<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
                                  
                               FORM 10-K/A     
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
    FOR THE FISCAL YEAR ENDED MARCH 31, 1998
 
                                      OR
 
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934
                         
                      COMMISSION FILE NUMBER 1-7537     
 
                               ----------------
 
                          EARLE M. JORGENSEN COMPANY
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                               ----------------
 
<TABLE>
<S>                                            <C>
                  DELAWARE                                       95-0886610
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)
</TABLE>
 
                3050 EAST BIRCH STREET, BREA, CALIFORNIA 92821
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
 
                 REGISTRANT'S TELEPHONE NUMBER: (714) 579-8823
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                     NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                     NONE
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
 
  State the aggregate market value of the voting stock held by non-affiliates
of the registrant. None
 
  Number of shares outstanding of the registrant's common stock, par value
$.01 per share at April 30, 1998--128 shares
 
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<PAGE>
 
                                    PART I
 
  SAFE HARBOR ACT STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995: THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CONCERNING
CERTAIN ASPECTS OF THE BUSINESS OF THE COMPANY. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT INCLUDING, WITHOUT
LIMITATION, STATEMENTS REGARDING THE ISSUER'S FUTURE FINANCIAL POSITION,
BUSINESS STRATEGY, BUDGETS, PROJECTED COSTS AND PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS,
INCLUDING, WITHOUT LIMITATION, CHANGES IN THE PRICE AND SUPPLY OF METAL
PRODUCTS, CHANGES IN THE DEMAND FOR METAL PRODUCTS IN THE INDUSTRIES SUPPLIED
BY THE COMPANY, RELATIONSHIPS WITH SIGNIFICANT CUSTOMERS, INTEREST RATE
FLUCTUATIONS, THE IMPACT OF ENVIRONMENTAL REGULATIONS, AND GENERAL ECONOMIC
AND BUSINESS CONDITIONS. SEE "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." ALTHOUGH THE COMPANY BELIEVES
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
 
ITEM 1. BUSINESS
 
  Earle M. Jorgensen Company (the "Company" or "EMJ") is one of the largest
independent distributors of metal products in the United States. The Company
was formed on May 3, 1990, when Kelso & Companies Inc. ("Kelso") and its
affiliates acquired control of and combined two leading metals distributors,
EMJ (founded in 1921) and Kilsby-Roberts Holding Co. ("Kilsby") (successor to
C.A. Roberts Company, founded in 1915). In connection with the combination of
EMJ and Kilsby, the Company became a wholly owned subsidiary of Earle M.
Jorgensen Holding Company, Inc. ("Holding"). The events, activities and
transactions associated with the Company becoming a wholly owned subsidiary of
Holding is together sometimes hereinafter referred to as the "Acquisition."
 
  The Company is one of the largest independent distributors of metal products
in the U.S., providing value-added metals processing services and distributing
a broad line of carbon, alloy, stainless and aluminum bar, tubing and pipe,
and plate and sheet metal products. The Company sells these products to over
40,000 customers engaged in a wide variety of industries including machinery
manufacturing, transportation, fabricated metal products, aerospace, oil
tools, construction, shipbuilding, plastics, chemicals, petrochemicals, farm
equipment, food processing, energy and environmental control. These customers
are serviced through the Company's network of 25 service centers, four plate
processing centers, one cutting center, one tube honing facility, three sales
offices and a national merchandising office.
 
  The Company serves its customers by providing quick product delivery, metals
processing expertise and inventory management services. The Company purchases
metals from primary producers and sells these metals in smaller quantities to
a wide variety of end users, generally within 24 hours from receipt of an
order. During fiscal 1998, the Company handled approximately 8,100 sales
transactions per business day, an average of $510 per transaction. EMJ
processes most of the metals it sells, by cutting to length, burning, sawing,
honing, shearing, grinding, polishing, and performing other similar services,
all to customer specifications.
 
  In late fiscal 1997, the Company appointed a new Chief Executive Officer and
developed and began to implement a plan to restructure and realign its
operations and reduce its workforce. Since March 1997, the Company has closed
four domestic service centers (Birmingham, Alabama; Hartford, Connecticut;
Detroit, Michigan and Buffalo, New York) while continuing to service the
markets of those facilities from service centers in adjoining territories. The
Company also discontinued its flat-rolled processing center and consolidated
two honing operations and sold two of its foreign subsidiaries that generated
net operating losses of $2.9 million during the three years ended March 31,
1998. Since December 31, 1996, the Company's workforce has decreased
 
                                       1
<PAGE>
 
15%, from approximately 2,600 on December 31, 1996 to approximately 2,200 on
March 31, 1998. In the aggregate, the Company believes that it has reduced its
cost structure by approximately $17 million since commencement of its 1997
restructuring plan. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--General".
 
  The Company is currently engaged in a reengineering program emphasizing
process improvements including: (i) pursuing sales to new and existing
customers utilizing management information systems that provide improved
customer and market data and (ii) further implementing cost savings through
reductions in delivery and inventory handling expenses and through other
efficiency realizations. Effective fiscal 1998, the Company also instituted a
new management incentive compensation plan to provide bonuses to branch and
corporate managers based on the achievement of certain branch operating and
corporate financial objectives. See "Item 11. Executive Compensation--
Management Incentive Compensation Plan".
 
  The Company's restructuring plan has resulted in, and the reengineering
program is expected to continue, a downward trend in operating expense ratios.
 
INDUSTRY OVERVIEW
 
  The Company believes that metals service centers provide valuable services
that are needed by end users. Primary metals producers, which manufacture and
sell large volumes of steel, aluminum and specialty metals in standard sizes
and configurations, generally sell only to those large end-users and metals
service centers who do not require processing of the products and who can
order in large quantities and tolerate relatively long lead times. Metals
service centers, which offer services ranging from pre-production processing
in accordance with specific customer requirements to storage and distribution
of unprocessed metal products, function as intermediaries between primary
metals producers and end-users.
 
  The current trend among primary metals producers is to focus on their core
competency of high-volume production of a limited number of standardized metal
products. This change in focus has been driven by their need to develop and
improve efficient, volume-driven production techniques in order to remain
competitive.
 
  At the same time, most end-users have recognized the economic advantages
associated with outsourcing their metal processing and inventory management
requirements. Outsourcing permits end-users to reduce total production cost by
shifting the responsibility for pre-production processing to metals service
centers, whose higher efficiencies in performing these processing services
make the ownership and operation of the necessary equipment a better
investment. Inventory management and just-in-time delivery services provided
by metals service centers also enable end-users to reduce material costs,
decrease capital required for inventory and equipment and save time, labor and
other expenses.
 
  As a result of these trends, metals service centers play an increasingly
important role in all segments of the metals industry. Metals service centers
purchase and distribute about 30% of all carbon industrial products and nearly
45% of all stainless steel products produced in the U.S. Metals service
centers are the single largest customer group of the U.S. domestic steel
industry and serve the metal supply needs of more than 300,000 manufacturers
and fabricators through service center locations nationwide. The metals
distribution and processing industry generated an estimated $40 billion in
revenues in the U.S. in 1996. The Company believes that the metals service
center industry will continue to increase its role as a valuable intermediary
between primary metal producers and end users, primarily as a result of (i)
the refocus by metal producers towards sales efforts to larger volume
purchasers to increase production efficiency and (ii) increased demand by end
users for outsourced metals processing, just-in-time inventory management and
the other value-added materials management services.
 
  The metals service center industry is highly fragmented, consisting of a
large number of small companies, which are limited as to product line, size of
inventory and customers located within a specific geographic area, and a few
relatively large companies. The larger and more sophisticated companies, such
as EMJ, have certain
 
                                       2
<PAGE>
 
advantages over smaller companies, such as higher discounts for volume
purchases, the ability to service customers with operations in multiple
locations and the use of more sophisticated information systems. There has
been a trend toward consolidation in the industry in recognition of the
advantages of larger companies. According to industry sources, the number of
steel processors and metals service center companies in the U.S. has been
reduced from approximately 7,000 in 1980 to approximately 3,400 in 1997.
 
COMPETITIVE STRENGTHS
 
  The Company believes that the following factors contribute to its success in
the metals distribution industry:
 
  Market Position. The Company is among the largest independent distributors
of metal products in the U.S. The Company believes that its broad product
offerings, with a specialization in higher margin bar and tubing (as compared
to flat-rolled products), have enabled it to maintain its position among the
market leaders and achieve gross margins that are among the highest for
comparable publicly-traded metals distribution companies. The Company is among
the largest purchasers of steel in the U.S. and has developed long-term
relationships with numerous metals producers, resulting in access to a wide
variety of metals and new product and service ideas. Because the Company
purchases large volumes of metals, it is able to achieve economies of scale in
purchasing. Furthermore, the Company believes that its salesforce is among the
most experienced in the industry.
 
  Network of Strategically Located Facilities. The Company's service centers
are strategically located throughout North America, generally within one day's
delivery time to almost all U.S. manufacturing centers. The Company believes
that its network of strategically located facilities positions it to increase
sales to national customers that currently buy metals from various suppliers
in different locations. The Company's facilities serve more than 40,000
customers, with no single customer accounting for more than three percent of
the Company's gross revenues. Such diversification reduces the Company's
vulnerability to the financial or economic weakness of particular customers,
industries or regions.
 
  Service and Product Selection. The Company specializes in higher gross
margin bar and tubing products that are not commonly sold directly by steel
and aluminum producers in small quantities. The Company serves the needs of
its customers by carrying a broad range of shapes and sizes in its core
product areas in large quantities, which allows the Company to deliver orders
to customers typically within 24 hours from receipt of an order. Each of the
Company's service centers strives to be a market leader in the Company's core
product lines in its geographic area. The Company benefits from an excellent
reputation for quality and service built over its 75 years in operation and
has received numerous quality and service awards from its customers. The
Company was among the first in the metals distribution industry to receive
multi-site ISO 9002 certification and had the first metals service center to
receive QS 9000 certification established by the automobile industry.
 
  Management Information Systems and Inventory Practices. The Company has
invested significant resources to upgrade its management information and
financial reporting system. The Company's current system, which was brought on
line in February 1995, provides an internal benchmarking system to track
profitability by customer and product type. The Company believes that this
information will assist management in its efforts to purchase more
effectively, reallocate inventory among different locations and improve
customer service through better order reference data. The Company tailors its
inventory at each service center to the specific customer requirements of the
particular market served.
 
  Reduced Cost Structure and Economies of Scale. The Company believes that the
closure or sale of underperforming assets, the reduction in its workforce and
other restructuring initiatives has improved the Company's cost structure by
approximately $17 million. The Company believes that it will be better able to
withstand an economic downturn as a result of its cost reduction initiatives.
In addition, because of the Company's large size and scope of operations, its
fixed costs are spread across a large base of sales.
 
  Experienced Management with Equity Ownership. The Company's executives and
other members of its management have substantial experience in the metals
industry. In addition, the Company's employees directly,
 
                                       3
<PAGE>
 
and indirectly through the Jorgensen Employee Stock Ownership Plan (the
"ESOP"), own in the aggregate approximately 35.3% (28.8% on a diluted basis)
of the outstanding Holding Common Stock as of March 31, 1998.
 
OPERATING AND GROWTH STRATEGY
 
  The Company's primary business goal is to improve its operating profits
while expanding its market share. Its operating and growth strategy consists
of the following elements:
 
  Continue Cost Reductions and Productivity Improvements. The Company is
currently implementing a reengineering program to improve profitability and
realize cost savings through continued reductions in delivery and inventory
handling expenses and through other efficiency realizations. The Company seeks
to increase asset and employee productivity and to further decrease unit costs
through initiatives intended to increase volume, thereby taking advantage of
economies of scale. The Company has made and will continue to make investments
in its management information system to increase the efficiency of the Company
and assist it in identifying additional areas for operational improvement. In
addition, the Company has instituted a new management incentive plan to
provide incentives to branch management that are based on branches operating
achievements and corporate financial objectives.
 
  Focus on Higher Gross Margin Value-Added Products and Services. The Company
seeks to maintain its gross margins and to expand its market share by (i)
making sales from inventory with value-added services as often as possible,
since such sales generally generate higher gross margins and (ii) providing
inventory management and timely delivery services. Since the mid-1980's, the
Company has shifted its product mix away from commodity-like products such as
flat-rolled steel and has increased its sales of specialty products such as
carbon, alloy, stainless and aluminum bar and tubing that generally afford
higher gross margins. Although the Company continues to sell steel and
aluminum sheet products, it does so primarily in niche markets or as a service
to important customers that are significant purchasers of other higher gross
margin products.
 
  Realize Efficiencies from Management Information System Investments. The
Company believes that continuing enhancements to the Company's management
information system will assist the Company in its initiatives to achieve
further cost savings and enable it to handle a larger number of orders.
Planned improvements in the Company's management information system include:
(i) an improved order processing system which will allow its salespersons to
access customer history and to improve order throughput, (ii) a warehouse
automation system to better control inventory and shipment logistics, (iii)
upgraded financial reporting, planning and sales and gross profit analysis
systems and (iv) document imaging technology to facilitate processing, storage
and retrieval of transactional data. These and other enhancements should
assist the Company's efforts to improve the information available to
management in its initiatives to improve customer service, optimize inventory
levels and achieve greater operational efficiencies.
 
CUSTOMERS AND MARKETS
 
  The Company services the steel or aluminum requirements of over 40,000
active customers throughout the U.S. in a wide variety of industries,
including machinery manufacturing, transportation, fabricated metal products,
aerospace, oil tools, construction, shipbuilding, plastics, chemicals,
petrochemicals, farm equipment, food processing, energy and environmental
control. The Company is not dependent on any single customer or industry, and
during fiscal 1998 no single customer accounted for more than three percent of
revenues.
 
  During fiscal 1998, the Company handled approximately 8,100 sales
transactions per business day generating an average revenue of approximately
$510 per transaction. Sales of stock inventory maintained by the Company
(referred to as "stock sales") represented approximately 87% of the Company's
domestic revenues in fiscal 1998. Special requirements of the customer are met
by arranging mill-direct sales and by making buy-outs from other distributors
of items the Company does not maintain as stock inventory. Such sales
generally have lower gross margins than stock sales, but provide a valuable
customer service.
 
                                       4
<PAGE>
 
  The vast majority of sales are from individual purchase orders and are not
subject to ongoing supply contracts; however, the Company sometimes enters
into contracts to purchase and supply specific products over a period of a
year or longer. Such contracts provide the customer with greater certainty as
to timely delivery, price stability and continuity of supply, and sometimes
satisfy particular processing or inventory management requirements. Such
contracts have resulted in new customer relationships and increased sales
volumes for the Company, but can have a slightly lower gross margin than
ordinary sales. Such contracts, in the aggregate, represented less than 10% of
Company revenues in fiscal 1998.
 
  Seasonal fluctuations in the Company's business generally occur in the
summer months and in November and December, when many customers' plants are
closed for vacations. Order backlog is not a significant factor in the
business of the Company, as orders are generally filled within 24 hours.
 
PRODUCTS
 
  The Company has designated certain carbon and alloy, aluminum, and stainless
products as core product offerings under its bar, tubing and pipe, plate, and
sheet product lines. The Company stocks a broad range of shapes and sizes of
each of these products in each service center (unless there is no market for
the product line at a particular location), and each service center strives to
be a market leader in the Company's core product lines in its geographic area.
Each service center also tailors its inventory to the customer and market
requirements of its geographic area.
   
  Machinery manufacturing, transportation, fabricated metal products,
aerospace, oil tools, construction, shipbuilding, plastics, chemicals,
petrochemicals, farm equipment, food processing, energy and environmental
control, among others, are major markets for the Company. Carbon steel bar
products (hot-rolled and cold-finished) and carbon plate and sheet are used in
construction equipment, farm equipment, automotive and truck manufacturing,
shipbuilding and oil exploration as well as a wide range of other products.
Stainless steel bar, plate and sheet is used widely in the chemical,
petrochemical, and oil refining and biomedical industries where resistance to
corrosion is important. Aluminum bar, plate and sheet is frequently used in
aircraft and aerospace applications where weight is a factor. Different tubing
products are appropriate for particular uses based on different
characteristics of the tubing materials, including strength, weight,
resistance to corrosion and cost. Carbon tubing and pipe are used in general
manufacturing. Alloy tubing is used primarily in the manufacturing of oil
field equipment and farm equipment. Stainless steel tubing and pipe are used
in applications requiring a high resistance to corrosion, such as food
processing. Aluminum tubing and pipe are used in applications that put a
premium on light weight (such as aerospace manufacturing).     
 
                                       5
<PAGE>
 
  The following table sets forth a percentage breakdown of revenue from stock
sales (excludes mill-direct revenue and buy-outs) by product group for U.S.
operations for the fiscal years ended March 31, 1998, 1997 and 1996.
 
      PERCENTAGE BREAKDOWN OF REVENUES FROM STOCK SALES BY PRODUCT GROUP
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED MARCH
                                                                  31,
                                                           -------------------
                                                           1998   1997   1996
                                                           -----  -----  -----
     <S>                                                   <C>    <C>    <C>
     BARS:
       Carbon and Alloy...................................  37.0%  33.9%  32.6%
       Stainless..........................................  12.2   13.6   14.2
       Aluminum...........................................   6.2    5.5    5.7
                                                           -----  -----  -----
         Total............................................  55.4   53.0   52.5
                                                           -----  -----  -----
     TUBING AND PIPE:
       Carbon and Alloy...................................  27.0   26.8   26.4
       Stainless..........................................   3.6    3.7    3.8
       Aluminum...........................................   3.3    3.6    3.7
                                                           -----  -----  -----
         Total............................................  33.9   34.1   33.9
                                                           -----  -----  -----
     PLATE:
       Carbon and Alloy...................................   5.5    5.6    5.4
       Stainless..........................................   1.5    1.8    2.2
       Aluminum...........................................   2.4    2.5    2.8
                                                           -----  -----  -----
         Total............................................   9.4    9.9   10.4
                                                           -----  -----  -----
     SHEET:
       Carbon and Alloy...................................   0.4    0.5    0.6
       Stainless..........................................   0.3    0.6    0.9
       Aluminum...........................................   0.5    1.8    1.5
                                                           -----  -----  -----
         Total............................................   1.2    2.9    3.0
                                                           -----  -----  -----
     Other................................................   0.1    0.1    0.2
                                                           -----  -----  -----
                                                           100.0% 100.0% 100.0%
                                                           =====  =====  =====
     Revenues from stock sales as a percentage of total
      revenues............................................  87.2%  85.7%  83.4%
                                                           =====  =====  =====
</TABLE>
 
INTELLECTUAL PROPERTY AND LICENSES
 
  EMJ(R) is a registered trademark and service mark in the U.S. and in other
countries where the Company does or expects to do business. The Company
considers certain information owned by it to be trade secrets and the Company
takes measures to protect the confidentiality and control the disclosure of
such information. The Company believes that these safeguards adequately
protect its proprietary rights. While the Company considers all of its
intellectual property rights as a whole to be important, the Company does not
consider any single right to be essential to its operations.
 
MANAGEMENT INFORMATION SYSTEMS
 
  In February 1995, the Company implemented a new management information
system that integrated three different systems the Company had operated in
prior years into one system for most Company operations. The transition to the
new system required a Company-wide training effort and changes in operational
processes. The Company experienced start-up operational difficulties in 1995
in connection with the implementation of its new management information system
that adversely affected its customer service, results of operations and
working capital. The Company believes such problems have been resolved.
 
                                       6
<PAGE>
 
  The system is designed to increase the Company's ability to analyze and
manage its operations and improve the productivity of the Company and its
customers and suppliers. The system enhances the Company's ability to utilize
electronic commerce in dealing with its customers and suppliers, including
EDI, remote inquiry and ordering ("RIO"), bar coding, document imaging and
other functions that can result in more efficiency and greater productivity
for all users. Planned improvements in the Company's management information
system include: (i) an advanced order processing system which will allow its
salespersons to access customer history and improve order throughput, (ii) a
warehouse automation system to better control inventory and shipment
logistics, (iii) an upgraded financial reporting, planning and sales and gross
profit analyses system and (iv) document imaging technology to facilitate
processing, storage and retrieval of transactional data.
 
SUPPLIERS
 
  The majority of the Company's procurement activities are from a centralized
merchandising office in Chicago where specialists in each of the Company's
major product lines make inventory purchases. The Company concentrates on
developing close working relationships with high-quality suppliers to ensure
quality and timely delivery to the Company's customers.
 
  The vast majority of the Company's purchases are made by purchase order and
the Company has no significant supply contracts with periods in excess of one
year. The Company is not dependent on any single supplier for a material
portion of its purchases, and in fiscal year 1998 no single supplier
represented more than 10% of its total purchases. The Company purchased less
than three percent of its inventory requirements from foreign-based suppliers
in fiscal 1998.
 
EMPLOYEES
 
  As of March 31, 1998, the Company employed approximately 2,200 persons, of
whom approximately 1,285 were employed in production or shipping, 455 were
employed in sales and 460 served in executive, administrative or district
office capacities. Three different unions represented approximately 750 of the
Company's employees from 16 locations. The related collective bargaining
agreements expire on staggered dates between October 31, 1998 and May 31,
2001. The Company is negotiating a collective bargaining agreement with 18
newly organized employees of the Toronto facility, which is expected to be in
place by the end of June 1998. The Company is currently negotiating a renewal
of its collective bargaining agreement covering 83 employees at its facilities
in Los Angeles, California, which is expected to be in place by the end of
June 1998. The Company believes that it has a good overall relationship with
its employees.
 
FOREIGN OPERATIONS
 
  The Company maintains two metal service centers in Canada operating through
a wholly owned subsidiary, Earle M. Jorgensen (Canada) Inc., a Canadian
limited liability company. On September 8, 1997, the Company sold its
operations in Mexico, and on January 29, 1998, the Company sold its operations
in the United Kingdom. For the fiscal years ended March 31, 1998, 1997 and
1996, revenues from foreign operations totaled $53.6 million, $63.8 million
and $66.7 million, respectively. See Note 4 to Consolidated Financial
Statements.
 
COMPETITION
 
  The metals service center industry is highly fragmented and generally
competes on price, product availability, timely delivery, reliability, quality
and processing capability. Apart from price, these services are all "value-
added" services provided by metals service centers to lower customers' overall
costs. The industry includes both general-line distributors, which handle a
wide range of metal products, and specialty distributors, which specialize in
particular categories of metal products. Metals service centers range from
nationwide to regional and local in geographic coverage. Although the Company
is one of the largest distributors of metals in the U.S., some of its
competitors have greater financial resources and most of its competitors are
less leveraged than the Company.
 
                                       7
<PAGE>
 
ENVIRONMENTAL MATTERS
 
  The Company is subject to extensive and changing federal, state, local and
foreign laws and regulations designed to protect the environment and human
health and safety, including those relating to the use, handling, storage,
discharge and disposal of hazardous substances and the remediation of
environmental contamination. As a result, the Company is from time to time
involved in administrative and judicial proceedings and inquiries relating to
environmental matters.
 
  During fiscal years 1998, 1997 and 1996, expenditures made in connection
with environmental matters totaled approximately $0.4 million, $1.1 million
and $0.8 million, respectively, principally for remediation and investigation
activities at sites where contamination of soil and/or groundwater is present,
including the sites discussed below. As of March 31, 1998, the Company had
accrued approximately $2.3 million for future investigation and remediation
expenditures that could be reasonably estimated related to the following
environmental matters.
 
  Alameda Street (Los Angeles). Remediation was completed in fiscal 1996 and
the Company has received final approval from the County of Los Angeles
authorities. Total costs incurred by the Company in connection with this
project were $3.4 million, of which $1.7 million has been capitalized to the
property. The Company was reimbursed $1.5 million of such costs by the lessee
in accordance with a cost sharing agreement.
 
  In February 1998 the Company was notified that it had potential
responsibility for lead and copper soil contamination of an undeveloped parcel
that is part of the Alameda Street property. A remediation plan has been
approved by local government agencies. As of March 31, 1998, the Company's
accrual for future investigation and remediation expenditures includes the
estimated costs under the remediation plan.
 
  Bristol (Pennsylvania). A remedial action plan submitted and approved by the
Pennsylvania regulatory agency was completed in fiscal 1998. As of March 31,
1998, the project's cost has totaled $4.3 million, of which $3.2 million has
been paid by the Company and $1.1 million was paid by the former owner of the
property pursuant to a cost sharing agreement. No additional costs are
expected to be incurred. The Company sold the facility in July 1996.
 
  Forge (Seattle/Kent, WA). The Company has indemnified the purchasers of its
former Forge facility for remediation of certain conditions at the facility
and at an off-site disposal site existing at the date of sale. In addition,
the Company indemnified such purchasers for up to $2.5 million of remediation
and investigation costs associated with or related to the environmental
conditions existing at the time of sale and discovered after the closing and
for which claims were made prior to July 2, 1995. No such claims were made. As
of March 31, 1997 and 1998, the remediation and investigation costs of the
Forge facility totaled $2.3 million and $2.6 million, respectively. The
Company's accrual for future investigation and remediation expenditures
includes the estimated remaining costs of remediation. The Company and the
current owner of the property are disputing responsibility for the remaining
costs of remediation. As of March 31, 1998, remediation and investigation
costs at the disposal site totaled $0.5 million and the Company has reserved
for future monitoring costs.
 
  Union (New Jersey). During fiscal 1994, the Company was notified by the
current owner that it has potential responsibility for the environmental
contamination of a property formerly owned by a subsidiary and disposed of by
such subsidiary prior to its acquisition by the Company. The prior owner of
such subsidiary has also been notified of its potential responsibility. On
March 27, 1997, the current owner of the property informed the Company that it
estimated the cost of investigation and cleanup of the property at $875,000
and requested contribution to such costs from the Company and the prior owner.
The Company has contested responsibility and commented on the cleanup plan.
The Company does not have sufficient information to determine what potential
liability it has, if any. Accordingly, no reserves have been specifically
established for this matter as of March 31, 1998.
 
  Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse
 
                                       8
<PAGE>
 
effect on the Company's financial condition, results of operations or
liquidity. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that many require expenditures not currently
anticipated and that may be material.
 
ITEM 2. PROPERTIES
 
  The Company currently maintains 25 service centers, four plate processing
centers, one cutting center, one tube honing facility, three sales offices and
one merchandising office at various locations throughout the U.S. and is
headquartered in Brea, California. Service centers in Birmingham, Alabama;
Hartford, Connecticut; Detroit, Michigan and Buffalo, New York were closed
and, except for Buffalo, sold in connection with the 1997 restructuring plan.
In addition, the Company sold facilities in Kansas City and Dallas in
connection with a consolidation of its operations in each of those cities,
discontinued its flat-rolled processing operations and sold its operations in
the United Kingdom and Mexico. The Company's facilities are in good condition
and are equipped to provide efficient processing of customer orders. The
Company's facilities generally are capable of being utilized at higher
capacities, if necessary. Most leased facilities have initial terms of more
than one year and include renewal options. While some of the leases expire in
the near term, the Company does not believe that it will have difficulty
renewing such leases or finding alternative sites.
 
  Set forth below is a table summarizing certain information with respect to
the Company's facilities.
 
<TABLE>
<CAPTION>
                                                            OWNED/     FACILITY
                       COUNTRY/CITY/STATE                   LEASED     (SQ. FT.)
                       ------------------                   ------     ---------
     <S>                                                    <C>        <C>
     UNITED STATES:
       Phoenix, Arizona.................................... Owned        72,200
       Little Rock, Arkansas............................... Leased       28,800
       Hayward, California................................. Leased       86,000
       Los Angeles, California............................. Owned       632,700
       Los Angeles, California............................. Leased       83,600
       Denver, Colorado.................................... Leased       78,800
       Honolulu, Hawaii.................................... Owned       109,200
       Chicago, Illinois................................... Owned       554,000
       Roselle, Illinois................................... Leased        4,900
       Plainfield, Indiana................................. Owned       142,700
       Davenport, Iowa..................................... Leased       59,200
       Boston, Massachusetts............................... Owned        64,200
       Minneapolis, Minnesota.............................. Owned       160,000
       Kansas City, Missouri............................... Leased (a)  126,500
       Kansas City, Missouri............................... Leased      103,500
       St. Louis, Missouri................................. Leased      106,700
       Charlotte, North Carolina........................... Owned       178,200
       Cincinnati, Ohio.................................... Leased (b)  137,000
       Cleveland, Ohio..................................... Owned       199,600
       Cleveland, Ohio..................................... Owned       134,500
       Tulsa, Oklahoma..................................... Owned       106,500
       Tulsa, Oklahoma..................................... Owned       137,900
       Portland, Oregon.................................... Leased       31,300
       Philadelphia, Pennsylvania.......................... Leased      234,800
       Memphis, Tennessee.................................. Leased       56,500
       Dallas, Texas....................................... Owned       132,200
       Houston, Texas...................................... Owned       276,000
       Kent, Washington.................................... Leased       83,700
     CANADA:
       Toronto, Ontario.................................... Leased       38,600
       Montreal, Quebec.................................... Leased       57,000
     OTHER PROPERTIES:
       Brea, California (headquarters)..................... Leased       38,300
</TABLE>
 
                                       9
<PAGE>
 
--------
(a) This previously owned facility was sold in March 1998 and is temporarily
    being leased backed until completion of a move and consolidation to the
    other Kansas City location. The move and consolidation is being
    accommodated by an expansion, which is expected to be completed by
    November 1998.
 
(b) The Company has exercised its option to purchase the facility.
 
ITEM 3. LEGAL PROCEEDINGS
 
  The Company and its subsidiaries and branches are occasionally involved in
ordinary, routine litigation incidental to their normal course of business,
none of which they believe to be material to their financial condition or
results of operations. The Company and its subsidiaries and branches maintain
various liability insurance coverages to protect their assets from losses
arising out of or involving activities associated with ongoing and normal
business operations. See also "Item 1. Business--Environmental Matters."
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  None.
 
                                      10
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY
 
  The Company has 128 shares of common stock par value $.01 per share, all of
which is owned by Holding. For each of the fiscal years ended March 31, 1998,
1997 and 1996, the Company paid dividends totaling $11,469,000, $5,552,000,
and $22,289,000, respectively, to Holding in connection with Holding's
repurchasing of its capital stock from employees of the Company whose
employment had terminated, as required by the terms of Holding's Stockholders
Agreement and the ESOP. In addition, in fiscal 1998, the Company paid
dividends of $45,419,000 to Holding in connection with the Refinancing
Transactions (as defined below). See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Refinancing
Transactions." The Company has not declared or paid any other dividends on its
capital stock in the three years ended March 31, 1998.
 
ITEM 6. SELECTED FINANCIAL DATA
 
  The following selected consolidated financial data are derived from the
audited consolidated financial statements of the Company. The consolidated
financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors. All information contained in the following table should
be read in conjunction with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the consolidated
financial statements of the Company and the related notes thereto included
elsewhere in this Form 10-K.
 
<TABLE>
<CAPTION>
                                          YEAR ENDED MARCH 31,
                          -------------------------------------------------------
                             1998        1997        1996        1995      1994
                          ----------  ----------  ----------  ---------- --------
                                         (DOLLARS IN THOUSANDS)
<S>                       <C>         <C>         <C>         <C>        <C>
STATEMENT OF OPERATIONS
 DATA:
Revenues................  $1,050,005  $1,023,565  $1,025,659  $1,022,884 $843,380
Gross profit(1).........     294,624     280,739     261,021     305,909  249,758
Operating expenses
 exclusive of
 restructuring and other
 non-recurring charges..     225,019     245,826     245,619     247,184  222,750
Restructuring and other
 non-recurring charges..       2,838      20,088      12,776         715    1,282
Income from operations..      66,767      14,825       2,626      58,010   25,726
Net interest expense....      41,059      40,880      40,874      34,604   30,032
Extraordinary loss(2)...       9,075         --          --          --       --
Net income (loss).......      15,760     (26,556)    (29,311)     19,919   (4,306)
BALANCE SHEET DATA:
Working capital.........  $  156,500  $  170,988  $  166,587  $  243,738 $176,280
Net property, plant &
 equipment..............     106,643     120,050     134,259     139,705  143,099
Total assets............     443,821     454,882     484,911     543,548  505,928
Long-term debt
 (including current
 portion)...............     312,234     291,286     279,952     296,274  294,136
Stockholder's equity....     (36,919)      1,927      25,141      76,400   54,708
OTHER SUPPLEMENTAL DATA:
Depreciation and
 amortization(3)........  $    9,475  $   10,620  $   12,022  $   14,135 $ 14,680
Non-cash ESOP
 expense(4).............       2,788       3,102       3,401       7,694    6,005
Net cash interest
 expense(5).............      39,993      37,747      37,310      31,592   26,457
Capital expenditures....       7,264       4,449      16,658      16,177   12,371
Ratio of earnings to
 fixed charges(6).......        1.54         --          --         1.58      --
Dividends paid(7).......      56,888       5,552      22,289       3,654    5,898
</TABLE>
--------
(1) In February 1995, the Company began the implementation of a new enhanced
    inventory and management information system. To ensure the accuracy of the
    conversion of the perpetual inventory records, the
 
                                      11
<PAGE>
 
   Company performed physical inventory counts and other procedures at all of
   its locations during the second, third and fourth quarters of fiscal 1996.
   The Company identified a difference between the perpetual inventory records
   and the general ledger amounting to $26,882 and, accordingly, recorded a
   special charge to cost of sales for this difference in the fourth quarter
   of fiscal 1996.
 
(2) The extraordinary loss of $9,075 includes the write-off of deferred
    financing costs and payments of call premiums and other expenses in
    connection with early retirement of debt. See Note 6 to Consolidated
    Financial Statements.
 
(3) Depreciation and amortization excludes amortization of debt issue costs
    aggregating $1,757, $2,144, $2,114, $2,117 and $2,040 for the years ended
    March 31, 1998, 1997, 1996, 1995 and 1994, respectively, and debt issue
    costs of $550 written off in connection with an amendment to the Company's
    revolving loan agreement in fiscal 1996, reflected in the Company's
    consolidated statements of operations as interest expense.
 
(4) Non-cash ESOP expense represents the amount of ESOP expense charged to
    operations that were or will be funded in the form of Holding's equity
    securities.
 
(5) Net cash interest expense represents net interest expense, including
    interest expense associated with borrowings against cash surrender value
    of life insurance policies maintained by the Company, adjusted to exclude
    (i) the amortization and write-off of debt issue costs (see note (3)
    above) and bond discount, and (ii) accrued interest.
 
(6) 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. Earnings were sufficient to cover fixed charges
    for the fiscal years ended March 31, 1998 and 1995. Earnings were
    insufficient to cover fixed charges for the fiscal years ended March 31,
    1997, 1996 and 1994 by $26,055, $38,248 and $4,306, respectively.
 
(7) Dividends paid to Holding in connection with Holding's repurchasing of its
    capital stock from terminated employees. In fiscal 1998, the Company also
    paid a dividend to Holding of $45,419 that was used by Holding to repay a
    portion of Holding Notes (as defined below) and accrued interest. See
    "Item 7. Management's Discussion and Analysis of Financial Condition and
    Results of Operations--Refinancing Transactions".
 
 
                                      12
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and the consolidated financial statements of the
Company, and the notes related thereto appearing elsewhere in this Form 10-K.
 
GENERAL
 
  The Company was formed in May 1990 when Kelso and its affiliates acquired
control of and combined two leading metals distributors, EMJ (founded in 1921)
and Kilsby-Roberts Holding Co. (founded in 1915). Through its network of 25
service centers strategically located throughout North America, the Company
distributes a broad line of bar, tubing and pipe, and plate and sheet metal
products to over 40,000 customers.
   
  During the past several years, the Company has undergone substantial
changes. In March 1997, the Company announced a $15.6 million restructuring
plan that included selling certain foreign operations, closing four domestic
distribution centers, and reducing the Company's workforce in order to improve
operating efficiencies and margins. In addition, fiscal 1997 included a $4.5
million write-off of certain costs related to its management information and
reporting system. In fiscal 1996, the Company recorded a $3.6 million
restructuring charge for workforce reductions and a non-recurring charge of
$9.2 million for asset write-downs and write-offs. In addition, fiscal 1996
included an inventory adjustment of $26.9 million representing the difference
between the Company's physical inventory balances and its perpetual inventory
records after the implementation and conversion to a new management
information system in February 1995. The implementation of the new computer
system required a company-wide training effort and changes in operational
processes that required a learning period for the system's users, and such
implementation adversely affected the Company's results of operations in
fiscal 1996. Start-up difficulties impacted sales, purchasing, receivables and
inventory management and caused the Company to incur additional expense in
correcting errors arising in the transition process. The Company believes that
such problems have been resolved.     
 
  In late fiscal 1997, the Company appointed a new Chief Executive Officer and
developed and began to implement a plan to restructure and realign its
operations and reduce its workforce. In addition, the Company shifted its
strategic focus to emphasize maximizing operating income and cash flow. The
Company increased its operating earnings before restructuring and other non-
recurring charges to $69.6 million in fiscal 1998 from $34.9 million in fiscal
1997. This improved operating performance resulted primarily from the
successful implementation of the Company's 1997 restructuring plan. Cost
savings measures implemented under such plan included: (i) the closure of four
under-performing domestic service centers and the sale of unprofitable foreign
subsidiaries in Mexico and the United Kingdom (net operating losses totaled
$2.9 million during the three years ended March 31, 1998), and (ii) a
reduction in the number of employees from approximately 2,600 on December 31,
1996 to approximately 2,200 on March 31, 1998, including the elimination of a
number of corporate managerial positions. In the aggregate, the Company
believes that it has reduced its cost structure by approximately $17 million
since commencement of its restructuring plan.
 
  The Company is currently engaged in a reengineering program emphasizing
process improvements including: (i) pursuing sales to new and existing
customers, utilizing enhanced information systems to provide improved customer
and market data and (ii) further implementing cost savings through reductions
in delivery and inventory handling expenses and through other efficiency
realizations. The Company is also pursuing further operational efficiencies
by: (i) providing incentives for service center managers and salespersons
based on branch operating achievements and corporate financial objectives; and
(ii) repositioning faster moving inventory from the facilities which the
Company had designated as depots to the service centers, which is designed to
increase sales and operating income. The Company is continually enhancing its
management information systems with the objective of improving operating
performance through better and more efficient service at reduced costs.
 
  The Company's restructuring plan has resulted in, and the reengineering
program is expected to continue, a downward trend in operating expense ratios.
 
                                      13
<PAGE>
 
   
  The metals service center industry has been historically cyclical (with
periods of strong demand and higher prices followed by periods of weaker
demand and lower prices), principally due to the nature of the industries in
which the largest consumers of metals operate. The domestic metals service
center industry cycle is based on the cycles for the U.S. industries that it
services. The Company believes its results have been less sensitive to
economic trends than some of its competitors due to its customer base, product
mix and the variety of industries served.     
 
REFINANCING TRANSACTIONS
 
  On March 24, 1998, the Company refinanced its indebtedness by (i)
consummating the issuance and sale (the "Offering") of $105.0 million in
aggregate principal amount of its 9 1/2% Senior Notes due 2005 (the "9 1/2%
Senior Notes"), (ii) replacing its existing revolving credit facility with an
amended and restated revolving credit facility (prior to and after such
amendment and restatement, the "Revolving Credit Facility"), and
(iii) borrowing $100.0 million in aggregate principal amount under a variable
rate term loan (the "Term Loan"). The net proceeds of the Offering, the Term
Loan and the Revolving Credit Facility were used to (i) redeem $155.0 million
in aggregate principal amount of the Company's outstanding 10 3/4% Senior
Notes (the "10 3/4% Notes" and together with the 9 1/2% Senior Notes, the
"Senior Notes") together with premium and accrued interest thereon to the date
of redemption, (ii) prepay approximately $5.1 million in aggregate principal
amount of purchase money indebtedness, including premium and accrued interest
thereon, and (iii) pay a dividend to Holding in the amount of approximately
$45.4 million used by Holding to (x) redeem $40.0 million in principal amount
of its senior indebtedness (the "Holding Notes"), and (y) pay approximately
$5.4 million of interest accrued as of March 24, 1998 on the Holding Notes
(collectively, the "Holding Prepayment"). The Holding Notes are owned by an
affiliate of Kelso.
 
  The Offering, borrowings under the Term Loan, the refinancing of the
Revolving Credit Facility, and the Holding Prepayment are referred to
collectively as the "Refinancing Transactions." See Note 6 to Consolidated
Financial Statements.
 
STATEMENT OF OPERATIONS INFORMATION
 
  The following table sets forth certain consolidated statement of operations
data for the Company. The historical consolidated financial data for the
fiscal years ended March 31, 1998, 1997 and 1996 are derived from the
historical consolidated financial statements included elsewhere herein.
 
<TABLE>
<CAPTION>
                                        YEAR ENDED MARCH 31,
                         ------------------------------------------------------
                            1998      %       1997       %       1996       %
                         ---------- -----  ----------  -----  ----------  -----
                                       (DOLLARS IN THOUSANDS)
<S>                      <C>        <C>    <C>         <C>    <C>         <C>
STATEMENT OF OPERATIONS
 DATA:
Revenues................ $1,050,005 100.0% $1,023,565  100.0% $1,025,659  100.0%
Gross profit............    294,624  28.1     280,739   27.4     261,021   25.4
Operating expenses
 exclusive of
 restructuring and other
 non-recurring expenses.    225,019  21.4     245,826   24.0     245,619   23.9
Warehouse and delivery
 expenses...............    128,495  12.2     135,287   13.2     129,966   12.7
Selling expenses........     37,147   3.5      40,791    4.0      41,794    4.1
General and
 administrative
 expenses...............     59,377   5.7      69,748    6.8      73,859    7.2
Income from operations..     66,767   6.4      14,825    1.4       2,626    0.3
Net interest expense....     41,059   3.9      40,880    4.0      40,874    4.0
Extraordinary loss......      9,075   0.9         --                 --
Net income (loss).......     15,760   1.5     (26,556)  (2.6)    (29,311)  (2.9)
</TABLE>
 
                                      14
<PAGE>
 
RESULTS OF OPERATIONS--YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH
31, 1997
 
  Revenues. Revenues for fiscal 1998 increased 2.6% to $1,050.0 million,
compared to $1,023.6 million in fiscal 1997. Revenues from domestic operations
for fiscal 1998 increased $36.6 million (3.8%) to $996.4 million compared to
$959.8 million in fiscal 1997. Domestic revenues in fiscal 1998 reflect a 9%
increase in tonnage volume offset by a 3% reduction in average selling price
(material costs declined 4%) compared to fiscal 1997. Revenues from
international operations decreased $10.2 million to $53.6 million in fiscal
1998 due to the sale of the U.K. and Mexican subsidiaries (see Note 4 to
Consolidated Financial Statements).
   
  Gross Profit. Gross profit increased $13.9 million to $294.6 million in
fiscal 1998 compared to $280.7 million in fiscal 1997 and gross margin
increased to 28.1% compared to 27.4%. Fiscal 1998 included a LIFO charge of
$0.3 million compared to a corresponding LIFO credit of $3.5 million in fiscal
1997. Gross profit and gross margin from foreign operations was $11.4 million
and 21.3% in fiscal 1998, compared to $13.4 million and 21.0% in fiscal 1997.
Exclusive of foreign operations and LIFO, gross margin was 28.5% for fiscal
1998 compared to 27.5% in fiscal 1997. The increase of 1.0% is due to changes
in product mix, primarily higher bar tonnage shipped (18%) and higher average
prices on tubular products (3%) in fiscal 1998 compared to fiscal 1997. The
Company believes such changes were primarily due to changes in customer demand
toward products with higher margins, and not attributable to specific
strategies or initiatives of the Company. In addition, the shift in demand did
not reflect an identifiable trend in demand for product or by industry.     
 
  Expenses. Total operating expenses in fiscal 1998 were $227.8 million
compared to $265.9 million in fiscal 1997. Fiscal 1998 included a
restructuring charge of $2.8 million representing the loss on sale of the
Company's U.K. and Mexican operations (see Note 4 to Consolidated Financial
Statements). Fiscal 1997 included a restructuring charge of $15.6 million and
a non-recurring charge for asset write-offs of $4.5 million (see Note 1 to
Consolidated Financial Statements). Excluding such charges, operating expenses
in fiscal 1998 would have been $225.0 million, or 21.4% of revenues, compared
to $245.8 million, or 24.0% of revenues, in fiscal 1997.
 
  Warehouse and delivery expenses decreased $6.8 million (5.0%) to $128.5
million in fiscal 1998 compared to $135.3 million in fiscal 1997. As a percent
of revenues, warehouse and delivery expenses were 12.2% in 1998 and 13.2% in
fiscal 1997. The decrease resulted from a 7% reduction in compensation and
related expenses resulting from a reduction in the number of employees,
including reductions from the closure of four domestic service centers and
from the sale of the Mexican and U.K. subsidiaries in August 1997 and January
1998, respectively, partially offset by higher freight and shipping expenses
attributable to the 9% increase in tonnage volume shipped and repositioning
depot inventories.
 
  Selling, general and administrative expenses decreased $14.0 million (12.7%)
to $96.5 million in fiscal 1998 compared to $110.5 million in fiscal 1997. In
fiscal 1998 selling expenses decreased $3.7 million (9.1%) to $37.1 million,
compared to $40.8 million in fiscal 1997, and decreased as a percent of
revenues to 3.5% from 4.0% in fiscal 1997 due to a 5% reduction in
compensation and related expenses resulting from the closure of four domestic
service centers and the sale of the Mexican and U.K. subsidiaries. General and
administrative expenses decreased by $10.4 million (14.9%) to $59.4 million in
fiscal 1998, and to 5.7% of revenues in fiscal 1998 from 6.8% in fiscal 1997.
The decrease in general and administrative expenses was attributable to an 8%
decrease in compensation and related expenses resulting from the March 1997
restructuring, which included an administrative workforce reduction, higher
income from cash discounts taken on vendor payments and gains from sales of
surplus facilities.
 
  Net Interest Expense. Net interest expense was $41.1 million in fiscal 1998
and $40.9 million in fiscal 1997. Such amounts include interest on the
Revolving Credit Facility, Senior Notes, Term Loan (in fiscal 1998 only), and
borrowings against the cash surrender value of certain life insurance policies
and the amortization of debt issue costs ($1.8 million in fiscal 1998 and $2.1
million in fiscal 1997).
 
                                      15
<PAGE>
 
  During fiscal 1998 the average outstanding indebtedness (excluding
borrowings against the cash surrender value of certain life insurance
policies) was $303.9 million versus $304.5 million in fiscal 1997. The
weighted average interest rate on such indebtedness during fiscal 1998 was
9.68% versus 9.62% in fiscal 1997. The changes in the average outstanding
indebtedness and the average interest rate were attributable to the Company's
Revolving Credit Facility borrowings and the impact of the Refinancing
Transactions consummated in March 1998 (see also "--Liquidity and Capital
Resources"). The average borrowings under the Revolving Credit Facility
decreased to $127.3 million from $130.4 million in fiscal 1997, and the
average interest rate increased to 8.65% in fiscal 1998 from 8.54% in fiscal
1997.
 
  The outstanding borrowings against the cash surrender value of life
insurance policies was $88.9 million at March 31, 1998 and $76.5 million at
March 31, 1997, and the total interest expense on such borrowings increased to
$9.4 million in fiscal 1998 compared to $8.6 million in fiscal 1997. Such
increases resulted from a borrowing of $12.4 million against the increased
cash surrender value of life insurance policies in November 1997 to pay annual
premiums on such policies and to pay interest on previous borrowings (see "--
Liquidity and Capital Resources"). As specified in the terms of the insurance
policies, the rates for dividends payable on the policies correspondingly
increase when borrowings are outstanding under the policies. This increase in
dividends is greater than the increase in the incremental borrowing rate.
Dividend income earned under the policies was $10.3 million in fiscal 1998,
$7.8 million in fiscal 1997 and $7.6 million in fiscal 1996 and is reported as
an offset to general and administrative expenses in the Company's statements
of operations.
 
  The interest rates on the 9 1/2% Senior Notes and on the life insurance
policy borrowings are fixed at 9.50% and 11.76%, respectively. The interest
rates on the Revolving Credit Facility and the Term Loan are floating rates
(9.0% and 8.94%, respectively, as of March 31, 1998).
 
  Extraordinary Loss. The extraordinary loss of $9.1 million includes the
write-off of deferred financing costs and the payment of call premiums and
other expenses related to the early retirement of the Company's 10 3/4% Notes
and purchase money indebtedness as part of the Refinancing Transactions.
 
RESULTS OF OPERATIONS--YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH
31, 1996
   
  Revenues. Revenues for fiscal 1997 decreased 0.2% to $1,023.6 million,
compared to $1,025.7 million in fiscal 1996. Revenues from domestic operations
for fiscal 1997 increased $0.8 million to $959.8 million compared to $959.0
million in fiscal 1996. Foreign revenues decreased $2.9 million to $63.8
million. While domestic revenues were relatively flat, foreign revenues were
adversely impacted by general weaknesses in the local economies of Canada and
the United Kingdom. In addition, the transition to the Company's new
management information system in 1996 was disruptive to operations and reduced
domestic revenues in fiscal 1996.     
 
  Gross Profit. Gross profit increased $19.7 million to $280.7 million in
fiscal 1997 compared to $261.0 million in fiscal 1996 and gross margin
increased to 27.4% compared to 25.4%. The increases were primarily
attributable to an inventory adjustment of $26.9 million recorded in fiscal
1996 (see Note 2 to Consolidated Financial Statements). Fiscal 1997 also
included a LIFO credit of $3.5 million compared to a corresponding LIFO charge
of $9.7 million in fiscal 1996. Gross profit and gross margin from foreign
operations was $13.4 million and 21.0% in fiscal 1997, compared to $15.6
million and 23.4% in fiscal 1996. Exclusive of foreign operations, LIFO, and
the 1996 inventory adjustment, gross margin was 27.5% for fiscal 1997,
compared to 29.4% in fiscal 1996. The decrease of 1.9% reflects changes in
product and customer mix resulting from cyclical changes in industrial
production, competitive pricing pressures, disposition of slow moving and
discontinued inventory, and a sudden decline in stainless and aluminum sheet
commodity prices.
   
  Expenses. Total operating expenses of $265.9 million in fiscal 1997 included
a restructuring charge of $15.6 million and a non-recurring charge for asset
write-offs of $4.5 million (see Note 1 to Consolidated Financial Statements).
Total operating expenses of $258.4 million in fiscal 1996 included a
restructuring charge of $3.6 million for workforce realignment, and a non-
recurring charge of $9.2 million for asset write-downs and write-offs (see
Note 1 to Consolidated Financial Statements). Excluding such charges,
operating expenses in fiscal 1997 would have been $245.8 million, or 24.0% of
revenues, compared to $245.6 million, or 23.9% of revenues, in fiscal 1996.
    
                                      16
<PAGE>
 
  Warehouse and delivery expenses increased $5.3 million (4.1%) to $135.3
million in fiscal 1997 compared to $130.0 million in fiscal 1996. As a percent
of revenues, warehouse and delivery expenses were 13.2% in 1997 and 12.7% in
fiscal 1996. The increases are primarily attributable to higher freight costs
and related handling expenses resulting from the expansion of services from
existing inventory depots and from additional depots established in fiscal
1996.
   
  Selling, general and administrative expenses decreased $5.2 million (4.4%)
to $110.5 million in fiscal 1997 compared to $115.7 million in fiscal 1996. In
fiscal 1997 selling expenses decreased $1.0 million (2.4%) to $40.8 million,
and decreased as a percent of revenues to 4.0% from 4.1% in fiscal 1996 due to
lower compensation costs. General and administrative expenses decreased by
$4.1 million (5.5%) to $69.7 million in fiscal 1997, and to 6.8% of revenues
from 7.2% in fiscal 1996. The decrease in general and administrative expenses
was primarily due to lower compensation expense, lower depreciation and
amortization of property, plant and equipment resulting from a change in
accounting estimate in fiscal 1996, higher income from cash discounts taken on
vendor payments and gains from sales of surplus facilities.     
 
  Net Interest Expense. Net interest expense was $40.9 million in both fiscal
1997 and 1996. Such amounts include interest on the Revolving Credit Facility,
Senior Notes, interest on borrowings against the cash surrender value of
certain life insurance policies and the amortization or write-off of debt
issue costs ($2.1 million in fiscal 1997 and $2.7 million in fiscal 1996).
 
  During fiscal 1997 the average outstanding indebtedness (excluding
borrowings against the cash surrender value of certain life insurance
policies) was $304.5 million versus $305.4 million in fiscal 1996. The
weighted average interest rate on such indebtedness during fiscal 1997 was
9.62% versus 9.83% in fiscal 1996. The decrease in the average outstanding
indebtedness and the weighted average interest rate was attributable to the
Company's Revolving Credit Facility borrowings. The average borrowings under
the Revolving Credit Facility decreased to $130.4 million from $131.6 million
in fiscal 1996, and the average interest rate decreased to 8.54% in fiscal
1997 from 9.09% in fiscal 1996.
 
  The outstanding borrowings against the cash surrender value of life
insurance policies was $76.5 million at March 31, 1997 and $65.9 million at
March 31, 1996, and the total interest expense on such borrowings increased to
$8.6 million in fiscal 1997 compared to $7.2 million in fiscal 1996. Such
increases resulted from a borrowing of $11.4 million against the increased
cash surrender value of life insurance policies in November 1996 to pay annual
premiums on such policies and to pay interest on previous borrowings (see "--
Liquidity and Capital Resources"). As specified in the terms of the insurance
policies, the rates for dividends earned under the policies correspondingly
increase when borrowings are outstanding under the policies. This increase in
dividends is greater than the increase in the incremental borrowing rate.
Dividend income earned under the policies was $7.8 million in fiscal 1997 and
$7.6 million in fiscal 1996 and is reported as an offset to general and
administrative expenses in the Company's statements of operations.
 
  During fiscal 1997, the interest rates on the 10 3/4% Notes and on the life
insurance policy borrowings were fixed at 10.75% and 11.76%, respectively. The
interest rate on the Revolving Credit Facility was a floating rate (10.0% as
of March 31, 1997).
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's ongoing cash requirements for debt service and capital
expenditures are expected to consist primarily of interest payments under its
Revolving Credit Facility, interest and principal payments on the Term Loan,
interest payments on the 9 1/2% Senior Notes, dividend payments to Holding in
connection with the required repurchase of its capital stock from departing
stockholders pursuant to Holding's Stockholders Agreement and the ESOP,
capital expenditures and principal and interest payments on the Company's
industrial revenue bonds. As of March 31, 1998, annual principal payments
required by the Company's outstanding
 
                                      17
<PAGE>
 
industrial revenue bonds indebtedness amount to $0.5 million in fiscal 1999
and 2000, $1.4 million in fiscal years 2001 through 2004 and $6.2 million in
the aggregate thereafter through 2010. The Company will not be required to
make any principal payments in respect of the 9 1/2% Senior Notes until 2005.
The Revolving Credit Facility will mature in 2003 and the Term Loan will
mature in 2004. The Term Loan requires principal payments to be made in equal
quarterly installments of $250,000. The final installment due at maturity will
repay in full all outstanding principal. The Revolving Credit Facility, the
Term Loan and 9 1/2% Senior Notes have covenants which are comparable to those
complied with previously, and although compliance with such covenants in the
future is largely dependent on the future performance of the Company and
general economic conditions, for which there can be no assurance, the Company
expects that it will continue to be in compliance with all of its debt
covenants for the foreseeable future.
 
  As of March 31, 1998, the Company's primary sources of liquidity were
available borrowings of approximately $90.6 million under the Revolving Credit
Facility, available borrowings of approximately $5.5 million against certain
life insurance policies and internally generated funds. Borrowings under the
Revolving Credit Facility are secured by the Company's domestic inventory and
accounts receivable, and future availability under the facility is determined
by prevailing levels of the Company's accounts receivable and inventory. The
Term Loan is secured by a first priority lien on a substantial portion of the
Company's current and future acquired unencumbered property, plant and
equipment. The life insurance policy loans are secured by the cash surrender
value of the policies and are non-recourse to the Company. The interest rate
on the life insurance policy loans is 0.5% greater than the dividend income
rate on the policies. As of March 31, 1998, there was approximately
$16.5 million of cash surrender value in all life insurance policies
maintained by the Company, net of borrowings.
 
  The Company's capital expenditures were $7.3 million in fiscal 1998, $4.4
million in fiscal 1997 and $16.7 million in fiscal 1996. Capital expenditures
in fiscal 1996 and 1995 included $6.3 million and $5.7 million, respectively,
of expenditures financed through purchase money and industrial revenue bond
indebtedness. During fiscal 1998, capital expenditures were primarily for
routine replacement of machinery and equipment and for computer hardware and
software. For fiscal 1999, the Company has planned approximately $15.3 million
of capital expenditures (including $4.3 million deemed carryover from the
fiscal 1998 budget) to be financed from internally generated funds.
Approximately $8.1 million is for routine replacement of machinery and
equipment and facility improvements and expansions, $5.3 million is for the
purchase of a leased facility, and $1.9 million is for further additions to
the Company's management information systems.
 
  During fiscal 1998, the Company redeemed $11.5 million of its capital stock
from retiring and terminated employees, as required by the terms of the
Company's ESOP and Holding's Stockholders Agreement. The Company expects that
such redemptions for fiscal 1999 will be comparable, although the timing of
such expenditures is not within the control of the Company and there can be no
assurance in this regard.
 
  The cash required to complete the 1997 restructuring, including the
redemption of stock from terminated employees was financed from proceeds from
the sale of domestic facilities and foreign operations, as discussed above,
and from internal cash flows.
 
  The dividend payment to Holding of $45.4 million to effect the Holding
Prepayment (see "--Refinancing Transactions"), resulted in tax losses reported
by Holding in the amount of approximately $27.2 million. Such tax losses are
available to offset consolidated federal taxable income of Holding and the
Company and will reduce cash taxes payable by the Company under the Tax
Allocation Agreement between Holding and the Company (see Note 7 to
Consolidated Financial Statements).
 
                                      18
<PAGE>
 
  Working capital and cash flows of the Company over the past three fiscal
years are summarized below:
 
<TABLE>
<CAPTION>
                                                         FISCAL YEAR
                                                  ----------------------------
                                                    1998      1997      1996
                                                  --------  --------  --------
                                                    (DOLLARS IN THOUSANDS)
   <S>                                            <C>       <C>       <C>
   SELECTED DATA:
   Working capital............................... $156,500  $170,988  $166,587
   Net cash provided by (used in) operating
    activities...................................   34,507    (5,504)   67,058
   Net cash provided by (used in) investing
    activities...................................    9,294      (680)  (16,105)
   Net cash provided by (used in) financing
    activities...................................  (44,515)    4,838   (38,745)
</TABLE>
 
  The Company's working capital decreased $14.5 million to $156.5 million at
March 31, 1998 versus $171.0 million at March 31, 1997, primarily as the
result of the sale of foreign operations in the U.K. and Mexico and higher
accounts payable and accrued liabilities, including deferred taxes.
Inventories increased $6.4 million and accounts receivable decreased $8.2
million when compared to fiscal 1997 amounts. The Company's average accounts
receivable days outstanding were 36.1 days in fiscal 1998, 39.1 days in fiscal
1997 and 40.8 days in fiscal 1996.
 
  Net cash provided by operations increased $40.0 million in fiscal 1998
compared to fiscal 1997 primarily due to the significant improvement in
earnings and lower accounts receivable. The impact of higher inventories on
operating cash flow in fiscal 1998 was offset by higher accounts payable and
accrued liabilities.
 
  Net cash provided by investing activities increased $10.0 million in 1998
compared to 1997 primarily as a result of higher proceeds from fixed asset
dispositions, including excess facilities in Hartford, Connecticut;
Birmingham, Alabama; Grand Prairie, Texas; Detroit, Michigan and Kansas City,
Missouri, and proceeds received from the sale of foreign subsidiaries in the
U.K. and Mexico (see Note 4 to Consolidated Financial Statements), offset by
higher capital expenditures.
 
  Net cash used in financing activities increased $49.4 million in 1998
compared to 1997 primarily as a result of reducing the outstanding balance
under the Revolving Credit Facility and payment of debt issue costs in
connection with the issuance of the 9 1/2% Senior Notes, the Term Loan, and
the replacement of the Revolving Credit Facility (see Note 6 to Consolidated
Financial Statements). Dividends paid to Holding for the repurchase of
Holding's capital stock from departing stockholders was $11.5 million in
fiscal 1998 compared to $5.6 million in fiscal 1997. In addition, proceeds
from the Refinancing Transactions were used to redeem the 10 3/4% Notes,
prepay purchase money indebtedness and pay a dividend to Holding to effect the
Holding Prepayment. See "--Refinancing Transactions."
   
  The Company believes its sources of liquidity and capital resources are
sufficient to meet all currently anticipated operating cash requirements,
including debt service payments on the Revolving Credit Facility, the Term
Loan and the 9 1/2% Senior Notes prior to their respective maturities.
However, the Company anticipates that it will be necessary to replace the
Revolving Credit Facility on or prior to its maturity in 2003 and to refinance
all or a portion of the Term Loan on or prior to its maturity in 2004 and the
9 1/2% Senior Notes on or prior to their maturity in March 2005, although
there can be no assurance on what terms, if any, the Company would be able to
obtain such refinancing or additional financing. The Company's ability to make
interest payments on the Revolving Credit Facility and the 9 1/2% Senior Notes
and principal and interest payments on the Term Loan will be dependent on
maintaining the level of performance reflected in the fiscal 1998 results,
which will be dependent on a number of factors, many of which are beyond its
control, and the continued availability of revolving credit borrowings. The
Company's earnings were sufficient to cover fixed charges for fiscal 1998.
Earnings were insufficient to cover fixed charges for fiscal years 1997 and
1996 by $26.1 million and $38.2 million, respectively.     
 
ENVIRONMENTAL CONTINGENCIES
 
  The Company is currently involved with remediation and/or investigation
activities at several former facilities where soil and/or groundwater
contamination is present. As of March 31, 1998, reserves totaling
 
                                      19
<PAGE>
 
$2.3 million have been established to cover those future environmental costs
that are known or can be reasonably estimated. See Note 9 to the Company's
Consolidated Financial Statements included elsewhere herein for a more
detailed discussion of specific environmental contingencies.
   
  The Company's service centers are subject to many federal, state and local
requirements relating to the protection of the environment, including
hazardous waste disposal and underground storage tank regulations. The Company
believes that it is in material compliance with all applicable environmental
laws and that the Company's products and processes do not present any unusual
environmental concerns. The Company does not anticipate any material
expenditures or material recurring costs in the near future in connection with
pollution control.     
   
  Some of the properties owned or leased by the Company are located in
industrial areas with histories of heavy industrial use. Although the location
of these properties may result in the Company's incurring environmental
liabilities that arise from causes other than the operations of the Company,
the Company does not expect that any such liabilities will have a material
adverse impact on the Company's results of operations, financial condition or
liquidity. The Company does not carry environmental insurance coverage.     
   
  The Company's operations are also governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Health and
Safety Act and regulations thereunder, which, among other requirements,
establish noise, dust and safety standards. The Company believes that it is in
material compliance with applicable laws and regulations and does not
anticipate that future compliance with such laws and regulations will have a
material adverse effect on the results of operations or financial condition of
the Company.     
 
  Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse effect on the Company's financial condition, results
of operations or liquidity. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that may require
expenditures not currently anticipated and that may be material. See "Item 1.
Business--Environmental Matters."
 
FOREIGN EXCHANGE EXPOSURE
   
  The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Exchange adjustments resulting from foreign
currency transactions are recognized in net earnings, whereas adjustments
resulting from the translation of financial statements are reflected as a
separate component of stockholder's equity. The Company does not hedge its
exposure to foreign currency fluctuations. Net foreign currency transaction
gains or losses have not been material in any of the years presented. See
"Item 1. Business--Foreign Operations." However, the 1995 devaluation of the
Mexican peso and ongoing instability of the peso and the Mexican economy had a
negative impact on the Company's Mexican operations, which generated operating
losses aggregating $2.9 million for the three fiscal years ended March 31,
1997.     
 
  In March 1997, the Company approved a restructuring plan that included
selling its foreign operations in the United Kingdom and Mexico. As a result
of this decision, the cumulative foreign currency translation losses for these
operations were recognized as part of the estimated loss on sale of these
operations. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
YEAR 2000 COMPLIANCE
 
  The Company believes that its management information systems are
substantially in compliance with Year 2000 standards and such standards are
not expected to materially impact the Company's internal operations. However,
Year 2000 considerations may have an effect on some of the Company's customers
and suppliers, and
 
                                      20
<PAGE>
 
thus indirectly affect the Company. The Company is assessing the effect, if
any, on certain of its customers and suppliers by conducting Year 2000
compliance surveys. It is not possible to quantify the effect that customer,
supplier or governmental authorities' problems with Year 2000 might have on
the Company, but the Company has not been advised of any problems of its
customers, suppliers or governmental authorities that it believes will have a
material adverse effect on the Company's business.
 
INFLATION
 
  The Company's operations have not been, nor are they expected to be,
materially affected by inflation.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  Financial statements and supplementary data required by this Item 8 are set
forth as indicated in Item 14(a)(1) and (2) below.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE
 
  None.
 
                                      21
<PAGE>
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
   
  The following table sets forth the name, age (at March 31, 1998), principal
occupation and business experience during the last five years of each of the
directors and executive officers of the Company and Holding. The directors and
executive officers of the Company and Holding are identical. The executive
officers serve at the pleasure of the Board of Directors of the Company and
Holding, respectively.     
 
  Each member of the Board of Directors of the Company and of Holding holds
office until the next annual meeting of the stockholders thereof or until his
successor is elected and qualified. The election of directors of Holding is
subject to the provisions of a Stockholders' Agreement described below.
 
  Prior to January 1, 1998, non-officer directors of the Company, other than
Messrs. Schuchert and Nickell, were paid an annual retainer of $25,000 plus
$1,000 for each board meeting attended. Effective January 1, 1998, each of
such non-officer directors (Messrs. Marquard, Rutledge and Ligon) was granted
options to purchase 10,000 shares of Holding Common Stock at their fair market
value as established by the most recent appraisal available at the date of
grant. Such options will vest in four equal increments at the end of each
calendar quarter of 1998. Effective April 1, 1997 and April 1, 1998, in
consideration for his service as a director, Chairman of the Executive
Committee and Chairman of the Board, Mr. Roderick was granted options to
purchase 20,000 shares of Holding Common Stock, in each case at their fair
market value as established by the most recent appraisal available at the date
of the grant. Such options are fully vested. The Company expects to continue
the practice of paying director's fees with grants of stock options.
 
  In addition, all non-officer directors are reimbursed for all approved out-
of-pocket expenses related to meetings attended. The Company's directors
receive no additional compensation for their services as directors of Holding.
Officers of the Company and Holding who serve as directors do not receive
compensation for their services as directors other than the compensation they
receive as officers of the Company and Holding.
 
  There are no family relationships among directors and executive officers of
the Company and Holding. For information regarding the stock ownership of
Holding by the Company's and Holding's directors and executive officers, see
"Item 12. Security Ownership of Certain Beneficial Owners and Management."
 
<TABLE>
<CAPTION>
   NAME                     AGE                   POSITION
   ----                     ---                   --------
   <C>                      <C> <S>
   Earle M. Jorgensen...... 99  Chairman Emeritus and Director
   David M. Roderick....... 74  Chairman of the Board and Chairman of the
                                 Executive Committee and Director
   Maurice S. Nelson, Jr. . 60  President, Chief Executive Officer and Chief
                                 Operating Officer and Director
   Charles P. Gallopo...... 56  Vice President, Chief Financial Officer and
                                 Secretary
   Frank D. Travetto....... 45  Vice President Merchandising
   Kenneth L. Henry........ 51  Vice President Central Region
   James D. Hoffman........ 39  Vice President Eastern Region
   R. Neil McCaffery....... 48  Vice President Western Region
   Mark R. McWhirter....... 38  Vice President and Chief Information Officer
   Joseph S. Schuchert..... 69  Director
   Neven C. Hulsey......... 63  Director
   Charles K. Ligon........ 60  Director
   William A. Marquard..... 78  Director
   Frank T. Nickell........ 50  Director
   John Rutledge........... 49  Director
</TABLE>
 
                                      22
<PAGE>
 
  Earle M. Jorgensen. Mr. Jorgensen founded EMJ and was Chairman of the Board
of EMJ and its successor, the Company, from 1924 until April 1994. He was also
Chairman of the Board of Holding from May 1990 until April 1994. Mr. Jorgensen
was Chief Executive Officer of EMJ from 1924 to June 1986. Until February
1990, Mr. Jorgensen was a director of Northrop Corporation. Mr. Jorgensen has
been a director of Holding since May 1990. In April 1994, Mr. Jorgensen became
Chairman Emeritus of the Board of the Company and Holding.
 
  David M. Roderick. Mr. Roderick became Chairman of the Board of the Company
and Holding on January 21, 1998. Mr. Roderick has also served as Chairman of
the Executive Committee of the Company and Holding since February 1, 1997.
Before that, Mr. Roderick was Chairman of the Board of the Company and Holding
from April 1994. Mr. Roderick has been a director of the Company and Holding
since January 1994. Mr. Roderick also serves as director of American Standard
Companies Inc., Baron Enterprises and Kelso & Companies, Inc. Previously, Mr.
Roderick served as Director, Chairman, and Chief Executive Officer of the USX
Corporation. Mr. Roderick joined USX in 1959, was Chairman of USX Finance
Committee and a Director from 1973 to 1975, was President and Director from
1975 until 1979 and was Chief Executive Officer and Chairman from 1979 to
1989.
 
  Maurice S. Nelson, Jr. Mr. Nelson was elected President, Chief Executive
Officer and Chief Operating Officer and a director of the Company and Holding
effective February 1, 1997. Before that, Mr. Nelson served as President, Chief
Executive Officer and Chief Operating Officer of Inland Steel Company from
1992 until April 1996. Before that, Mr. Nelson was the President of the
Aerospace and Commercial division of the Aluminum Company of America (Alcoa)
from 1987 to 1992.
 
  Charles P. Gallopo. Mr. Gallopo has been Secretary of the Company and
Holding since July 1997 and Vice President and Chief Financial Officer of the
Company and Holding since December 1993. Before that, Mr. Gallopo was Chief
Financial Officer of Severin Montres, Ltd. since July 1989. Severin Montres,
Ltd., owned by Gucci Group N.V., is a manufacturer and distributor of Gucci
watches.
 
  Frank D. Travetto. Mr. Travetto has been the Company's Vice President
Merchandising since March 1997. Before that, Mr. Travetto was the Company's
Vice President Western Region since 1996, the Company's Vice President Eastern
Region from 1992 to 1996, and the Company's Division President, Canadian
Operations from 1990 to 1992.
 
  Kenneth L. Henry. Mr. Henry has been the Company's Vice President Central
Region since October 1995. Since January 1998, Mr. Henry has also been
responsible for operations of the Company's Chicago facility. Before that, Mr.
Henry was the Company's Vice President Southern Region since 1994, and Vice
President of the Kilsby-Roberts Division of EMJ from April 1992 to 1994.
 
  James D. Hoffman. Mr. Hoffman has been the Company's Vice President Eastern
Region since July 1996. Before that, Mr. Hoffman was District Manager for the
Company's Cleveland and Buffalo operations since June 1992.
 
  R. Neil McCaffery. Mr. McCaffery has been the Company's Vice President
Western Region since March 1997. Before that, Mr. McCaffery was the Company's
Vice President Southern Region since April 1996, and was District Manager for
the Company's Los Angeles operations from 1991 to 1996.
 
  Mark R. McWhirter. Mr. McWhirter has been Vice President and Chief
Information Officer of the Company since February 1995. Before that, Mr.
McWhirter was an Account Manager at Electronic Data Systems since March 1988.
 
  Joseph S. Schuchert. Mr. Schuchert has been Chairman and a director of Kelso
& Companies, Inc. since March 1989 and was Chief Executive Officer from March
1989 to August 1997. Kelso & Companies, Inc. is the general partner of Kelso,
a Delaware limited partnership. Before the formation of Kelso & Companies,
Inc. in 1989, Mr. Schuchert was Managing General Partner of Kelso. Mr.
Schuchert is a director of American Standard
 
                                      23
<PAGE>
 
Companies Inc. and Kelso Insurance Services, Inc. Mr. Schuchert has been a
director of the Company since March 1990, and a director of Holding since May
1990.
 
  Neven C. Hulsey. Mr. Hulsey has been a director of the Company since March
1990 and Holding since May 1990. He served as Chairman of the Board of the
Company and Holding from February 1, 1997 until January 21, 1998. Before that,
Mr. Hulsey was President and Chief Executive Officer of the Company from April
1990, and of Holding from May 1990. Mr. Hulsey was Chairman of the Board,
Director, President and Chief Executive Officer of Kilsby from 1984 until May
1990. Mr. Hulsey has been a director of the Company from March 1990, and a
director of Holding from May 1990. Mr. Hulsey also serves as a director of
International House of Pancakes, Inc. and Webco Industries Inc.
 
  Charles K. Ligon. Mr. Ligon has been a director of the Company since
November 1997. From 1992 through 1996, Mr. Ligon was a partner of Lundquist
Advisory, an investment advisory firm. Mr. Ligon has worked for Aluminum
Company of America (Alcoa) from 1959 to 1991 in many capacities, including LBO
Manager and Vice President of Alcoa Separations Technology, Group Vice
President of the Materials Science Group, and Vice President of Corporate
Planning and Development. Mr. Ligon also served as a director of FX Energy
from 1992 through 1994 and KMS Industries from 1987 through 1992.
 
  William A. Marquard. Mr. Marquard has been a director of the Company since
March 1990, and a director of Holding since May 1990. Mr. Marquard also serves
as a director and Chairman of the Board of Arkansas Best Corporation and
Mosler, Inc., and as a director of Kelso & Companies, Inc., Treadco, Inc. and
EarthShell Container Corporation.
 
  Frank T. Nickell. Mr. Nickell has served as director of the Company and
Holding since August 1993. He has been President and a director of Kelso &
Companies, Inc. since March 1989 and Chief Executive Officer of Kelso &
Companies, Inc. since September 1997. Kelso & Companies, Inc. is the general
partner of Kelso, a Delaware limited partnership. Before the formation of
Kelso & Companies, Inc., from 1984 to 1989, Mr. Nickell was a general partner
of Kelso. He is also a director of Charter Communications Long Beach, Inc.,
CCA Holdings Corp., CCT Holdings Corporation, Peebles Inc., Kelso Insurance
Services, Inc., and The Bear Stearns Companies.
 
  John Rutledge. Dr. Rutledge has been a director of the Company and Holding
since June 1992. Dr. Rutledge is the founder of Rutledge & Company, Inc., a
merchant banking firm, and has been Chairman since January 1991. He is the
founder of Claremont Economics Institute, and has been Chairman since January
1979. Dr. Rutledge is also a director of Amerindo Investment Advisers, Inc.,
Lazard Freres Funds, Fluidrive Inc., United Refrigerated Services, Inc., Adobe
Air Inc. and CST Office Products, and is a consultant to Kelso and StairMaster
Sports/Medical Products, Inc.
 
STOCKHOLDERS' AGREEMENT
 
  The Company's By-laws provide for one to ten directors. The Board of
Directors of the Company currently consists of nine directors. Certain of
Holding's shareholders have agreed, pursuant to the Stockholders' Agreement,
dated as of September 14, 1990, as amended (the "Stockholders' Agreement"),
that two directors shall be designated by the Management Stockholders (as
defined in the Stockholders' Agreement), so long as they are reasonably
acceptable to Kelso, and that at least five directors shall be designated by
Kelso. Messrs. Nelson and Hulsey are the directors designated by the
Management Stockholders and the remaining directors were designated by Kelso.
Mr. Ligon was elected as a director by the holders of Series A Preferred Stock
of Holding pursuant to the terms of the Series A Preferred Stock. The
Stockholders' Agreement also provides that in the event of termination of
employment, under certain circumstances, each Management Stockholder is
entitled to sell, and Holding can require such a Management Stockholder to
sell, their shares of Holding Common Stock to Holding at their appraised Fair
Market Value (as defined therein). The Board of Directors of the Company has
approved an extension of the term of the Stockholders' Agreement to March 24,
2008.
 
                                      24
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION
 
  Set forth below is information concerning the compensation levels for the
executive officers of Holding and the Company serving as of March 31, 1998.
Officers of the Company receive no additional compensation for their services
as officers of Holding.
 
  Cash Compensation. The following table sets forth compensation for the three
fiscal years ended March 31, 1998 for the Chief Executive Officer and the four
most highly compensated executive officers of the Company as of March 31,
1998.
 
                         SUMMARY OF COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                    LONG-TERM
                                                   COMPENSATION
                                                      AWARDS
                                                 ----------------
                                                    SECURITIES
                           ANNUAL COMPENSATION   UNDERLYING STOCK
   NAME AND PRINCIPAL     ----------------------   OPTIONS/SAR       ALL OTHER
        POSITION          YEAR  SALARY  BONUS(1)      (#)(2)      COMPENSATION(3)
   ------------------     ---- -------- -------- ---------------- ---------------
<S>                       <C>  <C>      <C>      <C>              <C>
Maurice S. Nelson, Jr. .  1998 $550,020 $591,111                     $ 64,924
 President, Chief         1997   91,670      --     1,320,000         150,000 
 Executive Officer and                                                       
 Chief Operating
 Officer(4)

Charles P. Gallopo......  1998  209,701  276,663                       37,136
 Vice President, Chief    1997  196,470   84,714                       23,928
 Financial Officer        1996  195,023   12,102                       32,397 
 and Secretary                                                                

Frank D. Travetto.......  1998  193,480  183,997       25,000          23,856
 Vice President,          1997  162,008      --                        12,488
 Merchandising            1996  156,945   63,965                       41,947 
                                                                              
Kenneth L. Henry........  1998  161,561  150,050       25,000          60,973
 Vice President, Central  1997  135,627      --                        13,359
 Region                   1996  135,448   66,010                       16,177 
                                                                              
R. Neil McCaffery.......  1998  154,447  146,859       25,000          14,989
 Vice President, Western  1997  131,336   17,009                        7,580
 Region                   1996   95,152  122,674                        7,720 
</TABLE>
--------
(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
    (i) a cash bonus payable pursuant to the Company's Management Incentive
    Compensation Plan, which became effective April 1, 1997, and (ii) a cash
    bonus payable each year to all management investors pursuant to the
    Company's Management Stock Bonus Plan (or, in the case of Mr. Gallopo, an
    equivalent policy) in proportion to their ownership of Holding Common
    Stock. The following bonuses were paid to Messrs. Nelson, Gallopo,
    Travetto, Henry and McCaffery under the Company's Management Incentive
    Compensation Plan (a) in fiscal 1998: $591,111, $228,255, $183,997,
    $150,050 and $146,859, respectively, (b) in fiscal 1997: none, and (c) in
    fiscal 1996: none. The following bonuses were paid to Messrs. Gallopo,
    Travetto, Henry and McCaffery under the Company's Management Stock Bonus
    Plan (a) in fiscal 1998: none, except Mr. Gallopo ($48,408), (b) in fiscal
    1997: none, except Mr. Gallopo ($84,714), and (c) in fiscal 1996: $12,102,
    $3,000, $4,750 and $1,250, respectively. Prior to fiscal 1998, Messrs.
    Travetto, Henry and McCaffery were participating under a predecessor
    incentive plan based on the operating performance of their respective
    regions. The following amounts were paid under this plan to Messrs.
    Travetto, Henry and McCaffery, respectively (a) in fiscal 1997: none,
    except for Mr. McCaffery ($17,009), and (b) in fiscal 1996: $60,965,
    $61,260 and $121,424.
 
(2) Holding has granted Mr. Nelson and certain other 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. Henry, Travetto and McCaffery
    have an exercise price of $3.34 per share. See "Holding Stock Option Plan"
    and "Stock Option Grants Table" below for further information.
 
                                      25
<PAGE>
 
(3) Amounts shown include allocations to the accounts of each of the named
    officers of contributions made by the Company to the ESOP and to the
    Company's 401(a)(17) Supplemental Contribution Plan ("401(a)(17) Plan")
    and of premiums paid by the Company for long-term disability and life
    insurance policies. The following allocations were made in fiscal 1998 to
    Messrs. Nelson, Gallopo, Travetto, Henry and McCaffery, respectively: (i)
    ESOP--$8,000, $8,000, $8,000, $7,875 and $7,575; (ii) 401(a)(17) Plan--
    49,057, $13,806, $10,710, $7,376 and $6,918; (iii) long term disability--
    $7,285, $6,133, $3,745, $5,908 and none; and (iv) life insurance--$582,
    $9,197, $1,401, $1,362 and $496. In fiscal 1997, the following allocations
    were made to Messrs. Nelson, Gallopo, Travetto, Henry and McCaffery,
    respectively: (i) ESOP--none, $7,500, $7,500, $6,600 and $7,270; (ii)
    401(a)(17) Plan--none, $2,214, $540, none and none; (iii) long term
    disability--none, $6,207, $3,573, $5,908 and none; and (iv) life
    insurance--none, $8,007, $875, $851 and $310. In fiscal 1996, the
    following allocations were made to Messrs. Gallopo, Travetto, Henry and
    McCaffery, respectively: (i) ESOP--$7,500 each; (ii) 401(a)(17) Plan--
    $9,996, $3,238, $2,163 and none; (iii) long term disability--$6,351,
    $3,410, $5,908 and none; and (iv) life insurance--$8,550, $623, $606 and
    $220. The amounts in respect of life insurance represent the estimated
    value of the premiums paid by the Company on certain disability and life
    insurance policies in respect of each executive. Some of the policies are
    managed on a split-dollar basis and the Company will receive the premiums
    it has paid from the proceeds of such insurance. In such cases the amount
    of the other compensation attributed to the executive was calculated by
    treating the premiums paid by the Company as a demand loan, and the amount
    of compensation is equal to the imputed interest expense on the cumulative
    outstanding premiums paid by the Company, assuming an interest rate equal
    to the short-term federal funds rate, from time to time. Amounts shown
    also include relocation payments of $38,452 to Mr. Henry in fiscal 1998
    and $27,176 to Mr. Travetto in fiscal 1996 and a discretionary payment to
    Mr. Nelson of $150,000 in fiscal 1997.
 
(4) Mr. Nelson joined the Company on February 1, 1997 and his compensation in
    fiscal 1997 represents actual compensation for a period of two months.
 
HOLDING STOCK OPTION PLAN
 
  Holding has adopted the Earle M. Jorgensen Holding Company, Inc. Stock
Option Plan (the "Stock Option Plan"). The Executive Committee of the Board of
Directors is authorized to grant options under the Stock Option Plan. Stock
options may be granted at not less than 100% of the fair market value of
Holding Common Stock on the date of grant and are generally exercisable for a
period not exceeding ten years. Option grants or the vesting of options may be
contingent upon such terms and conditions, such as the achievement of
performance measures or upon the passage of time, as the Executive Committee
determines. The Executive Committee will make grants under the Stock Option
Plan to provide executive officers with additional incentives for outstanding
individual performance and the opportunity to acquire an ownership stake in
the Company, thereby more closely aligning their interests with those of the
stockholders.
 
  The Executive Committee has the right, if the holders of options agree, to
grant replacement options which may contain terms more favorable than the
options they replace, such as a lower exercise price, and cancel the replaced
options.
 
  The aggregate number of shares of Holding Common Stock available for grants
or subject to outstanding options, and the respective prices and/or vesting
criteria applicable to outstanding options will be proportionately adjusted to
reflect any stock dividend on the Holding Common Stock, or any
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase the
Holding Common Stock at a price substantially below its fair market value. To
the extent deemed appropriate by the Executive Committee, subject to any
required action by the stockholders, in any merger, consolidation,
reorganization, liquidation, dissolution, or other similar transaction, any
option granted under the Stock Option Plan shall pertain to the securities and
any other property to which a holder of the number of shares of Common Stock
covered by the option would have been entitled to receive in connection with
such event.
 
  Upon a Change of Control of Holding, with certain exceptions, all
outstanding stock options (whether or not then fully exercisable or vested)
will be cashed out at specified prices as of the date of the Change of
Control,
 
                                      26
<PAGE>
 
except that any stock options outstanding for less than six months will not be
cashed out until six months after the applicable date of grant.
 
  Generally, a participant who is granted a stock option will not be subject
to federal income tax at the time of grant and the Company will not be
entitled to a tax deduction by reason of such grant. Upon exercise of a
nonqualified option, generally the difference between the option price and the
fair market value of the Holding Common Stock on the date of exercise will be
considered ordinary income to the participant and generally the Company will
be entitled to a corresponding tax deduction.
 
  Upon exercise of an incentive stock option, no taxable income will be
recognized by the participant and the Company is not entitled to a tax
deduction by reason of such exercise. However, if Holding Common Stock
purchased pursuant to the exercise of an incentive stock is sold within two
years from the date of grant or within one year after the transfer of such
Holding Common Stock to the participant, then the difference, with certain
adjustments, between the fair market value of the Holding Common Stock at the
date of exercise and the option price will be considered ordinary income to
the participant and generally the Company will be entitled to a corresponding
tax deduction. If the participant disposes of the Holding Common Stock after
such holding periods, any gain or loss upon such disposition will be treated
as a capital gain or loss and the Company will not be entitled to a deduction.
 
  The maximum number of shares of Holding Common Stock reserved for issuance
under the Stock Option Plan is 1,700,000, subject to adjustment as provided in
the Stock Option Plan to reflect certain corporate transactions affecting the
number or type of outstanding shares.
 
STOCK OPTION GRANTS TABLE
 
  The following table sets forth certain information concerning stock options
granted during fiscal 1998 by Holding to the Chief Executive Officer and the
next four most highly compensated executive officers of the Company. In
addition, there are shown hypothetical gains that could be realized for the
respective options, based on assumed rates of annual compound price
appreciation of 5% and 10% from the date the options are granted over the ten-
year term of the options. The actual gain, if any, realized upon exercise of
the options will depend upon the market price of Holding's Common Stock
relative to the exercise price of the option at the time the option is
exercised. There is no assurance that the amounts reflected in this table will
be realized.
 
                      OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                                                                        POTENTIAL
                                                                                     REALIZABLE VALUE
                                                                                        AT ASSUMED
                                              INDIVIDUAL GRANTS                      ANNUAL RATES OF
                          ----------------------------------------------------------   STOCK PRICE
                                                   % OF TOTAL                        APPRECIATION FOR
                                NUMBER OF        OPTIONS GRANTED EXERCISE              OPTION TERM
                          SECURITIES UNDERLYING  TO EMPLOYEES IN  PRICE   EXPIRATION ----------------
NAME                      OPTIONS GRANTED (#)(1)   FISCAL YEAR   ($/SH.)     DATE    5% ($)  10% ($)
----                      ---------------------- --------------- -------- ---------- ------- --------
<S>                       <C>                    <C>             <C>      <C>        <C>     <C>
Maurice S. Nelson, Jr. .             --                  0%         N/A         N/A      N/A      N/A
Charles P. Gallopo......             --                  0%         N/A         N/A      N/A      N/A
Kenneth L. Henry........          25,000                20%       $3.34   7/31/2007  $52,513 $133,077
Frank D. Travetto.......          25,000                20%        3.34   7/31/2007   52,513  133,077
R. Neil McCaffery.......          25,000                20%        3.34   7/31/2007   52,513  133,077
</TABLE>
--------
(1) Holding has not granted any stock appreciation rights. All the options
    shown above become exercisable on August 1, 1999. All outstanding stock
    options shall become fully exercisable and shall be cancelled and
    exchanged for cash in an amount equal to the excess of the Change in
    Control Price (as defined in the Stock Option Plan as defined below) over
    the exercise price, in the event of any transaction or series of
    transactions, other than a public offering, where a person or a group,
    excluding Holding, any of its subsidiaries and Kelso and its affiliates,
    is or becomes the beneficial owner, directly or indirectly, of securities
    representing 35% or more of the voting power of Holding's then outstanding
    securities (an "SOP Change of Control"), unless the Executive Committee
    determines prior to the occurrence of such SOP
 
                                      27
<PAGE>
 
   Change of Control that such options shall be honored, or assumed or new
   rights (having substantially equivalent or better rights, terms and
   conditions and economic value) substituted therefor.
 
THE ESOP
 
  The Company maintains an employee stock ownership plan (the "ESOP") in
respect of the Company's nonunion employees who meet certain service
requirements. The Company's annual contributions to the ESOP are a percentage
(5% plus additional amounts up to an aggregate maximum contribution of 10%
pursuant to a program established by the Board of Directors for fiscal 1999
and 2000 rewarding the achievement of Company performance objectives) of total
cash compensation (as defined in the ESOP) and may be made by the Company in
cash or by Holding in shares of Holding capital stock. Participants become 20%
vested in their account balances after one year of continuous service.
Participants vest an additional 20% for each year of service thereafter and
become fully vested upon completion of five years of service, retirement,
disability or death. Following the occurrence of a participant's termination
of service (as defined in the ESOP), retirement, disability, or death, the
ESOP is required to either distribute the vested balance in stock or cash. If
stock is distributed, it is accompanied by a put option to Holding under terms
defined in the ESOP. At March 31, 1998, shares of Holding's Series A and
Series B Preferred Stock and Holding Common Stock owned by the ESOP totaled
83,903, 24,946, 3,833,577 shares, respectively. Contributions payable to the
ESOP totaled $2,788,000, $3,102,000 and $3,401,000 as of March 31, 1998, 1997
and 1996, respectively. Contributions for fiscal years 1994 through 1997 were
made by Holding in the form of Holding Common Stock. The contribution for
fiscal 1998 will also be in the form of Holding Common Stock.
 
  Although Holding has not expressed any intent to terminate the ESOP, it has
the right to terminate or amend the provisions of the ESOP at any time. In the
event of any termination, participants become fully vested to the extent of
the balances in their separate accounts and receive put options with respect
to Holding stock allocated to their accounts.
 
  In 1984, 1985 and 1986, K-R purchased life insurance policies to provide,
among other things, a separate source for funds to repurchase capital stock,
including capital stock distributed by the ESOP, from departing employees.
Certain of these policies allow the Company to borrow against the cash
surrender value of such policies. As of March 31, 1998, the Company has
borrowed $88.9 million against the cash surrender value of such policies to
fund renewal premiums, accrued interest on previous borrowings and working
capital needs. The net cash surrender value available for future borrowings
was approximately $5.5 million as of March 31, 1998. Other resources of the
Company, such as the Revolving Credit Facility, are available, subject to
certain limitations, to satisfy stock repurchase obligations as they arise.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
   
  The Internal Revenue Service (the "IRS") is currently conducting an audit of
the ESOP for the fiscal years ended March 31, 1992 through March 31, 1996. The
IRS issued a preliminary report to the Company in which the IRS asserted that
certain contributions of stock by Holding to the ESOP violated provisions of
the Internal Revenue Code. The U.S. Department of Labor (the "DOL") is
currently conducting an investigation of the same transactions involving the
ESOP and has come to conclusions similar to those reached by the IRS. The
Company believes that the assertions of the IRS and the DOL are incorrect and
has responded accordingly. In connection with its investigation, the DOL and
its advisors have also reviewed the valuation of Holding prepared for the ESOP
for fiscal 1997. The Company does not have sufficient information to estimate
its potential liability; however, the Company believes that the IRS and DOL
investigations will be resolved in a manner that will not result in a material
liability to the Company.     
 
SUPPLEMENTAL ESOP
 
  In fiscal 1996, the Company adopted a supplemental ESOP contribution plan
("Supplemental ESOP") for contributions not allowed under the ESOP pursuant to
limitations of Sections 401(a)(17) and 415 of the Internal Revenue Code of
1986, as amended. Participants in the Supplemental Plan include certain highly
compensated
 
                                      28
<PAGE>
 
employees and other employees who are not eligible to participate in the ESOP.
Contributions payable, vesting and distributions under the Supplemental Plan
are comparable with those under the ESOP. Contributions under the Supplemental
Plan are made in cash and are held in an irrevocable trust. Contributions
payable totaled $119,000, $30,000 and $93,000 as of March 31, 1998, 1997 and
1996, respectively.
 
MANAGEMENT INCENTIVE COMPENSATION PLAN
 
  Effective April 1, 1997, the Company adopted a new Management Incentive
Compensation Plan (the "Incentive Plan"). The Incentive Plan provides for
payment of cash bonuses to senior executives and other key management
employees based on the achievement of certain operating profit and cash flow
objectives determined by the Board of Directors or the Executive Committee.
Bonuses awarded are determined on a sliding scale based on the percentage of
the objectives achieved. No bonus is payable unless at least 80% of the
objectives are achieved, and the maximum bonus payable is 150% of base
compensation. In addition, the Company's Chief Executive Officer may award
bonuses from a discretionary pool for exemplary service. The Board of
Directors ratified bonuses pursuant to the Incentive Plan aggregating
$6.9 million in fiscal 1998.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  David M. Roderick, Frank T. Nickell and Maurice S. Nelson, Jr. are members
of the Executive Committee, which succeeded the functions of the Management
and Compensation Committee of Holding and the Company on January 30, 1997.
 
  Kelso affiliates beneficially own shares of the capital stock of Holding as
described under "Item 12. Security Ownership of Certain Beneficial Owners and
Management." Mr. Nickell and Mr. Schuchert are stockholders of Kelso and
general partners of Kelso Partners I, L.P. ("KP I"), Kelso Partners III, L.P.
("KP III"), and Kelso Partners IV, L.P. ("KP IV"). KP I, KP III and KP IV are
the general partners of Kelso Investment Associates, Limited Partnership ("KIA
I"), KIA III-Earle M. Jorgensen, L.P. ("KIA III-EMJ") and Kelso Investment
Associates IV, L.P. ("KIA IV"), respectively. Mr. Nickell and Mr. Schuchert
are directors of Holding and the Company and share investment and voting power
with respect to shares of the capital stock of Holding held by KIA I, KIA III-
EMJ and KIA IV as described under "Item 12. Security Ownership of Certain
Beneficial Owners and Management."
 
  In connection with the Acquisition, the Company agreed to pay Kelso an
annual fee of $1,250,000 each year for financial advisory services and to
reimburse it for out-of-pocket expenses incurred in connection with rendering
such services. Two general partners of Kelso affiliates serve on the Boards of
Directors of the Company and Holding. The agreement for advisory services was
amended in September 1997 to provide such services at an annual fee of
$625,000 for each of the fiscal years ending March 31, 1998 and 1999. For each
of the fiscal years 1998, 1997 and 1996, the Company paid Kelso the annual fee
and reimbursed Kelso $62,000, $393,000 and $154,000, respectively, for out-of-
pocket expenses.
 
  Holding has issued to KIA IV two warrants, entitling KIA IV to purchase
2,937,915 shares of Holding Common Stock in the aggregate at a purchase price
of $.01 per share.
 
  In January 1996, the Company amended its agreement with Kelso Insurance
Services, Inc. (an affiliate of Kelso) ("Kelso Insurance"), and American
Telephone and Telegraph Company ("AT&T") pursuant to which the Company as well
as certain other Kelso affiliated companies participates in a
telecommunications network under which AT&T provides communications services
to the group at a special tariff rate. Pursuant to such agreement, as amended,
the Company has guaranteed a minimum annual usage for communication services,
and Kelso Insurance has guaranteed the Company's minimum usage to AT&T. No fee
was paid by the Company to Kelso Insurance in connection with this
transaction.
 
  Effective April 1, 1997 and April 1, 1998, in consideration for his service
as a director, Chairman of the Company's Executive Committee and Chairman of
the Board, the Company granted Mr. Roderick options to purchase 20,000 shares
of Holding Common Stock at a purchase price of $5.41 per share and $3.34 per
share, respectively, in each case, the fair market value as established by the
most recent appraisal available at the date
 
                                      29
<PAGE>
 
of grant. Prior to this grant, Mr. Roderick had a three-year incentive
compensation agreement with Holding which expired on March 31, 1997. Pursuant
to such agreement, Mr. Roderick was granted 50,000 shares of Holding Common
Stock, 20,000 of which were vested upon issuance and all or a portion of the
remainder were to be vested through fiscal 1997, if Holding achieved certain
financial targets. A total of 34,000 shares were vested under the agreement
when it expired on March 31, 1997. Pursuant to the agreement, Mr. Roderick
received a cash payment in fiscal 1996 totaling $145,309, equal to the
federal, state and local income tax liability payable by him by reason of the
value of the initial payment of 20,000 unrestricted shares of Holding Common
Stock and such cash payment.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
COMMON STOCK OF THE COMPANY
 
  All of the issued and outstanding voting stock of the Company, consisting of
128 shares of common stock, is owned by Holding.
 
CAPITAL STOCK OF HOLDING
 
  The following table sets forth information with respect to the beneficial
ownership of shares of Holding Common Stock and Series A Preferred Stock as of
March 31, 1998, by all stockholders of Holding known to be beneficial owners
of more than 5% of any such class, by each director, by each executive officer
of the Company named in the Summary Compensation Table and by all directors
and executive officers as a group as determined in accordance with Rule 13d-
3(i) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As of March 31, 1998, 26,213 shares of Series B Preferred Stock of
Holding have been issued (and 1,163 shares have been accrued but not
declared), of which 24,946 were owned by the ESOP and 1,204 were owned by
Holding.
<TABLE>
<CAPTION>
                                                                              PERCENTAGE OF
                                            PERCENTAGE OF       NUMBER OF       SHARES OF
                           NUMBER OF          SHARES OF          SHARES         SERIES A
  NAME AND ADDRESS OF      SHARES OF         COMMON STOCK      OF SERIES A   PREFERRED STOCK
    BENEFICIAL OWNER      COMMON STOCK      OUTSTANDING(a)   PREFERRED STOCK OUTSTANDING(b)
  -------------------     ------------      --------------   --------------- ---------------
<S>                       <C>               <C>              <C>             <C>
Kelso Investment
 Associates, IV,
 L.P.(c)................    9,462,475(d)         59.3%(d)             0            0.0%
KIA III--Earle M.
 Jorgensen, L.P.(c).....    1,704,740            13.1%                0            0.0%
Joseph S. Schuchert(c)..   11,167,215(d)(e)      70.0%(d)(e)     24,519(f)        17.7%(f)
Frank T. Nickell(c).....   11,187,714(d)(e)      70.1%(d)(e)     24,519(f)        17.7%(f)
Michael B. Goldberg(c)..    9,462,475(d)(e)      59.3%(d)(e)          0            0.0%
George E. Matelich(c)...   11,172,215(d)(e)      70.0%(d)(e)     24,519(f)        17.7%(f)
Thomas R. Wall, IV(c)...   11,172,215(d)(e)      70.0%(d)(e)     24,519(f)        17.7%(f)
Frank K. Bynum(c).......   11,167,215(d)(e)      70.0%(d)(e)          0            0.0%
David I. Wahrhaftig(c)..   11,167,215(d)(e)      70.0%(d)(e)          0            0.0%
Earle M. Jorgensen(g)...      200,000             1.5%                0            0.0%
Neven C. Hulsey(g)......      250,000             1.9%           24,519           17.7%
Maurice S. Nelson(g)....            0             0.0%                0            0.0%
Charles P. Gallopo(g)...       50,000             0.4%                0            0.0%
Frank D. Travetto(g)....       12,000             0.1%                0            0.0%
Kenneth L. Henry(g).....       19,000             0.1%              704            0.5%
R. Neil McCaffery(g)....        5,000             0.0%                0            0.0%
David M. Roderick(g)(l).       74,000             0.6%                0            0.0%
John Rutledge(h)(l).....        7,500             0.1%                0            0.0%
William A. 
 Marquard(c)(l).........       12,500             0.1%                0            0.0%
Charles K. Ligon(l).....        2,500             0.0%                0            0.0%
Earle M. Jorgensen
 Company Employee Stock
 Ownership Plan(g)......    3,764,056(i)         28.9%(i)        80,338(i)        58.1%(i)
All directors and
 executive officers of
 the Company as a
 group(l)...............      712,999(j)          5.5%(j)        25,223(k)        18.2%(k)
</TABLE>
 
                                      30
<PAGE>
 
--------
(a) The percentage of shares of Holding Common Stock outstanding for KIA IV,
    and Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig and
    Bynum was calculated assuming the total outstanding shares of Holding
    Common Stock was 15,955,227, (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 had been no other
    dilution events prior to such exercise, (ii) excluding 47,500 shares
    subject to stock options referred to in note (l) below, and (iii)
    excluding the 176,182 shares of Holding Common Stock currently held in the
    Holding treasury. 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 13,017,312, excluding
    shares subject to stock options, shares issuable upon the exercise of the
    Warrants held by KIA IV and the 176,182 shares of Holding Common Stock
    held in the Holding treasury as of March 31, 1998.
 
(b) The percentage of shares of Series A Preferred Stock outstanding was
    calculated assuming the total outstanding shares of Series A Preferred
    Stock was 138,417, excluding 109,129 shares of Series A Preferred Stock
    held in the Holding treasury as of March 31, 1998.
 
(c) The business address for such person(s) is c/o Kelso & Company, 320 Park
    Avenue, 24th Floor, New York, New York, 10022. Kelso & Company is a
    private investment firm.
 
(d) Includes 2,937,915 shares of the Holding Common Stock that KIA IV is
    entitled to purchase pursuant to two Warrants issued to KIA IV. Each
    Warrant entitles the holder to purchase up to 10% of the Holding Common
    Stock on a fully-diluted basis at an exercise price of $.01 per share.
 
(e) Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig and Bynum
    may be deemed to share beneficial ownership of shares of Holding Common
    Stock owned of record by (i) KIA IV and an affiliated entity by virtue of
    their status as general partners of KP IV, the general partner of KIA IV,
    and such affiliate, and (ii) except Mr. Goldberg, KIA III-EMJ by virtue of
    their status as general partners of KP III, the general partner of KIA
    III-EMJ. Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig
    and Bynum 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 and Bynum disclaim
    beneficial ownership of the shares of Holding Common Stock owned by the
    Kelso affiliates.
 
(f) Messrs. Schuchert, Nickell, Wall and Matelich may be deemed to share
    beneficial ownership of shares of Series A Preferred Stock owned of record
    by KIA I by virtue of their status as general partners of KP I, the
    general partner of KIA I. Messrs. Schuchert, Nickell, Wall and Matelich
    disclaim beneficial ownership of the shares of Series A Preferred Stock
    owned by KIA I.
 
(g) The business address of such person(s) or entity is 3050 East Birch
    Street, Brea, California, 92821.
 
(h) The business address for Dr. Rutledge is One Greenwich Office Park,
    Greenwich, Connecticut, 06831.
 
(i) Excludes 69,521 shares of Holding Common Stock and 3,565 shares of Series
    A Preferred Stock held by the ESOP in directed accounts that may be deemed
    to be beneficially owned by any of the directors or executive officers or
    other employees of the Company.
 
(j) Excludes (i) 11,167,215 shares of Holding Common Stock held by Kelso
    affiliates that may be deemed to be beneficially owned by Mr. Schuchert
    and Mr. Nickell, and (ii) shares held by the ESOP, except for shares held
    in directed accounts that may be deemed to be beneficially owned by any of
    the directors and executive officers of the Company.
 
(k) Excludes (i) 24,519 shares of Series A Preferred Stock held by KIA I that
    may be deemed to be beneficially owned by Mr. Schuchert and Mr. Nickell,
    and (ii) shares held by the ESOP, except for shares held in directed
    accounts that may be deemed to be beneficially owned by any of the
    directors or executive officers of the Company.
 
(l) Includes shares subject to stock options vested and exercisable as of
    April 1, 1998.
 
 
                                      31
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Kelso affiliates beneficially own shares of the capital stock of Holding as
described under "Item 12. Security Ownership of Certain Beneficial Owners and
Management." Messrs. Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig
and Bynum are indirect stockholders of Kelso and general partners of KP I
(other than Messrs. Goldberg, Bynum and Wahrhaftig), KP III (other than Mr.
Goldberg) and KP IV. KP I, KP III and KP IV are the general partners of KIA I,
KIA III-EMJ and KIA IV, respectively. Messrs. Schuchert and Nickell are
directors of Holding and the Company. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management."
 
  The Company, Holding and Kelso and its affiliates entered into certain
agreements in connection with the Acquisition. Such agreements and
transactions are described under "Item 11. Executive Compensation--
Compensation Committee Interlocks and Insider Participation."
 
  KIA IV is the holder of two Holding warrants, which are described under
"Item 11. Executive Compensation--Compensation Committee Interlocks and
Insider Participation."
 
  Mr. Gallopo has borrowed $403,000 from Holding by issuing two separate
notes, one of which is non-recourse, each in the principal amount of $201,500,
to Holding in payment for 50,000 shares of Holding Common Stock. The notes
mature on March 31, 2001, bear interest at the rate of 6% per annum, and are
secured by a pledge of Mr. Gallopo's Holding Common Stock. Mr. Gallopo has
also received 16,000 phantom stock units, which vested on November 29, 1997.
Each phantom stock unit entitles Mr. Gallopo to receive an amount equal to the
difference between the fair market value of a share of Holding Common Stock on
the date of redemption and a base price, subject to adjustment, of $9.23.
 
  Mr. McWhirter has borrowed $92,300 from Holding by issuing two notes, one of
which is non-recourse, each in the principal amount of $46,150, to Holding in
payment for 10,000 shares of Holding Common Stock. The notes mature on March
31, 2002, bear interest at the rate of 6% per annum and are secured by a
pledge of Mr. McWhirter's Holding Common Stock.
 
  Mr. Hulsey is a general partner of a California partnership, Kilsby-Roberts
Group ("KRG"), and has an interest in such partnership of 3.704%. Through
December 1996, KRG owned a facility leased to the Company and received
approximately $41,000 of rent monthly from the Company during fiscal 1997. The
Company believes such rent was a market rent and is not higher than would
otherwise be paid if such premises were leased from an independent third
party. In January 1997, KRG sold the facility to an independent third party.
 
  Effective April 1, 1997 and April 1, 1998, in consideration for his service
as a director, Chairman of the Company's Executive Committee and Chairman of
the Board, the Company granted Mr. Roderick options to purchase 20,000 shares
of Holding Common Stock at their fair market value as established by the most
recent appraisal available at the date of grant. Mr. Roderick also had an
incentive compensation agreement with Holding which expired on March 31, 1997.
These transactions are described under "Item 11. Executive Compensation--
Compensation Committee Interlocks and Insider Participation."
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  (a)(1) Financial Statements.
 
      See "Index to Financial Statements" (page F-1).
 
  (a)(2) Financial Statement Schedules.
 
      Schedule II--Valuation and Qualifying Accounts and Reserves
 
  All other schedules have been omitted because the information is not
applicable or is not material or because the information required is set forth
in the financial statements or the notes thereto.
 
                                      32
<PAGE>
 
  (a)(3) Exhibits.
 
  See "Index to Exhibits" for listing of those exhibits included in this
filing.
 
<TABLE>   
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>      <S>
  3.1*    Certificate of Incorporation of the Company. Incorporated by
           reference to Exhibit 3.1 of the Company's Registration Statement on
           Form S-1 as filed on January 15, 1993 (Registration No. 33-57134)
           (the "Company's 1993 Registration Statement").
  3.2*    By-laws of the Company. Incorporated by reference to Exhibit 3.2 of
           the Company's 1993 Registration Statement.
  4.1*    Form of Indenture with respect to the Company's 9 1/2% Senior Notes.
  4.2(a)* Form of Certificate for the Company's 9 1/2% Senior Notes, Series A,
           $100,000,000.
  4.2(b)* Form of Certificate for the Company's 9 1/2% Senior Notes, Series A,
           $4,350,000.
  4.2(c)* Form of Certificate for the Company's 9 1/2% Senior Notes, Series A,
           $650,000.
  4.3*    Purchase Agreement, dated as of March 19, 1998, among the Company,
           Donaldson, Lufkin & Jenrette Securities Corporation and BT Alex.
           Brown Incorporated, for an aggregate of $105,000,000 in principal
           amount of the Company's 9 1/2% Senior Notes due 2005.
  4.4*    Registration Rights Agreement, dated as of March 24, 1998, among the
           Company, Donaldson, Lufkin & Jenrette Securities Corporation and BT
           Alex. Brown Incorporated.
  4.5*    Amended and Restated Credit Agreement dated as of March 3, 1993,
           amended and restated as of March 24, 1998, among the Company,
           Holding, Various Financial Institutions, and BT Commercial
           Corporation, as Agent (the "Agent").
  4.6*    Term Loan Agreement ("Term Loan Agreement"), dated as of March 24,
           1998 among the Company, Various Financial Institutions, as the
           Lenders, DLJ Capital Funding, Inc., as the Syndication Agent for the
           Lenders, Bankers Trust Company, as the Documentation Agent for the
           Lenders and Fleet National Bank, as the Administrative Agent
           ("Administrative Agent") for the Lenders.
  4.7*    Form of Restructuring Agreement among Holding, the Company and KIA
           IV. Incorporated by reference to Exhibit 4.25 of Amendment No. 3 to
           the Company's 1993 Registration Statement ("Amendment No. 3").
  4.8*    Amendment to Restructuring Agreement, dated as of March 3, 1993, by
           and between Holding and KIA IV, amended as of March 24, 1998.
  4.9*    Form of Security Agreement between the Company and BT Commercial
           Corporation, as Collateral Agent, Incorporated by Reference to
           Exhibit 4.27 of Amendment No. 3.
  4.10*   Form of Acknowledgement, Consent and Amendment, dated as of March 24,
           1998, between the Company and the Agent.
  4.11*   Form of Security Agreement, dated as of March 24, 1998 by the
           Company, in favor of the Administrative Agent.
  4.12*   Form of Mortgage, dated as of March 24, 1998, made by the Company in
           favor of the Administrative Agent.
  4.13*   Intercreditor Agreement, dated as of March 24, 1998, by and among
           Fleet National Bank, as the Administrative Agent, and BT Commercial
           Corporation, 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").
</TABLE>    
 
 
                                       33
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 10.2*   Amendment to the Stockholders Agreement, dated as of January 20, 1992.
          Incorporated by reference to Exhibit 10.2 of the Company's 1993
          Registration Statement.
 10.3*   Management Stockholders Bonus Plan. Incorporated by reference to
          Exhibit 4.7 of Holding's Post-Effective Amendment No. 1 to the 1990
          Form S-1.
 10.4*   Services Agreement, between Acquisition and Kelso, dated March 19,
          1990. Incorporated by reference to Exhibit 10.2 of Holding's
          Registration Statement on Form S-1 as filed May 30, 1990 with the
          Commission (Registration No. 33-35022) ("Holding's 1990 Registration
          Statement").
 10.5*   Trust Agreement applicable to the EMJ Employee Stock Ownership and
          Capital Accumulation Plan, dated as of May 25, 1984, by and between
          Crocker National Bank ("Crocker"), as Trustee, and EMJ. Incorporated
          by referenced to Exhibit 4.1 to Form 8 (Amendment No. 1 to EMJ's
          Annual Report on Form 10-K, Registration No. L-7537, for the fiscal
          year ended December 31, 1984)
          (the "Form 8").
 10.6*   Amendment 1985-I to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan effective as of January 1985. Incorporated by
          reference to Exhibit 4.1 to Post-Effective Amendment No. 1 to EMJ's
          Registration Statement on Form S-8, Registration No. 2-87991, filed
          August 21, 1985.
 10.7*   Amendment 1986-I to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan and Plan Trust Agreement executed December 1986
          between EMJ and Wells Fargo Bank, N.A., as Trustee (formerly
          Crocker). Incorporated by reference to Exhibit 4.2 to the Form 8.
 10.8*   Amendment 1988-I to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan executed February 29, 1988. Incorporated by
          reference to Exhibit (10)d to EMJ's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1987.
 10.9*   Amendment 1988-II to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan executed June 22, 1988. Incorporated by reference
          to Exhibit 8 to EMJ's Schedule 14D-9 filed on February 5, 1990
          ("EMJ's 1990 Schedule 14D-9").
 10.10*  Amendment 1989-I to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan executed March 20, 1989. Incorporated by reference
          to Exhibit 8 to EMJ's 1990 Schedule 14D-9.
 10.11*  EMJ Supplemental Benefit Plan 1989 Amendment in Toto. Incorporated by
          reference to Exhibit (10)p to EMJ's 1989 Form 10-K.
 10.12*  Amendment 1989-II to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan executed December 29, 1989. Incorporated by
          reference to Exhibit (10)q to EMJ's 1989 Form 10-K.
 10.13*  Amendment 1990-I to the EMJ Employee Stock Ownership and Capital
          Accumulation Plan Trust Agreement executed March 19, 1990.
          Incorporated by reference to Exhibit (10)r to EMJ's Annual Report on
          Form 10-K for fiscal year ended December 31, 1989.
 10.14*  C. A. Roberts Pension Plan, amended and restated as of January 1,
          1986, with amendments thereto. Incorporated by reference to Exhibit
          10.22 of Holding's 1990 Registration Statement.
 10.15*  Kilsby Executive Life Insurance Plan. Incorporated by reference to
          Exhibit 10.25 of Holding's 1990 Registration Statement.
 10.16*  Kilsby Executive Long-Term Disability Plan. Incorporated by reference
          to Exhibit 10.26 of Holding's 1990 Registration Statement.
 10.17*  Holding's ESOP. Incorporated by reference to Exhibit 10.31 of
          Holding's Annual Report on Form 10-K for the year ended March 31,
          1991 (Registration No. 33-35022) ("Holding's Form 10-K").
 10.18*  Amendment No. 1 to Holding's ESOP, dated October 21, 1991.
          Incorporated by reference to Exhibit 10.24 of the Company's 1993
          Registration Statement.
</TABLE>
 
 
                                       34
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 10.19*  Amendment No. 2 to Holding's ESOP, dated October 21, 1991.
          Incorporated by reference to Exhibit 10.25 of the Company's 1993
          Registration Statement.
 10.20*  Amendment No. 3 to Holding's ESOP, dated February 18, 1992.
          Incorporated by reference to Exhibit 10.26 of the Company's 1993
          Registration Statement.
 10.21*  Amendment No. 4 to Holding's ESOP, dated January 25, 1993.
          Incorporated by reference to Exhibit No. 10.21 to Holding's
          Registration Statement on Form S-1 as filed October 19, 1994 with the
          Commission (Registration No. 33-85364) ("Holding's 1994 Registration
          Statement").
 10.22*  Amendment No. 5 to Holding's ESOP, dated January 25, 1993.
          Incorporated by reference to Exhibit No. 10.22 to Holding's 1994
          Registration Statement.
 10.23*  Amendment No. 6 to Holding's ESOP, dated January 25, 1993.
          Incorporated by reference to Exhibit No. 10.23 to Holding's 1994
          Registration Statement.
 10.24*  Amendment No. 7 to Holding's ESOP, dated January 25, 1993.
          Incorporated by reference to Exhibit No. 10.24 to Holding's 1994
          Registration Statement.
 10.25*  Amendment No. 8 to Holding's ESOP, dated July 27, 1993. Incorporated
          by reference to Exhibit No. 10.25 to Holding's 1994 Registration
          Statement.
 10.26*  Amendment No. 9 to Holding's ESOP, dated October 7, 1994. Incorporated
          by reference to Exhibit No. 10.26 to Holding's 1994 Registration
          Statement.
 10.27*  Holding's ESOP Trust Agreement. Incorporated by reference to Exhibit
          10.32 of Holding's Form 10-K.
 10.28*  Jorgensen Compensation Policy, dated as of April 1, 1991, including
          description of Return on Net Operating Assets Incentive Plan.
          Incorporated by reference to Exhibit 10.34 of Holding's 1991 Form 10-
          K.
 10.29*  Lease and Agreement, dated as of August 1, 1991, between Advantage
          Corporate Income Fund L.P. and the Company, relating to the sale and
          lease-back of K-R's Kansas City, Missouri property. Incorporated by
          reference to Exhibit 10.30 of the Company's 1993 Registration
          Statement.
 10.30*  Lease and Agreement, dated as of September 1, 1991, between Advantage
          Corporate Income Fund L.P. and the Company, relating to the sale and
          lease-back of the Cincinnati, Ohio property. Incorporated by
          reference to Exhibit 10.31 of the Company's 1993 Registration
          Statement.
 10.31*  Industrial Building Lease, dated as of October 16, 1991, between Ira
          Houston Jones and Helen Mansfield Jones, Roderick M. Jones and
          Cherilyn Jones, Roger G. Jones and Norma Jean Jones, Robert M. Jones
          and Olga F. Jones and the Company, relating to the sale and lease-
          back of the Alameda Street property in Lynwood, California.
          Incorporated by reference to Exhibit 10.32 of the Company's 1993
          Registration Statement.
 10.32*  Stock Purchase Agreement, dated as of January 21, 1992, between
          McJunkin Corporation and the Company, relating to the sale of the
          Company's Republic Supply division. Incorporated by reference to
          Exhibit 10.33 of the Company's 1993 Registration Statement.
 10.33*  Contract of Sale, dated as of January 21, 1992, between the Company
          and Hansford Associates Limited Partnership, relating to the sale of
          the warehouse properties and the sale of the Company's Republic
          Supply division. Incorporated by reference to Exhibit 10.34 of the
          Company's 1993 Registration Statement.
 10.34*  Stock Purchase Agreement, dated as of June 30, 1992, among Forge
          Acquisition Corporation, The Jorgensen Forge Corporation and the
          Company, relating to the sale of the Company's Forge division.
          Incorporated by reference to Exhibit 10.35 of the Company's 1993
          Registration Statement.
</TABLE>
 
                                       35
<PAGE>
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 10.35*  Industrial Real Estate Lease, dated June 25, 1992, between Paul
          Nadzikewycz and the Company, relating to the sale and lease-back of
          JSA's Denver, Colorado property. Incorporated by reference to Exhibit
          10.36 of the Company's 1993 Registration Statement.
 10.36*  Industrial Real Estate Lease, dated October 19, 1992, between Fiorito
          Enterprises, Inc. and the Company, relating to the sale and lease-
          back of the Portland, Oregon facility. Incorporated by reference to
          Exhibit 10.27 of the Company's 1993 Registration Statement.
 10.37*  Truck Lease and Service Agreement, dated as of November 1, 1984,
          between Ryder Truck Rental, Inc. ("Ryder") and EMJ and all amendments
          thereto, between Ryder and the Company (amendments dated January 1,
          1992, January 30, 1992 and undated (executed by the Company)).
          Incorporated by reference to Exhibit 10.38 of the Company's 1993
          Registration Statement.
 10.38*  Lease, dated July 30, 1982, between Republic Bank, Dallas N.A., as
          Ancillary Trustee of the Fluor Employees' Trust Fund and Kilsby-
          Roberts Co., relating to K-R's Houston, Texas property (the "Houston
          Lease"). Incorporated by reference to Exhibit 10.42 of the Company's
          1993 Registration Statement.
 10.39*  Amendment No. 1 to the Houston Lease, dated as of December 31, 1986,
          among Barclays Bank of California, as Trustee for Republic Bank,
          Dallas, N.A., as Ancillary Trustee of the Fluor Employees' Trust
          Fund, KRG and Kilsby-Roberts Co. Incorporated by reference to Exhibit
          10.43 of the Company's 1993 Registration Statement.
 10.40*  Form of Management Agreement between the Company and Holding.
          Incorporated by reference to Exhibit 10.46 of Amendment No. 2 to the
          Company's 1993 Registration Statement.
 10.41*  Form of Tax Allocation Agreement between the Company and Holding.
          Incorporated by reference to Exhibit 10.47 of Amendment No. 3.
 10.42*  Earle M. Jorgensen Holding Company, Inc. Phantom Stock Plan adopted
          January 11, 1995. Incorporated by reference to Exhibit 10.39 to
          Amendment No.1 to Holding's 1994 Registration Statement as filed with
          the commission on January 19, 1995 (Registration No. 33-85364)
          ("Amendment No. 1 to Holding's 1994 Registration Statement").
 10.43*  Industrial Real Estate Lease, dated July 15, 1993, between Jorgensen
          and 58 Cabot L.P., relating to the Langhorne, Pennsylvania facility.
          Incorporated by reference to Exhibit 10.27 to Holding's 1994
          Registration Statement.
 10.44*  Amendment to the Stockholders Agreement, dated as of September 30,
          1994. Incorporated by reference to Exhibit 10.41 to Amendment No. 1
          to Holding's 1994 Registration Statement.
 10.45*  Stock Compensation Agreement, dated as of December 13, 1994, between
          Holding and David M. Roderick. Incorporated by reference to Exhibit
          10.42 to Amendment No. 1 to Holding's 1994 Registration Statement.
 10.46*  Holding's 401(a)(17) Supplemental Contribution Plan, effective April
          1, 1994. Incorporated by reference to Exhibit 10.54 to the Company's
          Annual Report on Form 10-K, Commission File No. 5-10065 for the
          fiscal year ended March 31, 1995 (the "Company's 1995 Form 10-K").
 10.47*  Holding's Deferred Compensation Plan, effective April 1, 1994.
          Incorporated by reference to Exhibit 10.55 to the Company's 1995 Form
          10-K.
 10.48*  Amendment No. 2 to the Earle M. Jorgensen Company Capital Accumulation
          Plan and Trust dated as of May 3, 1996. Incorporated by reference to
          Exhibit 10.55 to the Company's Annual Report on Form 10-K, Commission
          File No. 5-10065 for the fiscal year ended March 31, 1996 (the
          "Company's 1996 Form 10-K").
 10.49*  Earle M. Jorgensen Holding Company, Inc. Stock Option Plan effective
          January 30, 1997. Incorporated by reference to Exhibit 10.57 to the
          Company's Annual Report on Form 10-K, Commission File No. 5-10065 for
          the fiscal year ended March 31, 1997 (the "Company's 1997 Form 10-
          K").
</TABLE>
 
 
                                       36
<PAGE>
 
<TABLE>   
<CAPTION>
 EXHIBIT
 NUMBER                                DESCRIPTION
 -------                               -----------
 <C>     <S>
 10.50*  Form of Holding Incentive and Non-Qualified Stock Option Agreement.
          Incorporated by reference to Exhibit 10.58 to the Company's 1997 Form
          10-K.
 10.51*  Earle M. Jorgensen Holding Company, Inc. Stock Option Plan, as amended
          July 21, 1997. Incorporated by reference to Exhibit 10.61 to the
          Company's Quarterly Report on Form 10-Q, Commission File No. 5-10065
          for the fiscal quarter ended September 29, 1997.
 10.52*  Earle M. Jorgensen Company Management Incentive Compensation Plan.
          Incorporated by reference to Exhibit 10.62 to the Company's Quarterly
          Report on Form 10-Q, Commission File No. 5-10065 for the fiscal
          quarter ended December 31, 1997.
 12.1*   Statement of Computation of Number of Times Fixed Charges Earned.
 21*     Listing of the Company's subsidiaries.
 27*     Financial Data Schedule
</TABLE>    
--------
 * Previously filed.
       
  (b) Reports on Form 8-K.
 
    None
 
 
                                       37
<PAGE>
 
                                   SIGNATURES
   
  Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brea, State of
California, on the 31st day of July, 1998.     
 
                                          EARLE M. JORGENSEN COMPANY
 
                                                 /s/ Charles P. Gallopo
                                          By __________________________________
                                                     Charles P. Gallopo
                                              Vice President, Chief Financial
                                                   Officer and Secretary
 
  Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
 
<TABLE>   
<CAPTION>
             SIGNATURES                          TITLE                  DATE
             ----------                          -----                  ----
 
<S>                                  <C>                           <C>
     /s/ Earle M. Jorgensen          Director and Chairman          July 31, 1998
____________________________________  Emeritus
         Earle M. Jorgensen
 
____________________________________ Chairman of the Board and
         David M. Roderick            Chairman of The Executive
                                      Committee and Director
 
   /s/ Maurice S. Nelson, Jr.        President, Chief Executive     July 31, 1998
____________________________________  Officer and Chief Operating
       Maurice S. Nelson, Jr.         Officer and Director
 
     /s/ Charles P. Gallopo          Vice President, Chief          July 31, 1998
____________________________________  Financial Officer
         Charles P. Gallopo           (Principal Financial and
                                      Accounting Officer) and
                                      Secretary
 
____________________________________ Director
        Joseph S. Schuchert
 
____________________________________ Director
          Neven C. Hulsey
 
      /s/ Charles K. Ligon           Director                       July 31, 1998
____________________________________
          Charles K. Ligon
 
    /s/ William A. Marquard          Director                       July 31, 1998
____________________________________
        William A. Marquard
 
      /s/ Frank T. Nickell           Director                       July 31, 1998
____________________________________
          Frank T. Nickell
 
       /s/ John Rutledge             Director                       July 31, 1998
____________________________________
         Dr. John Rutledge
</TABLE>    
 
                                       38
<PAGE>
 
                              FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
EARLE M. JORGENSEN COMPANY:
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at March 31, 1998 and 1997.................... F-3
Consolidated Statements of Operations for the years ended March 31, 1998,
 1997 and 1996............................................................ F-4
Consolidated Statements of Stockholder's Equity for the years ended March
 31, 1998, 1997 and 1996.................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1998,
 1997, 1996............................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
 
                                      F-1
<PAGE>
 
                        REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Stockholder
Earle M. Jorgensen Company
 
  We have audited the accompanying consolidated balance sheets of Earle M.
Jorgensen Company as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholder's equity, and cash flows for each of the
three years in the period ended March 31, 1998. Our audits also included the
financial statement schedule listed in the index at item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Earle M.
Jorgensen Company at March 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
 
                                          /s/ Ernst & Young LLP
 
Orange County, California
April 24, 1998
 
 
                                      F-2
<PAGE>
 
                           EARLE M. JORGENSEN COMPANY
 
                          CONSOLIDATED BALANCE SHEETS
            (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                               MARCH 31,
                                                          --------------------
                                                            1998       1997
                                                          ---------  ---------
<S>                                                       <C>        <C>
ASSETS
Current assets:
  Cash................................................... $  20,763  $  21,477
  Accounts receivable, less allowance for doubtful
   accounts..............................................   105,303    113,544
  Inventories............................................   180,403    174,045
  Other current assets...................................     3,679      3,915
                                                          ---------  ---------
    Total current assets.................................   310,148    312,981
                                                          ---------  ---------
Net property, plant and equipment, at cost...............   106,643    120,050
Cash surrender value of life insurance policies..........    16,470     14,258
Debt issue costs, net of accumulated amortization........     8,600      4,806
Other assets.............................................     1,960      2,787
                                                          ---------  ---------
    Total assets......................................... $ 443,821  $ 454,882
                                                          =========  =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable....................................... $  92,061  $  87,519
  Accrued employee compensation and benefits.............    21,883     15,066
  Accrued restructuring expenses.........................       894     10,632
  Other accrued liabilities..............................    15,347     10,907
  Deferred income taxes..................................    21,963     16,919
  Current portion of long-term debt......................     1,500        950
                                                          ---------  ---------
    Total current liabilities............................   153,648    141,993
                                                          ---------  ---------
Long-term debt...........................................   310,734    290,336
Deferred income taxes....................................    12,709     17,093
Other long-term liabilities..............................     3,649      3,533
Commitments and contingencies............................       --         --
Stockholder's equity:
  Preferred stock, $.01 par value; 200 shares authorized
   and unissued..........................................       --         --
  Common stock, $.01 par value; 2,800 share authorized;
   128 shares issued and outstanding.....................       --         --
  Capital in excess of par value.........................   116,789    171,073
  Foreign currency translation adjustment................      (278)        44
  Accumulated deficit....................................  (153,430)  (169,190)
                                                          ---------  ---------
    Total stockholder's equity...........................   (36,919)     1,927
                                                          ---------  ---------
    Total liabilities and stockholder's equity........... $ 443,821  $ 454,882
                                                          =========  =========
</TABLE>
 
                            See accompanying notes.
 
                                      F-3
<PAGE>
 
                           EARLE M. JORGENSEN COMPANY
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED MARCH 31,
                                              ---------------------------------
                                                 1998       1997        1996
                                              ---------- ----------  ----------
<S>                                           <C>        <C>         <C>
Revenues....................................  $1,050,005 $1,023,565  $1,025,659
Cost of sales, before inventory adjustment..     755,381    742,826     737,756
                                              ---------- ----------  ----------
                                                 294,624    280,739     287,903
Inventory adjustment........................         --         --      (26,882)
                                              ---------- ----------  ----------
Gross profit................................     294,624    280,739     261,021
Expenses:
  Warehouse and delivery....................     128,495    135,287     129,966
  Selling...................................      37,147     40,791      41,794
  General and administrative................      59,377     69,748      73,859
  Restructuring.............................       2,838     15,638       3,571
  Other non-recurring charges...............         --       4,450       9,205
                                              ---------- ----------  ----------
    Total expenses..........................     227,857    265,914     258,395
                                              ---------- ----------  ----------
Income from operations......................      66,767     14,825       2,626
Interest expense, net.......................      41,059     40,880      40,874
                                              ---------- ----------  ----------
Income (loss) before income taxes and
 extraordinary item.........................      25,708    (26,055)    (38,248)
Income tax provision (benefit)..............         873        501      (8,937)
                                              ---------- ----------  ----------
Net income (loss) before extraordinary item.      24,835    (26,556)    (29,311)
Extraordinary loss, early retirement of
 debt.......................................       9,075        --          --
                                              ---------- ----------  ----------
Net income (loss)...........................  $   15,760 $  (26,556) $  (29,311)
                                              ========== ==========  ==========
</TABLE>
 
 
                            See accompanying notes.
 
                                      F-4
<PAGE>
 
                           EARLE M. JORGENSEN COMPANY
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                        CAPITAL
                                           IN       FOREIGN
                          COMMON STOCK   EXCESS    CURRENCY
                          -------------  OF PAR   TRANSLATION ACCUMULATED
                          SHARES AMOUNT  VALUE    ADJUSTMENT    DEFICIT    TOTAL
                          ------ ------ --------  ----------- ----------- --------
<S>                       <C>    <C>    <C>       <C>         <C>         <C>
Balance at March 31,
 1995...................   128   $ --   $192,411    $(2,688)   $(113,323) $ 76,400
Dividend to Parent......   --      --    (22,289)       --           --    (22,289)
Capitalization of ESOP
 contribution, net......   --      --      3,401        --           --      3,401
Foreign currency
 translation adjustment.   --      --        --      (3,060)         --     (3,060)
Net loss................   --      --        --         --       (29,311)  (29,311)
                           ---   -----  --------    -------    ---------  --------
Balance at March 31,
 1996...................   128     --    173,523     (5,748)    (142,634)   25,141
Dividend to Parent......   --      --     (5,552)       --           --     (5,552)
Capitalization of ESOP
 contribution, net......   --      --      3,102        --           --      3,102
Foreign currency
 translation adjustment
 and writeoff...........   --      --        --       5,792          --      5,792
Net loss................   --      --        --         --       (26,556)  (26,556)
                           ---   -----  --------    -------    ---------  --------
Balance at March 31,
 1997...................   128     --    171,073         44     (169,190)    1,927
Dividend to Parent......   --      --    (56,888)       --           --    (56,888)
Non-cash dividend to
 Parent.................   --      --       (184)       --           --       (184)
Capitalization of ESOP
 contribution, net......   --      --      2,788        --           --      2,788
Foreign currency
 translation adjustment.   --      --        --        (322)         --       (322)
Net income..............   --      --        --         --        15,760    15,760
                           ---   -----  --------    -------    ---------  --------
Balance at March 31,
 1998...................   128   $ --   $116,789    $  (278)   $(153,430) $(36,919)
                           ===   =====  ========    =======    =========  ========
</TABLE>
 
 
                            See accompanying notes.
 
                                      F-5
<PAGE>
 
                           EARLE M. JORGENSEN COMPANY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>   
<CAPTION>
                                                      YEAR ENDED MARCH 31,
                                                   -----------------------------
                                                     1998       1997      1996
                                                   ---------  --------  --------
<S>                                                <C>        <C>       <C>
OPERATING ACTIVITIES:
Net income (loss)................................  $  15,760  $(26,556) $(29,311)
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
  Inventory adjustment...........................        --        --     26,882
  Write-off of foreign currency translation
   losses........................................        --      5,345       --
  Asset write-downs..............................        --      4,450     9,205
  Depreciation and amortization..................      9,475    10,620    12,022
  Amortization of debt issue costs and discount
   on senior notes included in interest expense..      1,892     2,279     2,279
  Write-off of debt issue costs and discount.....      3,225       --        --
  Accrued postretirement benefits................        280       280      (256)
  ESOP expense contributed to capital............      2,788     3,102     3,401
  Deferred income taxes..........................        660     1,202    (9,650)
  Gain on sale of property, plant and equipment..     (2,480)   (1,079)     (559)
  Loss on sale of subsidiaries...................      2,838       --        --
  Provision for bad debts........................        414     1,817     1,362
  Decrease (increase) in cash surrender value of
   life insurance over premiums paid.............        679    (1,798)   (1,894)
  Changes in operating assets and liabilities
   (excluding subsidiaries sold):
    Decrease (increase) in accounts receivable...      2,994    (1,697)   40,065
    Decrease (increase) in inventories, excluding
     the inventory adjustment above..............    (18,111)   14,407    (5,245)
    Decrease (increase) in other current assets..       (341)      635     2,921
    Increase (decrease) in accounts payable and
     accrued liabilities and expenses ...........     15,069   (19,428)   19,241
  Other (including the effect of exchange rate
   changes)......................................       (635)      917    (3,405)
                                                   ---------  --------  --------
      Net cash provided by (used in) operating
       activities................................     34,507    (5,504)   67,058
                                                   ---------  --------  --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment.......     (7,264)   (4,449)  (16,658)
Proceeds from the sale of property, plant and
 equipment.......................................     12,534     4,630     1,158
Proceeds from sale of subsidiaries...............      6,918       --        --
Premiums paid on life insurance policies.........     (3,373)   (2,345)   (1,530)
Proceeds from redemption of life insurance poli-
 cies............................................        479     1,484       925
                                                   ---------  --------  --------
      Net cash provided by (used in) investing
       activities................................      9,294      (680)  (16,105)
                                                   ---------  --------  --------
FINANCING ACTIVITIES:
Net borrowings (payments) under revolving loan
 agreements......................................    (23,576)   12,149   (19,747)
Proceeds from issuance of senior notes and term
 loans...........................................    205,000       --        --
Repayment of senior notes........................   (155,000)      --        --
Costs associated with early retirement of debt...       (906)      --        --
Other borrowings (payments), net.................     (5,868)     (949)    3,291
Increase in debt issue costs.....................     (7,277)     (810)      --
Cash dividend to Parent..........................    (56,888)   (5,552)  (22,289)
                                                   ---------  --------  --------
      Net cash provided by (used in) financing
       activities................................    (44,515)    4,838   (38,745)
                                                   ---------  --------  --------
Net increase (decrease) in cash..................       (714)   (1,346)   12,208
Cash at beginning of year........................     21,477    22,823    10,615
                                                   ---------  --------  --------
Cash at end of year..............................  $  20,763  $ 21,477  $ 22,823
                                                   =========  ========  ========
</TABLE>    
 
                            See accompanying notes.
 
                                      F-6
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                MARCH 31, 1998
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  BASIS OF PRESENTATION AND CONSOLIDATION--The Company became a wholly-owned
subsidiary of Earle M. Jorgensen Holding Company, Inc. (the Parent) as the
result of a series of business combinations and mergers effective April 1,
1990.
 
  The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries including Earle M. Jorgensen
(U.K.) Ltd (EMJ (UK)) (formerly Kilsby Jorgensen Steel and Aluminium Ltd.),
Kilsby Jorgensen Steel & Aluminum S.A. de C.V. (EMJ (Mexico)), and Earle M.
Jorgensen (Canada) Inc. (EMJ (Canada)) (formerly Kilsby Jorgensen Steel and
Aluminum Inc.) and Stainless Insurance Ltd., a captive insurance subsidiary
(EMJ (Bermuda)) operating in the United Kingdom, Mexico, Canada and Bermuda,
respectively. Excluding EMJ (Bermuda), net losses from foreign operations
totaled $95,000 and $3,516,000 in 1998 and 1997, respectively. In fiscal 1996,
such foreign operations generated $357,000 of net income. In fiscal 1998 and
1997, EMJ (Bermuda) generated $155,000 and $436,000 of net income,
respectively, from investment income and intercompany fees. In fiscal 1998,
the Company sold its operations in the United Kingdom and Mexico (see Note 4).
All significant intercompany accounts and transactions have been eliminated.
 
  Certain amounts reported in prior years have been reclassified to conform to
the 1998 presentation.
 
  USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
 
  REVENUE RECOGNITION--The Company recognizes revenue when products are
shipped.
 
  CONCENTRATION OF CREDIT RISK--The Company sells the majority of its products
throughout the United States and Canada. Sales to the Company's recurring
customers are generally made on open account terms while sales to occasional
customers are made on a C.O.D. basis. The Company performs periodic credit
evaluations of its ongoing customers and generally does not require
collateral. The Company establishes an allowance for potential credit losses
based upon factors surrounding the credit risk for specific customers,
historical trends and other information; such losses have been within
management's expectations. The Company's allowance for doubtful accounts at
March 31, 1998 and 1997 was $406,000 and $963,000, respectively. Management
believes there are no significant concentrations of credit risk as of March
31, 1998.
 
  RESTRUCTURING--In March 1997, the Company approved a plan to restructure its
operations. The plan's major actions included selling the Company's foreign
operations in the United Kingdom and Mexico, closing four domestic
distribution centers whose sales territories are now serviced from other
nearby facilities, and reducing the Company's workforce by approximately 10%.
As a result, a restructuring charge of $15,638,000 was recorded to cover
provisions for loss on sale of foreign operations ($7,027,000, including the
write-off of cumulative translation adjustments of $5,345,000); costs of
severance and other termination benefits and related expenses associated with
the reduction in workforce ($6,537,000); and costs directly related to the
closure of facilities for which there is no future economic value
($2,074,000).
 
  During fiscal 1998, the restructuring plan was substantially completed,
including the sale of foreign operations in the United Kingdom and Mexico (see
Note 4) and the closure of three domestic facilities. As of March 31, 1998,
accrued restructuring expenses totaled $0.9 million and are considered
adequate to cover remaining foreseeable costs.
 
                                      F-7
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  In September 1995, the Company implemented a plan designed to enhance
operating productivity and efficiencies. As a result, a restructuring charge
of $3,571,000 was recorded to cover the costs associated with a 7% reduction
in the Company's workforce. In addition, the Company recorded a non-recurring
charge of $9,205,000 for write-downs and write-offs of certain property, plant
and equipment, a portion of which ($3,330,000) was the excess purchase price
or "step-up" allocated to the net book values of such assets at the time of
the Company's merger in 1990.
 
  PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is recorded at
cost. Additions, renewals and betterments are capitalized; maintenance and
repairs which do not extend useful lives are expensed as incurred. Gains or
losses from disposals are reflected in income and the related costs and
accumulated depreciation are removed from the accounts. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of 10 to 40 years for buildings and improvements and three to 20
years for machinery and equipment. Leasehold improvements are amortized over
the terms of the respective leases.
 
  IMPAIRMENT OF LONG-LIVED ASSETS--In fiscal 1996, the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of", which requires impairment losses to be
recorded on long-lived assets used in operations or are expected to be
disposed of, when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets.
There were no impairment losses recorded in fiscal 1996 as the result of
adopting SFAS No. 121. In fiscal 1997, the Company evaluated certain
applications of its management information and financial reporting system and
determined that such applications would not be used in the future.
Accordingly, the Company recorded a non-recurring charge of $4,450,000 for the
write-off of costs related to these applications.
   
  DEBT ISSUE COSTS--Debt issue costs are deferred and amortized to interest
expense on a straight line basis over the life of the underlying indebtedness.
The amortization of debt issue costs aggregated $1,757,000, $2,144,000 and
$2,144,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
Accumulated amortization of debt issue costs was $55,000 and $8,612,000 at
March 31, 1998 and 1997, respectively. In March 1998, the Company incurred
$8,517,000 of costs related to the issuance of indebtedness and wrote-off
$2,966,000 of unamortized debt issue costs related to retired debt in
connection with a series of refinancing transactions (see Note 6).     
 
  FOREIGN CURRENCY TRANSLATION--The assets and liabilities of the foreign
subsidiaries have been translated into U.S. dollars using the year-end
exchange rates. Revenues, costs and expenses have been translated at average
exchange rates for each year. Adjustments resulting from translation of
foreign currency financial statements are reflected as a separate component of
stockholder's equity. Exchange gains and losses from foreign currency
transactions are included in operations in the period in which they occur.
 
  CASH AND STATEMENTS OF CASH FLOWS--Cash includes disbursements and deposits
not yet funded by or applied to the Company's Revolving Credit Facility as of
a balance sheet date. The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
 
  For the years ended March 31, 1998, 1997 and 1996 cash paid for interest on
borrowings was $39,993,000, $37,747,000 and $37,310,000, and cash paid for
income taxes was $360,000, $403,000 and $677,000, respectively.
   
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS     
   
  During 1997 and 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures
About Segments of an Enterprise and     
 
                                      F-8
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
            
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)     
   
Related Information", SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits", and SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities." In addition, the Accounting Standards
Executive Committee of the AICPA issued Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The Company will adopt the FASB standards in fiscal 1999 and
SOP 98-1 by fiscal 2000 and does not believe such adoptions will have a
material impact to its financial statements.     
 
2. INVENTORIES
 
  Substantially all inventories are held for sale at the Company's service
center locations and are valued at the lower of cost (using the last-in,
first-out (LIFO) method) or market. If the Company had used the first-in,
first-out (FIFO) method of inventory valuation, inventories would have been
higher by $2,046,000 at March 31, 1998 and $1,697,000 at March 31, 1997.
 
  In fiscal 1997, a reduction of LIFO inventory quantities carried at costs
lower or higher than costs prevailing in prior years occurred but did not have
a significant impact on the Company's gross profit. There were no such
reductions in fiscal years 1998 and 1996.
 
  In February 1995, the Company began the implementation of a new enhanced
inventory and management information system. To ensure the accuracy of the
conversion of the perpetual inventory records, the Company performed physical
inventory counts and other procedures at all of its locations during the
second, third and fourth quarters of fiscal 1996. The Company identified a
difference between the perpetual inventory records and the general ledger
amounting to $26.9 million and, accordingly, recorded a charge to cost of
sales for this difference in the fourth quarter of fiscal 1996.
 
3. NET PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment and accumulated depreciation at March 31, 1998
and 1997 consisted of the following:
 
<TABLE>
<CAPTION>
                                                          1998         1997
                                                      ------------ ------------
     <S>                                              <C>          <C>
     Land............................................ $ 27,732,000 $ 32,583,000
     Buildings and improvements......................   34,376,000   43,943,000
     Machinery and equipment.........................   97,920,000   97,940,000
                                                      ------------ ------------
                                                       160,028,000  174,466,000
     Less accumulated depreciation...................   53,385,000   54,416,000
                                                      ------------ ------------
       Net property, plant and equipment............. $106,643,000 $120,050,000
                                                      ============ ============
</TABLE>
 
4. SALE OF FOREIGN OPERATIONS
 
  In March 1997, the Company approved a plan to sell its foreign operations in
the United Kingdom and Mexico and accordingly recorded a charge of $7,027,000
for the estimated loss on the sales, including the recognition of deferred
foreign currency translation losses. The Company sold its Mexican operations
in August 1997 and sold its United Kingdom operations in January 1998. As a
result of such sales, the Company recognized a loss of $2,838,000 in fiscal
1998 that is reflected as a restructuring charge in the accompanying
statements of operations.
 
  For the fiscal years ended March 31, 1998, 1997 and 1996, combined revenues
from these foreign operations were $23,417,000, $35,193,000 and $36,629,000;
and income (loss) from operations was ($233,000), ($2,935,000) and $80,000,
respectively.
 
                                      F-9
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. CASH SURRENDER VALUE OF LIFE INSURANCE
 
  The Company is the owner and beneficiary of life insurance policies on all
former nonunion employees of a predecessor company including certain current
employees of the Company and its Parent. The Company is also the owner and
beneficiary of key man life insurance policies on certain current and former
executives of the Company and predecessor companies. These policies are
designed to provide cash to the Company to repurchase shares held by employees
in the ESOP and shares held individually by employees upon the termination of
their employment. Cash surrender value of the life insurance policies increase
by a portion of the amount of premiums paid and by dividend income earned
under the policies. Dividend income earned under the policies totaled
$10.3 million in fiscal 1998, $7.8 million in fiscal 1997 and $7.6 million in
fiscal 1996 and is recorded as an offset to general and administrative expense
in the accompanying statements of operations.
 
  The Company has borrowed against the cash surrender value of certain
policies to pay a portion of the premiums and accrued interest on those
policies and to fund working capital needs. Interest rates on borrowings under
the life insurance policies are fixed at 11.76%. As of March 31, 1998,
approximately $5,500,000 was available for future borrowings.
 
<TABLE>
<CAPTION>
                                            SURRENDER                NET CASH
                                           VALUE BEFORE    LOANS     SURRENDER
                                              LOANS     OUTSTANDING    VALUE
                                           ------------ ----------- -----------
     <S>                                   <C>          <C>         <C>
     Balance at March 31, 1998............ $105,350,000 $88,880,000 $16,470,000
     Balance at March 31, 1997............   90,805,000  76,547,000  14,258,000
</TABLE>
 
  Interest on cash surrender value borrowings totaled $9,354,000, $8,621,000
and $7,173,000 in fiscal 1998, 1997 and 1996, respectively, and is included in
net interest expense in the accompanying statements of operations.
 
6. LONG-TERM DEBT
 
  On March 24, 1998, the Company consummated a series of refinancing
transactions, including the issuance of 9 1/2% Senior Notes totaling
$105,000,000, borrowing of $100,000,000 under a variable rate Term Loan, and
the replacement of its revolving credit facility. The proceeds from such
transactions were used to redeem $155,000,000 of the 10 3/4% Senior Notes,
plus call premium and accrued interest, and to prepay $5,084,000 of purchase
money indebtedness, including call premium and accrued interest. Accordingly,
the Company recorded an extraordinary loss of $9,075,000 consisting of call
premiums paid and other expenses incurred, and the write-off of deferred
financing costs, related to the early retirement of debt.
 
                                     F-10
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Long-term debt at March 31, 1998 and 1997 consisted of the following:
 
<TABLE>
<CAPTION>
                                                           1998         1997
                                                       ------------ ------------
     <S>                                               <C>          <C>
     Revolving Loans due March 24, 2003............... $ 94,434,000 $118,011,000
     Variable Rate Term Loan due March 24, 2004.......  100,000,000          --
     9 1/2% Senior Notes due April 1, 2005............  105,000,000          --
     10 3/4% Senior Notes.............................          --   154,607,000
     Industrial Development Revenue Bonds:
       Payable in annual installments of $500,000
        commencing June 1, 1998, interest at 9%.......    4,000,000    4,000,000
       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%..........................................    4,500,000    4,500,000
     Purchase money financing.........................          --     5,868,000
                                                       ------------ ------------
                                                        312,234,000  291,286,000
     Less current portion.............................    1,500,000      950,000
                                                       ------------ ------------
                                                       $310,734,000 $290,336,000
                                                       ============ ============
</TABLE>
 
  Aggregate maturities of long-term debt are as follows: $1,500,000 in 1999;
$1,500,000 in 2000; $2,400,000 in 2001; $2,400,000 in 2002; $96,834,000 in
2003; and $207,600,000 thereafter.
 
  The fair value of the Company's Senior Notes and Term Loans at March 31,
1998 was $106,050,000 and $100,125,000, respectively, based on the quoted
market price as of that date. The carrying values of all other long-term debt
and other financial instruments at March 31, 1998 approximate fair value.
 
 Credit Agreement
 
  Effective March 24, 1998, the Company entered into an amended and restated
revolving credit facility ("Credit Agreement"), which allows maximum
borrowings of $220 million, including letters of credit ($0.7 million
outstanding at March 31, 1998). Borrowings under the Credit Agreement bear
interest at a base rate (generally defined as the bank's prime lending rate
plus 1/2% or LIBOR plus 1.75%). At March 31, 1998, the bank's prime lending
rate was 8.50% and LIBOR was 5.69%. In addition, borrowings under the
revolving loans are limited to an amount equal to 85% of eligible trade
receivables plus 55% of eligible inventories (as defined). Unused available
borrowings under the revolving loans totaled $90.6 million at March 31, 1998.
The revolving loans mature on March 24, 2003 and are secured by a lien on all
domestic inventory and accounts receivable of the Company.
 
  Under the Credit Agreement the Company is obligated to pay certain fees
including an unused commitment fee of 3/8%, payable quarterly in arrears, and
letter of credit fees of 1 3/4% per annum of the maximum amount available to
be drawn under each letter of credit, payable quarterly in arrears, plus
issuance, fronting, amendment and other standard fees. The Company paid loan
commitment fees totaling $257,000 in 1998, $305,000 in 1997 and $218,000 in
1996.
 
  The Credit Agreement contains financial covenants in respect of maintenance
of minimum working capital and a fixed charge coverage ratio (as defined). The
Credit Agreement also limits, among other things, the incurrence of liens and
other indebtedness, mergers, consolidations, the sale of assets, annual
capital expenditures, advances, investments and loans by the Company and its
subsidiaries, dividends and other
 
                                     F-11
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
restricted payments by the Company and its subsidiaries in respect to their
capital stock, and certain transactions with affiliates. On June 4, 1997, the
Company received a waiver to fiscal 1997 financial covenants relating to
consolidated net worth and fixed charge ratio and received amendments to other
financial covenants for future periods.
 
 9 1/2% Senior Notes and Variable Rate Term Loan
 
  On March 24, 1998, the Company refinanced $155 million of 10 3/4% Senior
Notes by issuing $105 million of 9 1/2% Senior Notes and borrowing $100
million under a variable rate Term Loan. The 9 1/2% Senior Notes were issued
at par and interest is payable each April 1 and October 1, commencing October
1, 1998. The 9 1/2% Senior Notes are unsecured obligations of the Company and
may be redeemed by the Company under certain conditions and with certain
restrictions at varying redemption prices. The Indenture to the 9 1/2% Senior
Notes contains certain covenants which limits, among other things, the
incurrence of liens and other indebtedness, mergers, consolidations, the sale
of assets, investments and loans, dividends and other distributions, and
certain transactions with affiliates. The Term Loan bears interest at either
an Alternate Base Rate (as defined) plus 2.0% or at LIBOR plus 3.25%. At March
31, 1998, the effective interest rate under the Term Loan was 8.94%. Amounts
outstanding under the Term Loan are secured by a first priority lien on
substantially all the existing and future acquired unencumbered property,
plant and equipment of the Company. Principal payments are required to be paid
quarterly in amounts equal to $250,000, commencing on June 30, 1998. The Term
Loan may be prepaid, subject to declining call premiums through fiscal 2001
and is subject to prepayments at the option of the holder upon a Change in
Control (as defined) and with 100% of net proceeds from asset sales, as
permitted. Covenants under the Term Loan are similar to those under the 9 1/2%
Senior Notes.
 
 Other
 
  The Company issues industrial revenue bonds in connection with significant
facility improvements or construction projects. The purchase money financing
included borrowings under a loan agreement entered into on March 27, 1995
which provided up to $7,500,000 for the expansion or acquisition of facilities
and purchase of equipment. The outstanding borrowings required monthly
payments of principal of $79,112 plus interest (at one month LIBOR plus 3.25%)
through July 2003 and were repaid on March 24, 1998.
 
7. INCOME TAXES
 
  The Company is included in the consolidated tax returns of Holding and
calculates its tax provision as though it files on a separate basis. The
consolidated tax liability of the Company and Parent is allocated to each of
these entities pursuant to a Tax Allocation Agreement between the Company and
Parent ("Tax Allocation Agreement"). Under the Tax Allocation Agreement,
Parent pays all taxes and is reimbursed by the Company for the lesser of (i)
the Company's allocated portion of the taxes due, or (ii) the tax that would
be payable if the Company filed its own returns.
 
  The Company records deferred taxes based upon differences between the
financial statement and tax basis of assets and liabilities pursuant to SFAS
No. 109, "Accounting for Income Taxes", as though it files on a separate
basis. Any differences in deferred taxes determined on a separate basis and
the actual payments made or received under the Tax Allocation Agreement are
accounted for as an equity adjustment between the Company and Parent. There
were no such differences in fiscal 1998. Deferred taxes are also recorded for
the future benefit of Federal and state tax losses and tax credit
carryforwards. Deferred tax assets have not been recognized for the loss
carryforwards of the Company's foreign subsidiaries. Consistent with SFAS No.
109, a valuation allowance has been recognized for certain deferred tax
assets, which management believes are not likely to be realized.
 
                                     F-12
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  At March 31, 1998, the Company had net operating loss carryforwards of
$70,000,000 for Federal income tax purposes. These carryforwards resulted from
the Company's losses during 1993 and 1996, and expire in years 2008 and 2011,
respectively. The ultimate realization of the benefits of these loss
carryforwards is dependent on future profitable operations. In addition, use
of the Company's net operating loss carryforwards and other tax attributes may
be substantially limited if a cumulative change in ownership of more than 50%
occurs within any three year period subsequent to a loss year.
 
  Significant components of the Company's deferred income tax assets and
liabilities at March 31, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                         1998          1997
                                                     ------------  ------------
   <S>                                               <C>           <C>
   Deferred tax liabilities:
     Tax over book depreciation..................... $  8,497,000  $ 10,267,000
     Purchase price adjustments.....................   40,903,000    43,324,000
                                                     ------------  ------------
   Total deferred tax liabilities...................   49,400,000    53,591,000
                                                     ------------  ------------
   Deferred tax assets:
     Net operating loss carryforwards...............   26,524,000    27,352,000
     Capital loss carryforward......................    6,728,000           --
     Other..........................................   11,546,000    16,538,000
     Valuation allowance for deferred tax assets....  (30,070,000)  (24,311,000)
                                                     ------------  ------------
   Net deferred tax assets..........................   14,728,000    19,579,000
                                                     ------------  ------------
   Net deferred tax liabilities..................... $ 34,672,000  $ 34,012,000
                                                     ============  ============
</TABLE>
 
  Income before taxes consists primarily of income (loss) from the Company's
domestic operations and also includes pre-tax income (loss) of $60,000,
$(3,080,000) and $359,000 from the Company's foreign operations for fiscal
1998, 1997 and 1996, respectively.
 
  Significant components of the provision for income taxes attributable to
continuing operations for the years ended March 31, 1998, 1997 and 1996 were
as follows:
 
<TABLE>
<CAPTION>
                                           1998          1997          1996
                                        -----------  ------------  ------------
   <S>                                  <C>          <C>           <C>
   Current:
     Federal........................... $    88,000  $        --   $        --
     State.............................     125,000       403,000       676,000
                                        -----------  ------------  ------------
     Total current.....................     213,000       403,000       676,000
                                        -----------  ------------  ------------
   Deferred:
     Federal...........................  (6,109,000)  (11,716,000)  (12,240,000)
     State.............................   1,010,000    (2,497,000)   (3,235,000)
     Valuation allowances..............   5,759,000    14,311,000     5,862,000
                                        -----------  ------------  ------------
     Total deferred....................     660,000        98,000    (9,613,000)
                                        -----------  ------------  ------------
                                        $   873,000  $    501,000  $ (8,937,000)
                                        ===========  ============  ============
</TABLE>
 
                                     F-13
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The reconciliation of the income tax provision (benefit) differs from that
which would result from applying the U.S. statutory rate as follows:
 
<TABLE>
<CAPTION>
                                            1998         1997          1996
                                         -----------  -----------  ------------
   <S>                                   <C>          <C>          <C>
   Expected tax (benefit) at Federal
    statutory rate.....................  $ 5,412,000  $(9,119,000) $(13,387,000)
   State tax expense (benefit), net of
    Federal taxes......................      657,000   (1,207,000)   (1,876,000)
   Net increase in cash surrender
    values of life insurance...........   (2,851,000)  (2,797,000)   (1,607,000)
   State franchise and capital taxes...      448,000      403,000       423,000
   Effect of Internal Revenue Service
    examination........................          --           --        792,000
   Foreign loss carryforward (with)
    without tax benefit................          --     1,078,000      (126,000)
   Tax benefit of credit carryovers and
    carrybacks.........................   (5,796,000)    (800,000)          --
   Change in valuation allowance.......    5,759,000   12,706,000     5,862,000
   Capital loss on sale of
    subsidiaries.......................   (4,125,000)         --            --
   Other...............................    1,369,000      237,000       982,000
                                         -----------  -----------  ------------
     Income tax (benefit) expense......  $   873,000  $   501,000  $ (8,937,000)
                                         ===========  ===========  ============
</TABLE>
 
  The change of $5,759,000 in the valuation allowance for deferred tax assets
as of March 31, 1998 was due to the uncertainty of realizing the benefit
during the tax loss carryforward period.
 
8. EMPLOYEE BENEFIT PLANS
 
 Employee Stock Ownership Plan
 
  The Company and its Parent have an Employee Stock Ownership Plan (ESOP)
which covers nonunion employees of the Company who meet certain service
requirements. The cost of the ESOP is borne by the Company through annual
contributions to an Employee Stock Ownership Trust (ESOT) in amounts
determined by the Board of Directors. Contributions may be made in cash or
shares of the Parent's stock as the Parent's Board of Directors may from time
to time determine. Participants vest at a rate of 20% per year of service and
become fully vested upon retirement, disability or death. Upon the occurrence
of a participant's termination (as defined), retirement, disability, or death,
the ESOP is required, by the terms of the ESOP, to either distribute the
vested balance in stock or to repurchase the vested balance for cash (as
determined by the Benefits Committee). If stock is distributed, it is
accompanied by a put option to the Parent under terms defined in the ESOP.
Shares of the Parent's Series A and B preferred and common stock owned by the
ESOP totaled 83,903, 24,946 and 3,833,577 at March 31, 1998, respectively.
Contributions payable to the ESOT totaled $2,788,000, $3,102,000 and
$3,401,000 in 1998, 1997 and 1996, which represented 5% of eligible
compensation for each of the respective years. The contribution for fiscal
years 1996 and 1997 was made in the form of Holding's common stock. The
contribution for fiscal 1998 will also be in the form of Holding's common
stock.
 
  Although the Parent has not expressed any intent to terminate or amend the
plan, it has the right to do so at any time. In the event of any termination,
participants become fully vested to the extent of the balances in their
separate accounts and come under the put options as previously discussed.
 
 Pension and Postretirement Benefit Plans
 
  The Company maintains a noncontributory defined benefit pension plan
covering substantially all hourly union employees (the "Hourly Plan").
Benefits under the Hourly Plan are vested over 5 years and are determined
based on years of service and the employee's compensation during the last ten
years of employment. The assets of the Hourly Plan for participants are held
in trust and consist of bonds, equity securities and insurance contracts and
the Company contributes at least the minimum required annually under ERISA.
Net
 
                                     F-14
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
   
pension expense for the Hourly Plan for the years ended March 31, 1998, 1997
and 1996 was $641,000, $420,000 and $500,000, respectively, and included the
following components:     
 
<TABLE>   
<CAPTION>
                                             1998        1997        1996
                                          -----------  ---------  -----------
     <S>                                  <C>          <C>        <C>
     Service cost of benefits earned
      during the period.................. $   730,000  $ 509,000  $   484,000
     Interest cost on projected benefit
      obligation.........................     596,000    547,000      520,000
     Actual return on plan assets........  (1,940,000)  (924,000)  (1,892,000)
     Net amortization and deferral.......   1,255,000    288,000    1,388,000
                                          -----------  ---------  -----------
                                          $   641,000  $ 420,000  $   500,000
                                          ===========  =========  ===========
</TABLE>    
   
  The Company maintains an unfunded supplemental plan which provides benefits
to highly compensated employees whose basic pension plan benefit is limited by
the Internal Revenue Code (the "Supplemental Plan"). Net pension expense for
the Supplemental Plan for the years ended March 31, 1998, 1997 and 1996 was
$70,000, $67,000 and $67,000, respectively, and included the following
components:     
 
<TABLE>   
<CAPTION>
                                                         1998    1997    1996
                                                        ------- ------- -------
     <S>                                                <C>     <C>     <C>
     Interest cost on projected benefit obligation..... $52,000 $53,000 $52,000
     Net amortization and deferral.....................  18,000  14,000  15,000
                                                        ------- ------- -------
                                                        $70,000 $67,000 $67,000
                                                        ======= ======= =======
</TABLE>    
   
  In addition to the Company's defined benefit pension plans, the Company
sponsors a defined benefit health care plan that provides postretirement
medical and dental benefits to eligible full time employees (the
"Postretirement Plan"). The Postretirement Plan is contributory, with retiree
contributions adjusted annually, and contains other cost-sharing features such
as deductibles and coinsurance. The accounting for the Postretirement Plan
anticipates future cost-sharing changes to the written plan that are
consistent with the Company's expressed intent to increase the retiree
contribution rate annually to compensate for the expected health care trend
rate. The Company's policy is to fund the cost of medical benefits under this
plan as they are submitted for reimbursement. Gains and losses realized from
the remeasurement of the plan's liability are amortized to income over three
years. Net benefit expense (income) for the Postretirement Plan for the years
ended March 31, 1998, 1997 and 1996 was $280,000, $280,000 and $(256,000),
respectively, and included the following components:     
 
<TABLE>   
<CAPTION>
                                                1998       1997       1996
                                              ---------  ---------  ---------
     <S>                                      <C>        <C>        <C>
     Service cost of benefits earned during
      the period............................. $ 239,000  $ 203,000  $ 201,000
     Interest cost on projected benefit
      obligation.............................   216,000    211,000    183,000
     Net amortization and deferral...........  (175,000)  (134,000)  (640,000)
                                              ---------  ---------  ---------
                                              $ 280,000  $ 280,000  $(256,000)
                                              =========  =========  =========
</TABLE>    
 
                                     F-15
<PAGE>
 
                           
                        EARLE M. JORGENSEN COMPANY     
            
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)     
 
 
  Information as of March 31, 1998, regarding the Hourly Plan, Supplemental
Plan, and Postretirement Plan follows:
 
<TABLE>   
<CAPTION>
                                                   SUPPLEMENTAL POSTRETIREMENT
                                      HOURLY PLAN      PLAN          PLAN
                                      -----------  ------------ --------------
   <S>                                <C>          <C>          <C>
   Accumulated benefit obligation,
    including vested benefits........ $(7,097,000)  $(793,000)   $(3,371,000)
   Projected benefit obligation......  (9,675,000)   (793,000)    (3,371,000)
   Fair value of plan assets.........  10,333,000         --             --
   Accrued pension costs.............    (607,000)   (480,000)    (3,600,000)
   Discount rate.....................        7.00%       7.00%          7.00%
   Expected long-term rate of return
    on assets........................        8.00%        --             --
   Rate of increase in compensation
    levels...........................        5.00%       5.00%           --
</TABLE>    
   
  As of March 31, 1998, the vested benefit obligation applicable to the Hourly
Plan and the Supplemental Plan was $6,740,000 and $793,000, respectively.     
 
  The discount rate, expected long-term rate of return on assets, and rate of
increase in compensation levels used to calculate the expense under these
plans for fiscal 1998, 1997 and 1996 were 7.00%, 8.00% and 5.00%; 7.25%, 8.00%
and 5.00% and 8.25%, 8.00% and 5.00%, respectively.
 
  The health care cost trend rate used in the calculation of cost (income)
related to the postretirement health care plans was 8.5% grading down ratably
to 5.5% by March 2004. A 1% increase in the assumed health care cost trend
rate would have increased postretirement costs in fiscal 1998 by $191,000.
 
  The health care cost trend rate used to calculate the accumulated
postretirement benefit obligation was 8.5% for 1998, grading down ratably to
5.5% by March 2004. The health care cost trend rate assumption can have a
significant effect on the amounts reported. A 1% increase in the assumed
health care cost trend rate in each year would increase the projected benefit
obligation as of March 31, 1998 by $463,000.
 
  In accordance with union agreements, the Company also contributes to
multiemployer defined benefit retirement plans covering substantially all
union employees of the Company. Expenses incurred in connection with these
plans totaled $1,615,000, $1,753,000 and $1,771,000 in 1998, 1997 and 1996,
respectively.
 
9.  COMMITMENTS AND CONTINGENCIES
 
 Lease Commitments
 
  The Company leases, under several agreements with varying terms, certain
office and warehouse facilities, equipment and vehicles. Rent expense totaled
$17,412,000, $18,859,000 and $17,844,000 for the years ended March 31, 1998,
1997 and 1996, respectively. The portion of rent expense paid to related
parties totaled none, $367,000 and $443,000 for the years ended March 31,
1998, 1997 and 1996, respectively. As of March 31, 1998, there were no future
lease obligations with related parties. Minimum rentals of certain leases
escalate from time to time based on certain indices. At March 31, 1998 the
Company was obligated under noncancellable operating leases for future minimum
rentals as follows:
 
<TABLE>
       <S>                                                           <C>
       Fiscal year:
         1999....................................................... $13,073,000
         2000.......................................................  11,058,000
         2001.......................................................   8,667,000
         2002.......................................................   6,060,000
         2003.......................................................   4,457,000
         Thereafter.................................................  14,257,000
                                                                     -----------
           Total.................................................... $57,572,000
                                                                     ===========
</TABLE>
 
                                     F-16
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Other Commitments
   
  In connection with the 1990 merger, the Company agreed to pay Kelso &
Companies, Inc. (Kelso), affiliates of which own the majority of Parent's
common stock, an annual fee of $1.25 million each year for financial advisory
services and to reimburse it for out-of-pocket expenses incurred in connection
with rendering such services. The Company also agreed to indemnify Kelso and
its affiliates against certain claims, losses, damages and liabilities and
expenses that may arise in connection with the merger. The agreement for
advisory services was amended in September 1997 to provide such services at an
annual fee of $625,000 for each of the fiscal years ending March 31, 1998 and
1999. The term of the agreement with Kelso is indefinite. Fees and expenses
paid to Kelso in connection with these agreements totaled $687,000, $1,643,000
and $1,404,000 during the years ended March 31, 1998, 1997 and 1996,
respectively.     
 
 Environmental Contingencies
 
  The Company is currently involved with investigation and/or remediation
activities at several current and formerly-owned facilities where soil and/or
groundwater contamination is present or alleged. As of March 31, 1998,
reserves totaling $2.3 million have been established to cover those future
environmental costs associated with the matters specified below, which are
known or can be reasonably estimated based on findings and recommendations
from independent environmental consultants.
 
  Alameda Street (Los Angeles). Remediation was completed in fiscal 1996 and
the Company has received final approval from the County of Los Angeles
authorities. Total costs incurred by the Company in connection with this
project were $3.4 million, of which $1.7 million has been capitalized to the
property. The Company was reimbursed $1.5 million of such costs by the lessee
in accordance with a cost sharing agreement.
 
  In February 1998 the Company was notified that it had potential
responsibility for lead and copper soil contamination of another undeveloped
parcel that is part of the Alameda Street property. A remediation plan has
been approved by local government agencies. As of March 31, 1998, the
Company's accrual for future investigation and remediation expenditures
includes the estimated costs under the remediation plan.
 
  Bristol (Pennsylvania). A remedial action plan submitted and approved by the
Pennsylvania regulatory agency was completed in fiscal 1998. As of March 31,
1998, the project's cost has totaled $4.3 million, of which $3.2 million has
been paid by the Company and $1.1 million was paid by the former owner of the
property pursuant to a cost sharing agreement. No additional costs are
expected to be incurred. The Company sold the facility in July 1996.
 
  Forge (Seattle/Kent, WA). The Company has indemnified the purchasers of its
former Forge facility for remediation of certain conditions at the facility
and at an off-site disposal site existing at the date of purchase. In
addition, the Company indemnified such purchasers for up to $2.5 million of
remediation and investigation costs associated with or related to the
environmental conditions existing at the time of sale and discovered after the
closing and for which claims were made prior to July 2, 1995. No such claims
were made. As of March 31, 1998, the remediation and investigation costs of
the Forge facility have totaled $2.6 million. The Company's accrual for future
investigation and remediation expenditures includes the estimated remaining
costs of remediation. As of March 31, 1998, remediation and investigation
costs at the disposal site have totaled $0.5 million and the Company has
reserved for future monitoring costs.
 
  Union (New Jersey). During fiscal 1994, the Company was notified by the
current owner that it has potential responsibility for the environmental
contamination of a property formerly owned by a subsidiary and disposed of by
such subsidiary prior to its acquisition by the Company. The prior owner of
such subsidiary has also been notified of its potential responsibility. On
March 27, 1997, the current owner of the property informed
 
                                     F-17
<PAGE>
 
                          EARLE M. JORGENSEN COMPANY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
the Company that it estimated the cost of investigation and cleanup of the
property at $875,000 and requested contribution to such costs from the Company
and the prior owner. The Company has contested responsibility and commented on
the cleanup plan. The Company does not have sufficient information to
determine what potential liability it has, if any. Accordingly, no reserves
have been specifically established for this matter as of March 31, 1998.
 
  Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse effect on the Company's financial condition, results
of operations or liquidity. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that many require
expenditures not currently anticipated and that may be material.
 
 Other
 
  The Company is involved in litigation in the normal course of business. In
the opinion of management, these matters will be resolved without a material
impact on the Company's financial position or results of operations.
 
                                     F-18
<PAGE>
 
                     INDEX TO FINANCIAL STATEMENT SCHEDULES
 
<TABLE>
<CAPTION>
                                                                 SEQUENTIALLY
                                      DESCRIPTION OF               NUMBERED
 SCHEDULE NUMBER                      SCHEDULES*                     PAGE
 ---------------                      --------------             ------------
 
EARLE M. JORGENSEN COMPANY:
 
 <C>                                  <S>                        <C>
                                      Valuation and Qualifying
 Schedule II......................... Accounts and Reserves          S-2
</TABLE>
--------
*  All other schedules are omitted as the required information is inapplicable
   or the information is presented in the financial statements or related
   notes.
 
 
                                      S-1
<PAGE>
 
                           EARLE M. JORGENSEN COMPANY
 
          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
<TABLE>
<CAPTION>
      COLUMN A                COLUMN B            COLUMN C             COLUMN D           COLUMN E
     ----------          ------------------- ------------------ ----------------------- -------------
                             BALANCE AT          CHARGES TO        BAD DEBTS CHARGED     BALANCE AT
     DESCRIPTION         BEGINNING OF PERIOD COSTS AND EXPENSES OFF (NET OF RECOVERIES) END OF PERIOD
     -----------         ------------------- ------------------ ----------------------- -------------
<S>                      <C>                 <C>                <C>                     <C>
Year ended March 31,
 1998
  Allowance for doubtful
   accounts.............     $  963,000          $  414,000           $  (971,000)       $  406,000
Year ended March 31,
 1997
  Allowance for doubtful
   accounts.............      1,017,000           1,817,000            (1,871,000)          963,000
Year ended March 31,
 1996
  Allowance for doubtful
   accounts.............      1,146,000           1,362,000            (1,491,000)        1,017,000
</TABLE>
 
                                      S-2