**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

#### **Washington, D.C.  20549**

#### ** **

**FORM 10-K**

 

**ý****        ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe fiscal year ended March 31, 2004**

 

**OR**

 

**o****        TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

## **Commission file number 1-7537**

## ** **

**EARLE M.JORGENSEN COMPANY**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                                                    |   | **95-0886610**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **10650 Alameda, Lynwood, California**                          |   | **90262**                             |
| (Address of principal executive offices)                        |   | (Zip Code)                            |

 

Registrant’stelephone number:  **(323) 567-1122**

 

Securities registeredpursuant to Section 12(b) of the Act: **None**

 

Securities registeredpursuant to Section 12(g) of the Act: **None**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

 

Indicate by check markwhether the registrant is an accelerated filer (as defined by Rule 12b-2 of theAct).  Yes o  No  ý

 

The aggregate marketvalue of the voting stock held by non-affiliates of the registrant.  **None**

 

The number of sharesoutstanding of the registrant’s common stock, par value $.01 per share as ofMay 31, 2004 was 128 shares.

 

 

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**FORWARD-LOOKINGSTATEMENTS**

#### ** **

This Report on Form 10-Kincludes both historical and forward-looking statements. We have based theseforward-looking statements on our current expectations and projections aboutfuture results. When we use words in this document, such as “anticipates,”“intends,” “plans,” “believes,” “estimates,” “expects,” “will,” “should,” andsimilar expressions, we do so to identify forward-looking statements. Suchstatements are intended to operate as “forward looking statements” of the kindpermitted by the Private Securities Litigation Reform Act of 1995, incorporatedin Section 27A of the Securities Act and Section 21E of theSecurities Exchange Act of 1934, as amended. That legislation protects suchpredictive statements by creating a “safe harbor” from liability in the eventthat a particular prediction does not turn out as anticipated.

 

While we always intend toexpress our best judgment when we make statements about what we believe willoccur in the, future, and although we base these statements on assumptions thatwe believe to be reasonable when made, these forward looking statements are nota guarantee of performance, and you should not place undue reliance on suchstatements. Forward looking statements are subject to many uncertainties andother variable circumstances, many of which are outside of our control, thatcould cause our actual results and experience to differ materially from thoseanticipated in these forward-looking statements. These forward-lookingstatements are affected by risks, uncertainties and assumptions that we make,including, among other things

 

•                  cyclical changes in market supply and demandfor steel; general economic conditions; U.S. or foreign trade policy affectingsteel imports or exports; and governmental monetary or fiscal policy in theU.S. and other major international economies;

•                  duringthe recession that began in 2001, key industries we serve experienced decreaseddemand for their products, adversely affecting our ability to increase ormaintain sales; we observed a recovery in the general economy and theindustries we serve in the last quarter of fiscal 2004 resulting in a strongincrease in sales and our financial results that has continued in the firstquarter of fiscal 2005; however, there can be no assurance as to the durationof the recovery;

•                  availability and pricing of products we sellare influenced by factors beyond our control, including general economic conditions,bankruptcies or consolidation of primary metal producers, governmental traderestrictions or tariffs on metal products and competition, and may result involatility in the supply and/or pricing of metal products, our market shareand/or gross margins:

•                  increased foreign demand, changes in foreignexchange rates, and reduction of some domestic mill capacity have resulted inlonger lead times and tightened supply for some of the products we sell;

•                  risks and uncertainties involving newprocesses or new technologies, such as the improvements of our informationmanagement system and the expansion and automation of our Chicago facility byinstalling the Kasto system;

•                  our ability to implement customer sellingprice increases in response to higher metal costs, including surcharges thathave recently been added to the costs of certain metals by our suppliers;

•                  the occurrence of unanticipated equipmentfailures and plant outages or incurrence of extraordinary operating expenses;

•                  actions by our domestic and foreigncompetitors, including the addition or reduction of production capacity, orloss of business from one or more of our major customers or end-users;

•                  labor unrest, work stoppages and/or strikesinvolving our own workforce, those of our important suppliers or customers, orthose affecting the steel industry in general;

•                  the effect of the elements upon ourproduction or upon the production or needs of our important suppliers orcustomers; our achievement of management’s business plans;

•                  pending, anticipated private or governmentalliability claims or litigation, or the impact of any adverse outcome of anycurrently pending or future litigation on the adequacy of our reserves, theavailability or adequacy of our insurance coverage, our financial well-being orour business and assets;

•                    changes in interest rates or other borrowingcosts, or the effect of existing loan covenants or restrictions upon the costor availability of credit to fund operations or take advantage of otherbusiness opportunities;

•                  foreign currency exchange rates couldchange, affecting the price we pay for certain metals and the results of ourforeign operations; and

•                  changes in environmental legislation andenvironmental conditions.

 

TheCompany is also affected by risks, the uncertainties and assumptions that aremore fully discussed in our Registration Statement on Form S-4 filed on July 3,2002, and our other periodic reports filed with the Securities and ExchangeCommission.

 

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Youshould be aware that any forward-looking statement made by us in this report,or elsewhere, speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it isimpossible for us to predict these events or how they may affect us. We have noduty to, and do not intend to, update or revise the forward-looking statementsin this report after the date of this report. In light of these risks and uncertainties, you should keep in mind thatany forward-looking statement made in this report or elsewhere might not occur.

 

#### **PART I**

#### ** **

#### **Item 1.**                 BUSINESS

#### ** **

We were formed on May 3,1990, when affiliates of Kelso & Companies Inc. acquired control of andcombined two leading metals distributors, Earle M. Jorgensen Company, the“Company” or “EMJ”  (founded in 1921)and Kilsby-Roberts Holding Co. (successor to C.A. Roberts Company, founded in1915).  In connection with thiscombination, we became a wholly-owned subsidiary of Earle M. Jorgensen HoldingCompany, Inc. , or “Holding”.

 

We are one of the largestindependent distributors of metal products in North America, providingvalue-added metals processing services and distributing over 25,000 differentmetal products. We have been distributing metal products for over 80 years andwe 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, fabricatedmetal, oil, gas and energy, construction and farm equipment and aerospace. Noneof our customers represent more than 2% of our gross revenues. Customers areserviced by our network of 36 service and processing centers located throughoutNorth America.

 

In addition to offering abroad range of metals products, we serve our customers by providing metalsprocessing expertise and inventory management services, as well as what webelieve is a unique on-time product delivery guaranty. We purchase metalsproducts from primary producers and sell these metals in smaller quantities toa wide variety of end users. We process nearly all of the metals products wesell by cuttingto length, burning, sawing, honing, shearing, grinding, polishing, andperforming other similar services on them, all to customer specifications.During fiscal 2004, we handled approximately 7,900 sales transactions perbusiness day, at an average of $520 per transaction.

 

Over the last severalyears, we have streamlined our operations and lowered our operating costs. Wehave 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 andcorporate overhead. These efforts have produced a more flexible operating coststructure and significantly greater employee productivity. From fiscal year1998 to fiscal year 2004, our average total headcount was reduced by over 29%to 1,628 employees, while average tons shipped from our facilities per employeeincreased approximately 56% to 385 tons for fiscal year 2004. We have continuedto make productivity improvements. At March 31, 2004 our headcount was1,616.

 

We operate in onereportable segment—the metals service center industry—through a network of 36service and processing centers strategically located throughout North America,including three service centers in Canada. For the fiscal year ended March 31, 2004, we generated revenues of$1,040.4 million and reported net income and EBITDA (as defined – see “Item 6.Selected Financial Data”) of $15.3 million and $80.8 million, respectively.

 

**IndustryOverview and Competition**

 

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

 

After many quarters ofweak industrial economic conditions in the United States, in the last calendarquarter of 2003 the metal service center industry began to experience bothgrowth in sales volume and increases in prices. A combination of factors,including improved industrial demand, favorable exchange rates for exporting companies(unfavorable exchange rates for importers of metals), continued low interestrates, and recent price increases from mills because of higher raw materialcosts and higher capacity utilization, have begun to impact the metals servicecenter industry. While metals prices for most of calendar 2003 were volatiledue to competitive pressures and changes in availability of inventories held byservice centers or supplied by both domestic and foreign mills, these factorsresulted in a general

 

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modest increase in metalsprices in the last calendar quarter of 2003. Both prices and surcharges haverisen since the beginning of calendar 2004. We believe that the metals servicecenter industry will continue to increase its role as a valuable intermediarybetween primary metals producers and end users, principally as a result of (i)the metals producers’ efforts to increase sales to larger volume purchasers inorder to increase production efficiency and (ii) increased demand by end usersfor value-added services in order to reduce their costs and capitalexpenditures associated with the production process.

 

The metals service centerindustry is highly fragmented, consisting of a large number of small companies,which are limited as to product line, size of inventory and customers locatedwithin a specific geographic area, and a few relatively large companies.Nevertheless, based on 2002 data, approximately $25.7 billion of sales in theindustry were controlled by the 50 largest metals service centers in NorthAmerica. The industry includes both general-line distributors, like us, thathandle a wide range of metals products, and specialty distributors, whichspecialize in particular categories of metals products. Geographic coverage bymetals service centers is influenced by their national, regional and localrepresentation. Generally, the metals service center industry competes on priceand the ability to provide customers with value-added services such as productselection and availability, timely and reliable delivery, quality andprocessing capability.

 

The larger and moreestablished companies, like EMJ, have certain advantages over smallercompanies, such as obtaining higher discounts associated with large volumepurchases, the ability to service customers with operations in multiplelocations, the use of more sophisticated information systems, and theavailability of sufficient working capital to expand product lines, facilitiesand/or processing capabilities.

 

**CompetitiveStrengths**

 

We believe that thefollowing factors contribute to our success in the metals service centerindustry:

 

*SuperiorService, Product Selection, and Quality.*    Overthe last several years, we have implemented a program for our customers inwhich we guaranty on-time delivery of our products or they are free. Thisprogram, which we believe is unique among major distributors in North America,has been very successful, with on-time performance of over 99% since itsinception in 1999. We have been able to successfully offer this service becauseof the combination of our leading inventory management information systemstechnology, broad network of service and processing centers, and extensiveinventory of core products, including one of the broadest lines of bar andtubing products in North America. In addition to our on-time guaranty and ourbroad product offering, we are a recognized leader in the metals service centerindustry with an excellent reputation for quality and service built over our 80years in operation.  We have receivednumerous quality and service awards from our customers and have consistentlydemonstrated our commitment to improve our business in order to better satisfyour customers needs, including being among the first in our industry to receiveISO 9002 and QS 9000 certifications and in providing electronic commercecapabilities.

 

*IndustryLeading Information Systems.*    Ourindustry leading proprietary management information systems enable us to assessbusiness conditions, monitor operating results, track and allocate inventoryamong different locations, optimize purchasing and improve customer servicethrough better order and product reference data. The ability to track ourinventory system-wide on a real-time basis through our systems allows oursalespeople to integrate ordering and scheduling, which enables us to meet ouron-time delivery guaranty.  Ourproprietary systems have been and will continue to be upgraded,  developed and implemented to improveefficiencies and customer service.

 

*BroadNetwork of Strategically Located Facilities and Diverse Customer Base.*    Ourservice centers are strategically located throughout North America, generallywithin one day’s delivery time to almost all U.S. manufacturing centers. Ourbroad service network gives us the ability to provide services to nationalcustomers with multiple locations. We serve more than 35,000 customers across abroad range of industries with no single customer accounting for more than 2%of our gross revenues. Our largest ten customers represented approximately 10%of our revenues in fiscal 2004, and the average length of these customerrelationships was approximately 14 years.

 

*TechnologyDriven Process Improvements.*    We havedeveloped warehouse automation tools to streamline order filling and maximizeemployee productivity and have invested significantly in automated inventorystorage and retrieval systems (“Kasto” systems) in our Kansas City and Chicagofacilities.  We believe that these toolsand systems have and will continue to reduce our material handling andprocessing costs, substantially increase order fill rates, and provide us witha significant competitive advantage. For example, as the result of installing the Kasto system in KansasCity, we added 20% more inventory storage capacity while using 41% less floorspace and reduced headcount approximately 18% to 78 in fiscal 2003 from 95 infiscal year end 1998.  In Chicago, wehave already realized benefits from the completed installation of several Kastosystems as part of a 130,400 sq. ft. expansion to our existing 473,300 sq. ft.depot.  These

 

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Kasto systems enable theChicago facility to process and ship more than 4,000 inventory line items perday, compared to its capacity of about 2,200 inventory line items per day priorto such installation, while significantly reducing labor costs.

 

*ExperiencedManagement with Significant Equity Ownership.*    Oursenior management team has an average of 29 years of industry experience. Ourchief executive officer, Maurice S. Nelson, has spent over 42 years in themetals industry with us and at Inland Steel Company and Alcoa. Mr. Nelson wasnamed the Service Center Executive of the Year for 2001 by Metal Center Newsand served as chairman of the Metal Service Center Institute during the 2002 –2003 year.  Our employees directly, andindirectly through our stock bonus and stock option plans, beneficially own inthe aggregate approximately 24.2% (28.4% on a fully-diluted basis) of theoutstanding common stock of Holding (the ‘‘Holding Common Stock”) as ofMarch 31, 2004.

 

**Operatingand Growth Strategy**

 

Our primary businessgoals are to increase market share, expand services to customers and to improveoperating profits and cash flows. Our growth and operating strategies consistof the following elements:

 

*Focuson Value-Added Products and Services to Increase Market Share and GrossMargins.*  We believeour commitment to provide on-time delivery service will continue todifferentiate us and our service capabilities from others in the industry whogenerally offer only “best efforts” delivery service, which customers find lessreliable. We intend to continue to use this competitive advantage to increaseour market share. In addition, we seek to increase our gross margins and growour market share by combining sales from inventory with value-added servicessuch as inventory management and pre-production processing activities, includingcutting and honing operations. Accordingly, we will focus on increasing ourefficiencies and capacities in these value-added operations and in aggressivelymarketing these services.

 

*LeveragingCore Products.*  Wehave 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-rolledcarbon and alloy bars. Our core products are higher margin products than widelyavailable products, such as flat-rolled steel, sheet and rebar. In addition, webelieve our purchasing volumes for our core products enable us to achieve thelowest available product acquisition costs for these products among servicecenters. As a result, we believe we realize higher gross margins than many ofour competitors for our core products. We believe we can significantly growmarket share and increase profitability by continuing to focus our marketingefforts on our extensive selection of core products and leveraging ourprocurement advantage. Leveraging our strength in our core products shouldenable us to establish competitive advantages in all of our local markets aswell as allow us to successfully compete for larger national programs withcustomers.

 

*MaintainTechnology Leadership.*  We have made and will continue to makeinvestments in technology in order to differentiate our service capabilitiesfrom those of our competitors. We will continue to enhance our managementinformation systems by upgrading software and hardware to improve connectivity,stability and reliability of our management information systems and data. Theseplanned improvements include (i) creating a centralized data warehouse tofacilitate greater access to transactional information, (ii) developing newelectronic commerce tools for customer and vendor interfaces to offer bettercompatibility with various systems, (iii) implementing IP Telephony to reducecosts and allow for greater customer service flexibility, and (iv) enhancingour sales and warehouse automation functionality to further improveproductivity and efficiency.

 

*Expand Satellite Operations.*We believe a key aspect of serving our customers is having a physical presencein those markets requiring our products and services. Accordingly, we haveformalized a strategy to target those geographic areas where we can justifyopening a “satellite” location. These locations are managed locally bywarehouse and delivery personnel, stock a limited inventory of core productsand require minimal initial and maintenance capital expenditures, resulting ina low cost opportunity to serve select markets. Each satellite operation issupported by inventory, inside salespeople and the general management of ourlarger service center responsible for the satellite’s results of operations.Since the beginning of fiscal 2000, we have opened six satellites, including afacility in Orlando, Florida, in October 2003. We will be relocating ourChattanooga, Tennessee satellite to a larger full service facility inBirmingham, Alabama in fiscal 2005. We are evaluating other potentialsatellites.

 

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**ProductsAnd Suppliers**

 

We have designatedcertain carbon and alloy, aluminum, and stainless products as core productofferings under our bar and tubing lines. We also offer certain plate and otherproducts. Each of our service centers stocks a broad range of shapes and sizesof each of these products, as dictated by market demand, in an effort to be amarket 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 inconstruction equipment, farm equipment, automotive and truck manufacturing andoil exploration as well as a wide range of other products. Stainless steel barand plate are used widely in the chemical, petrochemical, and oil refining andbiomedical industries where resistance to corrosion is important. Aluminum barand plate are frequently used in aircraft and aerospace applications whereweight is a factor. Different tubing products are appropriate for particularuses based on different characteristics of the tubing materials, includingstrength, weight, resistance to corrosion and cost. Carbon tubing and pipe areused in general manufacturing. Alloy tubing is used primarily in themanufacturing of oil field equipment and farm equipment. Stainless steel tubingand pipe are used in applications requiring a high resistance to corrosion,such as food processing. Aluminum tubing and pipe are used in applications thatput a premium on lightweight (such as aerospace manufacturing).

 

The percentage ofrevenues generated from sales of material by product group for the fiscal yearsended March 31, 2002, 2003 and 2004 is as follows.

 
|              |   | **Year Ended  March 31,** |   |
|-------------------|--------|--------------------------------|--------|
|              |   | **2002**                       |   | **2003** |   | **2004** |   |
| Bars:             |   |                           |   |   |   |   |   |
| Carbon  and Alloy |   | 36.6                           | %      | 37.4 | % | 37.4 | % |
| Stainless         |   | 11.9                           |   | 11.3 |   | 11.7 |   |
| Aluminum          |   | 7.7                            |   | 7.9 |   | 8.1 |   |
| Brass             |   | .7                             |   | 1.0 |   | 1.4 |   |
| Total             |   | 56.9                           |   | 57.6 |   | 58.6 |   |
|              |   |                           |   |   |   |   |   |
| Tubing:           |   |                           |   |   |   |   |   |
| Carbon  and Alloy |   | 24.6                           |   | 24.6 |   | 23.6 |   |
| Stainless         |   | 3.0                            |   | 2.9 |   | 2.8 |   |
| Aluminum          |   | 3.6                            |   | 3.2 |   | 2.7 |   |
| Total             |   | 31.2                           |   | 30.7 |   | 29.1 |   |
|              |   |                           |   |   |   |   |   |
| Plate:            |   |                           |   |   |   |   |   |
| Carbon  and Alloy |   | 3.9                            |   | 3.5 |   | 3.2 |   |
| Stainless         |   | 1.5                            |   | 1.3 |   | 1.2 |   |
| Aluminum          |   | 2.3                            |   | 2.4 |   | 2.0 |   |
| Total             |   | 7.7                            |   | 7.2 |   | 6.4 |   |
| Other             |   | 4.2                            |   | 4.5 |   | 5.9 |   |
|              |   | 100.0                          | %      | 100.0 | % | 100.0 | % |

 

The majority of ourprocurement activities are handled by a centralized merchandising office in ourChicago facility where specialists in major product lines make the majority ofinventory purchases on behalf of our service centers. This merchandising groupdevelops and evaluates the working relationships with high-quality suppliers toensure availability, quality and timely delivery of product. Because of thiscentralized coordination and the total volume of purchases we make, we oftenare a recognized distributor for major metals suppliers and believe that we areable to purchase our core products inventory at the lowest unit cost availablein the industry.

 

The majority of ourinventory purchases are made by purchase order, and we have no significantsupply contracts with periods in excess of one year. We are not dependent onany single supplier for any product or for a significant portion of ourpurchases, and in fiscal year 2004 no single supplier represented more than 10%of our total purchases. We purchased less than 15% of our inventoryrequirements from foreign-based suppliers in fiscal 2004.

 

On March 5, 2002,President Bush, among other actions, imposed a three-year tariff of 30%, 24%and 18% on imports of hot rolled, cold rolled and coated sheet for 2002, 2003,and 2004, respectively, as well as on imports of steel slabs in excess of aspecified annual quota. Due to certain rulings by the World Trade Organizationand adverse reaction from steel consuming industries, these tariffs wereterminated by the President on December 4, 2003. A steel import licensingand monitoring system maintained by the United States Department of Commercewill remain in force. We do not believe that these factors materially impactedthe availability or pricing of product we sold during fiscal 2004 or will

 

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have a significant impact in fiscal 2005. However, tothe extent metals prices decline, this generally would mean lower sales andpossibly lower net income, depending on the timing and magnitude of the pricechanges. Alternatively, to the extent we are not able to pass on to ourcustomers any increases in our raw materials prices our results may beadversely affected.

 

**Customersand Markets**

 

We provide metal productsand value-added metals processing services to over 35,000 customers throughoutNorth America that do business in a wide variety of industries, none of which representsmore than 2% of our gross revenues. During fiscal 2004, we processedapproximately 7,900 sales transactions per business day generating an averagerevenue of approximately $520 per transaction. In addition, sales of material out of our stock inventory (referred toas “stock” sales) represented 89.7%, 90.8% and 91.7% of total revenuesgenerated from material sales for fiscal years 2002, 2003 and 2004,respectively. We believe our ability to support this high proportion of stocksales is critical in growing market share and maintaining higher gross marginsthan would otherwise be possible. The balance of revenues represents specialcustomer requirements that we meet by arranging mill-direct sales and by makingbuy-outs from other distributors of inventory items we do not maintain as stockinventory. Such non-stock sales generally have lower gross margins than stocksales, but provide a valuable customer service.

 

The following tableprovides the percentage of tonnage sold to our ten largest key industries forthe fiscal years ended March 31, 2002, 2003 and 2004.

 
|                                         |   | **Year Ended  March 31,** |   |
|----------------------------------------------|--------|---------------------------|--------|
|                                         |   | **2002**                  |   | **2003** |   | **2004** |   |
|                                         |   |                      |   |   |   |   |   |
| Machine  Tools                               |   | 27.4                      | %      | 27.0 | % | 28.1 | % |
| Industrial  Equipment                        |   | 9.5                       |   | 8.7 |   | 7.7 |   |
| Transportation                               |   | 8.5                       |   | 8.1 |   | 7.5 |   |
| Metal  Service Centers & Wholesale Trade |   | 6.3                       |   | 6.6 |   | 6.1 |   |
| Fluid  Power                                 |   | 4.1                       |   | 4.7 |   | 6.0 |   |
| Oil,  Gas & Energy                       |   | 4.3                       |   | 4.2 |   | 5.8 |   |
| Fabricated  Metal                            |   | 6.3                       |   | 6.6 |   | 5.7 |   |
| Construction/Farm  Equipment                 |   | 8.4                       |   | 7.9 |   | 5.1 |   |
| Screw  Machine Products                      |   | 4.4                       |   | 6.0 |   | 5.0 |   |
| Power  Transmission Equipment                |   | 2.7                       |   | 3.4 |   | 3.7 |   |
| All  Other Industries                        |   | 18.1                      |   | 16.8 |   | 19.3 |   |
| Total                                        |   | 100.0                     | %      | 100.0 | % | 100.0 | % |

 

The majority of our salesoriginate from individual purchase orders and are not subject to ongoing supplycontracts; however, we make some of our sales under contracts that fix theprice for up to 12 months. When we enter into a fixed price contract, we enterinto a corresponding supply contract with our supplier to cover the commitmentto our customer. These corresponding supply contracts substantially reduce therisk of fluctuating prices negatively impacting our margins on these fixedprice contracts. Such contracts provide the customer with greater certainty asto timely delivery, price stability and continuity of supply, and sometimessatisfy particular processing or inventory management requirements. Suchcontracts have resulted in new customer relationships and increased salesvolumes, but can have a slightly lower gross margin than our ordinary sales. Webelieve such contracts, in the aggregate, represented less than 10% of ourtotal revenues in fiscal 2004. In addition, the pricing for most of our salesis set at the time of the sale.

 

Seasonal fluctuations inour business generally occur in the summer months and in November andDecember, when many customers’ plants and production levels are impacted byretooling, vacations or holidays. Order backlog is not a significant factor, asorders are generally filled within 24 hours.

 

**IntellectualProperty and Licenses**

 

EMJ® and E-METALS® are registered trademarks andour name, is a registered service mark in the U.S. and in other countries wherewe do or expect to do business. Other service marks, including hallmarks,logos, taglines or mottos used to conduct business are or will be registered asnecessary to protect our proprietary rights. We also own our internet domainname, emjmetals.com. We consider certain information owned by us to be tradesecrets, and we take measures to protect the confidentiality and control thedisclosure of such information. We believe that these safeguards adequatelyprotect our proprietary rights. While we consider all of our intellectualproperty rights as a whole to be important, we do not consider any single rightto be essential to our operations.

 

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**ManagementInformation Systems**

 

Our industry leadingproprietary management information systems enable us to assess businessconditions, monitor operating results, track and allocate inventory amongdifferent locations, optimize purchasing and improve customer service throughbetter order and product reference data. The ability to track our inventorysystem-wide on a real-time basis through our systems allows our salespeople tointegrate ordering and scheduling, which enables us to meet our on-timedelivery guaranty.  Our proprietarysystems have been and will continue to be upgraded, developed and implementedto improve efficiencies and customer service.

 

**Employees**

 

As of March 31,2004, EMJ employed 1,616 persons, of whom 997 were employed in production orshipping, 346 were employed in sales and 273 served in executive,administrative or district office capacities. Four different unions representedapproximately 563 of our employees from 16 location.  Our Collective bargaining agreements expire on staggered datesthrough 2010.  We believe we have a goodoverall relationship with our employees and do not expect any significantissues to arise in connection with agreements in the near future.

 

**ForeignOperations**

 

Through our wholly-ownedsubsidiary, Earle M. Jorgensen (Canada) Inc., a Canadian limited liabilitycompany, we operate three service centers located in Toronto, Montreal andEdmonton. Revenues from our Canadian operations totaled $43.7 million in fiscal2002, $54.4 million in fiscal 2003 and $70.0 million in fiscal 2004.

 

## **GovernmentalRegulations**

## ** **

Our operations aregoverned by many laws and regulations designed to promote workplace safety andto protect the welfare of employees, principally the Occupational Safety andHealth Act and regulations thereunder. We believe we are in material compliance with these laws and regulationsand that the continued compliance will not have an adverse effect on ourresults of operations or financial condition.

 

**EnvironmentalMatters**

 

We are subject toextensive and changing federal, state, local and foreign laws and regulationsdesigned to protect the environment, including those relating to the use,handling, storage, discharge and disposal of hazardous substances and theremediation of environmental contamination. Although we believe we are in material compliance with laws andregulations, we are from time to time involved in administrative and judicialproceedings and inquiries relating to environmental matters.

 

During fiscal years 2002,2003 and 2004, expenditures totaling approximately $0.1 million, $0.2 millionand $0.2 million, respectively, were made in connection with monitoring andinvestigation activities at sites with contaminated soil and/or groundwater. Asof March 31, 2004, an accrual of $0.2 million exists for futureinvestigation activities related to the Duwamish Site, as discussed below.  All other pending environmental matters arenot considered material and are fully discussed in Note 8 to consolidatedfinancial statements.

 

*Forge(Seattle/Kent, WA).*    InNovember 1998, we paid the purchasers of our former Forge facility and anoff-site disposal site $2.3 million as an indemnification settlement forliabilities related to the remediation of known contamination at the Forgefacility. We continue to monitor the disposal site for environmental conditionsin accordance with a consent decree issued by the Washington Department ofEcology, or “Ecology.” Annual costs associated with such monitoring are notsignificant, and we do not anticipate significant additional expendituresrelated to this matter.

 

The Forge property islocated on the Lower Duwamish Waterway, which has been identified by the UnitedStates Environmental Protection Agency, or the “EPA,” as a Superfund Site, orthe “Duwamish Site.” Under the federal Comprehensive Environmental Remediation,Compensation, and Liability Act, or “Superfund,” owners or operators offacilities that have released hazardous substances to the environment may beliable for remediation costs. Courts have held that such liability may be jointand several; however, in many instances, the costs are allocated among theparties, primarily based on their estimated contribution to the contamination.The EPA, along with Ecology, have entered into an Administrative Order ofConsent (“AOC”) with four major property owners with potential liability forcleanup of the Duwamish Site that outline tasks required to be completed tofurther investigate the nature and extent of the contamination and cleanup alternatives.In November 2001, the current owners of the Forge property notified us ofa

 

7

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potential claim forindemnification for any liability relating to contamination of the DuwamishSite. The notification stated that the Forge facility, along with otherbusinesses located along the Duwamish Site, are expected be named aspotentially responsible parties for contamination of the Duwamish Site andrequested that EMJ participate under a joint defense.

 

On February 6, 2003,we received a request from the EPA to sign an AOC under CERCLA to investigatecertain areas of the Duwamish Site.  Apreliminary estimate of the cost of proposed work under the AOC ranges from$0.4 million to $0.5 million, and is subject to approval by the EPA.   As of March 31, 2004, we have accrued$0.2 million for these costs that are expected to be incurred during fiscal2004.  On April 15, 2003, we signeda funding and participation agreement with the current owners of the Forgeproperty, which requires us to fund 85% of costs to be incurred in connectionwith the investigation activities to be performed under the AOC.

 

We are continuing toevaluate this matter and remedies we may have, including insurance recoveriesfor any monies to be spent as part of the investigation or cleanup of theDuwamish Site. At this time, we cannot determine what ultimate liability we mayhave relating to this matter.

 

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

 

## **AvailableInformation**

## ** **

We file annual,quarterly, and current reports, and other documents with the Securities andExchange Commission, or the “SEC”.  Youmay read and copy any materials we file with the SEC at the SEC’s PublicReference Room at 450 Fifth Street, NW, Washington, DC 20549 (or you can call1-800-SEC-0330) or access such material via the SEC’s Internet website at *http://www.sec.gov.*

 

We also make availablefree of charge on or through our Internet website (http://www.emjmetals.com)our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K and, if applicable, amendments to those reports as soon asreasonably practicable after we electronically file such material with, or furnishit to, the SEC.

 

**Item 2. PROPERTIES**

 

We currently maintain 36service centers (including three plate processing centers, one cutting centerand one tube honing facility), three sales offices and one merchandising officeat various locations throughout the U.S. and we are headquartered in Lynwood,California. Our facilities generally are capable of being utilized at highercapacities, if necessary. Most leased facilities have initial terms of morethan one year and include renewal options. While some of the leases expire inthe near term, we do not believe that we will have difficulty renewing suchleases or finding alternative sites.

 

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

 
| **Country/City/State**  |   | **Owned (O)  Leased (L)** |   | **Size********(Sq. Ft.)** |   |
|-------------------------|--------|--------------------------------|--------|--------------------------------|--------|
| **United States:**      |   |                           |   |                           |   |
| Birmingham, Alabama (a) |   | O                              |   | 80,000                         |   |
| Phoenix, Arizona        |   | O                              |   | 72,200                         |   |
| Little Rock, Arkansas   |   | L                              |   | 27,700                         |   |
| Hayward, California     |   | L                              |   | 91,000                         |   |
| Los Angeles, California |   | O                              |   | 319,400                        |   |
| Denver, Colorado        |   | L                              |   | 77,400                         |   |
| Orlando, Florida (b)    |   | L                              |   | 29,700                         |   |
| Chicago, Illinois       |   | O                              |   | 603,700                        |   |
| Indianapolis, Indiana   |   | O                              |   | 225,000                        |   |
| Eldridge, Iowa          |   | L                              |   | 104,500                        |   |
| Boston, Massachusetts   |   | O                              |   | 63,500                         |   |
| Detroit, Michigan(b)    |   | L                              |   | 28,700                         |   |

 

8

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| Minneapolis, Minnesota        |   | O      |   | 169,200 |   |
|-------------------------------|--------|--------|--------|---------|--------|
| Kansas City, Missouri         |   | L      |   | 120,900 |   |
| St. Louis, Missouri           |   | L      |   | 108,100 |   |
| Rochester, 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      |   | 143,400 |   |
| Portland, Oregon              |   | L      |   | 33,800  |   |
| Philadelphia, Pennsylvania(c) |   | L      |   | 38,000  |   |
| Philadelphia, Pennsylvania(d) |   | L      |   | 27,200  |   |
| Wrightsville, Pennsylvania    |   | L      |   | 83,900  |   |
| Chattanooga, Tennessee(b)     |   | L      |   | 27,000  |   |
| Memphis, Tennessee            |   | L      |   | 56,500  |   |
| Dallas, Texas                 |   | O      |   | 132,800 |   |
| Houston, Texas(e)             |   | O      |   | 276,000 |   |
| Houston, Texas                |   | O      |   | 95,200  |   |
| Salt Lake City, Utah(b)       |   | L      |   | 25,400  |   |
| Seattle, 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) |   | We are building a  facility in Birmingham, Alabama that will replace the existing facility  located in Chattanooga, Tennessee.                                                       |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | These locations are  considered satellite operations.                                                                                                                                |
| (c) |   | Excludes 196,800 square  feet subleased to a third party under a long-term agreement.                                                                                                |
| (d) |   | The property being  subleased in Philadelphia (c) is being phased out and we intend to move our  operations from that facility into a new leased facility in the same general  area. |
| (e) |   | We purchased a facility  in Houston, Texas (95,200 sq ft) to replace the existing facility (276,000 sq  ft), which is under a contract for sale.                                     |

 

## **Item 3**.  LEGAL PROCEEDINGS

 

We are occasionallyinvolved in ordinary, routine litigation incidental to our normal course ofbusiness, none of which we believe to be material to our financial condition orresults of operations. We maintain various liability insurance coverages toprotect our assets from losses arising out of or involving activitiesassociated with ongoing and normal business operations.

 

In 1996, the Departmentof Labor, or the “DOL,” initiated an investigation into our employee stockownership plan, or the “Plan,” and Company contributions to the Plan for fiscalyears commencing March 31, 1992.  In thecourse of its investigation, the DOL and its advisors reviewed the valuationsof Holding’s common and preferred stock prepared for the Plan and challengedthe methodology used in preparing the valuations.

 

OnMarch 8, 2002, the DOL sued us, Holding, our Plan and former members ofour benefits committee in the federal district court for the Central Districtof California. The DOL claimed that the valuations of Holding’s common stockused to make annual contributions to our Plan in each of the years 1994 through2000 contained significant errors that resulted in the common stock beingovervalued, and that the failure of the members of our benefits committee todetect and correct the errors was a breach of their fiduciary duty under ERISA.As a result of the alleged overvaluations, the DOL contended that thecontributions to our Plan were prohibited transactions under ERISA. OnJanuary 27, 2003, we signed a consent order and settlement agreement withthe DOL in connection with their lawsuit. The key provisions of the agreement are as follows: (i) we are notrequired to make any payments under the agreement at this time; (ii) we are

 

9

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prohibited to makefurther common stock contributions to the stock bonus plan; (iii) we willcontinue to obtain annual appraisals of Holding stock using methodologyconsistent with prior appraisals, and use that appraised value as the purchaseprice for repurchases of common stock as we have done in the past, and; (iv) ifthe annual appraisal of our common stock is less than $4.25 per share, we shallpay a floor price of $4.25 per share in connection with the repurchase ofcommon stock from departing employees for shares that were originallycontributed to the stock bonus plan for the plan years 1994 through 2000.

 

If wepay the floor price in connection with the repurchase of common stock fromdeparting employees, the agreement also allows the DOL to assess the Company apenalty equal to 20% of the amount calculated by multiplying the differencebetween the appraised value and the floor price by the number of sharesrepurchased at the floor price.

 

We donot believe the DOL settlement will have a material impact on our financialcondition or future results of operations, and we believe payments under thesettlement, if any, will most likely be paid in immaterial amounts which willbe spread over many years.

 

InDecember 2003, we entered into agreements with Holding, a subsidiary and theprincipal stockholders of Holding providing for a merger and financialrestructuring.  Prior to approval of thetransaction, the DOL initiated a review of the procedures followed by ourbenefits committee in connection with evaluation of the proposed transactionand other strategic alternatives available to Holding and an assessment ofwhether or not the proposed transaction complied with the terms of the consentorder and the legal requirements applicable to the stock bonus plan.  Such review resulted in delays that,combined with other transactional requirements, precluded the consummation ofthe merger and financial restructuring on the terms originally proposed.  We are considering  changes to the proposed transaction that will achieve theobjectives of the original restructuring transaction, while meeting theconcerns expressed by the DOL.  Holdingintends to review any proposed transaction with the DOL in advance under theircompliance assistance program to ensure compliance with the terms of theconsent order and applicable law.  Therecan be no assurance that a revised transaction will be agreed upon, approved bythe Holding stockholders and consummated.

 

OnApril 22, 2002, we were sued by Champagne Metals, a small metals servicecenter distributing aluminum coil products in Oklahoma, alleging that we hadconspired with other metal service centers to induce or coerce aluminumsuppliers to refuse to designate Champagne Metals as a distributor, whichresulted in unspecified damages.  EMJand the other defendants filed motions for summary judgment, and onJune 15, 2004, the federal District Court for the Western District ofOklahoma entered an order granting the motions for summary judgment of each ofthe defendants including EMJ and dismissed the case.  The time for an appeal expires July 15, 2004.

 

**Item 4.   SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

December 11,2003, the board of directors of Holding, sole stockholder of the Company,approved a Written Consent of the Sole Stockholder of the Company (a) approvinga merger agreement and exchange agreement providing for the merger andfinancial restructuring of Holding and the Company, (b) approving the amendmentand restatement of the Company’s certificate of incorporation, increasing theCompany’s authorized capital to 80,000,000 authorized shares of capital stock(classified as follows: 79,000,000 shares of common stock, and 1,000,000 sharesof preferred stock) and (c) authorizing the issuance of shares of common stockin connection with the merger and financial restructuring.  The Written Consent was executed by the VicePresident and Chief Financial Officer of the Company on December 15, 2003.  The amendment and restatement of theCompany’s certificate of incorporation will not take effect unless and untilthe merger is completed.

 

OnMay 25, 2004 the Company announced that the proposed restructuring of thecombined capital structure of EMJ with Holding, had been delayed.  Because of the delay, additionalnegotiations among Holding’s security holders and changes to the structure ofthe transaction will be required before it can proceed.

 

#### **PART II**

#### ** **

**Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS**

 

Wehave 128 shares of common stock par value $.01 per share outstanding, all ofwhich are owned by Holding.  For each offiscal years ended March 31, 2002, 2003 and 2004, we paid cash dividendstotaling $14,963,000,  $10,587,000 and$5,781,000, respectively, to Holding in connection with the repurchase of itscapital stock from employees of EMJ whose employment had terminated, asrequired by the terms of Holding’s Stockholders Agreement and our Plan.  In

 

10

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addition, we paid cashdividends of $25,000,000 to Holding in connection with our May 2002 refinancingof certain indebtedness.

 

**Item 6.**   **SELECTED FINANCIAL DATA**

 

Allinformation contained in the following table was derived from the auditedconsolidated financial statements of the Company and should be read inconjunction with “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and with the consolidated financialstatements of the Company and the related notes thereto included elsewhere inthis Form 10-K.

 
|                                                                           |   | **Year Ended  March 31,** |    |
|--------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                           |   | **2000**                       |    | **2001** |   | **2002** |   | **2003** |   | **2004** |   |
|                                                                           |   | **(dollars  in thousands)**    |    |
| **Statement of Operations Data:**                                              |   |                           |    |   |   |   |   |   |   |   |   |
| Revenues                                                                       |   | $                              | 938,252 |   | $ | 1,059,681 |   | $ | 895,058 |   | $ | 919,927 |   | $ | 1,040,367 |   |
| Costs  of goods sold                                                           |   | 662,803                        |    | 767,263 |   | 641,991 |   | 658,562 |   | 754,266 |   |
| Gross  profit                                                                  |   | 275,449                        |    | 292,418 |   | 253,067 |   | 261,365 |   | 286,101 |   |
| Operating  expenses exclusive of restructuring and other non-recurring charges |   | 205,626                        |    | 223,222 |   | 200,933 |   | 210,277 |   | 216,629 |   |
| Restructuring  and other non-recurring charges                                 |   | 2,432                          |    | 5,320 |   | 1,861 |   | — |   | — |   |
| Income  from operations                                                        |   | 67,391                         |    | 63,876 |   | 50,273 |   | 51,088 |   | 69,472 |   |
| Net  interest expense(1)                                                       |   | 41,595                         |    | 44,855 |   | 42,545 |   | 47,206 |   | 51,093 |   |
| Net  income                                                                    |   | 23,987                         |    | 17,798 |   | 5,354 |   | 2,382 |   | 15,252 |   |
|                                                                           |   |                           |    |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                |   |                           |    |   |   |   |   |   |   |   |   |
| EBITDA(2)                                                                      |   | $                              | 77,342  |   | $ | 74,911 |   | $ | 59,803 |   | $ | 62,457 |   | $ | 80,756 |   |
| EBITDA  margin %                                                               |   | 8.2                            | %       | 7.1 | % | 6.7 | % | 6.8 | % | 7.8 | % |
| Depreciation  and amortization(3)                                              |   | 9,951                          |    | 11,035 |   | 11,449 |   | 11,369 |   | 11,284 |   |
| Capital  expenditures                                                          |   | 9,525                          |    | 14,475 |   | 24,531 |   | 15,335 |   | 10,530 |   |
| Net  cash flows provided by operating activities                               |   | 32,984                         |    | 38,026 |   | 14,544 |   | 30,974 |   | 29,491 |   |
| Net  cash flows used in investing activities                                   |   | (4,846                         | )       | (15,048 | ) | (24,752 | ) | (14,035 | ) | (7,396 | ) |
| Net  cash flows provided by (used in) financing activities                     |   | (24,331                        | )       | (20,877 | ) | 7,748 |   | (18,210 | ) | (26,580 | ) |
| Ratio  of earnings to fixed charges(4)                                         |   | 1.54                           | x       | 1.36 | x | 1.11 | x | 1.06 | x | 1.31 | x |
| Dividends  paid(5)                                                             |   | 13,372                         |    | 5,514 |   | 14,963 |   | 35,587 |   | 5,781 |   |
|                                                                           |   |                           |    |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                        |   |                           |    |   |   |   |   |   |   |   |   |
| Cash  and cash equivalents                                                     |   | $                              | 21,660  |   | $ | 23,758 |   | $ | 21,300 |   | $ | 20,030 |   | $ | 15,528 |   |
| Total  working capital                                                         |   | 165,148                        |    | 156,309 |   | 154,936 |   | 150,205 |   | 139,463 |   |
| Total  assets                                                                  |   | 464,374                        |    | 484,264 |   | 443,998 |   | 490,741 |   | 536,480 |   |
| Total  debt                                                                    |   | 285,547                        |    | 270,184 |   | 292,895 |   | 330,537 |   | 309,738 |   |
| Total  stockholder’s deficit                                              |   | (14,365                        | )       | (3,151 | ) | (15,786 | ) | (48,016 | ) | (37,359 | ) |

 

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| (1) |   | Net  interest expense includes amortization and write-off of debt issue costs  aggregating $1,482, $1,482, $1,792, $1,416 and $1,323 for the fiscal years  ended March 31, 2000, 2001, 2002, 2003 and 2004, respectively, net of  interest income of $636, $1,179, $164, $83 and $81 for the fiscal years ended  March 31, 2000, 2001, 2002, 2003 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | “EBITDA”  represents net income before depreciation and amortization, net interest  expense and provision for income taxes, as shown in the table below.  Consistent with Item 10(e) of Regulation  S-K, our EBITDA has not been adjusted to exclude any other non-cash charges  (credits) or liabilities, such as LIFO adjustments of $(9,022), $887, $590,  $(3,354) and $14,343, and accruals for stock bonus plan contributions and  postretirement benefits aggregating $2,862, $11, $249, $498 and $619 for the  years ended March 31, 2000, 2001, 2002, 2003 and 2004,  respectively.  In addition, our EBITDA  has not been adjusted for any recurring or non-recurring items, such as  provisions for workforce reductions and consolidations and losses from sale  of significant assets aggregating $2,432, $3,320, $1,861, none and none for  the years ended March 31,  2000,  2001, 2002, 2003 and 2004, respectively;   special compensation of $2,000 payable to our CEO in fiscal 2001;  excise tax of $1,919 related to an IRS settlement in fiscal 2002; and an  extraordinary loss of $12,278 related to early retirement of debt in fiscal  2003.  We believe that EBITDA is  commonly used as a measure of performance for companies in our industry and  is frequently used by analysts, investors, lenders and other interested  parties to evaluate a company’s financial performance and its ability to  incur and service debt.Our EBITDA is used by management as a performance  measure to assess our financial results in connection with determining  incentive compensation, and is also used by the independent appraisal firm in  connection with their annual valuation of our equity.  While providing useful information, our  EBITDA should not be considered in isolation or as a substitute for  consolidated statement of operations and cash flows data prepared in  accordance with U.S. generally accepted accounting principles and should not  be construed as an indication of a company’s operating performance or as a  measure of liquidity. |

 

11

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|                              |   | **Year Ended  March 31,** |   |
|-----------------------------------|--------|--------------------------------|--------|
|                              |   | **2000**                       |   | **2001** |   | **2002** |   | **2003** |   | **2004** |   |
|                              |   | **(dollars in thousands)**     |   |
| Reconciliation  of EBITDA:        |   |                           |   |   |   |   |   |   |   |   |   |
|                              |   |                           |   |   |   |   |   |   |   |   |   |
| Net  income                       |   | $                              | 23,987 |   | $ | 17,798 |   | $ | 5,354 |   | $ | 2,382 |   | $ | 15,252 |   |
| Depreciation  and amortization(4) |   | 9,951                          |   | 11,035 |   | 11,449 |   | 11,369 |   | 11,284 |   |
| Net  interest expense             |   | 41,595                         |   | 44,855 |   | 42,545 |   | 47,206 |   | 51,093 |   |
| Provision  for income taxes       |   | 1,809                          |   | 1,223 |   | 455 |   | 1,500 |   | 3,127 |   |
| EBITDA                            |   | $                              | 77,342 |   | $ | 74,911 |   | $ | 59,803 |   | $ | 62,457 |   | $ | 80,756 |   |

 

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| (3) |   | Depreciation and  amortization excludes amortization or write-off of debt issue costs referred  to in Note (1) above, reflected in the Company’s consolidated statements of  operations as interest expense.                                                                                                                                            |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) |   | 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. |
| (5) |   | Dividends paid to  Holding in connection with the repurchase of its capital stock from  terminated employees.  In fiscal 2003,  the Company also paid a dividend to Holding of $25,000 to be used to repay or  repurchase a portion of its Holding Notes (as defined below) and/or capital  stock.                                                      |

 

**Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion should be read in conjunctionwith “Item 6. Selected Financial Data” and the consolidated financial statementsof the Company, and the notes related thereto appearing elsewhere in thisAnnual Report on Form 10-K.

 

**General**

 

We are considered ageneral line distributor of metals, offering our customers a broad line of bar,tube and plate products.  We operate anetwork of 36 service and processing centers strategically located throughoutNorth America, from which we distribute over 25,000 different metals productsand provide value-added metals processing services to over 35,000 customers.

 

We purchase larger quantitiesof metals products from primary producers and sell these metals in smallerquantities to a wide variety of end users. We process nearly all of the metalsproducts we sell by cutting to length, burning, sawing, honing, shearing,grinding, polishing, and performing other similar services on them, all tocustomer specifications. During fiscal 2004, we handled approximately 7,900sales transactions per business day, at an average of $520 per transaction.

 

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

 

Over the last severalyears we have streamlined our operations and lowered our operating costs. Wehave 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 andcorporate overhead. These efforts have produced a more flexible operating coststructure and significantly greater employee productivity, and have allowed usto offer our customers what we believe is a unique on-time product deliveryguaranty.

 

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

 

**TheProposed Merger and Financial Restructuring**

 

In December 2003, weentered into agreements with Holding, a subsidiary and the principalstockholders of Holding providing for a merger and financialrestructuring.  Holding was unable topresent the proposed transaction to its stockholders for approval prior to theend of our fiscal year as a result of review of the transaction by the DOL to determine whether or not theproposed transaction complied with the terms of the consent order and the legalrequirements applicable to the stock bonus plan.  Such review resulted in delays and, combined with othertransactional requirements, such delays precluded the consummation of themerger and financial restructuring on the terms originally proposed.  We are considering  changes to the proposed transaction that will achieve theobjectives the original restructuring transaction, while meeting the concernsexpressed by the DOL.  Holding intendsto review any proposed transaction with the DOL in advance under theircompliance assistance program to ensure compliance with the terms of theconsent order and applicable law.  Therecan be no assurance that a revised transaction will be agreed upon, approved bythe Holding stockholders and consummated.

 

12

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**Overviewof Fiscal 2004**

 

After many quarters ofweak industrial economic conditions in the United States, in the last calendarquarter of 2003 the metal service center industry began to experience bothgrowth in sales volume and increases in prices.  While metals prices for most of calendar 2003 were volatile dueto competitive pressures and changes in availability of inventories held byservice centers or supplied by both domestic and foreign mills, a combinationof factors, including improved industrial demand, favorable exchange rates forexporting companies (unfavorable exchange rates for importers of metals),continued low interest rates, and recent price increases and added surchargesfrom mills because of higher raw material costs and higher capacityutilization, resulted in strong growth in the metals service center industrythat began during the last calendar quarter of 2003.  Both prices and surcharges have continued to rise and demand formetals products has remained strong since the beginning of calendar 2004.  For example, the price of unleaded coldfinished carbon bar was $797 per ton at March 31, 2004, up 17% (includinga 10% surcharge) from $680 per ton at March 31, 2003.

 

Our tonnage shipped during fiscal 2004 was 9.6% highercompared to fiscal 2003 levels, with strong growth in our fourth fiscalquarter, due to increasing demand and from success in gaining market share,particularly in Canada.  We believe weare gaining market share through our core products strategies and excellentcustomer service, and beginning in July 2002, from significant benefitsrealized from the expansion and automation of our Chicago facility.

 

Pricing for our productscan have a more significant impact on our results of operation than customerdemand levels. As pricing increases, so do our revenue dollars. Our pricingusually increases when the cost of our materials increase. We attempt to obtainthe same gross profit percentage on our sales, so if prices increase and we aresuccessful in maintaining the same gross profit percentage, we generate higherlevels of gross profit dollars. Conversely, if pricing declines, we willtypically generate lower levels of gross profit dollars. Because changes inpricing do not require us to adjust our expense structure, the impact on ourresults of operations is greater than the effect of volume changes.

 

During fiscal 2004, we continuedto focus on improving our business processes, including the development orenhancement of systems that enable us to reduce costs and increase productivityrelated to order processing and scheduling, inventory processing and handling.  For fiscal 2004, our gross margins were27.5% versus 28.4% in fiscal 2003 and 28.3% in fiscal 2002, while our operatingmargins in fiscal 2004 were 6.7%, when compared to 5.6% in fiscal 2003 and 5.6%in fiscal 2002. Exclusive of a $12.3 million loss on early termination of debt,in fiscal 2003 our operating margin was 6.9%. The decline in gross margin infiscal 2004 was attributable to a $14.3 million LIFO charge, compared to a $3.4million LIFO credit in fiscal 2003. During fiscal 2004, our average totalnumber of employees decreased to 1,628 from 1,706 in fiscal 2003 and 1,805 infiscal 2002.

 

**Statementof Operations Information**

 

The following table setsforth certain of our consolidated statement of operations data. The historicalfinancial data for the fiscal years ended March 31, 2002, 2003 and 2004are derived from the historical financial statements included elsewhere herein.

 
|                                                   |   | **Year Ended  March 31,** |    |
|--------------------------------------------------------|--------|--------------------------------|---------|
|                                                   |   | **2002**                       |    | **%** |   | **2003** |   | **%** |   | **2004** |   | **%** |   |
|                                                   |   | **(dollars in  thousands)**    |    |
| **Statement of Operations Data:**                      |   |                           |    |   |   |   |   |   |   |   |   |   |   |
| Revenues                                               |   | $                              | 895,058 |   | 100.0 | % | $ | 919,927 |   | 100.0 | % | $ | 1,040,367 |   | 100.0 | % |
| Gross  profit                                          |   | 253,067                        |    | 28.3 |   | 261,365 |   | 28.4 |   | 286,101 |   | 27.5 |   |
| Operating  expenses exclusive of non-recurring charges |   | 200,933                        |    | 22.4 |   | 210,277 |   | 22.9 |   | 216,629 |   | 20.8 |   |
| Restructuring  and other non-recurring charges         |   | 1,861                          |    | 0.2 |   | — |   | 0.0 |   | — |   | 0.0 |   |
| Income  from operations                                |   | 50,273                         |    | 5.6 |   | 51,088 |   | 5.6 |   | 69,472 |   | 6.7 |   |
| Net  interest expense                                  |   | 42,545                         |    | 4.8 |   | 47,206 |   | 5.1 |   | 51,093 |   | 4.9 |   |
| Net  income                                            |   | 5,354                          |    | 0.6 |   | 2,382 |   | 0.3 |   | 15,252 |   | 1.5 |   |
|                                                        |        |                                |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

13

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**Resultsof Operations—Year ended March 31, 2004 compared to year endedMarch 31, 2003**

 

*Revenues.*    Revenuesfor fiscal 2004 increased 13.1% to $1,040.4 million, compared to $919.9 millionin fiscal 2003. Revenues from our domestic operations increased 12.1% to $970.4million in fiscal 2004, compared to $865.5 million in fiscal 2003 primarily asthe result of an increase in tonnage shipped. The increase in tonnage shipped by our domestic operations wasattributable to increased demand for our products sold to customers in certainkey industries we serve, including oil, gas and energy, fluid power and machinetooling, particularly during the fourth quarter of fiscal 2004. Revenues alsoincreased in fiscal 2004 because prices for product we sold during fiscal 2004were higher than fiscal 2003.  Revenuesfrom our Canadian operations for fiscal 2004 increased 28.7% to $70.0 millioncompared to $54.4 million in fiscal 2003 due to increased capacity and efficienciesfrom new facilities, effective marketing of core products and services, overallimproved economic conditions and favorable currency conversion rates.

 

*GrossProfit.*    Gross profit increased 9.4% to$286.1 million in fiscal 2004, compared to $261.4 million in fiscal 2003. Grossmargin decreased to 27.5% when compared to 28.4% in fiscal 2003. Fiscal 2004included a LIFO charge of $14.3 compared to a $3.4 credit in 2003. Gross profitand gross margin from our Canadian operations were $17.9 million and 25.6% infiscal 2004 compared to $11.6 million and 21.3% in fiscal 2003. Exclusive ofour Canadian operations and LIFO, gross margin increased to 29.1% in fiscal2004, when compared to 28.5% in fiscal 2003; due to successful gross margininitiatives.

 

*Expenses.*    Totaloperating expenses were $216.6 million, or 20.8% of revenues in fiscal 2004,compared to $210.3 million, or 22.9% of revenues in fiscal 2003.  Fiscal 2003 includes a loss of $12.3 millionresulting from early termination of debt. Excluding the loss on earlytermination of debt, the increase in operating expenses generally reflects thechanges in variable expenses impacted by higher tonnage shipped and addedcapacity, including utilities, maintenance, fuel and freight. In addition,fiscal 2004 included higher costs for healthcare and workers compensationinsurance, selling and management incentives and professional services, offsetby income attributable to our corporate-owned life insurance programs and gainson sale of surplus properties. The increase in professional services wasprimarily attributable to accounting, legal and financial advisory fees inconnection with the proposed merger and financial restructuring.

 

Warehouse and deliveryexpenses increased $8.3 million (6.5%) to $135.4 million in fiscal 2004,compared to $127.1 million in fiscal 2003. As a percent of revenues, warehouseand delivery expenses were 13.0% in fiscal 2004, compared to 13.8% in fiscal2003. The increase in these expenses was attributable to higher costs for healthcareand workers compensation insurance and increased expenses for utilities,maintenance, fuel and freight. As of March 31, 2004, warehouse anddelivery activities employed 997 employees, compared to 1,020 as ofMarch 31, 2003.

 

Selling expenses increased$6.0 million (18.6%) to $38.3 million in fiscal 2004, compared to $32.3 millionin fiscal 2003, and increased as a percent of revenues to 3.7% from 3.5% infiscal 2003. The increase in selling expenses was attributable to higheraccruals for incentive compensation due to rapid growth in revenue and grossprofit in the fourth quarter of fiscal 2004, and higher healthcare insurance

 

Generaland administrative expenses, excluding loss on early retirement of debt of$12.3 million in fiscal 2003, increased $4.4 million (11.4%) to $43.0 millionin fiscal 2004, compared to $38.6 million in fiscal 2003. As a percentage ofrevenues, these expenses were 4.1% in fiscal year 2004 and 4.2% in fiscal 2003.The increase in general and administrative expenses was attributable to higherhealthcare and casualty and liability insurance, increase in professionalservices and higher accruals for management incentives, offset by higher incomerecognized in connection with our life insurance policies, currency exchangegains and gains on sale of surplus property.

 

*NetInterest Expense*.    Net interest expensewas $51.1 million in fiscal 2004 and $47.2 million in fiscal 2003. Such amountsinclude interest related to our long-term debt and borrowings against the cashsurrender value of corporate-owned life insurance policies we maintain, and theamortization of debt issue costs ($1.3 million in fiscal 2004 and $1.4 millionin fiscal 2003).

 

During fiscal 2004 theaverage outstanding indebtedness (excluding borrowings against the cashsurrender value of certain life insurance policies) was $361.0 million versus$355.5 million in fiscal 2003. The weighted-average interest rate on suchindebtedness during fiscal 2004 was 7.97% versus 8.01% in fiscal 2003. Theaverage borrowings under our credit facility in fiscal 2004 increased to $104.3million from $96.4 million in fiscal 2003, and the average interest ratedecreased to 4.19% from 4.65% in fiscal 2003. The increase in averageborrowings is reflective of the increased demand and pricing for products wesell. Average inventory during fiscal 2004 increased to $211.3 million (6.1%)compared to $199.1 million in fiscal 2003.

 

14

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The outstandingborrowings against the cash surrender value of life insurance policies were$182.6 million at March 31, 2004 and $165.0 million at March 31,2003, and the total interest expense on such borrowings increased to $20.1million in fiscal 2004 compared to $17.8 million in fiscal 2003. Such increasesresulted primarily from borrowings of $17.7 million against the increased cashsurrender value of life insurance policies in November 2003 to pay annualpremiums on such policies and to pay interest on previous borrowings (see“—Liquidity and Capital Resources” below). As specified in the terms of theinsurance policies, the rates for dividends payable on the policiescorrespondingly increase when borrowings are outstanding under the policies.This increase in dividends is greater than the increase in the associatedinterest expense. Dividend income earned under the policies was $17.8 millionin fiscal 2004, $17.2 million in fiscal 2003 and $13.5 million in fiscal 2002and is reported as an offset to general and administrative expenses in theconsolidated statements of operations.

 

The interest rates on ourexisting senior secured notes and our life insurance policy borrowings arefixed at 9.75% and 11.76%, respectively. The interest rate on our creditfacility is a floating rate (3.74% as of March 31, 2004).

 

**Resultsof Operations—Year ended March 31, 2003 compared to year endedMarch 31, 2002**

 

*Revenues.*    Revenuesfor fiscal 2003 increased 2.8% to $919.9 million, compared to $895.1 million infiscal 2002. Revenues from our domestic operations increased 1.7% to $865.5million in fiscal 2003, compared to $851.4 million in fiscal 2002 as the resultof an increase in tonnage shipped.  Theincrease in tonnage shipped by our domestic operations was attributable toincreased demand for our products sold to customers in certain key industrieswe serve, including machine tooling and products, metal fabrication andwholesale, fluid power, and transportation, particularly during the fourthquarter of fiscal 2003. Prices for product we sold during fiscal 2003 were notsignificantly affected by Section 201 tariffs.  Revenues from our Canadian operations increased 24.5% to $54.4million compared to $43.7 million in fiscal 2002 due to increased capacity andefficiencies from new facilities, effective marketing of core products and servicesand overall improved economic conditions.

 

*GrossProfit.*    Gross profit increased 3.3% to$261.4 million in fiscal 2003, compared to $253.1 million in fiscal 2002. Grossmargin improved to 28.4% when compared to 28.3% in fiscal 2002. Fiscal 2003 includeda LIFO credit of $3.4 million compared to a charge of $0.6 million in fiscal2002. Gross profit and gross margin from our Canadian operations were $11.6million and 21.3% in fiscal 2003 compared to $9.5 million and 21.7% in fiscal2002. Exclusive of our Canadian operations and LIFO, gross margin decreased to28.5% in fiscal 2003, when compared to 28.7% in fiscal 2002; the decrease wasattributable to a 1% increase in material costs, competitive pricing pressures,and changes in customer and product mixes.

 

*Expenses.*    Totaloperating expenses, exclusive of non-recurring charges, were $198.0 million, or21.5% of revenues in fiscal 2003, compared to $200.9 million, or 22.4% ofrevenues in fiscal 2002.  The majorityof our operating expenses is variable and fluctuates with changes in tonnageshipped. During fiscal 2003, expenses related to warehouse and deliveryactivities increased as a result of higher volumes shipped and from costsassociated with added capacity. However, these costs were offset by income attributable to our lifeinsurance programs and adjustments to workers compensation reserves.  The non-recurring charges in fiscal 2002totaling $1.9 million were associated with workforce reductions and costsincurred in connection with facility consolidations.

 

Warehouse and deliveryexpenses increased $2.6 million (2.1%) to $127.1 million in fiscal 2003,compared to $124.5 million in fiscal 2002. As a percent of revenues, warehouseand delivery expenses were 13.8% in fiscal 2003, compared to 13.9% in fiscal2002. The increase in these expenses was attributable to higher depreciation,property tax accruals and insurance costs, increased equipment lease andmaintenance expenses, and higher freight and utilities costs.  Some of the increase in these costs andexpenses is attributable to the expansion and automation of our Chicagofacility, which became operational in July 2002.  As of March 31, 2003, warehouse and delivery activitiesemployed 1,020 employees, compared to 1,055 as of March 31, 2002.

 

Selling expensesincreased $0.4 million (1.3%) to $32.3 million in fiscal 2003, compared to$31.9 million in fiscal 2002, and decreased as a percent of revenues to 3.5%from 3.6% in fiscal 2002. The increase in selling expenses was attributable tohigher accruals for incentive compensation based on revenue and gross profitlevels.

 

Generaland administrative expenses, excluding non-recurring charges, decreased $5.9million (13.3%) to $38.6 million in fiscal 2003, compared to $44.5 million infiscal 2002. As a percentage of revenues, these expenses were 4.2% in fiscalyear 2003 and 5.0% in fiscal 2002. The decrease in general and administrativeexpenses was attributable to higher income recognized in connection with ourlife insurance policies, lower reserves required for workers compensationclaims, and lower professional services and relocation expenses, offset byhigher compensation expense, including accruals for management incentives, andhigher provisions for bad debt. Non-recurring charges of $1.9

 

15

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million included infiscal 2002 were associated with workforce reductions and costs incurred inconnection with facility consolidations.

 

*Losson Early Retirement of Debt. *Werecognized loss on early retirement of debt of $12.3 million in connection withthe early retirement of our 91⁄2% senior notes and term loan, which consisted ofthe call premium paid, a payment to terminate the interest rate swap agreement,the write-off of deferred financing costs, and certain other expenses incurredin connection with the refinancing transaction.  No tax benefit was recorded in connection with this loss due tothe uncertainty in realizing the resulting deferred tax asset.

 

*NetInterest Expense*.    Net interest expensewas $47.2 million in fiscal 2003 and $42.5 million in fiscal 2002. Such amountsinclude interest on our credit facilities, senior secured notes, senior notes,term loan, industrial revenue bonds, borrowings against the cash surrendervalue of certain life insurance policies, and the amortization of debt issuecosts ($1.4 million in fiscal 2003 and $1.8 million in fiscal 2002).

 

During fiscal 2003 theaverage outstanding indebtedness (excluding borrowings against the cashsurrender value of certain life insurance policies) was $355.5 million versus$310.5 million in fiscal 2002. The weighted-average interest rate on suchindebtedness during fiscal 2003 was 8.01% versus 7.09% in fiscal 2002. Theaverage borrowings under our credit facility in fiscal 2003 decreased to $96.4million from $99.2 million in fiscal 2002, and the average interest ratedecreased to 4.65% from 5.13% in fiscal 2002.

 

The outstandingborrowings against the cash surrender value of life insurance policies were$165.0 million at March 31, 2003 and $147.3 million at March 31,2002, and the total interest expense on such borrowings increased to $17.8million in fiscal 2003 compared to $16.0 million in fiscal 2002. Such increasesresulted primarily from borrowings of $18.6 million against the increased cashsurrender value of life insurance policies in November 2002 to pay annualpremiums on such policies and to pay interest on previous borrowings (see“—Liquidity and Capital Resources” below). As specified in the terms of theinsurance policies, the rates for dividends payable on the policiescorrespondingly increase when borrowings are outstanding under the policies.This increase in dividends is greater than the increase in the incrementalborrowing rate. Dividend income earned under the policies was $17.2 million infiscal 2003, $13.5 million in fiscal 2002 and $13.0 million in fiscal 2001 andis reported as an offset to general and administrative expenses in theconsolidated statements of operations.

 

The interest rates on ourexisting senior secured notes and our life insurance policy borrowings arefixed at 9.75% and 11.76%, respectively. The interest rate on our creditfacility is a floating rate (4.03% as of March 31, 2003).

 

Included in fiscal 2002was $2.2 million of net interest paid in quarterly settlements to Deutsche BankTrust Company Americas, or “DBTCA,” pursuant to our interest rate swapagreement covering a notional amount of $95.0 million under our term loan.  Because the interest rate swap agreement wasterminated in May 2002 in connection with the prepayment of the term loan aspart of our senior debt offering, no quarterly settlements were required infiscal 2003.

 

**Liquidityand Capital Resources**

 

Working capital decreasedto $139.5 million at March 31, 2004 when compared to $150.2 million atMarch 31, 2003. The decrease was attributable to an increase in ouraccounts payable and accrued liabilities of $55.2 million resulting fromincreased demand during the fourth quarter of fiscal 2004, offset by higheraccounts receivable of $35.8 million and an increase in our inventory of $11.7million.

 

Primary sources of cashin fiscal 2004 consisted of funds provided by operations of $29.5 million andproceeds from sale of assets of $1.5 million. Primary uses of cash in fiscal2004 consisted of (i) capital expenditures of $10.5 million, (ii) dividends toHolding of $5.8 million for the redemption of stock from retired and terminatedemployees, and (iii) net payments under the revolving loan agreement of $19.4million.

 

Cash generated from operatingactivities was $29.5 million (2.8% of revenues) in fiscal 2004 compared to$31.0 million (3.4% of revenues) in fiscal 2003 and $14.5 million (1.6% ofrevenues) in fiscal 2002.

 

The redemption of $5.8million of capital stock from retiring and terminated employees was required bythe terms of our stock bonus plan and by Holding’s Stockholders’ Agreement.This amount was lower than the amount paid in fiscal 2003 and lower than theamount paid in fiscal 2002 due to the timing of distributions, the number andmix of shares being purchased and changes in stock prices. We expect that suchredemptions for fiscal 2005 will be similar to those paid in

 

16

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fiscal 2004, although theamount or timing of such expenditures is not within our control and there canbe no assurance in this regard.

 

Capital expenditures were$10.5 million in fiscal 2004, $15.3 million in fiscal 2003 and $24.5 million infiscal 2002. Capital expenditures in fiscal 2004 were primarily for routinereplacement of machinery and equipment, facility improvements and expansions,including the expansion and automation of our facility in Chicago and thepurchase of computer hardware and software. For fiscal 2005, we have plannedapproximately $22.1 million of capital expenditures to be financed frominternally generated funds and borrowings under our credit facility.Approximately $12.6 million is for facility improvements and expansions(including a commitment of approximately $8.8 million for the purchase of newor expanded facilities in Houston, Texas, Wrightsville, Pennsylvania andBirmingham, Alabama) and routine replacement of machinery and equipment, and$1.5 million is for further additions and enhancements to our managementinformation systems. We have requested an amendment to the covenants in ourcredit facility to permit the budgeted capital expenditures that we expect willbe granted by our lenders.

 

As of March 31, 2004our primary sources of liquidity were available borrowings of approximately$139.8 million under our credit facility, available borrowings of approximately$10.3 million against certain life insurance policies and internally generatedfunds. Borrowings under our credit facility are secured by our domesticinventory and accounts receivable, and future availability under the facilityis determined by prevailing levels of such accounts receivable and inventory.The senior secured notes are secured by a first-priority lien on a substantialportion of our current and future acquired unencumbered real property, plantand equipment. The life insurance policy loans are secured by the cashsurrender value of the policies and are non-recourse. The interest rate on thelife insurance policy loans is 0.5% greater than the dividend income rate onthe policies. As of March 31, 2004, there was approximately $34.7 millionof cash surrender value in all life insurance policies maintained, net ofborrowings. In addition, our Canadian subsidiary has available its own creditfacilities of up to CAD$9.0 million, including a revolving credit facility ofCAD$5.5 million, a term financial instruments facility of CAD$3.0 million, tobe used for hedging foreign currency and rate fluctuations, and a specialcredit facility of CAD$0.5 million for letters of guaranty in connection with alease for our facility in Toronto. As of March 31, 2004, CAD$2.4 million(USD$1.9 million) was outstanding under the revolving credit facility and aletter of guaranty for CAD$0.5 million (USD$0.4 million) was issued.  None of the term financial instrumentsfacility was used as of March 31, 2004.

 

Our ongoing debt serviceobligations are expected to consist primarily of interest payments under ourcredit facility, interest payments on our senior secured notes and principal andinterest payments on industrial revenue bonds. As of March 31, 2004,annual principal payments required by our outstanding industrial revenue bondsindebtedness amount to $2.1 million in fiscal year 2005, $1.2 million in fiscal2006, $0.7 million in fiscal years 2007, 2008 and 2009 and $0.7 million in theaggregate thereafter through fiscal year 2010. We will not be required to makeany principal payments on our senior secured notes until their maturity infiscal 2013. Our credit facility, as amended, will mature in April 2006.Our credit facility has covenants that require maintenance of minimum workingcapital and a fixed-charge coverage ratio; and although compliance with suchcovenants in the future is largely dependent on the future performance of ourcompany and general economic conditions, for which there can be no assurance,we expect to be in compliance with all of our debt covenants for theforeseeable future.

 

Thefollowing table summarizes our contractual cash obligations as ofMarch 31, 2004. Certain of these contractual obligations arereflected on our balance sheet, while others are disclosed as futureobligations.

 
|                             |   | **Payments  Due By Period** |    |
|----------------------------------|--------|-----------------------------|---------|
| **Contractual Obligations**      |   | **Total**                   |    | **Fiscal  2005** |   | **Fiscal  2006** |   | **Fiscal  2007** |   | **Fiscal  2008** |   | **Fiscal  2009** |   | **Thereafter** |   |
|                             |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term  debt                  |   | $                           | 309,738 |   | $ | 3,976 |   | $ | 1,215 |   | $ | 52,392 |   | $ | 715 |   | $ | 715 |   | $ | 250,725 |   |
| Capital  lease obligations       |   | —                      |    | — |   | — |   | — |   | — |   | — |   | — |   |
| Operating  leases (a)            |   | 100,054                     |    | 18,422 |   | 14,315 |   | 10,323 |   | 7,337 |   | 5,718 |   | 43,939 |   |
| Purchase  obligations            |   | —                      |    | — |   | — |   | — |   | — |   | — |   | — |   |
| Other  long-term liabilities (b) |   | 7,638                       |    | 875 |   | 900 |   | 925 |   | 950 |   | 675 |   | 3,313 |   |
| Total                            |   |                        | $       | 417,430 |   | $ | 23,273 |   | $ | 16,430 |   | $ | 63,640 |   | $ | 9,002 |   | $ | 7,108 |   | $ | 297,977 |   |
|                                  |        |                             |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| (a) |   | Excludes sublease  income of $7,960, $711, $816, $828, $840, $845 and $3,920 for the above  periods, respectively.                                                                                                                                                        |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | Includes estimated  annual payments based on prior years trended amounts for postretirement  benefits; and; estimated annual payments of $700 over the next four years and  $400 thereafter to meet ERISA minimum pension funding requirements beginning  in fiscal 2004. |

 

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We believe our sources ofliquidity and capital resources are sufficient to meet all currently anticipatedworking capital requirements, and all known commitments and obligations;however, we anticipate that it will be necessary to replace or to refinance allor a portion of our credit facility and the senior secured notes prior to theirscheduled maturities in fiscal years 2006 and 2012, respectively, althoughthere can be no assurance on what terms, if any, that we would be able toobtain such refinancing or additional financing. Our ability to make interestpayments on our credit facility and our notes will be dependent on maintainingthe level of performance reflected in the accompanying consolidated financialstatements, which will be dependent on a number of factors, many of which arebeyond our control, and the continued availability of revolving creditborrowings. Our earnings were sufficient to cover fixed charges for fiscalyears 2002, 2003 and 2004.

 

**ForeignExchange Exposure**

 

The currency used by ourforeign subsidiaries is the applicable local currency. Exchange adjustmentsresulting from foreign currency transactions are recognized in net earnings,and adjustments resulting from the translation of financial statements areincluded in accumulated other comprehensive loss within stockholder’s equity.We do not expect to hedge our exposure to foreign currency fluctuations in theforeseeable future. Net foreign currency transaction gains or losses have notbeen material in any of the periods presented. See “Item 1. Business—Foreign Operations.”

 

## **Inflation**

## ** **

Our operations have notbeen, nor are they expected to be, materially affected by inflation.Historically, we have been successful in adjusting prices to our customers toreflect changes in metal prices.

 

**CriticalAccounting Policies**

 

Management’s Discussionand Analysis of Financial Position and Results Of Operations discusses ourconsolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these financial statements requires management tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses and related disclosure of contingent assetsand liabilities.  Actual results coulddiffer significantly from those estimates and judgments under differentassumptions and conditions.  Managementbelieves the critical accounting policies and areas that require the mostsignificant judgments and estimates to be used in the preparation of theconsolidated financial statements are revenue recognition, allowance fordoubtful accounts, inventory reserves, pension and other postretirementbenefits, insurance reserves, incentive compensation, contingencies and incometax accounting.  There have been nomaterial changes made to the critical accounting policies during the periodspresented in the Consolidated Financial Statements.

 

Management has discussedthe development and selection of the critical accounting policies describedbelow with the Audit Committee of the Board of Directors, and the AuditCommittee has reviewed the Company’s disclosure relating to critical accountingpolicies in this Management’s Discussion and Analysis of Financial Conditionand Results of Operations.

 

*RevenueRecognition*

* *

We recognize revenue whenproducts are shipped to our customers, title has passed and collectibility isreasonably assured. Revenues are shown net of returns and allowances, whichhistorically have been less than 0.2% of gross revenues.

 

*AccountsReceivable and Allowances for Doubtful Accounts*

* *

Accounts receivableconsist primarily of amounts due to us from our normal business activities.Allowances for doubtful accounts are established based on estimates of lossesrelated to customer receivable balances. Estimates are developed by using formulas or standard quantitativemeasures based on accounts aging, historical losses (adjusted for currenteconomic conditions) and, in some cases, evaluating specific customer accountsfor risk of loss. The establishment of reserves requires the use of judgmentand assumptions regarding the potential for losses on receivable balances.  Our provision for estimated losses and ourwrite-offs for doubtful accounts recorded during each of the three fiscal yearsended March 31, 2004 was less than 0.5% of the respective years’ annualrevenues.  However, significant changesin economic conditions in specific markets in which we operate could have amaterial effect on required reserve balances.

 

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*InventoryReserves*

* *

Inventories largelyconsist of raw material purchased in bulk quantities from various millsuppliers to be sold to our customers. An allowance for excess inventory ismaintained to reflect the expected unsaleability of specific inventory itemsbased on condition, recent sales activity and projected market demand, and hasrepresented less than 2% of our total inventory as of March 31, 2002, 2003and 2004.

 

*Pension and Postretirement Benefits*

 

Our pension andpostretirement benefit costs and credits are developed from actuarialvaluations. Inherent in these valuations are key assumptions including discountrates and expected return on plan assets. We are required to consider currentmarket conditions, including changes in interest rates, in selecting theseassumptions. Changes in the related pension and postretirement benefit costs orcredits may occur in the future due to changes in the assumptions, in additionto changes resulting from fluctuations in our related headcount. In fiscal 2004we committed to make additional annual contributions of $700,000 to our HourlyEmployee Pension Plan commencing in fiscal 2005 as a result of changes inassumptions.

 

*InsuranceReserves*

* *

Our insurance forworker’s compensation, general liability, vehicle liability and health care areeffectively self-insured. A third-party administrator is used to process allsuch claims. Claims for worker’s compensation are used, along with otherfactors, by our third-party administrator to establish reserves required tocover our worker’s compensation liability. We also maintain reserves to cover expected medical claims to be paidsubsequent to the end of a plan year or upon termination of the plan. Ourreserves associated with the exposure to these self-insured liabilities arereviewed by management and third-party actuaries for adequacy at the end ofeach reporting period.

 

*IncentiveCompensation*

 

Management incentiveplans are tied to various financial performance metrics. Bonus accruals madethroughout the year based on management’s best estimate of the achievement ofthe specific financial metrics. Adjustments to the accruals are made on aquarterly 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 toproceedings, lawsuits and other claims related to environmental, labor, productand other matters. We assess the likelihood of any adverse judgments oroutcomes to these matters as well as potential ranges of probable losses. Adetermination of the amount of reserves required, if any, for thesecontingencies are made after careful analysis of each individual issue. Therequired reserves may change in the future due to new developments in eachmatter or changes in approach such as a change in settlement strategy indealing with these matters.

 

*IncomeTaxes*

 

We estimate our currenttax liability after considering our temporary differences resulting fromdiffering treatment of items, such as depreciation, for tax and accountingpurposes. These temporary differences result in deferred tax assets andliabilities. We then assess the likelihood that our deferred tax assets will berecovered from future taxable income and to the extent we believe that recoveryis not likely, we will establish a valuation allowance. To the extent we establisha valuation allowance or increase this allowance in a period, we will includeand expense the allowance within the tax provision in the statement ofoperations.  Significant managementjudgment is required in determining our provision for income taxes, ourdeferred tax assets and liabilities and any valuation allowance recordedagainst our net deferred tax assets.

 

## **Item7A**.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

## ** **

In the ordinary course ofbusiness, we are exposed to various market risk factors caused by changes incommodity prices, interest rates and foreign currency exchange rates.  We do not use financial instruments or enterinto hedging transactions for speculative or trading purposes with respect tomanaging these market risks.  However,we have used and will continue to evaluate the use of financial instruments toreduce our exposure to higher interest costs during periods of rising interestrates.

 

19

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At March 31, 2004and March 31, 2003, no financial instruments existed; at March 31,2002, our only financial instrument was a fixed rate interest rate swapagreement covering $95.0 million of our Term Loans, which was terminated inconnection with the repayment of the Term Loans during fiscal 2003.  See “Item 7.  Management’s Discussion and Analysis of Financial Condition andResults of Operations”.  Our exposure tochanging interest rates is limited to our revolving credit facility such thatour results of operations and cash flows during fiscal 2004 would have beenimpacted by approximately $1.0 million for each 1% increase or decrease in theapplicable interest rate.

 

Our exposure to marketrisk for changes in foreign currency exchange rates is limited to our Canadianoperations and the Canadian dollar. We estimate that a 10% change in theaverage exchange rate of the Canadian dollar during fiscal 2004 would haveimpacted our results of operations by approximately $0.4 million. Due to ourproduct mix and the frequency of our buying and selling activities over normalbusiness cycles, our exposure to changes in commodity prices is not consideredmaterial.

 

**Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA**

 

Financial statements andsupplementary data required by this Item 8 are set forth as indicated in Item15(a)(1) and (2) below.

 

**Item 9.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**Item 9A. CONTROLS AND PROCEDURES**

 

As of the end of theperiod covered by this report, an evaluation was carried out by our ChiefExecutive Officer and Chief Financial Officer, with the assistance of othermembers of management, of the effectiveness of disclosure controls andprocedures (as defined in Rule 15d-14(c) under the Securities Exchange Actof 1934). Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that, as of the period covered by this report, thedisclosure controls and procedures were effective in ensuring that all materialinformation required to be disclosed by the Company in the reports filed orfurnished by us under the Securities Exchange Act of 1934, as amended, wasgathered, analyzed and reported or otherwise made known to them and othermembers of management, as appropriate to allow timely decisions regardingrequired disclosure.

 

There have been nosignificant changes in our internal controls, or in other factors that couldsignificantly affect these controls, subsequent to the date the evaluation wascompleted.

 

Notwithstanding theforegoing, the Company has engaged an independent contractor to review itssystems of disclosure controls and procedures, including internal control overfinancial reporting, in preparation for management’s assessment and theindependent auditor’s attestation regarding the effectiveness of our internalcontrol over financial reporting as of March 31, 2004, as required bySection 404 of the Sarbanes-Oxley Act of 2002.  Such review is ongoing and the work of the contractor is beingreviewed and monitored by the Audit Committee of our Board of Directors.

 

We have adopted a code ofethics for our Chief Executive Officer, as principal executive officer, and ourChief Financial Officer as our senior financial officer pursuant toSection 406 of the Sarbanes–Oxley Act of 2002.  We filed such code of ethics document as Exhibit 10.22 to ourAnnual Report on Form 10-K for the fiscal year ended March 31, 2003 andwill provide a copy to any person without charge upon written request to ourSecretary.  We have also established aconfidential hotline to allow persons to report, without fear of retaliation,any inappropriate acts or omissions affecting our financial statements,internal controls and accounting policies or practices.

#### ** **

#### **PART III**

#### ** **

**Item 10. DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

 

The following table setsforth the name, age (at March 31, 2004), principal occupation and businessexperience of each of our directors and executive officers. Holding’s directorsand executive officers are identical to ours. The executive officers serve atthe pleasure of the board of directors of EMJ and Holding, respectively.

 

Each member of our boardof directors holds office until the next annual meeting of the stockholders oruntil his successor is elected and qualified. The election of Holding’sdirectors is subject to the provisions of a stockholders’ agreement describedbelow.  During fiscal 2004, the board ofdirectors had four regular meetings and one special meeting.

 

There are no familyrelationships among our directors and executive officers. For informationregarding the stock ownership of Holding by our directors and executiveofficers, we refer you to “Item 12. Security Ownership of Certain BeneficialOwners and Management.”

 

From 1998 through 2001,each non-officer director other than Messrs. Schuchert and Nickell was grantedoptions to purchase 10,000 shares of Holding Common Stock at their fair marketvalue as established by the most recent appraisal available at the date ofgrant. These options are fully vested. Beginning April 1, 2002, we changed our policies on compensationfor directors so that each of our non-officer directors now receives an annualretainer 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 ExecutiveCommittee and Chairman of the Board, Mr. Roderick was granted options topurchase 20,000 shares of Holding Common Stock, in each case at their fairmarket value as established by the most recent appraisal available at the dateof the grant. These options are fully vested. Beginning April 1,2002,  as a result of our changedpolicies, Mr. Roderick now receives an annual retainer of $30,000, payablequarterly.  BeginningApril 1, 2005, we increased the annual retainer for the Chairman of theAudit Committee to $25,000, payable quarterly.

 

In addition, allnon-officer directors are reimbursed for all approved out-of-pocket expensesrelated to meetings they attend. Our directors receive no additionalcompensation for their services as directors of Holding. Our officers who serveas directors do not receive compensation for their services as directors otherthan the compensation they receive as officers.

 

20

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| **Name**               |   | **Age** |   | **Position**                                                                                                     |
|------------------------|--------|---------|--------|------------------------------------------------------------------------------------------------------------------|
| David M. Roderick      |   | 80      |   | Chairman of the Board  and Chairman of the Executive Committee and Director                                      |
|                   |   |    |   |                                                                                                             |
| Maurice S. Nelson, Jr. |   | 66      |   | President, Chief  Executive Officer and Chief Operating Officer, Director and Member of the  Executive Committee |
|                   |   |    |   |                                                                                                             |
| R. Neil McCaffery      |   | 54      |   | Executive Vice  President                                                                                        |
|                   |   |    |   |                                                                                                             |
| William S. Johnson     |   | 46      |   | Vice President and  Chief Financial Officer (Principal Financial and Accounting Officer) and  Secretary          |
|                   |   |    |   |                                                                                                             |
| Frank D. Travetto      |   | 51      |   | Vice President,  Merchandising                                                                                   |
|                   |   |    |   |                                                                                                             |
| Kenneth L. Henry       |   | 57      |   | Vice President                                                                                                   |
|                   |   |    |   |                                                                                                             |
| James D. Hoffman       |   | 45      |   | Vice President                                                                                                   |
|                   |   |    |   |                                                                                                             |
| William A. Marquard    |   | 84      |   | Director and Member of  the Audit Committee                                                                      |
|                   |   |    |   |                                                                                                             |
| Earl L. Mason          |   | 56      |   | Director and Chairman  of the Audit Committee                                                                    |
|                   |   |    |   |                                                                                                             |
| Frank T. Nickell       |   | 56      |   | Director and Member of  the Executive Committee                                                                  |
|                   |   |    |   |                                                                                                             |
| John Rutledge          |   | 55      |   | Director and Member of  the Audit Committee                                                                      |
|                   |   |    |   |                                                                                                             |
| David I. Wahrhaftig    |   | 47      |   | Director                                                                                                         |

 

*DavidM. Roderick.*    Mr. Roderick becameChairman of the Board of EMJ and Holding on January 21, 1998. Mr. Roderickhas also served as Chairman of the Executive Committee of EMJ and Holding sinceFebruary 1, 1997. Mr. Roderick has been a director of EMJ and Holdingsince January 1994. Mr. Roderick also serves as a director of Citation andKelso & Companies, Inc. Previously, Mr. Roderick served as a director ofAmerican Standard Companies, Inc. and as Director, Chairman, and ChiefExecutive Officer of the USX Corporation. Mr. Roderick joined USX in 1959, wasChairman of USX Finance Committee and a Director from 1973 to 1975, wasPresident and Director from 1975 until 1979 and was Chief Executive Officer andChairman from 1979 to 1989.

 

*MauriceS. Nelson, Jr.*    Mr. Nelson was electedPresident, Chief Executive Officer and Chief Operating Officer and a directorof EMJ and Holding effective February 1, 1997. Before that, Mr. Nelsonserved as President, Chief Executive Officer and Chief Operating Officer ofInland Steel Company from 1992 until April 1996. Before that, Mr. Nelsonwas the President of the Aerospace and Commercial division of the AluminumCompany of America (Alcoa) from 1987 to 1992.

 

*R.Neil McCaffery.*    Mr. McCaffery has beenour Executive Vice President since March 2001. Before that, Mr. McCafferywas our Vice President Western Region since March 1997 and our VicePresident Southern Region since April 1996.

 

*WilliamS. Johnson*.    Mr. Johnson has been ourVice President and Chief Financial Officer and Secretary sinceJanuary 1999. Before that, Mr. Johnson was EMJ’s Controller sinceFebruary 1995 and was EMJ’s Assistant Controller since February 1994.Prior to that, Mr. Johnson was the Corporate Finance Manager for SeverinMontres, Ltd. since 1991. Severin Montres, Ltd., owned by Gucci Group N.V., wasthe manufacturer and distributor of Gucci watches.

 

*FrankD. Travetto.*    Mr. Travetto has been ourVice President Merchandising since March 1997. Before that, Mr. Travettowas EMJ’s Vice President Western Region since 1996, EMJ’s Vice PresidentEastern Region from 1992 to 1996, and EMJ’s Division President, CanadianOperations from 1990 to 1992.

 

*KennethL. Henry.*    Mr. Henry has been ourExecutive Vice President responsible for operating our Dallas, Houston andTulsa facilities since July, 2003. Before that, Mr Henry was our Vice Presidentresponsible for operating our Chicago and Quad Cities facilities sinceJanuary 1998. Before that, Mr. Henry was EMJ’s Vice President CentralRegion since 1995. Before that, Mr. Henry was our Vice President Southern Regionsince 1992, and Vice President of the Kilsby-Roberts Division of EMJ fromApril 1990 to 1992.

 

*JamesD. Hoffman.*    Mr. Hoffman has been ourVice President since March 2001 and has been responsible for operations ofour Cleveland, Indianapolis and Cincinnati facilities since March 2001.Before that, Mr. Hoffman was our Vice President Eastern Region sinceJuly 1996. Before that, Mr. Hoffman was District Manager for our Clevelandand Buffalo operations since June 1992.

 

21

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*WilliamA. Marquard.*    Mr. Marquard has been adirector of EMJ since March 1990, and a director of Holding since May1990. Mr. Marquard also serves as a director and Chairman of the Board ofArkansas Best Corporation, as a director of Kelso & Companies, Inc., and asa director of InfraReDx, Inc.

 

*EarlL. Mason.*    Mr. Mason has been adirector of EMJ and Holding since January 2002. Mr. Mason retired fromAlliant Exchange (formerly the distribution business of Kraft Foods), afterserving as Chief Executive Officer and President since April 1999. Beforethat, Mr. Mason was Senior Vice President and Chief Financial Officer of CompaqComputer Corporation from May 1996 to April 1999 and held the position ofSenior Vice President and Chief Financial Officer of Inland Steel Industriesfrom June 1991 to May 1996. Mr. Mason also served as Group Executive ofDigital Equipment Corporation from June 1990 to June 1991 and asChief Financial Officer of its European subsidiary from October 1987 toJune 1990, and held various positions over 15 years at AT&TCorporation. Mr. Mason is also a director of Computer Horizons Corporation. Mr.Mason previously served as a director of the Eye Ticket Corporation.

 

*FrankT. Nickell.*    Mr. Nickell has served asdirector of EMJ and Holding since August 1993. He has been President and adirector of Kelso & Companies, Inc. since March 1989 and ChiefExecutive Officer of Kelso & Companies, Inc. since September 1997.Kelso & Companies, Inc. is the general partner of Kelso & Company. Heis also a director of The Bear Stearns Companies Inc. and BlackRock, Inc.

 

*JohnRutledge.*    Dr. Rutledge has been adirector of EMJ and Holding since June 1992. Dr. Rutledge is the founderof Rutledge & Company, Inc., a merchant banking firm, and has been Chairmansince January 1991. He is the founder of Claremont Economics Institute,and has been its chairman since January 1979. Dr. Rutledge is also adirector of The Amerindo Fund and CROM Corporation.

 

*DavidI. Wahrhaftig.* Mr. Wahrhaftig has been a director of EMJ andHolding since July 2003. Mr. Wahrhaftig has been a Managing Director ofKelso & Company and a director of Kelso & Companies, Inc. sinceApril 1997, after joining the firm in 1987. Mr. Wahrhaftig is also adirector of Endo Pharmaceuticals, Inc. and BWAY Corporation.

 

**Committees of the Board**

 

Our By-Laws specifically provide thatthe Board may delegate responsibility to committees.  During fiscal 2004, the Board had two standing committees: anAudit Committee and an Executive Committee. In connection with the proposed merger and financial restructing,Holding created a Special Committee to evaluate and negotiate a transaction onbehalf of the stockholders other than Kelso. In fiscal 2004, the AuditCommittee met four (4) times, the Executive Committee did not meet and theSpecial Committee met eight (8) times.

 

*Audit Committee*

 

The members of the AuditCommittee (Messrs.  Mason (Chairman),Marquard and Rutledge) are non-employee directors and, exceptfor Mr. Marquard (who may be deemed to be affiliated with Kelso),are “independent” as defined in the listing standards for the New York StockExchange.  Based on Mr. Mason’sbackground and experience, our Board determined that he meets the definition of“financial expert” as required under Section 407 of the Sarbanes–Oxley Actof 2002 in connection with his services on the Audit Committee.

 

The Audit Committee andour Board have adopted a written charter (filed as Exhibit 10.22  to this report) under which the AuditCommittee serves the Company’s Board of Directors by providing oversightfunctions include:

 

•                  selecting,evaluating and, where appropriate, replacing the outside auditor;

•                  pre-approvingall auditing services and permissible non-audit services provided to thecompany by the outside auditor;

•                  reviewingwith the outside auditor and with management the proposed scope of the annualaudit, past audit experience, the company’s program for the internalexamination and verification of its accounting records and the results ofrecently completed internal examinations;

•                  reviewingany significant disagreements between management and the outside auditor inconnection with the preparation of the financial statements; and

•                  discussingthe quality and adequacy of the company’s internal controls with management,the internal auditors and the outside auditor.

 

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The Audit Committee shallmeet at least four times per year to carry out its responsibilities, includingonce to review the audit plan of the internal auditor, once to review the auditplan of the principal accountant, once to review the annual financialstatements prior to issuance, and once to review the post-audit findings of theinternal and independent auditors.

 

The Audit Committee has receivedreports and met and held discussions with management and the independentauditors.  The Audit Committee hasreviewed and discussed our audited financial statements with management.  The Audit Committee has discussed with theindependent auditors the matters required to be discussed by Statement onAuditing Standards No. 61 (as amended), SEC rules and other standards.  The Audit Committee has received the writtendisclosures and letter from the independent auditors pursuant to Rule 3600T ofthe Public Company Oversight Board, which adopts on an interim basisIndependence Standards Board Standard No. 1, and has discussed with theindependent auditors the independent auditor’s independence.

 

Based upon the AuditCommittee’s review of our consolidated financial statements, their discussionswith management and the independent auditors, andthe representation of management that such financial statements were preparedin accordance with accounting principles generally accepted in the UnitedStates,the Audit Committee recommended that such financial statements beincluded in this Report on Form 10-K for the year ended March 31, 2004.

 

*TheExecutive Committee*

* *

The members of the ExecutiveCommittee are Messrs. Roderick (Chairman), Nickell and Nelson.  The Executive Committee was delegated theauthority to take any action that could be taken by the Board to the maximumextent permitted by Delaware General Corporation Law.  The Executive Committee did not meet or take any action bywritten consent in fiscal 2004.

 

*SpecialCommittee*

* *

The Special Committee wasformed by Holding’s board of directors to evaluate, negotiate and implement arestructuring of Holding.  The committeeconsists of two directors, Messrs. Mason and Nelson, who are independent ofKelso.  The Special Committee met eight(8) times in fiscal 2004 and its members had extensive discussions apart fromsuch meetings with its financial advisor and legal counsel.

 

**Stockholders’ Agreement**

 

Our By-laws provide forone to ten directors. Our board of directors currently consists of sevendirectors. Certain of Holding’s shareholders have agreed, pursuant to theStockholders’ Agreement, dated as of September 14, 1990, as amended, orthe “Stockholders’ Agreement,” that two directors will be designated by theManagement Stockholders (as defined in the Stockholders’ Agreement), so long asthey are reasonably acceptable to Kelso Investment Associates IV, L.P., or “KIAIV,” an affiliate of Kelso & Company, and that at least five directors willbe designated by KIA IV. Mr. Nelson has been designated by the ManagementStockholders. In addition, the holders of Series A Preferred Stock of Holdingare entitled to designate one director pursuant to the terms of the Series APreferred Stock and Mr. Mason is currently serving in that capacity. TheStockholders’ Agreement also provides that in the event of termination ofemployment, under certain circumstances, each Management Stockholder isentitled to sell, and Holding can require such a Management Stockholder tosell, their shares of Holding Common Stock to Holding at their appraised FairMarket Value (as defined in the Stockholders’ Agreement). The Stockholders’Agreement expires on March 24, 2008.

 

**Item 11. EXECUTIVE COMPENSATION**

 

The following table setsforth compensation for the three fiscal years ended March 31, 2004 for ourChief Executive Officer and our four most highly compensated executive officersas of March 31, 2004. Our officers receive no additional compensation fortheir services as officers of Holding.

 

23

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**Summary Compensation Table**

 
|                                                            |   | **Annual  Compensation** |   | **Long-Term  Compensation Awards** |    |         |   |
|-----------------------------------------------------------------|--------|--------------------------|--------|------------------------------------|---------|--------------|--------|
| **Name and Principal Position**                                 |   | **Year**                 |   | **Salary**                         |    | **Bonus(1)** |   | **Securities Underlying  Stock Options/SAR(2)** |   | **All Other  Compensation(3)** |   |
| Maurice  S. Nelson, Jr.                                         |   | 2004                     |   | $                                  | 551,326 |         | $      | 452,504 |   | — |   | $ | 55,500 |   |
| President,  Chief Executive Officer and Chief Operating Officer |   | 2003                     |   | 555,762                            |    | 374,388      |   | — |   | 52,049 |   |
|                                                            |   | 2002                     |   | 555,762                            |    | 270,738      |   | — |   | 47,150 |   |
|                                                            |   |                     |   |                               |    |         |   |   |   |   |   |
| Frank  D. Travetto                                              |   | 2004                     |   | 245,987                            |    | 172,491      |   | — |   | 25,769 |   |
| Vice  President, Merchandising                                  |   | 2003                     |   | 244,460                            |    | 142,714      |   | 10,000 |   | 25,273 |   |
|                                                            |   | 2002                     |   | 238,070                            |    | 99,659       |   | 10,000 |   | 23,233 |   |
|                                                            |   |                     |   |                               |    |         |   |   |   |   |   |
| Kenneth  L. Henry                                               |   | 2004                     |   | 245,171                            |    | 177,187      |   | — |   | 28,714 |   |
| Executive  Vice President                                       |   | 2003                     |   | 235,442                            |    | 136,161      |   | 10,000 |   | 27,355 |   |
|                                                            |   | 2002                     |   | 226,978                            |    | 94,921       |   | 10,000 |   | 25,397 |   |
|                                                            |   |                     |   |                               |    |         |   |   |   |   |   |
| R.  Neil McCaffery                                              |   | 2004                     |   | 223,316                            |    | 156,650      |   | — |   | 22,440 |   |
| Executive  Vice President                                       |   | 2003                     |   | 220,960                            |    | 129,608      |   | 10,000 |   | 20,418 |   |
|                                                            |   | 2002                     |   | 212,600                            |    | 90,182       |   | 10,000 |   | 18,220 |   |
|                                                            |   |                     |   |                               |    |         |   |   |   |   |   |
| James  D. Hoffman                                               |   | 2004                     |   | 224,975                            |    | 156,650      |   | — |   | 21,552 |   |
| Vice  President                                                 |   | 2003                     |   | 222,497                            |    | 129,608      |   | 10,000 |   | 19,588 |   |
|                                                            |   | 2002                     |   | 214,137                            |    | 90,182       |   | 10,000 |   | 17,313 |   |
|                                                                 |        |                          |        |                                    |         |              |        |  |  |  |  |  |  |  |

 

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| (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 2003 and 2002 have an exercise  price of $7.78 and $8.16  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 2004 for Messrs. Nelson, Travetto, Henry, McCaffery and  Hoffman, respectively (i) 401(a)(17) Plan—$40,126, $10,855, $10,888, $8,940  and $8,940; (ii) long term disability—$4,668, $3,745, $6,779, $3,006 and  $2,318; (iii) life insurance—$706, $1,169, $1,047, $494 and $294. The  following allocations were made in fiscal 2003 for Messrs. Nelson, Travetto,  Henry, McCaffery and Hoffman, respectively (i) stock bonus plan—$10,000,  $10,000, $10,000, $10,000, and $10,000; (ii) 401(a)(17) Plan—$36,220, $9,261,  $8,372, $7,483 and $7,483; (iii) long term disability—$4,509, $3,745, $6,779,  $2,133 and $1,623; (iv) life insurance—$1,320, $2,267, $2,204, $802 and $482.  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 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 we 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. |

 

**HoldingStock Option Plan**

 

In fiscal 1998, Holdingadopted the Earle M. Jorgensen Holding Company, Inc. Stock Option Plan, asamended, or the “Stock Option Plan.” Our board of directors or its ExecutiveCommittee is authorized to grant options under the Stock Option Plan. No stockoptions shall be granted under the Stock Option Plan after the date that is 10years after the effective date of the Stock Option Plan. Stock options may begranted at not less than 100% of the fair market value of Holding Common Stockon the date of grant and are generally exercisable for a period not exceedingten years. Option grants or the vesting of options may be contingent upon suchterms and conditions, such as the achievement of performance measures or uponthe passage of time, as our board or Executive Committee determines. Our boardor Executive Committee will make grants under the Stock Option Plan to provideour executive officers and certain other managers with additional incentivesfor outstanding individual performance and the opportunity to acquire anownership stake in the Company, thereby more closely aligning their interestswith those of the stockholders.

 

We have the right, if theholders of options agree, to grant replacement options which may contain termsmore favorable than the options they replace, such as a lower exercise price,and cancel the replaced options.

 

The aggregate number ofshares of Holding Common Stock available for grants or subject to outstandingoptions, and the respective prices and/or vesting criteria applicable tooutstanding options, will be proportionately adjusted to reflect any stockdividend 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 pricesubstantially below its fair market value. To the extent deemed appropriate byour board or Executive Committee, subject to any required action by the stockholders,in any merger, consolidation, reorganization, liquidation, dissolution, orother similar transaction, any option granted under the Stock Option Plan shallpertain to the securities and any other property to which a holder of thenumber of shares of Common Stock covered by the option would have been entitledto receive in connection with such event.

 

24

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

 

Generally, a participantwho is granted a stock option will not be subject to federal income tax at thetime of grant and we will not be entitled to a tax deduction by reason of suchgrant. Upon exercise of a nonqualified option, generally the difference betweenthe option price and the fair market value of the Holding Common Stock on thedate of exercise will be considered ordinary income to the participant andgenerally we will be entitled to a corresponding tax deduction.

 

Upon exercise of an incentivestock option, no taxable income will be recognized by the participant and weare not entitled to a tax deduction by reason of such exercise. However, ifHolding Common Stock purchased pursuant to the exercise of an incentive stockis sold within two years from the date of grant or within one year after thetransfer of such Holding Common Stock to the participant, then the difference,with certain adjustments, between the fair market value of the Holding CommonStock at the date of exercise and the option price will be considered ordinaryincome to the participant and generally we will be entitled to a correspondingtax deduction. If the participant disposes of the Holding Common Stock aftersuch holding periods, any gain or loss upon such disposition will be treated asa capital gain or loss and we will not be entitled to a deduction.

 

T  he maximum number of shares ofHolding Common Stock reserved for issuance under the Stock Option Plan is2,500,000, subject to adjustment as provided in the Stock Option Plan toreflect certain corporate transactions affecting the number or type ofoutstanding shares. As of March 31, 2004, there were 2,101,000 optionsoutstanding at a weighted average exercise price of $5.84 per share.

 

**Stock Option Grants Table**

 

There were no stockoptions granted in fiscal 2004.

 

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

* *

The following table setsforth certain information concerning stock options exercised during fiscal 2004by the Chief Executive Officer and our next four most highly compensatedexecutive officers, and the value of their unexercised stock options as ofMarch 31, 2004.

 

**AggregateOption Exercises in Last Fiscal Year and Fiscal Year-End Option Values**

 
|                   |   | **Shares  Acquired on** |   | **Value**             |   | **Number of Securities  Underlying Options  at Fiscal Year-End** |   | **Value of In-the-Money  Options at  Fiscal Year-End(1)** |   |
|------------------------|--------|------------------------------|--------|-----------------------|--------|----------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|
| **Name**               |   | **Exercise  (#)**            |   | **Realized ($)** |   | **Exercisable  / Unexercisable**                                           |   | **Exercisable  / Unexercisable**                                         |   |
| Maurice  S. Nelson, Jr |   | —                       |   | —                |   | 1,320,000 / —                                                         |   | $66,000 / $—                                                        |   |
| Frank  D. Travetto     |   | —                       |   | —                |   | 85,000 / 10,000                                                            |   | $— / $—                                                        |   |
| Kenneth  L. Henry      |   | —                       |   | —                |   | 85,000 / 10,000                                                            |   | $— / $—                                                        |   |
| R.  Neil McCaffery     |   | —                       |   | —                |   | 85,000 / 10,000                                                            |   | $— / $—                                                        |   |
| James  D. Hoffman      |   | —                       |   | —                |   | 85,000 / 10,000                                                            |   | $— / $—                                                        |   |

 

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| (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 by subtracting the exercise prices from the most recent  appraisal available which was $5.46 per share as of March 31, 2003. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**EquityCompensation Plan Information as of March 31, 2004**

 
|                                                        |   | **(a)**                                                                                                       |   | **(b)**                                                                                           |   | **(c)**                                                                                                                                                                       |    |
|-------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
| **Plan category**                                           |   | **Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights** |   | **Weighted-  average exercise  price of outstanding  options, warrants and  rights ($/Sh.)** |   | **Number of securities  remaining available  for future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** |    |
| Equity  compensation plans approved by security holders(1)  |   | 2,101,000                                                                                                     |   | $                                                                                                 | 5.84   |                                                                                                                                                                          | 399,000 |   |
| Equity  compensation plans not approved by security holders |   | —                                                                                                        |   | —                                                                                            |   | —                                                                                                                                                                        |    |
| Total                                                       |   | 2,101,000                                                                                                     |   | $                                                                                                 | 5.84   |                                                                                                                                                                          | 399,000 |   |

 

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| (1) |   | Includes 180,000 shares  granted to non-employee directors under our Stock Option Plan. |
|-----|--------|-----------------------------------------------------------------------------------------|

 

**OurStock Bonus Plan**

 

We maintain a stock bonusplan, or the “Plan,” in respect of our nonunion employees who meet certainservice requirements. Since April 1, 1999 (when our employee stockownership plan was amended and became a stock bonus plan), the amount of annualcontributions is calculated as a percentage (as determined by our Board ofDirectors based on the achievement of EMJ performance objectives) of total cashcompensation (as defined in the Plan) and may be made by us in cash or byHolding in shares of Holding capital stock. Participants become 20% vested intheir account balances after one year of continuous service. Participants vest anadditional 20% for each year of service thereafter and become fully vested atage 65 or upon completion of five years of service, retirement, disability ordeath. Following the occurrence of a participant’s termination of service (asdefined in the Plan), retirement, disability, or death, the Plan is required toeither 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, 2004, shares of Holding’s Series A and Series B PreferredStock and Holding Common Stock owned by the Plan totaled 38,282, 28,730, and2,652,874 shares, respectively. Series B Preferred Stock shares includedividends accrued for each of the four quarters of fiscal 2004. Dividends forDecember 31, 2003 and March 31, 2004 of 1,132 and 1,154,respectively, are pending Board of Director approval. A resolution to authorizethe issuance of these dividends will be included in the Company’s Board ofDirector meeting scheduled on July 29, 2004. For the fiscal years endedMarch 31, 2002, 2003 and 2004, contributions payable to the Plan totaled$2.8 million, $2.8 million and $2.8 million, respectively. The contributionspayable for fiscal years 2002, 2003 and 2004 have been paid in cash.

 

Although Holding has notexpressed any intent to terminate the Plan, it has the right to terminate oramend 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 separateaccounts and receive put options with respect to Holding stock allocated totheir accounts.

 

In 1984, 1985 and 1986,Kilsby purchased life insurance policies to provide, among other things, aseparate source for funds to repurchase capital stock, including capital stockdistributed by the Plan, from departing employees. Certain of these policiesallow us to borrow against the cash surrender value of such policies. As ofMarch 31, 2004, we have borrowed $182.6 million against the cash surrendervalue of such policies to fund renewal premiums, accrued interest on previousborrowings and working capital needs. The net cash surrender value availablefor future borrowings was approximately $10.3 million as of March 31,2004. Our credit facility and other resources are also available, subject tocertain limitations, to satisfy stock repurchase obligations as they arise. See“Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations—Liquidity and Capital Resources.”

 

On March 8, 2002, wewere sued by the DOL for alleged breaches of fiduciary duty by former membersof our benefits committee in relying on the valuations of our common stockprepared by our independent appraiser and allegedly resulting in prohibitedtransactions. This matter was settled in January 2003.  Among other things, the settlement prohibitsus from making further common stock contributions to the Plan.  The DOL has initiated a review of theprocedures followed by our benefits committee in connection with evaluation ofthe proposed transaction and other strategic alternatives available to Holdingand an assessment of whether or not the proposed transaction complied with theterms of the consent order and the legal requirements applicable to the stockbonus plan.  We refer you to “Item 3.Legal Proceedings.”

 

26

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**SupplementalPlan**

 

In fiscal 1996, weadopted a supplemental contribution plan, or the “Supplemental Plan,” forcontributions not allowed under our Plan pursuant to limitations of Sections401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended.Participants in the Supplemental Plan include certain highly compensatedemployees and other employees who are not eligible to participate in the Plan. Contributionspayable, vesting and distributions under the Supplemental Plan are comparablewith those under the Plan. Contributions under the Supplemental Plan are madein cash and are held in an irrevocable trust. For the fiscal years endedMarch 31, 2002, 2003 and 2004, contributions payable totaled $0.1 million,$0.1 million and $0.1 million, respectively.

 

**ManagementIncentive Compensation Plan**

 

Effective April 1,1997, we adopted a new Management Incentive Compensation Plan (the “IncentivePlan”). The Incentive Plan provides for payment of cash bonuses to seniorexecutives and other key management employees based on the achievement ofcertain operating profit and cash flow objectives determined by our Board ofDirectors or Executive Committee. Bonuses awarded are based on a sliding scalebased on the percentage of the objectives achieved. No bonus is payable unlessat least 80% of the objectives are achieved, and the maximum bonus would beawarded for achievement of 150% or more of the established objectives. Inaddition, our Chief Executive Officer may award bonuses from a discretionarypool for exemplary service. The board of Directors ratified bonuses pursuant tothe Incentive Plan aggregating $4.0 million in fiscal 2002, $5.6 million infiscal 2003 and $6.7 million in fiscal 2004.

 

**CompensationCommittee Interlocks and Insider Participation**

 

David M. Roderick, FrankT. 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 describedunder “Item 12. Security Ownership of Certain Beneficial Owners andManagement.” KIA IV holds indebtedness of Holding representing approximately$235.6 million of indebtedness as of March 31, 2004, including accrued andunpaid interest.Mr. Nickell is a stockholder of Kelso and a general partner ofKelso Partners I, L.P., or “KP I,” Kelso Partners III, L.P., or “KP III,” andKelso Partners IV, L.P., or “KP IV.” KP I, KP III and KP IV are the generalpartners of Kelso Investment Associates, Limited Partnership, or “KIA I,” KIAIII-Earle M. Jorgensen, L.P., or “KIA III-EMJ” and KIA IV, respectively. Mr.Nickell is a director of Holding and the Company and shares investment and votingpower with respect to shares of the capital stock of Holding held by KIA I, KIAIII-EMJ and KIA IV as described under “Item 12. Security Ownership of CertainBeneficial Owners and Management.”

 

In connection with theAcquisition, we agreed to pay Kelso & Company an annual fee of $1,250,000each year for financial advisory services and to reimburse it for out-of-pocketexpenses incurred in connection with rendering such services. However, no suchannual fee was payable for fiscal years 2002, 2003 and 2004 and other expensespaid to Kelso & Company in fiscal years 2002, 2003 and 2004 were notsignificant.  Holding has issued to KIAIV two warrants, entitling KIA IV to purchase 2,937,915 shares of HoldingCommon 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, inconsideration for his service as a director, Chairman of the Company’sExecutive Committee and Chairman of the Board, the Company granted Mr. Roderickoptions to purchase 20,000 shares of Holding Common Stock at a purchase priceequal to the fair market value as established by the most recent appraisalavailable at the date of grant. For the grants issued April 1, 2000 and2001, the grant prices were $5.51 per share and $7.31 per share, respectively.From April 1, 2002, Mr. Roderick has received an annual retainer of$30,000 for such services, payable quarterly.

 

**Item 12.  ****  SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

**OurCommon Stock**

 

All of our issued andoutstanding voting stock, consisting of 128 shares of common stock, is owned byHolding.

 

**CapitalStock of Holding**

 

The following tabledescribes the beneficial ownership of shares of Holding Common Stock and SeriesA Preferred Stock as of March 31, 2004, by all stockholders of Holdingknown to be beneficial owners of more than 5% of any such

 

27

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class, by each of ourdirectors and executive officers named in the Summary Compensation Table and byall directors and executive officers as a group as determined in accordancewith Rule 13d-3(i) under the Securities Exchange Act of 1934, as amended. As ofMarch 31, 2004, 28,747 shares of Series B Preferred Stock of Holding wereissued, of which 28,730 were owned by the stock bonus plan.

 
| **Name and Address of Beneficial  Owner**                       |   | **Number of Shares of  Common Stock** |   | **Percentage of   Shares of  Common Stock  Outstanding(a)** |    | **Number of Shares  of Series A  Preferred Stock** |   | **Percentage of  Shares of Series A  Preferred Stock  Outstanding(b)** |   |
|-----------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------------------------------|---------|--------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|
| Kelso Investment Associates, IV, L.P.(c)                        |   | 9,462,475                             | (d)    | 66.0                                                             | %(d)    | 0                                                            |   | 0.0                                                                    | %      |
| KIA III—Earle M. Jorgensen, L.P.(c)                        |   | 1,704,740                             |   | 14.9                                                             | %       | 0                                                            |   | 0.0                                                                    | %      |
| Joseph S. Schuchert(c)                                          |   | 11,167,215                            | (d)(e) | 77.9                                                             | %(d)(e) | 24,519                                                       | (f)    | 38.9                                                                   | %(f)   |
| Frank T. Nickell(c)                                             |   | 11,187,714                            | (d)(e) | 78.0                                                             | %(d)(e) | 24,519                                                       | (f)    | 38.9                                                                   | %(f)   |
| Michael B. Goldberg(c)                                          |   | 9,462,475                             | (d)(e) | 66.0                                                             | %(d)(e) | 0                                                            |   | 0.0                                                                    | %      |
| George E. Matelich(c)                                           |   | 11,172,215                            | (d)(e) | 77.9                                                             | %(d)(e) | 24,519                                                       | (f)    | 38.9                                                                   | %(f)   |
| Thomas R. Wall, IV(c)                                           |   | 11,172,215                            | (d)(e) | 77.9                                                             | %(d)(e) | 24,519                                                       | (f)    | 38.9                                                                   | %(f)   |
| Frank K. Bynum(c)                                               |   | 11,167,215                            | (d)(e) | 77.9                                                             | %(d)(e) | 0                                                            |   | 0.0                                                                    | %      |
| David I. Wahrhaftig(c)                                          |   | 11,167,215                            | (d)(e) | 77.9                                                             | %(d)(e) | 0                                                            |   | 0.0                                                                    | %      |
| Philip E. Berney(c)                                             |   | 9,462,475                             | (d)(e) | 66.0                                                             | %(d)(e) | 0                                                            |   | 0.0                                                                    | %      |
| Maurice S. Nelson(g)                                            |   | 1,320,000                             | (h)    | 11.6                                                             | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| Frank D. Travetto(g)                                            |   | 97,000                                | (h)    | 0.9                                                              | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| Kenneth L. Henry(g)                                             |   | 104,000                               | (h)    | 0.9                                                              | %(h)    | 704                                                          |   | 1.1                                                                    | %      |
| R. Neil McCaffery(g)                                            |   | 90,000                                | (h)    | 0.8                                                              | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| James D. Hoffman(g)                                             |   | 85,000                                | (h)    | 0.7                                                              | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| David M. Roderick(g)                                            |   | 134,000                               | (h)    | 1.2                                                              | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| John Rutledge(i)                                                |   | 45,000                                | (h)    | 0.4                                                              | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| William A. Marquard(j)                                          |   | 50,000                                | (h)    | 0.4                                                              | %(h)    | 0                                                            |   | 0.0                                                                    | %      |
| Earl L. Mason(g)                                                |   | 0                                     |   | 0.0                                                              | %       | 0                                                            |   | 0.0                                                                    | %      |
| Earle M. Jorgensen Company Stock Bonus Plan(g)                  |   | 2,630,863                             | (k)    | 23.1                                                             | %(k)    | 37,344                                                       | (k)    | 59.2                                                                   | %(k)   |
| All directors and executive officers of the  Company as a group |   | 2,099,499                             | (l)(m) | 18.4                                                             | %(l)(m) | 704                                                          | (m)    | 1.1                                                                    | %(m)   |

 

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| (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  14,342,775, (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 11,616 shares of Holding common stock owned by Kelso Equity  Partners II, L.P., and (ii) excluding 2,101,000 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 11,404,860, excluding  shares subject to stock options and shares issuable upon the exercise of the  Warrants held by KIA IV as of March 31, 2004. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) |   | The percentage of  shares of Series A Preferred Stock outstanding was calculated assuming the  total outstanding shares of Series A Preferred Stock was 63,044, excluding  184,502 shares of Series A Preferred Stock held in the Holding treasury as of  March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (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 and 11,616 shares of Holding common  stock owned by KP II. 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 and Mr. Berney, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

28

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| (g) |   | The business address of  such person(s) or entity is 10650 South Alameda Street, Lynwood, California,  90262.                                                                                                                                                                                                                                                |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (h) |   | Includes shares subject  to stock options vested and exercisable as of March 31, 2004.                                                                                                                                                                                                                                                                  |
| (i) |   | The business address  for Dr. Rutledge is 29 Horseshoe Road, Cos Cob, Connecticut 06807.                                                                                                                                                                                                                                                                     |
| (j) |   | The business address of  Mr. Marquard is  2199 Maysville Road, Carlyle, Kentucky 40311.                                                                                                                                                                                                                                                                      |
| (k) |   | Excludes 22,011 shares  of Holding Common Stock and 939 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.                                                                                            |
| (l) |   | 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. |
| (m) |   | 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.                 |

 

**Item 13.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

Affiliates of Kelso &Company beneficially own shares of the capital stock of Holding as describedunder “Security Ownership of Certain Beneficial Owners and Management.” KIA IVholds indebtedness of Holding representing approximately $235.6 million ofindebtedness as of March 31, 2004, including accrued and unpaidinterest.Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig,Bynum and Berney are indirect stockholders of Kelso & Company and generalpartners 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 thegeneral partners of KIA I, KIA III-EMJ and KIA IV, respectively. Messrs.Schuchert and Nickell are directors of Holding and EMJ. See “Item 12. SecurityOwnership of Certain Beneficial Owners and Management.”

 

EMJ, Holding and Kelsoand its affiliates entered into certain agreements in connection with theAcquisition. Such agreements and transactions are described under “Item 11.Executive Compensation—Compensation Committee Interlocks and InsiderParticipation.”

 

KIA IV is the holder oftwo Holding warrants which are described under “Item 11. ExecutiveCompensation—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, theCompany granted Mr. Roderick options to purchase 20,000 shares of HoldingCommon Stock at their fair market value as established by the most recent appraisalavailable at the date of grant. From April 1, 2002, Mr. Roderick has beenpaid an annual retainer of $30,000, payable quarterly for his services asChairman and a member of our board of directors.

 

 

29

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**Item 14.  PRINCIPALACCOUNTANT FEES AND SERVICES**

 

The Audit Committee has implementedpolicies and procedures for the pre-approval of all audit, audit-related andtax services for the Company, which meets the requirements under theSarbanes-Oxley Act of 2002.  The AuditCommittee has pre-approved certain audit, audit-related, tax and permittednon-audit services to be performed by our independent auditors, Ernst &Young LLP.  These pre-approved servicesinclude the annual audit and quarterly reviews of our consolidated financialstatements and the Company’s periodic filings with the SEC; annual audit andrelated filings for the Company’s 401(k) plan, stock bonus plan and HourlyPension Plan; and review of federal and state income tax returns and review ofForm 5500s.  The Audit Committee hasprovided the Audit Committee Chair with the authority to approve up to $50,000of other audit, audit-related and non-audit services, subject to ratificationof the Audit Committee at its next regularly scheduled meeting.  Additionally, the Audit Committee hasdirected Ernst & Young LLP not to perform any services for the Company thatare specifically prohibited by the Sarbanes-Oxley Act of 2002.

 

In connection with theproposed merger and financial restructuring, the Audit Committee alsopre-approved the engagement of Ernst & Young to review our RegistrationStatement on Form S-4 and the financial statements included in the filings, andpre-approved the engagement of Ernst & Young, LLP to provide certain taxconsultation services related to the structuring of the transaction and thepotential effect of the transaction on our tax returns.

 

Fees pre-approved by theAudit Committee for audit and non-audit services conducted by the Company’sindependent auditor for each of the last two fiscal years are as follows:

 
|          |   |                                                                                                                                            |   | **Year Ended March 31,**   |    |
|---------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|---------|
| **Type**      |   | **Description  of Services**                                                                                                                    |   | **2003**                   |    | **%** |   | **2004** |   | **%** |   |
|          |   |                                                                                                                                            |   | **(dollars in thousands)** |    |
| Audit         |   | Audit and review of  consolidated financial statements included in Form 10-K and Form 10-Q,  respectively                                       |   | $                          | 706,900 |   | 70.7 | % | $ | 716,000 |   | 74.0 | % |
| Audit-Related |   | Audits of employee  benefit plans; review of Form 5500s                                                                                         |   | 60,000                     |    | 6.0 |   | 62,000 |   | 6.4 |   |
| Tax           |   | Review of income tax  returns; consultation related to IRS inquiries and audits                                                                 |   | 38,000                     |    | 3.8 |   | 42,000 |   | 4.4 |   |
| All  Other    |   | Review of debt offering  for Senior Secured Notes in Fiscal 2003 and review of S4 filing for merger  and financial restructuring in Fiscal 2004 |   | 195,000                    |    | 19.5 |   | 147,000 |   | 15.2 |   |
|          |   |                                                                                                                                            |   | $                          | 999,900 |   | 100.0 | % | $ | 967,000 |   | 100.0 | % |

 

30

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#### **PART IV**

#### ** **

**Item 15.  EXHIBITS, FINANCIALSTATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**

 

(a)(1) FinancialStatements.

 

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

 

(a)(2) FinancialStatement Schedules.

 

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

 

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

 

(a)(3) Exhibits.

 

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

 

(b)    Reports on Form 8-K.

 

We furnished a report on Form 8-K on May 25, 2004under Item 12 announcing our results of operations and financial position as ofand for the three month period and fiscal year ended March 31, 2004.

 

31

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INDEX TO EXHIBITS

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.1*                |   | Agreement and Plan of Merger and Reorganization is  made as of December 18, 2003, by and among Earle M. Jorgensen Holding  Company, Inc., Earle M. Jorgensen Company, and EMJ Metals LLC. Incorporated by  reference to Exhibit 2.1 of the Company’s Registration Statement on Form S-4  as filed on January 13, 2004 (Registration No. 333-111882) (the  Company’s 2004 Form S-4).                                                                                                                                                                                                                                                                      |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.2*                |   | Exchange  Agreement, dated as of December 18, 2003, by and among Earle M. Jorgensen  Holding Company, Inc., the Earle M. Jorgensen Company, Kelso Investment  Associates, L.P., Kelso Equity Partners II, L.P., KIA III-Earle M. Jorgensen,  L.P., and Kelso Investment Associates IV, L.P. Incorporated by reference to  Exhibit 2.2 of the Company’s 2004 Form S-4.                                                                                                                                                                                                                                                                                              |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.1*                |   | Certificate of  Incorporation of the Comapany. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.3*                |   | Form of Indemnification Agreement of the Company.  Incorporated by reference to Exhibit 3.3 of the Company’s 2004 Form S-4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.1*                |   | 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”) to the  Company’s 1993 Registration Statement.                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2*                |   | Amendment to Restructuring Agreement, dated as of  March 3, 1993, by and between Holding and KIA IV, amended as of  March 24, 1998. Incorporated by reference to Exhibit 4.8 of the  Company’s 1998 Form 10-K, Commission File No. 1-7537 for the fiscal year end  March 31, 1998 (the Company’s 1998 Form 10-K”).                                                                                                                                                                                                                                                                                                                             |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.3*                |   | Amendment to Restructuring Agreement, dated as of  March 3, 1993, by and between Holding and KIA IV, amended as of May 22,  2002. Incorporated by reference to the Company’s Annual Report on Form 10-K,  Commission File No. 1-7537 for the fiscal year end March 31, 2003 (The  “Company’s 2003 Form 10-K”).                                                                                                                                                                                                                                                                                                                                 |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.4*                |   | Second Amendment to Restructuring Agreement, dated  as of March 3, 1993, by and between Holding and KIA IV, amended as of  May 22, 2002. Incorporated by reference to the Company’s 2003 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.5*                |   | Third Amendment to Restructuring Agreement, dated as  of March 3, 1993, by and between Holding and KIA IV, amended as of  June 28, 2002. Incorporated by reference to the Company’s 2003 Form  10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.6*                |   | Fourth Amendment to Restructuring Agreement, dated  as of March 3, 1993, by and between Holding and KIA IV, amended as of  September 30, 2002. Incorporated by reference to the Company’s 2003 Form  10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.7*                |   | Fifth Amendment to Restructuring Agreement, dated as  of March 3, 1993, by and between Holding and KIA IV, amended as of  December 31, 2002. Incorporated by reference to the Company’s 2003 Form  10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.8*                |   | 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. Incorporated by  reference to Exhibit 4.16 of the Company’s Registration Statement on Form S-4  as filed on July 3, 2002 (Registration No. 333-91866) (the “Company’s  2002 Registration Statement”). |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.9*                |   | Form of Indenture with respect to EMJ’s 9-3/4%  Senior Secured Notes due 2012. Incorporated by reference to Exhibit 4.17 of  the Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

32

----

 
| 4.10*  |   | Form of certificate for EMJ’s 9-3/4% Senior Secured  Notes, Series A, $248,435,000. Incorporated by reference to Exhibit 4.18(a)  of the Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.11*  |   | Form of certificate for EMJ’s 9-3/4% Senior Secured  Notes, Series A, $1,565,000. Incorporated by reference to Exhibit 4.18(b) of  the Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.12*  |   | Purchase Agreement, dated as of May 17, 2002, among  EMJ, Credit Suisse First Boston Corporation, Deutsche Bank Securities, Inc.  and J.P. Morgan Securities, Inc., for an aggregate of $250,000,000 in  principal amount of EMJ’s 9-3/4% Senior Notes due 2012. Incorporated by  reference to Exhibit 4.19 of the Company’s 2002 Registration Statement.                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.13*  |   | Registration Rights Agreement, dated as of May 17,  2002, among EMJ, Credit Suisse First Boston Corporation, Deutsche Bank  Securities, Inc. and J.P. Morgan Securities, Inc. Incorporated by reference  to Exhibit 4.20 of the Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.14*  |   | First Amendment to the Credit Agreement and Consent,  dated as of May 22, 2002, and entered into by and among Earle M. Jorgensen  Holding Company, Inc., EMJ, the banks and other financial institutions  signatory thereto and Deutsche Bank Trust Company Americas, as Agent.  Incorporated by reference to Exhibit 4.21 of the Company’s 2002 Registration  Statement.                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.15*  |   | Security Agreement, dated as of May 22, 2002, and  entered into by and among the Company and other Grantors signatory thereto  and The Bank of New York, as trustee. Incorporated by reference to Exhibit  4.22 of the Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.16*  |   | Intercreditor Amendment, dated as of May 22, 2002,  and entered into by and among The Bank of New York, as Trustee under the  Indenture with respect to EMJ’s 9-3/4% Senior Notes, and Deutsche Bank Trust  Company Americas, as Agent under the Credit Agreement. Incorporated by  reference to Exhibit 4.23 of the Company’s 2002 Registration Statement.                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.17** |   | Second Amendment to the Credit Agreement and  Consent, dated as of February 19, 2004, and entered into by and among  Earle M. Jorgensen Holding Company, Inc., EMJ, the banks and other financial  institutions signatory thereto and Deutsche Bank Trust Company Americas, as  Agent.                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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*  |   | Amendment to the Holding Stockholders Agreement,  dated as of September 30, 1994. Incorporated by reference to Exhibit  10.41 to Amendment No. 1 filed June 2, 1995 (“Amendment No. 1 to  Holding’s 1994 Registration Statement”) to Holding’s Registration Statement  on Form S-1 as filed on October 19, 1994 (Registration No. 33-85364 (the  “Company’s 1994 Registration Statement”).                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.4*  |   | Third Amendment to the Stockholders Agreement, dated  as of July 23, 1998. Incorporated by reference to Exhibit 10.4 to the  Company’s 2003 Form 10-K.                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.5*  |   | 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”).                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.6*  |   | Holding’s ESOP Trust Agreement. Incorporated by  reference to Exhibit 10.32 of Holding’s Annual Report on Form 10-K,  Commission File No. 1-7537 for the fiscal year ended March 31, 1991 (the  “Company’s 1991 10-K”).                                                                                                                                                                                                                                                                        |

 

33

----

 
| 10.7*  |   | 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.                                                                                                                                      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.8*  |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.9*  |   | 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.                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.10* |   | 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.                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.11* |   | Form of Tax Allocation Agreement between the Company  and Holding. Incorporated by reference to Exhibit 10.47 of Amendment No. 3.                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.12* |   | 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”).                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.13* |   | Holding’s Deferred Compensation Plan, effective  April 1, 1994. Incorporated by reference to Exhibit 10.55 to the  Company’s 1995 Form 10-K.                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.14* |   | Holding 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. 1-7537 for the fiscal year ended  March 31, 1997 (the “Company’s 1997 Form 10-K”).                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.15* |   | 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.                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.16* |   | 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.                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.17* |   | Earle M. Jorgensen Company Employee Stock Ownership  Plan, as amended and restated effective as of April 1, 2001.  Incorporated by reference to Exhibit 10.57 to the Company’s Quarterly Report  on Form 10-Q, Commission File No. 1-7537 for the fiscal quarter ended  December 31, 2002.                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.18* |   | First Amendment to the Earle M. Jorgensen Company  Employee Stock Ownership Plan (as amended and restated effective as of  April 1, 2001), effective as of January 15, 2002. Incorporated by  reference to Exhibit 10.58 to the Company’s Quarterly Report on Form 10-Q,  Commission File No. 1-7537 for the fiscal quarter ended December 31,  2002.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.19* |   | Second Amendment to the Earle M. Jorgensen Company  Employee Stock Ownership Plan (as amended and restated effective as of  April 1, 2001), effective as of April 1, 2001. Incorporated by  reference to Exhibit 10.59 to the Company’s Quarterly Report on Form 10-Q,  Commission File No. 1-7537 for the fiscal quarter ended December 31,  2002.                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.20* |   | Third Amendment to the Earle M. Jorgensen Company  Employee Stock Ownership Plan (as amended and restated effective as of  April 1, 2001), effective as of January 1, 2002. Incorporated by  reference to Exhibit 10.60 to the Company’s Quarterly Report on Form 10-Q,  Commission File No. 1-7537 for the fiscal quarter ended December 31,  2002.                                                                        |

 

34

----

 
| 10.21* |   | Fourth Amendment to the Earle M. Jorgensen Company  Employee Stock Ownership Plan (as amended and restated effective as of  April 1, 2001), effective as of April 1, 2003. Incorporated by  reference to Exhibit 10.21 to the Company’s 2003 Form 10-K.                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.22* |   | Audit Committee Charter  as adopted on April 17, 2003. Incorporated by reference to Company’s  2003 Form 10-K.                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.23* |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                           |
| 10.24* |   | Amendment to Holding’s  Stock Bonus Plan Trust Agreement, dated as of November 18, 2003.  Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report  on Form 10-Q Commission File No. 1-7537 for the fiscal quarter ended  November 15, 2003.            |
|   |   |                                                                                                                                                                                                                                                                                           |
| 12.1** |   | Statement of Computation of Number of Times Fixed  Charges Earned.                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                           |
| 14.1*  |   | Code of Ethics for  Senior Financial Officers and the Principal Executive Officer, effective as  of March 31, 2003. Incorporated by reference to Company’s 2003 Form  10-K.                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                           |
| 21**   |   | Listing of the Company’s subsidiaries.                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                           |
| 31.1** |   | Certification of Financial Reports by Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                           |
| 31.2** |   | Certification of Financial Reports by Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                           |
| 32.1** |   | Certification of  Financial Reports by Chief Executive Officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                           |
| 32.2** |   | Certification of  Financial Reports by Chief Financial Officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                |

 

----

*                 Previously filed.

**          Included in this filing.

 

35

----

 

#### **SIGNATURES**

#### ** **

Pursuant to therequirements of the Securities and Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized, in the City of Lynwood, State of California, on the25th of June, 2004.

 
|   | 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 therequirements of the Securities and Exchange Act of 1934, this Report has beensigned below by the following persons in the capacities and on the datesindicated.

 
| **Signatures**              |   | **Title**                                                                                              |   | **Date**           |
|-----------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|--------------------|
|                        |   |                                                                                                   |   |               |
| /s/ DAVID M.  RODERICK      |   | Chairman of the Board and Chairman of the Executive Committee  and Director                            |   | June 25, 2004 |
| David M.  Roderick          |   |                                                                                                   |   |
|                        |   |                                                                                                   |   |               |
| /s/ MAURICE S.  NELSON, JR. |   | President, Chief Executive Officer and Chief  Operating Officer and Director                           |   | June 25, 2004 |
| Maurice S.  Nelson, Jr.     |   |                                                                                                   |   |
|                        |   |                                                                                                   |   |               |
| /s/ WILLIAM S.  JOHNSON     |   | Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer) and Secretary |   | June 25, 2004 |
| William S.  Johnson         |   |                                                                                                   |   |
|                        |   |                                                                                                   |   |               |
| /s/ FRANK T.  NICKELL       |   | Director                                                                                               |   | June 25, 2004 |
| Frank T. Nickell            |   |                                                                                                   |   |               |
|                        |   |                                                                                                   |   |               |
| /s/ WILLIAM A.  MARQUARD    |   | Director                                                                                               |   | June 25, 2004 |
| William A.  Marquard        |   |                                                                                                   |   |               |
|                        |   |                                                                                                   |   |               |
| /s/ JOHN  RUTLEDGE          |   | Director                                                                                               |   | June 25, 2004 |
| Dr. John  Rutledge          |   |                                                                                                   |   |               |
|                        |   |                                                                                                   |   |               |
| /s/ EARL L.  MASON          |   | Director                                                                                               |   | June 25, 2004 |
| Earl L. Mason               |   |                                                                                                   |   |               |
|                        |   |                                                                                                   |   |               |
| /s/ DAVID I.  WAHRHAFTIG    |   | Director                                                                                               |   | June 25, 2004 |
| David I.  Wahrhaftig        |   |                                                                                                   |   |               |

 

36

----

 

**SUPPLEMENTAL INFORMATION TO BEFURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BYREGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OFTHE ACT**

 

No annual report or proxy material has beenor will be sent to security holders since the Company became subject toSection 15(d) of the Act.

 

37

----

 

**EARLE M.JORGENSEN COMPANY**

 

**INDEX TOAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 
| Report of Independent  Registered Public Accounting Firm                                                                |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|
| Consolidated Balance Sheets  at March 31, 2003 and 2004                                                            |   |
| Consolidated  Statements of Operations and Comprehensive Income for the years ended  March 31, 2002, 2003 and 2004 |   |
| Consolidated  Statements of Stockholder’s Equity for the years ended March 31, 2002,  2003 and 2004           |   |
| Consolidated  Statements of Cash Flows for the years ended March 31, 2002, 2003 and  2004                          |   |
| Notes to  Consolidated Financial Statements                                                                             |   |

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

The Board of Directorsand Stockholder

Earle M. JorgensenCompany

 

We have audited the accompanying consolidated balancesheets of Earle M. Jorgensen Company as of March 31, 2003 and 2004, andthe related consolidated statements of operations and comprehensive income,stockholder’s equity, and cash flows for each of the three years in the periodended March 31, 2004. Our audits also included the financial statementschedule listed in the index at item 15(a)(2). These financialstatements and schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 toabove present fairly, in all material respects, the consolidated financialposition of Earle M. Jorgensen Company at March 31, 2003 and 2004, and theconsolidated results of its operations and its cash flows for each of the threeyears in the period ended March 31, 2004, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, whenconsidered in relation to the basic financial statements taken as a whole,presents fairly in all material respects the information set forth therein.

 

 
|                                                           | /s/ ERNST & YOUNG LLP |   |
|----------------------------------------------------------------|---------------------------|--------|
|                                                           |
| Orange County, California                                      |
| May 13, 2004                                                   |
| except for Note 9, as to which the date is  June 15, 2004 |

 

F-2

----

 

**EARLE M.JORGENSEN COMPANY**

 

**CONSOLIDATED BALANCE SHEETS**

**(dollarsin thousands, except share and per share data)**

 
|                                                                                      |   | **March 31,** |    |
|-------------------------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                                      |   | **2003**           |    | **2004** |   |
| **ASSETS**                                                                                |   |               |    |   |   |
| Current assets:                                                                           |   |               |    |   |   |
| Cash and cash  equivalents                                                                |   | $                  | 20,030  |   | $ | 15,528 |   |
| Accounts  receivable, less allowance for doubtful accounts                                |   | 97,292             |    | 133,092 |   |
| Inventories                                                                               |   | 213,590            |    | 225,248 |   |
| Other current  assets                                                                     |   | 6,402              |    | 7,655 |   |
| Total current  assets                                                                     |   | 337,314            |    | 381,523 |   |
| Net property,  plant and equipment, at cost                                               |   | 113,037            |    | 112,190 |   |
| Cash surrender  value of life insurance policies                                          |   | 31,007             |    | 34,689 |   |
| Debt issue  costs, net of accumulated amortization                                        |   | 8,232              |    | 6,909 |   |
| Other assets                                                                              |   | 1,151              |    | 1,169 |   |
| Total assets                                                                              |   | $                  | 490,741 |   | $ | 536,480 |   |
|                                                                                      |   |               |    |   |   |
| **LIABILITIES AND STOCKHOLDER’S  EQUITY**                                            |   |               |    |   |   |
| Current  liabilities:                                                                     |   |               |    |   |   |
| Accounts payable                                                                          |   | $                  | 119,815 |   | $ | 162,648 |   |
| Accrued employee  compensation and related taxes                                          |   | 12,430             |    | 19,207 |   |
| Accrued employee  benefits                                                                |   | 14,150             |    | 12,744 |   |
| Accrued interest                                                                          |   | 16,186             |    | 17,352 |   |
| Other accrued  liabilities                                                                |   | 2,748              |    | 8,616 |   |
| Deferred income  taxes                                                                    |   | 19,450             |    | 17,517 |   |
| Current portion  of long-term debt                                                        |   | 2,330              |    | 3,976 |   |
| Total current  liabilities                                                                |   | 187,109            |    | 242,060 |   |
| Long-term debt                                                                            |   | 328,207            |    | 305,762 |   |
| Deferred income taxes                                                                     |   | 15,936             |    | 17,869 |   |
| Other long-term  liabilities                                                              |   | 7,505              |    | 8,148 |   |
| 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                                                           |   | 35,284             |    | 29,503 |   |
| Accumulated  other comprehensive loss                                                     |   |               |    |   |   |
| Foreign currency  translation adjustment                                                  |   | (485               | )       | (73 | ) |
| Additional  minimum pension liability                                                     |   | (3,399             | )       | (2,625 | ) |
| Accumulated  deficit                                                                      |   | (79,416            | )       | (64,164 | ) |
| Total  stockholder’s equity (deficit)                                                |   | (48,016            | )       | (37,359 | ) |
| Total  liabilities and stockholder’s equity                                          |   | $                  | 490,741 |   | $ | 536,480 |   |

 

See accompanying notes.

 

F-3

----

 

**EARLE M.JORGENSEN COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

**(dollarsin thousands)**

 
|                                          |   | **Year Ended  March 31,** |    |
|-----------------------------------------------|--------|--------------------------------|---------|
|                                          |   | **2002**                       |    | **2003** |   | **2004** |   |
| Revenues                                      |   | $                              | 895,058 |   | $ | 919,927 |   | $ | 1,040,367 |   |
| Cost of sales                                 |   | 641,991                        |    | 658,562 |   | 754,266 |   |
| Gross profit                                  |   | 253,067                        |    | 261,365 |   | 286,101 |   |
|                                          |   |                           |    |   |   |   |   |
| Expenses:                                     |   |                           |    |   |   |   |   |
| Warehouse and  delivery                       |   | 124,457                        |    | 127,080 |   | 135,421 |   |
| Selling                                       |   | 31,932                         |    | 32,329 |   | 38,254 |   |
| General and  administrative                   |   | 46,405                         |    | 38,590 |   | 42,954 |   |
| Loss on early  retirement of debt             |   | —                         |    | 12,278 |   | — |   |
| Total expenses                                |   | 202,794                        |    | 210,277 |   | 216,629 |   |
| Income from  operations                       |   | 50,273                         |    | 51,088 |   | 69,472 |   |
| Interest  expense, net                        |   | 42,545                         |    | 47,206 |   | 51,093 |   |
| Excise tax  imposed under IRS settlement      |   | 1,919                          |    | — |   | — |   |
| Income before  income taxes                   |   | 5,809                          |    | 3,882 |   | 18,379 |   |
| Income tax  expense                           |   | 455                            |    | 1,500 |   | 3,127 |   |
| Net income                                    |   | 5,354                          |    | 2,382 |   | 15,252 |   |
| Other  comprehensive income (loss):           |   |                           |    |   |   |   |   |
| Derivative—interest  rate swap agreement |   | (2,925                         | )       | — |   | — |   |
| Foreign currency  translation adjustment      |   | (133                           | )       | 1,200 |   | 412 |   |
| Minimum pension  liability                    |   | 32                             |    | (3,150 | ) | 774 |   |
| Comprehensive  income                         |   | $                              | 2,328   |   | $ | 432 |   | $ | 16,438 |   |

 

See accompanying notes.

 

F-4

----

 

**EARLE M.JORGENSEN COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDER’S EQUITY**

**(dollarsin thousands, except share data)**

 
|                                                                       |   |       |   |   |   | **Capital  in excess  of par value** |   | **Accumulated  other  comprehensive  loss** |   | **Accumulated  deficit** |   | **Total** |   |
|----------------------------------------------------------------------------|--------|------------|--------|--------|--------|-----------------------------------------------------|--------|---------------------------------------------|--------|--------------------------|--------|-----------|--------|
|                                                                       |   |       |
| **Common Stock**                                                      |
| **Shares**                                                                 |   | **Amount** |
| 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   | )      |
| Dividend to  Parent                                                        |   | —     |   | — |   | (35,587                                             | )      | —                                      |   | —                   |   | (35,587   | )      |
| Reversal of loss  on interest rate swap agreement recognized in net income |   | —     |   | — |   | —                                              |   | 2,925                                       |   | —                   |   | 2,925     |   |
| Foreign currency  translation adjustment                                   |   | —     |   | — |   | —                                              |   | 1,200                                       |   | —                   |   | 1,200     |   |
| Additional  minimum pension liability                                      |   | —     |   | — |   | —                                              |   | (3,150                                      | )      | —                   |   | (3,150    | )      |
| Net income                                                                 |   | —     |   | — |   | —                                              |   | —                                      |   | 2,382                    |   | 2,382     |   |
| Balance at  March 31, 2003                                            |   | 128        |   | — |   | 35,284                                              |   | (3,884                                      | )      | (79,416                  | )      | (48,016   | )      |
| Dividend to  Parent                                                        |   | —     |   | — |   | (5,781                                              | )      | —                                      |   | —                   |   | (5,781    | )      |
| Foreign currency  translation adjustment                                   |   | —     |   | — |   | —                                              |   | 412                                         |   | —                   |   | 412       |   |
| Additional  minimum pension liability                                      |   | —     |   | — |   | —                                              |   | 774                                         |   | —                   |   | 774       |   |
| Net income                                                                 |   | —     |   | — |   | —                                              |   | —                                      |   | 15,252                   |   | 15,252    |   |
| Balance at  March 31, 2004                                            |   | 128        |   | $      | — |                                                | $      | 29,503                                      |   | $                        | (2,698 | )         | $      | (64,164 | ) | $ | (37,359 | ) |

 

See accompanying notes.

 

F-5

----

 

**EARLE M.JORGENSEN COMPANY**

 

#### **CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(dollarsin thousands)**

 
|                                                                               |   | **Year Ended  March 31,** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                               |   | **2002**                       |   | **2003** |   | **2004** |   |
| **Operating  activities:**                                                         |   |                           |   |   |   |   |   |
| Net income                                                                         |   | $                              | 5,354  |   | $ | 2,382 |   | $ | 15,252 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                           |   |   |   |   |   |
| Loss on early  retirement of debt                                                  |   | —                         |   | 12,278 |   | — |   |
| Depreciation and  amortization                                                     |   | 11,449                         |   | 11,369 |   | 11,284 |   |
| Amortization and  write-off of debt issue costs included in interest expense       |   | 1,792                          |   | 1,416 |   | 1,323 |   |
| Accrued  postretirement benefits                                                   |   | 249                            |   | 498 |   | 619 |   |
| Gain on sale of  property, plant and equipment                                     |   | (36                            | )      | (183 | ) | (1,335 | ) |
| Provision for  bad debts                                                           |   | 2,434                          |   | 2,649 |   | 2,880 |   |
| Increase in cash  surrender value of life insurance over premiums paid             |   | (2,174                         | )      | (2,242 | ) | (5,276 | ) |
| Changes in  operating assets and liabilities:                                      |   |                           |   |   |   |   |   |
| Decrease  (increase) in accounts receivable                                        |   | 15,510                         |   | (10,662 | ) | (38,680 | ) |
| Decrease  (increase) in inventories                                                |   | 31,712                         |   | (26,722 | ) | (11,658 | ) |
| Decrease  (increase) in other current assets                                       |   | 960                            |   | 134 |   | (1,932 | ) |
| (Decrease)  increase in accounts payable and accrued liabilities and expenses      |   | (53,491                        | )      | 40,608 |   | 55,238 |   |
| Decrease  (increase) in non-trade receivables                                      |   | 1,681                          |   | (1,637 | ) | 679 |   |
| Other                                                                              |   | (896                           | )      | 1,086 |   | 1,097 |   |
| Net cash  provided by operating activities                                         |   | 14,544                         |   | 30,974 |   | 29,491 |   |
| **Investing  activities:**                                                         |   |                           |   |   |   |   |   |
| Additions to  property, plant and equipment                                        |   | (24,531                        | )      | (15,335 | ) | (10,530 | ) |
| Proceeds from  the sale of property, plant and equipment                           |   | 116                            |   | 2,440 |   | 1,540 |   |
| Premiums paid on  life insurance policies                                          |   | (1,461                         | )      | (1,335 | ) | (1,298 | ) |
| Proceeds from  redemption of life insurance policies                               |   | 1,124                          |   | 195 |   | 2,892 |   |
| Net cash used in  investing activities                                             |   | (24,752                        | )      | (14,035 | ) | (7,396 | ) |
| **Financing  activities:**                                                         |   |                           |   |   |   |   |   |
| Net borrowings  (payments) under revolving loan agreements                         |   | 25,111                         |   | (9,958 | ) | (19,399 | ) |
| Proceeds from  issuance of senior debt                                             |   | —                         |   | 250,000 |   | — |   |
| Repayment of  term loan                                                            |   | —                         |   | (96,000 | ) | — |   |
| Repayment of  senior debt                                                          |   | —                         |   | (105,000 | ) | — |   |
| Payment of debt  issue costs                                                       |   | —                         |   | (10,669 | ) | — |   |
| Other costs paid  in connection with early retirement of debt                      |   | —                         |   | (9,596 | ) | — |   |
| Other debt  payments, net                                                          |   | (2,400                         | )      | (1,400 | ) | (1,400 | ) |
| Cash dividend to  Parent                                                           |   | (14,963                        | )      | (35,587 | ) | (5,781 | ) |
| Net cash  provided (used) in financing activities                                  |   | 7,748                          |   | (18,210 | ) | (26,580 | ) |
| Effect of  exchange rate changes on cash                                           |   | 2                              |   | 1 |   | (17 | ) |
| Net decrease in  cash                                                              |   | (2,458                         | )      | (1,270 | ) | (4,502 | ) |
| Cash at  beginning of year                                                         |   | 23,758                         |   | 21,300 |   | 20,030 |   |
| Cash at end of  year                                                               |   | $                              | 21,300 |   | $ | 20,030 |   | $ | 15,528 |   |

 

See accompanying notes.

 

F-6

----

 

#### **EARLE M. JORGENSEN COMPANY**

#### ** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**March 31,2004**

 

**1.  Summary of SignificantAccounting Policies**

 

*Basisof Presentation and Consolidation*—Earle M. Jorgensen Company(the “Company”) became a wholly-owned subsidiary of Earle M. Jorgensen HoldingCompany, Inc. (the “Parent”) as the result of a series of business combinationsand mergers effective April 1, 1990.

 

The accompanying consolidated financial statementsinclude the accounts of the Company and its wholly-owned subsidiaries includingEarle M. Jorgensen (Canada) Inc. (“EMJ (Canada)”) and Stainless Insurance Ltd.,a captive insurance subsidiary (“EMJ (Bermuda)”). In fiscal years 2002, 2003and 2004, EMJ (Canada) generated net income (loss) of $(325,000), $1,153,000and $3,282,000, respectively. In fiscal years 2002, 2003 and 2004, EMJ(Bermuda) generated net income (loss) of $(2,056,000), $540,000 and $(609,000),respectively, including investment income and intercompany fees. The loss infiscal year 2002 and 2004 was attributable to higher loss reserves establishedin connection with the Company’s self-insured workers compensation program. Allsignificant intercompany accounts and transactions have been eliminated.

 

*CompanyBackground and Segment Information*—The Company distributes abroad line of bar, tubing, plate and various other metal products and valueadded services through a network of 36 service centers and value-addedprocessing operations strategically located throughout North America.  Metals products sold by the Company arepurchased from various primary metal producers and suppliers, none of whichprovided more than 10% of the Company’s total purchases in fiscal year2004.  The Company has over 35,000customers, none of which represented more than 2% of the Company’s grossrevenues in fiscal year 2004.

 

For financial reporting purposes, the Company operatesin one reportable segment—the metals service center industry—as determined inaccordance with SFAS No. 131, *DisclosuresAbout Segments of an Enterprise and Related Information*.

 

*Reclassification*—Certainamounts reported in prior years have been reclassified to conform to the 2004presentation.

 

*Use ofEstimates*—The preparation of financial statements inconformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses and related disclosure of contingentassets and liabilities.  Actual resultscould differ significantly from those estimates and judgments under differentassumptions and conditions.

 

*RevenueRecognition*—The Company recognizes revenue associated with asales order when product is shipped, title is passed and collectibility isreasonably assured.

 

*Shippingand Handling Costs*—Costs incurred in connection with shippingand handling the Company’s products are classified as warehouse and deliveryexpenses in the accompanying statements of operations.

 

*AccountsReceivable and Concentration of Credit Risk*—The Company sellsthe majority of its products throughout the United States and Canada. Sales tothe Company’s recurring customers are generally made on open account termswhile sales to occasional customers are made on a C.O.D. basis whencollectibility is not assured. The Company performs periodic credit evaluationsof its ongoing customers and generally does not require collateral. The Companyestablishes an allowance for potential credit losses based upon factorssurrounding the credit risk for specific customers, historical trends and otherinformation; such losses have been within management’s expectations, and werehigher in fiscal year 2004 when compared to fiscal years 2003 and 2002. TheCompany’s allowance for doubtful accounts at March 31, 2003 and 2004 was$390,000 and $601,000, respectively. Management believes there are nosignificant concentrations of credit risk as of March 31, 2004.

 

F-7

----

 

*Property,Plant and Equipment*—Property, plant and equipment is recordedat cost. Additions, renewals and betterments are capitalized; maintenance andrepairs, which do not extend useful lives, are expensed as incurred. Gains orlosses from disposals are reflected in income and the related costs andaccumulated depreciation are removed from the accounts. Depreciation andamortization is computed using the straight-line method over the estimateduseful lives of 10 to 40 years for buildings and improvements and three to 20years for machinery and equipment. Leasehold improvements are amortized overthe terms of the respective leases. Depreciation expense was $9,787,000 and $9,703,000 in fiscal 2003 andfiscal 2004, respectively.

 

The Company capitalizes certain costs incurred duringthe development of software used internally and amortizes such costs over theirestimated useful lives. During fiscal years 2002, 2003 and 2004, such coststotaling $414,000, $220,000 and $274,000, respectively, were capitalized.

 

Long-lived assets, primarily land, buildings,leasehold improvements and certain equipment, used in operations or areexpected to be disposed of are reviewed for impairment whenever events orchanges in circumstances indicate that full recoverability is questionable.Factors used in the evaluation include, but are not limited to, future plansfor the operations, recent operating results and forecasted cash flows.  When indicators of impairment are presentand the undiscounted cash flows estimated to be generated by those assets areless than the carrying value of the assets, the assets are written down and animpairment loss is recognized. There were no impairment losses recorded infiscal years 2002, 2003, and 2004.

 

*DebtIssue Costs*—Debt issue costs are deferred and amortized tointerest expense over the life of the underlying indebtedness. For the fiscalyears ended March 31, 2002, 2003 and 2004, amortization of debt issuecosts was $1,792,000, $1,416,000 and $1,323,000, respectively.  Accumulated amortization of debt issue costswas $1,263,000 and $2,586,000 at March 31, 2003 and 2004, respectively.

 

*Stock-Based Compensation*—Stockoptions granted to directors, officers and other key employees of the Companyunder Holding’s stock option plan adopted in January 1997 are accountedfor in accordance with APB No. 25. As all stock option grants are made at fairvalue on the date of grant, the Company recognizes no compensation cost.  Had compensation expense for stock optionsgranted been recorded based on the fair value method under SFAS No. 123, asamended by SFAS No. 148, *Accounting forStock-Based Compensation-Transition and Disclosure*, the effect onthe Company’s net income for fiscal years 2002, 2003 and 2004 would have beenas follows:

 
|                                                                                                                |   | **Year Ended  March 31,** |      |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                                                                                |   | **2002**                       |      | **2003** |   | **2004** |   |
| Net income, as  reported                                                                                            |   | $                              | 5,354,000 |   | $ | 2,382,000 |   | $ | 15,252,000 |   |
| Deduct:  total stock-based compensation expense  determined using fair value method for all awards, net of tax |   | (209,000                       | )         | (138,000 | ) | (74,000 | ) |
| Net income, as  adjusted                                                                                            |   | $                              | 5,145,000 |   | $ | 2,244,000 |   | $ | 15,178,000 |   |

 

*IncomeTaxes*—The Company is included in the consolidated tax returnsof Parent and calculates its tax provision as though it files on a separatebasis. The consolidated tax liability of the Company and Parent is allocated toeach of these entities pursuant to a Tax Allocation Agreement between theCompany and Parent (“Tax Allocation Agreement”). Under the Tax AllocationAgreement, Parent pays all taxes and is reimbursed by the Company for thelesser of (i) the Company’s allocated portion of the taxes due, or (ii) the taxthat would be payable if the Company filed its own returns.

 

The Company records deferred taxes based upondifferences between the financial statement and tax basis of assets andliabilities pursuant to SFAS No. 109, *Accountingfor Income Taxes*, as though it files on a separate basis. Anydifferences in deferred taxes determined on a separate basis and the actualpayments made or received under the Tax Allocation Agreement are accounted foras an equity adjustment between the Company and Parent. There were no suchdifferences in fiscal year 2004. Deferred taxes are also recorded for thefuture benefit of Federal and state tax losses and tax credit carryforwards.Consistent with SFAS No. 109, a valuation allowance has been recognized forcertain deferred tax assets, which management believes are not likely to berealized (see Note 6).

 

*ForeignCurrency Translation*—The financial statements of foreignsubsidiaries are translated into U.S. dollars in accordance with SFAS No. 52, *Foreign Currency Translation*. Balancesheet accounts are translated using the year-end exchange rates while incomestatement amounts are translated using the average exchange rates for eachyear. Adjustments resulting from translation of foreign currency financialstatements are included in accumulated other comprehensive loss instockholder’s equity. No significant exchange gains and losses were recordedduring fiscal 2004, 2003 and fiscal 2002.

 

F-8

----

 

*Cashand Statements of Cash Flows*—Cash includes disbursements anddeposits not yet funded by or applied to the Company’s Revolving CreditFacility as of a balance sheet date and cash and cash equivalents totaling$2,940,000 and $2,004,000 as of March 31, 2003 and 2004, respectively,held by EMJ (Bermuda) in connection with providing insurance to theCompany.  The Company considers allhighly liquid investments purchased with a maturity of three months or less tobe cash equivalents.

 

For the years ended March 31, 2002, 2003 and 2004cash paid for interest on borrowings was $39,942,000, $37,674,000 and$48,623,000, and net cash paid (refunded) for income taxes was $403,000,$(551,000) and $671,000, respectively.

 

*ComprehensiveIncome*—Components of the Company’s comprehensive incomeinclude foreign currency translation adjustments, additional minimum pensionliability and accounting for certain derivatives.

 

*Impact of Recently IssuedAccounting Standards*

* *

In December 2003, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards(“SFAS”) No. 132 (revised December 2003), *Employers’Disclosures about Pensions and Other Postretirement Benefits (SFAS 132-R)*.This statement amends the disclosure requirements of SFAS 132 to require moredetails about retirement plan assets, benefit obligations, cash flows and otherrelevant information. SFAS 132-R is effective for years ending afterDecember 15, 2003, except certain benefit payment and international plandisclosures that are effective for fiscal years after June 15, 2004. Theadoption of the disclosure provisions of SFAS 132-R did not have a materialeffect on the Company’s consolidated financial statements.

 

In May2003, the FASB issued SFAS No. 150, *Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity*, which establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equities. The provisions of SFAS No. 150 are effective for financialinstruments entered into or modified after May 31, 2003. For nonpubliccompanies (under which the Company is classified, as defined by SFAS No. 150),application is effective in the fiscal period beginning after December 15,2003. The Company is in the process of assessing the effect of adopting SFASNo. 150.

 

InApril 2003, FASB issued SFAS No. 149, *Amendmentof Statement 133 on Derivative Instruments and Hedging Transactions*,which amends and clarifies financial accounting and reporting for derivativeinstruments, including those embedded in other contracts, and for hedgingactivities under SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*.  The provisions of SFAS No. 149 are effectivefor contracts entered into or modified after June 30, 2003. As ofMarch 31, 2004, the Company had no such instruments.

 

InJanuary 2003, FASB issued FASB Interpretation No. 46 (“FIN No. 46”), *Consolidation of Variable Interest Entities,*to expand upon and strengthen existing accounting guidance that addresses whena company should include in its financial statements the assets, liabilitiesand activities of another entity. The disclosure requirements in thisinterpretation are effective for the Company for financial statements ofinterim and annual periods beginning with the first annual reporting periodbeginning after December 15, 2004, except immediate implementation isrequired for variable interest entitites after December 31, 2003. Thisstatement did not have an effect on the accompanying consolidated financialstatements as of and for the periods ending March 31, 2004.

 

**2.  Inventories**

 

Substantially all inventories are held for sale at theCompany’s service center locations and are valued at the lower of cost (usingthe last-in, first-out (LIFO) method) or market. If the Company had used thefirst-in, first-out (FIFO) method of inventory valuation, inventories wouldhave been lower by $11,786,000 at March 31, 2003 and higher by $2,557,000at March 31, 2004.

 

Any reduction of inventory quantities that liquidatesLIFO inventories carried at costs lower or higher than costs prevailing inprior years may have a significant effect on the Company’s gross profit.  Such a reduction and liquidation occurredduring fiscal year 2002 and fiscal year 2004, but did not have a significanteffect on gross profit. There were no such reductions in fiscal year 2003.

 

F-9

----

 

**3.  Net Property, Plant andEquipment**

 

Property, plant and equipment (including in-processcosts for assets not yet placed in service) and accumulated depreciation atMarch 31, 2003 and 2004 consisted of the following:

 
|                                  |   | **2003**    |        | **2004**    |   |
|---------------------------------------|--------|-------------|-------------|-------------|--------|
| Land                                  |   | $           | 18,867,000  |        | $      | 18,622,000 |   |
| Buildings and  leasehold improvements |   | 51,056,000  |        | 52,196,000  |   |
| Machinery and  equipment              |   | 118,166,000 |        | 116,319,000 |   |
| In-process costs                      |   | 6,807,000   |        | 1,921,000   |   |
|                                  |   | 194,896,000 |        | 189,058,000 |   |
| Less accumulated  depreciation        |   | 81,859,000  |        | 76,868,000  |   |
| Net property,  plant and equipment    |   | $           | 113,037,000 |        | $      | 112,190,000 |   |

 

The in-process costs at March 31, 2004 areprimarily attributable to progress payments made on equipment for our tubehoning facility and in Tulsa, Oklahoma and building renovation in our Tulsa,Oklahoma service center. As of March 31, 2004 such costs include$1,300,000. Estimated remaining costs to be incurred in connection with theseprojects total $800,000 and are expected to be paid during fiscal year 2005.

 

**4.  Cash Surrender Value ofLife Insurance**

 

The Company is the owner and beneficiary of lifeinsurance policies on all former nonunion employees of a predecessor companyincluding certain current employees of the Company and its Parent. The Companyis also the owner and beneficiary of key man life insurance policies on certaincurrent and former executives of the Company and predecessor companies. Thesepolicies are designed to provide cash to the Company to repurchase shares heldby employees in the Company’s Stock Bonus Plan and shares held individually byemployees upon the termination of their employment. Cash surrender value of thelife insurance policies increases by a portion of the amount of premiums paidand by dividend income earned under the policies. Dividend income earned underthe policies totaled $13,521,000, $17,156,000 and $17,751,000 in fiscal years2002, 2003 and 2004, respectively, and is recorded as an offset to general andadministrative expense in the accompanying statements of operations.

 

The Company has borrowed against the cash surrendervalue of certain policies to pay a portion of the premiums and accrued intereston those policies and to fund working capital needs. Interest rates onborrowings under the life insurance policies are fixed at 11.76%. As ofMarch 31, 2004, approximately $10,295,000 was available for futureborrowings.

 

|                            |   | **Surrender  value before  loans** |        | **Loans  Outstanding** |   | **Net cash  surrender  value** |   |
|---------------------------------|--------|------------------------------------|-------------|------------------------|--------|--------------------------------|--------|
| Balance at  March 31, 2003 |   | $                                  | 195,976,000 |                   | $      | 164,969,000                    |   | $ | 31,007,000 |   |
| Balance at  March 31, 2004 |   | 217,320,000                        |        | 182,631,000            |   | 34,689,000                     |   |
|                                 |        |                                    |             |                        |        |                                |        |  |  |  |

 

Interest on cash surrender value borrowings totaled$15,996,000, $17,796,000 and $20,082,000 in fiscal years 2002, 2003 and 2004,respectively, and is included in net interest expense in the accompanyingstatements of operations.

 

F-10

----

 

**5.  Long-Term Debt**

 

Long-term debt at March 31, 2003 and 2004consisted of the following:

 
|                                                                                                                                  |   | **2003**    |        | **2004**    |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| Revolving Loans  (including $1,195,000 and $1,861,000 at March 31, 2003 and 2004,  respectively, related to a Canadian facility) |   | $           | 72,937,000  |        | $      | 53,538,000 |   |
| 93/4%  Senior Secured Notes due June 1, 2012                                                                                     |   | 250,000,000 |        | 250,000,000 |   |
| Industrial  Development Revenue Bonds:                                                                                                |   |        |        |        |   |
| Payable in  annual installments of $500,000 commencing June 1, 1998, interest at 9%                                              |   | 1,500,000   |        | 1,000,000   |   |
| 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%                                      |   | 1,800,000   |        | 900,000     |   |
|                                                                                                                                  |   | 330,537,000 |        | 309,738,000 |   |
| Less current  portion                                                                                                                 |   | 2,330,000   |        | 3,976,000   |   |
|                                                                                                                                  |   | $           | 328,207,000 |        | $      | 305,762,000 |   |

 

Aggregate maturities of long-term debt are as follows:$3,976,000 in fiscal year 2005; $1,215,000 in fiscal year 2006; $52,392,000 infiscal year 2007; $715,000 in fiscal year 2008, $715,000 in fiscal year 2009and $250,725,000 thereafter.

 

The fair value of the Senior Secured Notes atMarch 31, 2004 was $280,000,000 based on the quoted market prices as ofthat date. The carrying values of all other long-term debt and other financialinstruments at March 31, 2004 approximate fair value.

 

On May 22, 2002, the Company completed the issuance and sale of 9 3/4% Senior Secured Notes due 2012 totaling $250,000,000, theproceeds from which were used to (i) redeem $105 million in aggregate principalamount of the outstanding 91⁄2% senior notes, plus call premium and accruedinterest, (ii) prepay $96 million of the term loan plus accrued interest, and(iii) terminate the interest rate swap agreement. As a result of thisrefinancing transaction, the Company recorded an extraordinary loss of$12,278,000 related to the early retirement of debt, consisting of the callpremium paid, a payment to terminate the interest rate swap agreement, thewrite-off of deferred financing costs, and certain other expenses incurred inconnection with the refinancing transaction. No tax benefit was recorded in connection with this loss due to theuncertainty in realizing the resulting deferred tax asset.

 

**Credit Agreements**

 

The Company’s revolving credit facility (“CreditAgreement”), allows maximum borrowings of $200 million, including letters ofcredit ($8,560,000 outstanding at March 31, 2004).  Borrowings under the Credit Agreement bearinterest at a base rate (generally defined as the greater of bank’s primelending rate or 1/2% over the Federal Funds Rate) plus 1.25% or the adjustedEurodollar rate plus 2.50%.  AtMarch 31, 2004, the bank’s prime lending rate was 4.00% and the Eurodollarrate was 1.09%. In addition, borrowings under the revolving loans are limitedto an amount equal to 85% of eligible trade receivables (as defined) plus 55%of eligible inventories (as defined). Unused available borrowings under therevolving loans totaled $139,763,000 at March 31, 2004. The Credit Agreementmatures on April 7, 2006 and is secured by a lien on all domesticinventory and accounts receivable of the Company.

 

Under the Credit Agreement, the Company is obligatedto pay certain fees including an unused commitment fee of 0.5%, payablequarterly in arrears, and letter of credit fees of 2.50% per annum of themaximum amount available to be drawn under each letter of credit, payablequarterly in arrears, plus issuance, fronting, amendment and other standardfees. The Company paid loan commitment fees totaling $480,000 in fiscal year2002, $584,000 in fiscal year 2003, and $447,000 in fiscal year 2004.

 

The Credit Agreement contains financial covenants inrespect of maintenance of minimum working capital and a fixed charge coverageratio (as defined). The Credit Agreement also limits, among other things, theincurrence of liens and other indebtedness, mergers, consolidations, the saleof assets, annual capital expenditures, advances, investments and loans by theCompany and its subsidiaries, dividends and other restricted payments by theCompany and its subsidiaries in respect to their capital stock, and certaintransactions with affiliates.

 

F-11

----

 

The Company’s Canadian subsidiary maintains a one yearrenewable credit facility (the “Canadian Facility”) totaling CAD$9,000,000including (i) a revolving credit facility of CAD$5,500,000, (ii) a termfinancial instruments facility of CAD$3,000,000 for hedging foreign currencyand rate fluctuations (unused as of March 31, 2004), and (iii) a specialcredit facility for the issuance of a letter of guarantee up to CAD$500,000 inconnection with the lease for the Toronto facility. Borrowings under therevolving credit facility are limited to an amount equal to 80% of eligibletrade receivables (as defined) plus 40% of eligible inventories (as defined,and limited to CAD$1,500,000), are repayable on demand, and bear interest atthe bank’s annual prime lending rate plus 0.50%. At March 31, 2004, theinterest rate on the revolving credit facility was 4.50%. The revolving creditfacility contains financial covenants in respect of maintenance of minimumequity and a debt-to-equity ratio (as defined) and has other restrictionssimilar to those under the amended Credit Agreement, as described above.

 

**Senior Secured Notes**

 

On May 22, 2002, the Company refinanced its 91⁄2% seniornotes and variable rate term loan by issuing $250 million of 9 3/4% Senior Secured Notes due 2012.  The 9 3/4% Senior Secured Notes were issued atpar and interest payments are made semi-annually on June 1 andDecember 1, commencing on December 1, 2002.  The 9 3/4% Senior Secured Notes are secured bya first-priority lien (subject to permitted liens) on substantially all of theCompany’s existing and future acquired unencumbered property, plant andequipment and may be redeemed by the Company under certain conditions and withcertain restrictions at varying redemption prices. The Indenture to the 9 3/4% Senior Secured 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 otherdistributions, and certain transactions with affiliates.

 

**Derivative Instrument**

 

In June 1998, the Company entered into aninterest rate swap agreement with Deutsche Bank Trust Company Americas(“DBTCA”) that effectively fixed the interest rate on the variable rate termloan at approximately 9.05% through June 2003 (the “Fixed Rate”). Suchagreement required DBTCA to make payments to the Company each quarter in anamount equal to the product of the notional amount of $95 million and thedifference between the three month London Interbank Offered Rate and 3.25%(“Floating LIBOR”) and the Fixed Rate, if the Floating LIBOR was greater thanthe Fixed Rate on a per diem basis. If Floating LIBOR was lower than the FixedRate, the Company was required to pay DBTCA an amount equal to the product ofthe notional amount and the difference between the Fixed Rate and FloatingLIBOR on a per diem basis. Under the provisions described above, net payments(receipts) in fiscal years 2001 and 2002 were $(721,000) and $2,248,000,respectively.  Because the interest rateswap agreement was terminated in May 2002 in connection with the prepayment ofthe Company’s term loan resulting from the issuance and sale of the 93/4%Senior Secured Notes described above, no quarterly settlements were required infiscal year 2003.

 

The interest rate swap agreement was considered ahighly effective cash flow hedge under the provisions of SFAS No. 133, asamended, which was adopted by the Company effective April 1, 2001. UnderSFAS No. 133, the effective portion of gain or loss resulting from changes inthe fair value of the interest rate swap agreement is reported in othercomprehensive income while the ineffective portion is recognized in netincome.  For the year endedMarch 31, 2002, a loss of $2,925,000 was recognized in other comprehensiveincome and a loss of $100,000 was recognized in net income. As ofMarch 31, 2002, the interest rate swap agreement represented a long-termliability with a fair market value of $3,025,000, as calculated under theprovisions of SFAS No. 133.  In connectionwith the issuance and sale of the 9 3/4%Senior Secured Notes, the Company paid $3,025,000 to terminate the interestrate swap agreement, which was recognized as part of the loss of $12,278,000related to the early retirement of debt.

 

**Other**

 

The Company’s industrial revenue development bonds wereissued in connection with significant facility improvements or constructionprojects.

 

F-12

----

 

**6.  Income Taxes**

 

Significant components of the provision for incometaxes attributable to continuing operations for the years ended March 31,2002, 2003 and 2004 were as follows:

 
|                  |   | **2002**   |    | **2003**  |   | **2004**   |   |
|-----------------------|--------|------------|---------|-----------|--------|------------|--------|
| Current:              |   |       |    |      |   |       |   |
| Federal               |   | $          | (49,000 | )         | $      | 435,000    |   | $ | — |   |
| State                 |   | 492,000    |    | 492,000   |   | 1,458,000  |   |
| Foreign               |   | 12,000     |    | 573,000   |   | 1,669,000  |   |
| Total current         |   | 455,000    |    | 1,500,000 |   | 3,127,000  |   |
| Deferred:             |   |       |    |      |   |       |   |
| Federal               |   | (3,277,000 | )       | 373,000   |   | (1,666,000 | )      |
| State                 |   | (482,000   | )       | 42,000    |   | (995,000   | )      |
| Valuation  allowances |   | 3,759,000  |    | (415,000  | )      | 2,661,000  |   |
| Total deferred        |   | —     |    | —    |   | —     |   |
|                  |   | $          | 455,000 |      | $      | 1,500,000  |   | $ | 3,127,000 |   |

 

The reconciliation of the income tax provision differsfrom that which would result from applying the U.S. statutory rate for yearsended March 31, 2002, 2003 and 2004 were as follows:

 
|                                                                 |   | **2002**   |      | **2003**   |   | **2004**   |   |
|----------------------------------------------------------------------|--------|------------|-----------|------------|--------|------------|--------|
| Expected tax at  Federal statutory rate                              |   | $          | 2,033,000 |       | $      | 5,656,000  |   | $ | 6,433,000 |   |
| State franchise  tax expense and capital taxes, net of Federal taxes |   | 320,000    |      | 320,000    |   | 948,000    |   |
| Expiration of  capital loss carryforward                             |   | —     |      | 5,618,000  |   | —     |   |
| Net increase in  cash surrender values of life insurance             |   | (4,732,000 | )         | (6,005,000 | )      | (6,213,000 | )      |
| Change in  valuation allowance                                       |   | 3,759,000  |      | (415,000   | )      | 2,661,000  |   |
| Other                                                                |   | (925,000   | )         | (3,674,000 | )      | (702,000   | )      |
|                                                                 |   |       |      |       |   |       |   |
| Income tax  provision                                                |   | $          | 455,000   |       | $      | 1,500,000  |   | $ | 3,127,000 |   |

 

The change of $2,661,000 in the valuation allowancefor deferred tax assets as of March 31, 2004 was due primarily to thegeneration of a tax loss in fiscal year 2004.

 

Income before taxes consists primarily of income fromthe Company’s domestic operations. For fiscal years 2002, 2003 and 2004, theCompany’s foreign operations, including the captive insurance subsidiary,generated pre-tax income (loss) of $(2,369,000), $2,267,000 and $4,342,000,respectively.

 

Significant components of the Company’s deferredincome tax assets and liabilities at March 31, 2003 and 2004 were asfollows:

 
|                                               |   | **2003**    |       | **2004**    |   |
|----------------------------------------------------|--------|-------------|------------|-------------|--------|
| Deferred tax  liabilities:                         |   |        |       |        |   |
| Tax over book  depreciation                        |   | $           | 7,709,000  |        | $      | 8,893,000 |   |
| Purchase price  adjustments                        |   | 35,846,000  |       | 35,210,000  |   |
| Total deferred  tax liabilities                    |   | 43,555,000  |       | 44,103,000  |   |
| Deferred tax  assets:                              |   |        |       |        |   |
| Net operating  loss and credit carryforwards       |   | 19,473,000  |       | 21,142,000  |   |
| Capital loss  carryforward                         |   | —      |       | —      |   |
| Workers  compensation and other insurance accruals |   | 3,011,000   |       | 3,438,000   |   |
| Inventory and  related reserves                    |   | 4,105,000   |       | 5,024,000   |   |
| Other                                              |   | 1,858,000   |       | 2,052,000   |   |
| Valuation  allowance for deferred tax assets       |   | (20,278,000 | )          | (22,939,000 | )      |
| Net deferred tax  assets                           |   | 8,169,000   |       | 8,717,000   |   |
| Net deferred tax  liabilities                      |   | $           | 35,386,000 |        | $      | 35,386,000 |   |

 

F-13

----

 

At March 31, 2004, the Company had net operatingloss carryforwards of $49,214,000 for Federal income tax purposes and$29,870,000 for State income tax purposes. The Federal carryforwards resultedfrom the Company’s losses during 1993, 1996 and 2002, and expire in years 2008,2011 and 2022, respectively, while the State carryforwards were generated invarious states over various years. The ultimate realization of the benefits ofthese loss carryforwards is dependent on future profitable operations. Inaddition, use of the Company’s net operating loss carryforwards and other taxattributes may be substantially limited if a cumulative change in ownership ofmore than 50% occurs within any three year period subsequent to a lossyear.  At March 31, 2004, theCompany had an alternative minimum tax carryforward of approximately $2,364,000which can be utilized over an indefinite period of time.

 

On September 11, 2002, new tax laws were enactedin California that suspend the use of net operating tax carryforwards intoyears beginning on or after January 1, 2002 and 2003.  Accordingly, net operating losses generatedin California in prior tax years cannot be used to offset the Company’s taxableincome for the years ended March 31, 2003 and 2004.  This suspension will not apply to tax yearsbeginning on or after January 1, 2004 and did not have a material impacton the Company’s results of operations for the year ended March 31, 2004.

 

The Company has not provided for taxes onundistributed earnings from its non-U.S. subsidiaries because such earnings areintended to be re-invested indefinitely. If these earnings were distributed, foreign tax credits may becomeavailable under current tax law to reduce the resulting U.S. tax liability.

 

**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 toApril 1, 1999) which covers nonunion employees of the Company who meet certainservice requirements. The cost of the Plan is borne by the Company throughannual contributions to a trust in amounts determined by the Board ofDirectors. Prior to an agreement reached with the Department of Labor inJanuary 2003 (see Note 8), contributions were made in cash or shares ofthe Parent’s stock as the Parent’s Board of Directors may from time to timedetermine. Participants vest at a rate of 20% per year of service and becomefully vested at age 65 or upon retirement, disability or death. Upon theoccurrence of a participant’s termination (as defined), retirement, disability,or death, the Plan is required to either distribute the vested balance in stockor to repurchase the vested balance for cash (as determined by the BenefitsCommittee). If stock is distributed, it is accompanied by a put option to theParent under terms defined in the Plan. Shares of the Parent’s Series A and Bpreferred and common stock owned by the Plan totaled 38,282, 28,730 and2,652,874 at March 31, 2004, respectively. For fiscal years endedMarch 31, 2002, 2003 and 2004, contributions payable to the Plan’s trusttotaled $2,831,000, $2,772,000 and $2,783,000 which represented 5% of eligiblecompensation for each of the respective years. The contributions payable as ofMarch 31, 2002, 2003 and 2004 have been or will be paid in cash. TheCompany recognizes the cost of the Plan as compensation expense with acorresponding amount reflected in its capital for the value of the Parent’scommon stock contributed to the trust by the Parent, or as a dividend to Parentfor contributions paid in cash.

 

The Company also has a supplemental stock bonus planto include highly compensated employees and other employees, who are noteligible to participate in the Plan. Contributions payable, vesting anddistributions in the supplemental plan are comparable to those under the Plan.Contributions under this supplemental plan are made in cash and are held in anirrevocable trust. For the fiscal years ended March 31, 2002, 2003 and 2004,contributions payable totaled $76,000, $78,000 and $90,000, respectively.

 

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

 

On December 8, 2003, the Medicare PrescriptionDrug Improvement and Moderization Act of 2003 (the “Act”) was signed into law.The impact of the Act is not reflected in any amounts disclosed in thefinancial statements or accompanying notes. The Company is currently reviewingthe effects of the Act will have on its plans and expects to complete thatreview during fiscal 2005. In addition, the Company is waiting for guidancefrom the United States Department of Health and Human Services on how theemployer subsidy provision will be administered and from the FASB on how theimpact of the Act should be recognized in the financial statements.

 

**Pension Plans**

 

The Company maintains a noncontributory definedbenefit pension plan covering substantially all hourly union employees (the“Hourly Plan”). Benefits under the Hourly Plan are vested after five years andare determined based on years of service and a benefit rate that is negotiatedwith each union. The assets of the Hourly Plan for participants are held intrust and consist of bonds, equity securities and insurance contracts. TheCompany contributes at least the minimum required annually under ERISA. TheCompany also maintains an unfunded supplemental pension plan, which providesbenefits to highly compensated employees; this plan has been frozen to includeonly existing participants (the “Supplemental Plan”).

 

F-14

----

 

Components of net periodic pension cost (credit)associated with the Company’s pension plans for years ended March 31,2002, 2003 and 2004 are as follows:

 
|                                               |   | **2002**   |    | **2003** |   | **2004** |   |
|----------------------------------------------------|--------|------------|---------|----------|--------|----------|--------|
| Service cost of  benefits earned during the period |   | $          | 433,000 |     | $      | 432,000  |   | $ | 523,000 |   |
| Interest cost on  projected benefit obligation     |   | 784,000    |    | 843,000  |   | 879,000  |   |
| Expected return  on plan assets                    |   | (1,017,000 | )       | (864,000 | )      | (763,000 | )      |
| Amortization of  prior service cost                |   | (95,000    | )       | (47,000  | )      | (37,000  | )      |
| Recognized net (gain)  loss                        |   | (66,000    | )       | 21,000   |   | 267,000  |   |
|                                               |   | $          | 39,000  |     | $      | 385,000  |   | $ | 869,000 |   |

 
| **Categories of plan assets** |   | **2003** |   | **2004** |   |
|-------------------------------|--------|----------|--------|----------|--------|
| Bonds                         |   | 13       | %      | 14       | %      |
| Stocks                        |   | 87       | %      | 86       | %      |

 

Expected contributions in the next fiscal year will be $700,000.

 

Theplan is 100% invested in Wells Fargo Asset Allocations Collective InvestmentFund (the “Fund”). The Fund seeks long-term total return, consistent withreasonable risk, by shifting investments among stocks and U.S. Treasurylong-term bonds using a quantitative asset allocation strategy. The Fundinvests in common stocks that comprise the S&P 500 Index and bonds thatcomprise the Lehman Brothers 20+ Tresury Bond Index. The Fund will remain nearits strategic allocation of 60% stocks and 40% bonds the majority of the timeto maximize the probability of achieving its long-term risk and returnobjectives.

 

Thefollowing provides a reconciliation of the changes in the benefit obligationand fair value of plan assets, and the funded (unfunded) status of the pensionplans for the years ended March 31, 2003 and 2004.

 
|                                            |   | **2003**   |       | **2004**   |   |
|-------------------------------------------------|--------|------------|------------|------------|--------|
| Change in  Benefit Obligation:                  |   |       |       |       |   |
| Benefit  obligation at beginning of year        |   | $          | 11,350,000 |       | $      | 14,066,000 |   |
| Service cost                                    |   | 432,000    |       | 523,000    |   |
| Interest cost                                   |   | 843,000    |       | 879,000    |   |
| Change in  assumptions                          |   | 1,414,000  |       | 958,000    |   |
| Amendments                                      |   | 504,000    |       | 67,000     |   |
| Benefit payments                                |   | (514,000   | )          | (545,000   | )      |
| Actuarial  loss/(gain)                          |   | 37,000     |       | (157,000   | )      |
| Benefit  obligation at end of year              |   | 14,066,000 |       | 15,791,000 |   |
| Change in Plan  Assets:                         |   |       |       |       |   |
| Fair value of  plan assets at beginning of year |   | 11,203,000 |       | 9,297,000  |   |
| Actual return on  assets                        |   | (1,434,000 | )          | 2,205,000  |   |
| Benefit payments                                |   | (514,000   | )          | (545,000   | )      |
| Company  contributions                          |   | 92,000     |       | 793,000    |   |
| Fees                                            |   | (50,000    | )          | (31,000    | )      |
| Fair value of  plan assets at end of year       |   | 9,297,000  |       | 11,719,000 |   |
| Unfunded                                        |   | (4,769,000 | )          | (4,072,000 | )      |
| Unrecognized  prior service cost                |   | (236,000   | )          | (131,000   | )      |
| Unrecognized net  actuarial gain                |   | 3,658,000  |       | 2,780,000  |   |
| Net amount  recognized                          |   | $          | (1,347,000 | )          | $      | (1,423,000 | ) |

 

F-15

----

 

Thefollowing provides a reconciliation of the changes in the benefit obligationand fair value of plan assets, and the funded (unfunded) status of the pensionplans for the years ended March 31, 2003 and 2004.

 
|                                                         |   | **2003**   |       | **2004**   |   |
|--------------------------------------------------------------|--------|------------|------------|------------|--------|
| Amounts recognized  in balance sheets consist of:            |   |       |       |       |   |
| Prepaid cost                                                 |   | $          | —     |       | $      | — |   |
| Accrued benefit  liability                                   |   | (4,746,000 | )          | (4,048,000 | )      |
| Accumulated  comprehensive loss-additional minimum liability |   | 3,399,000  |       | 2,625,000  |   |
| Net amount  recognized                                       |   | $          | (1,347,000 | )          | $      | (1,423,000 | ) |
|                                                         |   |       |       |       |   |   |   |
| Weighted-average  assumptions as of March 31:           |   |       |       |       |   |
| Discount rate                                                |   | 6.50       | %          | 6.00       | %      |
| Expected return  on assets                                   |   | 8.25       | %          | 8.25       | %      |
| Rate of  compensation increase                               |   | —     |       | —     |   |
| Measurement date  for assets and liabilities                 |   | 1/1/2003   |       | 1/1/2004   |   |

 

The return on assets assumption assumes a long termreturn of 9% on equity investments and 7% on government bond investments with a60% equity and 40% bond target investment mix. Long-term rates of return onequity investments are trending approximately 7% above current CPI, whilelong-term rates of return on government bond investments are trendingapproximately 5% above current CPI. Current CPI has been approximately 2% forthe last few years.

 

In accordance with union agreements, the Company alsocontributes to multi-employer defined benefit retirement plans coveringsubstantially all union employees of the Company. At March 31, 2004, fourdifferent unions represented approximately 563 of our employees from 16locations (35% of total employees).  Ourcollective bargaining agreements expire at staggered dates through March 2010;bargaining agreements that will expire in fiscal 2005 represent 11% of totalemployees.  Expenses incurred inconnection with these plans totaled $1,015,000, $1,295,000 and $1,798,000 infiscal years 2002, 2003 and 2004, respectively.

 

**Postretirement Benefit Plan**

 

In addition to the Company’s defined benefit pensionplans, the Company sponsors a defined benefit health care plan that providespostretirement medical and dental benefits to eligible full time employees andtheir dependents (the “Postretirement Plan”). The Postretirement Plan is fullyinsured, with retirees paying a percentage of the annual premium. Such premiumsare adjusted annually based on age and length of service of active and retiredparticipants. The Postretirement Plan contains other cost-sharing features suchas deductibles and coinsurance. The Company recognizes the cost of futurebenefits earned by participants during their working careers, as determinedusing actuarial assumptions. Gains and losses realized from the remeasurementof the plan’s benefit obligation are amortized to income over three years.

 

In December 2003, the FASB issued SFAS No. 132(revised December 2003), *Employers’Disclosures about Pensions and Other Postretirement Benefits* (SFAS132-R). This statement amends the disclosure requirements of SFAS 132 torequire more details about retirement plan assets, benefit obligations, cashflows and other relevant information. SFAS 132-R is effective for years endingafter December 15, 2003, except certain benefit payment and internationalplan disclosures that are effective for fiscal years after June 15, 2004.The adoption of the disclosure provisions of SFAS 132-R did not have a materialeffect on the Company’s consolidated financial statements.

 

Components of the net benefit cost associated with theCompany’s Postretirement Plan for years ended March 31, 2002, 2003 and2004 are as follows:

 
|                                               |   | **2002** |    | **2003** |   | **2004** |   |
|----------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Service cost of  benefits earned during the period |   | $        | 223,000 |     | $      | 249,000  |   | $ | 293,000 |   |
| Interest cost on  projected benefit obligation     |   | 211,000  |    | 258,000  |   | 271,000  |   |
| Recognized net  (gain)/loss                        |   | (185,000 | )       | (9,000   | )      | 55,000   |   |
|                                               |   | $        | 249,000 |     | $      | 498,000  |   | $ | 619,000 |   |

 

Thefollowing tables provide a reconciliation of the changes in the benefitobligation and the unfunded status of the Postretirement Plan for the yearsended March 31, 2003 and 2004.

 
|                                               |   | **2003**   |       | **2004**   |   |
|----------------------------------------------------|--------|------------|------------|------------|--------|
| Change in  Benefit Obligation:                     |   |       |       |       |   |
| Benefit  obligation at beginning of year           |   | $          | 3,271,000  |       | $      | 4,328,000 |   |
| Service cost                                       |   | 249,000    |       | 293,000    |   |
| Interest cost                                      |   | 258,000    |       | 271,000    |   |
| Change in  assumptions                             |   | 950,000    |       | 262,000    |   |
| Benefit payments                                   |   | (208,000   | )          | (151,000   | )      |
| Actuarial gains                                    |   | (192,000   | )          | (87,000    | )      |
| Benefit  obligation at end of year                 |   | 4,328,000  |       | 4,916,000  |   |
| Unfunded                                           |   | (4,328,000 | )          | (4,916,000 | )      |
| Unrecognized  prior service cost                   |   | —     |       | —     |   |
| Unrecognized net  actuarial gain                   |   | 358,000    |       | 478,000    |   |
| Accrued benefit  cost                              |   | $          | (3,970,000 | )          | $      | (4,438,000 | ) |
|                                               |   |       |       |       |   |
| Weighted-average  assumptions as of March 31: |   |       |       |       |   |
| Discount rate                                      |   | 6.50       | %          | 6.00       | %      |
| Healthcare cost  trend rate                        |   | 12.00      | %          | 11.00      | %      |
| Measurement date  for assets and liabilities       |   | 1/1/2003   |       | 1/1/2004   |   |

 

F-16

----

 

The healthcare cost trend rate of 11.0% used in thecalculation of net benefit cost of the Postretirement Plan is assumed todecrease 1.0% per year to 6.0% for 2009 and remain at that level thereafter .

 

Assumed healthcare trend rates have a significanteffect on the amounts reported for the Company’s Postretirement Plan. Aone-percentage-point change in assumed healthcare cost trend rates would havethe following effects:

 
|                                                  |   | **1%  Increase** |   | **1%  Decrease** |   |
|-------------------------------------------------------|--------|------------------|--------|------------------|--------|
| Effect on total  service and interest cost components |   | $                | 88,000 |             | $      | (74,000 | ) |
| Effect on  postretirement benefit obligation          |   | 644,000          |   | (550,000         | )      |
|                                                       |        |                  |        |                  |        |  |  |

 

**8.  Commitments andContingencies**

 

## **Lease Commitments**

## ** **

The Company leases, under several agreements withvarying terms, certain office and warehouse facilities, equipment and vehicles.Rent expense totaled $21,353,000, $21,657,000 and $22,302,000 for the yearsended March 31, 2002, 2003 and 2004, respectively.  Sublease income for the years endedMarch 31, 2002, 2003 and 2004 was $456,000, $632,000 and $653,000,respectively.  Minimum rentals ofcertain leases escalate from time to time based on certain indices.

 

At March 31, 2004 the Company was obligated undernon-cancellable operating leases for future minimum rentals as follows:

 
| Fiscal year:                     |   |        |       |
|----------------------------------|--------|-------------|------------|
| 2005                             |   | $           | 18,422,000 |   |
| 2006                             |   | 14,315,000  |       |
| 2007                             |   | 10,323,000  |       |
| 2008                             |   | 7,337,000   |       |
| 2009                             |   | 5,718,000   |       |
| Thereafter                       |   | 43,939,000  |       |
| Sub –total                  |   | 100,054,000 |       |
| Less:  Non-cancellable subleases |   | (7,961,000  | )          |
| Net lease  obligations           |   | $           | 92,093,000 |   |

 

**Other Commitments**

 

On January 14, 2004, the Company announced thatit had reached an agreement with Holding and Holding’s principal securityholders providing for a restructuring of the combined capital structure.  The financial restructuring is beingeffected pursuant to an Agreement and Plan of Merger and Reorganization datedas of December 18, 2003 among the Company, Holding and EMJ Metals LLC, anewly-formed wholly-owned subsidiary, as well as an Exchange Agreement amongthe Company, Holding and Kelso Investment Associates IV, L.P. and certain ofits affiliates (“Kelso”).  The principaleffect of the financial restructuring will be to convert all outstanding debtand equity securities of Holding to the Company’s common stock.  Kelso is the holder of Holding’s outstandingSeries A Variable Rate Notes and also is Holding’s controlling stockholder.

 

On May 25, 2004 the Company announced that theproposed restructuring of the combined capital structure of Earle M. JorgensenCompany (“EMJ”) with Earle M. Jorgensen Holding Company, Inc. (“Holding”), itsparent company, had been delayed. Because of the delay, additional negotiations among Holding’s securityholders and changes to the structure of the transaction are required before itcan proceed. There is no assurance that the transaction will be successfullynegotiated or, if negotiated, will be approved by the requisite votes ofHolding’s stockholders or that the other conditions to completion of such atransaction will be satisfied.  Thusthere can be no assurance that the merger will be consummated.

 

In connection with the 1990 merger, the Company agreedto pay Kelso & Companies, Inc. (“Kelso”), affiliates of which own themajority of Parent’s common stock, an annual fee of $1,250,000 each year forfinancial advisory services and to reimburse it for out-of-pocket expensesincurred in connection with rendering such services. The Company also agreed toindemnify 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 2002, 2003 and 2004and other expenses paid to Kelso in fiscal years 2002, 2003 and 2004 were notsignificant.

 

F-17

----

 

**Governmental Matters**

 

The Internal Revenue Service (the “IRS”) conducted anaudit of the Company’s employee stock ownership plan (the “Plan”) for thefiscal years ended March 31, 1992, through March 31, 1996, and issueda preliminary report to the Company in which the IRS asserted that certaincontributions of stock by the Parent to the Plan violated provisions of theInternal Revenue Code because the securities contributed were not “qualifyingemployer securities” as defined by ERISA. In fiscal year 2002, this matter wassettled without the Company admitting the allegations of the IRS, and theCompany paid $1,919,000 of excise tax to the IRS.

 

The Department of Labor (the “DOL”) also investigatedthe same transactions involving the Plan. In the course of its investigation, the DOL and its advisors reviewedthe valuations of the Parent’s common and preferred stock prepared for the Planand challenged the methodology used in preparing the valuations.

 

On March 8, 2002, the DOL sued the Company, theParent, the Plan and former members of the Company’s benefits committee in thefederal district court for the Central District of California. The DOL claimsthat the valuations of Parent’s common stock used to make annual contributionsto the Plan in each of the years 1994 through 2000 contained significant errorsthat resulted in the common stock being overvalued, and that the failure of themembers of our benefits committee to detect and correct the errors was a breachof their fiduciary duty under ERISA. As a result of the alleged overvaluations,the DOL contended that the contributions to the Plan were prohibitedtransactions under ERISA.  OnJanuary 27, 2003, the Company signed a settlement agreement with the DOLin connection with their lawsuit.  Thekey provisions of the agreement are as follows: (i) the Company is not requiredto make any payments under the agreement at this time; (ii) the Company isprohibited to make further common stock contributions to the stock bonus plan;(iii) the Company will continue to obtain annual appraisals of Parent stockusing methodology consistent with prior appraisals, and use that appraisedvalue as the purchase price for repurchases of common stock as it has done inthe past, and; (iv) if the annual appraisal of the Company’s common stock isless than $4.25 per share, the Company shall pay a floor price of $4.25 pershare in connection with the repurchase of common stock from departingemployees for shares that were originally contributed to the stock bonus planfor the plan years 1994 through 2000.

 

If the Company pays the floor price in connection withthe repurchase of common stock from departing employees, the agreement alsoallows the DOL to assess the Company a penalty equal to 20% of the amountcalculated by multiplying the difference between the appraised value and thefloor price by the number of shares repurchased at the floor price.

 

The Company does not believe the settlement will havea material impact on its financial condition or future results of operations,and believes payments under the settlement, if any, will most likely be paid inimmaterial amounts which will be spread over many years.

 

In December 2003, the Company entered intoagreements with Holding, a subsidiary and the principal stockholders of Holdingproviding for a merger and financial restructuring. Prior to approval of thetransaction, the DOL initiated a review of the procedures followed by Holding’sbenefits committee in connection with evaluation of the proposed transactionand other strategic alternatives available to Holding and an assessment ofwhether or not the proposed transaction complied with the terms of the consentorder and the legal requirements applicable to the stock bonus plan. Suchreview resulted in delays that, combined with other transactional requirements,precluded the consummation of the merger and financial restructuring on theterms originally proposed. The Company is considering changes to the proposedtransaction that will achieve the objectives of the original restructuringtransaction, while meeting the concerns expressed by the DOL. Holding intendsto review any proposed transaction with the DOL in advance under theircompliance assistance program to ensure compliance with the terms of theconsent order and applicable law. There can be no assurance that a revisedtransaction will be agreed upon, approved by the Holding stockholders andconsummated.

 

**Environmental Contingencies**

 

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

 

During fiscal years 2002, 2003 and 2004, expendituresmade in connection with environmental matters totaled $97,000, $194,000 and$232,000, respectively, principally for settlement of claims, and monitoring,remediation and investigation activities at sites with contaminated soil and/orgroundwater and were expensed as incurred. As of March 31, 2004, an accrual of $203,000 exists for futureinvestigation and remediation expenditures related to the following pendingenvironmental matters.

 

F-18

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*Forge(Seattle/Kent, WA).*    InNovember 1998, the Company paid the purchasers of its former Forgefacility and an off-site disposal site $2,250,000 as an indemnificationsettlement for liabilities related to the remediation of known contamination atthe Forge facility. The Company continues to monitor the disposal site forenvironmental conditions in accordance with a consent decree issued by theWashington Department of Ecology (“Ecology”). Annual costs associated with such monitoring are not significant, andthe Company does not anticipate significant additional expenditures related tothis matter.

 

The Forge property is located on the Lower DuwamishWaterway, which has been identified by the United States EnvironmentalProtection Agency (“EPA”) as a Superfund Site (the “Duwamish Site”). Under theFederal Comprehensive Environmental Remediation, Compensation, and LiabilityAct (“CERCLA”), owners or operators of facilities that have released hazardoussubstances to the environment may be liable for remediation costs. Courts haveheld that such liability may be joint and several; however, in many instances,the costs are allocated among the parties, primarily based on their estimated contributionto the contamination. The EPA, along with Ecology, have entered into anAdministrative Order of Consent (“AOC”) with four major property owners withpotential liability for cleanup of the Duwamish Site that outlines tasksrequired to be completed to further investigate the nature and extent of thecontamination and cleanup alternatives. In November 2001, the currentowners of the Forge property notified the Company of a potential claim forindemnification for any liability relating to contamination of the DuwamishSite. The notification stated that the Forge facility, along with otherbusinesses located along the Duwamish Site, are expected to be named aspotentially responsible parties for contamination of the Duwamish Site andrequested that the Company participate under a joint defense.

 

On February 6, 2003, the Company received arequest from the EPA to sign an AOC under CERCLA to investigate certain areasof the Duwamish Site.  A preliminarycost of proposed work under the AOC ranges from $350,000 to $450,000, and issubject to approval by the EPA.  OnApril 15, 2003, the Company signed a funding and participation agreementwith the current owners of the Forge property, which requires it to fund 85% ofcosts to be incurred in connection with the investigation activities to beperformed under the AOC.  As ofMarch 31, 2004, the Company has accrued $203,000 for remaining costs thatare expected to be incurred in future years.

 

The Company is continuing to evaluate this matter andremedies it may have, including insurance recoveries for any monies to be spentas part of the investigation or cleanup of the Duwamish Site. At this time, theCompany cannot determine what ultimate liability it may have relating to thismatter.

 

*Union(New Jersey).*    During fiscal year 1994,the Company was notified by the current owner that it has potentialresponsibility for the environmental contamination of a property formerly ownedby a subsidiary and disposed of by such subsidiary prior to its acquisition bythe Company. The prior owner of such subsidiary has also been notified of itspotential responsibility. On March 27, 1997, the current owner of theproperty informed the Company that it estimated the cost of investigation andcleanup of the property at $875,000 and requested contribution to such costsfrom the Company and the prior owner. The Company has contested responsibilityand commented on the cleanup plan and has not received any further demands ornotifications. The Company does not have sufficient information to determinewhat potential liability it has, if any.

 

Although it is possible that new information or futuredevelopments could require the Company to reassess its potential exposurerelating to all pending environmental matters, management believes that, basedupon all currently available information, the resolution of such environmentalmatters will not have a material adverse effect on the Company’s financialcondition, results of operations or liquidity. The possibility exists, however,that new environmental legislation and/or environmental regulations may beadopted, or other environmental conditions may be found to exist, that mayrequire expenditures not currently anticipated and that may be material.

 

**9.  Legal**

 

On April 22, 2002, the Company was sued byChampagne Metals, a small metals service center distributing aluminum coilproducts in Oklahoma, alleging that the Company had conspired with other metalservice centers to induce or coerce aluminum suppliers to refuse to designateChampagne Metals as a distributor, which resulted in unspecified damages.  EMJ and the other defendants filed motionsfor summary judgment, and on June 15, 2004, the federal District Court forthe Western District of Oklahoma entered an order granting the motions forsummary judgment of each of the defendants including EMJ and dismissed thecase.  The time for an appeal expiresJuly 15, 2004.

 

The Company is involved in other litigation or legalmatters in the normal course of business. In the opinion of management, thesematters will be resolved without a material impact on the Company’s financialposition or results of operations.

 

F-19

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**EARLEM. JORGENSEN COMPANY**

 

**INDEX TOFINANCIAL STATEMENT SCHEDULES**

 
| **Schedule  Number** |   | **Description  of Schedules***                  |   |   |
|----------------------|--------|-------------------------------------------------|--------|--------|
| Schedule II     |   | Valuation  and Qualifying Accounts and Reserves |   |   |

 

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*                 All otherschedules are omitted as the required information is inapplicable or theinformation is presented in the financial statements or related notes.

 

S-1

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#### **EARLE M. JORGENSEN COMPANY**

#### ** **

#### **SCHEDULE II—VALUATIONAND QUALIFYING ACCOUNTS AND RESERVES**

#### ** **

| **Column A**                     |   | **Column B**                         |      | **Column C**                        |   | **Column D**                                            |   | **Column E**                   |       |
|----------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|---------------------------------------------------------|--------|--------------------------------|------------|
| **Description**                  |   | **Balance at  beginning  of period** |      | **Charges to  costs and  expenses** |   | **Amounts  charged off  (net of recoveries)** |   | **Balance at  end  of period** |       |
| Allowance for  doubtful accounts |   |                                 |      |                                |   |                                                    |   |                           |       |
| Year ended  March 31, 2002  |   | $                                    | 427,000   |                                | $      | 2,434,000                                               |   | $                              | (2,409,000 | ) | $ | 452,000 |   |
| Year ended  March 31, 2003  |   | 452,000                              |      | 2,649,000                           |   | (2,711,000                                              | )      | 390,000                        |       |
| Year ended  March 31, 2004  |   | 390,000                              |      | 2,880,000                           |   | (2,669,000                                              | )      | 601,000                        |       |
|                             |   |                                 |      |                                |   |                                                    |   |                           |       |
| Reserve for  inventory           |   |                                 |      |                                |   |                                                    |   |                           |       |
| Year ended  March 31, 2002  |   | $                                    | 2,231,000 |                                | $      | 2,705,000                                               |   | $                              | (2,411,000 | ) | $ | 2,525,000 |   |
| Year ended  March 31, 2003  |   | 2,525,000                            |      | 2,321,000                           |   | (1,669,000                                              | )      | 3,177,000                      |       |
| Year ended  March 31, 2004  |   | 3,177,000                            |      | 1,123,000                           |   | (912,000                                                | )      | 3,388,000                      |       |

 

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