translation
adjustment................. -- -- -- 358 -- 358
Additional minimum pension
liability.................. -- -- -- 44 -- 44
Net income................... -- -- -- -- 23,987 23,987
---- ----- -------- ------- --------- --------
Balance at March 31, 2000....... 128 -- 91,348 (763) (104,950) (14,365)
Dividend to Parent........... -- -- (5,514) -- -- (5,514)
Foreign currency translation
adjustment................. -- -- -- (1,047) -- (1,047)
Additional minimum pension
liability.................. -- -- -- (23) -- (23)
Net income................... -- -- -- -- 17,798 17,798
---- ----- -------- ------- --------- --------
Balance at March 31, 2001....... 128 -- 85,834 (1,833) (87,152) (3,151)
Dividend to Parent........... -- -- (14,963) -- -- (14,963)
Loss on interest rate swap
agreement.................. -- -- -- (2,925) -- (2,925)
Foreign currency translation
adjustment................. -- -- -- (133) -- (133)
Additional minimum pension
liability.................. -- -- -- 32 -- 32
Net income................... -- -- -- -- 5,354 5,354
---- ----- -------- ------- --------- --------
Balance at March 31, 2002....... 128 $ -- $ 70,871 $(4,859) $ (81,798) $(15,786)
==== ===== ======== ======= ========= ========

See accompanying notes.

F-5

EARLE M. JORGENSEN COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

Year Ended March 31,
----------------------------
2000 2001 2002
-------- -------- --------

Operating activities:
Net income..................................................................... $ 23,987 $ 17,798 $ 5,354
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 9,951 11,035 11,449
Amortization and write-off of debt issue costs included in interest
expense................................................................... 1,482 1,482 1,792
Accrued postretirement benefits............................................. 224 11 249
ESOP expense contributed to capital......................................... 2,638 -- --
Deferred income taxes....................................................... 194 -- --
Loss (gain) on sale of property, plant and equipment........................ 2,294 (44) (36)
Provision for bad debts..................................................... 1,201 1,651 2,434
Increase in cash surrender value of life insurance over premiums paid....... (2,399) (1,529) (2,174)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.............................. (18,092) (627) 15,510
Decrease (increase) in inventories...................................... (22,221) (13,564) 31,712
Decrease (increase) in other current assets............................. (219) (884) 960
(Decrease) increase in accounts payable and accrued liabilities and
expenses.............................................................. 34,219 24,414 (53,491)
Decrease (increase) in non-trade receivables............................ (511) (1,035) 1,681
Other....................................................................... 236 (682) (896)
-------- -------- --------
Net cash provided by operating activities...................................... 32,984 38,026 14,544
-------- -------- --------

Investing activities:
Additions to property, plant and equipment..................................... (9,525) (14,475) (24,531)
Proceeds from the sale of property, plant and equipment........................ 6,633 118 116
Premiums paid on life insurance policies....................................... (1,954) (1,364) (1,461)
Proceeds from redemption of life insurance policies............................ -- 673 1,124
-------- -------- --------
Net cash used in investing activities....................................... (4,846) (15,048) (24,752)
-------- -------- --------

Financing activities:
Net borrowings (payments) under revolving loan agreements...................... (9,459) (12,963) 25,111
Other debt payments, net....................................................... (1,500) (2,400) (2,400)
Cash dividend to Parent........................................................ (13,372) (5,514) (14,963)
-------- -------- --------
Net cash provided (used) in financing activities............................ (24,331) (20,877) 7,748
-------- -------- --------
Effect of exchange rate changes on cash........................................ (7) (3) 2
-------- -------- --------
Net increase (decrease) in cash................................................ 3,800 2,098 (2,458)
Cash at beginning of year...................................................... 17,860 21,660 23,758
-------- -------- --------
Cash at end of year............................................................ $ 21,660 $ 23,758 $ 21,300
======== ======== ========

See accompanying notes.

F-6

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002

1. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation--Earle M. Jorgensen Company (the
"Company") became a wholly-owned subsidiary of Earle M. Jorgensen Holding
Company, Inc. (the "Parent") as the result of a series of business combinations
and mergers effective April 1, 1990. The Company distributes a broad line of
bar, tubing, plate and various other metal products and value added services
through a network of 35 service centers and value-added processing operations
strategically located throughout North America.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries including Earle M. Jorgensen
(Canada) Inc. ("EMJ (Canada)") and Stainless Insurance Ltd., a captive
insurance subsidiary ("EMJ (Bermuda)"). In fiscal 2000, 2001 and 2002, EMJ
(Canada) generated net income (loss) of $574,500, $(605,400) and $(325,400),
respectively. In fiscal 2000, 2001 and 2002, EMJ (Bermuda) generated net income
(loss) of $333,300, $431,200 and $(2,056,000), respectively, including
investment income and intercompany fees. The loss in fiscal 2002 was
attributable to higher loss reserves established in connection with the
Company's self-insured workers compensation program. All significant
intercompany accounts and transactions have been eliminated.

Certain amounts reported in prior years have been reclassified to conform to
the 2002 presentation.

Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.

Revenue Recognition--The Company recognizes revenue associated with a sales
order when product is shipped.

Concentration of Credit Risk--The Company sells the majority of its products
throughout the United States and Canada. Sales to the Company's recurring
customers are generally made on open account terms while sales to occasional
customers are made on a C.O.D. basis. The Company performs periodic credit
evaluations of its ongoing customers and generally does not require collateral.
The Company establishes an allowance for potential credit losses based upon
factors surrounding the credit risk for specific customers, historical trends
and other information; such losses have been within management's expectations,
and were higher in fiscal 2002 when compared to fiscal years 2001 and 2000. The
Company's allowance for doubtful accounts at March 31, 2001 and 2002 was
$427,000 and $452,000, respectively. Management believes there are no
significant concentrations of credit risk as of March 31, 2002.

Property, Plant and Equipment--Property, plant and equipment is recorded at
cost. Additions, renewals and betterments are capitalized; maintenance and
repairs, which do not extend useful lives, are expensed as incurred. Gains or
losses from disposals are reflected in income and the related costs and
accumulated depreciation are removed from the accounts. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of 10 to 40 years for buildings and improvements and three to 20
years for machinery and equipment. Leasehold improvements are amortized over
the terms of the respective leases.

The Company capitalizes certain costs incurred during the development of
software used internally and amortizes such costs over their estimated useful
lives. During fiscal 2000, 2001 and 2002, such costs totaling $945,000,
$735,000 and $414,000, respectively, were capitalized.

F-7

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company reviews its long-lived assets pursuant to SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations or are expected to be disposed of, when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying value of the assets.
There were no impairment losses recorded in fiscal 2000, 2001, and 2002.

Stock-Based Compensation--Stock options granted to directors, officers and
other key employees of the Company under the Parent's stock option plan adopted
in January 1997 are accounted for in accordance with APB No. 25. As all stock
option grants were made at fair value on the date of grant, no compensation
cost has been recognized by the Company for the fiscal years ended March 31,
2000, 2001 and 2002. Had compensation cost for stock options granted been
determined in accordance with SFAS No. 123, the Company's net income for fiscal
years 2000, 2001 and 2002 would have been $23,401,000, $17,285,000 and
$5,145,000, respectively.

Debt Issue Costs--Debt issue costs are deferred and amortized to interest
expense over the life of the underlying indebtedness. For the fiscal years
ended March 31, 2000, 2001 and 2002, amortization of debt issue costs was
$1,482,000, $1,482,000 and $1,792,000, respectively. Accumulated amortization
of debt issue costs was $4,500,000 and $6,292,000 at March 31, 2001 and 2002,
respectively.

Income Taxes--The Company is included in the consolidated tax returns of
Holding and calculates its tax provision as though it files on a separate
basis. The consolidated tax liability of the Company and Parent is allocated to
each of these entities pursuant to a Tax Allocation Agreement between the
Company and Parent ("Tax Allocation Agreement"). Under the Tax Allocation
Agreement, Parent pays all taxes and is reimbursed by the Company for the
lesser of (i) the Company's allocated portion of the taxes due, or (ii) the tax
that would be payable if the Company filed its own returns.

The Company records deferred taxes based upon differences between the
financial statement and tax basis of assets and liabilities pursuant to SFAS
No. 109, "Accounting for Income Taxes", as though it files on a separate basis.
Any differences in deferred taxes determined on a separate basis and the actual
payments made or received under the Tax Allocation Agreement are accounted for
as an equity adjustment between the Company and Parent. There were no such
differences in fiscal 2002. Deferred taxes are also recorded for the future
benefit of Federal and state tax losses and tax credit carryforwards.
Consistent with SFAS No. 109, a valuation allowance has been recognized for
certain deferred tax assets, which management believes are not likely to be
realized (see Note 6).

Foreign Currency Translation--The financial statements of foreign
subsidiaries are translated into U.S. dollars in accordance with SFAS No. 52,
"Foreign Currency Translation". Balance sheet accounts are translated using the
year-end exchange rates while income statement amounts are translated using the
average exchange rates for each year. Adjustments resulting from translation of
foreign currency financial statements are included in accumulated other
comprehensive income in stockholder's equity. Exchange gains and losses from
foreign currency transactions are included in the consolidated statements of
operations in the period in which they occur.

Cash and Statements of Cash Flows--Cash includes disbursements and deposits
not yet funded by or applied to the Company's Revolving Credit Facility as of a
balance sheet date and cash and cash equivalents held by EMJ (Bermuda) in
connection with providing insurance to the Company totaling $6,638,000 and
$5,862,000 as of March 31, 2001 and 2002, respectively. The Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.

For the years ended March 31, 2000, 2001 and 2002 cash paid for interest on
borrowings was $40,685,000, $43,137,000 and $39,942,000, and cash paid for
income taxes was $1,247,000, $1,676,000 and $403,000, respectively.

F-8

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comprehensive Income--Components of the Company's comprehensive income
include foreign currency translation adjustments, additional minimum pension
liability and accounting for certain derivatives.

Segment Information--The Company currently operates in one reportable
segment--the metals service center industry--as determined in accordance with
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information".

Derivatives--Effective April 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended,
which requires the Company to recognize all derivatives on the balance sheet at
fair value. The change in fair value of derivatives that are not hedges must be
recognized through income. If the derivative is a hedge, then depending on the
nature of the hedge, any changes in fair value will be either offset against
changes in the fair value of the hedged item, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company has and may use derivative instruments to reduce interest rate risks
(see Note 5). The Company does not hold or issue any derviative instruments for
speculative or trading purposes.

Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 is effective for any business combinations
completed after June 30, 2001 and SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. These
new standards currently will have no effect on the Company's consolidated
financial statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
retirement costs. The Company is in the process of assessing the effect of
adopting SFAS No. 143.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, which is effective for fiscal years beginning after December
15, 2001. SFAS No. 144 addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of.
However, SFAS No. 144 retains certain fundamental provisions of SFAS No. 121
including recognition and measurement of the impairment of long-lived assets to
be held and used; and measurement of long-lived assets to be disposed of by
sale. The Company is in the process of assessing the effect of adopting SFAS
No. 144.

2. Inventories

Substantially all inventories are held for sale at the Company's service
center locations and are valued at the lower of cost (using the last-in,
first-out (LIFO) method) or market. If the Company had used the first-in,
first-out (FIFO) method of inventory valuation, inventories would have been
lower by $9,022,000 and $8,432,000 at March 31, 2001 and March 31, 2002,
respectively.

Any reduction of inventory quantities that liquidates LIFO inventories
carried at costs lower or higher than costs prevailing in prior years may have
a significant effect on the Company's gross profit. Such a reduction and
liquidation occurred during fiscal 2002 but did not have a significant effect
on gross profit. There were no such reductions in fiscal 2000 or in fiscal 2001.

F-9

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Net Property, Plant and Equipment

Property, plant and equipment (including in-process costs for assets not yet
placed in service) and accumulated depreciation at March 31, 2001 and 2002
consisted of the following:

2001 2002
------------ ------------

Land..................................... $ 20,798,000 $ 22,107,000
Buildings and improvements............... 32,602,000 34,202,000
Machinery and equipment.................. 106,559,000 105,247,000
In-process costs......................... 3,715,000 21,539,000
------------ ------------
163,674,000 183,095,000
Less accumulated depreciation............ 65,438,000 71,852,000
------------ ------------
Net property, plant and equipment..... $ 98,236,000 $111,243,000
============ ============

The in-process costs incurred as of March 31, 2002 includes $19,608,000
(including $316,000 of capitalized interest) for the expansion and automation
of the Company's Chicago facility, which is scheduled to become operational
beginning in July 2002. Estimated remaining costs to be incurred in connection
with this project total $13,122,000 and are expected to be paid during fiscal
2003 and fiscal 2004.

4. Cash Surrender Value of Life Insurance

The Company is the owner and beneficiary of life insurance policies on all
former nonunion employees of a predecessor company including certain current
employees of the Company and its Parent. The Company is also the owner and
beneficiary of key man life insurance policies on certain current and former
executives of the Company and predecessor companies. These policies are
designed to provide cash to the Company to repurchase shares held by employees
in the Company's Stock Bonus Plan and shares held individually by employees
upon the termination of their employment. Cash surrender value of the life
insurance policies increase by a portion of the amount of premiums paid and by
dividend income earned under the policies. Dividend income earned under the
policies totaled $14,029,000 in fiscal 2000, $13,010,000 in fiscal 2001 and
$13,521,000 in fiscal 2002 and is recorded as an offset to general and
administrative expense in the accompanying statements of operations.

The Company has borrowed against the cash surrender value of certain
policies to pay a portion of the premiums and accrued interest on those
policies and to fund working capital needs. Interest rates on borrowings under
the life insurance policies are fixed at 11.76%. As of March 31, 2002,
approximately $8,084,000 was available for future borrowings.

Surrender Net cash
value before Loans surrender
loans Outstanding value
------------ ------------ -----------

Balance at March 31, 2001.... $157,143,000 $132,029,000 $25,114,000
Balance at March 31, 2002.... $174,943,000 $147,318,000 $27,625,000

Interest on cash surrender value borrowings totaled $12,645,000, $14,398,000
and$15,996,000 in fiscal 2000, 2001 and 2002, respectively, and is included in
net interest expense in the accompanying statements of operations.

F-10

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Long-Term Debt

Long-term debt at March 31, 2001 and 2002 consisted of the following:

2001 2002
------------ ------------

Revolving Loans (including $1,245,000 and $1,195,000
at March 31, 2001 and 2002, respectively, related
to a Canadian facility)............................. $ 57,784,000 $ 82,895,000
Variable Rate Term Loan due March 24, 2004............ 97,000,000 96,000,000
9 1/2% Senior Notes due April 1, 2005................. 105,000,000 105,000,000
Industrial Development Revenue Bonds:.................
Payable in annual installments of $500,000
commencing June 1, 1998, interest at 9%.......... 2,500,000 2,000,000
Payable in annual installments of $715,000
commencing December 1, 2004, interest at 5.25%... 4,300,000 4,300,000
Payable in annual installments of $900,000
commencing September 1, 2000, interest at 8.5%... 3,600,000 2,700,000
------------ ------------
270,184,000 292,895,000
Less current portion.................................. 3,645,000 3,595,000
------------ ------------
$266,539,000 $289,300,000
============ ============

Aggregate maturities of long-term debt are as follows: $3,595,000 in 2003;
$96,400,000 in 2004; $2,115,000 in fiscal 2005; $106,215,000 in fiscal 2006,
$82,415,000 in fiscal 2007 and $2,155,000 thereafter.

The fair value of the Company's Senior Notes and Term Loans at March 31,
2002 was $100,800,000 and $94,080,000, respectively, based on the quoted market
prices as of that date. The carrying values of all other long-term debt and
other financial instruments at March 31, 2002 approximate fair value.

Credit Agreements

Effective March 24, 1998, the Company entered into an amended and restated
revolving credit facility ("Credit Agreement"), which allowed maximum
borrowings of $220 million, including letters of credit ($200,000 outstanding
at March 31, 2002). In April 2002, the Company further amended the Credit
Agreement, which among other things, changed the maximum borrowings to $200
million, extended the maturity date, changed certain financial covenants, and
increased the base rates and commitment fees. Borrowings under the amended
Credit Agreement bear interest at a base rate (generally defined as the bank's
prime lending rate plus 1.25% or LIBOR plus 2.50%). At March 31, 2002, the
bank's prime lending rate was 4.75% and LIBOR was 1.88%. In addition,
borrowings under the revolving loans are limited to an amount equal to 85% of
eligible trade receivables plus 55% of eligible inventories (as defined).
Unused available borrowings under the revolving loans totaled $84,599,000 at
March 31, 2002. The amended Credit Agreement matures on the earlier of April 7,
2006 or one month prior to the earliest maturity of the Term Loan and 9 1/2%
Senior Notes, and is secured by a lien on all domestic inventory and accounts
receivable of the Company.

Under the amended Credit Agreement, the Company is obligated to pay certain
fees including an unused commitment fee of 0.5%, payable quarterly in arrears,
and letter of credit fees of 2.50% per annum of the maximum amount available to
be drawn under each letter of credit, payable quarterly in arrears, plus
issuance, fronting, amendment and other standard fees. The Company paid loan
commitment fees totaling $478,000 in 2000, $423,000 in fiscal 2001, and
$480,000 in fiscal 2002.

F-11

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The amended Credit Agreement contains financial covenants in respect of
maintenance of minimum working capital and a fixed charge coverage ratio (as
defined). The amended Credit Agreement also limits, among other things, the
incurrence of liens and other indebtedness, mergers, consolidations, the sale
of assets, annual capital expenditures, advances, investments and loans by the
Company and its subsidiaries, dividends and other restricted payments by the
Company and its subsidiaries in respect to their capital stock, and certain
transactions with affiliates.

The Company's Canadian subsidiary maintains a one year renewable credit
facility (the "Canadian Facility") totaling CDN$12,675,000 including (i) a
revolving credit facility of CDN$5,000,000, (ii) a term financial instruments
facility of CDN$7,000,000 for hedging foreign currency and rate fluctuations
(unused as of March 31, 2002), and (iii) a special credit facility for the
issuance of a letter of guarantee up to CDN$675,000 in connection with the
lease for the Toronto facility. Borrowings under the revolving credit facility
are limited to an amount equal to 80% of eligible trade receivables plus 40% of
eligible inventories (as defined, and limited to CDN$1,500,000), are repayable
on demand, and bear interest at the bank's annual prime lending rate plus
0.50%. At March 31, 2002, the interest rate on the revolving credit facility
was 4.25%. The revolving credit facility contains financial covenants in
respect of maintenance of minimum equity and a debt-to-equity ratio (as
defined) and has other restrictions similar to those under the amended Credit
Agreement, as described above.

9 1/2% Senior Notes and Variable Rate Term Loan

On March 24, 1998, the Company issued $105 million of 9 1/2% Senior Notes
and borrowed $100 million under a variable rate Term Loan. The 9 1/2% Senior
Notes were issued at par and interest is payable each April 1 and October 1,
commencing October 1, 1998. The 9 1/2% Senior Notes are unsecured obligations
of the Company and may be redeemed by the Company under certain conditions and
with certain restrictions at varying redemption prices. The Indenture to the
9 1/2% Senior Notes contains certain covenants which limit, among other things,
the incurrence of liens and other indebtedness, mergers, consolidations, the
sale of assets, investments and loans, dividends and other distributions, and
certain transactions with affiliates. The Term Loan bears interest at either an
Alternative Base Rate (as defined) plus 2.0% or at LIBOR plus 3.25%.

Excluding the effects of the interest rate swap agreement discussed below,
the interest rate under the Term Loan was 5.31% as of March 31, 2002. Amounts
outstanding under the Term Loan are secured by a first priority lien on
substantially all the existing and future acquired unencumbered property, plant
and equipment of the Company. Principal payments are required to be paid
quarterly in amounts equal to $250,000, commencing on June 30, 1998. The Term
Loan may be prepaid, subject to declining call premiums through fiscal 2001 and
is subject to prepayments at the option of the holder upon a Change in Control
(as defined) and with 100% of net proceeds from asset sales, as permitted.
Covenants under the Term Loan are similar to those under the 9 1/2% Senior
Notes.

Derivative Instrument

In June 1998, the Company entered into an interest rate swap agreement with
Deutsche Bank Trust Company Americas ("DBTCA", formerly known as Bankers Trust
Company) that effectively fixed the interest rate on the Term Loan at
approximately 9.05% through June 2003 (the "Fixed Rate"). Such agreement
requires DBTCA 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 DBTCA 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.
Under the provisions described above, net payments (receipts) in fiscal years
2000, 2001 and 2002 were $331,000, $(721,000), and $2,248,000, respectively.

F-12

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The interest rate swap agreement is a highly effective cash flow hedge under
the provisions of SFAS No. 133, as amended, which was adopted by the Company
effective April 1, 2001. Under SFAS No. 133, the effective portion of gain or
loss resulting from changes in the fair value of the interest rate swap
agreement is reported in other comprehensive income while the ineffective
portion is recognized in net income. For the year ended March 31, 2002, a loss
of $2,925,000 was recognized in other comprehensive income and a loss of
$100,000 was recognized in net income. As of March 31, 2002, the interest rate
swap agreement represented a long-term liability with a fair market value of
$3,025,000 compared to a long-term liability with a fair market value of
$2,087,000 as of March 31, 2001, as calculated under the provisions of SFAS No.
133.

Other

The Company's industrial revenue development bonds were issued in connection
with significant facility improvements or construction projects.

6. Income Taxes

Significant components of the provision for income taxes attributable to
continuing operations for the years ended March 31, 2000, 2001 and 2002 were as
follows:

2000 2001 2002
----------- ----------- -----------

Current:
Federal......................... $ 601,000 $ 774,000 $ (49,000)
State........................... 674,000 692,000 492,000
Foreign......................... 340,000 (243,000) 12,000
----------- ----------- -----------
Total current............... 1,615,000 1,223,000 455,000
----------- ----------- -----------
Deferred:
Federal......................... 3,061,000 1,910,000 (3,277,000)
State........................... 466,000 (60,000) (482,000)
Valuation allowances............ (3,333,000) (1,850,000) 3,759,000
----------- ----------- -----------
Total deferred.............. 194,000 -- --
----------- ----------- -----------
$ 1,809,000 $ 1,223,000 $ 455,000
=========== =========== ===========

The reconciliation of the income tax provision differs from that which would
result from applying the U.S. statutory rate as follows:

2000 2001 2002
----------- ----------- -----------

Expected tax at Federal statutory rate....................... $ 9,029,000 $ 6,657,000 $ 2,033,000
State franchise tax expense and capital taxes, net of Federal
taxes...................................................... 438,000 450,000 320,000
Net increase in cash surrender values of life insurance...... (4,910,000) (4,554,000) (4,732,000)
Change in valuation allowance................................ (3,333,000) (1,850,000) 3,759,000
Other........................................................ 585,000 520,000 (925,000)
----------- ----------- -----------
Income tax provision...................................... $ 1,809,000 $ 1,223,000 $ 455,000
=========== =========== ===========

The change of $3,759,000 in the valuation allowance for deferred tax assets
as of March 31, 2002 was due primarily to the generation of a tax loss in
fiscal 2002.

F-13

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income before taxes consists primarily of income from the Company's domestic
operations. For fiscal years 2000, 2001 and 2002, the Company's foreign
operations, including the captive insurance subsidiary, generated pre-tax
income (loss) of $1,248,000, $(418,000) and $(2,369,000), respectively.

Significant components of the Company's deferred income tax assets and
liabilities at March 31, 2001 and 2002 were as follows:

2001 2002
------------ ------------

Deferred tax liabilities:
Tax over book depreciation............. $ 9,066,000 $ 7,888,000
Purchase price adjustments............. 37,515,000 36,879,000
------------ ------------
Total deferred tax liabilities..... 46,581,000 44,767,000
------------ ------------
Deferred tax assets:
Net operating loss and credit
carryforwards........................ 12,443,000 14,991,000
Capital loss carryforward.............. 6,048,000 5,618,000
Workers compensation and other
insurance accruals................... 2,954,000 3,165,000
Inventory Unicap and reserves.......... 3,827,000 4,512,000
Other.................................. 2,857,000 1,788,000
Valuation allowance for deferred tax
assets............................... (16,934,000) (20,693,000)
------------ ------------
Net deferred tax assets................... 11,195,000 9,381,000
------------ ------------
Net deferred tax liabilities.............. $ 35,386,000 $ 35,386,000
============ ============

At March 31, 2002, the Company had net operating loss carryforwards of
$34,875,000 for Federal income tax purposes and $19,172,000 for State income
tax purposes. The Federal carryforwards resulted from the Company's losses
during 1993, 1996 and 2002, and expire in years 2008, 2011 and 2022,
respectively, while the State carryforwards were generated in various states
over various years. The ultimate realization of the benefits of these loss
carryforwards is dependent on future profitable operations. In addition, use of
the Company's net operating loss carryforwards and other tax attributes may be
substantially limited if a cumulative change in ownership of more than 50%
occurs within any three year period subsequent to a loss year.

7. Employee Benefit Plans

Stock Bonus Plan

The Company and its Parent have a Stock Bonus Plan (the "Plan", formerly an
employee stock ownership plan ("ESOP") prior to April 1, 1999) which covers
nonunion employees of the Company who meet certain service requirements. The
cost of the Plan is borne by the Company through annual contributions to a
trust in amounts determined by the Board of Directors. Contributions may be
made in cash or shares of the Parent's stock as the Parent's Board of Directors
may from time to time determine. Participants vest at a rate of 20% per year of
service and become fully vested at age 65 or upon retirement, disability or
death. Upon the occurrence of a participant's termination (as defined),
retirement, disability, or death, the Plan is required to either distribute the
vested balance in stock or to repurchase the vested balance for cash (as
determined by the Benefits Committee). If stock is distributed, it is
accompanied by a put option to the Parent under terms defined in the Plan.
Shares of the Parent's Series A and B preferred and common stock owned by the
Plan totaled 47,184, 26,056 and 3,142,576 at March 31, 2002, respectively. For
fiscal years ended March 31, 2000, 2001 and 2002, contributions payable to the
Plan's trust totaled $2,657,000, $3,222,000 and $2,831,000, which represented
5% of eligible compensation for each of the respective years. The fiscal 2000
contribution was paid in the form of the Parent's

F-14

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

common stock. The contributions payable as of March 31, 2001 and 2002 were paid
in cash. The Company recognizes the cost of the Plan as compensation expense
with a corresponding amount reflected in its capital for the value of the
Parent's common stock contributed to the trust by the Parent, or as a dividend
to Parent if the contribution is paid in cash.

The Company also has a supplemental stock bonus plan to include highly
compensated employees and other employees, who are not eligible to participate
in the Plan. Contributions payable, vesting and distributions in the
supplemental plan are comparable to those under the Plan. Contributions under
this supplemental plan are made in cash and are held in an irrevocable trust.
For the fiscal years ended March 31, 2000, 2001 and 2002, contributions payable
totaled $93,000, $191,000, and $76,000, respectively.

Although the Parent has not expressed any intent to terminate or amend the
plan, it has the right to do so at any time. In the event of any termination,
participants become fully vested to the extent of the balances in their
separate accounts and come under the put options as previously discussed.

Pension Plans

The Company maintains a noncontributory defined benefit pension plan
covering substantially all hourly union employees (the "Hourly Plan"). Benefits
under the Hourly Plan are vested after five years and are determined based on
years of service and a benefit rate that is negotiated with each union. The
assets of the Hourly Plan for participants are held in trust and consist of
bonds, equity securities and insurance contracts. The Company contributes at
least the minimum required annually under ERISA. The Company also maintains an
unfunded supplemental pension plan, which provides benefits to highly
compensated employees; this plan has been frozen to include only existing
participants (the "Supplemental Plan").

Components of net pension benefit cost (credit) associated with the
Company's pension plans for fiscal years 2000, 2001 and 2002 are as follows:

2000 2001 2002
--------- ----------- -----------

Service cost of benefits earned during the period.... $ 438,000 $ 357,000 $ 433,000
Interest cost on projected benefit obligation........ 739,000 760,000 784,000
Expected return on plan assets....................... (999,000) (1,093,000) (1,017,000)
Amortization of prior service cost................... (111,000) (111,000) (95,000)
Recognized net gain.................................. (84,000) (230,000) (66,000)
--------- ----------- -----------
$ (17,000) $ (317,000) $ 39,000
========= =========== ===========

F-15

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following provides a reconciliation of the changes in the benefit
obligation and fair value of plan assets, and the funded (unfunded) status of
the pension plans for the years ended March 31, 2001 and 2002.

2001 2002
----------- -----------

Change in Projected Benefit Obligation:
Benefit obligation at beginning of year.................. $10,254,000 $11,536,000
Service cost............................................. 357,000 433,000
Interest cost............................................ 760,000 784,000
Change in assumptions.................................... 787,000 --
Amendments............................................... 198,000 77,000
Benefit payments......................................... (657,000) (1,521,000)
Actuarial losses (gains)................................. (163,000) 41,000
----------- -----------
Benefit obligation at end of year........................ 11,536,000 11,350,000
----------- -----------
Change in Plan Assets:
Fair value of plan assets at beginning of year........... 14,004,000 13,596,000
Actual return on assets.................................. 182,000 (938,000)
Benefit payments......................................... (657,000) (1,521,000)
Company contributions.................................... 96,000 93,000
Fees..................................................... (29,000) (27,000)
----------- -----------
Fair value of plan assets at end of year................. 13,596,000 11,203,000
----------- -----------
Funded (unfunded)........................................ 2,060,000 (147,000)
Unrecognized prior service cost.......................... (960,000) (787,000)
Unrecognized net actuarial gain.......................... (2,209,000) (120,000)
----------- -----------
Net amount recognized.................................... $(1,109,000) $(1,054,000)
=========== ===========
Amounts recognized in balance sheets consist of:
Prepaid cost............................................. $ -- $ --
Accrued benefit liability................................ (1,390,000) (1,303,000)
Accumulated comprehensive loss--additional minimum
liability.............................................. 281,000 249,000
----------- -----------
Net amount recognized.................................... $(1,109,000) $(1,054,000)
=========== ===========
Weighted-average assumptions as of March 31:
Discount rate............................................ 7.25% 7.25%
Expected return on assets................................ 8.25% 8.25%
Rate of compensation increase............................ -- --

In accordance with union agreements, the Company also contributes to
multi-employer defined benefit retirement plans covering substantially all
union employees of the Company. Expenses incurred in connection with these
plans totaled $941,000, $692,000 and $1,015,000 in fiscal years 2000, 2001 and
2002, respectively.

Postretirement Benefit Plan

In addition to the Company's defined benefit pension plans, the Company
sponsors a defined benefit health care plan that provides postretirement
medical and dental benefits to eligible full time employees and their
dependents (the "Postretirement Plan"). The Postretirement Plan is fully
insured, with retirees paying a percentage of the annual premium. Such premiums
are adjusted annually based on age and length of service of active and retired
participants. The Postretirement Plan contains other cost-sharing features such
as deductibles

F-16

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and coinsurance. The Company recognizes the cost of future benefits earned by
participants during their working careers, as determined using actuarial
assumptions. Gains and losses realized from the remeasurement of the plan's
benefit obligation are amortized to income over three years.

Components of the net benefit cost associated with the Company's
Postretirement Plan for fiscal years 2000, 2001 and 2002 are as follows:

2000 2001 2002
--------- --------- ---------

Service cost of benefits earned during the period.... $ 203,000 $ 174,000 $ 223,000
Interest cost on projected benefit obligation........ 189,000 194,000 211,000
Recognized net gain.................................. (168,000) (357,000) (185,000)
--------- --------- ---------
$ 224,000 $ 11,000 $ 249,000
========= ========= =========

The following tables provide a reconciliation of the changes in the benefit
obligation and the unfunded status of the Postretirement Plan for the years
ended March 31, 2001 and 2002.

2001 2002
----------- -----------

Change in Projected Benefit Obligation:
Benefit obligation at beginning of year.. $ 2,732,000 $ 2,972,000
Service cost............................. 174,000 223,000
Interest cost............................ 194,000 211,000
Change in assumptions.................... (145,000) --
Benefit payments......................... (114,000) (121,000)
Actuarial gains.......................... 131,000 (14,000)
----------- -----------
Benefit obligation at end of year........ 2,972,000 3,271,000
----------- -----------
Unfunded................................. (2,972,000) (3,271,000)
Unrecognized prior service cost.......... -- --
Unrecognized net actuarial gain.......... (580,000) (408,000)
----------- -----------
Accrued benefit cost..................... $(3,552,000) $(3,679,000)
=========== ===========
Weighted-average assumptions as of March 31:
Discount rate............................ 7.25% 7.25%
Healthcare cost trend rate............... 7.00% 6.50%

The healthcare cost trend rate of 6.5% used in the calculation of net
benefit cost of the Postretirement Plan is assumed to decrease to 6.0% by March
2003 and remain at that level thereafter.

Assumed healthcare trend rates have a significant effect on the amounts
reported for the Company's Postretirement Plan. A one-percentage-point change
in assumed healthcare cost trend rates would have the following effects:

1% 1%
Increase Decrease
-------- ---------

Effect on total service and interest cost components....... $ 70,000 $ (58,000)
Effect on postretirement benefit obligation................ 442,000 (376,000)

F-17

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Commitments and Contingencies

Lease Commitments

The Company leases, under several agreements with varying terms, certain
office and warehouse facilities, equipment and vehicles. Rent expense totaled
$16,572,000, $19,803,000 and $21,353,000 for the years ended March 31, 2000,
2001 and 2002, respectively. Minimum rentals of certain leases escalate from
time to time based on certain indices.

At March 31, 2002 the Company was obligated under noncancellable operating
leases for future minimum rentals as follows:

Fiscal year:
------------

2003....................................... $ 18,663,000
2004....................................... 17,336,000
2005....................................... 15,333,000
2006....................................... 11,277,000
2007....................................... 7,347,000
Thereafter................................. 50,900,000
------------
Total................................... $120,856,000
============

Other Commitments

In connection with the 1990 merger, the Company agreed to pay Kelso &
Companies, Inc. (Kelso), affiliates of which own the majority of Parent's
common stock, an annual fee of $1,250,000 each year for financial advisory
services and to reimburse it for out-of-pocket expenses incurred in connection
with rendering such services. The Company also agreed to indemnify Kelso and
its affiliates against certain claims, losses, damages, liabilities, and
expenses that may arise in connection with the merger. However, no such annual
fee was payable for fiscal years 2000, 2001 and 2002 and other expenses paid to
Kelso in fiscal years 2000, 2001 and 2002 were not significant.

Governmental Matters

The Internal Revenue Service, ( the "IRS") conducted an audit of the
Company's employee stock ownership plan (the "Plan") for the fiscal years ended
March 31, 1992, through March 31, 1996, and issued a preliminary report to the
Company in which the IRS asserted that certain contributions of stock by the
Parent to the Plan violated provisions of the Internal Revenue Code because the
securities contributed were not "qualifying employer securities" as defined by
ERISA. In fiscal 2002, this matter was settled without the Company admitting
the allegations of the IRS, and the Company paid $1,919,000 of excise tax to
the IRS.

The Department of Labor (the "DOL") also investigated the same transactions
involving the Plan and came to conclusions similar to those reached by the IRS.
However, the DOL has not pursued those transactions. In the course of its
investigation, the DOL and its advisors reviewed the valuations of the Parent's
common and preferred stock prepared for the Plan and criticized the methodology
used in preparing the valuations. The Company believes that the methodology
used in the valuations was appropriate, and in connection with discussions with
the DOL, engaged a second independent appraiser that generally corroborated the
valuations and the methodology used by the first appraiser.

On March 8, 2002, the DOL sued the Company, the Parent, the Plan and former
members of the Company's benefits committee in the federal district court for
the Central District of California. The DOL claims that the

F-18

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

valuations of Holding's common stock used to make annual contributions to the
Plan in each of the years 1994 through 2000 contained significant errors that
resulted in the common stock being overvalued, and that the failure of the
members of our benefits committee to detect and correct the errors was a breach
of their fiduciary duty under ERISA. As a result of the alleged overvaluations,
the DOL contends that the contributions to the Plan were prohibited
transactions under ERISA. The DOL has sought to require the Company to
repurchase the stock contributed to the Plan at the value at which the stock
was contributed plus interest. The aggregate value of the common stock
contributed to the Plan from 1994 through 2000 was approximately $28,871,000.
The Company intends to deny liability, and believes it has meritorious factual
and legal defenses. While the Company cannot assure the ultimate outcome of
this case, it does not anticipate that the outcome would have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company has $3,000,000 of fiduciary insurance coverage that
will cover defense costs and may provide coverage for the claims made by the
DOL.

Environmental Contingencies

The Company is subject to extensive and changing federal, state, local and
foreign laws and regulations designed to protect the environment and human
health and safety, including those relating to the use, handling, storage,
discharge and disposal of hazardous substances and the remediation of
environmental contamination. As a result, the Company is from time to time
involved in administrative and judicial proceedings and inquiries relating to
environmental matters.

During fiscal years 2000, 2001 and 2002, expenditures made in connection
with environmental matters totaled $295,000, $207,000 and $97,000,
respectively, principally for settlement of claims, and monitoring, remediation
and investigation activities at sites with contaminated soil and/or groundwater
and were expensed as incurred. As of March 31, 2002, there was no accrual for
future monitoring, investigation and remediation expenditures because such
costs are not yet known or reasonably estimable the following pending
environmental matters.

Forge (Seattle/Kent, WA). In November 1998, the Company paid the purchasers
of its former Forge facility and an off-site disposal site $2,250,000 as an
indemnification settlement for liabilities related to the remediation of known
contamination at the Forge facility. The Company continues to monitor the
disposal site for environmental conditions in accordance with a consent decree
issued by the Washington Department of Ecology ("Ecology"). Annual costs
associated with such monitoring are not significant, and we do not anticipate
significant additional expenditures related to this matter.

The Forge property is located on the Lower Duwamish Waterway, which has been
identified by the United States Environmental Protection Agency ("EPA") as a
Superfund Site (the "Duwamish Site"). Under the Federal Comprehensive
Environmental Remediation, Compensation, and Liability Act ("Superfund"),
owners or operators of facilities that have released hazardous substances to
the environment may be liable for remediation costs. Courts have held that such
liability may be joint and several; however, in many instances, the costs are
allocated among the parties, primarily based on their estimated contribution to
the contamination. The EPA, along with Ecology, have entered into an
Administrative Order of Consent with four major property owners with potential
liability for cleanup of the Duwamish Site that outlines tasks required to be
completed to further investigate the nature and extent of the contamination and
cleanup alternatives. In November 2001, the current owners of the Forge
property notified the Company of a potential claim for indemnification for any
liability relating to contamination of the Duwamish Site. The notification
stated that the Forge facility, along with other businesses located along the
Duwamish Site, are expected to be named as potentially responsible parties for
contamination of the Duwamish Site and requested that the Company participate
under a joint defense. The Company is evaluating the notification and remedies
it may have, including insurance recoveries for monies to be spent as part of
the investigation or cleanup of the Duwamish Site. At this time, the Company
has not incurred any significant costs related to this matter and cannot
determine what liability, if any, it may have relating to the investigation and
remediation of the Duwamish Site.

F-19

EARLE M. JORGENSEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Tri-County Landfill (Illinois). In April 2001, the Company was served with a
complaint by the owner of this landfill (known as the Tri-County/Elgin
Landfills Superfund Site (the "Tri-County Site") alleging that the Company,
among others, was responsible for certain contamination found at the Tri-County
Site, which resulted from alleged disposal of waste transported from a
predecessor entity. The owner sought reimbursement of costs incurred or to be
incurred in connection with the investigation and remediation activities
required under orders from the EPA. This matter was settled in December 2001
and the court dismissed the case.

Union (New Jersey). During fiscal 1994, the Company was notified by the
current owner that it has potential responsibility for the environmental
contamination of a property formerly owned by a subsidiary and disposed of by
such subsidiary prior to its acquisition by the Company. The prior owner of
such subsidiary has also been notified of its potential responsibility. On
March 27, 1997, the current owner of the property informed the Company that it
estimated the cost of investigation and cleanup of the property at $875,000 and
requested contribution to such costs from the Company and the prior owner. The
Company has contested responsibility and commented on the cleanup plan and has
not received any further demands or notifications. The Company does not have
sufficient information to determine what potential liability it has, if any.

Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that may require
expenditures not currently anticipated and that may be material.

Other

On April 22, 2002, the Company was sued by Champagne Metals, a small metals
service center distributing aluminum coil products in Oklahoma, alleging that
the Company had conspired with other metal service centers to induce or coerce
aluminum suppliers to refuse to designate Champagne Metals as a distributor.
The Company has not yet answered the complaint but believes the claim is
without merit and intends to vigorously defend the matter.

The Company is involved in other litigation or legal matters in the normal
course of business. In the opinion of management, these matters will be
resolved without a material impact on the Company's financial position or
results of operations.

F-20

EARLE M. JORGENSEN COMPANY

INDEX TO FINANCIAL STATEMENT SCHEDULES

Sequentially
Schedule Numbered
Number Description of Schedules* Page
------ ------------------------- ------------

Schedule II Valuation and Qualifying Accounts and Reserves S-2

--------
* All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related notes.

S-1

EARLE M. JORGENSEN COMPANY

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Column A Column B Column C Column D Column E
-------- ------------ ---------------- ------------------- --------------
Balance at Amounts
beginning of Charges to costs charged off Balance at end
Description period and expenses (net of recoveries) of period
----------- ------------ ---------------- ------------------- --------------

Allowance for doubtful accounts
Year ended March 31, 2000... $ 335,000 $1,201,000 $(1,120,000) $ 416,000
Year ended March 31, 2001... 416,000 1,651,000 (1,640,000) 427,000
Year ended March 31, 2002... 427,000 2,434,000 (2,409,000) 452,000

Reserve for inventory
Year ended March 31, 2000... 1,996,000 964,000 (913,000) 2,047,000
Year ended March 31, 2001... 2,047,000 1,385,000 (1,201,000) 2,231,000
Year ended March 31, 2002... 2,231,000 2,705,000 (2,411,000) 2,525,000

S-2