SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL QUARTER ENDED JUNE 28, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-7537
EARLE M. JORGENSEN COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-0886610
----------------------------------------- ---------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3050 EAST BIRCH STREET, BREA, CALIFORNIA 92821
----------------------------------------- ---------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number: (714) 579-8823
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No __
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. NONE
Outstanding common stock, par value $.01 per share, at July 31, 2001
- 128 SHARES
EARLE M. JORGENSEN COMPANY
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 28, 2001 (unaudited) and March 31, 2001 2
Consolidated Statements of Operations and Comprehensive Income
for the Three Months Ended June 28, 2001 and June 29, 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the Three Months Ended June 28,
2001 and June 29, 2000 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 6
PART II - OTHER INFORMATION 9
SIGNATURES 10
PART I - FINANCIAL INFORMATION
EARLE M. JORGENSEN COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 28, 2001 MARCH 31, 2001
------------ --------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 13,491 $ 23,758
Accounts receivable, less allowance for doubtful accounts of $474 and
$427 at June 28, 2001 and March 31, 2001, respectively 109,349 107,223
Inventories 229,939 218,580
Other current assets 7,751 7,540
------------ ------------
Total current assets 360,530 357,101
------------ ------------
Property, plant and equipment, net of accumulated depreciation of $68,325
and $65,438 at June 28, 2001 and March 31, 2001, respectively 98,280 98,236
Net cash surrender value of life insurance policies 29,946 25,114
Debt issue costs, net of accumulated amortization 2,921 3,292
Other assets 1,033 521
------------ ------------
Total assets $492,710 $484,264
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $121,574 $137,328
Accrued employee compensation and related taxes 8,541 14,113
Accrued employee benefits 7,987 8,007
Accrued interest 13,536 7,275
Other accrued liabilities 9,075 8,324
Deferred income taxes 18,904 18,904
Current portion of long-term debt 3,993 3,645
------------ ------------
Total current liabilities 183,610 197,596
------------ ------------
Long term debt 287,800 266,539
Deferred income taxes 16,636 16,482
Other long-term liabilities 5,709 3,602
Stockholder's equity:
Preferred stock, $.01 par value; 200 shares authorized and unissued --- ---
Common stock, $.01 par value; 2,800 shares authorized;128 shares
issued and outstanding --- ---
Capital in excess of par value 89,030 89,030
Accumulated other comprehensive loss (3,415) (1,833)
Accumulated deficit (86,660) (87,152)
------------ ------------
Total stockholder's equity (1,045) 45
------------ ------------
Total liabilities and stockholder's equity $492,710 $484,264
============ ============
See accompanying notes.
2
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
-----------------------------
JUNE 28, 2001 JUNE 29, 2000
------------- -------------
(UNAUDITED)
Revenues $238,672 $268,424
Cost of sales 170,963 193,928
------------- -------------
Gross profit 67,709 74,496
Expenses:
Warehouse and delivery 32,942 33,995
Selling 8,808 9,735
General and administrative 12,536 12,393
------------- -------------
Total expenses 54,286 56,123
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Income from operations 13,423 18,373
Interest expense, net 10,752 10,770
------------- -------------
Income before excise tax and income taxes 2,671 7,603
Excise tax imposed under IRS settlement agreement 1,919 ---
------------- -------------
Income before income taxes 752 7,603
Income tax expense 260 477
------------- -------------
Net income 492 7,126
Other comprehensive loss, net of income tax 1,582 299
------------- -------------
Comprehensive income (loss) $ (1,090) $ 6,827
============= =============
See accompanying notes.
3
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
--------------------------------
JUNE 28, 2001 JUNE 29, 2000
------------- -------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income $ 492 $ 7,126
Adjustments to reconcile net income to net cash used for
operating activities:
Depreciation and amortization 2,893 2,679
Amortization of debt issue costs 370 370
Accrued postretirement benefits 62 ---
ESOP contribution 999 1,036
Deferred income taxes 154 429
(Gain) loss on sale of property, plant and equipment (21) 22
Provision for bad debts 347 309
Increase in cash surrender value of life insurance over
premiums paid (3,834) (3,817)
Changes in operating assets and liabilities:
Accounts receivable (2,473) (11,375)
Inventories (11,359) (32,149)
Other current assets (78) (637)
Accounts payable and accrued liabilities and expenses (15,333) 12,871
Non-trade receivable (133) (382)
Other (107) (482)
------------- -------------
Net cash used in operating activities (28,021) (24,000)
------------- -------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (2,902) (2,185)
Proceeds from the sale of property, plant and equipment 35 9
Premiums paid on life insurance policies (1,198) (1,188)
Proceeds from redemption of life insurance policies 200 374
------------- -------------
Net cash used in investing activities (3,865) (2,990)
------------- -------------
FINANCING ACTIVITIES
Net borrowings under revolving loan agreements 22,359 20,647
Payments on other debt (750) (750)
------------- -------------
Net cash provided by financing activities 21,609 19,897
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Effect of exchange rate changes on cash 10 (12)
------------- -------------
NET DECREASE IN CASH (10,267) (7,105)
Cash at beginning of period 23,758 21,660
------------- -------------
CASH AT END OF PERIOD $ 13,491 $ 14,555
============= =============
See accompanying notes.
4
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2001
1. BASIS OF PRESENTATION
The Earle M. Jorgensen Company (the "Company") is a wholly owned subsidiary
of the Earle M. Jorgensen Holding Company, Inc. ("Holding").
The accompanying uaudited consolidated condensed financial statements
include the accounts of the Company and its wholly owned subsidiaries
including Earle M. Jorgensen (Canada) Inc. and Stainless Insurance Ltd., a
captive insurance subsidiary. All significant intercompany accounts and
transactions have been eliminated.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements have been prepared in accordance with the
instructions to Form 10-Q and include all adjustments (consisting of
normally recurring accruals) and disclosures considered necessary for a
fair presentation of the consolidated financial position of the Earle M.
Jorgensen Company at June 28, 2001 and the consolidated results of
operations and comprehensive income and cash flows for the three months
ended June 28, 2001 and June 29, 2000. The consolidated results of
operations and comprehensive income for the three months ended June 28,
2001 are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form
10-K for the year ended March 31, 2001.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. OTHER COMPREHENSIVE INCOME
For the three months ended June 28, 2001 and June 29, 2000, other
comprehensive income included foreign currency translation gain (loss)
of $483,000 and $(299,000), respectively. In addition, the three months
ended June 28, 2001 included a loss of $2,065,000 representing the fair
value of the Company's interest rate swap agreement recognized in
connection with the adoption of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. The Company determined
that the interest rate swap agreement is a highly effective cash flow
hedge under the provisions of SFAS No. 133, as amended. Accordingly, the
effective portion of gain or loss resulting from future changes in the
fair value of the interest rate swap agreement will be reported in other
comprehensive income while the ineffective portion will be recognized in
net income.
3. EXCISE TAX IMPOSED UNDER AN IRS SETTLEMENT AGREEMENT
In June 2001, the Company recorded an excise tax of $1.9 million,
representing the amount agreed to be paid by Holding to the IRS as a
settlement of issues raised during an audit of the ESOP. Such amount
will be funded by the Company during fiscal 2002.
5
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 28, 2001 COMPARED TO THREE MONTHS
ENDED JUNE 29, 2000.
REVENUES. Revenues for the first quarter of fiscal 2002 were $238.7 million,
compared to $268.4 million for the same period in fiscal 2001. Revenues from our
domestic operations decreased $30.5 million (11.8%) to $227.0 million in the
first quarter of fiscal 2002 when compared to $257.5 million for the same period
in fiscal 2001. This decrease was attributable to a 12% decrease in tonnage
shipped and impacted most core commodities and key industries served. Revenues
from our Canadian operations increased 7.3% to $11.7 million in the first
quarter of fiscal 2002 when compared to $10.9 million in the same period in
fiscal 2001 due to the opening of our Edmonton operations in September 2000.
GROSS PROFIT. Gross profit for the first quarter of fiscal 2002 was $67.7
million, compared to $74.5 million for the same period in fiscal 2001, while
consolidated gross margins were 28.4% and 27.8%, respectively. Gross profit for
the fiscal 2002 period included a LIFO credit of $0.7 million versus no LIFO
adjustment recorded in the fiscal 2001 period. Gross profit from our Canadian
operations was $2.5 million and gross margin was 21.4% during the first quarter
of fiscal 2002, compared to $2.6 million and 23.9%, respectively, for the same
period in fiscal 2001. Exclusive of our Canadian operations and LIFO
adjustments, gross margin was 28.4% for the first quarter of fiscal 2002
compared to 27.9% for the same period in fiscal 2001. The increase of 0.5% was
the result of changes in customer and product mixes.
EXPENSES. Total operating expenses for the first quarter of fiscal 2002 were
$54.3 million (22.7% of revenues), compared to $56.1 million (20.9% of revenues)
for the same period in fiscal 2001. The changes in operating expenses generally
reflect the impact on variable expenses from changes in tonnage shipped.
Warehouse and delivery expenses for the first quarter of fiscal 2002 were $32.9
million (13.8% of revenues), compared to $34.0 million (12.7% of revenues) for
the same period in fiscal 2001. The fiscal 2002 period included lower freight
costs and compensation expense resulting from the decrease in tonnage shipped,
offset by higher lease costs associated primarily with new or expanded
facilities. As of June 28, 2001, 1,159 employees were involved in warehouse and
delivery activities, compared to 1,220 as of June 29, 2000.
Selling expenses for the first quarter of fiscal 2002 were $8.8 million (3.7% of
revenues), compared to $9.7 million (3.6% of revenues) for the same period in
fiscal 2001. The decrease resulted from lower accruals for incentive
compensation based on sales and gross profit levels.
General and administrative expenses were $12.5 million (5.2% of revenues) during
the first quarter of 2002 compared to $12.4 million (4.6% of revenues) for the
same period in fiscal 2001. The fiscal 2002 period included higher reserves for
workers compensation and lower proceeds received on life insurance policies
offset by incremental growth in cash surrender value of life insurance policies,
lower marketing expense and lower accruals for incentive compensation.
NET INTEREST EXPENSE. Net interest expense was $10.8 million for the first
quarter of fiscal 2002 and fiscal 2001. Such amounts include interest and
amortization of debt issue costs related to our revolving credit facility
("Revolving Credit Facility"), our 9-1/2% senior notes ("Senior Notes"), our
variable rate term loan ("Term Loan") and interest on borrowings against the
cash surrender value of certain life insurance policies we maintain.
6
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 28, 2001 COMPARED TO THREE MONTHS
ENDED JUNE 29, 2000. (CONTINUED)
Interest expense and amortization of debt issue costs related to the our
outstanding indebtedness (excluding those borrowings against the cash surrender
value of certain life insurance policies) totaled $6.9 million for the first
quarter of fiscal 2002 compared to $7.3 million for the same period in fiscal
2001. The average outstanding indebtedness during the first quarter of fiscal
2002 was $305.4 million, compared to $310.7 million for the same period in
fiscal 2001. The weighted average interest rate on such indebtedness was 8.23%
during the first quarter of fiscal 2002 versus 9.04% during the same period in
fiscal 2001. During the three months ended June 28, 2001 and June 29, 2000,
borrowings under the Revolving Credit Facility averaged $93.2 million and $96.0
million and the average interest rate on such borrowings was 6.81% and 8.33%,
respectively.
Interest expense associated with borrowings against the cash surrender value of
certain life insurance policies maintained was $3.9 million during the first
quarter of fiscal 2002 period compared to $3.4 million for the same period in
fiscal 2001.
The interest rates on our 9 1/2% Senior Notes and on the borrowings under the
life insurance policies are fixed at 9.50% and 11.76%, respectively. The
interest rates on our Revolving Credit Facility and Term Loan are floating
(6.20% and 8.19%, respectively, as of June 28, 2001).
Pursuant to our interest rate swap agreement with Bankers Trust Company covering
a notional amount of $95.0 million under the Term Loan, we paid $0.2 million
during the first quarter of fiscal 2002 versus receiving $0.1 million during the
same period in fiscal 2001.
INCOME TAXES. Income tax expense for the first quarter of fiscal 2002 and 2001
included provisions for state franchise and foreign income taxes. Federal tax
provisions for the first quarter of fiscal 2002 and 2001 were offset by
recognition of tax benefits associated with our loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $176.9 million at June 28, 2001 when compared to
$159.5 million at March 31, 2001 primarily as the result of higher inventories
and lower accounts payable. During the first quarter of fiscal 2002 our primary
sources of cash consisted of funds provided by borrowings under our Revolving
Credit Facility of $22.4 million. Our primary uses of cash included operating
actvities, $28.0 million, and capital expenditures, $2.9 million.
Cash used in operating activities was $28.0 million (11.7% of revenues) in the
first quarter of fiscal 2002 compared to $24.0 million (8.9% of revenues) in the
same period of fiscal 2001. The increase generally reflects the impact from
lower sales volumes and the timing of payments to vendors.
For fiscal 2002, we have planned approximately $26.2 million of capital
expenditures to be financed from internally generated funds. Approximately $24.1
million is for facility expansions and improvements and routine replacement of
machinery and equipment, and $2.1 million is for further additions to our
management information systems. During the first three months of fiscal 2002, we
spent $2.9 million for planned capital expenditures.
7
PART I - FINANCIAL INFORMATION (CONTINUED)
EARLE M. JORGENSEN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Our cash requirements for debt service and related obligations through the end
of fiscal 2002 are expected to consist primarily of interest payments under the
Revolving Credit Facility, interest and principal payments on the Term Loan,
interest payments on the 9 1/2% Senior Notes, dividend payments to Holding in
connection with the required repurchase of its capital stock from departing
stockholders pursuant to Holding's Stockholders' Agreement and the ESOP, capital
expenditures and principal and interest payments on our industrial revenue
bonds. As of June 28, 2001, principal payments required by our outstanding
industrial revenue bond indebtedness amount to $0.9 million in fiscal 2002, $1.4
million in fiscal years 2003 and 2004 and $6.2 million in the aggregate
thereafter through 2011. We will not be required to make any principal payments
on our 9 1/2% Senior Notes until 2005. Our Revolving Credit Facility will mature
in 2003 and our Term Loan will mature in 2004. The Term Loan requires principal
payments to be made in equal quarterly installments of $250,000. The final
installment due at maturity will repay in full all outstanding principal. As of
June 28, 2001, we were in compliance with all covenants under the Revolving
Credit Facility, the Term Loan and the 9 1/2% Senior Notes. Although compliance
with such covenants in the future is largely dependent on our future performance
and general economic conditions, for which there can be no assurance, we expect
to be in compliance with all of our debt covenants for the foreseeable future.
At June 28, 2001, our primary sources of liquidity were available borrowings of
$119.4 million under the Revolving Credit Facility, available borrowings of
approximately $11.7 million against certain life insurance policies and
internally generated funds. Borrowings under our Revolving Credit Facility are
secured by domestic inventory and accounts receivable, and future availability
is determined by prevailing levels of those assets. Our Term Loan is secured by
a first priority lien on a substantial portion of current and future acquired
unencumbered property, plant and equipment. The life insurance policy loans are
secured by the cash surrender value of the policies, are non- recourse, and bear
interest at a rate 0.5% greater than the dividend income rate on the policies.
For the first quarter of fiscal 2002, dividend income earned under the policies
totaled $3.7 million, compared to $3.1 million for the same period in fiscal
2001 and is reported as an offset to general and administrative expenses in the
accompanying statements of operations. As of June 28, 2001, there was
approximately $29.9 million of cash surrender value in all life insurance
policies we maintained, net of borrowings.
We believe our sources of liquidity and capital resources are sufficient to meet
all currently anticipated operating cash requirements, including debt service
payments on the Revolving Credit Facility, the Term Loan and the 9 1/2% Senior
Notes prior to their maturities in 2003, 2004 and 2005, respectively; however,
we anticipate that it will be necessary to replace or to refinance all or a
portion of the Revolving Credit Facility, the Term Loan and the 9 1/2% Senior
Notes prior to their respective maturities, although there can be no assurance
on what terms, if any, we would be able to obtain such refinancing or additional
financing. Our ability to make interest payments on the Revolving Credit
Facility and the 9 1/2% Senior Notes and principal and interest payments on the
Term Loan will be dependent on maintaining the level of performance reflected in
the last twelve months, which will be dependent on a number of factors, many of
which are beyond our control, and the continued availability of revolving credit
borrowings.
8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) On July 19, 2001, our sole stockholder executed and delivered a
written consent of stockholder.
(b) The consent provided for the re-election of our Board of
Directors, including the re-election of Mr. G. Robert Durham to
our Board of Directors pursuant to the rights of the holders of
Holding's Series A 13% Cumulative Preferred Stock. The consent
also provided for the appointment of Ernst & Young LLP as our
auditors for the fiscal year ending March 31, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
The Registrant was not required to file a Form 8-K during the
quarter ended June 28, 2001.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EARLE M. JORGENSEN COMPANY
/s/ Maurice S. Nelson, Jr.
Date: July 31, 2001 ---------------------------------------
Maurice S. Nelson, Jr.
President, Chief Executive Officer
/s/ William S. Johnson
Date: July 31, 2001 ---------------------------------------
William S. Johnson
Vice President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
10